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Inflation at 8.6%, more Fed rate hikes anticipated – Industry roundup: 13 June

Bitcoin drops to an 18-month low, investors move away from riskier assets

Bitcoin fell to its lowest level in 18 months as the cryptocurrency market took another dive due to last Friday’s US inflation data. Investors are said to be fleeing risky assets such as equities. According to CoinMarketCap, Bitcoin fell to its lowest level since December 2020 over the weekend, trading below US $25,000 at one point this morning. The token is currently trading at about 63% of its all-time high of $69,000 set in November 2021. It was last trading at $24,066, down 12.45 percent compared to the previous 24 hours.

Other tokens, such as Ether, Cardano, Solana and Dogecoin, have also decreased. Reports indicate that Ether, the second-largest cryptocurrency, fell 15.8 percent to $1,234.93, marking its biggest one-day drop in a year, while Cardano, Solana and Dogecoin fell 13%, 16% and 14% respectively.

Inflation at 8.6%, more Fed rate hikes anticipated

According to reports, US consumer inflation rose 8.6 percent through May 2022, the highest rate since December 1981. Due to the rising cost of energy and food, the reading exceeded economist expectations of 8.3 percent. In the US, high inflation rates have reportedly prompted the Federal Reserve to step up its efforts to control price pressures through more aggressive monetary policy.

The Fed's policy-making committee is expected to announce a half-point rate hike, bringing the benchmark rate to 1.5 percent. The central bank raised rates by half a point in May 2022, and markets indicate that investors anticipate a series of increases this year.

HSBC potential Asia spin-off could realize US $26.5 billion

According to research, a breakup of HSBC Holdings' Asian unit could unlock US $26.5 billion, or a fifth of the bank's current market value, substantiating its largest shareholder's push to overhaul the bank. Toto Consultancy said that HSBC could spin off the Asian business or just its Hong Kong retail operations into partial initial public offerings, which would benefit shareholders. The analysis was commissioned by an independent third party, according to a disclaimer in the report. Asheefa Sarangi, managing director and founder, Toto Consultancy, commented that while spin-offs are costly and complex operations, they can unleash value and accelerate growth for both the spun-off subsidiary and the surviving firm, benefiting the company's stakeholders in the long run.

Bloomberg reported in late April that Ping An Insurance Group, HSBC’s biggest shareholder, had discussions with the lender about separating its Asia arm in order to increase shareholder value. The campaign is said to have prompted an internal review, with executives seeking advice from Goldman Sachs Group on how to respond to Ping An's case.

Reports indicate that executives at the London-based bank are opposed to disbanding HSBC. They have begun the analysis to counter Ping An's argument that the bank's investors would benefit more from the ability to invest in a “pure-play” Asian business headquartered in Hong Kong.

According to reports, calls for the dissolution of Europe's largest bank are gaining traction in Hong Kong's retail base, which owns about a third of the bank. In addition, reports say this could help avoid disrupting the stable payment flow. Despite this, none of HSBC's major shareholders has openly endorsed Ping An's plan according to reports.

According to Barclays Bank, a split could reduce the bank's market value by 3-8% and cost billions of dollars to execute. JPMorgan Chase & Co commented that material changes will necessitate "expensive restructuring, unwinding of corporate center costs, a loss of revenue/market share, increased regulatory scrutiny, and potential capital and funding dissynergies."

JP Morgan, the driving force behind a US $100 million investment in Codat

JP Morgan Growth Equity Partners led a US $100 million Series C funding round for Codat, a software start-up. Codat reportedly offers an API that allows small businesses to integrate various pieces of software, such as accounting and HR tools.

The new funds will be used to expand the startup's critical infrastructure and to assist small businesses in sharing data. Participants in the round included Canapi Ventures and Shopify, in addition to open banking fintech Plaid, which was publicly identified as an investor. Reports indicate that existing investors Index Ventures and PayPal Ventures also participated in the round, valuing the company at around $825 million.

Codat, with a staff of 250 across offices in London, New York City and Sydney, claims to have over 200 clients, including large banks and fintech companies such as Brex, Jeeves, Pipe and Clover.

According to Pete Lord, CEO, Codat, the vast majority of small business systems do not communicate with one another, causing hours of tedious administrative and development impediments despite drastic advances in technology. Lord further stated that “No one will be speaking about SMB financial software integrations in 5-10 years - automated data flows over the Codat platform will be a presumed standard. The only time you'll notice integrations is when they are not there.” Furthermore, Lord stated that the impressive capabilities and strong industry expertise from JP Morgan and advisors will place them in the best position to take advantage of the tremendous opportunities ahead.

Fiserv's Carat platform brings digital checks to businesses

Despite businesses rapidly migrating towards digitalized payments, checks continue to be a significant part of the B2B payment landscape. Fiserv Inc., a financial technology provider, recently announced a partnership with Checkbook Inc., a push-payments processor. This collaboration will reportedly give Checkbook’s “Carat” operating system the ability to support digital checks for payouts.

The agreement is expected to assist Carat customers in reducing their reliance on paper checks, which account for 42 percent of all B2B transactions, according to Fiserv. Additionally, businesses will be able to send a digital check to a payee via email, which can then be printed and physically or digitally deposited into a bank account. Businesses will also be able to initiate a payout through Carat via an ACH deposit to a recipient's bank account or through crediting their credit card, debit card, prepaid card or digital wallet.

Robert Clayton, VP of Digital Payouts, Fiserv, commented that their “collaboration with Checkbook to digitize check payouts will allow our clients to create better payout experiences for their check-preferred customers and capitalize on the speed and efficiency of digital payments.” Checkbook CEO and founder PJ Gupta believes that, in addition to reducing businesses' reliance on paper checks, having the option to create a digital check will provide a more secure form of payment.

Revolut launches a “fee-free” capability for USD payments

With the introduction of “fee-free” USD transfers for its UK customers, Revolut Business is rapidly migrating towards borderless accounts, according to reports. Businesses in the UK can now accept USD transfers from US-based customers, payment apps and online marketplaces without incurring fees.

The new feature is supported by ACH, which allows for the receipt of up to $1 million in USD payments. Reportedly, Revolut users will also be able to continue using IBAN details to receive payments via SWIFT. However, enabling clients to receive payments from abroad without requiring the sender to use SWIFT saves both time and money for the sender, commented James Gibson, Director, Revolut Business.

Carbon Bank launches new Buy Now Pay Later (BNPL) app

Carbon, a Nigeria-based, credit-led, Pan-African digital bank, launched Carbon Zero, a buy now pay later web app that helps customers spread the cost of purchases into interest-free instalments in-store or online. Carbon Zero has reportedly received US $5.4 million in requests from 41,000 customers who have applied for a spending limit since its inception in late 2021.

According to reports, Carbon's decision functionality can automatically evaluate affordability and make accurate credit decisions using an exclusive technology system that Carbon has been developing and improving over a decade as a credit provider. Millions of people can reportedly make interest-free purchases by sharing their bank verification number (BVN) and bank account number.

Carbon Zero allows customers to spend up to ₦2.5m (US $5,919.17) with Carbon Zero based on affordability. This is significantly higher than the spend limits offered by competitors, which typically range between ₦150,000 ($355.15) and ₦500,000 ($1,183.83). Reports indicate that Carbon Zero charges no interest on all purchases that are repaid in full and on time in three installments, giving Carbon Zero an advantage over competing BNPL providers that charge interest in the short term.

Yen at 150 may risk a repeat of the Asian financial crisis, economists say

According to Jim O'Neill, former Goldman Sachs chief economist and current Senior Advisor at the Chatham House, the recent slump in Japan’s yen might cause chaos on the scale of the 1997 Asian Financial Crisis if it falls as low as 150 per dollar. Bloomberg reported that a drop of that magnitude may persuade China to intervene in the currency market to protect its own economy.

The yen has already fallen about 14% this year, reaching 134.56 last week, the lowest level since April 2002. The weakening of the yen has been fueled by a schism between the Bank of Japan (BOJ) and the other major central banks. “If the Bank of Japan maintains yield curve control, and US bond yields continue to rise, Beijing could be faced with significant challenges," O'Neill commented.

According to Bloomberg data, the onshore yuan fell nearly 1% in May after falling more than 4% in April, the largest monthly drop on record. The yen retraced some of its losses against the dollar last Thursday, rising 0.3 percent, but many expect further losses if the BOJ maintains its dovish policy settings.

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