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Interest rate guidance to combat inflation – Industry roundup: 11 May

Visa to boost BNPL through extended network partnerships via Visa Ready platform

Visa has introduced a rapid access lane to help streamline BNPL adoption for its credit card issuers. Reports indicate that they have added BNPL to their “Visa Ready” program, which acts as a mediator between fintechs and card issuers. Additionally, Visa confirmed turnkey access to approximately 20 companies to help issuers launch BNPL programs through its application programming interface (API).

According to reports, Visa’s purpose with the card network is to encourage more banks to enter the field of BNPL and offer interest-free loans on a per-purchase basis. Fintech companies such as Affirm, Klarna, Afterpay and PayPal are the mainstream in this financial landscape. Visa stated that some of the BNPL companies in the partner directory include ACI Worldwide, ChargeAfter, FIS, Marqeta, and Cross River Bank. Arvind Ronta, Head of Global Installments, Visa, commented that these levels of partnerships will enable them to extend installment loans for issuers of all tiers around the world.

Through Visa’s current installment program, issuers reportedly can enable their customers to qualify for installment loans at point of sale (POS) using their existing credit card accounts through integration with merchants. Consumers may repay their loans through a credit card, debit card, or bank account. The typical installment integration process begins with the consumer’s bank's mobile app, where the issuer informs the customer that the BNPL loan is available through their existing credit line. At the customer’s request, the issuer will generate a virtual card in real time using Visa Installments, where this virtual account can be presented to participating merchants to receive full payment.

Visa installments is available in a variety of levels, including e-commerce, mobile, in-store, and cross-border, compared to certain online-only BNPL services. Ronta commented that although Visa is in the early stages of BNPL, the flexibility needed for merchants and issuers to extend offers across borders and channels is becoming increasingly vital.

First CBDC proof of concept to reinvent the Haitian market leveraging DLT, API and fintech services via EMTECH and HaitiPay

EMTECH, a U.S.-based Central Bank Digital Currency (CBDC) infrastructure provider, has partnered with Haitian fintech company HaitiPay to introduce the first CBDC plus fintech proof of concept and test its impact on the Haitian economy. After months of collaboration, the first functional test of the CBDC in Haiti was reportedly unveiled to be distributed and used by the banked and unbanked population.

Pascale Elie, Co-founder and Chairwoman, HaitiPay, commented that the alliance with EMTECH can illustrate how CBDC and fintechs can accelerate the digitization of a cash-based economy. According to a Finscope survey, 56% of Haiti’s population do not have access to formal financial services, while 67% of the population have access to a phone.

Georges Andy René, CEO, HaitiPay, added that they are competing with cash, so they have engineered their wallet to be universal and telecom agnostic. HaitiPay’s API-enabled wallet solution platform plans to offer customers from street merchants to rural farmers access to digital financial services in a secure way. The alliance reportedly worked to demonstrate how the CBDC, built on Hedera Hashgraph, a publicly distributed ledger with API-powered infrastructure, can accelerate financial inclusion, reducing the cost of payments. Furthermore, the Central Bank of The Republic of Haiti is said to be ready to advance its efforts to dive into a new era of digital finance by adopting fintech innovation and CBDC.

Carmelle Cadet, Founder and CEO, EMTECH, stated that the collaboration with HaitiPay can demonstrate how a digital cash infrastructure enables central banks to integrate easily with regulated fintechs in powering the digital and inclusive economy. This implementation is expected to become accessible as a turnkey solution for fintechs, banks and other stakeholders to pilot in the latter part of 2022 via their open platform of app.emtech.com.

Chile's digital peso needs to operate online and offline to become official

The Central Bank of Chile stated that their central bank digital currency (CBDC) would need to accept offline payments. Rosanna Costa, Governor, Central Bank of Chile, commented that no final decision has been made on whether to issue a digital form of the Chilean peso. However, a formal policy outlining CBDC will be provided later this week.

According to a recent survey by Bank of International Settlements (BIS), nine out of ten central banks are considering issuing their own virtual assets, partly due to competition with bitcoin, but are struggling with design issues to ensure access and privacy. Costa further commented that current technology is not efficient enough to enable CBDCs to operate both online and offline. Furthermore, the system should give regulators the ability to track transactions later, while still protecting personal data, Costa said.

The Chilean CBDC would reportedly need to co-exist with cash and commercial banks and be convertible and secure, she added. A pilot project could be implemented after further consultations with the public and private sectors to be held during the latter part of 2022.

International standard-setters have been very supportive of efforts to issue CBDCs, but they fear that central banks may lose control in areas such as foreign payments. According to Tobias Adrian, Director of the Monetary and Capital Markets Department, IMF, most countries have some form of capital regulation regarding moving funds across borders, and there are some cases where crypto assets are used for this. The IMF stated recently that countries should expand their laws to ensure that measures such as restrictions on foreign payments include crypto assets.

Western Union to release an omnichannel global digital banking app WU+ across Germany

Western Union, a global cross-border and cross-currency money movements and payments provider, launched WU+, a new integrated app for digital banking and international money transfers in Germany, operated by the Vienna-based Western Union International Bank. WU+ is said to enable customers in Germany who work across borders or have moved from abroad the ability to handle their finances in one app. The report indicated that users should be able to

  • establish and hold funds in a digital multi-currency bank account,
  • benefit from an attractive introductory rate of up to 3% on savings deposits and an introductory offer of three fee-free international money transfers across Western Union's global network,
  • send and receive money internationally – between WU+ account holders immediately at no cost,
  • utilize a debit card issued in collaboration with Visa for payments.

Elke Lück, Regional Vice President of Western Union in Germany, commented that Germany is one of the first two markets in the world to launch WU+, changing the way customers connect with the world while meeting their financial needs through an omni-channel customer experience. Western Union stated that they have plans to make their new digital banking platform available in more European countries later in 2022.

Bank of Canada looks to interest rate guidance to combat inflation

As inflation soars, the Central Bank of Canada has reportedly taken a rare step by providing guidance on interest rates as it focuses on controlling the economy by mitigating the stimulus and keeping expectations in check. However, economists said the strategy is a version of the "forward guidance" used during the pandemic and may not work as expected, and that the central bank should instead bring interest rates into the neutral state and then pause.

According to reports, Canada's inflation hit a 31-year high in March 2022, testing the credibility of central bankers who are obliged to keep price increases at a median of 2%, ranging from 1%-3%. However, it was noted that the substantial risk lies where price increases will cause Canadians to lose confidence as inflation continues to rise indefinitely.

The Bank of Canada stated that their current actions do not count as "forward guidance," a monetary policy tool used only during times of crisis. However, the bank acknowledged that the current policy represents a departure from the usual practice of avoiding statements about future prospects for interest rates.

The Bank of Canada raised its policy rate twice during the current tightening cycle. However, at 1%, that rate is less than half of the neutral rate, a level at which economic activity is neither stimulating nor constrained, and is therefore still very stimulating for an already booming economy according to the bank’s remarks.

Economists commented that the Bank of Canada has openly stated that higher interest rates will come as a temporary measure to cool demand until it can move to a neutral range that will take at least four more months at its current pace. Richard Macklem, Governor, Bank of Canada, stated that the upcoming June 1 interest rate decision is fully accounted for, with another increase of 50 basis points, and the money markets are expecting about 3% on interest rates by the end of this year.

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