More consecutive Fed rate cuts expected

The US Federal Reserve cut its benchmark policy rate by 50 basis points (bps) on Wednesday to 4.75%-5%. That's more than the 25 bps reduction Goldman Sachs Research economists had anticipated.

“We see 50 basis points as the right move in light of the good inflation news and the risk of further labor market softening,” wrote David Mericle, chief US economist at Goldman Sachs Research.

The Fed leadership appears to have pushed through a larger cut even though many participants seemed to indicate that they preferred a smaller cut based on their submissions to the central bank's economic projections, or dot plot. 

“The rationale for the larger cut and the key theme of the meeting was the shift in focus from inflation risks to employment risks in light of the recent softening in the labour market data,” Mericle says.

The greater urgency suggested by Wednesday's cut of 50 bps, and the acceleration in the pace of cuts that most participants projected for 2025, makes a longer series of consecutive cuts the most likely path, according to Goldman Sachs Research. Its economists revised their Fed forecast to accelerate the pace of cuts next year. They now expect a longer string of consecutive 25 bps cuts from November 2024 through June 2025, when the funds rate would reach their terminal rate forecast of 3.25-3.5% (versus their previous forecast of consecutive cuts this year but quarterly cuts next year).

In a separate note to clients, Nikhil Choraria, head of European Flow Rates Trading, wrote that the larger-than-expected cut “is a clear statement of intent that the Fed does not want to be behind the curve.”  The stock market's recent correction, and financial markets' pricing in of emerging rate cuts from the Fed, suggests the markets believe policymakers may have indeed been falling behind, he wrote.

The Fed's dot plot of economic projections indicates that most officials expect 100 bps of total cuts this year, and the median dot implies another 100 bps of rate cuts in 2025. Choraria pointed out that the Fed's dot plot is conditional and has been made at a time of high uncertainty, given the US election in November, intensified geopolitical tensions, and evolving trade tariffs that are likely to affect the economy.

It would be a mistake to think the market should price in exactly what the Fed's dot plot shows, Choraria wrote, “because the bar to stopping rate cuts is very high but the bar to cutting 50 is very low.” He added: “It's data dependent — there's no preset path — a position we are likely to hear repeatedly over the coming weeks. But any sign of an undershoot of inflation or labor market wobbles could quickly lead to a faster cutting cycle.”

 

Finance leaders playing catchup in digital transformation of B2B commerce 

B2B commerce is digitising at a high speed, with merchants promising the slick e-commerce experiences that millennial buyers have come to expect. But finance teams are being left to struggle with legacy tech and outdated processes, so they can’t innovate or keep pace with digital practices, according to research from payments firm Hokodo. Indeed, the research found that 66% cannot consistently keep pace with the speed of e-commerce.

When asked if they felt able to balance financial controls with business growth, just over half (54%) of finance leaders agreed that they can indeed achieve this balance – but that also means that 46% might be leaning too heavily one way at the expense of the other.

The primary challenges faced by finance leaders in B2B commerce revolve around cash flow unpredictability (66%), cutting costs (48%) and managing payment terms (44%). This paints a picture of a delicate balance between cash flow protection and offering competitive payment terms to customers (which, by their very nature, can put cash flow at risk).

The research categorises finance leaders into two groups. Group one, representing a third of respondents, are those working at businesses that do not currently offer payment terms to buyers. The finance leaders of these businesses agree that the risk of non-payment (50%), cash flow issues (43%) and fraud mitigation (29%) are the main reasons why trade credit is not an option for customers.

Group 2 comprises the other two-thirds of businesses which do offer payment terms to customers. Of these, 67% offer payment terms online, 22% in bricks and mortar stores and 15% via telesales. Finance leaders in this group say that some of the biggest challenges of offering credit revolve around cash flow issues, organising collections and non-payment risk.

B2B commerce businesses that already offer payment terms are not necessarily at an advantage over those that don’t. It can be just as challenging – if not more so – to try to shoehorn traditional and offline trade credit management processes into digital sales channels.

According to the research, 93% of B2B buyers prefer e-commerce over other sales channels, and 83% will abandon a purchase if payment terms are not available at the point of need.3 For many finance teams, the shift to e-commerce is creating more problems for finance teams constrained by legacy technology and slow, manual processes.

In recent years, digital trade credit solutions have emerged as a safer, simpler and more sustainable way for merchants to offer payment terms. Some 42% of the finance leaders surveyed said that the primary benefit of partnering with a digital trade credit provider would be to ease cash flow restrictions. Others saw the most value in a partner helping to streamline financial operations and outsource time-consuming tasks like assigning credit limits (46%) and accounts receivable and collections (44%).

 

Australia favours wholesale CBDC over retail version

The Reserve Bank of Australia (RBA) and Treasury has released a report summarising research to date on central bank digital currency (CBDC) and how this has informed the RBA and Treasury’s current assessment of CBDC issues in Australia. The report also sets out a three-year roadmap for future work on digital money in Australia.

The report concludes that a clear public interest case to issue a retail CBDC has yet to emerge in Australia. This assessment is partly informed by the observation that Australians are generally well served by the capabilities and resilience of the current retail payments system. In jurisdictions that have issued a retail CBDC or indicated that it is quite possible in coming years, the main motivations have less resonance in Australia. 

Nonetheless, the RBA and Treasury remain open to the possibility that this assessment could change over time as potential benefits and costs are better understood, both internationally and in a domestic context.

The report also highlights the role that a wholesale CBDC, alongside other forms of digital money and infrastructure upgrades, could play in enhancing the functioning of wholesale markets in Australia.

“The RBA is making a strategic commitment to prioritise its work agenda on wholesale digital money and infrastructure – including wholesale CBDC,” commented Brad Jones, Assistant Governor (Financial System) at the RBA. “At the present time, we assess the potential benefits as more promising, and the challenges less problematic, for wholesale CBDC compared to a retail CBDC. Next month, we will launch the public phase of Project Acacia, which will explore opportunities to uplift the efficiency, transparency and resilience of wholesale markets through tokenisation and new settlement infrastructure. This initiative will form part of a larger effort to step up our engagement with industry and other stakeholders on the question of how our monetary arrangements could better support the Australian economy in the digital age.”

 

Commerzbank and Crypto Finance promote digital assets in corporate banking

Commerzbank and Crypto Finance, a subsidiary of Deutsche Börse, are now offering the bank’s corporate clients in Germany access to crypto assets. The joint service will initially focus on bitcoin and ether, targeting selected existing Commerzbank corporate clients in Germany.

Under this strategic partnership, Commerzbank will manage the custody of digital assets, while Crypto Finance will ensure their secure trading. This collaboration is designed to provide Commerzbank’s corporate clients with seamless and secure and access to crypto assets, without the need to forgo established and regulated structures and partners.

In November 2023, Commerzbank obtained a crypto custody licence under §1 Abs. 1a Satz 1 Nr. 6 of the German Banking Act (KWG). This licence enables the bank to offer a range of services in the field of digital assets, particularly crypto assets. The bank can now provide a regulatory-compliant and reliable platform for crypto custody based on blockchain technology. 

“Our offering in digital assets enables our corporate clients to seize the opportunities presented by bitcoin and ether for the first time,” explained Gernot Kleckner, Divisional Board Member Capital Markets in the Corporate Clients segment at Commerzbank.

 

dtcpay and Visa look to advance digital payments in Singapore

Digital payments solutions provider dtcpay has partnered with Visa in a move designed to drive digital payments transformation in Singapore. This partnership aims to integrate dtcpay's digital payments capabilities with Visa's global payments network to enable access to 130 million merchants across more than 200 countries and territories worldwide.

The first phase of the partnership will see the launch of the dtcpay Visa Infinite card. Users will be able to convert their digital currencies such as stablecoins, into fiat currencies at competitive real-time rates. The fiat currencies will then be used to fund their dtcpay Visa Infinite card, and will be available for public registration in Q4 2024. Subsequent phases of the partnership will include the development of additional global payments solutions catered to ultra-high-net-worth (UHNW) individuals, businesses, and consumers. 

The partnership seeks to bridge the gap between traditional payments and digital currencies, enabling merchants to accept payments from this growing segment of UHNW customers. Leveraging its blockchain and multi-currency swap capabilities, dtcpay customers can convert their digital currencies instantly into fiat, then use their dtcpay Visa Infinite card to transact at merchants, allowing businesses who would not have been able to accept digital currencies previously to access this group of consumers. 

Through Visa's global reach, the partnership also aims to broaden the use case of digital currencies in everyday payment settings, expanding payment options for customers globally. 

 

HSBC pilots quantum-safe technology for tokenised gold

HSBC has successfully trialled the first application of quantum-secure technology for buying and selling tokenised physical gold. This marks the latest step by the bank in pioneering the protection of critical applications from potential future quantum computing attacks.

HSBC also tested the interoperability of its gold tokens using post-quantum cryptography (PQC) to move digital assets safely across distributed ledgers via secure networks, addressing clients’ evolving needs and regulations. This included the capability to convert HSBC’s gold tokens into ERC-20 fungible tokens, thereby enhancing distribution and interoperability with other DLTs and digital wallets.

As part of the quantum pilot, Quantinuum, the world’s largest integrated quantum computing company, used PQC algorithms and its Quantum Origin quantum randomness technology to demonstrate holistic protection of digital assets such as HSBC gold tokens from a quantum computing attack, and prevent “store now, decrypt-later” (SNDL) cyber incidents. SNDL is a cyber-technique that has the aim of stealing sensitive data now and then storing it to decipher that data later, using powerful quantum computers in the future.

 

Brex launches embedded APIs

Corporate card and spend management platform Brex has announced an API-driven payments solution designed to make it easier for B2B software vendors to accelerate customer workflows with Brex virtual cards. 

Brex Embedded leverages proprietary APIs and issuing integrations - including Mastercard's virtual card platform - to enable software vendors to seamlessly integrate Brex's global corporate card and payments capabilities directly into their platform, without the overhead of underwriting, onboarding, and credit risk. The company says that, for Brex Embedded partners, their customers can make fast, secure global payments in virtually any currency, all while automating their existing financial workflows and payment reconciliation.

"In recent years, large enterprises have transformed the way they do business to meet the fast-paced nature of today's digital world," said Sherri Haymond, Co-President of Global Partnerships at Mastercard. "At the forefront of that change is the digitisation of B2B experiences and the need for innovative, global offerings to meet those expectations.”