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Pandemic boosted digital payments, says World Bank – Industry roundup: 30 June

Covid-19 drove global surge in digital payments

The Covid-19 pandemic has spurred financial inclusion by driving a sharp increase in digital payments amid the global expansion of formal financial services, reports the World Bank Group.

Its just-published Global Findex 2021 database notes that the expansion created new economic opportunities, narrowing the gender gap in account ownership, and building resilience at the household level to better manage financial shocks.

As of 2021, 76% of adults globally had an account at a bank, other financial institution, or with a mobile money provider, from 68% in 2017 and 51% in 2011 and growth in account ownership was evenly distributed across many more countries. While previous Findex surveys found that much of the growth was concentrated in India and China, this year’s survey found that the percentage of account ownership increased by double digits in 34 countries since 2017.

The pandemic has also led to an increased use of digital payments. Since early 2020 In low and middle-income economies (excluding China), over 40% of adults who made merchant in-store or online payments using a card, phone, or the internet did so for the first time. The same was true for more than a third of adults in all low- and middle-income economies who paid a utility bill directly from a formal account. After the start of the pandemic, more than 80 million adults in India and over 100 million in China made their first digital merchant payment.

Two-thirds of adults worldwide now make or receive a digital payment, with the share in developing economies up from 35% in 2014 to 57% in 2021. In developing economies, 71% have an account at a bank, other financial institution, or with a mobile money provider, up from 63% in 2017 and 42% in 2011. Mobile money accounts drove a huge increase in financial inclusion in Sub-Saharan Africa.

“The digital revolution has catalysed increases in the access and use of financial services across the world, transforming ways in which people make and receive payments, borrow, and save,” said World Bank Group President David Malpass. “Creating an enabling policy environment, promoting the digitalization of payments, and further broadening access to formal accounts and financial services among women and the poor are some of the policy priorities to mitigate the reversals in development from the ongoing overlapping crises.”

For the first time since the Global Findex database launched in 2011, the survey found that the gender gap in account ownership had narrowed, helping women have more privacy, security, and control over their money. The gap narrowed from 7 to 4 percentage points globally and from 9 to 6 percentage points in low- and middle-income countries, since the last survey round in 2017.

About 36% of adults in developing economies now receive a wage or government payment, a payment for the sale of agricultural products, or a domestic remittance payment into an account. The World Bank notes that data suggests receiving a payment into an account instead of cash can kickstart people’s use of the formal financial system – when people receive digital payments, 83% used their accounts to also make digital payments. Almost two-thirds used their account for cash management, while about 40% used it to save – further growing the financial ecosystem.

Despite the advances, many adults around the world still lack a reliable source of emergency money. Only about half of adults in low- and middle-income economies said they could access extra money during an emergency with little or no difficulty, and they commonly turn to unreliable sources of finance, including family and friends.

In Sub-Saharan Africa, for example, the lack of an identity document remains an important barrier holding back mobile money account ownership for 30% of adults with no account suggesting an opportunity for investing in accessible and trusted identification systems. Over 80 million adults with no account still receive government payments in cash – digitalizing some of these payments could be cheaper and reduce corruption.  Increasing account ownership and usage will require trust in financial service providers, confidence to use financial products, tailored product design, and a strong and enforced consumer protection framework. 

The Global Findex database, which surveyed how people in 123 economies use financial services throughout 2021, is produced by the World Bank every three years in collaboration with Gallup, Inc. 

China asks banks to prepare for longer renminbi trading hours

China plans to extend the renminbi’s (RMB) trading hours as it seeks to increase global investor participation in onshore currency trading as part of its internationalisation push, suggest reports.

Regulators led by the People’s Bank of China (PBOC) have told some banks to prepare for an extension of onshore RMB trading hours, according to people familiar with the matter who requested anonymity. They said that trading will close at 3 a.m. the next day, instead of the 11:30 p.m. local time, although no date for the change was identified.

The trading extension could result in 18 hours of yuan trading per day, against. 14 hours currently. China last tweaked RMB trading hours in 2016 when it extended trading by seven hours.

The PBOC has pledged to extend currency trading hours and last month said that it would further open up the financial market after the International Monetary Fund lifted the RMB’s weighting in the Special Drawing Rights currency basket. The further extension of yuan trading into New York hours could boost China’s foreign exchange trading volume, which dwindled in May due to coronavirus lockdowns in Beijing and Shanghai.

The onshore RMB has depreciated nearly 5% versus the US dollar this year as China’s economy suffers due to Covid-19 curbs and as the PBOC’s accommodative stance at a time when the Federal Reserve is hiking rates and driving utflows.

An increase in the onshore RMB trading volume outside regular Asian hours may provide more guidance on offshore RMB trades and narrow the onshore-offshore spread, Hong Kong & Shanghai Banking Corp. said in a note earlier this month.

Diageo and Michelin join business exodus from Russia

Drinks group Diageo and tyre manufacturer Michelin this week joined the Western companies that have decided to permanently withdraw from Russia in response to the invasion of Ukraine.

Diageo, whose brands include Guinness, Johnnie Walker whisky and Smirnoff vodka, announced that it will wind down its Russia operations in the second half of 2022, despite recently reporting a strong increase in sales in eastern Europe. The group had already stopped shipping to and selling goods in Russia in March but will retain a business licence there that requires a number of employees to remain.

A spokesperson for the group said: “Our focus will remain on supporting our employees in the region and providing them with enhanced redundancy terms, while ensuring we comply with local regulations.

Michelin plans to transfer its Russian operations to local management by the end of the year. The French group employs around 1,000 people in Russia, most at the Davydovo plant near Moscow, where it has an annual production capacity of up to two million tyres.

Manufacturing was suspended on 15 March, three weeks after the invasion. “Michelin now confirms that it is technically impossible to resume production, due in particular to supply issues,” the company said, adding that it values its Russia operations at around €250 million (US$265 million). The new entity would operate through an independent structure from Michelin, the company added.

Foreign companies seeking to exit Russia over the war in Ukraine face the prospect of a law being passed in the coming weeks to allow Moscow to seize assets and impose criminal penalties. That has encouraged some businesses to accelerate their departure, with Nike and Cisco last week also announcing their planned departure. The Russian parliament passed legislation last month allowing the government to seize the assets of Western companies leaving Russia.

However, UK watchdog organisation Moral Rating Agency (MRA) claims that many large organisations that pledged to leave Russia in protest at the invasion of Ukraine are still active in the country. They include Apple, Disney, Goldman Sachs and Citigroup.

The organisation said that it had evaluated the world’s top 200 companies since the invasion began four months ago. Of the 114 active in Russia, it claims that only seven companies (6%) have exited fully while 44 (39%)—many of them based in China—made no announcement on their response.

The remaining 63 (55%) fell somewhere in between, withdrawing in part—but not completely—making them the target of MRA’s report. “Many of them claim they have cut ties with Russia but in fact continue with some activities or fail to follow through with promises,” the group says, a practice it refers to as “moralwashing.”

“The companies don’t just fail to exit properly. They often also exaggerate or spin up their paltry efforts. Russia is such a hot potato that companies are ‘moralwashing’ to hide their inaction or incomplete action. And, when they do admit to keeping an activity going, they are masterful at coming up with excuses. I wish they would spend as much energy leaving Russia completely as they spend pretending that they already have,” said MRA founder Mark Dixon, who previously founded Breaking Views.

Celent finds obstacles on road to ISO 20022 migration

A payments survey of more than 50 European banks by financial services advisory and research group Celent found that 47% say they strongly agree that technology constraints within the bank limit their ability to do more with their migration to ISO 20022.

Celent interviewed 51 banks from 11 countries, with the majority based in the six largest payments markets of France, Germany, Italy, Netherlands, Spain and the UK. The survey also focused on the impact of Covid-19 on banks’ IT budgets, with 71% reporting that spending was put on hold at some point during the pandemic. Of these, 37% said that when spending resumed, priorities had changed, while 16% said that budgets remained on hold.

The firm comments that this creates concerns, as banks were already struggling pre-pandemic to meet the ISO 20022 deadlines, and this created a backlog of work with less time to deliver. Other pressures on banks’ plans include the global decline in cash management revenues in 2020.

A further 42% of respondents agreed that budget or resource constraints limit their ability to do more with their ISO 20022 migration.

Discussing the drivers for payments infrastructure investments in 2020 and 2021, 72% of respondents said spending methods were directly influenced by the pandemic, such as a shift to electronic payments and away from cash and cheques.

More than half cited regulatory changes and cost reduction as a key focus (60% and 55% respectively), with only 36% saying customer expectations and requirements impacted their payments infrastructure investments.

Looking ahead to the next five years, most banks said they expect to look for a partner to either deliver a managed payments service, or to fully manage payments on their behalf.

Celent adds that based on the survey results, it anticipates that the majority of banks will do just enough and be largely on time to meet the IS) 20022 deadline. But with the industry at a critical point in the migration, banks should conduct a detailed, honest review of the stage they are at so regulators and partners can understand their risks.

This includes a broad review of what banks have done so far to be compliant, considering whether solutions are future-proofed, or simply implementing a point solution that moves the problem into the future.

China’s Tencent joins Microsoft and Meta in the metaverse

Tencent, China’s multinational technology and entertainment conglomerate, has announced the creation of its own metaverse-driven division, encompassing all metaverse-driven efforts, including hardware and software developments.

The company reportedly aims to employ over 300 in the new unit, which will encompass the development of software and hardware products for the metaverse. This means that Tencent may be competing with US tech giants such as Meta and Microsoft with efforts to create tools and infrastructure for the metaverse like augmented reality (AR) and XI hardware.

“This move from Tencent towards the metaverse is significant as they are one of the highest grossing multimedia companies in the world based on revenue, as they turned over US$86 billion in 2021,” commented Marcus Sotiriou, analyst at the UK-based digital asset broker GlobalBlock. “In addition, this move coincides with Tencent executing cost-cutting measures and slowing down hiring efforts due to the macroeconomic environment - the founder of Tencent is allegedly passionate about integrating the metaverse into their company.

He added that Meta – which last October rebranded from Facebook – is stepping up its game with their metaverse venture, having announced the launch of a new digital wallet that will support the economy of users in the upcoming iteration of Meta’s metaverse. This move aims to solve the problem of transaction and value interactions in the metaverse. The wallet, called Meta Pay, will still support payments as the incumbent Facebook Pay handles today, but there will be a focus on digital identity and proof of ownership.”

Meta’s Mark Zuckerberg has forecast: “In the future, there will be all sorts of digital items you might want to create or buy — digital clothing, art, videos, music, experiences, virtual events, and more. Proof of ownership will be important, especially if you want to take some of these items with you across different services.”

Sotiriou commented: “I think this is a clear recognition of how the fourth industrial revolution, being referred to as the marriage of physical assets and advanced digital technologies by Deloitte, will impact everyone in some way, as the digital world economy becomes adopted on a mass scale.”

CBDCs not a “silver bullet”, warns Riksbank official

Central bank digital currencies (CBDC) won’t be a “silver bullet” that solves all issues with cross-border payments, according to Cecilia Skingsley, first deputy governor of Sveriges Riksbank, Sweden’s central bank.

For instance, countries won’t necessarily “play nicely” with each other, making interoperability – or the way CBDCs interact with other payment systems – complex and layered, Skingsley said during a session at the European Central Bank’s (ECB) annual forum on central banking held in Sintra, Portugal, on 28 June.

“We have to think about different levels of interoperability,” Skingsley said, adding, “It's going to be jolly hard for everybody who wants to be part of that to agree on governance and supervision and the like.”

Skingsley recently became head of the innovation arm at the Bank for International Settlements (BIS) and said that BIS is set to release a report on CBDC interoperability in two weeks. The BIS Innovation Hub is conducting several CBDC experiments with central banks around the world, after the Bank told central banks last September that they should start working on CBDCs because central bank money must evolve to fit into a digital future.

Panellists at the ECB forum noted that there are high expectations for CBDCs, from potentially streamlining cross-border payments to improving financial inclusion, and they will introduce competition to a digital payments world increasingly dominated by private banks. But serious experimentation into CBDCs has only just begun and there are a host of implications and design elements to consider.

One potential obstacle to interoperability between different nations’ CBDCs is the level of access governments will be willing to provide to their CBDC, including how much individuals would be allowed to hold or even whether tourists should be able to use them to make payments, suggested Skingsley.

It would be a more efficient and open system if, for example, foreign payment service providers had access to CBDCs around the world, she said, although some countries could find that to be “too risky.”

“I think there will also be different choices and different levels of [barriers] that countries would like to choose,” Skingsley said. “So there won't be one access model [that would] work for everybody.”

Skingsley’s home country, Sweden, is looking into creating a CBDC, aka the e-krona, in a bid to safeguard the central bank’s authority over private banks as the country’s progress towards a cashless society continues. Sweden has one of the world’s lowest rates of cash usage, with 10% of the population paying with cash in 2020, against 40% in 2010.

In April, Riksbank began listing possible suppliers and technical options that can form the basis for an e-krona. Around the same time, the Bank found that state-backed digital money into conventional banking systems were a success and it would continue examining the benefits the new technology could bring.

At the ECB forum, Skingsley said the Bank has estimated that demand for e-krona could be worth around 10% of the country’s gross domestic product (GDP). For comparison, in 2019, cash in circulation in Sweden was at 1% of GDP. “Providing as open infrastructures as possible could possibly help promote competition in the payment markets, not only domestically, but also across borders and put a bit of pressure on private solutions,” she suggested.

EY forms supply chain management alliance with Logility

The EY organization, aka Ernst & Young, has announced an alliance with supply chain and retail planning solutions supplier Logility to help businesses improve their business outcomes through insights-driven supply chain management.

In a release, EY said that the rapidly changing business landscape has highlighted a profound impact on supply chains, with businesses facing a range of challenges in their businesses that are attributed to legacy supply chain systems. These vary from lack of visibility across the various points in the value chain, operational inefficiencies and delays, to hiccups in marketing, sales and distribution.

“To help address these issues, the EY-Logility Alliance combines Logility's supply chain planning solutions with the extensive experience of EY US in process management, program governance, change management and delivery framework,” stated the release. “Through this alliance, organizations will have the ability to enhance their supply chain management, leading to better business outcomes such as increased visibility of their supply chains, better demand forecasting, cost and process optimisation, sales management, quicker response to market dynamics and improved strategic decision-making.”

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