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Santander and Iberpay launch first OCT Inst payments - Industry roundup: 20 May

Santander and Iberpay launch first OCT Inst payments

Banco Santander and Iberpay have announced that their respective payment technology platforms have processed the first international instant transfers based on the European Payment Council’s (EPC’s) One-Leg-Out (OCT Inst) scheme, initiated and completed in different currency areas.

The OCT Inst scheme allows payment service providers (PSPs) in the single euro payments area (SEPA) to process instant international transfers from and to countries outside the euro area, in just a few seconds. The service is always available regardless of day or time, avoiding differences between time zones worldwide while leveraging existing instant payment standards and systems in Europe based on the EPC's SCT Inst scheme. This operative improves significantly the customer's user experience, facilitates the creation of new use cases, and enables the development of highly innovative payment services that compete with new players in the international payments sector.

The OCT Inst scheme has been designed to enhance and streamline international payments that require currency exchange in terms of speed, availability, cost, accessibility, and transparency, in line with the strategy and roadmap set by the G20 and other international organisations such as the European Commission, the World Bank, or the International Monetary Fund, as well as with the objectives for improving these international payments established by the Financial Stability Forum (FSB) for the year 2027.

The service provided by Iberpay is based on the same technology as instant credit transfers in euros (the SCT Inst scheme), which today correspond over 53% of all credit transfers processed in Spain. With the new operational procedure implemented, the start or end of international payments within the euro area between the intermediary bank and the initial ordering bank, or the final beneficiary bank, is significantly accelerated. Among the main advantages of this solution are the ability to process international payments in seconds and 24x7, greater transparency of information and end-to-end payment traceability.

Last year, Santander reached €26,660m in international business financing from more than 168,000 Spanish companies that channel their international payments with the support of the bank. It has continued to enhance the digital capabilities of companies, and last year launched in Spain One Trade Multinationals, a treasury management solution aimed at companies with international presence, which provides them with a unified view of their subsidiaries worldwide.

As the next milestone, the Spanish banking community has agreed to the full adoption of this service starting in October this year, and for this purpose, the rest of the banks are preparing to connect to Iberpay's service over the coming months. 


Mercore and Tradeable complete first digital bill of exchange transaction in Africa

Mercore, a global trade-focused fintech group, in collaboration with Tradeable House Africa, has completed a receivables purchase transaction backed by digital bills of exchange. The finance facility will support a Kenyan producer of organic pesticides growing its sales into Belgium and the wider European Union. The deal is Mercore’s first digital negotiable instrument-backed facility to execute in Africa, and there are several more in the pipeline working together with Tradeable as its strategic partner in the region.

Mercore enabled the Kenyan supplier and Belgian buyer to generate and sign the digital bills of exchange (DBE), utilising Mercore’s digital execution platform powered by trace:original.

The group's financing arm, Mercore Capital, working together with its Africa trade facilitation partner, Tradeable House Africa, thereafter purchased the DBEs under a ‘Digital Receivables Finance Agreement’ drafted by Sullivan & Worcester UK LLP. The DBEs were executed under English law, leveraging the recently enacted Electronic Trade Documents Act 2023. The underlying DBEs also included several of the International Trade & Forfaiting Association’s (ITFA) suggested clauses from the 2023 Addendum to the ITFA Digital Negotiable Initiative's Handbook.

The use of digital payment instruments, such as this DBE, enables parties to execute quicker (typically same-day), at lower costs. A DBE is also a more sustainable alternative to traditional paper-based negotiable instruments which, in turn, helps to drive greater financial inclusion. Additionally, with many of the typical paper-based processes having been significantly challenged in recent times by the likes of Covid, electronic execution greatly improves operational resilience and minimises disruption.

“[This transaction] is more evidence of the practical benefits of trade digitalisation and particularly important to helping make trade with Africa cheaper, faster, simpler and more sustainable from which we all gain,” commented Chris Southworth, Secretary General of the International Chamber of Commerce (United Kingdom). “From all of the evidence we have seen to date, there are no downsides to digitalisation for any company wanting to better manage cash and be more efficient and profitable. The opportunity is for all companies to be benefitting from this activity.”


Basel Committee report explores the digitalisation of finance

The Basel Committee on Banking Supervision has published a report that considers the implications of the ongoing digitalisation of finance on banks and supervision. The report builds on ‘Sound Practices: implications of fintech developments for banks and bank supervisors’, published in 2018, and takes stock of recent developments in the digitalisation of finance.

The report reviews the use of key innovative technologies across various aspects of the banking value chain, including application programming interfaces, artificial intelligence and machine learning, distributed ledger technology and cloud computing. It also considers the role of new technologically enabled suppliers (e.g. big techs, fintechs and third-party service providers) and business models.

While digitalisation can benefit both banks and their customers, it can also create new vulnerabilities and amplify existing risks. These can include greater strategic and reputational risks, a larger scope of factors that could test banks' operational risk and resilience, and potential system-wide risks due to increased interconnections. Banks are implementing various strategies and practices to mitigate these risks, but effective governance and risk management processes remain fundamental.

Digitalisation raises regulatory and supervisory implications for both banks and supervisors. These include:

  • Monitoring evolving risks and adopting a responsible approach to innovation.
  • Safeguarding data and implementing robust risk management processes.
  • Securing the necessary resources, staff and capabilities to assess and mitigate risks from new technologies and business models.

The Committee says it will continue to monitor developments related to the digitalisation of finance. Where necessary, it will consider whether additional standards or guidance are needed to mitigate risks and vulnerabilities.


‘Very positive’ signals AI could boost GDP

Goldman Sachs Research forecast last year that generative AI could boost GDP and raise labour productivity growth over the coming decade. Since publishing that estimate, investment in generative AI has boomed, but it will take time for the technology to impact the overall economy.

“Until we've seen more significant uptake in the actual application of AI, in the regular work production process, I don't think that we're going to see as big of an impact on productivity,” said Joseph Briggs, who co-leads the Global Economics team in Goldman Sachs Research. Briggs wrote last year's AI report with Goldman Sachs economist Devesh Kodnani. “That being said, the early signals of future productivity gains look very, very positive.”

Goldman Sachs Research had previously forecast that AI's boost to the economy wouldn't materialise until 2027. The small increase in adoption so far is consistent with that expectation, Briggs said. However, some studies and academic work suggest AI adoption can support large increases in productivity, with an average increase of about 25%. “We do still think that it's going to be a pretty significant driver of productivity and GDP growth over a much longer horizon,” he commented.

Rising investment may help lay the groundwork for AI to be used more widely in the economy. Briggs pointed out that revenues of semiconductor manufacturers are up about 50% since early 2023.

As for the job market, AI has probably boosted labour demand instead of (on net) getting rid of jobs. Job postings mentioning AI have increased, and even sectors that are highly exposed to automation haven't shown a notable uptick in layoffs. Over the long run, Goldman Sachs Research doesn’t expect generative AI to cause heavy net job losses. “We generally think that it's going to create opportunities either in AI adjacent sectors or occupations or in sectors where labour has a comparative advantage,” Briggs concluded.


Australia to boost anti-money laundering and counter-terrorism financing regime

The Australia Government has announced it will invest AU$166.4m in this month’s budget to implement reforms to Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) regime. 

Each year billions of dollars of illicit funds are generated from illegal activities such as drug trafficking, tax evasion, people smuggling, cybercrime, arms trafficking and other illegal and corrupt practices.

A government statement noted that Australia is falling short of meeting the standards required to combat criminal abuse of our financial system, and at increased risk of becoming a haven for money laundering. Australia is now one of only five jurisdictions out of more than 200 that do not regulate tranche-two entities - lawyers, accountants, trust and company service providers, real estate agents and dealers in precious metals and stones. This is placing Australia at risk of being ‘grey-listed’ by the Financial Action Task Force (FATF), which could result in significant harm to its economy.

The government recently commenced the next stage of consultation on reforms to Australia’s AML/CTF regime. The budget investment will enable the Australian Transaction Reports and Analysis Centre (AUSTRAC) to implement the new regime and help industries meet their obligations. It will also allow AUSTRAC to deliver education and guidance to businesses, especially newly regulated entities.


Importance of business planning recognised by Canadian entrepreneurs

While creating a business plan may seem like an obvious asset to have when operating a business, it has not always been a top priority for many entrepreneurs, until now. A recent study of Canadian entrepreneurs by Ownr, a small business legal management platform, unveils shifting sentiments around the value of business plans to support entrepreneurs' success, key barriers to starting or finishing their plans and differing approaches to their business planning process.

With changing market conditions and competition intensifying for businesses in the past three years, 58.7% of surveyed entrepreneurs in Canada have recognised the role and increased importance of having a business plan. But when it comes time to put pen to paper, around two-thirds (67%) admit that sections around financial planning and cash flow forecasting are challenging areas to tackle. 

As a result of this planning roadblock, only 26.8% of respondents were able to leverage their business plans as an effective tool for financing and funding opportunities. Challenges like these in the business planning process - whether stemming from a lack of knowledge, experience, or resources - often prevent entrepreneurs from completing, or even starting a business plan altogether.

The survey revealed a divide in the number of entrepreneurs who had or felt the need to have, a business plan to get their business off the ground. Over half (54.3%) of entrepreneurs started their business without a formal plan. For entrepreneurs who launched their venture without a business plan, the most common reasons included not knowing where to start (34.1%), believing their business idea was straightforward enough to execute (33.5%) and not seeing the need for it as a solopreneur (30.1%).

There are also varying approaches to business planning when it comes to putting pen to paper. Among surveyed entrepreneurs with a business plan, 28.7% used traditional spreadsheets to capture their business plan, while 19.5% relied on intuition and informal methods and only a small number (6.8%) used a planning template.


HSBC hybrid checking account aims to get businesses interested

HSBC Bank USA has announced the launch of a Hybrid Checking Account, a product designed to maximise a company’s returns by combining an earnings credit rate (ECR) with credit interest, thus earning interest on every dollar deposited into the account.

Unlike traditional ECR accounts, where unused credits are forfeited, the bank says that its account ensures that businesses benefit from both earnings credit and credit interest on remaining balances. By setting a threshold amount, clients target their balance for the earning credit calculation. Any excess earnings credit is credited back to the client’s account. Cash balances above the ECR threshold earn traditional credit interest.

“Every organisation has complex needs, and the HSBC Hybrid Checking Account provides an important solution to our clients by both offsetting service fees and growing account balances at the same time,” said Thomas Halpin, HSBC North America Head of Global Payments Solutions. “This flexible interest-bearing account maximises yield, lowers cost, and most importantly, saves time and effort by reducing the need for multiple accounts.”

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