Supply chain shocks “impact emerging nations more” – Industry roundup: 23 April
by Graham Buck
Emerging nations more vulnerable to supply chain shocks, study finds
Wealthy nations are only exposed to supply chain disruptions from other high-income countries, while poor and developing nations are exposed to shocks from all countries., according to a study by Vienna-based research centre the Complexity Science Hub (CSH).
Using firm-level data from the global supply network, researchers quantified countries’ exposure to production losses caused by firm defaults in other countries. ”Our data comes from Standard & Poor’s Capital IQ platform, which contains information on most of the world's largest and most important companies,” said CSH researcher Tobias Reisch.
“Around 230,000 companies in 206 countries are represented in this data, which provides a good picture of the global supply chain network. Data on almost one million corporate relationships is included, detailing the flow of goods and services between countries.”
The study, published by Nature Communications, examined the impact of supply chain disruptions ranging from infrastructure problem such as the collapse of the Baltimore Bridge to natural disasters such as an earthquake in Taiwan. They then simulated economic shocks in the networks—interruptions in the flow of goods and services—and observed how they propagated within the networks.
“By studying how a complete interruption of a firm would spread across the global supply network, we discovered that high-income countries create significant exposures beyond their regions and thus export systemic risk,” said Stefan Thurner, senior author of the study and CSH president. In contrast, “low-income countries are disproportionately strongly affected by high exposure values.”
“We initially thought the economic shocks would affect more rich and industrialised countries since they are more involved in global value chains,” added Reisch. “However, this was not the case. They receive less economic shocks but create more shocks. In some ways, these countries seem more diversified, or at different positions in the supply network. In fact, they are exposing other countries more than they are exposed.”
The study’s results also reveal that exposure to other nations is highly structured on a regional level. Therefore, companies within a country are most vulnerable to shocks within their own borders. “This indicates the typically strong embedding of firms within their local or national supply chains. The same applies to regions as well: African companies are closer to others located in Africa, and European firms have closer ties to those located on the Old Continent,” said Reisch.
The findings suggest structural inequality in supply networks between countries is significant. “Since exposure inequality arises from the structure of the global supply network on the firm level, it is important to understand the processes that let firms from different income countries enter into production and trade relations and how this could happen by creating less risk exposure to poorer countries,” the authors note.
“A possible strategy to make supply chains more resilient, fair and sustainable at the same time could be the introduction of a ‘systemic risk tax’ for international supply networks,” added Thurner. “There one could follow ideas we developed earlier for making financial markets more resilient. However, the situation for supply chains is more complicated and it will need more research to get the details right how such a taxing scheme could look like.”
The study’s authors urge a global effort to collect and monitor granular economic data that improves on what was available in the study. Better data will enable researchers and policymakers to track the spreading of supply chain threats around the world so that it becomes actually usable and helpful for individual companies. This would allow firms and governments alike to anticipate and prepare for globally spreading supply shocks, say the CSH researchers.
Italy ready for new EU budget rules, says finance minister
Italy’s multi-year deficit projections are already broadly in line with new European Union (EU)budget rules which are scheduled to take effect next year, says the country’s finance and economy minister.
"The [required] adjustment is fully within our reach," said Giancarlo Giorgetti, addressing parliament on Italy’s state finances.
The latest reform of the bloc's two-decade-old fiscal rules sets a slow but steady pace of deficit and debt reduction from 2025 over four to seven years.
Giorgetti said the Treasury's latest deficit projections issued earlier this month already appear consistent with the new rules when factoring in a ”manageable correction profile” to be carried out over seven years.
He added that Italy expects the European Central Bank (ECB) to start cutting interest rates from the second half of 2024.
”The gradual easing of monetary policy, which is likely to take place starting in the second half of this year, would be a supportive factor, particularly in its effect on bank credit flows,” he told parliament.
Giorgetti became finance minister in October 2022, when Italy’s first right-wing nationalist government in 70 years under prime minister Giorgia Meloni took office. He achieved international prominence last August when ministers had to water down plans to levy a 40% windfall tax on the country’s banks.
India’s IndusInd Bank pilots e-rupee payments with farmers
India's IndusInd Bank said that it has executed transactions to pay farmers for carbon credits with a programmable version of the Reserve Bank of India's (RBI) digital currency, the e-rupee.
The RBI piloted its central bank digital currency (CBDC), which uses distributed-ledger technology (DLT), in 2022 and allows banks to offer these tokens.
IndusInd is providing a platform for farmers to exchange their carbon credits for CBDCs. Previously, farmers could only exchange their credits for fiat rupees.
The private lender conducted the project with 50 farmers in India's Maharashtra state and plans to expand it, it said in an exchange filing. ”This project involves IndusInd Bank crafting digital wallets and managing CBDC transfers,” it said.
In recent months the RBI has been working with lenders to introduce new features to popularise the digital currency,
* The central bank has instructed payment system operators to track potentially suspicious transactions amid ongoing elections, according to the Economic Times. “In a letter dated April 15, the RBI asked payment system operators to prevent any potential misuse of electronic fund transfer mechanisms to influence voters or indirectly fund poll candidates,” the business daily reported. General elections are being held in India from 19 April to 1 June in seven phases, to elect 543 members of the Lok Sabha. The votes will be counted and the results will be declared on 4 June.
Australia’s SMEs report cash flow crunch
A survey reveals that 87% of Australia’s small- to medium-sized enterprises (SMEs) encountered a cash flow crunch in the past year, but just over 80% of all businesses are now considering financing options to navigate liquidity constraints, reports Commonwealth Bank of Australia (CBA).
Banking market researcher East & Partners, commissioned by CBA reports that most want access to pre-approved lending facilities, indicating a broader desire to seize opportunities when the time is right. When financing equipment and vehicles, 63% of businesses believe adjusting repayment cycles would aid their cash flow. The remainder agreed that variable repayments would help. More specifically, the top-rated areas of support are options for a payment-free period when equipment is first delivered, repayments set to seasonal cash flows and lower initial repayments that step up over time.
Evidence of persistent cash flow challenges can be seen across the Australian business landscape. The forces prompting calls for financing support are well established. Higher interest rates and operating costs amid stubborn inflation are among them and are expected to continue even as relief looms on the horizon. However, businesses are determined not to let cash flow limitations hold back their growth plans.
The research reflects the rising demand among customers for equipment financing that is structured according to individual business needs. No two businesses are the same, so it's no surprise that businesses want equipment lending options that are fit for purpose" commented CBA General Manager of Asset Finance, Chris Moldrich.
”In an environment where cyclical and seasonal factors are impacting cash flows, businesses need the ability to set their repayments to move in line with these factors or choose the right frequency like monthly or quarterly accordingly. When evaluating equipment financing loans, certain features relating to fees and repayments can optimise cash flows.
”This includes the ability to select the amount, repayment frequency, and total duration of the loan upfront, options to vary the ongoing repayment amounts through end-of-term lump sum repayments, customised documentation fees depending on the loan agreement type and not having to provide extra security against the loan” Moldrich added.
New Zealand launches digital cash consultation
The Reserve Bank of New Zealand (RBNZ) has launched a consultation on digital cash that will run to 26 July.
The consultation paper asks citizens for their views on digital cash design, whether or not interest should be paid and if there should be holding limits. The central bank is considering a NZ$2000 (US$1182) holding limit, which is similar to the digital Euro’s benchmark.
New Zealand began consulting on CBDCs in 2021 and commented at the time that they could present an “opportunity." The 2024 consultation said that digital cash would give more choice when making payments, be easy to access and support innovation and take advantage of new innovation features like smart contracts.
“Digital cash could also boost competition in New Zealand’s payments landscape by supporting new types of money and payments services from the private sector,” the consultation paper said.
The digital cash would be distributed by the private sector, and New Zealanders will be able to select which services they use.
New Zealand’s CBDC is undergoing a multi-stage and multi-year process, and the country has not decided to issue one yet, the consultation paper said. It would be denominated in New Zealand dollars, swappable 1:1 with physical cash, and would be available 24/7.
* Climate-related risks need to be actively managed to protect the resilience of the financial system to other shocks, the RBNZ reports on its 2023 Climate Stress Test findings.
Director of Financial Stability Assessment & Strategy Kerry Watt says each year the central bank runs stress tests to assess banks’ resilience. The key stress-test for New Zealand’s five largest banks in 2023 featured a scenario called ‘Too Little Too Late' that tested their ability to withstand severe but plausible long-term climate-related challenges.
“We deliberately designed the climate stress test scenario to be challenging. It included high physical and transition risks over a prolonged period of 28 years. Our aim was to assess the financial impact of the scenario on the banks’ balance sheets and uplift their capability in managing climate related risks,” says Watt.
“The results show that the Too Little Too Late' scenario did not threaten bank solvency, as all banks were able to maintain their capital ratios. However, it did highlight that climate-related risks have the potential to significantly reduce bank profitability, raise risk-weighted assets and reduce shareholders’ returns over the medium to long term. This tells us that climate related risks need to be actively managed to protect the resilience of the system to other shocks.”
Revolut bets on Mexico’s remittance market
Revolut, the UK-based global neobank and fintech, is reported to have invested upwards of US$100 million-plus bet on Mexico’s remittance market.
Revolut Mexico CEO Juan Miguel Guerra told Reuters that most of the investment will be used to hire staff, cover short-term debt and expenses and maintain a strong cash-on-hand balance. “We will be watching how the business evolves,” he said. “The faster it grows, the more bets we will make.”
The report observes that fintechs have thrived across Latin America in recent years as they tap into a need for financial services among unbanked and underbanked workers. It notes that remittances to Mexico reached a record US$63.3 billion in 2023, primarily from Mexican migrants living in the US.
Revolut, which recently obtained a banking license in Mexico, hopes to eventually extend its offering to include bank accounts and services for cross-border shipments, Guerra said, noting that the aim is to “very quickly” bring to Mexico its product lineup in Europe.
Aside from Mexico and Brazil, where Revolut also does business, Guerra told Reuters he expects further expansion elsewhere in Latin America where it can “obtain a banking license with few resources.”
The news comes days after a report that an investment trust overseen by Schroders increased its stake in Revolut, saying it believed the value of the company had risen by 45% since 2023.
The investment group said in its annual report that Revolut had achieved “solid progress” in the past year and pointed to the company’s international expansion of its services as among reasons for raising its stake.
Coupa and Bottomline partner on payments
Bottomline Technologies and Coupa, the artificial intelligence (AI)-driven cloud-based spend management platform announced a strategic partnership to simplify digital payment processes for businesses. Coupa can now connect to Paymode-X, Bottomline's business payments network that offers Premium ACH, to automate payments from buyers to suppliers.
”Coupa Pay offers a single platform for managing all business payments across different countries and currencies,” the partners announced. ”By utiliding the Premium ACH offering, customers will further optimise their payment stack, enhance payment security, receive more payment rebates, and improve their overall source-to-pay experience. Premium ACH is a powerful extension of the Coupa platform and requires no data or technology integration, or additional storage.
”Leveraging the Paymode-X network’s leading fraud prevention capabilities, Coupa Pay will be able to offer enhanced security for payments made to suppliers who prefer to accept Premium ACH as a payment method.
”With Premium ACH, suppliers receive enhanced data and reconciliation information, as well as rich reporting, and can lower their cost of payment acceptance. Providing this important data and reconciliation, Premium ACH helps strengthen relationships between payers and their suppliers.”
The partnership is the first launched through Bottomline's network-as-a-service (naas) solution, launched in October 2023. The new offering opens the Paymode-X network's 550,000+ authenticated suppliers and the network’s proprietary Premium ACH payment type to Coupa Pay customers.
Brankas secures open banking licence from Bank Indonesia
Indonesia- based global open finance technology provider Brankas has been licenced for Account Information Services (AInS) after the company secured a Payment Service Provider (PJP) Category 2 license by Bank Indonesia (BI).
Customers can now use Brankas to securely share their bank account balance during payments, allowing for real-time payment verification and automated prompts for insufficient funds. Under the PJP Category 2, Brankas also obtained the license for Payment Initiation and/or Acquiring Services (PIAS).
”The official use of Brankas Direct API as an integrated pay-by-bank solution with account balance visibility has been authorised by BI,” stated a release. ”Brankas Direct stands out as one of the few pay-by-bank solutions providing real-time settlement, ensuring instant fund transfer without the vulnerabilities of traditional escrow systems. Additionally, it offers customers the convenience of making digital payments without possessing or carrying a physical credit or debit card.
”Bank Indonesia's PJP licensing system supervises payment service providers based on the activities they undertake. The PJP Category 2 license specifically grants Brankas permission to operate within the two areas of AInS and PIAS.”
Fintechs, retail, and online companies will be able to use Brankas Direct API to securely access their customer's linked bank account information. The added read-only visibility unlocks real-time verification of fund transfers for refunds and payments. This provides added customer assurance for successful refunds and payments while mitigating the risk of fraudulent transactions in the event of unauthorised activity. Businesses on a recurring payment model can also notify customers early in the event of low or insufficient account balances, reducing service disruptions or extra fees from failed payments.
Wells Fargo partners with TradeSun on trade finance digitalisation
Wells Fargo has entered into an agreement with cloud-based trade finance and supply chain software provider TradeSun to utilise its trade finance and compliance digitisation solution, as it bids to streamline the banking industry’s traditional complex manual processes.
According to a release ”Leveraging AI and other advanced technologies, TradeSun’s solution will support Wells Fargo as it bids to reinvent trade finance digitalisation – tapping into the world of cognitive data capture and intelligent process automation.
What’s more, Wells Fargo will be able to leverage TradeSun’s compliance screening and document-checking AI technology to digitise, extract, validate and classify unstructured data. Elsewhere, trade-focused AI will help the leading US bank increase capacity by automating a series of manual processes.
Nigel Hook, Founder and CEO of TradeSun, said: “Through our voyage with Wells Fargo, we’ve learned how efficiently they operate. I am personally driven to ensure the TradeSun AI platform continues to accelerate its leadership in the market.”
Airwallex and Bird join forces for international payments
Payments platform Airwallex has launched a partnership with global communications platform Bird, formerly known as MessageBird.
A release stated that the collaboration is designed to power Bird’s international payments operations across the company’s customers’ preferred channels, including WhatsApp, Email, SMS, Voice, WeChat, Messenger and Instagram.
“The global nature of Bird’s business — with multiple currencies flowing in and out of operating entities around the world — had led to a fragmented financial operating system, split across more than 20 banking partners around the world,” Airwallex said in a news release. “This created operating inefficiencies for the Bird finance team, particularly in relation to the creation and approval of supplier payments and reconciliation with Bird’s accounting software.”
With Airwallex’s payments and financial infrastructure, Bird has consolidated its financial operations across multiple entities and currencies into a single platform, the release added. This has allowed for more visibility and control as well as the automation of supplier payments around the world, with the help of Airwallex’s foreign exchange (FX) engine.
“Prior to working with Airwallex, we were using legacy systems and technology, which slowed down our entire global operations,” said Robert Vis, founder and CEO of Bird. “With Airwallex, we’re able to streamline our payments infrastructure and supercharge our finance operations globally.”
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