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Three central banks test Swift’s CBDC connector – Industry roundup: 14 September

Swift begins beta tests of CBDC connector

Swift announced that three central banks are now beta testing its Swift central bank digital currency (CBDC) connector solution, which enables the use of CBDC for cross border payments. Two of the named central banks are the Hong Kong Monetary Authority (HKMA) and the National Bank of Kazakhstan, which are integrating the solution with their infrastructure to test it.

The Swift offering is consistent with other Swift solutions, in being based on messaging. This contrasts with most distributed ledge technology (DLT) solutions that combine the message with the money movement. A key reason for continuing to use messaging is to ensure interoperability with legacy payment systems.

In addition to the CBDC connector solution, Swift is also running a second phase of its,CBDC sandbox, which has expanded from an initial 18 organisations to 30. It includes the central banks of Australia, Germany, Hong Kong, and Thailand as well as FX central counterparty CLS.

The central banks of France and Singapore have dropped out of the latest iteration of the sandbox and are instead working with the Swiss National Bank (SNB) on other cross-border

Current sandbox experiments include trigger-based payments for DLT solutions, foreign exchange, delivery versus payment and liquidity saving mechanisms.

“The financial community has already recognised the strong potential of our CBDC innovations for preventing digital islands while securely bridging the payment systems of today and the future,” said Tom Zschach, Chief Innovation Officer at Swift. 

Elsewhere, other ongoing CBDC projects have cross-border payments as a key focus. Two participants in the Swift sandbox – HKMA and the Bank of Thailand – are founding participants in another cross border CBDC solution, Project MBrige, which unlike many other cross border CBDC experiments is proceeding to production.

With Swift has been forced to become a central player in sanctions enforcement since Russia’s invasion of Ukraine, countries wary of possible future sanctions, such as China, are keen for alternative cross border payment systems, such as MBridge.

Swift is also involved in other interoperability solutions, including trialling digital asset tokenisation and integration with multiple public blockchains.


ECB raises key rates by 0.25%

The European Central Bank (ECB) announced that it will raise key rates by 25 basis points (bps) following the September policy meeting. The interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will be increased to 4.50%, 4.75% and 4.00% respectively, with effect from 20 September.

"The Governing Council considers that the key ECB interest rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target", said the ECB in their statement. 

The latest interest rate decision was a cliffhanger for investors. Reports suggested even participants in the meeting had no inkling of the likely outcome, according to insiders, who said that it would be the least predictable since the current hiking cycle began in 2022 with economists evenly split on whether to sanction a further rate increase or to pause.

In just a few days, the market completely changed its view what the ECB was likely to do today, highlighting just how much uncertainty surrounds the decision. By yesterday money markets were pricing in a 68% chance that the ECB would raise interest rates by a quarter of a percentage point.

Euro zone bond yields rose on Wednesday, with Italy's 10-year yield hitting a six-month high, as a Reuters report that the ECB expects inflation to remain above 3% next year boosted market bets of a rate hike today. Current market pricing reflects nearly a 75% chance the central bank will raise rates by 25 basis points, up from around a 40% chance on Monday and just 25% a week ago.

Markets are taking the chance of a 25 basis point rate increase “increasingly seriously” said Deutsche Bank strategist Jim Reid in an early Wednesday note, mentioning "fresh signs of inflationary pressures" such as higher oil prices.

He also pointed to a Reuters report late on Tuesday, which said, citing a source with direct knowledge of the matter, the ECB's quarterly projections will put inflation above 3% in 2024.

That would support the case for a further rate increase, though the source said the rate decision was still a close call.

Visa and Currencycloud launch Visa Cross-Border Solutions

Following its acquisition of the FX solutions platform two years ago, Visa has launched Visa Cross-Border Solutions with Currencycloud, which delivers cross-border money movement solutions for banks, fintechs, FX brokers and other payment institutions.

Visa Cross-Border Solutions combines its homegrown cross-border and cash management capabilities with solutions enabled by the acquisition. It operates on a ‘B2B4X’ model, meaning the business serves other businesses but has a focus on improving end-user experience.

Potential end-users range from someone who needs competitive and transparent FX rates when sending remittances to family abroad to a small to medium business (SMB) that wants to receive payment from an international customer without intermediaries charging opaque fees.

Visa Cross-Border Solutions offers a suite of modular building blocks which can be easily integrated with a company’s existing technology infrastructure. This is done via an application programming interface, or API. These building blocks enable a range of capabilities including receiving payments in multiple currencies, foreign exchange (FX) with persistent and real-time rates, multi-currency wallets that hold more than 30 currencies. These currencies can be spent in and sent to more than 180 countries and territories.

Outside of traditional banking, Visa Cross-Border Solutions will work alongside other Visa divisions as well as with existing Visa and Currencycloud customers including corporates, fintechs, FX brokers, and other firms who want to offer embedded multi-currency and cross-border functionality to their customers.

Colleen Ostrowski, Senior Vice President and General Manager of Visa Cross-Border Solutions, said: “Cross-Border offers a huge opportunity for innovation and growth. Until now it’s always been a difficult market to crack due to compliance, regulatory and technological challenges. We’re offering solutions that can overcome those challenges.

“We help with the regulatory burden while providing solutions that are flexible and easy to integrate. Our clients can then quickly ramp up to revenue generation and start seeing a return on their investment, and their end-user experience receives a massive uplift.”

Aleks Stefanovski, Vice President Strategy and Business Operations, Visa Cross-Border Solutions added: “We’ve been laser-focused on building a suite of tools that are suitable for the kinds of companies we work with, all of which are held to high standards on compliance, security and customer experience.”


MSCI launches Sustainability Institute

Investment data and research provider MSCI has launched the MSCI Sustainability Institute, a new initiative aimed at enabling collaboration across the capital markets ecosystem on the creation of sustainable value and addressing global challenges such as climate change.

Henry Fernandez, Chairman and Chief Executive Officer of MSCI, said: “Global challenges such as climate change cannot be solved by governments, corporations, NGOs or multilateral organisations alone. The most meaningful solutions all require some type of cross-sector collaboration. Through the MSCI Sustainability Institute, we will bring together a wide range of thinkers with complementary strengths and expertise and help them turn data-driven ideas into real-world influence and action.”

MSCI says that the new Institute will spur collaboration across the ecosystem, including finance, academia, government, NGOs, think tanks and companies, in addition aligning data, analysis, policy and action.

Initiatives will include equipping academic researchers and policymakers with sustainability data, metrics and models used by investors and collaborating with academic institutions, including Stanford University’s Graduate School of Business on training researchers and students to apply these metrics for capital allocation, encouraging innovations on new data and approaches for measurement to provide insights for sustainable finance and capital allocation decision applications, providing curated sustainability-related research for investors and companies, and offering a forum for debate on sustainability risk and opportunity topics for leaders from across the capital markets ecosystem.

The new institute will be led by Linda-Eling Lee, who has been appointed as Founding Director and Head of MSCI Sustainability Institute. Lee joined MSCI in 2010 following its acquisition of RiskMetrics Group, where she served as Head of Consumer Sector Research, ESG. She has been most recently serving as Managing Director, Global Head of ESG and Climate Research at MSCI, overseeing all ESG and climate-related content and methodology, and as a member of MSCI’s Executive Committee.


Adyen wins UK banking authorisation for embedded finance

Digital payments specialist Adyen is making a push into embedded finance after being granted a banking licence by UK regulators the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA).

The regulatory permissions will allow Adyen, which in recent weeks has seen a US$23 billion hit to its public market valuation after sales growth fell short of targets, to continue to offer embedded financial products to businesses in the UK.

Adyen says that it is targeting platforms such as eBay and Etsy to provide their small- to medium enterprise (SME) customer bases with direct access to cash advances when they need them. This puts the payments company in direct competition with the UK’s high street banks.

Adyen’s product offering includes bank accounts, virtual and physical cards and expense management services.

“Our focus is always on providing our customers with technology that helps them excel,” said Adyen’s chief risk and compliance officer Mariette Stewart. “The UK is a key market for Adyen and we’re excited to cement our position here with this banking authorisation. It will strengthen our ability to help domestic and international businesses achieve their ambitions faster. It’s another stride towards Adyen becoming a full spectrum global financial technology platform.”


European governments tap citizens to fund borrowing

European countries are increasingly going directly to their own citizens to fund their escalating borrowing needs, in a retail push partly designed to press high street banks into raising the interest rates they pay to depositors, reports the Financial Times.

Italy, Belgium and Portugal have issued about €60 billion (US$64.5 billion) worth of bonds directly to households so far this year against €26 billion last year, as savers are attracted by the higher yields offered by governments.

Italy is returning to the market in October with a second sale of its retail-focused “BTP Valore” bond, reports the FT. The debt, first launched in June, pays a premium if held to maturity and raised a record amount for debt pitched at retail investors of €18 billion.

Analysts note another advantage of opening government bond issuance to citizens is that it provides a safe place to put savings, as, unlike with high street banks, there is no deposit insurance limit. It also cuts out the middleman as some banks take savings and invest the proceeds in government bonds.

Frank Gill, sovereign specialist for Europe, Middle East and Africa at S&P Global Ratings, told the paper that he expects European countries to step up their issuance of bonds targeted at retail investors. That is partly to fill the void left by the European Central Bank (ECB) stopping most of its bond-buying but also to push commercial lenders to offer higher deposit rates.

“Commercial banks have been clearly very reluctant to pass on higher policy rates to depositors and they are relying on the complacency of customers not to move their money,” said Gill. “But I expect commercial banks are going to start fighting back soon by launching new products linked to long-term bond yields.”

The spotlight has turned to retail debt ownership following a blockbuster issuance of a one-year bond from Belgium, which raised close to €22 billion last week, more than four times its target, enabling it to pare back future issuance.


Digital bank Monzo debuts investments feature

Monzo, the UK’s fast-growing digital challenger bank, launched a feature that lets users make investments —marking its first foray into the massive financial investment market.

The feature, called Investments, will allow Monzo’s customers to invest in various funds managed by asset management giant BlackRock and will allow users to invest with as little as £1.

The move will put Monzo into competition with large established banks like Chase, which offers online investment management through its Nutmeg subsidiary; asset management firms; and younger startup competitors such as Chip, Moneybox, and Plum.

Monzo, which began offering business accounts in 2020, already lets its customers put their money into interest-yielding savings pots. But this is the first time the company is making a move into the world of investing.

The application process will be kept simple. Customers will be invited to a waitlist to access the product. Eligible users who have joined the waitlist will then get invited to create an investment pot.

They will be taken through to a set of screens where they learn about the product and get to choose from three funds handpicked by BlackRock based on different risk levels.

The choice is split between three funds managed by BlackRock: Careful, Balanced and Adventurous. At the “careful” end of the scale is a low-risk, low-return fund; the “balanced” fund has medium high risk and reward; while the “adventurous” one is about higher-risk allocations with much larger potential returns.


Mastercard and Paysend “deepen” cross-border payments tie-up

Mastercard said that it is extending its partnership with online money transfer specialist Paysend aimed at enhancing cross-border payments for small-and-medium-sized businesses (SMEs).

The extension of the “long-standing” partnership comes as SMEs seek new ways to send money abroad or pay vendors around the globe. Despite the disparity in scale between SMEs and large enterprises, small firms make up over 98% of European imports and exports, according to the statistics agency Eurostat.

Mastercard's 2022 Borderless Payments Report shows “strong growth” in the number of SMEs sending and receiving cross-border payments through mobile apps, but pinpoints persistent challenges around transparency and predictability. Nearly 40% of SMEs surveyed as part of the report say that cumbersome cross-border payments processes are slowing down their supply chain, with a quarter stating that they had lost suppliers as a result.

As a result of the extended partnership, Mastercard and Paysend will continue to devise joint solutions to cross-border problems – such as the already-established Open Payment Network, which orchestrates end-to-end payment flows, from initiation to settlement in near real-time.

Mark Barnett, President of Mastercard Europe, says: “We are excited to deepen our collaboration with Paysend to empower small and medium businesses to pay and get paid promptly. At Mastercard, we are committed to helping SMEs grow and thrive in the digital economy.”


Colesco offers sustainable direct lending solutions

Private credit specialist Colesco has launched a new direct lending platform to support leading European mid-market businesses in realising their sustainable growth ambitions. Backed by the Utrecht, Netherlands-based Rabobank Group, Colesco “is driven by a mission to unite capital and purpose.”

A release said that Colesco “delivers flexible capital solutions to ambitious companies while simultaneously providing institutional investors with differentiated access to attractive segments of the growing European private debt market. Colesco offers senior secured debt (including unitranche loans) and subordinated debt for sponsor and privately owned businesses with EBITDA of between €10 million and €100 million.

“Colesco’s sustainable investing mindset is underpinned by the conviction that selecting and supporting companies that are well placed for the transition to a more sustainable society, yields better results for all stakeholders. Its thematic investment strategy is focused on companies with a strong potential to drive meaningful progress towards three key pillars at the heart of Colesco's purpose: Energy Transition, Sustainable Food, and Inclusive Society.”

Danny Vroegop, Co-Founder and Chief Investment Officer at Colesco said: “Colesco is an independently managed direct lending platform that was formed to provide bespoke capital solutions to a growing number of mid-market businesses who want to invest and expand. By working alongside leading European companies and actively supporting them in their transition to a more sustainable business model, we believe Colesco is pioneering a fresh approach to private debt.”


NatWest introduces links for open banking payments

NatWest's open banking payment platform Payit has introduced a new way for businesses to make a payment without needing the recipient's account details, by sending a secure, single-use payment link.

The link can be issued via email, text message, or social media channels and the recipient can ‘claim’ the link by selecting which account to credit the payment to via NatWest’s open banking payments service.

Users receive push notifications when a link is paid, failed, or expired. Users can also cancel active links at any time and resend expired ones.

The functionality is secured by the mobile app’s Multi-Factor Authentication (MFA), reducing the risk of a payment to an incorrect bank account.

Primarily designed for small and micro businesses, the payment link may be used for sending low value payments (up to £250) to pay suppliers and to pay for goods and materials.

The new functionality is also deemed useful for time-consuming admin such as issuing non-card refunds, returning deposits, and sending one-off payments.

Mike Elliff, CEO of Payit by NatWest says: “A significant chunk of admin time is spent communicating with clients and customers to obtain their payee information to send them money. With Payit, we’re helping customers save time previously lost on admin by allowing them to pay someone without needing to know their bank account details.”

Since launching for personal customers in February, over 100,000 payments have been sent through Payit for a total of £5 million (US$6.2 million).

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