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US annual inflation drops to two-year low - Industry roundup: 14 June

90% of CFOs plan to fund growth at same or greater level than last year

Rising prices and interest rates, along with other economic factors beyond a company’s control, are leading CFOs to show the most concern about profitable growth, inflation, and balance sheet health in 2023, according to a survey by Gartner, Inc. Yet nine out of 10 CFOs plan to fund organic growth in 2023 at the same level or greater levels than 2022.

“Macroeconomic factors that companies can do little to nothing about have created an uncertain setting in 2023, and have also led to many sleepless nights among CFOs,” said Shannon Cole, senior director analyst in the Gartner Finance practice. “Borrowing has become more expensive, and inventory and fixed-asset values remain volatile, which inevitably leads to downstream income statement risk.”

According to a Gartner survey of 110 CFOs from November to December 2022, 82% of respondents cited profitable growth among the top five issues that keep them up at night. Nearly three-quarters (73%) of CFOs picked inflation in their top five, and 68% noted balance sheet health.

According to the Gartner survey, 57% of CFOs are more likely to use capital to fund organic growth compared to 2022. In addition, 80% of CFOs will hold at least the same amount of or more excess cash in 2023, which, for many, is a precursor to enabling organic growth investments. CFOs are also focusing on debt paydown in 2023, with 41% indicating they would pay down more than they did in 2022. In the current environment, Gartner experts state that reinvestment of operating profit is a less risky and expensive funding source.

A majority (55%) of CFOs are less likely to take on new debt, which, not surprisingly, is due to the rising cost of debt. Only 18% of CFOs expect to take on additional debt to a greater extent than in 2022. While 42% of CFOs will maintain their share repurchase strategy this year, 44% are less likely to use share repurchases to the same extent as in 2022.

CFOs surveyed by Gartner expressed general cost nervousness and are most concerned about rising labour costs. Across the 25 surveyed industries, 76% of CFOs expressed the highest concern over labour costs compared to non-labour input and general and administrative expenses.


US annual inflation drops to two-year low

The US Consumer Price Index for all urban consumers (CPI-U) rose 0.1% in May on a seasonally adjusted basis after increasing 0.4% in April, the US Bureau of Labor Statistics has reported. Over the past 12 months, the all-items index rose 4.0% before seasonal adjustment.

The index for shelter was the most significant contributor to the monthly all-items increase, followed by an increase in the index for used cars and trucks. The food index increased 0.2% in May after being unchanged in the previous two months. The index for food at home rose 0.1% over the month, while the index for food away from home rose 0.5%. The energy index, in contrast, declined 3.6% in May as the major energy component indexes fell.

The index for all items less food and energy rose 0.4% in May, as in April and March. Indexes which increased in May include shelter, used cars and trucks, motor vehicle insurance, apparel, and personal care. The index for household furnishings and operations and the index for airline fares were among those that decreased over the month.

The 4.0% increase in annual headline inflation was the smallest 12-month increase since the period ending March 2021. The all-items less food and energy index rose 5.3% over the last 12 months. The energy index decreased by 11.7% for the 12 months ending May, and the food index increased by 6.7% over the last year. 

Commenting on May’s US inflation print, Ryan Brandham, Head of Global Capital Markets, North America at Validus Risk Management, said: “The CPI release came in as expected. The fact that we did not see an upside surprise will likely give the Fed the comfort it needs to pause rate hikes at the FOMC meeting… Mostly neutral for markets for today’s session, although it could be dovish for US rates and bearish for the USD given that any fears of an upside surprise will be priced out.”

Payment preferences and fraud keeping finance leaders up at night

Bottomline’s eighth annual Business Payments Barometer has revealed that finance leaders in Great Britain and the United States are facing a challenging operating environment, with over 80% of businesses (82% in Britain and 88% in the US) forced to accept new payment methods in the last 12 months. Financial decision-makers are also continuing to tackle a rise in fraudulent activity, as 39% of British and 35% of US businesses experienced payments fraud over the last year.

The research illustrates that British and US businesses have ranked “keeping up to date with new payment technologies,” such as cloud payment solutions and pay-as-you-go technologies, as the biggest driver of change in their payments processes in the coming year. This trend continues to be driven by the rapid adoption of new technologies that exploded during the pandemic.

In Britain specifically, businesses are embracing mobile payments more and more, particularly larger businesses, with 42% starting to offer them as part of their payments mix in the past 12 months. Additionally, more British companies have begun using new payment methods such as Request to Pay (Open Banking PISP) and instalment plans/deferred payments. In the US, traditional payment methods remain strong, but 20% of companies stopped accepting cash, and larger companies are embracing newer payments, such as direct debits via ACH (35%) and mobile payments (41%).

Despite the rise of new payments accepted, most finance leaders are still dropping specific payment options, with seven in ten businesses in Britain (74%) and the US (72%) becoming stricter about the payment methods they accept. This is particularly the case in the US for enterprises (82%) and large companies (80%) but is less so among small (54%) businesses.

When it comes to understanding new payment initiatives and upcoming regulations in Britain, businesses continue to show a limited understanding. Levels of familiarity are virtually the same for all the initiatives mentioned in the survey. Only 54% know at least a fair amount about Open Banking/Payment Services Directive 2 (PSD2), 50% about UK New Payments Architecture (NPA), 56% about new overlay services, and 53% about adopting ISO 20022 formats. Awareness of new payments initiatives is higher in the US, as seven in ten respondents claimed some familiarity with real-time payments (72%) and Open Banking (68%). Around six in ten know something about the adoption of ISO 20022 formats (62%) and the California Consumer Privacy Act (CCPA) (60%).

Globally, businesses continue to battle increasing waves of financial fraud, exacerbated by the hybrid working environment and enhanced payment technologies. More British businesses (39%) have been victims of payment fraud over the last year, with larger companies (46%) at more risk than small (32%) and medium size (36%) companies. In the US, fraud levels have remained consistent with last year at 35%, but medium-sized companies saw a decrease in fraud (down from 42% to 30%), while enterprises reported an increase (up from 32% to 46%). However, the value of those losses increased by 21% in 2022, with enterprise companies hardest hit seeing an increase in losses at 43% on last year.

When it comes to recovering losses, US companies fared a bit better than their British counterparts and managed to recover 37% of losses due to fraud, compared to just 29% in Britain. In terms of business size, small businesses recovered the lowest proportion of losses (20%) in Britain, and in the US, mid-sized companies (31%) recovered the smallest proportion. 


European Commission takes further steps to boost investment for a sustainable future

The European Commission has put forward a new package of measures to build on and strengthen the foundations of the EU sustainable finance framework. 

The transition to a climate-neutral and sustainable economy by 2050 offers new opportunities for companies and citizens across the EU. Many companies and investors have embarked on their sustainability journey, as the growing size of sustainable investment testifies. However, companies and investors face challenges in this transition, especially when complying with new disclosure and reporting requirements.

Therefore, the package aims to ensure that the EU sustainable finance framework continues to support companies and the financial sector while encouraging the private funding of transition projects and technologies. Specifically, the Commission is adding additional activities to the EU Taxonomy and proposing new rules for Environmental, Social and Governance (ESG) rating providers, increasing transparency on the market for sustainable investments. 

The package aims to ensure that the sustainable finance framework works for companies that want to invest in their transition to sustainability. It also seeks to make the sustainable finance framework easier to use, thereby continuing to contribute effectively to the European Green Deal objectives.


PayMate accelerates expansion of B2B payments offering in CEMEA and APAC 

PayMate India Limited, a digital business-to-business (B2B) payments and services provider, has announced that the company multiplied its footprint across more regions in Central Europe, the Middle East, Africa (CEMEA), and Asia Pacific (APAC), in addition to India and the UAE. 

The move comes six months after the company announced its foray into Singapore, Sri Lanka and the Kingdom of Saudi Arabia. PayMate has incorporated and registered its entity in four more markets - the Sultanate of Oman, South Africa, Malaysia and Australia. In Australia and South Africa, the company has incorporated under the trade name DuNoMo as a wholly-owned subsidiary of PayMate India Ltd.

PayMate will offer its B2B payment automation solutions to small and medium-sized (SMBs) and large corporate customers. The firm says this will enable companies to use their bank-issued corporate credit cards towards their accounts payables (AP), including supplier payments, bill payments and statutory payments, to support better utilisation of working capital for strategic business growth.

B2B payments made in this manner will be settled directly into suppliers’ bank accounts, thereby opening wide acceptance of corporate credit card usage, as most of these suppliers do not accept card payments. The PayMate platform will further enable corporates with configurable approval workflows to give complete control and visibility into cash flows with detailed reports, reconciliation and APIs for ERP integration with existing legacy systems.

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