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US services sector surpasses growth expectations - Industry roundup: 7 July

US services sector surpasses growth expectations in June

Economic activity in the services sector expanded in June for the sixth consecutive month as the services PMI registered 53.9, say the nation’s purchasing and supply executives in the latest Services Report On Business from the Institute for Supply Management. The sector has grown in 36 of the last 37 months, with the lone contraction in December 2022.

ISM’s Business Activity Index registered 59.2, a 7.7% increase compared to the reading of 51.5 in May. The New Orders Index expanded in June for the sixth consecutive month after contracting in December for the first time since May 2020; the figure of 55.5 is 2.6% higher than May’s reading.

“There has been an uptick in the rate of growth for the services sector,” said Anthony Nieves, Chair of the ISM Services Business Survey Committee. “This is due mostly to the increase in business activity, new orders and employment. Increased capacity, backlog reduction and continued improvements in logistics have impacted delivery times (resulting in a decrease in the Supplier Deliveries Index). The majority of respondents indicate that business conditions remain stable; however, they are cautious relative to inflation and the future economic outlook.”

Commenting on the PMI data, Ryan Brandham, Head of Global Capital Markets, North America at Validus Risk Management, said: “A positive result, coming in at 53.9 vs the expected 51.2, showcasing strong activity, with an encouraging decrease in the prices paid index. The result highlights strong activity in the US economy, which should give the Fed comfort in its resiliency against previous rate hikes. All things combined, the result points to a soft landing, as prices soften and activity remains strong.”

 

ESMA to assess disclosures and sustainability risks in investment funds

The European Securities and Markets Authority (ESMA), the EU’s financial markets regulator and supervisor, is launching a Common Supervisory Action (CSA) with National Competent Authorities (NCAs) on sustainability-related disclosures and the integration of sustainability risks.

The goal is to assess the compliance of supervised asset managers with the relevant provisions in the Sustainable Finance Disclosure Regulation (SFDR), the Taxonomy Regulation and relevant implementing measures, including the relevant provision in the UCITS and AIFMD implementing acts on the integration of sustainability risks.

Using a standard methodology developed by ESMA, NCAs will share knowledge and experiences on fostering convergence in supervising sustainability-related disclosures. The main objectives include:

  • To assess whether market participants adhere to applicable rules and standards in practice.
  • To gather further information on greenwashing risks in the investment management sector.
  • To identify further relevant supervisory and regulatory intervention to address the issue.

Ensuring greater convergence in the supervision of risks stemming from false and misleading disclosures is central to the effort to foster transparency. It is identified as one of the Union Strategic Supervisory Priorities for NCAs. The CSA will promote this goal by improving the comprehensibility of ESG disclosures by asset managers across key sustainable finance value chain segments. In addition, the preliminary findings on identifying greenwashing risks at the entity and product level will provide input to ESMA’s Final Report on greenwashing.

In 2023 and until Q3 2024, NCAs will undertake their supervisory activities and share knowledge and experiences through ESMA to foster convergence in how they supervise sustainability-related disclosures and sustainability risk integration in asset managers. 

 

HSBC joins UK’s commercial quantum secure metro network

HSBC is the first bank to join BT and Toshiba’s quantum-secured metro network - connecting two UK sites using Quantum Key Distribution (QKD) to prepare its global operations against future cyber threats. This technology will be trialled in multiple scenarios, including financial transactions, secure video communications and one-time-pad encryption, and AWS edge computing capabilities using an AWS Snowball Edge device.

HSBC will trial the quantum secure transmission of test data over fibre-optic cables between its global HQ in Canary Wharf and a data centre in Berkshire, 62km away. QKD is an important technology that uses particles of light and the fundamental properties of quantum physics to deliver secret keys between parties. These keys can encrypt and decrypt sensitive data and are safe from eavesdroppers or cyber-attacks by quantum computers.

The insight generated by HSBC’s exploration of quantum-secure communications could have far-reaching implications for the bank - providing crucial evidence into the advantages of quantum technology and driving the development of applications in financial cybersecurity. HSBC’s quantum scientists, cyber-crime experts and financial specialists will be better able to analyse the potential threat posed by powerful quantum computers and devise strategies to safeguard sensitive information.

Mastercard leverages AI to fight real-time payment scams 

Mastercard's AI-powered ‘Consumer Fraud Risk’ solution is now live in the UK. In partnership with nine UK Banks, including Lloyds Bank, Halifax, Bank of Scotland, NatWest, Monzo and TSB, the solution uses large-scale payments data to help identify real-time payment scams before funds leave a victim’s account. 

Organised criminals move ‘scammed’ funds through a series of ‘mule’ accounts to disguise them. To counter this, for the past five years, Mastercard has worked with UK banks to follow the flow of funds through these accounts and then close them down. Based on insights from this tracing activity and overlaying them with specific analysis factors such as account names, payment values, payer and payee history, and the payee’s links to accounts associated with scams – Mastercard’s AI solution provides banks with the intelligence necessary to intervene in real-time and stop a payment before funds are lost. 

TSB is one of the first banks to adopt Mastercard’s Consumer Fraud Risk tool and, in just four months, has dramatically increased its fraud detection. Based on TSB’s results, the amount of scam payments prevented over a year would equate to almost £100m saved across the UK, should all banks mirror their performance. Other banks adopting Consumer Fraud Risk are doing so throughout 2023, and Mastercard is assessing other international markets to scale the solution. 

Initial results from banks using Consumer Fraud Risk’s score show significant success in preventing scams, primarily when used with other insights regarding customers and their behaviour. This has helped them create targeted fraud strategies to identify different types of scams, in particular, purchase, impersonation, and romance scams. Purchase scams now account for 57% of scams in the UK and remain a notorious pain point for banks.

Mastercard says it is rolling out Consumer Fraud Risk in the UK first as it has deep experience in tracing and stopping financial crime across the country’s real-time banking system and has helped to coordinate banks into sharing their fraud data. The payments firm is now accessing the next most appropriate markets to adopt the technology. 

 

GTCR to acquire majority stake in Worldpay

FIS has signed a definitive agreement to sell a majority stake in its Worldpay Merchant Solutions business to private equity funds managed by GTCR in a transaction valuing Worldpay at US$18.5bn, including US$1bn of consideration contingent on the returns realised by GTCR exceeding certain thresholds.

A statement from FIS said that the transaction maximises shareholder value by immediately securing proceeds based on a US$17.5bn valuation, with an opportunity for further upside. This upfront valuation equates to a 9.8-times multiple on expected fiscal 2023 adjusted EBITDA, including estimated dis-synergies and previously unallocated corporate and other costs, representing a material premium to FIS’ recent valuation of approximately 8-times. It is aligned with leading, scaled payments players. FIS will receive upfront net proceeds of approximately US$11.7bn while retaining a non-controlling 45% ownership interest in a new standalone joint venture. The FIS board of directors unanimously approved the transaction.

FIS and Worldpay will enter into commercial agreements, preserving a fundamental value proposition for clients of both businesses and minimising potential dis-synergies. These agreements will allow Worldpay continued access to FIS products to resell to its clients and access to FIS’ financial institution clients as it continues to scale its bank channel. Similarly, FIS will retain access to Worldpay’s portfolio of commercial clients to resell its embedded finance offerings.

 

Nomentia receives majority investment by Inflexion, strengthens board 

Nomentia, a provider of cloud-based treasury and cash management software solutions, has announced the nomination of new board members following the recent majority investment from Inflexion, a mid-market private equity firm. The new investor and the board will support Nomentia’s vision as it strives to become the top-choice treasury management solution in the market. 

Rick Medlock has been nominated as the chairman of the board. Medlock has over 30 years of financial leadership in the technology and payments sector in fast-growing enterprises in both the public markets and private equity. Previously at companies such as Misys, Worldpay, and Inmarsat, as well as serving on the boards of Sophos and Smith + Nephew. Medlock brings experience serving on boards of scaled-up international businesses. 

Joining the board from Inflexion are Sergio Ferrarini, Partner and Head of Technology Investments, and Henrik Nordman, Partner, Head of Nordics. Martin Bellin, formerly the founder and CEO of Bellin, a mid-market TMS, also joins the board of directors. Bellin will contribute with his industry experience and entrepreneurial spirit. The previous majority owners, PSG and Verdane, will remain invested in the business. 

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