Week in Review

What We're Reading:

November 16, 2020

Pandemic payment holidays mask wave of European problem debt. Pandemic payment breaks on European loans totaling billions of euros threaten to undermine efforts by the region’s banks to put the coronavirus crisis behind them. (HSN)

Trump administration readies crackdown on US investments in Chinese firms. The Trump administration is finalizing an executive order to prohibit U.S. investments in Chinese firms that Washington says are owned or controlled by the Chinese military, according to three sources familiar with the matter, in a bid to ramp up pressure on Beijing after the U.S. election. (Reuters)

UK exporters still face Brexit uncertainty after ‘avoidable’ government errors. The U.K.’s public spending watchdog says flaws in the government’s Brexit planning mean there is likely to be “significant disruption” at the border from January onwards, particularly for companies exporting to the EU. (Global Trade Review)

Powell warns of US economy risk with pandemic at deadliest yet. Three of the world’s top central bankers warned on Nov. 12 that the prospect of a COVID-19 vaccine isn’t enough to put an end to the economic challenges created by the pandemic. (Bloomberg)

Greek economy to shrink 10% this year because of second lockdown. Greece’s economy is expected to contract by around 10% this year as a result of a second lockdown to contain a resurgence of coronavirus infections, the country’s deputy finance minister said. (HSN)

UK regulators will intervene if full Brexit upends markets. Regulators are vigilant and ready to intervene if Britain’s full departure from the European Union on Dec. 31 risks creating disorder in markets, Britain’s financial regulator said on Nov. 12. (Reuters)

Hong Kong’s pro-democracy lawmakers to resign en masse. Hong Kong’s pro-democracy lawmakers announced on Nov. 11 they would resign en masse after four of them were ousted from the semiautonomous Chinese territory’s Legislature in a move one legislator said could sound the “death knell” for democracy there. (Business Mirror)

G20 urged to protect trade finance ‘ifelines’ as insolvency fears rise. The International Chamber of Commerce (ICC) is calling for “urgent” intervention by G20 governments to increase the availability of trade finance, as concerns grow over widespread insolvencies. (GTReview)

On the brink of state failure: Lebanon’s continuing crisis. After a year of protests at corrupt sectarian rule and a stagnant economy, and following a series of short-term leadership appointments, Lebanon faces multiple existential challenges. (Global Risk Insights)

America’s divisions are real, and not going away. Yes, Joe Biden won the election. But Donald Trump got 71 million votes, this time running on his record. (Interpreter)

Nigeria has ratified Africa’s historic free trade agreement—but its land borders remain closed. The largest world’s largest free trade area since the World Trade Organization has taken one step closer to becoming a reality. (Quartz)

The future of US-Russia relations. For half a decade, the spectral presence of Russia has haunted U.S. politics and caused concern on both sides of the aisle. What does the future hold for the complicated relationship between Moscow and Washington? (Global Risk Insights)

From protectionism to USMCA: A history of US trade. Importers and exporters know that trade has become part of the lifeblood of the American economy. This is largely owing to the buildup of trade relationships with other countries. The United States is currently working on its 15th free trade agreement with its 21st trading partner. But less than a century ago, the landscape looked completely different. (Shipping Solutions)

The most peculiar part of the U.S. political system is foreign policy. The average voter could not care less about the relationships the U.S. has with the rest of the world. The U.S. tendency towards isolationism is nothing new, but the irony is that no nation has been more involved in every aspect of global politics.

From wars in Iraq, Afghanistan and Syria and anti-terror efforts all over the world to long standing military bases in Europe, South Korea and Africa, the U.S. has been engaged. Eighty-seven nations claim the U.S. as their No. 1 trading partner, and the U.S. usually takes the lead in every international organization.

The Trump years featured an aggressively hostile attitude towards nations that were once considered allies. Donald Trump’s projected defeat has triggered expressions of relief and confidence in many parts of the world because there is an expectation that Joe Biden will return to past patterns.

It is far too soon to do much predicting as far as Biden’s foreign policy is concerned, although he comes better prepared than any president in decades. He was active in the U.S. Senate Committee on Foreign Relations for decades before becoming vice president under Barack Obama, and he continued to play a foreign policy role during those eight years. He is a known quantity as far as many world leaders are concerned. Based on his past and the comments made during the campaign, some of his positions can be assumed at this point.

The two nations that shaped much of the Trump term were China and Russia. It is likely that relations with Russia will deteriorate very quickly. Biden has made it clear he sees Vladimir Putin and Russia as threats to U.S. interests around the world. This will be a welcome shift as far as Europeans are concerned. And China will not be gaining a friend in the White House. Biden has been highly critical of China for years; and traditionally, it has been the Democrats that have been the most hostile to China over issues such as human rights, treatment of Hong Kong, attacks on ethnic minorities and the like. There has always been hostility over the loss of jobs to Chinese competition.

Europe will be a priority and Biden has already received a warm welcome from leaders such as Germany’s Angela Merkel, France’s Emmanuel Macron and other various EU leaders. The relationship with the U.K.’s Boris Johnson and other populist leaders in Europe will not be as warm. Europe and the U.S. are major trading partners with one another; the economic ties have been frayed over the last four years.

Another priority will be Latin America, but this will prove more complicated. The relationship between the U.S. and Brazil will weaken as Jair Bolsonaro is a Trump supporter but other nations are in play. Mexico is a high priority, but the current leader of Mexico is a left leaning populist and will be very hard to work with. Look for better relations with nations like Colombia and Peru, but not with leftist regimes in Argentina or Venezuela.

The Middle East is in flux as always. The number of conflicts can be staggering, but the priority nations will be the same: Israel, Iran, Saudi Arabia and Iraq. There may be an attempt to get Iran back to the negotiating table but much will depend on Saudi attitudes.

Japan is going through its own leadership shift, and the U.S. will wait for that to settle. The Biden team is likely to be far harder on North Korea, and there will be a move to get reengaged with many of the other Asian states that were essentially ignored the last four years.

The cross-border B2B payments space experienced a small drop in growth during the first half of 2020 due to the COVID-19 pandemic’s effects, but it is expected to continue expanding despite this hiccup. One recent report projected that the value of B2B cross-border transactions would reach $27 trillion by the end of 2020—below initial estimates—but will likely hit $35 trillion in 2022. This 30% growth rate may be modest but is welcome news for the companies that are turning to international markets for suppliers, business partners and employees. Firms making cross-border moves must also be capable of facilitating swift and seamless cross-border payments, and the health crisis appears to be adding challenges on top of the many that already existed.

Many firms still process cross-border transactions through wire transfers. This payment method sometimes requires senders to fax paper invoices to recipients, presenting numerous issues during the current business climate, in which more employees are working from home. Interest in instant payment rails and digital payment solutions is also growing as companies and workers expect to more quickly receive their funds, and failing to offer this speed can prove frustrating or even unsustainable when collaborating internationally. Technologies such as automation and blockchain are thus receiving more attention from businesses, especially as the volume of data that accompanies cross-border transactions expands.

The following Deep Dive explores how the pandemic is affecting the cross-border B2B payment challenges that businesses face and changing the ways they can accept or make such transactions. It also analyzes these shifts' impact on future international B2B payments.

Exacerbating Old Challenges

The global health crisis is aggravating existing cross-border B2B frictions while also adding new ones. Speed and security have always been a priority for firms in this space, but the pandemic is placing added weight on these considerations. A large portion of cross-border B2B transactions are sent via wire transfers: 69% of businesses tapped this method for cross-border payments in 2019. Many firms were reconsidering the method for its cost, speed and security well before the health crisis began, making it likely that these concerns have only deepened.

Businesses are also keeping a closer eye on their cash flows to stay afloat during the pandemic, meaning the routine price fluctuations that often accompany cross-border B2B transactions are now even more frustrating. Various factors, including the dynamics of the markets in which transactions take place and the payment amounts being sent, can shift wire transfers’ costs. These payments can also fail to arrive quickly enough for firms facing dire economic situations during the health crisis, as funds generally take between three and five days to settle in recipients’ bank accounts.

The growing threat of fraud is perhaps the most critical adversary businesses are confronting during the pandemic. Much of the time involved in sending wire transfers stems from businesses verifying recipients’ financial details, as failing to get them right can cause funds to be sent to wrong accounts or to bad actors capitalizing on pandemic-related disruptions. Fraud scams targeting these wire transfers have long been an issue, with U.S. companies losing roughly $1.77 billion to business email compromise (BEC) scams last year, for example, and global businesses losing approximately $26 billion between June 2016 and July 2019.

Fraudsters perpetrating these schemes send emails that convince firms to wire money into fraudulent accounts. The FBI warned companies during the pandemic’s earlier months that BEC scams were becoming more common and that failing to combat them could drive up costs, lead to breaches and ruin business relationships. Many businesses must accommodate employees’ and international partners’ evolving needs despite these hurdles. Some are therefore considering new technologies that can help them make cross-border B2B payments smoother and more secure.

The Pandemic and Changing B2B Needs

Businesses are exhibiting interest in several tools and payment processes that could address wire transfers’ weak points, including automated technologies that help companies examine all details attached to transactions with more speed and transparency. This would mean pairing technology that can send this data in real-time alongside payments sent via real-time networks, for example. Automation and technologies like blockchain are gaining momentum, with several card networks and payment processing firms offering blockchain-enabled solutions that can boost security and reduce transaction times.

However, interest does not necessarily indicate adoption. The use of such technologies is expanding, but making these solutions feasible requires businesses’ partners to accept them, and different markets have distinct rules governing these payments and how the attached data must be handled. Blockchain must also see broad adoption to be effective, and both it and automation cannot reach their full potential if businesses’ partners still rely on legacy wire and paper-based transactions.

Firms doing business internationally must optimize their cross-border B2B payment processes to stay competitive during the pandemic and be positioned for continued success once it has ended. The challenge is not in finding available solutions but in implementing them effectively. Deciding which tools are best suited to companies’ and their international partners’ payment needs could be key to helping them survive the pandemic and thrive after it ends.

Reprinted with permission from PYMNTS.com.

The impact of currency volatility soared 44% in a single quarter, causing more than $17.5 billion in foreign currency exchange losses in Q2 2020, according to the latest Kyriba Currency Impact Report (CIR).

The report details the impact of foreign exchange among 1,200 multinational companies based in North America and Europe. The spike in currency volatility marks the seventh time in eight quarters that the quantified negative currency impact has been more than $10 billion.

Highlights from the Q2 2020 Currency Impact Report include:

• North American companies indicated the Brazilian real as the most impactful currency for the second straight quarter, with 28% of companies referencing the real in their Q2 earnings calls, followed by the euro.
• The Canadian dollar emerged as the third most impactful currency for North American companies, claiming a top five spot for the first time since Q2 2019.
• The average earnings per share (EPS) impact from currency volatility reported by North American companies in Q2 2020 remained at $0.04, four times greater than the industry standard MBO of less than $0.01 EPS impact.
• Healthcare equipment and supplies and the professional services industries experienced the greatest impact from currencies, as those industries continue to be affected by the global pandemic.
• Publicly traded European companies that qualified to be monitored in the Q2 2020 report indicated a collective currency loss of $3.37 billion. For the second quarter in a row, the euro was reported as the currency most mentioned as impactful by European companies during Q2 2020 earnings calls, followed by the Brazilian real.

The CIR details the impact of foreign exchange exposures among publicly traded companies. All companies in the report do business in more than one currency, with at least 15% of their revenue coming from nations that are located outside of their headquarters.

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 Week in Review Editorial Team:

Diana Mota, Associate Editor and David Anderson, Member Relations