Week in Review
What We're Reading:
AUGUST 2, 2021
COVID recovery drives US credit rating upgrades to record high. The strong economic recovery in the United States has led to a record number of corporate credit rating upgrades this year, figures from S&P Global showed on Thursday. (HSN)
No end in sight to supply-chain snarls, so now what? Freight logjams and shortages of everything from garbage truck parts to chips are forcing manufacturers to come up with alternatives. (Bloomberg)
German business confidence drops over supply shortfalls, virus fears. Managers in Germany are not feeling overly optimistic about the coming months, a major business confidence barometer shows. Two major concerns are clouding their outlook. (DW)
Amazon hit with record EU data privacy fine. Amazon.com has been hit with a record $886.6 million European Union fine for processing personal data in violation of the bloc's GDPR rules, as privacy regulators take a more aggressive position on enforcement. (Reuters)
North Korea's economy in crisis because of COVID-19, sanctions. North Korea's economy suffered its biggest contraction in 23 years in 2020 as it was battered by continued U.N. sanctions, COVID-19 lockdown measures and bad weather. The Bank of Korea (BOK) gives the most reliable estimates of economic output in the reclusive North, but other experts said the situation could be even worse. (US News & World Report)
Striking a balance on climate change and global trade. In theory, climate-related restrictions on trade can be crafted to comply with WTO rules, and such restrictions, if they fall within those rules, could help send a price signal that would encourage less reliance on fossil fuels in other countries. (The Hill)
How big a threat is inflation? Inflation is back. Some warn of a return to the 1970s, while others downplay recent upticks, arguing outdated myths are being used to drive opposition to stimulus plans. The truth lies somewhere, as ever, in between. (DW)
Supply chain issues are here to stay. As global demand improves, ING thinks supply chain problems are here to stay, making it difficult and expensive for firms to get hold of industrial inputs even as more countries recover from the pandemic, particularly in a policy environment increasingly geared towards reshoring and domestic production. (ING)
Crops left to rot in England as Brexit begins to bite. Farmers have told Euronews that restrictions to freedom of movement have had a "devastating" impact. Brexit -- the effects of which kicked-in at the start of the year -- means hiring migrant pickers from eastern Europe is now much harder.
Global shortage of computer chips hits US manufacturing. The global shortage of computer chips is causing major headaches for American manufacturers. (Illinois News Today)
NFTs in trade finance: the next frontier or bad idea? Non-fungible tokens, or NFTs, have recently become the latest blockchain-based innovation to enter the lexicon, and are fast outstripping bitcoin in both hype and popularity. (Global Trade Review)
A new left turn in Latin America? COVID-19, populism and polarization. The apparent victory of socialist candidate Pedro Castillo in Peru’s general election this year hints at a leftward political trend in Latin America. COVID-19 has played a role in this, but the key driver of the shift is more fundamental. Recent developments are indicative of worsening populism and political polarization in the region. (Global Risk Insights)
The political implications of Switzerland’s F-35 acquisition. Switzerland has finally selected Lockheed Martin’s F-35A for its Air Force 2030 program. The deal, with 36 aircraft, is expected to be worth $6.5 billion. Critics have argued that the F-35, with its sophisticated stealth and networking capabilities, is too much for a small country like Switzerland that requires only an air-policing aircraft. The decision to select the F-35 exemplifies how much politics are involved in purchasing military hardware worth billions of dollars. (Global Risk Insights)
Due diligence for international sales: what to do and what not to do. Due diligence is not a guarantee, but it can certainly mitigate risks. (Shipping Solutions)
Payment Delays on the Rise in Mexico
Diana Mota, editor in chief
More than a quarter of the respondents to FCIB’s recent International Credit & Collections Risk Management Survey on Mexico noted increases in payment delays, of which 100% were from existing customers. Cash flow issues (29%) were cited as the primary reason for delays followed by customer payment policy, and cultural norms and customs (both, 18%).
Mexico is one of several countries that has appeared multiple times on Week in Review’s weekly poll question: Sales into which country this week presents the greatest credit or political risk to your company?
One survey respondent, with a majority of his customers under a master purchase agreement or global contract, advises, “It's still best to conduct due diligence for every prospective customer, establish a minimal credit line and monitor the customer closely to avoid a huge exposure at the onset. You can make incremental increases once transaction, payment behavior, relationship has been stable and established.”
Another respondent warns, “Whatever terms you grant, expect to be paid in 60-plus days,” and yet another, “Know your customer and try to remain fully secured. The present government is not business friendly, which was causing problems even before the pandemic pushed the economy over the edge.”
Trade credit insurer, Euler Hermes, lists the following weaknesses for Mexico:
- Financial integration means market volatility is driven by both domestic (more or less pro-business stance) and external (U.S.) policy risk. Trade uncertainty dissipated but doubts over the implementation of NAFTA remain.
- Fiscal position highly sensitive to oil price (oil totals 30% of public revenues).
- Sensitive to U.S. business cycle (around 80% of exports).
- Skewed income distribution (geographically as well as among socio-economic groups), still high poverty levels.
- Security issues related to drug-trafficking.
- Rule of law and control of corruption below Latin America’s average.
Keys findings from trade credit insurer Atradius’ Payment Practices Barometer report on Mexico include:
- 53% of businesses reported they offered trade credit to encourage repeat business with established customers; 26% offered credit to win news customers.
- 52% of the total value of B2B sales in Mexico are sold on credit. In the year following the outbreak of the pandemic, 40% of the businesses reported an increase in the cost of financing or interest paid during the time between the credit sale and payment.
- 68% of respondents in Mexico actively employ credit insurance, compared to 53% in the U.S. and 65% in Canada.
- An average of 45% of all B2B invoices issued in Mexico are paid late. This is the lowest percentage in USMCA (U.S., 50%; Canada, 48%); 5% of long overdue invoices (more than 90 days overdue) were written off. This is in line with the average for Canada and lower than the 8% average for the U.S.
- Concerns about maintaining adequate cash flow over the coming months were expressed by 31% of businesses polled in Mexico, significantly more than the 16% in the U.S. and 19% in Canada; 28% were concerned about the unpredictability of the pandemic (U.S., 18%; Canada 22%).
- 48% of businesses said they expect credit sales to become an increasingly widespread business practice over the next 12 months and they expect this to be aimed at stimulating sales within industries where demand plunged due to the pandemic.
FCIB members can access the complete results of the International Credit & Credit Collections Survey via The Knowledge & Resource Center; login required. The current survey, which is open to all credit professionals, covers Greece, Italy, Spain and the United Kingdom. Participation in the survey provides members and nonmembers with the results. The International Credit & Collections Risk Management Survey—the only one of its kind in the United States and Europe—allows you to further the collective knowledge of global credit professionals by sharing real-time credit and collection experiences.
Credit Congress Spotlight Session: Take Your Game
to the Next Level—Using Emotional Intelligence to Advance Your Career
Speaker: Jake Hillemeyer, Dolese Bros. Co.
Duration: 60 minutes
Credit Congress Spotlight Session:
When and If to Help a Distressed Customer
Moderator: Chris Ring, Speakers: D'Ann Johnson, CCE, A-Core Concrete Cutting, Inc. and Eve Sahnow, CCE, OrePac Building Products
Duration: 60 minutes
Get Yourself Ready for 2024: Goal Setting and Future Planning
Speaker: Hailey Zureich, zHailey Coaching
Duration: 60 minutes
Mastering Mechanic's Liens in Iowa: Distinguishing Commercial, Residential and Public Projects
Speaker: Chris Ring, NACM’s Secured Transaction Services
Duration: 60 minutes
Collaboration Elevates the Multitasking Path to Modern Cross-Border B2B Payments
Cross-border B2B payments remain among the most difficult segment of corporate payments to optimize. Weighed down by the legacy of a correspondent banking system that often lacks speed, transparency and availability of data, traditional cross-border business payments can be somewhat of an enigma to fintech and payments innovators.
Some industry players are working with existing payment rails or investing in entirely new infrastructure. Beyond the act of moving funds, there is also a growing number of technologies and services that aim to add value for corporate end users by enhancing visibility and predictability into transactions, mitigating risk, accelerating speed and enabling integration of data into back-office platforms.
In an ecosystem where there is no shortage of friction and plenty of opportunity for innovation, industry disruptors are discovering the value of collaboration to multitask and forge multiple paths to progress.
The most recent to take a multifaceted approach to this conundrum is Goldman Sachs, whose partnership with Fiserv became the latest of multiple strategies the financial institution has deployed to propel cross-border B2B payments into the modern age. The effort reveals how the financial institution is banking on industry collaboration to multitask and broaden the reach of novel B2B payment technologies and solutions.
Setting The Stage with Visa
Earlier this year, Goldman Sachs placed its cross-border B2B payments ambitions front and center through a partnership with Visa. Announced in June, the collaboration saw the financial institution (FI) connecting its transaction banking clients to an array of Visa technologies. The idea was to connect users to solutions depending on the particular pain points they experience.
For instance, high-value, low-frequency global B2B transactions can leverage Visa B2B Connect, Visa’s account-to-account (A2A) payments network that has expanded since its launch to include 97 markets around the globe.
Low-value, high-frequency global B2B transactions, meanwhile, will deploy Visa’s Direct Payouts tool, a push payment solution that can move funds directly to the accounts of small businesses and consumers by leveraging 16 card networks, 65 ACH networks, seven real-time payment services and five payment gateways.
This multi-rail, ground-up approach to addressing cross-border B2B payments includes efforts to overcome the infrastructure challenge of legacy correspondent banking networks, as well as the user-experience challenge of traditional cross-border B2B payment methods that often fail to provide corporates visibility into where funds are, when they will arrive or what has caused any potential delay.
“The data is extremely important, and without adjusting the underlying rails and infrastructure to accommodate more robust and enriched data payloads, how else is that going to happen?” Alan Konigsberg, global head of new payments flows at Visa Business Solution, previously told Karen Webster.
Expanding Progress to Others
As Goldman Sachs turns to partners to support its own clients’ cross-border B2B payments needs, the financial institution is now taking that progress to other businesses through its more recent deal with Fiserv.
Their latest initiative will see Goldman Sachs Transaction Banking providing cross-border B2B payment services to Fiserv clients, enabling seamless global supplier payments by providing Fiserv clients access to Goldman’s centralized payments suite. The technology will be made available within Fiserv’s existing accounts payable technologies, including SnapPay.
“Pairing our B2B accounts payable technology with an industry leader in transaction banking offers these clients a secure solution that brings new levels of automation, efficiency, and cost savings to accounts payable,” David Ades, head of global enterprise solutions at Fiserv, said in a statement.
Many of the most aggressive efforts to combat global B2B payments friction aim to multitask, and the Goldman-Fiserv pairing is taking a deliberate approach to tackling several pain points. Initially, their efforts will focus on reducing B2B transaction costs and accelerating settlement speeds while automating the reconciliation of transactions with corresponding invoices and providing real-time payment tracking. The ability for Goldman Sachs to integrate its cross-border payments capabilities directly within Fiserv platforms also eases the pains of data integration and efficiency in the back office.
Combatting the laundry list of cross-border B2B payment friction points and bottlenecks demands this kind of juggling. Yet, whether a financial institution is lending its technology and services to a partner or embracing the opportunity to embed the technology and services of other innovators, industry collaboration appears to be the way forward.
Reprinted with permission by PYMNTS.com.
Refinitiv Survey Reveals Impact of COVID-19 on Supply Chain Due Diligence
Organizations that responded to a Refinitiv survey were under mounting pressure to increase revenue (73%) and profits (65%) due to the COVID-19 pandemic.
As these organizations struggled to keep operations and disrupted supply chains running, 65% of them acknowledged they took shortcuts with KYC and due-diligence checks, increasing their risk exposure, according to the survey, Global Risk Management Report 2021: How data, technology and collaboration. Only 44% of the respondents conducted initial formal customer or third-party due diligence checks, a 5% drop compared to Refinitiv’s 2019 survey (49%).
Refinitiv, a LSEG a London Stock Exchange Group business, is a provider of financial markets data and infrastructure, has published the findings of its global risk management survey. The report highlights how the COVID-19 pandemic increased customer and third-party risks, and that technology holds the potential to help organizations respond to the risk challenge.
When it comes to due diligence checks, by region, Europe was the lowest performing (40%); while Sub-Saharan Africa (56%), the highest. A focus on rapidly forging new third-party relationships also created an environment with reduced sanctions screening. Only 40% of the organizations made screening a priority, and 56% of them admitted they did not fully manage risks related to sanctions screening. Regulators also eased pressure on organizations; compared to Refinitiv’s 2019 report, pressure from governments (75%), regulators (67%) and corporate boards (64%) was considerably lower during the pandemic.
The new remote working culture during the pandemic made it more difficult for organizations to manage cyber risk given 71% of the organizations stated that operating with a remote workforce made cybercriminal attacks harder to contain. This was the impetus for half (51%) of them making cybercrime a priority during the pandemic. Fraud also was a big focus with companies dedicating substantial resources (20%) to combatting this aspect of financial crime, followed by 16% for money laundering and 14% to cybercrime and theft.
“Looking back at the lessons learned over the past 16 months, it is clear that businesses must close the compliance gap and focus on building a resilient supply chain with due diligence and financial crime prevention at its core,” said Phil Cotter, global head, customer and third-party risk, Refinitiv. “As organizations slowly recover from the COVID-19 impact, we expect an increase in technology investment as they seek new way to address customer and third-party risk challenges.”
The report highlights the power of technology innovation. Of the organizations surveyed, 86% reported that innovative digital technologies have helped them identify financial crime, and 91% of technology champions stated they will look to improve financial crime detection and mitigation over the next year. There is increased appetite for emerging technologies, as 43% of the respondents reported they are under extreme pressure to increase revenue due to the pandemic and are interested in deploying artificial intelligence (AI) and machine learning to fight financial crime.
The survey also finds that the COVID-19 pandemic has prompted greater collaboration across industries and between businesses, people or institutions, and links this trend to the use of technology. Organizations already using the power of technology to address financial crime are 60% more likely to collaborate with law enforcement than those not using technology.
Another change the research highlights is the increased importance of ESG to organizations and the emphasis on green crime. The survey shows that two thirds of organizations are concerned with ESG factors when it comes to due diligence and 43% of respondents consider emerging threats such as green crime a priority.
The report findings are based on a survey completed by nearly 3,000 managers, who are either knowledgeable or involved in regulatory compliance and practices in large organizations with an annual average turnover of US$24.3BN/£17.2BN. The research was conducted in March 2021 across 30 countries, including the U.S., U.K., Canada, Brazil, Argentina, Mexico, Germany, France, Netherlands, Italy, Spain, Russia and Poland.
Week in Review Editorial Team:
Diana Mota, Editor in Chief and David Anderson, Member Relations