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April 6, 2020

IMF officially declares global economic recession. The International Monetary Fund (IMF) officially declared that the global economy has entered recession as a result of the spread of the new coronavirus, which has shut down economic activities across the world. (New Times)

A global consumer default wave is just getting started. While the extent of the squeeze on consumers and their lenders will depend on the effectiveness of government efforts to contain the virus and shore up economies, the scope for pain is immense. (Bloomberg)

Trump shifts to worry over oil rout, discusses prices with Putin. President Donald J. Trump said he’s concerned oil prices have fallen too far and called Vladimir Putin on Mar. 30 to discuss Russia’s oil-price war with Saudi Arabia. (Business Mirror)

After coronavirus: Where the world economy will stand. Debt will grow, for government, business and individuals alike, with interest rates to stay low—but all under control. (Interpreter)

British exporters call for 100% ECA cover to ease coronavirus crisis. A U.K. industry group is calling for changes to international rules to allow export credit agencies (ECAs) to provide 100% insurance cover for trade transactions, helping ease the pressure caused by the global spread of Covid-19. (Global Trade Review)

EU’s INSTEX mechanism facilitates first transaction with pandemic-hit Iran. The EU-Iran trading mechanism INSTEX, designed to allow Europeans to bypass U.S. sanctions and continue trade with Tehran, has successfully concluded its first transaction. However, the humanitarian deal actually doesn’t appear to contravene EU sanctions. (EurActiv)

The coronavirus crisis proves reasonable workplace accessibility has been possible all along. As the new reality of the coronavirus pandemic has set in, people around the world are experiencing the trials of isolation and exclusion of quarantine and social distancing for the first time. We are entering a new norm where a video call is the new meeting, virtual travel is the new weekend activity, and “self-isolation” is a common phrase. (Quartz)

India to grow fastest among G20 economies despite coronavirus impact, says EIU report. Despite the coronavirus cases growing daily, India will rise as the fastest-growing economy among the G20 countries, says a report by Economist Intelligence Unit (EIU), that in the light of coronavirus pandemic slashed India’s GDP growth forecast from 6% to 2.1%. (HSN)

How companies can rethink supply chains to deal with disruptions. The impact of the coronavirus pandemic on supply chains has given new meaning to the word disruption. What this is showing, especially in the U.S., is we need to reassess supply chain strategy and make it stronger. (Global Trade Magazine)

The evolving world of treasury and corporate supply chain. Treasury and supply chain disruption caused by external factors is nothing new, but recent developments may be making it the new normal. Therefore, the ability to switch technology and supply chains to new locations/suppliers with the minimum of upheaval is becoming a business imperative. (TMI)

G Suite’s security lead gives you the tips you need to keep your remote team protected. Although remote work has been a growing trend in businesses and institutions over the past few years, the global outbreak of Covid-19 has forced any businesses who can to accelerate remote integration plans, catapulting many routine interactions online before leaders felt ready. (Quartz)

BBC Dad has learned a thing or two about working from home. A famous video of madcap mayhem in a home office suddenly has new resonance. Yet with the laughs, expect a long grind. (Interpreter)




The Shape of the Recession: U, V or L

Chris Kuehl, Ph.D., NACM Economist

There are many ways a recession can be categorized. In the next several weeks, they will all be trotted out as analysts attempt to get a handle on the threat facing the global economy at this stage. There will be discussion around every new measure of slowdown because these are unprecedented events. The most basic of the assessments revolves around the shape of the recession.

Will this be a V? That is the traditional short and sharp recession that most economies have been through many times. The damage is done quickly and the recovery is just as quick. The average length of a V is two quarters. Then, there is the U which starts out similarly to the V, but the recovery is slower. These often last three to four quarters. Finally, there is the dreaded L. This is the downturn that falls quickly like the others, but takes its sweet time rebounding. This is what the 2008 recession turned out to be as the recovery dragged on for several years after the fall in 2008. It still felt recessionary in 2013 and 2014, even after the recession came to a formal end in 2009.

What are we looking at this time? As usual, there are a variety of opinions on offer. There are the pessimists declaring we are facing a lengthy period of downturn and those who assert this will be short and intense. If we look at some of the past recessionary events, there may be some lessons. The 2008 recession was a collapse of the financial sector brought on by massive miscalculation and poor strategy regarding mortgage-backed securities and the subsequent loss of credit. The entire underpinning of the financial system was exposed as flawed.

In 2001, there was a recession provoked by a single event—the 9-11 attack. This attack was unprecedented and stunned the global economy. It took a couple of quarters for the world to recover and rebound. Thus far, the COVID-19 economic crisis looks more like the 2001 situation than it does 2008.



Fitch Ratings Updates 2020 Sector Outlooks
to Reflect Coronavirus Impact


Eighty-three percent of sector and structured finance asset performance outlooks are negative, up from 21% at the beginning of 2020, according to Fitch Ratings’ updated global sector outlook. There are no positive sector outlooks.

Fitch Ratings reviewed and updated its sector outlooks in response to a rapidly deteriorating macroeconomic and operational environment due to the effects of the coronavirus pandemic. Sector outlooks reflect business and economic conditions and are more sensitive to changes in the economic environment than rating outlooks, the firm stated. Asset performance outlooks reflect directional performance trends in the underlying assets of structured finance transactions.

All sovereign sector outlooks are negative, reflecting the unprecedented supply-side shock resulting from protracted lockdowns across major economies. First- and second-order effects from the pandemic have already resulted in macroeconomic deterioration at a pace and scale that is unprecedented in recent decades. Large-scale stimulus packages in response to the crisis will affect fiscal accounts beyond the short term. Emerging markets will face additional risks from a confluence of weakening currencies, capital outflows, funding stresses and significantly reduced commodity prices. The oil price shock and sustained lower oil prices from a combination of over-supply and reduced demand, will particularly affect energy exporting economies. The extent of sovereign rating downgrades will depend on the duration of the coronavirus crisis, the speed of the recovery and the commitment of sovereigns to recover credit metrics to pre-crisis levels once the pandemic is contained.

Corporates across regions and most sectors will also face significant challenges from the worsening operating environment and economic shutdowns. The quick rise in unemployment and jobless claims in major developed and emerging markets points to the substantial demand destruction that will compound effects from the initial supply shutdown. Some sectors will be better positioned, however, including utilities, telecommunications, food and health care.

Asset quality pressures, alongside the disruption in financial markets, will be major vectors of risk for most financial institution sectors as the global economy contracts in second quarter 2020. Funding pressures will also be an issue for some non-bank sectors given heightened and prolonged market volatility. The rapid decline in interest rates raises questions about spread and investment earnings over the medium term.

Almost all structured finance asset performance outlooks have been revised to negative, reflecting the economic disruption's effects on business and personal borrowers. Due to the global nature of this coronavirus, weakening asset performance is expected in all regions.

Outlooks for U.S. public finance sectors are mostly negative. State and local governments and educational institutions will face budget pressures from the lockdowns, which will cut revenues and reduce cash flows. Utilities such as public power, water and sewer will likely be more resilient, but could still see effects from rising delinquencies and lower demand. International public finance also has a negative outlook with revenue contraction the most significant near-term pressure for local and regional governments.

Eleven of 16 sector outlooks for global infrastructure are negative, mostly related to transportation and the severe demand contractions in those sectors. The bulk of the remaining global infrastructure sectors with stable outlooks are energy and renewable power projects, which have relatively limited exposure to the coronavirus pandemic.


How Payment Variety Drives Collections
Flexibility for SMBs


In the consumer commerce world, offering customers choice in how they pay for goods and services across channels is an important part of offering an optimal end-user experience. In the business-to-business (B2B) world, however, small businesses offering payment choice is less about a positive customer experience and more the result of how a customer demands a certain payment experience.

For payment service providers, this presents an opportunity to guide small- and medium-sized businesses (SMBs) that serve both business and consumer customers toward solutions that can not only support customer satisfaction, but also promote efficiencies for the seller as well.

According to Weave senior director of payment operations, Tamra Gray, there are a variety of reasons why small businesses in particular struggle to let go of outdated collections processes that don’t suit their own needs, or the needs of their customers.

“It’s muscle memory,” she said, of the ongoing use of the paper invoice. “It’s what they’ve always done, and it works with their accounting system.”

Why Friction Persists

The friction for customers of legacy collections tools is obvious: an experience of a cumbersome process of waiting for an invoice to arrive in the mail, and logging online or calling in to manually enter credit card data. For B2B customers, receiving paper invoices and mailing paper checks has its drawbacks as well.

“Time is of the essence for B2B small businesses,” said Gray. “To have someone sit down at a desk and write checks—they don’t have time. They’re too busy trying to figure out how to put together the bid for their next piece of business.”

For the small business, too, there is significant friction, with Gray pointing to the cost of generating and mailing out those paper invoices as one of the largest.

But traditionally, there have been significant barriers to adopting better collections methods as well. The price and complexity of more sophisticated payments collections technologies are among the tallest, Gray said, with tools like text-to-pay functionality simply not economical enough to warrant an investment—even despite a better customer experience.

Accelerating Collections

As the payments landscape—and the economy at-large—continue to evolve, small businesses increasingly demand solutions that can accelerate their order-to-cash cycles.

“Get me my money as fast as you can,” Gray said of SMBs’ demands today. “Let me get my money in the most convenient way possible, because that is going to increase my loyalty with my customers, whether they be B2B or B2C.”

While she added that more SMBs are interested in adopting digital payment methods in an effort to present their customers with more choice, they continue to struggle to overcome the pain points of managing multiple payment rails in a card-not-present environment, and the security risks it presents.

Businesses in medical services and other similar fields will often need technologies that can accept payment after services have already been completed, and when that payment cannot occur face-to-face—perhaps because of insurance or co-payment issues—businesses need ways to accelerate collections remotely. And increasingly, as gig workers and independent contractors demand mobile payment and collection solutions, digital ways to accept payment when a customer is in a different location are vital.

These are some of the scenarios helping to drive adoption of text-to-pay, though it’s important to note that this collections strategy must exist in cooperation with a variety of payment methods in order to suit all needs and scenarios on both the buyer and supplier end of a transaction.

“There will always be people who want to go in and use their card face-to-face,” she noted. “But small businesses are interested in text-to-pay, and that’s going to expand.”

Finding Flexibility

But while SMBs are facing growing pressure to expand collections options and embrace payments digitization for their business and consumer partners, there is also the need for their payment service providers to similarly demonstrate flexibility in their offerings.

Providing a range of payment options means having to consolidate transaction data in the back office for accounting, for example, while extending technologies that are both affordable and nimble for SMB users. There are also opportunities for value-added services to further add flexibility to the payments and collection process, from adding card-on-file capabilities to integrating financing or payment plan solutions.

As Weave explores these avenues, Gray said the company is also focusing on educating small business clients to the value of adjusting their collections strategy.

“It’s not that they don’t understand the technology or that it’s too cumbersome. from a pricing perspective,” she said. “It’s that they’ve always done it a certain way. We need to help educate them on new, faster, easier ways to go.”

Reprinted with permission from PYMNTS.com.




 Week in Review Editorial Team:

Diana Mota, Associate Editor and David Anderson, Member Relations