Week in Review

What We're Reading:

July 6, 2020

U.S. House bill targets banks amid fears over China law for Hong Kong. The U.S. House of Representatives passed legislation on July 1 that would penalize banks doing business with Chinese officials who implement Beijing’s draconian new national security law imposed on the former British colony of Hong Kong. (Reuters)

Satellite images show buildup on disputed India-China border. Construction activity appeared underway on both the Indian and Chinese sides of a contested border high in the Karakoram mountains a week after a deadly clash in the area left 20 Indian soldiers dead, satellite images showed. (Business Mirror)

Economic growth rates will be distorted for the rest of the year due to how they are calculated. When the Bureau of Economic Analysis or BEA releases its first estimate for the economy’s second quarter growth rate it is going to look very ugly. There are various estimates but they tend to cluster around a 40% decline for the U.S. economy. (HSN)

Hong Kong: The finishing blow. The new legislation marks the completion of Beijing’s total control and surveillance of every quarter of the PRC. (Interpreter)

Beijing's security law threatens Hong Kong's financial hub status. A new security rule for Hong Kong has been welcomed by businesses focused on China, but the longer-term damage to Hong Kong's autonomy and business environment could prove serious. (DW)

LatAm, Caribbean recession to be twice global average. Region's economies will contract by 9.4% in 2020, driven by deep recessions in Brazil and Mexico, the IMF says. (Latin Finance)

Mercosur leaders look to close EU deal despite Macron’s resistance. Mercosur ministers reported progress on the final text of a trade agreement with the European Union on July 1 on the eve of a summit meeting overshadowed by French President Emmanuel Macron’s latest comments against the deal. (EurActiv)

Is UK heading to no-trade-deal Brexit? Banks assess risk. Britain and the European Union remain far apart in negotiations on a new trading relationship and analysts at many banks say the risk of a no-trade-deal Brexit at the end of the year is firmly back on the table. (HSN)

Ecuador's debt restructuring prospects. Facing a perfect storm of sharply lower oil prices, a devastating coronavirus outbreak, loss of financing options and deep recession, Ecuador has chosen to restructure its global bonds. (Fitch)

Iraq seeks IMF loan, Saudi investments to boost oil-battered economy. The IMF and Iraq are in 'intensive' negotiations about a loan that would probably be a maximum of $5 billion USD. (Arabian Business)

50% cut in Chinese FDI poses bleak prospect for Indian economy. Double blows from the COVID-19 pandemic and hostility of the Indian government may turn 2020 into a turning point for Chinese investment to India, according to a Global Times survey of experts on China-India economic and trade relations. (HSN)

Four post-pandemic technology solutions for the new normal. The new reality is that workplace environments will be anything but “normal.” Here are four technology solutions that will help enterprises navigate and operate in a new reality. (Global Trade Magazine)

Despite making major strides in functionality, legacy payment rails like ACH still come with their challenges—especially when facilitating B2B payments.

Innovators have turned their attention and energy toward mitigating those points of friction, either though solutions that sit on top of existing payment rails, or through building entirely new infrastructure from the ground up.

While both have resulted in ways to connect businesses to accelerated, more affordable, and more efficient payments, the fact is most companies will need access to a range of payment networks and services that cannot always be addressed by one solution provider.

Patricia Montesi, CEO of B2B payments company Qolo, told PYMNTS that the current B2B payments ecosystem can fall short of what organizations need in more ways than one. With technological innovation happening at lightning speed, even tools only a decade old can fail to meet the needs of companies that participate in the digital economy.

According to Montesi, the inefficiencies that result can expose firms to significant threats and slow down their own innovative business trajectories.

Friction Near and Far

One of the biggest challenges in the B2B payments landscape today, said Montesi, is a lack of a streamlined, integrated platform that can address every B2B payment need a company may have.

“What we were seeing in the industry was a lack of cohesive, holistic solutions,” she said. “You could go for a bigger [payments] player that has all capabilities under one roof, but frequently are sitting on disparate platforms managed by different teams. It’s a struggle to have a seamless experience.”

The alternative is to turn to more modern payments technology companies, but according to Montesi, these newcomers more often specialize in one core function that must be “stitched together” with other specialty players. That means a mix of payment processors, card issuers, acquirers, foreign exchange, cross-border payment services and others.

For businesses, this creates a complex, fragmented ecosystem that requires specialty knowledge to optimize. Without experts in the back office, organizations can’t understand what might be considered competitive pricing, will struggle to integrate these functions together, and can elevate their exposure to risks like fraud.

“You have to bring people in-house to manage multiple vendors, which creates security and fraud risks,” said Montesi. “There are vulnerabilities that exist with a single supplier, and you multiply that every time you have a different integration point with another set of codes or specs to integrate. Everything becomes much more complex to manage.”

Modernizing B2B Payments

Qolo recently announced its debut as a B2B payments platform with an emphasis on operating as an “all-in-one” provider, enabling firms to access an umbrella of B2B payment functionality via an application programming interface (API) set without having to sacrifice technological agility.

For older firms with legacy B2B payment models, Montesi admitted that they may be reluctant to overhaul their current workflows and tools in favor of a new technology provider. But for FinTechs and other companies that operate within the new economy, and that view payments as a critical part of their business model, implementing modern B2B payments infrastructure is crucial.

“Even the so-called modern processors are 10 years old,” she noted. “One year of technology today is a lifetime ago. If you built your platform in 2010, that was before Uber or DoorDash.”

Understanding the legacy of B2B payments and being able to improve upon older technologies, yet approaching the market with a ground-up mentality, is a balance that can support the needs of modern companies that must work with legacy tools like ACH and wire, but need the integration, fraud protection and efficiencies they struggle to achieve.

It’s easier said than done, of course. But as Montesi noted, companies today are “frustrated” with what’s been available on the market, and it’s time for the B2B payments arena to join the new economy.

“We embrace traditional networks and bank systems, but we see where they fall down or where they can be improved,” she said.

Reprinted with permission from PYMNTS.com.

After a 2019 dominated by U.S.-China trade tensions, Coface has observed an incipient recovery in Asia (excluding China), supported by supply chain shifts and additional liquidity from the U.S. Federal Reserve.

Average payment terms improved in 2019, rising to 67 days compared to 69 days in 2018. And while 65% of companies reported experiencing payment delays in 2019 (63% in 2018), the average payment duration decreased to 85 days in 2019, down from 88 days in 2018, the trade credit insurer said. (Data was compiled in the fourth quarter of 2019 prior to the impact of the COVID-19 pandemic on the economy in the Asia-Pacific region.)

Coface also noted this recovery will prove short-lived due to the COVID-19 pandemic. It expects many economies in the region to experience their biggest contraction since the Asian Financial Crisis in 1997-1998.

On a GDP-weighted basis, Coface projects that the growth rate of Asia’s economies will fall to 0.3% in 2020 (0.65% excluding China). This can be compared to the 2019 growth rate of 4.6%, or even the 1998 rate of 2.9% (0.76% excluding China).

2019 saw the first improvement in average payment terms since 2015, Coface said. The longest payment terms were in Japan (91 days), China (86 days) and Taiwan (72 days), while all other economies in the Asian countries surveyed had payment terms below average. At the opposite end of the spectrum was Australia, with a 36-day period.

Payment delays were longest in China (96 days), Malaysia (84), and Singapore (71). Since 2019, payment delays have increased in Thailand (up seven days to 69) and in Malaysia and Taiwan (both up to two days to 67).

Nearly half of the survey respondents said that the main driver of the increase in payments delays was customers’ financial difficulties. These difficulties predominantly came from fierce competition impacting margins (41%) and a lack of financial resources (22%).

Average payment terms were longest for the energy, information & communications technology (ICT), and construction sectors, with more than 20% of companies offering payment terms of 120 days or more.

These same sectors also recorded the longest payment delays, with 24%, 28% and 26% of respondents reporting payment delays of 120 days or more, respectively.

Payments delays and cash flow risks often go hand in hand, Coface explained. To assess cash flow risks, the firm studies the ratio of ultra-long payment delays (ULPDs, over 180 days). When these constitute more than 2% of annual turnover, a company's cash flow may be at risk. In Coface’s experience, across the world, 80% of ULPDs are never paid.

The proportion of the Asian companies studied that were experiencing ULPDs exceeding 2% of annual turnover fell to 31% in 2019, down from 38% in 2018. However, a closer look reveals that this "recovery" is equivocal: the number of companies reporting ULPDs exceeding 10% of annual turnover remained constant in 2019 (13%).

Excluding China, the highest proportion of companies with ULPDs exceeding 10% of annual turnover were in Malaysia (7%), Singapore (7%) and Thailand (6%). Similarly, the proportion of countries reporting ULPDs exceeding 10% of annual turnover was highest for the transport, energy, and construction sectors.

Coface expects the Asia-Pacific region to contract sharply in 2020 (except for China and India among the nine economies studied), before rebounding in 2021. The contraction in GDP will be most marked in Thailand (-5%), Hong Kong (-4%), Singapore (-3.5%), Japan (-3%), Malaysia (-2%) and Australia (-1.9%), in a context of a slowdown in the tourism industry and world trade.

According to Coface forecasts, GDP growth rebound will not rebound until 2021, reaching 6.2% (4.65% excluding China).

The 2020 survey on business payments covered more than 2,500 companies in Asia located in nine countries.

As Covid-19 restrictions continue to lift in some countries while others remain in lockdown, PwC’s latest Covid-19 CFO Pulse survey has revealed that CFOs are most concerned about the effects of a global economic downturn (60%) and the possibility of a new wave of infection (58%). However, they are very confident that they would be able to respond effectively to a new wave of infections (71%).

The survey of 989 CFOs in 23 countries and territories also found that CFOs have shifted their focus to bringing people back to a workplace that has fundamentally changed. Only 26% of CFOs anticipate productivity loss due to the lack of remote work capabilities in the coming month, and 52% are planning to make remote work a permanent option for roles that allow.

“As a number of economies slowly start to reopen, it is becoming increasingly clear that businesses have a key role to play in learning to operate alongside a virus that remains a threat," said Melanie Butler, partner at PwC United Kingdom. "Companies will need to implement the right measures to keep their employees safe and look at new ways of working to survive and thrive moving forward. Several common themes emerge from CFOs in all the countries we surveyed: concern about a new wave of infection and how to keep people safe, the need for agile plans to navigate a global economic downturn and re-engage customers, and the pursuit of new revenue streams through innovations.”

Workplace safety

The majority of CFOs are planning new workplace safety measures (75%) and reconfiguring work sites to promote distancing (72%) when they start to transition back to on-site work. CFOs report feeling very confident about their companies’ ability to provide a safe environment for customers (79%) and employees (74%). Although a new wave of infection is among their top concerns, they also report feeling very confident that they would be able to respond effectively (71%). CFOs in Turkey (92%) and Cyprus (89%) are most likely to report being very confident about meeting customer safety expectations, and finance leaders in the Caribbean (82%), Turkey (81%) and Africa (80%) have the largest share of respondents who are very confident in their second-wave response and shutdown protocols.

Remote working

More than half of CFOs indicate they will take steps to improve the remote work experience (52%) and to make remote work a permanent option (52%).

Rebuilding revenue streams

63% of CFOs cite offering new or enhanced products or services as the most pressing area, led by Denmark (72%) and the Caribbean (70%). In Mexico (38%) and the U.S. (34%), CFOs are most likely to prioritise talent changes such as hiring and upskilling.

Revenues

More than half (53%) of CFOs expect a decrease in revenues of up to 25% as a result of the current crisis. Only 4% of CFOs say the impact of the crisis is still difficult to assess. CFOs in countries such as Germany and Denmark are the most optimistic regarding revenue expecting a decrease of less than 10%, no impact or an increase in revenues.

Cost containment

As companies settle into stabilization, cost containment is a favored strategy among CFOs, with 81% saying they will consider it in response to the crisis. 56% of finance leaders say they will defer or cancel planned investments, with facilities and general capex (82%), operations (47%) and workforce (40%) topping the list. Only 11% of CFOs are considering deferring or cancelling investments in digital transformation. CFOs in the Middle East (90%) and Mexico (89%) are most likely to consider cancelling capex investments. In the U.S., CFOs are more likely than average to cite reductions in workforce investments (48%).

Recovery

As they implement return-to-work strategies, CFOs are most concerned about the effects of a global economic downturn (60%), the possibility of a new wave of infection (58%) and financial impact on their company (47%). Financial impact is the primary concern among CFOs in Cyprus (81%) and Africa (59%), but it is cited by just 35% in Denmark and 34% of CFOs in Germany.

Reprinted with permission from CTMfile.

 Week in Review Editorial Team:

Diana Mota, Associate Editor and David Anderson, Member Relations