Week in Review

What We're Reading:

August 3, 2020

US suffers worst economic decline on record in second quarter as GDP contracts by 32.9%. Nation's economy suffers historic financial decline as coronavirus pandemic continues to ravage many states. (Independent)

Financial conditions have eased, but insolvencies loom large. Amid the human tragedy and economic recession caused by the COVID-19 pandemic, the recent surge in risk appetite in financial markets has caught analysts’ attention. (IMF)

US mint facing coin shortage. The debate about phasing out hard currency in favor of digital alternatives could be set to intensify with news that the U.S. Mint is facing a shortage of coins due to the pandemic. (Finextra)

How the coronavirus is crushing credit ratings. The crippling effects of the coronavirus crisis have crushed government and corporate finances and sent debt soaring. It is also crunching their credit ratings and causing a spike in defaults. (HSN)

India posts record fiscal deficit as coronavirus hits economy. India’s federal fiscal deficit touched a record $88.5 billion in the April-June quarter, 83.2% of the target for the whole of the current fiscal year, reflecting the impact of the coronavirus pandemic on tax collections and as the government front-loaded its spending. (Reuters)

Eurozone GDP drops 12.1% in record pandemic plunge. The coronavirus pandemic caused the largest GDP drop ever recorded for the 19 EU countries using the euro as currency, according to estimates. The eurozone economy has shrunk by over 12%, with Spain bearing the brunt. (DW)

How COVID-19 is accelerating the rise of digitalization in supply chains. As individuals and businesses adapt, people are discovering more productive methods to perform the same task, which is already making a major impact on the digital roadmap. (Global Trade Magazine)

How the pandemic is fueling B2B card acceptance. The COVID-19 crisis has heralded an unprecedented increase in the need for working capital financing (WCF). As such, payment platforms that enable invoice payments with credit cards have seen a boom in corporate use since March 2020. While SMEs have been struggling to make ends meet, corporations have cautiously drawn down on available credit facilities creating a cash cushion for future use. (TMI)

Trade, technology and security at risk in boiling US-China feud. The ongoing sharp deterioration in U.S.-China ties poses risks to both countries and the rest of the world. (Business Mirror)

India risks ‘Japanification’ as bad loans surge. The RBI sees the country’s bad-loan ratio swelling to the highest level in more than two decades—to 12.5% by March 2021, the highest level since 1999. (Economic Times)

The US election is getting ugly—and investors are getting nervous. Investors are increasingly preparing for the risk of a contested U.S. presidential election come the fall, worried that an ugly political situation will create volatility across markets. (Reuters)

The bitter question at the core of Germany's chocolate war. This month, two of Germany's favorite chocolate brands met in court to resolve a dispute that has lasted for 10 years. At the core of the quarrel between Ritter Sport and Milka was the question: What is a square worth? (DW)

In truth, it is just as hard to gauge consumer confidence in Europe as it is anywhere else. Polls show consumers are short sighted and reactive to the most immediate news. These responses have been affected by everything from the price of gas to the current weather.

Mostly, the consumer reacts to the job market, which seems to affect confidence in Europe. The recovery in Europe has been slow and jobs have not come back strongly as yet. This has many people concerned about their ability to hold on to their job and confidence levels are dipping. The initial rush of enthusiasm as the lockdown started to lift has faded as the spread of the virus has forced the re-imposition of those restrictions.

A situation in Africa could further complicate things for Europe. The world has obviously been preoccupied with the pandemic. That has allowed many other flashpoints to develop without much of an attempt to calm things down. The global intelligence community has asserted that Africa is at a tipping point in regards to regional wars.

At the top of the list is Libya as Turkey and Egypt back rival armies. The DRC is near explosion again, and the famine in East Africa threatens to reignite the war between Ethiopia and Eritrea.

There are many regional conflicts with terror groups such as Boko Haram and the LRA. The fear is that these wars will escalate to the point that mass migration will resume. Given the situation in Europe, this would be an unmitigated disaster. There is precious little sympathy and support for migrants now, and if there is even more of a massive wave at the same time that the pandemic is worsening, the potential for violent confrontation is very high.

In the midst of a surge of new software solutions and FinTech platforms available to B2B companies, the enterprise resource planning (ERP) system continues to retain its reputation as the single source of truth within an organization, a sort of motherboard to connect and streamline many workflows into one.

While third-party solution providers often recognize the importance of ERP integrations, there is no single, perfect tool to eliminate friction entirely—and no single ERP can address every company’s needs in every way.

Payment processing, for instance, typically lies outside of the ERP, with third-party processors often chosen in passive fashion, according to SYSPRO Vice President Alliances Sanjay Ejantkar.

Speaking with PYMNTS, Ejantkar explained why smaller and mid-sized B2B companies must get proactive about their payment processing strategies—including choosing which technologies they use and which payment methods they accept—rather than take a back-seat approach to navigating a modernizing B2B payments landscape.

A Passive Approach

When it comes to choosing a payments processor, many B2B companies will simply take the first opportunity that comes their way, according to Ejantkar.

“In terms of how a customer is tied to a process, it’s very opportunistic,” he said, noting that organizations may pick whichever processor cold-calls them, or whichever processor an industry peer uses. This unfortunately leads to many gaps in service and capabilities, particularly when it comes to addressing the unique—and often complex—needs of the B2B space.

Integration into the ERP, for example, isn’t a guarantee, and even when that connection can be made, other lapses in functionality often make payment processing extra painful for manufacturers and other B2B firms.

“A lot of payment processors don’t understand the ERP space, or the complexities of a B2B transaction,” he continued, highlighting the need for not only data integration, but tokenization and other security measures, as well as the ability to address many of the most challenging B2B payment scenarios like recurring billing, deposits, payment terms, trade promotions and more.

A Commercial Card Strategy

When it comes to commercial card processing specifically, payment processors aren’t always going to offer Level II and III data capture, either, a vital component that lowers interchange fees for suppliers, removing one of the biggest barriers for card acceptance in B2B trade.

Although corporate buyers have driven up adoption of the commercial card, Ejantkar explained that again, there is an “opportunistic” approach to card acceptance.

“It’s companies sitting there thinking, ‘I need to start accepting credit cards now,'” he said. “And there’s still the mentality that they have to surcharge their customer because of the extra [interchange] cost.”

This is a scenario in which a more active payment processing strategy could open up B2B organizations’ eyes to the potential value of card acceptance, with Level II and III processing offering firms the chance to accept cards without an added cost for their buyers and recognize the potential strategic value in card acceptance, like accelerated payments.

Navigating B2B Payments Evolution

To address many of these friction points firms face when passively selecting a payment processor, SYSPRO recently announced integrated card processing capabilities within its ERP. According to Ejantkar, the company is also developing capabilities to augment its existing ACH processing functionality through ERP integration, too.

As B2B payments modernize and digitize, integration of transaction data within the ERP will be vital for organizations who continue to rely on their systems as a single source of truth within the enterprise. Ejantkar noted that such data connectivity also supports automation of many complex processes, for instance the management of those recurring payments or trade promotions, freeing time up for professionals to focus on more value-added initiatives.

And while cards continue to account for a smaller fraction of overall B2B payments volume, he also noted that card acceptance will become increasingly important for organizations that are shortening their supply chains and approaching a direct-to-consumer model in which card acceptance is a customer requirement.

As the ecosystem evolves, Ejantkar said it will be increasingly important for B2B firms to no longer take a back-seat approach to their payment processing strategies, and instead take the wheel to ensure processing workflows not only meet customer needs, but actually add value to the enterprise.

Reprinted with permission by PYMNTS.com.

Reducing inequality and improving social mobility, identifying new forms of growth, and focusing on new measures of economic performance are among the biggest challenges facing the global economy as countries emerge from lockdown, according to a new World Economic Forum Report.

Current unemployment figures are likely a better barometer of economic health than financial market valuations, and the deglobalization of supply chains may force emerging markets to reconsider growth models, the World Economic Forum’s Chief Economists Outlook finds.

The latest edition of the outlook is the outcome of consultations with leading chief economists from across the public and private sectors. The report outlines the current global economic outlook and lays out the priorities for a recovery agenda that is fair, inclusive and sustainable.

With much of the recent discourse focused on trying to predict whether the economic recovery will be V-shaped, U-shaped or L-shaped, it is increasingly clear that targeting a recovery in terms of GDP growth alone will not be enough to achieve the economic and societal transformation that is needed, it states.

Beyond GDP and its distribution, the report suggests that international convergence on a new dashboard of economic performance is needed that also targets different dimensions of national wealth as proxies for resilience and access to economic opportunity.

“Recent events have brought about a long overdue conversation about future growth,” said Saadia Zahidi, managing director, World Economic Forum. “As we emerge from the crisis, the quality and direction of economic growth must take primacy over its speed. In this new paradigm, we need metrics beyond GDP and an updated policy toolkit to ensure that future growth is inclusive and sustainable, and provides opportunity for all,”

The report argues that inequality, which the crisis has aggravated, must urgently be addressed through an adaptation of tax systems, building on pre-crisis efforts by the international community and national governments to reform tax architectures. Growing inequality had brought a number of tax instruments, such as wealth taxes and higher marginal income taxes, back into the public discourse. The pandemic provides an excellent opportunity to introduce far-reaching systemic change that will stop inequality from spiraling further out of control and focus on measures that enhance social mobility.

With soaring debt-to-GDP ratios, the report further states governments have difficult decisions to make on how these debts will be paid off and by whom, given the deeply uneven spread of the pandemic’s impact. Correctly calibrating this burden-sharing presents a tremendous opportunity for governments to regain the trust of citizens, many of whom have seen their chances of advancing economically dwindle for many years.

The World Economic Forum’s chief economists expect the crisis to affect two important drivers of inclusive long-term economic progress: innovation and global integration. The economic contraction will impact levels of investment into research and design at a time when it’s needed more than ever to tackle climate change and expand opportunity for all. As multinational companies may deglobalize and repatriate parts of their value chain, the crisis could result in long-term damage to ties between high- and low-income countries.

Given the scale of the crisis, governments need to go beyond the typical toolbox of interventions to reshape entire sectors and co-create new markets, both as regulators and investors, the reports says. These new frontier markets range from green energy, ecotourism and the circular economy, to health, education, training and the care economy. Views are sharply divided, however, over the role of governments in the innovation process. On structural change within economies, the chief economists think government support in the current phase of the crisis should be targeted more towards the growth sectors of the future rather than protecting all jobs.

The report also examines the stark contrast between real economic indicators and U.S. equity market expectations for the medium-term outlook. The optimism of markets seems to be based on positive data on retail sales and industrial production, an expectation that the health crisis will be contained in 2020, and the extraordinary monetary stimulus being provided by central banks. However, this optimism may be built on shaky ground if the pandemic drags on and earnings are secured by reductions in workforces and investments, which could lead to reduced employment, innovation and consumer spending in 2021.

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 Week in Review Editorial Team:

Diana Mota, Associate Editor and David Anderson, Member Relations