Week in Review

What We're Reading:

September 14, 2020

Brexit in crisis: EU 'very concerned' by UK plan to break divorce treaty. Britain plunged Brexit trade talks into crisis on Sept. 9 by explicitly acknowledging it could break international law by ignoring some parts of its European Union divorce treaty, prompting a rapid rebuke from the EU’s chief executive. (AP News)

Japan’s economy shrinks 28% in Q2, worse than 1st estimate. Japan’s economy shrank at a record, even worse rate in the April-June quarter than initially estimated. (Business Mirror)

UK firms ‘under-prepared’ for new EU trading rules. The lack of preparedness among firms for changes to the U.K.’s trading rules with the EU in January is “concerning,” a top business group said. (HSN)

UK strikes first major post-Brexit trade deal after signing FTA with Japan. The U.K. has agreed a free trade agreement (FTA) with Japan, the first deal of its kind since it exited the EU. (Global Trade Review)

EU heavyweights seek strict rules for digital currencies. On. Sept. 11, finance ministers from five of Europe's biggest economies called for the European Union to produce strict rules for new, private digital currencies such as Facebook-backed Libra and ban those that don't comply. (Minneapolis Star Tribune)

Lebanon succumbs to the highest debt-to-GDP ratio in the world. Beirut Port blast, coronavirus add up to an economic crisis which could see GDP fall from $55bn to $25bn in just two years. (Arabian Business)

Brexit: UK introduces new bill, what you need to know. How is the U.K. breaking international law with its new Brexit proposal and why is the EU so agitated about it? (DW)

Vietnam rebuffs Beijing, backs US role in South China Sea. Southeast Asian countries want the U.S. to play a role in maintaining peace in the South China Sea, Vietnam said, pushing back against Beijing’s comments that American forces were destabilizing the region. (Business Mirror)

China says US trying to incite instability with proposed orders to block Xinjiang imports. China’s foreign ministry, when asked about reports that the United States may ban some imports from China’s Xinjiang region over alleged human rights violations, said this is a pretext to oppress Chinese customers and incite instability. (HSN)

Exporting to Mexico: What You Need to Know. The relationship between Mexico and the United States has been highly publicized as of late—from border walls to drug cartels to the USMCA. Despite the sometime contentious relationship between the two countries, U.S. exporters should still consider Mexico an exciting growth opportunity. (Shipping Solutions)

Moody's projects Indian economy to contract 11.5% this fiscal year. Global rating agency Moody’s revised its forecast of India’s growth to a double-digit contraction at 11.5% during the current fiscal year, down from the -4% it had estimated in July. (Economic Times)

Debunking the myth of China’s “debt-trap diplomacy.” Never attribute to malice what can be explained by incompetence. (Interpreter)

Fashion and trade in a shifting global landscape. As any devoted reader of Vogue knows, September is usually the time for a wardrobe refresh. This year, the new season may not be looking so good for the fashion industry which faces tariffs, changing consumer demand, and of course, fallout from the pandemic. (Global Trade Magazine)

It is one of the more vexing issues when considering any sort of problem or challenge. Just because something occurred does not mean that this something caused something else to happen. It might have, but it will take considerable investigation to make that determination, and it is very likely that other causal factors will emerge in the course of that investigation.

For example, a storm blows through and the roof of your shed flies off. It was the storm of course. Or was it? A deeper look shows the roof was not held on properly to begin with and then you forgot to close the door and the wind got in. All of these (and likely more) contributed.

There are even weaker attempts to assign causation to correlation. The last time wind blew that roof off, you had just put down seed on the lawn and now it has happened again on the day you put seed down. Therefore, putting down seed makes storms come that blow the roof off your shed. You get the idea. On a much more serious note, we are dealing with this conundrum when the pandemic is the topic.

At the start of the crisis in Europe, the Swedish government elected to pursue a set of policies that differed considerably from those pursued by others in Europe, especially those other Scandinavian nations (Denmark, Norway and Finland).

The result was that Sweden experienced a higher rate of infection, hospitalizations and fatalities. The instant assertion was that this decision to avoid a lockdown was the reason for the higher levels. It turns out that there are many other factors at work and any combination of these might be the reason for the higher levels. It is very likely that avoiding the lockdown played a role as well, but the question is how much of one.

This is only a partial list of the factors as determined by Joakim Book, Christian Bjornskov and Daniel Klein. Book is an Oxford grad and financial writer, Bjornskov is an economics professor at Aarhus University, and Klein is an economist at George Mason University. Among the 15 additional factors to consider are relative population density of cities such as Stockholm, Copenhagen, Helsinki and Oslo. The Swedish capital is far denser than the other three.

Factor No. 2 is timing of a winter break. In Sweden, the breaks for the big cities are staggered so that Stockholm residents begin their break at the end of February and into early March. There were large numbers of Swedes from Stockholm visiting the Italian Alps at the precise moment that Italy was getting hit the hardest with the infection. Assuming that this is when there was exposure, the returning Swedes would be getting sick around the middle of the month. It was between March 12 to 16 when other nations were shutting down; but if Sweden had followed suit, it would already have been too late.

The third factor was the size of the immigrant population. The percentage of people from West and North Africa is 9.8% in Sweden (3% in Finland, 5% in Denmark and 7% in Norway). The figures also show that people of African descent had a 50% greater chance of contracting the virus. This also played into the figures when it came to the elderly population. Sweden has had a higher rate of infection in the senior facilities than the others, and there is much more dependence on the immigrant population to operate these facilities. These are the jobs the Swedes offer the migrants that come to Sweden.

One of the factors highlighted by these authors has been the so-called dry tinder argument. Last year was an especially harsh year as far as the seasonal flu was concerned. All of Europe was hit hard and especially in some of these Scandinavian countries—much harder than in Sweden. More of the vulnerable population died in these nations in 2018 and 2019 than died in Sweden. The authors go on to detail a host of other factors that could have and likely did contribute to the differences in pandemic-related deaths. This does not mean that the decision to remain unlocked was not a contributing factor as well. The point is that there are simply no simplistic answers or solutions to a challenge like this one or any other challenge for that matter.

There has long been an unwillingness to deal with complexity. We demand that everything be black and white and refuse to accept that real life is nothing but shades of grey. The pandemic is not going to be entirely dealt with by canceling events and keeping kids at home. It is not going to be entirely dealt with by having people wear flimsy masks. It will not be entirely dealt with through a vaccine. We know that even tried-and-true flu vaccines are not near 100% effective. It is a complex problem and it will demand complex responses. Masks may help a little and so might keeping kids out of school, but there will also have to be acceptance that people will still fall ill and some will die. This forces a decision on balancing the costs of the cure against the cost of the disease, and that is perhaps the most complex challenge of them all.

Although more than 80% of European and nearly three-quarters of American corporations prioritize their home regions as a source of growth, the Asia-Pacific region remains a target for more than half of them, according to new research published by Standard Chartered Bank. Other regions of interest include Latin America (38%), the Middle East (32%) and Africa (17%).

The survey delves into CFOs’ and treasurers’ ambitions, concerns and goals and reflects how the COVID-19 pandemic has reshaped many organizations’ operating and strategic priorities. More than half of the respondents were worried about its impact on growth outside their home region.

This was also indicative in how supply chain failure was identified as the top liquidity management challenge. The most significant perceived challenge to expansion is the ability to understand and comply with local regulations (32%), and technology companies (52%) were most concerned compared with other sectors.

When it comes down to financing international growth, equity capital markets (76%) were the preferred choice of funding. Alternatively, 44% of respondents from the Americas were inclined to use cash from across the business for funding, compared with 39% amongst Europeans. Likewise, use of venture capital, such as private placements, was more common, with a more established private placement market in the United States than Europe.

Almost one-third (32%) of respondents noted that their top supply chain priority was to diversify their supplier base beyond their home market. This was followed closely with the need to digitize trade (28%). The lowest priority noted within the trade and supply chain priorities outside the home market was environmental, social and governance (ESG) criteria and sustainability issues. Only 2% nominated it as their top supply chain priority, and 18% identified it within their top three priorities. This could be because responsibilities for ESG lie elsewhere in the organization, or that ESG and sustainability objectives are inherent in the business culture.

This research shows “how the COVID-19 pandemic has reshaped plans for today and the future, and with it, the knock-on impacts for liquidity, trade and even digitization,” said Tracy Clarke, regional CEO of Europe and Americas, Standard Chartered Bank.

“In a world where resilience is more important than ever companies are focusing on managing foreign exchange volatility as well as digitization and vertical integration of their supply chains,” added Mike Vrontamitis, head of trade for Europe and Americas, Standard Chartered Bank. “It is no surprise given the increased geopolitical tensions that companies are also highlighting the need for local advice from experts. It is disappointing to see how few companies have ESG issues as a top priority given the opportunity of a ‘green’ recovery.”

In a pre-COVID environment, accounts payable (AP) departments had three major struggles, according to Nasser Chanda, CEO of Paymerang.

The first was overcoming the burden of manual processes, from invoice ingestion and approval to payment initiation and reconciliation. The second was ensuring that payments to suppliers were made timely and accurately, and the third was B2B payments fraud.

Chanda told PYMNTS, those challenges are largely the same—only amplified in a market marred by volatility as a result of the pandemic. As organizations' AP departments move to overcome these elevated hurdles, automation technology and payment innovations will emerge as key tools to help them get where they want to go.

Yet unless AP departments and their technology providers consider the supplier in their innovations, organizations will not achieve the desired results in modernization, efficiency and security.

"I think that's the future of business payments," Chanda said of the opportunity to consider both buyer and supplier needs within AP departments. In the evolution from lockboxes to bank-sponsored electronic payments to single-payment-file capabilities, the next iteration of B2B payments will be synchronized workflows that move funds and data between B2B partners.

Fighting Fraud

In the midst of the COVID-19 crisis, fraud has blossomed to new heights, and AP departments haven't been spared. It's a pain point that hits both buyers and suppliers, whether invoices are forged or fraudulent payments are made. In any case, both the buyer and supplier are at risk of losing money and facing even greater inefficiencies in their workflows.

"Security has become even more important in terms of increased invoice and payment fraud, because now we're all doing things by email," explained Chanda.

Indeed, without the proper authorization checks, AP personnel are facing a growing risk of business email compromise (BEC) scams that dupe professionals through fake email addresses and impersonation tactics.

"There are two things in the AP world that support fraud. One is lots of email and not enough talking to each other, and the second is the urgency that has created of 'let's get this thing done right away,'" noted Chanda.

Integrated technologies that can automate invoice and payment authorization, while maintaining a secure electronic paper trail of transactions, are important for mitigating this threat.

Embracing the Payments Mix

Interestingly, according to Chanda, one of the most disruptive innovations in payments may actually heighten the risk of B2B payments fraud for buyers and suppliers, and that is real-time payments.

"I think real-time payments have a place in business payments, but not a broad place," he said, pointing to contingency payment scenarios in which delivery and payment must occur at the same time as one of only a handful of use cases for AP technology.

Considering the importance of payment terms for buyers and suppliers, the extra 24 hours gained through real-time payments won't actually add much value to either side of the transaction, Chanda noted. And worse, real-time payments may actually foster the aforementioned environment of haste that can cause security checks to break down or get glossed over, elevating the threat of fraud.

The value that real-time payments can bring to AP departments, however, is access to enhanced remittance data (which is especially important for suppliers, said Chanda), as well as expanding the number of choices both buyers and suppliers have to send and receive payment.

"Clients want vendors to be taken care of," he said. "Some vendors have chosen to accept card so they get paid right away, some vendors prefer ACH and, believe it or not, some prefer check. So, it's important for us to offer all of those, and important to offer it with the remittance data that's tied to the payment, so vendors can apply the cash accurately."

The proliferation of payment rail innovation has introduced new ways to support the digitization of accounts payable departments and drive the efficiency gains demanded by AP teams and their CFOs. They're also vital to ensuring that suppliers can get paid accurately and on time, while the technologies that can automate these transactions also have the potential to combat fraud through value-added features.

But to tackle these AP pain points, technologies that boost efficiency and security must also ensure that suppliers' biggest concerns are addressed.

"A lot of AP service providers don't think of the other side," said Chanda. "If the supplier isn't taken care of, the buyer suffers, so you have to service both sides if you want to work in this industry for the long term."

Reprinted with permission from PYMNTS.com.

 Week in Review Editorial Team:

Diana Mota, Associate Editor and David Anderson, Member Relations