Kelvin Yong, Regional Pre-Sales Consultant, Compass Plus
Despite cash remaining the most prevalent payment method across Asia, the number of non-cash transactions is expected to reach 276.8 billion by 2020, representing a significant increase since 2015 (nearly three-fold) according to the 2017 World Payments Report. Although there is a tendency to put this down to the ‘China effect’ in that the influence of China has skewed the results, it is important to see beyond this and investigate payments innovations in the region. It is evident that China has not only been leading the way in mobile payments with the likes of Alipay and WeChat Pay, and it also accounts for the majority of global e-commerce transactions. However, the move to digital payments is being driven by the acceptance of new technology, high smartphone penetration and increased internet access across the entire region.
The region notoriously has a huge volume of the population without access to formal financial services, however, over recent years national government initiatives, as well as smaller markets undertaking payments infrastructure modernising projects, are helping to create environments that are facilitating payments innovation and the move towards digital. The scope and breadth of these is vast, however, three key innovations have caught the media’s attention.
In 2017, GSMA reported that more than five billion people were connected to mobile services, over half (2.7 billion) of which are based in Asia Pacific. This, alongside the increasing number of higher-speed mobile broadband connections in the region, is helping to drive mobile innovations in Asia.
According to McKinsey’s Asia Personal Financial Services Survey, mobile banking (via smartphones) has grown at a faster pace than digital banking (by two-to four-fold) in many Emerging Asian markets since 2014. The report also found that 55-80% of the17,000 consumerssurveyed would consider opening an account with a digital-only bank. This is a big step forward in the perceived behaviours and willingness to move away from a predominantly cash-based society.
The Philippines is seen as a pioneer in mobile banking in the region. With no bank branches in over a third of the country’s cities, but 114% SIM card penetration, there was a clear opportunity for FIs to leverage the mobile phone in a bid to promote digital payments over cash and secure a wave of new customers by widening the availability of banking services to previously unserved geographies. To encourage this, the Government incentivised usage and now, according to Visa’s Consumer Payment Attitudes Survey 2016, over half of Filipinos with smartphones use mobile banking services at least once a week. The key reasons behind this are both convenience and availability.
Remote self-service banking
According to the RBR Global ATMs and Market Forecasts to 2022 report, not only are the majority of newly installed ATMs in Asia Pacific, the region is home to more than half of the world’s ATMs. This is no mistaking that this isa significant share of the market and is partly down to need due to the sheer size of the population. Local banks have begun to introduce ATMs to rural and previously underserved urban areas in a bid to attract new customers and provide existing customers with self-service banking facilities.
As convenience isso important in today’s digital world, customers expect ATMs to provide them with the best possible service no matter where they are and this goes beyond the realm of being a glorified cash dispenser, particularly in instances where an ATM is essentially the only local access to financial services. As a result, forward-thinking FIs in the region are adapting their ATM strategies to overcome geographical obstacles and going one step further to ensure customers have access to their banking services regardless of where they are based. For example, in Indonesia – a country that is made up of more than 18,000 islands – ‘floating ATMs’ have been introduced. The customised boats, whichhave ATMs on-board, cruise around the inhabited islands to act as floating branches. Meanwhile, in Japan and other Asian countries a number of FIs have introduced ATMs mounted on vehicles, primarily to cater to those living in remote areas where the establishment of a bank branch or ATM is not deemed financially viable.
Another innovative service a number of FIs in the region have recently implemented utilises both mobile banking and the ATM. Cash by codeallows customers to transfer money to an individual – even if they don’t have a bank account – through a one-time password that can be used to withdraw cash at any of the sender’s FI’s ATMs. The funds are then immediately available for withdrawal. FIs initiate the transfer through their mobile or internet banking service and let the recipient know the code so they can withdraw the cash. This service is particularly beneficial for customers who work away and need to send money to more rural areas where banking services are low. In Cambodia, this service has been introduced by both ABA Bank and PRASAC to give customers an additional route for remittances.
The three initiatives outlined above are examples of FIs utilising technology to innovate to extend their geographical presence and services beyond their branch network and toattract new and retain existing customers. One thing that is apparent, is these are not innovations for innovation’s sake – FIs are are aware of both their customer and market requirements and adapting their banking products and services to ensure these needs are met. This approach is undoubtedly working as more and more payments innovations are being adopted and are regularly usedacross the region. It is no surprise that Asia was named the most innovative region for payments by the Global Payments Innovation Jury 2017 – a title the region has held since 2008 – and whilst it is significant, this is down to the region as a whole, and cannot only be accredited to the influence of China.
UK might need negative rates if recovery disappoints – BoE’s Vlieghe
By David Milliken and William Schomberg
LONDON (Reuters) – The Bank of England might need to cut interest rates below zero later this year or in 2022 if a recovery in the economy disappoints, especially if there is persistent unemployment, policymaker Gertjan Vlieghe said on Friday.
Vlieghe said he thought the likeliest scenario was that the economy would recover strongly as forecast by the central bank earlier this month, meaning a further loosening of monetary policy would not be needed.
Data published on Friday suggested the economy had stabilised after a new COVID-19 lockdown hit retailers last month, while businesses and consumers are hopeful a fast vaccination campaign will spur a recovery.
Vlieghe said in a speech published by the BoE that there was a risk of lasting job market weakness hurting wages and prices.
“In such a scenario, I judge more monetary stimulus would be appropriate, and I would favour a negative Bank Rate as the tool to implement the stimulus,” he said.
“The time to implement it would be whenever the data, or the balance of risks around it, suggest that the recovery is falling short of fully eliminating economic slack, which might be later this year or into next year,” he added.
Vlieghe’s comments are similar to those of fellow policymaker Michael Saunders, who said on Thursday negative rates could be the BoE’s best tool in future.
Earlier this month the BoE gave British financial institutions six months to get ready for the possible introduction of negative interest rates, though it stressed that no decision had been taken on whether to implement them.
Investors saw the move as reducing the likelihood of the BoE following other central banks and adopting negative rates.
Some senior BoE policymakers, such as Deputy Governor Dave Ramsden, believe that adding to the central bank’s 875 billion pounds ($1.22 trillion) of government bond purchases remains the best way of boosting the economy if needed.
Vlieghe underscored the scale of the hit to Britain’s economy and said it was clear the country was not experiencing a V-shaped recovery, adding it was more like “something between a swoosh-shaped recovery and a W-shaped recovery.”
“I want to emphasise how far we still have to travel in this recovery,” he said, adding that it was “highly uncertain” how much of the pent-up savings amassed by households during the lockdowns would be spent.
By contrast, last week the BoE’s chief economist, Andy Haldane, likened the economy to a “coiled spring.”
Vlieghe also warned against raising interest rates if the economy appeared to be outperforming expectations.
“It is perfectly possible that we have a short period of pent up demand, after which demand eases back again,” he said.
Higher interest rates were unlikely to be appropriate until 2023 or 2024, he said.
($1 = 0.7146 pounds)
(Reporting by David Milliken; Editing by William Schomberg)
UK economy shows signs of stabilisation after new lockdown hit
By William Schomberg and David Milliken
LONDON (Reuters) – Britain’s economy has stabilised after a new COVID-19 lockdown last month hit retailers, and business and consumers are hopeful the vaccination campaign will spur a recovery, data showed on Friday.
The IHS Markit/CIPS flash composite Purchasing Managers’ Index, a survey of businesses, suggested the economy was barely shrinking in the first half of February as companies adjusted to the latest restrictions.
A separate survey of households showed consumers at their most confident since the pandemic began.
Britain’s economy had its biggest slump in 300 years in 2020, when it contracted by 10%, and will shrink by 4% in the first three months of 2021, the Bank of England predicts.
The central bank expects a strong subsequent recovery because of the COVID-19 vaccination programme – though policymaker Gertjan Vlieghe said in a speech on Friday that the BoE could need to cut interest rates below zero later this year if unemployment stayed high.
Prime Minister Boris Johnson is due on Monday to announce the next steps in England’s lockdown but has said any easing of restrictions will be gradual.
Official data for January underscored the impact of the latest lockdown on retailers.
Retail sales volumes slumped by 8.2% from December, a much bigger fall than the 2.5% decrease forecast in a Reuters poll of economists, and the second largest on record.
“The only good thing about the current lockdown is that it’s no way near as bad for the economy as the first one,” Paul Dales, an economist at Capital Economics, said.
The smaller fall in retail sales than last April’s 18% plunge reflected growth in online shopping.
BORROWING SURGE SLOWED IN JANUARY
There was some better news for finance minister Rishi Sunak as he prepares to announce Britain’s next annual budget on March 3.
Though public sector borrowing of 8.8 billion pounds ($12.3 billion) was the first January deficit in a decade, it was much less than the 24.5 billion pounds forecast in a Reuters poll.
That took borrowing since the start of the financial year in April to 270.6 billion pounds, reflecting a surge in spending and tax cuts ordered by Sunak.
The figure does not count losses on government-backed loans which could add 30 billion pounds to the shortfall this year, but the deficit is likely to be smaller than official forecasts, the Institute for Fiscal Studies think tank said.
Sunak is expected to extend a costly wage subsidy programme, at least for the hardest-hit sectors, but he said the time for a reckoning would come.
“It’s right that once our economy begins to recover, we should look to return the public finances to a more sustainable footing and I’ll always be honest with the British people about how we will do this,” he said.
Some economists expect higher taxes sooner rather than later.
“Big tax rises eventually will have to be announced, with 2022 likely to be the worst year, so that they will be far from voters’ minds by the time of the next general election in May 2024,” Samuel Tombs, at Pantheon Macroeconomics, said.
Public debt rose to 2.115 trillion pounds, or 97.9% of gross domestic product – a percentage not seen since the early 1960s.
The PMI survey and a separate measure of manufacturing from the Confederation of British Industry, showing factory orders suffering the smallest hit in a year, gave Sunak some cause for optimism.
IHS Markit’s chief business economist, Chris Williamson, said the improvement in business expectations suggested the economy was “poised for recovery.”
However the PMI survey showed factory output in February grew at its slowest rate in nine months. Many firms reported extra costs and disruption to supply chains from new post-Brexit barriers to trade with the European Union since Jan. 1.
Vlieghe warned against over-interpreting any early signs of growth. “It is perfectly possible that we have a short period of pent up demand, after which demand eases back again,” he said.
“We are experiencing something between a swoosh-shaped recovery and a W-shaped recovery. We are clearly not experiencing a V-shaped recovery.”
($1 = 0.7160 pounds)
(Editing by Angus MacSwan and Timothy Heritage)
Oil extends losses as Texas prepares to ramp up output
By Devika Krishna Kumar
NEW YORK (Reuters) – Oil prices fell for a second day on Friday, retreating further from recent highs as Texas energy companies began preparations to restart oil and gas fields shuttered by freezing weather.
Brent crude futures were down 33 cents, or 0.5%, at $63.60 a barrel by 11:06 a.m. (1606 GMT) U.S. West Texas Intermediate (WTI) crude futures fell 60 cents, or 1%, to $59.92.
This week, both benchmarks had climbed to the highest in more than a year.
“Price pullback thus far appears corrective and is slight within the context of this month’s major upside price acceleration,” said Jim Ritterbusch, president of Ritterbusch and Associates.
Unusually cold weather in Texas and the Plains states curtailed up to 4 million barrels per day (bpd) of crude production and 21 billion cubic feet of natural gas, analysts estimated.
Texas refiners halted about a fifth of the nation’s oil processing amid power outages and severe cold.
Companies were expected to prepare for production restarts on Friday as electric power and water services slowly resume, sources said.
“While much of the selling relates to a gradual resumption of power in the Gulf coast region ahead of a significant temperature warmup, the magnitude of this week’s loss of supply may require further discounting given much uncertainty regarding the extent and possible duration of lost output,” Ritterbusch said.
Oil fell despite a surprise drop in U.S. crude stockpiles in the week to Feb. 12, before the big freeze. Inventories fell by 7.3 million barrels to 461.8 million barrels, their lowest since March, the Energy Information Administration reported on Thursday. [EIA/S]
The United States on Thursday said it was ready to talk to Iran about returning to a 2015 agreement that aimed to prevent Tehran from acquiring nuclear weapons. Still, analysts did not expect near-term reversal of sanctions on Iran that were imposed by the previous U.S. administration.
“This breakthrough increases the probability that we may see Iran returning to the oil market soon, although there is much to be discussed and a new deal will not be a carbon-copy of the 2015 nuclear deal,” said StoneX analyst Kevin Solomon.
(Additional reporting by Ahmad Ghaddar in London and Roslan Khasawneh in Singapore and Sonali Paul in Melbourne; Editing by Jason Neely, David Goodman and David Gregorio)
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