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Blockchain in cross-border payments: SMEs’ opportunity in international trade

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Blockchain in cross-border payments: SMEs’ opportunity in international trade

By Marcus Treacher, SVP Customer Success at Ripple

Globalisation has transformed the world’s economy. While the first stage of economic change was driven primarily by large corporations who had the resources and supply chains to expand internationally, the next wave of economic growth will be shaped by the growing role of SMEs in global trade. Today SME cross-border payments represent a significant portion of the global B2B payments market, amounting to over $10-15 trillion annually. In fact, B2B payments are growing faster than C2C and B2C markets at 5-10% year.

Once the backbone of the domestic economy, SMEs now have more opportunities than ever to expand into new markets thanks to the recent innovations in payments and the rapid growth of international ecommerce. For instance, ecommerce platform operators such as Amazon and eBay have made it easier for SMEs to sell products abroad. Moreover, the rise of the digital economy has placed a stronger focus on agility and disrupted many industries — including retail, financial services, logistics and transportation, and manufacturing among others. This has provided a level playing field for start-ups and SMEs to compete with large enterprises.

Another big change has been the shift of global money flows. As emerging markets such as those in Southeast Asia and Latin America are increasingly important for global trade, cross-border payments are becoming a key driver of economic growth. In fact, the global payments market is expected to reach $2.9 trillion by 2022 according to data from McKinsey, and more than half of this growth ($1.6 trillion) is expected to come from Asia-Pacific. This a great opportunity for financial institutions operating in these markets and for the local economies, given that SMEs account for 60% of employment and 40% of national income in emerging markets.

Breaking the barriers for SMEs

But sending money around the world is still reliant on a fragmented payments infrastructure that hasn’t been refreshed since the 1970s and was designed to serve big corporates with bulk payments — not today’s digitally minded, fast-moving businesses. For SMEs, this often results in costly delays and high foreign transfer fees, which negatively impact cashflow and makes it harder for them to compete with large enterprises. In fact, recent research revealed that 69% of UK SMEs pay unnecessary cross-border payment fees that make international trade more costly.

With SMEs’ role in international trade expected to increase, access to affordable cross-border payment solutions will be key for ensuring they can compete successfully in the global marketplace.

Blockchain technology can resolve the inefficiencies for cross-border payments and provide a faster, cheaper and more secure alternative to the current system. Using blockchain, financial institutions can send and settle payments in seconds and for a fraction of the cost of traditional bank transfers, allowing SMEs to move money around the world as easy as they are sharing information over the Internet. We call this The Internet of Value.

For example,  Ripple partnered with Cambridge Global Payments — a subsidiary of Fleetcor Technologies and a leading global provider of commercial payment solutions — last year to help them achieve just that. By using XRP to facilitate cross-border payments, the company was able to cut down the costs for international B2B payments and bing down transaction speed to just a few seconds.

How the Internet of Value can help boost international trade

The Internet of Value can fundamentally create a new financial services ecosystem that is much more transparent and efficient, allowing SMEs to compete with larger players by bringing down the cost of managing imports and exports. While the traditional cross-border banking model was created for large-value, large-volume payments, this new approach is tailored to the needs of SMEs and provides a faster, more cost effective way to process small-value payments.

Just like routers on the Internet, blockchain can help route money across independent payment networks — including banks, digital wallets, clearing houses, stock exchanges, enterprises and more.

This approach to cross-border payments can also help SMEs improve liquidity by enabling them to move money easily and cost-effectively 24×7 depending on where funds are needed. Recent research revealed that 67% of SMEs believe that poor liquidity is one of the biggest obstacles to business growth because it locks valuable working capital that could otherwise be used for investing in tech innovation, hiring and expanding into new markets.

The Internet of Value can help unlock such capital held in foreign nostro and vostro bank accounts,  but doing this would require the addition of a digital asset.

How digital assets can improve liquidity for SMEs

An independent digital asset can improve liquidity by allowing different market players to exchange monetary value easily and without having to hold cash in accounts with foreign banks. In this scenario the digital asset acts as a bridge between the sender and recipient of the payment, enabling almost real-time currency exchange.

What makes digital assets unique is that they’re universal currencies, meaning anyone can use them as units of value anywhere in the world.

For instance, Euro Exim Bank is a UK SME bank which specialises in international export and import payments. The bank uses blockchain, combined with XRP, to provide clients with on-demand liquidity for international transactions. So instead of needing multiple pre-funded currency accounts around the world, the bank can move money where and when they are needed by its clients.

In addition to this, Euro Exim Bank has started embedding complex trades within blockchain messages, allowing it to automate international trades and even further reduce the speed and costs of payments for international exports and imports.

Conclusion

A recent report from Juniper Research revealed that B2B cross-border transactions will increase 7% by 2023 thanks to the rise of blockchain-based payment networks. Blockchain and digital currencies are a great alternative to traditional cross-border payments as they offer a significantly faster, cheaper and more transparent way to move money around the world.

Only by bringing down the cost of cross-border payments and resolving the inefficiencies of the existing payments system can we empower SMEs to take advantage of the growth opportunities that the global commerce market offers.

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Foxconn chairman says expects “limited impact” from chip shortage on clients

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Foxconn chairman says expects "limited impact" from chip shortage on clients 1

TAIPEI (Reuters) – The chairman of Apple Inc supplier Foxconn said on Saturday he expects his company and its clients will face only “limited impact” from a chip shortage that has rattled the global automotive and semiconductor industries.

“Since most of the customers we serve are large customers, they all have proper precautionary planning,” said Liu Young-way, chairman of the manufacturing conglomerate formally known as Hon Hai Precision Industry Co Ltd

“Therefore, the impact on these large customers is there, but limited,” he told reporters.

Liu said he expected the company to do well in the first half of 2021, “especially as the pandemic is easing and demand is still being sustained.”

The global spread of COVID-19 has increased demand for laptops, gaming consoles, and other electronics. This caused chip manufacturers to reallocate capacity away from the automotive sector, which was expecting a steep downturn.

Now, car manufacturers such as Volkswagen AG, General Motors Co and Ford Motor Co have cut output as chip capacity has shrunk.

Counterpoint Research says the shortage has extended to the smartphone sector, with application processors, display driver chips, and power management chips all facing a crunch.

However, the research firm predicts Apple will face a minimal impact, due to its large size and its suppliers’ tendency to prioritise it. Apple is Foxconn’s largest customer.

Foxconn is looking at other areas for growth, including in electric vehicles (EVs), and Liu said their EV development platform MIH now had 736 partner companies participating.

He expected it would have two or three models to show by the fourth quarter, though did not expect EVs to make an obvious contribution to company earnings until 2023.

Liu also said the company was still looking for semiconductor fab purchase opportunities in Southeast Asia after not winning a bid to take over a stake in Malaysia-based 8-inch foundry house Silterra.

(Reporting by Ben Blanchard and Jeanny Kao; Writing by Josh Horwitz; Editing by William Mallard and Ana Nicolaci da Costa)

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EU seeks alliance with U.S. on climate change, tech rules

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EU seeks alliance with U.S. on climate change, tech rules 2

By Sabine Siebold and Kate Abnett

BERLIN (Reuters) – Europe and the United States should join forces in the fight against climate change and agree on a new framework for the digital market, limiting the power of big tech companies, European Union chief executive Ursula von der Leyen said.

“I am sure: A shared transatlantic commitment to a net-zero emissions pathway by 2050 would make climate neutrality a new global benchmark,” the president of the European Commission said in a speech at the virtual Munich Security Conference on Friday.

“Together, we could create a digital economy rulebook that is valid worldwide: a set of rules based on our values, human rights and pluralism, inclusion and the protection of privacy.”

The EU has pledged to cut its net greenhouse gas emissions to zero by 2050, while President Joe Biden has committed the United States to become a “net zero economy” by 2050.

Scientists say the world must reach net zero emissions by 2050 to limit global temperature increases to 1.5 degrees above pre-industrial times and avert the most catastrophic impacts of climate change.

The hope is that a transatlantic alliance could help persuade large emitters who have yet to commit to this timeline – including China, which is aiming for carbon neutrality by 2060, and India.

“The United States is our natural partner for global leadership on climate change,” von der Leyen said.

She called the Jan. 6 storming of the U.S. Capitol a turning point for the discussion on the impact social media has on democracies.

“Of course, imposing democratic limits on the uncontrolled power of big tech companies alone will not stop political violence,” von der Leyen said. “But it is an important step.”

She was referring to a draft set of rules unveiled in December which aims to rein in tech companies that control troves of data and online platforms relied on by thousands of companies and millions of Europeans for work and social interactions.

They show the European Commission’s frustration with its antitrust cases against the tech giants, notably Alphabet Inc’s Google, which critics say have not addressed the problem.

But they also risk inflaming tensions with Washington, already irked by Brussels’ attempts to tax U.S. tech firms more.

Von der Leyen said Facebook’s decision on a news blackout on Thursday in response to a forthcoming Australian law requiring it and Google to share revenue from news underscored the importance of a global approach to dealing with tech giants.

(Additional reporting by Foo Yun Chee; editing by Robin Emmott and Nick Macfie; editing by Jonathan Oatis)

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Packaged food giants push direct online sales to gauge consumer tastes

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Packaged food giants push direct online sales to gauge consumer tastes 3

By Siddharth Cavale and Nivedita Balu

(Reuters) – Packaged food giants including Kraft Heinz, General Mills and Kellogg are pushing sales of their products to consumers directly via their own online channels, in a quest to gather more data about shoppers’ purchasing habits.

Velveeta-cheese maker Kraft Heinz saw its e-commerce sales double in 2020, now representing more than 5% of its global sales, Chief Executive Miguel Patricio said at the virtual Consumer Analyst Group of New York (CAGNY) conference this week.

The company sells Heinz baked beans and tomato soup by subscription or in bundles directly to consumers on a “Heinz To Home” website in the United Kingdom, Australia and Europe.

Sales on the site are “giving us valuable insights into consumer behavior, enabling us to quickly test and learn from innovations,” Kraft’s head of international business, Rafael de Oliveira, said at the conference.

Kraft would continue to use the site as a channel to generate strong sales in developed markets, he said.

The company also counts sales of its products through marketplaces such as on Amazon.com and Walmart.com as part of its e-commerce sales.

U.S. shoppers spent on average $1,271 buying groceries online last year, 45% more than they did in 2019 as the pandemic spurred shopping online, according to market research firm Earnest Research. In contrast, the average dollars spent in stores rose only about 7% to $3,849.

PepsiCo sells products including Doritos, Quaker oats and Gatorade directly to consumers through two websites, pantryshop.com and snacks.com, both launched in 2020.

Chief Financial Officer Hugh Johnston said that more than 45% of the company’s capital investments over the next few years would be dedicated toward manufacturing capacity, automation, and a “ramping up of investments in our e-commerce channel.”

As major online retailers including Amazon.com and Walmart.com continue to gather valuable data on shoppers, many packaged food manufacturers are keen to gather their own data on shoppers, too.

“COVID (has) simply accelerated our digital growth and has provided us with yet another source of data and insight,” Monica McGurk, chief growth officer at breakfast cereal maker Kellogg Co., told the conference.

Kellogg, producer of Corn Flakes as well as Pringles chips, said on Wednesday it had launched a direct-to-consumer website focused on digestive wellness. The group plans to sell its new Mwell Microbiome Powder for gut health via the site to gather data on customer interest before it launches the product more widely.

E-commerce sales have doubled in the past year and now represent about 8.5% of the group’s $13.77 billion in annual sales, Kellogg said.

Pillsbury dough-maker General Mills also sees the benefits of tracking consumer habits more closely.

“We’re aggressively investing in data and analytics. We are gathering unparalleled insights from the first-party data we collect through our brand websites,” General Mills’ Chief Executive Jeffrey Harmening said at the conference.

On its Bettycrocker.com website, General Mills provides hundreds of recipes using Betty Crocker cake mixes and frosting. The site leads people to the closest store or an online retailer where they can purchase the products, thereby generating data for General Mills on what a particular customer from a certain zip code is buying. The company does not sell the food products directly on its website.

Consumers, however, may have to shell out more if they shop directly from brand websites.

Prices on the two PepsiCo sites, for example, were generally higher than those on Walmart.com or Amazon.com, Reuters checks show. On Walmart.com, for example, a 10 oz pack of Doritos Nacho Cheese was on sale for $2.50 compared to $4.29 on Pepsico’s website.

Kraft Heinz offers tins of soup, beans, pasta and baby food bundled into packs ranging from six to 25 items and costing between 10 and 20 pounds ($14.01-$28.03) on its UK website. It told Reuters the relatively higher prices of items and bundling of packs than on some other online marketplaces was to be able to eke out a margin after including delivery costs.

“Longer term, we see real value in this channel to be an insight and data channel for us,” Jean-Philippe Nier, head of e-commerce for Kraft Heinz’s business in the UK and Ireland, told Reuters. People are more prepared to order directly from manufacturers than they were before. The time is now.”

Graphic: Direct online sales to cross $20 billion in 2021 – https://graphics.reuters.com/PACKAGEDFOODS-ECOMMERCE/rlgpdexngvo/chart.png

($1 = 0.7137 pounds)

(Reporting by Siddharth Cavale and Nivedita Balu in Bengaluru; Editing by Vanessa O’Connell and Susan Fenton)

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