- Benign levels of inflation and low interest rates make real assets highly attractive
- Increased inflation may ultimately lead to a credit driven recession
- Debt-laden auto sector may pose significant headwinds to US growth
David Jane, manager of Miton’s multi-asset fund range comments:
“Economic growth appears robust and inflation is finally reappearing, which is a foundation for our positive view on equities and cautious view on bonds. However, we try not to base our portfolios on a single point forecast, but to consider a range of scenarios. This way we can offer some downside protection were our base case to prove inaccurate.
“The greatest risk we perceive is around the market’s view of the reflationary trade. It’s based on a ‘Goldilocks’ type scenario of benign levels of inflation oiling the wheels of growth and reducing the burden of the debt overhang. This, combined with interest rates remaining below the level of inflation for a protracted period, makes real assets highly attractive.
“However, it’s plausible to perceive a similar but significantly less attractive scenario. Should inflation start to move materially higher than expected, say to 5%, then central bank rates must surely be raised to levels that might prevent further rises in inflation. If short term interest rates were 4% or 5 %, or potentially higher, it is quite plausible that many corporate borrowers would get into difficulty. The protracted period of ultra-low rates has enabled many companies to become leveraged to levels which would be difficult to manage at significantly higher interest rates. This scenario pans out with rising corporate default rates ultimately leading to a credit driven recession.
“For this reason, we avoid the riskiest of borrowers in fixed income and have a negligible exposure to leveraged businesses within equity, which should provide a cushion should this scenario play out. A further mitigation is that central banks must be very conscious of this risk and therefore unlikely to pursue policies that lead to it, but they may have no choice should inflation really take hold.
“On the opposite side of the coin, we might see a risk to the positive growth scenario from the US auto sector. In recent years, large amounts of debt have been used to support auto sales and there is some emerging evidence that this is leading some borrowers to become distressed. Like mortgages, auto loans in the US are securitised and default rates on sub-prime auto loans are picking up. Additionally, used values for autos have been falling which could lead to losses for auto makers. A significant contraction of the auto sector, while not catastrophic for the economy, could be a significant headwind, potentially leading to a reversion to the ‘stagnant growth, low inflation’ scenario of a few years ago.
“To mitigate this risk, we avoid US auto exposure generally, and have been reducing our exposure to auto parts suppliers worldwide, except where they are clear market share beneficiaries from the switch to cleaner fuels and more automated vehicles.
“Absent these two extremes, we are likely moving from a period of accelerating growth into one of steady growth, as the recovery from the slowdown of 2015 and early 2016 matures. With the US earning season over the next few weeks, investors will want to see evidence of company profit growth to justify the increase in valuations that we’ve seen in the last few months. Generally, the omens are positive, we have seen a lower than usual amount of profit downgrades this year, suggesting earnings surprises might occur, particularly for the pure cyclical sectors. As this expectation works its way into stock prices we feel increasingly keen to further build our positions in our growth focused themes at the expense of those positions simply poised to benefit from this cyclical rebound.
“The broad evidence would suggest that we’re in a ‘Goldilocks’ type scenario with a greater degree of economic clarity than usual. However, the other side of the coin is that any divergence from this scenario, particularly regarding inflation, comes with a higher degree of downside risk than has been the case recently.”
Data Unions, fisherfolk and DeFi
By Ruby Short, Streamr
In the fintech world it seems every month there’s a new trend or terminology to get acquainted with. From just learning about cryptocurrency a few years ago, to the crazy boom markets of 2017-18, the market has now moved on to DeFi, or Decentralised Finance to those less in the know.
It’s a trend which is gathering momentum, too – $275m of crypto collateral was invested in the DeFi economy in early 2019, but by February of this year it hit $1 billion, and by the end of July this number had risen to $4 billion.
According to crypto exchange Binance, DeFi refers to “a movement that aims to create an open-source, permissionless and transparent financial service ecosystem that is available to everyone and operates without any central authority.” Essentially it gives full asset control to those who use it, whether this is through peer-to-peer models or DeFi applications.
These apps, known as DApps, run on a blockchain network meaning they’re not controlled by a single authority. And as they are also Open Source, they are publicly available – characteristics that make transactions quicker, more affordable and more efficient than their centralised counterparts, where data is stored on servers managed by one authority (think traditional banks).
So why is DeFi getting so much attention?
DeFi is exciting for many because it gives more people more control over their money. Where much of the financial sector is traditionally centralised it inherits bias, thus restricting many people from their funds and what they can do with it.
With this approach, anyone can make investments or get into trading much more easily, and, most importantly, keep control in the hands of the user and not large corporations.
One of the preliminary benefits of this control is the improved visibility we gain over our financial data. In fact, any data we produce in general, whether online or through smart devices is predominantly controlled by giant centralised platforms such as Google and Facebook. In many cases users are unaware of where this is being sold on, or at least have been up until now.
As with DeFi and DApps, a way to decentralise this control has been introduced – in the form of Data Unions. A relatively new concept, this is a framework that enables individuals to bundle together their real-time data with others to create valuable insights which can be sold on, offering each the chance to earn revenue. It is helping businesses and individuals realise the value of the information they produce.
How does it work?
Our data on its own holds little value, but once bundled with multiple data sets from other people and sources and combined in a Data Union, it becomes an attractive set of insights to buyers who can use it to improve their market knowledge, product or service.
Data is shared through an app on the device or object via Streamr’s Data Union framework, a toolbox, which any developer or company can integrate into their existing products. It also allows individuals to choose which particular data types they share and monetise, and which they keep private.
This information then passes, encrypted, through the Streamr Network, to the Data Union where it’s bundled with others’ data for sale on the Marketplace – a process called crowdselling, which has the potential to generate unique data sets by incentivising trade directly from data producers.
What’s more, Data Unions can be set up to capture any form of data. For instance, a music streaming company could commission their own app where users could sell their listening and genre habits paired with their demographic info.
What has this got to do with DeFi?
Data Unions can help provide a means of DeFi direct to the people that need it most.
To break this down, a Data Union is beneficial because it enables any internet user to be paid for their data, which is unlike any data tax that has been proposed by many politicians. And, the advantage of a DeFi solution is that anyone can get paid from it because the finances are no longer dependent on their jurisdiction, but on which products they are using. Putting these together can have endless benefits.
We’re already seeing this happen, with a framework being used to improve the lives of financially marginalised groups. Tracey is a blockchain enabled Data Union working in partnership with WWF.
The application incentivises Filipino fisherfolk to record their catch and trade data digitally through direct data monetisation via the Streamr Marketplace. This data makes the first mile of their seafood products through the supply chain, traceable. With regional fish stocks declining, accurate catch yield data is a desirable insight for third party members such as retailers and final buyers.
The benefits of this model are twofold. Many fisherfolk in the Philippines are unbanked, meaning they don’t have a bank account. Trading this data gives them access to finance and loans previously out of reach, changing them and their family’s livelihoods. It also enables a self-sustaining ecosystem that captures accurate traceability data and helps these areas monitor their overfishing levels for more sustainable fishing.
What does this mean for us for the future?
We’re seeing a lot of momentum building around all forms of online decentralization,and the potential is huge. Over the coming years we will see these systems become ever more integrated into the existing internet stack, which will profoundly impact our possibilities online. Soon, it will become normal to take part in the internet’s data economy.
We see internet users becoming members of several Data Unions and have a range of different options to choose from that best suits them and their data sets. Personal data monetisation will no longer be a privacy issue we’re all suffering under, but rather a question of whether we want to sell our data or not. Users will have the freedom to choose for themselves if they want to sell their data or not and ethical data sharing will become the norm.
ECOMMPAY expands Open Banking payments solution to Europe
Open Banking by ECOMMPAY facilitates fast, secure and simple payments
International payment service provider and direct bank card acquirer, ECOMMPAY, has today announced the expansion of its payment system Open Banking by ECOMMPAY to Europe. The solution allows consumers to initiate online payments to merchants.
Open Banking by ECOMMPAY leverages Open Banking technology, which enables third-party providers to access banks’ data to provide payment initiation through API connections. The news comes as research by the Open Banking Implementation Entity recently showed that uptake of Open Banking has doubled over the past six months, with more than two million consumers making use of the data-sharing service.
ECOMMPAY’s solution will allow consumers to connect to over 4000 banks in more than 28 European countries, while merchants can accept payments from customers in real-time, directly to their bank account. The solution is available in the UK, Latvia, Estonia and the Netherlands, and will be rolled out to further countries soon.
Benefits for consumers as well as merchants
For shoppers, Open Banking by ECOMMPAY means confidential information is accessed in a secure manner, compliant with GDPR requirements. Financial data is stored in one place so that credit decisions on loans or other transactions can be made promptly. Purchases can be made easily via smart devices, and consumers simply log in to their online banking via their mobile app to approve payments.
Merchants benefit from access to new infrastructure for payments. Without the need for credit or debit cards, chargeback risks due to fraud or an inability to capture funds are eliminated, while card fees are cut too. As the process does not require intermediaries, the payment process is efficient, and can also be customised by region, currency and other localised requirements. While banks usually have full control over the services customers need such as loans or transfers, Open Banking brings these decisions under a single administration.
Simplified European expansion
Historically, businesses growing into new markets would require a local banking relationship to facilitate the collection of direct debit payments, and face multiple complications around legal requirements, licenses and compliance. However, Open Banking by ECOMMPAY allows companies to use one efficient, cost-effective and simple payment solution to expand within Europe.
Paul Marcantonio, Executive Director of ECOMMPAY, commented: “Open Banking is revolutionising the way we pay, and the recent growth in its use indicates people are looking for more payments choice. Open Banking for Europe by ECOMMPAY will allow us to cater to the increasing number of people taking advantage of this secure, real-time and simple payment technology. Our solution will let merchants quickly expand into new markets and accept payments directly from customers’ bank accounts.
“With the pandemic shifting businesses online faster than ever before, the need for fast, safe and secure payment methods is growing. There is an urgent need to cater to a variety of payment methods, and at the same time to counter fraud and cyber-crime.”
ECOMMPAY has enjoyed steady growth since its launch in 2012, and has built a global presence with six international offices and operations in key markets including Asia, Europe, Africa, Russia and the UK. The company is a principal member of Visa and Mastercard, and a member of Visa Direct and MoneySend, as well as being the first payment provider on the PayPal Commerce Platform and the first acquirer to implement a Mastercard Dashboard.
The company will be hosting a webinar on Open Banking on 10th December. ECOMMPAY and its host speakers will look at the different opportunities that open banking brings for businesses, the challenges faced implementing it, and how to make it work from every business angle. Key topics will include how Open Banking will impact online business in the future, the effect of Brexit and Covid-19, and how to become an early adopter.
The Hidden Costs of International E-commerce
By Gavan Smythe, Managing Director, iCompareFX
Taking a business globally can be an attractive prospect, potentially targeting markets with fewer competitors, taking advantage of a larger consumer base and even gaining access to cost-effective manufacturing resources.
However, it’s not as simple as just shipping product overseas. Successful international traders conduct extensive market research, understanding each region’s barriers to entry – whether it’s regulations around communication and marketing, finding key contacts in supply chain management or navigating legal and cultural restrictions.
This also means identifying the hidden costs of international trading, which threaten the bottom line of businesses.
The price of peace of mind
Online trading isn’t without its complications. Buying online means handing over confidential bank or card details and, without the right protection in place, it can leave consumers open to theft and fraud.
That’s why e-commerce payment services include a gateway model, which secures transactions by encrypting the cardholder’s details and managing the payment process for the merchant.
However, like any specialist service, merchants pay to keep this sensitive data safe. Gateway fees are typically calculated as a percentage of the transaction amount. And while this payment model is useful for SMEs – helping them efficiently scale – it represents an additional cost that many business owners don’t account for.
Those tempted to simply roll out the cheapest service risk damaging their reputation by potentially being an unsafe seller and one which undervalues its customers. This will eventually impact revenue, as customers look elsewhere, and merchants navigate the costly time spent ironing out problems with insecure payments.
When it comes to choosing a payment gateway service, key considerations should include working with a provider which operates across the same regions and checking contract terms. Some providers may charge set-up fees, monthly subscription fees or implement a blanket charge if a minimum volume of transactions isn’t met.
Merchants should also consider whether to use a direct or indirect payment gateway. While direct payment gateways allow consistent branding with customised design and copy, it may cost extra to integrate the service with an existing website.
Indirect gateways take users away to a separate payment portal on a different page. This is cost-effective to install and can appear more secure to users as they may be using a familiar and trusted payment gateway brand
Calculating conversion fees
As a business owner, payment gateway solution providers charge a number of percentage fees. While for sellers in domestic markets the fee structure can be quite simple, for online sellers in overseas markets, the fee structure becomes complex.
For example, as an international online seller, you can be subject to additional costs for processing international cards, plus additional currency conversion costs back to your business’ home currency.
In some circumstances, this can cost up to 9 percent of your sale revenue. A business has the choice of passing these costs on to the customer or to reduce its profit margin in international markets.
Businesses shouldn’t rush when it comes to choosing a provider. Taking the time to review and compare what’s out there puts them in a stronger position to choose the perfect match.
Providers vary in their offerings, from the regions they operate in, to their fees and exchange rates and even transfer speeds. Those who value trust and transparency may be willing to pay slightly higher to work with a provider which offers exceptional customer service standards, helping them navigate the currency exchange process.
For those moving into multiple markets, it’s worth using a comparison service or tool to make sure they’re partnering with the right provider for each currency pair and region, as it’s unlikely a single provider will offer a blanket ‘best solution’ across the global market.
The role of multi-currency accounts
Having looked at the impact of currency conversion fees, what can businesses do to mitigate these costly charges when it comes to trading in an increasing number of currencies?
Opening a multi-currency account allows businesses to access the speed and affordable conversion costs needed to make the most of international trading. They allow businesses to access unique local banking details in foreign countries and all balances and transfer controls are accessible within a single dashboard.
Not only are the conversion fees associated with these accounts much lower compared with transferring currencies between bank accounts but it’s also quick and efficient – allowing businesses to access funds almost instantly and pass this convenience on to customers.
Specialist money transfer companies that offer multi-currency account solutions offer these services at no monthly cost. Simple and low-cost fee structures are applied on currency conversion and outgoing funds. And incoming receipts of money transfers don’t cost a penny.
Not all multi-currency account solution providers offer access to the same currencies. Furthermore, not all payment gateways offer support for payouts in multiple currencies. Businesses should conduct an assessment of current and future customer and supplier locations to choose the most appropriate solution provider.
Conducting an internal risk assessment helps businesses decide which multi-currency account makes sense for them, based on key requirements, like the number of supported currencies, target regions, potential overdraft facilities and ease of transfers.
Managing international suppliers
In many industries, international e-commerce is not as simple as just sending products to different regions. Logistics and legal regulations across the world mean businesses are often required to work with local specialists to deliver their service or offering.
This may mean working with local manufacturers to produce products in each region or simply partnering with local marketing, PR or advertising professionals to create culturally sensitive brand awareness in the native language.
In these cases, the business becomes the customer. They are required to make payments in multiple currencies as they manage their global operations.
For example, UK bank accounts charge relatively large fees to make payments in foreign currencies and these soon add up when running operations around the world.
This is where multi-currency accounts again prove fruitful. Not only do they allow businesses to hold multiple currencies – which is ideal for sellers – but they can also send money to other accounts with minimal fees if they’re in the same currency.
Paying suppliers in the same region as their customer base can remove the double currency conversion by receiving payment gateway payouts in the foreign currency and paying out of the multi-currency account in the same currency. No currency conversion is necessary in this scenario.
Businesses able to identify all these costs and admin fees up-front will be best placed to get the most value from the research and comparison stage when comparing providers.
Ultimately, they’ll achieve the lowest possible fees for each market, currency and transaction.
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