Since the turn of the year there have been signs of a gradual improvement in the global economy, while British consumers are back out and spending again. However, with the UK’s recovery considered to be at a ‘critical’ juncture and remaining vulnerable in the event of a further eurozone recession, there is still work to be done to stabilise its economy. Add to this the
December 2014 Financial Stability Report
from the Bank of England (BoE). This revealed that one of the main UK banks would fail stress tests if faced with another economic downturn, with a further two banks on the brink.
Traditionally, one of the key measuring sticks for the global economy has been the strength of its leading currencies. Yet last year and also in the opening weeks of 2015 we have again seen some currencies experience significant volatility in value. The Russian rouble (RUB) halved in value against the US dollar during 2014. Normally when a recovery begins, the traditionally strong currencies are what many businesses pin their hopes on. However, the scale and the depth of the downturn has been unprecedented, and trust in the traditional financial mainstays of economies, currency strength and banking systems has been heavily eroded.
As a consequence, we have seen two major emerging trends in the payments sector – the development and growth of virtual currencies and an increase in alternative forms of payment. This has meant that the reliance on a handful of global currencies has diminished over the past 12 months and the rise of Bitcoin, mobile money and digital wallets has added a new layer to the global currency markets.
However, it’s important to remember that the post-2008 recession is has been unique. When the previous major downturn occurred a quarter of a century ago, the World Wide Web (W3) had not been invented. Its proliferation has radically changed almost every company on the planet and will continue to influence the way business is done. The wider availability of smart devices and connectivity means that in certain countries it is now easier to bank online than it is via a traditional ‘bricks and mortar’ branch. One of the major hurdles that emerging economies have faced is the issue of having a workforce that is unbanked.
The Move to Mobile Wallets
Take Africa for example; the continent is urbanising faster than any other, with cities enjoying high levels of wireless and data coverage. It has the world’s most youthful populations and it is well-known that the younger generations are often first to embrace technology. An increase in disposable incomes among emerging middle classes and, more importantly, increased accessibility to goods and services is making discretionary spend on e-commerce an immediate reality. These conditions deliver the perfect storm for a massive surge in consumer demand for digital payments.
However, a high percentage of Africans remain unbanked and so have no means of paying for global online brands. Even those that are banked often find that global online merchants are reluctant to serve these markets for credit and debit card transactions, due to perceived fraud risks.
In recent years, mobile network operators have realised they also have the infrastructure – through their wide physical distribution networks – to deliver banking services to their consumer bases. Consumers can visit a kiosk just minutes away from their home or office, to deposit and withdraw funds to and from mobile wallets. In addition, governments have realised that mobile wallets not only help to increase security and reduce crime; they also mean that transactions are officially recorded without bypassing taxation channels. Consequently more and more governments are approving mobile wallet licences across the emerging markets (EMs).
A Revised Assessment
The result is a plethora of new services for EM consumers. They receive their wages online, they are able to send money back to their families in villages, they can more easily pay their utility bills and increasingly they are able to spend funds with local online merchants. More recently, consumers have been able to receive international remittances from friends and family overseas directly into their mobile wallet through services that are instant and cost-efficient. Furthermore, they can then use these funds to buy from global internet brands that were previously inaccessible.
This trend marks a fundamental change from how these economies previously worked, where the unregulated use of cash was the primary means of payment and purchasing goods. However, as there was no way of regulating this flow of funds, this made it difficult to plan economic strategies. With EM countries moving away from cash and turning to virtual currencies, it is now much easier for businesses to plan and feel comfortable with the strength of these economies.
While the global economy is disparate by its very nature, trends such as the move toward virtual currencies and alternative payment options are factors that global economists should now use when they assess the health of these economies.
The quintet of EM countries dubbed ‘The Fragile Five’ by Morgan Stanley – Indonesia, South Africa, Brazil, Turkey and India – may not be adhering to the normal recovery metrics. While the established global currencies continue to fluctuate, perhaps a new set of metrics needs to be considered when giving a final estimation on how far the global economy is on the road to recovery.
Europe’s opening banking regulation is finally here. After months of preparation across the continent, the Revised Payment Services Directive comes into effect on January 13.
The revised Payment Services Directive regulation, regarded as one of the most disruptive in Europe’s financial services sector, will begin to make an impact on January 13, 2018.
The cost of compliance efforts for banks has increased exponentially in recent years. This is especially true for those banks that are active in the global trade finance domain, where the overwhelming expectation is for compliance requirements to become even more complex, strict and challenging over time.
This year promises to further the regulatory compliance burden imposed on financial institutions. How are firms in the sector responding to the challenge?