US-China Relations Wide Ranging Issues 2

US-China Relations: Wide Ranging Issues, At Risk of Boiling Over

In July this year, the Chinese consulate in Houston had been ordered to close its doors by the US government. This development is just one out of the many conflicts plaguing these two economic giants. Nothing like this has been seen in decades between China and the United States.

There are wide-ranging issues between Washington and Beijing that threaten to boil over if not managed properly. The most notable ones are as follows:

COVID -19

In some of the interviews granted by Donald Trump, he was heard several times referring to the coronavirus as ‘Chinese Virus’. His reasons lay with his staunch belief that the Chinese government failed to give accurate reports concerning the extent of the damage caused by the disease. He believes that their government simply ignored its duty to report to WHO since the first case of the virus was documented on Wuhan in 2019.

However, China insists that it has been nothing but transparent since the onset of the pandemic. Following Trump’s accusations, the World Health Organization has denied its involvement in supporting the disinformation by the Chinese. In response to this, the United States President Donald Trump formally started the withdrawal process from WHO, making good on his threats to deprive the UN body of its top funding source over its dismal handling of the pandemic.

HONG KONG

Tensions have clocked to a new height between the US and China. Recently, protests arose as a result of Beijing’s imposition of a new security legislation over the previous colony of Britain, which returned to China in 1997.

In response to this imposition, Donald Trump has signed a sanction effectively severing preferential economic treatment for Hong Kong. This move will allow him to place visa restrictions and sanctions over financial institutions and Chinese officials who’d been involved in enacting the new security law.

Predictably, China threatens to counter with a retaliatory move of their own in no distant time.

There are wide-ranging issues between Washington and Beijing that threaten to boil over if not managed properly.

SOUTH CHINA SEA

Until 2020, the Chinese has always laid claim to ninety percent of the South Sea. Meanwhile, Malaysia, Brunei, Vietnam, Taiwan and the Philippines has actively contested this claim.

Currently, the United States has hardened its stance in the matter, tilting towards the other Asian countries. The US believes that China has plans to build a Maritime Empire in the energy rich sea.

On July 13, 2020, Mike Pompeo, the US secretary of state, issued a statement that accused Beijing of a bully-based campaign and its claim, unlawful.

HUAWEI

The tech company based in China has been added to the US ‘Entity list’ In 2019, the US suspected the company of violating their sanction on Iran and can spy on customers through their devices. This security concern led Washington to add Huawei to its ‘Entity list’

However, Huawei has vehemently denied every one of the allegations and accused Washington of frustrating its growth because no American company can compete with their prices and tech savvy.

Washington has gone ahead to push other countries to drop Huawei, posing the same violations as their reason. The friction between the two has caused a serious decline in their access of Chips and other important parts from their US suppliers.

NORTH KOREA

According to the US, China has breached their sanctions on North Korea. Though Beijing has denied the allegations, tensions continue to rise.

The common goal of both countries is for North Korea to give up its nuclear weapons program and as such, should work together. Yet, that is far from happening. The Chinese government has agreed to lift some of its sanctions over North Korea but the United States does not agree.

Kim Jong Un, the leader of North Korea has met with Donald Trump thrice in an effort to ease the US sanctions but failed to agree every time. While US requires them to give up the nuclear weapons in Pyongyang, North Korea wants all the sanctions, lifted.

Nevertheless, the number-two diplomat, Stephen Beigun remains optimistic. In an interview, he opined that the two countries might still work together in spite of the dispute because of the greater good of ceasing the development of nuclear weapons by North Korea.

UIGHURS

The Uighurs are a minority Muslim group that reside in the western Xinjiang region.

The Chinese government set up complexes in that remote Xinjiang called Vocational training centers. They have been condemned for trying to stamp out what they term as extremism and have the Uighurs acquire new skills within the complexes.

Following the discovery of the violation of Uighur’s human rights, the US has placed sanctions on all the Chinese institutions, officials and companies.

A Better, Safer World

The relationship between the US and China is reaching a dangerous point. The already fragile relationship is on the brink of total collapse and we could only hope that in the coming days, the relationship could improve for the better. People from all over the world are pinning their hopes that the result of the 2020 US presidential elections will provide a pathway for calmer, more collaborative partnership between the two great powers.

As a famous world leader once quipped: “If we cannot now end our differences, at least we can help make the world safe for diversity.”

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>> To read more about this story and other exclusive features about the global private banking landscape, download the latest issue of Global Private Banker Magazine HERE.

 

Image: Robert Way/Shutterstock.com

The Impact of US-China Relations on Wealth Management

The Impact of US-China Relations on Wealth Management

On 3 November 2020, the United States electorate will head to the polls to decide who will lead the world’s most powerful nation in the next four years. As Donald Trump and Joe Biden battle it out to be the chief architect and implementer of US foreign policy, one issue looms large, and unsurprisingly, a crucial talking point in the election: China.

Of particular interest by economists, as well as wealth managers around the world, are the issues concerning trade and investment.

In 2018, China saw a huge increase in tariff on imports to the US. This is a calculated effort from the Trump administration to force Beijing to reduce subsidies on manufacturing companies based in China and curb their difficult demands on US companies.

In January 2020, the two countries came to agreement by signing a trade deal which knocked back some of the tariff rates but failed to address the major issues. This was after an entire year of back and forth on tariff which considerably slowed and depreciated the economy on a global scale.

Nonetheless, Beijing has promised to increase import of US goods worth 200 billion dollars in the space of twenty-four months.

In the meantime, the US government is pushing to have American companies cease manufacturing and sourcing of materials from China. 

US Companies’ Reaction to Trade Issues

These new restrictions have predictably caused US companies untold tension and pessimism. Every day, the chances of the trade tensions reducing or ending grows slimmer because neither Beijing nor Washington are showing signs of relenting. None of the companies are looking forward to the threat of moving their companies over to the States.

The American Chamber of Commerce based in Shanghai conducted a survey and released the results of their findings. Ninety-two percent of the respondents agreed that they would rather keep their companies in China despite the persistent fracture in the US-China relations.

The survey revealed that over a quarter of these firms are aware that the dispute between China and US may last indefinitely. A year ago, only 17% agreed to that possibility. In 2019, 13% of the companies believed that the issues would be settled with three to five years, a number that has since increased to a fifth of the respondents.

However, about 14% agree that the issues will be over in about twelve months.

In a quote, AmCham Shanghai stated that, “What is likely underpinning this sense of negativity is concern about broader US-China relations.” An opinion that outlined responses from over three hundred and forty companies.

The said survey was conducted from June to July when the conditions seemed to worsen even after a trade agreement by both countries.

About 1400 companies in China participate in the yearly survey conducted by the American Chamber of Commerce in Shanghai, an NPO (Non-Profit Organization) that strives to bridge the thorny trade gap between the US and China.

Currently, relations between China and US have continued to sink to a historic low as they continue to disagree and punish each other from issues ranging from the Coronavirus pandemic to technological control.

Donald Trump severed the special trading relationship in July between US and Hong Kong. That privilege had formerly exempted Hong Kong from some tariffs. In additions, both countries made moves to shut down their consulates in Chengdu and Houston.

By August 2019, Washington issued a sanction to Chinese government officials citing that they undermined Hong Kong’s autonomy, with Carrie Lam – the leader – inclusive.

When suspicions rose that TikTok and WeChat could be used to spy on the US government, Donald Trump issued threats to ban the popular apps from the US.

While 32% of the respondents agree that the bad relationship between the countries is sourly affecting their ability to keep their staff, they know that leaving China is completely out of the question. Even with Trump’s order to leave the country in 2019, and in recent weeks, played around with the idea of “decoupling” the world’s largest economies.

These companies state that China still provides several benefits. For instance, some firms are focused on tapping into the large number of middle-class citizens. While many others rely heavily on China for manufacturing. According to 2020 AmCham survey, the number of companies that said China aided the growth of their profit margin increased from 9.4% to 32%.

In agreement to the above data, President of AmCham in Shanghai, Ker Gibbs said, “US businesses in China would like to see the two countries resolve their outstanding issues quickly and reduce tensions.” Gibbs stated, “A workable cooperative framework for the next decade would be a good place to focus discussions.”

The Long Term View

The relationship between US and China is reaching a dangerous point. The already fragile relationship is on the brink of total collapse and we could only hope that in the coming days, the relationship could improve for the better. People from all over the world are pinning their hopes that the coming 2020 US presidential elections will provide a pathway for calmer, more collaborative partnership between the two great powers. As a famous world leader once quipped: “The forces that divide us are not as strong as those that unite us.”

 

Image: Andrea Izzotti / Shutterstock.com

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>> To read more about this story and other exclusive features about the digital banking landscape, download the latest issue of The Digital Banker Magazine HERE.

How the Pandemic is Forcing Wealth Managers to Evolve

How the Pandemic is Forcing Wealth Managers to Evolve

The Covid-19 pandemic has affected the entire globe in an unprecedented manner. It has presented the world with a humanitarian and health challenge that can only be combated by deliberate and hard-fixed actions. With an increase in mortality rates across the globe, many nations remain perplexed about issues brought about by the pandemic. And as a matter of urgency, people affected by the virus need adequate support. There is also a need to create a vaccine to combat death rate and stabilize activities across the globe.

Besides the direct effect of the virus on human lives and livelihoods, it is also essential to consider its impact on the industrial and economic facets of various nations around the world. And that wealth-management systems have also been hit by the pandemic sheds more light on why firms need to come up with practical and strategic responses to the situation.

In light of the COVID-19 pandemic, wealth-management businesses are currently faced with two different circumstances. First, they can procure updated digital plans that may include educating their customers on how to maximize their digital extensions. Secondly, the pandemic undoubtedly presents wealth-management firms with a temporary problem of customer inactivity.

Considering that the degrees to which clients would utilize digital service will inevitably differ, wealth management firms should seriously consider providing digital strategies and action points for their clients.

If investors are going to be reassured of their investment portfolios with wealth-management firms, a strengthening of engagement metrics would be necessary.

The Evolving Role of Wealth Managers

Wealthy investors would want to have updated details of their investments, alongside other conditions such as maintaining market neutrality in the face of high uncertainty. To keep clients feel reassured of the status of their investments, firms must take strategic actions to arrest any worries.

If investors are going to be reassured of their investment portfolios with wealth-management firms, a strengthening of engagement metrics would be necessary. Firms should consider improving their online presence and be more in touch with the pulse of the market. They can also equip portfolio managers with sophisticated communication tools like investment notes, video content and podcasts to deliver investment policies and philosophy to clients. When contacts are made continuously from the company’s leadership (relationship and portfolio managers) to the client, clients get to be reassured of the financial status of the firm.

Consistent communication among firm’s leadership is also highly important. Given the importance of relevant updates to clients’ portfolios, managers must keep updated tabs on the market fluctuations. Meetings for portfolio update can be integrated into the workflow of the wealth managers – and must be done consistently. These are necessary for understanding the impact of the change on clients’ investments. 

Relationship managers are basically at the core of the relationship between wealth-management firms and their clients. They are to possess detailed knowledge of clients’ portfolios and be able to rebalance them for improved security and sustainability. Relationship Managers may also have to be guided by tax professionals if clients are going to have all their tax-related concerns addressed.

Wealth management techniques and tools can be harnessed to keep relationship managers updated about clients’ portfolios. And relationship managers could increase their reliability by test-running their methods of analysis – mainly their automated rebalancing processes – before implementation.

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COVID-19 How Asset Allocation Impacts Investment Deals of the Ultra-Rich

COVID-19: How Asset Allocation Impacts Investment Deals of the Ultra-Rich

The current coronavirus pandemic is taking a massive toll on both the public health as well as the economy of the world. Its impact has been so severe and totally unprecedented that individuals and nations alike are being affected by it – even the world’s ultra-rich.

Presently, only a handful of economic sectors are experiencing slight increases in demand. Others, including businesses owned and managed by wealthy individuals, are merely trying to stay afloat in an ocean of negative outcomes brought about by the pandemic. Besides concerns about the health and wellbeing of loved ones, most wealthy people are currently grappling with the devastating effect of the pandemic on their wealth.

And while developed countries have sufficient resources to keep their citizens and economies going in this period, developing countries may not be able to do the same.

Given that stock markets around the globe are barely trying to survive the negative impact of the pandemic, most wealthy individuals will also experience a significant reduction in their wealth. As a matter of fact, even the Ultra High Net Worth (UHNW) segment had been affected by this pandemic.

Presently, only a handful of economic sectors are experiencing slight increases in demand. Others, including businesses owned and managed by wealthy individuals, are merely trying to stay afloat in an ocean of negative outcomes brought about by the pandemic.

However, the level of impact the pandemic will have on the wealth of UHNW individuals depends mainly on their asset allocations. For individuals with liquidated assets, they are more likely to experience depreciation in value – against the U.S dollar – for their assets. The only lucky ones would likely be those with liquid asset reserves in the U.S dollar.

Furthermore, the response of governments and health sectors to the pandemic will also determine how wealth is affected by this period. And when the worst is over, the recovery rate of economies will equally determine – to a large extent – the overall impact of the pandemic on wealth.

Ever since the COVID-19 induced lockdown and social distancing practices, digitalization has experienced an exponential increase in engagement. Virtually every organization and business have resorted to online platforms for their day-to-day interactions. People have retreated to online messaging and video calls to keep in touch, and educational institutions have upped their games in their respective online engagement platforms.

And with an uncountable number of people now working remotely, organizations have beefed up their connectivity and online security measures. Bloomberg further notes that it is becoming somewhat evident that remote working would remain as an aftermath of the coronavirus pandemic.

Following this spike in the use and patronage of technology, investors are currently observing an increase in the interest of UHNW individuals in technology. Private tech companies are gradually also becoming the target of long-term investment deals by UHNW individuals.

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The New Normal in Payments is Digital-thumb

The New Normal in Payments is Digital

The COVID-19 has prompted several countries to implement various modes of lockdown measures to contain its spread. Safe distancing has become the new norm and work from home has become the default option for many companies and organisations looking to strike a delicate balance between safety and productivity. As a result, it accelerated the adoption of digital payments across many industries.

The fact that using cash or physical bank notes could potentially help the spread of COVID-19 is just one of the factors. While there is no definitive conclusion on this matter yet, many government leaders are taking a cautious approach and are limiting the circulation of cash or bank notes in their system. For example, South Korea, China and the US Federal Reserve have implemented a process to disinfect their banknotes. In fact, “all Chinese banks must now literally launder their cash, disinfecting it with ultraviolet light and high temperatures, then storing it for seven to 14 days before releasing it to customers,” says CNN in its report.

Could these actions be considered extreme precautionary measures? Perhaps. But one thing is clear: such interventions on the supply and circulation of bank notes will directly impact cash payments, further opening the floodgates for further adoption of digital payments.

Safe distancing has become the new norm and work from home has become the default option for many companies and organisations. As a result, it accelerated the adoption of digital payments across many industries.

Digitally ready banks are poised to emerge stronger

As the situation stabilises, and some sense of normalcy start to kick in, banks that are digitally ready are poised to benefit greatly. Investments that help bolster digital payments infrastructure, open banking, artificial intelligence, and data analytics will prove to be wise decisions. In fact, some of the initiatives that have started even before the current pandemic hits now provide considerable value to the customers and entities they aim to serve. Some of them are:

UnionBank’s Financial Supply Chain on Blockchain

In an age where exchanges of goods and services has never been more closely connected, Financial Supply Chain has never been so crucial. Financial Supply Chain on Blockchain enables transparency while protecting sensitive data and information through distributed ledgers and smart contracts. This enables UnionBank to offer non-traditional payment options to Small and Medium Enterprises, Distributors, Suppliers and Dealers while digitizing the invoice presentment and demand order processing.

The development (in partnership with IBM) of the Financial Supply Chain System on Blockchain gives the Distributors, Dealers and Suppliers that are enrolled in the system the confidence to avail non-traditional financing options on a single click of a button. This provides efficiency in managing their receivables and payables as manual processing takes too much time.

NETS’ Click

NETS Click enables the digitisation of NETS Bank Cards on third party merchant mobile applications for secure seamless payments. The product was conceived and built in-house with a lean project team comprising cross-functional domain experts from product, technology, security and compliance teams. The design is aligned to concepts of EMVCo’s Secure Remote Commerce (SRC) and fulfils equally stringent industry security requirements.

NETS Click features a highly advanced security design incorporating multi-layered mobile digital security, EMV-based tokenisation technology, bank card and consumer verification methods. Most importantly, it was developed with a human-centred product design. The result is a simple and friendly user journey incorporating advanced mobile runtime threat detection coupled with host-based AI-driven fraud and security monitoring.

TMRW by UOB’s Intelligent Assistant

TMRW’s distinct service delivery model brings together a complex orchestration of chatbot, live chat, and VOIP voice call similar to some of the leading messaging platforms – creating an experience unmatched by any typical bank. TMRW’s chatbot Tia (TMRW Intelligent Assistant) is right at the center of this experience.

The chatbot orchestration is the first digital service model that uses chatbot to orchestrate the delivery of customer service as a combination of self service, FAQ responses and human support through voice or chat – all without the user having to ever exit or switch away from the TMRW app.

The New Normal is Digital

It is still early to conclude what’s the landscape will look like once the dust fully settles. As it is, the battle against the current pandemic is still ongoing. From a purely financial context, we can clearly see the signs towards increased digitisation of payments. How big and how fast it will grow still remains to be seen.

We can only hope that the present crisis could be eliminated soon. As the world continues to rely on technology to solve many of today’s ills, our habits, patterns and way of living never ceases to evolve. One thing is for sure: the COVID-19 is forcing upon us a new normal – a new normal that thrives on increased digitisation.

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>> To read more about this story and other exclusive features about the digital banking landscape, download the latest issue of The Digital Banker Magazine HERE.

3 Things Private Banks Can Learn From this Period of Pandemic

3 Things Private Banks Can Learn From this Period of Pandemic

Soon after the financial crisis that turned the global economy in shambles in 2008, regulators came up with policies to avoid a more disastrous re occurrence. And they weren’t off point when they stipulated that banks should beef up capital and fortify their liquidity against the impacts of any future financial crises.

Furthermore, regulators had to put each bank through a yearly assessment to ascertain whether they were equipped enough to scale through the worsts of economic meltdowns. Based on studies, a very sharp global GDP decline of up to 7% would’ve already been pretty bad. At the time, bankers and regulators thought it was the worst the world could ever experience.

However, with the occurrence of the coronavirus pandemic, coupled with governments’ reactions to its damaging effects, many economies are on the verge of a total shutdown. And the projected decline of global GDP may even be worse than earlier projections. As the situation is still very fluid, no one can even tell when will the worst be over. This now warrants a re-examination of the fate of the private banking sector.

Here are the 3 things private banks can learn from this period of the pandemic:

The projected decline of global GDP may even be worse than earlier projections. As the situation is still very fluid, no one can even tell when will the worst be over. This now warrants a re-examination of the fate of the private banking sector.

1. Digital Interactions are Worth It

Before the pandemic, only a few wealth managers could boast of harnessing digital platforms to interact with their clients. However, as the pandemic lingers, many wealth owners have resorted to digital platforms for communication with their wealth managers. And given that digital platforms are more convenient and efficient than physical ones, digital means of wealth management may remain relevant even after the pandemic. Wealth managers who are unable to implement digital strategies may fall into the losing team.

2. Crisis Prediction Must Take a Holistic Approach

No prediction could get close enough to guessing that the coronavirus pandemic would occur the way it did. In the same manner, it never occurred to financial experts that the virus would impact the global economy so severely. The world economy was caught unaware by the pandemic because new investment schemes were being carried out based on information obtained from individual commissions. Hence the pandemic simply points to the fact that future financial researches may have to be done from a more holistic point of view.

3. Working Remotely is a Win-Win

Wealth managers may need to incorporate remote offices into their work models if they intend to stay relevant. The pandemic has proven beyond any shadow of a doubt that it is possible to keep a business going from different homes. As a matter of fact, remote offices are more flexible, efficient, and cost-effective. And although a lot still has to be done to implement new business principles while working remotely, it is only a matter of time before it becomes prevalent.

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>> To read more about this story and other exclusive features about the global private banking landscape, download the latest issue of Global Private Banker Magazine HERE.

What Lessons Wealth Managers Can Gain from the COVID-19 Crisis

What Lessons Wealth Managers Can Gain from the COVID-19 Crisis

By all indications, almost all sectors of the economy are bound to suffer a significant blow during the current pandemic. Before the pandemic, many private banks that handle the finances of affluent customers were merely struggling to stay afloat. Positioned between large international banks and startup local financial institutions, private banks have always experienced difficulties in attracting customers to themselves.

However, with the onset of the virus, the wealth management sector will likely experience a significant shift in its operations. Those that have strategically planned how to best take advantage of this period will emerge victorious. While others that continue to operate with increased costs and diminishing margins may be taken out of business.

Here are some lessons wealth managers can glean from the current COVID-19 crisis:

Clients’ Data is as Important as the Clients Themselves

Wealth managers who fail to harness the power of data may suffer losses in this period. Gone are the days when client data is obtained haphazardly and without any regard to privacy. The way things look, private banks may need to be more thoughtful in getting and utilizing their clients’ data if they are going to work effectively.

Education Never Ends

Even when the Covid-19 pandemic is over, work and life, in general, may not remain as they were. Bankers and employers may need to get engaged in continuous education across several disciplines to stay relevant. And wealth management firms that will also remain relevant would have to learn to integrate ongoing learning experiences into their operative business models.

Adjustments in wealth management priorities will also spell a need for a change in investment models. Future clients (who have experienced the devastating economic impacts of the pandemic) would definitely lose interest in conventional investment models.

Priorities and Values Will Shift

A lot of businesses and industries may have to readjust their values after this pandemic. The upcoming generation may also come to appreciate values like modesty, transparency, and sustainability. For wealth managers, this priority shift may focus on providing their clients with real solutions to their needs – not void marketing promises. And those who fail to implement relevant changes in their values may not get the best of clients afterward.

Conventional Will Give Way to Innovation

Adjustments in wealth management priorities will also spell a need for a change in investment models. Future clients (who have experienced the devastating economic impacts of the pandemic) would definitely lose interest in conventional investment models. They would begin to seek platforms that allow them to invest in thematic ventures rather than complex financial commodities. In essence, Private Banks may also need to look to more persuasive and thorough investment models after the pandemic.

Operational Resilience is Key

Perhaps one of the most important lessons this present crisis has taught us is that resilience, in all aspects of our lives, is a key ingredient to thrive in this environment. Similar to how sophisticated systems and products are being subjected to thorough stress-testing, business operations of private banks must also live up to the challenges ahead of it. The bank’s leadership must put in place effective stop-gap measures to deal with immediate concerns, then move to a more sustainable operational models absent any conventional tools and support to make sure business will survive- and thrive – in times of prolonged difficulties.

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>> To read more about this story and other exclusive features about the global private banking landscape, download the latest issue of Global Private Banker Magazine HERE.

Digital payments surge amid safe distancing measures

Digital payments surge amid safe distancing measures

The coronavirus has totally upended the supply and demand markets. The urgent need for essential products coupled with the fact that governments and regulatory bodies are now discouraging the use of cash, has prompted a swift rise in digital payments. Convenience and security aside, digital payment is now the de facto mode of payment as many e-commerce sites are tightly intertwined with e-payment solutions that make the whole system work.

It is no coincidence that the daily downloads of online grocery delivery apps such as Instacart, Walmart Grocery and Shipt have surged by 218%, 160% and 124%, respectively.

People who are at home for long periods of time need to buy groceries and household essentials more frequently – and they prefer online shopping. Regardless of the level of lockdown being imposed, people tend to avoid visiting brick-and-mortar stores. Shops are taking notice and are rapidly ramping up their online presence as well. Stores that have already started implementing e-commerce solutions are rapidly building scale and capacity to be able to cater to stronger demands.

It is no coincidence that the daily downloads of online grocery delivery apps such as Instacart, Walmart Grocery and Shipt have surged by 218%, 160% and 124%, respectively.

As more consumers continue to stock food and other essentials, the volume of online transactions and digital payments will surge precipitously. In fact, it was revealed that COVID-19 has massively accelerated e-commerce growth to the tune of 77% year-on-year, with a total online spending hitting $82.5 billion in May, according to Adobe report.

“We are seeing signs that online purchasing trends formed during the pandemic may see permanent adoption,” Taylor Schreiner, Director, Adobe Digital Insights, said in a statement.

The future of payments is digital

This observation is consistent with what is happening on the ground. In Singapore, local banks such as OCBC, UOB and DBS are reporting that a significant number of customers have switched to digital banking due to COVID-19.

DBS Bank, Singapore’s biggest bank, noted that more than 100 million digital banking transactions happened this year, compared to the same period in 2019. In addition, digital payments have more than doubled and e-commerce transactions rose by as much as close to 40% in value. It’s interesting to note that there are around 3.3 million Singapore users banking online with DBS and about a quarter of whom are seniors – an indication that the adoption of digital banking cuts across various sectors and demographics in Singapore.

Meanwhile, in China, where digital payments are already in its maturity, COVID-19 may well push the country for the total elimination of cash transactions. In 2008, only 18% of Chinese internet users made online payments. This figure jumped to almost 73% in 2018, which is partly attributed to young people being open to the use of new technologies, according to a recent survey by Deutsche Bank.

Comparatively, China and many Southeast Asian nations have a larger proportion of young populations than Europe and the US. In places such as Japan, Western Europe and the United States, a third of the population still consider cash as a favourite payment method, according to the same survey.

“While we believe cash will stay, the coming decade will see digital payments grow at light speed, leading to the extinction of the plastic card.”

Deutsche Bank’s report, The Future of Payments, neatly summed up where the world is headed when it comes to digital payments: “While we believe cash will stay, the coming decade will see digital payments grow at light speed, leading to the extinction of the plastic card. Over the next five years, we expect mobile payments to comprise two-fifths of in-store purchases in the US, quadruple the current level. Similar growth is expected in other developed countries, however, different countries will see different levels of shrinkage in cash and plastic cards. In emerging markets, the effect could arrive even sooner. Many customers in these countries are transitioning directly from cash to mobile payments without ever owning a plastic card.”

What’s interesting is that even though a significant portion of the population in Western countries still prefer to pay with cash, their preparedness when it comes to digital payments could never be questioned. In the US, digital payments champions such as Paypal, Apple Pay and Google Pay are consistently thriving.

European countries, through its Central banks such as the the Bank of England, the European Central Bank, the Sveriges Riksbank and the Swiss National Bank, together with the Bank for International Settlements (BIS) have initiated assessment of potential cases for central bank digital currencies. These would perform all functions of ‘cash’ and aims to be used by individuals and businesses to make both payments and savings. The task ahead can be daunting and will require enormous effort and commitments from both the governments and private sector organisations involved.

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>> To read more about this story and other exclusive features about the digital banking landscape, download the latest issue of The Digital Banker Magazine HERE.

The Risks and Rewards of Going Cashless in a Digital World

The Risks and Rewards of Going Cashless in a Digital World

Since about 960 AD, when the earliest known paper money began circulating in China, the thought of eliminating cash, in favour of electronic or digital medium, had been inconceivable. Ironically, these days, China is one of the leading countries in the world with the highest volume of cashless transactions. Elsewhere in the world, the cashless revolution is being spurred by fintech firms and online payment platforms such as PayPal, Venmo, Stripe and Square. These corporate giants have never been busier these days. Merchants are now scrambling to provide digital payment options to customers who seek to avoid, or are simply unable to, pay cash. “Our products have never been more wanted and needed,” said PayPal CEO Dan Schulman in light of the report that PayPal is signing up around 250,000 customers a day with 7.4 million customers activated during April period.

Even as we grapple with the factors that are going to affect our move towards a cash-free society, the pros and cons of living in such an idyllic world must be carefully weighed.

“Our products have never been more wanted and needed,” said PayPal CEO Dan Schulman in light of the report that PayPal is signing up around 250,000 customers a day with 7.4 million customers activated during April period.

BENEFITS:

Convenient Payment Locally and Internationally

Aside from avoiding the hassle of not being able to avail of desired products of services for lack of cash in your pocket, going full cashless also allows you to leave any worries behind when you travel. You don’t need to worry about exchange rates or currency withdrawal as your mobile device could handle everything for you.

Reduced Illegal Activities

Cash is always the preferred medium in many illegal transactions as it provides no money trail and every person involved in the transaction can go completely anonymous. Those days could end in a cashless society. As automatic paper trails are created, illegal gambling, drug operations and money laundering could be a thing of the past as a clear record of transfer of ‘money’ will exist, serving as a deterrent to lawless elements.

Increased Safety and Security

Carrying cash around entails risks and makes you an easy target for criminals. Once cash has been taken away from you, it now becomes a criminal’s possession which can be spent without any trace that they were yours.

Printing Money Costs Money

Going cashless is not only convenient, it also saves money. Printing coins and bills have costs. Storing those bills and moving them around have costs. Even storing them costs money. Businesses that churn a lot of cash have to deposit them, withdraw them and keep moving in order to keep the business going. All of these problems will go away once we get rid of the physical cash.

As automatic paper trails are created, illegal gambling, drug operations and money laundering could be a thing of the past as a clear record of transfer of ‘money’ will exist, serving as a deterrent to lawless elements.

RISKS:

However, depending on how you look at it, going cashless can actually entail more risks than benefits. Some of these are:

Full Access to Funds Might Not Be Guaranteed 

Once you become dependent on technology to get access to your funds, then problems such as glitches, virus, computer error, and even innocent mistakes could prevent you from being able to spend your money. Moreover, merchants that encounter compatibility issues or system malfunction may not be able to accept your payment even if you have enough funds to do so.

Additional Charges by Payment Processors

Moving to a cashless society might entail selecting a few payment processors to handle payment transactions. These payment processors are companies that have invested time and resources to create a product that could handle the task. As such, some form of fees must be implemented in order to recoup their investment. The resultant effect could be higher total cost of transaction instead of savings, purportedly touted due to less cash handling.

Increased Privacy and Security Concerns

Regardless of the amount of encryption, security and safeguards being implemented, electronic payment always entails risks of mishandling data. With the amount of information that will be generated with the continued adoption of electronic payment, malicious elements will be harder at work to get their hands on these data. On the contrary, cash transactions are always anonymous – and to some degree, safe.

Your Funds Can Be Hacked

While there is zero chance that a robber or a pickpocket could steal from you, hackers could actually do you more damage. It’s not unlikely that if someone is targeted by a particular hacker, his funds could be dried up, leaving you with absolutely nothing in your account at all. Even if there are some form of paper trail, restoring your funds after a breach could be complex and time-consuming.

Will cashless ever be possible for all?

If history has anything to teach us, it is that the world is constantly evolving. With the rise of e-commerce and digital payments, it is not impossible to say that physical currencies will soon be obsolete. What’s important to note is that every country in every region are moving towards this ideal at their own pace. The march for progress continues. For now, we have credit or debit cards, mobile payments and crypto/digital currencies that give us hints as to how a cashless society might evolve. Who knows? Something even more revolutionary might come along.

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>> To read more about this story and other exclusive features about the digital banking landscape, download the latest issue of The Digital Banker Magazine HERE.

COVID-19 Pandemic and The Era of Responsible Banking

COVID-19 Pandemic and The Era of Responsible Banking

An industry that has been able to weather crises such as SARS, Ebola, 9/11, Asian financial meltdown and of course, the 2008 financial crisis, otherwise known as The Great Recession, is nothing less than resilient. Amidst the ongoing uncertainty brought about by the COVID-19 pandemic, the banking industry is once again facing an enormous challenge, the likes of which are totally unprecedented in scale.

Instantly, the impact on the economy started to reverberate across all regions. According to The Center for Global Development, an international think tank that focuses on international development, “travel restrictions and lockdowns imposed to contain the spread of COVID-19 continue to impact the economic outlook for low- and middle-income countries.”

In Asia and the Pacific, economic growth is expected to decline by 2.7 percent in 2020 (down from last year’s 3.6 percent growth) and is seen as the most significant fall since the near-zero growth rate logged in 2009 during the global financial crisis, according to APEC. In addition, Asia-Pacific will also see a 50% decrease in passenger demand this year compared to last year. As a result, airline passenger revenues is estimated to record a revenue decline of $113bn compared to last year.

DBS, Southeast Asia’s largest bank, reports a 29% drop in first-quarter year-over-year net profits, setting aside $772.5 million “to cover potential losses from the coronavirus pandemic.”

Meanwhile, Latin America may experience a contraction of income between 11% and 22% according to a simulation by the Bank of Spain. Moody’s predicts a 6% contraction for Argentina’s economy for 2020, 5.2% for Brazil and 7% for Mexico.

Brazilian government minister Salim Mattar estimates that “the unemployment rate in [Brazil] may even double due to the impact of the coronavirus crisis on the economy.”

Not spared from economic shocks, Africa’s growth is also estimated to slow to 1.8 percent in the best-case scenario or to contract to -2.6 percent in the worst-case scenario from the 2.9 percent in 2019 and the pre-pandemic 2020 forecast of 3.2 percent, according to The United Nations Economic Commission for Africa.

Overall, the World Bank warn that “COVID-19 is likely to cause the first increase in global poverty since 1998 when the Asian Financial Crisis hit.”

“Global poverty — the share of the world’s population living on less than $1.90 per day — is projected to increase from 8.2% in 2019 to 8.6% in 2020, or from 632 million people to 665 million people,” World Bank adds.

Overall, the World Bank warns that “COVID-19 is likely to cause the first increase in global poverty since 1998 when the Asian Financial Crisis hit.

The Era of Responsible Banking

Since 2008, in the aftermath of the global financial crisis, banks have made significant steps to take action and create products that are better aligned with the social and environmental values of the clients, not just because regulators have demanded it, but because society expects it. Moreover, it has proved to be beneficial to the bottom line.

Formally, this is now known as Principles for Responsible Banking (PRB). The Principles for Responsible Banking were launched by 130 banks from 49 countries, representing more than USD47 trillion in assets, on 22 and 23 September 2019 in New York City, during the annual United Nations General Assembly.

At the end of March 2020, as the world sees the rapid spread of COVID-19, the PRB group called on its signatories to take action to support society and businesses in this unprecedented crisis. More than 150 banks joined the call and were in fact, doing more than what their governments are asking them to do when it comes to supporting small businesses and unemployed individuals.

The examples of how banks are helping societies during the collapse of an economy is aplenty.

For example, in the US, banks have become the predominant channel for its Paycheck Protection Programme, a $659 billion aid programme for small businesses. US regulators have also eased restriction to allow banks to tap into their capital reserves so they can continue lending.

In Switzerland, regulators and banking institutions worked together to provide loans for businesses who only need to fill out an online form and if approved, the loan could be disbursed to their accounts the next day. Likewise, in South Africa, filling in a form is not even needed as banks were allowed to adopt ‘opt-out’ models making it easier for loans to be extended. And in China, banks worked closely with regulators so loans and extensions could be fast tracked.

In mounting these unprecedented efforts to help societies, as well as prevent further deterioration of economic gains, global central banks are also stepping up to the plate and taking decisive actions.

Elsewhere, in The Netherlands, ABN Amro has extended an automatic six-month deferral on payment of principal and interest for clients with a credit facility of up to 50 million euros. And in Singapore, DBS Bank is allowing credit card holders to roll repayments into a single loan, effectively cutting rates from more than 20% to high single digits.

In mounting these unprecedented efforts to help societies, as well as prevent further deterioration of economic gains, global central banks are also stepping up to the plate and taking decisive actions. Through various measures such as rate cuts, liquidity support and easing of financial policies, the world’s central banks are playing a crucial role in preserving economic stability during this crisis.

Commitment to Move Forward

While the proverbial light the end of the tunnel may not be very clear in sight yet, COVID-19 and its impact already highlight the importance of keeping sustainability and responsibility at the forefront of banking agenda. Banks that have been committed to responsible banking are seeing good progress and are in fact, dealing better with the COVID-19 crisis.

Through the Principles of Responsible Banking, understanding the needs of all stakeholders becomes a paramount concern, and as such, it allows decision makers to understand the potential impact of any decision during a crisis.

However, any principles and proposals around responsible banking may come to naught if these aren’t backed by commitments and tangible targets. The new normal may come sooner than expected, or later than hoped. What’s important is to continue to look out for each other. After all, doing business is all about helping our customers and our people.