Sustainable Payments The Next Frontier

In providing the fuel and rails for the modern economy, the potential for payments to impact on sustainability cannot be underestimated. As rapid, global digitization continues to transform all aspects of our lives, payments are pivotal: almost every digital activity relies on a payment system.

As a result, there is a responsibility incumbent on payment providers in funding and increasing awareness to sustainability.

Amongst both businesses and consumers, there is also a greater awareness of the role of sustainable finance, which is playing an increasingly critical part in influencing investment decisions. ESG (Environmental, Social and Governance) initiatives undertaken by payments can play a huge role in influencing these decisions.

Why is a sustainable payments industry important?

Firstly, necessity. The pandemic has significantly changed the structure of the economy, causing a decline of physical cash and digitizing businesses – all contributing to the reduction of reliance on carbon emitting processes.

The second reason is consumers. Regardless of industry, consumers are increasingly choosing businesses that share their environmental goals.

Consumers are also influencing investor pressure. Businesses are now looking to invest in environmentally friendly ways: two out of three French and German retail investors say they will invest in sustainable ways even if there is cost involved2. This is also visible in the green bond market, in 2022 green bond issuance has increased 49% year-on-year, with the market set to hit $1 trillion globally in 20213.

The third reason is regulatory. Increase in regulations, especially within Europe, is driving transparency in this space, with change being brought about thanks to the Paris agreement, COP 26 and other targeted regulations.

Challenges in the sustainable payments industry

  • Greenwashing
    Different standards, definitions and regulations can cause confusion and allow ‘greenwashing’. Incoming regulations will force industry standards and transparency, but rising focus on greenwashing is driving financial institutions to take a more cautious to ESG-linked products and solutions.
  • Geopolitical tensions
    World events can have a ‘butterfly effect’, increasing cost of living. This can result in challenges such as an impact on consumer demand, and the likelihood of consumers choosing green options when faced with financial insecurity.
  • Unintended consequences
    If not managed carefully, sustainable financing could cause unforeseen negative effects on society, such as job losses as a result of cutting finance to fossil fuel industries. Other unintended consequences for green initiatives should also be considered, for example by-products of electric cars including toxic and non-recyclable batteries.

How is J.P. Morgan making payments environmentally sustainable?

The payments scope is wide – stretching across every conceivable industry. As a common denominator between these industries, we have undertaken a program of workshops and client meetings to  recognize and support ESG needs, which vary considerably between industries. Environmental efforts are  concentrated for technology, media and telecoms as well as consumer and retail, diversified industries and natural resources. However, healthcare, utilities and public sector, alongside Financial Institutions, are targeting their focus on social and governance concerns.

Our approach to ESG management includes having robust governance systems, risk management and controls at a firmwide level. Equally important for us in J.P. Morgan is the social aspect –  investing in our employees and cultivating a diverse and inclusive work environment, and working to strengthen the communities in which we live and work.  At J.P. Morgan, we are advancing sustainable solutions for our clients and within our operations in several ways:

  • Minimizing the environmental impacts of our physical operations
  • Maintain carbon neutral operations since 2020
  • Transition J.P. Morgan’s fleet to electric vehicles by 2025
  • 100% paper purchased from renewable sources and reduce office paper by 90%
  • Working with organizations to advance sustainable development

Financing positive ‘green’ solutions. We are aiming to finance and facilitate more than $2.5 trillion over 10 years to advance climate action and sustainable development, including $1 trillion for green initiatives.

Last year, J.P. Morgan released the 2030 emission reduction targets for the Oil & Gas, Electric Power, and Auto Manufacturing financing portfolios4. In addition, we have expanded our financing restrictions on activities such as oil and gas development in the Arctic.

Specific to payments, we are developing financial solutions that drive action on climate change and generate other positive environmental impacts. In sustainable Supply Chain Finance in particular, our compelling alliance with Taulia and Ecovadis provides a sustainable SCF program that assesses sustainability of suppliers and offers tired pricing based on rating.

Based on our conversations with multi-national corporates in Europe, it is clear that sustainability sits at the heart of their corporate strategy for the future.

Every company has become a climate company in its own right, as we all work towards a common goal of limiting the impact of climate change. At J.P. Morgan, we would like to reiterate our commitment to supporting our clients, communities and colleagues by working towards a new frontier of sustainable payments where we not only invest in our platforms but in our planet.

Source: Earth Day 2022 – Sustainable Payments | J.P. Morgan

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Stock Market Could Crash Another 20% If U.S. Plunges Into Recession

As a growing number of investment banks and company chiefs warn that the likelihood of a recession is increasing, analysts at Morgan Stanley are telling clients that the stock market—despite reeling from a steep selloff in recent weeks—has plenty of room to fall before hitting levels consistent with recession-era lows, which would be especially bad for cyclical industries like travel and hospitality.

Despite major stock indexes plunging more than 20% below recent highs, markets are still only down by about 60% of the average drawdown compared with previous recessions (which denote two consecutive quarters of negative GDP growth), Morgan Stanley analysts told clients in a Tuesday note.

As the Federal Reserve works to combat decades-high inflation with interest rate hikes that will likely stunt economic growth, a recession “is no longer just a tail risk,” analysts led by Michael Wilson wrote, putting the odds of one over the next year at 35%, up from 20% in March.

They estimate the S&P 500 could plunge as much as 20% to 3,000 points, from current levels of 3,770, if the U.S. falls into recession, citing earnings that tend to fall an average of 14% during recessions—a marked turnaround from record profits and 25% growth last year.

“The bear market will not be over until recession arrives—or the risk of one is extinguished,” the analysts said, adding that market weakness will likely continue over the next three to six months in the face of “very stubborn” inflation readings.

With high prices deterring some consumer spending, Morgan Stanley says stocks tied to discretionary spending, like those in retail, hotels, restaurants and clothing, are at higher risk of a downturn, while those tied to the internet, payments and durable household goods (like appliances and computers) are less at risk.

The note comes the same day Tesla CEO Elon Musk said the U.S. economy will “more likely than not” face a recession in the near term, echoing concerns raised by several other top business leaders and financial institutions following last week’s steeper-than-expected hike in key interest rates, which tend to deter spending by making borrowing more expensive.

Morgan Stanley’s not alone in raising recession odds this week. In a note to clients Monday, Goldman Sachs’ chief economist, Jan Hatzius, said the firm now sees “recession risk as higher and more front-loaded,” given the Fed’s more aggressive rate hike, putting the odds of a recession over the next two years at 48%, up from 35% previously. The investment bank estimates tighter financial conditions could drag down GDP as much as 2 percentage points over the next year.

Restaurants are most at risk of a pullback in spending, according to a Morgan Stanley survey of some 2,000 consumers. Roughly 75% of respondents said they’ll cut back on dining out over the next six months, while 60% said they’d do so on deliveries and takeout from restaurants. Though driving much of the inflationary gains, essential items like gas and groceries should see more resilient spending, with roughly 40% of consumers saying they’d cut back on either.

Major stock indexes plunged into bear market territory last week ahead of the Fed’s largest interest rate hike in 28 years, and the gloomy sentiment has ushered in waves of layoffs among recently booming technology and real estate companies. “We don’t believe the Fed can stop the issues that are causing inflation on the supply side without absolutely wrecking the economy, but at this point, it looks like they are resigned to the fact that it must be done,” says Brett Ewing, chief market strategist of First Franklin Financial Services. Goldman Sachs has warned clients it expects another 75-basis-point hike in July.

I’m a senior reporter at Forbes focusing on markets and finance. I graduated from the University of North Carolina at Chapel Hill

Source: Stock Market Could Crash Another 20% If U.S. Plunges Into Recession—These Industries Are Most At Risk

The best hope for stocks right now is a recession that crushes inflation and allows the Fed to slow, stop or even reverse rate hikes.

Why it matters: Down 20.5% so far in 2022, it’s the ugliest year for the S&P since 1962. The drop vaporized $9 trillion in paper wealth, delivering a psychological shock to millions whose retirement is mostly in stocks.

Driving the news: Facing persistent inflation, the Fed delivered its largest rate hike since 1994 on Wednesday.

  • The increase is the monetary-policy equivalent of stomping on the country’s economic brakes — sharply increasing the risk that growth contracts.
  • Despite the recent beating shares have taken, the Fed’s announcement was greeted with open arms by investors. The S&P 500 rose 1.5%. The Nasdaq rose 2.5%. Interestingly, the Russell 2000 — which is more closely tied to short-term ups and downs of the economy — rose less, at just 1.4%.

The big picture: A huge rate hike that raises the risk of recession may sound like a bad thing for stocks — but with inflation still rising, it isn’t.

  • Essentially, investors are saying they prefer a big, sharp Fed-induced economic shock now if it quickly gets inflation under control. In theory, that could allow lower rates to return after inflation is vanquished.
  • Low interest rates have been crucial to the performance of stocks over the last decade.

Context: While Americans have a habit of looking at the stock market as an economic indicator, the linkage between economic growth and stock market performance is surprisingly weak, and, some academics say, nonexistent. The most extreme example of this reality arose during the bleakest moments of the COVID-related recession.

  • In April 2020, the U.S. economy was essentially on life support. Unemployment that month was 14.7%. There were, quite literally, bread lines miles long.
  • That month the S&P 500 posted its best month in 33 years, rising nearly 13%.

What gives? Well, in late March 2020, the Federal Reserve had to cut interest rates to zero and restart money-printing programs do deal with the COVID crisis. (The Federal government also began dumping what would ultimately be trillions of dollars into the economy to keep people afloat.)

The intrigue: But don’t recessions hurt corporate earnings? Wouldn’t that make stocks fall?

  • Earnings are one ingredient in stock prices, and they can definitely fall during recessions. But recently, interest rates — essentially the yield on the 10-year Treasury note — have played a more important role in establishing stock prices than earnings.
  • That’s because those interest rates largely determine the valuation multiple — otherwise known as a price-to-earnings ratio — investors use to determine the price they’re willing to pay for those future earnings (effectively, the price of a stock).
  • TL;DR: Higher rates = lower valuations, and vice versa.
  • So, even if earnings are expected to fall, stock prices can still rise, if valuations rise enough. Those valuations are largely determined by interest rates — and those rates are largely determined by Fed decisions.

The Federal Reserve made an aggressive new move in its campaign to bring down inflation Wednesday, raising its target interest rate by three-quarters of a percentage point, the steepest rate hike since 1994 — and indicated another similar move could be coming next month.

Driving the news: In addition to increasing their target for short-term interest rates to a range of between 1.5% and 1.75% Fed officials projected that their target rate will reach 3.4% late this year, far higher than the 1.9% they envisioned in March. Mortgages, car loans and credit card debt are all about to get more expensive.

Yields on U.S. government bonds — known as Treasuries — rocketed in recent days, as Friday’s inflation report convinced many that a combination of persistently high inflation and aggressive Federal Reserve interest hikes, is on the way. The yield on the 10-year Treasury note surged to nearly 3.50% in recent days, a level not seen since 2011……

  Matt Phillips

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Housing Market ‘In Free Fall’ As New Construction Plummets

The number of housing starts, or ​​new houses on which construction started, plunged 14.4% to about 1.5 million last month from 1.8 million in April—sharply below economic projections calling for nearly 1.7 million starts, the Census Bureau reported Thursday.

Building permits also fell more than expected, coming in at less than 1.7 million in May despite expectations they would remain roughly flat from April at about 1.8 million. In emailed comments Thursday, Pantheon Macro chief economist Ian Shepherdson attributed the sharper-than-expected decline to an “abrupt and rapid” drop in new-home sales facing builders, who “overbuilt” since early 2021 to capitalize on demand that’s now “in free fall” and must slow construction to prevent a big hit to profits.

“This is still the early stages of the housing rollover,” adds Shepherdson, predicting the next few months will bring further steep declines in housing construction as additional interest rate hikes make home buying more expensive and push demand even lower.

Home builder stocks took a hit after the data, with the S&P Homebuilders Select Industry Index, which includes home-manufacturing giants such as Masco and Owens Corning, plunging more than 4% Thursday, while the S&P 500 fell 3%. One bright spot in the report: Home completions climbed to the highest level since 2007, which should help home price increases—clocking in at the quickest pace this century—slow from about 20% to the low single digits by the end of next year, says Comerica Bank chief economist Bill Adams.

Historically high savings rates and government stimulus measures helped ignite a home buying frenzy during the pandemic, but signs of a slowdown have quickly emerged as the Federal Reserve embarks on its most aggressive interest-rate-hiking cycle in two decades. According to data released last month, pending home sales slid for the sixth consecutive month in April to the lowest level in nearly a decade, while new home sales plunged nearly 17% from March. More recently, the average interest rate on the popular 30-year fixed mortgage spiked 5.5% to more than 6.2% this week—the highest level since the 2008 financial crisis.

The Fed’s Wednesday rate hike is “likely to accelerate the slowing of the housing market” and eliminate construction jobs, says Mace McCain, chief investment officer at Texas-based Frost Investment Advisors. “We’ll be watching job openings and layoffs closely as the Fed continues to tighten into a slowing economy.”54

“[Fed Chair Jerome] Powell yesterday said the housing market is undergoing a reset, but it’s much more than that,” says Shepherdson, referring to comments Powell made after instituting the largest interest rate hike in 28 years on Wednesday. Speaking to reporters, the Fed chair suggested rising mortgage rates may not be long-lived, saying, “Home buyers need a reset. . . . Ideally, we do our work in a way where the housing market settles in a new place and housing and credit availability are at appropriate levels.”

I’m a senior reporter at Forbes focusing on markets and finance. I graduated from the University of North Carolina at Chapel Hill, where I double-majored in business

Source: Housing Market ‘In Free Fall’ As New Construction Plummets—Here’s When ‘Reset’ Could Cool Prices

Critics by Dean Baker

Given other economic data it is certainly plausible that the rate of house price decline is accelerating. The unemployment rate has risen by more than 3 percentage points from its low in 2007, with involuntary part-time rising by another 2 percentage points. If there are twice as many people who fear unemployment or short hours as who actually end up unemployed or working short hours, then the weak economy would have reduced the number of potential homebuyers by 15 percent.

In addition, the plunge in house prices will also reduce demand, since it has destroyed home equity. By some estimates, close to 20 percent of mortgage holders are underwater. After deducting realtor fees and other closing costs, tens of millions of current homeowners would not have enough equity left to make the down payment on a new home. In this respect, many long-time homeowners will face the same difficulty as first-time homebuyers in raising the money needed for a down payment. With the sharp drop in the stock market destroying savings, few of these homeowners will have enough financial wealth to make a down payment.

The danger in this situation is that house prices will go into a downward spiral, with declining house prices destroying equity. The loss of equity reduces the number of potential buyers in the market, putting further downward pressure on prices. This sort of downward spiral will have further negative effects on the economy. As homeowners lose more equity, they will feel the need to cut back further on consumption. In addition, with more homes underwater, default rates will rise with the losses on each foreclosure increasing.

Unfortunately, there has been little real discussion to date of measures that could arrest this sort of price decline. A serious effort would focus on sustaining prices in markets where the bubble has already deflated. Efforts to sustain house prices in markets where the bubble is still deflating will almost certainly fail, and will result in the government wasting money on a failed effort.

However, in the markets where sale prices are in line with rents, it would be desirable for the government to try to prevent prices from overshooting. It can do this by directly intervening in the market, buying up foreclosed properties. This could be an effective policy that carries little downside risk. In fact, this policy certainly carries less risk than continuing to allow Fannie Mae and Freddie Mac to guarantee mortgages in markets where the bubble is still deflating……

Related contents:

Mortgages Surge Past 6% And Hit Their Highest Level Since 2008: Housing Market Could ‘Torpedo’ US Economy, Expert Warns 

Housing Market Boom ‘Is Over’ As New Home Sales Implode–Here’s What To Expect From Prices This Year 

Mortgage Demand Plunges To 22-Year Low As ‘Worsening’ Affordability Deters Buyers—But Here’s Why Prices Will Still Rise

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How Do Experts Know The Causes Behind The Stock Market’s Ups and Downs


Listener Katy Davis asks:

When reporters say, “The markets are down today based on XX,” sometimes it is something really obvious like a recent jobs report or a surprising boost to the economy. But sometimes it is something that seems so vague, like “based on fears about the situation in Greece.” Anyway, how do they know that? Are they calling traders and asking? Guessing? How can an entire day of trading be summed up like that? 

Sometimes the experts actually don’t know for sure. When asked how confident he is about his assessments, Commonwealth Financial Network’s chief investment officer, Brad McMillan, said:

“Not very. At the end of the day, this is an almost infinitely complex system.”

Some days, the drivers are more obvious than others, with news items like, yes, a recent jobs report. The Russia-Ukraine war. Or inflation numbers, like we saw Friday. The prices of consumer goods jumped 8.6% year over year in May, the highest rate since 1981. That showed inflation hasn’t slowed down, and it sent the Dow Jones Industrial Average plunging almost 900 points. 

McMillan, who writes a Commonwealth blog, said you can draw a direct link between market movements and anything that “materially either changes or directly confirms expectations.” But it can get complicated. McMillan said he’ll look at various investment commentators’ second and third reactions to news that happened earlier in the week.

“For example, if the [Federal Reserve] raises rates, the initial reaction might well be, ‘Oh, my goodness, rates are higher. That’s bad for stocks,” he said.  But in the following days, the reaction might become: “If they raise rates, in the short term, that might increase the probability they’re gonna have to cut rates in the longer term. So on balance, that can be positive,” McMillan said.

There are multiple events happening at a given time, and McMillan has to parse which factors may be the most important. So right now, he’s paying attention to interest rates.  That’s because they strongly influence stock valuations. In recent blog post, McMillan explained:

“Lower rates mean higher valuations for stocks, which explains the market rally we saw during and after the pandemic, as rates were cut to zero and stocks soared. With rates rising again as the Fed tightens policy, we are seeing valuations adjust down, bringing down the market.”

There are also non-obvious factors that influence stocks, like the U.S. entering an election cycle. During years when there are midterms, McMillan said, the market performs worse. And because it’s something we expect, it can actually become a “self-fulfilling prophecy, to some extent,” he explained.

Sometimes there are factors that led to market upswings or declines that analysts hadn’t accounted for at the time. For example, analysts tend to underestimate corporate earnings growth, McMillan said.  Back in 2015, global markets suffered amid fears of a possible Greek default on the nation’s debt. Vague, as listener Katy Davis pointed out. Investors and financial experts explained to news outlets at the time that investors don’t like political risk.

John Blank, the chief equity strategist at Zacks Investment Research, delved into that problem. “Fears — of loss of capital — inside a country can be quantitatively expressed by other asset classes: by wider bond credit risk spreads, capital outflows that depreciate the domestic currency, higher lending rates, depressed activity. One would expect at least some of these to accompany a down stock market, in that case.”

Blank, who writes commentary for the firm, said analysts and experts can look at FinViz.com, a site that displays major stock indexes, stocks by market capitalization and “top gainers” or “top losers.”  Analysts can then tell how a specific sector, like health care, for instance, performed after an announcement from the government or another influential event, he explained.

Blank said sometimes it’s difficult to figure out what’s going on in the markets when there’s no obvious news that day, and an analyst might flag important upcoming news to help investors prepare.

By: Janet Nguyen

Source: How do experts know the causes behind the stock market’s ups and downs? – Marketplace

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Binance Disputes Claim Its Exchange Hosted $2.35 Billion In Laundered Illicit Funds

Binance, the world’s largest cryptocurrency exchange, has processed transactions totaling at least $2.35 billion stemming from hacks, investment frauds and illegal drug sales, according to a Reuters investigation, published Monday. The data provided by Amsterdam-based analysis firm Crystal Blockchain showed that from 2017 to 2022 buyers and sellers on the world’s largest darknet drugs market, a Russian-language site called Hydra, used the exchange to make and receive payments worth $780 million.

Additionally, the German police said investigators began seeing criminals in Europe turn to Binance in 2020 to launder some of the proceeds from investment fraud schemes that caused victims, many of them pensioners, to lose a total of $750 million euros ($800 million).

The flow of illicit funds through the exchange represents a very small portion of Binance’s overall trading volume (over $9.5 trillion in 2021 according to The Block) but is still significant as regulators and policymakers, including U.S. Treasury Secretary Janet Yellen and European Central Bank President Christine Lagarde, raise concerns over the illegal use of cryptocurrencies. The FTC last week reported that more than $1 billion had been illicitly obtained from crypto fraud and scams between January 2021 and March 2022.

Reuters has also revealed for the first time how North Korea’s hacking group Lazarus, which allegedly helps fund Pyongyang’s nuclear weapons program, used Binance to launder some $5.4 million of cryptocurrency stolen in September 2020 from Slovakian crypto exchange Eterbase. In January, Reuters reported that Binance has kept weak money-laundering checks on its users until mid-2021 despite concerns raised by senior company officials.

Binance’s chief communications officer Patrick Hillmann told Reuters in an email that Binance did not consider the news outlet’s calculation to be accurate. Hillmann reportedly said that the exchange uses transaction monitoring and risk assessments to “ensure that any illegal funds are tracked, frozen, recovered and/or returned to their rightful owner” and is working closely with law enforcement to disrupt criminal networks using cryptocurrencies, including in Russia.

In a statement to Forbes, Binance has called the report a “woefully misinformed op-ed that uses outdated information from 2019 and unverified personal attestations.” “The fact is that Binance has some of the strictest AML policies in the fintech industry and plays a significant leadership role in helping law enforcement deal with cyber and financial crime. Since the article ran, we have received an outpouring of support from partners in law enforcement across the globe,” a Binance spokesperson said.

Editor’s note: the story and headline were updated to reflect Binance’s response.

I report on cryptocurrencies and other applications of blockchain technology. I also edit the weekly Forbes Crypto Confidential newsletter

Source: Binance Disputes Claim Its Exchange Hosted $2.35 Billion In Laundered Illicit Funds

Critics by

Binance, the world’s largest cryptocurrency exchange by volume, has disputed claims that it has acted as a vehicle for the laundering of at least $2.35 billion in illicit funds.

  • A Reuters report claimed that Binance has become a “hub for hackers, fraudsters and drug traffickers” with strong links to Russia-based dark web market Hydra.
  • Matthew Price, Binance’s senior director of investigations who was the lead investigator on Hydra when he worked at the IRS criminal investigation, told CoinDesk: “What I think is very skewed in this report is that every exchange has exposure to dark net markets.”
  • Tigran Gambaryan, the exchange’s global head of intelligence who also worked at the IRS’ cyber crimes unit, added: “It’s something that completely disregards facts to get an agenda across.”
  • “The biggest part of this story is completely ignored. You can’t control deposits, you can only control what you can do afterwards,” Gambaryan added.
  • Price and Gambaryan said that Binance has a stringent process in place that handles exposure to fraud, dark net markets and scams using blockchain analytics software provided by Chainalysis and Elliptic.
  • “There is a system in place. We do have risk scoring for everything you can think of. We have everything tagged internally based on our tools, then we are able to do post-transaction monitoring with Chainalysis,” Gambaryan noted.
  • Binance published 50 pages of email exchanges between its intelligence team and Reuters, in which it comments on recovering $5.8 million from the Ronin hack, as well as its assistance in multiple fraud cases.
  • The email exchange reiterates that the reporter was confusing “indirect” exposure to dark net markets and “direct exposure.”
  • Data from Chainalysis reveals that 0.15% of all cryptocurrency transactions in 2021 were associated with illicit activity, while the U.N. estimates that between 2% and 5% of fiat currency is linked to some form of criminal activity.

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