Tech Use Huge Factor in Banking Competition

The ability to keep up with the times may literally break the bank if financial institutions choose not to embrace the technological advancements in the sector, particularly as it relates to payments and lending. According to Moody’s Investors Service, banks that are willing to tap into this digital innovation will establish and potentially maintain a thriving customer base.

On April 25, Moody’s reported that competition between banks will likely rise as some institutions adopt technology and sweep others to the wayside. Digitalization accentuates the customer relationship through convenience, personalization and affordability, while maintaining privacy and data security. Competition will also be prevalent between banks, big technology companies and small fintechs, the report added.

“In the face of these threats, successful incumbent banks will be those that, either on their own or in collaboration with others, pursue aggressive digital transformation to become more efficient and responsive to evolving customer demands,” Moody’s Analyst Fadi Abdel Massih, who co-wrote the report, said in the release. “Disintermediation of the customer relationship would be a threat to this business model if it ends up reducing banks’ pricing power by transforming them into providers of a ‘back-office’ balance sheet for customer-facing apps/businesses.”

Although investment is a possible concern among incumbent banks, Moody’s noted that technology can enhance banking branch networks, data collection, analyses and reporting.

-Andrew Michaels, editorial associate

ACH Continued Growth in 2017


The ACH Network continued to grow in 2017, posting more than a billion new payments for the third consecutive year. The Network processed 21.5 billion transactions valued at nearly $47 trillion last year, according to a recent release from NACHA—The Electronic Payments Association.

Transaction value grew by almost 6%, while its value increased by roughly 7% year-over-year. “2017 marks another significant achievement in the evolution of the ACH Network, as transaction volume was exceptionally strong and Same Day ACH was made fully available,” said NACHA Chief Operating Officer and General Counsel Jane Larimer in the release.

Business-to-business transactions increased by 5.6% in 2017, totaling 3.3 billion transactions. Same Day ACH grew by nearly 500%. Since 2012, total ACH volume has increased by nearly five billion transactions, and ACH value has jumped just shy of $10 trillion dollars since that time. The 2017 growth rate is the highest since 2008.

“The continued robust growth comes as no surprise as the ACH Network continues to evolve to meet the needs of financial institutions, businesses and consumers,” added Larimer.

-Michael Miller, managing editor

Canadian SMBs’ Lending Struggles Continue

Canadian investment in its small- to medium-sized businesses (SMBs) saw an uptick in February over the prior month, but the latest readings of small business credit data and analysis provider PayNet’s lending index indicate an ongoing struggle and undefined future.

PayNet released its February Canadian Small Business Lending Index results on April 13, showing a nearly two-point bump from January, yet the index was down 5% from February 2017. Although delinquencies among SMBs decreased for the 11th consecutive time year-over-year, the number of loans past the 30-day due date increased month-over-month in February 2018, Business Wire reported, particularly in accommodation and food, wholesale, transportation and retail.

In the same report, PayNet President William Phelan said SMBs are stepping away from borrowing in the meantime after showing strong numbers in early 2017.

“While still low by historical standards, this jump in 30-day delinquencies means Canadian private businesses are experiencing increased financial stress,” Phelan noted in the Business Wire report. “Whether this rising stress is a correction from unusually low levels of delinquency or a material shift in direction remains to be seen.”

The Canadian index reading differed from the Thomson Reuters/PayNet Small Business Lending Index for the U.S., where numbers not only increased for the fifth consecutive month, but also scored the second-highest reading in history. Growing industries included construction, public administration, transportation and warehousing; however, delinquencies were still prevalent, as past dues between 31 and 90 days increased nearly 1.5% in the past year. Like Canada, U.S. small business delinquencies were seen in transportation and retail in addition to construction.

-Andrew Michaels, editorial associate

Contractors of DOT Projects Confront Credit Complications

Contractors on large Department of Transportation (DOT) projects could face credit complications in the foreseeable future in connection to minimal state revenue growth and federal funding, Fitch Ratings reported on April 13.

State-level funding was often provided for such projects but has declined over the past few years, leaving contractors to seek other sources. One example is bridge financing, which Fitch said allows contractors to enter into low-cost contracts that they then increase by order changes or dispute resolutions. Although these excess costs might get repaid, contractors’ credit is affected because of the ramifications on their “near-term liquidity and working capital.”

“The National Association of State Budget Officers reported that 22 states made midyear budget cuts in fiscal 2017,” Fitch said, “and midyear budget reports and executive budget proposals released to date indicate some will report deficits for current and upcoming fiscal years.”

Fitch also noted how the U.S. administration’s infrastructure proposal relies heavily on state budgets; therefore, federal funding probably won’t come to pass. The majority of the plan revolves around roughly $200 billion in federal funding in the next decade, but it’s specifically geared toward transportation programs that are underway.

“States and local governments are asked to provide up to an 80% match for competitive grants and loans for $120 billion of the $200 billion in total funding,” Fitch added.

-Andrew Michaels, editorial associate