Finance

THE PAYMENTS frenzy is going global, and Africa is catching the bug. So far this year four of the continent’s financial-technology firms have reached or exceeded billion-dollar valuations, more than doubling Africa’s population of “unicorns”. OPay, a mobile-payments company, acquired its horn in August, after raising funding from investors including SoftBank, a Japanese firm. Other recent unicorns include Wave, a Senegal-based startup that runs a mobile-money network; Chipper Cash, which offers peer-to-peer payments; and Flutterwave, which simplifies payments for businesses. As foreign investment pours in, Africa’s fintech firms are expanding both across the continent and into new services.Africa is an obvious choice for fintech investors. They are betting that young African talent can innovate its way out of the region’s most pressing financial problems faster than legacy firms can. By 2025 the continent will be home to 1.5bn people, most of whom will have grown up in the era of the internet. Nigeria, which has received almost two-thirds of Africa’s fintech investments this year, has a young and entrepreneurial population. But more than half of Nigerians do not have a bank account. Across the continent, digitally literate unbanked (and underbanked) people, who have long been largely ignored by conventional lenders, are instead turning to the upstarts. In Ivory Coast, for example, 94% of pupils’ school fees were being paid using mobile money by 2014. This makes it fertile territory for companies like Wave, which moved into the country in April.One reason for firms to expand geographically stems from the African Continental Free Trade Area, a deal that was first agreed on in 2018 and which has now been ratified by 38 countries. The Pan-African Payment and Settlement System was launched in September as part of the deal, in order to make the region’s many systems work better together. As a consequence, investors are backing firms with ambitions that extend beyond their home countries. Flutterwave had reached more than 33 African countries by the time of its latest funding round this year; those taking part included Tiger Global, an investment firm based in New York.For the biggest African fintechs, simple payments are only an entry point. OPay was founded three years ago and was once a ride-hailing app. It now offers interest-free credit that is easier for workers in informal jobs to get than bank loans. The firm, now worth around $2bn, is about as valuable as Nigeria’s biggest bank. Chipper Cash, which is backed by Jeff Bezos, the founder of Amazon, is taking its vision beyond Africa. It lets Nigerians in Britain send money home instantly, and could revolutionise transfers in sub-Saharan Africa, which has some of the highest remittance costs in the world.Banks may not be the only incumbents feeling threatened by the newcomers. In some cases telecoms providers, which also provide mobile money, are drastically lowering their fees as competition in payments hots up. The battle leaves regulators struggling to control an industry that is rapidly evolving. Wave is moving through the continent at pace, and is now available in four countries.Despite a bumper year, Africa’s biggest startups are still relatively young compared with those in the rest of the emerging world. Getting payments right in such a large market could unlock a wealth of opportunity. Iyin Aboyeji, a co-founder of Flutterwave and an investor, says international venture capitalists are realising that Africa “looks a little bit like China in the 1970s. Folks are hoping to get in early and do some good deals.” The emergence of rigorous cross-continental competition this year shows that African fintech is nonetheless maturing, and that the world is at last beginning to pay attention. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Finance & economics section of the print edition under the headline “Turf wars” More

IN RECENT MONTHS the world economy has come to resemble a badly microwaved dinner: generally hot, but with some bits merely lukewarm and others positively scorching. Consumer prices globally are likely to rise by 4.8% this year, according to the IMF, which would be the fastest increase since 2007. But price rises in emerging markets are running ahead of those in the rich world, and a few unfortunates, such as Argentina, Brazil and Turkey, are feeling particular pain. Their experience helps illustrate how and when inflation can get out of hand.Although inflation rates in emerging markets tend to be higher and more volatile than those in advanced economies, they did generally decline between the 1970s and the 2010s, much like those in the rich world. The median inflation rate among emerging economies fell from 10.6% in 1995 to 5.4% in 2005 and 2.7% in 2015, thanks to efficiency-boosting developments like globalisation and improved macroeconomic policymaking. The IMF expects consumer prices in emerging economies to rise by 5.8% this year, which is not a huge departure from recent trends; prices rose at a similar pace as recently as 2012. But some economies have strayed well above the mean. Inflation stands at 10.2% in Brazil, 19.9% in Turkey, and 52.5% in Argentina.Such high inflation reflects more than soaring food and energy prices. In advanced economies and many emerging ones, a jump in prices usually triggers a restraining response from the central bank. That response is more powerful when central banks are credible, say because inflation has been low in the past, and the fiscal picture benign. Then people behave as if a price spike will not last—by moderating wage demands, for instance—which reduces inflationary pressure.This happy state can be disturbed in a number of ways. Compromising the independence of the central bank is sometimes enough to make the temperature rise. Recep Tayyip Erdogan, Turkey’s president, has declared himself an enemy of interest earnings and leant on the central bank to reduce its benchmark rate, a step he claims will bring down inflation. Over the years he has sacked a number of central-bank officials, most recently three members of the bank’s monetary-policy committee in October. Such antics have contributed to capital outflows and a tumbling lira (see chart). The sinking currency, by raising the cost of imports, has helped push up inflation by about eight percentage points over the past year, to a rate around four times the central bank’s target.Brazil demonstrates how inflation can get out of hand despite the best efforts of a central bank, because of fiscal woes. After suffering hyperinflation in the early 1990s, when the annual inflation rate approached 3,000%, Brazil placed itself on a firmer macroeconomic footing by adopting budget reforms and enhancing the central bank’s independence. But from 2014 to 2016, and again over the past year, the ability of the central bank to fight inflation has been threatened by an erosion of confidence in the public finances.Government spending in Brazil has surged since the onset of the pandemic. Jair Bolsonaro, the president, plans to extend relief payments despite roaring inflation. Worries about debt sustainability have reduced investors’ confidence, leading to falling asset prices and a weaker currency. Despite booming foreign demand for Brazil’s commodity exports, the real has tumbled by nearly 30% since the beginning of 2020.Higher import prices have contributed to stubbornly high inflation, forcing the central bank to raise its benchmark interest rate by nearly six percentage points since March. Yet interest rates may be approaching levels at which the additional fiscal cost they impose on the government exacerbates debt-sustainability worries and further weakens the currency, leaving the central bank in a no-win situation. The real has dropped by nearly 2.5% since late October alone—after the central bank raised interest rates by a full 1.5 percentage points and promised to do the same again at its next meeting in December.What happens if neither monetary nor fiscal policy can be counted upon for economic discipline? Here Argentina provides an illustration. The government has long relied on the printing press to cover budget deficits, and has been in particular need of monetary financing since defaulting on its debt, for the ninth time in its history, in May 2020. Over the past two years the amount of money in circulation has risen at an average annual rate of more than 50%. The peso has fallen by over 60% against the dollar since the beginning of last year.Argentina, like Brazil, has experienced hyperinflation in recent times. Its economic situation may yet be salvaged. But as policymakers in rich and poor countries alike confront the enormous economic and budgetary costs of covid-19, some may be tempted to depart from norms around monetary and fiscal policy. The result, in some unhappy places, could be inflation that is too hot to handle. ■This article appeared in the Finance & economics section of the print edition under the headline “Living the high life” More

The Bank’s Monetary Policy Committee voted 7-2 to keep its benchmark interest rate unchanged at its historic low of 0.1%.
Sterling fell sharply following the announcement.
The Bank of England has been monitoring a confluence of crucial data points as inflation remains persistently high.

A passageway near the Bank of England (BOE) in the City of London, U.K., on Thursday, March 18, 2021.
Hollie Adams | Bloomberg | Getty Images

LONDON — The Bank of England held interest rates steady on Thursday, defying many investors’ expectations that it would become the first major central bank to hike rates following the coronavirus pandemic.
The Bank’s Monetary Policy Committee voted 7-2 to keep its benchmark interest rate unchanged at its historic low of 0.1%, and 6-3 in favor of continuing the existing program of U.K. government bond purchases at a target stock of £875 billion ($1.2 trillion). The MPC voted unanimously to maintain its £20 billion stock of corporate bond purchases, keeping the total asset purchase program at £895 billion.

Markets had been uncertain as to whether the Bank would set off on the path toward monetary policy normalization on Thursday or at its next meeting in mid-December, but analysts broadly agreed that a hike was due before the end of the year.
Sterling fell sharply following the announcement. It was last seen down by around 0.95% against the dollar at 1.3551, while the euro gained 0.4% on the pound.
The Bank of England has been monitoring a confluence of crucial data points as inflation remains persistently high while economic growth moderates and labor conditions tighten.

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“The Committee judges that, provided the incoming data, particularly on the labour market, are broadly in line with the central projections in the November Monetary Policy Report, it will be necessary over coming months to increase Bank Rate in order to return CPI inflation sustainably to the 2% target,” the MPC said in its summary on Thursday.
Labor market difficulties
The Bank noted that “a high degree of uncertainty” about the near-term outlook for the labor market, following the end of the country’s furlough scheme on Sept. 30, was a key factor in its decision. Unemployment fell to 4.5% in the three months to August while payroll data rose strongly.

“Just over a million jobs are likely to have been furloughed immediately before the Coronavirus Job Retention Scheme closed at end-September, significantly more than expected in the August Report,” the Bank explained.
“Nonetheless, there have continued to be few signs of increases in redundancies and the stock of vacancies has increased further, as have indicators of recruitment difficulties.”
U.K. job vacancies hit a record 1.1 million in the three months to August, while the unemployment rate fell. A tight labor market has been supportive of higher wage growth, a message echoed by business leaders in recent weeks.

“We expect a hike in rates to come through in December, when policy makers will have at least some tentative evidence on how employment has performed after the expiration of furlough,” said Luke Bartholomew, senior economist at Abrdn.
“And indeed further rate increases next year. So the message to investors is that rate hikes are coming soon, but not to hang too closely to every speech and interview by rate setters.”

Inflation surge

British inflation slowed unexpectedly in September, rising 3.1% in annual terms, but analysts expect this to be a brief respite for consumers. August’s 3.2% annual climb was the largest increase since records began in 1997, and vastly exceeded the Bank’s 2% target.
The Bank now expects inflation to rise further to around 5% in the spring of 2022 before falling back toward its 2% target by late 2023, as the impact of higher oil and gas prices fades and demand for goods moderates.
GDP grew 0.4% in August after an unexpected contraction of 0.1% in July, as staff absences linked to the Covid-19 Delta variant surged.

Speaking to CNBC at the COP26 climate conference ahead of Thursday’s decision, Standard Chartered CEO Bill Winters said he believed that inflation is now structural rather than transitory.
“I see wage pressure pretty much everywhere we go, we see labor shortages, and of course there’s friction costs, that should iron themselves out over time, there’s energy prices, which I think are going to remain high for quite some time because economic activity is strong,” Winters said.
“That to me says that inflation expectations are becoming ingrained.”
However, while the Bank gave a firm indication that a rate hike is imminent, it pushed back on market pricing that expects the benchmark rate to increase to around 1% by the end of next year.
“The Bank of England’s inflation forecasts under this assumption of market pricing shows inflation falling below the target over the forecast horizon, indicating it views that pricing as overzealous,” said Ambrose Crofton, global market strategist at JPMorgan Asset Management.
As visibility on the duration of supply chain disruptions remains low, Crofton highlighted, the Bank’s inflation outlook is still foggy. Meanwhile, it will be seeking clarity on the extent to which the end of the furlough scheme can “provide some relief to an apparently tight labor market,” he suggested.
“We think this leaves the Bank of England in a highly data dependent position where it won’t be too wedded to a pre-determined timeline of normalising policy,” Crofton said.
“Make no mistake though, interest rate lift-off is just around the corner.”

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Check out the companies making headlines before the bell:
Regeneron Pharmaceuticals (REGN) – The drug maker’s shares rallied 2.7% in the premarket after it reported a significant beat on both the top and bottom lines for its latest quarter. Regeneron earned an adjusted $15.37 per share, well above the $10.10 consensus estimate, on strong sales of its Covid-19 antibody cocktail as well as other treatments.

Planet Fitness (PLNT) – The fitness center operator’s stock surged 4.7% in premarket action after beating on the top and bottom lines and raising its full-year revenue forecast. Planet Fitness earned an adjusted 25 cents per share for its latest quarter, 7 cents above estimates.
ViacomCBS (VIAC) – ViacomCBS rose 1.2% in premarket trading after its quarterly earnings matched estimates and revenue came in better than expected. Results got a boost from strength in the company’s streaming and TV businesses.
Moderna (MRNA) – Moderna tumbled 12.1% in premarket action, following quarterly shortfalls in both earnings and revenue as well as a cut in the drug maker’s full-year earnings outlook. Moderna earned $7.70 per share for its latest quarter versus the $9.05 consensus estimate.
Wayfair (W) – The online home goods seller slid 4.4% in the premarket after it reported an unexpected quarterly profit but saw revenue fall below analyst forecasts. Wayfair noted that spending has started to transition toward brick-and-mortar stores post-pandemic and it may take a few quarters for its growth to return to normal levels.
Booking Holdings (BKNG) – Booking Holdings rallied 4.6% in the premarket after the travel company reported better-than-expected profit and revenue for its latest quarter. The Priceline parent earned an adjusted $37.70 per share, compared with the $32.90 consensus estimate, and investors so far are shrugging off the company’s cautionary comments about a Covid-19 resurgence in Europe.

Qualcomm (QCOM) – Qualcomm beat estimates by 29 cents with adjusted quarterly earnings of $2.55 per share, and the chip maker’s revenue also beat forecasts. Qualcomm also forecasts strong growth, driven by demands for 5G smartphone technology. Shares jumped 8.3% in premarket trading.
Electronic Arts (EA) – Electronic Arts reported an adjusted quarterly profit of $1.49 per share, compared with a consensus estimate of $1.17. The video game maker also beat on the top line. EA also raised its full-year outlook amid strength in its sports-themed games. Electronic Arts added 2.9% in the premarket.
Take-Two Interactive (TTWO) – Take-Two had a quarter that mirrored rival Electronic Arts, beating on both the top and bottom lines, and raising its outlook. Take-Two reported adjusted earnings of $1.63 a share, beating the consensus estimate of $1.34, and its stock added 1.1% in premarket action.
Roku (ROKU) – Roku shares slid 7.9% in premarket trading despite an earnings beat. The video-streaming device maker earned 48 cents per share for its latest quarter, well above the 6-cent consensus estimate, but revenue fell short of forecasts and the company issued a lower-than-expected revenue forecast for the holiday quarter.
Etsy (ETSY) – The online crafts marketplace issued weaker-than-expected current-quarter revenue guidance although it did beat forecasts for its most recent quarter, coming in 8 cents above estimates with earnings of 62 cents per share.
MGM Resorts (MGM) – MGM rallied 4.3% in the premarket after announcing plans to sell the operations of its Mirage casino in Las Vegas to another operator. MGM said no sales agreement has been reached, however, and it did not disclose the name of any potential buyers.

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After a crackdown on Binance and other cryptocurrency firms, regulators are now turning attention to the world of decentralized finance.
Decentralized finance, or “DeFi,” lets users take part in traditional financial activities like lending but with no middle men involved.
Regulators are concerned about DeFi services marketing themselves as decentralized when that may not be the case.

Jakub Porzycki | NurPhoto | Getty Images

The fast-growing decentralized finance industry could be about to get a rude awakening.
Decentralized finance, or “DeFi” as it’s commonly referred to, is a trend in cryptocurrencies that first started gaining traction in 2020.

It’s been called the “Wild West” of crypto — hoards of computer programmers trying to bring traditional financial products such as loans to the blockchain.
The idea sounds promising. In theory, anyone could lend and borrow digital money at competitive interest rates, with no middle men involved. Investors are lured by the promise of earning up to double-digit percentage yields on savings in certain digital tokens.
But with major hacks and scams plaguing the space this year, regulators are becoming increasingly worried about the risk of crime as well as harm to consumers.
“I think they’re going to pay more attention to the space,” Sid Powell, co-founder of DeFi lending platform Maple Finance, told CNBC.
Almost $90 billion has been deposited into Ethereum-based DeFi protocols so far, according to data from The Block.

“It’s probably inconceivable that you have meaningful growth of DeFi which does not need to complement existing regulation in future,” Powell said.

Regulators have already started taking a tougher approach to the crypto industry.
Various countries have attempted to boot out Binance, the world’s largest digital currency exchange, for operating without their authorization. Since it has no official headquarters, Binance has so far managed to avoid scrutiny — though the company says it now wants to be a friend, not foe, to regulators.
Meanwhile, Coinbase in September got into a heated war of words with the U.S. Securities and Exchange Commission over a planned interest-earning savings product, which the regulator felt looked too much like a security. Coinbase later dropped plans to launch the feature.
And just this week, a long-awaited report from the U.S. government called on Congress to introduce regulation for stablecoins, digital assets pegged to traditional currencies like the dollar to maintain a stable value.
Now, DeFi appears to be next in line.
Earlier this year, the Wall Street Journal reported that the U.S. Securities Exchange Commission was probing decentralized crypto exchange Uniswap, with officials seeking information on how investors use the platform and the way in which it is marketed.
In September, acting U.S. Comptroller of the Currency Michael Hsu likened DeFi activity to controversial practices in Wall Street that led up to the 2008 financial crisis.
“One of the biggest questions facing regulators at the moment is how to deal with DeFi,” David Carlisle, director of policy and regulatory affairs at crypto analytics firm Elliptic, told CNBC.
“How do you apply regulatory standards designed for centralized intermediaries to the world of a few marketplaces where there’s no clear centralization?”

Carlisle said one source of concern for regulators is DeFi services marketing themselves as decentralized when that may not be the case. “We see some situations where the founding teams and developers that established the protocol have influence over the governance of the DeFi network.”
Last week, global anti-money laundering watchdog the Financial Action Task Force released revised guidance on cryptocurrencies. Part of the rules call for countries to identify individuals with “control or sufficient influence” over DeFi programs.
That means some founders of DeFi start-ups could potentially become subject to rules requiring that they provide information on originators and beneficiaries in the transfer of funds.
“While DeFi protocols may offer similar functionality in financial transactions, they offer virtually none of the oversight that regulators require to ensure safe and efficient financial markets,” Rick McDonell, former executive secretary of FATF, told CNBC.
“The lack of effective surveillance creates a substantial risk for fraud, money laundering, sanctions evasions and other criminal activity within these markets.”
As for what regulators will do in response, McDonell said it’s too early to say.
“While it’s possible to read the tea leaves on the potential for regulatory action, what that response may entail in detail remains to be seen,”  he said. “But some enforcement actions are already being taken.”
“Regulatory officials have made two things clear: they are supportive of the benefits that blockchain technology can confer on end-users, but they are not ready to trust the sector’s ability to manage its financial-crime risks.”

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U.S. stock index futures were steady during overnight trading on Wednesday after the major averages closed at records following commentary from the Federal Reserve. The central bank said it will begin to slow its bond-buying program, signaling that the economy can now handle an unwinding of pandemic stimulus.
Futures contracts tied to the Dow Jones Industrial Average were flat. S&P 500 futures rose 0.08%, while Nasdaq 100 futures added 0.17%.

During regular trading the Dow gained about 105 points, registering its fifth straight positive session. The 30-stock benchmark hit its 51st record intraday high of the year, and 42nd record close of 2021.
The S&P 500 also posted its fifth straight day of gains, advancing 0.65%. The index saw its 74th intraday high and 61st record close of the year.
The Nasdaq Composite gained 1.04%, and is on its longest daily winning streak since June 2020 following eight straight days of gains. The tech-heavy index saw both its 41st record high and close on Wednesday.
“The Fed’s tapering announcement removes a minor, but overhanging worry across markets, as investors had been waiting for this moment for months, and it reinforces the view that the economic recovery has a long runway, albeit with a low rate of growth,” said George Ball, chairman of Sanders Morris Harris.
“The Fed’s tapering announcement is a signal of economic strength, which is good for corporate earnings and markets,” he added.

The central bank said it will begin to curb the pace of its monthly bond-buying program “later this month.” This marks the Fed beginning to remove the significant stimulus it’s provided since the pandemic took hold.
The buying will slow by $15 billion per month, which means the quantitative easing should end by the middle of 2022, although the Fed reiterated flexibility saying the amount could change if warranted.
“The Fed did a good job communicating its intentions well in advance of today’s meeting, which is why we aren’t seeing a ‘taper-tantrum 2.0,'” said Lawrence Gillum, fixed income strategist at LPL Financial.
Elsewhere in the market, a number of earnings reports are on deck for Thursday before the opening bell. Toyota Motors, Regeneron Pharmaceuticals and Kellogg are among the companies set to post quarterly updates. After the bell Dropbox, Expedia, Airbnb, Shake Shake, Square and Uber will post quarterly updates, among others.
“[W]e’re coming off a very strong quarter of earnings, which has taken priority over downside risk fears that had weighed in the run-up to the reporting season,” said Oanda’s Craig Erlam. “The economy will have to continue showing signs of significant improvement to keep investors on board as they adjust to a world without central banks keeping rates at extremely low levels,” he added.
On Thursday weekly jobless numbers will be released, with economists forecasting 275,000 first-time claims, according to estimates from Dow Jones. Last week’s number came in at a 281,000, the lowest since the pandemic began.
October’s hotly anticipated jobs report will be released on Friday. Consensus estimates call for 450,000 jobs added, according to Dow Jones. Nonfarm payrolls increased by 194,000 in September, far short of the 500,000 estimate.

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Wells Fargo said it is “likely to experience issues or delays” in satisfying demands from multiple U.S. regulators — a subtle but meaningful shift in language from earlier filings in which the bank said it “may” experience delays.
The development means that the most significant regulatory constraint on Wells Fargo — a Federal Reserve edict forcing the bank to keep its balance sheet frozen at 2017 levels — could take even longer to resolve, JPMorgan analyst Vivek Juneja said.

Wells Fargo CEO Charles Scharf listens during the Milken Institute Global Conference in Beverly Hills, Calif., on April 30, 2019.
Kyle Grillot | Bloomberg | Getty Images

Wells Fargo isn’t out of the woods yet when it comes to its regulatory mess.
That’s the message the bank sent in its most recent filing with the Securities and Exchange Commission this week. Wells Fargo said it is “likely to experience issues or delays” in satisfying demands from multiple U.S. regulators — a subtle, but meaningful shift in language from earlier filings where the bank said it “may” experience delays.

The development means that the most significant regulatory constraint on Wells Fargo — a Federal Reserve edict forcing the bank to keep its balance sheet frozen at 2017 levels — could take even longer to resolve, JPMorgan analyst Vivek Juneja said Wednesday in a research note.
“The key risk is that any further issues or delays would increase scrutiny and could further delay the asset cap getting lifted,” Juneja said in the note, citing comments from Fed Chairman Jerome Powell that the asset cap won’t be lifted until compliance issues are resolved. Expenses tied to the regulatory overhaul could remain higher for longer, the analyst said.

The disclosure shows that CEO Charles Scharf, who took over two years ago, is still consumed with cleaning up the mess revealed by the bank’s 2016 fake-accounts scandal. In September, the Office of the Comptroller of the Currency hit the bank with a $250 million fine tied to its mortgage division.
Scharf told analysts last month that the latest fine indicates that despite resolving a pair of consent orders, the company is “likely to have setbacks” over the next few years as the CEO and his deputies work to improve its compliance functions.
When an analyst pressed for more information on the setbacks, Scharf noted the complex set of consent orders the bank was working on.

“I just want to make sure that people understand that we have these things that are out there and don’t want you to be surprised if something happens,” Scharf said.
A Wells Fargo spokesperson declined to comment beyond the filing. Shares of the bank have surged more than 70% this year amid a broader rebound in financial companies.
— CNBC’s Michael Bloom contributed to this report.

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