India

The Federal Reserve cut interest rates by 0.5% Wednesday (Sept. 18), the first cut in four years.

While stocks gyrated Wednesday and were down slightly in the afternoon, how the rate cuts will filter through the capital markets remains to be seen.

Not just for consumers, but also for businesses.

Clearing the Hurdle

The cost of capital, as a blanket term, means that there’s a hurdle in place for the returns that investors or lenders require when doling out money. It’s tied to the return they expect over time in exchange for offering funds today.

Generally, you might think of it as answering the question, “Will it be worth my while to lend out the money rather than earn interest with that same money parked in my own bank account?”

The hurdle is the interest rate on deposits or high-yield accounts. It stands to reason that a lender or investor would also require a premium over that benchmark, which adjusts for risk. The spread is what the lender pockets.

As interest rates move lower, and the central bank’s move ensures that they will, the interest paid on accounts moves lower. By extension, the required rate of return on capital given to businesses would move lower too (and this would be the interest paid by the borrower).

The federal funds rate, which post-cut on Wednesday stands in a range of 4.75% to 5%, helps set the borrowing costs paid by banks, which are passed along to all manner of loans, including commercial loans. The Fed also signaled that more rate cuts will be on the horizon.

Where Will Funds Flow?

We may see a bump in startup funding, particularly in the FinTech space, as investors chase returns. In its second-quarter assessment of the state of private investment in the space, CB Insights said the headline funding tally increased 19% quarter over quarter to $8.9 billion. However, in stripping out two large deals, overall funding was flat, and deal volumes were down 16%.

The Cost of Capital on Main Street

As for the millions of small- to medium businesses (SMBs) that line Main Street in the United States, and in an environment where traditional bank lending has been uneven, these small firms have weathered the storm of the pandemic but need funding to expand.

In its statement released in tandem with the rate cut announcement, the Fed said: “Job gains have slowed, and the unemployment rate has moved up but remains low. Inflation has made further progress toward the committee’s 2% objective but remains somewhat elevated.”

The tradeoff now is to keep the labor market healthy, and to do that (and to skirt recession), companies need to expand.

At the end of 2023, PYMNTS Intelligence found that 53% of SMBs have “no current access to credit.” That picture may brighten at the end of this year as the interest that would have been paid on debt to underwrite growth will likely not be as onerous as it was just a few months ago.

The healthcare industry faces significant challenges with outdated payment and claims systems, which undermine financial stability and patient satisfaction. Despite the potential benefits of digital payments, the sector has been slow to adopt these innovations due to traditional practices and obstacles.

A PYMNTS Intelligence report, “Pains and Gains: Conquering Healthcare’s Payment Woes,” done in conjunction with American Express, reveals how the industry must confront these inefficiencies and integrate digital solutions into its payment processes.

The Financial Toll of Outdated Payment Systems

Healthcare’s payment system inefficiencies are a concern, imposing a considerable burden on organizations. More than half of healthcare payment leaders see delays in payment and claims processing as a severe threat to operational success. Despite this recognition, only 53% of organizations have successfully automated their payment workflows. This discrepancy highlights a troubling reliance on outdated, manual processes, which continue to plague the industry.

According to the report, inefficiencies in accounts receivable (AR) processes are particularly damaging. Consider 84% of healthcare organizations report financial losses due to cumbersome AR procedures. These inefficiencies are exacerbated by the heavy dependence on paper-based communication, with nearly 70% of providers still using paper statements for patient payments. This reliance on outdated methods not only hinders timely collections but also represents a missed opportunity for leveraging the benefits of digital payments. The result is a financial drain that underscores the urgent need for modernization in healthcare payment systems.

Digital Innovations Easing Payment Challenges

Despite these challenges, digital payment solutions are emerging as a beacon of hope. Companies like Weave are leading the charge with innovative payment platforms designed to enhance patient convenience and operational efficiency. Weave’s recent introduction of payment installment plans allows healthcare businesses to manage recurring payments effortlessly, improving cash flow management and patient satisfaction. By automating payments through saved card information, Weave’s platform reduces administrative overhead and simplifies the payment process.

Additionally, artificial intelligence (AI) is being harnessed to address financial waste in healthcare. A collaboration between Waystar and Meditech aims to reduce the estimated $760 billion-$935 billion lost annually due to payment inefficiencies. Their AI-driven solutions focus on automating workflows and improving billing accuracy, which are critical for lowering operational costs and optimizing financial performance in healthcare.

Similarly, Planet DDS is demonstrating how specialized healthcare settings can benefit from digital payments with its Cloud 9 Pay solution. This platform facilitates tap-to-pay and contactless transactions while ensuring compliance with payment card industry standards. By integrating such solutions, specialized practices can streamline operations and enhance the patient experience, showcasing the potential of digital payments to transform even niche areas of healthcare.

Challenges to Widespread Digital Payment Adoption

Despite the promising advancements, the path to widespread digital payment adoption in healthcare is fraught with challenges. Cybersecurity remains a significant concern, with 78% of healthcare professionals reporting at least one cybersecurity incident in the past year. The impact of these incidents on care delivery is substantial, underscoring the need for robust security measures to protect both patient data and payment systems.

Patient resistance is a significant obstacle to the adoption of digital payments in healthcare, with 26% of professionals identifying it as a major barrier. To facilitate a smoother transition, it is essential for digital payment solutions to meet patient expectations and build trust. As the industry grapples with outdated payment systems, the shift to digital offers a chance to address inefficiencies and enhance both financial and operational outcomes.

Mastercard chose India for the launch of its Payment Passkey Service.

The online checkout security measure comes as India is dealing with a surge in fraud cases, according to a Thursday (Aug. 29) press release.

“Despite the rising popularity of one-time passwords (OTPs) due to their ease of use, they are increasingly vulnerable to online scams such as phishing, SIM swapping and message interception,” the release said. “In India, the incidence of fraud cases has surged by nearly 300% in the last two years, as reported by the Reserve Bank of India’s Annual Report for 2023-2024.”

Payment passkeys can help ease the problem by using device-based biometric authentication methods like fingerprints or facial scans to streamline online shopping, per the release. Mastercard’s service uses tokenization to secure a consumer’s payment details and biometric data, ensuring data is not shared with third parties and is of no use to scammers.

Shoppers choose their Mastercard when checking out as a guest or pick a card already on file with the merchants, according to the release. Customers can confirm payment via biometric authentication mechanism features on their devices. This could be a fingerprint, face scan or PIN. Payments are completed instantly upon authentication.

The development and use of passkeys is arguably one of the most important security stories of the year, PYMNTS wrote in May, following product announcements from Mastercard and Visa that revolved around the technology.

Meanwhile, the PYMNTS Intelligence report “Consumer Authentication Preferences for Online Banking and Transactions” found that consumers want to use passkeys or any authentication tool that doesn’t involve entering a password. Younger generations especially are ready to get rid of passwords in favor of more advanced identity technology, such as biometrics.

“But like most habits, traditional password authentication use is hard to break,” PYMNTS wrote in January. “Fast Identity Online, the global digital password-less authentication standard, has been trying to move away from password authentication for over a decade.”

Mzukisi Rusi of Entersekt told PYMNTS in 2022 that it would take time to uproot the decades-old authentication system.

“As much as we hate it from a security perspective, people still find [passwords] pretty easy,” Rusi said. “They are fairly ubiquitous, and they don’t need any special technology.”

Paytm won approval from India’s finance ministry to invest in its payment services operation.

The company announced the approval Wednesday (Aug. 28) in a disclosure posted to its website. Paytm has faced scrutiny this year after being ordered to close its payments bank in January.

Paytm said it will now apply with the finance ministry to get back its payment services license.

“We remain committed to a compliance-first approach and upholding the highest regulatory standards,” the company said in its letter. “As a homegrown Indian company, Paytm is focused on contributing to and advancing the Indian financial ecosystem.”

Paytm has been struggling since the Reserve Bank of India (RBI) — the country’s banking regulator and central bank — suspended business at Paytm Payments Bank, which had processed much of Paytm’s payments.

The RBI made the move after an audit uncovered “persistent noncompliances and continued material supervisory concerns,” although the regulator had been warning for years about the questionable relationship between Paytm and its banking arm.

Last month, Paytm reported that its operating revenue slipped again in the quarter ending in June as it continued to wrestle with regulatory issues.

Operating revenue fell from 19.8 billion rupees (about $236 million) in the last quarter to 15 billion rupees (about $179 million). That was down from 23.4 billion rupees (about $279 million) in the same period a year ago.

“The full financial impact of the recent disruptions was seen during this quarter,” Paytm said in an article on its website. “With green shoots visible across — growth in merchant payment operating metrics, gross merchandise value (GMV), accelerated merchant reactivation and an expanding merchant base, coupled with our continued focus on cost optimization — we remain optimistic about our revenue and profitability improvement.”

This year saw Paytm lose ground on India’s Unified Payments Interface (UPI) to the likes of Google Pay and the Walmart-backed PhonePe.

These companies are competing for consumer attention in a country that has been on a digital payments journey for the past 15 years, PYMNTS wrote in late 2023. PYMNTS Intelligence research showed that digital wallets are now the preferred payment method for more than half of all retail purchases in India, with 8 in 10 digital wallet users opting for UPI.