Will the rapid normalisation of POS and digital wallets make banknotes a thing of the past? Not so easily, claims another study from the Official Monetary and Financial Institutions Forum (OMFIF), as per which, digital payment ecosystem is useful till the presence of electricity, connectivity, and authentication servers. If one among them goes down, or all the three go down together, physical cash becomes the last line of defence.

The April 2025 blackout on the Iberian Peninsula (continental Spain and Portugal), in which the power grid collapsed and telecommunications faltered, entire regions found themselves suddenly cut off from the digital economy. Payment cards did not work. Mobile wallets froze. Online banking was inaccessible. Merchants could not connect to networks. People with ample digital balances were unable to purchase food or fuel. Only those who carried physical banknotes retained economic agency.

Cash is king, but has its weakness

A well-designed monetary ecosystem always treats both physical cash and digital money complementary to each other. While the POS and digital wallets serve the tech-savvy sections of the populations, cash ensures that the elderly, the digitally excluded, unbanked communities, informal workers, and those concerned about privacy still to participate in the digital economy.

Private digital payments provide speed and convenience. CBDCs may provide a modern, stable form of public digital money. But only cash provides a non-digital layer that can sustain economic activity during severe disruptions. It is the monetary equivalent of an emergency generator.

However, physical banknotes also have their share of vulnerabilities, and the prominent among them is counterfeiting. We are talking about the illegal act of creating, copying, or imitating a physical currency, that if left unchecked, can undermine national economies, apart from weakening financial institutions and jeopardising people’s livelihoods.

The introduction of unauthorised, counterfeited money artificially increases the currency supply, which in turn devalues legitimate currency, leading to higher prices and inflation. Individuals and businesses unknowingly accepting counterfeit bills suffer immediate and unrecoverable financial losses, as these notes get confiscated by banks without reimbursement. If the volume of fake cash reaches a critical mass, it lowers the faith among people on the utility of paper money entirely, threatening its function as a medium of exchange and a store of value.

In August 2025, under Europol’s watch, a joint law enforcement operation intercepted the distribution of counterfeit currency through postal services. Nearly one million items got confiscated, including fake euros, US dollars, and British pounds, with an estimated value of over EUR 66 million.

The collaboration between authorities from 18 countries also triggered 102 new investigations targeting criminal networks engaged in currency counterfeiting. Led by Austria, Portugal and Spain, the probe was conducted between October 2024 and March 2025, and uncovered several criminal networks engaged in currency counterfeiting. Most of these networks were operating from outside the EU (European Union), mainly from Asia, but also from America and the Middle East.

Central banks vs counterfeiters

In March 2026, the Swiss National Bank unveiled the new-look Swiss franc banknote designs, featuring native plants, landscapes, and how human life adapts at different altitudes throughout the Alpine nation. The central monetary authority has also utilised a revolutionary three-layer substrate called Durasafe in the next-generation notes, which sandwiches a polymer layer between two outer layers of cotton paper.

This unique base, combined with over 20 advanced security features, makes counterfeiting nearly impossible. The notes have also embedded fibres and security numbers that glow when viewed under UV light, and sections that disappear under infrared light.

Another very good case study has been Singaporean banknotes, that use a blend of advanced physical substrates, intaglio printing, and optically variable devices (OVDs) to prevent counterfeiting. Lower denominations get printed on durable polymer, while higher denominations utilise specialised paper. Genuine notes feature a metallic, reflective kinogram. When tilted, the denomination numeral shifts, and the MAS (Monetary Authority of Singapore) logo transforms into the Singapore lion symbol.

Polymer-made lower denominations also feature an embedded metallic thread, while paper notes utilise an interwoven thread. When held to light, holographic images of the Singapore Lion symbol and MAS logo become visible on the thread.

The MAS logo itself has been printed in a micro-lettering format, which ‘ will be difficult to figure out without a magnifying glass. Specific elements like the serial numbers, chairman’s seal, latent image patches, and denomination numerals have been kept UV-friendly, emitting a bright, distinct glow.

The Bank of England’s proposed new banknote designs, despite being controversial for leaving out historical figures, will be having intricate wildlife photos like bird flapping its winds or a deer running, that in the words of the central bank, will be combined with latest security technologies to prevent counterfeiting.

United States, to commemorate its 250th anniversary, will be launching its ‘Catalyst’ series of redesigned $10 currency, that will incorporate advanced visible and covert machine-readable security features to combat counterfeiting. These new notes will incorporate advanced security features commonly deployed in other developed economies, but never used in US currency. Features like enhanced optically variable devices, sophisticated watermarking techniques, and critically, machine-readable elements specifically designed for high-speed automated authentication.

Keeping in mind the counterfeiters’ shift to generative AI to replicate microprinting and watermark patterns with increasing accuracy, the Catalyst redesign will also be introducing security elements that current counterfeiting technology cannot reproduce.

While central banks are bringing more complex security features like polymer substrates, 3D ribbons, and colour-shifting inks, counterfeiters are adapting as well against these security advancements. They are reportedly using advanced flatbed scanners paired with layer-based graphic software (like altered versions of Photoshop) to isolate, sharpen, and reconstruct complex banknote graphics layer by layer.

Using high-end commercial digital printers, these ‘notes’ are getting reproduced, with ‘fine lines and micro-text’. Counterfeiters are also using chemical solutions to strip the ink off low-value banknotes (such as $1 or $5 bills), followed by the reprinting of higher denominations ($50 or $100) on the original, authentic paper, effectively bypassing security pens and texture tests.

Forgers are even mimicking the extreme-pressure intaglio presses on the notes, by utilising fine-tip glue pens, or selectively applying clear matte lacquer sprays over portraits and text. Makeup kits, specifically eyeshadow and nail polishes, are being used to replicate expensive Optically Variable Ink (OVI), or colour-shifting 3D ribbons.

Last but not the least; to create the security threads, some criminals split thin paper sheets in half, before manually placing a simulated plastic or UV-ink strip inside, and gluing the layers back together.

Making the banknotes secure

Modern-day banknotes are being made from synthetic polymer materials like biaxially oriented polypropylene (BOPP). As compared to paper banknotes, they last significantly longer, have less environmental impact, reduced cost of production and replacement, and, most importantly, more than enough room for inducting abundant security features.

It was the Reserve Bank of Australia (RBA), Commonwealth Scientific and Industrial Research Organisation (CSIRO), and The University of Melbourne, that first innovated and issued the new breed of currency in Australia during 1988. By 1996, Australia switched its physical dollar to polymer banknotes.
Romania was the first country in Europe to issue a plastic note in 1999, and became the third country, after Australia and New Zealand, to fully convert to polymer by 2003.

Polymer banknotes usually have three levels of security. Primary security levels are easily recognisable by consumers, and may include intaglio, metal strips, holograms, and the clear areas of the banknote. Secondary security features are detectable by a machine. Tertiary security features may only be detectable by the issuing authority when a banknote is returned.

Next comes watermarks, one of the basic features to ensure banknotes’ effective documentation and protection for centuries. They are extremely difficult to replicate, as slight deviations in the portrait, or in the motif, raise suspicion in the minds of people and authorities alike.

When it comes making watermarks an iconic shield of defence against the counterfeiters, German company Giesecke+Devrient GmbH, that operates in the fields of digital security, financial platforms, and currency technology, has become a known name. It has developed an array of watermark designs like multitone, highlight and pixel, each of which has a distinct appearance.

These watermarks, if linked together on a banknote, create unambiguous and memorable motifs. Watermark designs often get amplified in printed and applied security features, further helping simplify the currency’s authentication process.

Next, we have ‘Security Thread’, a polymer-based stripe incorporated into banknotes during the papermaking process. The concept came into the picture during the mid-1800s when legendary American papermaker Crane and Co. introduced silk security threads.

In 1940s, the Bank of England wrote a new chapter in banknotes’ security, by proposing metallic threads for shilling banknotes. Since then, security threads have become a widely used authentication method.

Today, more than 90% of banknotes contain security threads, and their design has only become more sophisticated over the years, featuring microtexts, holograms, colour-changing effects, and UV luminosity.

Depending on their location in the paper, security threads can be of three types: Latent (completely embedded within the paper substrate), Diving (thread that weaves in and out, creating a dotted line on the banknote’s surface), and Figure (thread that appears as a series of shaped windows but forms a solid line when viewed in transmitted light). Threads can be of metal without text, metal with microtext, semi-transparent with text, holographic, colour changing, or luminescent under UV light.

Threads also carry magnetic properties, which are detectable by specialised devices with magneto-optical sensors. There can also be floating images in these security threads, that creates a motion effect (when the note is tilted, the image appears to move or shift). Every security thread comes with a dynamic effect, that produces motion, shifting, or transformation when the banknote is tilted or moved.

The devil lies in the details

Microprinting is a powerful anti-counterfeiting security feature that consists of incredibly tiny text (usually 0.15 to 0.3 mm high) printed onto banknotes. To the naked eye, the microprint appears as a solid, continuous thin line, but if seen under a magnifying glass, it reveals clear, legible words or numbers. Because of the feature’s microscopic size, counterfeiters using standard photocopiers or scanners cannot reproduce the fine details, and end up producing a text that usually translates into a blurred or solid line.

Central banks use either of positive microprinting (dark letters on a light background) or negative microprinting (light letters on a dark background). You will find some of the best use cases of microprinting in any prominent currency.

Next is ‘Intaglio Printing’, a security printing technique where designs get engraved into metal plates. Thick ink fills the recessed grooves, and immense pressure transfers it onto the paper, creating a thick, raised, and highly tactile texture. Here, Giesecke+Devrient has redefined the game through its ‘FIT System’, a combination of computerised engraving and laser technology that enables the realisation not only of very fine lines, but also translucent, multi-tonal structures that create new colours.

The element is embedded directly into the intaglio master by means of high-resolution laser engraving, and then embossed onto a reflective metal patch of the banknote paper. Three-dimensional structures are reproduced to an exceptional level of quality. The precise engineering guarantees that originals remain unique, whilst each reprint is identical to the base stock.

Another impact player is colour-shifting ink. Also known as Optically Variable Ink (OVI), the mechanism is a premium anti-counterfeiting measure that is used on modern banknotes. When you tilt the bill, the ink displays two distinctly different colours depending on your viewing angle, making it an incredibly reliable, naked-eye security feature.

The ink contains specialized metallic or magnetic flakes that bend and reflect light differently at various angles. Held flat, the ink on the note may appear green. Tilted, it shifts to blue, gold, or copper, depending on the specific currency and denomination.

Currency meets technology

Central banks are already thinking about the future. Digital and smart authentication of banknotes will be the next method to watch out for, as the procedure will be integrated into advanced cryptography, digital watermarks, machine-readable codes, and smartphone-based AI models to verify currency, deter counterfeiting, and bridge physical cash with digital financial ecosystems.

German technology company AUGENTIC and Orell Fussli Limited Security Printing have prepared a solution called ‘Smart Banknote CBDC’, that combines Orell Fussli’s highly secure banknotes with AUGENTIC’s ‘CBDC Platform’, including trustwise.io Distributed Ledger Technology.

Smart banknotes emerging from this ecosystem can be exchanged like traditional banknotes, apart from being converted into digital cash at any given time. This happens by using encrypted, anti-copied 2D barcodes for authentication purposes via smartphone. All processes are secured by DLT in combination with smart contracts.

Central banks and tech developers are also utilising consumer smartphones to verify currency. By using built-in cameras, infrared sensors, and advanced machine learning models, mobile apps can analyse banknote fingerprints, micro-printing, and edge transitions to confirm if a note is genuine with near-perfect accuracy.

Digital watermarks and machine-readable features, in the coming days, will allow banknotes to get printed with covert data, like specific magnetic signatures and invisible infrared patterns. Scanners, photocopiers, and ATMs will be programmed to detect this digital data, actively preventing unauthorised reproduction, or verifying deposits in real-time.

And then, there is ‘Chaotic Element Fingerprinting’, a state-of-the-art system that analyses the natural, random distribution of security fibres embedded in the paper pulp of a banknote. When scanned with UV light, this pattern serves as a unique cryptographic fingerprint linked to the note’s serial number.

The post Cash vs Counterfeiters: An Eternal Battle appeared first on International Finance.

Jaivinder Singh Gill, who has more than 25 years of experience in management roles, has constantly highlighted the rapid evolution of banking technology. He currently holds the position of Regional Vice President and Managing Director for Asia Pacific, the Middle East, and Africa at Diebold Nixdorf.

He is deeply involved in promoting digital transformation for financial institutions, enhancing security and reliability for clients. Jaivinder Singh Gill has played an important role in expanding Diebold Nixdorf’s business by introducing advanced banking technologies and managing the smooth integration of operations, including the successful implementation of Windows 11 on ATMs.

In an exclusive interview with International Finance, Jaivinder Singh Gill discusses the evolving role of cash and ATMs in the digital era, the problems encountered while upgrading banking technology systems, and the impact of intelligent self-service solutions and automation on the future of financial services.

With the rapid growth of digital payments such as UPI, how are banks rethinking the role of ATM networks and self-service banking in the overall customer journey?

The rise of digital payments needs to be looked at from the overall payments landscape. Digital payments are helping financial institutions to include a large section of the previously unbanked population into their financial systems at a much faster pace. From a self-service banking perspective, we are seeing a quicker convergence of the physical and digital, evident in UPI-based cash withdrawals from ATMs, real-time cheque truncation/ video teller through self-service, etc.

There’s a perception that cash usage is declining globally. From your perspective, how is the role of cash evolving in modern banking ecosystems, particularly in emerging markets?

Due to the rapid increase in the banked population across the region, more people are now part of the financial ecosystem. This large, banked population requires various channels of transactions, and hence we see a resurgence of the cash withdrawal values across the region. The rise in cash volumes is co-existent with the rise in digital payments, and hence, there is a co-existence phenomenon due to the increase in the banking population base.

What are the key challenges banks face when modernising legacy banking infrastructure while simultaneously building digital-first services?

Today, financial institutions face a unique challenge. While the global payments ecosystem is evolving rapidly, the legacy infrastructure of the majority of FIs makes it challenging to keep up with this evolution. The challenges are multiple and in the form of higher time to market, stiff fintech competition, complex operations, inconsistent customer experiences and a skills gap due to legacy code-based solutions.

How are intelligent ATMs and software-defined self-service platforms transforming the traditional ATM from a cash dispenser into a broader financial service point?

ATMs are now transitioning from being mono-function machines to highly intuitive multi-function banking service points. Modern self-service machines can now bridge the physical and digital payments world by seamlessly integrating via open banking and APIs. These machines can offer modern authentication mechanisms such as biometrics, and NFC-based mobile payments, enabling seamless and secure migration of key teller transactions to the self-service channel.

In what ways can automation and advanced ATM capabilities help banks expand financial inclusion, especially in underserved or rural regions?

Automation enables banks to provide services in underserved regions without expanding physical, full-fledged branch networks. Today’s self-service channel can migrate the majority of teller transactions, offering essential services at lower operational overheads. Today, the modern self-service devices provide 24/7 banking operations, leveraging AI-based remote tools to ensure maximum availability. User-friendly interfaces support local languages and intuitive interfaces. Integration with APIs and open banking enables seamless digital payments on physical channels. Intelligent cash recycling optimises operational costs, layered security protects against emerging physical and cyber threats, and efficient power management with remote capabilities helps reduce carbon emissions.

Cybersecurity and fraud prevention are major parts of the banking infrastructure. How are transaction platforms evolving to ensure secure and resilient financial ecosystems?

With the rise in digital payments and physical-digital convergence, security and resiliency across the payments lifecycle are paramount to ensure consumer trust. Hence, financial institutions today spend a majority of their time evaluating these aspects in any solution they evaluate. Security and resiliency are not only layered but are now embedded in the platforms. Companies are incorporating zero-day trust frameworks, investing in tokenisation, and providing seamless integrations to fraud management solutions. Platforms are building their tech to be ‘Always On, Always Available’, and are building infrastructure that is available on demand, auto scales, is API-driven and micro-services based to ensure a resilient payment technology.

What role do global banking infrastructure providers play in helping financial institutions scale digital services while maintaining reliability in the physical and digital channels?

As the payment tech innovates and volumes rise, payment modernisation is reimagining every customer touchpoint to drive operational efficiencies and deeper engagement: branch, ATM, teller, and digital. With legacy systems, there is a rise in complex integration-related challenges, increasing compliance risks and rising costs to manage all of this as a result. Global tech providers are better equipped to address these challenges owing to their vast experience in managing varied payment systems, implementing intricate transaction sets, and handling large-scale operations.

How do you see the relationship between physical banking infrastructure and digital channels evolving over the next five to 10 years?

The question is not really physical versus digital; that framing is already becoming outdated. Physical infrastructure will increasingly complement digital journeys, especially for services that require trust, assistance, and/or regulatory validation(s). Over time, financial institutions will move towards unified platforms that orchestrate these experiences across touchpoints, making channel boundaries largely invisible to customers.

With increasing pressure on banks to optimise costs, how can modern ATM networks contribute to operational efficiency while improving customer experience?

Modern ATM networks are becoming considerably leaner through predictive maintenance, automated cash management, and AI-driven remote services. Banks/FIs can directly increase consumer availability, streamline cash management, and optimise servicing costs. On top of this, modern ATM software allows addition/modification of services in a faster and leaner way. Taken together, these changes shift the ATM network from a cost centre with a fixed function into something that justifies its place in the broader operation by actively contributing to both efficiencies and enriched consumer experiences.

Looking ahead, what innovations in self-service banking or transaction technologies do you believe will most significantly shape the future of banking infrastructure?

The next phase of banking infrastructure will be driven by intelligence, connectivity, and flexibility. AI-led personalisation, cloud-native platforms, and deeper integration across channels will shape the ecosystem. Contactless, cardless, and biometric transactions will continue to grow. Ultimately, the focus will be on building infrastructure that is resilient, inclusive, and capable of delivering seamless experiences at scale.

The post Modern ATM software allows faster service modification: Jaivinder Singh Gill appeared first on International Finance.

This type of financing is called asset-backed securities, or ABS for short. It works by packaging reliable revenue streams (in this case, long-term contracts with businesses that depend on Zayo’s network) into bonds that investors buy. It’s a way to raise large amounts of capital without selling equity or taking on conventional bank loans.

Why does this matter? Zayo’s network carries enormous amounts of data for cloud platforms, AI applications, and the wireless towers that power 5G. Demand for that kind of bandwidth is growing fast, and keeping up requires constant investment in faster, denser fibre. The $2.37 billion primarily retires older debt while freeing up capacity for new expansion.

Zayo CFO Jeff Noto said, “This issuance further advances our ABS programme and is the largest securitisation issuance we’ve completed to date. It reflects the continued strength of our ABS programme and the market’s confidence in the cash flows generated by our fibre infrastructure. As we continue investing in our network to support growing demand, we’re focused on maintaining a strong capital structure, with the right liquidity and a staggered maturity profile.”

Investor appetite was strong, with the bonds priced at a weighted average rate of 6.5%, which is a sign that markets trust Zayo’s assets as solid collateral. This is Zayo’s fourth ABS deal, bringing its total raised through this structure past $6 billion.

Taken together, both stories point to the infrastructure of the future (physical and digital), which is expensive to build, and demands creativity and committed capital at scale.

Zayo has been around for 18 years and has empowered some of the world’s largest, most innovative companies to connect with their future.

The Zayo Group of Companies connects 400 global markets through future-ready networks encompassing over 32 million fibre kilometres (19.9 million fibre miles) and 238,000 route kilometres (148,000 route miles).

The post Zayo issues USD 2.37 billion asset-backed term notes appeared first on International Finance.

As per the credit ratings agency’s report titled “GCC 2026 Energy Outlook: Capex, Capacity, Consolidation,” the main drivers will be capacity expansion plans in the UAE and Qatar, as well as capacity maintenance in Saudi Arabia. However, this level of spending is unlikely to strain the energy giants’ free operating cash flows substantially, even with lower oil prices and a global economic slowdown.

“In the UAE, state-owned energy group ADNOC is targeting a five-million-barrels-per-day increase in production capacity by 2027, while QatarEnergy is expanding its LNG production capacity in phases through its North Field expansion project. We expect capex to taper toward the second half of the decade as the capacity expansion completion dates approach,” the study noted.

Although NOCs’ capex requirements will remain elevated, S&P believes NOCs will adopt a more cautious stance on spending. This will defy the trend among the international oil companies, which, over the past 12-18 months, have generally announced downward revisions to their capex guidance, mainly to balance cash flow generation with their financial policy commitments.

The report further expects that, on average, over half of the GCC-based NOCs’ capex will remain focused on upstream activities, namely exploration and production.

“Domestic oil typically remains the core focus of capex, but the regional NOCs are also increasing their focus on gas and international operations,” the report observed.

In March 2025, XRG, a wholly owned subsidiary of ADNOC, acquired a 10% stake in Area 4 Mozambique for USD 881 million. Similarly, QatarEnergy is actively seeking and securing interests in Africa and South America. As per the ratings agency, these moves by GCC NOCs are increasingly aligned with their ambitions to expand their LNG and trading businesses on a global basis.

“On the other hand, a more cautious approach by NOCs on spending is likely to reduce rig demand, rationalise average day rates and weigh on the overall profitability of the region’s oil drillers. We think that oil drillers’ rating headroom could shrink as a result, but we do not expect any rating pressure in the short term. In addition, industry consolidation could help balance rig supply and demand and subsequently support day rates,” the report remarked.

“In addition, NOCs are aiming to achieve greater integration along the value chain and are leveraging their trading arms to make the supply of feedstock from upstream to downstream operations more reliable. Aramco’s downstream operations (manufacturing, marketing, refining, and processing) utilise more than 50% of the crude oil it produces (53% as of end-2024),” S&P concluded.

The post Capex of GCC national oil companies to hit USD 125 billion by 2027: S&P report appeared first on International Finance.

Although business credit cards can be a very useful tool for managing the finances of your company, there are a lot of myths about them that might make you hesitant. This article will help you understand the advantages and possible disadvantages of a business credit card if you’re an entrepreneur or small business owner.

Here are some common misconceptions regarding business credit cards and the facts you should be aware of before choosing one for your company.

I Can’t Get A Business Credit Card For My Startup

It’s a common misconception among new business owners that they need a long credit history or established credit in order to be eligible for a business credit card. Although it is true that when you apply for a business card, many banks and credit card companies check your personal credit, getting approved is still possible, even if your company is just getting started.

Cards made especially for new businesses or entrepreneurs with little business credit history are available from several credit card companies. Your company may eventually be able to establish its own credit history, but in certain situations, you may need to back the application with a personal guarantee or your own credit. To find cards that meet the needs of your startup, it’s always a good idea to do your homework and compare options.

They’re Too Expensive

Business credit cards are frequently linked to exorbitant annual fees, interest rates, and transaction costs. Particularly for startups or small businesses, there are many options with minimal or no annual fees, even though some premium business cards do have high costs.

Cash back, rewards programmes, and other perks that can offset the costs are available on a lot of business cards. Additionally, you can better manage your cash flow and steer clear of costly short-term loans by using a business credit card responsibly. Finding a card that fits your company’s spending patterns and financial requirements requires comparing several options.

My Personal Credit Card Is Just Fine

Although using your personal credit card for business expenses may seem convenient, doing so can cause misunderstandings and issues. In addition to making it more difficult to monitor your company’s finances, combining personal and business expenses may cause problems when it comes time to file taxes.

Additionally, it may be difficult for your company to get financing in the future if your personal credit card is maxed out or if your personal credit score declines. Keeping your personal and business finances separate with a separate business credit card makes financial records easier to understand and makes tax filing, accounting, and budgeting easier.

They Won’t Help Me Build Credit

It’s a common misconception among business owners that business credit cards won’t help them establish their company’s credit history. A company’s credit history is crucial for future loan applications and larger credit lines, and it can be built through responsible business credit card use.

Your business credit score can be raised by paying your bills on time, minimising your utilisation, and exhibiting sound financial practices. This will eventually make it easier for you to be eligible for better financing options with better terms. Just keep in mind that some credit card companies report to both personal and business credit bureaus, so it’s critical to make your payments on time to prevent harm to both.

They’re Too Risky

While it makes sense to be wary of taking on more debt, a business credit card can help you manage risks rather than increase them. By only charging what you can afford to pay off and avoiding carrying a balance that accrues high interest fees, you can use the card responsibly.

Additional security features like travel insurance, extended warranties, and fraud prevention can also be offered by business credit cards. Additionally, a lot of cards provide cashback or rewards for regular business purchases, which can help you save money or earn benefits that improve your bottom line.

A business credit card can be an effective tool for controlling costs and fostering the expansion of your company, provided that you practice self-control over your spending and repayment patterns.

The post Business credit cards: All you need to know appeared first on International Finance.

He has published numerous scientific articles across various disciplines and authored four books. In addition to his academic work, he writes accessible, reader-friendly articles for news outlets, attracting millions of readers each month. Widely recognised for his expertise, he is one of Boston University’s most frequently quoted professors and is a regular guest on television, radio, and print media. Zagorsky’s forthcoming book “The Power of Cash: Why Using Paper Money is Good for You and Society,” is expected to hit the stands in a couple of months.

In an exclusive interview with International Finance, Professor Jay Zagorsky, discusses his book, the importance of paper money, the dark side of digital payments, threats posed by a cashless society, and much more.

What inspired you to write “The Power of Cash: Why Using Paper Money is Good for You and Society”?

Fifteen years ago I rarely used paper money. Instead, I charged everything on a rewards credit card to maximise the number of airline miles I could earn. My wife and I even made it three-quarters of the way around the world on “free tickets.”

Today I try to use paper money as much as possible. I switched because after researching this topic for many years I came to appreciate that what looks like a small decision, how people pay for purchases, actually has huge ramifications for individuals, businesses and countries.

For example, those “free” airline tickets I got actually were not free. Instead, credit card companies provide these free tickets to richer or financially sophisticated customers by charging poorer or financially unsophisticated customers.

Robin Hood was a mythic character who took from the rich and gave to the poor. Airlines rewards credit cards are a Reverse Robin Hood, where they take from the poor and give to the rich.

What helped change my opinion of cash was working with researchers at the Boston Federal Reserve, which is part of the US Central Bank. They wanted guidance in creating a new survey that tracked how people paid their bills and their purchases. The survey showed US consumers were moving steadily away from paper money and toward cashless payments. I have spent several years trying to understand the ramifications of this switch.

Why do you believe it is important to preserve the use of paper money in today’s digital age?

Keeping paper money around ensures businesses have a backup when electronic payments fail. For example, this past summer the world saw a number of widespread disruptions of electronic payments. In July a software security company called CrowdStrike released a faulty update, which crashed most computers running Microsoft Windows. The press focused on the multi-day disruption that this software caused in airline travel, but large numbers of major banks and financial companies were also taken offline for long periods. Another example is that the month before the CrowdStrike incident about one-third of all McDonald’s restaurants were temporarily shut in Japan because of problems with cashless payments.

Businesses cannot assume cashless payment systems will work all the time. Even when the cashless payment vendor claims their software is available 24 hours a day – seven days a week, there is no guarantee a business can access the software or conduct transactions. Keeping cash around ensures payments can always happen. To effectively use cash as a backup, employees must access and practice handling it.

You mention that the shift to digital payments could weaken national defence. Could you expand on how reliance on digital systems makes us more vulnerable to cyberattacks and natural disasters?

Keeping paper money in use is a key component of national defence. Shifting to a cashless society undermines a country’s security.

The cashless society depends on three legs: electricity, communications and computers. All three must work all the time for digital transactions to occur. When you have a cashless society, enemies can shut down an economy by disabling any one of those three legs, with attacks on the power network, breaking telephone cables, or cyberattacks on the computer system.

Cash, however, works even when all three legs are disabled. People with paper money do not need electricity, communications or computers to complete purchases. The current push to make the world’s transactions more cashless makes countries less resilient instead of more.

October’s announcement that Dubai launched a new “Cashless Strategy” where the city wants 90% of all transactions to be cashless by 2026 does not sound right as adversaries seek easy ways to disrupt a government.

You argue that the shift away from cash has overlooked several negative consequences. Could you elaborate on how electronic payments negatively impact privacy?

Privacy is important. Many people do not want every aspect of their lives revealed. Electronic payments provide a permanent record of purchases for any company or government to analyse. One of my favourite studies was published in Science in 2020. A group of researchers primarily from MIT took three months’ worth of anonymous credit card records for 1.1 million people. They were able to determine the identities of 90% of the individuals. The study showed that even if a bank or financial service provider doesn’t give out the names and addresses of their clients, just looking at all your purchases can pinpoint who you are!

For example, cigarette purchases are legal around the world. However, the city where I live passed a law making it illegal for anyone born on or after 2000 to buy tobacco products. The ban covers not only residents, but also visitors. While the city has no current plans to do this, they could use credit and debit card records to find and fine cigarette buyers who were not old enough long after purchases were made.

In your book, you discuss how eliminating cash can lead to increased spending. Could you explain why people tend to spend more when they use digital payment methods instead of cash?

When you use a cashless payment linked to a credit card you can spend up to your credit limit. When a person uses a cashless payment method linked to their bank account or debit card, they can spend only the amount available in their account. When people spend cash, they are limited to whatever paper money they have immediately on hand. This limited budget is one reason why using cash makes people spend less. In my book “The Power of Cash: Why Using Paper Money is Good for You and Society,” I discuss several other important reasons as well.

How does the move away from cash disproportionately affect lower-income individuals, and what solutions do you suggest to address this issue?

On my walk to work each day I pass several poor people asking for charity. In a cashless world, it is difficult to give these people money since many have issues that prevent them from opening bank accounts, handling mobile phones or doing any of the technical tasks like remembering complex passwords that are needed to fully function in a cashless society. It is simple to hand them cash, if you have some in your pocket.

The solution to supporting lower-income individuals is a very simple three-part process. First, maintain cash as a means of payment, for example by passing laws that make it illegal for businesses that deal with the general public to be cashless. Second, ensure continued access to cash, for example by preventing banks from shrinking their ATM networks. Last, and this is where my book comes in, explain to businesses and people the advantages of continuing to use cash.

What do you see as the most pressing threat posed by a cashless society, and how do you think we can mitigate these risks without reversing the technological progress we’ve made?

Sudden loss of access to your funds makes it impossible to buy food, use transportation and purchase needed items. Having your funds in electronic records makes you very vulnerable to losing access, while holding some cash protects you.

World Bank data show large numbers of people in the Middle East and Africa do not have either a bank account or an account on their mobile phone. Leaders in the financial technology industry claim the solution is simple. Just have more mobile banking apps. However, each year I see a number of countries that have temporarily shut down or blocked access to their mobile phone networks.

Imagine you have all your wealth stored in a mobile phone app. Now imagine the government shuts off the cell network to fight an insurrection or catch terrorists. You are suddenly cut off from all your funds. With paper money, individuals always have access to their wealth.

In the book, you suggest that eliminating paper money could lead to increased crime. How does the transition to digital transactions enable global criminal activity?

Digital payments increase crime since criminals can target us from anywhere in the world. Many people are worried that carrying cash makes them vulnerable to criminals. I agree that carrying cash makes you a potential target. However, to steal your cash the criminal has to be physically nearby. With electronic money, criminals no longer have to be close. This means the number of criminals who can target an individual or business is much greater. Credit card fraud has ballooned worldwide, stealing vast amounts of money from people who never see the thieves.

You criticise the portrayal of a cashless society as a utopia. How do you think technologists have misunderstood the implications of a completely digital economy?

The cashless society is a utopia for international criminal gangs who now can scan, con and extort money from anyone in the world. The cashless society is ideal for credit card companies, banks, and financial technology firms, as they can earn a commission of between 2% and 5% on every financial transaction. Additionally, the cashless society benefits large technology companies that prefer remote transactions over face-to-face interactions.

Unfortunately, while the cashless future looks bright for technologists I see the problems in people’s everyday lives. Recently, I went for a walk and witnessed an incident at a parking lot in the neighbourhood shopping area. The lot used to accept coins in the parking metres but recently switched to cashless transactions. Two women were trying to pay for parking using the electronic kiosk and having a very frustrating time. They finally gave up and drove away. The utopia promised by the company that installed cashless parking systems didn’t work and the local businesses in that shopping area lost two customers who were ready to put coins into a metre.

What would the restoration of paper money and traditional banking infrastructure cost the economy, and how could this affect taxpayers?

Almost all countries, except for Sweden and China, still have large amounts of paper money in circulation. Every country including Sweden and China still has a large number of traditional banks. We do not need to restore paper money. Instead, we need to encourage people to use it and businesses to accept it.

Given the global trend toward digital payments, do you think there’s a realistic path forward that balances the benefits of technology with the need to preserve cash, or is a fully cashless society inevitable?

Last year the US financial companies spent US$1 billion advertising credit cards. The amount spent advertising the advantages of cash was zero. When people are told through relentless advertising that the cashless economy is great they will believe it.

Seventy-five years ago tobacco companies around the world relentlessly advertised cigarette smoking. Today, many countries ban cigarette advertising and many packs of cigarettes have dire warnings. My goal through writing “The Power of Cash: Why Using Paper Money is Good for You and Society” and speaking to news publications is to make people stop and think about what we are giving up by getting rid of paper money. My guess is if you spend a few minutes thinking about the downsides of a cashless economy you will join me in carrying cash again and spending it in shops, restaurants and other places you frequently visit.

The post Cash ensures resilience in payment systems: Professor Jay Zagorsky appeared first on International Finance.

The fintech offers digital banking tools to assist SMEs with their finances, providing business bank accounts, payment processing solutions, expense tracking and invoicing. Qonto also provides real-time notifications, expense categorisation and multi-user access.

Defying The Fintech Downturn

Qonto’s goal is simple: to become an all-in-one platform that can manage all things finance, from paying and getting paid to overseeing expenses, cash flow and bookkeeping, dusting off the old banking experience in the process, while acting as the “power pack for small businesses.”

The venture, as of now, has 450,000 companies as its customers, a 30% increase compared to 2022. As per a Sifted report published in February 2024, Qonto’s turnover has been in the range of several hundreds of millions of euros.

“We’ve already significantly improved our margins in the last two years. Looking at our plans for 2025, we’re pretty confident that our costs will increase a little bit, our revenues will increase a lot, and we will reach profitability,” CEO and co-founder Alexandre Prot told Sifted.

With turnover increasing and its latest round of fundraising, Qonto has cash to spend and it will use the capital to jump on consolidation opportunities. The majority of Qonto’s revenue comes from monthly/annual fees paid by customers, for plans ranging from 9-299 euro per month, as well as commissions taken from every transaction made on Qonto accounts.

Qonto last posted its financial results for 2020, when the company was making a 27 million euro loss. Since then, the company has reportedly accumulated cash in the bank.

“We’ve raised a lot of money and we won’t need to raise again in the near term. What’s at stake now is to develop well in each of our markets [France, Germany, Italy, Spain]. In the current context where some companies are more open to being bought (…), we’ll grow organically but also potentially with one or two targeted acquisitions,” Alexandre Prot continued, as he added that those acquisitions would likely add to the range of services Qonto offers its customers, which currently include accounting and invoicing, on top of banking, and could increase the number of customers taking up premium subscription plans.

Qonto bought German competitor Penta in 2022 for an undisclosed sum, which enabled it to expand its footprint in the European country by taking over the start-up’s 50,000 customers.

The Services

Qonto helps aspiring entrepreneurs create their companies in a breeze. From choosing the company’s legal structure to depositing the share capital and registering the business, Qonto provides help at every step. The fintech has partners like Firma.de (company registration service in Germany, providing administrative and legal assistance to new businesses), Finutive (Spanish entity providing personalised financial planning solutions to companies) and LexDo.it (Italy-based online legal and accounting service).

Qonto also provides business account services tailored for freelancers. The service doesn’t entertain hidden fees, surprise charges and transfer commissions, thereby scoring high on the transparency front.

Bookkeeping and invoicing are the two activities which can massively exhaust self-employed individuals. Qonto takes care of it by automatically importing the supplier invoices to its digital platform from over 10,000 connected sources for greater visibility, just to ensure that the entrepreneur doesn’t miss payment deadlines.

Qonto also scans paper receipts and stores them online, helping its clients to pre-select the right VAT rates to save time on bookkeeping. Every receipt, VAT rate and transaction gets synchronised to the business’ accounting tool in real-time.

For micro-businesses, Qonto simplifies finance and accounting management activities by helping those business leaders save time on preparing expense reports. Through the fintech’s help, a micro-business owner can order Mastercard cards for his/her team members, instead of dealing with individual expense refunds. These cards also come with their own transaction limits, apart from helping businesses keep track of expenses on a real-time basis.

For SMEs, Qonto helps the latter to make sound financial decisions with up-to-the-minute transaction updates, along with always-accurate snapshots of the business’ financial health. The SMEs get to set budgets and configure payment limits for their teams, through “Smart Company Cards,” which come with personalised spending rules, up-to-the-minute budget overviews and multi-layer approval workflows for custom amounts. Qonto also assists these businesses in undertaking international transfers to more than 130 countries.

The SMEs can also conduct instant SEPA (Single Euro Payments Area) transfers of up to 50,000 euro and direct debits through a range of smart & reliable payment cards, with options for commission-free foreign purchases.

Qonto’s solutions for SMEs also include the automation of time-consuming financial tasks like issuing certified expense receipts, accelerating reconciliation, along with VAT and payment information detection. The fintech’s built-in invoicing feature helps businesses to get paid faster and save more time on issuing supplier invoices. And this service covers some 29 currencies.

Business Accounts, Cards And More

Qonto helps businesses open bank accounts with a French IBAN (International Bank Account Number) in 10 minutes (powered by Physical and virtual Mastercards), with features like SEPA instant and international transfers. As per the fintech, the business account service has won the trust of over 500,000 SMEs and freelancers.

The fintech’s “Invoice Management” is known for issuing invoices that are compliant with current French legislation, including rules around data protection and storage. The tool, which can be directly integrated with a business account, seamlessly manages the company’s finances excluding VAT.

“Invoice Management” generates and sends quotes and invoices in less than a minute, while automating the entire invoice and payment tracking process. The solution also helps businesses receive instant SEPA transfers, and real-time transaction notifications.

Qonto’s “Expense & Spend Management” tool is all about ensuring efficient finance management that lightens the daily workload of the business leaders. Through “Expense & Spend Management,” business leaders can delegate financial tasks to their teams; with multi-layered approval workflows to control spend in real time. The entrepreneurs can simplify things further by setting separate budgets and tracking the cash flow through dashboards. The tool, which comes with fully customisable payment card limits and cash transfers, also helps its users to export data automatically to their preferred business software to eradicate entry errors, while saving time.

Finally, when it comes to bookkeeping, Qonto helps businesses automate the tiresome and mundane processes like supplier invoice processing and data entry, accelerating the overall account reconciliation activities. The user can import his/her supplier invoices to Qonto from the computer, mailbox, Google Drive, and Dropbox, where they get automatically linked to the right transaction.

The Road Ahead

Qonto, which has set up its in-house card payment system, in collaboration with Mastercard, now faces a question: whether or not it should become a fully regulated bank, which would enable it to offer services like loans and open up a whole new stream of revenues.

Qonto has said that becoming a bank is not on the cards anytime soon. But some say the company will eventually have to consider it. The fintech recently hired brand-new CFO Anita Szarek.

While the move might hint towards the venture heading towards the IPO route, Szarek said, “We are well-funded and we have enough firepower to continue our growth as it is. An IPO could be an event at some point but that’s not the strategy.”

Apart from being profitable by 2026, Qonto wants to reach one million customers by 2025. The strategy is to increase revenue without indulging in cost-cutting measures. The venture plans to hire for “hundreds” of roles in the coming months, in addition to the company’s current 1,300-strong workforce, as well as making a “massive” investment in marketing.

In July 2024, the venture announced two new features to offer better business banking solutions to its customers. The first was a new strategic partnership with Wise Platform to enhance Qonto’s cross-border payment capabilities further. The second was the upcoming launch of the SEPA Direct Debit collection feature, which will enable Qonto customers to get paid on time and centralise all incoming payments in the app.

The post Start-up of the Week: Qonto defies Fintech downturn with record growth & new features appeared first on International Finance.

Launched in 2019, VIB Cash Back has emerged as one of the first cashback card lines of VIB. The bank has now increased the cashback level by 2.5 times, with a maximum of VND2 million (USD 82) per month when spending via card. This card line has become popular among users for daily transactions.

“Similarly, the VIB Super Card also boasts the highest cashback rate in the market. Despite its recent launch in June 2023, the card line has attracted more than 7,000 new and frequent users thanks to the cashback and point accumulation feature of up to 15%,” the venture stated, while interacting with International Finance.

As “the Best New Credit Card in Vietnam in 2023,” the VIB Super Card has made a big splash in the market. The card enables users to choose cashback or reward features, card number, statement date, and minimum payment amount. With just a few simple steps, users can own one of VIB’s most personalised cards.

The Super Card provides up to 15% flexible rewards on shopping, travelling and dining, apart from flexibility in the minimum amount due and billing date.

“As for the VIB Rewards Unlimited card line, the point accumulation rate for each shopping transaction at shopping centres is 1–10 points for every VND1,000. With a total spending of VND10 million in the statement period, all cardholders can enjoy double bonus points for the period. Reward points are accumulated into gift vouchers, annual fees, airline tickets, or even cash right on the MyVIB mobile banking app,” the venture noted.

VIB also pays special attention to creating a superior cashless shopping experience for Vietnamese travellers. VIB Travel Elite focuses on spending experience throughout the journey abroad.

Notably, VIB has lowered the fees to 0% for the first three statement periods and only 1% for the following periods, which is superior to the average rate of 4-6% in the market.

Meanwhile, VIB Premier Boundless offers cardholders free access to more than 1,000 global business lounges. In addition, cardholders can earn Vietnam Airlines bonus miles to redeem for airline tickets or seat upgrades for subsequent flights.

With the leading e-commerce card line, VIB LazCard, cardholders can receive up to a half refund for online shopping at Lazada.

Besides, “VIB Online Plus 2in1” is also popular with its cashback feature of 3% for online spending in the domestic market and 6% abroad. With card purchases or withdrawals in person, users also receive a cashback of 0.1% on each transaction.

Targeting Vietnamese families, VIB, in collaboration with international card organisation Visa, issued the first credit card line specifically for parents with young children on the market, VIB Family Link.

With the Financial Free card line, VIB offers three “no-fee” privileges for cardholders, including a lifetime annual fee waiver, unlimited withdrawals up to 100% of the credit limit, and 0% interest on all spending and withdrawal transactions.

The post VIB dominates Vietnam’s credit card market with diverse product range appeared first on International Finance.

We have factors like insufficient cash flow, lack of a well-developed business plan, failure to gauge product demand and determine their prices, getting overly optimistic about parameters like achievable sales and money required and the inability to identify the weak operational points, contributing to a business’ struggle or the worst case, demise.

And it’s not like businesses are immune to struggles. Many successful and established businesses of the 21st century have gone through periods where their sales have hit rock bottom and debt levels have gone high, almost inviting bankruptcy in the process. However, they have managed to perform the course corrections and come back in a rocking manner.

Why Do Businesses Face Headwinds?

An entrepreneur should think of the tough times as the “growing pains” he/she experienced as a child.

“You didn’t reach the height you’re at now without experiencing some pains in your joints as your body transformed from a toddler to a young boy or girl. The same logic or growing pains can apply to starting a new business. Take for example never having enough time or constantly putting out fires—you can probably relate to those pains, “Noted educational and business content writer Besma Bihnam commented.

These growing pains can be solved. If struggles start to take over the business, or business owner, they could lead to failure. All the business owners need to do is take a step back, look at the overall state of their business and identify the root cause of the problem.

Apart from the cash flow problems, some headwinds also stem from the fact that entrepreneurs sometimes fail to understand their market and customers. Starting a business without thoroughly researching and identifying the target market, ideal customer, customer buying habits and a clearly defined pricing strategy can lead to failure.

Assuming what worked in the past will always work is dangerous. Businesses that don’t factor in market changes, their competition, changing technology, or the value of experimenting with new ideas are likely to fail. Also, one of the biggest challenges for entrepreneurs is to let go of control and rely on others to finish the job. Yes, businesses, irrespective of their size, need decentralisation of roles and responsibilities to perform like a well-oiled machine, but having way too many hands-off approaches doesn’t help the business leader’s cause either.

While business growth is great, slow and steady wins every time. It’s hard to believe that too much business can lead to failure. While it’s tempting to go for it all, steady, predictable growth that’s properly managed is healthier than uncontrolled jumps and spurts in volume. Keep in mind the 80:20 rule: 80% of your business will come from 20% of your clients.

Successful small businesses have four common characteristics that we recommend all small business owners adopt. They can know their market better and make sure there is a demand for their product/service before they develop it. They can enter the market with a distinction that sets them apart from their competition. Most importantly, stay strong and don’t give up. If required, rely on a mentor while starting out your venture and throughout changing business climates.

How To Revive A Struggling Business?

Innovate

“Markets, people, and technology all change. What’s relevant or trendy today isn’t guaranteed to stay the same. Your business, too, should change in order to adapt to the ever-changing world. Choosing to focus on today’s marketplace without anticipating the future is what made known companies such as Eastman Kodak, Motorola, Sony, and Yahoo lose their edge. Experts call it the strategic trap,” says Robyn Howard, a video enthusiast and content manager over at VideoRemix.io.

There is a psychological trap, where business leaders focus exclusively on what made the business successful and fail to adapt to new changes. Also, not investing in the equipment/other systems that run their company is another way many businesses end up losing on new and relevant investments.

“Put simply, if a business doesn’t innovate or resists innovation, the chance of failure becomes high. At one point, all the companies on the list dominated the market in their respective fields; the great lesson any small business owner can learn here is to never make the same mistakes they made,” Howard stated.

Adapt to new changes, innovate your products and services, and also, rather than trying to deal with everything on your own, listen to your friends, family, employees, and business partners. Invite them to share any ideas that could help revive a failing small business.

Perform A SWOT analysis

A SWOT analysis is a strategic exercise a business owner needs to go through to identify his/her venture’s strengths, weaknesses, opportunities, and threats. It’s a helpful exercise the person can use to analyse your current performance, identify things that are going wrong (problem with product-market fit, pricing, operational processes, etc.), and discover areas where the business leader can make improvements.

The business leader should also know his/her target market and ideal clientele. Performing the task will help the person to understand where he/she should focus the efforts, the market needs and pain points the company’s product/service can solve for clients, apart from targeting clients’ buying behaviour, and develop a strategy that’s the right fit for the business.

Set SMART Objectives And Create A Plan

Make a list of your (addressing business leaders) SMART objectives for your business. This will give you clarity and make it easier for you to stay focused and work towards achieving them.

“SMART stands for: Specific: Clear enough to fully understand. Measurable: Can determine when it’s complete. Achievable: Can be accomplished. Relevant: Is connected to your overall game plan. Time-bound: Has a deadline with specific dates,” stated Bihnam.

Next, create a plan that will put your SMART objectives into action. As you create a plan, think about the steps you’ll need to take, how long it will take, and who will help you.

Put A Solid Financial Roadmap

To keep the business open, cut discretionary or unnecessary expenses. Look at areas where you can cut costs like travel expenses/reduce your utility usage to lower your monthly bills. If you are renting office space, talk to your landlord to see if they will be willing to reduce rent/renegotiate your lease. The last place you will want to cut costs is people. If you find yourself in a tough spot, try reducing employee hours and compensation before laying them off.

“Create a cash flow forecast so you have insight into what’s coming in and what’s going out. Use the forecast to project likely sales and expenses, so you know how much money you’re likely to have in your bank account. You’ll also want to manage your cash flow more efficiently by sending invoices out on time and following up with customers who haven’t paid. You can streamline this tedious process with a payment and invoicing tool like Keap payments to save you time and help you get paid faster,” Bihnam said.

“If you’re like most small business owners, you probably have debt to pay. Many business owners see debt as a sign of failure, but in reality, small businesses who have debt have higher credit scores. Try not to feel too overwhelmed by outstanding debt or avoid creditors. That only makes matters worse. Instead, talk to your creditors and explain your situation and your plans to pay your debt. Most creditors understand and willing to work with you if they’re confident you’ll eventually pay what you owe,” she commented.

Put A Client First Attitude In Place

“Keeping clients satisfied and happy has never been more important than it is today. We live in a world where people demand more, and if business owners don’t meet increasing expectations, people will voice their opinions on social media and go elsewhere. It’s a hard fact, but that comes with running a business nowadays. Tools like Keap make it possible for small businesses to deliver personalised service and create happy clients,” Bihnam remarked.

Aggressive marketing is the best option to gather new customers/clients. Did your previous marketing strategy deliver good results? If not, then it needs to be refreshed.

Small business expert Melinda Emerson lists these essentials of a good marketing plan: market research, target market, positioning, competitive analysis, market strategy, budget, and metrics.

“Each one of these items matters in turning around a failing company, but I think knowing your target audience is one of the biggest factors. Try to understand them by obtaining all the essential information you can about them. You can speak to them directly through email or social platforms, and request them to share feedback on your services or products, plus any other suggestions they may have. Also, try creative and productive ways such as personalised video marketing to convert them,” Binham noted.

The post Looking to revive your struggling business? Here are the tips appeared first on International Finance.

“Enterprise value calculates the potential cost to acquire a business based on the company’s capital structure. To calculate enterprise value, take current shareholder price, for a public company, that’s market capitalisation. Add outstanding debt and then subtract available cash. Enterprise value is often used to determine acquisition prices. It’s also used in many metrics that compare the relative performance of different companies, such as valuation multiples,” Oracle NetSuit explained.

Enterprise value is a financing calculation, the amount a business leader needs to pay to those having a financial interest in his/her venture. That includes everyone owning equity (shareholders), as well as the lenders. If someone buys a company with debts, he/she needs to pay up for the stock and then pay off the debt, but the person gets the company’s cash reserves upon acquisition. Because you receive that cash, it means you paid that much less to buy the company. That’s why you add the debt but subtract the cash when calculating an acquisition target’s enterprise value.

Knowing The Concept In Detail

Conceptually, enterprise value gives an entrepreneur a realistic starting point for what he/she would need to spend to acquire a public company outright. In reality, as per Oracle NetSuit, it typically takes a premium to EV for an acquisition offer to be accepted. This happens due to reasons like the company’s board demanding a premium to its current share price, before the venture goes for the sale. Also, when an acquirer starts buying stock, the economic principles of supply and demand typically kick in, driving up the share price. During the bidding stage, multiple bidders emerge, leading to a significant premium.

“A company’s enterprise value is not reflected solely in its shareholder contribution, the amount of money contributed to a business by shareholders; it also takes into account company debt, both short- and long-term, and cash reserves. While debt and cash are clear and simple terms, market cap deserves a bit of explanation,” Oracle NetSuit added.

People often discuss a company’s stock price and whether it has gone up or down. However, the actual price of a share of a stock is meaningless in terms of understanding a company’s value without additional data, particularly how many shares are outstanding. Multiplying the share price by the number of outstanding shares gives the exact information about the company’s market capitalisation, and the total dollar value of the company’s outstanding shares.

“As a simple example, Company A’s stock may trade at USD 100 per share while Company B’s stock trades at USD 20. But if Co. A has 100 million shares outstanding and Co. B has 500 million shares outstanding, then their market caps are precisely the same: USD 10 billion,” Oracle NetSuit continued.

However, the idea of enterprise value suffers from a limitation, especially when it comes to comparing dissimilar companies. Enterprise value holistically quantifies how much a company would cost to take over, rather than simply its value in terms of market capitalisation. If two companies have the same market cap but one has significant debt while the other has significant cash reserves, the company without the debt would cost less to acquire.

“However, EV doesn’t consider how companies make use of the debt they carry. A software company with significant debt and few cash reserves may be a less attractive investment than a company with similar market cap and no debt, but the investment decision wouldn’t be as clear-cut when deciding between different industries. A utilities company or auto manufacturer, or any other capital-intensive industry, would likely need to incur a significant amount of debt to finance the capital needed to generate revenue,” Oracle NetSuit stated.

EV becomes more useful in the case of comparing companies at similar stages of growth. Companies in a phase of high growth are less likely to have as much debt as a more mature company.

Increasing EV For Small Businesses: Here Are The Tips

Does EV matter for small businesses? Yes, in the opinion of Michael Evans, Managing Director and Chief Financial Officer for Newport, LLC, a partnership of board directors and senior executive leaders with deep knowledge of business strategy, operations, and capital markets.

“Small business owners often have their heart and soul tied up in their business, not to mention most of their cash! Typically, your company will be your largest investment and just as you may have a wealth manager for your other personal investments; you also need to wealth manage your business. The day may come when you will be looking at an exit strategy, and clean and lean companies bring the highest price,” Evans wrote in his article titled “How to Increase Your Enterprise Value,” published in AllBusiness.

When it comes to pulling off exit strategies, private business owners (including small business owners) can better prepare their company for an exit strategy or simply increase the value of their business for their family by focusing on the three legs of the value stool: strategic, financial and operational improvement. Together, these legs, if coordinated and approached methodically, can significantly result in a more valuable company. The concept is called building enterprise value.

Evans explains these legs as “Strategic Improvement,” “Financial Improvement,” and “Operational Improvement.” Under the strategic part, the private business owners need to focus on the venture’s roadmap in order to build its enterprise value. This means positioning the direction of the company in the marketplace via four key strategic considerations. The management team needs to figure out which customers the company should serve, apart from developing new capabilities to power innovation, generate sales, and operate more efficiently than the competitors and be focussed.

The management team also needs to build a profitable economic model at a higher scale while increasing the leverage that makes the company profitable. Also, infrastructure should be created to support operational growth, apart from having access to capital to fund the predicted level of growth. The company also needs to be open to the idea of raising capital to fund growth, consistent with its vision and risk appetite. And while raising the capital; be aware of the operating changes a new capital structure will entail.

When it comes to “Financial Improvement,” it involves maximising cash flow, balancing fixed and non-fixed assets, maintaining a current ratio sufficient to cover unforeseen costs and balancing short-and long-term financing needs. This includes optimising the company’s balance sheet, cash flow and income statement. Key initiatives include restructuring capital structure to take advantage of lower market interest rates, renegotiating supplier terms (for example to shift inventory storage and maintenance costs), reviewing the venture’s payment practices, especially payment terms with suppliers and sales terms with customers and figuring out whether these conditions are more generous than the venture’s competitors.

Also, the venture needs to ask itself whether it has a large enough cash cushion to sustain the business in the event of a downturn. Is it taking full advantage of tax strategies (including tax-saving opportunities)?

The last leg, known as “Operational Improvement,” helps build enterprise value involving fine-tuning a business’ internal operations. One very good application area is the supply chain; where the company’s management team puts the “Operational Improvement” into practice by sourcing and aggregating more efficiently the inputs that the company makes into products/services. The company also needs to be open to re-configuring its activities, for example, replacing part of its sales force with contract resources that specialise in tasks like direct marketing and prospecting leads, apart from exploring “virtual models” including using social and business networks.

The company can also consider contract services (for example, call centre, order fulfilment), whether onshore or offshore, to do activities that are not core to adding value. The management team can further reduce the production cost by sourcing from new suppliers, thereby avoiding dependency on too few.

The post Thinking of increasing your enterprise value? Here are the tips appeared first on International Finance.