Arvind's Newsletter

1.UPI India’s most preferred payment mechanism clocked over 74.05 billion transactions in volume and ₹126 trillion in terms of value. Its transactions volume and value almost doubled since last year as it recorded 91 percent increase in volume and over 76 percent increase in value in Year 2022 as compared to Year 2021. And this year as was reported in February 2023 UPI is going global starting with Singapore.

Bengaluru has topped the list of Indian cities in terms of highest digital transactions in the year 2022, a report by French payment and transactional services firm has stated. The city recorded 29 million transaction worth ₹6500 crore in 2022, The Hindu has reported citing the Worldline report.

Second on the list is Delhi which amounted 19.6 million transaction worth ₹5000 crore followed by Mumbai with 18.7 million transactions worth ₹4950 crore. On number 4 is Pune with 15 million digital transactions worth ₹3280 crore and Chennai with 14.3 million transactions worth ₹3,550 crore, the report has stated.

2.A photographer turned down an award after admitting to using artificial intelligence to make the winning entry. Boris Eldagsen’s black-and-white image of two women won the Sony World Photography Awards in the creative open category, but Eldagsen then said he had “applied as a cheeky monkey” to find out whether photography competitions were ready for the impact of AI. “They are not,” he said.

3.Silicon Valley venture capital investors toured the Middle East in recent weeks to woo the region’s sovereign wealth funds amid a cash crunch in the industry. The reckoning is so profound, some VCs have even reversed earlier decisions to shun Saudi money, the Financial Times reported. “The tech correction has humbled the industry,” an Abu Dhabi-based investor said. VC investment in startups fell 55% in the first quarter of the year compared to the same period of 2022. Meanwhile, IPOs raised just $19.7 billion through March 24, down from $199 billion two years before.

4.Uniqlo’s Parent Company Bets Big on Tiny RFID Chips. Next-generation self-checkout machines are part of a broader effort to improve the supply chain with radio technology, Fast Retailing CIO Takahiro Tambara says as reported in the Wall Street Journal

At Uniqlo’s Fifth Avenue store in New York, shoppers can checkout simply by placing their goods in gleaming bins of automated stations. Unlike the self-checkout process at many stores, customers of the casual apparel retailer don’t need to scan individual items or look up prices on a screen—they can simply drop their items in a bin and pay.

This next-generation process is powered by radio frequency identification readers inside the checkout machines, which automatically read hidden RFID chips embedded in price tags. It is the strategy of Takahiro Tambara, chief information officer of Japan-based Uniqlo’s parent company, Fast Retailing Co., Asia’s top clothing retailer.

5.Why EY and its rivals may eventually break up, after all. The commercial logic for splitting up the big four is only getting stronger opines the Economist. Long Read.

“Whoever said don’t question things? We say question everything.” So began the television commercial that EY aired in 2021 during the Super Bowl, a sports extravaganza known as much for its pricey ads as for the American football they interrupt. On April 11th, under a little too much questioning from its American branch, the professional-services giant decided to pause indefinitely plans for a separation of its audit and advisory businesses. A big sticking point was the division of the tax practice, coveted by both the auditors and the advisers. Plans to publicly list the advisory business and load it with debt to pay off audit partners also looked cleverer when the deal was conceived in 2021 amid low interest rates and frothy share prices.

This suspension is a huge blow to EY’s global bosses, who underestimated just what an uphill climb “Project Everest”, the unfortunately codenamed break-up project, would prove. To EY’s split-averse professional-services rivals in the so-called “big four”, Deloitte, KPMG and PwC, it looks like vindication. Joe Ucuzoglu, Deloitte’s global chief, insists the “multidisciplinary model” is the “foundation” of his firm’s success. Bill Thomas, his opposite number at KPMG, says his firm’s decision in the early 2000s to list its advisory arm (since regrown) was “not the right thing”. Bob Moritz, who leads PwC, insists keeping the businesses together is central to his firm’s ability to recruit and retain talent.

Yet the case against turning the big four into a biggish eight is far from open and shut. That is because the commercial logic of the split is in many ways getting more compelling—for EY itself, which is still leaving open the possibility of such an outcome one day, and for its three peers. At stake is the future of one of the business world’s most critical oligopolies.

The big four are the heavyweight champions of professional services. They dominate the market for audits—checking the books for 493 of the companies in America’s S&P 500 index and a big proportion of European blue chips. They also offer clients a one-stop shop for advice on issues from dealmaking to digitisation. As of last year they together employed 1.4m people and generated $190bn in fees, up from $134bn in 2017 (see chart 1). kpmg, the smallest of the big four, generates three times the revenue of McKinsey, the high priest of strategy consulting.

The driving force behind the big four’s growth in recent years has been the rapid expansion of their advisory businesses, which now account for half their combined revenues (see chart 2). In the early 2000s EY, KPMG and PwC all spun off or sold their consulting arms in response to new conflict-of-interest regulations, which barred them from selling advice to audit clients. (Deloitte planned but then abandoned a spin-off.) With little room to expand in audits, however, the giants were soon lured back into the fast-growing business of advice.

The re-bundling has in many ways paid off. The opportunity to dabble in different service lines has helped the big four entice the bright-eyed young things their businesses rely on. A career in bean-counting looks more appealing when it comes with the opportunity to work on big acquisitions or advise governments on important matters, observes Laura Empson of Bayes Business School in London and formerly of the board of KPMG’s British branch.

The big four’s breadth has helped them win over clients, too. Expertise in areas like tax and valuations have helped kpmg and the others solidify their position as the auditors-of-choice for large companies, says Mr Thomas. Widely recognised audit brands, meanwhile, have given a reputational leg-up to the firms’ advisory arms.

Mr Moritz argues that the multidisciplinary model has also helped PwC and the other professional-services giants adapt to the digital era. Software and data now underpin nearly all the services the firms offer. The auditors benefit from the technological know-how of the advisors, while the advisors benefit from the counter-cyclical nature of audit work, which can fund investments even during downturns.

All that helps explain why some have balked at the idea of a separation. That the firms operate franchise-like structures, with independent partnerships in each country, also makes big shifts in direction like a break up tough to pull off—as EY discovered in America.

Yet the case for staying conjoined is steadily weakening as the big four’s businesses shift ever more towards consulting. Auditor-independence rules have turned from an inconvenience into a drag; a particular bugbear of EY’s is its inability to team up with software firms it audits, like Salesforce, to help them roll out their technology to clients. Newish requirements in Europe and elsewhere for companies to rotate their auditors, typically every ten years, have increased clashes between audit and advisory partners over who will serve big customers.

Meanwhile, audit has been steadily losing its internal clout, says Ms Empson. Sarah Rapson, deputy head of the FRC, Britain’s audit overseer, worries that the firms are no longer fostering the “culture of scepticism and challenge” that auditing relies on.

The problems are on display in a string of much publicised audit snafus. On March 31st APAS, Germany’s accounting watchdog, barred EY’s German branch from taking on new publicly listed audit clients for two years over its failure to spot mischief at Wirecard, a fintech darling turned German fraud of the century. Last year kpmg was fined £14m ($18m) by the FRC for feeding misleading information into a review of two of the firm’s audits. In 2020 Deloitte was fined £15m ($19m) by the FRC for audit failings, too.

Those audit flubs have tarnished the consultants by association. They could also lead to greater pressure from regulators to invest more in auditing, particularly around fraud detection. At the same time, the advisers are getting increasingly capital-hungry—they are looking to expand into managed services, running functions like compliance, payroll and cybersecurity on behalf of clients, and need new technology to do it. An advisory spin-off would leave the auditors flush with cash while freeing the consultants to pump themselves up with fresh equity from outside their partnerships.

Staying together may no longer be so useful for attracting talent, either. The increasingly specialist skills offered by the big four to their customers leaves fewer opportunities for junior staff to dabble in different tasks. Few chief executives are eager to receive cybersecurity advice from a fresh-faced chartered accountant.

Mr Ucuzoglu of Deloitte warns that auditor-advisor break-ups have “never once played out as intended”. True, the consulting business KPMG listed two decades ago, under the name BearingPoint, went bankrupt in 2009. And the sale of EY’s and PwC’s old advisory businesses to, respectively, CapGemini and IBM, two it-focused consultancies, resulted in their own messy culture clashes.

As EY reels from its graceless tumble down its Everest, it and its three rivals will certainly think twice before embarking on a similar expedition. Still, in the long run the break-up logic is unlikely to go away. Out in the distance they see Accenture, the publicly listed consulting giant that emerged from the rubble of Arthur Andersen, the collapse of which in the early 2000s turned what was the “big five” into the big four. The firm has thrived as a standalone enterprise, now raking in $62bn a year in sales, more than any of the big four. Since listing in 2001 its market value has climbed 20-fold, to $185bn. Such a prize may prove too tantalising to resist