It is becoming clear that trade digitisation has huge potential to unlock access to world trade for small-to-medium-sized enterprises (SMEs). The move away from laborious, manual, paper-based processes will lever simpler access to trade finance, now that it is being provided by more agile, technology-friendly alternative funding providers. Here Simon Streat, VP of Product Strategy at Bolero International, discusses the new wave of digital change and the drive it’s providing for SMEs worldwide.
Regulatory burden has meant that SMEs often don’t fulfil certain criteria for banks to justify lending to. The demands of anti-money laundering (AML), Know Your Customer (KYC) rules, sanctions and other banking stipulations have been deemed too time-consuming and too costly to be worth the trouble where smaller exporters and importers are concerned. This is a significant blow, since by some estimates, more than 80% of world trade is funded by one form of credit or another. Until now, if your business was deemed too small to be worth considering for finance, there was hardly anywhere else to go.
The result has been deleterious to the prosperity of SMEs and detrimental to international trade. In 2016, the ICC Banking Commission’s report found that 58% of trade finance applications by SMEs were refused. This, as the authors pointed out, hampered growth, since as many as two out of every three jobs around the world are created by smaller businesses.
This rather depressing view was supported by a survey of more than 1000 decision-makers at UK SMEs which was conducted in February this year by international payments company WorldFirst. It found that the number of SMEs conducting international trade dropped to 26% in Q4 2017, compared with 52% at the end of 2016. Economic conditions and confidence have much to do with this, but so does access to trade finance.
There is a growing realisation, however, that if digitisation makes sense for corporates seeking big gains in speed of execution, transaction-visibility and faster access to finance and payment, it definitely will for SMEs. The ICC Banking Commission report of 2017 estimated that the elimination of paper from trade transactions could reduce compliance costs by 30%.
Over the past few years, for example a number of trade digitisation platforms have emerged offering innovative business models for supplying trade finance and liquidity, while optimising working capital, and enhancing processes for faster handling and cost savings. Progress is under way, but it requires expertise.
Fintechs in trade hubs such as Singapore, where there is huge emphasis on innovation, are taking the lead, transforming the availability and access to finance for SMEs. By making the necessary checks so much faster and easier and opening up direct contact with a greater range of banks, digital platforms enable customers to gain approval for financing of transactions that would otherwise be almost impossible. Not only that, they enjoy shorter transaction times and enhanced connectivity with their supply chain partners.
If we scan the horizon a little further we can also expect to see SMEs benefit from the influence of the open banking regulations, which require institutions to exchange data with authorised and trusted third parties in order to create new services that benefit customers.
Although the focus of these new regulations is primarily the retail banking sector, the tide of change will extend to trade finance, creating a far more sympathetic environment for the fintech companies and alternative funders. Yet the fintechs cannot do it alone, they need to be part of a network of networks that operates on the basis of established trust and digital efficiency.
No technology can work unless it is capable of satisfying the raw business need of bringing together buyers, sellers, the banks into transaction communities. That requires the building of confidence and the establishment of relationships, along with – very importantly – a real understanding of trade transactions and the processes of all involved. It also requires on-boarding and you can only achieve that once everyone knows a solution will deliver the efficiency gains it promises, as well as being totally reliable, secure and based on an enforceable legal framework. All this requires a level of expertise and insight that cannot simply be downloaded in a couple of clicks.
Nonetheless, it seems pretty obvious that thanks to digitisation, the market for SME financing in international trade is set for real expansion.
The automation of work, including the use of robotics and artificial intelligence (AI), is expected to rapidly increase. In fact, recent research by think tank ‘Centre for Cities’ found that one in five jobs in Britain will fall victim to automation by 2030. These findings are further echoed by auditing firm ‘PricewaterhouseCoopers (PWC)’, who estimate more than 10 million UK workers will be at high risk of being displaced by robots within the next 15 years.
As the prevalence of automation becomes more common in our day-to-day routines (supermarket self-service tills, air travel self-check in etc.), it’s threat towards human jobs only becomes more apparent.
Interested in this phenomenon, Reboot Digital Marketing analysed findings from Mindshare, who surveyed more than 6,000 individuals from across the UK to see whether they would prefer robots or humans in eight different occupations/scenarios.
Reboot Digital Marketing found that when making car comparisons with the intention to eventually purchase, a significant percentage of Brits would want robots (60%) aiding them instead of humans (40%). Thereafter, Brits would be most inclined to accept music/film recommendations from robots at 49% - though 51% would still opt to do so from other people (family, friends etc.).
Fascinatingly, even though most Brits (75%) would still prefer humans to be MP’s, 25% would elect robots to be in this position of power.
Moreover, despite the negative perceptions associated with bankers as a direct result from the fallout of the 2008 financial crisis, Brits would still select humans (71%) over robots (29%) to be in their respective role.
On the other end of the scale, 11% of Brits would be least willing to take medical advice from robots. Similarly, only 14% of Brits would not feel apprehensive about receiving legal advice from robots. Information for immediate release RebootOnline.com
Shai Aharony, Managing Director of Reboot Digital Marketing commented: “Automation is undoubtedly on the rise. As the technologies which underpin its development become more sophisticated and efficient, certain industries will certainly face the real prospect of robotics and artificial intelligence disrupting their traditional flow of human labour. Whilst the assumption tends to be that it will either be people or robots, I believe they will complement each other in different tasks and facilitate new types of jobs. What this research certainly demonstrates is that Brits currently favour humans as opposed to robots in a handful of occupations/situations. Although, as automation becomes more prominent and Brits understanding of it drastically improves, this may potentially change.”
(Source: Reboot Digital Marketing)
Contactless and online banking have pulled cash out of the pockets of most people, and while there are those that believe cash will always be a vital part of the international economy, there are some parts of the world that are borderline cashless. Below Shane Leahy, CEO of Tola Mobile, elves into the possibilities of cashless countries around the world.
With more digital payment options now readily available to consumers than ever before, the depreciation in use of traditional forms of payment, such as bank notes and the humble coin, has been inevitable. When we would once delve into our pockets for some cash, consumers today are now increasingly reaching for their mobile devices to complete purchases quickly and conveniently.
The rise of mobile payments technology over the last few years has played a particularly huge hand in enabling both merchants and customers worldwide to facilitate more cashless transactions. With the global mobile payment transaction market forecast to reach US$2.89 trillion in revenue by 2020, the rapid uptake of mobile-centric methods and the resulting shift towards a more cashless consumer culture is showing no signs of slowing.
Yet, not only have these technologies made fast digital payments accessible for smartphone owners in the more technologically advanced areas of the world; it has also empowered consumers in many emerging markets around the world to undertake instant and secure payments through their mobiles, without the need for physical cash or a registered bank accounts. In fact, it is these same developing regions in which we are now seeing the most widespread and advanced adoptions of mobile payment solutions, which are rapidly eliminating cash as a dominant form of payment amongst consumers within these markets.
One particular area of the world in which cashless payments have broken down many of the previous barriers to entry for both merchants and consumers is Sub-Saharan Africa. It has been demonstrating a rapid mass-market adoption of mobile money services of late and has so far outstripped the rest of the world in terms of its approach to cashless payments. So much so that it now accounts for more than half of the total 277 mobile money deployments worldwide.
One of the biggest driving forces behind this development has been mPesa, the mobile phone based money transfer service which now boasts over 30 million subscribers across various African countries, including Kenya, Congo, Tanzania, Mozambique and Ghana. Unlike apps such as Paypal and NFC-based mobile enabled credit card methods like Apple Pay and Samsung Pay which have been gaining traction in Western regions, the sheer simplicity of the technology required to conduct cashless payments across Africa has contributed to its growing uptake of mobile money options.
In contrast to these methods, which require users to invest in a modern and more expensive smartphones to utilise the technology, mobile money transactions across Africa can be carried out using the most basic handset and without needing an internet or data connection. By leveraging a low-level service menu provided on every GSM phone, this technology is widely accessible and therefore able to support the region’s current technological infrastructure.
What’s more, services such as Apple Pay and Paypal still also require users to link a bank account in order to complete mobile payments, making these methods largely inaccessible for the millions of unbanked consumers in developing regions. These factors also have an impact on merchants as they will have to pay more to process transactions conducted through a linked bank account, than they would if it was made directly through a physical credit or debit card.
With this and the growing preference towards cashless payment methods globally combined, it is unsurprising that the rate at which Sub-Saharan Africa is adopting mobile money is much faster than that of any other region. At the end of 2016, there were over 500m registered mobile money accounts in the region alone, a figure which has undoubtedly now significantly increased.
The establishment of mobile money across Sub-Saharan Africa is now giving much of its previously unbanked population unprecedented levels of financial inclusion and freedom to make purchases anywhere, at any time, a move which has undoubtedly played a significant role in the growth of cashless transactions and gradual decline in other payment methods. What’s more, these services have significantly reduced the concerns over carrying physical cash for consumers within these countries and have replaced them with a simple and secure means for them to instantly access funds and pay for goods and services.
Not only has this rise in mobile money use facilitated an increase in consumer empowerment; it has also paved way for merchants who have previously combatted against the region’s developing infrastructure, in which periods of downtime and network outages cause huge disruption and can often lead to lost funds when payments are made via credit cards. By ensuring a seamless and instant digital transfer of funds from customers to the merchants, the appeal of cashless options has increased dramatically, providing merchants with more business continuity and offering these countries an opportunity to drive economic growth.
While there is still some way to go before cash is rendered expendable globally, there are various countries Sub-Saharan Africa, such as Kenya and Tanzania which are currently leading the way in terms of changing consumer behaviour and quickly adopting a cashless approach. For now, cash still remains king across most Western and other countries. However, as consumers continue to seek convenience and security, it is certain that we will see a growing shift towards digital payment methods and a continued demise of physical cash worldwide.
Customers’ everyday interactions with banking and insurance companies have been undergoing a steady process of transformation for some time, but the process still has far to go, both in terms of direct communication with customers and collaboration with third parties. Below Tony Rich, Head of Propositions at Unify, discusses the current banking environment and its ongoing interactions with a fast-evolving digital world.
Far fewer people now regularly visit or phone the local branch of their bank than even a decade ago, assuming there is one close by. I can pay money into my account at an ATM and arrange transactions just using my mobile app and a thumb print as security.
But bigger change is still to come. Today, when I interact with someone at my bank or insurer, I can choose to make a phone call or have a web chat, but as soon as I need a document or to speak to someone else, that conversation stops. Interactions can still be fragmented and time consuming. If I need to sign or check something, even if the document is held for me on a secure portal as some insurance companies now do, the process is very disjointed.
Let’s roll the clock forward a little to a time when cloud-based collaboration technology will make things much more seamless. Imagine I want to apply for a mortgage, or file a complaint, or make an insurance claim. My initial contact will start in the same way as now (say, a phone call) because it’s the one I am most comfortable with. But from there, things look very different.
I am immediately sent a link to a secure digital space where all interactions, conversations, documents and transactions about this particular process (my mortgage, complaint or claim) are stored and instantly accessible. Now, at any point, I can switch to a voice call, or a chat box, or a video call with two or more people. All this is done within the same secure online space, accessible through my mobile, tablet or PC. Here, at any time, I can hear a recording of the original call, see any documents I need to review and sign, talk to other relevant contacts, and so on. And when my case is complete, it can be archived to meet all auditing and compliance requirements.
This is a leaner procedure, with less to-ing and fro-ing, and document distribution and version control is easier. For customers and staff alike, it’s a more joined up, better and faster experience. For the company, a streamlined, friction-free process increases efficiency and drives down costs.
Multiple benefits
Given the challenges that all banks and insurers face – getting costs under control, protecting their brand, retaining and attracting customers and staff, achieving leaner agile operations while meeting regulatory requirements and compliance – it’s easy to see how this kind of immersive omni-channel experience could help address every single one. So, what’s needed for online communication and collaboration to be the norm?
The airline industry has already blazed a trail in creating more joined up omni-channel customer experiences. When I fly, part of my journey now is my ability to print or download my own travel documents, choose my seat, check myself in online or at a kiosk, and so on. I feel more empowered and in control – and the airline has enhanced its brand and achieved major efficiencies at the same time.
Key differentiator
In financial services, perhaps, things are in a state of transition. Internally, delivering more immersive customer experiences requires organisational and cultural change to think, connect and collaborate digitally by default. As far as customers are concerned, success depends on making sure the experience is easy and available to them in whatever channel is right for them. Older people, for example, might prefer phone calls and printable web pages. Digital natives, on the other hand, are savvy at reading and absorbing information direct from the screen and are more likely to initiate any communication digitally, including via social media.
Omni-channel communication and collaboration platforms are already in use at banks and insurance companies and new applications of this technology is being tested and developed every day. Extending platforms out into the customer space is a logical next step as the world becomes ever more connected. And in a fast-changing market and with the arrival of Open Banking driving new services, unified omni-channel experiences could be a key differentiator for any player looking to compete.
Finance Monthly caught up with Alex Corral, the Co-Founder and Chief Executive Officer of preCharge Risk Management Solutions. Founded in 2003, preCharge has since protected thousands of the world’s largest merchants, including Sony Entertainment, Footlocker, BassPro and many other brand name clients. Below Alex tells us more about it.
Tell us a bit about the technology and solution that PreCharge offers.
Since our inception, our technology has protected merchants. If you purchased from a major brand name online, there is a good chance that preCharge reviewed the order. Our goal was always to make identity validation seamless and in most cases, the millions of people we monitored never even knew. For over a decade, we worked with merchants to understand their tools, their needs and their technologies, and those merchants supplied us with their internal processes, as well as with millions upon millions of consumers, which lead to the creation of one of the most advanced identity verification tools online. While merchant service is a fickle industry, and merchants often change providers every 18 months, our average merchant was on board for upwards of five to ten years. Our goal was simple - verify the consumer without the need for them to contend with sending in their ID, calling for verification and jumping through hoops. We are now taking that same technology and offering it freely to consumers in an open-source, stable, audited and compliant solution. Our goal is to offer consumers a way of transacting with each other and not having to worry about whether who they are talking to is legitimate. We do this by offering everyone a free preCharge Wallet, which unlike traditional digital currencies, is centered around a person’s email address. From there, we validate the consumer, and in 99% of the cases, the consumer doesn't even need to send in their ID or other personal information because we are able to use the various data points to track who they really are. In the rare 1%, we will simply ask for some verification through our third-party companies, but preCharge will never see your information. Once a person has a wallet, they can basically ping other users with our utility token; think digital currency. An advantage is that while the wallet does have a unique alphanumeric code like traditional tokens, the core is an email address, so anyone with an email address can either send tokens to another user or simply use the service to validate their identity. We are rolling out an oAuth technology that will allow merchants to freely use the service, validate consumers or even transact business, essentially taking what merchants paid millions of dollars for year after year and giving it away for free. Our feeling is that our merchants help build this network, the consumers are the network; why not give it back to them for free?
What makes PreCharge’s solutions unique?
While there are literally thousands of token options out there, no other is as heavily focused on compliance, auditing and openness as preCharge is. When it comes down to it, someone will become the leader in the token arena, why shouldn’t it be a company that has been building the technology for over a decade? We were helping create tokens even before it was a thing in 2006, with Sony Entertainment and Galanet, and worked with them for years on their in-house game tokens. My guess is that when you consider our history, our partners and our resources, preCharge will become the leading transactional token on the market.
PreCharge has been helping merchants and consumers all over the world before people knew anything about cryptocurrencies - can you tell us more about the history of the company?
I had just sold my marketing company and moved to New York City. In 3 years, we had gone from start-up to over 30,000 clients, and were one of the leading companies in PPC in 2001. During my time there, most of our operations were handled by leading consultants or by our people in-house, but the one thing I enjoyed working on was processing the actual credit cards, I even created a script where every time we would process a credit card, it would sound like a cash register. We eventually had to take the script down, which is a good thing, I guess. Over this period, I had personally processed tens of thousands of credit card transactions and over time, I noticed various patterns and figured, why not automate it? Most consumers are good, honest people, but our job was to focus on the bad actors, those looking to harm others and then simply stop them. I met several people who really liked the idea. We then were able to gather 40 investors, and preCharge grew. Over the years, the system adapted and changed but the goal always remained the same: to seamlessly allow commerce. The sad part is that whenever we would find a bad actor that was a merchant, they would sue to suppress the information, so we were often the target of lawsuits and various litigation issues. Those matters just became a cost of doing business. We put a lot of focus on compliance, audits, third-party reviews and ensuring compliance, and plan to continue that, and with this transparency built into our DNA, people will learn to trust digital currency and those behind it.
Have you always wanted to be the CEO of preCharge?
No - my goal was never to be the Chief Executive Officer; I am more of a hands-on person. We had hired two CEOs in our past and sadly, the last one nearly destroyed the company. Working with my team and our people, I am doing what I can to be the kind of CEO people can be proud of, and hope to continue to do that until preCharge reaches the point where a more experienced and savvy CEO comes along.
What do you think the future holds for Blockchain and cryptocurrencies?
I find most things in life are evolutionary, meaning they are bound to happen. It's pretty easy to project - space travel, quantum computing, digital currency, all inevitable solutions. What most people tend not to realise is that we've always had digital currency, as long as people transacted business digitally. When you send money through a Money Transmitter like Western Union or use your credit card online, you are in fact doing it digitally. The only difference with cryptocurrency is that it's open and secure, for all to see. People lost trust in the closed loop natures of payment systems and frankly, I don't blame them. I have first hand witnessed some pretty horrific things banks do, and frankly, it's sad. Digital currency is an absolute; governments and many banks are trying to suppress it, but you can't. The very nature of digital currency is that it's open and secure; it's just applying value to one form of digital currency over another, and as it stands, people will ultimately find that they can trust an open source and public system over any government or bank, which is what everyone ultimately wants. preCharge is simply the medium to make that happen.
What lies on the horizon for PreCharge?
We are working to build out a partner network, where people can train and educate others on financial management and digital currency. We plan to focus a lot on teaching people - from high school students, all the way up to regulators, as to what digital currency really is. We want to show people that it's there, it's real and although you may not be able to touch it, it’s the very thing governments have been doing for decades. We already have several classroom visits set up, and are looking to build out more. We have a number of online certifications planned, where people can learn about it online in their free time. Ultimately, we want to educate people on what it is and what it is not. Not so much teach people about preCharge but rather, what is Blockchain technology, what is digital currency and why is it so important. Ultimately if we can do that and prove to people that it's real, then maybe they will find they can trust an open system as a means of validation, and hopefully the solution they ultimately trust is preCharge.
I am happy to see the industry starting to mature, and we plan to be there when they graduate!
Website: https://www.precharge.com/
The Financial Conduct Authority (FCA) cryptocurrency review will be one of the most impactful regulatory reviews in modern times and will shape the burgeoning crypto market for years to come. The UK regulator’s proactive and cautious approach must be welcomed.
This observation from Nigel Green, founder and chief executive of deVere Group, comes as the UK’s financial services and markets regulator has confirmed it will publish its review of cryptocurrencies in the third quarter this year.
Mr Green, whose firm launched deVere Crypto, a cryptocurrency exchange app earlier this year, comments: “The highly anticipated FCA cryptocurrency review is set to be one of the most impactful and far-reaching regulatory reviews in modern times for two key reasons.
“First, because of the sheer numbers of people it will directly affect. There’s been incredible growth of the cryptocurrency market in recent years. This growth can be expected to soar further and quicker over the next decade as more and more investors pile into the likes of Bitcoin, Ethereum, Ripple, Litecoin and Dash, and as adoption by businesses and organisations further increases.
“And second, because the FCA is one of the world’s most influential and respected financial regulators. As such, it can be expected to help shape and define the thinking and policies of regulators globally, the majority of which in the major economies are now also carefully looking at the crypto space.”
He continues: “In our increasingly tech-driven, digital age, cryptocurrencies are here to stay; they simply can no longer be ignored.
“Therefore, the FCA’s proactive approach towards the crypto market must be welcomed as it will help protect investors and tackle illicit activity and unscrupulous firms.
“I expect the regulator to issue warnings and this caution should also be championed as these digital assets remain highly speculative and the market relatively new.”
In its business plan for the financial year ahead, the FCA said the review was part of a taskforce with the Treasury and The Bank of England.
The watchdog noted that cryptocurrencies themselves do not fall within its regulatory remit, but "some models of use or packaging cryptocurrencies bring them within our perimeter, making the landscape complex".
The deVere CEO concludes: “The FCA cryptocurrency review will fundamentally shape this market that now, thanks to its exponential growth, needs a robust regulatory framework.
“It is right that firms operating within the crypto sector should comply with applicable FCA rules and expect to come under the regulator’s scrutiny.”
(Source: deVere Group)
You may think cash has come to an end, or maybe you’re on the other side of the fence, where cash is king. However, a balance is to be struck. Below WeSwap CEO Jared Jesner explains why travellers will also need cash, despite a predominantly digital economy.
Trailing closely behind Sweden and Canada, the United Kingdom is the world’s third most cashless society. According to UK Finance, cash will be used for a mere 21% of all payments by 2026. Increasingly, countries around the world are making definite moves towards a futuristic economy based on fully digital transactions for goods and services, with cash often portrayed as obsolete. In Sweden, 80% of all transactions are made by cards via the mobile payment app, Swish.
According to a report in Reuters citing the Bank for International Settlements, the study found that the use of cash is actually rising in both developed and emerging markets. “Some of the breathless commentary gives the impression that cash in the form of traditional notes and coins is going out of fashion fast,” said Hyun Song Shin, BIS economic adviser and head of research “despite all the technological improvements in payments in recent years, the use of good old-fashioned cash is still rising in most, though not all, advanced and emerging market economies.” Furthermore, the Bank for International Settlements found that in recent years, the amount of cash in circulation has increased to 9% of GDP in 2016 from 7% of GDP back in 2000. That said, the same study stated that debit and credit card payments represented 25% of GDP in 2016, up from 13% in 2000.
Cash’s resiliency comes at a time when the odds are seemingly stacked against its historically ubiquitous presence, with the critical mass of consumers owning more credit and debit cards today than ever before, using them for smaller transactions than in years past. Moreover, thanks to new technologies, consumers are able to use contactless payments via their mobile devices to pay for things in record numbers. These now societal norms have led to predictions that cash is dying as the world moves to digital payments. WeSwap asserts this prediction as flawed.
Jared Jesner, CEO of WeSwap, founded his company on the notion that cash remains indispensable across the majority of countries around the world: travelers will inevitably need to access hard currency beyond UK borders, and the method with which to do so, should be fair and transparent. As the key driver of a uniquely positioned digital banking revolution sweeping the nation, Jesner demystifies the notion that cash is moving closer towards extinction, instead recognizing its unwavering importance to society in 2018.
In just three years since launching its core product, WeSwap has rapidly risen to become the world’s largest peer-to-peer currency conversion platform, also enabling users to buy-back excess currency and receive cash delivered straight to their door. Its promise to streamline the travel budgeting process, empowers tourists and business travelers to make the most of their money abroad, with users loading funds onto the WeSwap card and swapping currency directly with each other at the interbank rate with no hidden fees. The service is unique and currently used by over 400,000 UK travelers, all of which appreciate and use the notes in their wallets, coins in their purses and contactless pings of their MasterCards.
CEO of WeSwap Jared Jesner states: “Our nation loves to travel and although we are moving closer towards becoming a cashless society within our own borders, when we go abroad this all changes.”
Jesner is optimistic about the enormous potential to change the landscape of payments, having founded WeSwap to make currency exchange cheap and fair for ordinary people: “I’m incredulous to the fact that we still 'buy' money when we should just be swapping with each other.”
With Futurologists long predicting cash will one day become obsolete, contextualised by the advent of blockchain technology, mobile money and similar innovations, a transition towards a more cashless society is inevitable, but not to the extent where notes are no-more. For all the convenience that digital payments offer, many remain reluctant to fully part with their notes and coins. WeSwap believes that an emotive and security-based connection – similar to our attachment with photographs, films, books and other things of tangible value – secure the role of hard-currency in our lives, inevitably.
Iwoca has found that female applicants are 18% more likely to repay small business loans on time than their male counterparts. Women-led small businesses make up an estimated 20% of iwoca’s customers and it has supported an estimated 2,400 women business owners in the UK with almost £50 million in lending since its launch in 2012.
iwoca uncovered the data in response to a study by the Federation of Small Businesses (FSB), which found that a quarter of female small business owners cite the ability to access traditional funding channels as a key challenge, with many relying on alternative sources, such as crowdfunding, personal cash and credit, for growth.
While this technology-driven risk platform draws on thousands of data points to make credit decisions, gender is not included. iwoca’s data scientists were able to calculate gender-based statistics on loan repayment rates by checking customer application forms for self-identified female titles and then comparing the approximate default rates for both cohorts.
Christoph Rieche, Co-founder and CEO of iwoca, said: “More can be done to narrow the entrepreneurial gender gap in the UK. Making it easier for women to access business funding would go a long way to achieving that. Sadly, the reality is that banks are withdrawing critical finance from across the entire small business sector and unless the Government takes action to encourage greater competition that will allow alternative providers to fill the hole, women will continue to be at a greater disadvantage from an unfair system, regardless of their higher propensity to repay on time.”
(Source: iwoca)
The financial services industry has changed significantly over the past years, and technology has been at the heart of that change. Heightened competition and rapid progress in disruptive technologies have brought about a paradigm shift in the banking experience which has accelerated in 2018.
Banks that don't invest in technology risk falling behind, as new regulation continues to level the playing field with new innovative players. Last year, many of the banks appealed to the CMA for an extension for the Open Banking initiative[1][1]. A number of banks are reaching the end of their extension period which obliges them to give banking customers more control over their financial data by allowing them to share it with challenger banks and FinTech firms.
The introduction of the open banking initiative across Europe opens the floodgates to competition - as PSD2 balances the scales between banks and digital players, banks are directing resources towards digitally transforming their operations and services.
Lloyds Banking Group recently launched a £3bn investment in a three-year strategy to strengthen its digital capabilities. It aims to slash costs to less than £8bn by 2020 and transform the banking experience for their end-customers.[2][2] The bank is driving capital towards technology and its staff to compete against mounting pressure from other traditional banks, challenger banks and FinTechs.[3][3]
Talent and human capital provide the best value and return on investment for banks looking to diversify their digital offerings. Investment in talent and digital skills goes hand-in-hand with investment in technology solutions to help banks become more fluid and responsive to changing customer behaviours.
In a world where everything is accessible at the click of a button, customer expectations need to be matched by the experiences created by banks. Earlier this year, USB found that online banking has overtaken visiting branches for the first time. The study found 52% of all consumer transactions are now done online, making it the primary method of banking.[4][4]
Bank branches are expensive with most retail bank branches costing banks between 40-60 % of total operating costs.[5][5] The cost savings from a reduced number of branches can be redirected towards investments into creating digital banking experiences that accommodate evolving customer habits.
With introduction of new financial technologies, the way in which people manage their money has shifted dramatically. However, the current potential of the UK financial services industry is restricted by the lack of tech and digital talent available. Firms are spending record amounts, with 85% of business executives allocating up to a quarter of their total budget to digital transformation in 2018.[6][6]
Digital Transformation goes beyond moving traditional banking to a digital world. A digital strategy is no longer limited to the IT department. In the current business environment, it transcends every aspect of a business and drives long-term success. In order to digitally transform, banks need to adopt a digital mindset. This means fostering a culture of innovation. It’s about going beyond the hype of digital trends and the latest buzz words and identifying the business impact on operations and service delivery.
Most banks still run on core systems installed in the 1970s and 1980s.[7][7] These enterprise structure are made up of a patchwork of systems with limited functionality for the current digital landscape. Fintech and challenger banks are not hindered by these systems, and have the agility to keep pace with customer expectations, which means banks are turning their attention to their business critical function and how they can re-engineer it to become more flexible.
Smart banks are taking advantage of cloud-based systems to enable staff to better communicate and interact with customers across multiple channels to accommodate all customers.
Banks definitely need to push forward with their digital strategy, but they must do so wisely, supported by a reliable digital partner. Technology is beginning to encompass all aspects of bank operations. Working with a single-source supplier that integrates digital into the DNA of the bank – from the talent to the technology solutions – is key to adopting a digital mind-set, which will support a bank’s digital transformation journey end-to-end.
[1][1] http://www.cityam.com/277814/five-uk-banks-given-open-banking-deadline-extension-cma
[2][2] https://www.fnlondon.com/articles/lloyds-puts-digital-banking-at-heart-of-three-year-strategy-20180221
[3][3] http://www.bbc.co.uk/news/business-43138764
[4][4] https://www.telegraph.co.uk/business/2018/01/10/digital-banking-overtakes-branch-use-may-fuel-closures-warns/
[5][5] http://www.economist.com/node/21554746
[6][6] http://www.digitaljournal.com/tech-and-science/technology/59-of-businesses-find-their-digital-transformation-falls-flat/article/504386
[7][7] https://www.euromoney.com/article/b143rj4dz3cd92/technology-investments-drive-up-banks-costs
There's no doubt that these are strange times in the digital age. Whilst the advent of technological innovation has made it easier than ever for individuals to access products and launch businesses, for example, stagnant economic growth and global, geopolitical tumult has prevented some from maximising the opportunities at their disposal.
Make no mistake; however, the so-called “Internet of Value” has the potential to change this and create a genuine equilibrium in the financial and economic space. In this article, we'll explore this concept in further detail and ask how this will impact on consumers and businesses alike.
So what is the internet of value and how will it change things?
In simple terms, the Internet of Value refers to an online space in which individuals can instantly transfer value between each other, negating the need for middleman and eliminating all third-party costs. In theory, anything that holds monetary or social value can be transferred between parties, including currency, property shares and even a vote in an election.
From a technical perspective, the Internet of Value is underpinned by blockchain, which is the evolutionary technology that currently supports digital currency. This technology has already disrupted businesses in the financial services and entertainment sectors, while it is now evolving to impact on industries such as real estate and e-commerce.
What impact will the Internet of Value on the markets that its disrupts?
In short, it will create a more even playing field between brands, consumers and financial lenders, as even high value transactions will no longer have to pass through costly, third-party intermediaries to secure validation. This is because blockchain serves as a transparent and decentralised ledger, which is not managed by a single authority and accessible to all.
This allows for instant transactions of value, while it also negates the impact of third-party and intermediary costs.
What will this mean for customers and businesses?
From a consumer perspective, the Internet of Value represents the next iteration of the digital age and has the potential to minimise the power of banks, financial lenders and large corporations. In the financial services sector, the Internet of value will build on the foundations laid in the wake of the great recession, when accessible, short-term lenders filled the financing void that was left after banks choose to tighten their criteria.
Businesses and service providers will most likely view the Internet of Value in a different light, however, as this evolution provides significant challenges in terms of optimising profit margins and retaining their existing market share. After all, it's fair to surmise that some service providers (think of brokers, for example) would become increasingly irrelevant in the age of blockchain, while intermediaries that did survive would need to seek out new revenue streams.
The precise impact of the Internet of Value has yet to be seen, of course, but there's no doubt that this evolution will shake up numerous industries and marketplaces in the longer-term.
Netflix, Spotify, Airbnb and Uber are regularly cited as examples of major disruptors. However, there are many more examples on the horizon. Electric and driverless cars will soon disrupt many industries including automobile manufacturing, rental, leasing and motor insurance markets, while the growing popularity of robo-advisors already threatens the existence of traditional financial advisors. For most large companies today, it is a question of when, rather than if, digital will upend their business. Jonathan Wyatt, Managing Director and Global Head of Protiviti Digital, talks to Finance Monthly about the future and direction of management consultancy worldwide.
Management consultancies tend to thrive during periods of rapid and significant change. Many consultancies flourished in the years following the financial crisis as financial institutions struggled to comply with new regulations and needed advice on dealing with more intense regulatory scrutiny. A decade on, the global landscape is facing a more pressing strategic challenge: to innovate and develop solutions that meet consumer and business demands for efficiency, convenience and ease-of-use. The top strategic risk identified by Protiviti’s Executive Perspectives on Top Risks for 2018,[1] is the rapid speed of disruptive innovations and/or new technologies that may outpace an organisation’s ability to compete and/or manage the risk appropriately unless it makes significant changes to its business model.
Tellingly, the second risk highlighted by survey respondents relates to the overall resistance to change within the organisation. Respondents were concerned that their organisation might not be able to adjust core operations in time to make the necessary changes to the business model to keep the company competitive. Even when executives are aware of the disruptive potential of emerging technologies, it is often difficult for them to envision the nature and extent of change, and have the decisiveness to act on that vision. Management consultants are, therefore, positioning their businesses in terms of expertise and skillset to meet the demand from companies looking to conquer those internal and external digital challenges.
To date, the digital experience of many companies has been focused on the digital “veneer” as organisations look to launch and grow digital channels. This is often restricted to customer-facing products, such as websites, apps and payments channels. Often, they have not made the same progress with the digital transformation of their internal processes, even when this has a direct impact on these digital channels. For example, in the mortgage market customers can apply online for a mortgage in minutes. At many of the established banks, the digital mortgage application remains analogue, with traditional credit review and approval processes that take many weeks to complete. Surprisingly, these traditional processes often include regular communication by post rather than embracing digital signatures.
Organisations are gradually realising that core digitalisation, as well as a cultural change to embrace the digital mind-set, is necessary to compete on the new digital stage. To achieve this, some organisations must advance beyond the use of legacy technologies and systems, and they can sometimes be averse to implementing new policies and ways of working. Consultancy firms advise these organisations on modernising their security policies and demonstrating the advantages of using the advanced technology tools that are now available. This will help with the execution of certain cyber-security and digital projects and the development of proof-of-concepts, thereby improving an organisation’s overall security profile.”
Misunderstanding regulations is often given as an excuse for not innovating. Organisations think the new regulations are more complex than they really are and that by innovating/changing their systems, there is a greater chance of falling out of compliance. But digital leaders are more flexible; they look for solutions rather than excuses and are embracing advanced technology to their advantage.
The advancing tide of demand for digital services will fuel current and future business for consultancy firms. Consultancies are ramping up their expertise and skillsets to provide advice on digital strategies and change management programmes as well as implementing core digitalisation projects. Although there will be no shortage of consulting work, the move to a more digital focus will impact the traditional consulting business and pricing models. As a result, the management consultancy industry is not immune to the wave of disruptive change.
To succeed in the digital race, legacy firms need to put digital at the heart of their business, which encompasses a cultural change to think digitally first. Consultancies should challenge their teams and clients to change their mind-set, put digitalisation at the forefront of all projects and think like a technology company – using technologies such as robotic process automation, machine learning and artificial intelligence to drive efficiencies for the company and consumers. Consultancies also need to be at the forefront in digital thinking to ensure they offer the brightest talent, expertise and experience to help their clients embrace the digital challenge and face the future with confidence.
[1] Executive Perspectives on Top Risks for 2018, Protiviti and North Carolina State University’s ERM Initiative, December 2017, available at www.protiviti.com/toprisks.
Like the digitisation of all things, challenges will be faced and there are benefits to reap, but often such progress doesn’t take place because the correlation between the two isn’t a positive or favourable one. Below Gemma Young, CEO and Co-Founder of Settled, discusses with Finance Monthly the future of digital in the property sector.
Property is our most important asset class, it's also our most emotional asset. Therefore, getting our home sale or purchase right is not just a big deal for consumers, it's a big deal for the wider UK economy.
Unlike other industries (travel, music, taxi services to name but a few), the real estate model has clung to its traditional roots. Even with the advent of “online” estate agents now in existence for the majority of this past decade, the industry has been slow to adopt the opportunities a digital revolution presents. It’s therefore unsurprising that we're still seeing the same issues; typical property transactions take over 3 months with 1 in 3 transactions breaking. This drives consumer losses in excess of £250m each year.
Looking forward, is 2018 going to be the year for true transformation? Will ‘proper’ property technology companies make a dent in the things that matter?
What drives transformation?
Technology
The emergence of truly disruptive technologies including artificial intelligence, virtual reality, blockchain and drones all hold their potential disruptive keys to a more progressive future. Not only are technologies proliferating, consumers also have easy access to them from their smartphones.
Empowered individuals
Tech-enabled consumers search for greater transparency, more control and ultimately more progressive solutions to age-old problems. Their quests for modern, digital solutions provide exciting opportunities for change.
Investment
2017 saw the most significant investment in ‘proper’ proptech to date, with a new and forward-focused collective attracting financial backing from VCs and traditional property players.
Regulation
Central and regulatory initiatives represent a particularly exciting shift. The latest Government call for evidence “Improving the home buying and selling process” and the HM Land Registry’s Digital Street scheme look towards a future where technology (including blockchain) will make the transfer of property ownership much more fluid. Such initiatives shine a light on the underlying problems apparent in the UK property market and signal a commitment to a more open and less guarded future.
How does this future look?
As we see this convergence in consumer, regulatory and technology worlds, this more futuristic property market is well within reach. So who wins? The opportunity to embrace and adopt new technology is open to all, however, historically, traditional incumbents have been slow to move in many sectors. They, therefore, get left behind or quite simply, left out. We don’t have to look far to see examples; Blockbuster and HMV are businesses which didn’t, in time, connect to the opportunities of the next generation. As a result, nimble and forward-focused entrants Netflix and Spotify won the respective leading positions in the new world. Much like in the movie and music sectors, forward-focused businesses tend to win in other worlds.
Settled.co.uk is one example of a real estate business that is connecting across these converging elements at quite a unique time in real estate history. Settled’s unique technology has significantly increased the likelihood of completing on a home and has cut the time it takes to sell and buy in half. It presents the hope that, in the future, its technology will enable people to buy and sell properties in moments, not months. This is the kind transformation this sector needs.
