The Future of Banking, Fintech and Payments - May 2021

The Future of Banking, Fintech and Payments – May 2021

NFTs are much bigger than an art fad – here's how they could change the world

Sotheby’s has become the latest establishment name in art to dive into NFTs (non-fungible tokens) through its collaboration with anonymous digital artist Pak and NFT marketplace Nifty Gateway.

The auction house sold The Fungible Collection, a “novel collection of digital art redefining our understanding of value”, for more than US$17 million (£12 million).

Some pieces, such as “The Switch”, a monochrome 3D construction that is going to be changed by the artist at some unspecified moment in the future, received bids well in excess of US$1 million.

For the uninitiated, NFTs are tokenised versions of assets that can be traded on a blockchain, the digital ledger technology behind cryptocurrencies like bitcoin and ethereum. Whereas one bitcoin is directly interchangeable with another, meaning they are fungible, NFTs are the opposite because the underlying assets are unique in some way and can’t be exchanged like for like.

This uniqueness enabled Christie’s to sell digital artist Beeple’s “Everydays” NFT in March for an eye-watering US$68 million. For those that don’t have that sort of money, NFTs are also being used for trading collectables like baseball cards and computer gaming items like swords and avatar skins.

Bubble trouble?

The excitement around NFTs feeds a similar narrative to other recent price surges such as GameStop and dogecoin, in that these are speculative bubbles brought about by stimulus cheques in the US, lockdown boredom and low interest rates.

Look no further than celebrities like music star Grimes and YouTuber Logan Paul releasing their own flagship NFTs to ride the wave. Even Vignesh Sundaresan, the entrepreneur who bought Beeple’s record-breaking artwork, sees investing in NFTs as a “huge risk” and “even crazier than investing in crypto”.

But history also tells us to be careful about dismissing NFTs as a passing fad, since the importance of technological innovations often becomes clearer once the hype dies down. Many commentators dismissed the influx of tech companies around the dotcom bubble of the late 1990s, and the first wave of mass cryptocurrency enthusiasm in 2017, only to be proven hopelessly wrong when Amazon and bitcoin re-emerged.

NFTs themselves are actually well down from their highs, with a 70% drop in average price since February. Perhaps this is less the bursting of a bubble than a “weeding out” of gimmicky tokens now that the initial hype has begun to die down.

This phenomenon is captured well in US consultancy Gartner’s hype cycle, which illustrates the typical progression of a new technology. With NFTs, we are probably emerging from the “peak of inflated expectations” on a journey towards the same “plateau of productivity” that Amazon reached a long time ago.

This ties in with what Austrian economist Joseph Schumpeter said about why capitalism works. Schumpeter viewed capitalism as a relentless churn of old into new, as the latest and most innovative enterprises replace those that came before – he called this “creative destruction”.

In this light, NFTs are the newcomers challenging how we perceive and register ownership of assets. And the tension between innovation and incumbency also contributes to the scepticism that always surrounds such new technologies.

What happens next

NFTs create opportunities for new business models that didn’t exist before. Artists can attach stipulations to an NFT that ensures they get some of the proceeds every time it gets resold, meaning they benefit if their work increases in value. Admittedly football teams have been using similar contractual clauses when selling on players for a while, but NFTs remove the need to track an asset’s progress and enforce such entitlements on each sale.

New art platforms, such as Niio Art, are able to demonstrate in a really simple way that they own digital works. When customers borrow or buy art from the platform, they can display it on a screen in the knowledge that there is no issue with copyright or originality because the NFT and blockchain ensures that ownership is authentic.

NFTs give musicians the potential to provide enhanced media and special perks to their fans. And with sports memorabilia, between 50% and 80% of items are thought to be fake. Putting these items into NFTs with a clear transaction history back to the creator could overcome this counterfeiting problem.

But beyond these fields, the potential of NFTs goes much further because they completely change the rules of ownership. Transactions in which ownership of something changes hands have usually depended on layers of middlemen to establish trust in the transaction, exchange contracts and ensure that money changes hands.

None of this will be necessary in future. Transactions recorded on blockchains are reliable because the information cannot be changed. Smart contracts can be used in place of lawyers and escrow accounts to automatically ensure that money and assets change hands and both parties honour their agreements. NFTs convert assets into tokens so that they can move around within this system.

This has the potential to completely transform markets like property and vehicles, for instance. NFTs could also be part of the solution in resolving issues with land ownership. Only 30% of the global population has legally registered rights to their land and property. Those without clearly defined rights find it much harder to access finance and credit. Also, if more of our lives are spent in virtual worlds in future, the things that we buy there will probably be bought and sold as NFTs too.

There will be many other developments in this decentralised economy that have yet to be imagined. What we can say is that it will be a much more transparent and direct type of market than what we are used to. Those who think they are seeing a flash in the pan are unlikely to be prepared when it arrives.

James Bowden, Lecturer in Financial Technology, University of Strathclyde and Edward Thomas Jones, Lecturer in Economics, Bangor University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

How to handle HMRC’s VAT changes in your construction business

Discover why the VAT reverse charge has come into force and learn about HMRC’s ‘light touch’ to mistakes

New legislation from HMRC means that if your construction business is part of the Construction Industry Scheme (CIS), the way you handle and pay VAT is likely to change.

The VAT domestic reverse charge for building and construction services came into force on 1 March 2021. The mandatory legislation means VAT-registered subcontractors (the supplier) who provide a service plus any related goods to a VAT-registered contractor (the customer) who is CIS-registered doesn’t need to account for the VAT.

Now, the customer has to account for the VAT as an input tax – as if they had made the supply to themselves. It’s important to add that any building and construction materials used to supply the services are included – but this doesn’t apply to materials bought and sold without related services.

Why HMRC has implemented the VAT reverse charge

Fraudulent activity in the construction industry totals millions of pounds each year. The government has rolled out the reverse charge to combat this.

A straightforward way to eradicate subcontractor VAT fraud (also known as carousel fraud) is to remove the option to charge and collect VAT away from the participants. By removing the flow of money, it’s harder to commit fraud.

As the new reverse charge makes it the responsibility of contractors to account for VAT, this reduces the chances of subcontractors ‘disappearing’ without paying the tax to HMRC.

Services and exemptions to be aware of

On the HMRC website, you can find a list of services that the VAT reverse charge applies to. It also highlights a number of exemptions.

According to HMRC, “provided the recipient is VAT-registered and the payments are subject to CIS, it is recommended that the reverse [charge] should apply”.

If you’re unsure whether the new legislation applies to the services your business provides, it’s worth speaking to a VAT specialist, your accountant or HMRC.

A ‘light touch’ to mistakes

With any new legislation, there’s always the possibility of errors creeping in. Therefore, HMRC says in the first six months of the VAT reverse charge’s implementation, it will apply a ‘light touch’ to any innocent mistakes. However, simply ignoring the requirements or making deliberate errors could lead to negative repercussions.

Next steps for your construction business

Make the time now to educate yourself about the VAT reverse charge for building and construction services. Review your processes and make any necessary amends. If you’re a contractor, speak to your subcontractors about the changes (and vice versa if you’re a subcontractor).

Check HMRC’s guidance to ensure your invoices are updated and used correctly. By using good cloud accounting software, such as Sage Accounting, you can ensure you’re up-to-date with your VAT reverse charge requirements.

To find out how you can help your construction business, visit the Sage construction website.

by Tom Ritchie, Product Marketing Manage, Sage

Getting banking to where it’s needed

Rivo Uibo, Co-founder and Chief Business Officer, Modularbank

Banking is a means to an end…

It’s unlikely that anyone has ever woken up thinking that they want to do some banking. That’s because banking is simply a means to an end. People wake up thinking of buying a new car, or improving their home, or growing their business – banking just happens to be the intermediate step they have to take in order to access the resources they need.

…but the means and the end aren’t in the same place

Unfortunately, this intermediate step isn’t always a simple one. From finding a credit card in order to make an online purchase, to having to apply for a loan for home improvements or cover business cashflow needs, banking is a hurdle to surmount rather than a service that empowers people to live better lives.

Things have been inconvenient for so long, but there is a better, easier approach: simply slotting banking in when and where it’s needed, without the need for customers to interact with multiple service providers.

Fintech to the rescue? Not so fast

In an attempt to do just this, a number of new players have entered the market. Unlike banks, they have the technological capacity to place financial instruments in the right place and offer them at the right moment to meet customers’ needs, and have quickly found success in doing so.

But while these disrupters have brought banking part of the way to where it needs to be, they’re not the whole answer. The fintech landscape is fragmented, with an array of small providers offering point solutions to targeted problems rather than covering the entirety of people’s day-to-day needs.

Combining the product and industry knowledge, financial might and market share of banks with the agility of new technology is the obvious answer, but banks are hampered by both regulatory and compliance requirements as well as their sprawling, complex legacy systems.

The future of banking is invisible

To stay relevant, banks need to become outsourced B2B financial services providers, allowing companies from a diverse range of industries to layer in banking capabilities and make life more convenient for everyone.

The benefits are huge: by turning banking into an invisible, seamless process that is available for customers exactly when and where they need it, banks can reach new customers, create additional revenue and truly serve the real economy – which, after all, is what they’re supposed to do.

To turn this dream of future banking into a reality, Modularbank built a cloud-native API-first banking platform that makes it happen. Composed of flexible and independent modules that cover end-to-end everyday banking processes, it’s fully compliant with international banking regulations. Any entity – from a bank to a fintech, retailer, manufacturer, or even healthcare provider – can either integrate the whole platform to their existing systems, seamlessly, or pick and choose which parts are the most relevant to their needs, from payments to lending and beyond.

With Modularbank, banks get the nimbleness of cutting-edge technology without having to rebuild their systems from scratch. That allows them to radically expand the reach of financial services to every single person who needs them. Meanwhile, companies can create a better purchasing experience, gain new revenue streams and boost customer loyalty – and the customer gets to do whatever they woke up that morning wanting to do, hassle-free.

Buying anything should be like buying a car – but easier

Putting banking where it’s needed isn’t a new concept. In fact, car manufacturers have been doing this for years. Purchasing a car is an important financial decision, which usually involves financing, and since traditional banks weren’t always willing to loan their customers the money to buy a car, several car firms simply applied for their own banking licenses, took over regulatory tasks, and offered the finance themselves – essentially becoming automotive banks.

This is great for the customer, as everything is done effortlessly in one place. It’s also great for the car manufacturer, as it allows them to sell more cars, create additional revenue streams as well as attract new customers.

Not every company has the enormous financial and human resources required to convert themselves into banks in this way. But with Modularbank’s API-connected payments and lending modules, literally any business – from an online store to a solar panel manufacturer or a dentist – can allow customers to pay for their purchases in full upfront as usual, or split payments over time, right there at the checkout.

Getting finance to SMEs should be as simple as pressing a button

Putting banking where it’s needed doesn’t just make it easier, faster and quicker to buy goods and services. It also enables small and medium enterprises (SMEs) to grow and enter new markets.

Accounting for over half of global GDP and the vast majority of employment around the world, SMEs are each unique, but all face a similar problem: cashflow.

They buy the inputs, pay their staff, make and ship their product to their big corporate client, send an invoice out via their accounting platform… and then wait 30, 60, 90 or even 120 days to get paid. This gap between outlay and income means they can’t invest in their business in the meantime, missing out on growth opportunities.

To bridge this gap, many go to their banks seeking loans, invoice financing, or factoring products, but are often turned down. Loan rejection rates for first-time SME borrowers are as high as 50 per cent, and this isn’t because their businesses aren’t viable, it’s simply because they don’t fit neatly into banks’ lending algorithms.

We believe SMEs are too important to our economies to have their cashflow disrupted by outdated financial models. Modularbank’s modules can integrate directly into their accounting platforms, or even into their clients’ treasury systems, enabling the provision of instant working capital financing that uses their invoices as collateral. What’s more, their accounting dataflows can be assessed by artificial intelligence (AI) for credit scoring purposes, enabling their financing provider to tailor terms, rates and pricing to meet their individual requirements. It’s a win-win: small businesses get the money they need to grow, and banks get access to an untapped segment of the economy.

We’re working to put banking right where it’s needed

At Modularbank, we believe the future of banking lies in closing the gaps between consumers and companies and bringing businesses and clients closer together. So we built the infrastructure to make it happen, seamlessly.

Get in touch to find out more.

Goodbye cards, hello open payments

Francesco Simoneschi, CEO and co-founder of TrueLayer, explains why open payments powered by open banking will become the default way to pay online within 10 years

This time three years ago, PSD2 came into force in Europe. It set in motion open banking initiatives across Europe, requiring banks to open up their financial data to third-party providers.

From Revolut and Monzo to N26, Nmbrs, Pleo and Plum, a wave of successful European neobanks and fintechs have made open banking APIs core to their proposition. PwC predicts that by 2022, 71 per cent of UK SMBs and almost two-third of adults will adopt open banking, creating a £7.2 billion revenue opportunity.

2021: a turning point for online payments

In the past year, we’ve seen industries such as igaming and wealth management embracing open banking. We’ve also seen consumer adoption grow significantly, doubling in six months in the UK, for example, to two million users. This is driven in part by the global pandemic and a surge in demand for online services.

Open banking is now set to have a big impact on online payments. On the eve of open banking in Europe, some analysts predicted that online bank payments, powered by open banking (or open payments as I’ll refer to them here) could capture 20 per cent of market share from cards.

It’s no surprise when you consider how open payments can fix the payment experience for both customers and providers. No more traditional bank transfers with manual data entry and reconciliation headaches, and no more card payments with slow settlement, high failure rates and even higher fees.

Within 10 years, open payments could be the default way to pay online. And 2021 might be the turning point. The convergence of technology, regulation and economic conditions are giving open banking the momentum it needs to offer a mass-market alternative to card payments.

We’ve already seen the success of bank-owned payment schemes in Europe which have become the payment of choice for millions of consumers – in the Netherlands, for example, where iDeal dominates e-commerce, as well as in Sweden with Swish and Denmark with Mobile Pay.

Our data suggests that the UK is going the same way. Buy-now-pay-later brands like Klarna have shown there is a better way to do credit payments online and have quickly reached mass adoption in Europe. Now it’s time to fundamentally change the way we make debit payments online – from cards to open payments.

Across 2020, we saw use of our payments API grow rapidly, as more consumers embraced open payments and more clients looked to implement these capabilities, including Revolut, Trading 212, Freetrade, Nutmeg and LeoVegas. We’ve also seen that the majority of that growth has come from people with bank accounts held at traditional financial institutions such as Lloyds or Barclays. This indicates an increasingly broader acceptance of payment initiation beyond the more technologically progressive users at the challenger banks.

In the coming years, we will see open payments brought to the masses through sectors such as subscriptions, marketplaces and e-commerce.

Calling time on cards

As more customers have turned to digital channels to manage every aspect of their lives, they have experienced a poor payments experience and service.

The problem is cards. They were not built for a digital-first experience and have been retrofitted into online payment flows. Google Pay or Apple Pay paper over those cracks, but they don’t change the fundamentals.

Open payments are digitally native and mobile-first by design. They move money at a fraction of the cost, securely and conveniently, while also delivering a vastly better consumer experience. It’s a huge win for merchants too, with a higher conversion rate than cards and near-instant settlement.

The impending introduction of strong customer authentication (SCA) adds another layer of friction to cards, introducing workarounds that deliver a poorer customer experience. With open payments, authentication is integrated in the payment flow, often with the consumer using biometrics such as fingerprint or face ID to identify themselves in their banking platform.

Cards have had their time. 2021 will be the year that open payments, powered by open banking, come into their own – particularly in financial services, e-commerce and marketplaces, and in industries where average transaction values are high such as property.

We will likely also see open payments increasingly coupled with secure identity and account verification through premium APIs, particularly in high-risk industries such as igaming and wealth management.

Fintech at your fingertips

The power of open payments, and open finance more generally, also lies in its universal accessibility. It puts the power of fintech in the hands of businesses everywhere. As VC firm a16z has suggested, with these rails “anyone could become a fintech” – any business can leverage open banking to create financial services experiences for its customers, from marketplaces such as Amazon offering cash advances to suppliers or ride-sharing services enabling drivers to buy cars, through to Google offering fully branded account services.

And while getting started can be complex from a regulatory standpoint, the emergence of open banking API platforms is bringing down barriers to entry and enabling businesses to get to market faster.

For more information about how TrueLayer enables open banking use cases including payments, visit our website truelayer.com or contact us at hello@truelayer.com.

The rise of the hybrid consumer in banking (and why it matters)

The way consumers interact with financial institutions, as with many of the components of their daily lives, is constantly evolving – no more so recently than when branches were forced to lock down at the beginning of the pandemic. More than ever, the importance of consumer insights, staying agile, being responsive to change, and creating a seamless engagement experience are vital for success in financial services.

Online and offline channels are no longer considered separate by consumers. More than ever, consumers will connect with their bank or credit union across channels, interacting with many touchpoints before opening an account, expanding a relationship or even making a simple transaction.

Many financial institutions quickly adjusted to the “new normal” by increasing digital capabilities and introducing new products and services. The challenge now is to make these digital processes easy, having a single view of the customer across channels, and effectively deploying real-time multichannel marketing. While this is a massive shift from the way things have been done in the past, new technology and capable solution providers can help make the process fast, effective and efficient.

According to Futurum Research, “Brands must reinvent their operating models to act in the moment. They need a holistic data and technology strategy that they can individualise at scale, customer journey capabilities that can adapt in real time, and intelligent decisioning to automate the self-reinforcing cycle of tailored experiences.”

Responding to cross-channel customer journeys

In digital marketing research undertaken by Econsultancy and Adobe, the top three priorities for marketers were:

Customer journey management (36 per cent)
Targeting and personalisation (34 per cent)
Customer data management (30 per cent)

Hybrid marketing improves organisational maturity in all three of these areas. According to the research, “If a brand is to succeed in the experience economy, there is an increasingly fundamental requirement for unified and actionable customer profiles that can ingest and join up data from a range of touchpoints that can straddle both offline and digital worlds, and the realms of both adtech and martech.”

This is where a Customer Data Platform (CDP) comes in. The CDP Institute defines the term as “packaged software that creates a persistent, unified customer database that is accessible to other systems.” Gartner expands upon this definition: “A CDP should be effective at centralising data collection, unifying customer profiles from disparate sources, creating and managing segments, and activating those segments in priority channels.”

While the need to develop a strong CDP may seem like a difficult endeavour, the real payoff doesn’t occur until the data is leveraged to deploy highly personalised content at scale, in real time. Without great content that can reflect the components of personalisation possible, banks and credit unions will not obtain the levels of engagement desired.

The study also advised financial institutions to “move from using data and analytics for great internal reports to using data, analytics and content for exceptional experiences.”

In other words, it is not an either/or proposition, but a marriage of data, analytics, and content that allows for effective communication with the hybrid consumer who travels their own content consumption and buying path. And not every institution meets the communication challenge in the same way.

The research by Adobe and Econsultancy found that larger organisations tended to over-index for the data science components of the equation, and under-index for the content component of customer experiences. They often focus more on hiring right-brain, analytical thinkers, and neglect more left-brained marketing and creative talent. Conversely, smaller institutions tend to prioritise creative thinking at the expense of the data capabilities that drive the process.

Why build a hybrid marketing strategy?

Assuming your organisation decides to leverage a customer data platform, you have the ability to communicate with your customers where they are, how they want. Despite the significant shift to digital in the past year, customers usually don’t just use a single channel. Yet financial institutions rarely merge offline and online data sources. Until this is done, adjusting to channel strategies during the customer journey is virtually impossible.

If your customer profile does include the hybrid customer channel information, the potential for personalisation of both content and channel is optimised. For instance, a financial institution can determine how behaviour differs when the consumer uses a branch as opposed to digital channels. Are transaction and buying patterns the same, with the same dollar value? Should offers differ by channel?

Over time, as more testing is done on both a segment and individual level, effectiveness of communication increases. There is also the ability to create advanced segmentation, conduct more detailed analysis and build attribution modelling. Finally, with hybrid marketing using an in-depth customer data profile, financial marketers can better understand the cross-channel customer journey, building stronger engagement (and revenues).

Make a priority of personalising hybrid customer experiences

Personalisation is more than simply using the customer’s name in marketing copy or mentioning a recent transaction. It is also not just a nice extra feature for your customers. Personalisation has quickly become what your customers expect when they interact with your brand. According to Epsilon, 80 per cent of consumers are more likely to make a purchase when an organisation provides a personalised experience. This expectation will only increase in a post-pandemic world.

Consumers expect content and offers that appeal to them personally, based on both their past interactions as well as anticipated future actions. They no longer want their financial institution to tell them what has already occurred – they want a “GPS of financial services” that will communicate shortcuts to financial wellness and warnings about pitfalls to avoid.

As we move closer to a world without cookies, first-party data is more valuable than ever, as are platforms that can collect, manage and optimise that data while enabling effective deployment of content on a one-to-one basis.

Jim Marous is co-publisher of The Financial Brand, host of the Banking Transformed podcast and owner/CEO of the Digital Banking Report

Missed payroll? Don’t despair: here’s how to boss your processes again

Discover the two main reasons why businesses miss the pay run and learn how to get back on track if it happens to your company

You want to take care of your people and your payroll. But what happens if you miss the pay run due to cash-flow challenges or issues with your processes? By addressing problems sooner rather than later, you can quickly get back to bossing your payroll.

Paying your employees on time is important. If you don’t, it could lead to an unhappy workforce. According to research by Sage, 35% of UK employees said they’d look for a new job if they were paid late. Meanwhile, UK law says you need to let employees know which date you’ll pay them (this is typically featured in their contract). If you don’t pay on time, this could result in a breach of contract – and you could be sued by your employees.

Why the pay run can be missed

There are two main reasons why you may miss the pay run: insufficient funds and payroll process mistakes.

Financial pressure has been an issue for businesses over the past 12 months due to coronavirus. With a drop in revenue and a lack of cash flow, paying staff on time (if at all) will have been a challenge. Although the government’s support schemes have helped, when they wind down, financial issues may return – and that could have an impact on employees getting paid on time.

With payroll processing, mistakes can be easily made. It’s a big task, especially if you’re new to it. And when you add ever-changing legislation, payroll can be tricky to manage.

Get back on track

When it comes to ensuring money is available so you can pay your people, start by planning and forecasting your cash flow. Meanwhile, issue and collect invoices promptly to ensure funds are in the pot. If cash is low, explore prioritising your best suppliers and delaying payments to others, or look at funding options to cover the pay run.

If delays are down to payroll processing mistakes, identify and rectify the problem, then (if needed) get the support required to ensure it doesn’t happen again. Perhaps work with a payroll expert, who can help you navigate any processing and legislation challenges.

And keep your employees in the loop – let them know what’s happening if you have pay run issues.

Automate your payroll

One way to stay on top of your pay run requirements is to automate them. By automating your processes with good payroll software, you’ll save time, reduce manual data entry and errors, and stay compliant with HMRC.

Reasons for not processing payroll on time include missing details such as new joiner information and forgetting deductions. But you can boss your payroll by automating these tasks – and payroll software can be cost-effective for even the smallest of businesses.

The possibility of missing payroll can be a worry for any business owner. But by following the advice above, you’ll give yourself the best chance of taking care of your payroll and your people.

To find out how you can boss your payroll, visit the Sage website.

by Mai-Po Wan, Product Marketing Director, HR & Payroll, Sage

Embedded finance: wealth use-cases fulfilling a prophecy

A focus on embedded finance is emerging, changing the dynamics of wealth management – with additiv at its core

We’ve come a long way since Bill Gates pointed out that “banking is necessary – banks are not” back in 1994. But only now are we seeing banking product dispersion being realised – through embedded finance. However, to date this tends to relate predominantly to payments and loans. Wealth solutions have largely been ignored – but this is changing. A focus on embedded wealth is emerging – disrupting the dynamics of wealth management – with wealth management platform additiv at its core.

The embedded wealth opportunity and use cases

Spotting the opportunity to increase customer convenience, many successful consumer-driven platforms have embedded financial services into their offering, such as payments within Uber or point-of-sale lending at H&M. They provide consumers with relevant financial services, at the time they need them, over the right channel, and tailored to their context.

Embedded finance allows firms to grow their addressable market. Last year Bain Capital Ventures highlighted that, in the US alone, embedded finance represents a $3.6 trillion[1] opportunity.

At additiv, our market conversations indicate that the opportunity for embedding wealth services lies initially in six particular use cases:

Retail and challenger banks: a proportion of existing customers have large cash balances but for various reasons do not diversify out of low- or zero-yielding savings accounts. By embedding third-party investments, customers access these value-added services with minimal friction, improving banks’ income streams while lowering churn risk. Since retail bank PostFinance introduced own-labelled investment services to its retail customers last year, it has added nearly $34.5 million a month in assets under management. And in the UK challenger Starling Bank has already launched wealth services (via Wealthsimple).

Financial health platforms: most of these platforms, such as Gusto (US) or Neyber (UK), initially help employees access their wages before payday. And almost all have added, or plan to add, savings services, to help employees’ financial health. Adding investment services is a natural step; Goldman Sachs and Apple recently collaborated to offer financial healthy choices.

Asset managers: with asset managers focused on investment products and asset growth, embedding their capabilities into wealth services makes perfect sense. This opportunity was recently recognised by Vanguard and Ant Financial Services Group in a joint venture. By accessing Vanguard’s automated service, individual Chinese investors, with at least ¥800 ($113) to place in mutual funds, can now access Ant Financial’s wealth platform.

Health insurance providers: as a channel that almost all adults use frequently to upload medical bills, make and claim payments, there is already space to embed other services. In addition, most health insurance premium calculation data can be reused to help individuals make smarter decisions about their investments, removing friction from upsales.

Pension and life insurance providers: according to Citibank, the 20 largest OECD countries alone have a $78 trillion shortfall in funding pay-as-you-go and defined-benefit public pensions. Retirement ages are set to increase, and by offering wealth products through pension and life-insurance providers, consumers can add contributions easily and gain oversight to make financial decisions.

Super apps and consumer platforms: these aim to be single apps helping people manage their digital lives. Apps such as WeChat in China and Tinkoff in Russia amalgamate dozens of digital services, from peer-to-peer payments through to ride-hailing, driving convenience and customer engagement. As a result, billions of users spend hours on these apps daily, leaving a trail of data that improve them to better match the users to other useful services. As a result the app’s footprint increases over time to incluce wealth services, which many have launched or embedded already.

Ensuring financial institutions don’t become utilities

“We’re very conscious around not being the dumb utility… not giving away the client-customer ownership that’s there.”

Michael Corbat, former CEO of Citigroup, on the Google deal

If wealth providers do not expand their reach and value, they risk missing the consumer opportunity. Embedding their services into third-party distribution channels allows them to grow or shift their customer base with lower acquisition costs, but also to capture network effects. It switches them from defensive to offensive mode.

Embedded wealth: an end-to-end approach with additiv at the core

At additiv, our trusted bank and partner ecosystem can now offer embedded finance and banking-as-a-service (BaaS). BaaS lets banks open up their APIs to third parties to offer embedded finance. We provide the infrastructure that connects a bank’s wealth services with the brands it wants to embed into context-relevant user journeys. For example, our partnership with Bricknode enables companies to embed brokerage-as-a-service.

"The ability of wealth management to effectively integrate platform and ecosystem strategies will serve as a powerful catalyst for the leaders of tomorrow"

Michael Stemmle, CEO at additiv

additiv customers recognise that embedded finance is the future, and 27 years on Bill Gates’s vision is finally being realised. However, instead of undermining the need for banks, embedded finance only serves to underline their continued importance in the digital age.

additiv partners with leading companies across the world to help them capitalize on the possibilities of digital wealth and investment management. Their DFS® omnichannel orchestration platform supports wealth managers looking for best-in-class Software-as-a-Service (SaaS) to deliver better engagement at greater scale. additiv also enables financial institutions to access new distribution channels through a Banking-as-a-Service (BaaS) model, as well as allowing banking and non-banking providers to embed wealth services into their proposition. Find out more at www.additiv.com

by Christine Schmid, Head Strategy, additiv

[1] The $3.6 Trillion Embedded Finance Opportunity – Rebank (bankingthefuture.com)

Bank from anywhere

John Federman, CEO, JRNI

Customer behaviour has changed enormously over the past year. As customers, and as humans, we don’t just want to buy products or services – we want a truly unique experience. And providing that unique, human-to-human customer engagement is at the very core of where the financial industry is headed. The transition to experiences and a more adaptable, virtual world was already happening – the pandemic just made it happen that much faster.

As many companies have adapted their work policies to include working from home and working from anywhere, many customers now bank on the go – and expect to. Here are a few key things for you to know:

The empowered customer

The truth is the need for banking services has not changed. People still want to deposit cheques, open accounts, get a new debit card, refinance their homes and more. What has changed is the way technology enables customers to manage these services on their terms, and the empowered customer wants convenience, simplicity and options.

With flexible appointment modes from virtual technologies, you can give your customers the services they need anytime, anywhere, via any device, and this is exactly what the empowered, hybrid customer expects.

Physical branches aren’t going away

There will always be customers who prefer to bank in person. People value in-person, human-to-human connections. That’s why physical branch locations should supplement with a digital strategy, including remote video- and voice-based appointments.

A recent survey reports that 73 per cent of customers still prefer in-person interaction when receiving financial advice. So, while there might be less dependence on physical branches moving forward, they are still an important part of your business.

Embrace the right technology

That’s where appointment scheduling technology comes in. It can give your customers an unmatched level of service and the personalisation that keeps them coming back for more. Additionally, virtual queuing and capacity management can help your branch staff manage lobbies while simultaneously improving the customer experience.

Appointment scheduling

Appointment scheduling helps banks run safely and efficiently, reach a broader audience and provide the unique, personalised experience customers want and need.

There is a slew of appointment scheduling use cases for financial institutions and many ways to provide memorable experiences, but a couple worth mentioning are:

Mortgage appointments: Video appointments have been a huge innovation for the mortgage market as advisers can now share documents online and customers can sign documents while on a video call. This makes the entire process more flexible and efficient.
Wealth management appointments: According to Accenture, the trend is heading to a blend of face-to-face and remote interactions to provide more personalised and higher value interventions with advisers. By providing one-to-one, in-person and remote appointments, there are many opportunities for wealth management advisers.

With virtual appointments, you get the benefits of providing your services during non-traditional hours. The after-hours availability could be the difference between a customer staying loyal and moving to a competitor.

Virtual queuing

Another way banks can significantly improve the customer experience is through lobby management. Virtual queuing and capacity management technologies are helping banks do this at scale.

With virtual queuing, customers and members have the choice to go online, check-in and be notified regardless of their location when it is time for their appointment or to meet with a staff member. And capacity management can be used to set a limit, manage walk-ins at peak times and ensure there is enough space and distance in bank lobbies.

So, as we look to the future, it is important to embrace digital transformation and technology such as bank scheduling software to exceed your customers’ expectations. By giving your customers the option to do business with you on their terms and give them expert guidance, you will be well on your way to improving customer satisfaction and loyalty.

Click here to learn more about leveraging JRNI for your financial institution.

INDUSTRY VIEW FROM JRNI

How AI is changing your CRM – and your business

Your CRM is only as good as its data and the insights you derive, and AI can help surface and plot trends

Jody Glidden, Chief Executive Officer and Co-Founder, Introhive

Your business’s customer data is everywhere – in your teams’ email inboxes, calendars, IM platforms such as Slack and on social media – and, within those places, there are levels of data that offer invaluable insights into the relationships between an organisation and its network. And, in today’s knowledge economy, companies are seeking ways to make the most of this data to drive business forward.

For decades, companies relied upon their revenue-generating teams to manage their relationships manually, using Rolodexes and address books and logging notes in notebooks to be stored in filing cabinets. Aside from being time-consuming (and space-consuming!), this method of collecting and storing data was hardly conducive to gaining a 360-degree view of an organisation’s network. With today’s customer relationship management (CRM) tools, all of that information is stored digitally, and the data is readily available to be analysed and acted upon.

Problems arise when those CRM platforms are filled with inaccurate data, incomplete data and late data – the data that's added after the fact, like past an end-of-quarter deadline – skewing trends and making it difficult to gain the actionable insights teams can use to drive business forward. If your team neglects to log their meetings, sales calls and important communications in CRM, or only logs some of the information, it’s impossible to see the full picture.

But seeing the full picture is more complicated than simply having complete data – it’s about pulling multiple data sources and levels of data together, uncovering patterns and surfacing trends and other insights that can help your team make better decisions. This is where a reliable tech stack comes in.

Learn more about how AI can help your business grow and request a demo today at www.introhive.ai

Podcast sting music credit: ‘Rising Images’ by Philip Guyler (PRS), Audio Network

INDUSTRY VIEW FROM INTROHIVE

Partnering for innovation: overcoming frictions

Customers have increasingly come to expect a higher standard of immediacy and personalisation in the services they use, and the financial industry is no different. Delivering on those expectations is challenging though, and it is here that incumbent institutions and fintech start-ups share an unusual dilemma: how to partner effectively and expeditiously.

Incumbent banks and insurers have substantial customer franchises, often built up over many years. What they often lack is the ability to innovate with agility, hamstrung by a “war for talent” among a scarce supply of data scientists, and contending with aging infrastructures and a risk-averse culture in a highly regulated sector.

On the other hand, start-ups have some of the most innovative thinking, but they lack the customer bases needed to be able to deliver their innovations into the economy. While some will cite the challenges of scale and funding, their bigger hurdle is being able to reach people, especially in finance where customer relationships have been built on trust.

Unsurprisingly, these two groups of firms have come to appreciate the potential value of partnerships, whether in joint ventures, acquisitions or equity stakes, or in vendor arrangements. This is an effective method for getting innovation into the economy, harnessing the ideas of an innovator/incubator, and partnering with someone who has the ability to deliver it to a wide audience of customers.

However, there are some considerable barriers to such collaborations.

In particular, some regulatory requirements for third-party vendor management can be onerous, geared more to an analogue world. And some regulatory requirements are simply incompatible with how a start-up might operate. For instance, where a bank might take an equity stake in a venture, this can extend bank remuneration rules to the venture’s management, effectively imposing bank rules on the start-up world, despite their very different financial models.

In some jurisdictions, it’s not unusual for the onboarding process to take more than a year to get through all the required approvals, when the average US start-up firm is burning through cash at a rate of around $250,000 per month (a recent report by San Francisco-based Brex identified that the burn rate is even higher in internet services and advanced analytics). Requirements for due diligence on providers are valid and critical, but the dynamic technological environment demands new agility in the process.

That is not to attribute all blame to regulation. Institutions’ own processes for onboarding a start-up partner also need greater agility. This will improve incrementally over time, as banks and insurers’ own legal, risk and compliance teams become more conversant with the technologies and of the start-up operating model, and more adept at applying their risk controls to new scenarios.

It is similarly critical that incumbent institutions and their supervisors become more familiar with cloud technology, as a critical enabler that underpins partnered innovations. Fintech startups are typically cloud-native in their nature, developing those immediate and personalised solutions that bank and insurance customers demand, but which can’t be supported by aging mainframes and disparate legacy systems.

It is vital that institutions, start-ups and regulators work to overcome these frictions, and to enable more partnerships to flourish. Not only is it critical for the business models of incumbents and start-ups alike, including of their ability to compete against bigtech firms and preserve competitive marketplaces for customers, but also for the wider economy. Without the reach to a large established customer base, the great innovations conceived within a start-up will wither on the vine, and the economy will miss out on a range of valuable customer-centric innovations. We must work to overcome those frictions and ensure that great ideas can get to market.

For more information please see our series on the role of cloud as an enabler for innovation.

by Brad Carr, Senior Director, Digital Finance

Bitcoin: UK banks are getting tough on crypto, but money-laundering rules are the real problem

NatWest, the UK retail bank, has announced it will not engage with business customers who accept payment in bitcoin or other cryptocurrencies. It follows recent announcements from HSBC that it won’t allow transfers from digital wallets and won’t enable customers to buy shares in companies associated with cryptocurrencies, such as Coinbase or MicroStrategy.

The feeling from both banks is that cryptocurrencies are high risk and therefore justify a cautious approach, though they note that their stance could change if and when regulation evolves.

Interestingly, this is not a view shared by institutions across the Atlantic. Both Morgan Stanley and Goldman Sachs are now offering their wealth management clients the opportunity to invest in bitcoin. Indeed, the initial uptake has been strong, with Morgan Stanley alone drawing in nearly US$30 million (£22 million) of investment in two weeks.

Why the caution?

The cautious approach of NatWest and HSBC stems from the 2012 recommendations of the Financial Action Task Force, a G7 initiative geared towards defeating money laundering. These recommendations mandate each member state to implement measures requiring their banks to scrutinise customers’ transactions for the purposes of money laundering and terrorist financing.

Under recommendation one, the anti-money laundering framework is to be applied on the basis of perceived risk. In other words, if a transaction or business activity is perceived to be more risky than usual, it needs closer scrutiny by the bank to ensure compliance with the framework.

This increases the strain on bank resources to verify that a transaction or business activity is safe to continue, but they also face large fines for non-compliance where there are deficiencies in their implementation of the framework or if things go wrong.

NatWest and HSBC are no strangers to being under the spotlight for compliance issues. HSBC was fined US$1.9 billion by US authorities in 2012, while NatWest faces charges over significant compliance breaches in the UK. While these charges relate to traditional money-laundering compliance breaches, perhaps it goes some way to explaining the caution of the two banks.

Banks view digital currencies as risky because they have the potential to be used for money laundering, they are targets for fraud and scams, and their value can be extremely unstable in the short-term. Indeed, the UK’s Financial Conduct Authority has warned that those investing and dealing with cryptocurrency are at risk of losing all their funds. Rather than face the enhanced burden of investigating businesses and individuals dealing with these assets, it is easier for banks to avoid the risk and not engage with them.

This situation is not unique to cryptocurrencies. For instance, it has long been a byproduct of the anti-money laundering requirements that banks have refused to offer financial services to charities operating in high-risk jurisdictions. The banking sector accepts this reality, particularly given that charities tend to be relatively low-value customers.

The wrong approach?

On the face of it, banks are perfectly entitled not top offer financial services to businesses transacting in digital currencies. As well as anti-money laundering, banks are bound by anti-fraud measures and consumer protection. Fradulent crypto transactions are both difficult to spot and impossible to reverse, so the risks of engaging are high, at least until the market establishes itself and the business case to engage is stronger.

Of course, this is not to say that they have necessarily made the right call. The fact that the leading US banks have taken a different approach suggests that they think the potential rewards are worthy of the compliance burden. In defence of cryptocurrencies, they are both more traceable than cash, and used less for money laundering.

And while it is true that there is a risk of significant losses with cryptocurrency investments, there is also clear potential for big gains. Banks are profit-making businesses: the returns from crypto investments in recent months – notwithstanding the big sell-off in the past couple of days – plus the very bullish forecasts, ought to prompt them to at least speculate in the area, regulatory burden aside.

We could simplistically blame the UK banks for either being too cautious or not doing enough to help these businesses, but it overlooks the bigger design flaw in the anti-money laundering framework. Compliance measures are a significant drain on a bank’s resources where a transaction or business is considered high-risk. Banks and their workers also face criminal sanctions, including large fines, where they fail to properly implement the rules, which is particularly troublesome when it is almost impossible for a bank to identify what a suspicious crypto transaction looks like.

Without a guaranteed high return for the bank, it is easier to de-risk and not engage with these businesses. This represents a missed opportunity for banks, and a potentially unnecessary stifling of legitimate business growth for companies wishing to deal with cryptocurrencies.

Banks are portrayed as the public villain, but the bigger problem is at a much higher level. It is a political and legal issue which requires the attention and intervention of lawmakers to address the fact it is much easier for banks to de-risk than to comply with the rules and help these businesses grow.

Matthew Shillito, Lecturer in Law, University of Liverpool

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Financial services: it’s time for an innovation influx

Noel Lavery, UK Sales Director, Infobip

When it comes to banking and finance, digital functionality is no longer optional. While many financial institutions have been slow to invest in technology over the last five years, Covid-19 has forced the entire industry to adjust business models and provide consumers with digital options where they may not have existed previously.

This rate of technological change has encouraged many organisations to think quickly and creatively to ensure their customers can continue to access vital services. But it’s also posed huge problems for those slow off the mark, amplifying the gap between larger organisations with complex legacy systems, and more agile “digital natives” who can move faster.

In recent PWC research, 81 per cent of banking CEOs felt concerned about the market’s speed of technological change. The same study found that digital natives now offer better and more convenient customer experiences at lower price points than the market standard.

There’s no denying that innovation can be challenging to implement in this industry, especially as all upgrades need to be balanced with legal compliance, security and stability. But to be able to compete and ensure customer expectations are not only met, but exceeded, innovation must happen.

Intensified competition

Digital natives such as Liv and Starling Bank have entered the market with a tight product portfolio, targeting a younger demographic. Without the same legacy infrastructures holding back more traditional players, they can move swiftly and develop offerings with confidence and agility. What’s more, given they are built for purpose in the digital domain, they can focus on delivering much of their customer experience via their applications, leading to new features and services being released with relative ease.

Traditional banks have a much broader demographic and therefore support a greater range of communication requirements, from accessibility support and printed materials to cashing in cheques and investing in voice-based call centres. Both the rapid digital transformation caused by the pandemic and the advent of open banking (APIs), which is simplifying the process of customers switching providers, are intensifying the need for traditional banks to keep up with their younger counterparts.

Placing customer experience first

The departmental silos in traditional banks often complicate the process of providing smooth and seamless customer experiences across different service areas. With each team operating independently with their own technology stacks, consolidation is a vital first step towards consistent frictionless customer experiences. In this day and age, customer service and engagement must go hand in hand, so finding a solution that can help the mortgage team and the credit card team ensure a seamless experience, for example, is imperative.

Another key challenge is pulling together the various communication programmes into one place. These organisations need to consider the business impact of their current customer engagement strategies and spend time understanding what customers want and how they want to be communicated with. Ultimately, they’re looking for a solution to a specific problem and they want to find that answer with ease, on the channel of their choice.

Preparing for the next wave of consumer

As customers become more connected, they become more demanding. Easier comparison and faster switching mean that relationships can be brief and largely transactional. Consumers now see financial institutions as just another digital brand they expect to be able to interact with quickly, seamlessly and on the platform of their choice. This “platform”, more often than not, is on a person’s mobile phone through apps and social media channels. Financial organisations need to meet consumers on this device with a positive experience – whether that means facilitating a bank transfer, making a personalised offer based on spending habits, or ensuring a lost or stolen card can be replaced in a matter of moments.

They also need to consider generational differences. We all know the age brackets that consumers are commonly grouped into: millennials, Gen X, Gen Z, baby boomers and so on. It may be that your average millennial prefers communication via WhatsApp, whereas Gen Z are more inclined to use an app. Monitor these differences and plan your communications strategy accordingly.

One thing that is consistent is an increased willingness to embrace digital communications. An Infobip survey showed that nearly half (46 per cent) of people, regardless of age, believe technology has played a greater role in how they engage with brands since the onset of the pandemic. It’s about using data-driven insights from these digital channels to target specific demographics with the right message in the right place.

Pairing CX with security

It goes without saying that another key element of customer experience within this market is security. The way people exchange products and services will continue to change, and new threats arise almost daily. All financial organisations need to try, test and scale their security solutions in line with their customer experience solutions. A secure experience doesn’t have to be one full of friction and hurdles. In fact, consumers will only get frustrated if they have to type in seven different passwords or verification codes. That’s the advantage of Infobip’s solution – we have a platform that lets customers build security into their wider communication plan by verifying phone numbers securely and silently in the background and gathering real-time insights to ensure potential threats are flagged as early as possible.

Final words

To drive success, financial service organisations need to be empathetic to customer needs, adapt where necessary and be prepared to fight the customer’s battles when internal culture threatens progress toward meaningful customer journeys. It’s a competitive moment, but an empowering one for those institutions ready to grab innovation by the horns.

Keen to learn how a robust communications strategy can help you exceed customer expectations? Click here to find out more.

Click below to read more articles by Infobip:

“Co-operation will surpass competitiveness” – How a more collaborative approach can be even more beneficial than competition between businesses

“If the shoe fits, wear it” – How embracing digitalisation will boost fashion retail

Solving non-performing loans through data-driven digital experiences

Terry Franklin, Global Business Development Director, Qualco

The past year has seen household and corporate debt stock soar in Europe because of the pandemic. Governments stepped in to keep the economy afloat: EU countries took liquidity measures to the tune of €2.3 trillion, while the UK government spent £280 billion to avert a catastrophic economic shock.

But furlough schemes and debt repayment holidays are set to end by the close of 2021 – and without them, many businesses and households will struggle to service their debts. The European Commission is expecting a sharp rise in the stock of non-performing loans (NPLs) – at an estimated total cost of more than a trillion euros.

European banks have entered the Covid-19 pandemic with, on average, higher capital ratios compared with the 2008 crisis, while the IFRS 9 accounting standards induce faster NPL recognition. On the other hand, fast NPL recognition may also constrain bank lending during downturns.

At QUALCO we’re conscious that, to mitigate those costs, it’s crucial that lending organisations forecast, manage and resolve non-performing loans in the most accurate and proactive way possible by adequately covering the following three areas using advanced technology solutions.

Identifying customer behavior

In these challenging times every financial institution, lender and credit management entity must make their data and insights work harder. To innovate successfully, businesses not only need a data strategy, but they need to also execute that strategy effectively to develop resilience.

Building quickly explainable, authoritative models on customer behaviour can help businesses identify segments and individuals who have become vulnerable because of the epidemic, as well as providing insights into the cause of such vulnerability. These segments might be based on specific professions or industry sectors, demographics or regional variation. By using this type of analysis, creditors will be able to inform customer segmentation, communication strategies and treatment paths, leading to much higher returns.

Digital interactions and self service

Customers who drift into the collections process are often not getting the discreet and convenient communication they need, resulting in payment delays and a bad customer experience. In parallel, in today’s digital world customers demand the convenience of self-service.

Recognising a customer’s preferred method of communication, and inviting them into dialogue via the digital channels they prefer, increases response and collection rates. An omni-channel communications approach can help lending organisations engage with customers effectively and optimise their journey through recovery and rehabilitation.

Corporate and SME debt workout

If the economic recovery from the pandemic is slow and protracted, credit losses from corporate and SME distress will rise and could overwhelm banks, further complicating NPL resolution. That’s why creditors require access to a range of practical tools to enable them to handle corporate and SME debt more quickly and efficiently than they did pre-Covid-19.

It will be important to help creditors quickly recognise which of their business customers are operating in a ‘zombie mode’, i.e. the revenue they generate barely covers their operating costs and loan repayment, compared to those which have a sustainable post pandemic business model.

For more than 20 years, QUALCO helps organisations adapt to a constantly changing credit risk and distressed asset landscape driven by economic, regulatory, and behavioural considerations at both global and local levels. Learn how you can improve liquidation, reduce credit risk and mitigate losses through technology and innovation at https://www.qualco.eu/

Vervent: financial services from a Lending-as-a-Service leader

David Johnson, CEO and Founder, Vervent

Thriving through the challenges of 2020, Vervent is entering the new normal stronger than ever. Founder and CEO David Johnson, supported by an impressive leadership team, steers Vervent with vision and determination to continue expanding the company’s competitive footprint within the Lending-as-a-Service (LaaS) ecosphere. Vervent provides clients with top-flight financial support services including loan and lease servicing, call centre services, backup servicing/capital markets support, credit card servicing, card marketing and customer acquisition, and third-party collections through its wholly owned subsidiary Activate Financial.

In December 2020, Vervent acquired Total Card, now Vervent Card, fortifying its position as a pre-eminent financial services provider across industries and adding a full suite of credit card program management services to its roster. This addition to Vervent’s proven tech-forward, compliant approach continues to position the company for future success, while expanding into credit card marketing and underwriting thus supporting Vervent’s mission of ensuring financial inclusion and increased access to credit in underserved markets.

Now with the power of three companies under its Lending-as-a-Service (LaaS) umbrella, Vervent offers comprehensive strategic services at five onshore and nearshore operations centres. The launch of Vervent Card included two new locations in South Dakota and Texas, which add to Vervent’s arsenal of geographically diverse and disaster-averse locations in San Diego, Portland and Baja California. Together, these operations centres offer 99.9 per cent uptime to support your business, no matter where you are headquartered. And because solutions are spread across multiple locations, they can be adjusted from region to region to keep servicing customers in the event of an emergency or natural disaster.

Vervent’s operations centres are powered by state-of-the-art technology and use AI to analyse and record every call to provide proven turnkey solutions that let you focus on your business’s core competencies. At the heart of each location, highly trained agents and back-office administrators support a variety of industry specialties under the guidance of on-site senior management, delivering proactive, bilingual service to customers. A fully fledged training team equips all staff with regular process enhancements and service training to maintain compliance and minimise risk.

When it comes to compliance protocols, Vervent is at the forefront of the financial industry. In 2020, the company achieved a SOC 2 Type 2 certification, which includes alignment to HIPAA-compliant servicing standards. This certification attests that Vervent’s information security meets or exceeds the rigorous standards set forth by AICPA after identifying and evaluating internal and external threats, as well as privacy, accountability, integrity and confidentiality. During this audit Vervent also reaffirmed the SOC 1 Type 2 certification of its policies and procedures, proving its transparency and effectiveness.

As a leading Lending-as-a-Service (LaaS) company, Vervent sets the global standard for outperformance by delivering superior expertise, future-built technology, and meaningful services to highly regulated industries. Across the board, Vervent empowers companies to accelerate their business with attention to compliance and customer service.

Are you ready to accelerate? Contact Vervent today on +(01) 888 486 2509 or solutions@vervent.com

The future of banking and fintech

In the last decade, we have started to see examples of machine learning appear throughout public services. The Met Police are using AI in their facial recognition technology. Health Secretary Matt Hancock has advocated for a chatbot service for healthcare triage. Blackpool Council is using artificial intelligence (AI) to detect road damage and deploy repairs.

Such examples represent only the beginning of opportunities presented to the public sector by greater adoption of AI. In two thirds of jobs, it’s estimated that around 30 per cent of tasks could be automated by AI.

Let’s face it, no accountant (or very few at least) goes into the public sector because they just love financial reporting. They certainly don’t do it for the pay. Those who choose a career in public service are largely driven by a different ethos, namely a desire to make a difference. The introduction of automation could mean that many of the tasks that pull finance professionals away from activities specifically dedicated to public service could be removed from their roles. This could provide more time in the day for the more compelling parts of the job that machines cannot replace, including strategic thinking, stakeholder engagement and problem-solving, as opposed to mundane data procurement and organisation tasks.

AI can also help eliminate human error and fraud through effective and consistent pattern recognition in data analysis. The best technology is able to handle very large datasets, making it scalable to a number of different industries and sectors.

This is not to say that AI doesn’t present risks. While it’s unlikely the robots will be taking over anytime soon, it’s important to remember that these technologies are being developed by humans who themselves are capable of error and inherent subconscious bias. A study by the AI Now Institute (New York University) attributed the existence of flawed systems that perpetuate gender and racial biases in part to the fact that the AI field is largely dominated by white men.

Examples cited in the report included image recognition services making offensive classifications of minorities, chatbots adopting hate speech, and Amazon technology failing to recognise users with darker skin colours. As the public sector strives to improve its approach to diversity and inclusion, it’s important for developers and users to be aware of these broader issues when adopting technologies that could be perceived as a means of objective decision making.

Risks and benefits aside, compared with the pace of change across the rest of society, adoption of AI in the public sector is relatively slow. There could be a number of reasons for this. Most public services are facing high levels of financial pressure, with resources being prioritised towards statutory duties rather than investment in innovation.

Additionally, with new technology comes the requirement for new skills in public sector workplaces. This skills gap can be a substantial barrier to early adoption, however we can see evidence of public sector organisations recognising the need to address the issue. In 2017, 58 per cent of public sector organisations surveyed by CIPFA felt that tech expertise would be a priority financial skill in ten years.

Bridging this gap will take time and resources, though in itself presents a further potential opportunity. CIPFA’s research has shown that one of the main issues affecting public sector workforce retention is a perceived lack of development opportunities. This need for a shift in skills presents an opportunity to offer what many staff may feel is lacking in their working lives.

AI has moved from the labs into businesses, and into our homes. Many people now have an Amazon Echo in their living rooms, Siri on their iPhones… it’s even possible to purchase a smart toaster that will learn your specific desired level of “done-ness”! Suffice to say, AI has come a long way in a relatively short space of time, and people naturally expect services, both public and private, to keep up with the times.

The adoption of AI represents both risks and opportunities for the public sector, which has historically been a latecomer to technological change. However, as the world and the workplace become steadily more digital, it is vital that the public sector continues to move with, if not ahead of, the tide.

For more information, click here.

by Rob Whiteman CBE, CEO, CIPFA

Why successful innovators are worth their weight in gold: the top five reasons why digital transformation in banks fails

Over the past five years the fintech market has continued to thrive. Even during the Corona pandemic in 2020 and 2021 so far the Fintech sector has proved very resilient. Over this period, we have seen many more corporates and corporate venture capital funds participate in ever-increasing funding rounds for fintech scale-ups as fintech is seen part of the solution to rebuild our global economy post the Covid19 recession.

That does not come as a surprise considering that most leadership teams in banking are concerned about the changing competitive environment across financial services. Digital transformation is a frequent agenda item in board meetings, as the market has shown how much more it values digital companies than traditional banks.

According to BCG, personalisation can boost product sales by 30 to 40 per cent in some retail banking areas, and cut customer churn by 10 to 30 per cent while at the same time doubling or even tripling customer engagement scores. So being digital clearly has a strong bottom-line impact.

It’s not a surprise, therefore, that all banks go through digital transformation programmes. But what is surprising is that the majority of them fail. Last December, The Wall Street Journal reported that businesses predicted digital transformation to be the biggest risk factor in 2019. McKinsey research showed that 70 per cent of complex, large-scale change programmes do not reach their stated goals.

Michael Wade, Professor of Innovation and Strategy at IMD Business School, went even further and found that 95 per cent of digital transformation programmes fail, due to inflexible company structures and culture. He found that the biggest barriers to innovation are rigid business silos and the resulting non-collaborative culture.

So what are the top five reasons digital transformation programmes fail?

1. Lack of ownership and “digital transformation” skills at the C-level

Company strategy that includes digital transformation must be owned by the CEO and the top management team. Digital transformation initiatives in banking without top leadership backing will not work. And even if the CEO and his team truly show ownership, most leaders do not know how to lead digital transformation.

Many of us learned core business and financial principles combined with strategic planning skills decades ago, which worked for the majority of our careers. As a result, leadership in financial services has great intuition in traditional business models and industries – however, our education and gut feeling often clashes with the new-platform economics of tech giants, their business models and digital competition from non-banks.

Top management in banking need to learn how to compete in this new world, where success is not only measured by keeping pace with industry competitors but having appropriate strategies in place to compete against tech giants and collaborate with fintech start-ups and scale-ups.

Few leaders know how to change a traditional culture, encourage an entrepreneurial and transformative mindset and collaborative behaviours from the top-down. This naturally leads to lack of employee engagement and the inability to sustain the impact of a transformation programme long-term.

As a result, not having a strong fintech and digital transformation leadership at the top leads to a range of complex and expensive issues which are almost impossible to fix later.

2. Narrow focus on new products and services instead of a wider focus on new digital business models

It is a great step forward to launch digitally empowered products and solutions which retail and corporate customers truly find valuable. We can, however, often see disjointed and tactical initiatives which do not reach their full potential because they are being seen as disruptive or not a priority for the existing business heads.

It is difficult to develop and launch new products and services successfully, however reinventing one’s business model is even tougher. Business model decisions are made at board level as they often require capital reallocation across different business units such as retail, corporate and investment banking, asset management or private banking. In order to digitally transform a bank, digital platforms and data sets need to be unified across the bank and wide-ranging decisions have to be taken.

In summary, digital disruption is happening faster than ever and we have reached a tipping point where incumbent business models are threatened. Bold banks will survive and do well and create new digital business models; other banks will respond too late and fail or move into niche markets because they only succeeded in introducing new products or services but not digitally transform their whole organisation.

3. Lack of customer focus and not understanding the reasons for change

In today’s world we all suffer from information overload – daily we skim-read about new industry trends and technologies from big data analytics, blockchain or distributed ledger innovation, artificial intelligence, the internet of things and virtual and augmented reality. In fact, the FINTECH Circle Institute has conducted a study which showed that 97 per cent of all financial services professionals suspected their peers to use buzzwords such as “AI”, “blockchain” or “robo-advice” without understanding their meaning.

So when considering digital transformation, it is easy to get focused on the latest, cutting-edge technology which promises unrivalled results. However, there is a risk that we forget the main reason for digitally transforming our businesses: our customers. We need to be able to ask why digital transformation should take place, and understand that the ultimate objectives should always prioritise improving the customer experience and delivering enormous value to customers. This requires the bank to test, learn and adapt its strategy to meet and exceed customer expectations and pivot when necessary.

4. Inability to build a fintech ecosystem

McKinsey reports that winning companies will have to think in terms of ecosystems, stating that “by 2025, almost a third of total global sales will come from ecosystems”.

For banks creating a platform-based strategy where the bank provides the technology and operational platform which allows the best fintech companies to connect via open APIs and offer their services (either white-labelled under the bank’s brand name or under their own brand) to the bank’s customers, is critical. A successful fintech ecosystem allows banks to become the orchestrator of fintech start-ups and scale-ups, tech suppliers, tech giants, investors, regulators, financial media and fintech influencers, service providers and customers. Banks need to create their own ecosystems or partner with firms such as FINTECH Circle which has built such an ecosystem over many years.

Having a strong ecosystem allows banks to move faster and develop a learning advantage. The goal is to test and learn in iterative cycles, launch minimum viable products (prototypes) in short time spans and reduce the development and go-to-market time across both business-to-consumer (B2C) and business-to-business (B2B) propositions.

5. A skills deficit and compensation model which does not reward entrepreneurship

Firstly, staff need to be empowered by high-quality training to understand the world of fintech, which fintech companies exist and what they offer, how their business models work, how start-ups operate and how entrepreneurs launch successful businesses with limited resources. Understanding lean start-up methodologies and agile development frameworks are also invaluable knowledge when leading and implementing large digital transformation programmes within banking. In fact, having a diverse and experienced team with these skills – consisting of many entrepreneurial talents – is a critical competitive advantage for any bank. Talent and skills development via FINTECH MasterClasses, for example, builds the innovation muscle of an organisation, which need to be as strong as possible across all areas of the organisation to correctly analyse and respond to digital disruption.

Secondly, after people have been empowered to understand and execute digital transformation objectives, it is important that they are rewarded accordingly. If the old-style compensation model and bonus system continues where risk taking and being part of successful change initiatives is compensated less than generating revenues in the front-office, corporate transformation roles will not be an attractive career choice in financial services as it will be tedious to fight the headwinds of large bureaucracies being surrounded by people who do not want to change. The entrepreneurial people also have the option to jump ship, leaving their banking jobs and entering the world of fintech as founders, advisors to start-ups or non-executive directors of fintech firms. The risks and rewards of running your own business or advising fintech firms are very different to the risks and rewards of being an employee in a bank.

Still, being a successful innovator and intrapreneur in banking is one of the toughest jobs out there. So it follows that it should be one of the highest paid, as it is hard to lead and execute digital transformation which often contradicts the private agendas and personal objectives of many senior leaders in the organisation. Digital transformation leaders need to be compensated for the personal and professional career risks they take and know that they are fully backed by the CEO and the top management team.

As digital transformation is the biggest concern for CEOs and senior executives in 2019, and more than 70 per cent of all initiatives fail, the true leaders who can make them work are rare and worth their weight in gold.

by Susanne Chishti, CEO FINTECH Circle & FINTECH Circle Institute

You can follow Susanne on LinkedIn, Twitter and Instagram.

You can also view her profile on FINTECH Circle's website here and you can follow FINTECH Circle on Twitter and Instagram.

The insatiable desire for data in business today

When CRMs are filled with dirty data, it’s impossible to move forward – but AI can help…

Jody Glidden, Chief Executive Officer and Co-Founder, Introhive

It’s the age-old question. Which came first: the desire for data or the technology and tools to gather it? As the world of business moves forward, one thing is for sure: finding ways to uncover trends in data and turn that data into actions that can drive revenue and help businesses grow is critical. And our collective appetite has never been greater. One of the most used tools in business today is the customer relationship management (CRM) tool – the digitised version of a Rolodex with the propensity to be a company’s secret weapon for revenue growth.

But it could also be its downfall.

Historically, business leaders have had to rely on hunches – those gut feelings sharpened over years of experience and trial and error – to make business decisions, and have danced with risk and reward for employees to engage with their CRM platform. Often, companies fail to realise a return on their CRM investment as employees neglect to update records.

When CRMs are filled with inaccurate or incomplete data, revenue teams and business leaders must struggle to sort through the mess and make critical business decisions without seeing the full picture. Although companies made it work in the past, more and more business leaders today seek ways to improve their processes and customer data quality through technology.

Artificial intelligence-powered tools are rapidly becoming a must-have for businesses in today's knowledge economy. There has never been a time when we've had access to more information and the race for innovation is fast-paced across all industries. By leveraging AI and machine learning, businesses can make sense of the scads of information captured in their CRM, uncover trends, and make better business solutions.

Learn more about how AI can help your business grow and request a demo today at www.introhive.ai

Podcast sting music credit: ‘Rising Images’ by Philip Guyler (PRS), Audio Network

Greensill: the collapse threatens to kill off a form of financing that is vital to global economy

The recent statement by David Cameron, the former UK prime minister, about his role as a lobbyist and adviser to insolvent finance company Greensill Capital has caused shock waves in business and government circles since it confirmed that the company was already in financial difficulties at the time of his activities.

But one major question getting less attention concerns the future of supply chain finance (SCF), an important tool in the financial arrangements between suppliers and their customers. Greensill was closely associated with this financing and has potentially rendered it unviable.

So what is supply chain finance and why should we be concerned?

The win-win-win

In the early 2000s I worked as an external adviser to one of the big four accountancy firms on a brief from a well-known global consumer goods company that wished to increase its profitability. Part of the work was about enhancing the company’s cashflow.

Any business concerned about its cashflow has to look at three important measures. How long does it take to get money in from customers; how quickly are suppliers paid; and what level of stock needs to be held.

Increasing the time taken to pay suppliers would have been an easy and immediate way of increasing cash availability. But the proposed shift from settling invoices in 30 days to making it 90 days would have really annoyed suppliers.

A solution was found through discussions with the company’s bankers that helped develop what was initially called reverse factoring. As it became more widely adopted, it became known as SCF.

SCF essentially works by getting a bank to pay a customer’s invoice from its suppliers early, for a fee, so that suppliers can improve their cashflow. You can see this in the graphic below – click to make it bigger.

How supply chain finance works

In the case in which I was involved, SCF enabled our customer to move to new terms in which invoices were settled in 90 days. The suppliers were able to receive a substantial proportion of the payment due, typically 95% to 98%, when they required it, which could be on the original 30 days, or even earlier.

The customer’s excellent credit rating meant that the bankers could offer this financing at a fraction of the rate that the suppliers, with their less impressive ratings, could obtain through the existing system of invoice discounting, in which they borrowed from a bank or finance company to be “paid early”.

On the face of it, SCF was therefore a win-win for everyone: the customer holds on to their accounts payable for longer; the customer’s bank gains some new low-risk business; and the supplier can get paid a lot earlier at minimal cost. Obviously the supplier would prefer to be paid earlier without such financing, but they are often at the mercy of customers and this was the next best option. For many customers with excellent credit ratings, SCF quickly became the norm.

As it grew in popularity, variations were inevitably introduced. Some customers started to further extend payment terms, in some cases up to two-thirds of a year, relying on SCF to avoid real distress to their suppliers. However, even the very low discount rates offered to suppliers mount up to a significant reduction in the invoice settlement if payment is delayed for an extended period.

Greensill’s role

Greensill Capital was founded in 2011 and started encouraging the UK government to adopt SCF for procurement contracts. The customer in this case was the government, so banks could have virtually absolute security that their money was safe if they advanced payments to suppliers, meaning even lower interest rates for this SCF than that enjoyed by blue-chip private sector customers.

SCF soon became the norm for the payment arrangements for many suppliers to government. However, Greensill provided a twist in that the advanced payments to suppliers came from a bank within the Greensill group – Greensill Bank, based in Bremen, Germany.

Greensill also packed the invoices into a form of corporate bonds and offered these for sale. This relied on a system in which buyers took out credit insurance to protect them from customer defaults, but it ran into trouble when this insurance lapsed and was not renewed.

Credit insurance assessments are based on risk and the withdrawal of cover usually indicates a fundamental issue with the company. One of the investors who had acquired the bonds, Credit Suisse, reacted to this lapse in cover at the beginning of March 2021 by freezing its involvement, exposing itself to some US$10 billion (£7.3 billion) in potential losses as a result. This move led, in part, to Greensill being placed into administration a few days later.

Invoices forming part of the bonds would appear in Greensill’s ledgers as accounts payable whereas, it is being argued, they should be more correctly described as debt. The FT remarked that this procedure “can be used to mask spiralling de facto corporate borrowing”. There is talk of possible changes to accountancy practices that could remove the advantages in SCF from a supplier’s point of view by forcing them to acknowledge higher levels of debt on their balance sheets.

The danger here is that customers who use the more conventional SCF - working with their merchant or retail banks and offering suppliers a choice of the source of finance – may become tarred with the Greensill brush.

In an ideal world, suppliers would be paid on time by fair-minded customers. But pressures on prices through intense competition, partly a result of globalisation of supply chains, mean that many financially secure customer-companies see SCF, handled responsibly, as going a long way to satisfying their needs and – to a large extent – the needs of their suppliers.

Accounting practices may need to change to deter or outlaw the tactics used by Greensill, but it would be very damaging if SCF were abandoned entirely.

Richard Bruce, Lecturer in Global Supply Chain Management Accounting, University of Sheffield

This article is republished from The Conversation under a Creative Commons license. Read the original article.