Charlie Roberts, Head of Business Development for the UK, Ireland & EU at IDnow, outlines the need for more effective identity verification in the financial services sector and how it can be achieved.

In 2019, even before COVID-19 struck, the UK fraud prevention service – Cifas - recorded in excess of 223,000 cases on its National Fraud Database, an increase of 18% on the previous year and a 32% rise over the previous five years. And looking ahead, experts predict that by 2021, the damage caused by internet fraud will reach $6 trillion, making cyber fraud one of the world’s fastest growing and most dangerous economic crimes.

Worryingly for the financial services sector, IBM recently revealed that in 2019, it was the most targeted industry for cyber criminals.

It should come as no surprise then, that financial institutions are increasingly being thrust into the spotlight when it comes to digital security and protecting the identities of their customers.

These worrying figures are certainly one driving factor in the UK government’s new Digital Identity Strategy Board, which has developed six principles to strengthen digital identity delivery and policy in the country.

A hybrid approach

We already know the important role technology is playing in the fight against cyber criminality – from biometrics and machine learning to artificial intelligence (AI) – and we recently discussed the significance of supplementing this verification technology with human identification experts. These professionals are able to use their intuition and understanding of human interactions and behaviours to identify when a person is being coerced or dishonest.

Worryingly for the financial services sector, IBM recently revealed that in 2019, it was the most targeted industry for cyber criminals.

However, while these highly skilled and trained identification specialists are playing a vital role in the fight against cyber and identity crime, for some financial institutions, particularly larger banks, they present a barrier.

Bringing the entire verification process inhouse

Working on a SaaS basis, typically, identity software vendors provide financial institutions with the software and technology required for identity verification. However, the final decision on verification rests with the vendor’s algorithms or ident specialists.

However, many banks want to own the entire verification process, from utilising the technology and software to making the ultimate decision on the identity of a person. By handing this level of control over to the bank, institutions can integrate the verification systems within their own infrastructure, enabling the people that know their brand the best to set their own levels of security and determine what is authenticated and what is declined.

Upskilling inhouse teams is critical

While working with a third-party verification specialist is the preferred option for some, for others, the idea of upskilling and training existing compliance teams in identity verification is the priority, empowering the bank to own the process and the risk. In the long term, it will also provide significant cost savings while showcasing a major investment in talent and people, which will undoubtedly help attract and retain customers too.

With the UK seeking to develop a legal framework for digital identity, it is clearly becoming an increasingly important feature on the governmental agenda, not least to ensure that not only can people feel safe online, but also to deliver faster transactions and ultimately add billions to the economy. As such, all eyes will soon be turning to the safeguards the financial sector is putting in place to help protect the online identities of customers.

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Arguably, then, now is the time to invest in a robust identity verification system that will not only provide the advanced technology needed to automate the process, but that can help train and upskill inhouse teams to truly deliver an embedded and hybrid approach to identity verification at a time when it is of paramount importance.

Steve Cox, Chief Evangelist at IRIS Software Group, explains how tech can be a lifeline for accountants looking to support businesses through the coming months.

Today’s accountants face a litany of challenges, not least navigating through the COVID-19 crisis and increasingly murky Brexit waters - all while keeping up-to-date with the requisite compliance and legislation changes. Though we now have a much clearer idea of what to expect, unlike in the first months of the pandemic, it’s an understatement to say that a huge degree of uncertainty hangs over businesses - and life in general.

The sudden shift to remote working caused chaos among businesses. Some were not prepared for the immediate digital transition, with many struggling to continue business as usual looking to their accountants to guide them through the uncertainty. Accountancy firms have reacted well to this increase in client demands, and while much advice has been given about compliance, the opportunity to change and become better advisors has been cathartic for the industry. But this begs a new challenge.

Reactive advisory was a necessity when we went into lockdown - no one was prepared for a global pandemic - yet accountants were quick to react to the necessary changes, getting their firms running in the cloud with hosting in the early parts of lockdown. But as we head into the next normal, firms need to be proactive. They need to utilise technology and act on the lessons learnt from the pandemic; delivering the strategic, digital-first advisory service businesses now need.

The changing role of technology in accounting

While no silver bullet, technology has, and will continue to play, a central and evolving role in helping accountants support businesses through these uncertain times and throughout the next normal.

Lockdown proved to be difficult for maintaining human interaction between accountants and their clients - something that’s critical in developing a trusting relationship. But harnessing technology meant accountants could carry on as usual, offering first-class digitally powered advisory - approaching problems or opportunities with digital solutions, using tools such as video conferencing. This meant they could continue building relationships with both new and existing clients.

Technology has, and will continue to play, a central and evolving role in helping accountants support businesses through these uncertain times and throughout the next normal.

COVID-19 has unveiled the accountants who have chosen to embrace new, innovative methods of interacting. Those who are proactively utilising digital assets, and interacting in new ways, are noticing that they are interacting far more with their clients than prior to lockdown - calls would have been over the phone rather than video, and meetings may have been cancelled due to lack of convenience.

What’s more, technology has helped accountants understand ‘the perfect marriage’ between human interaction and valuable data. Using data, accountants can compare client history, by accessing real-time information online. This in turn creates a wealth of business understanding, delivering both short and long-term value to all their clients. But, as the role of technology evolves in the accounting world, so too is mandated financial and administrative processes.

Making Tax Digital (MTD) is part of the government’s plans to make it easier for individuals and businesses to manage their records digitally and subsequently their taxes. While at first glance a minefield for many, MTD is a prime example of how harnessing technology can help accountants and their clients automate compliance. That said, compliance is also the traditional safe zone. With the extension of VAT-registered businesses, mandated to keep VAT records in digital form from April 2022, it is far easier to rely on traditional assurance and compliance services, than to invest in a digital-first advisory.

A digital-first advisory

Our world is transforming into digital-first - businesses have been taken online, with many processes automated to manage the new working style. Further, MTD is a clear example of the UK government now jumping on the digital-first bandwagon.

The government’s plans for an economic recovery - the Bounce Back Loan Scheme (BBLS), the Furlough scheme, Kickstart for young people and even the Eat Out to Help out - caused a stir for how businesses manage their funds. And while all designed to speed up our economic recovery, someone has to pay for the billions of pounds spent so far - the Eat Out to Help Out scheme for example has driven UK inflation to a five-year low.

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To pay for this added sum, the UK will most likely see a new tax legislation come into play, so that we can eventually pay off the debt the government has lumped on our economy - with higher rate players paying more. However, with this increase of tax burden, processes need to be streamlined. And this is where MTD steps in.

MTD helps businesses and accountants manage finances efficiently - which right now is vital for survival. Businesses can pay their taxes online - saving time and improving overall business productivity. In turn, businesses now need to work with their accountants and look at their wider business strategy so that it resonates with the new digital compliance. This includes addressing business needs, as well as how they work, employee capacity and all financial outgoings - all of which can be successfully managed through a digital-first advisory approach.

Addressing human business needs

Accountants improve the lives of their clients by addressing human business needs. They are the engines behind their clients’ businesses, and by using technology, can remove cumbersome and time-consuming financial management. However, while accountants have been quick at reacting to addressing these needs, they now need to be proactive and act as a business’s tour guide as we enter the next normal.

The pandemic has created a snapshot of what businesses now need, especially those who relied on old, mandated accounting solutions. Using technology to catch real-time data, accountants can paint a picture of exactly what their clients want and need now and for the future. As experts in their field and the latest legislation changes, accountants are best placed to advise clients on how to navigate these increasingly complex times.

However, every superhero needs a sidekick, and as we enter the next normal, technology will firmly cement itself at accountants’ side. Through automating everyday tasks and processes, accountants will be able to proactively unlock powerful insights into their clients’ businesses; enabling them to move from bean-counter to hero consultant, help clients remain compliant and drive business growth.

Simon De Broise, Senior Associate at Collyer Bristow, examines the likely impact of the acquisition on the two companies and the financial sector as a whole.

The UK Competition and Markets Authority recently cleared the global card network Visa’s acquisition of Plaid, a US-based fintech, whose primary business is to act as an ‘aggregator’ in the payments sector. The deal, first announced in January of this year, is another interesting tie-up between a fintech and one of the established card networks, and the jury is out on whether this move will help or hinder the open banking movement. The acquisition comes at a somewhat difficult time for Visa, as we recently learned that it is being investigated by the European Commission after complaints of anti-competitive behaviour from e-money providers.

Plaid’s aggregator business provides third-party apps and financial institutions with secure access to consumers’ bank accounts, either by means of the aggregator entering into Application Programming Interface (or API) agreements with the consumer’s bank or by managing the consumer’s banking login details directly (a method that banks are now clamping down on for obvious security reasons).

The benefits of this deal for Plaid are plain to see. The aggregator market is competitive and the issuing banks (i.e. those ultimately sending payments from consumers’ accounts) are in a strong position to decide how and when, and with whom, they do business. For instance, the ‘scraping’ of consumers’ online banking details by aggregators for use with other institutions is increasingly considered by banks to be unnecessarily risky from a data security point of view. This means aggregators entering into an API agreement, which are notoriously difficult for aggregators to negotiate, and so the tie up with Visa is likely to put Plaid in a much stronger negotiating position when it comes to doing business with the large retail banks.

The aggregator market is competitive and the issuing banks (i.e. those ultimately sending payments from consumers’ accounts) are in a strong position to decide how and when, and with whom, they do business.

How the deal benefits Visa is more difficult to see. This is certainly not the first time that Visa has made a relatively large investment in a fintech company – it took a stake in the hugely successful Klarna in 2017 - but, in the scheme of Visa’s existing customer base and market share, the purchase of Plaid seems unlikely to have a big impact on the business. One view is that Visa is positioning itself for the greater adoption of ‘open banking’ (the idea that consumers and SMEs allow financial institutions access to some, or all, of their banking data, which in turn provides them with more advantageous terms on certain products and services). As noted above, this would certainly boost Plaid’s power in the market, in particular when dealing with retail banks, and some suggest that this could lead to a more standardised approach to agreeing APIs, thereby making it easier for other participants also and facilitating the development of open banking more generally.

Another view is that the acquisition has little to do with facilitating open banking for all, but rather that Visa is attempting to control the development of open banking in a way that suits its strategic goal of becoming the ‘network of networks’. The argument goes that the purchase of Plaid simply provides Visa with a further avenue through which to channel its existing business - which is to earn revenue from payment transactions. Precisely how it might do this is not yet clear, but it is quite possible that Visa could introduce a revenue raising measure that is something similar to the interchange fees that are currently levied on card payments.

The European Commission’s investigation into Visa may or may not impact on its strategy for Plaid, but, in any event, how Visa develops it aggregator business will be watched closely in the payments sector. Banks, whilst still in a relatively strong position to dictate business terms, will be conscious that the game has changed somewhat given the scale that Visa can now apply to Plaid’s business operations. Others in the sector, fellow aggregators in particular, will hope that the direction of travel will eventually provide them easier access to banking data and, with it, further opportunities in the open banking market.

Karoline Gore shares her thoughts on the evolution of fintech in insurance with Finance Monthly.

The lockdown restrictions imposed in the UK this year have seen the adoption of fintech increase exponentially, according to a survey commissioned by AltFi. The insurance sector has been faced with strong competition in recent times as a number of other industries have started to offer financial solutions that can rival traditional insurance. Not only is the healthcare industry offering ‘medical memberships’ that eliminate the need for insurance, but banks are also quicker at providing loans to help remedy financial damages. It is for these reasons, among others, that operators within the insurance sector have to ensure that they have an advantage over their competition. With the aid of fintech, this goal becomes significantly easier to achieve.

Apps and digital platforms appeal to a younger clientele

As of 2018, Millennials enjoyed a greater spending power than Baby Boomers. Tapping into this segment of the market can be very fruitful as Millennials can provide business for a significantly longer period of time than older generations.  Fintech can make insurance offerings increasingly appealing to a younger, more tech-focused client base. Smartphone applications can be designed with businesses, their clients, or both in mind and can streamline traditional insurance processes considerably. Popular features of mobile applications include a policy overview section, premium calculator, and payment processing area. Many apps as well as dedicated websites also provide clients with a range of relevant reviews. If you are looking at taking out car or home appliance insurance, for instance, reviews can cover aspects such as premiums, service fees, and even cancellation policies.

Machine learning improves data utilisation

Machine learning, which is classified as a type of AI, is another form of fintech which is greatly transforming the insurance industry as we know it. In essence, it is a technology that makes it possible for a machine to ‘learn and adapt’ over a period of time. Typically, insurance operators collect substantial amounts of data on an ongoing basis. Unfortunately, only approximately 10% of the data collected is adequately utilised, rendering it almost useless to the business. Thanks to machine learning, insurance companies can put the collected data to better use. It can be used in a number of ways including fraud detection, risk modelling, underwriting, and demand modelling.

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Niche products become more prevalent

Apart from smartphone applications and machine learning, there is a range of other emerging fintech solutions such as telematics, big data, and comparators that are influencing insurance in numerous ways. Thanks to these technologies, insurance companies are becoming more adept at offering niche products (that more traditional insurers won’t touch) to their clients. A good example of this is London-based Bought by Mary, who made it possible for clients with underlying medical conditions such as cancer to obtain travel insurance. Similarly, a partnership between a leading worship centre insurer in the USA and another entity resulted in the creation of an insurance product that made provision for the protection against frozen pipe leaks in low-tenure buildings.

Fintech has had a great impact on the insurance industry. Apart from improving customer service, fintech can also aid in new customer acquisition while saving the company a significant amount of money.

Sweden-based payment and shopping service Klarna has completed its latest equity funding round, raising $650 million and achieving a valuation of $10.65 billion – cementing it as the highest-valued private fintech company in Europe.

The funding round was led by Silver Lake Partners, Singapore’s sovereign wealth fund GIC, and funds managed by HMI Capital and BlackRock. Other current investors include Dragoneer, Bestseller, Sequoia Capital and Commonwealth Bank of Australia.

Klarna has announced its intention to use the funding to invest in its shopping service and expand its global presence, singling out the US as an opportunity for growth. The company already has more than 9 million customers in the US, and 90 million worldwide.

Founded in 2005, Klarna offers an app-based service allowing users to shop online and pay in interest-free instalments while Klarna pays the seller. It competes with other high-profile fintechs including Revolut and Checkout.

Klarna co-founder and CEO Sebastian Siemiatkowski said in the deal announcement that the company was at “a true inflection point in both retail and finance.”

“The shift to online retail is now truly supercharged and there is a very tangible change in the behaviour of consumers who are now actively seeking services which offer convenience, flexibility and control in how they pay and an overall superior shopping experience,” he said.

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Silver Lake heads Egon Durban and Jonathan Durham hailed Klarna’s business model in a joint statement. “Klarna is one of the most disruptive and promising fintech companies in the world, redefining the eCommerce experience for millions of consumers and global retailers, just as eCommerce growth is accelerating worldwide and rapidly shifting to mobile,” they said.

Klarna’s last funding round was completed in August 2019, raising $460 million and earning the company a $5.5 billion valuation. The company has surged in strength during 2020, as Siemiatkowski claimed in August that the value of transactions processed through its platform increased by 44% through the first six months of the year.

SoftBank has agreed to sell the UK-based Arm Holdings to US chipmaking company Nvidia for $40 billion, a statement released on Sunday confirmed.

As part of the acquisition – which represents the largest ever deal in the semiconductor industry – Nvidia will pay SoftBank $21.5 billion in stock and $12 billion in cash. A further $2 billion payment will be made upon signing, with the possibility of a further $5 billion payment in cash or stock if Arm’s performance reaches certain targets set by Nvidia.

Finally, an additional $1.5 billion in Nvidia stock will be paid to Arm employees. It is expected that SoftBank will own less than 10% of Nvidia once the transaction is completed, which may take as long as 18 months pending regulatory approval in the UK, the EU, China and the US.

If approved, the acquisition will transform Nvidia into a global influence in smartphone technology and cloud data centres, in addition to drastically expanding its already extensive portfolio of graphics chips.

Arm’s primary business is in licensing designs that other companies then turn into chips. Its licensees have shipped over 180 billion chips since its founding in 1990, and the company is becoming increasingly sought-after as Apple, Microsoft, Amazon and other major tech firms ramp up their use of ARM chips. The flexibility of ARM’s technology has turned them into a competitor for Intel’s widely-used chips.

Nvidia said that it will “continue to operate [Arm’s] open-licensing model and customer neutrality while maintaining the global customer neutrality that has been foundational to its success,” in a move to assuage the concerns of regulators and the company’s powerful customers. Nvidia will also add its own technology to those licensed by Arm.

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Arm was also the subject of what was previously the largest deal in the semiconductor industry, when SoftBank purchased it in 2016 for $31.4 billion.

Simon Segars, chief executive of Arm, lauded the deal. “Arm and NVIDIA share a vision and passion that ubiquitous, energy-efficient computing will help address the world’s most pressing issues from climate change to healthcare, from agriculture to education,” he said in a statement.

SoftBank CEO Masayoshi Son also expressed confidence in the acquisition. “NVIDIA is the perfect partner for Arm,” he said. “Joining forces with a world leader in technology innovation creates new and exciting opportunities for Arm.”

“This is a compelling combination that projects Arm, Cambridge and the UK to the forefront of some of the most exciting technological innovations of our time and is why SoftBank is excited to invest in Arm’s long-term success as a major shareholder in NVIDIA.”

Hamzah Almasyabi, co-founder and CEO of the gold-buying platform Minted, outlines the benefits and drawbacks of adopting an investor trading app.

Some of the best-known investment apps, such as Freetrade, Trading 212, Plum and Moneybox, have reported a strong uptick in customer numbers since the start of March, when the UK Government’s lockdown restrictions were imposed. However, in truth, consumers had become more interested in managing their own finances online well before the pandemic. Some platforms have noticed more interest, particularly from younger online investors, who are attracted by the familiarity and gamified nature of the latest investment platforms across a range of asset classes. Equally, older people or more experienced online investors have been exploring ways to make their money go further, sometimes with a view to bringing forward their retirement.

The convenience and simplicity of many new generation investor trading apps is helping to democratise the world of investor trading. It is allowing people to invest in stocks and shares, or precious metals and other commodities, using their mobile phone, while sitting at their own kitchen table. Of course, there are risks but there are also incredible opportunities for people who want to get involved.

When considering investing online for the first time, it makes sense to try out various platforms before starting to invest actual cash. Some platforms offer newcomers a chance to spend virtual money, just to see how their investments might have fared in the real world. Such ‘try-before-you-buy’ services also allow users to test the app’s functionality and make sure it suits their preferences. However, convenience and user-friendly architecture shouldn’t be the main criteria when deciding where to invest for the first time. It makes sense to download a number of options, try them out and compare the terms and conditions of their offer carefully.

When considering investing online for the first time, it makes sense to try out various platforms before starting to invest actual cash.

In some cases, the precise nature of the investment opportunity may not be clear, particularly to the novice online investor. For example, some platforms may appear to be offering a chance to buy stocks and shares, when in fact they are just giving the investor exposure to any movement in the value of the shares. If the investor wants to own shares, this may not be the right option for them.

In a climate of significant stock market volatility, interest in ‘safe haven’ assets such as gold has increased significantly. While there are fewer gold-buying platforms to choose from, there are still some important differences to be aware of. Gold Exchange Traded Funds (ETFs) are popular with some individuals because they provide an easy way of gaining exposure to any increases in the value of gold, whilst still having easy access to the funds if they are needed. On the other hand, gold investors looking to the longer term may prefer to own a physical asset, which has intrinsic value in countries around the world. Buying physical gold can now be achieved without incurring excessive entry and exit costs, making it possible for people with modest amounts of cash to invest incrementally in this luxury asset for the first time.

Before becoming an online investor, individuals should take a step back and consider their personal and financial objectives, taking into account the amount of money they can afford to invest and their risk appetite. These factors will not only influence their choice of asset class, but the features they look for when considering different investment platforms. If any platforms appear to be downplaying risk, over promising returns, or pushing the investor to spend money within a certain timeframe, they should be treated with caution.

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As long as investors have taken the right steps to prepare themselves and understand the potential risks and rewards, online investing can be an empowering and enjoyable experience. What started as a new habit during the pandemic, could have a positive effect on financial wellbeing.

The unsteady nature of this sector pushes banking institutions to stay on top of their game to ensure business continuity and their most important asset – the customer – remains satisfied. In particular, in the last few months the ongoing pandemic has placed unprecedented strain on customers and the companies that seek to support them. As brick-and-mortar locations and offices closed down, or vastly curtailed their face-to-face operations, nearly everyone was doing business from home.

As a result, like many industries, banks had to completely restructure the way they do business, with scores of bank branches either closing or restricting opening hours due to the virus. Therefore, new methods had to be adopted to serve customers and to ensure that the experience they have doesn’t suffer. This is where digital collaboration comes into play. Ryan Lester, Senior Director of Customer Experience Technologies at LogMeIn, examines how digital collaboration can help banks rise to the challenge of meeting customer demands in unprecedented times.

24/7 expectation and frictionless service 

At the height of the pandemic, people were encouraged to use online banking, as telephone contact was under increasing strain with long waiting times becoming the norm. According to Fidelity National Information Services (FIS), which works with 50 of the world’s largest banks, there was a 200% jump in new mobile banking registrations in early April, while mobile banking traffic rose 85%.

With branches remaining closed, customers were continuously being urged to limit the amount of calls they made to the most urgent cases and consider whether they could solve their answers through mobile online banking or checking the company website. Although already being adopted in pockets of the industry, this was a real catalyst that spurred banks to up their game on digital channels and with self-service tools.

According to Fidelity National Information Services (FIS), which works with 50 of the world’s largest banks, there was a 200% jump in new mobile banking registrations in early April, while mobile banking traffic rose 85%.

Banks are challenged with precariously balancing customer needs with the cost of personalised support. With the demographic of customers changing over the last few years, customers are becoming increasingly younger and more comfortable with technology. Influenced by the “Amazon Effect”, their expectations have risen to an all-time high, placing record strain on the sector.

Customer experience isn’t just about support anymore, it’s about serving your customer at every point in the journey. Companies have an opportunity to elevate the experience they provide by moving beyond one-and-done interactions to create continuous engagements with their customers. It is starting to become a primary competitive differentiator in the market and one that doesn’t have a lot of variation. Deploying AI chatbot technology will be able to strategically help banks improve customer experience and raise the level of support that agents provide.

Digital collaboration: The best way forward

By emphasising the importance of adopting digital channels and self-service tools like chatbots, fuelled by conversational AI, banks will be able to help serve a wide range of customer queries and ensure they are protected from fraud and scams.

Conversational AI is exactly what it sounds like: a computer programme that engages in a conversation with a human. When it comes to service delivery, conversational AI can be deployed across multiple channels to engage with customers in ways that effectively address evolving customer needs. At a time defined by COVID-19, self-service tools such a conversational chatbots can work around the clock to solve customer queries in a concise and timely way. Of course, self-service tools won’t completely replace human agents in the banking industry, but they will help companies redistribute customer traffic and workflows in ways that enhance customer experience. Self-service tools fuelled by conversational AI can also improve employee experience because service employees can handle fewer, but higher-level service tasks that chatbots might escalate to them.

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Adopting new tools to help facilitate consistent and concise answers and help maintain customer experience is on the forefront of many industry minds. Banks such as the Natwest Group have seen this first-hand and are testament to the benefits that a good digital experience can provide. Simon Johnson, Capability Consultant, Digital at NatWest Group highlights NatWest’s use of digital tools during lockdown, “Over the last few months, we’ve learnt how to use digital tools to help our employees remotely. From a banking perspective, there have been a lot of changes including base rates, waive fees and the best ways of contacting our vulnerable customers, ensuring we keep them protected from frauds and scams. 

“By introducing our Bold360 chatbot interface, Ella, we’ve been able to get relevant information out quickly, apply the best practice and ensure that our customer journeys are being developed correctly. Due to the volume of questions, some of our customers were finding themselves waiting longer than usual. So digital channels become essential to helping reduce the wait time. Using Bold360, we were able to mitigate issues and answer questions in a more timely way through our chatbot. 

“Moving forward, as we open more digital services, we are analysing our data to see if customer will return back to their usual way of banking, now that they’ve seen what a good digital experience can provide. Either way, with Ella, we are ready.”

AI chatbots and humans supporting each other 

Ultimately, banking institutions have realised the benefits that digital collaboration can bring to their industry and how it can increase profits, while holding customer experience at the forefront of their minds. By providing 24/7 service, readily available information, consistent and concise answers across channels with behind the scenes support from member services representatives, digital collaboration will prove to be an essential component to the banking industry which will change it in the long term, for the better. While not every institution is ready to place chatbots high on their priority lists, the potential of its adoption should not be ignored.

Steve Watmore, Payroll and HR Product Manager at Sage, outlines how firms will need to prepare for the end of the government's support scheme.

The Job Retention Scheme, introduced in April, has been a lifeline for many employers and employees facing the harsh reality of lockdown halting business and operations; total figures from HMRC on claims for the furlough scheme top out at an incredible £31.7 billion as of 26 July.

However, the scheme is not an endless pot; its expiration date has been set for 31 October, and this month marks the beginning of increased costs for employers who now must cover National Insurance and pension contributions. In addition, there will be tapering on the government wage contributions for the scheme from September onwards. In this step-by-step guide we will take a look at what your business can do to effectively respond to the upcoming changes to the scheme that has helped businesses across sectors survive and revive through these difficult times.

1. Find out more about the latest changes and how they affect you

The latest HMRC release details the changes for August through to October that will affect businesses across the UK.

Employers need to plan for cost increases of around £300 per employee from 1 August onwards, since the government will no longer cover national insurance and minimum auto-enrolment pension scheme contributions. In September and October, the employer will have to increase their contributions as the government gradually removes support.

Hypothetically, with cumulative costs shown in brackets, an employer with a furloughed employee on maximum contributions of £2,500 will need to first start paying the employee National Insurance costs in August (c. £300), then account for 10% reduction on government wage contributions in September (c. £600), as well as a further 10% reduction in October (c. £900). The employer will then need to take a view after the scheme dissipates to see whether keeping employees on the payroll is sustainable.

Employers need to plan for cost increases of around £300 per employee from 1 August onwards, since the government will no longer cover national insurance and minimum auto-enrolment pension scheme contributions.

With these changes in mind, we advise that your first step should be to reassess financial and internal communication plans, using government insight as a springboard. Direction can first be taken from HMRC which will help delineate the differences between August, September and October payroll.

2. Involve your employees in plans for recovery

The ONS create a weekly report pulling out stats on Coronavirus and its social impacts. Data from 22 to 26 July shows that 54% of working adults reported they have travelled to work in the previous week. So, as businesses look to open their doors returning to some sort of “normal”, and welcome employees back to the office, this is a chance for employees to play a role in reimagining the business going forward.

In order to get employees to participate in recovery, leaders can initiate new business drives or restrategising sessions and shepherd departmental involvement. Sage has researched into the advisory value that different skills and roles can offer – the fourth annual ‘Practice of Now’ report published in 2020 found that 79% of survey respondents are confident about providing business management and advisory services like cash flow management. In addition, 75% are confident about providing industry-specific advice for clients, such as standard profit margins. 73% are confident about providing technology implementation recommendations like AI and automation. While this demonstrates accountancy can add value to services provided to clients, it also shows that it’s important to use some of that keen insight for internal processes.

Employees who have close knowledge of cash flow can help restructure businesses in the coming months and years; encouraging the involvement of employees to advisory roles outside their normal work will help businesses mould themselves to fit the changed contours of the business landscape.

3. Prepare for future uncertainty by investing in technology

Accounting software from a good partner or software supplier helps avoid costly and damaging errors. Awareness of the HMRC guides and rules will be key, coupled with salient use of technology to find the right figures from your payroll and help initiate processes like payment in lieu.

Accounting software from a good partner or software supplier helps avoid costly and damaging errors.

In order to make the right calculations and adjust payments and payroll accordingly, technology can help provide precise accounting. Payroll software can automatically adjust to the changing reclaim values, compensating for the government removing NIC contributions in August, then the reduction of the September government contribution to wages to 70% of normal gross, then finally with October government wage contributions going down to 60%.

Our third piece of advice would be to invest in the right technology for your organisation; it can help improve the efficiency and productivity – especially important in today’s society. Great tech can help to reduce errors within your business and understand your data more to enable you to respond and react better to demands.

Preparation is key and with these growing costs, businesses need to also assess whether they’ll be generating revenue to accommodate shortfall or have enough work for the employees. Payroll and accounting technology can help provide data and estimations on when companies will be back in the black.

4. Organise the HR side of the change

The key to a successful transition involves mastering the behind the scenes of payroll, knowing the letter of the law and ensuring there is a clear channel of communication between employees, managers, and the accounting department.

Employees need to be aware of the JRS claim periods, alterations to employment contracts, where they stand if they are a freelancer following the end of the scheme, how things like holiday pay is calculated and how the tapering of the scheme will affect them.

For many businesses, fixed costs have not gone away. Rent, rates utilities will all have been accrued costs through this time. For some, supply chain issues or increased costs after full lockdown can also have significant impact on operating margins. It is likely that new contingency plans around maintaining the workforce need to be considered, which unfortunately does include redundancy.

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Employees will need clear communication and guidance during this time in order to help them understand how their payroll and payslips may change, and what steps they may need to take. With the weighty impact of the furlough scheme, companies need to be more cognisant of changes to shift patterns, salaries and probation periods; business leaders need to keep a tight control on finances and internal communication now more than ever.

Last, but not certainly least, supporting your employees through these tough and uncertain times is critical. Offer guidance and care to those that have been affected negatively – establishing wellbeing and support systems that will help deal with difficult transition that are to come as the furlough scheme ends.

Looking ahead

The government introduced the Job Retention Scheme to help mitigate the negative effects of lockdown and let businesses freeze operations to play a waiting game.

Now businesses need to get back into gear and plan for the future. The four key steps we recommend taking to ensure your business remains efficient, effective and prepared for the next phase of the furlough scheme are:

• Understand how some of the latest changes to the furlough scheme will affect your business and payroll efforts – you can find out all the information you need by visiting the HMRC website;
• Involve your employees in plans for recovery – distributing a companywide note with separate plans for rallying departmental teams will be key;
• Prepare for future uncertainty by investing in technology – using accounting and payroll technology will provide great overview of financial stability;
• Organise the HR side of the change – taking care of employee wellbeing during these tough times is a must.

Accounts filed with Companies House this week have revealed that Revolut made a loss of £106.5 million in 2019, an increase from the £32.8 million loss it posted in 2018.

The loss comes despite significant growth in Revolut’s business, with its customer numbers rising from 3.5 million to 10 million over the course of the year. These customers held £2.2 billion on Revolut’s cards by the end of 2019, up from £1 billion in 2018.

Revenues also saw an increase of 180% to £162.7 million, but failed to outpace losses.

In an emailed statement, Revolut chief executive Nikolay Storonsky took an optimistic stance on the news, emphasising the past year’s growth.

“While we still have some way to go, we are pleased with our progress in 2019,” he said. “We tripled our revenues, increased retail customers from 3.5 million to 10 million, increased daily active customers by 231% and the number of paying customers grew by 139%.”

“Despite the current economic challenges, we remain focused on our goal of moving towards profitability.”

Revolut is a London-based fintech startup that aims to build a single universal platform for its customers’ financial needs, initially beginning as an app-linked foreign exchange card before expanding into stock and cryptocurrency trading. It is currently one of Europe’s fastest-growing fintechs, and received a valuation of $5.5 billion during a funding round in February.

Revolut also disclosed in its accounts that it has assisted the government during the COVID-19 pandemic by supplying data on how its customers’ spending habits have changed across sectors while lockdown measures have been imposed.

The special purpose acquisition company also listed shared upon completion of the transaction, the resulting company will continue to operate as Paya. It will be listed using its new symbol PAYA on NASDAQ. The combined company, Paya, now has an implied enterprise value of roughly $1.3 billion as a result of the transaction.

Paya CEO Jeff Hack tweeted that the company is excited about the new partnership and hopes it would accelerate their journey of becoming a public company. He also thanked the company’s existing majority equity holder, GTCR for their continued support and investment.

He added that Paya has an impressive track record of “creating differentiated value” for its software integration partners along with their end customers. Hack also expressed his vision for the future of Paya as a publicly traded company, saying that they will continue investing in product innovation, while also focusing on providing their software partners with excellent support. He added that they company will continue to work towards having access to the required capital for more strategic acquisitions.

Paya management team to continue handling growth strategy

The current management team of Paya, led by CEO Jeff Hack, will continue to be in charge of handling and executing growth strategy of the combined company. GTCR, a leading private equity firm, will continue to be the largest stockholder of the company.

GTCR is no new name in the fintech industry. In fact, it is a long-time investor in the industry known for its successful support of fast-growing finance and payments public companies such as Syniverse, VeriFone, and Transaction Network Services.

The current management team of Paya, led by CEO Jeff Hack, will continue to be in charge of handling and executing growth strategy of the combined company.

Commenting on the merger, Managing Director of GTCR, Collin Roche said that the agreement between Fin Tech III and Paya shows the effectiveness of their Leaders Strategy™ approach and its ability to transform various businesses that belong to industries that GTCR knows as well as the payments industry.

They also expressed their excitement to provide continued support to Paya in "this next chapter of growth," adding that the management team has made calculated investments in technology and talent to build a unique, effective, and scalable integrated payments platform in attractive end markets.

Paya shows a hopeful future in trading

Meanwhile, Paya is no newcomer either. It already has more than 100,000 customers and processes a total of more than $30 billion. It can even deliver vertically-tailored payments solutions to its business customers through Paya Connect, an ACH platform and proprietary card. Paya partners with well-known software providers to deliver these solutions to their business customers, many of which are in markets like healthcare, education, non-profit and faith-based, B2B goods and services, and more.

One of Paya's major appeals is that it boasts a seasoned management team with years of industry experience. The team, led by CEO Jeff Hack, has a combined experience of more than 100 years in the payments industry and they have worked with major companies such as PayPal, JPMorgan Chase, Vantiv, and First Data.

Additonally, Paya also has an attractive financial profile. Its impressive KPIs have set industry standards, and includes an average ticket of more than $200. Besides, the company has a proven track record of high cash flow generation supported by a strong operating leverage and historical growth.

Looking at these impressive highlights, Paya shows a promising future in trading as a public traded company.

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Implications of the transaction

Apart from the implied enterprise value of approximately $1.3 billion for the combined company, the transaction has several other implications. Fin Tech III’s cash in trust will find the cash component of the consideration, along with a private placement from a number of organizations.

The balance of the consideration will include shares of common stock in the combined company. Suppose stock price targets – as specified in the definitive merger agreement – are met. In that case, it is likely that current equity holders in Paya will receive an earnout of additional shares of common stock. By rolling over a large amount of equity into the combined company, the equity holders, along with the management team and GTCR, will continue to be the largest stock holders.

The merger is expected to be completed in the fourth quarter of this year. Approvals from FinTech III stockholder as well as regulatory bodies are still pending as of now.

This transaction is likely to have a significant impact in the fintech trading market. While trading, it is important for investors to use only trusted and reliable trading platforms so they have access to reliable knowledge and resources.

Sources:

https://www.finextra.com/pressarticle/83575/paya-acquired-by-fintech-iii

https://www.businesswire.com/news/home/20200803005351/en/Paya-FinTech-III-Announce-Merger-Agreement

 APIs allow us to make payments seamlessly, reaching the global marketplace at our fingertips, by transmitting information from one piece of software to another.

But as APIs become increasingly part of our day-to-day transactions, how can we make sure they are the best fit for the service users and that they do not fall into the trap of prioritising style over substance? Finance Monthly hears from Henry McKeon, Innovation Architect at moneycorp.

Banks, fintechs and APIs

For incumbent banks, APIs give the opportunity to expand their customer reach, by offering a more accessible range of services, along with potential partnership opportunities with fintechs. However, due to the business model of the bigger banking institution, they are inherently less agile than their fintech counterparts, meaning they often come up against barriers in the development of their API offerings.

On the other hand, we see a number of fintechs who rush to get their API service to market in order to serve their customer base – who are more likely to be tech-savvy. And while they have an agile business model that allows then to be flexible in adapting customer solutions, they don’t have the heritage and pre-built trust with the general public, along with the years of customer feedback to implement into their systems.

The customer at the core

Fundamentally, a successful API has the customer at the very core. In the first instance, it’s vital that the provider looks at the specific customer requirements and relates those needs directly to the API services.  Working closely with end customers helps to provide a better understanding of customer requirements and helps to structure the API offering. In building an API offering, developers should look to engage a number of existing customers to understand their requirements and to offer the functionality that would service clients across a wide variety of industries and needs.

Fundamentally, a successful API has the customer at the very core.

Some customers need efficiency in order to operate at scale; keying payment transactions manually via a web portal doesn’t scale and is error prone. Mass payment file processing provides efficiency and reduces errors but is not always what our high-tech customers are looking for. They want open API services so that they can link their platform directly to payment and foreign exchange services, they want to drive transactions from their own platforms directly. Having the ability to access services via API instead of via files provides the ultimate flexibility.

Building a central set of API endpoints, which provide the core banking on a multi-currency wallet, global and local beneficiary validation, international payment capabilities, peer-to-peer facilities for instant transfers, and 24/7 multi bank dealing and transactional and statement capabilities is part of the core requirement which help service customer needs.

Different industries have different requirements

The diverse needs of the customer journey are put into perspective when looking at invoice factoring customers who service short term debt. They need strong banking facilities for receiving and auto-allocating incoming money. Receiving is a key part of the banking offering, so doing that quickly and across a multi-currency account is a core part of our offering. Having account tiering (Parent-Child segregation) also helps with segregating money and reconciliation.

Invoice factoring companies need efficient pay out capabilities, for paying suppliers (early) and paying back to investors at the end of the agreed term. As a result, the ability for an API to provide speed, global coverage and multi-channel capabilities are crucial. Building receiving information into the API, providing instant access to balancing and received funds, along with the referencing on incoming money therefore becomes a fundamental requirement. This allows customers to understand the source of the money, so they can do checking an allocation on their own platform.

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Freelancing companies are another good use case for APIs. By their very nature, they are collecting and paying consultant salaries and need to be able to capture consultant bank details accurately and securely. In addition, they want to be able to validate these bank details at the point of capture, instead of at the point of payment, in order to avoid any errors or delays. Having the ability to validate local and global bank routing information at the point of entry using an API is a big advantage. Having a validation rules engine enables clients to dynamically configure the capture screens on the source freelancing system. In showing the mandatory banking fields required for each country and currency, it provides clarity on the required fields and validation of the banking details captured as part of the API offering. This functionality fundamentally helps eliminate payment failures, reduce rework and costs in the payment process.

When working with clients running freelancing sites, you’ll often find that they also require FX conversion and payment facilities which need to be embedded into the API to facilitate global pay out requirements. Local payout facilities also help reduce costs of transmission and receipt, as sending through expensive international channels is not always suitable.

This is also echoed in the requirement for shipping companies, that need to be able to pay efficiently for port calls globally. Having access to a wide range of international payments routes and currencies is essential to provide a full service. For example, at moneycorp we have partnered with Inchcape Shipping to provide Smartpay which services the world's maritime industry. Smartpay simplifies the payment process, providing efficiency and transparency and helping to centralize treasury and FX and payment services for the group.

FX providers give substance and style

In the fast-evolving world of API solutions, style is impossible to achieve without substantive attention to detail. This is even more apt in the space of foreign exchange, where achieving speed, efficiency and security can be more of a challenge due to the nature of banking across borders. In this space, to be successful, an API needs the agility of a fintech to evolve to rapidly changing consumer needs but be backed by substantive banking networks and expertise to execute payments securely and quickly across currencies, markets and time zones.