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Finance Monthly. Ed i t or ’ s No t e Hello and welcome to the September 2022 issue of Finance Monthly Magazine! As we slowly prepare to come to terms with the fact that autumn’s just around the corner and we’re nearing the end of Q3, we present you Finance Monthly’s September collection of articles and interviews covering some of the most talked-about topics in the world of finance. Here are some of our favourite stories from this month’s edition: All of this and so much more - I hope you enjoy the content in Finance Monthly’s September 2022 issue! For more financial news and commentary, please visit our website to stay upto-date on industry news as it happens, join the conversation on our Twitter (@Finance_Monthly), like our Facebook page and follow us on LinkedIn and Instagram (@FinanceMonthly). Best wishes, Katina Male Editor editor@finance-monthly.com Copyright 2022 Published by Universal Media Ltd The views expressed in the articles within Finance Monthly are the contributors own, nothing within the announcements or articles should be construed as a profit forecast. All rights reserved. Material contained within this publication is not to be reproduced in whole or part without the prior permission of Finance Monthly. Circulation details can be found at www.finance-monthly.com Universal Media Ltd PO Box 17858, Tamworth, B77 9QG United Kingdom 0044 (0) 1543 255 537 12. Follow us on Instagram Financemonthly Find us on Facebook Finance Monthly Stay Connected www.linkedin.com/finance-monthly Tweet us @Finance_Monthly UniversalMedia Limited Monthly Finance 3 The Ubiquitous Chip Threat or Saviour of the Global Economy? 50. How to Balance ESG FOMO with Robust Risk Management 16. How Interest Rates are Affecting Businesses 28. Banking in 2022: The Changing Dynamic of Lending
4 Finance Monthly. Con t en t s CONTENTS 12. THE MONTHLY ROUND-UP News You Can’t Afford to Miss 8. FRONT COVER FEATURE The Ubiquitous Chip: Threat or Saviour of the Global Economy? 12. BUSINESS & ECONOMY How Interest Rates are Affecting Businesses 16. THE UBIQUITOUS CHIP Threat or Saviour of the Global Economy?
5 Finance Monthly. Con t en t s 40. Turnarounds Explained 54. The Rise of the Chief Sustainability Officer in Financial Services 36. What’s the Future of the Financial Services Industry? The Bridge Loan for Invitalia SAU s.p.a. Completes the Acquisition of GIS Air Compressor 60. TRANSACTION REPORTS 61. BANKING & FINANCIAL SERVICES Banking in 2022: The Changing Dynamic of Lending How Can Finance Departments Prepare for Another Black Swan Event? What’s the Future of the Financial Services Industry? Turnarounds Explained 3 Applications of Machine Learning in Banking Risk Management How to Balance ESG FOMO with Robust Risk Management The Rise of the Chief Sustainability Officer in Financial Services 32. 36. 40. 28. 46. 50. 54. The Impact of Open Banking and Open Finance Top 4 Payment Trends Right Now 20. FINANCIAL INNOVATION & FINTECH 24.
Finance Monthly. Con t en t s
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8 Finance Monthly. THE MONTHLY ROUND-UP News You Can’ t Af ford to Mi ss The Mon t h l y Round -Up Thousands Sign Petition Calling for Emergency Budget as UK Inflation Exceeds 10% Over 100,000 people have signed a petition supporting former prime minister Gordon Brown’s call for an emergency budget to be introduced amid the costof-living crisis. In August, it was reported that inflation has now reached a record high of 10.1%. Online campaigning organisation 38 Degrees said the support the petition has received demonstrates how desperate people are for additional government help. In a comment, 38 Degrees Strategic director Ellie Gellard said: “More than 118,000 people are backing Gordon Brown’s call for an emergency budget to help hungry kids and stop families from freezing this winter.” “38 Degrees’ polling shows two out of three people support all the measures he has put on the table to take control of this crisis – including extra help for eight million vulnerable families and cancelling the energy price rise.” “Britain is so much better than our leadership right now. While PM frontrunner ‘do nothing’ Liz Truss keeps families in the dark about whether any lifelines are coming, the message from the British public is clear: act big and act now.”
9 Finance Monthly. The Mon t h l y Round -Up Eurozone inflation hit a new record high of 8.9% year-on-year in July, according to the EU’s statistics office. The European Union’s statistics office, Eurostat, reported that consumer prices in the 19 countries using the Euro rose 0.1% month-on-month in July for an 8.9% year-on-year increase. This is the highest rise since the Euro was created in 1999. Eurostat said that of the total, 4.02 percentage points came from more expensive energy, which is up due to the Russia-Ukraine war. 2.08 percentage points stem from higher food, alcohol and tobacco costs. In July, the European Central Bank launched a tightening cycle following years of ultra-loose monetary policy. However, the cost of services still increased by 3.7% year-onyear in July, contributing 1.6 percentage points to the final outcome. Eurozone Inflation Hits New Record High Federal Reserve’s Barkin Warns Further Interest Rate Increases are Necessary Richmond Federal Reserve President Thomas Barkin warned that further interest rate increases will be necessary to reduce price pressures. Speaking to CNBC, Barkin said, “So we’re happy to see inflation start to move down [..] I’d like to see a period of sustained inflation under control, and until we do that I think we’re just going to have to continue to move rates into restrictive territory.” According to the Bureau of Labor Statistics, headline consumer prices were flat in July while producer prices were down 0.5%. However, this figure is just one month’s data, with CPI still up 8.5% on a year-over-year basis and the producer price index climbing 9.8%. Each of these figures is still notably over the Federal Reserve’s target of 2%, meaning the central bank must continue to push forward in order to meet this goal. “You’d like to see inflation running at our target, which is 2% at the PCE, and I’d like to see it running at our target for a period of time,” Barkin commented.
Business Economy. 12. The Ubiquitous Chip Threat or Saviour of the Global Economy? 16. How Interest Rates are Affecting Businesses
Making a living as a market strategist is no fun when the market is living in La La Land. But we struggle on. The trick is not to be distracted by the noise and avoid drawing all the wrong conclusions. So, I try not to scream when the market seems blithely unaware of the cataclysm of bad news threatening to overwhelm it. THE UBIQUITOUS CHIP Threat or Saviour of the Global Economy? Bill Blain Strategist at Shard Capital Finance Monthly. Fron t Cove r Fea t ur e 12
More often than ever before I find myself wondering if markets have some form of dementia. Stocks suddenly rise a couple of percent when the news sounds unremittingly bad, solely on the basis that tomorrow will likely be better, or that really, really bad news will force Central Banks to give up on monetary tightening – thus making bad news into good news. Market sentiment is up and down like a see-saw. When senior bankers, like Jamie Dimon of JP Morgan, are telling Finance Monthly. Fron t Cove r Fea t ur e 13
their banks’ largest clients they see a greater than 20% likelihood of something worse than a hard recession – then maybe it’s time to check your hard hat is a snug fit. For the last few months, the tone of markets has become more and more confusing. Whether the driver of uncertainty is China, Russia, inflation, war, Ukraine, energy or simple political or central banking ineptitude – the up and down of prices feels like it is making less and less sense by the day. The thing is – these are all known unknowns, things we are aware of, and have worked out how they will hurt us. As a humble market strategist, I continue to pick the information together to discern probable outcomes. Whether it is raw data, reading through behaviours or seeing patterns in events, there is plenty of information out there – often too much. I try to interpret it and use it to discern what markets might be doing. (The key is to understand markets don’t think – they are just a voting machine.) But the thing that really knocksout markets are the no-see-ums – like the pandemic or the energy spike that has routed European economies. Recently, I was looking at Risk On/Risk Off scenarios and came to the conclusion that US Treasuries will remain the core risk mitigation strategy. What could possibly undermine the mighty dollar? But then I also figured out the role of the humble computer chip in the global economic picture. Such a small thing could trigger a geopolitical crisis. Perversely, the global chip business seems to be in shortterm trouble. Investors are focused on declining demand for chips as post-pandemic shortages ease, and the rapidly escalating costs of new chip foundries required to make new ones threaten to overwhelm the market. Even as some of the major manufacturers have seen their stock price tumble, global demand for chips is set to double in the next decade – hence the need for greater investment. On the other hand, semiconductors (to give chips their proper name) are about the most important component of the global economy. Without chips… nothing works. We would go back to the horse and cart. The imperative from Washington to Beijing is to secure their access to chips. Chips have become a critical strategic good – and that means they have become a key issue in the geopolitical Game of Thrones being played in the South China Seas. Here are some points relating to semi-conductors to think about. Chips are ubiquitous: • The US has just approved a $53 billion bill to boost semiconductor R&D – President Biden promises it will cut costs and create jobs. • China has just revealed a state investigation into how money has been siphoned off from a $100 billion state effort to build and upgrade its semi-conductor sector as part of its $3 trillion plan to move China into the top league of global tech. • Chinese chips are still a generation behind. • It takes 3-4 years to build a new chip foundry – there are critical machines to source and install. “Chips have become a key strategic resource. No one wants a destructive, costly war over Taiwan, or to wreck the global chip supply.” Fron t Cove r Fea t ur e 14 Finance Monthly.
• It takes far longer to acquire the expertise to run it and produce top-end designs. • Taiwan produces over 65% of the global chip supply. It has a monopoly on producing the most complex chips. • Both the US and China are heavily reliant on Taiwanmanufactured chips. • Nancy Pelosi’s most important meeting last month wasn’t with the Taiwanpresident, butwith the mighty Taiwan Semi-Conductor Manufacturing Company (TSMC) – trying to persuade them to expedite the establishment of US production sites. • Sophisticated modern weapons rely on chips. US and NATO stockpiles are being run down to supply Ukraine. China stockpiles remain intact. Raytheon recently reopened the Stinger production line – but could take years to deliver 1200 new missiles to an old design. • Wargames modelling a Taiwan invasion and US intervention suggest a war could cost the US Navy and Air Force over 900 aircraft (half the US inventory) and the bulk of the Pacific Fleet. The Chinese would not win and would see their amphibious forces destroyed. Chips have become a key strategic resource. No one wants a destructive, costly war over Taiwan, or to wreck the global chip supply. The Chinese have enough on their economic plate – property fallout, the domestic loan market, youth unemployment, plus the ongoing damage of COVID restrictions to contend with. The conflict would simply exacerbate their economic weakness ahead of critical party meetings. But… If China wanted to inflict economic self-harm by inviting Western Sanctions and lost manufacturing orders, then they could. The Chinese don’t actually need to invade to thoroughly destabilise the West. All they would need to do is institute a blockade of Taiwan. The West would not be certain of global support against such a move. If the Chinese frame it as domestic police action, the same countries that failed to rally against Russia’s invasion of Ukraine – critically the Gulf States – may decide to withhold support and wait and see how it plays out. A global shortage of chips will swiftly impact the West’s manufacturing capabilities, closing down the auto sector and causing chip rationing towards defence spending. It would be dangerous – a blockade would raise the likelihood of mistakes, miscalculations and raise the risk of confrontation turning a cold war hot. Sprinkle in some more confusion – like a new Trump administration likely to unravel the Western Democratic Alliance and break NATO. Trump had his successes, but his first presidency was an unmitigated disaster in terms of America’s international standing and relationships. He offended US allies and diminished the reputation of the Bastion of Democracy as a reliable partner. Should Trump’s new MAGA republicans win the mid-terms it will further change the signals – perhaps encouraging China to take a risk on Taiwan’s chips… Finance Monthly. Fron t Cove r Fea t ur e 15
Bus i ne s s & Economy 16 Finance Monthly. 2022 has been a difficult year for businesses in the UK. Inflation is rising at its fastest rate in 40 years, and this has led to interest rates hitting their highest level in 13 years at 1.25% – as of July 2022. It is widely understood that the increase in money supply during lockdown coupled with skyrocketing energy and fuel prices have been the main contributors to the current levels of inflation. Both of these factors have hurt business growth this year. Below, we explore how these factors affect businesses. Interest Rates are Affecting How Businesses
Finance Monthly. Bus i ne s s & Economy 17 Interest rates Interest rates refer to the amount a borrower is charged for borrowing a sum of money. When they rise, businesses will find it difficult. Consumers will have to pay more money on their debt in these situations, which usually leads to them having less disposable income. As a result, your business might find it harder to sell your products or services – especially if you deal in luxury goods. Naturally, if interest rates fall, businesses will discover that customers can spend more. The other issue with rising interest rates is that they make it harder for businesses to acquire loans, which in turn impacts how much they might invest in new ideas and projects. It’ll make any loan you take out more expensive and it’ll typically take longer to pay back, which in turn makes individuals and organisations think twice about their long-term outlook. Inflation Inflation can also impact businesses negatively. It refers to the rise in the cost of goods: if inflation occurs slowly, it can be good for business as it encourages consumers to spend in the present. However, sharp inflation can hurt businesses. When inflation soars, the cost of living rises, and employees will ask for higher wages to help them afford essentials. As such, businesses will have to pay higher salaries. But it also affects supply chains. Businesses will have to pay more for the raw goods needed to make their products or carry out their services. When all of these impacts are combined, businesses will find that they’re spending significantly more money each month. What steps are businesses taking to cut costs? When interest rates and inflation rise, businesses usually have to take steps to cut costs. For instance, if a business is interested in purchasing a fleet of vehicles, it’ll look through car lease deals rather than making outright purchases. However, if more dramatic cuts are needed, a business might make the unenviable decision to lay off some of its workforce. This decision can damage the reputation of a company and limit future growth as the business downscales. It’s a tough decision that’s usually made when other, less drastic, cuts have been made without success. Rising interest rates can create a difficult financial period to navigate. Consumers will find it hard to make ends meet each month, while businesses will see their revenue fall. But by taking sensible steps to cut costs and find innovative ways to increase revenue, your business can survive and thrive in the future.
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Innovation 20. The Impact of Open Banking and Open Finance Top 4 Payment Trends Right Now Financial FinTech 24.
F i nanc i a l Innov a t i on & F i nTech 20 Finance Monthly.
Open Banking has matured substantially over the past few years, with the UK, in particular, making impressive strides as an early adopter. For the second year running, it has secured the top spot in Yapily’s league table ranking adoption across European countries. But as with any emerging technology standard, progress is littered with both milestones and speed bumps. Below Ricardo Falter outlines some of his key observations from working with leading players in this space. OPEN BANKING The Impact of OPEN FINANCE and Ricardo Falter FinTech M&A Associate at Royal Park Partners Finance Monthly. F i nanc i a l Innov a t i on & F i nTech 21
Open Banking will reshape the global financial services system It is no longer a question of if Open Banking will continue to evolve, but a question of how quickly it will accelerate. As Open Banking’s remit continues to expand, it will fundamentally change how we use financial products. Open Banking can be used to assess a consumer’s creditworthiness, for example, by opening the doors to novel products aimed at supporting financial health and inclusion. The complex world of credit scores will be simplified through the transparency Open Banking provides. Authorised Open Banking FinTechs can securely access a customer’s bank account to see incoming and outgoing transactions, providing a foundation from which to accurately assess users’ credit scores and personalise services accordingly. Personal Financial Management platforms (PFMs) like Money Dashboard are leveraging Open Banking technology to provide their clients with insights into transaction behaviour. Its retailer clients, such as supermarket chains, benefit from a better understanding of what their customers spend their money on when they are shopping at other stores. Its investor clients, meanwhile, use the data to predict how companies are operating in order to decide whether to invest in a stock. Another example of a company paving the way forward is Bud – which is demonstrating what is possible through Open Banking-powered personalisation and AI automation. Banks use Bud’s products to automate lending decisions and perform more accurate affordability checks – improving risk assessment while delivering more tailored services to their customers. From Open Banking to Open Finance In the future, Open Banking will evolve into Open Finance, meaning that data-sharing will not be limited to transactional bank account data only. Other types of (financial) information will become accessible to authorised third parties, creating a more interconnected financial ecosystem. Crypto wallets, pensions, insurances, mortgages, stock trading and other wealth management accounts – will all become accessible to facilitate easier exchanges of data, helping providers to establish a comprehensive digital overview of a customer’s financial position and encourage continued innovation. These benefits will not be limited to retail customers. Another important area of expansion will be to use Open Banking solutions in the B2B space. Highlighting the potential use-cases, McKinsey estimates that merchants collectively spend $100 billion annually on transaction fees. Through account-to-account (A2A) payments, Open Banking players are already enabling the direct transfer of money between accounts without relying on third-party intermediaries or payment cards – offering a real-time and cost-effective solution to the problem. F i nanc i a l Innov a t i on & F i nTech 22 Finance Monthly.
Overcoming the biggest challenges There are three main obstacles on the road to Open Finance: 1. Access to data How do we make it easy for providers to access data from a broad range of financial institutions? Technological integrations (APIs) must be built to support the efficient flow of data but building integrations that work with each financial institution is a tedious and fragmented process. To facilitate this, data and API standardisation needs to be implemented in order to make the task of providing access to data across the whole ecosystem simpler. On the other hand, the reluctance of institutions to share highly valuable customer data will restrict access. This means regulators will need to step in – as they did for Open Banking – to create a legal environment that opens financial data for third parties to access through standardised APIs. 2. Analysing the data Making sense of huge volumes of data is already a gargantuan task, even when it “only” covers Open Banking data. This becomes even harder if data from a wider set of financial products is considered. FinTechs will need advanced categorisation engines and other analytical tools to structure and analyse the information they receive. FinTechs and companies can have access to all the Open Banking data in the world, but if they cannot create a way to analyse it, they will struggle to draw out any valuable insights. Leading providers like Money Dashboard have already done the legwork when it comes to data analysis – its Open Banking categorisation engine has been trained on over 10 years of data, which allows it to accurately classify consumer transactions. Other providers must follow suit if they haven’t already. 3. Compliance Whenever personal information is shared, it is crucial to have a stringent compliance framework in place, to prevent any breaches or misuses of data. This, however, is not the challenge – the real challenge is ensuring that regulation protects the consumer, without stifling innovation. In order to achieve this delicate balance, regulators will need to have open and constructive dialogues with Open Finance providers, and together create an environment that nurtures innovation without threatening data privacy. An M&A outlook Open Banking is still a relatively early-stage technology, so we will continue to see a lot of investor activity in this space, with the market expected to grow to $43 billion by 2026. Companies with an innovative product and state-of-the-art tech will have no problems raising funds. For instance, UK-based Bud raised $80m in June to continue to scale its AI-based Open Banking platform and expand internationally. In the M&A space, we expect to see an increase in activity as small, unprofitable companies (who have developed good technology) might decide to look for a buyer as Venture Capital funding becomes harder to access. Some of the industry’s largest players could also merge in order to consolidate the market, create synergies and expand their reach. Notably, Apple’s recent acquisition of Credit Kudos, which develops software that uses consumers’ banking data to make more informed credit checks on loan applications and is a challenger to the big credit reporting agencies (Equifax, Experian and TransUnion)., signals interest from further afield. With more and more businesses making inroads into financial services, M&A activity in this space is heating up. Having advised on a number of M&A and fundraising transactions in the Open Banking space, Royal Park Partners have seen first-hand the impressive leaps companies are making to transform Open Banking and increasingly Open Finance into a positive and productive tool for customers and businesses. In the future, Open Finance will provide the infrastructure to connect all financial products that consumers and businesses use, while also providing access to innovative new solutions. The digital imperative for financial services firms cannot be understated. In order to ensure their (and their products’) relevance in the future, they will have to embrace Open Banking and Open Finance technology. Finance Monthly. F i nanc i a l Innov a t i on & F i nTech 23
F i nanc i a l Innov a t i on & F i nTech 24 Finance Monthly. In the aftermath of the pandemic, against a backdrop of increasing cost of living, people’s payment habits continue to evolve - along with their expectations for the future of the checkout. In April this year, Paysafe interviewed 11,000 consumers in 10 countries across Europe and the Americas to better understand the key consumer payment trends we are seeing today. Here are the top four findings from that research. TOP PAYMENT TRENDS RIGHT NOW Chirag Patel- CEO of Digital Wallets at Paysafe 1. Customers want better money management Many households are taking a more cautious approach to spending due to soaring prices, causing consumers to reconsider their choice of payment methods. 44% of respondents have changed their habits as a direct result of the rising cost of living, the majority of whom are searching for options that enable them to track their spending more accurately. Debit cards were the most preferred online payment method for those who had changed their payment habits, with 59% of respondents paying via debit card
Finance Monthly. F i nanc i a l Innov a t i on & F i nTech 25 in the month leading up to taking our survey — a 5% increase since 2021. Digital wallet use has also experienced a surge – perhaps, in part, thanks to their money management features, with twofifths (41%) using them more than they did a year ago. Interestingly, 16% of those who changed their payment methods are paying with crypto more frequently. On the other hand, credit-based payments are trending downwards, except for credit cards which remain the second most popular online payment method (51%) behind debit cards. They’re also the preferred way to pay for bigticket purchases including long-haul flights, holidays and household appliances. 2. Cash is turning digital Although the majority of consumers (52%) are using cash less often, it still makes up almost a third (31%) of inperson transactions. Respondents still hold cash in high regard, with 59% viewing it as the most reliable payment method and 70% stating they would be concerned if they couldn’t access it. As well as remaining a popular choice for in-store payments, cash is also establishing itself as a prominent online payment method, suggesting it is here for the long haul. In the last year, eCash payments — online transactions paid in cash — have increased. And in further good news for the traditional payment method, 47% of respondents would prefer to make online purchases in cash, and 44% would buy online more often if they could pay in cash. Although our research didn’t focus on the reasons behind this trend, we imagine the cost-of-living crisis is likely a factor. 26% of those who have changed their payment habits due to inflation are using eCash more often, a method that would enable them to monitor their online spending more closely. Another benefit of eCash for the increasingly tech-savvy consumer is that it can protect against online fraud by acting as an added layer of security. Consumers can make online payments without sharing any sensitive financial details. 3. Security is a top priority, but not at the cost of experience For 44% of respondents, security is the main concern when paying online and, if it’s not addressed upfront, this is a barrier to the first transaction for consumers. 70% don’t feel comfortable sharing their financial details online, and 62% would worry if they weren’t asked for any security information before completing payment. 44% are happy with the current balance between security and convenience when making online payments, and 23% would only accept additional security measures if the inconvenience were minimal. This suggests that any advancements to security at the checkout must not interfere with a convenient consumer experience as the balance is key for customers. 4. A golden opportunity in embedded payments Embedded payments are one of the hottest fintech trends. Our research confirms its untapped potential, and although consumer awareness remains low – 49% haven’t heard of the term embedded payments – many have likely used the technology unknowingly. 31% can see themselves using embedded payments within the next two years if the technology becomes more widely available and they learn more about it. The 51% who have heard of the term also feel upbeat about the future of embedded payments, with the majority believing they’re safer than traditional payments. Given consumers’ reduced appetite for risk and their unwillingness to accept more friction, embedded payments represent a huge opportunity for merchants. And with some education on the benefits of adopting the technology— particularly how it can satisfy consumers’ desire for a balance between security and convenience, it could be a win-win. For merchants, it could build a promising revenue stream, whilst boosting trust and increasing loyalty amongst consumers. What does the future hold? Inflation looks set to continue rising, which means in turn consumers will likely become even more selective with their spending, particularly online. At the same time, they’ll also continue expecting to pay securely with a frictionless checkout experience. For merchants, offering a variety of payment methods at the checkout continues to be a priority, and if there were any question marks over cash, the impact of the rising cost of living has established it as a must. Customers want more flexibility and control so appealing to this with a broad selection of payment methods will be key. One more complex consideration for merchants is how they build relationships with consumers by engaging and educating them on new technologies. For example, embedded payments increase security and are more convenient for consumers, however ongoing education about the benefits can only be a good thing to drive mass adoption.
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Banking Financial Services 28. 32. 36. 40. Banking in 2022: The Changing Dynamic of Lending How Can Finance Departments Prepare for Another Black Swan Event? What’s the Future of the Financial Services Industry? Turnarounds Explained 3 Applications of Machine Learning in Banking Risk Management How to Balance ESG FOMO with Robust Risk Management The Rise of the Chief Sustainability Officer in Financial Services 46. 50. 54.
Bank i ng & F i nanc i a l Se r v i ce s 28 Finance Monthly. Thomas Chaplin Head of Mortgage Product at nCino, EMEA BANKING IN 2022: The Changing Dynamic of Lending
Finance Monthly. Bank i ng & F i nanc i a l Se r v i ce s 29 The UK is currently facing its worst cost-of-living crisis in decades and, as we saw during the pandemic, social and economic upheaval puts new pressures on financial institutions.
For example, over the COVID lockdowns, business lending in the EU increased by an average of 5.3%, with banks struggling to keep pace with the steep increase in demand. With a recession looming, we can expect another increase in business loan applications and financial institutions need to be prepared. Over the coming months, lenders will need to move fast to process these increasing loan applications. But not all will have learned the lessons of the pandemic and invested in the digital infrastructure that allows them to scale and pivot at pace. The laggards need to move now, employing up-to-date technology and automation solutions so they can work faster and more efficiently. Otherwise, customers will vote with their wallets and look elsewhere for their banking needs. The cloud’s silver lining The first step for banks looking to boost digital innovation is a shift to the cloud. Today’s customers expect banking processes to be as easy and efficient as online shopping. This can only be achieved through the scale and agility provided by cloud technology. Cloud computing provides lenders with secure andagile infrastructure on which they can more easily streamline business processes, deploy new solutions and enable innovation to meet the speed at which customer expectations evolve. For banks looking to ready themselves for an increase in loan applications, cloud infrastructure will let them automate many parts of the customer journey, from application and KYC, through to approval and account management. For example, Cynergy Bank’s use of identity verification automation through its cloud-based platform cut onboarding time from three days to 54 seconds. Another benefit of using cloudbased systems is the ability to “Customercentricity should be the ultimate priority for any bank, whatever the economic climate. It is no longer enough to be able to access banking amenities from your sofa, they need to be available 24/7 and easier to navigate than ever before.” Bank i ng & F i nanc i a l Se r v i ce s 30 Finance Monthly.
scale more easily. Traditional banks’ legacy architectures make continuous evolution more difficult, as upgrading hardware is often both time-consuming and expensive. In contrast, cloud technology, often used by neobanks, is far nimbler, with the concept of growth an inbuilt characteristic. Keeping pace with the customer Customer-centricity should be the ultimate priority for any bank, whatever the economic climate. It is no longer enough to be able to access banking amenities from your sofa, they need to be available 24/7 and easier to navigate than ever before. People say that television killed our attention span, but the pandemic finished off our patience. The good news is that, in the UK, banks have already invested in the cloud infrastructure to stay ahead of customer expectations. For example, Yorkshire Building Society knew that to maintain strong customer relationships it needed to move away from manual processes and allow employees to be more efficient. A shift to the cloud has enabled the organisation to become 90% paperless with staff spending less time searching for information on spreadsheets and more time accelerating customer service. This change has seen the Commercial Lending Department reduce the amount of time it takes to produce offer letters and facility agreements for customers by 75%. Similarly, Santander UK has been able to use cloud computing and digital tools to stay ahead of customer expectations. Technology investment has enabled faster loan origination and decisioning, ultimately improving the overall customer experience. This speed of service will be critical as banks scale up to better support customers over the coming downturn. However, it is not too late for those who have not yet embarked on the digital journey. Cloud solutions can be seamlessly implemented within a short period of time; start now and you and your customers will soon reap the rewards. “Over the COVID lockdowns, business lending in the EU increased by an average of 5.3% with banks struggling to keep pace with the steep increase in demand.” “A shift to the cloud has enabled the organisation to become 90% paperless with staff spending less time searching for information on spreadsheets and more time accelerating customer service.” “This change has seen the Commercial Lending Department reduce the amount of time it takes to produce offer letters and facility agreements for customers by 75% ” Finance Monthly. Bank i ng & F i nanc i a l Se r v i ce s 31
Bank i ng & F i nanc i a l Se r v i ce s 32 Finance Monthly.
Businesses, whatever their shape or size, crave certainty. Unfortunately, there has been very little of that in recent times, with the world seemingly lurching from one crisis to another. BLACK SWAN EVENT? How Can Finance Departments Prepare for Another Finance Monthly. Bank i ng & F i nanc i a l Se r v i ce s 33
34 Finance Monthly. Bank i ng & F i nanc i a l Se r v i ce s In the finance world, an extremely negative occurrence that is often difficult to predict is referred to as a black swan event. Think the 2008 financial crash, Brexit, COVID-19 and Russia’s invasion of Ukraine – these were all unpredictable events which sent shockwaves through financial markets. They have also had huge knock-on impacts on businesses. Predicting the future is always challenging, but it has become notoriously difficult of late. It’s a reality that is causing headaches for many companies and their finance teams when it comes to planning both the short-term and the long. Research MHR conducted with senior managers, C-level executives and business owners from firms with between 500 and 5,000 employees in the UK and Ireland revealed that responding quickly to unexpected changes in the market is one of the top challenges organisations face today. Indeed, 85% of those surveyed also said that there are areas that they need to change significantly to increase their level of business resilience. Being prepared for future black swan events is undoubtedly critical if organisations are to properly futureproof themselves. However, being ready for the unexpected is never straightforward. Fortunately, there are some basic steps that finance teams can take to build greater resilience within their department, and their business, ahead of the next crisis, four of which are outlined below. 1. Understand what is critical to your business The first step any business should take is understanding what they simply cannot do without. Finance departments should work together with other teams in the business to understand which thirdparty relationships are critical to delivering products and services to clients, and ensure there is resilience in these relationships and their associated supply chains. By identifying these missioncritical partnerships, firms can be sure that they can continue to deliver for their clients, no matter what happens in the organisation. 2. Embrace agile and adaptable financial planning Becoming agile and adaptable is a term often peddled by technology vendors. In practice, agility can be defined as the ability to move quickly and easily, which in planning terms means being able to prepare for multiple possible scenarios inside a short timescale of just a few days. Being adaptable, meanwhile, is about adjusting to new conditions. For finance teams, this means operating with a model that enables organisations to make key decisions quickly to gain a competitive advantage. Those finance teams which have an agile and adaptable planning process will meet or exceed the expectations of their business and be viewed as key strategic stakeholders by the C-Suite. This could be by implementing rolling forecasts, or even predictive analytics to give more foresight over how a particular scenario might impact the business. Tools like this help businesses adapt quickly should a black swan event occur, and that can have a positive impact on working hours and reduce associated stress levels too. 3. Collaborate across departments Finance teams also have the potential to bring other departments together and build better collaboration practices. By sharing data and insights, departmental needs and concerns, and generating an understanding of how different scenarios impact different parts of the business, “In the finance world, an extremely negative occurrence that is often difficult to predict is referred to as a black swan event.”
35 Finance Monthly. Bank i ng & F i nanc i a l Se r v i ce s scenario planning will become far more comprehensive and relevant. And that will only help the organisation further prepare for uncertain events in the future. 4. Boost analytics capabilities with new tech Planning processes can also be improved by incorporating more technology. Data from a poll MHR conducted in 2020 showed that some 45% of finance departments in the UK were relying on spreadsheets to plan their recovery from the pandemic downturn. What’s more, only three in 10 companies (32%) stated they were ‘very confident’ in the accuracy of their business reporting and modelling. Those that adopt cloud-based planning analytics software are benefiting from additional speed, flexibility and accuracy, as well as the ability to model multiple detailed scenarios quickly. Such technologies will also help to free up admin time for colleagues, enabling them to focus greater attention on value-added tasks that could help firms better prepare for black swan events in the future. Building resilience now If the volatility of the last few years has taught us anything, it is that businesses need to build their resilience sooner rather than later. Indeed, more than one in three (36%) of companies we surveyed in our business resilience report rate their ability to withstand nonroutine events as ‘less than good’. By adopting some or all of these steps outlined above, finance teams and their organisations can be better prepared for the next black swan event. “If the volatility of the last few years has taught us anything, it is that businesses need to build their resilience sooner rather than later.” Anton Roe CEO at MHR, HR, Payroll and Finance experts
Bank i ng & F i nanc i a l Se r v i ce s 36 Finance Monthly.
Multiple high-street banks have announced closures in recent months, with Lloyds Banking Group, for example, reporting plans to shut over 150 branches. Why are we seeing these closures and what does it mean for the future of the industry? What’s the Future of the Financial Industry? Services Hans Tesselaar Executive Director BIAN Finance Monthly. Bank i ng & F i nanc i a l Se r v i ce s 37
38 Finance Monthly. Bank i ng & F i nanc i a l Se r v i ce s The move from one of the UK’s largest banking groups, Lloyds, is a prime example of how the industry is adapting to consumer trends and the shift to online banking. Statistics show that in 2007 around one-third of consumers used online banking. Today, more than 90% of consumers conduct most of their banking needs online. This shift in behaviour has gradually changed the industry, but it is clear that the future of the financial services industry is digital. However, the closure of bank branches has forced a seismic divide between those who prefer to bank online and those who don’t. It has also raised many questions about the readiness of our high-street banks when it comes to supporting this divide and future-proofing services. Amid these branch closures, how can banks ensure that they are supporting all customers, both online and via the high street? It’s true, not all consumers are willing or capable of making the digital change, and there will always be those who prefer to bank manually. As banks continue to accelerate their digital transformation, the closure of more high-street banks is inevitable. As a result, those who prefer to bank in person could be left in the dark when it comes to managing their finances. We’ve seen some banks providing hands-on support at their branches for those unable to access digital services at home. This approach has helped to improve accessibility and increased education around digital initiatives. It has also encouraged increasingly more people to embrace digital ways of banking. The industry and regulators are also focusing on introducing plans to support those who are less digitally experienced. What are some of the initiatives that the industry and regulators are putting in place to support those who prefer to continue banking via the high street? Recently, a pilot agreement was launched for banks to share services to support the local community and the future of cash. Large banks across the UK will assess local needs every time a branch closes. The assessment could recommend a shared branch opens, an ATM installed, or a Post Office is upgraded. Banks will commit to delivering whatever is recommended to support those customers who prefer to bank in person. What’s more, the Financial Conduct Authority has proposed that banks will have to provide a more detailed analysis to justify closing a branch. The FCA will also have the power to ensure local communities across the UK have access to cash and banks who don’t comply could face fines. This will make sure that in those areas where digital adoption is not common, access to physical services will remain a priority for banks. These are promising initiatives, but the industry must do all it can to ensure these initiatives are widespread. It must also continue to think outside the box, innovate and develop other initiatives aimed at those reluctant to embrace digital banking. “To truly digitise banks, they need to overcome these obstacles surrounding interoperability with a coreless banking model.”
39 Finance Monthly. Bank i ng & F i nanc i a l Se r v i ce s How can banks focus on innovating and continuing to improve and develop the digital customer experience, while catering for all customers? There is no denying the dramatic shift in consumer behaviour to digital. This should be taken as an opportunity for banks to futureproof their services and improve the online customer experience. However, the extensive use of legacy technology within banks, means the speed at which these established institutions can bring new services to life is often too slow and outdated. This challenge is also complicated by a lack of industry standards, meaning that banks continue to be restrictedby having to choose partners based on their language and the way they’re able to transform the bank. To truly digitise banks, they need to overcome these obstacles surrounding interoperability with a coreless banking model. This approach to transformation empowers banks to select the software vendors needed to obtain the best-of-breed for each application area without worrying about interoperability and being constrained to those service providers that operate within their own technical language or messaging model. By translating each proprietary message into one standard message model, communication between different organisations is, therefore, significantly enhanced, ensuring that each solution can seamlessly connect and exchange data. Are there additional approaches that banks should be considering to further enhance the customer experience? In addition to taking a coreless approach to banking, banks must form an ecosystem alongside FinTechs, service providers, and aggregators. This will help banks when it comes to the speed they can introduce new products, which in turn will support the customer experience. An effective ecosystem strategy will make banks more relevant to their customers, creating an opportunity to drive better relationships and bigger wallet shares by providing the speed, scale and differentiated products that make the most of the opportunity presented by the significant shift to digital banking. If banks fail to take this approach, they will struggle to survive as consumers continue to demand new, digital services aligned to their needs. So, what can banks do to prepare for the future and make sure they are providing for all customers? While we anticipate that there will continue to be more high-street branch closures, the industry must continue to adapt based on the needs of every single customer. Failing to do so only means that customers will leave for a nimbler competitor who understands the customers both now and in the future. This may seem like a hard weight to bear for many across the sector. By taking a core banking approach to transformation, however, supported by an effective ecosystem – banks will benefit immensely. If banks continue to focus on the balance between maintaining previous methods of banking and the development of new and innovative services based on the needs of every customer, the future will be bright. “In addition to taking a coreless approach to banking, banks must form an ecosystem alongside FinTechs, service providers, and aggregators.”
John M. Collard is the Chairman of Annapolis, Maryland-based Strategic Management Partners, Inc - a turnaround management firm specialising in asset and investment recovery, outside director corporate renewal governance, investing in and rebuilding underperforming troubled companies, and interim turnaround management. He is a Certified Turnaround Professional (CTP), Certified International Turnaround Manager (CITM), who brings over 35 years of senior operating leadership, $85M+ asset and investment recovery, 45+ M&A transactions worth $1.2B, and $80M fund management expertise to advise companies. John is the Past Chairman of the Turnaround Management Association (TMA), Past Chairman of the Association of InterimExecutives, Senior Fellow at the Turnaround Management Society, serves on public and private boards of directors, and advises companies, and private equity investors. He’s enshrined in Turnaround Management, Restructuring and Distressed Investing at the Industry Hall of Fame and frequently writes articles on turnarounds and outside leadership. We speak with him on all things turnarounds over the next pages. TURNAROUNDS EXPLAINED John M. Collard - Strategic Management Partners Bank i ng & F i nanc i a l Se r v i ce s 40 Finance Monthly.
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