Many start-up businesses are short on cash, and there is a temptation to try and save money by missing out costs which are deemed non-essential in terms of the day-to-day operation of the business. In reality, legal protection and a sound financial strategy could be the difference between a short-lived project and a long-term success.

Here are 7 ways to ensure your start-up business is legally protected.

1. Structure your business

When you go to register your business with the state, you will need to choose a business structure and the choice you make will decide how much you pay in taxes as well as your personal liability. Your options are: Sole Proprietorship, Partnership, Limited Liability Company (LLC), Corporation, or S Corporation. While your choice will be dependent on many factors, many businesses become an LLC as this separates your personal assets (home, vehicle, savings) from your business assets. You will also need to apply for a tax ID number and ensure you have the appropriate permits and licenses.

2. Get insurance

Although you might think or hope that you will never need it, every business should take out commercial liability insurance. This protects your business financially if your company is sued by a third party such as a customer or vendor. General liability insurance does not cover things that happen to you, your employees, or commercial premises. Additional insurance policies you may want to consider include professional liability insurance (which covers costs incurred because of errors in your work), commercial auto insurance which covers damage to commercial vehicles and property, and workers’ compensation insurance.

General liability insurance does not cover things that happen to you, your employees, or commercial premises.

3. Contracts for employees

Whether you will be taking on employees soon, or in the future, you need to ensure that you are compliant with the law, your responsibilities as an employer, and employee rights. This is a complex topic, so be sure to consult with a legal professional to ensure you have covered all areas including health and safety, code of conduct, discrimination, working hours, etc. If your employees will be working on premises, you also need to ensure that you are providing a safe work environment with all the necessary risk assessments, equipment, and precautions.

4. Working with outside suppliers

If you will be outsourcing aspects of your business to another company, you need to ensure that you cannot be held liable for their actions. For example, if they are not fair to their employees in terms of health and safety, pay, or ethical working practices, you may become tarnished by association.

It is also essential that you read the fine print of any contracts you sign with suppliers, question any points which you are not comfortable with, and do not be afraid to negotiate.

5. Protect your intellectual property

An original business idea may need to be protected by trademark or copyright to prevent another company from taking advantage of your creativity, but this can be complex, so it is best to get advice from an intellectual property lawyer.

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6. Pay your taxes

While keeping track of income and expenditure might be simple in the beginning, as your business grows it will be easy to lose track and make mistakes. A professional bookkeeper will be able to advise you not only on what receipts you need to keep and what taxes you need to pay, but they can also complete your tax returns and ensure you take advantage of any tax benefits you can claim.

7. Cybersecurity

Whether you are running your business from one computer, several computers, or a combination of devices, all your technology needs to be protected against cyberattacks. You not only need to secure your sensitive data and financial information, but the law is increasingly strict regarding businesses which are not protecting customer and employee data adequately.

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.

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.

Kris Sharma, Finance Sector Lead at Canonical, explores the value of open source technologies in steering financial services through times of disruption.

In a post-Brexit world, the industry is facing regulatory uncertainty at a whole different scale, with banking executives having to understand the implications of different scenarios, including no-deal. To reduce the risk of significant disruption, financial services firms require the right technology infrastructure to be agile and responsive to potential changes.

The role of open source

Historically, banks have been hesitant to adopt open source software. But over the course of the last few years, that thinking has begun to change. Organisations like the Open Bank Project and Fintech Open Source Foundation (FINOS) have come about with the aim of pioneering open source adoption by highlighting the benefits of collaboration within the sector. Recent acquisitions of open source companies by large and established corporate technology vendors signal that the technology is maturing into mainstream enterprise play. Banking leaders are adopting open innovation strategies to lower costs and reduce time-to-market for products and services.

Banks must prepare to rapidly implement changes to IT systems in order to comply with new regulations, which may be a costly task if firms are solely relying on traditional commercial applications. Changes to proprietary software and application platforms at short notice often have hidden costs for existing contractual arrangements due to complex licensing. Open source technology and platforms could play a crucial role in helping financial institutions manage the consequences of Brexit and the COVID-19 crisis for their IT and digital functions.

Open source software gives customers the ability to spin up instances far more quickly and respond to rapidly changing scenarios effectively. Container technology has brought about a step-change in virtualisation technology, providing almost equivalent levels of resource isolation as a traditional hypervisor. This in turn offers considerable opportunities to improve agility, efficiency, speed, and manageability within IT environments. In a survey conducted by 451 Research, almost a third of financial services firms see containers and container management as a priority they plan to begin using within the next year.

Open source software gives customers the ability to spin up instances far more quickly and respond to rapidly changing scenarios effectively.

Containerisation also enables rapid deployment and updating of applications. Kubernetes, or K8s for short, is an open-source container-orchestration system for deploying, monitoring and managing apps and services across clouds. It was originally designed by Google and is now maintained by the Cloud Native Computing Foundation (CNCF). Kubernetes is a shining example of open source, developed by a major tech company, but now maintained by the community for all, including financial institutions, to adopt.

The data dilemma

The use cases for data and analytics in financial services are endless and offer tangible solutions to the consequences of uncertainty. Massive data assets mean that financial institutions can more accurately gauge the risk of offering a loan to a customer. Banks are already using data analytics to improve efficiency and increase productivity, and going forward, will be able to use their data to train machine learning algorithms that can automate many of their processes.

For data analytics initiatives, banks now have the option of leveraging the best of open source technologies. Databases today can deliver insights and handle any new sources of data. With models flexible enough for rich modern data, a distributed architecture built for cloud scale, and a robust ecosystem of tools, open source platforms can help banks break free from data silos and enable them to scale their innovation.

Open source databases can be deployed and integrated in the environment of choice, whether public or private cloud, on-premise or containers, based on business requirements. These database platforms can be cost-effective; projects can begin as prototypes and develop quickly into production deployments. As a result of political uncertainty, financial firms will need to be much more agile. And with no vendor lock-in, they will be able to choose the provider that is best for them at any point in time, enabling this agility while avoiding expensive licensing.

As with any application running at scale, production databases and analytics applications require constant monitoring and maintenance. Engaging enterprise support for open source production databases minimises risk for business and can optimise internal efficiency.

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Additionally, AI solutions have the potential to transform how banks deal with regulatory compliance issues, financial fraud and cybercrime. However, banks need to get better at using customer data for greater personalisation, enabling them to offer products and services tailored to individual consumers in real time. As yet, most financial institutions are unsure whether a post-Brexit world will focus on gaining more overseas or UK-based customers. With a data-driven approach, banks can see where the opportunities lie and how best to harness them. The opportunities are vast and, on the journey to deliver cognitive banking, financial institutions have only just scratched the surface of data analytics. But as the consequences of COVID-19 continue and Brexit uncertainty once again moves up the agenda, moving to data-first will become less of a choice and more of a necessity.

The number of data sets and the diversity of data is increasing across financial services, making data integration tasks ever more complex. The cloud offers a huge opportunity to synchronise the enterprise, breaking down operational and data silos across risk, finance, regulatory, customer support and more. Once massive data sets are combined in one place, the organisation can apply advanced analytics for integrated insights.

Uncertainty on the road ahead

Open source technology today is an agile and responsive alternative to traditional technology systems that provides financial institutions with the ability to deal with uncertainty and adapt to a range of potential outcomes.

In these unpredictable times, banking executives need to achieve agility and responsiveness while at the same time ensuring that IT systems are robust, reliable and managed effectively. And with the option to leverage the best of open source technologies, financial institutions can face whatever challenges lie ahead.

Stefan Pajkovic, CEO at TradeCore, shows Finance Monthly how fintechs can better understand and make use of the potential of data.

The majority of fintechs aren’t using the data they collect to their full potential, which is strange given its huge value. It can inform better, engaging communications strategies, lead to new development of products and services, as well as add greater personalisation and understanding of a business’s customers. This brings benefits to a fintech's customers, but it also means that fintechs are able to get the most value from current, as well as new customers.

Understanding the value of data

Data is a term given to facts or figures that, once analysed in depth, can enable individuals, businesses or organisations to extract and generate useful information. For fintechs, the most important data extracted originates from customer information, such as transaction activity, personal payment preferences and geographic location, all of which can be monitored using Customer Relationship Management (CRM) or Customer Data Platform (CDP) systems.

Fintech and financial services products have unique customer management needs, given the interaction between regulation and compliance, money flows, and customer transactions. By looking at the context behind the figures and truly understanding what this information means, fintechs have a real opportunity to excel. Through harnessing data, they are able to properly understand the needs and requirements of their customers and create patterns and products that map their demands.

Data is a term given to facts or figures that, once analysed in depth, can enable individuals, businesses or organisations to extract and generate useful information.

For example, data can be used to anticipate customer behaviour. By monitoring how customers have acted before in their payment habits and preferences, an understanding of future trends can be established. This in turn can be utilised to improve future customer transaction journeys, and to create new products and services targeted specifically to meet their criteria and preempt what they may begin to demand next.

So why hasn’t data been fully harnessed? 

Data can have an enormous effect on the success of a fintech company, but there are barriers in the way of unlocking its full potential.

Increased regulatory activity around customer data and privacy means there is heightened customer awareness over how personal data is used and managed. Constructing a “stack” of various third party solutions in order to provide customer management, analytics, retargeting, marketing and other capabilities is no longer acceptable. Through harnessing data, financial service companies can control all customer details, meaning no data is sent to third parties and is self-hosted in a virtual private cloud.

We are then faced with an ever-growing market that’s becoming overcrowded. Many fintechs are therefore simply focused on one thing - getting to market quickly. They want to keep up with their competitors and prove why they are a top contender in the ecosystem. But as some fintechs rush through the building phase of creating a successful fintech, many are ignoring additional data that can maximise profits. By harnessing additional data, fintechs can amplify their product or offering and improve the way their customers, or potential customers, view their business to improve the product development lifecycle.

Many fintechs are therefore simply focused on one thing - getting to market quickly.

By failing to do this, fintechs are losing sight of their purpose. Fintechs often spend an enormous amount of time and effort getting to market quickly - which can take up to a year, or sometimes longer, meaning that once they’re live, they’re slow to change focus and use collected data to build upon engagement, to maximise profits through customer acquisition and retention.

Establishing customer loyalty will build a brand. Take Revolut as an example. Despite the coronavirus downturn, Revolut has continued to grow its customer base, albeit at a slower rate. For startups looking to take on the fintech giants, through utilising additional data, they will have a real opportunity to add further value and build on both customer acquisition and retention.

Now is the time for fintechs to use data better

It goes without saying that now is the time for fintechs to utilise data more efficiently. Though the demand for new services increases, the crisis has shown that the market is tough and those who don’t use all the assets at their disposal to maintain customer loyalty are going to struggle. Data at this point is also paramount because we expect consumers' behaviours and habits to change - there will be a new set of underserved needs.

Incumbent financial services companies, for example, are stuck on legacy technology stacks, limiting their ability to compete with the new crop of challengers and match the speed of today’s market. Fintechs can serve customers at a much faster pace, using services like open banking to speed up transactions in a safe and secure way.

For instance, in the UK, fraud attempts in general were up 66% in the first half of the year compared with the previous six months. By harnessing data, fintechs are able to better understand spending habits, and spot fraudulent activity which will subsequently help speed up an economic bounce back.

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Fintechs also add a sense of personalisation that can be greatly improved using data. In the current climate where businesses require flexibility, data can do just that. Fintechs are able to identify spending habits, as well as help users save money - in fact a fifth of Brits admit they are considering moving their savings from incumbents to challenger banks. Unlike big banks, fintechs focus on bespoke services that meet every demand of the customer, and this is where data comes into play.

But to fully utilise this data, fintechs need to partner with like-minded players that can provide data capture and management strategies. These players are creating one-stop-shops, which are important as data remains within the site of the fintech. They take care of back-end processes that harness the endless data touch points - specific for financial services, which fly below the radar of other generic CRM tools. This in turn means fintechs can focus on profit maximisation. And, as demand increases, fintechs more than ever need to sharpen their edge to ensure they are completely attuned to their customers' needs, and data is the key.

Helena Schwenk, Market Intelligence Manager at Exasol, explains how banks can use data and analytics to capture customer loyalty.

Driving customer loyalty has always been an important initiative for financial institutions, but COVID-19’s profound impact on the world has fundamentally changed how financial services companies now view loyalty. As more and more interactions shift online to virtual channels; customer behaviour changes as economic constraints hit home; approaches to risk change; and digital sales and services accelerate – the value of progressive data strategy and culture is all the more crucial.

As McKinsey’s recent report highlights, as revenue growth and customer relationships come under pressure, banks will need to rethink their revenue drivers, looking for new product launch opportunities, as well as reorienting offerings toward an advisory and protection focus. Advanced analytics can help identify those relevant niches of prudent growth.

However, the high prevalence of data silos and the unprecedented growth in data volumes severely impacts financial institutions’ ability to rise to this challenge efficiently. And with IDC conservatively predicting a 26% CAGR data growth in financial services organisations between 2018-2025, there are no signs that managing data is going to get any easier.

The financial services sector was already extremely data-intense due its the large number of customer touchpoints and the lasting legacy of COVID-19 will see this expand even further. Beating this challenge will require financial institutions to focus on turning their quantity and quality of their data into governed and operationalised data. To gain competitive advantage and win the fight in driving customer loyalty, financial services firms need to eradicate their data silos and start benefiting from real-time business decision making.

Beating this challenge will require financial institutions to focus on turning their quantity and quality of their data into governed and operationalised data.

Adopt a robust data analytics strategy

Defining a data analytics strategy is crucial for financial services organisations to increase customer loyalty and deliver a better customer experience. A solid data strategy holds the key to uncovering invaluable insights that can help improve  business operations, new products and services and, crucially, customer lifetime value — allowing organisations to understand and measure loyalty.

In addition, a robust data strategy will help organisations keep a sharper eye on customer retention, using data to actively identify clients at risk of attrition, by using behavioural analytics, and then generating individual customer action plans tailored to each client’s specific needs.

In our survey of senior financial sector decision-makers, 80% confirmed that customer loyalty is a key priority, given that consumer-facing aspects of financial services generate revenue and are a critical differentiator. And, according to Bain & Co., increasing customer retention rates by 5% can increase profits by anywhere from 25% to 95%.

Recognise the challenges of customer retention

But increasing customer retention and improving loyalty is not easy. There are ongoing challenges to earn and maintain. For example, 54% of our survey respondents believe that customers have higher expectations of financial services experiences and 42% agree that digital disruptors that support new digital experiences, offerings and alternative business models, are encroaching on their customer base.

At the same time, regulation is a concern too, with 41% saying PSD2 and GDPR are impacting their ability to develop and improve customer loyalty initiatives.

Despite all these challenges, the business impact of poor customer loyalty – such as lost opportunities for customer engagement and advocacy (45%), higher levels of customer churn (45%) and lost revenue-generating opportunities (42%) – is too important to ignore. Given that it costs five times more to acquire a new customer than sell to an existing one — gambling on customer loyalty in today's highly competitive environment is a big risk to take.

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Strive for constant improvement

That said, in a heavily regulated industry with a wave of tech-disruptors, keeping customers happy and loyal is no mean feat. But driving a deeper understanding of customer lifetime value and measuring the loyalty of customers is possible. The good news is that almost all organisations (97%) use predictive analytics as part of their customer insights and loyalty initiatives, with three fifths (62%) using it as a key part. 65% also agree that data analytics enables them to offer personalisation and predict customers’ future behaviour.

Overall use of data analytics is maturing in financial services compared to other industries; 96% of the people we surveyed were very positive about their firm’s data strategy and how it is communicated for the workforce to implement. Although 48% did admit it could be improved.

This consistent need to improve is backed by McKinsey. Its survey of banks saw half saying that while analytics was a strategic theme, it was a struggle to connect the high-level analytics strategy into an orchestrated and targeted selection and prioritisation of use cases.

Revolutionising data analytics

Revolut is one disruptor bank showing the world what a thriving data-driven organisation looks like. By reducing the time it takes to analyse data across its large datasets and several data sources, it has reached incredible levels of granular personalisation for its 13 million global users.

Within a year, the data volumes at Revolut had increased 20-fold and it was an ongoing challenge to maintain approximately 800 dashboards and 100,000 SQL queries across the organisation every day. To suit its demands and its hybrid cloud environment it needed a flexible data analytics platform.

An in-memory data analytics database was the answer. Acting as a central data repository, tasks such as queries and reports can be completed in seconds instead of hours, saving time across multiple business departments. This has meant improved decision-making processes, where query time rates are now 100 times faster than the previous solution according to the company’s data scientists.

Revolut can explore customer demographics, online and mobile transfers, payments data, debit card statements, and transaction and point of sale data. As a result, it’s been able to define tens of thousands of micro-segmentations in its customer base and build ‘next product to purchase’ models that increase sales and customer retention.

The 2 million users of the Revolut app also benefit as the company can now analyse large datasets spanning several sources – driving customer experiences and satisfaction.

Revolut can explore customer demographics, online and mobile transfers, payments data, debit card statements, and transaction and point of sale data.

Every employee has access to the real-time “single source of truth” central repository with an open-source business intelligence (BI) tool and self-service access, not just the data scientists. And critical key performance indicators (KPIs) for every team are based on this data, meaning everyone across the business has an understanding of the company’s goals, industry trends and insights, and are empowered to act upon it.

Predict what your customers want faster

A progressive data strategy that optimises the collection, integration and management of data so that users are empowered to make and take informed actions, is a clear route to creating competitive advantage for financial services organisations.

Whether you’re a longstanding brand or challenger bank, the key to success is the same – you need to provide your services in a timely, simple and satisfying way for customers. Whether you store your data in the cloud, on-premise, or a hybrid, the right analytics database is central to understanding your customers better than ever before. By using data to predict and detect customer trends you will improve their experience and get the payback of increased loyalty, which is even more essential in a post-COVID world.

The appointment of additional administrators to scrutinise Laura Ashley’s finances and pension scheme in the lead up to its administration is a reminder of the added value that forensic accountants often bring to insolvency processes. While Laura Ashley’s collapse was not specifically linked to coronavirus, a significant increase in the number of retailers and other businesses feeling financial strain, and the growth of COVID-19 related fraud, may well result in a spike in demand for forensic accounting skills in the coming months. Gavin Cunningham, partner and head of forensic services at accountancy firm Menzies LLP, discusses the role of forensic accountants and why they may soon be in demand.

The use of forensic investigation techniques in insolvent situations can unravel transactions that contributed to the downfall of a company and lead to asset recoveries to benefit creditors. Fraud can be a factor and the detection of irregular or inaccurate accounting practices may lead to the discovery of underlying fraud. The ability of forensic accountants to sift significant volumes of data to identify potential causes for a company’s financial difficulties, including in some circumstances the misapplication of funds, can help to secure the best possible outcome for creditors by enabling recovery action against those responsible.

The combination of tough economic conditions and the availability of government-backed wage grants and support packages means that the conditions are right for a rise in opportunistic fraud. At the same time, the lockdown restrictions and the large numbers of businesses claiming under such schemes are making it more difficult for organisations to address any financial shortfalls.

The combination of tough economic conditions and the availability of government-backed wage grants and support packages means that the conditions are right for a rise in opportunistic fraud.

In the business world, the lines separating best practice, acceptable practice and illegal business practice can sometimes become blurred. This means that to the untrained eye, it may be difficult to determine whether a business insolvency is simply the result of ineffective management, or whether other nefarious activity may have occurred. Forensic accountants are experienced in uncovering the truth behind what appear to be suspicious or unusual transactions and assisting the appointed insolvency practitioner in reaching decisions about the recovery strategy.

When instructed to investigate the financial position of a business leading up to the insolvency proceedings, forensic accountants will begin by gathering information related to the company before it fell into financial difficulty. This often involves delving deeper into a particular financial issue. In the case of Laura Ashley, for example, questions have been raised about the activities of the company’s directors before filing for administration. To get to the bottom of what happened, the forensic accountant will gather evidence from a wide range of sources - from complaints made about the business on social media, to direct conversations with individual employees, as well as securing the financial records of a company. Analysis of all the evidence gathered could potentially uncover clues about the behaviour of the directors in the months leading up to the appointment of administrators.

For a forensic accountant there are often ‘red flags’ observed, which could indicate irregular business practices in the past. For example, some obvious signs include a rapid decline in the value of assets which could indicate rapid disposals or overvaluation, high volumes of transactions with associated companies, or changes in balances owed on director loan accounts. Occasionally, the discovery of irregular or inaccurate accounting practices may also be a sign of underlying fraud. When there is evidence of unusual financial behaviours, it is then the job of forensic accounting specialists to investigate whether or not there is a clear explanation for this and it may show people obtaining financial benefit through dishonest or deceptive behaviour. They can then investigate how much has been obtained and follow through the money trail to see if the losses may be recoverable.

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Depending on the circumstances, the review of historical financial performance may lead to restorative action being possible for the Insolvency Practitioner under various recovery provisions of the Insolvency Act 1986. These cover antecedent behaviours and thorough analysis might show that directors could be civilly liable for their past actions, including, in some circumstances, for wrongful trading.

This statutory provision can render directors of a company liable for losses suffered if trading continues past a point at which they should have concluded that there was no reasonable prospect of the company avoiding an insolvent liquidation, or insolvent administration. They then have an overriding duty to take steps to minimise potential losses to the company’s creditors and should they fail to stem losses personal liability can follow. The provision has itself fallen foul of the pandemic such that the Government temporarily suspended it from 1 March 2020 until at least 30 September 2020. As a result, in the aftermath the process of calculating company losses resulting from wrongful trading will become even more complex.

With many businesses likely to be feeling the financial effects of coronavirus-related disruption in the months ahead, a further surge in insolvency cases is likely. Helping to get to the root cause of an organisation’s financial problems, forensic accounting skills can help to restore value for creditors and mitigate the financial crisis resulting from the pandemic.

Richard Harmon, Managing Director of Financial Services at Cloudera, discusses the importance of relevant machine learning models in today's age, and how the financial sector can prepare for future changes.

The past six months have been turbulent. Business disruptions and closures are happening at an unprecedented scale and impacting the economy in a profound way. In the financial services sector, S&P Global estimates that this year could quadruple UK bank credit losses. The economic uncertainty in the UK is heightened by Brexit, which will see the UK leave the European Union in 2021. In isolation, Brexit would be a monumentally disruptive event, but when this is conjoined with the COVID-19 crisis, we have a classic double shock wave. The duration of this pandemic is yet to be known, as is the likely future status of society and the global economy.  What the ‘new normal’ will be once the pandemic has been controlled is a key topic of discussion and analysis.

It’s not easy to predict the unpredictable 

In these circumstances, concerns arise about the accuracy of machine learning (ML) models, with questions flying around regarding the speed at which the UK and EU will recover relative to the rest of the world, and what financial institutions should do to address this. ML models have become essential tools for financial institutions, as the technology has the potential to improve financial outcomes for both businesses and consumers based on data. However, the majority of ML models in production today have been estimated using large volumes and deep histories of granular data. It will take some time for existing models to be re-estimated to adjust to the new reality we are finding ourselves in.

The most recent example of such complications and abnormalities, at a global scale, was the impact on risk and forecasting models during the 2008 financial crisis. Re-adjusting these models is by no means a simple task and there are a number of questions to be taken into consideration when trying to navigate this uncertainty.

ML models have become essential tools for financial institutions, as the technology has the potential to improve financial outcomes for both businesses and consumers based on data.

Firstly, it will need to be determined whether the current situation is a ‘structural change’ or a once in a hundred years ‘tail risk’ event. If the COVID-19 pandemic is considered a one-off tail risk event, then when the world recovers, the global economy, the markets, and businesses will operate in a similar environment to the pre-COVID-19 crisis. The ML challenge, in this case, is to avoid models from becoming biased due to the once-in-a-lifetime COVID-19 event. On the other hand, a ‘structural change’ represents the situation where the pandemic abates, and the world settles into a ‘new normal’ environment that is fundamentally different from the pre-COVID-19 world.  This requires institutions to develop entirely new ML models that require sufficient data to capture this new and evolving environment.

There isn’t one right answer that fits every business, but there are a few steps financial services institutions can take to help them navigate this scenario.

How to navigate uncertainty with accurate machine learning

• Modify existing models: This will be the starting point for all data science teams and can involve using the latest data elements to modify current models while also creating scenario-based projections adjusted for various levels of model bias.
• Stress testing: A practice that helps businesses gain a clearer understanding of their hidden vulnerabilities. Finance leaders should work alongside Chief Risk Officers to set up multiple dynamic stress testing scenarios.
• Industrialisation of ML: This is the ideal time to invest in a platform that supports the entire ML life cycle to build, validate, productionise, manage and monitor all their models across the entire enterprise. Data about customers is coming from different places and is stored in different places, whether that’s the public cloud or on-premise. For ML models to be effective, they need to be taking all these streams of data into account, with the ability to understand what the different data is saying quickly. This can only be done effectively in a unified enterprise data cloud platform.
• Prescriptive analytics: This approach is complementary to ML and uses simulations for more accurate decision-making for different scenarios, brought on by shocks or market changes. One common approach is Agent-Based Modeling (ABM), a bottom-up simulation for modelling of complex and adaptive systems. ABMs help business project thousands of future scenarios without having to depend upon the limitations of historical data.

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When facing a crisis of unprecedented size such as this one, it’s time to look inwards and review the technology investments in place and whether crucial tools such as ML models are being deployed in the best way possible. Financial institutions should face this issue not as responding to a one-off crisis, but as a chance to implement a longer-term strategy that enables a set of expanded capabilities to help prepare them for the next crisis. Businesses that put in time and effort to re-evaluate their machine learning models now will be setting themselves up for success.

The coronavirus pandemic has left many businesses scrambling to adapt. The lockdown and social distancing measures now in place – likely to remain in place, in one form or another, for many months to come – are forcing organisations of all sizes and sectors to reconsider how they operate. Ammar Akhtar, co-founder and CEO of Yobota, shares his thoughts on what the newly adapted financial sector might look like.

As we so often hear, we must prepare for a “new normal”; a world where office working, unrestricted travel and regular visits to bricks-and-mortar premises for essential services is going to become increasingly rare. In short, the transition from physical to digital is being greatly accelerated.

In the finance industry, there is a huge amount at stake. Firms that are unable to deliver their services while the physical world is largely closed off from us are at risk of being left behind by their competitors.

Rising to this challenge invariably means turning to technology. Indeed, fintech has been championed as the future of the finance sector for a decade now, but it has taken COVID-19 to bring about a “fintech revolution” in any meaningful sense.

What will this ‘revolution’ look like?

The increasing prevalence of financial technologies has been a common subject in both consumer and business contexts for many years. The so-called fintech revolution promised open access to data, hassle-free banking experiences and fairer deals for customers.

Yet only relatively small steps have been taken towards this vision. Until now we have only really witnessed a cautious adoption of this technology as consumers, regulators and established banks became familiar with what it can enable – and this has still come at considerable investment.

The so-called fintech revolution promised open access to data, hassle-free banking experiences and fairer deals for customers.

Now, though, things are finally changing. Technology is now not just a competitive advantage for financial services firms; it is essential to their very existence.

Today, people must be able to access critical financial services digitally. From taking out a new product (a loan or a credit card, for example) through to managing their finances and receiving advice, this must all be possible from within one’s own home. But more than that, the process of doing so must be fast, painless and personalised as possible.

There are credit marketplaces in the UK which already offer pre-approved loans that can be opened in just a few minutes with minimal clicks. This is possible because the lenders have made progressive choices in the way they develop or utilise technology.

Conversely, many finance companies still have data, systems and processes that are completely reliant on legacy technologies and on-premise servers. Simply put, these firms are under threat of becoming the Blockbuster or Kodak of the financial services sector (that is to say, businesses that were far too slow to respond to technological change).

Interoperability and the cloud

For financial technologies to be successful, two things are essential: interoperability and cloud computing.

Over the past decade firms have too often taken a piecemeal approach to adopting fintech; they have deployed specific technologies to solve isolated problems. That is because fintechs – financial technology startups – are typically created with that very focused mindset.

For financial services companies, particularly banking providers, a much broader perspective is required. Not only must each element of a business’ operations be built around best in class technology, but the technology must also be interoperable – it must fit together to form entire systems and processes that work seamlessly together.

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Take the example of someone applying for a credit card – something that is increasingly common as a result of the economic hardship brought about by COVID-19. There are various different stages that an applicant will need to pass through – identity verification; credit scoring; advice or product recommendation; application and assessment; and, if successful, creating the account.

Using interoperable fintechs on a cloud-based platform removes time, complexity and human interference in all of those processes. Data can be rapidly shared and analysed, allowing for the appropriate products – better yet, personalised products – to be shown to the user. There is no reason that an applicant cannot go from the start of the process to the end by themselves in minimal time; so long as the credit card provider invests in the technology that enable them to do so.

Embracing fintech to its fullest

We are in the midst of what, in ‘business speak’, they would call a paradigm shift. We are moving past the stage of thinking about financial technology as simply being a means of checking one’s account or transferring someone money. The fintech revolution is gathering speed, and it will lead us to a more open, connected form of banking where one can see and manage all their finances digitally, as well as accessing personalised advice and products all from the comfort of their sofa.

In this primarily digital landscape, financial services firms who cannot deliver an exceptional level of service to customers – be it consumers or business – risk losing them to those who can. Now is the time for the sector to embrace fintech to its fullest and build systems that are not just adapted to the new normal, but actually help to shape it.

Andrew Beatty, Head of Global Next Generation Banking at FIS, shares his thoughts on the inevitable evolution of building societies with Finance Monthly.

Building societies have grown with the communities they service. They have been in an area for decades and sometimes centuries, giving them a strong sense of place and knowledge of the needs of the communities they serve. This has been vital to their durability, and this knowledge is very much still valued by customers.

But it’s not enough in today’s digital world. Consumers demands are increasing. Personal, tailored services, such as what customers receive through Amazon and Netflix, in conjunction with seamless digital experience offering spread across all channels the likes of which we see from Google and Facebook is now expected from banks.

Building societies need to evolve, but they need to do it in the right way. Building societies needn’t rip everything up and start again in the pursuit of reinvention. When e-readers were invented, authors didn’t stop writing; a Nobel prize winner retains that distinction in hardback or Kindle. Instead, building societies need to adjust their businesses to maintain relevance.

While every building society is different, but here are four investments no society can afford to ignore.

Digital capabilities

Worldpay research shows that 73% of consumer banking interactions are now digital, a figure that has only been rising during lockdown. Providing customers with a frictionless, on-demand experience across multiple channels is imperative. Focus on getting the right mix of personalisation, agility and operational and financial efficiency.

Building societies have grown with the communities they service.

Platforms that are built to leverage artificial intelligence and machine learning give building societies the ability to deliver the kind of personalisation that reinforces their established brand image. Systems that are built to accommodate open application programming interfaces, or APIs, and that use mass enablement for new product features and service rollouts will make adding new innovations later both cost-efficient and operationally feasible.

The cloud

In banking, trust and security are synonymous, and investing in or partnering with companies that have invested in the cloud is an important strategic decision.

When executed properly, a private cloud infrastructure delivers greater resiliency, enables faster software enhancements and ensures data security. Other benefits include significant decreases in infrastructure issues, improved online response times, enhanced batch processing times and the ability to swiftly respond to disasters and disruptions.

Data

It used to be that only the largest financial institutions could afford good data. But now the ability to access, filter and focus on real-time data is within reach for building societies as well.

In addition to adding even greater personalisation to digital and mobile banking tools, building societies can make further use of data to drive cost efficiencies, growth initiatives and service improvement efforts, as they deliver that differentiated customer experience they were built on. For building societies workers who fear they can’t harness an influx of data: don’t let the flood of information incite “analysis paralysis.” Start with a focus on your key goals. Then, ramp up other functionalities as you gain more confidence and skill. Data is a tool for creating an even better bank.

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Regulatory compliance 

To quote Spider-Man, “with great power comes great responsibility”. This rings as true as ever for building societies who, with increasingly stringent regulatory compliance burdens on their plates, need to make sure all the benefits incurred with increased data are analysed and harvested both legally and ethically.

It also demands that building societies put in safeguards as part of their fiduciary duty. Do your due diligence and make sure whatever method you choose, be that technological or hiring additional staff members, accounts for the ever-shifting regulatory environment and can ensure adaptability.

On your marks

Building societies need not despair at their technological deficiencies. After all, it’s far easier for a building society to catch up on five years of technical innovation than it is for a neobank to catch up on fifty years of hard-earned customer loyalty.  Get in the driver’s seat, set the GPS for transformation, and start your digital journey.

Across the UK, lenders have approved nearly £27.5bn in government backed loans, through bounce back and business interruption loans, to more than 650,000 businesses affected by COVID-19.

This is an astronomical effort by all involved to keep businesses afloat, but it’s not been quick enough for many ailing businesses. The total amount of business loans available amounts to £330 billion, and businesses should be receiving these funds at a much faster pace then we currently are. Matt Cockayne, Chief Financial Officer at Yapily, explores how open banking may be the solution to these businesses' issues.

It’s clear lending will be needed throughout the year to help these businesses stay afloat as they reopen. And while lenders could be a lifeline for SMEs over the coming months, it’s thought that many believe that future lending or loans are too high risk, or that they just can’t tell what the future holds to lend to businesses. This is likely to cause further frustration for business owners who, until coronavirus happened, ran successful, growing businesses.

This has created a conundrum for the UK business landscape. As we emerge from the initial COVID-19 fallout, businesses need financial support to stay open and to ensure the economy bounces back, but lenders are either too slow or too wary of lending too much to businesses who are facing huge pressures to avoid going bust. To solve this problem, we have to look at new ways of accessing and sharing financial information to make quicker and better decisions. And in open banking, I believe we have a solution that answers these problems and more.

Speed, security and agility

The initial backlash in response to the government's three loan distribution schemes (BBL, CBIL and CLBIL) has centred around frustrations in the time it took to distribute essential funds. To keep up with this demand, lenders have to make faster decisions. But without the right information about the borrower they can’t make them consistently or fairly.

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It is normally standard for lenders to request three months' worth of financial statements, but through the CBILS scheme, lenders must now request six months. This can slow the process down for businesses, providing an added layer of friction in finding and sharing bank statements, and an added layer of delay with the lender having to review the statements manually. Through open banking, lenders can gain instant access to up-to-date financial information and can retrieve historical data in just seconds.

This means they can quickly onboard customers and determine lending limits, without needing to send documentation such as bank statements, ID or other documents back and forth as you would traditionally. By gaining instant access to bank statements and a secure verified source of income, lenders can quickly analyse credit decisions in real-time, and make better, more informed decisions, which is crucial as we begin to step into the new normal.

Lending in the new normal

Up until now, the government has relied on a panel of lenders - established banks and the likes of Funding Circle - to distribute the schemes. But as the crisis continues, more loans need to be disbursed, presenting an opportunity for smaller lenders to play their part to support SMEs too.

One of the biggest struggles of the schemes has been around lenders being unable to meet the demand for onboarding new customers. Some businesses have reported that it is taking longer than expected to open a new account and receive essential funds. However, if conducted through open banking, these processes could be sped up and enable more lenders to operate and offer their services to UK businesses.

One of the biggest struggles of the schemes has been around lenders being unable to meet the demand for onboarding new customers.

This isn’t just a benefit for lenders in terms of meeting soaring demand, it also means an added layer of trust and greater loan personalisation for customers. Lenders can make fairer and more accurate decisions, based on a customer's financial picture.

Fueling the economy post-pandemic

With lenders able to grant more loans quickly and efficiently through open banking, businesses will have faster access to the much-needed cash required to stimulate the economy; keeping companies running, people in jobs and ensuring spending continues across the country. Lenders will also have the opportunity to monitor the borrowers finances after the loan has been granted, with the borrowers consent of course, to offer continued support and create future offerings if required.

As more businesses across the UK seek government support, the role of lenders will continue to grow in importance. But rather than shut up shop due to the risks at play, they should utilise open banking to make better, informed choices to ensure the economy recovers quickly.

With the entire industry currently under pressure due to uncertainty, data must lie at the core of every decision any business makes if it wants to succeed. In fact, research from McKinsey tells us organisations that leverage customer behavioural data and insights outperform peers by 85% in sales growth and more than 25% in gross margin. Jil Maassen, lead strategy consultant at Optimizely, offers Finance Monhly her thoughts on how data experimentation can be used to drive financial services forward.

The game-changing nature of data

One of the best examples of risk and reward, based on data science, comes from the world of baseball. Back in 2002, Billy Beane, general manager of the unfancied Oakland Athletics baseball team, spawned an analytical arms race among US sports teams. Working under a limited budget, Beane used obscure stats to identify undervalued players — eventually building a team that routinely beat rivals who had outspent them many times over.

Data analytics turned the game on its head by proving that data is an essential ingredient for making consistently positive decisions. The success of the bestselling book and subsequent Oscar-winning film, Moneyball, based on Beane’s story, took data analytics mainstream. Today, financial services companies are applying a “Moneyball” approach to many different aspects of their business, especially in the field of experimentation.

Data analytics turned the game on its head by proving that data is an essential ingredient for making consistently positive decisions.

We live in testing times

Experimentation departments for the purposes of testing, also known as Innovation Labs, have been growing at a prolific rate in recent years, with financial services seeing the highest rate of growth according to a survey by Capgemini. By the end of 2018, Singapore alone had 28 financial service-related Innovation Labs. Alongside this, research from Optimizely reports that 62% of financial services companies plan to invest in both better technology and skilled workers for data analytics and experimentation.

Areas such as fund management are no strangers to data analytics. But since the fintech disruptors arrived on the financial services scene, legacy banks are now using data in combination with experimentation to evolve other elements of their business and remain competitive. Many have found that this is helping them to address common concerns, including how to improve customer experience and successfully launch products to market. So much so, that our research found that 92% of financial services organisations view experimentation as critical to transforming the digital customer experience. In addition, 90% also consider experimentation key to keeping their business competitive in the future.

Eat, sleep, test, repeat

However, experimentation takes patience. As Billy Beane said when his strategies didn’t deliver right out of the gate: “It's day one of the first week. You can't judge just yet.” He was ultimately vindicated. Like any new initiative, experiments can fail because of cultural “organ rejection.” They require taking short-term risks that don’t always work, all in service of long-term learning. It’s the job of Innovation Labs to take these risks, and often, one for the team, by being prepared to fail.

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The point is, when you're transforming something and making massive change, not everyone is going to understand right away. The best way to convince people that your theory is correct is to show them — not tell them — you're right. Experimentation initiatives in business, and especially in financial services where risks and rewards have high impact and return, allow new ideas to be proven right before they play out in front of a paying public.

Founded in facts and stats, experimentation promotes an ethos that is key in adopting new technologies and utilising data analytics to build roadmaps for the future. As the amount of data companies have access to increases, the ethos of experimentation will only become more important for predicting and changing the future for the better.

Experimentation is about measuring and learning and repeating that process until optimum results are achieved. The final word in this regard should perhaps go to Beane himself; “Hard work may not always result in success. But it will never result in regret.” His story is something that all financial services organisations can learn from.