Chris Brooks, CFO at Modulr, offers Finance Monthly their perspective on how businesses can turn payments to their advantage in fraught times.
As the Chief Financial Officer at Modulr and someone with over 15 years’ experience in the finance industry, I’ve witnessed a great deal of change in the way businesses manage their payments. But to date, no period has been as transformative as the one we’re entering right now.
For decades, small businesses have been let down by their payment processes. That’s because the majority rely on outdated, manual and inefficient payment services from traditional banks with legacy IT systems. The problem is compounded by the inefficiency of banks when disbursing loans, which are often critical to getting small businesses off the ground. In fact, some small business owners claim to have been left on the verge of collapse after the amount of time taken to process their bounce-back loans.
Sometimes it takes a crisis to shake businesses out of apathy. COVID-19 has shone a light on payment inefficiencies and highlighted the urgency of digitalisation.
Fortunately, fintechs are flourishing across the UK and providing new technologies that could transform the payment space. Here are three areas where payments innovation could help businesses become more resilient, future-proof and competitive.
Sometimes it takes a crisis to shake businesses out of apathy.
1. Maintaining security and business continuity
When COVID-19 led to sudden and widespread remote working, it starkly exposed the hidden inefficiencies in existing processes. Companies that were stuck in the old, manual way of managing payments suffered major disruption. While those that were ahead of the digitalisation curve managed to maintain business continuity.
In the accountancy space, many practices had already embraced cloud computing and payments automation. They were able to make the transition to remote working seamlessly – accessing client workflows from home and managing payments through centralised portals like Sage Salary and Supplier Payments, just as they would in the office.
But we’ve also heard from accountants who, prior to the crisis, had still been in the habit of driving to their clients’ offices and picking up folders of paperwork. Many more were doing things digitally – thanks in part to Making Tax Digital - but not in a completely centralised way, which required the ad-hoc sharing of files across insecure methods like email or third-party file transfer systems.
These workarounds are highly problematic in a time of crisis. Fraudsters will actively seek to exploit new vulnerabilities. According to UK Finance, Authorised Push Payment (APP) fraud cost UK businesses £138.7m in 2019. Only £33.8m was reimbursed. And since COVID-19, we’ve seen the emergence of entirely new scams and techniques.
Fortunately, new payment technologies such as Confirmation of Payee (CoP) are being introduced to help businesses safeguard funds. With CoP, payment service providers (PSPs) will be able to check if the name of the individual or organisation entered by the payer matches the identifying information of the account paid. This can prevent consumers and businesses from being tricked into pushing funds to a fraudster’s account.
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2. Reducing operational costs
As businesses seek to recover from the impact of COVID-19 and navigate this tough economic environment, finding ways to maximise efficiency and reduce operational costs will be critical. This is especially true for businesses that have furloughed employees and are forced to work with leaner teams.
Manual payment processes are a heavy burden for finance teams in today’s fast-paced, challenging environment. They waste time, incur errors and result in significant administrative costs. That’s why fintechs are developing sophisticated solutions that allow businesses to automate all aspects of the payments workflow.
A good example is payment splitting. This is when a business receives an incoming payment, divides it based on a calculated percentage, and sends two payments out to end beneficiaries. When done manually, it’s a time-consuming process. But automation offers a powerful solution, allowing payments to be split automatically based on customisable rules.
Imagine a property management business that’s collecting rent from tenants. Rent collections are typically complex and unwieldy, as payments are sent to the estate agent’s bank account and then manually reconciled and split before sending funds to the landlord. But with automated payment splitting, rules are set to automate the amount collected and sent on – drastically cutting down admin time and reducing operational costs.
That’s just one example of the power of automation. It can have a significant impact on all aspects of payments – receivables, payables, collections and disbursement. Not only does this reduce operational costs, it can help businesses to maintain payments continuity when employees are forced to work away from the office.
3. Improving cashflow management
Cashflow is the lifeblood of any business, and right now it’s even more vital for survival.
Faster Payments is a relatively new scheme compared to traditional methods like Bacs, but it’s already having an immense impact on UK commerce and business uptake is likely to accelerate. Initially designed to speed up the payment process for retailers, Faster Payments are meant to clear in less than 2 hours, though this is often far lower; at Modulr we’ve reduced it to seconds. This is a major improvement on Bacs payments, which can take up to three days to clear, meaning funds are held in limbo for that time period.
Cashflow is the lifeblood of any business, and right now it’s even more vital for survival.
The impact of using Faster Payments can be far-reaching. By allowing just-in-time payments and the ability for a business to hold onto cash right down to the very second, Faster Payments enables greater control, visibility and forecasting of cashflow throughout the year. Finance teams can more accurately predict what cash they will have and when, and plan to pay invoices at strategic times. This will be increasingly critical as businesses strive to recover from the impact of COVID-19.
To summarise; technology is going to continue disrupting all areas of business. And the same goes for the payments industry. New solutions being developed by fintechs can help companies to improve cashflow management, significantly reduce operational costs and protect their money.
With such a challenging and uncertain economic environment in the months ahead, there’s never been a bigger incentive for change. Companies are faced with a critical choice – to keep relying on slow, outdated payment methods, or overhaul everything and find better ways of moving and accepting money. By choosing the latter, businesses can boost their resilience and weather future storms. And those that move first might that find payments become their competitive advantage.
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.
Andrew Raymond, CEO of Bolero International, shares his advice with Finance Monthly.
Reliance on paper documentation and manual processes means banks are struggling to meet the needs of exporters and importers as we emerge from the COVID-19 crisis.
The demand for fast digital services with minimal human involvement is gathering pace as global trade prepares itself for the big task of recovery. The WTO (World Trade Organisation) estimates trade could plummet by anything between 13% and 32% this year alone.
The critical role of paperless trade systems in fostering recovery is recognised in the ten-point plan issued by UNCTAD (The United Nations Conference on Trade and Development), which makes their introduction a key priority.
Apart from sheer speed of transfer, electronic versions of essential trade documents have the distinct advantage of not being held up at borders or lost during movement restrictions. This has become a vital attribute. Bills of lading, for example, are crucial trade documents that serve many purposes. Created by carriers, they can be used by exporters to draw under letters of credit from the buyer’s bank payable at sight, or to obtain finance in case of deferred payment. As “documents of title”, they confer ownership of a shipment and are forwarded to the buyer’s bank in exchange for payment against the letter of credit. The buyer will also use the bill to claim the consignment, once delivered.
The demand for fast digital services with minimal human involvement is gathering pace as global trade prepares itself for the big task of recovery.
Clearly, severe consequences ensue if documents such as bills of lading go missing or are held up. Fees and penalties mount as cargoes sit in port longer than necessary. This is where the advantages of digitisation are most obvious. Exchanged on a secure, purpose-built trade digitisation platform, trade finance instruments, electronic bills of lading (eBLs) and other digitised trade documentation, take hours to process instead of days or weeks for paper equivalents.
This is why banks are more likely to invest in paperless systems in the aftermath of the coronavirus pandemic. Yet digital trade finance solutions vary hugely and corporates must take care they do not sign up to services that are poorly designed, lack connectivity or have little acceptance in the wider trade sphere.
Here, then, are five points for corporates to ask a bank when it comes to trade digitisation.
1. Can you manage everything end-to-end from a single interface?
Any digital solution in trade finance must be comprehensive in every sense. From a single interface it should be possible to manage all the documentation required to support a transaction.
A single interface should provide simple access to multiple banks for fast comparison of credit lines, rates, fees and offers. This is the primary means by which corporate treasuries will improve their cash flow and use of working capital. Fast access to a wide choice of credit lines also reduces the need for expensive bank instruments.
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2. Does the solution bring everyone together?
Buyers, sellers and carriers – they all need to be on one platform. There needs to be a good, secure flow of information between all parties. Your bank’s digitisation solution should connect seamlessly with your back-office and your own eco-system, giving access to alternative funders and third-party providers such as logistics companies, carriers, insurers and counterparties. This is connectivity that should be easy and open to increase efficiency and provide customisation.
3. Does the bank and its proposed solution have the necessary expertise in-built?
It’s vital to ask if a bank and its solution-providers have the necessary understanding of trade flows and how your business fits in. Does the proposed solution have a proven network of users among banks and significant corporates, and is it sanctioned by national authorities and recognised within the trade community? Many platforms focus on their integration with emerging blockchain solutions. This is important but still requires a current network of users and documents based on real working practices in global trade.
4. Is the platform secure, compliant and fit for trade after COVID-19?
A critical electronic document such as an eBL must be underpinned by a respected body of law, such as English common law, to give both yourself and customers greater confidence. A platform must also conduct compliance checking in line with international trade rules such as those prescribed by the International Chamber of Commerce eUCP which govern letters of credit. For many corporates, the immediate post-COVID era will be one in which they cannot be certain of the solvency of their trading counterparties. Know Your Customer protocols need to part of the solution but not so laborious they become a barrier.
A critical electronic document such as an eBL must be underpinned by a respected body of law, such as English common law, to give both yourself and customers greater confidence.
5. Does the solution offer visibility of bills of lading as well as letters of credit from multiple banks?
A digital platform must give corporates access to electronic bills of lading (eBLs) as well as letters of credit and other trade finance options. As we have seen, bills of lading are critical documents, but often subject to change, which requires visibility and vigilance.
Ideally, a bank’s trade finance digitisation platform should offer you the ability to use critical trade documents such as eBL under any transaction. With so much competition in some of the toughest conditions ever experienced, open account trading is set to continue its dominance in cross-border transactions, so having access to eBLs is an important requirement.
These are just five points but they cover the main areas that corporates need to explore. It is important to weigh up the options quickly, but also to take the right decisions on trade document digitisation in order to maximise revenues as the world recovers from the pandemic and new rules apply.
In this light, following increased pressure from digital banks, legacy banks have yet to follow Muhammad Ali, Joe Frazier III and Danny O’Sullivan’s example. Here David Murphy, EMEA & APAC Banking & Insurance Lead at Publicis Sapient, explains that while newly created fintech companies have stepped into the ring and landed a few punches on traditional banks by being quick and nimble, they are by no means facing a knock-out.
Legacy banks shouldn’t underestimate the challenge of newly created digital banks. By relying on their tech, rather than reputation, digital banks have shaken up the financial sector in the last five years. Exploiting poor customer service and lack of innovation in many parts of the industry, tech-driven fintech startups such as Monzo and Starling Bank have won over customers with simple, low-fee, mobile-first products and services.
The market share for current accounts of the big four legacy banks (Barclays, Royal Bank of Scotland/NatWest, HSBC and Lloyds) has lost ground, from 92% of all bank customers a decade ago to around 70% today.
Challenger banks have proven themselves to be more flexible, quicker to adapt to user needs and more friendly and personal than traditional banks. In fact, according to a recent survey from Which?, challenger bank Monzo was ranked as the best bank in the UK with a customer rating of 86% (banks were rated out of a series of categories by real customers out of 10). Their ability to match up to some of the biggest and most established names in the business is a concern for many in the traditional banking sector.
With digital banks winning over consumers and raising a significant amount of funding in order to grow their services - Monzo raised £20m in two days last year and Tandem is expected to raise over £80m in its funding round this month this concern is being amplified – the fightback from legacy banks, which began long ago, is gearing up.
However, this is no easy fight. Compared to younger, more agile fintech companies building new services and platforms from scratch, banks have to work around their legacy systems to make any technological leap. They also have to deal with the issues of siloed workplaces and cultural backlashes in order to improve their services and products.
For example, the boards of major banks today are dominated by people with experience in finance, accounting, law and regulation. Given the enormous changes in regulation since the financial crisis, it is not surprising banks have sought out board members with skills relevant to the sector’s strategic agenda for the post-crisis years: regulation, risk management and compliance.
But the post-crisis environment is shaped by another set of strategic issues that grow steadily more pressing: digitalisation, mobile, automation and the emergence of big data analytics.
To overcome structural issues, legacy banks need to fight smarter against digital banks. While older boxers have to learn how to be strategic and take a punch when competing against younger more nimble fighters, banks need to also adapt their tactics against younger, digitally-enabled competitors.
The contrast between banks and leading technology businesses is clear: tech companies’ boards have large contingents of people from technology, customer insight and digital media backgrounds. As a result, they demonstrate a sharper focus at the top level on the strategic issues of the coming decade, the digital transformation of all businesses, including financial service. Legacy banks need to create a multi-pronged approach to the rise of fintechs from innovating internally to capitalising on their experience in the market.
As we have seen over the past few months with Revolut - the bank has been linked to multiple scandals and failed to block thousands of potentially suspicious transactions on its platform for three months last year - challenger banks come with risks. Legacy banks can therefore, capitalise on their stability by reflecting this in their advertising and marketing campaigns.
Most importantly though, banks need to innovate and adapt to new technology. Many legacy banks are recreating the dynamism of fintech startups within their organisations through innovation labs, as well as partnerships with external technology providers. Initiatives such as innovation labs allocate space to incubate ideas internally with considerable time and investment. They also overcome the cultural issues that big organisations create by building small teams in the company to develop new competing platforms.
Fundamentally, banks need to put customers at the center of the picture. In order to deliver a knockout blow to digital competitors, banks need to ensure that they have the time, investment and willingness to develop and improve their digital banking platforms, enacting digital transformation holistically throughout the organisation and embedding a culture of innovation in their business, underpinned by experience and knowledge built over years.
There is a debate over which party should initiate innovation because surety requires, at its minimum, a three party-relationship between the customer, the carrier and the obligee. Add in commercial and risk distribution partners and we could be in danger of each party expecting action to be taken by another, leading to no progress at all, says Thomas Frossard, Product Owner Surety and Bonding at Tinubu Square.
There is progress, however. Low premium high volume commercial bonds are more frequently being digitally managed, and customs bonds are digitalised quickly in all countries aiming at developing their international trade through comprehensive customs e-procedures. In locations where the surety and guarantee market has been traditionally dominated by banks, contract bonds straight-through processing is often a commodity, even though beneficiaries of large bonds may still ask for a manual signature for the original of the bond they will hang in their office.
We are accustomed to ‘slow revolution’ when it comes to the digitalisation of the financial services industry. There are challenges but the foundations for positive change are in place if surety carriers are ready to invest.
The Challenges
Surety bonding is a niche area in both speciality insurance and in the Property and Casualty (P&C) line of business and even for specialist credit insurance providers. On top of that, risks covered by bonding insurance can vary from insuring payments made by customers of a boutique travel agency to insuring proper performance on the delivery of a solar farm worth hundreds of millions in investment. As a result, the surety operations manager must design journeys which satisfy the needs of retail, wholesale and corporate businesses with limited means which inevitably leads to compromises and a lack of satisfaction all-round.
“It is hard to change an industry in which some obligees still want to see raised seals and wet signatures on bonds.”
The surety products structure also involves obligees who are playing a special role in the digitalisation process. It is not in every country that surety is considered a valid alternative to cash collateral and bank guarantees. Even in the countries where governments are promoting the acceptance of e-bonds, long habits die hard as Mike Bond, head of Surety North America at Euler Hermes outlined in a recent article: “It is hard to change an industry in which some obligees still want to see raised seals and wet signatures on bonds”.
Contractors, who represent the largest customer base of the surety carriers worldwide, are confronted with a digital challenge (at least equivalent to that faced by their financial services providers) and are often offered the choice between banks and insurers which puts pressure on insurers to align on banking digital service offerings. Despite the greater protection offered to customers -- and the fact that bank guarantees including risk distribution models towards sureties are more and more common -- carriers must demonstrate their ability to cope with the efficiency expectations of the construction industry to promote further insurance-backed surety bonds.
Modernise to improve
In a world where disruption has become our daily bread, surety carriers might be seen as a species of endangered animals. In the same way that India has managed to implement a nationwide digital ID program for all its citizens starting from scratch -- when Europe is still trying to agree to the concept of digital IDs and their compatibility with paper IDs -- carriers might be disturbed and found wanting, by digitally native entrants.
However, the underwriting capabilities of the carriers and the on-the-ground knowledge developed by localised distribution models are offering an opportunity for insurers to take advantage of their expertise, and of modern technology, to become what McKinsey recently called ’digitally reinvented incumbents’.
Blockchain is creating an environment that will increase efficiency and lower operating costs in securities management.
In the US, where automation is very low compared to the size of the market, remarkable industry initiatives have been developed to define standards and guidelines to implement them. One example is the project being led jointly by the Surety and Fidelity Association of America (SFAA) and the National Association of Surety Bond Producers (NASBP) to develop ACORD standards suitable to the surety industry. Carriers and their customers could highly benefit from these standards and all studies show that using them will negate the necessity to go through tortuous internal discussions that fail to result in a better format than the industry standard. Surety carriers are usually part of a larger insurance group and data collected by surety underwriters could be instrumental in the development of specialised business intelligence to be built on enterprise data lakes. Blockchain is creating an environment that will increase efficiency and lower operating costs in securities management. Meanwhile, insurers have strong assets to leverage the project-based surety underwriting approach and play a leading role in private distributed ledger implementations.
The ecosystem is in place and despite the many obstacles the entire industry should work together to take action towards digitalisation. Instead of complaining about the difficulty of fully digitalising the end-to-end surety process, carriers could look individually into implementing digital capabilities for each process they fully control. As Azman Noorani, head of surety and trade credit insurance, Swiss re Corporate Solutions outlined in the latest issue of the ICISA insider: “The industry is on the cusp of a transformation with developments such as blockchain, artificial intelligence and digitalisation. All companies need to define what those developments mean for them individually, however, as an industry we should make sure together to be in the pole position to take advantage of this.”
Provided that carriers and industry associations (SFAA, ICISA, PASA/APF, ISA) keep on collaborating, integrating with the ecosystem (Berne Union, ICC, etc) and look into satisfying both retail and corporate customer’s needs, the surety product has significant potential to defend its value-added in a (re)insurance portfolio and to a contractor securities panel.
This week Finance Monthly hears from Nick Williams, Head of Business Development at UK Accountants, Intuit, who discusses change management methodologies and outlines an 8-step process for accountancy firms to apply Dr John P. Kotter of Harvard Business School’s methodology to ensure a smooth transition to Making Tax Digital.
These are changing times in the UK's accounting industry. Making Tax Digital (MTD) is the biggest overhaul to the taxation system in decades, and firms are not only adopting new ways of working, but they are completely re-thinking business models to meet the evolving needs of their small business clients.
The shift to digital accounting introduces new opportunities for accountants to take on more of a financial advisory role, providing real-time insights and strategic guidance to grow their clients’ businesses. However, while the shift to digital accounting is part of a wider push to digital in nearly all aspects of both our business and personal lives, the enormity of it cannot be underestimated. To ensure a smooth transition for their practice and their clients, accountants would do well to approach it in the same way as any other change management programme.
One of the most well-known change management methodologies is by Dr John P. Kotter of Harvard Business School, who observed countless leaders and businesses as they were trying to transform and execute their strategies, and developed the 8-Step Process for leading change. Here’s how accountancy firms can apply the same methodology to ensure a smooth transition:
- Establish a Sense of Urgency: For months – years perhaps – we’ve been saying “it’s not too late to be early” to prepare for MTD. Communicate the message internally and externally that now it is in fact is a bit too late to be early. It really is time to move forward with cloud-based accounting to avoid a last-minute panic when deadlines approach.
- Create the Guiding Coalition: Having dedicated “experts” flying the flag for digital accounting will help to ensure broader education among all employees on the forthcoming regulations. Start a process to train fee earners on your preferred cloud software and have "champions" trained as soon as possible.
- Develop a Vision and Strategy: Think about how you can use MTD to seize new market segments or opportunities. For example, there are an estimated 1.75 million landlords in the UK, and all those earning more than £10,000 from property income will be liable for Making Tax Digital. For some, recording transactions online will be a first, and they will likely seek counsel from dedicated experts. Be one step ahead by positioning yourself as a future-ready firm.
- Communicate the Change Vision: Once employees are up to speed on the changes, running a Making Tax Digital marketing campaign with clients is critical. Telephone calls, emails, client letters and even social media marketing will help to communicate these changes, and position your practice as a firm that is there for its clients every step of the way.
- Empower Employees for Broad-Based Action: Some firms and their clients will be new to digital accounting; however, employees should be given freedom to experiment with different ways of working. Periods of change are frequently followed by periods of innovation, so try not to hamper any enthusiasm as employees “test and learn” to drive better outcomes for their clients.
- Generate Short-Term Wins: Employees and clients will be more receptive to digital accounting if they see immediate benefits. Highlighting the time saved from less manual entry and the benefits gained from automation, for example, can help staff members see the potential of their roles to evolve from keeper of historical records to real-time financial advisor.
- Consolidate Gains and Produce More Change: Use data to establish what changes have driven the best rewards for clients and share best practices across the business.
- Anchor New Approaches in the Culture: Reward employees who share examples of how they have used digital accounting to achieve a better outcome, and encourage sharing, feedback and open discussion as you adopt new technologies to take your practice to the future.
By adopting a change management mindset, firms can ensure they stay ahead of the curve and have a business set up for long-term success.
It is becoming clear that trade digitisation has huge potential to unlock access to world trade for small-to-medium-sized enterprises (SMEs). The move away from laborious, manual, paper-based processes will lever simpler access to trade finance, now that it is being provided by more agile, technology-friendly alternative funding providers. Here Simon Streat, VP of Product Strategy at Bolero International, discusses the new wave of digital change and the drive it’s providing for SMEs worldwide.
Regulatory burden has meant that SMEs often don’t fulfil certain criteria for banks to justify lending to. The demands of anti-money laundering (AML), Know Your Customer (KYC) rules, sanctions and other banking stipulations have been deemed too time-consuming and too costly to be worth the trouble where smaller exporters and importers are concerned. This is a significant blow, since by some estimates, more than 80% of world trade is funded by one form of credit or another. Until now, if your business was deemed too small to be worth considering for finance, there was hardly anywhere else to go.
The result has been deleterious to the prosperity of SMEs and detrimental to international trade. In 2016, the ICC Banking Commission’s report found that 58% of trade finance applications by SMEs were refused. This, as the authors pointed out, hampered growth, since as many as two out of every three jobs around the world are created by smaller businesses.
This rather depressing view was supported by a survey of more than 1000 decision-makers at UK SMEs which was conducted in February this year by international payments company WorldFirst. It found that the number of SMEs conducting international trade dropped to 26% in Q4 2017, compared with 52% at the end of 2016. Economic conditions and confidence have much to do with this, but so does access to trade finance.
There is a growing realisation, however, that if digitisation makes sense for corporates seeking big gains in speed of execution, transaction-visibility and faster access to finance and payment, it definitely will for SMEs. The ICC Banking Commission report of 2017 estimated that the elimination of paper from trade transactions could reduce compliance costs by 30%.
Over the past few years, for example a number of trade digitisation platforms have emerged offering innovative business models for supplying trade finance and liquidity, while optimising working capital, and enhancing processes for faster handling and cost savings. Progress is under way, but it requires expertise.
Fintechs in trade hubs such as Singapore, where there is huge emphasis on innovation, are taking the lead, transforming the availability and access to finance for SMEs. By making the necessary checks so much faster and easier and opening up direct contact with a greater range of banks, digital platforms enable customers to gain approval for financing of transactions that would otherwise be almost impossible. Not only that, they enjoy shorter transaction times and enhanced connectivity with their supply chain partners.
If we scan the horizon a little further we can also expect to see SMEs benefit from the influence of the open banking regulations, which require institutions to exchange data with authorised and trusted third parties in order to create new services that benefit customers.
Although the focus of these new regulations is primarily the retail banking sector, the tide of change will extend to trade finance, creating a far more sympathetic environment for the fintech companies and alternative funders. Yet the fintechs cannot do it alone, they need to be part of a network of networks that operates on the basis of established trust and digital efficiency.
No technology can work unless it is capable of satisfying the raw business need of bringing together buyers, sellers, the banks into transaction communities. That requires the building of confidence and the establishment of relationships, along with – very importantly – a real understanding of trade transactions and the processes of all involved. It also requires on-boarding and you can only achieve that once everyone knows a solution will deliver the efficiency gains it promises, as well as being totally reliable, secure and based on an enforceable legal framework. All this requires a level of expertise and insight that cannot simply be downloaded in a couple of clicks.
Nonetheless, it seems pretty obvious that thanks to digitisation, the market for SME financing in international trade is set for real expansion.
Take a look at the inner workings of any modern enterprise, and there’s a good chance you’ll find IT silos - islands of departmental data only loosely connected across the organisation. Such isolation presents a potential regulatory risk and undermines the rich productivity gains that digitisation should be driving across commerce, and yet these silos are becoming ever more commonplace.
Whereas ten years ago the primary cause for disjointed IT was the existence of outdated legacy systems within operations, now it is the advent of hosted independently-sourced solutions that is driving compartmentalisation across the IT landscape. With some options coming out of operational, rather than capital, expenditure, departmental heads have empowered themselves to take the matter of updating their processes and software into their own hands.
This empowerment has bred productivity gains, as departments have acquired best-of-breed functionality from systems to support their specific needs. Front and back office operations - from finance and business development to HR, logistics and marketing - have been invigorated by the introduction of solutions specifically implemented to fill operational gaps; address deficiencies and bottlenecks; and allow functionality which had been on managers’ wish-lists for a decade.
Unfortunately, these upgrades have often been made without consideration for the rest of the organisation. This narrow-minded piecemeal approach will return to haunt organisations across most sectors in the years to come, if the issue is not addressed on a company-wide basis.
The dangers represented by such silos are already becoming apparent within many firms: Reliability of data, in particular, is becoming ever more important for both regulatory and operational reasons. But if customer information is stored separately by each department that needs it, the numerous versions which a company possesses can gradually digress. In the case of a financial services organisation, for example, a loan approval department may end up holding a different set of data on a client than the online banking platform. The eventual outcome could range from frustrating or embarrassing the customer, to incurring bad debt and regulatory sanction.
At the very least, such a situation is highly inefficient from a business perspective, and an obstacle to good customer service. There are also cost implications in time and money: Time, because it is harder for employees who require data to access it; and money because the charges for storing and processing data are not inconsiderable, particularly given increasing regulatory and security requirements.
Therefore, as digital transformation is helping businesses to address individual operational problems, the time has come to reassess the approach and ensure that the entire information ecosystem is supporting the greater demands of internal and external customers.
Executive leadership must acknowledge that digitisation alone will not enhance information flow, innovation and productivity, unless there is a clear enterprise strategy to ensure information is made available and can be freely interchanged. Without this, content fragmentation is likely to accelerate, creating further challenges to aggregating, connecting and managing the flow of digital content.
There are inherent challenges for businesses looking to safeguard the efficient and secure access to enterprise-wide information, while retaining the benefits of a distributed approach to technology. One approach that is working well for an insurance client currently in a process of change and growth, is to encourage departments to first seek a solution to any IT need they have from one of a ‘family’ of trusted providers.
In this scenario, it is crucial to work with partners who are committed to ensuring the best for your company: whereas some IT providers will be inclined to make a sale of their own software at all costs, others will be happy to recommend a ‘friend’ from the trusted business family, where they feel that their rival can provide a more suitable product.
At the same time, this ’friends and family’ approach encourages supplier firms to work together on inter-operability and connectivity issues, and to adapt their own products, where necessary, to ensure a solution that is both bespoke and easily integrated into a wider corporate system. With such an approach, all the core systems can be hosted under a single roof - our client works with five core suppliers - and the momentum is towards further integration, not divergence, as each new applications is added.
However, even with such practices, institutions of any size can end up running hundreds of applications. It is essential to link those data repositories and ensure that they are accessible to all potential users, with as much ease as possible. This can be accomplished with an enterprise information hub: a unified information platform, which facilitates an end-to-end view of the organisation’s entire ecosystem.
Such a hub is a valuable tool for management and a driver of innovation, as it is used to speed feedback times and analyse data on whole-company performance. It is also invaluable when it comes to increasing efficiency and diligence at the ‘coal face’, by allowing all documents to be viewed on a single platform or device.
As digitisation drives further changes in years to come - some not yet conceived or planned for, the ability to integrate new systems and view operations holistically will be crucial, if organisations are to fully realise potential gains and remain efficient.
Website: www.hyland.com
Netflix, Spotify, Airbnb and Uber are regularly cited as examples of major disruptors. However, there are many more examples on the horizon. Electric and driverless cars will soon disrupt many industries including automobile manufacturing, rental, leasing and motor insurance markets, while the growing popularity of robo-advisors already threatens the existence of traditional financial advisors. For most large companies today, it is a question of when, rather than if, digital will upend their business. Jonathan Wyatt, Managing Director and Global Head of Protiviti Digital, talks to Finance Monthly about the future and direction of management consultancy worldwide.
Management consultancies tend to thrive during periods of rapid and significant change. Many consultancies flourished in the years following the financial crisis as financial institutions struggled to comply with new regulations and needed advice on dealing with more intense regulatory scrutiny. A decade on, the global landscape is facing a more pressing strategic challenge: to innovate and develop solutions that meet consumer and business demands for efficiency, convenience and ease-of-use. The top strategic risk identified by Protiviti’s Executive Perspectives on Top Risks for 2018,[1] is the rapid speed of disruptive innovations and/or new technologies that may outpace an organisation’s ability to compete and/or manage the risk appropriately unless it makes significant changes to its business model.
Tellingly, the second risk highlighted by survey respondents relates to the overall resistance to change within the organisation. Respondents were concerned that their organisation might not be able to adjust core operations in time to make the necessary changes to the business model to keep the company competitive. Even when executives are aware of the disruptive potential of emerging technologies, it is often difficult for them to envision the nature and extent of change, and have the decisiveness to act on that vision. Management consultants are, therefore, positioning their businesses in terms of expertise and skillset to meet the demand from companies looking to conquer those internal and external digital challenges.
To date, the digital experience of many companies has been focused on the digital “veneer” as organisations look to launch and grow digital channels. This is often restricted to customer-facing products, such as websites, apps and payments channels. Often, they have not made the same progress with the digital transformation of their internal processes, even when this has a direct impact on these digital channels. For example, in the mortgage market customers can apply online for a mortgage in minutes. At many of the established banks, the digital mortgage application remains analogue, with traditional credit review and approval processes that take many weeks to complete. Surprisingly, these traditional processes often include regular communication by post rather than embracing digital signatures.
Organisations are gradually realising that core digitalisation, as well as a cultural change to embrace the digital mind-set, is necessary to compete on the new digital stage. To achieve this, some organisations must advance beyond the use of legacy technologies and systems, and they can sometimes be averse to implementing new policies and ways of working. Consultancy firms advise these organisations on modernising their security policies and demonstrating the advantages of using the advanced technology tools that are now available. This will help with the execution of certain cyber-security and digital projects and the development of proof-of-concepts, thereby improving an organisation’s overall security profile.”
Misunderstanding regulations is often given as an excuse for not innovating. Organisations think the new regulations are more complex than they really are and that by innovating/changing their systems, there is a greater chance of falling out of compliance. But digital leaders are more flexible; they look for solutions rather than excuses and are embracing advanced technology to their advantage.
The advancing tide of demand for digital services will fuel current and future business for consultancy firms. Consultancies are ramping up their expertise and skillsets to provide advice on digital strategies and change management programmes as well as implementing core digitalisation projects. Although there will be no shortage of consulting work, the move to a more digital focus will impact the traditional consulting business and pricing models. As a result, the management consultancy industry is not immune to the wave of disruptive change.
To succeed in the digital race, legacy firms need to put digital at the heart of their business, which encompasses a cultural change to think digitally first. Consultancies should challenge their teams and clients to change their mind-set, put digitalisation at the forefront of all projects and think like a technology company – using technologies such as robotic process automation, machine learning and artificial intelligence to drive efficiencies for the company and consumers. Consultancies also need to be at the forefront in digital thinking to ensure they offer the brightest talent, expertise and experience to help their clients embrace the digital challenge and face the future with confidence.
[1] Executive Perspectives on Top Risks for 2018, Protiviti and North Carolina State University’s ERM Initiative, December 2017, available at www.protiviti.com/toprisks.
Like the digitisation of all things, challenges will be faced and there are benefits to reap, but often such progress doesn’t take place because the correlation between the two isn’t a positive or favourable one. Below Gemma Young, CEO and Co-Founder of Settled, discusses with Finance Monthly the future of digital in the property sector.
Property is our most important asset class, it's also our most emotional asset. Therefore, getting our home sale or purchase right is not just a big deal for consumers, it's a big deal for the wider UK economy.
Unlike other industries (travel, music, taxi services to name but a few), the real estate model has clung to its traditional roots. Even with the advent of “online” estate agents now in existence for the majority of this past decade, the industry has been slow to adopt the opportunities a digital revolution presents. It’s therefore unsurprising that we're still seeing the same issues; typical property transactions take over 3 months with 1 in 3 transactions breaking. This drives consumer losses in excess of £250m each year.
Looking forward, is 2018 going to be the year for true transformation? Will ‘proper’ property technology companies make a dent in the things that matter?
What drives transformation?
Technology
The emergence of truly disruptive technologies including artificial intelligence, virtual reality, blockchain and drones all hold their potential disruptive keys to a more progressive future. Not only are technologies proliferating, consumers also have easy access to them from their smartphones.
Empowered individuals
Tech-enabled consumers search for greater transparency, more control and ultimately more progressive solutions to age-old problems. Their quests for modern, digital solutions provide exciting opportunities for change.
Investment
2017 saw the most significant investment in ‘proper’ proptech to date, with a new and forward-focused collective attracting financial backing from VCs and traditional property players.
Regulation
Central and regulatory initiatives represent a particularly exciting shift. The latest Government call for evidence “Improving the home buying and selling process” and the HM Land Registry’s Digital Street scheme look towards a future where technology (including blockchain) will make the transfer of property ownership much more fluid. Such initiatives shine a light on the underlying problems apparent in the UK property market and signal a commitment to a more open and less guarded future.
How does this future look?
As we see this convergence in consumer, regulatory and technology worlds, this more futuristic property market is well within reach. So who wins? The opportunity to embrace and adopt new technology is open to all, however, historically, traditional incumbents have been slow to move in many sectors. They, therefore, get left behind or quite simply, left out. We don’t have to look far to see examples; Blockbuster and HMV are businesses which didn’t, in time, connect to the opportunities of the next generation. As a result, nimble and forward-focused entrants Netflix and Spotify won the respective leading positions in the new world. Much like in the movie and music sectors, forward-focused businesses tend to win in other worlds.
Settled.co.uk is one example of a real estate business that is connecting across these converging elements at quite a unique time in real estate history. Settled’s unique technology has significantly increased the likelihood of completing on a home and has cut the time it takes to sell and buy in half. It presents the hope that, in the future, its technology will enable people to buy and sell properties in moments, not months. This is the kind transformation this sector needs.
For our March Executive Insight section we also reached out to Sam Ferguson, who has more than 20 years’ experience leading business services companies operating in the technology and business process outsourcing sector. As CEO of EDM Group, Sam has direct responsibility for driving forward the company’s unique end-to-end outsourcing solutions to enable customers to improve operational efficiency, enhance customer service and reduce regulatory risk through digital transformation. Sam has more than doubled the value of the EDM business through a strategic acquisition strategy and organic growth that has strengthened EDM’s value proposition in its core vertical markets, across the UK and the US. Here he tells us more about the company’s ethics, achievements and aspirations for the future.
What are the company’s top three priorities towards its clients? What makes EDM different?
There seems to be a trend in the market currently, where procurement seeks out the lowest cost option, rather than looking for the value that a partner or service can bring. Our approach is different because we demonstrate how we can apply smart technology to business processes to create real business transformation significantly enhancing operational efficiency. A few examples of this are: the PRISM platform we developed for the mortgage industry, which reduces the time taken to carry out an initial valuation on a property from weeks to just seconds; and our digital pay-out solution which allows our automotive clients a car finance decision in ten minutes as opposed to days. Building on our heritage in document management, we are now building smart technology solutions based on artificial intelligence (AI) and robotics.
EDM Group is an advocate for ‘paperfreedom’ – how is the company transforming global businesses through digitisation?
Customers typically interact with a business via multiple forms - by letter, paper mail, email or perhaps via a website. Our Digital Mailroom technology transforms communications from these multiple channels into a standard digital format, so it can be routed, managed and shared by the right people. A paper document on a desk for example, cannot be read by a number of people at one time, it can get lost or misplaced and you have to wait for it to be copied and ‘shared’. If a paper document is digitised as soon as it enters a Digital Mailroom, it can be accessed by multiple people updating the systems simultaneously. So, we reduce inefficient processes based on people sharing information in serial, rather than parallel. While we see the use of paper documents receding by as much as 20% a year, we still manage 40 million pieces of paper a month on behalf of clients, so while paper is not disappearing, by digitising it we can manage it better.
Why is digitisation beneficial for companies?
Overall, the benefits for organisations are numerous: companies can free up critical resources to focus on core activity that adds value and delivers excellent customer service and an overall better customer experience. Integrated and innovative technology solutions that streamline processes and lower operating costs can give our customers a real competitive edge. Most importantly, our customers trust us with their critical data, so security and compliance are very high on their agenda.
EDM is in the process of building smart technology solutions based on AI and robotics – can you give some examples?
'Gone-away' and 'Return to Sender' letters are a good example of this. Customers often write to their bank informing them of a change of address, but typically organisations store customer data in silos by product. So when new product information or other correspondence is sent out, it goes to the old address. With robotics, you can 'train' your system to look for other instances of a change in a customer record and automatically update them all at the same time. Robotics can also intelligently look for the 'sources' of data that organisations provide, such as the DVLA, and match that to make sure customer data is accurate. The benefits are huge efficiency and cost savings and a much improved customer experience.
What have been your biggest accomplishments as CEO of EDM?
When I took over EDM in 2006, the business was not growing, but we have worked hard to build a global company that we can now be proud of, with 1,400 people and an annual turnover of £70 million plus. I’m proud of the technology that we develop and the technologies we apply to solve business problems. Our customers trust us to maintain a resilient business that can offer the best quality services, premises and people.
What further goals do you have?
We will continue to build on and develop what we have already started. We are taking our PRISM technology to the US mortgage lending market and will use our new financial year that starts on April 1st as the kick-off point for re-energising and continuing to drive EDM Group as a fast-growth business. I’m genuinely excited by the ability of our technology to disrupt markets for the good of everyone in the supply chain, including customers, and to stamp out inefficiencies in business processes that still rely on paper.
