But we’re now seeing a divergence among banking behemoths. No longer is Wall Street a united front in corporate American culture. They’re each carving out their own protocols as to when and where work must get done. Citigroup and UBS have taken a hybrid approach, citing the distinct benefits of being together in person while also recognising that working remotely has benefits and creates flexibility for employees. Meanwhile, Goldman Sachs and Morgan Stanley have pushed for employees to return to the office five days a week, saying that everything else stifles innovation, training and mentoring.
Many of these large financial institutions have invested enormous resources into office space. Goldman’s headquarters at 200 West Street cost $2 billion to build more than a decade ago and this spring, JP Morgan unveiled plans for 2.5 million square feet of office space in midtown Manhattan. It’s hard to imagine they’d leave these spaces largely empty, particularly when they think there are plenty of people who would be willing to come in and work for them. After all, big banks remain highly desirable workplaces, garnering thousands of job applicants per year only to accept, in Goldman’s case, less than 2% of them – making the institution more selective than Harvard.
No longer is Wall Street a united front in corporate American culture.
Of course, the past year has been a grand experiment with different work practices. Wall Street’s banks now have four options:
- Everyone needs to be back in the office full time.
- Everyone needs to be back in the office two or three days a week.
- Everyone can work remotely.
- Everyone can choose where they work best.
From our perspective, we think there’s an important insight that decision-makers are missing. For the first two options, being in the office gives managers the ability (or so they think) to see exactly what their employees are working on when they clock in and out, and who is meeting with whom, raising their sense of certainty. It also gives them a sense of control by dictating when and how work happens. These two actions – raising their sense of certainty and control – may make a manager feel better, but they aren’t accurately calculating how much worse it could make their teams.
According to our research, a majority of employees across a variety of sectors – 54% – don’t want to be back in the office at all and 40% want hybrid options. Only 6% of respondents want to “always or mostly” work in the office. Having to return to the office can threaten people’s sense of status, or their sense of value. They feel untrusted and treated like children. Second, it can affect their sense of autonomy, or our sense of control over a situation, which researchers have found is strongly tied to job satisfaction. Finally, returning to the office also triggers fairness threats, particularly since both the quality of people’s lives and their work performance may diminish when forced back.
The real challenge is that returning to the office isn’t a zero-sum game. A manager feeling more in control turns out to be less of an issue than an employee who feels less in control. The reason? In the brain, a drop in certainty or autonomy turns out to be significantly stronger than an increase in the same experience. Our brains are built to pay far more attention to negative experiences than positive ones, perhaps for good reason: if you miss a reward you may miss lunch, but if you miss a threat you might be lunch. The result is that managers may not notice that they feel slightly better, but their teams feel dramatically worse.
The big question that no one can answer yet, is the true cost of these different options. When you add in the emotional rawness we all still have from the roller coaster of the past two years – the net effects of offering choice in work environments may outweigh the upsides of mandating people be back in their office swivel chairs. If you require everyone back in and use the real estate, what percentage of employees will you actually lose and what does it cost to replace them? Will that cost matter if others want to come in? Similarly, we know that only 3% of Black professionals want to return to the office full-time and that women prefer working remotely compared to men. Will requiring office time then impact your diversity, if the majority of people who are happy to work nine to five in a city office come from similar demographics? Further, what is the net drop in productivity of making people return to the office, given that working from home is about 25% more productive than working in the office?
When viewed from that perspective, it may be best to consider the net effect of all these considerations, compared to the benefits of being together all week. When much of the work can be done virtually, getting together feels special; people are excited to see one another and be productive together. They feel respected and appreciated, instead of being treated like employee No. 749. They’re eager to come to the office for a few days each month for a working session and then grab drinks after. And that, ultimately, may be the best return on an investment you can make right now.
Personalised nature of financial services has suffered
For years, the financial services market has become much more transactional. In a race to the bottom on price, consumers have been more concerned with who doesn’t charge maintenance fees and who has the best interest rate for their cards or rewards system for their policies than who has the most convenient high-street locations or who provides the best service. This has placed an over-emphasis on digital, particularly as generations have grown up so that now, the thought of going to a branch office is seen as an alien concept to younger customers. There is no question that the banking landscape has dramatically changed from one generation to the next. The relentless march to digital continues to see swathes of branch closures and has ushered in the death of ‘speaking to your local bank manager’. According to recent figures from the European Central Bank, the bank branch network is getting thinner by the day with a decline in 25 out of 27 EU Member States. According to a report from last year, at least one bank branch closes every day in Belgium.
It has created a dichotomy whereby large swathes of society are now totally reliant on digital financial services - a figure that is only going to increase as digital identity verification becomes more widespread. But at the same time, the narrative to consumers is to ‘protect their data’. As a result, it is creating an environment of mistrust, concern and paranoia, rather than an excitement for what safely sharing data can enable.
Humans: The missing link in financial services
Our Digital Frontiers research identified that two-thirds (67%) of European consumers don’t know who has access to their personal data and how it’s used – just 12% do with any certainty, while the majority (59%) of the public are increasingly concerned about the security of their online digital footprints and how purchasing data is used, interpreted and shared. Indeed, 41% now feel paranoid that organisations are tracking and recording what they do on devices.
At the same time, the near extinction of humans in the financial services sector is creating a void that consumers are not yet prepared to take the leap of faith to cross. Yes, our research uncovered an acceptance that technology can play a vital role in managing our finances - 31% of consumers would trust an app to manage all of their finances if it meant it generated greater returns each month, 39% expect their financial services provider to use technology like artificial intelligence and machine learning to help protect their funds and personal details. However, it also highlighted that a fully-digital banking network is a long way away. Only a third (30%) of consumers would choose a different bank or financial service provider if their existing one expected them to visit a branch in person. Indeed, only 37% agree that in-person interaction in financial services is almost dead. According to our research, almost two-thirds (64%) of consumers expect the financial services industry to support traditional and in-person services that they do not rely on but know other people may.
In a race to the bottom on price, consumers have been more concerned with who doesn’t charge maintenance fees and who has the best interest rate for their cards or rewards system for their policies than who has the most convenient high-street locations or who provides the best service.
Whether it is the desire for trust, the ability to solve our problems - especially in light of high-profile scams and cybercrime, or to simply deliver a personalised experience, it’s clear that for digital in financial services to reach its potential, people still need people; not necessarily in the high street, but at the end of a message, phone or video.
Digital-first, not digital-only
What consumers are looking for is for financial services institutions to build their offerings with a digital-first mindset and not digital-only, which is good news for traditional establishments - less so for fintechs and NeoBanks. And who can blame them when it’s something they see daily in other sectors. Retail is starting to blend in-store expertise and service with digital innovations around delivery choices yet in financial services, consumers are being offered chatbots to fix problems and are being turned off as a result. This isn’t a digital versus physical discussion but more about creating a blend where the choice of engagement is down to the consumer: from efficient app-based banking to speaking with a real-life person via chat, phone, video or in-person, when required. Data lies at the very heart of this.
Away from devices and evolving customer expectations, there is another driver of change for financial services at a macro level. Governmental and regulatory expectations have translated into a need for banks to play a fuller role in meeting society’s financial needs. Our digital economies depend on organisations and companies being able to unlock the value of data - using it to improve products and services and improve society as a whole. For example, banks are increasingly expected to improve financial inclusion. According to a recent report, seven million adults in the UK are at risk of financial exclusion, meaning that they do not have sufficient access to mainstream financial services and products - something exacerbated by the ongoing branch closures.
Financial Services getting it right
The beauty of this situation is that all the tools and technologies to realise this future are here, today. There are already businesses demonstrating how it can be done to great effect. One example is Achmea, which has a leading position in the Dutch insurance market, with 10 million customers. The insurer makes use of technology and data in a clever way that allows it to quickly add new services or make changes based on customer feedback. Innovations to speed up its claim processes include an app for policyholders to help them find local tradesmen for repairs through to the use of drones to survey weather damage to properties.
Totally secure, friction-free financial interaction
Consumers want totally secure, friction-free financial interaction with absolute trust in how their data is captured, stored and used. But, for a sector that’s designed on digits, people don’t want to be just another number. And in this day and age, these two objectives don't need to be mutually exclusive.
The financial services sector has an opportunity to lead the way globally, demonstrating digital excellence with data to excite consumers, bank the unbanked, connect communities and shape society for the better.
What made you choose this particular career path and where did you get your start?
I’ve always enjoyed numbers - since I was young. My dad was an accountant, so I guess the apple didn’t fall too far from the tree. The challenge was that my other passion was helping people. So, I needed to find a blend of both. Fortunately, this career is exactly that! Numbers. And helping people. I am so lucky that I found a way to combine both my passions in one amazing career. I started in the industry in 2003 and it’s this combination of numbers and helping people that continues to fuel my love for what I do each and every day.
What are your tips on managing one’s wealth during turbulent times?
I believe everyone should have a financial plan. A big part of what my team and I do is help folks craft a proper financial plan, which can answer some key questions: Will I have enough to retire? When can I retire? What does the tax on my estate look like? What rate of return do my investments need to generate for my plan to be fully funded? Having the answer to those questions, in my view, is always helpful, it can be the roadmap to ensure you are on track to achieve your financial goals. That’s helpful in good economic times, it is especially helpful in turbulent times. During volatile periods one of the first things we do is revisit the plan and ensure we are still on track to achieving our clients’ goals. If you don’t have a plan, the good news is it is not too late, you can still get a proper plan in place. It will clarify your goals and help provide perspective during turbulent markets.
In terms of the investment portfolio, I am not a fan of big changes to the portfolio in the mix of market turbulence. If you structured your portfolio correctly, you should be able to handle the bumps. Understandably emotions can run high when markets get turbulent. It is easy to talk about the long term, but when markets get turbulent, it is hard to look past the turbulence. When volatility happens, I think it’s human nature to focus on it. Оur time horizon shrinks. It can feel like the current environment will last forever and it is tempting to make a large change to your portfolio. That type of strategy overhaul can feel good in the moment, but in the long term could knock your plan off track. I believe a proper financial plan can help fight that temptation. As mentioned above, a well-done plan is structured for good times and bad, it also provides a framework to evaluate your investment portfolio. The plan can tell you the long-term rate of return required to achieve your goals. In my view, that can provide some perspective during bouts of market turbulence.
What is the most fulfilling element of your job?
Helping people. One client of mine, whose husband had passed away, was not only grieving but came to us in a state of desperate need of direction and navigation. Her husband had handled all things financial for them and she was in effect, lost, without guidance. I walked through the entire situation with her, including every step and option, helping her regain confidence and comfort. She was and is to this day, very grateful. Being able to help people feel more at ease with their finances is easily the most enjoyable part of this job and, to this day, is part of what drives me to continue coming to the office every day.
You can contact Clinton at corr@cgf.com.
CANACCORD GENUITY WEALTH MANAGEMENT IS A DIVISION OF CANACCORD GENUITY CORP., MEMBER-CANADIAN INVESTOR PROTECTION FUND AND THE INVESTMENT INDUSTRY REGULATORY ORGANIZATION OF CANADA.
The Present
Over the last few years, customer payment preferences have changed significantly. Particularly, the COVID-19 pandemic accelerated the shift towards digital payment solutions like Alternative Payment Methods (APM). To highlight the importance of APM integration for businesses, Macropay’s CEO & Founder Adam J Clarke notes that “alternative payment methods are critical. [It is] life or death customer experience.”
This shift in payment and banking trends are also characterized by decentralization. Long gone are the days when customers visited a banking hall to make payments or deposits. In fact, mobile wallets and other open banking solutions even allow people without bank accounts to access loans. In turn,this shift in access to financing has accelerated the need for more flexible and fluid payment options.
For instance, businesses are no longer restricted by borders and can easily access new markets and clients. Globalization and digitalization have given birth to phenomena like drop shopping which lowered barriers of entry for new businesses. However, traditional banking is not evolving fast enough. This is evident in how banking restrictions still make it difficult for new business owners to open bank accounts. In addition, traditional banking tends to be more expensive in comparison to its alternatives.
The Past
Previously, payments and banking were controlled by a select few. Financing was centralized, flowing to and from a central bank. This meant payments took a long time as they needed to be verified by the middleman or central controller. In addition, the middleman needed to get paid, which made financial access expensive.
Similarly, access of loans was expensive and, in some cases, prohibitive. This is because customers need to prove their liquidity and provide “know your client” (KYC) documents to open an account. For some, these documents are impossible to obtain. As a result, 31% of the world population remains unbanked today according to World Bank statistics.
However, the rise of mobile wallets, for example, has meant anyone with a smart phone and internet access can access a new way of payment and banking. Businesses now have access to more clients as a result. That is if the business is able to offer clients their preferred payment option.
The Future
As client preferences evolve, businesses must keep up in order to stay relevant. With so much change it might be tempting to assume that we have reached the pinnacle in payment evolution. However, Macropay CEO Adam J Clarke begs to differ. He believes that “the great tech revolution is just beginning, and that AI is the future of tech which will continue to change the way the world works.” 83% of financial service executives agree according to Forbes.
Conclusion
As we become more of a cashless society, Artificial Intelligence (AI) will help make digital payments more secure. Cybercrime and digital fraud currently make online payment solutions very risky. AI allows for the early detection of potentially fraudulent activity or a breach in security. This is one of the main reasons why Macropay utilizes both cutting edge technology and AI.
However, business growth can be achieved – some of the world’s biggest companies such as Activision, Seagate, and Virgin Books, an outgrowth of the Virgin Group, started amid 10%+ inflation during the end of the 1970s.
Here are some tips for financing business growth in 2022, even when it seems like a tough hill to climb.
What’s your growth plan?
Though your business may have ideas for growth, what is your plan? You need to create a plan that’s SMART – Specific, Measurable, Achievable, and Time-Limited. That could mean beginning with a vision statement – “20% greater market cap within the next three years.” This contains every attribute of a SMART goal.
The next step is formulating a strategy and tactics underneath – does the business need more room to operate? Expanding manufacturing? Additional workforce? Vertical integration? What does that look like? Sinking short term liabilities into long-term assets is usually a recipe for disaster. The funding for an asset must match the timeframe of the liability, e.g. a five-year loan for financing a car.
Finance that optimises growth
Taking on asset finance – especially for real estate – is a sure-fire investment in business growth. After all, investing in land is a great asset as humourist Mark Twain said, “Buy land, they’re not making it anymore.”
Your business may not have to buy land – though it may be a strategy to cut costs and funnel your operations into one that’s more vertically integrated – but growth-oriented assets that not only perform (i.e., are responsible for making profits) but also appreciate in value.
These are all examples of secured finance – finance that requires a security or collateral for approval. This is usually the asset being purchased, though some lenders may insist on other collateral to be staked instead. There are some non-traditional ways to obtain finance, as we’ve outlined here.
What if your business is lean, agile, or most of its holdings are intellectual property? Even if your business isn’t any of those, you can still fund business growth with unsecured business loans.
Cash flow management
One of the biggest reasons why businesses fail is that they lack proper cash flow management. Taking advantage of unsecured business loans can spur on business growth opportunities – buying inventory, freeing up capital, paying for leases or hiring equipment for specialist contracts, etc. In most cases, unsecured business finance can be accessed within a day – or sometimes a couple of hours.
Unsecured business loans don’t require collateral and can be used for any business purpose. Most unsecured business loans allow you to pay off the balance early – handy if you find your business experiencing rapid growth – which is the aim.
Disclaimer: Always ask your accountant or financial controller for advice before taking out business credit.
However, while 59% of business leaders reported having a “zero-tolerance” policy towards racism, only 18% of employees claim their leaders have openly acknowledged existing inequities – according to new research by Henley Business School.
With more than 3 out of 4 job seekers and employees (76%) reporting that a diverse workforce is an important factor when evaluating companies and job offers, it is clear that companies need to champion diversity and inclusion because it is morally right and also because it is important for business success.
Deborah Gray outlines some key tips to help a business design a recruitment strategy that attracts a broader range of talented individuals while expressing the firm’s commitment to its values.
Make your adverts inclusive
The latest research from LinkedIn suggests that while both genders browse jobs online in a similar way, they apply for them differently. More importantly, the study found that male-orientated job descriptions, can actively dissuade women from applying to jobs, and this is particularly prevalent within the tech sector.
As a result, employers should avoid the temptation of recycling an old advert from previous years and deploy gender-neutral language in their communication. Therefore, it’s essential that the language used in job adverts is inclusive, avoiding nuanced biases and avoiding blanket terms such as ‘team player’ or ‘charismatic’ in favour of accurate descriptions of competency.
Equally, firms need to avoid using jargon that might be deemed unnecessary – phrases such as KPIs, SLAs and P&L. While potential recruits with experience may well understand these acronyms, talented young people, particularly those coming straight from university, may be less aware of these terms and corporate jargon.
Firms should only include skills that are immediately vital, while clearly expressing their commitment to improving diversity. It is also important to constantly review applicant demographics to continually monitor when adverts might be discouraging applicants.
Don’t let biases go unchecked in the interview process
Unconscious bias goes some way to explain why many cross sections of society are underrepresented in senior management teams and boardrooms. For example, a study from researchers at Nuffield College’s Centre for Social Investigation in 2019, which altered nothing but applicant names that were based on their ethnic background, found that while 24% of white British applicants received a call back from UK employers, just 15% of ethnic minority applicants did.[1]
Moreover, compared to White British applicants, people of minority heritage had to make a considerably higher number of job applications before getting a positive response, including those from Pakistan (70%); Nigeria and South Asia (80%); Middle East and North Africa (90%).[2]
It is important to also be wary of unconscious gender bias when screening candidates. Unfortunately, gender bias in hiring persists today, with a recent UN report finding that almost 90% of men and women hold some sort of bias against women and a look at the FTSE 100 showing that there are more CEOs/chairmen called John than there are women.[3] Just 10% of executive-level roles in the tech industry were held by women in 2020 – highlighting that there is still a clear need for change.[4]
Interestingly, a 2016 Harvard Study found that employers who interviewed candidates in a group setting were far more likely to eliminate any gender biases inherent in an individualised hiring process.[5] More diverse representation will help workers feel better accepted and therefore more confident in entering different sectors. Hiring more women into senior leadership roles will positively influence younger female workers, helping them to aspire to similar roles in the future.
Asking candidates about their interests and working styles during interviews may offer useful insight, but this can also foster biases. Therefore, rather than job suitability, interviews often end up testing similarity between candidates and current employees – this can be problematic in workplaces that lack diversity.
In addition, companies should have multiple decision-makers involved in the hiring process. This way, varying notes and scores can be compared and reviewed, which will often reveal a candidate’s suitability more effectively.
Target a variety of sources for diverse candidates
Instead of relying on the same tried and tested talent pools, employers should seek out new sources focussing on a variety of different institutions, universities, cities or regions. As an example, there are many groups online, such as the women in business network or the black business network, which could provide opportunities for businesses to hire a more diverse group of new recruits.
Find an external recruiter that shares your values and commitment
It is often the case that businesses look to specialist recruitment firms to find suitable candidates. Specialist firms often have a deep understanding of how to encourage and foster diversity and inclusion through the hiring process. These firms can often point out problem areas within the hiring approach for businesses where diverse candidates might be disadvantaged or where there is potential for bias.
Totum Partners adheres to recruitment practices that find, foster and forward candidates from a diverse pool of talented individuals from a variety of backgrounds and demographics. Not only are companies with a diverse range of recruits seeing 2.3 times higher cashflows than those with less diverse teams, but they are also 70% more likely to capture new markets than their counterparts. However, much more importantly, increasing diversity and inclusion is just the right thing for businesses to do. Providing all candidates with a fair chance, free from bias or discrimination is at the top of Totum’s agenda – those who do not adapt to encourage D&I will find themselves short of the top talent that drives business success.
[1] http://csi.nuff.ox.ac.uk/?p=1299
[2] https://www.bbc.co.uk/news/uk-46927417
[3] https://www.beapplied.com/post/gender-bias-in-hiring-report
[4] https://isemag.com/2020/10/telecom-the-latest-stats-on-women-in-tech/#:~:text=According%20to%20a%20report%20by%20Entelo%2C%20there%20are%20about%2019,10%25%20of%20executive%20level%20positions.
[5] https://dash.harvard.edu/bitstream/handle/1/8506867/RWP12-009-Bohnet.pdf?sequence=1
In 2021, the focus on ESG accelerated. COP26 kept sustainability at the top of every executive's agenda, while social movements and supply chain challenges forced a dramatic rethink.
This year, as businesses continue to rebuild from the pandemic – with some having to create entirely new supply processes – the financial industry will see significant change with a deeper focus on ESG resilience, strategies, reporting and governance. In particular, three key trends will shape the finance sector’s approach to ESG reporting in 2022.
More confidence in ESG credentials
Historically, employees, customers, investors, and other stakeholders have been cynical about corporate reports on sustainability and corporate social responsibility issues. There is still a lack of trust regarding organisations’ ESG claims and a perception that companies are guilty of greenwashing or only reporting on positive progress. This is frustrating for organisations that not only understand the value of reporting accurate ESG metrics but also invest significant time to do so.
For many organisations, it isn’t entirely clear what they need to do to build that trust. Until ESG is standardised and everyone is on a level playing field, organisations need to establish how they can provide greater consistency and transparency of ESG data. Key to this is working with investors to understand what it is they want to see.
Companies recognise that strong relationships with their stakeholders will only be possible if they can demonstrate that they are reporting consistent, trustworthy data. With audit-ready reports based on a single source of truth, they can establish more confidence with their stakeholders.
Regulations that seek to mandate greater trust, transparency and accountability are on the horizon. This is one reason why stakeholders are beginning to feel that they can have more trust in the ESG data included within a company’s reports. For example, many organisations across Europe are currently issuing their first European Single Electronic Format (ESEF) filing, in line with a mandate that aims to make reports more easily discoverable and comparable with standardised tagging. Additional regulatory changes are coming into force such as the Corporate Sustainability Reporting Directive (CSRD) which will create more standardisation – and confidence – in the reporting of corporate ESG progress. Inevitably, more regulatory changes are yet to be revealed but organisations don’t need to wait for regulatory bodies and standards setters to set the pace of change within their businesses. Trust can be built now.
Companies will need to go further when sharing data, both to meet these regulatory requirements and to cater to stakeholder demands. For example, outlining the company’s gender and diversity split no longer satisfies investors. They are also interested in how executive pay links to sustainability goals. Pay gaps need to be reported on and taken into account alongside, for instance, seniority and length of time at the company.
Until ESG is standardised and everyone is on a level playing field, organisations need to establish how they can provide greater consistency and transparency of ESG data. Key to this is working with investors to understand what it is they want to see.
Organisations will also need to ensure that processes are in place to gather this data efficiently from siloed departments across the business. One way to address this is to use one centralised platform that integrates teams, processes, and workflows to make this complicated data gathering exercise simpler. With this type of technology, all data within the platform can be linked. When data is updated in one place, it automatically updates everywhere. This means reporting teams can be confident in the consistency of the data, and stakeholders can be confident in the ESG credentials being reported.
As organisations get into their stride with streamlining ESG reporting processes this year, banks and investors can expect more confidence in the ESG data that companies publish.
A collaborative approach to ESG reporting
As regulation is changing, the ESG data that companies need to track and report on is also shifting. Annual and interim reports can be a mammoth task, involving many stakeholders across multiple disconnected teams — from the sustainability and corporate communications teams to investor relations, auditors and more. So there is a growing need for businesses to ensure that everyone involved in developing ESG reports not only buys into a collaborative, centralised reporting model but understands their role in it.
This requires education across teams. Once an organisation has identified who needs to be involved, those individuals will need access to the right reporting tools and, importantly, clear and consistent lines of communication. Efficient ESG reporting requires everyone to know the role they play and collaborate.
Critically, everyone around the boardroom table — whether an ESG leader or not — has a key role to play. The CFO in particular needs to ensure that all teams become part of the process. This is where groups such as the UN Global Compact CFO Taskforce come into their own. This task force was set up to guide companies in aligning their sustainability commitments with credible corporate finance strategies – enabling advice and idea-sharing between CFOs for peer-to-peer support.
Collaboration is key and establishing a circle of trust optimises the reporting process. Without this, organisations are more likely to continue to face challenges with ESG reporting and may struggle to gain stakeholders’ trust. This year, organisations will need to establish a clear system of ESG reporting roles to ensure those processes can be streamlined for efficient, consistent, and trustworthy ESG reporting.
Continued standardisation of ESG, and tighter regulations
Change is a constant when it comes to the demands put on the annual reporting process. For example, the CSRD proposed by the European Commission last year aims to enhance and strengthen the measures already in place under the Non-Financial Reporting Directive (NFRD) and is, in part, the result of a series of consultations that started as far back as 2018. This year, financial firms will also need to start preparing for the UK Financial Conduct Authority’s mandatory climate-related disclosure rules which are due to come into force by 2025.
As a further change to the ESG reporting landscape, the International Sustainability Standards Board (ISSB) – announced at COP26 – will provide consistent standards for organisations across the world, significantly reduce cross-framework mapping, and simplify some of the more painful elements of the reporting process. The ISSB will be pivotal to meeting demands from investors for transparent, reliable and comparable reporting by companies on climate and other sustainability-related matters.
The move towards greater standardisation, control and rigour is being driven by the need for greater transparency. This transparency fosters trust in data, and this is vital considering that ESG is now a critical business success factor.
The demand for businesses to improve the quality of the ESG information that they share with investors and the market will continue. If a company is to stay on top of the evolving regulatory requirements and ensure that it can deliver consistent, transparent reports, it will need to future-proof annual reporting processes. Bolting on solutions to a reporting framework may seem like the quick answer but it won’t deliver the sustainable, long-term value required. It will only cause delays, inefficiencies, and endemic long-term disruption. Organisations are recognising this, so we can expect to see the need to future-proof annual reporting processes become more of a priority in 2022.
ESG has moved swiftly to the top of companies’ priority lists. The driving forces behind the acceleration are clear; lenders expect greater visibility, new regulation is coming into force, and both customers and employees are increasingly values-driven. As organisations double down on tracking and publishing data that demonstrates their ESG prowess and progress in 2022, the trends above will shape their approach to streamlining the processes which make that reporting possible.
2021 has also been the year that brands have started to embrace embedded finance as a potential tool to solve the issues. Smaller-scale companies have been leading the charge, offering innovative products built around embedded finance, from crypto rewards to interest rates linked to physical health. As they have provided these proofs of concept, bigger and bigger fish have started to explore the possibilities available to them.
In 2022 we expect to see an explosion of new embedded finance use cases - from consumer, sports and healthcare brands. Our research shows that young people, or 51% of 18 - 24-year-olds, are open to accessing financial services from brands they love and trust and 42% are interested in a credit card from their favourite sports team. To date, we have mainly seen embedded finance delivered as a standalone product, but by building experiences. there are also possibilities to create enhanced customer experiences with financial services built seamlessly in.
The potential here is enormous and largely untapped, with different opportunities available to different sectors. For example, football teams have a really passionate fan base who regularly buy tickets and merchandise from their favourite club. Through embedded finance experiences clubs could expand their offerings, going beyond the current tickets and merchandise paradigm to also connect fans to hotel and travel deals for away matches. All of this can be handled in one app with seamlessly integrated payment and the opportunity for fans to accrue loyalty points redeemable against exclusive experiences. This both removes any friction points around access to financial services and payment while improving the loyalty strategy.
We know that loyalty is an important consumer consideration. Some 38% of consumers feel more loyal to a brand if they receive rewards, for example. However, there is also widespread dissatisfaction with loyalty schemes. It isn’t difficult to see the issue - most loyalty schemes only reward customers when they spend with a specific brand, which limits how often consumers can engage with the scheme.
With a loyalty scheme built around an embedded finance experience, brands can expand their loyalty schemes to encompass any purchase their customer makes, which means they can be part of their daily lives in a positive way while building a stronger relationship. For example, we are working with McLaren and QNTMPAY on creating a debit card with unique F1 based rewards, up to and including pit lane access on a race weekend.
What is particularly exciting about embedded finance experiences is that we are just starting to scratch the surface of what is possible. As customers become more familiar with the seamless journeys they can take, the demand for these experiences will increase and brands will be able to innovate further and push the envelope for what is possible. We can’t wait to see how these experiences are going to evolve over the next twelve months!
Powered by blockchain, financial institutions such as JP Morgan and Goldman Sachs were experimenting with the technology at the time. Since then, the former has launched its own blockchain initiative system called Onyx, while Goldman Sachs co-led the first public digital issuance on Ethereum public blockchain for the European Investment Bank.
Perhaps most strikingly though, major powers like Russia and China have introduced their own digital currencies since Lagarde’s statement, signalling a potentially seismic and irreversible shift towards blockchain-based payments, particularly for those taken across borders. But how exactly does this technology work and why are financial institutions and countries alike seemingly so eager to move towards it?
Blockchain explained
First things first, let’s recap what blockchain actually is. Blockchain is a kind of database that gathers data in groups called blocks. All of these blocks have a fixed storage capacity, and, when filled, are chained onto an existing block to create a chain— i.e., the term blockchain.
A key feature of this is that, once a block has been filled, it is given an exact timestamp of when it was added to the blockchain. Every event that happens on it is recorded on a public ledger, which is essentially a record-keeping database that ensures the participants’ identities are kept secure and pseudo-anonymous. They can only be identified by private keys, which are strings of letters and numbers needed to make a blockchain transaction.
An example: Bitcoin
To demonstrate blockchain in action, it makes sense to look at the most famous example of a technology that uses one: Bitcoin. The cryptocurrency exists on a blockchain across thousands of computers worldwide, all operated by different groups of people. These computers are called ‘nodes’, each of which has a record of every transaction that has taken place on it.
This has many benefits, with perhaps the main one being that, if one node has an error in its data caused by a fraud attempt, the blockchain can reference the other nodes to correct the database. Consequently, every transaction is accountable, secure and irreversible, with no de-centralised organisation being able to control things either.
To make a Bitcoin transfer, you need two Bitcoin addresses (known as public keys) to send the crypto to and from. The person transferring it is required to sign a message using their private key, which contains the input, output and amount being sent. This transaction is then broadcast to the rest of the Bitcoin network, with the nodes checking whether the person’s private key is able to access the input by matching the public key number. After doing so, mining nodes will add the transaction to the blockchain.
How does blockchain facilitate global payments?
People can use blockchain to send money across the world as they would for transferring cryptocurrency to one another. For example, companies like Stellar and Tempo offer 1:1 backed fiat tokens (also called stablecoins) that individuals and companies can convert their government-issued currencies into and send via a blockchain. The receiver can then accept the digital currency and convert it back into their own currency.
Blockchain is rivalling conventional transfers
This type of system allows people to enjoy the benefits of blockchain-like more secure and transparent transactions. It, therefore, has significant advantages over conventional cross-border payments, which are often costly, slow, opaque and dogged with security issues. Because of a lack of standardisation between countries, transfers tend to require a number of intermediaries to carry out tasks like verifying a sender or receiver’s identity and creditworthiness. This is not only time-consuming but adds extra costs. What’s more, these transactions often take place on outdated legacy systems, potentially rendering those involved vulnerable to security breaches. So why exactly is blockchain increasingly considered a better alternative?
Why are financial institutions moving towards blockchain?
It’s more cost-effective
Instead of paying transfer fees to multiple intermediaries, those using blockchain only pay a nominal fee to a financial institution or nothing at all. Deloitte estimates that business-to-business and person-to-person payments with blockchain are 40% to 80% cheaper than the standard transfer process.
It’s quicker
In the same study, Deloitte revealed that blockchain transactions are also astronomically quicker than conventional cross-border transfers due to being near-instantaneous. On average, they take around four to six seconds, compared to two to three days, with none of the hoops around intermediaries to jump through.
It’s more secure
When records are maintained by one central authority, such as a bank, they are vulnerable to hacking and other threats. But all transactions within a blockchain are tied to previous transactions, as well as being protected by cryptography. Consequently, a hacker would have to also hack every other transaction on the ledger, making it nigh-on impossible to infiltrate.
It’s more transparent
Considering a blockchain is a public record of digital transactions, it is a lot more transparent than traditional banking. Each party has an identical copy of the ledger, which is continually updated by the connected computers. This also removes the risk of discrepancies between different records, unlike with financial institutions which each have different databases that may not feature matching data.
What does the future hold for blockchain in the global payments system?
While blockchain is certainly gaining traction in the global payments sphere, it’s unlikely to replace the traditional payment system in the near future. International transactions must meet complex regulatory, compliance, finance and operational requirements, making it hard for independent companies to offer blockchain-based cross-border payment systems. Rather, we’re more likely to see an increasing number of banks use the technology themselves to provide blockchain transactions through their existing payment systems.
Stan Cole is the Head of Financial Institutions at Inpay.
As we head into 2022, companies are preparing by pivoting their focus toward digital transformation to boost value for their customers and their bottom line.
Here are 4 trends to look out for in 2022.
1. Contactless services
The challenges created by the coronavirus pandemic have caused a major shift in consumer behaviour. Suddenly needing to adhere to social distancing guidelines and other rules, companies shifted their operations with rapid speed. According to The Visa Back To Business Report, nearly 33% of businesses now only accept contactless payments, while 48% of customers said they would not shop at a store that only offers payment methods that involve contact with a cashier or a shared machine such as a card reader. This shift toward contactless services is set to stick around in 2022 and the years beyond as the pandemic continues and customers become increasingly accustomed to simpler and faster ways of paying. As such, businesses that want to keep up will have to make the shift in line with the rest.
2. Digital Society
Society is becoming increasingly digital, with almost 15 billion mobile devices operating worldwide in 2021. While a decade ago cash made up 60% of payments, 2017 saw debit cards overtake cash for the first time. Covid-19 has undoubtedly pushed an increasing number of people toward digital payments options, but even before the pandemic, cash was set to make up just 10% of payments by 2028.
Digital wallets are also playing a major role in the increasing popularity of digital payments. According to an annual Worldpay Global Payments Report, digital wallets are set to represent half of global e-commerce sales by 2023, meaning we will likely see their popularity grow in 2022.
3. Automated Processes
It’s no secret that manual services are often time-consuming and not always the most efficient option for businesses. While automation can carry a hefty upfront cost, in recent years, many companies have started to invest in automating business processes in finance from payments, to lending, to front-end services, and back-end core functions. According to predictions by Gartner, the worldwide market for technology that enables hyper-automation is set to reach $596.6 billion in 2022, up from $481.6 billion in 2020.
Automation not only boosts efficiency for businesses but also improves client satisfaction by accelerating the pace of communication. Furthermore, in the long run, automation is also likely to reduce a company’s operational costs.
4. Blockchain
Currently, blockchain is often discussed in terms of its connection to cryptocurrencies. However, in 2022, we will likely see much more of blockchain’s true potential. Blockchain, fundamentally, is a secure system that allows for transactions, financial and otherwise, to be carried out. Such technology can be used by banks to handle remittances for lower costs and greater productivity, upping the efficiency of transactions without compromising security. As a second example, blockchain technology can also be used to support peer-to-peer lending solutions. PwC projects that, by 2025, the P2P lending industry will reach $150 billion.
Final Thoughts
Thanks to the pandemic and technological advances, major shifts are coming for finance. These 4 trends are set to have a significant impact on the sector in 2022 and will likely set the standard for many more years to come.
While investing in such technology has been vital to helping many businesses survive and thrive in the pandemic, one department that is often overlooked is finance. Rob Israch, General Manager Europe and CMO at Tipalti, explains why this needs to change.
Despite advances in technology and the adoption of cloud accounting software over the last decade, it is still common for businesses to complete many finance processes manually. In fact, we know from our recent research that nearly a third (29%) of CFOs in the UK are dealing with more manual financial operations than ever before. Not only is this wasteful in time and money, but it is also holding finance leaders back from working on important strategic initiatives. We know that driving international expansion, incorporating environment, social and governance (ESG) and sustainability, and dealing with changes brought about by the global pandemic and Brexit – are all causes of complexity for already-busy CFOs.
In order for finance teams to evolve and become the strategic heart of a business, instead of being siloed and viewed as only fulfilling statutory requirements, adoption of automation technology is vital. Any resistance around adopting such technology, which is often that the perception that manual operations is good enough, can be squashed when we look at the benefit it brings businesses. Applying new tools to automate everyday tasks such as payroll, accounts payable, purchase order management, invoice management, group consolidation, and expense management will increase the efficiency of finance teams, allowing them to produce fast and high-quality information. In turn, stakeholders can benefit from increased agility to act on timely management information. Below are the specific benefits businesses that modernise their finance department will see.
Payroll
Payroll is a critical finance task. Employees are one of the most important assets within any business, so it's important to keep them happy by paying them accurately and on time. However, it is easy to get wrong by failing to submit up-to-date information about leavers and joiners, and not providing accurate employee tax codes. Its completion also has added pressure due to being time-sensitive and needing to be performed within a precise and tight deadline each month.
Payroll systems usually are not connected, meaning finance teams have to manually key in or export data to core accounting software and banking providers. However, many payroll processes can now be automated using solutions connecting accounting software and banking providers to provide an all-in-one workflow - saving time and reducing the chance of human error by overcoming the need to move data into different systems, either manually or by exporting and importing CSV files. A particular benefit is not having to recreate payroll journals, which is a notoriously fiddly task.
Accounts payable
Similar to payroll, accounts payable is an essential and regular task for finance teams. Ordinarily completed once a week or fortnight, it takes significant time to collate all invoices, enter payment details onto banking platforms and attain the necessary approvals for payment.
Incorporating vendors that leverage automation to facilitate multiple approvals and pull payment data from accounting software to a banking and payments interface, removes the friction associated with payment runs so they can be completed seamlessly, while also reducing the risk of manual payment errors and fraud.
Many accounts payable solutions reconcile payments automatically, saving further time, which can be used to complete higher-value tasks. A further benefit is better supplier relationships, providing visibility of payment status and enabling proactive communication to suppliers, while also helping reduce the likelihood of invoices being paid late, removing the risk of late payment penalty fees.
As CFOs’ roles and responsibilities grow, an increasing amount of pressure is put on the finance team to focus on tasks that help grow businesses – it’s essential more importance is placed on adopting finance automation as part of businesses’ wider digital transformation plans.
Purchase Orders (POs)
POs play a key role in financial control, with many companies insisting on their use for spend above a particular threshold. The creation and approval of POs are commonly a pain point for companies. There can be a disconnect between budget owners and suppliers, resulting in invoices being raised with incorrect or fully utilised PO numbers.
Using an automated PO tool that integrates to the core accounting platform streamlines processes so they can be created on the fly or from within forecasts. Additionally, they can auto-match invoices to PO numbers when received, eliminating the risk of being assigned incorrectly and delaying payment to critical suppliers.
Group consolidation
A number of core accounting software providers don't include functionality to consolidate at a group level. Finance professionals can get around this by exporting figures for individual companies into spreadsheets and manually making adjustments to consolidate group companies. Alongside the risk of entering data incorrectly and a potential delay to month-end close, this approach requires judgment due to often needing to consider which exchange rates to use and making adjustments based on the accounting standards under which the parent company is prepared. For example, this may include whether to recognise unreleased foreign currency gains/losses in the balance sheet or profit and loss, or revenue recognition treatment.
Using core accounting software that has consolidation features, or a third-party consolidation package, will ensure consistent treatment across all group companies and save finance employees from the hassle of exporting and manipulating accounts data.
Expense management
Managing employee expenses has historically been a chore for finance teams due to having to chase colleagues for their reports at month-end, alongside also needing sign-off from managers for approval. Additionally, the quality of submitted reports is often patchy, with receipts missing and spend being taken to the wrong accounting category. Embracing an automated expense management solution results in more accurate expense reports, allowing for easy upload of supporting receipts, OCR data extraction, and easy imports into accounting software.
As CFOs’ roles and responsibilities grow, an increasing amount of pressure is put on the finance team to focus on tasks that help grow businesses – it’s essential more importance is placed on adopting finance automation as part of businesses’ wider digital transformation plans. Embracing automation for all of the above tasks will benefit finance teams and the wider business. Finance team members will be able to use their time to produce up-to-date reports, providing financial and operational insights into company performance to grow sales, optimise KPIs and finetune acquisition channels.
Let’s walk that back. He had just said that financial results… well, there was really nothing else he could say. Numbers were just numbers. The quarterly results were good, fortunately. So what was there to talk about during the board meeting?
Then I popped my coaching question: “Were they easy to produce?”
It turned out that he had a lot to bring to his boss’s attention.
Lesson 1: Always a story behind the numbers
This story can be quite short, in fact. Bad conjuncture, adapting a hamstrung strategy to be more effective, closing the gaps in galloping expenses, then a powerful boost in unleashed performance. Great story, in seconds flat. But it needs to be punctuated by telling numbers. Numbers are the teeth of any good argument or presentation. The human mind – especially the boss’s mind – is wired to capture details, especially surprising and impactful highlights. There is nothing more forgetful than a predictable line by line slog through the Excel sheet and KPIs.
Here’s a corollary to consider: your boss wants to know what’s going on. Sure, bosses think they know already everything you can possibly report. Good bosses probably do. Assuming all’s well, one basic function of a financial report is to validate the boss’s own strategy, that the KPIs are working and on the move, all heading in the right direction, at least in this best-case scenario. We forget, though, that numbers are not static. They signify dynamic trends. Once the boss sees that the forecast is in line, so reassuring, this hard-thinking pragmatist begins to expect something in the report that adds to his or her business acumen.
Lesson 2: What if the trends aren’t so great?
If we’re going to discuss trends, the presenter needs to pack some insights. What does such and such a number mean, in the end? I work with clients to get them to ask the rhetorical question before the boss does. The Romans understood that a rhetorical question commands the public’s attention, especially one that everyone is ruminating about at the same time. The reporter is channelling their thoughts. Obviously, the speaker has analysed what is triggering performance, or lack thereof, and is ready with good options, if not a single fix-it solution. Options don’t come without pain, yet that is what the boss expects from a reliable finance director or auditor.
Companies try to be proactive, yet deciders don’t always have the visibility they wish for. True, there are all kinds of experts and consultants who do good forecasting. But the corporate officer standing up before a board with the financial results is playing the part of a navigator, capable of telling business deciders at any moment where they are and where they need to get to. Once the Captain chooses, this is the person who assumes responsibility for carrying out orders in a competent way.
Lesson 3: Investment and leverage
Unless the company is privately held, able to invest in longer cycles with a bit more latitude perhaps, financial reports are of course quarterly, as in ready or not. Investors demand this frank and transparent appraisal in a timely fashion. Let me take the high road here: things are going according to plan in a well-run company, so much the better. Still, what is the company learning about itself and its place in the market? Financial analysts will provide measurements of how working capital is being utilised to good effect. Are they able to tell a company’s officers what opportunities need to be seized now? I think it is the financial director who can take financial analysis and interpret it in terms of consequences… and opportunities.
I was amazed once by how a boss was able to read the flow of certain numbers in his chart. “See,” he told me confidently, “Here we’re investing in this new technology and here…” He scrutinised his flowchart a few seconds, then pinpointed the figure he was searching for, “…we see the impact.”
Today SAP and Enterprise Resource Planning (ERP) gives us up to the minute data. We now know what’s flowing in and around in the company, and precisely when and where. But what is the fresh opportunity that may require further development to succeed? We are talking about the company’s future here, which entails leveraging effort, resources, time, internal expertise… in a word, risk, measurable risk, yet risk all the same. If this leads to discussion, I’ll grant you that it is not the financial director who will make the ultimate call. But the board will want an opinion about mitigating risk. What a great opportunity for the reporter to demonstrate competence and business intelligence, to be the “how” person in the room, garnering a modicum of respect.
Lesson 4: But we don’t like risk
I have discovered that financial folk shun risk. They are schooled in controlling the financial health of the company. They are the Voices of Responsibility. If the company is in a fast growth & expansion cycle, they attempt to corral wasteful expenditures. If the company is in trouble, they go into raging cost-cuts, letting people go, chopping off R&D. When it comes time to give the financial report, and all the director knows how to do is propose tighter and tighter controls, this is not fulfilling his or her promise to provide insights and possible alternatives the board can take into consideration.
If the financial director is responsible for the company’s balance sheet, it behooves him or her to balance apparent risks and potential opportunities. They often become nay-sayers in their everyday operational role. Of course, there are a lot of things to say No to! What bothers me is the facile ROI reflex of shooting down fresh ideas. So I coach leaders who propose these ideas to use the RDN technique. This technique does not actually exist; I made it up: The Risk of Doing Nothing. I get my leaders to carry out a study of lost revenue if the company does not make its move, does not change how it operates, does not invest in innovations the market is calling for. Now then, RDN is a dangerous stick of dynamite -- unless the numbers do the talking. The numbers have to come from proven sources, be indisputable, get the decider to think twice.
A financial director is often faced with everyday operational dilemmas. If we turn this around, when this finance director reports on results, this may not be the best time to provoke the boss with RDN, I readily admit. There is the matter of having good timing, preparing the ground, picking worthy battles.
Lesson 5: Show due diligence
In these more strategic exchanges, when appropriate, the finance director needs to step up and show he or she has looked hard at the other side of issues or a business proposal, and seriously considered the opportunity of investment and weighed the risks. Again, the boss expects some value-add from the meeting. The financial director rises to the occasion, becoming now a valued adviser, a reliable partner.
