Research from Liberis, reveals that over half of UK businesses are unable to access the funding needed to grow; with the main hindering factor being a lack of education or understanding of their funding options. With falling SME confidence in the economy and mounting concerns over costs given the relative weakness of the sterling, Liberis strongly urges the UK to better support its small business community.
The lifeblood of the UK economy, SMEs contribute more than £200bn a year; with this number expected to grow by almost 20% by 2025. Yet, without a vital cash injection, this 2025 vision will be severely stinted.
Hindering growth opportunities, this lag in SME development may in turn negatively impact the economy. Liberis therefore believes it is crucial to ensure better understanding on how to navigate the perceived minefield of funding options. Small business education is desperately required to increase awareness levels of the process; greatly benefiting both businesses and economy alike. Such movement has been reinforced in a recent report from the British Business Bank, in which the UK Government backed organisation pledges its dedication to a more targeted educational campaign on the topic of SME finance.
While 62% of UK SMEs said they need funding to grow and expand, but 57% of SMEs were unsure which provider to obtain funding from and 53% did not have a set amount in mind when looking to access finance.
Liberis found 22% of businesses require funding to maintain business as usual, while 5% need funding to survive past the first year of business. Speed of funding has been identified as integral to achieving this growth. Other findings of the report showed an increase in the popularity of crowdfunding as a source, with 10% of UK SMEs looking to use this as a means for funding in the next two years.
Commenting on the report, Rob Straathof, CEO at Liberis, said: ‘These findings have opened our eyes to a lack of confidence and awareness among SMEs in how to correctly secure the funding they so desperately need. Funding will continue to be a hot topic for the small business community, but urgent action and collaboration is crucial to prevent resulting damage to the UK economy. Without sufficient financial education and support, the UK’s business ambitions will be severely affected but by ensuring they have the correct financial understanding, we can help secure and strengthen their livelihood; fast-tracking their ambitions.’
Established in 2007, in a space where traditional banking and loan models were finding it challenging to meet the needs of UK SMEs, Liberis provides fair and transparent funding options based on business potential, helping entrepreneurs achieve their goals and ambitions. Through its Business Cash Advance, an innovative form of funding, Liberis links repayments directly to cash flow so businesses only repay when their customers pay them. To date Liberis has helped over 6,000 SMEs, advanced £200m in funding and supported over 24,000 jobs in the UK. Moving forward, the company aims to further empower small businesses, broadening customer reach through strategic partnerships and international expansion.
The world of banking and financial services is still seen as one of the more conservative sectors of the economy today but if organisations operating across these marketplaces want to drive competitive edge and business advantage in the future, they can no longer afford to ignore the consumer-driven pull towards the use of artificial intelligence (AI). Finance Monthly hears from Russell Bennett, chief technology officer at Fraedom, on the past and future of |AIs journey from consumer to the commercial world.
People are used to these technologies in their everyday lives. They are used to smart software telling them what they want to buy next even before they realise it themselves.
Today, it’s increasingly vital that banks, financial services organisations and financial departments within enterprises are all in touch with these trends. They need to start looking at the benefits that analytics and other predictive technologies can bring them. Their employees and customers will expect them to do so.
The good news is we are starting to see the use of AI growing in the commercial finance environment now. So far, use cases have mainly been around streamlining operational processes.
Take the introduction of digital expenses platforms and integrated payments tools, both of which have the potential to significantly improve a business’s approach to how it manages cash flow. By having an immediate oversight, through live reporting of all spending from business cards and invoice payments, as well as balances and credit limits across departments and individuals, businesses can foresee potential problems more quickly and react accordingly – and they can go beyond this too. All these services become even more powerful when combined with technologies like machine learning, data analytics and task automation.
We are also seeing growing instances of AI and automation being used to streamline payment processes in banks. Cards can be cancelled, or at least suspended, quickly and easily and without the need to contact the issuing bank, while invoices can also be automated, to streamline business payments. This means businesses can effectively keep hold of money longer and at the same time pay creditors more quickly. Moving beyond straightforward invoice processing, intelligent payments systems can be deployed to maximise this use of company credit lines automatically.
Looking ahead, we see a raft of applications for AI in the payments management field around analysing data with the end objective of spotting anomalies in it. With the short and frequent batches of payments data used within most enterprises today, it is unlikely that even the best trained administrator would be able to spot transactions that were out of the normal pattern. The latest AI technology could be used here to tease out anomalies and pinpoint unusual patterns or trends in spending that could then be investigated and addressed.
They also have the potential to shape the way that payments are made in the future. One of the hottest topics currently under discussion across the commercial payments sector is the thorny issue of integrated intelligent payments. How can enterprises use the latest available artificial intelligence technology to work out the best possible payment option for each individual transaction?
Accounts payable teams will soon need to be able use payments platforms to assess not only how much working capital they have on their corporate cards and what rates they have on their purchasing cards but also what the most sensible choice for payment method would be for each every payment, be it BACs, wire, cheques or even just old-fashioned accounts payable.
Indeed, there is likely to soon be a case for this kind of technology to effectively ‘fit in’, in process terms, between the accounts payable department, and the payment itself, helping the business decide what makes best sense for them as a payment methodology based on the business rules and existing deals that they have in place today.
We also see a raft of applications for AI in the payments management field around analysing data with the end objective of spotting anomalies in it. With the short and frequent batches of payments data used within most enterprises today, it is unlikely that even the best trained administrator would be able to spot transactions that were out of the normal pattern. The latest AI technology could be used here to tease out anomalies and pinpoint unusual patterns or trends in spending that could then be investigated and addressed.
While this area remains in its infancy within the banking and financial services sector, with technology advancing, financial services organisations and the enterprise customers they deal with will in the future will be well placed to make active use of AI that will help clients track not just what they have been spending historically but also to predict what they are likely to spend in the future.
AI will ultimately enable businesses to move from reactive historical reporting to proactive anticipation of likely future trends. We are entering an exciting new age.
Optimism is high among SMEs across both Europe and the US, but is said optimism enough to warrant actual business expansion?
With investment in tech, especially AI, can SMEs afford to expand into new markets and regions? With tax cuts in the US, the new budget, incentives in the UK and confidence in markets all together, is optimism on the rise? Is this a year of your business expansion? What are your thoughts on the current climate, risks and opportunities?
In this week’s Your Thoughts Finance Monthly has heard from a number of top experts and businesses on their opinions and plans for expansion in 2018.
Rick Smith, Managing Director, Forbes Burton:
These days, with so many alternative funding streams available to entrepreneurs and established companies alike, it is easier than ever to get funding. However, this comes with an immediate danger and risk. How companies use this money is often the reason they run into trouble.
The tired adage of not putting all one’s eggs into one basket comes to mind, but it remains true. Diversifying, rather than concentrating on singular vision, is essential.
One thing we always advise companies to do is to think about having physical assets. Being labour-intensive and hiring equipment in the construction industry for example will only serve your growth so far. The lack of bricks and mortar or equipment assets can hit companies hard if things start to go wrong.
With so much uncertainty about, including Brexit, companies need to be mindful in order to be able to recover if things deviate.
Consider expansion of business premises or the purchase of a large, well priced piece of equipment. Ring-fencing that kind of value is wise and can be leveraged more easily. The danger in not looking for this kind of self-preservation is having to borrow more when you fall into a hole. By then it could well be too late. Growth is fantastic, but only when properly managed.”
Lewis Miller, Chief Financial Officer, Frank Recruitment Group:
When it comes to expanding your business in 2018, it isn’t a question of can you can afford to, it’s a question of can you afford not to?
Currently, the availability of cheap debt is at an all-time high; technology advancements are making it easier to invest in new capabilities and new markets, and trading internationally is becoming easier.
For these same reasons, competition is growing and getting tougher. If you are confident in your products and your capabilities, there is no time like the present to bite the bullet and invest in your expansion. If you don’t, it could be a decision you come to regret.
We are already seeing interest rates starting to rise and with strong wage rate growth being reported, this appears to be a trend set to continue. This will eventually place pressure on the economy. It’s impossible to predict the extent of which but I certainly wouldn’t rule out a recession over the next few years.
Expanding now, whilst the market dynamics are supportive will not only open up new opportunities, but the diversification will help protect your business in the event of downturn.
Having access to different markets can also give you a competitive edge with your customers as well as help attract new customers who are looking for a partner who can serve them across a wider array of offerings or geographies.
If you are looking at expanding this year into new markets, whether it be geographically or product, I would offer this one piece of advice – don’t assume that the secret sauce that has made you successful in your current market is the exact same secret sauce to enable you to succeed in new markets. You need to do your homework thoroughly across all key areas, such as; your value proposition; cultural differences in how people buy in the target market; laws and regulations; employing staff; and so on.
In SME’s, often we rely on our existing staff to drive the expansion agenda. Sometimes hiring or partnering with someone that has been there and done it in the market you are looking at, whilst costly, can be the difference in you getting it right the first time and really accelerating your growth.
Adam Schallamach, SME Growth Consultant, Business Doctors:
For a small or medium sized business, the timing of any decision to invest or expand is crucial to ensuring its continued success and, typically, owners will look at both internal and external factors before coming to any conclusions.
The external environment is confusing at the moment. For every article you find stating that business confidence is on the up, you can also find an article talking about how difficult conditions are. But, if you look through the noise, there are certain key themes at the macro level.
Despite it being 18 months since the referendum and nearly 12 months since Article 50 was triggered, we are no clearer about what the future relationship between the UK and Europe will look like. Obviously, if you are a business that relies on European interaction, this uncertainty could be crippling. But, even if you are not, the broader impacts of Brexit on the UK economy and its competitiveness, which could be positive or negative, will have an impact.
Interest rates are another key issue. As a result of inflationary pressures, the Bank of England is giving strong signals that there will be further interest rate hikes this year. These will impact the cost of borrowing and may raise pressures on finances going forward. However, interest rate rises can also have a positive impact on exchange rates altering costs for import/export businesses and supply chains.
As a consequence of Brexit, the Government is looking at how it realigns business related policies to refocus the economy. A major part of this is the Industrial Strategy which is intended to set out the broad vision going forward. Allied to this are the funding schemes/tax credits which are available and will continue to be available to assist business investment/expansion but it is clear that Government will increasingly use this tools to focus on particular areas rather than general business support.
However, whether the broader economic environment is up, down or sideways, businesses still succeed and prosper. And although there will always be exceptions, I would argue that for most small and medium businesses, the key is having a clear direction and strategy.
If a business owner knows what they want to get out of their business and has a clear alignment between that and their business objectives, that will drive what they need to do and when they need to do it. Worrying about external factors which are out of their control and even experts cannot agree on, is frankly a waste of time. So my advice is, if you do nothing else, take the time to revisit and refresh your business plan if you have one, or invest in pulling one together.
Mike Hoyle, Finance Director, Sellick Partnership:
We recognised early on that our financial year to February 2018 was going to be a big year for growth - not just for Sellick Partnership but for our clients and the wider economy.
Our temporary contractor numbers have grown steadily and the number of permanent placement has increased significantly on the year before. This reflects employers’ confidence in the market, indicating that they can afford to keep their new hires long-term.
Demand for recruitment services has increased across all sectors - including finance - and as a result, this year we are focusing on organically growing our professional services offering. We will strengthen our teams by recruiting more specialist consultants to make sure we reach our ambitious financial and operational targets for the next financial year - including surpassing £2m turnover for permanent placements.
These signs are all positive and optimism is certainly on the rise, but there still remains some uncertainty for business owners and employees alike. Although all things Brexit are definitely picking up pace, the remaining uncertainty creates risk, as businesses may struggle to properly plan for the future. With that in mind, it’s imperative that Theresa May pushes on with developments if we want a shot at further economic growth post-Brexit.
Mark O'Connell, CEO, OCO Global:
Market volatility in global equity markets in recent weeks might make you think 2018 has gotten off to a shaky start. But looking beyond this at the wider global economy, 2018 is shaping up to be a promising year for SMEs and could be the year for expansion. Last year, only just over one in ten UK SMEs exported, with businesses missing out on significant opportunities in markets outside of the UK.
2017 saw the return of a booming Europe. Key markets such as Germany, France, Italy and Spain are growing at the fastest pace in a decade and have not yet been fully explored. The German market in particular is a key prize – friendly, accessible and well-disposed to quality and strong service support. The weakness of Sterling also makes UK exporters more competitive than ever right now.
Uncertainty surrounding Brexit arrangements is also prompting many to look further afield for opportunities for growth. In the last year we have seen a significant increase in companies exploring North America. New tax friendly policies in the US have boosted small-business optimism, government-related cost pressures continue to ease and consumer spending remains strong. The US presents a supportive business climate for small firms and a wealth of opportunities.
The benefits of exporting are manifold; diversifying an export portfolio can increase both sales and business stability. A wider base of customers and distributors results in a more resilient business that is able to weather downturns in one or more markets, or offset quieter seasonal periods in one part of the world. Additionally, exporting exposes a business to new ideas and supports innovation. And one thing which UK SMEs are regularly chided for is ‘lack of ambition’: the fact is that more internationally diverse businesses achieve higher exit valuations, so don’t just fly the flag for the country- fly it for yourself.
Adrian O’Connor, Founding Director, Global Accounting Network:
There is no doubt that organisations of every size are increasingly taking a global approach to future expansion plans. It may sound like a cliché, but rapid technological advancements mean that geographic borders are not the barrier they once were - the world is getting smaller. Meanwhile, future uncertainty caused by myriad external factors, not least Brexit, is encouraging smart business leaders to explore opportunities outside of the UK. It’s no wonder that a growing number of organisations are looking to capitalise on favourable market conditions elsewhere, or simply hedge their bets against unpredictable local economies.
Recent client demand, and subsequent recruitment activity, reflects this growing thirst for international growth. The organisations we work with are increasingly seeking senior finance professionals who have experience within a global operation, are familiar with specific international tax structures or who have a solid background in analysing risk associated with global expansion strategies. Unsurprisingly, we have also witnessed job roles, and associated remits, shift in recent years to fit within business structures which are conducive to international operations.
While due diligence associated with overseas expansion expands far beyond the remit of finance teams alone, FP&A specialists who can provide detailed analysis of the strengths and opportunities of target markets - and management accountants who can advise on compensation packages based on local standards and customs - are highly sought after.
This is a strategy we have applied to our own growth plans and Global Accounting Network is expanding into the US this year. The decision was based on a similar market with a shared language and a business-friendly tax regime. International expansion is no longer a pipe-dream for the majority of business: it’s a logical next step for companies which have their ear to the ground and are looking to take their business to the next level.
Dany Rastelli, Global Marketing and Communications Manager, Elements Global Services:
2018 is the year for expansion. 2017 saw stronger growth than many had predicted and I think businesses are starting to look at their expansion timelines with greater optimism. Although companies will continue to proceed with caution in light of current geo-political events, they will no doubt look at international expansion with a view to offsetting negative growth in one market by starting to operate successfully in another.
With regards to Elements Global Services, we are certainly optimistic about what this year will hold for the company. As a global organisation we know our strengths, and are ready to put them to good use to achieve our short, medium and long term goals – no matter how ambitious they might seem. One example of our expansion plans this year, is our ambition to double our head count in the next twelve months across all offices.
It is clear that investing in tech, and more specifically AI, will be essential to a small business’ survival later down the line. In my opinion, this is a short-term (albeit costly) investment for a long-term gain that will give small businesses the competitive advantage. Companies are investing in their futures and it is widely acknowledged within the industry that automation and digitalisation will be the dominant route to market going forward. This influx of tech adoption now should see lower overheads further down the line, allowing for companies to become more profitable across a multitude of markets.
With the latest tax cuts in the US, incentives in the UK and a general confidence in the markets, I think a mood of cautious optimism has pervaded the financial markets in the last 18 months and the global economy has witnessed a positive trend developing. As a result, companies have started to look at expansion with more confidence than before. Although it is indisputable that the current economic climate is volatile, I personally believe that in every risk lies an opportunity. In 2017 the global economy far surpassed expectation and I predict that 2018 will continue this trend and allow businesses to expand and triumph in the face of both global and local adversities.
Chris McClellan, CEO, RAM Tracking:
Despite the ongoing uncertainty around Brexit, and the value of sterling, UK SMEs are still operating in a dynamic and exciting business environment where expansion is a viable option. A recent survey by American Express found that 41% of UK SMEs cite their leveraging of the particular advantages they enjoy as an SME – such as adaptability, innovation and strong customer relationships – as one of their top three strategies for fuelling revenue growth in 2018. And this optimism doesn’t cease when crossing the pond with the recent US National Federation of Independent Business survey reporting one in five SMEs looking to both hire and expand during 2018.
Back in the UK, the American Express survey also states that the majority of those surveyed cite economic uncertainty the most significant threat they face – which has switched from political uncertainty within the same poll just a year earlier. While concerns are ever-present though, this is matched with increased optimism about the opportunities that are out there to trade and form strategic alliances, both in the UK and overseas.
Indeed, developing a specific overseas strategy is a clear advantage for SMEs particularly as it provides a safety net/ pool of new customers and suppliers to fall back upon, as the UK’s departure from the EU draws ever nearer and the weaker pound becomes more attractive for overseas buyers. According to KPMG, almost half of UK exports were destined for the EU in 2017, which demonstrates the dire need to start looking at forging wider global relationships now as a safeguard.
Naturally, global expansion requires a number of obligations around tax and culture to consider but the typical make up of a successful small business – which incorporates focus, strong working/ customer relationships and consistency – helps provide the ‘front’ required to successfully move beyond our national barriers. Financing is of course, an ever-present issue – and barrier – for some, but again, by utilising the agility and innovative nature of an offering and in-house team, investment can become much easier to source. For those not quite at the stage where they can do this, perhaps 2018 is better used looking at the business and how they can make it ‘overseas expansion ready’ in order to make 2019 or 20 the year when they truly elevate.
Indicating business efficiencies is a key element of driving success within existing efforts but this also helps in demonstrating the potential for an SME to move to the next level where expansion (in the UK or indeed, overseas, is concerned). This comes down to measures like ensuring that supplier relationships are properly managed in terms of spend and consolidating requirements down to the fewest suppliers possible. However, internal measures that drill down the day-to-day costs are always needed, an example of such measures is the use of vehicle tracking devices for employees out on the road, as these are very effective and also demonstrate that employee safety and well-being is proactively being monitored.
While nothing in life that is worth getting comes easily, it does seem that the current business landscape is 'expansion-ready' where SMEs are concerned – indeed, the expected uncertainty caused by the current Brexit negotiations actually represents an opportunity for SMEs to forge new relationships that are not as dependent on exiting the EU in terms of tariffs and taxation. So, in conclusion, go forth and conquer!
We would also love to hear more of Your Thoughts on this, so feel free to comment below and tell us what you think!
Everything evolves, constantly. Each new breakthrough poses heaps of new questions to which answers are yet to be discovered. One of these breakthroughs happened with fintech. Fintech, as a word, is what linguists would call a portmanteau – a combination of two separate words. In the case of fintech, those two words would be financial and technology. However, as a system or a sector, fintech is what experts would call the future.
Quite simply, when technology put its fingers in the financial services’ pie, fintech was born. We are talking about mobile payments, transfers, fundraising, cryptocurrencies; you name it. Even though fintech liberalized the whole financial system and put the power into people’s hands, the traditional financial sector felt threatened by it, and understandably so. To share our amazement with it, here are some incredible facts on the incredible growth of fintech in the last couple of decades.
S&P Global Ratings does not see competition from large technology groups or "tech titans" as posing a short-term risk to its ratings on global banks, said a report titled "The Future of Banking: How Much Of A Threat Are Tech Titans To Global Banks?" recently published.
While the barriers to entry in the banking industry are high, tech titans like Facebook or Apple possess a competitive edge over new entrants and upstart financial technology companies.
"In our view, banks will feel limited short-term pressure on their transaction fee income as they look set to benefit from the good medium-term growth fundamentals of card-based payments. This is despite bank revenues coming under possible threat from the recent growth of e-wallets and alternative payment methods," said S&P Global Ratings' credit analyst, Paul Reille.
We expect that tech titans' lending activities will remain targeted to merchants operating on their platforms and to segments currently underserved by banks due to profitability and capital reasons. Similarly, we believe that regulation will limit tech titans' ability to compete meaningfully with banks over customer deposits. In the long term, regulation is likely to remain a key factor deterring tech titans' efforts to increasingly offer the full financial services suite currently provided by banks. That said, banks could feel the biggest competitive threat from tech titans for activities where barriers to entry are low--such as transaction revenues, which could constrain their margins.
"In the short term, we don't expect competition from tech titans to have an immediate impact on the banks that we rate. However, in the long term, we think that they are well-placed to potentially disrupt certain aspects of the traditional banking industry value chain," said Mr. Reille.
In our view, payments is the main area where tech titans could potentially disrupt global banks. Although these firms are not posing any meaningful short-term pressure on fee income, we believe that they could leverage their strong customer bases and networks to potentially constrain traditional banks' payment services revenues in the longer term. We do not consider tech groups to pose any short-term threat to banks' lending or depository activities in the US or EMEA. In the short term, we don't expect competition from tech titans to have an immediate impact on the banks that we rate, but see them as well-placed to disrupt banking in certain areas in the longer term.
(Source: S&P Global)
With the recent monthly purchasing managers index behind us, we can look forward to this week’s Bank of England meeting and quarterly inflation report. Below Adam Chester, Head of Economics at Lloyds Bank Commercial Banking, discusses what to expect on Thursday’s meeting.
When the Bank of England meets this week, it could prove to be one of the most important policy meetings of the year.
What makes tomorrow’s update of particular interest is that it includes the annual deep-dive into the supply side of the UK economy, which has important implications for the speed and extent of future interest rate changes.
By assessing how the economy is performing in relation to its potential, the Bank can form a judgement about how much slack remains - the greater the slack, the greater the scope for demand to rise without pushing up inflation, and vice versa.
The Bank will give its verdict on whether demand is above what the economy can sustainably produce – the so-called ‘output gap’ – as well as how quickly the economy’s supply potential can rise – the so-called ‘trend rate’ of growth.
Before the financial crisis, the UK’s trend rate was estimated to be around 2.5% a year, but by last year it had dropped to 1.5%, largely down to a fall in productivity which has been blamed on Brexit uncertainty.
The Bank will also need to make a crucial judgement on how much spare capacity, if any, remains in the labour market.
A lack of slack
In last year’s update, the Bank concluded that the weakness of pay growth at that time suggested the labour market was operating with a small degree of slack. This no longer looks the case.
Over the past year, total employment has risen by over 400,000 to a new high, and the unemployment rate has dropped further – from 4.8% to a forty-two year low of 4.3%.
The latter is now below the Bank’s previous estimate of the sustainable, or ‘equilibrium rate’ of unemployment, which it put at 4.5%.
It is possible that the Bank could lower this estimate further, but to do so would likely raise eyebrows, as regular pay growth has started to accelerate – rising from an annual rate of 1.8% to 2.4% since last spring.
The Bank will also revisit its assumptions for population growth, the participation rate (the percentage of the adult population in the workforce), and hours worked.
The ageing population, declining immigration and changes in taxation and benefits will all have a bearing on this.
Overall, the Bank faces a tricky balancing act.
Arguing the case
If it is to conclude that underlying inflation pressures are likely to be benign during 2018, it needs to argue that either (i) the supply side is improving, most obviously due to rises in productivity and/or an increase in the amount of available labour; or (ii) that, for the time being, the outlook for demand is sufficiently weak.
On both counts, we suspect the Bank could struggle.
Firstly, there are no obvious signs of an upturn in productivity growth and recent increases in wage growth suggest the tightening of the labour market is starting to bite.
Second, there is little sign of any significant weakness in demand, with recent indicators confirming the economy is holding up relatively well.
Given this, we suspect the Bank will conclude that any spare capacity in the economy is continuing to be eroded.
While it is likely to cite ongoing ‘Brexit uncertainty’ as an argument for maintaining a ‘gradualist approach’ to policy, the implication is clear.
In the absence of a clear slowdown in demand, the Bank may have to raise interest rates more quickly and more sharply than either we, or the financial markets, currently anticipate.
Bhupender Singh, CEO of Intelenet Global Services, explores the developments in automation and other technologies for financial services.
This year, the pressure is on for banks to keep up with the latest innovations in technology. The Second Payment Services Directive (PSD2), requires banks to have systems to share their customer data with competitors in place, and allow third party players to process payments. This comes as part of a wider Open Banking Initiative, to open up the financial services market to competition from innovative challengers and Fintech players.
The General Data Protection Regulation (GDPR) will also require huge technological preparedness as companies put in place new data management programmes to wipe customer data on request and detect data hacks within 72 hours.
So far this has proved difficult. Saturday 13th of January was the original deadline for UK banks to become compliant with PSD2. But five of the UK’s major banks do not have the correct technology in place to be ready in time, and have had to secure an extension from the Competition and Markets Authority (CMA).
And there is pressure coming from competitors, as well as regulators. New challenger banks and Fintechs have been growing in popularity and drawing away customers from traditional banks, service by service, through personalisation and agility.
PSD2 will only increase this challenge, allowing these challengers access to customer data, drawing tech giants such as Amazon and Facebook into play, and facilitating the aggregation of financial data on comparison sites. This will give customers a clear view of where they can get quicker service or make savings with other providers, so traditional banks will be looking to harness the latest technology to keep their services agile, user-friendly and inexpensive.
In response to this, many banks are investing in updating their processes to match the agility and tech capability of their challengers – but they are often hindered in doing this by clunky legacy systems, struggling to patch new technology onto existing infrastructure.
To solve this issue, financial providers are increasingly turning to the help of business process outsourcers. Shifting away from a cost-cutting mentality, BPOs are now driving innovation throughout the finance industry. In fact, the market for outsourcing in Banking and Financial Services is estimated to grow at a rate of 6.79 per cent annually until 2020, when it is forecast to be worth $4.9bn.
Outsourcers are leading the way by bringing innovation into banking processes to drive technology adoption. On a macro level, by migrating data to the cloud and using automation to create a connected financial data ecosystem, outsourcers can help generate a holistic overview of areas of performance. This makes data management simpler, so that GDPR compliance is easier. It also allows for more informed decision-making. Personnel can see the whole picture and draw further insight on decisions. This means that additional tools such as predictive analytics can drive businesses to focus on their growth and financial success.
As financial services providers face increasing competition from the agile service of challenger banks and Fintechs, the pressure is on to speed up and improve service. Automation allows traditional banks to compete on a granular level by improving the quality of each service. One example is the developments in mortgage approvals. Once requiring complicated systems of referral and human judgement, this administrative process can be thoroughly automated, linked up with the relevant data to radically reduce waiting time for the customer. With the help of an outsourcer, one leading UK bank was able to cut down approval times from 11 days to a matter of 48 hours.
New competitors have also been attracting traditional banks’ customers by offering an increasingly personalised service. But using outsourcers, banks can optimise the reach of their in-person service – an advantage against new, smaller challengers. Many are making use of voice-recognition software that recognises a specific customer, matching this to their personal data and, using AI programmes that make conclusions about the likely subject of their call, automatically forwards calls to the best place. This reduces the friction customers face when being passed manually between departments and points of contact.
As this reduces the need for a human operative to redirect calls, this instead enables staff to refocus their energies on more sophisticated customer service requests, managing relationships with consumers to promote business growth in an interpersonal way, to keep up with new competition.
Driven by outsourcers, automation tools are allowing finance teams to cut down the time taken to process complex transactions and administrative tasks. By streamlining front-end and back-end processes with these kinds of programmes, outsourcers are helping traditional banks and finance teams not only to save money, but to radically drive innovation, to compete for customers, comply with regulation, and offer an increasingly rapid and modern offering to their customers.
The UK’s Banking and Financial sector has ended the year on a positive note, with the growth of new companies up 18.56% to 5,775 and failures down by 37.89% to 59 compared to Q3, according to figures released in the quarterly Creditsafe Watchdog Report. The report tracks economic developments across the Banking and Financial sector and 11 other sectors (Farming & Agriculture, Construction, Hospitality, IT, Manufacturing, Professional Services, Retail, Sports & Entertainment, Transport, Utilities and Wholesale).
In addition, sales were up marginally by 1.24% from Q3, and the number of active companies rose by 6.86% over the same period. Total employment fell by 4.39 in Q4.
The research shows a significant improvement in the financial health of the sector, with the volume of bad debt owed to the sector decreasing by 89.31% in Q4, and down by 81.35% since the same period a year ago. The average amount of debt owed to companies in the sector in Q4 came in at £28,686, which was an 88.35% drop on the previous quarter. There was a mixed picture for supplier bad debt, the volume owed by the sector, which saw a big decrease of 60.71% against Q3, but was up by 51.16% compared to Q4 2016.
Rachel Mainwaring, Operations Director at Creditsafe, commented: “Creditsafe's Watchdog Report shows a much-improved outlook for the UK’s Banking and Financial sector moving into 2018. Last quarter’s levels of bad debt were a serious cause for concern, so it’s extremely positive to see a huge drop in these figures in the final quarter of the year.
“It’s also exciting to see such an increase in the growth of new companies, pointing to an encouraging year ahead for the sector. It will be interesting to see how these new companies fare, and whether these positive figures continue throughout the next few quarters.”
Budgeting time is here, and you’re likely going to make some safe assumptions on the budgeting based on previous years, experience and forecast. But is are these backed by actual real data? Below John Orlando, CFO at Centage Corporation, talks Finance Monthly through data integration in budgeting, looking at specific trends we can expect in 2018.
At the present moment, the economic future looks good. Unemployment is dropping, inflation is manageable and both the House and Senate passed tax bills that will slash the corporate income tax rate, giving them added cash to grow. Over the past few months I’ve talked to many CFOs who say their companies are eager to expand and they’re actively building growth assumptions into their budgets.
However, even in the best of times, there are risks to growth since at any time some world event can affect economic conditions. Performance monitoring and forecasting are part and parcel to business success in a growth economy, and to the end, 2018 will see some positive data-driven trends emerge that will make it easy for executives to keep a watch over their businesses.
The data goldmine: CFOs and financial teams will look to the robust data-generated HR, CRM and other platforms to feed their budget models
Many mid-size companies have implemented third-party HR and CRM systems, platforms that generate robust datasets. For instance, PEO providers maintain detailed records on every type of employee or contractor who works with the company, as well as their benefit requirements. Salesforce.com tracks virtually any type of sales and metric important to the company. This data, much of it market-tested, offers a level of detail it would take an army to create. By entering or importing it into a budget model, finance teams can create highly detailed and robust budgets in a remarkably short time frame.
Organizations will be more assertive with their assumptions
With robust and accurate data from internal systems populating the budget, executive teams will have access to variance reporting that is far more accurate than ever before. Moreover, this level of specificity will prompt CFOs to be more assertive in their assumptions, as well as provide the confidence management teams need to execute on their growth plans.
Greater accountability in business decisions
Marketing pioneer John Wanamaker famously said, “Half the money I spend on advertising is wasted; the trouble is I don't know which half.” He wouldn’t say that if he were alive in 2018. The combination of robust data and better performance tracking will make it easier to assess the outcomes of virtually all business decisions (including advertising campaigns). The result will be greater accountability in business initiatives as CEOs obtain the tools to compare current results to the budget, forecasts and what occurred in the past.
With greater accountability comes greater learnings and more success
Armed with a better sense of what worked and what didn’t, business leaders will have keen insight into which activities, markets or initiatives are worth repeating. I can envision companies establishing new metrics with a greater degree of specificity than was possible in the past, supported by data-driven budgets and the ability to track budget versus the actual on a constant basis.
Forecasting will be the next big innovation in budgeting
Looking at the budget software market itself, I believe the next big innovation will be easy forecasting, driven by customer demand. CEOs in particular want streamlined and simple forecasting whether it be monthly, quarterly or half year, and will pressure their providers to deliver it.
I, of course, support this demand. As anyone responsible for a budget knows, within a few months of a budget’s completion, there’s a good chance some or all of it will be out of date. Benchmarks must be reset regularly as market or economic conditions change. If a particular product suddenly begins selling better than another, the company will no doubt want to rejigger resources in order to exploit the opportunity (or retrench in the face of disappointing sales). This is particularly true when companies are embarking on ambitious growth plans.
Growth opportunities and market conditions will move CFOs away from spreadsheets to budget models
Ten years ago, 90% of mid-size companies built their budgets in spreadsheets; today from what I see, it stands at 80%. As more and more executive teams realize the inherent power of a budget, I suspect that number will go down quickly, replaced by budgeting software that allows them to monitor performance much more frequently. But don’t expect a public mudslinging between budget-software providers. Growth in our market will come from first-time customers, rather than
From its inception Bitcoin has led the rise of crypto culture worldwide, creating quite a roller-coaster economy in the digital currency sphere. Below Founder and CEO of Chaineum, Laurent Leloup talks Finance Monthly through the yesterday, today and tomorrow of cryptocurrencies.
Founded in 2009, Bitcoin was born from the notion of creating a currency that was independent of any other authority, is transferable electronically instantaneously and has low transaction fees. In its early days, the cryptocurrency was somewhat of an unknown entity to mainstream audiences; attracting a small, but dedicated, following of techies and leading to the creation of similar currencies.
The Bitcoin evolution
Since its inception, Bitcoin has increased in value exponentially throughout the past few years, particularly in 2016 and 2017 as more and more people began accepting cryptocurrency as a credible form of currency and not just a buzzword for tech insiders.
2017 saw a record year for Bitcoin. Starting out at a value of $1,000 in January, the currency hit an all time high of $17,000, a 70% increase, in the first two weeks of December 2017.
Bitcoin’s growth can be down to a number of factors. Firstly, the cryptocurrency model itself enables project developers to bypass banks in order to gather funds. For merchants, there is the benefit of being able to expand to new markets where fraud rates are unacceptably high, or credit cards are simply not available. This creates net results of lower fees, fewer administrative costs and a wider reach across previously inaccessible markets.
The Bitcoin following: from a niche community to the mainstream stage
Bitcoin has always attracted somewhat of a dedicated following. However, this fanbase was often restricted to the crypto community which, although passionate about Bitcoin, was quite an exclusive, niche community largely misunderstood by mainstream audiences.
Social media has played a significant role in the growth of Bitcoin by giving the cryptocurrency community a platform to come together and share their thoughts on the marketplace. For instance, Twitter has a ‘Crypto Group’ where Bitcoin and cryptocurrency enthusiasts can interact and tweet; making it much more accessible for everyday users to become part of the cryptocurrency movement.
Rise of ICOs and cryptocurrencies
As Bitcoin’s presence within the mainstream increased, awareness around blockchain technology and cryptocurrency has grown. With this, the marketplace has seen more and more cryptocurrencies launch through the ICO (Initial Coin Offering) mechanism. Currently the industry is seeing at least three new ICOs launching every week as more investors and developers look to this new fundraising system as a viable way to fund their blockchain projects.
There are many benefits to ICOs which is perhaps why they have become the fastest growing fundraising mechanism in 2017 alone. For organisations who are looking to invest in a project , it is considered a much faster and easier fundraising method, as anyone can start one and is free from geographical restrictions.
Additionally, many people also take interest in the cryptocurrencies because of their liquidity. Rather than investing huge amounts of money in a startup which is locked up in equity of the company, they can offer the opportunity to see gains quicker and take profits out easily.
Nevertheless, whilst cryptocurrencies do offer opportunities to see considerably higher ROI than traditional investments, prices of tokens can be extremely volatile and can be a risky investment. Therefore, investing in these kind of projects should be sought after consulting an expert.
The future of cryptocurrencies
With more and more cryptocurrencies launching, commentators are weighing in on how this will impact the wider industry. Due to the rapid growth of the currency over such a short space of time some are comparing Bitcoin to the ‘dotcom bubble’ in the 90s and early 2000s in that it isn’t sustainable in the long term.
However, in 2017 alone, ICO projects were able to collectively raise over $3billion clearly demonstrating that their significance is only increasing. With more projects expected to launch in 2018 further increasing mainstream awareness around cryptocurrencies, it seems we can expect this trend to remain consistent for the foreseeable future.
What's more, as regulation continues to evolve, ICOs could become very different and we could see them serving many different purposes.
Some commentators have even stated there is a chance they could even replace IPOs and make a fairer and more equally distributed economy, where anyone could become an investor with little risk as a consequence. Tokenisation of capital which provides new levels of liquidity and transparency could become the future as we may end up seeing all kinds of organisations, including larger enterprises, begin to explore the ICO space.
In a recently published report, S&P Global Ratings said it sees political risk and international investor sentiment toward the UK as the key risks facing UK banks in 2018 (see UK Banks: What's On The Cards For 2018). This isn't new--the UK banking system has operated against a constant backdrop of elevated political risk since 2014 and during that period, they have made good progress toward improving their balance sheets. Achieving stronger returns on equity has proved more elusive, however.
As the Brexit talks rumble on, we expect them and the related parliamentary processes to dominate the newswires. The UK's minority government increases political risk, especially as the UK is unused to operating with a minority government. Our sovereign rating on the UK has a negative outlook and our economists forecast relatively low GDP growth of 1.0% in 2018. Nevertheless, we anticipate that economic and industry trends will be stable for the UK banking sector.
We see some possibility of unsupported group credit profiles (UGCPs) being revised upward in 2018, if balance sheet strength further improves and earnings prospects accelerate, but it is hard to imagine wholesale sector upgrades, given the political backdrop. Unless the political and economic environment deteriorates more sharply than expected, or banking groups experience management mishaps, we consider the likelihood of lower UGCPs to be limited.
Uncertainties related to Brexit negotiations, specifically regarding transitional arrangements, are likely to weigh on business confidence, while inflation is set to outpace pay growth for most of 2018. We forecast that the economy will grow more slowly in 2018 than in 2017 as these factors weigh on business investment and private consumption. In our baseline forecast, we expect that economic growth will moderately accelerate in 2019 and 2020 while the UK transitions to its new relationship with the EU in 2021.
Only a rating committee may determine a rating action and this report does not constitute a rating action.
(Source: S&P Global)
Last week, the FTSE 100 saw a late upward rush as it closed at a new record high of 7,724.22 points. This was after a fresh record high at the end of the year, spurred by a rally in mining stocks and a healthcare burst. But how will FTSE kick off the year and will it sustain its consistency in record highs throughout 2018?
According to some sources, the success of FTSE in 2018 will largely depend on the outcome of Brexit negotiations, although a rise in the pound may make it a mixed blessing. Below Finance Monthly has heard Your Thoughts, and listed several comments from top industry experts on this matter.
Jordan Hiscott, Chief Trader, ayondo markets:
I believe the FTSE 100 will go above 8,000 in 2018. In part, this is due to the current political turmoil we are experiencing, with the incumbent UK government looking increasingly unstable as each week passes, an economy that seems to be lagging behind Europe on a relative basis, and the ongoing turbulence from Brexit.
However, all these factors are already known to investors and traders and so far, the FTSE has performed well despite these fears. For 2018, I believe the Brexit turmoil will increase dramatically as negotiations with Europe continue down an incredibly fractious route.
Craig Erlam, Senior Market Analyst, OANDA:
Two key factors contributing to the performance of the FTSE this year will be the global economy and movements in the pound. The improving global economic environment was an important driver of equity market performance in 2017 and many expect that to continue in 2018, with some potential headwinds having subsided over the last year. The FTSE 100 contains a large number of stocks that are global facing, rather than domestically reliant, and so the global economy is an important factor in its performance. Stronger economic performance is also typically associated with stronger commodity prices and with the FTSE having large exposure to these stocks, I would expect this to benefit the index.
The global exposure of the index also makes the FTSE sensitive to movements in the pound. After the Brexit vote, the FTSE continued to perform well as a weaker pound was favourable for earnings generated in other currencies. The pound has since gradually recovered in line with positive progress in Brexit negotiations and a more resilient UK economy. Should negotiations continue to make positive progress this may create a headwind for the index and offset some of the gains mentioned above. A negative turn for the negotiations though would likely weaken sterling and provide an additional positive for the index.
While many people are confident about the economy, Brexit negotiations are more uncertain and will have a significant impact on the index’s performance, as we have seen over the last 18 months.
Sophie Kennedy, Head of Research, EQ Investors:
We believe that the synchronised global growth and continued easy monetary policy should support global risk assets going forward. As such, equities should deliver a reasonable return over the next year, which will be the starting point for FTSE performance.
The deviation of FTSE performance around global equity performance will likely be a function of a few factors:
We feel that points 1 and 2 are neutral but point 3 is negative. As such, we expect the FTSE to deliver positive returns but likely underperform the MSCI World.
Tim Sambrook, Professor of Finance, Audencia Business School:
2017 ended the year strongly and is now around all-time highs. The 7% return and 4% dividend gain was better than most had hoped. But will this positive trend continue or will investors worry about the price?
The FTSE has performed strongly, because the global economy has done well. The FTSE is largely a collection of international conglomerates who happen to be based in the UK. The political mess has had little effect on the economic environment (fortunately!).
Strangely, a poor negotiation on Brexit will have a positive effect on the FTSE (if not the UK economy) as a large part of the earnings of the larger companies are overseas. Hence a fall in sterling will lead to a boost in earnings and hence push up the price of the FTSE.
Currently there is little reason to believe that the global economy, and hence corporate earnings, will not continue to do well in 2018. The current PE of the FTSE is not cheap at around the 18-20, and is without doubt above the long-term average of around 15-16. However, this is not excessive and could even support some negative surprises this year.
However, the underpinning of the current bull market has been dividend yields. The FTSE is currently offering 4% and is likely to increase over the coming year, with many of the large caps having excess liquidity. This is very attractive compared to other assets, particular as we shall be expecting higher rates in the future. The large number of income seekers are likely to increase the positions in the FTSE this year rather than reduce them.
Ron William, Senior Lecturer, London Academy of Trading:
The UK’s FTSE100 was reaching all-time record highs into the New Year, fuelled by a global wave of investor euphoria. 2018 was the best start to a year for S&P500 since 1999, marked by the Dow’s historic break above the psychological 25K handle.
All these technical new high breakouts are being supported by the highest level of upward earnings revisions since 2011, coupled with extreme levels of market optimism last seen at the peak of Black Monday 1987.
From a behavioural standpoint, it seems that analysts and investors are silencing tail-risk concerns in a precarious trade-off for fear of missing out on the party.
The “January Effect” is part of a tried and tested maxim that states “as the first week in January goes, so does the month”; and even more importantly, “as January goes, so does the year”. So our recommendation would be to see how January plays out as a potential barometer for the next 12 months.
However, keep in mind that we still live in known unknown times; some major markets have not even had a 5% setback in 16 months and the VIX index is at new record lows.
Back to the FTSE100, all eyes remain on the next glass ceiling: 8000. While there is an increasing probability that the market will achieve this historic price target, we must also apply prudent risk management as the asymmetric risk of a violent correction remains.
The long-term 200-day average, currently at 7422, is key. Only a sustained confirmation back under here would signal a major cliff-drop ahead from very high altitudes. Brexit tail risk will more than likely continue to weigh heavily on it.
We would also love to hear more of Your Thoughts on this, so feel free to comment below and tell us what you think!