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:

1. The level of sterling is extremely important. Many FTSE companies have very global revenue streams. As such, when sterling falls, foreign earnings are inflated. The level of sterling over the next year is likely to be a function of Brexit-negotiations, the result of which we are not attempting to forecast.
2. There are a number of large commodity producers in the FTSE. Their profits and share prices tend to rise and fall with the price of commodities. The oil market looks more balanced than it has previously and strong global growth should boost global commodity demand. However, we have already had a large rally since the middle of 2017, so upside is likely to be more muted.
3. The trajectory of the UK economy is also relevant, particularly for the smaller capitalisation parts of the market and sectors including housebuilders and utilities. We are not hugely positive on this point, on account of the real income squeeze and continued weak investment environment.

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!

More than nine in ten finance and accounting professionals (92%) are optimistic about increased automation in the profession, according to new research from Renaix.

The study, which questioned over 200 finance and accounting professionals, reveals that 81% are seeing their role impacted by emerging technologies, such as advanced data analytics (63%), cloud computing (42%), robotics (17%) and artificial intelligence (15%). This increases to more than nine in ten (94%) who believe these technologies will impact their role in the next five years.

Yet, despite the increasing role of technology, only 12% of those questioned believe their job will be completely automated within the next five years, with most seeing new tools as an opportunity rather than threat. Two thirds (69%) say automation will enable them to be more efficient, over half (59%) say it will allow them to add greater value to clients and 40% say it will reduce the amount of transactional work they’re involved in.

But that doesn’t mean there aren’t challenges, with more than half (59%) of respondents having to learn new skills to keep up with technological developments, with data analytics (54%), soft skills (54%) and working with new technologies (51%) coming top of the list.

Many are also worried about skills shortages over the coming years, particularly in data analytics (52%), STEM (science, technology, engineering and maths – 42%), and soft skills (31%). Furthermore, a quarter (25%) of those questioned say their employer still isn’t investing in upskilling the finance function to work with new technologies.

Paul Jarrett, Managing Director at Renaix, comments: “Emerging technologies are set to transform the finance and accounting sectors, with many professionals already feeling the impact on their day-to-day responsibilities. And it’s encouraging to see that, far from being intimidated or threatened by these new ways of working, the majority of professionals are excited and optimistic, believing automation will improve and expand their role in the coming years.

“Finance and accounting organisations have a fantastic opportunity to drive forward digital transformation, empowering all employees to play their part in developing and implementing new ways of working. However, to do so effectively, employers need to ensure they are equipping the workforce with the right skills, as well as investing in bringing in the right talent. While there will always be a need for traditional finance and accounting skills, we’re seeing a significant rise in demand for a broader range of backgrounds, particularly those with STEM qualifications. Businesses therefore need to plan their talent needs effectively, to ensure they stay ahead of the game.”

(Source: Renaix)

Bitcoin has since its inception, and especially during its 2017 growth spurt, become a bit of a culture, a religion almost. If you’ve heard about bitcoin from somehow, they likely sounded really passionate about it and excited to explain it to you. Below Fiona Cincotta, Senior Market Analyst at City Index, talks Finance Monthly through the bitcoin investment craze.

In 2009 when the bitcoin was invented, very few people thought it was worth a second thought. In June of 2009, a bitcoin was worth $0.0001. Even a year ago no one was really taking about bitcoin. It was a virtual currency that existed for those that were technologically advanced enough to understand it.

As humans, the feeling that we have been left behind or the feeling of missing out, is not one we relish. In many cases this is magnified when money is involved. Conversely, the feeling that we have jumped onboard the right ship is something we love to shout about, something that more and more bitcoin investors are doing. As the price of bitcoin continues to rise, the interest that followers pay to the virtual currency and the hype surrounding it grows exponentially. As the price goes up, so does the hype.

Bitcoin reached a staggering new all-time high on 20th November as the virtual currency broke through $8000 level for the first time, not just the first record high, but the third or fourth record high within so many weeks. Several new developments surrounding bitcoin have aided it’s 48% rally from $5500 just one week earlier.

Whilst the link between the rising price and growing following of bitcoin is indisputable, several recent developments have also increased its legitimacy. Firstly, CME Group plans to offer bitcoin futures from December 10th. Futures are a mechanism of agreeing to buy or sell an asset at a future date and the contracts can be used as a method of speculating on the assets price movement over time. CME’s support for the currency is giving it a legitimacy in the financial world that up until now it appeared to be lacking.

The move by the CME will also put more pressure on the big investment banks to join the party. So far, Goldman Sachs has suggested it could be open to the idea of a bitcoin desk, whilst JPMoragan have also expressed an interest in opening a bitcoin desk to serve clients’ needs. But could more legitimacy just encourage bitcoin followers to continue talking up what is starting to look like this generation’s dotcome bubble. Is the bitcoin a great example of investor enthusiasm driving to fever pitch, before it crashes?

Yet, the bitcoin religion is not just about an apparently phenomenal investment. To some of those involved, bitcoin is the future of money. It is not unheard of for bitcoin enthusiasts to compare where the bitcoin is now, to where the internet was in the 1990’s. One bitcoin investor said “bitcoin is one of the most important inventions of humanity. For the first time ever, anyone can send or receive money, with anyone, anywhere on the planet, conveniently and without restriction. It’s the dawn of a better free world.” Another claims that mankind “has never really owned their own money, it’s always been owned by their rulers. Bitcoin gives the ability for people to actually own their own money.” Here we can see that to some the bitcoin religion goes far beyond the investment itself and is the cusp of a social revolution.

Social revolution, new religion, or not, focusing on the bitcoin rather misses the point. More attention should be switched towards the blockchain, the technology behind the bitcoin. Whilst the technology is complicate the idea is simple, Blockchain technology enables us to sends money directly and safely from me to you, without going through a bank, paypal or credit card company. Blockchain technology has the potential to bring with it widespread change. Whilst JP Morgan CEO Dimon, called bitcoin a fraud, his bank has been using underlying blockchain technology to develop new processes. Blockchain technology is still some way off going mainstream, in fact the bitcoin bubble may have even popped before blockchain goes mainstream. Rather than the internet of information, the blockchain (rather than the bitcoin) could be the internet of value.

Here discussing the increased adoption of connected devices and sensors in banking and how IoT enables banks to respond in real-time to customer needs, is Neil Bramley, B2B Client Solutions Business Unit Director at Toshiba Northern Europe.

Internet of Things (IoT) technology is on the rise both at home and in the workplace, and will soon significantly impact and empower the way we live and work. To date, such solutions have arguably made a bigger splash in the consumer landscape than B2B, with connected fridges, cars and thermostats all resonating with the public. As consumers awareness of IoT grows, so too does their expectation that it will blend into their everyday consumer experience. No business is seeing this effect more than those in the financial industry as more IoT technology incorporates payment capabilities.

The case for financial organisations to introduce IoT into their internal infrastructure and consumer facing technology capabilities is gaining in strength, with solutions providers continuing to innovate and push the boundaries of what such technologies can achieve. The whole concept of IoT is that it can be anything organisations want and need it to be – all it takes is the right app or piece of code to be built around it. At this stage in its adoption, many IT managers in financial organisations don’t necessarily understand the potential of IoT. Given the personal, and often sensitive, nature of the data these organisations manage a fear of data and network security persists, particularly in the wake of recent global cyber-attacks. However, such concerns aren’t projected to hold the market back for long, with IDC research predicting that global spending on IoT technologies is forecast to reach nearly $1.4 trillion by 2021.

The scope of IoT solutions is evolving to fuel this demand. Whereas stationary M2M (machine to machine) solutions, such as sensors, kick-started the connected device market and remain popular, mobile IoT solutions provide vast opportunities across numerous sectors – helping to improve workflows, enhance interactions with staff and customers, and even improve the safety of workers. Key to this development is the introduction of peripherals to the workplace, which can be partnered with mobile gateway solutions to ensure cross-machine collaboration.

One natural example lies within banking. The increased adoption of connected devices and sensors will bring increasingly rich data to banks about their customers, allowing them to provide more personalised products and services, even enabling them to respond in real-time to customer needs. As connected technology becomes imbedded in our environments, and the connected home and smart city market matures, banks could provide real-time spending advice. For example if you have overspent on your budget that month your bank might suggest you avoid your usual Friday lunchtime treat.

Elsewhere, peripherals like smart glasses (wearable display technology) can ensure a hands-free solution to workers across a range of roles. Augmented Reality could give insurance sales teams a in-depth view of customers homes geographical locations and provide them with a better analysis of potential risks in order to give them a better deal, or provide a hands free look at a customers financial history enabling the creation of bespoke products and services.

Beyond devices themselves, operating systems will also play a crucial role in the progression of IoT in the financial services world. Currently the focus is very much on writing software for iOS and Android – a smartphone-onus which again signifies the advanced stage of the consumer market. Yet the natural progression is for solutions providers to expand their focus to incorporate Windows 10 – this will serve as a catalyst in creating a greater number of solutions designed for professional use, which in turn will inspire more financial organisations to turn their attention to developing IoT coding and apps to address different business needs.

It is only a matter of time until IoT becomes a major enabler for organisations across the finance industry – with such game-changing potential, it’s important for IT managers to get ahead of the curve to understand how these technologies can empower their business.

The US economy’s growth rate last quarter was recently revised on the basis of stronger investment from businesses and government bodies than previously assessed. GDP in Q3 was revised up to 3.3% annual growth rate compared to the previous quarter. This was according to the US Department of Commerce in a press release on the 29th November 2017.

This week Finance Monthly reached out to sources across the globe to hear their take on the current situation in the US, what has impacted growth across several industries, and what the forecast for 2018 looks like.

Josh Seager, Investment Analyst, EQ Investors:

US growth was revised to 3.3% annualised on Wednesday, up from an initial reading of 2%. This was the fastest growth rate in 12 quarters but there is likely to be some hurricane distortions, so we must interpret the data with caution, we don’t expect it to continue at this level.

Looking into the numbers and things look broadly positive. Consumer spending, which accounts for around 70% of the US economy, remained strong, growing 2.3%. This wasn’t quite as strong as last quarter but is a good level nonetheless and shows that the US consumer is relatively healthy. For the consumer to continue to spend, we really need wage growth. So far, this has been pretty anaemic in spite of very low unemployment. We believe this could be about to change. NFIB Small Business Surveys show that 35% of small business are now finding it hard to fill jobs and 21% are planning to raise compensations as a result. This data points are at cycle highs and this is highly likely to feed into US wage growth at some point.

Business investment picked up, contributing 1.2% to growth, up from 1% the quarter before. This is a pleasing sign as it suggests that corporates are gaining confidence in the economy and are willing to make the investment necessary to capitalise on this. Corporate profits were also up last quarter which should give corporates the financial freedom to continue to develop and (hopefully) growth wages.

Dan North, Chief Economist, Euler Hermes North America:

Consumer

• Despite tepid income growth and only modest spending growth, consumers are exuberant.
• Consumer confidence rose 3.3 points in November to 129.5, the highest in 17 years.
• The present situation component rose 1.9 to the highest level in almost 17 years, while the future expectations component gained 4.3, also a 17-year record.

Home Sales

• The actual level of annualized sales can be more revealing, and at 685,000 units it is the highest in ten years, which is undoubtedly good news. But it also illustrates the damage a burst asset bubble can cause.
• Despite having grown annually at 15% since the bottom, the current level of sales is still only half of what it was at the peak of the housing bubble, and it has only rebounded from the collapse to levels seen 20 years ago.
• But to repeat, the recent news is strong.

Holiday Shopping

• According to Adobe Insights, on-line sales rose 16.8% on Cyber Monday and 17% on Black Friday, extraordinary growth rates.
• But online sales are still only about 10% of total sales so these growth rates are not unexpected.
• The National Retail Federation (NRF) had predicted 164 million people would shop over the holiday weekend, but the actual results were 174 million.
• But then despite seeing more shoppers than expected, the NRF did not increase its previous forecast of 4% sales growth.
• The reports are mixed, but in the end we expect to see very modest growth in brick and mortar sales and very strong growth in on-line sales.

Tim Sambrook, Professor of Finance, Audencia Business School:

The upward revision, from previously 3.0%, was mainly due to a higher than expected increase in public and private spending.

The increase compares favourably with the second quarter of 2017 of 3.1%, and the third quarter of 2016 of 2.8%. It is the fastest rate since Q3 2014.

If the current estimate of growth in the Q4 GDP is realized, then this would represent the first time since 2004 that the US economy has posted three consecutive quarters of over 3%.

The growth rate is in line with the government’s target. They are engaging a tax cut plan to lift GDP to 3% annually. However, economists see such a pace as unsustainable and expect growth to slow sometime in 2018.

If you were to look for some bad news in the revision, then you could point to the fact that the revision comes from public and private spending and not consumer spending, which makes up 70% of the US economy. In addition, inventory build-up was significant and could prove to be a drag on growth in the future. However, this upward revision comes with a backdrop of severe hurricanes and low wage growth, which should have been quite negative for consumer growth.

This positive news will strengthen the case for the Fed to raise rates next month, although the announcement had little effect on the dollar or the markets.

Duncan Donald, CEO, The London Academy of Trading:

The highlight of last week’s US data card was the release of the GDP numbers for the third quarter of 2017. The number brought US GDP from 3% to 3.3%.

This is slightly above the median expectation of 3.2%, and shows the US economy continues to expand progressively with the GDP reading being the most aggressive since late 2014.

But in context, what does this mean for the US rate path, as the December rate decision from the Federal Reserve rate setting committee comes next week? From freshly inaugurated Federal Chair Jerome Powell’s perspective, the data is on course for a hike. Even the departing Janet Yellen appeared to shift her dovish tone, referencing data with the possibility of a hike in December.

We need to look no further than the recent performance of US stocks and the dollar for confirmation that the market believes in the upcoming rate hike. Despite the ongoing investigation into President Trump’s electoral campaign, which is an obvious anchor, there are no signs of a slowdown in the US positivity story. The one final hurdle for the market to overcome ahead of next week’s decision is the Non-Farm Payrolls on Friday. The data has been somewhat muddied over the last few months, as hurricanes have taken their toll. However, this month, we should expect to get a true reading on the strength of the US jobs market.

A strong Friday performance will push the market up the final few percent towards a December hike.

John Lorié, Chief Economist, Atradius:

Across the Atlantic, the US economic outlook is also robust, which is reflected in high business confidence. US GDP is expected to expand a solid 2.0% in 2017 and 2018. The positive outlook is supported by strong job growth, very low and still declining unemployment, and even firming wage pressure. In this environment, the number of bankruptcy filings is at historical lows. In Q3 of 2016, the number of bankruptcies in the US reached its lowest quarterly level since Q4 of 2006. We forecast a 4.0% decline in the overall number of insolvencies this year and a mild 2.0% decline in 2018. The US outlook is subject to risks, on the upside (tax reform) as well as downside (trade, NAFTA).

We would also love to hear more of Your Thoughts on this, so feel free to comment below and tell us what you think!

With plenty of change coming in 2018, here Emmanuel Lumineau and Thomas Schneider, Founders of BrickVest, delve deep into the future of real estate for the coming year, prospects of growth and challenges ahead.

2017 was a strong year for the real estate industry. Despite a number of external factors that could have easily affected market performance, low interest rates remained stable and demand in real estate investment products continued to rise.

Brexit

Brexit has clearly had an effect on the UK but we believe that across Europe, there remains strong deal flow levels and investment opportunities. Our recent research¹ showed that one in three (33%) commercial real estate investors highlighted Germany as their preferred region to invest in. This is the first time that Germany has been chosen as the number one region to invest in and ahead of the UK which was selected by a quarter (27%).

The UK saw a drop from 31% in the last quarter and from 32% in the same Barometer 12 months ago. The Barometer also revealed that UK, French, German and US investors are now less favourable towards the UK since last year. 45% of UK, nearly a quarter (21%) of US, a fifth (19%) of French and 18% of German investors suggested they favour the UK this quarter, representing a decrease from last year across the board from 46%, 26%, 28% and 21% respectively.

Despite investors seemingly focussing away from the UK, there has been an abundance of international capital flowing into real estate, almost every major institutional investor globally has been increasing their portfolio allocation to real estate over the last five years mainly because of lack of alternatives.

Moreover the average risk appetite of BrickVest’s investors continues to rise to 52% from 49% last quarter and from 48% this time last year, meaning a sentiment shift from low to balanced risk

Interest rates

The Bank of England’s decision to raise interest rates in the UK in November was momentous for the economy and should signal the start of a series of gradual increases. The Bank decided that inflation is potentially getting out of control and the economy now requires higher borrowing costs. In contrast, the ECB’s decision to unwind its QE programme to €30 billion a month is a glowing endorsement of healthy Eurozone growth and falling unemployment, which will more than likely mean that interest rates will stay at historic lows until at least 2019 in order to help financial markets adjust.

Increasing interest rates has a direct impact on real estate. Higher interest rates and rising inflation make borrowing and construction more expensive for owners, which can have a constraining effect on the market but can also lead to an increase in property prices. In a low interest rate environment, European real estate yields will continue to look attractive and real estate serves as a good alternative to fixed income.

Value in 2018

We expect to see increasing demand for real estate in 2018. Indeed our research² showed that two in five (40%) institutional investors plan to increase their allocation to European commercial real estate while 44% expect commercial property yields to increase in the next 12 months, just 22% believe they will decrease.

We believe that the best value can be found in real estate deals that are not too sensitive to price erosions. Investors should keep a close eye on the risk of high leverage and DSC ratios. We believe that the best investment options for 2018 will most likely be found in value-add real estate in combination with a conservative financing policy.

Investment strategy 2018

Given the fact that we believe demand will remain relatively high in 2018, one of the main challenges will be to find good deals.

Investors will have to find the right balance of higher leverage (due to continually low interest rates) and being able to handle potential price corrections in the event that the market cools off due to external factors such as Hard Brexit, escalation in the US vs. North Korea conflict, etc…

Institutional investors are investing in less liquid secondary and third level cities to achieve acceptable going-in cap rates (cap rates in major markets such as Paris are historically low). Investors will also be forced to look at less traditional investment products such as student housing, services apartments, and senior housing or industrial to get better returns. The overall risk of these investment is that they are in general less liquid and if the market bounces back, cap rates will also increase much faster than in downtown Paris.

In order to manage this problem, some institutional investors are now investing in real estate debt products so that they a.) have their exposure to real estate but b.) also have an achievable exit (i.e. when the loan maturity is reached). We think this might be smart strategy in 2018 given real estate prices are already very high and might fall in the long term (so no upside opportunity but also no real downside risk).

Sectors to watch

We continue to see the highest level of volatility from the office sector as many international firms put decisions on hold over their long-term office space requirements. Our research² with institutional investors highlighted that more than a third (34%) believe the biggest real estate investment opportunities will be found in the office sector and the same number in the hotel & hospitality industry over the next 12 months.

Three in ten (31%) thought the industrial sector would present the biggest commercial real estate investment opportunities over the next 12 months while one in five (19%) cited the retail & leisure sector.

Mifid II

When implemented in January 2018, revisions to the EU’s Markets in Financial Instruments Directive (MiFID II) will radically change the regulation of EU securities and derivatives markets, and will significantly impact the investment management industry. It will have a significant impact for wealth and asset managers on profitability, product offer and their distribution across Europe, operating models and pricing and costs.

As a consequence, we expect MIFID II to widen the gap between global, infrastructure-based players, and local players. Crowdfunding platform may be affected by these changes.

General Data Protection Regulation (GDPR)

GDPR comes into force on 25 May 2018 and represents the biggest change in 25 years to how businesses process personal information. The directive replaces existing data protection laws and will significantly tighten data protection compliance regulation.

Like other industries, real estate companies will have to conduct a risk analysis of all processes relevant to data protection.

Below Mark Boulton, Insurance Sector Lead at Fujitsu UK&I, delves into the introduction of automation and AI in the insurance sphere, touching on the future prospects of the insurance sector throughout 2018.

Insurance has always been a grudge purchase, often seen as a necessity or safety net, but not something that immediate benefit is felt from.

It will have been frustrating for many, therefore, to see that car insurance premiums have risen by 11% on average in the last year alone, according to the Association of British Insurers (ABI).

Many of us may even start to question the value we’re getting for our insurance purchases in light of such news.

The price – which is the most important factor in choosing an insurance package (A New Pace of Change, Fujitsu) – is just one element, however. Compounding this situation is the fact that people often find insurers difficult to deal with, particularly when trying to make a claim.

It’s this group of factors that demonstrate the opportunity the insurance industry has to transform itself into a more value-driven service for customers.

At the heart of any change will be technology, and two of the leading areas here are Artificial Intelligence (AI) and automation. How is technology impacting insurance for the better? There are three main areas to consider - customer experience, assessments and risk mitigation.

Personalisation

Think of going through a process for a life insurance policy. Multiple in-depth questions to taken into account age, lifestyle, and health, with an existing model applied to the answers provided.

Such models have been used for decades at some companies, resulting in off-the-shelf packages for people that do not necessarily reflect them as individuals.

Technology is helping change this. Based on any assessment and wider data analytics, automation can quickly produce more personalised experiences for the customer. This might be a payment model that suits their lifestyle or financial situation or a more nuanced insurance package to reflect their needs.

Such personalisation sit at the heart of the transformation. We’ve seen this across other industries, and it is one crucial way insurers can start to move from transactional-based relationships to value-based relationships with their customers.

Convenience and speed

It’s not just adding value of course, it’s getting the basics right. Services like Amazon Prime and Netflix have totally transformed the expectations we have of all companies when it comes to speed and convenience. We want things served to us exactly how we want them, and quickly.

Insurers have certainly made progress in recent years – for example, it is standard now for policies to be quoted and purchased online. More interestingly, however, is the use of apps and chatbots.

These give a holiday maker who may have lost their camera easy access to their policy, but also the chance to ask questions to the chatbot. Powered by AI, we can expect chatbots to play an increasingly important role in the relationship between insurers and policy holders.

Given the often complex nature of insurance policies, chatbots can be a simple way for people to get the answers they need. No need to phone customer services or wait an hour in a call queue; just direct answers delivered instantaneously.

Of course, there is still progress to be made with chatbots, but these will only get better in the years to come.

Apps and chatbots are also interesting because they both rely on and deliver vast amounts of data. The more these are used, the more they can be refined to give people services that suit them better. They fuel the personalised services.

Working together

It’s all very well talking about the benefits and transformative powers of technology, but making these a reality is something many organisations are grappling with.

Something I’ve observed in the financial services industry is the existence of distinct groups of employees. On the one hand, there are those innovation-focused, digital savvy experts who want agility, speed and flexibility. On the other hand, there are those who want to focus on the central facets of their areas products - keeping those long-standing traditions working in good order for the customer.

These two groups are naturally at odds. They often speak in different terms, work in different ways, and approach problems completely differently. Imagine the kinds of conversations that might come up with discussing emerging trends like AI and automation. It’s not easy for them to get to the place they need to.

To be able to respond to the concerns being voiced by consumers, and to harness the business agility needed to respond to market trends, insurance businesses from the c-suite down need to make a culture shift. Driving change from the top is the only way to future proof the business in a digital world that has already changed the state of play for good. We simply cannot afford to rely on the same rules.

Find your digital path now

Our ‘Fit for Digital’ survey found 98% of insurers believed their organisation had been affected by digital. A further 72% said their sector would fundamentally change in the next four years.

Change is inevitable. And the technology that will enable that change - including AI and automation – is here today. Insurers must find the cultural harmony to embrace new digital services and products, without losing the heart of what they already do well.

The next few years will see some insurers thrive and others struggle. To be a thriver, it’s vital to the right digital path now.

Millennial leaders are set to shake up traditional company management as they focus on building businesses based on both profit and purpose, new research from American Express has revealed.

Redefining the C-Suite: Business the Millennial Way, surveyed over 2,300 global leaders and Millennial managers - the future leaders of business - to better understand how businesses will change as Millennials rise to senior management roles. The findings also provide an insight into how business leaders today can set their companies up for success in the future.

The research found that while over half (56%) of Millennials surveyed in the UK said that a C-Suite role is attractive to them, and that they are more likely than their Gen X counterparts to want a job that gives them status, Millennials also indicated that they want to shake up traditional business leadership.

75% of Millennials think that successful businesses of the future will see management look beyond the usual models of doing business and be more open to collaborating with new partners. Millennial professionals also think that teamwork is a more important quality in leaders than Gen X-ers, suggesting that the C-Suite of the future will promote a much flatter structure in the organisations they lead. Millennials also ranked passion as an important quality in leaders (30%) much more highly than their Gen X counterparts (19%).

As part of their C-Suite shake up, Millennial leaders will put employee wellbeing at the top of their agenda. When asked what the biggest challenges are to businesses of the future, Millennials’ top answer was paying employees fairly (49%), followed by retention of talent (40%). 74% of Millennials also say that successful businesses of the future will need to support employees outside of work, compared to just 67% of Gen X-ers.

The research also found that while the majority (76%) of future Millennial leaders think that businesses of the future will need to have a genuine purpose that resonates with people, they also recognise the importance of driving a profit – something often perceived as being at odds with doing purposeful business.

According to the research, 63% of Millennials say that it is important for them to be known for making a valuable difference in the world, and Millennials are more likely to invest in CSR when running their own businesses (58%) compared to their Gen X counterparts (50%).

At the same time, UK Millennials were found to have a keen eye on maximising shareholder profit, with 53% of Millennials saying that shareholder profit will be important for the success of businesses in the future compared to 46% of Gen X-ers. To achieve success in the future, 71% of Millennials also think that businesses will need to manage costs tightly, and 77% say that financial transparency will be important.

Commenting on the findings, Jose Carvalho, Senior VP and General Manager at American Express Global Commercial Payments Europe said, ‘Millennials are demanding more from the businesses they work for – and will come to lead. This is setting the stage for an evolution of the C-Suite, where they will seek to put both profit and purpose at the heart of their businesses whilst also structuring them in a way to ensure tight cost management and efficient processes.

Jose continued, ‘This offers valuable insight for today’s business leaders as they seek to future proof their organisations and prepare for Millennial leadership. At American Express, we are dedicated to providing payment products and services that are designed to help companies effectively evolve and navigate change to ensure they continue to get business done now and in the future.’

(Source: American Express)

Anticipation, scepticism and fear are holding more Brits than Americans back from embracing Artificial Intelligence (AI) in the workplace, according to a new study by CITE Research for SugarCRM.

The research on business executives in the US and UK reveals that that Brits are lagging behind when it comes to adopting Artificial Intelligence (AI) technologies into their work and personal lives. The survey reveals that 47% of Brits are currently using technology powered by AI in the workplace, compared with 55% of Americans. This trend transcends into people’s personal lives, with 62% of Brits and 64% of American’s using AI for non-work-related tasks, such as Amazon Alexa or Google Home.

The research also highlighted that when looking ahead, Brits are less open to embracing AI in the future. 69% of American respondents plan to deploy AI in the next two years, compared to 57% in the UK. Brits were twice as likely not to ever want to use AI, with one in five respondents (20%) opposing the technology, compared with 1 in 10 Americans.

Top concerns about AI on both sides of the Atlantic revolve around trusting the technology. More than half of respondents (52%) worry about data security, with 30% saying it is their top concern. Another 40% said they fear AI technology will make errors, and 41% fear losing control over the data. While 30% said they fear job loss because of AI, only 12% list it as their top concern.

When it came to the applications for AI in the world of work, US participants were more likely than Brits to say they would want AI to help with communication with customers (54% vs. 42% of Brits) or planning their day (46% vs. 35%). Automating data entry was the most popular task across the board for AI, with more than half (53%) believing it would help in their organisation, followed by gathering information on the internet (51%).

“The results of CITE Research’s survey reflect the industry's view on “the cloud” “big data” and other disruptive technologies over the years, said Clint Oram, CMO and co-founder at SugarCRM.

“You have a group that is ready to jump in with both feet and a group of naysayers who are absolutely against the technology. The rest of us are in the middle. Many have heard all the hype and are intrigued, but they would like some assurances that the positives will outweigh the negatives before they are ready to start spending money on AI tools.

“It’s interesting to see how attitudes differ across the Atlantic and that there is more reluctance from Brits in how AI can be used in their work. The technology offers the potential to reduce monotonous aspects of our working lives but there is a need to be realistic on its capabilities. It won’t replace people entirely and there is still a need for human interaction.”

In general, the survey showed that younger participants, those 34 or younger, were more excited and less fearful of AI. Younger participants were more likely to say their organisation will utilise it in the future (70%). Those 55 or older were more likely to worry about being overwhelmed with features they do not need (55% list this as a concern compared to 24% of those aged 18-54).

For the complete survey report, please visit here.

(Source: SugarCRM)

With news that the performance of ICOs has been ‘nothing short of outstanding’, hitting average returns of 1,320%, here Laurent Leloup, Founder and CEO of Chaineum, discusses with Finance Monthly the prospects of ICOs in 2018, and the staggering capacity they have to make an investment golden.

First introduced in 2014, Initial Coin Offerings (ICOs) have seen a meteoric rise in 2017; resulting in $2.3 billion being raised to date as blockchain startups turn to cryptocurrency to raise funds. Typically described as a cross between an IPO and online crowdfunding using Cryptocurrency, an ICO requires an investor to contribute a certain amount of an existing token, such as Ether, to receive a share in a new currency at a set conversion rate.

As the popularity of ICOs continues to grow, it’s important that organizations understand the range of benefits, both for companies seeking investment and those looking to invest, the ICO model provides compared to traditional investment avenues.

Benefits of an ICO

For organizations looking for investment, an ICO is considered a much faster and easier fundraising method to undertake as anyone can start one. Additionally, the online nature of an ICO means that marketing and settlement costs are significantly lower than traditional fundraising with settlements finalized through the blockchain. This removes many additional costs that are associated with traditional investment which could incur legal fees amongst other expenses.

An ICO-funded startup also benefits from a network of supporters, similar to online crowdfunded businesses, whereby those supporters hold tokens that increase in value based on usage. Essentially, this means that an ICO-funded business already has a customer base in place and is in a stronger position to see faster growth.

As well as offering benefits for companies looking for investment, ICOs also have significant advantages for those looking to invest. Many investors are attracted to cryptocurrencies for their liquidity. Rather than playing the long game and investing vast amounts of money in a startup which could then see your investment locked up in equity of the company, ICOs offer the opportunity to see gains much quicker and can take profits out of the company invested in more easily.

An additional advantage of an ICO for investors is that it has the potential to remove geographical limitations seen with traditional venture financing which typically tends to be tied to global financial hubs such as New York, Silicon Valley or London. ICOs remove this restriction and opens up opportunities for anyone in any geography. This democratization essentially allows anyone to contribute and profit from an investment.

Furthermore, cryptocurrencies can appreciate much faster in value than standard currencies. For example, Bitcoin was worth just $100 in 2013 and in September 2017 was trading between $4,000-$5,000. As well cryptocurrencies from Blockchain startups Monero and NEM both saw huge increases in value at 2,000% increases. Therefore the potential ROI for investors using cryptocurrency is much higher.

What to look for in an ICO?

From an investment point of view, not all ICOs are created equal. Whilst there are apparent benefits to this new investment model, a number of poorly-managed operations have caused some concern within the industry towards the transparency and legitimacy of some ICOs.

However, previous successful ICOs have demonstrated that ambitious blockchain firms can achieve their objective in raising funds through this innovative new model. So what should investors look for when thinking of investing in an ICO?

Firstly, before considering investing in an ICO, it’s important to look for those that offer due diligence. There is currently no formal process to audit an ICO organization which means a company is able to start selling cryptocurrency tokens before a functioning product even exists. Understandably this has led some critics to comment on the legitimacy of some projects.

Before investing, it’s important to carry out a detailed analysis of the project, its objectives, and resource to gauge the likelihood of the project coming to fruition. In addition, the project should be able to provide regular operational updates on its status to ensure the investor feels confident with its progress.

As well as ensuring the legitimacy of an ICO through their due diligence, investors should look for an ICO with a certain level of transparency so they feel confident in their venture. Due to the nature of Blockchain technology, it can be difficult to identify who is purchasing tokens. This means that the true extent of the transaction is not quite clear. However, some blockchain platforms enable organizations to require and share personal information when making a transaction. Therefore before investing, it’s wise to consider the project’s Know Your Customer (KYC) measurements in place.

ICOs have seen rapid growth within the last year with more projects planned in the near future. However, for those looking to invest or launch their own ICO, it’s essential to understand how to navigate the ecosystem, including risks associated with the mechanism. Despite being a relatively new fundraising model, the rate at which they have grown in popularity means that we will continue to see more and more blockchain startups turn to the cryptocurrency community."

The UK’s Banking and Financial sector has experienced a strong quarter, despite ongoing uncertainty caused by the Brexit negotiations, according to figures recently released in the Creditsafe Watchdog Report. The report tracks quarterly economic developments across the Banking and Financial and 11 other sectors (Farming & Agriculture, Construction, Hospitality, IT, Manufacturing, Professional Services, Retail, Sports & Entertainment, Transport, Utilities and Wholesale).

Sales are up 4.19% from Q2, and the number of active companies and new companies have both increased by 5.9% and 8.5% respectively over the same period. This is supported by the rate of company failures, which has dropped by 4.0%. Total employment has also increased by over 1% in Q3.

The research shows a continued return to form for the Banking and Financial sector in terms of these core metrics. However, the financial health of the sector has been hit as the volume of bad debt owed to the sector has increased by 118.8% in Q3, with the average amount of debt owed to companies coming in at £246,318. Suppliers bad debt, the volume owed by the sector, has also seen a big increase of 127.1%.

Rachel Mainwaring, Operations Director at Creditsafe, commented: “While today’s Creditsafe Watchdog Report show signs of optimism for the UK’s Banking and Financial sector, despite the ongoing political and economic uncertainty throughout Europe and beyond, the levels of bad debt seen in Q3 are a serious cause for concern.

“One company, Pearl Finance Co Ltd, is responsible for over £80 million of bad debt owed to other sectors and we can see the potential for contagion if debt spreads across businesses in the UK. With a big increase in bad debt owed both to and by the Banking and Financial sector this quarter, we’ll need to keep a close eye on the industry over the coming months to see if it can rebalance.”

(Source: Creditsafe)

According to reports, Jordan Belfort, the American stockbroker immortalized in the blockbuster movie Wolf of Wall Street, claims Initial Coin Offerings, the IPOs for new crypto coins, have become “the biggest scam ever.”

Belfort told the Financial Times that fundraising ICOs are “far worse than anything I was ever doing,” adding that “"It's the biggest scam ever, such a huge, gigantic scam that's going to blow up in so many people's faces.”

Many see crypto currencies as a massive investment in the future of finance, while other see them as a bubble, with rising prices inciting a speculative investment spin. According to official figures from CB Insights, $2 Billion was raised in ICOs in the first nine months of 2017 alone. In 2016 the same period saw $54 Million raised. Bitcoin, the leading crypto currency has also seen a rise from circa $1,000 to up to $5,000 this year.

Cryptocurrency expert and Founder of London firm CommerceBlock disagrees and says the old guard of banking and finance are running scared. Nicholas Gregory, founder and CEO of cryptocurrency enabler CommerceBlock, said: "The old guard are being cut out by ICOs which means the banks, VCs and lawyers are losing billions. No wonder they're upset.

"It's wrong to ban them because an ICO is just a way of crowdfunding investment for technology firms who choose to do it in cryptocurrency because that is their field. 

"In the old days - up to a year ago - you would go to a VC and they would decide whether to invest in your company and you would have to follow their rules. ICOs make it easier for companies to raise funds from more sources and free themselves from the straitjacket of VC interference.

"Are there scams? Of course. But there are scams in every financial system from penny stocks to fraudulent gambling sites.

"It's too easy for critics to point the finger of blame at the technology and not the criminals who exploit every loophole in every kind of commercial environment.

"Investors take a risk by buying into ICOs just as they do buying equities, even though they are not securities. But they are offered far greater transparency. There is more they can vet with ICOs because you can look at the source code of the firm you are funding. You can download the product and play with it. In the stock market all you get is a brochure.

"This is why it's more transparent and that's why VCs hate it. The VC model is all about the 1%. Only a multi-millionaire could invest in Facebook in 2009. With the ICO model, if you and I spot the next Facebook we can get in on it."