Even though those at the top stand to reap untold rewards with the right products, the 2008 financial crash has seen big businesses and regulators avoid the light-touch approach to innovation. Today, with 39 fintech firms valued at a combined $147 billion/£115 billion, safety and financial security are paramount. Indeed, with such much on the line, companies are now taking every precaution possible before launching a new product.

Fintech Creating a Safe Place to Play

With that in mind, the sandbox strategy has become a standard across the industry. A term taken from computer security, sandboxes provide a partition between a live network and a test net. By using a sandbox, developers can test new commands and isolate faults without compromising an existing system. Using this dynamic, fintech companies are now using sandboxes to ensure financial products are not only secure but performing in the way they’re intended.

Expanding on the use of partitions within fintech, consumers are being offered an ever-increasing number of sandbox options. From financial simulators to demo games, individuals can explore potential investments without putting their money on the line.

Turning Serious Investments into a Game

This idea of turning simulations into games is one that’s also been adopted by the gaming industry. With online casino gaming now worth in excess of $45 billion/£35 billion, more novices are now eager to explore the financial potential of the industry. However, with real money on the line, playing slots and the like is always a risk. Therefore, to mitigate any financial burden, free demo slots have become popular, as you can see here. Providing full functionality without the cost, these free-play games provide that same safe environment as virtual trading platforms.

Perhaps the most interesting sandbox innovation for consumers is the growth of free investment platforms. Running parallel with their real money counterparts, these platforms allow novices to invest in stocks, shares and contracts for difference (CFDs) using a virtual bankroll.

Perhaps the most interesting sandbox innovation for consumers is the growth of free investment platforms. Running parallel with their real money counterparts, these platforms allow novices to invest in stocks, shares and contracts for difference (CFDs) using a virtual bankroll.

In tandem with a virtual bankroll, financial simulators can be used to test the potential profitability of an investment. On a basic level, Monte Carlo simulations can be created inside Microsoft Excel. By entering certain values, the Monte Carlo method assigns probabilities to potential outcomes. Or, as described by Investopedia, Monet Carlo Excel spreadsheets can compute “the probabilities for integrals” and solve “partial differential equations, thereby introducing a statistical approach to risk.”

Similarly, by using products such as Countdown to Retirement, individuals can get an idea of their future financial status without crunching the numbers.

As a consumer, the benefits of these so-called sandbox options are obvious. By giving you ways to explore the financial sector without the cost, companies are not only reducing individual risk but their own risk. What’s more, they’re providing new opportunities for the uninitiated. By removing financial barriers and giving novices a safe way to learn, fintech has become a more responsible industry for all involved.

That is why, when the Competition and Markets Authority ordered the implementation of so-called Open Banking almost three years ago, everyone excitedly welcomed the prospect of upstart new banks and other fintech companies using technology to challenge the Big Five. Here Kevin McCallum, CCO at FreeAgent , talks to Finance Monthly about the different ways big banks are making the most of Open Banking.

More than a year after roll-out began, however, it looks more like the little guy is not yet making the inroads expected. In the new Open Banking race, it is the incumbents which are still leading the field.

When the CMA found insufficient competition in banking, it was no surprise - almost 90% of business accounts are concentrated with just four or five institutions, while 60% of personal customers had stayed with their bank for more than a decade.

The central solution was to be Open Banking, starting with requiring banks to allow rivals and third-party services access to customers’ account data - subject, of course, to the necessary permissions. This, the theory went, would spur competition through innovation - we would see banks reduced to interchangeable commodity services, mere infrastructure providers, with nimble, agile third-party services innovating on top, spurring the banks in to action.

In the same timeframe, we have certainly seen the emergence of digital-only challenger banks like Starling, Monzo, Tide and Revolut. While all of them offer 2019 features like savings round-ups, spending analysis, budgeting and merchant recognition, most of the innovation has happened within the walled garden of the traditional account.

Starling and Revolut are already registered for and engaged with Open Banking. Starling is now supported by MoneyDashboard and Raisin UK, while Revolut’s API is supporting connection to many third-party apps. But it’s fair to say the upstarts were expected to dive in to Open Banking faster and deeper than this, some consider them to be behind the curve.

What we have seen, instead, is the big banks leaning heavily in to Open Banking.

HSBC was amongst the first to offer account aggregation, the practice through which consumers can access account data from rival banks, inside a single provider’s own app, initially through a separate Connected Money app.  Barclays, Lloyds and RBS/NatWest have since gone as far as offering the facility inside their core apps.

Of course, the big banks are incentivised to pull in rivals’ account data. Being the first port of call for all finance matters is attractive, whilst account data from other institutions can be used to aid product marketing and lending decisions.

In truth, we have begun to see the first signs of innovation amongst third-party services which plug in to those accounts. CastLight is helping lenders more quickly understand customers’ affordability, Moneybox is helping users round up spending in to savings, Fractal Labs uses knowledge of account activity to help businesses better manage their cash. We have even seen a large bank powering such new-style services in the shape of TSB’s loan comparison service, powered by Funding Options, which surfaces products from across providers.

But, even so, these use cases are not a step-change from the kind we already had before, albeit using less sophisticated methods of data collection. At FreeAgent, where we have offered bank account integration through more rudimentary means for several years now, we sense strong customer demand for efficient, API-driven bank account access. Most onlookers, and digital-savvy customers of the new-wave banks, expected more than this by now.

Why has the pace of Open Banking innovation to date been relatively underwhelming?

First, only the UK’s nine largest banks were mandated by the CMA to make account data available through APIs by the January 2018 deadline.

Ironically, the upstarts have been relatively more free to sit back. Indeed, unlike the legacy holders, they have no burning platform they need to quickly save; for them, the future is growth.

In fact, though, as smaller, less-well-resourced entities, they also have to plan out their investment more carefully than wealthier institutions, rather than dive headlong in to costly initiatives. Monzo is on-record as saying it will embrace the possibilities slowly, exploring whether to build features like account aggregation “in 2019”. When you’re a bank - even a cutting-edge, agile one - “move fast and break things” is a hard mantra to follow.

Furthermore, actual technical implementation of Open Banking is, shall we say, non-trivial. Adoption is complex, and far more complex for account providers than for third-party accessing services. In many cases, writing native code to enable integrations, whilst it may be considered messy, has been more straightforward than adopting Open Banking APIs.

Finally, the big banks, the “CMA 9”, have pushed compliance with Open Banking right down to the wire. Whilst they have been first to the punch, had they managed to launch sooner it may have encouraged the upstarts to compete more quickly.

It won’t stay like this forever. The Open Banking timeline has been an ironic inversion of the class of companies we typically expect to be canaries in the mineshaft of technical trailblazing. But banking innovation is about to become more evenly distributed as the balance between big guns and small players levels out.

From September, all banks, even the smaller ones, must be compliant with Open Banking standards. That is going to be an interesting moment for the new wave - can you really be considered the plucky upstart when you are subject to the same compliance framework as the lumbering giants?

Further regulatory compulsions on the big banks - and one in particular - could further spread Open Banking innovation downstream.

As part of conditions attached to its £45 billion government bail-out during the banking crisis, RBS has been compelled to funnel £700 million in previous state aid in to measures supporting business banking competition.

This so-called Alternative Remedies Package includes several pots of innovation funds, and the scheme’s independent administrator has just made the first innovation awards - £120 million to Metro Bank, £100 million to Starling, £60 million to ClearBank. Metro is promising “radically different” business banking, including “in-store debit card printing, lightning-fast lending decisions, fully digital on-boarding, integrated tax”; Starling says it will build “full suite of 52 digital banking products to meet the needs of all sole traders, micro businesses and small SME businesses”.

Even more awards are due to be made through 2019, likely spurring new use cases for Open Banking, and more besides, that many had not yet dreamed of. This level of funding is going to be an enormous catalyst for the kinds of companies that are really well placed to deliver.

The pace of technology adoption doesn’t always happen as quickly as it sometimes can feel.

Sometimes a great idea can take a long time to bubble up and gain widespread adoption. Shortly after the invention of the horseless carriage, Michigan Savings Bank is said to have forecast: “The horse is here to stay but the automobile is only a novelty - a fad.”

Technology becomes successful when innovation becomes normalised, when enough adoption has been seen that what, once, was considered new fades away and becomes part of the furniture.

Although we have spent the last couple of years talking about the Open Banking initiative, and although its roll-out has been slower than expected, this should not distract us from the likelihood that, in a short while, the innovation and adoption cycle around it will have accelerated to the extent we see many, many new use cases all around us spurring more services and more competition.

The ultimate test of Open Banking, then, will not be who is first to market - it will be when we no longer talk about it at all.

Financial technology is rapidly progressing, so fast that people are forgetting the world economic crisis that happened 10 years ago. With the evolution of financial technology, new services and better options are being created for consumers all over the world. Digital technology has created a much better user experience for users all over the world, and sky’s the limit indeed. This is what you can expect from financial technology five years from now.

More digital engagement

It wasn’t too long ago that, for every financial service you needed, a trip to the bank was a given to get that service. With the advent of technology and the age of digitization, those days are no more. You can literally pay every single bill of yours and transfer money to people across the world with a mobile application at your disposal at any time and any place, and the evolution of these services is rapid and continuous. The digitization of financial affairs means a much better user experience, which reflects positively on revenues and sales numbers. People love slacking around and still getting things done, and in the future, there’s no telling how much more comfortable technology will make banking for users.

More services

As more technologies emerge and newer doors open, more services are being created to cater to people’s every financial need using financial technologies. For instance, you can now get an advance on that inheritance of yours that’s been taking ages to get processed in the courts. In this article you can learn about their conditions and how it works if you want to get an advance on your inheritance with minimal effort and quite an easy digitized process. This financial service, and many others, helps plenty of people who might be in a tight spot and in urgent need of cash, but are unable to access any due to the lengthy process.

Newer technologies

The quest to find newer technologies to facilitate and make things better for users is non-stop. For instance, banks now in some countries are operating hybrid clouds and cloud computing to address issues of security, compliance, and data protection. Hybrid clouds also offer reduced costs and a much better operational efficiency, making them truly the future of banking services. You even have artificial intelligence (AI) been implemented in some places, hopefully to an extent that in the future it can help in back office operations, customer service, and much more!

Is it a good thing or a bad thing?

An optimist will find the current advancements being made in financial technology truly remarkable, for they have the potential to create a better and more comfortable user experience for mankind and actually help people in need of such advancements. On the other hand, there are some who might worry about the digitization of something as critical as financial services, and dread the reliance on machines to manage our finances. While both opinions have their pros and cons, one can’t deny the fact that technology is moving at an exceptionally rapid rate, and it’s quite exciting to view what’s next in store.

New entrants to the banking market — including challenger banks, non-bank payments institutions, and big tech companies — are amassing up to one-third of new revenue, which is challenging the competitiveness of traditional banks, according to new research from Accenture (NYSE: ACN).

Accenture analysed more than 20,000 banking and payments institutions across seven markets to quantify the level of change and disruption in the global banking industry. The study found that the number of banking and payments institutions decreased by nearly 20% over a 12-year period – from 24,000 in 2005 to less than 19,300 in 2017. However, nearly one in six (17%) of current participants are what Accenture considers new entrants — i.e., they entered the market after 2005. While few of these new players have raised alarm bells among traditional banks, the threat of reduced future revenue growth opportunities is real and growing.

In the UK, where open banking regulation is aimed at increasing competition in financial services, 63% of banking and payments players are new entrants – eclipsing other markets and the global average. However these new entrants have only captured 14% of total banking revenues (at £24bn), with the majority going to non-bank payments institutions. The report suggests incumbent banks will likely start to see a significant impact on revenues as leading challenger banks are surpassing the 1 million customer threshold and 15 fintechs have been granted full banking licenses.

“Ten years after the financial crisis, the banking industry is experiencing a level of competitive intensity and disruption that’s much greater than what’s been seen before,” said Julian Skan, senior managing director for Banking and Capital Markets, Accenture Strategy. “With challenger banks and platform players reducing traditional banks’ competitiveness and the threat of a power shift looming, incumbent players can no longer rest on their laurels. Banks are mobilizing to take advantage of industry changes, leveraging digital technologies and ecosystem business models to cement their relevance with customers and regain revenue growth.”

In Europe (including the UK), 20% of the banking and payments institutions are new entrants and have captured nearly 7% of total banking revenue — and one-third (33%) of all new revenue since 2005 at €54B. In the US, 19% of financial institutions are new entrants and they have captured 3.5% of total banking and payments revenues.

Over the past dozen years, the number of financial institutions in the US has decreased by nearly one-quarter, largely due to the financial crisis and subsequent regulatory hurdles imposed to obtain a banking license. These factors have made the US a difficult market for new entrants and a stable environment for incumbents. More than half of new current accounts opened in the US have been captured by three large banks that are making material investments in digital, while regional banks focus on cost reduction and struggle to grow their balance sheets.

The research appears in two new reports: “Beyond North Star Gazing,” which discusses how industry change is shaping the strategic priorities for banks, and “Star Shifting: Rapid Evolution Required,” which shares what banks can do to take advantage of changes.

The reports found that many incumbent banks continue to dismiss the threat of new entrants, with the incumbents claiming that (1) new entrants are not creating new innovations, but rather dressing up traditional banking products; (2) significant revenue is not moving to new entrants; and (3) new entrants are not generating profits. To the contrary, the reports analyze where revenue is shifting to new entrants and identifies examples of true innovation happening around the world that can no longer be dismissed. Accenture predicts that the shift in revenue to new entrants will continue and will start to have a material impact on incumbent banks’ profits.

“Most banks are struggling to find the right mix of investments in traditional and digital capabilities as they balance meeting the needs of digital customers with maintaining legacy systems that protect customer data,” said Alan McIntyre, head of Accenture’s global Banking practice. “Banks can’t simply digitally enable their business as usual and expect to be successful. So far, the conservative approach to digital investment has hindered banks’ ability to build new sources of growth, which is crucial to escaping the tightening squeeze of competition from digital attackers and deteriorating returns.”

“As the banking industry experiences radical change, driven by regulation, new entrants and demanding consumers, banks will need to reassess their assets, strengths and capabilities to determine if they are taking their business in the right direction,” McIntyre said. “The future belongs to banks that can build new sources of growth, including finding opportunities beyond traditional financial services. They can’t afford to blindly follow the path they originally set out at the beginning of their digital journey. However, as the report clearly shows, there is no single answer and each bank needs to truly understand the market it is operating in before charting a path forward.”

Earlier this month Z/Yen published their global financial centres index which stated that for the first time in 15 years, New York has overtaken London as the world’s top financial centre. The report focused on a number of factors including infrastructure and reputation and was combined with a survey to show the most attractive financial cities. To follow on from this, job search platform Joblift looked into the financial job markets in both London and New York to find out if these results matched or contradicted the Z/Yen conclusions. While New York may have become the most attractive worldwide financial centre, Joblift’s results show that the crown still lies with London when it comes to job availability and growth.

London has more than twice the number of vacancies and three times as much job growth

According to Joblift, 124,788 financial job vacancies have been posted in London in the last 12 months. In comparison, New York has been the location of 49,526 financial vacancies in the same time period, around 2.5 times less than in the UK’s capital. To further bolster London’s claim as the financial job market top spot, vacancies in the capital have increased at three times the rate of New York’s. While the US city’s financial job market increased by 1% each month on average in the last 12 months, London’s market saw a 3% average rise.

Both cities share the most in-demand professions and top employers but vacancies in new york were more secure

Despite the differences in number of vacancies and job growth, the financial job markets in the two cities have a lot in common. Accountants are the most in-demand professionals in both cities, making up 12% of the job market in London, and 9% in New York. They are followed by Finance Managers in London (11%) and Economists in New York (6%), with these professions switching in each location as the third most in-demand – Economists in London (4%), and Finance Managers in New York (6%). Additionally, while not in the same ranking order, JP Morgan, Goldman Sachs and Morgan Stanley were the top employers in both New York and London. However, while the same professions are in demand, jobs in New York were more secure. In the last year, 87% of the finance vacancies advertised in New York were for permanent contracts, while postings offering the same contract type in London made up just 75% of the capital’s financial market.

(Source: Joblift)

Four out of five businesses will use chatbots by 2020, 85% of all customer interactions will be handled by them and they will generate $600bn in revenue in the same year, according to a recent Oracle survey. This week Chris Crombie, Product Manager at Engage Hub, believes now may well be the best time to start investing in chatbots.

In just under two years’ time, chatbots – conversation-mimicking computer programmes that provide your customers with an instant, personalised response – will be ubiquitous. Driven by innovation in artificial intelligence (AI) and the insatiable desire to enhance and personalise the customer experience.

Simply put, chatbots are one of the clearest concrete examples of how the “AI revolution” is impacting on the business landscape and on the day-to-day lives of millions of consumers worldwide.

Consumers happy to chat to bots

Consumer familiarity with chatbots has increased over the last decade, a result of our familiarity with things such as self-service machines in supermarkets and interactive IVR.

With the latest advances in AI technology pushing new boundaries, it’s easy to see why many are claiming that 2018 is set to be “the year of the chatbot”.

That’s because, for any company that has an interest in offering a great customer experience, the potential benefits of enhancing customer satisfaction and responding to customer’s needs in a faster and more efficient manner by using chatbots are immense.

Plus, new messaging applications such as Facebook Messenger, WhatsApp, WeChat and traditional SMS are proliferating, which means millions of new opportunities to reach customers and communicate with them using the communications channels they utilise and like the most.

Understanding innovation in AI, Machine Learning and NLP

To understand the latest chatbot innovations, it’s necessary to have an understanding of Artificial Intelligence (AI), Machine Learning and Natural Language Processing (NLP).

Artificial intelligence is the theory and development of computing technologies that can perform tasks that previously required human intelligence. Mainly relating to speech recognition, visual perception, decision-making or language translation.

As an extension of this, Machine Learning is the application of AI technologies in ways that use data to learn and improve automatically, without being given explicit instructions. While NLP is the branch of AI that helps computers understand human language as it’s spoken and written to be able to understand intent.

The computer chatbot uses AI and NLP to imitate human conversation, through voice and/or text. So, in addition to the above-mentioned text-based instant messaging systems, voice-controlled chatbots are becoming increasingly popular, both in the home and in business contexts.

Amazon Alexa, for example, has proven to be an immensely useful consumer technology over the last two years in terms of its educational benefits, teaching consumers about the ease-of-use of voice controlled tech and helping them to feel comfortable and happy using it.

Test chatbots properly, to boost business

So that’s a brief overview of the key technologies and the commonly-used acronyms behind chatbots. Yet the key thing you need to know if this: when implemented correctly, chatbots are a demonstrably fantastic way to increase engagement with your customers.

So, what’s the secret of rolling out chatbots in a way that resonates well with your customers and doesn’t risk you losing sales?

As with any new technology, rigorously test it out internally before you let your customers start to use it. This is particularly critical with chatbot applications, as the bot will start to learn from your team, which helps to ensure that it knows how to deal with a wide range of the most common customer questions, complaints and enquiries.

Thorough testing will ensure your chatbots work as efficiently as possible, giving the correct information to customers as rapidly as they demand it.

All of which means that you will gain a clear competitive advantage, future-proofing your business by improving the customer experience whilst also delivering operational excellence.

Connecting you to your customers 24/7

Businesses in all verticals, particularly finance, retail and logistics, and businesses of all sizes – from small start-ups through to global enterprise – need to be investing in the latest chatbot technologies in 2018 to stay ahead of the curve.

And in today’s market, enhancing the customer experience is all about providing a high quality ‘always on’ service to deliver the information that they need, on demand, 24/7.

Investors are voting with their feet and abandoning cash ISAs, according to the Q2 Investor Barometer from Assetz Capital.

The peer-to-peer lending platform canvasses the views of its investors every quarter, and while 52% of investors responding to the Investor Barometer had put money into cash ISAs in Q1, only 37% still do following the end of this year’s ‘ISA season’.

Q2’s data shows that 61% are making use of a Stocks and Shares ISA, 60% had an Innovative Finance ISA, while a small minority were invested in Lifetime or Help to Buy ISAs (4% and 3% respectively).

According to Defaqto, in March 2018 the average interest rate offered by a cash ISA was 0.70%. This is consistent with Bank of England interest data** on bank and building society general deposit accounts to March 2018, with sight deposits offering an average of 0.46% and time deposits an average of 0.90%. With inflation at 2.4% in April 2018, the rates currently offered by banks see consumers effectively losing money in real terms.

Stuart Law, CEO at Assetz Capital said: “Given our investors are familiar with peer-to-peer lending we’d expect to see more opt for an Innovative Finance ISA than the general public, but it is still notable to see this significant drop in cash ISA users.

“Our IFISA has grown steadily in popularity since launch. As of the end of May, almost £50m has been invested in our ISAs – over £12.5m of which has come from transfers. Around 75% of all investment in our ISA is new money on the platform and the average size of an ISA account is approaching £15,000, which is a lot higher than the industry average of £4,400.

“We believe much of this is driven by a movement away from cash ISAs and we expect this to continue as consumers look to make their money work harder for them. We also put this down to the secured nature of our peer-to-peer loans and our credible levels of net returns when compared to many of our competitors, according to AltFi Data market analysis, as well as our long track record in the industry.”

(Source: Assetz Capital)

Complexity often means risk, mess and can easily spell disaster. The fund sector for example, is one that requires constant thinking, innovating and success management; and it’s not always so easy, especially with a myriad of tasks and operations to see to internally. Below Lauri Paal, who used to work with Skype, Microsoft, and is now the Chief Product Officer at KNEIP, discusses with Finance Monthly some things the funds industry could learn from the telecommunications industry, from consumer behaviour to outsourcing and standardization.

Telecommunications has changed significantly in the last ten years. The regulation, technology and approach have all been reviewed and the industry has seen obvious moves. For example, voice to data as well as communications switching to apps. Moving into financial services, I have witnessed complex regulation and, like in the telecommunications sector, this is constantly changing and creating new challenges. However, our approach and business practices have not changed.

From the outside it is easy to think that the reason the telecommunications industry changed is because of the rise of 3G and eventually 4G technology. But the truth is that change is driven by consumer behaviour and I like to believe Skype played a part in how people consume technology today. Skype’s approach to voice services radically changed the market as we focused on lower cost and high quality international calls. To guarantee this standard, in traditional telecoms networks, operators needs to connect to hundreds of networks globally. Quantitative measures are used to monitor performance. At Skype we defined quality of service as a core value. We created a live feedback feature which is used after every call and we built an algorithm which allowed business allocation based on customer feedback. We drove this innovation.

Non-core activities were outsourced to specialist organisations. We did not build local infrastructure as many telecommunications agencies have in the past, we outsourced to partner management operations, including pricing and invoice management. The results were positive for everyone with each industries’ players focusing on their specialist industry, ultimately providing the customer with a better experience.

Now, in the financial services industry, I think there are a number of lessons that we can take from the disruptive approach in telecommunications and change the way our sector operates. Too much of our industry is still reliant on manual operations and systems are not streamlined to free up professionals to work on their area of specialism rather than on back office functions. Just as voice has become a secondary asset to data in telecommunications, so to traditional investment - especially assets under active management - is facing an optimisation drive. We need to find solutions that automate compliance processes, giving better focus to core activities.

I think the industry needs to push for standardised back office functions and compliance process. We have spent months preparing for PRIIPS and MIFID II but this needs to pay off for the end user. These complex regulations have focused on transparency but that is only beneficial if it uncovers inefficient historical processes, and force companies to adapt and innovate, ultimately becoming more effective. The industry, jointly with the regulators, should focus on understanding and enabling technology trends. Markets tend to be self-regulating, driven by customer demand. Perhaps keeping the end customer (or investor) in the centre of the process and making sure initial objectives were met post implementation will ensure processes are improved.

Asset managers currently tend to build a lot of solutions internally. The industry should rather take a step back to determine which tasks are core, such as product manufacture and investment management, and which tasks can be considered as non-core. Doing so could lead to greater business efficiencies and could, given time, lead to a more standardized industry, as we all witnessed in the communications industry.

However, I think the biggest lesson we can learn from the communications industry is the need to put customers in control. We are seeing trends towards younger investors demanding more knowledge of and access to their investment choices. We need to look at systems that allow the end user to understand and put them in control, whether they are an asset manager or an individual. If we can simplify processes, then their needs will define the future of the industry. Customers will decide and putting them in control needs to be our mission regardless of the industry.

Far from taking human jobs in future, Artificial Intelligence (AI) and Machine Learning (ML) technologies are going to free up finance professionals from spending too much time on monotonous tasks and allow them to focus on more strategic tasks of higher value to the business. Does this mean that finance roles will mostly be driven by robots? Below Tim Wakeford, VP of financials product strategy EMEA at Workday, discusses with Finance Monthly.

A recent EY study revealed that the majority (65%) of finance leaders said that having standardised and automated processes—with agility and quality built into those processes—was a significant priority when it came to investing in emerging AI and other technologies. And, following on from this, 67% of finance leaders said that improving the relationship between finance and the wider business strategy was also a key priority.

Again, this is an area where automation and AI technologies are helping free up time for finance to spend more time working with other teams within the business. This enables them to figure out where to go next as opposed to looking backwards and dealing with unproductive and time-consuming legacy finance systems.

Freeing up talent to focus on high-value tasks

Freeing people up from repetitive jobs to enable them to focus on high-value tasks is the opposite of the oft-cited “robots putting people out of work” narrative.

Indeed, automation is a huge opportunity to reduce the unnecessary burden and pressure that’s put on finance professionals, particularly around traditional tasks such as transaction processing, and audit and compliance.

The adoption of AI applications within finance enables forward-thinking executives to move info far more strategic business advisory roles. This means that they can focus less on number crunching and more on financial analytics and forecasting, strategic risk and resilience, and compliance and control. This shift to data-driven financial management delivers a much wider benefit across the business.

The Rise of the robots: AI in finance

Computer systems performing tasks that previously required human intelligence is the definition of AI, with experts viewing AI and automation as viable solutions to efficiently deal with compliance and risk challenges across different sectors.

With the rise of the ‘big data’ era comes a parallel growth in the need to analyse data for financial executives to be able to properly manage compliance and risk.

This is another reason why finance teams cannot ignore the opportunities that embracing AI technologies offers them. It allows them to process vast amounts of data faster and easier than large teams of humans can.

Individuals are then able to make better strategic decisions based on the information that AI is able to rapidly extract from what were previously time-consuming and repetitive and monotonous tasks such as transaction processing.

Jobs least likely to go to robots

Forward-thinking and highly-skilled financial executives are happily embracing AI, as they see the clear opportunity it presents to play a more valuable and strategic role within their organisation.

“The challenge for managers will be to identify where automation could transform their organisations, and then figure out where to unlock value, given the cost of replacing human labour with machines and the complexity of adapting business processes to a changed workplace.” This is how writers James Manyika, Michael Chui and Mehdi Miremadi so fittingly describe the process in their book These Are the Jobs Least Likely to Go to Robots.

“Most benefits may come not from reducing labour costs but from raising productivity through fewer errors, higher output, and improved quality, safety, and speed.”

AI and automation in finance has to be about reducing repetitive manual tasks and raising overall productivity through data-driven business strategy. The bottom line is this: any technology that can reduce manual input and the associated human errors for transaction processing and governance, risk, and control (GRC) will free up finance professionals for more strategic work.

Any organisation’s most important asset is its people. And finding out which emergent AI technologies and applications are the best for a business and its people is going to be key for the future of finance.

Giving skilled finance staff the autonomy and opportunity to move into far more strategic data interpretation roles and letting the machines take on the grunt work is a necessary shift in the finance function.

As well as automating a large part of the finance function, AI technology will also help skilled finance executives to make a far more sophisticated analysis of complex data sets and to provide genuinely valuable insight to drive the business forward.

There is very little doubt that the future of finance will be one that embraces technological innovations to improve effectiveness, increase efficiency, and enhance insight.

Below Felicia Meyerowitz Singh, Co-founder & CEO at Akoni Hub, talks Finance Monthly through the implementation of PSD2 legislation this weekend, with an overview of open banking, what it means for financial services, and what opportunities are in store for banking customers.

It’s been a long time coming but we are entering an era of greater access and better financial services that will finally put the needs of customers first.

The catalyst of achieving this much needed and long overdue result is the culmination of big debate, endless lobbying and necessary government legislation.

For years banks have sat on the most valuable asset to any business: the infinite transactional and financial data of customers that essentially define individual’s tastes, preferences, budgets and - crucially - their requirements for building and planning their lives.

High street banks - reluctant to share their oligarchy of power, held on tightly to this data - unwilling to share it with others - or use it to enrich their consumer experience and put them at the heart of their business model.

With open banking, this power will be wrestled from the big incumbents and data will be available to third parties, SMEs and new digital players. This will lead to a better future for financial services, one that increases competition and creates a greater consumer experience. More businesses will finally have a shot at delivering services that are tailored and relevant to individual customers.

Open Banking will also strengthen the role and influence of FinTech companies that have the agility and open APIs to make data sharing possible and to disrupt the status quo. We have already seen new banks like Starling Bank taking the lead, by creating partnerships with other FinTechs to create a customer rich ‘Amazon of Banking’ experience.

Together with multiple significant other sources of data being made available with consent and through API format, this will finally deliver financial products in a simple and meaningful manner, with automated prompts as companies or market products change, resulting in data innovation and improved financial outcomes, as well as removing the hassle for enterprises, saving time and money.

Key to this is delivering analytics in an easily understandable form without overwhelming businesses - leveraging the rapidly advancing data science technologies, machine learning and AI, as well as outstanding design and user experience is part of the market change we are moving towards. While the UK and EU lead the way, there are early sprigs of global growth for international solutions.

Incumbents are not resting on their laurels. Many banks and financial institutions that make up the global sector are making impressive strides to capitalise on open banking, while also exploring valuable collaborations with new innovators that can help them harness the immense value of their data.

A great example is BBVA, which has embraced the digital movement and has set itself apart from other global offerings and is putting the client front and centre. The Spanish bank has nurtured the development of impressive FinTech firms – such as the digital ID startup Covault- while also making some canny acquisitions to keep it at the forefront of innovation that resonates with a new generation of consumers and keeps them agile and technology focused. This includes the purchase of digital bank Simple.

Open banking also presents some challenges. Exposing large quantities of personal consumer data could increase the risk of cyber-attacks, hacking and identify-theft. The possible reluctance of customers to share their personal data could also derail the initiative. Educating consumers and gaining their trust around data sharing will therefore be crucial to the success of this initiative. So too the need for businesses to share information within a secure platform and for online payment providers to be scrutinised by the rigorous laws in place.

If all goes well, the developments of open banking – and the opportunities they bring to consumers– cannot be overstated. Banks will get another chance at creating better value-added services, while SMEs will finally have the access they need to deliver what their customers truly want and ultimately transform their consumer experience. Additionally, corporates are also now included in the scope of Open banking, increasing pressure on banks to deliver improved services to the neglected business market.

We only hope that customers will see the value of it all to willingly share their data and banks will leverage their relationships of trust to deliver solutions of value to their commercial client base. With their consent, the blueprint for a better future of finance can be mapped out for generations to come.

Bitcoin is becoming a pretty normal currency in transactions worldwide, and it hasn’t failed to infiltrate paychecks either. So, if a salary is paid in part or in full in bitcoin, how is the income taxed? And how is tax applied to transactions anyway? Fiona Cincotta, Senior Market Analyst at City Index, clarifies the matter for Finance Monthly.

Bitcoin is a virtual currency, that can be generated by mining or bought using cash, credit card or a paypal account. Bitcoin began in 2009. At the start, one of the advantages of bitcoin was the fact that is wasn’t regulated and could be used in transactions to avoid tax obligations. However, tax authorities caught on and since then tax authorities across the globe have been trying to introduce and advance regulation on the bitcoin.

Whilst the cryptocurrencies exist on a global network, tax regulations in general differ for each country around the world. However, broadly speaking most tax authorities are on the same page when it comes to the treatment of the bitcoin.

As a general rule, buying a bitcoin anywhere in the world is not a taxable operation in itself. However, taxes are likely to occur when you sell that bitcoin, or possibly spend the bitcoin, and make a profit in the process.

How much you would be taxed on the transaction would then depend on several factors:

• The amount of gains;
• How long you were holding the currency for;
• If the country in question has capital gains tax.

Again, generally speaking, most countries do not consider virtual currencies to be “currencies” from a tax point of view. Instead they are treated as a property or capital asset. This means that any gains are taxed as capital gains in the year that they are realised.

As with property, capital gains tax is liable on profits, meanwhile should an investor realise a loss from a bitcoin transaction, the investor would be able to deduct any losses and therefore reduce the tax bill.

Realization happens when the bitcoin is exchanged for any other type of other property. This could be cash, services or products. Essentially almost any transaction which involves the bitcoin is in fact a realisation event and therefore gains are taxable. The following transactions could be taxable events:

• Selling a personally mined bitcoin to a third party;
• Selling bitcoins bought from someone to a third party;
• Using personally mined bitcoins to buy goods or services;
• Using bitcoins bought from someone to buy goods or services.

Scenarios which involve mining of bitcoin followed by either selling or exchanging for goods or services afterwards, will mean that the value received for the bitcoin is taxed as personal or business income, after subtracting any expenses incurred from mining eg cost electricity.

Meanwhile the other two examples, taker the bitcoin as an investment asset. Gain are taxed regardless whether the bitcoin was exchanged for money or goods or services. To cement this point let’s consider the following example. Should you own bitcoins that have increased in value, it is impossible to use them with realising a gain. Using the bitcoin to purchase a service or good, for example, is considered to be two transactions. One, selling out or realising the gain on the bitcoin and the second, being the purchase of the service or product. Few tax authorities would allow such a blatant loophole, as to not tax the transaction and ascension of wealth.

However, the implication of this is that every transaction involving the bitcoin is taxable. This in itself raises questions over the effectiveness of bitcoin as a medium of exchange, if the user has to calculate the tax liability after every transaction. So, the possibility now exists that over taxation of crypto currencies, could lead to their death.

As mentioned at the beginning tax implications can vary from jurisdiction to jurisdiction. The IRS in the US has a fairly standard approach to bitcoin taxation. The UK’s HMRC takes a more personalised approach and has has specifically said that it considers tax on bitcoins on a case by case basis. Whilst such a personalised approach is fine now, should the bitcoin increase in popularity HMRC may find its resources strained.

CAPITALIUM ADVISORS® is an independent wealth management company based in Geneva, offering premium services for international clients. More than a name, CAPITALIUM ADVISORS® revolves around people and values. Its founders, Alain Zell (CEO), Clement Schoeb (CFO) and Sebastien Leutwyler (CIO), share a passion for endeavors, abide by common values and adhere to a collective vision to redefine wealth management and its practices. In tune with a new generation of clients, the associates of CAPITALIUM ADVISORS® understand evolving expectations as well as the stakes that are at play. They offer an innovative approach, built on rigor and excellence.
Here, Finance Monthly speaks to the company’s CEO – Alain Zell who tells us all about the company’s beginnings, the services it provides and their plans for the future.

How did the idea about the company come about?

CAPITALIUM ADVISORS® was born of our determination to become independent, in order to guarantee our clients the highest possible standards of service and without any conflict of interests.

Wholly owned by Clement Schoeb, Sebastien Leutwyler and I, CAPITALIUM ADVISORS® is not a part of any financial establishment. This allows us to deliver services completely independently and with the standards of excellence that we have imposed on ourselves. Our added value is based on a firm commitment with two objectives: protecting and expanding our clients’ assets.

Tell us a bit more about the principal services the company provides and its priorities towards its clients?

We develop solutions especially for our clients, whether families, the emerging generation of millennials, or entrepreneurs. These offerings were not designed for our clients, but with them for the purpose of simplifying the financial component of their life equation.
We take a three-pronged approach:
CASA INVEST: We manage discretionary mandates, consultancies and supervisory services. Our investment landscape covers all types of financial assets and monetary bases. We implement tax-efficient management, in the structures and in the investments we select.
CASA NEXGEN: Our proprietary concept; it is the non-financial branch of the CAPITALIUM ADVISORS® services. It is targeted above all to families, helping them tackle challenges related to the transmission of patrimony. We offer an ecosystem built upon three pillars that the young generation interacts with on a regular basis: investment, education and mentoring.
CASA ADVICE: We help our clients to maintain total control over their private affairs, with a team of professionals who master the challenges and increasing complexities of today’s environment. Our company has equipped itself with state-of-the-art tools that allow for granular monitoring and analysis of financial assets.

How has the company grown in terms of operations and service offering in the past year?

We have stayed the course while focusing on our sole objective of disrupting common practice while offering our clients a unique financial experience. CAPITALIUM ADVISORS® is now one of Switzerland’s most important asset management firms. With our partner, SCHOEB FROTE® in Neuchâtel, in 2017 we exceeded the billion-dollar mark in AuM. Clearly, what clients are seeking more than ever is a relationship based on trust in which the lack of conflicts of interest allows a dialogue that goes to the essentials – preserving, growing and guaranteeing the transmission of their assets.

What differentiates Capitalium from its competitors?

While banks focus on staying profitable by cutting costs and raising prices, we do just the opposite – we constantly invest in enhancing our offering. This is the only to create concrete and tangible added value. Merely cutting costs is the reaction of those who are unable to renew their offering and adjust to clients’ new expectations.
On the portfolio management front, we have two requirements. First, we manage by convictions and avoid the "soft consensus" at all costs as it undermines performance over the long term and marginalizes risk control. Second, we privilege "open architecture" financial products. This guarantees us access to the best providers and the expertise of specialists. These requirements are accompanied by a clear code of conduct: refusal to receive retrocessions, no bias towards highly marginal products, no unjustified portfolios turnover and a systematic hunt for "hidden costs".
Foremost, performance is what drives our decisions and recommendations. We also consider factors such as flexibility and efficiency to optimize our output. Models borrowed from core-satellite institutional investors inspire our work. The choice of tools revolves around indexed vehicles and investment funds, which we supplement via investments in direct lines, derivatives, structured products and real assets.

If you could share one piece of advice with Finance Monthly’s readers, what would it be?

In most cases, clients customarily diversify by entrusting their assets to several different managers, including both banking establishments and independent asset managers. While the need for counterparty risk diversification is an accepted fact, this is not as true for the way that assets react once they have been invested. The reason for this is that, while all asset managers claim to be different, investment management profiles have inevitably converged, due to regulatory constraints (standardised risk profiles), temporary profitability biases (retrocessions and high-margin products), and the fear of losing mandates (benchmarking to reduce the risk of underperforming the competition). This has, in turn, increased the financial risk that is inherent to portfolios.

To address this bias and offer more structural and robust diversification in wealth management, it is becoming necessary to combine several different investment approaches. Taking a unique approach is, in itself, one way to diversify risk and manage family assets on a solid basis for the long term. With this in mind, CAPITALIUM ADVISORS® has developed a three-pronged model that aims to guarantee the greatest visibility and traceability possible in investments. By reducing the asymmetry of information that too often exists between managers and clients, we provide clients with all the tools for objectively evaluating the work done and making informed decisions. This makes clients participants in the management of their own assets.

“We say what we do and do what we say”: in portfolio management we stand out in the way that we strategically overweight or underweight assets in a clear-cut manner, as dictated by our analysis of the financial markets. Accordingly, we eschew “cosmetic” transactions, which are too often used to mask a lack of conviction in portfolio management.

“Before making comparisons, accept that it’s fine to be different” : in contrast to the “fog machines” that are too often used by the financial industry to explain away performances, we want to avail CAPITALIUM ADVISORS® clients of instruments that help them precisely measure the quality of services provided to them. To do so, we have entered into a contract with IBO, a firm that audits returns adjusted to real levels of risk and compares them to the main Swiss investment managers.

“Optimising one’s financial ecosystem”: based on each client’s investment management profile, we seek to determine which counterparties and suppliers of financial products are most able to allow us to stay within the commitment we have made to our clients that their total fees will not exceed 1%, hidden fees included. This is what we consider to be the fair price for wealth management. What’s more, this enhanced efficiency has a direct impact on performance by reducing the risk incurred on a constant-expected-return basis.

In addition to the more entrepreneurial and contemporary model that CAPITALIUM ADVISORS® offers its clients, wealth management, like many other businesses, is based above all on the notion of trust. And trust can’t be forced; it must be earned over time. We do believe that it’s possible to earn this trust through an approach offering full transparency on the business model, the absence of conflicts of interest, and an uncompromising investment management process.

What are your goals for the future?

Within a few months, CAPITALIUM ADVISORS® has positioned itself definitively as a player able to offer a true alternative to traditional banks. CAPITALIUM ADVISORS® will continue to expand both organically and externally while continuing to demonstrate the added value of a business model that is close to its clients and with no conflicts of interests. Backed by common sense, hard work, boldness and enthusiasm, we ensure that we are positioned to implement our ambitious plans.

Contact details:

CAPITALIUM ADVISORS® SA
16, rue de la Pélisserie
CH – 1204 Geneva
Phone : +41 22 544 63 00
Fax : +41 22 544 63 09
www.capitaliumadvisors.ch
info@capitaliumadvisors.ch