- Improvement in infrastructure key challenge for development of the region
- Risk of external shocks not averted
With an economic growth of 6 percent forecast for 2014, sub-Saharan Africa continues to defy the weak global economy. “The international financial crisis has scarcely affected the region,” is the conclusion reached in a new study by Commerzbank. On the one hand, this was due to the somewhat low dependency on exports, which amounted to just less than 20 percent, to the ailing European countries. On the other hand, the countries in the region rich in raw materials were benefitting from the ongoing high prices for raw materials, and were increasingly developing into lucrative growth markets arousing international interest. Even though there were still deficits in terms of the democratization and efficiency of the political institutions in individual countries, political and economic stability had increased.
There are many reasons for the improved crisis-resistance: Debt relief on the part of the World Bank and the IMF has contributed to this, as has the increasing democratization of countries, which also encompasses minorities, thus promoting stability and growth. “An important key to the long-term increase in economic dynamism and the export earnings of sub-Saharan Africa is the development and improvement of infrastructure,” said Rainer Schäfer, head of Commerzbank’s Country Risk Analysis. To date the infrastructure had essentially geared to the transport of mineral resources and agricultural products. Despite the progress attained with the number of ports, many land-locked states only had limited access to cost-favourable transport by sea.
Yet the late comer position in the global development carousel of the region also offers opportunities such as technological “leapfrogging”, the skipping of individual development stages, states the study. It was possible to tackle electricity bottlenecks, triggered by growing demand for energy in the wake of robust economic growth, from the very outset thanks to environmentally-friendly, cheap, and effective technologies. “A great deal of appropriate opportunities open up to foreign investors with the corresponding know-how in the field of renewable energies such as solar technology, wind power, and biogas from biomass,” explained Florian Witt, regional head Africa department at Commerz bank’s Financial Institutions. Ethiopia, Malawi and Mozambique were already focusing on bio diesel from the jatropha plant, which thrived on low-yield soils.
As a result of its wealth of raw materials sub-Saharan Africa is heavily dependent on the global economy. The key sectors produce for export, which generates hard currency for vital imports. For this reason, in its study Commerzbank analyses how resistant sub-Saharan Africa is to external shocks: Ongoing weak global economic growth had to date only affected sub-Saharan Africa to a minor degree. Discoveries of oil fields, like in Angola for example, had placed the national economies on a new footing. The economic catching-up process was in full swing and a weak global economy would not stop this. A further factor was the strategic significance which above all China attached to sub- Saharan Africa so as to safeguard its supply of raw materials, and which had prompted it to make further investment in the region.
“Even if the risk of external shocks cannot be fully excluded, we believe that the probability of a disaster hitting the countries of sub-Saharan Africa and severely affecting further economic development is, on the whole, low, ”is the conclusion reached by Rainer Schäfer and Florian Witt.
With 6 representative offices between Cairo and Johannesburg, as well as 500 bank and 250 institutional clients, Commerzbank is the number one among the German-speaking banks for corporate client business in Africa. It has been active there for 60 years already and maintains business relations to 50 of the 54 countries on the continent. It cooperates with governments, local banks, and central banks above all. Commerzbank processes 11 percent of all euro payments to other countries from Africa and 35 percent of all trade financing with Germany.
The study can be downloaded at:
Why local currency payments are critical to cross-border commerce success
By Nikhita Hyett, Managing Director – Europe at BlueSnap
Online shopping has been a lifeline for many during the pandemic. But with the increased volume of online orders, one area that’s been overlooked is the importance of local currency options.
As more transactions are made on mobile devices, customer service channels proliferate and social media becomes a popular sales channel, merchants around the world are closer to their customers than ever before.
But this increased proximity doesn’t always translate when customers hit the buy button.
When shopping online, I’m often shown ads from businesses who sell to me and ship to me, yet their pricing is in euros or US dollars. We hear a lot from sellers about offering a personalised customer experience in the age of e-commerce, but a failure to make the transaction feel local is holding them back.
In fact, it still surprises me how many merchants don’t offer customers the ability to pay in their local currency, even though this move could increase their conversions by an average of 12% according to BlueSnap data.
Any online business would agree that the checkout process is the most important part of the purchase journey – and should be as a simple and painless as possible.
But when presentment currencies, or the currency a customer is charged in, differs from that of their local geography, buyers are often left confused and struggling to calculate costs when making a purchase from an international seller.
This prompts shoppers to leave the checkout page to convert costs – creating a major barrier to sale at the point of conversion. Friction enters the buyer’s journey, and businesses see an increase in purchase abandonment.
Disputes and chargebacks
Even if a customer perseveres with the transaction, that’s not always the end of the story. Another major benefit of offering local currency payments is that customers are less likely to challenge the final total of cross-border transactions.
But if there’s confusion around exchange rates, customers are entitled to dispute the transaction with their bank, which can result in a lost sale in the form of a chargeback fee for the vendor.
This is a lose-lose for sellers which not only miss out on revenue due to increased purchase abandonment but also post-purchase disputes around order settlement.
If that wasn’t enough, buyers who have encountered friction in the purchase journey are unlikely to be satisfied with their experience, deterring them from making repeat purchases, recommending the business or leaving a positive review.
Brexit and cross-border fees
But going truly local extends beyond currencies and the customer experience – and can have a big impact on a company’s bottom line. In a post-Brexit world, businesses can take the localisation of their payment processes a giant leap further through local acquiring.
Following the introduction of new trading laws for cross-border sales in January, Mastercard has announced that it’s hiking interchange fees for UK merchants fivefold for all online purchases made by EU cardholders.
The increase will see interchange fees between the UK and the European Economic Area (EEA) rise from 0.3% to 1.5% – with these transactions now defined as ‘inter-regional’ – and other banks likely to follow suit.
In practice, this means UK merchants will now have to pay a higher proportion of the sale to the payments provider for enabling cross-border transactions within the EEA, and vice versa, reducing profit margins on every purchase.
At a time when retailers are already having to adapt to new regulations and Brexit ‘red tape’, they now face another unenviable choice. Absorb these increased costs or pass them on to customers by raising the price of products or services – a move that could deter future sales.
Avoiding interchange fees
But there is another way. E-commerce sellers can avoid cross-border fees altogether by routing payments through local banks in the same region as the cardholder.
By localising the transaction, it’s estimated that merchants can reduce cross-border fees from card issuers by 1% – meaning a total saving of £100,000 for every £10 million in sales.
Of course, if this were simple, the debate over cross border fees would be long over.
To process a transaction locally requires merchants to have a legal entity in each region they sell to. This used to mean that the more online business a retailer does, the more connections they need and the more complex this process becomes.
On average, international sellers have five different payment gateways to route cross-border transactions via local banks – with the costs of developing and maintaining this infrastructure able to quickly outweigh the savings of processing payments locally.
A better way
Thankfully, new technology is changing all that. With the next generation of fintechs ‘rebundling’ financial services under one roof, forward-thinking businesses are taking advantage of all-in-one solutions that automate payment routing via a network of local acquiring banks.
By harnessing innovative payments technology, which automatically recognises card types, location of issue and local currency, merchants can effectively localise any incoming payment from any customer, anywhere in the world – through a single integration.
In doing so, they’re also able to increase payment authorisation rates, as banks are more likely to approve purchases made locally.
With e-commerce experiencing its strongest growth in over a decade last year, merchants understandably want to embrace the opportunities brought about by this exciting shift in the way we buy and sell goods.
As the rise in online sales shows no sign of slowing down, those businesses that offer local currency payments can transform the customer experience and increase conversions, while merchants that embrace local acquiring will make their bottom line soar.
How the financial services industry can win with personalisation
By Lottie Namakando, Head of Paid Media, iCrossing UK
The Financial Services sector has a thin tightrope to walk between marketing investment and pay off. One misstep and consumer trust can hit the brand and bottom line hard. And that fear can paralyse. On the one hand, finances are both crucial and complicated – people need a friendly, authoritative, ideally tailored approach that speaks their language to help simplify them. On the other, there is a lot of mistrust and personalised digital communication can be seen as ‘creepy and obtrusive’. People are particularly sensitive about personalised communication when it comes to their financial information. So how can the financial services industry win with personalisation?
From customised content to tailored ads and offers, personalisation has certainly become more visible within the FSI. Indeed Accenture’s 2019 Global Financial Services Consumer Study found that one in two say they’d be happy to receive personalised financial advice from banks, like spending habit reports and advice on how to manage money. This type of guidance is likely to become even more valuable with the added pressures brought on by COVID-19. It’s clear that financial service brands are catching on.
An Econsultancy survey found that, when asked which three digital areas are top priority for their organisation, 37% of financial service respondents chose ‘targeting and personalisation’. However, another study, by software company Pegasystems, concluded that 94% of banks haven’t quite figured out personalisation yet. So what’s the holdup?
Striking the right balance
Despite the growing consumer demand for personalised interactions, in a survey of more than 2,500 customers, Gartner found that more than half would unsubscribe from a company’s communications and 38% would stop doing business with a company if they found personalisation “creepy”. Not everyone wants to feel as though they’re being monitored – particularly when it comes to their finances – and the price of getting it wrong is steep. Google also has guidelines around negative financial status in personalised advertising, so financial institutions need to tread carefully.
Keeping personalisation consistent
Paid media personalisation doesn’t seem to be the norm for any FSI brands at the moment. But when brands do start to embrace personalisation in ad copy, consistency will be key to hitting KPIs and ensuring the experience is a positive one. When a customer clicks on a personalised paid ad, for example, they’d expect to then hit a personalised landing page. Without that, the initial promise of relevancy is met with something too generic. But personalised content in the modern digital ecosystem needs to be dynamically generated – something that Google can have issues with. For any personalised landing page that isn’t behind a login, it’s important to decide what Google should see, and the answer is rarely straightforward – don’t risk a Google penalty by showing users any content that’s radically different from the non-personalised .
Cutting through the complexity
We need to reframe how we look at personalised content to win with it. Rather than seeing it as scary and new, it is crucial to remember that well executed personalisation should be an audience aid – to guide people through the complexity of the finance industry. Key to achieving this clarity that will be appreciated by audiences will be focusing on the differing needs of existing customers and prospects with ad copy personalisation. Think about the way a potential customer would be treated if they came to the bank for the first time – wait for them to sign-up and share their information before giving personalised advice.
So there’s an element of politeness which should sit alongside personalisation in the FSI, whereby people need to agree (beyond just accepting cookies) before brands can go ahead and get friendly. When approached sensitively – which is especially important in these uncertain times – personalisation will help FSI brands set themselves apart from competitors; not just other banks, but fintech start-ups too.
Personalisation projects need to be carefully considered and planned. Banks need to listen to customers. This would involve conducting consumer research on how they feel about different levels of personalisation. Do the potential benefits outweigh any concerns they have? Is there a cut-off point to their comfort?
It will by asking questions such as
- How comfortable are you with receiving personalised marketing from your bank?
- Do you see the value of personalisation in marketing for you as an individual?
- What do you feel is the right level of personalisation?
- Is there a point when you feel personalisation has gone too far?
This will give a real understanding of what level of personalisation consumers will both want and value.
However, the most important part of this whole listening process is hearing what consumers are saying, then be sure to use these insights and research to devise an audience and messaging matrix which is relevant for them and for your business. This involves defining the audience, what traits differentiate them from other personas and what level of personalisation is relevant to them.
In order to protect people’s privacy, restrictions on targeting do exist across many different paid media platforms to ensure that sensitive information is not inadvertently shared. It is prudent early on to examine the technical capabilities of the marketing platforms you wish to use, to understand if they support the personalisation strategy you have in mind. Auditing the audience targeting options and restrictions by platform is a good place to start.
Test and learn
Once the platform capabilities and the consumer base’s position on personalisation is understood, then thirdly the approach should be test and learn. Next steps are to map what signals are available to be able to target these differently defined audience groups, using platform curated audiences or 1st party audience data – and don’t go too niche with targeting.
Using this framework, ideally take one or two different audiences to start with, we recommend testing what type of messaging resonates best with them and using relevant engagement KPIs such as clickthrough rate or view rate to evaluate performance.
By comparing a version of an ad which relates specifically to the audience, versus one with a more general messaging, it’s possible to identify themes or phrases which really speaks to the target audience. The results can often be surprising, with what might be considered relevant ad copy just not landing with the consumers in the way expected. The advice here is to go with the data, not with the heart. Remembering the team is not necessarily the target audience, and whilst no result will be 100% it is the majority verdict that should be used to develop messaging.
Finally, this approach needs to be iterative – people, attitudes and needs are constantly changing. When using personalisation, the messaging needs to be constantly challenged, tested and evaluated. Just remember not to change too much at once to understand what elements are having the most impact.
Personalisation should be on the digital agenda of every financial services business. It represents a huge opportunity for growth and when done right can strengthen existing customer relationships and build trust. Although learning to walk a tightrope may be tricky, balance can be achieved only through tackling and not avoiding it.
Lottie Namakando is Head of Paid Media at iCrossing UK. iCrossing is a digital marketing agency that is driven by insight, powered by Hearst, the world’s largest independent media, entertainment and content company
Tax changes, volatility and care: the challenges of later life planning in 2021
By Matt Dickens, Senior Business Development Director at Ingenious
Later life planning has become more topical than ever over the past year as our whole industry has worked hard to absorb the changes brought about by the pandemic, progressing financial planning to meet the “new normal”. This article explores three of the greatest challenges later life planners currently have to consider and prepare for, tax changes, market volatility and the cost of care, and shows how a comprehensive later life plan, delivering more than just estate planning for inheritance, is increasingly important.
The threat of tax rises
In 2019, the new Conservative Government, facing the challenge of delivering an orderly Brexit, but not yet dealing with the impact of a global pandemic, promised there would be no changes to Income Tax, National Insurance or VAT. Eighteen months on, they find themselves in an unprecedented economic scenario, with a deficit of £394 billion1 (19% of GDP), its highest level since 1945. While commentators remain focused on the ongoing pandemic and its impact on both lives and livelihoods and when it might come to an end, they also have one eye on the issue of paying for the extreme lengths the Treasury has gone to, to keep the country financially afloat. Likewise, investors are equally mindful of this issue – if the Government needs to balance the books through fiscal policy, how will any decision made now fare in a post-pandemic financial future?
For advisers, there are two clear ways to approach this planning dilemma.
Firstly, one could attempt to foresee the future and plan for the measures that might be implemented in the coming months and years. The problem with this approach is that one would need a crystal ball.
Secondly, one could accept that there is no way to predict the measures that will come into effect and wait until there is some form of clarity. But herein lies the problem of delay in the face of continued uncertainty. For almost a year now, many have held off on vital long-term plans due to the fear of the unknown, yet they need to accept that another year or more of inaction due to the potential of further uncertainty comes with its own real risk. And the longer it goes on, the more risk they are taking.
The simple answer to this conundrum is to embrace a strategy which remains flexible to any possible changes, but in the meantime delivers on the key outcomes the client requires. Any financial planning strategy needs to stack up in line with the wider objectives of the investor, such as achieving investment growth, rather than focusing purely on the tax advantages of a particular strategy, as these could change or even disappear. This is why I believe advisers should be developing a wider later life planning proposition, and not just narrowly focussing on estate planning.
Here is an example of a desired outcome of someone planning for later life;
- To invest capital in a way that maintains flexibility throughout later life to pay for any unplanned needs, but also consider any potential care needs that might be needed, knowing that their wealth has been successfully grown up to the point of death, so maximising the legacy that will be passed onto the chosen beneficiaries.
Breaking it down into individual objectives, the adviser needs to:
- Maximise wealth through continued investment growth
- Maintain flexibility and access to the investment, so they can make regular or lump sum withdrawals
- Provide both financial and logistical support to the delivery of care needs if ever needed
- Reduce the potential for Inheritance Tax (IHT)
Note the desire to reduce any IHT payable is deliberately last on the list of desired outcomes. The danger of focussing on the estate planning part of these objectives is twofold. Firstly, the threat of impending tax changes, or tax relief changes, causes uncertainty as to the efficacy of any purely tax-focussed strategy. And this remains the case whether one feels they can predict the future or not!
Secondly, the danger of ignoring the other higher priority objectives, as many tax-focused strategies are a one trick pony and restrict the potential for wider benefits. In this case, the investor may have to forgo any long-term investment growth, or the flexibility to easily and predictably access the investment to pay for care, for instance.
So, when considering the threat of tax changes to later life planning, the approach should always be to allow the investment rationale and wider utility of the service you recommend to lead the planning decisions, rather than just narrowly focusing on the tax benefits.
Another challenge that is particularly unwelcome in later life and particularly visible in the current environment is the potential for continuing investment volatility. In this phase of their lives, investors are unlikely to have the flexibility to “time the market” when they want access to their wealth. For instance, making a withdrawal to help family members in need, pay for care requirements or ultimately passing the investment onto beneficiaries upon death. These are not predictable events. Reflecting upon the volatility of markets in 2020 and the uncertainty of 2021 and beyond, investors may well be minded to forgo any potential upside of an investment, perceiving them as too risky.
However, an alternative, as many asset managers have been doing over the last decade, is to look to private investments that are not exposed to market sentiment in the same way as listed investments are. While on the face of it this sounds riskier, certain investment strategies can provide investors with an appealing level of security and predictable returns. One way to do this is via private companies that engage in secured lending. By their nature, loans carry lower risk than equity investments as they do not fluctuate in value over time. Senior, asset-backed loans provide the investor with additional protection against any loss in value. Executed within sectors that are demonstrating strong resilience to the pandemic and any ongoing Brexit effects, these loans can provide an attractive return with low volatility. Such companies are common investments for Business Relief qualifying services where services should be valued on their “fundamentals” not reliant on positive investor sentiment.
The ever-increasing demand for care services
In the same way that the increasingly maturing cohort called the baby-boomers have recently come under detailed discussion by advisers with respect to their intergenerational planning needs, the same level of consideration should also be given to their increasing need for long-term care. During the pandemic, the importance of and reliance upon the UK’s care system has become very clear, yet there is an insufficient level of planning taking place to ensure that people are prepared. Research shows that the majority of family members who have experience of a loved one being in care were not satisfied with their experience. One of the factors that can surely make this unfortunate outcome more comfortable is being prepared, both financially and through being armed with knowledge or advice on this complex sector.
This is why it is more important than ever to flexibly have access to one’s wealth in later life. It is impossible to predict what any one person’s needs are going to be in the future and so separating money to prepare for care and to prepare for estate planning is futile. At the same time, perhaps the need will not arise and so the money could be contributing to the investor’s other objectives rather than being held back from an investment. So, undoubtedly a flexible posture to later life planning is key and if the investment can gain value over time to contribute to paying for life’s needs then all the better. The final benefit that could assist with this challenge is a specialist care advice service, which is included for all Ingenious Estate Planning (IEP) investors. As well as advising clients and their families on the vagaries of the UK’s complex care system, the IEP Care Service helps investors to make decisions in a time of need and stress. Specialist, independent advisers give individuals and their families invaluable support, liaising between the NHS and care providers to achieve the best possible care outcomes.
Only by considering any changes to the legislative landscape, delivering consistent and attractive risk-adjusted returns and considering any future needs and costs of our clients, can we deliver a truly robust and value-adding financial later life plan for investors who need it.
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