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Confirmation Of Payee Delay – Nothing To Worry About Or A Ticking Time Bomb?

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Confirmation Of Payee Delay – Nothing To Worry About Or A Ticking Time Bomb?

By Chris Stephens, Head of Banking Solutions at Callsign

Originally the Confirmation of Payee (CoP) scheme was scheduled to be introduced in July this year. And yet, the system designed to guarantee that names match on transactions in order to reduce fraud now isn’t expected to be officially launched until March next year. As a result of the delay many people are apprehensive that, until CoP is in place, consumers will be exposed to fraudulent scams.

Chris Stephens

Chris Stephens

And their concerns are justified. Right now, banks don’t actually have a means of verifying the name on the account that the money is being transferred to. CoP will encourage banks to implement the correct checks to offer end users of payment systems greater reassurance that they will be sending their money to the right person or organisation. Last year, bank transfer fraud soared to over £354m, as scammers managed to dupe victims into permitting payments into their account instead of the correct one. CoP is fundamentally a service for name checking bank accounts to help prevent the misdirection of payments as a result of human error, which inevitably creeps into payments administration.

Aware of the concerns, the Payment Systems Regulator has confirmed that HSBC, Lloyds, Royal Bank of Scotland, Barclays, Nationwide Building Society and Santander (who together control approximately 90 per cent of bank transfers) are obligated to have their CoP schemes fully functioning before the deadline next year.

The Payment Systems Regulator states that the primary reason for the postponement of CoP was due to an “unachievable” implementation deadline.While some have been vocal regarding what the impact of the delay could be for consumers, as a result of the lack of protection against fraud, there are murmurs within the industry that the introduction of CoP might not have the desired impact.

There is no disputing that CoP will bring with it some benefits. Its introduction will absolutely help tackle the burgeoning problem of bank transfer scams, although it will only serve as one piece of the bigger prevention puzzle. As regulation evolves, fraudsters’ techniques follow suit using a wide range of clever techniques to achieve their goals, therefore financial institutions must echo their tactics by employing a range of security measures. In order to overcome the restrictions imposed by CoP, fraudsters won’t be too challenged to simply create a new account in the victim’s name as a way of reassuring the victim that any money being moved is being directed into a genuine bank account.

Growth of consumer complacency is an additional worry as some consumers might perceive CoP as an added ‘safety net’ when banking online. Furthermore, while the new regulation will be a huge help in the fight against authorised push payment (APP) fraud, it could simultaneously cause a surge in more complex fraud, meaning we will see an overall reduction in the number of scams taking place, however their value will be far greater.

There is also the requirement for all banks to be on board with CoP for the measures to have any sort of reliability. For CoP to work properly, there needs to be a unified approach from all banks at the same time, i.e. CoP banks have to depend on what security measures their peers have enforced. If a fraudster is able to work out which banks don’t have CoP up and running, they immediately know that the requirement for the customer and the bank account details to match up isn’t in place. The outcome of this is that the last bank to use CoP will be the weakest link. Worryingly, it’s not just the customers of the last bank to implement CoP that will be sitting ducks. It’s a customer from any bank that is sending money to that bank. Implementing CoP involves both doing the check on outbound payments as well as providing the account names to other banks for inbound payments.

Irrespective of the delay, there is an urgent need for banks to implement dynamic authentication journeys now, founded on threat and risk intelligence. By doing so they will have the means to question why an individual is carrying out a payment and flag any risk of fraud – this is a particularly effective way of stopping APP fraud. However, for this system to work successfully requires ongoing management and regular updates to the system, which can be quite labour intensive. What’s more, the logic that underpins these types of management systems can be another stumbling block. In the absence of employees with the right skills, continuous policy management and monitoring can become overwhelming.

So, what else can banks be doing to mitigate against potential fraud? For them, data is crucial. By making the most of all the information and intelligence they can possibly have access to, they will have a far greater chance of protecting their customers. By entering this data into a strong and dynamic policy manager, which can adapt and be flexible in response to the evolution of financial regulation, banks will have tighter security and it will be easier for them to meet the CoP requirements when they are imposed. Rather than staying focussed on single point elements, banks must view how they manage security far more holistically. Using this approach, they will improve their chances of defeating the fraudsters and will simultaneously facilitate the seamless, friction-free service consumers expect from their digital experiences.

Finance

Tech-enabled cash management strategies have come to the fore during the Covid-19 pandemic – and will be key to firms’ recovery from it

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Tech-enabled cash management strategies have come to the fore during the Covid-19 pandemic – and will be key to firms’ recovery from it 1

By Ed Thurman, managing director and head of Global Transaction Banking at Lloyds Bank Commercial Banking, outlines how technology-enabled solutions are helping businesses strengthen their working capital position amid challenging trading conditions.

The past few months have brought significant headwinds for businesses, including supply chain disruption, government-mandated closures and tumbling customer demand.

UK companies are facing serious cashflow challenges as a result. According to the Office for National Statistics, half (49%) of firms currently trading are either unsure of how long their cash will last, or believe their reserves will last less than three months.

However, for many, the conditions created by Covid-19 have been a catalyst for change and innovation.

Cash management is one of the areas where technology has been deployed with most impact. Below are some examples of the areas where businesses have been using tech solutions to manage liquidity levels during the pandemic.

Payments

Cash withdrawals fell by as much as 50% at the height of the crisis as more people took extra precautions around contact. Even pin pad payment has become far less frequent over the past six months, too.

While a move to enable contactless payments has been the first obvious step for many consumer-facing businesses – especially in the retail, hospitality and leisure sectors – some will have a higher average transaction value than £45, so alternative solutions are required.

We’ve seen more businesses adopting payment methods that allow customers to pay online when purchasing in-store or at-venue. For example, restaurants and bars can use digital platforms to enable customers to settle their bills on leaving.

Payment methods can include payment by URL, WhatsApp, SMS or QR code, which take the customer to a webpage where they can securely make the payment through their smartphone, with their preferred payment method.

These methods are enabling firms to quickly and securely receive payments from their customers, ensuring they can continue to operate effectively, and preventing disruption to cashflow.

Forecasting

Forecasting customer demand is obviously extremely difficult given the uncertain environment businesses are currently trading in.

However, it remains a critical task – helping to determine whether there is sufficient liquidity to cover planned operations and investment during a given period, say, the next quarter.

Many businesses continue to use Excel as their primary tool for cashflow forecasts, but we are starting to see firms

Ed Thurman

Ed Thurman

move towards some of the more efficient digital tools available. For example, cloud-based software can provide a unified set of data that is accessible to all business functions. This can help to accurately forecast incomings and outgoings over different periods, making it easier to evaluate how much working capital firms have available.

Our own Cash Management & Payments Platform uses cloud-based computing to help firms manage their working capital position, with true omnichannel connectivity, market-leading data analytics and self-serve capabilities.

Supply chain

The events of the past few months have highlighted the significant impact supply chain disruption can have on efficiency. For manufacturers in particular, it can be tempting to stockpile to help trade through supply interruptions and minimise damage to output, but this can have significant working capital implications by tying up cash in inventory.

While the potential for local or global supply chain disruption looks set to remain for some time, technological development can help mitigate some of this risk. Digital tools that leverage artificial intelligence can be introduced to help reduce some of the friction, automating certain processes and crunching large amounts of data to assist with decision-making.

This digitisation of the supply chain is picking up pace, meaning that business can be more agile in reacting to fluctuating demand and supply. Devices that harness the Internet of Things are increasingly being used to track and authenticate shipments, while solutions underpinned by Distributed Ledger Technology (DLT) look set to speed up trade finance – shortening cashflow cycles and improving working capital efficiency in a volatile economic environment.

Here to help

It’s been said that, for many businesses, Covid-19 has been a crisis of working capital. The past few months have shone a light on the importance of digital technologies as part of effective cash management strategies.

At Lloyds Bank, we will continue to explore the potential of emerging technologies and have committed to investing £3 billion between 2018 and 2021 to transform not just our own business, but the products and services we offer customers.

Managing cashflow will be more important than ever in the coming months. We’re here to help businesses identify the digital tools that can help them strengthen their working capital position as they prepare to face the challenges ahead.

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Finance

Asset-based lending is often called ‘working capital finance’ for a reason…

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Asset-based lending is often called ‘working capital finance’ for a reason… 2

By Alex Beardsley, director at ABL Business.

At the start of lockdown, many businesses went into panic mode, wondering whether they had enough cash in the bank to meet their obligations in the unpredictable future. Thankfully, the raft of government support helped to ease much of the immediate cashflow woes, however, this exercise alerted many CFOs to the need for a more robust way of managing their working capital — both now and in the future.

Prior to the beginning of 2019, I wonder how many businesses had “potential global pandemic” as an immediate threat to be prepared for and managed in the latest iteration of their business plan.

With poor working capital management being the number-one reason cited as cause of business failure around the globe, managing risk via robust working capital facilities should be high on the agenda of any business hoping to ride the current economic storm.

Thankfully, UK Finance may have found the answer to the question: “How do businesses bolster their working capital facilities post-pandemic?”

UK Finance conducted a study throughout the lockdown period that reviewed  the facilities of 20,000 businesses (accounting for 5% of the UK GDP) in the UK using Asset Based Lending (ABL) and Invoice Finance (IF) as a way to manage their working capital. In the context of the lockdown period, much of the focus was on the availability of vital funds, with the government were under pressure to provide quick access to finance to keep the economy afloat.

The results of the study were surprising, stating: “At the end of March, IFABL clients were using 70 per cent of their available funds to support their cashflow, three months later this had dropped to just 45 per cent. In real terms, this indicated the ‘average’ IF/ABL client had headroom of over £250k within existing facilities.”1

This shows that government grants, the Job Retention Scheme, and Government Backed Loans (CBILs and BBLs) provided the working capital breathing space that businesses needed. But more importantly, it shows that the businesses that had working capital facilities in place prior to the pandemic had more headroom in their facilities and were less likely to be in desperate need for cash.

Alex Beardsley

Alex Beardsley

If this isn’t enough of an incentive for every CFO to review the current facilities — and consider the benefits of — Asset Based Lending (ABL), here are some other reasons why it should be considered as a working capital management tool:

  • With ABL, you get a higher availability of cash compared to traditional lending facilities
  • ABL provides revolving working capital on a constant basis, meaning the availability of working capital will increase inline with the growth of your business
  • Usually, ABL facilities carry a lower cost of capital from lenders due to the high amount of security they have over the business assets, and therefore can be a more cost-effective way of borrowing
  • The facility provides more than just an injection of cash at a specific point in time that is then to be repaid out of working capital, further hitting access to cash.

A better way of managing working capital lies in both knowledge of what is available in the market for businesses, and also the particular attitudes towards using finance within a business.

A study in 2014 by Lloyds Bank Commercial Banking highlighted that there was £770bn of untapped assets  nationally — which at the time equated to 48% of GDP. Could it be that working capital management is suffering because UK businesses are unaware of the options available to them when it comes to structured finance, or is it that they are reluctant to use finance at all?

Many businesses refer to the bank for support when it comes to providing working capital facilities — or any finance at all — but in the last few years the alternative finance market has proliferated. There are now a range of specific ABL providers that are more commercial and open to risk than the high street banks, meaning that there is now more choice available to businesses seeking support for working capital management facilities.

Following the pandemic there is going to be an increased amount of debt on the balance sheets of UK businesses and a reluctance from the banking and financial institutions to lend without significant security.

No one can deny that the risks to lenders have increased. Before Covid-19, the likelihood of a ‘pandemic’ was not on anyone’s radar — now it will be the first thing lenders and businesses think of going forward when it comes to making decisions.

Now more than ever, it is imperative that businesses and CFOs assess all of the options available to them when it comes to using finance within the busines to help with working capital management.

Having the right finance facilities in place before the business runs into working capital issues is a sure fire way to ensure that a business always has the cash on hand to meet their financial obligations — minimising the risk of insolvency by being able to meet current liabilities.

1 Source: https://www.ukfinance.org.uk/data-and-research/data/business-finance/invoice-finance-and-asset-based-lending

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Finance

Futureproofing Your Credit Management Now

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Futureproofing Your Credit Management Now 3

By Marieke Saeij, CEO, Onguard

The pandemic has forced a shift in day-to-day operations for the majority of businesses. In particular, finance teams have found themselves attempting to balance long-term growth with the need for resumption of payments from current customers.

Growth depends largely on answering the funding requirements of customers who need finance, while payments rely on customers emerging from payment freezes, often requiring ongoing help. The first half of the year saw digital transformation accelerate under the economic pressures of the pandemic as organisations sough to achieve rapid efficiency gains and underpin business continuity. With so many potential unknowns continuing to affect customers, finance teams must now focus on one critical area – future-proofing their credit management.

This is a critical initiative. Finance and specifically, credit management, concerns the entire organisation and in tough times, will be crucial to survival.

A three-pronged approach is required to ensure growth by transforming credit management for the future. It consists firstly of the implementation of a data-driven strategy, secondly on increasing automation and deployment of artificial intelligence (AI), and thirdly, on retaining the personal touch.

Future-proofing with your data

The advantages of being a data-driven organisation are increasingly appreciated. It is why more than three-quarters (68 per cent) of finance professionals in the Onguard 2020 FinTech Barometer, said their organisation is already undergoing digital transformation.

Credit management founded on data insights can help to reduce the days sales outstanding (DSO) and allow credit managers to create a better understanding of risk profiles. Identifying payment patterns from the data produces better risk analyses and the ability to anticipate trends. The finance team is more rapidly alerted to the first signs that a customer will not pay, for example. Staff can then step in to resolve the situation, approaching the customer to discuss invoice payment. Data analysis will also predict a prospective customer’s expected growth, chance of bankruptcy or payment behaviour. This is not a capability many organisations currently have without laborious use of manual methods.

Once they have these insights, finance departments can better advise management at the strategic level, elevating their role within organisations. But finance professionals’ insights may also help other colleagues. One such example is sharing risk information with account managers, which will allow them to better calculate whether or not to approach a customer for upselling or new business.

Yet despite all the discussion of digital transformation, most organisations still only use a portion of their available business data. This is as true in credit management as any other area. According to the Barometer, only seven per cent of executives think their own organisation is already data-driven. It means the focus in credit management, as in other departments, must be on exploiting an organisation’s existing data riches because this is the most efficient and cost-effective route to becoming data-driven.

Start with your own and move to third-party data when you need to

Businesses should start by using data from their own consumer base, such as their customers’ payment behaviour. This is not only more cost-effective, but risk profiles based on an organisation’s own customers can reveal more about future customers than data from other companies. The risk profile scores based on internal data will therefore have greater predictive value.

External data can be expensive, as pointed out last month (July) by McKinsey, but its use can strengthen an organisation’s own data resources, bringing a wider understanding of the market that makes for better decision-making. An organisation can combine internal and external sources as it evolves to best suits its needs.

The gains from this hybrid approach are tangible and come as enhanced sales, improved products, better finances and more targeted marketing, supplying a better service that boosts satisfaction levels and leads to improved relationships.

Automation and AI

No discussion of future-proofing can take place without consideration of robotic process automation (RPA) and artificial intelligence (AI). RPA automates the hugely repetitive manual tasks in credit management that involve collection and collation of masses of data and divert skilled employees from more valuable work.

AI, however, is the group of technologies with more far-reaching potential, making smart use of all available data. It links everything from CRM and ERP system data, to all the cogs in the order-to-cash process. This includes linking accounts receivables management with data about customer acceptance and e-invoicing. AI integrates these processes, transforming efficiency and delivering new insights through its analytical power. For finance departments it will also link with recognised parties that provide credit information, as well as payment service-providers and an automatic payment processing solution.

This, however, is only the starting point. AI’s predictive capabilities help minimise non-payment risk, support the forecasting of cashflow and advise on follow-up actions. This includes, for example, whether individual customers will respond better to phone calls, or when there is no alternative to commencement of collection proceedings.

Marieke Saeij

Marieke Saeij

Using individual insights based on consumer history, AI can even help identify the best time to contact specific customers. This will this dramatically improve operational efficiency and if customers are approached in the right way, at the right time, will enhance relationships and bolster retention.

The personal touch

Although the future of credit management will hinge on effective implementation of the right technology, the importance of personal relationships must not be neglected. A future in which all contact with customers is automated will soon become unprofitable in credit management, where personal relationships are all-important.

It must be recognised that no two customers are the same and each needs to be taken on their own terms. Although data provides insight into overall payment patterns, it does not reflect the totality of the relationship with the customer. A credit manager, for example, might know that a single call is all it takes to trigger payment from a certain customer. Yet as much as AI will achieve, it still lacks the emotional intelligence to pick up on these kinds of nuances and subtle differences in character that make a difference.

This matters because customers will soon switch providers when service-levels drop or if they start to feel they are just being treated as a number.

One of the ironies, however, is that if an organisation has the right credit management solution, it will understand more about the customer and have a firmer basis for effective person-to-person interaction. If you know more about a customer, saying the right things to obtain the outcome you want is easier. This means finance professionals need to adopt a hybrid approach that combines the best data-driven tools with a heavy degree of personal involvement. This is the most reliable way of ensuring optimal performance, profitability and customer satisfaction.

Conclusion

There is nothing more fundamental to business than getting paid, but times are changing and data-driven credit management is undoubtedly the future. There can hardly be any argument about it. Basing decisions on data insights generates far better outcomes, delivers a substantial edge on competitors and injects agility into a team.

If another global wave of virus-outbreaks or other sudden disruptions strike the world economy, organisations need to be as agile as possible, ready to meet the challenges with credit management that is already future-proof. That requires becoming data-driven and the adoption of proven automation and AI. Yet reliance on technology alone will not guarantee success. Organisations must continue to recognise the importance of human interaction with customers, who may want to see a face or hear a voice when times are tough.

Alongside the implementation of solutions that deliver results quickly and cost-effectively, organisations need a hybrid approach, that uses the best of the conventional world and adapts it to the data-driven future.

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