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Consumer confidence in banks, credit card providers and investments remain stable as demand supercharges digital finance – new Toluna research reveals

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Consumer confidence in banks, credit card providers and investments remain stable as demand supercharges digital finance - new Toluna research reveals 1

COVID -19 shines spotlight on the importance of savings – 22% of those aged 35-54 don’t have a financial safety net

WHAT: The Toluna Financial Services Sentiment Indicator is a quarterly study exploring key financial services issues in the UK and the consumers they serve. The latest research surveyed 1,137 respondents in August 2020.

KEY FINDINGS:

Confidence in the financial services sector remains stable despite the UK entering its worst recession on record

  • 68% of respondents have stated that their confidence in financial services providers, such as banks, insurance companies, credit card businesses and investment firms, has remained the same since pre-COVID-19

Savers’ ethical concerns create the big wins for investors with a focus on sustainable business models that can withstand market shocks fuelling investment growth

  • COVID-19 has accelerated already existing interest in sustainable investments as those aged between 18 and 34 demand more responsible and ethical products and services from organisations.
  • 69% of 18 – 34-year olds are interested in the environmental and societal impact of any investments they have or might have in the future, demonstrating just how important environmental and sustainability issues are to them.
  • 47% of those aged over 55 are also keen to understand the environmental and societal impact of their investments.

The pandemic has supercharged a huge shift in financial services firms becoming truly digital following demand from 18-34-year olds to manage their finances virtually but older people may need more support in transitioning to digital.

  • More people are choosing virtual methods of banking with 75% using online banking, 44% mobile apps, 13% virtual payment cards and 8% video chats with financial services companies.
  • 18-34-year olds are significantly more likely than both the 35-54 and 55+ groups to use digital financial services. For example, 65% of those aged 18-34 are using mobile apps compared to 23% of those aged 55 and over. When it comes to in person banking, 61% of those aged over 55 are still visiting their local branch compared to 46% of 18-34-year olds.
  • When asked about their future banking preferences, it’s perhaps no surprise that the youngest age bracket (18-34 year olds) are significantly more likely than both the 35-54 and 55+ groups to prefer non-traditional banking methods (mobile apps, virtual payment cards, cryptocurrency and video chat). For example, 58% of those aged 18-34 said they would prefer to use mobile apps when dealing with financial services providers as opposed to just 21% of those aged 55 and over. Nearly a quarter of those aged between 18 and 34 years old would like to use video chat in future when communicating with their bank, credit card provider or investment firm.
  •  Those aged 55 and over are significantly more likely to prefer ‘in person at a branch’ with 58% stating that this is their preferred way to bank, compared to 39% of 18-34-year olds.

While people in the UK believe financial services companies support sustainable communities, they also think that banks, investment firms and other providers need to change their offering to help meet consumer financial needs

  • Over half of 18-34 year olds (55%) believe banks, investment firms and credit card companies are helping to drive growth in sustainable communities.
  • This percentage is over 20% lower among the 55 and over age bracket (32%).

In terms of current financial products and services available:

  • 1 in 4 (25%) of those aged 55+ currently state that their savings do not meet their current needs at all.
  • Over half (54%) of females claim to have no investments at all.

COVID-19 has shone a spotlight on the importance of savings and having a financial safety net with those aged 35-54 the least likely group to have one in place:

  • Over half of those surveyed said they save regularly (56%)
  • 63% of people in the UK have a financial safety net
  • Those aged 35-54 are the most likely to feel that they do not have a safety net, with 22% agreeing that they don’t have an adequate financial safety net in place.
  • Other groups who are lacking a safety net include those who say their ‘confidence in the financial sector in the past 12 months has decreased’ (21% with no safety net) vs. those whose confidence level has increased in the last 12 months (5% with no safety net).
  • Unsurprisingly, those who have failed to pay a bill or loan/credit card repayment in 3 of the last 6 months are also the most likely to claim they have no safety net.

 Michael Worledge, Finance Sector Head, Toluna said:

“Unlike in the aftermath of the financial crisis of 2008, the financial services industry currently has much higher levels of confidence from the public and is therefore in a better position to provide support.

“Lockdown left many people with more money to put into savings that they would otherwise have spent on commuting, going out and retail. However, many consumers are now financially worse off, with no safety net to fall back on, and have been increasingly telling us they are looking to save more for a rainy day. Financial services companies continue to provide support and flexibility but should consider how they can leverage the relatively high levels of confidence to help consumers put in place their financial safety net, understanding and actioning changing customer sentiment.

“The public has had a massive nudge towards digital channels over the past few months. It’s not a surprise that older groups still prefer more traditional ways of dealing with financial services, and it does highlight a continued important role for branches. However, the pandemic has had the effect of enabling many people to be more comfortable managing at least parts of their finances digitally, and many want to do more than they can currently. Providers will need to understand where and through which channels customers want to do more, accelerate their digital strategies, and ensure excellent customer journeys.”

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What to Know Before You Expand Across Borders

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What to Know Before You Expand Across Borders 2

By Sean King, Director of International Tax at McGuire Sponsel

The American retail giant, Target Corporation, has a market cap of $64 billion and access to seemingly limitless resources and advisors. So, when the company engaged in its first global expansion, how could anything possibly go wrong?

Less than two years after opening its first Canadian store in 2013, Target shut down all133 Canadian locations and terminated more than 17,000 Canadian employees.

Expansion of an operation to another country can create unique challenges that may impact the financial viability of the entire enterprise. If Target Corporation can colossally fail in its expansion to Canada, how might Mom ‘N’ Pop LLC fare when expanding into Switzerland, Singapore, or Australia?

Successful global expansion requires an understanding of multilayered taxes, regulatory hurdles, employment laws, and cultural nuances. Fortunately, with the right guidance, global expansion can be both possible and profitable for businesses of any size.

Permanent establishment

Any company with global ambitions must first consider whether the company’s expansion outside of the U.S. will give rise to a taxable presence in the local country. In the cross-border context, a “permanent establishment” can be created in a local country when the enterprise reaches a certain level of activity, which is problematic because it exposes the U.S. multinational to taxation in the foreign country.

Foreign entity incorporation

To avoid permanent establishment risk, many U.S. multinationals choose to operate overseas through a formal corporate subsidiary, which reduces the company’s foreign income tax exposure, though it may result in an additional level of foreign income tax on the subsidiary’s earnings. In most jurisdictions, multinationals can operate their business in the foreign country as a branch, a pass through (e.g., partnership,) or a corporation.

As a branch, the U.S. multinational does not create a subsidiary in the foreign country. It holds assets, employees, and bank accounts under its own name. With a pass through, the U.S. multinational creates a separate entity in the foreign country that is treated as a partnership under the tax law of the foreign country but not necessarily as a partnership under U.S. tax law.

U.S. multinationals can also create corporate subsidiaries in the foreign country treated as corporations under the tax law of both the foreign country and the U.S., with possibly two levels of income taxation in the foreign country plus U.S. income taxation of earnings repatriated to the U.S. as dividends.

Check-the-box planning

Under U.S. entity classification rules, certain types of entities can “check the box” to elect their classification to be taxed as a corporation with two levels of tax, a partnership with pass-through taxation, or even be disregarded for U.S. federal income tax purposes. The check the box election allows U.S. multinationals to engage in more effective global tax planning.

Toll charges, transfer pricing and treaties

When establishing a foreign corporate subsidiary, the U.S. multinational will likely need to transfer certain assets to the new entity to make it fully operational. However, in many cases, the U.S. multinational cannot perform the transfer without recognizing taxable income. In the international context, the IRS imposes certain outbound “toll charges” on the transfer of appreciated property to a foreign entity, which are usually provided for in IRC Section 367 and subject to various exceptions and nuances.

Instead, the U.S. multinational may prefer to license intellectual property to the foreign subsidiary for a fee rather than transfer the property outright. However, licensing requires the company and foreign subsidiary to adhere to transfer pricing rules, as dictated by IRC Section 482. The U.S. multinational and the foreign subsidiary must interact in an arms-length manner regarding pricing and economic terms. Furthermore, any such arrangement may attract withholding taxes when royalties are paid across a border.

Are you GILTI?

Certain U.S. multinationals opt to focus on deferring the income recognition at the U.S. level. In doing so, they simply leave overseas profits overseas and delay repatriating any of the earnings to the U.S.

Despite the general merits of this form of planning, U.S. multinationals will be subject to certain IRS anti-deferral mechanisms, commonly known as “Subpart F” and GILTI. Essentially, U.S. shareholders of certain foreign corporations are forced to recognize their pro rata share of certain types of income generated by these foreign entities at the time the income is earned instead of waiting until the foreign entity formally repatriates the income to the U.S.

The end goal

Essentially, all effective international tax planning boils down to treasury management. Effective and early tax planning can properly allow a company to better achieve its initial goal: profitability.

If global expansion is on the horizon for your company, consult a licensed professional for advice concerning your specific situation.

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Pandemic risks eclipse treasury priorities as businesses diversify investments to mitigate impact

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The Covid-19 pandemic has shunted aside existing challenges to sit atop treasurers’ priority lists, according to “The resilient treasury: Optimising strategy in the face of covid-19”, a survey run by the Economist Intelligence Unit (EIU) and sponsored by Deutsche Bank.

The results show that treasurers are looking to diversify their investments in a bid to mitigate the pandemic impacts, including heightened liquidity, foreign-exchange and interest-rate risk. As many as 55% plan to increase investments in long-term instruments, with 48% increasing investments in bank deposits, another 48% in local investment products, and 47% in money-market funds.

“The Covid-19 pandemic has drastically altered business plans in 2020. It has placed a certain level of strain on treasury processes, but the challenge it presents has been managed by traditional treasury skills. It is clear that pandemic risk will be on the treasury checklist for years to come, but it is one of many risks the department faces and will continue to manage,” says Melanie Noronha, the EIU editor of the report.

Despite Covid-19 looming large, other challenges wait in the wings. Notably, the replacement of the London Interbank Offered Rate was identified by 38% of respondents as the main challenge of their function.

Technology, meanwhile, continues to be a pressing issue, with treasury teams becoming increasingly reliant on IT solutions. Here, data quality is rising up the list of concerns. Already highlighted as very or somewhat concerning in 2019 by 69% of respondents, the figure rose to 78% in 2020. Acquiring the necessary skill sets to realise the full benefits of this data and technology is also a continuing priority – with some progress registered from last year. In 2020, 30% of respondents say they have all the skills they need to manage technological change, up from 22% in 2018.

“Treasury’s focus on technology is not only helping teams operate more efficiently in a remote-working environment, it has long played – and continues to play – a key role in realising their long-term priorities,” notes Ole Matthiessen, Head of Cash Management, Corporate Bank, Deutsche Bank. The survey shows that

Release 1 | 2  managing relationships with banks and suppliers (highlighted by 32% of respondents) and collaborating with other functions of the business (also 32%) remain top of the agenda – and seamless digital systems will help give treasurers the bandwidth and insight to be more effective partners for both internal and external stakeholders.

Based on a global survey of 300 treasury executives, conducted between April and May, the survey explores stakeholders’ attitudes among corporate treasurers towards the drivers of strategic change in the treasury function – from the pandemic through to regulation and technology – and their priorities for the next five years.

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Digital collaboration: Shaping the Future of Finance

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Digital collaboration: Shaping the Future of Finance 4

By Ryan Lester, Senior Director of Customer Experience Technologies at LogMeIn

With heightened economic uncertainty and increased customer expectation becoming the norm in the banking industry, it is understandable that the sector is struggling to keep afloat. Due to its precarious nature, banking institutions are trying their best to ensure they remain relevant in the competitive landscape and guarantee that their customers continue to be a priority.

When it comes to the first half of this year, the pandemic has shown how easy it is for industries to fail. Customers and companies alike had to get used to the new normal, as physical locations started to close. The banking industry felt this first hand, as banks were made to restructure how their business ran, with restricted opening hours and a wider push to motivate people to use online banking.

While some had already embraced digital options prior to the pandemic, this proved to be a stark contrast to the elderly population, who frequently visited branches to access their finances. Moving forward, banks have to adopt new methods to ensure customers get the most out of our their accounts, without their experience suffering.

Heightened Customer Expectations

When the pandemic reached its peak, people were encouraged to use online banking, as telephone contact was under strain with long waiting times and pressure mounting on contact centre agents. According to Fidelity National Information Services (FIS), which works with 50 of the world’s largest banks, there was a 200% jump in new mobile banking registrations in early April, while mobile banking traffic rose 85%.

With branches remaining closed, customers were continuously being urged to limit the amount of calls they made to the most urgent cases and consider whether they could solve their answers through mobile online banking or checking the company website. Although already being adopted in pockets of the industry, this was a real catalyst that spurred banks to up their game on digital channels and with self-service tools.

Banks are challenged with precariously balancing customer needs with the cost of personalised support. With the demographic of customers changing over the last few years, customers are becoming increasingly younger and more comfortable with technology. Influenced by the “Amazon Effect”, their expectations have raised to an all-time high, placing record strain on the sector

Customer experience isn’t just about support anymore, it’s about serving your customer at every point in the journey. Companies have an opportunity to elevate the experience they provide by moving beyond one-and-done interactions to create continuous engagements with their customers. It is starting to become a primary competitive differentiator in the market and one that doesn’t have a lot of variation. Deploying AI chatbot technology will be able to strategically help banks improve customer experience and raise the level of support that agents provide.

Digital collaboration: Working around the Clock

The benefits of adopting digital channels and self-service tools are second to none. By implementing chatbots, fuelled by conversational AI, banks will be able to help serve a wide range of customer queries and ensure they are protected from fraud and scams.

Ryan Lester

Ryan Lester

Conversational AI is exactly what it sounds like: a computer programme that engages in a conversation with a human. When it comes to service delivery, conversational AI can be deployed across multiple channels to engage with customers in ways that effectively address evolving customer needs. At a time defined by COVID-19, self-service tools such a conversational chatbots can work around the clock to solve customer queries in a concise and timely way. Of course, self-service tools won’t completely replace human agents in the banking industry, but they will help companies re-distribute customer traffic and workflows in ways that enhance customer experience. Self-service tools fuelled by conversational AI can also improve employee experience because service employees can handle fewer, but higher-level service tasks that chatbots might escalate to them.

Adopting new tools to help facilitate consistent and concise answers and help maintain customer experience is on the forefront of many industry minds. Banks such as the Natwest Group have seen this first-hand and are testament to the benefits that a good digital experience can provide. Simon Johnson, Capability Consultant, Digital at NatWest Group highlights NatWest’s use of digital tools during lockdown, “Over the last few months, we’ve learnt how to use digital tools to help our employees remotely. From a banking perspective, there have been a lot of changes including base rates, waive fees and the best ways of contacting our vulnerable customers, ensuring we keep them protected from frauds and scams.

“By introducing our Bold360 chatbot interface, Ella, we’ve been able to get relevant information out quickly, apply the best practice and ensure that our customer journeys are being developed correctly. Due to the volume of questions, some of our customers were finding themselves waiting longer than usual. So digital channels become essential to helping reduce the wait time. Using Bold360, we were able to mitigate issues and answer questions in a more timely way through our chatbot.

“Moving forward, as we open more digital services, we are analysing our data to see if customer will return back to their usual way of banking, now that they’ve seen what a good digital experience can provide. Either way, with Ella, we are ready.”

Chatbots and Humans: The Best Option for Customer Service

Over the last year, banking institutions have recognised the power that digital collaboration can have to their success. Delivering exceptional customer service and support is key for any business wanting to stay competitive in today’s market and banks are especially challenged with precariously balancing customer needs with the cost of personalised support. Leveraging the right technology, such as AI-powered chatbots, will enable the banking industry to provide better support and a more robust customer experience in the long term. Other institutions must follow suit, or risk becoming obsolete.

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