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Coronavirus gives a changing perspective

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Coronavirus gives a changing perspective

By Mike Hampson, CEO of Bishopsgate Financial 

The shock to the global economy from Covid-19 has been more severe than the 2008 global financial crisis and even the Great Depression. These previous episodes shook the world, saw the markets collapse and caused credit markets to freeze all in a few years. However, the current situation only took three months to shut down the globe country after country. Now, while many countries are opening up again, we need to be cautious. As has been said, we’re probably just at the end of the beginning.

Writing in the FT, John Flint, former chief executive of HSBC said: “think about a crisis not as a single event, but as a series of episodes much like waves breaking on a beach.” This pandemic illustrates why regulators have spent the past decade pushing the banks to demonstrate resilience. After all, this is all about being able to prevent, adapt, respond, recover and learn from a series of disruptions. All much-needed in the current situation.

Earlier this year, we published our Change Perspective Report looking at the factors driving change in the banking industry. One of our key findings was the need for banks to focus on their operational resilience to ensure they can continue their operations through disasters, crises or extreme events. Who knew that weeks later, those plans would be tested for real.

Banks and other financial institutions worldwide are facing unprecedented challenges. Not only are they providing services as usual during a time when this has become more difficult; they are also tasked with being the conduit for distributing funds from central banks to those in need, as well as providing support to anxious customers. Beyond this, none of the challenges the sector faced in February have gone away. Here’s a brief run-through of some of the issues facing financial services:

Digital Transformation

Mike Hampson

Mike Hampson

The year ahead is likely to be defined by the digital transformation at pace and scale as seen when banks moved to home working. Some organisations have struggled to get this up and running, with banks rushing to buy thousands of laptops at short notice, internet bandwidth issues causing costly delays when executing trades, along with infrastructure limitations around platforms used to facilitate remote access. Yet in general, this shift has been achieved smoothly.

Because of this, finance directors will be looking at the potentially huge savings that can be realised by reducing office space if working from home becomes the new normal for large parts of the workforce.

With people handling sensitive data while working off-site, cybersecurity becomes a key consideration. Our data shows that 95% of firms see it as a priority. With revelations about data breaches regularly appearing in the press, banks are becoming acutely aware of the risk of pushing digital innovation without also rethinking and investing in security.

Culling of Challenger Banks

Over the past few years, we have seen the headlines announcing launch after launch of start-up, digital-only banks. Yet in the current environment switching banks is on no one’s priority list. This crisis could see a clear-out of fintech start-ups in the same way that the .com bust earlier this century removed many of tech start-ups, wiping out hordes of large and exotically valued businesses.

Customers and clients need stability from their bank, and it is not clear what the long-term outlook for challengers will be. Most, if not all of these, are heavily loss-making. Monzo and Starling have already furloughed a large number of their staff (while still running expensive TV advertising campaigns). N26, which had 200,000 customers, closed in the UK in mid-April.

The number of challengers also presents problems, and even without COVID-19, consolidation would have been likely. At the same time, incumbents have been closing the gap between their offer and that of the newcomers. Retail banks have dramatically improved their digital services and thus there’s no reason to swap.

Coupled with this the challenger banks have lower lending volumes and so they are more exposed to external elements than traditional banks.

When all this is added up, and as we enter a new age of anxiety, the future for challengers looks bleak.

Regulations

Three key topics continue to dominate the regulatory agenda: anti-money laundering, privacy and financial crime.

However, in March the UK’s financial regulators announced that various regulatory work would be postponed, alongside 2020’s bank stress tests being cancelled. This is to allow banks the space to focus on customer needs during the COVID-19 crisis. This breather is no doubt welcomed and appropriate. That said, the Prudential Regulation Authority announced that EU withdrawal and climate change operational resilience remain priorities, and that work will continue on these.

Compliance remains at the top of banks’ to-do lists, and financial crime remains a significant concern.

Reports of phishing attacks and fraud are on the rise, with criminals swiftly adapting and using corona-led messaging to con people out of money. Under the guise of panicked money movement, there are less obvious financial crimes happening, too.

As fraudsters seek new ways to launder proceeds, regulators will continue to expand the scope of their vigilance and banks will look to ways to identify and stop criminal activity. While banks become more mature in their approach to identifying and understanding clients, some are beginning to consider ‘’perpetual KYC’’ as a solution to client data needs. Besides, there is a lot of effort being expended on Artificial Intelligence and Robotic Process Automation solutions to reduce the need for large teams and manual processes.

Flexible Workforce

The current environment once again highlights the need for a flexible workforce across the economy. No sooner has the government clamped down on IR35 than we run straight into a situation where flexibility would have benefited businesses, the economy and individual workers.

The banking industry relies on a flexible, multi-skilled workforce that enables it to implement change programmes successfully and cost-effectively. This creates a constant drive to maintain the appropriate workforce mix and, with potential legislation affecting the supply of skilled workers, banks are looking at strategies to help them maintain access to the talent they need.

Employee Wellbeing

77% of respondents of the Change Perspective report listed employee wellbeing as a key factor. Mental health and stress at work can manifest itself in many ways and large numbers of companies have upped the support available to their people.

By broadening the conversation to talk openly about both work-related stress and personal life events, organisations are seeking to provide a more supportive environment for their staff. What’s more, there’s an open acknowledgement of the performance benefits a healthy workforce can bring.

While change is a constant, the current pace and impact are beyond anything anyone could have forecast. Yet, change leaders are flexible, resourceful planners able to respond rapidly to organisational and systemic challenges.

Which is lucky as they’re about to feel the heat.

Finance

Data Unions, fisherfolk and DeFi

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Data Unions, fisherfolk and DeFi 1

By Ruby Short, Streamr

In the fintech world it seems every month there’s a new trend or terminology to get acquainted with. From just learning about cryptocurrency a few years ago, to the crazy boom markets of 2017-18, the market has now moved on to DeFi, or Decentralised Finance to those less in the know.

It’s a trend which is gathering momentum, too – $275m of crypto collateral was invested in the DeFi economy in early 2019, but by February of this year it hit $1 billion, and by the end of July this number had risen to $4 billion.

According to crypto exchange Binance, DeFi refers to “a movement that aims to create an open-source, permissionless and transparent financial service ecosystem that is available to everyone and operates without any central authority.” Essentially it gives full asset control to those who use it, whether this is through peer-to-peer models or DeFi applications.

These apps, known as DApps, run on a blockchain network meaning they’re not controlled by a single authority. And as they are also Open Source, they are publicly available – characteristics that make transactions quicker, more affordable and more efficient than their centralised counterparts, where data is stored on servers managed by one authority (think traditional banks).

So why is DeFi getting so much attention?

DeFi is exciting for many because it gives more people more control over their money. Where much of the financial sector is traditionally centralised it inherits bias, thus restricting many people from their funds and what they can do with it.

With this approach, anyone can make investments or get into trading much more easily, and, most importantly, keep control in the hands of the user and not large corporations.

One of the preliminary benefits of this control is the improved visibility we gain over our financial data. In fact, any data we produce in general, whether online or through smart devices is predominantly controlled by giant centralised platforms such as Google and Facebook. In many cases users are unaware of where this is being sold on, or at least have been up until now.

As with DeFi and DApps, a way to decentralise this control has been introduced – in the form of Data Unions. A relatively new concept, this is a framework that enables individuals to bundle together their real-time data with others to create valuable insights which can be sold on, offering each the chance to earn revenue. It is helping businesses and individuals realise the value of the information they produce.

How does it work?

Our data on its own holds little value, but once bundled with multiple data sets from other people and sources and combined in a Data Union, it becomes an attractive set of insights to buyers who can use it to improve their market knowledge, product or service.

Data is shared through an app on the device or object via Streamr’s Data Union framework, a toolbox, which any developer or company can integrate into their existing products. It also allows individuals to choose which particular data types they share and monetise, and which they keep private.

This information then passes, encrypted, through the Streamr Network, to the Data Union where it’s bundled with others’ data for sale on the Marketplace – a process called crowdselling, which has the potential to generate unique data sets by incentivising trade directly from data producers.

What’s more, Data Unions can be set up to capture any form of data. For instance, a music streaming company could commission their own app where users could sell their listening and genre habits paired with their demographic info.

What has this got to do with DeFi?

Data Unions can help provide a means of DeFi direct to the people that need it most.

To break this down, a Data Union is beneficial because it enables any internet user to be paid for their data, which is unlike any data tax that has been proposed by many politicians. And, the advantage of a DeFi solution is that anyone can get paid from it because the finances are no longer dependent on their jurisdiction, but on which products they are using. Putting these together can have endless benefits.

We’re already seeing this happen, with a framework being used to improve the lives of financially marginalised groups. Tracey is a blockchain enabled Data Union working in partnership with WWF.

The application incentivises Filipino fisherfolk to record their catch and trade data digitally through direct data monetisation via the Streamr Marketplace. This data makes the first mile of their seafood products through the supply chain, traceable. With regional fish stocks declining, accurate catch yield data is a desirable insight for third party members such as retailers and final buyers.

The benefits of this model are twofold. Many fisherfolk in the Philippines are unbanked, meaning they don’t have a bank account. Trading this data gives them access to finance and loans previously out of reach, changing them and their family’s livelihoods. It also enables a self-sustaining ecosystem that captures accurate traceability data and helps these areas monitor their overfishing levels for more sustainable fishing.

What does this mean for us for the future?

We’re seeing a lot of momentum building around all forms of online decentralization,and the potential is huge. Over the coming years we will see these systems become ever more integrated into the existing internet stack, which will profoundly impact our possibilities online. Soon, it will become normal to take part in the internet’s data economy.

We see internet users becoming members of several Data Unions and have a range of different options to choose from that best suits them and their data sets. Personal data monetisation will no longer be a privacy issue we’re all suffering under, but rather a question of whether we want to sell our data or not. Users will have the freedom to choose for themselves if they want to sell their data or not and ethical data sharing will become the norm.

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ECOMMPAY expands Open Banking payments solution to Europe

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ECOMMPAY expands Open Banking payments solution to Europe 2

Open Banking by ECOMMPAY facilitates fast, secure and simple payments 

International payment service provider and direct bank card acquirer, ECOMMPAY, has today announced the expansion of its payment system Open Banking by ECOMMPAY to Europe. The solution allows consumers to initiate online payments to merchants.

Open Banking by ECOMMPAY leverages Open Banking technology, which enables third-party providers to access banks’ data to provide payment initiation through API connections. The news comes as research by the Open Banking Implementation Entity recently showed that uptake of Open Banking has doubled over the past six months, with more than two million consumers making use of the data-sharing service.

ECOMMPAY’s solution will allow consumers to connect to over 4000 banks in more than 28 European countries, while merchants can accept payments from customers in real-time, directly to their bank account. The solution is available in the UK, Latvia, Estonia and the Netherlands, and will be rolled out to further countries soon.

Benefits for consumers as well as merchants

For shoppers, Open Banking by ECOMMPAY means confidential information is accessed in a secure manner, compliant with GDPR requirements. Financial data is stored in one place so that credit decisions on loans or other transactions can be made promptly. Purchases can be made easily via smart devices, and consumers simply log in to their online banking via their mobile app to approve payments.

Merchants benefit from access to new infrastructure for payments. Without the need for credit or debit cards, chargeback risks due to fraud or an inability to capture funds are eliminated, while card fees are cut too. As the process does not require intermediaries, the payment process is efficient, and can also be customised by region, currency and other localised requirements. While banks usually have full control over the services customers need such as loans or transfers, Open Banking brings these decisions under a single administration.

Simplified European expansion

Historically, businesses growing into new markets would require a local banking relationship to facilitate the collection of direct debit payments, and face multiple complications around legal requirements, licenses and compliance. However, Open Banking by ECOMMPAY allows companies to use one efficient, cost-effective and simple payment solution to expand within Europe.

Paul Marcantonio, Executive Director of ECOMMPAY, commented: “Open Banking is revolutionising the way we pay, and the recent growth in its use indicates people are looking for more payments choice. Open Banking for Europe by ECOMMPAY will allow us to cater to the increasing number of people taking advantage of this secure, real-time and simple payment technology. Our solution will let merchants quickly expand into new markets and accept payments directly from customers’ bank accounts.

“With the pandemic shifting businesses online faster than ever before, the need for fast, safe and secure payment methods is growing. There is an urgent need to cater to a variety of payment methods, and at the same time to counter fraud and cyber-crime.”

ECOMMPAY has enjoyed steady growth since its launch in 2012, and has built a global presence with six international offices and operations in key markets including Asia, Europe, Africa, Russia and the UK. The company is a principal member of Visa and Mastercard, and a member of Visa Direct and MoneySend, as well as being the first payment provider on the PayPal Commerce Platform and the first acquirer to implement a Mastercard Dashboard.

The company will be hosting a webinar on Open Banking on 10th December. ECOMMPAY and its host speakers will look at the different opportunities that open banking brings for businesses, the challenges faced implementing it, and how to make it work from every business angle. Key topics will include how Open Banking will impact online business in the future, the effect of Brexit and Covid-19, and how to become an early adopter.

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The Hidden Costs of International E-commerce

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The Hidden Costs of International E-commerce 3

By Gavan Smythe, Managing Director, iCompareFX

Taking a business globally can be an attractive prospect, potentially targeting markets with fewer competitors, taking advantage of a larger consumer base and even gaining access to cost-effective manufacturing resources.

However, it’s not as simple as just shipping product overseas. Successful international traders conduct extensive market research, understanding each region’s barriers to entry – whether it’s regulations around communication and marketing, finding key contacts in supply chain management or navigating legal and cultural restrictions.

This also means identifying the hidden costs of international trading, which threaten the bottom line of businesses.

The price of peace of mind

Online trading isn’t without its complications. Buying online means handing over confidential bank or card details and, without the right protection in place, it can leave consumers open to theft and fraud.

That’s why e-commerce payment services include a gateway model, which secures transactions by encrypting the cardholder’s details and managing the payment process for the merchant.

However, like any specialist service, merchants pay to keep this sensitive data safe. Gateway fees are typically calculated as a percentage of the transaction amount. And while this payment model is useful for SMEs – helping them efficiently scale – it represents an additional cost that many business owners don’t account for.

Those tempted to simply roll out the cheapest service risk damaging their reputation by potentially being an unsafe seller and one which undervalues its customers. This will eventually impact revenue, as customers look elsewhere, and merchants navigate the costly time spent ironing out problems with insecure payments.

When it comes to choosing a payment gateway service, key considerations should include working with a provider which operates across the same regions and checking contract terms. Some providers may charge set-up fees, monthly subscription fees or implement a blanket charge if a minimum volume of transactions isn’t met.

Merchants should also consider whether to use a direct or indirect payment gateway. While direct payment gateways allow consistent branding with customised design and copy, it may cost extra to integrate the service with an existing website.

Indirect gateways take users away to a separate payment portal on a different page. This is cost-effective to install and can appear more secure to users as they may be using a familiar and trusted payment gateway brand

Calculating conversion fees

As a business owner, payment gateway solution providers charge a number of percentage fees. While for sellers in domestic markets the fee structure can be quite simple, for online sellers in overseas markets, the fee structure becomes complex.

For example, as an international online seller, you can be subject to additional costs for processing international cards, plus additional currency conversion costs back to your business’ home currency.

In some circumstances, this can cost up to 9 percent of your sale revenue. A business has the choice of passing these costs on to the customer or to reduce its profit margin in international markets.

Businesses shouldn’t rush when it comes to choosing a provider. Taking the time to review and compare what’s out there puts them in a stronger position to choose the perfect match.

Providers vary in their offerings, from the regions they operate in, to their fees and exchange rates and even transfer speeds. Those who value trust and transparency may be willing to pay slightly higher to work with a provider which offers exceptional customer service standards, helping them navigate the currency exchange process.

For those moving into multiple markets, it’s worth using a comparison service or tool to make sure they’re partnering with the right provider for each currency pair and region, as it’s unlikely a single provider will offer a blanket ‘best solution’ across the global market.

The role of multi-currency accounts

Having looked at the impact of currency conversion fees, what can businesses do to mitigate these costly charges when it comes to trading in an increasing number of currencies?

Opening a multi-currency account allows businesses to access the speed and affordable conversion costs needed to make the most of international trading. They allow businesses to access unique local banking details in foreign countries and all balances and transfer controls are accessible within a single dashboard.

Not only are the conversion fees associated with these accounts much lower compared with transferring currencies between bank accounts but it’s also quick and efficient – allowing businesses to access funds almost instantly and pass this convenience on to customers.

Specialist money transfer companies that offer multi-currency account solutions offer these services at no monthly cost. Simple and low-cost fee structures are applied on currency conversion and outgoing funds. And incoming receipts of money transfers don’t cost a penny.

Not all multi-currency account solution providers offer access to the same currencies. Furthermore, not all payment gateways offer support for payouts in multiple currencies. Businesses should conduct an assessment of current and future customer and supplier locations to choose the most appropriate solution provider.

Conducting an internal risk assessment helps businesses decide which multi-currency account makes sense for them, based on key requirements, like the number of supported currencies, target regions, potential overdraft facilities and ease of transfers.

Managing international suppliers

In many industries, international e-commerce is not as simple as just sending products to different regions. Logistics and legal regulations across the world mean businesses are often required to work with local specialists to deliver their service or offering.

This may mean working with local manufacturers to produce products in each region or simply partnering with local marketing, PR or advertising professionals to create culturally sensitive brand awareness in the native language.

In these cases, the business becomes the customer. They are required to make payments in multiple currencies as they manage their global operations.

For example, UK bank accounts charge relatively large fees to make payments in foreign currencies and these soon add up when running operations around the world.

This is where multi-currency accounts again prove fruitful. Not only do they allow businesses to hold multiple currencies – which is ideal for sellers – but they can also send money to other accounts with minimal fees if they’re in the same currency.

Paying suppliers in the same region as their customer base can remove the double currency conversion by receiving payment gateway payouts in the foreign currency and paying out of the multi-currency account in the same currency. No currency conversion is necessary in this scenario.

Businesses able to identify all these costs and admin fees up-front will be best placed to get the most value from the research and comparison stage when comparing providers.

Ultimately, they’ll achieve the lowest possible fees for each market, currency and transaction.

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