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Current trends in consumer and business lending, driven by the COVID-19 lockdown and its effect on the economy

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Current trends in consumer and business lending, driven by the COVID-19 lockdown and its effect on the economy 1

By Fabrice Gouttebroze, Managing Director of S&G Services, part of Sirma Group.

COVID-19 has had an unprecedented impact on our lives, and it has caused significant economic hardship. This highly infectious disease has pushed the world to the brink of the most severe recession in recent history.

Governments, financial institutions and global bodies have stepped in quickly to mitigate the economic impacts of COVID-19 as far as they can.

Governments have responded

The lockdown periods around the world have caused a complete disruption to business and usual ways of life.

Governments and central banks have instigated a range of policies and support packages to help their countries through this sharp drop in economic activity. Officials want to avoid a full-scale financial crisis at a time when they are already battling health and economic issues.

In the UK, the Bank of England dropped its rates to a record low of 0.1%[1] and relaxed banks’ capital requirements. Reports estimate that the UK’s efforts to keep its economy going could cost £298bn for the current financial year or even as much as £337bn[2].

In the US, the Federal Reserve committed to take every means possible to reduce the impact of the virus on the economy. The Senate approved a $2 trillion stimulus package[3] which includes payments to individuals, financial support for businesses, increased employment benefits and support for health care providers. Regulators have also eased the rules on lending.

The International Monetary Fund has set aside $100 billion of loans for countries facing economic crises[4].

Lenders have been supporting borrowers

Banks in several countries are offering deferred payments on credit cards, loans and mortgages for consumers and businesses facing hardship due to COVID-19. For example, UK financial providers froze interest on loans, overdrafts and credit cards for struggling consumers and business from mid-April to 31 October 2020. Consumers have been supported with reduced or deferred repayments and interest-free overdrafts of up to £500 to get them through periods of lower earnings. UK Finance reported that financial providers granted 1.6 million payment holidays as of 24 April 2020[5].

However, these efforts may only be enough to keep the individuals in their homes and businesses operating in the short term. If economic conditions remain challenging, then their hardship could continue for much longer.

There are also some signs that the availability of credit is decreasing. In the US, Wells Fargo and JPMorgan Chase have paused offering home equity lines of credit [6]and other providers have suggested that finance for small businesses could be harder to secure.

Open banking is increasingly important

COVID-19 has increased the financial industry’s focus on digital offerings and increased demand from consumers to use them. With bank branches shut and long waiting times for phone support, even previously nervous digital users have turned to these channels.

According to PYMENTS.com, the number of accounts opened through digital channels was up 200% in April 2020, and mobile traffic had increased by 85%. These are trends which could last, as only 40 per cent of bank customers are intending to return to branch banking post-COVID-19[7].

Banks have to respond by putting increased efforts and resources into developing their digital channels. One of the key pain points for customers is the onboarding process where only part of the process has been digitalised. Many customers still need to go to a branch for ID and verification.

A recent study of financial institutions (FIs) in North America by ISMG and OneSpan highlighted that improving the customer experience is their top business objective for digital account opening in 2020.[8] For 49% of respondents, the biggest obstacle for to digital account opening for FIs was legacy, manual ID verification and 35% found that knowledge-based authentication tools had become a point of friction to onboarding.

Banks are realising that partnerships with technology providers are critical to making progress with digital onboarding. Most lack the digital expertise and agility to achieve this in-house.  41% of respondents in ISMG’s survey planned to invest in new or existing partnerships to deliver a better digital onboarding experience.

The time to act is now and two Canadian banks have already announced they will be introducing biometric tools into their mobile onboarding processes.

The economic outlook is uncertain

Data from The World Bank has predicted a 5.2% reduction in GDP in 2020, making it ‘the deepest global recession for decades, despite the extraordinary efforts of governments…’[9]. The OECD’s data suggests that the economies likely to be worst hit in 2020 are France, Italy and the UK[10].

At this stage, no one can accurately predict how soon the economy will recover from the effects of COVID-19. It seems more likely that we’ll see a new normal as lockdowns ease and finish, but some of the practices, such as working from home and reduced consumer spending, may continue.

It will take time for consumers to feel confident doing all the activities that they used to, such as eating out, going to concerts and travelling abroad. Businesses and financial providers must adapt to changing customer habits and ensure that their online offerings are robust and customer-centric.

[1]https://www.theguardian.com/business/2020/mar/19/bank-of-england-cuts-interest-rates-to-all-time-low-of-01

[2]https://www.bbc.co.uk/news/business-52663523

[3]https://www.wsj.com/articles/trump-administration-senate-democrats-said-to-reach-stimulus-bill-deal-11585113371?mod=article_inline

[4]https://www.europarl.europa.eu/news/en/headlines/society/20200416STO77205/covid-19-s-economic-impact-EU100-billion-to-keep-people-in-jobs

[5]https://www.ukfinance.org.uk/press/press-releases/lenders-grant-1-6-million-payment-holidays-to-mortgage-holders

[6]https://www.forbes.com/sites/brendarichardson/2020/05/04/wells-fargo-joins-chase-in-suspending-applications-for-home-equity-lines-of-credit/#3b5342e64921

[7]https://www.pymnts.com/news/ipo/2020/albertsons-proceeds-with-pared-down-800m-ipo/

[8]https://www.onespan.com/resources/ismg-state-digital-account-opening-transformation

[9]https://www.worldbank.org/en/news/feature/2020/06/08/the-global-economic-outlook-during-the-covid-19-pandemic-a-changed-world

[10]https://www.oecd.org/economic-outlook/june-2020/

 

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Finance

From fundamentals to digital evolution: Deutsche Bank and ACT release comprehensive guide for treasurers

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From fundamentals to digital evolution: Deutsche Bank and ACT release comprehensive guide for treasurers 2

The Association for Corporate Treasurers (ACT), in partnership with Deutsche

Bank, has today announced the release of “The Group Treasurer: An ACT guide to the first 100 days”, which provides valuable insights on the role of the treasury function – serving as an in-depth guide to those moving into senior treasury roles for the first time, as well as a valuable refresher on the latest developments for treasury professionals.

Treasury departments are often staffed by people who move across from other finance disciplines and, for them, navigating their first 100 days – with a host of new, often alien, concepts and the need to quickly get up to speed –can be a challenge.

The Guide serves as a complete compendium of the crucial, need-to-know information – starting with the basics, including the role of treasury, how departments are set up and what you need to know about treasury policy, before moving on to a series of deep dives into the critical features of life in treasury, including all you need to know about cash and liquidity management, the innovative technologies that are driving change, as well whether an in-house bank is right for you. Scattered throughout the Guide are useful insights from treasury professionals across a wide range of industries and geographies – providing best practice advice for gaining maximum benefit from your time in treasury.

“We have looked to create a guide that goes back to basics – and the ACT seemed the perfect partner for this” says Ole Matthiessen, Global Head of Cash Management, Deutsche Bank. “While the ACT can provide treasury professionals with training and qualifications necessary for a successful career, Deutsche Bank, in its role as a trusted advisor, can provide up-to-date insight on the options available for treasurers in the market.”

The Guide is also a reaction to the sweeping changes seen in treasury over the last few years. With new processes and technologies moving centre stage, the Guide seeks to provide treasury professionals with a concise “refresh” of the latest developments – especially for perennial challenges, such as the availability of liquidity.

Release 1 | 2  “I hope readers will find the Guide a useful tool” says Caroline Stockmann, Chief Executive, ACT. “And remember: the ACT is here to support you, whether you are a member or not, as our Mission is to embed the highest standards of professionalism and integrity in the treasury world, and act as its leading advocate.”

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Finance

Satisfaction with Credit Card Issuers in Canada Remains Flat Amid COVID-19, J.D. Power Finds

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Satisfaction with Credit Card Issuers in Canada Remains Flat Amid COVID-19, J.D. Power Finds 3

Tangerine Bank Ranks Highest in Overall Credit Card Customer Satisfaction for Second Consecutive Year

With 73% of credit card customers in Canada saying COVID-19 has negatively affected them financially and 24% who say they are unable to make monthly credit card payments, overall satisfaction with their primary credit card issuer remains relatively flat year over year at 764 (on a 1,000-point scale), according to the J.D. Power 2020 Canada Credit Card Satisfaction Study,SM released today.

“While credit card issuers in Canada are faring somewhat better than their U.S. counterparts in averting the negative effects of COVID-19 on customer satisfaction, they are not out of the woods,” says John Cabell, director of banking and payments intelligence at J.D. Power. “Credit card companies are falling behind in key areas related to the customer experience, especially in factors linked to financial sensitivity and customer support channels, which are crucial during the pandemic.”

According to the study, despite a one-point increase in overall satisfaction from 2019, credit card issuers have experienced a year-over-year decline in key performance indicators (KPIs) related to interactions with credit card customers, such as showing concern for customer needs; appreciating customer business; problem-free experiences; card activation; and reward redemption. As a result, satisfaction is down 12 points in assisted online experience and down 11 points for call centres.

More than half (55%) of cardholders acknowledge COVID-19 has changed their card usage habits, mainly by spending less. Understanding customers’ needs and addressing their changing priorities can help card issuers to mitigate future decline in satisfaction and elevate loyalty. The study shows that offering free or discounted services in response to COVID-19 are the actions driving a more positive impression of the issuer (39% and 35%, respectively), followed by gestures such as employee support (33%); waiving fees (32%); and community support (32%).

“The pandemic presents an opportunity for issuers to align their card services and benefits with customers’ evolving needs,” Cabell said. “Issuers can increase the perceived value of the card and strengthen loyalty. Offering discounted airline tickets or free airport lounge access is probably not as lucrative these days for cardholders as, for example, it would be to extend the duration of annual fees.”

Following are additional key findings of the 2020 study:

  • Satisfaction declines with household income: With 29% of cardholders earning less during the pandemic, many are looking for relief from their credit card company and are more critical of card issuers. In fact, credit card satisfaction among customers whose household income has declined due to the pandemic is lower than among those whose income remained unchanged. The largest gaps in satisfaction are in rewards (-12 points); benefits and services (-11); communication (-8); and customer interaction (-8).
  • Call centre woes: The pandemic has put a greater strain on call centres, which has negatively affected satisfaction. Caller wait times jumped to more than 12 minutes during the pandemic compared with less than 8 minutes prior to the pandemic. Also, caller satisfaction with the level of courtesy exhibited by call centre representatives declined significantly, which calls out the need for card issuers to restore best practices among their reps and identify better ways to manage customer support.
  • Cardholders are digitally savvy: Nearly two-thirds (64%) of cardholders solely rely on digital channels to manage their primary credit card activities, and those cardholders are more likely to say it is easy to understand information about their account and do business with their issuer than do cardholders who do not rely solely on digital channels. In fact, one of the bright spots in the study is improvements in customer satisfaction with mobile and online interaction of 8 points and 7 points, respectively, from 2019.

Study Rankings

Tangerine Bank ranks highest in overall customer satisfaction with a score of 825, which is 61 points higher than the industry average of 764. American Express (801) ranks second and Canadian Tire (793) ranks third.

The Canada Credit Card Satisfaction Study measures satisfaction of cardholders’ primary credit card issuer. The study measures performance in six factors critical to the customer experience (in alphabetical order): benefits and services; communication; credit card terms; customer interaction; key moments; and rewards. The study includes responses from 6,728 cardholders who used a major credit card in the past three months and was fielded in May-June 2020.

Satisfaction with Credit Card Issuers in Canada Remains Flat Amid COVID-19, J.D. Power Finds 4

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Finance

The impact of the Accounts Payable risk landscape

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The impact of the Accounts Payable risk landscape 5

By David Thorley, Director of Customer Development, FISCAL Technologies

The current economic climate has never been so uncertain. Not since the 2008 financial crash has there been a period where organisations are mindful about how the markets will play out and the effect this will have on economies around the globe. As a result, organisations have become increasingly conscious about the way they spend money, but they have also become more aware about how they save money.

The Accounts Payable (AP) department aims to reduce the amount of money lost in an organisation, making sure all payments are completed on time and are done so correctly, but this is unfortunately not always the case. For example, half of large organisations have duplicated or misdirected a payment to suppliers. This roughly accounts for £3 million being directed to the wrong supplier and resulting in a long and lengthy process in getting this money reclaimed.[1] On top of this, 33% of organisations experience internal fraud every year, with an average loss of half a million.[2]

Therefore, it is clear that in almost every financial department things slip under the radar, but what are some of the risks in the AP department and how can they impact a company?

Lost opportunities reducing income

The capacity for AP resources to work on higher value activities is reduced due to error and query resolution, this can range from anything from chasing up suppliers to looking for a misplaced document. As a result, those within the department are limited to what they can do due to these mundane, repetitive tasks.

Ultimately, lengthy pre or post audit activity reduces the ability of the business to transact, limiting growth and reducing competitiveness, all of which can be avoided if the correct tools are in place.

Financial penalties

In some geographies and industries, errors and adverse findings in statutory audits can lead to financial penalties. These penalties can be anywhere from a few thousand pound to tens of millions. Just last year a leading consultancy was fined almost £20m for poor auditing. Payment Policy infringements can reduce an organisation’s ability to bid for certain types of contracts; critical infrastructures for example, which can have a significant impact on the way an organisation operates.

Restricted cashflow

Payment errors and fraud directly affects the bottom line, which can result in a major impact in the financial reporting. Often financial reporting is skewed resulting in liquidity and profits being reduced. In public sector organisations, these lost funds reduce the capital available for frontline services, which can not only impact the quality of service provided but could also affect the reputation.

Increased processing costs

Invoice exceptions prevent supplier invoices being processed automatically. AP staff spend an inordinate amount of time checking, correcting and managing invoice exceptions, which significantly increases processing costs and time. Given the current climate, this time and money could be put to better use, helping a company grow and expand.

Audit administration

Organisations making overpayments – paying duplicate or incorrect invoices – and fraud are a common problem. Together, these account for between 0.5% and 1.5% of the number of invoices processed, with the cost running into millions in many cases.[3]

As a result, whenever an audit is conducted, the AP team spends time finding and providing information and documents. The more issues that are found, the more time audits take to identify and recover lost cash.

Wasted time

AP teams will frequently need to check supplier records during their normal transaction processing. Large, unmanaged MSF hold numerous duplicates and no-longer-required records that create more payment errors and hours spent investigating and resolving queries.

Reputational damage

Whether a private or non-profit organisation, fraud, errors, compliance breaches or poor financial results all heighten the risk of reputational damage for the organisation generally and the finance director in particular. The reputational damage caused by a high profile incident of fraud can be significant, affecting the business’ credibility and even the share price.

The shockwave from fraud can be more damaging than the financial loss. After a fraud is discovered, considerable time will be taken up investigating every new potential risk of fraud. Whatever the outcome of the investigation, this is an unwelcome distraction for the managers concerned. But, more importantly, the effect on morale and belief in the leadership’s capabilities throughout the organisation – not just the finance team – will be harmed.

Managing these risks

AP assures the protection of cash within an organisation, identifying risks and resolving them. To do this effectively and efficiently it’s imperative AP departments have the correct tools in place to ensure they follow a simple process that allows them to save time and money, helping their organisation both in the short and long term

[1] (The Hackett Group, Key Issues Study 2020)

[2] Source: https://www.qsoftware.com/fraud-prevention-and-detection/erp-fraud-prevention-key-measures/

[3] https://www.cfo.com/payments/2020/03/metric-of-the-month-detect-and-prevent-duplicate-or-erroneous-payments/

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