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Delivering services to the unbanked through Corresponsal Banking

Mike-Alford
By Mike Alford, CEO of Alaric International

Central and Latin America are seeing the rapid growth of ‘corresponsal banking’. This is where retailers, with a wide geographic presence outside of the urban centres, are using a correspondent relationship with major banks to provide a broad and increasingly diverse range of banking services at the point of sale. Mexico is leading the charge and its citizens are benefitting from the convenience that corresponsal banking offers.Mike-Alford

Mike Alford the CEO of Alaric International believes that this trend points the way for many Western economies.  However, corresponsal banking organisations now have rigorous demands for the payment systems required to support such an increasing range of services.  With Alaric’s Authentic payment system already meeting these criteria with Central American retailer Grupo Sanborns, he draws on his own company’s experience to explain the benefits and demands of this retail based form banking service provision.

The payments market in Central and Latin America has some special characteristics which may serve to inform or even inspire developments in other parts of the world. Most governments in the region want to encourage their populaces to become banked to improve money circulation, to foster economic growth and, last but not least, to enable them to get a level of control over the cash economy and thus improve tax revenues.

Taking Mexico as just one example, there is a large unbanked population, with just 25 million bank account holders out of a total population of 120 million. Thus, with the proliferation of mobile phone usage (in total some 70 million handsets in Mexico) cell companies are vying to offer mobile banking services and to encourage their clients to become banked.

In addition, the banking infrastructure is predominantly urban in all the region’s countries. Mexico is no exception. Consequently, there is little in the way of a traditional branch network in remote locations or in those areas with difficult terrain. With only about 150 branches per million population in Mexico compared to nearer 400 or more in countries like the United States, Germany or France, the limited branch network is a serious handicap in reducing the unbanked population.  With the Mexican government’s active encouragement, this has given rise to the concept of ‘corresponsal banking’.

Corresponsal banking enables retailers with a wide geographic presence to have a correspondent relationship with one or more banks and therein to enable their clientele to perform a range of banking transactions in-store at the point-of-sale.At the most fundamental level,this delivers services such as balance enquiries, transfers, bill payments and also withdrawals. And it is important to note that these are account based banking services and not just an extension of the standard card transactions.

It has proved be a very popular development and as a result there has been significant growth in the provision of these retail based banking services. Many people prefer to withdraw money in-store rather than from a street-side ATM due to concerns about the risks of mugging and other criminal activity in exposed external locations. The long opening hours (for instance 7am to midnight) and weekend opening of the retail stores allows people to access their funds day and night, within the comfort and security of their local store.

Another noticeable sign of the success of this approach is the proliferation of services now available in-store. Some of these services are standard banking functions such as withdraw cash, pay in cash, cash cheques, transfer funds between accounts or get an account balance. But they are extended with a large range of functions.  Bill payment services such the payment of credit card bills, loan installments, utility bills and insurance premiums are common.  And some specific functions are also available such as the purchase of mobile phone top ups or paying for airline tickets.  So the retail store is providing the full gamut of banking services a consumer would expect to find in a bank branch.

The challenge for retailers like Sanborns is the need to handle traditional card based shopping transactions that will be authorised through the mainstream card processing channels, the retailer gift card or store card purchases which will be managed by the retailer themselves or a processor acting on their behalf and these more complex banking payments which need to be channelled to the specific bank involved.

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However, the benefits to the retailer of delivering these services are significant as they will attract customers into the stores with the opportunity to engage them in sales activity.  Although there is the additional complexity of training staff and deploying systems to handle these additional transactions, the additional footfall created and sales generated outweighs these challenges.  And there is a fee income stream generated for these banking services.

For the banks involved, extending their reach through partnerships with retailers allows them to grow their customer base without the significant cost of creating bank branches.  The major retail chains have typically thousands of outlets, a network that would be unachievable for any bank.  So the fees payable to the retail chain are a financially viable route to enabling wide access to the bank’s services.  The bank still needs to ensure its products and services are promoted in all regions to drive new customers.  And as these previously unbanked consumers become comfortable with making use of the banking system, there is the opportunity to engage with them through phone or internet banking or, more likely, mobile banking.

With the availability of systems capable of being deployed in-house to support the increasing sophistication of corresponsal banking, the chances are that its spread will continue. It is also fair to say that whilst the populations of Central and Latin American may remain relatively unbanked in the traditional sense, the facilities offered in such countries will continue to be more advanced than those in some other Western countries.

 
 
 
 
 
 
 
 
 
 

Banking

UBX appoints new Chief Investment Officer

In line with its strategy to explore and invest in companies and platforms of the future, UBX—the Fintech and Corporate Venture Capital arm of Union Bank of the Philippines (UnionBank) — is announcing the appointment of Matthew Kolling as the company’s Chief Investment Officer (CIO).

Matt Kolling

Matt Kolling

As CIO, Kolling will be managing UBX’s Corporate Venture Capital (CVC) fund. He will also play a key role in raising capital for UBX while assisting the company in key corporate transactions, including the structuring of joint ventures and acquisitions.

Prior to his appointment at UBX, Kolling has been Head of Venture Investments at Aboitiz & Company since 2019, wherein he had been working with UBX on investment portfolio decisions. Before that, he held senior positions in Private Equity, Venture Capital, and Investment Banking at firms such as Providence Equity Partners and Morgan Stanley in New York.

Kolling has more than 20 years of experience in managing investments and deals in the Technology and Telecommunications industries and is active in Venture Capital and startup communities in the Philippines and the Southeast Asian region. He currently chairs the Manila Angel Investors Network, among others.

“We at UBX are excited to welcome Matt as our new CIO. We firmly believe that Matt will be instrumental in driving value creation opportunities, both within the CVC fund and our corporate ventures. We look forward to working with him as we fulfill UBX’s vision of a future where banking services are embedded into everyday experiences that matter,” said UBX president and CEO John Januszczak.

Meanwhile, UnionBank president and CEO Edwin Bautista said, “The addition of world-class talents in our pool reinforces our strategy to future-proof the organization and our business as we prepare for many new opportunities that come with the changing times.”

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Banking

It’s all relative: Older generations feel helping out the family financially is more important since the Covid-19 outbreak

It’s all relative: Older generations feel helping out the family financially is more important since the Covid-19 outbreak 1

Before Covid, 23% of people prioritised helping younger generations out financially, that increased to a third as a result of the pandemic

A recent survey* conducted by Hodge has revealed that the Covid pandemic has led to more people wanting to help younger family members financially.

A third (31%)** of those questioned said that since the Covid outbreak giving a financial gift to children or grandchildren is more important to them, compared to 23% who said it was a priority before the pandemic.

The traditional “Bank of Mum and Dad” is still very much open for financial help, with parents being responsible for 72% of the gifts, but the study also revealed that financial gifts can come from all corners of the family – including children (14%) and siblings (14%).

The survey also found that a third of people have received a financial gift from family, with those aged between 25-34 as the most likely to receive

The most popular reason for gifting money to family is for special occasions such as a quarter of gifts were given for weddings and birthdays but 11% of people have received money to help with big purchases such as cars and houses. In addition, 19% of people have received help with day to day finances, with around 14% of those receiving a gift have done so to pay off debt.

Emma Graham, Business Development Director at Hodge, said of the research: “Our study showed that, as a nation, we all want to help our family out when it comes to money. And whilst we all think of the Bank of Mum and Dad or Gran and Grandad as a traditional source, we were surprised to see that 14% of brothers and sisters are also helping out.”

The findings come from a recent intergenerational study conducted by Hodge, who interviewed over 3000 people about their attitudes towards finances and their aspirations for the future. The full research findings can be found at https://hodgebank.co.uk/2020/05/19/money-its-all-relative/.

As part of the study, people were also asked about paying back the gift, with 40% of beneficiaries expecting to pay their parents back, but this dropped to 28% if the gift came from grandparents.

From the gift donor’s perspective, 26% expect the gift to be paid back, however just 15% of grandparents expected the money back.

Hodge has produced a set of guides on how families can navigate the tricky subject of giving financial gifts within a family, as well as the considerations and steps that be families should think about taking before a gift is given, such as is it a loan or a gift and thinking about contingencies if the family member’s circumstances change. The guides can be found here: https://hodgebank.co.uk/news/

Emma continued: “It’s clear that families feel strongly about offering financial support to each other if they are able and this has increased since the Covid pandemic. Before Covid, 23% of people prioritised helping their families out financially in the next five years. Since the Covid-19 outbreak that has increased to a third of people saying helping a family member financially had become more important.

“So, it is clear that the Covid-19 lockdown and subsequent predicted economic downturn, has led to more families looking to share wealth to help younger children or grandchildren during this difficult time. Many people may look to Later Life mortgages, where many products have reduced their rates and have flexible lending criteria, to help out a loved during these difficult times.”

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Banking

New report identifies the factors which will determine SMEs’ chances of a successful COVID recovery

New report identifies the factors which will determine SMEs’ chances of a successful COVID recovery 2

·         Analysis of the performance of over 1,000 UK small and medium-sized businesses by Allica Bank provides roadmap for SMEs 

·         Regular training, an openness to innovation, and a clear vision all contribute heavily to an SMEs’ chances of success  

·         Allica Bank has launched a programme of free workshops to expand on the findings and support business owners 

Business bank, Allica Bank has combined data and insight from over 1,000 UK SMEs with a multiple regression analysis to determine what factors most closely aligned with an SMEs’ chances of success and separated the highest-performing businesses from their peers. These ‘rules for success’ have been compiled from the research data to support British businesses as they look to chart a course to post-Covid recovery.  

The full report identifies six behaviours for small and medium businesses to follow, to maximise their chances of a successful COVID recovery. The six top-line rules emphasised by the data were: 

Rule 1: SMEs should regularly train staff 

Of the top-performing businesses analysed, 47% provided training for employees at least on a quarterly basis, compared to just 32% of other businesses. Regular employee training was linked closely to success by the model.  

Despite this, many small businesses have neglected training and nearly half (46%) of the small businesses analysed only provide training for employees about once a year or less often. This included 15% that never provide employer-funded training. This discrepancy could represent a significant opportunity for small businesses to unlock the potential of their employees and thrive in the post-Covid economy. 

Rule 2: SMEs need to focus on innovation and technology 

Looking again to the best performing businesses, 76% were found to either continually (39%) or often (37%) be considering new opportunities for technology in their business. This is compared to only 51% for businesses considered to be outside of the top ranks, out of which only 27% admitted to continually looking for new technology opportunities. 

Rule 3: Small business must have a formal, long-term vision  

Nearly two thirds (66%) of the most successful businesses in the survey had a formal, long-term vision, compared to just 50% of businesses outside the top 100. Looking to the businesses that scored the lowest on the SME Performance index, only 37% claimed to have a formal, long-term vision. 

Rule 4: SMEs should broaden their customer reach and find new markets 

Of the top-performing businesses, 65% of these have overseas customers compared to just 40% of the worst performing businesses. Among the best performing SMEs, over a third (34%) identified international expansion as one of the top three drivers for their success. 

Rule 5: SMEs need to develop reinvestment plans 

22% of the best performing SMEs reinvested some of their profits into the business in the past three years with an average 9% of profits being redeployed. Tellingly, this is nearly double what other businesses admit to reinvesting in their business (5%). 

Rule 6: SMEs should engage with local business organisations and networks  

Of the top 100 SMEs, 30% had obtained external credit to expand over the past three years (compared to 24% of other businesses). Meanwhile, only 16% of all other SMEs had engaged with local enterprise partnerships or growth hubs in the past three years (compared to 23% of the top 100 SMEs). 

Chris Weller, Chief Commercial Officer, Allica Bank, said: 

“All small businesses are different, as are all small business owners, but one trait they share is an innovative resilience. Whilst the coming months and years will undoubtedly continue to present extreme challenges, there is no doubt that small and medium sized businesses across the UK will rise to meet them head on.  

“To give them the best chance to succeed, though, they need to be equipped with the right tools. There is certainly no silver bullet or panacea for every small business, but as this study has found, there are a number of common factors found in the most successful businesses that allow small enterprises to thrive and that they can consider individually for their business.  

“This research has identified common ‘rules for success’ that speak to every aspect of running a business, not just the financials. Once we saw these results, we wanted to use them to help small businesses begin to re-build and prosper, by outlining common factors and then examining how best they can be practically applied to businesses in all sectors of the economy.  

“Small business owners and their employees have been hit hard by the crisis, but they have the drive and resourcefulness to breathe new life into the economy and bring energy to post-Covid Britain. Our commitment at Allica Bank is to give them the support they need to do so, every step of the way.”

The full report contains a wealth of additional data and insight into each of these topics. As part of its mission to empower small businesses, Allica Bank is making the findings freely available and running a series of free online workshops with relevant partner organisations for businesses to attend.

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