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Finance

FIXED-RATE RUSH AS HOMEOWNERS RACE FOR CERTAINTY

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FIXED-RATE RUSH AS HOMEOWNERS RACE FOR CERTAINTY
  • Nearly two out of three mortgage customers look for new fixed deals, Nottingham Building Society research shows
  • Average re-mortgage saving for two-year fixed customers could be more than £1,000 a year

Homeowners are rushing to fix mortgage payments with nearly two out of three looking for fixed rate mortgages when their current deal expires, research* for the Nottingham Building Society (The Nottingham) shows.

Its study found 65% of remortgage customers will go for fixed-rates split almost equally between homeowners looking for two or three-year deals and those planning to take out fixed-rate mortgages for five years or longer.

Potential savings are substantial – Bank of England data** shows average two-year fixed rates have reduced substantially since 2014.

However The Nottingham’s research shows confusion among remortgage customers – around 16% of homeowners don’t know what they will do when it comes to their next mortgage deal while 6% will move to the standard variable rate.

Research among mortgage brokers*** shows their clients are focusing on fixed deals – around 69% of brokers say first-time buyer and remortgage clients are applying for short-term fixed deals while 27% say clients are looking for longer term fixed rates. Just 22% of brokers say clients believe rates will be cut or stay where they are for the foreseeable future.

Ian Gibbons, Senior Mortgage Broking Manager at Nottingham Mortgage Services (part of The Nottingham),said: “The ongoing mortgage rate war among leading lenders has seen the launch of a range of low rates.

“The best deals do not tell the whole story of course as deals vary depending on how much equity homeowners have or how big a deposit they can find. But the trend in the past two years has been down and there are potentially substantial savings to be made.

 “Customers need to be able to search the whole market and to look for as wide a range of deals as possible before making a decision on their next mortgage deal which means getting expert help.”

The goal of Nottingham Mortgage Services is to find the best mortgage deal for customers by offering a fee-free service that searches over 50 lenders. From first-time buyer mortgages, re-mortgages through to mortgages for house purchases and buy-to-lets, it has been successfully helping people find the right deal on their mortgages for a number of years. Its expert advisers search the whole of the mortgage market, looking for the best deals. They explain the costs and benefits of each mortgage and will only recommend a mortgage that is right for the customer.

Think carefully before securing debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.

The Financial Conduct Authority does not regulate some buy-to-let mortgages.

For more information about Nottingham Mortgage Services call 0344 481 0013, visit a branch or go to www.thenottingham.com/mortgages.

Finance

Pay and Go, why seamless checkout is essential for the customer experience

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Pay and Go, why seamless checkout is essential for the customer experience 1

By Ralf Gladis, CEO, Computop

Shopping for many is therapy…until they reach the queue for the checkout. It’s easier online to pay for goods, but physical retail, with all the sensory benefits it offers the shopper, would be so much easier if payment was quick and easy. In an industry that has proven it can reinvent itself, its time to focus on the point of sale.

Shopping serves less to satisfy our basic requirements than it does to satisfy our love of new things, our desire to spend money, and our curiosity. It’s an experience, and we’re not interested in spending time on anachronistic, time-consuming procedures like queuing at the till. In a digitalised world where everything can be seen and bought in seconds through a smartphone, what we want from shops is a new approach, and the point of sale is not living up to expectation.

The reason for this lies in retailers’ reluctance to invest in IT infrastructure a decade or so ago, when smartphone app developers were experimenting with location-based services. They could have enabled customers to use their mobile phones as indoor navigation systems, guiding them to the goods they were looking for, or to items they were promoting online. But they were wary. What if network access allowed customers to see if they could get a better price for products before they paid? Would they be able to work out the margins that retailers were making? This reluctance was pointless since customers could just as easily leave the store to do a quick online search, and who’s to say whether they would ever return?

Ralf Gladis

Ralf Gladis

In an age in which the range of goods on offer offline and online is identical, the shopping experience becomes a differentiating factor alongside the price – for better or worse. In order to retain regular customers, it is no longer enough for a store to carry a brand and have the right articles of that brand in stock or be able to obtain them quickly. Shopping must stimulate the brain’s reward system from the initial contact with the goods – looking, touching, feeling, grasping – to spending money.

Payment points in stores, particularly department stores are positioned around the edges of the shop floor for historic reasons – they used to be close to the offices and safes where the cash was stored before being taken to the bank – but why make customers walk any distance at all when they could pay exactly where they are already standing? In the Apple Store salespeople move around with their iOS mobile devices and they can provide information and process payment. There’s not even the need to provide a paper receipt because it can be sent by email. Some stores are offering apps that allow their customers to pay on their own smartphones once they’ve scanned the barcode of the item they want to purchase.

The way forward is to think about stores as showrooms. Assistants are there to provide information and seamlessly enable payment, not to stand behind a physical POS. If the customer would rather not lug their shopping bags around with them, the assistant can arrange next day delivery as they are paying. If an item isn’t in stock, it can be ordered at the same time. In fact, some retailers are now specialising in the display of goods, particularly clothing, in just one size and if the consumer likes the look of it, they scan the label with their phone, reserve a changing room and the item is ready for them to try on when they enter.

But when it comes to actually making payment, retailers have all the technology they need at their disposal. Contactless payment by card or mobile phone, for example, takes just seconds, and with biometric authentication now such an integral part of electronic payments, both retailers and customers are infinitely better protected from fraud than they have ever been. Biometrics are also attractive to retailers and consumers because they reduce time spent securing payment, and smartphone-supported payment methods such as Apple Pay which can be combined with self-scanning are increasingly being used by shoppers in a hurry.

If retailers are committed to keeping their physical stores relevant and attractive, they could do much worse than to make paying for goods as frictionless as possible. Make payment part of a great customer experience.

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Finance

Is cash now redundant in western society?

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Is cash now redundant in western society? 2

By Daumantas Dvilinskas, CEO and Co-Founder of TransferGo

Research from UK Finance has shown that cash consisted of less than a quarter of all payments in 2019, suggesting that as a method of payment, it was already on the decline before the pandemic struck. Evidently, this means that current negative attitudes towards cash have been compounded by COVID-19 and no doubt suggest that fears are growing over how the use of physical currency could be a possible vehicle for virus transmission. In turn, this has caused a shift in consumer behaviour with those stuck at home turning to digital as the only way to spend, send and save money.

But if the usage and popularity of cash was already on the decline – what factors were driving this? Primarily, it’s been a shift in consumer behaviour towards online shopping, and the increasing speed and convenience offered to end users by contactless payments and new services in the fintech market. An example of the latter is in digital money transfer services, which facilitate the flow of money across borders but without the added fees and hidden exchange rates traditional cash-based businesses have.

But what impact will this behavioural shift have on our society, and what does this mean for the finance industry?

The finance industry’s response

With the pandemic bringing country-wide lockdowns, consumers were forced to turn to digital as trips to banks and post offices to make deposits or collect banknotes became inaccessible. Fintechs, who are digital by default, were particularly well placed to support customers by allowing them to send and spend funds by facilitating online transactions through digital payment services.

Additionally, digital lending firms, who were able to move fast in response to the surge in loan applications as a result of redundancies and businesses shutting down, were much more nimble than physical branches and traditional financial institutions. And the demographic of users has widened too, with digital lending platforms seeing not just tech savvy users, but older users in their 40s and 50s turning to their services.

Prior to the pandemic many people, for reasons such as lack of trust, being technophobes or just being creatures of habit, were hesitant to use digital finance services over cash. We expect to see a continued reversal of that as consumers get used to the ease and accessibility that fintechs have bought to the sector.

Remittance sector has already proved that cash wouldn’t reign supreme

This issue of cash vs digital is especially prevalent amongst the migrant worker community. Migrants are often relied upon by their families for income support, and in some cases are the sole source of income. For example, in 2019 remittances amounted to $554bn according to the World Bank, beating all other forms of cross-border financial flows to poor countries.

Alongside the lockdown, we also had to deal with the issue of closed borders, which prevented migrants arriving home with actual cash. Combine that with the closure of most retail finance operations, options for sending physical cash were basically eliminated. Workers therefore needed to find other ways of ensuring their hard earned money could get to those that needed it at home. Digital finance bridged the gap.

Through the benefits of digital, providers can offer guaranteed and fair exchange rates, ensuring that migrants, who may be undergoing financial difficulties, are not stung by hidden remittance fees. They can also provide consistent and accessible support, for example by offering in-country agents who understand local discourse and issues and can help find appropriate solutions. What’s more, these services can offer a seamless customer experience, increased service reliability and perhaps most importantly security. For example, TransferGo recently announced a partnership with end-to-end ID verification companies SumSub and Veriff, which ultimately means that migrants are able to have their identity verified, quickly and reliably, preventing fraudulent activity, without causing a delay to registering for and using the service.

Was this a result of the pandemic or is cash truly on its last legs?

COVID has undoubtedly caused a huge shift in consumer propensity to use cash. Findings suggest over half of consumers had used digital transfers to give money to friends and family at least once during the first month of lockdown, with 20% doing so more than twice.  When you consider that cross border payments are expected to hit $240 billion by 2024 due to an increasingly global and interconnected economy and TransferGo experienced a 63% growth in transactions in April compared to the same time last year, the future is seemingly evident.

The convenience, speed, improved customer experience and security offered to consumers through digital payments will be difficult to surrender – especially as people become accustomed to new ways of working and living.

At the current pace of technological innovation, I can’t help but feel that this is the irreversible direction of travel. It is incumbent on those of us at the sharp edge of innovation in the industry to ensure it remains secure and fit for purpose as the world continues to change around us.

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Finance

FRC’s audit enforcement – more remedial action for auditors?

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FRC's audit enforcement - more remedial action for auditors? 3

By Andrew Howell and Georgina Jones.

With recent accounting scandals such as Wirecard, we’re seeing a continuing focus on the role of auditors in detecting fraud and, the importance of confidence in the audit process for corporate reporting.

The Financial Reporting Council (FRC), principal regulator of the profession (and accountants in business), recently published its Annual Enforcement Review 2020. It analyses its enforcement actions and outcomes across the past 12 months, identifying key themes and issues, and sets itself performance objectives for the year ahead.

One of the notable themes coming out of the Review is the FRC’s greater focus on the use of remedial action and non-financial sanctions as a means of driving audit quality within audit firms. It seems to us a sensible development.

Despite being criticised for not being tough enough on audit firms (total fines have come down this year, although the trend of fines in individual cases is on the rise), the FRC has focused on measures aimed at achieving lasting improvements in audit quality. Heavy fines, while inevitable in the more serious cases, mark public censure but do not in themselves change practices, and ultimately can reduce a firm’s resources to invest in audit quality. Audit cases dealt with by the FRC are rarely about intentional conduct by auditors. Far more often, they relate to errors of judgement, points missed in audit work, or inadequate processes. Non-financial sanctions can be a much more direct mechanism to promote investment of time and resource into audit improvement across a firm.

FRC’s enforcement powers

The FRC became the “competent authority” for audit in the UK under the Statutory Auditors and Third Country Auditors Regulations 2016 (SATCAR), which came into force following the EU Audit Regulation and Directive. SATCAR requires that the UK has effective systems of investigations and sanctions to “detect, correct and prevent inadequate execution of statutory audit” – which led to the implementation of the Audit Enforcement Procedure (AEP).

Under the AEP, a statutory auditor and/or statutory audit firm may be liable to enforcement action where there has been a breach of the Relevant Requirements of SATCAR 2016, the EU Audit Regulation or the Companies Act 2006. This creates a very low hurdle for regulatory sanction. Any breach of any auditing standard can be sanctioned, however trivial, although the FRC has increasingly been willing to handle the more minor cases through constructive engagement.

The FRC has a wide remit of sanctions at its disposal, which can be imposed singly or in combination. Possible sanctions include permanent or temporary prohibitions on the auditor performing statutory audits or signing audit opinions; exclusion of the auditor as a member of a recognised supervisory body; financial sanctions; declarations that the statutory audit report did not satisfy the relevant requirements; requiring the auditor or firm to cease or abstain from certain conduct  and ordering a waiver or repayment of client fees.

While the FRC may have a greater remit for enforcement action under the AEP than the former Accountancy Scheme, its purpose in imposing sanctions is not to punish, but to protect the public and the whole public interest. The public is after all better served by higher quality audits which lead to higher investor confidence in the company’s financial statements.

Financial sanctions will continue to have an important role in the FRC’s enforcement strategy, particularly with regard the deterrence of future breaches; however, the use of non-financial sanctions continues to increase significantly. Non-financial sanctions are used at all stages of the enforcement process, whether that is as part of its early resolution of cases via the Constructive Engagement process, settlement, or following conclusion of a Tribunal hearing.

Constructive Engagement and remedial action

Constructive Engagement is a process introduced by the AEP for resolving cases where the audit quality concerns can be addressed without full enforcement action. The FRC’s guidance provides that it will be suitable for cases where there has been a minor, technical breach, and there is no real concern about harm to the public or a loss of confidence in the audit process.

Constructive Engagement is a more flexible process, aimed at ensuring that the breach is rectified quickly, and not repeated. It may take any form including written advice, warning letters, discussions or correspondence with the auditor and/or audit firm. Unless the FRC is satisfied that the conduct leading to the breach has already been sufficiently addressed to prevent the risk of recurrence, the outcome of constructive engagement will usually be for the firm to carry out remedial actions (if a breach is identified).

The remedial actions imposed in each case are bespoke to the particular circumstances of the breach, and will often involve amendments to a firm’s audit procedures and/or training and guidance across the firm. Remedial actions are often firm wide rather than limited to the particular audit process, or team, in order to reduce the risk of reoccurrence of the conduct that lead to the breach.

The FRC dealt with 33 cases in Constructive Engagement over the past year, an increase of 73% compared to 2019.

Remedial actions were imposed in 27 of those cases, and were predominantly focused on ways audit firms could improve audit procedure and technical knowledge in problematic areas. For example, firms were required to implement measures requiring audit teams to consult with a firm’s technical team on particular issues such as:

  • require enhanced work to be carried out by specialists such as tax and actuarial specialists;
  • implement better procedures for communication between audit teams and specialists;
  • implement additional audit procedures and training on complex areas;
  • implement guidance for improving the level of documentation on the rationale for conclusions reached.

A recurring problem with FRC investigations is that they take too long. Constructive Engagement provides the FRC with the flexibility to resolve cases more quickly: the average time taken to conclude a matter through Constructive Engagements is eight months, compared to an average of 48 months for the FRC to conclude a case through to a hearing before the Tribunal. The firm can then implement the remedial actions imposed more swiftly, while the FRC can direct its resources to cases involving more serious breaches which warrant full investigation. We expect the trend towards Constructive Engagement to continue in the coming year.

Investigations resulting in sanctions

Over the past year, the FRC imposed sanctions in nine cases in relation to audit matters, 11 of which were financial, as compared to 27 non-financial sanctions. All but one of the cases resulting in sanctions in the past year was a result of settlements.

The total amount of financial sanctions on audit firms alone (pre-discount) was £15.9 million. Financial sanctions were also imposed against six audit partners, totalling £0.7 million (pre-discount). Where financial sanctions were imposed, 30-35% reductions were applied for early admissions and settlement.

The use of non-financial sanctions is clearly a key part of the FRC’s enforcement strategy. Measures imposed over the last year included increased use of reprimands and severe reprimands, requirements for firms to undertake firm wide training, requirements for firms to produce written reports to the FRC on quality performance reviews, requiring firms to implement an ethics board, and increasing the monitoring and support of regional offices.

If firms carry out enough remedial work prior to the conclusion of the matter, further non-financial sanctions may not be required.

The FRC reminds firms in this Review that a further way that they reduce any financial sanction imposed is by providing an “exceptional” level of cooperation with the FRC’s investigation, for example, by self-reporting.

The year ahead

The FRC remains in a state of flux. Following Sir John Kingman’s review in December 2018 and the Brydon and CMA Reviews in 2019, a number of recommendations have been made to the government for the overhaul of audit profession which, if adopted, will have a significant impact on the regulation of audit in the UK. The FRC itself is due to be renamed as the Audit, Reporting and Governance Authority (ARGA). There has been little progress on the legislative front however, with no shortage of recent other distractions on parliamentary time.

The FRC has been recruiting heavily, notably to increase its ability to monitor audit work, which will then feed into more cases for Enforcement. It has also conducted a review of the AEP, and a consultation on proposed amendments to the procedure is expected later this year. It will be interesting to see what changes are proposed to its enforcement strategy. Beyond that, we may see significant upheaval in audit regulation once we return to normal business.

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