By Tony Collins, Chairman of OPAL, the financial outsourcing company www.opal-uk.com
We live in an increasingly globalised world, particularly when it comes to financial services. Tony Collins, chairman of OPAL, the financial outsourcing company, examines the opportunity for a global standardisation of financial products.
As the finance sector undergoes unprecedented change, the opportunity is there to standardise products. It’s not news to anyone that the financial services world is increasingly globalised – something we are reminded about on an almost daily basis following the onset of the financial crisis, with events in Athens, Berlin and Wall Street sending shockwaves around the globe. The crisis has helped to highlight just how interconnected the world’s finance industries are as events in one country impact the way firms operate internationally.
The downturn has also made the market a much tougher place, with all-time high levels of volatility and increased competitiveness. However, in spite of the continued doom and gloom, the global marketplace does open a door to a number of opportunities for firms to overhaul their business models in order to emerge in a prominent position on the global stage. The greatest such opportunity is to increase efficiency – you just need to take a look at governments’ drastic attempts to make their finances and functions more economical. For financial firms that operate in multiple markets, tailoring their product offering for each individual geography can be time and cost-intensive and providers appear to be missing out on a big opportunity to roll-out standardised products to a global footprint.
Standardising products for an international audience suggests a need to meet similar financial needs across the globe. How has the global marketplace itself been standardising in recent years?
Rapid economic growth in developing markets over the past decade coupled with the sharp slowdown of developed economies since 2008 has evened out the global playing field. The explosive growth of a new middle class in emerging nations, particularly in the BRICs, means that many more consumers in the developing world now have a similar purchasing power and financial needs as those in more developed markets. If this is the case, then why should those markets not be given similar options when it comes to investment, insurance and pension products etc.? After all we all have similar plans and concerns such as saving for our retirement or insuring our valuable possessions regardless of whereabouts in the world we live.
Therefore, financial products of a similar nature are relevant for a much wider, global audience than in previous years. This highlights the potential that a standardisation of product development holds for firms looking to maximise efficiency and global reach whilst minimising time and cost. Uniform products can be designed and developed with only minor tweaking needed at the point of launch across various markets.
Regulatory compliance is driving ever-stricter guidelines when it comes to developing new products. How have trends in the regulatory space also opened the door to global standardisation?
Regulatory bodies have been quick to recognise the need and potential for a global standardisation of rules and guidelines. Although financial markers will always need rules tailored to their specific conditions, we have recently seen a drive by regulatory authorities such as the UK’s Financial Services Authority (FSA) and international equivalents to homogenise their guidelines as much as possible. This trend is being driven partially by similar demands from government’s worldwide in light of failings that led up to the financial crisis, but also by a universal recognition to make international compliance more achievable for firms. This is especially the case in Europe where the requirements of the single currency and regulatory drives from the European Union automatically cover a jurisdiction of up to 27 member states. For example, the European Banking Authority (EBA) was set up last year to harmonise banking guidelines across the EU.
Legislation surrounding capital requirements is also having an increasingly international footprint, with Basel III banking standards applicable to most markets and similar moves in the insurance sector, such as Solvency II, being replicated in markets around the world like in Bermuda for instance. Some US legislation such as the Foreign Account Tax Compliance Act (FATCA) also has a global jurisdiction, with all banks regardless of their primary location, required to declare US account holders to the American Internal Revenue Service (IRS) for tax purposes.
With most regions of the world in an economically precarious position, time is very much of the essence and cost savings are a priority for many organisations. How does outsourcing allow firms to take advantage of this opportunity in a time and cost-effective way?
The development of financial products depends heavily on consumer demand and regulatory requirements. As these two influencing factors level out across different markets, providers have a chance to streamline the development of their products, which can then be tweaked to suit individual regions and countries. This is where financial services firms can use an outsourcer to their full advantage. A third party will have the expertise and optimum services in place to standardise the product development process as much as possible, which can amount to serious time and money savings for organisations launching products in different markets.
This is an increasingly important priority as firms look to gain a foothold in emerging nations without compromising their operations in the weaker ‘core’ markets of Europe and North America. By tapping into the international expertise third parties can offer, organisations can increase the global impact of their products. Outsourcers can also act as a bridgehead to launch these quickly and efficiently on a shared risk model. The financial services sector should embrace the integrated international market as it really is too big an opportunity to miss.
OPAL is an FSA-regulated organisation that specialises in launching own label life, pension and investment products on behalf of major financial services clients such as Prudential, Royal Bank of Scotland, HBOS, Abbey, LV=, HSBC, Investec and Virgin. OPAL is one of the leading third party financial product developers and administrators in the UK financial services sector.
For more information visit www.opal-uk.com
For lenders: 5 reasons for losing a customer
By Matt Cockayne, Chief Commercial Officer at Yapily
Businesses of all sizes are battling the ongoing effects caused by the pandemic, and there’s no denying that the UK economy is perhaps worse than it has ever been before. As local lockdowns make their way across the country, businesses are in dire need of extra financial support.
The government-backed loan schemes have been a lifeline for many. But as the demand for financial aid continues to grow, many businesses are not receiving funds quickly enough, and lenders are bearing the brunt of this scrutiny. Indeed, there are those who suggest that lenders are fully aware of the current urgency, so should be doing more to respond to their customers’ needs.
No one could have predicted the detrimental impact Covid-19 has had on the global economy. For lenders, this has left them with no choice but to enforce stricter rules, and add more stringent criteria to manage this influx of loan applications.
While shutting up shop to new customers is an easy route for lenders to take, it’s not forward thinking, and the current market, we hope, is only temporary. As such, growing a customer base is equally as important as retaining existing accounts – especially as there are still lots of businesses in need of support.
We are already seeing innovative lenders, who are spotting this opportunity to grow their customer base, however there are still some who are missing this possibility to expand.
Below are 5 reasons to why lenders may be losing customers, and how best to fix this:
1. Limited personalisation
Standardised loan options mean customers are limited to how they can respond to the current market and thrive in a post-covid world. But every business is different, so they need personalised options best suited to them.
Services like Open Banking allow lenders to distribute hyper-personalised solutions to their customers. By harnessing real-time transaction and account data, lenders can make much fairer and faster decisions based on a business’ actual financial position, not estimates.
2. Manual, outdated processes
Traditional lending processes take time, and in this current climate – time is money. Not only do manual, paper-based loan procedures take far too much time, they also increase the chance of inefficiencies. By relying on outdated information, lenders are not in the best position to offer businesses the optimal lending options.
Through innovation, the speed and efficiency of lending will drastically improve. Instant access to up-to-date financial information via Open Banking APIs, means lenders can speed up all mandatory approval processes and businesses can receive funds directly into their bank accounts, reducing the delay in receiving loans..
3. No sense of transparency
A lack of transparency for providing loan terms or rejecting loan applications, creates an element of doubt, which ultimately drives customers away.
Lenders need to over-communicate with their customers, explaining in detail how they have reached their solution. This process is made easier through harnessing services like Open Banking. Decisions are based solely around an individual’s financial situation, using real-information instead of generalised data sets, meaning lenders can give transparent feedback to the business in question.
4. Lack of security
Out-dated systems, and long manual processes not only cause inefficiencies, increasing the chance of human error or fraud. For example, human error led CitiGroup to mistakenly transmit $900 million earlier this year.
By harnessing Open Banking, lenders are able to access fast, and highly secure data transfers – customers get to decide who accesses their financial data, and how long they’d like it to be shared for. As processes go digital, there is a significantly lower chance of human error or loopholes opening the door to fraudsters.
5. Substandard lending decisions
Unmanageable application checks are exposing businesses to risk, and causing a holdup for loan distributions – and in these challenging times, it’s not an option for money and time to be wasted.
Open Banking means lenders can develop an accurate picture of their customers’ financial position using up-to-date information. Combined with deep-learning technology and real-time data, lenders can access spending patterns, income, debt and identity verification to build a customer profile and personalise their lending options.
It’s time for lenders to do everything they can to support businesses’ survival. By digitising their lending cycles and harnessing services like Open Banking, lenders can act fast to determine customers’ borrowing options, fairly and efficiently. Not only will this help attract new customers to grow their base, but it will assist in a speedy economic recovery, and help many more businesses as we head into a post-covid world.
Eight Benefits of International Financing
By Luigi Wewege is the Senior Vice President, and Head of Private Banking of Belize based Caye International Bank
Lending is one of the key elements of any international banking strategy. Just as you would carefully select an offshore bank to provide essential services like checking, term deposit, and savings accounts, it makes sense to learn a bit about the lending options. As you compare loan options, there are several advantages that you’ll notice about many international loan offerings.
Here are a few of the significant benefits that you’re likely to encounter.
Broader Range of Lending Options
The diverse options for international loans are one of the first things that many people notice. You’ll find all the loan types that you’re used to encountering in a domestic setting. If one of those happens to work well for you, that’s great. If not, you’ll find other approaches that are more to your liking.
Exactly how the different loan options compare to one another will vary. Some will be different in terms of how the interest rate is applied to the loan balance. In some cases, the fees that are assessed on the front end or during the life of the loan will be different. Some may require a deposit that you must leave with the lender, while others will require nothing more than paying fees.
In each case, you can compare the terms and costs, settle on the loan type that works for you, and hopefully receive an approval.
Policies and Procedures That Work for You
Another perk of considering international financing is that banking laws and procedures may differ from what you encounter at home. Since some laws vary from one country to the next, it’s possible to find a combination that happens to work in your favor. If so, you could end up saving a significant sum on various fees and charges.
Taking the time to learn about applicable banking laws and procedures is essential. Don’t assume what you know about domestic lending is also valid in a different nation. Work closely with lending officers to ensure you understand how the loans are structured and what obligations you take on if the loan is approved.
Competitive Interest Rates and Terms
One factor that you will find pleasing about international lending is that many types of loans come with interest rates that compare favorably with what you’re used to at home. The terms and conditions are also likely to provide you with more incentive to seek an international loan.
This is especially true in nations that are welcoming to expats. The goal is to encourage expats to invest in the country by taking out loans designed to meet their needs and simultaneously stimulate the economy. To do that, the loan contracts are often structured so that international clients enjoy rates and terms that they may or may not qualify for in their countries of origin.
In other words, you could find more than broader options for loan types and terms. An international lender may be willing to extend financing with terms that a domestic lender would not offer to you.
More Options for Multi-Currency Choices
Have you considered how securing a loan in a different currency could prove helpful? The currency involved could be the local one, or it could be a currency that is currently enjoying an excellent exchange rate with other currencies. By option for that approach, you could conceivably increase the purchasing power that the loan proceeds provide.
Think of what that means if you’re a business professional looking to establish a presence in a given nation. The loan could provide you with funds in local currency to pay suppliers, vendors, or even construction professionals. Even if you’re an expat who’s retiring in a given nation, funds in certain currencies provide what you need to pay necessary bills as well as help cover medical costs not included in medical insurance.
Privacy and Security
You already know that many international financial institutions provide protections that are not always available at home. That applies to loans just as it does to your time deposit or checking account. Obtaining information about the loan terms, payment history, and other essentials will be difficult for anyone who is not authorized to receive the data. It’s one more way that the lender seeks to protect your privacy.
There’s also plenty of security surrounding your personal data. It’s not just a matter of having a password that allows access. The security network of the typical offshore lender contains several measures designed to prevent data theft. That ensures you don’t have to be concerned about your information leaking to anyone who could exploit it for their purposes.
Safety from Political Unrest
Political shifts can and do impact the financial world. That’s true in any nation. You can protect yourself by opting for a country that appears to be politically stable and is unlikely to experience any major upheaval in the future.
Why does this matter? Political shifts do pave the way for possible changes to financial laws and lending. They can also lead to economic changes that may include the onset of a recession or depression. Shifts of this nature can impact all your offshore banking, including any active loans. With loans based in the right nation, you can rest assured that few if any changes will occur during the life of the loan.
Potential Tax Advantages
Depending on the type of loan you’re seeking, there may be tax advantages related to an international loan versus a domestic one. The difference could be mainly in the amount of tax you’ll owe on the loan balance itself. Even a small difference on a loan that will take years to retire could be significant.
The best way to determine what tax advantages exist is to talk with a loan officer. You’ll get a better idea of any taxes that may be assessed by the country where your loan resides. It’s also easier to determine if the banking laws allow the agencies in your country of origin to impose any tax on the international loan. Once you understand what sort of tax burden applies, it will be easier to decide if the international loan is right for you.
Easy to Manage the Loan
How will you go about managing the loan? Just as many offshore banks have full online access to other forms of banking accounts, the same is true for loans. If you have other types of accounts in place with the lender, you can manage everything using a single online account interface.
That makes it easy to check the current loan balance, make payments using funds in a checking account, and even know when the most recent payment is applied to the loan balance. Since the online interface is up and running any time of the day or night, you can manage your loan no matter where you happen to be at the time. As long as you have your login credentials, managing the loan is easy.
Take Advantage of an International Loan Today
Use offshore banking and international lending to your financial advantage. The team at Caye International Bank is ready to help you with all of your banking needs, including personal and business loans.
Contact one of our banking service professionals today and outline what you have in mind. Once you learn more about the various types of options available, one of them is sure to be perfect for your needs.
This is a Sponsored Feature
Luigi Wewege is the Senior Vice President, and Head of Private Banking of Belize based Caye International Bank, a FinTech School Instructor and the published author of The Digital Banking Revolution – now in its third edition.
You can follow his posts on trends shaping the banking and financial services industry on Twitter: @luigiwewege
How the UK’s tax system could change to recover from COVID-19
By Finn Houlihan, Director at ATC Tax
The economic impact of the COVID-19 pandemic on the British economy continues to be profound. In October, national debt surpassed 100% of GDP, causing Chancellor Rishi Sunak to stress the books needed to be balanced. In order to so, the Government will almost inevitably turn to tax increases as a core part of the long-term recovery effort.
And, with the Office for Budget Responsibility estimating that tax increases of £60bn are needed to restore the UK’s public finances to stability, and avoid a return to austerity, the UK’s tax policies could be set to undergo significant reform.
Already it looks like the Chancellor will begin tax reformation by raising taxes for the wealthy, with a review of capital gains tax ordered in July. There are various ways capital gains tax could be reformed to raise funds. Removing or reducing the annual exemption or losses relief, currently standing at £12,300 would be the obvious way forward. However, while this would apply to a lot of people, it wouldn’t generate a significant amount of funds, although it would most likely win cross-party support.
Inheritance tax has also been discussed in being one of the first types of tax to be reformed. Last year, the Office for Tax Simplification published plans to streamline inheritance tax rules to limit the number of exemptions. While the report hasn’t been put into practice yet, the Government could return to the plans to raise funds.
With the focus on increased taxes on the wealthy, the calls for a new wealth tax have grown and opinion polls indicate general public backing for one. Implementing a wealth tax would ensure those with the most assets carry the brunt of the financial load, while also raising a significant amount to shore up public finances.
However, the tax would require the creation of a huge administrative framework to deal with the declaration of assets from millions of Brits. The complexity of doing so would likely dissipate some of the public support while would take a long time, given government departments are already overwhelmed with responding to the crisis. A compromise could be found with a one-off wealth tax which would not require the same level of administration while still raise funds in the short-term.
Other new forms of tax have been put forward, including a new tax on goods solid online to prevent the potential collapse of the high street, which is being considered by The Treasury. This tax would involve a 2% levy on goods sold online and a mandatory charge on consumer deliveries. With the Chancellor recently deciding to abolish tax-free shopping for tourists in the UK, it’s clear retail is a main focus of the Government’s tax policy, so this could well become reality.
Another new tax policy considered by the Treasury is the “Capital Values Tax”. This would replace current business rates and be based on the value of land and the buildings on it, with the tax paid by the property owner, rather than the business leasing it.
Another avenue the Government could go down is what has gone before in times of crisis. During both world wars, the Treasury issued war bonds to encourage investment while reduce inflation and remove money from circulation. To aid the economic recovery effort, the Government could introduce COVID-19 bonds to have a similar effect and help businesses recover.
The recovery plan from the 2008 recession will also be on the minds of the Government, particularly as many would have been in the government setup then. However, with Prime Minister Boris Johnson effectively ruling out a return to austerity, it’s likely the Government will do everything they can to avoid the return of unpopular taxes such as the “bedroom tax” which came into effect then.
As the COVID-19 pandemic continues to reshape Britain’s economy, so too must its tax policy change with it. Funds will need to be raised in order to reduce debt and this will inevitably involve tax increases and it’s likely the Chancellor will employ a range of methods to create the new tax regime.
Early signs indicate taxes will be raised for the wealthy more than other demographics, with capital gains tax and inheritance tax likely to be targeted. Additionally, new forms of taxes relevant to the changed landscape will likely be put in place, particularly the online sales of goods tax to reflect the digital age. The Government may even look to previous crises, including the world wars and 2008 recession, to see what was done then.
Regardless, there can’t be any doubt that we’re about to enter a new stage of the pandemic response, which focuses around how to emerge from the crisis economically, and tax rises will be one of the first things to come into play.
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