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How alternative lending can help close the UK productivity gap

'Optimal office' productivity gains could unlock £39.8 billion GDP for UK and Ireland

By John Mould, CEO, ThinCats

Britain’s on-going productivity conundrum will be keeping the country’s politicians and civil servants awake at night.

The Chancellor Philip Hammond saw it to be such a problem that he commissioned the UK Productivity Council to address the issue.

The UK has experienced a slump in productivity growth since the financial crisis that shows no sign of coming to an end. The slowdown has been more acute than in any other western country. The Office of National Statistics reports: “Over a longer period, UK productivity growth has been relatively weak – in particular, since the onset of the economic downturn in quarter 1, 2008.”

UK productivity is almost 20% below its pre-crisis trend-level and as much as one-third below that of the US, Germany and France. This lag is due to the large gap between our most and least productive companies, much larger than exists in comparable countries. The bottom quartile of UK companies’ productivity is approximately 80% below the UK median. In Germany and France, this figure is closer to 60%.

John Mould

John Mould

“Since 2008, productivity in the UK has essentially flat-lined,” said Bank of England chief economist Andy Haldane, in a recent speech. He was in no doubt as to the seriousness of the problem: “This is almost unprecedented in the modern era, a ‘lost decade’ and counting”. The UK faces perhaps no greater challenge, economically and socially, than its productivity challenge.

It may seem trivial to most Britons, but the more productive a company is, then the greater opportunity there is to grow, invest and hire more people.

The important questions now are why is this a problem, what can be done and how does finance play a role in addressing the problem?

One answer you might have heard is that ‘zombie companies’ are holding productivity back. These are companies that in a Darwinian form of economics fail as others succeed. Capitalism’s so-called ‘creative destruction’.However, the decision by the Bank of England to reduce the base rate to a record low of 0.5 per cent allowed many of these companies to continue to survive thanks to a low cost of capital.

This only goes part way to explaining the situation. The cost of capital, for one thing, is even cheaper in Germany. Corporate laggards are not broken, but neither are they thriving. It should also be noted that they employ about 80-90% of the workforce.

Productivity relates to investment. For example, the greatest growth in US productivity in the period up to 2003 coincided with a strong period of investment in IT. When investment fell, labour productivity followed. In other words, productivity growth depends on investment.

And investment, aside from in its most successful companies, is what UK plc is missing out on.

Britain ranks low on research and development (R&D) spending by international comparison, at 1.7% of GDP, more than one percentage point below its main competitors. What’s more, three-quarters of the UK’s private R&D spending is by only 400 companies, less than 0.01% of its businesses. As a result, among SMEs, the UK ranks 20th out of 36 in the European league table on in-house innovation and the introduction of new products and processes.

Britain stands in stark negative contrast to Germany in regard to business lending, UK banks lend 6% of their assets to corporates, whereas Germany’s lend more than three-times that. And we know from our experience, that these loans tend to be of what the banks determine to be a low-risk nature. They do not encourage innovation or entrepreneurship.

Whilst there is growing support for SMEs in the form of the UK’s national development bank, the British Business Bank, it was only formed in 2014 and is playing catch up to its German counterpart, the KfW, which has been around for 70 years.

However, it should be noted that the traditional lenders have been constrained by regulations over the past decade, plus often lack an understanding of the complexities of SME capital needs. They generally need to lend against secure assets and a simple business plan. Modern businesses,  especially the innovators, can seldom tick all the boxes that banks need. But the expertise and the will to provide capital to UK SMEs exists in the form of alternative finance. We’re growing and we know UK business.

We have combined mainstream lending expertise,  experts who have spent many years working with businesses to provide the finance they need at terms that work for them, with quantitative tools that identify those most in need, combined with new forms of finance.

 

Finance

Barclaycard launches new service to redefine supply chain payments for businesses

Barclaycard launches new service to redefine supply chain payments for businesses 1
  • Barclaycard Payment Intelligence uses data to help businesses of all sizes better understand and nurture their supply chains
  • The brand-new technology analyses each supplier against a range of factors to create a bespoke payments strategy
  • The solutions help combat late payments, save time and generate savings
  • Strong supplier relationships are even more crucial in challenging circumstances

Barclaycard has launched Barclaycard Payment Intelligence (BPI), a new service which uses in-depth data analytics to provide procurement departments with the most comprehensive picture of their supply chain – driving cost efficiencies as result.

The service combines hundreds of accounts payable data points with internal and third-party data. This helps customers develop the right payment solutions for their various suppliers in a fraction of the time it would take to do manually.

The technology helps businesses catalogue their suppliers based on the number and value of transactions as well as their size, location, industry and whether early payment is likely to generate savings, to create a comprehensive overview of the entire supplier framework. For companies with thousands of suppliers – big and small – on their books, the new product can offer a significant time and cost saving for key decision makers.

Specifically, Barclaycard Payment Intelligence allows business buyers to understand:

  • Their current supplier payments profile, analysed and presented in different formats
  • Their suppliers’ payments preferences and capabilities – such as being able, and willing, to accept card payments
  • How critical, as a buyer, their business is to each supplier in their chain
  • The best timeframe for paying a supplier to ensure early payment discounts are taken advantage of, and to protect the supplier’s cashflow

A set of algorithms created by Barclaycard Payments then translates these insights into a bespoke payments strategy, which allows customers to:

  • Combat late payments: The Federation of Small Businesses estimates that 50,000* small and medium sized businesses close each year due to late payments. Combatting this builds stronger relationships with critical suppliers and often results in better deals for the customer.
  • Save time and resource: Initial findings from Barclaycard Payment Intelligence research testing show that, on average, 20 per cent of supplier costs are made up of low-value, one-off transactions too often settled inefficiently via invoice. Automating these payments through a card solution can save an organisation valuable time and resource.
  • Generate savings: Barclaycard research** shows that UK CFOs are missing out on £6.7 billion in savings by not taking advantage of early payment discounts. Barclaycard Payments Intelligence enables businesses to fully capitalise on early payment discounts and generate a better return on capital employed.

Anna Porra, Commercial Strategy Director for Barclaycard, said: “Clunky and complex supplier payments processes mean that businesses of all sizes are losing out on time and money.

“Barclaycard has looked to make use payments data to identify opportunities for improvements across the procure to pay process and drive actionable insights for both buyers and suppliers. Barclaycard Payment Intelligence is a new suite of tools that harness state-of-the-art data analytics and financial modelling to devise tailored, actionable solutions for our customers.

“This approach not only brings tangible benefits to the bottom line, but it also helps to strengthen relationships between buyers and suppliers. As we navigate our way through this difficult period, safeguarding supply chains is a key way of future-proofing operations, and it’s part of Barclaycard’s mission to help businesses realise these benefits.”

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Finance

Younger generations drive UK alternative payment method adoption for online transactions

Younger generations drive UK alternative payment method adoption for online transactions 2
  • 42% of Millennials and 35% of Generation Z feel confident using alternative payment methods, or have used them previously
  • 81% of consumers agree security of their data and money is the most important aspect when choosing a payment method

UK London, 11th August 2020 – As the migration away from traditional payment methods in the UK accelerates, younger generations are leading the adoption of alternative payment methods (APMs) such as bank transfers and e-wallets, reveals a new study from PPRO. According to the findings, 42% of Millennials (born between 1980-1993) and 35% of Generation Z (born between 1994-2001) feel confident using, or have used, these methods of payment before.

In the UK, any payment method other than credit or debit cards is viewed as an alternative payment method (APM). However, across the globe, these forms of payment are considered local payment methods (LPMs) due to their broad adoption. In fact, there are over 450 significant local payment methods currently available worldwide, which account for more than 70% of global e-commerce transactions.

Ongoing COVID-19 restrictions have seen a surge in e-commerce in recent months, with many consumers forced to shop online for everyday goods. As a result, UK consumers have been more inclined to try a range of digital payment methods to enable a convenient transaction experience. Currently, 89% of UK consumers are confident using PayPal, whilst a further 31% express the same confidence in using mobile wallets such as Apple Pay or Google Pay. This form of payment is particularly high for younger generations, with 68% of Generation Z stating they use mobile wallet technology.

For younger generations, seeing a buzz about new payment methods in the news and on social media has been a key driving force for local payment adoption, 31% of Generation Z consider this the biggest motivation to try new payment methods. For Millennials, 37% said that merchant acceptance is their main driver.

For the overall UK population, however, security was ranked the top adoption driver, even above reputable brand image, with over half (59%) of UK consumers stating security is the most important influence on their usage of new payment methods. This highlights the growing need for online merchants, Payment Service Providers and FinTechs to address consumer perceptions around trust and assure the security of payment methods at checkout.

“Local payment methods, such as direct bank transfers and pay later schemes, are considered new ways to pay in the UK. However, for online merchants that sell to consumers across borders, these local methods are the norm and must be offered at the check out to reach international consumers,” comments James Booth, VP Head of Partnerships, EMEA at PPRO.

“Traditionally, the UK and US alike have stuck to using credit and debit card payments for online transactions. However, for merchants, local payment methods (LPMs) are much more secure in comparison to card payments, due to chargebacks and being prone to digital theft and fraud. LPMs, such as bank transfers, are more secure and a lot cheaper for merchants to process,” adds Booth.

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Finance

Teaching children about wealth management and why there has never been a better time

Teaching children about wealth management and why there has never been a better time 3

By Annabel Bosman is Managing Director and Head of Relationship Management at RBC Wealth Management

As we approach the end of week sixteen in lockdown, I am breathing a sigh of relief at having successfully navigated another week of juggling work and client commitments with the increasing demands of my children – age six and nine.

My day job is to lead RBC Wealth Management International’s relationship management efforts in the British Isles, but my toughest challenge right now is educating and entertaining my new junior co-workers each day.

While my children’s school has done a great job at setting up daily tasks and learning activities, there is only so much ‘teaching’ they can take from me without World War III breaking out. So instead of rigidly sticking to the school curriculum each day, I have taken the opportunity to educate my young children about a topic that is often not discussed enough in school — money.

Why now?

What I do for a living has become a central discussion in our co-working space — also known as the dining table. I have found that investment concepts can be grasped quite well by young children and this has led to some interesting conversations about which businesses are doing well in the current situation, and those that are not. Children are often more logical than adults, and in my house, this logic is helping them grasp the basics of an investment philosophy. As a result, I have even passed conversations around stock markets off as maths classes!

For young children like my own, helping them learn the basics of managing money is something that will hopefully set them up well in life. There are some great tools to help them do this – we use GoHenry, which provides children with a pre-paid card to learn about budgeting. Likewise, encouraging conversations around how they spend virtual money whilst gaming on apps like Roblox can give some really important lessons around how you look after the money you have earned – and how if something seems to be too good to be true, it probably is.

The most important thing is not to underestimate your children. Whether it is the application of a “mummy-tax” when they want chocolate or applying interest rates (albeit nominal!) if they want to borrow money, teaching our children the basics around money is something we can all do.

Incorporating new lessons

The first step is to identify the best way to approach teaching these topics in a way they will understand. Resources such as the Usborne Money for Beginners are really helpful to start conversations. There are also several YouTube clips and even TikTok channels dedicated to helping children think about money. I tend to think about what is important to them and use that as a catalyst to start conversations; for example, it could be how they can monetise their love of the gaming app Roblox.

Ending the taboo

Any conversation that leads to a greater awareness around financial discipline and security has to be a positive, no matter what the age – and there are certainly parallels with my experience and that of my clients. There seems to have been a shift in HNW and UHNW families’ willingness to talk about money. Whereas previously it was seen as very un-British to speak about money, the pandemic has meant that a more open conversation is taking place.

Whatever our financial position, we often bury our heads in the sand when it comes to money, and don’t always have a clear financial plan, but when we start to put down on paper what’s going in and out, we immediately start to feel more in control, thus becoming more engaged. It can be uncomfortable to have that conversation with your family, but we regularly speak with our clients about all manner of sensitive subjects including putting wills in place, inheritance and protecting loved ones. Naturally, this is also bringing conversations to the fore around succession planning, legacy, philanthropy and even one’s own mortality. When times are good, it’s easy to not have these thoughts at the forefront of your mind, but in challenging times like these, it highlights how essential it is to talk. And just as with my children, there are plenty of apps and websites that can help you take the first steps.

Varying generational approaches

There is no one way to educate your children about money — what worked for one generation will not necessarily work for the next. Different generations have had to address the different approaches they might take in thinking about money and try to reach a common language to agree on common goals. Whilst many of us grew up with physical pocket money from our parents after completing household chores, today’s young children rarely even touch money, they receive their allowance on an app.

A 2019 study commissioned by RBC Wealth Management and conducted by The Economist Intelligence Unit found that seven in ten younger affluent respondents think that their beliefs about wealth are very different to those of their parents; with a similar percentage, 78%, believing that wealth is less easily attained or preserved today. Early, open and continuous dialogue can only help confront obstacles head on and smooth the path ahead.

These talks also allow HNW individuals and their families to talk about how they can address their non-financial goals, such as fighting climate change or supporting social agendas – something that the younger generation is acutely focussed on. Indeed, more recent social events have led to an ongoing and overdue debate around what privilege looks like and how society needs to change.

What next?

With the summer holidays fast approaching, the struggle to keep children occupied will continue, but without the pressure of the school curriculum. This is an opportunity to continue discussions with children about where money comes from and where its value lies.

I have found it tremendously empowering to talk to my children about money and getting back to basics — it may not be school learning, but it is real life learning. And as I say to my clients, the initial step to start a conversation is always the hardest.

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