By Graham Jarvis, Freelance Business and Technology Journalist
The financial services industry has often been criticised for being slow to innovate.
However, new non-banking and fintech entrants, such as technology start-ups have, over the last few years, begun to shake up the market.
Furthermore, the rise of cryptocurrencies and blockchain has inspired a vision amongst many free market protagonists of being able to conduct business, without the need for central banks and regulators. To them, this marketplace decentralisation is a good thing. For example, it can allow new and non-traditional entrants, including ordinary individuals, to become venture capitalists. However, cryptocurrencies and blockchain also come with their own critics.
Anton Abashkin, Chief Operating Officer of VNX Venture Exchange, offers his view on the past and current trends in banking and financial services: “I think the last 5-10 years have been quite fruitful in terms of innovation and the whole notion of the digitalisation of banks and financial services has come along quite substantially. They have gone from a position where they completely disregarded and ignored innovation and digital, to embracing it and really trying to jump on this bandwagon.”
“In practical means we have seen banks using the internet purely as a communication platform to putting substantial resources into implementing and experimenting with digital banks, digital products and services, peer-to-peer lending and platforms. This is to allow the entire service to be completely provided online and in a self-service mode.”
“Then there has been a shift towards using artificial intelligence (AI) to better understand through big data what the customers are trying to do, and to reduce the frictions and the barriers to adopt banking products worldwide, and that really has become mainstream. We have seen a lot of financial institutions; banks and insurance companies adopting different innovation and digitalisation strategies, while setting up innovation labs, incubators, accelerators and corporate venture funds.”
Venture capital growth
He believes that corporate venture capital can grow from single digit percentages to as much as 20%. Part of this growth includes companies – particularly the large financial institutions – have adopted innovation, investing in new technologies. This includes blockchain solutions, which he describes as an attempt to solve the problems of the banking and financial services sector following the 2008 financial crisis, which tarnished the reputation of the industry.
To regain the trust of its customers, it has had to innovate in the face of increasing regulation to ensure that businesses can remain liquid whenever any similar crisis occurs, and to restore trust the industry has largely embraced regulatory compliance. However, some people have seen it as an opportunity to move away from the regulators, the central banks and from other traditional regulatory institutions to embrace cryptocurrencies, blockchain and distributed ledger technologies.
He nevertheless says that every financial institution in the world is piloting blockchain-related projects. This raises the hopes of many people within the marketplace, but he thinks that everything really is at a stage where there is hope more than results. Even so, he believes that the traction and the momentum is already there for these technologies. “You can read in the news stories, such as the Commonwealth Bank of Australia selling bonds via blockchain”, he says before stating that it was part of a “World Bank initiative to implement blockchain in global banking.”
Decentralisation versus centralisation
As for the question about complete decentralisation versus centralisation, Abashkin considers the former strategy of decentralisation, to be nothing but a Utopian dream. He thinks this is because blockchain and cryptocurrencies are struggling to find their niche. He therefore predicts that full decentralisation will only work in a limited number of cases. So, when it comes to using blockchain technologies, which are either being used, implemented or explored by many industries, he advises that there is a need to compromise and find a balance between a centralised and decentralised system, because it’s about trust.
This means that any decentralisation must be compliant with any existing regulatory frameworks. “You have to think about the value that they bring to your business, and so it’s about making sure everything is done from a business perspective in an appropriate manner to decide whether blockchain can address certain issues”, he explains.
“Decentralisation was invented as a way to address the potential risks around fraud, away from a centralised authority that could misbehave, destroy value or inappropriately use resources”, he adds. He comments that this in itself also creates risks, as shown by certain initial coin offerings (ICOs) and by some cryptocurrencies which have been used to scam people. He therefore emphasises that it’s crucial to maintain some checks and balances to prevent fraud, and he advises that this can be done by involving law firms and the regulators involved to balance the different interests of the players within the ecosystem.
Is this a contradiction from the usual view of blockchain technologies, and maybe even of cryptocurrencies? He responds by arguing that no contradiction exists: “It is important to involve the regulators to help define the rules: that’s what we’re doing in Luxembourg to identify how you make this new marketplace compliant to the existing regulations, and for the customers and partners, to ensure that everybody follows the rules. This is the right way to do it.”
He also stresses that cyber-security is essential because decentralised systems are prone to cyber-attacks. However, the key weakness is often us as human beings. “With blockchain you have to be clear whether there is a weakness in the system that has bad actors, and there is often a lack of prudent behaviour that makes people vulnerable to cyber-security threats, such as the storage of passwords”, he elaborates. This can emerge because he finds that there is often a lack of rules to protect people. For example, when your credit card information is stolen, it’s often not the bank’s fault and so the question about who’s culpable and liable is not always black and white.
Moving on to discuss trading platforms, Abashkin points out that transactional speeds, and the simplicity of the transfer of assets from one person or institution to another are vital. However, with traditional clearing systems the process could often be slowed down. Blockchain and tokens eliminate these intermediaries though, and so he claims that this makes the whole process more transparent, efficient and streamlined to make transactions both faster and cheaper to complete.
Abashkin, therefore, reveals: “NYSE, Goldman Sachs, and other large institutions are exploring blockchain to make transactional processes more efficient and streamlined, because trades can currently take 3 days. VNX is therefore using blockchain to make the process much faster to achieve a payments settlement within minutes. It can also improve the cost-efficiency of the trades, and you can use smart contracts to allow you to maintain the lifecycle of financial instrument or of stock.”
“In our case, it’s our duty to police what happens on our exchange, and this is why we are creating a regulated marketplace to ensure that we have someone to check that we’re doing everything right,” he says, before tackling the issue of smart contract security. He admits that anyone can write a smart contract, and that there are some occasions where it will be a case of tough luck. He rightly comments that you can’t have people doing whatever they like, and so checks and balances are needed to ensure that the rules are implemented and written.
He adds: “The ones operating in those markets are responsible for operating within the rules. This is down to the operator of the platform and the regulator to ensure that what happens in the smart contract is regulatory reviewed. The smart contract is a template created by the issuing authority to establish the specific parameters of the token placement.”
He states that there is an array of additional benefits of a Smart Contract, such as maintaining the lifecycle of, for example, stock or the tokenised asset that is being traded on the platform; another is that there can be restrictions of the token transfer from 1 platform to another, which can be embedded into the contract.
Abashkin does, however, state that: “Many of the problems with existing ICOs is that the smart contracts have often been written without much thought, and they are impossible to change. The smart contracts are therefore exposed to weaknesses, and this can lead to money being stolen.”
When questioning how industry players will be reviewed, Abashkin highlights that there has to be some central authority overlooking the contracts being issued, appropriately monitoring and reviewing their content, as well as a company carrying out their own reviewing process.
He predicts that over the next 5 years, there will be a need to make a revolution to change how the markets operate. This revolution involves taking and existing asset class to open up the market to new players. He claims this can add liquidity and multiply the market impact. Subsequently, more companies will gain more access to venture capital. So, whereas the traditional venture capital model is often about exclusivity, the keyword here is inclusivity to unlock the doors of what is traditionally a tightly-closed venture capital club.
“Silicon Valley controls more than 40% of the market, but more people would get involved if they had greater access to capital and liquidity”, Abashkin believes. This is why his company is offering a decentralised, blockchain-based trading platform to allow people to trade their tokens to create more liquidity. He concludes: “Through innovation and the automation of onboarding, making data to the market, there is an opportunity to create more transparency and growth within the marketplace.” Time will tell if the market is ready to make the most of these benefits, allowing anyone to be a venture capitalist.
Three questions the financial services industry must answer in 2021
Xformative, a Mastercard Start Path recipient, shares what these questions mean for fintech partners and their innovations
This year, fintechs and institutions alike pushed the limit on how fast, innovative, and digitally-savvy they could be. Buzzwords like cloud and faster payments made headlines, but 2021 will be about refining best practices and putting them into action. Xformative believes that more industries should benefit from digital payments and that it’s not just about faster payments, but the option to offer multiple methods.
- Which industries are lagging in the digital payments space and why? The pandemic forced financial institutions and their partners to move digital transformation into a new phase of maturity. But this doesn’t mean every industry has transformed, there are still laggards. According to a survey of more than 1,400 American freelancers and contractors, conducted by Bill.com, more than half said they were still receiving their money in the form of a physical check. Checks still exist in spaces like Property and Casualty, though we did see some reassuring industry changes this year. The year ahead will require businesses to offer more payments flexibility outside of physical checks to meet the payment needs of their gig workers, freelancers, and contractors. Businesses will rely on technology partners to bring them up to speed and simplify the payments process.
- How can fintechs overcome the challenges of building in the cloud? Most businesses want to architect using a select cloud provider, or at least offer cloud-based services, to remain competitive in today’s fast-paced, disruptive landscape. There are assumptions that cloud architecture will inherently be less expensive to operate than legacy mainframe systems, but for many, these assumptions have turned upside down when developers fail to understand cloud cost optimization principles. As fintechs look to build in the cloud, they should ensure their technology is highly optimized, only leveraging real-time capabilities and transactions when required. Responsible fintechs should focus on balancing customer experience and economics with a mix of batch and real-time capabilities, constantly asking themselves, “is real-time the best choice?” Just because real-time can be offered doesn’t mean it should, and 2021 will be about drawing the line between utilization and optimization.
- Why is offering more payment choices important? Emerging faster payments are working in parallel, not as a replacement for other methods. People want options to be able to pay however they like, whether it’s with Zelle, Venmo, Apple Pay, or traditional methods like cash or card, and financial institutions need to be prepared to meet this demand. The card that consumers once kept in their wallet was a key component of the bank’s and/or program manager’s brand value, as well as potentially communicating the cardholder’s lifestyle and socioeconomic status. 2021 will reinforce the value of financial institutions having partnerships with fintechs who can help them evolve their brand value to include the broad scope of emerging payments.
It’s time fintechs and institutions partner to digitize payments and offer choices. 2021 is about building smart and partnering for capabilities that can open the door to new opportunities at a financial institution.
2020: The paradoxical year that has reshaped the future of motor insurance and related sectors
By Alan Inskip, Tempcover CEO & Founder
There’s no doubt that 2020 will be remembered as the year that changed the world. Whether that overall change was for the better or for the worse is a matter of perspective. One thing is for certain, 2020 has been the year of immense innovation and adaptability in the face of seemingly insurmountable adversity caused by the COVID-19 pandemic. In this piece, I’ll touch on some of the greatest challenges that could have had a potentially crippling effect on the economy but instead were overcome and ultimately paved the way for increased resilience and innovation.
Public transport shunned in favour of private vehicles, but driving patterns dramatically shift
With ten months of varying national and regional lockdown restrictions, passenger numbers on public transport have plummeted as many people continue to work remotely, and with most opting for the safety of travelling by private vehicle when they do need to get out and about. But because of restrictive travel measures, motorists have been using their vehicles far less frequently.
This posed a major challenge for traditional motor insurers that were not able to swiftly adapt to this change, with many coming under fire for failing to adjust annual premiums in line with new driver trends. As motorists became increasingly frustrated having to pay the same premiums or sometimes even more despite their vehicle usage being substantially minimised, the relatively new and still largely unfamiliar InsurTech industry was able to rise to the occasion.
In short, InsurTech involves the utilisation of the latest technological innovations such as data analysis, cloud computing, artificial intelligence and machine learning to enable insurance products to become more agile and flexible in line with modern consumer demand – all while remaining price competitive.
Being fully-digital and technology-driven, InsurTechs demonstrated the flexibility and agility that enabled them to adapt to the huge shift in customer demand and step change in how insurance is purchased and consumed. They did this by offering an entirely digital user experience in near real-time, with temporary policies tailored to the time actually needed – anywhere from 1 hour to 28 days.
In a time of furlough and economic uncertainty, this meant that many motorists who were not using their vehicles regularly did not have to take drastic action like declaring their vehicle SORN to achieve short-term financial relief. Nor did they have to risk driving uninsured or committing to an annual policy that they could ill afford at the time.
The rise of the digital dealership offering temporary insurance as part of the purchase journey
In the automotive retail market, dealerships were forced to make drastic changes to their operating models to comply with social distancing guidelines. Showroom footfall and subsequent sales initially plummeted. But in the face of this immense adversity, we witnessed the rise of the digital dealership, a concept that would have been unfathomable even just a year ago.
Cazoo was the first fully-digital platform to enter the vehicle dealership market in late 2019, and there has also been significant investment this year in new entrants such as Cinch and Carwow. Traditional dealerships such as Arnold Clark, Cargiant and Motorpoint have extended the digital aspects of their purchase journeys with services including home delivery and Click and Collect as alternative options to the full show room experience.
InsurTech has been instrumental in ensuring that car insurance supports this shift to digital, as several national blue-chip dealerships, with both physical and digital showroom floors, now offer temporary driveaway insurance policies that cover the vehicle for a fixed-term, usually between five to seven days.
The entirely online one-step user experience is the first of its kind in the traditionally outdated and inflexible driveaway insurance industry and it is dramatically simplifying the process of how insurance is purchased and consumed. Due to the flexibility and agility of the digital solution, each retailer has its own unique URL, where the customer can obtain a simple single-cost policy in just 90 seconds through an entirely digital process, which fits in line with the evolving consumer purchase trends.
This takes the stress out of searching for annual insurance on the spot and provides the driver with near instant cover so that they can immediately drive their new car while giving them the opportunity to thoroughly research the best annual policy to suit their needs. It’s also an ideal solution while the car is under its money-back warranty, as the driver does not have to commit to an annual policy on a car that might be returned. Another benefit is there’s no risk to any existing No Claims Discount, as it’s a separate and standalone policy.
Declining brand loyalty and a demand for a more personalised and convenient user experience
Insurance has an unenviable reputation for being inflexible and even unwilling to adapt to shifting consumer trends – making it confusing for most customers. Even pre-COVID, there was a clear trend that brand loyalty was in decline, as modern day consumers are no longer prepared to remain blindly loyal to any company for a long-term period. Instead, they will reward businesses that offer a simple and convenient user experience at best value. COVID accelerated this trend and many large insurers have struggled to adapt accordingly.
Conversely, this has enabled InsurTech to thrive, as the products and user journeys are developed with direct input from customers to ensure that they are receiving a straightforward and fit-for-purpose solution that best fits their needs and requirements. Just some examples of this are simplified terms and conditions, near-instant and paperless policy documentation via the web or dedicated app, and data-driven customer engagement initiatives that offer personalised discounts and communication via email and text messaging. The end result is a user experience that is easier, more convenient and better value for potential consumers in the market.
Cautiously optimistic (if somewhat uncertain) future
Even in the most stable periods, it’s a challenge to accurately predict future market trends. And with 2020 completely rewriting the rulebook on how business is conducted, it would be remiss of me to make outright predictions. One thing is for certain, the days of slow, inflexible and costly motor insurance are numbered. It is important to note that this doesn’t mean that InsurTech is gaining the upper hand at the expense of the traditional insurers in a bid to replace them.
Instead it is there to fill a gap and act as a complementary add-on to provide the best possible value to the consumer. Industry players that enter new collaborative partnerships will dramatically improve the consumer experience, leading to new business wins and return custom, which ultimately impacts positively on the bottom line. But those that fail to adapt will be left behind.
I believe that we can look forward to a futuristic economy in 2021, where ground breaking technology continues to advance at an unprecedented rate to adapt to rapidly evolving consumer lifestyles and subsequent purchasing habits. The real winner will be the consumer and that is in everyone’s best interest.
Leadership and management in a WFH world
By Carolyn Moore, SVP of People at Auth0
Although many of us will have settled into some kind of groove, having worked away from the office for the best part of a year, there are still numerous challenges that businesses and their workforces face in this new reality.
One particularly pertinent challenge is the one faced by people managers, especially those managing virtually for the first time. How can you ensure productivity from those in your charge when you don’t have direct oversight? How do you have those more difficult conversations over a video call? Some of your team may be handling remote working better than others, so how differently should you be handling them day-to-day?
For the majority of businesses these will be questions they’re still grappling with. When the pandemic hit, we happened to be in the fortunate position of being a remote-first business, where 60% of our nearly 700 employees were already working from home. As a result, the uptick to 100% was far less taxing for us. In seven years of working from home, we’ve learned a lot about managing teams remotely, a few of which may help leaders who are still navigating the transition.
Keeping communication channels open to build trust
Leading a remote team is wholly different to the usual, in-office set up. Strict hierarchy, and any notion of presenteeism do not translate well into the remote working environment. You have to accept that your employees’ domestic life will necessarily overlap with their professional one.
Leading a virtual team requires trust and a philosophy of work based on results, and managers need to learn to give them more freedom to do work on their own terms, as long as they produce the intended results.
Building trust is best managed with regular communication. Frequent written communications from leaders regarding strategy, objectives, and organisational learning is crucial. It’s natural when working remotely for team members to isolate themselves and get wrapped up in their own workload. Managers need to help their teams understand how their work impacts on the broader corporate objectives. At Auth0, we adopted and adapted a technique created by Google called ‘Objectives and Key Results’ (OKRs) to enable this.
Now more than ever, make it a priority to regularly check in with your employees and always be up to date and aware of what their needs are. One of the first initiatives we kicked off in an effort to do so was our Slack ‘Coronabot’. This is a tool we integrated with our main form of communication that allows employees to self-identify if their work capacity was impacted by the pandemic. Another way that we tried to better understand the concerns and needs of our employees was holding listening sessions. From these listening sessions, we’ve rolled out a couple of initiatives to combat burnout, including Slack-free weekends and no internal meeting Fridays.
Make flexibility a priority
As the worlds of home life and work life collide, the traditional ‘9 to 5’ workday needs to evolve. Leaders need to encourage their team to devise their own schedules and complete work at those times when they’re most productive.
If in doubt, ask your employees how best you can help and trust that their answers will be honest. In our own experience we saw a need for a different approach when it came to supporting our employees who are caregivers. With childcare much less accessible, caregivers are doing double duty. We rolled out a survey to these individuals to hear directly how best we could support them and used the feedback to plan future programmes and supports.
We have encouraged these employees to take advantage of flexible working hours, should they need to adjust due to the pandemic, and are using tools like Clockwise or Slack that allow our employees to set their working hours and snooze notifications when they’re offline. This alleviates the pressure to respond, and we’ve found employees are actually happier and more productive this way, especially if you have a team spread across several time zones.
Put your culture front and centre
When you work remotely interactions between management and staff become increasingly transactional. Leaders need to avoid making decrees without explaining the reasoning behind them, and the thought process that led to them. Failure to do so can create a secondary culture within the workforce composed of rumours and hearsay, which can lead to mistrust.
Leaders therefore need to firstly be clear in the reasoning for their decisions, but also explicit about the culture they want to create. Your corporate culture must be written down and communicated frequently so employees can use them to guide their everyday work.
This is particularly beneficial for multinational companies spread across geographies and timezones and encompassing multiple cultures. Whether your teams are based in Singapore or San Francisco, they all have a code of conduct to adhere to This is crucial for dealing with conflict in a productive way and creating teams that collaborate and respect each other.
Create virtual spaces to socialise
Leaders mustn’t forget the more pastoral benefits of the workspace. Spontaneous water-cooler chats may seem trite, but they’re an essential means of colleagues building rapport and learning about one another’s lives outside of work.
Socialising should not disappear when you transition to remote work. That would be bad for business, productivity, and employee wellbeing. Instead, I would encourage you to get creative and use different functionalities of the collaboration tools you’re probably using daily. We use Donut within our Slack channels, that randomly pairs three employees together and schedules them for a meeting. The intention is to bring employees together that otherwise may never interact and have them connect on topics beyond the workplace, such as life, family, etc. Donut has been a fantastic aid in keeping our distributed workforce feeling connected. We’ve also utilised the results of both our semi-annual engagement survey and more frequent pulse surveys to give us insight into how effective these engagement programmes have been and where we could tweak them to make them even better.
Don’t neglect security
Security should always be a top priority, especially especially as people are logging into more services remotely. Your business’ IT and Security teams should have set up multi-factor authentication as the minimum standard. As new apps are connected to better enable any of the measures described above, your IT teams and managers should also be educating their teams about the access third-party providers have to their data.
Managers have a crucial role to play as evangelists of security best practice. They should be monitoring whether their teams are completing their security awareness training and, if new apps or technology are being introduced, ensuring that the appropriate channels are open for them to ask questions. The pandemic has been a lucrative time for cybercriminals, who have taken advantage of some lapses in security best practice. Ensuring security is everyone’s business, but it starts from the top.
Building for the future
For many businesses the move to remote working will have been, and is continuing to be, a difficult transition. Admittedly, remote work is not a perfect substitute for personal communication. When circumstances allow, we would recommend managers meet with their teams in-person at least once a year. managers meet with their teams at least once a year.
However, even whilst the pandemic still hampers our ability to travel and meet face to face, it is still possible to have a distributed team that is productive, collaborative, and happy. If leaders take the time and make the effort to foster a culture built on trust, it will open up opportunities for you in the long-term, no matter what that future may be.
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