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Must a fintech be local?

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Must a fintech be local?

Ryan Frere, VP of Global Payments, Flywire

Most successful tech companies, especially Silicon Valley tech-giants, seem to expand globally at a breakneck pace. With the majority of the western world connected to the internet, digital content and services appear to be scalable and distributed with little thought given to local needs and geographical differences.

Ryan Frere

Ryan Frere

In truth, expansion like this is far harder to pull off than it seems at first. It requires a deep awareness of local and often distinct, or even peculiar, behavioral specifics.

This is especially true if you are operating a fintech looking to expand into new markets. Newcomers are often subject to stringent domestic regulations and market idiosyncrasies. Regulation, exchange rates, and traditional institutions all stand in the way of a fintech entering a new market.

Not only is payment behaviour and payment infrastructure unique to each market, but the “middleware” -that is the bank rails, the card networks, the ACHs, and the central bank systems that connect consumers and businesses -shapes the payment landscape for whole vertical sectors or industries.

Money is personal

The first thing to remember is that personal finance is exactly that, personal. People are cautious about how they store and spend their hard-earned cash. It is always difficult to engage when you aren’t a trusted brand. People of a certain demographic are more likely to side with a trusted local financial institution than an unknown international fintech. The same goes for B2B firms, where enterprises feel safer using established financial institutions to process payments.

This trust is won gradually by solving the unique problems of a group of customers.

Paying lip-service to this issue is not an option. Payments while universal to an extent are unique to each domestic market. In that market, each vertical – hospitality, travel, manufacturing, education, etc. – will have specific requirements. Disbursements to suppliers within the large OTA value chain is a good example. Also, each enterprise – especially the larger players – will have particular proprietary software and workflows that support the business.

A personalised approach, native to that individual business is critical. And this is only understood with a clear focus and investment in that market.

While payments are often global by their very nature, they simply don’t work if your local differences are ignored.

Understanding local differences

Accepting payments from customers across Europe has traditionally been a confusing affair. While developed nations race toward a ‘cashless economy’ there are still social barriers for businesses trying to grow their customer base in less developed regions

Markets like Sweden are almost entirely cashless, while in Germany only 60% of businesses will accept card payments. Sweden sounds great for fintech’s but there is also greater competition in the digital finance space. Germany and Italy still use a lot of cash at the point of sale, making it harder for digital businesses to infiltrate the market. In the Netherlands, iDeal a new bank-led payment network is fast becoming dominant and now accounts for 60% of all online payments.

The popularity of this payment method is so high that card use is low compared to the rest of Europe. If nothing else, this proves the case for hyper localised approaches to fintech services.

Embracing geo-complexity

Cultural, political, and economic differences will also impact global expansion. Depending on the region that a company operates in, it will no doubt need to plan strategies to address these differences.

This can be witnessed when observing the growth of Airbnb and Uber. Global growth has been met by all kinds of resistance, ranging from political (are they paying tax?) to social (are they being fair and equitable?) and economic (are they creating wealth or destroying it?).

Uber has overcome specific payments challenges by partnering with the likes of Alipay in China to allow customers to use their preferred payment method. Whilst Airbnb had to tackle the social and political implications of introducing a new way for tourists to engage with local environments, which some communities rejected.

The iterative advancing method may be slower than one would expect for a digital company, but Uber has now accomplished expansion in more than 450 markets globally. Adapting business models and finding the right partnerships can improve the new market entry.

To take a Chinese example, Tencent, owner of WeChat, has capitalised on the unrivalled mobile device penetration in the market and provides a “super-app” that is a platform from which consumers can access a universe of services from messaging to social media and payments. WeChat has over 1 billion active users, yet it is still hyper-localised to China, due to a mixture of security concerns and regional-specific features such as its famous ‘red envelopes’.

The insight and data collected by the firm ensured that its WeChat Pay product was suited to the payment habits of its local financial environment. A fintech entering this market has to be prepared to overhaul their business model and make sure their approach fits with market ecosystems. Without this openness to change, becoming a global fintech is impossible.

Keep digging

Tech companies learn on the go and make iterative advances as they test new waters and ‘fail forward’.

While worldwide expansion is reliant on a keen understanding of market and often sub-market nuances, this doesn’t need to be a barrier. With the right focus, and critically, the right partnerships, a fintech can accelerate their global ambitions whilst flexing to meet local requirements.

A level of trust must be established before people engage with new financial services, this can be achieved by working with local banks and established financial institutions. A process of an iterative advances is the only way to succeed, testing new business models and not being afraid of experimentation when backed by local knowledge.

If that can be achieved then not only will a fintech be well positioned to enter a new market, they will almost certainly have an advantage over the competition.

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UK’s Sunak to build bridge to recovery with more spending

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UK's Sunak to build bridge to recovery with more spending 1

By William Schomberg

LONDON (Reuters) – British finance minister Rishi Sunak will next week promise yet more spending to prop up the economy during what he hopes will be the last phase of lockdown, but he will also probably signal tax rises ahead to plug the huge hole in the public finances.

Sunak, who is due to announce a new budget plan on March 3, has already racked up more than 280 billion pounds ($397 billion) in coronavirus spending and tax cuts, pushing Britain’s borrowing to a peacetime record.

Prime Minister Boris Johnson plans to lift England’s current lockdown entirely only in late June so Sunak is expected to rely heavily on the debt markets again.

His job retention scheme, paying 80% of employees’ wages, will probably be extended beyond a scheduled April 30 expiry date, further inflating its estimated cost of 70 billion pounds. Support for the self-employed looks set to stay too.

Businesses are demanding Sunak keep other lifelines, such as exempting the firms hardest hit by the lockdown from property taxes and giving them a value-added tax cut.

And calls are growing for an extension of a 20 pounds-a-week emergency welfare increase due to expire in April.

The Times newspaper said Sunak would prolong his stamp duty property tax break for three months until the end of June.

Sunak hopes that by then Britain will be emerging from its deep freeze thanks to Europe’s fastest vaccination programme.

Bank of England Chief Economist Andy Haldane likens the economy to a “coiled spring” primed with the savings that households have built up after being stuck at home.

A strong recovery would mean a jump in tax revenues, doing some of the Treasury’s job of fixing the public finances.

Rupert Harrison, an aide to former finance minister George Osborne, said Sunak should not try to slash Britain’s 2.1 trillion-pound debt mountain, equivalent to 98% of GDP – a ratio unthinkable for decades.

Instead he should write new budget rules tied to the cost of debt servicing, which is close to record lows.

“We can safely carry higher levels of debt than before,” Harrison told a webinar organised by Onward, a think-tank.

But the scale of Britain’s borrowing is raising questions about how long Sunak and Johnson can stick to their promises not to raise key taxes, made to voters before the 2019 election.

BROKEN PROMISES?

The huge costs of tackling the worst of the coronavirus pandemic are likely to ease in the months ahead, meaning this year’s 400 billion pound budget deficit should narrow.

But Britain is probably on course to be stuck with a gap of 60 billion pounds between revenues and day-to-day spending by the mid-2020s, the Institute for Fiscal Studies think-tank says.

In a nod to that, Sunak is expected to start raising Britain’s low corporation tax rate.

The Sunday Times said the rate would rise steadily to bring in an extra 12 billion pounds a year by the time of the next election, due in 2024.

Other options include ending a freeze on fuel duty increases which has been in place since 2012 and looks at odds with Britain’s plans to be carbon net zero by 2050.

But higher fuel prices now would hurt the haulage industry, already struggling with Brexit-related disruption, and could alienate working-class voters who backed Johnson in 2019.

Higher capital gains tax or lower pension incentives would anger lawmakers in Johnson’s Conservative Party.

David Gauke, a former deputy finance minister, said the only big revenue-raising options were the ones that Johnson has promised not to touch – income tax, VAT and national insurance contributions.

“In the end, they are going to have to say, sorry we just can’t responsibly maintain that manifesto commitment,” Gauke told the Onward webinar.

($1 = 0.7046 pounds)

(Writing by William Schomberg; Editing by Catherine Evans)

 

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Women inch towards equal legal rights despite COVID-19 risks, World Bank says

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Women inch towards equal legal rights despite COVID-19 risks, World Bank says 2

By Sonia Elks

(Thomson Reuters Foundation) – Women gained legal rights in nearly 30 countries last year despite disruption due to COVID-19, but governments must do more to ease the disproportionate burden shouldered by women during the pandemic, the World Bank said on Tuesday.

Nations should prioritise gender equality in economic recovery efforts, the bank said, warning that progress on equal rights was threatened by heavier job losses in female-dominated sectors, increased childcare and a surge in domestic violence.

“This pandemic has exacerbated existing inequalities that disadvantage girls and women,” David Malpass, World Bank Group president, said in a statement accompanying the annual “Women, Business and the Law” report.

“Women should have the same access to finance and the same rights to inheritance as men and must be at the centre of our efforts toward an inclusive and resilient recovery from the COVID-19 pandemic.”

A total of 27 countries reformed laws or regulations to give women more economic equality with men in 2019-20, said the report, which grades 190 nations on laws and regulations that affect women’s economic opportunities.

While countries in all of the world’s regions made improvements in the new index – with most reforms addressing pay and parenthood, women on average still have only about three quarters of the rights granted to men, the report found.

Notably, nearly 40 countries brought in extra benefit or leave policies to help employees balance their jobs with the extra childcare needs created by coronavirus restrictions.

But such measures were “few and far between” worldwide and will probably not go far enough to tackle the “motherhood penalty” many women face in the workplace, it said.

The report also noted separate data from a United Nations tool tracking gender-sensitive pandemic responses which found 70% of such measures addressed violence, with just 10% targeting women’s economic security.

The pandemic could result in “a backslide on various hard-won advances in women’s rights achieved in recent years”, said Antonia Kirkland, the global lead on legal equality at women’s rights organisation Equality Now.

“This disruption is a unique opportunity for countries to rebuild more resilient, inclusive and prosperous economies,” she told the Thomson Reuters Foundation by email.

“But this can only be achieved alongside the removal of sex discriminatory laws that prevent women from participating fully and equally in economic, social and family life.”

(Reporting by Sonia Elks @soniaelks; Editing by Helen Popper. Please credit the Thomson Reuters Foundation, the charitable arm of Thomson Reuters, that covers the lives of people around the world who struggle to live freely or fairly. Visit http://news.trust.org)

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Digital health checks vital to travel recovery, Heathrow says

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Digital health checks vital to travel recovery, Heathrow says 3

By Sarah Young

LONDON (Reuters) – Digital health checks will be vital to a recovery in foreign travel from the COVID-19 pandemic, Britain’s Heathrow airport said on Wednesday, after a collapse in passenger numbers saw it plunge to a 2 billion pound ($2.8 billion) loss last year.

The UK government said on Monday trips abroad could restart in mid-May as its vaccination campaign kicks in, sparking a surge in holiday bookings.

It is also looking into a digital health passport or app to help ease restrictions, while conceding the benefits have to be weighed against potential risks to civil liberties.

But Heathrow chief executive John Holland-Kaye said digital technology, and international agreements, would be vital to reviving a travel industry on its knees.

“It’s absolutely critical and that’s one of the main things that government needs to work on,” he said, when asked about a digital health app.

At present, paper checks on COVID-19 test results and passenger locator forms take 20 minutes per traveller at Heathrow, making travel near impossible should passenger numbers rise from current low levels.

Britain’s biggest airport said it was “very likely” people would be able to go on their summer holidays, but expects passenger numbers will take time to recover.

The airport, west of London, is forecasting 25 million passengers in the second half of the year, meaning it would be operating at about 50% capacity.

Heathrow, owned by Spain’s Ferrovial, the Qatar Investment Authority, China Investment Corp and others, last year lost its title as Europe’s busiest airport to Paris after its flight schedules shrank more than those of its rivals.

Passenger numbers plunged 73% to 22 million people last year, with half of those travelling during January and February, before the pandemic shut down global travel in March.

Heathrow said it had 3.9 billion pounds of liquidity, giving it sufficient resources to keep going with low levels of traffic until 2023, despite the 2 billion loss before tax for 2020.

The airport urged the government to provide business tax breaks for big airports, something only available to smaller airports so far, and to extend the furlough job support scheme to help it financially before the recovery takes off.

($1 = 0.7044 pounds)

(Reporting by Sarah Young. Editing by James Davey and Mark Potter)

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