John Harvie, Director at Protiviti
Hiding behind the four characters PSD2 is perhaps one of the most exciting opportunities in a generation to reform the way that goods and services are bought and paid for. The second payment services directive has the potential to create a ripple effect that could change the entire financial services market.Following on from its predecessor (PSD1), this far sighted piece of European regulation creates a new set of rules, structures and technical standards that are designed to lower the frictional costs associated with trade in the European Economic area, reduce dependency on structures owned and controlled by those with vested interests in the status quo, and increase levels of competition.
Like any good piece of regulation, PSD2 is disruptive but at the same time opens up a world of opportunity to those that are willing and able to grasp it.PSD2 introduces a number of key reforms. First, it defines new types of regulated entity:
- Account Servicing Payment Services Providers (AS PSP) that provide and maintain payment accounts. (i.e. the role played by traditional banks today)
- Payment Initiation Service Providers (PISP) that initiate a payment from an account at the request of a customer.
- Account Information Service Providers (AISP) that consolidate information across one or more payment accounts, held at one or more AS PSP.
Under PSD2, with the permission of customers, firms will be able to directly and electronically instruct a bank to make a payment from a customer’s payment account to a third-party bank account.
Again, with permission, a firm will be able to extract data from a payment account to enable it to offer a range of value added services.
PSD2 extends the scope of its predecessor directive to payments in all currencies, and to payments where only one provider is located in the EU/European Economic Area (EEA).
The directive introduces a new technical standard for payment account access and customer authentication that will be implemented thought an application programme interface (API). PSD2 API’s must be made available free of charge to any API developer.All banks in the EU will therefore be required to have APIs available that conform to the PSD2 standards.
Although this all sounds quite dry, the implications are quite profound:
- The institutions and associated infrastructure, which for decades has controlled the way payments occur, no longer have a monopoly, card based schemes including VISA and Mastercard, for example.This creates the opportunity to generate more competition, increase levels of innovation and reduce the costs associated with payments.
- Secure but open access to payment accounts will be enabled by accepted and regulated standards. This opens up the potential for new types of financial services that use the data held within payment accounts to the benefit of the customer (consumer or business).These new services could involve:
- Account aggregation, which provides an overview of all accounts held by one customer across different institutions. All without using the clumsy, insecure and ineffective methods available today.
- Automated balances sweeping across multiple accounts to maximise interest payments and minimise debit balances.
- “Market place” banks that offer best-of-breed or lowest cost services for loans, overdrafts, foreign currency transfers, etc., transparently to the customer.
- Credit decisions can be based on actual data by any institution and not just the institution currently providing bank account services.This could have the effect of increasing choice and competition.
- Payment facilities for the “internet of things.”A fridge that has direct access to make payments on a customer’s behalf to replenish groceries, for example, or a car that can pay for fuel or a recharge without the customer leaving the vehicle.
- Automated best price advice can be provided based on actual spend data.For example, if a family is paying £100 per month for mobile phone use then the service can shop for a better deal for the customer and present the offer at an appropriate time.
- Improved services to business customers to help identify payments that are made in error, duplicate payments, etc.
There will be winners and losers as a consequence of PSD2. Potentially the biggest winners will be the consumers and SMEs making and receiving payments within the European Economic Area.The hope is that costs should come down as competition increases, more choice will be available and value will improve.New services can be created that serve the interests of the customers rather than the interests of the institutions with which they currently bank. In the context of Brexit, it seems unlikely that the UK Government will not wish to pursue PSD2 with equal vigour to European counterparts.
PSD2 has the potential to disrupt the earnings potential of banks that only act as ASPSPs. These banks will have to offer valuable data and processes to others without any guarantee of a commercial return.A bank that fails to respond to the opportunities of PSD2 could be disintermediated and relegated to a simple deposit holder with all the value added services stripped away along with the profits they bring. PSD2 is likely to force banks to innovate to take a position within the emerging API economy that PSD2 creates.
Card schemes and merchant acquirers will see new types of competition with potentially lower costs.This may drive down costs and introduce a much more innovative and dynamic payments landscape.
PSD2 isnot without its risks, however, and the risks are perceived differently from the multiple parties impacted by the directive.Going into these risks in detail lies beyond the scope of this paper but one of the most significant risks revolves around the opening up of customer accounts and the use of the associated data.The technical standards brought about by PSD2 seek to make this as secure as possible, however this has a down side as it requires stronger authentication at the point of sale, which potentially disrupts the customer experience and slows down or stops payment altogether.These issues are not new.This is the reason why historically petrol stations had limits of £50 per transaction.Before network technology was sufficiently advanced this was the sum that that was permissible without having to centrally authenticate the transaction and was done to ensure the customer did not experience frustration and inconvenience and the filling station did not lose business and suffer from long queues.The European Banking Agency’s decision to relax the technical standards for payments under €10 goes some way towards addressing this risk.However, the real challenge lies in the implementation of the technical standards and this is where the software engineers building the APIs need to think carefully about the customer experience as well as the security requirements.
Return to Work Doesn’t Mean Business as Usual When it Comes to Travel and Expense
By Rob Harrison, MD UK & Ireland, SAP Concur
The last few months have been an exercise in adaptability for businesses across the UK. With the sudden mandate to work from home, company processes that were ingrained in employees’ day-to-day routines were either put on hold or turned upside down. The new office normal now includes virtual meetings, conversing through instant messaging instead of in the hallway, and the redefining of “business casual” attire.
Many of the processes that have undergone changes fall into the category of travel and expense. With most business travel on hold and the nature of expenses changing, finance managers have had to adjust policies and practices to accommodate the new world of work. Recent SAP Concur research found that 72% of businesses have seen changes in the levels and types of expenses submitted, but only 24% have changed their policies to support this. Examples of travel and expense related changes that were made at the beginning of work from home mandates include:
- A halt to business travel and its associated expenses.
- Temporarily ending expensed meals for business lunches, dinners, or in-office meetings.
- Increase in office expenses like monitors and chairs as employees furnish their home offices.
- New expenses to consider like Internet and cell phone bills for employees who must work from home.
Now, as companies begin thinking about return to work plans, finance managers are discovering it’s not simply business as usual again. SAP Concur research found that many expect finance will return to normal quicker than general workplace practices, but vast majority see the process taking up to 12 months. New policies and processes need to be put in place to accommodate travel restrictions and changes in expenses. While finance managers need to stay flexible as the business environment continues to evolve, spend control and compliance should still be a high priority.
Here are a few questions that can help finance managers prepare for return to work while keeping control and compliance top of mind:
- What will travel look like for the company? Finance managers must work with travel and HR counterparts to determine the need for employee travel, if at all, and how to keep employees safe. At SAP Concur, we surveyed 500 UK business travellers and found that health and safety is now seen as more than twice as important than their business goals being met on trips (34% versus 16%. Clear guidelines should be developed, even if they are temporary or evolving, so it’s clear who can travel, when they can travel, and how they can travel. Duty of care plans should also be re-evaluated and businesses should ensure they know at all times where employees are traveling for business and how they can communicate with them in the event of an emergency.
- Who needs to approve travel and expenses? While it may be temporary, businesses may have to implement a more stringent approval policy for travel and other expenses. Due to health concerns related to travel and the need to conserve cash flow, business leaders like CFOs may want to have final approval over all travel and expenses until the situation stabilises. To help ensure new approval processes don’t cause delays and inefficiencies, finance managers should implement an automated solution that streamlines the process and allows business leaders to review and approve travel requests, expenses, and invoices right from their phones. According to SAP Concur research, 11% of UK businesses implemented some automation of financial processes in response to COVID-19. This is definitely set to increase post-pandemic.
What types of expenses are within policy? Prior to social distancing, employees may have been allowed to take clients out to dinner. In-person team meetings held during the lunch hour, may have included expensed lunches. As employees return to work, finance managers need to determine if these activities and expenses will be allowed again. Clear guidelines must be put in place and expense policies need to be updated to reflect any changes.
- What happens to home office items that were purchased? While new office equipment may have been purchased for employees’ home offices, they remain the business’s property and what to do with them as employees return to work needs to be determined. Perhaps employees will continue to work from home a few days a week and need to keep the equipment to ensure productivity. However, if a full return to work is expected, finance managers have options that can maximise their asset investment and possibly save the company money, like replacing old office equipment with the new purchases, reselling to a used office furniture company, or donating to a non-profit.
- How can cost control be ensured? For many businesses, cash flow will be tight for the foreseeable future. Spend needs to be managed to help ensure recovery and stability. An important aspect of controlling costs is having full visibility of expenses throughout the company. Implementing an automated spend management solution that integrates expense and invoice management brings together a business’s spend, giving finance managers an understanding of where they can save, where to renegotiate, and where to redirect budgets based on plans and priorities.
Once finance managers have asked themselves the questions above and determined how they want to approach travel and expense procedures, it’s vital they create guidelines and communicate clearly to employees. Compliance can only be ensured if employees have a clear understanding of what has and has not changed with travel and expense policies and what’s expected as they return to work.
Spotting the warning signs – minimising the risk of post-Covid corporate scandals
By Professor Guido Palazzo is Academic Director at Executive Education HEC Lausanne.
A recent report from the Association of Certified Fraud Examiners (ACFE) found that almost seven out of 10 anti-fraud professionals have experienced or observed an increase in fraud levels during the Covid pandemic, with a-quarter saying this increase has been significant. Almost all of those questioned (93%) said they expected an increase in fraud over the next 12 months and nearly three-quarters said that preventing, detecting, and investigating fraud has become significantly more difficult.
For corporations, banks and financial directors, this is a clear warning signal of new risks ahead. Indeed, it’s not difficult to predict that the birth of next big corporate scandal will be traced back to this period. As the ACFE put it, the pandemic is “a perfect storm for fraud. Pressures motivating employee fraud are high at the same time that defenses intended to safeguard against fraud have been weakened.”
If we want to stop corporate misconduct, where should we be focusing our efforts? What should we do to minimise the chances of corporate scandals, fraud and unethical decision-making? Compliance and risk management are obviously critical in detecting fraud, but given that corporate scandals keep happening, perhaps it’s time to ask ourselves whether we need to take a different, more holistic approach to combat unethical behaviour.
Bad Apples or Toxic Cultures?
Most compliance is based on the premise that we need to keep bad people in check and to root out the ‘bad apples’ who usually get blamed when there’s a corporate scandal. When the scandal breaks, we all ask, “how was that possible? What were they thinking?” And we also tell ourselves that we could never behave like that and that it could never happen in our organisation – it’s not our problem.
But are those who succumb to this temptation really ‘bad apples’ or rather people like you and I? Most models of (un)ethical decision-making assume that people make rational choices and are able to evaluate their decisions from a moral point of view. However, if you made a list of the character traits of a rule breaker in an organisation and then compared it to a list of your own, you might be surprised to find a lot of overlap.
When we examine corporate scandals, what we invariably see is good people doing bad things in highly stressful circumstances. If you put sufficient pressure on an individual and they start making ill-advised decisions or behaving unethically, the first reaction is fear as they realise what they are doing is wrong. But then they will start to rationalise their actions to justify what they are doing. Over time, such behaviour becomes normalised and they convince themselves that there is no wrongdoing involved. That’s something that my HEC Lausanne colleagues, Franciska Krings and Ulrich Hoffrage, and I have termed ‘ethical blindness’, and it is a phenomenon that plays a fundamental role in systematic organisational wrongdoing.
The trouble with conventional technical and regulatory compliance strategies is that while policies, codes of conduct and formal processes are all very necessary, they don’t take into consideration the importance of leadership behaviour or human psychology. We can’t pre-empt those who succumb to the temptation to do bad things in difficult circumstances unless we understand why they behave in the way they do. If we simply attribute problems to the psychological failings of ‘bad apples’ while ignoring the context, culture and leadership style which made their wrongdoing possible, then the barrel will still be contagious.
So what can be done to reduce the chances of new corporate scandals emerging in these challenging times? One take-away from previous scandals is the learning how to read the warning signals. This entails a deep understanding the psychological and emotional factors behind human risk, which surprisingly is not included in most compliance and ethics training. These small signals viewed in isolation may seem insignificant, but over time they can combine to create a dysfunctional context and culture where it can be all too easy for people to slip into the dark side.
Develop a Speak Up Culture
One of the most potent antidotes to that sort of dysfunction and the ethical blindness it encourages is a culture in which individuals at all levels feel able to speak up to their superiors about problems and ethical issues without fear of retaliation. But that will only happen if their own bosses are prepared to speak up and the tone for this must be set at the top. So, the critical question every executive needs to ask themselves is, “do I speak up?” Then they need to reflect on whether people come to them and speak up freely without fear of the consequences. That’s an approach to compliance that offers real protection against the onset of ethical blindness in a way that no conventional strategy can match.
This understanding of human risk element also elevates compliance to a leadership topic with all kinds of positive implications beyond compliance. Whilst on the one hand, this approach helps to boost the status of the compliance and risk function, my experience of working with senior executives is that when they start to understand the psychological elements of the dark side, it shines a light on their own behaviour. One thing they realise is that, yes, it perhaps could have been them doing those things in one of those scandals. The other is understanding that their leadership style can unwittingly creating the context for unethical behaviour.
That’s one reason I invited two former senior executives who were involved in corporate scandals to share their first-hand experience as teachers on our new certificate in ethics and compliance. Andy Fastow is the former CFO of Enron and Richard Bistrong is a former sales executive involved in an international bribery scandal. Amongst other things, the valuable insights of people like these can help others to understand how risks accumulate over time and how this can impact the integrity of an organisation. Their stories also highlight the temptation that people can face as a result of the tension between the pressure to succeed and the pressure to comply.
Traditionally, compliance training and development has been technical and regulatory – what are the rules, what are people allowed to do or not allowed to do, and how do we demonstrate to the authorities that we did everything possible to ensure that people understand the laws and regulations? But what’s becoming increasingly clear is that it’s time for a multi-disciplinary approach if we are to start redressing the balance between the legal dimension of risk management and the human element.
Trust is a critical asset
By Graham Staplehurst, Global Strategy Director, BrandZ, explains how it’s evolving.
Trust is what makes us return to the same brands, particularly during times of uncertainty and crisis.
Pampers is an instinctive choice for many parents. It’s the go-to global nappy brand whether they shop online or in-store. By our reckoning, it’s also the world’s most trusted brand, driven primarily through its perceived superiority over competitors, which it has honed through a relentless focus on technological improvements that make its products the best in the category.
BrandZ has been tracking Trust since 1998 because it’s a critical ingredient in delivering both reassurance and simplifying brand choice, thereby boosting brand value. It’s also become extra critical in delivering business performance at a time when consumers are uncertain and often anxious.
Even brands that haven’t been available during Covid-19 lockdowns, brands that are already trusted, have found that they are more reassuring to consumers when they start returning to market with new safety measures such as protecting staff, which will be seen as evidence that the brand will take similar steps to protect customers.
With a growing demand from consumers for more responsible corporate behaviour, this in turn amplifies the need for brands to make a positive difference.
Alongside Pampers, other brands in this year’s BrandZ Top 100 Most Valuable Brands ranking that have strengthened their trust and responsibility credentials include the Indian bank HDFC, which has supported customer initiatives across its consumer and business banking and life insurance operations – with innovations such as mobile ATMs, and DHL, which has proven itself even more essential as a delivery service during the COVID-19 outbreak.
New brands too have managed to grow Trust relatively rapidly. Second in the Top 10 most trusted brands was Chinese lifestyle brand Meituan with a trust score of 130. This delivery and online ordering brand, which was launched just over a decade ago, has clearly demonstrated its understanding of what consumers want and developed a strong reputation for customer care.
Then there’s streaming service Netflix – founded in 1997 but which only became a streaming service in 2007 – which scored 127 and was the fifth most trusted brand in our ranking. Netflix has created a strong association with being open and honest compared to other ‘content’ platforms, despite the fact that it uses customer’s personal data to suggest future viewing options.
Top 10 Most Trusted Brands in the BrandZ Top 100 Ranking 2020
|Position||Brand||Category||Trust Score (Average is 100)||Position in Top 100 ranking|
|3||China Mobile||Telecom Providers||129||36|
What defines trust?
The nature of trust is evolving with ‘responsibility’ to consumers forming an increasingly large proportion of what builds perceptions of trust. This amplifies the need for brands in all categories to act as a positive force in the world.
Traditionally, consumers trusted well-established brands based on two factors:
- Proven expertise, the knowledge that the brand will deliver on its brand promise, reliably and consistently over time.
- Corporate responsibility, which is about the business behind the brand. Does it show concern over the environment, its employees, and so on?
In recent years, the latter factor has become increasingly important. It is now three times more important to corporate reputation than 10 years ago and accounts for 40% of reputation overall, with environmental and social responsibility the most important component, alongside employee responsibility and the supply chain.
Companies such as Toyota, with its emphasis on sustainability, Nike, with its campaigns around social responsibility, and FedEx focusing on employee responsibility, highlight the fact that responsibility is high on the agenda for many brands in the BrandZ Global Top 100 Most Valuable Brands, which has been tracking rises and falls in brand value via a mix of millions of consumer interviews and financial performance data since 2006.
Such actions explain why trust in the Top 100 brands has been increasing not declining, filling the gap as trust declines in other institutions like government and the media. This is being driven largely by consumer concerns over the bigger issues including sustainability and climate change that society faces today.
One of the challenges that we face in assessing trust is understanding how and why consumers will trust brands they hardly know or have never used? Why do we trust Uber the first time if we’ve never used the platform before, or Airbnb the first time we rent an apartment or holiday accommodation?
The answer is that there are three elements that build trust and confidence when a brand is new to a market. These are:
- Identifying with the needs and values of consumers
- Operating with integrity and honesty
- Inclusivity, i.e. treating every type of consumer equally.
New brands that can develop these associations not only build trust rapidly and more strongly but also tend to outperform their competitors in growing their brand value.
As a result of this new understanding we have added an additional pillar to our previous understanding of Trust builders. Alongside proven expertise and corporate responsibility, we have a new quality of ‘inspiring expectation’ driven by our three key factors of identification, integrity and inclusivity.
Airbnb, for example, has long had promoted a platform of inclusivity for both renters and users of properties on the platform, helping it to build an overall Consumer Trust Index of up to 105 – and 110+ on the specific dimension of Inclusivity.
Flying Fish in South Africa is a premium flavoured beer that has gone from a launch in October 2013 to being the second-most drunk brand in the country, with trust equal to the vastly more established Castle and Carling brands. It has appealed to a new generation of beer drinkers with strong integrity and inclusion, using a playful mix of young men and women in its messaging to portray South Africa’s multicultural society.
Brands have a unique opportunity to earn valuable trust and create change, providing this is seen to be genuine. Being sincere, empathetic and ensuring your brand remains consistent with its core values will ensure your corporate reputation is not compromised.
Return to Work Doesn’t Mean Business as Usual When it Comes to Travel and Expense
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