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STOREFRONTING IN INVESTMENT BANKING – TECHNOLOGY AND THE RISE OF ‘WINDOW-SHOPPING’

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STOREFRONTING IN INVESTMENT BANKING – TECHNOLOGY AND THE RISE OF ‘WINDOW-SHOPPING’

Abhijit Deb, Head of Banking & Financial Services, UK & Ireland, Cognizant 

People’s interactions with their banks have undergone an extraordinary transformation. From the emergence of app-only challengers such as Monzo to the evolution of physical branches, technology has dramatically changed the age-old relationship. However, compared to typical high street interactions, the investment banking landscape has always been markedly different, sustained by services such as capital raising and M&A advisory. Thanks to this structure, there has never been any pressure on such firms to vary the products offered to clients.

Since the repeal of the Glass-Steagall act, a piece of legislation that separated commercial banks from their retail counterparts and the annulment of which is considered by many to be a primary cause of the financial crisis, members of the former group have become powerhouses trading on information and access to credit. In this context, huge organisations such as JP Morgan and Merryl Lynch can draw on low-cost funding without having to interact with other banks not affiliated to them. However, combined with increased competition and the cost of regulation, recent  rhetoric around breaking up the power of Wall Street has caused speculation that the act will be re-instated. Ten years on from the financial crisis that the act’s repeal supposedly ignited, these factors are putting commercial banks and the existing industry model under pressure.

 Investing in technology

 While the core services around equity, debt, structured finance and M&A will endure, many of the ‘low touch’ activities carried out by investment banks are being commoditised by technology. These are typically people-intensive processes such as regulatory reporting, risk management and product control. Thanks to automation, the next 10-15 years may present a vastly different landscape in which only the most highly customised, ‘high touch’ services are handled by humans. For example, investment banks could offer customised product and pricing systems for the average institutional customer, using a fraction of the time and human intervention that is needed today.

Furthermore, services such as Know Your Customer (KYC) that are core, but non-differentiated, are becoming simplified and now take minutes rather than days, in the same way that retail outfits such as Monzo have achieved. Some organisations are already using blockchain-based platforms for instant settlements, mitigating credit and counterparty risks simultaneously and paving the way for ‘exception-only’ intervention. In fact, a recent Cognizant study found that 90% of financial services executives say their firm has identified or is currently identifying processes and functions that can be automated through the technology. Even ancillary services such as research can be easily personalised for institutional and high-net-worth clients using automation, based on buying behaviour patterns. Most novel for investment banks, technology is enabling greater collaboration between banks. Using smart algorithms, organisations can select a syndicate of lenders, giving a corporation easier access to funding, through reverse auctions taking place in real-time. Lead by mass automation, investment banks are experiencing the same kind of digital disruption felt by their retail siblings.

The dawn of the storefront model 

Beyond these basic process efficiencies, technology in our view has heralded the arrival of a ‘storefront’ model in investment banking, something usually associated with the retail banks. The defining factor of this is the level of personalisation provided, in this case, to institutional clients, high-net-worth individuals and even sovereign entities. Compared with the one-size-fits-all approach of old, clients are now presented with an array of product combinations depending on their requirements, in the same way that consumers would take out a loan. For example, a bond-issue could feasibly be as easy as buying a mortgage, while a mezzanine financing deal could be carried out via a series of simple, context-dependent steps to profile, risk-score and approve the financing. Therefore, we are seeing specialist investment banks without a retail arm become sophisticated ‘virtual windows’, through which clients of all risk profiles and needs will be able to shop for services.

As this model gains traction, institutional clients will also be able to ‘test-drive’ trading portfolios and other products with simulated returns. This access to sophisticated software that banks provide their clients gives them an additional incentive to buy. It is only a matter of time before similar platforms for trading and risk management are opened up to clients, in the same way that Amazon allows us to preview a book before buying. Organisations such as Goldman Sachs are leading the way in this field, tailoring their services and marketing themselves as tech firms in the business of banking. This new model forces investment banks to re-consider how they price and design products, although they often take advantage by charging a premium for personalised products, something that increases alongside the value of the customer. While it is likely to be the smaller, more agile investment banks that move down this path first ahead of larger outfits, change is coming for organisations of all sizes.

Equally interesting is how this trend will impact the fortunes of traditional investment banks that are now foraying into more mainstream consumer banking, a prime example of which is Goldman Sachs with their Marcus lending platform which is soon to come to the UK in 2018. In Goldman’s case they will cover online deposits and extend to lending over time, seeking to both take on established high street players as well as create a more sustainable customer-base. And once traditional sell-side firms venture into the retail space, we should start to see the full extent of this ‘store-fronting’ for a wider cross-section of customers across investment and retail banks.

Crossing the bridge to personalisation 

Depending on the extent that this route is chosen, the new model will require an overhaul of an organisation’s technology infrastructure and the way they price, sell, execute, clear and maintain products, all the way through from customer experience to back-end design. Investment banks are increasingly in a position where they must adapt and differentiate, or find themselves racing to under-cut competitors on price.

Ironically, while recent years have seen a huge focus on a ‘customer experience’ revolution in consumer finance, it is the sedate world of investment banking that is primed for change. Moving away from a world of bland trading and towards more tailored offerings may result in a bigger shop window with more products than retail banks, but the impact will be similar as technology simplifies the buying experience for institutional clients. This is undoubtedly a seismic shift for the industry. Whether incremental or something that happens all at once, we will see a fundamental change in how investment banks interact with their clients. Whatever the speed of transition and style of delivery, they must remember that the primary goal is to provide customers with the most intuitive service possible.

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Using payments to streamline everyday transport

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Using payments to streamline everyday transport 1

By Venceslas Cartier, Global Head of Transportation & Smart Mobility at Ingenico Enterprise Retail

Once upon a time the only way to get from A to B on public transport was with cash – and likely a pre-paid ticket bought from a physical office. Nowadays, thanks to technological developments, options range from contactless and mobile payments, to in-app tickets and more. As payment methods advance, consumers and merchants are naturally moving towards Mobility as a Service (MaaS) systems, integrating various forms of transport services into a single mobility service, accessible on demand.

This move towards MaaS does not only streamline the consumer experience, it has other positive impacts too. Incentivising public transport use reduces environmental pollution, improves mental wellbeing by reducing travel-related stress, and aids productivity by freeing up time otherwise spent driving. With this in mind, let’s take a look at the current trends affecting the transport sector, as well as how payments can optimise transportation for both operators and consumers alike.

Optimising transport with payments

The payment process is integral to any service. A payment service provider (PSP) can provide a range of key benefits to operators by proving a gateway to the transportation open payment ecosystem, and ensuring they meet objectives in 3 key areas.

  1. Environmentally, by reducing the use of personal cars and alleviating pollution and congestion.
  2. Societally, making urban mobility more inclusive in terms of improving access to all areas and for all socioeconomic classes.
  3. Economically, by optimising investment in eco-structure and fostering financial transactions, therefore improving the wealth of the city.

Payments professionals’ expertise and technological solutions can make payments easy again for transport operators. They can provide a range of options so that the customer can choose which one is right for them, leveraging the capabilities of the mobility services’ infrastructure (contactless, mobile wallets, P2P, closed-loop, QR code, and blockchain).

Furthermore, they can help promote inclusion and sustainable urban development. For example, methods such as prepaid virtual cards, or mobility accounts linked to a prepaid account can reduce the risks of excluding the unbanked. The environmental impact per kilometre can also be reduced, along with the use of vehicles with lower emissions per person per kilometre.

Finally, PSPs can put merchants’ minds at ease, providing payment liability, allowing aggregation of all due amounts from all mobility service providers, and collecting payments in one single transaction from users while dispatching revenue between mobility service providers.

Managing coronavirus

Venceslas Cartier

Venceslas Cartier

COVID-19’s disruption to the travel industry cannot be overlooked. In fact, research suggests that public transit ridership is down 70% across the globe since the onset of the virus, longer distance travel has seen reductions of up to 90%, and payment by cash has seen a 60% drop.

Being realistic, these behavioural shifts are unlikely to revert anytime soon, so it’s important for merchants to keep this in mind when thinking about payment methods. More than 70% of consumers and travellers say they are likely to avoid the use of cash over the next six months. As a result, more than 40 countries have already raised their contactless payment threshold, further helping consumers to avoid contact with frequently touched pin pads.

However, the pandemic has only accelerated the way things were heading already and highlighted the benefits. Within the context of the pandemic, transportation needs to reinvent itself and adapt its processes to suit the shift in commuter habits that we’ve already seen and will continue to see in the future.

Other trends to keep an eye on

Contactless has been steadily growing on the transport scene, as have mobile payments and in-app purchases. In fact, the recent move to mobile and online ticketing is the most promising method so far, having seen significant growth in the last few years and having been accelerated by COVID-19 as discussed above. Once consumers move to these easy, convenient, and seamless methods, it’s rare that they revert – so it’s a good idea for operators to think how they can cater to these preferences.

Speed and convenience are a must for busy travellers – but not at the expense of data security. Finding the right payments partner is therefore crucial so operators can safeguard their customers’ personal data, while also keeping on top of other security regulations/features such as P2P encryption, PCI certification, and tokenisation.

Next steps for operators

Public transport is essential for many peoples’ everyday lives – COVID-19 or no COVID-19. As such, mobility service providers can make a great difference to their service and operations by implementing the right solutions.

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Grey skies ahead – Malta prepares for a gloomy 2021 if they can’t tackle financial crime

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Grey skies ahead – Malta prepares for a gloomy 2021 if they can’t tackle financial crime 2

By Dhanum Nursigadoo, ComplyAdvantage

With the summer drawing to a close, many countries who rely significantly on warm weather tourism will be assessing the impact of Covid-19. Being a small island in the middle of the Mediterranean you would expect Malta to be taking a significant economical hit – just like we are seeing in other popular European holiday destinations – but this doesn’t take into account the strength of the Maltese economy.

Emerging from the eurozone crisis with one of the most dynamic economies strategically positioned between three continents, Malta has had one of the lowest unemployment rates in the EU and has recently seen its GDP growth expand year-on-year.  But perhaps the most important aspect of the Maltese economy has been its attraction for foreign businesses with only a 5% tax on profits. It is no secret that Malta is a tax haven, probably one of the most effective tax havens in the world.

But you can’t pick and choose who takes shelter, and it’s no secret that money launderers have been taking advantage of the regulatory landscape in this archipelago.

The conditions of a tax haven suit criminal enterprises, who can take advantage of the opaque environment and blend their illegal activities with the same operations enjoyed by high net worth individuals and corporations who are looking to reduce their tax bill. And last year Malta’s keenness for secrecy and avoidance resulted in a damning report by Moneyval – the Council of Europe’s Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) body – which found that while the nation had made some efforts to curb money laundering there was still much to be desired in order to bring the tax haven up to standard. Overall, they were of the opinion that Malta viewed combating money laundering as a non-priority and this resulted in branding Malta with low to partial ratings for 30 out of the 40 Financial Action Task Force (FATF) recommendations.

The findings of the report were stated to have the potential to “create within the wider public the perception that there may exist a culture of inactivity or impunity”. This follows on from a series of international high-profile stories regarding Malta and financial crime. Most shocking was the murder of journalist Daphne Caruana Galizia – who investigated corruption and money laundering in her native country – and was killed by a car-bomb three years ago leading to international outrage and condemnation.

Now Malta is in a race against time to turn their reputation around or they will suffer genuine consequences. The FATF have threatened to place Malta on a “greylist” of high-risk jurisdictions unless they have shown a genuine commitment to combatting financial crime and implemented the recommendations of the Moneyval report. If they fail, this would make Malta the first EU country to make the list and join others such as Panama, Syria and Zimbabwe.

The pandemic has actually given Malta more time to meet these obligations, and it has been widely reported that an initial summer deadline has now been moved to October due to the widespread disruption.

As we head into the autumn, there are signs that Malta has begun to take action. The Malta Financial Services Authority (MFSA) has created and established an empowered AML now headed up by Anthony Eddington, formerly of the UK’s Financial Conduct Authority and who has previous experience of tackling anti-financial crime at Deutsche Bank. This team has already begun working closely with international experts, specifically partners in the US through the US embassy in Malta and the United States Commodities Futures Trading Commission (CFTC). In May this collaboration led to 25 new cases focused on money laundering in particular, and with plans to increase standard inspections and on-site investigations into businesses in Malta, it appears there is a change to the country’s priorities.

Importantly, the report highlighted a problem for countries that choose to become tax havens. In some cases it was not that the Maltese authorities deliberately turned a blind-eye, but simply that they did not have the necessary knowledge to effectively tackle financial crime in the first place. Law enforcement appeared unable to even recognise when crime was occurring.

But this blurring of financial compliance will not help businesses if Malta does indeed become “greylisted” this year. While not as devastating as being blacklisted (the two occupants of this list are Iran and North Korea) there are significant detrimental effects to being put on the FATF greylist. Although this signals that the country is committed to developing AML/CFT plans (unlike the blacklist) it still sends out a warning signal to the world that this is a high-risk area, with the country in question subject to increased monitoring and potential sanctions from the IMF and the World Bank. Make no mistake, being put on the greylist will be catastrophic for Malta’s economy.

It remains to be seen how the work to avoid such a calamity will affect Malta’s tax haven status. Perhaps with an increased fight against financial crime there will be less ability to defend one of Europe’s most competitive tax regimes. But if Malta does not show they are genuinely committed to tackling this problem, then the pandemic disruption to the island’s tourism may be minor in comparison to the grey clouds that now approach their shores.

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How will the UK prepare a supply chain for the distribution of the Covid-19 vaccines?

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How will the UK prepare a supply chain for the distribution of the Covid-19 vaccines? 3

By Don Marshall, Marketing role at Exporta.

The challenge of mobilising a supply chain for the introduction of a global and nationwide vaccine will be enormously complex. The process will be costly, and it’s likely the figures will stretch to the hundreds of millions for both the production of the vaccine itself and its distribution across the UK. We must prepare and plan a supply chain strategy to ensure it reaches those most in need in a timely and safe manner.

The task of immunising a whole population is something that has never been planned or likely imagined by anyone within a standard supply chain. A supply chain that goes directly from the manufacturer to the end consumer, or user/ patient in this case, is complex and goes beyond the scope of any single logistics company. It would have to be conceived and delivered via a large joint effort and collaboration between multiple organisations. Effectively distributing the vaccine will depend on the source of manufacture, its storage requirements, and protection of the vaccines from manufacture through to patient administration.

The majority of vaccines require storage within a specific temperature range and need to be handled safely and in hygienic conditions. Depending on where the vaccines are manufactured, the transport legs will vary; if they are coming from overseas, air freight will increase cost and complexity. In addition to supplying the vaccine, syringes, needles and containers also need to be taken into account when preparing the supply chain.

Securing the specific types of boxes or containers i.e. the lidded containers normally used for transporting pharmaceutical products will mean acquiring them from all available stockists and manufacturers. Delivery vehicles would then need to be considered, with temperature-control factored in. The medical supply chain can inform their approach to distribution by assessing data from previous supply chains, and how large quantities of vaccines have been sent out in the past. Collating successful vaccine delivery examples from other parts of the world would be advantageous here, the more we can do to prepare for a logistical challenge of this magnitude, the better.

The distribution of this COVID vaccine will be unique in its scale and for that reason, additional supply chains will need to be mobilised. Apart from medical supply chains, those best suited for this type of transportation are the fresh/frozen food industries and supermarkets. I would mobilise these businesses to assist with the vaccine’s distribution wherever possible and use their car parks and facilities for the temporary medical centres needed to administer the vaccine to the public.

Using the food industry and supermarket networks would leave the current pharmaceutical supply chains intact for health services, pharmacies and the NHS. It would protect those vital services and continue to serve communities across the UK. Inevitably, it would place a short term strain on food supply chains, but these are supply chains that are well-equipped and versed in coping with excess demand i.e. the spike endured from the brief spell of public panic buying at the start of the crisis. With adequate resourcing and planning, I believe the UK supply chain can and will handle this challenge.

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