George White, Strategy Director at Leagas Delaney
While the threat of an imminent global recession may have been premature, indications are that a decade on from the financial crisis, we’re on track for another.
The last time around, the global order was flipped on its head. Banks went from trusted stalwarts to shady institutions – bankers from money-men to persona non grata – in a short breath. Billions were lost in market capitalisation, GDP took five years to recover, productivity growth became the weakest since modern records began.
One place where productivity seems to have bucked the trend, though, is the fintech sector. It’s a strange thought, but without the financial crisis, there would be no Monzo, no Starling no Revolut or N26.
The UK’s fintechs have filled the gap left by cash-strapped high street lenders that failed to innovate due to shareholder pressure. Digital first with user experience at their core; none of the baggage of financial crises past; no mis-sold PPI or dodgy restructuring to tarnish their image, the sector is going gangbusters – UK fintech investment hit £16bn in 2018 and is already on course to hit £19bn this year.
One might argue that the term ‘disruptor’ applies more to fintechs than any other nascent industry. Remember, many in the general public paid for the misdeeds of bankers through recession and austerity, instilling a loathing of greed and a desire for change. The most successful fintechs – many of their founders privy to said misdeeds before losing their jobs in 2008 – leveraged this desire to build new brands.
Neobanks, such as Monzo, revolutionised banking through promising to right the wrongs of the incumbents. For the first time profit wasn’t first, people were. Customers not only expected easier banking, but help optimising the way they use money – a financial ‘Fitbit’ if you will.
Monzo in particular continues to seize headlines with whizz features, helpful apps and outlandishly free services, making it a win-win for customers. Choosing a neobank had never been so easy. Gamified behavioural nudges hold some cultural currency, but it is the identity of the ‘challenger’ neo-bank that is directing consumer choice. Quite simply, Monzo may have a banking license, but it is not perceived as a ‘bank’. It doesn’t act like or have the values of a bank. And people like that.
We’re in an era where not only values and ethics need to align with consumer choice, but also serve as a form of self-expression. That ‘coral pink’ Monzo card is a statement of identity, of demonstrating one’s progressiveness, of rejecting the status quo. So much so that one in twenty of us in the UK have one.
The innovative approach taken by the neobanks has shrunk the Big Four’s UK current account market share from 92 per cent a decade ago to around 70 per cent today. The new kids on the block are chipping away for sure. No doubt they want a bigger slice of the personal banking pie. But to keep eating, they need to resist the urge to become what they set out to change.
When a product is so tied up in values and ethical decision making, anything counter to that is highly unappealing to a client base built upon a promise of change. A big part of the neobank’s appeal is the perception that they are not like traditional banks, they are the challengers trying to redefine the new norm. But this is a perception is fragile, and needs protecting as they look to grow.
The expectation of the neobanks is to continue to subvert the system – and for the most part they are still doing so. Subscription service fees akin to Netflix are being championed by N26 and Revolut. Following on from the successful option to ‘block’ gambling, Monzo’s planned “merchant block” means one can start shaping purchases around the values that one holds. Even Starling’s broker-style marketplace offers an emerging path to profitability at the user’s benefit.
But this innovation cannot be restricted to mere product features. Our choices are influenced by our perception of the brand and vitally the actions they take. If Monzo and other neobanks want to accelerate their priceless challenger identity, they have the potential to harness a like-minded community to drive social impact causes to a powerful and profitable effect.
And this is where the legacy and neobank mindset is different. Legacy banks do ‘CSR’ initiatives to protect their reputation first. Neobanks can champion and disrupt the social causes of world because what matters to the consumer is by its very nature part of their identity. In real terms, an enviable culture first brand-building opportunity.
These challenger brands grew so rapidly because customers wanted change. They wanted institutions that were like them; that shared their values and ethos, that ultimately wouldn’t re-tread the path that led to such misery for so many. Neobanks put people first, profit second. They personalised, they listened, and the results have been staggering. Yet no fintech is anywhere close to the capitalisation of a high street lender. Their capital is cultural relevance. With a recession approaching, that is something worth noting.
Data: the much-needed procurement adrenaline shot, helping banks remain competitive in the race for innovation
By Toby Munyard, Vice President, Efficio Consulting
Like a flip-switch, the pandemic saw many industries pushed over the innovation tipping point, accelerating digital transformation efforts at a pace never seen before. After all, consumer behaviour has changed dramatically – a lack of face-to-face contact with businesses has meant that organisations are having to turn to digital methods in order to keep customers engaged. Meanwhile, the sudden shift to remote working has put immense pressure on organisations to digitise internal processes.
For the world of banking, the need to continuously drive innovation has been a key pressure point for many years. And now, that pressure is building. Challenger banks, such as Monzo, Revolut and Starling, continue to cause huge waves within the financial services industry, due to their digital-first approaches. These, often start-up brands, have the advantage of operating nearly solely online, with none of the legacy systems in place to hold them back from innovation. However, even these brands haven’t been immune to the vast impacts of COVID. Consumers are getting increasingly tech-savvy, and operating on a digital-first model is no longer enough in its entirety. In today’s increasingly competitive environment, banks must modernise their entire technology functions to support both the front and back ends of their businesses.
That said, in such a competitive environment with rising cost pressures, innovation of this kind can feel out of reach for banks. After all, banks are often a low-growth environment, and optimising the cost of operations can typically take at least five years or more. Another key sticking point for banks when pursuing innovation is the added complexity and costs surrounding regulation. Unfortunately, regulation is part and parcel for any financial service. And new innovations and product offerings will only increase the need for compliance.
So, with myriad challenges facing the industry, how can banks compete in the race to innovation?
To be able to invest in a digital-first future, the journey begins with the procurement function. Whilst it is impossible to have complete control over revenue, one thing a business can control is cost.
Effectively optimising operational and business costs will be key to freeing up valuable liquidity to fund new digital initiatives. But this requires a proactive approach to supplier management. Rather than relying on supplier rebates once a deal is done, the CPO (Chief Procurement Officer) must effectively influence and ensure efficiency from the beginning of a relationship to achieve significant savings.
For existing suppliers, a step change may be required in order to steer this initiative. Getting the right supplier onboard and having forward-looking conversations about new trends in the market will be pivotal. After all, these suppliers will be key to driving digital plans forward. Suppliers providing products and services where demand is declining should not be neglected. Chances are that because of the trends in the market, they are keen to maintain and gain as much business as possible, meaning preferable deals may be available.
In addition to effective supplier management, a review of internal systems is urgently needed to aid cost-reduction on a long-term basis. Traditional banks are often made up of a range of complex legacy systems that allow for very little flexibility in a new digital age. The key here will be to simplify these systems, whilst integrating solutions such as robotics, AI, and SaaS to ensure they are running as efficiently as possible.
Data – procurement’s secret weapon
To be successful on any cost-reduction mission, however, the CPO must be aided by accurate, up-to-date, intelligent data. Without it, the long-term, sustained change needed to outmanoeuvre new market entrants, simply cannot be achieved.
After all, the intelligence derived from good, high-quality data provides the CPO with much-needed visibility in which informed decisions over cost-reduction can be made. It is only with this visibility that organisations can identify opportunities and deliver efficiencies that lead to sustained cost savings.
Architecture that can effectively connect to anything, anywhere, will be an essential tool to ensure the CPO is presented with all the relevant data – for example, linking enterprise databases, data warehouses, applications, legacy systems, and Cloud services to comparable systems at partners and suppliers. Integrating with apps, wearables, and mobile devices at an individual user level, and using an enterprise mobility strategy to link to employees and contractors and third party ‘big data’ sources, will also help to provide a complete view.
Harnessing the power of data
Whilst a necessary tool for procurement, being faced with a mountain of data can be overwhelming and actually hinder performance if it is not captured and interpreted correctly. Typically, within financial services, there is a huge amount of data being captured within Enterprise Resource Planning (ERP) and other finance-based systems that is not being analysed. As a result, efficiencies are missed, and the organisation remains stagnant in the digitalisation journey. To truly harness the power of data, the procurement team must ensure it has access to the right skills and have the right talent in place. This may require additional training, or consultancy to leverage data effectively and to execute successfully in today’s agile and fast-paced environment.
Ultimately, to remain competitive, banks must put the power back into the hands of procurement. By providing the CPO with the right tools and responsibility, the procurement function can align to the strategic targets set out across the business.
Good data, when teamed with effective procurement capability, will be a much-needed adrenaline shot for finance companies. Whilst challenger brands may only be running a 400-metre sprint in terms of digitalisation, in comparison, traditional banks are running a marathon. Stamina and the need for long-term efficiencies will be pivotal to win in a race of innovation. A
Bank of Ireland limits 2020 loss with strong second half, shares rise
By Padraic Halpin
DUBLIN (Reuters) – Bank of Ireland limited its underlying 2020 loss to 374 million euros ($452 million) after a return to profitability in the second half, the bank said on Monday, sending its shares more than 5% higher.
Ireland’s largest bank by assets also announced the closure of one-third of its branches in Ireland, 10 days after NatWest said it would wind down its Irish arm Ulster Bank.
The bank set aside 1.1 billion euros to cover possible loan defaults due to COVID-19 disruption, the bottom of its forecast range and which it expects to capture the majority of credit impairment risk associated with the pandemic.
An underlying 295 million euros second half profit limited the damage as lending and business income improved, trends Chief Financial Officer Myles O’Grady said continued into 2021, even though Ireland was in a long lockdown again.
“It’s clear that there is some impact from this lockdown but the signals overall are encouraging. We do think (the second half) will be a return to a more normalised level of activity,” O’Grady told Reuters.
Shares in the bank were 5.1% higher at 3.6 euros by 0910 GMT.
The bank cut it costs by 4% year on year in 2020, meaning it achieved its 1.7 billion euro annual cost target one year early. It set a new goal of cutting costs further to 1.5 billion euros by 2023.
That will partly be achieved by branch closures, with its Irish network cut to 169 from 257 from September and Northern Irish presence more than halved to 13. It struck a deal with the Irish post office to offer customers access to banking services at An Post locations.
The head of Ireland’s Finance Services Union described the announcement of closures in the middle of a pandemic as a “shameful act” that needed to be reversed.
Bank of Ireland’s core Tier 1 capital ratio, a key measure of financial strength, stood at 13.4% versus 13.5% at the end of September. The bank said it expected capital to remain broadly in line with those levels in 2021.
The bank’s guidance for this year should support the restart of distributions to shareholders in relation to full-year 2021 results, Chief Executive Francesca McDonagh said, adding that future distributions will likely include share buybacks.
($1 = 0.8272 euros)
(Reporting by Padraic Halpin; Editing by Edmund Blair)
Functions and Features of Offshore Banks to Know About
By Luigi Wewege, Senior Vice President, and Head of Private Banking of Belize based Caye International Bank
Have you been mulling over the idea of establishing an offshore checking or savings account? Maybe the idea of having an investment account with an offshore bank has been on your mind. If so, now is the time to explore these options more fully.
You’ll find that the features and functions of offshore banks have quite a bit to offer. Here are just a few examples to keep in mind.
Account Types That Are Familiar Plus More
One of the first things you’ll notice is that all of the domestic account types you’re familiar with are also available internationally. Along with those, you’ll find accounts that have some features that aren’t found at home. Some of them will help you grow your accounts or save money faster.
From time deposit accounts to special retirement funds, there’s something for just about everyone. Bank officials are happy to explain how each account type works and what it can do for you.
Competitive Interest Rates
Depending on how much you can deposit into an account, the interest rate that applies can be higher than what you receive at home. This is especially true if you opt for accounts that come with tiered interest rates. As you exceed and maintain certain balance levels, it’s possible to lock in higher interest rates.
Think of what this could mean if the plan is to save money for your retirement years. As you add to the balances and let them remain in the account, more interest is earned. Start that when you still have at least a couple of decades left to work full time, and the result could be a significant nest egg to use during those retirement years.
Easy Online Management
The days when managing offshore accounts required the post or some other slower method are gone. The best offshore banks provide online management to their clients. That means you can transfer funds between accounts with ease.
Think of how nice it would be to initiate a funds transfer that moves money from a domestic account to an international one. This can be done any time of the day or night. You will know when it posts to the account, often on the next business day. How much simpler could it be to get money in those accounts?
With the Best in Security Measures
Security is a priority with offshore banks. Data is encrypted correctly, account access is monitored, and there are plenty of safeguards in place. Other than authorized bank personnel and yourself, no one is getting into your accounts.
Top offshore banks evaluate and update security measures regularly. This makes it possible to remain ahead of the most recently launched threats and prevent hackers from accessing your funds.
Protection From Political and Market Upheavals
It’s no secret that political shifts and marketing changes impact the financial world. One way you can minimize the effect on your wealth is to house part of it in offshore accounts. Whatever is happening at home will not impact the funds you have placed in offshore accounts.
No matter what happens to your domestic assets, your offshore funds and holdings remain intact. Regardless of the losses you might incur at home, you’ll still have your offshore balances to help you get back on your feet.
Safeguard Against Legal Troubles at Home
No one is immune from being the defendant in a lawsuit. It could be a personal injury suit or a civil action against you. It could even be problems with a tax agency that leads to seizing your bank accounts or garnishing your wages. While it would be impossible to protect your domestic assets from these types of issues, your offshore assets are different.
In most instances, a judgment in a civil suit or a tax garnishment will not result in the seizure of any of your offshore accounts. They remain outside the jurisdiction of a domestic court.
A Wider Range of Investment Opportunities
Setting up accounts in the right offshore location allows you to take advantage of many investment opportunities that aren’t available at home. It’s not just the possibility of greater returns that captures your interest. The options themselves are broader than what you can access using any domestic banking or investment firm.
From real estate to currency trading, some options are likely to be of interest. Many of them can be managed through one or more arms of your international bank. Since many offshore banks have personnel who can provide information about investment opportunities, it’s easy to access factual data to help you decide if a particular investment fits in with your overall financial goals.
Possibly Superior Rates of Exchange When You Travel
Here’s something to consider if you tend to travel abroad regularly. When it comes to the exchange rate between different currencies, using your offshore checking account balance rather than a domestic one may be a better choice. That’s because there may be a more favorable exchange rate between your offshore account and the nation where you’re visiting.
A better exchange rate increases your buying power and lessens the overall cost of your trip. You’ll spend less on big-ticket items like hotels, air or rail travel, and meals.
Benefit from Opening an Offshore Bank Account
You don’t have to be rich to establish and grow offshore bank accounts. You’ll find banks that allow you to open an account with relatively modest balances and add to them with ease.
Over time, these balances help you achieve greater financial stability and ensure a more secure future.
This is a Sponsored Feature
Luigi Wewege is the Senior Vice President, and Head of Private Banking of Belize based Caye International Bank, a FinTech School Instructor and the published author of The Digital Banking Revolution – now in its third edition.
You can follow his posts on trends shaping the banking and financial services industry on Twitter: @luigiwewege
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