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What Can We Learn from Carillion’s Demise?

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What Can We Learn from Carillion’s Demise?

Following the demise of the construction giant Carillion towards the end of last year, perhaps unsurprisingly the Labour leader Jeremy Corbyn was vocal in his calls for change. He described the collapse of Carillion as a “watershed moment” and said the failure was “symptomatic of a failing outsource-first dogma”.

Of course, it’s easy to be wise after the event, but with the shockwaves still rippling through the business community, is he right? Does there need to be fundamental changes to the way British businesses operate and what can we learn from Carillion’s demise to make sure such a large-scale failure does not happen again?

Some insolvencies are inevitable

The first point to make is that as sure as night follows day, the insolvency and liquidation of businesses large and small is an inevitably. Markets change, products and services are usurped and payments are delayed. In a less than perfect world, decisions will always be made that are not necessarily in the best interests of the business. There will also be circumstances outside of a business’s control which can derail its best-laid plans.

In the case of Carillion, the group had a sprawling portfolio that included everything from catering and cleaning to building HS2. Yet despite full order books, it also had £900m of debt and a £587m pension deficit. Throw into the mix boardroom salary increases that in no way reflected the performance of the business and the collapse of the company, without a taxpayer bailout, was hardly a surprise.
Rewarding failure

One of the many jobs for the Official Receiver handling the Carillion liquidation will be to investigate the role the company’s directors had in the collapse and impose severe fines if there is any evidence of misconduct.

Although we would not want to pre-empt the findings of the inquiry, it’s difficult to see how the salary, bonuses and pension payments of the most recent and past chief executives can continue to rise despite towering debts that grew year-on-year. Perhaps this will be the wakeup call the government needs to finally do something about levels of director pay that are not commensurate with performance.

Dividend payments

Another contributing factor in the construction giant’s collapse was the fact that dividend payments continued to be made to shareholders despite numerous profit warnings and rising levels of debt. In reality, the company was simply syphoning off money to the detriment of suppliers, employees and the British taxpayer and there was nothing in place to stop that taking place.

The award of public sector contracts

The government also needs to take a long hard look at the role it played in Carillion’s demise. MPs have been quick to heap the blame upon those at the head of the organisation, but how government contracts could continue to be awarded to a company that has issued multiple profit warnings requires closer investigation.

Clearly, there are very serious questions for the government to answer about the processes they use when awarding contracts. Given the profit warnings, there’s no way the government could not be aware that there were very serious issues at Carillion. That means the procedures the government has in place are clearly not fit for purpose.

The fact that no action was taken and contracts continued to be awarded to Carillion will come at huge cost to the workers across the UK. In the private sector, you might expect such a mistake to lead to dismissal; however, it seems the government is a bit more forgiving. As MP David Lidington explained to the Commons: “Since July, we have kept a very close eye on this, but of course if there are lessons which can be learned, they will be.”

Author: Mike Smith is the director of Company Debt and a business insolvency expert with four decades experience helping businesses deal with debt problems.

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The largest event in e-commerce history? ‘Tis the season

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The largest event in e-commerce history? ‘Tis the season 1

By James Booth, VP Head of Partnerships for EMEA, at PPRO

Sometimes, change happens slowly. Other times it chases you down like that boulder at the beginning of Indiana Jones. In 2020, change is fully in boulder mode. And the holiday season is when it either catches up with you or you leap triumphantly from the temple entrance, golden statue in hand.

The shopping season kicks off on 11 November, with the 11.11 Global Shopping Holiday (formerly Singles’ Day). According to analysts, Alibaba and its merchants are on track to rack up $45 billion worth of sales on Singles Day alone [1], up from $38 billion last year [2]. And if last year’s results are anything to go by, a large proportion of those sales will go to non-Chinese companies. Last year brands such as Bose, Estée Lauder, Gap, Levi’s, Nike, The North Face and Apple all made over 1 billion yuan ($143 million) on Singles’ Day [3].

Increasingly, US and European consumers are also participating in Singles’ Day. However, both markets shift into proper holiday mode with Black Friday on 27 November. And there is every indication that this, too, will be bigger in 2020 than ever before.

Adobe Marketing Insights predicts a 20% increase in e-commerce spend over the Black Friday to Cyber Monday weekend [4]. Looking at the holiday season as a whole, Deloitte forecasts that seasonal e-commerce — online spending  is expected to grow by up to 35%, compared with just 14% last year [5].

But that doesn’t mean you can just relax and wait for the holiday season sales to rack up. As well as driving customers online, lockdown has also disrupted brand loyalties. During lockdown more than two-thirds of customers in some markets have tried a new product or service and of these, a quarter do not plan to return to their old habits once lockdown has ended [6].

Old shopping loyalties have been upended, and that means their holiday-season shopping is up for grabs.

For instance, 43% of over-65s are now shopping online compared to just 16% before lockdown [7]. For online merchants the grandparent present budget just became accessible. But to win your share of it, you have to provide a customer experience that this demographic will love.

Making the checkout page a priority 

The question then, is how to prepare your merchants’ or your own e-commerce site for the holiday shopping season. It’s only a few weeks until Black Friday, so there’s no time to lose. You need to find out where gaps are in your customer journey, and plug them, before those customers run away to someone else.

The customer experience at checkout is particularly crucial. One of the surest ways to lose customer trust at the checkout, is by not offering shoppers’ preferred payment methods. According to research by PPRO, up to 50% of customers have abandoned a transaction because the merchant did not offer their preferred payment method [8].

It’s a question of localisation. Except in this case, you’re not necessarily localising for customers in a particular geography. Instead, you might consider localising for consumers in a particular age group who are now shopping online for the first time. Or customers from a range of demographics who have never shopped online for a particular category.

No one size fits all when it comes to global payment preferences

If you want to succeed in global e-commerce, you must offer the preferred payment methods for every market and demographic you want to win over.

Worldwide, consumers use alternative or local payment methods in more than 70% of all consumer transactions [9]. These are the payment methods whole markets and demographics grew up with online and trust. Fail to offer them and you can have the best possible customer journey, but you’ll still lose basket after basket at the checkout.

With the acceleration of e-commerce and the influx of online competition, anyone who hasn’t optimised their payments offering will be desperately racing to catch up. Merchants need to think now about how they are going to maximise their revenue from what looks to be the biggest online holiday season ever. And payments is a crucial part of that conversation.

[FOOTNOTES]
1. https://techcrunch.com/2020/09/09/u-s-holiday-shopping-season-on-mobile-expected-to-be-largest-to-date-topping-1b-hours-on-android
2. https://www.cnbc.com/2019/11/11/alibaba-singles-day-2019-record-sales-on-biggest-shopping-day.html
3. https://www.forbes.com/sites/sergeiklebnikov/2019/11/12/alibabas-1111-singles-day-heres-which-brands-profited-the-most/#25ea1a164863
4. https://www.thedrum.com/opinion/2020/09/15/strong-ecommerce-strategy-key-black-friday-2020
5. https://www.digitalcommerce360.com/2020/09/16/online-holiday-sales-to-surge-25-35/

6. https://www.alixpartners.com/insights-impact/insights/covid-19-disrupts-brand-loyalties
7. https://www.essentialretail.com/news/elderly-consumers-drive-ecommerce
8. https://www.pymnts.com/news/payment-methods/2018/ppro-ecommerce-local-payment-options
9. Original PPRO research.

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Why insurance needs Tesla’s autopilot too

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Why insurance needs Tesla's autopilot too 2

By Christian Wiens, CEO of Getsafe

Digitization is the industrial revolution of the 21st century. What does this mean for a data-driven industry like insurance? The answer is simple: Turn everything on its head and reinvent yourself under high pressure- the future of insurance is digital.

“Hello Timo, nice to see you. I’ll be glad to help you.” Carla records claims 24 hours a day, seven days a week and takes less than two minutes to evaluate and process them. Carla works for a digital insurer and is a chatbot by profession. While she is answering Timo, she contacts the bank in the background, which pays Timo back his money – the same day. This is not a dream, but already reality.

In the digital age, intelligent machines are the new workers on the assembly line, and data is the new raw material. This applies to almost all industries and applies in particular to the insurance world as insurance is based on mathematical models and probability calculations – in short: on data. The more data on which the calculations are based, the easier it is to derive and price risk profiles. Data therefore changes the core of the product “insurance” in three essential areas; the offer phase, in the event of a claim and in the long-term customer relationship.

In the offer phase, we will experience long-term personalized product bundles that fit customer needs much better – away from standardized and inflexible policies. If the insurer can better assess the needs of the customer on the basis of his past history or behaviour, he is in a position to put together tailor-made insurance packages.

For example, it would be conceivable to automatically adjust the insurance cover as soon as the customer’s life changes, for example if the customer gets married, buys a car or a property or travels abroad.

Customer experience in the event of a claim will also change dramatically. Fraud is still the biggest problem in the system, with 2 percent of the customer base causing 40 percent of the system’s inefficiency. According to estimates by the Association of British Insurers (ABI), one insurance fraud is detected every minute – amounting to economic losses of £3bn every year. Of the estimated worth of total fraud cases a year, £2bn goes undetected.

But what if insurers are better able to assess customers on the basis of data and know which customers they can trust – and which not? Credible customers could then benefit from immediate payment of the loss incurred, while the few “black sheep” would not even be accepted as customers or would be checked more closely in the event of a claim being reported.

The computer does not act uncontrolled, but within certain parameters defined by humans. This is comparable to processes in the manufacturing industry: Here, too, people define the exact parameters that are to be checked – controls are implemented by machines that are significantly less prone to errors. The situation is similar when it comes to insurance fraud: people make value judgements and specify which indicators can point to a case of fraud. They retain sovereignty over the entire process. The smart algorithm, on the other hand, is only the tool for evaluating and linking the many individual data points. Smart algorithms will reduce  employees’ workload, but will not replace them.

Finally, digitization will also change the long-term relationship between insurer and insured. Tomorrow’s insurance will not only settle claims, it could even prevent them arising. A better database will not only make it possible to calculate the probability and amount of loss more precisely, it will also make it easier to calculate the risk of loss. Digital systems and sensors can also help prevent possible claims. Telematic tariffs in motor vehicle insurance are already moving in this direction by promoting a prudent driving style.

Sensors on washing machines and industrial plants or intelligent smoke detectors are one thing – monitoring people in the health sector is another. Some health insurers reward sport activities, for example, if the customer can prove this with smart fitness watches. It remains to be seen to what extent customers are willing to exchange this personal data for premium refunds. In the long term, the legislator will also be asked to take action to ensure that the solidarity principle is not undermined.

However, the danger of increasing surveillance is countered by a clear increase in customer service, individualised services and flexibility on the customer side: Digital insurers rely on  customer’s self-determination and a positive insurance experience in an industry that sometimes appears to be immobile and non-transparent.

Digitalisation has reached the insurance industry, but has not yet shaken its foundations. That will change: Tomorrow’s insurance will have little in common with today’s structures and processes. The autopilot at Tesla will also come for insurance. Not all companies will be able to master this switch to become digital insurers.

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How ISO 20022 migration is changing the landscape in payments

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How ISO 20022 migration is changing the landscape in payments 3

By Paul Thomalla, Global Head of Payments at Finastra

The ISO 20022 standard is a catalyst for change in digitalisation and payments. The current edition of the standard was published in May 2013, and it’s been clear since then that the standard represents the future of payments messaging. This is due to the rich information, process automation and interoperability it enables. What started off in the Automated Clearing House world with the Single European Payments Area is increasingly becoming the de-facto standard for instant payments and for high-value payments worldwide. In fact, we estimate that all major payment systems and currencies will have moved over to ISO 20022 by the end of 2023.

Banks, meanwhile, will be able to get closer to their customers and offer better services. As this happens, the nature of the entire payments supply chain will change: there will be no one owner. Instead, consumers, corporates, banks, software vendors, fintechs and other stakeholders will all play a part.

Migration to ISO 20022 is moving at pace with one of two adoption models being taken. In the first approach, a ‘like-for-like’ migration occurs, which means data fields and messages are gradually moved over in compliance with the new ISO 20022 standard. However, the bank and client aren’t reaping the potential of the new standard as no further action has been taken. ‘Going native’ is the second approach. This allows extensive data sharing between banks and corporates unlocking a range of benefits including deeper insights into customers and partners, better accounting and financial data and more efficient payment processing. Data-rich messages can provide corporates with all the information they need to automatically reconcile transactions the moment they happen.

Banks deciding which way to move forward must remember that corporates have been waiting eight years for this new ISO 20022 functionality and if their bank is not able to deliver the promised benefits, they could decide to take their business elsewhere.

Planning the migration process

Deciding which approach to take is the first step in the migration process for banks. The main transition models being deployed to the market are: the ‘like-for-like’ translation model, or; for an ‘ISO-Native’ approach – either the complete overhaul model, or the hybrid model.

The translation model approach translates incoming MX messages to the SWIFT MT format and vice-versa for outgoing messages. This model is less disruptive and has a lower upfront cost. However, it involves high dependence on third parties resulting in less interoperability with fintechs and no new customer insight. The complete overhaul model allows organisations to execute a wholesale architecture transformation. This approach gives access to leverage rich data across the business including new insights on the market and customers. One negative aspect of this approach is the fact it is disruptive and requires a large upfront investment. Finally, the hybrid model works well for global banks where translation is needed across the board. This approach offers flexibility and the ability to localise strategic response, however it adds a level of complexity to users. The leading model is unclear, but banks must remember to align their payments operations with their chosen model.

Paul Thomalla

Paul Thomalla

That’s not to say that the adoption of ISO 20022 will be plain sailing. One challenge is that the standard describes an asynchronous messaging process. For banks which currently rely on return messages to confirm the successful completion of a payment transaction, this will cause significant upheaval, and is a change that underscores the need for everyone in the payments ecosystem to get ISO 20022 migration right. Banks will need to overhaul their business processes and operations to adapt to asynchronous messaging. This will in turn require new systems, such as Confirmation of Payee and Request to Pay.

The new format requires a fundamental change to the payments world, so the decision on which transition model best suits their needs isn’t to be taken lightly. Internal and external considerations will help banks determine next steps to successfully implementing ISO 20022. Internally, banks must ensure they have the right people to deliver this transformation, have processes in place to easily review and adapt back office functions and have the correct technology required for the migration. Our approach at Finastra has been to build a payments hub that is ISO 20022 native from the start – ready for widespread adoption across the industry. Banks must also look at external factors like customer impact, market share, competitors and regulatory constraints.

Benefits across the payments value chain

The adoption of ISO 20022 allows for additional, enriched data to be transferred within the payment instruction. The new format has more granular and better organised data elements as well as a consistent data dictionary across the payments chain to speed processing and improve compliance. This prevents misinterpretation and expensive manual interventions. All of this will facilitate improved processing and allow all agents in the payment to make more informed compliance decisions.

In the short term, including additional party and remittance information will help reconcile transactions. For example, QR codes are being used more widely on invoices, clearly identifying the beneficiary and facilitating automation in the back office. Looking at the medium term, institutions will be able to limit the resources they have to dedicate to exception handling and one-off investigations due to missing information or unstructured input that cannot be easily integrated into automated workflows. And finally, the benefits of ISO 20022 in the long term mean data that is properly structured and adhered to will support better regulatory compliance practices and financial crime monitoring.

The rewards of ISO 20022 make any temporary disruption more than worth it. We’re excited to enter a new era of payments messaging that will drive collaboration, innovation and efficiency through interlinked partner ecosystems.

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