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ACCESSING THE EU POST BREXIT

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By Steve Taklalsingh, MD UK Business, Amaiz

 

It has been a gloomy summer, and I’m not just talking about the lack of sun and the ongoing global pandemic. At the end of last year Amaiz published a report: “The Brexit Brink: Are British SMEs about to fall off the edge of Europe – or building new bridges?” This summarised some of the key concerns for our sector. I was disappointed, at the time, that the key issues for financial services had been ignored in the Brexit agreement, but I was optimistic that things would be resolved in the first half of the year. The ‘summer’ has been and gone and things are worse, not better. What are the issues?  What can we now expect?  What can the financial services sector do about them?

Steve Taklalsingh

The issue that has been on the minds of almost everyone in financial services is the fact that EU equivalence, by which British banks, payment and electronic money institutions, insurance companies and investment firms can operate in the EU, has still not been agreed and, worse still, the Government now appear to have dropped this from their plans. This despite the fact that EU companies are allowed to operate in the UK, making it a very distorted marketplace.

The main regulatory changes affecting financial services, post Brexit, are:

  • Financial reporting requirements have changed for many UK businesses. Companies that adopted the EU-endorsed International Financial Reporting Standards (IFRS) now have to use UK-adopted international accounting standards (IAS) instead of EU-adopted IAS.
  • Auditing standards have changed for smaller companies.
  • Some professional qualifications won’t be recognised in the EU.
  • EU citizens moving to the UK to work need a visa which requires them to show they have a job offer from an approved employer sponsor.
  • Insurance requirements and arrangements for companies whose employees have to travel in Europe for business purposes have changed.

In February the Government created the Taskforce for Innovation Growth and Regulatory Reform (TIGRR). This was tasked with scoping out and proposing options for ‘how the UK can take advantage of our new-found regulatory freedom’. Their report made it clear that the Government view financial services as separate from the ‘real economy’ and focusses on how to make the city more competitive in the absence EU equivalence.

It is now clear that the Government has chosen domestic regulatory autonomy over access to the EU.  In July, when the Chancellor spoke at the Mansion House. His speech and an accompanying paper “A new chapter for financial services” set out the Government’s vision for the financial services sector which focussed on reforming financial services regulation to help companies innovate with new technology and products. The idea is that the UK will take first adopter advantage, facilitated by their new regulatory regime.

Financial services contribute 12% to the UK’s GDP.  Our vibrant start up FinTech scene has been the envy of the world.  Internationally, having a foothold in this market, and a London address, was the aspiration of financial services companies who wanted to be taken seriously, but not anymore. In 2019 40% of UK financial services exports were to the EU, so the Government is taking a very high risk strategy that puts both the sector and the UK economy at risk. The extent to which UK companies can offset this export market loss by increasing trade with countries outside the EU will be critical.

Most financial services companies have reviewed their business model in response to Brexit.  Many have chosen to focus attention on the Far East, South Asia, South America and Africa.  However, these markets will take time to build and they’re currently a long way from replacing the EU. UK financial exports to Australia and Switzerland, for example, the two countries that the UK has targeted for post-Brexit trade opportunities, was less than 10% of that to the EU in 2020.

Many of the larger companies, who want to continue to access the EU, are now establishing a base there.  However, despite the Government’s ambitions, this is not an option for many of the smaller, more innovative companies. It can cost millions to duplicate regulatory and technology infrastructures.

Brexit has not quite lived up to the gloomiest predictions of the remainers prior to Brexit.  It seems likely that London will remain Europe’s largest financial centre, following the temporary loss of that status in January to Amsterdam. UK FinTech is renowned for being innovative and leading edge. However, to make up a 40% loss in exports we will certainly need to be over the coming years.

 

Banking

WHY THE TIME IS NOW TO BANK BEYOND BORDERS

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by Lili Metodieva, MD of Monneo

 

As our world becomes more interconnected, so too does the need for banking systems to follow suit. In the past, businesses and individuals were often restricted to banking in a single country, but the rise of borderless banking is enabling both to benefit from greater financial freedoms. In this article, we will examine why this trend is so important and explain how Fintech companies are helping to make it possible.

 

What is borderless banking?

Simply put, borderless banking refers to any bank account, which allows users to spend, send and receive money across different countries and currencies, without incurring heavy fees. The concept has become increasingly popular in recent years, with more people now working in cross-border job roles and with many businesses requiring capital in a different currency than that of their country of origin.

For customers, borderless banking is making cross-border financial transactions more efficient and cost-effective. Through its rise, businesses and individuals can gain easier access to international streams of capital, which is crucial in this current moment of economic uncertainty. In fact, 74% of companies say cross-border payments have helped their business to survive [1].

 

Where do IBANs come in?

International Banking Account Numbers (IBAN) play a crucial role in facilitating borderless banking. The globally recognised system enables cross-border transactions to happen safely, by providing each international bank account with its own unique 36-digit alphanumerical code. On account of this code, financial institutions can quickly identify where funds are coming from, as well as where they’re going to.

More recently, providers such as us have been able to deliver Virtual IBANs (vIBAN). Working alongside a network of well-established European and International banks, we’re able to offer businesses a single platform interface that consolidates the management of all IBAN accounts. In turn, our multi-currency service makes conducting global financial transactions incredibly straightforward.

 

How has Brexit affected borderless banking?

The COVID-19 pandemic has accelerated the growth of borderless banking and services related to it, but other developments, such as Brexit are beginning to stand in its way. Most notably, the drawn-out withdrawal process has seeded a growing reluctance amongst risk averse, larger organisations to settle transactions using UK bank accounts or IBANs, due to unfounded concerns around regulatory complexity.

Despite leaving the EU, the UK remains a member of the Single Euro Payments Area (SEPA), so it’s unclear why these concerns around British IBAN accounts exist. Regardless, this unfortunate development must be addressed quickly as it has the potential to adversely affect the livelihood of businesses and individuals at a time of critical need.

 

What does the future hold for borderless banking?

There’s clear demand for borderless banking and borderless payments, but the discrimination of certain IBAN accounts represents a major obstacle, which could stand in the way of their widescale adoption. Moving forward, there needs to be a push towards borderless IBANs, which will make international financial transactions more reliable. At the end of the day, this is what IBANs were originally created for, so it’s important the current problems are rectified quickly.

To ensure this can happen, the industry needs protection and clarity from regulators. Likewise, it’s now time for membership organisations to stand up on behalf of the sector and lobby for the financial inclusion of businesses.

If the confusion regarding UK IBAN accounts can be sorted in a timely manner, businesses across the nation, as well as those further afield can look forward to a future of more streamlined and effective financial services. With this support, the diverse sector can deliver further access to innovative financial services and products, which improve outcomes for businesses and consumers alike.

As a sector, Fintech has the potential to provide vital assistance to the wider economy, particularly in an era of increased cross-border business. At Monneo, we’re committed to being part of that change and as a part of organisations like ‘Accept my IBAN’, are working towards reporting and ending IBAN discrimination.

[1] – https://www.mastercard.com/news/research-reports/2021/borderless-payments-report/

 

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Banking

IT’S TIME FOR BANKS TO SIT THEIR CUSTOMERS DOWN AND TALK OPEN BANKING

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Eugene Danilkis, CEO at Mambu

 

We are living in an experience economy, and banking is no different. Customers need innovative payment and finance management solutions. New entrants are edging into the landscape and challenging existing players. This should mean users have a better view of their finances and the tools they need to manage their money – but banks are failing to deliver.

Personal finances are a complex beast, emotional pulls are strong, and the worry of financial security is always on the mind. It’s the job of banks to be the shoulders customers can lean on and trust.

Open banking was supposed to take this to the next level, enabling banks to deliver personalised products and services based on improved data sharing and customer insights. But three years on, adoption remains sluggish. So, why is open banking failing to live up to its promise?

 

A missed opportunity

Open banking was introduced to the UK in 2018, but consumers are still mired in confusion as to what it means and how it helps them. According to Mambu’s global open banking survey, 61% of consumers say they’ve never used open banking, despite more than 8 in 10 using one or more mobile banking apps.

Eugene Danilkis

This is a problem for banks and consumers alike. Lack of understanding around the technology is hindering its adoption, despite this being in the best interests of both. By enabling the secure sharing of financial information, open banking creates an improved customer experience. Not only does this minimise friction and make online payments faster and easier, but allows for personalised services and greater automation, enabling customers to take advantage of tools like budgeting apps.

For banks, open banking is an opportunity to build innovative new products that will improve the customer journey, helping them retain accounts and acquire new ones. By collaborating with third parties, banks can hyper-target customers and build services that address specific user needs, increasing customer satisfaction and in turn brand loyalty.

It’s true there’s been a recent spike in open banking users. According to Juniper Research global, open banking users rose from 18 million in 2018 to 40 million in 2021. But this can be traced to the necessities of a pandemic rather than any sudden clarity in communications.

 

Putting customers at the heart of communication

Mambu’s research shows more than half of consumers (52%) have never heard of open banking. COVID-19 may have increased the uptake of the technology, but it hasn’t increased understanding among users.

So, what can banks do to encourage consumers to embrace open banking? Fundamentally, they must better educate their customers in terms they understand. This means talking to them like human beings, using clear and transparent language to simply explain the personal benefits open banking brings and why it’s really just smart banking.

The understanding gap between technology and terminology shows that consumer demand is there, but better communication is needed. Making sure consumers truly understand the tools they’re using, the control they now have over their finances and how open banking improves the customer experience is vital to dispersing the current fog of confusion. It’s the benefits of this technology that banks need to hone in on: customers ultimately care about what open banking can do for them and how it’s going to make their lives easier.

Centering the customer and their needs in this way will allow banks to fully realise open banking’s potential. The technology has already given them the opportunity to develop valuable services for customers that help build brand loyalty. But the industry has failed to put the customer at the heart of their communications and processes, and show them how much better banking can be.

 

Building trust

Key to reversing this trend is addressing consumer concerns around data privacy and financial safety. Yes, banks need to prioritise simplicity and clarity in messaging, but this isn’t an excuse to shy away from important conversations. Just because there’s an understanding gap around open banking doesn’t mean consumers aren’t switched on about tech and financial issues.

Mambu’s survey found nearly three in five customers have concerns about privacy and security in relation to open banking. So, it’s vital that banks provide reassurance and relevant information about data sharing from the outset if they’re to assuage these fears.

The industry can also encourage greater adoption by developing and improving open banking interfaces. Banks are the gatekeepers to how easily end-users can authorise certain actions, manage third-party access and navigate different open banking functions. If the interface is user-friendly, customers will have a better experience of the technology and be more likely to use and recommend these services.

 

Time to get talking

Customer communication is holding the industry back.. The ability of open banking to transform financial services is a concept that industry players are well-versed in. But the feeling isn’t mutual for customers.

Banks are failing to capitalise on the open banking opportunity by engaging with new and existing customers about what the technology can do for them. Debunking  common myths can open the door to increased growth and trust for banks, as they seek to open up new revenue streams post pandemic..

Make no mistake, open banking isn’t going away. But customers will if banks don’t get talking.

 

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