In this article – originally written as part of the ESCP Business School’s “Better Business: Creating Sustainable Value” series, Professor Terence Tse from ESCP Business School discusses how the power of AI can lead to efficient extraction and interpretation of ESG-related data, and how making such data available in a timely fashion can give more credibility to and empower the various ESG indices to monitor and track companies better.
It is perhaps understandable as to why some people are skeptical about artificial intelligence (AI). First, media and research reports often illustrate how machines will be taking over our jobs, resulting in the elimination of the work positions currently held by many. Second, in many instances, AI remains a “blackbox”. Typically, in machine learning, we can only see the inputs and outputs but are clueless on how those inputs are being combined to reach the results. Put differently, machines turn the input into output in ways that are completely unobservable to us. Applying blackbox algorithms in various aspects of public lives such as justice will have deep social and ethical ramifications. The development of machine learning technologies is charging full steam ahead. Yet, the methods for monitoring and troubleshooting them are lagging behind.
Third, it appears that some companies, especially the technology giants, have doubled down on AI to increase their profitability, often at the expense of public interest. For example, Google is arguably extracting a staggering amount of data on users’ private lives. The company then uses such data to attain accurate predictions of future human behaviour, which can subsequently be sold to markets of business customers. Another (better known) example is how Facebook deployed AI through Cambridge Analytica to influence voters, hence interfering with the democratic processes.
Tech for good
Yet, we should not forget that AI can also create common benefits. There is no shortage of conversations on how companies can use technologies not just to do good but also to do well. For example, there is an increasing number of discussions on using AI to help reach circular economy goals. Yet, the progress for technology-driven pursuit of sustainability remains slow. One reason for such sluggishness is that there remains a lack of economic incentive for companies – and their investors – to make huge investments concerning social and environmental gains and benefits. This also provides an explanation as to why, despite years of discussions on the importance of the so-called “triple bottom line” – the need to care for not just profit but also people and the planet – has hardly become a mainstream practice among today’s businesses. Indeed, at the same time, there is an increasing number of socially and environmentally conscious investors.
Looking at it from this vantage point, two lessons are clear. The first is that unless investors are getting the satisfactory return, it will be difficult to get businesses to orientate themselves towards goals related to people and the planet. The second is that investors need to have timely and accurate information to make informed decisions. In this respect, AI presents a welcome and potentially extremely beneficial tool to help the latest idea in sustainability: environmental, social and governance (ESG).
A socially important asset class
Investments in ESG have fast become an important area of interest. One study points out that sustainable investments amounted to some $30 trillion in 2018, up by 34 percent from 2016. Indeed, investors (and our societies in general) are increasingly keen to understand whether and by what means businesses are being ESG-compliant. Simultaneously, boards and managements have become cognizant that ESG is crucial to the long-term survival of their companies. It is therefore unsurprising that as much as 90 percent of investors globally are estimated already to have in place, or to have plans to develop, specific ESG investment policies. To guide the selection of such investments, several ESG-based rating and index services such as MSCI, Bloomberg and Sustainalytics have proliferated in recent years.
BooHoo and ESG
Unfortunately, ESG investments are often easier said than done. Consider the example of the UK-based company, Boohoo. In June 2020, this pioneer of the ultra-fast-fashion retail phenomenon announced a £150m planned executive bonus. In 2019, the retailer waxed eloquent in its 2019 company report about its “zero-tolerance approach to modern slavery”. Yet, shortly after, the company was discovered to be sourcing from a factory in Leicester in which workers were being paid as little as £3.50 an hour (compared to the National Living Wage of £8.72). Just as bad was the fact that workers were not provided with proper protective equipment against Covid-19.
Yet, despite these malpractices, Boohoo had received a double A ESG rating from MSCI — its second-highest ranking — while being awarded a far-above industry average score on supply-chain labour standards in its ESG ranking. MSCI is not alone in ranking the fashion retailer highly, however. A review of nine other different ratings placed Boohoo in the top 25th percentile of more than 19,000 companies considered worldwide.
How could the rating companies have got it so wrong? The answer: information asymmetry. It appears that all parties involved face different challenges when obtaining and quality of information. To begin with, rating producers and indices deploy their own proprietary methodologies and data to analyse companies. The result of them using different ESG definitions, measurements and weightings for different indicators often lead to conclusions and verdicts that can be distinctly different from one index to another. Furthermore, they rely heavily on information provided by the companies being rated, essentially allowing the latter to feed only favorable data, potentially creating huge biases.
This, in turn, poses problems for the investors. First, without standardization across ratings, it is difficult for investors to compare across the indices created by different providers. Second, the fact that interpretation of data by rating companies can be vastly different, often leaving investors struggle to determine which rating or score would meet their own investment criteria or goals. Another key problem the investors face is that they rely on the rating and index producers to capture the latest information and news and to incorporate them into their ratings.
For the rated companies, even though they can select the information to be submitted, they often suffer from other problems. For example, as the rating criteria and dimensions are determined by the index producers, the companies that are keen to be seen as ESG-compliant are frequently left wondering how to improve their own ratings. There is also uncertainty over whether investors have enough information to recognize other positive – and negative – factors related to their competitors which are unaccounted for in the ratings.
In short, the problems emerge from a lack of clarity, consistency, and transparency of ESG ratings as well as information asymmetry and shortage.
AI to power ESG
One potential means of mitigating these issues is to consistently collect qualitative information quickly in order to reinforce the quantitative data already in use. Up-to-date qualitative data has the ability to not only help investors and rating producers to be much better informed but also such data can also be used to set up key inputs that could be used as the basis to form common minimum standards.
This is by no means merely a theoretical argument – a new and major initiative is underway in Asia to fashion AI into a tool to collect and process qualitative data. The AI-powered solution seeks to help stakeholders mine the vast amounts of qualitative, unstructured data through automation. Until now, gathering and gleaning insights from social media, daily local news, and freshly available reports has been a slow and labour-intensive activity, fraught with inaccurate results.
AI technology is a potential game-changer as it can act as a scalable solution that allows for speedy unearthing, collection and handling of vital information. Algorithm-driven systems can easily and effectively crawl the worldwide web and scrape unstructured data on companies from a range of sources. Subsequently, they can also swiftly parse and convert the excavated data into usable structured ones. This, in turn, allows for curated output that is valuable for all parties involved, thereby drastically mitigating the information asymmetry problem. In addition, using natural language processing technologies to perform analyses that capture sentimental, contextual and semantic factors embedded in the collected data, it will be possible to discern the tone of the information provided. Such analytical algorithms could be trained to go through a certain type of conversation and identify the tone by comparing the words used to a reference set of existing information.
Something for everyone
The benefits can be huge for all the parties in question. Investors can hence better comply with ESG requirements and make more informed decisions by incorporating ESG data into their investment strategies, for example by implementing negative/positive screening. On the other hand, rating producers are in a better position to identify and control ESG related issues and risks such as improving their company operations and supply chain due diligence. As for the rating and index providers, real-time signals can offer early warnings and timely indicators, enabling them to produce more accurate updates. Furthermore, these providers can expand the scope of analysis using AI-derived information to complement their current quantitative methods.
A chance to make a difference?
While the use of AI to drive ESG is still in its nascent stage and the results of the ongoing efforts in Asia remain to be seen, history is filled with examples of how technologies have helped attain social goals and create a better society. It is very much hoped that by investor empowerment, particularly those who are ESG-orientated, it will be possible for ESG to be a well-respected and common business practice instead of just another fad or slogan advocating sustainability. Just as with fire, AI can be a bad master but a very good servant. Using AI in the right way can no doubt help with our endeavor to raise ethical standards.
THE ACCELERATION TOWARDS A MOBILE FIRST ECONOMY
By Brad Hyett, CEO at phos
Over the last year, we have seen a big shift towards contactless payments. Fuelling this has of course been the coronavirus pandemic, which has made the public hesitant to handle cash due to the health concerns.
As multiple national lockdowns forced physical stores to close, and customers demanded easy, cash-free payment options, merchants had to quickly adapt. The result? An increased provision of pay and collect services.
In the UK alone, 83% of people use contactless payments according to data from the Office of National Statistics.
So it’s vital that merchants are equipped with the most efficient payment solutions, as the UK heads towards a mobile-first economy.
Proliferation of contactless payments
In 2020, 90% of UK card payments were contactless. This equates to an increase of 12% on the year prior, despite the total number of payments made falling by 11% from 2019 to 2020. Moreover, the affordability of smartphones has increased significantly over the last decade. And it’s estimated that 84% of UK adults now own one.
We’re Seeing merchants embrace more efficient and cost effective payment methods in response. While physical payment terminals are often too expensive for many small businesses, software point of sale, or SoftPoS, enables merchants to turn hardware that they already own – i.e. their mobile device – into a point of sale terminal.
With merchants increasingly adopting these innovative technologies, contactless payments will continue to gain popularity among the general public. In 2020, 13.7 million people in the UK either didn’t use cash at all or only used it to make a single purchase. That’s double the same figure from the previous year.
Changing consumer demand
Now more than ever, consumers are aware of how innovative payment solutions can add efficiency to their daily lives. As such, consumers now demand better payment services, including reduced queuing times, checkoutless stores, and bespoke loyalty schemes.
Businesses such as Mercedes offer an end-to-end digital car purchasing service, so customers can go through the whole car purchasing journey from the comfort of their own home. This includes car deliveries, financing, insurance and more.
Meanwhile, eCommerce giant Amazon has started trialling checkoutless ‘Go’ stores, speeding up the shopping experience by eliminating the queuing process altogether. The days of waiting for a table at a restaurant are also over, as more people have grown used to booking in advance.
Hence, it’s important that we empower small businesses to remain competitive and provide them with the payment solutions to meet customer demand.
The digital payments revolution isn’t slowing down anytime soon. By 2026, only 21 percent of transactions will be made using cash.
The US might have been slow out of the gate, but it’s starting to see increased adoption of mobile payments. In-store mobile payments grew by 29% in the States last year alone.
This growth was primarily fuelled by Gen Z-ers and millennials. Latest projections show that there will be 6 million new mobile wallet users by 2025, with millennials accounting for 4 million of this figure. These two generations, the former in particular, have grown up with mobile banking.
For most Gen Z-ers, their first foray into financial services was with a challenger bank like Starling or Monzo. These banks are able to offer online features such as ‘split the bill’, fee-free withdrawals abroad and much more to cater to the modern financial needs of the younger generation.
The Middle East experienced similarly sharp increases in contactless payments. From 2019 to 2020, there was a 200% growth in contactless transactions. This shift towards a mobile-first economy in the region was inevitable; the pandemic merely accelerated this shift. A recent study showed that 80% of people living in the Middle East planned to continue using contactless payments post-pandemic, with speed and security being the main draw.
The future is mobile
As parts of the world now start to come out of lockdown, there’s an openness to new solutions and a widespread acceptance of new technologies.
It is now a case of when, rather than if, we’ll see a permanent shift to cashless in the future. For businesses, embracing digital innovation will be key to remaining competitive and keeping pace with consumer demand in this fast-changing payments landscape.
HOW MERCHANTS CAN IMPROVE THE ONLINE PAYMENTS EXPERIENCE
By Alan Irwin, Senior Director of Product at Global Payments UK
The dramatic increase in online shopping over the past 18 months has encouraged many businesses to invest in developing their omnichannel shopping experiences. The reasons vary – some are keen to capitalise on the trend of older shoppers migrating towards ecommerce and some are trying to make up for loss of sales in brick-and-mortar stores during the pandemic. It is also true that many businesses are shifting their models to sell direct to consumers to avoid high marketplace fees and are therefore building their ecommerce channels for the first time.
The checkout experience is arguably the most important and delicate part of the ecommerce transaction, as it can make the difference between a happy customer likely to return, and a shopping cart abandoned out of frustration and confusion. A survey from March 2020 suggested that 88% of online shopping orders were abandoned, i.e. not converted into a purchase. A seamless, customer-centric online payment experience is therefore critically important in ensuring completed transactions. But with so many payment providers available, what should businesses be looking for when trying to keep friction to a minimum?
Keep clicks to a minimum
Less touchscreen interaction equals less abandonment. Adapting the payment page to fit any device and supporting popular mobile digital wallets like Google Pay ensures a seamless, stress- and hassle-free checkout experience for the customer and keeps clicks to a minimum. Friction can present itself in the most minor features – for example, when the customer is navigating the payment form, the appropriate keypad should be shown to the customer when required. It’s much easier to enter a card number using the dial pad instead of switching between QWERTY keypad layouts.
Simplifying online forms with autofill and tokenisation also significantly reduces friction at checkout and shortens necessary time taken. Ensuring checkout forms are tagged correctly for “autofill” is a great way to offer customers a single-click to input the payment, shipping, and billing data that they have stored in their browser profile. Similarly offering a guest checkout option will help convert customers who are in a hurry or looking for a one-off purchase. This can also be achieved by offering to store the payment details (called ‘tokenisation’) for express repeat and one-click purchases.
Make it easy to understand
A tailored payments approach can increase both domestic and international global sales. By offering a checkout experience in the customer’s language, the option to pay in their currency of choice, and use their preferred method of payment (whether it’s PayPal, Alipay or card), businesses can build loyalty quickly and put customers at ease. It is equally important for merchants to ensure they always display simple direction and information about next steps to instil confidence and prevent customer drop-off. The customer should be informed of what is happening at every stage in the process, for example, whether they will proceed to SCA (Secure Customer Authentication) next or go straight through to completion.
In addition, validating forms in real-time means merchants can highlight potential errors to the customer early on, and payment providers should provide this functionality. This could be an invalid expiry date, an incorrect digit in the card number or incorrect CVV number based on card type. When issues are only flagged at the end of the process, this forces the customer to go back through the steps to figure out the error. Real-time signposting of problems removes this potential friction and reduces the potential for a declined transaction.
Ensure seamless security
Merchants should work with a payment partner who offers the right blend of security and compliance management without it coming at a cost to the end-to-end checkout experience for the user. Instilling trust and security in your checkout flow while utilising the right solutions to drive seamless authentication flows will increase customer confidence and help prevent drop-off.
The greatest level of security and control comes from either utilising hosted payment fields that the
merchant can natively integrate into their checkout flow, or a hosted payment page where they can
manage the look and feel. Showcasing your brand on the checkout page with trust signals and logos also adds to building trust with the customer.
Staying ahead of regulations is also important. Secure Customer Authentication (SCA) will soon be mandatory in the UK for all eligible digital transactions, and this doesn’t have to be a friction-full process. Tools like Transaction Risk Analysis (TRA) and Exemption Optimisation Service (EOS) can quickly score transactions and drive exemptions where there is the right blend of transaction risk.
The devil is in the details
These three rules for successful ecommerce checkout experiences may seem straightforward, but it is important to apply them at a micro level. It can take only one minor point of friction to cause a customer to abandon their cart, and this will inevitably be replicated across other similar customers. It is critical to identify friction points early on and anticipate customer needs throughout the process. Discussing these points and any opportunities to improve customer checkout experience with your ecommerce team and payment provider is an important first step towards ensuring your entire shopping experience remains competitively seamless and loyalty is won. It may be that your payment provider cannot address them, in which case it could be time to move on in order to stay competitive.
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