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ARTIFICIAL INTELLIGENCE CAN SOLVE THE LATE PAYMENT PROBLEM – BUT ONLY IF GOVERNMENT AND BUSINESS WORK TOGETHER

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Paul Christensen is the CEO of Previse, the AI fintech that gets suppliers paid instantly.

 

If 2020 was the year the world moved from paying lip service to digitisation to relying on it, then 2021 is the year we leverage technology to implement strategic and sustainable change. This starts at the very top.

 

The UK Government recently confirmed £800 million in funding for its ‘blue-skies’ Advanced Research Projects Agency (Arpa) which will fund research into cutting edge Artificial Intelligence (AI) and data. This research has immense potential to solve long-standing issues in how we store, process and harness data across government and industry.

 

The promise of technology itself doesn’t need much advocacy: most industries now accept that they could do things better by introducing digital solutions. The key for government will be to carefully identify where and how new technology can be applied in the most effective way. To do this, it must ensure that research conducted by the likes of Arpa is carried out in step with the industry players, to translate research into commercial technologies.

 

Nowhere is this need for technological intervention clearer than in the world of B2B payments, which are positively archaic in comparison with B2C. Small businesses have suffered greatly for many years as a result of this and their lot has been made worse by the pandemic. In January this year, it was estimated that UK SMEs are chasing £50 billion in late payments.[1]

 

Furlough, CBILS and SEISS grants have been crucial lifelines but have left out many and racked up debt which will have fiscal consequences for future generations. One way for the UK Government to protect SMEs in the long term is by harnessing innovative technology, to get all suppliers – no matter how small – paid quickly. In order for this to work, government needs to establish an open dialogue with tech-forward businesses to determine how it can best leverage technology to help.

 

AI enables SME suppliers to be paid instantly, while large corporates pay on their normal terms. Small businesses unlock much-needed liquidity while large corporates strengthen their supply chains at minimal cost. A true win-win for business that doesn’t cost the taxpayer a penny.

 

By leveraging cutting-edge technology and working in line with business to develop inclusive solutions, government can actually bring about a cultural shift in B2B commerce, where instantaneous payment matches that of the B2C world. After all, a customer couldn’t go into Starbucks and order a coffee, promising to pay in 30 days. Technology, in consultation with industry, is the key to unlocking a new era of equitable B2B payments.

 

The UK Government needs to ensure that the research emerging from the likes of Arpa looks to address the very real pain points that businesses suffer. Practically speaking, this can be done by Arpa working in tandem with government bodies best positioned to promote the technology – such as the Department for Business, Energy & Industrial Strategy – and ultimately, the businesses which seek to benefit from it.

 

The Government plainly understands the role of data in the UK’s future but must ensure a co-ordinated approach to create innovative solutions that truly benefit Britons. Harnessing AI to tackle the slow payment problem would allow the UK Government to stimulate an inclusive recovery without further increasing the taxpayer burden. Giving every small business the option of day one payment is just one instance of how government could work with innovative businesses to leverage AI and data to implement genuine change.

 

Arpa is often dubbed the ‘blue skies’ research agency. Aiming high in pursuit of change should certainly be applauded. However, government inter-departmental coordination and collaboration with industry remain crucial for the agency to be effective.

 

By engaging with industry, government and Arpa can encourage businesses to embrace technology, to update antiquated payment practices and establish fair payment terms. Creating cutting-edge technology is commendable, but using it to implement change requires a coordinated effort. Let’s hope that while Arpa reaches for the sky, it keeps at least one foot on solid ground.

 

 

[1] According to Tide Bank

 

Banking

TO ENABLE BETTER LENDING FOR PEOPLE AND BUSINESSES, WE HAVE TO LOOK TO OPEN BANKING

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By Iain McDougall, CCO of Yapily

 

A recent FCA study found over 14 million people were grappling with financial issues at the end of 2020, representing more than a quarter of the UK adult population. The picture is similarly tough for SMEs, too, which have been impacted hugely by lockdowns, loss of earnings and more; it’s estimated the pandemic will cost SMEs an extra £173,000 in debt per year.

This is resulting in a lack of lending options for both consumers and businesses, as well as expensive or high interest loans, or worse, rejection from lenders all together. This in turn is driving unaffordable lending, and penning consumers and businesses in an ongoing and irresolvable debt cycle – at a time when they need the most support.

One of the biggest causes of this lies in lenders relying on credit scores and credit bureau data to inform their decisions, which simply aren’t accurate enough to truly get the full picture of a borrower’s financial situation.

The case for using Open Banking data in lending decisions has never been stronger.

Data accessed through Open Banking permits lenders to retrieve accurate information about the borrower’s financial history. This can provide more accurate assessments, and therefore enable fairer lending decisions.

 

Credit scores aren’t helping consumers

Take NHS workers as an example. Despite working tirelessly throughout the pandemic, NHS workers make up a sizable portion of the UK adult population currently struggling with debt.

Iain McDougall

An independent report from the University of Edinburgh Business School, in partnership with Salad Projects, found NHS workers are heavily reliant on long-term overdrafts and high-cost credit, where APR is as high as 1,333%. Almost all (93%) respondents said they use one or more types of credit or loan, compared with 75% in the wider UK population (according to the Financial Lives Survey). More than half (58%) use up to three loan providers and 68% use up to four loan providers.

This situation is the result of relying solely on credit scores. While these are the near-universally accepted method of determining credit terms, each credit reference agency has a different method for calculating a credit score. They rely solely on financial history, whether they’ve previously defaulted, or failed to get credit, and not a consumer’s actual financial position, whether they’ve recently got a pay rise or new income, to see how likely it is they will pay back any money borrowed. This can mean, no matter if a consumer’s financial position has changed, they can’t get a better loan because of a previous discrepancy.

 

The challenges facing SMEs

These issues are not just limited to consumers. SMEs, particularly those in the hardest hit industries like hospitality and travel, have struggled to access credit throughout the pandemic.

While many may have been thriving pre-pandemic, their lack of ability to turn a profit during lockdowns, meant they needed extra support. In an effort to keep these industries alive, we saw numerous government backed loan schemes launched, such as the Bounce Back Loan Scheme, to help struggling businesses survive. In total, these schemes have provided almost £180 billion worth of lending to date, supporting over a quarter of businesses in the UK.

However, the soaring demand from businesses in need of these vital funds meant lenders were unable to keep up and many businesses did not receive support quickly enough. What’s more, providers may register these types of loans with credit reference agencies, which means companies that previously had strong credit ratings may see their credit scores negatively affected by any delayed or missed repayments.

This is why it’s vital for lenders to get lending limits right the first time round, so SMEs can avoid potentially adding to their already growing list of debt and thrive in a post-pandemic world.

 

Enhancing lending with Open Banking 

Using Open Banking can add a much-needed layer of trust and loan personalisation for businesses and individuals. By basing credit decisioning on real-time financial data, lenders will be able to create a more accurate picture of their financial situation; and so make fairer credit offers.

Through adopting Open Banking principles, lenders will be able to onboard new customers and grant loans more efficiently, providing businesses with the cashflow required to maintain their workforce and support the economy.

With the borrowers’ consent, it will also give lenders oversight into how the economy is recovering, and enable them to monitor the rate at which the individual or business can expect the loan to be repaid. Meaning they can step in and provide extra support if and when required.

Open Banking provides what credit scores alone simply cannot – real-time insight into an individual’s or a businesses financial position right now, not three to six months ago. By leveraging the data that is readily available to them, lenders could achieve far better and more responsible outcomes. This will reduce the risk of loan default – for both businesses and individuals – and lead to more responsible lending decisions that can help people and businesses bounce back after what has been a difficult year.

 

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Banking

BRAND CONFIDENCE: HOW HAS OPEN BANKING EVOLVED AND DO CUSTOMERS TRUST IT?

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By Geoff Boudin, Director at Revive Management

 

The open banking industry is growing by 24% year-on-year, and is expected to be worth more than £31 billion by 2026. The implementation of the 2018 Payment Services Directive known as PSD2, was intended to boost competition in the name of open banking. The directive, which set out to make payments more secure, by requiring banks to share the data of customers who authorise it with third parties. This allows customers to share their financial information with authorised service providers such as budgeting apps and other third-party money management tools. It was initially called for by the Competition and Markets Authority (CMA) to level the financial playing field and empower consumers by giving them more ownership over their financial data.  So, two years on, what impact is open banking having on consumers? Do they trust it? If so, how can brands build on this trust to offer more a more personalised yet non-intrusive experience that delivers the data to further improve their service offering.

 

What difference has open banking made?

Prior to PSD2, which came into force on 13 January 2018, banks had full authority and jurisdiction over their customers’ financial data. The idea of a bank giving up some of that data to a third party for the benefit of their customers was unheard of. This closed ecosystem, however, runs against the drive towards digital openness, connectivity and convenience. Our digital worlds were opening up and data was becoming democratised, and banks were being left behind. Challenger banks such as Monzo and Atom, which embraced innovative new apps and features, had been making headway for years, and there was a sense that third-party customer-focused innovation was rumbling away under the surface. However, that innovation was stifled until PSD2 laid a path for it, requiring banks to open up access to customers’ data at their behest.

It’s thanks to PS2D and open banking that customers are now able to connect their bank account to a third-party app that can help them better manage their money or sign up to a platform that allows them to access all of their accounts and credit facilities in one place. This allows customers to control their finances as never before.

 

Driving innovation

Empowering and improving the customer experience is one great achievement of open banking. Another is the innovation it has prompted across the entire financial sector. Even traditional banks like HSBC prepared for PSD2 by rolling out its own ‘Connected Money’ app, which allowed its customers to view data from all of their bank accounts – as well as mortgages, loans and credit cards – all in one place. This value-add to the customer experience probably wouldn’t have seen the light of day if not for the competition spurred by PSD2 and open banking. Many other banks and financial services providers have followed suit, offering new customer-centric features based around convenience, visibility and control.

Open banking is a huge step forward in the financial world. So why do some still liken it to a sleeping giant? What’s holding it back?

 

Managing trust and data security

More than 2.5 million consumers in the UK are now happy to connect their accounts to trusted third parties in exchange for some value-added benefit. That’s up from 1.5 million in 2020, no doubt driven by the competitive innovation brought about by PS2D. However, open banking adoption across the rest of Europe seems to have been much slower, and even growth here in the UK is beginning to plateau. While some might blame this on Brexit-induced regulatory changes, such as UK firms no longer being able to use the EU’s certification standards to share customer data after June 2021, there is much more at play.

A Europe-wide survey by thinktank ING polled 13 countries – including the UK – and found that only around 30% of consumers were happy for companies to share their data even after they had given consent. What’s more, only 35% of those polled had even heard of open banking capabilities. This points to issues surrounding data security, trust and awareness – all hurdles that can be overcome by banks, financial services providers and fintech innovators.

To make the most of open banking, banks will have to innovate and forge fintech partnerships with companies using their data sets. That will enable them to enhance existing products and leverage new fintech products being created with their data which will, in turn, benefit their customers.

This process of innovation has already largely begun, but if brands are to take full advantage of all that open banking has to offer, they still need to bridge the trust gap with consumers. We see consumer education, especially in the field of security, as having a key role to play in building confidence and consequently optimising uptake of open banking.

 

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