By Kerry Sutherland, Alexander Forbes senior wealth manager
The arrival of the holiday season means that back to school also looms large, and now is a good time to re-examine your education budget and ready your finances.
All parents want the best education for their children and the cost of schooling in South Africa is dependent on whether a child attends a public or a private school. Whatever your situation is, there are various ways to save towards your children’s education including: having a monthly budget, using your annual bonus and savings to pay fees upfront and investing in an education plan.
The first tip to pay your children’s education is by working fees into your monthly budget if you are fortunate enough to have a set monthly income. If not, you could use any annual bonus or savings to pay school fees upfront – the advantage of this is that many school offer a discount to those who pay in advance however an important thing to note is that this discount should not entice you to borrow money to do this.
An education plan is an assurance product with the only downside being that parents only have five to six years to save for a payment plan period of twelve years of school fees – a way to limit this is to use the plan solely for secondary or tertiary education in an attempt to compound the investment.
Education savings take many forms, one being endowment which is recommended for parents in a higher tax bracket. Within this option interest is taxed at 30%, capital gains tax on equity portion is 10% and you won’t have to declare anything on your tax return – there is a minimum five year term and once the term is over you can take money out when you need it. Another great factor to this option is that the policy may be taken out with your child as the policy owner which is beneficial in the event of a divorce and would mean that this asset will be kept out of accrual and thus not be touched. A unit trust is another option for education savings, and the tax on this will depend on your tax bracket – if you are in the top tax bracket, your interest will be taxed at 45% and capital gains at 13.3% and in South Africa we are allowed an annual interest exemption on the first R23 800 of interest earned per year and the first R30 000 per year earned in capital gains is also excluded from tax. Take these exemptions into account in your calculations for an endowment versus a unit trust as a saving vehicle. This option of education savings allow for flexibility meaning you can take out what you need for school fees, sport or books, it is also similar to endowment in that the policy could be owned by the child who is the beneficiary.
Other tips to consider this back-to-school season are: think about saving throughout the year since January is usually a tight month after the holiday season and money for laptops, uniforms and school books may not be attainable or worse yet would mean you would put yourself in debt and spend the rest of the year paying back money owed on a credit card. An easy way to make sure you save for the school season is by depositing money into a money market account every month. Another tip is to make a comprehensive list before you shop for supplies and prioritise between wants and need.
Do your research on costly items such as laptops to find out if they will be suitable later in your child’s schooling career. This could mean that you would spend a bit more money for the laptop but end up not having to buy another one soon. If your child relies on transport albeit public or private to get to school, factor this into your monthly budget as well as any extra-curricular activities and aftercare to make sure you are financially prepared when this back-to-school season approaches.
Preparing for back-to-school might seem a tedious and financially demanding task throughout the year but if you stick to it your January pocket will thank you for it.
CAN TECHNICAL INNOVATION HELP FINANCIAL SERVICES FIGHT BACK AGAINST FINANCIAL CRIME?
By Charlie Roberts, Head of Business Development, UK, Ireland & EU at IDnow
It’s no secret that the financial services sector is a top target among cyber criminals. In fact, according to a report from IBM, it retained its top spot as the most targeted sector in 2019.
The consequences of falling victim to an attack can be severe too. It can lead to financial losses and reputational damage as well as loss of customer confidence and therefore sales. One UK financial services firm, for example, was hit by a total loss of $87.9 million.
So, if we consider that the coronavirus crisis continues to drive increased online consumer activity, should financial services be more concerned? Simply put, yes.
We are seeing a significant increase in organisations taking their business online to reach their customers. Banks, for example, in adapting to COVID-19, are offering customers a more convenient way of opening an account given branch visiting restrictions. But while these services offer more choice and ease for customers, it also means that new account fraud is opening up and is becoming a major challenge for organisations to overcome.
Some cyber criminals are even trying to exploit the pandemic as an opportunity for financial crime by posing as trusted organisations like banks and even the World Health Organisation. According to Action Fraud, over £6.2 million has reportedly been lost by UK citizens to coronavirus-related scams. And this figure continues to rise week by week.
The role of innovation
The rise in financial crime shows just how much the financial services sector is in need of technological innovation. We’ve already seen great progress. About half of financial services and insurance firms globally already use Artificial Intelligence (AI), according to Forrester.
It has many use cases too. In a recent report published by The Alan Turing Institute, AI is largely being used for fraud detection and compliance. AI is beneficial because its algorithms can analyse millions of data points to detect fraudulent transactions which could otherwise go unnoticed by humans. What’s more, these AI-driven fraud detection systems can now actively learn and calibrate in response to new potential (or real) security threats.
The report also details some of the ways that financial services companies are exploring AI-based fraud prevention alternatives. It includes the use of AI to increase approvals for genuine transactions and the use of real-time and high volume data to help protect schemes, financial institutions and their customers from fraud and financial crime.
It’s perhaps no wonder that, outside of the technology sector, the financial services industry is the biggest spender on AI services according to The Bank of the Future report from Citi. But there is still some way to go in using technology to combat financial crime.
The identity verification era
Arguably, identity verification is one of the most important processes that technology can help transform – especially as the current crisis continues to drive increased online customer behaviour. In fact, AI and video based identity verification software can provide financial services organisations with a fast, seamless and secure onboarding process that increases conversion rates and customer satisfaction while providing the highest level of security.
Demand for this software in the UK’s financial services sector has already more than doubled since the start of the year, as growth in scams linked to COVID-19 continue to rise.
It’s this technology that will become critical in validating a person’s identity quickly and confidently while limiting the increased risk of fraud for both businesses and consumers.
IDnow’s AutoIdent is one software solution that has this year been experiencing high demand from the financial services industry. Its AI technology can use the camera on a customer’s smartphone to recognise the country and type of ID document without the need for user input. The technology then captures the machine-readable part of the ID document as well as non-machine-readable areas, such as address fields, before automatically checking the optical security features of the ID documents, such as holograms.
With the subsequent biometric video check of the person and “liveness detection”, the identification process is completed for the customer within just a few steps. The system can then decide if the identification is valid, with a reliability that meets compliance requirements.
The threat of financial crime is not going away any time soon and so there is no better way than to fight back with innovation. With the right technology investment, such as in AI identity products, the sector will be in a stronger position to support businesses who have a duty of care to protect their customers from risk of fraud while ensuring they remain resilient during this pandemic.
COULD COVID-19 BE THE CATALYST FOR DIGITAL TRANSFORMATION IN FINANCE?
By Simon Bull, Sales Operations & Business Development Manager at Aqilla
We are all now living in a new ‘normal’ where working from home is no longer a luxurious ‘perk’ of the job, but an essential. In the case of many organisations, the transition to flexible, remote working was successful, albeit slightly bumpy. But there is one department that has found it more challenging to transition to the required standards of remote working – the finance department.
The finance department often gets left behind when it comes to digital transformation largely because it is so heavily regulated. And because of this, one of the biggest problems the finance teams face is that it’s sensitive data will likely be stored on a hardware server on office premises. If you look at how organisations update their software as they grow, it’s usually the finance department lagging far behind, or sometimes forgotten about altogether. This is because finance has complex requirements that can lead to the attitude of: if it ain’t broke, why fix it?
Up until now, most finance teams have overcome the challenges this situation presents, but with the repercussions of the pandemic still very much in play, the complications that go hand-in-hand with on-premise technology have been more noticeable than usual. As a result, COVID-19 is becoming a catalyst for a digital transformation in finance, or more specifically moving finance and accounting software away from traditional on-premise solutions to built-for-cloud services. But what are the advantages of this approach, and what should finance teams be looking for in a built-for-cloud solution?
Cost: The Software-as-a-Service (SaaS) approach that is the basis of many of today’s cloud computing businesses generally offers customers a convenient monthly pay-as-you-go model. Given that all that users need to access the software is a desktop, laptop or smart device and internet connectivity, they can also save money on the server hardware that has previously sat in the corner of the office. Hint: compare pricing from several potential providers to make sure there are no unexpected extras before signing up.
- Service: Good cloud-based providers offer extremely strong levels of customer support and service. It should be very easy to get help quickly and conveniently, and they should be in a position to offer advice, identify problems and fix errors without undue delay. Hint: ask for references from existing customers or look for online reviews to assess their service and support capabilities. Also, carefully check their Service Level Agreement (SLA) to clearly understand where their commitments begin and end.
- Security: Established cloud providers offer high levels of security, data protection and backup services as part of their ‘as-a-Service’ package. Customers benefit from the protection afforded by security specialists whose job it is to prevent breaches and keep data completely secure. Hint: Check their security policies and consider talking to existing customers about their security track record.
- Compliance: Cloud providers specialising in the finance industry should have compliance at the heart of their product set. Hint: Check with potential providers about their levels of compliance and certification, particularly if you have specialised requirements.
- Ease of use: today’s built-for-cloud software services are built for purpose, with many offering a high degree of bespoke capabilities so every user can tailor it to their precise needs. This is in contrast to traditional software packages that can be far less flexible, forcing the user to work in a particular way that might not be ideal. Hint: ask potential providers for an online demonstration to check the way the services work meet your needs.
- Performance: In the early days of cloud computing, finance software was too basic for many professionals to consider. Today, there are many entry-level services, while others offer a comprehensive range of capabilities to precisely fit the needs of professional finance departments. Hint: evaluate the range of capabilities offered by a cloud provider, which should include areas such as: extensive analysis, proper periodic management and business calendars, multi-currency, multilingual and multi-company operation, full VAT handling International coding, tax and language flexibility, automatic reconciliation / bank integration, built-in key performance measurement, advanced search, selection and drill-down, document and image scanning. Hint: compare the features of different providers in advance – if anything important is missing, look elsewhere.
- Regular updates: Software developers find it much easier to update and improve their services when they are delivered online, and can more effectively keep up with finance best practice and changes to rules and regulations. Many also encourage users to suggest improvements or new features which are then provided to customers at no extra cost. Hint: ask providers about how often they update their software and whether you can suggest improvements.
For many businesses, these are compelling reasons to adopt cloud-based finance software services, even in normal circumstances. But considered in the context of the current remote working environment, built-for-cloud finance software can help departments to adapt and capitalise on working from home and match the levels of digital transformation seen across many other key business functions.
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