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BANKING ON A GOOD CATCH BUT FISHING WITH THE WRONG TACKLE?

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Rob Green, Altus Consulting

 

Like myself, there many must be parents taking a deep breath having spent a frantic September packaging up and delivering their son or daughter to university. One of the tasks in helping their journey towards financial “independence” was to open a new bank account appropriate for, let’s face it, a challenging few years of net spend. Many banks offer tailored “Student Accounts” which combine practicality, such as generous overdraft terms, with tempting “perks” targeting the student demographic. But once the fish are hooked, my own experience shows that all aspects of the onboarding journey need to work to ensure the fish are safely netted.

As with all good “shopping around” tasks our journey began with a Google search, in this case for top-rated student bank accounts. My son’s priority was an account with the best freebie. Particularly appealing was a top-rated account with a cash gift and one-year prime membership account for a leading online fashion retailer. Dad being dad, I wanted the account most appropriate for supporting him financially over a 4 year course, i.e. one with excellent overdraft T&Cs, but unfortunately no freebies! In a rare turn of events, I was able to sway him to my point of view (probably the idea of a money tree that does eventually stop bearing fruit). For convenience, let’s call my option Bank A and my son’s Bank B.

My son started his online application to Bank A and reached a field that required his student UCAS code number. My son’s code denoted “offer accepted and entry grades achieved”. However, a real-time validation check by Bank A could not verify the UCAS code. Thinking this might be a temporary glitch he tried again later in the day, with the same result. “Can I try Bank B?” said my son. No. The offer from Bank A was a good one so we pushed on. In a call to Bank A’s help desk (the wait time being impressively short), my son was asked to email his UCAS offer, which he did immediately – the document was rejected as documentary proof!

“Can I just apply to Bank B?” said my son. Having given Bank A more than one opportunity in the on-line and manual journeys, I was happy to accede and face the inevitable “should have listened to me in the first place Dad”. Within ten minutes my son had successfully completed an online application with Bank B. This included the very same verification of UCAS code status as Bank A, this time with a positive outcome, and for Bank B, the fish had been safely netted.

In what should have been a straightforward digital onboarding journey Bank A has gone from a position of strength as an independently rated top student bank account, to channelling its potential customers into the arms of a competitor. But it is clear, no matter how good your product is, a customer must be able to buy it.

Did Bank A provide a technically robust on-boarding journey? Without knowing the exact reason for the failure to verify the UCAS code it is hard to say. If the verification is performed in real-time via a 3rd party API for example, why did it fail consistently for Bank A, but succeed for Bank B within such a short space of time since the last unsuccessful attempt with Bank A? If the failure was out of the control of Bank A, e.g., unavailability of the API for a period of time, was there an adequate retry period? Why did it also fail an hour later? Even worse, if the Bank A validation was being made against a static look up table of codes, how many other potential customers would be hitting the same problem giving up on the application, before the problem is fixed? Are there analytics in place to monitor incomplete journeys, with alerts firing at adequate intervals for information to reach those who can fix the problem as soon as possible?

Could Bank A have planned and handled this situation better? They would have known a UCAS API would have peak traffic during periods in September – it is a critical period for new business. With the glowing reviews of the product on offer, there would surely have been a predictable surge in applications. Had peak traffic been simulated in the testing cycle? Could the UCAS code have been checked at a later date? Is this how Bank B designed their online journey? Of concern too, would be that with a customer still engaged enough to phone the helpdesk, he still could not complete the application manually.  Inadequate testing of the end to end online journey potentially lost Bank A not just a current account customer, but quite possibly a lost opportunity to upsell savings, loans and mortgages equating to significant lifetime value to the bank.

Customer journeys have a beginning and end, and no matter how good they are in part they must deliver end to end. For Bank A the line was cast, the bait was taken, but after reeling in, the hook was empty.

 

Banking

Is traditional business banking the best option for SME finance squeezes?

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Airto Vienola, CEO, AREX Markets 

The pressures facing business and personal finances alike have been well documented.

Stories are now starting to emerge about how smaller enterprises around the UK – which make up well over 90% of the companies in the country – are coping with that mounting stress. The picture starting to emerge suggests, not well.

Personal borrowing is bridging gaps in business books

One survey released recently suggested that one in five of the country’s small businesses have taken out personal loans by the business owner to try to cover gaps in their incomes and profit margins. A further 43% said they were considering doing the same. This rush to secure additional funds by any means may be understandable for businesses feeling the pinch, but it’s neither sustainable nor savvy. Many of these enterprises are already burdened with additional debt from the Covid relief scheme, and given rising interest rates, soaring energy costs and rising cost of goods, taking on additional debt is not an attractive prospect. Add to that the fact that rates from traditional business banking providers are proving steep, smaller enterprises could be forgiven for looking to personal means to shore up the balance sheet. A recent study from members of the Federation of Small Businesses found that one in five small businesses are struggling to find business lending rates under 11%. To help these companies to survive, something clearly has to give.

Not all Alt-Fi options are equal

Alternative finance services have been proliferating in recent times, and yet almost half of small business operators have concerns about pursuing this option, despite actively seeking additional funding support. Clarity over terms and conditions is an often-cited reason for this reticence, which is only natural when undertaking proper due diligence on financial lending. This is a wise choice, especially as it has become so easy for business owners to quickly and simply access new services through embedded finance services, just a few clicks away on existing digital accounting and bookkeeping services. Many of these are still not clear about any detailed fine print, lengthy contract terms or potentially high fees, and yet these too can look like accessible and viable options to business owners facing mounting financial issues.So, it can be hard to pick the right provider without a lot of research. Those wary of the long tail of taking on debt should be particularly careful when it comes to business Buy Now Pay Later or BNPL offers, which are currently entering the UK market, though that isn’t to say that other alternative financing services won’t suit their specific needs whilst mitigating fears over risk.

A fresh perspective on an established technique

So, if debt should not be an option, and embedded finance can have downsides, where should SMEs turn if they don’t want to kick the can of cashflow problems just a few months down the road? One area to reevaluate, which has seen a tremendous shift given the fresh thinking from alternative finance is invoice financing or spot factoring. No longer the imbalanced option of last resort it was traditionally perceived to be, the option has become much fairer to the SME, in addition to providing a swifter and more flexible alternative. In years gone by, invoice financing was the purview of the banks, which led to low rates of return for businesses looking to unlock the value in their organisation, and often much better value flowing back instead to the lender taking on the risk. This is no longer the case. Likewise, invoice financing earned a bad reputation among some for tying businesses into lengthy contracts – another area which current services in the market have since addressed. Our service for example allows businesses the flexibility to access cash back on just a single invoice of their choosing – which could be the difference for struggling SMEs between dipping into loss or keeping the lights on.

One answer to the late payments problem?

Perhaps the most important area which services like invoice financing assist is overdue invoices – the bane of the British SME. Barclays claimed earlier this year that over a quarter of SMEs are finding late payments to be on the increase, and this was an already notorious issue for many business owners. Estimates show that SMEs on average have £6500 in unpaid invoices at any given time. Financing these invoices ensures that the cashflow of these strapped SMEs is healthier, gets the money back into the business without the concerns of lengthy payment terms or endless chasing, and certainly in our case, has no impact on the relationship with the other organisation. Our platform acts as a marketplace between SME and likely investors, with extensive insight provided to make sure that those investing in the invoice are matched to the right businesses. We take on the intermediate risk – removing any suggestion or potential concerns around unwanted debt collection, for additional business owner peace of mind.

While the pressures may be mounting on the SMEs around the country, one thing is clear. No business should rush into making long term financial decisions simply as the cashflow is drying up. Any savvy business would be well advised to make sure they understand the implications, short and long term, of any lending solution they look to employ. However, knowing that there are options and the business’ bottom line does not simply have to rely on traditional banking services, should provide business owners with a lot more options at their disposal to help them to face the coming months with greater cash liquidity confidence.

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Banking

BANKING FOR BETTER 

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By Alex Kwiatkowski, Director of Global Financial Services, SAS.

From shifting market dynamics and mounting geopolitical tensions, to skyrocketing cyber threats and a worsening climate crisis, the world faces risk and uncertainty on many fronts.
But how are these and other prevailing trends reshaping the financial services sector?
A volatile landscape  
Describing the past few years as ‘volatile’ could be seen as a slight understatement, akin to saying the Titanic had a minor mishap at sea or that Liz Truss’s economic policy was mildly unorthodox. From the COVID-19 pandemic, Russia’s despicable invasion of Ukraine and the increasingly intense impacts of climate change, the resilience of not only businesses but whole nations has been pushed to breaking point.
In many ways, the banking sector has proven remarkably resilient to such challenges and risks. In the face of prolonged disruption, profitability remained higher than many had anticipated. However, the deeper structural challenges, such as digitalisation, the emergence of fintech disruptors, the brouhaha over crypto, and the growing threats associated with cyber attacks, are continuing to gather force as we head into a new year.
A recent Economist Impact survey, sponsored by SAS, found that while banking leaders are conscious of the imminent risks and those on the horizon, many are generally optimistic about how their organisations could be reshaped over the next decade, and beyond. I believe this optimism is well-founded rather than misguided, although pragmatism is required.

Alex Kwiatkowski

Digital transformation

For some years leading up to the COVID-19 pandemic, banks had been wrestling with exactly when and how to digitally transform. Like so many other industries, the chief legacy of the pandemic was to force rapid and wholesale change on a sector not always eager to embrace new ways of operating.
Traditional banks are now on track to be digitally transformed by the end of this decade, with technologies such as cloud computing and AI becoming industry norms. When considering the next three to five years, 57% agreed that digital transformation is among their top strategic priority. Cybersecurity and data protection (55%) are not far behind.
This focus on digital transformation is understandable, given the opportunities it may bring. Respondents from the Asia-Pacific region were the most excited, with 64% selecting it as among the greatest opportunities for their organisation. This was much higher than their counterparts in North America (52%), Latin America (50%) and Europe (50%). In fact, the tech-savviness among Asian consumers has created an opportunity for banks to leap ahead in delivering innovations compared with other regions.
When asked about the role of advanced data analytics in a successful digital transformation, just under half (48%) of executives selected this as the most important digital capability that their organisation must harness. It was the clear overall favourite, followed by blockchain (35%), AI/machine learning (34%), IoT/5G (33%) and robotic process automation (29%).
However, the survey also revealed a number of hurdles that may prevent the full uptake of data analytics, such as the increased risk of cyber attacks and a reliance on legacy technology systems. In addition, functions and departments working in silos was viewed as a potentially significant barrier, with 48% noting this as a “significant barrier” to change.
Purpose-driven banking
Alongside this goal of digital transformation, a growing consensus has emerged among banking leaders that the wellbeing of customers, communities, employees and the environment ought to be at the forefront of strategy.
Termed ‘purpose-driven banking’, this shift often encompasses ESG-related activities as well as a broader commitment to customer relationships over profits.
Purpose-driven banking has broad support among the industry’s leaders, with 82% of executives agreeing that financial services organisations can pursue profit and a better society at the same time. That sentiment is even more common among C-level executives, with 91% in agreement.
Arguably one of the most interesting results of the survey is the fact that 76% of respondents believe that the banking sector has an obligation to engage with and address societal issues. An even larger portion (81%) said that their bank takes responsibility for the social impacts of its activities.
Interestingly, a clear majority felt that the financial services industry is behind other sectors in terms of progress on ESG commitments. About three-quarters (76%) of C-level respondents said this, compared with 61% of all other executives.
Establishing transparent and measurable ESG goals aligned with corporate strategy is one area where leaders feel behind, with just 38% feeling that their organisation had achieved this. Another important aspect of the purpose-driven mindset is recognising how banks are fundamentally linked to other stakeholders in society. When asked which were the “most important groups for financial services organisations to engage with in order to have the most positive impact”, the technology industry, investors and customers were the top three choices. They were followed by consumers and government or policymakers.
Growing pressure from customers, communities and other external stakeholders are likely to influence the extent to which the banking sector embraces ESG practices, however it’s clear that the banking sector looks set to transform over the next decade. And transform it must.

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