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Finance

CAUGHT BETWEEN GLOBAL ECONOMIC TRENDS AND TECHNOLOGICAL CHANGE – THE STATE OF THE FINANCIAL INDUSTRY

More than 10 years after the outbreak of the global financial crisis, the financial services industry is still reeling. Some of the big players continue to find themselves under intense scrutiny and old ailments, like non-performing loans and liquidity issues, are harmful in the context of macroeconomic trends. 

The financial services industry has been, and still is, in a process of transformation. Fintechs are bringing new competition to the sector at the same time as costs are rising – largely driven by regulation. Technology is also shifting the goal-posts. Banks now have new tools like artificial intelligence, machine learning, predictive analytics, robotic process automation and blockchain to work with.

But regulators are not making it easy to exploit these new technologies. While they offer the potential for huge cost savings, their ability to manage risks has not been sufficiently proven. Regulators view new technology with suspicion. Unchecked, it can create new risks of service outages or information security incidents. In addition, regulators need the assurance that the data used to calculate risks is reliable; if not, it could lead to false decisions. It’s a double-edged sword; big data sets can detect suspicious patterns, which can help financial institutions fight financial crime. But this increased automation, for example in online based services, can also open the door to those who are able to exploit weaknesses in the system. 

With tech comes data

From both a regulatory and a business point of view, data plays a key role in the financial industry. However, it also brings fresh attention to the question of data governance. The processing capability of many IT departments still cannot match the potential of big data. A recent study by Reply shows that companies are still reluctant to invest in quality data governance systems, even though there are well established technologies on the market. Nonetheless, external bodies are intensifying the pressure to conduct proper data governance audits. Regulations such as GDPR, IFRS 17 and BCBS 239 demand considerably more insight into the company’s own data landscape than existed before.

Smart data governance can only be truly beneficial when used in conjunction with other data management tools. Companies must focus on both the proper analysis and management of data, which produces better compliance and more reliable and faster decision-making processes. It will also minimise risks associated with incorrect or incomplete data sets. As such, prioritising data governance solutions is an investment worth making.

Blockchain

Of course, we can’t ignore blockchain. The Reply study predicts a further integration of blockchain across the financial sector. In addition, it forecasts that blockchain will gain further significance in the context of asset tokenization, the division of assets, such as real estate, into tokens stored in a blockchain which facilitates more efficient trade on a secondary market. In connection with Know Your Customer/Anti-Money Laundering (KYC/AML) protection, blockchain provides more security through improved identification management. Costs can also be kept low through Blockchain-as-a-Service (BaaS) offerings which should further increase acceptance of the new technology.

Skills Gap as a fundamental risk

The Reply study has uncovered many potential opportunities in the financial sector, each with their own potential risks. However, one of the major challenges faced by financial institutions is the looming skills gap. The modernisation of the IT landscape will act as a basis for more innovation and agility as well as the development of new Cloud services, which requires a skilled workforce. Skills and innovation go together and in a competitive landscape, known as “Digital Darwinism”, enterprises need to make sure that innovation is part of their DNA. Innovation is needed both in employees and in the processes that empower change towards a more customer-centric and efficient organisation.

In the context of this multidimensional risk landscape, the Reply Financial Services Outlook 2019 gives a 360° overview from Risk Management to Digital Transformation. This can aid decision makers seeking to prepare for the integration of new technology driven concepts such as AI, Big Data or Blockchain while keeping macroeconomic and geopolitical currents that will impact the journey ahead in mind.

The full whitepaper is available for download here: https://www.reply.com/avantage-reply/en/financial-services-outlook-2019 

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Finance

HOW COVID-19 HAS RESHAPED THE PAYMENTS LANDSCAPE

By Mohamed Chaudry, Group Chief Financial Officer of FoodHub

 

The year 2020 may well have sounded the death knell for the saying cash is king. As the pandemic took over our world, consumer behaviour altered considerably as people embraced contactless payment, e-commerce and delivery services for many of the things we once handed over notes to buy.

Finextra reports that research carried out by YouGov for the ATM network Link found that 58% of Brits are using cash a lot less often thanks to the pandemic, with 54% avoiding it altogether and using alternative payment methods.

Some 76% of those questioned by YouGov added that they think the crisis will affect their future use of cash over the next six months.

 

Adapt to survive

Many businesses, particularly those in the food sector, quickly worked out they needed to pivot and adapt if they were to survive. Social distancing measures, lockdowns and the economic downturn hit the hospitality industry hard.

Safe and convenient online payments provide food businesses with a solid foundation from which to operate. The year 2020 saw the rise of payment gateways and the size of the market is likely to escalate in the coming months, giving online merchants more choice over the gateways they choose to work with.

Many of these platforms are embracing the changes in innovative ways, adapting to the altered way of life and creating different ways to facilitate recurring online payments and members’ due models. They can also put in place order ahead services for restaurants and expanded delivery options.

 

‘Seamless’ payments process

As lockdown restrictions continue to drive more people online, the e-commerce industry needs to offer seamless online payments to maximise its soaring popularity. The right payments provider should be able to guarantee security, offer access to fast-growing markets and a plethora of relevant payment methods for each market, all components that provide expansion opportunities and a better consumer experience.

Payment providers allow food businesses to focus on their core business and meet new customer demand while they take over the non-core competency tasks. Platforms such as online food portals need to design their site or app to make it as easy as possible for merchants to onboard and customers to use.

As the use of online payments racks up, online security has never been more important. Increases in one inevitably result in the increase of fraud or cyberattacks. Platforms and businesses must ensure customer data is protected. Payment partners can ensure security is key, their greater size and expertise providing the added edge to small businesses that do not have that capability.

 

Building a loyal customer base

Payment security is what will encourage—and keep—customers who haven’t previously used online food portals. Building a loyal, local customer base can encourage businesses to consider expansion—perhaps opening more venues in their region or county or even nationwide.

Promoting the ways in which a platform can benefit customers and a community—in the midst of a pandemic, for example, many people will be conscious that their local takeaway/restaurants, etc., are suffering and they’ll be anxious to help—is another way to broaden a platform’s appeal. An app that doesn’t charge a service fee or take a commission from its partners is one way to do this.

Covid-19 has accelerated consumers’ whole-scale move to online payments faster than anyone can have imagined, and they want convenient, relevant and secure payment services for markets that have previously been served mainly by cash or card.

The pressure is on for retailers (and especially food retailers who want to survive) to ensure they can meet this demand.

 

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Finance

2021 FINTECH PREDICTIONS

2020 has been a year like no other. The way we live, work, socialise and more has completely changed as we found ourselves in a new world.  Of course the fintech industry was no exception and had a challenging year that resulted in great successes and accelerated growth. Certain elements such as mobile payments have been implemented far quicker than anticipated at the start of the year fast tracking past projections by in some cases years.

So what can we expect in 2021? With better virus management, treatments and vaccine programmes rolling out worldwide we can start to cautiously anticipate a slow return to normal but what does this mean for fintech? Björn Goß, CEO and Founder of Europe’s leading mobile wallet Stocard,  looks at what we could see in the next year from the industry

 

A change in how we pay 

The pandemic has accelerated the digital services industry as people were forced to integrate COVID-19 friendly payments.  We have thus seen an increasing amount of solutions offered by fintechs such as for trading or peer-to-peer payments. This openness for digital solutions has allowed fintechs to pass the initial phase of growth.

We fully anticipate that now people have seen the benefits of digital payments and services that there is no looking back. In 2021 investment in mobile and contactless services won’t just be limited to major players but also for smaller businesses who are expected to facilitate digital payments by consumers.

In addition we are also already starting to see indications that the upper limits of payments will increase from £40 to £100 in the UK making contactless even more appealing for organisations and consumers alike. We can also expect more focus on value added services such as mobile loyalty cards integrated into a smooth payment experience.

 

The rise of the super app 

As more of the services we use to lead our lives move over to our phones we anticipate more of the so called ‘super apps’, like we’ve seen in Asia.  Consumers search for simplicity and typically favour one app that has an intuitive and easy to use interface that allows them to do everything they need in one place. We expect that these super apps will have an accelerated growth in 2021 following the pandemic as users seek to streamline their digital services and use trusted, simplified apps.

We therefore expect a merging of shopping, payment and financial services in one wallet app. The advantage here is that the consumer can choose which elements are the most important to them based on their individual needs. It can therefore provide the user with an attractive proposition as they know they can access all key services in one place.

 

More regulation, more choice 

In 2021, Payment Service Directive 2 (PSD2) will come into play ending the decades long lock in effects of banks that has dominated the industry and allowing fintechs access to customers’ bank accounts. For years financial institutions have sought ways to work around the PSD2 regulation and lock in consumers and provide them no choice.

This mandatory change will enable consumers better access to fintech services that are more convenient and effective for individual needs. This will drive the next wave of growth and 2021 will see consumers have the power back in their hands when it comes to financial services.

As more providers enter the market to offer financial services we expect lots more debate and discussion around regulation in 2021. For example there has been talk of legislation where banks are incentivised to increase the wealth of their customers and get sanctions imposed when they sell products that are not in the best interest of the customer; through this, providers would need to focus more on offering and selling relevant, beneficial products instead of the ones that bring them the highest margin.

 

Is buy now, pay later here to stay? 

Over the last year we saw a rise in buy now, pay later (BNPL) services as consumers turned to online shopping. Recent research found a 168% increase in buy now pay later apps this year.  Many consumers saw this option of purchasing as less of a risk and will have enjoyed the convenience of it during lockdowns.

That being said: the high growth statistics are only an acceleration of this trend caused by the covid-19 pandemic, and despite its recent popularity the overall share of wallet of BNPL remains very low.

In 2021 we will see whether the shift towards this new way of payment is a short term trend or a long term change. BNPL options both instore and online will become increasingly accessible for consumers due to all the investment made by retailers and payment providers. However, at the same time there has been much discussion around regulation for these services which may slow down the growth they are currently experiencing.

 

Europe’s hidden success stories 

2021 will be a growth year for European fintech companies. Having already had a strong year the continent will build on this as it continues to innovate in the sector. Maybe surprisingly, big and really successful companies are already substantially coming from outside of the big hubs of London, Paris and Berlin.  What we can expect is greater offerings from outside of these big hubs from less expected places across Europe.

So as you can see 2021 is set to be an exciting time for fintech. More regulation leading to greater choice, a permanent change in consumer behaviour driving digital services and new hubs of innovation all combine to make fintech a very exciting industry over the next year.

 

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