Brian Holden, Global Director, Financial Services at SAS UK & Ireland
Twelve years ago, the banking industry suffered deep reputational damage in the wake of the 2008 global financial crisis. Bankers took the blame – in some cases deservedly – for large-scale economic problems that took a severe toll on many of society’s most vulnerable people. The crisis severely shook banks and financial institutions. Some, like Northern Rock, failed altogether. As a result, public trust in the banking sector has never fully recovered.
In 2020, we find ourselves faced with another global crisis – although this time, there’s no credible scapegoat for politicians or the media to blame. COVID-19 is nobody’s fault, but its impact on both society and the economy will be unprecedented. We will need to take tough decisions. But if banks succeed in supporting their customers through this difficult period, those customers will remember. This may, in fact, be the last and best hope for the banking sector to recover the trust and confidence that it lost in the last decade.
Reserves of strength
The good news is that banks are in a much stronger and sounder position today than they were in 2008. Regulations align better with economic reality, the capital provisions are greater, and the Bank of England intervened quickly to suspend all bonuses and dividends as soon as COVID-19 hit the UK. Customers are better protected too. And with the Financial Services Compensation Scheme (FSCS) effectively guaranteeing all retail deposits up to £85,000 (£170,000 for joint accounts), a bank run of the type that wrecked Northern Rock is very unlikely.
The worst is yet to come
However, there are difficult times ahead. The government’s furlough scheme currently buffers banks. This has helped keep businesses afloat and employees paid. But these funds won’t last forever, and unless there’s an immediate bounceback after the lockdown, the worst of the crisis is surely yet to come. Not so much a “V-shaped recovery” – rather a “long tick.” When the money runs out, banks will have to start making difficult decisions, especially about lending.
What will make these decisions even more difficult is that the crisis has turned a lot of received wisdom about creditworthiness on its head. Who would have thought at the start of this year that airline pilots might be a credit risk, for example? In fact, many professions are likely to see significant reductions in business volumes and income over the coming months. And since many professionals are used to leading relatively credit-hungry lifestyles with large outgoings, the strain will soon start to show.
Struggling to scale
This is a problem because many banks currently take a bare-minimum approach to credit risk modelling. Most banks make day-to-day credit decisions using dated processes and data. They base them on a very broad segmentation of the customer base because when times were good, it didn’t seem worth the trouble to drill down to the individual level. Meanwhile, anomalies and unusually complex cases are referred to senior decision makers who use their experience to make the right calls manually, with expert judgment.
This approach simply won’t work in a situation where many more businesses and individuals are skating on thin ice, and a much larger proportion of decisions require sophisticated analysis. There just won’t be enough expertise to go around.
Until now, this hasn’t been an issue – after all, at high tide, most ships can sail serenely. But when the tide goes out, it’s the boats with the deepest draught that are the first to run aground. In the same way, it’s the banks with the most historical baggage that are in the greatest danger. If their legacy systems, siloed processes, organizational structures and change-resistant cultural norms make them unable or unwilling to adapt, they won’t have the agility to respond to the new reality.
In short, the UK’s largest banks need to act now. They need to put the right decisioning processes and infrastructures in place to support their human experts in making more tough decisions, faster and more accurately. And they also need that technology to guide a new generation of less-experienced decision makers, helping them make the right calls to help customers get back on an even keel.
The only option is for banks to level-up and simplify financial decisioning processes by adopting a more powerful, real-time and comprehensive approach to credit decisioning – one that will satisfy regulators and comply with all internal and external audit standards. A decisioning fabric.
At SAS, we’re helping banks around the world do just that. Our approach, which we call “intelligent decisioning,” enables decision makers to assess each individual case on its merits and take the right action to support each customer.
This ability to make responsible decisions and act effectively in real time is vital for banks to support vulnerable customers through the COVID-19 pandemic and to help rebuild “UK plc” in its aftermath. Moreover, in the longer term, intelligent decisioning will help bind banks and their customers closer together and demonstrate that banking is more than just another utility service, like electricity, water or gas. By getting closer to their customers and understanding their lives, needs and desires, banks can shift the perception of the value they offer and assume a role as trusted adviser and business partner. They will become an integral part of the fabric of the networked society.
A people business
This is important because one of the clearest lessons of the COVID-19 crisis is that banking is a people business. It isn’t just a matter of impersonal financial transactions; it’s central to people’s lives. There is an emotive power to financial decision making, especially when it can make or break a small business, save someone’s home from repossession, or just tide them over for a few months when money is tight.
That is a great responsibility, and it has serious consequences. Get it right and customers will remember; let them down and they will never forgive you. By empowering decision makers with fine-grained insight into each customer’s unique situation, banks have the potential to rescue cash-strapped businesses and help struggling households find their way back to financial security. By following this path, banks can win back the good reputation they lost in the aftermath of the 2008 financial crisis and play a central role in the UK’s recovery from the COVID-19 pandemic.
ADVANTAGES OF OFFSHORE BANKS: WHAT THEY HAVE TO OFFER MILLENIALS
Contrary to popular belief, offshore banking isn’t just for the super-rich, nor is it illegal.
In reality, and with professional advice, the average person can open a perfectly legal offshore bank account within a matter of hours – ideal for busy, on-the-go millennials.
For the generation facing increasing financial challenges, it is more important than ever for millennials to acquire savings sooner, rather than later. With climbing house prices, higher relative costs of living, and the need to save more money for retirement, many millennials are planning their futures’ by setting up savings accounts in overseas institutions. But is this the most secure way of holding your hard-earned savings?
While the answer to this question is largely dependent on individual circumstance, there are many potential benefits to banking offshore; from earning higher interest rates and tax benefits, to having the ability to bank in foreign currencies. Offshore banking can be particularly beneficial for those who regularly travel overseas for work, as it allows you to receive multiple currencies without the need to pay for exchange fees. As such, there’s no risk of you losing out on exchange rate fluctuations.
Banking with confidence and having more security is a significant factor for people choosing to bank offshore. It can offer greater asset protection against possible future threats, such as divorce lawyers, creditors and legal action – which is essential for millennials with substantial amounts of money. This makes offshore banking a secure solution for managing your money well. However, it is worth noting that the security of your savings will depend on the regulations of where your bank is based.
For an added level of reassurance, many jurisdictions also offer strict, financial privacy and confidentiality agreements. This means that your personal information will not be passed on to any third parties, so your assets are shielded to safeguard your individual or company information.
At Turner Little, we offer privacy-assured banking to suit your bespoke needs. Whether you’re an individual or a business, our services include arranging bank accounts and credit cards with both UK and offshore institutions. So get in touch with us today and see how we can help you prepare for your future.
CODAT PARTNERS WITH VISA TO GIVE EUROPEAN BANKS ACCESS TO SME FINANCIAL DATA
Codat – a London-based technology company that connects the internal systems of small businesses to banks, fintechs and other financial institutions, allowing business data to flow back and forth in real time – has formed a strategic partnership with Visa.
Via a single API, Codat enables financial service organisations to integrate with a wide and growing range of accounting, banking, and commerce integrations platforms. It means banks and lenders can get a holistic financial profile of a small business in a matter of minutes rather than days, allowing credit risk to be assessed faster and more accurately, and speeding up time to decision for the applicant.
The partnership agreement is tied to the launch of the Visa Fintech Partner Connect program in Europe – a new marketplace where Visa is partnering with a roster of carefully selected fintech businesses. It will provide Visa’s clients with access to a suite of next-generation digital banking solutions and capabilities from across the financial services spectrum, helping them to quickly bring new solutions to market.
Working with Codat, Visa’s clients will be able to create a fully digital journey for their SME customers, from onboarding, to underwriting, to account and portfolio management, with a single point of connectivity between their customers’ accounting platforms and data sources. Codat’s connectivity to an SME’s financial data will form the most up-to-date picture of a business’s financial health.
Through its commitment to integrating with a wide range of data sources, Codat ensures Visa and Codat clients will always be offered the broadest and richest access to key business financial data.
“This is a major stamp of approval and validation of the quality, security and scalability of the platform our team has built,” said Pete Lord, CEO at Codat. “Visa has recognised that we address a universal pain point in SME financial services: the manual, slow, and limited exchange of financial data between businesses and their service providers. Our modern API technology provides the means to do this better, giving Visa’s clients the ability to offer SMEs a suite of improved and more agile products and services, as well as reduce their own operating costs.”
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