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IS THE FINANCIAL INDUSTRY FINALLY EMBRACING PURPOSE?

Dave Vann, Managing Director, ABA (purpose-led creative & strategy agency)

 

A few years ago, any mention of the word ‘purpose’ in the corridors of the nation’s financial institutions would likely have been greeted with either a glib ‘we should think about that more’ or a dismissive ‘is that even what we should be focused on?’.

The sector seemed strangely immune to the growing trends of consumers demanding brands align with their values, and employees insisting employers be about more than just good old-fashioned profit.

The impenetrable fortress of the old order was rocked to its core in Aug 2019, when the Business Roundtable Statement chose to elevate stakeholder interest (customers, employees, society, communities, environment) to the same level of shareholder interest when it came to defining the reason that business exists.

This ‘purpose bomb’ – set off by the world’s most influential financial powerbrokers, and raising more than few eyebrows across the business world – caused major cracks to appear in the financial industry’s stubborn resistance to embracing the idea of being a force for good. It led to firms large and small across the developed world facing up to some fairly uncomfortable truths:

  • Customers are increasingly boycotting products/services on the grounds of values
  • Investors are migrating away from traditional funds to ESG-focused ones
  • Employees in the corporate world are largely disengaged from their workplace culture

In the face of this reality, could the established order continue to claim that shareholder capitalism with a CSR cherry on the top was the best approach? Suddenly, talk of ‘inclusive capitalism’ and ‘sustainable economy’ became that little bit less rare in the corridors of financial power (and sounded a bit less radical too).

 

The year of giving a crap

But what really brought the house down were the repeat earthquakes of 2020. The arrival of COVID and the first lockdown melted even the coldest of corporate hearts (‘are we really just here to turn a profit, boss?’) and caused companies across the sector to consider how they might get behind the blitz-like national effort (waiving overdraft fees, suspending loan repayments, even offering capital loans at their own risk before the Government stepped in).

For Coutts Bank, this meant accelerating its move towards environmentally-friendly policies (including the launch of a new green mortgage linked to improving EPC ratings) and establishing a new Enterprise Fund to raise £100m for female entrepreneurs.

“Our purpose is to champion potential – helping people, families and businesses to thrive,” explains James Clarry, Chief Operating Officer of Coutts Private Banking. “That is families in the most deprived areas of the UK, businesses impacted by the pandemic and individuals who, with support, can be world-changers, pioneers and the future innovators, artists and entrepreneurs that will save lives and transform our world.”

No sooner had the industry adjusted its focus to the needs of its private and business customers, then another shock arrived in the form of Black Lives Matter protests. A reckoning of a different kind, the protests caused plenty of handwringing for those in charge of what is arguably the world’s least-diverse sector. Firms including Goldman Sachs and Morgan Stanley scrambled to hail their commitment to revising hiring policies and addressing painfully visible imbalances within their workforces.

The final aftershock of 2020 came with Mark Carney’s Reith Lectures – a parting shot of sorts to an industry which he had repeatedly criticised for ‘missing the point’ during his tenure as Governor of the Bank of England. In arguing the market be redirected to tackling broader social issues, and specifically climate change, he ensured 2020 would end with another head-spinning blow to the idea of shareholder primacy.

 

The end of business as usual?

In research ABA conducted with over 250+ entrepreneurs and business leaders in the second half of 2020 (see www.smepurpose.com) one consistent theme emerged: the crisis was accelerating purpose across the spectrum of business, including the financial sector.

Of the leaders in financial services who were surveyed, 45% believed purpose had become more important to the health and success of the business during the crisis, with 75% backing the idea that purpose would provide them with a competitive advantage post-COVID.

At the SME end of the sector, a clear picture is emerging – of financial service businesses waking up to the need (and the potential) of elevating the importance of having a positive impact on customers, employees, society, and the planet.

Change once unimaginable can now be seen in every quarter. One of the world’s largest investment funds recently invited Responsible 100 (www.responsible100.com) and Extinction Rebellion to sit down with its C-suite executives. The agenda? How to successfully and profitably sell pension and insurance products to their millions of customers, whilst also serving the interests of people, planet and future generations.

“It was a frank exchange,” explains Michael Solomon, Responsible 100’s founder. “The corporation’s leadership conceded that, while they were changing, relative to the scale of the challenges posed by climate change, inequality, institutional racism and more, the rate and breadth of that change was not remotely adequate. Their challenge back to us was incredible: “Tell us what we can do that is adequately radical to meet the enormity of these challenges, but is also doable.”

  

A purposeful, profitable future

As we enter 2021, the rationale for clinging steadfast to the shareholder model (and its allied belief system that says “seek first shareholder profit, and the rest will be added unto you”) has never looked more precarious.

The alternative, of course, is not stakeholder benefit at the expense of shareholders (purpose at the expense of profit). It is the possibility of financial institutions having their cake and eating it – or, in the words of Alex Edmans (London School of Economics Professor and author of ‘Grow The Pie’): “To reach the land of profit, follow the road of purpose.”

The vision of companies across the industry doing more than simply ticking the CSR box and washing the walls with a veneer of green is less far-fetched today than it ever has been. The evidence from a multitude of sectors – and from the world of smaller, agile brands – is clear: the future belongs to those who pursue more than profit.

 

Finance

FINANCIAL INCLUSION WITHIN DIGITAL PAYMENTS

NICK FISHER, GENERAL MANAGER, SALES AND MARKETING UK, JCB INTERNATIONAL (EUROPE) LTD.

 

The shift towards an economy that removes physical cash has long been on the horizon in many regions. Sweden is an example of a country rapidly heading this way. Two years ago, just 1% of Sweden’s GDP was circulating in cash compared to 11% in the Eurozone, and research by the Swedish Retail and Wholesale Council showed half of the nation’s retailers saying that they probably would not accept cash after 2025.

 

In 2019 in the UK, cash payments decreased by 15%, although physical money was still the second most frequently used method comprising of 23% of all payments. The Financial Inclusion Commission in the UK states that there are over 1 million people that do not have a bank account, and the World Bank estimates that there are some 1.7 billion adults globally that still lack access to a bank account.

 

The finance industry has collaborated over the years to develop various credit products for affluent communities. These customers are considered a lower risk. However, institutions should continue to prioritise the advancement of services to serve an audience which remains – ‘unbanked’. Research by EY showed that financial inclusion could improve GDP by up to 14% in more rural, developing economies like India, and by 30% in frontier markets like Kenya. While the positive reasons for fully embracing digital payments and eliminating physical cash are plentiful, including lower payment processing costs for the retailer and customer convenience, physical cash provides the ‘unbanked’ with the ability to function day-to-day with a legal tender.

 

To establish digital solutions for the unbanked, payment players should adopt an inclusive mindset. The race towards a digital cash society will naturally get closer to the finish line with the passing of each generation, but governments could lend a hand to the unbanked by encouraging financial institutions to sponsor organisations that provide legal quasi digital cash products. In my opinion, the financial industry has an important part to play in developing low cost solutions to support the unbanked with authentication tools – such as biometrics and risk tools to manage real-time credit risk reporting with anywhere accessibility.

 

In both developing and developed countries, QR codes can play a superhero role as they offer simple, low-cost ways of processing payments on basic mobile phones. In June last year, we collaborated with FIS to enable cross-border QR codes in the APAC region. The ‘Worldpay from FIS 2020 Global Payments Report’ found that digital wallets, at the time, accounted for 58 % of regional ecommerce purchases and were expected to reach almost 70 % percent by 2023.

 

In developed regions, we are issued with a formal identification when we are born, no matter our circumstances, and this comes in the form of a birth certificate or, later in life, a passport. This does not always happen in developing countries as resources are often limited. Yet, advances in biometric technologies, such as fingerprint or palm vein may offer a solution to the requirement for proof of identity to open a bank account or to create a mobile wallet. Biometric organisations, payment leaders and innovators, such as Google Pay and Apple Pay, have partnered to make this a reality, despite the initial cost implications for development.

 

In summary, understanding the reasons for why some prefer physical cash, and others prefer digital cash, provides holistic learnings to achieve a society that ultimately uses digital cash only. Empathy is paramount for building customer-centric commerce. For me, at least, a world without physical cash cannot be considered responsible, or fair, until everyone can be accommodated.

 

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Business

THE EFFECTS OF JOB HOPPING ON YOUR RETIREMENT OUTCOME

By Neli Mbara, Certified Financial Planner at Alexander Forbes

 

Job hopping – defined as spending less than two years in one position –  is a very controversial subject. It can be an easy path to a higher salary but can also be a red flag to prospective employers, not to mention your future financial goals if you are cashing in your retirement fund every time you make a move.

When changing jobs, whether it be once a year or once every decade, one has to make decisions regarding career growth and retirement plans which affect one’s long term financial plans. One of these decisions is ‘what to do with my retirement fund?’

Neli Mbara

For many people, the first thing that comes to mind is using their pension money to pay off their debt. Alexander Forbes Member Watch statistics show that 91% of members do not preserve their retirement savings when changing jobs. As we are living in times where most household income is used to finance debt, most people use job hopping to gain access to their retirement funds, and use this money to pay off debt. However, a quick fix and instant gratification comes at a price, which in this case could be a delay in your retirement plan.

Your retirement savings are simply for that, your retirement, to pay you an income once you stop working.

 

Early access of your retirement fund can result in:

  • Not having enough money at retirement – this is simply because most of us are already not saving enough for retirement
  • Robbing yourself off the compound interest you could have potentially earned from the investment.
  • Never making make up for the lost benefit
  • Creating a bad habit that will delay you from achieving your retirement plan and desired income at retirement

It is easy to cash in your money from a retirement fund at resignation but it is much harder to make up for the lost benefit (capital cashed in plus interest). Calculations show that for you to make up the lost benefit depending on your retirement age and investment time horizon, you will likely need to invest more than double your contributions towards a retirement fund.

Since only 6% of the South African population are reported to have accumulated enough to retire comfortably, without having to sacrifice their standard of living, you will most likely have to invest much more towards your retirement fund to make up for the lost savings.

Therefore, leaving your retirement fund invested and preserved in a preservation fund is the recommended option when changing jobs, as this keeps you committed to your retirement plan.

Changing jobs is a life-changing event, and it is therefore important that you seek advice from a professional financial adviser who will guide you in your retirement planning ensuring that your retirement needs are taken care of, by providing solutions that help you to ensure your financial wellbeing.

 

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