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NOVICE INVESTORS LISTEN: LEAVE YOUR EMOTIONS AT THE DOOR

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Maxim Manturov, Head of Investment Research at Freedom Finance Europe

There was a sizeable rise in new investors during the pandemic as rates sank to record lows in March and April 2020, and a new breed of bargain hunters sought to make money fast. In fact, a surge in new accounts showed that younger, less experienced investors viewed this sudden downturn as the perfect opportunity to dip their toes into the stock market for the first time. Other motivations include affordable retail accounts with zero commission and new trading platforms for Millennials, all of which inspired newcomers to take the plunge.

Maxim Manturov

However, while the actual process of buying stocks is not particularly difficult, what can be challenging for novice investors is choosing to put money into companies that consistently beat the stock market. This requires a lot of background knowledge and research, meaning investors must put in extra time and effort if they wish to benefit from long-term gains. Put simply, investing is not a one-shot process.

Alongside this, younger, more self-confident investors often make riskier choices based on gut instinct, which explains why regulators are cautious about this sudden flux. While it is encouraging to see that younger generations are trying to get stuck into investing, it is important they act with caution and do the research before splashing the cash. They have time on their side to get to grips with the do’s and don’ts of the stock market, so they must ensure they leave their emotions at the door.

In light of this, below I share my top tips for investors who are looking to enter the stock market for the first time, make data-driven decisions and seize ripe financial opportunities. Ultimately, the stock market, unlike the racetrack or casino, is a generous bookie in the long run. People tend to get more money back than they put in and investors must learn that high-risk investments are not always the way to go.

 

Background research holds the key to success

First and foremost, it is beneficial to do some background research into the company. For more in-depth knowledge, Warren Buffett, one of the world’s most successful investors, advises against choosing a company whose business model is unclear. As such, before choosing to invest, regardless of the size, reputation or hype surrounding a company, you should always do your research and understand its operations. In other words, you should never simply rely on what one person is saying. As an investor who is eager to learn new things, you need to feel comfortable and become well versed in undertaking independent research.

First-time investors should also follow the diversification concept to limit the risks of specific sectors or businesses, and not commit more than 5-10% of their portfolio volume to a single company. Emotion is the single greatest impediment to investing. Investors must not allow fear or greed to influence their judgments. Instead, they should consider the larger picture and think about their decision carefully. Stock market returns can vary considerably in the short term, but historical returns for large-cap stocks can average at 10% in the long run.

 

Get to grips with fundamental and technical analysis

Becoming acquainted with fundamental and technical analysis is another key step, not only to gain a better understanding of what to invest in, but also to determine trends, support and resistance levels. For example, studying basic indicators such as the relative strength index (RSI) is crucial, as it enables investors to achieve at least a certain degree of success in the markets. It is also necessary to determine the initial investment amount, which should be enough to eliminate any negative influence on investment decisions. First, it is important to determine whether the company has a fundamental potential for growth. And then, technical analysis will start to establish if the stock is steadily rising or moving sideways.

 

Create a smart  investment strategy

Finally, you should always create an investment plan to develop your own strategy for stock market trading. This includes setting specific and realistic goals, taking the time to understand your current financial situation and developing your risk profile. You should also pay attention to financial performance and choose a company with a good balance sheet, low debt burden, high margin and sustainable average annual growth, as well as other positive financial indicators. Smart, pre-planned strategies can help first-time investors to build wealth efficiently and securely, while also moving them closer towards their end goals.

 

The current economic outlook

In general, larger, more mature firms still have significant growth potential, so I would suggest investors pay attention to tech giants and major banks, as well as the healthcare and cyclical industries that are speeding with economic growth, given the current economic outlook. IPOs, in general, will also complement portfolios extremely well. If the risk is larger, investments in IPOs have more growth potential, and with sufficiently solid fundamentals, such investments are more likely to provide a favourable outcome. Just make sure to follow the basic investment guidelines before coming to a decision.

 

Banking

HOW TRADITIONAL INSURERS CAN USE TECHNOLOGY TO IMPROVE THEIR RELATIONSHIP WITH CUSTOMERS

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The customer experience with insurance is anomalous, in that one is only required to engage with their insurer if things are going wrong for them. To add value to the relationship, new technology and methods should be adopted, in turn driving loyalty and business growth, writes Oliver Werneyer, CEO and Co-founder of Imburse

Oliver Werneyer

Insurance is one of the oldest industries in the world and it is still, to this day, considered a grudge purchase. Looking back, insurance has a history of having a challenging relationship with its customers. According to an IBM study, in 2008, only 39% of consumers trusted the insurance industry. This percentage has stayed largely similar over the years, having reached only 42% in 2020. For any business with growth ambitions, good customer relationships are crucial.

I believe that now more than ever, the insurance industry not only needs to continue investing in improving relationships with customers, but to really think about new ways of doing so. At a basic level, the moment of truth for an insurance customer is when either they need to pay or are getting paid. Insurers can have the best policy wording, quick claims processes, apps and advisors, but if the experience to pay premiums or to receive a claim is bad, the customer immediately loses trust.

The pandemic has exposed this tenuous relationship between insurers and its customers. The need to move everything online and provide personalised services has exposed significant shortcomings in the service insurers provide. The industry has been too slow to adopt newer technologies and move engagements closer to the customer (self-service and empowered). This is largely due to the legacy systems and processes that insurers failed to modernise over previous years.

This means that the better-positioned incumbents have stronger customer relationships and benefit disproportionately from the pandemic, as they are able to win more new customers and convert customers from other insurers. They also benefit from significantly lower customer acquisition costs and much better growth, as illustrated in this McKinsey report. Even new entrants or InsurTechs are benefitting massively by focusing on improved customer experience and customer relationships.

However, it is never too late for insurers to build better relationships with customers. The main way to build a good relationship with a client is to make life easier, live up to promises and add value through the relationship with them. By working on these key elements, insurers can start building strong relationships with their customers, and, through the right partners, deliver this in a timely and non-disruptive manner.

 

Embedded Services

Insurance products often get a bad reputation because they cost money, but the benefits might only come much later, or never. Customers don’t get to experience a positive relationship with insurance products, either because they never claim and feel like they lost out, or they claim and they’re in a bad situation. By either embedding other services into the insurance experience to deliver a more transactional engagement, or embedding insurance products into general customer experiences such as online shopping or rewards, insurers can enrich customer relationships to generate value.

This way, insurers become a value-adding part of the customers’ everyday activities and not just a product that they have to pay for and may never get anything back from. One example is to embed micro-savings capabilities, often found in banking, into pension savings and insurance products. This can allow customers to save more for pension, attract younger customers and build a portfolio of fiscally disciplined customers.

 

Tailored journeys and personalisation

Customers have come to expect personalised journeys and engagements from product providers. Streaming services, social media, e-commerce or mobility services have shaped the customer expectations. Now, customers are also expecting personalisation for insurers.

Insurers need to invest very heavily in delivering personalisation and customisation to customers as they engage with their products. Failure to deliver this puts renewed strain on the value perceived by the customer and their relationship with the insurer. This applies not only to customer interfaces, but to aspects such as payments. Insurers should make it easy and pleasant for customers to pay and get paid. As the main moment of truth, payment experiences need to work optimally.

 

Perceived customer value metrics and delivery

The value customers derive from insurance products is, generally, monetary. Therefore, insurers must invest in product enhancement to increase its perceived value. Perceived value is not tied to a monetary value. By being able to choose between multiple payment options, such as a $300 pay-out to a bank account or a $320 Amazon voucher, the customer has a higher perceived value of the payment. This can be achieved by leveraging non-insurance products that can be purchased at a discounted price, exclusive access that the customer would otherwise not have or conversion into a form that is more useful to the customer.

Payments, for collection and pay-out, are at the core of delivering this value. An excellent payment experience immediately influences the customer to be positively inclined toward a product (PwC report). In order to offer this, insurers need to leverage multiple technologies and providers, offer any speed of transaction in any market, and deliver faster automation and better risk control. The key is to transform insurance products into transactional value-adds to customers’ lives and use this opportunity to continuously build on relationships with customers.

The main roadblock for insurers is still the operational implications of these activities and the costs that arise. In looking to build a better customer relationship, insurers need to look at partners that are operational enablers to deliver this. Partners that can solve the integration and speed-to-market problem so that insurers are enabled to deliver new capabilities, not bombard them with new ideas and no path to delivery.

Imburse, for instance, enables insurers to access all the global payment providers and technologies available in any market. Through a single connection, insurers can deploy any payment capability into any channel, for collection and pay-outs, without ever again needing to build a direct operational integration to the providers. This gives them full freedom to leverage payments as a key value driver and customer experience enhancer.

Building a better relationship with insurance customers is key for the insurance industry to close the protection gap. Incumbents are in the prime position to look at Insurtech and Fintech partners to rapidly and significantly modernise, digitalise and transform their own capabilities to deliver major enhanced value to their customers.

Imburse is an advanced universal payment connector that enables businesses to gain cost-effective access to complete global payments technology, regardless of the service provider. To learn more, please visit www.imbursepayments.com.

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UNCHARTED TERRITORY: HOW OPEN BANKING CAN HELP BANKS NAVIGATE COVID CHALLENGES

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Opinion from Rafa Plantier, Head of UK and Ireland at Tink

The last year has propelled banks, businesses and consumers alike into uncharted territory. Changes which would normally have spanned years were compressed into months. Financial institutions who had already embarked on the path of digital transformation had to accelerate their plans, and customers of all walks of life had to become acquainted with using digital services almost exclusively.

Rafa Plantier

According to our recent research report ‘Open banking in the post-pandemic world’, 41% of European financial executives believe the shift from digital-sometimes to digital-first during the Covid-19 pandemic will be permanent for the financial services industry.

There are two sides to this coin: it’s indisputable that industry and economies have been weakened as a result of Covid-19. A drop in revenues and profits, regulatory challenges, new disruptive market entrants, and low interest rates, all mean that banks are poised in a delicate position. However, open banking represents a significant opportunity for banks transitioning from analogue to digital, and from closed to open. Here are three ways open banking can benefit financial institutions in the post-pandemic world.

 

Putting innovation in the fast-lane

Covid-19 led to a rapid, unforeseen change in consumer behaviour that meant digital innovation became a need-right-now rather than a nice-to-have. Over the last year, financial institutions had to innovate in real time to ensure business continuity and serve their customers as their needs changed swiftly.

The sense of urgency is palpable across the industry. Over two thirds (65%) of financial services executives surveyed agreed that it’s necessary for banks to increase their speed of innovation as a result of the pandemic, and 74% of financial executives believe the pandemic has increased the need to enhance digital services.

Open banking technology can act as a catalyst to innovation and digitalisation. It can enable access to tools and capabilities which are scalable across geographies, lines of business and customer segments. For example, by using techniques such as recycling code or toggling different data-driven services, banks can short-circuit the time to market for their own digital services.

 

Unlocking commercial opportunities

Legacy revenue streams have recently faced downward pressure and profit lines have begun to diminish for banks. Banks now need to ensure their digital ventures are competitive enough to survive in an increasingly crowded digital marketplace.

Open banking technology helps improve customer value and engagement — crucial as seven in 10 (70%) financial executives believe that the pandemic has increased focus on the customer experience.

It also provides the opportunity for banks to identify customer needs and deliver a personalised proposition shaped to each individual. For example, through account information services, banks can create bespoke user experiences which keep customers coming back. In addition to this, financial institutions can use personal finance management technology to engage with and create value for the customer — giving them invaluable insights to boost their financial health and identify risk areas.

 

Empowering operational efficiencies

Historically in banking, customers were required to transfer several onboarding documents — from proof of address to citizenship status. Not only was this a drain on the customer, but at the other end banks had to manually review and assess the documents provided.

Open banking can expedite everything from customer onboarding and due diligence to risk assessment processes. It simplifies the process for the customer as well as increasing operational efficiencies on the bank’s end, by allowing them to quickly retrieve customer information through connections to their primary bank.

Now customer data can be fetched in real-time and in a machine-readable format, financial institutions can onboard quickly and with significantly lower risk. With 68% of financial executives believing there has been a renewed focus on profitability since the pandemic, lowering costs and enabling efficiencies wherever possible will be make or break for some institutions.

The good news is that the benefits offered by open banking are now also coming to business accounts. At Tink, we are already live with this in the UK and Sweden — enabling companies to leverage business account data to create the same seamless services and enhanced user experiences for business and individual account holders alike. And in a world where customers are actively consenting to access their financial information to get better services, requesting that consent to enable open banking payments and transfers is a natural next step

 

The industry is just at the start of the open banking journey

The appetite for leveraging open banking technology is accelerating, as it climbs even higher on the agenda of executives. Over two thirds (68%) of financial executives surveyed across Europe say that their interest in open banking has been piqued by the pandemic as they recognised its potential to lower risk, anticipate financial distress, increase sales, and enhance customer experience.

As the dust settles, one thing has become clear – open banking has emerged as a vital enabler of gaining a competitive advantage for financial institutions, by improving the customer experience in a post-pandemic world.

To learn more, read Tink’s open banking report ‘Open banking in a post-pandemic world’, here.

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