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SUBSCRIPTIONS: THE NEXT BIG PAYMENT TREND

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By Nick Raper, Head of UK at Nuapay

 

Ask the next person you speak to whether they’ve ever had a subscription to a business (the most common being a gym membership) that they forgot about, or just didn’t use, losing money as a result. Guaranteed, nine out of ten times, the answer you receive will be a ‘yes’.  This is often followed by a disgruntled anecdote about how the individual kept forgetting to cancel the direct debit, using the service for much longer than he or she intended to.  It proves just how sticky customers are when they are signed up to subscriptions – a trend that is rapidly increasing in the current environment.

Today, consumers are increasingly demanding ‘always on’ services that are fast, easy and can be personalised. With the COVID19 pandemic restricting consumers’ access to physical shops and driving almost all of them online, this expectation is growing the world over. Subscriptions provide a method of receiving services or products at a specified regularity and according to predefined preferences.

Subscriptions also allow businesses transitioning into the digital space to better monetise their services. Newspapers are a great example of this;  it isn’t practical to sell newspapers on a “one-off” basis online, so many publishers have transitioned to digital subscriber models. With many other businesses from fitness classes to online events providers, forced to find a viable virtual business model, subscriptions have become an attractive option. Indeed, research from Zuora has shown that throughout the first lockdown nearly 90% of subscription businesses maintained or grew memberships. And this trend shows no sign of slowing down.

Businesses looking to offer their customers the best service would do well to consider consumer subscriptions, enabled by recurring payments technology. Subscriptions can be used across a growing range of sectors, from traditional subscription users like gyms, and online entertainment and media services, to food and beverage retailers, health providers in dental and eyecare sectors, and even online matchmaking and dating services. Going forward, subscription payments are expected to grow further as Gartner predicts that by 2023, 75% of organisations selling direct to consumers will offer subscription services.

 

What’s the business benefit?

By employing recurring payments, businesses can attract more customers that are price driven. A £25 per month cost in return for something new each month, is often much easier to accept than a £300 lump sum for one product.

Another benefit of subscription models is the ability to drive increases in customer revenue through reduced attrition and the ability to upsell or cross-sell products and services.  One-off purchases with little or no product feedback, make it difficult to develop an understanding of consumer behaviours and preferences. By building an ongoing relationship with customers businesses can gain deeper insights which can be used to inform product alterations or even bring entirely new products to market.

Data from Nuapay shows the benefit of having members signed up on subscription services from the over 700 gyms serviced by Nuapay.  Of gyms that were forced to close their doors and stop collecting membership fees in April as a result of Covid, many saw a relatively quick return in their revenue over the summer.  By August, on average 83% of customers were back and paying their gym memberships again, despite continued restrictions in many European countries. Additionally, these gyms only saw a +0.9% increase in cancelled payments in August, compared to pre-Covid levels, suggesting no lasting impact on their attrition rate.

The additional beauty of subscription based business models is that, Covid aside, the stability of the customer base makes it easier to predict business revenues, enabling improved decision-making as strategic planning can be informed by revenue from ongoing recurring payments.

 

Partnering for success

Historically, implementing a subscription based business model has been difficult for organisations given the limits of collecting via recurring payments – this is particularly so for businesses at the small to medium end of the spectrum.

Today, improved digital payment infrastructure and new providers in the Account-2-Account payments space makes it possible to set up and process recurring payments quickly and easily. Payment providers are increasingly being integrated into a range of business software and payment solutions – large and small – to ensure they deliver the speed and exemplary experience demanded by consumers.

CyberSource, Visa’s global payment management platform, recently announced a partnership with Nuapay to take advantage of Nuapay’s Account-2-Account capabilities, and deliver additional payment solutions to its merchants client base. At the other end of the spectrum, specialist software platforms, such as gym management software Deciplus, can also integrate Account-2-Account solutions into its platform, providing an effortless Direct Debit experience for payers and merchants.

New payment innovations are now starting to transform historic Account-2-Account recurring solutions, which have been Direct Debit based till now. As an example, a merchant can now use Open Banking payments to improve the Direct Debit sign up process for payers, while also helping merchants reduce their failed payments, indemnity claims, and lost payments. Additionally, new recurring payment options known as Variable Recurring Payments (VRP) is said to be the next generation of Open Banking. Currently being tested in the FCA’s sandbox, this technology enables businesses to collect payments from a consumer up to an agreed maximum amount, subject to monthly limits. As it is based on Open Banking technology, VRP will be SCA compliant, providing a secure and convenient alternative to online card payments.

With an increasing number of subscription options now available, a good payment service provider will be able to provide businesses with access to and advice on the best options for them and their situation, whether that is Direct Debits, Standing Orders, or new integrated Open Banking solutions.

 

Subscribing to subscriptions

Subscriptions will only continue to grow in demand as consumers increasingly flock to online environments. Subscriptions were already growing in popularity even before the pandemic came along. 71% of adults internationally used at least one subscription service during 2019, and in Europe alone spent an average of €130 per month on subscriptions over the same period.

Covid has only accelerated this trend in some areas.  It is no surprise that video streaming services saw a massive increase in subscribers, with some providers seeing a 25% jump in subscriptions in March 2020 according to Nuapay data.

Players in other sectors also seem to be transitioning their business model during this time.  Food and nutrition suppliers who have been actively pushing subscriptions for regular deliveries have seen their subscriber base grow as much as 3 times higher than the start of the year in everything from seafood to coffee to vitamin deliveries.  Some home office suppliers who introduced subscriber models for items like printer ink, have seen growth in subscribers as high as 40% since January.  Even some travel businesses have managed to pivot their business to increase recurring sales by taking a more locally focused approach.

With the range of insight-led advantages for organisations evident, it would be an oversight for business leaders not to consider sharing their products and services via a subscription based model.

 

Finance

CAN THE CLOUD REVOLUTIONISE FINANCE?

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By Walter Heck, CTO, HeleCloud 

 

The scale of the Cloud revolution that businesses have gone through over the last few years can’t be overstated. Across almost every industry, businesses that have migrated to the Cloud have seen increased revenues, higher productivity and were more prepared to face the challenges of the pandemic than those relying on legacy infrastructure.

However, one industry that has been slow to realise the potential of the Cloud has been finance. PwC found that 81% of banking CEOs were ‘concerned’ about adopting digital tools too quickly however,  even though 91% of hedge fund executives who adopted Cloud solutions stated that their chosen cloud solutions performed ‘better than expected’. Those sitting on the fence when it comes to the cloud can afford to do so no longer. The speed, security and efficiency offered by the cloud is already changing the face of finance, as it has so many industries before it.

 

How Cloud can help Finance?

Compliance continues to be an area that financial institutions of all shapes and sizes are spending an increasing amount of time and money on. The majority (71%) of large firms are cutting the size of their compliance departments while GDPR, Brexit and increased global economic sanctions make even simple tasks regulatory headaches. Compliance is also costing the finance sector more every year. Since the financial crash, Deloitte estimates Deloitte that compliance costs have increased by as much as 60% for retail and consumer banks.

Migrating to the Cloud can solve many of these compliance issues for financial service institutions. For instance, by leveraging modern technologies on the Cloud, such as Artificial Intelligence (AI) and Machine Learning (ML), organisations can ensure financial activities remain compliant with local regulations, no matter where the data is stored. AI can also process this data far quicker and more effectively than humans, ensuring compliance matters are solved quickly and with little room for error.

With companies downsizing their expensive compliance departments, while at the same time regulation increase, the role of Cloud-based automation in compliance is set to become even more important to the financial sector.

Financial institutions that utilise Cloud-based automation allow themselves the peace of mind that they are less likely to be faced with sanctions from regulators for unforeseen or unknown infractions when carrying out day to day activities. With the cost of non-compliance running into the billions every year, neutralising this threat has the potential to save significant amounts of money for the financial institutions who make the move to the Cloud.

 

Security

Data security is vital to the survival of financial institutions. With strict rules in place, and punishments for breaches from regulators and governments increasingly common. As the number of cyber-attacks continues to increase, and costly ransomware continues to put companies out of business, it is imperative that financial institutions take the necessary steps to secure their data.

Traditional on-premises storage and data management solutions of the type utilised by many financial institutions are frequent victims of various types of cyber-attack. Gartner research has shown that up to 60% fewer attacks occur on Cloud structures when compared to on-premises alternatives.

There are many reasons for this but one of the simplest is remote access. An IBM study highlighted that 95% of security failures at companies are due to human error. This can be anything from employees using unapproved third-party applications to being the victim of ‘spill over’ malware for an attack on a different company that bleeds onto another’s on-premises infrastructure. With data being stored and managed remotely, the Cloud offers fewer direct contact points between employees and valuable company data.

However, not all Cloud solutions are created equal and when going alone companies can often find themselves under-utilising the security benefits of the Cloud and leaving themselves vulnerable to threats. Selecting the right Cloud service provider is vital. Storing sensitive data on a Cloud service enabled and managed by an experienced, trustworthy partner, ensures that client and customer data remains safe and accessible without the litany of security issues that come with on-premises infrastructure.

 

Partnering with a Cloud enabler

The Cloud is already revolutionising finance in the way it has so many other industries. Big players such as JP Morgan and Goldman Sachs have started migrating core applications to the Cloud and setting up Cloud hubs in major American cities. Almost half (43%) of financial services decision makers have stated their intent to increase their reliance on the Cloud over the coming year as more and more finance professionals see the benefits that larger competitors are reaping from Cloud migration.

In periods of great change and uncertainty, it can be tempting to bury your head in the sand and stick to the way things are already being done. However, those who ignore the Cloud revolution leave themselves vulnerable in a rapidly changing and unforgiving business climate. An experienced Cloud services partner can help guide a business on its Cloud journey and ensure they receive all the security and productivity benefits the Cloud offers. With more and more major players moving processes and workflows onto the Cloud, it is up to each finance decision maker to change now, or be overtaken by their forward looking and savvy competitors.

 

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Finance

PREPARING YOUR HEDGE FUND FOR THE MODERN CYBERCRIMINAL

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By: Simon Eyre, Head of Europe, Drawbridge

 

The familiar adage that “every organization is a target” when it comes to cyber-attacks, solidifies its place as an undeniable truth for companies in all industries each year. Spring has barely begun and we have already seen what could be one of the biggest cyberattacks of 2021. When thousands of companies were compromised due to the exploitation of flaws in the Microsoft Exchange Server email software, organisations across the globe were once again faced with the reality that the modern cybercriminal will use any opportunity to gain leverage in the cyberspace and get a monetary advantage.

Today’s criminal is capable, skilled, and always following the money. This is what makes the financial industry a tempting target, with alternative investment firms being increasingly being targeted by criminals. Very recently, Sequoia Capital, one of the largest venture capital firms in the world, was successfully phished with sensitive data being exposed to criminal eyes.

So, what can hedge funds do to prepare the organization for an impending cyberattack?

 

One size fits all?

It is tempting to bolt-on the latest technology on the market, and trust that the product will do ‘what it says on the box’. When constructing a robust cybersecurity program, to avoid investing in cybersecurity plans that are seemingly “one size fits all”, hedge funds should firstly focus on evaluating the cybersecurity landscape and understanding the most common threats and potential attack vectors. The firm’s leadership and cybersecurity team should identify what factors would make your business a target and why would you be at risk, as well as consider the types of cyberattacks your peers have experienced. Ask questions such as: “What kind of breaches and attacks are happening in the industry to firms of our size and strategy?”, “How are other firms mitigating these risks and how can our fund do the same?” and “Where are the cracks in the technical armor?”

During this process, you should consider what data is most important to your business. What are the crown jewels of the hedge fund? Consider where this data is stored, who has access to it, how it is transmitted and whether vendors process it. Never underestimate what might be of value to a cybercriminal. Your most important data can include corporate data, communication records, or personal data of staff and investors.

Prioritize protecting your data and protecting against the most likely attacks that would disrupt the business.

 

Plenty of phish in the sea

Phishing remains a weapon of choice for the modern cybercriminal. In 2020, we saw as number of attacks occur via social engineering, voice/email phishing and impersonation. One notable example is the unfortunate set of events that set in motion the eventual closure of Levitas, an Australian hedge fund. After sending a fake Zoom invite and it being accepted, hackers planted malware and gained control over an executive’s email, leading to the approval of $8.7M in fraudulent invoices. Shortly after, the firm’s largest investor pulled their planned investment, resulting in the fund being scheduled to wind down.

What can we learn from this? Any employee in the hedge fund could fall victim to a phishing attack, as these emails, calls and invites are carefully crafted and virtually indistinguishable from the real deal. An important mitigation strategy is to invest in high quality staff awareness training that goes beyond ticking boxes on a generic on-demand course and tests. Hedge funds should establish a training program that is relevant to the business, the work environment, and its risks, as well as the systems in use. Standard template training is insufficient in preparing staff for the delicately created and convincing attacks of cybercriminals.

 

A balanced blend of staff training and technology

Most cybersecurity experts would agree that defense in depth is critical. This means that the hedge fund’s technology and staff should work in harmony to achieve the highest degree of protection for the firm. Many cyberattacks, especially phishing, have time on their side. Once an employee has been convinced to click on a link, criminals will lurk in the background and look for vulnerabilities within the business. To address this issue, in addition to employee training, hedge funds should invest in a vulnerability management solution that helps discover weaknesses within the system. Hedge funds should continually perform vulnerability management with recurring penetration testing of their environment to ensure the safety of their data and uninterrupted service.

 

The importance of vendor management

Hedge funds today work with a network of independent partners or vendors that support the running of their operations. From law firms, to auditors, brokers, marketers, researchers and administrators, the hedge fund’s network expands into a complex spider’s web, increasing the likelihood of a successful cyberattack with each new silk thread. Why? Criminals will not always go for the bullseye, but rather compromise a target that might have weaker defenses and use their network as a steppingstone to the hedge fund’s valuable data. This is one of the reasons why regulators and hedge fund investors are hyper focused on vendor due diligence. To minimize risk, hedge fund managers should hold vendors to the same cybersecurity standards as the business itself. Remember, your firm’s network is only as secure as the weakest vendor with access to your data. Extensive due diligence of third parties should not be optional – it is required.

Criminals continue to be attracted to valuable data, and hedge funds can expect to be increasingly targeted due to the nature of their business and large transactions being processed every day. To avoid financial and reputational damage due to a cyber-attack, as well as ensure regulatory compliance while navigating a complex regulatory environment, hedge funds must invest in and develop a robust cybersecurity program that is tailored to the alternative investment industry. By focusing on the most important data, most likely attacks and equally investing in people and technology, hedge fund managers can protect their business, while building a reputation as a reliable partner in the alternative investment industry.

 

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