Business

THE BENEFITS AND RISKS OF SMART CONTRACTS

Smart contracts are automated contracts with self-executing business rules and financial agreements written into the code and stored on a decentralized blockchain network.

Note here that they are not legally binding like traditional legal instruments, but are simply business decisions expressed in a form understandable by software and executed by the “Rules of Law”. That means that it is agreed upon by both parties that once the conditions are met, the contract is executed no matter what.

The mere fact that they are controlled by the code adds to their groundbreaking essence as that also makes them trackable, irreversible, and non-tamperable.

Nevertheless, as with any innovation, there is the other side of the coin. With smart contracts, that is the issue of trust.

Even though blockchain technology provides by nature a trustworthy and trustless alternative to the already existing models of business and interpersonal conduct, a code-controlled contract still remains as secure as the code written into and as bulletproof as the skillset of the person who wrote it.

How Are Smart Contracts Used?

The financial and banking sector was the first to recognize the massive potential of smart contracts using blockchain, but other industries are jumping on the bandwagon as well.

Banks from all over the world have long since started to utilize smart contractual relationships, focusing mostly on large-volume cross-border transactions and trading credit default swaps.

Additionally, companies in healthcare, real estate, tax, and insurance, supply chain industries are rapidly switching to these contracts for executing everyday business tasks.

This, of course, in part relies on securing participant identity in the blockchain via tools like AIKON’s ORE Protocol in order to ensure contract signees’ access control, identity, and payment.

Smart Contracts’ Benefits

Many argue that the pros by far outweigh the cons, but for smart contract mass adoption to become a thing of reality, those who are meant to use them first must understand both the benefits and associated risks.

Accuracy

Since this type of contract is based on “if/then” relationships written into the code, when all conditions are met, contracts are executed. Therefore, they allow for infinitely more precision in their execution than what is allowed by traditional judicial frameworks, while at the same time they leave no room for subjective interpretation by human participants.

Speed

As a paperless business tool, smart contracts are very quickly processed. Moreover, their automated and digital nature allows for incredibly fast data input and modification. When time is equalized with money, this is a significant advantage to have over the competition, for instance.

Cost-effectiveness

Having in mind that utilizing these contracts eliminates all need to employ intermediaries that would vouch for the unviolated nature of information, using agreements of this type is less costly for companies than traditional ones. In this sense, trust is built into the mechanism of recording and executing the terms of the agreement – blockchain.

Trust

Encoded into the blockchain platform, and based on the same principles, smart contract technology inherently invokes the rule of trust. Encrypted fragmented records of legal relationships and financial transactions are shared between all blockchain participants, thus ensuring their intended undamaged condition free of malicious modification.

Security

Again, the fact that all information related to this type of contract – or anything stored in blockchain really – is broken down into encrypted sections distributed across the network is precisely what makes it safe from tampering. To change a piece of information within a smart contract, the entire chain would need to be altered and that is only done through a validation consensus.

Smart Contracts’ Risks

As said before, with such a young technology – after all, smart contracts were first introduced in the mid-nineties – there are still pending issues that hinder its mass adoption.

Reliance on the Code

Many people still vary from utilizing contracts built on blockchain to conduct their business precisely because they believe no code is perfect simply because it has to be created by a human. In that sense, it’s reasonable to think that there will always be flaws others can use to gain unauthorized access to the system and perform malicious actions.

Regulation

Since smart contracts and blockchain technology are still maturing, we are yet to see how the legal systems across the world will handle these business agreements in terms of taxation and other forms of regulation.

Nevertheless, these issues are expected to be addressed and resolved as the technology matures and is perfected over time.

In any case, these contracts are formulated in such a way that they truly represent the future of humankind, especially when having in mind the technology-based society we live in.

This article originally appeared on aikon.com

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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.

Business

DISRUPT TO SURVIVE IN FINANCIAL SERVICES, BUT BEWARE: YOUR TEAM MUST BE IN SHAPE FIRST

Michael Chalmers, MD EMEA at Contino

COVID is forcing extraordinary change in the financial services industry. It’s happening fast, already uprooting insurance, transforming payments and changing the way we interact with our customers across the industry.

But for the 4000 UK financial services providers who are at critical risk due to COVID-19, these tales of success should come with a warning. Disruption in the industry certainly won’t come overnight.

Only the most interconnected web of people, technology and culture can produce effective disruption at this critical time. Discover below the key trends we’re seeing in financial services, and how to upskill, empower and equip teams in order to create the organisational impetus for this transformation and disruption, in an industry known for its monolithic ways of working.

Top Technology Trends in Financial Services for 2021

As we enter another year of uncertainty, financial services organisations–and their customers–are looking for technology solutions that promise above all, flexibility.

Partnerships between retailers and payments companies that can deliver greater flexibility for consumers as well as increased reliability for retailers will boom in 2021. Even before the pandemic, we saw the flourishing of partnerships between retailers and Klarna, the ‘buy-now-pay-later’ online payment processing firm. With the impact of the downturn likely to continue well into 2021, add-on services that offer more options to support merchant resilience will be essential.

Many companies have embraced ‘fluid’ payment ecosystems capable of handling multiple digital payment solutions but only those capable of capturing data insights to drive their product innovation and sales strategies will reap the full benefits. Real-time user profiles, fraud anomaly detection and personalisation, are all enabling marginal gains for payment providers that will differentiate them from competitors in 2021.

But don’t run before you can walk

Before businesses can jump on new technology trends however, it’s critical to ensure they have an innovative culture in place. This will form the foundation for effective disruption. Here are my four tips for building a solid foundation.

1) Focus on data, with the customer at the centre

Customer experience is the central element to all disruption in the financial services today. Respond in real-time to customer queries. Better still, anticipate the customers’ next need before they’re even aware of it. All of this is made possible through a connected view of data.

Businesses should continue to embrace technologies such as AI and ML to harness customer insights and respond to customer needs–whether that’s approving a loan or recommend a new offer.

From answering customer queries and personalising banking experiences to revenue accounting and trade settlement dashboards, advanced data capabilities will continue to be critical.

2) Be realistic about what your team can achieve–and up-skill if need be

In my own work, I’ve seen that digital transformation is most effective when it factors in the abilities of the existing team–but that doesn’t mean leaving them on their own.

First, collaboration is key. IT and data teams must form internal partnerships in order to get plugged into the business side of things. Critically, they must be present in the boardroom. For many years, those with technical skills have been left out of planning meetings. But their knowledge is absolutely critical, especially when it comes to choosing the right tech stack to enable innovation.

If it becomes apparent that the team is lacking in the necessary tech capabilities, outsourcing is extremely valuable. But beware: it is essential to focus on building up internal capability in order to create long-lasting change–and scrimping on the upskilling for cost reasons will only result in greater expense. Bring in fully trained teams to both implement tech and upskill to foster stronger teams internally.

3) Enable innovation in a worry-free environment

In order to remain competitive in the modern marketplace, and to ensure long-term survivability, financial services organisations must transform their business models to focus on digital innovation and customer expectations.

It’s no secret that the cloud enables organisations to innovate at speed and scale. However, before teams can get stuck in, it’s crucial to ensure they have safe cloud environments in which to explore and innovate.

Developers must be given the freedom to evaluate new technologies and to make any necessary changes to enable rapid creation of business value. Having this flexibility and foresight when implementing and rolling out your public cloud solutions means that ideas can truly come from anywhere in the organisation.

4) Don’t just get the cloud, get the cloud right

The adoption of cloud is now widespread, but those who can optimise it will be reaping the rewards in speed, efficiency and, ultimately, customer satisfaction. Cloud shouldn’t just be a platform to build in–it should help to inform decisions and facilitate new ways of working, ultimately producing something greater than the sum of its parts. Building out cloud-native engineering, culture and operating models will future proof the capability of financial services organisations.

Finally, cloud capabilities should be rolled out right across the organisation. Contino research shows that, while 77% of organisations have adopted the public cloud, only a tiny proportion have actually scaled this out across the organisation. To do so means you’re able to share data across every department, to every person, creating a data-driven culture which will hugely benefit all decision-making going forward.

Prepare the ground and seeds will grow

Disruption is achievable for every financial service organisation in the UK market today – yes, even legacy brands. But the saving grace for those that are struggling at the moment needn’t be the debut of an exciting new product or pipping a competitor to the post with a partnership. It will be the construction of a collaborative and creative culture from which innovative ideas can grow – without being choked by unavailable data, the fear of upsetting day-to-day operations, or restrictive team structures. Innovation is what will pick today’s struggling financial services providers up and get them out of danger.