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2021 — THE YEAR FINANCIAL SERVICES COMPANIES WILL NEED TO DRASTICALLY RETHINK THE WAY THEY MANAGE DATA

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By Douglas Greenwell, Head of Commercial Strategy, Duco

 

There’s no denying that 2020 was a year of historic change for all businesses. The Covid-19 pandemic forced financial services to embrace digitisation on a scale never before seen, with a particular focus put on operational resilience. And while the mass exodus to home working highlighted some benefits of digitisation, the move also showed the inflexibility and inefficiency of current manual processes and existing data management systems.

In response, many firms were quick to harness the power of new technologies and intelligent platforms. These tools took pressure off legacy systems that were unable to adapt fast enough to meet new business needs. But in 2021, with digital transformation continuing to accelerate and CIOs increasingly being given more power to drive technology change across their organisations, Duco predicts that we will see the financial services industry further assess and upgrade the way it manages data.

 

These are the five trends we predict will play a pivotal role over the coming year and beyond.

  1. Demand for no-code applications will increase

Typically, the need to code data management systems means data insights are siloed to the IT departments. No-code technology, however, enables people to build the tools they need without technical experience. This allows firms to make data available to teams outside of the IT department, empowering them to glean their own insights and better equipping them to meet varying challenges. In 2021 the rise of no-code platforms will see a shift in the responsibility of data management, with the adoption of no-code solutions becoming commonplace as firms look to harness the clear benefits.

 

  1. Cloud systems will become integral to business

2021 will see a continued focus on cloud migrations as part of the acceleration of digital transformation. Remote working and a desire to break free of the confines of on-site technology helped to overcome previous barriers to cloud adoption. Now that the benefits of cloud-based solutions, such as quick setup and unlimited scalability have been demonstrated (and financial services come to realise that remote working is here to stay), migration to cloud-based systems will accelerate eventually becoming the norm.

 

  1. Flexible tools will handle more tasks

If the pandemic taught us anything, it was that everything can change overnight. No one is more aware of this entering 2021 than the CIO.

Technology can no longer just be functional; it has to be adaptable too. Looking forward, businesses will seek tools that can not only be implemented, understood and scaled quickly, but can also consolidate mission-critical functions. The ability to unify various areas of the business will streamline workflows and improve data quality, making financial services more capable of responding to rapid change.

 

  1. Machine learning will be desired

Machine learning already plays a vital part in making managing data easy for providers of cloud-based data integrity and reconciliation services and in 2021 this is set to accelerate even more. Machine learning enables teams to identify and fix data breaks quicker and with less manual labour, saving both time and money. Plus, cloud-based machine learning platforms can learn from the data of all companies using the system without compromising confidentiality. This means the system becomes more intelligent and able to deal with your business needs as more companies start to use it.

With data volumes growing rapidly, 2021 will be the year machine learning becomes a must-have feature, rather than an optional extra.

 

  1. Rapid deployment will become commonplace

The pandemic gave CIOs a renewed focus on the importance of speed; they need technology that can be installed, understood and most importantly deliver business value quickly. In response to this, no-code cloud-based systems will continue to increase in appeal to CIOs because of their ability to be rapidly deployed. For example, there are systems that can be fully operational within 24 hours, enabling financial services to respond quickly to the ever-evolving financial landscape.

Overall, 2021 will see financial services companies shift their approach from a reactive to a proactive one. There will be a renewed focused on data management for operational automation, as firms recognise the untapped potential of frictionless data sets that unlock efficiencies and insights. This will take the form of investment in flexible, scalable systems, with firms wanting solutions that adapt quickly to business needs.

 

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Finance

Demonstrating fintech resilience in 2023

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Melba Montague, Head of Financial Services, Genpact 

 

Despite ongoing economic turmoil and a slowdown in investment, the UK has managed to retain the top spot as Europe’s financial centre, and London, as the Silicon Valley for fintechs. While 2023 looks uncertain still, fintechs are known for swift innovation and reinvention. UK fintechs in particular, will ride this wave, capitalising on the $28.2 million in capital invested in the industry in H2 2022.

However, the fintechs that come out on top will be those that focus on, and demonstrate to investors, one word: resilience.

To do this fintechs must remain laser-focused on operational basics to prove their worth. This is even more vital as the world watched the collapse of cryptocurrency exchange FTX and lender BlockFi in 2022. And with growing industry concerns around alternative finance, there is also no doubt that regulatory complexities will increase in the coming year, especially with a greater presence of Buy Now, Pay Later (BNPL) products on the market.

Access to capital will diminish sooner than you think

According to the latest Innovate Finance report, global fintech investment reached £75.6bn ($92bn) in 2022, a decrease of 30% from the previous year. The drop is the result of the macroeconomic and geopolitical disruption, but despite this, the UK fintech industry received £10.5bn ($12.5bn) in investment – only an 8% drop from a record-high 2021. This demonstrates great resilience in this space. Further, the report shows that the UK is still receiving more fintech investment than all the next 10 European countries combined and remains second in the world only to the US.

That said, for rapidly evolving fintechs looking to continue their scaling journeys across the UK and beyond, access to capital and a global slowdown in venture capital (VC) investment will test their durability in the market. Even as the cost-of-living crisis drives demand, inflation has hit BNPL companies, bringing down valuation as Klarna announced that it had closed its major financing round with an 85% decrease of its valuation, down to $6.5bn in the latter half of 2022.

This year, investors will want to see fintechs lower their reputational risks, follow regulatory advice to maintain compliance, keep customers well-protected, and make use of innovative technology to accelerate and scale their processes.

Regulatory complexities will increase

While the UK government cultivates a strong culture of innovation and boasts a strong reputation for financial services, it needs to be more proactive in its regulatory stance. This is especially true for areas of alternative finance, such as BNPL.

BNPL’s resurgence in recent years has made it an attractive alternative to traditional spending, but not without major risks. At present, BNPL is an unregulated, decentralised industry, and presents major risk to consumers borrowing beyond their means without adequate financial advice or safety nets. Arguably, BNPL has made it easier to create debt, with figures showing that 4 in 10 people will even use additional lending to pay off their BNPL debts.

With urgent calls for the FCA to advocate for new government regulations from the UK Treasury and consumer champions alike, this will begin to establish concrete guardrails for both fintechs and for shoppers looking to manage their finances. While waiting, providers must step up and protect customers as more structured regulatory models are finalised.

BNPL providers have also made growth commitments to investors. They will be expected to keep those promises this year, as well as maintain operational stability, all the while customer experience is not adversely impacted. It will be crucial for fintechs to take the high ground and look for innovative ways to both educate and protect their customers whilst preparing for regulations recommended by the FCA come into play this year.

Resilience will be critical

The FCA is expected to introduce new requirements to perform credit checks this year, fintechs, neo banks, and BNPL companies now hold a greater responsibility to identify those at risk and support them with appropriate measures.

This presents growing opportunity for fintechs to promote financial resilience to improve their valued customers’ financial health. For example, with open banking-enabled solutions, they can provide insight to customers looking to monitor and consolidate spending.

As the industry awaits these incoming regulations, the onus will remain with fintechs to ensure their products are not at risk of endangering consumer debts. As such, it is critical that a proactive approach to educate the consumer is taken to avoid exacerbating an already fragile cost-of-living crisis. This could be done in many ways, from improving financial education in schools and boosting financial literacy across the board, to turning the onus of accessibility on banks to ensure that customers can receive tailored, personal support and counsel on their finances.

BNPL providers must also ensure their collection process engages empathetically with its customers navigating through financial hardship. Providers should leverage data-driven insights and segmentation from data, technology, and AI (artificial intelligence) to align with BNPL users’ specific communication preferences and chosen payment methods.

In addition, machine learning, AI, and automation of complex manual processes will enable secure operations with consistent quality and controls, while finding new ways to pre-empt risk and meet compliance and reporting obligations.

Persevering in today’s financial landscape

Not only do fintechs need to demonstrate resilience to their investors this year, but they must encourage and enable financial resilience amongst their customers. Fintechs participating in BNPL schemes must be made aware of the potential pitfalls that come with unregulated short-term lending, as practice shows that it increases individual risk as consumers borrow beyond their means without sufficient financial advice and regulation.

Implementing advanced technologies, such as AI/ML and data analysis into fintech operations also improves efficiency, enhances the user experience, and saves cost, particularly vital during a time when companies are confronted with record-high inflation and a volatile stock market.

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Banking

E-commerce marketplaces have become more than third-party platforms

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By Luke Trayfoot, CRO, MANGOPAY

 

E-commerce marketplaces have become an essential driver of e-commerce growth. As found by Ascential in their annual Future of Marketplaces Report, by 2027, third-party sellers using marketplaces will capture 59% of global e-commerce sales. A trend accelerated by the pandemic. Marketplaces are helping more brands cater to the ever-changing needs of consumers.

As businesses are continually being challenged to provide a seamless shopping experience, marketplaces can support this venture. Without the added costs of warehousing, supply chain and logistics for additional products, marketplaces can help to alleviate some of those pressures, especially as consumer demand grows.

Now, marketplaces need to further evolve their offering through payments infrastructure, whilst remaining compliant with payment regulations.

 

The marketplace offering – lowering barriers to entry

 Beyond access to the best deals, seamless checkout and quick deliveries, marketplaces also exceed consumer expectations for an intuitive one-stop shopping experience. Through marketplaces, retailers can continue to evolve their proposition, collecting data on what their customers want and need and continually refining their offerings at the right time and in the right place (web/app).

Marketplaces can also support businesses entering new markets or competing with bigger players in their respective fields. Entering a marketplace network allows small businesses to quickly gain influence, benefiting from larger audiences and quickly generating high sales volumes.

With multiple sellers, many with an international presence, implementing a sophisticated payments environment is much more complex than building one for an e-commerce website. Trading globally has different rules and regulations to adhere to per country which means payments environments must be multi-layered, accepting various forms of payments, which can be an inhibitor to businesses scaling at pace. Marketplace’s innate customer-centredness must be maintained end to end, including the purchase journey, so a sophisticated environment is essential.

 

Building the right payments environment

 A crucial part of the customer experience, it is important that merchants provide a choice of payment methods at checkout. As payments have evolved, marketplace operators should consider what options they provide to sellers, and subsequently, their end consumers.

The number one expectation is of course payment security, which is a key step in building a long-term relationship based on trust. Increased control points, however, generally means more friction being introduced into the payment process, so this is a balancing act.

As the retail landscape continues to grow, so does competition and as new players enter the market, businesses must find new ways to innovate, and the creation of payment options is one of the most important avenue to do so.

 

Considering regulation at every step

 Increased marketplace activity has led to the introduction of regulation for the platform economy. In the UK, HMRC has implemented changes to VAT reporting requirements for digital marketplaces and their third-party sellers, especially for overseas sales. Across Europe, KYC (Know Your Customers) regulations intended to protect customers from data breaches on a marketplace and identify the persons (legal or natural) with whom the marketplace does business, as part of anti-money laundering and terrorist financing directives, have also been enacted.

As online platforms continue to play an increasingly significant role, the implementation of the Digital Services Act supports creating a safer, online experience for citizens. This regulation enables the expression of ideas, communication, and online shopping by reducing exposure to illegal activities and dangerous goods. Regulation can seem extremely daunting, especially for those looking to enter the market. However, its purpose is to protect both the business and users.

Marketplaces need to work with payment infrastructure specialists that can support providing methods for local users, as well as options that are familiar and trustworthy for a global audience. Additional flexibility also needs to be built in to adapt to different demographics to ensure that a variety of consumers are appropriately catered for. If a brand wants to establish itself in a new market, varied payment methods are not a nice to have, but a must.

Despite the current economic climate, global e-commerce will continue to grow in the years ahead. Those that will be able to stay ahead of the curve will ensure that their customers’ experience is balanced with greater choice and varied payment options, in tandem with regulatory compliance.

 

 

 

 

 

 

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