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ACCESSING THE EU POST BREXIT

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By Steve Taklalsingh, MD UK Business, Amaiz

 

It has been a gloomy summer, and I’m not just talking about the lack of sun and the ongoing global pandemic. At the end of last year Amaiz published a report: “The Brexit Brink: Are British SMEs about to fall off the edge of Europe – or building new bridges?” This summarised some of the key concerns for our sector. I was disappointed, at the time, that the key issues for financial services had been ignored in the Brexit agreement, but I was optimistic that things would be resolved in the first half of the year. The ‘summer’ has been and gone and things are worse, not better. What are the issues?  What can we now expect?  What can the financial services sector do about them?

Steve Taklalsingh

The issue that has been on the minds of almost everyone in financial services is the fact that EU equivalence, by which British banks, payment and electronic money institutions, insurance companies and investment firms can operate in the EU, has still not been agreed and, worse still, the Government now appear to have dropped this from their plans. This despite the fact that EU companies are allowed to operate in the UK, making it a very distorted marketplace.

The main regulatory changes affecting financial services, post Brexit, are:

  • Financial reporting requirements have changed for many UK businesses. Companies that adopted the EU-endorsed International Financial Reporting Standards (IFRS) now have to use UK-adopted international accounting standards (IAS) instead of EU-adopted IAS.
  • Auditing standards have changed for smaller companies.
  • Some professional qualifications won’t be recognised in the EU.
  • EU citizens moving to the UK to work need a visa which requires them to show they have a job offer from an approved employer sponsor.
  • Insurance requirements and arrangements for companies whose employees have to travel in Europe for business purposes have changed.

In February the Government created the Taskforce for Innovation Growth and Regulatory Reform (TIGRR). This was tasked with scoping out and proposing options for ‘how the UK can take advantage of our new-found regulatory freedom’. Their report made it clear that the Government view financial services as separate from the ‘real economy’ and focusses on how to make the city more competitive in the absence EU equivalence.

It is now clear that the Government has chosen domestic regulatory autonomy over access to the EU.  In July, when the Chancellor spoke at the Mansion House. His speech and an accompanying paper “A new chapter for financial services” set out the Government’s vision for the financial services sector which focussed on reforming financial services regulation to help companies innovate with new technology and products. The idea is that the UK will take first adopter advantage, facilitated by their new regulatory regime.

Financial services contribute 12% to the UK’s GDP.  Our vibrant start up FinTech scene has been the envy of the world.  Internationally, having a foothold in this market, and a London address, was the aspiration of financial services companies who wanted to be taken seriously, but not anymore. In 2019 40% of UK financial services exports were to the EU, so the Government is taking a very high risk strategy that puts both the sector and the UK economy at risk. The extent to which UK companies can offset this export market loss by increasing trade with countries outside the EU will be critical.

Most financial services companies have reviewed their business model in response to Brexit.  Many have chosen to focus attention on the Far East, South Asia, South America and Africa.  However, these markets will take time to build and they’re currently a long way from replacing the EU. UK financial exports to Australia and Switzerland, for example, the two countries that the UK has targeted for post-Brexit trade opportunities, was less than 10% of that to the EU in 2020.

Many of the larger companies, who want to continue to access the EU, are now establishing a base there.  However, despite the Government’s ambitions, this is not an option for many of the smaller, more innovative companies. It can cost millions to duplicate regulatory and technology infrastructures.

Brexit has not quite lived up to the gloomiest predictions of the remainers prior to Brexit.  It seems likely that London will remain Europe’s largest financial centre, following the temporary loss of that status in January to Amsterdam. UK FinTech is renowned for being innovative and leading edge. However, to make up a 40% loss in exports we will certainly need to be over the coming years.

 

Banking

Digital Banking – a hedge against uncertainty?

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By

Ankit Shah, Head of Digital Banking, Apex Group

 

The story of the 2020’s thus far is one of crisis. First the world was plunged into a global pandemic which saw the locking down of people and economies across the world. Now we deal with the inevitable economic consequences as currencies devalue and inflation bites. This has been compounded by Russia’s invasion of Ukraine and subsequent energy politics.

And the outlook remains uncertain. Tensions continue to build between China and Taiwan and inflationary conditions are forecast to continue well into 2023. This uncertainty is impacting everyone, and every sector. And finance is no exception with effects being felt everywhere from commodity and FX markets to global supply chains.

But it’s not all doom and gloom. Rollercoaster markets and an ever-evolving geopolitical situation have made 2022 a tricky year far, but, despite the challenges, digital banking has proven resilient. In fact, the adoption of digital banking services has continued to grow over the last few years, and is predicted to continue.

So, what are the forces driving this resilience?

In an increasingly digital world and economy, digital banking comes with some advantages baked in, which have seen the sector continue to succeed despite the tumult in the wider world. In fact, the crises which have shaped the decade so far may even have been to the advantage of digital banking. Just as during the pandemic, technologies which could facilitate remote working saw a huge uptick in users, so to digital banking is well suited to a world where both people, and institutions demand the convenience that online banking services offer.

And while uptake of digital banking services is widespread amongst retail consumers, a trend likely to continue as digital first generations like Gen Z become an ever-greater proportion of the consumer market, uptake amongst corporate and institutional customers has been slower. This is largely down to a lack of fintech businesses serving the more complex needs of the institutional market, but, in a post-Covid world of hybrid working business, corporate clients are looking for the same ease of use and geographic freedom in their banking that is enjoyed by retail consumers.

This is not just a pipe dream – with the recent roll out of Apex Group’s Digital Banking services, institutions can enjoy the kind of multi-currency, cloud-based banking solutions, with 24/7 account access that many of us take for granted when it comes to our personal banking.

Staying compliant

One significant difference between retail and business accounts however, for banking service providers, is the relative levels of compliance which are needed. While compliance is crucial in the delivery of all financial services, running compliance on multi-million pound transactions between international businesses brings with it a level of complexity that an individual buying goods and services online doesn’t.

For digital banking services providers, this situation is further compounded by guidance earlier this year from HM Treasury – against the backdrop of the Russia-Ukraine conflict- requiring enhanced levels of compliance and due diligence when it comes to doing business with “a high-risk third country or in relation to any relevant transaction where either of the parties to the transaction is established in a high-risk third country or with a sanctioned individual.”

So, can digital banks meet these standards while also providing institutions with the kind of easily accessible, mobile service which retail customers enjoy?

The answer is yes and again, once initial hurdles are overcome, digital banking brings with it features which give it the edge over traditional banking services. Paperless processes, for example, mean greater transparency and allow for better and more efficient use of data. This means AI can be employed to search documents, as well as provide verification. It also means compliance processes, often notoriously complicated, become easier to track. Indeed, digitising time intensive manual process means the risk of human error in the compliance process is reduced.

Digital banking can also better integrate transaction monitoring tools, helping businesses identify fraud and irregularity more quickly. This can be hugely important, especially in the times of heightened risk we find ourselves in, where falling foul of a sanctions regime could have significant legal, financial and reputational consequences.

Cross-border business

Our world is increasingly globalised, and so is business. For corporate and institutional banking customers, being able to operate seamlessly across borders is key to the operation of their business.

This brings with it challenges, which are again compounded by difficult geopolitical and economic circumstances. In recent weeks for example, we’ve seen significant flux on FX markets which can have real consequences for businesses or institutional investors who are buying and selling assets in multiple currencies and jurisdictions. The ability to move quickly then, and transact in a currency of choice, is vital. Advanced digital banking platforms can help – offering automated money market fund sweeps in multiple core currencies to help their clients optimise their investment returns and effectively manage liquidity.

Control admin uncertainty

In times of uncertainty, digital banking can provide additional comfort via customisable multi-level payment approvals to enhance control of what is being paid out of business accounts, with custom limits available for different users or members of a team. Transparency and accountability are also essential, with corporate clients requiring fully integrated digital reporting and statements and instant visibility with transaction cost and  balances updated in real-time.

Outlook

For some, the perception remains that digital banking is the upstart industry trying to offer the services that the traditional banking industry has built itself upon. Increasingly however, the reality is that the pressure is on traditional banks to try and stake a claim to some of the territory being taken by digital first financial services.

With a whole range of features built in which make them well suited to business in a digital world, digital banking is on a growth trajectory. Until now, much of the focus has been upon the roll-out of services to retail consumers, but with features such as automated compliance, effortless international transactions and powerful AI coming as standard for many digital banks, the digital offering to the corporate world looks increasingly attractive.

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Banking

Security vs online payment convenience: which one is tipping the scales for customers?

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 Chirag Patel, President of Digital Wallets at Paysafe.

 

While keeping their payment details safe is a top priority for customers when shopping online, they’re not willing to jump through endless hoops or accept poor user experiences as the inevitable price of greater security.

Online payment security has been top of mind for merchants since the very first internet purchase: a copy of Sting’s ‘Ten Summoner’s Tales’ CD. Even though payment technology has become more sophisticated over time, the eCommerce explosion has brought about an ongoing battle between increasing security and ensuring convenience.

Chirag

Customers are ever more aware about the risks of online shopping and concerned about their financial details falling into the wrong hands. Simultaneously, demand for a good user experience has also risen steadily. But greater security typically introduces friction into the checkout process, which continues to be one of the leading causes of cart abandonment.

In our latest Lost In Transaction report, we surveyed 11,000 consumers in 10 countries across Europe and the Americas regarding the balance between security and convenience in online payments.
Here are the key take-aways for online merchants moving forward.

 

How concerned are consumers about online fraud?

According to our research, customers continue to grow increasingly worried about online fraud.
59% of respondents are more concerned about it today than they were 12 months ago. Not feeling comfortable sharing financial details online has increased from 49% in 2021, to 70% in 2022.
More to the point, our research shows that, when they have a choice, 44% of respondents will invariably pay with the method they perceive as safest while only 21% will choose the most convenient payment method, and even fewer (14%) will choose the fastest one.

These findings aren’t surprising considering that fraud has become more frequent and more serious during the COVID-19 pandemic. For example, in 2021 the average US fraud victim lost $500 and the average UK victim lost £806.

However, what merchants need to keep in mind is that, even though security typically dictates the choice of payment method, there’s a limit to how much friction customers are prepared to tolerate. And our research suggests this limit is close to being reached, with 42% of customers reporting that they would prefer more payment security but only 19% open to accepting whatever measures are necessary for increased protection against fraud. The other 23% would only accept a minimal increase in inconvenience.

 

A fine line to walk

If you’re a merchant, the situation is positive but challenging to navigate.
Fortunately, 44% of consumers think merchants are getting the balance between security and convenience right — up from 26% in 2021 – and trust is also high. 53% think online payments are more secure than they were twelve months ago. And 64% of respondents are more likely to shop from merchants who already have their payment details on file, compared to 54% in 2021.

The challenge is that security risks are ever evolving. Cybercriminals are constantly refining their techniques, which means measures that are highly effective today can become inadequate tomorrow. And regulation is constantly developing, at times at odds with consumer sentiment. The introduction of Strong

Customer Authentication rules, for instance, sparked fears that the deliberate friction they required would hurt sales, which, admittedly, has had less of a negative impact than anticipated.

Consequently, while security enhancements are inevitable if merchants are to continue meeting high standards, there’s margin for error now that more consumers are reaching the limits of their tolerance for friction.

For every new security measure they introduce, merchants must be increasingly mindful of the impact on the streamlined payment experience customers expect.

 

Finding a common ground: boosting security with trust and technology

While maintaining – or even improving – the current balance between security and convenience might seem impossibly tricky, payment technology has evolved to a point where it’s doable.

With embedded payments, for instance, the consumer pays through a user-friendly interface at the point of need. And because financial details are stored securely in tokenized format, there’s no need to share them every time you make a purchase.

eCash is another such solution that enables customers to buy online quickly, securely, and privately.
A unique barcode is generated at the checkout which customers can then get scanned at one of one million points of sale in 55+ countries to pay in cash. Which means they can buy online without having to share or even store any financial details.

This presents a great opportunity for merchants to take advantage of the high levels of trust these payment solutions enjoy. While our research shows that there’s still a significant knowledge gap, particularly in embedded payments, consumers are becoming more open to both technologies. So now is the time to explain the benefits clearly to customers and, more importantly, address concerns.

 

Online payment security is crucial, but not at all costs

Keeping their financial details safe is the most important element of the payment process for most customers. But while fraud protection may be winning the battle against convenience hands down, merchants need to carefully navigate the process of increasing security without adding too much inconvenience.

As critical as it is for merchants to protect customers’ data, a zero-fraud strategy would also likely cause way more friction than most customers are prepared to tolerate. A smooth, seamless payment experience remains as important as ever.

 

 

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