By Simon Ring, Global Head of Maritime Trade Technologies & ESG, Pole Star
Pressure for banks to incentivise a reduction in world trade’s contribution to greenhouse gas emissions is almost certain to increase.
The entire global commodities supply chain emits a vast amount of carbon, but the immediate focus is likely to be on the shipping industry and its 2.5 per cent to three per cent share of global emissions. That includes vessels, their owners, operators and charterers. As such, banks should be seeking to distance themselves from dirty shipping.
The EU, the UN and the International Maritime Organization (IMO) have demanded reductions in the shipping industry’s greenhouse gas emissions. Last year’s COP26 Climate Change Conference also put pressure on the maritime sector. The EU, meanwhile, aims to reduce greenhouse gas emissions from transport by 90 per cent and is regulating to encourage alternative fuel use. The next phase of its Emissions Trading System (ETS) is only months away involving full disclosure of routes, fuels and speeds.
For banks, incentivisation of more sustainable shipping should be a business opportunity as well as an obligation on the environmental, social and governance agenda. Exporters, importers and growing numbers of carriers and forwarders will be seeking out preferential terms and a seal of approval from the world of trade finance in exchange for greener operations.
Research, however, shows most banks and financial services organisations in the main European trade finance hubs of the UK and Switzerland are missing out on opportunities for green finance because they are unable to sort out which transactions they finance use low-emissions shipping.
Almost nine-in-ten UK banks or financial services organisations (89 per cent) and 56 per cent in Switzerland admit to having lost out on green finance opportunities.
The research, conducted among 350 heads of trade, compliance and finance at banking organisations in the UK and Switzerland, however, reveals a lack of capability. Despite almost all respondents saying sustainability is a medium or high priority, only 31 per cent from UK trade finance organisations and 27 per cent from their Swiss equivalents can screen vessels engaged in commodity transactions for emissions reductions, for example. The research indicates Swiss organisations have fewer screening capabilities, which may indicate greater conservatism or less urgency about green finance than in the UK.
There also appears to be continued reliance in both countries on manual or ad-hoc processes for screening vessels and operators. This is time-consuming and prone to inaccuracy, given there are more than 100,000 vessels currently under the leading flags of registration (and only 18 on biofuel according to UNCTAD Review of Maritime Transport 2021).
On average, Swiss trade finance organisations’ compliance departments were found to spend 43 per cent of their time screening for sustainability, while in the UK the figure was 50 per cent.
Lack of sustainability screening
Banks in the two nations, neither of which is an EU member, remain way behind in their capability to screen for the broader sustainability concerns relating to extraction or production processes. This will be a significant lack of capability as the environmental, social, and governance agenda increases in importance.
Just 15 per cent of Swiss organisations can screen a commodity transaction for modern slavery and workforce wellbeing, for example, with the figure higher in the UK (33 per cent) but still not high enough. And only 14 per cent of Swiss trade finance businesses screen commodity transactions for deforestation compared with 29 per cent in the UK.
Investment in technology is the obvious move
The lesson of these findings is that unless banks acquire better screening and monitoring capabilities, they will continue to lose business to rivals who have invested in the right technology. This is an era of advancing digitisation, when a multiplicity of global trade bodies, including the International Chambers of Commerce and the UN are trying to settle on data standards and digital document formats. The aim is of course, to remove time-consuming paper processes, and to introduce transparency through end-to-end processing and visibility. Yet only 36 per cent of Swiss-based trade finance organisations and 31 per cent in the UK say end-to-end screening of transaction ecosystems for sustainability is one of their three biggest challenges. This is another instance where lack of capability may have consequences as ESG concerns increase.
There are some positive signs about how technology will make a difference, however. An average of 43 per cent of respondents from the UK and Switzerland want sustainability screening integrated into solutions they use to monitor their compliance with Know Your Customer (KYC), Anti-money laundering (AML), and sanctions requirements.
Room for improvement
Although the research is not definitive in all areas, it revealed that despite differences, the trade finance sectors in the UK and Switzerland are poorly positioned to take advantage of environmentally driven trade finance regulation if, and when, it arrives. Even before then, they will lose out on the inevitable growth in green finance revenues.
The shipping industry too has poor screening capabilities, but that should not prevent progress in the finance sector. The whole trade finance ecosystem should invest in advanced screening technology as a business and compliance priority. Otherwise, Swiss and UK institutions will lose out on green finance.
The Importance of Digital Trust in Banking and Finance
By Maeson Maherry, COO at Ascertia
With the rising adoption of eSignatures and the acceleration of digital transformation, trust in digital systems is more important than ever before. As a recession looms, the ability to trust digital systems is critical to the stability and security of the banking and finance industry.
So, what should businesses prioritise in an increasingly online world? Information security, data integrity, and digital trust are crucial for ensuring regulatory compliance and customer satisfaction.
Digital trust is empowering banking and finance institutions to effectively tackle issues of identity theft and fraud.
What is digital trust?
On the surface, digital trust refers to a digital system or platform that is secure and can be relied upon to protect and properly handle sensitive information.
Building the confidence that people have in digital systems, platforms, and technologies to handle their sensitive information, protect them from fraud, and function as intended is paramount for decision-makers going forward.
Trust online encompasses various aspects, such as data security, privacy, authenticity and reliability. Digital trust also involves assessing the trustworthiness of digital entities such as websites, apps, and online services, as well as the trust in the integrity and reliability of digital communications and transactions.
Digital trust is a key element of digital transformation, the additional step to ensuring the digital systems in place are secure. This can include the following:
- Online banking platform for customers
- Digital document approvals and workflows
- Secure digital signature solutions
- Know your customer (KYC) checks
- Electronic anti-money laundering procedures
Why is digital trust important for banks?
One of the main reasons why digital trust is so important in banking and finance is that it helps to tackle issues of identity theft and fraud. Customers and regulators require reassurance that personal and financial data won’t fall into the wrong hands. This includes customer statements, investment authorisations, legal records and customer personal data.
Online banking is now well established but the technology continues to evolve and so do the potential threats to data security. With phishing and other identity theft a daily concern, establishing digital trust in the industry is key.
Digital trust provides a means to trust in the identity of a person or document online, to the same degree as meeting or signing in person. This requires additional checks and layers of security to verify identities and the security of documents.
The role of eSignatures in banking
Digital trust is vital in the secure implementation of eSignatures.
In the banking and finance industry, eSignatures are becoming increasingly popular as they allow for transactions to be conducted quickly and securely. However, for eSignatures to be effective and to provide digital trust, all parties involved must trust in the transaction. This is done by ensuring eSignatures are valid and that the person signing the document is who they claim to be.
There are global standards to ensure the authenticity of eSignatures for digital signing. This means there is a way to validate the digital trustworthiness of eSignatures if implemented and used in a manner that meets certain criteria for security and authenticity.
For instance, digital signatures that are compliant with internationally recognised standards, such as eIDAS (Electronic Identification and Trust Services) in Europe, can be considered digitally trustworthy. It’s important to understand not all eSignatures provide the same level of security and to ensure the correct eSignature is used for the purpose and security required.
eSignatures that use advanced digital signature technologies such as Public Key Infrastructure (PKI) or biometrics, can be considered more digitally trustworthy as they provide a higher level of security and authentication.
These technologies use cryptographic methods to ensure that the signature is unique to the signer and cannot be replicated or forged. These standards establish a legal framework for the use of electronic signatures and ensure that they are legally binding, enforceable and offer the same level of trust as traditional signatures.
How does digital trust prevent fraud?
If the public loses trust in digital systems, it could lead to a loss of confidence in the financial system. Fraud, in particular, is at the forefront of public concerns.
Digital signatures are well positioned to offset the risk of financial fraud, largely due to three critical factors when assessing the digital trust of an eSignature:
- Authentication: To verify the identity of the signer, eSignatures employ sophisticated technologies such as PKI. This confirms that the person signing the document is who they say they are and aids in preventing fraud through impersonation.
- Tamper-evident: Tamper-evident features are often included in high-trust eSignatures, which identify if a document has been changed after it has been signed. This helps to prevent fraud by identifying manipulated papers and giving an audit trail of the signature.
- Compliance: International standards such as eIDAS ensure that eSignatures are legally binding, enforceable, and provide the same level of trust as traditional signatures.
The banking industry specifically will benefit greatly from investing in digital trust ecosystems that include eSignatures, biometrics and encryption software to provide verification and assurance for customers.
In the future, financial institutions will adopt Know Your Transaction (KYT) as a means of implementing cybersecurity measures at the transaction level in their banking protocols.
By utilizing digital signatures at the transaction level and verifying them upon receipt, the financial industry can achieve KYT, ensuring that the source of information is under the control of the endpoint and that transaction information has not been tampered with.
This level of security will be a crucial aspect of achieving digital trust in the financial industry moving forward.
How banks can help customers during the cost of living crisis
Lavanya Kaul Head of BFSI, UK & Ireland, LTI Mindtree
Surging energy and food prices are significantly driving up household expenditure, which means living standards in the UK will fall to 2.2% this year, according to the Office for Budget Responsibility. This is the biggest drop in any single financial year since the records began in 1956-57.
It’s a tough situation for many consumers who are still struggling with financial hardship following redundancies and pay freezes from the pandemic. According to TSB’s Money Confidence Barometer, 82% of people have experienced an increase in the day-to-day cost of living. This resulted in almost a quarter of them using their savings, while one in five changed their usual spending habits and behaviours.
As the financial situation worsens, consumers are increasingly relying on their banks for help and support. But, while banks can’t control inflation, energy or food prices, they can play a more supportive role by adapting their services to offer stronger customer service, better tools for financial management and be more flexible with loan repayments.
Strengthen customer service with intuitive AI solutions
Since the pandemic, consumers have changed the way they bank, using more mobile apps for primary banking rather than going into physical branches. This provided an opportunity for banks to accelerate their investment in digital services including automation and offer customers more support during the cost of living crisis.
Effective tools include AI-powered chatbots which respond intelligently to customer enquiries to quickly help troubleshoot problems and provide useful advice. But to be successful, you need to ensure you strike the right balance between an efficient and convenient process and creating a personalised experience. Customers need to feel like you understand and care about their problems and are here to help, rather than just fobbing them off with a monosyllabic bot. To avoid this, banks need to embrace intuitive AI solutions to ensure that empathy comes across in all automated interactions with customers. While doing that, messaging is key. In times of stress, we don’t function as well and financial struggles are a huge stressor. The clearer the message and the simpler the instructions, the better.
Financial education, when combined with technology solutions such as open banking, can offer more long-term solutions for people to navigate their finances. This can help put more information into the hands of the consumer to help them grasp their financial situation better. Some banks have cracked this with innovative solutions like HSBC’s Financial fitness score tool that can analyse your money habits and signpost you towards ways to improve your financial health. This may include joining one of the financial education webinars run by the bank or having a ‘financial health check’ with a member of staff.
Launch money management features & apps
Introducing money management features and apps to increase the visibility of a customer’s financial situation, empowers them with the information they need to make smarter choices.
TSB offers Spend & Save and Spend & Save Plus current accounts which include a savings pot that enables customers to put extra money aside when they can and an auto-balancer feature that automatically transfers money from the savings pot into their current account if their balance falls below a certain level. This allows them to start building up savings and protects them from unnecessary overdraft charges.
Personal financial management (PFM) apps also help customers get a better understanding of their finances. These connect with a customer’s bank account and enable them to keep a close eye on their spending habits and track upcoming bill payments. An example is Prism, a PFM app which allows customers to manage bill payments by sending them reminders about due dates. It also provides a summary of their income, account balance and monthly expenses at a glance, therefore consolidating all their financial information in one place and saving time on bill payments.
Lloyd’s Banking Group and HSBC launched a subscription management tool for all customers on mobile, allowing them to see and cancel recurring card payments for things like TV subscription services. HSBC says that during the first quarter of the year, it led to customers dumping around 200,000 subscriptions.
Introduce payment holidays
While improved customer service and financial management tools are important support tactics, they might not be enough for more vulnerable customers. For example, those who are about to default on mortgage payments or loans due to redundancy or periods of ill health need banks to do more, like offering payment holidays. Banks relaxed the rules for payment holidays during the pandemic, so they should consider doing it again to help more vulnerable customers through the crisis. Customers need to understand that they are not alone when experiencing financial difficulties and that help is available
Ride out the crisis together
As inflation reaches a 30-year high, customers are now more reliant than ever on banks for guidance and support. But to provide the right level of service, they need to move away from their traditional ways and behave more like technology companies by embracing automated solutions to create the right products and services for customers. Then layer on top of that the need for more personalised and empathetic customer interactions, as well as consider additional support for more vulnerable customers.
While we don’t know how long the cost of living crisis will last, what we do know is that the pressure on household finances is likely to get worse before it gets better. Therefore, banks need to step up, be the supportive partner and do whatever they can to help customers. After all, the only way we can ride out the crisis is by supporting each other and working together.
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