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.
Digital Banking – a hedge against uncertainty?
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.
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.
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.
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.
Security vs online payment convenience: which one is tipping the scales for customers?
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.
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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