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BUILDING BETTER BUSINESS PLANNING THROUGH OPEN BANKING

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Richard McCall, CEO, Armalytix

 

Despite the end to Covid-19 restrictions in England on 19th July, Britain’s small businesses face an uncertain future.  Many have taken advantage of the various Government schemes available to help business through the pandemic, but as the reopening begins businesses will need to make crucial decisions on repayment of loans and recruitment of new people.  CEO of Armalytix, Richard McCall, believes access to timely financial information, made easier by Open Banking, helps these businesses make the right decisions for the future.

 

A recent report by the House of Commons library shows Britain is a nation of small businesses; less than 100,000 businesses in the country have more than 250 employees with a staggering 5.7 million employing less than 10.

For smaller businesses, the challenges of getting business done can get in the way of planning. 65% of SMEs do not have a business plan or financial forecast in place, according to the Corporate Finance Network (CFN) and Association of Chartered Certified Accountants (ACCA) UK’s joint SME Recovery Tracker.

As these businesses enter the post-Covid recovery phase, many will be facing multiple challenges.   The UK Treasury offered a comprehensive response to the COVID-19 pandemic, including VAT deferrals, bounce back loans and the furlough scheme. However, as these business support packages come to an end, a unique set of challenges emerge for small businesses. Directors will need to make decisions about bringing back employees at the same time as loan repayments begin. Others will need to consider how to repay tax deferrals despite an uncertain business landscape. Accurate business planning has never been more important.

 

Richard McCall

Up-to-date financial information

Most smaller businesses are susceptible to peaks and troughs in trading and are used to a “feast and famine” existence.  But the circumstances of the second half of 2021 will be unfamiliar for every business. Smaller businesses will need to rely more than ever on the support of external consultants – such as accountants or financial advisors – to help better understand the financial environment their business is facing.

Getting access to accurate and up-to-date financial information is critical to making informed decisions, but many advisors struggle to get this information from the small businesses they support. Even businesses that do regular monthly or quarterly management accounts find the process of sharing banking information complex.  For example, accountants often receive either a jumble of photocopied bank statements, which need to be digitised manually, or csv files of banking information, which can be easily manipulated or corrupted.

 

Open Banking for business

The Open Banking standards were launched in the UK during 2018.  Open Banking connects banks, third-parties and technical providers – providing them with a simple and secure way to exchange data for customers’ benefit. It provides a trusted and reliable framework for the sharing of financial information.  Open Banking enables businesses to quickly and simply authorise apps to access and share specific and relevant financial information in a safe and secure way.

 

Simplicity and security for small businesses

With Open Banking, accountants and small businesses can streamline how they share financial information.  Rather than sending a request to share financial information directly to a business owner, Open Banking allows advisors to do so within a secure platform (typically a third-party app that directly requests access to specific financial information).  This can be requested by date or bank account.  For the business owner, it is simply a matter of authorising the accountant’s request to extract the relevant information from a banking app and sharing it securely with the advisor.  There is no waiting or hassle – the secure sharing of the right information can happen in seconds.

The process saves time and effort – in many cases days’ worth of chasing and longer still in either manually retyping the information or importing it into an accounting platform.  By reducing the manual input required it is also possible to eliminate human error.

 

Better information is better insight

While this process makes life more straight forward for advisors it is also in the interests of small business owners.  Half of UK businesses are not registered for VAT, which means they are only required to file a statement of accounts annually.  This is far from ideal for business owner that need to keep a close eye on business performance: by the time an advisor sees that a business is struggling, it could be too late to intervene.

Faster access to accurate information acts as an early warning system for professional advisors to highlight any concerns to business owners.  This is an important role at any time, but in the current uncertain environment access to timely information is more important than ever. In the complex post-Covid environment, businesses will need to navigate bringing staff off furlough at the same time as repaying bounce back loans and tax deferrals.  With uncertainty around future lockdowns or the speed at which the economy will return to normal, business owners need accurate financial information to make the right business decisions.  By offering their clients financial information sharing via Open Banking, advisors can make life easier for themselves and help small businesses more effectively navigate an uncertain future.

 

Banking

Bringing Automation to Banking

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Ron Benegbi, Founder & CEO, Uplinq Financial Technologies

 

Automation is everywhere you look these days; from supermarkets to warehouses to automobiles. This prominent trend shows no sign of abating anytime soon. However, some sectors remain behind others when it comes to adopting automated technologies. Banking is one such segment, but there’s now evidence to suggest that this could be about to change.

 

What do we mean by automation?

There are a lot of ways to define automation, but broadly the term applies to any technological application where human input is minimized through design. Over the years, automation has evolved from a basic level, which took simple tasks and automated them, all the way to advanced automation powered by Artificial Intelligence (AI). In general, automated solutions work to increase productivity and efficiency within businesses and often result in a reduction in costs associated with human capital.

 

Ron Benegbi

Why has the banking sector been slow to adopt automation?

The banking sector has been built on a number of long-standing, tried and tested processes and protocols, which have been continually fortified and refined over time. This is one explanation as to why the sector has been so slow in adopting new, automated methods within its operations. Additionally, many major financial institutions have spent decades building their own internal legacy computer systems, which are often incompatible with modern automated solutions.

When combined, these two issues have caused a significant lag in the banking sector with regards to the adoption of automated technologies. This lag has created a market opportunity that a number of fintech providers have been able to exploit in recent years. Offering a more responsive and tech-first user experience, many fintech providers are leveraging the power of automation to better meet the banking needs of their customers. However, there is still time for the banking sector to start bridging this gap.

 

Does automation have a place in the banking sector?

The opportunity for automation to play a role within banking can be transformational.

To achieve this, it’s important that legacy organizations begin to learn from their more tech-savvy, smaller counterparts. If used effectively, automated financial solutions can greatly improve the experience of banking customers, both on a personal and business level. So, what exactly does this change look like, and how far away are we from seeing it become a reality?

A good place to start is the small business credit lending process, where not much has changed since the 1980’s. Over that period, the world has greatly transformed, but the methods used to assess credit worthiness have remained somewhat static. For the most part, banks assess data related to businesses’ accounting and banking records and from credit scores. For many businesses, especially the newer and less established ones, this antiquated approach is having a detrimental effect. In fact, it’s often cited as a contributor to the huge funding gap between SMBs and their larger counterparts.

 

How can automation benefit the banking sector?

By adopting more automated technologies, lenders in the banking sector can begin to assess more comprehensive information when making credit decisions. Notably, new methods exist, which enable additional data sets to be evaluated, in order to build a more accurate financial depiction of a business’ overall position. This data can come from sources like external market attributes, economic indicators, demographic data and exogenous shocks.

By leveraging additional data sets through new methods of financial automation, banks are now in a position to respond more effectively to small businesses, including those in emerging and evolving markets where there is a lack of conventional sources of information.

With more ways to access funding, facilitated by alternative data and automated processes, small business owners can improve their operational efficiencies and accelerate their growth efforts. In doing so, legacy oriented financial institutions can now better equip themselves in protecting against new, nimbler tech-based disruptors.

 

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Banking

MYTH BUSTING THE ROLE OF OPEN SOURCE IN FINANCIAL SERVICES

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Nigel Abbott, Regional Director North EMEA, GitHub

 

There is no denying the financial services (FS) industry is under pressure to innovate. Not only have customer and consumer expectations for digital experiences surged in recent years, but the emergence of nimble and ambitious fintechs have disrupted the market. Yet, despite striving for innovation being table stakes across the industry, FS organisations inevitably face familiar hurdles that slow their progress, including concerns surrounding security, compliance, and the ability to act fast.

Open source is increasingly seen as a route to drive innovation and create new value. The FS sector’s utilisation of open source and the transformative role it can play is accelerating – on paper, at least. According to the recent Fintech Open Source Foundation’s (FINOS) 2021 State of Open Source in Financial Services survey, as many as 80 percent of FS leaders said that innovation, reduced time-to-market and total cost of ownership are factors for FS businesses to consume open source.

Nigel Abbott, Regional Director North EMEA -GitHub

But the reality is these positive adoption figures don’t tell the whole story. The survey also revealed that 75 percent of FS technology leaders said their businesses are either not “open source first”, or that they did not know if they were. Tellingly, less than one in ten (eight per cent) said that their business has put in place policies to encourage open source contribution.

The statistics point towards disparity between uptake of open source and the ability to use it to its full potential. But why?

For me, it comes down to some common myths about the role of open source that need demystifying:

 

Myth #1: There are limits to the innovation that open source can deliver

This could not be further from the truth. All enterprises, including FS companies, rely on open source software to build the best software for their customers, improve infrastructure, and unlock the potential of their engineering teams. Nationwide, for example, has completely redesigned its DevOps processes to respond faster to market changes and keep pace with customer expectations to remain relevant. The impact is transformative when they actively embrace it and participate fully in the open source community, creating a win-win situation for end-users. 

 

Myth #2: Data can be shared without consent 

Quite the opposite. Open source does not require FS businesses to share all their secrets and give away their competitive advantage. Instead, taking an “innersource” approach allows financial institutions to take the skills of developers who are accustomed to using open source tools and brings these inside the company firewall, providing a secure internal platform for working collaboratively on projects.

 

Myth #3: Open source is not secure

The most common misconception is that higher security risks are associated with code being openly available to anyone who uses it. But the open concept is, in fact, one of the biggest security strengths of open source. This is because of the collaborative nature of how code is built. The open source community has a shared responsibility for developing and maintaining secure code, and there is a vast global pool of developers identifying and fixing security issues. Supported by the right tools and processes, open source makes it easier for developers to code securely throughout the entire software development lifecycle, reducing the amount of time and financial investment in delivering secure products. Research from Red Hat found that security is regarded as a top benefit for enterprises using open source.

 

Myth #4: The open source community lacks finance sector contributors

This is untrue. Financial enterprises of all shapes and sizes are prominent participants in the open-source community and lead by example, sharing meaningful code contributions. Challenger banks and institutions such as Goldman Sachs contribute to open source initiatives via FINOS. By opening their code and ideas, FS companies can share lessons and support the whole community – helping them deliver better services and more value to their customers. And crucially, they are advancing a community that they can systematically tap into and benefit from.

Open source is already delivering innovation in the FS sector. But the bottom line is that there is so much extra value it can bring. Unlocking the full potential of open source to effect change does not just require buying DevOps tools. Open source requires organisation-wide understanding and support, a culture of collaboration and a progressive DevOps and governance process to thrive. Only then can it deliver its true value and accelerate innovation.

 

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