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CAN FINTECHS POSITIVELY IMPACT THE LAST STANDING GOLIATH OF FINANCIAL SERVICES: CAPITAL MARKETS?

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Mel Tsiaprazis, COO of Nivaura

 

The global financial services sector has over the past ten years or so been naturally transitioning to operational processes facilitated by digitisation, automation and artificial intelligence. We’ve seen this in the personal finance industry worldwide, with digital banks such as Starling Bank and Nubank and international payment services such as TransferWise, MyVoice and Khalti. These fintechs democratised personal finance, enabling a broader group of people access to financial services that were previously overlooked by traditional financial service institutions.

One segment of financial services, Capital Markets, remains the exclusive stronghold of established corporations and their service providers (such as investment banks and major law firms). Due to the high cost of capital acquisition, many small and medium sized businesses are excluded from this form of financial service, despite the fact that it could aid their corporate growth and fuel ideas.

 

Why is the democratisation of Capital Markets important?

Capital Markets have driven hyper growth and underpinned many major developments in products and services we use every day, from telephones and cars to oil and even children’s toys. Imagine the power of extending this capital to SMEs.

Capital Markets democratisation will enable the provision of capital to all organisations, Multinational enterprises, Small Medium Enterprises and New Fund Offers included. Access will drive company growth and fund great ideas that will ultimately improve our world.

To achieve this requires two fundamental changes. First, we must reduce the high cost of capital acquisition, which is driven primarily by inefficient workflows. This is recognised across the end-to-end value chain and infrastructure, in labour intensive processes, high operational costs, and risks and accessibility challenges associated with a lack of real-time data. Second, we need to tackle the lack of accurate credit assessments for SMEs, caused by the highly fragmented financial data on these companies.

History has shown that the human race doesn’t lack ideas. It is the lack of funding of good ideas that hinders growth.

 

Mel Tsiaprazis

Tackling the cost of capital acquisition for SMEs

SMEs typically seek funding of £15,000 to £1,000,000 which becomes costly (and at times counterintuitive) when to access a funding programme could cost£150,000+ in fees. So, do SMEs even need access to Capital Markets?

In the UK, 99.9% of all private sector businesses are SMEs. American Express shared in 2019 that over 30% of SMEs find it difficult to access the finance they need and are turning to new sources of finance. This was especially prevalent in 2020 during COVID-19, where accessing capital to survive and/or grow businesses was challenging to say the least. Many turned to alternative sources such as credit cards and crowdfunding. This is not just a challenge for the western world, but a global issue.

In Africa, according to an LSEG 2020 Report, 40% of SMEs say that accessing capital is the primary factor constraining their growth. This is particularly important, considering that employees of African SMEs make up more than 50% of the workforce. Likewise, in Asia, SMEs make up more than 96% of all businesses, providing two out of three private-sector jobs on the continent. They too have numerous challenges in accessing capital to drive growth.

 

Fintechs to the rescue 

Democratisation of capital markets can be achieved by fintechs tackling the current constraints of old technology and manual processes which are slow, expensive and inefficient. Imagine the impact simplifying access to capital would have in fueling growth and enabling great ideas to finally be delivered on. The impact of COVID-19 only accelerated the need for both the capital markets to be digitised and for SMEs to gain access to capital safely, securely and efficiently.

Many SMEs are eager to use digital solutions that enable them access to more efficient, secure and lower cost liquidity in markets worldwide. The question is which fintechs are up to the challenge of financial inclusions next frontier.

 

Why now?

Democratisation of capital markets was being discussed as far back as the 1970s (and mostly likely even before that!), so why is it only being tackled now? Well, it took a pandemic to shake the capital markets behemoth and to bring this issue to the forefront!

As the pandemic has progressed over the course of the last year, we’ve seen an acceleration in the request for digitisation as well as automation. Capital market participants have shifted from wanting an improved value chain to demanding it. Remote workers demand greater user experience, access to cloud based technologies accessible from various mobile devices and a seamless mechanism to communicate not only within but between organisations, all while meeting regulatory requirements.

By addressing value chain inefficiencies, driving greater levels of frictionless cross-party engagement, automating documentation and related audit/compliance requirements will drive down costs. Increased competition that is agnostic to bank branding will encourage participants to look to new paths for growth. You need only look at the vast SME market internationally.

 

Business

How to Build Your Credit Up Safely

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by Taylor McKnight, Author for Compare Credit

 

What Is Credit?
Credit is money owed by a person that allows them to pay off debts at a lower interest rate. Most banks use your credit score to determine how much they should lend you. Any business loan or mortgage requires that you have a good credit history. However, if someone has poor credit(www.comparecredit.com/credit-cards/credit-range/poor/), they may struggle to pay back these loans, resulting in higher interest payments, making it more difficult than ever to repay the debt. Lenders are aware of this issue and keep a close eye on your credit rating to ensure that no negative information gets reported. This could prevent you from getting another loan in the future. It is important to note that having a bad credit score does not mean you have had a bankruptcy or other kinds of defaults. Many people often face this problem because of unpaid bills or late payment fees. However, this does not mean that you cannot repair your credit – it simply means that all parties involved must work together to solve the problem.

How to build your credit safely
Building your credit score is a major concern for most people, especially if they plan to purchase something as big as a home or car. A good credit score will help one get better rates in the future and make it easier to finance their next venture. Here are some things you should know to improve your credit to be used for the best possible purposes.

1. Keep paying down your balances every month: One of the biggest mistakes that could hurt your credit score is not paying your balance down each month. People who don’t pay their credit card down within the agreed-upon time typically have high-interest rates and expensive monthly costs.

2. Pay your bills on time: The same goes for making payments on a bill. Not paying it within the specified timeframe will result in negative information being added to your report, further lowering your credit score. Ensure that your bank statements are accurate and that all accounts are up to date.

3. Become an authorized user: Some companies will allow customers to become authorized users after meeting certain requirements. Take a look at the terms and conditions before applying for this option. These programs usually give access to one particular service, such as checking or ATM transactions, but are helpful when you need additional coverage.

4. Set up automatic credit card payments: There are several ways to set up auto payment options on your credit cards, including sending them directly to your checking account via email or the phone. In addition, you may want to consider enrolling in online banking services that automatically make payments from your checking account into your credit card accounts.

Other tips when it comes to credit
1. Learn how to manage debt responsibly. This is true for both personal and business debts. Many people tend to spend more than they earn, especially during rapid growth and expansion. If you find yourself facing difficult circumstances, you can seek assistance by talking to friends and family members, getting professional advice, or using online budgeting tools.

2. Don’t skip any repayments. This rule applies specifically to late payments. You need to continue making regular payments, even if you’re behind by a few days or weeks. Once you miss a payment, you’ll start accumulating late payments that negatively impact your score.

3. Try consolidating your loans. Consolidation involves combining multiple small loans from various sources into one large loan, thereby lowering the total interest cost of the loan and reducing the risk associated with it.

4. Be wise with your credit report. One huge mistake most people make is neglecting to pay their bills on time or paying only the minimum due balance each month. As a result, bad information remains on their reports, impacting their scores. All outstanding balances must be paid off completely. Otherwise, negative items that remain on your report can keep you from achieving the best borrowing potential.

5. Get your questions answered. If you have any questions regarding your credit, ask for answers now rather than waiting until you’re experiencing trouble. With a little research, you should be able to learn enough to begin repairing your damaged credit report.

What to look out for that can harm your credit
1. Not checking your credit report: Most people use their credit cards frequently but fail to check their credit reports periodically. Checking at least every 12 months can give you valuable insight into whether or not there are errors on your credit.

2. Paying your bills late: Late payments can lead to hard inquiries affecting your score, which means it appears that you’ve applied for more credit elsewhere. Make sure you never miss a bill.

3 You Close Old or Inactive Credit Cards: If your close old cards, they may show up on your credit report for some time. Closing accounts can impact your score by causing “hard inquiries” that appear on your credit report. Before closing them, look for inactive or closed card accounts on your credit report.

4. You Have Negative Records: Many people think they’re protected because they haven’t had past credit problems. However, many factors may cause a “bad” rating to linger. A single application for a credit product with a low limit may count towards a negative review.

5. There Are Errors on Your Report: Mistakes such as missing debt or inflated balances can damage your credit report. Find out how much money you owe and what types of products you purchased, then try to dispute those entries on your credit report. Ensure you correct any information that needs to be corrected. Failing to do so could hurt your chances of getting approved for future credit.

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Banking

2022 ESG Investment Trends

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Jay Mukhey, Senior Director, ESG at Finastra

 

Environmental, Social and Governance (ESG) themes have been front and center throughout the pandemic. While the framework has been surging in popularity for several years, COVID-19 served as a period of reflection causing many companies, investors and other individuals to take these factors seriously. It’s something that we can no longer afford to ignore.

Jay Mukhey

We are witnessing drought, adverse weather patterns, hotter climates, and wildfires with more regularity, raising the profile of the climate crisis. Efforts were renewed at COP26 in Glasgow last November to help address the challenge, with the signing of the Glasgow Climate Pact and agreement of the Paris Rulebook. As a result, we are now seeing record net new inflows into ESG investing and impact.

 

Evaluating ESG criteria

Long gone are the days when ESG issues were at the periphery of a company’s operations. In just a few short years, ESG criteria have become a key metric for investors to evaluate businesses they are considering investing in.

Investor money has poured into funds that consider environmental, social and governance issues. Data from the US SIF Forum for Sustainable and Responsible Investment shows that ESG funds under management have now reached more than $16.6 trillion. It’s not just institutional investors who are embracing ESG, with Bloomberg Intelligence predicting that savers across the world will amass £30.2 trillion in ESG funds by the end of the year.

Due to the multitude of divergent factors that contribute to a company’s success on ESG, it can be tricky to pin down exactly what criteria to measure. Depending on the industry a company operates within, environmental criteria could include everything from energy usage, the disposal of waste and even the treatment of animals.

Social criteria are primarily related to how a company conducts itself in business relationships and with stakeholders. For example, does it treat suppliers fairly? Is the local community considered when the business makes decisions that would impact them? Do they have a statement and policy around modern slavery?

While governance criteria have traditionally been an afterthought, this may be changing. Everything from executive pay to shareholder rights and internal controls are relevant to investors within these criteria.

 

Tracking ESG for competitive advantage

Many experts within the financial services industry point to the power of ESG as a major competitive advantage, if used correctly. It has been noted that increasingly corporations, from big Fortune 500 companies down to small scale-ups, will communicate on their sustainability metrics to grow their business and to attract talent. However, it’s no longer enough to just pay lip service to ESG issues, with abstract commitments increasingly being seen as insufficient. Companies must now quickly progress to concrete objectives that can be measured and tracked.

A wide range of data providers now offer detailed information and tools that can measure ESG performance and effectiveness. Yet major challenges remain around bringing together what is often extremely fragmented data and transforming it into actionable insights.

 

Focus areas for 2022

The ESG criteria that investors measure is by no means stagnant. Complex societal challenges regularly emerge that require the attention of companies. Contributors recognize several topics that demand a sophisticated approach, including the COVID pandemic, diversity challenges and powerful social movements.

Companies operating within the financial services sector face several specific challenges related to ESG, with contributors believing that fintech will also continue to play a central role in finding answers to them.
For example, industry experts expect customers to be more demanding of firms in SME lending when it comes to understanding exactly what impact they are having on the climate. For many financial services firms, 2022 will be the year that they will try to reduce the time it takes to bring ESG products and services to market, such as green loans and mortgages, as well as checking accounts with sustainability and carbon tracking capabilities.

When selecting a service provider, customers are increasingly interested in the ESG credentials of their bank or financial institution. Research from PwC finds that 80% of consumers are more likely to buy from a company that stands up for environmental and governance issues. Consumers are one of the main drivers of ESG and many are putting their money where their mouth is. It’s a trend that’s not going away; financial institutions need to start implementing their strategy for ESG now.

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