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COVID-19 AND NEGATIVE INTEREST RATES – A PERFECT STORM

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Katharine Wooller, Managing Director, Dacxi, UK and Ireland

 

Last week it was reported that the Bank England is engaging with the regulator on bombshell negative Bank Rates for Q4 2020.  The current base rate, of 0.1%, is the lowest in the BoE’s three centuries of existing, is not providing the jump start for the UK economy that it so desperately needs.  Indeed, it will be the first time in our nation’s history that we have seen negative interest rates – monstrous news for savers and the banks’ profit margin alike.

Traditionally seen as a short-term fix for an ailing economy, there are now a number of countries using this fiscal stimulus as a longer-term economic tool with Japan, Sweden, Denmark and Switzerland utilising the method.  Globally, in practise, we have already arrived at this destination, with about $16 trillion worth of the global debt market in negative yields, meaning some investors are so pessimistic about the short-term outlook, they’re willing to pay to hold bonds.  Is this the end of traditional asset management as we know it?

Katharine Wooller

The BoE is struggling to meet the government’s inflation goal of 2%, and with the bank rate at a historic low of 0.1% there is little wiggle room.  Indeed, the inflation stats released in August, were not only underwhelming, they are a sleight of hand.

The CPI takes into account a plethora of good and services that the majority of the population are not currently enjoying in any great quantity – new clothes, eating out, fuel, and airfares.  The 0.2% reported inflation, does not, therefore, accurately reflect the average person’s feelings about how far the cash in their pocket is going.

Coupled with the forthcoming end to the furlough scheme, I expect to see veritable tsunami of unemployment on the horizon.  In dark times, understandably, enthusiasm for traditional assets classes is waning.

Interestingly, this perfect storm may be the tipping point for adoption of crypto for retail and institutional investors alike.  The FCA released a research note over the summer that the proportion of the UK population purchasing crypto has doubled in the last year.

The institutional investors, who have long snubbed the asset are now coming to the table – a survey published by Fidelity found that more than one-third of institutional investors globally are exposed to crypto assets in some form.  My favourite post COVID volte-face was Goldman Sachs, whose client call in late May declared crypto “not an asset class”, but by early August announced that it had hired a new global had of Digital asset and was reported to be considering its own ‘stable coin’.  The sound of back peddling can be deafening!

As the world scrabbles to hedge against inflation and poor returns, reputable cryptocurrencies increasingly look like an obvious solution.   Gold has performed particularly well this year, and soon those sitting on large quantities of cash are going to run out of safe havens.  Bitcoin presents itself as a store of value, and the argument that it is a better, cheaper, faster, version of digital gold gains increasing credibility.  Proponents argue that just a few per cent of the world’s audience for gold switching to bitcoin will give rise to a 10-fold increase.

Ethereum, long Bitcoin’s poorer relative, also, looks increasingly attractive, and assuming that the transaction costs can be kept low provided a viable medium for smaller transactions.

It is no surprise that a number of asset managers and hedge funds, including Paul Tudor Jones, have come out in praise of crypto a hedge against inflation.  The future economic environment is uncertain, and Covid has dramatically rewritten the rulebook.  It could be argued that it is now evident that to get industry beating returns, investors are going to have to think outside the box.

 

Business

TOP TIPS FOR BOOSTING YOUR CASH FLOW AND BUSINESS IN 2021

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Ian Gass, CEO at Agitate

 

Many small businesses are still dealing with the disruption caused by the pandemic. Improving financial performance is most likely to be at the top of agenda, and a good place to start is reviewing cash flow. No matter what the product or services a company provides or the size of the business, cash flow still remains king.

Research has shown that 38% of small business owners who have suffered cash flow problems have been left unable to pay debts. With 1 in 7 small business owners having been left unable to pay employees because of cash flow issues, this equates to a huge 2.2 million people in the UK not being paid on time.

 

The importance of positive cash flow

Profit has traditionally been seen as the most important measure of an organisation’s financial performance. However, the focus is increasingly shifting from the income statement to the balance of cash inflows and outflows. Prioritising profit levels reflect long term fiscal health, but it does not necessarily mean that a business can pay its bills on time and survive in the short term.

Ian Gass

Sudden drops in demand prove how keeping an efficient cash flow balance is essential, and can expose shortcomings of currently used solutions. When reviewing your cash flow, you need to look at ways to get more money coming in and better manage the money that is going out. Here are a few ways to improve cash flow management and see positive changes in a short period of time.

 

  1. Efficient forecast

It is important to be able to compare actual income and expenses with those that are in the pipeline, as it helps to determine which area of business is under performing or generating unnecessary costs. Start by looking at your projected income and expenses for the next three months, don’t wait until you receive a bill to realise there are not enough funds to cover it. An easy way to overcome this issue is a free cash flow template available online.

 

  1. Terms and Conditions review

Making sure that T&Cs are clear and comprehensive not only provides your business with a protective layer, but also makes customers understand when and how the payment is expected, and the process and penalties for late payments. That’s why regular checks and reviews of existing agreements prevents businesses from potential loses. It is also good to use reward tactics to encourage customers for prompt or early payment such as discounts or free shipping.

 

  1. Payment terms

Payment terms that are understandable and realistic is clear T&Cs in place. As it creates a contract with suppliers and obliges the organisation to pay on time, it is important to match these terms wider operation processes. For instance, if you have 14 days to pay your suppliers, but your customers get 30 days to pay you, a problem of late payments will be inevitable. To avoid damaging relationships with suppliers, you should consider an extension of the terms or reducing the credit period for your clients. It is worth taking deposits, asking for payment in advance or on receipt.

 

  1. Invoice management

Another method that can quicky improve cash flow is sending invoices promptly and ensuring they are accurate. Any mistakes will simply require queries to be resolved and it will take longer to receive payment. In addition, it is important to remain persistent at following up late payments and moving the money to the bank as soon as possible. Some clients will always need chasing and, without a follow up, they will hold on to the cash as long as possible.

 

  1. Payment options

Making it easy for clients to pay gives businesses the best chances of being paid quicker. While accepting card payments might be common place, there is a high risk of fraud. For example, in 2019 £620.6m was lost in card fraud in the UK. Also, it can be expensive to process and often leaves an organisation to wait days to receive the funds. Using a free bank-to-bank payment app means businesses can send payment requests from mobile phone straight to customers via email or messaging app (such as WhatsApp).

In that case, the consumer will receive a message with all the information they need to make the payment instantly. They click the secure ‘Paylink’, which directs them to their online banking app and all the relevant information is displayed such as your name, the amount to be paid and a reference. The transaction needs then authorising with their bank and the money moves instantly from their account to yours.

 

  1. Cost reduction

If there is too much money going out that a company can’t afford, business owners need to think of ways to reduce those expenses. There are a few questions to help understand where money can easily be dislocated:

Is there software or equipment that you are paying for that you don’t use? Can overhead costs such as utilities and administrative expenses be reduced? Are card transaction fees putting an unnecessary pressure on cash balance? If so, it can be eliminated with a bank-to-bank payment app.

Although profit might be seen as the ultimate goal for companies of all shapes and sizes, sustaining positive cash flow provides vital foundations on which a company can grow. By using the right tools, business owners can not only get paid faster and more securely, but also improve customer experience, reducing the transaction to a quick QR scan. Making a few smart changes to the existing balance sheet can have a big impact and future-proof an organisation in no time.

 

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BRIDGING THE DIGITAL EMPLOYEE EXPERIENCE GAP

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Matthew Sturman, senior technical consultant, AppLearn

 

While the financial sector was arguably some way along the digital transformation curve before the pandemic, embracing innovative solutions to enhance customer experience and security, the last 12 months have required a step change like no other for employees.

Overnight, teams were operating remotely, using an array of new business applications from communications tools to support systems. Business critical processes which may have been stagnant for some time due to a risk adverse culture, quickly evolved with a need for greater agility.

In a post-pandemic world, it’s crucial that financial leaders don’t become complacent about the employee experience; KMPG put employees at the top of their list for financial institutions six considerations in dealing with the impact of COVID-19. Organisations have rapidly undergone transformation to facilitate home working while maintaining operations, however the proliferation of technology has also highlighted a critical digital employee experience gap. Addressing this will be key to embedding digital strategies which enable and support employees in the long-term.

 

Matthew Sturman

The overwhelmed employee

Even before the pandemic, research from Okta detailed how the number of worker applications deployed by organisations had increased by 68% over the past four years.

You only need to look at how employees access IT support to realise just how complex this picture has got for employees. Every technology application – from risk and complicance to payroll software– has a different route to access support, with employees having to navigate chatbots, online knowledge bases, resource hubs or the helpdesk. The result? Context-switching. Time spent flitting between different applications or windows to complete tasks, taking employees out of the flow of work. Studies have shown that switching contexts has a dramatic impact on time lost mentally re-focussing between tasks, in addition to time wasted navigating to try and find support.

In fact, research from McKinsey has found that workers spend up to 20% of their working week searching for information or support on tasks. This issue has only been compounded further with employees working from home, and not knowing where to go for timely support.

 

Prioritising the user

Over time, these small interruptions can add up to a significant impact on an organisation’s performance – and lead to user frustration, as well as decreased motivation amongst employees.

Historically, financial services businesses have taken a customer-first approach to investing in user experience – prioritising external customer service and communication over the internal employee experience. However, most employees are also users of this technology, and expect the same smooth transitions and consumer grade experience when using their work devices or software. When their digital experience is seamless, employees can focus on their role without interruption.

In a recent report, KPMG said organisations should create an ecosystem of tools and technologies that work together to enable experiences that help people work better. Any shifts in technologies should consider the combined impact of features and integration. It’s this sentiment financial leaders must embrace to truly empower digital workers.

 

Bridging the employee experience gap

According to a recent report from analyst firm Constellation Research which looked at the impact on the pandemic on the digital workplace, organisations have a historic opportunity to transform the employee experience.

It encourages organisations to adopt an ‘employee experience platform’ (EXP) model that connects disparate digital tools into a more cohesive digital workplace. This model is made up of disruptive technologies that bring together siloed applications and software.

Technologies such as digital adoption platforms (DAPs), machine learning, ‘people analytics’ tools and on-demand talent sourcing have been highlighted by Constellation as key components to the EXP. DAPs, for example, help solve the issue of disparate IT estates by overlaying software applications and providing a consistent support experience across multiple applications. This can take the form of step-by-step guides to navigate the user through new digital tasks and workflows, through to ensuring knowledge articles and chatbots are seamlessly available when required and provided in context of the individual requiring it and the task they are performing. Crucially, this keeps employees in the flow of work and avoids wasted time switching between applications and searching for support.

 

Looking ahead

It’s been an immense year of change for financial leaders, organisations, and importantly employees. As we move out of the pandemic, getting this next phase right will be absolutely key. For many businesses, this will be about moving from survival to thriving in a digital world.

The steps are simple. Identify the experience gaps, explore disruptive tools and technologies that bridge them, but most importantly, create an employee experience that enables and empowers them to do their job better.

 

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