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Empowering the unbanked and unconnected – Fintext revolution transforms the commerce landscape in emerging economies

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Co-Founder & CEO, BAIA Group, Michael Wallis-Brown delves into the challenges with cash-based transactions in the emerging markets

 

Economic challenges mount for emerging market and developing economies (EMDEs)—including continued COVID-19 outbreaks, elevated inflation, record debt levels, and rising income inequality. The global cash economy is a US$19 Trillion opportunity, with most transactions between smallholder producers and buyers still carried out with cash payments.  In fact, in Africa 95% of transactions are cash, the risk to all stakeholders is high as it makes them vulnerable to errors, fraud and theft.

The dynamic nature of emerging markets creates challenges that have never confronted the developed world, but also opens opportunities for innovation and growth. Increasing convergence and integration between e-commerce and mobile technology have radically changed the shape of the payments marketplace. Yet most commerce interactions in emerging markets are still being made face to face with cash, and even though we see the shift to electronic and digital methods happening in some countries cash is still the predominant form of payment and won’t be changing anytime soon, regardless of all the hype around the latest ‘super apps’.

 

Michael Wallis-Brown

The Digital Divide

This is for good reason as almost 50% of the global population lack mobile internet and are left with the only option of face-to-face commerce. A third of mobile users have a feature phone and 2G connectivity and messaging is the only way to communicate and do commerce. In fact, 3.2bn of mobile users own a messaging app capable device.

The Chat Commerce market has seen significant growth over the last few years and is viewed as the third big wave of digital commerce and is on the tail of eCommerce and App Commerce markets. With 7.7 billion users compared to 4.7 billion internet users, Chat is the largest digital platform in the world valued at a $80+ billion Total Addressable Market (TAM), which together with the cash economy, positions BAIA for significant growth in the next few years.  We are seeing more and more consumers active in their chat apps and the need for brands to move beyond desktop, mobile websites, branded apps, and email, has become ever more prevalent.  This in turn has seen more and more businesses leverage chat messaging as the preferred channel to engage with customers for support, engagement, and now payments.

There is a huge opportunity here to serve the growing appetite in the market as the current infrastructure in emerging markets for commerce is inefficient.  The lack of payment trails with face to face, analogue and cash-based commerce, to lack of data capture within the unstructured and informal market down to a lack of trust and reliability with unverified and undocumented processes.

Supporting Agents, Buyers and Sellers to master their market through collaboration to gain deeper insights and to smartly connect and safely transact with trusted connections using messaging is paving the way forward.  By enabling large businesses and SMEs across the globe to notarise ‘face to face’ transactions in informal markets via messaging helps provide businesses with a trusted and reliable commerce solution for the hyper local, cash-based, messaging enabled markets that are prolific within emerging economies and will without a doubt help these businesses prosper.  Helping empower agents (gig workers) across the board by ensuring they have all necessary critical information at their fingertips to maximise their productivity, increase their profit and ease of transaction and most importantly, know that every product and sale is one hundred percent secure is a vital lifeline for business to thrive.

Baia is a collaborative commerce platform powered by a messaging interface with unique optimisation technology at its core (BAIAs secret sauce). The innovation behind the solution enables data capture and tracking across the whole supply chain of agents, goods, services, assets, and cash; supporting agents, buyers, and sellers alike to master their market with deeper insights into information or opportunities to smartly connect and safely transact.  At Baia, we spotted an opportunity to create a middle ground – a trusted mediator without intrusion, that enables a digital ledger of every exchange, agreement, and negotiation as well as comprehensive customised dashboard that tracks the KPIs and bespoke metrics that matter most to the user, while constantly supporting the entire process through a powerful computation tool that delivers a verifiable increase in productivity.

By bridging this gap between online and offline transactions, traders and agents across all emerging markets have all necessary critical information at their fingertips to maximise their productivity, increase their profit and ease of transaction and most importantly, know that every product and sale is one hundred percent secure.

 

Finance

Hey, Gen Y and Gen Z do you think you can retire comfortably?

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By Penelope Gregoriou, technical investment specialist at Alexforbes

 

Millions of South Africans rely on the money saved in their employers’ retirement fund to earn an income in retirement. For many people, this is their only formal savings for retirement. Unfortunately, too often, this money is still not enough to sustain them in retirement.

Being a young professional has its fair share of demands and complexities, with real day-to-day demands such as housing, transportation and health needs all perpetually competing for a share of

your wallet. Retirement savings, quite frankly, is a low priority for many. But research shows that it is critically important for young professionals to take responsibility in reaching a reasonable income in retirement – the sooner the better.

According to the 2021 Alexforbes Member Insights publication 65% of members aged between 20 and 30 are expected to replace and live on less than 60% of their final salary when they retire because they have not saved enough during their working lives. Consider this: if you had retired today, could you live comfortably on less than 60% of your monthly take-home salary? This is expected to drop even further below 60% due to low contributions and not keeping retirement savings invested when changing jobs throughout the remainder of working careers.

Research by the publication found that a retirement fund member who has actively increased retirement fund contributions by 0.25% each year since 2012 would have achieved a 2% increase in salary contribution rate by 2020. A small incremental increase such as this can lead to an almost 10% improvement in expected retirement benefits for younger members.

The need for better solutions

Penelope Gregoriou

The key underlying issues compromising pension outcomes are largely due to younger members:

  • choosing lower contribution rates to increase their take-home pay
  • having little or no access to relevant information
  • not clearly understanding what their options are at critical points in their financial journey
  • not knowing the long-term consequences of the financial decisions they make today
  • not having access to financial advice or financial counselling

There is mounting evidence that more people are realising how important the right information at the right time is and the long way it can go in supporting their financial journey and setting them in the right direction.

Digital member engagement solutions, financial wellness programmes and seamless in-fund and out-of-fund savings solutions all serve a valuable purpose in helping young members improve decision-making and the prospects of a more comfortable retirement.

Supporting this notion is the finding that 78% of retirement fund members want short-term and long-term financial planning (2021 Alexforbes Member Insights). It is clear that retirement funds cannot only be solving for retirement savings and income. Providing expert, holistic advice on retirement, group risk, health management, healthcare, investments, employee wellbeing

solutions and skills development can help members make the most of their long-term financial futures. More members are realising the advantages of having access to holistic solutions that provide them with personalised information, engagement and advice to make better, informed decisions today while still helping them plan for tomorrow.

Enabling the good and mitigating the bad

Retirement might seem like a far-off reality – especially when you’ve just started working – but it is still a reality. Your money competes for a lot of immediate priorities, but a long-term priority can only be met in the present. While you might often feel like you are on a seesaw of financial instability and discomfort, finding financial services that can provide you with a balance of pertinent products and solutions during critical times in your career – such as joining or leaving a company – can assist to preserve savings intended for long-term priorities, such as retirement.

Though there are challenges that come with being a younger professional, it does come with the significant benefit of time. As a younger investor in a retirement fund, you have a long-term investment horizon. Saving from an early age means that your money has more time to work for

you. Thanks to the impact of compound interest the amounts contributed in the early years of retirement saving add the most to your probability of a comfortable income at retirement. That is why it is imperative to maximise this opportunity as best and as early as you can.

You don’t have to do it alone

Employee benefits, and what they can offer employees, have evolved into solutions that are relevant and effective enough to guide members, especially during the critical moments earlier in their career and lives. Previously isolated benefits are now more integrated in employer-sponsored retirement funds to mirror the reality of members’ lives and accommodate their immediate and long-term needs, simultaneously.

An employee benefit provider can support employer-sponsored retirement funds with information and insights when reviewing the benefit design and engagement plans of their funds. The additional support that an employee benefit provider with an integrated and holistic offering can present can help members get over day-to-day hurdles – emergency savings, health needs, education – that could derail them in meeting their long-term retirement objectives. This could be something as simple as misunderstanding retirement benefits and the options at a member’s disposal. Helping members understand the total picture of what’s on offer, and what’s at stake, throughout their individual life journeys can go a long way in guiding better decisions at the right times to ultimately improve outcomes.

Starting a new job is a big change. You may need some help to make good decisions as you start your new job. Even small financial decisions you make now can affect your ability to reach your goals. You are planning for a critical time in the future. Ensure that you are getting the right foundations in place today, holistically.

This is the most opportune time as any to rethink how you have approached your employee benefits. Financial toolkits, like the newly launched My Money Matters portal from Alexforbes, offer members guided access to content that can help them better understand their retirement fund benefits and make better financial decisions based on their personal circumstances.

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Finance

Getting ready for VAT digitisation: automation is key

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Christiaan Van Der Valk, Vice President for Strategy and Regulatory at Sovos, says technology will power real strategic success for companies required to follow continuous transaction controls (CTCs).

A growing number of governments and businesses around the world are adopting digital-first approaches for a multitude of processes, resulting in a need to move away from traditional paper-based invoicing and embrace real-time tax reporting. This trend has been largely led by Latin American countries such as Brazil, Chile and Mexico. Through adopting real-time reporting via electronic invoicing systems, they have been able to better understand their economies, reduce fraud, and close VAT gaps.

The shift to continuous transaction controls (CTCs) allows transaction data to be automatically streamed to governments, reducing the need for resource-intensive business systems and document audits for tax administrations. Through the use of rich, standardised data, tax authorities are able to compute a business’s tax liability. Businesses are generally not required to be heavily involved in this process.

With this requirement – combined with invoicing – businesses would be able to avoid filing periodic tax returns, relieving them of the burden of running VAT compliance teams and filing reports that bring no benefit. The practice, however, calls for a more comprehensive data management approach and proactive data reconciliation across different sources of government-controlled transaction data. For this reason, companies need access to a high-quality dataset in case they must challenge government-determined tax liability.

It can be problematic to have poor data quality in a VAT environment that relies heavily on legacy reporting. For example, there have been instances in which reports were inconsistent or didn’t correspond to accounting data in audits. Consequently, fines or penalties may be imposed. However, in the world of CTCs the consequences of data quality issues are of a very different magnitude. Your financial and physical supply and demand chains can practically grind to a standstill if your data isn’t approved by the tax administration – especially in nations where the tax administration ‘clears’ the invoice in real-time such as in Italy, Mexico and Brazil.

Many businesses with responsibilities in VAT jurisdictions are missing something important here. Beginning to utilise automation and other more specialised tools for producing VAT returns is a critical step toward harnessing the benefits from the mandated transition to CTCs as opposed to focusing on the challenges.

Manual is outdated

A lot of businesses are still using manual processes like spreadsheets to manage their VAT compliance, which essentially involves the time-consuming production and submission of VAT returns.

Through implementing technology like automated rules in software, companies can maximise the validity of VAT data. As well as simplifying and re-risking VAT reporting activities, the effort required to design the steps to enhance data using automated rules engines means establishing structured definitions of ‘what’s wrong with your transaction data?’ These definitions can then be used to identify the cause of quality concerns in upstream business processes and address them in order to dramatically improve CTC readiness.

For many businesses, the majority of quality concerns are down to the manual and paper-based processes used in internal workflows and trading partner relationships. Therefore, automation will play a vital role in properly preparing for CTCs.

Preparing data in this manner for VAT enforcement means that a business is paving the way for a more data-driven approach to compliance in general. Companies will increasingly be required to coordinate data being submitted to tax administrations automatically from a range of business process and accounting systems, once CTCs and other VAT digitisation initiatives become operational.

Keeping up to date with the expanding scope of information that is handed over to tax administrations in these automated data transmissions is crucial, so that companies can maintain a level of control over the image of their business operations that is constructed for the tax authorities.

As well as this, a business may benefit from this insight across data encompassing the full supply chain and transactions.  For instance, this information gathered could be turned into tactics to help with strategic planning.

Business leaders may reduce expenses, boost resilience, and improve controls by automating tax and business operations and adopting a data-driven approach to compliance, allowing for a more accurate and detailed understanding of granular reporting needs.

Organisations should prioritise the building of dashboards utilising modern analytics tools to prepare for this huge transition. It’s also important to have a well-organised evidence base with clean digital archives. Technology and the insight it brings will be the driving factor for real strategic success as economies recover from the pandemic.

Data flow is key

As tax authorities and governments work to reduce VAT gaps, greater visibility into corporate databases is at the top of their agenda. This is accomplished through the government’s digitisation of all tax reporting, in which data is delivered at regular intervals that correspond to the flow of transactions and the government’s data requirements.

It is imperative that transaction data, relevant primarily for VAT purposes (though not exclusively), be received in a transactional manner. Meanwhile, other types of information, like payment data or inventory movement, may be requested on a weekly or monthly basis, whereas broader accounting data might be requested more frequently.

The introduction of CTCs should not be viewed as an IT formality, but as the first step in tax administrations gaining easy, timely and effective access to source data. The digitisation of tax will enable administrations to access data on a regular basis, as well as at a granular level.

As companies transition from manual data entry into this new world of automated data exchange, they should concentrate on why this change is important rather than how it is happening. The real prize here is not getting the ‘plumbing’ to work according to government specifications; focusing on this ‘how’ question means that companies may be missing out on a potentially critical business enabler, but equally they may be inadvertently setting themselves up for much higher levels of compliance risk.

With the introduction of CTCs and various forms of detailed digital reporting, companies should be prepared to be exposed to much more stringent audits. The reason for this is that data quality or consistency issues will gradually become more transparent to tax administration teams, which will increasingly be enabled to respond to even the smallest inconsistencies that may previously have gone under the radar with surgical precision.

The higher level of visibility allows tax authorities to cross-check more company data, its trading partners and third parties’ data. These abilities will be vastly improved as more governments complement CTC requirements with mandates for SAF-T and similar electronic auditing requirements. Through thorough analysis of this growing mass of real-time and historic data, a firm’s operations can be fully understood.

Successfully adapting to CTCs means investing in the journey rather than the destination. As everything becomes more digitised, organisations must stay on top of these changes and maintain the same level of data insights as tax authorities do. There will be a growing need for this as more countries introduce CTC regimes (both France and Germany are on the horizon).

Adapting business tools to deliver better data insights is essential to facilitating tax digitisation, both to satisfy global tax authorities and to achieve a competitive advantage in the market. In short, companies should remain fully alert and prepared to ensure a smooth transition and successful outcome of CTCs, which are the logical next step on the road to business transparency.

The domino effect of CTCs

The willingness of autonomous governments to accept digital tax reporting will determine how widespread its implementation becomes. Following more than a decade of success with these methods in Latin America, governments all over Europe, for example, have made major moves toward introducing CTCs. In doing so, there is a great deal of preparation that international companies need to do which can take a considerable amount of time and resources.

In all jurisdictions with indirect tax systems, moving toward increasingly digitised tax controls is the only path. With real-time data, governments can better understand and analyse their country’s economic health, while also enhancing fiscal controls and reducing fraud. It’s just a matter of time until these digital programmes become standard practice on a global level, as countries all across the world begin to recognise their success in reducing fraud, increasing efficiency and closing VAT gaps.

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