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FINTECH TRENDS :THE CHANGING FINANCIAL SECTOR LANDSCAPE

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Dr Anino Emuwa is Founder and Managing Director of Avandis Consulting

 

The tighter regulatory environment following the 2008-2009 financial crisis constrained banks ability to innovate and helped to fuel the fintech revolution. Another crisis, the pandemic this time, is again bringing about major changes in the fintech industry and impacting the banking  sector.

The acceleration of digital transformation- a five-year shift taking place in a few months, according to experts- following the global lockdown led to a surge in e-commerce and digital payments, driving down bank’s share of the total market value of global banking and payments industry to 72% at the end of 2020 from 81% at the beginning of the year.  Paypal, for example saw its share price almost double during the same period. Currently, the top 5 global financial organisations by market capitalisation include 3 payments and fintech firms – Visa, Mastercard and Paypal

This booming lucrative payment sector hasn’t escaped the attention of GAFA- the big four technology companies- Google, Apple Facebook and Amazon who have already started making incursion into this space and their expansion into this space could lead to a large-scale disruption of the sector.

Anino Emuwa

It wasn’t positive for all fintechs during the pandemic. Lending platforms have come under pressure as the worsening economic climate is reflected in reduced borrowing, and signs of increasing defaults in both personal lending and small business loans as experienced by Lending Club and On Deck in the US, causing online lenders to tighten their underwriting standards.  Howeverr, in the longer term significant growth from this subsector is expected aided by digitization of lending

The instalment payment business has boomed creating billionaires in the process:  case in point, Nick Molnar and Anthony Eisen, Australian co-founders of Afterpay, a market leader. New entrants are also faring well:   Max Levin –co-founder of Paypal—whose recent venture Affrim almost doubled users between November 2019 and July 2020  to 5.6 million. It has raised $500 million valuing it at more than $5 billion a 40% increase in from last year (Source Forbes).

Investment in the fintech sector dropped 30% during the first year of the pandemic according to McKinsey, forcing fintech companies to review their business models to focus on profit-making rather than cash-consuming customer acquisition strategies.  Investor’s focus shifted to fintech ventures which are showing revenues and evidence of scaling, with newer ventures finding it more difficult to access funding as VCs focused on businesses already in their portfolio. This led to concerns that pre seed and Series A ventures could lose out in the short term.

Happily, the first quarter 2021 global fintech investment has rebounded reaching a high of over $13.4 billion across North America, Europe and Asia with a record for mega rounds, 33, in a quarter, according to CBI insights – State of Fintech Q1 21 preview. Frontier markets also experienced this boom, Africa has seen an uptick in tech investments at over $2bn in 2019, five  times the level in five years with fintech accounting for the major part of this recent growth. In 2021, notable transactions included Stripe’s $200 million acquisition of Nigeria’s Paystack signalling its entrance into the African payments market via the continents largest economy  whilst Flutterwave closed a $170mm funding round valuing it at over $1 billion.

In emerging markets, technological leap frogging may well be a feature of fintech innovation finding solutions for solving some of the infrastructural gaps.   The UK, which known as the fintech capital of the Europe attracted almost $5 billion in fintech investment in 2019. In Q1, according to Pitchbook, UK fintech raised $2.9 bn across 117 deals.  It is still to be seen how the UK can continue to retain that status with Brexit now in force.

Other big drivers of trends in fintech will be in infrastructure in the near term, as well as advances in emerging technologies notably block chain, crypto assets and AI.  Digital currencies are currently booming- Bitcoin is currently valued at close to $60,000 compared with around $6,000 at ahead of the pandemic with a market capitalisation of over  $1 trillion, bigger than any bank, whilst Ethereum hit a new record at over $3,400 (as of  3rd May) , making 27 year old co-founder Vitalik Buterin, the world’s youngest  Cryptobillionaire. NFTs are becoming popular as an important cryptoasset used by creatives to sell their work of art and other intellectual property.  Central Banks can no longer ignore crypto currencies market and are responding to this perceived decentralised challenge to their sovereignty  with plans for CBDCs which are controlled by the government

In April 2020, China piloted a digital currency and notably, at the end of March, the President of the European Central Bank, Christine Lagarde, has spoken about the possibility of Euro Digital currency in the next four years, with a decision to be made by EU countries mid-year.

In terms of Artificial Intelligence, the estimated value of AI in fintech  is expected to grow to over $22.6 billion in 5 years from $6.7 billion in 2019 according to Finextra, who predicts that AI and machine learning  will drive innovation particularly in areas such as robo-advisors, credit scoring, and process optimisation

On the regularity side , PSD2 coming on stream in Europe driving  open banking creating a boom the sector particularly for challenger banking. The post COVID-19 era is likely to see established fintech companies expanding their portfolio of services and also geographically.  For example, Revolut, one of UK’s  success stories, which started out as a payment platform has now extended into banking and is now seeking a US banking licence. At the same time, as governments globally come up with policies in response to concerns about customers data security as well as security of assets, more stringent controls and policies may reign in innovation.

Apart from advancements in technology, social trends are also impacting innovation: the pandemic has drawn attention to the need for values- based financial services to address equity, social justice and environmental concerns. With impact investing becoming more significant, we can expect investment flowing to supporting fintech solutions addressing global issues such as financial inclusion and sustainable finance. And as the digital native, Generation Z comes of age demanding more gamification, digitalised financial services, we will see fintech increasingly catering to this demographic.

In all, the fintech is sector is expected to continue to surge providing a challenge to traditional banking in many areas, one of the exciting areas is in Defi- as blockchain powered solutions replace the middleman in traditional financial services with a smart contract.   For now, the dampening in investments during the height of COVID seems to have been overcome. As banks continue to make equity investments in fintechs, it will be interesting to see possible mergers or large-scale acquisitions by banks of fintechs. Or even vice versa.

 

About the author

Dr Anino Emuwa is Founder and Managing Director of Avandis Consulting, a strategy and financial advisory firm in France.  A former corporate banker with Citibank, she is a also a non-executive director, sitting on several boards including the Board of Governors of Nottingham Trent University. Anino is a and Diversity and Inclusion advocate; she is a member of the Institute of Directors’ Expert Advisory Group on Diversity and Inclusion and a member of the global advisory Board of UK’s 20-first, a gender balance consultancy firm.

Finance

THREE STEPS TO ENSURE RECOVERY OF COVID LOANS GOES SMOOTHLY

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In the wake of the pandemic, the government acted quickly to provide financial Covid support packages to help struggling businesses. With the economy now recovering, Mike Hampson, CEO at Bishopsgate Financial explores the range of options available for banks to ensure that those loans are repaid.

 

Since the start of the pandemic, businesses have raised over £75bn[1] from banks and financial markets, through interest-free emergency support schemes. But the harsh reality is that not all loans will be honoured as the economy recuperates.

As a result, banking professionals with client relationship management experience and skills in supporting clients to repay loans in a challenging business environment, will be in high demand.

 

Mike Hampson

Setting up training capabilities for client support post-pandemic

Commercial bankers estimate 60% of new coronavirus scheme loans[4] will default or suffer other repayment issues that will drive previously unseen levels of non-performing loans. It’s a tough balancing act and one that demands careful management of the lending transaction lifecycle, from origination through to collection, recovery, and handling bad debts. Banks no doubt already have frameworks in place to manage these elements, but it’s highly important to make customer interactions as easy as possible and ensure their genuine concern for their customers is clear.

Subsequently, hundreds of workers at major banks including HSBC, NatWest and Metro Bank[5] are understood to be receiving training in how to deal with vulnerable customers and “demonstrate empathy” as the first wave of repayments for coronavirus loans fall due. Staff ‘sensitivity[6] training builds on client-support and workout capabilities, such as improving sensitivity to early-warning systems, developing short-term forbearance solutions and loan modifications, and providing guidance on alternative products.

This approach may further avoid the additional pressure on the UK’s mental health crisis as financial institutions prepare to call in loans issued during the pandemic.

HSBC, which now has 400 staff in its debt collection team,[7] said the aim was to ensure staff had a “consistent understanding of vulnerability” and are “aware of the factors that could make an individual vulnerable” when having repayment conversations with customers.

An executive at another bank said its expanded debt collection team was being trained in “empathy, vulnerability and listening skills”. The individual told The Telegraph: “Ultimately, we don’t want to damage the economy by being overly aggressive.”

A peculiarity of a crisis situation is that customers don’t always know what they will need until that need is pressing. Finding that their bank is prepared to help in unexpected ways will go a long way toward reassuring them.

[2] https://www.law360.com/articles/1355897/

[3] https://www.bishopsgate-financial.com/insights/the-change-perspective/the-change-perspective-2021

[4] https://www.grantthornton.co.uk/insights/how-to-manage-upcoming-non-performing-loans/

[5] https://industryslice.com/NewsLetter/8_33

[6] https://www.telegraph.co.uk/global-health/climate-and-people/covid-19-has-amplified-parallel-pandemic-poor-mental-health/

[7] https://www.msn.com/en-gb/money/other/bank-staff-get-sensitivity-training-before-calling-in-covid-debts/ar-BB1fNMte

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FOUR STEPS TO INTEGRATING INTELLIGENT AUTOMATION IN THE FINANCE DEPARTMENT

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Marieke Saeij, CEO of Visma | Onguard

 

It’s clear that Intelligent Automation (IA) is still very much an emerging technology, with one indication being that is has only been mentioned a handful of times on Twitter since the beginning of 2021. Results from our latest annual FinTech Barometer reveal a mixed picture in terms of awareness, with half of finance professionals having never heard the term before. Whilst this is unsurprising for a technology concept very much in the ‘early adopters’ stage, organisations can stand to gain real benefits from embracing Intelligent Automation now, particular within the finance department. With this in mind, we explore some of these benefits and share a step-by-step best practice to implementing it into business operations.

 

Intelligent Automation ensures a predictable order-to-cash process

Such is the speed of introduction of new technologies that it’s a challenge for businesses to keep pace. As the newest innovation in finance, Intelligent Automation is one that organisations can’t afford to let pass by. It truly takes financial process automation to the next level. In addition to helping maintain a high-quality customer service, it also complements the existing skillset of finance professionals in the industry.

Marieke Saeij

While Robotic Process Automation (RPA) and Big Data are key innovations for the sector, IA can be likened to an additional layer that enhances existing technologies. By combining applications, this layer is capable of independently assessing situations and determining the appropriate process sequence. It can, for example, fully determine the risk of a specific customer, and can also predict at an early stage which invoices will be paid late, or even not at all, ensuring that finance professionals can then plan accordingly. The result is a reliable and predictable order-to-cash process.

 

The four steps to an IA-proof organisation

While the benefits of IA are numerous, implementing the technology can prove complex, although some are already treading the IA path without knowing it. In this instance it’s crucial to become aware and begin the purposeful process to full integration. Below are the four key steps to becoming fully IA-proof.

  1. Exploring the potential: Brainstorm where automation can be applied

Step one is to examine the extent to which automation can help your organisation. Blue sky thinking is the key here. What is the ideal relationship with the customer? What does the ideal order-to-cash process look like? In this phase, involving multiple departments from within the organisation is key, from management to operations. The finance professionals who have the most contact with customers are likely to have the strongest knowledge of which processes they would like to see automated. With no limits to ideas, it’s best to explore all the opportunities in the entire order-to-cash process and describe broadly the potential value to the organisation.

 

  1. Decipher which data and technology is needed

The second step is to map out which data and technology is required. Working with a specialist, either external or from the internal IT department, is beneficial at this stage to see where the opportunities lie. In many cases, off-the-shelf solutions are already readily available to help make the difference, so it pays to do the research and gain advice where possible.

 

  1. Firm up the strategy

With the plan mapped out, it’s time to fit the pieces of the puzzle together. Which technology and accompanying software is proving most valuable? It’s vital at this stage to analyse the results the organisation is achieving from deploying the right technology and software. It’s also important to outline any limitations and emphasising the potential risk of failure. This is the business case and the basis for the elevator pitch that will be presented to internal stakeholders.

 

  1. Draw up the roadmap and start benefitting from agility

The fourth and final step is prioritisation. The roadmap will describe step-by-step how to move from the undesired current situation to the desired end goal. In the first step, choosing a subproject that is relatively easy to achieve will help gain support from other departments within the business, and provide invaluable experience that can be applied to the more complex components that follow later. This agile approach facilitates a learn-by-doing mindset and allows the following steps to be tackled in a smarter and simpler way.

 

Effective preparation is half the battle

Exploring the potential of automation, mapping the required data and technology, establishing the strategy and laying out the roadmap are the four crucial steps to ensure the foundation for Intelligent Automation. Effective preparation and estimating which technology and accompanying software is needed will help to create a streamlined and error-free order-to-cash process. To ultimately save time and costs, empower finance professionals and maintain customer loyalty, the time for Intelligent Automation is now.

 

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