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FROM EFFICIENCY TO NEW INVESTMENTS – WHY BLOCKCHAIN IS MORE THAN MEETS THE EYE

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Thomas Borrel, chief product officer at Polymath

 

Blockchain has been an extremely hot topic in 2021. With companies and financial institutions internationally having to adapt to an increasingly digital world, the true potential of blockchain is becoming increasingly clear. We have seen hospitals using the technology to track vaccine distributions, major blue-chip companies floating digital assets or ‘stablecoins’, even progress made by central banks in piloting and adopting digital currencies

When it comes to the world of finance, much of the attention has focussed on the booming price of Bitcoin, and there has been much excitement around using cryptocurrencies as an alternative investment. However, the real potential of blockchain technology stretches far into traditional finance and beyond.

 

Improving access to investment options

Security tokens created and issued on the blockchain are already being used to improve efficiency in a variety of more traditional asset classes, ranging from real estate to green bonds. The Sustainable Digital Finance Alliance (SDFA) and HSBC Center of Sustainable Finance recently joined forces to highlight how security tokens for green bonds can reduce management costs and increase operational efficiency by up to ten times. And in early 2020, RedSwan CRE Marketplace tokenised $2.2B in commercial real estate, making it one of the biggest tokenisations we’ve seen so far.

Thomas Borrel

However, the potential of tokenisation does not only stand to improve the process of trading traditional assets; blockchain can also open up the pool of investors able to participate. To date, the focus has been on how fractionalisation brings benefits to retail investors by lowering the bar to entry. However, the retail regulations are still very stringent, which is important to protect non-professionals from disproportionate losses.

Tokenisation can be used to enable large institutional investors to buy into smaller projects. Referred to as aggregation, this process can be used to bind assets together so that they meet an institution’s minimum investment threshold. Because of the transparency of blockchain, the investor is still able to inspect each individual offering and ensure each element meets their quality and risk requirements, but by packaging it into one larger token, an institution can diversify with assets that would have otherwise flown under its radar.

 

Optimising efficiency and minimising risk

Risk management and operational efficiency are usually at the core of any financial institution’s wider strategy. However, no matter how much firms optimise their own processes, there are a range of financial instruments that are still very prone to issues in these areas, especially those that are traded ‘over the counter’ (OTC). The best example of this is likely the bonds market – a multi trillion-dollar market, where OTC trades are still common practice.

When an OTC trade is conducted, it is often so over the telephone – one person calling another to make a deal. This introduces significant information risk with securities operations teams reporting error rates as high as 40%. When instructions for the trade are passed on to the custodians, they will spot the discrepancy. They then have to investigate and find out what has gone wrong, often resulting in very long delays to settlement times.

Blockchains go a long way to solving this problem, providing transparent access to trade and clearing information so that operational issues can be caught earlier and help mitigate settlement risk (i.e. settlement failure). For example, on Polymesh settlement instructions must be affirmed prior to settlement, in a case where an OTC trade has been improperly captured by one counterparty, the counterparty which has affirmed the instruction can see that the other counterparty has not affirmed the instruction within a defined period. In this way, the affirming counterparty can reach out proactively prior to the settlement date to rectify the situation and avoid settlement failure.

Trading on blockchain also generates an easily accessible, secure ledger of trading information. When it comes to reporting in traditional asset classes, the process is highly manual and often expensive. But, with a blockchain solution, reporting is built into the ecosystem from the ground up. There are no significant additional costs or resources required to extract this data and share it where necessary, and the number and complexity of the steps required to complete reconciliations between different entities are reduced and simplified.

 

Is tokenisation a ‘cover all’ solution?

Fundamentally, certain traditional asset classes are not right for the blockchain yet. Instruments with well-established frameworks, like publicly traded stocks, already have very well-formed, rigorous rails in place, and so transferring to a blockchain could cause disruption and incur unnecessary costs.

It is very common to hear blockchain advocates claiming that blockchain technology should be introduced into every corner of the finance space, which is misguided. Blockchain should be introduced where it brings value to investors or institutions. It should be about augmenting and supplementing the marketplace – not overhauling it, or at least not until the incumbent systems no longer keep up with demand.

The costs and infrastructure associated with capital markets have made some assets – like green bonds or real estate – too expensive to bring to market and service, or too difficult to invest in. These use-cases are examples of where tokenisation can really shine.

Blockchain is an extremely powerful tool, with a range of exciting applications and potential benefits for businesses and financial institutions, ranging from risk management and efficiency through to enabling new investments. However, as with any product, it isn’t the answer to all problems, and must be treated as a powerful enabler – not as an agitator.

 

Banking

How banks can increase customer acquisition and user engagement with sustainability

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By Karolina Szweda, Head of Growth Marketing at Connect Earth

Young people are demanding more innovation from traditional financial institutions, and are primarily in favour of lower costs and more flexible digital customer experience promised by challenger banks and other FinTech providers. The future of banking is digital, and traditional financial institutions are well aware that they need to embrace innovation to remain competitive in the digitalised market.

In order to win over the younger generations, especially Millennials and Gen Z, banks need to invest in their digital transformation and deliver more customer-centric solutions. One of the affordable low-hanging fruits is sustainability.

As the public’s attention to the climate crisis grows, consumers and businesses are increasingly interested in reducing their negative impact on the planet. BCG reports that as much as 73% of consumers are altering spending habits because of climate change, and, according to PwC, 88% of consumers want brands to help them live more sustainably. As far as businesses are concerned, they are increasingly aware of the mandatory disclosure regulations set to take effect within the next years in major economies, and the need for carbon emissions reporting.

The problem is that the vast majority of consumers and businesses do not have access to actionable data on their carbon emissions. We believe that this is where banks can step in.

Increasing customer acquisition and retention

According to Deloitte, 71% of customers are more likely to choose a bank with a positive environmental impact. In addition, Global Risk Regulator reports that 93% of people expect sustainable financial services to become the norm, and according to Tink, 62% of consumers want their bank to show them an overview of their carbon footprint.

Banks are in a unique position to respond to this increasing demand by embedding climate data in their financial services offerings, which can help attract new customers and improve brand loyalty on a large scale.

With a carbon tracking API solution integrated into a digital banking app, financial institutions can be a catalyst for change and enable their customers to understand how they can reduce their emissions. By providing carbon emissions data for each financial transaction, banks can support and encourage their retail banking clients, corporate clients and/or retail investors to act more sustainably, while also increasing customer acquisition and digital engagement.

Most importantly, banks can also measure how their customers’ spending behaviours are changing as a result of being exposed to climate-related information, which they can use to segment and understand their customers better.

Increasing digital engagement

According to EY, 61% of consumers want to access more information that can help them make better sustainable choices. Banks are in a position to empower customers to do exactly that, whilst increasing user engagement with their digital banking apps.

Educating consumers on how to make more sustainable choices can be achieved through gamification, personalised recommendations and rewards to encourage behavioural change. The analysis of spending data along with tailored educational content can enable consumers to analyse, learn and improve their consumption habits and empower them to act on this knowledge.

Before accessing their carbon emissions insights, users can enter their custom information about their lifestyle habits, such as diet (meat-based vs. plant-based), daily means of transportation (car vs. bus) and more. Machine learning models improve as users input data over time, making carbon emissions estimates more granular. The model is trained to support thousands of different user types based on their profile and enables the bank to customise the experience and gamify the emissions reduction process for users.

How banks’ customers can benefit from accessing carbon emissions data

As far as climate action is concerned, having a real-life overview of one’s carbon footprint can be a true game changer for millions of consumers worldwide. Access to carbon data increases climate change awareness and empowers people to make a real difference.

Earlier this year, our team at Connect Earth confirmed the partnership with KBC Bank in Bulgaria to help them drive customer engagement and provide their retail banking clients with climate insights into their spending. We aimed to bolster KBC Bank’s corporate sustainability strategy, whilst meeting increasing demand from climate-conscious clients.

The financial sector has historically lacked the infrastructure to support sustainable finance in a tangible way. We are happy to report that the green transition has begun.

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Can I Sell My Structured Settlement Funds for Instant Cash?

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Structured settlements are a great way to settle legal disputes without the fuss. Settlement loans and other settlement funding is growing popular these days. You should know that these settlements are carefully regulated by federal laws.

So, it’s important that you go about it the right way if you want to sell these funds. Some states that follow the Structured Settlement Protection Acts protect you from buyers. This is why it’s usually safe to sell your settlement loans in most cases.

Not everyone owning a structured settlement knows that they can sell it for instant cash. After all, it’s not as common a practice as you would expect it to be. If you wish to sell your settlement funds, we have some tips for you.

Let’s discuss how you can sell your structured settlement funds for instant cash in the right way.

Determine the Worth of Your Structured Settlement

If you’ve opted for a structured settlement over a period, you’ll receive your money in installments. In most cases, people opt for lump sums and receive a large amount at a specified date. But, you can also opt for a structured settlement instead to an interested buyer.

The buyer can give you a structured settlement advance before the sale is approved by a judge. The advantage of this advance is that you don’t have to pay it back if the court doesn’t approve the settlement. This is why more people are now opting to sell their structured settlements for cash.

Before you consider selling it, first determine the worth of your structured settlement. In most cases, the settlement is the present value of your contract. But, it’s not the amount you’ll be receiving for your payments. So, it’s important that you learn the difference between these amounts.

A factoring company calculates the value of your structured settlement the right way. They do this by considering the present value of the future settlement payments. Then, they subtract the growth potential the company will lose by not having access to the money.

This leads to the calculation of a discount rate for the payments. This rate accounts for the inherent risk associated with the money they’ll receive. Often, this discount rate falls between 9% and 18%. The factoring company also considers other factors when valuing your pre settlement advance.

These factors include the number and dates of the settlement payments to be made. They also include economic conditions and current market rates. A factoring company will also consider the fees associated with selling your settlement.

You can use online settlement calculators to determine the present value. But, these calculators don’t consider the specific terms of your contract.

The Process of Selling Your Structured Settlement

After determining the worth of your settlement, it’s time to think about selling it. But first, consider if your state laws permit the sale of structured settlements. If your state allows it, you can start looking for options to sell the settlement.

You’ll have many options to sell your settlement for the right price. Structured settlement payments are tax-free and income doesn’t affect your eligibility here.

Even so, it’s not advisable to sell your settlement for settlement cash advances unless you need to. But, if you need to, you would first need to reach out to a factoring company or settlement buyers. You can then agree on the terms and conditions of the sale.

You’ll have the option to sell the entire settlement or receive a small advance. You can opt for either depending on if you need instant cash payments. You can even choose to receive a few payments first then get back to your original payment schedule.

You can contact a buyer directly and agree on the terms of the structured settlement sale. Large buyers will consider your financial needs, etc. before paying you in cash. After liaising with the buyer, it’s time to approach the court for a settlement review.

A judge will decide if your settlement can be sold to a third-party buyer or not. You can only go ahead with the sale if the judge gives their explicit approval for the same. It can take anywhere between one and two months for you to receive this approval.

The Benefits of Selling Structured Settlements

Sometimes, it might seem like an inconvenience to receive structured settlement payouts. This is because approaching a buyer and getting court approval for the sale can take time. So, in a sense, selling these settlements won’t get you cash right away.

You’ll receive cash quicker by selling them rather than following the payment schedule. This cash can come handy in emergencies if you’re facing financial difficulties. Structured settlements are great for those that want the money for long-term investments.

This is why many people prefer them over lump sums for their settlement payments. But, it’s possible to have both structured settlement payments and instant cash. You can receive cash as an advanced settlement payment by selling it to a buyer. Then, you can go back to following your original payment schedule.

This would allow you to receive instant cash while also spreading out your payments. A factoring company can buy some of the structured settlement installments from you. This would allow you the access you need to instant funds.

Or, if you need the entire amount of the settlement, that’s possible as well. You can sell the settlement to a factoring company and they’ll pay you the entire value in cash. They would then receive the total amount of the settlement from the insurance firm.

So, you won’t be involved in the settlement once you sell the whole thing to your buyer.

Conclusion

These are some important things to remember before you sell your structured settlement. Sure, it’s useful to sell some or all the settlement amount for a cash sum. But, remember that it’s sometimes better to receive payments in installments.

This would allow you to be more careful with spending your money. It’s also useful for those wanting to make long-term investments. You should opt to sell your settlement only if you need the cash right away. Even then, remember that it could take you a month or two to get the cash in hand.

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