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How tech can improve the inclusion of BAME communities in wealth and investment services

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How Blockchain Technology is changing the world in 2022

Karan Shanmugarajah, CEO, WealthKernel

 

Digital wealth and investment services are seeing significant traction, with novice investors buying and selling stock like never before. But whilst fintech robo advisors have democratised access to investment and wealth growth, these services must continue assessing and shaping their proposition to include diverse communities. With the wealth divide affecting ethnic minority communities the hardest, technology could be the force to help build more inclusive platforms for the creation of wealth.

 

Communities vary in wealth and how they invest

Karan Shanmugarajah

Investment providers must consider that Black, Asian and multi-ethnic people choose financial products differently from white consumers and their reasons behind this. Research from Backlight’s ‘Black Pound’ report, for example, has highlighted that individuals from such backgrounds opt to use multiple services and prioritise financial and pension planning. Individuals from minority ethnic backgrounds pay £268m into pensions each month on average and have a disposable income of £375m. Despite this, the People’s Pension report indicates that minority ethnic pensioners still remain 24% worse off than white pensioners, indicating a clear pension divide.

Broadly speaking, Black, Asian, and Minority Ethnic communities have significantly lower savings or assets than White British communities. For instance, the Runnymede Trust found that for every £1 of White British wealth, Black African and Bangladeshi households have around 10p. Given this context, it is clear that individuals from such backgrounds are far likelier to exercise caution when investing or using financial services.

With this in mind, if fintechs are to build better, more inclusive financial products, they must consider the variation in approaches to wealth and investments these individuals take.

 

Technology is disrupting the status quo

Wealth and investment services have historically catered to wealthier individuals with considerable funds to invest. And with varying degrees of wealth across BAME communities, breaking down every possible barrier to investment is crucial. This is where technology can play an important role in democratising access. For instance, API-driven infrastructure is helping to fix the ‘leaky pipes’ of legacy wealth infrastructure, and improve access for a wider set of audiences. This is enabling fintechs, and other investment firms to launch far more cost-effective services which are incidentally reducing investment fees that can be a barrier to many investors. Embracing technology is also helping businesses to have a laser focus on customer experience while catering to individual needs.

This is why we’ve seen fintechs leading the charge in tackling wealth and racial gaps in the wealth and investment space. WealthKernel is already working with some incredible fintechs disrupting this space who have built their offering around supporting underserved investors. For example, we recently partnered with Alpher, a female-first investment platform which is on a mission to tackle the £15bn gender investment gap in the UK. WealthKernel will provide Alpher with critical investing infrastructure via API, including custodian services and access to UK tax account wrappers such as GIAS and ISAs. Another fintech partner,  Wealth8 is opening up access to wealth services for black and multi-ethnic communities. Other fintechs such as Wahed Invest are also focusing on customers’ cultural and religious needs with a Sharia-compliant ethical investing portfolio offering.

With fintechs already making good use of technology to remove barriers and open up access to wealth and investment services, we’re clearly heading in the right direction. For too long, BAME communities have been underserved by the wealth and investment sector, despite having an equally clear desire to invest and grow their wealth. As the Confederation of British industry has indicated, closing racial pay gaps could bring £24b a year to the economy, or 1.3% of UK GDP. If we can make similar changes in terms of access to investment for these individuals, there is the potential to unlock much more wealth. It’s for this reason, financial services must diversify their offerings and be sensitive to diverse communities’ cultural and religious requirements.

 

 

 

 

 

 

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How can businesses boost employee experience for finance professionals?

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By Martin Schirmer, President, Enterprise Service Management, IFS

Over the course of the last year, The Great Resignation has seriously impacted organisations across the globe. Staff are quitting in huge numbers, leaving companies unprepared and struggling to fulfil their workloads. In fact, mass departures are happening at all levels of the labour market, as employees attempt to adapt to the hybrid working model and growing socio-economic uncertainty.

In light of this, optimising the employee experience (EX) to attract and retain talent has become a top priority for employers. Organisations have come to understand the necessity of taking immediate steps to drive employee engagement and reshape workplace culture.

The financial services (FS) industry is no exception to this trend. From increasing employee burnout to growing career dissatisfaction, the pandemic has exacerbated the need for transformation across finance teams. This is exemplified by recent data from Spendesk, which found that approximately 40% of finance professionals are willing to leave their roles or already have concrete plans to do so.

Organisations looking to get ahead of the competition must put in extra efforts to retain their existing workforce. The fact is that employee expectations and requirements have irreversibly changed, with more workforces becoming increasingly distributed. Today’s hyper-connected workforce values flexibility and simplicity, and it is organisations which offer these experiences that will succeed in the long term.

As part of this process, finance companies must look towards the power of technology to create seamless user experiences across devices. From automating workflows to improving overall efficiencies, Enterprise Service Management (ESM) can help organisations to boost user satisfaction and go that extra mile for their employees.

How poor EXs are driving finance teams to quit

With over 40% of employees spending a significant proportion of their time carrying out mundane, manual tasks, it is not surprising that poor EXs are having a detrimental impact on job satisfaction. Finance teams in particular have been slower to digitise core processes, leading to a heavy reliance on manual tasks. This not only increases the amount of time spent on each task, but also impacts the engagement levels of finance professionals who cannot focus on more strategic aspects of their roles.

As a result of the pandemic, flexibility has also moved to the forefront of finance teams’ desires. Given the fast-paced nature of this industry, the conversation surrounding work-life balance has increased rapidly. Failure to offer flexible working policies, coupled with a lack of technology to facilitate this flexibility, has led to poor EXs across the board.

Most notably, the overarching move to omnichannel, digital-first approaches has dramatically reset both customer and employee needs. Finance is the third-slowest running corporate function behind legal and IT. Operating in a competitive environment, 73% of finance operations are facing pressures to speed up, improve efficiency, and prioritise automation.

Mitigating the problem using technology

ESM, an offshoot of IT Service management (ITSM), is the cornerstone of smart digital transformation for organisations. It can help finance teams to streamline and automate routine processes, such as monitoring the status of service requests, approving expenses, sending invoices, and tracking payments. In turn, this will free up employees’ time, reducing the burden of manual tasks and enabling them to focus on the more strategic tasks.

Another advantage ESM can offer finance teams is the ability to adapt to each department’s minimum requirements for data privacy. Accounting, for example, needs additional layers of compliance built into the system.

ESM can also facilitate cross-departmental collaboration, helping finance professionals to communicate with the wider business and perform tasks more effectively.  Organisations can use ESM to incorporate all internal services into a single platform, offering employees a well-rounded view of the business and promoting a sense of community across all levels of an organisation. This will boost productivity, whilst enhancing visibility and control.

Ultimately, the current job landscape has brought with it a new set of challenges. Organisations in the FS industry looking to navigate the storm and retain top talent must refocus their efforts on bolstering the EX. Embracing a new era of technological innovation that empowers employees and boosts engagement is a critical step in this process.

 

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CBDCs: the key to transform cross-border payments

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Dr. Ruth Wandhöfer, Board Director at RTGS.global

 

If you work in finance, you’ll have been hearing a lot about central bank digital currencies (CBDCs) and the moves different markets are making towards using, regulating and evaluating the viability of moving to an economy based on digital currency.

We are already seeing progress in the research, piloting and introduction of CBDCs into the financial system. The Banque de France for example, recently launched its second phase of CBDC experiments in line with the “triple digital revolution” unfolding in the financial sector. The infrastructures of financial markets and fintechs, however, are not prepared to accommodate their security, stability, and viability.

This could be an issue in the not too distant future. Each year, global corporates move nearly $23.5 trillion between countries, equivalent to about 25% of global GDP. This requires them to use wholesale cross-border payment processes, which remain suboptimal from a cost, speed, and transparency perspective. In fact, the G20 cross-border payments programme considers improving access to domestic payment systems that settle in central bank money, as one of the key components in facilitating increased speed and reducing the costs of cross-border payments.

The current state of cross-border payments

International transactions based on fiat are currently slow, expensive, and highly risky due to today’s disconnected financial infrastructure, messaging, and liquidity. Wholesale cross-border payment settlement can take 48 hours or longer, which is not practical in today’s digital world. Even if not every market moves to CBDCs, in an increasingly digital era, cross-border settlements between central banks will unavoidably involve dealing with CBDCs. So, not only will we have different currencies, we’ll have different technical forms of currency being exchanged – digital and fiat – as markets adopt CBDCs at different rates, adding another layer of complexity to cross-border settlements.

While there is much anticipation about the opportunities CBDCs can bring, the adoption of this technology will only be widespread if payment and settlement capabilities are overhauled to allow for new innovations in currencies.  This need for transformation represents an opportunity to redesign existing infrastructure to support cross-border CBDC transactions.

The current cross-border payments system involves correspondent banks in different jurisdictions using commercial bank money. Uncommitted credit lines used in cross-border transactions are a potential risk for any bank that relies on credit provided by a foreign correspondent bank. Interestingly, there is no single global payment and settlement system, only a complicated network of interbank relationships operating on mutual trust. While trust has allowed financial systems to function smoothly, when it begins to fail, as it did during the 2008 financial crisis, the result can be catastrophic.

Following the crisis, the Bank for International Settlements (BIS) implemented the Basel III agreement, which required banks to maintain additional capital against correspondent banking account exposures. These risk-weighted assets impose a costly capital charge on positions held by banks at other banks under correspondent arrangements. While this framework helps combat risk, it neglects to address the inherent problems in traditional correspondent banking that contribute to these risks.

Making the case for CBDCs

CBDCs can offer an improvement in settlement risks and are certainly thought to have potential benefits by the BIS. If implemented correctly, wholesale CBDCs can indeed accelerate interbank transactions while eliminating settlement risk. They can also encourage a more efficient and straightforward method of executing cross-border payments by reducing the number of intermediaries.

It is likely the evolution towards CBDCs will initially see the financial market supplement rather than replace existing payment instruments with new types of digital currency. CBDCs will coexist with current forms of money in a wholesale context, and their payment rails will also work alongside the existing payment systems. In simple terms, CBDCs will need to be linked to the broader capital markets ecosystem and applications such as securities settlement, funding, and liquidity.

If built with an innovation-first mindset, the future of banking infrastructure should provide full interoperability and convertibility between fiat, CBDCs, and any other type of digital money used in wholesale payments.

The future of CBDCs

To unlock the full potential of CBDCs, a ‘corridor network’ will need to be formed. This involves combining multiple wholesale CDBCs into a single, interoperable network under common governance agreed upon by all central banks involved. The legal framework of this platform would then allow for payment versus payment (PvP) or, where applicable, delivery versus payment settlement.

Practical wholesale CBDCs appear to be on the horizon, either as a supplement to existing financial systems or as part of a transition to a digital, cashless world. Looking ahead, central banks would benefit from collaborating with fintechs that provide innovative cloud native technology to enable seamless wholesale cross-border payments without interfering with the flow of funds. If wholesale CBDCs are to become a reality, fintechs must be prepared to accommodate them.

 

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