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How to navigate the cost of doing business crisis

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Simon England, Managing Director, Equals Money

 

Spiralling inflation has become a global burden for world economies. The UK has been particularly hard-hit by broader economic factors such as supply chain bottlenecks and soaring energy prices. These and other interrelated factors disrupt businesses and pile pressure on household budgets through the current cost-of-living crisis.

Inflation has impacted the price of raw materials, resulting in increased costs for importing goods and services into the UK and causing further challenges for imports and exports. Exacerbated by the pound’s recent drop, it now costs even more for companies in the UK to buy commodities such as food, vital raw materials, energy, and parts from abroad. This adds additional pressure to the nation’s already overburdened small and medium business sector.

Already unsettled by an extended period of Covid and Brexit-related disruptions, businesses must now face a new wave of challenges. To get a handle on how these economic challenges affect the country’s business sector, Equals Money got opinions from 1,000 decision-makers in a recent survey. The respondents offered some sage advice on how they believe businesses can address today’s cost-of-living complexities.

The looming economic challenges

Intending to lower the inflation rate, the Bank of England recently announced its sixth consecutive interest rate hike increase. Specific, short-term impacts of the move on businesses include increased repayments on loans, company cards, and mortgage loan repayments. These will most likely result in diminished profit margins.

Banks will also likely tighten lending criteria for businesses seeking loans to fund growth. They will have a tougher time convincing banks of their bona fides and should bear this in mind when borrowing.

The rate hike will similarly impact consumers, who will also face higher loan repayments and mortgage rates. Their behaviour will likely change too, as this and the rising cost of utilities will mean less spending money in their pockets. Businesses should steel themselves for a short-term drop in sales, but when interest rates lower again, they may well see a spike in demand.

The impact of currency is another factor businesses must consider. Generally, interest rate rises cause a country’s currency to appreciate against foreign currencies, but reality often proves otherwise. The central banks of the G10 countries often react in tandem, so overseas employees and suppliers will likely face the same dilemmas as their UK counterparts.

What the businesses leaders are saying

Our survey of 1,000 business leaders across the UK reveals that businesses face various issues rather than a single, predominant challenge. Their main concerns included rising energy prices (22%) and supply chain issues (20%). Three other issues weren’t far behind: late payments from customers or suppliers, rising interest rates, and reduced customer demand at 18% each.

Rapidly rising costs are confronting firms across the country, with more than half (55%) indicating a steady increase since 2020. These threats are placing the future of many businesses in the balance, to such an extent that 21% of business leaders fear they may have to shut their businesses for good.

The now-familiar cost-of-living crisis is another major concern. An overwhelming 97% of business leaders acknowledged that they’re facing several considerable challenges, including a drop in consumer demand (37%), rising employee turnover (35%), and meeting growth targets due to reduced sales (35%).

How can businesses face these complex challenges?

Most British businesses (91%) are already taking action to cope with the dramatic cost increases. Nearly a third (32%) have pivoted their business model, with a further 33% looking to follow suit. As an alternative, more than one in four business owners (27%) are considering selling their businesses.

While market activities are difficult to control, decision-makers can address risk and take steps to shield their companies from much of the economic crisis’ impact. The first step to bolster the business is to get a firm grip on expenditure – only then will owners know where to make the right cutbacks.

A spend analysis will help uncover patterns, gather insights, and capture concerns to inform business planning better. Ideally, companies should use a specialist spend management platform to collect and upload data from different spending accounts to create a single source of truth of company spending.

Secondly, businesses should switch to tech-based money management services if not done already. This makes it easy to conduct regular reviews, improving the chances of catching and addressing any detrimental issues. Being able to respond quickly and appropriately gives the business a significant advantage, even during tough economic times.

Strong supplier relationships are essential to the success of your business, especially in today’s economic crunch. The fluctuations in exchange rates and persistent supply chain issues may have affected suppliers’ value propositions. Therefore, businesses need to take a broad view to reduce costs. For example, an overseas supplier may offer low unit prices, but once you factor in shipping and customs, would the supplier still be the best choice?

Business services require a similar approach. In our survey, one in three businesses (33%) listed ‘hidden’ costs or charges as a major issue. Most businesses use at least one subscription service, many of whom pay in US dollars or euros. As these currencies fluctuate, bank transfers may no longer be viable because of high foreign exchange transaction fees.

Businesses with specific requirements or a need for a regular service may find a dedicated partner to be the most cost-effective.  Many loans, foreign exchange, and expense management solutions are available, which typically charge less than the high street banks.

The future in perspective

A stark reality is that over one in five businesses risk going bust. ‘Business as usual’ is no longer an option. Adaptation – one of the lessons learned during the pandemic – is still the only way to survive unexpected challenges.

Organisations need to make bold decisions to succeed against today’s economic backdrop. With the proper measures and shrewd financial management, they can and will survive this economic downturn.

Business

Financial Services Tech Leaders Summit Takeaways: IT and Data Crucial to Business Success

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By Dominie Roberts, Portfolio Development Director at DTX

 

The Financial Services Tech Leaders Summit is the leading digital transformation event within the finance sector and addresses the role data and technology plays as the industry evolves to meet consumer demand. Aimed at digital and IT executives from banks, financial services, and insurance companies who are involved in the execution of the digital transformation of their business, the event explored the different ways businesses are able to fully optimise digital transformation strategies.

With a range of panel guests and speakers demonstrating their knowledge on key digital transformation trends shaping the finance industry, there is much to unpack…

Adopting an employee and customer first approach

In the past, organisations have had to make a choice… do you put your customers first? Or your employees (relying on the hope that happy employees mean happy customers)? Today, the choice is not quite as clearly defined and organisations must actively invest in both their employees and their customers equally. Of course, with this comes added costs, but these investments are critical to ensure your business succeeds in an increasingly competitive and people-first sector.

If you want to keep your best people, avoid the word “deadline”

The way we work has changed dramatically in recent years but many financial services organisations are still finding their feet when it comes to defining their working culture and expectations. Given the challenges many businesses are facing when it comes to a skills and talent shortage, your company culture has never played a more crucial role in defining the talent you attract and retain. Some of the newer players in financial services are finding that the key to keeping their best people has been to allow for flexible and agile ways of working, but the question remains, does this work for every organisation?

There are two sides of the customer personalisation coin: Protection & Experience                                                                   

When we talk about the sharing of customer data and the advantages of personalisation, we so often focus on the business benefits, i.e. the ability to offer new products or services which meet customer habits, thus unlocking new revenues. But do we need to change the narrative and shift focus to the consumer benefits? For instance, how are we using data to protect customers? Perhaps by putting the knowledge and power into the consumer’s hands, financial services organisations can derive even greater insights, benefiting both the customer and business.

IT must be considered an integral part of any business transformation

Five years ago, IT was seen as something organisations spent money on in order to operate, but today, technology plays a mission-critical role when it comes to saving costs and generating new revenues. IT and data teams are a key asset, and in most successful organisations, technology and business strategy goes hand in hand. Good governance around IT and an outcome-first approach to transformation is sure to bring success far quicker.

You need the right people on board who can deal with regulatory demands

It starts with building personal relationships with regulators and being proactive, e.g. making sure your infrastructure is mapping into all regulatory channels, across jurisdictions if necessary. When there are many legislative masters this is the only way to respond quickly to any changes and it is good practice to take the most stringent regulatory standard and work from there when implementing an optimum control. You would have probably done it anyway – regulators should not be telling you something you don’t know already.

2023: Use of traditional building blocks, impact of AI learning, drive for automation and staying compliant

The traditional building blocks – people, technology and data – are still the right things to be focusing on in 2023, built by smart people and involving all audiences in how it is brought to life. There will continue to be a move away from legacy, but getting rid of it entirely any time soon for an incumbent bank is not realistic. As banks start to organise systems and data they will be increasingly looking at how they use AI learning to improve the customer experience and automation to improve processes. Staying compliant when you are transforming infrastructure will be essential as digital legislative demands on the industry grow. Look to make regular small changes, be transparent and adapt.

Setting resilience goals is critical

As financial services organisations prepare to mitigate impact from uncertain times ahead, operational resilience becomes a key objective. But, what does this mean for your business? Be sure to define exactly what ‘operational resilience’ means for you in order to put in place an action plan if your (workplace) fear becomes a reality. Once you’ve done this, resilience must be embedded throughout your underlying infrastructure (as opposed to being an add-on or an afterthought) to ensure you remain “digitally immune” for what may lie ahead.

Significance of the Multi-cloud

We can all agree that the benefits of moving from on-prem to the cloud are vast, however it’s impossible to ignore the risks associated. Regulators are more switched on than ever to the financial services sector’s increasing reliance on the cloud and you are therefore strongly encouraged to choose a multi-cloud strategy that becomes the backbone of your transformation.

Cloud migration journeys have been slower than anticipated

It may be no surprise but when it comes to expected timelines, there is often a disconnect between a cloud migration strategy and the execution. This means that the promise of true digital transformation has been much slower than originally anticipated. In order to close the gap between the strategy-setters and the practitioners, businesses must identify a process where cloud migration is continuously monitored and adapted to hurdles and feedback along the way.

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Shutting off mule accounts to effectively tackle APP fraud

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Cleber Martins, Head of Fraud Management for Banking at ACI Worldwide

 

Authorised Push Payment (APP) fraud is on the rise. Losses from this type of fraud are expected to record an average CAGR of 21% from 2021-26 in the UK, US and India. To combat this rising threat, late last year the Payment Systems Regulator (PSR) published new rules for banks and building societies regarding the reporting of APP fraud.

While losses won’t keep pace with the overall growth of real-time payments, banks shouldn’t be complacent regarding the risks. And though it’s true real-time payment channels have created a reality where fraudsters can succeed faster, it is mule accounts that allow them to keep getting away with it.

Fraudsters recruit mule accounts often through identity theft, turning a user’s account into a mule account without their knowledge, or by recruiting and targeting more vulnerable people on social media and other online communication channels. Thereby enabling criminals to hide their identity and quickly move stolen funds beyond the reach of banks and authorities, either through other mule accounts at different banks, or by buying crypto or NFTs. This is why, in order to effectively tackle APP fraud, banks need to shut off these mule accounts once and for all.

Banks battling back

Currently, most banks only tend to check outgoing transactions. This means that when a mule account suddenly receives money from numerous different accounts, following little to no activity, it’s usually not picked up. And this needs to change.

Cleber Martins

When battling back on scams, banks need to have the appropriate Know Your Customer (KYC) standards. Thus allowing them to monitor the money coming in as well as out of customers’ accounts and analyse the user behaviour of those accounts. This all helps banks to monitor for synthetic and stolen identities in relation to the money coming into accounts.

Being able to monitor and analyse all the data in real-time requires machine learning algorithms with rich contextual information. Put simply, these models are only as good as the signals and inputs they have been given. This means the more financial institutions – on both the sending and receiving end of the transaction – collaborate on signal sharing, the better they can target mule accounts. Additionally, more data and more accuracy should also lead to a decrease in the number of false positives and an improved user experience for legitimate customers.

To effectively shut off the supply of mule accounts, better collaboration and data sharing between banks and financial institutions are needed and with the introduction of the new PSR rules, we could see this quickly come to life.

Why receiving banks must be held accountable

There’s currently almost no risk at all for receiving fraudulent transactions into mule accounts, despite hosting the mule accounts used by fraudsters to receive stolen funds. This results in most banks doing little to no monitoring or analysis of the money coming into accounts. And little to no meaningful intelligence being exchanged between the two ends of a transaction. To turn the tide on scammers, this needs to change.

The Payment Systems Regulator (PSR) has said that in addition to putting mandatory reimbursement for most victims of APP scams, liability should be split equally between initiating and receiving banks. Unless the receiving bank can prove it has gone to greater lengths to do it’s checks, in comparison to the initiating bank, resulting in the initiating bank being held more financially liable.

This should incentivise a major shift in how banks monitor fraud activity, by increasing how they monitor the money coming in, in combination with behavioural profiling of the receiving accounts. Ideally, once the two sides of a transaction are working together, a “fraud DNA” can be constructed to enable more precise decision making. One strand of that DNA, in practice, would be the initiating end’s sending an intent for a real-time payment, including intelligence about the initiating account in metadata format. The receiving end would then correlate that with their own, thereby adding the second strand of intelligence to the DNA chain. Finally, a decision would be made as to whether to allow the transaction to be completed.

This increase in collaboration between banks, would symbolise the first step of building a framework that promotes the sharing of insights and could mean the end of mule accounts as reliable tools for fraudsters.

What future collaboration might look like

While banks play an important role, mule accounts are often created on social media, through the telecom industry, via email or even postal mail. Making APP fraud a cross-industry problem. This requires a next-level, cross-industry collaboration strategy, that sees solutions, techniques and intelligence being shared between banks and vendors, merchants, issuers and acquirers, and even with social media companies and telcos.

Ultimately, it’s about ensuring customers are better educated and protected and that banks perfect their monitoring of the money that comes in, as well as out, all while sharing that information. Building a true cross-industry framework will help deprive scammers of access to one of their main conditions for growth. As a result, we should begin to see the value of APP scam losses, as a proportion of the value of real-time transactions, drop.

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