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LIBRA CRYPTOCURRENCY – PAYMENT SAVIOUR OR A PROBLEM WAITING TO HAPPEN?

By Ralf Gladis, CEO, Computop

 

Facebook’s Libra cryptocurrency has been positioned as a low-cost global payments and financial services eco-system that will give people access to the “internet of money.” Twenty-eight of the world’s most prominent stakeholders in payments and commerce are involved as Founding Members and their experience and expertise is shaping Libra’s charter and governance structure.

There’s no doubt that cryptocurrency has a momentum and this cannot be ignored, but in the case of Libra, other factors are at play that make this particular cryptocurrency something that we should all be exceedingly wary of.

One of the aims of Libra is to make P2P payments easier for Facebook users. Certainly, this would seem to be the case for online payments. Millions of people around the globe already use Facebook and it would be easy for them to move money to and from each other. The amounts involved are considerable, and would cover everything from splitting bills in restaurants to exchanging money for birthday or Christmas gifts. The other obvious advantage, if you are a consumer, is that currency wouldn’t be an issue because you are simply paying in Libra coin which is universal.

But hold on a minute. If even a third of those Facebook users were to regularly make payments using Libra, that would account for more people than the population of Europe – all using a new currency that is not within the control of any one democratically elected government, and therefore accountable. That number of users would move into the realms currently supported by AmazonPay or PayPal, particularly if transactions moved beyond P2P and started to facilitate consumer to business payments too.

To my mind this is where Libra represents danger.

If online payments are made easier by Libra, what about omnichannel shopping, so valued by today’s consumers? They want the same payment methods, with the same secure but easy authentication, to work regardless of whether they are purchasing online or in brick and mortar stores. This would mean considerable infrastructure changes for physical retailers if they were to accommodate Libra payments.

 

Currency conversion at some point

At the point of payment Libra would work regardless of the country and its currency, but the ‘Calibra wallet’ would still need credit, and adding this would require currency conversion from the original source. Let’s think about where that source has come from, in many cases, the user’s salary. Are employers to be expected to pay staff in Libra coins?

Even if all citizens were to agree that Libra cryptocurrency was the way forward, and that no other currency was required, and that debit and credit cards were to be linked to their Libra accounts, there is still the question of how this would be governed. The reality is that if Libra moves forward, we are potentially talking about replacing our currency and compromising our ability to apply stringent policies to our own economies.

 

Helping the unbanked?

Another claim of Libra is that it will help the unbanked, which amounts to 1.7 billion people worldwide. To support this, a World Bank report indicates that 100 million unbanked people could become financially included if state wages, pensions and social benefits could be paid directly into an account. However, in Germany, for example, banks are already obligated to offer people on very low incomes bank accounts at very low fees – if they want them.  They don’t need a technology company to come in and deliver an app on a smartphone to provide this, and it ignores the fact that they either don’t want a bank account or, if they don’t have the money to put into a bank account, they are unlikely to have it to put into their Calibra wallet.

 

A foretaste of the future

So, just supposing Libra gains traction and becomes a popular mechanism for P2P payments. Those millions of users will be attractive for retailers and an incentive to facilitate payments made using Libra. There would then be demand for Libra coin to be stable and this would require backing with real currency, FIAT currency. Between 5 and 10% of real money, whether that’s dollars, euro’s, pounds or yen, would be provided in credit to support the processing of Libra cryptocurrency which could run to billions, even trillions. For economies that are still recovering from the necessity to support and bail out their own national banks during the financial crisis, Libra might become a very unwelcome (not to mention privately-owned) creditor. Indeed, it seems unlikely that regulators in some European countries would be willing to support this, making it possible that Libra would not be available to their citizens – an invidious position to be in.

 

We only have to look at the growth of Facebook – zero to 2.4 billion users in fifteen years – to understand the potential audience for Libra and the organisation’s ability to deliver technology that is hard to resist. They argue that it is democratic, just the user and the tech, but herein lies the biggest issue. It is not democratic just because people are using it – it’s like saying that the Coca-Cola organisation is democratic because millions of us drink its product.  To be democratic, and importantly to be safe, secure and to ensure our consumer rights are supported, we need rules and we need regulators who have the power to implement those rules.  As a citizen of Europe, I would question whether Libra could be implemented in such a way that those rules could be upheld. I would also doubt that any single national regulator would have the power to control an organisation whose financial clout was so powerful, that by taking action against it, they risk the economy of their own nation.

 

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Finance

SAFEGUARD YOURSELF FROM FINANCIAL STRUGGLE AND UNCERTAINTY IN THE CASE OF DEMENTIA

Despite the rising incidence of dementia globally – The World Health Organization (WHO) estimates one new case every three seconds – and the risk of losing mental capacity in old age, few individuals plan for this possibility.

Dementia is caused by a variety of brain illnesses that affect memory, thinking, behaviour and ability to perform everyday activities. The WHO estimates the number of people living with dementia worldwide will almost triple to 152 million by 2050.

September is Alzheimer’s awareness month, an international campaign by Alzheimer’s Disease International to raise awareness and challenge the stigma that surrounds the illness. Financial management is one of the first tasks which deteriorate with the condition, leaving people struggling to do simple tasks such as paying bills or managing their tax affairs.

“Most people don’t like to think about death, dying or incapacity,” says Mark Hawes, certified financial planner at Alexander Forbes. Figures from the Masters of High Courts back up this assertion, revealing that more than 80% of South Africa’s working population don’t have wills.

“If you have been diagnosed with dementia, the best way to avoid unnecessary financial burden or being taken advantage of financially, or otherwise, is to put plans in place immediately. If one day you are not able to look after yourself, you and your family should know who these responsibilities will fall to.”

Most types of dementia are progressive. Therefore, the earlier it is identified the better. In addition, the easier it is to put the necessary preparations in place. Very importantly, while our faculties are still with us we can and should be involved in the important decisions for our own future.

At the very least, it is time to ensure that your wishes are documented, understood and are willing to be carried out by all involved. Naturally the inverse is true. For the caregivers and the persons tasked with the respective areas of responsibility, making sure that you understand and are willing to carry out the wishes of the affected person (within reason) is paramount in the early days of diagnosis.

“It is therefore important to allocate someone you trust with different areas of your life. Consider your options and where you have existing policies in place, double-check what you are covered for.”

Putting your plan in place simply gets everyone pulling in the same direction. Do this for at least three areas with the help of a trusted professional:

 

  1. Set up or review your will

To ensure that this is done accurately, you need to be fully informed about what assets and other financial products you have. Importantly, remember that all retirement funds fall outside your estate and so beneficiaries should be nominated on each retirement fund respectively. In addition, bring in your trusted and professional financial adviser to make sure your legacy planning is effective, efficient and accurate to ensure that your wishes and priorities are met.

 

  1. Choose your healthcare professionals and caregivers

Understanding the expected treatment and what your lifestyle may look like in the years to come will provide insight into what facilities and care you may require. This information puts a sense of control and independence back in the affected person’s hands. It will create a great sense of comfort that the challenging journey ahead will be manageable and on your own terms. Of course, it is always recommended to include your loved ones when making the decisions – especially the ones who are expected to carry out your wishes, if only to understand if they have the capacity to do so. The cost of care for those with advanced dementia should also be factored in, as full-time nursing can be expensive. Knowing your expected care and the respective costs puts you back in control.

You can then compare your requirements with any existing insurance policies to see where you can provide the financial resources. Importantly, as cash flow may come under pressure for you and your family, you would also be able to see which policies are no longer a priority and can be cancelled. In addition, you will be able to allocate your savings and investments toward your expected expenses or make alternative arrangements with the people in your support structure – especially your family where available.

 

  1. Who will conduct your financial transactions on your behalf?

The Covid-19 pandemic has seen increased reports of fraudsters targeting unsuspecting and vulnerable people. Those with dementia who are already struggling to use ATMs or do internet or telephone banking may be more prone to being targeted or simply telling strangers their bank details. Now more than ever identity theft is a real concern.

It is therefore highly recommended that a trusted and responsible person or family member is appointed to conduct financial transactions on behalf of the affected. For high net worth people, a special trust can be set up and preferred trustees (along with an independent professional trustee) appointed to ensure the financial affairs and assets are managed effectively. Again, legacy planning is crucial to helping the affected person to rest easy.

Many people are unaware that a power of attorney is invalid if a person is no longer of sound mind, and financial institutions will not assist until the person is placed under administration or curatorship.

Therefore, it is important that this person is aware of your lifestyle and preferences. This can be simply from what groceries you buy to which financial institutions and structures your make use of. The latter should be considered together with your trusted professional’s financial adviser.

Hawes says it is important to know what policies one has and what they cover. “You need savings to cover your cost of living when you’re alive and no longer working. Understand your medical aid and what they will cover – at minimal, you should have a hospital plan and gap cover.”

Hawes also advises introducing your trusted confidant to your certified financial planner, in the event that something happens.

“Many people only bother to find out their family history after something happens to them. Find out if you have a history of cancer or heart conditions, Alzheimer’s or dementia in your family. By having these difficult discussions now, a person is better able to decide how their money should be used, and is less likely to be financially exploited at a later stage.”

 

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Finance

BOOM OR BUST: HOW THE FINANCIAL SERVICES SECTOR IS COPING

by Simon Black, CEO, Awaken Intelligence

 

Covid-19 has had an impact across all industries and businesses are feeling the sting. However, is it equally devastating within every sector? As industry and individual concerns grow during the inevitable economic crisis, financial services are seeing an increase in demand as everyone attempts to stretch every penny as much as possible.

By collating data from Trust Pilot and cross-referencing the demands for these services in the first half of 2019 compared to the same period in 2020, we take a look at how the financial sector is coping during the pandemic in both the UK and the USA. Both in the UK and across the Atlantic, there has been a significant increase in demand for these services. The UK saw a 175% rise, while the USA has seen a 47% rise.

The greatest increase has been seen within accounting and tax services, up 372% in the UK and 517% in the USA. Presumably due to companies seeking ways to extend and defer payments with HMRC and the IRS, while ensuring penalty fees are avoided. This was the only industry that gained more demand in the USA than in the UK.

Simon Black

While all financial industries saw an increase, the most significant difference between the two countries was the demand for real estate. The market in the UK has begun to reopen and a backlog of eager buyers and sellers are pushing the conveyancing process with an 87% increase on last year.

The USA is still struggling to control the virus, which has led to homeowners pausing their sales and buyers holding off on their search until both the economy and health return to normal, which has led to a meagre 3% increase.

Demand is up across the board, despite the public being unable to visit many of these service providers in person, banks are pushing their technology teams to digitalise their services as quickly and efficiently as possible to ensure they are available remotely. In a bid to handle the demand across the board, some businesses have started to use voice analytics software, a powerful piece of AI that helps contact centres increase efficiencies.

Real estate agents are providing digital tours of properties and insurance companies are growing their teams to meet the demand of customer service helplines for both claims and individuals now wanting to ensure they are covered against all eventualities previously not predicted.

Car insurance providers are seeing an increase in demand for their services as the public are seeking ways to reduce payments due to financial hardship. Insurers’ service lines are kept busy and in demand with requests to reassess risk levels as people are driving less and potentially waiving cancellation fees or processing fees for amending policies. This has led to an increase in demand of 311% within the UK for the insurance industry.

Credit and debit services have increased 52% in the UK but demand fell by -16% in the USA. In the UK, a change of circumstances has led to more people having to utilise overdrafts and credit cards to cover essential costs. In the US, unemployment insurance was expanded from three to four months, and temporary unemployment compensation of $600 per week was provided. This led to a drop in demand for Debt Relief Service, Credit Counseling Service and Credit Bureau services.

Customer service centres are also being inundated with requests for loan and mortgage payment holidays until their financial status changes. However, the USA has been providing citizens with Economic Impact Payments, which could be a contributing factor as to why less Americans are using credit services.

Investment and wealth services have seen just a 30% increase in the USA, compared to 119% in the UK as mortgage applications rise and businesses and individuals look for ways to secure their funds ahead of an economic downturn.

Despite apps and online assistance available to those who are looking for these services, these transactions are favoured with expert human input. With most of these businesses still closed for the protection of staff in the USA, this form of service has proven hard to keep up with resulting in a slight drop in 2020.

This sector is now witnessing the importance of having systems in place to allow clients to seek the advice they require remotely. Had this been implemented beforehand, we may have witnessed a similar rise to the UK who has begun to reopen.

Overall, the financial services sector has experienced lots of activity with consumers and businesses demanding seismic shifts in their financial support requirements, both in terms of products and services. Such demand is likely to grow as non-contact transactions and online activity become the norm.

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