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‘MOVE FAST BUT DON’T BREAK THINGS’ – WHY FINTECHS WILL COME TO LOVE REGULATION

move fast

Alex Johnson, Director of Portfolio Marketing, FICO

 

The guiding ethos of fintech is move fast and break things. It’s the fundamental advantage that disruptors have over the incumbents they’re disrupting — the ability to move quickly and make mistakes, learn from them and deliver innovative services to customers. Generally, this ethos is presented as a virtue. Banking is ‘broken’ so any investments in improving it are both notable and noble – even if there are bumps along the way.

Conversely, anything that stands in the way of this ‘march of progress’ is generally cast as a villain.

The most prominent villain for fintech companies is regulation. From their perspective, it’s a competitive moat, based on rules written for a different century, that protects banks’ ability to make money without needing to innovate and offer more or improved services to their customers.

So, it’s easy to see why a fintech company — believing fully in the virtue of its mission and faced with a litany of illogical and intractable regulations — might just say ‘we’re doing it anyway.’ That’s what Robinhood co-founder Baiju Bhatt reportedly did when his company tried to roll out a checking and savings product that it claimed was insured without confirming that with regulators first.

The problem is that while we may mythologise the ‘move fast and break things’ ethos in the abstract, consumers don’t love it when their stuff breaks in the real world.

And when fintechs and challenger banks aren’t constrained by regulation (as they mostly are in the U.S and Europe) the harm caused by this ‘move fast and break things’ approach can be much more severe than a service outage or a false claim of deposit insurance.

 

Stories from overseas

In China, online P2P lending exploded in popularity, with the number of P2P lenders growing from 50 in 2011 to 3,500 in 2015. Then the whole industry imploded when it was revealed that 40% of P2P lending platforms were Ponzi schemes.

In India, online lending companies raised a record $909 million in venture capital last year (the third-biggest market behind the U.S. and China). And those lenders are now using personal data from borrowers’ mobile phones to make lending decisions – which although illegal, is reportedly ignored by Indian regulators.

In the Philippines (another emerging market where venture capital dollars for online lending are pouring in), the National Privacy Commission is investigating hundreds of complaints from consumers about lending apps leveraging their personal data to shame them into making their payments.

 

A prediction for the decade to come

In the 2020s, I believe fintech companies will come to love – or at least quietly appreciate – regulation for two primary reasons:

 

Brand protection

Fintechs and challenger banks understand that brand recognition and affinity is key to their long-term success. Building their brands will be a challenge. A recent survey of 2,000 Brits found 40% don’t trust challenger banks at all and 67% said they are more likely to do business with banks that have branches on the high street. As Zach Bruhnke, co-founder and CEO of U.S. challenger bank HMBradley recently said, ‘We’re going to have to grow by word-of-mouth and doing the right things for our customers.’

Fintechs and challenger banks focused on the long-term task of building brand affinity and trust will, over the next decade, come to despise bad actors that skirt the rules and dress up get-rich-quick schemes in the same language they use to describe their own firms. Regulations that constrain and/or shut down these bad actors will be increasingly appreciated by legitimate market participants.

 

Disruption-friendly regulations 

In the 2010s, we saw the beginning of a trend that will strengthen in the 2020s — regulations designed to foster competition between incumbents and new market entrants. To date, such regulatory action has run the gamut, from vague (innovation sandboxes and special-use charters) to hyper-specific (U.S. regulators’ cautiously approving the use of alternative data, or the Bank of England considering giving non-banks access to its 500-billion-pound balance sheet). Perhaps, most promising, has been the work done by the Competition and Markets Authority (CMA), which has been proactively driving the adoption of rules and standards around Open Banking for past couple of years. O

ver the next decade, through careful management of public perception and increased investment in lobbying, fintechs and challenger banks will further reshape the regulatory environment from a competitive moat to a more level playing field.

 

Reaching fintech maturity

’As a licensed broker-dealer, we’re highly regulated and take clear communication very seriously. We plan to work closely with regulators as we prepare to launch our cash management program’.

This was the statement issued by the chastened co-founders of Robinhood shortly after they backed away from their plan to launch a checking and savings product without government insurance. And here’s the crazy part — that’s exactly what happened! Less than a year later the company announced a new deposit product, this time insured by the Federal Deposit Insurance Corporation (FDIC).

As fintech companies mature in the 2020s and the focus of their strategic objectives shifts from growth to profitability, regulation will play a vital role in transforming the ethos of those companies into something a bit more sustainable. Call it ‘Move fast, but don’t break things’.

 

Finance

THE OUTPERFORMER’S APPROACH TO FINANCIAL PROCESS AUTOMATION

By Michelle Trapani, Director of Product Marketing at Kofax

 

Achieving more with less is the mantra of our times. C-suite leaders demand greater efficiency. CFOs are looking to reduce costs. Customers and employees expect stellar experiences. The ability to outperform these expectations hinges on your financial operations, a vital area impacting every facet of your business.

For instance, if vital master data is incorrect, it’ll have a negative impact on service level quality, as well as the reputations of the finance and purchasing departments. Without accurate and timely visibility into processes, transparency is reduced, and it’s more difficult and time-consuming to manage compliance. The combination makes it harder to please executives, CFOs, customers, and vendors.

That’s why financial process automation is the key to operational efficiency and the overall success of your business. Even small- and medium-sized businesses are investing in process automation to optimise the financial processes within enterprise resource planning (ERP) systems, such as SAP.

For many, accounts payable is the first financial process to be automated. Like many other financial areas, Accounts Payable (AP) is mired in paper and consumed by highly manual tasks. For these reasons, once AP is automated, the benefits become quickly apparent, leading firms to immediately consider which other financial processes they can optimise. However, outperformers know the approach that yields the greatest return is automation of the entire purchase-to-pay process chain.

Why? Let’s consider what benefits can be gained from automating document-driven and transactional processes tied to an SAP ERP system – in AP and beyond.

 

Why a high-level of automation is an advantage

We don’t have to look far to see how end-to-end automation eliminates labour-intensive work, reduces costs, and increases process efficiency. Organisations with high levels of automation provide indisputable proof of the advantages of the outperformers’ approach.

According to research by Shared Services Link and Kofax, just 12 percent of organisations with high levels of automation manually process their invoices compared to 74 percent of those with low levels of automation. In addition, only 41 percent of highly automated companies experience problems with purchase orders, 24 percent have poor visibility into spend, and 8 percent fail to capture early payment discounts. By comparison, those with low-level automation report these same problems significantly more often: 68 percent, 23 percent, and 24 percent, respectively.

In an age when process automation has become table stakes, there are clear advantages for organisations that optimise processes across the business. “Best-in-class” firms – those with high levels of automation – don’t only become more competitive, they save time and resources as well.

Comparing “best-in-class” organisations to others illustrates the sharp differences. According to Ardent Partners, a “best-in-class” organisation processes 57.1 percent of all invoices “straight-through,” in just 3.9 days at an all-inclusive cost of $2.87 per invoice. By contrast, the gap with other organisations – those with low levels of automation – is wide: Only 16.1 percent of invoices are processed straight-through, and a single invoice takes 17.1 days to close and costs $15.38. Further, “best-in-class” organisations experience 81 percent lower invoice processing costs and 77 percent faster invoice processing cycle times.

 

Why ERP optimisation?

Another reason to follow the outperformers’ approach is to increase the return on investment of Enterprise Resource Planning (ERP) software. Many organisations haven’t fully leveraged their investments in ERP software, like SAP, giving them plenty of hidden opportunities to exploit.

“ERPs are not optimised for all the complex activities occurring today, such as matching printed or electronic invoices with supplier master data, purchase orders, shipping, tax and discount data,” says consultancy The Hackett Group. “Since it can be cost-prohibitive to replace a legacy ERP, companies often augment them instead with document management systems.”

When processes are paper-driven and manual, financial teams struggle to meet the volume-based performance requirements set by their CFOs. Meeting the high bar for raw numbers of invoices and payments processed is exceedingly difficult without automation. Think back to the pain points listed above. Every time the process is interrupted because the PO number is wrong, there’s an invoice exception or an early pay discount is missed, the process slows appreciably – or breaks down entirely.

One option is to use a certified add-on solution providing a single software platform to automate a series of processes directly within the ERP system. For SAP users, this type of solution offers more than integration with the ERP system; it provides the exact same look and feel as any other SAP transaction. It can be presented inside of the SAP GUI, providing non-SAP users an intuitive interface, and offering a real-time view of workloads, pending tasks, document inflow, ongoing transactions, and up-to-the-moment validation against SAP data. Solutions like this are proven to help users become more cost efficient, improve control over financial processes and shorten total processing times.

 

How to dominate your financial process

As the examples above show, expanding process improvement from AP to the entire purchase-to-pay process chain allows you dominate your financial processes in SAP, realise maximum efficiency and take your current ROI to the next level. Whether you’re just starting your automation journey or want to expand past AP, a full-scale strategy for end-to-end financial process automation will enable you to begin working like tomorrow, today.

 

About the author

In her role as Director of Product Marketing, Michelle Trapani delivers market positioning, strategic narratives and go-to-market strategies driving awareness, preference, and growth – bringing an increased level of insight, leadership, and overall execution discipline to Kofax’s growing business. Michelle was most recently with Cinch Connectivity Solutions where she reduced product launch times from eight months to eight-12 weeks. Previously, Michelle was with Adobe, Equinix, IBM, Infogix, iPass, Macrovision and Vision Solutions. Michelle earned a Bachelor of Arts degree at Illinois State University.

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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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