By Alistair Baxter
With skyrocketing commodity prices fuelling the highest level of inflation for a generation, and economists predicting stalling or declining GDP in many major markets, companies find themselves today facing down the challenge of stagflation. In an attempt to cool inflation, central bankers are racing to increase interest rates, which brings with it a number of additional challenges. In this stagflationary environment, businesses face a two-pronged attack on their cash and working capital. The cost of borrowing increases while the risk profile of customers and suppliers becomes uncertain. Against this backdrop, opportunities for growth can seem scarce, yet businesses have options in the untapped potential of their supply chains. In difficult economic environments, it is perhaps more important than ever for finance professionals to assess the reliability and stability of their supply chains, and rethink them as facilities for working capital rather than a source of risk.
It is worth stating that rising interest rates and low growth economies create the same problem for all companies. Borrowing costs and customer and supplier risk both increase. However, not all companies are affected equally. Credit will be more expensive for everyone, but for investment grade companies, the effects of this are minimal due to their safer risk profile. For smaller companies or larger companies that sit further down the credit rating stack, the cost of capital will increase far more dramatically.
This creates a double headache for businesses operating in an environment where they and their customers sit within the SME or high-yield bracket. Not only do borrowing costs increase, but so too do those of your customers and prospects. Either business might struggle to continue to operate or they face the prospect of relying on income from customers and prospects facing the same problem. In the worst case scenario, a business might be dealing with both. If we assume that central bank rates will continue to climb in the coming months and years, we can expect this issue to intensify further and spread across entire customer pools and supply chains.
Finding and funding growth opportunities looks tough in this environment. Increased costs and increased risk of customer default are not comfortable bedfellows and in this landscape, financing and supply chains can easily become a source of angst.
This can be turned on its head, however. Generally, rates are a fairly crude instrument: whilst they work well at a macro level, the technological innovations since the last time we faced an inflation and rates environment like today can allow companies to find liquidity and capital at a speed that suits them, whilst also finding ways to benefit from the gap between investment and non-investment grade credit markets. So while it may not have the same headline appeal as funding rounds or debt issuance, Accounts Receivable financing provides a solution both as an effective working capital and risk mitigation tool. The short version of the story is that companies can get the cash from their sales much sooner, whilst effectively transferring the risk of non-payment to another party.
This is significant, particularly for smaller businesses. In the past 12 months alone, research suggests that somewhere between a quarter and a third of SMEs have suffered from bad debt, with large sums written off because of customer non-payment. And this is an upward trend. The 12 months prior, the proportion of SMEs suffering bad debt was just a fifth – still a large proportion, but significantly lower than the most recent figures.
ESG credentials within supply chains have a role here too. Considerations around ESG factors tend to drive stability as businesses that have gone through the process of implementing their own ESG planning have a great understanding of their own risk exposure, but also often the risk exposure of businesses they deal directly with. Assessing ESG risk within supply chains has traditionally been difficult because acquiring reliable ESG information and data of businesses that are more than a single step removed can be quite tricky. Technology is changing this, however. Readier information in this area should further increase the ability to select trusted partners and suppliers who make up reliable links in a supply chain.
In times of stagnant growth and higher borrowing costs, both the rate of, and access to, additional financing to fuel growth will be a critical concern to many finance directors and company executives. One of the defining features of Accounts Receivable financing is that it is not classified as debt. Instead, it should be considered a facility to unlock cash during times of supply chain illiquidity while keeping balance sheets liability free. The result is short-term cash flow and access to capital through the supply chain, while reserving longer-term access to financing through other channels by preserving a business’ leverage profile.
Prior to the pandemic there was talk of supply chain theory ‘coming of age’ attributable to changing trade conditions between the UK and Europe, and the US and China; however, the conflict in the Ukraine and the Global Pandemic has accelerated supply chain planning. Companies are now surgically redesigning supply chains to lead on the ESG agenda, to dual source and remove single points of failure, to avoid or reduce exposure to autocracies, and to nearshoring to reduce lead times to name a few dynamics. All of this represents a shift from the most financially efficient supply chains of the past to the most secure supply chains of the future. Naturally, this brings a working capital drag with it.
A stagflationary environment poses significant challenges for any business. For many, the solution will simply be to weather the storm, yet it should not be assumed that growth, and the necessary access to finance, is impossible. If anything, a new economic era presenting significant hurdles will likely see changes in behaviour and innovative thinking as businesses work out how to ensure liquidity not only on their own balance sheet, but also in their customer and supplier ecosystems. We can hope that before long supply chains are viewed as an opportunity and an asset, not simply a necessary business risk.
How FS organisations can utilise data to boost customer experience
Charles Southwood, Regional VP and GM – Northern Europe and Africa at Denodo
We’ve all heard the age-old adage “the customer is always right”. It insinuates that, in any sector, the needs and desires of those buying a brand’s product or services should be paramount. However, today’s customer has new standards and it is becoming harder than ever for businesses to meet and exceed them.
This is certainly the case in the financial services (FS) sector where getting customer experience right used to be relatively simple. The human touch was traditionally delivered as a bi-product of in-store, transactional interactions. Perhaps, as a result of this, few people ever considered changing their provider and the traditional, established banks ruled the space.
However, with the dawn of online banking and the introduction of new, exciting challenger banks as well as the UK’s unique Current Account Switching Service, the balance of power between the consumer and the bank is changing. Consumers no longer feel locked in. If their needs aren’t being met, they aren’t afraid to look elsewhere and switch their allegiance to other companies. In other words, loyalty is far from guaranteed and customer acquisition is only half the battle.
Retention relies upon delivering strong, unique customer experiences that beat down the competition. In order to achieve this, FS organisations will need to be able to leverage data. Its insights could be the differentiator that enables them to stand out. The positive news is that, in our online world, there is a constant stream of data being produced. However, having access to all this data doesn’t necessarily mean that a brand knows how to effectively analyse and utilise it.
Ensuring data provides insight
The rapid growth in digital technologies and services across the sector has left many FS organisations juggling an unimaginable amount of data. This data is both complex and much of it is lacking in quality. Structured, semi-structured and unstructured, it is stored in many different places – whether that’s in data lakes, on premise or in multi-cloud environments. Before FS organisations can even think about using it to inform customer experience strategies, they need to be able to find it and understand it.
This is where modern technologies – such as data virtualization – can help. Through a single, logical view data virtualization boosts visibility and real-time availability of all data across an organisation. Unlike traditional extract, transform and load (ETL) solutions, it does not move and copy data. Instead it leaves it in the source systems. In other words, instead of just replicating data, data virtualization reveals an integrated view to those trying to find it.
For FS organisations this provides several important benefits. For example, it helps when data sovereignty issues arise and the movement and replication of data outside certain countries is illegal. Data virtualization solutions can also assist in terms of financial reporting by fetching data in real time from underlying source systems – applying the necessary security and obfuscation whilst delivering the performance, the agility and the accuracy needed through the seamless connection of data.
FS organisations that adopt data virtualization, are likely to see an improvement in the overall performance and efficiencies of their business operations. Overheads will be reduced, as will the length of project times. Above all, data virtualization will rapidly strengthen the customer experience by supporting business leaders to think strategically and make decisions based on real-time insights. But don’t just take my word for it.
The proof is in the pudding: How Landsbankinn is delivering on the CX promise
Landsbankinn is just one of the many financial services institutions that has already successfully embraced data virtualization and its benefits. Despite being the largest financial institution in Iceland – with around 40% of the retail and 33% of the corporate banking market share – Landsbankinn used to face several issues when it came to data sharing and analytics.
Over 45 siloed data sources – including Oracle databases, data warehouses and APIs from internal and external sources – made finding and accessing the right data at the right time extremely difficult. Without real-time data to fuel informed decision making, customer experience and operational efficiency were suffering. As a result, Landsbankinn was in need of a data overhaul to streamline and integrate its infrastructure.
To bring together its complex data landscape and collect data in real-time, Landsbankinn implemented the Denodo Platform – a data integration and data management solution built on data virtualization – to build a logical data warehouse. As a result, the team can now aggregate data from multiple data sources, transform that data based on the applied business rules, and then make it available to consuming applications. Ultimately, this means that, throughout the organisation, the data can be utilised by a wealth of employees, even those who are not particularly IT savvy. It also means that the business leaders can use data insights to make well-versed decisions and provide a plethora of services to Landsbankinn customers both quickly and efficiently.
In recent years, customer retention has become the key to successfully growing a business. This cannot happen without an effective customer experience strategy. The ability to convert data into insight is priceless in an economic landscape where the line between a business thriving, surviving and failing is so thin. Those operating in financial services must harness modern technologies – like data virtualization – to stay at the top of their game and ahead of the competition.
The Evolution of SoftPoS in 2023
By Brad Hyett, CEO of phos
Contactless payments and digital wallets have surged in popularity in recent years. Part of this stems from the digital boom that occurred during COVID-19 but it’s also thanks to the ease of use that contactless offers customers. This has helped accelerate Software Point of Sale or ‘SoftPoS’ adoption amongst SMEs and enterprise retailers, with a total of 6 million merchants taking advantage of the technology in 2022 according to Juniper Research.
SoftPoS or ‘Tap to Pay’ technology – is a software solution that allows vendors to turn their phones or mobile devices into contactless payment points. This has made life for small businesses easier, as they no longer have to fork out large sums of money for traditional Point of Sale (POS) terminals, i.e. card readers, or ‘make do’ with outdated payment software.
In light of Apple’s announcement to allow third-party SoftPoS providers to deploy their technology on iPhone last year, adoption is expected to increase further. By 2027, it’s forecast that there will be up to 34.5 million merchants by 2027 – nearly a 500% increase from today. With more payment giants like Paypal and Venmo announcing they will support contactless transactions through their iOS apps in the months ahead, what else is in store for SoftPoS in 2023?
Apple’s role in market consolidation within SoftPoS
Apple’s move to integrate the technology with iOS devices will expand SoftPoS’ usability across mobile operating systems – significantly boosting the size of the addressable market for vendors. For the first time, Apple users will be able to offer Tap-to-Pay solutions which have traditionally been limited to Android devices only.
This will ultimately bring greater awareness and adoption of SoftPoS as we see increased familiarity with Tap-to-Pay solutions among businesses and consumers alike – as they’re no longer bound by the constraints of the type of phone they use.
While the SoftPoS on iPhone rollout currently only applies to the US market, it’s fair to assume this will expand internationally at some point – aiding the normalisation of ‘Tap to Pay’ solutions en masse in the months and years ahead.
The next wave of solopreneurs
The events of the last year will also continue to have a ripple effect over the next 12 months. For example, we’ve seen the tech industry undergo mass layoffs due to a challenging economic environment and rising global inflation.
With large numbers of highly skilled talent out of work, the phenomenon of solo entrepreneurship is likely to see an uplift – as it did during the pandemic – over the next 12 months. Born in a digital-native environment, individuals from this released workforce can now set up their own businesses and run them on mobile devices, as opposed to legacy infrastructures.
This could prove another sizable opportunity for SoftPoS vendors in the coming year, as we predict to see more small businesses sprout as a result of ongoing redundancies.
The growing importance of SoftPoS orchestration
As the market rapidly develops, so too does the choice and ease of onboarding. Financial institutions and retail technology providers can now use a SoftPoS orchestrator to help them deploy Tap-to-Pay solutions quickly and easily for their merchant customers, instead of having to create their own mobile solutions. This saves them time and money – both crucial resources for any business and especially in a challenging economy.
Partnering with a SoftPoS orchestrator is a cost-effective way of providing mobile payment solutions without having to worry about waiting on new software and security updates. With an orchestrator, this is done automatically – making this a much lighter lift with no requirement for technological know-how.
As SoftPos orchestrators are acquirer agnostic, this means they can help businesses provide a SoftPos solution to their own retail customers, regardless of the existing acquirer that they’re already using.
An additional benefit here is that a wider pool of merchants are able to benefit from the technology – growing the overall size of the SoftPoS market. Orchestrators, then, have the ability to drive wider adoption of the technology globally, reaching a bigger audience of end users and advancing the mobile payments industry in emerging markets across the world.
The increased popularity of digital and contactless payment options has driven exponential growth in the SoftPoS market in recent years. The next 12 months will see the technology enter the mainstream, as Apple starts to allow more third-party SoftPoS providers to deploy their solutions on iPhones.
The timing coincides with several emerging opportunities for the technology, including a potential uptick in the number of solopreneurs and mobile-first businesses. This combination of factors will see more financial institutions and legacy technology players work with SoftPoS orchestrators to bring Tap-to-Pay solutions to market in 2023 if they want to stay ahead of the competition and keep up with ever evolving customer demands.
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