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Finance

THE GREAT SHAKE UP – WHY FINANCIAL REPORTING CANNOT EXIST WITHOUT ESG

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By: Andromeda Wood, Senior Director of Global XBRL Strategy at Workiva

 

There are many factors involved in effective financial reporting, which can make it a complex and time-consuming task without the right technology or infrastructure to accelerate it. But it is critical that companies invest this time and resource to deliver an accurate representation of finances, including revenues, expenses, profits, capital, and cash flow, as demanded by stakeholders.

However, business performance reporting is changing. The new proposals for the Corporate Sustainability Reporting Directive (CSRD) will have an impact on internal processes, building on the existing Non-Financial Reporting Directive (NFRD) and will apply to all large companies and all listed companies in the EU. This means an increase from 11,000 businesses who were subject to existing requirements, to nearly 50,000 that will need to follow detailed EU sustainability reporting standards.

 

Sustainability comes to the fore

Regulation is directing fund and asset managers to ensure that the information and funds are assessed against a common set of criteria (for example, EU sustainable finance, in particular the EU Taxonomy and associated Sustainable Finance Disclosure Regulation). These changes echo the mood of investors both big and small, who are starting to scrutinise where their money is going, as ethics and moral values move up priority lists.

Andromeda Wood

As a result, the decision of whether a business can secure funding is increasingly dependent on how a company performs against environmental, social and corporate governance (ESG) factors. Companies who fail to demonstrate the right metrics (or progress towards them), may face challenges accessing capital.

 

CSRD comes to the forefront

Conversations around social movements and increasing concerns around climate change, inequality, and diversity have left the investor community questioning the impact of their decisions. Investors want to be sure that their investment is aligned with their vision for the future. Indeed, in a recent survey conducted by Workiva, 66% of all respondents in Germany wanted to know whether a company lived up to their social and moral beliefs before investing.

As a result, it’s clear that the existing NFRD no longer met the changing needs of modern investors. The CSRD was proposed to enhance and strengthen the measures already in place, following three years of consultations, market pressure and political discussion. The greatest shift this new directive brings is an emphasis that the term ‘non-financial’ is technically incorrect. It’s now apparent that sustainability factors have a financial impact on the business and should be considered alongside finances as part of the organisation’s Annual Report.

 

Financial reporting no longer just in the office of the CFO

The increasing focus on ESG data brings operational change, encompassing a wide range of factors which may reside across different departments outside of finance, such as human resources, supply chain, and business development. Information from across the company will be required, both to align operations with a sustainability strategy and to fulfil disclosure requirements in areas such as carbon footprint and employee demographics.

To address this, a clear end-to-end reporting process that is well-managed, produced in the right format and remains compliant is necessary.

Companies will be required to digitally tag reported information (powered by Inline XBRL) to ensure that it is machine-readable, standardised and comparable against other organisations. Importantly, such improvements must not compromise the ability; indeed, XBRL will speed up the aggregation of data for users. Finally, an assurance obligation with respect to the sustainability disclosures, ensuring audit professionals will be required to confirm the validity and accuracy of reviewed information.

 

Internal siloes are barriers to success

Responding to the new CSRD first requires a frank assessment of the processes currently in place and the areas in need of attention to bring the whole function up to optimal performance. As financial reporting tends to be a complex, yet well-oiled machine, companies can leverage the experience they already have to help bring the ESG data and controls in alignment.

In doing so, the company will have oversight of all operations; and joint reporting will break down the walls between finance and sustainability. This will ultimately help streamline processes.

The right technology will augment existing models. Automation, for example, will accurately and efficiently collect and integrate data from different departments across the business. From this, the data is analysed to determine the materiality, before being collated into the right, easily audited, format.

 

Processes fit for a brighter future

Emphasis on ESG issues will only continue to intensify and investors want to be sure that the companies they invest in are genuinely committed to sustainable practices, and unlikely to have a detrimental impact on the planet and society. Large investors already see the importance of valuing a company based on a broader set of standards, as these are linked to current and future performance.

Compromising integrity, breaking regulations, or having heavy fines implemented as a result of issues ESG aims to address will fundamentally devalue a company. The new regulations – and investor demands – will force organisations to be more transparent with their reporting. This would allow potential investors to have a clear understanding of their practices and intentions, enabling them to make more confident, informed decisions on where to invest money. It’s critical for organisations to get their houses in order, by streamlining processes now to prevent losing out on future investments.

 

Business

HOW MERCHANTS CAN IMPROVE THE ONLINE PAYMENTS EXPERIENCE

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By Alan Irwin, Senior Director of Product at Global Payments UK

 

The dramatic increase in online shopping over the past 18 months has encouraged many businesses to invest in developing their omnichannel shopping experiences. The reasons vary – some are keen to capitalise on the trend of older shoppers migrating towards ecommerce and some are trying to make up for loss of sales in brick-and-mortar stores during the pandemic. It is also true that many businesses are shifting their models to sell direct to consumers to avoid high marketplace fees and are therefore building their ecommerce channels for the first time.

The checkout experience is arguably the most important and delicate part of the ecommerce transaction, as it can make the difference between a happy customer likely to return, and a shopping cart abandoned out of frustration and confusion. A survey from March 2020 suggested that 88% of online shopping orders were abandoned, i.e. not converted into a purchase. A seamless, customer-centric online payment experience is therefore critically important in ensuring completed transactions. But with so many payment providers available, what should businesses be looking for when trying to keep friction to a minimum?

 

Keep clicks to a minimum

Less touchscreen interaction equals less abandonment. Adapting the payment page to fit any device and supporting popular mobile digital wallets like Google Pay ensures a seamless, stress- and hassle-free checkout experience for the customer and keeps clicks to a minimum. Friction can present itself in the most minor features – for example, when the customer is navigating the payment form, the appropriate keypad should be shown to the customer when required. It’s much easier to enter a card number using the dial pad instead of switching between QWERTY keypad layouts.

Simplifying online forms with autofill and tokenisation also significantly reduces friction at checkout and shortens necessary time taken. Ensuring checkout forms are tagged correctly for “autofill” is a great way to offer customers a single-click to input the payment, shipping, and billing data that they have stored in their browser profile. Similarly offering a guest checkout option will help convert customers who are in a hurry or looking for a one-off purchase. This can also be achieved by offering to store the payment details (called ‘tokenisation’) for express repeat and one-click purchases.

 

Make it easy to understand

A tailored payments approach can increase both domestic and international global sales. By offering a checkout experience in the customer’s language, the option to pay in their currency of choice, and use their preferred method of payment (whether it’s PayPal, Alipay or card), businesses can build loyalty quickly and put customers at ease. It is equally important for merchants to ensure they always display simple direction and information about next steps to instil confidence and prevent customer drop-off. The customer should be informed of what is happening at every stage in the process, for example, whether they will proceed to SCA (Secure Customer Authentication) next or go straight through to completion.

In addition, validating forms in real-time means merchants can highlight potential errors to the customer early on, and payment providers should provide this functionality. This could be an invalid expiry date, an incorrect digit in the card number or incorrect CVV number based on card type. When issues are only flagged at the end of the process, this forces the customer to go back through the steps to figure out the error. Real-time signposting of problems removes this potential friction and reduces the potential for a declined transaction.

 

Ensure seamless security

Merchants should work with a payment partner who offers the right blend of security and compliance management without it coming at a cost to the end-to-end checkout experience for the user. Instilling trust and security in your checkout flow while utilising the right solutions to drive seamless authentication flows will increase customer confidence and help prevent drop-off.

The greatest level of security and control comes from either utilising hosted payment fields that the
merchant can natively integrate into their checkout flow, or a hosted payment page where they can
manage the look and feel. Showcasing your brand on the checkout page with trust signals and logos also adds to building trust with the customer.

Staying ahead of regulations is also important. Secure Customer Authentication (SCA) will soon be mandatory in the UK for all eligible digital transactions, and this doesn’t have to be a friction-full process. Tools like Transaction Risk Analysis (TRA) and Exemption Optimisation Service (EOS) can quickly score transactions and drive exemptions where there is the right blend of transaction risk.

 

The devil is in the details

These three rules for successful ecommerce checkout experiences may seem straightforward, but it is important to apply them at a micro level. It can take only one minor point of friction to cause a customer to abandon their cart, and this will inevitably be replicated across other similar customers. It is critical to identify friction points early on and anticipate customer needs throughout the process. Discussing these points and any opportunities to improve customer checkout experience with your ecommerce team and payment provider is an important first step towards ensuring your entire shopping experience remains competitively seamless and loyalty is won. It may be that your payment provider cannot address them, in which case it could be time to move on in order to stay competitive.

 

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Finance

NAVIGATING FINANCIAL SERVICES IN 2021: LOW-CODE TO THE RESCUE

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Nick Ford, Chief Technology Evangelist, Mendix

 

Financial services are the poster child of great digital transformation: today, Britons can pay from their watches, check their balance directly from their phone at any time and even automate trading. This level of innovation isn’t only about customers: traders are able to operate faster than ever before thanks to better predictive analysis and forecasting tools, and finance teams are able to collaborate from anywhere in the world.

While we embrace all this innovation, it’s easy to forget that the reality of the sector is incredibly complex. The radical changes induced by COVID-19 have highlighted how challenging maintaining innovation today really is, while putting more pressure on IT teams to accelerate the digital transformation of the sector even further.

On top of this, the sector is one of the most affected by Brexit. Mendix’s Navigating the UK Landscape research found that businesses in the financial services sector have serious concerns about the impact of Brexit on their industry. Many believe that Brexit has damaged the reputation of the UK as a centre of finance (67%) – as well as creating functional challenges for businesses in the country.

Many financial services organisations are turning to technology, and specifically low-code, to deal with these challenges. This piece will look at how firms in the sector can use low-code to navigate the new world.

 

A sea of challenges

Financial services are complex: there are thousands of products to choose from, from savings to investment and mortgages. These services are then managed by lots of different companies, creating an additional level of complexity: banks, fintechs, brokers, wealth management specialists, government bodies… the list goes on. To add yet another layer, there’s a network of regulations, which change over time, forcing IT leaders to constantly keep on top of the latest evolution in the sector. Knowing these is only the first step: every time new laws are implemented, the sector needs to adjust to them, and that can mean anything from revising security protocols to radically changing the way information is processed, transmitted or audited.

This may already look complicated, but the real complexity starts underneath, in the realms of processes that the IT manages to keep the company operating as normal. It would be fair to say that the mission of financial IT leaders is often underrated: they deal with antiquated systems dating back decades, inadequate data management processes and minute security and compliance considerations every day, simply to keep the business afloat. Add to this the need to get all staff to work remotely during the lockdown, and the already time-poor IT leaders are now completely swamped.

Brexit also makes things difficult for financial services organisations. Two thirds anticipate costly and complicated processes for crossborder payments and investments, while 59% believe it will be harder to attract foreign investments. Ultimately, 61% admit they will no longer be able to support some of their customers because of the transition.

 

Tech as a raft

While the sector is mired down with complex processes and inadequate tools, it also needs to deal with a major challenge: fierce competition for tech-savvy customers. Now, all banks, investment firms and wealth management companies are investing in tech to help them cope with new customer demands for easier access to their capital and increased transparency. Two thirds have deployed digital projects to make the business more flexible as a result of Brexit, with data management (62%) and digital processes (62%) particular focal points.

And this is not just about pleasing digitally minded customers: it’s also about improving productivity and operational efficiency, harnessing data, and solving compliance challenges. This balancing act between priorities is gathering pace and spreading across the business: today, IT teams must deliver innovation that’s fast, reliable and secure, and that supports many divisions — all at once. It’s a big challenge, but it’s one that IT leaders are willing to tackle head on: two thirds of IT leaders believe the value of digital transformation initiatives outweighs their inherent risk. Yet, IT leaders know that rushing would be a mistake: although IT teams face high demand for their support, most would not prioritise speed over caution, even if they could innovate faster. This measured pace ensures that financial organisations are delivering the right solutions at the right time, reducing the risk of service disruption and security challenges.

 

Low-code to the rescue

To manage all these priorities, the IT team needs to look beyond its own team to create revenue-generating services that truly answer the clients’ needs – and it needs to empower all developers with the right tools to do so. This improves collaboration between IT and customer-facing staff to design services that suit the needs of the customer base, while reducing the pressure of an already-stretched IT team. Enter low-code: most leaders (58%) say that low-code has enabled the development of new applications to support their companies post-Brexit.

One example of this is a Financial Institution, which perceived its digital user experience lacking and engaged low-code to install a new user experience for its portal, consumer and wholesale digital services. It was able to do this in just eight months, providing numerous benefits to stakeholders.

Low-code software development provides a simple solution to address these constraints and challenges: based on a visual approach for building applications using drag-and-drop components, it enables non-technical staff to participate in creating business applications, even if they have little to no coding experience. Working separately or in close collaboration, professional developers and business-side “citizen developers” can create, iterate, and release applications in a fraction of the time it takes with traditional methods, all under the watchful governance of IT to ensure their applications comply with enterprise standards and architecture.

A low-code approach allows for flexible, iterative app development for many use cases in the financial services sector, including legacy application upgrades to comply with new regulations, apps supporting smart banking or portfolio management, and mortgage application management. With low-code, the financial services industry has the right tools to untangle its complex processes, simplify its evolution and focus on its core mission: keeping the economy thriving.

 

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