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THE RISE OF DIGITAL WALLETS

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By Anil Malhotra, CMO of Bango

 

Mobile phone payments are nothing new. The first mobile phone payment to a merchant can be traced back to 1997, when Coca Cola set up vending machines that allowed users to pay via text. A mobile money transfer system called M-Pesa was launched in Kenya in 2007, and in 2011 Google launched the world’s first mobile wallet. Since then, mobile payments have grown faster than any other payment method, with mobile network operators billing over a trillion dollars to more than 5 billion people every year.

Now, with a reported 54% decline in the number of cash transactions in the UK from 2010 to 2020 and mobile phones predicted to become the second most common payment method after debit cards by 2022, it looks like the future will see traditional wallets cast aside in favour of digital ones.

 

Why have digital wallets become so popular?

Access and convenience. Digital wallets make payments easy, storing multiple payment methods in one digital home that’s quick to access and use via your phone, smartwatch or tablet. They even allow users to turn cash into electronic money that can be spent on-line or instore.

Digital wallet users will never again have to have an awkward ‘I’ve forgotten my wallet’ conversation. No wallet? No problem. Just tap and go. The device will even give you an instant notification of how much money you’ve spent in the transaction and you can link your loyalty schemes to your digital wallet so that any points, stamps and rewards are automatically calculated.

Anil Malhotra

In the increasingly competitive world of online payments, wallets digital wallets also foster greater financial inclusion. Although some digital wallets such as Apple Pay or Samsung only act as a vessel for existing funds — like a physical wallet — there is a growing number of e-wallets that allow users to generate balance through “cash conversion”.

Users can go to a shop, an ATM or kiosk and deposit cash that will then become electronic money available in their wallets. This feature increases the amount of people who can use a digital wallet and therefore adds to the increasing global popularity of mobile phone payments. For this reason, there is a raft of wallets that have gained government support across regions such as SE Asia, Africa and Latin America.

 

The effect of the pandemic

The coronavirus pandemic had an effect on the increasing popularity of mobile phone payments last year.

In April 2020 the contactless payment limit in the UK was raised from £30 to £45, with users and businesses alike encouraged to prioritise contactless card and digital wallet payments over cash to stop unnecessary contact with surfaces and reduce the spread of the virus. This dramatically accelerated the steady trend towards non-physical payments.

In some markets, Bango measured an increase of over 50% between April 2020 and January 2021 in the value of payments charged to wallets. This is expected to continue, with many retailers are still refusing to accept cash payments.

But despite the increasing popularity of digital wallets, some remain wary of mobile phone payments.

 

How safe are digital wallets?

Like any new payment method – for example contactless card payments – one of the nagging questions is whether digital wallets are safe. The short answer is, yes, they are. As safe as any financial transaction can be.

Digital wallets are secured by the password and/or face ID requirements of the smart device they live on, giving users control and peace of mind that their payment information is safe. Key payment identification data is also commonly tokenized, meaning that personal identifiable information and financial identities can be hidden.

They are safe at the point of sale too, with the UK treasury reporting that there was no significant rise in reported fraud when the limit was raised from £30 to £45. As a result, in the UK the contactless payment limit has now been increased even further to £100.

 

How can merchants benefit from the rise of digital wallets?

The increase in use of digital wallets is good news for merchants. More demand means merchants can justify investing in the technologies that enables digital wallet and mobile payments, technologies that ultimately saves them money.

Wallets offer lower processing costs than other methods, such as carrier billed payments using airtime and even card processing in many cases. They also offer fewer limits on transaction values and frequency.

According to a recent survey 37% of merchants are currently supporting mobile payments at the point of sale, with payments companies like Bango helping them offer mobile payments capabilities on a global scale. And when it comes to growth aided by digital wallets, scalability is key.

Most large merchants operate in more than one country as standard, but with different financial processes, regulation, laws and of course varying types of digital wallets, merchants need to work with companies that can unify and centralise payments.

A unified approach to global digital payments enables merchants and payment partners to innovate and differentiate quickly, helping them stay competitive in the online market and of course grow their business.

Digital wallets also benefit merchants by leaving a digital footprint of sorts. Using commerce platforms like Bango, businesses can analyse wallet users’ payment choices and have a clear insight into what they are interested in buying. This information can be used to target marketing activities through purchase behavior targeting and provides opportunities for merchants to incentivize the use of wallet payments by linking to special offers for your product.

Ultimately, digital wallets are a focused way to acquire customers as well as transact payments. And with digital wallet spending estimated to exceed $10 trillion by 2025, merchants who aren’t supporting mobile payments need to catch-up soon or risk loss of business as a result of not giving customers the easy payment experience they expect.

 

Finance

Why financial services is stepping into a new era

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by James Mingard, Head of Retail & Finance at Maintel

 

When comparing industries, financial services has arguably fallen behind when it comes to digital transformation. The sector has found it especially challenging to move from more traditional, legacy ways of working. But, with challenger banks and changing customer expectations, the tables have turned. According to a  recent research report from Maintel, in partnership with RingCentral, the financial services sector is leading the way when it comes to implementing digitalisation plans. In fact, 35% of those surveyed within the sector claim to have fully implemented their digitisation plans, compared to just 26% in other industries.

 

Evolving Technology

As such, banking technology is innovating at a significant rate, with everything from start-ups offering online-only credit cards to TSB opening a 100-seat tech centre in Scotland. There is little doubt that the sector understands the need to be digital-first, but there is room for improvement. Over half of respondents said they have seen an increased demand for digital communication from customers because of the pandemic, but the channels on offer fall behind other industries.

Over half (55%) of other industries communicate with customers through Twitter, compared to just 30% in the financial services sector. We might not want to discuss our mortgage over Instagram or to tweet about how much money is in an ISA. However, there is a real opportunity for the financial sector to add to its offering and grow its digital communication channels. By giving customers more options, it will help improve customer experience and let the end-user reap the benefits of digital transformation strategies. Balancing the expectation for digital-first interactions while ensuring a high-quality customer experience is central to creating an efficient, yet personal service.

 

Collaboration is the future

The contact centre of the future should represent an integrated approach to unified communications. It should bring business experts and agents together, across every channel to deliver real-time customer experiences in a cloud-based, collaborative engagement model. For financial services, this once seemed a pipe dream but advancements in digital transformation mean that the sector can in fact set the standard for other industries.

From a productivity point of view, team collaboration can also be enhanced using innovative communication technology. This helps to improve an employee’s workplace experience by providing instant access to essential information and allows them to work effectively from any location. Flexibility has not always been associated with the financial sector, but by giving employees better technology and more autonomy, naturally, this has a knock-on impact on the experience that customers receive and helps to foster long term loyalty.

 

Customer comes first

Banks used to be built on life-long custom. Many people would be with the same bank from their first current account through to the day they passed away but the volume of competition, variety of offers and new customer deals mean that today’s consumers are fickler than ever.  To really stand out, financial services providers need to make sure that everything from communication strategies through to software has the customer at its heart. And technology is key.

Indeed, customer experience, customer  and technology insights were the top three benefits of digitisation within the sector, according to Maintel and RingCentral’s 2021 report, It’s therefore clear that a customer and user experienced focused approach is key to success in the financial sector.

 

Click here to read the research report in full – How to translate unified communications and digitalisation into better customer experience.  For further information find out more :- https://www.maintel.co.uk/industries/financial-services/driving-financial-services-digital-transformation/

 

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FINANCIAL MARKETS IN 2022: INFLATION, ENERGY PRICES, AND THE CONTRASTING PERFORMANCE OF STOCKS

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Bob Jenkins, Head of Research, Refinitiv Lipper

 

Anyone hoping for a reprieve from the chaos and uncertainty of the last couple of years is likely to be disappointed. The pandemic will continue to have an impact on global economies, both directly (such as ongoing lockdowns and restrictions to combat the disease) and the exhaust effects we’ve seen in areas such as the production of goods, supply chain challenges, labour shortages and rising energy prices.

At the same time, the digital disruption of the financial world continues apace, with assets once overhyped becoming increasingly mainstream.

To make specific predictions in such an environment might seem like a fool’s errand, yet it is possible to discern some themes that will shape the course of financial markets in the coming year.

 

  1. Global inflation gets stubborn: Inflation is not transitory, and we are seeing a foundation for higher prices being put in place thanks to the supply chain and labour issues previously mentioned. In major developed markets, I think we’ll see stubborn inflation regardless of whether Covid remains a pandemic or begins to enter an endemic phase. The situation is slightly more positive in the US; while inflation will remain at a 3.5-4.5% range, a reduction in supply chain bottlenecks, increasing labour force and improved unemployment rates will serve to reduce the impact of primary inflation forces. We should bear in mind that households are estimated to have around $2 trillion in savings, which will maintain consumption levels and keep up the pressure on labour and supply chains.
  2. Rates will rise: Rates are likely to rise, with discussions in several major economies indicating a tapered end to the period of low rates we’ve seen since the 2008 financial crisis. This will probably be achieved in fits and starts as central banks navigate virus outbreaks and any resulting economic shocks. For instance, both the Fed and the Bank of England have indicated there will be hikes, but it is likely that they will rely on tapering at first to slow stimulus while also trying to navigate sentiment swings and volatility arising from waves of infections and/or new variants.
  3. China to lead economic growth, but not by much: China’s growth is likely to be around the 4-5% mark, with the US just slightly behind at 3.5-4%, off its 6% pace from the first part of 2021. The European Union and United Kingdom will likely trail the US, even if they have been exhibiting similar economic issues, while emerging markets could be hit by a combination of the Fed tightening up and challenges dealing with Omicron and other COVID waves.
  4. Higher energy prices are here to stay: Multiple forces will provide support to higher energy prices: supply chain issues, political posturing, demand for heating/cooling due to climate change, but Covid will occasionally step in to disrupt and counteract these forces. Even carbon neutral efforts could cause overall energy prices to rise in the near term as energy producers shift to renewables, with many of these alternative sources remaining expensive. Oil will stay in the $70-$80 range, with the occasional dip towards $60 as intermittent Covid concerns influence energy consumption in the travel sector.
  5. Underperforming stocks with a positive finish: In general, slower growth and lower rates help Growth and Tech stocks while faster growth and higher rates benefit Value and Cyclicals and I believe the economy will tend to lean towards the latter scenario. That said, growth and value leadership will change hands throughout the course of the year as the economy reacts to Covid waves and switches between lockdown and reopening. I suspect Value and Cyclicals will outperform Growth and Tech at the margin, but the dominate capitalization size of the latter two will pull down overall stock market returns. Of course, as with consumers, there is a lot of money being held back at the moment. Businesses have significant cash reserves and self-directed traders continue to shovel money into markets, which, when combined, can help buoy stocks.
  6. Flattening the bond yield curve: I think we will see some retrenchment as a result of rising rate programs by central banks that will largely result in negative to flat returns across core fixed income. Any selling in longer term bonds in reaction to either economic or central bank activity will be mostly offset by buying due to the global desire for yield, thus keeping a lid on longer term rates. Rising short term rates in this environment will serve to flatten the yield curve. High yield bonds could provide for pockets of opportunity as they are potentially tied to cyclical areas of the economy that could show leadership.
  7. The contrasting futures of ESG and digital assets: In the coming year I think we’ll see digital and tokenized assets become almost as popular as Environmental, Social and Governance (ESG). However, whereas ESG is a permanent shift that will eventually encompass the evaluation of all mutual funds, digital currencies still look a little more niche. We could well see them proliferate over the next few years, potentially even becoming a new quasi-asset class, but they will remain a satellite allocation in risk tolerant portfolio strategies. They are unlikely to achieve the status of being included in mainstream portfolios such as defined contribution retirement plans where assets can flow in large, consistent amounts – unlike ESGs, which could well reach that point in the coming years.
  8. A more defined ESG: It is looking increasingly likely that ESG funds will begin to splinter into more thematic offerings as investors eschew the combined “ESG” mandates in favour of more targeted strategies that enable them to better assess stocks aligned with fund objectives. This will also help avoid those securities jumping on the ESG bandwagon.
  9. The continued rise of the Big Five: Of course, in an era of unpredictability, there are always going to be trends or themes that run counter to accepted wisdom. Despite the aforementioned attempts of central banks to raise rates, the Big Five stocks (Microsoft, Alphabet, Apple, Amazon and Nvidia) will continue to show leaderships. While technically falling into the camp of richly valued Growth, these stocks have begun to also acquire a status as a safe haven, with generally strong earnings demonstrating a consistency and dependability that attracts investors. They also populate immense amounts of passive and retirement plan assets under management, equating to steady flows into them in almost any economic environment.

 

All this plays out against a backdrop of our changing stance on COVID. While there are some commonalities in how different regions tackle the pandemic, the continued uneven nature of our global responses makes it hard to determine what state we will be in this time next year. If most major economies can move to an endemic setting, then we should have the tools in place to make ‘living with Covid’ a reality. However, the continued emergence of other variants will cause volatility, and with it a predictable jostling of market leadership. Perhaps the only predictions anyone can truly make is that life will continue to be unpredictable for some time to come.

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