By Madhur Kumar Jain, Senior Vice President and Global Head of Solution Consulting, SunTec Business Solutions
The move of Big Tech companies into the financial services sector brings both risk and benefits to consumers and banks alike. Technology firms such as Alibaba, Amazon, Facebook, Google and Apple have grown rapidly over the last two decades. With a data centric business model focused on direct interactions with a large number of consumers, these firms are using their power to venture into the financial services sector, offering payments, money management, insurance, lending and much more.
For these firms, financial services may still only be a small part of their business globally (11% according to Leonardo Gambacorta, head of innovation and the digital economy at the Bank for International Settlements) but the potential is huge given their size and customer base and they will continue to fuel rapid change in the financial industry. With their fiscal capital, customer data, strong brand loyalty and presence in consumers’ everyday lives, big tech companies have the firepower to drive innovation, and in doing so, pressure the traditional banking model further. So how can banking as we know it, survive the onslaught of tech companies and what do they learn from them?
The answer lies in co-operation and partnerships
According to a KPMG report, 26% of financial institutions are already partnering with one or more technology giants, and an additional 27% report planning to forge such partnerships within the next 12 months.
Big Techs derive their strength from the fact that they have deep expertise in analytics, big data, AI and creating customer centric experiences, which in turn help them to develop services that reach their existing users in no time through their channels.
But the thing to note is that the banks have an advantage in a few areas over the Big Tech companies – their ubiquitous presence in every aspect of life of its consumers (compared to siloed but in depth experience of every individual Big Tech company); the consumers’ trust in banks for all financial matters and the vast experience they have in the industry.
This scenario makes for many opportunities of partnerships between banks and Big Tech companies globally for example, Apple recently launched a credit card with Goldman Sachs. Last year, Australian lender, Westpac partnered with Assembly Payments to launch a payments platform for its business clients. In China, tech companies are influencing how consumers spend their money with mobile wallets from Alipay and WeChat Pay. With the drive to adopt Open Banking by banks and fintechs, the potential for partnerships and innovative product offerings are becoming increasingly possible.
Embracing Open Banking
Open Banking helps banks advance their features to meet consumers’ changing needs, enhance their revenue and at the same time increase customer engagement using differential and personalized experiences. By treating personalized propositions as a commodity, banks can begin providing the personalized customer experience that helps retain customer loyalty. Banks can also go beyond their typical scope, increasingly becoming links in the value chain, for example, to help customers buy a vehicle rather than just give the loan. Leveraging customers’ data with the offerings of an agreement will give banks the opportunity to build business beyond their traditional financial products and actively look at integrating third party trusted products to deliver value to the customer
Partnerships like this can help commercial banks become more inventive and nimbler, digitizing their processing, systems and customer experiences to create new ways to meet the needs of their customers and form new income streams. With Open Banking, the banks’ partnership with fintech companies and other third-party providers is driving technology innovation to help traditional banks stay atop in today’s digitally-centered world.
Winning the digital race
As banks embark on their digital transformation journey in an effort to hold onto market share and capitalize in the digital economy, the industry will need to reinvent itself, driving the creation of more customer oriented, hyper-personalized services. Banks will increasingly become links in the value chains that will also contain non-financial services, meaning suppliers will join their digital ecosystem to offer a one shop stop for customers banking and other needs.
A fundamental change in the financial services sector is taking place as banks begin applying strategies to stay ahead of the curve. Financial institutions are prioritizing digital transformation of their ecosystems to achieve optimum efficiency and customer-centered experiences. Open Banking is quickening this move, making banking truly digital by establishing an interconnectedness that we currently see in the ecommerce industry.
With their size, analytics capabilities, capacity to appeal to huge, loyal userbases and revenue models, tech giants are strengthening their position in typical banking services at a fast clip. The competitive challenge that tech companies bring to the financial services sector presents a threat and/or an opportunity for banks to defend their market share by transforming their digital capabilities to deliver superior digital services that satisfy the demands of increasingly connected customers with growing expectations.
In a data-centric and customer-centric world, banks need to transform and work hard to retain customer loyalty and market share if they are to survive. As more technology firms move into financial services it could make the sector more dynamic and efficient, but it also introduces risks for existing players. By embracing new technology, adapting to customer’s needs and learning how the tech giants are owning the customer experience, traditional financial services firms can transform, or they face the risk of becoming extinct.
HOW TO MANAGE YOUR CASH FLOW IN UNCERTAIN TIMES
While the world is constantly changing, probably at a faster pace now than ever before, businesses need to manage cash flow and costs to drive success in uncertain times, says Matthew Thorpe, partner at Haines Watts Essex.
Managing people and expenses
There are certain costs that you just can’t avoid as a business – to keep your operation running seamlessly, but scrutinise the detail and cut down on any non-essential expenses. Check things like your SaaS subscriptions and look out for costs that auto-renew and if you do cancel, remember to also cancel your direct debits too.
You might want to put a freeze on hiring new people, but ensure that other roles and responsibilities are clearly and efficiently assigned across your team. The Coronavirus Job Retention Scheme (CJRS) has been introduced by the Government to help UK employers access support to continue paying part of their employees’ salary to avoid redundancies. Affected employees are classed as “furloughed workers”.
Once furloughed, the employee cannot work or they will not qualify for the scheme. For businesses that perhaps need to go further, there may be some roles they don’t need any more, but businesses should work sensitively with people to manage this.
Cash is king
In uncertain times, owner managers will need to keep operations going to ensure financial stability. You should look to manage debt more efficiently by negotiating extended payment terms with creditors. You could also renegotiate loans for longer repayment terms to give yourself a lower monthly payment, helping the business to set some cash aside each month.
As a business owner, you need to create a cash flow projection and update this regularly if you are to improve things. You can do this using financial information to create a picture of how the business will look in the next 12 months. The forecast needs to show revenue sources and expenses, which will show the ups and downs of business income and can be used to make sure that enough finance is in place.
While banks and other finance providers recognise that the cashflow of a business may be disrupted by the impact of Covid-19, they are still going to want to see that you are viable and continue to trade in these uncertain times. Make sure your business is organised and don’t let disorganisation cause unnecessary issues. You can evidence this by having detailed forecasts; current order books and projections (as best as possible).
Having instantly accessible, accurate financial information allows you to plan effectively, spot issues before they become problems and manage your money in the most efficient and rewarding way.
Software is now incredibly user-friendly and accessible from anywhere. For a business owner embracing the technology, this means:
- Invoicing can be done instantly when a job is complete, emailed to the customer with an easy to use link to a payment platform.
- Comparison websites can automatically monitor and help maintain lowest cost for things such as light & heat, insurance etc.
- Technology can be used in place of face-to-face meetings. It can also enable them to adapt production lines to different demands.
All of these things and more, used properly, can make managing your business finances quicker, easier and often cheaper. You will also be able to bring clarity to where your business stands and prepare for the next steps.
HOW FINANCIAL SERVICES CAN GET TO GRIPS WITH RISING SUPPLY CHAIN RISK
By Alex Saric, smart procurement expert, Ivalua
UK businesses have never been more dependent on their suppliers to help them deliver goods and services to their customers. Be it retail, manufacturing or financial services, suppliers have a vital role to play when it comes to innovation and meeting customer expectations. However, as supply chains become increasingly global, businesses are potentially exposing themselves to more risk than ever before.
This is especially true in financial services. Whether it’s the impact of geopolitical events like Brexit or global tariff wars, supply shortages, security or the businesses impact on the environment, an organisation’s failure to identify and mitigate risk could see millions wiped off its share price, and its corporate reputation left in tatters. Risk can present itself anywhere and at any time, so financial services firms must be ready to address it. However, many simply don’t have the ability to evaluate suppliers for risk factors, leaving them wide open to business operations being hindered, or being slapped with financial penalties.
More suppliers, increasing risk
One reason why financial services firms aren’t able to evaluate suppliers is the breadth and scale of today’s supply chains. For example, French oil company Total said in in a recent human rights briefing paper that they work with over 150,000 direct suppliers worldwide. This is just one example of how large and varied the roster of partners has become. Research from Ivalua has found that financial services businesses on average are working with around 3,600 suppliers annually, which is evenly split between UK-based and international partners. That number is expected to rise, with 60% expecting the number of suppliers they work with to rise.
The expanding nature of suppliers is only going to expose financial services firms to more potential risk than ever before, yet 78% say they face challenges gaining complete visibility into suppliers and their activities.
A lack of supplier visibility leaves businesses unable to identify and mitigate against supply chain risk. In fact, almost three-quarters (73%) of financial services firms have experienced some type of risk during the last 12 months. These include; supplier failure (43%), environmental impact, such as pollution or waste (35%) and supply shortages (45%). Supply shortages can be among the most damaging to a business, as seen by both the KFC chicken shortage which closed stores, and the summer 2018 CO2 shortage which caused companies such as Heineken and Coca-Cola to pause production, impacting supply across Europe during the World Cup.
Businesses unprepared for the worst
One way financial services firms can better prepare for risk is to ensure they know what to plan for to reduce the impact. However, whilst some say they have a contingency plan in place to deal with risk, many of them are unprepared. Financial services firms admitted to not having comprehensive and deployed contingency plans in place to prepare the supply chain for risk such as; natural disasters (68%), supply shortages (67%), geopolitical changes (65%), environmental impact (63%), supplier failure (62%) and modern slavery (50%).
In order to effectively prepare for these types of risks, it’s vital that financial services businesses fully understand their suppliers, their business environment, global variations in regulations, geopolitics, and a host of other factors. But for many, there are multiple challenges when it comes to gaining this understanding. A prevailing factor is an inability to gain visibility into all suppliers and activity because supplier management data is stored in multiple locations and formats, making insights difficult to access. This leaves teams unable to review supplier activity and assess compliance.
Making supplier management smarter
It’s imperative that financial services businesses are able to respond or prepare for supply chain risk. Clearly, much more needs to be done to ensure they have complete visibility of suppliers, especially in an era where regulators can levy heavy fines for GDPR breaches and scandals spread in minutes over social media. These types of risks can be reduced in the future if procurement teams have a 360-degree view of suppliers which will help with contingency planning and risk management.
For example, in the instance of supply shortages, plans could be put in place that identify alternative suppliers to ensure any shortages do not impact end users. This type of supplier collaboration is paramount when it comes to managing and mitigating against supplier shortages. When it comes to regulations, financial services firms can’t allow a lack of visibility to limit their ability to ensure all suppliers are compliant.
To do this, teams must take a smarter approach to procurement that gives complete visibility into suppliers throughout the supply chain. This will allow financial services firms to identify and plan for risk, reducing the potential damage, and ensuring they are working with and awarding business to low-risk suppliers. Supply chain risk is rapidly becoming an overarching concern for financial services firms, but by providing the ability to assess suppliers, they will have all the insights they need to mitigate the impact on business operations.
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