Global Banking & Finance Review Issue 31 - Business & Finance Magazine

Issue 31

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EDITORS LETTER

FROM THE

editor

Chairman and CEO Varun Sash Editor Wanda Rich email: wrich@gbafmag.com

Dear Readers’

Head of Distribution & Production Robert Mathew

Project Managers Megan Sash, Amanda Walker

Video Production and Journalist Phil Fothergill

I am pleased to present Issue 31 of Global Banking & Finance Review. For those of you that are reading us for the first time, welcome.

This issue is filled with exclusive interviews and insights from financial leaders across the globe.

Graphic Designer Jessica Weisman-Pitts Client & Accounts Manager Chanel Roberts Business Consultants Rick Saikia, Monika Umakanth, Stefy Abraham, Business Analysts Samuel Joseph, Dave D’Costa Advertising Phone: +44 (0) 208 144 3511 marketing@gbafmag.com GBAF Publications, LTD Alpha House 100 Borough High Street London, SE1 1LB United Kingdom Global Banking & Finance Review is the trading name of GBAF Publications LTD Company Registration Number: 7403411 VAT Number: GB 112 5966 21 ISSN 2396-717X. The information contained in this publication has been obtained from sources the publishers believe to be correct. The publisher wishes to stress that the information contained herein may be subject to varying international, federal, state and/or local laws or regulations.

The purchaser or reader of this publication assumes all responsibility for the use of these materials and information. However, the publisher assumes no responsibility for errors, omissions, or contrary interpretations of the subject matter contained herein no legal liability can be accepted for any errors. No part of this publication may be reproduced without the prior consent of the publisher

Our cover story this month features Gawdo an exciting new eCommerce Platform where you can buy a range of digital products and services. One of the best ways to promote your business and new products or services is with digital marketing. Traditional marketing with a large marketing agency may be out of your price a range. This is where Gawdo comes in. (Turn to Page 8) Don’t miss our exclusive interview on page 10 with BA Securities, Inc., where we discuss their award winning success, the current state of the securities market, and their plans for continued growth.

Crown Agents Bank’s Group Chief Executive Officer, Bhairav Trivedi and I recently spoke about how some of Crown Agents Bank’s most productive times have come during COVID, how it remains a key member of the ‘community of innovation,’ and where its focus lies for future product development. (Read the full interview on page 26) We strive to capture the latest news about the world's economy, financial events, and banking game changers from prominent leaders in the industry and public viewpoints with an intention to serve a holistic outlook. We have gone that extra mile to ensure we give you the best from the world of finance.

Send me your thoughts on how I can continue to improve and what you’d like to see in the future.

Enjoy!

Wanda Rich Editor

®

Stay caught up on the latest news and trends taking place by signing up for our free email newsletter, reading us online at http://www.globalbankingandfinance.com/ and download our App for the latest digital magazine for free on Google Play and the Apple App Store

Issue 31 | 03

CONTENTS

BANKING

32

ENABLING DECISION-MAKING SUCCESS IN THE BANKING INDUSTRY - 3 CONSIDERATIONS Neil Shah Head of Financial Services Board

Staying on top of your transactions and credit lines in a digital world.

42

Jacco de Jong Head of Global Sales Bolero International

BUSINESS

12

The global economy is rebounding from recession but what are the drivers for recovery and how can businesses thrive as we fight through the pandemic?

James Burgess Head of UK Commercial at trade credit insurer and export expert Atradius

44

How Key are Transparency and Consistency to Mitigating Greenwashing Concerns?

Lori Shapiro Sustainable Finance Associate S&P Global Ratings

46 How businesses can tap into Spain’s thriving ecommerce market Elle Nadal Director of Marketing, EMEA Iterable

04 | Issue 31

48

The multiple changing faces of international fraudsters Sam Ranieri Founder and Chief Executive Officer Reach

CONTENTS

FINANCE

16

Attitude shifts across the generations are changing the conversations we need to have with customers about life insurance David Vanek CEO and co-founder Anorak

24 Private Equity - Resilience Leads to Opportunity

Philip Dakin (Managing Director) Restructuring advisory Kroll

28

Six tips for strong operational resilience Guy Warren CEO ITRS Group

38 Vertical or Horizontal, Deep or Shallow: Evolving the Marketplace Model Akber Jaffer Chief Commercial Officer Marketplaces at Finastra

TECHNOLOGY

20

Investing for the Future: How UK Organisations Can Minimise Disruption Around MiFID II Recording and Surveillance Colum Gorman Business Development Director Content Guru

Issue 31 | 05

CONTENTS

8

Get your next digital marketing project done from a freelancer on Gawdo

10

FASTEST GROWING SECURITIES BROKERAGE IN THE PHILIPPINES FOR 2021, GLOBAL BANKING AND FINANCE REVIEW Francis Chua, Chairman & Nominee

Byran Jan Lao Ang President & CEO

Conrado R. Andres, Jr Managing Director

“One of the World’s Oldest Start-Ups!” With 200 Years of History, CAB Continues to Innovate Bhairav Trivedi Group Chief Executive Crown Agents Bank (CAB)

06 | Issue 31

26

BUSINESS

Get your next digital marketing project done from a freelancer on Gawdo One of the best ways to promote your business and new products or services is with digital marketing. Traditional marketing with a large marketing agency may be out of your price a range. One solution is to hire a freelancer to create and execute a digital marketing campaign for you. However, hiring a freelancer on your own can be challenging.

This is where Gawdo comes in.

Gawdo or ‘Get Any Work Done Online' is an exciting new eCommerce Platform where you can buy a range of digital products and services. Gawdo eliminates the biggest problem when dealing with an individual freelancer or a different freelance platform where you have to negotiate with hundreds of sellers and then decide who is best suited to deliver your work.

On Gawdo.com you will discover hundreds of freelance services offered including digital marketing services. However, on Gawdo you eliminate the stress and hassle of having to deal with a freelancer directly.

So, how does Gawdo work?

Instead of the time consuming search of shopping by freelancer to get your marketing commercial created go to gawdo. com and sign up for an account. Then you can navigate to the “Marketing Services” section. This is where you will find a range of different services available. These services include Influencer Marketing, Social Media Promotion, Press Release Distribution, Interview Coverage, Digital Advertising, Email marketing, and many more. Once you find the exact service you need for creating your digital marketing project you simply purchase the service, and a dedicated account manager will be assigned to your project.

08 | Issue 31

Your dedicated account manager will work with you to understand your requirements and then will locate the right expert from the most skilled freelancer working with Gawdo to create your digital marketing project. The account manager works directly on your behalf to ensure every aspect of the project is completed to your satisfaction. Once you receive the marketing service if you require changes or amends you don’t have to worry, your dedicated account manager is still there for you. They will work with the freelancer until you are satisfied.

Getting your digital marketing project completed on Gawdo couldn’t be easier.

Gawdo saves you time and money.

What should you do when you don’t find the exact service you what or don’t know which service to select?

With the dozens of services offered on Gawdo. com it may be hard to decide which one fits your exact needs. Gawdo, has you covered. When this happens simply select the “Can’t Find a Service you need?” tab. Here you will be able to submit your specific requirements. That’s all that you have to do, and a dedicated account manager will get in touch with you to assist every step of the of the way.

As you can see, Gawdo is different from other freelance platforms or digital product stores.

All You have to do is order and wait for the delivery. Let Gawdo get the job done for you.

BUSINESS

Save time, save money.

Head to Gawdo.com now.

Issue 31 | 09

INTERVIEW

BA SECURITIES, INC.

BA SECURITIES, INC. FASTEST GROWING SECURITIES BROKERAGE IN THE PHILIPPINES FOR 2021, GLOBAL BANKING AND FINANCE REVIEW

Conrado Andres Jr. has served as the Managing Director and Head of Sales of BA Securities since 2004. He has over 30 years of experience in the industry, having been the Managing Director of DBP Daiwa Securities from 1995 to 2001, an Equity Analyst for Jardine Fleming from 1994 to 1995, and the Vice President of Research for Asia Equity from 1990 to 1993.

Congratulations on your award-winning success. Can you tell us about BA Securities and the competitive advantage you offer? What are some of the innovative products and solutions you offer to help individuals achieve their investment objectives?

BA Securities, Inc. was incorporated in 1989 and acquired its seat as a Member and Trading Participant of the Philippine Stock Exchange (PSE) in 1993.

We are licensed under the Securities and Exchange Commission as a Broker Dealer in Securities, primarily in the business of equities trading, bond, fund portfolio management and advisory services, securities custodian, escrow agent, and other securities-related transactions.

We are the first Philippine brokerage to offer PSETradex, the online trading platform of the PSE. BASecOnline was launched in August 2013, allowing investors to trade and monitor their portfolios on the go.

We are also one of the first few brokers to be eligible to trade Dollar Denominated Securities, allowing us to facilitate the listing of Cirtek Holdings Philippines Corp.'s Preferred B-2B shares in December 2020 and placing BA Securities among the top three US dollar-denominated bonds and preferred shares traders.

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In the first quarter of 2021, we were designated to process through the PSE Easy website the IPO allocation for Local Small Investors, as nominated and appointed by the International Bookrunners and Domestic Underwriters of DDMP REIT, Inc. Our team is made up of industry veterans with decades of experience with local and foreign financial institutions.

The past year has been full of challenges for markets and the economy. How has BA Securities managed operational risk and adapted operations during this time?

Even before the pandemic hit, BA Securities had already established a business continuity plan that enabled us to quickly adapt to the new environment.

When the Philippines was placed under lockdown last March 2020, we demonstrated organizational agility and flexibility by powering up our online infrastructure and seamlessly migrating to remote operations for various departments such as sales, trading, and research.

Despite the transition, BA Securities maintained normal operations and offered the same quality of services.

Our company proved resilient and even managed to boost its ranking and client base. We notched the top 25 spot among 127 trading participants of the PSE in 2020. This is a huge jump from our 29th place out of 131 trading participants back in 2018.

BA SECURITIES, INC.

INTERVIEW

The number of our active clients spiked by 159.75% to reach 2,743 accounts as of August 2021, marking a huge leap from just 1,056 accounts in 2018. Overall, the total number of clients also increased to 43,064 accounts in August 2021 from 41,744 accounts in 2018.

We have more than 20 accreditations from major institutions and we rank first in terms of operational support. Our institutional clients evaluate our performance through quarterly rankings, allowing us to immediately spot and respond to opportunities for growth.

Let’s talk for a minute about the current state of the securities market. What are the challenges and opportunities you see taking place right now?

We also leverage on synergies with BA Investments and Holdings, Inc., allowing for integrated operations from underwriting to stock brokerage, which we believe provides us with a competitive edge over our peers.

The pandemic has adversely affected the global economy, and the Philippines is no exemption to that. The drop in corporate profits cast a shadow of uncertainty among investors, prompting them to reduce exposure to risky assets like equities and dragging trading volume across the board.

Despite this, a silver lining we see is the growing interest among retail clients and the younger generation, especially with the rapid growth of online stock trading.

What are your plans for continued growth and success?

We plan to tap into overseas markets and other underserved industries to further expand our client base and boost trading volume. We are also working on innovative products and solutions, and we are looking forward to introducing them to the market in the future.

Gone are the days when aspiring investors would have to physically go to the office of stock brokerages and fall in line with application documents in hand. Brokerages have also slashed the minimum amount required to open an account to as low as PHP 1,000.

The barriers to entry have gone down, coupled with the introduction of new investment instruments like REITs, which pique the interest of market participants.

How does BA Securities support institutional clients and ensure that they are receiving the best customer experience available?

We recognize that trading needs differ across the diverse range of firms we serve, so our vision is to generate value for clients by delivering customized services to satisfy their requirements.

Issue 31 | 11

BUSINESS

The global economy is rebounding from recession but what are the drivers for recovery and how can businesses thrive as we fight through the pandemic?

With trade wars, rising protectionism, Brexit and a pandemic, it’s safe to say that recent years have been turbulent.

It’s clear that the unexpected has become inherent in the global trading environment and returning to ‘normality’ is a concept businesses should not cling on to.

After the pandemic caused worldwide economies to recoil into the worst economic slump since the Great Depression, we’re now on the path of rebound. But optimism comes hand in hand with caution about what lies ahead. If there’s one lesson to be learned, it’s to be prepared for anything.

Global recovery: the vital statistics Positively, global economic growth has rebounded faster than expected with GDP forecast to rise 6.2% in 2021, an upgrade of 0.8 percentage points than originally forecasted.

Looking across the global regions, Emerging Asia, led by China and India, stands out with 7.7% growth, followed by the US with 7% growth; up 3.5 percentage points on earlier forecasts.

Latin America’s recovery, helped by much higher commodity prices, is expected to be just above the global average at 6.5%. Meanwhile, Eastern Europe’s GDP is forecast to rebound 5.1% from a mild 2020 recession. With 5% growth forecast, the eurozone is expected to be the region with the lowest percentage growth this year.

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The latest forecast indicates the global economy will have widely recovered from the pandemic before the end of 2021. Both Emerging Asia and the US have already passed this point while Emerging Europe will recover before the end of 2021. For Latin America and the eurozone, it will be in the course of 2022.

Global trade growth Global trade deteriorated in 2020, down 16% in the second quarter alone with global services trade hit even harder. However, it then experienced a faster-than-expected rebound.

Within six months of collapse, goods trade had recovered to pre-pandemic levels. Over the last year, recovery has been broad-based with cars, capital goods, consumer goods and industrial suppliers back at, or even above, pre-pandemic levels of late 2019. Incoming 2021 data shows the resilience of trade growth.

However, services trade is recovering much more slowly and divergently.

Telecommunications and financial services only returned to prepandemic levels in Spring 2021 while travel services remained at 65% lower as tourism remains depressed.

Despite trade impediments, reflected in high trade cost and sluggish services trade, global trade recovery is expected to continue, gaining momentum in coming months.

Current strains in global supply

chains are expected to dissipate during the coming 18 months. Supply bottlenecks will abate as trade growth slows, container capacity is expanded, and Covid-19 related extensions of customs and other logistical processes are relaxed. Atradius economists forecast global trade to increase more than global GDP growth, between 8% and 10% in 2021 and 6% in 2022.

Recovery driver 1: Vaccination campaigns The development of vaccines and subsequent rollouts have been key to the path of recovery, allowing economies to reopen and restrictions to ease. While case numbers suggest vaccination does not prevent the spread of the Delta variant, there is a clear negative relationship between vaccination and hospitalisation.

Therefore, vaccination remains the best way out of the pandemic. More than 1.4 billion people have now had their first dose of the vaccine and 1.2 billion are fully vaccinated, led by advanced markets which consequently have a head start in the race for recovery. However, leaving developing and emerging economies behind creates its own risks. Lower vaccination rates and the sustained spread of Covid-19 in these regions will have macroeconomic as well as local consequences, potentially allowing new variants to form and subsequently spread across the globe.

Therefore, the fight against Covid-19 very much remains a global battle.

BUSINESS

Recovery driver 2: Reduction in political uncertainty The next economic recovery driver has been a marked settling of uncertainty in the political environment. Firstly, was the election of Joe Biden as US president, reducing major uncertainty over US policies on global trade and international relations. As a result, the US has returned to the international stage with a renewed agenda and multilateralist approach.

This reduction in uncertainty, together with the impact of the substantial fiscal stimulus package, American Jobs Plan and newly passed infrastructure bill will support investment and spending by businesses and households in the US and beyond.

Meanwhile, in Europe, the EU has taken further steps to support member economies with stimulus packages as well as the €750bn NextGenerationEU recovery package.

In the UK, an 11th hour post-Brexit agreement was reached. While ongoing issues remain, the major disruption of being thrown into a hard Brexit situation was averted.

Altogether, the changed international policies, fiscal policy efforts, EU economic support and avoidance of a hard Brexit are undeniable game changers. While they have begun to show their effects, adjustment in the global economy is taking place,

weakening the link between the development of the pandemic and economic growth.

Recovery driver 3: Consumer spending rebound As a consequence of lockdowns and restrictions, consumer spending was constrained on services such as restaurants, hotels and travel.

With income largely preserved by government support, consumer spending on goods such as cars, furniture, household appliances and sporting gear increased. This resulted in geared-up demand for manufactured products, supporting

sentiment indicators and prospects for growth evidenced by an acceleration in the manufacturing Purchasing Managers Indices (PMIs) for the US, eurozone and China.

Consumers are now ready to take the second step, unleashing excess savings and gearing up spending on services, made possible by the easing of restrictions. It is this boost which will fuel strong global recovery at a higher rate than was expected earlier this year.

Composite PMIs indicate a strong global recovery starting in Q2 2021 with strong rebounds expected in the eurozone, Latin America and Eastern Europe while China and the US expected to consolidate their strong start to the year.

Issue 31 | 13

BUSINESS

What if: The worse-case scenario The forecast economic recovery is based on several assumptions. These include governments being able to retain their grips on the pandemic and effectively contain new surges or variants with short-lived restrictions and economic damage being contained.

It also assumes vaccine rollouts will continue and that consumers will lead recovery with a willingness to spend. On the upside, the consumer-led recovery we currently envisage could turn into a consumer boom with more involuntary savings spent than in the baseline scenario, triggering a virtuous cycle of higher consumption, investment and sentiment. However, should these assumptions not be met and consumption subsequently deteriorates, the cycle could turn vicious and drag the economy downward. As a result, recovery in 2021 would be depressed and 2022 economic performance would take a major hit. However, for the time being, there is not a high likelihood to this scenario.

Futureproofing against future risk

In response, businesses must be ready.

Change can happen in a moment and therefore it is imperative businesses source real-time intelligence on buyers’ ability to pay and monitor their payment practices.

Astute businesses will become the expert on their buyers’ sectors, the wider market and the circumstances which could affect their ability to trade. Above all, businesses should overhaul their credit and risk management processes to ensure they are robust and can adapt to any changing circumstance, with the added reassurance of non-payment protection should anything go awry.

During times of crisis, it can be too easy for businesses to stand still and watch events pan out before reacting. But the nature of the pandemic has demonstrated that burying your head in the sand is unsustainable and, quite frankly, impossible. The only option for businesses is to take proactive measures to protect themselves and seize the opportunities for growth that economic rebound will bring.

For more information and a suite of free economic, payment and country reports, visit the publications pages of the Atradius website https://atradius. co.uk. You can also follow @AtradiusUK on Twitter and AtradiusUK on LinkedIn.

In response to the pandemic, many global governments were quick to launch wide-ranging support including fiscal measures, job-retention schemes, initiatives to prevent insolvencies and reinsurance schemes. While the trading environment has been challenging at best, these measures have cushioned the blow to businesses. However, as government support is gradually withdrawn, economists forecast a surge in insolvencies; both from zombie companies which have been propped up and those which are trading on empty after a period of sustained closures and restrictions.

James Burgess Head of UK Commercial at trade credit insurer and export expert Atradius

14 | Issue 31

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Issue 31 | 00

FINANCE

Attitude shifts across the generations

are changing the conversations we need to have with customers about

life insurance

In reaction to the financial uncertainty surrounding the pandemic life insurance has seen a spike in interest from customers across the generations.

However, motivations and attitudes fuelling this rising demand vary across the age groups. What’s crucial for distributors is to understand these differing priorities, and how to best connect with audiences across different ages to ensure the right protection is in place for them.

Let’s take a look at how these attitudes differ and how you can boost engagement with life insurance products no matter what age your customers are.

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G en era t io n Z a re keen b u t la c k kn o wled g e Unsurprisingly, Covid-19 and the events of the past year have amplified interest in life insurance products most notably from the younger age groups. There’s been a 60% jump in interest amongst Generation Z, as they show a greater awareness of their own financial liabilities and desire for financial emancipation. Key to connecting with this age group is addressing the overwhelming sense of confusion rife across Gen Z - 63% feel they need help working out how much cover they need and 8% are unsure if they have cover in place already.

FINANCE

Connecting with this audience through online resources is paramount, as they rely heavily on collecting research digitally before making policy decisions, including social media (30%).

Insurance distributors can leverage these connections by creating an engagement pathway online steeped in data, with a content focus on education, whilst incorporating social media elements to better connect with a demographic active on these platforms - such as advertising on Instagram, utilising its capacity for storytelling. Providing access to a personalised assessment and an educational journey also helps limit any confusion from the word go. A combination of relatable, personalised content and a simple-to-use service will not only help to inform Gen Z, but also importantly to reassure them too.

Similar to Generation Z, they rely on collecting online resources to help find the right cover. However, the Millennials are another highly engaged uncertainty they feel (59%) is tinged age group for life insurance, with 71% with the impact of significant life events, such as having children or having taken action to learn about buying a home, leading Millennials financial protection policies in the to also turn to family and friends past 12 months. Events relating to for guidance on life insurance. This the COVID-19 pandemic is the main demonstrates the greater need for driver behind this interest with 58% clarity around insurance costs and citing it as their main motivation for getting cover in place, with an anxiety value amid competing financial demands and changing circumstances about surviving if work dries up for for customers within this age group. caring for family members if they fall ill underlying this interest.

Distributors should be sensitive to this need for an amalgamation of Although they are the most likely in-person and online guidance, and of all age groups to already have focus on how life insurance can help life insurance in place (53%), understanding and education is still a to protect a millennial’s financial wellbeing as they navigate new chapters barrier for Millennials. of their lives.

Millennials are engaged and worried about cost

Issue 31 | 17

FINANCE

Generation X are preoccupied with care G e n e r a t io n X are the squeezed mi ddl e, p re o c c u p ie d w i th cari ng for thei r fami l y.

Of t h e 50% wi th cover, 35% have l i fe in s u r a n c e t o make sure others are c a re d f o r, incl udi ng chi l dren (22%) and ag in g p are n ts.

Reflecting these burgeoning financial responsibilities this generation have to balance, there is a general concern amongst them that life insurance is too expensive: with 36% of people in this age group worrying about the cost of cover, and thus failing to see it as a priority purchase.

From a distributor’s perspective, it’s crucial to communicate the broader purpose of life insurance as a means to supporting their family financially when they need it most, to help to dismantle the widely held understanding within this age group that life insurance is unnecessary.

Each demographic has its own anxieties following the COVID-19 pandemic. But being able to anticipate what channels of communication might work best, and even what your audience's fears, hopes and needs might be at the different stages of their lives will help to foster trust with customers for the long run.

It’s key that distributors step up here, to show how life insurance can be a part of a financial plan that provides comprehensive care for the entire family. Advisors should think carefully about how they explain different levels of care to Gen X, with a personalised assessment to help this age group align more closely with the affordability of any proposed cover.

Cynicism blocks baby boomers from benefits Baby Boomers don’t appear to struggle in understanding how life insurance works, but they do lack belief in its benefits: 61% currently have no life insurance in place, and 56% are not interested in finding out about it.

However, with ageing spouses, children and grandchildren to support, it’s unsurprising that 46% of Baby Boomers who do want life insurance, want it to ensure others are cared for (the most of any age category).

With a strong preference for face-to-face advice (57%), it’s likely that baby boomers will want to speak to an adviser before making a purchasing position, even if they have arrived at a certain policy through digital channels.

18 | Issue 31

David Vanek CEO and co-founder Anorak

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TECHNOLOGY

Investing for the Future: How UK Organisations Can Minimise Disruption Around MiFID II Recording and Surveillance

While it is uncertain as to whether the UK will decide to diverge from some parts of the Financial Instruments Directive II (MiFID II) post-Brexit, it is becoming clear that the UK will not remove itself from the articles that relate to Recording and Surveillance.

This is significant, given the ongoing pace of EU regulatory change. In fact, UK firms may find themselves subjected to even greater levels of scrutiny as a result of Brexit. Indeed, trading as a ‘Third Country’ within the EU means that the UK will now have to prove regulatory equivalence, and the complexity of this process is yet to be fully determined.

This poses an interesting upcoming challenge for organisations that want to assure long-term success, while maintaining a firm grip on their ongoing cost management.

With that in mind, the following five recommendations will help firms both future-proof existing communications recording and storage solution investments and circumvent the potential risk of encountering additional costs and disruption in the future.

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1. Adopt a unified 360-degree approach to compliance

Forward thinking firms that adopt a holistic approach to communication recording and storage solutions will be better able to position themselves for competitive advantage.

Going beyond simply considering how to meet today’s compliance obligations, they should be looking to implement open architectures that will enable them to leverage powerful new enabling technologies, such as artificial intelligence (AI), that anticipate future regulatory developments.

In parallel, firms should also be looking to implement a unified approach to common requirements that will enable them to streamline compliance strategies across the business. Beginning, for example, with identifying the overlapping compliance obligations across MiFID, Dodd-Frank, EMIR and REMIT. Finally, implementing cloud technology that utilises industry standards and supports organisational change will help ensure firms are capable of adapting with ease to the fast-evolving regulatory environment.

2. Deploy open architectures Communications recording and analysis technology is advancing at a rapid rate and regulators and customers will expect firms to keep up with the latest innovations. This represents a singular challenge for any business that is trying to prepare to meet new compliance obligations, and especially so for those organisations that have invested heavily in proprietary solutions.

Typically, these proprietary or ‘closed architecture’ solutions use APIs that will only work with a specific vendor’s products or file formats and rely on communication protocols that are incompatible with third-party software. It is this so called ‘vendor lock-in’ that will prove troublesome for any organisation that wants to implement a costeffective or competitive long-term compliance strategy.

By contrast, organisations that opt to deploy open systems will be free to take advantage of best-of-breed solutions, quickly integrating the latest innovations to confront any future extensions and adjustments coming down the line.

TECHNOLOGY

3. Limit audio compression The emergence of new cutting-edge voice analysis technologies, powered by advances in Automatic Speech Recognition (ASR), are setting a new benchmark in analysis capability that looks set to become a standard compliance toolkit requirement across the industry.

As a consequence, firms must act now to ensure they can integrate ASR technology into their compliance solutions in the very near future. For many, this will mean rethinking audio data compression.

Many of the recording and data storage solutions in use today employ high audio compression algorithms that make audio files smaller by removing audio data from the file. While this type of compression is great for reducing file sizes, it reduces overall fidelity and can significantly increase transcription word-error rates.

Furthermore, once compressed, this lost fidelity cannot be retrieved.

To take full advantage of ASR and other next-generation analysis technologies, organisations should instead look to deploy recording and storage solutions that use lossless formats. To improve transcription accuracy yet further, businesses can utilise stereo recording that allows both sides of the conversation to be separated – eliminating the transcription errors that can arise when individuals talk over one another.

As ASR performance continues to advance and new algorithms emerge that enable organisations to re-analyse existing recordings with increased transcription accuracy and analysis, organisations will need to ensure they’ve moved on from recorded audio compression techniques if they hope to take full advantages of the new opportunities these technology advancements open up.

Issue 31 | 21

TECHNOLOGY

4. Deploy high-capacity storage

5. Unified recording and analysis

To get a handle on compliance, firms are turning to compliance analytics and AI technologies to sift through large data sets and root out potential compliance violations, based on current and historical data.

Rather than working across multiple systems or utilising overlapping solutions that require multiple management policies, organisations should instead look to deploy a unified platform that will enable them to take full advantage of resources such as search-and-replay, e-discovery and end-to-end reconstruction.

Added to which, regulatory controls governing everything from best execution and reporting procedures to conducting monitoring and risk management means that firms are becoming increasingly reliant on data-heavy compliance strategies.

To cope with this growing demand for comprehensive high-quality data, organisations will need to invest in robust high capacity storage solutions.

Similarly, organisations should ideally look to ensure their systems utilise compliant WORM (write once, read many) data storage with the capacity needed to retain large volumes of electronic communications data – including uncompressed stereo voice data – for the duration of any regulated time period.

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Having the ability to do all this within a single system will enable firms to initiate truly cost-effective enterprise-wide compliance and data management policies and eliminate many of the problems so often associated with a disjointed approach.

Alongside being able to manage their assets and resources much more effectively, firms will be able to optimise value across the business and maximise the effectiveness of compliance officers who will be able to make best use of the time and resources that is now available to them.

Colum Gorman Business Development Director Content Guru

TECHNOLOGY

Historical and forecasted performance of the Philippine Stock Exchange Index

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Issue 31 | 00

https://baseconline.psetradex.ph

FINANCE

Private Equity - Resilience Leads to Opportunity As the UK enters the summer months and certainly at the time of writing, the vaccine roll-out looks to have had the impact needed to push COVID-19 off the news agenda and get the economy moving once more, the private equity market remains strong.

The core fundamentals that power the market remain. Not only is there a huge pent-up demand but also debt markets remain positive in terms of both leverage and the cost of financing.

According to Preqin’s 2021 Global Private Equity and Venture Capital Report, the global private equity market is now worth over $4 trillion1 . The UK, long the most developed private equity sector in Europe, remains at the centre of this trend. However, as we come out of lockdown there are two sides to this picture—the dry powder available to private businesses, and the impact the pandemic has had on private equity vehicles.

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When Supply Meets Demand COVID-19 has been without a doubt one of the biggest challenges ever to confront the economy. No more so than for the private sector. However, for businesses, both large and small, government support has been available in the form of loan schemes, the job retention scheme (aka furlough) and moratoriums on rent and HMRC liabilities.

While cash flow may look strong today, the rollback of government support will start within months, and for some, pressure on balance sheets will follow soon after. This is not to say that the financial pressures facing businesses will drive many into insolvency but dealing with an increase in working capital requirements is a challenge facing many business owners in the short term.

Potential changes to capital gains tax are also beginning to focus the minds of many business owners who may now see this as a time to invest or indeed sell.

For many, public ownership has fallen out of favour as an exit strategy, and selling to a competitor, especially in the current circumstances, can have its own business risks. The private equity market has been the beneficiary of a trend that has been happening for over a decade following the last great economic shock of 2008.

With the supply of investment opportunities looking healthy, what does the demand curve look like?

As mentioned previously, there remains a high level of market liquidity and a strong desire from funders to invest in quality businesses, with private equity funds—a continued firm favourite route—to market for institutions, family offices and high-net-worth individuals. In other words, there is lots of opportunity for investment and acquisition. This has already been demonstrated, with global M&A activity in Q1 2021 being at its highest for over a decade.

FINANCE

Philip Dakin (Managing Director) Restructuring advisory Kroll

However, whilst there is plenty of dry powder, the stage at which a private equity fund was in the normal fund lifecycle when the pandemic hit, will have a potential impact on the success of that fund and its ability to raise its next fund. How the portfolio of investments within a fund have been managed through the pandemic and how they recover post-pandemic will be crucial.

Portfolio Resilience PE firms themselves have faced their own unique issues as a result of the pandemic. Funds briefly stopped active transactions back in March 2020 as economies closed and people were ordered to stay home. All attention was instead focused towards an almost A&E “triage” assessment of their portfolio companies at the start of the pandemic, with origination and portfolio teams working together to support the management teams of their portfolios.

Many sponsor-backed companies struggled to access governmentsupported loan schemes, such as CLBILS and CBILS, ironically due to EU laws on state aid for “undertakings in distress.”

The typical private equity investment structure using quasi-equity debt instruments to fund investments being the root cause. However, most have taken advantage of the job retention scheme by furloughing employees and sought access to grants and the deferral of accrued HMRC liabilities to weather the storm. Needless to say, in some instances, this has resulted in a squeeze on working capital, and any top-up funding has had to come from existing lenders and/or equity injections from the PE houses themselves. The question now is how much of that dry powder has been utilised in supporting their portfolios to maintain a status quo for 12 months, and what impact does that have on their ability to make new investments.

But despite the uncertainty, many PE firms are adapting and keen to point to their funders’ patience and understanding in what has been a difficult period for the business world.

Equally, there will undoubtedly be opportunities to acquire some assets cheaply as some corporates fail in the post-pandemic market. These may provide bolt-on opportunities for existing portfolio investments or create a new platform investment.

We are without a doubt entering uncharted territory, and unlike previous recessions, the pandemic may have long-term effects on consumer behaviour and business models.

Like all other markets, private equity needs to negotiate the current COVID19-induced economic crisis. But the sector is immensely well placed to weather the storm because one of the key characteristics of PE is its ability to be nimble and respond quickly to changing trends.

Issue 31 | 25

INTERVIEW

“One of the World’s Oldest Start-Ups!” - With 200 Years of History, CAB Continues to Innovate Crown Agents Bank (CAB) is a UKregulated bank and an awardingwinning provider of wholesale FX, cross-border payment and pension services across G10, frontier and emerging markets. Its 200-year history of commitment to excellence has earned CAB an extensive network of global partners, and its work provides a key link to moving money where it’s needed. Among its endeavours are enabling financial inclusion, supporting humanitarian relief and removing financial friction worldwide.

Crown Agents Bank’s Group Chief Executive Officer, Bhairav Trivedi, has over 30 years’ experience in the financial services industry, with a strong focus on payments and payment processing, cross-border remittance and financial technology. Bhairav recently spoke with Wanda Rich, editor of Global Banking & Finance Review, to explain how some of CAB’s most productive times have come during COVID, how it remains a key member of the ‘community of innovation,’ and where its focus lies for future product development.

The past year has been full of challenges for markets and the economy. Has it been challenging for Crown Agents Bank (CAB) to maintain its level of work?

The past two years have obviously been hugely difficult for the global economy - no business has been untouched. However, CAB is no stranger to navigating complex and challenging market environments. In many ways, challenging environments is where CAB thrives! Over the pandemic period our network has, in fact, grown, allowing us to reach more markets and provide more currencies to our clients. We are

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especially proud that over this period our channels have remained open and functioning, helping to get money where it is most needed, be that the private sector or the development aid sector. From a business perspective over 2020-21, we saw some of our most productive days in our nearly 200year history. Our growth trajectory has continued at pace. We are very pleased that we continue to help so many people and organisations through such a difficult situation.

What does CAB offer to clients? What is special about your bank?

Quite simply, at our core, CAB moves money where it’s needed; we have a long-term commitment to opening safer trade corridors with emerging and high-growth potential economies, supporting and enhancing financial inclusion across the world. We connect emerging markets to the rest of the world using finance and technology.

We operate a unique global network of strategic banking and payment distribution partners, enabling our customers to benefit from access to a wealth of currencies at competitive rates with reliable local delivery of funds. Our client base is diverse and expanding; it includes International Development Organisations (IDOs), such as UN agencies, the Foreign Commonwealth & Development Office, various governments, NGOs, banks, NBFIs and public and private pensions funds.

Whilst we have a long history, today I prefer to describe us as one of the world’s oldest start-ups. We are a longstanding bank, but one injected with fintech energy and a drive to innovate.

What drives product creation at Crown Agents Bank? You have introduced some new, innovative products during the past 12 months, particularly in the pensions space. Tell us more!

The impact of new technology advances in many of our core markets has the power to transform society and business in a much more dramatic way than we’ve seen in the Global North. The culture of using mobile phones for transactions became much more deeply embedded in some African markets than here in the U.K. and changed the way people do business, particularly in the SME and informal sectors, over a very short period. This is hugely inspiring. We want to have a transformative, positive impact where we work, and to be part of that community of innovation.

Pensions has been a long-neglected area when it comes to digital advances, with many organisations still relying on paper-based processes - especially in identity verification and proof of life. Our new product, EMpower Pensions, provides a unique crossborder pensions payment platform, which not only gives administrators and members full visibility of their payments and related foreign exchange, but also provides biometric proof of life services. Processes that took days or even weeks to complete can now be done in minutes from the comfort of the pensioner’s home. The solution is particularly powerful when considered in the pandemic context; there is no need for travel or in-person interaction for potentially vulnerable pensioners. Plus, the inherent anti-fraud measures of the platform will help providers save money in the long term. This is particularly relevant considering the increase in security threats that the world has seen over the last 24 months.

INTERVIEW

In your opinion, what are the potential benefits or challenges of distributed ledger technology and/or digital currencies?

I am particularly excited by the rollout of Central Bank Digital Currencies (CDCBs); they present real potential for gains in efficiency, governance, and fraud detection. As officially issued and regulated currencies, they could provide countries with a real measure of usable money in the financial system. Money tracked at the level that’s theoretically possible with CDBCs would make money laundering much harder. Digital currencies could increase convenience, making transactions faster and easier.

Of course, any disruptive technology brings with it concerns and scope for challenges; the balance between privacy and traceability will have to be carefully navigated. Consumer finance and traditional financial services will have to adapt to a markedly different reality. There is a fascinating journey underway in this space, and we are excited to embrace CBDCs and continue to aid our clients wherever it takes us.

In your opinion, what role should financial institutions take to support African economies?

Africa is at the heart of our growing business; we are incredibly proud of our role in African markets and our unique ability to move money efficiently across the continent. Recent political developments, such as the African Continental Free Trade Agreement (AfCFTA), have been hugely encouraging to see. For financial institutions, it is a no-brainer to support increased intra-African trade and the movement

of goods and capital. Our work reduces friction across trade, investment and development processes.

Afreximbank’s recent announcement of the Pan-African Payment and Settlement System (PAPSS) shows the kind of ambition that financial institutions should have; we see our work as integral to realising the potential of the continent. CAB is one of the biggest purchasers of African currencies in the world, supporting rapid cross-border payments in local African currencies. Our work and technologies mean that African currencies are more accessible to both regional and international companies and organisations, helping to drive intra-African business and economic development.

What’s next for CAB? More! We want to add more currencies and more channels for our clients. We want to create more innovative and exciting tech products that serve more of our clients’ needs.

Our focus on nimble technological solutions is central to our future.

Technology is a driver of inclusivity in financial services for all ages and in a wide variety of economies. To raise just one example, in its preliminary rollout in two African and Caribbean markets, the EMpower Pensions digital portal was signed up for by more than half of the pension funds’ overseas members in a matter of weeks. It is real food for thought for those who think technology-driven change is only for the young. So just like CAB, these pensioners may have many years of experience, but they are just as nimble and forwardlooking as their younger counterparts!

Bhairav Trivedi Group Chief Executive Crown Agents Bank (CAB) Contact Us www.crownagentsbank.com sales@crownagentsbank.com 020 3203 903 3000

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FINANCE

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FINANCE

Six tips for strong operational resilience

We are now less than six months away from the FCA’s operational resilience requirements coming into force for the UK’s financial services sector, and just under two years since the parliamentary committee called on regulators to intervene following TSB’s IT meltdown.

1. Identify your transaction flows

Far from moving towards greater operational resilience in that time, businesses’ IT estates have only grown larger and more unwieldy. The rush to adapt to pandemic-enforced digital transformation has seen many rapidly move to insecure work-from-home systems, combine cloud and physical premises, and spread their estates over numerous new third-party providers with a view to slimming down their business models through outsourcing.

These old IT systems are connected with new development and deployment techniques, creating unmanageably complex estates and rendering observability of transaction flows almost impossible.

As a result, the financial services sector has opened its doors to new silos and operational blind spots and weaknesses, putting the industry at greater risk of IT failures and capital loss – not to mention creating huge inefficiencies.

It’s not the first time operational systems have been put to the test, but it is the first time that the C-suite will be front-and-centre if anything goes wrong. New regulations will see individual senior managers facing hefty fines among other punitive consequences.

With six months to go until the new regulations come into force, here are six top tips that all UK financial businesses should prioritise to achieve operational resilience and avoid regulatory and reputational backlash:

The past fifty years have seen an astounding evolution of operations within the financial sector, layering new technologies onto legacy systems with little pause for thought.

To achieve operational resilience, firms must identify the paths which the key services use and they must target and remove any points of weakness and build on modern, up-to-date software that can operate across multiple computers so that, if one fails, the rest are able to pick up the slack. But, for a long time, it’s simply been seen as too expensive to overhaul.

Thankfully, third-party vendors are helping firms get their IT estates up to scratch quickly, consistently and affordably, without the need for a complete redo. Such vendors may be the key to allowing struggling firms – particularly smaller ones – avoid legacy rot and move into the next era of digital transformation with minimum cost and maximum efficiency.

Of course, this is not a one-and-done process.

As firms inevitably continue in their pursuit of digital transformation, they must keep in mind that constantly adding to the estate means no one is taking away yesterday’s work. Businesses must instead seek to replace or update the outdated bits. After all, it’s not digital expansion, it’s digital transformation.

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FINANCE

They must also make sure not to rush.

Over 60% of outages occur as a result of poor change management and could be avoided with more careful planning and a system to fall back on if things aren’t up and running in time.

2. Get to know your performance and uptime Businesses will soon be expected to declare the level of performance and uptime they are prepared to commit to and stick to it. This is something firms should start thinking about today as it will require significant historic data to accurately calculate.

Google has popularised Site Reliability Engineering (SRE) the gold standard of uptime monitoring and performance delivery for internet giants and, increasingly, any firms with digital transformation ambitions. The SRE approach involves tracking data and trends over a long lifespan to identify and quickly fix degrading performance levels, and uses both Service Level Objectives (SLOS) and Service Level Indicators (SLIs) as a two-phase early warning system to ensure they are never close to being in breach of their SLA.

Less digitally-native sectors like banking should be following Google’s suit and pursue an SRE approach to operations. While Google has the benefit of massive resources and an incredibly experienced team dedicated to the monitoring of this data, third party providers can support smaller businesses with remote specialists and purpose-built software.

3. Optimise Cloud usage The pandemic has been an added boost to the Cloud’s upward trajectory, seeing 9 in 10 firms push cloud usage slightly or significantly higher during this period. Concurrently, the number of organizations spending at least $12 million on cloud annually has nearly doubled this year compared to last, with a whopping 30% of that going to waste.

This is because accurately forecasting cloud costs and demands is way more challenging than most would first assume. Far from being a like-for-like ‘lift and shift’ transition, in which the Cloud estate is mapped out as a virtual equivalent of the physical estate, moving to the Cloud requires enormous planning if it’s to be done efficiently.

A comprehensive stock take of the demand profile of business workloads is a critical first step. Firms must begin by right-sizing their estate and developing a thorough understanding of workload behaviour and demand profiles via detailed analytics.

Once a company gathers all this information, it can optimise its environment for the right workload configuration and accurately plan its monthly cloud spend based on a right-sized environment. This means more accurate instance sizes and, in the majority of cases, decreased financial input.

4. Know your limits Say you’ve had an issue with change management or Cloud migration and a few of your customers are experiencing IT failures. As soon as the rest of your customers get wind of this – which could be within minutes in the age of Twitter – they all rush to check their applications, compounding the issue with overcapacity.

In order to know for sure that the production environment is going to run properly at peak demand, pretesting is essential to gauge what it can withstand. Firms need to not only identify the overall capacity ceiling of their systems, but specific bottlenecks and pinch points that can affect overall performance.

The right software will enable firms to model certain levels of demand on their systems. Load testing can simulate the number of users on a platform to see at what point the system will fail and provision for it precisely.

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FINANCE

Underpinning this is the dire need for monitoring. Though the pandemic and oncoming regulations have rendered operational resilience more essential than ever, fewer businesses are now deploying security monitoring tools or undertaking any form of user monitoring compared with this time last year.

This is a trend that needs to be reversed as soon as possible if firms are to meet the March 31st deadline.

With different disparate data and flashing alerts all flooding in at the same time, manual processing is inadequate and the right technology is crucial. By onboarding a proactive monitoring system that encompasses physical, cloud and third-party estates, firms can suppress the white noise and hone in on what’s valuable in real-time, helping them predict and mitigate IT failures before they occur.

5. Integrate security into operations In 2020, four in ten businesses (39%) in the UK report having cybersecurity breaches. Among those, around a quarter have experienced them at least once a week.

As opposed to traditional conceptions of security as separate to operations, firms must begin to integrate it into their operations and operational mindset from the get-go. Everyone involved in production should be trained with equal awareness of the critical importance of cybersecurity to ensure that not a single person in the business will let in that Trojan horse.

This is particularly important in a COVID-normal world where remote working is increasingly the modus operandi for many.

The new best practice approach involves Zero Trust Networks – challenging firms to provide proof for each transaction made, even inside their own data centre.

6. Nominate a Chief Resilience Officer Finally, businesses that want to get on the front foot of new senior management requirements – namely SMF24 in the UK – should look to designate a senior leader to focus solely on operational resilience so that the c-suite’s slate is clean by the time they come under scrutiny. The fact SMF24 will backdate past discretions makes this all the more important to get on top of today.

The countdown is on The resilience of IT systems no longer falls to the back office. To meet requirements on time and avoid punitive consequences, including hefty fines on individual senior managers, the c-suite must commit serious investment towards data analytics and estate monitoring technology.

Come March 31st, there will be no excuses made for shortcuts or subpar capabilities. While it might seem costly at a time when most businesses are operating off of small margins, the bottom line is this: if you say you can’t afford to prioritise the operational resilience of your systems, then you can’t afford to be in business.

Many have already made the start, with the UK’s banking and financial services sector now boasting over 60 individuals with the title Chief Resilience Officer (or equivalent) on LinkedIn. And make sure the CRO is empowered to do what is necessary! The are on the line personally with the regulator.

Guy Warren CEO ITRS Group

Issue 31 | 31

BANKING

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BANKING

ENABLING DECISION-MAKING SUCCESS IN THE BANKING INDUSTRY - 3 CONSIDERATIONS

The move towards strategic decision-making

Transparency is critical

Now, with the pandemic restrictions lifting, banks will have to be strategic in their decision-making when it comes to recuperating any lost income, and balancing consumer trust with a focus on growth.

The return of the workforce will, of course, coincide with a resurgence of spending and investment from consumers and businesses respectively, so banks need to capitalize on the opportunity they have carved for themselves - becoming an integral and trusted player in the recovery from the pandemic – and look to where positive, long-term changes can be made, in regards to their company purpose, the products they provide and the impact they have on local communities.

The regulatory landscape is also evolving to meet the increasingly digital-centric and consumer-oriented world we live in. Not only are regulatory bodies reinforcing regulations regarding governance, liquidity management, and compliance, they are also turning their focus to cyber security, climate risk and structural reform. More regulations are sure to emerge in the following years, especially as Millennial and Generation Z consumers become more influential.

Banks need to maximise this positive influence without delaying recovery more than necessary. To walk this tightrope, banks need to implement technology platforms that allow them to model multiple macroeconomic scenarios – demonstrating the impact of each and allowing them to plan and strategize accordingly. Supporting this, banks should have the capability to model scenarios based on both a products and borrowers meaning no scenario is overlooked and their decisionmaking is robust.

This means increased accountability for financial institutions – both internally and externally. Banks can’t afford to make any errors or material misstatements when it comes to financial reporting – so there is an increased need for technologies that give them the ability to drill down to minute detail and analyse information in realtime. More importantly, these technology platforms need to give banks much needed transparency and trust in the validity of the data at hand.

Banks need to be confident that the decisions they make are based on complete and accurate data – and this needs to be fully transparent throughout the business, to minimize the risk of incorrect information being cascaded before it is submitted externally.

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BANKING

Stress-testing will also play a key part in meeting changing regulations going forward. Banks need to expand their capabilities to ensure they can stresstest varied scenarios and update their reporting metrics to include climate change, cyber-attacks, and potential data breaches.

machine learning and artificial intelligence are empowering banks to provide more personalised, meaningful customer-facing experiences than ever before, it’s unthinkable they should have to gain the help of an external player to make changes to or create new internal reports.

To complete these incredibly complex reports and ever-evolving metrics, many banks have turned to standard BI tools - but the need is greater. The information can’t always be accepted at face value; it’s a number without any wider context.

The real benefit banks can derive from more advanced tools will be understanding the ‘why’ and ‘how’ of the numbers they are reporting on - meaning data can be interrogated with a deeper understanding, create an analysis, and arrive at an objective and aligned conclusion.

A low code, no code approach

Many banks are hindered by disjointed, cumbersome legacy systems – and this often requires regular support from external specialist third parties, adding extra cost and another layer to a bank’s operating model. At a time when

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If banks are to have the ability and flexibility to adapt reports and forecasts at relatively short notice, processes should be increasingly digitalised, helping to ensure standardisation and automation.

But there is no point in having a powerful system in place if it is too complicated for everyday users to adopt and operate; in a rapidly changing global market, time can often be an organization’s most valuable resource, and hours spent dedicated to creating a single report is essentially a sunk cost.

Therefore “low code, no code”, cloudbased technology platforms will be the key to success for banks in the years ahead. These provide all the benefits of more complex legacy systems, but without the need for extensive coding.

Platforms that require extensive technical knowledge can be alienating to employees lacking skills and creates silos even within departments. “Low code, no code” platforms instead operate on a dragand-drop approach that means users need little training, and all relevant employees have instant access to real-time information that they can analyse and interrogate.

Similarly, “low code, no code” solutions enable much better crossdepartmental collaboration as the skills barrier to entry is lower and the information is standardized and hosted in a single environment, reducing room for error when compared to spreadsheet-based alternatives. Finally, these platforms can help banks to get new products and messaging to the market sooner by shifting man-hours from back-end support to strategic input, analysis, and planning. Information is hosted in global data houses that control and manage customer data, maintaining privacy and meeting ever-changing compliance requirements.

BANKING

Going forward, banks must look to technology platforms which empower employees to create financial, operational and/or workforce planning models, forecasts, scenarios and reports with ease and speed. The ability to compare scenarios and weigh the benefits and risks efficiently will allow for more informed, quicker insights and decisions, greatly reducing the need for guesswork in any critical decision making.

These platforms will also provide the opportunity for meaningful insights on customer behaviour, in real-time, and ensure data they traditionally stored in different silos is captured and turned into actionable insights - delivering added value, improving strategic assessments, and enabling a more flexible and collaborative approach to reporting.

Banks now need to think ahead – capitalizing on the trust they have built-up over the last year and opportunities for growth, investment, and innovation, both in the products they offer customers and the way they operate internally. Only then will banks truly have discovered the key to success.

Neil Shah Head of Financial Services Board Neil is Head of Financial Services at Board after having spent 8 years in EY’s Finance Consulting practice advising Financial Services firms on both regulatory and technology driven change.

Neil has advised many clients on the digital transformation of their finance functions and now brings to Board a unique perspective on technology from both a client and alliance partner point of view.

Issue 31 | 35

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2021

FINANCE

Vertical or Horizontal, Deep or Shallow: Evolving the Marketplace Model

One need only look to Amazon’s phenomenal evolution from book seller to orchestrator of global commerce to see the inherent value of multi-participant marketplaces, all built around customer needs. Across financial services, marketplaces are transforming industries historically fraught with inefficiencies, to the benefit of all participants and consumers of those services.

Marketplaces, or platforms as they are also known, can generally be categorized as vertical (focusing on a specific industry) or horizontal (relevant across multiple markets).

Both vertical and horizontal can also be shallow (fulfilling a primary requirement) or deep (adding comprehensive services that tackle broader pan-industry challenges).

One of the simplest ways to illustrate this is by building on the work of the a16z team on shallow vs deep job platforms. A vertical, shallow marketplace would be one that serves a specific purpose and market, such as connecting participants (jobseekers and hiring companies) in a sector such as hospitality. A horizontal, shallow marketplace would use the same matching processes, technology and infrastructure to connect participants across multiple, or even all, industries.

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But with the explosion of open APIs and a growing shift to build solutions in a more customer-centric way, so grows the appetite for deeper marketplaces. A vertical, deep marketplace would build on top of the core requirement (connecting job seekers with recruiters). a16z uses examples that include retraining bootcamps, career advisory services, right through to collaboration and even workforce management for postemployment support. New participants bring additional layers of value to tackle industry problems – which, in this case, could be the lack of jobs in hospitality during the pandemic – and open up opportunities to apply the model across multiple industries, to create a horizontal, deep marketplace.

It is this depth that drives a thriving ecosystem, across any marketplace.

Even in a relatively finite vertical marketplace, the combination of open technology, the unbundling of services, and a customer-centric mindset is taking marketplaces from version 1.0; simply connecting or facilitating, to 2.0; orchestrating a launchpad for innovation and the creation of entirely new markets.

Furthermore, new participants and new layers of value propagate marketplace adoption and interaction, whilst solving industry-wide challenges. These truly are virtuous circles that have the potential to transform every industry.

FINANCE

Deep Vertical Use Cases in Financial Services 1 - Residential Mortgage Marketplace Deep vertical marketplaces continue to evolve having overcome, for many, a historic challenge of full digitization. Take the residential mortgage marketplace, not so long ago fraught with manual processes, time lags and inefficiencies for both lender and broker participants. Now, as we see in image 1, thanks to digitalization, automation and the prevalence of open APIs, the marketplace has been reconfigured around the participants’ and end customers’ journeys. Mortgage rates can be sourced and secured in real-time, and participants can benefit from extended services across the value chain; from market data to customer acquisition tools to collateral management.

It will not be long before new participants embed wider services – identity management, valuations, legal and conveyancing services, and so on, and widen still by bringing alternative lenders and real estate agents to the ecosystem for example.

Image 1 – Residential mortgage shallow and deep marketplaces

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FINANCE

And this marketplace is an example of how a deep vertical can be flipped to become a deep horizontal solution, as image 2 shows, with many components able to transition to new markets and use cases.

Image 3 – Financial messaging shallow and deep marketplaces

Image 2 – Residential mortgage deep vertical transition to deep horizontal 2 - Financial messaging marketplace Likewise, financial messaging marketplaces have been reimagined to solve cross-industry inefficiencies and points of weakness. Across the value chain, areas such as payments, confirmations and settlements have been componentized, extended by the proliferation of value-add layers, such as fraud checking and blockchain distribution. Image 3 shows how simple the shift; taking a vertical, shallow marketplace to a multiparty industry marketplace that encourages new participants to join; firstly, to provide value to the ‘consumer’ – whether bank or corporate – and secondly, to access a functioning marketplace and reach new users at scale and speed.

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Banks, non-bank financial institutions and corporates can connect to traditional messaging, clearing and payment networks such as SWIFT – or newer bespoke payment channels such as Ripple or Mastercard CrossBorder Services – to exchange financial data and assets, and benefit from an extended ecosystem that can also identify fraudulent transactions for example.

And it has the potential to embed new participants to generate new opportunities; geographical reach or through the addition of new payment rails for example, which in turn could serve new markets such as ecommerce participants that join. The entire value chain could expand to include Payment Service Providers (PSPs), challenger banks or other market participants, creating a wider distribution scope. Also, with the addition of value layers such as financial crime and blockchain components, the strength, transparency and security of the ecosystem could be significantly boosted.

3 - Trade Finance My final example is that of trade financing (image 4).

Globally, the gap – i.e. the difference between supply and demand of business funding in trade finance – has long been a tough issue to solve. Threatening to rise to $2.25tn by 2025 as a result of the pandemic, the problem is especially acute for SMEs, which employ

FINANCE

half of the world’s working population and make up 90% of all enterprises globally.

Deep marketplaces traits: Orchestrating all parties to connect, exchange, monetize and extend

The complexity of the problem lies in multiple contributory factors such as compliance constraints, labor intensive manual trade operations, a lack of visibility in credit quality, and a retrenchment of traditional lenders, and, here, a deep marketplace model could reduce these trade finance barriers through wider participation and digital capabilities.

The wider the remit of the marketplace, the more attractive it becomes to participants; adoption begets adoption and complex processes or market failures, such as access to trade finance or paper-based mortgage approvals are digitalized and enhanced, in a transparent and comprehensive way.

These deep marketplaces all share the same traits. Fundamentally, they orchestrate the participants and services for the benefit of entire industry sectors. They connect market participants, they facilitate an exchange – be it financial information, an asset or a service, they extend the value chain beyond the traditional transaction by being open and responsive to new innovations and markets, and every participant can monetize their part in the ecosystem on a usage basis, particularly if the marketplace can be flipped to a horizontal model to serve new markets. And through this orchestration, they solve historic, cross-industry problems.

Image 4 – Trade finance shallow and deep marketplaces

Of course, just bringing participants to a marketplace is the first step. Like any form of embedded financial service, driving consumption is absolutely crucial. Across all of the marketplaces that we orchestrate at Finastra, active participation and volume are the prerequisites for a valuecreating and sustainable model, so as much effort needs to be put into supporting participants as it does attracting them.

As well as simplifying the KYC and onboarding elements, a marketplace can connect SMEs to both traditional and alternative financing, and furthermore enable trade finance asset trading, using enhanced risk modelling and data layers. Trade finance hubs and networks can connect in a single marketplace, fully validated, and paper gives way to fully digitized documentation for faster access to credit and more efficient distribution processes.

In this instance, not only does the marketplace orchestrate smoother financing flows through digitization but improve visibility into transaction risk – that generates more accurate data, that feeds risk engine models, that can be used to attract more funding…and so we begin to see another virtuous circle.

Akber Jaffer Chief Commercial Officer Marketplaces at Finastra

Issue 31 | 41

BANKING

Staying on top of your transactions and credit lines in a digital world.

Corporate treasury departments have been under a lot of pressure in the last few years. The department is expected to keep companies running with smooth, stable access to credit facilities with banks and insurance providers. At the same time, they have been under extreme pressure from audit committees, shareholders and chief financial officers to improve profitability and reduce risk rather than take more risks.

To make matters worse, treasurers are finding it exceedingly difficult to continue to use manual and, in some cases, multiple complex workflows that involve various systems and many points of contact. This is especially true in the management and optimisation of credit lines and important instruments such as bank guarantees, letters of credit (LCs) and standby letters of credit (SBLCs) with Multiple Banks.

In this piece, we will be addressing how treasurers are able to streamline their workflows and streamline

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communications with their banks to optimise their credit line utilisation, transaction management and leverage the advancing trade digitisation of banks and insurance providers.

Leveraging the banks’ advancing trade digitisation It's an open secret that digitisation and consolidating the communication between treasury departments and banks in trade has been tortoise like, mainly because workflows have historically relied on the transfer of paper documents, e-mails and at best using multiple bank portals, between trade parties in largely laborious processes.

Whilst in the past year we have seen the adoption of recent technologies in the trade space become increasingly prevalent as the pandemic has put a strain on the supply chain, most corporates are yet to figure out how to manage their transactions across supply chains in an efficient way. But also how they can reconcile all of their transactions (usually handled by multiple banks), streamlining communications with their banks, and consolidating their guarantees on a regional or even global scale.

In order to enhance efficiency, corporate treasuries must move away from using paper in transactions, and reduce their reliance on Excel sheets.

BANKING

Data from the International Chamber of Commerce (ICC) has shown that despite increasing digitisation among banks, many treasury departments still rely on sluggish and cumbersome paper-based processes despite banks themselves transitioning to digital variants of bank guarantees and letters of credit.

In industry and construction, we see huge volumes of performance and warranty bonds being passed around between banks and treasuries using every form of communication available. In international trade, lost or delayed documents spanning different continents are seen as a normal occurrence.

These very documents are also prone to forgery and need to be safely stored and manually reconciled. At issuance of these documents, the process is burdensome for corporates and any delays mean that they are not open for business. During the pandemic, these delays were highly exposed through the inconsistent forms of communication mentioned between different parties. This highlights the needs for corporates to transition to the latest solutions that enable multiple bank workflows.

Reconciliation of all transactions Advancing technologies and the adoption of digital tools have become a priority for corporates in a postpandemic world that will force them to adapt.

Today’s corporates need digital solutions that provide them with reconciled and consolidated views of their credit lines, letters of credit, and bank guarantees for every bank they deal with.

Speaking to many of the larger corporates, we still see reticence in the adoption of digital technologies as they sometimes require lengthy and costly integrations that may not present clear and tangible benefits relative to their cost. Therefore, it becomes important for digital providers in this space to provide user-friendly solutions that require easy adoption and importantly plugin to an extensive network of banks to keep on top of credit facilities, transactions, and bank guarantees.

From a single interface, treasury departments need to be able to manage and edit their letters of credit, bank guarantees and electronic presentations. This is particularly important for large, multi-national corporates with subsidiaries or treasuries distributed across the globe, they need greater visibility across borders and organisational boundaries, providing efficiencies at scale in use of credit lines, working capital and transaction management.

Increasing visibility and control Banks are increasingly adopting digital trade finance solutions, enabling corporates to communicate with all of their banks in a seamless yet transformational manner and finally moving away from antiquated paper processes and multiple communication channels.

We've seen many prominent examples in the digitisation of international trade over the course of the last year in part because of the impacts of the pandemic. With working habits changing and remote working becoming the norm, the adoption of multi-banking trade finance solutions

Jacco de Jong Head of Global Sales Bolero International

allows treasuries to manage and optimise their LCs, bank guarantees and credit line relationships with banks with an ease and efficiency that has previously been impossible but, now very necessary.

Although we are highlighting the benefits of moving to a digital solution, and with good reason, the right solution can also future-proof treasury departments. With the SWIFT Guarantee messages changing towards the end of November, having a clear understanding of the compliance and concurrence of standards is key.

Today, treasury teams working with banks rely on a variety of manual processes to manage relationships and maintain the infrastructure for transactions, including Excel spreadsheets and complex errorprone manual processes. By digitising important paper documents and reconciling all transactions in one place, the technological landscape for trade and treasuries has paved the way for many advantages building open communication channels with financial institutions.

Issue 31 | 43

BUSINESS

How Key are Transparency and Consistency to Mitigating Greenwashing Concerns?

As the sustainable debt market continues to grow, investor fears of companies making exaggerated or misleading environmental claims, more commonly known as greenwashing, are mounting.

Lori Shapiro, Sustainable Finance Associate at S&P Global Ratings, investigates the root causes for these worries – and what can be done to address concerns The mainstreaming of Environmental, Social and Governance (ESG) practices has had a galvanising impact on how sustainability factors are incorporated into investment decisions, including at the financial instrument level. As a result, the market has continued to expand and sustainable bond issuance – including green, social, sustainability and sustainabilitylinked bonds – is expected to exceed US$ 1 trillion in 2021.

Naturally, this has led to an exponential rise in the number of green claims made by companies.

In turn, the volume of marketing and labelling – together with non-uniform sustainability commitments and reporting – has made it increasingly difficult for stakeholders to identify

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which claims are reliable and which have been greenwashed.

Inconsistencies fuelling concerns A lack of consistency in ESG terminology is a main driver of investor confusion when it comes to identifying which companies or financial instruments conform to desired standards. Indeed, the Journal of Environmental Investing Report 2020 found that there are more than 20 different labels being used for sustainable debt instruments, many of which align with different guidelines and frameworks. The wide scope of labels – and even wider scope of what constitutes a "green" or "social" project – makes navigating the sustainable debt space increasingly complex for investors and reduces comparability across instruments.

In addition, a lack of reliable and comparable ESG metrics and reporting is fuelling greenwashing concerns.

The quality and consistency of post-issuance use of proceeds and impact reporting is still highly unstandardised, and is significantly fragmented across issuer types and regions, making it difficult to compare and aggregate performance. Indeed, according to a Climate Bonds Initiative

report published in May 2021, between November 2017 and March 2019, only 77% of green bond issuers published on the allocation of proceeds, while only 59% quantified the environmental impact of the projects financed – fuelling concerns that green bonds may not be being used to finance projects that provide a significant environmental benefit.

Harmonisation will pave the way forward What can be done to quell investors’ fears of greenwashing? It is becoming clear that entities can no longer simply state their sustainability goals or long-term targets. Stakeholders want to see companies produce detailed transition action plans – backed by data and shorter-term interim targets – that demonstrate strong commitments toward a more sustainable future.

At the helm of this are a number of standards and taxonomies that have recently emerged to help standardise the market and mobilise capital toward sustainable objectives.

The International Capital Market Association (ICMA) and the Loan Market Association, for instance, have launched a set of principles

BUSINESS

to promote standardisation and transparency for use-of-proceeds and the sustainability-linked bond and loan markets.

And, while these principles are voluntary, an estimated 97% of use of proceeds and 80% of sustainability-linked bonds issued globally adhered to them in 2020 according to the ICMA – indicating there is a desire among corporates to substantiate their sustainability claims.

Despite current progress being made, there is still considerable fragmentation in regulations and taxonomies that limits comparability across regions. As such, the path to achieving global standardisation is likely to be long and winding, and finding a way to establish global harmonisation will prove particularly challenging.

In time, sustainable finance instruments will become more diverse and nuanced, in part to accommodate the new reality: that each sector, even those that are hard to abate, must play their part in decarbonisation. By providing information to stakeholders and adhering to the evolving regulatory landscape, businesses can help mitigate the material risk of greenwashing, while simultaneously quelling investor concerns.

As such, looking ahead, we believe that greater investor demand for more detailed and consistent ESG disclosure will continue to drive improvements in this field and add momentum to the evolution of ESG-focused regulatory disclosure and reporting frameworks.

Lori Shapiro Sustainable Finance Associate S&P Global Ratings

Issue 31 | 45

BUSINESS

How businesses can tap into Spain’s thriving ecommerce market The pandemic impacted countries around the world, but Spain was hit particularly hard. As a result of the pandemic, Spain saw an 11% decrease in GDP and its first rise in unemployment in nearly a decade. However, as confidence begins to return, the Bank of Spain is predicting a return to pre-Covid economic activity by the end of 2022, ushering in a much-needed sense of optimism for Spain’s future.

As the Spanish economy recovers, and ecommerce growth continues, opportunities for retailers will continue to expand. The country is already on a trajectory to catch up with EU averages for online shopping, and retailers can push Spain forward in this race. Currently, Spain has a 93% internet user penetration rate, up from 74% in 2013. The proportion of the Spanish population who shop online stands at an impressive 67%, which plots their ecommerce progress just behind the EU average of 73%. This year, the online shopping statistic will likely hit 69%, accelerated by demand developed when the pandemic shut down in-store shopping.

To capitalize on this growing ecommerce trend, business leaders need to stay abreast of Spanish consumer shopping trends and preferences. It is an extremely crowded online market, and the businesses that will break through the noise will be those that deliver on Spanish consumer needs and meet them on the platforms and channels that resonate.

Connections built between consumers now will drive business success long after the pandemic has melted away.

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Price Remains a Priority for Consumers The pandemic has not only seen an increase in online shopping; the accompanying economic downturn has prompted price sensitivity with Spanish consumers. Put simply, tight consumer budgets have made price a priority.

According to a recent Statista consumer survey, Spanish consumers rank pricing above convenience when considering ecommerce priorities.

Other compelling features? Home delivery and being able to order at any time of the day, which are recurring consumer pandemic preference themes. Still, price reigns supreme, rated even higher than convenience and product choice.

Cost holds even greater weight when considered alongside a pandemic essential, home delivery. Tackling high delivery costs, a major pain point for consumers, would be a differentiator for Spanish businesses. To put it into perspective, delivery cost is the largest perceived negative aspect of ecommerce for Spanish shoppers; an estimated 44% of consumers considered it such in 2020. Whether it is the purchase price or the delivery fee, retailers need to factor in this market’s sensitivity to cost.

A Mobile Marketplace As Spanish ecommerce catches up to Europe’s ecommerce levels, focusing on mobile is a must for retailers. While desktop is still the dominant device for ecommerce it has dipped in usage — 95% of the market in 2017 to 83%

BUSINESS

in 2020 — signalling a shift towards other channels. Specifically, mobile, a channel that has jumped from a usage rate of 37% in 2017 to 55% in 2020.

Interestingly, its increase appears to be spread almost evenly across generations. From Gen Z to over 70.

Similarly, the proportion of people making online purchases in each age group during the pandemic year of 2020 is evenly spread.

Perhaps surprisingly, it rises from 70% of 18 to 24 years old to 77% of those aged over 70.

Emergence of Winning Categories Along with other consumer shopping shifts: product choice. This category requires careful rigour from retailers who intend to match the needs of their differing consumers.

Like much of the world during the COVID-19 pandemic, Spaniards shifted from home delivery being used for large items to smaller everyday purchases increasingly topping the list for ecommerce purchases. Yet when segmented by age, a much more nuanced picture of Spanish purchasing habits emerges.

In 2020, for example, Gen Z and millennials were mainly interested in buying along the fashion category.

By contrast, the next age group, of 35- to 44-year-olds, were buying bulky household and appliances; while older age groups were mostly interested in DIY, pet products, and gardening.

These nuances make clear the importance of businesses connecting with their customers as individuals, providing them with the products and services to match their needs. Failure to do so risks a retailer seeming impersonal and out of touch with consumers of all ages.

Shopping shifts are particularly evident in the case of Spanish sports retailer Tradeinn, who saw massive and unexpected shifts in purchases during the pandemic. As people across Europe committed to keeping active under lockdown, its running store saw a lift in sales of 70% while its cycling store witnessed a 140% rocketing in sales in 2020, compared to 2019.

E-Wallets, Everywhere Success in the Spanish ecommerce market will not come from a single-channel approval.

Businesses need to adopt an omnichannel approach across the retail experience to excel. This is especially true when it comes to payment. Businesses that rely on 20th century channels for cart check-outs risk limiting their prospects for growth, and cutting off newer audiences who prefer more agile and tech-first options to pay.

Continuing along the ecommerce trend, recent data from Statista highlights a decline in the use of physical payment cards, in favour of e-wallets. Between 2017 and 2025, card use is predicted to dip from 57% to 48% of purchases.

And on cue, e-wallet use saw a huge uptick in adoption in 2020 (rising from a fifth of purchases to a third by 2025). At the top of the e-wallet food chain is PayPal, already used in nearly nine in ten e-wallet payments.

Open for Ecommerce As retailers plot their approach in Spain, whether a first foray or the next strategic expansion, many will find it reassuring that the market is very open to shopping with foreign retailers. In an analysis of Similarweb data, several key trends emerge. To start, only around a fifth of ecommerce purchases are made from retailers based in Spain.

The largest outside location for retailers?

American, which accounts for 29% of purchases made by Spanish consumers.

China is just behind at 21.4% of trade, neck and neck with Spain itself.

Elle Nadal Director of Marketing, EMEA Iterable

Much of these purchases are conducted on marketplaces which are hugely popular, because they tap into the local shopper’s quest for low prices and free delivery. It is also a reflection of inward investment into the country; Amazon has doubled its work force in Spain since 2019 and China’s AliExpress is hugely popular following investment from Alibaba, which decided Spain would be its main base to chase EU growth online, as well as in partnership with department store chain, El Corte Ingles. In fact, Spain now ranks as one of Alibaba’s top markets outside China.

Preparing for the Future It’s difficult to ensure success in any market. But, by taking the time to understand the key preferences and motivations of Spanish consumers, businesses can position themselves properly for success. Major trends, like the rise of mobile, the importance of price, and the escalation of e-wallets, make Spain one of Europe’s most thriving and exciting economies in which to do business.

Issue 31 | 47

BUSINESS

The multiple changing faces of international fraudsters The global online marketplace promises many lucrative opportunities for retailers seeking expansion beyond their own borders. In the wake of the pandemic, and the resulting shift to online buying, ecommerce sales hit $876 billion in the first quarter of 2021, a jump of 38% year-on-year.

But this growth is not without cost.

As almost all types of crime have been on a sharp decline over the last 18 months, fraud has skyrocketed by 159%, according to a report from risk management platform, Feedzai.

As ecommerce is evolving rapidly amid huge consumer demand, fraud is evolving with it, becoming more sophisticated, and making it much harder to detect.

Just like payment methods, fraud incidences are also localized. There is no ‘one-size-fits-all’ global fraudster, with methods and patterns varying across payment channels, and regional markets. Unfortunately, for many small to medium businesses that are operating across borders, there is simply no capacity to respond to fraud in every locality where they operate.

This has a huge knock-on impact as brands attempt to resolve these fraud attempts by declining transactions. Indeed, international credit card decline rates are twice that of domestic declines, resulting in a significant volume of genuine transactions being cancelled.

Existing anti-fraud systems and rulesets aren’t agile enough to catch emerging fraud instances, leaving businesses exposed to even more

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financial losses, at a time when they’re under pressure to serve growing customer demand. Retailers are flailing around in futile attempts to stop multiple fraud attacks from all angles, as fraudsters swiftly sneak past them, hidden by new disguises.

A robust yet flexible approach to fraud is essential to react to emerging and ongoing fraud patterns around the world. Identifying how and where fraud attacks are coming from is vital if retailers want to protect their revenues and safeguard customer trust.

Do you really know your customer?

Emerging fraud method #1: Loyal customer, Blanche, always buys the same items from her favorite online store, and always with the same average basket values. Her buying pattern hasn’t changed in years. All of a sudden, she buys several largeticket items in a flurry of online activity. This is a noticeable change of behavior that should sound alarms for the retailer because it could be an account takeover (ATO) occurring.

Over the last 12 months, ATO incidents have surged, quickly becoming a favored method of fraudsters. ATOs involve a customer’s personal data being stolen, their account being hacked, and purchases being racked up in their name. A rise of 650% in ATOs globally during 2020 illustrates how popular this method has become.

ATO is extremely difficult to detect, because the retailer has no way of proving that it was the verified

customer committing the fraud, or an imposter using their verified details. The growth of ecommerce during the pandemic has scrambled previous fraud patterns that anti-fraud systems would use to warn of highrisk transactions, leaving retailers unable to determine what constitutes suspicious activity.

Why commit fraud when bots can do it for you?

Emerging fraud threat #2: Rose runs a niche ecommerce business. For years, her average customer sign-up rate has grown at a small, yet consistent rate. But within a few hours, her web platform experiences a staggering rise in new registrations, with thousands of new customers signing up. Rose is confused because she’s not running any special offers or promotions.

What’s causing this surge in new customers? It could be a bot attack.

Bots take customer details (usually acquired via the dark web or data breaches) to infiltrate various entry points into a business. Bots create fake customer accounts, conduct ATO, and use stolen payment data to automate fraud via log-ins, transactions, and even loyalty point redemptions.

As more sales move online, fraudsters have more data sources to attack.

Several data breaches have exposed millions of customer records, email addresses, log-in details and card data. This has created thriving illicit marketplaces where stolen details are bought and sold, and then used to create bot attacks.

BUSINESS

The way that fraud shifts across regions is illustrated by data showing that, in 2020, Europe emerged as the top originating regional hub for bot attacks, overtaking Asia. This is an example of how retailers need to monitor the source of fraud and how it differs between regions. Once identified, clear, specific actions can be taken which will galvanize the most appropriate and effective response to minimize the fraud attempts.

Th e myste ri ous case o f t he missin g d e l i ve r y Emerging fraud threat #3: Dorothy’s online business is doing well. With a steady flow of orders being shipped, she’s then alarmed when customers complain that their deliveries haven’t arrived or have disappeared from their doorsteps before they could get their hands on them. Disgruntled customers file transaction disputes for non-delivery, and even though she has proof that the items were dispatched to the customer’s address, the items have vanished. Now Dorothy is facing the financial loss of the item, and the loss from the resulting chargeback – not to mention, the reality of a disgruntled customer.

The fake refund, also known as return fraud, is being used by fraudsters with alarming success, particularly in the wake of the pandemic.

Return fraud typically involves someone stealing an item from a delivery address porch or doorway to request a falsified return. It can also take the form of a seemingly genuine customer ordering an item, and then falsely claiming that the item was stolen from their address. Most of the time, the retailer will refund the purchase with no questions asked, meaning the ‘fraudulent customer’ keeps both the product and the money from the refund.

An offshoot of this type of fraud that has also emerged recently is Fraud-as-a-Service (FaaS).

This involves fraudsters persuading genuine customers to commit fraud by ordering items online, and filing a refund claim in exchange for a percentage of the money returned. Fraudsters and their customer accomplices will often exploit loopholes in a retailer’s T&Cs to achieve this.

Issue 31 | 49

BUSINESS

Evolving fraud requires localized defenses When businesses are trying to expand cross-border, their approach to fraud needs to be localized in the same way they would localize payment methods for each market.

Retailers may want to be ultracautious and tighten up their antifraud rules to block more fraudulent transactions. But this only serves to lock out genuine transactions, which could have been accepted if only a localized fraud approach was used.

Around $146 billion in card-notpresent (CNP) purchases are declined each year, but over half (52%) of these are genuine. If managed well, there is a huge upside in acquiring these otherwise declined orders.

Some regional markets are erroneously viewed with suspicion by retailers due to poor authorization levels. But tools are available that can help businesses analyze data in real-time, and verify genuine transactions by examining customer device locations, IP addresses, and log-ins from unfamiliar devices. Using this approach, retailers get a clear overview of who their customers are, and whether they’re legitimate or not. With that clarity, retailers can boost acceptance rates without compromising security.

Businesses can get the right balance of strong security and increased acceptance rates cross-border by working with the right Merchant of Record (MOR) provider that has deep local market experience and insight to ensure a seamless customer payment journey.

The MOR model offers unbeatable business benefits There are other revenue-boosting benefits to working with an MOR provider. Whereas many payment providers promise the ability to

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process transactions ‘cross-border’, in reality, this leads to higher processing fees, higher decline rates, and more false positives that hurt acceptance rates. With the right MOR provider, the retailer can process transactions ‘incountry’ rather than ‘cross-border’.

For smaller businesses that can’t afford to establish physical operations in each market, the MOR model enables access to advanced, dynamic fraud controls strong enough to stop fraud in its tracks, with the flexibility and agility to head off new and emergent threats. This approach leads to more transactions being accepted, more fraud attacks being choked at the source, and a huge boost to the retailer’s checkout conversion rates.

Through the MOR provider, retailers are assured of compliance with each local regulator’s fraud mandates and protocols, along with an in-depth understanding of local consumer and fraud purchase patterns. Fraud models, data sets, and analytics are continually updated so as to keep a step ahead of the perpetrators of fraud.

This dynamic and intuitive approach to fraud, combined with the costeffectiveness of processing incountry, not only protects the retailer, but is a springboard into even bigger revenues from an expanded global customer base.

Ultimately, MOR providers ease the many burdens that businesses face when growing globally, including taking on any potential liability from transactions, and ensuring compliance with local regulations.

With this carefully crafted balance of strong fraud defenses and a smooth customer payment experience, the MOR model is the biggest springboard a retailer could have to extend their reach to new global markets.

Sam Ranieri Founder and Chief Executive Officer Reach About Reach Founded in Alberta, Canada in 2016, Reach is the premier partner for ambitious, forward-thinking online brands that want to connect with consumers around the world, expand their business, and increase global sales. Reach's “incountry” solution takes advantage of its 20+ local acquirers, 80 payment methods, and 100+ currencies to deliver the local experience consumers expect.

Bringing consistency to crossborder currency conversions with its guaranteed FX solution, Reach has relationships with banks wo rldwide to enable local credit card processing, offers consumers alternative payment methods where they are accustomed to using them, and provides bestin-class fraud detection and prevention services.

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