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2 SINDHUJA BALAJI Editor
Editor’s n o t e
019 is here and even as the holiday hangover slowly lifts, there is plenty happening in the world to snap us back to reality sooner than we’d like. One of the biggest events this year will be Brexit. A no-deal Brexit is expected to have far-reaching implications on the global business community. Aside from that, Europe is at the nerve-centre of change and possibly tumult. Our special focus on Italy will provide more insights on this. However, let’s not forget the action Down Under as Australia too has been grappling with its own financial troubles. The cover story focuses on Australia’s Royal Commission filing its recommendations for change in the financial industry, especially with national elections coming up shortly after. Another interesting country to watch out for is Iran—with Trump’s harsh economic sanctions expected to push the country further behind. Let’s not forget how the nation has continued to fight. Exactly how this is going to pan out now remains to be seen, so don’t miss out on our exclusive interview with analyst Florence Cahill. A large part of 2018’s news cycle was devoted to the US-China trade war. What emerged is the unmissable economic might of China. We have an interesting feature from entrepreneur Ben Barnett, who gives us
China’s business climate and why it remains an irresistible force in the world of business. Digital transformation is the hallmark of new business proliferation today, especially in the financial services industry. We have exclusive interviews with digital transformation leaders at Capgemini and Wells Fargo Bank, who talk about the growing significance of APIs in the financial services industry and how they can greatly enhance customer experience for the new-age natives. Another interesting read is how cyber security solutions provider One Span led Italy’s Raifeissen Bank’s digital transformation, providing a keen insight into the frontlines of this change. While International Finance prides on being an information provider of finance and business news. there has been a keen interest in covering other industries as well. Keeping this mind, we strive to bring you an analytical story from one industry, and this time we have chosen logistics in the e-commerce space. Middle East is on the brink of a financial revolution, as the sheen of oil fades, and other industries begin to take precedence. Thanks to the burgeoning millennial population in the region, who are all drivers of digitisation, e-commerce has gained significance and our special focus is on the role of logistics in enabling this industry’s growth in the years to come. January is a big month for International Finance for another reason—this is when we conduct our annual Awards Ceremony; celebrating and felicitating the stupendous accomplishments of the industry’s best. This year marks our foray into Bangkok, Thailand—an indication of our business growing from strength to strength in one of the world’s most vibrant markets—Asia.
editor@ifinancemag.com www.internationalfinance.com
INSIDE JANUARY 2019
06 The impact of Australia’s Royal commission on finance industry
COVER STORY
The Australian Royal Commission into banking will bring radical changes in finance industry practice and regulation framework. However, rapid curiosity to notice the change arise as the timing coincide with the national election in mid-2019
40 teb on enhanced customer experience Turk Ekonomi Bankasi on its goals to become one of Turkey’s most sought-after names in asset management and private banking
66 72 the silent traders of today The norms of trading are changing - the days of noisy traders on a floor are being replaced with nuanced, strategic moves on the stock market through smart devices
redefining saudi arabia’s ground services industry Saudi Ground Services managed to accomplish the gargantuan task of ferrying pilgrims to Mecca this year - read on to find out how
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Director & Publisher Sunil Bhat Editor Sindhuja Balaji
Why is Iran the Middle East’s resilience economy?
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Editorial Adriana Coopens, Jessica Smith, Lacy De Schmidt, Sangeetha Deepak, Karan Negi Production Merlin Cruz
Money laundering in East Africa
Serving digital-first retailers
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Fate of UK’s migrant entrepreneurs after Brexit
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Beyond Australia’s Royal Commission– on the eve of reform With the Royal Commission into banking expected to file its report by February 2019, the national elections are due mid-2019 too. How will this convergence in timing pan out for the country’s finance industry? Peter Pontikis
COVER STORY
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he Australian Royal Commission (RC) into banking adjourned its public hearings at the end of November 2018 finishing up to complete its final report to be handed by February 2019. The expectation is that it will contain recommendations for major changes in finance industry practice, its key regulators and potentially for the laying of criminal charges. All of which presages an unfortunate convergence of timing that coincides with the imminent national election due March but,
most likely to be held in May. Opening for the further potential of the much-needed financial reforms being subject to political footballing between the major political parties as well as the aggravated risk of spoiling intervention from balance of power holding minor parties of the parliament. In what in the words of the national Australian Broadcasting Service (ABC) describes as a “… year of dragging out the dirty laundry of Australia’s banks: appalling scandals, executive inaction and bad decisions that
hurt customers.” The RC can only be described as an unmitigated disaster for the Australian banking and Finance industry. And one of its own foreseeable making. Where again in the words of the ABC, “Tens of thousands of honest bankers, who understandably held a position of great trust in the community, have been tarnished by the actions of a few, but the culture of many.” While the withering bad news stories of over-charging, financial abuse and toxic & dangerous sales cultures drip fed to the mass media throughout the year,
October and November saw the CEO’s and Chair’s of the board being subject to intense scrutiny. A show that left few impressed with their individual and collective performances with the standard apologetic CEO mea culpa’s straining the credulity of their contriteness in the face of at best mediocre testimony of selected Chairs and in the case of the Chair of the National Australia’s Dr Ken Henry performance, coming across as “…display that visibly and verbally appeared condescending, petulant and dismissive, (sic) came across as the arrogant face of banking—openly scoffing at questions of the QC.” The message is clear Australian banking has lost the popularity contest and in danger of losing also the trust of its customers in what has been an
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uninspiring year for finance in Australia. Of course, the initial primeval response is to punish senior banker’s salaries and bonuses. Certainly, competitors such as industry superannuation funds, as major investors in bank stocks and competitors for their client’s wealth business have voiced concern at the continuing payment of bonuses. Especially, when as new evidence of misconduct emerged daily from the RC and as shareholder returns declined, the funds were arguing no bonuses should not have been paid given the litany of missteps and destruction of customer trust. And this of course is in addition to the class actions, remediation’s and refunds now in train as an outcome of the initial findings of the RC. The
bruising and demoralising inquiry though is giving the green shoots of a more nuanced Australian financial system into the middle of the 21st century. While still early days and ahead of the report of the commission and indeed the political and legislative washing machine that awaits it into 2019 there are articulated voices of reform. ANZ’s CEO Shayne Elliot for one, while understanding some shareholders would view the only metric of performance as financial, believes longer term metrics of success (and some say softer) such as around customer outcomes, employee engagement, diversity et al need to be more firmly embodied in how stakeholder tensions are negotiated and alignments achieved.
COVER STORY
But it is in the “how” that an ultimately well-designed measures around risk and compliance will seriously be implemented. While the RC is the very act of publicizing of not just individual or firm wide misconduct, but system wide miscreants and regulatory failure—the fact remains most of financial system players already had invested in large risk and compliance functions—and they still failed their key stakeholders. For the many failings reported to the RC of finance players, be they by intent, neglect or just ignorance are of such breath, the necessary reforms to be effective will need of like wide dimension and depth. Now while the final report has yet to delivered, nonetheless the incumbent regulators and financial industry associations have already given thought and voice to the likely main themes of reforms proposed into the New Year across the gambit of industry behaviors from individual to the collective, organisational and even Macroprudential. At the individual banker and financier level, a combination of clear personal accountabilities ensconced within industry professional and ethical stand points including the widespread adoption of the ‘Banker’s oath’ as already championed by FINSIA, the country’s prior finance professionals body is the first likely outcome. Something already legislated with respect to senior bankers already. To overcome the rationalisations and ethically disempowering cultures and incentives—reform of personal and collective remuneration and incentivisation regimes to more closer align and balance the long term best interests of ‘all’ concerned stakeholders will be seen, not just short term
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In the sum and on the eve of the royal commissions final summing’s, from so much anguished testimony of fault and folly under the probing questioning of queens counsel, the stage is set for the real reform process of the Australian Financial System to begin
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shareholding investors. Some that will not be confined to senior management and board members —but pushed down to all staff consistent with the above principles. Past lip service given to socalled balanced scored cards that remained chronically and opaquely short term financially obsessed will give way to clearer long-term metrics of success are required with reward structures to match. From an organizational point view, risk and compliance functions will need to be reformed and forced to broaden its remit from the current narrow operational-legal risk focus to one that takes in enterprise wide conduct risk management principles and policies—and their
implementation. Regulators too will need to be part of the reforming solution and are being asked to more proactive in the monitoring, guidance and enforcement implementation of both the letter and spirit of the country’s financial and commercial laws. This does not exclude the likelihood of more intrusive surveillance and the actual embedding of regulatory officers in regulated enterprises to which it is hoped a spirit of cooperative & proactive behaviors will emerge—rather than just defensive “compliancism” that so failed firms and the system of the recent past. From the perspective of industry structure, the erstwhile popular but conflicted vertically integrated models of the past 2-3 decades will like be a thing of the past as banking groups will continue to exit their wealth businesses that had caused them so much legal, regulatory and reputational grief. In the sum and on the eve of the royal commissions final summing’s, from so much anguished testimony of fault and folly under the probing questioning of queens counsel, the stage is set for the real reform process of the Australian Financial System to begin. 2019 looks set to be one of opportunity for the new embolden reforming impulse as well as to be expected, opposition from the relics of past business models. Backgrounded as they both are by the remorseless challenges of the new technologies and process changes indifferent to history.
editor@ifinancemag.com
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Financial Technology
DECODING THE ANATOMY OF APIs IN THE DIGITAL AGE
The race to emerge victorious in the digital age has opened a plethora of opportunities for technology to act as a catalyst. Application Programming Interfaces (APIs) could be that much-needed catalyst for the financial services industry, believe digital transformation leaders at Wells Fargo and Capgemini Sindhuja Balaji
D
igital transformation is the catchphrase across businesses today. The one sector that is relying heavily on digital outreach now is the banking industry. With a slew of changes in global banking including open banking, introduction of data privacy laws and regulatory changes like Basel III and IFRS upgrades, the industry has undergone remarkable transformation since the turn of the decade. Keeping pace with this change, and sometimes, even leading this change, is technology. So much so, that legacy-based industries like banking are embracing new technologies to either build new-age business models or simply serve their customers better. APIs or Application Programming Interface is the new sought-after piece of technology that is changing customer banking experience. A recent report by Capgemini titled Unlocking the hybrid integration dividend: How to transform your
business with hybrid integration and APIs reveals how modernised, hybrid integration and microservicesbased Application Programming Interfaces (APIs) are the means to empower digital transformation and maximize capabilities to benefit from the API economy. A global survey of 818 senior IT executives working in large organisations with revenues of over â‚Ź500m, suggests that a mature API-driven hybrid integration strategy is a contributing factor to business growth. So why are APIs so critical in the digital transformation game? Vikrant Karnik, Executive VicePresident, & Cloud, Cybersecurity , Financial Services Leader at Capgemini explains that various changes taking place in the banking and financial services industry, and the quantum of customer experience, has altered the expectation levels within the industry. “We are being shaped by extraordinary customer experience, which are stretching the boundaries of innovation and product. However, customer experience International Finance
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its critical to understand why a client needs APIs. “What problem is the client trying to solve? Are they doing it to introduce flexibility within their existing processes or will it form the base of a new business model? We aim to get a better understanding of these aspects, and I believe this is where exciting opportunities lie for companies like Capgemini. This can have a lasting impact on the banking ecosystem,” says Karnik.
vikrant karnik “We are being shaped by extraordinary customer experience, which are stretching the boundaries of innovation and product. However, customer experience needs to match regulatory and data safety norms as well. All this rigour and structure remains in legacy systems. When you try to integrate exploratory technology with customer experience, APIs allow an organisation to de-couple processes.” Understandably, there is a cost consideration to look into as well but Karnik says it is important to see the value in API-driven strategy as a new business model. For instance, banks like Wells Fargo and Citibank have realized that they can deliver superior customer experience without changing a lot aesthetically. By altering and upgrading backend processes, a user’s interaction with a bank improves significantly. This can be achieved by APIs, says Karnik. “This is the larger play with banks and insurance companies.” Before getting into the intricacies of API-driven strategies and their applications, Karnik says
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Imran Haider Deeper Integration Between Technology and Financial Services Capgemini is working extensively with various companies to assist and enable API-driven hybrid strategies. One such is US-based telecom operator T-Mobile, which runs more than 300 APIs in the US. T-Mobile has shaped a successful transformation journey by implementing microservices. Chuck Knostman, Vice President for Strategy and Technology at T-Mobile says, “C-level executives now ask us all the time: ‘Do we have APIs for this?’ When that conversation is happening at that level, it’s a true sign of
transformation to me.” The Capgemini report adds that 49% of Integrators reported revenue growth of five percent or more over the past three years, compared with just 23% of Deliberators. Furthermore, 41% of Integrators reduced the time needed to upgrade existing products by 50% or more (compared to 33% of Deliberators), and nearly half of the Integrator group (46%) aims to engage in the API economy to create new revenue streams (vs. 25% of Deliberators).
With the strong architectural foundation provided by cloudbased integration tools, APIs can do more than just act as instruments to unlock data. The findings reveal that Integrators are far more bullish about their ability to innovate, with 68% saying they are able to develop new products rapidly and bring them to market quickly (vs. 25% of Deliberators) with greater scalability, reliability and customization. Another company championing digital transformation through an APIdriven strategy is Wells Fargo Bank. It has an open banking channel called Gateway, launched nearly two years ago, with more than 30 use cases including payments, wire transfers, account integration services and forex online. While Wells Fargo has developed its own set of APIs for these processes, it has been working with Capgemini to enhance Gateway. Of developing Gateway, Imran Haider, Head of Product, Open API Channel, Wells Fargo Bank says, “The success of a channel like Gateway reflects the speed and ease of integrations, thanks to APIs. Software integrations have conventionally been complex, extensive and time-consuming. With modern technology offerings
Financial Technology
like APIs, integrations can be achieved in weeks, with accuracy and consistency.” With banks keen on driving superior customer experience through technology, APIs bridge the gap between the technology and business use-case and ultimately help banks deliver superior levels of customer experience. Like Karnik, Haider too believes an investment in API-driven strategy can be a new business model for the financial services industry. “Depending on the digital strategy of the bank, the extent of API usage can be determined too. That’s the beauty of tech like APIs, which are malleable to business needs.”
Cybersecurity in the time of digital integration With the immense mobility provided by technology solutions also emerges the very real risks posed by cyber threats and attacks. Haider explains, “From a
bank’s perspective, security and privacy are critical. For our API channel, we have multiple layers of authentication, encryption as well as Control Tower.” Control Tower represents the latest iteration of Wells Fargo’s continually evolving mobile experience. At launch, customers have the ability to view certain digital financial connection points, digitally turn on and off their Wells Fargo Debit or Credit Card (including mobile wallet access and debit card in-person international transactions), and control certain data-sharing capabilities for Wells Fargo accounts. In the future, customers also will be able to control which devices, apps, and companies have access to their account information. Wells Fargo is also working with other technology solution providers like Intuit. Last year, the company entered a partnership with Intuit, which allows Wells Fargo customers who use financial management tools
such as QuickBooks Online, Mint, and TurboTax Online to use an innovative applicationprogramming interface (API) when importing their bank account information. The API used in the Wells Fargo-Intuit agreement has been designed to utilize a secure, tokenized “handshake” between the companies’ servers. The API eliminates the need for Intuit customers who use QuickBooks Online, Mint and TurboTax Online to share their Wells Fargo usernames and passwords, and the need for Intuit to store them in order to retrieve Wells Fargo account data. These practices ensure responsible data sharing and more user control, which is a big step towards improved cyber security standards.
editor@ifinancemag.com
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Iran—the Middle East’s resilience economy It was one of Donald Trump’s agendas upon becoming president of the United States, and within two years, he managed to snap economic sanctions back on Iran, only this time they are harsher. GPW’s Florence Cahill speaks exclusively to International Finance on what Iran’s future looks like IFM Correspondent
It has been a tumultuous time for Iranians as the US-imposed economic sanctions have fallen back in place, only this time harsher. What is the ground reality of the sanctions this time around? The Iranian leadership has considerable experience in weathering tough economic sanctions from the US and EU during the previous regime enacted from 2012, when it implemented a strategy of economic self-sufficiency—the so-called ‘resilience economy.’ Rouhani has already warned Iranians to prepare for “difficult” times, while adding that the government will use its power to alleviate worsened economic conditions in the near future. At the same time, Iran never experienced the increase in living standards envisaged as a result of sanctions being lifted, nor were underlying structural economic issues resolved. Even before Trump’s
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announcement that the US would withdraw from the deal, the economy was on an unsteady footing. There was a lot of internal frustration about economic problems such as high levels of unemployment and price rises—the IMF forecasts inflation at almost 30% this year—the highest figure seen since 2013. Devaluation of the currency has compounded the situation. The rial fell in value from IRR 40,000 to USD 1 at the start of the year to around IRR 145,000 to USD 1 at the beginning of November. Public discontent over these issues manifested in violent demonstrations across the country last December, the largest display of public disapproval of the Iranian regime since 2009’s Green Movement protests. The mood on the ground is bleak—the situation is expected to get far worse before it improves. Prices for food and fuel continue to rise, and there are very real concerns about shortages of essential commodities
IN THE NEWS
resulting from the re-imposed sanctions. There have been lay-offs in factories, and there has been a recent uptick in demonstrations and strikes by unpaid workers. I’ve spoken to professionals in Tehran who are even trying to find ways for themselves and their families to get out of the country should demonstrations escalate into widespread civil unrest.
Saudi Arabia is significantly ramping up production of oil to offset the deficit from Iran in the future. What does this mean for the country’s oil industry? The situation with oil production is difficult to comment on at the moment as OPEC negotiations over output cuts are ongoing—countries like KSA are changing tack on a seemingly daily basis. After all, oil prices have dropped nearly 30% from a peak in October, when crude prices reached a four-year high fuelled by fears that the Trump administration might cut off oil Iranian exports. That would have reduced global output by some 2.5mn barrels a day, leading to a genuine physical shortage of oil for the first time in decades. The waivers issued by Trump created uncertainty, and it is unclear whether they will be re-issued. At the time of writing, OPEC are on the verge of reaching an agreement on oil production cuts, but is unclear to what extent the cartel will curb output. Any agreement could also be stymied by internal OPEC divisions and reluctance from Moscow to limit output. Against this backdrop, price volatility driven by politics seems inevitable. While there is uncertainty over the impact of the US sanctions on KSA’s oil production policy, crude prices will be volatile, meaning that neither a slump to US$50 nor even an increase to more than US$100 can be completely ruled out. The best scenario for Iran in the short term is that OPEC cuts output and prices rise accordingly. Iranian officials have said that an increase in oil price will allow them to maintain revenues. In hopes of mitigating the immediate economic hit, Iranian authorities have implied that Iran may sell its oil at a reduced price to attract buyers going forward.
According to US President Donald Trump, India, China and South Korea can continue to buy Iranian oil, atleast for some more time - how can this benefit the industry, if at all? The six-month waivers on trade of oil issued to eight countries to import oil will provide Tehran with some breathing room in the short term, particularly in light of higher crude prices compared to previous years.
Florence Cahill, Analyst, GPW Waivers have been issued to some of Iran’s biggest purchasers of oil, including India, China, Japan and South Korea. Consequently, around half of Iran’s current trade will be able to continue. Although the US measures will probably trigger recession in Iran next year, Tehran will likely avoid an economic shutdown, with a reduced but still significant volume of oil exports continuing. There is uncertainty as to whether new waivers will be issued after the 180-day period. Even without the waivers, Iran crude exports are unlikely to grind to a halt. Iran has reportedly already re-started unofficial oil exports like those during the previous US secondary sanctions regime. Most notoriously, to avoid detection by US authorities Iran makes deliveries through ‘ghost tankers’ that turn off their geolocation devices, allowing for ship-to-ship oil transfers and cash sales. At the end of October, Iran also began selling oil to private companies for export on Iran’s energy bourse, IRENEX. Without the waivers, it remains to be seen which countries have the ‘risk appetite’ for Iranian crude. In the absence of European firms, Iran has little option but to turn eastwards for sustained investment. China—and, to a lesser extent, India—will become increasingly important oil purchasers, and seek to replace departing European companies such as Total. Oil imports from Iran could be a particularly significant area of interest for China, for instance, as Tehran will likely be compelled to offer oil at discounted rates. Beijing has publically committed
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to honouring the nuclear deal, even as other Asian countries have ceased purchases to deliberate over their strategy in Iran moving forwards. In addition, US retaliation may be less of a concern for China as it has the second largest economy globally and is already in a trade war with the US. Beijing may also seize upon the opportunity to promote its own currency—the yuan—as an alternative to the US dollar. Nevertheless, the threat of US secondary sanctions remains a deterrent. Although China has reiterated its intention to continue to import oil from Iran, it is also attempting to use this position as leverage against Trump in its ongoing trade war with the US. Beijing’s policy towards the Islamic Republic is not immutable, and could waver as a result of political uncertainty. We’ve heard that Washington and Beijing negotiated over the conditions for the waiver. In contrast, under the sanctions of the Obama administration, China reduced its purchases but reportedly neither negotiated the details with the US, nor credited sanctions pressure for these decisions. The apparent negotiations with the US suggest that China may view Iran as a useful point of leverage in complex dialogue with Washington on other, more pressing issues—for instance, the ongoing trade dispute. Should the dispute ease, we may see China become more willing to offer the US concessions such as decreased oil imports from, or investment in, Iran. Conversely, a deterioration in relations may make
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China more willing to diverge from US policy.
US sanctions are not the kind to be ignored for the fear of economic consequences. Where does this leave Iran’s EU allies? Since May, the remaining five signatories to the JCPOA —Britain, China, France, Germany and France—have been exploring ways to keep the deal alive. The US sanctions, however, have discouraged most major European companies and many international Russian and Chinese corporations, which have either already withdrawn or plan to do so imminently. For months the EU has led discussions about a special-purpose vehicle (‘SPV’) to avoid US penalties, but that plan still lacks practical details such as the location of the proposed SPV. Remaining companies will be under pressure from the US to cease operations in Iran or risk exclusion from US markets. For foreign investors that do remain, trade financing will be a major obstacle. Even under the JCPOA, many foreign banks were reluctant to facilitate Iran-related transactions due to fear of accidentally flouting remaining sanctions. The cost of fulfilling compliance requirements was also a deterrent. Even European banks that previously began facilitating transactions with Iran after the repeal of international sanctions in 2016 have withdrawn under pressure from American regulators. For instance, Danske Bank—one of the institutions most visibly open to business with
IN THE NEWS
Iran—has decided to cease transactions involving Iran as a show of responsiveness to US regulators following a money laundering scandal at its Estonian subsidiary. Iranian Foreign Minister Mohammad Javad Zarif has boasted of Iran’s plans to circumvent sanctions by selling oil in currencies other than the US dollar, but European financiers acknowledge having difficulty bypassing the American dollar-dominated banking system. Iran will likely pursue barter deals —in particular with non-European countries—while sourcing state-led financing from partners where feasible. SWIFT, the Belgium-based global financial messaging system, has said it would fall into line with the US restrictions and is disconnecting Iranian banks —the majority of which are subject to US secondary sanctions. For now, a handful of Iranian banks that are not subject to designations will likely remain connected to SWIFT. While it is conceivable that OFAC may target SWIFT itself should it not block payments from all Iranian banks, we highlight reports in recent months that OFAC is pushing back against White House proposals to sanction SWIFT for maintaining ties with Iran. Nevertheless, many of the proposed measures to circumvent the impact of US secondary sanctions present substantial technical and political obstacles given the hegemony of the US dollar in the global banking system, as well as the integration of the US and European banking sectors. As discussed, plans for an SPV to protect trade with Iran from sanctions have met delays because of difficulties finding a host country. Moreover, the SPV is primarily intended to be a payment mechanism for only small and mediumsized companies that are not deterred by exclusion from the US market, rather than for larger firms. The EU has also responded to US sanctions with counter-measures such as a ‘blocking statue,’ which allows European businesses to recover damages from US sanctions and threatens them with legal action if they comply with the sanctions. The blocking statute —which came into force on 7 August—will have a limited impact, however, because it essentially forces European companies to choose between the US and Iran as a business partner. For the vast majority of companies, the former is far more significant and not worth sacrificing for the latter. Many European companies have historically limited relations with Iran because of other issues, for instance, restrictions on the US dollar, or the pervasiveness of the IRGC —long sanctioned by the international community— throughout the Iranian economy.
Above all, the EU cannot completely mitigate the impact of unilateral US sanctions on Iran. EU support for Iran for now will be more rhetorical than practical in nature, with the planned SPV demonstrating the EU’s independence from Washington, but not actually facilitating substantial amounts of trade. Rouhani and his government have accepted the EU’s conciliatory gestures for now; whether they are sufficient to keep Iran in the JCPOA in the long term will be dependent on other factors, for instance whether Trump secures a second term. Above all, the benefits of the deal will largely dissipate over the next few years, meaning that the deal will be viewed as increasingly redundant.
With compromised ties between Iran and the US, Russia could find itself at an advantage—do you agree? How do you think this situation will pan out for them? Like the EU, Russia has criticised the ultimatum on Iran issued by the US and continues to support the sanctions relief specified in the JCPOA. Russian energy minister Alexander Novak has pledged to continue trading Tehran’s oil, potentially emulating an oil-forgoods scheme signed in 2014, under which Russia sells Iranian oil to third party counties. In return, Iran uses the revenue to pay for Russian goods and services. At the same time, there are limitations on the extent to which Russia will maintain business relations with Iran. Russia was never a major trading partner of Iran in the first place. Moreover, despite Moscow’s promises there are indications that Russia will, in practice, diminish its presence in Russia rather than stepping in to fill the vacancy left by Europe. Several major Russian firms quit Iranian projects following the US’s announced withdrawal, including Zarubezhneft and Lukoil. There are also reports of Russia withdrawing from major deals in other sectors. For instance, IranAir was seeking to purchase Russiabuilt Sukhoi Superjet 100 airliners as it seeks planes from companies not requiring US sales permits. These plans, however, have reportedly been scuppered because the aircraft are partly produced with USmade components. In addition, a potential oil bartering deal between Russia and Iran could be stymied by a lack of demand as potential purchasers of repackaged Iranian oil are deterred by sanctions. Russia may also brake away from OPEC and seek to increase crude production in order to compensate for losses in Iranian output. Russia concentrating on its own production may reduce the urgency of negotiating a deal with Iran. There is likely to be some collaboration between Russia and Iran for now. However, given that Iran is not
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critically important to Russia, at least from a business perspective, it could become a bargaining chip for Russia in negotiations with the US about more pressing issues—for instance, US sanctions on Russia, or Syria. Moscow may offer to help the US enforce its sanctions on Iran if they can secure concessions in higher-priority areas.
What does Iran’s future look like now? What can the country expect to happen geo-politically and economically? The Trump Administration says that it wants to bring Iran back to the bargaining table to create a new deal better suited to US interests than the JCPOA. Among its key policy aims are permanently preventing Iran from obtaining nuclear weapons—the JCPOA only delays Iran’s nuclear ambitions—and curbing Iran’s “malign influence in the region,” including its ballistic missile programmes and involvement in Syria. To this end, Washington has adopted a tough rhetoric on enforcement, with US treasury secretary Steven Mnuchin stating that the US will lead a “maximumpressure” campaign to stop global funds from flowing to the Iranian regime. However, the US’s issuance of waivers suggests that its rhetoric may be stronger than its actions. The US’s aim may be to gradually increase pressure on Iran rather than putting it under maximum pressure from the outset. Following the midterms, the White House is likely to continue exerting pressure on Iran. US National Security Advisor John Bolton has hinted that there will be further sanctions on Iran, as well as tighter enforcement of pre-existing sanctions. The White House will likely be criticised by Republicans in Congress for not taking a tougher stance in implementing the sanctions, while being criticised by the Democrats for risking a potentially costly confrontation with the Iranian regime. At the same time, both sides are not much at odds over Iran. Iran will probably adopt a ‘wait and see’ approach, weathering the tough economic conditions brought about by sanctions. Although arguably not viable in the long term, this strategy may give Tehran time to glean a better idea of Trump’s chances in 2020. If there is a slim prospect that Trump will secure a second term in 2020, Tehran may have less incentive to engage in new negotiations or depart from the JCPOA, particularly if the new leader is more sympathetic in their policy on Iran. It is likely to loosely comply with the terms of the JCPOA ‘nuclear deal’— while seeking to maintain its regional influence—so as not to preclude cooperation with the US (not to mention EU countries) in future, in hope of a transfer of
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power to a more sympathetic leader in the US in 2020. At the same time, more conservative elements of the Iranian leadership may reject this approach. Indeed, the re-imposition of sanctions has strengthened the position of more conservative factions of the Iranian leadership and weakened President Hassan Rouhani’s politically moderate platform. Hardliners may weaponise the perceived failure of the JCPOA and public discontent with the Rouhani administration to push for the removal of senior officials from office, as well as bolstering support for a hardline candidate in the parliamentary and presidential elections in 2020 and 2021. Hardliner gains increase the likelihood that Iran pulls out of the deal in its own right and ramps up its nuclear programme. In this scenario there is a chance that US sanctions on Iran could be reinforced by similar measures from the UN and the EU, adversely impacting the economic outlook for Iran.
About: Florence Cahill is a senior analyst at GPW, a London-based political risk consultancy. Florence advises investors on political and economic risks in Iran and Central Asia, and travels to the region regularly for work. She advises clients from financial institutions, multi-national corporations and international law firms on changes in the business climate and patterns of influence among political and business elites. She also assists GPW’s business intelligence and investigations practice on Russia-/CIS-related project.
editor@ifinancemag.com
IN THE NEWS
GOLD AND OIL WILL BE BEST PERFORMERS IN 2019, MPG SAYS US, UK and European equities will end year lower, MPG believes
Workable Brexit deal is “inevitable” Commodities, especially gold and oil, is the mainstream asset class most likely to deliver positive returns in 2019, while equities on both sides of the Atlantic will end the year lower ahead of a recession increasingly expected in 2020, according to Managing Partners Group (MPG), the international asset management group. MPG believes the inflation-proofing qualities of commodities means the asset class will appeal to investors generally as the US economy continues to show signs of overheating. In particular, gold is set to see a significant increase in value, possibly as high as 20%, as investors seek safety in the face of continued uncertainly around equities and more interest rate rises putting pressure on bonds. Oil prices will be boosted as a result of diminishing spare global capacity, sanctions on Iranian exports and political uncertainty in Saudi Arabia creating additional inflationary pressures globally, the company says. Jeremy Leach, Chief Executive Officer, MPG, commented: “Key drivers of an equities bear market will be Brexit uncertainty, further tightening of monetary policy on both sides of the Atlantic, political gridlock and trade tensions—all forcing equity values lower in the UK, Europe and the USA. “While many analysts think the S&P 500 will end 2019 higher than its current level, this is optimistic given that recession is widely predicted for 2020 and a bear market for US equities is more likely in 2019.
“European equities remain overpriced and the eurozone will experience slower growth in 2019, owing to monetary-policy tightening, cessation of QE, trade frictions and the unsustainable debt dynamic in Italy and Greece.” As investors seek alternative investments in 2019, one asset class they will find increasing attractive is life settlements, which are US-issued life insurance policies that have been sold by the original owners at a deep discount to their maturity values and are institutionally traded through a highlyregulated market. The asset class is currently offering internal rates of return of around 14.7%.1 Jeremy Leach commented: “2019 will be the year of value and investors will find it difficult to find assets offering returns as favourable as life settlements. At 14.7% the IRR on life settlements is still significantly higher than the risk-free rate, so now is still a good time to invest in the asset class, especially now when the consensus is that under-supply will push up prices.”
Brexit On Brexit, MPG believes a better deal than the one currently being mooted is inevitable because, politics aside, no deal is a bad outcome for all concerned, particularly the powerhouses of Europe that are heavily reliant on continued trade with the UK. Jeremy Leach added: “A workable deal will therefore be concluded, which may well include a larger monetary settlement that will be more fortuitous for the EU and will represent a better outcome for the UK, boosting the UK economy and sterling. “A reasonably successful exit in Q2 will not lead to long lasting euphoria in Europe, however, and will be one of a number of factors stimulating continued political unrest in the bloc. With a successful Brexit conclusions there is a real risk of another potential departure from the EU that may even threaten the future of the currency Union.” editor@ifinancemag.com
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Too big to fail, but big enough to trigger a financial crisis? Italy is current bogged down by high debt, low growth and a weak economy. There are very real concerns that it could trigger a massive financial crisis in Europe, and its ongoing disagreement with the European Commission on its budget is making the situation worse. What lies ahead for the country?
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he financial world’s eyes remain on Italy as the country suffers from very low growth and an uncompetitive economy, which paired with the eurozone’s second-highest debt after Greece makes it a potential target for speculators. It is hard to think of a scenario where an Italian debt default would not trigger a European banking crisis, which would subsequently have tremendous global economic and financial consequences. Although Italy is simply too big to fail, the country has all the stormy economic conditions to trigger a devastating financial crisis. In a recent report Goldman Sachs warned Italy risks falling into a new recession, suggesting
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Giovanni Puglisi
financial markets could end up forcing the government to change its economic policy. Investors are far from reassured by the political instability created by the Italian populist government, which has engaged in a “budget saga” with the European Commission for months. Brussels said that Italy’s budget plans were in “particularly serious non-compliance” with the rules, raising doubts about the solidity of Italy’s public finances due to its massive public debt pile. This has led some commentators to make a comparison with a Greece-like crisis. However, the circumstances that put Rome under the European Commission radar are very different from those that brought Athens under the Trioka’s supervision. Italy’s problem
is so not much of a financial nature, but in its absence of political will in observing the rules of the European Monetary Union (EMU). The row between Brussels and Rome has had a direct impact on Italian banks, which are the main buyers of Italian sovereign bonds, while investors’ demand for Italian debt has slowed down considerably and the sale of bonds dropped. A bigger selloff in two-year debt prompted deep concerns about the nation’s near-term financial solidity, mixed with the European Central Bank’s decision to tweak capital key and adjust the capital shares of national central banks in 2019, cutting Italy’s share in bond-buying. Moreover, it’s still
Economy
has put in place a significant effort in cleaning their balance sheets from non-performing loans”, while its largest banks have performed well at the last European Banking Authority (EBA) stress test. Overall the Italian banking system doesn’t show any particular deviations that could trigger fears of a new crisis. According to figures from the Italian Banking Association (ABI) in October 2018 the spread between
populist government, led by Eurosceptics forces, suggests that tension between Rome and Brussels is likely to continue in the upcoming months in the run-up to the European elections in May. However, the worst-case scenario
Niall Walsh unclear how the ECB will deal with its holdings of Italian securities as it rolls back gradually its loose monetary policy. Niall Walsh, an analyst at Oxford Analytica, says “market optimism is unlikely to last for long” if the Italian government doesn’t respond adequately to EU’s demands the equity market could fall again and the spread could widen above 300 basis points. If interest rates on debt repayment were to grow to levels over 4%, the write downs of Italian banks on their government bond holdings would be so high that they would have problems with their capital ratios. Walsh noted “if the spread widens to 400 basis points, they will likely require fresh capital injections”. Mario La Torre, a finance professor at the Sapienza University in Rome, also agrees that higher spread will impact first on the value of banks’ government bond portfolios, which lastly will put pressure on their free capital. However, he points out “Italy does not face any risk of a new banking crisis as the Italian banking system
size of Greece’s debt, but over 70% is held by domestic creditors, and contrary to Greece, has yet no difficulty in refinancing its debt. Domestic savings can easily be used to cover for even a bigger fiscal deficit. Iain Begg, a Professorial Research Fellow at the European Institute of the London School of Economics (LSE), argues “we are still quite a way from a scenario equivalent to Greece because Italy is not insolvent, and unlike Greece, much of Italian debt is owned domestically by Italians”. The nature of the Italian
Mario La Torre the average lending rate and the average rate on household and non-financial corporations funding remained at 188 basis points, showing a sharp decrease from more than 300 basis points prior to the onset of the previous crisis. The Italian financial system, unlike the Greek one, can count on current account surplus and its debt has a longer debt maturity profile. Moreover, private savings and deposits offer a significant cash buffer, which makes it very unlikely that Italy would run out of money or miss its debt obligation, as instead was the case for Greece. The Italian national debt is about eight times larger the
iain begg of a possible “Italexit” is far from materialising anytime soon as that would have unquantifiable political and economic negative ramifications on Europe and the rest of the world.
editor@ifinancemag.com
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ifrs 16 is finally here: how are banks gearing up? With new accounting standards set to be enforced from the new year, more than a trillion pounds are expected to turn up on balance sheets, affecting everything from net income, to cash flows and operating profits Steven Fox
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he moment we’ve been bracing for is nearly here. From 1st January 2019, the International Accounting Standards Board will bring IFRS 16 into force —the new standard requiring organisations to reflect leases in their financial performance. As a result, over a trillion pounds will
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appear on balance sheets from the start of next year—affecting everything from net income to cash flows and operating profits. A variety of sectors will feel the impact of these changes, with retail being a particularly noteworthy example. Why? In numerical terms, the sheer size of the lease portfolios being
managed by these companies stands them out from the crowd. But, in addition, the current climate in retail—particularly in the UK and particularly on the High Street— magnifies even the smallest shifts in operating procedures. And IFRS 16 is no small shift, b any measure. In working with a number of major names in industry—including
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including Halfords—in readiness for IFRS 16’s introduction, it’s become clear that the adoption of the standard is a complex task and careful preparation is key. A major, perhaps the major, part of that process is enabling and encouraging collaboration between internal teams to deliver accuracy and efficiency. Across many projects we’ve seen that although the division of labour between real estate and finance functions is evenly split, it is quite clearly divided. Traditionally, accounting is the remit of the finance department while leases—specifically those concerning equipment, estates and facilities—are the remit of the property or procurement teams. With the intricacies of those leases (negotiated by real estate) now having direct correlation on financial metrics such as P&L, gearing and liabilities, tax obligations and disclosures, it’s evident that finance and real estate leaders must collaborate to ensure true compliance. In the first instance, there will need to be a more strategic approach to new leases which is agreed and adhered to companywide. When considering this, organisations may even find that their previous approach is no longer in the best interests of the wider operation. As an example, retailers may look to shift focus to turnover-based agreements which align with overall financial performance—an added benefit here being that these variable leases don’t need to be reported as part of IFRS 16. Future leases are one challenge, but arguably the bigger obstacle is identifying all existing leases within the business. Taking inventory and collating necessary data (lease terms, payment terms, renewal options)
has been the most critical step, helping to prioritise the analysis of more complex agreements and providing the necessary data to decide on a model moving forward. Armed with this data and knowledge, real estate directors can add significant value to the overall approach. For finance teams, it’s key to have an in-depth understanding of the legislation in order to identify exemptions and transitional reliefs —for example, how it impacts on capital, provisioning and tax payments through the timing of profit recognition. Modelling and forecasting will also be important in determining any changes required for loan agreements, debt covenants, bonuses, profit-sharing or compensation agreements. And, among all of this, the information needs effectively and clearly communicating to stakeholders. However, the critical measure of success will be how closely the finance and real estate teams work together—along with members of HR, legal and procurement departments. Collaboration will be a cornerstone of effective IFRS 16 adoption, and where teams seek to act in isolation, they risk missing crucial nuances that may have a major impact—particularly if they’re trying to handle calculations across separate platforms. In implementing the standard, fully comprehending its impact, providing full visibility and enabling collaboration, spreadsheets are simply not up to the task. Specialised systems will be required to handle and automate calculations that are otherwise time-consuming and prone to error—the potential costs and implications will make it too risky not to do so. Only by bringing process and departments together with one common approach can
Steven Fox leaders meet the requirements and realise the benefits they could bring—with a truer balance sheet that more accurately reflects the business’s liabilities, ultimately attracting more inward investment.
About: Steven Fox is the head of corporate solutions at MRI Software, a US-based provider of real estate and investment management software to real estate owners, investors, and operators. editor@ifinancemag.com
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China: aN irresistible business partner Lifestyle apparel brand Kapow Meggings sells globally from distribution centres in UK, USA, Australia and Germany but China was a challenge like none other. Read on to find out how this company managed to transcend cultural and social barriers to build a solid working relationship with one of the most powerful nations in the world Benjamin Barnett
Economy
“W
hile all our working relationships are important, one that really took our business to the next level was teaming up with our sourcing agents in China. At the time, we had one factory who constantly dropping the ball. Communication was difficult, product quality was inconsistent, and they didn’t understand our brand and how it contributed to everything from product to packaging. Everything was harder than it should have been, and to be fair to the factory, we were new to the game and didn’t fully understand the landscape. As they say, “you don’t know what you don’t know”, and we didn’t know plenty. After one particularly frustrating factory visit, it became clear we needed middle-man to handle our Chinese negotiations, product sourcing, and oversee manufacturing. So that day I jumped on a plane to Shanghai and started interviewing candidates. One agency in particular took the time to learn about our business and figure out the value they could add, including making sure our suppliers are ethically compliant, conducting comprehensive factory audits and product testing, and adding efficiencies to our global supply chain. Our relationship has grown over time and while it hasn’t always been smooth sailing, both parties have worked hard to improve it and we’re now in a much stronger position than we were a couple of years ago.
Untapped markets in China that may become the next “big thing”: There’s an untapped market for challenger fashion brands in the e-commerce space to make an impact in China. One of my favourite quotes is from Jack Ma, the founder of Alibaba: “In other countries, e-commerce is a way to shop; in China, it is a lifestyle.” It’s a huge market both population—and numbers-wise, there’s a burgeoning middle class with greater disposable income than any other time in history, and Chinese consumers are habituated to retail shopping events like Singles Day, which last year saw $25b of purchases—90% of which were made on mobile. The marketing and payment infrastructure is already in place, and WeChat has changed the game for consumers and retailers alike. People can pay for t-shirts, taxis, even street dumplings using the app. Experts say that this is where Facebook Messenger is heading, although China is well ahead of the game in this respect. There’s already huge Chinese demand for foreign brands in categories like high-end fashion, baby formula, and personal care. The challenge for lesser-
Benjamin Barnett,
Cofounder, Kapow Meggings
known fashion brands is breaking into the market and overcoming cultural barriers to get established and get their name out there. While they like high profile western status brands, Chinese consumers are relatively conservative fashion-wise. One way to overcome this is to look to markets like Korea—who have a high energy fashion scene that really pushes creative boundaries—as an entry point to test styles, brands, and routes to market.
Top challenges of doing business in China and how we overcame them: We’ve learned how to do business in China the hard way—by making every mistake in the book. It’s given us invaluable experience in what to look out for, what needs to be closely managed, and how to get the best out of a relationship with a manufacturer. Some of the pitfalls and surprises we’ve encountered include working with a trading company passing themselves off as a manufacturer, discovering that our contact was a woman pretending to be a man because she thought we’d prefer dealing with a male, suppliers substituting inferior materials to increase their margins, having factories answer “yes” when they didn’t understand what we were asking, getting our orders shunted behind clients with larger orders (even if we were there first), and having production disrupted by holidays like Chinese New Year, which is preceded by a rush of activity before everything shuts down for 3 weeks.
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Economy
There are amazing opportunities in China but taking the time to understand the landscape and finding the right partners is critical. Based on our experiences, there are a few best practices I’d recommend: 1. One of the founding principles of Toyota is “Genchi Genbutsu”, or “go and see.” Visiting your manufacturers is a must, both to see their facilities and to show that you’re serious about building a relationship. It’s so easy to start a business these days that Chinese factories get a lot of tyre-kickers who will place one test order and disappear. Often, they’ll price samples exorbitantly to weed out the time-wasters. 2. If you’re serious about doing business in China, hire a local procurement agent to help you negotiate with factories and source new suppliers. Their local knowledge and existing relationships will be far beyond what you could hope to achieve alone, and they’ll help find economies of scale, create systems for better quality production process, and fight for you when needed—like when you need to rush an order through, or issues crop up with production. They’ll also give you credibility with manufacturers. 3. Commit to building good factory relationships. We’ve moved factories 3 times in 2 years and let me tell you, researching, visiting, and testing new factories eats up a huge amount of time and emotional energy, not to mention cutting into profits. A reliable supply chain is critical, including finding a good shipping partner to get your goods to your warehouses once they’re finished. Make sure your partners know what your brand stands for and why. 4. No order ever goes 100% smoothly. Ever. Look all the possible points of failure during briefing, production, and delivery, and put processes in place to make sure they’re managed. This includes things like PIS sheets, robust QC inspections before the final invoice is paid, knowing how customs and FOB shipping works, right down to figuring out what size cartons you’ll pack your product in in. Setting up these processes will help future-proof your production. “Trade War” and how to pivot: It’s unpredictable, and every other week “tradewars” seem to be ramping up. To the casual observer it looks like a game of international chicken, with both parties daring one another to see who blinks first. The US would appear to have the advantage here as it has more options on sanctions and tariffs, but China has a long history of thinking strategically and is unlikely to go down without a fight. It’s hard to know where this will end up, but the uncertainty it creates for businesses makes things difficult. Every
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time new tariffs are announced we scan the reports to see if we’re affected. If things get really bad and manufacturing in China becomes too expensive or no longer tenable, we’d consider moving production elsewhere in Asia. We’re hoping it doesn’t come to that, as that kind of move would be hugely disruptive.”
About: Kapow Meggings is a lifestyle apparel brand that makes high quality men’s leggings designed for fitness, fashion and festivals. Known for its irreverent brand and wild designs, Kapow sells globally from distribution centres in the USA, UK, Australia and Germany. Ben is based in Sydney, Australia and travels regularly to China to oversee manufacturing. His 15year marketing career spans international ad agencies and global brands, including 5 years with US tech brand Yelp.
editor@ifinancemag.com
How will a growing population affect the UK’s economy? The UK’s population reached around 65.1 million individuals in 2015 and is expected to go beyond 70 million people by the time we reach 2026. Will the UK’s growing population result in the government having to make revisions when it comes to the amount that they need to invest into the nation’s economy? IFM correspondent
True Potential Investor, who are on hand to assist when you want to open a personal pension account, investigates in the infographic below. Check out the graphic and you’ll discover the UK’s GDP, Great Britain’s Historic CPI inflation rate, the UK real households’ disposable income per head and much more when various generations were turning 16 years old and adjusting from education to work life. From these findings, a few pointers are made for what future generations may face if trends are anything to go by. Keep reading to find out more…
Leading Raiffeisen Bank’s digital transformation in Italy In the wake of rapid digitisation and mobile-friendly strategies, there is a rising need for modernity in authentication systems, In a path-breaking initiative, cybersecurity company OneSpan accomplished the seamless modernisation of Raiffeisen Italy’s authentication systems. Could this be the precedent in the future?
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sam bakken
he rise of both digital and mobile banking solutions have created many opportunities for financial institutions over the last few years, enabling them to provide new services and interact with customers in new ways. However, they have also made it significantly harder to defend against fraud. With customers logging in to their banking applications from different devices, anywhere, at any time, providing a secure means of authentication that meets compliance requirements and is also userfriendly, has become a major issue. This was the challenge facing Raiffeisen Italy, the
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umbrella organisation for 40 entities of Raiffeisen Bank in the Italian province of South Tyrol. The organisation was contending with a legacy authentication system that, although secure, was proving to be burdensome and difficult to use. Ahead of the approaching PSD2 deadline, Raiffeisen needed to modernise its authentication methods to protect customers while providing an easier user experience. So, the bank turned to OneSpan – which secures sensitive information and transactions for the world’s leading banks—to help solve these issues and drive its digital transformation strategy. Frederik Mennes, senior manager market & security strategy, Security
BANKING
Competence Center at OneSpan explains how this was accomplished.
Letting go of legacy tech The mobile adoption trend—“we are seeing a much faster increase in the adoption of mobile banking compared to internet banking,” explained Raiffeisen’s Information System CIO Alexander Kiesswetter— presented a clear need for Raiffeisen to update its mobile offering and provide a solution that was both secure and easy to use. The main issue with the bank’s previous authentication system was that it was very secure, but not user friendly. The bank had found itself in the familiar tug-of-war between security and usability, with security ultimately prevailing at the expense of customer experience. Simply put, customers no longer wanted to have to use their bank card and the separate hardware tokens that were required in Raiffeisen’s legacy system for every single transaction. Instead, they wanted to be able to authenticate through their mobile device. But providing an easier authentication experience for customers wasn’t the bank’s only challenge. It also had to comply with PSD2 Strong Customer Authentication requirements, which include Dynamic Linking, Replication Protection, and Run-time Application Protection. Dynamic Linking refers to the application of authentication processes that dynamically link remote payment transactions to a specific amount and payee. In comparison, ensuring Replication Protection requires banks to mitigate the risk of an attacker copying a mobile app from one device to another. Run-time Application Protection requires the app to be protected from common threats while the app is running on a mobile device, such as reverse engineering, overlay attacks and code injection. To solve these issues, Raiffeisen used OneSpan technology to build and white-label a standalone mobile app that authenticates and secures users through the app. Using the likes of Face ID and Touch ID, this removes the need for separate hardware tokens to provide an easier authentication experience for customers. On the bank end, transaction signing was added to secure customers’ online transactions against fraud, along with mobile app shielding to secure the mobile authenticator app. This met Replication Protection and Run-time Application Protection obligations by protecting the app against several types of runtime threats, creating a secure execution environment for the app and allowing them to be executed even on untrustworthy mobile devices. The OneSpan solution also enabled the bank to
comply with the other key aspect of PSD2 - Dynamic Linking. This was resolved through the implementation of Cronto technology, which uses a graphical cryptogram made of coloured dots to encrypt transaction details and secure financial transactions with minimal impact on the user experience.
Reaping the rewards So, how has the OneSpan solution benefitted Raiffeisen Italy? Well, since rolling out the solution, the organisation has received positive feedback from customers and experienced high adoption of the new authentication app. “The feedback that reached me is that customers are very satisfied by the new functionality and when we launched the new authentication app there was much demand and high activation,” said Alexander Kiesswetter. “Customers perceive Raiffeisen once again as an innovative bank,” he added. “For the first time, we have a solution that enables us to move services completely to the smartphone without using other hardware tools for the authentication. “Until this product, we were convinced that the smartphone is by definition an insecure device. When we saw the way that OneSpan enforces the security on the smartphone, and also the continuous updates to the software of the smartphone, we were convinced that finally, here was a product that we can offer to our customers and that guarantees us a high level of security.” Raiffeisen Italy is also prepared for PSD2 well ahead of the September 2019 deadline and is now leading the way in the market, being the first-tomarket bank in Italy to protect its app with mobile app security. Ultimately, the bank has finally found a way to effectively combine security and usability, a balance that it had traditionally struggled to achieve. As customers continue to move to mobile apps for their banking needs, Raiffeisen can innovate safe in the knowledge that it can get the best of both worlds. It is possible to improve security while still providing a positive user experience and, as Raiffeisen continues to digitally transform, its customers will be the ones who reap the rewards.
About: Sam Bakken is the senior product marketing manager at OneSpan, a US-based security and e-signature solutions provider for financial services.
editor@ifinancemag.com
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VISA leads the way in Swiss banking innovation Stefan Holbein, country manager of VISA Switzerland was a speaker at the recently concluded Swiss Payment Forum, He shares his insights with us about the event, and the Swiss banking industry Sindhuja Balaji
Stefan Holbein talks about the Swiss banking industry
How was the SWISS Payment Forum this year? What did you discuss at the event? The Swiss Payment Forum offers a great platform to learn about the latest payment technologies and to connect with existing and potential partners. This year’s event provided several interesting presentations that gave new insights into the innovation driven future of payments and discussed the latest findings in consumer behaviour. Celebrating Visa’s 60-year anniversary I talked about Visa’s history our current approach and visions for the future.
It has been an eventful year for the financial services industry in Europe - can you describe the impact of Open Banking on VISA’s business model? We’re transforming the way we do business by
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Image Credit: Mike Hoehn
opening up access to Visa’s vast network and capabilities. With the launch of our Visa Developer platform, we committed ourselves to a more open and collaborative approach to innovation. The platform gives developers at merchants, financial institutions, technology companies and startups a self-serve access to some of Visa’s most popular payment capabilities such as Visa Transaction Controls, ATMlocator or currency converter. Using the Visa Developer Platform, developers can pick and choose from a suite of APIs, SDKs, and documentation for digital payment and commerce solutions. With the Visa API interfaces, financial institutions can connect to a new software system, dynamically integrate provided applications into their own program, and thus reduce their own development effort.
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GDPR came into effect this year - what is your take on that? Nothing is more important to Visa than trust and security. Safeguarding consumer data and ensuring trust are the cornerstones of our business. We believe GDPR represents an evolution of privacy principles and best practices that have long been the foundation of Visa’s approach to consumer data and policies globally.
How is the market in Switzerland for contactless payments? Switzerland is very well equipped for contactless payments. Nearly all Visa credit and debit cards are contactless and so are more than 90 percent of the terminals. The high density of contactless terminals is one of the key factors why mobile payment solutions such as Apple Pay in 2016 or Samsung Pay in 2017 were launched in Switzerland as one of the first markets worldwide.
Reports indicate that Switzerland is still a cash-friendly market. Is this true? If so, how are companies like your aiming to effect change? Looking at the high density of card terminals as well as cards per person in Switzerland I would describe Switzerland as a card friendly country. The latest figures from the Swiss National Bank clearly show, that the card usage in Switzerland is growing continuously for both credit and debit cards. Looking forward, there will be more change in how people transact in the next few years than we’ve seen in the past few decades. By 2020, 21 billion connected devices will lead to a dramatic increase in the number of places where secure commerce can take place. As payments become “invisible” and embedded in everyday experiences—such as Uber, Airbnb or Netflix —we continue to see our role as an enabler of secure, simple and seamless commerce.
Can you talk a bit about the power of blockchain for the financial services industry? Blockchain is an interesting technology and we are looking at distributed ledger applications through our research facility in Palo Alto, alongside other emerging technologies such as AI and machine learning. We will continue looking for innovative ways to help us process payments effectively and produce more analytical insights.
ubiquitous contactless acceptance in physical stores, and omni-channel, ‘always on’ shopping - requires we think differently about how to provision payment credentials to consumers across the wide range of commerce environments they encounter, while maintaining and enhancing how we protect consumer information in an ever-more connected world—a large part of our response has been to introduce, the Visa Tokenisation Service (VTS). The service provides a unified platform for payments innovation, enabling Visa’s clients and partners to deliver a highly intuitive, secure payment experience regardless of the digital device or channel being used to shop.
How is Switzerland leading innovation in payments today? In Switzerland we are able to launch new innovations very swiftly. The innovation driven approach of the local banks in addition to the closely-knit infrastructure of terminals positions Switzerland as one of the top markets to launch new technologies. The implementation of the NFC standard combined with the Visa Token Service laid the ground for mobile payment solutions for both smartphones and wearables. The Visa Token Service that is well established with our local partners also enables the frictionless cards-on-file payment experience that—in Switzerland—Netflix offers exclusively to Visa cardholders since October. With Netflix being the latest news in innovations we are looking forward to bringing more payment services to Switzerland enabling a more seamless and secure merchant and customer experiences locally and globally. Moreover, we invite our Swiss partners to join us in our Innovation Centers in Berlin, London, Dubai, San Francisco, Singapore, Miami and Tel Aviv. Here we foster innovation by enabling our clients to collaborate and engage with Visa developers and product specialists, helping to develop the next generation of commerce experiences for consumers, merchants and businesses around the globe.
The next Swiss Payment Forum will be held on November 11 and 12, 2019
editor@ifinancemag.com
Can you shed some light on the need for integration technology in banking today? The evolution towards a payments landscape characterised by billions of connected devices International Finance
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East Africa’s money-laundering scandals There appears to be an elaborate plan to launder money in countries like Kenya and Uganda, but US officials have gotten a whiff of these scams and have issued ultimatums to these nations’ leading financial bodies to either clean up their act or face dire consequences charles wachira
K
enya Commercial Bank (KCB), East Africa’s biggest lender by asset base and most profitable has been linked to money laundering on behalf of corrupt government officials in South Sudan, including senior military leaders sanctioned by the United Nations in the wake of the civil war, which erupted in December 2013. Also thought to be culpable includes the local Stanbic Bank which is member of the Standard Bank Group, based in
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Johannesburg, South Africa. Predictably the two lenders have to date denied involvement in the fishy business. On its part KCB ‘s Group CEO, Joshua Oigara said the lender being a regulated entity deployed global standards and had no proclivity to engage in money laundering in all the countries of its operations including Burundi, Kenya, Rwanda Tanzania , Uganda and South Sudan. “KCB South Sudan continues to work closely with the Government of South Sudan and the Bank
of South Sudan with regards to resolutions on UN Security Council Sanction List 2206,” Oigara said in a press release. According to data from the Central Bank of Kenya (CBK), the monetary authority of Kenya, East Africa’s biggest economy, nine local banks had subsidiaries within the East Africa Community (EAC), which draws in six countries including, Burundi, Kenya, Rwanda, South Sudan, the United Republic of Tanzania, and the Republic of Uganda, with its headquarters in Arusha, Tanzania.
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According to the US-based Sentry organization, a two-year investigation into the corruption in South Sudan, money movement and assets locations, found KCB has taken part in abetting money laundering on behalf of the elite in South Sudan. Among the senior army generals in South Sudan who the report named as culpable was General Gabriel Jok Riak, who was called out for transferring hundreds of thousands of US dollars to his personal bank account in the Kenyan bank yet his monthly salary
was less than $3,000 dollars, or only about $35,000 a year. General Riak, commander of Sector One, which includes Divisions 3, 4, and 5, of the South Sudan’s army, the Sudan People’s Liberation Army (SPLA), has been under the United Nations sanctions for his brutality during the civil war. His known assets have been frozen and he is banned from travelling to foreign countries. “Specifically, Gen. Jok Riak had command authority over a full-scale 2015 offensive across three states in violation of multiple
ceasefires and resulting in the displacement of over 100,000 people and the commission of grave war crimes,” said The Sentry report, titled ‘War Crimes Shouldn’t Pay.’ “Bank records reviewed by The Sentry indicate that Gen. Jok Riak received large financial transfers totaling at least $367,000 to his personal bank account at Kenya Commercial Bank (KCB) from February to December 2014 alone— sums that dwarf his official annual salary of about $35,000,” The Sentry report revealed.
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Also indicted include General Reuben Riak Rengu, who the report revealed was directly involved in procuring weapons and planning military offensives but also is involved in a wide range of commercial ventures and had received substantial payments from multinational firms from at least three countries that operate in South Sudan through KCB. “Although Gen. Reuben Riak’s official annual salary is about $32,000, information obtained by The Sentry suggests that he is living well beyond what such a salary would support and appears to have received hundreds of thousands of dollars in payments from numerous multinational companies active in South Sudan,” the report revealed. General Reuben has illegally transferred to his personal bank account at the Kenya Commercial Bank millions of US dollars, despite having a salary of less than $3,000 dollars a month. “Documents reviewed by The Sentry show $3.03 million moving through Gen. Reuben Riak’s personal bank account—a USdollar denominated account at Kenya Commercial Bank (KCB)— between January 2012 and early 2016,” the report further revealed. The transactions recorded, it said, include more than $700,000 in cash deposits and large payments from several international construction companies operating in South Sudan. Additionally, the report showed that over this four-year period, $1.16 million US dollars in cash was withdrawn from his KCB account. The report further revealed documented proofs that General Reuben and many of his children have. According to the report, international banks are looking to mitigate the risk stemming from
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South Sudan’s banking sector in order to avoid regulatory fines and reputational harm. “Larger banks operating in East Africa have a network of correspondent relationships and help connect smaller South Sudanese banks with the global financial system. Because of these ties to the regional correspondent banking network, South Sudanese banks hold nested accounts in Kenya and Uganda.” says Sentry. shares in companies operating in South Sudan. Late this June, Ms. Sigal Mandelker, the US Treasury’s under-secretary for terrorism and financial intelligence while on a tour of East Africa publicly stated that some South Sudanese who are under UN sanctions had continued to invest illicit money in Kenya’s real estate market. “I want to be very clear, those who profit from human rights violations and corruption, preying on the poor and innocent and mothers and children, must heed our warning,” Mandelker said at a press conference here in Nairobi. “We will impose consequences, we will cut off your access to the US financial system and we will work with our partners in this region and elsewhere to do the same,” she added, repeating a warning she had delivered earlier in the week in neighbouring Uganda. The political and military elite in South Sudan have been accused of corruption in hard-hitting reports by the US foundation The Sentry, co-founded by actor George Clooney. Also thought to be involved in money laundering using Kenyan lenders include President Salva Kiir and his Vice President Riek Machar. Both are said to have profiteered from the civil war, acquiring waste of the art homes in Kenya and
neighbouring Uganda. Mandelker said she met with top officials in Kenya’s government and the banking sector to urge them to watch out for money laundering from South Sudan. She asked them to ban South Sudanese who have been on a US black list since 2015 and to freeze their bank accounts and seize their properties. “Corrupt money is not wanted here,” she said. “Those who profit on of the backs of individuals who are devastated by human rights abuses will no longer have access to the international financial system because we will block that access, kick them out and we will work together to eliminate such despicable profiteering.” The Treasury under-secretary urged officials in Nairobi and Kampala to close loopholes that allow transfer of illicit funds from South Sudan. “We hope Under Secretary Mandelker’s engagement with Kenyan authorities and banks will spark official inquiries into real estate purchased by South Sudanese officials potentially to hide unexplained wealth obtained in the context of war,” John Prendergast, co-founder of The Sentry, said after the visit of the US Government mandarin. “Investigating, and if appropriate, seizing these homes would provide tremendous leverage for the peace process, and would be a critical step toward accountability for the systematic looting and mass atrocities committed since the country’s independence in 2011,” he said. Kenya and Uganda do have the legal tools needed to investigate the suspect real-estate transactions and, if warranted, to seize those properties, The Sentry said.
BANKING
The group notes that information it had provided led Australian authorities to initiate the seizure earlier this year of a Melbourne home owned by former South Sudanese Gen James Hoth Mai. The Sentry has urged the Kenyan government to “follow Australia’s model to investigate unexplained wealth.” “With support from NGOs, domestic banks and U.S law enforcement, Kenya—East Africa’s banking capital and home to a large South Sudanese Diaspora— is well-placed to take the lead in pursuing potentially corrupt assets,” The Sentry adds. Early this Oct Mr. John- Alan Namu, CEO and Editorial Director of
Africa Uncensored, an independent media house based in Kenya that specializes in unraveling nefarious acts that happen within the East Africa region had an expose on the money laundering business banned from running on one of Kenya’s top TV stations underlining the influence and perceived power local lenders and the elite South Sudanese have within the East Africa region. “It is possible that money launderers have identified Kenya as a ‘safe haven’ to store ill-gotten wealth as the country boasts a robust economy with political stability. Hence, country dynamics (macro-economic and business environment) play an important role. Further, given Kenyan banks
operate in the region, efficient movement of funds both to and from the domestic market is achieved,” said Patrick Mumu, an analyst at Genghis Capital, a local investment bank.
editor@ifinancemag.com
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TEB: The bank of Turkey’s future Turk Ekonomi Bankasi (TEB), winner of International Finance’s Most Innovative Private Banking Award, elaborates on its Consultant Bank approach and its goal to become the most sought-after name in private banking & asset management
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s the founder and the first practitioner of private banking in Turkey, Turk Ekonomi Bankası (TEB), also carries the ‘Consultant Bank’ approach which is an important part of its corporate identity, to its operations in the field of TEB Private Banking. TEB Retail and Private Banking Group Senior Assistant General Manager, Gökhan Mendi stated that as TEB Private Banking, they aimed to be the most preferred reference point for private banking and asset management.
TEB’s GROWING IMPACT AS TURKEY’S LEADING PRIVATE RETAIL BANK Mendi emphasized that being awarded as “The Most Innovative Private Banking” by International Finance this year was a sign of great effort and dedication, and he added: “In line with our customers’ risk levels, needs and expectations, we develop solutions that add value to their assets, with our Private Banking Centers and Service Points in Branches across Turkey. As the founder and the first practitioner of private banking in Turkey, we offer longterm and value-added solutions to our customers in banking and financing transactions, with
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IFM Correspondent the help of our expertise in this segment. For our TEB Private Banking customers, by also taking advantage of our strategic partner BNP Paribas’ global experience, we offer investment alternatives that can be tailored to risk preferences for our customers’ assets and savings. In addition, we implement many innovations in line with the needs and demands of our customers. We bring the digital world to our private banking customers. As TEB Private Banking, we are the most well-established brand and we serve our customers for almost 30 years. As being that much deep-rooted and innovation-oriented brand, it is not surprising for us to pioneer reliable, user-friendly, simple and accelerating solutions in the digital world.” Mendi mentioned that they had implemented many platforms and applications that were the first in the sector to offer services to the customers from different channels and to create value; he continued: “TEB Private Network, which provides a closed and private network among TEB Private customers, share valuable information about ideas, general market evaluations, information about special events and interests; and TEB Private Digital Museum, where artworks and collections
can be shared, are just a few of them. CEPTETEB, our mobile banking application, has also been differentiated for the needs of Private Banking customers. This application continues to be enriched with features that make it possible to integrate more into the world of investment. Private Banking customers can approve all their transactions through CEPTETEB with Turkey’s first “Mobile Approval” facility. They can operate in the fastest and safest way, away from the bureaucracy. For Private Banking customers, our biggest goal in all these digital efforts is to provide fast, secure, and practical products that are parallel with the digital requirements of the era. In this field, we continue to work on many projects such as Robo Advisory, digital portfolio monitoring and management. In order to offer the best service, we aim to combine our experience in digital as TEB and our strategic partner BNP Paribas’ worldwide experience in the field of Wealth Management.”
Mendi: “We are bringing angel investors and StartUps together” Mendi continued: “With the development of technology and the expansion of digitalisation, the change is also quite fast. Each
“
For Private Banking customers, our biggest goal in all these digital efforts is to provide fast, secure, and practical products that are parallel with the digital requirements of the era
�
GĂśkhan Mendi, Assistant General Manager (EVP) / Head of Retail & Private Banking Turkey, TEB
year, as the cost of technology is halving yet its power is doubling. This offers great opportunities for people who are competent and willing to take prudent risks. Numerous entrepreneurs that have innovative business ideas implemented their projects with the help of various supports; investors also turned their attention to the entrepreneurs. At this point, as TEB, we have put forward one of the best examples of innovation research in the
private banking business. With our Start-Up Houses that we have already established, we support the entrepreneurs who have innovative ideas. After this point, private banking stepped in and TEB Private Angel Investment Platform was born. As TEB, within this platform, we have trained and certified the private banking customers who wanted to become angel investors. Then we established TEB Private Investors Club. In this club, we bring serial
investors, who are followers of angel investment in Turkey and in the world and succeeded mostly in technology initiatives, together with private banking customers. By doing so, private banking customers became angel investor candidates; and we, as a bank, have introduced a value-added product and strategy. TEB Private Angel Investment Platform has been in the ecosystem for more than five years. We will continue to support and grow these projects in
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BANKING
“
We are supporting sustainable business models by bringing social entrepreneurs together with potential investors... Our most exciting business at the moment is finding out how a successful social enterprise can reach a wider audience and how the social benefit factor can grow
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the coming years, to demonstrate what Turkey can do for the society, the world and the future with its important projects and highquality entrepreneur human resource.“
“We are focused on the concept of social finance & social impact” Stating that they were developing a project in line with the social entrepreneurship concept, that had a rapidly growing awareness in Turkey as well as in the world, Mendi continued: “We started to organise a new series of events called ”Differential Impact Investments”. We collaborated with Ashoka, the world’s first and largest social entrepreneurial network. We are supporting
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sustainable business models by bringing social entrepreneurs together with potential investors. In addition, we are also organizing Social Finance Meetings with the aim of increasing awareness about the concept of social impact and social finance. Our goal here is not only to conduct investor interviews for the social initiatives we support with our network and business stakeholders, but we aim to reach the next steps as creating joint businesses and growing business models based on new customers and business partners. Our most exciting business at the moment is finding out how a successful social enterprise can reach a wider audience and how the social benefit factor can grow. Within the bank, we work with different departments to improve this approach.”
“There are fintechs in the future of the finance sector” Mendi stated: “In addition to all these developments and our support, we believe that fintechs, which will take a very important place in today’s and future’s world as a result of the digital revolution, will take an active role in the future of banking and finance sector together with the banks. TEB is one of the most active institutions driving this trend. We have TEB Fintech Future Four. With this program, we offer mentoring services that might be required for the startups. Our goal here was to make these investors global companies. We see this as a win-win model on behalf of the Turkish banking sector. This project also continues as a major contribution to our country’s economy. We follow the new ones with enthusiasm and invite them. Together we discuss the services that can strengthen
the competitiveness of the Turkish banking sector in the world”. Mendi continued: “As a bank, we are proud of our structure, which can provide all kinds of financial and consultancy services that would lead an entrepreneur up to a public offering. With a strong partner from abroad, we aimed to open up Turkish fintechs abroad. Within this scope, we have positioned Nestholma, a North European Fintech Accelerator Program, as a consultant partner in our project. Northern Europe is a world-class center where the leading fintech technologies are created. Directly managing the transformation of big technology companies, this year Nestholma chose 5 different countries in line with its vision of opening up different geographies. As TEB, we are selected to be the only partner that the North European approach wanted to work with, regarding the projects we have implemented so far in all circles of the entrepreneurship ecosystem from Enterprise Banking to TEB Private Angel Investment Platform and TEB Private Investor Club. The initiatives that succeeded the TEB Fintech Future Four this year will be able to open abroad, thanks to Nestholma’s global contacts. Mendi underlined that they would continue to support fintechs with the TEB Fintech Future Four program in the coming period and help them to introduce themselves to the European and the world markets and to reach the foreign markets by directing successful projects to such events.
editor@ifinancemag.com
Millennial-approved banking paves the way for dynamic industry shift With millennials providing their seal of approval for on-the-go fintech solutions, the banking industry of the future is looking drastically different Jayanthi Madhukar
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f you were Internet savvy in the late nineties, you would have most probably encountered PayPal, a money transfer service developed by US-based company Confinity. It needed you to have a PayPal account to pay money electronically. It is also likely that you did not use it. However, as Bengalurubased Deepthi Rajan, Head Technology Upskilling and Communication, Corporate and Investment Banking Technology at Societe Generale notes, “PayPal was the first alternative to traditional banking.” Now fast forward to the present. On the afternoon of a business trip, a millennial lawyer in Mumbai was at the airport sans her credit card. An accompanying
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senior colleague paid for her air ticket. To return the money, she asked if he had Google Pay. He didn’t. Two weeks later, she had yet to return the money. “I have to do net banking, set up the third party account, and....” she said, by way of explanation. Google Pay meant she just had to log on to the app on her smart phone, enter a passcode (or fingerprint) to open the app, search for his name and transfer the amount. “It’s convenient because there is no need of a wallet, like Paytm wallet, and the money is directly transferred from my bank to his without the need for an intermediary.” A study by the American Banks Association had one standout of millennials’ banking
FINTECH
habits. 71 per cent of those who participated in the study would rather go to the dentist than listen to what banks were saying. But fintech or Financial Technology, in the hands of disruptive entrepreneurs, has changed banking entirely. It is an innovative use of technology in the design and delivery of financial services be it AI, peer to peer lending, digital payment; just to name a few of its services. In fact, fintech start-ups have attacked every part of banking, from wealth management, trading, retail banking and savings. As of now, they are the front end of banking while the boring part is still the traditional banking system. Rajan illustrates with an example of Bank ‘B’ and fintech company ‘F’. If Bank B has a cumbersome paper-based mortgage process and Fintech F has just the solution—a fully digitised product spanning the entire mortgage process from application to approval, complete with a super easy to use interface. F needs customers—a banking license would be good but customers are essential. B’s API gives F access to B’s customer data. Soon, B’s customers have a hassle-free experience applying for mortgages and F has access to a well-established customer base. BaaS (Banking-asa-Service) can often result in point solutions such as personal finance management tool, accounting software, interest calculators or ATM locators being developed by third parties. These solutions can be sold as standalone applications, be part of an app store, or integrated into a product suite, all of which may or may not be owned by the banks. This is apt for the millenials since the above mentioned studies show that at least 23 per cent of them feel that the main barrier to banking was the lack of mobile apps. “Importantly, Fintech is removing the need for bank branches or any physical infrastructure, just like ATMs removed the need for human beings to act as bank tellers to give people money,” says Vikram Gulati, a MBA (Finance) student from Stern, NYU, “It is enabling a much larger customer base, as people can live and work far away from their actual “branch” and is allowing not only faster services like instant money transfers but also instant investments into mutual funds/fixed deposits. It is also allowing lots more people to have access to credit, as analytics on spending etc. can help drive credit scores (still experimental). Other innovations include buying of insurance online, filing tax returns easily and so on. Millennials would rather use such apps.” Now, thanks to fintech, banking is perhaps just as easy as hailing an Uber taxi. In the US alone, Facebook has 50 different regulatory licenses that will allow its users to transfer money by the messenger app. In Britain, for some of the millennials, Monzo is close
to being a cult. WeChat in China takes it further by allowing the user to not only buy insurance, make payments, invest in funds, but also book doctor’s appointments, donate to charity, and even set up dates. While fintech companies deliver personalized experience through a deep and focused understanding of the pain points in customers’ banking journey, what does it actually mean for customers and banks? Rajan notes that for customers, it’s a great deal; access to better products, elegant user interfaces and enhanced services. But the downside is that customers must deal with a fragmented set of service providers for different services—loans from one company, investment advice from another, deposits from a third and so on. For the millennial lawyer, that is not much of a big deal. “I can choose,” she says. But how do the traditional banks deal with fintech? Fintechs with their narrow offerings, minimal regulatory obligations and zero legacy technology infrastructure are an uncomfortable reality unless, as Rajan notes, the traditional banks acquire a fintech (BBVA’s acquisition of Simple) or partner with one (HSBC with Tradeshift). “But many such relationships are largely driven by a zero-sum mentality, where one party wins often at the expense of the other smaller player,” she points out. Industry experts like Henri Arslanian, who teaches the first fintech university course in Asia, have stressed that as banks try to integrate fintech to bridge the gap between customer experience and what they traditionally offer, the role of the future banker will be very different from the present day. “The skill sets will be different,” he said in his TedTalk. “There will be designers and programmers rather than traders or compliance officers.” Already, it is estimated that in the next ten years, about 30 per cent of the banking jobs will disappear. A grimmer outlook estimates it as 50 per cent. But, no matter what, fintechs are providing banking to millennials in a way they actually like. We would, however, like to leave with this reminder by quoting Douglas Adams: We are stuck with technology when what we really want is just stuff that works. Fintech companies should keep that in mind.
editor@ifinancemag.com
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Serving the new breed of
digital-first retailers
With a flexible payment option, powered by a customised ‘decision engine’, Duologi is aiming to serve a new breed of digitally aware customers. Rob Cottingham, credit director at Duologi tells us more about building a perceptive engine and its relevance in the financial services industry IFM Correspondent
FINTECH
Tell me about Duologi’s journey so far Duologi is a specialist consumer lending company that was set up in September 2017 after receiving backing from Oaktree Capital. We established the company primarily to service the new breed of “digital first” retailers that need to provide fast, frictionless finance options for customers at the point of sale. These organisations understand the importance of data analytics to help them optimise their own sales, marketing funnels and customer lifetime value. Hence, our main focus is to provide bespoke finance solutions and data analysis to retailers, as well as organisations across a wide range of other sectors from health to education. Unlike many other similar businesses in the market, we know that one size simply does not fit all. Instead, we work with each partner individually to ensure we create a bespoke service for each. Our unique platform is powered by groundbreaking technology, built from scratch, and allows organisations to quickly and simply start offering finance to their customers.
What are the biggest challenges you have experienced in your current role? Developing our custom-built ‘decision engine’ from scratch last year was the biggest challenge. It’s a robot which can make extremely rapid decisions on whether or not customers should be offered credit
based on their individual circumstances. We were tasked with making the engine market-ready within just a matter of months—which we did—and are really happy with the results. I am, however, never complacent. We continue to challenge both the technology itself, and the scorecard development within it, and strive to improve its performance even further. The more we grow, the easier this becomes, as we continue to gather data that enables our insights to become increasingly deeper and more complex.
What are the current issues facing the consumer credit market? While credit options such as point of sale (POS) finance are becoming increasingly popular within the UK, there are some major issues preventing businesses taking full advantage of the benefits credit has to offer. Within our recent report, which looked into current state and future of the consumer credit market, we found the main reason for this was a severe lack of consumer awareness around such payment methods. It highlighted that almost everyone (94%) would not think to ask if a business offered POS finance and that this could be costing UK businesses up to £25 billion a year in lost revenue. What’s more, we discovered that poor credit lending practices—such as high interest rates and unexpected costs—are far too common and are contributing to high basket cart abandonment rates.
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Fintech
We have no hidden charges for our end customers. We charge an interest rate, (or not, if it’s interest free) - and that’s it. But we are aware that there are others in the market that start charging when customers get into financial difficulty. However, we simply do not believe that is the right thing to do and hinders efforts to find solutions to debt challenges. Many other lenders are falling short in terms of user experience. This was also evident from our research. We found that over a quarter of people experienced slow credit application processes, whilst lending agreements were full of confusing jargon which made the whole experience less transparent than it should have been. At Duologi, we decide whether someone is eligible for finance in just a few seconds after asking only a handful of questions. This makes lending processes as easy as paying by card, so we see this as the future of credit.
What does the industry need to do to address these issues going forward? There are a few simple things that lenders can do to rectify these issues: • Make sure 0% interest loans are offered - we found this to be a major consideration for over three quarters of consumers buying on credit. • Create a seamless payment journey - to avoid customer frustration, credit platforms should work quickly, easily and seamlessly across all online
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channels, including mobile. • Promote the offering—given the low awareness levels around POS credit, it is imperative to promote these finance options wherever possible. Even a simple website header can alert potential customers to the benefits of finance solutions, providing a clear reason to purchase from that business in particular.
What keeps you motivated? To see our business grow from nothing - and to be part of that from the start—is amazing. Even more motivational than that, however, is getting a deeper understanding of how we can help others to grow their businesses, whilst at the same time supporting our end customers with their purchases.
About: Rob Cottingham joined the company back in May 2017 and was one of the first members of staff. His key task - apart from the basic requirements of defining appetite, developing policy and rolling out an appropriate strategy—was to execute the build of our unique decision tool that now sits at the heart of the business. Prior to this, Cottingham had built up over 20 years of experience in the credit risk and enterprise risk sectors, including in international theatres of operation. editor@ifinancemag.com
asia’s next big real estate destination hub
The South Asian island nation of Srilanka is emerging as a leading real estate investment destination for its flexible policies, strong government and robust financial-legal systems IFM Correspondent
REAL ESTATE
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he Asia Pacific region has emerged as the best real estate investment destination globally, registering the highest year-on-year investment growth of 29% (H1 2018 vs H1 2017) against 9% in the Americas and EMEA regions (Source: JLL Research Report “Global Capital Flows”, Q2 2018). Within this region, Sri Lanka is a shining example of a thriving emerging market. The ‘Pearl of the Indian Ocean’, Sri Lanka is experiencing a surge in real estate investment following a steady period of impressive economic growth over the past decade. A vibrant democracy, political stability, a transparent and robust legal system based on the canons of the Laws of England, freedom for foreigners to invest, a transparent regulatory regime for free capital movements, a relatively benign tax environment, a peaceful South Asian region and an economy getting into a sustained growth all combine to put the spotlight on this island one of the top opportunities for real estate investments in emerging Asian economies. Extensive government
investment and private consumption has helped deliver an impressive GDP growth of 4.5% according to World Bank estimates. Sri Lanka’s capital city, Colombo, is one of the region’s fastest-growing commercial hubs. Located at the centre of major shipping routes connecting South Asia and the Far East with Europe, Africa and America, it enjoys enormous strategic importance and today the city is a base for numerous businesses and government institutions. Additionally, strong air connectivity and popularity for tourists have provided a solid foundation for the country’s transformation. Sri Lanka’s high potential for tourism—and in particular luxury tourism—has spearheaded some major infrastructure projects such as Colombo International Financial Centre at the Port City reclamation, Megapolis and Beira Lake, as well as improvements in transport including new expressways, a new Colombo Light Railway (CLR)and airport expansion.
However, real estate is the big success story underpinning Sri Lanka’s growth. As the country seeks to ramp up its prominence among South Asian markets, GDP growth will be paralleled with growing salaries and with this comes an increase in demand for superior quality housing. Additionally, growing demand for quality office and commercial space from local and foreign businesses is spurring on private sector investment. The proposed International Financial Centre at the Port City alone will add 5.65 million square metres of new mixed-use real estate. Arun Pathak, Managing Director of WelcomHotels Lanka (Private) Limited, observes: “The economic growth of Sri Lanka is being led by large real estate developments in Colombo from multiple investors including the US$ 15 billion reclamation project, with an expected further investment of US$ 25 billion in developments on the reclamation, that are all poised to reposition the importance of Colombo, and indeed Sri Lanka, as a key regional business and financial hub. This makes prime real estate a great buy as the market is at the beginning of its growth curve.” He adds that high quality assets here offer good long-term return opportunities, especially in the current scenario in which asset prices are relatively lower than other regional business and political centres. “This may not last very long as these are expected to catch up, at least regionally, in the next few years.” Indeed, as a rapidly developing emerging market, Sri Lanka is becoming increasingly attractive to global real estate investors. According to KPMG’s recent report “Paradise Island—Luxury living in the tropics”, real estate investors are being rewarded with ROIs
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averaging 17% per annum and rental yields of up to 9%. Indeed, since the end of civil conflict in 2009, Sri Lanka has delivered a series of increasingly luxurious prime residential developments. As highlighted in KPMG’s new report: • Over 6,000 new apartments are due to be built by 2020 • The luxury market is driven primarily by local Sri Lankan investors (61%) as well as Sri Lankan expats (18%) who are keen to invest in their country of origin. The remainder of the market comprises owner-occupiers (17%) and institutional investors (4%) • From drawing board to completion, high end newbuild properties in Sri Lanka are achieving an average ROI of 10% per annum. Investors entering the secondary market have achieved 15% ROI per annum on an average. Historically prices have registered increases of 40-45%.in the 1st year to the 3rd year after completion • Rental yields are achieving a generous 9% per annum, whilst secondary market investors are averaging 5-7% per annum. Foreign professionals are the most prominent tenant within the luxury market (67%), followed by local end users (19%), local tenants (13%) and foreign tourists (1%) Commenting on the country’s future prospects for real estate investment, KPMG Sri Lanka’s Principal Shiluka Goonewardene observes, “Regionally Sri Lanka remains attractive as an emerging market, when considering the ROI on real estate. The positive outlook for the global economy is an encouraging sign that the rewards will continue for some time to come.” Recently developers have brought luxury real estate in line with top global urban destinations
and several new luxury and branded residential developments —including Cinnamon Life, Altair, Shangri-La at One Galle Face and Ritz-Carlton at The One—have been springing up across the city, with more in the pipeline. Attracted by the strong economic growth, developers from further afield are increasingly setting their sights on Sri Lanka, especially Colombo; in addition to substantial existing Chinese investment in Colombo, Japanese firm Belluna Co. recently announced plans to invest US$500 million in real estate developments here. The city’s latest high-end residential offering, Sapphire Residences, is the city’s most exclusive residential development. Described as “the jewel in Colombo’s crown” and the city’s “most talked about address”, Sapphire Residences is set to redefine luxury vertical living in the Indian Ocean region. Located on the prestigious Galle Face oceanfront at Colombo’s epicentre, it comprises 132 exclusive private residences averaging a voluminous 5,000 square feet living area with extraordinary floor to ceiling heights (penthouses are 9,325 square feet), with stunning 180° panoramic views of the city, lake and ocean, floor-to-ceiling windows and extensive leisure facilities for residents that span an impressive 40,000 square feet. The first overseas project by luxury Indian hotelier ITC Hotels (operating through ITC’s 100% subsidiary WelcomHotels Lanka (Private) Limited), this distinctive development is set to become a globally recognised landmark for the city; the iconic design was the brainchild of a world-class international team lead by U.S. architectural firm Gensler, which created the two distinctive parallel towers connected by a sky bridge, with the residential interiors by
REAL ESTATE
Burega Farnell in Singapore. Sotheby’s Sri Lanka’s Director Charles Phillpot comments: “We have started to preview the Sapphire Residences to HNW buyers in Colombo and the consistent response is ‘WOW!’”. ITC Hotels has raised the bar to a new level for the region and created ‘uber-luxury’ apartments that offer a superlative living experience in South Asia. The mixed-use development includes a private Residents’ Club offering over 40,000 sq. ft. of extraordinary leisure amenities for homeowners and their guests. Conceptualised by YOO Inspired by Starck, these include several swimming pools, cinema, residents’ Clubhouse with lounge and library, amphitheatre, spa, gymnasium and fitness centre, yoga room, indoor squash, table tennis and multi-purpose sports courts.
Currently under construction with completion expected in 2021, the development comprises a 224-metre-tall residential tower set alongside a 140-metre-tall 5star ITC hotel. Connecting the two buildings at the 19th-21st levels is a 54-metre long sky bridge, which incorporates a stunning bar and lounge with spectacular views on the lower level and on top are two infinity pools and a sunbathing deck. The adjacent ITC hotel is crowned by a helipad (the only one being in the vicinity) for not only VIPs, guests and residents, but also for medical and other emergencies. The development’s proximity to the International Financial Centre in the forthcoming Port City and its commanding location on Colombo’s most exclusive Central Business District strip, owning a home at Sapphire Residences
ensure that residents are ideally placed to keep a finger on the pulse of international finance, trade and commerce. Priced from around US$1.4 million, Sapphire Residences are scheduled to launch onto the market in Q3 2018 with Sotheby’s International Realty. These developments are a sign of a renaissance for Srilanka that has seen its fair share of natural calamities and political turmoil in the last few decades. With several provisions being made for foreign investment, real estate can witness a real boom in the years to come.
editor@ifinancemag.com
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social sentiment rakes up trading The wealth of information available on social media today has paved the way for businesses like Finatext to thrive. CEO Rob Brockington talks about the new crypto trading app Pipster and why real time data is the game changer for financial inclusion today Sindhuja Balaji
Wealth Management
Can you tell me about your journey at Finatext? I’ve been in finance for more than 15 years now. I started on the trading floor, engineering and maintaining trading systems before running both European and Global production tech teams across Deutsche Bank and HSBC. For most of my career I worked for major banks and investment brokers, but as time went on I found that the drive to innovate and evolve was hampered by overly rigorous compliance and regulations put in place because the technology isn’t good enough to automate the processes needed. So I moved on to a new challenge and a change in culture. I reconnected with a former colleague in Japan who told me about his ambition to grow Finatext Ltd globally, and in 2017 we started Finatext UK Ltd, where I took the role of CEO. Now Finatext UK is bringing their first (FCAregulated) crypto trading app to the market— Pipster. Using simplified versions of the same type of technology used on trading floors, Pipster speaks on a level that benefits a broader community of people. There’s nothing so complex about investment that should keep the average person shut out and nothing too exclusive about trading anymore.
How are digital solutions aiding the development of your business? Finatext UK is based here in London but we work in tandem with Finatext Ltd teams based in Japan and Vietnam. We are an image of a global online business relying heavily on the digital solutions and synergy that’s only been viable since the world became connected in this way. We consist of data science teams, product and software developers and plan to lead the industry in terms of digital solutions for trading and investments. So there’s no lack of awareness for the importance of this to our business.
What is Nowcast and how does it provide real-time data? Nowcast is a Big Data Economics Analysis platform founded by Tsutomu Watanabe, now a Technical Advisor at Finatext Ltd, and was brought into the group in August 2016. The firm delivers global economic indicators to established financial institutions in realtime, focusing on the utility of premium data such as POS data, banking data, satellite imaging data and news-text data. Nowcast strives to create a world where people can get an up-to-the-minute view of the economy. Its aim is to disrupt the conventional methods of economic statistic collection, the basis of policy and
Stephen Buechner, CRO, Intrapay investment decisions, as there is an apparent ‘time lag’ between the time of survey and the time of release.
How is big data affecting investment management trends? Rapid technological advancements have led big data to not only influence how we work, but how we consume information. It’s changing the landscape of financial trading. Machine learning has dramatically improved and today’s computer tools can interpret these huge datasets at a much faster pace, revealing previously untapped trends to make predictions and decisions that even the savviest trader wouldn’t have the capacity for. Understanding big data has been a challenge for the investment management industry; the increasing complexity of data generation is transforming the way industries operate and this calls for the financial sector to keep up. What we’re seeing is the use of big data and machine learning to enhance financial models and generate better returns. Big data analytics are now being used in predictive models to estimate the rates of return and make decisions on stock options in real time—something that is quite literally impossible for a trader. Financial analytics is no longer just about the examination of prices and price behaviour alone.
How do social media data and NLP (Natural Language Processing) help assess investor sentiment for stocks and currencies? Our social sentiment indicator is programmed to International Finance
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understand whether, for example, a tweet’s ‘mention’ of bitcoin was made in a positive or negative light (sentiment). These are then rather simply added up en-masse and then rather complexly processed, to provide an overall score. Instead of assessing only the ‘investor sentiment’ we take a wider-scoped ‘social pulse’ from a broad and ultimately indiscriminate group. So rather than simply taking the views of people who might be considered to be influencers or market-makers themselves, we incorporate the full demographic and refine the macro-data, to be utilised by investors—our users. We’re constantly working to further clean-up the data and tweak the algorithms to make the service more and more accurate with each evolution. It’s both a science and an art-form.
Social media data has become a new benchmark to gauge investor worth. Is this the new normal in the industry? The establishment appreciates time-tested solutions only. So this sort of social media data analysis for investor trends will have to go on proving itself before for some time before it is considered the norm. For a generation now, we’ve had the raw data from social media piling up and the processing power to crunch almost limitless numbers. And though previously the organic nature of language made it difficult to obtain anything meaningful from the sheer volume of social media posts, now with modern techniques such as NLP we’re obtaining something of real value. Social media has been considered an immature, toxic and therefore unreliable environment for consumer and investor trends. Like all new generations though, they’re growing up and shouldn’t be ignored.
You have launched this service in Asian markets so far - do you plan on taking it to other regions? If so, where? Our first edition of a social sentiment tool was developed in Japan for use on stock markets. With Pipster’s social sentiment tools, we are taking it to a more mature (developed) stage and deploying it to forex and cryptocurrency markets. We also plan to develop a portable sentiment product which can be plugged-in globally, to practically any financial asset. The new portable product will provide the same or similar benefits of identifying new trends and forecasting future investor behaviour.
Specifically, why the heightened interest in Asia? What does it say of the market in comparison to global markets? Our business was founded in Japan where the retail
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forex market is almost completely centred on its domestic market and yet accounts for over 35% of all retail forex volume in the world. As by-and-large a technologically-progressive society, the ‘average Joe’ is simply more likely to use a hand-held device for activities such as investments and trading. We’re seeing more and more uptake for this style of activity and investment here in the UK as time progresses and the younger generations drive the consumer demands and business trends.
What are the biggest advantages of using a social data-driven model? The world of data and modelling has changed drastically over the last few years. Every day, we generate 2.5 quintillion bytes of data, a number that wouldn’t be anywhere near as massive without the contribution of social media. To give you just one example, Facebook has more than 2 billion monthly active users and generates 4 new petabytes of data per day. Social data provides qualitative detail and a quantitative scale. It reveals social trends and invaluable real-time insights that can make a significant impact on investor sentiment. The raw voice of consumers can be collected, providing context that simply isn’t available through traditional research methods. The speed of social data is another factor that assists in making trading decisions. Due to the sheer speed at which updates can be posted and shared by the masses, social media has become a key way for traders and investors to stay up to date with breaking news.
With a large debate around user privacy, what are the challenges of a social datadriven model? The user agreements for social media accounts are clear in that certain information and posts shared online, such as on Twitter, are public domain. Whether or not the mass-acquisition of this data by businesses becomes a leading topic of debate for change or regulation, is one thing. However, it is hard to see how relevant companies like Facebook and Twitter would be without the user-analytics aspects of their business available to the wider market. Monopolized access to this sort of data, by these tech giants, would also provide its own very serious ethical (let alone commercial) challenges.
editor@ifinancemag.com
A visionary and innovative partner for your private wealth management needs Arche Associates, one of Europe’s leading financial services companies, has a boutique of services and offering embedded in the goal of providing innovative private wealth management solutions
COMPANY PROFILE
Fulfilling the need for transparency Luxembourg-based Arche Associates, one of Europe’s leading financial services companies, is based on deep-rooted conviction that private wealth should benefit from innovative solutions tailored to individual needs. The company consists of three independent entities—depending on the type of advice required, clients can choose from one of the following: 1. Arche Family Office: the first ‘Multi Family Office’ to have obtained the
approval of the Luxembourg Ministry of Finance under the law passed on 21 December 2012. Arche Family Office is at the service of wealthy clients in search of expertise, transparency and independence in the overall management of their private wealth. 2. Arche Wealth Management: created and approved in 2013 after repeated demands from clients to provide tailor-made portfolio management services. 3. Arche Private Advisors: established in 2015 to consult, structure and accompany its clients’ real estate investments.
Frédéric Otto
Rudy Paulet
President of the Executive Committee (CEO), Associate founder, Arche Associates S.A.
Associate founder, Arche Associates S.A.
1998-2012: President, Banque Privée Edmond de Rothschild Europe. 1996-1998: President, Banque de Gestion Privée Luxembourg. 1990-1996: Founder - President, Banques Vernes Luxembourg. 1987-1990: Director, Bank Vernes Paris.
The creation of Arche Associates Due to the country’s political stability and relevant legal and tax structures, Luxembourg is an ideal place as the headquarters for Arche Associates, allowing the company to provide a range of high-level services demanded by an international clientele. Luxembourg plays a key role in the professional quality and institutionalisation of the family office and wealth management businesses.
A tailor-made service Arche Wealth Management is regulated by the Supervisory Board of the Financial Sector (CSSF)
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Chairman of the Board of Directors, Arche Wealth Management S.A. 2004-2012: Vice-President of the Executive Committee, Head of Private Banking & Family Office, Banque Privée Edmond de Rothschild Europe. 2000-2004: Commercial Director, Fortis Assurances Luxembourg. 1989-2000: Secretary General, Head of Business Development, Fortis Bank Luxembourg.
in Luxembourg. The division provides tailor-made portfolio management services; has extensive financial market experience and is totally dedicated to its clients. Offering continual stability, Arche perfectly understands the situation of its families and maintains constant and close dialogue with them. By selecting the world’s best investment funds, which gives access to a flexible allocation, Arche provides a professional and specialised service in all traditional asset classes, as well as in custom-built structured products and private equity investments. Arche takes pride in providing sophisticated solutions specifically tailored to each client’s needs. Operating as an independent firm, Arche avoids any
COMPANY PROFILE
Franck Payrar
Didier Bensadoun
Associate founder, Arche Associates S.A.
Associate founder, Arche Associates S.A.
2000-2012: Member of the Management Committee, Banque Privée Edmond de Rothschild Europe & Family Office, Head of multi-gestion Chief Investment Strategist.
2005-2012: Family Officer, Banque Privée Edmond de Rothschild Europe.
1994-2000: Head of Equities, Senior Financial Analyst specialized in Japan & Asia, BGL.
conflict of interest and works exclusively for each client’s benefit. Arche also manages dedicated investments on thematics to benefit from specific trends. The company creates portfolios with a customised allocation, while maintaining a close dialogue with the clients for whom transparency reports are provided in order to follow the evolution of the portfolios. The wealth management division is also the architect of a tailored-made asset allocation. The portfolios are assembled to reflect the firm’s market convictions while taking into account the specific orientations as agreed with the client. Arche manages on a discretionary basis and also
1999-2005: Co-Head Advisory Department, Banque Privée Edmond de Rothschild Europe. 1997-1999: Co-Head Dealing Room, Banque Privée Edmond de Rothschild Europe.
offers an advisory management service in order to analyse the situation in accordance with market dynamics. The firm also provides continuous portfolio monitoring with a high response capacity. It selects the best management specialists in the world. Arche Wealth Management’s investment committee relies on a network of strategists to help develop and put into perspective its own market scenario. Through an open architecture, the selection of investment funds enables Arche to provide a relevant and specialized service on all asset classes. Arche Wealth Management is an independent management company that works with several depository banks.
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Clients, entrusting the management of all or part of their assets, may retain their historical custodian bank(s). Clients can also benefit from the network of custodian banks with which Arche Wealth Management has negotiated competitive pricing conditions.
Asset Allocation The objective is to create a steady appreciation of their clients’ capital by producing positive returns while maintaining investment risks and volatility at a level agreed upon with the client. The investment philosophy is based on the following points: • The core portfolio relies on selections of the best expertize over flexible asset allocation funds that provides an anchor in the market by adapting the allocations depending on market conditions. • To enhance returns, the portfolio relies on specific investments (thematic funds such as robotics, biotechnology…). • Absolute return strategies and structured products to diversify and increase portfolio’s protection.
Innovations The firm’s great growth prospects are made possible thanks to Arche’s pursuit of innovative solutions in order to always better serve their client’s interests. The exclusive partnership developed with the National Bank of Canada is an illustration of this inextinguishable thirst to provide clients with reasons to come and reasons to stay. This international partnership with Quebec’s main bank offers Arche’s
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clients a custodian bank service as well as a multitude of investment solutions in Canada, all in all making possible to diversify the risk of holding assets by placing them on the North American continent. The partnership provides access to structured products that are unique in their design as well as to real estate investment opportunities in Canada. Arche always looks for new ideas, products and concepts. Another example of Arche’s innovative vision is the development of a partnership with Swiss Life and the National Bank of Canada authorised by the Insurance Commission of Luxembourg. This agreement allows Arche’s clients to use the National Bank of Canada (NBC) as the custodian of a life insurance contract by Swiss Life. It offers a unique solution that combines the benefits of a Luxembourg life insurance while diversifying risk by placing assets in Canada and taking advantage of Arche’s asset management expertise. With independence, transparency, innovation and excellence driving the company’s success since its inception only five years ago, Arche Wealth Management will continue to be innovative and fulfil client’s needs.
For further information, log on to www.arche-associates.com
editor@ifinancemag.com
From Family Office to Wealth Management. An innovative and independent partner.
37 A, Avenue J.F. Kennedy President East Building L-1855 Luxembourg
T: +352 26 00 17 F: +352 26 00 17 00 M: contact@arche-office.com
arche-associates.com
Logistics: The next wave of innovation in e-commerce
With e-commerce snowballing in the Middle East means: logistics in the region need advancements from a paradigm of old-fashioned techniques to drum up operations Sangeetha Deepak
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here is the belief that the Gulf Cooperation Council is enticing the growth of e-commerce sector, which is, somewhat, an unconventional activation of its strategic pursuits in the region. This escorts a reasonable explanation. For a region that is economically dependent on oil and petroleum, the emergence of other activities such as mergers and acquisitions, local innovation, inflow of funds and presence of foreign players propose the reasoning of widespread adoption of e-commerce in the Middle East. Online payment gateway Payfort taps into the Middle East e-commerce market, only to find out that the sector will exponentially grow to $69 billion by 2020. This means, the numbers will have doubled in a span of few years. This is good. A thriving sector is strongly emerging to favour the region’s economic development, which is largely fixated on natural resources for many years. Statista, for example, shows the all-round growth in the Middle East and Africa would reach CAGR of 11% between 2018 and 2022.
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Today, young consumers (or millennials) are often attracted to the shopping experience derived from the use of seamless technology, and the additional service benefits that accompany with the experience. It seems, more than half of millennials, rather look for information from online retailer than in-store personal assistance. In fact, a report by American global management consulting firm A.T. Kearney predicts the e-commerce growth in the Gulf Corporation Countries could reach its worth up to $20 billion by 2020 because “online commerce has performed particularly well” in the recent past “against a backdrop of economic, social and political challenges.” The numbers reflect an increase of more than $15 billion, from 2015, writes Damco Blog. It is self-evident that this shift in consumer behaviour is prompting the need for strong, reliable logistics ecosystem—a system for tracking web purchase orders, and ensuring an on-time delivery of parcels across the region, which is the primal source of e-commerce expansion. Ergo, a debate circling the question of what is the
Logistics
degree of logistics expertise in the Middle East— is still ongoing. The next round of innovation in the Middle East e-commerce landscape will rise from integrating the logistics system with state-of-the-art technology. In the e-commerce world, new-age warehouses prescribed with advanced IT and digital solutions will help to smoothline business operations. The Middle East and North African Transportation and Logistics Market, Forecast to 2018 report identifies the MENA region to have something like long-term business opportunities “in the areas of transportation, warehousing, and freight forwarding.” Another way to describe this is the region has transpired as “a major transshipment hub,” coupled with “strategic location advantage and improvement in air and sea port infrastructures,” writes PR Newswire. By example, some of the urban cities such as Dubai, Abu Dhabi, Riyadh and Jeddah have well established their logistics ecosystem. In fact, the governments “recognise logistics as an opportunity for their nations and top businesses to forge a profitable relationship,” writes Khaleej Times. And in this case, the
government of Saudi Arabia will further strengthen the presence of the logistics infrastructure in Saudi Arabia 2030 vision. In line with the infrastructure, Oman announced “through Royal Decree No. 24 of 2017” the build of a railroad stretching 400 kms to connect to the mineral mines in Salalah with Duqm. The project as part of the Oman national railway network has been designed to serve freight traffic as well “connecting the major ports at Sohar, Duqm and Salalah to the rest of Oman,” according to Lexology. But this is not it. There is the One Belt One Road initiative, where China and Oman have been working together to revive the ancient trading route—Maritime Silk Road. This initiative will reinforce trade in the region by enhancing the logistics infrastructure used to transport goods between China, Central Asia, Persia, Arabia, Africa and Europe.
editor@ifinancemag.com
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SGS enabling
the smooth and safe passage of pilgrims to one of the holiest sites in the world
COMPANY PROFILE
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CEO Eng. Omar Bin mohammed Najjar
Millions of Muslims travel every year to Mecca, with a considerable number travelling to Saudi Arabia by air. Saudi Ground Services this year has outdone its capabilities by enabling the smooth passage of more than 1.2 million pilgrims to Mecca
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audi Arabia, which is an economic leader in the Middle East, also houses Mecca, the holiest city for Muslims across the world. The Hajj pilgrimage is a mandatory duty for all Muslims, with financial and physical might, to be carried out atleast once in their lifetime. According to the government of Saudi Arabia, more than three million people performed the hajj in 2012, and numbers are only rising every decade. Majority of the travellers are from the Middle East and North Africa region, states research. A religious trip of this magnitude requires skilled coordination at multiple levels, especially for the travel and tourism industry. In Saudi Arabia - the site of all the action in September when the 2018 Hajj pilgrimage took place—this endeavour was taken up with fervour and accomplished competently by Saudi Ground Services.
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How SGS accomplished this mammoth task The ground handling services company successfully enabled the transport of 1,242,833 pilgrims, and handled nearly 2,593,786 pieces of luggage during the Hajj season that concluded in September 2018. Saudi Ground Services Company (SGS) concluded 1439H Hajj season completing the outbound operational phase serving last HAJJ flights from King Abdul Aziz International Airport in Jeddah and Prince Mohammed Bin Abdulaziz International Airport In Madinah, SGS, which is the leading ground handling services provider in the 27 airports across the Kingdom of Saudi Arabia, dedicated all technical and manpower resources to serve and facilitate outbound flights upon the pilgrims fulfilment of the Hajj rituals serving 1,242,833 Pilgrim on board 4,425 HAJJ Flight while
COMPANY PROFILE
handling approx. 2,593,786 pieces of baggage. While 3,032 flights departed from King Abdulaziz international Airport in Jeddah with 819,010 pilgrims on board while handling around 1,763,200 pieces of baggage, at Prince Mohammed Bin Abdulaziz International Airport in Madinah 423,823 Pilgrim were served on board of 1,393 flights and 830,589 pieces of baggage was handled. SGS CEO Eng. Omar Bin Mohammed Najjar expressed his sincere appreciation to everyone’s participation and efforts to the successful accomplishment serving the guests of the Tow Holy Mosques for 1439H Hajj season, Eng. Najjar added “ with blessing of “Allah” then the efforts and perseverance of SGS employees and
our partners in success from Airlines and related government agencies we have successfully concluded 1439H Hajj Season by finalizing planned operations pilgrims departure phase.” Najjar added, “more than 10,000 dedicated employees in both King Abdulaziz International Airport in Jeddah and Prince Mohammed Bin Abdulaziz International Airport in Madinah, and with the first-time participation of 260 female employees providing outstanding services completing this season with strict compliance to the highest ground handling quality standards effectively.” Eng. Omar Najjar reveled “SGS has already started its readiness’ early by planning for the upcoming 1440 H Umrah Season to ensure provisioning
“
More than 10,000 dedicated employees in both King Abdulaziz International Airport in Jeddah and Prince Mohammed Bin Abdulaziz International Airport in Madinah, and with the firsttime participation of 260 female employees providing outstanding services completing this season with strict compliance to the highest ground handling quality standards effectively
”
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the best ground handling experience for gests during arrival and departure phase.
An effective tech-enabled system Saudi Ground Services Company has started implementing (INFORM) system, in conjunction with the second operation phase and with the addition of 5 more new local destinations at the new King Abdulaziz International Airport. As a result, SGS began using modern technology to develop its operations, the system serves the station and ramp staff in terms of operation management and scheduling of employees. Moreover, it organizes the administrative effort and helps in completing the tasks at the specified times. On this occasion, Mr. Abdulrahman Al-Omi, SGS Director, Jeddah Business Unite, said: “The implementation of INFORM
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has been completed at the KAIA Terminal 1 (Jeddah new airport). This is the first step in a series of new applications to cope with the new airport and the increasing number of flights. INFORM system facilitates the scheduling of staff and equipment on flights and follows the variables of arrival and departure of flights accurately and thus contribute to operational efficiency utilizing resources in a professional manner.” “With the increasing number of flights at the new airport, we are always ready to provide state-ofthe-art ground handling services with international standards, where the capabilities of the employees have been developed with a new vision to cope with the transformation phase,” he added. After the successful experience of Inform during Hajj season, the company applied it at the new KAIA airport and planning an implementation roadmap in the rest of the Kingdom’s airports
where SGS operates. The Hajj pilgrimage receives patronage from the Saudi Arabian government, with heightened assistance in issuing visas. However, the ground handling efficiency at airports can be a demanding task given the number of pilgrims travelling to Mecca every year. And this is where SGS has proven to be an able aid to the government and pilgrims to ensure a safe and smooth passage to one of the holiest sites in the world.
editor@ifinancemag.com
Gen next traders on the block A noisy, frantic trading floor is a diminishing thing of the past; the modern trader is now a lone wolf, digitally connected and equipped with just a mobile phone James Mathews
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one are the days of trading taking place exclusively at the world’s busiest stock exchanges. While images of frantic traders shouting to close deals might still exist on television, the reality is that the modern trader is now a lone wolf, digitally connected and equipped with just a mobile phone. Today’s generation of traders are smart. Imbued with technology, the offer of unparalleled knowledge and 24/7 access to the world’s markets, they are ripping up the rulebook. They are entrepreneurial, and, in many cases, they are the side-gig hustlers —nonconformists ready to forge their own paths. So how are they using technology to make trading mainstream? This generation, built up of the generation Y’s and Z’s wants to be its own boss. Social media has opened up worlds of possibility and has provided pathways that diverge from the beaten tracks of the generations before them. Since its inception, social media has mutated into a platform to learn from, emulate and showcase success. Generations Z and Y are some of the most enterprising members of our society, and so it’s hardly a surprise that a new generation of traders is now emerging.
The promise of crypto In recent years, the public’s attention has been captivated by cryptocurrency. And by extension, this has bled into a rising interest in forex trading. When most people think about cryptocurrency, Bitcoin is the first thing that springs to mind. Whilst most traders watched the development of decentralised networks using digital tokens in place of “real” money with some scepticism, novices were making millions. Unsurprisingly, the concept of investing real money into crypto began to tantalise casual observers. Today, technology and social media provides a gateway for those who have the desire to trade but lack the detailed financial knowledge. Modern trading does away with much of the “glamour” that was once associated with it; the appeal now lies in the freedom to control when and how you work. The prospect of making your own money without having to deal with fund managers has become incredibly appealing. Generation Y and Z have become more suspicious of and disillusioned with so called “experts” managing their hard-earned cash. After all, these “experts” were responsible for nearly bringing the global economy to its knees ten years ago.
Social copycats However, trading is not to be underestimated. While social media might make it look easy, there is complex
jargon, explanations and a level of understanding needed to think about risk management and mitigation. And, traders need to develop a grasp on their own sense of greed. Holding risky positions and trades for too long in the hope of achieving “impossible” goals can have devastating effects. The beauty of social media is that it provides a community that’s always online and capable of simplifying, explaining and advising. It’s easy to find out what’s going on in the market in seconds. And what’s more, there is now a new wave of Twitter traders, amateur and professional, who have found demi-fame as established trading gurus to be followed, mimicked and aspired to. “Piggybacking” off people’s trades is age old, but it has never been quite so prolific. Social piggybacking
off successful trades has proved to be exceptionally popular as a way of profiting from others’ expertise, and as an additional revenue stream for those willing to impart their tips and risk management learnings to others for a fee. However, new traders must remember that sometimes it’s possible that you might be following a loser, and that making the correct trades doesn’t always mean you’re being profitable overall. The journey to success tends to be slow and involves many incremental gains.
Bye 9-5, hello 7-10 The side-hustle, the influencer, the sharing economy. 2018 has ushered in a world of part-time freelancers. Without question, technology has been an enabling force for all of these, providing the means for people to strive for more reward and flexibility in their working lives. People entering the working world want to break away from the traditional constructs of 9-5—they want to define how and when they work. How trading maps to this is clear, but it is not without risk. Trading can promise a lot; some traders might claim to live off one 15-minute trade a day. But the reality is that the modern trader is facing a job just like any other. It requires persistence, dedication, patience and grit. With the right tools in place, what it does offer is autonomy and flexibility. In the next few years, we will start to see a shift in education towards topics such as financial investment and management so that no one is left wondering whether they will have enough capital to last them to old age. Increasingly, there will be more of an effort from all demographics to have an understanding and entry point to the market. With the right knowledge, experience and foresight to understand market volatility and risk, anyone can trade with the technology that’s available. International Finance
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Fate of UK’s migrant entrepreneurs after Brexit Migrant employees in the UK contribute significantly to the nation’s economy, and yet, they will be among the most severely impacted through Brexit Michael Kent
ENTREPRENEURS
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s the United Kingdom prepares to leave the European Union—a decision fuelled by anti-migrant sentiment —we should remind ourselves of the essential contribution that migrant entrepreneurs make to our economy. Companies set up by migrants are responsible for creating 14% of British jobs and migrants are three times more likely than lifelong UK residents to set up a business. Yet in the aftermath of the Brexit vote, hate crimes soared by 41% and a UN investigation this year concluded that racism has become more acceptable in British society. As a nation we appear to be turning our backs, not to mention our anger, on the very people who power a huge section of our economy. We should be making migrant access to the tools of entrepreneurship easier, not harder. Quite apart from the hostility that the United Kingdom shows to migrants from government policy down to day-today discrimination, we actively block their efforts to contribute to our economy. Banks, for instance, are often unwilling to loan seed capital to new arrivals and charge exorbitant or prohibitive fees for other basic financial services. They argue that such policies mitigate risk, yet plenty of startups are stepping into the gap in the market that they have left and are building a successful business there. Business has a huge part to play in unlocking the potential of newcomers. UK technology companies are leading the charge
and offering financial inclusion to underserved communities. British startups have made bank accounts available to almost anybody, launched peer-topeer lending platforms that bring seed capital to entrepreneurs, and drastically reduced the cost of remittances. Other financial services, in particular banks and traditional incumbents, must follow suit. We should be celebrating our migrant communities as productive members of society and, yes, as potential customers. The vast majority of people who come to the UK have done so at great personal cost. They do not, as Nigel Farage would have you believe, come here to benefit from our services and our welfare system. They come here to build a better life through their own hard work and determination. Having left everything they know and love behind for a chance at success, they have an entrepreneur’s understanding of risk. After March 29, 2019, we will begin to understand the true impact of Brexit on the UK economy. Until that date we still enjoy all the privileges of our EU membership, in particular our access to the single market and freedom of movement. When, and if, these benefits are removed, we will get a true sense of the UK’s ability to compete with its EU member states. The Brexiteers say that plucky Britain will enjoy a competitive advantage. I hope that they are right, but I believe that they are wrong. For the tax year ending March 2018, the UK was struggling with a £40bn annual deficit.
Michael Kent Migrant-friendly, EU member state Germany, by contrast, had a budget surplus of €36.6bn for the same period. While Germany’s economic success is not down to migration alone, it is no surprise that they are encouraging migrants to enter the country and settle. The government’s decision during the refugee crisis was as much an economic as a humanitarian one. The United Kingdom can ill afford to spurn the benefits that migrant entrepreneurs bring to our economy. The way things look at the moment, we need all the help we can get.
About: Michael Kent is
the founder of Azimo, an international money transfer company
editor@ifinancemag.com
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empowering east africa’s small businesses
East Africa’s small and medium enterprises largely operate without structure or business models—how can this high potential, lucrative industry made organised for optimum results? John Fredrick N Ndungu
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he need to equip micro, small & medium enterprises (MSMEs) popularly referred to as small & medium enterprise (SMEs), with various skills and other resources that could empower them for better business operations and enhanced opportunities can’t be overemphasized. Many of the SMEs in Kenya, Africa and other parts of the developing world are often solely owned by enterprising people who may have quit formal employment or who choose not to seek formal employment but to venture into business among other undertakings such as manufacturing of household and/or industrial among other products. On the other hand, some enterprising individuals keen and committed to earn an honest living also venture into different endeavors as a matter of passion and interest, or after missing out on formal employment given the dire unemployment situation in many parts of the developing world. Unfortunately, many of the SMEs are operated without proper business plans. They lack structures that could enhance efficiency and effective processes and many are run on ad hoc basis. Many of them do not even keep records. Those run by owner-entrepreneurs also suffer due to lack of diverse resources and skills such as human resources, accounting and strategic planning among other critical skills which no single individual can possess. In consideration of the myriad challenges and driven by a commitment and will to help SMEs overcome the odds and impediments, the Ventures Grand Stage Centre for Entrepreneurship (VGSC4E) has designed a unique and first-of-a kind platform for SMEs empowerment. “The VGSC4E is a platform that shall provide an all-round support mechanism for entrepreneurs. We shall coach them, give them business and operations tips and skills, provide market knowledge including on how to access
financing linkages, selling skills, market opportunities & potential and even work to link them with venture capitalists and others who can provide funding,” explains VGSC4E Commercial Sales Director, Frank Muriungi. According to Muriungi, training shall be provided in suitable and flexible formats including and presentations. He emphasizes that SMEs must be supported to find alternative credit linkage channels. “Since the capping of interest rates was introduced a few years ago by the Central Bank of Kenya (CBK), commercial banks have abandoned SMEs opting to invest in high-yielding government bonds among other financial vehicles. Consequently, SMEs have been left like orphans with limited credit for scaling and expansion among other operational needs,” he rues. Additionally, the VGSC4E shall empower the SMEs through training and development that shall enable the companies’ Sales teams to sharpen and boost the requisite Selling skills and capacities. “We invite SMEs to undertake this specialized training in order for them to ably reach out to the market and customers effectively with the right products, product information and packaging. A business that can’t sell its products shall remain moribund and as dead as the Dodo,” he adds. “We shall offer weekly entrepreneurial selling skills sessions covering various issues periodically in Nairobi CBD at the 5th floor of Tumaini House, every Saturday from 9am. This shall, however, be a unique training model different from the normal sales training as it shall be driven by entrepreneurs who have succeeded in selling their products. We shall partner with such entrepreneurs and offer guidance. Entrepreneurs who hear from their peers shall be better motivated to also aim higher and succeed,” affirms Muriungi. He expounds that the VGSC4E shall also promote digital literacy
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among entrepreneurs. “We shall teach entrepreneurs how to sell their products and services through social media among other digital platforms. This shall offer golden opportunities for reaching wider and more discerning markets and also provide instant feedback from consumers,” Muriungi expounds. The professional digital selling training shall be provided on Thursdays, every week also at the Nairobi CBD Tumaini House. According to him, the conventional and digital sales feedback, whether positive or negative, shall inspire the entrepreneurs to work tirelessly to improve their products and services, or to increase production in response to rising demand. If
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demand is not as expected, then the factors underlying low sales can be investigated with an aim of improving production. Muriungi re-emphasises the age-old adage ‘knowledge is power’ and urges entrepreneurs to invest in acquiring knowledge. “With rapidly changing technology boosted by among other factors innovation, every day changing market trends and discerning customers taste and needs, it is paramount that entrepreneurs must embrace change and seek the power of everyday knowledge gathering,” he adds. He observes that those who ignore everyday search for knowledge, strategic planning and market-informed selling should
be prepared to close shop. “Those who opt to embrace cutting–edge technology for both production and selling are assured of bigger and better competitive edge and access to wider markets including beyond Kenya and east Africa boundaries,” he affirms. The VGSC4E plans to reach, engage and empower entrepreneurs in all 47 counties in the country and later offer its solutions and services in the wider East African market before venturing into the rest of Africa in the near future.
editor@ifinancemag.com
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Discovering the ‘modern-day
Marie Curies’
Amazon and WISE partner to launch Women in Innovation, which seeks to illuminate ‘untold’ female contribution, in STEM fields in the UK Sangeetha Deepak
F
or a larger majority of tech companies, innovation is everything. But the deep-rooted mental faculty toward men and women—a perceived biological bias—might control task progression in math and science professions. Oddly, the paradox involving apparently valid reasoning for women to seek science, technology, engineering, and math—or STEM, as it’s abbreviated, and the dramatic imbalances dissolving the gender fight is found to be a common phenomenon. To counterfeit gender discrimination in STEM professions, in almost all the countries, companies have to mint enterprising formulas that empower women, who are, in turn, willing to empower them. At Amazon, as at many global tech enterprises,
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wants to enrich work opportunities among women, who always envision following their passion, regardless of the numerical implications drawn by labour economists. Generally, there is a sense that men are intrinsically good leaders, while women are more likely to remain at the peripheral in the grand scheme of things. The ability to neutralise this matter has only asserted an approach, indirect, yet discreet: most universities or research organisations try to distance themselves from gender complexities by increasing “the number of women, and they think that that’s somehow going to solve all the problems,” said Stanford professor Londa Schiebinger, on The New Yorker. Truth be told, it does not resolve the unrestrained
Business
discrimination persistent in STEM roles. Ergo, Amazon has partnered with WISE for a campaign that will posit gender balance in the UK innovation landscape. This means, in harmony both companies will “design a roadmap” to uplift “female representation” in STEM fields. Women in Innovation mainly “focuses on identifying the barriers to increasing the representation of women in innovation roles,” Day One, the Amazon blog said. Fiona McDonnell, director, consumer retail, Amazon, believes: “It’s clear that greater diversity in the workplace positively impacts output, business performance and profitability. By delivering greater diversity, we can unlock a huge untapped potential and ensure the UK becomes the number one destination for innovation. We would like the report to create a roadmap to securing more women in innovation-focused roles by identifying some practical actions.” Despite this futuristic approach to establishing a more conducive work environment, the quantitative insights from WISE divulge numbers that signify no equal footing with men: there are more than 860,000 women in the UK STEM fields, and still—women only represent 15% of STEM management roles in the country. This is not to say, women are disinterested because of their low personal involvement, or anything like that. In fact, their contribution in the UK innovation is “largely untold.” “We’re doing this project to discover the modern-day Marie Curies and use their stories
to inspire girls to follow in their footsteps,” Helen Wollaston, WISE chief executive said.
The campaign aims to identify key drivers by posturing women in STEM professions:
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Reason for choice of career
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Benefits for working in innovative careers
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Contribution that impacts the business
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Source of inspiration for women in tech
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Chief milestones that determine career path
But it is also salient to remember that working toward demonstrating a diverse organisation is a challenge. The World Economic Forum predicts: “At current rates of progress, it may take another 217 years to close the economic gender gap globally.” For example: the UK workforce in STEM professions suffer from skills gap between both men and women— and it is more likely to be distinct among young girls. The association to this predetermined challenge, will suggest cause and effect, of course with discretion. “Although many countries are ideally poised to maximise women’s economic potential, they are currently failing to reap the returns from their investment in female education. In addition, too few countries are preparing to meet the challenges and harness the gender parity opportunities posed by the changing nature of work,” World Economic Forum said. For this purpose, Amazon Women in Innovation Bursary, and AWS re:Start, was launched to expose young adults, military veterans and their spouses to advanced technologies including cloud computing.
editor@ifinancemag.com
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The Holy Grail of Millennial Finances Yoni Dayan, chief editor at Money Under 30, tells us why millennials are facing the toughest financial future in modern history Sangeetha Deepak
What Millennials Want
Is there some sort of justification between what millennials earn and how much they spend? There is some justification. The justification would be that millennials are younger. People save money when they cross the retiring phase and needing money becomes concrete. Millennials are 30-40 years away from crossing the line. The previous generation is 10 years away from retirement. So, it is that much easier to think of retirement as the closer you are to retiring... and that would be the justification.
What would be an ideal annual income for millennials? I don’t think so there is an ideal figure. I’m a millennial and what my ideal income is: I would say a million dollars, or maybe more. I have seen surveys that talk about more than 100,000 dollars for men and 60,000 dollars a year for women. But I wouldn’t put much thought into those. I don’t know if there is an ideal income.
Recent “Millennials and Work” survey shows an average earning of at least $118,000 per annum. Despite these figures, what are the financial challenges they face unique to the American economy?
almost a half glass full situation where it really fits the stereotypes of people who believe the future is going to be better.
Why do you think millennials are optimistic despite their financial challenges? To them, the further they go into their career, the higher their earnings will be...and in the process they will be able to save much more. And I am hopeful that their optimism is warranted.
What does Money Under 30 survey have to say about millennials viewpoint on finances? In our previous survey, we asked millennials how satisfied they are with their finances. It seems that 56% of millennials are either very unsatisfied or somewhat unsatisfied with their current financial situation. In comparison with other Americans, 44.6% said they are only very unsatisfied or somewhat unsatisfied.
Studies show millennials are three-times more likely to ask help from friends and family. What is the chief reason behind this?
The challenges are many. First: student loan; Second: lack of jobs in their respective professions; Third: limited financial awareness in terms of not understanding their credit scores, retirement accounts, and the like. Overall, their rudimentary knowledge of basic financial profiles will weigh them down financially.
That is from our study as well. We asked millennials: in an unexpected expense of 500 dollars, which is not so much money in the grand scheme of things, how would they cover the cost? The findings showed that millennials were three-times more likely than others to ask help from friends and family. It does paint a picture of millennials financially lagging behind. They are spending a lot during the holiday season; and they are willing to go into debt.
How would you define millennials’ spending pattern and credit scores?
Would you factor in laziness, in part, for their financial dissatisfaction?
Millennials are much less likely to have good credit. At every level, millennials are performers. The shocking thing to me is not that they have less credit, it is that they don’t know their credit scores. And this comes back to the idea of millennials not having enough understanding of their basic financial issues. So, credit scores is a big challenge.
I wouldn’t say they have a feeling like they can coast; they are lazy or anything like that. But I’m a millennial, for example, and I don’t feel that way about myself or my peers. I don’t feel that my generation is any more lazy than any other generation. I mentioned the three issues that are affecting millennials: student loan debt; general lack of financial awareness; and inability to find jobs in their respective industries. So millennials can’t directly control everything, but they can educate themselves by diversifying their knowledge. For example: a platform such as Money Under 30. However, student loans are affecting millennials very uniquely in a way it is not affecting any other generation. The cost of tuition has doubled since the late 80s and they are a real burden for millennials.
On an average, what is the financial satisfaction rate for millennials? Why? What I identify is that millennials are unsatisfied with their current financial situation. And also optimistic about the future. I would expect somebody unsatisfied currently to be pessimistic about their future, but it seems millennials as a whole almost are optimistic about their chances of improving the situation. It is
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What Millennials Want
generation. The cost of tuition has doubled since the late 80s and they are a real burden for millennials. We have loan employment in the United States and yet millennials are not able to find jobs in their current fields. They working in jobs they are not experts in for the sake of other commitments. There are legitimate burdens for millennials and it has nothing to do with laziness or anything like that.
How can millennials manage their finances better, especially under challenging circumstances such as educational loan; tuition fee; or part-time job? I would say start saving now. Often what happens with millennials is they think that“I don’t need to save now. I’m not making a lot of money now and I can afford to wait...and in 10 years when I make a lot of money, I can afford to save.” But they are really missing out on the benefits of saving early. Saving early is huge. When you first get into the mentality of saving...it really forces you to consider your finances: if you’re really paying attention to or you’re going to miss out on other opportunities.. So there are very real reasons to save early, and there are compounded benefits for people who are willing to take that risk. They can get into the investing side of the game early on and have a portfolio—such as 85% in stocks. We know the stock prices rise over time. If millennials don’t invest early they are going to miss out, and even
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if it is 100 dollars a month or less than that...you can open an account and start investing. The resources are available. They just need to start. Save early and well educate themselves. There is no reason why they shouldn’t know their credit scores or why they should pause on their retirement accounts. In the recent survey carried out: we asked millennials about their contribution toward retirement accounts. Nearly 10% of millennials said they don’t know. Many of them said they are not contributing but the fact that millennials don’t even know if they are contributing or not speaks of the massive lack of knowledge they have toward their own finances. So, the idea is to save early and become aware.
editor@ifinancemag.com
Digitising the banking experience for SMEs While the world reaps the benefits of a seamless digital experience, can the same be said of UK’s SMEs, 5.7 million of which are likely devoid of the opportunity to capitalize on digital banking Derek Corcoran
T
here are over 5.7 million SMEs in the UK, and none of them can function, let alone succeed without access to proper business banking services. And just like the retail banking customer, hardworking small business owners have also come to expect a seamless digital banking experience. Yet, research has proven that, time and time again, the same is simply not being delivered to SMEs. Avoka’s recent research into How Banks Can Win New Small Business Customers, in partnership with Vanson Bourne, found that a significant two-thirds of SMEs across Europe have at some point abandoned a digital banking application before completion: that’s 3.8 million potential missed business opportunities for banks.
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And it doesn’t stop there. The research identified a clear disconnect between what banks currently offer SME customers and what business owners need for their businesses to thrive. For instance, 83% of SME respondents said they want to be able to apply for banking products more quickly and easily, yet only 18% said they were satisfied by the overall service currently being provided by their banks. But, it isn’t all doom and gloom. These results provide a learning opportunity for banks to better service their SME banking customers by providing a quick, easy and frictionless digital onboarding experience. It is only when banks optimise the digital customer journey that they can boost acquisition rates, increase revenues and, most importantly, win SME customer loyalty.
Opinion
Skating on thin ice By failing to adapt digitally, banks are taking a huge gamble on both business and reputation. According to the report, upon having a poor online banking experience, 20% of SME respondents said they would be extremely likely to communicate their experience to their peers, and worse, 10% would seriously consider switching banks. But don’t just take my word for it: in September of 2018 alone, over 2,000 small businesses switched banks, according to a recent report by BACS. In the often tight-knit communities of small business owners, that’s a serious consideration for banks to take.
Thawing out So, how can banks ensure that their SME customers don’t jump ship? The answer is actually quite simple—they must focus on making their lives easier by delivering an engaging and optimised digital experience. To avoid losing SME banking customers not only to fellow banks, but also to challenger start-ups that are getting more and more attention for their focus on customer service, banks can take the following steps to make their offering work for the small business owner: Go digital or go home—In order to achieve a seamless customer journey, banks need to make sure that every step of the banking process can be executed digitally by the end user. Ensuring all documents and signatures can be provided electronically via desktop, mobile or tablet may seem obvious, but one stumbling block along the road can send abandonment rates flying. Indeed, 82% of respondents in the Vanson Bourne study said it would be helpful if they
could submit documentation for business banking applications electronically. Convenience is key—Small business owners are busy people. To keep the plates spinning, it’s essential that banking processes fit in around their other tasks. From reducing the number of questions on applications to the minimum required, to eliminating the need for repetitive input by prefilling information already
held, banks can take small but significant steps to make the SME banking customer’s life easier. Adopt an omnichannel approach— Allowing multiple users to work on applications simultaneously or interchangeably is vital to ensure the customer’s experience is consistent, regardless of the device being used. Activating a ‘save and resume’ functionality affords small business owners the luxury of being able to complete tasks on the go when it suits them most. And that’s just the tip of the iceberg. Ultimately, European banks have an invaluable chance to become trusted allies for their SME customers. But first, they need to shift their focus from the volume of transactions to the customer experience journey to deliver a seamless digital banking experience. After all: what’s the point in having a robust set of business banking products if the process that gets customers to apply for them isn’t effective?
Derek Corcoran
Chief Experience Officer, Avoka
editor@ifinancemag.com
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Regulatory oversight must be addressed in Open Banking As customers get accustomed to new standards put forth by open banking, it is the industry’s collective responsibility to build trust in the ecosystem Matt Cockayne
T
he Open Banking reforms have had a turbulent reception in the UK, following their launch in January this year. Designed to open up access to the industry and its data to support innovation and the development of new services, this new era of ‘openness’ demands major infrastructural—and cultural—changes for incumbent financial institutions in particular. These long-established giants must get their arms around a new world order of collaboration, and redefine the value they offer at each stage of the chain. It’s a new system for consumers to get to grips with too. While there’s no need for dinner party discussion about
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the relative merits and logistics of open APIs, it is the industry’s collective responsibility to build trust in this ecosystem of the future, and paint a picture of the services it could enable so that UK consumers obtain the intended benefits of Open Banking: more connected services, for easier engagement with their financial world. It is a significant evolution to the ecosystem of financial data connectivity, and its success hinges entirely on consumer trust and uptake. Of course, the changes bring many more and different types of businesses into the picture, which must be carefully assessed from a regulatory standpoint, to ensure the
Opinion
chain of data security and control is not compromised at any stage.
Navigating new definitions In the UK, the FCA—at odds with definitions set out by the European Union institutions under PSD1 (legal framework adopted in 2007 to provide the legal foundation for an EU single market for payments), and also by HM Treasury in The Payment Services Regulations 2017 (which implement the Payment Services Directive)—has chosen to run with a much more restrictive definition of an AISP (Account Information Service Provider). Their handbook stipulates that only consumer-facing companies can be defined, and therefore regulated, as an AISP. This is problematic for the group of non-consumer facing service providers and data aggregators, who handle large amounts of consumer-permissioned data behind the scenes, powering the range of new FinTech apps we see at the front end. Despite this data access, these ‘behind the scenes’ players are not subject to direct regulatory oversight. FinTech apps that are relying on service providers, such as lending and advice platforms, and data aggregators for their information—which will be many, considering that not all data that will power Open Banking is currently available via an API—must therefore take individual responsibility for auditing and examining that aggregator’s security and data privacy standards. As part of this, they’ll need to build bilateral agreements with this ‘outsource data provider’ to include liability provisions in case of a breach. That’s a large, unreasonable and unnecessary burden to place on a small company, which will likely lack the time and expertise to accomplish this with the rigour that would be expected for this task. The alternative would be for these front end providers to seek direct access to Open Banking APIs. Before they can apply however, they must first seek regulation from the FCA, which can be a complicated and time consuming process. This lost time may hold them up on their product development journey, and ultimately mean they suffer from not having quick access to cleaner, more usable data. Slower to market, to slower to deliver the innovation and connected customer experience that Open Banking created to create.
Liability questions remain
Matt Cockayne | VP EMEA, Envestnet | Yodlee obligations on their vendors—which is potentially an oversight in the auditability of one of the key links in the Open Banking chain of data control. If there were to be a breach, consumers would not be afforded the full protections available to them under the Second Payment Services Directive (PSD2) and Open Banking regimes. The concern of course, is the potential to undermine consumer trust in the initiative, if there were to be a breach. If the industry gets this wrong, it won’t get a second shot to build confidence in the power of data connectivity in the world of financial services. We don’t have to look back in time too far to remember the impact of the Cambridge Analytica scandal on Facebook’s user numbers. Open Banking is the most significant—and potentially the most impactful—regulatory overhaul to touch the financial services industry in the last ten years. We must take care to ensure that differing interpretations of the law across different markets do not stall its progress, and limit very the innovation that it is set up to ignite.
editor@ifinancemag.com
In the absence of direct authorisation for aggregators, the FCA isn’t able to directly audit these service providers. With that in mind, they are reliant on each AISP’s ability to understand and enforce compliance
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How to turn risk and compliance into opportunity While consumers are keen to incorporate secure solutions, they are also gravitating towards ones that are hassle-free and uncomplicated. How does this become an opportunity for technology solution providers? Stephen Buechner
R
isk and compliance officers are becoming integral members of the payments innovation team but perceptions of these functions are changing as enlightened companies recognise the link between customer trust and higher revenue. Payments have to offer everything and anything users are comfortable with. If a new product or channel is created, technology companies need to take a smart approach to making it secure and accessible. Given the sheer pace of change in the payments industry, we have to think about the preferences of the next generation of users and how to use data to make better decisions - not just in terms of risk management but also regulatory compliance. Consumers want secure solutions, but they also want authentication to move away from complicated processes that require them to remember lengthy passwords. In this environment, there is obvious
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potential for biometrics and other solutions - we can streamline the process and make the whole interface instant, secure and friendly, avoiding passwords and other painful experiences. Single click payments, biometrics and other new processes will allow faster payments and instant payments. According to Mastercard, new EU regulations coming into effect in 2019 will lead to a significant increase in the use of biometric technology to authenticate who is paying. In line with changes in authentication processes, risk assessment is also evolving. The vast quantities of data generated by ecommerce activity can be used to determine a consumer’s credit risk to a far higher degree of accuracy, ensuring consumers are offered products and services appropriate to their needs. Risk and compliance has traditionally been viewed as the part of a company where the answer is always ‘no’. But rather than acting as a brake on innovation,
Opinion
risk management makes it possible to identify and successfully develop new payment solutions. The task for risk and compliance as an enabler is to consider the future needs of customers and ensure that new functionality, channels and/or services are offered in a way that secures both the provider and the user. For example, we are seeing behavioural data being used to make specific products available to individuals based on how they use their mobile device. This will allow the industry to move away from risk card-based decisions. Artificial intelligence is already being used to evaluate risk and will become even more widely used in the future to ensure services are delivered securely for both the customer and the merchant. The influence of artificial intelligence on risk assessment is growing —one in eight consumer business respondents to PwC’s Global Economic Crime and Fraud Survey 2018 said predictive analytics and machine learning were useful for combatting or monitoring fraud and other economic crimes. In the wider financial services space, Oliver Wyman research refers to the use of behavioural data-based models to help better judge which customers intend to repay their loans, thereby identifying potential fraud risk. The reason payment service providers exist is because banks became too big and their IT environment too complicated to quickly offer goods and services to merchants in different currencies and markets. Banks are happy for payment service providers to have this relationship because of the high level of risk attributed to fraud and merchant failure and we have become very effective at managing risk for merchants. Of course, all these trends will be impacted by the approach of regulators, who have to date adopted a relatively light touch approach to ecommerce, which has been a positive development. They have not closed the door on merchants being cross-border, instead facilitating these businesses in reaching beyond their domestic market. It might be controversial to suggest that GDPR has been a positive regulatory change. However, a regulation that limits what firms can use a consumer’s private data for, is a sensible safety net. As Gartner research director Lydia Clougherty Jones puts it, implementing GDPR consent requirements is an opportunity for an organisation to acquire flexible rights to use and share data while maximising business value. We spend a lot of time designing systems to ensure they work within the appropriate regulatory
Stephen Buechner, CRO, Intrapay framework but we also have to be aware that customers want different things. Our job as risk and compliance specialists is to ensure that whether the focus is on faster throughput or solutions based on a specific marketplace or geography, innovation is delivered securely.
About Intrapay Intrapay, part of the Sappaya payments ecosystem, launched in 2018 to refresh the payments industry with customer-driven innovation, driven by close relationships with customers, partners and industry leaders. It provides card processing, alternative payments, credit risk and compliance, chargeback prevention and currency optimisation across international geographies. Its flexible technology is built from the ground up to accommodate detours or diversions as demanded by the global industries its clients serve. It is the sister company to cashless experience companytappit. Visit intrapay.com for more information. editor@ifinancemag.com
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An early headstart to entrepreneurship This successful entrepreneur puts a spin on the benefits of starting out early as an entrepreneur and why this has a lasting impact on an entrepreneur’s growth trajectory Thomas Delgado
Opinion
M
any of the entrepreneurs I admire and respect are in their 40, 50s and 60s—but while they are all very different, the one thread that binds them together is they are all natural born entrepreneurs and started their first business in their 20s… or earlier! Take entrepreneur and investor, Jamie Waller, for example—he is 39 years old and worth around £40m. Like so many entrepreneurs, Jamie launched his first business (a window cleaning firm) when he was a teenager and started his most successful company in his early 20s. If Jamie hadn’t followed his early drive and ambition—or hadn’t launched a business until he was in his thirties—I wonder if he would have had the same success or how long it would have taken him? That is not to say there aren’t hugely successful business leaders who have launched companies later in life. My point is, that I suspect it’s just not as easy for a couple of important reasons:
Time I launched webuycarstoday.co.uk when I was 22. I may not have had experience or wisdom on my side… but I had time and lots of it! Not having a wife or kids means I am 100% free to focus on work and the business is my baby. Yes, my personal relationships may have suffered along the way but I’m still young and I’ve got all that to come. For now, I want to focus on making my own little dent in the world. A typical day would kick off for me at 5.30am with a quick walk of the dog and then by 6.30am I’d start cracking on—and work
through until about 8pm. Typically I’d work like this for six to seven days a week, every week…. and I still do. Will I be able to do this in my 30s? I guess it’s a lifestyle choice, but I’d like to think if I do meet someone and have children I’d have a better work/life balance. Right now, there are no major distractions and I can put everything into the business and not feel guilty about it.
Energy and commitment As a young entrepreneur, I have a different kind of energy and maybe this goes back to being committed. Let’s face it I’m not yet experiencing sleepless nights with a newborn or having to share the school-run with my wife, which certainly helps me stay energised and focused. Like most entrepreneurs, I have a never-ending willingness to do and learn, and seeing what I’ve built already just makes me more motivated. Inevitably, the older I get, the less energy I will have, so while I’m chomping at the bit to grind as hard as I can, I’m going to embrace it!
Risk taking When I launched my company, I didn’t need to worry too much about overheads…. especially my own. I was lucky enough to stay rent free at my Mum’s. The support from my family meant I could save money and also take a few risks, which I’ve learnt is important if you want to grow your business. While I don’t want to understate the importance of experience— sometimes the naivety of youth can also be a strength. For example, older entrepreneurs
may have experienced many ups and downs in life which will make them more risk-averse. Whereas I am happy to take chances that I calculate will drive things forward. I personally think it’s a big advantage. The larger the risk the larger the potential return and that really excites me! It’s a big part of the reason I’ve managed to grow this company so quickly. At the time of writing We Buy Cars Today is the UK’s third most used online car buying company. We simply wouldn’t have got this far if we hadn’t made a few gambles along the way. All of the above said, I do recognise that I still have a huge amount to learn and I hope I don’t look back on this article in ten years’ time and think “what a plonker!”. As a young entrepreneur building his first empire, I am learning as I go and that means having no preconceived ideas of how I should and shouldn’t run my business. I’ve got plenty of common sense which stops me from making blatantly bad business decisions but really, I’m free to run things as I see fit. The company is about to turnover £9 million this year so I can help thinking, this young entrepreneur is on the road to success.
ABout: Thomas Delgado is the CEO of We Buy Cars Today, an online car buying company in the UK
editor@ifinancemag.com
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Why Banking as a Service is
transformational Banking-as-a-Service (BaaS) not only provides organisations with the ability to build, configure and manage their own financial services, but also gives them greater autonomy when providing for the needs of their clients Christoph Tutsch
T
here’s no doubt that the way we pay for goods and services has been transformed by technology for the better. It’s thanks to innovative technology—and its integration into the systems of companies in the payments and banking sectors—that we are able to take advantage of the ‘one-click’ economy. A major contributor to the extension of banking services—beyond those of traditional banks—has been Banking-as-a-Service (BaaS). Not only does it provide organisations with the ability to build, configure and manage their own financial services, it also gives them greater autonomy when providing for the needs of their clients. The use of cloud-based infrastructures and APIs has allowed innovative fintechs to respond to market needs more quickly than traditional banks, who are hindered by legacy systems. This integration
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of cutting-edge technology results in enhancing a consumer’s digital experience with access to convenient and tailored banking services online.
The ‘cross-border issue’ Although FinTechs are greatly changing the way banking and payments are made, there are still challenges when it comes to offering “cross-border” services. One difficulty is the inability to provide access to IBAN accounts for customers in order to enable easy cross-border transactions. While the creation of such accounts is strictly coordinated and regulated at a national level in the EU, it is still the case that IBAN issuing, as well as the corresponding banking and clearing are still dominated by traditional banks. Additionally, financial service providers often face concerns from clients when it comes to multi-currency
Opinion
handling which often includes high transaction fees, and expensive exchange rates. Meeting the requirements for local and international banking and payment regulations is yet another challenge to master. Despite these cross-border challenges, a growing number of innovative BaaS providers are benefiting from the power of open banking and the ‘plug and play’ principle of API technology. This allows them to offer highly customisable solutions for the changing needs of businesses operating across borders. BaaS platforms and the opportunity to offer crossborder capabilities In order to maintain strong growth, BaaS providers need to be able to offer merchants the ability to operate internationally. Thanks to the power of global eCommerce, retailers have greater access to overseas customers than ever before. According to data from eMarketer , global retail eCommerce sales grew by four times the rate of overall retail in 2017, reaching $2.29 trillion. To support this market, BaaS platforms aim to provide simple and secure payment tools for their customers regardless of where they are in the world. An important step in achieving this goal is for BaaS platforms to use the opportunities of open banking to develop an IBAN offering. BaaS platforms with IBAN issuing capabilities can offer major benefits to clients. Let’s use the example of a phone service provider. In order to avoid reconciliation issues with invoice payments and numbers, a phone service provider could work with a BaaS platform to give every customer an IBAN that would directly reflect the balance on their account. Offering IBANs, therefore, not only allows BaaS platforms
to help a customer make international payments, but offers other benefits, such as eliminating complex reconciliation problems for merchants. In addition to IBAN accounts, cross-border transactions can be further streamlined by BaaS providers offering multi-currency management tools. With these tools, businesses are better equipped to collect foreign currencies and operate in foreign markets. The combination of IBAN issuing capabilities and simple and cost-efficient multi-currency management will make it easier for international businesses to rationalise and integrate payment flows into one easyto-manage platform. What’s more, they will still be able to take full advantage of all the other benefits of BaaS platforms—whether it’s optimising account management, performing settlements, reconciliation and onboarding, or navigating the ever-increasing number of regulations and directives that surround the banking and finance environments.
What does the future look like? In order to allow businesses to take full advantage of the global opportunities on offer, BaaS providers must listen to their clients’ needs. Only by doing so can they provide a platform that is truly equipped to facilitate growth and efficiency. Spotting the gap between what traditional banks have to offer and what FinTech companies aren’t currently providing, BaaS providers are beginning to launch cloud-based API-driven products which integrate the issuing of IBAN accounts. This is something that ONPEX has long pioneered, leading us to release our own BaaS platform with integrated IBAN
accounts in August 2018. Like ONPEX, BaaS providers are also realising the advantages of combining IBANs with multicurrency management. Overall, forward-thinking new entrants to the market are starting to make the administration of finances easier for multinational companies trading across borders. With the total value of global B2B cross-border transactions reaching $136 trillion in 2017, and forecast to hit $218 trillion by 2022, it is time that businesses of all shapes, sizes and sectors, are given the ability to develop the financial services their customers need. By integrating IBAN issuing and other services to facilitate cross-border transactions, leading BaaS providers are setting a new benchmark for FinTech organisations while enabling businesses to fulfil their true potential on the global stage.
Giving merchants and customers what they need With progress being made by BaaS providers such as ONPEX, FinTechs are offering merchants across the world the solutions and tools they need to grow whilst enabling them the ability to meet increasing customer service expectations—particularly when it comes to fast, simple and secure payments. Any organisation that is looking to grow in a highly globalised environment, should be looking to use the power of solutions like BaaS.
About: Christoph Tutsch is the CEO of Onpex editor@ifinancemag.com
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The art of
negotiation Business is full of negotiations, from financial transactions to conflict resolution. Knowing how to get what you want from the deal, while bargaining with a client or customer can be crucial for the success and smooth-running of the company.
M
Denise Jeffrey
uch like many other human interactions, it all boils down to psychology— body language, tone of voice, and other communicative signals can all contribute to the way it plays out. Marry a good level of social awareness with strong business acumen, and you’re on track for a positive outcome. The good news is, everyone can learn how to negotiate effectively—it’s all about doing the legwork in advance of the meeting and then knowing how to
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adapt your behaviour appropriately on the day. Here are a few things to consider for optimal success going forward.
Do your research Turning up at a business meeting unprepared is unprofessional and could seriously hinder your chances at success. While there will be an element of improvisation that comes with any discussion, to gain the respect and attention of the other party, you
Opinion
should do your research and come equipped with your findings. This doesn’t solely apply to the topic you are discussing, but also the person you are negotiating with. Spend time understanding what the company does, what their roles is and even a bit about their background. Once you’ve built a picture of who they are, it may shed some light on how you should approach the meeting – what will impress them and what’s likely to put them off.
Respond to their behaviour The correct technique to adopt in a negotiation can vary depending on who you are meeting with as, what one person responds well to, may prove ineffective with another. Contrary to popular belief, negotiation is more about an individual’s behaviour than their personality. Somebody who is generally easy going may decide they’re going to play hardball to achieve their desired outcome, so you need to be reactive to their actions on the day. Mimicking the other party’s behaviour can help you get on the same level as them and build a good rapport. If they’re being cooperative, be cooperative back; if they’re going into a lot of detail, try to offer the same in return, and so on. An exception to this is when they’re being overly dominant or aggressive. This is unprofessional, and you have the right to call them out on this sort of conduct. You can read more of my advice about how to adapt your own behaviour according to another person’s in Hiscox’s guide to negotiations.
Listen to the other party’s point of view The best negotiators are the ones that listen as effectively as they talk. By paying close attention to what the other person is saying, you’ll be better equipped to understand their perspective, and to respond to their offers in an informed and rational manner. Really considering what they have to say will also help to nurture a positive relationship, gaining respect from them, which can be beneficial when it comes to striking a final arrangement.
Know when to close the deal With each party fighting for their own desired outcome, it can be difficult to decipher when the negotiation is over. If it’s apparent that you’re not going to get what you want out of the arrangement, sometimes the best thing to do is to walk away. While this isn’t the ideal situation, it’s better than settling on a less than satisfactory arrangement, and on occasion the threat of leaving could be what it takes for the other party to make concessions. On the other hand, if you’ve struck an agreement that you’re happy with, try to wrap it up as quickly as possible, to avoid the other side renegotiating any terms. You can politely communicate your intent to close the negotiation by saying something along the lines of “to finish with…” or “to settle one final point…”. Once it’s settled, get the deal in writing as soon as possible. If it’s going to take a while to get signed off, write the details
Denise Jeffrey
Negotiations and Communications Expert of the negotiation in an email, so there is a clear paper trail to refer back to in the meantime. As mentioned above, anyone can learn how to become a good negotiator—it’s all about efficient planning and observing other people’s behaviour in order to respond in a way they will be receptive to. Hopefully, the above advice will provide you with a few key insights to go forward with when it comes to closing those allimportant deals in the future. For more advice, you can read the full guide to negotiations by Hiscox.
editor@ifinancemag.com
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The unheard voices of the auditing sector Four firms—PwC, Deloitte, KPMG and EY—audit 97% of US public companies and all of UK’s top 100 corporations. Yet, there are questions raised about their competence and ethics. Marlies de Vries
T
he international auditing sector has come under scrutiny over the last year with widely-reported events like PwC’s Oscars blunder and the downfall of Carillion, which exposed the inadequacies of the UK’s audit market. Just four major global firms—Deloitte, PwC, EY and KPMG—audit 97% of US public companies and all of the UK’s top 100 corporations in order to guarantee their trustworthiness to investors, customers and workers. Yet suspicions are growing that as auditing firms of all sizes focus
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on maximising their profits, high amounts of pressure are falling on already-overstretched trainees’ shoulders, compromising the quality of their work and making them question their longevity in the sector. During the busy season within audit firms, trainees and young accounting professionals spend an average of 60 hours per week working and studying. Huge amounts of overtime are required to overcome factors like capacity shortage, unrealistic work schedules and high client expectations. Because of all of
this extra work, the quality of audits dramatically suffers, as well as the trainees themselves. Auditing organisations reward the young professionals who embrace heavy workloads, which has caused this to become part of the culture as well. Although not as extreme as in Japan, where death by overworking is so common that there is actually a legally recognised term for it—Karoshi —there are a number of health problems associated with stress that these trainees are at risk of developing.
Opinion
In order to examine the state of the international auditing sector further, I conducted research in collaboration with Bas Herrijgers of NBA Young Professionals, a special commission of the Royal Netherlands Chartered Accountants. Together, we surveyed 517 participants including trainees still completing their practical training, those who had graduated with full accountancy qualifications within the last five years and other accountants under the age of 35. We aimed to isolate the core problems in the auditing sector and give young professionals a louder voice in the many discussions about effectiveness and structure reform that are appearing all around the world. One of the biggest issues we identified is how, because of the high pressure they face at work, young professionals routinely do not spend enough time on studying and training. The lack of attention paid to ‘coaching on the job’ at senior trainee level is alarming and in other job levels is barely adequate. Instead of spending time developing their skills, trainees are tasked with completing often unrealistic amounts of client work, which they report leads to loss of focus, a ‘check the box’ mentality and habits of rushing and taking shortcuts. Ultimately, these factors are leading over half of trainees and young professionals to consider quitting the profession within two years. One respondent, a trainee at a mid-sized audit firm, commented: ‘Scheduling is too tight. The commercial budget is used as a basis for the schedule, even though the actual number of hours is higher. This also occurs at the expense of time for activities aimed at personal development and continued growth.”
With this in mind, it might become easier to understand how the UK construction giant, Carillion, recently crumbled under its own—almost undetected— debt. One of the UK government’s biggest contactors, the Wolverhampton-based firm was part of a consortium to build the forthcoming HS2 high speed railway line and was the second largest supplier of maintenance services to Network Rail. It also maintained 50,000 homes for the Ministry of Defence and managed nearly 900 schools, plus multiple highways and prisons. Despite these lucrative and stable contracts, the company had amassed more than £900m worth of debt and had a £597m pension deficit before its compulsory liquidation was implemented. Some argued that the firm overreached itself, taking on too many risky contracts that proved unprofitable, although MPs placed the blame firmly on the shoulders of its auditor, KPMG, slamming the whole market as a “cosy club incapable of providing the degree of independent challenge needed”. Work pressure has also largely been a neglected topic in the industry, with only lip service being paid to tackling the issues that young professionals are facing. Professional development is not a priority within the sector, which is impacting the abilities and performance of those in one of the most impressionable and important stages of their careers. In fact, according to the young professionals we surveyed, reaching the top within an auditing firm is only possible if you are fully committed to your employer. The scenario leaves no room for part-time work and requires auditors to sacrifice time with and responsibilities towards family and friends. Additionally, only superficial
Marlies de Vries, Asst prof,
nyendrode business
fixes to the problem of heavy workload have been implemented, with the introduction of healththemed weeks and sports facilities. These initiatives do not eliminate the structural causes of these issues. It would be more effective to reduce the causes of work pressure or, even better, get rid of them entirely. This would allow the auditing profession to retain current and future young talent more effectively as well as better safeguarding the trustworthiness of its work. It must be time for firms to put better working conditions—which also have a positive impact on overall audit quality—above profit.
editor@ifinancemag.com
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Managing people within a virtual workforce With Intelligent Automation, digital labour transfers from being primarily a cost reduction exercise to becoming a strategic asset to change and optimize the way banks run their entire operations Terry Walby
Opinion
B
usinesses are increasingly looking to Intelligent Automation to reduce costs, improve customer service, ensure regulatory compliance, and tackle the productivity issues which threaten their future growth.
Pushing the boundaries of the digital workforce Intelligent Automation (IA), which combines RPA with Artificial Intelligence (AI) functionality, is now enabling businesses to automate a far wider range of workplace processes. Within the world of financial services, the focus is now moving beyond tactical automation of basic backoffice tasks and processes, (in the contact centre, HR function or accounts department), to more complex and strategic initiatives.
“
The challenge is getting staff to see this when so much of the narrative around automation remains highly emotive, fed by media reports that automation will lead to millions of jobs being replaced. Financial services is one of a number of in
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With IA, digital labor transfers from being primarily a cost reduction exercise to becoming a strategic asset to change and optimise the way banks run their entire operations. And with this shift, the benefits become greater —increased productivity, more robust regulatory compliance, enhanced capacity and more fulfilling work for staff.
Think about your people, not your robots There is always a significant ‘people’ element to automation, beyond staff seeing their work automated, it also impacts the skills, mindset and cultural behaviours required to make automation a success. Intelligent Automation programmes depend on the willingness of operational staff to embrace automation and recognise the benefits it can deliver to them as individuals. Organisations thinking about the ‘people’ side from the outset invariably find it easiest to integrate a virtual workforce. In fact, our white paper explores how to build a business case for workforce automation that presents a robust plan to communicate it effectively throughout the business. Every organisation has different drivers for implementing IA but, in my experience, cutting jobs is rarely a major objective. Robotics can release employees from the more tedious aspects of day to day activity and enable them to focus on the value-added work. The challenge is getting staff to see this when so much of the narrative around automation remains highly emotive, fed by media reports that automation will lead to millions of jobs being replaced. Financial services is one of a number of industries that will see a whole range of strategic, high-value jobs being created in
Terry Walby ceo, Thoughtonomy place of more tactical, lower-paid back-office roles. PwC released an insightful report on exactly this.
Automation for the people Organisations need to tackle automation head on, and we’ve seen some wonderful examples of organisations who have engaged and educated staff in creative and fun ways about the benefits of a digital workforce. Running initiatives including naming virtual workers or nominating mundane laborious tasks ripe for automation get the entire workforce - thinking about the benefits of automation for themselves personally and an understanding how IA can improve their own working lives and careers. Regulatory compliance is a huge driver for automation and a huge burden for many staff, by automating much of their compliance monitoring and reporting, they can free up their people to do the things they are best at and find most rewarding—strategic thinking, creative problem-solving International Finance
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Opinion
and strengthening customer relationships.
Training and Automation Champions Typically, organisations look to build an automation team by re-deploying people whose existing work is being automated. Re-training these people to give them the skills to oversee the automation programme is a great way to do this as it avoids the pain and cost of recruiting new people, and it’s good for the individuals concerned, who move to becoming trained in one of the most dynamic areas of business. ‘Automation champions’ who help their peers to get to grips with automation technology and work effectively alongside virtual workers help embed AI into the workplace smoother and quicker. These individuals also have a crucial role to play in identifying a pipeline of processes
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for automation—after all, it is the people working on the front line who are much better placed to identify tasks ripe for automation.
headcount; how productivity can be increased.
Automation culture
What’s clear from the discussions we have with our clients is that HR and L&D is an important part of the automation agenda and needs to fulfil its role in delivering the right cultural shift and skills required for success. By communicating the role of automation and recognising it as a positive shift for both the wider business and individual development, business leaders can claim an important role, championing the skills and people agenda within workplace automation initiatives.
The ultimate goal for financial services is to instil a positive ‘culture of automation’, where people are proactively looking to automate some of their work to free up their capacity and feel comfortable handing tasks to a virtual worker. Such a culture can be achieved by communicating positive, ‘good news’ stories around the deployment of Intelligent Automation, demonstrating the benefits to employees working alongside the virtual workers. The best IA programmes are essentially about people; about how they can be best deployed to add value to the business; how organisations can get more high value work with the same
A golden opportunity for L&D leaders
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Ways to build your business This seasoned businessman shares his valuable insights on how to build your business successfully from ground up
H
Kevin Ronaldson
aving built my first company to become the UK’s third largest Financial Services Network—with more than £3 billion in fund under management—I have since launched Clarus Fortior, a specialist business growth consultancy that mentors businesses to achieve their financial goals. Having built my first company to become the UK’s third largest Financial Services Network—with more than £3bn in fund under management—I have since launched Clarus Fortior, a specialist business growth consultancy that mentors businesses to achieve their financial goals.
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Below I’ve listed my top five tips on how to build a successful organisation from the ground up.
Set clear goals Clear and achievable goals will help you to map out the short, medium and long-term goals of the business. These should be agreed within a three or five-year plan. You may also want to set goals per week or month, so you have a clear idea of what success looks like on a rolling basis. In my experience, business owners with clear goals will tend to achieve greater success. A goal-oriented environment means decisions can be made more
SMART TIPS
efficiently, as you will have a clear and focused sense of your objectives throughout the process. Without clear goals, decision-making can become confused and counterproductive.
Plan, plan, plan You have your destination, now you need to map the journey. This is the track your business will run through to get there. There will inevitably be twists and turns, so the planning should be intuitive, allowing flexibility for unexpected changes or new opportunities to be factored in, understood and reacted to effectively. I would recommend having a regularly updated business plan, a marketing plan and a product development plan. Depending on the business, you may also wish to plan for market research, fundraising and recruitment.
Team building is key You should never underestimate the importance of the people around you. As William Blake wrote, “we become what we behold”—i.e. we inevitably come to reflect the behaviour and attitudes of those around us. In my experience, collective endeavour is far more valuable than individual brilliance. However, this is only true if you create a team dynamic and culture that good people want to buy in to. Shared responsibility leads to a shared sense of purpose, ensuring your team will drive together towards the end goal. Sharing responsibility also means sharing the wealth created within the business—so never be afraid to bind the team in with equity, share options and bonus schemes. The business case for diversity is also wellestablished now: in simple terms, your team’s diversity of background, thought and expertise will give the business a competitive advantage.
Build a ‘risk register’ These days the world is moving faster than ever, with disruptive brands applying intuitive technological solutions to quickly dominate entire industries within a matter of years. But industry disruption is just one of the threats to a business. I would recommend spending some time auditing all potential risks, with a corresponding plan to mitigate each risk. I call this a ‘risk register’, as it allows risk to be understood and your responses planned in advance. By pre-empting risk, you know what to do if the worst happens. What would you do if you turned up to the office and it had burnt down? Implement the disaster recovery plan, of course! Without a plan, nobody
Kevin Ronaldson, Founder Director, Clarus would know what do. Future acquirers and investors will also want to know about your risk mitigation plans.
Outsource where you can Don’t feel that you have to build every capability within your business—outsource certain functions of the business wherever it is convenient and cost-effective to do so. There are a range of new digital tools and services that can make core business functions both cheaper and more efficient. Outsourcing will keep central costs lower and allows you to access expertise without the need to pay for full time staff—this is particularly true for marketing, HR and IT. However, make sure you run due diligence on any new supplier!
editor@ifinancemag.com
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MARKETS
Investing In Europe’s Most Lucrative Markets With Brexit on the horizon, many smaller businesses in the UK are frightful of European expansion. However, with more consumers beginning to recognise brands around the world, international expansion is a lucrative decision fora range of sectors
Spain: A Focus On Fashion More UK fashion companies are making the shift overseas to Spain—take going out dresses retailer QUIZ for example, who have recently opened up in Madrid. Spain is possibly one of the biggest hotspots for tourism and this is one of the main drives for retail sales. Euromonitor International found that Spain’s employment rate dropped to a low of 17% in 2017, which has had a positive impact on fashion sales as more people have shown a willingness to spend more on clothes. For the industry itself, an annual growth of 11% is expected to arise between 2018 and 2022— taking the market value up to $6.728 million. Francesc Maristany, former president of Catalan Cluster of Fashion, commented: “Some people come for the luxury tourism and realise there are smaller brands with great products and excellent branding, and become drawn to them.” This shows that there has never been a better time than now to expand into Spain.
France: A Focus On Artificial Intelligence Did you know that Paris has passed London as the most lucrative market in Europe for foreign investors? Although you may be making investments at home, it’s crucial to start looking at shifting your finances into opportunities in France. The introduction of artificial intelligence is thriving in France, with companies and governments making use of it. Emmanuel Macron, the French President, has launched an initiative that will position the country as a leader in the field. Through this scheme, €1,5 billion will be invested in AI projects and start-ups. Is this something that your business could benefit from?
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MARKETS
Germany: A Focus On Biotechnology Foreign investment is at an all-time in Germany, so it would be foolish not to look into the country. So much so, that a total of 1,063 investment projects were launched in the country over the past 12 months. Within the same time frame, 7,785 jobs were created in Germany by external European companies—highlighting the number of opportunities across the country that must be taken advantage of. The country is exceeding well in research and development, too. Germany prides itself on constant innovation and is known to have the most biotechnology firms on the continent, which has had a positive impact on employment across the nation.
The Netherlands: A Focus On Creative Industries
(Advertising, TV, Music, and Gaming) It’s believed that The Netherlands is one of the most innovative countries in the world. As a result, it is home to some of the leading creative brands. Amsterdam, in particular, is a hotspot for creativity. Its metropolitan area offers world-class infrastructures and Europe’s fastest broadband speeds—essential qualities for this sector. Almost 50% of investors think that the business climate in this country will improve significantly over the next three years, so researching early is essential. This is a positive sign, as last year, only 38% agreed. The capital city is known for its influential start-up scene, with a tech-savvy community and a diverse talent pool. To illustrate the love of creative start-up businesses, the opening of gaming companies alone increased by 42% between 2011 and 2016.
Portugal: A Focus On Real Estate Titled the most peaceful country in Europe, Portugal is thriving in real estate investments and general trade. However, it must be noted that the country’s Golden Visa Scheme has encouraged more foreign
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investments in property, as residency comes with an array of benefits, including education, healthcare, social security, tax concessions, and more. Did you know that the gross rental yields in the country are one of the highest in the continent? 5% to 14% is realistic for the right property. Have you considered setting aside investments and obtaining a visa to a foreign country to obtain great financial benefits? Now might be the time!
UK: A Focus On Digital It’s no surprise that the digital scene in the UK occupies 27% of projects in Europe. As well as this, the sector seems to generate the largest number of projects in the country, which has led to an increase in employability with around 1.1 million people in work. The digital sector in the UK is growing quicker than the national economy and is improving regional areas. Because of this, the value of the industry was boosted to £184 billion (2017) from £170 billion, which was its estimated worth in 2016. Ignoring the opportunity to invest in the UK’s digital sector could
Sweden: A Focus On Financial Technology (FinTech) It’s known that Sweden is one of the biggest hot spots for foreign investment, especially around tech projects. This renowned status factored in the statistic that a large portion of its workforce are in tech-based jobs. Stockholm is the second-most prolific tech hub in the world after Silicon Valley. This is a great achievement for the nation, as investment continues to grow. When it comes to emerging fintech trends, crowdfunding opportunities, mortgages and pensions are developing areas that are disrupting the industry positively.
editor@ifinancemag.com