International Finance Nov 2018 - China's ambitious roadmap to global dominance by International Finance

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Editor’s n o t e

s 2018 draws to a close, there are some significant events have taken place in the world of business. Most notably, some of the changes witnessed border on data privacy and its consequent impact on business dealings. It is pertinent to keep in mind the extent of changes that are taking place across the way businesses run today. Thanks to Internet proliferation and consequences surrounding data usage. Protection of user data is much like the proverbial elephant in the room—it is imperative to address it, but on whom does the onus fall? How will the future of business be determined? These are important questions that businesses must answer.

SINDHUJA BALAJI

Editor

Other developments include the rise and rise of China as a superpower. It appears as the Asian nation has no plans of slowing down in showing off its economic might and the Belt & Road initiative is one example. The multi-billion dollar project is one of China’s most ambitious, and could be revolutionary when completed. But the big question is how will China accomplish this mammoth task? Has it promised more than it can deliver? Our cover story hopes to answer this. We have a very informative and engaging interview with Mozilla India’s policy advisor Amba Kak who has discussed at length about the country’s leapfrog initiatives into data protection and sovereignity. With initiatives like Aadhaar and a historic right to privacy act, the past few years has been dynamic for India’s business sector. Our sustained coverage of technology in business continues with stories on digital identity and APIs for banks. UAE witnessed one of the biggest banking mergers to date—in a country that’s working towards economic diversity, how does this merger pan out? Read on to find out. Brand building is a critical part of ensuring a business has maximum and sustained reach, and this is something legacy companies are capitalising using technology tools. Find out how Volkswagen has retained its spot as a leading automaker for decades now, as well as how a brand’s value can be retained following a merger. The November issue is a fitting end of the year, marked by huge changes in the way business is done. We for one, are very excited to see what 2019 has in store. Hope you enjoy this issue as much as we enjoyed putting together for you.

editor@ifinancemag.com www.internationalfinance.com

INSIDE Novembe r 2 018

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China’s ambitious roadmap to global dominance

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WeWork—the most valuable startup in New York City?

Simmering temperatures, dwindling quality of life – have we reached a critical point?

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Director & Publisher Sunil Bhat

Editor Sindhuja Balaji

Editorial Interview with Amba Kak, policy advisor, Mozilla India

Staying Tru to your identity

Adriana Coopens, Jessica Smith, Lacy De Schmidt, Sangeetha Deepak, Karan Negi

Production

Merlin Cruz

Design & Layout Jaison George

Business Analysts

Backbone of change in banking

Insurance, the next digital sector in the Internet age

Business Development Manager

AI versus Regulation: Friends of foes?

Sunny Shah, Sid Jain, Ryan Cooper

Steve Lloyd, Sid Nathan, Christy John, Jane Paul, Mark Smith, Gwen Morgan, Sarah Jones, Ayesha Misba

Steve Martin

Business Development Accounts

Decoding the Netflix approach to investing

Are Millennials Financially Equipped to Handle their Future?

Angela Mathews, Jessina Varghese

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Chinaâ&#x20AC;&#x2122;s ambitious roadmap to global dominance

COVER STORY

The Belt & Road Initiative is arguably China’s most ambitious cross-national infrastructure and trade development plan, but it has some obvious roadblocks

Sindhuja Balaji

ive years ago, Chinese premier Xi Jinping announced one of his most ambitious plans ever—the Belt & Road Initiative, aimed at connecting Asia, Africa and Europe through trade. Belt & Road or yi dai yi lu is a 21st century Silk Road made up of a layer of belts (corridors on land) and roads (maritime shipping lanes) between China and atleast 65 other nations, collectively amounting to 30% of global GDP, 62% of the population and 75% of known energy reserves. “The most significant merit of this initiative is that it aims at developing infrastructure at a continental and global scale. Infrastructure is a prerequisite for development and it has a multiple effect at many levels,” said Florin Bonciu, an economist with the Institute for World Economy of the Romanian Academy, at a two-day academic round-table

entitled Challenges of adjusting to a changing global economy in the 21st century. The scope of this mega initiative, expected to cost $1 trillion, is still taking shape. According to The Guardian, a particular report claims that China alone has spent $210 billion on the Belt & Road Initiative. Fitch Ratings has reported that nearly $900 billion projects are already underway or being planned. Several scholars, academicians and think-tanks believe China is setting the precedent as a world economic powerhouse by enabling infrastructure growth; and consequently economic upliftment in emerging nations and poorer nations, especially in Central Asia. But five years in, the question is—how is this going to pan out for nearly half the world’s economies and most importantly, for China?

International Finance

COVER STORY

Why is the BRI key to China? The Belt & Road initiative is one of the most ambitious efforts to promote large-scale regional cooperation and connectivity on a trans-continental scale. The scope of this regional cooperation can drastically improve connectity, reduce cost of trade, lead to higher cross-border trade and overall, improve regional growth. The improvement of goods capacity and supporting railway infrastructure could drastically cut down travel time. World Bank estimates that while rail transport is expected to remain costlier than maritime for these routes, the time and cost reduction can have a significant impact on certain goods, and overall international trade. What China is looking to capitalise through the Belt & Road Initiative will change the way international trade will take place in the years to come. Ever since Donald Trump became president of the USA, fund flow into Africa has significantly reduced. Even US commerce secretary Wilbur Ross has pointed out that USA’s loss in Africa will be China’s gain. And China is providing first to Africa what they desperately need—connectivity. For instance, the Mombasa-Nairobi Standard Gauge Rail is one of Kenya’s largest infrastructure projects to date; China is also involved in building railway projects in Ethiopia and Zambia as well. Capitalising on emerging economies is one of China’s strategies to inch closer to global dominance, and the Belt & Road initiative echoes this very thought. Jinping’s roadmap lays out an elaborate plan for the betterment

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of all the countries involved. Even Eastern Europe appears to be warming up to the initiative, as it is poised to provide metals, minerals and agricultural products. This is following reports of China investing nearly $300 billion in projects in the region. Moreover, the nations listed on China’s roadmap are set to reap major benefits, thanks to this mega initiative. According to the World Bank, poverty ratios of BRI nations are still high ($1.90/day is the global poverty line average)—such as 25% in Kenya, 23% in Uzbekistan and Djibouti, and 21% in Laos. If BRI projects here are successful, they stand to benefit a large number of poor people in these nations.

Is BRI too ambitious? This is the burning question on the minds of many diplomats and think-tanks alike. The extent of this initiative cannot be undermined—BRI can very well one of the most ambitious multi-nation project since the Marshall Plan that resurrected Europe after World War II. However, even China cannot deny the extent of risks and roadblocks a plan like this can endure, if it already isnt. A major hiccup is policy involving cross-border trade, customs procedures and FDI. For instance, in Central Asian nations, it can take up to 50 days to comply with import procedures, while it takes less than 7 days for G7 countries. Weak governance is smaller, less powerful nations can have an adverse impact on international infrastructure projects, requiring the intervention and supervising of

will also cause significant delays. Another concern predominantly with BRI nations is the over-expansion of debt levels for projects. For instance, the Lao PDR section of the Singapore-Kunming Railway is an estimated $6 billion—nearly 40% of Laotian GDP in 2016. Overall, BRI projects could steeply push debt ratios against GDP ratios, making the countries face immense financial risk. Mindful of these concerns among others, China has admitted that they are prepared to make some adjustments to their roadmap. Wang Jun, deputy director of the Department of Information at the China Centre for International Economic Exchanges, told the Global Times that it was “normal and understandable that development focus can change at different stages in different countries, especially with changes in government. So, China can also make some strategic adjustments when cooperating with these countries.” These remarks came in the backdrop of opposition within the Pak government on the financing of the China-Pakistan Economic Corridor, and increasing pushback from Myanmar and Malaysia. Malaysian PM Mahathir Mohamed has suspended Chinese-funded projects worth $26 billion and Myanmar is also negotiating a significant scale-back of a China-funded port project in the Bay of Bengal, to avoid shouldering needless debt. As Dr, Merriden Varrall, non-resident fellow at Lowy Institute writes, the continued obsession with maintaining legitimacy by means of the two key pillars—national pride and material well-being—are still at the core of Chinese public policy, including its foreign policy. The BRI is undoubtedly a crown jewel for China now, and Premier Jinping will try everything possible to make it a success. editor@ifinancemag.com

“

normal and understandable that development focus can change at different stages in different countries, especially with changes in government. So, China can also make some strategic adjustments when cooperating with these countries

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“Privacy and innovation are not at odds with one another” Amba Kak, public policy advisor at Mozilla talks about the state of data privacy in India at the annual Mozilla Festival in London Sindhuja Balaji

he conversation around data privacy seems incomplete without the mention of India. Touted to be the fastest growing economy, India has leapfrogged into growth, with digitisation being a leading factor of growth. With all the hype around digitisation, there has been a simultaneous focus on data privacy. India is at the front and centre of a new movement in data protection, as the state, the people and the judiciary are working together to provide data integrity to millions of Indians. Amba Kak, in her role as policy advisor, works on developing Mozilla’s position on law and political developments pertaining to the Internet.

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You were at Mozilla Fest. Tell us what the event is like and what is going to be addressed there. There is a great energy about the event, It’s a place with people who love the Internet and all the good it brings. Specifically, about India, there is a lot of curiosity over the rapid pace of developments such as Aadhaar and the data privacy bill. India is also a massive Internet-driven economy, and other governments are looking at India for lessons on how they should regulate.

In Conversation With

It has been an interesting year for data privacyâ&#x20AC;&#x201D;what is the ground reality in a country like India?

What are the changes that have led to an enhanced awareness around data protection?

Things have moved fast, Even two years ago people would happily relegate privacy as an elite issue. It was easy to argue that developmental challenges were more important, and privacy was characterised as a hindrance to innovation. In the last couple of years, we are seeing a paradigm shift in the discourse surrounding data. In less than a year, we have a draft of a data protection bill. There is an urgency to address data integrity now, and all the stakeholders are taking it seriously.

I believe three developments have led to this change. The first is Aadhaarâ&#x20AC;&#x201D;a technological innovation that has touched everyone in India and created a national level conversation around technology. Privacy has dominated this conversation, given that it is one of the largest data collection projects to date and created a database of sensitive biometrics. There are many legal challenges to Aadhaar on the grounds of privacy. Disagreeing with the government, the Supreme Court judges laid down that every individual was guaranteed a fundamental right to privacy. This was immediately followed by the push for

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a data protection law, and a public commitment from government that they would pass one soon. The second major development is the GDPR, which was implemented for EU businesses in May 2018, has had global impact. The European Commission will only allow unrestricted data flows with Europe, if it has “adequate” data protection law. And it’s a high bar. For this reasons, many businesses are also in favour of clear rules to allow for unrestricted data transfers. Moreover, the Committee drafting India’s law has borrowed heavily from the lessons of the GDPR. Thirdly, and this is what I’ve talked about at MozFest— the backlash in India over how global big technology platforms are exploiting the data of citizen’s at the expense of domestic industry and the State. This discussion includes whether data should be stored in India, and who should have access to it. It has national overtones to it, and what’s a bit concerning is the debate possibly devolving into a power equation—who controls the data? Should it be the private overseas companies or Indian entities? Or should it be the State? We risk losing sight of the individual whose privacy we’re trying to protect.

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I believe consent is not entirely understood in India. With Internet traffic growing from rural and semi-urban pockets, how can the gap between user awareness and internet frequency be addressed? Consent is a very hard problem world over. It’s unfair to frame it as a failing of users—if a user is given a convoluted privacy services where he has no other option but to agree to the terms and conditions to use the service, the consent isn’t meaningful. It’s unfair to berate the concept of consent. A real change is needed in the way services approach consent. It has to be granular, with opt-outs. Supposing a user provides consent to use a service for which a particular data point is needed, there should be an option to deny consent to data points that are not relevant to that particular service. Other changes include “just-intime” notifications which give you choices about your data while you’re using a particular function of the app, rather than buried in a privacy policy. Another interesting pain point to be observed is that most of these policies are only in English. We have to remember that there is a big push in Internet usage coming from India’s rural and semi-urban pockets where

In Conversation With English isn’t the primary mode of communication. We need to be more creative—instructional videos instead of long-winding legal parlance or legal notices in regional languages on data protection should be made possible. Finally, we need meaningful consent, but given these difficulties we need obligations on companies and government that should apply irrespective of what the user “chooses.”

What is the journey that India’s Personal Data Protection Bill needs to make to become a law? In commendable time, a ten-member committee led by Justice Srikrishna was put together and a draft bill released within a year. Following the submission, India’s Ministry of Electronics and Information Technology ran its own consultation with the public. Now, reports are doing the rounds that the bill may even be introduced as early as the Winter Session of the Indian Parliament. Of course, whether the bill will be passed in Parliament is a whole other discussion but the fact that it has come this far in such a short span of time reflects how heated this discussion has become, and therefore a government priority

What are the major takeaways from this bill? The bill is a compelling document, modelled heavily on Europe’s General Data Protection Regulation. While it elucidates specifics pertaining to processes involving retaining data privacy, there are some areas that are still unclear. One example would be the steps to enlist an agency. While the bill mentions there has to be a data protection regulator, it is still unclear how this agency will function? How will it remain independent from the government which related to what would their tenure and qualifications of the members will be? Given the speed at which the bill has taken shape, I believe the above questions should also be addressed as soon as possible because this is a critical issue, and clarity will go a long way in advocating the right and meaningful use of data.

India has witnessed rapid digitization in the past decade but has cyber resistance grown at the same pace? If not, what can businesses do to catch up? Security is no longer an option for any credible service, it’s central to trust. Businesses today have either been affected by a cyber attack at some point or have had to liaise with companies that have suffered a data breach— both of which are not healthy for business in the long run. Companies have now recognised the need for a robust cyber infrastructure and investing in security measures. But the very problem of data breaches begs a larger question of how businesses approach data storage. The more data a company owns, the more risk the company is at. Which is why we get back to limits on collection of data in the first place, which is what a data protection law will hopefully address. Tell us a little about your work at Mozilla and what the company is trying to achieve in the space of data privacy Over the last year, there has been a heightened focus on advocating strong data protection. Mozilla is currently working on data protection advocacy not only in India, but Brazil, Kenya, and the US as well. As a company, we don’t believe privacy and innovation are at odds with each other. In this heated debate where governments are pitted against big tech companies, we cannot forget the individual’s rights, which must be the foundation of any effort.

editor@ifinancemag.com

Last month, the Apex Court upheld the constitutional validity of Aadhaar, striking down some of its contentious provisions on mandatory linking to services - in a significant move towards data protection, Your thoughts? The fact that the SC has understood that unrestricted proliferation of Aadhaar was a growing surveillance and security concern is important. There has to be some sensible limits of the use of Aadhaar. Interestingly, the government argued that privacy concerns related to Aadhaar would be addressed by a strong data privacy law. That is yet to be seen, but it sets the baseline that a data protection law must apply to government and companies alike.

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Threat-proofing businesses today–should employees be more cautious? A slew of attacks on businesses reveal the risks led by technology. However, human error has emerged as one of the leading causes for mishaps to occur. How can this be fixed? Peter Taberner

yberattacks leading to data breaches have now become one of the most potent threats that businesses in the modern world have to deal with. Organisations are operating in an environment where they are increasingly exposing their digital assets to the public. The conduits for this are wide ranging from email to mobile apps to social media

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networks such as Facebook. There have been plenty of recent examples that highlight how businesses must learn to combat this growing menace. British Airways suffered a recent attack where a data breach affected 380,000 transactions. Another incident involved Ticketmaster, where after a hack attack 35 of digital bank Monzo’s customers complained of fraudulent transactions on their credits cards,

having used their cards with the ticket sales company. Recently, credit monitoring service Equifax were fined £500,000 by the UK’s Information Commissioners Office. This was after a compromise of data which effected 15 million UK citizens, globally 146 million records from the company were also stolen in a major data breach last year. Recently, credit monitoring service Equifax were fined £500,000 by the

Analysis Cybersecurity UK’s Information Commissioners Office. This was after a compromise of data which effected 15 million UK citizens, globally 146 million records from the company were also stolen in a major data breach last year. Cyber security company Mimecast conducted an email security risk assessment, where 142 million emails were inspected. All of the emails progressed through organisations email security vendors. Overall Mimecast discovered 203,000 malicious links, alongside 13,176 dangerous file types, 15,656 malware attachments, and 41,605 impersonation attacks slipping through previously undetected. Steve Malone, Mimecast’s director of security product management, said: “Email remains a pressing threat to every organisations’ overall cyber security posture for the simple reasons of scale and frequency.” “That’s then further exacerbated by the fact employees can become complacent to the numerous threats that could be lying in wait, from simple phishing to targeted impersonation attacks, and ransomware hiding in common attachments.” Research carried out by solutions provider Kroll, revealed that an eyewatering 88% of cyberattacks in the UK over a two-year period was caused by human error. The most frequent error was sending information to the wrong party via email majority of the time. “Unfortunately, traditional security awareness programmes have often failed to improve employees’ security skills and training has been more of tick-box approach to compliance,” added Malone. Mimecast’s own State of Email Security Report found that 80% of companies are not confident of their employees’ ability to fend off ransomware. Alarmingly only 11% said that they continually upgraded employees’ training to spot cyberattacks. The current conditions ask questions of what businesses

and cyber security firms intend to do next to reduce the cyberattack risk. For example, many software vendors employ security researchers to ensure that systems are kept secure, through responsible disclosure schemes. RiskIQ, a cyber resilience company based in San Francisco, recently analysed the date breaches experienced by British Airways. And identified credit card skimming group Magecart as the culprit, as they were for the Ticketmaster data infringement. Fabien Libeau, vice president of RiskIQ for EMEA, explained: “RiskIQ operates on the open Internet to provide organisations with an ‘outside-in’ view of threats and vulnerabilities, that complement their existing security investments in perimeter defence and endpoint protection.” Libeau also reflected that the company is seeking to drive the debate forward over the potential threats that organisations face from the internet. “We do that in a variety of ways; directly with large organisations, through involvement in industry bodies and through our regular content such as blogs, where we highlight the latest threat actor trends and tactics,” he enthused. There are regulations that are in force that compels businesses to brush up on their cyber security competence. Across the European Union there is the directive of security and information systems. The regulation is aimed at operators of essential services and digital service providers, who are required to secure their network and information systems. Appropriate measures must be taken to minimise the effect of security breaches, and to consider the latest potential system risks. The directive targeted sectors that rely heavily on information and communications technology. Specifically, energy, transport, health, water, and digital infrastructure. Additionally, in 2016 the EU General Data Protection Regulation

was agreed and enforced upon. The legislation is designed to harmonise data privacy laws across Europe, empower all EU citizens’ data privacy, and reshape the way that organisations view and approach data privacy. It is hoped that in the future it will be increasingly recognised that cyber security should be a central pillar throughout an organisation, as opposed to a background or “add on” issue. Regulations at EU level bring to light just what national governments could do in collaboration with cyber security firms and companies. It’s a potential partnership that could see governments providing incentives for innovation to conquer the threat of data breaches. Although Steve Malone of Mimecast opined: “Cyber security experts are better able to analyse new threats and build appropriate defensive technologies, while appreciating the reality of how these tools are deployed within a variety of organisations.” There is a long way to go, as the British Airways and Ticketmaster incidents prove that there is still a lot to think about, before the date breach issue is solved.

editor@ifinancemag.com

International Finance

he fourth industrial revolution is upon us, and digital growth is unprecedented across the world. A critical element of rapid digitisation is identity. The emphasis has shifted from scanning names and social security numbers to valid digital identities. This is where Canadian firm Trulioo is leading the revolution for a vast majority of companies and individuals today. Named as a CNBC Tech Disruptor 2017, Trulioo provides secure access to alternative and traditional data sources worldwide to instantly verify consumers and businesses online. Its online verification platform GlobalGateway helps companies comply with Anti Money Laundering (AML) and Customer Due Diligence (CDD) by automating Know Your Customer (KYC) and Know Your Business (KYB) workflows. Trulioo supports over 500 global clients to instantly verify 5 billion customers and 250 million business entities in over 100 countries—all through a single API integration. The company accesses data from leading mobile network operator (MNOs), credit bureaus, utility companies, government-approved ID documents and public records to digitally verify an individual. Some notable clients include PayPal, Stripe and World Remit.

Asia—the world’s most promising FinTech region RRecently Trulioo made its foray into the Southeast Asian

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nation of the Philippines, and now offers instant identity verification for consumers in the country. Philippines is a big remittance market—last year, the country recorded inflows of approximately US$33 billion, an all-time high. In January, cash remittances from Overseas Filipino Workers (OFW) reached US$2.4 billion—a 9.7 percent increase on the previous year. A large portion of remittance flow into the Philippines comes from the UK, positioning it as a lead driver, second only to the US. This month, remittances from the UK were valued at 1.6 percentage points, making it a substantial catalyst of growth According to World Bank, the Philippines is one of the world’s largest recipients of remittances, third only to India and China. Remittances are the country’s largest source of foreign exchange income and account for approximately 10 percent of GDP in 2017. A step into the country’s booming remittance market with global identity verification would safeguard against nefarious activities, as well as keep remittance costs low for senders and recipients, said CEO Stephen Ufford. Trulioo’s General manager Zac Cohen is bullish on their expansion plans in Asia, “It is one of our strongest markets, owing to the density of population, growth of mobile phones and the immense number of expats they have. Be it China, the Philippines, or India, there are plenty of expats who play a crucial role in driving the ecommerce and remittance markets. We continue to expand our presence

Technology

Staying ‘Tru’ to your identity Trulioo, leader in digital identity and business verification, on why Asia is a hot market for expansion and why cyber attacks are a global issue that requires a proactive approach Sindhuja Balaji

owing to the density of population, growth of mobile phones and the immense number of expats they have. Be it China, the Philippines, or India, there are plenty of expats who play a crucial role in driving the ecommerce and remittance markets. We continue to expand our presence across the region.” Trulioo, which launched in 2011, has remained very positive about the payments market, but has expanded its remit to include ecommerce/online marketplaces and financial services—both of which have volumes of customer information that need to be verified. However, global banking remains the biggest market for the company, says Cohen.

Challenge of digital verification in age of cyber-threat The danger of cyberattacks is a very real one being faced by companies all over the world today. While there are some constantly recurring countries on the list, such as Russia, China, Vietnam, India and Iran, cyber threats loom large across almost every corner of the digital world. However, Trulioo verifies user data using multiple credible sources and is constantly updating its marketplace of identity data and services. “As businesses continue to become more digitized the world is facing a very real threat,” says Cohen. “What helps drive our use-case is that we don’t retain or store any

customer data, and are constantly working with industry forces to keep the verification process free of threat or sabotage of any kind.” The emphasis on data privacy has been resonating across economies and governments, following which regulations like GDPR have been implemented with the threat of strict fines for non-compliance. These measures are beneficial for a data-driven economy. Cohen says, “The reinforcement of data protection, privacy and transparency through regulations indicates an evolved approach to managing data. Being in the ID verification space, we have upheld user privacy to the highest possible levels from the beginning. Moreover, being in Canada where data protection has been upheld by private companies and governments to the highest standards, gave us a thorough understanding of its critical role.” Cohen believes GDPR is just the start. “We’re seeing multiple jurisdictions across the world being implemented to safeguard user privacy, and this is the only way to standardise business practices in today’s times.” The success of a company like Trulioo is reflective of the changing needs of businesses today across the world.

editor@ifinancemag.com

International Finance

UAEâ&#x20AC;&#x2122;s mega bank merger: Dawn of a new era in banking? Three of UAEâ&#x20AC;&#x2122;s top banks are in talks to merge together to form an enterprise that will become one of the biggest lenders in the MENA region, leading to a credit positive industry Karan Negi

he Abu Dhabi Commercial Bank (ADCB) is considering a potential merger with its domestic peers, Union National Bank (UNB) and Bank Al Hilal. It is to be noted that talks are in the preliminary stage, as of now. ADCB has been clear in stating that it is possible that “they may not result in a transaction.” If the talks are successful however, this three-way merger would establish an enterprise with a combined total assets of $115 billion and form the fifth largest lender in the MENA region(chart 1) after Qatar National Bank ($232 billion), First Abu Dhabi Bank ($188 billion), Emirates ($130 billion) and National Commercial Bank($121 billion). All three banks will comprise of one mutual majority shareholder—Abu Dhabi Investment Council (ADIC). It currently owns 62.52% of ADCB, 50.01% of UNB and 100.00% of Bank Al Hilal (an investment which is not publicly listed). According to the official MENAFocus press release, this three-way merger could release “long-term value through economies of scale, synergies and overall restructuring for ADIC.” It mentions that such a proposition would be beneficial for ADIC as it would merely own a more profitable combined banking group after the implementation of cost restructuring—which in-turn would lead to surplus capital release, reduce the cost of funding and enhance the quality of the assets. While the merger is not finalised yet and is still in its early states, the move is noted to be ‘credit positive’ for the UAE banking industry overall. Moody’s investors service described that the merger would “increase banks’ pricing power, reduce pressure on their funding costs and increase their ability to meet sizeable investments.” The company noted that the merger could contribute to the consolidation of the “overbanked” UAE banking sector, which in turn will “increase banks pricing power, reduce pressure on their funding cost and ability to meet sizeable investments.” ‘Overbanking’ was also described in further detail in the official MENAFocus press release. It referred to the banking penetration which is measured both in terms of total assets held by the banks and the size of the population. The UAE banking sector has become by far the largest in the region, with $734 billion of assets held by banks as of end-2017—which was 194% of total GDP. Central Bank of the UAE (CBUAE) data revealed that there are 46 commercial banks operating in the UAE, with representative offices for a further 9 banks. This data

BANKING did not include banks operating in the offshore vicinity of the Dubai International Financial Centre (DIFC). These lenders were reported to cater for a population of only 10.5 million—which makes it comparable with 12 domestic banks and 15 foreign bank branches for nearly 33 million individuals in Saudi Arabia. The UAE comprises of a highly fragmented market separately, with few large banks (FAB, Emirates, NBD and ADCB) comprising of 53% of the total UAE banking sector, and many smaller lenders—something that makes it ripe for further consolidation. UAE banks structurally are a diverse mix of conventional and Islamic entities—and are known for being both retail focused and corporate aligned in their stance. From a potential future merger perspective, this is known to offer value-added synergies. Merging of banks realises healthy synergies and in-turn potentially lowers the cost of funding through economies of scale and return on equities (ROEs). Better asset pricing discipline is also forecasted after banks merge with lower concentration risks in loan portfolios. Overall, there is a large need for banking consolidation in the UAE, and Banks have a constant need to be better positioned to adapt to the rapidly changing operating environment. In addition, there are higher compliance costs with the implementation of new accounting standards. There is also the residual impact of VAT, which was implemented in January 2018, as well as the need for stronger corporate governance frameworks that also add to costs for the banks and increase pressure on small and medium-sized banks. There are also regulatory amendments vis-à-vis capital market enhancements that include Base III requirements on capital adequacy and liquidity. With these, larger entities will overall be better equipped to handle global changes in the banking space over the long-term. Moody’s also noted that banking competition in the UAE had intensified in recent years—with 60 banks being noted to serve a population of nine million. This meant that there was a drop in lending opportunities due to slowing economic and credit growth as a result of lower oil prices —and naturally leading to lenders being increasingly focused on high-quality borrowers at the expense of small-to-medium-sized enterprises—who generally have higher default rates. Hence, a consolidated Banking system will positively impact the UAE’s currency, the dirham which is pegged to the US dollar. The reduction in competitive pressures and funding costs will lead to the reduction in the bank’s contracting net interest margins. Eventually, the banks will be able to increase their scale and revenue base—and will be able to improve their ability to meet the considerable investments related to compliance, digitalisation and new accounting standards such as IFRS9. editor@ifinancemag.com

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The backbone of change in banking

As banks grapple with Open Banking, BIAN has been leading the change for technology platforms for banksâ&#x20AC;&#x201D;be it through sustained knowledge sharing or standardising operating platforms sindhuja balaji

t has been an interesting past couple of years for banking world over. Some of the biggest regulations and overhauls have taken place in this period that include Open Banking, GDPR and Basel III. Open Banking, however, was a revolutionary step ahead for the banking industry, beckoning the dawn of digitisation and the need for banks to step up their infrastructure. Open banking has been hailed by many as a positive step towards the next phase of banking. What makes this concept so interesting is the sharing of banking data through application programming interface (APIs) that deliver enhanced capabilities to the marketplace. McKinsey states that the benefits of open banking are multiple including improved customer experience, new revenue streams and a sustainable service model to serve traditionally un-served/under-served markets. One of the biggest challenges to achieving success in Open Banking is the applicability. To generate bylaws and industry standards that are to be adhered by all can be a daunting task. But one particular organisation

BANKING that is striving to standardise the open banking experience for all is the Banking Industry Architecture Network (BIAN). Established in 2008, BIAN is a not-for-profit association tasked with developing a common architectural framework for banking inter-operability issues. Earlier this year, BIAN published an updated version of its standardised global IT architecture model called Service Landscape 6.0 (SL6.0). This model contains 26 new types of semantic APIs providing banks and software developers consistent guidelines for creating and implementing APIs in the larger banking ecosystem. BIAN has prominent members from the industry that include ABN AMRO, Banco Galicia, Bangkok Bank, Credit Suisse, ING, JP Morgan Chase, DBS, Nomura, Citi, CIBC, KfW Bankengruppe, Societe Generale and Wells Fargo among many others. The organisation also has onboard a network of prolific IT vendors such as Temenos.Capgemini, IBM, SAP, Infosys, FIS, Fiserv and Finastra among others, which work with banks to deliver technological support. For Hans Tesselaar, banking

veteran and executive director of BIAN, the past year has been insightful and exciting. “When we started in 2008, we had no standard on banking. Following the 2008 economic crisis, the world began to see the need to spend money wisely. Banks have business needs, and we identify the critical information that’s necessary to flow between banks.” Open Banking has split wide open the very principle of conventional banking—in that the flow of information between banks has to be open. And Tesselaar believes this is an immense opportunity for banks to understand their own processes better. “Banks can now really understand the backbone of processes within, and optimise them accordingly.” BIAN works with banks to establish standard operating procedures, on the back of nearly 51,5000 use cases. The organisation is actively working on educating banks and enabling more APIs. This is one of the fastest moving endeavours for the company, and Tesselaar is excited at the prospect of making technology highly digestible for its banking partners.

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BANKING

Having supremely enhanced technological offerings at banks is no longer a luxury, but a necessity. Tesselaar puts it aptly: “Banks are becoming more like IT companies, not the other way round.” Despite initial reluctance over embracing transparency in banking and open exchange of information, it has fast become obvious that banks need tech to survive. Mainly because of the advent of fintechs. Several fintech companies are headed by banking executives, who were bogged down by banking conventions that hampered their scope for innovation, while fintech is all the rage in developed countries and even emerging markets. Tesselaar thinks Open Banking is among the best opportunities for fintechs to really deploy innovation and not buck the trend of payment models alone. “Fintech can help banks

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in so many ways, but the focus now is only on making banking functions technologically sound. This is a great chance for aspiring technology savants to get into the dynamics of a bank, and make these very processes faster, more efficient and safer.” Great ideas have to be led by great leaders, so therein lies the problem to Tesselaar’s hope for the industry. One of the most critical roles that can achieve the fine balance between banking and technology is that of a Chief Information Officer. Someone with sound technology proficiency and a deep understanding of banking functions can be the answer to bridging this divide, he believes. “A good CIO can drive change at a pace that’s in line with the industry expectations, and not change things every few years. Overhauls of any kind, especially in

this industry, take time and money.” Almost a year since Open Banking and one thing is evident that its here to stay. Tesselaar and his organisation are at the forefront of this inevitable change.

To know more about BIAN or to sign up as a member/vendor, log on to www.bian.org

editor@ifinancemag.com

sukuk spread its wings to Africa Despite sukukâ&#x20AC;&#x2122;s ongoing instability in GCC countries this year, there is a resurgence of interest across 18 African markets. What does this mean to the largely underbanked Muslim population in these markets? Sangeetha Deepak

t seems nearly certain now that the global green sukuk for this year has become a huge concern for GCC countries: whether the market can continue to stage its extraordinary performance from 2017—as the report titled Global Sukuk Market Outlook: Another Strong Performance in 2018? points out. The latest documentation for concern pointing to last year, where sukuk issuance increased by 45.3% had resulted in $97.9 billion, which rose by $67.4 billion in 2016. More specifically, in the first half of 2018 the sukuk issuance dropped by 15.3% by comparison with the same period last year. The question now confronting the GCC countries is—what this means to this year’s slowdown and the declining demand for funds: It seems the ‘absence of major issuances from the GCC countries seen in 2017’ is the chief reason to conclude in an unexpected decline. S&P Global Ratings Head of Islamic Finance, Dr. Mohamed Damak told Gulf News: “In

the second half of 2018, we expect sukuk issuance volumes will continue to be slowed by the global tightening of liquidity conditions as well as by lower financing needs of some GCC countries as a result of oil prices stabilising at higher levels.” “Overall, we think that the liquidity channelled to the sukuk market from developed markets will reduce and become more expensive.” Along the same lines, ”the US Federal Reserve is expected to hike its federal funds rate by another 50 basis points (bps) in the second half of 2018 after the two increases of the first half, while GCC central banks will probably mirror such an increase due to the fact that their currencies are pegged to the US dollar,” reported Gulf News. “Currently, European and USbased investors account generally for about one-quarter of sukuk investment in terms of volume. At the same time, muted economic growth and declining lending activity in the GCC has shifted banks’ focus to

Sukuk capital market activities in hopes of achieving higher yields than with cash and money market instruments,” Damak remarked. Indeed, if there is one highlight to be noted from this unforeseen market drop: it is how jumbo issuances of some GCC countries have dominated the market, and, of course, the irksome impact these countries have on sukuk as a result of muting demand for funds. For example: Kingdom of Saudi Arabia, in particular, raised the highest share of sukuk worth $27 billion, which underpinned last year’s sharp increase in issuance. It shows that a decrease in demand for funds from GCC governments and corporates will hugely affect the ‘jumbo local and foreign currency issuance from the region’. This brings us to other countries now. In understanding S&P’s global study on sukuk market, Malaysia is no different. In total, S&P expects the country’s volume of issuance to range between $70 billion and $80 billion this year, again in comparison to last year’s value at $97.9 billion. However, analysts say the country will continue to brace its market growth because of the government’s support toward Islamic Finance. In apparently significant numbers, Islamic Finance is becoming quite popular across Africa because of increase in demand for funds, and investors have slowly become comfortable with Sharia-compliant products, observed Moody’s report. It is understood that Africa’s prominent Muslim population, which is largely underbanked is hoped to better the chance for Islamic banking assets which currently ‘represent less than 5 percent of total African banking assets’. Nevertheless, “The number and size of Islamic banks in Africa will increase,” Nitish Bhojnagarwala, senior credit officer at Moody’s, said. Although the African banking sector has ‘witnessed an increase in the number of licensed Islamic banks in recent years’, its Islamic bonds

“

In the second half of 2018, we expect sukuk issuance volumes will continue to be slowed by the global tightening of liquidity conditions as well as by lower financing needs of some GCC countries as a result of oil prices stabilising at higher levels

”

constitute only 0.5% of the global sukuk market. Akin Majekodunmi, vice-president and senior credit officer at Moody’s, said: “The desire within Africa for stronger investment links with the fast-growing economies in the Gulf and Asia that have large Muslim populations with large pools of capital will help drive the issuance of sukuk on the continent.” The continent has raised $2.3 billion, since 2014. At a glance, “both sukuk issuance and Islamic banking assets’ are expected ‘to continue to grow quickly in Africa from a low base.” But this is not it. For now, Moody’s has identified 18 countries with good potential for Islamic Finance growth including Egypt, Morocco, Algeria and Tunisia.

editor@ifinancemag.com

International Finance

Kazakhstan has come to understand the necessity for a diverse economy Kazakhstanâ&#x20AC;&#x201D;the country, where entrepreneurship was unwelcomed, several years ago, is now reorienting its economy by streaming into cryptocurrency and fintech, as a measure to mitigate sinking oil prices Sangeetha Deepak

nce known to be an extractive economy, it is clear that 70% of Kazakhstan’s overall domestic produce came from the trade of natural resources, including oil, gas and uranium. But, in the wake of low crude prices; and rising renewable energy sources and non-fossil fuel alternatives have weathered the country’s economic conditions to the point where the Government of Kazakhstan is foraying into big businesses, particularly in the field of technology and finance. Last year, Kazakh President Nursultan Nazarbayev cited the idea of a global cryptocurrency system such as bitcoin to break the evolution of ‘black-marketeering, volatility and pilfering of currency’ in the country. Kazakhstan’s step toward a greater transformation has pronounced the significance of cryptocurrency—which is perceived to become its economic driving force in the coming years. Launched in January, the Astana International Financial Centre (AIFC), in Astana, is a framework for Central Asia, has established a working group with Deloitte and Waves, a Russiabased crowdfunding platform. Last year, a Deloitte report mentioned “AIFC aims to become a most favourable FinTech jurisdiction with an open ecosystem and the most progressive regulating framework,” for the sake of transforming Kazakhstan into the region’s leading financial center. The report quoted Nurlan Kussainov, CEO of AIFC Authority: “In the next phase of the project, our working team will be looking at widening the participation to include other industry stakeholders.” It is the biggest blockchain project in Kazakhstan as yet: “Kazakhstan became the second country in the world, after Japan, which recognised the need for the development of the cryptocurrency market system at the governmental level,” Natalia Sheiko, partner of Kesarev Consulting said. Recently, Yandex, a multinational

Economy corporation specialised in Internetrelated services and products conducted a study on topics that have played a huge role in digital currency. The study as reported on Bitcoin.com showed that Kazakhstanis are actively tracking words associated with cryptocurrency. The search term bitcoin was asked “7 times more than in early 2017.” It seems, “in early 2018, Kazakhstan residents made about 15 times more requests with this word [cryptocurrency] than in the same period of 2017,” as users frequently search for courses in cryptocurrency, cryptomining, or crypto exchanges. Deloitte’s Director of Legal Services for Technology Projects, Artem Tolkachev emphasised that creating a functional environment for blockchain ‘is important for all economies’, and some of the best practices can be implemented for building a dynamic framework in Kazakhstan. A year ago, the National Bank of Kazakhstan disclosed plans about bonds issuance supported by an app to carry out transactions on blockchain. “We are very interested in blockchain technology as a financial instrument, and all the opportunities that blockchain has to offer,” AIFA Chief Economist Baur Bektemirov told OZY magazine. Being an independent legal

framework, AIFC has become a ‘fintech regulatory sandbox’ to lure foreign investors and help companies innovate in the country. Last fall, they signed a deal of cooperation with Maltese firm Exante with a focus to develop the Kazakh digital asset market. But the Blockchain and Cryptocurrency Association firmly believes: the country has lost a significant time frame in blockchain. This isn’t a perceived skepticism. “We think we are late already in implementing blockchain technology,” Yesset Butin, chairman of the Association confined. And Butin does have a point about his country’s slow

transition in cryptocurrency market: “If we don’t do it now, we will be too late and we will lose our possibilities and our advantages in this technology.” Of course, in the past, the government had hostile views toward encouraging digital currencies in the country. Now, considering the national currency is being at an all-time low has opened up new avenues in not only developing a cryptocurrency framework, but it is also empowering fintechs as a legal support system for the country.

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Economy

The present-day Kazakhstan houses top-ranking officials and businessmen, who have received education through the Bolashak state; and many of them are IVY League graduates. It seems, the country has come to the realisation to create a more agile business environment in order to stabilise the currency value—as an ultimatum after the decline of its several resources. So far, Kazakhstan has had the best e-government, even much advanced than Russia, reported Bitcoin.com. The country between 2015 and 2016 was among the fastest growing economies in the world, observed the Doing Business Index. However, despite the growing fondness for cryptocurrency, a number of banks are not fully prepared to introduce cryptocurrency-based systems on blockchain into their payment systems. That said, Bektemirov is still

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positive to evolve Kazakhstan’s favourable business climate in the region in order to explore new uses for blockchain. In fact, Kazakhstan’s weather as minus 40 degrees Fahrenheit is an exemplar of how the country is best-suited for mining farms. “In the mining of cryptocurrencies, you use a lot of processing powers, so the computers heat up very quickly and you have to use more power to cool them down,” Alexey Sidorov, CEO of companies that offer alternative lending plans for the financially underrepresented said. “With countries like Russia and Kazakhstan, you don’t have to cool down the [mining farm]. You just open a window and get free cooling.” Yet. All the national attempts to reinforce entrepreneurial incubators in Astana; government plans to digitise data; and sectors’ efforts to implement blockchain in transactions, which are crucial to a functional economy will result in

a futile environment—incapable of producing substantive results—if the country lacks potent legal framework in cryptocurrencies. And it’s not just that. Improper regulations can have cryptocurrencies turn into a rebel. Nazarbayev speaking at a plenary session of the Global Challenges Summit 2018 urged nations to understand the disintegrated nature of cryptocurrency framework globally: “We see completely separate actions of states in this issue. And these disparate actions will lead to inefficiency. It is necessary to start developing common rules.” For this reason, several countries including Kazakhstan have already started to explore ‘the possibility of adapting cryptocurrency to the current configuration of financial systems’, without which experts say it will annihilate smart investment opportunities in the future. editor@ifinancemag.com

Combine technology analytics with business insights and drive better efficiency, quality and performance culture in your organisation 8th Edition

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Ennio Siracusa Head of Financial Planning and Control, Financial Risk and Corporate Finance Saipem, Italy Martin Bischof Chief Financial Officer - Region Western Europe Sandoz, Germany

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The Green Reaper: How To Responsibly Multiply Your Assets The aftermath of the financial crisis left several people disgruntled with banking systems globally, but here are a set of personal wealth managers who invest as much in your wealth as they would on their own

eptember marked a decade since the 2008 economic crisis, which has been reckoned as one of the worst economic disasters since the Great Depression of the 1930s. Housing prices fell by more than 30% and unemployment levels were alarmingly high. What started out as a crisis—the subprime mortgage crisis—that would have affected only the housing sector, escalated into something far more serious, resulting in millions of investors losing faith in the traditional banking system. A decade on, and key economies have recovered. However, the scepticism towards banks has remained. This has in fact become a fertile ground for family offices to gain

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Sindhuja Balaji relevance again. Family offices have their roots in sixth century, when the King’s steward was held responsible for managing and safeguarding royal wealth. A modern family office, developed by financiers JP Morgan and Rockefellers in the 19th century, is one that manages private wealth and other family affairs. Since the 2008 financial crisis, the number of single-family offices in the UK has more than doubled to nearly 1,000, managing more than $1,000 billion in assets. One such company is Sun Global Investments, which manages a portfolio of nearly $350 million, comprised of ultra highnet worth (UNHWs) individuals and families. Based in London, Sun Global Investments focuses on idea-centric and innovative wealth management,

covering emerging and developed markets. One of the most critical aspects that led to the success of Sun Global Investments family office operations was the lack of personalised counsel for UNHWs and families, especially after the economic crisis following which banks were focused more on revenue generation. Udit Garg, head of wealth management, says, “Even for basic banking assistance, there are no resources available in the UK. So UNHW individuals and families felt even more at sea due to the lack of specialized, sophisticated assistance. This is what we wanted to address.” In the UK alone, the number of high net worth individuals stood at 448,000 in 2009, and this number rose to 568,000 by 2016, according to Statista.

INVESTMENT Given the propensity of international businesses and sustained migration, this number is likely to increase over the years, feels Garg. “The role of the family office has really evolved in the last decade. We are witnessing an increase in investors, who are intelligent but lack the time to plan their investments. Family offices act as natural influencers on families as we manage their assets, understand their financial needs and plan their investments.” Infact, Garg says it better.” We look at the emotional side of Financial Needs of our clients first & so its EQ before IQ”. As technology and communication is making the world more connected and accessible, these two factors have even brought about a significant change in investor outlook. There is a heightened increase towards Green investing, with a foreseeable 15%

increase annually. Garg believes this is a reflection of social awareness and investor maturity. “The new generation of investors are keen on paying forward and this ethos reflects in their investing behaviour. While investors are cautious, they are not averse to new avenues of investment, provided they understand the impact and scope for financial returns.” One of Sun Global Investments most popular green investments is Smixin, a smart hand washing system that considerably reduces the use of water and soap. The company is intent on reaching its goal to save 10 billion litres of water by 2021. Sun Global Investments owns a significant part of the company, through investors as well as key management personnel, committing over $10 million in it. This is the company’s first major green investment, and Garg says investors are excited by the prospect

of tangible social change. Moreover, with governments providing incentives and tax breaks for environmentallyfriendly initiatives, which makes it a more compelling cause for investment. Another project that’s in the works is related to tyre recycling, which directly tackles improper methods of landfills in developing nations, in which Sun Global Investments has invested $500,000. Social impact, which can be seen to yield tangible results, is also luring investors who have the intent and capital to spend. Garg explains, “For the longest time, clients were wary of CSR activities as they were unsure of the gains and proposed impact on the masses. There is still a lot of goodwill among wealthy investors, but they’re also equally savvy and smart to ask where their money is being spent.” He elaborated about a CSR activity that Sun Global is working on for one of their key clients, which involves supplying food to the homeless across London’s tube. Not only did Sun Global help carry this out, but the company’s management personally invested in the cause too. Garg says, “Putting your money where your mouth isn’t easy, but wealth managers personally chipping is a huge show of trust and investor maturity. What we do is to ensure this investment is profitable financially and personally.” Financial services across the world is being taken over by technology, but what Garg does is something that thrives on the personal touch. “People come to us with their hardearned money, with the hope that we can manage it responsibly. We bring with us a wealth of real, tangible experience, which I don’t see machines or technology replicating anytime soon.”

editor@ifinancemag.com

International Finance

o common knowledge, investors have always shown consistent interest to pitches from men than women—although the content belongs to the same grade. With times changing, it is now quite obvious that crowdfunding has taken a distinct route by solemnly serving female-led ventures. By that example, Kickstarter has contrasted the institution of inequality by presenting women with fair exposure. To start, Kelley School of Business

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at Indiana University studied Kickstarter’s three years worth of data to examine factors, including entrepreneurs’ gender, financial support and funding rate in a sample of 416 projects. The findings show that women were more likely to receive funding for their business ideas than men. PwC, in collaboration with The Crowdfunding Center published a report created in reference to two years of seed crowdfunding data from nine of the biggest crowdfunding platforms globally, which reads

“that while men clearly use seed crowdfunding more than women, women are more successful at crowdfunding than men. 17% of male-led campaigns reach their finance target, compared with 22% of female-led campaigns. Overall campaigns led by women were 32% more successful at reaching their funding target than those led by men across a wide range of sectors, geography and cultures.”

investment

Here’s why crowdfunding beats venture capital On crowdfunding platforms, women outperform men in numbers—which breaks the normalcy of male-led startup growth and success, as in the case of VCs Sangeetha Deepak

With entrepreneurs sprouting more and more business propositions, there seems to be a subsequent demand for the crowdfunding market. Last year, Technavio’s latest report observed that global crowdfunding market is expected to grow at a CAGR of 17% during the forecast period between 2017 and 2021. Business Wire reported that research analysts at Technavio have identified America to be ‘one of the most developed markets for

crowdfunding’, particularly because the US crowdfunding accumulates more than 85% of the market share and ‘equity crowdfunding is gaining prominence’. In fact, US-based companies are eager to participate in crowdfunding because it is a step closer to access the market directly. In addition to such possibilities that crowdfunding platforms bring— a good marketing campaign can often double the rate of funds collected, and therefore be able

to build a global investor base. Keeping this in mind, entrepreneurs and businesses have realised that crowdfunding is ‘an investment opportunity’ provided ‘by many investors’, around the world. As Brijesh Ujjwal Doshi, a lead analyst at Technavio describes, it has even reached a point, where ‘the crowdfunding market in this region [America] overtook the venture capital model’, and, is often recognised as “the preferred source

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investment

region [America] overtook the venture capital model’, and, is often recognised as ‘the preferred source of revenue for startup enterprises, entrepreneurs and established companies to generate funds.” After realising that tens of thousands of investors show significant interest in crowdfunding, the question is—how is the market challenging the deep-rooted gender bias in investment opportunities? The perks of asking this question while gender bias still persists—is that researchers from Kelley University have investigated the reason behind women-led startups becoming more successful on Kickstarter. The team noticed an interesting pattern after creating mock crowdfunding pitches and videos, which were later shown to 73 amateur investors, settled in the eastern US, reported New York Post. Even psychological tests were used to understand investors’ perception of each entrepreneur, which was largely associated with trust. Entrepreneurs who were seen as trustworthy received the most funding. And they were mostly women. For context, crowdfunding necessitates building trust with funders—which is perceived to be

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higher in women. Regan Stevenson, assistant professor of management and entrepreneurship at Kelley, said: “It’s surprising because previous research in the venture capital setting has shown that typically investors will invest in men, because they view them to be more competent.” In the light of these findings, it seems, in crowdfunding “the perception of competence is less important because this is such an early stage in a project; what’s more important is whether or not, as a funder, you trust the individual behind it. And women, in particular, have an advantage because the gender bias amongst participants was that women are more trustworthy than men.” That said, companies with women CEOs have raised only 3% of total venture capital between 2011 and 2013. According to a 2017 CalTech analysis, male-led startups have better stance in funding from male investors than female-led companies. To combat such imbalance “there have to be alternative ways for women to get started in business and crowdfunding is potentially one of those avenues.”

“

It’s surprising because previous research in the venture capital setting has shown that typically investors will invest in men, because they view them to be more competent

”

editor@ifinancemag.com

The cloud advantage in investment banking Cloud has become an exemplar of “democratisation of IT” in the banking industry because of the opportunity it presents to access “very high-end technology,” says Andrew Rossiter, Head of Technology Services at GFT Sangeetha Deepak

How do cloud solutions help reduce operation costs of investment banks? Reducing cost is not the primary reason to moving to cloud. It is largely to do with business agility. If there is business agility then naturally there will be cost reduction. But if cost reduction becomes the chief goal, then both cost reduction and business agility may not necessarily be achieved. The most important thing is if you look at companies born in the cloud...they have no legacy. They are just created as companies with technology. Cloud can absolutely lower cost, but the root of that is it improve agility and cost reduction will naturally follow.

Are investment banks cautious about migrating to cloud? We did this piece of research and it seems there is huge interest for them moving to the cloud in a big industry. There are big investment banks which

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keep things internal and quiet. But we are also working on early stages with a few financial institutions making huge investments on cloud. It is just not public yet. I think there are already big financial institutions moving hundreds of applications on cloud. For example: HSBC, Google and AWS have migrated to public cloud.

GFT study says investments banks will use public cloud by over 50% in the next five years. Your views? Absolutely, I think that is the case. The problem is the statistics: when they say 50% of banks may use cloud—the usage can mean in very small or large amount. Again, if you look at Barclays they announced a couple of months ago that they have moved everything to Amazon public cloud. Barclays in five years can have a high portion of their on-premises moved to cloud. I think banks will start seeing huge productivity gains in terms of application, rationalisation,

application simplification and business agility. And that will force others to slowly speed up their agility. This is very similar to what happened in the 1990s, when PCs came in. A good term that people use is democratisation of IT, which means what cloud enables you to do: A startup company can have the same infrastructure as Goldman Sachs, JP Morgan, or Barclays. The idea is to

Wealth Management Morgan, or Barclays. The idea is to democratise who can access this kind of very high-end technology.

Apart from business agility, what are the other drivers that push cloud adoption? There is a whole bunch of things. There is the ability to be elastic and that is a very big driver at the momentâ&#x20AC;&#x201D; elasticity

advantageous. So elasticity is a big thing.

What are the key areas in investment banking that necessitate cloud-based models? Certainly, from the GFT side we see a lot of interest in high performance computing and grid computing moving to the cloud. That is a very natural fit. So, we are working with one big investment bank where the risk grid has moved from proprietary platform to using Kubernetes, which is an open-source microservice architecture that Google, Amazon and Microsoft promotes. And that grid is on Kubernetes on-premise but can burst to public cloud as well. Thatâ&#x20AC;&#x2122;s a huge benefit for banks as well. Migrating to Kubernetes from grid and bursting to cloud with so much elasticity is hugely cost saving.

In terms of risk management, how will cloud extend its capabilities?

of cloud. What that means is you can vamp up computing power storage when you need it; and more importantly you can vamp it back down again. For example: If you own a datacenter, you can only expand to the size of the physical datacenter and if you no longer need it, you can knock it down and make it smaller. This way, you end up with a fixed cost. However, with cloud, investment bankers will not have to spend all those servers on a weekend. This ability to scale up or scale back down is hugely

The scale you can achieve on cloud opens up new possibilities. One such bank that was running a risk management on-premise took 6 hours, but once it was moved to public cloud took 6 minutes. What has the risk of running overnight can be run multiple times during the day. Businesses have seen that kind of benefit immediately over multiple scenarios. With cloud there are so many possibilities that was once lacking.

Do you identify more operational models with cloud, or is it a transient process? Initially, people think itâ&#x20AC;&#x2122;s going to be a slow process, but then it ends up being a hockey stick. Suddenly, once things start getting momentum, a whole new level of ideas are possible on cloud. We have seen simple migration projects turn into something

big where businesses say that was much easier than they thought. In the startup community, it would be very expensive for them but now it has become cost-effective. They can have 50,000 accounts per month on their platforms, manage risks in addition to the whole process.

Banks are said to have a limited understanding of cloud. What are the common challenges they face? I think investment banks always hire people. They pay very good salaries but there are couple of issues the banks encounter. First, the kind of nature of work has changed. The younger generation in particular want to work in a dynamic environment. The challenge with investment banking is they are being so regulated. The pace of change is slow. On the contrary, twenty years ago, the pace of change was extremely high. It was a great place to work. Now, there are opportunities for engineers to work in other companies including Facebook, Google, Netflix, or Amazon. They all pay great salaries and provide with good opportunities. The second issue is all companies want to hire people with good experience. There are not too many people with experience of having done this kind of work before. Their track record of success in positively migrating to cloud is the issue. It is complex to find talent with experience, particularly in financial services because it is such a regulated environment unlike other industries. For example: it is not practical to hire a person from a supermarket and place them in banking, and expect them to migrate applications to cloud. This is mainly because the job requires a different level of complexity and regulation.

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Wealth Management

What are the chief regulations banks must have for the sake of cloud adoption? Public cloud has the ability to have an even more secure environment. Particularly, the analogy being onpremise...investment banks canâ&#x20AC;&#x2122;t have security like a castle with high walls to prevent others from getting in. But once an entry is made it is easier to travel around. This is the case with cyber attacks on financial institutions where hackers manage to get in as in the case of a castle. On cloud, security is built differently. The security wall is provided by the cloud provider but one can start securing the application architecture at a very low level. Or even down to a microservice level. So there is a much more layered approach for security. For example: a client we work with is into credit card payment. There has been plenty on the news about stolen credit cards and databases such as email addresses. In such case, we created three separate databases: One database had the credit card information but didnâ&#x20AC;&#x2122;t have the name on it. That was encrypted using one set of keys. Then we had the database with the name and couple of more

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details that were encrypted with a different key. The third was similarly encrypted with a different key and had more personal information. In order to get usable data in cyber attack, hackers should have taken three databases with three different encryption keys. On top of that we changed the encryption keys every few hours. So, even if the hackers managed to get into the databases and identify the keys, they will only have data worth a few hours before the next encryption. Cloud gives its users so many opportunities to secure the platform. This can be achieved onpremise but itâ&#x20AC;&#x2122;s difficult. Therefore, when companies try to implement the castle approach on-premise... it is easier on cloud. On the regulatory side, there are about 60 regulators or perhaps even more internationally. This means, international banks will have to comply with tens of regulators. The bank I mentioned earlier had to get a sign off from regulators and it successfully managed to from most of them. There is a strong willingness from the regulators, certainly in major financial areas that banks work for. This is also because regulators can see the advantages of migrating to cloud.

Your suggestions to improve cloud regulations? It is pretty tough because the regulator environment is fragmented, and that is a challenge. The cloud providers are very standardised globally like Amazon or Google. This is a very similar infrastructure globally. Major cloud providers are working very closely in order to make significant changes...so they are somewhat regulatory friendly to begin with. There is a lot of work done by the likes of Google and Amazon to create that platform. Regulators are happy with the data is being treated and distributed. One example would be there is a huge amount of work going behind the scenes with banks, regulators and cloud providers. Perhaps, this is not reported often. In the last few months, we have seen a huge improvement in making the industry more straightforward. There are tens of regulators globally, and there is definitely a lot of work invested to make this easier.

editor@ifinancemag.com

Everyone now has some idea of RPA and AI, but we need to focus on how to grow the programme and move to the next step to demonstrate the value and return on investment to the business 2nd Edition

RPA and AI in Financial Institutions Practical case studies on how financial institutions have built the capability to scale up their RPA projects on the journey to AI, machine learning and chat bots 5th – 7th December 2018 — London, UK Attending This Premier marcus evans Conference Will Enable You to • Develop a lean and efficient financial institution by deploying valuable and quantifiable use cases for RPA to accelerate digital transformation • See how financials are augmenting the business with tried and tested AI, machine learning and chatbots, which move beyond basic application • Scale-up RPA initiatives by advancing core legacy processes with automated solutions integrating the IT landscape of financial institutions • Manage the risk arising as RPA and AI programmes grow to span throughout the enterprise of financial firms by considering the infrastructure to support such maturity • Design the ideal team setup and business model required to achieve buy in and create an agile culture supporting RPA and AI

Learn from Key Practical Case Studies • Barclays ensue your strategy and implementation for RPA and AI is an appropriate match for your level of sophistication • AXA IM advance their existing RPA implementation to further maturity and identify key sources of value for your financial institution • KBC address and overcome key challenges as a result of implementation of AI across your financial institution • ING examine how to incorporate regulatory and risk considerations into your bot development • Deutsche Bank discuss what you need to extend your project from RPA into AI

Expert Speaker Panel Vinita Ramtri Head of Controls Automation Barclays Michel Smook Head of Robotics, Wholesale Banking ING Berndt Müller Chair AISB Angel Serrano Head of Data Science Santander Martin Malengier Project Lead CoExcellence Robotic Process Automation Belfius Insurance Richard Frost Lead Enterprise Architect YBS Group Ruben Audanaert Head of Data Analytics and AI Development KBC

Business Development Opportunities Does your company have services, solutions or technologies that the conference delegates would benefit from knowing about? If so, you can find out more about the exhibiting, networking and branding opportunities available by contacting: Melini Hadjitheori, Digital Markering & PR Executive marcus evans Cyprus Tel: +357 22 849 308, E-Mail: MeliniH@marcusevanscy.com

conferences

Business

Will Trump Winery carry on the legacy of wine culture in America? After Napa Valley’s formative history, other quintessential vineyards are rapidly changing as a result of the rich in modern-day USA

Sangeetha Deepak

n 1850, Captain Joseph W. Osborne settled in California. The following year, he decided to purchase a tract of land sprawling fifty acres south of Yountville and christened the place Oak Knoll: the most antiquated grape growing area of Napa Valley. He was the first to introduce vine cuttings of the superior European grape varieties in the state. But some say, George Calvert Yount, who was the first Euro-American permanent settler in the county willed the first plantings in Napa. It is as yet unclear whether Osborne or Yount should be granted the legacy of founding the Napa tradition. But referring to the writings of historian Charles Sullivan: “Had he

[Osborne] not been murdered by a former employee in 1863, history might well have named him the father of Napa Valley’s fine wine industry.” In fact, in 1856 Oak Knoll was titled the state’s best by the California Agricultural Society. Osborne along with Agoston Haraszthy, who is often referred to as Father of Modern Winemaking in California, formed the Sonoma-Napa Horticultural Society. However, Napa is just one of the many vineyards that contribute to California’s wine grape harvest: nearly about 4%, which represent 0.4% of the world’s wine population, observed Napa Valley American Viticultural Area AVA.

International Finance

Inspired by Napa, modern-day ‘America loves wine’: By numbers, its yearly sales are over $13 billion, observed the Trade Group Estimates. Yet. There seems to be an incompatibility in the country between fond wine drinkers and the ones that look for footing with the elite class. Seven years ago, current President of the United States Donald Trump purchased Virginia’s Kluge Estate, in Albemarle County “because wine is incredibly sexy.” The 1300-acre property holding a vineyard, a winery and a wine inventory once belonged to the ex-wife of John Kluge, a GermanAmerican entrepreneur, who at the time was the richest person in America. His ex-wife Patricia Kluge was convinced that good wine can be made in Virginia. In the 1990s, she laid out a vineyard in the estate after receiving advice from Gabriele Rausse, and Michel Rolland, a profound winemaking consultant at the time. “Patricia was committed to making the best wine in the world,” said Rausse. “… I respect her for what she did for Virginia wine.” The Kluge Estate Winery and Vineyard sprawling 960 acres was established with a foresseable future to produce top-class wine. Today, the inclination toward the wine industry has

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proven to be a very lucrative fascination. By definition, it is somewhat a self-reward for mostly wealthy people who are gladly ignorant of the knowledge of vines a vintner must have in possession. The Trumps conquered the Kluge property in a manner that it “fell naturally into our acquisition strategy,” Eric Trump said. “We now own the biggest contiguous vineyard on the East Coast.” It seems, there is a great deal of pride involved. Or for that matter, none of the Trumps appear much interested in the glory of vineyards, except that it’s emblematic of their gentry to have one in their possession. Thanks to the modern evolution of vintner hood, the making of wine is no longer able to cherish the grape vine cultivation of the 50s...but has only become a striking version of viticulture. At the Trump Winery, nearly 20,000 cases of Trump Chardonnay rosé, Viognier, and more varieties are shipped yearly to 26 states and 4 countries, reported 2016 Wallace House. It is important to be cognisant of the fact that the perception of the industry and passion for wine within the Trump family—or for the rich in general,

Business

industry and passion for wine within the Trump family—or for the rich, in general, has become cosmetic as a result of them trying to embody a disillusioned understanding of the wine culture in America. “We own the finest golf courses and hotels in the world. Now wine’s part of that world,” Eric said. Trump still employs Kluge’s winemaker, Jonathan Wheeler. The estate was renamed as Trump Winery after the transfer of ownership. According to Eric, his father doesn’t drink: The buy is only because “It fits in with our company. It’s luxurious as well, particularly when combined with a grand house.” In early 2013, the Winery applied for a special-use permit for an 18hole golf course to be developed on the property. “All we have to do is cut the grass,” Eric jokes, meaning that his unapologetic views on the development of the property

are aimed to ensure that “Trump properties have to be the best—clubs, hotels, houses. We pride ourselves on this.” Nonetheless, the Albemarle County board of supervisors declined the application. So, in response, President Trump appealed directly to Virginia governor Terry McAuliffe. “After many acquisitions and tireless efforts,” he wrote, “I reassembled the estate, reopened the winery, and invested tens of millions of dollars, far surpassing the magnificent property’s former glory.” For many people, the move is jarring. It seems the Trumps’ persistence to have a golf course on the property amongst other developments signify a lot about their oblivious views on social discord—largely torn between commercial reasoning for development and agricultural sustainability—as James Conaway, author of Napa At Last Light: America’s Eden In An Age Of Calamity, describes in his essay: Rich People Are Ruining Wine. Conaway points out: there is always a “lifestyle vintner… a type of hobbyist investor who makes money in another field and then buys into wine, mostly for the social and financial cachet.” However, “Trump is but the most famous of them.”

“

We own the finest golf courses and hotels in the world. Now wine’s part of that world

”

editor@ifinancemag.com

International Finance

Open banking and a forex companyâ&#x20AC;&#x201C;complete customer satisfaction London-based international payments and forex company, Caxton, recently procured its FCA licence to launch its open banking solution. CEO Rupert Lee-Browne talks about these services, the relevance of tech in financial services and more Sindhuja Balaji

he phenomenon that is open banking is a classic case study for new-age businesses to thrive. While the concept was initially received with a lot of scepticism, banks are now embracing the myriad of possibilities through open banking as a step closer to digital transformation. In light of this slow but definite change of mindset comes news that Caxton, a London-based international payments and forex expert, obtained its licence to roll out an open banking solution for its platform earlier this year. The Financial Conduct Authority (FCA) authorised Caxton to provide two new services, through which Caxton’s customers will have visibility of each individual account they hold with their other banks, whilst they use the digital platform provided by Caxton. The company states that this will make payments faster and more convenient in multiple currencies.

Caxton’s Approach to Open Banking Rupert Lee-Browne, who started the company in 2002, believes innovation is a cornerstone to success and creating new opportunities in the financial services industry. And open banking is a phenomenal opportunity to achieve this, he says. “Open Banking gives companies like Caxton access to information that we wouldn’t have been able to obtain otherwise.” Through the newlyacquired AIS and PIS certifications, Caxton is excited at the prospect of serving customers more efficiently. The changing mindset can be attributed to the quality of technology being developed and the variety of use-cases they solve. Caxton has partnered with Token, its main technology provider to roll out AIS and PIS. AIS is Account Information Service, a new type of regulatory permission that allows customers to view multiple payment accounts with different firms through their online access at one

CURRENCY payment firm. PIS stands for Payment Initiation Service—this new regulatory permission allows customers to authorise a financial transaction between two accounts after they have been linked by the customer. AIS is useful to procure information about client transactions and history, while PIS allows Caxton to make transactions on behalf of the client with their permission. Earlier this year, Caxton integrated with Token to enable customers easy loading of their prepaid currency cards with funds directly from their bank accounts via Caxton. Diverting payments through Token, as opposed to debit card rails decreases the cost of payment acceptance by more than 50% and enables instant processing. According to the company, this new settlement time frame improves cash flow management. Lee-Browne says, “With technology, we’re able to achieve so much. Not only is tech making diverse use cases possible but is also very safe.” Caxton processed millions of transactions last year and has an annual turnover of more than $1.1 billion. For the next year, Lee-Browne is aiming to address the currency needs of corporates and SMEs, which he believes are quite under-served.

Innovation a Cornerstone for Success At Caxton This need for innovation is not new for Lee-Browne. He started Caxton 15 years ago with a telephone and 25,000 GBP in hand, and launched a prepaid currency card service that was unheard of. Thanks to a Google ad, he procured his first client in less than 20 mins and the ball hasn’t stopped rolling ever since. “What I’m proud of is our organic growth in acquiring clients. When we launched, we witnessed a need for currency cards and dove into making that a reality for customers. Today, with buzzwords like open banking and advanced tech, our endeavour is to keep the suite of new services and

products rolling that are in line with the current market needs.” Lee-Browne is very perceptive of the change in mindset towards tech as he believes conventional organisations have finally understood that tech is here to promote business, mitigate overhead costs, enhance innovation and generate new revenue streams. Particularly pertaining to his line of work, Lee-Browne is of the firm belief that technology only makes customer service better. “If you combine tech with customer service, you don’t need to go by the old adage of tech will replace customer service. I think the two go hand-in-hand. Technology should enable us to serve our customers better, not look to replace human interactions.” When Open Banking was introduced, there was a lot of nervousness among banks, admits Lee-Browne. And though its been eight months since Open Banking rolled out, progress has been slower than anticipated. Lee-Browne says, “New concepts and services have always taken time to grow on people, especially in the payments space. Contact-less payments, for instance, has taken more than a decade to gain the popularity it enjoys today.” He anticipates that banks will continue to be selective about who to work with, but attitudes are definitely changing, and this could spell a positive time for companies like Caxton and hundreds of others that have cutting-edge tech and innovative customer service solutions.

editor@ifinancemag.com

International Finance

Currency volatility combated with this new monetary system

International trade is growing at an astonishing rate, which has a direct impact on currency. Kinesis, a digital yield-bearing currency, could provide a solution to currency stability that goes beyond centralised or monetary banks

he world is becoming increasingly more global, with borders breaking down and international trade climbing at an astonishing rate. With globalisation becoming the norm, any organisation engaged in foreign trade falls at the mercy of currency fluctuations and the volatility that this brings. With such an emphasis on the open global market, exposure to currency volatility has a direct and significant impact on any organisation’s bottom line. With recent Brexit negotiations becoming more tenuous by the week, UK businesses are scrambling to secure a safeguard, should pound sterling plummet in light of Great

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Thomas Coughlin Britain crashing out of the EU next March. Speculation around a no-deal or similarly dubious Brexit outcome has already spiked the sterling’s “‘fear gauge’”, a closely-monitored instrument which measures the cost of hedging against big depressions in the currency. Indeed, currency volatility is a major cause for concern around the world. Various centralised banking policies and differing degrees of political instability have a profound effect on the stability of international currencies, exposing international organisations to potentially dangerous movements in currency fluctuations. Such exposure has only served to discourage

international trade1 and stifle globalisation campaigns, with nearly a third of UK organisations stating that they expect their level of foreign trade to fall significantly in light of dramatically swaying international currency volatility. With such volatility being observed worldwide in recent decades, the market has presented an opportunity for a new means of decentralised trading, a market gap which was filled by cryptocurrencies which trade on the blockchain. Despite initial optimism, this model proved to have its own unique shortcomings with dramatic price volatility occurring over unprecedented short time frames.

CURRENCY

Four years’ worth of volatility in the stock market can be covered in a month of pricing movements in the cryptocurrency markets. This limits cryptocurrencies usability as a reliable trading platform and renders the currencies almost redundant. Evidently, a complete overhaul of current international trading currencies and principles was needed. A monetary system that combines the age-old, relative stability of trading with precious metal commodities such as gold and silver and the efficiency and speed of trading. Fulfilling this gap prompted the conception of Kinesis Money, a new monetary system that links the dependability of trading with gold and silver commodities with the digital efficiency of trading on through blockchain technology. Digitising gold and silver commodities on a 1:1 basis paves the way for addressing the inherent instability of crypto coins as well as the uncertainty of trading with foreign currencies. It’s a currency that mimics the fixed article of exchange. Consider Gresham’s law of economics; this concept stipulates that ‘bad money drives out good’, which promotes “hoarding” of the currency which is deemed more valuable, given that the two stores of value have the same base price. This concept is problematic as it drives out more stable currencies from circulation and promotes a global

move towards trading with volatile systems like international currencies. Introducing a new monetary system overcomes this by incentivising organisations to use currency through multi-faceted yield systems based on international participation and velocity. This makes the Kinesis Monetary System an appropriate tool for commercial exchange. The ultimate aim for any global organisations is to successfully operate in our global market without the overbearing stress that stems from the instability of being exposed to the tumultuous nature of global currencies. Adopting a decentralised, asset-based monetary system that combines new world technical advances with old world, widespread commodity trading presents as the way forward to secure an efficient store of value. This is especially important in an uncertain post-Bexit world, where foreign trade must be promoted and UK companies are incentivized to maximise their exporting potential whilst dealing with economic constraints and currency fluctuations as a result of political uncertainty.

worked in the investment, funds management and bullion industries for approximately seventeen years. His professional portfolio management career spans the foundation of the boutique investment company, TRAC Financial, to the establishment of a highly successful Absolute Return Fund. Thomas has dedicated a significant part of his career working collaboratively to build the complex systems of a cross-border international bullion market with an extensive global network of central bankers, brokers, fund managers and advisers. His experience, extensive network and broad knowledge of capital markets, enable him to deliver exceptional value and insight to all stakeholders.

About: Thomas Coughlin

editor@ifinancemag.com

Thomas Coughlin is the Chief Executive Officer (CEO) of Kinesis Limited as well as Allocated Bullion Exchange (ABX). He has

International Finance

Insurance, the next digital sector in the Internet age The industry is taking its cues from customer expectations, which has become the subject of interactive digital platforms, examined to be a prerequisite for living the life of a millennial Sangeetha Deepak

ore important for many incumbent insurance companies is the sector’s transformation in the age of the Internet. For a long time, the traditional approach to an insurance business model had been embraced by everyone because it tends to humanise interactions between both customers and agents. As things are, nearly every sector is looking to automate and digitise its business model: from sharing information to customer interaction to business collaboration. Leaving behind an exception: The insurance sector has reflected a slow progress in digital disruption. For this and other purposes, the sector is swiftly warming to the idea of digitisation. Digitalist Magazine noted that according to IDC, “enabling contextual and meaningful interactions across the customer journey—and across multiple digital channels,” is a chance for insurers to reinforce their core business models. For example: Insurance platform Slice has come to the realisation that by automating its processes—there is a fair possibility to trim down 65% of business cost, reported Forbes. The company has

Insurance built a wholesome website to bring data to customers. The process is quite simple—one-click to draw any relevant information. As the McKinsey report reads: By and large “Automation can reduce the cost of a claims journey by as much as 30%.” For companies, the symptom to not understand the fundamentals of convenience that customers want is a major obstacle, or worse it becomes increasingly challenging to produce attractive numbers. It appears that “leading companies are using data and analytics not only to improve their core operations but to launch entirely new business models.” Companies such as MassMutual, Grange Insurance, Nationwide and Safeco are analysing data to comprehend customer lifestyle for the sake of personalising offers and ensuring an interactive experience. As discussed by IDC, a data-rich world is more accurate to assess individual risk against historically established case records because the former solely seeks to understand real-time consumer behaviour patterns and individual choices. “Insurers of the future will play more of a risk avoidance role and less of a risk mitigation one,” Andrew Rose, CEO of US insurance comparison

“

Leading companies are using data and analytics not only to improve their core operations but to launch entirely new business models

”

website Compare.com, said. Such experts’ argument for the sector going digital has been proven exact by real instances. MassMutual is carrying out a data mining exercise on social media to classify customers more sensibly. The outcome will help to position products and services with more relevance to the market. Overall, modern insurance companies are understanding the new challenges and opportunities that alter the sector’s presence in the market. This points to the digital forefront. This means, insurers can “price and underwrite more accurately, and better identify fraudulent claims,” the report stated. To the question of how they can apply this exercise, the answer is, by using this force they can offer clients more enhanced products. Case in point: “auto insurance that charges by the mile driven.”

editor@ifinancemag.com

International Finance

Artificial intelligence versus regulation: friends or foes? Regulation is the most frequent knee-jerk response to any such question of ‘what if…’. However, many regulators are cautious about imposing regulation in a vacuum, seeking to prescribe or proscribe technologies rather than focusing on particular applications of technologies Roseyna jahangir

s we stand on the threshold of the Fourth Industrial Revolution, the landscape ahead includes developments in areas such as blockchain, internet of things, and nanotechnology: developments that are taking place at a faster rate than many of us are able to keep up with—or even easily comprehend. Artificial intelligence (AI) is one of these very interesting areas of development that could revolutionise our day to day lives, much as the internet did in the last century. The term AI is often used to refer to the development of computers, computer programs or applications that can, without direct human intervention, replicate processes which are traditionally considered to require a degree of intelligence, such as strategy, reasoning, decision making, problem solving and deduction processes. For example, an AI program can use algorithms to analyse datasets and make decisions and take actions based on the output of the analysis—an analysis that would traditional be done by a human. AI programs can also be developed to interact with people in ways that mimic natural human interaction, for example in online customer service support— sometimes in to an extent that the difference is hard to recognise (the ‘uncanny valley’). Potentially AI has the potential to supplant a great number of human processes, and it can do so cheaper, faster and without human error. However, in practice the current applications and opportunities are much more limited and constrained by practical factors such as the sheer processing power that is required, especially pending a breakthrough in quantum computing, and ‘design’ limitations such as the inability to learn by extrapolating from limited failures, or to apply common sense to scenarios. Is this development a good thing?

OPINION AI can cut costs, eliminate human error, and potentially make products and services available to those who might not otherwise be able to access them. But what about the possible downsides? 50 years ago, in the film 2001: a Space Odyssey, an AI slowly turns from being the humans’ assistant, to pitting itself against them. HAL, the Heuristically programmed ALgorithmic computer, ‘realises’ the fallibility of humans stands in the way of it achieving its operational objectives, and therefore seeks to remove these obstacles. Presciently, this film encapsulated many of the present concerns about AI—what will stop the machines ‘deciding’ to exercise the powers they are given in a way that we don’t like? For example, what is our recourse if we need a computer to evaluate a request from us, such as deciding whether or not to accept a job application, and the computer says no? We can try to appeal to other humans on an emotional level, or challenge the basis for their decision; a computer programme that is implacably based on an incomprehensible algorithm does not present that option. Regulation is the most frequent knee-jerk response to any such question of ‘what if…’. However, many regulators are cautious about imposing regulation in a vacuum, seeking to prescribe or proscribe technologies rather than focusing on particular applications of technologies. The well known risk of doing otherwise is the outcome that technology will develop so quickly that regulation will always lag behind. In the financial services space, AI has already been making inroads on market practices, as evidenced by: • Behavioural Premium Pricing: Insurance companies have been deploying algorithms to, for example, price motor insurance policies based on data gathered about the prospective policyholder’s driving habits.

About: Roseyna Jahangir

Roseyna is a member of the financial services team at legal firm Womble Bond Dickenson, where she provides practical advice and assistance on a broad range of financial services issues, including the requirements of the Financial Services and Markets Act and the Consumer Credit Act and related rules and regulations, financial promotions, applications to the Financial Conduct Authority for authorisation and for variations to permissions, the requirements of the Payment Services Regulations and the FCA and PRA’s rules. You can reach her on roseyna. jahangir@wbd-uk.com

International Finance

• Automated decision making: credit card companies can decide whether or not to grant a credit card application based on data gathered about the applicant’s spending habits and credit history as well as age and postcode. • Robo-advice: a number of firms have developed offerings that can provide financial advice to consumers without the need for direct human interface, based on data input by the customer regarding means, wants and needs etc, and measured against product models and performance data to find appropriate investments. Automating these processes with AI offers the ability to manage downwards the costs of servicing a given market while potentially eliminating rogue variables caused by human fallibility. AI could thereby help to make financial services products more accessible to the public, enabling them to be offered at a price that is affordable to a greater section of the public. However, we cannot forget

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potential risks: what if an insurance pricing algorithm becomes so keenly aligned to risk that a segment of higher risk, and potentially vulnerable, customers are effectively priced out of the market? How can an algorithm be held accountable if a customer feels that a decision about their credit card application was wrong? And what if the questions about investment intentions are too focused on what customers say they want, and miss out on the nuances of a customer’s wishes and fears that an experienced human advisor may know to pick up on and pursue? What could the regulators do to address these potential risks, and the consumer detriment that would ensue if they materialised? One option, and likely only part of any solution, is to ensure firms are mindful of the consumer and market protection outcomes and objectives at the root of the regulations with which they must comply, and they will be held accountable when their products and services fail to deliver those outcomes. For example, the UK’s Financial Conduct Authority (FCA) requires firms providing services to consumers to ensure that they are treating their customers fairly, and being clear, fair and not misleading. The onus is then on firms to ensure that whatever new developments they have, these outcomes are consistently being achieved. For the insurance firm described above, this could involve paying close attention to the parameters and design of the algorithm, to ensure that, for example, a certain pricing threshold

is not breached. For the credit card firm, this could be ensuring that if a customer’s application is declined, they are provided with information about how that decision was reached, and what factors it was based upon. For the robo-adviser proposition, this could involve a periodic review of investments and portfolios by a human adviser. Practically, regulators will need to work with firms to ensure that the need to comply with such outcomes does not block development. Since 2016, the FCA has made available a regulatory ‘sandbox’ for firms, to let them develop new ideas in a ‘safe’ surrounding, to contain risks of customer detriment while products are in development, and to offer support in identifying appropriate consumer protection safeguards that may be built into new products and services. The FCA is now exploring the expansion of this sandbox to a global staging: working with other regulators around the world to support firms that may offer their products in more than one regulatory jurisdiction. The FCA has also been meeting with organisations who are working to expand the current boundaries and applications, at specialist events around the UK, such as the FinTech North 2018 series of conferences, which raise the profile of FinTech capability in the North of England. By working together to balance potentially competing factors such as technological development and consumer protection, regulators and the industry may be able to provide a stable platform to develop AI, while overcoming or at least assuaging the potential fears of the target audience for these developments. In 2001: a Space Odyssey, the conflict between AI and humans was only resolved by the ‘death’ of the AI. Let’s hope that in real life, a way of co-existence can be found instead. editor@ifinancemag.com

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Overcoming the Brexit communication challenge The UKâ&#x20AC;&#x2122;s pending withdrawal from the EU is expected to pose numerous challenges to businesses, and specifically place a burden on communication models

David Goulden

OPINION

here are numerous uncertainties and challenges businesses need to tackle in the face of the United Kingdom’s impending withdrawal from the European Union and, for those looking to move people to new locations due to Brexit, maintaining effective communication among employees across new and far-flung locations is a big one. In banking and finance, where ensuring teams are able to correspond and collaborate in real time is absolutely critical, the uncertainty surrounding what workplace communication will look like in a post-Brexit world is even more of an issue than it is for most other sectors. For many industry players, there is a lot riding on maintaining the same level of internal cooperation they have enjoyed previously—whether London remains Europe’s primary financial hub or not. Many banks and other financial enterprises are already moving to protect themselves with London’s once unassailable position as the bridge between the EU and other regions such as Asia and North America under threat. With a no-deal Brexit a genuine possibility, they are now choosing to hedge their bets and not wait to see if the UK walks away from negotiations with the EU with a bespoke arrangement. A large number of banking and finance businesses are looking into

—or are already are—moving some operations to mainland Europe to minimise any potential disruption from Brexit. German broadcaster Deutsche Welle has reported that some 50 London-based banks have approached eurozone banking regulators about relocating key services from London to rival EU centres. The Japanese bank Nomura, which currently employs over 2,000 people in London, has already announced it will use Frankfurt as its trading hub once the UK leaves the EU—with German officials claiming another 20 banks have already committed to launching new operations there. Clearly, Brexit is making it increasingly likely that banking and financial service organisations will relocate employees, and one of the immediate effects is that more teams will be scattered across multiple time zones and locations with more employees likely to be working from different locations—including their homes. As a result, it is crucial that the right tools are in place before this change takes place to ensure teams can communicate effectively and implement a standardised and coordinated way of working so that employees are not juggling multiple applications and communication platforms to collaborate on projects, monitor progress, manage resourcing, and stay on top of deadlines.

Fortunately, there are tools that can be employed to transcend borders and time zones and so ensure teams at different locations keep on the same page—in real-time.

Collaborating across borders Teams working across multiple locations—whether in offices in different geographies, travelling to conferences or to see clients, or working from home—is not new. In fact, workplace flexibility has increasingly become part of the package many businesses offer. However, despite its surge in popularity, there are still challenges that businesses struggle to overcome in order to maximise efficiency. These include limited access to the most up-to-date files, difficulties in communicating with colleagues, knowing which tasks to prioritise, and even struggling to feel part of the team. Banks and financial services companies need to ensure that these issues are addressed before Brexit takes place. Otherwise, they will have to deal with the negative impact having teams working from multiple locations can have on effective collaboration, productivity and business agility. Relocating operations is just one area of business that the industry will need to navigate as the UK moves to withdraw from the EU.

International Finance

OPINION

Other areas such as internal company restructuring, product and services analysis and engagement planning will also need to be considered—which is why it is so crucial that teams have tools that support a coordinated work environment during this period of change. What can help achieve this is a cloud-based platform that enables real-time collaboration across locations and empowers teams to coordinate workflow, track progress, align goals, allocate budget and meet deadlines from any device and location.

Overcoming communication overload When it comes to improving collaboration among teams, it is tempting for businesses to select an array of popular applications focused on improving communication. Many businesses have fallen into the trap of choosing social media apps to facilitate easy and frequent employee discussion—such as WhatsApp and Facebook—in the belief they would streamline communications between workers and minimise long email chains that result key information being missed, causing delays and confusion. Others have turned to communication apps. A global Clarizen survey showed that, in the

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past year, companies deployed one or more of the following apps to improve productivity: Skype (39%), Microsoft Teams (14%), Google Hangouts (8%) and Slack (7%). What many organisations have found, however, is that such applications can in fact hinder productivity by encouraging nonwork chit chat and oversharing of irrelevant professional information that doesn’t bring employees any closer to meeting business objectives. Even those more focussed purely on communication tend to overload people with numerous notifications and interruptions and can become yet another conduit for office banter, all of which negatively impacts productivity. Having layers if communication via various apps and platforms is symptomatic of a modern workplace malady: ‘communication overload’. It leads to workers struggling to stay on top of an endless stream of unfocused messages, meeting requests and unnecessary interruptions. Clarizen’s research indicates that, in the end, apps that fail to directly link communication to business activities, aims and status updates actually prevent fruitful collaboration, effectiveness and efficiency: 81% of respondents said that, despite taking steps to improve communication

among employees, they still lack a way to keep projects on track and provide management oversight. Only 16% of the companies surveyed said productivity levels were ‘excellent’— while a nearly quarter said they we ‘just OK’ or ‘we need help’.

To Brexit and beyond The Brexit-related communication and collaboration challenges banking and finance players face could put revenues and profits at risk. However, organisations should look at the change needed to overcome the challenges as an opportunity to nurture a more productive and collaborative environment that can boost business agility. Even though it’s not clear what Brexit the UK will get, banking and finance organizations can minimise any potential disruption and even gain a competitive advantage by providing their employees with the methodology and tools they need to succeed—a common approach and single shared platform that keeps each team connected and able to stay on top of their objectives. editor@ifinancemag.com

Assessing the Impact of Blockchain on Business Models Blockchain does not need to be used for it to be disruptiveâ&#x20AC;&#x201D;simply the threat of usage might be sufficient to disrupt existing markets and undermine long-established businesses Thierry Rayna

hile much has been written about the disruptive impact of blockchain, and at a time when large companies are multiplying ‘PoCs’— Proofs of Concepts—to attempt to make sense of its disruptive potential, it is a good time to take a step back to assess the actual transformational potential of blockchain. Launched in 2008 by the mysterious Satoshi Nakamoto, blockchain is the underpinning mechanism of Bitcoin, which explains why the two— blockchain and digital currencies— are often confused. Blockchain is very often a poorly understood technology—so complex, in fact, that its intricate details remain obscure to all but a handful of experts. And yet, when it comes to assessing the impact of emerging technologies, the devil is in the details. Blockchain is a decentralised shared ledger that can store various forms of information (e.g. records of transactions, computer code, archive entries, digital content). Because the ledger is entirely decentralised, i.e., no central `authority’ vouches for its authenticity, it is not only essential that everyone has the same version of the ledger, but also that no one can tamper with it. This is where the power of blockchain resides. It makes adding new entries to the ledger significantly costly—by means of complex computational problems that need to be solved—so that tampering with the ledger would effectively be infinitely costly. As a result, no central authority is needed to maintain and update the ledger. Coming from nowhere, with no support aside from its users, the incredible development of Bitcoin, and its rapid growth in popularity as well as in value (e.g. from USD 2,000 to USD 17,900 between June and December 2017) has led to the wildest fantasies. In the context of booming Fintechs and across-theboard ‘uberisation’, companies have been seeking to make sense of

OPINION upcoming disruptions caused by the blockchain technology. Use-cases have been identified in finance, supply chains, insurance, pharmaceuticals, government, military, etc. Yet, such sudden infatuation tends to happen, with every new technology. Technology basically blinds us to the point that we forget that it is nothing without usage. Emerging technologies (think laser, 3D printing, and even PCs) often remain for decades ‘solutions without a problem’, as none of usages initially envisaged end up making sense. It is when the right usages finally emerge (optical disks, for instance), that they become suddenly disruptive. Instead of speaking of ‘disruptive technologies’, we should really be speaking of ‘disruptive usage’.

So what does this mean in relation to blockchain? The many envisioned usages— exchange of financial assets, microlending, food and shipment tracking, digital identity, smart contracts, e-government, drug authenticity checks, etc.—are all very interesting, but none of them effectively require blockchain—a well-functioning, secured platform would work just as well. For all these use cases, it is easy to find existing, similar activities that do not involve blockchain to any extent. In fact, it could be argued that blockchain is sometimes so poorly understood that it has become a new synonym for ‘digitisation’.

If all could be done without blockchain, what would be the advantage of doing things with a blockchain? Blockchain is secure, but so are the many banking, financial, and public services we use every day. The (only) real advantage of blockchain is that it is completely decentralised and does not require pre-existing trust. But there is a catch. First, there are limits to the ‘trustlessness’ of the system; only what is happening on the blockchain is guaranteed. For

Prof.

Thierry Rayna,

PhD, is a professor of Innovation Management at École Polytechnique, within the Department of Innovation Management and Entrepreneurship, and a researcher at the CNRS i3-CRG (Management Research Centre, Innovation Interdisciplinary Institute). anything else (swapping Bitcoin for $, tracking physical goods, etc.), you have to trust that the other side of the deal will indeed happen. Secondly, the ‘trustless’ environment comes at a significant cost: for it to be fully decentralised, secured, and not require trust, blockchain requires a ‘proof of work’ to make it impossible for anyone to tamper with the ledger. This means thousands and thousands of ‘miners’ carrying out simultaneously highly intensive computer calculations so that one of them wins the right to add a new entry in the ledger. All the rest is basically wasted. Many studies have pointed out that Bitcoin is exceedingly wasteful: a single Bitcoin transaction leads to a

International Finance

OPINION

consumption of several hundred kWh of energy, enough to power a house for a couple of weeks or run a fridge for a whole year. Clearly, a well-designed ‘traditional’ platform would be much more efficient (and just as secure). While attempts have been made to overcome this issue, removing the ‘proof of work’ creates problems of its own. Indeed, for the system to remain secure, it has to remain infinitely costly to tamper with it. The only way to decrease this cost is to establish (or assume that there is) some form of trust in the system and/or decrease its degree of decentralisation.

Bearing this cost in mind, what are the key usages of blockchain? Only two really stand out: when one does not want to use a middleman or when one would like to use a (trusted) middleman, but one cannot be found. While the first usage is clearly fringe, the second is the source of the actual blockchain disruption. While predicting the future is always difficult (especially in the case of emerging technologies), considering the current and foreseeable state of the technology, it is unlikely that any sizeable company will find blockchain of significant interest for its core business (though they might rebrand existing services

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as ‘blockchain’ anyway). Likewise, any small or emerging structure that may have no choice but to use blockchain (for lack of a trusted intermediary or authority) will most likely eventually, as they grow, find it more fitting to use a more centralised platform. However, the critical point is that blockchain does not need to be used for it to be disruptive. The simple threat that it might be used might be sufficient to disrupt existing markets and undermine established businesses. In fact, blockchain might even be the last piece of the ‘digital disruption puzzle’. Indeed, digital disruptions, whether related to content, services, and, tomorrow, manufacturing, all require a trusted, central intermediary/platform (e.g. Facebook, Airbnb, eBay) to develop on a significantly large scale. Until such a trusted intermediary emerges, disruption has to wait. Blockchain helps kick-start things much more rapidly and on a much smaller scale—any niche, regardless of how insignificant it may appear, can be explored. While blockchain is unlikely to be used to compete head-on with established businesses, it will do so sideways, exploring new usages, new ways to do things, with new actors and stakeholders. Incidentally, disruption might not be visible for a

long while, until it appears that the activities of established businesses have themselves become a niche in a much wider market they no longer control, just like it happened with the music industry,still pursuing highquality audio with DVD-A and SACD, when all people wanted was low-fi MP3 to take on the go), or the hotel and taxi industries with people renting couches or sitting in a stranger’s car. To sum up, change is coming, but not in the way we envisage it. In this brave new world it has unleashed, blockchain might not even play a significant role—who uses peer-topeer networks now that Netflix and Spotify exist? Meanwhile, it is time to take a good pair of sunglasses to finally see blockchain for what it actually is: a niche technology whose very existence might nonetheless disrupt even the most established players, by facilitating market entry. But the fact that anyone can enter a market does not mean that they will. It is for established players to radically change their business models to ensure that they remain tomorrow the central players of a much wider ecosystem. editor@ifinancemag.com

Cloud Computing â&#x20AC;&#x201D;Surviving in the Era of Regulation

The goal of the cloud is meant to be data globalisation, but the obstacles being put forth by countries has led to data localisation Nikit Kothari

OPINION

he rise of big data and the cloud was supposed to make distributing applications and data easier for global banks and other financial services players. A key benefit was to have a single location from which to run applications and store data, making the process cheaper and easier. With the influx of regulations coming into fruition however, the process, and consequently its desired outcome, have had to shift. As a result, banks will need multiple environments based on country or regional requirements, or to implement a hybrid cloud approach, to facilitate the storing of their data. From a data perspective, the goal of the cloud is data globalisation, where users are given access to a golden copy of data regardless of where they are located. However, in reality, due to the obstacles being imposed by many countries, data localisation is occurring instead. Such developments have caused uncertainty around the quality and accuracy of the data. This in turn reduces its credibility and raises questions over the cloudâ&#x20AC;&#x2122;s ability to thrive in a sector which continues to become ever more regulated.

Importance of Personal Data By default, data protection and privacy regulations are supposed to create tight controls on flows of personal data outside their respective countries through requirements such as data centres, which need to be located inside each country. However, this fails to recognise

that the physical location of the data has no inherent impact on privacy or security. For example, if a bank is subject to European laws such as GDPR, then the privacy risks of storing Europeansâ&#x20AC;&#x2122; data inside the EU are no less than those of storing it outside. The bank would still have to treat the data according to the rules of GDPR. This creates inefficiencies in technology infrastructure.

will be significant changes to the environment in the foreseeable future.

The Role of AI Regulations which lead to data localisation will come at a significant cost in terms of stifled innovation and productivity for global banks that are actively pursuing machine learning and artificial intelligence (AI) capabilities to boost productivity. This is because for machine learning and AI to be successful, organisations need access to vast amounts of data. Regulations that overly control the use of data, in effect, shackle AI. The core economic value of AI lies in its ability to automate complex processes, de-risk data environments, and increase the quality of the data output. The act of localising data will make it much harder for the banks to reap the benefits promised by AI.

A Look Ahead Although cloud computing has been around for over a decade, public cloud onboarding has really only just begun in the financial services industry. The original implementation strategies and intended use of the cloud has already changed from the very early days and it should be anticipated that there

Nikit Kothari Increases to security requirements are inevitable, as is the ability to access the data in more sophisticated ways. Additionally, as regulations become more mature, there will be even more changes to how data use is monitored and measured. There is no doubt that the use of cloud computing in financial services will continue to grow at an exponential rate. New cloud-based architectures will create efficiencies and innovations and allow firms to grow despite the influx of regulations. However, none of these efficiencies and innovations will happen unless such regulations start to align with the technology and allow for data globalisation.

editor@ifinancemag.com

International Finance

Building a diverse workforce Through technology The boost for higher inclusion in the financial services sector is more critical now than ever. While human bias has long restricted women in playing a broader role in financial services, technology could be the solution Vanessa Byrnes

t is now universally accepted that greater diversity really does have a positive impact on core organisational outcomes and the benefits of truly representative teams—namely the advantages of having greater access to different perspectives and sources of information—are widely recognised. However, achieving true diversity in the top levels of financial services continues to be a challenge for the sector.

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Looking at gender diversity alone, research from the Financial Conduct Authority has found that if we continue on the current path, the global financial services industry will finally reach the figure of 50 per cent female representation on executive committees by 2107: some two hundred long years after the first female suffrage march on Parliament. However, BAME professionals, those from lower socio-economic groups and disabled individuals are also

significantly underrepresented across the sector. But why is this? And how can we switch the dial to boost inclusion? The reasons behind underrepresentation of specific groups within financial services are deep and complex. Earlier this year, the Treasury Committee found that a culture of long hours and ‘presenteeism’, along with a stigma around flexible working as “female” and somehow less desirable, are among a number

Analysis OPINION greater gender diversity in the Square Mile. However, the tendency for decision makers to offer opportunities to those in their immediate network— or at the very least, ‘hire in their own image’—also has a part to play in hampering wider inclusion. Add to this the fact that job specifications have, historically, focused heavily on past experience and academic achievement, and it’s no wonder that many organisations are failing to tap into a huge chunk of available talent —to their detriment. Diversity and financial performance are indisputably linked. Previous research from Alexander Mann Solutions, for example, has found that women outperform men in financial trading thanks to their more risk-adverse and measured approach. However, our study of 350 individuals over a four week period seems to accurately mirror the wider business environment: the most recent research from McKinsey has found that that companies in the top 25% for gender diversity were 21% more likely to see higher than average performance than those in the bottom quartile—the figure for ethnic diversity was even higher. With this in mind, business leaders are increasingly questioning how they can remove barriers to attracting and developing diverse talent so that they too can become more balanced, well-rounded and profitable. The answer lies in harnessing technology effectively. From the earliest stages of the recruitment process, hiring decisions can be clouded by—often unconscious—bias. You only need to look at previous research by Harvard Business School, which found that black and Asian job applicants who masked their race on their CVs received nearly double the amount of requests for interview, to see that stripping away unnecessary detail results in more objective decisions. By automating recruitment processes to anonymise applications - removing information such as the jobseeker’s

name, gender, the school they attended and extra-curricular activity that may suggest social status businesses are forced to make truly objective decisions. Once unsuitable applicants have been seeded out of the process— based on their ability to do the job alone—technology can be then be deployed during assessment. This ensures that all candidates are not only measured against the same rigid criteria, but also that the results of any tests can be stored and analysed against other applicants and existing high-performing employees. Of course, there will always be a place for human hiring managers when it comes to making the final call on a job offer. However, by investing in creating ‘blind’ recruitment processes where decision makers are not unintentionally swayed by preconceived ideas around gender, age and ethnicity, businesses can help level the playing field and boost inclusion. Diversity and technology are arguably the two hottest topics in talent management circles today. By harnessing one to influence the other, business leaders can help to ensure that teams profit from the benefits that greater diversity brings: reduced groupthink, more open discussions and better financial performance.

About Vanessa Byrnes:

Vanessa Byrnes is the sector managing director of retail banking & insurance, Alexander Mann Solutions. where she is globally responsible for the integrated growth and service delivery of talent acquisition & management solutions to all Alexander Mann Solutions clients within the Financial, Insurance & Retail services sector. Over the last 19 years, Vanessa has held a number of roles within Alexander Mann Solutions including, Global Director of Client Services, Global Account Director, Practice Director for Telecommunications & Enterprise and the Director of People Capital. She currently sits on the Alexander Mann Solutions Global Operations Board editor@ifinancemag.com

International Finance

Completing the international trade puzzle Brexit is a cause of concern for many traders as uncertain times lie ahead. However, now is as good as any to develop a competent export strategy for SMEs post-Brexit

hile the United Kingdom is one of the largest economies in the world, it actually only makes up 1% of the total global population. And with reports indicating that just one in five British SMEs export, significant growth opportunities are being left on the table. Taking into consideration that 22% of manufacturing SMEs said domestic

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Alan Bell orders were down, itâ&#x20AC;&#x2122;s never been more integral for manufacturers in the UK to develop and implement an export strategy to not only ensure growth but also access to global markets post Brexit. Furthermore, with recent changes in legislation such as the implementation of the sugar tax, and changing consumer behaviour towards non-renewable materials, manufacturers in the UK are being forced to shift their processes and

operations to comply with the new guidelines. Ultimately, this means they need to look further afield and target the 99% to maximise the value of their assets. In a globalised world that is increasingly connected, manufacturers are able to reach previously untouched niche markets and audiences globally. As a result, assets which have reached its end of useful life in the UK can now find homes with international markets.

OPINION Staying Connected The key to making most of the opportunities offered by gaining access to international markets is implementing an asset management strategy at the core of business operations which acts as a platform for facilitating relationships between buyers and sellers. Whilst assets are often unloaded at times of cash flow need, this is rarely the best way to get best value. Ingraining asset management in day to day operations can maximise the return and delivery of business objectives. We believe that selling assets through business to business International online asset management systems/methods will enable manufacturers in particular to react quicker to the changing market conditions and identify opportunities that already exist for their machinery. In the UK alone, the B2B auctioneering market is worth around £480 million but we estimate that only a quarter of businesses in the country use B2B auctions as part of their asset management strategy. This means UK’s manufacturers could be leaving around £1.7 billion worth of assets lying dormant and losing value, which could be used towards funding change projects within their businesses.

Looking ahead At Troostwijk Asset Management, we have over 90 years’ experience of connecting sellers to niche markets across 127 nations with 18 operational facilities around Europe. Our team believes everything has value, and we guide businesses in making smart, long-term investment decisions for their assets and spotting the right value and the right markets worldwide to ensure swift completion. Our data shows that around 70% of all assets sold through our unique platform are exported internationally, so the opportunities for UK manufacturers to benefit from

accessing the 99% are significant. Recently we matched one of our clients, a UK-based bakery who was looking to offload a crumpet assembly line, with both a domestic and international buyer. As part of the asset management service, our team of consultants carefully analysed which market the crumpets could appeal to most. In this case, we successfully sold the asset to customers in the UK and sent two more to New Zealand. As a result, our client was able to access an international market that was previously out of their reach, meaning they increased the value of their end of life assets.

Completing the Puzzle Whilst UK manufacturers have continued to prosper even during periods of significant economic uncertainty, it is key that they find new opportunities, particularly in a post-Brexit Britain, by accessing the remaining 99% of markets available worldwide. There is no doubt that in the next year or so, from a practical and legislative perspective there will be even more challenges thrown at UK SMEs. Laws and regulations will be updated to cater to the new wave of trading rules as a result of leaving the EU. Whilst the government has recognised the importance of negotiating and securing a strong trade deal, there remains significant doubt regarding how such deal will work in practice with numerous conflicts arising from leaving the Customs Union. By enlisting an asset management specialist to guide them in making smart and long-term decisions, manufacturers can take the first step to reach international markets and maximise their value of their end of life assets.

About Alan Bell:

Alan Bell is the UK MD of Troostwijk Asset Management and advises SMEs on the opportunities offered by engraining asset management strategy at the core of their operations and utilising zombie assets from other companies. With over 90 years’ experience, Troostwijk is an asset management specialist and the biggest industrial online auctioneer in Europe. For more information visit www.troostwijkauctions.com

editor@ifinancemag.com

International Finance

Meeting the demands of Open Banking with integration technology Open Banking is revolutionary but needs advanced tech for seamless integration. Hereâ&#x20AC;&#x2122;s how this is being made possible Derek Thompson

ntroduced in January 2018, Open Banking has, as its name suggests, opened up the UK’s financial services industry. As part of the second Payment Services Directive (PSD2), the European directive designed to boost competition and variety of products in the sector, Open Banking requires the UK’s nine biggest banks to securely share customer data with third-party technology companies. Designed to provide consumers with greater control over their financial data, and more easily view and manage their finances, it allows them to view all of their accounts through one provider’s interface, for example, or make direct payments to online retailers via bank transfer. However, although consumers may be enjoying a more seamless banking experience, traditional banks are facing increased competition from disruptive new online and mobile offerings such as Atom Bank, Starling and Monzo and are being required to invest more in their IT infrastructure just to keep pace and maintain relevance.

Digital transformation In a bid to increase efficiency and improve their customer experience, financial services providers, in common with most other businesses, are currently undergoing a digital transformation. Such initiatives can be hindered, however, by inflexible legacy IT systems and fragmented infrastructure. The development of cloudbased services offers organisations the advantage of eliminating the need to introduce new hardware. At the same time, though, it also introduces additional complexities with regards to integration. For their digital transformation to succeed, businesses must be able to integrate new services with existing applications without being left with a deluge of discarded data. Traditional banks need a means of tapping into and integrating

OPINION the capabilities of a modern cloud platform that will enable them to successfully migrate their functions to a digital space and, by doing so, fundamentally underpin the delivery of an improved customer experience while eliminating data redundancy.

Liquid expectations Whether they’re dealing with a bank, an energy provider, Apple or Amazon, consumers today expect a seamless, frictionless interaction with an organisation’s products and services. These ‘liquid expectations’ have only been amplified since the introduction of Open Banking, and customers of financial services providers now expect a wide range of channel engagement options. It’s no longer enough to receive a bank statement by mail, for example. Customers now want to be able to purchase new products, or activate or change services within minutes, rather than days or weeks, and will show little loyalty to any bank that doesn’t allow them to do so. Meeting these expectations will put demands on the internal processes and operations of traditional banks who, until now have been operating in a heavily regulated environment, with little or no competition. Each of the third parties that, due to Open Banking, now has access to a customer’s account details will typically have its own touchpoints or individual business processes. These applications are unlikely to be integrated, however, and in the case of traditional banks, may be decades old with no public APIs. Integration is therefore key to satisfying customer demand and enabling banks to capitalise on the opportunity that Open Banking offers for an experience in which the customer comes first, across all available channels.

About Derek Thompson:

Derek Thompson is the Vice President, EMEA, Dell Boomi, an independent business unit of Dell that provides cloud integration and workflow automation software to build. Thompson is responsible for scaling the business by increasing investment in Western Europe including the UK, Ireland, Germany, Switzerland, France, Italy, Spain, Nordics and Benelux as well as plan for expansion in the Middle East. Alongside this, he will leverage channel partners to deliver on aggressive growth plans. Thompson has worked at Informatica and Kalido, and is the Founder/CEO at Technica UK. He brings more than two decades’ worth of entrepreneurial, leadership, sales and business expansion experience to Boomi.

Ideal solution To meet today’s customer expectations, the ideal integration solution will pull together several

International Finance

OPINION

essential modern applications and components. By presenting engagement channels such as Facebook, Twitter, web, email and phone, for example, a front-end component will allow customers to contact their financial services provider using the channel of their choice. Providing a 360-degree view of the customer, that gives service agents all the information they need on that customer and their interactions with the bank, regardless of channel, will help ensure that both the bank and third-parties are able to deliver an engaging, personalised customer experience. Furthermore, to drive efficiency and greater customer success, the solution should employ an integration and orchestration layer that will

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surface legacy system data and connect it with sales, service, and marketing information. This integration should also help those banks that have been essentially locked out of modern cloud platforms due to their inflexible IT infrastructure and legacy systems, to tap into and maximise the capabilities of the growing number of SaaS applications. Finally, the single source of data that results from integrating many of the separate organisations used by banks and third-parties for customer care and the provision of new and existing products and services, will help create a consistent customer experience. Rather than feeling as if theyâ&#x20AC;&#x2122;re dealing with three or four separate companies, customers will enjoy interacting with one single, integrated entity instead.

In giving consumers greater control over their financial services, Open Banking has increased expectations for a seamless experience. To meet these expectations, financial services providers must shake off the shackles of legacy IT infrastructure, and embrace the agility, speed and flexibility afforded by cloud technology. Implementing a reliable integration platform is key to remaining competitive in todayâ&#x20AC;&#x2122;s fast-moving, disruptive financial services landscape.

editor@ifinancemag.com

Decoding the Netflix approach to investing Companies like Netflix have approached business from a very different angle, which is not only profitable but could very well set new benchmarks

he likes of Netflix and Spotify are no longer disruptors, these companies have become the heartbeat and influencers of their industries. Through innovative pricing structures and an obsession with optimising the user experience, some would argue they have kept film and music from the clutches of piracy. This customer-obsessed approach means that every user enjoys a personalised interface, uniquely moulded around their likes, dislikes and ongoing behaviour. It is not just in the entertainment sector that this

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Hazjier Pourkhalkhali

model can work however. There are lessons from Netflixâ&#x20AC;&#x2122;s and Spotifyâ&#x20AC;&#x2122;s success that can be applied to many industries, and none more so than in the world of financial services. As a part of its continued commitment to technological innovation, UBS has taken digital-led personalisation to the world of trading. In its early stages of development, the wealth management firm is applying recommendation algorithms to suggest trades to its asset management and hedge fund clients, an unprecedented move in the space. This is a huge step in digitising the

trading process and opens up a lot of questions for the future of the sector. It is also indicative of a wider shift in the way technology is being applied in the finance industry, and that this bold move from UBS can have a groundbreaking impact on investment banking as a whole. For UBS, innovation and digitalisation are key strategic priorities, and the company appears to be investing heavily into those areas with innovation labs at L39 in London and across the globe. Dirk Klee, Chief Operating Officer at UBS Wealth Management has made it

OPINION

only the threat from disruptors in its space but the importance of customer experience, claiming that “the client experience is being increasingly driven by what clients see in companies like Apple or Amazon.” In the same way that we take recommendations for the latest movies and albums from friends or magazines, clients in the banking sector commonly take their trading recommendations from trained consultants and salespeople. Through implementing Netflix-esque algorithms, UBS is taking huge leaps in automating the trading process. By analysing a client’s trading behaviour and preferences, they are able to provide bespoke recommendations tailored on an individual basis. When it comes to the rest of the industry, despite the incredible technological advances in algorithmic trading and trading platforms, investment banks still service their largest clients through intensive “high touch” relationships. It is apparent to most investment banks that long-term this white glove treatment will lose to ease of use and higher returns. Today’s way of doing business is simply too slow in a world of

algorithmic trading, too expensive, and too dependent on the skills of individual employees. However, if clients take recommendations from an algorithm, UBS can ensure that they receive the highest quality advice faster and at lower cost. Building on the initial success hinges on finding the customers who will become long-term champions of this new way of doing business. Banks must then rigorously experiment with the way they are improving their experience and returns, and changing one of the most traditional cultures in finance. Why stop here? Traditional financial institutions are quickly learning that unless they embrace the new wave of experimental technology, their growth will suffer. Whilst risk will always be a factor inhibiting these moves, taking a test and learn approach in the same way UBS is will ultimately reap rewards. Should UBS succeed in this vision, the company has the opportunity to rewrite the rules of investment banking

About Hazjier Pourkhalkhali:

Hazjier Pourkhalkhali is the Global Head of Strategy, Optimizely—a US-based company that makes customer optimisation software. Pourkhalkhali, as global head of strategy, leads pricing and packaging for Optimizely’s key products, and works on new pricing metrics for optimal customer uptake. He also leads global initiatives on customer retention strategies and methods. He has worked as a management consultant at McKinsey and was the COO/cofounder of Cloud Games, a frontunner in development, distribution and monetisation of HTML5 games. He has earned a degree from UC Berkeley, California. editor@ifinancemag.com

International Finance

WeWork—the most valuable startup in New York City? Inside WeWork’s business expanse, there seems to be a certain conflict sprouting between ‘co-founders’ ambition’ and ‘co-workings’ communal roots’ Sangeetha Deepak

eWork was originally built on creating co-working spaces for a seamlessly collaborative work zone. Indeed, the co-working giant, in part, hopes to “create a world where people work to make a life, not just a living.” At first, the company’s business strategy was manifested “holistically,” but now it envisions in doing more than just creating open spaces with distinct features carefully designed to be work-friendly. Last year, the company introduced its very own dorm-style housing called WeLive, which mostly thrives on a residential concept. WeLive’s business model is much like WeWork: where the company will extend its service to managing perplexities that

come with finding and setting up a home. In fact, another interesting benefit for those who opt in is they can experience a ‘community of like-minded people’. More so, the company recently launched a fitness center called Rise that costs membership worth $180 per month. The company even acquired the iconic Lord & Taylor building located on Fifth Avenue in Manhattan for $850 million. But this is not it. Next up: the most alluring addition to the WeWork portfolio is Rent the Runway: an online service that provides designer wear and accessory rental. Rent the Runway has collaborated with WeWork to add an element of convenience for users of the rental service.

Workplace In short, Rent the Runway will open a network of clothing drop-off boxes in the lobbies of 15 WeWork locations across the United States. The drop-off boxes will allow subscribers to return rented items and release a slot in their subscription for the next round of renting. Surprisingly, the drop-off boxes are open to both: the public and the members at WeWork. “This is really just the beginning,” Jennifer Hyman, chief executive officer of Rent the Runway, told Bloomberg. “We have subscribers in many places throughout the U.S. and with WeWork’s massive footprint, there’s huge opportunity to grow this drop-box network.” The creators of WeWork intend to “humanise” everything they bring to the market: from work to fitness to living spaces. However enticing it is, to watch WeWork disrupt the market and expand from its introductory business strategy: is the company losing its plot—of

being a communal workspace? In fact, some investors and analysts want to probe deeper into its business model: as the Wall Street Journal writes: “critics say it’s an overvalued real-estate play.” That’s a notable statement. For WeWork, this choice of business strategy might become a sort of distraction to its vision. Eight years ago, when the company opened its first co-working office in SoHo, it was not the first evolution of a communal workspace. Yet. It succeeded because there was a vision: to assemble a community of like-minded people under one roof. It reinforced interest in work: the benefactor of going to an effortless environment brilliantly furnished with indoor plants, soundproof walls, warm light, convenient work set-up and of the sort, was much exciting. More important, working with cool minds became the catch. But now, its other ventures (or strategies) are somewhat diffusing the classic character of WeWork—

by depicting qualities of a new-age realtor. Nevertheless, its real might can only be noted in its metrics: The company generated $422 million in the second quarter, based on a financial presentation shared with Recode. According to Coworking Resources, WeWork is the second biggest co-working company in 2018—and it is nominated the sixth most valuable start-up in the world, observed VentureSource. The company’s accelerated growth might indeed make a striking headline, however it is still losing money. Early this year, its net loss estimated $723 million on $764 million of revenue. In comparison to the same period last year, it lost $154 million on $362 million of revenue. So the loss is much counterproductive now. According to WeWork CFO Artie Minson, Recode notes: “the losses reflect the large capital expenditure it takes to open up new offices, which require time before they become profitable.” Since inception, WeWork has been counting on its long-time business strategy, and now, there is a significant amount of pressure—in some ways, to justify its remarkable position as an expert in communal workspace. Still, there is a huge possibility for the company to assert this justification: After all, the data WeWork has experimented with in past years is much more valuable than one can expect: how people work; the need to feel good; when they work best; and how jobs can get done—matters. And its faculty to capitalise on these meaningful insights might bring dynamism to its long-term business strategies in future.

editor@ifinancemag.com

International Finance

Why Supporting Women-led ventures Is Good For Business Ethos Jenny Tooth, CEO of the UK Business Angels Association, talks about maintaining the critical balance between women-led businesses and sufficient venture funds in the entrepreneurial ecosystem Jenny Tooth

omen in innovation are blighted by a lack of angel support to help them commercialise their enterprise. This is an issue that stems at a lack of initial funding from fellow women, a lack of female role models, and a lack of information for women who have the potential to help budding female entrepreneurs in the innovation sector. There are some fundamental issues facing women at board level and as business founders. Access to capital is one of these fundamental issues, with only 2.9% of women founders successfully accessing equity investment for their business,

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according to research carried out by Beauhurst—the UK’s start-up and scale-up database. Compared with their male counterparts—who are 86% more likely to secure equity investment—it is easy to see why only nine percent of total investment funding goes to women. When women founders are seeking investment at the early stages of their growth journey, it is business angels that they would normally turn to, able to offer them that first injection of capital as well as bringing them access to their own business experience as well as keyconnections to customers. Yet currently only 14% of business angel investors here in the UK are women.

At UKBAA, we were keen to understand why with women seeking to be further empowered in their business careers and many clearly achieving considerable levels of success and wealth in business and as entrepreneurs across the UK, so few women had recognized the opportunity to back the next generation of up and coming entrepreneurs, especially businesses with women founders in the team. However, we also learned that this is not just a challenge for women in the UK, it’s also a challenge for my counterparts across Europe, so UKBAA led research among women across France, Spain, Italy, some support from the EC to try to understand the

WOMEN AT WORK underlying barriers and what were the drivers for women about angel investing Over 640 women completed our online survey, of which 200 were from the UK nearly half of whom were already investors and just over half non investors, but all were selfdeclared as either High Net worth or “Sophisticated” i.e. professionally experienced in finance and business. Our interactions with women across Europe, showed that the problems were similar across all these countries. The women respondents, both investors and non-investors, were all highly experienced in business with between 10 and 25 years’ experience or more and 54% having successfully founded at least one business. Although, many women had portfolio careers and were generally not making large investments in any one company, and many had made less than 10 investments so far. Furthermore, close to 20% of female angel investors have invested in three to 10 women founders, compared with only a relatively few leading male angels investing in a significant number of women founders. The data revealed a concerning statistic that 86% of women surveyed said that they had not been informed by advisory sources about angel investing in small businesses as an asset class, or about relevant tax breaks to mitigate risks backing early stage businesses. A significant majority of the women who were not angel investing expressed their concern that they thought they needed to be uberwealthy, with extensive levels of disposable income. The stereotype of the female TV Dragon of a steely iron maiden seated on a leather chair with a briefcase full of money to her side prevailed in the thinking of many women when thinking about angel investing. At the UK Business Angel Association Awards, held in Liverpool in June, we ensured that we were

promoting women within innovation. We will continue to strive to ensure that female entrepreneurs have a group of angel investors that they can look up to for inspiration, mentoring, and experience, particularly in the innovation and technology sectors. An example of this was Kim Nilsson at Pivigo, who won the Best Investment in a High Growth Female Founder. Kim is addressing the important need to build a pipeline of data scientists to meet the growing demand for skilled talent to take advantage of the opportunity to exploit big data, offering training and a marketplace and has accessed Angel and VC funding to tackle a market where there are not enough women. This year’s UK Business Angel Association Awards featured the Best Female-Led Investment award, in which we had joint winners. Doppel, led by Dr Fotini Markopoulou, have developed a wristband that has been shown to address the global challenge of workplace stress, focusing on personalised rhythms. Over the past four years, the team have trialled and built the concept which has achieved traction in the US and China. The lead female investor is Rosalind Singleton. She has drawn on her over 30 years’ experience in telecoms and IT, as MD of UK Broadband and Chair of the new UK5G to help the team to review their technical developments and develop robust manufacturing processes. The other winner of the jointBest Female-Led Investment was World Wide Generation. Led by Maryula, World Wide Generation have created a blockchain platform as a monitoring and marketplace for the UN’s Sustainable Development Goals, offering a private distributed ledger and cloud-based web application to enable organisations to maximise their achievements. The lead female investor is Claire Bartholomew. Claire has put a considerable sum of investment into the business and drawing on her experience in IT and Financial recruitment, as well as

Jenny Tooth

CEO of the UK Business Angels Association in social enterprise to support the growth and expansion of the business. There is a clear indication that women absolutely have the means and the resources to invest into businesses, but without accurate representation and the presence of prominent women lead angels, financial momentum—albeit possible —will not occur. With a lack of role models consistently quoted by women investors as one of the key barriers to entry, encouraging those women who are successfully investing to come forward and share their stories is a key priority for all of us in the industry. We hope that programmes such as the UK Business Angel Association Awards promote this cause further, until women are on an equal platform to men with relevant and inspiring angel role models.

editor@ifinancemag.com

International Finance

BRAND EQUITY

Unravelling the Volkswagen success story: Who do they own? Exploring the world-famous auto brands that are part of the renowned Volkswagen family and their worth in the auto industry Sindhuja Balaji

olkswagen have their own impressive range of vehicles, such as the much-loved classics including the Golf and Polo, as well as more recent editions to the VW dealership forecourt like the Scirocco. But Volkswagen’s ownership doesn’t end there. Their catalogue features several other renowned car brands. In this article, we’ll explore seven worldfamous brands that are part of the Volkswagen family.

Audi -

Foundation year: 1909 Number of UK models: 65 Number of employees: 90,705 Sales in 2017: 174,982 Market share in 2017: 6.89%

Audi became part of the Volkswagen Group back in 1965. This was when Audi acquired the Auto Union GmbH from Daimler-Benz. For the first time since the end of the Second World War, Audi vehicles were produced thanks to this subsidiary.

With more than 100 markets across the globe, Audi now stands as one of the leading premium car brands. This is, in part, down to Audi’s revolutionary technology. From piloted driving to an AI setup, the German manufacturer is leading the way to the future of driving technology.

Bentley -

Foundation year: 1919 Number of UK models: 18 Number of employees: 4,332 Sales in 2017: 1,753 Market share in 2017: 0.07%

Volkswagen and Bentley’s ties date back to 1998, though the partnership is quite complex. The story starts in 1997, when the thenowner of Bentley put Rolls-Royce Motors up for sale. Unsurprisingly, BMW made an offer of £340 million, as they supplied Bentley and Rolls-Royce with components and engines anyway. Plus, Vickers and BMW shared common ground in their experience in aerospace manufacturing.

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But BMW weren’t the only bidders; Volkswagen made an offer of £430 million, outbidding BMW. But the deal didn’t give Volkswagen ownership of everything. Their bid secured the administrative and production facilities, vehicle designs, model nameplates, the iconic Spirit of Ecstasy, and the Rolls-Royce grille shape trademark. But Rolls-Royce Holdings retained the Rolls-Royce name and logo. A year later in 1998, BMW supplied Bentley and Rolls Royce with new components for their cars and paid £40 million to licence the Rolls-Royce name and logo. After extensive negotiations from all parties, they reached an agreement that allowed BMW to continue with the deal to supply components and engines. Volkswagen attained the rights for the logos and names at this time. Then, in 2003, Volkswagen became the sole providers of Bentley cars, and BMW attained Rolls-Royce.

Bugatti -

Foundation year: 1909 Number of UK models: 1 Number of employees: 302 Sales in 2017: N/A Market share in 2017: N/A

Art and technology were the forefront of car manufacturer Bugatti’s aims. In the last 100 years or more, Bugatti has unveiled some of the motor industry’s most interesting car designs. In 1998, Volkswagen purchased the rights to manufacture Bugatti-named cars. Two years later, Bugatti was officially inducted into the Volkswagen Group. Plus, the guest house that was previously owned by Ettore Bugatti himself was purchased by Volkswagen Group. The house

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was turned into the company’s headquarters.

Lamborghini -

Foundation year: 1963 Number of UK models: 8 Number of employees: 1,606 Sales in 2017: N/A Market share in 2017: N/A

Not only did Volkswagen acquire Bentley and Bugatti in 1998, but they also brought Lamborghini into the family. The super sports car icon that stunned the world with gorgeous designs and exceptional power used to be owned by MegaTech. MegaTech in turn were owned by SEDRCO pty, an Indonesian corporation. But a financial crisis sparked in Asia in 1998, which meant Lamborghini needed to change its owner. An estimated $110 million offer saw the super sports car manufacturer purchased by Volkswagen. In the following months, a restructuring took place to make the holding company Lamborghini Holding S.p.A.

Porsche -

Foundation year: 1931 Number of UK models: 37 Number of employees: 27,352 Sales in 2017: 14,051 Market share in 2017: 0.55%

It took three years for Volkswagen to fully bring Porsche into the Group. Starting in 2009, the Volkswagen Group purchased a

BRAND EQUITY

stake in Porsche AG, taking the first of many steps towards an ‘integrated automotive group’ with Porsche. Two years later, the two companies were meant to merge. But this was halted by legal risks, and the merger was deemed impossible. As another year passed, however, Volkswagen announced they were currently in the process of purchasing the rest of the shares in Porsche for €4.46 billion. Porsche was finally brought into the Volkswagen Group in its entirety in August 2012.

SEAT -

Foundation year: 1950 Number of UK models: 24 Number of employees: 14,716 Sales in 2017: 56,130 Market share in 2017: 2.21%

Volkswagen first set their sights beyond Germany with its co-operation agreement with Spanish company SEAT. Signed in 1982, the two companies quickly went to work, with 1986 seeing Volkswagen gaining a 51% controlling stake in SEAT. With this, SEAT became the first non-German subsidiary in the Volkswagen group. The stake was increased from 51% to 75% in December 1986. Then, in 1990, Volkswagen Group purchased SEAT in its entirety.

ŠKODA - Foundation year: 1895 - Number of UK models: 27 - Number of employees: 32,985

- Sales in 2017: 79,758 - Market share in 2017: 3.14% The 1990s were a big year for acquisitions for Volkswagen, as the Group brought in Bentley, Bugatti, Lamborghini, and ŠKODA. In 1991, Volkswagen and ŠKODA made a partnership agreement that resulted in Volkswagen gaining a 30% stake in ŠKODA. This later increased to 60.3% in December 1994, and then again to 70% in 1995. By 2000, ŠKODA became wholly owned by the Volkswagen Group. The partnership was certainly beneficial to both parties, as the Czech car manufacturer saw deliveries increase sevenfold thanks to their partnership with Volkswagen.

The Volkswagen Group -

Collective years of experience: 731 years Number of UK models: 213 Number of employees: 372,264 Sales in 2017: 535,136 Market share in 2017: 21.07%

Volkswagen themselves were founded in 1937, with 33 models available in the UK and employing 200,266 people of their own. In 2017, Volkswagen enjoyed 208,462 sales and an 8.21% share in the market. The data and figures in this article were correct as of August 2nd 2018.

editor@ifinancemag.com

International Finance

Retain and build value after a merger The goal of the cloud is meant to be data globalisation, but the obstacles being put forth by countries has led to data localisation Jo Davies

Brand Value

his year has been dubbed the ‘year of the merger’, with companies spending a record $2.5 trillion on mergers and acquisitions in the first half of the year. At this rate, 2018 will pass the alltime annual record of $4.7 trillion set in 2015, with the healthcare, digital media and tech industries proving particularly popular. Some of the most eye-catching deals include CocaCola’s £3.9bn acquisition of Costa Coffee and the tussle between 21st Century Fox and Comcast over the Sky takeover. It has also been reported that Apple, the world’s most valuable company, is looking to spend some of its $250 billion cash reserve on acquisitions. Although this trend shows no signs of abating, mergers and acquisitions are not a guaranteed route to company growth. In fact, according to the Harvard Business Review, somewhere between 70-90% of mergers and acquisitions result in failure. With so much at stake, what role does brand play, and how can companies retain and build brand value more effectively after a merger? With more than 25 years’ experience of guiding national and multinational organisations through post-merger brand management and implementation, we recommend that you consider these points before undertaking that allimportant brand investment.

Is rebranding always the best choice? A new acquisition or merger can be an exciting opportunity for a brand owner, but it can also be a confusing time for employees and customers as familiar brand touch points evolve or change completely. Any form of brand investment needs to be carefully considered, however in our experience brand owners tend to underestimate the ‘butterfly effect’ of even a small change. This decision shouldn’t be taken lightly, as it can be the difference between success and failure! Your starting point should be an objective assessment of your brand touch points and performance, retaining focus on your overall brand architecture throughout this process. Firstly, audit all existing brand assets and trademarks and then assess the current brand equity in order to highlight the risks and rewards of change. Market research should follow, determining current market share and the existing credibility of the brand. You’ll also need to run a check for any local legal complexities. Finally, look into each company’s internal culture to assess the risks of a full integration. I would suggest that a rebrand is required if the acquired company is failing, has a poor reputation, is relatively small, or if you plan to make sweeping changes. On the other hand, a rebrand may be a bad idea if the acquired company has a long-standing and loyal consumer base, has unique brand strength, or if it’s the undisputed leader within its marketplace.

Jo Davies is the Managing Director of VIM

Group—a leading global brand management and brand implementation company. VIM Group helps businesses to manage brand change and enhance the performance of their brands across local and international markets.

In most cases, it’s wise to invest in a post-merger rebrand or repositioning. This should be considered as an opportunity to assess what the organisation says about itself, how it behaves and how it wants to be perceived.

Preparing to implement a new brand position The values and attributes that define an organisation are all embodied in its brand, so even small changes can be jarring for loyal consumers. Likewise, changes to company culture and beliefs can quickly alienate your internal stakeholders and create reputational damage if this becomes public. This underlines the importance of careful consideration: post-merger brand conversion can impact every branded asset, from stationery and employee name tags to content marketing materials. It’s vital that these changes occur consistently and in line with your brand values. Depending on the complexity and feasibility of the

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Brand Value

moment – it’s an ongoing process of improvement. Securing return on investment from the rebrand will require suitable KPIs, constant monitoring and an openness to refine and adjust as new insight becomes available. shouldn’t be considered a snapshot moment – it’s an ongoing process of improvement. Securing return on investment from the rebrand will require suitable KPIs, constant monitoring and an openness to refine and adjust as new insight becomes available. A long-term view will also be essential. Although a new logo and

Depending on the complexity and feasibility of the brand migration, you might take one of three approaches: 1. Direct and aggressive: with a short planning phase of 3-6 months, this is a demanding and complex approach that requires high investment, but it can also provide greater impact. 2. Phase-in/phase-out: with a midlength planning phase of 6-12 months, this involves an initial phase of brand co-existence (phase-in) followed by removal of the old brand (phase-out). 3. Performance KPIs: on a flexible basis of 12-24 months, this approach gives consumers and trade more time to adjust, but the old brand will still need to be removed eventually.

Engage internal stakeholders From planning to implementation, it’s vital that you engage the entire organisation in this change – not

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just the marketing, communications or brand management teams. Collaboration between departments is crucial for a coherent brand experience across all brand touch points. Your internal stakeholders should be your original and most passionate brand advocates for these changes. Adequate communication before, during and after brand conversion is crucial to the success of the changes, and this process should be led by senior management. An internal kick-off event can be a great way to create maximum impact for your brand change, while also creating a sense of shared community between the merged organisations. Investing in an intuitive digital brand portal will also give employees the tools they need to communicate your brand coherently.

Reinforcing the switch Post-merger brand conversion shouldn’t be considered a snapshot

company restructure may bring short-term growth, this can quickly dissipate if your brand values and identities do not align with longterm business objectives. At best, this results in missed opportunities to maximise brand power, at worst this can set the rebrand up for failure. Adopting a long-term view to brand implementation and management can help ensure that the brand remains strong and future-proof in this rapidly changing technological world. Anybody who has worked through a company merger, acquisition or restructure will know that it can be equally unsettling and exciting. To avoid an identity crisis, consider the impact of each change in detail, engage your employees every step of the way, and be prepared to compromise!

editor@ifinancemag.com

The true power play in utility companies today A fluid customer base, increased media coverage of costs and shifting customer preferences have made digital more important than ever before for utilities and power companies

Sindhuja Balaji

ith competition high, which of the UKâ&#x20AC;&#x2122;s Big Six, gas, electricity and water companies have the strongest digital profiles? A new white paper titled Utilities & Power: Digital Marketing Review 2018 by digital marketing agency Mediaworks has found out. Through analysing a series of key metrics over a sixmonth period, including search visibility, domain authority and more, the agency has created a league table of digital performance. Here are some insights:

Big Six The Big Six dominate the UKâ&#x20AC;&#x2122;s energy market but recently, have come under threat from a growing number of smaller companies entering the market. Which Big Six company

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is dominating digitally? Our analysis places British Gas as the Big Six leader in terms of digital performance. The brand exceeds the category average across all of the metrics analysedâ&#x20AC;&#x201D; scoring a SEO visibility score of 22,078, almost three times the category average. However, digital performance is strong across all of the companies analysed, with similar scores across metrics. This shows how fiercely competitive the market is.

Gas With wholesale gas prices on the up, could digital help more gas providers regain control of an increasingly fluid customer base?

UTILITIES

Interestingly, no company outside of the Big Six had a search visibility score that exceeded the category average (3,359). The best performing non-Big Six company was National Grid, which had an SEO visibility score of 2,391. The brand also had above average domain authority, page authority, trust flow and citation flow scores. Digital performance varies widely in the sector, with three companies sharing a visibility score of zero. While some have small improvements to make to remain competitive, others have a long way to go.

Electricity As switches rise, one in five customers are choosing smalland medium-sized electricity suppliers. Faced with a significant area of opportunity to capture a new customer base, which company has the strongest digital profile to achieve success? Outside of the Big Six, UK Power Networks has the strongest SEO visibility score at 1,443. While they lead the competition, their performance is still just over half the category average (3,600). However, UK Power Networkâ&#x20AC;&#x2122;s online performance could be hindered by their low trust flow score. With areas of improvement across companies, thereâ&#x20AC;&#x2122;s plenty of room for digital growth.

Water Regulation changes in April 2017 gave non-household customers greater flexibility with regards to choosing their water and wastewater providers. Perhaps this high level of competition is why so many water supply companies have a strong digital presence. Overall, four water supply companies have a search visibility score that is higher than the category average (1,632). Leading the way, is Thames Water with a score of 3,813, which also has the highest domain authority (68) and page authority (68) of all the suppliers analysed. To view the league tables for each of the utilities and power sectors in full, download the white paper today for free from the Mediaworks site

editor@ifinancemag.com

International Finance

Simmering temperatures, dwindling quality of life have we reached a critical point? Rising temperatures across the globe are stressing natural resources, and it’s the poor that suffer. Lack of adequate cooling systems can have far-reaching socio-economic effect on emerging nations Karan Negi

he world is now moving at a pace that is faster than ever. There is only one direction that people are interested in looking at—and that is the future. This sort of drive most definitely bought about an increased level of prosperity and affluence to everyone—but it also has undoubtedly been a massive drain on the surrounding world. Temperatures are hitting record levels across the globe. This trend is a combination of many factors—concentration of population, rabid levels of consumption and less regard for its aftereffects. Often, there is not any room left in the economy and infrastructure to fill in the gaps. Put it simply, rising heat levels have significant effects in countries all across the planet. In the case of poor, undeveloped and stilldeveloping nations though, the effects can be

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drastic. Since access gaps in these areas tend to be the largest—excess heat can jeapordise the health, safety and the entire way of life in these regions. They can also cause critical damage to their social and psychological fabric and cause irreparable harm to their existence. It may be a cruel act of nature but it’s true. Climate change tends to hit poor countries the hardest. A research conducted by Luke Harrington, a climate researcher at the University of Oxford, UK found that large parts of India and almost all of South America are likely to experience changes directly attributable to global warming early on, after a 1.5% increase in global temperatures. In contrast, mid-latitude regions, where most greenhouse gases are produced will not see these changes till the temperature rise hits 3% or so.

ENVIRONMENT

Sustainable Energy for All (SEforALL) Sustainable Energy for All (SEforALL) released Chilling Prospects: Providing Sustainable Cooling for All—which was the first ever report that quantified the growing risks and assessed the opportunities of the global cooling challenge. After analysing around 52 vulnerable nations across the globe, it postulated that an overall of 1.1 billion people among them faced cooling risks—out of which 470 million people lived in poor rural areas that have no access to food and medicine. The remaining 630 million people lived in even hotter, poorer slums, that have little or no cooling to protect them against extreme heatwaves. The report also found nine countries to have the largest populations facing significant cooling access risks. These included countries like India, Bangladesh, Brazil, Pakistan, Nigeria, Indonesia, China, Mozambique and Sudan.

It wasn’t just the poorest populace though. The growing middle class in the country, comprising of 2.3 billion people, also represented a different kind of cooling risk. They only had access to limited purchasing options—which meant that they were only able to buy less expensive and less efficient cooling devices—which meant that there may be a spike in global energy demand that can have a profound impact on the climate. Hence, maintaining a cooling process is a vital part of the human ecosystem. It is important to fight rising temperatures with appropriate countermeasures that bring a measure of stability to the natural environment. Put it simply, we need cooling. It underpins the ability of millions to escape poverty, to keep children healthy, food nutritious and overall keep the way of life stable and productive. There is a collective need for humanity to

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ENVIRONMENT

discover emergent solutions that balance out the extremities of the slowly-changing environment. Cooling also has effects on a country’s economy. Since previous research has indicated that work-hour losses in countries can vary from 2%-12% due to excess heat— efficient cooling can help make up for those numbers. All of that may sound simple but it’s not. Just like any other procedure, the cooling process in itself taxes the environment. It in itself requires the need for available resources that it unfortunately has no other choice, but to borrow from the environment itself. In fact, cooling was estimated to be responsible for about 10% of global warming overall—and that number is growing higher in rank each day. The research and development of sustainable cooling, which is done in both developed and developing nations—also drains resources. As William Saletan wrote in his article

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The Deluded World of Air-Conditioning, for Slate magazine : “From a cooling standpoint, the first transaction is a wash, and the second is a loss. We’re cooking our planet to refrigerate the diminishing part that’s still habitable.” Still, finding solutions to problems, and by extension—better alternatives to the existing ones, is what constitutes progress. Sustainable methods of cooling also form a big part of design thinking towards sustainability. No matter how great a system is, it can always be bettered. Tim Brown, creator of Design Thinking—and the founder of IDEO, defines it as : ““A discipline that uses a designer’s sensibility and methods to match people’s needs with which is technologically feasible and what a viable business strategy can convert into customer value and market opportunity.” If the work towards sustainability gets more complex and challenging each day, so should the thoughts and ideas behind it be more radical.

“

Cooling also has effects on a country’s economy. Since previous research has indicated that work-hour losses in countries can vary from 2%-12% due to excess heat

”

This sort of free-form, considerate and innovative thinking was encouraged in the Chilling Prospects report—which issued an urgent call-to-action and specific recommendations to government policymakers, business leaders, investors and to the civil society towards sustainable cooling solutions for all. The report was developed by the ‘Cooling for All Initiative’, which developed it along with contributions from the Global Panel on Access to Cooling. The report was made to draw attention to the three internationally agreed goals. Namely the Paris Climate Agreement, the Sustainable Development Goals and the Montreal Protocol’s Kigali Amendment. The recommendations included measuring gaps in access to cooling in their countries to various government policymakers ; collaboration on both economic opportunities and sustainable options to business, government and finance sectors; engagement

and cooperation to manufacturers to develop products to meet needs of those without access to cooling; and finally embracing of innovation and free-thinking to stakeholders to introduce a more holistic approach in their work. Chilling Prospects was being launched during this week’s United Nations High-Level Political Forum, which is reviewing progress towards several of the Sustainable Development Goals (SDGs), including SDG7— access to affordable, reliable, sustainable and modern energy for all. Meeting these growing cooling demands with clean, sustainable options for the entire world, will help support global energy goals.

editor@ifinancemag.com

Are millennials financially equipped to manage their future? A report by MoneyUnder30, surveying Americans, has revealed some interesting facts about millennials and their financial planning strategies Sindhuja Balaji

There are lots of stereotypes about Millennials: that they spend all their money on avocado toast, that they all believe theyâ&#x20AC;&#x2122;re special, or that they spend most of their time mooching off their parents. Many commentators worry that this generation of young adults is ill equipped to build a steady future for themselves. While the underlying assumptions of some of these myths may be true, this young generation has its eyes on the future.

WHAT MILLENNIALS WANT

They are less satisfied than other Americans with their current financial situation. The heavy burden of student loans and intense competition in the job market makes it hard for millennials to be content with the amount in their bank accounts.

56%

A leading cause of this dissatisfaction is having high expectations of life, and life’s failure to meet this expectations is producing some unhappy millennials.

Millennials are much more optimistic about their future financial situation than the general population. This optimism is the product of circumstance—Millennials are young and the world is their oyster. The rest of the population—having roamed the planet for a bit longer—might simply have a more realistic understanding of the economy and their future earnings potential. But there is another explanation that holds weight. For their entire adult lives, Millennials have known a healthy and improving economy so are more likely to see that upward trajectory as fixed rather than temporary. This contrasts with other Americans, who were already in adulthood and therefore acutely felt the effects of the pendulum known as the global economy. They view the economy’s recent upward trend as one part of the natural ebbs and flows of the economy in

56% of millennials are either unsatisfied or somewhat unsatisfied with their current financial situation

78%

78% of millennials feel that their situation will improve

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They have goals and hope to reach them, but Millennials are going to have to figure out how to get from where they are today to where they want to be in their financial future.

51.6%

The most stunning set of responses proving that Millennials are lagging financially was to the question of how people would pay for an unexpected expense of $500. At 19.5%, Millennials are nearly three times more likely than other Americans to ask help from friends or family. The conclusion that Millennials are not sufficiently healthy financially was supported again in regards to their lack of understanding of retirement, credit scores, and credit cards. More than half (51.6%) of Millennials responded that they are

Lack of knowledge of credit scores A person’s credit score guides them in life, it determines the rates of loans and mortgages, and it’s even being used in job interviews and by landlords to test if people will make good tenants. These findings are solid evidence that Millennials need to become cognizant of the financial concepts that impact them most.

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36%

51.6% of millennials are not contributing money to their retirement accounts; 10% don’t even know if they’re contributing at all

36% of millennials don’t know their credit score

WHAT MILLENNIALS WANT

Millennials are more than twice as likely (35%) as the general population to completely avoid using credit cards Along with the data that shows that Millennials donâ&#x20AC;&#x2122;t know their credit score, this indicates that Millennials can better understand the value of responsible credit card use in raising their credit score, which will help them throughout the entirety of their financial futures.

7.5%

7.5% of millennials have more than four credit cards, compared to 26% of other Americans

The survey, conducted in 2018, was jointly carried out with Survey Monkey based on a representative sample of more than 600 people in the United States that are managing their finances

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- Sindhuja Balaji

How to foster a healthy workforce as sick leave figures drop While numbers indicate that the average number of sick leave days taken by UK employees has almost halved, employers are keen on maintaining a healthy workforce at all times. Hereâ&#x20AC;&#x2122;s how it can be achieved Sindhuja Balaji

one are the days of sleeping off a bout of illness in bed! Figures released by the Office for National Statistics suggest that a sniffle and a sore throat won’t get in the way of work for most Brits, and reveal that the average number of sick leave days taken by UK employees has almost halved in the past 25 years.

But what does this mean for employers? Having a motivated and productive staff force is the backbone of a good business. A company needs to balance an effective approach to absence management with the understanding that people can be genuinely ill; supporting unwell employees is an important part of any absence management strategy. There are numerous theories around what causes people to attend work whilst ill, ranging from employees’ fearing being managedout of a company or not being paid for being absent, to a culture of ‘presenteeism’ where any absence is viewed negatively. Attending work whilst ill can be unhealthy for employees as it prolongs their period of ill health. There could also be long term mental health risks for staff members who are physically burnt-out or unwell but feel obliged to work. Also, on a very practical level being at work doesn’t necessarily meant that sick staff are being productive, and they are more likely to spread germs to other colleagues.

Why you need a well-being strategy None of us function at our best when sick and it only makes sense that healthy individuals are better placed to contribute towards productivity. Every company should have a well-being strategy to ensure their employees are as healthy as possible. A positive by-product of implementing this would be having

SMART TIPS higher motivation and productivity levels, as employees feel more valued. A well-being strategy pulls together all the interventions a company can apply to support the mental and physical health of employees. It can include partnering with organisations such as an Employee Assistance Programme or a private GP practise to provide on-site medical support. It can also include lower cost practises such as encouraging walking clubs or weight loss challenges across the company. Workforces are different in every company; a legal firm will have different challenges to a high-volume call-centre with shift work. The key is to understand your people, and the specific challenges or stresses they’re exposed to at work. A recent report by Reward and Employee Benefits Association (REBA), Employee Wellbeing Research 2018, provides insight into the fact that most employers are likely to provide EAPs, whereas employees preferred cash-bought benefits such as dental insurance and medical cash plans. What this shows, is the importance people place on their health and the value that they perceive in accessing a private dentist or doctor. One of the best ways to develop a relevant wellbeing strategy for your company is to simply ask your people what they want. There can be a cost to a well thought out strategy, so measuring the effectiveness of the strategy is the key way to communicate the bottom line benefits to the board. Have absence rates decreased? Has motivation increased? Has turnover decreased? Looking at specific KPIs, as well as talking to your people, can assist with understanding which elements of the strategy are working, and which need tweaking.

• Introduce a well-being strategy designed to support the mental and physical health of your employees • Ensure a combination of low cost practises such as encouraging staff to take a lunchbreak, with a reward practise such as introducing PMI or access to a private GP • Introduce flexible working; employees may not feel well enough for the trip into the office and sitting in it all day, but they feel able to keep on top of emails at home • Ensure managers are trained in absence management, and always hold a back to work interview to ensure that the employee is well enough to return and to capture any underlying issues • Proactively identify employees who are clearly too ill to be at work, and send them home.

Vicki Field

HR Director at London Doctors Clinic’s editor@ifinancemag.com

What can you do to proactively ensure a healthy workforce Here are some of my top tips for having a healthy culture in this regard.

International Finance

How the rich become rich, and stay rich â&#x20AC;&#x201C; the real story Ever wondered how billionaires became billionaires? What kind of personality traits do they have? Are their lives only about making merry and partying wildly? Do they have insecurities? Most importantly, how do they stay wealthy? Dr Rainer Zitelmann, author of award-winning book The Wealth Elite reveals these secrets and more Sindhuja Balaji

EXPERT SPEAK

Tell me why you decided to write the book The Wealth Elite? We know very little about the correlation between personality traits and financial success. There is no shortage of popular “how to get rich (quick)” books, but hardly any academic studies have been published on the subject. I wanted to get the ball rolling with this book and hope that it will inspire further research into this topic. Academics have carried out extensive research into poverty, but we know so little about the rich and their personalities. I had the opportunity to speak openly and at length with 45 ultra-highnet-worth individuals. They also completed a psychological test. This research led to my book, The Wealth Elite (http://the-wealth-elite.com/.) Incidentally, the book has been particularly successful in China, where people are very interested in the topic of wealth. In fact, I just came back from a promotional tour of five, major Chinese cities.

What is the one compelling trait seen across the wealth elite that you’ve profiled? Please shed some light on the same. There is no SINGLE personality trait that all members of the wealth elite, without exception, have in common. Even the rich and the superrich are different, in the same way that not all people at the other end of the social spectrum are the same. There are, however, some patterns among the rich that do repeat themselves and I would like to mention just three of them here: The rich and the super-rich are so wealthy because they have acted completely differently from most other people. They acted differently because they thought differently. They don’t have the slightest problem with swimming against the current of majority opinion, and many of them even enjoy doing so – they are nonconformists. A second point: They deal with defeats and setbacks differently than most people. Most people tend to claim the credit for their successes and blame others for their failures:

competitors, society, the market, etc. This is not the case at all among the wealthy people I spoke to – they accept all of the blame for their defeats, failures and setbacks. And that gives them a feeling of power. A third point: Most of them are excellent salespeople. I don’t just mean sales in a narrower sense, i.e. selling products. As one of my interviewees put it: Everything is sales. Many of them gained experience in sales or as entrepreneurs while they were still relatively young. It was these implicit learning experiences that formed the basis of their implicit knowledge – in everyday language we often speak of ‘gut feeling’ or intuition. And this is a key characteristic of people who are extremely successful financially.

How do these wealthy people pproach wealth building? How is it different from those who work regular jobs and make a fixed income? Almost all the super-rich have built their fortunes as entrepreneurs or investors. This is not only true for the people I spoke to, you just have to take a look at any list of billionaires and multimillionaires, e.g. the Forbes 400 list. Almost everyone on the list is an entrepreneur, and if they are not entrepreneurs themselves, they inherited their companies from their fathers, who were. There are very few employees – CEOs of large companies – who earn millions every year. We talk a lot about these CEOs because they are the subject of intense public attention. But that’s a small minority of the rich and super-rich. There are also very, very few people who have become rich through stock market investments. If you want to become rich, you have to be a successful entrepreneur. And to be a successful entrepreneur, you have to have certain personality traits. That is what my book is all about.

International Finance

Largely, how do the UHNWI get there and more importantly, stay there? It is important to distinguish between how someone got rich and how they stay rich. Most of the superrich people I spoke with were very willing to take risks. This is usually a prerequisite for building wealth. Mostly, however, they significantly reduced their risk profiles as they got older, when they were already rich. In my opinion, this is an important factor in staying rich.

What is it really like to be an UHNWI? Generally speaking, how is their life on an everyday basis? Work, a lot of work. None of the people I spoke to NEED to work. They all have so much money that they could easily sit back, relax and live quite comfortably. They are all financially independent, which means they never actually have to work again in their lives. But they all work very, very hard, even the UHNWIs who are over 60 or 70 years old. The media often paint a very one-sided picture: You see the rich living ostentatiously, drinking champagne, lounging around on yachts, driving expensive cars, etc. TV and magazines need such pictures. Otherwise, it would be pretty boring to show the rich in their offices at work. But that’s the reality.

What according to you, is the biggest fear UHNWIs face? How do they cope? Some of the UHNWIs I interviewed told me that they are afraid of losing it all and slipping into poverty. It reminded me of an interview with a bodybuilder who had 120 kilograms of muscle mass and was afraid of wasting away. That’s certainly not rational, but it does play a role for some people. Some also worry about political developments, because history shows us that the rich have always been the victims of the politics of envy, which has either been aimed at stripping them of their wealth completely (i.e.

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confiscated) or to a large extent (through excessive taxes).

It appears that these people get more done in a regular working day than others —what kind of unique advantages do they have and how do they manage time? They are masters of efficiency. The key to wealth is not to work hard, but to work efficiently. And that means above all: delegation, delegation, delegation. The rich understand that each task consists of two components: The first component requires experience, knowledge, contacts and creativity. The second component is all about routine work. High added value can only be achieved with the first component. Unlike most other people, rich people are masters at breaking down all processes into these two parts. They do the things that depend on experience, knowledge, contacts and creativity themselves. Everything else they delegate to others.

Is money the sole motivation for rich people? Is there something more they seek? Money is not an end in and of itself. In order to better understand the motives of my interviewees, I asked them what money actually means to them. They associate money with very different advantages in their lives. The motive of “being able to afford the finer things in life” (i.e. expensive cars, houses or travel) played a role for some, whereas others were not interested in luxuries in the slightest. On this subject, my interviewees were very different. There was only one motive on which everyone agreed: they associate money with freedom and independence. They are almost unanimous in associating wealth with freedom. In fact, no other motive was rated as highly.

How are these people influencing communities and impacting world economies? As I have already mentioned, most

of the super-rich built their fortunes as entrepreneurs. Their companies naturally influence the lives of all of us. After all, as consumers, we have all made them rich. You build wealth primarily as an entrepreneur, and as an entrepreneur you become rich when you develop products that other people want and need. One of the UHNWIs I spoke to is worth about five billion euros. He became rich because he made more out of milk than others before him. He developed new dairy products, such as yoghurts, and transformed a small company with four employees into one with over 20,000 employees. Yoghurt buyers made him rich, in the same way as Jeff Bezos’ wealth is the result of people buying everything under the sun from Amazon.

editor@ifinancemag.com