International Finance May - Jun 2018: Europe prepares for GDPR by International Finance

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May - June 2018

Volume IV Issue 4

UK £4 | Europe €5.35 | USA $6

USA and China on the brink of trade war – who will win?

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African shores embrace blockchain technology

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The success story of this 10-year old’s billion dollar empire

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Europe prepares for General Data Protection Regulation This critical European Union legislation is expected to have a far-reaching impact on technology-driven businesses today

Note FROM EDITOR

s we inch towards the halfway mark of 2018, the world of business continues to evolve constantly. One of the most significant news stories of this year is the trade battle between two economic superpowers – USA and China. Even as Donald Trump powers through on his promise to bring manufacturing jobs to the USA, China is not backing down in the face of rising trade tariffs on key goods. It remains to be seen what the ultimate outcome of this trade battle will be. On the other hand, Silicon Valley was thrown for a loop with the Facebook data breach scandal, casting a dark shadow on data privacy and illegal use of data by companies. The quantum of the scandal forced Facebook founder Mark Zuckerberg to appear in front of a Congressional committee to defend his companies’ actions, but also opened a can of worms over how Silicon Valley tech behemoths conduct business using user data. The Valley’s enterprising technology mavericks faced scathing criticism from various

Sindhuja Balaji Editor editor@ifinancemag.com

quarters, but no more than from Europe, which is gearing up to introduce its General Data Protection Regulation later in May. In this issue, we have data and legal experts weighing on businesses facing a monumental change in functioning from May 25, when GDPR officially gets implemented. Keeping in mind our focus on the world of finance, banking is the chosen topic for the May issue of International Finance. Albeit totally experimental, interplanetary banking is something that has caught the collective fancy of some bankers. PayPal toyed with the idea a few years ago, followed by European banking service Monese that too gave some thought to this path-breaking idea. We also explore some interesting stories with finance and banking professionals that are pushing the envelope, crushing prejudices and making the industry more accommodating. In the world of events, blockchain finds its way to Oman, which is set to host a major blockchain conference in May. Business performance continues to play a vital role in shaping strategy, with expert opinions from Frank Danesy, head of business unit control, directorate of operations, European Space Agency and Anwar Mirza, global head of data governance at TNT. We hope you enjoy reading this issue of International Finance. For any queries, please write to us at editor@ifinancemag.com

For advertisements, contact Sean Thomas Phone: +44 (0) 207 193 9451 | Email: sthomas@ifinancemag.com

Director & Publisher Sunil Bhat Editor Sindhuja Balaji Production Sarah Williams, Mark Miller Editorial Adriana Coopens, Jessica Smith, Lacy De Schmidt, Madhurima Roy, Sangeetha Deepak Business Analysts Dave Jones, Sharon Mendis, Sean Thomas Business Development Manager Steve Martin Business Development Sunny Shah, Sid Jain Accounts Angela Mathews Registered office INTERNATIONAL FINANCE is the trading name of INTERNATIONAL FINANCE Publications Ltd 843 Finchley Road, London, NW11 8NA Phone +44 (0) 208 123 9436 Fax +44 (0) 208 181 6550 Email info@ifinancemag.com Press Contact press@ifinancemag.com Associate Office Zredhi Solutions Pvt. Ltd. 5th Floor, Sai Complex, #114/1, M G Road, Bengaluru 560001 Ph: +91-80-40901144 Design & Layout Rahil Shaikh Miya

May - Jun 2018 International Finance

INDEX May - June 2018

Volume IV Issue 4

How algorithms factor into financial risk assessment

A new era in data and regulation for finance

USA China battle it out on economy

Standing at the crossroads of new business climate in Central Asia

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Has interplanetary banking become a figment of scientific imagination?

Why security can be the game changer for Europe’s retail banks

The need for riskbased capital ratios ahead of Basel III

What can the banking industry learn from the rise of Netflix?

PSD2 is here: What does this mean for Europe’s banking future?

Shielding Fortune 500 compa nies from cyberattacks

Is Blockchain in Africa a Disruptor or a Fad?

Why women in the banking sector face a ‘double glass ceiling’

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How #deletefacebook watered brand equity International Finance May - Jun 2018

COVER STORY

GDPR is here – how will this change the way businesses run?

When numbers matter, not age

Why is a ‘Value Added Tax’ so important to the UAE?

The real reason why research firms exude market intelligence

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ON THE JOB with Manoj Adlakha

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The unmatched stardom of ‘Accidental CEO’: Anne Mulcahy

The journey of America’s youngest Buttonsmith

Controlling key to management efficiency

Enhancing enterprise risk management capabilities in business

and the 90 Compliance way ahead in business

Technology driving India’s BFSI sector

the Blues in 102 Beating Finance Jobs May - Jun 2018 International Finance

Opinion Matters

Nathan Snyder, partner, Brickendon Nathan is head of the US region with over 15 years’ experience delivering projects and change portfolio governance. He is responsible for the Data, Risk & Regulatory, and Quality & Testing practices at Brickendon.

Dorian Selz, CEO, Squirro Dr. Dorian Selz is Co-Founder and CEO of Squirro. Before that he founded the Swiss search platform local.ch and made it the market leader in four years. Previously he was a Partner and COO at Namics – the largest e-business consultancy in Switzerland and Germany. Dorian holds a PhD from the University of St. Gallen and a Masters in Economics from the University of Geneva.

Guanming He, professor of accounting, Durham University Business School Guanming He is an Associate Professor in Accounting at the Durham University Business School. His research areas focus on financial reporting and disclosures, insider trading and financial analysts, and has had his research published in prestigious journals such as The Financial Review, The Review of Accounting Studies and The International Journal of Accounting.

Colin Gray, principal consultant, SAS UK & Ireland Colin Gray started his career training to be an actuary and holds a Certificate of Actuarial Techniques. Since moving to SAS, he has concentrated on the detection and prevention of fraud through the use of Analytics.

Micheal Ferrary, professor of human resource management, SKEMA Business School Micheal Ferrary obtained a PhD in Business Administration at HEC Paris and HDR at University Toulouse. He publishes regular studies on gender diversity in listed firms, with a special focus on governance structures. He also publishes regularly in academic journals.

International Finance May - Jun 2018

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COntributors

Tim Evershed

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Suparna Goswami Bhattacharya

Tim Evershed is a freelance business journalist with over a decade’s experience of reporting on the world of business and finance. As well as contributing to International Finance his work is published across a number of titles including Global Reinsurance, Insurance Post, The Journal, Financial Solutions and Global Trader.

Susanne Jakobsen Financial technology entrepreneur Gene Pranger has designed more than 500 bank branches since 1995. In 2008, he pioneered the market of video banking with the uGenius platform, acquired by NCR in 2012. His latest venture, BankOn Mobile

Financial technology entrepreneur Gene Pranger has designed more than 500 bank branches since 1995. In 2008, he pioneered the market of video banking with the uGenius platform, acquired by NCR in 2012. His latest venture, BankOn Mobile

It’s the best way to to reach our audience that is spread across over 100 countries Susanne Jakobsen

Susanne Jakobsen

platform, acquired by NCR in 2012. His latest venture, BankOn Mobile

and to know what’s latest inFinancial technology entrepreneur Financialreads technology IFM entrepreneur Financial technologythe entrepreneur Gene Pranger has designed more Gene Pranger has designed more Gene Pranger has designed more Banking, than 500 bank branchesFintech, since 1995. thanwealth 500 bank branchesManagement, since 1995. than 500 bank branches since 1995. In 2008, he pioneered the market In 2008, he pioneered the market 2008, he pioneered the market Insurance and Islamic banking Inof video of video banking with the uGenius of video banking with the uGenius banking with the uGenius Contact: Sean Thomas Email: sthomas@ifinancemag.com

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COVER STORY

GDPR is here â&#x20AC;&#x201C; how will this change the way businesses run? With the introduction of the General Data Protection Regulation (GDPR), businesses have strong policies in place to avoid scrutiny and fines. Lawyer Karen Holden, founder of A City Law Firm explains how businesses can comply to the new rule International Finance May - Jun 2018

COVER in theSTORY news

Karen Holden, founder of A City Law Firm

May - Jun 2018 International Finance

COVER STORY

rom 25th May 2018, the General Data Protection Regulation (GDPR) will replace the Data Protection Act 1998 (DPA) and will bring significant changes to the ways that companies must store and process their personal data. The GDPR is designed to set clear rules for businesses when they collect and store personal data, it also allows everyone to have complete power over their data, and to fully understand their rights. The new regulation was created as a reaction to increased internet usage and sales of personal information, allowing consumers more power over their personal data.

International Finance May - Jun 2018

The new law will bring data protection in the UK in line with the rest of the UK and nothing (not even Brexit) will stop it – So it is best to start preparing now! Businesses must have strong policies in place to avoid scrutiny and potential fines. This article highlights some of the key elements of the GDPR, and the best practice for companies. What is meant by ‘Data’? An individual’s personal data can relate to their name and address, but can also include fingerprints, DNA, recorded calls, date of birth and now has become more stringent, including any information that can be

traced back to a single person. All of this information will be covered and protected by the GDPR. What are the new GDPR principles? GDPR is generally similar to DPA, however, the compliance is dependent on how much and the type of data stored by the business. In short – the more data collected and processed by your company, the more compliance is required under GDPR. You must, however, still afford privacy protection, notification and consent and protect the information by secure storage, regardless of your business’s size. GDPR places a larger

COVER STORY

focus on protecting an individual’s rights about their data, therefore when companies collect and process the data, they must also justify the legality of it. How does this affect recording phone calls? And how can I ensure I am doing this legally? To ensure that any phone call that is being recorded is done so legally, you must comply to the following conditions: 1. Receive consent from the individual(s) in the phone call to record. 2. Justify the necessity of the recording, i.e. to fulfil a contract, or for legal requirements. 3. It is necessary to protect the interests of one or more participants. 4. The recording is in the public interest, or necessary for the exercise the official authority. 5. It is in the interest of the recorder, only overridden if they conflict with the interest of the participant of the call. Should call recording be used to monitor customer service, the first condition must be followed to ensure compliance. However, this reason can be outweighed by the fifth policy, as it could be argued that quality assurance of staff is less important than the interest of privacy. Under the DPA, when a recording takes place the individual must be informed of the purpose and how the information will be processed. If the participant continued the call consent was assumed, and this was acceptable and common practice. But, how does this change under the new regulation? The GDPR implements tighter regulations, meaning implied/ assumed consent is no longer enough. There must be express consent given, either by recording verbal consent or having AI terminate the call if consent is not given.

Rights to access data have also changed Individuals now have the right to access any stored information relating to them, businesses will need to identify, retrieve and provide a copy upon request. Therefore, companies must construct an efficient method of providing this information on demand. In addition, should any individual request their information to be deleted, this must be completed with immediate effect. As with any new policy, any changes must be coordinated with the IT and call recording provider to ensure its possibility. Compliance The new ‘Principle of Accountability’ requires companies to demonstrate compliance to the new rules of GDPR, the GDPR also stresses that data protection systems should be implemented with immediate effect and not implemented over a set period of time. Therefore, a realistic policy that staff and providers can fulfil should be implemented. Creating a 200-page policy for example would not be beneficial for compliance, and makes it more difficult to prove you are fulfilling the policy. To successfully demonstrate this, policies and protocols will need to be drafted and staff will need to be trained to be made fully aware of new processes and provisions. This will need to be carefully managed to ensure compliance, and should there be any breach of data privacy companies are required to inform both the data subject and regulators.

impact on those who do not follow the rules – So, it is important to act now! What should your lawyer do to help? We believe that the best place to decide what improvements and changes need to be made you must have a full understanding of your business, its operations and what data you really need to be collecting. Any policy that is created should be bespoke on a client by client basis, decided by what can be realistically achieved by the company. Talking to your providers will also help you see whether you are compliant by the time GDPR comes into effect. IFM editor@ifinancemag.com

What are the penalties? The new policies bring new punishments for lack of compliance. Under the DPA, organisations could be fined up to £500,000 should they deviate from the rules. Under the regulations of the GDPR fines can range from 2-4% of global turnover, depending on the severity of the case. These new fines are designed to deter non-compliance and have a huge

May - Jun 2018 International Finance

OPINION

Colin Gray

How algorithms factor into financial risk assessment This year, GDPR is a major concern for organisations, but with algorithms being used extensively by businesses to make decisions, there is a large debate on the nature of risk

International Finance May - Jun 2018

OPINION

s we progress into 2018, the General Data Protection Regulation (GDPR) is looming on most organisations’ radar. The requirements are becoming clearer, but there is still some ambiguity about precisely what needs doing. There is, however, no question that algorithms are an area of concern, and in particular, whether their effects are clearly understood — and more importantly, are fair. In this article, I’m following up on a previous blog where I discussed the fairness of algorithms used by businesses to help them make decisions. I described an example of an algorithm using age, income and number of dependants to determine whether to offer a loan to an individual. In this blog, I want to discuss the nature of risk and how algorithms use an assessment of risk to determine the price individuals pay.

The case of motor insurance Let’s use motor insurance as an example, around 5%–10% of policyholders will claim each year, which means that 90%–95% of policyholders won’t claim. The claims are spread across all policyholders. We know that certain drivers pay more than others; young drivers, drivers with previous claims, those with expensive cars. Actuaries identify

the factors most strongly correlated with accidents and set the premiums accordingly. Given that most people won’t have an accident in any given year, is it fair to charge different premiums? You could argue that some of the factors used are inherent, such as age, other factors are more choice-based; where you live, how fast you drive, the cost of your car. What would it mean if the regulations said that everyone had to be charged the same premium? • Young drivers -lower premium • More expensive cars - lower premium • More reckless driving - lower premium In practice, therefore, drivers wouldn’t be paying for the risk they represent. There would be subsidies across these groups, which as a society, we may or may not be happy with. However, I think we should be more concerned about secondorder effects, that is, drivers are not being charged — some might call it penalised — for their risky behaviour or risky characteristics. This could encourage some drivers to take greater risks, knowing that the cost would be shared with others, and they would not personally face any financial penalty. There is very little question that the number of accidents and ultimately deaths would go up. This

is presumably not something that we would want. Algorithms as a force for good I’m not suggesting that the regime above is being proposed by GDPR, far from it. I am just noting that algorithms (in this case pricing models) are used to make sound financial decisions that benefit society. Removing the ability to distinguish levels of risk in the interests of ‘fairness’ may have unforeseen or unexpected consequences. We’ve only considered the insurance industry, but the same could be applied to other industries like credit lending. A single price regime would probably increase the number of business failures and individual defaults, because it could encourage high-risk individuals and businesses to apply for credit. Algorithms aren’t exact — they can’t (yet) distinguish completely between those who will have an accident and those who won’t, and I’m not sure we’d want them to anyway as this could create a class of uninsurable drivers. They do, however, help to spread risk across multiple groups, in a relatively equitable manner. They can be used to penalise high-risk behaviours that are detrimental to society, and therefore, hopefully, reduce those behaviours. Equally, like any tool, they can be misused and exclude sections of society and prevent people from fully participating. As analysts, data scientists and statisticians, we need to know the difference — and we need to ask the right questions to make sure that organisations are doing the right thing. IFM editor@ifinancemag.com

Colin Gray, principal consultant, SAS UK & Ireland

International Finance May - Jun 2018

OPINION

Nathan Snyder

A new era in data and regulation for finance

International Finance May - Jun 2018

OPINION

With the all-pervasive nature of data, the financial services landscape continues to undergo major changes and industry leaders have to stay ahead of the curve to remain competitive

e live in a world of data. Data is pervasive and plentiful and has, and will continue, to change the financial services landscape as we know it. Although the full extent of its impact is yet to be confirmed, the industry at large has already begun planning ahead to ensure they are not left behind in this ever uncertain and competitive climate.

To illustrate the possibilities inherent Imagine a day in the not so distant future, when you are on the train on your way to work, you check a dashboard produced by an app on your phone that shows your spending

International Finance May - Jun 2018

patterns aggregated from all your bank accounts. It identifies that you are spending too much on entertainment and are falling short of your savings goal. Fast-forward a couple of hours, and on your commute home from work you learn from a social media alert that a bank has a much higher interest rate on savings accounts than your current bank. You therefore use your mobile phone to go online and transfer your details and money in a matter of minutes to take advantage of the better deal. This is data portability at its best but while it offers an ocean of opportunities for banks and customers, understanding the role

of data portability regulation will be key to its continued successful implementation. Changing faces of data portability The opportunities of data portability are multifaceted, depending on which hat you are wearing. From a client perspective, data portability enables ease of movement between service providers, allowing customers to seamlessly switch to a service provider with the most attractive offer. For FinTech companies, agile and innovative by definition, but still operating in the shadow of large corporate financial services organisations, it enables them to analyse an enormous pool of historic

OPINION

data, providing insight into individual customers, services, and ultimately enabling them to provide a more competitive offering. For large financial services corporations, data portability goes against everything the industry stands for: client data security before everything, so understanding how to regulate this transparency is key. Regulation and data The ever changing and intrinsically complex relationship between data and regulation is key for banks and the wider financial services to understand and more importantly prepare for. There are a host of ambiguities regarding what exactly data portability is, how it is supposed to be implemented, and the ultimate issue of what constitutes client data and who owns it? There have also been two major milestones this year which have questioned the status quo of regulation and data. Firstly, the introduction of second Payment Services Directive (PSD II) earlier this year, which was a major milestone in the banking sector which has and will continue to have implications on the way businesses use customer data. PSD II aims to create a level playing field for all payment service providers, while enhancing security and customer protection. It also allows different sectors, such as Fintech companies, retailers, and social media platforms, that have previously struggled to add value to customers due to rigid banking structures, to directly engage with them. PSD II is an updated version of the regulation that was originally implemented in 2009, and brings all new disruptive and innovative payment platforms under one regulatory umbrella. The regulation means banks have to open their payments infrastructure and customer data to licensed third parties, after receiving permission from customers. As a result of data sharing, PSD II will

ultimately break the banks’ monopoly over user data, in turn creating more competition across the financial services sector. The debate has rapidly continued to dominate headlines, as the latest data protection legislation, the EU General Data Protection Regulation (GDPR), is due to come into play in May 2018. GDPR clearly defines client data as ‘data that helps directly or indirectly identify a client’, swinging data ownership in a client’s favour. GDPR also highlights data portability as an individual’s right, but ultimately falls short of showing exactly what it is and how it should be implemented by the banking industry. The banking sector has had to prepare for the new processes to ensure they are able to provide a seamless and transparent service as result of PSD II and the pending GDPR deadline. The question is no longer purely about how ready banks are to embrace the new processes, but whether they have the right structures and means in place to facilitate the changes and remain competitive. Competition The question also arises as to what big banks and other organisations that sit on valuable client data need to do to prevent it from being used by competitors in becoming the market leaders and providing the best customer offering. At Brickendon, based on our experience of working with a diverse range of clients, we believe going forward banks will need to employ top talent in areas such as regulation, data science, and agile transformation to stay ahead. Moreover, to enable businesses to adapt, it will ultimately be an exercise of working side-by-side with the client to produce a uniquely tailored approach to make the bank a top performer in an exciting, but ruthless and ever more competitive industry. Organisations need to be innovative in the way they mine data and come up with new services to offer clients.

To stay ahead of the curve, they should become agile to the extent that they can quickly replicate and adopt appropriate innovations brought to the market by their competitors. Organisations should review their data models, untangle data infrastructure and update the governance policies to clearly separate client data from proprietary data owned by the bank. The goal should be to make it as easy as possible for clients to choose who they bank with, but ensure they are not bound for life by that choice. This a very important aspect of the customer experience which will allow new and former clients to join (or re-join) the bank and be integrated easily into their system. The future Bill Gates was once quoted as saying: “banking is necessary, banks are not…” and there may have been more truth to his comments than anticipated. The role banks play in the future of banking remains ambiguous and to some extent in their own hands. The complexity of the road ahead is in effect a call to arms before the data portability issue officially hits the banking market. The role banks play in the future of banking remains ambiguous and to some extent in their own hands. It’s therefore important they consider how they manage the relationship between data and regulation change that will be key in ensuring their continued progression. IFM editor@ifinancemag.com

Nathan is head of the US region with over 15 years’ experience delivering projects and change portfolio governance. He is responsible for the Data, Risk & Regulatory, and Quality & Testing practices at Brickendon.

May - Jun 2018 International Finance

in the news

USA China battle International Finance May - Jun 2018

in the news

it out on economy The two economic superpowers are volleying shots at each other by hurting trade in both nations. A slew of trade tariffs have already begun to affect industries in both nations. Hereâ&#x20AC;&#x2122;s a look at how it all began, and who has borne the brunt of Trump and Jinpingâ&#x20AC;&#x2122;s differences

May - Jun 2018 International Finance

in the news

he month of March witnessed a long pending face-off between two economic superpowers – China and USA. The two countries have been on the brink of a full blown trade war for a year now, but now with the two slamming heavy tariffs on each other, US stock markets are rattled and the world awaits with trepidation over the next move.

How it all began That China and the USA have been at the helm of economic domination is no secret. China is a manufacturing behemoth – sometimes referred to as the world’s factory. It has been a supremely attractive manufacturing destination for decades now, with low labour costs, strong infrastructure and a technically sound workforce. Despite profit margins slipping in recent times, manufacturing remains China’s mainstay and accounted for 42.6% of the nation’s GDP in 2014, stated a report in Asialink Business. A report in The Economist highlighted how China’s manufacturing strength alone can help retain its position as an economic behemoth, even while oversupply of real estate and rising debts hinder its overall growth prospects. On the other end of the world, US

International Finance May - Jun 2018

President Donald Trump vowed to bring back manufacturing jobs to the USA. In April 2017, he directed the Department of Commerce to investigate the imports of steel from China and other nations could be a threat to national security. In August 2017, he asked US trade representative Robert Lighthizer to scrutinise China’s unfair trade practices, specifically looking into Chinese theft of US intellectual property following reports of IP theft by China costing the USA nearly US$225bn to US$600bn each year, reports CNN Money. This year began on a retaliatory note for Trump and his Chinese counterpart Xi Jinping when the US government announced a 30% tariff on imported solar panels - most of which come from China - and taxes on residential washing machines. In February, the US Commerce Department headed by Wilbur Ross proposed a 24% tariff on steel and 7.7% tariff on aluminium – stoking deep concerns of a full blown trade war between the two nations. China responded sternly that it would take ‘necessary measures to defend our rights’ if hit with tariffs. In March, Trump went ahead with the Commerce Department’s proposals by imposing 25% tariff on steel imports and 10% on aluminium imports. The following month, China retaliated by imposing

tariffs worth US$3bn, including a 15% duty on 120 American products like fruits, nuts, wine, and steel pipes, and 25% tax on recycled aluminium and pork. The government specifically mentions that the tariffs are in response to the US’ trade measures against steel and aluminium. Within a day, Trump hit back with a 25% tariff on nearly 1,300 Chinese goods from the aerospace, machinery and medical industries. In response, China slapped tariffs of nearly 25% on a range of products from the US, including aircraft, automobiles, soybeans and chemicals worth nearly US$50bn. Finally, on April 5, 2018 – a year after the first round of tensions between the nations openly surfaced – the US trains its gun on another US$100bn worth of Chinese goods. In the past two months, US stocks have risen and tumbled a fair amount. Ever since the tariffs were announced, equity prices and Treasury yields have plunged. However, markets rallied following reports of both nations striving to ease concerns over a trade war, and the two sides are keen to reconcile. Who gets affected The ongoing tussle between the two nations has already begun impacting a few sectors heavily. China said it would charge imports of sorghum, shipped from the US. Sorghum is a popular livestock feed and is used to make liquor. A report in CNN Money stated that Chinese customs officers will charge importers a fee of 179% on US sorghum after an investigation found that shipments were unfairly subsidized and were damaging Chinese producers. China happens to be the largest buyer of American sorghum, purchasing imports worth nearly US$1bn last year. This has adversely affected American sorghum farmers, especially in Texas and Kansas, which happen to be strong support centres for the President. One of China’s largest tech companies ZTE was the latest casualty

in the news

in the trade battle. The Department of Commerce banned American companies from selling parts and services to ZTE for seven years – this is after the company illegally shipped equipment to Iran and North Korea – both nations that the US has had political fallouts with. ZTE is the fourth largest smartphone supplier in the US, and buys microchips from Qualcomm and glass from Corning. Other American brands like Apple and Amazon could be affected in the coming weeks. Chief market strategist at FXTM Hussain Sayed stated that President Trump might be looking to focus on currencies to further influence his trade battle. A report in Wall Street Journal stated that US trade representatives are considering fresh retaliatory measures against Beijing for restrictions on American tech and cloud services. A report from Rabobank states that India might face some unexpected hits from the ongoing trade war between the USA and China as well as the US Federal Reserve’s monetary tightening

cycle. The study indicates that a tariff war could reduce exports and lead to imported inflation, hurting Indian investments and purchasing capacity. Economists Hugo Erken, Raphie Hayat and Marjin Heijmerikx state three scenarios how India could be hit: • China targets Indian exports as the nation is considered a US ally. • If India chooses not to side with Trump, the USA has a go at Indian exports • India could retaliate against the USA – this could cost the Indian economy dearly, they believe. The tightening of US monetary policy could lead to capital outflows, and Rabobank models estimate India losing US$22bn in capital flows by 2022, and the rupee depreciating sharply. An unlikely benefactor of this trade face-off could be Elon Musk. The creator of Tesla, it appears, could gain some advantage after Beijing’s plans of starting energy vehicles. Tesla’s revenue in China doubled to US$2bn despite hefty import tariffs, stated a Reuters report.

Ultimately, several nations could be affected in this trade tussle, given the number of countries that trade with the USA and China. A report in Financial Times states that a fullfledged trade war, although unlikely, could have a negative effect of 1 to 3 percentage points in the next few years to global GDP. It remains to be seen how the nations resolve the issue and ensure there are no massive implications on global economy. IFM editor@ifinancemag.com

May - Jun 2018 International Finance

How #deletefacebook watered brand equity 24

It has been a dramatic month for Facebook. Revelations made by Cambridge Analytica’s former research director did significant damage to Facebook’s brand value, with serious questions being raised on data monetisation techniques and lack of user privacy Sindhuja Balaji

his year, data privacy is the epicentre of debate in the world of business. While the EU gears up to implement General Data Protection Regulation (GDPR) in May 2018, it is a trying time for companies to understand how data should be shared and stored. Due west, Silicon Valley and thousands of other technology companies were thrown for a loop last month when Christopher Wylie, former head of research at data analysis firm Cambridge Analytica, stated that Facebook has been accessing personal information of at least 50 million users in 2014 and 2015. One of the most lucrative offers made by the social networking giant was reams of user data to third-party app developers, atleast until 2015. In a Washington Post interview, privacy expert and cofounder of PersonalData. io Paul Olivier Dehaye suspected that the data breach went far beyond Cambridge Analytica’s reach, and once the data spreads, there is no way to get it back. According to Statista, Facebook has 2.2 billion active users as of Q1 2017 – that’s exceeding the population of every nation on earth. With Wylie’s revelations, there was

International Finance May - Jun 2018

a huge fallback in trust, with many active users vehemently opposing Facebook’s ways of gathering and misusing data. One of the most incriminating instances of Facebook’s user base and brand equity taking a hit was when WhatsApp cofounder Brian Acton tweeted: “It is time”, adding the hashtag #deletefacebook. This started the outrage against the social media giant and its seemingly unethical ways of gathering and using data, and soon, #deletefacebook was trending across leading social media platforms. Interestingly, WhatsApp was acquired by Facebook for US$16bn, but that didn’t stop Acton from posting against Facebook on Twitter. Acton isn’t the only one directly associated with Facebook to take a stance against them. Last year, Justin Rosenstein – the creator of the famous “like” button – complained about the psychological effects of social media and the “pseudo-pleasure” of friends liking his pictures and updates on Facebook. Sean Parker, Facebook’s first president, admitted that being on a two-billion strong network “changes your relationship with society and with each other”. One of the most direct references to Facebook’s unauthorised data usage was by Roger McNamee, an

in the news

early investor, who claimed that the company is directly responsible for the misuse of its platform by Russians and this claim has been exacerbated by Wylie’s latest confession that Russia could be storing some of this harvested data. Things are not looking good for Facebook. Mark Zuckerberg showed up at a Congressional hearing earlier this month to justify his stance in the data leak, even as the company’s immense popularity tanks steadily. #deletefacebook became more than just a hashtag, it marked the beginning of the company’s brand equity. After Acton, several other renowned individuals have condoned #deletefacebook • Steve Wozniack, cofounder of Apple: Apple makes its money off of good products, not off of you. As they say, with Facebook, you are the product • Elon Musk had Space X and Tesla’s Facebook pages removed from Facebook • Will Ferrell, Rosie O’Donnell, Cher and Jim Carrey have

joined the exodus Mayor of Victoria, British Columbia Lisa Helps was one of the first politicians to delete her Facebook page • Lifestyle brand Playboy shut down its men’s publication’s official account, citing concerns about the exposure of millions of Playboy fans through Facebook Facebook had to do some immediate damage control. As the allegations spun around relentlessly, the company’s high-profile management frantically brainstormed over the next course of corrective action. According to Zuckerberg, Facebook’s users have not been deterred despite the negative press over the last few weeks. Changes made to the website in 2017’s last quarter have reportedly brought down time spent on the site by five percent or 50mn hours. Last April, a user uploaded a video of himself killing an elderly man, sending users in a tizzy over regulated content on the site. On April 9th, Chief Technology Officer Mike Schroepfer said the company •

Steve Wozniack, cofounder of Apple: Apple makes its money off of good products, not off of you. As they say, with Facebook, you are the product

would place a link on everyone’s news feed to a privacy tool that would reveal if a user’s data was embroiled in the Cambridge Analytica scandal. But, the highlight of this damage control process was Zuckerberg’s Congressional hearing on Capitol Hill in Washington. Apart from being subjected to some ridicule over his rigidness and almost robotic demeanour, Zuckerberg pulled through the ordeal better than expected, causing the company’s stock price to go up – during the hearings, TheStreet reported that Facebook’s value rose US$17bn. What also helped was the obvious ignorance of the Congress about how Facebook works, as none of their questions were deeply researched or incriminating. Even as Facebook employees breathed a sigh of relief at the turn of things, there is no denying that significant damage has been done to the way brand Facebook is being perceived. And this has now turned the spotlight on other technology companies, namely Google and Twitter. According to CNET.com, multiple concerns were raised in Congress around user privacy. It became quite evident during the course of questioning that users in general have little to no idea how their information is used, opening a can of worms against multiple technology companies like Google and Twitter that monetise data. In November 2017, the heads of Google, Facebook and Twitter were called by the Senate but none of the CEOs showed up. With Zuckerberg’s appearance in Congress, all eyes are now on Google’s Sundar Pichai and Twitter’s Jack Dorsey to see if they work with the Congress to protect user data and eventually vouch for their respective brands’ credibility. IFM editor@ifinancemag.com

May - Jun 2018 International Finance

Standing at the crossroads of new business climate in Central Asia The region has its share of risks, but there is great competitive advantage for investors and entrepreneurs to seek and explore in its business landscape Sangeetha Deepak

entral Asia displays antiquity with the Great Silk Road, the Timurid Empire and its beautiful landscape, which sprawls from the Caspian Sea in the west to central China in the east. On the surface, it is often seen to mirror the Arab world. A few years ago, some parts of the northern Central Asia was fitted into the Soviet Union, most of southern Central Asia had been pulled into India and Pakistan, and Afghanistan became a belt unto itself. The Supreme Court justice and traveller William O. Douglas in his book Beyond the High Himalayas writes: all parts of Central Asia â&#x20AC;&#x153;are one world,â&#x20AC;? despite the jurisdiction they may belong. After the collapse of Soviet communism, the region suffered a great recession because of economic restructuring and diversification plans. In 2009, the International Monetary Fund (IMF) survey said the growth in Central Asia was expected to drop 0.9 percent because of the global economic crisis. But over the years, much of the concerns has been

International Finance May - Jun 2018

economy

Kazakhstan announced a large-scale privatisation plan, which is expected to lower the number of state-owned enterprises by less than half—from 560 enterprises to simply 200 by 2020. addressed: economies in Central Asia reformed their business climate to create new job opportunities and expand growth, observed the 15th edition of the World Bank Group’s annual Doing Business 2018: Reforming to Create Jobs report. Based on the report’s main findings, Central Asia and Europe are identified to have the highest share of economies to enforce reforms: 79% of them has at least one business regulatory reform implemented, followed by South Asia and Sub-saharan Africa. The joint efforts of Central Asian Republics—Kazakhstan, the Kyrgyz Republic, Tajikistan and Uzbekistan implemented 11 reforms over ten business regulatory areas. But Kazakhstan and Uzbekistan remain in the spotlight. Uzbekistan, a Central Asian nation and a former Soviet Republic, is featured on the global top 10 improved economies for a more responsible business climate. In fact, it has emerged as standing proof to a revived Central Asia, a region poised to do business with Western companies because of its strategic location, natural resources and wide-spread scope for growth. The World Bank Regional Director for Central Asia, Lilia Buruncuic said: “The economies of Central Asia are demonstrating steady progress on doing business indicators. With continued commitments to improving the business climate, we hope to see a more dynamic private sector which is critical for boosting economic growth in the region.” Uzbekistan’s business profile is strengthened by its President Shavkat Miromonovich Mirziyoyev, who released a reform decades after the

authoritarian control under the late Islam Karimov was over. The country has introduced online tax payment and has reinforced investors protection through corporate transparency requirements. The reforms was largely devoted to freeing the currency and pursuing foreign investors at the United Nations General Assembly last year. Being the most populous country in the region, there is a lot of investor interest exhibited in its commercial environment. Tashkent economist Shukurullo Mavlonov told Caravanserai: “The opening of borders and removal of customs duties [for foreign investors] in Uzbekistan are the beginning of a completely new era of economic development in Central Asia.” The country is well located in the sense that all strategic routes pass through it, and investments by global companies build its potential for private sector growth as well. But its not unique in this regard. Uzbekistan and Kazakhstan signed contracts worth US$1.2bn to enhance regional co-operation between countries in Central Asia. Three years ago, Kazakhstan announced a large-scale privatisation plan, which is expected to lower the number of state-owned enterprises by less than half—from 560 enterprises to simply 200 by 2020. The pivotal reason in doing so is to promote competitiveness through an antimonopoly agency, stabilise price controls and develop bankruptcy regulations. Kazakhstan has simplified enforcing business contracts through additional time standards and Tajikistan has raised revenue bar for value added

tax registration and even excluded a procedure to ease property registration. The actions taken to meet a higher profile business climate has prevented external shocks from disabling Central Asian economies. For example: Kazakhstan witnessed gradual improvement in the overall business scenario by slashing monopoly and affirming reliance across private sectors and government sectors. The policy measures have come with a focus to support entrepreneurship. After all, the private sector controls 65% of the economy. Kazakhstan is still the leader of foreign investments in Central Asia. Experts strongly believe the country’s countless activities to create an investorfriendly environment has led to direct investments worth US$15.8bn last year. All told, the IMF commended the “comprehensive initiatives” on competitiveness and business environment, but still holds adverse views on the lack of state-enterprise privatisation, anti-corruption and foreign investment promotion. There is much risks involved for investors willing to penetrate into these regional markets. (A listing of the operational risks relate to cultural and ethnic issues, infrastructure limitations, quality standards and physical threat). But this is to say if the risks are high, the rewards are also gratifying in many ways. IFM editor@ifinancemag.com

May - Jun 2018 International Finance

Why security can be the game changer for Europe’s retail banks With PSD2 and GDPR coming into play, Europe’s retail banking sector faces interesting times. VASCO security expert Frederik Mennes believes the future of banking can be redefined with technology and advanced security protocols Sindhuja Balaji

t has been an interesting start to the year for Europe’s retail banking sector. While PSD2 – Europe’s revised payment services directive – was introduced in January 2018, the region now looks ahead to welcome the General Data Protection Regulation next month. What remains to be seen is how the newly implemented open banking policy adheres to the expectations of GDPR, which requires business to enhance data safeguards and privacy of EU citizens. This builds a compelling case for Frederik Mennes, senior manager market and security strategy, security competence centre at VASCO, to outline the need for two-factor authentication and other stringent

International Finance May - Jun 2018

security measures to safeguard user data and allow for a seamless, digitised and modern banking experience. The US-based security firm works extensively with major banks and financial institutions. With more than 2,000 customers in the banking sector spread across Europe, Asia, North and South America, VASCO primarily focuses on validating the authenticity of online banking and related apps. Mennes and his team works on products that validate user identity as well as securing financial transactions. The debate around user privacy has reached a crescendo in the past month, following the massive data leak of user details by social media behemoth Facebook. Nearly 50 million user profiles of Americans were used, presumably to

banking

swing the results of the 2016 US election that witnessed the victory of Donald Trump. Similar reports of social media data being used to influence voters in the UK during Brexit and polls in India have surfaced thereafter. This has prompted questions over the safety and security of personal data by businesses. Mennes believes that data, if used for the right purpose, can open up a plethora of opportunities for businesses world over. Moreover, the upcoming GDPR can greatly help European businesses legitimise the use of data for specific purposes. “Ultimately, users have the final decision on sharing financial data with companies like Facebook and Google. A user has to provide consent based on GDPR regulations in Europe, and businesses too, have to list out specific reasons for using data of customers,” he said. Mennes suggests that with banks and financial institutions can capitalise on a wealth of

user information that can be derived from their social profiles such as providing targeted asset and wealth management options. “If a company like Facebook can begin offering financial services like payments between peers, that would be a game changer.” While the prospect of being able to transact via a widely popular platform like Facebook is exciting, there are concerns over safety and authenticity of transactions too. Mennes says, “I don’t see any negative impact on security through initiation of payments through Facebook or WhatsApp. It is a highly convenient method, especially for today’s users who are well entrenched in social media channels. With PSD2, payments have to be protected through a twofactor authentication, which is a significant step ahead for data security. Compared to earlier, PSD2 marks the advent of payment security, and this could potentially change the way businesses function.”

Frederik Mennes, VASCO security expert

The success of PSD2 is debatable. While many major UK banks have implemented the directive, others in Poland, Belgium and the Netherlands are contemplating the next course of action. Meanwhile, the French senate is urging for the national implementation of PSD2. In the midst of all this, there is a crucial bridge between trust and technology. Mennes believes that between banks and fintechs, and who might emerge a winner with customers, banks have a distinct advantage. “Banks can become fintechs themselves by offering financial services such as aggregated bank accounts, two-factor authentication and more. Banks also enjoy a higher level of trust and brand value. This is where I believe PSD2 presents a massive opportunity for banks to step up their game.” PSD2 facilitates personal financial information to be taken out of the bank and shared with fintechs, but this is subject to GDPR too, meaning the reasons for using data should be specific and definitive. “The way I see it, customers have a lot to gain from PSD2 and GDPR coming into play as they will be given an array of financial services with the caveat of data security and retaining user integrity,” said Mennes. For a security services provider like VASCO, this means a slew of opportunities in the coming year as banks slowly migrate to open banking, expecting a high level of security and

trust. “One of our marquee services is offering twofactor authentication to financial service providers. With PSD2, we are hopeful of helping many businesses develop advanced security protocols and enable the proliferation of open banking.” IFM editor@ifinancemag.com

Frederik heads VASCO’s Security Competence Center, working on the security aspects of VASCO’s products and infrastructure. He is a regular speaker at industry events and conferences about security technology, and a contributor to the Initiative for Open Authentication (OATH). Besides his role at VASCO, Frederik has supported the Information Security Group (ISG) at Royal Holloway, University of London in various educational roles. He earned an MBA from Vlerick Business School (Belgium), an M.Sc. in Information Security from Royal Holloway, University of London, and an M.Sc. in Computer Science Engineering from KU Leuven, Belgium. When not in the office, you will probably find him climbing a mountain or playing the piano.

May - Jun 2018 International Finance

Banking

What can the banking industry learn from the rise of Netflix? Open banking has paved the way for more data sharing, which is the foundation upon which technology mavericks have built their success story upon. So, is it time for challenger banks to adopt inventive strategies to enhance their value among customers?

International Finance May - Jun 2018

Banking

ondon has long been known as an international centre of fintech innovation. In fact, the UK Treasury recently announced its commitment to the sector by launching its first ever Fintech Sector Strategy – a comprehensive plan designed to build on the nation’s existing credentials as a global player in the financial technology industry. This announcement comes in the wake of the eagerly anticipated regulatory compliance measure, the Second Payment Services Directive (otherwise known as PSD2) which came into force on January 13, 2018. The regulation, requiring banks to open up their payments infrastructure and customer data assets to thirdparties, has made way for a wave of layer companies - that sit between 1 2

a user and their bank account - to use this data to create a host of new information and user-experiencefocused products and services. This has helped lower the barrier to entry for firms operating in the sphere. And with this more agile environment, we’ve seen a huge increase in the number of businesses working to optimise the way that consumers and businesses interact with their banks. Indeed, public statistics to date suggest that these initiatives have been largely successful. Whilst it may be too soon to deem PSD2 an outright victory in its ability to boost innovation, studies have shown that UK financial services firms registered a record number of trademarks in the last year alone1. The growing number of fintech firms are joining challenger banks to offer

an upgrade in user-experience to customers of traditional banks in the hopes of luring them away from accounts with one of the ‘big nine’2. One cannot help but wonder… should the big banks be worried? It’s also important to note that banks are no longer exclusively competing against each other. Over the past decade, technology giants like Amazon, Google, and Netflix in particular have worked to revolutionise customer experience. From real-time location-based travel insights to two-hour delivery times, data-sharing has made services previously thought of as impossible, a reality. Whilst all have looked to valueadded services to bolster customer engagement and ultimately up their user-acquisition rates, their use of subscription-powered services has

RPC, 2017 KPMG, The Rise Of Challenger Banks, 2017

May - Jun 2018 International Finance

Banking

worked to strengthen their bottom line and ultimately, power their growth. Here’s what banks can learn from Netflix which has successfully adopted this new way of doing business: Enhance the use of data to support product development The meteoric success of Netflix has been attributed to an array of factors. But the prevailing victor has consistently been their ability to leverage customer data from subscriber IDs to provide personal experiences. By establishing a subscription-based business model, each user is constantly providing the platform with valuable insights on viewing habits. In essence, the experience from their service is built around a user’s identity. Rather than simply storing this information, the company famously uses it to improve content production, distribution, and event marketing decisions.

3 4

The sheer amount of customer data that financial institutions hold, whilst incredibly sensitive, has the potential to be used to great effect. An existing example of this can be found in challenger bank, Monzo, which recently eclipsed £250mn in spend via its app. The mobile-first bank works to categorise users spending to provide them with a detailed report of their consumption habits at the end of each month. By processing this data in a meaningful way, Monzo demonstrates its value to its user base. Monzo’s ability to show what it can do beyond pure functionality as a payments provider not only gives consumers something they otherwise wouldn’t have had access to, but also gives a glimpse of the overall strategic vision of the company. Increase engagement to form closer customer relationships

Over the past 20 years, whether it’s been through the introduction of a mobile application or simply the advent of telephone banking, retail banks have sought to reduce branch interactions. Designed to be more convenient for customers, it can in fact have the opposite effect. Whilst we often to prefer to message brands via social media channels, 42% of consumers expect a response to their query sent within 60 minutes, and 24% believe they should hear back in half that time3. With businesses today ecruing followers and subsequently messages in their tens of thousands, meeting these kinds of customer expectations simply isn’t possible. A recent survey from leading consumer body Broadband Subscriber Survey found that 92% of consumers often stay loyal to companies that resolve queries quickly and effectively, with some even choosing to up their spending4. This focus on customer

http://www.convinceandconvert.com/social-media-research/42-percent-of-consumers-complaining-in-social-media-expect-60-minute-response-time/# Which?, Broadband Subscriber Survey, 2016 (referenced by GMA)

International Finance May - Jun 2018

Banking

John Phillips, VP EMEA, Zuora

contact has been capitalised on by artificial intelligence-powered fintech firm Cleo, which recently announced the closing of its £2mn funding round. The company has created a chatbot that analyses spending habits to provide recommendations to aid customers in reaching specific savings goals. In providing this tailored level of service, Cleo has been able to convert its customers into loyal brand advocates that take to social media to profess their admiration for the app that helped them to save for holidays and pay off credit cards. The 2008 financial crisis had a huge impact on customers’ trust in larger retail banks and financial institutions. The damage done here has made it more important than ever for banks and fintech providers alike to succeed at effective customer communication in order to broker meaningful, and less transaction-led relationships with customers. Demonstrate scalability of offering Over and above the capacity to add value and build loyalty through meaningful customer interactions,

the new era of banking stands to give financial institutions the ability to create entirely new revenue streams. If we explore the purely financial side of Netflix’s success, its recurring revenue-based model provides the company with a reliable stream of income, and the ability to scale its offering to include optional ‘boltons’. By pricing unlimited access to subscribers at different levels based on the number of devices, or users per account, the company can tier its customer-base and employ a different range of acquisition strategies to reach critical mass. Whilst banking institutions won’t be able to suddenly charge fees for services that its customers have grown accustomed to over the years, they can, under PSD2, work with an array of layer companies to provide optional ‘bolt-on’ services that seek to take customer experience to an entirely new level. Despite the varying ways Netflix seeks to maximise on customer engagement, whilst diversifying its revenue streams through the addition

of non-financial added-value services, the company’s intelligent use of its subscriber data has worked to entirely overhaul the way that customers interact with technology platforms. By creating a valuable product that’s entirely personalised and scaled based on usage, the company has risen to become one of the most-loved brands in both the UK5. In order to strengthen their reputations with millennial audiences and use the latest in regulatory measures to their market position, large financial institutions need to apply a truly data-lead strategy and work in cohesion with, and not against, changing consumer habits. IFM editor@ifinancemag.com

Fjord and Accenture Interactive, The Love Index, 2016 (referenced by Campaign)

May - Jun 2018 International Finance

Has interplanetary banking become a figment of scientific imagination? For long, earthlings have been fascinated with Mars, but simmering attempts to colonise the red planet might be a lot more difficult and complex even for the best and the brightest human minds Sangeetha Deepak

International Finance May - Jun 2018

banking

ince the dawn of human space travel, astrobiologists contend with the possibility of extraterrestrial civilisations and screenwriters loom Martian fantasies in science fiction, stoking the imaginations of many others, who are intrigued by the search for life on the red planet. Four billion years ago, Mars and Earth at an early stage of infancy had streaks of resemblance in their natural phenomena. The greatest similarities between the two planets are found in the axis, length of day and seasons. But inevitable characteristic changes has idealised life on one planet and not the other. Mars, unfortunately, is small. The Martian atmosphere is largely exposed to the icy dark outer space and is stripped of its protective layer, which is meant to shield the red planet from solar and cosmic rays. But that hasn’t stopped scientists and researchers from exploring the effect it has on human intellect. The Scientific American reported many scientists say Mars is still good to land expensive robots to walk the terrain in order to find something of

more human-interest. For humans, everything on Mars is recognisable— from mountains to craters to landscape. If there was a chance to sustain life on the red planet, it might have become our second best Earth to colonise. In an interview, project scientist for the Mars Science Laboratory Ashwin Vasavada says: “It’s a place that you can go today that’s like going to early Earth. It’s like finding a dusty Earth in your attic. Shake off the dust a little bit, and it’s this amazing place that you can recognize. That’s why I like it.” The dust storms and rust settlement in the Martian rocks exude a gorgeous orange-red hue that sets apart its glow from other dots in the sky. But the frigid temperature is likely to prevent life of any sort. However, Professor Stephen Hawking in one of his scientific prophecies said we only have a century left to colonise a new planet or become extinct. Our history of human colonisation and outer space experimentation has dared humanity to go beyond limits and ignite over-ambitious desires. Throughout the Martian expedition, researchers will execute new projects

and test the changes that support any traces of living in Martian-like conditions, but the chance to sustain microbes and machines beeps on borderline risk. For example: The European Space Agency’s Schiaparelli lander was a fail. More than half the robots sent to Mars have been wrecked. Yet. There has been a burning desire to successfully get spacecrafts on Mars for nearly halfcentury. As the search becomes extensive, there might be a reason good enough for human settlers to migrate to the red planet. The world-famous entrepreneur and founder of SpaceX Elon Musk’s Mars probe is directed towards our shared future. Two years ago, he furnished a plan: “Making humanity a multi-planetary species.” At the time the idea was surreal—and it still is. The launch of Interplanetary Transport System is a powerful build of a rocket and a spaceship planned to transport human settlers to Mars. “What I really want to do here is to make Mars seem possible—make it seem as though it’s something that we could do in our lifetimes, and that you can go,” says Musk.

May - Jun 2018 International Finance

banking

With this optimism, there might be a time when more and more people go to space for space tourism, space sports, to stay at space and lunar hotels and to work services. Because extraterritorial colonisation has become a priority, monetary services will need to follow the advancements in outer space. In 2013, PayPal launched the initiative PayPal Galactic—a worldfirst interplanetary banking system for buying things in space. Paypal, Search for Extraterrestrial Intelligence and Space Tourism Society formed a partnership to realistically bring this system on board by 2020. Outer Space Architect and Founder of Space Tourism Society John Spencer says: “We explained our big long term picture of thousands of people going to space to voyage on orbital super yachts, space cruise ships, lunar resorts and participating in a wide range of space and lunar sports. They were very happy in learning about our vision which gave them confidence that people would need PayPal in space.” But the project was stalled after the media launch and with the exit of PayPal President. The Space Tourism Society has had a very significant role to play in the interplanetary banking project. “In

International Finance May - Jun 2018

working with the PayPal Galactic team they saw no reason for it not to work. New regulations will need to be put in place and secure tech developed,” Spencer adds. More recently, the European banking service and Runway East member Monese launched their own interplanetary banking system— the Monese Mars Account. Again, the banking service envisions to provide safe, instant and secure money transfer to all humans settlers migrating to Mars. Of course, we can’t be certain about the arguments for and against interplanetary banking: whether it is a half-baked idea inspired by fiction or will it attest to scientific knowledge and technology. For now, the idea will only remain a fantastic imagery to all until when it becomes a tangible success. IFM editor@ifinancemag.com

“

People and companies will need to buy things and services in space just like on Earth. We need an in-space banking service or space cannot be developed John Spencer, Outer Space Architect & Founder of Space Tourism Society

“ What I really want to do

here is to make Mars seem possible—make it seem as though it’s something that we could do in our lifetimes, and that you can go - Elon Musk

May - Jun 2018 International Finance

INTERVIEW INTERVIEW banking

The need for riskbased capital ratios ahead of Basel III Prof. Steven Ongena of the University of Zurich tells us about the European Banking Authority (EBA) capital exercise, its impact on capital ratios in banks and what they can expect out of Basel III next year

he Basel III regulatory framework, which will be effective from 1 January 2019, seeks to increase capital requirements for banks in order to improve financial system stability. However, new research by Swiss Finance Institute Professor Steven Ongena from the University of Zurich and co-authors Professor Reint Gropp from the Halle Institute for Economic Research and Professor Thomas C. Mosk and Carlo Wix from Goethe University Frankfurt shows that the Basel III reform may be only partially effective and may induce banks to reduce their credit exposure to corporate and retail clients.

38 Can you explain what Basel III is? Basel III is a package of measures, where a number of ratios in banks will be fixed. This attempt is to make banks take lesser risks, and when they do so, they are adequately capitalised and own enough liquidity. This is required to upgrade the existing banking framework. The paper I wrote focuses on has one specific component of Basel III - capital requirement and the changes

in increasing capital requirements. My paper is one among many papers that identifies the impact of policy interventions. We have tried to analyse empirically the effect of increasing capital requirements and we find that it is good but there are several effects that we have tried to measure. The capital exercise by EBA is a definitive moment because from an empirical point of view as it allows for the identification of increasing capital requirements, atleast in the short and medium term. We see that banks are increasing capital ratio and reducing risk weighted assets as well as lending to corporates. The paper is very definite. During this exercise, we observed that banks were shrinking balance sheets; corporate and retail lending did contract in the time window we studied it in.

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What is the need for risk-based capital ratio? The idea is to have capital in banks. Specifically, the goal is to have capital for those categories on the bank balance sheet that are risky as this is where losses will occur and a capital buffer is needed.

Prof. Steven Ongena of the University of Zurich

International Finance May - Jun 2018

What is the EBA Capital Exercise and how does it help banks in the future? The goal was to increase a bankâ&#x20AC;&#x2122;s capital ratio. After the 2008 financial crisis, regulators have been trying to make

INTERVIEW banking

There are many factors to consider – one correctly pointed out by Dr Capuano is that equity markets may be more benign and banks could “raise equity cheaply” in the current period. the banking sector safer. It is obviously what the taxpayers want. The EBA exercise shows that large banks have to charge a higher capital ratio as they will be implicitly covered by a too-bigto-fail umbrella. The exercise did this on the basis of market share of each of the countries surveyed and the ability of differently-sized banks that were singled out as too-big-to-fail. What could this empirical exercise entail for one element of the Basel 3 package – capital ratios? The exercise seems to suggest that this increase of the capital ratio element may have a contractionary effect on lending to retail and corporate clients. There are many factors to consider – one correctly pointed out by Dr Capuano is that equity markets may be more benign and banks could “raise equity cheaply” in the current period. However, in the long run, this seems also reasonable. Hence, the increase in capital ratio comes at a good time, and phased in a way that the impact on lending could be benign. There are other measures in Basel III and it is the interaction of measures that literature is currently trying to measure. We haven’t seen a lot of policy packages where a number of measures were jointly introduced. So, the interaction of liquidity and capital ratios is potentially better than other combinations. The introduction of these measures could be that contraction in lending would be mitigated. How will EBA affect corporate and retail clients?

In the EBA capital exercise, if all capital ratios are set according to risk ways, then it is natural for banks to try and save capital. If you increase capital ratio, where is this going to land if they don’t raise new equity? It will land in those categories whose margins are more capital-expensive. They are more weighted assets. Retail and corporate lending have sizeable risk weights attached to them. If sovereign bonds have low or no risk, it doesn’t have a significant impact on reduction in capital ratio. This is the very mechanism by which potentially that element of Basel III can affect bank balance sheets. What are your thoughts on Dr. Christian Capuano’s comments on this issue? His approach is very balanced and to a large extent, we don’t disagree. Our exercise documented further the effect of changing capital ratio on banks. There is a median effect where you would expect it on the margin of reducing lending – regulators across the world while rolling out Basel III are prioritising that banks be made safer, by phasing requirements over time and giving time to the banks to adjust. The EBA exercise is about ratios and opens the door for adjustments on the asset aide of balance sheets for the banks. If you want a harsher but more effective way, then it would entail imposing an absolute amount of capital change than imposing ratios. This way, a bank cannot work on the asset side of the balance sheet. Forcing banks to raise capital in an equity market, where capital is expensive, especially at the wrong time, is not

easy. In that respect, Prof. Capuano’s comments are not all inconsistent with what we find. He says there are possibilities now to raise capital and measures to be eased in medium term. He also says that increases in capital requirements will interact with other Basel III measures, but this needs to be assessed over time and analyses how different measures work together. Finally, what can banks really do to prepare ahead of the implementation of Basel 3 in 2019? Basel III is a huge package and banks have to be prepared on many fronts. It is safe to say that this was expected and banks have had some inputs on how this will work in the long run. There is the whole discussion on optimal degree of complexity and it remains to see how it gets executed. Each measure comes with its own set of calculations. IFM editor@ifinancemag.com

May - Jun 2018 International Finance

PSD2 is here: What does this mean for Europe’s banking future? With banking and financial organisations implementing PSD2, leaders from UK’s Metro Bank, Hungary’s Raiffeisen Bank and India’s State Bank of India put forth their thoughts about the same Madhurima Roy

he second Payment Service Directive or revised Payment Service Directive, widely known as PSD2, is a European Nations (EU) Directive that has been composed by its member states. It came into effect in January 2018, designed to manage payment services to its providers throughout the EU and European Economic Area. An era of ‘Open Banking’ The directive is set to refurbish the way banking and payments have been done so far; and shift to a new era of ‘open banking’, where clients can gain immense transparency and flexibility in the way they manage their accounts. However, while some banks have started implementing the rules of PSD2, others are yet to do so. Commenting on this fact, Paul Riseborough, Chief Commercial Officer of Metro Bank (UK), opined: “Banks are certainly gearing up to support PSD2, however it’s disappointing that in the UK, not all the banks mandated to adopt the Open Banking initiative proposed by the Competition and Markets Authority, were ready to do so by the deadline. “A lot of this is related back to

International Finance May - Jun 2018

legacy systems. We’re in a fortunate position at Metro Bank where we have a state-of-the-art tech stack. We’ve been able to work with global leaders like Apigee on designing our API platform, which gives us the ability to partner with organisations quickly and build compelling digital products and experiences for our fans. For some of the larger players, implementing PSD2 across their extensive systems is not so simple.” Along with Riseborough, Ferenc Kementzey, CEO of Hungary’s Raiffeinsen Bank has been part of a bank that has implemented PSD2. “PSD2 directive was implemented at beginning of this year, so we are fully compliant with the regulation.” Security and its implementation The features that set PSD2 aside are its economic benefits, protection of consumers’ rights and enhanced payment security protocols. Specifically, new security requirements included by the directive will oblige all payment service providers to step up their security measures around online payments, including banks and makes electronic payments safer and more secure. It calls for payment service

providers to apply strong customer authentication (SCA) for electronic payment transactions. Moreover, PSD2 aims to widen the EU market for electronic payments that will help e-commerce consumers and merchants to gain completely from the internal market. In addition to firming up security provisions, PSD2 also updates the Telecom exemption by constraining it to miniature installments for advanced administrations and incorporates exchanges with third nations when only a single payment service provider is within the EU. It also enhances cooperation and information exchange between authorities in the context of authorisation and supervision of payment institutions. Talking about how PSD2 will be an aid to the payments market, Shiv Kumar Bhasin, Chief Technical Officer of State Bank of India and Member of Advisory Board at Gartner, said: “PSD2 opens the door to any company or fintech interested in eating a bank’s lunch. With the aid of PSD2, enterprise wide urgency for open banking can be created. Today, Google ‘Tez’ is using banks’ payments APIs to facilitate funds transfer and bill payments on

the UPI Platform. It will be interesting to see whether the consumers will stick to traditional banks despite having digital applications or trust non-banks for making payments. The ability for customers to aggregate all their financial relationships down to a single dashboard will be transformational for the entire banking industry, requiring banks to embrace artificial intelligence, advanced analytics and instant payment systems. RBI had also released directions on account aggregator service in 2016. Personal Finance Management providers are not that useful for customers, and this provides banks time to respond — especially given that they are trusted by customers. Banks could also become third-party aggregators using PSD2.” The road ahead Riseborough said PSD2 encourages competition and improves quality, choice and service for both for consumers and businesses. He added: “PSD2 provides an opportunity to create sophisticated products that give consumers more control over their finances, as well as greater protection against fraud. In

the long-term it’s going to be a gamechanger, but to fully realise this, banks need to ensure they bring consumers along with them on this journey. Consumers need to have trust in both the mechanisms and output of PSD2. By using consistent language and creating a clear set of standards that third party providers (TPPs) can access the data, banks and other fintechs can help build both understanding and confidence among consumers.” PSD2 expands the scope of PSD1 by upgrading its existing services, and adding new services and market entrants, which would let them access payment accounts. It will also help new market entrants, as they would no longer have to deal with several complications and can indulge in offering cheaper solutions for payments to more and more consumers throughout Europe. For the future, banks are required to share their application programming interfaces (APIs) with outsider applications, numerous of them have still not yet been successful in providing that securely. Bhasin considers PSD2 will definitely openup the banks for various innovative partnerships. “It will

make the APIs sandbox a mandatory partnership service for the banks. PSD2 will reduce interchange fees on credit and debit card transactions. Acquiring businesses will have severe hit to profitability. Multiple new entrants will most likely cherry-pick different parts of the value chain or selected bank customers. Although in India, apart from PayTM, no other fintech has made any impressive offerings, inspite of APIs being published by different banks & partnership programs.” Talking about the road ahead for PSD2, Kementzey said: “Regulatory Technical Standards, which reserve the biggest impact and business potential on the financial industry, especially for commercial banks and fintech companies, will be introduced just next year. In addition, the brand new domestic instant payment scheme is going to start on 1st of July, 2019, so according to me, our customers will experience a remarkable change in payment ecosystem in Hungary in a relatively short time.” As far as Raiffeisen Bank concerned, Kementzey said they are investigating different the scenarios to introduce innovative and valuable solutions in new PSD2 world, either of their own accord or by partnering with fintech players for our customers. While many are being positive about how PSD2 will redefine banking as we know it, however, as Riseborough mentions it’s too early to define and comprehend the end-to-end significance of the directive. The actual impact will be known only after all the banks and financial institutions execute and apply it for its operations on regular basis. IFM editor@ifinancemag.com

May - Jun 2018 International Finance

Cybersecurity

Shielding Fortune 500 companies from cyberattacks Alan Levine, security advisor of Pennsylvania headquartered Wombat Security, with offices in Colorado and the UK, talks about the rise of cyber threats in business and how Fortune 500 can protect their valuable assets Madhurima Roy

International Finance May - Jun 2018

INTERVIEW

Alan Levine, security advisor of Wombat Security

May - Jun 2018 International Finance

Cybersecurity INTERVIEW INTERVIEW

yber security has become a matter of utmost importance in today’s digital world. With the growing number of cyber threats and breaches, every company, big or small, try to fortify their security walls to prevent cyber attackers from breaching their network. However, despite having substantial security measures that

are way stronger than the other companies, Fortune 500 companies are more susceptible to cyberattacks. Many of these Fortune 500 companies have reported an increase in instances of fraud or attempted fraud through wire transfer payments. Several cyber threat factions have been engaging in a widespread Business Email Compromise (BEC) scams

against Fortune 500 companies since autumn last year. The threat groups have been successfully using BEC scams, which utilise credential harvesting, phishing and social engineering, to persuade account holders to initiate fraudulent wire transfers into attacker-controlled accounts, resulting in the theft of millions of dollars.

Delving deeper into the mechanism of cyber attacks is security expert Alan Levine:

Despite having advanced cyber security technologies, Fortune 500 companies still face cyber threats. What are the types of threats they are seeing and how do they occur? Business Email Compromise (BEC) is an attack vector that is seeing substantial growth; Trend Micro for example has predicted that impact from this particular form of phishing will increase by more than $9bn in 2018. Companies in the Fortune 500 have reported a significant increase in instances of fraud or attempted fraud via wire transfer payments. Cyber threat groups have been successfully using BEC scams, which utilise credential harvesting, phishing and social engineering, to convince finance and accounts payable personnel to initiate fraudulent wire transfers into attacker-controlled accounts, resulting in the theft of millions of dollars. It must be said, however, that although there has been a lot of focus on the risk to Fortune 500 companies from BEC, they are not by any means the only targets; all companies are at risk. What is even more concerning is that attacks exploiting users may become more successful over the next decade. Wombat’s 2018 State of the Phish Report found that Millennials are less able to recognise phishing attacks than their older Baby Boomer colleagues.

International Finance May - Jun 2018

How do they resolve these threats? To defend against BEC, individuals in financial roles need to be specifically trained to identify and fend off these scams, which are particularly tricky to avoid because they are set up over time, with cyber criminals researching their targets and then building trust via multiple channels (phone, email, and social media). There are specific things that Fortune 500 organisations can teach their end users to defend against the BEC threat: • All employees should be made aware of the dangers of sharing too much on social media. Teach users that they can’t always trust the legitimacy of their social contacts. • Ask users not to give out company-internal information — like mobile phone numbers, vacation schedules, and job titles — when they receive unsolicited emails or phone calls. They need to understand that criminals can use seemingly innocuous data points against your organisation. • Stress the need for users to verify all requests for wire transfers and highly sensitive data (like employee tax information). It’s a great idea to implement a ‘nontechnical’ form of two-factor authentication with high-value

targets, such as employees who can initiate wire transfers. For example, make it a policy that all such requests require voice-to-voice confirmation — via an established phone number — before financial transactions are facilitated. Cyber security is of top concern in countries all around the globe. US Homeland Security Secretary Kirstjen Nielson has also mentioned that her agency is making election cyber security top priority in an attempt to prevent foreign interference in this year’s elections. What is your outlook on this scenario? How can we advance cyber security so elections are secured? Good cybersecurity is not one thing; it is a combination of elements, involving people, processes, and technology. Every cyberattack has a source, a vector, and a target. We should assume that nation states are sometimes the source of cyberattacks aimed at election interference. Their targets are the digital systems used to input and calculate election results. We can try our best to thwart attackers by strengthening the technical defences of digital election systems. But, foremost, we should understand the common vector for these – and most other – cyberattacks. Even one malicious email, sent to IT personnel who administer an election system, can result in the compromise

Cybersecurity INTERVIEW

of their computer and then, via the exploitation of these assets, the extended compromise of an entire election system. While we deploy technology to defend election systems and develop processes to support those defences, we must place greater value on the impact, good and bad, of the very people who are central to those defences. Thus, we should focus our efforts on the vector: emails that launch an attack and facilitate every devastating thing that may follow. If IT administrators and, indeed, all users, are trained to identify and report potentially malicious emails, then the very start of attacks against election systems can be stopped. Addressing the email vectors for cyberattacks means training the people who receive, read, and react to those emails, so that they know what to do, and do it with diligence everytime. Do you think that better government intervention in cyber security will secure companies from cyber threats? It is great to see the UK’s National Cyber Security Centre adopting a much more active posture in helping defend the UK from the range of cyber threats facing the country. Closer partnerships have now been formed with government, industry and law enforcement by prioritising cybersecurity. However, ultimately it isn’t solely through government intervention and enforcement that organisations will become secure; security has to form part of any business’s DNA and includes a mixture of people, process and technology. Cyber criminals will always identify and attack the weakest links; therefore, businesses should work together to create a virtual ‘fence’ to limit the potential attack surface and subsequent effectiveness of cyberattacks. What can be done differently to change the cyber security scenario all across the globe?

There’s no doubt that organisations are under a greater threat from cybercriminals than they’ve ever been, and this is unlikely to simply drop off. For example, Wombat Security’s ‘2018 State of the Phish Report’ found that 76% of organisations experienced phishing attacks in 2017. In addition, organisations are reporting more security impacts stemming from email-based social engineering. There is no silver bullet when it comes to solving the challenge that cybercrime presents. However, a user who receives continuous cybersecurity training - and is therefore cyberaware - is less likely to commit risky behaviours, and is more likely to spot and report suspicious activities. Don’t underestimate the power of educated users – effective training offers clear, measurable benefits for cyber risk reduction. When strong technical defences are combined with an ‘army’ of knowledgeable users, organisations will prevent more successful attacks and chip away at the profitability of cybercrime, thus slowing its growth. Is there any way for companies to augment their cyber security to an extent that cyber threats won’t stand a chance to breach into advanced systems? No system in the world is completely invulnerable to attack, but one of the most positive changes a company can make is to invest in its people. No company should rely on cyber security technologies alone. What’s needed is a layered approach that embraces a mixture of both technical safeguards and end user cybersecurity training and awareness. Shockingly, according to the Online Trust Alliance’s (OTA) ‘Cyber Incident and Breach Trend Report’, 93% of cybersecurity incidents in 2017 could have been prevented by following basic security best practices, such as conducting phishing awareness training. With so much at stake financially and reputationally, organisations cannot afford to allow

data breaches or damaging service outages to occur because of human error. Employees are a corporation’s last line of defence against cyberattacks, so they must be given the right skills and tools to effectively participate in the fight against cybercrime. IFM editor@ifinancemag.com

Alan Levine is a security advisor of Wombat Security with extensive global experience and has specialisation in all facets of cyber security, global data privacy with emphasis on European privacy provisions, Compliance, including SOX and related corporate compliance requirements.

May - Jun 2018 International Finance

Is Blockchain in Africa a Disruptor or a Fad? A growing number of blockchain entrepreneurs are innovating to create unique solutions for African problems. With heightened crackdown on cryptcurrencies, is it too early to forecast the success of blockchain’s potentially impactful solutions? Amoxers Wachira

n the world of technology, the best piece of technology wins because innovators find a noble way of applying it to solve a particular problem in a unique method. In Africa, Blockchain technology is gaining traction mainly because innovators are fast deploying it to solve some of Africa’s most stubborn problems. The newfangled technology, which underlies cryptocurrencies, exploded last year when the value of major digital currencies reached record figures. Bitcoin, the first cryptocurrency project, recorded a mouth-watering price of up to US$20,000 in December last year, minting the first batch of cryptocurrency millionaires. The blockchain technology is well developed in Europe

International Finance May - Jun 2018

and America, but in Africa, it’s in its nascent stages. While there are thousands of cryptocurrencies out there competing for the ever thinning cryptocurrency market share, only a handful of blockchain projects emanate from Africa. But this does not in any way mean that there is little blockchain activity in Africa. Indeed, the continent’s innovative entrepreneurs are leading the way in creating blockchain-based real world applications. From blockchain-based land registries to facial recognition technology powered by Artificial Intelligence, it’s easy to see how the technology is creating reliable and trustless systems that could forever change Africa’s technology landscape if they succeed.

Technology

What is blockchain technology? Based on the concept of cryptography, Blockchain is a distributed ledger system that is autonomous and decentralized. This simply means that the distributed ledgers themselves are not controlled by any central government or financial authority. The ledgers record all transactions in a permanent way that cannot be altered in any way, and is considered to be immutable. Immutability is one of the values that make the blockchain a clear favourite in Africa, where everything is centralized. In centralized systems, human error or any other catastrophe can lead to total failure. Take the case of banks for instance. When a high magnitude error hits the banking systems, there’s the possibility of the bank going down with customers’ funds. With blockchain technology, however, every transaction is secured in a ledger system that is distributed to many computers, wiping out the threat of a total failure in case something catastrophic happens. In Kenya, the blockchain technology is disrupting the real estate sector, with positive results to show. Land in Kenya, like in most other African countries, is communally owned and few people have title deeds to prove ownership. Because the entire land registry dates back to the colonial era, land ownership is usually blurred. As such, it’s not hard to find a parcel of land in Nairobi, Kenya’s capital, bearing multiple title deeds. This creates the perfect breeding grounds for unscrupulous lands officials and cartels who sell one piece of land to different buyers. So, widespread is the mess that buying a piece of land in Nairobi is a daunting and risk-laden exercise. A local real estate firm is looking into the blockchain technology for solutions. Land Layby is creating a blockchain-based, parallel land registry to complement the official government land registry. Peter Tole, who heads the real estate firm says a blockchain-based online registry will

put an end to fake title deeds. Land layby’s intervention comes at a time when the government is mulling a digitized land registry. In March, the Kenyan government announced a 13-member taskforce that is mandated to look into possible areas that could benefit from the Blockchain technology. On March 1, President Uhuru Kenyatta announced that Kenya intends to use blockchain technology and Artificial Intelligence to create a raft of solutions, including a facial recognition technology that seeks to enhance security in Nairobi, a city of three million inhabitants. On the same light, government agencies are stepping in to deploy blockchain technology to reap its benefits. Ac case in point is the public health sector which is building a connected web of 98 public hospitals. All hospitals will be interlinked by the decentralized technology, making it easy for any hospital to access and exchange data with peers. Elsewhere, a Kenyan entrepreneur is building the first cryptocurrency project. Isaac Muthui recently launched Nurucoin, an Ethereum based cryptocurrency which seeks to enhance intra Africa e-commerce trade. Nurucoin enables traders to use an integrated payment system with low fees and high transaction speeds. A few miles away from Nurucoin’s offices is BitPesa, a blockchain startup that provides forex services to cryptocurrency and fiat customers. It’s been in operation for four years. According to its CEO Elizabeth Rossiello, global payments promise a bright future for Africa. “Blockchain payments are gaining traction as a favorite payments method between multinational companies and their African subsidiaries because of low fees,” said Rossiello. Cryptocurrency-based payment methods promise and deliver fast transactions speeds at lower fees compared to traditional payments methods. They are also transparent and reliable as opposed to centralised

funds transfer companies. The versatile nature of the blockchain is perhaps what endears it most to entrepreneurs. “We cannot look at Blockchain Technology as a backup for cryptocurrencies. It’s also applicable in many sectors of our economy,” says Prof. Bitange Ndemo, a University of Nairobi lecturer. “Ignore this piece of technology at your own peril,” he advises. While it’s clear the new technology is slowly but surely disrupting African economies one sector at a time, it’s important to note the myriad challenges that could easily stifle the adoption of this technology. For instance, digital currencies continue to face widespread crackdown from financial regulators and governments across the globe. The Central Bank of Kenya has also raised its voice against cryptocurrencies by terming them risky, warning Kenyans to avoid using or trading in them. The only glimmer of hope, however, is the fact that the Kenyan government is looking at ways of integrating the new technology into the mainstream technology industry, a shot in the arm for the disruptive tech. It remains to be seen if other African governments will take a cue from Kenya to spearhead the adoption of the blockchain. If this technology succeeds, experts say it could be the defining factor that will reawaken the transformation of African economies. IFM editor@ifinancemag.com

May - Jun 2018 International Finance

banking

Why women in the banking sector face a ‘double glass ceiling’ Although the banking industry has reached parity in terms of overall employee representation, women face a ‘double glass ceiling’, finds out Michael Ferrary, professor of human resource management at France’s SKEMA School of Business

s the UK’s gender pay gap reporting deadline loomed last month, mainstream news across Europe was dominated by reports of the inequalities women face in the workplace. Issues of biased pay and promotion have become a huge topic of debate in the last few years. It appears that, in most large corporations, women are less likely than men to reach C-suite positions, despite often making up the same proportion of the overall workforce. This is one reason why I examined the distribution of women in the banking sector in the ‘Gender Diversity in the Banking Industry’ report, in association with the SKEMA Business School Observatory on the Feminisation of Companies. The report found that although the banking industry has reached parity in terms of overall employee representation, women face a ‘double glass ceiling’; one when being promoted to management and another when being promoted to executive roles. In fact, although women make up 52% of banking sector employees globally, they average only 38% of middle managers and 16% of executive committees. The report examined data from 71 banks in

International Finance May - Jun 2018

banking

20 countries over four hierarchical levels including the board of directors, executive committee, middle management and total representation. The figures, which were extracted from 2016’s annual reports, clearly demonstrate that at the upper levels of the hierarchy, women’s representation decreases. This is because of the ‘double glass ceiling’ effect, which prevents women from ascending up the promotion ladder as easily as their male counterparts. What are the causes of this disparity? Many would blame unconscious bias, or the theory that men – often subconsciously – choose to promote males over their female counterparts. However, this seems like a lazy generalisation. One other industry theory that is growing in support is that women are more reluctant to put themselves up for executive positions, and so are losing out.

According to one oft-cited Hewlett Packard internal report, men apply for a job when they meet around 60% of the qualifications advertised, but women apply only if they meet 100% of them. This reserve is reportedly endemic amongst women who are naturally harsh self-critics and are less likely to put themselves forward for the top roles. The report surveyed thousands of – predominantly American – professionals and has been widely quoted in academic literature. It would certainly help to explain the ‘double glass ceiling’ effect we are seeing in the banking industry today. Whichever theory is true, it is clear that women are facing discrimination throughout the entirety of their careers in banking. But interestingly, the ‘Gender Diversity in the Banking Industry’ report also revealed that, with 23.83% of women, boards of directors are more feminised than executive committees at 16.45%.

This is due to governmentally imposed quota policies for boards of directors in some countries (for example France, Spain, Norway), as well as shareholders’ (customers, administrations, investors and medias) growing sensitivity to diversity issues. So, is this an argument for quotas? Well, studies do unanimously show that women are less likely to gamble with assets and are sound decisionmakers. Take the example of a study by Terry Odean, a University of California professor, who examined stock picking by gender for more than two decades. His seven-year study found that single female investors outperformed single men by 2.3%, female investment groups outperformed male counterparts by 4.6% and women overall outperformed by 1.4%. Why? The short answer was overconfidence. Men traded more and the more you trade, typically the more you lose — not to mention running up

May - Jun 2018 International Finance

banking

transaction costs. So, scholars know that employing women on boards is beneficial to banks as it helps to mitigate risk. Not only this, but recent history reminds us that women were noticeably absent from the worst offending firms during the 2008 financial crash. By implementing quotas and promoting more women, banks would not only send positive signals that can motivate their entire pool of female employees and contribute to its positive image but also guard against the ‘group think’ pitfalls that exacerbated the most recent banking crash. These are some of the reasons why many countries

impose gender quotas on the boards of their prominent banks. Yet there are cultural disparities at a global level. For example, although banks in countries like Canada, France and Sweden, where the level of women on boards is 45%, score highly in this category, it is worth noting that Japan boasts only 12% of women on its boards of directors. This can often be explained by the cultural expectations of women and their distribution in the country’s workforce as a whole. One observation of the last five years, particularly here in France, is that companies are becoming polarised in their recruiting habits. Where some industries are markedly

more feminine, with a high percentage of females in companies and a good working culture for women, some are becoming more masculine. Take, for example, the car industry. Less women want to work in these companies, which often scout for talent at engineering schools that are heavily populated by men. Conversely, the banking sector is becoming increasingly feminine and recruits largely from business schools, which boast high numbers of women, many increasing year-on-year. As in other sectors, reaching gender parity at the top levels of banking is a work in progress. Whilst it is unrealistic to fire male staff in favour of promoting women, work needs to be done to ensure that talent pipelining is unbiased and that women feel supported when going for the top jobs. With a wealth of data showing that women are adept at mitigating risk and ensuring that banks thrive, it is critical that finance globally becomes less dominated by men. IFM

editor@ifinancemag.com

Michael Ferrary, professor of human resource management at France’s SKEMA School of Business

International Finance May - Jun 2018

When numbers matter, not age 27-year-old Holy Rio is shattering myths in the banking sector. Not only has she excelled in the field of investment banking, she has overcome multiple perceptions to carve a niche for herself in the banking sector Sindhuja Balaji

International Finance May - Jun 2018

Holy Rio

May - Jun 2018 International Finance

INTERVIEW INTERVIEW Trailblazer

he story of Holy Rio is nothing less than an inspiration for women. Originally from the Philippines, Rio is pursuing her MBA from the University of Edinburgh Business School. Prior to receiving an academic scholarship, and moving to Edinburgh to study her MBA, Rio worked as an investment banker for Metropolitan Bank, in an emerging market,

Why did you decide to pursue a career in finance? I’ve always been interested in the idea of helping people reach their financial goals. Whether funding their children’s education or saving for retirement, being able to use my interest in figures to support others’ aspirations felt like a natural path for me. I studied Economics as an undergraduate and used this experience to find my first role in Finance. I haven’t looked back since.

How do you think you are challenging perceptions of women in finance? I feel there’s less of a stigma attached to women working in finance in Asia than there is in the West. It was a steep learning curve, but I guess the best way of challenging any perception is just to go out and do it, listen intently and surround yourself with people you can learn from. That’s the approach I’ve taken. What are the biggest strengths of women working in the banking sector? Right or wrong, there’s still a definite perception women are practical risk-takers relative to their male counterparts. I’ve used this to generate positive portfolio returns for my clients without exposing them to excessive risk. Women are also seen to be better at managing client relationships, which has help me build client relationships, and gain insight into their needs and drivers to develop trust. What are the most common prejudices you have come across in your profession? From my experience alone,

International Finance May - Jun 2018

managing a multi-million-pound portfolio which delivered impressive returns for high net worth clients. As a young woman, Rio has found that her age has been more of a restriction to career progression than her gender. Here’s how she has overcome gender and age barriers to carve out a niche in a male-dominated profession, and prove that age really is just a number.

the greatest prejudice that I’ve encountered in the finance sector is age, not gender. Having secured my first job with Metropolitan Bank and Trust Co. straight out of university, I found myself advising high net worth clients. They were initially sceptical about taking advice from someone in her early twenties, but I remained confident that I could change this perception. Once they realised I knew what I was talking about, they began to trust me. Ultimately, building relationships with leaders like these has taught me a lot.” The technology sector has managed to shrink the gender gap, but recent reports indicate that women in investment banking are still making less than half of what their male counterparts are. How can this be addressed? I haven’t experienced inequality myself. I’ve been fortunate to work for an institution that rewards success and merit above anything else, so as my performance improved so did my income. What made you quit a successful job to study an MBA? How do you plan on using this degree to further your career? I’ve always been a very driven individual, so taking an MBA was always part of my plan. Attending a western institution with the reputation The University of Edinburgh enjoys carries a lot of prestige in Asia. It was a natural choice for me. But what’s surprised me most in my time here is just how much I’ve learned from the wider political and social environment. Being in the UK as it exits the EU and learning about the investment

consequences from leading academics has been incredibly beneficial. To witness how key financial players such as the UK react to catalysts like Brexit is interesting, especially as these market responses are still heavily influence emerging markets like the Philippines. What is your plan after completing your MBA at University of Edinburgh Business School? I looked to the MBA as an opportunity to learn more about business in general and test new ideas. I’ve learned so much from the core subjects, electives and my peers, all of whom come from an incredibly diverse range of backgrounds and experiences. This created an avenue to exchange ideas. This confirmed that I have a passion for investing. I definitely plan to return to the world of finance which is why I’m looking at completing the necessary requirements to be a Chartered Financial Analyst. Longer term, I’m keen to apply the broader business skills I’ve learned to start my own finance consultancy. IFM editor@ifinancemag.com

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On the Job

ON THE JOB with Manoj Adlakha The SVP & CEO, American Express Banking Corp., India talks about the challenges and thrills of helming a crucial role at a major retail bank Madhurima Roy

International Finance May - Jun 2018

On the Job

Can you tell us about your role in American Express? As CEO of American Express Banking Corp., India, I have the good fortune to lead the business in India in one of the most exciting times in our history. We are one of the world’s most recognised and respected brands, and millions of loyal customers who depend on us to have their back. According to Boston Consulting Group, the digital payments sector in India is estimated to grow to US$500bn by 2020, representing around 15% of GDP. There is a large untapped market opportunity to move Indians to cashless, as currently mere 9%-10% of transactions are conducted electronically. As the world’s largest global payments network, driving more than US$1tn in commerce annually, we believe we are strongly poised to capitalise on this opportunity. As a CEO, I am responsible for managing the growth of American Express in one of the most dynamic and fast evolving payments market in the world. In addition to the overall success of the business in India, I am also responsible for leading the development and execution of long-term strategies with the goal of increasing shareholder value. I’m committed to continue our growth and expansion of our industry leadership. What are the challenges you face on a daily basis and how do you deal with them? Coping with a volatile environment is a common challenge to many leaders. War for talent, innovation, and regulatory interventions are some of the challenges that keep me going. It is very important to stay agile and plan to deal with challenges like these. Leaders, who face complex problems need to focus on being enablers and facilitators of nimble, agile teams who experiment with focused interventions, gather lots of feedback, rapidly learn, adapt, build and test out the next iteration. What I am proud of is that American Express has always stood for

values. It is important to have strong values because only then can you begin to lead others. What is your secret mantra to ensure your growth and development as a leader? The future is about adopting a growth mindset. To succeed in this new age we need to have the courage and the will to change. It is very important that leaders build a culture of growth mindset to drive performance. Over the years I have realised that a leader’s growth and success depend on how he/she manages talent in the organisation and helps them grow. For me, the key has been agility, courage, curiosity, inclusiveness and innovation that has held me in good stead throughout my career and helped me develop as a leader. How do you motivate and inspire your team daily despite hiccups or setbacks? As a leader, it’s your job to lead your team to greatness. Being the leader of a team is a huge responsibility, regardless of whether you’re the CEO or a department head. Every leader has his/her unique way of motivating the team. Some of the things that I do to motivate my team are: • Provide a vision and purpose: Creating an inspiring vision gives your team a purpose and something they can look forward to, and something they can work towards. • Set stretch goals: It is very important to have stretch goals for your teams. That will motivate them to work harder and achieve those goals and help the organisation grow and ensure personal growth. • Lead by example: Working hard, professional integrity and a can-do attitude are the qualities that always have a positive impact on your team members.

May - Jun 2018 International Finance

On the Job

•

Trust the team: Leaders, who inspire trust, garner better output, morale, retention, innovation, loyalty, and growth for the company and people. Trust is an important factor in achieving the goals you have outlined for the team. Empower team members: When you give team members the power or authority to do something with complete control, this helps to motivate them to achieve the goals or your vision. Constructive feedback from time to time results in an empowered, happier, and more productive team. Reward: When you praise one person in from of others, it encourages them to work harder or perform better. When a reward is linked to a performance, individuals will work even harder and will be more committed to their task. Having their back: It is very important that you watch out for your team in crisis and ensure that you help them out if they falter. It is equally important to give constructive feedback to help them achieve their goals and that you are there watching out for them.

How do you power through hectic days? Planning your day is very critical and if you love your work then that will be enough to power through the day very easily. A highly engaged and motivated team also helps you to look forward to the start of the day. Listening to music helps me unwind. Looking forward to the weekend when I can spend time with my family and friends also gives me that extra impetus to do a good job. On a scale of 1 to 10, how would you rate your daily stress levels? Stress levels could be high depending on situations–what is

International Finance May - Jun 2018

important is not to get fettered by it. I am a diehard optimist and believe that it’s not the load that breaks you down, it’s the way you carry it. What is your pre-work day routine? I’m a morning person and find it good to get started early—that’s when I’m most focused. The first thing I do in the morning is to go for a walk and try to introspect. I check my mails soon after, just to make sure that there aren’t any major needs or questions or outreach from business partners or colleagues. Then I scan the news, which has become a habit now. I have a relatively long commute to office and that gives me ample time to think. It’s good to be locked up for a while because I get time for myself to do nothing other than reading and I try to organise what I really want to accomplish during the day. I generally try to get into office by 8:30 AM. What was the pivotal moment in your career? I have had a few impediments in my career. One, I vividly recall was 10 years ago when I took a break from corporate life to start my entrepreneurial venture which folded within a year. But the learnings from the failed venture made me more selfaware and developed more resilience in my character. I feel these two traits have been instrumental in defining the next chapter of my career. Share with us top five tips that make a successful CEO of a bank. • Quick decision making & dreaming big • The ability to deal with uncertainty • Adaptive and high level of curiosity • Clear purpose and vision • Empower to succeed What is your message for business leaders in the making? Leadership is a precious gift and we must value it. A good leader has

to have strong values and leads by example. He/She has to have an eye for detail without losing sight of the big picture. The person should be willing to take challenges. The ability to carry your team along with yourself is a vital leadership trait. IFM editor@ifinancemag.com

Banking

May - Jun 2018 International Finance

Why is a ‘Value Added Tax’ so important to the UAE? Experts say, instituting a value added tax in the UAE will drive its revenue expanse in a few short years. Mohammed Fathy, General Manager of Dubaibased tax consultancy Al Dhaheri Jones & Clark, explains its long-term effect on the region’s sectors and GDP percentage Sangeetha Deepak

International Finance May - Jun 2018

Mohammed Fathy, general manager of Dubai-based VAT consultancy Al Dhaheri Jones & Clark

May - Jun 2018 International Finance

INTERVIEW INTERVIEW finance

How do the UAE residents and large working population respond to the economic transition from being a tax-free haven? The Gulf had long been associated with being a tax-free haven. With the introduction of UAE VAT law, the cost of living may go up slightly, but the rise will vary depending on the lifestyle of people. How is VAT expected to affect non-oil sectors? Which are the sectors that will face its immediate repercussions? VAT is introduced in the UAE after in-depth studies indicating that there would be no impact on the business sector and the investment environment in the country. The implementation would not affect the country’s position and competitiveness. In fact, the UAE has implemented the lowest VAT tax rate on a global level.

International Finance May - Jun 2018

However, construction companies and real estate developers will have the immediate repercussions of VAT, in terms of cash flow impact, among others. As per the regulations, the sectors that are subject to five percent VAT include food and beverages, utility bills, private transport services, hotel services, entertainment, electronics, commercial rents, and cars and jewelers.

The other taxes that potentially might be introduced in the country could be corporate tax or possibly additional taxation on luxury cars because such is the case in Singapore. Eventually, I think the introduction of personal income tax may be necessary depending on the development in oil markets, and also in terms of reforms and what type of yields they provide and how the overall budget looks like.

The International Monetary Fund (IMF) also recommends levy of taxes on business profits. What do you think? Taxation is the backbone of any economy. According to the statement released by the Ministry of Finance “Currently, the UAE does not think of imposing tax on individuals’ income. But the UAE is working on other tax options. Yet, they are under study and analysis. It is likely that they will not be implemented in the near future.”

Will VAT raise percentage points in the UAE’s GDP revenue? Can you state an example? The tax is part of the UAE leadership’s vision for long-term growth. We expect non hydrocarbon real GDP growth to pick up from two percent in 2017 to 2.7% in 2018. The introduction of the VAT at five percent in January 2018 and the modest increase in import prices could raise average CPI inflation from two percent in 2017 to 3.6% in 2018.

INTERVIEW finance

What are the sectors zero-rated and exempt as part of the GCCwide agreement? Why is there an exemption? There will be some exemptions for big-ticket costs like residential rent, real estate sales (except first), whereas certain medications, international airline tickets and school tuition will be zero-rated. Higher education, however, will be taxed in the UAE. Extra costs parents pay to schools for uniforms, books, school bus fees and lunch will also be taxed, and so will real estate brokerage costs for renters and buyers. What are the long-term VAT benefits the UAE economy will enjoy? VAT would support the economic development witnessed by the UAE, as well as enable it to compete with the world’s most advanced economies. VAT will help the country reinforce its economy by diversifying sources of revenues and help fund public services. The long-term impact will take a few years to crystallise after the introduction in 2018, especially as this system will take time to be streamlined across all industries. What are the rising concerns after the new VAT system has been implemented? Firstly, any entities having to manage and pay VAT will see their costs increase on both: one-off and ongoing basis in order to meet compliance regulations. This will place an additional financial burden on businesses against a backdrop of often rising costs and increasing customer price sensitivity. What are the challenges presented to businesses at this time? How have they adapted to the economic change? Operational readiness and system readiness from business side are the main key challenges at present.

Businesses will be required to provide essential information to the FTA, as part of the compliance audit procedure. Additionally, it will be essential to maintain financial and accounting details for five years. Gradually, with guidance and more clarity from authority on the grey areas, businesses are on the path of streamlined adoption of this transformation to a great extent. What are the after-measures taken to control violations in consumer goods’ price hike? Like any economic overhaul, the implementation of VAT has not been entirely devoid of drawbacks. Some unscrupulous businesses saw it as an opportunity to manipulate the prices of goods under the guise of obeying the new law. Thousands of inspections have been carried out across all emirates to ensure customers’ rights are protected and that shops are not illegally rounding up and failing to give the right change, with consumer affairs inspectors scanning products every day to detect price manipulation by retailers. The Federal Tax Authority has urged consumers to verify the VAT amount on prices displayed in tax invoices and asked all UAE consumers to demand tax receipts from retailers when purchasing products or services to prevent attempts to manipulate the tax system. The Authority had launched online instruments and services to enable consumers to easily verify the value of the tax—namely, the VAT Calculator, to ensure the issuer of the invoice is actually registered with the FTA, through the TRN verification service. Overall, the services were launched to protect consumer rights and prevent efforts to take advantage of the UAE tax system to manipulate prices.

At the outset, all companies should cooperate and respond to the requirements of the Federal Tax Authority to speed up the administrative process. Timely tax registration, proper disclosure of requisite information and VAT lodgement on time will help the authority to ensure proper VAT compliances across the country. IFM editor@ifinancemag.com

What necessary standards should be implemented to efficiently proceed with the new VAT system?

May - Jun 2018 International Finance

finance

Technology revolutionising tax collection in Europe 64

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International Finance May - Jun 2018

finance

The furore over data protection has reached an all-time high. While the world chastises Silicon Valley for altering reality on the basis of social media behaviour, Europe is increasingly intrigued by the use of technology for tax collection. Nicholas Hallam, CEO of Accordance–a specialist firm in cross-border VAT, talks about how real-time VAT reporting will change the way tax is collected in the EU

ata is currently all the rage. From the ongoing revelations of the Facebook profile harvesting scandal, through to the EU’s attempt to defend individual privacy in the digital age in the shape of GDPR, it’s apparent that there is now furious pushback against the unquestioned automated gathering of online information about individual consumers by global technology corporations. We are outraged by the idea of the algorithms knowing us too well, that our votes and purchases are a subject of easy manipulation. Even Mark Zuckerberg concedes that regulation may be a necessity. Nevertheless, Big Data isn’t going away. While Silicon Valley is receiving a global scolding for its presumption (not least by the EU) in reorganising

civilisation on the basis of Facebook ‘likes’, tax authorities (not least in the EU) continue to view automatic electronic data capture as the key to a future of effective tax collection. This July, Hungary introduces real time VAT reporting. Details of all B2B transactions with a Hungarian VAT amount equal to or greater than 100,000 forints (approx. €320) will need to be reported immediately and electronically to the Hungarian tax authorities. Though the primary target of the measure is domestic Hungarian businesses, many EU (and UK) companies selling into and operating in Hungary will be affected. We are fast approaching the implementation date, but definitive details of reporting requirements are not yet available. Nonetheless, technical challenges for business will

Nicholas Hallam, CEO of Accordance – a specialist firm in cross-border VAT

be significant; as soon as the relevant invoice is raised, its data must be automatically transmitted to the tax authority. (Is your system set up to do that?) Hungary intends to operate a strict penalty regime for backsliders. The numbers are eye-watering: anything up to €1600 per noncompliant invoice. Hungary is following the example of Spain, which brought in Immediate Supply of Information (also directed at VAT collection) last year. But whereas Spain had postponed the start date of ISI because of protests from business, Hungary—an altogether more severe political and fiscal entity—is expected to push on through any resistance. The combination of uncertainty and aggression creates jeopardy for businesses; it would be unwise to ignore the issue. In any case, in the medium term if not before, it is likely that various forms of real time VAT reporting will force themselves on the attention of all EU businesses, irrespective of their wishes. Most EU member states are actively considering implementation, and the departing UK is starting with VAT in its Making Tax Digital programme, due to be rolled out next year. Data will be piled on data: for the foreseeable future, electronic reporting will run in parallel with the filing of traditional VAT returns. (And maybe permanently, as tax authorities will be extremely wary about surrendering any source of information). It will be crucial for businesses to ensure that the outputs of these various reporting schemes agree with each other; there is the data, and there are the facts and interpretations behind the data: it all

May - Jun 2018 International Finance

finance

VAT is the fastest growing source of revenue for EU member states; they are desperate to keep control of it, and determined not be left behind by the accelerating digital economy

must flow together. Italy intends to roll out a related real time electronic invoicing scheme in January 2019. The Italian regime differs from Spain and Hungary in that the invoice won’t be sent to the tax authority just for the purposes of reporting–it is sent at the issuance stage to the tax authority who checks the invoice data, verifies it, and only then sends it on to the customer, on behalf of the supplier. This is known as a ‘clearance model’, under which tax authorities audit and monitor transactions in real-time. It is used in Turkey and some Latin American countries. The driver for real time reporting is increased revenue collection and improved fraud prevention. VAT is the fastest growing source of revenue for EU member states; they are desperate to keep control of it, and determined not be left behind by the accelerating digital economy. The annual EU VAT gap (the difference between VAT due and VAT collected) is c. €150-170B. The European social model depends on keeping the VAT gap in check. Hungary itself generates more than half its revenue from indirect taxes, and has a successful history of closing its VAT gap through major technical interventions. Real time reporting is an extension of that policy. VAT may have originated in Europe, and colonised the world, but real time VAT reporting is an import to Europe from Latin America: it was developed to address chronic unsustainable VAT gaps in the region. Spain, with its close ties to the area, was the natural early adopter of the new digital tax culture. The rapid implementation of real time reporting may suit individual EU

International Finance May - Jun 2018

member states, but what of Europe as a whole? How will consistency and coherence be maintained across the EU27? In truth, real time reporting sits extremely uneasily with the European Commission’s own VAT collection and fraud prevention plans. The European Commission’s argument has always been that the best defence against fraud is tax authority cooperation and cross-border process harmonisation. This is, for example, the thinking that dominates the Commission’s recent VAT Action Plan, with its ambitious scheme for a ‘definitive’ EU VAT framework. But member states suspect a power grab on the part of Brussels, and in any case doubt whether the Commission could ever implement a workable system in a reasonable timeframe. As the EU VAT Commissioner has herself recently admitted, the pace of technological change keeps on making large scale bureaucratic solutions immensely difficult. The Commission is forever responding to the problems of the previous decade. Real time reporting, by contrast, is being implemented completely differently in Hungary to how ISI was in Spain; and Italy and the UK will be different again. Indeed, we can generally expect member states to implement in ways that reflect their specific needs, rather the supposed interests of the European polity. Digital reporting demands will increase for businesses; but obligations will be inconsistent from country to country. Companies will have to keep up with varying changing technology requirements, and, perhaps most challengingly, must develop

mechanisms to deal with the more proactive interest from tax authorities that is sure to follow. IFM editor@ifinancemag.com

Nicholas is responsible for overseeing Accordance’s international consulting, compliance and sales teams; defining the company’s position in a complex and changing marketplace; and developing a long-term strategy for the business. He was, along with David Stokes and Bart O’Toole, one of the founders of Accordance, and is interested in creating and fostering a positive and dynamic working environment, where success is driven by imagination and empowerment, and relationships are built on respect. Nicholas career-changed into VAT in 2000 after a brief period as an academic: he holds a BA and MPhil from the University of Cambridge. He is a regular attendee at the International VAT Association, and is focused on increasing public and business awareness of European VAT policy– particularly the political and commercial implications of the European Commission’s VAT harmonisation agenda. He writes regularly on European VAT, and has recently featured in The Telegraph and Accountancy magazine.

OPINION

Guanming He

Are firms operating under financial constraints more susceptible to stock price crashes? Guanming He, Professor of Accounting at Durham University Business School, based upon his research paper Financial Constraints and Future Stock Price Crash Risk, along with PHD student, Helen Ren tells us what could be the possible reasons for a companyâ&#x20AC;&#x2122;s stock price to crash International Finance May - Jun 2018

OPINION

tock market crashes are not uncommon in the marketplace and the risk of a crash occurring is, understandably, likely to cause uneasiness within a firm as this can have huge ramifications not only for the organisation, but also the economy as a whole—just look at the 2008 global financial crisis for a perfect example. There are a huge range of factors that can cause a firm’s stock price to crash. Whether it be external factors such as changes in government regulation and a prolonged period of excessive stock rises, or internal factors such as changes in management, financial announcements or a knock to reputation. Even in recent weeks we have seen one of the world’s largest and most well-known firms, Facebook, experience a stock price crash, dropping abruptly by 16% in the immediate aftermath of a recent data breaching scandal, which reportedly involved Facebook’s harvested user data being used for political gains by consultancy firm, Cambridge Analytica. This story serves as a stark reminder that no public company

is exempt from this risk—even the world’s biggest firms. Not only do stock price crashes damage the firm, they hit the investors too. As a firm’s stock value drops shareholders can see their investments decrease dramatically in worth. In the long-term this can cause irreparable damage if shareholders then decide to pull their investment, or if a firm fails to secure further investment in future, so it is no wonder that those at the head of public companies look to do everything possible to prevent such situations from occurring. Attempting to increase a firm’s stock price whilst simultaneously preventing a crash can prove to be a tricky balance to achieve. However, there are some firms which may find this much harder than others. In my recent study, conducted with my PHD student, Helen Ren, we researched the impact that financial constraints can have on the possibility of a firm’s stock price crashing, using a large sample of U.S. listed firms for the period of 1995-2016. Defining firms experiencing financial constraints as those who were facing difficulty in funding their desired investments, we found that such firms were more likely to be at risk of a stock price crash than

others. But why is this? My research explored a number of factors that can contribute to a potential crash. Two such common occurrences are: Bad News Hoarding Firms that experience financial constraints are a lot more likely to feel the effects of bad news than those firms which have available funds and are vastly more financially secure, as bad news and its potential to damage a firm’s reputation can drastically increase the costs of issuing equity and debt. Managers at the helms of financially constrained firms have valid reason to want to hide bad news, at least until they have secured the vital external funds needed for company development. However, withholding bad news from customers, employers and other stakeholders is not always the smart choice to make. With a firm’s environment changing constantly and unforeseeably, managers will find it difficult to not only anticipate but also control bad news, and at some point the ability of a firm to withhold this information will hit a threshold. All the hoarded bad news will become uncontainable and, like the straw that breaks the camel’s back, will be released at once, resulting in a sudden, dramatic price drop—a stock price crash. Not only will bad news hoarding cause a stock price crash directly but, as the withheld bad news accumulates, stock prices will become increasingly overvalued, leading to a higher risk of future stock price crashes which could be even more damaging for the firm. In essence, with strong incentives to secure external finance, firms experiencing financial constraints are more likely to withhold bad news, and thus have a much higher risk of a future crash compared to unconstrained firms who can deal with impacts of bad news. High Default Risk Firms that experience financial constraints and lack extra available

May - Jun 2018 International Finance

OPINION

Firms that experience financial constraints are a lot more likely to feel the effects of bad news than those firms which have available funds and are vastly more financially secure, as bad news and its potential to damage a firm’s reputation can drastically increase the costs of issuing equity and debt.

cashflow are a lot more likely to experience difficulty in financing their investment needs and, as a result, far more likely to take out loans and other means of short-term financial assistance. However, this lack of funds can also leave some companies with such little money that they are unable to regularly reach the legal obligations to repay any debt payments and loans they may have used, creating a higher default risk. A crash resulting from corporate failure is more likely to occur to a firm with high default risk, thus financially constrained firms are considerably more prone to stock price crashes. Although financially constrained firms are much more likely to experience a stock price crash, there are some tactics that managers and owners can utilise in order to decrease the risk of a crash occurring and help ensure their firm’s growth and survival.

of hoarding bad news, and as a result, reducing the risk of a future crash. This strong corporate governance can be achieved in many different ways, one of which for example, could be granting the firm’s outside directors with more stocks or stock options to incentivise them to better monitor firm management.

Strong Corporate Governance Bad news is much more likely to arise when conflict exists between shareholders and the firm’s management. This bad news might be attributed to various factors; management issues, concerns about job prospects, personal reputation, or even managers being offered compensations to withhold bad news or act unethically for shortterm gains. Ensuring a strong and united corporate governance not only puts management under intense monitoring but increases their accountability to staff, customers and investors. This reduces the likelihood

Minimising Tax Although in some cases a firm attempting to pay the minimum amount of tax that is legally possible may provoke some bad news for an organisation, it is likely to generate a lot more internal cash flow. By looking at alternative methods of tax payments, reducing the firm’s tax legally will reduce pressure, alleviating the financial constraints and default risk and creating more money for the firm’s investments. However, this may not always be adjudged to be ethical by all, and should therefore be approached with transparency and caution.

International Finance May - Jun 2018

It is important that firms who are financially constrained investigate ways in which they can alleviate these constrains so that they are in less risk of a crash, and inevitable corporate failure. IFM editor@ifinancemag.com

Increasing Credit Ratings Not only does a low credit rating imply a shorter distance to default, but it also means that a firm can find it difficult and costly to access external funds for investment. Therefore it is important for managers heading financially constrained firms to look at alternative ways to boost credit ratings, such as increasing information transparency by disclosing more valuerelevant corporate information to the public, so that their companies are less prone to default and the likelihood of experiencing a stock price crash.

Guanming He is an Associate Professor in Accounting at the Durham University Business School. His research areas focus on financial reporting and disclosures, insider trading and financial analysts, and has had his research published in prestigious journals such as The Financial Review, The Review of Accounting Studies and The International Journal of Accounting.

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The real reason why research firms exude market intelligence Global research and advisory firm MarketsandMarkets has clapped eyes on â&#x20AC;&#x153;off-the-shelf, readily available research on next-generation high-growth use cases and technologies, which will impact the future revenues of companies,â&#x20AC;? says CEO Sandeep Sugla Sangeetha Deepak

What inspired you to establish a research and advisory firm like MarketsandMarkets? I recognised a huge gap in the market. Most major research companies are busy researching mature technologies and ecosystems. In contrast, we focus on off-the-shelf, readily available research on next-generation high-growth use cases and technologies, which will impact the future revenues of companies. Every company is looking to tap new opportunities

International Finance May - Jun 2018

before their competitors. Ecosystems are becoming fairly complex, extended and converged. There is currently no other source that provides deep-dive market analysis on such opportunities and/or all associated markets, other than MarketsandMarkets. Our business model has transitioned since we launched in 2010, from the sales of individual research studies to complete annual engagements with companies. Our interactive, cloud-based market intelligence platform,

INTERVIEW markets

Knowledge Store, works on the concept of “connected markets.” At the click of a button, it brings together known and unknown adjacency in terms of markets, technologies, ecosystems and revenue impact on businesses. It also provides an extended lens on revenue drivers that will impact the revenues of our customers as well as their clients and their clients’ clients.

Can you elaborate on MarketsandMarkets’ nature of work? MarketsandMarkets provides annual engagements with companies through a combination of research studies (delivered through Knowledge Store), advisory services (access to all of our SMEs/analysts) and custom consulting services (reports developed with a high level of personalisation). Our clients can access our offthe-shelf research on any market/ technology/use case to identify highgrowth markets and their growth drivers. Clients can also access a deepdive segmentation of each ecosystem and estimate what revenues can be expected from them. We realise each client has specific needs, which may not be fully met by our syndicated research (multi-client) studies. Taking this into consideration, we decided to customise our research to match the specific needs of our

Sandeep Sugla, CEO MarketsandMarkets

clients at no additional cost. Such customisation proves handy in the backdrop of constant innovation and the blurring boundaries of ecosystems. Companies want to know what will impact their product development, prospects of tapping new markets and acquiring new targets, partnership models, customer acquisition and their position in the overall competitive landscape (within their industry and outside their industry). While most companies provide pullbased advisory support, we provide integrated full-year engagement services combining both push and pull strategies wherein our client service team proactively maps companies’ key business objectives, key business initiatives and their quarterly goals/ challenges and works proactively to provide insights ahead of their internal sources. What type of research studies do you conduct? We have off-the-shelf research on more than 30,000 markets and factors that have supported or hindered their growth. Our reports provide similar insights on a company-level, identifying top market players as well as what impacts their revenues (in terms of opportunities and threats). What is the value proposition of your company in terms of its core focus and offerings to all your clients, including Fortune 2000 companies? A large majority of Fortune 2000 companies rely on MarketsandMarkets for their revenue decisions when it comes to emerging technologies, use cases, markets, partnerships,new products and services. Our competitors cannot match the depth and breadth of our studies. They may provide about 150 magic quadrants a year while we provide research on more than 30,000 markets (technologies and use cases). Our ongoing engagement provides proactive, personalised insights in terms of go-to-market strategies, sales

battle cards, key positioning, detailed competitive market share trend analysis and life cycle management of products. Our client service team maps companies’ key priorities and initiatives and builds deliverables. In terms of pricing, we are relatively costeffective in comparison with the Big Four of research and consulting. How is MarketsandMarkets different from other research and advisory firms such as Information Services Group (ISG)? We are the only company that provides revenue estimations of new ecosystems and identifies the impact of adjacent ecosystems/ converged industries on revenue growth. We also provide information on the current competitive landscape. We have a competitive edge over the Big Four consulting firms because of our existing off-the-shelf research. Companies approach MarketsandMarkets before they reach out to any of these firms. Also, later this year, we will be introducing a new, unique research platform that combines our proprietary analyst research and artificial intelligence, which will surely disrupt competitors like Gartner. Our mechanism is built to handle issues of bias, customer requirements and interactivity; with this, companies can improve their ratings. This platform will also predict ideal pairings between the buyer and seller sides. How does your company help B2B clients seek new market opportunities and drive future revenue? Existing revenue sources of companies are depleting, and new revenue sources (newer technologies, use cases, markets, partners, clients, value-added services and products) are expected to replace them. The introduction of new use cases and technologies has equalised the playing fields for legacy companies and startups.The key is to stay ahead of the

May - Jun 2018 International Finance

INTERVIEW INTERVIEW markets

curve. As a result, companies desire these insights now, if not sooner. They approach us, as we are ahead of our competitors by at least six months to a year. Being the world’s largest research firm, how do you identify new market entries for growth? This is a very interesting question. What is critical to market entry is to evaluate all the possible adjacent markets, technologies, use cases and partners which are likely to impact a company’s revenue in a new market. Other research firms cannot match our broad coverage on adjacent markets. As a result, companies decide to work with us, as the chances of missing out on important next-generation revenue opportunities due to unknown adjacencies are relatively less.

How do you also help clients with product strategies and releases? We identify the potential use cases and applications for any product. We are probably the only firm which helps companies to gauge what revenues they can expect from the product in each of the micro applications/

markets. We provide information on “connected markets” and ecosystems for the product, proactively identifying opportunities and threats, positioning and gaps in the offerings. Our engagement goes to the extent of identifying key clients and their burning issues and gaps with existing products in the market. What are the key challenges you faced while enabling your company to achieve 100% revenue growth over the last two years? Growing was easy; we were researching critical topics that no one else had, and we provided free customisations. This was enough for us to grow 100%. However, since our business model is now changing from transactional to annual engagement, our single biggest challenge is building a client partner team that services our pool of our existing 6,500 clients. Therefore, we are rapidly hiring client services associates. The role will be based out of client locations in most large cities across the U.S. with an initial 3-month training period in our Pune, India office. Out international

“ Evaluating all possible

adjacent markets, technologies, use cases and partners likely to impact a company’s revenue is critical to new market entry International Finance May - Jun 2018

training program enables employees to learn from some of the best minds in the world while gaining a global perspective on the connected market ecosystem. What is the one thing you swear by as an entrepreneur? One thing I swear by is growth, growth of my clients, and the growth of my employees. We cultivate our employees by empowering them to lead and make decisions on their own right from the get-go. We encourage the employees to think of the management team, myself and our chief operating officer, Shailendra Singh, as resources to use to achieve their goals. We highly value continued learning of all our employees, both within the company and within their personal careers. MarketsandMarkets Academy (MMA) was started with this purpose. Training and advanced certification programs are available for employees at all levels of experience—on the research as well as the client services side. MMA’s vision is to be a hotbed of learning not only for our employees, but for our clients, as well. We also believe in creating an environment that allows our employees to follow their passion. It is common in MarketsandMarkets to see analysts with years of experience in research switch to a business development role and vice versa if they so choose. We take pride in shaping the all-round development of our employees as citizens of the world. What are your insights on retaining top talent? We have a simple belief at MarketsandMarkets, “See dollars, show dollars.” If my analysts or sales team can create a tangible impact on the revenues of our clients, the same will be reflected in our business with these clients. We simply share the upside with our people. We have launched a strategic growth program wherein each analyst is mapped to a few clients. If they

INTERVIEW markets

bring tangible revenue impact to the businesses of these mapped clients— and if the same is measurable—we share the upside of our growing business with these clients. This brings our analysts unmatched growth in the industry, making it a win-win proposition. Can you tell us more about the international training program for your employees? Why was it launched? We launched MarketsandMarkets Academy, which train our employees on how to consume research and map it to clients’ businesses; this helps them ask the right questions to our clients.Our Academy Graduates bring high energy and unmatched zeal. We have married their growth to our clients’ growth. What are the challenges and opportunities you identify with as an entrepreneur in this industry? As a bootstrapped startup, our initial focus had been on growth. Now that we’re growing 100 percent year over year, we’ve consciously decided to

focus more on establishing a healthy work culture and team building, which is key to sustenance and operational scale-up. Your company received $56mn in growth equity led by FTV Capital. Can you tell us more about this? We raised funds to acquire companies in this space. We are still evaluating target companies for the same. A portion of these funds shall be consumed for organic growth, which currently looks promising. We have diluted a minority stake to raise these funds.We chose FTV for their experience of working with Indian companies and networking support, which will be key to our growth. What are your plans in the pipeline for 2018–19? We intend to convert our transactional relationships with our existing 6,500 clients into annual subscription relationships along with engagement with a team of 120 client partners. We are hiring a CMO to position our brand more effectively and expanding our staff to handle growth efficiently. We aim to double our base of client partners every

year till we reach our goal of 10,000 subscriptions. IFM editor@ifinancemag.com

Sandeep is the Founder and CEO of MarketsandMarkets. Always an entrepreneur at heart, Sandeep has 18+ years of experience in consulting and technology. He founded and grew MarketsandMarkets into a 1000+ resources organisation in a span of six years. He is an innovator and is on the verge of introducing disruptive technology platforms in the Market Research space. With a vision to revolutionise the market research industry, Sandeep is driving MarketsandMarkets towards a perfect integration of technology, innovation and excellence.

May - Jun 2018 International Finance

business leader

The unmatched stardom of â&#x20AC;&#x2DC;Accidental CEOâ&#x20AC;&#x2122;: Anne Mulcahy The story speaks the exceptional character of former Xerox CEO Anne Mulcahy, who reformed the downfall of a Fortune 500 company and had a voice to disagree Wall Street

Sangeetha Deepak

International Finance May - Jun 2018

business leader

The master of I don’t know. Accidental CEO.

nne Mulcahy once confessed the description stems from the fact that she was never conditioned to be the boss of Xerox Corp. So starting in 1976 and two decades later, it was Mulcahy’s first senior job at Xerox as Vice-President of HR and then, she became the Chief of Staff for former CEO Paul Allaire. At the time, many including Mulcahy did not foresee her window of opportunity with Xerox to transcend boundaries for both: the company and her career spanning the male-dominated corporate force. Her relentless efforts and sharp organisational skills was in the spotlight, but they did not document the profound experience of a CEO. Of course, most CEOs carry inherent leadership traits. Many of them have a vision. But are they all capable of reviving a debt-heavy company, like Xerox?—Anne Mulcahy was. In early 2000, Xerox’s poor growth was seeking a positive turnaround. The company’s stock slashed from US$63.69 to US$4.43, prompting some of the brightest minds to quit. The following year, Xerox struck a US$17bn debt for the sixth year in a row. Its previous sales plan was a

hard fail and the Mexico unit was under Securities and Exchange Commission investigation, unzipping an unconventional leadership change in the century-old company history: to name Anne Mulcahy as the first woman CEO. Everything about Mulcahy was unorthodox. She was not the typical MBA graduate the world would second-guess. Mulcahy studied English from Marymount college and devoted 16 years of her work experience in the company sales—not the sort of resume that Wall Street would confide in to reform a tanked corporate giant. After investing 24 years in the company, her working relationship with Xerox was deep and familiar. For a long time, Mulcahy contemplated on leaving the company to spend quality time with her children. But a chain of events compelled her to stay. Her predecessor Paul Allaire, who spent 33 years in the company retired as CEO in 2001. In a few months since Allaire, Mulcahy became the President and the CEO-in-waiting. And she was forced to encounter Wall Street’s hard-hitting questions. The chance to encourage IBM CFO Rick Thomson to succeed Allaire seemed more like

“

You have to live the mission... love what you do

a responsible choice for columnists of daily news journals to flash a more powerful morning headline. Afterall, Wall Street loved him. Anyway, in the same year the fated meeting that determined her leadership role took place in the presence of her family, top chief executives, auditors and a few significant others. Mulcahy’s husband Joseph Mulcahy was there accompanied by their two boys in blue blazers, who eagerly awaited to watch their mother create a rewarding moment for them all. During the day, some retirees asked her questions, but nobody evoked an unpleasant boardroom scenario. And in August she was formally announced the CEO of Xerox and chairman in January 2002. There was nobody more surprised than Mulcahy herself. To this day, her tenure in Xerox inspires many women leaders on the global business front. At the event series View from the Top, 2004-05, recalling her first instinct “I took on this position feeling equal parts of excitement and dread,” she exclaims. Director of Corporate Finance Analysis Joe Mancini Jr. recalls his time with Mulcahy, when he assisted her through the company’s US$30bn balance sheet, and talked about debt structure, taxes and currency moves. All of this was done to help her understand the company mired in great financial shock. Mulcahy says, “It was an unusual situation for him— tutoring the CEO.” In an interview with Discover Your True North, she narrates how the Xerox crisis stoked confusion and anxiety in her: “…it felt like being on the deck of the Titanic. It was a true crisis. To make it worse, my background was not in finances, or even in R&D. I was a salesperson first, and then worked my way into an executive role, but when it came to a crisis of this nature I really needed

May - Jun 2018 International Finance

Sales Representative

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how the years in Xerox made Anne Mulcahy an unforgettable CEO Vice-President for Human Resources

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help.” After a string of fiscal crisis, Xerox was blanketed in bankruptcy, and was advised to appeal for legal immunity from creditors, but Mulcahy opposed the idea. There was very little hope to bring back its financial stability, let alone firming up its global presence in the long run. In what would quickly become a disaster, she formulated a sensible direction and executed it perfectly. Undeterred, Mulcahy led discussions with more than 100 top executives to assess their capabilities. “When there are no logical reasons to stay, it’s good to have some illogical ones” she says. “Reasons like ‘I can’t abandon the ship’ or ‘If I left now, what would my team think?’” Before she could reach the finish line, Xerox stock fell to a historic low of US$4.30. Years later, no one could believe Mulcahy made it. She became the cure not only to end the financial trouble, but also to ignite a new beginning. Xerox, in three years reached US$91mn earnings from loss of US$273mn in 2000. By 2004, the company sales profit climbed US$859mn, and its stocks rose to 75% recovering from a loss of six percent for the Dow Jones Total Stock Market

Index, as put in The Wharton School, University of Pennsylvania report. But in this mission Mulcahy was not alone. Another Xerox loyalist, Ursula Burns, the then senior vicepresident of corporate strategic services, who started her career with Xerox in 1980 as an intern got roped into the situation to neutralise its complexities. Together, Mulcahy and Burns found themselves waist-deep in the company’s financial dispute. Picking up on this kind of a catastrophe, Mulcahy spoke to bankers, re-assured customers and informed employees. As Burns remembers, Mulcahy travelled three cities in a day to level the situation. She said, Mulcahy was perseverent: “‘If this place is going to fail, it’s not going to be because Anne Mulcahy slept.’” Her long-term vision for growth plan squeezed the essence of a true strategist. She prioritised 30% cost cutting, stressed on productivity increase every year, swiftly settled the company’s SEC litigation and emphasised on heavy R&D funding, according to the book Strategic Management. Mulcahy’s loyal leadership was hard to ignore, especially in a company known for its traditional

management. Once, a company CEO’s over-enthusiastic suggestion to rework the culture, angered Mulcahy: “I am the culture. If I can’t figure out how to bring the culture with me, I’m the wrong person for the job,” she replied. Always straightforward and logical, Mulcahy had the courage to debate on Wall Street’s narrow views. Many CEOs will agree to disagree on her comments. The tension from Wall Street is ‘a huge problem’ that might disable companies in the future, she said in reference to its next quarter’s report: “I talk with a lot of CEOs, and quietly to each other. ‘I’d love to say that I just don’t care and I’m just focused on the long term, but the pressure is extraordinary,’ I hope the next generation of leaders can reshape the way we interact with the financial community.” As Burns recalls, Mulcahy’s realistic thinking and kind gestures appealed to all employees. For example: she taught them to “save each dollar as if it were your own,”—and finally, there she is one of America’s top business leaders, disproving The Wall Street Journal. IFM editor@ifinancemag.com

May - Jun 2018 International Finance

STARTUP SUCCESS

The journey of America’s youngest Buttonsmith

14-year-old Henry Burner’s entrepreneurial success is one for the textbooks. The teen overcame challenges to become one of the youngest ‘Forbes 30 Under 30’ title winner and has established a multi-million dollar empire. But he is like any other youngster who loves to study and socialise

Find out how he manages this delicate balance Madhurima Roy

uccess is all about persistence and determination, and 14-year-old entrepreneur Henry Burner has proved this adage. While most teenagers his age are prepping for competitive exams or training to be athletes, Burner decided to chart his own route for success. The young teenager runs a US$20mn retail company Buttonsmith, which already has more than 250,000 customers.

International Finance May - Jun 2018

How it all began Mahatma Gandhi once said, “First they ignore you, then they laugh at you, then they fight you, then you win.” Being dyslexic, Henry struggled inschool but by the age of 10, dyslexia notwithstanding, he started Buttonsmith. Talking about how he built Buttonsmith Burner said: “When I was younger, I was really struggling in school because of dyslexia. The spring I was 10, I had a trading

STARTUP SUCCESS

post for frontier life. My mom asked me if I wanted to make cupcakes or cookies, but I said, ‘Mom, the baked goods market is going to be totally oversaturated. We need to make something durable.’ So, I pulled out my mom’s old button machine and made buttons. At the end of the day, I ended up with more beads than any other kid at school. It was the first time I felt really successful at school. When I got home, I asked my mom, ‘Can I make real money doing this?’ That was the initiation of Buttonsmith.” Now Burner, plays a large role in the company’s strategic decision making, and invests his breaks and weekends working on the company. Parental support makes Buttonsmith a dream come true Henry, who draws his entrepreneurial inspiration from Henry Ford, the founder of Ford Motors, derives a lot of support from his parents. “My parents have been critical to my success in creating and growing Buttonsmith. They’ve been supportive from day one, and because I have to go to school, they do a lot of

the day-to-day management that is needed.” Online vs brick and mortar stores Buttonsmith started from the farmer’s market before expanding online to Amazon and eventually, developing its own website. The company also sells products in 1,600 Walmart stores. However, Buttonsmith’s sales showed a significant upward graph after the business went online and that was a critical turnaround point. “When we started selling online, the ability to reach millions of people was transformative to the company. Since then we have greatly expanded out product lines into many affordable high quality products that allow people to express who they are to the world. Our margins are better by selling online than in brick-and-mortar stores. There are a handful of additional brick and mortar retailers that carry Buttonsmith products, but most of the company’s focus is online. Walmart generated less revenue— and considerably lesser margin—than

selling online. “We have, however, learned a great deal from the experience, and we are grateful for the opportunity to make our products more widely available and for the impetus to fine-tune our processes to scale.” Product designs and funding Starting with buttons and magnets, the company has expanded its product offerings and currently offers lanyards, dog collars, leashes, business cards, banners, etc. and is working to expand its existing offerings. When asked how these designs are executed, Henry said: “We have a mix of sources for our designs. We have an in-house designer who, along with my mom, creates many designs. We also use public domain art from classic artists, as well as licensing art from independent artists.” To stay ahead of Chinese competitors, Buttonsmith has optimized itself to have custom products made within minutes of the order being placed, and makes sure the products are in the hands of customers within two days. “That’s very difficult to do, and nearly impossible if an ocean separates you from your customers,” said Henry. The company has a unique patent for its Tinker Reel. Buttonsmith is bootstrapped so far, but is preparing for a round of investment. “Protecting the investments we have made in engineering and design through patents and copyrights is critical for our success, allowing us to reap the rewards of what we have own.” Going beyond the borders of USA After creating an impressive impact in US retail, Buttonsmith is strategising to spread its roots to Europe and other markets. “I believe Buttonsmith will continue to be important for me in the future. I love being an entrepreneur,” concludes Henry. IFM editor@ifinancemag.com

May - Jun 2018 International Finance

Event Review

How can Companies Ensure Core Data Responsibilities are Included in Key Roles? Ahead of the 7th Business Performance Management Conference, we spoke with Anwar Mirza, Global Head of Data Governance at TNT, about the importance of data management and how can companies ensure core Data responsibilities are included in key roles

Can you please elaborate on the importance of data management in the business? Businesses that have started up in the last 15-20 years will be more likely to have Data Management as a focus area and therefore will have established the Data Management as a function from the outset. For organisations that are older, the data explosion has forced them into formally addressing ‘the data problem’ for many reasons but mainly in order to ensure compliance with data protection legislation requirements

Anwar Mirza, Global Head of Data Governance at TNT

International Finance May - Jun 2018

(such as GDPR), brand protection in case of data breaches, and the need to ensure success of Digital Transformation initiatives. In addition, there is high demand from Data Analytics/Warehousing consumers as well as strategic imperatives of improved transparency, and last but not least, the Customer, Vendor and Employee demand. The main reason however, is by far, the fact that well-constructed data insights are able to open new markets, attract new customers, and bring new opportunities to every business. How can ‘Data’ be tangibly applied to the ‘top and bottom’ line of a company? This is not for the faint-hearted! It is a complex journey and requires a cohesive end-to-end strategy on how data is embedded and consumed by an organisation. A key responsibility of a Chief Data Officer is to make the organisation aware of the value of data at a corporate level and the value of the data dealt with by an individual. Virtually every C-level officer will agree that data needs to be treated as an asset. My suggestion is that it is vital to apply a detailed understanding of the drivers of key business processes along with the use of a specialised application of Time or Activity Based Management, and finally, a structured

sourcing, preparation, and processing of the data. As mentioned, this is not a mini project and requires a huge amount of cross-functional department collaboration. By being able to show a movement in the unit cost through poor data quality, the impacts can be extended into core areas such as Pricing, Cost-to-Serve Customer, Cost Management, Transfer Pricing etc. I therefore strongly believe that it is possible to tangibly value our data! The real question should be “If the C-level thinks data is an asset, why aren’t we all putting a tangible value to data?” How can companies ensure core data responsibilities are included in key roles? In order to answer this, we need to first look at what the challenges are. One of the issues encountered, is that the data subject is broad in its scope. Secondly, business owners have not historically accepted responsibility for their own data and IT have not done a good job in explaining the data subject to the business owners. Another issue involves the ever-changing technology creating a shortage of experienced and skilled data practitioners which goes hand in hand with the lack of education for the data subject. Another challenge involves the new segregation of duties for matters relating to data.

Event Review

Each of the above points needs to be therefore addressed if we are to ensure the data responsibilities are properly embedded in the organisation. Firstly, a formal data training programme is required at each job function. What’s more, organisations need to formally agree on the roles required in the business and IT. Thereafter, one must define which activities will become automated and which roles need to be reskilled. Consequently, necessary training must be provided for the reskilled workforce. Finally, according to the newly defined data processes, service levels and workflow approvals must be agreed upon. As the frequency of innovation and improved technology increases, the subject of data management is becoming broader, almost by the day. This poses the challenge of how to train the organisation and maintain up-to-date content with which to educate the organisation. Once the technology change is managed, the underlying process changes are relatively easier to manage. The next challenge is to regularly train and retrain the workforce. It is essential to recognise that the next generation workforce requires a different set of skills. This requires a structured and ongoing internal data training programme along with a management commitment to reskill the workforce. At the risk of stating the obvious, formally defined roles and responsibilities are essential. These have an essential part to play in a successful ‘social media style’ collaboration environment which will guide both management and workforce through to success. There isn’t a silver bullet, however, I don’t think anyone would disagree that once teams are aware and properly trained about the impacts ‘Data’ has, they will see the benefits and naturally

absorb responsibility. In a world of constant change, does budget have its place? This question needs to be asked very carefully and in a specific use case or context. If a person is held accountable for spend according to a set frequency and at specific points in time, then yes, we do need budgets for that. In my personal view, I feel that nearly everything must change in the areas of budgeting, planning, and forecasting. With the introduction of Machine Learning, Predictive Analytics, advanced Visualisation and RPA, we can increase the frequency of our reviews, forecasts and budgets. With the new technology, the accuracy of the predictions allows for much faster remedial actions. The more advanced companies are already capable of forecasted P&Ls with a very high degree of accuracy. The ability to adjust budgets should not be far behind that. What would you like to achieve by attending the 7th Business Performance Management Conference? I have four objectives and reasons to attend the 7th BPM conference. Firstly, I want to get feedback on a personally developed Data Governance framework and understand how companies are implementing the above either in part, in full, beyond, or not at all. Moreover, I would like to see where Performance Management specialists find white spots or consistent obstacles in terms of ‘Data’ hindering the ability to do their jobs as well as to find companies or individuals with whom I can share and develop best practices. Finally, I look forward to meeting delegates and the organising team at marcus evans. IFM

Anwar is a recognised authority on the subject of Data Governance, Master Data Management and Information Management. For the last decade, he has spoken at numerous global events covering forums for Analytics, Finance, HR, IT, Legal, Mobile, Shared Services etc. Anwar’s keynotes, panels and Masterclasses are a balanced blend of crossfunctional, business and IT perspectives presented in a logical flow. Anwar has developed his own unique Data Governance methodology and deep-dives into the critical areas that companies often struggle with and prescribes ‘Data’ as the new business imperative. His approach has been adopted by many multinational companies, software companies and consulting firms in the USA, Australia, Asia and Europe. With 29 years of experience at TNT, Anwar has a proven track record in Functional management, global project delivery, controlling core business processes, managing large teams, implementing applications and technology presented in the form of tangible top and bottom line benefits from the outset. For the past 6 years, Anwar has dedicated much of his personal time to lecturing at University level with a personal objective of bringing ‘Data’ into mainstream education.

editor@ifinancemag.com

The 7th Business Performance Management will take place from 23rd to 25th May, 2018 at Berlin, Germany May - Jun 2018 International Finance

INTERVIEW INTERVIEW Event Preview

Controlling key to management efficiency Ahead of the 7th Business Performance Management Conference, Frank Danesy, Head of Business Unit Control, Directorate of Operations, European Space Agency, Germany talks about the role of controlling in a strategic context

Could you briefly explain the role of controlling in a strategic context and your approach to this in your organisation? Together with planning, organising,

International Finance May - Jun 2018

and directing, activities related to controlling belong to the key functions of management. Controlling is an essential activity because it enables managers to track an organisationâ&#x20AC;&#x2122;s progress towards the achievement of its objectives and to detect deviations from the

intended course of action. Controlling has to be a continuous process that is embedded in each level of an organisationâ&#x20AC;&#x2122;s hierarchy. This includes the top-

Frank Danesy, Head of Business Unit Control, Directorate of Operations, European Space Agency, Germany

May - Jun 2018 International Finance

INTERVIEW INTERVIEW Event Preview

level of the organisation where strategic objectives are decided upon. In the strategic context, the choice of control metrics should be based on the specific strategic objectives contained in the strategic plan. These objectives are related to financial targets, the customer base, internal operations, and the organisation’s human capital. Once you have defined your strategy as an organisation, how do you track and control your progress towards achieving your strategic objectives? In order to be effective, strategic objectives have to be aligned with the organisation’s strategic vision and mission. Strategic objectives should be formulated so as to ensure that the organisation actually achieves its strategic vision and mission and does not stray from it. One of the key characteristics of any objective is that

International Finance May - Jun 2018

it is SMART (i.e. specific, measurable, achievable, realistic and time-bound). Strategic objectives are no exception. By making our strategic objectives SMART, we lay the foundation for the definition of the key performance indicators (KPIs), which, in turn, enable us to track our progress towards the achievement of our strategic vision and mission. How do you overcome difficulties in getting insights on business performance management from the business units? This is an interesting multi-layered issue, and in fact, the real crux of controlling. Three points come to mind: Firstly, the choice of metrics is essential and requires careful consideration. If a chosen metric does not allow a clear indication of whether progress is being made, it should probably not be used. Secondly,

some may argue that not all progress is measurable and therefore not all objectives can be measurable in the sense of being SMART. While this may be true, experience has shown that there are enough alternative ways of looking at objectives to find a meaningful metric. Thirdly, there is the human element. Some managers prefer “soft KPIs” (e.g. encourage employee buy-in, give constructive feedback, and display empathy). While these KPIs certainly have their place, their value in the strategic context has to be weighed against their ability to assess progress towards the bottom line. How do you deal with a certain level of resistance to certain metrics? Dealing with resistance has much to do with achieving a common vision of the desired long-term outcomes

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and the corresponding need to make short-and medium-term adjustments. A common understanding of the opportunities and risks is of paramount importance. If we, as managers, fail to take advantage of the opportunities and to avert the risks, we are not doing our jobs as we should. Ultimately, managers are accountable for their contributions to the achievement of strategic outcomes. It is the very reason why they hold a given role. The willingness to use meaningful metrics starts at the top of the organisation and cascades down. The more determined the topmanagement is to measure its progress towards a strategic goal, and thus lead by example, the more willingness there is in the remainder of the organisation to follow accordingly. In the end, it is all about leadership. What would you like to achieve by attending the 7th Business Performance Management Conference? The themes addressed in this conference will undoubtedly be

very stimulating and something to look forward to. I am particularly interested in hearing the views of other participants. Most of them come from business fields very different from my own and this profoundly adds to the diversity and therefore value of the event. Finally, I am also looking forward to networking and learning, because no matter how experienced we are, I believe that we can always learn from each other. IFM editor@ifinancemag.com

Frank Danesy is the Chief Controller and Senior Financial Officer of the Directorate of Operations at the European Space Agency (ESA). In this capacity, his responsibilities have included the oversight of the resource planning and utilisation of all of ESAâ&#x20AC;&#x2122;s manned space projects and mission

operations including those related to the International Space Station, the Rosetta/ Philae mission to the comet Churyumovâ&#x20AC;&#x201C;Gerasimenko, and the European Commission funded and directed Copernicus/ Sentinel missions. Dr. Danesy began his career with the Armed Forces and over a period of more 25 years he has held a variety of prominent positions in academia and the aerospace sector. He holds a Bachelor of Science in Business Administration as well as masterâ&#x20AC;&#x2122;s degrees in Business Administration (BU), Space Studies and Strategic Intelligence. His doctorate is in Business Administration with a focus on conflict management and leadership (FUB). Equipped with a commercial pilot license and instrument rating, Frank Danesy is an avid land-and seaplane pilot. In his leisure time he enjoys sports and playing the guitar.

May - Jun 2018 International Finance

INTERVIEW INTERVIEW Event INSIGHTS

Enhancing enterprise risk management capabilities in business Ahead of the ERM Middle East Conference, John Meakin, Group Chief Information Security Officer at GlaxoSmithKline discusses why risk is one of the biggest challenges in companies worldwide and the way ahead is to expand enterprise risk management capabilities

isk is a constant consideration for any organisation. Both an obstacle and an enabler, a pitfall and an opportunity at different times, the concept of risk, and how best to understand it, remains one of the most pressing challenges facing all manner of companies in practically every major industry

International Finance May - Jun 2018

across the world. However, with the advent of dramatic, iterative change being ushered in by emerging technologies, combined with an increasingly complex and fast-moving social, economic and political global landscape, anticipating risk has become more important than ever. To achieve this vital and constantly updating objective,

EventINTERVIEW INSIGHTS

organisations of every size, scale and industry are expanding their ERM (Enterprise Risk Management) capabilities. By preparing themselves to leverage new opportunities and avoid or at least mitigate the impact of potential threats, such organisations will gain the kind of resilience and flexibility necessary to survive and thrive in today’s rapidly evolving risk landscape. Why is ERM such an important part of business today? Business has always involved taking balanced risk decisions, but the number and pace of change of risks facing global businesses today is great than it ever has been. Technologydriven risks are a great example of this. Therefore, a rigorous and holistic approach to managing enterprise risks is essential. With the advent of technology in major businesses, what are the biggest challenges of effective implementation of risk management? The challenge for enterprise risk practitioners is to be able to identify, track and quantify the various risks and to assess them for remediation or acceptance. Technology-driven risks (such as cyber security) exacerbate this problem, as their identification of risks within systems requires significant specialist expertise. Nevertheless, technology can also be an enabler for the risk practitioners, as GRC systems have been developed as tools.

How can blockchain address the risks of data management? Blockchain presents us with an opportunity to both manage a particular set of risks of fraud and abuse of business documentation recording transactions, as well as to use blockchain to provide trust and reliability in risk definition and treatment registers managed in a large, distributed government or business environment. Can you explain the need for stronger security architecture today in business? Cyber risks have multiplied over the past few years and the number and skills of external “threat actors” with motivation and malicious intent to do damage to business have grown similarly. This was well illustrated by the Wannacry and NotPetya incidents of summer 2017. Therefore, it is essential for any significant business to take a joined-up approach to security, fitting together the wide variety of tools, processes and educated staff in coherent architecture. Only this way do we stand a chance of mitigating cyber risks on a broad front. How can a CRO enhance their role in an organisation? The CRO’s role is to be the leader of a conversation with all peers across the business about all sorts of business risks and provide a common “language” for that conversation, so that the risks can be (semi) quantified in a consistent way and balanced risk decisions made collectively by business

leadership. Therefore, the best tactic for a CRO is to be engaging, advisory, helpful and, above all, respected for their knowledge and ability to explain risks in applicable business terms. IFM editor@ifinancemag.com

John Meakin Ranked as one of the top 100 CISOs globally, John is a specialist in information security with more than twenty years’ experience. He has previously been responsible for leading systems security in Standard Chartered Bank, Reuters, the Royal Bank of Scotland and Dresdner Bank. More recently, he was the Chief Info Security Officer at BP Plc for three years and led Deutsche Bank’s development of a new security strategy and innovative security solutions to meet the latest threats. Since April 2014, he has been the Chief Security Officer for the leading international luxury goods company like Burberry and Richemont, supporting the varying needs of such renowned brands as Cartier, Montblanc and Chloe.

John Meakin will be speaking at the ERM Middle East Conference, organised by IQPC, from September 25-27, 2018 in Dubai, visit ermmiddleeast.iqpc.ae for more information.

Special 10% discount for International Finance subscribers to attend this event, quote ‘29502.001_IFP’ to enquiry@iqpc.ae to register. May - Jun 2018 International Finance

INTERVIEW INTERVIEW Event INSIGHTS

Compliance and the way ahead in business Alexis Walckiers, Chief Economist of the Belgian Competition Authority, highlights the importance of remaining compliant with emerging and evolving regulations regarding competition and antitrust

International Finance May - Jun 2018

EventINTERVIEW INSIGHTS

have breached competition law may suffer significant reputation damages, because the anticompetitive is known to their customers.

Can you tell us a bit about the ERM Middle East conference set to take place later this year? I am delighted to join the ERM Middle East Summit and highlight specific competition policy (or antitrust) issues that companies could be facing. I view my presence at the conference as a unique opportunity for us, competition authorities, to explain to those managing risks in companies which competition risks they face, and how they can minimise these risks.

imposed a total of €2.93 billion fines for the members of a truck cartel a year before! The fine is limited to 10% of the overall annual turnover of the company, which can be a very substantial amount, especially taking into account that the 10% limit may be based on the turnover of the group to which the company belongs when the parent of that group exercised decisive influence over the operations of the subsidiary during the infringement period.

So, what are these competition related risks? Fines for breaching competition rules can be significant. The European Commission has fined Google €2.42 billion for abusing its dominant position in June last year, and it

Are there additional risks? Yes, on top of the fine, companies can be required to compensate companies or individuals who have been harmed by the anticompetitive conduct at hand, in follow-on damages actions. Moreover, companies who

How can companies avoid these risks? Designing compliance programmes is essential. Companies increasingly inform their staff of competition rules and the associated risks. It is important that such programmes have a holistic approach, meaning that they cover all areas of the business, at all levels in the company. In particular, it is crucial that the incentives of staff are aligned with the overall objective of the company to comply with the law. For instance, such programmes will not be very effective if sales teams are told not to agree with their competitors, but have financial incentives to do so. IFM editor@ifinancemag.com

91 Alexis Walckiers currently acting as Chief economist of the Belgian Competition Authority, Alexis is also a visiting Professor at the Université libre de Bruxelles (SBSEM), where he teaches Advanced Microeconomic Theory; he is an Associate Fellow of Ecares. Alexis holds a PhD in economics from Ecares-ULB, and he is a published author in the Journal of the European Economic Association and International Tax and Public Finance.

Alexis Walckiers will be speaking at the ERM Middle East Conference, organised by IQPC, from September 25-27, 2018 in Dubai, visit ermmiddleeast.iqpc.ae for more information.

Special 10% discount for International Finance subscribers to attend this event, quote ‘29502.001_IFP’ to enquiry@iqpc.ae to register. May - Jun 2018 International Finance

Event Preview

Oman to host blockchain conference next month With blockchain, Oman plans to become a deeply digitised economy, with scope to involve more developmental activities under the ambit of this new technology

he Bitcoin arena has created a revolution in financial industry. Since then Blockchain came into picture defining digital trust. Blockchain technology provides an innovative platform to the organisations to manage digital assets transactions using cryptography. The technology has altered the financial administration industry by engaging millions over the globe to validate and execute quickly and without expensive go-betweens. Oman has witnessed significant development in terms of blockchain technology adoption and integration. However, there are lot more to be done for unlocking the actual potential of blockchain and emerge as a leading digital economy. In a move to address and identify the potential of blockchain, Nispana Innovative Platforms & BPOS Global is organising “Blockchain Oman 2018” on 2nd and 3rd May, 2018 in Muscat, Oman. The conference is intended to provide a platform to the technology innovators and business administrators to collaborate on utilising the product, process, and technologies through digital transformation. The upcoming two days conference is under the patronage of His Excellency Abdullah Salim Al Salmi – Executive President of the Capital

Market Authority, Oman and will feature great speakers including Dr. Salim bin Sultan Al Ruzaiqi – CEO, Information Technology Authority, Dr. Khalid MW Tahhan – CEO, Blockchain Solutions & Services LLC, Fabio Scacciavillani – Chief Strategy Officer, OMAN Investment Fund, Syed Faraz Ahmed – GM, Oman United Exchange, Brian Klein – Partner, Baker Marquart and many more. The two-day conference will provide the participants and representatives a networking platform. Gain an insight about the skills, framework and process of integrating the blockchain in the existing system. Don’t miss this opportunity to identify and evaluate the revamp required to

regulate blockchain for transforming your digital assets. IFM editor@ifinancemag.com

International Finance is the media partner for Blockchain Oman, scheduled to be held at the Sheraton Oman Hotel, Muscat on 2nd and 3rd May, 2018 International Finance May - Jun 2018

‫ﻧﺎدي ﺑﻠﻮﻛﺘﺸﻴﻦ‬ BLOCKCHAIN CLUB

May - Jun 2018 International Finance

Event Preview

Technology driving India’s BFSI sector

India’s banking and finance sector has undergone a tremendous change, and technology has played a major role in driving this change. Ahead of the 3rd Annual Smart Tech BFSI Exchange, the spotlight is on the nation’s vibrant banking ecosystem that is setting industry benchmarks in the region for its superior technology

International Finance May - Jun 2018

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he BFSI sector has been one of the pioneering sectors when it comes to adoption of technological innovations. The new technologies and tools are driving the BFSI sector and it has an important role in ushering tremendous transformation in the banking sector. According to statistical report, BFSI companies contribute 28.70% and 21.37%, respectively, of the market capitalisation of Sensex and BSE500 companies. The successful completion and the overwhelming response that we had received for our previous editions, Explore Exhibitions & Conference is geared up for its 3rd Annual Smart Tech BFSI Exchange which will be held from 9th – 11th May 2018 in Goa, India. Several dignitaries namely Mr. Dhiraj Nayyar, Officer on Special Duty, NITI Aayog, Government of India, Dr. Rajendran N, Chief Technology Officer, National Payments Corporation Of India, Mr. Sudin Baraokar, Head Of Innovations, State Bank Of India, Mr. Nabankur Sen - Advisor- Information Security, Bandhan Bank, Mr. Avneesh Pandey, General Manager – IT, Securities Exchange Board Of India, Mr. Jaspreet Bindra, Senior VP – Digital transformation, Mahindra & Mahindra Ltd, Mr. Shashank Sathe, Group CTO, Bajaj Capital Ltd, Mr. Dheepak Rajoo, VP – Head Business Transformation, Bharati Axa General Insurance and many more will be part of deliberations. This conference will act as an effective platform for sharing

experiences, while networking with the key decision makers within the BFSI industry and forging new business partnerships in a unique businessdriven environment. The keys issues of discussions evolve: • Blockchain Technologies and Digitalisation in BFSI • Regulatory compliance in the Financial Sector • Leveraging Insuretech for Market Disruption • Introduction of AI, Machine Learning and Chatbots in FinTech • Importance of Data Security with the Rise of Cloud Computing • Addressing Security Challenges in the Rising FinTech landscape • Understanding how Analytics is redefining Customer Experience in the Digital Era The 2018 edition of the Smart Tech BFSI Exchange will once again

combine a high-level conference, masterclasses, thinktanks, B2B meetings and also some of the solution providers showcasing their most advanced operational, financial and technological solutions on the market. The event will provide an ideal opportunity for networking, on-site promotion, enhancing brand profile and pre-event promotional campaigning. If you or your company has the solutions that cater to the above mentioned technologies, then exhibit your solutions at the most happening gathering of the year. Gain impactful brand visibility and media value with event promotions. Solution providers will get opportunity to engage with key stakeholders of BFSI sector. IFM editor@ifinancemag.com

For detailed information, contact us at samantha@exploreexhibitions.com/ +91 7022871384 / www.exploreexhibitions.com/bfsi International Finance is the official media partner of the 3rd Annual Smart Tech BFSI Exchange May - Jun 2018 International Finance

Why cryptocurrency might lead to financial democratisation? There are big demographic, economic and technological opportunities present in the industry for leaders to examine—and debate about equal access to financial privileges, which was once meant for the rich Sangeetha Deepak

n recent times, cryptocurrency is used as a digital currency, a payment system, an investment method and a technology tool. However, its volatile nature and its use in illicit markets has created a sort of anxiety for many. Though the frenzy continues, industry leaders and experts are trying to consolidate the cryptosystem into a more secure, robust platform. But first, it has to make sense for the uninitiated and the prospect buyers to believe in the system and promote its value through purchase. For this reason, there are dialogue platforms such as Europe’s premier cryptocurrency and blockchain conference: The Crypto Summit 2018, which was held in March in Zurich, Switzerland. This year’s Summit gathered global influencers, policy makers, investors and entrepreneurs, who have the ability to shape the future of crypto and share the right kind of industry knowledge. In conversation with the founder of Smart Valor and a prominent figure in the Crypto Swiss Valley, Olga Feldmeier discusses both sides of the cryptosystem and how it could positively reform the financial landscape.

International Finance May - Jun 2018

Olga Feldmeier, founder of SMART VALOR

May - Jun 2018 International Finance

INTERVIEW INTERVIEW Event Review

What is the defining core of the Crypto Summit? The purpose of the Crypto Summit is to assemble parties actively involved with the process, which includes startups, opinion leaders, policy makers and politicians driving the legal side of the process. Switzerland has developed to be the hub for crypto in the recent years because of the government’s more liberal approach in terms of regulation, which also attracts a lot of companies in this space. This country is set to become one of the leaders of the blockchain revolution. And that’s why not having the conference in Switzerland won’t be an option. Since I have been in this industry for last five years and of course, have a global network with people who work in this industry I have invited them all to come to Switzerland this time.

What are the topics discussed at the event? The topics largely extended to what needs to be done to establish Switzerland even more solidly as a global hub for blockchain technology— the kind of regulations and institutions we need to create here to become a profound leader in this space. The topic of focus is shaping the crypto together, which is the whole purpose of the dialogue between stakeholders and significant others. It is also about how to conduct ICO and what it takes to succeed ICO. On the other hand, there are also technology topics such as centralising exchanges and security of assets. Switzerland became home to one suit of all good ICO projects. Recently, ICO guidelines was issued to understand how to approach them. Can you name some of the keynote speakers at the event? The keynote speakers present at the event were Alex Tapscott, Vinny Lingham, Tim Draper, Charles Hoskinson and Kathleen Breitmann Switzerland is becoming a global

International Finance May - Jun 2018

hub for crypto talent. How will the country position itself in the next 1-2 years? If you create an appropriate regulatory framework, it allows the company to legitimately work and a lot of those companies will come here. They are building and creating all types of platforms, protocols and business models. For financial services specifically it means creation of new infrastructure and if the new infrastructure is created here, it becomes a great competitive advantage for such a small financial center as Switzerland. The technologies that has been created also attract most of those businesses and can have a profound impact or influence on the competitiveness of the country. What is it about Swiss finance culture that lends itself to digital currencies? Switzerland for the last 200 years was in a very privileged capacity. It was all about wealth management for the rich people of the world, who brought their wealth here to protect it from corrupt regimes in their countries. Previously, ff you needed to open a bank account here in Switzerland, you need to bring five million or so. Now this is changing. Cryptocurrency such as bitcoin is democratised because anyone can purchase it from anywhere in the world and can be transferred to any address with no boundaries. So what does it mean for us in Switzerland? It means a lot of companies like Smart Valor are building next generation platforms, which will be accessible to crypto currencies. This system used to be restricted only to the rich, and now it is available for everybody. And that is why we talk about democratisation of access as well. Earlier, you mentioned about Smart Valor. Can you tell us more about it? The official name is Decentralised Marketplace for Tokenised Alternate

Investment. In simple words, it is very similar to Amazon but for specialised investment products. They are specialised because they are issued in a form of token on the blockchain and it can represent any kind of physical value. It can be a diamond bitcoin, gold bitcoin or even a piece of art—like a Picasso bitcoin. In fact, it is a digital footprint of any asset that can be expressed as a token, and even ICO can be considered a form of tokenisation for participation of startups. At Smart Valor, we are the platform and we are the marketplace for those tokenised investments. What was your motivation behind founding Smart Valor? My background is in banking and I grew up in Ukraine. At one point in Ukraine, the complex financial conditions led to huge losses. If you have been through such an experience you will really understand how powerful cryptocurrency as a concept is. It is the first national currency independent of the government and a huge huge invention of our modern time. For me, ideologically it is this technology that can help us to literally re-invent money and provide freedom of access to so many people who have never had this before. Previously, I joined a bitcoin firm Silicon Valley and helped them to get their regulatory framework complete in Switzerland. We were very successful, and had the potential do it all as there are no limits. We can even do more complicated stuff than bitcoin wallet and this is exactly what we do in this marketplace as tokenised investments. Why is the cryptocurrency world such a male-dominated space? I think it’s not so relevant to only cryptocurrency. Overall, in the startup or tech space, there are still very few women. It is also partially driven by the fact that venture capitalists are male-dominated companies. There are statistics which show findings that when a team is managed by a woman,

INTERVIEW Event Review

the possibility of getting money from venture capitalists is significantly reduced to six percent. However, I see a change in this. If you go for ICO people don’t really care about the gender as long as you have a great idea and the funding will take place. This is why ICO is a great democratisation of funding for startups. What do you expect the value of bitcoin will be in a year’s time from now? In the next couple of years, I think the value of bitcoin will go up to hundred thousands. I’ve made some predictions before and they were way too conservative. I invested for the first time back in 2013 and in a very unlikely circumstance started my own company. Back then, I never saw that bitcoin could reach twenty thousand in five years. This is way too high from what I expected. In a year’s time, its value could realistically range somewhere between fifty to hundred thousand. What do you think the true value of bitcoin is? Today, diamond coins and gold coins are connected to the true value of gold. But bitcoin is more about trust and belief on this technology and protocol that will establish a potential to become the next generation of reserve currency—the digital gold. It all depends on people who believe its value is higher because its supply is limited. As of now, the supply is just one million, so the more number of people believe it is the alternative to dollar, the more people will invest in it and the prices will rise. As more people learn about the technology in-depth, they will understand how huge it has become in ten years. Therefore, its crucial that people understand it, believe in it and will eventually buy it.

them? We don’t need to regulate cryptocurrencies. We need to regulate financial intermediaries and players active in this space such as exchanges and other entities that are dealing with cryptocurrencies including wallet providers and custodians. For example: it is very important to prevent cryptocurrency being used for money laundering and purchase of illegal goods. To have all the processes in place, we have KYC (Know Your Customer) and anti-money laundering rules. So the same rules has to be followed by crypto exchanges. Additionally, we need to clean up and introduce more regulations. Do you think Barclay’s agreement to provide US cryptocurrency exchange Coinbase with access to the UK’s Faster Payments Scheme will encourage other banks to follow suit? Yes, this will put more pressure on other banks to also position themselves as the leaders in digital currency field. What is the difference between Bitcoin, Ripple and Ethereum? The primary difference between the three are defined based on this: Bitcoin is considered digital gold, Ripple is a payment network and Ethereum is a platform for development of apps using smart contracts.

SMART VALOR was founded by Olga Feldmeier, a prominent figure in the Swiss Crypto Valley. Prior to SMART VALOR, Feldmeier was Commercial Managing Partner of Xapo, one of the world’s largest Bitcoin custodians, where she was responsible for establishing the company in Switzerland. Working in close collaboration with Swiss authorities and financial regulator, FINMA, Feldmeier established Xapo as the first cryptocurrency custodian to receive permission to operate in Switzerland as a financial intermediary, releasing it from the initially considered obligation to apply for the banking license. Prior to Xapo, Feldmeier held several management positions in the financial services sector working for global brands such as Barclays Capital, UBS and the Boston Consulting Group (BCG). To realize her vision, Feldmeier enlisted the support of a co-founding team, including Julien Bringer, a serial innovator with 50 US patents in cryptography and embedded security and former Head of Innovation at IDEMIA, a world leader in digital security and identification technologies.

Based on your extensive experience in the industry, which of the cryptocurrency do you think is most preferred as a form of investment? BTC and ZCash are the chosen forms of investment. IFM editor@ifinancemag.com

In the recent past we’ve been reading a lot about fluctuations and risks associated with crypto. So, what can be done to regulate

May - Jun 2018 International Finance

Do Indian millennials trust cryptocurrency? Despite the rise of a lucrative investment option and such as cryptocurrency, Indian millennials largely prefer traditional forms of investment Madhurima Roy

ixed deposits in banks, post office savings, government-sanctioned and historically safe Public Provident Funds (PPF) and conventional real estate have been the safest and most convenient forms of savings and investments in India for several decades now. Millennials, however, are lured towards the path leading to the latest investment trends, leaving behind the old ones. So, with the advent of new investment opportunities such as

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cryptocurrency, how are professionally-active millennials investing? What’s their preference in terms of investment and where are they putting aside some money for the proverbial rainy day? And finally, what is their approach when it comes to the adoption of new modes of investments like cryptocurrencies? Talking to a bunch of millennials from various professional backgrounds like IT, marketing, media, management and sales, a whole new picture came to the fore. When it comes to the adoption of cryptocurrency, which is unregulated and largely experimental even now, millennials prefer to play it safe. They consider it as ‘quick money’ and a way of earning what ‘banks offer after one or two years of investment’ in one go. Some of them even acknowledged that they aren’t sure how the process works. They only engage in it because it gives them high returns in the shortest span of time. Cryptocurrencies don’t figure as part of their long-term plan. For them, cryptocurrencies are a mere tick in the box. When asked how they see cryptocurrency in terms of

What Millennials Want

investment, they disapproved sharply. Surprisingly, even the ones who deal in cryptocurrencies said that they don’t see it as a form of investment, because they can’t entirely trust it. The ones, who did invest in crypto, opined that they did at a time, when they had some excess savings in hand which they considered that they could ‘afford to lose’. With the rise in knowledge and awareness about cryptocurrency in the country, last year, there has been a definite boom in India’s cryptocurrency space. The Internet and Mobile Association of India (IAMAI) that aims to augment the online and mobile value added services in the country stated that there are around 5-6mn crypto users in the country and the number is growing even more. In a press release of IAMAI published in February stated that 2018 will see a major growth in the number of internet users, which will possibly reach 500mn mark. With the rise in the number of internet users, there are chances that the number of crypto users will also take a positive upturn. However, India, the cryptocurrency market is in troubled waters. The government is carrying out extensive scrutiny on the legality of crypto transactions and there are chances of a regulatory crackdown on crypto dealings. Citing this as a reason, many millennials are not keen on dealing with cryptocurrencies. Millennials’ most preferred mode of investment When it comes to investing their hard-earned money, trust is of paramount importance, which they find with traditional investment avenues: Banks: Be it a business mogul like Nirav Modi duping Punjab National Bank or banks like Axis bank and Union Bank being charged with penalty for improper regulations or fraud, currently Indian banks are in the news for all the wrong reasons. Yet the whole of India that includes the millennials, position banks as their

#1 choice of safest savings for both short-term and long-term investments with a maximum return of 7.2% on an average. Fixed Deposits are their favourite because according to RBI’s rules, bank needs to take insurance of deposits placed by its customers and there is no uncertainty in the investment that yields good and fixed returns in the long run. Post Office: As per the millennials’ choice, another ‘safe’ option for millennials with low risk appetite is the post office. Like banks, post offices are also a favourite mode of investment for the country majorly because it is safe, involves no Tax deducted at source (TDS) and gives a maximum return of 7 percent on an average. The various Post Office schemes include National Savings Certificates (NSC), National Savings Scheme (NSS), KisanVikas Patra, Monthly Income Scheme and Recurring Deposit Scheme. For rural India, where plastic money and going cashless haven’t gained momentum like urban India, it is a convenient option for investment as it involves low investment and the poor can open accounts with an amount as low as Rs.20. Real Estate: The career-inclined millennials don’t stick to one place. From their home location either they shift for higher education or for jobs. As a result, the Indian millennials who are also referred to as ‘renting generation’, reside in rented apartments. But Anuj Puri, Chairman of ANAROCK Property Consultants Private Limited says: “To say that Indian Millennials prefer to rent homes would be a senseless generalisation.” Indian millennials, consider buying properties and lands a sound option for the long run. When asked why, they replied that in the long run even if they don’t profit by selling, they can utilise it for their own accommodation or rent it and earn good cash. But the millennials who are in their early and mid-twenties doesn’t have the capital to invest in real estate, although they

are counting pennies to invest in real estate in their near future. Giving a brief insight about the same, Anuj said: “Buying a home may or may not make the same kind of investment sense as stock market speculation. However, an Indian Millennial is very apt to consider owning a home as an essential and fundamental basis from which to launch the rest of his or her other life plans. Also, the regular income of a rented-out second home conveys a much stronger sense of financial stability in India than investments in the stock market. While it is true that like the stock market, the real estate market is also driven largely by sentiment, it is equally true that the real estate market is not nearly as fickle. Furthermore, there is almost never a dearth of demand for rental homes in a country where the largest part of the population can still not afford to buy homes and indeed consists of transient workforces which depend solely on rental accommodation.” Other modes of investment After investing in the above three, millennials who have taken interest and keenly observe the market, invest their money in other platforms; they also invest in stock market and mutual funds. But as they have pointed out, it’s not very safe and needs knowledge and constant monitoring. When it comes to adopting anything new, millennials are always the first in the queue. But their investment trends display an image entirely different from their general open-to-anythingnew nature and resort to traditional modes of investment. IFM editor@ifinancemag.com

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Beating the Blues in Finance Jobs International Finance May - Jun 2018

smart tips

Robert Halfâ&#x20AC;&#x2122;s global research of CFOs found that three in four anticipate stress levels will increase to some degree in their department over the next three years. In UK, this figure rises slightly to 78%. Matt Weston, managing director of Robert Half UK shares his top tips on abating stress in finance jobs

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ising stress levels can be attributed to four fundamental changesâ&#x20AC;&#x201D; increasing workloads, growing business expectations, shorter deadlines and a lack of skilled staff. In finance, these pressures are even more acute. The role of finance functions is expanding to support operational decision-making, but at the same time it continues to manage day-to-day financial activities, such as forecasting, budgeting and accounting. So how are firms working to tackle rising stress

levels? Top tips for feeling fine in finance Globally, companies are already working to combat tension among employees by introducing initiatives to support staff through stressful times at work and in their personal lives. However, different countries are tackling this issue in a way that is best-suited to their environment and cultures. In the UK, 44% of companies are introducing health and wellbeing scheme to support employees and

improve productivity. While the way in which companies tackle rising stress levels varies, there are some universal steps that can support employee wellbeing and create a workforce of happy and fulfilled staff. Rethinking working practices Some organisations are redesigning the office space where employees spend most of their time. Creating agile work environments that include break-out zones, hot desking facilities and offering healthy food or drinks to

Matt Weston, managing director of Robert Half UK

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smart tips

In the UK, 44% of companies are introducing health and wellbeing scheme to support employees and improve productivity.

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provide a better experience of office life. Others are offering flexible working options—be it flexible working hours or the opportunity to work in different locations—to provide employees with a better feeling of work-life balance. While there are certain roles where remote working and full flexibility cannot be offered, employees that can use advancements in technology to work away from the traditional office environment or embrace alternative working hours can benefit from a feeling of autonomy that often increases satisfaction, productivity and motivation. Thinking ahead Many businesses are looking at how they can address any skills shortages and help permanent staff

International Finance May - Jun 2018

by introducing temporary support. Highly-skilled, contract or temporary workers are a valuable resource that is available to fill gaps in existing workforces. By planning ahead for times when finance will experience a busier workload, for example yearend, then it’s possible to ensure there is appropriate resource in place to manage workloads so that employees don’t feel overworked. Open communication For many employees, the opportunity to have an honest conversation about levels of stress can also help. There is a growing trend to create opportunities for staff to feedback to management on areas of the business that need improving or are working well. This approach allows

employees to present their opinion and be listened to by senior staff members to address any issues. Finally, making social activities regular and impactful also features high on the list when working to create an inclusive and attractive environment that minimises stress and encourages a team mentality. At a time when staff are struggling to manage growing workloads, such initiatives help foster a feeling of gratitude that makes employees feel like they are being rewarded for their hard work and contributes to higher levels of morale and camaraderie. Who’s responsible? Ultimately, we must ask the question, why is employee wellbeing important?

smart tips

We know that happiness is key to employee productivity, yet the overall figures for employee engagement on the topic of wellbeing and happiness are mediocre. There are some countries that do relatively well and continuously engage with employees in the finance function to assess wellbeing and happiness levels. Others don’t do so well. In the UK, 34% of companies are engaged in an ongoing dialogue with employees. So why is employee wellbeing in the finance department sometimes ignored or neglected? Thirty-eight percent believe that it is due to it not being a priority for management within the organisation. And the same again (38%) believe that it is due to a lack of formal processes and channels through which to discuss and escalate such issues. A further 23% claim that it is handled, or more aptly, delegated to HR teams that are unsure of next steps. The importance of employee happiness in finance can’t be ignored

and employers can’t afford to avoid addressing employee wellbeing. There is a shifting consensus within society that the mental wellbeing of employees is crucial to workplace satisfaction and productivity. Finance needs to proactively own their employees’ happiness if the function is to remain productive and efficient. This means considering the impact that stress can have on employee happiness and taking tangible steps to support the wellbeing of the workforce. Ultimately, de-stressed employees are happy employees that go on to have more fulfilling careers while being productive, dedicated, creative and loyal to the organisations that they serve. Balanced and well-supported workers that are engaged by their employers, are far more likely to benefit the business in the long-term. Which would you prefer to have on board? IFM

Matt has worked for Robert Half for more than 18 years; he began his career as a recruitment consultant for Robert Half Finance and Accounting in 1999. Matt quickly excelled as a top consultant and earned several prestigious awards including being recognised four times as Robert Half’s worldwide number one consultant. With extensive experience in financial recruitment in the UK, Matt is a familiar industry figure and a valuable spokesperson on current trends affecting the market.

editor@ifinancemag.com

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May - Jun 2018 International Finance

OPINION

Dorian Selz

AI set to power the next-generation of financial services insights

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While AI is already generating impressive RoI, most of this revolutionary technology is yet to deliver real meaning to financial services firms

ne of the most hyped technologies within the Financial Services (FS) sector over the past few years has been artificial intelligence (AI). There have been acres of press articles written about it, hundreds of events and conferences where AI in FS is discussed at length, yet for the most part the industry is yet to move past this discussion phase. Despite all the hype and press attention, AI is a technology that is yet to truly reach its potential. While there are undoubtedly some early adopters within FS that are already seeing fantastic return on investment (ROI)

International Finance May - Jun 2018

from AI, but for the most part AI is yet to really deliver for FS firms in any meaningful sense. What’s behind this slow take-up of AI within FS, and could 2018 be the year that begins to change? The natural conservatism of FS Anyone that’s worked in international FS will know that as an industry, it isn’t always the best at adopting progressing and innovative new technologies. On the whole, it’s a sector that is risk averse, and if something is working adequately, then there is little incentive to address that, even if a solution could address the

same issue far more effectively. There is an inherent conservatism in banking that means change can be hard to facilitate. Furthermore, organisations are often tied into their existing infrastructures, making new investment in technology even harder. This has all led to many FS firms trying to do a challenging job without the insight and knowledge to do that job to the best of their ability. Yet AI is rich in potential, both for retail banking and the corporate FS market. The ability it has to automate certain tasks and crucially, to extract insight from unstructured as well as structured data mean that it is a highly

OPINION

attractive proposition for many FS organisations, despite their inability to get off the mark with AI. Changing market conditions But changes in market conditions have meant that FS firms are now beginning to look at AI in a more realistic way. Part of this is that some organisations have seen AI as a ‘one size fits all’ solution, capable of solving any number of enterprise challenges. This is true in theory, and AI can be applied to address many different issues and improve many different processes within a business. But AI deliver better results when deployed for a particular purpose and applied to specific uses. But FS is currently arguably in its most competitive state ever. Traditional FS providers are under threat as never before, with faster and more nimble startups all ready to take a slice of the market. There is also enormous uncertainty surrounding Brexit, for UK and international FS providers. How will Brexit impact FS and firms’ ability to operate in certain markets, for example? No-one really knows, although there is an acknowledgement that there will be further

turbulence whatever happens. This has all focused the minds and attention of the bigger FS providers, sharpening the need for innovation in understanding customers and their needs, and delivering to them a better service based on such insight. A deeper customer insight The way to extract customer insight is via AI, which has the raw computing power to manage large volumes of data. But most CRM systems only deal with structured data, and the data with true customer insight is unstructured, such as social content, email conversations and service call scripts. By deploying AI to empower their CRM platform, an organisation can extract fresh and

insightful meaning from their unstructured data, which will give much more help when managing and improving the overall customer experience. Crucially, the right AI solution will provide a true understanding of exactly what is happening in a market, preventing customer churn. The insight gleaned can be used to pre-empt any potential issues a customer might be having, and the right AI technology will even make recommendations as to the best course of action to take, based on analysis of previous incidents and what is most likely to be of benefit to the customer. This understanding deepens customer insight and in turn, customer relationships. AI-driven up-selling Knowing when to make an offer, what that offer should be and how it should be delivered is vital knowledge for any sales executive or account manager in FS, and AI-driven customer understanding can help drive sales across the enterprise. Users can search for new insights on competitors, partners, markets, individuals and much more, all of which deepens their knowledge of each customer and allows them to know when and how to up-sell or cross-sell. AI can also help a user understand and be aware of all interactions and engagement with a customer. The FS sector is highly competitive and one in which data is critical in providing the insight required to stay ahead of the competition and deliver value to clients. The most insight is found within unstructured data and the most effective way of extracting that insight lies with AI. After a slow start in FS adoption, 2018 is the year when AI should start being deployed much more widely than it has been to date. But key to this deployment is for organisations to apply it to specific issues or processes within their business—the efficiency driven approach of deploying AI. Approached in this way, results (and ROI) will soon follow. IFM editor@ifinancemag.com

Dorian Selz, CEO, Squirro

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bitcoin

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Altcoins: Another face in the cryptocurrency market

Altcoins are creating a new space in the cryptocurrency domain and many experts are of opinion these might wipe bitcoins off the market Madhurima Roy

International Finance May - Jun 2018

bitcoin

he present generation, one could say, is deeply spoilt for choice. From ordering different takeaways every day to effortlessly changing one’s profession—options exist aplenty. Looking at the currency system, impressive changes have taken place within the system, with the first recorded form of currency system going back to 2,000 BC. Right now, globally, the currency system is plagued with multiple payment alternatives with digital currency emerging as the most popular, and cash transactions taking the back seat. In the past few years, cryptocurrency has challenged the currency game in a competent way with bitcoin dominating global cryptocurrency trends. Despite questions around its legitimacy, it appears that bitcoinhas finally gained acceptance in the mainstream. Now, bitcoin, too, has found a successor, called ‘Altcoin’. The genesis As the name denotes, the term ‘Altcoin’ is a culmination of two words—‘alt’, which is an abbreviated

version of the words ‘alternative’ and ‘coin’; referring to a currency alternate to another currency. In this case it is the alternate currency to bitcoin. The new talk of the currency town is Altcoins, the heir and alternative of Bitcoins, both categorised under the cryptocurrency family tree. The birth of altcoins goes back to bitcoins. Although altcoins are claimed to be a better alternative of bitcoins, one of the major reasons for its birth is the fortune that bitcoins earned in the global market in 2017, with a current sky-rocketing value of around nearly US$20,000. At present, one bitcoin costs around US$7,000. Cryptocurrency enthusiasts opine that Altcoins will be wiped out if Bitcoins cease to exist. Altcoins which are in focus in the current year are Litecoin, Litepay, Litepal, NEO, HIRE, ZCL, BRD, NEO, GAS, NEX and several more. Last year, Altcoins which were in the limelight were Litecoin, TaaS, WeTrust, Matchpool, Zcash, Ethereum, BitSend, PascalCoin, OKcash, Byteball, ZCASH, Augur, Back To Earth.

So, what makes cryptocurrencies so expensive? The most important reason for cryptocurrencies being priced at bank’s reserve draining rates is that they are assets. But all of them aren’t pricey. Prices of cryptocurrencies boom only when theyattain the market attention. Sam Cole, the Co-Founder and CEO of KnC Group, and Blockchain consultant at Seao, shared his insight on the value of cryptocurrencies: “The vast majority of them aren’t expensive because they have no value. One of the main reasons for the top 10 cryptocurrencies having skyscraping value is that they have earned trust. The trust is demonstrated in the fact that people buying them have a reasonable expectation that the same price or a better one will be available when they come to sell it.” But when it comes to consistency of holding the market price, there is no guarantee. Be it altcoin or bitcoin, the prices keep fluctuating. The latest version of Bitcoins is Altcoins—considered an upgraded

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bitcoin

Despite questions around its legitimacy, it appears that bitcoinhas finally gained acceptance in the mainstream. Now, bitcoin, too, has found a successor, called ‘Altcoin’

version of Bitcoins, mainly because they target the shortcomings of the Bitcoins and deliver a better version of them. Litecoin is considered to be identical to bitcoins.

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How are Altcoins and Bitcoins different? Although Altcoins and Bitcoins are categorised under cryptocurrency, both hold their own set of differences Altcoins, like bitcoins, have their own set of blockchains, miners, and wallets—the major zones where the two are distinguished. An established bitcoin, until now, has been more secure than that newly introduced Altcoins in the market. Brian Hoffman, the CEO of OB1, a company which has been assisting people make free-trade through a Bitcoin-based decentralized peer to peer marketplace, told how the two differs from each other, “To me, altcoins are a way to experiment with

different types of technical solutions or economics designs that doesn’t require changing Bitcoin itself. They’re less secure but allow dramatic changes to the way the coin operates without approval from the Bitcoin Core developers.” A lucrative future or a bumpy one? Following the changing tides of the payment’s industry, it’s too early to sketch the definite future of Altcoins. As many consider Altcoins to be an upgraded version of Bitcoins, targeting the shortcomings of the Bitcoins and consistently delivering better versions of them might be only points which would help Altcoins overrun Bitcoins. But for the time being, its best to allow the experts to debate and speculate. Bundling up his years of cryptocurrency experience, Sam shared his final outlook on the prospects that are in hold for Altcoins,

“There will always be copies, and people will be pushing their own coin wanting to make it rich. But the few that have great features will be around for a long time.” Putting forth the expectation he has tailored for Altcoins, he further elaborated, “I’m personally looking for a coin with properties that will work for micro machine to machine payments. For example, one that my car will use to pay other cars, allowing me to overtake.” No matter how many opinions we envision, it will be time to will map the road ahead. So, it’s best to wrap up the article with the words of Brian, “It still remains to be seen if Altcoins contribute to a better system overall or if most are simply a money grab for people who missed out on Bitcoins early days.” With bitcoin’s future traipsing up and down rapidly, altcoin’s road ahead seems even more uncertain but as the experts suggest, its best to wait and watch how cryptocurrencies alter global trading and transactions. IFM editor@ifinancemag.com

International Finance May - Jun 2018

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