2018 | World Finance

The story of Alvogen and the founding of a pharma empire

Posted on January 22, 2018January 24, 2018 by Max Tomlin

The pharmaceutical sector in the United States is undergoing a seismic shift. In recent years, generic pharmaceuticals, which are equivalent to branded drugs in everything apart from their price and name, have been expanding their share of the market at a rapid pace. At around 50 to 70 percent cheaper than their branded equivalents, more and more governments around the world are opting for generic drugs in a bid to counter escalating costs in the medical sector (see Fig 1).

According to a report by IMS Health entitled Medicines Use and Spending in the US: A Review of 2015 and Outlook to 2020, generic pharmaceuticals account for around 88 percent of medicines prescribed in the US, saving the healthcare sector a whopping $1.88trn between 2005 and 2015. By 2020, savings are expected to climb to more than 91 percent.

While a handful of big-name organisations make up a large portion of the market, they are no longer the invincible forces they once were, leaving the door open for new and innovative players to make waves in the market. Among the new cohort of next generation pharmaceuticals companies is Alvogen. Founded in 2009, the company now has an annual turnover that exceeds $1.1bn, producing 350 pharmaceutical products for various markets across the globe.

Robert Wessman, the CEO and Executive Chairman of Alvogen, is well placed to judge the current state of the generic pharmaceutical sector and predict where it might end up. Speaking from the comfort of Alvogen’s European offices, which are situated in a new university science park in Reykjavik, Iceland, Wessman is surprisingly collected and focused given the uncertain outlook of the market his company operates in.

New climate
The swift adoption of generic drugs can largely be attributed to the loss of patent protection by popular brands. The phenomenon, commonly referred to as the ‘patent cliff’, began in 1984 with the Drug Price Competition and Patent Term Restoration Act, and has since seen once-protected data being released all the time. The sophistication of generic pharmaceuticals thus continues to enhance, adding further to the industry’s consolidation and the growing support from governmental entities.

Wessman stresses the importance of not only selecting the most talented individuals, but also those who place the success of the team ahead of personal achievement

The research and development needed to create new drugs can take well over a decade, and the process can cost hundreds of millions. The lengthy process and mammoth cost also involves overcoming numerous obstacles, with regulatory bodies, such as the US Food and Drug Administration (FDA) and the European Medicines Agency, requiring proof that the drugs are both effective and safe. In light of the time and money involved, the FDA, for instance, typically grants the manufacturer 12 years of a total monopoly via patent protection. Sales revenue accrued during this period enables companies to recoup the losses they incurred during development and encourages them to start the process again with new products.

Generic drug manufacturers, on the other hand, operate quite differently. Given that the drugs they produce have already been formulated, developed and approved, the initial investment required is considerably less – a cost saving that is then passed on to the buyer. Despite this, entering the market has always been quite challenging for new players, but a change is now happening.

Since January 2016, the index for listed generic companies dropped by 57 percent, while the broader index by Standard & Poor’s grew by well over 20 percent in the same period. Wessman says this is not just a passing storm hitting the industry, but the dawn of a “new climate”.

“Many generic companies in the US market are currently struggling,” he said. “This is an industry that requires a high level of investment, has relatively high barriers to entry and superior quality requirements compared to other industries.”

Just two years ago, leading generic pharmaceutical companies were seemingly untouchable, but that is no longer the case; market leaders are starting to report underperformance and changes in quarterly and annual guidance to the market. Consequently, many industry players are now asking the question: “How did things go south in such a short space of time?”

Wessman explained: “Living in Iceland, I know how quickly the weather can change over the course of a day, so preparing for a sudden shift in market dynamics was something that came naturally to Alvogen.

“Many analysts and managers in the US pharmaceuticals industry have been taken by surprise at how fast this shift has happened, while others are still in denial and tell themselves that things will soon return to normality.”

Cyclical industry
Wessman has the best part of 20 years’ experience in the pharmaceutical industry, having taken over the management of a small, near-illiquid generic drug maker, Delta, which would later become multibillion-dollar pharmaceutical business Actavis, in 1999. During this time, he says he learned “a thing or two” about how the industry works.

“For one, the industry goes in cycles – we have good years, which are followed by bad years, which are then followed by good years again. This is a cycle that I assume is mirrored in most industries around the globe. It is interesting to note however, that ever since the Great Depression, which took place between 1929 and 1939, our industry has over-performed during any subsequent world crises.”

This latest cycle in the global pharmaceuticals industry has been sparked by the consolidation of the US customer base for generic pharmaceuticals, in a trend that has been occurring since the formation of a true substitutable market, Wessman believes.

“This consolidation was somewhat mirrored by the same phenomenon on the manufacturing side, as both attempted to take advantage of economies of scale. However, during the last couple of years, customer consolidation has greatly outpaced manufacturing consolidation. Instead, wholesalers have started teaming up with retailers in joint ventures that allow the combined partnership to act as one unit,” he explained.

Currently, there are three material customers in generic pharma: WBAD, ClarusOne and Red Oak. Together, they control around 90 percent of the entire US generics market. There are also three main players in the overall US market – Express Scripts, Caremark and OptumRx – which together process more than 75 percent of store-based retail prescription claims. This has put more pressure upstream and forced the three large wholesaler groups (WBAD, Clarus One and Red Oak) to pass price savings onto them.

“The result has been a similar loss in profitability for WBAD, Clarus One and Red Oak, which in turn has created more pricing pressure on manufacturers. However, it is not clear who seeks to benefit from the drastic price erosion in the US market due to the complexity of the US healthcare system,” Wessman said.

While consolidation has created “giant” generics companies, Wessman said there are still more than 100 generic labels available in the US market today. This diversity is a function of a couple of factors.

“First, there has been a massive investment made into generic pharma on both the private and public side. Second, the barriers to entry in starting a generic pharma company are lower than starting a new retail chain. It’s hard to imagine anyone creating a pharmacy or wholesale distribution company in the US that could compete with today’s big three. And with so many sources of products fighting for placement in the market, it is easy to see why generic price erosion is at a level never seen before,” Wessman told World Finance.

Recipe for the perfect storm
During 2015, the industry was at its peak, with many generic companies acquiring assets at top prices. Valuations of listed companies were also high and, to maintain their valuation, assets were acquired at “any cost”, Wessman explained.

“For any asset that came up for sale, there were multiple bidders that were willing to pay the price to close the deal. It was a case of the next fix being crucial to obtain, almost at any cost. In fact, we have seen transactions close for multiples exceeding 15 times EBITDA [earnings before interest, tax, depreciation and amortisation], which would have been unheard of not long before.”

He added: “Such overestimations were made to create future growth in an already overinflated industry. But for such significant acquisitions to work, there need to be significant synergies, either in terms of cost savings or increased revenues. Consequently, we often saw unfeasible promises of potential synergies, which were ill-founded and unrealistic, being made to justify the over-inflated acquisition multiples. Indeed, many of those transactions were funded with debt.”

Despite such activities, a considerable shift in the industry was afoot. “The signs of change were already there,” said Wessman. “An overheated market, rapid consolidation within the industry and a diminishing tolerance for unprecedented price increases of generic drugs were strong indicators that the market was ready for a shake-up.

“What we were left with was strong purchasing power of the three buying groups and too many generic players in the US market. At the same time, the pressure was to deliver growth to justify past acquisitions made at high multiples and generate enough cash flow to serve high debt – the recipe for the perfect storm.”

Wessman continued: “As companies started to see price erosion, the fight for market share started to intensify, and the basis for synergies and overinflated acquisitions were no longer justified. Unsurprisingly, this caused widespread panic and essentially changed the industry overnight. The whole industry entered into a downward spiral and all companies had to fight for their space.”

Opportunities ahead
Looking ahead, Wessman foresees a period of “massive consolidation”, predicting that some companies will struggle with debt, while others may be forced out of business entirely – something that is “unheard of” in the industry, he says.

Just two years ago, leading generic pharmaceutical companies were seemingly untouchable, but that is no longer the case

“However, among such challenges there also lie several opportunities,” he said. “Considering the current turmoil, it is almost certain that many assets will become available as companies are being forced to sell in order to survive in the new climate. Some companies will be in a good position to take advantage of the new landscape. The companies that have been first to market, first to file products, or those with unique portfolios and good-quality cost structures are the ones to watch. As such, any company with access to cash will be better positioned to take advantage of the current situation.”

It’s likely to take more than just cash and good timing, though, to emerge as one of the new winners in the market. “The new winners will be able to boast the best people, the best service, the best quality products and the best portfolio,” Wessman said. “On top of this, they will be first to file products, have exposure to fast-growing emerging markets, and will have built in good-quality cost structures, with a continuous focus on operational efficiency.”

This correlates with Alvogen’s strategy for becoming a top global generic pharmaceuticals company and a preferred partner in all its markets. “Our passionate team is committed to continue growing our business around the world and becoming a leading generic pharmaceuticals player,” Wessman said. “A unique portfolio of high-quality and difficult-to-make pharmaceutical products fuels our targeted growth strategy.”

Alvogen has also ventured into the biosimilars space via its sister company Alvotech, which was founded by Wessman in 2013. This subsidiary, he believes, will be crucial to achieving the group’s lofty objectives.

“We are approaching a major crossroads in the pharmaceutical industry,” Wessman said. “The largest pharmaceutical products are biologics, and many generic companies should be investing in biosimilars today to position themselves for the market of the future. Within the next 10 years, a top 10 generic company in the US will be unable to maintain growth or profitability without a biosimilar pipeline. The latest projections forecast a fast growing biosimilars market that will exceed $30bn by as soon as 2020.”

About Robert
Born and raised in Iceland, Robert Wessman had a fairly ordinary upbringing. The middle child of three, his father was the general manager of a hotel and his mother was a beautician. Although his parents afforded him plenty of freedom, Wessman developed a healthy work ethic at an early age, taking his first job in newspaper sales at the age of 10.

“I wasn’t a natural learner,” Wessman revealed. “Like many entrepreneurs, I grappled with dyslexia.” It was only through his competitive and determined nature that Wessman achieved the grades necessary to study at the University of Iceland, where he enrolled in both medicine and business management. Unsure of which career path to take, Wessman left the final decision to the toss of a coin – business administration was the way forward, it decided.

During his time at university, Wessman dreamed of starting his own company, but he knew he must first get the necessary experience. After graduating, Wessman worked in an Icelandic bank before helping a struggling shipping company turn its fortunes around. His success in this feat saw him eventually become the CEO of the firm’s operations in Germany.

Aged 29, Wessman returned to his homeland to manage a small, near-illiquid generic drug maker called Delta. That company would one day become the multibillion-dollar pharmaceutical business Actavis. Naturally, such a major change rarely comes without risk: “I took a personally guaranteed loan for €10m ($11.8m) and grew the organisation from 90 people in 1999 to more than 11,000 people in 2007, integrating over 30 acquisitions along the way,” Wessman told World Finance.

After overseeing an eight-year period of impressive growth, in which share prices rose on average 55 percent per year, Wessman left Actavis in 2008. This would later prove to be a defining moment in his career.

Enter Alvogen
In June 2009, Wessman – by now Chairman and CEO of Alvogen – met with investors at a restaurant in New York City, where he described his vision for a business that, he believed, would go on to become a serious player in the highly competitive pharmaceutical industry.

Alvogen’s key stats:

350 Pharmaceutical products

59%

Average annual growth since 2009

30%

Profit margin

2,800

Employees

To help visualise his thoughts, Wessman grabbed the only writing material available to him: a paper napkin. Through a series of bullet points and diagrams, Wessman illustrated the company’s unique selling points, outlining his vision for the “best-in-class business development” and the “best people, and strategically targeted portfolio”.

More specifically, Wessman planned to utilise a 125-year-old manufacturing plant in New York as a platform for entry into the US market, while simultaneously expanding operations in emerging markets in the Central and Eastern European (CEE) and Asia-Pacific (APAC) regions.

The odds were not in Wessman’s favour: the global economic crash had left him with an empty wallet and, by the time he left Actavis in 2008, the crisis had cost him a whopping $250m.

With his prospects shrouded in uncertainty, Wessman took a big leap of faith and used the last of his savings to secure a product portfolio of generic drugs that were under development. Wessman pinned his hopes on a small-contract manufacturing platform in upstate New York called Norwich Pharmaceuticals, a company with only $37m in revenues and no profits at the time.

It quickly became apparent that Norwich’s facilities would require a $50m upgrade to bring them up to scratch. With the knowledge of what he had achieved at Actavis, the company’s owners placed their faith in Wessman and agreed to inject new equity to finance the renovation. In order to secure the funds, Wessman would have to take over as executive chairman, acquire a 40 percent stake in the company and provide a new portfolio of products.

Furthermore, a consolidation of the pharmaceutical industry meant that the 10 largest players controlled more than 50 percent of global sales. “No one was waiting for another start-up in the industry,” Wessman recalled in a case study on Alvogen produced by Harvard University. “Industry colleagues looked at me as if I were mad.”

But the fact Harvard Business School wrote a 16-page case study on Alvogen at all probably tells you all you need to know. When Norwich’s shareholders agreed to fund the $50m facility upgrade, they provided support for a new future; the Alvogen journey was about to start.

Key ingredient
Keeping the promise he had made to investors in the New York City restaurant, Wessman’s first move was to attract the best talent in the industry. He reached out to a number of former colleagues, who quickly got on board with the new project. The small-but-experienced team set out to make a name for Alvogen, grabbing hold of every product licence available to them.

According to Wessman, a leader’s greatest asset, regardless of their business, is people

By the end of 2009, Alvogen had secured 50 new products for its portfolio. This early success prompted a recruitment drive, with Wessman and his team developing a strategy that targeted specific markets and products, those they believed would set the company apart from existing market leaders.

The strategy consisted of five key elements: simultaneously entering emerging markets in CEE, APAC and the US; establishing a portfolio of high-value-added products specifically targeted at the needs of each market; developing a range of difficult-to-make drugs in house; targeting strategic value-added acquisitions; and forming a number of tactical alliances in order to have flexibility in its manufacturing and business development, while keeping costs low.

Alvogen set about implementing this strategy, establishing operations in 35 countries throughout its target regions and growing each region with tactical acquisitions and quick market entry. The company grew quickly, with Wessman attributing Alvogen’s early success to its high-quality portfolio of value-added products, supplied in the most reliable timescale and quantities, and its first-class customer service.
Wessman has also suggested the company’s culture has given Alvogen a competitive advantage: “Having a strong, unified corporate identity empowers independent thinking and on-the-spot problem solving.”

Spanning reach
Now, eight years on, Alvogen has built a solid commercial presence in 35 countries around the world and is already well advanced in biosimilars in the CEE region through partnerships. The company’s most notable success is the production of a generic equivalent to Tamiflu which, in its first three months on the US market, delivered hundreds of millions in sales. More importantly, Alvogen estimated the drug saved US patients in excess of $500m this past flu season. Alvogen’s generic drug for Alzheimer’s, rivastigmine, has also delivered great value to patients, and supported growth in the US market.

Further, since Wessman took over, Alvogen has delivered seven consecutive years of high growth and expansion and is today among the fastest growing companies in the industry. Meanwhile, its sister company, Alvotech, has seven monoclonal antibodies in its biosimilar pipeline, which are expected to be launched after 2020. In 2015, Alvogen’s upward trajectory caught the attention of a consortium of investors who, led by CVC Capital Partners and Temasek, acquired a majority stake in the company.

But it has not always been smooth sailing since Wessman came on board eight years ago. Alvogen has had its share of challenges due to the demanding cash needs that accompany rapid market expansion and portfolio development.
However, no success story is without its hurdles, and Alvogen has overcome much adversity to deliver a very healthy cash flow, now boasting reasonable leverage and a strong profit margin of over 30 percent.
Such success led Wessman to found Alvotech in 2013, investing heavily in the development and manufacture of biosimilar monoclonal antibodies. Through a combination of apt market timing and product identification, Alvotech has quickly established itself as a key player in the biosimilar arena.

From the very start, Alvogen’s objective has been straightforward: to transform into a leading global pharmaceutical player with a well-established business in generics, branded pharmaceuticals, over-the-counter products and biosimilars. Under Wessman’s leadership, the company is currently on target, boasting an annual turnover in excess of $1.1bn – a 26-fold increase in just eight years.

Alvotech’s beginnings
When Robert Wessman founded Alvogen in 2009, he wanted to focus on creating difficult-to-make molecules and expand the business into emerging markets in Europe and Asia. Wessman also knew that a strong presence in biosimilars would be vital in the years to come to fuel growth when the number of generic products coming off patent would decrease.

While small-molecule chemical drugs are fairly simple to produce, biosimilars rely on complex protein structures made by living cells. Today, biosimilars are used to treat autoimmune diseases, such as arthritis and inflammatory bowel disease, as well as being used to fight cancer and diabetes. Naturally, they are in high demand.

Until recently, there has been no regulatory pathway in place for the approval of generic versions of biological drugs, but this is now changing and companies like Alvogen can bring biosimilars to market once the original patent has expired.

Wessman recognised the potential of biosimilars early, keeping track of their development for some 10 years. Speaking to Icelandic magazine Frjáls Verslun, Wessman said: “The international pharmaceutical market is at a crossroads. Between 40 and 50 percent of new drugs are biosimilars and… eight out of the 10 most-sold drugs in the world will be biosimilars.”

With rising cost pressures in the healthcare sector, growing confidence in biosimilars and a number of prominent biological products losing their exclusivity, Wessman was convinced biosimilars would quickly begin to gain approval, and subsequently be adopted around the world.

In 2013, Wessman felt it was finally the right time to enter the market, and founded Alvogen’s sister company, Alvotech. Talking about the new company, Wessman said: “Our dream is to help more patients obtain these drugs at lower prices and increase accessibility, since the original drugs are too expensive. We believe that high-quality biopharmaceuticals should be available for everyone.”

However, Wessman and his team would need to work quickly to ensure Alvotech got a footing in the market before others made their moves. A decision was made to build a state-of-the-art bio-manufacturing facility capable of developing and producing biosimilars on site.

The inauguration ceremony for the 13,300sq m plant – which houses upstream and downstream manufacturing facilities, laboratories and offices – was held in June 2016, and marked a major milestone in the company’s quest to become “the best, most flexible supplier” in the biosimilars arena.

Wessman believes that Alvotech’s “fast-to-market approach, backed up by experienced and determined clinical development and regulatory affairs teams” will allow it to seize the “historic” opportunity that biosimilars presents.

One key pillar of Alvotech’s strategy is speed to market, which it has built into the business through integration, focus and specialisation. Alvotech has four development sites located across Europe, integrating the entire value chain necessary for the creation of a biogeneric product.

The four sites are located in Jülich, Hanover, Zurich and Reykjavik. The Jülich site focuses on cell line development and process development. In Reykjavik, Alvotech has built a state-of-the-art manufacturing capacity using flexible single-use technology, while in Zurich, a brand new office has been established for its expanding regulatory, clinical development and operational teams. Finally, in Hanover, Alvotech’s recent acquisition of Glycothera has extended its capabilities in product characterisation.

Early moves
To date, Alvotech has invested hundreds of million of dollars – a hefty sum for an undeveloped biosimilar company. However, Wessman is convinced it will pay to make strong early moves. He predicts that many generic players will hold back on their investments in biosimilars as they struggle with their core small-molecule businesses: “For many of those companies, it will mean coming late to the game. It won’t be long before the largest generic products in the world emerge from launches of biosimilars into the US market. I will even dare to say that we might see the first $1bn generic product emerging within the next five years.

“One thing everyone in the generic pharmaceutical industry must realise is that the industry has changed suddenly and permanently. And while there will be a lot of turbulence going forward, there will also be opportunities. It is now up to each stakeholder to determine the best way forward for them.

“When the dust has settled, we will be left with fewer companies, but they will be stronger. Those that can adapt to the new climate will be left to navigate an even more dynamic industry.”
By the time the Alvotech plant was up and running in 2016, the global biosimilars market was estimated at a healthy, albeit relatively modest, value of $3.4bn. However, projections suggest this figure could reach $36bn by 2022.

So far, Alvotech has committed more than $300m to the development of a pipeline of complex biosimilar products. This pipeline includes seven monoclonal antibodies, the first of which is expected to launch in 2020. Alvotech identifies these products based on patent expiry dates; more than $100bn-worth of biological pharmaceutical products are expected to have lost patent protection by 2021. Many of these products are among the bestselling drugs in the world today and, thanks to the unique Icelandic intellectual property environment, Alvotech can launch products anywhere in the world the moment a patent expires in any given region or country.

The company has already started to sell biosimilars in CEE markets. For instance, through its partnership with Hospira (now Pfizer), Alvotech launched Inflectra in this region, representing the first biosimilar monoclonal therapy to be approved for the treatment of inflammatory conditions, including rheumatoid arthritis and psoriasis.

Markers for success
More recently, Wessman has called for the introduction of new measures to facilitate biosimilars’ entry into the US market. Wessman wants to implement a policy of interchangeability, in which biosimilars would be able to be switched with their reference product once the patent had expired.

Wessman stresses the importance of not only selecting the most talented individuals, but also those who place the success of the team ahead of personal achievement

He has also requested that biosimilars are able to launch at approval, thereby removing the reference product manufacturer’s right to an additional six months of exclusivity following the approval of a biosimilar. In addition, Wessman advocates the implementation of mechanisms that further support generic penetration and allow for free competition. The importance of Wessman’s requests were substantiated when the Pharmaceutical Care Management Association suggested that bringing biosimilars to market could help save the US approximately $100bn over the next 10 years.

Since Wessman outlined his objectives, there has been significant progress in two of the three areas. In terms of interchangeability, in January 2017, the FDA issued a draft guide outlining what needed to be submitted in support of an interchangeable application.

Meanwhile, in June 2017, the US Supreme Court ruled biosimilar companies would be able to essentially launch products upon approval, by allowing companies to provide notice of the drug’s launch prior to the FDA’s final sign off.

With so much progress being made, there is a real sense that the time for biosimilars is coming. Wessman believes Alvotech, with the backing of sister company Alvogen, can establish itself as a market leader for years to come.

Leading change
According to Wessman, a leader’s greatest asset, regardless of their business, is people: “A leader needs to engage the right people and unite them around a clear and specific vision, empower them to act, and inspire them to achieve something that others have not achieved before.”

Wessman believes a solid corporate culture is a crucial component of success. As such, he stresses the importance of not only selecting the most talented and hardworking individuals, but also those who place the success of the team ahead of personal achievement.

Perhaps one of Wessman’s most outstanding qualities is the belief he places in himself and his team. “The sky is not the limit,” Wessman said. “We’re setting new standards in our industry and not only driving the change, but being the change.”

Professor Daniel Isenberg, formerly of Harvard Business School, argued that Wessman manages to get people to perform better than they ever thought they could: “Over my career I’ve met many first-class directors. In my opinion, Robert is among the top four or five. Even Bill Gates and Elon Musk at Tesla could learn a lot from him.”

Under Wessman’s leadership, Alvogen and sister company Alvotech are setting new industry standards, delivering the highest quality products and services to patients across the world. Wessman said: “Our company culture has always been ‘be the change and do it with passion and optimism’.” Indeed, as he has demonstrated time and time again, changing the game really is what Robert Wessman is all about.

Italy’s non-domiciled tax regime to profit from UK’s changing stance

Posted on January 19, 2018March 16, 2018 by Max Tomlin

At the start of 2017, in a bid to attract more wealthy citizens and capital to Italy, Rome introduced a non-domiciled tax regime. Now, citizens can move their tax domicile to Italy without too much administrative effort. All income they receive from non-Italian sources is taxed at a flat rate of €100,000 ($117, 666) per year, plus €25,000 ($29, 412) per year for every additional participating family member, for a maximum of 15 years.

The correlation between the removal of tax privileges for non-doms in UK and the introduction of the Italian programme is not accidental

Non-EU citizens can receive a residence permit by taking part in a specific investment programme in Italy. However, all participants are only eligible for the programme if they have not been liable for taxation in Italy for more than one year out of the last 10. World Finance spoke with Benedikt Kaiser, Partner at Kaiser Partner, about what this move could mean for the Italian economy and how the application process works.

From the UK
Italy hopes to follow in the footsteps of other countries that have introduced a non-dom tax regime and seen a positive impact on their economies. To put the potential financial gain into perspective, according to The Independent, the UK Exchequer could lose £6bn ($7.9bn) a year from abolishing privileges for UK non-doms.

“Although the advantages of the programme for the UK had been obvious, ironically, it was the conservative Prime Minister Theresa May that campaigned against it ahead of last year’s snap election,” said Kaiser. When asked for his opinion as to the reason why, he answered simply: “Isn’t it popular to criticise the wealthy?”

Kaiser believes that Italy can benefit from the UK’s unexpected move: “The correlation between the removal of tax privileges for non-doms in the UK and the subsequent introduction of the Italian programme is most likely not accidental. I am sure some will move from the UK to Italy given the attractive conditions there.”

The potential advantages for the Italian economy are numerous. “Those participating will need a residence, so they invest in real estate,” Kaiser explained to World Finance. “They will also create new job opportunities and will also spend money shopping, most likely on high-end, Italian-made goods.”

Application process
Applications are made through the Italian tax authorities, and are relatively simple to administer with the right partners on board. “We highly recommend that applicants begin the approval far in advance, especially if they are currently based in another country,” Kaiser explained. This is because it takes three months for the application to be processed, regardless of whether it is successful or not. “It is also worth looking into in more detail first, before you start transferring your tax residency, so you can find out to what extent you will benefit from the ruling,” he added.

Following the country’s legal tradition, and as a part of the Italian tax regime, Kaiser predicts that the programme is likely to become more and more intricate as time passes, as it is still in its early stages. “In any case, with the right advisor and tax specialist, the transition will be smooth,” said Kaiser. “Assuming that the application is prepared in the right way, you could very well lower your tax burden for you and your family, and do so efficiently.”

That said, US citizens are not able to benefit from the regime, as they are taxed by their global income. Kaiser noted: “A non-dom programme is not particularly attractive for US citizens. However, they often consider transferring funds abroad in order to geographically diversify their wealth. Kaiser Partner does exactly this from our subsidiary in Zurich.”

Kaiser Partner’s help
In order to support clients with the process, the team at Kaiser Partner advises clients to first ask the Italian tax authorities for a preliminary tax ruling. “We believe that you should discuss the result with your wealth manager and tax advisor before going further,” Kaiser told World Finance. “Another important action to start off with is to revise the structuring of your wealth. Do you really profit within given wealth structures? Will your privacy effectively be protected? Wealth restructuring can address crucial questions like these.”

As Kaiser Partner also provides family office services, the team frequently discusses the question of residency with clients. “While it’s important to bring all financial aspects to the table, one should also consider emotional aspects; it doesn’t make sense to move to a country for tax reasons when you don’t feel comfortable there,” Kaiser explained.

“The question of residency is something that should be carefully considered. As a consequence, we are expecting a gradual increase of the number of participants we work with. Indeed, we are happy with this kind of intake because it’s about quality, not quantity. That being said, we don’t hide the fact that the Italian non-dom programme certainly stands out against others around Europe,” Kaiser concluded.

Putting the customer first in life insurance matters

Posted on January 19, 2018January 23, 2018 by Max Tomlin

Here at BT Financial Group, we have taken an innovative approach to life insurance by concentrating on helping customers with their recovery during claim time; a difficult and stressful period. Our focus is on helping customers regain their health as soon as possible, so they can once again enjoy their lives with their families after suffering from an injury or disability.

We see insurance as providing a pathway back to health, not just a way to fund a disability. We find that customers perceive insurance to be significantly better value when the goal is recovery

Just over two years ago, the life insurance team at BT made the conscious decision to strengthen its health support for customers. As a market leader in claims service and management, we are constantly seeking ways to deliver better value to customers during the claims process. The journey began after independent surveys indicated that our customers particularly appreciate the level of service they receive when they make a claim. After considering this, we asked ourselves: “How can we provide a better experience for customers when it matters most?”

The result was a greater emphasis on offering tailored health support programmes and the launch of our own Health Outcome Measure (HOM). BT’s health support programmes and HOM are grounded on compelling medical evidence surrounding the health benefits of returning to work and the negative impact of long-term work absence.

At BT, our approach to innovation goes beyond incremental changes to life insurance products. Our aim is to deliver what customers value. Developing market-leading products, such as our recently updated terminal illness offering, is important.

Customer service first
Our health support programme and the HOM came about because of a genuine desire to help our customers get back on their feet, start leading normal lives again and return to work where possible. Philosophically, we see insurance as providing a pathway back to health, not just a way to fund a disability. We find that customers perceive insurance to be significantly better value when the overarching goal is recovery.

Around two years ago, our claims team developed the HOM as part of our broader health support programme. They consulted clinical psychologists, occupational therapists and health support experts. The measure itself is based on research from the Australasian Faculty of Occupational and Environmental Medicine at the Royal Australasian College of Physicians.

BT offers health support to customers with indicated claims – where BT has identified a possibility that health support may be helpful, or where the customer has requested support. The health support team will then make a more formal assessment, and if they determine that a formal programme is required, they will utilise the HOM.

It is important to point out that health support is not relevant to all customers. For instance, customers with short-term injuries often have their claims paid and finalised over the telephone, and health support would not add value to their experience.

BT’s HOM assesses a person on a number of health aspects, including cognition, self care, participation, mobility and capacity to undertake everyday activities. The assessment takes a holistic approach and looks beyond the reason for the claim. The insights from the HOM assessment allow BT to gain a better understanding of the customer’s health and wellbeing, and how to assist them with their recovery so they can get back to enjoying their lives with their loved ones.

Scores are created at three points in time: first, for pre-disability health, then at the time of claim, and finally when the referral to health support ends. The end score is compared to the pre-disability score to determine how successfully the customer has been returned to wellness.

The HOM measures a customer’s recovery. For example, say we have a customer whose score was at 85 percent pre-disability, but, following their disability, the score fell to 40 percent. With assistance from BT’s health support team, the customer had a final score of 80 percent (see Fig 1). This customer’s HOM is the difference between their post-disability score of 80 percent and their disability score of 40 percent, which equals 40 percent. This is divided by the difference between their pre-disability score of 85 percent and their disability score of 40 percent, which comes to 45 percent. Therefore, this equates to an 89 percent improvement in health.

BT’s claims management team utilises the HOM to understand the best way to assist customers who are on the path to recovery. It is a useful indicator of the success of health support, along with customer feedback and return-to-work rates.

We are very pleased with the results so far. Among those who have completed a health support programme with a HOM, the average improvement to health outcome has been 81 percent. The majority of customers who have completed their programme (89 percent) have successfully returned to work or have been cleared to return to work by their treating practitioner.

Evan’s story
The HOM can have a tremendous impact on a person’s life. BT customer Evan, whose name has been changed to protect his privacy, was employed as a wood machinist. He has a wife and two young children, who are financially dependent on him. Two years ago, he started to experience serious pain in his lower back and eventually had to stop working when the pain became too severe. Evan’s journey of exploring the best treatment options then began. When a cortisone injection and physiotherapy failed to result in any improvement, he was diagnosed with a herniated disc and was told he needed surgery to replace the disc if he wanted a pain-free future.

Without private health insurance, the waiting period for his surgery would have been well over 12 months. His income protection policy provided another way forward. When he lodged his claim with BT, it was quickly referred to the in-house health support team.

Fearful of making his condition worse, Evan was initially reluctant to participate in health support. His claims consultant assured him that the health support team would work closely with his doctors and not do anything to aggravate his condition. They offered to arrange vocational rehabilitation services, tailored to Evan’s needs, which were paid for by BT. The costs for these services are not part of the lump sum payments that a customer receives under their income protection policy.

Evan accepted the team’s assistance, and was referred to an external rehabilitation provider. Their initial focus was on supporting a graded return to non-manual duties at his workplace, of which his employer was supportive. Evan also undertook a hydrotherapy programme, with the aim of improving his overall strength to prevent deconditioning.

With the help of a tailored exercise physiology programme, Evan made a remarkable recovery and no longer required surgery at all. He had achieved the unthinkable; he was going to be able to get on with his life, manage his pain levels and avoid the need for any dangerous surgery.

“I just wanted to let you know what an absolutely wonderful job you do,” Evan said to the BT claims team. “Suffering from chronic back pain is something I wouldn’t wish on my worst enemy.”

Tailored support
Being out of work for a long time is a serious health risk in itself. Medical evidence indicates that work is good for health and wellbeing. Therefore, it makes sense to focus our resources on helping customers get back on their feet and achieve maximum recovery.

Over the past 12 months, BT has spent around AUD 1.6m ($1.2m) on external rehabilitation support to help customers regain their health and return to meaningful and sustainable work.

Health support is tailored for customers and their specific needs. It can include physical recovery support, including exercise physiology sessions, fatigue management plans and ergonomic assessments. Where required, we also offer psychological recovery support and occupational rehabilitation help, such as return-to-work support, retraining and job-seeking assistance. Since July 2015, around 1,700 customers have benefitted from some form of health support.

We are gradually seeing the life insurance industry embrace health and wellbeing-related products and services. If our mission is to improve health outcomes for customers, we are heading in the right direction. Specifically at BT, through our health support programmes and the HOM, we are gaining some useful insights into how we can improve our support to certain customer groups, depending on their medical condition. We are excited about where these insights could lead in the future.

For instance, customers who have had cancer or cardiovascular diseases have achieved the highest HOM scores. This speaks to the quality of their treatment providers, the suitability of our tailored programmes and our customers’ resilience. Every day our team finds inspiration among the many customer cases we come across.

Meanwhile, our lowest scores are for neurological disorders. We would expect this as many of these diseases are progressive. But we continue to ask ourselves how we can best support these customers. The activities they find most difficult are standing, sitting and driving. We need to look at how we can support these customers and facilitate their independence with ergonomics, mobility and psychological support.

Our aspiration is to continue to enhance our tailored responses for customers, and our focus on health support is helping us achieve that.

Cryptocurrencies crash in a rollercoaster week for blockchain shares

Posted on January 18, 2018January 23, 2018 by Max Tomlin

Beginning on January 16, cryptocurrency crashes witnessed collective losses of $300bn in just 36 hours. The value of bitcoin crashed dramatically on January 17, falling below $10,000 for the first time in six weeks. Ever prone to sharp fluctuations, the cryptocurrency’s price rallied later in the evening in an unexpected turnaround.

The early indications of cryptocurrencies bouncing back could suggest values will pick up again, just as they did last year

Bitcoin had already slumped by 25 percent on January 16 in a remarkable week of plummeting cryptocurrency values. Elsewhere, Ethereum, another popular cryptocurrency, witnessed its value plunge below $1,000 per coin. XRP, the native cryptocurrency of start-up Ripple, had enjoyed a month-long string of share price gains until its value sustained a devastating loss of 50 percent on January 16.

The losses came after moves were made to tighten regulations on cryptocurrencies in South Korea and China. South Korean financial authorities announced on January 16 that cryptocurrency investors using anonymous virtual accounts would be fined. The chief of South Korea’s Financial Services Commission also confirmed in parliament on January 18 that the country is considering closing all cryptocurrency exchanges or, at the very least, those found breaking the law. With South Korea being the third biggest market for bitcoin, the regulatory plans have caused some investors to sell in anticipation of further share price drops.

That said, there are other indications this slump is also a result of separate, more transient factors. There have been problems with the infrastructure used for coin trading following an influx of new investors last year, with some exchanges, such as Bitfinex, even stopping new users from registering in December to cope with demand. US-based exchange Kraken also frustrated its users recently when a software upgrade disabled the site for two days.

Comparing the recent fluctuation of the cryptocurrency market to last year’s figures also indicates a January trend. In 2017, the cryptocurrency market peaked on January 5 at $22bn, before falling to $14bn a week later. Just as gold prices are known to escalate in January due to increased demand from China, bitcoin’s January slump could be a result of Asian traders cashing out to travel and buy gifts for the traditional celebration of the Lunar New Year in February. Ultimately, the early indications of cryptocurrencies bouncing back could suggest values will pick up again, just as they did last year.

BBVA Bancomer is using technology to keep pace in the changing banking landscape

Posted on January 18, 2018January 22, 2018 by Ashton Wenborn

BBVA Bancomer’s efforts to secure its place in the digital banking sphere have taken several years, but an important breakthrough in 2014 saw it become the first Mexican financial institution to create an executive-level digital banking division. The new division was set up to provide the bank’s more than 18 million clients with a superior banking experience.

Over the last three years, BBVA Bancomer has been investing in hardware, technology and new working methods to develop a mobile app. The customer-centric solution gives clients access to the bank in the palm of their hand. By going mobile, the bank is able to support customers at all times, helping them make better financial decisions in their daily lives.

One of BBVA Bancomer’s key strategies when improving its digital banking capabilities has been the use of data analysis to cultivate in depth customer knowledge. By using new technology such as cloud computing and big data, the bank is able to analyse real-time information and offer solutions that are specific to each customer. The combination of insights from metadata and the bank’s long-standing financial experience, BBVA Bancomer’s services have shifted from transactional banking to relationship banking, allowing it to meet each client’s needs more accurately.

18 million

Total BBVA clients

5 million

Digital clients

4 million

Mobile clients

12.2 million

Bancomer Movil downloads

Today, peer banks are not BBVA Bancomer’s biggest competitors. Instead, young and agile fintech companies are benefitting from employees with a different skill set and a new approach to the market. These new players have been focusing on their clients’ behavioural and consumption patterns and, as such, are developing strategies that place great value on customer experience. In order to remain relevant in this climate, the BBVA Bancomer is developing innovative solutions centred on clients’ needs and quality customer experience.

Vertical solutions
BBVA Bancomer has maintained its leading position in the Mexican banking industry by listening to and understanding the new generation of customers. It has developed a series of digital products and services that meet the expectations of young, digitally native generations. The cornerstone of BBVA Bancomer’s digital services is Bancomer Movil, a multi-platform mobile banking app that offers multiple banking services in one place. This app enables efficient account management in a user-friendly environment. Clients can check their balance, transfer money and pay referral services.

The app also has ‘one click’ services such as Prestamos Disponibles (Available Credits), which shows the pre-approved credit loans available to customers based on their credit history and score. BBVA Bancomer also offers cardless withdrawals from its ATM network using a code sent directly to the customer’s phone. By developing these vertical solutions the company is able to take advantage of digital developments, keeping customer satisfaction in mind at all times.

As well as Bancomer Movil, BBVA Bancomer has produced the BBVA Send app, which allows clients to send money using the recipient’s phone number. Another app developed by the bank is BBVA Wallet, which lets clients make safe online purchases by creating a temporary digital account linked to the customer’s bankcard with a dynamic CVV number. Another vertical solution is BBVA Plan, which supports clients in creating personalised savings plans based on goals and timescales they can set.

One of BBVA Bancomer’s key strategies when improving its digital banking capabilities has been the use of data analysis to cultivate customer knowledge

Looking after customers
Bancomer Movil, the first digital banking app in the Mexican finance market, has improved financial inclusion in Mexcio as, no matter how isolated their location, customers can always access their accounts. Users can set up their account on the app without having to go to a branch. As such, the bank is able to reach a segment of the population that has historically been excluded from entering the formal financial system.

Another important feature of Bancomer Movil is CheckUp, which provides users with a log of their financial behaviour and an indication of the health of their finances. By making use of the 85 years’ experience BBVA Bancomer has accumulated, the bank is able to give sound financial advice to its customers so they can improve and maintain good credit scores.

The financial world evolves every day. Non-financial players are constantly offering new products that are better suited to people’s needs. However, BBVA Bancomer is not prepared to be overtaken by newcomers, and so the bank continues to strive to stay at the forefront of digital developments. By interacting with customers, being attentive to their needs, working side-by-side with other companies and keeping up-to-date with technological change, the bank will adapt to the new banking landscape.

Nordea highlights the need for sustainability

Posted on January 18, 2018January 22, 2018 by Max Tomlin

There is only one question to be addressed with regards to sustainability in the finance industry: do we need to adapt? We have experienced tremendous benefits from our reliance on traditional investment theories and practices over the years in a continually changing world. Global poverty has declined and living standards have improved, yet we still depend on fossil fuels for 80 percent of the world’s energy. Given their impact on the planet, the finance industry has to ask itself if it can do more to prevent adverse effects. The answer is yes; the solution is change.

Nordics are arguably the highest quality investment competitors in the world, with their governance model and mindset meaning substantially lower risk with higher potential returns

For two consecutive years, the World Economic Forum in Davos has highlighted the fact that climate change is the number-one threat to the global economy. Overall, humans are releasing CO₂ into the atmosphere much faster than at any time in the last 66 million years. The cumulative amount of global warming pollution that is resident in our atmosphere is huge: it traps as much extra heat energy every day as would be released by 400,000 Hiroshima-class atomic bombs exploding every 24 hours. This is why it is imperative we act now.

Market stability

The Nordic region has proven itself to be enormously resilient and flexible, and is certainly up to the challenge of becoming more environmentally friendly. Historically, the area has had to deal with the demise, downsizing or restructuring of industries including apparel, shipbuilding, mining and steel. However painful these transitions were, the region has prospered and adapted to every transition successfully. The region’s governance model, entrepreneurship, quality awareness and culture of consensus-building have successfully created entirely new opportunities and profit pools. This has driven up both GDP growth and prosperity, while also facilitating the building of leading global franchises for many large Nordic corporations.

Moreover, the Nordic region has had high degrees of political and regulatory stability for decades now. Combined with this, its home markets are fairly small, which has enabled Nordic corporations to expand globally in very early stages. This was achieved through cooperation between companies and banks. Anyone aware of the work of the economist Joseph Schumpeter will know that creative destruction is not a new concept. We have seen it in the past, and I am sure we will see it time and again going forward, with major changes to the key components of economic output.

In fact, the Nordics are arguably the highest quality investment competitors in the world economy, with their governance model and mindset essentially meaning substantially lower risk but higher potential returns. We are seeing a big change among institutional clients like sovereign funds and foundations, as well as the younger end of our retail clients. There is no distinction in the minds of these clients between your values as a business, how you invest, and the returns you generate. The centre of gravity for this view – the sustainability focus – has existed previously in Europe, but what is fascinating to see is how it has spread globally.

I am also fascinated by how sustainability means quite different things to each individual and each institution. What they are looking for is a company’s value proposition and approach, and how it integrates these elements into its products, solutions and services.

Our teams are no different from everyone else regarding their views on the broader societal change we have witnessed and their expectations for the future. They want to feel convinced that the market economy does some good over time, having witnessed its worrying shortcomings during and after the financial crisis. We believe greatly in engaging with companies and striving to support positive change – to find solutions that benefit the societies we live in.

Vital developments

Just 17 years ago, the most optimistic projections about wind energy were that we might reach a capacity of 30GW by the year 2010. At Nordea, we have now surpassed that 16 times over. Offshore wind is becoming a major source of power, particularly in the North Sea, and it generated more than 100 percent of Denmark’s energy needs in 2016. In the UK, where the coal revolution began, the country now gets more electricity from wind than from coal and, in April 2017, managed to go a full day without burning any coal for electricity. The introduction of efficient, cost-effective batteries is going to further accelerate this trend, with the world’s largest battery currently found in South Africa.

Furthermore, 15 years ago, the most optimistic projection for solar energy was that by the year 2010 we might be able to install one GW per year. Last year we beat that figure 75 times over. We are seeing an even steeper curve for solar energy than for wind, because the cost is coming down so much faster for the cells that are required for it. Indeed, in August 2017, one of the biggest utilities players in the US signed a contract for solar electricity at less than three cents per kWh. The financial sector is playing a key role in this transition.

Economists used to think that economic growth and emissions had to go hand in hand, but this has not been the case; the sustainability revolution has led to new opportunities in many industries. For the financial system, sustainability has a dual imperative. The first is to ensure that environmental, social and governance (ESG) factors are at the heart of financial decision-making. The second is to mobilise capital to help solve society’s key challenges that require long-term finance. These include creating jobs, improving education and retirement finance, tackling inequality and accelerating the shift to a decarbonised and resource-efficient economy.

A sustainable world economy must be characterised not only by better protection of natural resources, but also by higher employment levels and greater financial and economic stability. The rapid evolution of the sustainable finance agenda could provide the best opportunity for the world to reorient its financial system from short-term stabilisation to long-term impact.

Sustainable finance

In a narrow sense, sustainable finance means integrating the ESG criteria into investments, financings and advice. In a broader sense, sustainable finance refers to a financial system that is promoting sustainable economic development rather than boom and bust, sustainable social development rather than inequality and exclusion, and sustainable environmental development rather than damaging the endowments of nature. Achieving this requires a clear vision, one that can be understood, implemented and measured in practice.

There is a famous African proverb: “If you want to go quickly, go alone. If you want to go far, go together.” This can be aptly applied to both financial institutions and wider society. In order to create changes, we need to take several steps. First, we need to consider the full value of financial assets, incorporating sustainability factors and production design. Second, the sector needs to be productive, serving its users – notably households, firms and governments – in their projects and needs. Third, it must be resilient and should be able to withstand and recover from a wide range of both external and internally generated shocks. Fourth, it must demonstrate an alignment between the sustainability preferences of its users and the outcomes of the decision-making process, ensuring accountability and transparency. And lastly, financiers must take a long-term perspective in order to overcome any future disasters.

Fiduciary responsibility

For a leading Nordic bank like ourselves, good finance is about integrating sustainability into all of our business activities and products within our core areas: investment, lending and customer advice. We are constantly facing global challenges in relation to our business. This means we have to integrate and address ESG challenges when we lend, invest and advise our clients. We are constantly engaging with our clients and other stakeholders in order to understand relevant sustainability issues and their impact. By acting on behalf of our clients, we can contribute to economic growth and prosperity through capital allocation and interaction with companies.

This is not only a business opportunity, but a part of our fiduciary responsibility. Over the last few years, we have developed our policies, procedures and investment products to ensure the companies we invest in live up to the criteria of sound ESG performance. We believe that by engaging with and investing in ambitious companies, we can make a considerable difference. Indeed, we will endeavour to select quality companies with highly sustainable profiles and a high potential of generating economic value with low risk. To ensure sustainable practices, we conduct thorough research and closely monitor performance. We also visit companies to help motivate them to tackle ESG issues.

As a leading European wealth manager and bank, we are ready to be the drivers of change – and that means preparing for a sustainable future.

North Korean hackers behind South Korean cryptocurrency attacks, say researchers

Posted on January 17, 2018January 22, 2018 by Max Tomlin

US-based researchers have established a link between a recent hacking operation targeting South Korean cryptocurrency holders and a Pyongyang-based hacker group. The hacker group, known as Lazarus, is the same outfit thought to have carried out the WannaCry attack and the high-profile assault against Sony Pictures Entertainment.

Lazarus is believed to be at the heart of a state-sponsored hacking offensive, which has targeted financial institutions in order to raise funds for the cash-strapped North Korean government. It is known as Hidden Cobra by the US government, and has also launched attacks on US and South Korean websites.

“This late 2017 campaign is a continuation of North Korea’s interest in cryptocurrency, which we now know encompasses a broad range of activities including mining, ransomware, and outright theft,” the researchers noted.

The report, written by cyber experts at Recorded Future, outlines how the group used malware to attack users of Coinlink, a popular cryptocurrency exchange based in South Korea. Researchers believe that the attack originates from North Korean owing to similarities in the code utilised and that used in previous operations.

The researchers noted that hackers used Chinese terms in their code in an apparent attempt to misdirect any investigations, but that some were inappropriately used. This is a commonly employed trick by Lazarus, which has previously included Russian words in its script.

Researchers emphasised that while the operation had only influenced South Koreans, the same software weakness that was exploited is present is a wide array of internationally-used products. This could potentially leave cryptocurrency holders elsewhere exposed, especially if South Korea responds by elevating security.“As South Korean exchanges harden their networks and the government imposes stricter regulatory controls on cryptocurrencies, exchanges and users in other countries should be aware of the increased threat level from North Korean actors,” they wrote.

Mashreq Bank’s innovative approach sets it apart from the crowd

Posted on January 17, 2018July 18, 2018 by Max Tomlin

The United Arab Emirates (UAE) may be less than half a century old, but it has already chartered a course for rapid economic development. Petroleum plays a significant role in its growth as, according to OPEC, about 40 percent of its gross domestic profit comes from its oil and gas output.

However, the economy of the UAE is about much more than just oil. The country already has the most diversified economy of all Gulf Cooperation Council (GCC) members, with construction, manufacturing and tourism all increasing in significance. In fact, non-oil growth in the country is expected to remain above three percent for the medium-term future at least.

Technological innovation is a key area of importance for banks in the UAE, with many institutions making huge investments in order to stand out from the competition

The financial sector is playing an increasingly vital role in the domestic economy, as it enables consumers and businesses access to the capital they require. By placing innovation at the core of its business, Mashreq Bank has swiftly become one of the UAE’s leading financial institutions. Although the bank recognises that the industry has evolved markedly over the past 50 years, it believes that the development of new technologies will usher in much more dramatic change in the coming years. World Finance spoke to Subroto Som, Head of Retail Banking at Mashreq Bank, to discover more about the innovative approach the bank is taking.

Responsible growth
In oil-dependent countries, a fall in market prices like the one experienced recently can greatly affect monetary supply. Fortunately, the UAE’s burgeoning financial sector has helped to mitigate any liquidity issues. The total assets held by banks between 2014 and 2015 increased by 7.5 percent, with consumer confidence in the banking sector growing
all the time.

Being the oldest bank in the country, Mashreq is playing a significant role in the development of the banking sector, as Som observed: “Throughout its 50-year history, Mashreq has differentiated itself through innovative financial solutions, making it possible for customers to achieve their aspirations.” He added: “Today, Mashreq has a significant presence in 11 countries outside the UAE, with 21 overseas branches and offices across Europe, Asia, Africa and the US.”

Retail banking has become a key part of Mashreq’s portfolio, with branches in Egypt, and Qatar. The organisation’s solid track record of financial performance has also played a key role in facilitating its international expansion, allowing businesses and consumers to trust it with their assets. It is also the reason why the bank has been able to sustain its performance in the face of market slowdowns and regional headwinds, with net profit rising to AED 557m ($151m) in the first half of 2017.

However, growth must not be pursued recklessly. Corporate social responsibility (CSR) should be at the heart of all initiatives. In keeping with this spirit, Mashreq uses information provided by the Al Etihad Credit Bureau to assess each customer’s creditworthiness before supplying any loans.

“In 2017, Mashreq became the only financial institution in the UAE to be accredited with Dubai Chamber’s CSR label for the sixth consecutive year,” added Som. “Mashreq has several financial literacy schemes, including the digital initiative Foloosy. The campaign aims to prevent people from taking on too much debt.”

Indeed, the financial crisis of 2008 provided a huge wake-up call to the global banking sector. Institutions can no longer chase unsustainable profits. Instead, investments in community initiatives, philanthropic endeavours and environmental causes are receiving greater prominence.

Endless innovation
Technological innovation is a key area of importance for banks in the UAE, with many institutions making huge investments in order to stand out from the competition. Today, Mashreq is committed to becoming a leader in digital banking in the GCC region. In 2008, it was one of the first organisations to create a mobile banking app, even though smartphones were not ubiquitous at the time. As Som noted: “Innovation is about reading trends and knowing what will work out in the future.”

Although technological solutions are growing at a rapid pace, they are altogether useless unless customers are willing to embrace them. Fortunately, the UAE has a huge tech-savvy populace that trusts digital platforms to handle their financial needs. Som said: “At Mashreq, 91 percent of transactions are done through our digital channels and 90 percent of inquiries are made via mobile and online platforms. We are investing in new capabilities to drive this closer to 97 percent in the next 12 months.”

Mobile technology is having a similarly disruptive effect on the sector and is likely to become the epicentre of digital banking as the technology evolves. Som explained: “In the UAE, the infrastructure for digital is well entrenched. Mobile phone penetration is now at a record 233 percent. The latest research reveals that at least 80 percent of urban consumers in the UAE now prefer to do a portion of their banking through digital channels.”

Unsurprisingly, a new generation of customers is changing the way banks do business in the UAE. They use a wide range of connected devices and demand ease and convenience to accomplish day-to-day financial tasks. “The oldest customer using our mobile banking application, Snapp, is almost 92 years old, while the youngest is 18,” Som added. “This new generation constitutes a broad spectrum of age groups, and we aim to cater to these customers and their changing needs.”

Customer trends
As a digital future becomes inevitable, it is clear that customers are no longer satisfied with traditional banking methods. However, shiny new apps and slick websites are not enough.

The expectations being placed on banks are changing, and customers are now much more willing to switch their allegiance if it means they will receive better service. Indeed, size is no longer the main factor for determining a successful bank. Speed, agility and customer experience are all vital. This is why Mashreq has launched its new branchless digital bank, Mashreq Neo, to create the immersive digital experience being demanded by today’s connected generation.

Som explained: “Neo goes beyond just a full suite of products and innovative services. It leverages big data, new technologies and advanced analytics to offer a totally digital banking experience to the customer. Our goal is to stand out by offering customers an intuitive and seamless banking experience.”

Although the necessity of physical banking may be under threat, Mashreq is not sounding its death knell just yet. As Som observed: “Despite the allure of digital offers, physical channels will continue to play a major role.” In fact, the bank believes that human interaction will remain important, especially in complex financial transactions. Technology will not eliminate the bank branching experience; it will simply transform and improve it.

The road ahead
Even as technological growth creates opportunities for banks to grow and expand, it also poses a threat to the established order. Digital solutions are emerging rapidly, and whichever banks or financial institutions figure out how to utilise them best will be the ones that end up capturing a large proportion of the market. In the world of banking, there is only one certainty: disrupt, or be disrupted.

Since its founding, Mashreq Bank has seen many challengers come and go, and watched the industry change massively. Although fintech firms may offer something different to conventional financial institutions, that doesn’t necessarily mean they pose a competitive threat.

“We have something that fintech companies don’t have access to: enormous stores of in-house data, including customer demographics, transaction information, product usage and credit behaviour,” said Som.” Having said that, the next logical step is for fintech companies and banks to work closely together to reduce pain points and deliver a better customer experience.”

Mashreq has managed to cement its position as an industry leader in recent years, but the bank is well aware that further industry changes are on the way. Investment in artificial intelligence, robotics and other technologies has been made over the past two years in preparation for the digital future.

Mashreq’s reliance on human resources is on the wane as technology begins to play a greater role in the financial sector. Efforts to transform and digitalise internal capabilities will also include the automation of requests made through front-line staff in physical branches, which should result in a reduction of manual paperwork and save on recurring costs.

The strong uptake of digital banking in the UAE presents significant opportunities for Mashreq, but it will not be an easy process. Becoming a digital banking leader requires a deep commitment to a hugely transformative process. Mashreq’s aim is to harness new technology to re-invent the customer experience, simplify and streamline internal processes, and re-purpose branch networks. As Som said: “Consumer behaviour is changing fast and the ability of banks to influence this is exciting. Technology allows us to do that.”

Ultimately, many digital solutions now being used in the UAE have been available for a long time, but they are rapidly becoming more affordable and, as a result, are being made accessible to a larger audience. It is taking the banking sector to a place that was once a technological impossibility. It is quickly becoming the reality.

The importance of translation in business

Posted on January 17, 2018January 22, 2018 by Max Tomlin

Being born in an English-speaking country can be something of a double-edged sword. On the one hand, English is the lingua franca of the business world, the most commonly taught foreign language in schools worldwide and the official language of 20 of the most important international organisations. But on the other hand, it leaves many native English speakers never considering integrating another language into their personal or working lives.

Not translating your content can cost your business a fortune. no organisation has the luxury of passing up on the potential that reaching such a large market can bring

And while it is true that English is one of the top spoken languages, choosing not to translate content into Spanish, Russian or Chinese can be one of the biggest mistakes a business – especially one in the financial services sector – can make. Unfortunately, the majority of brokers and investment companies are about to learn that the hard way.

Missed opportunities
According to the most recent EuroBarometer report, English is significantly less popular than we would like to believe. For example, it is the second language of only 39 percent of the French population. In Italy, this figure is just shy of 35 percent, and in Spain it is less than 23 percent. These numbers wouldn’t be that alarming if these weren’t actually the ‘English-loving’ countries. The situation gets drastically worse when we take emerging markets into account: only 5.2 percent of people in Russia speak English fluently; 5 percent in Brazil; and less than 0.75 percent in China.

5.2%

of Russian population that can speak fluent English

5%

of Brazilian population that can speak fluent English

0.75%

of Chinese population that can speak fluent English

When you take into consideration the fact that the combined population of these three countries is over 1.7 billion, it becomes obvious that not translating your content can cost your business an absolute fortune. It is also a mistake that your competitors may already be avoiding. Major companies such as Banca Intesa, Saxo Bank, MetaQuote and FXCM realised how big of an opportunity comes with translated content and started using HQ Language Services years ago. No organisation has the luxury of passing up on the potential that reaching such a large market can bring.

The average number of languages companies want their content translated into is 12, and the most popular ones are Spanish, German, Chinese, Russian, Arabic, Portuguese, Polish, Indonesian and Malay. These languages offer the most options because of the huge populations that use them. However, our clients state that a big portion of their income comes from countries like Sweden, Norway and Italy, so they make sure their content is translated into these languages as well.

Outside help
Most companies choose to outsource translating to agencies rather than doing it in-house, as they recognise that such companies are efficient, affordable and experienced. For many businesses, this is not a difficult decision. Agency translators offer a wide variety of packages and usually work out significantly cheaper when compared with recruiting and training a whole new team of in-house writers.

At the same time, at HQ Language Services, we offer much more than just translation services. After more than a decade in the industry, we specialise in everything relating to finance, including: multilingual article writing; video analysis services; video tutorials and video courses; eBooks; education articles; and various creative materials. Furthermore, for the most loyal clients who offer a steady stream of work, we provide free promotion on our Forex website.

As a result of globalisation, working with international clients, customers and partners is more important than ever. Although English is widely spoken, many individuals for whom it is not a first language would prefer to read about products and services, or engage with content, in their native tongue. At HQ Language Services we can assist businesses by taking care of their social media and other marketing output, ensuring their content generates the right traffic.

Not only that, but localisation can sometimes play as important a role as translation. Localisation is about more than just ensuring your content can be understood, it means making it more relevant for a foreign reader. Whether through idioms, specific terminology or tone, localisation can deliver content that resonates more powerfully with your target audience. Our team of more than 100 certified financial experts possesses detailed knowledge of a wide range of international markets, ensuring that your content truly speaks to your customers.

Companies that still believe that the rest of the world will adjust to English content should prepare to lose, or at least fail to earn, millions of dollars every year. It’s only a matter of time before translating every written word into Spanish, Italian, Chinese and other languages will become a must. This is the perfect time to tap into this trend and take advantage of being one of the pioneers.

Davos 2018: Restoring faith in globalisation

Posted on January 16, 2018January 22, 2018 by Max Tomlin

Every year, more than 2,000 of the world’s wealthiest and best-connected individuals converge on the tiny mountain resort of Davos to discuss, debate and hopefully resolve some of the most important issues facing our planet. In January 2018, the World Economic Forum will host its 48th annual meeting, in a world that has changed markedly since its inaugural get-together in 1971.

One of the most significant tasks facing the World Economic Forum will be to reassert the benefits of globalisation

In that time, however, the World Economic Forum has faced almost as much criticism as it has praise. While the forum has rightly championed the role it played in calming Aegean disputes between Greece and Turkey, German reunification and the end of apartheid in South Africa, it has also been denounced as little more than a vanity project. With tickets for members costing upwards of $20,000, the forum may now be better known as a place for elite networking rather than overcoming global challenges.

Having said that, the World Economic Forum does raise thought-provoking questions at its annual meeting, many of which touch upon the most significant stories from the previous year. In 2018, the programme will focus on ‘creating a shared future in a fractured world’, with the threats of climate change, secession and workplace automation all likely to dominate. As heads of state, corporate bigwigs and other dignitaries prepare to meet in a sleepy Alpine corner of east Switzerland, there remains much to discuss and plenty still to be done.

Uncertain times
On January 20, 2017, just as last year’s World Economic Forum was coming to a close, Donald Trump’s inauguration was getting underway. After rising on a tide of populist rhetoric to become leader of the free world, other political figures have sought to follow his path to power. In March and May respectively, the Dutch and the French went to the polls. Although Geert Wilders and Marine Le Pen were ultimately defeated, it is too early to announce the end of the populist wave.

In September’s federal election in Germany, Angela Merkel experienced the most disappointing of victories, with the right-wing populist Alternative for Germany gaining 94 seats in the Bundestag. What’s more, populism is not always a minority phenomenon. The ruling party in Greece, Syriza, is a populist one, as is Hungary’s Fidesz. Populism can be found on both sides of the political spectrum, but wherever it emerges, it poses a threat to liberal democracy and the existing global order.

Attendees are likely to turn their attention to the various failed or fragile states generating instability in the wider world

One of the most significant tasks facing the World Economic Forum will be to reassert the benefits of globalisation. It has played a significant role in reducing poverty rates across the world, for instance, but it has undoubtedly created losers too. For many proponents of populism, globalisation has become a dirty word. If the WEF is to change this, it will also need to tackle its own image problem as a haven for the international elite: the ‘Davos Man’.

As countries turn away from globalisation, they have invariably looked inwards, embracing protectionism and, notably, secession. Last year saw the trigger point in the Catalan independence vote, but similar issues of autonomy remain unresolved in Scotland, Iraqi Kurdistan and elsewhere. Far from embracing greater collaboration with international neighbours, many nations are occupied with internal division.

Jason Sorens, a lecturer at Dartmouth College, New Hampshire, believes that each independence movement must be considered on its own merits, but that there are some approaches that have historical evidence on their side.

“What cannot be denied,” Sorens said, “is that providing some kind of legal framework for independence, as the UK, former Czechoslovakia, Canada, Denmark and a few other countries have done, reduces political and economic instability, nearly eliminates the risk of violence and would probably prevent widespread disintegration.”

Of course, secession doesn’t simply damage the authority of national governments. It also poses many economic questions. Looking only at Catalonia, it remains unclear how the region would fare as an autonomous state. It may be one of Spain’s richest regions, but independence would see it automatically placed outside the European Union, with no guarantees that it would be readmitted. Many businesses in the area have expressed concerns and some have already relocated.

Following the violent scenes witnessed in the disputed referendum and continued murmurings of other secession movements across the world, the World Economic Forum’s task of bringing the world together does not appear to be getting any easier.

The technology factor
One of the biggest talking points in the debate surrounding globalisation concerns technology and the role it is playing in connecting far-flung parts of the world. Improvements to transport infrastructure and the opening up of states once belonging to the Soviet Union have exacerbated this trend, but the proliferation of the internet has also made it much easier to trade services across borders. Between 1995 and today, online usage worldwide increased from 0.4 percent to 51.7 percent. Across the same period, trade as a percentage of global GDP also grew by 15 percentage points.

Internet usage (worldwide):

0.4%

in 2005

51.7%

in 2015

The world is certainly a smaller place today, but whether it is a more equal one is less clear-cut. Globalisation, and the technology that facilitates it, has helped pull many citizens in developing countries like China and India out of poverty, but its reputation in the West is a lot murkier. The richest one percent now own more than 50 percent of the world’s wealth. Income inequality levels are rising across OECD member states, even in traditionally egalitarian countries like Sweden and Norway.

One of the major tasks facing the World Economic Forum will be addressing growing concerns that globalisation is resulting in a world of haves and have-nots. Failure to do so will widen the vacuum in which divisive politics thrives. And yet, even as issues relating to globalisation continue to build, technology promises further anxieties in the not-too-distant future.

The fourth industrial revolution, or Industry 4.0, will prove truly transformative, with robotics and automation likely to create entire new industries while simultaneously disrupting many others. Improved efficiencies will generate huge profits for the businesses involved, but many employees are concerned that job losses are another inevitable consequence.

Automation is already used in various industries, but an additional 1.7 million robots are predicted to enter factories by 2020. Even though evidence suggests that robots create more jobs than they destroy, this is unlikely to provide much consolation to the redundant machinist or train driver lacking in transferrable skills. Andrew D Maynard, Director of the Risk Innovation Lab at Arizona State University, believes the anxieties surrounding new technologies are understandable, particularly when they are likely to cause such radical change.

“Without responsible innovation, there is no guarantee that emerging technologies will decrease inequality and the gap between rich and poor, address challenges in a socially responsible way, and ensure a better future for all,” Maynard explained. “Rather, there is an increasing likelihood that technological innovations will lead to more problems than they solve, even with the best intentions.”

The way that technology is concentrating wealth into the hands of a select few can also be witnessed through the growth of the so-called FANGs (Facebook, Amazon, Netflix and Google). These companies now hold so much sway over the digital economy that concerns have been raised about monopolistic practices and what impact this will ultimately have on consumers. Implementing effective competition legislation without hindering innovation, therefore, will be a key issue for the WEF, as it always is when new technological solutions or business models are created.

The future of technological progress and the fate of globalisation are intertwined. If automation and other innovations can reduce inequality, then it is possible that citizens all over the world will grow to view globalisation as a process that celebrates our similarities and brings people from far-flung places closer together. If the gap between rich and poor continues to widen, a cultural and political backlash seems inevitable.

The climate conundrum
The perennial issue of climate change is sure to be on the agenda at Davos in 2018. Arctic sea ice has shrunk every decade since 1979 by approximately four percent, sea levels are rising at their fastest rate in more than 2,000 years, and the 21st century has seen temperature records broken with alarming regularity.

Despite the overwhelming evidence that something must be done, there remains little consensus as to what that should be. On June 1, 2017, US President Donald Trump withdrew his country’s support for the Paris Agreement on climate change mitigation. Trump’s decision may have scored points with his diehard supporters, but it prompted scorn from the rest of the developed world. Regardless of whether Trump’s move proves foolish or not, 2017 provided some stark reminders that time is running out for governments to pull together on the issue of climate change.

After it made landfall in late August, Hurricane Harvey resulted in 90 deaths and an estimated $198bn in damage. Irma, following shortly behind, caused further destruction across the US and Caribbean. These are the storms that stole the headlines, but there were many other natural disasters that inflicted devastation on a similar scale. One of the heaviest monsoons in recent years resulted in 1,200 deaths in India, Bangladesh and Nepal, while West and Central Africa was subjected to heavy flooding.

Michael E Mann, Director of the Earth System Science Centre at Pennsylvania State University, believes that the damage caused by some of 2017’s storms was undoubtedly exacerbated by climate change. Higher temperatures and sea levels may not cause extreme weather events, but they certainly worsen their impacts.

“Climate change is the single greatest challenge we face as a civilisation,” Mann said. “The economic losses due to climate impacts and climate change-exacerbated weather disasters is by some measure well over a trillion dollars in global GDP. According to one recent report, climate change over the next 10 years could cost the US as much as $360bn annually, nearly half of annual economic growth.”

As recent events remind us of the planet’s fragility, there remains optimism that climate change can be halted, or even reversed. Indeed, carbon dioxide levels remained flat between 2014 and 2016, suggesting that emissions may have peaked. China’s consumption of coal is declining, while its renewable energy sector thrives. The country’s government has also pledged to invest $360bn in renewables by 2020 and greatly reduce its reliance on fossil fuels.

In the fight against climate change, therefore, there are reasons to be both pessimistic and hopeful. An overwhelming 97 percent of peer-reviewed climate research papers indicate that human causes are to blame for global warming. Aside from a few stubborn naysayers, there is little doubt that the planet has a problem. Whether the planet can work together to find a solution, however, is another matter.

A fragile world
Attendees to January’s World Economic Forum are also likely to turn their attention to the various failed or fragile states generating instability in the wider world. The latter part of 2017 brought another refugee crisis, this time involving the Rohingya people of Myanmar. More than 500,000 individuals have fled the country for neighbouring Bangladesh, while the Myanmar military stands accused of a “textbook example of ethnic cleansing” by the United Nations.

As countries turn away from globalisation, they have looked inwards, embracing protectionism and secession

Although the plight of the Rohingya brought the suffering of refugees back into mainstream consciousness, they remain just one of the world’s many persecuted groups. According to estimates by human rights groups, the number of displaced people worldwide is in excess of 65 million. The problem is not helped by the fact that 84 percent of these reside in developing countries.

Although it seems insensitive to talk about the financial implications of refugee crises when so many lives are being destroyed, the economic effects must be addressed. Improving the prospects of displaced people without placing undue burden on the states that take them in is a pressing concern for governments and charitable organisations all over the world. The World Economic Forum has spoken previously about the importance of improving educational access for refugee children, but this will require long-term planning and investment.

Deep thought will also be required on Syria, where Islamic State is on the retreat but many other problems still remain. The country remains deeply divided between those who are loyal to President Bashar al-Assad and those that believe he must be removed if the country is to have any chance of a stable future.

Although uplifting stories of Syrians rebuilding their homes and ways of life are becoming more commonplace, the country’s ongoing civil war will take years to recover from. The World Bank estimates that the conflict has so far cost the country upwards of $226bn, while many businesses have been destroyed during the conflict and others have relocated to nearby regions, such as Turkey, Egypt and Jordan. The international community must decide how it can best support Syria as it attempts to heal division and repair its damaged economy.

The World Economic Forum may also cast a glance at North Korea, which appeared hell-bent on causing as much disruption as possible in 2017. The year was punctuated by various illegal missile tests by the authoritarian regime in Pyongyang, including one in November that landed off the coast of Japan. With the war of words between Trump and North Korean leader Kim Jong-un becoming increasingly heated, heads of state and financial markets will continue to watch developments closely.

Plenty to ponder
The theme of this year’s World Economic Forum, ‘creating a shared future in a fractured world’, recognises that the global challenges presenting themselves today are as great as they have ever been. The political spectrum in many developed countries appears irreconcilably split, with little chance of compromise. Uncertainty is present in all corners of the world, whether it relates to North Korea, Donald Trump or Brexit.

While many countries appear politically divided, the economic situation does not look much better. If the WEF is to truly encourage people to act together, it will need to convince many of them that billionaire CEOs and distinguished political leaders have the best interests of the common man at heart.

Looking back at more than 40 years of World Economic Forums, it is easy to be dismissive of their achievements, particularly when sifting through the various grandiose themes that have been chosen. The 2015 forum could hardly be described as creating a ‘new global context’, while the previous forum did not suddenly result in more responsive leadership. This year is not going to result in mass global unity. The forum cannot solve all of the world’s ills, but that isn’t really its aim. If even a single discussion leads to progress, then 2018’s forum will surely have been worthwhile.

Why clear communication is crucial for banks

Posted on January 16, 2018September 11, 2019 by Max Tomlin

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PTGoldenVisa is driving real estate investment in Portugal

Posted on January 15, 2018March 3, 2021 by Max Tomlin

At present, investment in real estate and tourism in Portugal is skyrocketing. The demand for acquiring properties is mirroring the surge in tourists visiting the country. The sunny climate and numerous well-known restaurants and beach experiences, combined with a multitude of monuments and a rich history, are helping to create a vibe of excitement in the country.

Portugal is proud to be one of the safest countries in the world and one of the best-rated in terms of the hospitality on offer. The Portuguese, having famously travelled the world in the 15th century and interacted with all types of cultures, are used to living in a cosmopolitan environment. It is this backdrop that makes investment opportunities in Portugal all the more appealing.

Portuguese funds

Investment funds have become the vehicle solution to investment in Portuguese real estate. Not only do they provide the best structure for tax optimisation, since only 10 percent income tax is required, they also offer numerous opportunities for even small investors to invest in medium to large-scale projects.

Investment in Portuguese real estate has surpassed €2.9bn, with more than 5,000 investors already collecting the benefits

At present, the real estate numbers are quite impressive. You can expect capital gains of 10 percent a year in Lisbon, while it is easy to get yields of rental activity of more than five percent per year, making this the perfect environment in which to invest capital. With low interest rates in the capital market and government public debt being better managed than ever before, the gap between other financial products and real estate funds is now very big.

There are a couple of programmes that make Portugal especially attractive for investment. For instance, there is the non-usual residents programme, which allows any citizen that has not lived in Portugal for the last five years to relocate their tax residence to Portugal. In doing so, they can benefit from tax exemption worldwide for 10 years, with a 20 percent flat income tax on what is generated in Portugal.

Destination Portugal

Tourism plays a huge role in the Portuguese economy. Indeed, the ability to convert any residential property into a short-rental apartment enables the country to quickly increase its hosting capacity. Supporting this expansion is the fact that low taxation on short rentals and the high-income rental generation of tourism makes properties very appealing in investment terms.

The Golden Visa programme helps to further boost the volume of foreign capital investment in the real estate market, while also enabling the renovation of city centres to make them more attractive. To this point, investment in real estate has surpassed €2.9bn ($3.4bn), with more than 5,000 investors already collecting the benefits.

These numbers are expected to swell further, as tourism in 2017 is thought to have grown by more than 10 percent from the previous year. This indicates how attractive Portugal has become as a destination. In 2017, Portugal won awards in several categories at the World Travel Awards: it was voted the best beach destination in Europe, in addition to the region’s leading destination. As tourism continues to grow, so will investment. In fact, the opportunity for foreign investment is considerable, particularly as local players are not able to meet market demand.

Golden Visa

The Golden Visa Programme is directed at non-EU citizens without citizenship restrictions. It allows anyone investing more than €350,000 ($414,000) into real estate or Portuguese-qualified investment funds to benefit from a residence permit. All that is required is a minimum stay of just seven days per year. What’s more, after six years, investors are also eligible for citizenship.

The programme was launched at the end of 2012 to attract foreign capital into real estate and to help renovate city centres in order to create a new dynamic in the market. The market was completely stagnated from 2009 to 2012, but it has gone from strength to strength ever since.

PTGoldenVisa helps make this possible. It’s a one-stop shop that offers full support for individuals applying for the Golden Visa, or for those simply investing in Portugal’s real estate market. Not only do we provide all necessary legal and tax consultancy services, we also offer property management services. We currently hold opportunities in areas such as buy to let, renovation deals to sell, property trading, and property development, while we are also accessing real estate funds in several investment deals. Through opportunities such as Golden Visa, Portugal isn’t just a dream holiday destination – it is a dream investment destination too.

How leading banks are adapting to a constantly evolving financial sector

Posted on January 15, 2018January 22, 2018 by Max Tomlin

The banking industry is undergoing a transformation – an ongoing evolution that is seeing change at every level and in every corner of the planet. It first started some 15 to 20 years ago, with the arrival of the internet. Things have moved on considerably since then: nowadays, cutting-edge technologies and innovative business models, such as artificial intelligence (AI), blockchain, crowdfunding and cloud computing, are among the most important disruptive forces in existence. This burgeoning entrepreneurial ecosystem has helped these new technologies to thrive across a multitude of sectors. Indeed, fintech firms, which continue to grow in number and prominence, are also exploring seemingly endless possibilities within the banking sector.

The internet transformed the way companies used banking services and products. Today, with the appearance of new disruptive forces, together with the ubiquitous use of mobile devices and smartphones, banking products and services will be completely transformed once more. World Finance spoke to Hugo Nájera Alva, Head of Business Development at BBVA Bancomer, about how the digital era is affecting the banking sector and what changes we can expect to see in the future.

What impact has technological disruption had on the banking industry?
The industry has long been in a state of improving its processes – it has always been willing to use new technologies in a bid to make its services more efficient. However, more recently, the speed and frequency with which new technologies continue to emerge have left the banking industry struggling to keep up.

A totally new type of customer is demanding modern financial products as this digitalised age continues to change the nature of consumer behaviour

At BBVA Bancomer, we started our digital transformation with a clear view of the future in mind. It was a transformation that started before anyone else in the banking system was considering it, and at a time when disruptive technology forces were not yet prominent. This evolution began with a totally new user experience in our bank branches and progressed on to the whole structure of the organisation. Now, we are digitalising our traditional banking products and services, and are creating native digital products and services. Alongside these changes, we are digitalising all internal processes, which enables extremely fast and dynamic adaptability in an ever-changing environment.

Our pioneering digital transformation has also led to a series of reforms in the financial regulatory framework, which includes new digital models. This shift has also made Mexico a regional leader in new digital banking.

In the digital era, who are the real competitors?
Competitors are no longer financial institutions, but technology players. They are structured differently and, perhaps because of that, they are able to offer simple solutions for specific needs in the value chain. While traditional banks have created and focused on a complete array of products and services, financial technology companies are able to concentrate all their efforts into solving a specific ‘pain point’ that affects just a small fraction of banking clients. The sum of all these fractions coming from different technology players becomes a big risk for the ongoing business of banks. What we are realising is that banks are adept at competing with other banks that offer the same products and services, but when competing with financial technology players, they must approach things with a totally new strategy. The later banks come to realise this, the longer it will take them to prepare for tackling this new type of competition. Indeed, not all banks will survive these disruptions.

How does technology translate into greater empowerment for clients?
A totally new type of customer is demanding modern financial products and services as this digitalised age continues to change the very nature of consumer behaviour. They are permanently connected, they don’t like too much stress, they don’t like complexity and they crave immediacy in all aspects of their lives. This is the new type of consumer – the Millennial – for whom we have to develop a new generation of banking products and services. Today, customers have the power to demand things with a simple click of a smartphone; banking products and services are no exception to this type of behaviour.

How do new financial products come about? What does the design process look like?
At BBVA Bancomer, we have understood that customers are demanding a totally new type of product for their financial lives. In response, we have studied new technology-based competitors and nascent start-ups to create products and financial experiences using a new value proposition. We have based this proposition on four attributes: data analytics, customer-centred design, simple and accessible devices, and data sharing and engagement with the fintech ecosystem. These four attributes are the essential elements to build complete experiences around specific needs for our clients.

To make this possible, we had to transform our work methodology from traditional project management to an agile methodology that uses interdisciplinary teams (also known as ‘scrums’), working in a very fast product creation and iteration cycle. We use three-month cycles to deliver a minimum value product (MVP) or new features for previous MVPs. Our clients are consulted in all key steps of this cycle.

The decision-making process had to change as well to take into consideration the different aspects of these new working methodologies. For instance, scrums work in a very self-contained way, as they are left to make their own day-to-day decisions while following guidelines that come from customers’ needs and the head of business development. Therefore, the organisation has evolved into a more horizontal entity, which expedites and improves the decision-making process.

How important is information and support with regards to new financial services?
More and more, information has become the critical element to better serve clients. The disruption in other industries has shown the value of real-time information. Cloud computing, big data and other new technologies allow information to be processed in such a way that products can be designed for different market segments, while also being specific in what is being offered to clients. Banks have always been able to generate a huge amount of information for every client but, until recently, only a fraction of this was used to create new products and services. Now, we are on the verge of being able to utilise every single bit of information to better understand and serve our clients.

How is the relationship between traditional banks and fintech start-ups changing?
When the fintech ecosystem became a real competitive force in the banking industry, we understood that collaboration could be beneficial for both parties. Financial technology start-ups entered as a disruptive force with a totally fresh vision of what banking services should be, but banks have the information and the long-standing industry know-how. Therefore, collaboration is a natural way to find the best of both worlds for our customers and in turn improve their financial lives. Understanding the need for partnership, we have dedicated areas within the bank to closely collaborate with these nascent financial technology players in order to promote innovation and growth. We do so through competitions and by creating an environment in which we can connect entrepreneurs and investors, because we understand the importance that these ecosystems have for the continued progression of the banking industry.

Why is collaboration between the two so important?
The collaboration of banks and fintech start-ups has the advantage of taking the best practices and knowledge of both to improve people’s financial lives. It seems natural to collaborate if we consider that each one is missing what the other can offer. Banks are learning more about new technologies, and technology companies need to know more about banking itself. Indeed, collaboration rapidly improves skills and knowledge, and also reduces the learning curve. Furthermore, collaboration between banks and technology players also has the potential to walk the last mile in terms of financial inclusion.

What does this partnership mean for clients?
We are certain that collaboration between banks and fintech companies will only improve financial services for clients. These partnerships mean banks are now looking to create products based on real-time information and new design methodologies in order to meet their clients’ needs in this era of constant mobility.

In your opinion, what does the future of banking look like?
Banks will be more like technology companies, with intensive use of real-time information to anticipate clients’ needs and be ready with the best offers in the exact moment they need it. Products and services will be designed based on the needs of clients, with the capacity to adapt and tailor the offering to suit each individual’s specific requirements.

Egyptian Steel continues to embody the nation’s economic resilience

Posted on January 12, 2018January 17, 2018 by Max Tomlin

A revolution is always earth-shattering for any nation. Major socio-political changes occur and they are followed by years of unrest. Egypt had two revolutions in the space of a few years, yet the resilience of the Egyptians and the Egyptian economy has been unprecedented. The population’s reaction was astonishing: the June 30 revolution took place in 2013, and people still went to work as normal the very next morning.

Egyptian Steel was established just six months before the first revolution and, seven years later, is now one of the largest building materials companies in Egypt and the region. We were able to grow and flourish during this difficult period, and are not the only success story to emerge from these turbulent years. The country has definitely had its struggles, but I believe we are bouncing back much faster and stronger than other nations that have gone through similar circumstances.

Steel demand
The demand for steel is always high, especially in Egypt and other African nations where there are fast-growing populations and a desperate need for new infrastructure. I firmly believe that Africa is the future, and the world’s main opportunities for growth and new business will come from this continent.

The demand for steel is always high in nations with fast-growing populations where there is a desperate need for infrastructure

That said, providing energy and electricity for heavy industries such as steel and cement still remains a challenge for the sector. Fortunately, our government has been working on numerous projects to provide enough power to boost the industrial sector. For instance, the government is currently building several new power plants, including the world’s largest electricity power plant in collaboration with Siemens, in addition to revamping and improving existing plants. The cost of raw materials required for production is also a challenge. That being said, our group’s plants are built with the latest energy-saving technologies, which enable us to produce high-quality products and still remain competitive.

Steel and other heavy industries are typically some of the strongest sources of GDP for any country. As such, I believe governments should be willing to protect their national industry by imposing anti-dumping tariffs and customs on imported steel. Indeed, this procedure is not limited to countries like Egypt: even the US has imposed tariffs to protect its steel industry. However, in Africa generally and in Egypt specifically, we face a different set of problems than those faced in developed countries, where there is usually an overproduction of steel. We are still building our continent, so there is always an appetite for steel.

Investment climate
Egypt’s main power lies in its people. With more than 60 percent of the population aged under 30, we are a youthful nation and, aided by the increased development of vocational centres, our workforce is energetic, educated and skilled. Egypt also benefits from its strategic location overlooking the Red Sea, the Mediterranean and the River Nile. I believe all of these factors make Egypt a unique investment opportunity.

Since the second revolution, the government has been particularly keen to attract foreign investors with the introduction of new investment laws to create an even more attractive environment for investing. Moreover, the necessary decision to float the Egyptian pound has made the capital for investing in Egypt more affordable for investors. Indeed, the establishment of joint ventures and investments into already established Egyptian companies is an ideal scenario for foreign investors who want to minimise their risk.

Our group is developing a world-class business model and corporate governance structure. We do not settle for anything other than outstanding quality, and we aim to compete globally. This quality is embodied by our plants, suppliers, workforce and final products. We also make use of energy-saving technologies and, with the completion of our fourth steel plant in Al Ain Al Sokhna at the end of 2017, we have become the largest green steel producer worldwide, with a production capacity of 2.3 million tonnes annually.

The locations of our steel plants are also very strategic. With plants in Alexandria, Port Said, Al Ain Al Sokhna and Beni Suief, they are all situated near Egypt’s main ports, which facilitates transportation. I also take great pride in the workforce of the group: I call them the ‘dream team’, as they are all at the top of their respective fields.

Another important point of distinction is our CSR programmes, which aim to improve the quality of life for as many Egyptians as possible. We adopted the initiative to assist the country’s 40 most impoverished villages, providing people with proper housing, clean water and electricity. We also provided them with micro projects that would ensure a steady income in the future and the sustainable development of their local communities.

In the same way, we are revamping existing schools and investing in new community schools in rural areas to ensure that no child goes through life without an education. We have also refurbished and equipped orphanages for children with special needs, and sponsored athletes and young inventors who represent Egypt abroad. Through these initiatives, we will continue our efforts to improve people’s lives and the standard of living throughout the country.

Creating enterprise
We always welcome foreign investors who would like to place their trust in us. Our group includes Egyptian Steel, which will reach a 20 percent market share of Egypt’s steel market by the end of 2018, and Egyptian Cement, which is set to produce two million tonnes of cement annually. We have also established the Egyptian Complex for Building Materials Industries with the aim of creating an integrated industrial area on Egypt’s investment map.

Our first choice of location was Sohag, due to its previously untapped abundance of natural resources and raw materials. The project will contribute to reducing unemployment in Upper Egypt and will help with the migration of young people both locally and internationally. In fact, this initiative alone will provide 5,000 to 6,000 jobs.

The complex consists of six factories that produce cement, lime, cement slabs, prefabricated concrete, cement bags and cement bricks, in addition to interlock factories and a steel reforming centre. It is the first of its kind to include all industries related to building materials, and so should meet the needs of consumers, retailers and real estate developers alike. The complex is scheduled for completion by the end of 2018 and, with a total investment of EGP 6bn ($339.9m), it is the largest ever investment project in southern Upper Egypt. Not only does it aim to create an investment boom in Upper Egypt, it will also increase the country’s industrial capabilities and boost the national GDP.

Made in Egypt

We have so much in the pipeline, and the group is committed to expansion, whether in heavy industries or in other sectors.

Our success in the upcoming years will stem from the introduction of a powerful slogan: ‘made in Egypt’. At present, Egypt’s imports are valued at around $65bn annually, while its exports are valued at somewhere between $25bn and $30bn. This gap can be closed by empowering the country’s industrial and manufacturing sectors, and by developing more integrated industries. To make this possible, the government must better protect national industries with appropriate laws and protection fees, while it is the duty of manufacturers to present products that are competitive in both quality and price. If we are able to minimise our imports, we will see a positive impact on the currency and behold an Egyptian nation that is stronger than ever.

Trade threats and opportunities ahead

Posted on January 11, 2018January 17, 2018 by Max Tomlin

The coverage of political developments by the media is invariably dispiriting and negative to trade. Of course, most of it is necessary as significant political happenings in the US and Europe naturally assume great importance in western media reporting, although much of the subject matter is highly transient. Good news about global trade is much harder to find.

Experience suggests human happiness is in inverse proportion to political noise.

Reasons to be cheerful
As with life, the reality is more what actually happens, rather than the plans our leaders or we make. Quite possibly, there is a lot more to be positive about than we would think.

Despite President Trump’s hard-edged promotion of US national trade interests, the strong US criticism of the World Trade Organisation (WTO) at the WTO’s 11th ministerial meeting in Buenos Aires, President Trump’s preference for bilateral deals over the multilateral system, the UK’s (still unclear) exit from and future trade deal with the EU, or any number of other challenges to the established order, the business reality is that life goes on and economic growth continues, even if it is less than hoped for.

More reporting of economic success stories would be a welcome New Year boost to our spirits. This may also promote vital interest in exploiting the most vigorous markets and forming new business alliances

Undoubtedly, some important industries fear any obstruction to international trade reliant on complex global supply chains. Nonetheless, there is a world of smaller businesses vital to global economic growth and job creation whose enterprise and growth opportunities are encouraging. Micro, small and medium-sized enterprises make up about 95 percent of global firms, account for 50 percent of global GDP, and 60-70 percent of employment worldwide. Yet they seldom get much publicity. Big companies, like politicians, have loud voices. The smaller enterprises are too often left out. More attention is needed to help them, and their successes deserve more celebration.

Building good, small companies that provide jobs and revenue in their country is essential to sustainable growth and diversity to national economies, which are sometimes too dependent on a few key industries that may not endure.

While overall unpredictability across much of the world is at a high level, and established businesses dislike uncertainty, there is constant demand for skills, products, technologies and finance to help sustainable growth and improve economic resilience.

Technology is disrupting how trade is done while also enabling new participation in economic opportunities. Indeed, it enables collaboration between small enterprises in new ways, creating a new clustering of like-minded enterprises that can more easily do business with each other across the world. Digital trade brings new perspectives, niche services can be developed, and smaller providers can make big wins. Time spent on building a strong ecosystem for the technology revolution will be rewarded, and countries that do it best will be helping make a better future for their young people.

More reporting of economic success stories from across the world would be a welcome New Year boost to our spirits. This may also promote vital interest in exploiting the most vigorous markets and forming new business alliances.

New frontiers
With the Commonwealth Summit coming to London in April, the first since Malta 2015, it is remarkable how much has changed since 2015 that should be of immense interest to Commonwealth leaders. In 2015 it was not seriously imagined that the UK would vote to leave the EU, and President Trump’s election was mostly thought inconceivable. Yet here we are.

As trade relations with the Commonwealth will soon be very significant for the UK, it must be high priority for the UK Government to make the most of the summit in London. Many large corporations are already well established and successful in South-East Asia with no sign of decline. With this, the door is open to increased trade as long as reasonable terms apply, including appropriate people movements as a corollary of improved trade.

On average, ASEAN countries have populations of about 650 million people with a growth rate of four to five percent, placing them as big players in the international arena, particularly where export is concerned. ASEAN countries are beginning to compete among themselves at a rapid pace, creating competitive tax incentives for SMEs and large corporations.

Tax incentives are often front of mind where exports are involved, and with an increased focus on Asian trade and opportunities through the Trans-Pacific Partnership and within ASEAN region, these countries will play an immense role in the future of global trade. Since 2000, intra-Commonwealth trade in goods and services has tripled to more than $600bn. It is reported that when Commonwealth countries trade with each other, they do on average 20 percent more trade and generate 10 percent more foreign direct investment than otherwise. There is an undoubted Commonwealth premium to support trade growth.

The technology impact
A fair working assumption is that political behaviour will lag behind technology development, now happening at a breathtaking pace. It is a totally viable thesis that while political games are playing out, ambitious entrepreneurs and adaptive enterprises will be shaping their strategies to a newly interconnected world of trade opportunity. Forecasting the future is very hard, but it is clear that global business will look very different over the next few years.

It is critical to sustainable development across the world that new jobs are created faster than automation, and that the digital economy displaces existing work.

It will be positive to increase our focus on the fastest growing global markets, what they need, and what far-sighted businesses of any size can offer.

As we go into 2018, the opportunity is there to build more global trade capacity, to tackle all barriers to trade (especially for smaller businesses), and to demonstrate that being connected globally is far better for all of us than building divisive walls. China’s One Belt Road strategy is shaping the Asian market to boost trade and stimulate economic growth across Asia and beyond. By building immense amounts of infrastructure connecting countries around the globe, it is predicted to lift economies in China’s sphere of influence.

It will be refreshing to see the internet serving humanity better through creating more equal prosperity in developing countries and allowing greater inclusiveness in world trade, rather than its misuse being more comparable to the polluted rivers that feed our oceans with plastic waste.

Technology must be made to work for the good of all, and trade collaborations which better link the world could transform much needed opportunities for the young in highly populated countries, whose existing GDP may be under threat from disruptive technologies and who need the chance to be competitive in new ways.