Year: 2019

Common pitfalls of tax process automation | Vertex Exchange Europe 2019

Posted on by World Finance

Tax technology specialists Vertex brought together tax professionals, solution experts, and its customers in Munich for its Vertex Exchange Europe event. World Finance interviewed half a dozen delegates for an update on Europe’s latest tax compliant challenges and technological advancements: you can watch them all in our Tax Automation with Vertex playlist on Youtube.

Alex Baulf: When businesses are looking to automate their tax processes, there are three or four typical pitfalls that businesses can face.

The first one is really focusing on the existing process. What’s currently done by the business; the as-is.

Often a tax process is inherited – you know, often because of a merger or acquisition, people coming and going, leaving the business. Something I hear a lot is, we’ve always done it that way. So a pitfall is, people trying to replicate that. They just try and automate a current human process using robotic process, using technology. But perhaps not really understanding why they’re doing it, and considering is there a much better way of doing it?

Another pitfall is not using the opportunity to cleanse your data. So really review the granularity and quality of that data. That could be any tax sensitive data that’s underpinning a tax process. That could be master data, a VAT registration number. Maybe that’s missing, maybe it’s incomplete. Maybe it’s not in a tax authority database.

Really use the projects as an opportunity to take a look at your data. What’s held, what’s available, what could be available? You know, can you augment that, you can enrich that, you can cleanse and scrub that? Because that will really underpin a compliant tax process.

The third pitfall is really focusing on a single tax requirement in isolation – not considering the wider commercial, legal, regulatory impact that that change to the tax process may have.

An example of that is when a business looks to automate its AP process. They may start issuing and receiving electronic invoices instead of paper. Across the globe, many countries have really strict rules on e-invoicing. That may be around ensuring the authenticity of the issuer of that invoice; but also the integrity of the contents of that invoice.

That needs to be maintained for the entire lifecycle of that invoice. That invoice must be archived for a time period prescribed by each country – they really do differ.

There also may be very strict requirements in terms of how that invoice is archived, and where. If this isn’t considered at the start of a project, what could be seen as an improved tax process may actually lead to the business not being compliant, and open itself up to penalties, fines, interest, and possibly lost input tax.

Another pitfall is when a business doesn’t take ownership of its tax policy when automating a tax process.

Often people see technology and automated process as a silver bullet: something that ensures they’re compliant, and something they can rely on. But ultimately there will be a tax policy, a decision to charge tax, the rate, the location and the timing: that needs to be signed off and approved by the tax function. Maybe a head of tax, maybe another senior accounting officer. That needs to be documented, but it also needs to be able to be articulated to a tax authority to really show how a process works, and how your policy is embedded in that new process.

Whenever you automate a tax process, this is a brilliant opportunity to really speak to your people, understand their concerns. Are there quick wins? Really understand what the requirements are. And look to improve processes, not just automate them.

Data is obviously a very key issue. Really use this project – the time, resource, and energy – to review your data. How can it be improved? This is your – I’d say – quite a unique opportunity.

 

Thanks for watching. Click now for more videos from Vertex Exchange Europe 2019, and please subscribe for the latest international business insights from worldfinance.com

The next stage of tax automation | Vertex Exchange Europe 2019

Posted on by World Finance

Tax technology specialists Vertex brought together tax professionals, solution experts, and its customers in Munich for its Vertex Exchange Europe event. World Finance interviewed half a dozen delegates for an update on Europe’s latest tax compliant challenges and technological advancements: you can watch them all in our Tax Automation with Vertex playlist on Youtube.

Geoff Peck: Tax automation of course is not new – lots of companies have actually had tax automation strategies now for approaching 20 years. The important thing right now is that the simple idea of automation has actually proved itself to be not quite enough. Automation is very much – let’s just get this process where it used to be done by a human, now let’s have it done by a machine. It’s a little bit industrial age thinking.

What we’re seeing is tax authorities, they’re already moving beyond the industrial age thinking. What they’re managing to be able to do with big data technologies is in fact, take raw data, and extract automatically using technology, the business sense from that data.

So companies have to try and keep up with this. Now that sounds like a big step forward – it’s actually not as big a step as it needs to be. The old-fashioned, obviously good quality implementations in ERP, and making great use of technology – all that stuff is still important. But what they really now need to be thinking about is adding a little bit of a layer on top of that, which is to really understand some of these concepts, these keywords that are out there. Like digitalisation, like transformation, data-first; even some of the newer technology: how does robotics fit in? Robotics for example has only got automation in it, there’s no transformation in robotics. And start to understand some of these. And layer those across the top of what’s being done. And then actually what you’re going to be able to do is understand what you’re doing at the lower level technically – how it’s really going to impact the business. And start to break out of the kind of mental trap that people are in today, where they really don’t know what the way forward is.

We actually have a word for it – we call it taxology. And taxology, like I say, taxology kind of sits on top of tax technology. We’ve always had good tax technologists who understand the technology, and can implement the technology. But implementing the technology alone, in isolation, has proved not to be enough. You’ve got to bring the process and the people, and it’s got to be done for the right reasons. And that’s the piece that’s been missing.

So it’s a little bit of education – but at the same time you want to look for those quick wins. Which is usually along the lines of, what are your pain points right now? And let’s see what we can do about those. But let’s do it in such a way that we don’t paint ourselves into a corner for the future, as we get to a more comprehensive, holistic approach to adopting technology.

Tax technology has anyway always been a journey. And particularly when you bring data into the picture. Because data is a constant thing, you’re trying to get your head around in a constant education process. And it’s probably for most people a process that once they get started on this process will probably last for the end of their careers.

The one constant in change is more change. So it’s probably going to keep going forward.

Tax compliance changes driving automation | Vertex Exchange Europe 2019

Posted on by World Finance

Tax technology specialists Vertex brought together tax professionals, solution experts, and its customers in Munich for its Vertex Exchange Europe event. World Finance interviewed half a dozen delegates for an update on Europe’s latest tax compliant challenges and technological advancements: you can watch them all in our Tax Automation with Vertex playlist on Youtube.

Emmi Nygard: So, my job at KPMG is to run a team that does tax technology implementation. So, specific to O Series, to VITR, and the TPE tools that are on the market. And so I often help clients decide what they really really want for the automation of their tax design and their tax process.

I think one of the biggest things is that we see compliance rules changing day-to-day almost! And we’re seeing that kind of change coming very rapidly. And so they’re seeing the need to put a tool in place that they can then automate this process – but also be ready for what’s coming next.

Most processes, if they’re looking to automate them, are manual. So those look like Excel documents, quite honestly! It’s a lot of cutting and pasting and bringing things together from different sources. A lot of clients have different and disparate source systems. So they have to come up with a different way of doing that. And when you look at an automation tool, that’s actually when you go to put that into place. Especially if they have multiple systems and multiple sources of information.

Overarchingly the hope is that it frees up the time of the tax professionals who’ve been doing this manual work that isn’t really adding value to the business itself, to then be – as we say – value add for the actual business. So that they can find other ways of being prepared for tax audits, finding new and creative ways of doing some of their tax work.

But really what I think they’re ultimately going to be able to get out of this is that they can free up their time to make sure that their people who are tax professionals are actually using their time for the best tax outcomes for the business itself.

The conversations I’m having here are both around the product, and ways that we see our clients using Vertex products today, and the ways that we could probably make them a little bit better. Because the whole idea is to iterate and keep making changes so that our customers are using these more and more. And we’re really trying to evolve them with the changing trends.

But the other ones on the other side are clients who are really looking at the possibility of implementation, and I was just having a conversation with some of the guys around misinformation that’s being provided by other software providers out there. Where we recognise that there’s still some level-setting to be done in Europe around how these tools work, what the real offerings are, and how as an advisor I can bring that to the table, so that they can look to Vertex, they can understand that they can use these tools, and how they can do that.

Five or 10 years ago I would say that companies were really looking at the possibility of automation, rather than jumping right in. And now they are actually making that leap into the next phase – and they’re seeing a need to actually implement these technologies. They’re really looking at these tools as a way to help their tax organisations jump into the future. And the reason that they’re doing that is they’re seeing legislation change day-to-day, month-to-month, year-on-year. We’re seeing more and more requirements come down the pipe, that they’re having to actually adhere to. Things like the SAF-T, things like real time reporting. And all of those things are saying you have to get it right, right now. There is no tomorrow.

So I think that’s what we’re really seeing in Europe: it’s that where the US was maybe 10 years ago, we’re there now. We’re really moving that forward, and we’re seeing automation as the next phase.

 

Thanks for watching. Click now for more videos from Vertex Exchange Europe 2019, and please subscribe for the latest international business insights from worldfinance.com

Digital Service Taxes and how to challenge them | Vertex Exchange Europe 2019

Posted on by World Finance

Tax technology specialists Vertex brought together tax professionals, solution experts, and its customers in Munich for its Vertex Exchange Europe event. World Finance interviewed half a dozen delegates for an update on Europe’s latest tax compliant challenges and technological advancements: you can watch them all in our Tax Automation with Vertex playlist on Youtube.

Aleksandra Bal: Digitalisation and new business models have created enormous challenges for international taxation.

We are at the crossroads. Several fundamental questions remain unanswered. How to tax digitally operating companies? Where to tax them? What to tax: profit, turnover, data, intangibles, user participation?

The OECD is driving the international debate on taxing the digital economy. It’s looking at various proposals, how to change the current tax system, hoping to bring 125 countries to a consensus.

We have been searching for a solution already since 2013 – and no solution has been found so far.

Some countries became impatient. They started thinking about implementing temporary measures to tax digitally operating companies. And one of the common temporary measures are digital services taxes.

Digital service tax proposals have been announced in many European countries: in France, in the UK, in Austria, Poland, and the Czech Republic – just to name a few. They are intended to be temporary measures; but if there is no global solution, they will become permanent. And the history of income taxation is full of temporary measures that became permanent.

So what will happen when we are faced with digital services taxes? Without a doubt, this will mean a huge compliance burden on companies.

Digital services taxes apply to turnover, not to profit. So you may generate losses in a country, but you’re required to pay those digital services taxes. And of course a question that many companies will be asking is, what to do about them? Are there any ways to challenge them? And yes there are – some of them are easier than others.

For example, there are good arguments to claim that digital services taxes would operate as de-facto tariffs, violating the WTO law. That means a country – for example the US – can make a WTO claim against the country that has introduced digital services taxes.

WTO cases and procedures take quite a lot of time to be resolved, so it may take two years or more. But there are also ways to challenge digital services taxes under EU law. There are good arguments to claim that these taxes violate the state aid rules and the fundamental freedoms.

State aid means benefits granted by governments on a discretionary basis – so it’s about selectivity. You cannot favour certain companies or certain sectors. And digital service taxes are all about selectivity. They apply only to big companies, and they apply only to certain activities.

The fundamental freedoms forbid discrimination based on nationality. Digital services taxes do not refer explicitly to nationality – but they refer to thresholds. They affect big companies. And big quite often means foreign. And that would mean that the prohibition on nationality discrimination is violated.

So there are ways to challenge digital services taxes. Some of the ways may be more simple than others, and what will happen in the end? We just have to wait and see.

 

Thanks for watching. Click now for more videos from Vertex Exchange Europe 2019, and please subscribe for the latest international business insights from worldfinance.com

Applying tax engine rigour to procurement | Vertex Exchange Europe 2019

Posted on by World Finance

Tax technology specialists Vertex brought together tax professionals, solution experts, and its customers in Munich for its Vertex Exchange Europe event. World Finance interviewed half a dozen delegates for an update on Europe’s latest tax compliant challenges and technological advancements: you can watch them all in our Tax Automation with Vertex playlist on Youtube.

Andy Hallsworth: There are trends in procurement at the moment, and actually it’s about best-of-breed platform. I suppose traditionally procurement has always happened in ERP platforms – and not without difficulty for VAT, for sure. But now there are platforms such as SAP Ariba, such as Coupa, becoming very popular with procurement.

As VAT people, we’ve always had a much clearer handle on the AR side of our business – the sales that we make. We are in control of that.

By definition we are less in control of the AP side of our functions – we are at the mercy of the vendors, of the clerks managing the invoicing for those vendors.

AR clerks from our vendors are literally manually typing VAT amounts into a screen in front of them. What are they basing that VAT amount on? Well, your guess is as good as mine. But with manual input becomes risk of manual error.

This is where the use of a tax engine can apply rigour throughout the lifecycle of an AP process. The content, the power of automation and consistency that you get with a tax engine can ensure that companies aren’t accepting incorrect invoices – or, invoices with incorrect VAT on them – to ensure that they know the true cost of VAT to their business, to not be so much at the mercy of AR clerks.

One of the key business outcomes of applying this kind of rigour to AP is simply not accepting invoices on which the VAT is incorrect! As we know, if you as a business accept an invoice with incorrect VAT, and you recover that VAT, well there’s a chance that you’re going to end up being liable for that VAT.

We often find these errors years down the line, when the tax authorities come and ask the right questions. What we’re looking to do with tax engines is to apply that rigour up front, real time: to weed out those incorrect invoices at source, not accepting them by chance, and living to regret it sometime later.

So for example I know I’ve worked with some businesses that went through an exercise of applying rigour to their AP process. And at the start of that process they believed they were getting 65 percent of their AP invoices correctly coded. By applying rigour, working along with Vertex, they upped that to over 95 percent fairly rapidly.

 

Thanks for watching. Click now for more videos from Vertex Exchange Europe 2019, and please subscribe for the latest international business insights from worldfinance.com

What the US Wayfair ruling means for Europe | Vertex Exchange Europe 2019

Posted on by World Finance

Tax technology specialists Vertex brought together tax professionals, solution experts, and its customers in Munich for its Vertex Exchange Europe event. World Finance interviewed half a dozen delegates for an update on Europe’s latest tax compliant challenges and technological advancements: you can watch them all in our Tax Automation with Vertex playlist on Youtube.

Ellen Van Daal: So, Wayfair is a decision by the US Supreme Court, overruling the latest regulations in terms of having Nexus, and taxing companies in the different states in the US.

Before the Wayfair decision, you needed to have a physical presence in each of the states to file your tax returns, and pay taxes. With the Wayfair decision it means doing business in the US, selling to the different states, already means you have Nexus – and thus pay taxes. So European businesses will have filing obligations in each of the states within the US.

The decision was last year, and now all the different states are implementing their own rules. So you have different thresholds in each of the states within the US to comply with tax registrations. So you need to monitor very closely every different state within the US, what are the thresholds, when are they applying it. So you need to monitor it very closely.

So Vertex has the content, so automating your tax processes with Vertex means Vertex will offer you the content. So if there’s a member state that is applying the different thresholds, or has set out their rules and regulations, Vertex will automatically update their content – so it means that you’re already up to date, there’s no need for you to do anything, other than the tax registration within the state.

Trends in EU VAT compliance | Vertex Exchange Europe 2019

Posted on by World Finance

Tax technology specialists Vertex brought together tax professionals, solution experts, and its customers in Munich for its Vertex Exchange Europe event. World Finance interviewed half a dozen delegates for an update on Europe’s latest tax compliant challenges and technological advancements: you can watch them all in our Tax Automation with Vertex playlist on Youtube.

Aleksandra Bal: In the area of VAT, the pace and diversity of change has always been very high. But having spent over 10 years in the industry, I have never witnessed a magnitude of change like this before.

Let’s take VAT compliance as an example. In the past, things were simple. You just filed a VAT return once per month, or once per quarter. Now, this is no longer sufficient. What is changing is the format, speed, and type of information delivered to the tax administration.

Some countries – for example, Poland and Portugal – have introduced an obligation to submit transaction data on a regular basis. Your invoice data: you have to provide them every month to the tax administration.

Other countries went even one step further, and started requiring real-time transmission of transaction data. Spain was the first country to introduce such an obligation, followed by Hungary.

Shortly afterwards, Italy implemented an invoice clearance model – and this means that you cannot issue valid invoices unless the tax administration has approved them. So you send your invoices to the tax administration, and the tax administration forwards them to the customer.

And we can also see a trend towards digital reporting. The UK is currently implementing its Making Tax Digital initiative. You have to keep your records digitally, you have to submit your returns using certified software, and you have to make sure that your tax information is digitally linked.

And all these new compliance obligations create enormous challenges for businesses. The main challenge is that it all happens at country level – and it’s not supported by EU-wide harmonisation measures.

So companies need to monitor local developments. And when new requirements are announced, there’s often very little time to adapt ERP systems and processes.

Another difficulty is that these requirements are published in local languages, making it difficult for globally operating companies to implement them. And if you don’t know what to do, there’s no one to ask – because even tax administrations are not familiar with the new rules, and cannot provide advice to tax payers.

Two main pieces of advice to businesses on how to handle those emerging compliance regimes. First one is: avoid the over-tooling trap. Over-tooling means that you have too many tools within one organisation. If you do not think well ahead about the new compliance obligations, do not think about all the options, you may end up having different tools that are not compatible with each other, or with other systems used within an organisation.

And having your tax system built from various local pieces is like driving a car that has been assembled with parts coming from different manufacturers. So if you want to change the tyre you go to Toyota, if you change the oil you go to BMW. And this is not very efficient.

Another piece of advice would be, be proactive. Tax departments quite often take a reactive stance – they do just enough to keep up. And this approach is very risky.

If you are not proactive, you may not consider all the options. If you do everything at the last moment, you may end up having solutions that are costly to maintain, and not user friendly.

So be proactive, take this new compliance requirement as an opportunity to take a critical look at your processes, to improve it and generate better business value.

Why disruption shouldn’t be viewed as a negative thing

Posted on by Helen

The Nigerian economy faces a unique set of challenges and opportunities. While economic growth was subdued in the first five months of 2019, an uptick in oil revenues and a gradual improvement in non-oil sectors have together brightened the outlook for the rest of the year.

Monetary and fiscal authorities remain tasked with sustaining macroeconomic stability, but interest rates and exchange rates have steadied. Inflationary pressures, which returned at the end of 2018, have stayed relatively constant, while the value of the naira against the US dollar has stabilised, thanks in large part to a significant increase in the nation’s external reserves.

What’s more, the 2019 budget, which seeks to maintain Nigeria’s growth momentum, was recently signed into law. Its implementation is now expected to bring prosperity to the nation. The reappointment of Godwin Emefiele as governor of the Central Bank of Nigeria, meanwhile, has been regarded as a good omen by financial institutions operating in the region, as it will provide a degree of continuity and stability to the market. Despite this increasingly positive outlook, Nigerian banks cannot afford to become complacent. In fact, as change continues to sweep the market, the country’s financial institutions will need to adopt a more pragmatic approach to business, or suffer the consequences.

Zenith Bank places a very high premium on its customers’ experiences and has worked to ensure that all of its platforms offer a seamless service

The customer is king
Traditionally, the role of a financial institution has always been to accept money from customers and then lend surplus funds. Today, however, customer expectations have expanded the parameters of banks to include the provision of financial and non-financial products. This change has been accelerated by the development of cutting-edge technologies, which have forced previously slow-moving
institutions to invest heavily in infrastructure to stay relevant, let alone competitive.

There are a number of ways in which technology has redefined Nigeria’s banking sector. Among the most noticeable has been its impact on brick-and-mortar branches, which are rapidly becoming redundant as online alternatives grow more sophisticated. Put simply, customers can now transfer money or pay for goods with the tap of a button, so the need for in-branch interactions has dwindled.

At Zenith Bank, we place a very high premium on our customers’ experiences and have worked to ensure that all of our platforms offer a seamless service. This is reflected in our suite of electronic products, which allow customers to enjoy convenient banking services on the go. For example, we have introduced new payments solutions, including ZedStores on Instagram and the Scan to Pay app, which makes use of QR codes. We also provide electronic mandates for payments on merchant websites, where debits are made against subscribers’ accounts.

What’s more, prospective customers can now open an account using any of our channels, whether that’s through unstructured supplementary service data, our mobile banking app, ATMs or the Zenith website. With an array of e-business products – including our *966# EazyBanking service, which allows users to access Zenith’s mobile banking offering without using internet data – transactions have become easier and more convenient. This has helped us to attract new customers as well as retain existing ones, providing a significant boost to our bottom line.

While such tools and software require major investment, they ultimately help banks cut costs by improving efficiency. For instance, technology has reduced the time it takes to process loan applications, improving due diligence at the same time. It has also been instrumental to reinforcing security and has reduced the likelihood of mistakes being made or fraud being committed.

The introduction of these cutting-edge and robust software solutions has allowed Zenith to drastically reduce turnaround and processing times. This has led to a direct increase in customer satisfaction, which in turn impacts profitability and sets the bank apart from its peers. But the biggest aspect of the Nigerian banking sector to be disrupted by technology has to be customer service: in the past, it was difficult for customers to make their voices heard. With the help of technology and social media platforms, however, the customer truly is king.

Taking responsibility
Banks are not only accountable to their customers and shareholders, though: they must also answer to larger societal issues. As this realisation has grown, corporate social responsibility (CSR) has become an essential business practice in the Nigerian banking sector, with many institutions now putting a sizeable portion of their profits towards initiatives that directly impact the communities they operate in. Some of these banks – including Zenith – have gone a step further by publishing sustainability reports in line with global best practices.

Throughout the 2018/19 financial year, Zenith engaged in a number of projects that will continue to benefit local communities in the decades to come. Most recently, we supported the Nigerian Government in its efforts to improve the standard of education and human capital development by hosting capacity building workshops and developing ultramodern IT centres in several educational institutions across the country. We have also encouraged youth development through our support of sport at both a professional and grassroots level. These projects clearly demonstrate our commitment to the ideals and tenets of CSR, which hinge on the ‘triple bottom line’ of people, planet and profit.

We have also directly contributed to development projects and healthcare delivery causes across the country. These have included the provision of disaster-relief materials – such as mattresses, food items, rechargeable lamps, insecticide-treated mosquito nets and personal care items – to victims of floods in several states of the federation. As well as providing physical assets, Zenith has sought to empower displaced children by offering education and skills programmes.

In addition to making donations to various state governments’ security trust funds, Zenith has sponsored numerous summits, conferences and seminars organised by governmental and non-governmental organisations. These investments were targeted at creating platforms to improve policymaking and helping to sustain economic growth at the local, state and federal levels.

Zenith’s efforts to engage with the community can be seen in its first ever lifestyle, fashion and entertainment fair, Style by Zenith. The two-day event, which was held in Lagos in late 2018, featured a number of live musical performances from top Nigerian and international artists, as well as a selection of fashion shows, providing a wonderful space for purveyors of lifestyle products and services to interact with the public. The aim of the fair, which is set to become an annual event, was to connect consumers across all demographic segments and facilitate the growth of retail-focused, small-and-
medium-sized businesses in Nigeria.

Catalyst for growth
Zenith has made tremendous progress in its attempts to incorporate sustainability into every aspect of its business operations. In fact, we recently became the first Nigerian bank to audit the carbon emissions of its headquarters across multiple years.

Today, Zenith remains the biggest CSR contributor in the Nigerian financial services industry. Our sustainability and CSR initiatives hinge on the belief that profit should not be the only measure of business performance: instead, balance sheets should reflect institutions’ social investments and contributions to inclusive development, as well as their efforts to improve the condition of the environment. At Zenith, our workforce is increasingly aware of and passionate about the wellbeing of the environment and less privileged individuals – this is a natural step towards achieving our overall sustainability objectives.

Sustainability goes beyond a regulatory requirement: it is the springboard into the future we want as a bank. Consequently, Zenith is committed to revising its business processes, products and services to ensure they comply with globally accepted economic, environmental and social standards. With this in mind, our CSR and community investment initiatives align with the United Nations’ Sustainable Development Goals, which seek to bring an end to poverty and hunger, protect the planet and create sustainable wealth for all. We will continue to invest in initiatives that help meet these aims and provide long-term benefits to our host communities.

Our vision is to become the leading retail and commercial bank in Nigeria. As an institution, we have done well within the corporate segment and continue to claim more ground in the retail space by providing cutting-edge solutions that cater to the strategic, operational and financial targets of our clients. In the coming years, Zenith’s priorities will remain the same as they are now: put simply, we will aim to continually improve our processes and capacities to meet customers’ increasing financial needs, sustain high-quality growth through investments, constantly upgrade our IT infrastructure, and invest in human capital.

BMO Bank of Montreal is focusing on progress over profits

Posted on by Helen

Canada’s banking sector is rapidly becoming more complex. Driven by advances in technology and increasingly knowledgeable and sophisticated consumers, clients are demanding convenience, customisation and control. In order to keep up, banks must continually enhance existing platforms. Simultaneously, they must build new capabilities that enable clients to bank quickly, efficiently and in their own time.

These changes have evolved over time to vastly reshape the financial industry. In fact, the most successful businesses in this fast-paced environment are the ones that challenge their preconceptions over what banking services will look like in the future.

In a bid to anticipate the changing needs of its customers, BMO Bank of Montreal is focused on harnessing the power of digital technologies and data. The bank’s Head of Canadian Business Banking, Dev Srinivasan, spoke to World Finance about the company’s priorities during this time of transformation.

While BMO works as a great partner in periods of success and stability, it is even better when challenging times arise

How is BMO’s approach to business banking evolving?
As an organisation, we are driven by a clear sense of purpose. This elevates our focus so we can think beyond transactions, dollars and cents. We look for opportunities to make the biggest possible impact for our clients and the communities in which we operate. We challenge ourselves to bring bold solutions to help them grow in a competitive market.

As the banking environment changes, we remain focused on providing a great experience. That said, we are also pushing ourselves to look at our clients’ businesses through a new lens and make decisions with new intentions. This is an approach that builds trust, confidence and loyalty with our clients.

Some examples of how we are doing this include small business loan approvals in under 30 minutes and mobile device capabilities, including wire transfers and automated risk monitoring, which allow for significantly more time serving our customers.

How do you differentiate yourself from your competitors?
While the technological advances discussed previously are market-leading, they are also just an outcome of our focus on being the market leader in client loyalty. We drive success in this area by first understanding what our clients’ needs are and then bringing the full power of BMO to every interaction.

We aim to form thoughtful relationships with our clients and we regularly revisit plans and work with them to ensure we remain aligned with their strategic needs. While we work as a great partner in periods of success and stability, we are even better equipped when challenging times arise. I believe challenging times are really when you prove your value as a banker.

You have talked about the power of digital technologies and data. How is technology changing the way you serve clients?
It is important to recognise that all businesses – including our clients’ – are facing the same challenges and opportunities as us when it comes to technology and transformation. At BMO, we view technology as an enabler of success, both for our clients and for our firm. Externally, technology is giving clients more choices. For example, online and mobile banking offer more choice with regards to when, where and how to bank for businesses that are located outside of urban areas or have multiple locations, or for businesses that operate outside of traditional working hours.

Technology makes our clients’ lives easier and enables us to work more efficiently. We are looking to digitalisation to enhance personal service – not replace it – through mobile features such as quick bill pay and biometric authentication.

Internally, we are driving digital transformation at the bank and improving how we work. This means employees spend less time on administrative and processing tasks, and more time with clients. Moreover, with advanced analytics, we can more accurately assess and predict risk. This enables us to customise solutions to individual needs and ensure we are operating in line with our risk appetite.
BMO’s approach to efficiency is holistic: generating value from data, simplifying processes and exploring the role of automation in helping teams deliver high performance. By finding new ways to work together, we are building client loyalty and accelerating growth.

In terms of focusing on key areas, how do small businesses fit into your overall strategy for business banking?
In Canada, small businesses employ just over 70 percent of the total private labour force, while small-to-medium-sized businesses contribute roughly 41 percent of Canada’s GDP. You cannot have a business banking strategy without including small business.

We have made great progress over the past two years by ramping up our focus on this segment. We recognised, for instance, that for many small businesses, speed and simplicity are at a premium. In response to this, our strategy has evolved to serve businesses both small and large, and we have dramatically simplified processes and products where it makes sense.

Canada’s SME sector

70%

of the labour force is employed by small businesses

41%

Contribution to Canada’s GDP

For example, coupled with enabling small business loan approvals in under 30 minutes, we also launched a new suite of small-business banking Mastercard products that have been well received by our clients. The number of new clients we acquired has increased by over 30 percent from the year prior.

What about clients on the larger end of the spectrum?
While speed and efficiency are also important with larger clients, the ability to structure complex cash-flow-based transactions increases in importance with this segment. Additionally, the cash management solutions required to properly support these clients are equally complex.

To us, leadership in this space is driven through a high-touch, team-based, customised approach to client service. This approach has resonated with our clients, as we are able to complete deals that our competitors often struggle with. This helps our clients accelerate growth and strengthen their business.

What other industries are you focused on?
We serve clients in all industries and specialise in areas where our clients value deep expertise. For example, in healthcare, knowledge of the industry is invaluable when structuring credit and providing advice. We have specialists plucked straight from the industry who, when combined with BMO’s suite of products and services, form a truly differentiated, value-added offering for our clients in this space.

Then there’s the agricultural industry, for which we are an industry leader in terms of providing customised financial solutions for Canadian farmers. We have agriculture banking specialists in place who focus on understanding the challenges of this industry, including its cyclical nature and the need for financial banking solutions that are convenient, affordable and adaptable.

BMO is also making a particularly strong effort with regards to a key, growing segment: female entrepreneurs. This sector now represents more than half of all new small-business start-ups in Canada. We are the bank for women in business; we are one year into a commitment of $3bn to support female entrepreneurs. So far, we are ahead in this plan. By having more of the bank’s balance sheet available to women, they are afforded more certainty in terms of credit, enabling them to invest in their businesses, expand their operations and create more jobs for Canadians.

While the industries that female entrepreneurs enter are varied, our approach focuses on understanding their unique needs from the point of view of the banking sector, which has traditionally been male-dominated. This message and our approach have definitely resonated in the market.

What are BMO’s plans for the future?
The business banking sector in Canada is highly competitive; we’re facing competition from traditional and non-traditional businesses alike. While traditional players continue to invest in innovative customer service technology, non-traditional competitors are gaining momentum and deepening connections with our clients. We plan to continue our leadership in client experience because that is an area where we have built our brand and our strength in the past. Clients expect BMO to continue to define what the banking customer experience should be.

Furthermore, we are committed to expanding our advisory sales force and targeting opportunities across geographic regions, market segments and industry sectors, especially in high-value sectors and businesses. We lead in many industries; where we do not, we aspire to achieve leadership. We believe we have the value proposition to achieve our aspirations.

Should Europe’s banks consider joining forces?

Posted on by Helen

There are too many banks in Europe. The European Union is home to 6,250 credit institutions, according to the European Banking Federation. Of these, 4,769 are within the eurozone – a particularly striking figure considering all of these institutions provide banking services in a single currency. Comparatively, there were 4,398 domestic banking institutions in 2016 in China, a country that has almost four times the population of the eurozone.

The sheer number of financial institutions on the continent would not be so problematic if they were all performing well. However, that is not the case: the average return on equity, an indicator used to assess the banking sector’s attractiveness to investors, stood at 6.2 percent for financial institutions in the EU-28 in Q4 2018. By contrast, US banks achieved 11.96 percent in the same period.

Every so often, the possibility of consolidation is floated as a solution to Europe’s banking woes. Its re-emergence is typically driven by news that two of the continent’s financial institutions are planning to unite – most recently, it was Deutsche Bank and Commerzbank’s decision to explore the possibility of a merger that set tongues wagging.

Consolidation means increased regulatory scrutiny and a greater governmental burden in the event of another financial crisis

While the German lenders have since abandoned their discussions, citing commercial viability concerns, the consolidation question has not faded from industry minds as quickly as it has done previously. In fact, two of the European Central Bank’s most senior figures – Vice President Luis de Guindos and policymaker François Villeroy de Galhau – have expressed their support for consolidation in recent months, while Deutsche Bank CEO Christian Sewing told Germany’s Bild newspaper: “I still expect banking consolidation in Europe over the next few years. And I don’t just want to watch, I want to be a player too.”

The chorus of voices calling for tie-ups has led many to believe that this could be the moment when the much-hyped M&A boom finally comes to fruition. Such an event could eliminate many of the profitability issues that Europe’s banks are currently grappling with by bringing down operational costs and giving them more clout at a global level. Consolidation, however, is not without risks: it means increased regulatory scrutiny and a greater governmental burden in the event of another financial crisis. These are factors banks must consider before jumping into bed with one another.

A seat at the table
“Europe’s banks simply don’t have the critical mass to compete at a global level,” said Lorenzo Codogno, former chief economist at the Treasury Department of the Italian Ministry of Economy and Finance. The comparatively small size of each institution makes dealmaking considerably more challenging, particularly when competing with US counterparts for M&A advisory fees or underwriting. For example, when Dutch payments firm Adyen made its public debut on the Euronext Amsterdam exchange last year, it selected

JPMorgan and Goldman Sachs to underwrite the share offering, in part due to a lack of European banks that would have been robust enough to support the €7.1bn ($8.02bn) market capitalisation it was seeking.

As the US’ largest bank, JPMorgan has its own market capitalisation of over $380bn, meaning even if it had been forced to buy the entirety of Adyen’s shares, it would have only created a relatively small dent in its finances. For Europe’s biggest bank, Santander, which has a market capitalisation of €80bn ($90.36bn), that eventuality would have been far more problematic. “If [Europe’s banks] cannot provide the same kind of services that international banks can, they will lose commerce and European companies will have to rely on non-European banks in order to do their global business,” Codogno added.

Given that the market is so crowded, Europe’s banks also face competition from continental neighbours, as well as from counterparts across the Atlantic. As such, they are constantly vying to offer the lowest credit costs to customers, while maintaining workable profit margins. This is made all the more difficult by the fact that operational and compliance expenses in Europe are much higher than in the US, due in part to the EU’s failure to create an integrated banking union in order to support the single currency.

“Capital is not fungible and liquidity really cannot freely flow within the eurozone,” Codogno told World Finance. Due to the lack of legislative and regulatory tie-up between countries, which makes dealmaking more complex and costly, banks are more likely to rely on business within their domestic market rather than exploring cross-border trade. According to de Guindos, this obstacle is unlikely to disappear in the near future, either. “The political momentum behind completing the banking union is fading,” he said at a conference in Brussels on May 16.

“Achieving a full-fledged harmonisation of [legal frameworks] is infeasible, because clearly the legal systems across Europe are completely different, so it will be close to impossible to do that,” said Codogno. “But I think it’s feasible to achieve a minimum harmonisation so that there is effectively an equivalence of treatment – that would facilitate the situation enormously.”

The EU attempted to harmonise regulations across the bloc in 2018 with the introduction of MiFID II. However, rather than facilitating cross-border business, its actions effectively placed another cost burden on banks to ensure they are compliant with the directive. According to consultancy firm Opimas, the cost of implementing MiFID II across the finance industry was more than €2.5bn ($2.82bn), with further costs expected year-on-year as banks take on additional compliance staff to ensure they meet all the reporting criteria. While the continent’s larger institutions are able to withstand those increased costs, for smaller players, these could be the tipping point between survival and collapse.

6,250

Banks in Europe

4,769

Banks in the eurozone

4,398

Banks in China (2016)

Internal frailties
It is clear that consolidation would provide a solution to these issues by affording smaller banks economies of scale. By pooling resources and sharing the cost of compliance, institutions could reduce operational expenses and boost their global presence. However, consolidation also carries a number of risks: first, M&A relies on each party being in a strong financial position, a claim that not all of Europe’s small or even large lenders can make. The industry is still recovering from the effects of the 2008 crash and the 2009 sovereign debt crisis – according to Deutsche Bank figures, European banks’ nominal revenues are down 12 percent compared with 2010, even though the continental economy expanded by 24 percent during that time.

“Europe’s banks have recapitalised a lot compared to the initial phases of the [sovereign debt] crisis,” said Codogno. “However, [many] banks still have large portfolios of government bonds and because of that they remain fragile. If there were [substantial] movements in the market or a weakening in the economy, they might immediately run out of capital.”

Consolidation between banks with a significant amount of sovereign debt on their books could also give rise to the collapse of the entire continental economy in the event of another financial crisis. Creating the sort of ‘too big to fail’ institutions that dominated the US banking sector pre-2008 means centralising a huge amount of capital in a very small number of institutions, which, if they do fail, have to be bailed out by governments, as was the case in 2008 in the US. Fortunately, the US Government was able to make $700bn available at the time to purchase toxic assets from banks through the Troubled Asset Relief Programme, saving the system from total collapse.

Many of Europe’s governments are not in a position to offer a similar sort of bailout today, given that many of them still have significant debt burdens that are tied up in the region’s banks in the form of bonds. If these banks were to merge and then find themselves in difficulty, governments certainly would not be able to bail them out. “The ‘doom loop’ between the banks and sovereign debt is still very much there, at least in some European countries,” Codogno told World Finance. “Should the economy start weakening again, the weaknesses of both banks and sovereigns would become very clear.”

Finding a place
While consolidation may give banks more leverage against one another in terms of dealmaking, it may not make them more attractive to customers. The 2008 crisis fostered major mistrust in massive financial institutions, which were seen by many to have caused the recession by making irresponsible lending choices in order to boost profits. That mistrust has not entirely dissipated and any bank seeking to grow through M&A would have to be aware of that fact and prove itself trustworthy, either through compliance or investing in technology to offer a more personalised experience.

“Banks need to [consider] a big restructuring, a reduction in personnel and a change in attitude,” said Codogno. “Employees need to become far more proactive in drawing in business and offering a consultative service to their clients, rather than just being operational [middlemen]. They [had] better be quick about it, too, or they might find themselves out of business, given consumers have so much choice now.” Indeed, alternative lenders and fintech firms have already begun siphoning off customers that have become disillusioned with large-scale banks, and are well-placed to continue doing so if banks do not step up their game.

Ultimately, the question of consolidation comes down to the purpose of lenders in the larger financial landscape. For investment banks that are struggling to compete in the dealmaking sphere, tie-ups with competitors would afford them influence at an international level, help them to capture more advisory and underwriting fees and deliver a greater return on equity to shareholders. “Achieving a decent size would strengthen their capital position,” said Codogno. For retail banks, consolidation would certainly provide benefits in terms of economies of scale, but should not be undertaken if investment in technological innovation must be sacrificed in return. After all, a global presence is important, but attraction and retention of customers should always be the first priority.

Ghana is sub-Saharan Africa’s land of banking opportunity

Posted on by Helen

At Zenith Bank, our outlook for the Ghanaian economy is largely optimistic. According to IMF’s latest growth projections, the country is expected to become the fastest-growing economy in sub-Saharan Africa in 2019, with a GDP growth rate of 8.8 percent. In light of this positive view, the government’s 2019 budget aims to reach an inflation rate of eight percent by the end of the fiscal year. This looks feasible, even though inflation currently stands at 9.5 percent, according to a Bank of Ghana Monetary Policy Committee press release from May 2019.

GDP growth signals increased economic activity and higher employment rates in the country, which together work to the great advantage of the banking sector. Essentially, higher economic activity translates to higher investment needs for firms, while banks stand to gain from the arrangement of funding for expanding industries. Higher GDP also means growth in household spending power; banks, in turn, can leverage sound retail strategies to tap into the enhanced disposable incomes of citizens.

We expect governmental fiscal discipline to intensify in line with steady GDP growth. This means that governments’ tendency to crowd out private firms in financial and capital markets will be reduced, which in turn will result in lower interest rates. For banks, this means our lending rates are seen as much more favourable, which translates into more lending activity and more income, too.

Ultimately, Zenith’s goal is to dominate the Ghanaian market by introducing innovative banking products for specific industries and customers

Making strides
A recent recapitalisation drive by the Bank of Ghana saw an increase in the minimum capital requirement from GHS 120m ($22.4m) to GHS 400m ($75m). As a result of this, the number of banks in Ghana dropped from 35 to 23. In addition to making the industry more robust, the move also provides further capacity for banks to partner with the private sector through additional funding. As explained by the Bank of Ghana, banks can now rely on ploughed-back profits or fresh capital inflow. Banks that fund their balance sheets with the latter will have excess capital to lend, especially to the private sector.

The increased minimum capital requirement will also allow Ghanaian banks to handle bigger-ticket transactions, which were previously unfeasible. Until now, individual banks had to pool resources to meet large-ticket transactions due to the single obligor requirements under Section 62 of the Banking Act. With the tripling of the capital requirement, however, banks will have the ability to handle larger transactions individually.

There have also been other significant developments in the economy in recent months: for example, recent moves to bring back the Ghana-Nigeria Chamber of Commerce will have a considerable impact on Ghana’s banking industry. The economy stands to benefit from a potential increase in foreign direct investment (FDI) from Nigeria, which is already substantial. Increased FDI also translates to a surge in both employment and household income. As such, Ghanaian industries will now have a chance to network and exploit new opportunities in the largest economy in sub-Saharan Africa. Indeed, Ghanaian businesses with an eye on expansion will be presented with a platform to venture into an economy with a population of 191 million. This will require funding, and will therefore be an opportunity for banks to bridge the financing gap between current and required capacity.

The establishment of the Ghana-Nigeria Chamber of Commerce also opens up more channels for investment across borders. Nigerian investments currently lead FDI in the West African sub-region (see Fig 1); banks in Ghana, therefore, stand to gain from a larger customer base. This will bring in much-needed forex as well.

Digital drive
Against this backdrop, a lot of banks are now seeking a foothold in the digital banking space, with most turning to digital offerings such as mobile banking, relaunching internet banking products and creating apps on the Google Play store. That said, largely speaking, services available to customers remain somewhat homogenous, with most banks offering traditional deposit accounts, as well as some investment products.

There is a great deal of room for the market’s continued growth and development, however. For example, banks in Ghana now have the capacity to undertake big-ticket transactions, which can contribute to the overall development of the nation. Financial inclusion, meanwhile, continues to propagate throughout the country. Thanks to the accessibility offered by mobile banking to even the most remote areas in Ghana, inclusive economic growth is being achieved. By participating in the financial system, individuals are able to invest in their children’s education, start a business, save and better absorb financial shocks.

Financial inclusion through the use of digital banking products and services continues to form a major part of Zenith Bank’s strategy year on year. Since its inception, the bank has ensured the continuous roll-out of a wide array of innovative digital products and services, which are user-friendly and provide total convenience to customers.

In fact, Zenith Bank was among the first banks in Ghana to launch an app-based mobile banking service. Z-Mobile, which is available on both Android and Apple devices, enables customers to make instant interbank transfers, set up beneficiaries, top up investments, pay utility bills and much more right from their mobile phone.

Through its strategic partnership with major companies, the bank has leveraged mobile banking to reach the population’s unbanked citizens. For example, Zenith’s Bank2Wallet service enables customers to link their mobile money wallets to their bank accounts in order to make immediate transfers and payments remotely at any time of day.

Earlier this year, the bank also launched its ‘Go Lite with Zenith Bank’ campaign in order to create greater awareness of how its digital banking products and services can be tailor-made for individuals and corporations in order to make banking transactions faster and smarter. The bank’s recently upgraded internet banking platform also provides more functionality through the introduction of a new dashboard, which allows customers to view a summary of all the accounts they have with the bank at a glance. With Zenith’s Scan To Pay service, they can make payments in stores and restaurants simply by scanning a QR code with their mobile phone.

Meanwhile, the bank’s point-of-sale terminals allow customers to process card transactions electronically in real time. Transactions can be verified by biometric identification, PIN or signature using these terminals. Aside from the convenience they offer, they also reduce the cost associated with handling cash and, thanks to a back-up power source, are available 24/7.

Standing apart
The bank has collaborated with the likes of Mastercard, Visa and the Ghana Interbank Payment and Settlement Systems to provide unrivalled products and services to the banking populace in Ghana. Ultimately, Zenith’s goal is to dominate the market by introducing innovative banking products for specific industries and customers.

To this end, Zenith Bank boasts a very robust IT platform, as well as talented personnel. Together they form the bedrock of the many innovative banking products and services we continue to churn out into the Ghanaian banking industry. Our ability to provide our customers with top-notch e-banking products and services sets us apart from our direct competitors: for example, our IT personnel are on hand 24 hours a day, seven days a week, to ensure that business continuity is achieved with no downtime.

Some years ago, there were not enough bank branches in Ghana to serve every customer. People had to travel long distances to access a branch for the sole purpose of conducting a simple transaction. With the onset of the internet and mobile devices, however, cutting-edge banking processes have been developed so that banking can be carried out right in the comfort of one’s home or office.

A lot of Ghanian banks are now seeking a foothold in the digital banking space, with most turning to digital offerings such as mobile banking

At Zenith Bank, we have been able to balance the use of these two channels to better serve our clients. We understand the unique needs of our customers and appreciate that not everyone is ready to make the shift from visiting our banking halls to banking digitally. As such, we will continue to assess the environment and provide customers with the specific solutions that cater to their needs.

In conjunction with such developments, safety always comes first. Due to the nature of the bank’s operations, protecting its systems, networks and programmes from cyberattacks has become critical. As such, in August 2018, Zenith began the process of adopting ISO 27001:2013 and the Payment Card Industry Data Security Standard (PCI DSS). Shortly after, it was certified for both in record time. Zenith is now among very few banks in Ghana to have both certifications.

By taking this major stride towards meeting regulatory requirements through the implementation of an information security management system that is compliant with the requirements of ISO/IEC 27001:201 and PCI DSS, Zenith has reinforced its commitment to embracing global best practices. This in turn ensures the integrity of customer data and a secure operating environment.

This level of robust security runs all the way through to the customer. For example, at the beginning of an account-opening process, several Know Your Customer parameters must be met in order for customers to gain access to a bank account. This is a requisite regulation set by the central bank and has been implemented in order to protect every customer’s funds. The use of customer relationship management models, along with other technology-driven databases, has further contributed to Zenith adequately verifying and profiling its customers. After these regulatory processes have been duly followed, customers then go through some requisite steps in order for funds to be disbursed.

With a vigorous security system in place, as well as a forward-thinking approach when it comes to digitalisation, Zenith Bank is well positioned to capture all the new opportunities unfolding in Ghana’s promising economic landscape.

How the Mexican pensions sector plans to tackle a national demographic shift

Posted on by Helen

Linking the US with Central America, the expansive country of Mexico is the world’s 15th-largest economy and the second biggest in Latin America. Despite ongoing uncertainty surrounding the North American Free Trade Agreement, the Mexican economy has shown remarkable resilience of late, with the IMF expecting the nation to post a steady growth rate of 2.3 percent in 2019.

With a median age of 27.5 years, Mexico boasts a relatively youthful population, and the nation is currently enjoying the economic rewards of this significant demographic dividend. As with many countries across the globe, though, Mexico is facing a rapid shift in its age structure, with the median age projected to increase to 40.8 years by 2050 (see Fig 1). What’s more, the proportion of Mexican citizens aged 65 years or older is expected to reach 25 percent by 2050, reflecting a substantial rise in the number and share of older people in the population.

As life expectancy continues to rise in Mexico, with men living to an average age of 74 years and women to 79.2, citizens are facing an extended retirement period. This, in turn, will require extensive financial planning, as well as access to both state and private pensions. As such, this fast-approaching demographic shift is putting increased pressure on the Mexican pensions system.

Mexico’s fast-approaching demographic shift is putting increasing pressure on its pensions system

Consequently, the country’s pension providers must ensure that pensions remain financially sustainable and workable for all. Put simply, as the population changes, so must the pension sector. Fortunately, forward-thinking pension funds are now helping to drive the industry towards a promising future.

Going green
The Mexican pensions sector is at a pivotal point in its history. The growing demand for pensions among older citizens is prompting industry leaders to consider the future of the sector and review the direction in which they hope to move in the coming years.

For some time now, ‘sustainability’ has been something of a buzzword in the financial services industry, with image-conscious institutions adopting green policies and strategies in the hope of appealing to ethical consumers. More recently, though, environmental issues have climbed the global political agenda, culminating in the signing of the landmark Paris Agreement in 2016. In order to meet the ambitious goals set out by this milestone accord, financial institutions around the world will need to embrace sustainable products, services and practices, directing capital away from potentially harmful industries and towards environmentally friendly alternatives.

As Mexico’s largest pension fund, Afore XXI Banorte understands the importance of setting an industry-wide example, especially when it comes to establishing and achieving sustainable development goals. Environmental, social and governance (ESG) issues are an integral part of our business and we hope to inspire our peers to adopt similar practices as part of a continued effort to propel the industry towards a greener future. We are proud to be a signatory of the United Nations Principles for Responsible Investment. By adhering to these principles, which prioritise ESG issues, Afore XXI Banorte is showing its firm commitment to building a more sustainable global financial landscape.

Further, we appreciate that returns and sustainability are not mutually exclusive. A growing body of evidence has shown that companies with good ESG practices often enjoy higher, more stable profits than those without, suggesting that an improvement in sustainability can prove just as beneficial to a company’s profitability as it does to its credibility.

While our ESG ambitions are global in their scope, we hope that our efforts will also have a significant impact closer to home. Mexico is a wonderfully diverse nation, encompassing tropical jungles, arid deserts and more than 9,000km of coastline. Unfortunately, this distinctive topography also renders Mexico highly vulnerable to the most devastating effects of climate change, including tropical cyclones and hurricanes from the Atlantic and Pacific Oceans.

Indeed, in 2017, Mexico City’s Chief Resilience Officer, Arnoldo Kramer, told The New York Times that “climate change has become the biggest long-term threat to [the] city’s future”, highlighting the extent to which global warming threatens to disrupt our country. Through our sustainable development commitments, we hope to address this issue and effect a positive change within Mexico, as well as throughout the wider world.

A positive impact
One of the core principles of sustainable finance is investing in low-carbon, resource-efficient energies and green infrastructure in favour of environmentally damaging alternatives.

Afore XXI Banorte is deeply committed to such practices and has been steadily expanding its investment portfolio to include a variety of green products. Over the course of the past few years, we have strategically invested in the renewable energy sector, providing funding to a range of alternative energy options. At present, these investments stand to generate enough renewable power to prevent more than one million tonnes of carbon dioxide from entering the atmosphere – the equivalent of planting in excess of 28 million trees. We hope these green investments will make a real impact in the fight against climate change – both in Mexico and around the world.

Life expectancy in Mexico:

74 years

Men

79.2 years

Women

As well as honouring its environmental commitments, Afore XXI Banorte is dedicated to improving the lives of Mexican citizens. As the nation’s leading pension fund, we want to set an example to our peers by giving something back to those who entrust us with their retirement savings, and have lent our support to a number of valuable causes throughout the country. Over the past three years, we have made substantial investments into local infrastructure, including the construction of toll roads, telecommunications systems, housing and hospitals.

We firmly believe that financial institutions of any size have a duty to enhance the communities they serve, making corporate social responsibility a crucial aspect of any modern business. We will continue to show our support to the community and to the people of Mexico in the years to come, with the aim of maximising citizens’ access to education and medical treatment, as well as improving disaster support throughout the country. Through our ongoing and growing support for environmental and social causes, we feel confident that we are moving towards a fairer, more sustainable future.

New tricks
As well as championing sustainability and social issues, the Afore XXI Banorte of the future will be largely defined by technological innovation. We believe that new technologies, such as machine learning and big data, can help us vastly improve the customer experience by giving us a better understanding of what clients want.

As such, we are undergoing something of a digital transformation, rapidly digitalising our services and expanding our contact channels. We have developed a handy mobile app that provides consumers with all the information they could possibly need at the touch of a button. What’s more, it acts as another touchpoint for our clients, allowing customers to contact us around the clock, quickly answer any queries and ultimately feel more secure in their investments.

Big data and machine learning are set to revolutionise the pension industry and the wider financial sector, so it is crucial that institutions understand how to effectively harness such vital information. Data analysis therefore forms an integral aspect of our technological strategy, enabling us to continuously enhance our customer service experience. By harnessing machine learning in our social media channels, for example, we can gain greater insight into each demographic and anticipate their future requirements. We also utilise data from our online chat, social media and call centre offerings to assess the interests and needs of our clients. This allows us to offer a more personalised experience to each customer.

The internal culture of Afore XXI Banorte is undergoing a transformation, too. We hope to create a workspace where all of our staff feel inspired to provide an excellent service. With this in mind, we offer crucial support to our employees in the form of specialised training and provide effective communication channels at every level of the organisation. Our inspired employees and innovative digital solutions ensure that the client always comes first – after all, we are fully committed to enhancing the customer experience at all stages of the savings journey.

BNL-BNP Paribas Private Banking forges a new path for European banking

Posted on by Helen

Private banking, as well as wealth management more generally, has enjoyed reasonably favourable market conditions over the last few years. According to Deloitte’s 2019 Banking and Capital Markets Outlook, the sector has been the best-performing business arm of major banks for some time now. Positive macroeconomic trends, strong stock market results and maturing populations that are enthusiastic to preserve their wealth have combined to provide the sector with the fertile ground needed to increase margins. With these three trends showing little sign of slowing down, a multitude of opportunities for private banks to attract and retain clients remain open.

Despite the positive climate, there are new challenges on the horizon. The threat of a slowdown in the market could lead to a range of problems, particularly for banks that have a large clientele of middle-income customers. Another threat – or opportunity, depending on how you perceive it – is the inflation of customer expectations. Technology such as robo-advisors and low or zero-cost products – many of which are app-based – are also leading to a raft of new competitors carving slices out of big banks’ traditional market.

In many ways, Italy’s private banking sector and the companies within it mirror the global market. This is the perspective BNL-BNP Paribas Private Banking is taking as we reimagine our business. Since its establishment in 2002, the bank has grown to boast more than 57,000 clients and now has over €33bn ($37bn) in assets under management. We have cemented our position as one of Italy’s most trusted financial institutions and are now looking at how we can hold on to this position. The next several years will be crucial for Italy’s – and, for that matter, the world’s – private banking sector.

In many ways, Italy’s private banking sector and the companies within it mirror the global market

A sturdy base
Italy’s private banking market has historically been dominated by the private banking divisions of the country’s large commercial banks, alongside the Italian branch of the world’s major international wealth managers. The country’s wealthiest clients are also served by small and specialised private banks that offer highly tailored services. Unlike other European countries, Italian clients are not yet enamoured with digital wealth managers. That said, this is likely to change as younger people begin to seek out wealth management services.

A winner-takes-all dynamic continues to define Italy’s market, with the majority of assets flowing towards the country’s financial powerhouses, such as Intesa Sanpaolo Private Banking, UniCredit Private Banking and Banca Aletti. All three have achieved strong and consistent growth over the past five years. Despite this, new players continue to enter the market. A contraction of credit issuing, combined with low interest rates, has encouraged a number of financial institutions to enter the private banking market to find new sources of revenue. In particular, networks of financial advisors, such as Fideuram-ISPB, Banca Generali and Banca Mediolanum, have quickly developed, poaching private bankers from their competitors in order to quickly grow their assets. These businesses have also invested significantly in financial advisory services. All this has led to more competition in the space, as well as declining assets for Italy’s traditional leaders.

Amid these changes, a transformation of the Italian market is now well and truly underway. On the financial side, the implementation of MiFID II is forcing those in the market to rationalise their products, leading them to focus on efficient financial instruments and more refined ‘wrappers’ with simpler governance requirements. On the ancillary services side, businesses are primarily focused on building non-financial wealth advisory services. They are doing this to increase client retention by presenting private banking as particularly good value, which is especially important in light of MiFID II’s introduction. Since most of these services are offered through automated tools, market players are now trying to differentiate themselves by offering more sophisticated services through non-financial experts.

Hazards ahead
With such a dynamic landscape, there are a number of new risks and opportunities for those in the market. While younger generations are presenting a new customer base, their demands are very different from those of their parents and grandparents. With the added scrutiny being placed on the sector due to regulation, the next generation of clients will be particularly selective.

In the coming years, a huge amount of wealth will flow from today’s owners – the current clients of private banking – to their heirs. This change poses a threat to wealth managers, who presently have very little time to develop a relationship with the next generation. Naturally, both assets under management and revenues are under threat. To avert catastrophe, wealth managers should focus their efforts on supporting their clients for the journey, accompanying them and their heirs every step of the way.

A key factor in this will be investing in the financial education of clients’ heirs. Successfully doing so will mean that a private banker has a relationship with an heir before wealth is transferred to them, and that the heir is equipped with the knowledge needed to have a meaningful conversation about the future. Before this happens, wealth managers should alter their offering to include new technology in order to meet the next generation’s expectations.

BNL-BNP Paribas Private Banking in numbers

57,000

Clients

€33bn

Assets under management

Unsurprisingly, these new expectations boil down to digitalisation. Businesses like Amazon, Apple and Uber have irrevocably changed what people expect in terms of service. While most financial institutions have implemented their own digital transformation strategies, Italy’s private banks have so far lagged behind. Failure to deliver exceptional experiences may result in clients switching to easier and more convenient providers.

However, developing new digital customer experiences does not mean private banks need to change their business models. Instead, they need to embrace new technologies in order to serve clients more effectively and efficiently, while still maintaining a personal relationship. Private banks should also use digitalisation to improve their internal processes, subsequently reducing costs and accelerating service delivery. Those that do all this successfully will have a healthy competitive advantage over those that do not.

Amid all this, regulation is poised to have a significant impact on the Italian market. MiFID II has resulted in the publication of all costs associated with investment services. Lacklustre performance will almost certainly have an adverse effect on client relationships and make any fees difficult to justify. Private banks will need to simplify their offerings to make them compelling to customers, focusing their core products on revenue generation above all else. Wealth managers should also not be passive in this process, and instead work to anticipate and subvert negative outcomes before cost reports are published. The sting of bad news is far less severe if a plan to correct it is already in place.

These trends of generational change, digitalisation and regulation should not be seen as separate problems since they all affect each other. The development of digital products might help private banks address generational-change issues, as well as reducing advisory costs that would now be reported under MiFID II. A broad strategy is the only way to address all these challenges at once.

Service first
In order to respond to such a complex environment, BNL Private Banking has initiated a transformation of its service models. This is led by an innovative approach to client segmentation based on archetypes – or ‘personas’, to use the jargon of Jungian theory. This informs our client-centric approach, which has led us to take three main actions.

We have shifted towards a wealth advisory approach by improving our non-financial services, such as generational planning, real estate, insurance and corporate advisory. This positions us as a client’s partner and helps us address more than just investment needs. A long-lasting relationship with the entirety of a client’s household helps us identify liquidity events and, subsequently, opportunities for new cash generation. These services will be available under a single contract, which represents the pact we make with our clients.

Our digital evolution will focus on platforms for better relationship management. These systems will help us become far more contactable for our clients, particularly those of the younger generations. Soon, they will be able to contact their banker through video collaboration, receive advice remotely and much more. We are raising the bar by creating a dedicated 24/7 service centre for clients, giving them priority access to any service they may need. For our relationship managers, this brand-new platform provides a one-stop shop for all of the bank’s services, including advice and products, thereby significantly simplifying their job.

Finally, we are also increasing our focus on positive banking. In Italy, banking can play a critical role in economic development by matching demand, such as SMEs looking for funding, with supply from wealthy individuals. BNL Private Banking can leverage its competence and professionalism to direct clients towards projects that offer a good return while also creating value for the country. As always, investments will remain within the client’s boundaries.

Between all these measures, BNL Private Banking is positioning itself as a tastemaker for the future of Italy’s private banking sector. The rest of Europe should keep a close eye on the country, as the next decade promises to be the catalyst of several new trends.

The key to commercial banking success: serving a segment of one

Posted on by Helen

Businesses today are operating in a global marketplace defined by an expanding set of challenges, complexities and uncertainties. PwC’s 22nd Annual Global CEO Survey, which polled 1,378 CEOs in 91 territories, revealed that CEOs are “extremely concerned” about the ease of doing business in the markets in which they operate. This was due to a variety of factors, including increased regulation, geopolitical uncertainty and trade issues.

At the same time, technology continues to be at the forefront of many executives’ minds. While it offers tremendous opportunities to lead and disrupt, it also poses significant risks as a result of the looming threat of cyberattacks, as well as increasing sensitivity and regulation around data privacy.

We are currently living in the Fourth Industrial Revolution – a key chapter in human development that the World Economic Forum refers to as an age where new technologies are developing “at a speed and scale unparalleled in history”. To maintain a competitive edge amid this unprecedented flux, both companies and their operations are changing fast. To that end, KPMG’s 2018 Global CEO Outlook, which surveyed 1,300 CEOs across 11 of the world’s largest economies, reported that 71 percent of CEOs say they are prepared to lead their organisation through a radical transformation of its operating model.

Customers do not want to be painted with a single brush and handed a generic set of fixed, disparate services

A bank’s only customer
Rapidly evolving companies have a new set of expectations for the commercial banking partners they rely on to help them successfully adapt and grow. In today’s environment, the oversimplified, one-size-fits-all approach is no longer sufficient to meet companies’ wide-ranging and intricate needs.

Customers, meanwhile, are looking for banks that have a deep understanding of their business. They do not want to be painted with a single brush and handed a generic set of fixed, disparate services – increasingly, they want to be treated as if they are the bank’s only customer. With this in mind, let’s take a closer look at three critical ways banks should treat their commercial customers.

First, commercial banks should focus on using innovation to make the user experience simple, intuitive and transformative. This includes utilising integrated tools that organise solutions in the way the client requires, thinks about and uses daily. Commercial banks that employ a genuine ‘segment of one’ approach put their customers first in every aspect of the relationship; crucially, they provide solutions tailored to a company’s specific needs.

Second, they should take a consultative approach in order to help customers grow their business by configuring a level of control and delegation that is flexible and aligned with the company’s operations and objectives. Lastly, banks must deliver an integrated experience that spans all services and markets around the globe.

Bank of the West’s treasury management platform does all this by offering both a frictionless experience and customer control. Essentially, it enables individual users to tailor the online and mobile banking platform to their own unique business needs. For example, the platform’s landing page can be customised either for the sole proprietor of a small business or for an accounts payable analyst in a large corporation. Reports, templates and views can also be tailored to maximise efficiency and eliminate manual effort for each user, as though the platform were designed specifically for them.

Similarly, our investments in a payment hub with customisable functionality enable us to tailor services to the unique needs of any specific customer. To cite two examples, we can offer select customers after-hours processing of wire and ACH transfers, and we can restrict transactions to certain IP addresses or certain users.

Our payments hub also helps us understand a specific customer’s payment patterns across different transaction types so we can compare those against aggregated industry and domain data. Using this information, we can offer individualised cash management consultation services and advice.

A global gateway
The individualised solutions a commercial banking partner delivers need to extend across the client’s global footprint. The first step is ensuring that the bank’s services are aligned with the customer’s objectives and organisational structure, which can vary broadly across markets.

Every company has unique needs across its footprint, particularly with regards to financing and supply chains. To help address increasing concerns about the ease of doing business in international markets, commercial banks should be focused on minimising organisational and geographical boundaries that restrict growth.

As a subsidiary of BNP Paribas, Bank of the West connects its customers to commercial banking solutions and expertise in 72 countries. Our One Bank team acts as a strategic partner, understanding our customers’ objectives wherever they operate. In doing so, the team helps them navigate the challenges of local banking markets in Europe, the Middle East, Africa, North America, Latin America and the Asia-Pacific region. Essentially, we match banking solutions to a customer’s organisation. We also help multinational organisations restructure their operations in order to maximise efficiencies, such as by setting up a centralised treasury function with all countries reporting to it.

It is also essential that a commercial bank has specialised and local knowledge of specific industries to help customers position themselves competitively in the relevant sector. For example, when a leading real estate development company in Europe – a BNP Paribas customer in its home market – made a decision to enter the US market, our One Bank team swiftly connected that company to Bank of the West so we could provide guidance on what it might expect if it pursued a land acquisition loan in California. This included market knowledge and a general review of local real estate regulations and procedures. Building on that advice, we customised the financing for the company so it could acquire its desired US property in less than 90 days.

As another example, we recently assisted a family-owned boutique winery based in Napa Valley, which was selling its main wine brand to an international food and beverage company. Drawing on our experience advising wine and beverage companies, our strong M&A track record in the industry and our long-standing relationships with potential strategic and financial acquirers around the world, we supplied global industry insights and diligence to the client. We also made a vital introduction to the eventual buyer – an Australian-Japanese company. In situations like this, Bank of the West’s direct access to a global buyer pool can help elevate pricing when we lead a sales process.

Cybersecurity safeguards
Even the most customised commercial banking relationship is ineffective if it’s not underpinned by a holistic approach to cybersecurity and fraud prevention. These safeguard both the commercial bank and the company it serves, and should not be overlooked.

As cybersecurity risks continue to threaten every company’s competitiveness, growth prospects and survival, 49 percent of CEOs say that becoming a victim of a cyberattack is a case of ‘when’, not ‘if’, according to KPMG’s latest Global CEO Outlook. Despite this, the survey revealed that only 51 percent of executives believe they are well prepared for a cyberattack.

To be prepared, commercial banks should use a risk-based, not rules-based, approach to security that serves customers with more flexibility. For example, our clients can configure our treasury management platform to their unique needs and preferences. We also offer a range of authentication options – from hard tokens to biometrics – as a toolbox our customers can select from. To make the system even more robust, we are now working on incorporating FIDO2/WebAuthN into our treasury management platform by year-end. By leveraging cryptography, FIDO2/WebAuthN sets a new standard by enabling simpler and stronger authentication for online users.

In another payment area, V-PAYO (our virtual card payment optimisation solution) applies a unique method to each B2B payment based on an algorithm that optimises cards or automated clearing houses. This gives our customers increased control and provides greater fraud protection, while also increasing efficiency and reducing expenses.

To genuinely put customers first and serve them as a segment of one, commercial banking partners must make continual investments in innovation, serve as a seamless gateway to local solutions and market expertise that matches the client’s global footprint, and deliver cutting-edge cybersecurity safeguards. That bespoke support is vital to help any company thrive in this new Industrial Revolution.