It might not be the most glamorous tale of innovation, but regulatory changes in England in 2018 opened the gate to the promised land of banking data. The open banking revolution, which regulated third-party service providers such as budgeting and investment apps that accessed bank account data, has been a cornucopia of opportunity with developers, investors and customers alike reaping the benefits. Open banking is the catch-all term for a series of reforms passed in 2018 that provide a regulatory framework for how banks deal with customers’ personal financial information. England’s Competition and Markets Authority (CMA) had been calling for it for some time, as a way to decentralise large banks’ power and influence.
Along with the Second Payment Services Directive, passed at the same time, it determined that UK-regulated banks are obligated to share customers’ financial data with authorised providers such as apps and other banks. The only caveat is that the user must give the third party permission. When the CMA started campaigning for these regulatory changes in 2016, the idea was to inject competition into the stale UK banking industry, and in turn drive innovation. In the CMA’s 2016 report on the UK’s retail banking market, they rechecked the scathing conclusion that the large, legacy banking institutions across the UK did not have to compete hard enough for customers’ business, which in turn was crippling the success of smaller challenger banks and financial service providers to access the market.
Progression and development
Their proposed solution was a slew of regulatory changes that would provide regulatory backing, and therefore a measure of security, to small and medium-sized businesses sharing their current account information with other third-party providers. “Open banking in the UK was a world first,” says David Beardmore, Ecosystem Development Director, at Open Banking Implementation Entity (OBIE). “We designed and built the framework like a playing field, and it has been very encouraging to see so many firms come and play on this pitch that we built using that framework.” But perhaps more promising is the breadth and scope of the open banking ecosystem today, he continues: “there are firms creating all sorts of use cases, including some that we never even conceived of.
The breadth and scope of the open banking ecosystem today is extremely promising
This really is innovation in action.” Since the measures were passed in 2018, over two million users – both individuals and small businesses – use open-banking enabled applications across the UK, according to OBIE. These applications range from apps to round up the change after a purchase and invest that cash, to credit building apps, to online mortgage brokers. There are significant benefits for small businesses too, not just consumers.
“There’s some really exciting propositions out there that can help small businesses using open banking to manage their cash better, and it can also help them seek funding,” says Imran Gulamhuseinwala, Implementation Trustie at OBIE. “In these difficult times for small businesses, we think that this is invaluable.”
Competitive arena
Significantly, open banking has allowed challenger banks like Monzo and Starling, which have a combined four million customers, to leverage partnerships with third-party service providers to offer investment, savings, and money transfer without the development cost and regulatory burden. This development represents a significant opportunity for app and service developers who occupy the B2B space, or are weary of launching direct to consumer products.
Though the industry has come a long way in the three years since the CMA ordered banks to share their data, there is still significant work to be done. According to research by Which? seven in 10 people “were unlikely to consider sharing their financial data, even if it meant that financial products and services were more tailored to their needs.” The main reason for this rejection cited by respondents was: ‘I am happy with my current banking arrangements so don’t see a need for an open banking product’ followed by ‘I am concerned about the security of my personal/financial details when shared with a third party.’
These responses suggest that the public at large is still largely unaware of the regulatory framework that would protect their data and their money, as well as of the myriad potential gains many of the apps provide.
Jenny Ross, editor of Which? Money says that “If open banking is to ever be a success, regulators and industry must do more to promote the benefits and demonstrate that customers are properly protected from data breaches and scams in order to boost trust in these services.”
In the latest demonstration of the growing dominance of Asian shipbuilding, three vessels with a combined deadweight of 720,000 tonnes were launched in a single day in November 2020 from shipyards in China. And ominously for rival western shipyards, the vessels – a giant oil tanker and two bulk cargo ships – were built in double-quick time. The construction of the two cargo ships, each weighing 210,000 tonnes, took just 15 months from the signing of the contract to delivery. In a market that has become even more fiercely competitive than usual during the pandemic-triggered downturn, Asian shipbuilders continue to pick up plum contracts from all over the world, with China in the vanguard.
France’s shipping giant CMA CGM has handed China State Shipbuilding Corporation the contract for all nine of its pioneering LNG-powered box ships, capable of transporting 23,000 standard-sized containers. The first of the 400-metre-long vessels, Jacques Saadé, was delivered in September 2020.
Climate-conscious construction
Although Asian shipyards can build the biggest ships more cheaply than their western counterparts, it’s not all about price. They have embraced the latest, low-emission technologies, working with manufacturers of propulsion systems in the west. The LNG-fuelled Jacques Saadé, one of the most technologically advanced container ships, is a prime example. “In a similar way that electric vehicles stand in the spotlight in the auto industry, eco-friendly vessels like LNG-fuelled ships do in the shipbuilding industry,” an official of Hyundai Heavy Industries, one of the world leaders, said.
Although global orders for new ships, known as ‘newbuilds,’ collapsed by about half in the first nine months of 2020 as owners sat out the pandemic, Asian yards are rapidly bouncing back. China’s Yangzijiang Shipbuilding (YZJ) announced in early November 2020 that it had already secured $1.03bn worth of new orders, not counting the value of options (commissions for extra vessels contingent on a favourable market). “Our year-to-date new-order wins of over $1bn are more than we booked for the whole of 2019,” said YZJ executive chairman and chief executive Ren Letian. Orders that would once have gone to European yards have been snapped up by China. In late 2020, state-owned Guangzhou Shipyard International won the blue-ribbon contract for P&O’s two new 230-metre-long ferries that will start plying the English Channel in 2023.
In Seoul, as in Beijing and Tokyo, shipbuilding is seen as a flagship industry employing hundreds of thousands of people
Bristling with advanced technology and design, these double-ended, quick-turnaround ferries promise to become flagships on the 21-mile crossing, one of the busiest waterways in the world.
Meantime South Korea, another shipbuilding giant that prides itself on heavy industry, is also booking a run of lucrative commissions, like the $2.6bn order from United Arab Emirates state-owned oil and gas company, Adnoc, for three eco-friendly super-large crude carriers to be built by Daewoo Shipbuilding & Marine Engineering (DSME). The vessels will embody the latest low-emission technology in the form of a high-pressure, dual-fuel engine that can run on LNG, the first ultra-large crude oil carrier to do so.
A specialist in big ships, DSME has a full order book that includes nine LNG carriers, four container ships, two shuttle tankers, five very large crude carriers, and one very large crude gas carrier. Although orders are now pouring in, Asia shipyards had their difficulties in the downturn. Measured in terms of deadweight tonnes, output in China fell by 3.6 percent compared with 2019, while new orders declined by 6.6 percent, according to the Association of China’s National Shipbuilding Industry. Still, the revenues remain robust, especially for export orders that account for most of China’s contracts. Between them, the country’s 75 major shipyards posted revenues of nearly $38bn, down by just 0.5 percent, in 2020. In the teeth of competition from main rivals China and, to a lesser extent, Japan, the South Korean government also arranged the merger of Hyundai Heavy Industries (HHI) and DSME into an umbrella company called Korea Shipbuilding, giving the country a 20 percent share of the global market for new ships, especially the highly profitable gas carriers.
High demand for high-tech
The money’s no longer in relatively low-tech bulk carriers, having gone to the complex gas carriers that transport LPG, LNG, ethane and other low or zero-polluting fuels around the world. As the Wall Street Journal reported in 2019, LNG ships cost about £175m each on average with a profit margin that is nearly double that of more mundane vessels like bulk carriers that cost about $25m each. This is a business that South Korea is determined to dominate.
In Seoul, as in Beijing and Tokyo, shipbuilding is seen as a flagship industry employing hundreds of thousands of people. That’s why governments are willing to pump in funds by way of subsidies, and if necessary, bail-outs. For instance, the South Korean government provided a $2.25bn liquidity lifeline to the merger of HHI and DSME, plus a further $2.6bn in cash.
Yet South Korea has a fight on its hands. One of the busiest shipbuilders in all of Asia, state-owned Jiangnan Shipyard is also scooping up orders for high-margin gas carriers on top of the nine-ship contract from CMA CGM. In a coup in November 2020, Bermuda-headquartered Petredec, which owns the world’s second biggest fleet of very large gas carriers, signed with Jiangnan for up to six LPG carriers, all scheduled for delivery by 2023 in the kind of rapid project for which Asian shipbuilders are famous.
Simultaneously, the same shipbuilder is also constructing an aircraft carrier, three destroyers, a heavy-lift military hovercraft – all for the Chinese navy – and a sister ship to CMA CGM’s Jacques Saadé. To cap it off, in 2020 the yard signed a spate of orders to construct two giant ethane carriers, technologically advanced vessels that will be at the forefront of global shipping’s push towards decarbonisation as they transport the gas from the US to Europe. And looking ahead, it will be business as usual. At the end of October 2020, Chinese shipyards had booked nearly 57 percent of the global market for newbuilds. Ominously, they are also getting into cruise ships, until now a preserve of European shipbuilders.
Japan, Asia’s other shipbuilding giant, is watching all this government intervention with concern. Citing the mergers of China’s state-owned shipbuilders and of South Korea’s big two, Imabari Shipbuilding president Yukito Higaki sounded a warning to Tokyo recently: “Huge shipbuilding companies are now rising up in the world. I would like fair competition without any governmental support. However if current circumstances continue, it is possible that Japanese shipbuilders will not be able to stand on their own feet any longer.” This is a crucial issue for Japan where 99 percent of trade goes by sea.
The sun also rises
Looking to the future, Japan is relying on innovation in the pursuit of virtuous, emission-free shipping. And the newly delivered car carrier Sakura Leader represents a milestone in that direction. In an all-Japan operation, Sakura Leader is owned by NYK Line, powered by IHI Power Systems’ latest dual-fuel engine, and was built by Shin Kurushima Toyohashi Shipbuilding. For good measure Mitsubishi Shipbuilding provided the complex gas-supply system. Capable of carrying 7,000 units, the vessel is the first large, LNG-fuelled car carrier to be built in Japan and it certainly will not be the last. A sister ship for Sakura Leader is already on the way. Importantly, the engine ticks the International Maritime Organisation’s regulations on emissions without the need for ‘scrubbers,’ exhaust systems that clean up the burnt fuel’s residues.
The Japanese government, which has made zero-emission shipping a high priority, has designated the car carrier as a flagship project. Japan invented the car carrier – the first of these slab-sided vessels, virtually one giant container, was launched there in the 1960s and designers have been improving them ever since. The latest car carriers are built to the next generation ‘Flexie’ specification, that transport not just cars around the world, but trucks, bulldozers, railcars and other odd-sized units, all arranged on six floors of decks that can be raised or lowered according to need. As a bonus, a Flexie car carrier is narrower than previous versions so it can operate in more ports, but it can still carry up to 6,800 cars.
Japanese shipbuilders and suppliers work together in terms of innovation. Among other home-grown innovations, Flexie car carriers feature a spherical, sea-kindly bow and a tear-shaped stern that reduces wind resistance, both jointly designed by Mitsui OSK Lines and Mitsui Zosen Akishima Laboratories.
At the opposite end of the scale, Oshima Shipbuilding, which generally specialises in large ships, has become the hub for another all-Japan project with a big future – a fully automatic, zero-emission, battery-powered ferry. Launched in 2019, the little vessel known as e-Oshima is challenging Norway, the world leader in electric ferries, with its automated ship navigation system that sets the route and speed while simultaneously avoiding collisions.
For Japan, the e-Oshima is not a hobby project. It’s part of a joint, government-led programme to become a world leader in battery-powered transport by sea. “The ferry looks like becoming a symbolic vessel in the new age ahead,” notes the Nippon Foundation, an organisation devoted to green seas.
It is an absolutely huge business market and one that remains crucial in global logistics and seeing how the largest firms continue to compete with each other is certainly going to be riveting.
In 2020, businesses had to adapt swiftly through a precarious situation. We are now in a phase with a new set of requirements centred on resilience and a sustainable recovery. The lessons of this unprecedented period will help banks meet customers’ needs, navigate this turbulent time, and avoid online risks, guiding them through 2021 and beyond.
The heart of banking is still relationships
Even before the pandemic, an off-the-shelf, product-first approach was inadvisable. Now it’s irrelevant. COVID-19 underlined something we already knew: we are all interconnected. Amid the pandemic and economic slowdown, Bank of the West’s relationship management bankers redoubled customer outreach. We needed to know how our customers were, what challenges they faced, and about their short-term liquidity needs. Human relationships in commercial banking aren’t solely for crisis management; they also enable us to be present in an always-evolving business environment.
While corporate treasurers and finance managers are increasingly focused on strategic issues with distant horizons, there are meaningful conversations to be had with companies about longer-term ways they can adapt to opportunities now. Forward-thinking commercial banks are placing renewed value in customer relationships built on trust, good faith, and strategic relationships.
Rebalancing the platforms
As the pandemic’s impact progresses, digital transformation is clearly critical to recovery and business resilience. Banks should support corporate customers with digital channels that are open, flexible, and help companies adapt. However, effective commercial banks carefully balance digital solutions and human connection. Customers shouldn’t face a haphazard mix of traditional and digital platforms – or assume digital-only is sufficient. Banks have increasingly leveraged AI to deepen customer relations, improve anti-money laundering and fraud-prevention processes, and offer customers greater value. AI solutions work best with predictable transactions; the uncertainties of this recent crisis called for human connectivity. Banks that balance digital and human channels will prove essential to business continuity.
Forward-thinking commercial banks are placing renewed value in customer relationships built on trust, good faith, and strategic relationships
An integrated human-and-digital experience can support customers’ digital transformations while helping them navigate an uncertain future and endure. Nevertheless, it’s clear more business activity will become digital. Lockdowns and social distancing accelerated digital transformations. Companies that shifted to remote work swiftly and securely were at a great advantage with cybercrime spiking early in the pandemic crisis. This has been a jarring reminder of how critical cybersecurity and fraud prevention are to a company’s recovery, growth and resilience. Relegating cybersecurity decisions to IT is too risky: cybersecurity is operational security. Savvy commercial banks continue to strengthen fraud prevention while enabling businesses to engage in digital transformations that balance efficiency with resilience. Corporations need commercial banks that understand end-to-end security is central to operational resilience, and it is therefore non-negotiable.
Rethinking credit risk
When the future looks wholly different than the past, relying on backward-looking data models, even when (artificially) intelligent for measuring credit risk, becomes problematic. Financial ratios show a point in time and tell part of the story, but amid extreme uncertainty, commercial bankers must understand their clients’ overall financial wellness. Commercial banks that entered 2020 with a more granular understanding of their clients’ businesses will serve their customers well today and in the future.
Whether their industry is experiencing a boom or drought, CFOs and treasurers will be asking themselves if their bankers understand their needs and business objectives. A more holistic approach to measuring their financial wellness will enable commercial banks to give them a reassuring answer and make informed decisions. Businesses are also facing an evolving global compliance landscape. The regulatory consequences of the pandemic are far-reaching and will affect commercial banks and corporations.
When global lockdowns crippled predictable market dynamics, governments and regulators intervened with guarantees in the supply of services, human protections, and reactions to new barriers. The effects of these new measures will be felt differently across sectors and geographical lines.
Commercial banks are wise to re-engage with the principles of trust and humanity as we navigate this global pandemic and its aftermath. We are not over it yet, but there are silver linings. The majority of finance leaders believe they will be more resilient and agile in the long run. Banks need to ask themselves if they have changed enough to serve their customers now and in better times ahead. If commercial banks rise to the occasion now, the trust and value built during this crisis will pay dividends for years.
Disruptive innovation can attend to a market that is currently badly served. It can also present an outstanding relay to seek alpha in a return environment that has become less inclined to respond to classical financial instruments. The case of CeiROx Life Sciences, currently known as BioTissue, as a disruptive technology platform in the biotechnology industry, is eloquent in that it can be viewed as a standalone asset class. Disruptive technology can also be viewed as an extension of private capital in its quest to leverage the return of a financial portfolio.
Building return and looking for alpha has become an unparalleled challenge in a world characterised with the shattering of classic return metrics. Interest rates have become structurally low and flat in the aftermath of the financial crisis and with the subsequent sovereign European crisis and the current pandemic-related one. This has also led to continuous ‘corrections’ for equity returns. Furthermore, global equity returns enhancements such as correlation and what has become known as ‘decoupling’ has brought with it serious questions. Today’s pandemic only highlights this observation. It is in this context that disruptive technology can be viewed a relevant relay to generate alpha and growth in a sustainable manner. The key challenge becomes how to assess a disruptive innovation that can be pertinent in playing this role of leveraging return. In my opinion, the assessment can be achieved through both a quantitative and qualitative approach. I intend to go through these approaches using the case of CeiROx as well as to analyse the calibration of the associated return metrics.
Market dynamics
Quantitatively, a disruptive technology can be qualified as such in regards to the market it intends to serve. The big market premise is a condition for making an innovation truly disruptive. This condition measures the power of the innovation to alter the dynamics of the market. From this angle, we aim to build a business thesis that is pertinent and that stands out by recognising the fundamental and structural shifts in global demographics. With a world population that is witnessing both a higher life expectancy and a more active life-participation, the direct consequence is the potential tissue damage especially in cartilage in synovial joints. This translates to a multi-billion-dollar orthopedics market that we are intending to serve. In terms of order of magnitude, the current annual incidence rate of cartilage defects across all synovial joints can be estimated at 0.9 percent of the overall population. Males have a lifetime risk of one in six while females reach a risk level of one in four. Bringing together the aggregate patient population across all ages with degenerative or traumatic tissue defects, we get the following distribution of the target market over the next decade (see Fig 1).
The qualitative assessment of a disruptive innovation resides in analysing the characteristics of the market currently served. Indeed, the pathology of cartilage defect in synovial joints (such as the knee and the hip) is not a newly discovered one. Both degenerative and traumatic defects are a well-established problem. However, the solutions that have been brought forward have all fallen short of treating the underlying pathology efficiently. Most are only symptomatic in their effects while others are just delaying total loss of the joint’s functionality. This is the perfect example of a market that is maintaining the status quo. It is not about creating a new market, as is the case with artificial intelligence, for example, which makes its assumptions yet to be validated. CeiROx Life Sciences is addressing a market that is currently badly served, which allows us to serve an unmet medical need. This makes the market size assumption significantly hedged through on-going ill-treated cases because of the complexity of the underlying problem: destroyed cartilage cannot be regenerated through the body’s own healing system. We achieve successful treatment by creating new medicinal paradigms as we are pioneers of tissue engineering and the forerunner of regenerative medicine.
Four domains of innovation
Besides solving the status quo, assessing disruptive innovation is also reached through modelling the impact it accomplishes. A strong impact validates the disruption brought forward. We achieve great impact through the four domains of innovation: technology, product, process, and business model. From a technology perspective, our platform has developed through 20 years of research and developments of tissue regeneration concepts and applications from the skin to the bone. We have also given birth to the two latest generations for cartilage tissue regeneration: the third and today the fourth generation. We observed the limitations of the first-generation solutions that consisted of injecting cultured cells into synovial joints, and the second-generation solutions that consisted of associating to the cells’ membrane gels. We then developed a third-generation solution introducing a three-dimensional matrix as a carrier of the cells. We progressed afterwards to optimise our own solution through the introduction of a smart scaffold that ensures optimal cell distribution along with shape and mechanical stability. These have led to a strong clinical impact by achieving a good-quality regenerated tissue of hyaline type in cartilage, and restoring joint functionality.
The solutions that have been brought forward have all fallen short of efficiently treating the underlying pathology
In terms of product innovation, our fourth-generation chondro-tissue relies on developing a user-friendliness from medical, regulatory, and business perspectives. This has led in turn to a process innovation, which has been cut by half in terms of time. It has eliminated complex procedures with biopsy-taking and clinical treatment, cost-intensive cell-culture, and a burdensome regulatory framework. As in a domino effect, these aspects led to a business process innovation. The reduction in complexity through minimally invasive approaches as well as the possible scaling opportunities offer an innovative business process. While the first innovation domains focus more on the proof of concept in terms of clinical impact, the business process innovation domain focuses on the ‘proof of relevance.’ The latter assesses the economic impact that will condition the adoption of the technology, time-reduction and cost-saving being the cornerstone for successful market adoption.
Purpose and professionalism
The other dimension to assess a disruptive innovation is to study the qualities of return it generates. Both the direction of growth and its rate are important in boosting the quality of returns. This connects with the underlying premise of finance as a force of good: investment must flow to where capital is needed to solve the challenges of the moment. And in the effort to rethink capitalism, there is a need to rethink the ‘direction’ of growth – as opposed to the rate of growth only. Our business propositions evolve around both facets. In light of demographics, the direction can only be around a regenerative medicine solution as opposed to prosthesis replacement or short-lived symptomatic answers. Growth is also built on solutions that fully leverage the body’s own healing system without introducing components of metallic or animal origin. As to the rate of growth, it is strongly correlated with its direction. The demographic trends, along with changing lifestyles, will accelerate such a rate. In addition, disruption presents a perfect platform to express ‘decoupling.’ Almost always coming from an upstart outsider, in the words of Clayton Christensen, disruptive innovation provides great opportunities for effective diversification.
Above all, a disruptive innovation can have a strong foundation only if its components respond to the sustainability assessment. This is achieved through a comprehensive answer to a complex living problem. At CeiROx Life Sciences, we have made every facet of our response relevant in a disciplined and consistent effort. Purpose and professionalism are the building blocks for trust in a technology platform and in an investment thesis. As a sustainable value proposition, we respond to Prince Charles’s call that capital need not be geared towards investment that generates negative externalities. There is nothing more positive than a more able population.
The COVID-19 pandemic has indisputably changed the way we do business at Zenith Bank and our interactions with stakeholders – not the least in the digitisation of our banking services. With the rollout of a digital retail strategy aimed at driving financial inclusion, we embarked on an aggressive retail marketing and digital banking drive. As a result, Zenith Bank – which is well known for its prowess in developing innovative digital banking products and services – ensured that its customers enjoyed convenient, easy and accessible banking services tailor-made to their needs, since the outbreak of the pandemic.
When Ghana recorded its first case of COVID-19, we were well ahead of our peers in ensuring easy access to banking. Products that drive financial inclusion – such as our USSD Code product (*966#) – were enhanced to enable more customers who hitherto did not have bank accounts carry out banking transactions seamlessly.
‘Instant Account Opening’: with *966#, account holders and non-account holders can open instant bank accounts with minimum documentation and without physically visiting any of our branches.
‘Zenith Cash Out’: this service allows for the transfer of cash from any Zenith account holder to any cash recipient. The requirement for this service is a token that can be used to withdraw cash either at the ATM or any of Zenith Bank’s branches nationwide.
‘Merchant Pay’: this service is a collection solution for SMEs and corporate entities to receive real-time payments directly into their bank accounts. Payments are made via USSD or scan to pay – Zenith Bank’s QR code payment platform.
We also ensured that other products such as GlobalPay, ZMobile (our mobile banking app), Zenith corporate internet banking, point of sale terminals and our wide array of cards (Mastercard and Visa, Cruz-Card, Eazypay GH Dual Card, GlobalTravelWallet) were also enhanced to provide consumers with a better experience. Following the COVID-19 health and safety protocols outlined by the World Health Organisation (WHO), and in our quest to maintain our core line of business (an essential service required to run the economy of Ghana), we instituted a staff rotation policy with the aim of achieving social distancing to curb the spread of the virus. With the rotation policy, 50 percent of staff worked from home while the rest worked from the premises of the bank nationwide and vice versa on a weekly basis. With this in place, we also enhanced our teleconferencing tools, which we barely used prior to the onset of the disease. Teleconferencing tools such as Zoom and Teams have become our go-to apps for organising meetings, trainings, staff engagements as well as customer interactions.
A proud contribution
To further adhere to health and safety protocols, we provided all our branches nationwide with thermometer guns to check the temperature of staff and customers before entry to the bank’s premises. Handwashing units fully equipped with soap, alcohol-based sanitisers and paper towels were also provided at all branches of the bank for both customers and staff. Furthermore, per instructions by the government of Ghana, a ‘no mask no entry’ directive was strictly followed by every member of staff who was on duty at the bank’s premises as well as any customer who visited. To this end, the bank has since the COVID-19 outbreak provided disposable masks for its entire staff daily.
Customers are now more inclined, first, to live a healthy lifestyle and, second, to want to bank in an easy and safe way
In line with our mission “to continue to invest in the best people, technology, and environment to underscore our commitment to achieving customer enthusiasm,” we provided substantial financial support towards the nation’s fight against the virus. In April 2020, after the first case of the disease had been recorded in March 2020, we donated GHS 1m ($171,500) to the COVID-19 trust fund established by the government of Ghana as our contribution towards the fight against the spread of the virus, as well as to assist with the welfare of the needy and vulnerable in society.
Additionally, the bank made a contributory donation to the Ghana Association of Bankers (GAB). Proceeds from this, together with funds from other banks, were channelled towards donation to the Ghana Private Sector COVID-19 fund to build the Ghana Infectious Diseases Centre, donation of PPEs, masks and other hygiene products to major hospitals in Ghana and feeding of the less privileged during the peak of the pandemic. During the bank’s 15th anniversary in September 2020, the staff of the bank embarked on a CSR project themed ‘United against COVID-19’ where they donated COVID-19 hygiene products to hospitals and orphanages across the nation.
Increase in lending activities
In line with the central bank’s directive to lighten the economic burden on bank customers during the pandemic, the following measures were undertaken. The bank rolled out credit packages to ease the impact on businesses and our valued retail customers. We implemented a two percent flat downward review of interest rates for all our retail loans. Customers whose businesses had been impacted by COVID-19 directly and indirectly were also granted moratorium on both principal and interest for tenors ranging between three to six months. To encourage the use of the digital channels and also lighten the burden of our customers, the bank waived all fees for transactions via the following channels for a period of three months; 1) Automated Clearing House (ACH) – bulk upload via internet banking; 2) Ghana Interbank Payment and Settlement Systems (GhIPSS) Instant Pay (GIP); and 3) Mobile money interoperability. In partnership with Prudential Life Insurance, we also provided free COVID-19 cover to our customers who were adversely affected by or had to be hospitalised because of the virus.
Innovative digital products
Financial inclusion continues to form a major part of Zenith Bank’s strategy year-on-year. Since its inception, the bank has ensured the continuous rollout of a wide array of innovative digital products and services that are user-friendly and provide total convenience to customers. Digital channels afford the ‘unbanked’ an opportunity to leapfrog barriers to brick-and-mortar banking – such as cost and infrastructure – that historically have excluded them from the financial system to be able to perform simple banking transactions anytime, anywhere. 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 iOS devices, enables customers to make instant interbank transfers, set up beneficiaries, top up investments, pay utility bills and much more right from their mobile phones.
According to a 2019 report by the World Bank, Ghana is one of the fastest-growing mobile money markets on the African continent. It is estimated that about half of the 20 percent of Ghanaian adults who have mobile money accounts do not have a bank account. This proves that mobile money is not just an enabler of cheaper and more convenient financial services for those who already have access but is also spreading the net to reach those who were previously financially excluded. According to GhIPSS, mobile money interoperability increased by 358 percent in the first quarter of 2020. Our strategic partnerships with major telecommunications and fintech companies have also 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 in order to make immediate transfers and payments remotely at any time of day.
We have always sought to be the pacesetter in the delivery of superior customer service. To this end, we have put in place strategies that ensure continued enrichment of the customer experience across all touchpoints. Our core service strategy hinges on four key elements: 1) entrenching customer-centricity; 2) consolidating retail and digital banking; 3) empowering staff to live our service tenets; and 4) customer segmentation for enhanced service delivery.
To provide customers with the best experience, we use several analytical tools to measure our performance with regards to how satisfied our customers are with the services rendered. These include the Net Promoter Score (NPS), which measures customer loyalty through the categorisation of customers into three major groups (promoters, passives and detractors), and Customer Satisfaction (CSAT), which defines how happy customers are with the bank’s products and services.
We have also continued to enhance our presence on social media platforms like Facebook, Instagram and, recently, Twitter. With the help of daily, weekly, monthly and yearly analytics, this helps us gather useful demographic information about our customers, and most importantly, maintain a solid relationship with clients via the digital space.
Future plans
The pandemic has ushered in a new, digitally oriented way of life for many people here in Ghana and across the world. Customers are now more inclined, first, to live a healthy lifestyle and, second, to want to bank in an easy and safe way. Always committed to developing cutting-edge technologically driven products and services aimed at making banking easy and on-the-go for its customers, we will continue to invest heavily in products and services that ensure that our banking services remain consistent and easily accessible.
We will continue to adapt to the new normal by keeping abreast of current trends and educating our vast clientele on the need to go digital. Zenith Bank in the next year and beyond will remain steadfast in its quest to becoming the banker of first choice to all our customers. Our focus areas thus remain exceptional customer service, strong financial performance, robust digital banking platforms and retail banking structure. In pursuit of these, we will continue to take advantage of the numerous opportunities in the marketplace
Digital transformation has long been a strategic goal for Mashreq Bank, and the current situation has only accelerated the momentum. Rapidly changing customer behaviour and expectations are a major factor for us, and we believe this, coupled with changing regulations, is putting pressure on banks to increasingly turn to technology to offer solutions; not only to cut costs but also to increase efficiency and tap new streams of revenue.
The provision of digital services is part of the bank’s entire corporate strategy. Mashreq has always been an early adopter of technologies that disrupt the way we bank. A while ago, we invested in our digital innovation initiative and the investment has borne fruit. We strongly believe that this was the right strategy and will benefit our customers immensely going forward. The way in which the fourth industrial revolution has changed our world means that digital is ubiquitous: we live our lives through the digital sphere and it is only natural that every aspect of our financial lives exists digitally as well. We continue to invest in solutions that are innovative, but more importantly add value to our customers. Over the past year, customers have provided exceedingly positive feedback to our revamped distribution network.
Our entire retail and SME offerings have evolved in response to the changing needs of our customers, who embrace self-service technologies and digital banking with ease, while demanding more personalised and tailored solutions in terms of advisory and non-transactional services. The recent launch of our blockchain data-sharing platform, called Know Your Customer (KYC), which is the region’s first, is a milestone for us. The new platform will ensure a faster, reliable, and more secure onboarding and digital data exchange process, thereby removing existing cumbersome paper-based KYC processes. In addition, the platform will help oversee banks’ collection and management of KYC data. We were the first bank to launch a digital-only SME bank account and the first in the region to enable customers to complete the Know Your Customer (KYC) updates digitally.
What the customer wants
It is clear to us that customers – individuals and small and medium businesses as well as corporates – have wanted digital banking products and solutions for some time. We continue to invest heavily in data analytics and AI, and use robotics to automate a lot of operating procedures, manual entries and manual activities that are repetitive in nature. We also work with a large number of FinTechs in the retail space in the areas of payments, wealth management, credit underwriting, and customer identity authentication.
Mashreq was the first bank in the region to launch a digital banking proposition for SME, NEOBiz, a great example of innovation. Prior to the launch of NEOBiz, start-ups and SMEs reported difficulty in opening a bank account in the UAE and accessing financial services. In some cases, they avoided opening a local bank account and instead conducted their transactions via non-UAE-based foreign banks that subjected them to high international fees. NEOBiz has been able to address this with a 20-minute digital account opening application, email-based queries, and tablet fulfilment. This is a drastic simplification of a process that previously took up to three months in extreme cases. NEOBiz has now been operational for a year, and it continues to receive extremely positive feedback from our clients. In the current situation, customers expect support from their bank. In addition, they expect a full-scale digital service with a reduction in fees and charges, and access to value-added products and services. NEOBiz ticks all these boxes: perhaps that is the reason why it is winning the trust of so many customers. Additionally, the bank’s quick remit offering, which is a digital remittance proposition, is widely popular with both SMEs and individual customers.
Being a digital-only proposition, NEOBiz is also a lot more economical and gives the customer choices with complete transparency and flat fees. It offers 24/7 access through online and mobile banking in addition to call centres, interactive teller machines and even a virtual relationship manager.
The best part about this offering is that it brings third-party products such as accounting software, mobile point of sale and payment gateways as optional add-ons, at special preferential prices for our customers. For the SMEs, it acts as a one-stop shop and again delivers a superior value proposition. The bank is looking to introduce more offerings in the immediate future.
The opportunity for digital-only banking services and products is the ability to build upon the community of users
In addition, through the adoption of technology such as blockchain, artificial intelligence, data analytics and machine learning, Mashreq has been able to streamline lengthy documentation practices and cumbersome paper-based KYC procedures, ensuring a faster, reliable and more secure onboarding and digital data exchange process. Our long-term vision for NEOBiz is that it enables customers to focus on and expand their business. We have major enhancements in the pipeline to expand these services to achieve our ambitions.
The UAE has an exceptionally high smartphone penetration, at 96 percent of the adult population according to 2019 data from the Media Lab. Digital inclusion is a great equaliser, and this strong access to digital services through either a PC or a smartphone is enabling people to enjoy high-quality services and is an opportunity for many businesses and banks, like us, to cater to their lifestyle needs, like in areas such as e-commerce. In 2019 the UAE was named as one of the fastest-growing hubs for e-commerce in the region, according to a joint study by Dubai Economy and the global payments technology company provider Visa. Furthermore, the UAE is well renowned for world-class infrastructure, services and initiatives that are geared towards enabling smart cities, and therefore enabling digital services and financial inclusion.
Meeting the pandemic challenge
The COVID-19 outbreak has propelled the shift towards digital banking at an exponential speed and we see the opportunity to continue this transformation. Internally, at the onset of the pandemic, we gave our teams access to special technology kits for virtual desktops, and remote conferencing facilities, as well as controls and guidelines that are specific to each business unit. We have also created a microsite with a full suite of banking services, so that both our retail and corporate customers can meet their requirements easily and without hassle during this difficult time.
I can proudly say that in the past couple of months, when nearly 97 percent of Mashreq was working from home, we offered our customers uninterrupted services and seamlessly transitioned them towards digital banking. Today, 92 percent of our customer base has online and mobile banking credentials. This in itself is an indicator of the strength of our digital offerings and our clear position as a digital leader.
In 2019 alone, the number of transactions processed through the bank’s gateway increased by 126 percent year-on-year, allowing for hundreds of millions of secure digital purchases to take place. This percentage is significantly higher in 2020.
We recently collaborated on the launch of klip, the digital cash platform launched by Emirates Digital Wallet. This initiative, the first of its kind, will provide customers with a seamless, secure payments platform that is geared towards improving financial inclusion and driving contactless and cashless transactions.
We also launched two major platforms for our customers: WhatsApp Banking, to offer more convenience, as well as NEOBiz, the UAE’s first digital banking proposition catered exclusively to SMEs. The response from our retail and SME customers to these initiatives has been extremely positive, with consumers embracing the convenience and flexibility they offer. Our branch network has transformed significantly since 2019 and now boasts digital-only kiosks as well as personalised flagship branches for segments such as Mashreq Gold and Business Banking and SMEs. On the corporate banking side, the bank has also on-boarded most of its clients on Mashreq Matrix, our digital GTB global transaction banking, trade and cash management platform, which offers solutions for trade transactions, cash management, liquidity pooling and trade tracker capabilities.
Transformation is an ongoing process
The ability to collect customer data is often integrated into the operations and processes of digital banks right from the beginning. This data is used to engage with the customer post-acquisition, and also help them as they transact, thereby making the customer experience seamless and personalised. This offers unique insights into customers’ behaviour and empowers digital banks to provide valuable and relevant offers in real time.
The opportunity for digital-only banking services and products is the ability to build upon the community of users. In a connected world, co-operation and partnerships are key, as they foster a symbiotic ecosystem. This is of immense value to young businesses and SMEs, as we have seen through the enormous success of NEOBiz. Transformation in the digital space is an on-going process for us. The bank has invested in a technology organisational platform that will allow us to continue with our transformation drive efficiently and effectively.
For many years, Mauro Botta had been a successful partner at the accounting giant PricewaterhouseCoopers (PwC) in California, where he was responsible for auditing Silicon Valley firms. After witnessing many cases of dubious bookkeeping, he blew the whistle on his employer in 2012, alleging conflicts of interest between PwC and its clients.
The Securities and Exchange Commission (SEC), the US regulator, did not take any action after investigating his claims. However, the case took its toll on Botta’s career. Although he had been working for PwC for nearly two decades, he was fired in what he claims was retaliation for his whistleblowing. He filed a lawsuit for wrongful termination, with the trial expected this spring. Botta does not mince his words about the accounting industry. “It’s absurd to have auditors being paid by the companies they are supposed to audit and who are also in charge of appointing them,” he said.
Conflict of interest is inherent in the system, Botta said. “Nobody would ever wonder why tax audit is done by the government, because this is in the public interest. So it is baffling that financial audit, which protects investors, has been outsourced to private corporations,” he said. “Are the companies that are scrutinised by the IRS (the US tax collector) considered its clients? Absolutely not.”
Collusion not an illusion
Although an outlier, Botta’s story illuminates the many problems facing the accounting sector. The recent collapse of Wirecard was just the latest in a series of scandals involving one of the ‘Big Four,’ as the accounting firms Deloitte, Ernst & Young (EY), KPMG and PricewaterhouseCoopers (PwC) are known. In December 2019, German prosecutors launched a criminal investigation into the EY partners who were auditing Wirecard, after it was found that €1.9bn were missing from the company’s balance sheet. “This was a failure of basic auditing. In a digital world, cash balances need to be independently verified,” said Atul Shah, an accounting expert who teaches at City, University of London. In the UK, the collapse of Carillion, BHS and Thomas Cook has raised similar concerns over auditing standards. In India, the local affiliate of PwC was banned from auditing public companies for two years due to its involvement in one of the biggest financial scandals in the country’s history. All major accounting firms have been associated with tax scandals, revealed through a series of document leaks, such as LuxLeaks.
Technology favours small players, while the global brand of the Big Four makes them more vulnerable to reputational risks
One reason why the Big Four are under fire is their expansion into areas beyond their traditional expertise. “They combine audit with consultancy and tax advisory [services]. Audit is about challenge, and the others are about advice, so the conflict is between fulfilling a legally independent role and a supportive consultancy role,” Shah said. In the US, this trend began in the 1980s when accounting firms started offering professional and management consulting services. The collapse of the accounting firm Arthur Andersen over its sloppy auditing of Enron, an energy firm that went bust in 2001, should have served as a cautionary tale, but little changed despite stricter regulation. Audit partners were increasingly under pressure to “cross-sell” consulting services to their audit clients, according to Professor Jeffery Payne, an accounting expert and KPMG Professor at the Von Allmen School of Accountancy, University of Kentucky, with their performance evaluations being affected accordingly. Over time, the Big Four became multinational behemoths, employing nearly one million people and generating $130bn in revenue in 2017.
“You would think that with the scale these firms have reached, the incentive to try to do something unethical is small, because they could afford to lose a big account like Wirecard. However, for a single partner, losing an account is a big disaster for their career,” Botta said.
Critics also point to collusion between regulators and accounting firms, with the former packing their committees with Big Four veterans. Botta pointed to the case of Wes Bricker, a PwC partner who, after a stint as chief accountant at the SEC, returned to his previous employer, as an example. One reason this happens, according to Payne, is that it is more efficient for audit firms and regulators such as the SEC to work together when dealing with complex issues: “Having prior Big Four partners and personnel likely makes these conversations more productive and improves the consistency of financial reporting.”
However, such an incestuous relationship often has dire consequences. In 2018, US prosecutors charged three former employees of the PCAOB, the US audit regulator, over leaks of confidential information to KPMG, their former employer. The picture is similar in the UK, where former Big Four partners are often recruited by the Financial Reporting Council (FRC). “There is plenty of evidence of regulatory capture and revolving doors between politicians, regulators and the Big Four,” Shah said.
Breaking up is hard to do
For many critics, the increasing dominance of the Big Four stifles competition; only breaking them up would solve the problem. Such voices are prominent in the UK, where the Big Four audited four out of five public businesses in 2018. The competition watchdog has recommended splitting audit from consulting services. “As it stands as a whole, there is not enough competition in the accounting industry.
There are significant barriers for entry – size matters and so does global presence,” said Ina Kjaer, former head of UK integration in the deal advisory team of KPMG and founder of Eos Deal Advisory.
In a plan issued last summer, the FRC requires the Big Four to operationally separate their audit practices by 2024, although it stops short of requesting a full-blown separation of audit from consulting services. The plan, which aims to ring-fence the finances of auditing departments from other operations, does not require auditors to be paid exclusively from audit fees, as requested by many experts. “The FRC plan does not go far enough, as it proposes a separation but not a full break-up,” said Kjaer, adding that introducing more competition in sub-sectors where the Big Four are involved, such as tax, restructuring and M&A deals, would be more beneficial.
Not everyone agrees with such a strict approach. “Breaking up the firms would not increase competition and would likely decrease their audit quality for large international companies. Auditing firms compete aggressively to obtain new clients from other firms,” Payne said. Even for critics of the Big Four, such as Botta, a break-up could do more harm than good: “It will worsen the conflict of interest problem because as a smaller firm, you want to keep all your engagements. You also lose the core competency and worldwide networks these companies have.”
The smaller players have an upperhand
Like many legacy companies in other sectors, the Big Four face an avalanche of technological disruption. Artificial intelligence, digital analytics and the blockchain are expected to make auditing processes faster and cheaper. Technology favours small players, while the global brand of the Big Four makes them more vulnerable to reputational risks, claim the academics Ian Gow and Stuart Kells in a recent book on the Big Four. Their management and consulting services are particularly vulnerable to disruption, according to a report by CB Insights, with start-ups such as Wonder matchmaking individual advisors with clients.
All major accounting firms have set up innovation labs, aiming to harness innovation to their advantage. But many question whether these behemoths can change their old ways. “The Big Four have been investing quite heavily in technology, but they are not yet ready to change their processes and operating models to take full advantage of the technology available,” Kjaer said. Strict regulation may also hamper attempts to embrace technology, according to Payne, who pointed to the obligation of US auditors to “observe” inventory counts as an example: “What does ‘observe’ mean? Do auditors have to be physically present or can they observe by watching a video streaming from a drone?”
More inclusion needed
The accounting industry has not avoided the wave of criticism coming on the back of the Me Too and Black Lives Matter movements. The problem goes deep, Kjaer said: “The accounting industry, as most industries, suffers from a historic legacy of a macho culture, where diversity, inclusion and equality do not matter.”Particularly the Big Four have come under fire over gender bias and lack of racial diversity. In the UK, the pay gap between male and female employees remains high; KPMG and EY reported median total earnings gaps of 28 percent and 18.9 percent respectively in 2019. Just 11 out of 3,000 UK Big Four equity partners were black last year.
The sector is slowly adapting to changing attitudes towards equality and diversity. Last year the UK branch of PwC launched unconscious bias training sessions. EY UK aims to double the percentage of ethnic minority partners by 2025. The problem, according to Kjaer, is that HR departments at big companies prioritise diversity KPIs that are too blunt, such as the number of women who get promoted. Although a positive measure, it is the bigger problem of lack of inclusion that goes under the radar, she said: “A more diverse workforce gets recruited and promoted, but they do not tend to stay at the company, as inclusion never really happens. Unfortunately, a lot of companies in our industry still have a culture based on internal politics and relationships, which makes them inhospitable in the medium term.”
As one of the world’s largest and most populated countries, it should come as no surprise that China’s digital economy is of a scale to be reckoned with. With some one billion ‘netizens,’ businesses in China need to serve huge numbers of people and be reliable, accessible and, vitally, fast. Using the example of revolutionising car insurance claims with AI, image-based assessment, and reliable data processing, Ping An Property & Casualty Insurance Company (hereafter Ping An P&C), a wholly-owned subsidiary of the Ping An Group, explains how the insurance firm has achieved the seemingly impossible.
There are an estimated 340 million cars in China, all of which need insurance and multiple other services. As one of the world’s largest insurers, Ping An P&C has created an enviable digital offering for car owners: an app that settles accident claims in as little as two minutes. This app provides users with a one-stop experience, not only for accidents but for an ever-expanding range of auto services from roadside recovery to valeting, and, new for 2020, COVID-secure sterilisation. This is even more impressive when you look at the stats: there are 83 million bound vehicle users on this app, registered to over 123 million users, so the scale of the operation is mind-boggling, as is the market share covered by Ping An P&C’s unique ‘ecosystem’ approach.
A digital ecosystem
With the vigorous development of a new round of information technologies, especially digital technologies including big data and AI, it is imperative for the insurance industry to accelerate its digital transformation in order to keep pace. Since its establishment in 1988, Ping An P&C has adhered to a strategy of stable and healthy development, and in recent years has hired technology talent from home and abroad, and reshaped its organisational structure and corporate culture as a technology-driven company. The company developed such capabilities as cloud computing, big data and mobile applications, and advanced the digitalisation of its various businesses. The Ping An Auto Owner app is a product of this ecosystem transformation, and crucially provides an infrastructure for the company to reconstruct the auto service industry chain as a whole.
Super swift settlement
So how does it work? Take the platform’s distinctive service ‘vehicle loss calculation’ as an example. In the past, car owners had to be familiar with repair shop rules, the structure of vehicle parts, and be able to haggle over the price. The Ping An Auto Owner’s smart car loss calculation function has completely solved this issue. In the event of a traffic accident, the car owner only needs to take a picture of the scene, especially the damage caused by a collision, and upload it to the app. The loss report can be generated within seconds, and the premium for the coming year can be estimated immediately to help customers decide whether commercial insurance needs to be used or not. In addition, a reasonable repair price will be accurately generated, and a reliable repair shop recommended. This saves time comparing different repair shops and enables customers to obtain the best maintenance package.
The company has also taken quality and accuracy into account, laying a solid foundation for a data-driven system and ensuring the veracity of claims. In 2019, the precision of Ping An’s digital reporting and processing defeated over 100 international and local participants to take the top ranking in the Robust Reading Challenge for Scanned Receipts Optical Character Recognition and Information Extraction (SROIE). This in turn engenders consumer confidence, knowing that the app’s eye-watering processing speeds are underpinned by reliable technology and an award-winning level of precision.
Claims during COVID-19
Since the coronavirus outbreak began, Ping An P&C has added a new aspect to its services: that of epidemic containment. It strengthened its online services and fast-track claim settlement with these technologies, ensuring not only an efficient, convenient customer experience but critically, a minimal number of contacts. For example, its ‘one-click claims service’ enables 36 functions for car owners, including reporting, uploading car accident photos and documents, signing agreements, input of payment information, claims progress enquiries, and auto repair service booking.
It is human nature that we seek ease, convenience and simplicity when making decisions, and businesses the world over have taken advantage of this knowledge
It is not an automated service to the exclusion of any human interaction, of course. The company ensures its back office procedures are as smoothly digitalised as the customer-facing element, allowing claims settlement experts to be on hand to answer questions, help customers with the claims process, and ensure access to contactless, super-fast, easy services for car owners during the COVID-19 pandemic. In 2020 the online claims settlement service has been delivered to nine million customers and counting, 95 percent of whom have used the ‘one-click claims service’ function, and the app has achieved a 95.7 percent positive rating. During the epidemic, the fastest auto insurance claim took only two minutes to close.
Car owners’ various service demands obviously changed during the COVID-19 pandemic, and contactless online service including emergency electricity connection, car disinfection, automatic refuelling, pandemic prevention, annual car inspection agency and subsidies for green transportation were all launched on the app immediately so that Ping An P&C could provide car owners with more considered services while contributing to pandemic prevention and control. The app is even able to help car owners develop safe driving habits. The optional ‘safe trip’ feature can record driving behaviours – with the consent of car owners – and significantly reduces driving risks by providing risk assessments and prompts for bad driving behaviours and generating improvement plans.
An integrated service
But the convenience doesn’t end there. When it comes to insurance application and renewal, Ping An Auto Owner can generate personalised auto insurance plans in just seven seconds and accurately recommend product portfolios for customers based on AI image automatic classification, OCR recognition, smart marketing and other technologies.
The potential for expanding customer offerings and keeping people coming back again and again through convenience alone is obvious. If it only takes customers a few minutes to purchase insurance products thanks to AI-driven automatic enquiry, why would they leave the service and go elsewhere?
By building an ecosystem, Ping An P&C links users with service providers, helps partners improve their operating efficiency, provides users with considerate services, and effectively balances the needs of users and those of partners.
Through this ecosystem, Ping An P&C ultimately provides users with 80 types of one-stop services including parking payment, fuel card recharge, vehicle loss calculation and refuelling discounts. Up to now, Ping An Auto Owner has integrated a total of more than 190,000 outlets, including over 59,000 maintenance outlets, over 78,000 repair shops, and over 30,000 4S car dealers. This is another smart move on Ping An P&C’s part: with such an enormous market share and the convenience of staying with them year after year, it is in the interest of auto business owners to be affiliated with the name of Ping An P&C. This enables them to secure incoming business as well as providing the extra level of customer confidence brought about by association with such a huge insurance provider.
Looking to the future
With the rapid development of information technology such as big data and AI, the acceleration of digital transformation in the insurance sector is a must. Amid the wave of digitalisation and a persistently complex and volatile landscape worldwide, Ping An P&C’s new vision to be a world-leading technological property and casualty insurer has driven its increasing investment in scientific research. Moving forward, the company aims to become a property and casualty insurer that is powered by technology, data, and an ecosystem approach.
In its retail auto insurance business, over 90 percent of Ping An P&C’s quotes are made automatically, and the first quote is accepted. As no manual data entry is required, the turnaround time from quotation to policy issue is as short as 20 seconds. This is clearly an attractive option; if customers do not even need to fill out a form or go online to compare the insurance market, it is much less tempting to stray to a competitor.
It is human nature that we seek ease, convenience and simplicity when making decisions, and businesses the world over have taken advantage of this knowledge: consider Amazon’s one-click offering that makes online purchasing effortless. Ping An P&C is utilising similar factors when offering their 20-second turnarounds and in-app purchasing. Ping An P&C clearly knows that making things easy for their customers will lead to repeat business and allow customers to feel like they are on top of things, which in 2020 is no small feat.
Up to now, Ping An P&C has developed and offered more than 1,000 types of master insurances, and its business scope covers all the lawful property and casualty insurance you would expect, such as auto, corporate property, engineering, liability, cargo transportation, agricultural and more. In developing a way to turn the potentially stressful experience of auto claims into a secure, reliable, and almost instant process, you can’t help but wonder what other areas of insurance this comprehensive technology could be applied to in the future.
The art world was better prepared for the coronavirus pandemic than many other sectors. Though local and national lockdowns forced galleries to close their doors and leading auction houses to cancel in-person sales – including some of the most important dates in the global art calendar – a swift pivot to online activity helped protect the art market from some of the worst ravages of COVID-19.
It has not escaped entirely unscathed, though. From January to September 2020 there was a 20.2 percent drop in the number of paintings sold at auction, compared to the same period the previous year, according to analysis by Art Market Research Developments (AMRD).
With many auctions postponed in the first few months of the pandemic, there were simply fewer opportunities to trade, Sebastian Duthy, AMRD’s chief executive, told World Finance. As auction houses honed their online offer and buyers were able to return to the market, the outlook improved.
“If you had asked me a few months ago, I would have painted a much gloomier picture,” Duthy said. “If you look to the figures in July 2020, it looked much worse than what it was.” All in all, the impact of the pandemic on the market “is not as bad as one might expect,” said Duthy, offering as a comparison the period immediately following the 2008 financial crash, which saw a 26.6 percent fall in the number of paintings sold at auction compared with the previous year.
A buyer’s market
It’s not just the number of sales that has decreased but the value of those sales too, with AMRD’s All Art Index noting a fall of 8.5 percent in the average value of fine art objects (paintings, sculpture, prints and photography) sold at auction from January to September last year. This is partly down to the fact that the pandemic has created a buyer’s market, with reports of the phrase ‘COVID price’ being bandied around in art market circles. It’s also a by-product of the loss, for the moment at least, of the often glitzy in-person sales that have historically attracted the biggest ticket items.
“People want to be able to inspect what they’re buying. Of course technology finds ways to make it feel like you’re actually looking at the real thing and give people confidence that they are buying something of great quality, but nothing beats kicking the tyres yourself and having a close look,” said Duthy.
The analyst expects the market to bounce back as in-person sales are gradually allowed to resume and confidence returns, most likely in the second quarter of 2021. Even after that happens however, auction houses are highly likely to continue to benefit from increased online activity. The leading auction houses have had an online presence for a long time now with Sotheby’s first collaborating with online auction portal eBay in 2002 and Christie’s launching a live online viewing room in 2006. But the pandemic forced them to up their game, investing in new platforms to enable better customer experience.
This investment has borne fruit: while sales were down overall, online-only fine art sales at the three leading auction houses jumped 240 percent according to a report by art market analysis firm ArtTactic. For the first eight months of 2020, online-only sales at Christie’s, Sotheby’s and Phillips totalled $321m, compared to $94.4m for the whole of 2019.
This consolidation of the online offer has been crucial for the survival of auction houses in this period but it also represents an opportunity going forwards. Sotheby’s reported to ArtTactic that over a third of online buyers were transacting with the auction house for the first time and that over a quarter were under the age of 40.
Developing relationships
If these businesses are to continue to successfully engage these younger collectors, digital natives who may not have deep pockets now but might do in years to come, they need to be responsive to the needs of this group.
“An auction house does its business not just by finding sellers, but developing relationships, because that seller might want to buy something they then might want to sell down the line,” said Duthy. Even if auction houses’ proportion of online sales fall back to a fraction of what they reached in August 2020, the art market can only benefit from the technology and relationships developed during this period of crisis. “We’re moving into the biggest inter-generational wealth transfer ever from the baby boomers,” said Duthy. “You’re going to see the market pick up where it left off.”
The banking sector has often demonstrated resilience in the wake of devastating crises. However, in 2020, a year characterised by the COVID-19 pandemic, it is about survival. With profits on the decline, non-performing loans on the rise and return on equity plunging, banks are focusing on weathering the crisis in the immediate future. In the medium and long term, strategy is being anchored on adaptation with digital transformation at the core. This is based on the fact that COVID-19 has defined a ‘new normal’.
For CIMB Niaga Bank, Indonesia’s second largest privately owned bank by assets, the situation is no different. The need to withstand the impacts of the pandemic is paramount. But the bank has not shifted focus from its Forward 23+ strategy centred on customer journey, digitalisation, enhancing productivity and finding new opportunities. The strategy, which is part of the larger CIMB Group plan, is designed to ensure CIMB Niaga joins the rank of top banks in the ASEAN region.
Due to this ambition, CIMB Niaga Bank, which is majority owned by the Malaysia-based CIMB Group, is strategically positioned to support clients and businesses suffering from the disruptions that have been forced on the banking sector by COVID-19. The bank has a strong footing. It has been in operation for over 65 years. It boasts a wide-range of banking products and services, both conventional and Sharia. With a network of 390 branches, 34 digital lounges and 27 mobile branches, the bank has over 12,000 employees.
CIMB Niaga intends to weather the challenges brought upon us by the pandemic from this firm foundation, but also aims to anchor future growth. This is critical, and for good reason. Indonesia, Southeast Asia’s largest economy, is among the countries that have been badly affected by the pandemic, both directly and indirectly. At the end of November 2020, the country had 522,581 COVID-19 confirmed cases with 16,521 deaths. Economically, the impacts have been severe, forcing the country into a recession. The last time this happened was during the 1998 Asian financial crisis.
Since 2014, Indonesia’s gross domestic growth has averaged five percent per year, ranking it among the fastest expanding nations. This year, however, most sectors of the economy including transportation and warehousing, financial services, manufacturing, tourism, construction, mining and construction are on a downward spiral. The wider effect is that Indonesia is headed for negative growth this year. Worse still, the World Bank is projecting an “uneven and volatile” recovery in the coming years.
As the heartbeat of businesses, the banking sector is feeling the devastating effects of the pandemic. In the period ending September 30, 2020, the seven top banks in Indonesia posted an average decline in profitability of 29.7 percent. This is in line with the country’s Financial Services Authority (FSA) revised forecast, indicating that profits would decline by around 30 to 40 percent on average in 2020.
Robust fiscal planning
Amid the tough operating environment, CIMB Niaga continues to demonstrate a spirit of community and strength. For the bank, most indicators remain strong with liquidity, asset quality and cost management being central in the bank’s ability to withstand the current crisis. This is reflected in the financial results for the nine-month period leading up to September 30th. During this period, CIMB Niaga’s capital adequacy ratio remained strong at 20.8 percent while total assets stood at IDR 281.7tr ($15.4bn). This ensured the bank maintained its position as Indonesia’s second largest privately owned bank by assets.
While the performance of the conventional bank remains solid, CIMB Niaga Sharia maintained its position as the largest Islamic business unit in Indonesia. The unit’s total financing was valued at IDR 32.6tr ($2.3bn) with deposits increasing to IDR 35.1tr ($2.4bn). Notably, CIMB Niaga is one of the Sharia banks that has embraced digitisation. This enables the bank to support the burgeoning needs for quality Sharia-based products in a country that is predominantly Islamic.
In Indonesia, the FSA has predicted a muted growth in loans and advances. But this has not stopped CIMB Niaga amassing a strong loan book that stands at IDR 180.9tr ($12.8bn), contributed to by a 4.1 percent year-on-year growth in the consumer-banking segment. Total deposits, on the other hand, stood at IDR 211.9tr ($15bn). During the period, the bank posted a net profit of IDR 1.9tr ($134.5m). Although the net profits were 31 percent lower compared to the IRD 2.6tr ($184m) realised in 2019, they represented the bank’s determination to navigate the crisis. This is evident on many fronts. Despite the pandemic having widespread disruptive effects, particularly on service delivery, CIMB Niaga has actively responded with digital transformation being central to ensuring business continuity. In fact, COVID-19 did not bring about the need for digitisation for CIMB Niaga. The bank, which was established in 1955 under the name Bank Niaga, was founded on innovation and a forward-thinking philosophy.
Years in the making
CIMB Niaga was the first bank in Indonesia to install an automated teller machine (ATM) and to launch a mobile-phone eWallet. In 2017, the bank correctly predicted that the banking sector in the country was ripe for accelerated digital revolution. To be a leader on the digital frontier, the bank deployed significant resources to roll out an ambitious strategy that is redefining service delivery in the midst of the pandemic. For most banks, the digital transformation has been a necessary evil brought about by COVID-19. For CIMB Niaga, however, it is a well-thought-out business strategy. As the bank delivers the enhancement on digital channels, it has always remained passionate and curious about new and powerful methods. This includes the ‘design first’ thinking process that challenges the status quo and invents new ways of doing things, as well as agile methodologies that speed up project and features delivery.
Other methods include constant benchmarking and learning from competitors, cutting across local, regional and international boundaries, conducting surveys to discover more about the customer and being true to the Kaizen concept of constant and never-ending improvements. The results of the conscious approach to digitisation have been significant in avoiding service disruption especially considering Indonesia has witnessed major lockdowns to contain the spread of the disease.
To start with, CIMB Niaga has been able to leverage the COVID-19 pandemic as an opportunity to seamlessly redirect customers to digital channels like OCTO mobile and OCTO Clicks online banking. It has also encouraged customers to utilise its payment capabilities and cashless transactions. These include QR transactions that allow customers to transact without cards, and also our OCTO vending machines distributed to key locations across Indonesia. With adoption of online platforms to interact with customers, the bank has been able to reach more customers.
In fact, the platforms have been ideal considering the geographical perspective of Indonesia, a country that consists of many islands. More importantly though is the fact that CIMB Niaga is at the forefront of the country, in terms of playing a central role in the projected e-commerce explosion. Numerous surveys show the online economy and e-commerce could reach $35bn this year, up from $23bn in 2019, and is on track to cross the $130bn mark by 2025.
Internally, adoption of digital channels by CIMB Niaga customers has been swift. The bank is recording higher penetration rates on mobile banking, something that is reflected by a significant increase in digital transactions that are in excess of 96 percent of the total yearly transactions processed by the bank. Financial transactions have also increased by almost 50 percent while active users have also grown significantly (see Fig 1).
Pushing things forward
The bank has more ambitious 2021 targets due to the robust growth seen. Over the next 12 to 24 months, CIMB Niaga will be focusing on perfecting its digital bank capabilities and strengthening its foothold expansion to be a truly digital bank. Already, it has implemented several exciting initiatives. These include a digital OCTO savings account and credit card set for launch next year. Concurrently, a team is working on building the initial frameworks to continue the expansion to a more robust app for its mobile banking. This year alone, the team will have delivered over 74 features on mobile, providing more conveniences and solutions to users. Of importance though, is that CIMB Niaga is putting security at the core of its digital networks.
On this, the bank is not only compliant to industry standards but has systems to monitor, detect and prevent fraud. Its OCTO mobile policy implemented in 2017 has, for instance, reduced cases of fraud to record low levels. For CIMB Niaga, the vision to venture into the digital space was a masterstroke. This is because as COVID-19 forces other banks to accelerate the digital transformation, CIMB Niaga has already responded to customer needs. But even as it continues to roll out innovations and solutions that conveniently bridge financial and everyday life for users, the bank is cognizant of the fact that it cannot afford to lock out conservative customers who still believe in bricks and mortar.
Notably, branches will still be available for this type of customer. However, the fact that the numbers are on a decline has seen CIMB Niaga proactively continue educating customers on its digital capabilities and conveniences. The result has been faster transition into the digital space. For customers who are perhaps more apprehensive, the bank’s relationship managers are well versed in digital onboarding. This makes them ready to assist clients when they feel comfortable and ready to turn to digital.
From a humble shop lot office in 1994 to becoming the largest conventional bank in Brunei and a leader in Brunei’s banking industry, Baiduri Bank has grown in strides over its 25 years of operation in Brunei Darussalam and its achievements have been recognised by numerous international publications.
“Our successes and position in the economy can be attributed to our commitment to local projects, interests and clients, our responsiveness to react to changes and the foresight to anticipate changes in the global and regional economy, as well as our global outlook,” Ti Eng Hui, CEO of Baiduri Bank, told World Finance.
Baiduri Bank’s core businesses comprise retail banking, corporate and institutional banking, while its wholly owned subsidiaries Baiduri Finance and Baiduri Capital specialise in consumer financing and investment solutions respectively. Today, technology plays a pivotal role in the successes of economies and businesses, and in improving financial accessibility for the general public, banks need to adopt more technological solutions to cater to customers’ evolving needs and requirements.
Technological advancements
With technology now playing a more pronounced role in how businesses and individuals conduct their banking, Baiduri Bank has developed several user-friendly mobile applications in keeping with the digital banking movement. The bank’s latest tech offering, Baiduri b.Digital Personal, is a digital banking and lifestyle platform. With a plethora of new features that put emphasis on enhanced customer experience and engagement, the Baiduri b.Digital Personal mobile app sets out to be the go-to solution targeting the young, tech-savvy generation who demand mobile services as their default way of banking. Additionally, Baiduri Bank also has a dedicated internet banking platform for businesses, known as Business i-Banking, which provides a modern, convenient and secure channel for businesses to manage their banking needs efficiently.
Meanwhile the Bank’s subsidiary, Baiduri Finance, also offers a standalone mobile app, the Baiduri Finance Mobile App, a tool catering primarily to hire purchase payments, among others. Understanding and being able to cater to the unique needs of the Bruneian customers is crucial to the success of any new offerings, and with automobile financing being a necessity for many, the Baiduri Finance Mobile App provides an easier and faster alternative to meeting their hire purchase needs.
Among their other digital innovations is the introduction of Brunei’s first online securities trading platform. “Through our subsidiary, Baiduri Capital, we provide the opportunity for our customers to invest in major stock markets including Singapore, Hong Kong (including the Shanghai-Hong Kong Stock Connect), Malaysia and the US,” Ti explained. “Our secure online trading portal allows customers to obtain quotes, place orders and review their account status and balance at their convenience.”
This solution, as well as others, is part of our plan to create a future-ready, dynamic and highly skilled workforce
Baiduri Bank is still the first and only bank in Brunei to offer an e-payment solution through MerchantSuite, an online platform facilitating the issuance of invoices and card payments without requiring a dedicated, and often costly, e-commerce website. MerchantSuite enables local small and medium enterprises to extend their market reach by allowing shoppers to pay online with any Visa, Mastercard or American Express cards. Baiduri Bank is also partnering with DST, one of Brunei’s largest telecommunications providers, to launch an e-wallet.
This partnership allows Baiduri Bank, the country’s largest card issuer with the largest merchant base, and DST to share resources and create the largest digital payment ecosystem in Brunei with connectivity to regional and international payment platforms. While technology has been the driving force behind practically all modern-day innovations within the banking sector and beyond, a crucial aspect that must never be taken lightly is data security. Baiduri Bank is the first and only bank in Brunei to be PCI-DSS certified, reflecting the bank’s steadfast commitment to uphold the global data security standard for processing, transmitting and storing cardholder data. Baiduri Bank is certified to the latest industry standard, PCI-DSS Version 3.2.1.
Building for the future
In line with the nation’s agenda to build a highly skilled workforce, Baiduri Bank has invested heavily in human capital development. “We have an agreement with world renowned Moody’s Analytics for the provision of a structured e-learning solution for our employees under various divisions of the bank. This is a first of its kind for a Brunei bank,” Ti told World Finance.
“This solution, as well as others, is part of our plan to create a future-ready, dynamic and highly skilled workforce in line with one of the goals of Wawasan 2035, the nation’s long-term development plan for an economy that is dynamic and sustainable,” Ti continued. Other initiatives include the implementation of SAP Success Factors, a world-leading provider of human capital management systems covering core human resource processes and talent management, as well as the launch of the Baiduri Management Associate Programme, a year-long development programme aiming to provide successful candidates with a solid foundation in banking through job rotations under the guidance of experienced managers.
In support of the nation’s economic agenda to diversify beyond the oil and gas sector, Baiduri Bank continues to play an active role in various local business development programmes. The bank has introduced the Baiduri SME Empowerment Series in partnership with Darussalam Enterprise (DARe), a statutory body with the aim to nurture and support local enterprises in the early and middle stages of the business life cycle. Ti said, “This initiative is aimed at implementing a series of skills training workshops designed to complement existing training programmes offered by DARe, thereby providing a more comprehensive, well-rounded training curriculum to local entrepreneurs, empowering them to achieve greater success in their business ventures.”
Baiduri Bank also offers a wide range of solutions for local SMEs to optimise their cash flow and finance their growth. Some of the financing solutions include working capital financing, instalment loans, property loans as well as trade financing options such as indent financing and accounts receivable financing. Through these financing solutions, local SMEs have access to short and medium-term capital to fund their operations or grow their business. Other products designed to serve SMEs include business credit cards, payroll processing and other day-to-day banking services such as fund transfers and bill payments.
Active support measures
Speaking on the bank’s response to the COVID-19 pandemic, “We activated our Business Continuity Plan (BCP) for a pandemic on March 12, 2020 after the World Health Organisation declared COVID-19 a global pandemic. But prior to the activation of BCP, Baiduri Bank had already begun taking precautionary steps as early as January 2020, when Singapore announced its first confirmed case,” Ti said. The bank activated split operations with alternate teams working in separate physical locations away from the primary site. The bank also performed professional sanitisation of all branches including its subsidiaries. Mandatory temperature screening, social distancing measures, as well as fabricating acrylic shields at teller counters to form a protective barrier, were swiftly implemented across all branches.
The bank also provided personal care kits for all employees as part of its efforts to ensure their health, safety and well-being. In support of efforts led by the Ministry of Finance and Economy and the Autoriti Monetari Brunei Darussalam (AMBD) to assist financially impacted individuals and businesses during the COVID-19 outbreak, Baiduri Bank has introduced several support measures to help mitigate the impact. For eligible individuals who are financially affected by the pandemic, the bank introduced a deferment of principal payment for personal and mortgage/property loans, an option to convert credit card balances to term loans and deferment of hire purchase principal payments through Baiduri Finance.
The bank’s support measures for corporate clients include a deferment of loan principal repayments for companies in all business sectors. Additionally, businesses under eligible categories including tourism, hospitality, air transport and food and beverages were also given waivers of fees and charges for trade and payment transactions. These measures were primarily intended to help alleviate the short-term cash flow problems for local businesses that were adversely impacted by the COVID-19 outbreak. In addition, the bank also implemented a fee waiver for online fund transfers between local banks to encourage its customers to utilise digital channels such as online or mobile banking or via the ATMs, in line with safe distancing measures.
Brand refresh
Baiduri Bank launched its refreshed brand in September 2020, following an intensive year-long process of planning, research and assessment in partnership with an international team of brand consultants. It is a culmination of a journey to find out how the Baiduri brand was seen by its business partners and employees and definition of a truer representation of who the bank is and what it stands for.
Ti continued to explain to World Finance: “Our community, and the world around us, is changing and we too must change with it. As we prepare ourselves for the next phase of growth, we want to take the opportunity to have a closer look at our core capabilities in the context of the changing world, and ask ourselves how we can redefine our vision to stay relevant, and to better communicate the strengths and values that make Baiduri unique. We also want to rally our people behind a shared purpose, so they are inspired to do their best to create meaningful impact in the communities we serve.”
Well positioned for opportunities
Baiduri Bank’s global outlook coupled with deep local insights, strong commitment to the domestic market and quick adoption of new technologies have contributed to its success as the leading conventional bank in Brunei. On the digital payment front, the bank fully supports the primary objective of AMBD’s Digital Payment Roadmap to create a digital payment ecosystem by 2025. With plans to continue development and enhancement of its electronic payment capabilities and e-banking services, the bank is on course to be a leading player in the digital banking realm in Brunei.
With a strong credit rating of BBB+/A-2 from Standard and Poor’s, coupled with high liquidity, Baiduri Bank is well positioned to capture opportunities in the market and drive sustainable growth as the leading and preferred financial partner of Bruneian businesses and consumers.
By any measure the COVID-19 pandemic has created an economic as well as a human calamity that is measured in a global sea of debt, worse in some countries than others, that will take at least a decade to reduce to normal levels. Alarmist? Not in the view of IMF managing director Kristalina Georgieva, who in late 2020 used that very term ‘economic calamity’ in a briefing that spelt out the economic damage in hard numbers.
“We have seen global fiscal actions of $12trn. Major central banks have expanded balance sheets by $7.5trn,” she said, citing the various rescue measures launched since the pandemic first hit in early 2020. And there’s more to come. “[The IMF] expects 2021 debt levels to go up significantly – to around 125 percent of GDP in advanced economies, 65 percent in emerging markets, and 50 percent in low-income countries,” predicted Georgieva. That is why, as we see, the IMF managing director wants a combined pre-emptive action to forestall what she calls a “lost decade.”
The latest figures (see Fig 1) confirm that pessimistic viewpoint. The EU alone will pump $876bn in the form of grants and loans to member countries under a programme called Next Generation EU that, it is hoped, will tide them over for the next few years. As international economist Jean Pisani-Ferry, a senior fellow at Brussels-based think tank Bruegel, pointed out in Project Syndicate, this is the first time that the EU has borrowed to finance expenditures. As such, it is a measure of the enormity of the problem. To put these sums in perspective, the global fiscal actions alone cited by the IMF managing director are not far short of the annual GDP of the US, while the EU’s $876bn rescue package amounts to nearly three percent of the entire bloc’s GDP.
Even so, to take just the EU’s emergency package, it tells only a fraction of the whole story. Between the 27 member countries, the average fiscal support doled out to prop up the respective economies is expected to reach 7–12 percent of their national GDP. And, adds Pisani-Ferry, “significantly more is in the pipeline.” Although the French economist, an expert on public policy, sees a risk in the way the EU’s package may be distributed – for instance for political rather than economic purposes, these hand-outs could make the vital difference in struggling countries.
Innovative fiscal response
And, as the IMF and other authoritative sources warn, this sea of debt is widening all the time. In the US alone, about $3trn will eventually be spent on wide-ranging programmes of economic support including the CARE Act that subsidised those thrown out of work as literally millions of businesses were forced to shut down. As the chairman of the US Federal Reserve, Jerome Powell, explains: “[It was] by far the largest and most innovative fiscal response to an economic crisis since the Great Depression.”
Beyond the United States, the accumulated fiscal response has turbocharged debt levels around the world (see Fig 2). As the graph also reveals, the pandemic hit many countries that were already vulnerable. About half of low-income nations and several emerging ones were, judges the IMF, “already in or at high risk of a debt crisis and the further rise in debt is alarming.” The looming fear is that many of these countries could be hit by a second wave of economic distress. The IMF cites the risk of “defaults, capital flight and fiscal austerity.” Just one of these is the collapse in remittances – money sent home by migrant workers to support their families living in low and middle-income countries.
The World Bank expects the amount of remittances to fall substantially through 2020 and 2021 because there has been a collapse in offshore work, for instance in the cruise ship and construction industries, farms and factories abroad.
Remittances are not pocket money – they prop up many countries. In 2019, a record year, they totalled $548bn in low and middle-income countries, $12bn more than all foreign direct investment flows, according to the World Bank. In the Pacific and East Asia region, China and the Philippines are the biggest beneficiaries of remittances, but poorer countries all over the world will suffer from the decline in remittances.
IMF Managing Director Kristalina Georgieva
Adding to the nightmare
“The impact of COVID-19 is pervasive when viewed through a migration lens as it affects migrants and their families who rely on remittances,” said Mamta Murthi, vice-president for human development and chairwoman of the migration steering group of the World Bank. Nobody disputes that these unprecedented pay-outs are not necessary. In most countries they saved – or at least delayed – countless thousands of firms from going bankrupt with devastating social consequences.
The pandemic shock was essentially a case of a natural disaster hitting a healthy economy
Indeed a late-2020 survey by the Fed showed that households were coping, with 77 percent of adults saying they were “doing okay” or “living comfortably,” solely because of CARE and similar support programmes. Still, as experts point out, the consequences of this spreading sea of debt are profound for investors, the banking industry, sovereign governments, the vast world of commerce, and individuals.
Taking the banking industry first, although it has stood up remarkably well in most jurisdictions, it remains one of the hardest-hit, facing years of negative interest rates that will deter depositors, as well as fast-rising credit risk in what has become a deeply disinflationary environment. “For bankers, negative interest rates just add to the nightmare of squeezed margins and profits under pressure,” points out the editor of The Banker, Brian Caplen.
Although negative interest rates are not exactly new, they remain an experiment. Denmark is one country that has kept its key policy rate negative since 2012 in the wake of the financial crisis, and Sweden has done so between 2015 and now. The eurozone has broadly held negative rates since 2014 and the European Central Bank believes they have helped foster more favourable economic conditions.
Greater long-term risk
But that’s just Europe. On a wider scale the jury is out. Nobody knows exactly what effect global negative interest rates will have in terms of investment, bank profitability, inflation, savings, exchange rates, stock markets, long-term borrowing rates and other elements of the broader financial markets.
“[Negative interest rates] are a panacea at best and they may prove costly in the long run if the greater risk they promote turns into a financial crash,” concludes Caplen.
The once mighty greenback has already become a concern. As the pandemic tightened its grip in the US and employment collapsed, Americans had to dig deep just to make ends meet, with severe consequences. Notwithstanding CARE and other federal support, in the second quarter of 2020 the country experienced the most sudden plunge in domestic saving on record – in fact since 1947 – that hammered the dollar’s real effective exchange rate (REER), a vital measure for trade, competitiveness, inflation and monetary policy.
As American economist Stephen Roach, a senior fellow at Yale University’s Jackson Institute for Global Affairs, pointed out in Project Syndicate: “The US dollar has now entered the early stages of what looks to be a sharp descent.”
The economist expects the REER to fall by as much as 35 percent by the end of 2021, which would mark the beginning of the end of the greenback as the long-standing safe-haven currency, a position it has occupied pretty much since World War Two. Two alternatives would be the euro and the renminbi.
The blame lies largely on the pandemic. As Jerome Powell told an audience of business economists in October 2020: “As the coronavirus spread across the globe, the US economy was in its 128th month of expansion, the longest in our recorded history – and was generally in a strong position.”
Indeed, unemployment was running at 50-year lows and, contrary to left-wing critics, all workers were taking home higher real wages, especially those in the lower-paid jobs. The banks were strong with much more robust levels of capital and liquidity than they held in the aftermath of the financial crisis. “The pandemic shock was essentially a case of a natural disaster hitting a healthy economy,” concluded Powell, echoing the verdict of economists in most other countries, notably in the western world.
Debt-related vulnerabilities
Fortunately, the world’s biggest banks are not in the precarious state they were when they entered the havoc of 2008. “Banks internationally are in a much stronger position than they were prior to the Great Financial Crisis (GFC),” points out Michele Bullock, assistant governor, financial system at the Australian Reserve Bank, in a review of the industry before the pandemic hit. “Regulatory reforms over the past decade have ensured that banks have increased the amount of capital and liquidity they hold.”
The latest pandemic-triggered sovereign debt has been piled on top of the money printed in the immediate wake of the great financial crisis of 2008
It should be noted though that the non-bank sector has been steadily eating the lunch of the traditional banking industry ever since the GFC. At the peak of the last crisis, the non-bank sector controlled assets of $98trn, seemingly an impressive gain. Today though, this upstart competition has nearly doubled assets under control to a staggering $180trn. Most observers expect this number to keep rising.
But the pandemic has affected those sectors with pre-existing, mainly debt-related vulnerabilities. As Bullock points out, corporate debt in many countries was high. Sovereign debt in Europe was also high. And the low profitability of banks in some countries poses a risk to financial stability.
As a result of the hit taken by the private sector, banks in many countries will probably be hit by write-offs of bad debts and non-performing loans (NPLs), according to Moody’s in a mid-October 2020 report. In a dismaying review of the situation, the rating agency expects UK banks to see the biggest jump in NPLs as real GDP contracts in 2020, while US banks like Citi and JP Morgan (JPM) have high exposure to unsecured personal loans and credit cards (see Fig 3).
The result? “The current recession is likely to exacerbate these issues and potentially impact the financial system’s ability to cushion the shock,” Bullock warns. As it happens, the Australian banking system, which weathered the GFC reasonably well, is both profitable and heavily capitalised.
Bloated balance sheets
The high sovereign debt by historical standards that the Bullock cites is a direct result of the GFC. As the governor of the Bank of England, Andrew Bailey, told the Jackson Hole conference in late August 2020: “There has been a large and sustained expansion of most central bank balance sheets in the past decade.” Like the latest torrents of printed money, central bank’s greatly bloated balance sheets were designed to preserve financial stability, more particularly to prop up a number of big banks.
And those balance sheets were still bloated ahead of the pandemic. “Thus the level of reserves required by the banking systems in the major economies is persistently higher, though it is not straightforward to determine exactly how much higher,” said the governor, citing the influence of a number of factors that can change over time.
The overall result is that many governments entered the pandemic with higher government – or sovereign – debt. And they had to print money all over again in the first big test since GFC. Bailey added: “Monetary policy has had to respond to an unprecedented shock and for many central banks the main tool to date has been further quantitative easing, in an unprecedented scale and pace of purchases.” In a nutshell, the latest pandemic-triggered sovereign debt has been piled on top of the money printed in the immediate wake of the GFC.
Alarmingly, corporate debt was hitting record levels when the pandemic hit with serious implications for emerging economies. In fact, the entire issue of corporate debt is being studied at the highest levels in central banking including by the Financial Stability Forum.
According to a World Bank study released in late 2020, corporate debt in economically weaker countries has shot up from 56 percent of GDP to a sky-high 96 percent. Although the authors point out that “debt financing offers many advantages,” it has regrettably served to “amplify solvency risks for firms in emerging economies and their exposure to changes in market conditions. The economic downturn triggered by the COVID-19 pandemic has only heightened these concerns.”
In plain speak, too many companies in lower-income economies are wildly over borrowed. Worryingly, much of that debt falls due in the next two or three years.
Potential turning point
The overall picture for less economically robust countries is grim. Indeed the accumulated damage is so profound that the IMF’s Georgieva believes the world faces a turning point in economic management similar to that which preceded the Bretton Woods agreement in 1944, a landmark arrangement between all the allied nations of World War Two. A response to the devastation and misery left by the war, the basis of Bretton Woods was that each nation’s central banks would co-operate by maintaining fixed exchange rates between their currency and the dollar. They also agreed to avoid mutually damaging trade wars, similiar to those most recently initiated by Donald Trump.
The wealthier western nations have sufficiently strong economies to get out of jail, although most forecasters say it will take about a decade
“Today we face a new Bretton Woods moment,” said Georgieva prophetically. “A pandemic that has already cost more than 1.3 million lives. An economic calamity that will make the world economy 4.4 percent smaller this year (2020) and strip an estimated $11trn of output by next year (2021). And we have untold human desperation in the face of huge disruption and rising poverty for the first time in decades.”
As the IMF president put it, there are two “massive tasks”: one is to fight the crisis and the other is to build a better tomorrow.
Solely because of a totally unprecedented global rescue mission, we have a sea of debt but, at least so far, no debt crisis. As the IMF noted in a blog in late 2020, the debt crisis has been staved off by “decisive policy actions by central banks, fiscal authorities, official bilateral creditors, and international financial institutions in the early days of the pandemic.” The IMF was in the middle of these actions, pumping about $31bn in emergency funding to 76 countries including 47 of the low-income ones. In addition, the World Bank’s Catastrophe Containment and Relief Trust offered medium-term debt-service relief to the poorest nations. And yet, this may not be enough. “These actions, while essential, are fast becoming insufficient,” the blog warns.
The wealthier western nations have sufficiently strong economies to get out of jail, although most forecasters say it will take about a decade. The looming concern lies with the poorer nations. This is why the IMF and other agencies have mounted a campaign that aims to achieve nothing more nor less than the reform of the international debt architecture, more particularly where sovereign debt contracts are concerned. This would take the form of an “orderly debt restructuring” that essentially means a generous programme of debt relief on sovereign bonds for relatively impoverished nations.
Nobel Laureate Joseph Stiglitz
The day after tomorrow
It’s been done before in Latin America. But this kind of restructuring is complicated and sometimes murky, as current attempts to sort out delinquent nations such as Ecuador and Argentina are showing. The problem is that much official – that is, sovereign – debt is now held outside the long-standing procedures established by the Paris Club, an informal group of officials from the main creditor nations. Consequently, many actual and potential creditors are in the dark about such basic things as how much a country owes or on what terms.
This is one reason why the IMF wants cleaner contracts that spell out the true situation. And with a debt crisis in the offing, the federation is making a case for clauses that, in the event of natural catastrophes or other heavyweight economic shocks, automatically trigger lower debt repayments or freeze payments altogether.
Will this happen? It may have to, according to the IMF, if the world wants to “prevent and, if necessary, pre-empt another sovereign debt quagmire” that could trigger “large-scale defaults that would severely damage economies and set back their recoveries for years.”
Looking on the brighter side, some, like Nobel Prize-winning economist Joseph Stiglitz, joins the IMF managing director in seeing opportunities in the current havoc. Calling for a “comprehensive review of the rules of the economy” in the recovery process, he wishes for, among other things, monetary policies that deliver full employment of all groups, better balanced bankruptcy laws instead of creditor-friendly ones, and more accountability for bankers “engaged in predatory lending.”
These may happen, but one thing is certain: as the sea of debt recedes the world will not be the same as before.
The COVID-19 pandemic arrived at a time when the Portuguese economy was still recovering from the last economic crisis, creating considerable instability in some of the most sensitive sectors of the economy. Travel, transportation, restaurants, hotels, and wholesale and retail commerce were all badly hit, affecting around 20 percent of the work force and contracting GDP by 4 percent.
The full economic impact of the pandemic will only be felt in the coming years, most likely exacerbating existing socio-economic inequalities. Young people and those with less secure jobs will probably bear the brunt demographically while, in business terms, smaller companies will be more severely impacted than their larger peers. There will be significant regional variations too. But there will be positives that come from this crisis. The pandemic has accelerated the digitisation of workplaces, forcing companies such as ours to move most of its employees to remote working.
Companies across the economy are having to reinvent their business models, and e-commerce and remote services are growing faster than ever before. The Portuguese banking sector is in a stronger position than it was in previous crises. Higher capital requirements and greater liquidity than in 2010–13 mean that the sector is more resilient than it was then.
Also relevant is the fact that the current crisis is not directly related to the financial sector. As a result, banks today have been able to move quickly to support the community with special measures such as loan moratoriums for individuals and businesses.
ActivoBank also waived credit card interest for three months. By helping to mitigate the negative effects of the pandemic for customers and their employees, the banks are keeping the economy as healthy as possible, so that companies stay operational, jobs are retained and the financial system keeps flowing.
More than just a digital bank
ActivoBank is a digital bank for individuals, but unlike most digital banks, it has a very wide offering. In addition to basic banking facilities such as current accounts and credit cards, ActivoBank offers personal and home loans, insurance policies, savings accounts, investment products, stock trading, investment funds and ETFs.
Furthermore, it has 16 branches located in major shopping malls, giving it a footprint and a visibility not available to digital-only banks. ActivoBank is committed to maintaining its physical branches as we believe they continue to play an important role in our relationship with our customers. Branch staff are great at helping even our most technologically conservative customers get more comfortable with our digital tools and learn to appreciate their benefits. Launched in 2010, Activobank is owned by Millennium bcp, the biggest private Portuguese banking group. At the end of 2019 it had over 300,000 customers (almost 100,000 of whom were acquired in 2019), over €2bn in assets and a positive net result of approximately €10m.
Carving a unique position
ActivoBank recognises the competition from fintech on one side and incumbent banks on the other and carves its unique position by differentiating itself from both. Fintechs started as mono-product attackers but they are moving to become more like banks as they add products and services to their portfolios. Incumbent banks, meanwhile, have increased the pace of their digital transformation to respond better to the fintechs. ActivoBank has the best of both worlds, able to offer products and services to cater for most of our customers’ financial needs.
We are a fintech by nature, an attacker in price and offer. But we also boast the width of offer, security and trust of an incumbent bank because we belong to the largest private financial group in Portugal.
Its ‘phygital’ model provides the visibility and reassurance of a physical presence with the benefit of digital experience and innovation. Digital banks and fintechs don’t always have to compete. By working together and sharing knowledge we can create even better services and products for our customers. Our partnership with TransferWise is a case in point.
Instead of trying to mimic what TransferWise has done so well – developing the capability to make seamless transfers around the globe in almost any currency – we partnered with them and incorporated their capabilities into our app and site. In the process we helped improve their service, making it even easier for customers to transfer funds abroad by enabling them to do so instantly from their ActivoBank accounts.
I strongly believe this is the way in which smaller digital banks and fintechs can get together and work on great solutions that will make them stronger and more competitive.
Adapting to succeed
During the pandemic, many branch and call centre staff continued travelling to their place of work while over half our employees shifted to remote working. To accommodate the needs of our staff, as well as to respond to an increase in demand for the call centre, we split our call centre team into six, with each group working in different locations. It was important for ActivoBank to show its customers that they can trust it to be always available, online and offline. It wasn’t just call centre usage that went up. We saw a rise in the number of accounts opened via digital channels too, unsurprising given that we were the first bank to allow customers to open an account remotely.
ActivoBank has always relied on a strategy of constant digital transformation. It started as Banco7, the first phone bank in Portugal, back in the 1990s. Then it was the first bank with a transactional website in 2000, and in 2010 it launched the first transactional mobile banking app in Portugal. In 2019, we went back to the drawing board, redesigning the app and launching a new version better suited to the needs of our clients. Not only do we challenge ourselves, but we are also challenged by our customers, who want to interact with us in the quickest and most convenient way possible. As such, our IT teams are constantly improving our architecture and infrastructure so that we can respond to those challenges.
Most of the digital developments start with a suggestion or a complaint from a customer and are tested by our customers themselves. One of the weapons in our armoury is a state-of-the-art lab where we invite customers and non-customers to test our concepts and ideas. With the aid of a gaze-tracking system, we are able to analyse how users interact with prototypes of our mobile app and web platform, giving us valuable insights into the user experience. As we develop these digital interfaces, we understand that providing help and support is crucial for the experience. Not only do we invest in expanding our contact centre capabilities through chat and co-browsing, blending the digital interface with human support, but we also provide digital support through state-of-the-art bots.
A growing market
Almost 65 percent of our clients use mobile banking already and trends indicate that this number will increase. People are logging into the app more frequently too, every day compared to a handful of times per month. A big draw for these daily users are the stock trading services and investment products that ActivoBank offers, tools that reward frequent engagement. Growing our customer base is fundamental so that we reach a significant share of the market. Ever important, however, is increasing the number of customers that use us as their main bank. Fortunately, this figure is rising fast. We are also projecting a strong increase in our share of wallet, as our customers use more of our products. Our growth is projected to move from a mostly transactional customer, one who makes payments and transfers, to a first bank customer who relies on us for their mortgage, personal loan, investments and insurance products. We are growing in the order of 30–50 percent in most areas, and we expect to continue on that trajectory for the next couple of years.
The future
The pandemic will have lasting consequences for the way we live and work. Most banks have speeded up the process of enabling remote working, and the digitisation of society has gone into a higher gear. E-commerce has grown incrementally, as have most other digital and remote services. Digital banks such as ActivoBank are in pole position to take advantage of this shift in society, helping customers to access their banking wherever and whenever they need it.
Issues of trust and security are more important than ever, as more and more businesses move online. Banks such as ActivoBank that have invested heavily in this area, in terms of both systems and staff training, will be best placed to capitalise on this movement. We have several teams that control and monitor our digital platforms, such as IT, legal and compliance, all ensuring that safety and privacy procedures are implemented according to the recommendations and obligation of the European and national regulatory bodies.
The way we responded during the pandemic will have helped bolster trust too – customers knew that they could rely on us through this difficult period. Going forward, clients can expect the same commitment as they have since day one: simplicity, transparency, innovation and trust.
Global warming from carbon emissions, increasing sea levels and images of pollution are increasing public and shareholder pressure on corporations to take an active role in finding solutions and be accountable by setting goals and publicly documenting results.
In the IT industry, reducing electrical power generation from fossil fuels is priority number one, followed closely by water conservation and waste management. For the average person, sustainability practices encompass recycling paper and plastic, conserving water, and embracing electric or hybrid vehicles and other eco-friendly habits. For the data centre industry, which is responsible for three percent of global power consumption, sustainability takes on a more intense and innovative path. Based on the sheer size and scope of its business, data centres, like enterprises, have an obligation to implement and promote more sustainable choices and solutions.
As an epicentre of connectivity, multi-tenant data centres provide a location for organisations to house their equipment and connect with the providers, partners and customers required to run their businesses.
Multi-tenant data centres are one of the largest per capita consumers of electric power. Based on current estimates, data centres in the US alone will have consumed approximately 73,000 megawatts (MW) in 2020. To put this in perspective, the US Department of Energy estimates that large multi-tenant data centres may require more than 100 megawatts of power capacity, which is enough to power 80,000 US households, or a small city.
Worldwide, it’s estimated that data centres account for about two percent of total greenhouse gas (GHG) emissions – a number that is on par with the airline industry.
Technological advancements are difficult to forecast, but several models predict that data centre energy usage could surpass more than 10 percent of the global electricity supply by 2030.
Because of this, data centres are responding and are starting to become powerful voices for change, playing a central role in lessening the impact on the environment. They are making public commitments to minimise their environmental footprints, invest in renewable energy, and devise long-term plans to improve their sustainable efforts. They are becoming cognizant and strategic in how they run their facilities, from what and how they purchase their energy to how they cool the data centre, and everything in between.
These data centres are following the lead of corporate giants such as Microsoft, Facebook and Salesforce, who are also establishing sustainability strategies to support the planet. Microsoft released an aggressive plan to halve its carbon emissions by 2030. To help achieve this goal, the company is incentivising its suppliers and partners to reduce their own carbon footprints in order to continue doing business with it.
Drivers of change
Today, hyperscalers, large enterprises and government organisations are demanding that data centre operators create a sustainable infrastructure to earn their business. In response, data centres are evolving.
The most sustainable data centres are being built on commitments to innovative green and renewable strategies – including green power, water reclamation, zero water cooling systems, recycling and waste management, and more. They do not contain obsolete systems (such as inactive or underused servers), and take advantage of newer, more efficient technologies. Taking cues from the hyperscalers, the most sustainable data centres recognise the need to lead with modular energy-efficient data centre designs from the onset, adopt the latest in building technology, and influence the overall supply chain for the actual sourcing of materials for these innovative new data centres.
Economies of scale
Benefits such as cost reduction, increased efficiency and knowledge that you are a better corporate citizen are obvious. What is not readily apparent is that by moving into a green multi-tenant data centre, sustainability benefits are also passed on to the businesses and consumers who collectively benefit from the data centre’s green IT infrastructure.
The economies of scale are extremely significant. Instead of a business (such as a large online retailer) attempting to deploy its own sustainable IT environment to power its service delivery, it can and should outsource to a data centre operator that has a thoughtful and transparent sustainability strategy. The sustainability benefits are then passed along to all the consumers using its services and there could be hundreds of businesses like this in a single green data centre.
Corporates can have a big, impactful shift in their carbon footprint by simply outsourcing their data centre operations
In addition, when you deal with a true green data centre that is serious about sustainability, the benefits go far beyond the requirement that your power be green. There are environmental and philanthropic benefits that can be linked with your outsourced IT infrastructure.
Corporates who report annually on their carbon emissions consider on-site data centre in their scope two reporting, while outsourcing the data centre allows them to shift this impact to scope three. Furthermore, the offsite data centre is often already procuring 100 percent renewable energy, which brings that carbon impact to zero. This is huge.
Corporates can have a big, impactful shift in their carbon footprint by simply outsourcing their data centre operations. The best green data centre operators are starting to formally document and report their progress in environmental, sustainability and governance (ESG) reports made public annually. For conventional enterprises and data centres that do not have measurable sustainability as part of their governance, it is coming.
QTS Realty Trust is one of a few data centre companies holding themselves accountable as global citizens and committing to sustainability best practices that are impactful, achievable and will ultimately set the standard for the data centre industry in the years to come.
The company has committed to minimising its data centre carbon footprint utilising as much renewable fuel, reclaimed water and recycled materials as possible by implementing a methodic sustainability approach featuring energy-efficiency measures and renewable energy procurement, all backed by continuous innovation.
Transparency is key to accountability
QTS is documenting and publicly reporting on sustainability goals, metrics and best practices – one of only a few data centre companies to do so.
To support this, QTS recently published its second ESG initiatives report that documents the industry’s first formal commitment to provide 100 percent renewable energy across all of its data centres by 2025. In 2019, QTS won numerous awards including the coveted GRESB benchmark ranking QTS as the number one sustainable data centre company among all data centres globally for its ESG initiatives. In 2020, the Environmental Protection Agency named QTS the winner of its first annual Green Power Leadership Award for QTS’ innovative Green Power Purchasing Model.
Today QTS has seven data centres running on 100 percent renewable energy. Approximately 30 percent of its overall data centre power requirements are sourced from renewable energy sources, representing over 300 million kilowatt-hours (kWh) of renewable power. According to the EPA, this makes QTS one of the largest users of green power among all data centre companies and the 12th largest user among the top tech and telecom companies.
Choosing a green data centre
For those operating on-premises legacy data centres looking to move into green data centres, or for organisations already outsourcing to a less than green provider, the following are 10 tips when evaluating green data centre providers.
Check the providers’ ESG ratings with organisations such as GRESB, the Carbon Disclosure Project, RE100 and Sustainalytics, and look for documented commitments to 100 percent renewable energy.
Look for innovation in power such as the use of artificial intelligence to forecast power consumption, analyse data output, humidity, temperature, and other important statistics to improve efficiency, drive down costs, and reduce total power consumption.
Check the EPA ranking to find the data centres leading in green power commitments.
Look for zero water cooling solutions powered by 100 percent renewable wind and solar power.
Renewable energy should be impactful and cost-effective. Look for data centres with innovative green power procurement models that allow it to purchase renewable energy on parity or below the price of conventionally produced power.
Look for innovative, data-driven, service delivery models that tap AI, machine learning and predictive analytics that enable sustainability initiatives.
Look for data centre operators that work closely with utilities to develop tariffs and legislation that make it easier and more cost effective for everyone to procure renewable energy.
Look for providers with innovative philanthropic programmes such as the ‘Grow with QTS’ programme that plants more than 20,000 trees in the Sierra Mountains every year on behalf of its customers, or its ‘HumanKind’ programme that promotes clean water solutions in emerging markets.
Look for providers actively speaking and participating with leading organisations such as the EPA’s Green Power Partnership, REBA, the Data Centre Coalition’s energy committee and the RE100.
Look for providers touting on-site physical features such as smart temperature and lighting controls, rainwater reclamation, recycling and waste initiatives, and EV charging stations.
Alignment and execution around a core set of sustainability principles creates direct benefit to buyers of colocation services, their customers and the communities in which the data centres are located.
The fact that so many businesses are more environmentally aware means that contemplating what green, sustainable data centres can offer is becoming an increasingly important standard for choosing a data centre provider.
In 2020 the COVID-19 crisis dragged the world’s financial markets to significant volatility and forced investors to massive redemptions. However, it is during these periods of uncertainty that companies need to embrace new opportunities and guarantee to their customers clear and open communication as well as solid client servicing. This has accelerated the pace of business both in the Philippines and around the globe, with companies speeding up a digital transformation that has changed the way customers interact with financial professionals.
BDO Unibank has embarked on improving its digital footprint for years already, and over these months, its asset managers have worked hard to increase visibility and show that they can keep service level expectations. Despite working on a reduced capacity in compliance with newly established quarantine rules, we had to find ways to deliver consistent returns and reliable customer service.
As a result, we introduced a webinar series called Market Sense, because we understood the importance of providing guidance to help our clients better understand the current situation in the markets and where it is headed, so they can make better investment decisions. Also, we ramped up our electronic direct mailers, sending investment recommendations to clients to help them grab investment opportunities. As a result of this, BDO Trust has surpassed the PHP one trillion (€20.8bn) mark in assets under management (AUM) this year, amidst the crisis. This further bolsters our leadership in the Philippine trust and investment industry. BDO Trust’s ability to navigate through tough times was tested during this crisis and we believe that we rose to that occasion. As the government slowly eased up on the quarantine measures, the economy started to recover. Despite the on-going pandemic, we know it is our duty to serve the Filipinos during these unprecedented times.
Digital transformation
Filipinos from all walks of life, young and not-so-young, started doing their investment transactions online. We saw a surge of account opening and investment transactions done during the community quarantine. This sudden change in customer behaviour gave us a glimpse of what can be the new reality for investments in the future. Clients are now expecting investment products and services to be available 24/7. On-demand and reliable online investing will become a new standard for local banks, which for years have heavily relied on the branch network. We still believe that the branch network will continue to be the primary touch point, but the online channels will now be an integral part of the whole banking and investment distribution system.
As technology can easily be replicated, what will differentiate the best banks from the good banks is how the digital aspects of the business enhance the important human interactions. We recognise the need to differentiate from being a product and service provider to an investment partner, able to guide our clients and help them achieve their investment goals through both personal and digital means.
Future plans
Introducing new clients to the trust business will be an important driver moving through 2021. Improving our retail investor base will start with increasing our penetration from our own bank’s client base. We shall be targeting clients with a high propensity to invest through data-driven marketing initiatives. This will be done in co-ordination with our branch banking partners to ensure that these clients are given proper guidance at the onset. The goal is to evolve them from being savers to becoming investors. Enhancing client touch points will be an important factor as well. This year we shall continue to harness technology and enhance processes to better serve digitally savvy investors and to provide more value and experience to customers. We have embarked on a comprehensive front-to-backend system enhancement to prepare us to further scale our business.
We have also made significant investments in improving our distribution channels to allow for a more robust digital platform, both online and mobile, to expand our customer reach more efficiently and to greatly enhance customer experience and meet their expectations. The ongoing enhancements will provide full mobile access to BDO UITF and PERA clients, with BDO Easy Investment Plan (EIP) capabilities for all UITF products, and a full-service invest online functionality delivering a smooth customer journey. We want the experience of the client to be the same whether they transact through the branch or online. Initiatives that will allow clients to have electronic certificates of participation and partial redemption of their investments, as well as the experience to create portfolios for specific financial goals, are in progress. The branch will also be provided with ready information on investments so they can service clients efficiently.
Affordable investment products
Our continuing efforts to increase BDO UITF usage through financial literacy is just as important. We have a dedicated team that provides financial literacy programmes directly to our clients. We teach proper budgeting, smart investing habits and retirement planning to different audiences – clients, employees, teachers, and factory workers to name a few. We also promote affordable investment products that start with investment amounts as low as PHP 1,000 ($20) for peso-denominated funds and $200 for US Dollar-denominated funds via the EIP.
We also offer the Personal Equity and Retirement Account (PERA) to our retail clients to help them augment their retirement pay and plan for a comfortable retirement. The PERA is a voluntary retirement account that is meant to supplement a Filipino’s government service insurance system (GSIS), social security system (SSS), and/or corporate pension benefits. It is designed to promote greater financial security for Filipinos here and abroad. We believe that planning for your retirement is one of the key tenets of financial wellness and that PERA will greatly help improve Filipino lives after their retirement.
Under PERA, Filipinos of legal age can contribute up to a maximum of PHP 100,000 ($2,075) for local residents or PHP 200,000 ($4,150) for overseas Filipinos within a calendar year. Contributions to employees’ retirement accounts can also come from employers. The contributions under PERA are entitled to exclusive tax benefits such as a five percent tax credit on the contributed amount, investment income is exempt from taxes and account investments are exempt from estate taxes. We offer retirement accounts to clients through the PERA online application. This has allowed us to promote PERA efficiently, giving equal opportunity to Filipinos nationwide as well as greatly enhancing the customer on-boarding experience.
We also offer three PERA UITFs which are designed to serve PERA contributors in all stages of retirement preparation. The BDO PERA Equity Index Fund is ideal for those who are starting to build their retirement fund while the BDO PERA Short Term Fund is more applicable for those about to retire or who have already retired. The BDO PERA Bond Index Fund is appropriate for those who are nearing their retirement. We strongly believe that PERA gives us Filipinos the opportunity to augment our retirement fund so that we can enjoy life after our working years.
Impact of pension reforms
We have become aware of the need to invest for our eventual retirement, adding to the benefits that we will receive from social pension and corporate retirement packages. However, the Philippine Retirement Pay Law does not require companies to fund pension plans to cover their retirement liabilities. This leads to employers paying pension benefits only upon the retirement of their employees and often based on the minimum requirements set by the law. The pension received from corporate and state pension plans may not be enough to cover expenses during the retirement years. This problem has led the government to consider making it mandatory for private companies to partially or fully fund retirement plans for their employees. This development will not only help Filipinos cope with their lives after retirement, it will also help grow the Philippine capital market through the increase in demand for investments to fund retirement accounts. The government believes that improving the pension system in the country will be a win-win scenario for the country and its citizens.
If the pension reforms come to effect, companies will start to look for trust and investment entities that will be able to provide sound investment advice and reliable service when addressing their retirement fund needs. This will be beneficial to banks that have greater experience in sourcing investments and managing retirement funds. We have years of experience in handling the retirement funds of several local and multi-national companies in the country. We also take things a step further, as not only do we provide our corporate clients with good quality securities to fund their retirement funds, but we also help their employees prepare for their eventual retirement through constant financial literacy campaigns and the availability of a wide array of retail products such as PERA and BDO UITFs that are both accessible and affordable. We also have the EIP that allows employees to invest automatically and regularly for their different investment goals, including their retirement.
