Contract for differences (CFD) trading has become increasingly popular for individuals wishing to participate in the financial markets. With worldwide popularity came increased competition, which quickly led to CFD brokers looking for cutting-edge solutions that could win over larger audiences. This article explores the trends either already emerging in the market or having a high probability of being adopted by industry players in the near future.
Integrated trading ecosystems
It is becoming evident that MetaTrader platforms, which have played a major role in CFD trading for a long time, are seeing an increase in competitors as major CFD brokers develop their own platform solutions. The events of September 2022, when MetaTrader platforms were banned from Apple’s app store, showed how dangerous it might be for brokers to rely on an external service provider for their main product. Although the apps were restored in the app store after a six-month ban, the concerns stayed, pushing many brokers to develop their own platforms for trading.
The task provided ample opportunities for innovation and rethinking of how trading platforms should work and what they should include. As a result, an industry-wide trend of integrated trading ecosystems has been developing. Such systems include everything a trader needs seamlessly incorporated into one platform.
One example of such a system is OctaTrader, developed by the international CFD broker OctaFX. This platform aims to integrate everything a trader needs in one seamless space where expert analytics, deposits and withdrawals, and profile management options, are all at hand. OctaTrader allows users to trade without any extra logins or app switches, helping them save time, which is especially important in the fast-paced financial markets.
The OctaTrader platform is available for mobile users using iOS and Android devices, as well as for web traders. Some of the extensive web trading functionality includes charts, the most popular indicators, technical analysis tools, multiple timeframes, and much more. The platform also has a multilingual user interface.
Launching its own trading platform was a major step forward for OctaFX as it allowed the firm to provide its clients with a single, comprehensive, and consistent trading system, which makes trading quicker and more efficient. To further enhance the trading experience, OctaFX is developing a unique hub with every kind of expert analytical information, which will be available for clients within the trading platform.
Artificial intelligence
Recent developments in artificial intelligence (AI) can potentially change the CFD trading industry. AI algorithms can analyse vast amounts of data and identify patterns and trends that may not be apparent to human traders. They can therefore be used to develop strategies and optimise portfolio management.
Traders can significantly improve their performance with forecasts powered by machine learning algorithms that adapt to changing market conditions while incorporating historical data. AI can assist traders in managing risk, which is a crucial aspect of trading. By analysing market volatility, AI algorithms can help traders set ‘stop loss’ orders and adjust position sizes based on predefined risk parameters. Additionally, AI can monitor the market in real time and alert traders to potential risks or anomalies that may impact their positions.
Launching its own trading platform was a major step forward for OctaFX
Another way traders can use AI is automated trade execution based on predefined rules and parameters. By removing human emotions and biases from the trading process, AI can enhance trade efficiency and improve overall trading performance. Considering the above, an AI assistant or advisor can become integral to any trading ecosystem.
Blockchain technology
Initially popularised by cryptocurrencies such as Bitcoin and Ethereum, blockchain technology has gained significant attention due to its potential to transform traditional processes and even whole industries. One of the key advantages of blockchain technology in CFD trading is enhanced transparency. Blockchain provides a decentralised and immutable ledger that records all transactions and interactions between the broker and the trader involved in the trading process. This transparency allows traders to verify the authenticity and accuracy of trade data, ensuring fair trading conditions and enhancing trust between the parties.
Blockchain technology offers several security features that can mitigate some of the risks associated with CFD trading. The decentralised nature of blockchain makes it highly resistant to hacking and fraud attempts. Each transaction on the blockchain is cryptographically secured and linked to previous transactions, making it virtually impossible to alter or manipulate trade data. This ensures that traders’ funds and personal information are protected from unauthorised access.
The transparency of the blockchain can offer some comprehensive opportunities for auditing in CFD trading. Since every transaction is recorded and stored on the blockchain, auditors and regulators can easily access this information and use it to monitor and investigate any cases they find suspicious. Additionally, blockchain-powered smart contracts can automate compliance processes, such as Know Your Customer (KYC) and Anti-Money Laundering (AML) checks, making it easier for traders to adhere to regulatory obligations.
Potential challenges
The above trends, which have already gained some traction among CFD brokers and traders, have the potential to revolutionise the industry. These technologies can enhance trading efficiency, increase market accessibility, and enhance security and transparency. However, it is important to note that while trading ecosystems are already being widely implemented, the practical application of AI and blockchain technologies is still in its early stages, and there are regulatory and technical challenges that need to be addressed.
AI can assist traders in managing risk, which is a crucial aspect of trading
In the case of AI technologies, which rely heavily on machine learning, CFD brokers might need a lot of time to let those systems learn from experience and improve their performance. To enhance fraud prediction, integrate chatbots for customer support, or make accurate market forecasts, AI systems need to be trained on very high-quality data. Additionally, such projects often require the involvement of professional developers and supplementary technical capacities, which can be costly.
As for blockchain, even the initial cost of such a complicated system is very high. The software and hardware needed to implement blockchain, as well as the costs of its maintenance, may outweigh its benefits, especially for small- or medium-sized brokers.
Another major challenge of blockchain-powered systems is how hard it is to modify the data involved in a completed transaction. Entering data into the blockchain might also take more time when compared with traditional methods, which is often crucial for online brokers that process thousands of transactions every day.
Both AI and blockchain technologies also face scalability issues. An AI system will most likely need high-capacity computing resources to process the increased transaction and data volumes during peak market hours. Similarly, blockchain has several scalability issues, including low performance efficiency, limited storage capabilities, and functional extension difficulties.
Another potential challenge is regulatory compliance, as introducing AI and blockchain solutions may not adhere to all the regulatory guidelines requiring the disclosure or additional protection of customer data, such as the General Data Protection Regulation (GDPR) in the European Union.
Overall, while AI and blockchain technologies offer CFD brokers numerous potential advantages and use-cases, addressing these challenges is crucial for their successful implementation.
Agreed at European level in October 2021, EU directive 2022/2523 has implemented the second pillar of the OECD agreement to ensure a worldwide minimum tax for multinational enterprise groups and large domestic groups in the EU. By imposing this minimum tax on multinational companies, the signatory countries of the OECD (Organisation for Economic Co-operation and Development) multilateral convention hope to raise €130bn–€170bn in tax revenue worldwide for the companies concerned (those with a turnover of at least €750m).
The issue that this regulation is intended to address is that the legal entities of which multinationals are composed have a separate legal personality and are taxed in their respective countries under different tax regimes. As a result of the ability of multinationals to influence transfer prices and thus locate profits in the country of their choice, the mobility of capital, the development of the digital economy and transfer prices, profits were often realised by structures established in what the OECD considers to be tax havens or at least places with tax regimes that are perceived to be “too lenient”.
The central idea of this system, which is very complicated to set up, is rather simple and because of its significant yet ignored side effects, simplistic: no matter in which country a multinational declares its profits, they must be taxed at the same minimum rate. When the company pays less than 15 percent tax in a foreign country where it has a subsidiary, the country where its head office is located will recover the difference between the effective rate paid and the 15 percent rate, so that the total tax paid reaches the said 15 percent threshold (IRR income inclusion rule – in this case, it is the parent company that is taxed).
Alternatively, countries may provide for a so-called qualified domestic minimum top-up tax (QDMTT): in this case, any additional tax paid will be borne by the subsidiary in the country in which it is established. The central idea of this system therefore appears to be to increase tax revenues while discouraging local companies from setting up abroad, because they will not be able to benefit from local tax incentives.
A flawed system
It should be noted that the system put in place is flawed from the start due to the exclusion of certain important sectors from this regulation: extractive industries and companies offering regulated financial services, international maritime transport companies and, with certain exceptions, public entities, international organisations, non-profit organisations, pension funds and investment funds are excluded.
Tax is not just a tool for financing or a method for distributing wealth
In addition to these exclusions, a number of adjustments have been made, such as the possibility for companies to declare a reduced tax base or the exclusion, for the first five years and under certain conditions, of certain Chinese companies. While the aim of these regulations is clear, the means used to achieve them are not really adequate.
This system benefits the largest countries, since they will either increase the number of taxpayers subject to corporate tax, or they will benefit from the dissuasive effect of the system put in place, since companies established in their country will be reluctant to relocate certain activities abroad.
On the other hand, the situation will become more problematic for some other countries, especially developing countries, for which corporate tax is very important and which often grant tax exemptions to companies setting up in their territory.
According to the figures put forward by certain international organisations, 60 percent of the revenue from this minimum tax would benefit the G7 countries, while developing countries would only receive three percent of the revenue. The imbalance is such that some have proposed the introduction of positive discrimination for the smallest countries, subject to certain conditions. Alongside developing countries, it is the traditional tax havens and, above all, the smallest European states, such as Belgium, Luxembourg or Ireland, that will lose part of their tax appeal, which, because of their small size and the limited importance of their markets, is their main attraction.
The first negative effect of this minimum taxation is that it is likely to increase inequalities between rich and poor countries; in reality this amounts to making the former richer and the latter poorer in the name of theoretical tax justice. It should be noted, however, that some emerging countries, such as Argentina, have wished for an even higher tax rate, an attitude that is not understandable in the long term.
It is not impossible that we will observe the opposite phenomenon: in other words, a levelling down of taxation on company profits in certain countries that currently apply a higher effective rate. Indeed, while this regulation will highlight the allegedly inadequate nature of the level of taxation in certain countries, it could also inspire others to lower their level of taxation to the threshold deemed acceptable by the OECD, thus becoming more attractive than they have been in the past. We should not lose sight of the fact that the new 15 percent rate is, in some cases, much lower than the rate of corporation tax, especially in Europe.
Compatibility with EU treaties?
Another problem with this minimum tax is linked to the Treaty of Rome, which institutes, among other things, the free movement of capital. The question arises as to whether this regulation might not hinder the free movement of capital between European companies, since under the new rules this capital will be subject to an ‘additional’ tax that is not provided for under the tax law of the country of destination of the funds, and compliance with these measures will entail costs for the companies concerned. We can be sure that this issue will sooner or later be referred to the Court of Justice of the European Union.
An attack on tax competition
Regardless of what has been said, the essential point here – and there should be no mistake about it – is that the new regulations constitute an attack on tax competition. Of course, the OECD rejects this accusation, arguing that the agreement has no other purpose than to set multilaterally agreed limits on tax competition. This is clearly an understatement.
The first negative effect of this minimum taxation is that it is likely to increase inequalities between rich and poor countries
In fact, developing countries and smaller countries did not really have the power to oppose this agreement: if they agreed to these limits, they did so under pressure, since, in practice, these countries will suddenly lose their attractiveness to potential investors. Furthermore, if they want companies already established in their country to remain there, they will have to take measures to increase their effective tax rate (by acting on the rate or the method of calculating the tax base), to ensure that the 15 percent threshold is reached, in the hope that some of the companies already present will not leave to avoid complications. This is likely to affect local businesses too.
Under the pretext of tax justice, which mainly serves the richest countries, we are witnessing a form of inter-state coercion, when even in Europe, certain companies benefit, in practice, from regimes that are out of line with ordinary law in terms of effective taxation (for example, the deduction of research and development costs). In any case, this time things have gone one step further, with the decision to tax income that the State that was competent to do so had chosen not to tax.
This once again raises a fundamental problem in international taxation: the issue of assessing the adequacy of another country’s tax system. However, this discussion should not take place since it is the needs of each country that determine the importance of tax to be levied and the needs of one country are not those of another.
It therefore seems incongruous to force, in fact or through a treaty, a country to levy a higher tax than it really needs to. It will be left with no choice though, if it does not want the ‘surplus’ to be taxed to reach the 15 percent threshold. At this point the company will be taxed by the country in which the parent company is established, and it will have lost everything.
Furthermore, considering that one cannot assess the severity or “adequacy” of a country’s tax system simply by looking at tax rates and the method of calculating the tax base does not really make sense. Tax is not just a tool for financing or a method for distributing wealth. It also serves as an economic incentive or as a means of encouraging or discouraging certain behaviours deemed to be, depending on the circumstances, favourable or harmful to society.
In conclusion, the fact that an effective tax is low can be attributed to a whole series of reasons other than the desire to engage in unfair tax competition. However, the minimum tax on multinationals seems to be based on a genuine assumption of tax dumping, without taking into account the specific situation of each country.
Under these conditions, it is even feared that in the future such a regulation could be provided for smaller companies; at the very least, since the principle seems to be accepted, it is hard to imagine what would prevent the leading member states from proceeding in this way. This is a well-known modus operandi that has been employed many times, always under the cover of a higher value, such as tax justice or an always vague general interest.
At Swisscom we want to embrace all the opportunities the digital transformation has to offer to boost Switzerland’s prosperity but we’re committed to minimising its potential risks, protecting the environment and creating a fairer world.
Our sustainability journey began in 1998 when we were the first telecoms company to gain ISO 14001 environmental management system certification. This provides assurance to both internal and external stakeholders that the company’s environmental impact is being measured and improved effectively. Since 2010 we’ve only used energy from renewable sources, including electricity we produce ourselves from the 104 photovoltaic plants we operate.
Other milestones include launching our mobile phone recycling programme, Swisscom Mobile Aid, in 2012, opening one of the most modern and energy efficient data centres in Europe in 2014, rolling out energy efficient cooling systems for our mobile phone stations in 2018 and putting 100 electric vehicles into operation in 2021. Since 2022, our subscriptions, network and devices have been carbon neutral and our customers enjoy carbon neutral internet surfing, streaming and calls.
In 2023 we were delighted to be named the world’s most sustainable telecoms company in the World Finance Sustainability Awards for the third time in a row. This award confirms that we are on the right track towards achieving our ambitious sustainability goals. Each recognition motivates us to work even harder and to consistently pursue the goals we have set.
We believe that digitisation can promote sustainability. We’re part of the ‘Digital with Purpose’ Global e-Sustainability Initiative (GeSI). This requires telecoms companies to make a significant contribution as an industry to achieving the 17 sustainable development goals of the United Nations Agenda 2030 by taking steps in areas such as protecting the environment and operating sustainably. We want the networked world to be accessible to everyone but also to highlight the risks of participation, such as encountering fake news and cyberbullying, and the misuse of personal data, to help people protect themselves.
New sustainability strategy
After Swisscom adopted five new group goals in 2021, which came into effect in January 2022, we decided to review the sustainability strategy we launched in 2018 to align it with these goals more closely and address both the environmental changes and the changes in the requirements of stakeholders that had taken place since.
We want to become carbon neutral across the entire value chain of our business
We carried out in-depth analysis in four areas that included identifying the strategy’s strengths and weaknesses where we found that some areas had grown in importance. These were staff-related issues, such as diversity and the future of work, data protection and security, governance and corporate ethics. We also identified challenges in our aims to have a bigger impact in the area of CO2 reporting and reduction with suppliers.
As a result, we adjusted our strategy to include two new ‘for the people’ issues – employer attractiveness and diversity, and equal opportunities – also addressing the issues of corporate ethics and data protection and security. The existing environmental aspects of climate change, renewable energies, energy efficiency and the circular economy were left unchanged.
Our new strategy, entitled ‘Responsibility means moving forward – now not someday,’ is based on the UN’s 17 sustainable development goals and outlines targets for 2025 that will have an impact either within Swisscom or outside it. They can be divided into three areas – responsibility for the environment, responsibility for the people and responsibility through action.
Responsibility for the environment
To help cap the global temperature rise at 1.5 degrees Celsius, we want to become carbon neutral across the entire value chain of our business in Switzerland by 2025 – a step towards our ultimate goal of net zero across the whole group by 2035, including the Italian subsidiary Fastweb, which offers fixed-line mobile and communications services. By 2025, our operational CO2 emissions will be more than 90 percent lower than in 1990. We’ll also save one million tons of CO2 a year together with our customers. This is the equivalent of two percent of Switzerland’s CO2 emissions.
We aim to meet these targets by continuing to use only 100 percent renewable electricity in our business and improving energy efficiency by 20 percent compared to 2020, including through fresh air cooling for our mobile network, electrifying our vehicle fleet, using heat pumps and reducing our CO2 emissions through carbon reduction programmes with suppliers. We use a circular approach to our own products where we consistently use recycled plastics. Our long-term goal is for all our own-brand products to be fully recyclable.
Other ways we’re working towards carbon neutrality are through innovative data centres and by using waste heat and generating solar power. We’ll offset all the unavoidable emissions that remain. To develop the circular economy further, we’ll use Mobile Aid to improve the longevity of mobile phones and bring used resources back into circulation through repair, reuse and recycling. These aims are desirable from an economic as well as an ecological perspective.
Outside Swisscom, we’ll empower our customers to reduce their own CO2 emissions through products and services, such as digital solutions for working from anywhere and Internet of Things-supported services to remotely optimise and monitor vehicles, buildings and devices to reduce their emissions.
Responsibility for the people
In my role as Head of Sustainability and also as a mother of two children, I see the importance of strengthening media literacy in society. This is why our explicit goal is to support two million people a year in the use of digital media by 2025 at the latest. We also want to promote diversity and inclusion at Swisscom as a workplace by offering attractive working conditions, opportunities for flexible working and equal opportunities.
We want to become one of the top three Swiss information and communication technology (ICT) employers and will use our career portal and social media to promote Swisscom as one of the best. Employees benefit from a great working environment with opportunities to promote their health, network internally and volunteer. Working conditions are fair.
We aim to inspire talented people, including young talent, to join the company and develop them for the future. We will increase the proportion of employees under 40 and women working for Swisscom in management and at all other levels – we have targets around the recruitment process, promotion and succession planning to help us boost the proportion of women. We also provide education and training days to add to the employability of staff.
To support people in their use of digital media and strengthen their skills, we’ll use our Swisscom Campus portal to provide opportunities for training and learning to children, young people, parents and older people, helping them to benefit from digital media while using it safely. We also offer technical solutions and guidance and our call centre employees go above and beyond in helping customers with their questions in this area.
We want to expand ultra-fast broadband with the goal of 50–55 percent coverage for homes and businesses at speeds of 10Gbps and are continuing to expand the fibre-optic network (fibre to the home or FTTH) to achieve this. This will make our services more accessible and boost competitiveness, digital fitness and quality of life in Switzerland.
Responsibility through action
Ethical working practices have become increasingly important for companies and brands and we want to meet the high standards our stakeholders expect. We operate according to ethical principles and train all our employees in them.
Data ethics is a new issue in our updated sustainability strategy, encompassing data security and data protection. We train our employees each year in how to handle data and work in a lawful and value-orientated way. We also provide training for cyber security specialists.
We’re committed to ensuring fair working conditions and protecting human rights for workers throughout our supply chain. We monitor how well our supply partners comply with social and ecological standards to verify this. By 2025, our goal is to improve the working conditions of 150,000 people involved in our supply chains each year.
A vision for the future
Our sustainability strategy recognises that digitisation is rapidly changing our society and economy for the better but that there are also risks that need to be addressed and minimised. As a business we need to constantly adapt to this fast-moving environment and help to educate people to use digital media effectively while protecting themselves from potential harms.
Swisscom has an important role in influencing and accelerating digitisation so it’s essential that we do this sustainably to protect people and the planet and safeguard all our futures. The expectations and needs of our customers and other external stakeholders are changing in terms of sustainability and by working with them we can identify the key issues we need to focus on. We’re proud to lead the way in developing and implementing the highest standards in this area.
IDFC FIRST Bank has been at the forefront of a technological revolution in banking. India’s journey into digitisation has been extraordinary, making digital currency accessible to millions, and IDFC FIRST has been fundamental in embracing, operating, and disseminating this technology. Launched in 2022, India’s Central Bank Digital Currency (CBDC) is currently available through select banks including IDFC FIRST and was piloted in Mumbai and Delhi under the guidance and control of the Reserve Bank of India. The CBDC is not a token or a bitcoin; it is the digital rupee, a unit of legal tender that holds the same value as the physical coins and banknotes that share its name, and which crucially represents a liability on the central bank’s balance sheet. In other words, it doesn’t just resemble money; it is money. Using some components based on blockchain technology, the CBDC was initially limited to the settlement of secondary market transactions and made the inter-bank market more efficient upon launch. But government collaboration with trusted banks like IDFC FIRST led to multiple benefits, creating a means by which many millions of previously unbanked people in India could store, save, and transact money via smartphone. This has not only enabled IDFC FIRST bank to uphold its core value of putting the customer first, but it has also firmly placed the bank at the cutting edge of digitisation across the country and the international industry.
Enhancing the customer experience
The bank’s customer first approach brings about a raft of benefits – digital and otherwise. We were the first universal bank to offer monthly interest credit on savings as well as credit cards with free lifetime reward points, zero interest on cash withdrawal at ATMs, and low APR. To give an idea of numbers, IDFC FIRST Bank has a balance sheet of Rs. 2,399,416,596 crores, serving customers across the entire expanse of the country via more than 800 branches, 250+ asset service centres, 900+ ATMs, and over 500 rural business correspondent centres.
It is only through technology that high levels of financial inclusion can be achieved
At IDFC FIRST Bank, we like to see things through the prism of our three core philosophies: guided by ethics, powered by technology, and being a force for good in society. We keep a close eye on emerging technologies that cater to the evolving needs of our customers – new and loyal alike. To us, staying on top of market trends is essential, and our investment in best-in-class technologies has helped us to develop customised solutions.
Digital technologies, especially payments, have transformed consumer habits. What the customer needs determines our business strategy. We aspire to provide the best user experience and put the customer at the centre of all journeys, including payments. The customer has multiple choices so it is important to constantly innovate on product features, UI and UX. It is also important to create trust in every single transaction and address disputes and reversals in a timely manner to ensure continued engagement, loyalty, and trust.
Working at the pioneering edge of financial inclusion in a country as vast and complex as India means that we must also place ourselves at the cutting edge of technology. It is only through technology that high levels of financial inclusion can be achieved, especially in a country where the journey towards a cashless society began in 2016.
Disrupting for a smarter future
So how do we go about adopting digital tools whilst also remaining true to our ‘customer-first’ mantra? The answer lies in constantly looking at and investing in the latest technologies with a view to helping our customers navigate financial transactions in a swift and secure manner.
Broadening access to the widest possible range of customers is key to our success. For example, we have recently collaborated with ToneTag – a global leader in voice technology. This allows us to provide soundwave-based contactless payments for the acceptance of CBDC by merchants. We are proud to be one of only four banks allowing customers to participate via a digital wallet – an exceptionally handy feature.
In a more geographically specific example, in the city of Kochi, in Kerala, we have partnered with technology start-up Anantham Online to facilitate the digital payment and collection of parking fees for customers using the Kochi Metro system – an important transport network connecting road, rail, and waterways in that city. Again, through our innovative use of technology, we have provided our customers with an improved experience for their daily transactions. This fact also applies where there is a large diaspora of Indian professionals and students living abroad – in countries like Singapore and the UK, to mention two. The successful establishment of Unified Payment Interfaces (UPI) through international protocols and interoperability will enable money transfers to and from bank accounts held in India by non-resident Indians.
Online safety is also a priority for most customers. At IDFC FIRST Bank, we always strive to make the banking sector safer and more user-friendly. A priority is to tackle the untapped market, which is still very significant. As previously stated, it’s imperative to find solutions and business models that effectively reach out to them. Each payment instrument holds a sweet spot. A lot of innovation can be applied to offline payments – an area on the up – spanning feature phone payments, cross-border payments, and the like.
One such example is our recent participation in a pilot project for offline payments involving a digital payment system designed by Swedish company Crunchfish, with which we signed a digital cash commercial agreement. Being part of this Reserve Bank of India (RBI) supervised project puts us at the vanguard of India’s banking sector revolution, and the potential rewards – both at a societal and a financial level – are significant, because the solution to the issue of offline payments will open up the customer base, provided we can smooth the path to inter-bank interoperability. And this is why we will continue to invest in these areas.
Defining the customer journey
Digital technology, particularly for payments, has transformed consumer habits, boosting efficiency beyond anyone’s imagination. As our business strategy is guided by our customers’ needs, we aspire to provide the best user experience possible, putting the customer at the centre of all journeys, with regards to payments and beyond. Adopting cutting-edge technology the way we do is not always plain sailing; it’s important to instil trust in every single transaction, cutting no corners. If a dispute arises, it must be addressed and resolved in a timely manner to ensure continued engagement, loyalty, and trust, particularly in the digital age when news of poor – or exceptionally good – services travels fast, far, and wide.
Our investment in best-in-class technologies has helped us to develop customised solutions
Like all banks, IDFC FIRST Bank has to contend with the shifting sands of government-implemented frameworks. For example, the November 2016 announcement by Prime Minister Narendra Modi banning the use of 500 and 1,000 rupee notes caused huge disruption – effectively making 86 percent of the country’s bank notes illegal tender. But this move also created many opportunities, as vast numbers of people were suddenly forced to find alternative methods of payment. It is therefore the responsibility of any bank stepping into this landscape to equip its existing customers with the tools to navigate complex financial terrains, and to reach out to empower swathes of new customers with the promise and delivery of future resilience and inclusivity, through the provision of accessible digital banking platforms.
As for the growth of the bank, our profit trajectory is strong. The bank has guided for ROE to reach between 13 and 15 percent by the exit quarter of FY25. We are confident in reaching this comfortably by the target date, despite setbacks including legacy corporate income reversal and, of course, the far-reaching impact of Covid-19. Our predicted ROE will be made reality in part thanks to our tech-centric approach and eagerness to try new innovation, touching the lives of millions of Indians in a positive way.
Combined, our customer-first philosophy and forward-thinking attitude will help us grow into a world-class, technology-led bank with a climbing ROE.
In 1906 during a country fair in Plymouth, Sir Francis Galton asked several hundred people to guess the weight of an ox. None of them got the answer right, but incredibly, the average of the guesses was remarkably close to the actual weight. It was a phenomenon that became known as the ‘wisdom of crowds.’
Several decades later, Nobel laureate Eugene Fama took inspiration from Galton in his 1970 work on the Efficient Market Hypothesis, which states that share prices are accurate reflections of all relevant information and are therefore not over or undervalued. The implication was: you can’t ‘beat the market.’ But does this always hold true?
Over the past decade, rises in American large cap indices have been fuelled by mega caps. Vast network effects created by their market leading, scalable offerings have erected a barrier to entry for smaller competitors. There’s plenty of potential left in some of these ‘modern monopolies,’ which have a place in our portfolio.
Historically, however, small cap long-term returns are superior to those of large caps. According to the Ibbotson SBBI dataset, the annual yield of US small caps beat large cap returns by 1.7 percentage points over the 1926 to 2022 timeframe. For someone investing $1 in 1926, this translates into a return of $49,052 on small caps, compared to $11,535 for large caps.
For some time, large caps bucking this long historical trend was mainly a US market phenomenon. European small caps (particularly in Sweden) have performed strongly until recent years, when a change became apparent here, too. Is the shift permanent? Or do small caps still yield a premium, and if so, how can investors profit?
Small cap characteristics
The term ‘small cap’ usually implies a capitalisation in the approximate range of $250m–$1bn. Index suppliers use their own criteria, often some percentage of total stock market cap. The median component of Russell 2000 – the small cap index most commonly used in the US – has a market cap of around $1bn; Russell 2000 is comprised of the 2,000 smallest companies in the Russell 3000 index, which in turn includes the 3,000 largest US shares. S&P Small Cap 600 omits unprofitable companies, resulting in more of a quality tilt.
The performance of small caps relative to large caps will revert to its historic trend
In Europe, the most common broad small cap index is MSCI Europe Small Cap, which includes 1,000 listings. There is a plethora of local market indices, such as the Swedish Carnegie Småbolagsindex, used as a benchmark by many small cap equity funds here. This index includes listed shares with a market cap of less than one percent of Nasdaq Stockholm.
The sector representation in small cap indices differs from that in large cap indices, affecting quality and valuation measures. These sector differences are also very important to adjust for when comparing small caps to large caps in a particular market, as well as when comparing small caps across geographical markets.
The small cap market captures investor interest for a number of reasons that we shall look at.
Growth potential: Finding a share that rises very significantly is much more likely among small caps than among large caps. One obvious factor is that small cap growth starts from a smaller base – achieving exceptional share price growth is harder for mega caps with a market cap running into hundreds of billions or even trillions. The high-growth prospects among small caps lure many investors, but picking winners is not that easy, as many younger small cap companies are more financially vulnerable through economic downturns.
Dispersion: Unlike large cap indices, small cap index developments don’t hinge on the success or failure of a handful of large companies. The 10 largest index components comprise 20 percent of MSCI World, but only three percent of Russell 2000. The vastness of the small cap universe yields a wide range of quality and growth attributes.
Sector representation (which affects quality) varies among small cap indices on different markets. The percentage of higher-quality companies in small cap indices relative to large cap indices is larger in Europe (particularly in Sweden) than in the US. Over time, 10–20 percent of small cap indexes have consisted of companies with declining profits. This ratio is usually smaller in Europe than in the US, reflecting differences such as the US small cap biotech sector with its many unprofitable hopefuls.
Generally, the quality level of small caps indices has declined somewhat in recent years. This development further boosts the importance of selectivity and active management.
Liquidity: Smaller company shares are often significantly less liquid than large company shares, hampering market participation for large investors and hedge funds, which in turn keeps liquidity subdued. Theoretically, higher transaction costs and lower liquidity motivate a liquidity risk premium in small caps. Financial information from and equity analyst coverage of smaller companies is also lower compared to large caps. Due to lower market transparency, inefficiencies and asset mispricing can provide opportunities for small cap investors.
The small cap premium debate
The long-term yield advantage of small caps versus large caps is well established. But are small cap yields superior even when adjusting for risk exposure?
The existence, size and causes of the small cap premium have been fiercely debated. The Capital Asset Pricing Model (CAPM), developed in the 1960s, posits that yield expectations reflect the risk level of an asset relative to that of the market portfolio, as expressed by the asset’s beta value. According to CAPM, superior yields on small caps merely compensate for a higher beta value, so there is no advantage in risk-adjusted returns. CAPM and the ‘efficient market’ theory have not fared too well. In 1981, economist Rolf W. Banz showed that the superior relative returns of small caps cannot be explained merely by CAPM beta – there is an additional small cap premium. Further risk factors have been identified over the years. The Fama-French three factor model of 1992 comprises market risk, a small cap premium and a value premium. The small cap premium actually has quite narrow support in the Banz study. It has also declined over time – due to increasing investor interest, it has been suggested.
In recent years, however, a number of interesting academic studies by Clifford Asness and others have shown that the small cap premium still exists at a significant level when adjusting for quality. If loss-makers and low-quality companies are eliminated, the small cap premium is alive and well, in a somewhat modified form. Note that within small caps, the value segment has developed better than the growth segment in eight out of 10 decades. The larger prevalence of lower-quality loss-makers among growth companies is a likely explanation.
A market suited to active managers
For maximum alpha, investors want to employ highly proficient asset managers who are active in less efficient markets. High outcome dispersion translates into more opportunities to pick winners and avoid losers. Richard Grinold’s ‘fundamental law of active management’ uses the terms ‘information coefficient’ (managing skill) and ‘breadth’ (opportunities to put the skill into good use).
In general, the dispersion is far higher among small caps than among large caps (particularly outside the US). Emerging markets, tech and biotech are other high-dispersion areas of particular interest to active managers. Institutional investors and analyst forecasts are relatively less common on the small cap market. It can take the small cap market longer to price new information, and the resulting inefficiencies favour investors who do their own fundamental analysis.
Small cap exposure
In our view, the performance of small caps relative to large caps will revert to its historic trend. Strategically, equity portfolios should have ample small cap exposure. Limiting investments to large caps excludes considerable growth potential – the small cap exposure of MSCI ACWI, a global index, is zero.
Portfolio share: The share of small caps in an equity portfolio will be governed by return targets and risk tolerance. Small caps make up 14 percent of the broad global index MSCI ACWI IMI, which includes 99 percent of global equity market cap. It is reasonable for investors to hold about 15 percent of a global equity portfolio in small caps with diversification across sectors and regions.
Active, lean management: Small cap index investing is best avoided – studies show that filtering out low-quality companies is key to achieving a significant small cap premium. Some smart beta funds do this. We prefer skilled, active managers, with geographic market specialisation and an AUM in the lower range. Research has shown that alpha generation ability scales badly, as funds grow too large to trade in less liquid assets. When selecting a fund, check on its size when the track record was accumulated – the game plan may have changed.
Portfolio allocation: Structurally, private investors with a long-term investment horizon do not need the high daily liquidity available in large caps that some large institutional investors require, and can benefit from the small cap premium over time.
However, many small caps are less global and more exposed to their domestic economy than multinational large caps. It follows that cyclically, small caps can be more impacted by domestic monetary policy tightening and sharply higher interest rates such as we are now experiencing in the US and Europe. Given that a downturn for 2023 was widely expected, small cap absolute valuations are already quite low. Furthermore, relative to large caps, small cap valuations in Europe and the US are also historically quite low. As markets work through this cyclical downturn, there are both relative and absolute opportunities to consider small caps
Change is an omnipresent variable in all areas of life in today’s society and is evident in the business world. The doors that the digital universe opened a few years ago have remained open and the transformation is permanent with new technologies helping to revolutionise companies and clients. With this environment at MoraBanc, being adaptable to change is now integral to the DNA of the company and those of us who are part of it. Our focus today is on daily business and our sights are set on what is to come in order to take advantage of the opportunities offered by a future that appears to have arrived early.
MoraBanc, Andorra and the world in general find themselves facing a new moment of disruption with the arrival of blockchain technology and artificial intelligence affecting many different sectors, including the financial services. These new technologies create opportunities and require significant adaptation to take advantage of them. It is essential now more than ever to work with a dual vision, the short-term vision to provide service today, and the long-term vision to evolve and move forward to meet the needs of our clients.
In the rapidly evolving world of digital assets, which encompasses cryptocurrencies, tokens and decentralised platforms, traditional banks are not mere spectators.
They are, in fact, central players with a unique and indispensable role in this financial revolution. Traditional banks have centuries of experience under their belts, having built trust with millions of customers worldwide. As the allure of digital assets grows, many consumers and investors naturally turn to their trusted banks for guidance and assurance. This trust factor is something that new entrants in the digital asset space might find challenging to replicate.
Moreover, banks are uniquely poised to offer solutions that seamlessly bridge the gap between digital and traditional assets. Imagine digital wallets directly linked to regular bank accounts, or the ability to effortlessly convert between fiat and cryptocurrencies. These integrated services can provide customers with a holistic financial experience.
Deep-rooted experience
Regulation is another arena where traditional banks shine. The digital asset landscape is fraught with regulatory challenges, and start-ups often struggle in navigating this complex terrain. Banks, with their deep-rooted experience in compliance and established rapport with regulators, can lead the charge in shaping a regulatory framework that ensures the safety and legitimacy of digital asset transactions.
The vast infrastructure of traditional banks, from their global transaction networks to extensive customer service operations, can be harnessed to offer robust digital asset services. Whether this means facilitating large-scale crypto transactions, ensuring top-notch security for digital asset storage or crafting educational resources for the uninitiated, banks have the resources and expertise to deliver these services at scale.
Innovation in the financial sector is often seen as the domain of nimble start-ups. However, traditional banks, with their resources and reach, can collaborate with innovative platforms to create hybrid models. These collaborations can yield products and services that meld the innovation of the new age with the reliability and expertise of traditional banking.
Lastly, with their significant capital reserves, banks can propel the growth of the digital asset ecosystem. Whether this occurs by investing in promising ventures or offering lending services with digital assets as collateral, banks can further weave these assets into the fabric of the broader financial system.
The digital asset revolution is as much about the convergence of the old and the new as it is about technological innovation. Traditional banks, with their vast resources and trust, stand at the crossroads of this new frontier. By embracing the potential of digital assets, they can ensure their continued relevance and leadership in the ever-evolving financial world.
The road map for MoraBanc Digital
Similarly to our vision for the future of banking with digital assets, we are also focused on the permanent updating of the digital banking service, where MoraBanc is a benchmark in Andorra. Since 2016 we have included digitalisation as a key element of our positioning in our DNA, making a firm commitment in recent years. Focused on the client, the principal purpose is to provide a service 24 hours a day, every day of the year, in order to facilitate the banking operations of our clients and customers.
Banks are uniquely poised to offer solutions that seamlessly bridge the gap between digital and traditional assets
In 2023, we increased this commitment in order to be more agile and efficient as an institution, but above all to be able to provide clients with more autonomy in the most common operations and queries. This is the great challenge we have set ourselves and the efforts we are making as a team are one of the arguments for receiving two World Finance awards, one for the Best Mobile Banking App in Andorra and another for Best Consumer Digital Bank in Andorra.
Over the last few months we have renewed digital banking with a new app-first digital experience, since 70 percent of digital access is via mobile device, by offering: the Bizum service for instant payment between individuals, widely used in Spain, the ability to become a client 100 percent digitally, and developing new functionalities for contracting new products such as cards and loans, as well as the generation of bank certificates. All of these new digital features are aimed at enabling branch staff to focus on providing more value-added advice and services to clients.
Associated with bank digitisation, the GarminPay service was also introduced. This service offers the possibility to make payments through a watch to MoraBanc cardholders using the wallet integrated in Garmin sports watches. We are the first bank to allow this operation in a country where, for now, the most common payment systems such as Google or Apple are not available for Andorran cards. We have been able to find an alternative for our clients by combining imagination and innovation in Andorra.
More agility
The roadmap for the coming months also includes two major initiatives from our 2022–24 strategic plan that will transform us as an institution and make us better prepared for the challenges of the future. We are currently working on a plan to transform and simplify various internal processes that have a direct impact on the procedures carried out by clients, making them simpler and therefore more agile.
Moreover, as mentioned above, the incorporation of digital assets into the client’s digital channel will make the new investment offer in this new asset class more accessible and will revolutionise the way in which people and companies exchange value in the very near future.
This is part of our approach to digitalisation, always with clients and users at the centre of everything, and it is our task to respond to their needs with real, practical and agile solutions in the present, while at the same time working to get ahead of the doors that technology opens to the future.
In a market and economic climate that is often described as volatile, global economies are struggling to find a rhythmic flow as they manoeuvre shifting challenges and an unending state of turmoil. No sooner had the Covid-19 pandemic started to recede then war broke out between Russia and Ukraine, sending markets worldwide back into chaos. Whereas geopolitical uncertainties are underscored by crippling disruption in global supply chains and a shift away from globalisation toward economic decoupling, macroeconomic tensions manifest in inflation spikes across numerous economies, accompanied by skyrocketing policy rates announced by central banks across the world.
Despite the intensifying pressure as economic volatility continues to spread faster than wildfire, a window of opportunity slides ajar for banks and financial institutions to robustly respond to the market’s dire need for a trusted guide to see them through this economic murk. In these less-than-ideal circumstances, banks find themselves racing against time to come up with innovative solutions to novel challenges as well as long-forgotten ones.
The success checklist
Standing centre stage with all eyes turned to them, banks’ survival depends on their ability to take quick yet calculated moves that prove their worthiness as reliable financial partners to retail as well as corporate customers. But what does that entail in 2023–24?
Digital transformation: The Covid-19 pandemic wreaked havoc across global economies and markets, but this challenging time also triggered some positive changes that the global markets continue to build on.
One such example is the resounding shift that the pandemic triggered in the public’s perception of digital financial services. With more and more people committing to social distancing and precautionary measures, digital payments trumped in-person cash payments, sparking a massive wave of digital banking adoption across all markets and age groups. While some ‘new normal’ features dwindled with the withering of the pandemic, digital transformation was here to stay, with adoption rates rising in 2022 to as high as 89 percent of banking customers in the US, who reported relying on their mobile devices for carrying out banking operations on a regular basis, according to Insider Intelligence’s Mobile Banking Competitive Edge Study. This figure spikes to an astounding 97 percent when zoning in on millennials’ survey responses only, as per the same report. In light of the growing need for the efficiency that comes with digital financial and banking services, institutions that fail to keep up with the market’s fast-paced digital transformation risk being left out of the race, and possibly even the conversation.
Successful digital transformation requires building a sound digital infrastructure
It serves to note that digital transformation is, as the term stipulates, a complete transformation of mindset, and not merely the creation of digital replicas of existing products and services. Successful digital transformation requires building a sound digital infrastructure that provides both efficiency and security without room for compromising either. Building upon these digital infrastructures, banks need to consider the market’s evolving needs and aspirations as they innovate new digital solutions and products.
Sustainability: In 2023, banks that aspire to lead the market should be able to perform as far more than successful financial institutions. In fact, successful banks are expected to act as promoters and supporters of positive change and sustainable growth within their communities and domestic economies. This global direction is amplified in the context of environmental, social and governance (ESG) considerations, which governments now mandate to be weaved into corporate entities’ business strategies and future innovations.
Whether legally mandatory or not, ESG is a win-win investment for corporate citizens and governments alike. From a polished market reputation to a wider pool of ESG-focused investments and fewer regulatory pressures, banks that strive to achieve business success through mindful ESG practices reap multiple fruits and are thus able to navigate with greater ease toward their business goals.
Capitalising on data: In today’s market, any institution, whether financial or other, that aspires to achieve business success needs data galore. With data-based insights, banks are able to build products and services that address the market’s rising and changing needs. On the other end of the data spectrum, supervisory bodies and the mass public require banks to be transparent about their practices – a form of data that is often pivotal to winning and maintaining the trust of customers and investors. Thanks to digital transformation, banks are now able to collect and analyse data with greater efficiency, enabling them to be closer to their customers and to take active steps towards supporting them.
Human capital investment: In the banking industry, capital and resource management is at the heart of every operation and business decision. However, one resource remains uniquely important for the determining role that it plays in any bank’s rise or fall. Every bank strives to offer its customers an exceptional banking experience, but what often goes unnoticed is that a rewarding customer experience begins and ends with a rewarding employee experience. This realisation, paired with banks’ commitment to enabling their communities, makes human capital development a top priority for any bank that aims to maintain a leading role within its market. Not only does this strategy attract and retain the best talents, but it also encourages them to respond to clients’ needs with uncompromised empathy and proficiency.
Catering to customers’ holistic wellbeing: For the longest time, banks were keen on designing a streamlined banking experience that catered to customers’ needs without disruptions or complications. Today, banks look beyond the limited interactions that they share with their customers within the banking context and look to offer the community tools and services that allow them to lead holistically rewarding and satisfying lives. This is addressed through a number of strategically planned partnerships with leading service providers as well as initiatives, programmes, and events that empower customers and the community to lead more fulfilling lives.
A market that thrives
In the midst of the rising uncertainty that permeates the global banking industry and the market’s growing expectations for banks’ involvement in curbing economic challenges, the Kuwaiti banking sector stands out in 2023 as a success story. In June 2023, the international global credit rating agency Moody’s announced that the Kuwaiti banking sector stands on steady ground that is upheld by sound capital and strong liquidity, with an estimated projection of GDP growth of 3.4 percent in 2024, as reported by Arab Times. This stability can be attributed to the Central Bank of Kuwait’s (CBK) prudent regulations and comprehensive efforts of safeguarding the market against uncalculated or unnecessary risks.
A rewarding customer experience begins and ends with a rewarding employee experience
Nonetheless, the Kuwaiti banking sector is not entirely risk-free, according to Moody’s, especially when considering the minor pockets of risk that the financing of the small business sector poses – albeit, a risk zone that comes backed with a wealth of provisions, hedging, and sound capital. In fact, the CBK’s regulations have led the sector to weave a safety net against financing losses that amounted to 270 percent of non-performing financing by December 2022.
Considering the mature and flourishing state of the Kuwaiti banking sector, it comes as no surprise that the CBK continues to support a sandbox environment where existing banks and new competitors can constantly innovate and test novel technologies, which ultimately aim at achieving compound success for individual institutions, the local community, and the domestic economy at large.
A model of excellence in Kuwait
Among the banks that have exhibited great finesse in their banking innovation and growth is Kuwait International Bank (KIB). Judging KIB’s business success is easy to grasp in numbers, seeing how the bank concluded the first half (H1) of 2023 with an 88 percent growth compared to H1 2022 in net profit attributable to shareholders, which amounted to almost KD6m ($19.3m). Meanwhile, in June, KIB announced the completion of its subscription of capital by rights issue, which aimed to increase its capital by offering 428,571,429 shares at a value of KD60m ($193.8m), in a move that aligns with the bank’s strategy to achieve further development and growth. It serves to note that the rights issue was oversubscribed by 687 percent. However, as a leading banking institution in Kuwait, and under the umbrella of its comprehensive social responsibility programme, KIB defines its success not only by the business metrics of growth but also by the bank’s investment in its community and the extent to which it can propel Kuwait’s national talents forward.
On the banking front, KIB has contributed generously to the innovative advancement of banking in Kuwait, which greatly serves the market and enables different strata of the consumer base to reach their aspirations. This is particularly evident in the bank’s dedication to digital transformation, which prompted KIB in late 2022 to launch KIB Digital Factory – an innovation hub where the customers’ unique needs are at the heart of numerous banking innovations and forward-looking products and services.
Some of the insight-driven innovations that were introduced by KIB’s Digital Factory in 2023 include: the revamped corporate online banking platform, which is designed to enable the bank’s corporate customers to manage all of their employees’ banking operations as well as control the finest financial details with ease and accuracy; the first-of-its-kind KIB Aqari, a one-stop shop for real estate-related needs where customers can enjoy a wide range of real estate services and innovative solutions; and a completely upgraded KIB mobile application, which comes geared with state-of-the-art payment features such as KIBPay. Each of these groundbreaking contributions addresses a different cluster of customers and answers their specific needs.
Many of these innovations are made possible thanks to the bank’s favourable work environment, which attracts some of the best talents in the market. However, other leaps of innovation are the result of KIB’s selective choice of partners who share the same passion for growth and development. In 2023, Visa was one of many partners who joined hands with KIB to bring the local market previously unheard-of banking innovations. This includes introducing the first biometric Visa card, which uses the customer’s fingerprint to authorise POS transactions instead of a PIN code, in a bid to add an extra layer of security to customers’ transactions. In addition, KIB was the first bank in Kuwait to join the Visa Ready for Fintech Enablement programme, entwining its digitisation vision with Visa’s resources for a holistically transformed banking landscape in Kuwait.
In the same spirit, KIB has launched KIB Mubader, an incubator and hub for bolstering entrepreneurship in Kuwait – an endeavour that goes hand-in-hand with its comprehensive support of its community and budding talents. Besides KIB’s dedication to digital transformation, the bank has also matured a wider range of products and services that continue to respond to the market’s varied needs and aspirations. This is especially true of KIB’s growing spectrum of financing offerings, all of which adhere to the Islamic Sharia law, which is sometimes delivered through big retail partners or directly through the bank.
In addition, KIB remains focused on developing its existing products and services. Following the same mentality of advancing the existing products and services in parallel to completely new offerings, we continue to introduce new tailored cards and banking accounts, each bringing a new level of ease and convenience to a specific target market whose needs are met with precision and care.
Onward to a bright future
In 2023, the Kuwaiti banking sector remains a beacon of hope and an inspiration for other markets, reminding observers everywhere that far-sightedness and the ability to plan can help weather the harshest of storms. Today, Kuwait’s banking sector is on a trajectory of growth and unprecedented achievement, with optimistic anticipations for the next frontier to conquer. The prospects are high, and the possibilities are endless; however, the Kuwaiti banking industry remains one step away from unlocking a new definition for banking success in the region.
In order for the Kuwaiti banking industry to maintain this momentum of advancement, it is critical for market leaders and decision-makers to adjust the environment so that customers, whether retail or corporate, view and accept ambitious strides with open minds rather than scepticism. After all, in a market as delicate as the financial and banking one, there is scarcely any room for uncalculated risks, and customers’ willingness to adopt banking technologies will always be tied to the amount of security and return these technologies promise.
On this front, campaigns such as ‘Let’s Be Aware’ (Diraya), which has been running for over three years under the patronage of the CBK and the Kuwait Banking Association (KBA), in partnership with Kuwaiti banks, remain pivotal for the steadfast development of the field. While Diraya continues to serve as a platform for disseminating essential information about the modern banking industry and its massive suite of services, it also holds the key to preparing the market for novel ideas in a smooth manner.
Considering how the banking sector is at a turning point, several factors will be in play to help shape the prospective environment, which will certainly look very different than what we are seeing today. The face of future banking rests in the readiness and adaptability of the environment as a whole – starting with regulators adapting their approaches and developing new regulatory frameworks and regulations that are more in tune with contemporary needs, then moving on to the capacity of governments to regulate themselves in order to adapt to the evolving landscape, thereby influencing the big players in the market, and ending with the overall market environment and its ability to accept and cope with the new change.
The technological advances and the surge of globalisation during the 1980s and 1990s popularised the strategy of offshoring, which led businesses to relocate aspects of their production and operations to foreign countries, aiming to lower costs. The advent of the internet, improved transportation networks, and enhanced communication capabilities allowed companies to seamlessly work with counterparts all over the world. The liberalisation of emerging economies increased opportunities for foreign investment and trade, enabling companies in industrialised nations to benefit from the low labour and production costs in developing countries, while simultaneously building up a presence and a customer base in other parts of the world.
As the 21st century progresses, however, an increasing number of companies are questioning the merits of offshoring in favour of the concept of nearshoring, which brings business processes, services, and manufacturing operations closer to the main consumption centres. Whereas offshoring was designed to lower costs and boost profits, nearshoring suggests that it may be more cost effective to stay closer to home.
The benefits of nearshoring
Geographical proximity reduces transportation costs and allows for more nimble and easily managed supply chains. Additionally, countries that are closely situated may share similar regulatory and legal requirements that make it simpler to navigate. They may also be culturally similar, overlapping in areas such as language, lifestyle, and traditions, which can improve communication and understanding. As a result, nearshoring is also commonly known as friendshoring or ally-shoring.
Recent world events have provided a clear illustration of the benefits of nearshoring. The Covid-19 pandemic demonstrated how quickly a virus can bring the manufacturing world to a halt, wreaking havoc on production timelines and supply chains long after the danger has passed. And the increase in disruptive extreme weather events is causing the world to rethink the wisdom of having operations spread widely throughout the world. Bringing operations closer to their target destination is a strategic way to reduce the risk of delays in production and bottlenecks in delivery, mitigating the impact of global events on a company’s bottom line.
As the trend of nearshoring catches on, developing countries in Eastern Europe and Southeast Asia stand to benefit. Given its closeness to the US, Mexico is poised to capitalise on the nearshoring boom more than any other nation. At Banorte, we recently published a research note that calculates the potential gains of nearshoring for Mexico at $168bn of additional non-oil exports in the next five years, which represents an increase of nearly 30 percent from current levels.
Why Mexico?
Geographical proximity to the US is not the only factor that makes Mexico an attractive destination of investments and relocation. According to the 2020 Census, 67 percent of the population of Mexico are of working age, which is significantly higher than the world average. That means that there are 78.9 million people who are potentially available to work in new factories and processing centres. This arrangement of population provides a competitive edge to companies who are looking to relocate.
As of today, Mexican exports to the US represent 81.8 percent of total exports. The main goods being sent abroad are passenger vehicles, auto parts and goods vehicles, computers, monitors and projectors, electrical wires, telephones, medical devices, tractors, and furniture. Mexico has the infrastructure and know-how to remain the main trading partner of the US. Moreover, existing economies of scale are a competitive advantage of the country.
Preparing for this new paradigm
Companies have already begun to recognise the benefits of relocating their supply chains to Mexico given the nearshoring story. In 2022, the US Manufacturing Leadership Council conducted a survey of 260 business executives in American-based corporations of varying sizes.
When executives were asked what potential supply chain changes they anticipated by 2030, approximately nine percent expected more offshoring, 27 percent expected an increase in onshoring (production within the US), another 27 percent said they were not expecting significant change, and more than 35 percent reported an expectation of increased nearshoring.
But Mexico may not have to wait until 2030 to see concrete change derived from nearshoring. Bloomberg has reported that Tesla is preparing to build a billion-dollar plant in Mexico. Likewise, BMW has said that it will invest €800m into its existing plant located in the Mexican state of San Luis Potosi. The tides have begun to turn.
A significant opportunity for Banorte lies in the economic activity generated by the realisation of these investment announcements. Once the newly established plants become operational, there is substantial potential not only in terms of credit, but also in providing a comprehensive range of financial services. These services may include intelligent treasury products, cash management, insurance, and more, with a primary focus on serving commercial segments, SMEs, and retail customers.
Furthermore, Banorte has been actively engaging and incorporating international companies with local operations into its customer base through our international desk. The number of such international clients has witnessed significant growth in recent months. Leveraging partnerships and relationships with various stakeholders, including international banks, specialised consultants, legal and shelter firms, we have observed an increasing number of companies seeking industrial spaces across different hubs. This presents notable opportunities for Banorte, especially considering our strong footprint and physical presence in these areas.
The nearshoring boom
Considering this strong momentum for the Mexican economy, Banorte will be the bank of nearshoring. It has already begun preparing for the future. Banorte’s research department has identified that the types of businesses most likely to grow due to nearshoring include: agricultural goods and livestock, chemicals and plastics, apparel and accessories, basic metals, machinery and equipment, and electronics. The financial group, which currently employs more than 30,000 people, is positioning itself at the forefront by adding 1,200 jobs within the country, which will specifically support these growing industries.
Banorte has been actively engaging and incorporating international companies with local operations into its customer base
Nearshoring is an exceptional opportunity for Mexico, specifically for the North and centre, as many of these new opportunities are located in these regions. Leading Mexican states in terms of exports to the US include Chihuahua and Nuevo León, with recorded exports of $73bn and $53.2bn, respectively.
These states are followed by the central and western states, collectively known as the ‘Bajío’ region in Mexico. This region is highly regarded as a crucial agricultural and industrial hub within the industry.
Banorte has strategically positioned itself in these regions, boasting a strong presence. Approximately 56 percent of its branches and around 52 percent of its loan portfolio are concentrated in these areas. This significant presence is well-aligned with the potential for economic growth in these regions. Additionally, Banorte has established robust financial relationships within these locations. The recent addition of new talent further enhances our capacity to strengthen existing client partnerships and provide support to both SMEs and emerging businesses, driven by the trend of nearshoring.
Simultaneously, Banorte is building technological capabilities to create fully digital environments to provide comprehensive financial services to the newly established companies, once they are operational in the country. The influx of nearshoring opportunities is predicted to cause a rise in migration from the country’s south to its northern states. In turn, this will spur the need for more mortgages and small business loans in the region. As a local bank, I believe that Banorte Financial Group is uniquely situated to support these local investments.
Challenges await
In Banorte’s Zoom nearshoring report, we have outlined a ‘four-helix’ model that will engage the government, the private sector, educational institutions, and society to ensure that Mexico realises the full potential that nearshoring has to offer. These four entities will need to work together to improve public infrastructure, foster public and private policies that incentivise investment, improve on rule of law indicators, invest in human capital, raise competitiveness and productivity, and integrate states and regions which are not currently part of supply chains that specialise in attending foreign markets.
The opportunities and challenges facing Mexico at this juncture are intense. But since its founding in 1899, Banorte has been adept at anticipating the twists and turns ahead, pivoting as the situation requires to ensure growth and forward momentum. To combat Mexico’s low rate of banking penetration, the bank has invested in key strategic alliances with digital disruptors to introduce new payment method innovations to the country’s market. Myriad awards and accolades demonstrate its ability to navigate through dynamic economic landscapes with prudence and insight.
It’s not enough, in this day and age, merely to sell insurance. Companies wishing to stand out in a crowded insurance marketplace, to prove their relevance, to gain and keep the trust of customers, must go above and beyond. That’s the thinking behind our corporate philosophy here at Fubon Life. ‘Be positive, enrich life’ encapsulates our commitment to being a force for good in society, whether that’s through our inclusive product line, our outstanding customer service or our ESG ambitions.
It’s this strategy that has won us the support of more than five million policyholders and investors in Taiwan, an impressive share of the market on this island of 23.6 million people. One of the positive outcomes of that support was a cumulative net income after tax of NT$65.5bn ($2bn) in 2022, putting Fubon Life Insurance in a strong position to further invest in our ESG programme. Threats relating to climate change and ageing populations are real, prompting increased action from financiers and banks around the world. As a leading Asian economic centre, Taiwan is part of this trend. As we play our role in this important arena, we move towards becoming one of Asia’s foremost financial institutions.
Going green
Through our ESG goals we seek to engage with the entire population of Taiwan to create common prosperity and common good. We pursue a programme of sustainability using four key low-carbon strategies: green procurement, a friendly workplace, paperless services and environmental protection efforts. All of these are in line with the United Nations’ Sustainable Development Goals (SDGs).
We are proud of our support for environmental schemes, initiatives that both protect nature and connect people with the natural world. A collaboration with the Society of Wilderness saw us conducting river waste screening surveys in the cities of Hsinchu and Taichung. Working with the River Management Office, Water Resources Agency and the Ministry of Economic Affairs, we built a public-private river conservation platform.
We pursue a programme of sustainability using four key low-carbon strategies
By leveraging Taiwan’s wider strategy of University Social Responsibility, which encourages universities to become active contributors to local sustainability, our platform has been bringing river waste issues to campus for the first time, hopefully leading to an improvement in the island’s water quality overall.
Reforestation has been another priority, with our ‘Work for Green’ initiative incentivising sales agencies and agents to protect water sources and coastal ecology through the planting of 12,000 trees in 2022. Our green finance strategies have now been adopted by more than 460 sales agencies and 20,000 tied agents across Taiwan, these numbers giving an indication of the potential of our people when it comes to working for the good of the environment.
Social commitments
Looking after the people of Taiwan – our customers and potential customers among them – is just as key to our ESG commitments as environmental measures. We continue to support dementia care, a growing health and social issue in Taiwan, where someone receives a new dementia diagnosis every 40 minutes. This support includes working with the Federation for the Welfare of the Elderly, Taiwan’s largest elderly welfare organisation, to promote its ‘Love Bracelet’ initiative, which helps return people to their homes and families in the event of getting lost.
While Taiwan is undoubtedly facing challenges associated with an ageing population, it’s important that we also support the young. By focusing our efforts on sports initiatives we encourage the sorts of healthy behaviours that will improve health outcomes in later life.
Sport can also be a wonderful vehicle for community cohesion. With this in mind, Fubon Life is a long-term title sponsor of the University Basketball Association. We also support the college inter-departmental cup, three-on-three basketball tournament and Kaohsiung Fubon marathon.
Policies for the people
Of course, our main business is insurance, and so it’s there that we make the most impact, by providing inclusive policies created with the Taiwanese people in mind. Our website and mobile applications optimise service for all, while special technologies cater to hard of hearing customers, recently arrived migrants, elderly people and other groups.
Our ‘Life Account 4+1’ meets five core needs – responsibility, health care, long-term care, retirement and inheritance – in the process cultivating in our customers an attitude of forward planning that stands them in good stead for the future.
Supplementary protection comes in the form of our national insurance policy, which includes a health check as standard. Furthermore, in response to the fact that cancer has been among the leading causes of death in Taiwan for 40 consecutive years, we now also offer specialist cancer insurance that covers the high-end treatment and costly medical expenses associated with cancer.
It’s no surprise then that Fubon Life has 12 times been named ‘Taiwan’s Best Life Insurance Company’ by World Finance. Other recent gongs include the Taiwan Corporate Sustainability Award and gold at the National Insurance Three Awards Ten-Year Hero List. We’re here for the people of Taiwan and are thrilled to have been recognised for it time and again.
The story of Colosseum Tannlege goes all the way back to 1986. It started with a smile and an idea. It started with someone who saw new opportunities in the dental health profession. They trusted their own vision and ambition, even if they were perhaps a bit blue-eyed at the time. Today, Colosseum Tannlege is Norway’s leading provider of dental health services, with over 70 clinics across the country.
“My motto is that knowledge in itself is not power, but shared knowledge brings the power and value that takes you and your company to the next level,” Mia Grundstrøm, CEO of Colosseum Tannlege, tells World Finance.
The future of dentistry is digital
Colosseum Tannlege is definitely about sharing knowledge. That’s why the company has invested in their own Colosseum Academy, Northern Europe’s most professional course room in the field of dental health. The employees are all united when it comes to topping up professional knowledge. And there will be more to come.
Grundstrøm is emphasising the importance of technology. These days, artificial intelligence (AI) is helping dentists detect tooth decay faster to start treatment sooner. It can also be used to measure bone loss in the jaw, allowing dentists to identify the need for tooth extraction at an earlier stage. Another exciting development is the use of 3D printing, which enables more precise and cheaper manufacturing of dental implants and other prosthetics.
AI and modern technology have the potential to play an important role on the road to achieving a more sustainable and eco-friendly dental health industry. Using 3D printing reduces material consumption and waste, while AI-based diagnostics and treatment planning can improve accuracy and reduce the need for invasive and resource-intense interventions.
Exceeding customer expectations
In the past, the idea of a large dental chain would have been a daunting thought for many practice owners, but Colosseum Tannlege is excited to see more independent dental practices join a larger dental service and experience the positive aspects of being part of a greater whole. “A large interdisciplinary clinic offering a wide range of services creates an inspiring professional environment and is an excellent platform for learning and knowledge exchange,” says Grundstrøm.
The field of dental health is witnessing increasing competition, driven by higher customer expectations. “We need to exceed our patients’ expectations so they will tell their friends about their experience. If we care a little extra about everyone who comes to visit – then even those who were afraid of the dentist, or perhaps see dentistry just as a necessary evil – leaves us satisfied and with a positive experience,” Grundstrøm said.
2022 was the fastest growth year for Colosseum Tannlege to date, with 22 new clinics joining the chain. For Grundstrøm, scaling the business while retaining a high level of service is about getting the right people on board; “As a manager, you must dare to hire people who are more knowledgeable than yourself.”
European markets
Colosseum Tannlege is the Norwegian arm of Colosseum Dental Group, which operates in 11 markets across Europe. Although Colosseum Dental Group is Europe’s leading Dental Support Organisation (DSO), the company’s market share is only 1.5 percent in Europe. There is still great potential for consolidation and professionalisation, which in turn will benefit patients.
Colosseum Dental Group is owned by the Jacobs family through Jacobs Holding. Jacobs Holding donates all of its financial dividends to the non-profit Jacobs Foundation. The Jacobs Foundation invests in the future of young people by supporting the development of young people and children through programmes around the world. It aims for equal access to high quality education whatever their background and wherever their home.
“Having an owner with such a long long-term perspective and a clear purpose as Jacobs helps us bring the best out of our business, which again promotes the best for our patients,” Grundstrøm adds.
Humbled and proud
Mia Grundstrøm became CEO of Colosseum Tannlege in 2020, six months in to the Covid-19 pandemic. She previously worked with Aleris, Norway’s leading private healthcare company, for 13 years, as business controller, CFO and then CEO. Grundstrøm has this year been named ‘CEO of the Year’ in the dental industry in Europe.
“I saw Colosseum Tannlege as my next challenge. It is motivating to be part of the development of this industry, where Colosseum Tannlege still has great growth potential,” says Grundstrøm.
“I am very humbled and proud to lead Colosseum Tannlege, with a team that stands out and delivers quality to our patients every single day. As a manager, I focus on giving employees opportunities for further development. Skilled and motivated colleagues contribute to a good working environment, which leads to satisfied and loyal customers,” Grundstrøm concluded.
The past three years have been a challenging period, globally. With economies still finding their feet post pandemic, the world has been presented with new or evolving challenges. Whether natural calamities or man-made challenges, Standard Insurance has consistently been prepared, always ahead of its time in terms of technology and innovation, complemented by its internal culture – a passion for excellence.
The non-life insurance industry sector continued its growth momentum in 2022 as gross premiums grew by 13.2 percent at PhP106.8bn (approx $1.9bn), from the previous year’s growth of 12.6 percent and negative 9.4 percent growth in 2020 at the height of the Covid-19 restrictions. In the meantime, with the normalisation of businesses and mobility, losses incurred grew by 1.6 percent at PhP21.8bn ($387.1m) from negative growth in the last two years. Nonetheless, the industry sector’s net income growth was 39.7 percent at PhP6.9bn ($122.6m).
Similarly, riding on the positive economic and industry developments, as well as driven by its associates’ passion for excellence, Standard Insurance continued its growth momentum, posting a 12.9 percent growth on its gross premium business for the year 2022 at PhP4.3bn ($76.4m) versus the previous year, and surpassing pre-Covid 2019’s Php3.9bn ($69.3m) premium level. Motorcar insurance remains the core of the company’s business portfolio, accounting for 79.3 percent of total generated premiums for the year, followed by fire and property at 11.3 percent. It continues to be the standout leader in motorcar insurance.
Nonetheless, the non-life insurance sector faced challenges in 2022 and continues to do so in 2023. These challenges include: inflation, climate change effects, and the continued need for digital transformation.
Digitalisation revolution
The evolution of digitalisation, precipitated by the Covid-19 related lockdowns, has now progressed to data-driven transformation and artificial intelligence. It has proven to be a challenge for the other industry players. Early adopters have a competitive edge, but eventually, all players must follow suit, posing a major problem for the industry.
Standard Insurance has a strategic technology platform that features a core processing system and sub-systems whose functionalities are continuously upgraded as the need arises. The company’s systems are in the cloud, allowing it to scale its operations effectively.
The company uses data analytics and artificial intelligence, which now includes an Application Programming Interface (API), allowing for predictive and advanced analysis, better pricing, better underwriting analysis and decisions, as well as improved churn rates.
In recent years, the Industry has evolved in terms of the changing market dynamics, demographics, and preferences. For one, the customers of our core business are now predominantly Millennials and Gen Zs, replacing the Baby Boomers and Gen Xers. As such, we needed to further elevate our systems to enhance our responsiveness to client engagement. Our adaptation includes widespread use of AI and more interfaces via text and online platforms like Viber, Messenger, WhatsApp, Tiktok and other multiplatform messaging apps.
The company has a presence in different fintech platforms for ease of payments. Aside from being an e-wallet, fintech enables remittances, banking, investments, payment gateways, and other services, including insurance purchases. We are likewise carried by all aggregators in the digital space. Standard Insurance is actively enhancing its service quality through a customer experience team that scores our performances, ensuring continuous engagement with clients and addressing gaps.
We aspire to be a 21st-century insurer, on the cutting edge of technology
Another internally developed app called the Standard Insurance Customer Assistant (SICA), our customer facing platform, allows clients to register and monitor their respective policies (for now confined to motor and travel policies) and file their travel claims or motor claims online.
But one of the major industry game changers is the introduction of ISSI Office, an insurance office in an app, our ISSI agent platform. It allows our nationwide agent intermediaries and branch associates to conveniently perform the whole insurance cycle, from negotiations between an intermediary and the client, to consummation of transaction and payment of premiums, up to filing and servicing of the claims, using only a smartphone or any telecomputing device, or the web. Standard Insurance received its certificate of copyright registration for this mobile app in February 2023.
For now, ISSI covers our motorcar, travel and personal accident insurance and most recently, our property lines limited to residential and pure office risks. For the latter, the app uses a combination of AI and APIs for the conflagration and natural hazards assessments aligned with the set of underwriting guidelines. Standard also has APIs with banks and other intermediaries, which allows our systems to communicate with each other, thereby streamlining digital processes such as online payments, among others.
The company is utilising technology to enhance clients’ insurance experience, providing peace of mind and security during unforeseen events. We aim to give our clients a sense of security so that in worst case scenarios when they need us the most, we are there to cover their downside. We aspire to be a 21st-century insurer, on the cutting edge of technology and able to meet our customers’ requirements in a time when both technology and markets are changing.
Challenges of reinsurance renewals
The year 2022 started with the non-life insurance sector reeling from the effects of Typhoon Rai (locally known as Typhoon Odette) that hit 10 regions in the country at the close of 2021, which impacted around 2.3 million families. The Western Visayas was hit hardest. The total estimated cost of destruction was PhP47bn ($834.6m) in economic damages, outpacing Typhoon Haiyan’s (Typhoon Yolanda) PhP40bn ($710.3m).
The company is utilising technology to enhance clients’ insurance experience
The company, with 64 years of experience in weathering calamities, responded effectively to this catastrophic event. With a strong reinsurance facility, the company was protected financially. Standard Insurance was the first to determine its gross loss reserve, surprising reinsurers as none of the industry players did so for several months after the event. This allowed the company to finalise and renew its treaty programmes for 2022–23 and 2023–24, setting it apart from competitors.
On the other hand, competitors’ reserves in 2021 were not properly managed, leading to changing loss reserves and challenges in renewing reinsurance treaties in 2022 and 2023. Accurate consolidated loss reserves have yet to be reached for our competitors. Standard Insurance conducted exposures in typhoon-affected areas, calculated potential losses, and maintained gross loss reserves, while other players increased reserves, some multiple times the original declaration.
The company made a presentation showing the path of the typhoon and photos of the damaged properties, particularly in Cebu, and the initiatives undertaken by the company during and immediately after the typhoon. Cebu is the second largest area next to Metro Manila in terms of insured values. This presentation was shared to all our reinsurers, who acknowledged that this was the first time they were seeing things on the ground, following complete silence from the local insurance market in the wake of Typhoon Odette.
The reinsurance market has attempted to harden in the last two or three years and has markedly done so in 2023. Capital is thus becoming scarce and proportional treaties in some markets, including here in the Philippines, were not renewed. Standard Insurance’s reinsurance treaties have been in an excess for loss programme for many years. As such, the company renewed its treaties, with the same treaty capacities and retention levels at reinsurance costs within our expectations. On the whole, our reinsurance programme is now even stronger, with Munich Re and Swiss Re acting as our treaty leaders.
Unique challenge of underinsurance
Inflationary pressures in 2022 continue to heavily impact in the current year, increasing insurance acquisition, claims, and indemnity costs, particularly spare parts and labour costs for motor car insurance and replacements costs for property insurance. Underinsurance can occur due to inflation spikes, and more often than not, clients’ expectations are not met when unexpected losses and claims occur.
By default, property insurance cover is based on sound value where depreciation is computed at the time of loss. Requesting the client to have his asset professionally appraised so that insurance cover is based on replacement cost means additional fees which clients are generally resistant to, especially if the appraisal needs to be updated periodically.
Following Typhoon Odette, underinsurance was one of the major challenges faced by the industry. For Standard Insurance, our property policy includes an average clause as one of the conditions, which simply means that the client becomes a co-insurer on the difference between the actual value of their properties at the time of loss, and the policy TSI (total sum insured). However, this led to uncomfortable discussions with our clients as their expectations were not met.
In 2023, one of the biggest initiatives of our risk management division was to re-educate our associates about the adequacy of clients’ insurance vis-à-vis the basis of the policy sum insured, and then update our clients on this so that we are all on the same page, in the event of a claim. Moving forward this initiative may present some challenges, but the company is determined to educate its clients and make this its advocacy. Our campaign for 2023 is to ensure that our clients have updated their values so that when a big event hits, they are covered properly.
On the motorcar portfolio, underinsurance was not much of a problem, as the value of the units are automatically depreciated annually as basis for its TSI. Nonetheless, should inflation substantially affect cost of materials or spare parts and labour for vehicle repair, our technical training centre (TTC) may present an alternative repair service, potentially reducing motor car claims.
Despite the challenges in 2022, the company maintained a healthy portfolio of risks, regardless of the continued build-up of competitive pressures. For certain underwriting gaps that arise due to global and local inflationary and supply chain disruptions, we face these challenges headlong and will provide whatever it takes to address this.
Moving forward, we will continue to innovate systems and processes, empower our people, and maximise potential in the evolving market. We will invest in diversity of skills, perspectives, and approaches to ensure our combined ability to create, innovate, make decisions, and execute strategies to maintain relevance in the present and long term.
Passion for excellence
One recent example of our CSR supporting world-class Filipino athletes is our 2023 China Sea Race participation. Standard Insurance Centennial 5, skippered by Ernesto Echauz, won the historic China Sea Race. Clocking 12 hours, 45 minutes, and 47 seconds, Standard Insurance Centennial 5, with its 19 all-Filipino crew, crossed the finish line with an elapsed time of one hour, 25 minutes, and 47 seconds to win the Line Honours division of the Rolex China Sea Race. It marked the first time in the race’s 61-year history that a Philippine entry has dominated the event.
A big part of the company’s sustainability initiative is its lead role in the Philippine operation of the Scaling Up Nutrition (SUN) business network, a global movement whose main objective is to enjoin private companies in a collective effort to eliminate hunger and improve nutrition.
All these initiatives align with the company’s massive transformative purpose of providing ‘Peace of Mind for All Mankind’ and supports the United Nation’s 17 Sustainable Development Goals to end poverty, protect the planet, and ensure that all people enjoy peace and prosperity by 2030. Our programmes support 12 out of the 17 SDGs.
Above and beyond all of this, we remain fully committed to doing our share to make this a better world because our past affects our present and our present determines our future.
Last winter, the eyes of the world were firmly fixed on Qatar. As the first Middle Eastern nation to host the FIFA World Cup, Qatar delivered a landmark event over four fantastic weeks of football. A momentous occasion for the gulf state – and for the wider Arab world – the tournament marked a significant milestone in the nation’s development journey. The competition showcased modern Qatar to the world, with television broadcasts highlighting state-of-the-art stadiums and cutting-edge transport infrastructure in the capital city of Doha. Watching these slick images of a bustling, contemporary nation, it is all too easy to forget just how rapid and profound Qatar’s economic transformation has been.
Since declaring its independence in 1971, Qatar’s oil and gas boom has propelled it to new heights. The tiny gulf state – with a landmass smaller than the US state of Connecticut – boasts a fast-growing economy that significantly outstrips its size. And while the country’s vast oil and natural gas reserves have historically driven its rapid GDP growth, Qatar is now looking ahead to a more diversified future.
Since 2008, the nation’s policy direction has been shaped by the Qatar National Vision 2030; an ambitious development plan that seeks to transform Qatar into an advanced country by 2030, capable of sustaining its own development and providing a high standard of living for all its people for generations to come.
One of the core principles of the Qatar National Vision is economic diversification. While the country’s natural resources have unlocked vast wealth over the past 50 years, the nation is now seeking to gradually reduce its dependence on hydrocarbon industries. Capitalising on the success of the 2022 World Cup, Qatar is seeking to open itself up to international investments and grow its private sector, while exploring the potential of emerging industries such as tourism, sports, finance, technology, real estate and logistics. The tournament has, in many ways, set the stage for an exciting and transformative next phase of development for Qatar. As the nation moves into a new chapter in its history, the lasting legacy of the World Cup may be greater than anyone could have previously imagined.
New direction
As it begins its new stage of development, Qatar will be looking to build on the successes of its historic World Cup. One of the tournament’s most significant legacies is the impact it has had on the nation’s physical infrastructure. In preparation for hosting the competition, Qatar made significant investments in new state-of-the-art stadiums, high-speed transport networks and enhanced accommodation offerings. These projects were built with the post-tournament future in mind, and are now in the process of being repurposed and optimised for new uses. Investments in the Doha metro and tram service, for example, have boosted accessibility for the city’s residents and visitors long after the World Cup came to an end. The expansion of the Doha International Airport and the construction of a cruise terminal in the capital city have also helped to enhance Qatar’s connectivity in the long term, while the country’s specially designed sporting stadiums will find a new lease of life at next year’s Asian Cup.
The country is seeking to develop a knowledge-based economy, with new technologies at its core
This enhanced infrastructure will stand the nation in good stead as it seeks to cement its position as a premier tourist destination in the Middle East. Prior to the World Cup, Qatar was already a popular travel hotspot, but the competition has opened the country up to new visitors, in what has been a real boon for the tourism sector. Over 2.56 million people visited Qatar between January and August of this year – more than the total number of visitors the country attracted in 2022.
With its rich cultural heritage, futuristic capital city and year-round sunshine, it’s clear to see why Qatar is a rising tourist destination. But the country isn’t just looking to attract holidaymakers. Boasting state-of-the-art infrastructure and strong connections to the wider Middle East, the nation is also hoping to appeal to new international investors. World Finance spoke with Omar Alfardan, Managing Director at the Doha-based Commercial Bank, about the country’s development and the role of his own bank within that growth and expansion.
“Becoming an attractive destination for international capital after the domestic investment boom around the World Cup is a strategic objective for Qatar. The country is positioning itself as a gateway to larger regional markets by establishing trade and investment agreements with neighbouring countries. This strategy amplifies Qatar’s appeal to international investors,” Alfardan explains.
Indeed, the nation is aiming to create an ever more attractive business environment to boost foreign investment and domestic employment. The country is considered to have one of the least demanding tax frameworks in the world, and is in the process of enhancing its regulatory framework to offer a more transparent, predictable and welcoming environment for investors.
Technology also plays a key role in Qatar’s new economic ambitions. A growing number of incentives are in place for tech start-ups and research and development centres, in an effort to foster a thriving culture of innovation and entrepreneurship. Increasingly, the country is seeking to develop a knowledge-based economy, with new technologies at its core, and has set itself specific targets when it comes to training Qatari nationals and upskilling its workforce to prepare for both the challenges and opportunities of the future. Like many fast-growing economies across the globe, a complete and comprehensive digital transformation will be central to Qatar’s future development.
Going green
As climate change continues to climb up the global agenda, Qatar is making sustainable development a key priority. While its oil and natural gas reserves remain central to the nation’s economy in the short and medium term, Qatar is actively taking steps to reduce its reliance on hydrocarbons and embrace a more sustainable future. And the country isn’t just motivated by global sustainability efforts in this area – with 97 percent of the Qatari population living in urban areas along the coast, the nation is particularly vulnerable to rising sea levels, while its arid desert climate also places it at risk of extreme heat and drought. Transitioning to a more sustainable economy is therefore not just a moral imperative, but key to the country’s long-term survival.
Qatar is positioning itself as a gateway to larger regional markets
“Qatar has made significant progress in recent years in advancing renewable energy and energy efficiency initiatives,” Alfardan tells World Finance. “This strategic commitment aligns with the nation’s goals to diversify its energy sources, reduce its carbon footprint and contribute to global sustainability efforts.” In recent years, Qatar has launched several renewable energy projects, including the development of solar and wind power facilities, which harness the strengths of the country’s desert climate. The Al Kharsaah Solar Plant, located 80km west of the capital city of Doha, is now one of the largest solar plants in the word, capable of producing 10 percent of the country’s peak electricity demand. With its abundant sunshine and vast, unoccupied swathes of desert, Qatar is perfectly placed to benefit from solar power, and plants such as Al Kharsaah will be pivotal to its energy supply in years to come.
The nation is also emerging as a world leader in sustainable construction and urban planning. Over the course of the last decade, a number of ‘smart’ cities and districts have sprung up across the country, each with their own impressive energy-saving and carbon-reduction strategies. The city of Lusail, located just 15km north of Doha, is setting the standard for future developments in the country. As Qatar’s first sustainable city, Lusail is a Vision 2030 flagship project, showcasing an array of environmentally friendly design features and setting new green building standards that will shape the future of the Qatari construction industry. Its water-sensitive landscape plan is specifically designed to minimise water consumption, while its innovative district-wide cooling system is set to save 65 million tons of CO2 each year. Dubbed ‘the city of the future,’ Lusail is a living embodiment of the values of sustainable development – and exemplifies Qatar’s environmental progress on a grand scale.
Alfardan continues; “Qatar has made significant strides in advancing renewable energy and carbon reduction, positioning itself as a regional leader in sustainable development practices. These efforts not only contribute to Qatar’s environmental goals, but also enhance its energy security, economic resilience, and its global reputation as a responsible and forward-thinking nation.”
Financing the future
As Qatar embarks on an exciting new chapter in its development, the nation’s banking sector will have an important role to play in supporting this ambitious economic journey. Strong, resilient and well-regarded by international investors, the Qatari banking sector is well placed to drive growth and prosperity as the nation looks to diversify its economy.
A complete and comprehensive digital transformation will be central to Qatar’s future development
Growing the role of the private sector is key to the nation’s diversification efforts. Promoting entrepreneurship, supporting small and medium-sized enterprises (SMEs) and growing the start-up community are development priorities for Qatar, as it looks to transition to an innovation and knowledge-led economy. Quite simply, this cannot be achieved without the right support for the private sector.
“Supporting the next stage of Qatar’s economic journey is a priority for Commercial Bank, and we believe that the banking sector can play a pivotal role in this endeavour,” says Alfardan. “By facilitating investment, empowering SMEs, embracing digital transformation, promoting sustainability and fostering collaboration, we aim to be a catalyst for economic growth, innovation and prosperity in Qatar.”
Indeed, Commercial Bank is taking a multifaceted approach to supporting private sector growth in Qatar. It provides a broad range of tailored financial solutions for both local and international investors, with a view to helping businesses thrive and expand. Specialised investment advisory services, competitive lending terms and structured finance solutions all help to make Qatar a more attractive place to invest.
SMEs and small start-ups, meanwhile, require their own forms of targeted support. They are vital drivers of economic diversification and job creation, and therefore form the very foundations of the innovative, knowledge-based economy that Qatar wants to create. Through effective financial and non-financial support, Qatar’s burgeoning SMEs can flourish and grow.
“We are committed to empowering SMEs by providing access to capital, financial advice, and specialised banking solutions that cater to their unique needs,” says Alfardan. “Through this targeted support, we hope to support a culture that fosters entrepreneurship and innovation, in line with Qatar’s economic diversification goals.”
Securing financing is a significant milestone for any small business. But there are plenty of other hurdles that start-ups and SMEs have to face on their journey to growth and profitability. That’s why non-financial support can prove just as valuable as securing funding – and is something that Commercial Bank prides itself on providing. Alongside its personalised advisory service, the bank also offers comprehensive risk management solutions to help businesses mitigate risks associated with market volatility, currency fluctuations and other emerging challenges. By creating a supportive, nurturing environment for small businesses, Commercial Bank hopes to unlock the power of SMEs for the betterment of the wider Qatari economy.
Omar Alfardan, Managing Director, Commercial Bank
Harnessing technology
Innovation is a defining principle of Qatar’s National Vision 2030. As the country looks towards its future, harnessing the benefits of technology will be crucial in order to reach its goals. Already, technology has transformed Qatari society, with the nation having the highest levels of social media usage in the world. Internet penetration has reached 99 percent in Qatar, and the gulf state is making a name for itself as one of the world’s leading countries for new technology adoption and investment. Its ‘smart city’ infrastructure boasts 5G technology and fibre-optic networks as standard, making it quick and simple for businesses and individuals to stay connected online. Start-up hubs such as the Qatar Science and Technology Park continue to attract leading tech firms such as Microsoft, Siemens and Cisco, with foreign investment and international talent flowing into Qatar at an impressive rate.
Qatar has made significant strides in advancing renewable energy and carbon reduction
Qatar’s tech transformation is well underway, and businesses need to make sure that they don’t get left behind as the nation races towards a digitally driven future. By embracing new and emerging technologies such as Artificial Intelligence, data analytics and robotics, companies can enjoy enhanced efficiency and productivity, reduced operating costs and improved communication services, among other benefits. But unlocking these benefits and successfully integrating new technologies into a business is not necessarily an easy task. When it comes to finances in particular, it is essential that any digital transactions are as seamless as they can be.
Commercial Bank is committed to helping its customers reach their digital goals. Its powerful and convenient digital platforms enable businesses and individuals to carry out their financial transactions quickly and efficiently, while its investments in innovative banking solutions give customers a range of choices to suit their individual needs.
“We are committed to evolving alongside our changing customer needs and preferences,” explains Alfardan. “We are continually enhancing our digital technology capabilities to ensure that we offer the right products. In this way, we can help our customers to reduce their reliance on traditional banking interactions, freeing up more time in their day. Our ultimate goal in this ongoing digital transformation is to provide an exceptional, personalised customer experience.”
From mobile payment solutions to bio-metric authentication methods, Commercial Bank is always looking for new opportunities to enhance the customer experience. Last year, the firm partnered with retail giant Lulu Group to trial the first cashier-less check-out system in Qatar, all powered by Commercial Bank’s innovative payment systems. The first-of-its-kind project demonstrated the bank’s commitment to digital innovation, and to meeting the ever-changing needs of its customers.
For its efforts in the digital space, Commercial Bank has been recognised with a number of awards, including being named the ‘Most Innovative Bank’ in the Middle East by World Finance.
“In today’s rapidly evolving financial landscape, banks that fail to innovate and adapt risk losing ground to more agile competitors,” Alfardan explains. “That’s why digital transformation is a central pillar of our five-year strategic plan. Our solutions blend advanced technology with a deep understanding of customer needs, ensuring a superior banking experience for every service.”
Showing resilience
The global economic outlook has remained gloomy for some time. Last year proved to be a particularly turbulent time for the world economy. Inflation remained persistently high, with food and energy particularly affected, and many developed economies found themselves teetering on the edge of a recession. While Qatar enjoyed a substantial economic boost from hosting the 2022 World Cup, its growth has moderated over the course of 2023, showing that no country is completely immune to global economic headwinds.
However, despite these ongoing macro-economic challenges, Qatar is demonstrating remarkable resilience. Looking to build on the momentum of the World Cup, the nation shows no signs of slowing down when it comes to achieving its Vision 2030 missions, and the economic outlook for Qatar looks decidedly more upbeat than for many other countries in the developed world.
“We know that some economic volatility is expected to persist in 2023 and beyond,” says Alfardan. “Nevertheless, Commercial Bank’s strategic plan will allow us to effectively confront these immediate challenges and navigate the longer-term landscape.”
In fact, amid wider global economic uncertainty, Commercial Bank is experiencing significant growth in a number of key business segments. Its corporate banking division continues to thrive, and offers a comprehensive suite of financial solutions to meet the diverse needs of its customers. Likewise, the bank has experienced an increased appetite for its wealth management products and services, and is pleased to be able to assist its customers in their unique financial journeys.
“From early adulthood through to retirement and beyond, Commercial Bank works with its customers to proactively manage their finances, set realistic goals and make informed decisions,” Alfardan explains. “Our customised solutions support customers with a variety of aims – whether that be saving for education, purchasing a home, or planning to start a family. And with a long history in the Qatari finance and investment sector, Commercial Bank is a well-established expert when it comes to achieving financial goals.”
Giving something back
As demonstrated in its National Vision 2030, Qatar is becoming increasingly committed to environmental, social and governance (ESG) issues. In the next phase of its development, the nation is looking to balance economic growth with social development and environmental management, and this high-level strategy is already beginning to effectively trickle down to Qatari businesses and the wider community. Within Qatar’s banking sector, too, ESG principles are becoming ever more important. In recent years, Qatari banks have become more involved in green financing as part of their commitment to sustainability and environmental responsibility. ‘Green loan’ products are becoming an ever more common feature of the Qatari finance industry, and are being effectively used across the country to finance environmentally responsible initiatives. From water conservation schemes to waste management initiatives and large-scale renewable energy projects, green loans are enabling a vast array of environmentally conscious endeavours in Qatar.
“Commercial Bank is proud to offer green loans to its customers. We are deeply committed to sustainability and ESG considerations, both as an integral part of our corporate strategy and as a reflection of our responsibility to our stakeholders,” says Alfardan.
In line with Qatar’s National Environment and Climate Change Strategy, Commercial Bank is intensifying its efforts to reduce its carbon footprint, with a 25 percent greenhouse gas reduction target in place for 2030. And the bank’s ESG commitments don’t stop at sustainability. Commercial Bank also prides itself on maintaining good governance practices, and is one of just a handful of banks in the Middle East with deferred bonus arrangements for its senior executives.
At every level of its business, Commercial Bank is looking to exhibit exemplary ESG principles. Just as the State of Qatar has committed itself to a sustainable and socially conscious future, so too has Commercial Bank. With the steadfast support of Commercial Bank and others within the resilient and influential banking sector, Qatar appears to be well on its way to becoming a dynamic and diversified economy of the future.
Striving to offer a holistic and personalised banking experience, BNL BNP Paribas Private Banking & Wealth Management’s lauded ‘One Bank’ model, leveraging on the expertise of BNP Paribas Group, successfully bridges the gap between wealth management and corporate banking in a way that delivers on the promise to ‘bring the entire bank to the client.’
In today’s fast-moving global arena, efficiency is everything – in the field of banking and beyond. It’s paramount for us at BNL BNP Paribas Private Banking & Wealth Management to simplify our clients’ financial affairs. Through our One Bank model, we are able to offer customers exclusive access to all the expertise of the single entities of the BNP Paribas Group thanks to a worldwide and integrated platform of tailor-made solutions. As stated, our aim is to bring the entire bank to the client.
So how are we able to put this into practice? Firstly, BNP Paribas is an international banking group and a global leader in different market segments. Our advantageous position allows us to serve and support our clients – ranging from entrepreneurs to families – in more than 65 countries, integrating wealth management needs with corporate and investment banking expertise. We are active in numerous fields, and we have expertly developed projects across real estate, M&A, global markets and securities services.
For each project undertaken, we deploy our best team of professionals to manage the most complex and transversal needs for our clients, generating new opportunities in the process. To strike the right balance, we rely on the synergistic and structured approach between different job profiles of the bank. The specialised know-how of our investment advisors, wealth planners, real estate and credit advisors is always available to deliver the added value needed to better serve our clients’ specific requirements.
In our service model, for instance, the role of the wealth manager is central to building and maintaining a solid partnership with the customer. To succeed, we take a strategic advisory approach, helping to transform each customer’s vision into tangible projects. Our model also embodies our value proposition clearly and consistently – we are a brand that stands for solidity, sustainability and proximity.
Moreover, by choosing BNP Paribas, customers get to rely on a solid financial structure, with a strong solvency rating and proven resilience during the different phases of economic cycles, in particular during periods of market uncertainty and geo-political tensions, when our diversification and prudent risk strategies give us a solid base from which to tackle the vicissitudes of the economic climate.
We fully harness solutions that integrate the group’s international expertise with our deep knowledge of the Italian market. As a bank, we have always paid close attention to our customers’ needs, leveraging our local connections within our specific territory, while also utilising the diversified skills of our local teams, giving customers the option to expand within global markets.
Wealth management with a difference
BNL BNP Paribas Private Banking & Wealth Management’s approach to customer service is comprehensive and far-reaching. Our customers expect to be served continuously and completely, not only for investments but for all financial, personal and professional requirements. They will find added value not only in the products we offer, but also in the quality of our services and the relationships we build and maintain, through transversal and international advisory, and via innumerable innovative pathways.
BNP Paribas Wealth Management boasts true expertise, being the first private bank in the eurozone with €410bn in assets under management – and with a presence in 17 countries. The wealth manager is a central cog in this wheel of success, and customers will quickly realise this stretches much further than the role of a simple asset manager. A wealth manager at BNP Paribas is more of a strategic advisor who accompanies the client and his family on their personal development path.
Furthermore, thanks to private assets (private equity, infrastructure, real estate and private debt), our clients have access to exclusive deals giving them the opportunity to invest in leading companies in Italy and abroad, within the main sectors, and with significant prospects for long-term capital growth thanks to co-investment.
A take on family governance
To address the issue of family governance, it is essential to have an in-depth knowledge of the customer and the economic context in which they operate. In Italy, every family business is a unique example of entrepreneurship that requires specialised and personalised solutions.
BNP Paribas Wealth Management has published an exclusive report in collaboration with SDA Bocconi School of Management on this topic. It highlights the distinctive expectations of entrepreneurial families, guiding managers and advisors towards a sound and proper family governance approach. The report focuses on successful European families that collectively give an overview of the current European market, and the research deep-dives into various issues – including emerging family governance trends.
We take a strategic advisory approach, helping to transform each customer’s vision into tangible projects
This body of research confirms that around half of the European Union’s GDP is generated by family-owned enterprises that account for nearly 50 percent of all European private sector jobs. Our business model supports family businesses to preserve, develop and maintain their corporate assets, with a focus on innovation, sustainability and how to weave in future generations to the fabric of those precious commercial futures.
At BNP Paribas Wealth Management in Italy, we approach family governance via a method we call ‘generational handover.’ This form of generational transfer means choosing a path that leads to the transfer of capital and managerial responsibility, from the present generation to the next – all put in place to ensure business continuity. The aim is to enable the asset transfer efficiently to ensure the survival of a business, as well as its stability and development over time. This very delicate phase revolves around the confidence that has developed between the outgoing generation with respect to the decision-making and managerial skills of the next. It embraces many legal, fiscal, strategic and corporate aspects.
A tool for managing this phase is inheritance planning, which – within our service model – combines high-profile expertise to provide holistic advice. Obviously each handover has to be precisely tailor-made to the family and business in question; each generational transfer is closely linked to the size and qualification of its assets, the type of business, the number of family members and the relationship among them – and, of course, the specific needs and the aims being pursued. Our goal is to make the generational transfer process a gradual experience based on structured planning, making the transition an opportunity for growth rather than a moment of crisis.
Next generation members are not only important for business continuity, but also for long-term strategic planning – they can help optimise both flexibility and resilience when it comes to change adaptation and contingency planning. By listening carefully to our clients, we have come to realise that there is an increasing interest in impact investing among next generation wealth management families. Through our models, we offer expertise in facilitating the transition to these kinds of investments, which in many cases will require radical changes in the way a family chooses to manage its wealth, with a fundamental rethink of governance structures, asset allocation and capital responsibilities.
Supporting a sustainable future
Sustainability is one of the three pillars of our GTS 2025 strategic plan. We endeavour to serve the economy in a sustainable way, placing ESG criteria at the centre of our operations. We strongly feel it’s our responsibility to generate a positive and real world impact with all stakeholders – BNP Paribas is committed to making a sustainable and inclusive contribution to the environmental, societal and economic challenges of our time. In a bid to do so, the group joined the Net Zero Banking Alliance, launched in April 2021 by the United Nation Environment Programme Finance Initiative. The two main goals here are to achieve carbon neutrality by 2050, and to focus on the most greenhouse gas emitting sectors – ensuring that key players in these sectors bear down hard on the most polluting aspects of their business models. Our ambitious efforts recently landed us an important accolade from Euromoney – the World’s Best Bank for Sustainable Finance award.
We continue to support and incentivise – through ESG funds – investments that promote environmental protection, clean energy transition, and the reduction of socio-economic inequality. Combining our skills with our clients’ influence, we have the opportunity to build a sustainable world for future generations.
Writing in their Mid-Year Investment Outlook for 2023, JP Morgan indicated that “a divergent global economic path seems likely,” meaning that while the US economy is set for slow-down, the eurozone and China may accelerate. The wider implications for investment managers are that “with significant changes to the macroeconomic backdrop and investing landscape, active management with prudent security selection and a bias toward quality will be the best approach.” This year’s winners of the World Finance Investment Management awards are those who have consistently navigated this turbulent landscape with success.
Belgium
KBC Asset Management
Brazil
Itau
Chile
BCI Asset Management
Greece
Piraeus Asset Management
Hong Kong
Pictet Hong Kong
Ireland
ABL Aviation
Kuwait
Kuwait Finance House
Mexico
BBVA Asset Management
Morocco
Attijariwaffa Bank
Pakistan
BMA Investment Advisors
Qatar
QNB Group
Saudi Arabia
Alistithmar Capital
Singapore
UOB Asset Management
Thailand
UOB Asset Management
Turkey
Ak Asset Management
United Arab Emirates
Emirates NDB Asset Management
A report by PwC has suggested that “by 2027, 16 percent of existing asset and wealth management (AWM) organisations will have been swallowed up or have fallen by the wayside – twice the historical rate of turnover.” These sweeping changes occurring across the industry landscape means that only the most talented, adaptable and resilient wealth managers will be able to see a path through this difficult terrain and World Finance has once again recognised their considerable achievements in the Wealth Management awards.
Argentina
Santander Wealth Management & Insurance
Armenia
Unibank Prive
Australia
Nab Wealth Management
Austria
Erste Private Banking
Bahamas
Scotia Wealth Management
Bahrain
Ahli United Bank
Belgium
BNP Paribas Fortis
Bermuda
Butterfield Bank
Brazil
BTG Pactual
Bulgaria
Compass Invest
Canada
Scotia Wealth Management
Chile
BTG Pactual
China
Credit Ease Wealth Management
Colombia
BTG Pactual
Denmark
Nordea Asset & Wealth Management
Estonia
Raison Asset Management
Finland
OP Private
France
BNP Paribas Banque Privée
Georgia
TBC Wealth Management
Germany
Commerzbank Wealth Management
Greece
Hellenic Asset Management
Hong Kong
CMBI
Hungary
OPT Private Banking
Iceland
Islandsbanki Asset Management
India
Sanctum Wealth
Indonesia
Bank of Singapore
Italy
BNL BNP Paribas
Japan
Sumitomo Mitsui Trust Asset Management
Kuwait
NBK Capital
Liechtenstein
Kaiser Partner (Best Multi-Client Family Office)
