Author: Helen

The World Bank reaches a crossroads

Posted on by Helen

In his first interview as the new president of the World Bank, David Malpass tried to strike a conciliatory tone, alleviating concerns over his previously polemical attitude. And yet, he couldn’t resist making remarks that in different times would cause uproar. He told CNBC: “There are challenges facing the world in terms of how you have transparent projects that are high quality [and] where the debt is transparent. China moved so fast that in some parts of the world, there is just too much debt.”

It was because of comments like these that consternation was expressed across the international development community when Malpass was elected president of the bank in April. Similarly to other Donald Trump appointees, the former chief economist of Bear Stearns holds a deep distrust of the organisation he leads: as undersecretary of the Treasury’s Office of International Affairs, he expressed doubts over the relevance of multilateral institutions, stating that “globalism and multilateralism have gone substantially too far, to the point that they are hurting US and global growth”. Christopher Kilby, a professor of economics and an expert in development aid at Villanova University, told World Finance: “Growth alone is the wrong metric to assess the merits of an organisation like the World Bank. If Malpass does take this as the sole objective, his agenda will be very different from that of previous World Bank presidents – and from the major European stakeholders.”

A divergence of objectives between the US and European stakeholders will make the new president’s work more difficult, according to Kilby. “That is likely to accelerate a trend towards special purpose ‘trust funds’ at the World Bank, where individual donors give funds for specific purposes rather than contributing to the general budget,” he told World Finance. “This tends to undermine multilateralism, in the sense of shared decision-making, and also makes administration more difficult. Overall, funding levels might not change that much, but the leadership role of the World Bank is likely to suffer.”

Although the World Bank president is not responsible for everyday operations, critics claim that the narrow selection process sends a message about the bank’s priorities

A new path
The appointment of Malpass marks a new era for the World Bank Group and its five subsidiaries – the International Bank for Reconstruction and Development (IBRD), the International Development Association (IDA), the International Finance Corporation (IFC), the Multilateral Investment Guarantee Agency (MIGA) and the International Centre for Settlement of Investment Disputes. As a group, this international financial institution underwrites loans to developing and middle-income countries, and is an integral part of the Bretton Woods system, which was set up by the victors of the Second World War to monitor the global financial system and intervene when necessary. With a firm critic of multilateralism at the helm of the World Bank, the basic tenets of the system are at risk of falling prey to the wave of populism dominating domestic politics on both sides of the Atlantic. “A smaller World Bank is in line with the anti-globalist point of view,” Kilby said.

Malpass is not alone in his criticism of the system: many US officials who espouse the ‘America first’ doctrine oppose engagement with multilateral organisations. Mark Sobel, US chairman of the think tank OMFIF and former US representative at the IMF, told World Finance: “The US now has a choice – to turn its back on the international financial institutions and not recognise the changing landscape, or to accept the reality of change and work to modernise them. The former path will lead to greater regionalism, [will cause] emerging markets [to drift] away from the multilateral system, and [will] ultimately hurt US interests.”

During his first days at the helm of the World Bank, Malpass tried to address concerns over his agenda, claiming that his past criticism focused on problems that have been solved by the bank’s previous leadership. Optimists also point to his credentials as a pragmatist who knows when to compromise. For example, as a US Treasury official, Malpass participated in talks that concluded in a surprising $13bn capital increase for the bank in exchange for reforms in recruitment and policy.

His predecessor, Jim Yong Kim, was equally controversial. An Obama appointee, Kim spearheaded an unpopular and eventually botched internal reorganisation of the bank that aimed to reduce red tape and curb costs. In an unprecedented move, the World Bank’s staff association demanded an international search for a new president in 2016, but Kim easily won a second five-year term. When he abruptly resigned in January 2019, a considerable portion of the international development community breathed a sigh of relief. Kim’s unpopularity makes the current president’s job easier, said a former World Bank official: “He has the added advantages of having generated relatively low expectations of any drastic change, and of following a president who launched a messy and still incomplete and painful reorganisation, so he will want to settle staff rather than shake up on balance.”

A game of thrones
If the ideological armour of the new president has come under scrutiny, the selection process that led to his appointment is even more controversial: Malpass ran without facing any competition as a result of an informal gentlemen’s agreement between the US and European stakeholders that dates back to the 1950s. According to this, the IMF managing director must always be European, while the World Bank president is an American. Former World Bank senior officials Joseph Stiglitz, François Bourguignon and Nicholas Stern argued in a 2012 Financial Times op-ed that the agreement is “not only hypocritical, it also destroys the trust and spirit of collaboration needed to manage the profound problems facing the world”. The appointment of presidents with questionable credentials – such as Paul Wolfowitz, one of the neo-conservative architects of the Iraq War, and Kim, a public health expert with little experience of international development – has given impetus to voices calling for the end of the arrangement.

When Kim resigned last January, more than 150 non-governmental organisations and academics urged the bank’s board to honour its commitment to an “open, transparent and merit-based” process. Many expressed hope that this election would be different when Lebanon nominated Ziad Hayek as a candidate in February. However, Hayek soon withdrew, with the Lebanese Government citing pressure from other governments as the reason. For his part, Malpass defended the legitimacy of his election: “I feel like there was a long, open and transparent process.”

One way for the World Bank to stay relevant in the 21st century is to broaden its agenda, particularly by focusing on global problems such as financial inclusion, biodiversity, pandemics and refugee crises

Ironically enough, the arrangement contradicts the bank’s own calls for good governance, representation and diversity in the developing world. In 2018, the bank launched its $12m Open Governance Partnership Multi-Donor Trust Fund, aiming “to increase government transparency, improve accountability, and strengthen citizen engagement as well as government responsiveness”. Scott Morris, a senior fellow at the US think tank Centre for Global Development, said: “Nobody can think it was a sign of progress that the US candidate for World Bank president had no challengers. This was largely a failure on the part of European governments, who made it clear enough that they weren’t interested in a competitive election at the World Bank – both because they didn’t want to directly challenge an unpredictable and belligerent White House, but also because they continue to want to protect their ability to pick the IMF managing director.”

Complaints about the president’s nationality are a thin disguise for a more important issue: how the bank is run. Many international development experts believe that borrowing countries should be leading the design and implementation of World Bank programmes. Although the president is not responsible for everyday operations, critics claim that the narrow selection process sends a message about the bank’s priorities. Frustration with this imbalance of power has pushed developing countries – such as the g7+ group of fragile states – to seek alternative solutions.

The power struggle within the ranks of the World Bank is reflected in the institution’s decision-making procedures. Currently, countries with around 12 percent of the world’s population hold 50 percent of the votes. Many developing countries are willing to contribute more capital, but the US has repeatedly blocked such moves to maintain its 17 percent shareholding and veto power. The veto itself is limited, since the US cannot block any projects, but its importance should not be understated, Morris said: “The US won’t allow itself to be diluted below the 15 percent threshold and is unlikely even to inch closer to that threshold. The veto does protect the ability of the US to stand in the way of any major changes at the institution – those that would require a change to the bank’s articles of agreement. Protecting the veto does create a problem for raising capital in the institution.”

Some hope that China could be a counterweight to American influence. Kilby told World Finance: “It seems likely that China earns some influence at the World Bank by being a great customer. However, this influence has clearly been far less than US influence. As an institution with one very influential member (the US), World Bank management would actually benefit from having a counterweight. So the World Bank doesn’t yet run the risk of being captured by China, but World Bank management might be able to use China as a counterweight to US influence.”

The China syndrome
When the World Bank was established, its mission was relatively neutral: reduce poverty by lending to developing nations. The picture has dramatically changed over the past few decades, as some of the biggest loan recipients have achieved high levels of growth and often compete directly with developed ones. Many experts express doubts over whether the group should keep lending to middle-income countries, such as China (see Fig 1). David Dollar, former World Bank official, US Treasury emissary to China and currently a senior fellow at the Brookings Institution, said: “The poorest countries should be the focus, but if the bank stops helping middle-income countries then it is no longer a global development institution.”

Despite its recent economic development, China is still one of the bank’s biggest loan recipients and is currently at the heart of this debate. Sobel said: “Critics are right to point to China’s growing income and huge reserve stockpile as reasons to ask if the bank should be lending to China. Surely, sustaining lending to China to support the bank’s income and balance sheet would be an inappropriate use of resources.” One of the harshest critics of the bank’s engagement with China is its current president: during a congressional testimony in November 2018, Malpass claimed that multilateral development banks are vulnerable to China’s geopolitical influence. More recently, he pushed for the World Bank to cut its lending to other BRICS countries, such as Brazil and China. After his appointment, Malpass confirmed that lending to China will be reduced according to the terms of the US-led $13bn capital increase.

However, reducing lending to China may not be the best option for the World Bank, or even for US taxpayers. According to Kilby, Malpass – and the Trump administration more generally – has called for a dramatic cut in World Bank lending to middle-income countries, especially China. Kilby said: “If this happens, ‘profits’ from IBRD loans [to middle-income countries] will shrink. To continue to make zero-interest loans to very poor countries, the World Bank would have to push donors like the US to increase their contributions. So this aspect of the policies advocated by Malpass will cost US taxpayers – or will force the World Bank to dramatically reduce the aid it gives to poor countries.”

Most controversial of all is the bank’s involvement in China’s ambitious Belt and Road Initiative, a development strategy including infrastructure investment that, according to many analysts, aims to consolidate the country’s geopolitical clout in Asia and beyond. Despite calls to boycott the project, the World Bank engaged with China to ensure its sustainability. Dollar said: “China’s Belt and Road Initiative is financing infrastructure in many core clients of the World Bank. If the bank does not coordinate with these activities, then there will be disjointed projects and financing, and poor outcomes for developing countries. Developing countries do not want to choose between working with China and working with US-dominated institutions such as the [World Bank].”

New players
Another potential source of concern for the bank is the rise of alternative multilateral development banks. Examples include the China-led Asian Infrastructure Investment Bank (AIIB) and the New Development Bank, which was established by the BRICS countries. Dollar said: “The emergence of new development banks provides healthy competition for the World Bank. The new banks have majority ownership by developing countries so their policies are likely to reflect the preferences of those countries. It will be a challenge for the World Bank to remain relevant while still satisfying its owners, [which] are mostly rich countries.” Their activity may benefit the World Bank in the long term, a former World Bank official told World Finance: “‘Cherry-picking’ by the likes of the AIIB of relatively easy and rewarding project finance in a booming region would tend to push the World Bank into doing some harder things, such as funding more complex regional and global public goods, but that evolution is not a bad thing.”

Although World Bank lending peaked at a record $64bn in 2018 (see Fig 2), in relative terms it is decreasing for most developing countries, as these nations increasingly have access to other sources of finance, such as bond markets and Chinese overseas lending. Bilateral lending by China through state-owned companies and banks is, according to some estimates, several times bigger than World Bank loans. But it’s not just loans that developing countries are interested in, Morris said: “Perhaps the surprising result of all this is that the World Bank is still clearly in demand. We might expect that countries would have lost interest in the bank by now, given other options. But demand for World Bank lending has never been higher. Countries, including large-economy countries like China, clearly value their engagement with the bank and are eager to continue borrowing to tap [into World Bank] expertise, even if they don’t ‘need’ the money.”

The World Bank is involved in China’s Belt and Road Initiative, a controversial development strategy that aims to consolidate the country’s geopolitical clout in Asia and beyond

A modern agenda
One way for the bank to stay relevant in the 21st century is to broaden its agenda, particularly by focusing on global problems such as financial inclusion, biodiversity, pandemics and refugee crises. Many experts have called for the bank to take a more active role in the integration of services into global markets – particularly financial markets through capital market development and regulation.

Through its financial inclusion programmes, the bank aims to reduce the number of people without access to financial services. According to the bank’s Global Findex database, there were 1.7 billion adults in the world without a bank account of any type in 2017, with nearly half of these people living in just seven countries (see Fig 3). Critics say the bank can do more to address this issue. Morris noted: “I think development of domestic capital markets and deepening access to external markets ought to remain a high priority for the institution. But it’s a tough agenda, and it’s not clear the bank has a hugely successful track record.”

Climate change is gradually becoming a top priority for the World Bank, but its room for action is constrained due to the lack of a broader political consensus and, more recently, the dogged resistance of the US. The institution also lacks a cohesive approach to climate finance, according to Kilby: “The trend towards more special purpose trust funds managed by the World Bank is likely to continue. With active US opposition, much of the World Bank’s climate change activity may be confined to operations funded from these sources. That points to a piecemeal approach rather than broad policies. This would be unfortunate and inefficient.”

In the past, Malpass has criticised the bank’s emphasis on climate finance and was a key player in pulling the US back from climate finance agreements. However, in his first days at the helm of the institution, he acknowledged that climate change is a “key problem” facing the world and confirmed that it will be a priority for the bank. This reflects the view of the US Government, Morris said: “As bad as the Trump administration has been on climate change generally, it has tended to look the other way when it comes to the World Bank’s climate agenda. The White House’s worst tendencies on multilateralism tend to be focused on the UN, so the UN-led climate agenda will continue to be difficult to carry forward with the US playing an obstructionist role. But these dynamics also suggest that the World Bank can more quietly make significant progress on the agenda outside the limelight.”

Digital disruption could make or break the banking sector

Posted on by Helen

The process of digitalisation has been challenging banks and financial institutions for more than two decades. Some of the biggest changes they face today include the unification of digital systems, the automation of processes and the establishment of efficient means to comply with regulations. Consequently, banking technology providers are now at the core of the market structure, helping banks and their clients cope and become part of the digital banking revolution, while taking advantage of the many opportunities that come with it.

Digital platforms are now a crucial mechanism for engaging with both existing and potential customers. As such, social networks have become important tools for sales, marketing and communication. Digital platforms also facilitate banks’ and financial institutions’ global operations, regardless of their geographic location, via cutting-edge software and automation systems.

In light of these industry-wide changes, World Finance spoke with Wael Malkawi, Executive Director at ICS Financial Systems (ICSFS), about how clients are future-proofing themselves as this evolution continues.

What has caused the recent evolution in the banking industry?
Banks have been chasing digital transformation ever since the creation of fintech, when tech giants started imposing changes and creating new platforms for doing business. Today, banks are obliged to embrace digital technologies and fully leverage these changes in order to facilitate the demands of customers and proactively roll out new products. This enables them to both nurture and strengthen a customer-centric approach. As such, digital banking has become the key pillar of any bank’s strategic evolution in today’s highly competitive environment.

Banks must face the growing competition from fintech start-ups, multinational organisations and tech giants through continued disruptive innovation

How are banks coping with fintech, regtech and tech giants?
ICSFS believes that in order to be truly digital, a bank must re-engineer the way it does business by creating a new strategy of digitalisation in its business model. Essentially, banks must face the growing competition from fintech start-ups, multinational organisations and tech giants through continued disruptive innovation.

We can help clients with this, as ICSFS has the foresight needed to capitalise on the future of digital banking. It is also recognised by many official independent bodies for its excellence, progressiveness and innovation within the banking and financial sector.

What impact have disruptive digital technologies had on the industry?
The banking sector has realised that it has to adopt digital technology into its processes and applications as fast as possible, as it will enrich the customer experience in many areas. It can help banks venture into new markets and increase both their market share and profitability.

Digital technologies will also increase consumer confidence and engagement, which will enable banks to know their customers better and provide guidance on which services are best suited to them. Finally, they can reduce banks’ operational costs while also complying with and satisfying increasingly complex regulations.

What market advantages do you offer to your customers?
The key to any successful transformation is choosing the right partner with whom to drive innovation, generate new opportunities and create market advantages over competitors in the field. This is where our innovation lies – in flexibility, simplicity and efficiency. With decades of experience, ICSFS is recognised for its success in all of its operational regions, as it has a great understanding of international trends, as well as local requirements, regulations and culture.

By implementing the ICS BANKS Digital Banking software platform, banks and financial institutions can generate new opportunities at a lower cost in order to enhance their market advantage. They can also exploit the software’s key benefits to help create a better customer experience and journey.

What are some of the other key benefits of the ICS BANKS Digital Banking software suite?
Thanks to our secured and agile open banking integration, rich functionalities are accompanied by cutting-edge technologies and fully integrated digital banking touchpoints. This means that banks can offer their customers a truly virtual digital journey which, in turn, drives financial inclusion.

Our main strength is that our digital banking platform is embedded in the DNA of our universal banking applications (ICS BANKS and ICS BANKS ISLAMIC). Therefore, agility is seamlessly reflected in all the universal banking applications’ products across all touchpoints, without the need for complexity or interfaces.

Our software suite offers banking customers a truly omnichannel experience by providing the latest possible technological advances. The suite’s proven omnichannel capabilities provide a full cycle of banking functions that are executed digitally – from customer onboarding and Know Your Customer processes to product execution and customer relationship management. It also offers flexible credit scoring, with a strong rules-based engine and back-office processes that are powered by an embedded BMP engine. The ICSFS digital platform is recognised for its advanced technological deployments, such as blockchain, smart contracts, open application programming interfaces and artificial intelligence, which all provide a real boost to the customer experience.

Many digital banking software providers offer a multichannel banking experience, instead of an omnichannel one. The difference is that when a bank uses a multichannel process, its touchpoints are not seamlessly connected – this means its customers will not enjoy consistency and real-time access between any channel, anytime, anywhere.

ICS BANKS Digital Banking is available on cloud platforms like the Oracle Cloud Marketplace, thereby providing a one-stop shop for customers seeking trusted business applications and service providers. Banks using ICS BANKS Digital Banking on the cloud can leverage global automation of communications and transactions with greater flexibility, agility and security.

How is the platform future-proofed?
ICSFS continually reinvests in its software suites by implementing the latest technology to launch new products, create agile integration and keep pace with new standards and regulations worldwide. The ICS BANKS Digital Banking software suite future-proofs banks by offering a broad range of features and capabilities, which then provides greater agility and flexibility to enrich the customer experience. What’s more, personal customer analytics are provided through embedded analytics for activity-based reporting and customer performance, which thereby improves the trust and confidentiality between the customer and their bank.

The suite also encompasses an ecosystem of third-party services, because banks that want to survive and stay ahead of their competitors in this age of digital disruption must be prepared to collaborate with fintech firms. Fortunately, the suite controls how fintech digital business applications and services are delivered to banks’ customers, allowing them to maintain a competitive edge and improve customer satisfaction with minimal cost and time needed for integration.

What do you suggest to banks and financial institutions hoping to eliminate market share loss?
Banks should accelerate now to protect and expand their market share in this era of digital disruption. The speed of transaction is aligned with the speed of innovation, and banks must not turn a blind eye – they must embrace this revolution by first realising that innovation is not something they can do alone, and instead obtain the help of software providers that are up to speed with ongoing digital changes. This will ensure any business is future-proofed.

How do you see the industry evolving in the short to medium term?
The whole world is interconnected. Today, governments are promoting financial inclusion and seeking to create a centralised database for citizens, including payments, transfers, personal data and more. Banks can benefit immensely from this amount of trusted data, as well as from other data sources, like social media, big data and apps. In turn, this information can be used to improve machine learning to create better results when using digital banking. This will result in the creation of more revenue sources. The data can also be used to make operations more efficient and increase market share for financial institutions.

Taking a step forward is fundamental for those who want to be part of the digital banking revolution – taking services off the shelf is the only logical step for evolving in the new market. Opportunities in emerging markets are opening up; being cloud-available enables the global automation of transaction and delivery channels and communications. Therefore, choosing the right partner to guide this transformation is a top priority for those looking to succeed. ICSFS is setting the pace for what the new era of banking should look like. Professionalism, experience and market understanding make the company a key player in the regional banking software solutions market. It is now set to keep revolutionising the way banking is done, because this revolution is just the beginning.

As the digital transformation continues, what advantages can your customers look forward to?
ICSFS emphasises three main principles a bank must adopt: first, applying the latest technologies and making them available to customers. Second, enabling consumer firms to maximise their performance by increasing mobility, cost efficiency, efficacy and flexibility, and by filling the gap between strategy and execution. Finally, banks must provide innovation and tailored solutions for specific
clients and countries.

Guaranty Trust Bank’s sharpened focus is a boon to its digitalisation drive

Posted on by Helen

Not too long ago, ‘banking’ was something of a dirty word. The 2008 financial crisis damaged trust in financial institutions the world over and, as a result, they became synonymous with greed and risky speculation. The fact that this stereotype is now being eroded is down to the hard work of the banks that have been keen to show off the important work they do empowering businesses and individuals. In fact, the 2019 Edelman Trust Barometer report for financial services found that trust in the sector is at its highest level since 2012.

There are a few organisations driving this improvement, one of which is Nigeria’s Guaranty Trust Bank (GTBank). After commencing operations in 1991, the bank quickly became one of the most respected organisations in the country, winning the Nigerian Stock Exchange President’s Merit Award on no less than seven occasions during the first decade of the 21st century.

“If you look at our history, we have always put a premium on building trust and improving operational efficiency – not just to keep costs down, but to create processes that are scalable, and that add the most value to all of our stakeholders [see Fig 1],” said Segun Agbaje, Managing Director and CEO of GTBank. “We have always been at the forefront of leveraging new technologies to grow our retail base and, most importantly, to serve customers in the best possible way.”

Until recently, strict regulation and the sheer weight of capital required to enter the banking industry has protected it against new entrants

Under Agbaje’s stewardship, GTBank has placed financial inclusion, digital technologies and good governance among its top priorities. Before each new policy or service is introduced, the bank is careful to consider the needs of its customers. It believes that innovation should not be for innovation’s sake – it must be delivered with a clear purpose and vision.

Self-disruption
There has been much talk of how digital technologies have caused disruption since they first appeared – particularly for industries that have been in existence for decades. Banking, of course, has lived a charmed life for most of its history; until recently, strict regulation and the sheer weight of capital required to enter the industry has protected it against new entrants.

Today, however, the industry is a much more welcoming place for new players. Established banks have found themselves challenged not only by up-and-coming firms in the financial services space, but also by technology platforms with little industry experience. In the face of this new challenge, banks are left with a stark choice – innovate, or risk being overtaken.

In the developed world in particular, physical bank branches are on the decline, with many individuals rejecting the inconvenience of having to organise their financial needs around the set opening hours of brick-and-mortar banks. With its many e-branches, GTBank has already pre-empted this trend by giving customers the flexibility they are craving – and that’s not the only way the bank is adapting.

“We have decided to disrupt ourselves and not live in denial,” Agbaje said. “At one time, when we did competitor analysis, we only used to look at other banks. Today, we look at fintech businesses, telecommunications firms, and even betting companies – essentially, anyone who offers any form of payment service. And one thing that we have learned is that although people will always need banking services, they may not always need banks.”

As Agbaje emphasised, fintech firms are one of the primary driving forces behind change in the finance sector. These businesses have embraced new developments, including blockchain and cloud-based solutions, to deliver services that are more agile and able to better meet customer expectations. Unsurprisingly, investors are getting excited about these new players: in 2018, fintech funding reached $111.8bn, according to KPMG. This was an increase of 120 percent compared with the previous year.

“We are responding to blurring industry lines by completely redefining ourselves,” Agbaje told World Finance. “We are becoming a single trusted, integrated digital platform, building and leveraging partnerships and collaborations to offer more essential products and services than a traditional bank can.”

Industry lines could become further blurred if recent rumours regarding the well-known technology giants turn out to be true: analysts have speculated that the likes of Amazon, Facebook and Google could one day offer fully fledged banking services. Many already provide peer-to-peer payment solutions and have a huge customer base to call upon. They are also viewed increasingly positively in terms of trust and reliability: a 2018 survey by MuleSoft found that 52 percent of all 18-to-34-year-olds would consider banking with one of today’s tech giants.

The expectations placed upon banks are now changing. If they do not react to this shift, then it is possible that conventional financial organisations will become synonymous with inefficiency and stagnation. Agbaje, however, is determined that this won’t turn out to be the case at his company.

Staying on top
With industry competition growing all the time, GTBank has acted quickly to ensure it stays ahead of the curve. In November 2018, the bank launched its Habari platform to broaden its ecosystem. Rather than being a bank where customers simply come to make deposits and withdrawals, Agbaje wants GTBank to become the payment engine behind a range of services.

Habari’s unveiling showed just how much banking has already changed. Known as Nigeria’s largest platform for music, shopping, lifestyle content and more, the mobile application has been built around people’s needs rather than simply being a generic suite of banking solutions.

“We see GTBank creating value no longer as just a bank, but more like a tech platform offering a wide range of services that cut across people’s everyday needs,” Agbaje told World Finance. “I believe that in the future, most banks will exist in this way: becoming more platform-driven, asset-light and focused on leveraging new technologies to deliver benefits beyond banking. The only thing that will remain constant in the future is that the customer will always expect services to be faster, simpler and more easily accessible. Hence, whoever will dominate the future of banking must always excel in these areas, and that is exactly what we are trying to do.”

Although the transformation currently sweeping the banking sector might be daunting for some companies, GTBank has plenty of experience when it comes to pioneering new services. One such example concerns the field of unstructured supplementary service data (USSD) technology – a global mobile communication system that allows financial organisations to share information with their customers more easily.

“We led the way for banking with ATMs, we are a leader in online and mobile banking services, the industry is still playing catch-up with us in USSD banking, and now we are going after the future of banking with Habari,” Agbaje said. “However, the most important thing we do is continually ask ourselves what is the best way of remaining relevant to our customers when their needs and expectations are always evolving. This is what births and guides our innovations, and is the reason why we have been so successful in delivering best-in-class services and growing our customer base.”

While music, videos and shopping are not the kinds of services that usually spring to mind when people think about banking, the sector – like all others – must evolve to meet changing demand. Organisations like GTBank understand this better than most.

Collaborate to innovate
It must be noted that even with all the talk of disruptive firms threatening to upset established banks, not every new entrant is necessarily a threat. In fact, a number of financial institutions have decided to partner up with fintech start-ups instead of competing with them. Around the world, a number of traditional banks have begun to work alongside neobanks to establish more efficient online tools. For example, Boston-based Radius Bank sought the assistance of fintech firm Aspiration when designing a revamp of its customer sign-up site. Such collaborations are becoming increasingly commonplace.

“By focusing on partnerships, GTBank is diversifying its products and services to meet the evolving needs of customers,” said Agbaje. “I think we have got to admit that we can’t give our customers everything, but we can give them access to everything. That is what we get from our alliances with service providers across all sectors that are relevant to our customers.”

Earlier this year, GTBank confirmed that it was working with digital content firm Publiseer to help African writers and musicians distribute and monetise their works. The collaboration is just the latest in a long line for the bank: last year, GTBank also teamed up with New Works and the Nigeria Immigration Service to streamline the process by which Nigerians apply for international passports.

“Our partnerships inform how we design our products; we ensure that no matter how broad they seem, they always revolve around payments and credit,” Agbaje explained. “So, the only way to diversify our product offering is through partnerships, and underlying this is our focus on building a platform that brings together everything and everyone to meet customers’ changing needs and expectations.”

Banks have access to a broad customer base and a great deal of capital, but they cannot be expected to have all the necessary internal expertise as they begin to offer more diverse services. This is why collaborations are proving to be so important and mutually beneficial to both banks and the firms they’re working with.

A platform for enriching lives
GTBank’s Habari platform offers so many opportunities to collaborate that innovating has become second nature to the bank. After all, it is a financial services firm that lets users listen to music, watch videos, read, shop and more. In fact, the challenge now is ensuring that it continues to remain focused and only introduces new features when they are relevant. In order to ensure that each new deployment meets this aim, GTBank remains in constant conversation with its customers, taking all feedback on board.

“In a nutshell, Habari is everything we have talked about regarding our changing business landscape and what banking will look like in the future,” Agbaje said. “We believe that the bank of the future is a trusted, integrated digital platform that plugs in seamlessly with every aspect of the customer’s life. Habari is our first step towards building such a platform.

“Basically, when you look at the impact of digital technologies in our lives, you see that people are increasingly leveraging mobile and internet services to enable virtually every aspect of their lives, from how they keep the lights on at home to how they get around town.”

With Habari, GTBank’s goal is to leverage the ubiquity of digital technologies to ensure that it can effectively serve its customers’ needs in every instance of their daily lives. The bank is also promoting enterprise in the SME sector by building free business platforms such as the GTBank Food and Drink Festival and the GTBank Fashion Weekend – two events that are having a tremendous impact in terms of uplifting small businesses.

Agbaje told World Finance: “With Habari, as with our free business platforms, we are bringing together service providers and end-consumers in order to create more value for everyone, thereby playing a deeper role in the lives and businesses of all our customers. The impact of these events has been very positive. We have managed to increase the number of retailers and attendees every year since we created these platforms four years ago. This year, we actually doubled the number of participating small businesses at the Food and Drink Festival, increased the number of days that the event was being held across, and had twice the number of food experts in attendance compared with previous years. By the end of the festival, more than 250,000 guests had walked through our gates, leaving all participating small businesses with new best records in sales.”

One thing the industry has learned is that although people will always need banking services, they may not always need banks

Whether it is promoting fashion or food, GTBank is keen to show that it is interested in more than just interest rates and balance sheets. Nurturing the next generation of Nigerian entrepreneurs is also a key objective. The bank’s Habari platform and its free business platforms demonstrate financial institutions’ perhaps surprising ability to inspire and touch people’s lives.

Giving back
Beyond simply creating value for GTBank’s stakeholders, Agbaje is determined to contribute to the real economy and boost economic growth in Nigeria. “If you look at most countries, especially developing ones, the heartbeat of the economy is its small-to-medium-sized enterprises [SMEs],” he said.

In fact, the role that financial institutions play in fostering business activity can often be overlooked – they provide loans, financial advice and, in the long term, help create social stability. Conscientious banks realise that they are not like other businesses – they have a responsibility to the wider economy.

“What we have started to do in different ways and forms is to create virtual and physical business platforms to help SMEs grow sustainably,” Agbaje said. “We started with a free online marketplace to give small businesses greater access to consumers online, after which we launched the GTBank Food and Drink Festival and GTBank Fashion Weekend to grow their sales and exposure. And as much as these initiatives are about promoting enterprise in the SME sector, they also form a fundamental part of our social responsibility with regards to how we drive economic growth that empowers communities and enriches lives.”

At GTBank, corporate social responsibility (CSR) is taken extremely seriously. The bank has a clearly defined CSR policy that encourages it to intervene in education, community development, the arts and to protect the environment – four areas that it considers to be major pillars in any thriving society. Among the bank’s flagship CSR initiatives are its advocacy for people living with autism and its sponsorship of people in rural communities to design and execute developmental projects for the benefit of their communities. The bank also organises some of the largest grassroots football tournaments in Africa and has been at the forefront of improving educational outcomes via its investment in public schools across Nigeria.

“At the heart of these initiatives is a social imperative: to help people and communities thrive,” Agbaje explained. “In the same vein, we are trying to develop SME sectors that are critical to economic growth, such as food and fashion. Essentially, what we have seen with most of our customers is that spending is often limited to taking care of basic needs – what to eat and what to wear, for example. If we focused on promoting enterprise in food and fashion, we could create a lot of strong and sustainable growth for our local entrepreneurs, thereby growing our economy.”

Although the business platforms provided by GTBank have already had a significant impact on the Nigerian economy, there is a feeling that this is just the beginning. Agbaje said: “These are more or less our first steps to preparing for a world of platforms where things are offered for free, in order to build out more value in the long run.”

The current initiatives are helping the bank better understand how it can create more value for its small-business customers. New products are being developed all the time based on customer feedback and detailed economic research. For example, recently launched bespoke credit facilities for entrepreneurs in the food and fashion sectors have successfully built upon the positive impact already being delivered by its events programme by providing them with single-digit interest rate loans – the lowest ever in Nigeria.

Risk and reward
Of course, undergoing a digital transformation is not the sort of process that can be carried out on the cheap. Legacy architecture will have to be replaced, data will need to be migrated safely, and additional expertise – perhaps from outside the company – may need to be sought.

For banks, the need to innovate comes at a time of fragility. Low interest rates around the world have hit bank profitability hard and left some with little appetite to invest in an uncertain future. However, maintaining the status quo is simply not an option. If investing in new services will require substantial capital now, it will also provide significant rewards in the future.

“At GTBank, we are not overly concerned about the inherent risk involved with our investments in digital technologies, because we are not profligate about how we invest,” Agbaje said. “We work tightly within our budget and we are very measured about how we spend. Our reputation for operational efficiency precedes us and so, for our investments in digital technologies, as with all our investments over the years, we will always ensure maximum value for money.”

Nevertheless, no investment is without risk. Across 2018, retail banks around the world planned to spend $9.7bn on revamping their digital capabilities, according to Ovum’s ICT Spending Predictor (see Fig 2). In particular, banks need to focus on how new innovations can be used to cross-sell and improve customer loyalty.

According to Deloitte’s 2018 Global Digital Banking Consumer Survey, banks are viewed less favourably than many of their customers’ favourite brands, with only 49 percent of respondents believing that their bank knows what they need (see Fig 3). Innovation can help improve this figure, but only if it is carefully considered. Too often, the digital channels being explored by banks are far from cutting edge, focusing purely on transactional activities.

GTBank understands that a digitalisation strategy has to be more than just a token gesture – it is the key method through which the customer experience is optimised. The bank offers a wealth of e-banking services, including online bill payments, international money transfers and a customer referral reward scheme – and, of course, its Habari platform.

A vision of the future
GTBank may be a trendsetter when it comes to digital financial solutions, but other organisations will undoubtedly start to adopt a similar approach soon. Today, growth strategies in the finance sector are predominantly based on the deployment of new digital technologies. In the near future, more organisations in the finance sector are likely to join GTBank in diversifying their products and services as a way of sustaining their profits. By offering entertainment services or SME advice, banks can secure longer-lasting customer engagement and create revenue streams that are not subject to fluctuations in national interest rates.

Banks may decide to expand out from their core businesses, as GTBank has done with Habari. Alternatively, they may adopt more flexible e-services or begin to monetise customer data. Whatever approach they take, they will surely find that they are not alone in doing so. Nevertheless, GTBank has one particular asset that is difficult to replicate: its people.

“We have great and motivated people who are determined to make a difference and build a first-rate African institution that can compete anywhere in the world,” Agbaje explained. “I always say that if you want to know why an institution is performing strongly, you have to look at the ethics and passion of its people, as well as its leadership.”

Certainly, Agbaje has played a pivotal role in GTBank’s success. Coming from a family that was well acquainted with the financial trade – his father worked for the Bank of British West Africa – he decided to leave behind a comfortable accountancy job in San Francisco to join GTBank in 1991. Rather than staying in the US and working as part of a large organisation where he would likely have little impact, Agbaje instead chose to join a relatively new bank where he could have real influence. It turned out to be the right decision.

“At GTBank, we have a great team of people who share a passion for the organisation – who are very focused on doing the right thing and achieving their goals. We have been blessed with great leadership,” Agbaje said. “I’m the company’s third CEO, and the first two were also excellent people. Corporate governance is strong and what you will find is that there is a positive relationship between good corporate governance and strong profitability. That’s what you see with GTBank: a simple, clear vision delivered in a very ethical way.”

In the past year alone, this vision has paid off in a multitude of ways, not least of all through the launch of the bank’s Quick Credit initiative. The product gives customers instant access to personal loans at a monthly interest rate of just 1.75 percent. It is a product that has proven hugely popular: in just four months, it matched its predicted performance for the entire year. It hasn’t only been successful with customers, though: for banking staff, Quick Credit has introduced a host of new efficiencies. By automating the scoring process for the loan, it now takes less than two minutes for customers to request and receive the approved amount.

The success of recent deployments gives Agbaje confidence that he is steering the bank in the right direction. Still, having been CEO for more than half a decade, he is well aware that now is not the time to rest on his laurels.

“My key leadership principle is simply this: focus,” Agbaje said. “As CEO, you must have clarity as to what you are trying to achieve. There will be a lot of noise, but you must have strength of character and moral grounding to remain focused and always play by the rules.”

This noise is only going to get louder as established banks are joined by fintech firms, neobanks and other organisations keen to engage with a more open financial services sector. GTBank knows what it is like to be a new player in the industry, having only received its banking licence in the early 1990s. In a relatively short period of time, the bank has grown to become one of Nigeria’s most respected institutions. By continuing to adopt a forward-thinking approach, it now looks set to become one of Africa’s foremost financial brands.

The Spanish banking sector has been disrupted by digital services

Posted on by Helen

Emerging technologies offer seemingly limitless opportunities across the marketplace. From factories to medical practices, agriculture to finance, advances in artificial intelligence (AI), robotics, cognitive analysis and biometric recognition have immense practical applications.

Spain’s banking and financial services sectors are currently undergoing a particularly striking digital transformation. While major traditional players are beginning to channel significant investment into new technologies, a variety of online-only neobanks, start-ups and fintech companies have hit the market and subsequently taken off.

Newly established disruptors offer exciting prospects for collaboration. In fact, a number of institutions have already merged or formed strategic partnerships in order to pursue novel digital opportunities. This promises to improve customer satisfaction, as well as boost a firm’s reputation. Enrique Tellado, Managing Director of online bank EVO Banco, spoke to World Finance about the opportunities for disruptive innovation in Spain’s evolving banking sector.

EVO Banco’s commitment to digitalisation and customer experience has resulted in a business that looks nothing like a traditional bank

What makes EVO Banco stand out in the Spanish banking sector?
EVO Banco represents a new generation of financial entity that challenges the traditional banking industry by using technology to help customers manage their money more effectively. We aim to make life easier for each client based on what they need, and we do it quickly, cheaply, easily and across all channels.

Our commitment to digitalisation and customer experience has resulted in a business that looks nothing like a traditional bank. Rather than being a bank that implements disruptive technologies, we consider ourselves to be a disruptive technology firm that happens to work in the banking sector.

We want to occupy a new space in the market that combines the trust of the banking sector with the innovation and customer experience found in the fintech sector. Our philosophy is to build a platform of financial and non-financial services that makes life easier for our customers, while also enabling us to adapt rapidly to any changes in the market.

At EVO, we also understand that customer satisfaction can be a source of profitability. By listening to the client and creating collaborative environments to guide the business towards what really matters, we make our company as accessible as possible.

What is your strategy for innovation?
Digitalisation and enhancing the customer experience are in our DNA. This is why we have managed to be pioneers of recent technological advances in the banking sector.

Our innovation strategy is structured within the cloud and built on the pillars of stability, scalability and security. We aim to improve the ease and enjoyment of advanced financial services by ensuring users have the highest-quality experience possible. For instance, our mobile app is powered by disruptive AI technology. By running customer data through AI algorithms, our product can offer hyper-personalised solutions in real time.

In order to maintain an agile and efficient service that allows for constant disruptive innovation, we also use short software development cycles. This has enabled us to continually provide an attractive user experience.

Within this framework, last year we proudly presented our latest launch: EVO Assistant, the first ever ‘voice bank’ in the Spanish language. This pioneering AI technology offers integral assistance to all customers. Customised queries, banking operations and financial advice are all available through voice-to-text channels.

By predicting and responding to our customers’ needs, we have also led change in various other areas of the banking sector, including partnerships with fintech firms and companies outside our traditional sector.

How are you enhancing the customer experience through digital platforms?
With our entire business now digitalised, all of our initiatives are directed towards improving the customer experience through both internal renovation and fintech development. We also prioritise collaborations with other fintech platforms.

One way we put the client at the centre of our products is by making changes based on customer feedback. For example, using a beta testing programme harnesses the thoughts and feedback of our customers to fix bugs and implement better-functioning models on our mobile app and other services.

Our big data and machine learning architecture also allow us to address each client in a unique and hyper-personalised way. We invented a ‘liquid customer journey’ concept, through which millions of customer journeys are triggered by machine learning techniques, thereby generating real-time services and sales. This allows us to constantly increase customer satisfaction.

Could you tell us about the process of launching EVO Assistant?
EVO Banco is proud to be the first bank to develop an integrated assistant in the Spanish language within its main banking application. Our virtual assistant is much more advanced than the chatbots currently available through most financial entities.

EVO Banco’s virtual assistant is an AI engine that allows clients to develop their bank activity through natural conversations, thus redefining the relationship between banks and clients. Through EVO Assistant, clients can ask any question or perform any operation with their products using their voice alone. The service is available 24 hours a day, seven days a week.

EVO Assistant is made up of three main blocks: the speech recognition system that translates the client’s voice into text; the natural language processing engine, which processes text and triggers the most appropriate action; and the speech synthesizer, which transforms the answer into a human-like vocal response. The key features of the EVO Assistant are its ability to facilitate a natural conversation, its response time and its accuracy. The whole project was internally developed within EVO’s innovation and digital development departments.

EVO Assistant was released to all customers in 2018 through the EVO Banco mobile app. Within the first month, 10 percent of customers used the tool regularly and spent up to 50 percent more time on the app. EVO Assistant can also be connected through third-party virtual assistants like Google Assistant and Siri.

What are EVO Banco’s key areas of focus for the next 12 months?
Over the next year, we aim to establish the company as one of the most innovative financial institutions in the Spanish market. To achieve this, we will consolidate the bank’s digital acceleration strategy, which has allowed us to offer high-value financial and non-financial services.

EVO will continue to focus on creating alliances with fintech companies, such as wealth management start-up Finizens, or collaborative models such as Booking.com and Rentalcars.com. We will also focus on developing our own technologies that improve the lives of our users by simplifying their relationship with money. In the medium term, EVO seeks to consolidate its strategic position as a new-generation bank in the emerging digital economy. This position connects the security of banking with the innovation of new fintech models.

Our objective is to continue to lead the charge and become a benchmark in the financial sector, as we have with EVO Assistant. To do this, it’s key to have a first-rate team that is very focused on innovation, and to be open to collaboration with third parties in the fintech space in order to improve our services.

In economic terms, EVO’s digital inversion represents 25 percent of the total general expenses of the bank. This investment plan has allowed us to renew and strengthen the technological infrastructure of the entity. It has also enabled us to launch new products, services and alliances, and to create one of the best mobile banking applications on the market. Regarding specific customer-experience projects, EVO has more than doubled its budget compared with last year.

How do you envision the banking sector’s future digital transformation?
I believe data consolidation and AI have brought with them the Fourth Industrial Revolution; this is producing the greatest transformation humanity has ever seen. For the first time in history, machine intelligence could overcome human intelligence, uncovering an extensive spectrum of opportunities. However, it is important that we define technology’s role in our future. For instance, we must examine its interaction with current social structures to ensure and define how this non-human intelligence will contribute to creating increasingly prosperous and equal societies in the future.

Virtual assistants such as Alexa, Cortana, Google Assistant and Siri have advanced impressively – the speed of adoption of these devices has already outpaced that of smartphones when they first entered the market. Over the short term, they will continue to develop even more uses.

As companies, we are presented with the ongoing challenge of predicting and meeting our clients’ needs in advance. We must be able to offer useful solutions that integrate our services into customers’ daily lives. This is our approach at EVO Banco: today, it has materialised in our Spanish-language voice assistant, which solves queries, performs banking transactions and offers personalised advice about a customer’s financial health. Through this technology, we have strengthened our core values of utility, transparency and intelligence. Ultimately, it is a clear, practical example of how a company can relate the most disruptive technologies back to meeting their customers’ needs.

A closer look at long-term incentive plans

Posted on by Helen

High-paid executives come under frequent criticism for the size of their pay packages. Headlines bemoan the super-rich, and campaign groups censure the wage gap disparities emerging with lower-paid workers.

In 2017, the CEOs of the 350 largest companies in the US were paid an average of $18.9m; a nearly 18 percent upswing on the previous year, according to the Economic Policy Institute (see Fig 1). As executive pay heads higher, remuneration committees must ask whether the growing price tag reflects stronger financial performance.

The tool that was supposed to ensure CEO pay matched with stable financial growth was the long-term incentive plan (LTIP), a metric first thought up in the 1970s. LTIPs are used on the basis that they align the interests of executives and company shareholders by paying CEOs in stock options or shares awarded on performance targets. But although LTIPs have been widely adopted, critics now say they have failed to work as intended.

Long shot
While the biggest CEO pay cheques go to American companies, Xavier Baeten, a professor in reward and sustainability at Vlerick Business School in Belgium, told World Finance that British and German firms boast the highest levels of executive pay in Europe.

Pushing pay higher and higher crowds out any intrinsic motivations a CEO has for doing their job

A growing proportion of the pay packages of top UK CEOs are represented by LTIPs. CIPD’s 2018 Executive Pay report on pay levels at the UK’s 100 biggest companies found a base salary represented just 16 percent of the total mean remuneration. This was even lower than the previous year, largely due to an increase in LTIPs, which represented 56 percent of total pay. “The inflation in executive pay is partly a consequence of paying people with very long-term instruments,” Alexander Pepper, a professor of management practice at the London School of Economics, told World Finance.

Baeten argued that LTIPs are flawed because they are awarded over too short a period of time. After looking through his database of 850 listed firms in several European countries, Baeten found that just one percent of companies granted stock without performance conditions and with a vesting and holding period of more than three years total.

“A performance share plan with a vesting period of three years, in which vesting is dependent on [total shareholder return] or [earnings per share], will not focus the top executives on the true long term and/or sustainability,” he said. “Above all, I think that the real thing should be to change the design of [LTIPs] in order to make them really long-term orientated.”

In the money
Pepper, on the other hand, believes LTIPs are inherently flawed: “This approach to executive pay that’s fundamentally based on neoclassical economics – the problem is it doesn’t properly take account of behavioural considerations.”

From his research with PwC, published in the company’s Making Executive Pay Work report, Pepper found a number of explanations for why LTIPs do not correlate with better financial performance in practice. For instance, the research showed that senior executives are more wary of uncertainty and risk around pay than previously thought: the vast majority would choose a fixed pay packet over a bonus of a higher value.

Similarly, executives discounted deferred pay at a very high rate, signalling that the longer they would have to wait, the less the money was worth. “If you’re choosing between £100 [$127] today and £100 in three years’ time… you’d want a lot more than £100 in three years’ time to compensate you for the fact that you’re having to wait,” Pepper said. Executives already know all of this themselves. According to PwC’s research, fewer than half believed their LTIP was an effective incentive.

These findings explain one reason why executive pay has increased in recent years. Rising pay packages can create even more problems, Pepper said: pushing pay higher and higher ‘crowds out’ any intrinsic motivations a CEO has for doing their job. “The classic instance of this is in the banking industry, where pay has got to such astronomical levels that people are only motivated by money,” Pepper said. “And to some extent, this is also, we believe, representative of what’s happened in corporations more generally.”

Yet higher pay does not appear to translate to better financial performance: Pepper and Baeten both found that the metric with the strongest correlation with executive pay was the size of a company. For every one percent increase in market value, Baeten found CEO pay rose 0.4 percent. “I have rarely seen statistical analyses with such clear outcomes,” he said.

In fact, the CEOs of companies that reported a better performance over seven years than the wider industry were paid relatively less, with a lower proportion of variable pay, Baeten said. “In other words: firms with a better performance [in] the long term are characterised by modesty,” he told World Finance.

Charles Towers-Clark, CEO of Pod Group, an Internet of Things provider, said that beyond the recruitment stage, “financial incentives should be, and generally are, the least important motivator for employees, including executives”. For example, respondents to PwC’s Making Executive Pay Work survey would take a 28 percent pay cut on average to work in their ideal job.

Shifting the balance
Pay is still a significant incentive, however. The best way to get results from CEOs without inflating pay, according to Pepper, would be to shift a larger proportion of remuneration to an executive’s salary and short-term bonus. Alongside a generous salary and a cash bonus, companies should require executives to invest a certain amount of their own money into stocks in order to align their long-term interests with those of shareholders, he said. “My belief is that, actually, in total, you would need to pay people a lot less than you do at the moment if you restructured the way that you remunerate them,” Pepper said.

But challenges still emerge when employing this logic in the real world. The industry has an aversion to big changes when it comes to rewards, Baeten said, partly because companies look to one another as benchmarks. Pepper described a phenomenon he called the ‘remuneration committee’s dilemma’; a riff on the prisoner’s dilemma in game theory. In this situation, remuneration committee chairs who are in competition with one another for the best talent tend to pay over the odds in the hope of attracting a CEO from the top tier and reducing the risk they will get one from the bottom 10 percent.

From the shareholder’s standpoint, there is a collective action problem, Pepper said. Each shareholder only has a small percentage of the total share capital, and this means it is not in their best interest to sort out executive pay problems. “In practice, there’s a kind of reversion to the status quo, as it were,” Pepper said. “It’s difficult to see how the problem of executive pay will be solved if governments don’t intervene in some way.”

Lifting the veil
One local government in Portland, Oregon, has taken high CEO pay into its own hands. The city introduced a tax in 2018 whereby any company whose CEO makes 100 to 250 times more than the median worker must pay a 10 percent tax. CEOs with pay 250 times over will be forced to pay a 25 percent surcharge. The city has estimated the measure will bring in up to $3.5m in its first year.

But despite Portland’s good intentions, there are some fundamental issues with the tax. First, it is relatively easy for companies to manipulate their pay ratios: these can be decreased by simply outsourcing the lowest-paid jobs. At large multinationals, this can include cleaners, caterers and security services.

Secondly, the tax penalises companies with a large amount of lower-paid workers rather than companies that pay their CEOs excessively. “The trouble is, [Portland’s method] is more likely to hit a retailer than it is to hit an investment bank with lots of very highly paid people,” Pepper said.

Although Pepper said more research must be done on possible government interventions, the simplest thing to do would be to increase marginal rates of income tax. He added: “I would argue that increases in the… top rates of marginal income tax are a necessary part of any government attempt to intervene and solve the executive pay problem.”

While Baeten believes disclosing pay ratios is not at all beneficial for companies, Towers-Clark thinks transparency can be a powerful tool on an employee level. “If employees are to make their own decisions about any aspect of their working lives – i.e. starting new projects, choosing suppliers, investing in emerging technologies – then they must have all the relevant financial information available, the most important piece of which is salaries,” Towers-Clark said.

While some questions remain around how to implement an effective pay scheme, it is clear that LTIPs as they currently stand miss the mark. Developing a new approach to reining in inflated levels of pay and enhancing executives’ intrinsic motivations could pay dividends.

How BTI Bank is leading the way in Morocco’s participatory banking sector

Posted on by Helen

In January 2017, Morocco’s central bank approved the launch of Islamic banking, marking the beginning of a new era for the nation’s financial sector. Offering access to Sharia-compliant products and services, Islamic banking has had a transformative effect on the Moroccan banking industry, boosting financial inclusion among previously unbanked citizens and growing to encompass more than 100 branches nationwide.

Unlike other Muslim-majority nations that have also authorised Islamic banking, Morocco has eschewed this term in its official legislation, opting instead to use the phrase ‘participatory’ banking. This word choice is deliberate and is far from the only thing that Morocco is doing differently when it comes to Sharia-compliant finance. The North African nation has created its own model for its participatory finance industry, based on a thorough analysis of the local market and close consultation of successful international templates.

At BTI Bank, we believe society needs a fair and equitable financial system – one that rewards effort and contributes to the development of the wider community

Now, just two years on from the launch of Morocco’s participatory finance industry, this unique approach appears to be paying off, with the sector fast emerging as one of the brightest spots on Morocco’s economic landscape. Last year saw the nation issue its very first Islamic sovereign bonds for MAD 1.1bn ($110m), with plans to introduce Islamic insurance – known as ‘takaful’ – later this year. While the nascent industry still faces a number of challenges, its initial success suggests that participatory banking has a very bright future in Morocco. World Finance spoke with Mohamed Maarouf, General Manager of BTI Bank, about the development of this promising new sector.

Can you explain how Morocco’s participatory finance model works?
Morocco’s participatory finance industry is still in its very early stages, with designated participatory banks debuting just two years ago. The Moroccan model is unique in many regards, and has been designed with both local and international markets in mind. Essentially, two government institutions regulate banking activity and ensure that it functions properly – the first being the High Council of Ulema, and the second being the nation’s central bank, Bank Al-Maghrib. The High Council of Ulema ensures that all products and services are Sharia-compliant, while the central bank supervises the financial activity of the industry.

The financial landscape of this young sector is still evolving, with new products and services in development. At present, Sharia-compliant products include murabaha financing for real estate and automobile and equipment purchases, investment accounts, and istisna financing. We fully expect to see takaful insurance debut later in the year. The launch of takaful products will mark a key milestone in the development of Morocco’s participatory finance sector, as it will increase liquidity in the sector and strengthen this growing industry.

How has the participatory finance sector evolved in recent years?
After two years of existence, the industry has shown that it is more than capable of competing with the traditional banking sector, attracting scores of customers and boosting financial inclusion by offering clients crucial products that comply with their personal beliefs. In a short space of time, the industry has made great progress, with deposits already reaching MAD 1.6bn ($165m), financing reaching MAD 6.05bn ($630m) and more than 100 participatory banking branches opening across the country. As we look to the future, we believe that the participatory finance industry will emerge as a real pillar of the Moroccan economy.

What challenges has the sector overcome?
The industry has faced many challenges, both prior to and since its launch. It goes without saying that such an undertaking is incredibly complex and demanding and requires a strong, fully functional core IT system in order to operate effectively. As such, regulators had to ensure that all activities at every level of the banking industry were operational and effective from the very first day. This included human resource training, as all banking employees had to become familiar with the intricate details of what participatory finance entails.

While most participatory banks recruited employees with strong banking backgrounds, intensive training programmes still proved necessary in order to ensure a complete understanding of the participatory finance landscape. What’s more, prior to the debut of participatory finance, the Moroccan public harboured many misconceptions about the industry, so all participants in the sector have had to work tremendously hard to re-educate customers on what the sector can offer them. Another challenge going forward is the issue of liquidity: compliant investment products are not yet available, and neither are takaful insurance products, although we expect this to change later this year.

Despite these numerous challenges, the participatory finance industry has shown remarkable resilience. The professionalism of all those involved in the sector will continue to lead participatory banking from strength to strength over the coming years.

What are the sector’s long-term ambitions?
We hope to see Morocco emerge as an African hub for Sharia-compliant banking. This goal has already been realised in the traditional banking sector, with Morocco boasting one of the most robust and developed banking industries in Africa and serving as an important economic crossroad between the continent and Europe, along with other parts of the world.

We also believe that the participatory banking industry will help to accelerate economic development for Morocco. Not only has participatory finance seen an expansion in financial inclusion among previously unbanked Moroccan citizens, but it has also allowed the country’s SMEs to flourish, which has boosted the national economy. We expect to see an increase in foreign investment in the country as a result of the thriving participatory finance industry.

What is the story behind BTI Bank?
BTI Bank was created when two renowned groups – BMCE Bank and Al Baraka Banking Group – decided to bring their skills, experience and industry knowledge together. Both of these banking groups had previously found success independently, making an international name for themselves thanks to their outstanding performance and notable expertise. While BMCE Bank covered all areas of banking and financial services, Al Baraka Banking Group had established itself as a pioneer in participatory banking.

The alliance between the two groups successfully united these two areas of expertise, and in December 2017, BTI Bank made its official debut as a participatory bank. The launch marked the culmination of five years of work by the bank’s founders, who have always been, and always will be, committed to delivering the very highest standards in participatory products and services.

What are BTI Bank’s values? What are its biggest strengths?
At BTI Bank, we believe society needs a fair and equitable financial system – one that rewards effort and contributes to the development of the wider community. We want to meet the financial needs of communities across the world by conducting business ethically, in accordance with our beliefs, and by upholding the highest professional standards across every level of our company. We strongly believe that participatory banking plays an important role in our society, and we understand that we have a responsibility to our customers and stakeholders. We are therefore committed to sharing mutual benefits with our customers, staff, stakeholders and anyone else who helps to make our business a success. These partnerships are crucial to BTI Bank, and we are proud of our long-term relationships with customers and staff.

The business is driven by its mission to have a positive impact on our customers’ lives, and we respect and value the communities we serve. Our customers can be sure of a warm welcome when visiting BTI Bank and can enjoy unparalleled peace of mind, secure in the knowledge that our experienced team is working to the highest possible ethical standards. Finally, we are also extremely aware of the social contribution that we want to make as a business. By banking with us, our customers can feel confident that they are contributing to a better society, understanding that while we grow, we will strive to effect a positive change in the world around us.

What are BTI Bank’s ambitions for the future?
We hope to build on our early successes by continuing with our strategic development plan, which is set to involve further network expansion, advanced product innovation and a commitment to delivering excellent customer service. Our ambitions are to meet the financial needs of the Moroccan people and to have a profoundly positive impact on the communities we serve. As the nation’s participatory finance industry continues to grow, we are firmly setting our sights on becoming a key player in this exciting new sector.

Opportunities to be found in the Guangdong-Hong Kong-Macau Greater Bay Area

Posted on by Helen

In February 2019, the Chinese Central Government officially released the Outline Development Plan (ODP) for the Guangdong-Hong Kong-Macau Greater Bay Area. The ODP’s strategic objective is to create a vibrant, world-class locality by connecting technology, ecology and culture, as well as the finance, trade and tourism industries, throughout the region. This will be achieved through the joint efforts of the Pearl River Delta’s nine municipalities and two Special Administrative Regions.

Achieving the ODP’s objectives will not be straightforward: the Greater Bay Area consists of one country, two political systems and three customs territories. Reaching the goals will require an unprecedented level of regional cooperation. Every tier of bureaucracy will need to remain focused on the Greater Bay Area’s core tenet: the comprehensive integration and regional coordination of culture, society and the economy. Under the principle of ‘one country, two systems’, the aim is to improve the regional connection of legal and social systems and gradually eliminate the various obstacles that make doing business difficult. This in turn will facilitate the efficient flow of people, goods, capital and information throughout the Greater Bay Area.

As one of the four core cities of the Greater Bay Area, the ODP seeks to develop Macau into a world-class tourism and leisure centre, as well as a hub for commerce and trade that can facilitate relations between China and Portuguese-speaking countries. This will help promote the region’s economic diversification while also creating a base that allows a diverse array of people to coexist. Macau can therefore make a unique contribution to the Greater Bay Area’s transformation into a first-class region for trade and tourism.

Macau plays a vital role in the Greater Bay Area’s progress through its ‘one centre, one platform’ strategic plan

Regional focus
Macau plays a vital role in the Greater Bay Area’s progress through its ‘one centre, one platform’ strategic plan. In particular, the city will utilise its strengths in order to link mainland China with Portuguese-speaking countries, the EU and the Association of South-East Asian Nations. This will firmly establish Macau as a platform for international exchange.

To reach this goal, Macau is implementing policy measures that are designed to construct a Sino-Portuguese economic platform. This includes the development of specialised financial services, the effective use of the Sino-Portuguese Cooperation and Development Fund, and the provision of financing services to Sino-Portuguese enterprises. The region also plans to strengthen its cooperation with the Chinese medicine industry in order to pursue previously untapped international markets. This will include cooperation on research, the cultivation of talent and the widespread application of new technologies.

In addition, Macau will take full advantage of its development as a tourism and leisure hub in order to establish the Greater Bay Area as a world-class travel destination. As Macau already has outstanding tourist facilities, it is now developing as a tourism training and education base for the entire Greater Bay Area. Building on its history of facilitating the coexistence of western and eastern cultures, Macau will, as a result, promote cultural exchange between China and the rest of the world. What’s more, Macau will expedite this development with countries that are part of the One Belt, One Road trade route – particularly those that speak Portuguese.

The ODP’s implementation presents Macau with several opportunities to further its own growth. Macau is small, crowded and has limited space, which restricts further development and economic diversification. Fortunately, however, the ODP has laid several paths that Macau can take in order to ensure its future growth.

One such option is the progressive development of ‘enclave economies’. In other words, Macau could exploit the infrastructure of several bases built in Guangdong, such as the cooperation demonstration zone located in Zhongshan, or the Traditional Chinese Medicine Science and Technology Industrial Park in Hengqin. These provide new spaces for the transformation of Macau’s industry, as well as new destinations for the Macanese people to work and live in.

The ODP also hopes to broaden the living space available to the people of Macau. As such, Macau residents who are currently working and living in Guangdong can enjoy the same benefits as those in mainland China, such as education, medical care, housing and elderly care. This will be further improved by enhancing border clearance facilities and the interconnection of several public services.

Pursuing diversification
The economic structure of Macau is relatively homogeneous, which limits the further development of its economy. Macau, therefore, needs to increase cooperation with the mainland in order to extend its industrial chain while also increasing market integration and sharing resources with other cities in the Greater Bay Area. Given this backdrop, the mission of the Macau Government at present is to develop the locality’s economic diversification, particularly within the field of tourism.

The development of Macau’s tourism industry also supports the growth of related industries, such as retail, commerce and trading, Chinese medicine, culture, and healthcare. To help further this development, Macau is committed to attracting conventions and exhibitions with global influence, particularly those that relate to industries that are part of the One Belt, One Road policy.

Macau’s credentials as a tourism and leisure centre could improve further by developing nearby Hengqin into a leisure and tourism island. This would subsequently support the coordinated development of the Hengqin and Zhuhai free-trade zones and the construction of a Guangdong-Hong Kong-Macau logistics park. It could also act as a role model and thus expedite the development of other major projects that require significant regional cooperation.

To promote the idea of Macau as a regional hub, the ODP is in full support of the further development of an international airport in the city, which will be followed by the improvement of regional business aircraft services. The ODP also aims to bring forward the construction of both Guangdong-Macau border access facilities and Hengqin’s port, and suggests better use of the Hong Kong-Zhuhai-Macau Bridge as well. Development of these areas will result in the creation of a rapid transport network that can serve the entire Greater Bay Area.

Finally, the ODP encourages the exploration of sharing utilities across the region, such as connecting electricity, water and gas networks in order to ensure the stable supply of energy. It is also important for Macau to vigorously develop its marine economy in order to lay a solid foundation for the future.

Bigger is better
Macau has several other important roles to play in the development of the Greater Bay Area. The ODP emphasises the growth of a healthy population; as such, it supports Macau’s medical and healthcare providers as they expand their facilities throughout the Pearl River Delta. Through sole proprietorship, joint ventures and other cooperative projects, Macau will lead the development of a regional healthcare cluster. Macau is also encouraged to further develop the Traditional Chinese Medicine Science and Technology Industrial Park and promote the standardisation of Chinese medicine, as well as bring new products and enterprises to One Belt, One Road countries.

There are several benefits to building an open community of innovation and technology throughout the Greater Bay Area. For instance, it will establish collaboration across numerous key areas, such as entrepreneurship, incubation, financial technology and commercial applications. It would also support Macau as a training base for talented entrepreneurs who are fluent in both Chinese and Portuguese, thereby turning the Greater Bay Area into a base for education and training.

Furthermore, the ODP plans to develop the Greater Bay Area into an international financial hub, making it an important component of the One Belt, One Road initiative. To achieve this feat, it encourages the development of Macau into a Sino-Portuguese platform for financial services, while also supporting the development of specialised and green financial products in the city. Moreover, the ODP suggests exploring the development of a Macau-Zhuhai cross-boundary financial cooperation demonstration zone.

To this end, Macau will collaborate with the Silk Road Fund, the China-Latin American Production Capacity Cooperation Investment Fund, and the Asian Infrastructure Investment Bank. Macau has abundant fiscal reserves with an advanced business network and a good environment for productivity. The region aims to leverage these advantages to develop special products and services, such as finance leases, wealth management tools and new styles of bonds.

ICBC (Macau), the largest locally registered bank in Macau, actively participates in the strategy to develop the Greater Bay Area by promoting the development of Macau’s specialised finance system. In March 2018, the Macau Government and the ICBC Group signed a memorandum of cooperation to this effect. With the support of the Macau Government and the ICBC Group, ICBC (Macau) successfully launched an asset platform for Portuguese-speaking countries in Q2 2018.

ICBC (Macau) will remain focused on Macau’s strategic position in the Greater Bay Area and comply with the development of specialised, Silk Road, green and marine financial products and services. ICBC (Macau) will also assist Macau by playing a leading role in the One Belt, One Road initiative and will contribute to creating a vibrant and internationally competitive city cluster. In no time, the Greater Bay Area will grow to become a globally renowned hub for tourism, business and culture.

The pros and cons of external hiring

Posted on by Helen

When Tim Sloan became CEO of Wells Fargo in October 2016, he inherited the mammoth task of saving the lender’s reputation in the wake of a string of damaging scandals. Following a revelation in the same year that the bank’s employees had been financially incentivised to set up fake accounts, Wells Fargo had drawn the ire of a host of lawmakers, regulators and, most importantly, customers. All were demanding reform across every level of the bank.

Sloan, who was serving as president and COO at the time, was charged with restoring trust and building a prosperous future for the lender in the wake of the abrupt departure of his predecessor, John Stumpf.

Almost three years later, it appears the challenge was too great. On March 29, Wells Fargo announced that Sloan would be stepping down, effective immediately. His resignation came just two weeks after he had testified before congressional lawmakers that the bank was a better place than when he had started – a statement few were convinced by. In the wake of the announcement, Wells Fargo’s General Counsel C Allen Parker was named interim CEO, and the company’s board began the daunting task of searching for Sloan’s permanent successor.

Not only is Wells Fargo looking outside the company for its new CEO, but it is likely to eschew traditional candidates altogether

A new challenge
This search is markedly different to the one undertaken by board members in 2016. “They had three goals in replacing Stumpf: speed, integrity and competence,” Peter Conti-Brown, a business ethics and law professor at the Wharton School of the University of Pennsylvania, told Reuters at the time. “If you want to move very fast and find someone intimately familiar with the business, you’ve got to hire an insider.” This time, it appears that speed and company knowledge are not preferential qualities for Sloan’s successor: rather, the board is seeking a candidate with the power to definitively reform the bank’s public image and provide vital impetus for recovery.

For this reason, Wells Fargo has made the decision to solely consider external candidates for the CEO position. Furthermore, not only is the lender looking outside the company, but it is likely to eschew traditional candidates altogether. Warren Buffett, who owns Berkshire Hathaway, the bank’s single largest shareholder, told the Financial Times in an interview: “They just have to come from someplace [outside Wells Fargo], and they shouldn’t come from Wall Street. They probably shouldn’t come from JPMorgan or Goldman Sachs.”

While Buffett’s reasoning was based on the fact that poaching a candidate from another Wall Street lender would draw scrutiny from Congress, there are plenty of other benefits to an external candidate search: it will help to bring fresh thinking to the bank, thereby avoiding the perpetuation of industry echo chambers. Furthermore, searching outside the typical remit provides the opportunity to increase diversity in a sector where, according to the IMF, women only account for less than a quarter of leading supervisory roles (see Fig 1).

Up to the job
According to Paul Twine, the director of banking and financial services at executive search firm Carmichael Fisher, there are three key factors to take into account when searching for a new CEO: market conditions, regulatory scrutiny and overall business strategy. In the Wells Fargo case, scrutiny is the most important consideration due to the accounts scandal, which means any candidate will have to stand up to a number of regulatory tests. The fact that the bank is in hot water also won’t make its search easy, as the new CEO will be expected (to a greater or lesser extent) to identify and tackle corruption within the business.

“That role is not for the faint-hearted,” Twine told World Finance. “They need to identify very quickly not only what the strategy is for that business going forwards and set a compelling vision for the board and for the shareholders, but they also need [to] get into the weeds and figure out where the rot is as quickly as possible.” This task, while challenging for any new CEO, is particularly difficult for an external candidate: as they didn’t hire any of the executive team or work their way up through the business, they will not have any internal allies. There is a risk, therefore, that they will struggle to achieve any meaningful change if they do not rapidly identify those with significant influence within the business and get them on side. They may also find themselves the target of resentment from internal candidates who were not considered for the position.

On the other hand, the benefit of bringing in an external CEO eliminates the possibility that they could be tarnished in any way by existing internal issues. “Hiring someone [who] could not be implicated [in the scandal] is a positive solution for the business,” said Twine. Given the necessity for business reform at Wells Fargo, the external candidate would have to be someone who had navigated a company through transformational change.

The position is likely to attract a highly specific candidate pool, made up of those who have overseen this kind of high-profile transformation before and understand the risks – not only of potential failure when carrying out necessary changes, but also of damage to their own reputation. “Some will see it as an opportunity to make a name for themselves, because they’ll be able to tangibly demonstrate what they’ve done,” said Twine.

It’s a high-risk, high-reward opportunity. In the eyes of competitors and the press, the new CEO could be seen as Wells Fargo’s saviour, provided they succeed in extinguishing the fires currently burning bright at the American lender. Conversely, if expectations are not met, there is a risk the candidate could be seen as a failure. “It’s a case of deciding what failing looks like,” Twine told World Finance. “If they manage to solve some of the problems but not all of them, maybe that’s actually been a great result – maybe that’s all the next CEO was going to be able to achieve.”

The new CEO could be seen as Wells Fargo’s saviour, provided they succeed in extinguishing the fires currently burning bright at the American lender

Reaping the rewards
While Buffett’s desire to look beyond Wells Fargo and Wall Street more broadly is guaranteed to bring in some fresh thinking, there are also certain criteria that the new CEO must meet on a logistical level. “You can’t have someone [who’s] never been in a financially regulated entity go and run a bank,” said Twine. “However, it depends on how creative [Wells Fargo] wants to be – if it wants to look for someone outside of investment banking, they could consider hedge funds or asset management, or large-scale retail and commercial banking businesses.” While this will mean the candidate will have to learn the ropes extremely quickly, it also guarantees they will bring an entirely different perspective to the business. “The market’s changing, there’s a lot of disintermediation, plus fintech firms are nipping at the heels of larger financial services firms,” said Twine. “Perhaps a fresh set of eyes is exactly what’s needed to stay current.”

An external search also provides a sorely needed opportunity to collate a more diverse talent pool and consider candidates who would perhaps not have been on the radar had the company looked internally. According to a 2019 report by Refinitiv, women occupied just 13.4 percent of executive positions in banking and financial services in the 2017/18 financial year, despite making up 49.4 percent and 54.5 percent of the workforce respectively. There are a variety of reasons for this executive underrepresentation, from a lack of flexible working options for women re-entering the workplace after maternity leave to male executives remaining in positions for decades, meaning women may not get a look-in for a promotion for 20 years. These issues may be alleviated by moving between companies; as such, by looking externally, Wells Fargo could nab itself a highly talented female candidate who feels disenfranchised in her current role.

Not only that, but for firms such as Wells Fargo that are under scrutiny, a female leadership style can be a more productive way of achieving change. According to research by McKinsey, women tend to adopt people-focused, reward-based leadership behaviours that are known to improve organisational performance. “That consultative leadership approach that is typically associated with women is very appropriate for a business under transformation,” said Twine. Moreover, a 2016 study of more than 21,000 public companies by the Peterson Institute for International Economics found that a firm with 30 percent female leadership could expect to add up to six percentage points to its net margin in comparison to a business with no female leaders.

For Wells Fargo, hiring an external female candidate could prove a fruitful method of pursuing transformational change. Certainly, by looking externally, the bank is guaranteeing the introduction of new ideas. By choosing a female candidate on top, though, the bank would send a powerful message to the financial sector that diversity is not a tick-box exercise, but a way of achieving real reform and boosting bottom lines. After all, Wells Fargo is the world’s fourth-largest bank, and according to Buffett, one in three US households does business with it in one form or another. For better or for worse, its actions have an impact – it now has an opportunity to make sure it sets a positive example for the future.

Seeking security in the forex market

Posted on by Helen

Despite being one of the world’s most precious metals, there was little interest in trading gold as a commodity for much of the 20th century. Global economies were seen as relatively stable, with many experiencing periods of significant growth. This meant stock markets were flying high. Investors became wrapped up in the excitement of buying shares in companies such as Apple, which were tipped to make them millions, rather than purchasing a commodity that would offer low, albeit consistent, returns.

At the beginning of the 21st century, however, demand for gold skyrocketed, reaching a peak price of more than $1,900 an ounce in late 2011. Unlike cryptocurrencies, gold became known as an investment that is likely to retain its value: it is durable, portable and uniform across the globe, making it a shrewd purchase for any investor.

Since its establishment a decade ago, Acetop Group has focused on gold trading in order to keep the number of non-traditional/high-volatility currency pairs offered to clients as low as possible. Rather than moving towards cryptocurrencies, which are extremely volatile and a huge investment risk, we have chosen to centre our business model on what we believe to be a wise investment that will deliver excellent returns to clients for years to come.

At Acetop, we consider it imperative to keep up to date with all new regulations – even those that don’t directly affect our industry

Staying on top
Our considered approach does not mean we sit on our laurels. Rather, we consider it imperative to keep up to date with all new regulations – even those that don’t directly affect our industry. This is because we believe it is wise to keep abreast of anything affecting the overall business environment.

In terms of forex, the biggest changes the market saw last year were focused on regulation – most notably, those implemented by the European Securities and Markets Authority (ESMA), which came into force on August 1, 2018. These serve two key purposes: first, they ensure the consistent treatment of investors, protecting them through effective regulation and supervision. Second, they promote equal conditions of competition for financial services providers, while also ensuring the effectiveness and cost efficiency of their supervision.

ESMA’s new regulations, together with the still-unknown economic impact of Brexit, means stakeholders could see significant shifts when trading in the forex market in the coming months. While the changes are much needed and will positively affect retail customers, they may also lead to consolidation in the market and pave the way for more substantial changes in the future.

With this in mind, we have taken numerous steps to minimise the impact on our retail clients. For UK customers, we have advised that they are eligible for the Financial Services Compensation Scheme (FSCS). This is the UK’s statutory deposit insurance and investors compensation scheme, which is designed for customers of authorised financial services firms. Customers are eligible for protection under this scheme, provided the value of their funds falls under a certain threshold. This means that the FSCS will pay compensation if a firm is unable, or likely to be unable, to pay claims against it. We are also working on securing further protection for our clients, which will be announced in the coming months.

Putting the customer first
In light of the new ESMA regulations, and in accordance with Acetop Group’s growth plans, we have chosen to continue investing in client-orientated services. Our team works 24 hours a day, seven days a week, to respond to all clients’ queries via different communication channels, including telephone, email and various live chat platforms. We aim to provide as many methods of contact as possible to ensure our clients are able to communicate with us easily and directly. Our promise to answer client enquiries in less than a minute sets us apart from competitors.

Our customer service providers undergo rigorous training to ensure they are equipped with all the skills needed to perform their role to the standard we expect. Over a period of three to six months, an internal instruction programme is delivered to all new employees. At the end of this period, they must pass an examination consisting of 6,000 sets of typical questions and answers, and must also have a minimum typing speed of 60 words per minute.

We are also improving our payment services – another way in which we distinguish ourselves from other forex brokers. We believe the traditional way of depositing and withdrawing money via bank transfers is outdated; we are therefore exploring digital solutions to simplify and speed up this process. Our finance department employees are all professionally trained and selected from an international talent pool. Due to the 24-hour nature of global trading, they aim to deal with all deposit and withdrawal requests within just one day.

Furthermore, customers in China should be able to deposit funds in less than 10 minutes and withdraw funds in under two hours. There is also no limit to the number of withdrawal requests customers can make. We understand that forex markets move incredibly quickly and wouldn’t wish to hold up our customers’ crucial investment decisions – that’s why our finance department is on standby 24 hours a day. With the help of world-class technology, we aim to verify and audit transactions compliant with local laws and regulations faster than any of our competitors.

Overall, Acetop Group is striving to provide satisfaction to each and every stakeholder in order to ensure a constant company growth path. The technology revolution has led to greater freedom and mobility for investors, who are now able to monitor price changes from almost anywhere as long as they are connected to the internet. As a result, our IT department works 24 hours a day, every day of the year, alongside our customer service team.

As a company, we understand the importance of every second gained, and always aim to use the best technology to safeguard customers’ money and personal data. This has been our mission over the past decade, and it has resulted in a world-class reputation and the trust of our investors, customers and the overall industry.

A knowledge-based approach
Moreover, we are working to empower our customers with a wealth of knowledge so as to increase the possibility of a greater return on their investment. Trading forex successfully is not easy – it takes a lot of practice and study time. For this reason, we have introduced an educational programme of webinars, seminars and industry gatherings to pass some of the trading knowledge we have amassed over the past decade to our customers. We have also launched a real-time educational streaming service, which is available on weekdays to Chinese clients.

We encourage our customers to continue the education process in their own time. There are many free forex e-books available that provide general information on the basics of trading, money management, trading psychology and strategies, and technical and fundamental analysis. Their accessibility makes them a clear choice for people who want to learn more about forex trading. Another advantage to these resources is that you can select a recently published e-book with timely information, avoiding outdated material. We provide many e-books on our online educational platform, along with crucial industry news.

In our Asia division, we have recently begun a series of seminars, for which we invite experts and well-known industry representatives to share their thoughts on forex issues in Asia and Europe. We aim to provide every customer with up-to-date market news and unique expert opinions on a variety of countries, as we understand that investors may want to explore different markets in their trading choices.

Through these measures, we hope to better serve our forex clients, allowing them to make wiser trading decisions. It is important to remember that the economic outlook for a country is the ultimate determinant of its currency’s value, so knowing which factors and indicators to watch will help traders keep pace in the competitive and fast-moving world of forex. By equipping our customers with the knowledge to ensure their success, as well as investing in our own workforce and technology, we hope to consolidate our already-strong market position.

Astana Finance Days convention showcases Kazakhstan’s financial potential

Posted on by Helen

The Astana Finance Days (AFD) conference, held in Nur-Sultan, the capital of Kazakhstan, came to a close on July 4, with the city reaffirming its aim of becoming one of the world’s foremost financial centres. Approximately 300 experts from the worlds of business and finance took part in the event, which covered topics such as infrastructural development, fintech and Islamic finance.

The conference was the second of its kind to take place in the city, which changed its name from Astana earlier this year. While the inaugural event in 2018 looked at the establishment of the Astana International Financial Centre (AIFC), the talks held from July 1 to July 4, 2019 have focused on ways to build the centre’s standing among the international business and investment community.

The building blocks for further development are certainly there, with Kazakhstan’s location at the junction of Europe and Asia a powerful advantage, but it will have to overcome stern competition

Among a number of noteworthy announcements, Kazakhstani President Kassym-Jomart Tokayev formally opened the premises of the AIFC Court and International Arbitration Centre (IAC). It is hoped that the two legal bodies, both of which operate on English common law rather than Kazakh civil law, will give investors greater confidence in the country’s regulatory environment.

Christopher Campbell-Holt, Registrar and CEO of the AIFC Court, told assembled journalists that the common law system would bring greater credibility to the investment climate and provide assurances to business operators should any potential disputes arise.

“Our team has been trained in London with some of the best arbitrators and judges from the English common law system,” Campbell-Holt explained. “So we have some of the very best staff we could find and we’re training them up to mould them into the common law way of thinking for the AIFC Court and [IAC]. We’re not trying to compete with every country in the world: we want to be the number one choice for dispute resolution in Eurasia.”

Also discussed during the AFD was the continuing growth of the Astana International Exchange, the government’s privatisation plans and how China’s Belt and Road Initiative is likely to impact the region. Perhaps the most commonly mentioned topic, however, was Nur-Sultan’s potential as an international financial centre. Its growth has certainly been impressive – in March, the AIFC was ranked 51st in the Global Financial Centres Index – but such a rapid rise should perhaps have been expected given that the city began its journey from such a low starting point.

The building blocks for further development are certainly there, with Kazakhstan’s location at the junction of Europe and Asia a powerful advantage, but it will have to overcome stern competition. It will certainly take time for Nur-Sultan to catch up with the likes of London, New York and other long-established finance hubs, regardless of how much progress has been made so far.

World Finance Pension Fund Awards 2019

Posted on by Helen

Across the relatively sleepy pensions sector, a storm is brewing. The industry is a behemoth of the global economy, particularly in terms of assets managed, and commands a tremendous amount of force. However, given the conservative approach many people take to their retirement savings, it lacks the drama and adventure that is commonplace in the private banking and venture capital sectors. A little bit of risk is fine – even necessary – but when it comes to retirement, there are very few people willing to bet on the proverbial two in the bush over the one in the hand.

This aversion to risk, accompanied by a lack of innovation, has led to several critical challenges across the sector. Looking to end people’s malaise as well as boost returns to members, regulators in some regions are stepping in to take control. It might have been easy to slip under the radar before, but underperforming funds will soon have nowhere to hide. The measures that may be put in place would add an unprecedented level of scrutiny and make it impossible to operate at any level that is less than excellent.

Defined benefit pensions may be gradually disappearing, but this does not necessarily mean that their replacement is up to the task

The World Finance Pension Fund Awards 2019 celebrate the leaders who will shape the dramatic overhaul the sector will soon endure. The firms receiving awards this year have demonstrated an ability to adapt to any market conditions, and are positioned to be trendsetters for the foreseeable future.

Cashed up
In terms of financial performance, 2018 was a year to forget. Last year, the world’s seven largest pension markets – Australia, Canada, Japan, the Netherlands, Switzerland, the UK and the US, which collectively control 91 percent of global assets under management – saw their third-worst year of the last 20, according to the Willis Towers Watson Thinking Ahead Institute’s Global Pension Assets Study report. While the five-year trend of 2.9 percent growth per annum and 10-year trend of 6.5 percent per annum are perhaps more indicative of the pension sector’s true performance, the results seen in the past 12 months should still prompt concerns.

The pension industry’s two unquestionable strengths are its necessity and size, and Willis Towers Watson’s report makes this particularly clear. The 22 major pension markets examined in the study have a sum total of $40.173trn in assets under management. Altogether, this accounts for 60 percent of the same 22 countries’ combined GDP. Since defined contribution (DC) schemes have started being implemented, member coverage, contributions and, subsequently, assets under management have steadily increased since the 1980s.

Defined benefit pensions may be gradually disappearing, but this does not necessarily mean that their replacement is up to the task. Willis Towers Watson’s report warns that “DC is still weakly designed, untidily executed and poorly appreciated; it will take better design and engagement models to create meaningful contributions to retirement security.” This level of underdevelopment is part of what has led global regulators to take a close look at the sector. After all, a public with insufficient access to retirement savings suddenly becomes an expensive cost for any government to manage. Fully aware of this problem, governments are beginning to act.

Australian underperformance
In 2018, Australia’s financial sector received a rude wake-up call. Following a slew of media reports detailing the sector’s culture of greed and profit at any cost, the government launched a royal commission in 2017 into misconduct in the banking, superannuation and financial services industry. The final report was released at the beginning of 2019 and illustrated a sector that is ineffective, inefficient and, in some cases, downright malicious. While much of the criticism was levied at banks, the pensions sector ended up being tarred by the same brush. Adding to that was a report from the Australian Productivity Commission revealing that a multitude of pension products were underperforming. Any good faith in the sector quickly dried up.

The Productivity Commission’s report was particularly important as it proposed a new model designed to name and shame underperforming funds. Under the commission’s proposal, superannuation products would have to earn a ‘right to remain’ by passing outcome tests every year. Funds that were persistent underperformers would be shut down, and the best performers would become the default funds offered to employees. Under these changes, there would be nowhere for underperforming funds to hide.

The language used in the report was pointed. “While there may be an element of ‘rough justice’ for funds, this is unambiguously preferable to the ‘rough justice’ the system has frequently meted out to millions of members – whose interests trustees are required by law to prioritise,” it said.

With compulsory enrolment still a relatively new feature, the UK is a good model for how modern pension markets are changing

Following the victory of the Liberal National Party in the 2019 Australian election, Treasurer Josh Frydenberg said he was “positively disposed to a review of the retirement income system as recommended by the Productivity Commission”. While the exact extent to which the Productivity Commission’s recommendations will be implemented is not yet known, the sector appears to be guaranteed a shake-up. The rest of the world will be looking at Australia to see the repercussions and assess whether similar changes could be implemented in their respective markets.

Global opportunities
To understand exactly what the future for global pension markets might look like, it is worth paying attention to the UK. With compulsory enrolment still a relatively new feature, the UK is a good model for how modern pension markets are changing. Speaking at the end of 2018, James Tufts, UK Life and Pensions Leader at EY, said that the country’s industry will need to navigate mergers, demergers, joint ventures, disruptive value-chain plays and the macroeconomic and political climate, all while engaging customers, pleasing shareholders and satisfying the regulator.

“Not an easy task, particularly considering the Brexit headwinds and an unsustainable savings and protection gap, but one that it has to succeed at,” he continued. “The industry, at over £1.5trn [$1.9trn] of [assets under management] and over £150bn [$190bn] of annual premium income, is a vital one – but it will need to transform in order to flourish, with technology and data at the heart of the changes.”
One area of improvement is cybersecurity, an issue taken up by the Treasury Select Committee. In 2018, an inquiry into a spate of IT failures in the sector was announced. “As insurers, wealth and asset managers complete their digital transformations, they can expect the same level of scrutiny,” Tufts said in 2018.

The sector’s future will also be defined by the companies that are seen as a safe, though exceptional, pair of hands. “The real challenge for 2019 and beyond is how to safely and sustainably achieve the level of transformative, digitally led change required to compete and win in today’s market, [while] delivering on the regulatory agenda,” Tufts said, according to the EY website. “The task is a tricky one, but the reward for success is market leadership and playing a key role in delivering on the industry’s social purpose.”

The global pensions sector should spend the next year looking to both Australia and the UK to see what the future of the industry might be. With the myriad challenges the future will bring, winners will be sorted from losers. The World Finance Pension Fund Awards 2019 identify the companies to watch and highlight those that are setting higher standards around the world.

World Finance Pension Fund Awards 2019

Australia
Asgard

Austria
VBV – Pensionskasse

Belgium
Pensioenfonds UZ Gent

Bolivia
BISA Seguros y Reaseguros

Brazil
Itaú Unibanco

Canada
RBC

Caribbean 
NCB Insurance

Chile
AFP Capital

Colombia
Grupo Sura

Czech Republic
KB Pension Company

Denmark
Velliv

Estonia
Swedbank

Finland
Elo

Germany
Bosch Pensionsfonds

Ghana
Pensions Alliance Trust

Greece
NN Hellas

Iceland
Gildi

Ireland
Allianz

Italy
Fondo Pensione Nazionale

Japan
Government Pension Investment Fund

Macedonia 
KB First Pension Company

Malaysia
Gibraltar BSN

Mexico
Afore XXI Banorte

Mozambique 
Moçambique Previdente

Netherlands
Stichting Pensioenfonds PGB

Nigeria
Fidelity Pension Managers

Norway
Nordea

Peru
Prima AFP

Poland
ING

Portugal
Banco Santander Totta

Serbia
Dunav VFMC

South Korea
KEB Hana Bank

Spain
Pensions Caixa 30

Sweden
Alecta

Switzerland
CPEG

Thailand
Kasikorn Asset Management

Turkey
Yapi Kredi Asset Management

UK
National Employment Savings Trust

Top 5 ways that GDPR has impacted digital banking

Posted on by Helen

Having reached the one-year anniversary of the implementation of the General Data Protection Regulation (GDPR), we can now begin to assess how the past 12 months have marked a transition to a new data-protection regime and what the consequences have been for digital banking.

Although the legislation has no doubt resulted in a more demanding regulatory landscape, many of the initial fears – for example, maximum penalties for data breaches – have not occurred. Furthermore, the regulation has largely been well integrated into the financial services sector.

But an increasingly digitalised banking sector is more dependent than ever on consumer trust – notably, with the advent of open banking, making it all the more critical to get data privacy and cybersecurity right. In that context, opportunity has emerged in the five key areas listed below as a result of the GDPR and the rise of data protection.

 

1 – The first-mover advantage
The GDPR has further improved the already-high standards of European financial firms in the handling of customer data, and has helped foster greater confidence in financial institutions as a result. This has also provided a useful example for other countries that are looking to integrate further data privacy and protection measures into their financial systems.

With jurisdictions such as California, Brazil and India looking to adopt laws offering similar protections to the GDPR (such as California’s Consumer Protection Act), UK banks and fintech firms are leading the international pack. This is likely to have a global impact, feeding into standards being evaluated around the world and encouraging the growth of digital banking, driven by high levels of consumer trust in technology and data protection.

One year on from the GDPR taking effect, banks and fintech firms have the resources and expertise to
turn regulatory compliance into an asset

 

2 – Promoting open banking
The GDPR pushed compliance to strengthen data handling practices and security procedures. In doing so, it also emphasised customer control of personal data, shifting power towards consumers. Open banking had just come into effect at the time of the GDPR’s implementation, which paved the way for a host of new digital banking products and services from non-traditional providers.

Under the GDPR, consumers can choose which providers have access to their data, the extent of the information shared, and the time period for which the data can be accessed. The twin push of GDPR and open banking therefore puts digital banking customers in an enviable position, allowing them to not only protect their data, but also to willingly share that data with third parties and fintech providers that offer innovative services.

As more open banking products and services are launched and the benefits of data sharing become ever more apparent, the control and protection from the GDPR could help further drive consumer adoption of open banking services.

 

3 – Creating opportunities for innovation
Public discussion about the GDPR has helped reinforce data protection as a central issue in financial services. Indeed, boards and executives understand the value of data to businesses and consumers, and the extent to which data protection is a prominent issue in society. With data privacy and security now often identified as a leading concern for boards, business leaders have become increasingly sophisticated in how they think about data.

For many firms working in financial services, the GDPR is more than simply an addition to the regulatory toolkit: it is a genuine strategic advantage. Integrating data protection into core development strategies means that bolder and more innovative decisions can be made. Any observer of the financial services sector can see that banks are innovating more than ever – a testament to their increasing technological and data expertise.

 

4 – Realising the benefits of ethical data
Technology, increased competition and consumer protection laws have empowered customers, and many of them – especially Millennials – now take ethics into consideration when looking to purchase new goods and services. This focus on ethics has also been reflected in the business community, with firms committing to corporate social responsibility and taking a closer look at environmental, social and governance issues in their supply chains and investments.

In this environment, maintaining an ethical approach to data is a significant advantage. Given how financial institutions are the gatekeepers to sensitive customer data, they have rigorously complied with the GDPR and made the ethical handling of data a priority, as evidenced in the publication of data ethics frameworks by numerous firms. The result is a succinct and easily comprehensible data policy that consumers can engage with – which is good for keeping customers happy, as well as boosting corporate reputation.

 

5 – Driving a digital defence
With hackers and malicious actors becoming increasingly sophisticated, most organisations operating in financial services will know that it is a case of when, rather than if, a data breach will occur. Any hack or cyber breach certainly runs the risk of having damaging consequences, but the reputational impact depends, to a large extent, on how such a breach is handled.

The GDPR has reinforced banks’ data processes and the procedures to follow in the event of a breach, which could prove vital in stemming reputational loss and demonstrating robust practices to the regulator. In the age of digital and open banking, the GDPR acts as another line of defence, helping to ensure the survival of banking platforms operating online.

One year on from the GDPR taking effect, banks and fintech firms have the resources and expertise to turn regulatory compliance into an asset. While concerns may still exist around what is undoubtedly a stringent compliance process, and issues still arise in how this interacts with business processes and decisions, it has clearly also created opportunities for innovation, differentiation and strategic advantage in an increasingly competitive marketplace.

US awards eight nations oil waivers under Iran sanctions

Posted on by Helen

The US has agreed to allow eight nations including Japan, India and South Korea to continue purchasing oil from Iran after the reimposition of sanctions on November 5.

According to a senior White House official, the waivers have been awarded in exchange for continued import cuts to avoid driving up oil prices.

China, the leading importer of Iranian oil, is still in discussions with the US regarding the terms of the waiver. Two anonymous officials have confirmed that Japan, India and South Korea are among the eight nations, while the other four countries have not yet been named.

The Trump administration must weigh its options carefully with regards to the sanctions, given that Iran is one of the world’s largest oil suppliers

The Trump administration must weigh its options carefully with regards to the Iran sanctions, given that the country is one of the world’s largest oil suppliers. This will involve ensuring that there is adequate supply in the global market to prevent a damaging spike in fuel prices, while also guaranteeing that Iran’s government still feels the pinch from US sanctions.

Aside from the oil industry, the US president has also applied penalties to the shipping and financial services sectors. More than 700 individuals, entities vessels and aircraft are now subject to sanction, including major banks and shipping firms. US Secretary of State Mike Pompeo said in a briefing on November 4 that over 100 large international firms had already withdrawn from Iran due to the threat of sanctions.

A balancing act
In May this year, crude oil hit its highest price per barrel since 2014 due to a spike in demand that was not matched by increases in production. Price hikes such as these can have devastating effects for smaller nations that rely on imported oil for their energy needs.

Following rumours of the waivers, global benchmark Brent crude fell around 15 percent from last month’s high of $85 a barrel. There has also been increasing speculation that other oil-producing nations will pump more to offset the supply gap.

The waivers awarded are temporary, and the US has stated previously that it expects these nations to minimise their reliance upon Iranian exports as much as possible. US Secretary of State Mike Pompeo said the exempted countries had already made “significant reductions in their crude oil exports” but needed “a little bit more time to get to zero”. He also recognised that it was not always possible from a logistical point of view for certain nations to cut trade ties when they have nowhere else to turn for raw materials.

One such example is Turkey, a key destination for Iranian crude oil. Turkey has few oil and gas reserves of its own and, as such, imports around 90 percent of its national demand for these two materials. Energy Minister Fatih Donmez told reporters in Ankara last week that the Middle Eastern nation could be one of the four unnamed countries to receive a waiver from the Trump administration. Of the 830,000 barrels that Turkey imported daily last year, over a quarter came from Iran.

A long time coming
Oil sanctions have been looming over Iran for the past six months, ever since Trump decided to pull the US out of the 2015 nuclear deal between the Middle Eastern nation and six other global powers including France, the UK, Russia, China and Germany. The sanctions have been used as a threat by the US in an attempt to constrain Iran’s oil exports. Although this tactic has been unpopular with the other nations involved in the nuclear deal, it has delivered impressive results, with Tehran’s exports falling from 2.3 million barrels a day to 1.5 million in just three months, according to internal estimates.

Robert Palladino, Deputy Spokesperson for the US Department of State, said at a briefing on November 1 that the US was feeling “quite confident” that the sanctions would help to “exert maximum pressure against the Iranian regime”.

“This leading state sponsor of terrorism is going to see revenues cut off significantly that will deprive it of its ability to fund terrorism throughout the region,” Palladino said.

Under the terms of the waivers, countries must pay for Iranian oil using escrow accounts in their local currency. These accounts will be managed by western banks, which will ensure that the money can only be used by Iran to buy food, medicine or other non-sanctioned goods. By not handing the cash directly to Iran, Trump’s administration is attempting to constrain the country’s economy and prevent the government from using the money in any nuclear development programmes.

At a meeting of economic officials on November 5, Iranian president Hassan Rouhani said that Iran would “continue selling oil” and would “proudly break the sanctions”.