Author: itsupport

Lifestyle branding for financial services

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During recent years, global brands have been resonating well with consumers to such an extent that they have become a way of life. Last year, Apple’s brand loyalty reached an all-time high of 92 percent, as the tech giant focuses on delivering unique customer experiences and on the promise of continuous innovation. As such, like-minded groups of people identify with the company’s purpose and vision, naturally becoming strong advocates. Financial services can use this positive word-of-mouth as another form of marketing to build up, interact and grow from their own evangelistic community, similar to how technology businesses have benefited from this growth in the past.

Lifestyle branding has been growing among younger generations like the digital native Gen Z as they favour self-expression and listen to influencer recommendations. While advertising and TV shopping defined the pre-social media era, it is the social influencers who are shaping the purchasing decisions of the new generation, with the market growing from £1.7bn in 2016 to a staggering projection of $16.4bn this year. It might not be surprising that the finance world is looking to tap into this trend. Branding expert Apple has even ventured into this space by introducing a one-of-a-kind titanium credit card to allow consumers to benefit from individuality in their lifestyle. With the customer experience front and centre of these strategies, how do banks and fintechs venture into lifestyle-based banking?

Design is key
It is important that banks and fintechs focus on a holistic, engaged approach that improves the customer experience, and there are plenty of examples out there of a successful strategy that puts the customer front and centre. Monzo is one example of an app-based challenger bank looking to disrupt the traditional way of banking, as the firm places a key focus on its customers’ requirements. Its super-colourful bank card means it has a distinctive look. The bank’s head of design, Hugo Cornejo, described this as an intentional move to grab people’s attention and create a discussion when handed over to make purchases.

This strategy is reflective of a brand that truly understands its desired customer base. Understanding the motivations of consumers will enable banks and fintechs to select the right design elements for their bankcards, as these are the physical symbol for the lifestyle they promote.

This is just one instance of how a card can amplify someone’s lifestyle. The design could reflect exclusivity, innovation or sustainable practices for customers that want to support green initiatives. For example, a metal card is resilient against fast-paced lifestyles; it is defined by its longevity and ultra-sleek design. Eco-cards made of 100 percent recycled, ocean-sourced, or bio-plastics can also resonate with environmentally conscious consumers, which is particularly crucial as a 2020 report discovered that 73 percent of Gen Zs were willing to pay more for sustainable products. A further study also revealed that nearly 90 percent of Gen X consumers would be willing to spend 10 percent extra for more sustainable products.

Apart from design, communication to consumers is critical, with social channels now a crucial medium to spark conversations with younger customers. As an example, the launch of digital US bank Step was promoted on TikTok by leading influencer Charli D’Amelio and achieved support from celebrities such as the rapper Nas. For younger consumers who do not have an interest in finance, harnessing the power of social media and influencer marketing will help to resonate with their interests.

Alongside impactful and sustainable bankcards that can also be personalised to reflect the tastes and personal interests of the consumer, digital applications will allow for effective online experiences as part of a combined ‘phygital’ approach, where digital and physical experiences are brought together. This will be critical as more consumers decide when they want a physical or digital touchpoint, with the banking situated where the customer is.

Embracing a holistic approach
For banks wanting to create a successful lifestyle brand, the key lies in fully understanding their consumers and boosting the user experience by taking a more holistic approach. The most successful banks understand their customers’ aspirations, speak their language, know where they ‘hang out’ online, and offer them personalised and unique products and services that resonate and are instantly recognisable. Effectively utilising data at hand could certainly help with seeing valuable customer insights, their behaviours, motivations and interests. The subsequent building of a strong image, targeted products and use of relevant personalities will place banks and fintechs in much stronger positions to attract new customers and ensure their loyalty and advocacy moving forward.

Can quantum computers predict financial crises?

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One of the reasons for the excitement around quantum computing is the hope that it will spawn the creation of highly powerful computers capable of looking far into the future. When or if this will happen is up for debate. Will the necessary technology develop quickly, or will – like energy from nuclear fusion – the promise of useful quantum computers remain tantalisingly close but just slightly out of reach? And even if we can build super-fast machines, will they be much better at prediction?

These are such difficult questions, that perhaps in order to answer them, we need a quantum computer. (This joke is an updated version of a remark by Robert Peel during an 1848 House of Commons debate about Charles Babbage’s Analytical Engine, in which he suggested the device “be set to calculate the time at which it would be of use.”)

Anyway the Bank of Canada is pressing ahead regardless, and recently hired the quantum outfit Multiverse Computing to look into the question of whether a quantum computer could predict a financial crisis in Canada. The only problem, according to Multiverse CTO Samuel Mugel, was that “The Canadian economy, in their view – and I hope it’s true – is too stable to have a high likelihood of financial crashes. So basically, they said any financial crash we predicted would probably be wrong.”

In other words, the central bank was far smarter than any of those new-fangled quantum devices. But while this sounds like great news for Canadians, you don’t need a quantum computer to realise that the Canadian economy is not as stable as the bank thinks. And the reason is related to another quantum technology – our financial system.

A mathematical thing
The word ‘quantum’ is from the Latin for ‘how much,’ which is what anyone says when they look at the price of a home in Toronto, Vancouver, or pretty much anywhere in Canada these days – though it is usually pronounced “how much?”

The common story about house prices is that they are the inevitable result of supply and demand. Canada has a lot of immigrants, and they aren’t building houses fast enough. As Finance Minister Chrystia Freeland explained in April 2022, “it’s just a mathematical thing, Canada has the fastest growing population in the G7.” Unfortunately, Freeland is using the wrong kind of maths.

Demographics give only a partial explanation for house price growth. One international study found that “if population growth increases by one percentage point, house price growth increases by 1.4 percentage points.” In the five years from 2016 to 2021 the Canadian population grew by an impressive 5.2 percent, but house prices went up by around 10 times that in many cities.

So obviously something else is going on. And that thing is money creation by private banks.

As argued in my book Money, Magic, and How to Dismantle a Financial Bomb, which applies the tools of quantum probability to the financial system, money has a dual real/virtual nature, and relies on a fuzzy and unstable link between value and price. In particular, money creation through loans is a dynamic process which can lead, through positive feedback, to rising asset prices. As the value of a ‘real’ home increases, so does the amount of virtual money which can be created, however the two are always linked.

And a property of positive feedback is that it can work in both directions – money (and value) can be destroyed as easily as it was created.

Meltdown
Since house prices in Canada have been on a steady march upwards for some three decades, hardly dented even by the 2007–08 financial crisis, most Canadians have become accustomed to the idea that prices can only go up. After all, those immigrants need to live somewhere! But what is less often remarked upon is that mortgage interest rates have also been on a fairly steady slide down over the same period.

This meant not only that existing mortgage holders saw their payments decline with time, but that new buyers could afford to pay more for the same house.

As in many countries around the world, house price growth has been cheered on by the government and central bankers because it serves as a partial substitute for real income growth. In July 2020 Bank of Canada Governor Tiff Macklem even went out of his way to announce that: “Our message to Canadians is that interest rates are very low and they’re going to be there for a long time.

If you’ve got a mortgage or if you’re considering making a major purchase, or you’re a business and you’re considering making an investment, you can be confident rates will be low for a long time.”

Unfortunately, inflation – initially written off as ‘transitory’ – started to spike in 2021 and then exploded higher, taking interest rates with it.

Real estate bubbles are the financial versions of out-of-control nuclear devices. We don’t need a quantum computer to tell us that the Canadian economy – like many others around the world – is looking less stable than it has long appeared to be on the surface. But what does need a long-overdue update is our financial mathematics.

Ireland sets out on its post-Brexit pathway

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Financial services are important to the Irish economy. The sector is a big employer. Over 105,000 people work in the domestic and international financial services sector, just over 4.2 percent of total employment, and it contributed €19.3bn to the Irish economy in 2019, 5.5 percent of total GDP. It was on a growth trajectory before Brexit (see Fig 1).

A key ingredient of the sector’s success has been the International Financial Services Centre, established in 1987 in the old Custom House Docks in the heart of Dublin. The IFSC was conceived as a regeneration project, mixing commercial and residential development, and has largely succeeded on both counts. It has been the key to Ireland’s huge growth in international financial services, which employed just 100 people when the then Taoiseach (Prime Minister) Charles Haughey backed the ambitious plans 35 years ago.

The IFSC still provides a centrepiece for the sector, although many firms are now based elsewhere in Dublin. New offices are still springing up all around the city centre, both north and south of the iconic River Liffey that flows through its heart.

Brexit looks to be giving the sector another boost, with strong encouragement from the present government, says Minister of State for Financial Services, Seán Fleming: “The international finance sector is doing exceptionally well. Employment has increased by over 2000 in the last year,” taking it to over 50,000. He is quick to point out that this is not just a Dublin success story: “People traditionally thought it was just Dublin, but one third of employment in the wider financial services sector is now based outside Dublin.”

Ireland has been playing its European Union and financial services credentials for all they are worth, said the minister, citing the country’s openness as a great strength. On a recent visit to one major financial services firm in Dublin he was told that it employed people from 66 different countries. “We have a very diverse workforce and that is another strength. We get great diversity of thought,” Fleming said.

Raising its game
One challenge that Ireland has turned from a potential weakness to a strength is regulation. Over the years, it has been beset by failures, especially in the insurance sector, and this has damaged Ireland’s reputation. A key element in the government’s ambitious Financial Services Action plan has been to ensure its regulatory regime raised its game to ensure that such failures were firmly consigned to the past.

This was essential if Ireland was to take advantage of the potential opportunities it saw in the wake of the United Kingdom’s departure from the EU. Any regulatory slip-up would have severely undermined its pitch to UK firms looking for an EU domicile from which to service European clients.

The years of collapses, with high profile names such as Quinn and Setanta, have left their mark, acknowledges Moyagh Murdock, the chief executive of trade body Insurance Ireland. “There was significant volatility and a race to the bottom in those years, made worse by weak regulation. We have moved away from that and now have very robust regulation and the best in class. There has definitely been a change in culture as the regulator and the consumer are now very well protected,” she said.

The response, says the Minister, has been to set the regulatory bar deliberately high. “We are not a brass plate country. People must have boots on the ground. It is stricter because it is better but we think that is sustainable,” Fleming continued.

This is a message you hear repeated wherever you go in Dublin. “Robust regulation is very important for confidence,” says Paul Sweetman, director of Financial Services Ireland, the leading sector lobby group.

“The regulator [the Central Bank of Ireland] and the government were clear that there was not going to be any truck with brass plating. Companies were very clear on what was being said to them and when they got through the process they knew it had been tough,” says Michael D’Arcy, chief executive of the Irish Association of Investment Managers, which has seen its membership grow from 13 firms pre-Brexit to 21 today. Dublin now offers a home to 17 of the top 20 global asset managers.

Attractive proposition
The case for tough regulation has got through to international firms looking to establish a European presence. Stephen Cross, CEO of the European arm of US multi-national insurance broker McGill and Partners, says it was a major factor in their search for the right European base in 2020. “Our approach was always to go to a domicile that had a very good reputation and a strong regulator.”

Other options promised an easier ride to authorisation but they weren’t attractive: “We didn’t want to pick lower standards and then have to start again,” a reference to the determination of the European Insurance Occupational Pensions Authority (EIOPA) that everyone should be levelled up to the same standards.

Building on the momentum of post-Brexit opportunities remains a priority, says the minister: “Initially some of the new authorisations were defensive but now people say it is a platform for growth.”

We want people to know that if you are looking for talent and skills you will find them in Ireland

Marrying the growth in international financial services with the well-established reputation of Ireland in the technology sector is where he sees some exciting opportunities: “The big move has been in Fintech. Fintech has really come along.”

Sweetman says the whole sector shares this focus. Brexit has created “a very strong opportunity for Ireland with international financial services. The sector has grown and attracted new capital and foreign direct investment. We have a very strong tech sector and a very successful international financial services sector. In the International Financial Services Centre we have world leading firms in both sectors next to each other. The potential for collaboration is unparalleled anywhere else.

“We have punched above our weight in the technology sector for some years. In the Fintech world we are on the cusp of exponential growth,” Sweetman continued. Sustainable finance is another area where Ireland believes it can carve out a specialist niche. “We want firms to house their key sustainable finance international capabilities here. This will help Ireland reach its own climate action targets and it will win inward investment to become an international hub for businesses sustainable finance activities,” Sweetman told World Finance.

Ensuring that the talent and skills are there to support this growth will require a delicate balance between ensuring a pipeline of well-qualified young people and bringing in the right people from outside. The talents and skills are in place, says Sweetman, but “we know we need to grow that pipeline. The challenge is to show how we have nurtured those talents and skills and turned that into a competitive advantage. We’ve done it in the tech sector where they have blended home grown talent with bringing in the skills we need.”

He continued: “It makes sense that you’ll have a mixture of home grown talent and international talent. That makes for greater success. We want people to know that if you are looking for talent and skills you will find them here.” In technology “Ireland has started to market itself as a location to advance your career,” says Sweetman.

The challenges ahead
Like everywhere, Ireland is emerging from the restrictions of working through the pandemic. Those who opted for home working are slowly going back to their offices but at a slower rate than in the UK as the empty offices and quiet cafes in Dublin’s business districts testify. Generally, people are working just one or two days in offices and there is no great pressure on them to return any faster.

Ukraine is now also inevitably casting a cloud over the sector. Along with major investors and financial institutions around the world, the Irish-based asset managers are watching the unfolding crisis in Ukraine and the response of western liberal democracies very carefully.

Sanctions are the obvious concern: “No-one wants to be caught making an error over sanctions because the potential reputational damage is huge,” D’Arcy told World Finance.

Asset management will probably feel relatively little direct impact from the sanctions. According to the Irish Department of Finance and IAIM between 0.3 percent and 0.5 percent of the assets under management in Ireland are Russian backed. “Of that, only a small percentage is sanctioned,” says D’Arcy.

The biggest challenge to the growth of the wider financial services sector as a result of the war in Ukraine will be the huge impact on aircraft leasing, another sector that features prominently in the Irish success story: 14 of the top 15 aircraft lessors are based there. Trade body Aircraft Leasing Ireland says 60 percent of the world’s leased jets are owned by Ireland-based leasing companies. EU sanctions have forced the leasing companies to cancel all of their contracts with Russian airlines, covering over 500 planes worth upwards of $12bn.

ALI says its members had “limited success” in getting their planes back from Russia before the sanctions clampdown. Now, most have been appropriated by Russian airlines and the leasing companies are turning to their insurers. Most market experts predict that these claims could take several years to settle. It will be a drag on a sector that has enjoyed rapid growth and made a significant contribution to the growth in Ireland’s financial services sector but not fatal.

Despite the odd frown over Ukraine, post-Brexit Irish eyes are definitely smiling and full of optimism. FSI’s objective of making Ireland a top 20 global financial centre by 2025 is still within its grasp.

A bank that puts the customer first

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India-based IDFC FIRST Bank posted its highest ever profit in Q1 2022 of Rs3.43bn ($45.7m) and is perhaps emerging as one of the most dramatic turnaround success stories in Indian banking. Formed by the merger of India’s leading infrastructure financing promoted Bank and Capital First, a leading technology-led NBFC in the second half of 2019’s fiscal year, IDFC FIRST Bank started with a string of losses for six consecutive quarters until December 2019.

Incredibly, the merged entity turned itself around in its third year after two rounds of fund raising, a differentiated retail strategy, new technologies, digitisation, expansion of branch network, a successful rebranding exercise and a customer-first approach. With a capital adequacy now at 16.8 percent and profitability improving, the bank appears set for growth. World Finance spoke to V. Vaidyanathan, Managing Director & CEO of IDFC FIRST Bank, who earlier led retail banking at ICICI bank, later launched an NBFC, before merging with IDFC Bank and taking over the combined entity as the MD & CEO.

It’s been three years since the merger with Capital First. What has been the progress?
Our bank has made tremendous progress. We have laid the foundation for a highly successful megabank of the future. Our CASA (current and savings account) ratio grew from under 10 percent to 50 percent, our capital adequacy has grown to 16.8 percent and our business model is clear. Now we are all set for growth. We are building a new age digital bank that is agile and highly scalable. This new avatar will be prominently visible to all very soon.

Your loan book has grown at only six percent since merger. That’s rather slow in a growing country. Can you explain?
The erstwhile IDFC Bank was formed by de-merging the assets and liabilities from IDFC Limited into a commercial bank. As it was a new bank, it didn’t have CASA. Capital First was an NBFC, and had no retail deposits either. So, assets plus assets make more assets. Neither had retail liabilities. So on merger, we had a large loan book of Rs1.04trn ($14bn) but very low retail deposits of only Rs104bn ($1.4bn). So, we slowed down our overall loan growth by moderating legacy wholesale book but growing the granular retail book.

How was the balance sheet funded, and how has it changed since?
Because our bank had recently acquired a commercial banking license at merger, we were largely funded by wholesale deposits, certificates of deposits and institutional borrowings including legacy long term borrowings. I’ve been around long enough in banking to know never to take chances on the liabilities side. We wanted to first secure a highly stable and diversified liabilities base before growing loans. What if short tenor certificate of deposits didn’t roll over? What if corporates withdrew deposits in a crisis? I’ve seen these situations before in the industry, and never wanted to take chances. So, on merger, we first raced to the door to raise public deposits in the 2020 fiscal year and we grew deposits 84 percent CAGR (compound annual growth rate) between the merger quarter until March 2022.

We grew CASA ratio from under 10 percent to 50 percent in the last three years. By the time COVID-19 struck in March 2020, we had already retired almost all of our certificates of deposits in a hurry, had lesser corporate deposits and swam through the pandemic comfortably. I would say managing liquidity proactively before the crisis was the biggest success we have had.

But how did customers place deposits, even while you were making losses all through the 2018–19 and 2019–20 fiscal years?
Our corporate governance and positive image came in very handy here. In fact, both IDFC Bank and Capital First were always seen as entities with high corporate governance. We lived up to it even under extreme circumstances. Every quarter of 2020 we posted large losses, primarily due to incremental provisions on stressed legacy wholesale accounts, but we were always straightforward with the public.

We want to build a world class bank in India, with three key themes: ethical, digital and social good

We called out the specific accounts that had gone bad by name, in a transparent manner without resorting to complicated client-confidentiality clauses. So, the public trusted us. We never postponed the recognition of an issue whether it was legacy infrastructure, Dewan Housing, Reliance Capital, or our exposure of Vodafone Idea. More important, along with our earnings releases, we described the future business model with great clarity and simplicity. The incremental business model was giving us strong ROE (return on equity) of 18–20 percent, and we broke down the components of the incremental business model line by line for explanation. People got confidence from all this.

Can you expand on the role that corporate governance played in stabilising the bank?
In our case, it played an immense role. One thing was the transparent disclosures and accounting of pre-merger accounts which I talked about. But more importantly, our board members have between 30–40 years of work experience mostly in financial services, and they have worked at senior positions, most of them in multinational corporations. They are extremely cautious and conservative about corporate governance. In fact, I can say corporate governance is their number one agenda. All our important committees are headed by independent directors. Coming back to disclosures, we disclose more than the regulatory requirements or conventional market disclosures.

Can you share the incremental business model with us?
Our business model is easy to understand. We have developed immense capabilities for financing small entrepreneurs and retail consumers at scale, using technology. We have maintained low gross NPA (non performing assets) of less than 1.9 percent, and low net NPA of less than one percent for a decade. The COVID-19 year apart, not in a single quarter in 12 years did we have any fluctuation on this trend. On the retail side, despite moving to lower yielding, safer assets and prime home loans, we are making ROE of about 18–20 percent. On the corporate banking side, we have not had any new NPA since merger, and our ROE is about 14 percent. The Indian retail credit to GDP is just about 15 percent, which can grow manifold to 70–80 percent over the next few decades, on a growing base. We have unlimited space for growth. We have launched and scaled many new businesses like wealth management, CMS, FASTag and so on.

Are these economics reflecting in the profitability of the bank?
The operating profits for the first half of the 2019 fiscal year, combining both IDFC Bank and Capital First, was Rs5.51bn ($73m), annualised to Rs11.01bn ($146m). In 2020, this grew 60 percent to Rs17.64bn ($235m). Then, during 2021, it grew only eight percent to Rs19.09bn ($254m) as it was pandemic affected. But the moment COVID-19’s second wave wore off in 2022, operating profits grew 44 percent from Rs19.09bn in 2021 to Rs27.53bn ($367m) in 2022. So, in summary, while our loan book has grown at a three-year CAGR of six percent, our operating profits have grown at three-year CAGR of 36 percent. So that explains the power of our incremental profitability model. We expect operating profit to grow at 45 percent CAGR again over the next two years.

Do you provide guidance to the market on earnings?
Not just earnings, at the time of the merger in 2019, we provided 2024–25 guidance on all key metrices, including deposits, loan book, asset quality, returns. Every quarter, we report our performance against that guidance. I’m happier to say that on every single metric we are on track, and confident of meeting them despite the pandemic interruption.

What is the core culture that you are building in the bank?
We are a new bank and we are coding our employees’ DNA to think ‘customer first’ at all times. We were the first universal bank in India to launch monthly interest credit on savings accounts. We stripped most of the fees that banks usually charge on one count or another. Our credit cards have differentiated offerings like dynamic pricing, comparatively lower rates and fees, better ease of usability, truly customer first. You might think this is not beneficial to shareholders. But you’d be mistaken, as in our current construct, customers are automatically drawn to us from word of mouth and our retention rates are high.

What is the role the vision statement plays in building the culture?
We went over the vision statement over and over to get it right. Our vision statement effectively says we want to build a world class bank in India, with three key themes: ethical, digital and social good. ‘Ethical’ is the means by which we wish to deal with everyone. ‘Digital’ is the medium we want to use. ‘Social-good’ is the purpose of our existence. We tell our employees to earn income the clean way. We made a seal on this and shared with our employees, so it stays on their table.

What is the next stage for the bank?
We have made significant investments in building a quality technology stack for scalability. Our products are great. The culture is good. Our mobile app is great. Our asset quality is proven. Our capital adequacy is strong. We tick all boxes, barring one. We are low on profitability, but we’ll fix this soon. Our trajectory of profits is strong. By 2023’s exit quarter we believe we will cross double digit ROE, and then on to the next milestone of 16 percent ROE. It will happen. We will be a world class, technology led bank with high teens ROE. We will tick the profitability box soon, and remain strong.

Antigua and Barbuda – an investor’s paradise

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The idyllic Caribbean nation of Antigua and Barbuda has long been a favourite port of call for luxury yachts and exclusive high-end tourist clientele. And since the establishment of its increasingly popular Citizenship by Investment Programme (CIP) in 2013, the country has been welcoming a steady stream of high-net-worth individuals. The programme provides one of the most efficient routes anywhere to a second citizenship for wealthy individuals, ensuring both financial freedom and peace of mind at a time of increased global uncertainty; and the Antigua and Barbuda citizenship programme is one of the most attractive offerings in this fast-growing market.

It takes less than four months for investors approved under the CIP to receive their citizenship, giving them visa-free travel to more than 160 countries, as well as a safe and secure base for their families and residence in a low-tax and business-friendly jurisdiction. Furthermore, there are no restrictions on dual citizenship and no tax on worldwide income. The crime rate in the country is low and the standard of living high.

An innovative programme
As far as innovation is concerned, Antigua and Barbuda was the first Caribbean nation to permit investment in approved businesses, an initiative that other jurisdictions have now added to their respective portfolios. The most recent addition to the investment options is the University of the West Indies option. This avenue will entitle one member of the family to a one year, tuition-only, scholarship at the University. The National Development Fund and UWI option in particular have become the market leaders in the sub region, as they are remarkably well-suited to growing families.

Ongoing research into the market has indicated that the pandemic has driven people to seek out investment opportunities as it relates to alternative options for relocation. As such, the following expansions have been made. Firstly, successful applicants now have the ability to take the citizenship oath by designating overseas offices and missions, in their respective jurisdictions using a local notary public, as well as by use of various audio-visual platforms.

Secondly, the definition of ‘Dependent’ was expanded allowing investors to include an intended spouse, adult children up to 30 years of age, unmarried siblings, intended spouses of adult children, grandchildren and parents or grandparents 55 years and older. And finally, expanding the investment opportunities under the real estate option to include the construction of new property and expansions in existing high-end properties.
 

The four pathways that
investors can select from:
1. Contribution to the National Development Fund:
For a single applicant, or a family of four or less: $100k contribution
Family of five or more: $125k contribution
2. Real estate investment option:
single investor $200k,single investor $400k, joint investment at a minimum of $200k each
3. Business investment option:
Single investor $1.5m, joint investment $5m, with each investor making a minimum contribution of $400k
4. Investment in the University of the West Indies:
For a family of six: $150k contribution

 
Following these new opportunities, a growing number of new citizens are now investing in real estate and luxury tourism projects, providing them with attractive potential for capital gains and returns on their investment. With flexibility and resilience constantly at the forefront, the CIP of Antigua and Barbuda is proving to be the one to watch in the investment migration industry. The Antigua and Barbuda programme is known for its foresight and innovation and this trend can be expected to continue into the foreseeable future. The variety evident in the investment thresholds positions this programme uniquely in the market. The current offering illustrates marked improvement over time, and it will continue to evolve with the market to ensure that it maintains its relevance.

A good time to invest
The Antigua and Barbuda Citizenship by Investment Programme is an excellent choice for the ability to have visa-free access to more than 160 countries, no restrictions on dual nationality, citizenship for life, no tax on worldwide income, inheritance, capital gains or investment returns, a stable economy and democracy and a safe and secure paradise from where you can live freely and work remotely.

New citizens can reside comfortably in a safer, less densely populated country that has demonstrated a greater ability to manage the pandemic. Future applicants should know that now is the time to invest in their future. The Antigua and Barbuda Citizenship by Investment Programme is the premier choice for second citizenship.

Managing the growing wealth of women

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Women already control around one third of global wealth, and their share is rising fast. They are expected to be the big beneficiaries of the Great Wealth Transfer, in which baby boomers pass their assets on to the next generations. They are also making more money themselves, thanks to social changes such as increased representation in the workforce, including top management positions, and higher levels of education.

In 2010, for example, just 14 of 89 women on the Forbes billionaires list were self-made; in 2022, it was 101 out of 327. Even COVID-19 did not dim women’s growing financial confidence. In 2021 research conducted by Fidelity Investments, 50 percent of women in the US said they were more interested in investing since the start of the pandemic.

And the 2021 UBS Investor Pulse survey found that 68 percent of women had started talking more about finances within their families.

A bespoke approach is best
In response to this accelerating trend, many articles and research pieces have appeared targeting the specific investment needs of women. But while investing is important, it is only one aspect of family wealth. And at Kaiser Partner Wealth Advisors, segregating clients according to their attributes, including gender, runs counter to our bespoke approach.

In our view, a successful wealth management plan is both holistic and highly personalised. That means it ensures global mobility and encompasses the full spectrum of a family’s assets, from lifestyle and real estate to venture capital and philanthropy. It also means it serves the unique needs of the wealth owner and their family, and reflects their shared values.

We are not disputing women face specific financial challenges. We simply believe that every client is different and deserves a custom-made plan. For example, BCG names five challenges that affect the financial life journey of women: the gender pay gap, maternity leave, flexible conditions, a longer life expectancy and a tendency for lower risk tolerance. But recent research shows that huge differences exist.

Geography: in Asia, around 41 percent of female wealth is self-made compared with just four percent in Europe.

Age: approx. 72 percent of millennials are the main decision makers for financial planning in their households, compared with less than circa 50 percent of baby boomers.

Culture: around 60 percent of women in China see themselves as investors, compared with just nine percent in Japan.

What’s more, where women do have vulnerabilities, the solution is the same as it would be for any client: a strong wealth plan that covers all contingencies. Take their longer life expectancy, for example. At various points in women’s lives, they will deal with business partners, need to protect their children’s interests, inherit spousal wealth or support ageing parents. A tailored, holistic plan would address all these factors.

A reliable sparring partner
One clear distinction we see is in women’s need for a particular kind of wealth advisor. Research shows that only around 35 percent of female clients talk to their financial advisor quarterly or more about retirement planning or to see if their goals are on track. And approx. 67 percent of female investors globally feel their wealth manager or private banker misunderstands their goals or cannot empathise with their lifestyle.

We believe women need a reliable sparring partner who invests the time to understand their needs and situation. An advisor who puts them in the driving seat and encourages them to take ownership of their wealth plan. And an advisor who constantly monitors whether the plan needs adjusting to reflect any changes in family- or business-related circumstances. Whoever the wealth owner, though, the key is to start the dialogue early. The sooner a family sits down together, the more time they have to build a long-lasting plan that prepares for all contingencies and works in everyone’s interests.

A plan for all seasons
So, what might this plan look like? First, it protects the wealth owner and their family from contingencies and negative implications legal or otherwise, while making sure they maintain some flexibility in global mobility terms. It diversifies their risks, so their income is protected in the event of a major geopolitical occurrence. And it protects them against all other contingencies, including divorce, death and unscrupulous business partners.

Our role as advisors is to ask the right questions, understand their needs and guide them through the planning process

From a business perspective, a strong wealth plan ensures continuity and a smooth transition to the next generation and beyond. It also protects the business from internal and external risks and builds a strong corporate governance system that includes – and provides for – the most trusted people in the family’s inner circle.

Finally, the plan protects the wealth itself, so it’s preserved for future generations and passes down smoothly. It also defines who has access to the wealth, and for what (to try out a new business venture, for example). And it constantly flexes to reflect the evolving needs of all parties.

Strong governance must underpin the plan, particularly those aspects relating to the family. This can help to avoid inheritance disputes, and the risk of younger generations squandering their wealth because they do not appreciate the responsibilities it brings.

Three strategic steps
Effective and sustainable wealth planning is more about understanding internal and external risks, allocating roles within the family and creating security mechanisms than it is about considering wealth from a single perspective. Having said that, a good-quality plan will address any issues female wealth owners face, such as a lack of financial independence or information about family assets.

The challenge can be getting the family to have an open dialogue about wealth in the first place. Few families regularly discuss their financial situation, its potential risks and challenges and how to mitigate them. By giving everyone a voice and the chance to contribute, especially the younger generations, wealth owners can help the whole family buy into the final plan.

Although, the planning process is always tailored to the specific needs, there are three key aspects that we focus on when advising wealth owners and their families:

1) Defining the family’s values and long-term aims. Wealth is almost always a family matter and therefore, should primarily be seen through the lens of relationships and family values. We always ask families which shared values they would like the plan to reflect, as these can keep the family united and thriving for generations.

We also ask them to think about what they want the plan to achieve for themselves and their family, during their lifetime and beyond (recent history has demonstrated that short-term plans, set up for very narrow tax purposes, backfire eventually). And we remind them that their plan will have the power to affect family members negatively as well as positively. So, whatever its purpose, relationships must be at the forefront.

2) Keeping the plan dynamic. Once we understand the objectives of the plan, we use our Dynamic Asset Model to conduct a comprehensive inventory of the family’s assets. We divide them into categories – business-linked, lifestyle, financial, real, direct investments and sharing and impact – to show how they interact. And we help to strategically allocate those assets in line with the plan.

Next, we stress-test the model by asking ‘what if-questions’: what happens if the business fails tomorrow? Would the other assets be able to sustain all the varying financial needs and priorities of the family, or help set up a new business? And we flex it if circumstances change or challenges arise.

3) Getting support from the right people. At Kaiser Partner Wealth Advisors, we put the wealth owner in the driving seat. Our role as advisors is to ask the right questions, understand their needs and guide them through the planning process.

As their wealth grows, though, no single advisor is able to handle everything a wealth owner needs. Our solution is to create a Wealth Table – a bespoke team of advisors, experts from different areas and disciplines, and family members to provide a comprehensive view. Together, we can focus on the long term while avoiding the blindness that can come from being too close to an issue or person. Our clients appreciate the synergy and the quality of advice it brings.

A relationship built on trust
Of course, we can only achieve all this if wealth owners put their trust in us to deliver. We earn that trust over time by knowing our clients well, by creating custom-made solutions and applying a holistic approach. That means understanding the planning horizon, long-term purpose and needs of the family, while addressing the specific vulnerabilities of the wealth owner – irrespective of gender. Ultimately, what we provide is highly personalised support. And that does not involve defining a person according to a limited number of attributes.

Financial inclusion and education in the spotlight in Peru

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When it comes to financial inclusion, Peru has considerable room for improvement. The country falls below the regional average in terms of access to financial products and services, ranking sixth out of seven Latin American countries surveyed in Credicorp’s Financial Inclusion Index for 2021. According to this survey, 52 percent of Peruvians do not possess any financial savings products at all, while 72 percent perceive at least one barrier to having deposit or savings products.

While the financial sector has promoted initiatives over the years aimed at improving access, the single biggest problem is the informal nature of Peru’s labour market. According to data from the National Institute of Statistics and Informatics, the official statistics agency, only 27.3 percent of the country’s employed population is in formal employment. There is also a fundamental lack of knowledge as to how financial products and services work, with the pension system being one of the least well understood areas. We at Prima AFP believe it is important that the private sector and the state share the task of helping the population towards greater participation and understanding. The coronavirus pandemic has only underlined the lack of financial inclusion in Peru.

As a result of the economic crisis caused by COVID-19, 73 percent of Peruvians did not put aside any savings last year, Credicorp’s survey found. Furthermore, in the face of the health emergency, hundreds of thousands of people received financial support from the government in the form of subsidies to lower-income families, but the low level of participation in the banking system complicated this effort. Nevertheless, looking beyond the challenges that the country has had to overcome over the past two years, I take the view that the pandemic can be an important starting point for improving financial inclusion in Peru.

Nurturing the habit of saving
Prima AFP’s own efforts in this area include the development of various products aimed at cultivating and strengthening the habit of saving among Peru’s citizens. These products now have more than 84,000 customers. For example, through the AhorroYa! programme, we have signed business alliances that allow our clients to ‘save through consumption’ when purchasing fuel and household appliances from affiliated organisations. Part of their spending is transferred to the client’s individual capitalisation account, meaning that thousands of customers build up savings without even realising it. Also, our Cuenta Metas and PaMayo products allow for savings for medium-term objectives, with similar returns to those offered by pension funds. These actions demonstrate Prima AFP’s commitment to promoting financial inclusion in society and reducing inequalities.

Understanding pensions
Financial inclusion and financial education are closely linked, and Peru scores poorly on both. According to the OECD’s most recent survey of the issue, Peru has a rate of financial illiteracy that is close to 80 percent. This means that most Peruvians have no knowledge when it comes to the state of their finances and are unaware of how their finances are managed. This lack of understanding also translates into a low level of interest among the population in financial products and services. This is a problem that affects not only Peru, but also other emerging countries around the world. In developed countries, the opposite is true. According to research from Standard & Poor’s, the US is among the countries with the highest financial literacy rates and this is reflected in a greater number of people benefiting from access to financial products and being able to achieve their financial objectives.

The pandemic can be an important starting point for improving financial inclusion in Peru

Prima AFP is committed to strengthening the financial knowledge of both its clients and non-clients. Education in the country’s private pension system (PPS) forms a part of the company’s sustainability pillars. To this end, we continue to work with platforms such as our web-based series El Depa, which addresses PPS concepts in a playful and humorous way. Its 18 episodes, grouped into six seasons, have more than 53 million views on YouTube. We are also set to launch a web page, Ahorrando a Fondo, devised to educate users about basic pension concepts and address the most frequently asked questions.

We are aware that the technical aspects of the PPS can be complicated, but in recent years Prima AFP has been working to improve the transparency and simplicity of the sector. For example, in 2021 we launched Micros Abiertos, the first event for clients and non-clients that sought to answer the main questions that people have about Pension Fund Administrators (Administradoras de Fondo de Pensiones, or AFPs), of which Prima AFP is one. Through initiatives such as Micros Abiertos we have made it clear that we are a company that is willing to listen to its customers. Our aim is to respond in an open manner to all queries about the PPS.

Gender equity in pensions and at work
It is also worth noting that Peru has a gender gap when it comes to pension savings. It is far from alone in this; research published in 2021 found that, for a variety of reasons, women over the age of 65 in OECD member countries take 26 percent less retirement income than men. According to a recent study by the Pontifical Catholic University of Peru, a gender pension gap of 37 percent exists in Peru, and gender gaps are present in each percentile of pension fund distribution. These findings are a reflection of the situation in the Peruvian labour market, where women earn almost a third less than men for doing similar work.

With regard to gender equity among our own employees, at Prima AFP we believe that actions speak louder than words. That is why we have created the Equity Now programme, which operates across various fronts. For example, we have improved our recruitment and selection processes, seeking to have equitable shortlists. We are also working to ensure that variations between salaries, where roles and responsibilities are similar, are not the result of gender bias.

As part of our fight against sexual harassment at work, we have joined the ELSA programme, a digital project developed by GenderLab with support and financing from the Inter-American Development Bank. ELSA (a Spanish acronym that translates to Labour Spaces Without Harassment) helps organisations to implement a culture of prevention with regard to sexual harassment. Among other things, Prima AFP participated in ELSA’s 2021 Workplace Sexual Harassment Survey, together with other companies that have signed up to the programme. We believe in gender equity as a tool that allows for the development of a truly impartial meritocracy.

Meeting responsible investment goals
Prima AFP has highlighted the growing importance of responsible investment in previous articles for World Finance, arguing that it has become integral to all financial decision-making and investment processes. The coronavirus pandemic did not change the execution of our strategy in this area in 2020 and 2021, and we have made progress in accordance with the main goals of our responsible investment plan. We have gone from 52 percent of assets under management with environmental, social and corporate governance (ESG) analysis in 2020 to 73 percent in 2021.

We expect this share to reach 81 percent by the end of 2022 and 100 percent by the end of 2023. As part of the responsible investment plan, we have worked to create and implement our relationship plan, have implemented our climate change plan, and improved ESG integration in the investment processes of third-party funds. We have meanwhile continued to train our risk and investment employees in ESG topics and have maintained our market awareness programmes on responsible investments.

An important part of our strategy in this area is our partnership with the Responsible Investment Programme (which goes by the Spanish acronym of PIR), the local network of investors that encourages good ESG practices. We are also proud to highlight our signature to the Principles for Responsible Investments (PRI), a United Nations-supported initiative put in place by a group of institutional investors to promote responsible investment worldwide.

Going forward, one of the main ESG issues that Prima AFP intends to focus on is climate change. During 2021 we carried out an analysis of our portfolios using information from several data sources on the risks and opportunities related to climate change. We subsequently created our climate change policy. We have discussed the actions needed to build portfolios that are resilient to climate change in the medium term, and the objective we have set for 2022 is to approve and implement these actions in order to support our goals.

Three core pillars of growth that are helping to accelerate sustainability

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Sustainability is a vital part of any business, and especially so for us at Boursa Kuwait. Corporate sustainability is fundamental to our long-term success, in terms of the strength and growth of our business and people, as well as the overall contribution toward the development of Kuwait’s economy, in line with the ‘New Kuwait 2035’ vision and the National Development Plan for the State of Kuwait.

As the operator of the country’s stock exchange, Boursa Kuwait can play a crucial role in achieving the overarching objectives of the nation’s ambitious roadmap by promoting and advancing corporate sustainability practices in capital markets and by creating an investment climate that can attract capital and encourage sustainable investments.

Our commitment to corporate sustainability ensures that we continue to make important contributions across our three core pillars – education, community and environment – to position our business and our nation for strong and sustainable growth.

The education pillar envisions a robust capital market ecosystem where all stakeholders are fully equipped with the knowledge and skills required to be an active player in the nation’s capital market, while the community pillar embodies Boursa Kuwait’s commitment to giving back to the community.

Meanwhile, Boursa Kuwait’s initiatives in its environment pillar ensures that the company recognises that its operations have an impact on the environment and acknowledges that addressing environmental issues is a collective responsibility shared by every member of the community.

Accelerated push
With the focus on sustainable operations and investments being in higher demand than ever before, Boursa Kuwait has accelerated its push towards sustainability in the advent of the COVID-19 pandemic, which has created a sense of urgency and awareness throughout the world, and proved that many of the scenarios that we thought impossible can become reality. We need to act now – and together – to address challenges like climate change, social inequality, and geopolitical turmoil.

The pandemic has undoubtedly altered many of our approaches towards life in general, leaving behind wide-ranging and far-reaching impacts and challenges on individuals, businesses, communities and countries. As an organisation, Boursa Kuwait continues to embrace these challenges in the best way possible so that it can make positive steps forward and continue to deliver on its objectives.

Our people represent one of our greatest assets and a key driving force behind our evolution and success

Throughout this unprecedented period, Boursa Kuwait reinforced its central role in the community by acting to protect the health and well-being of our diverse stakeholders. We worked to ensure a safe and healthy environment for our employees, customers and visitors, while simultaneously maintaining business continuity in the best interests of our issuers and investors.

The company continued to collaborate with international organisations to accomplish its community pillar goals. The company’s support of the UNHCR, the UN refugee agency and its mandate, resulted in a greater public image and a stronger reputation, while aiding 3.3 million Syrian and Iraqi internally displaced people (IDPs) and refugees.

Adopting the cause of fighting discrimination and supporting equal opportunities for women, we signed the Women’s Empowerment Principles (WEPs) ‘Statement of Support’ in 2019 and the exchange’s ongoing support of the WEPs helps deliver on the critical role businesses can play in the attainment of the UN Sustainable Development Goals outlined in the Agenda 2030.

Supporting and promoting local talent development is another focus area. We continue to take part in career fairs and provide opportunities for graduates and experienced professionals to join high-profile projects and participate in the development of the country’s economy. Our people represent one of our greatest assets and a key driving force behind our evolution and success. By maintaining a safe and equitable working environment that is increasingly based on commitment and appreciation, we aim to consolidate Boursa Kuwait’s position as an employer of choice in Kuwait, supporting an increasingly diverse and dynamic workforce.

As we continue working through these unprecedented times, we are constantly finding new ways to better serve our various stakeholders, while keeping the health and safety of our employees and all market participants at the forefront of what we do.

Committed to community
Since its inception, Boursa Kuwait has been committed to its responsibility towards the community and its employees, adopting a policy designed and implemented to achieve our business objectives, support our stakeholders and contribute to the development of the Kuwaiti economy. The company recognises that it has a critically important role in the global transition to more sustainable economies. As companies continue striving to stay ahead through research, development and innovation, we have made it part of our strategy to ensure that the market, as well as all its participants including Boursa Kuwait, continue to stay up to date with the latest developments in capital markets worldwide.

Studies have shown that investment portfolios that have divested from environmentally harmful companies have outperformed their benchmarks, and that sustainability and climate-integrated portfolios can provide better risk-adjusted returns to investors. As such, we continue to stress to our various stakeholders that sustainable investing is the strongest foundation for running a successful business going forward. In the current investment climate, adopting sustainable principles is not just the right thing to do. As its impact on investment returns increases, sustainability may lead to better outcomes for your business.

A year in the life of a global broker

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OctaFX is a global broker that has been providing online trading services worldwide since 2011. Looking back on 2021, OctaFX, its departments, as well as its growing community, have much to be proud of and look forward to. Our company maintained its focus on helping clients to achieve their investment goals by providing its services and tools even during the tightest pandemic restrictions.

As a result, the fintech company added many accolades to its name, such as receiving international recognition as the ‘Best Forex Broker, India’ – awarded by World Finance. This reflects 12 months during which the company considerably improved OctaFX’s product, refining it for its clients, bringing a closer, more personable relationship, and making the product experience even more accessible and inspiring for new customers.

The product
The trading mechanics became even more convenient and relevant to our customers’ needs. The launch of the OctaFX trading app for Apple iOS certainly resonated with the trader community too, as it has already been installed more than 400,000 times. In 2021, we added new trading instruments (including many new cryptocurrencies, among them a few classic altcoins like Bitcoin Cash and Ripple, as well as national currencies like the Mexican peso and the South African rand) and raised the leverage for all our cryptocurrency pairs from 1:10 to a more competitive ratio of 1:25.

Furthermore, OctaFX upgraded its copy trading option’s rating and risk calculation system, providing a better, more elegant user experience. Receiving the ‘Best Forex Copy Trading Platform’ by FxScouts two years in a row (2020, 2021) is a testament to this progress.

Also, the 2022 launch of a 24/7 crypto trading schedule and – as alluded to above – the addition of 25 new cryptocurrency assets to its trading pool has raised the ability for us to stay competitive in an ever-changing and innovative blockchain market.

Our customer support handled 3.5 million client chats this year. We have improved, simplified and accelerated the operation of this essential service with the aid of upgraded artificial intelligence.

To illustrate this, the new system helped to close over 30,000 requests without a support agent, contributing to the company’s ability to interact with its clients in real-time.

Education still the key to success
Where would financial sovereignty be without its most beneficial asset? The company openly affirms that education is one of the core values it wants to expand and increase. In order to do so, OctaFX initiated the ‘ask to bid’ as well as the ‘learn to trade’ YouTube shows in India. While both feature Indian celebrities, the latter gave newcomers the opportunity to learn the art of trading alongside their favourite rookie celebrities. Both educational shows have garnered positive feedback from participants.

The company openly affirms that education is one of the core values it wants to expand and increase

We managed to increase our average of organised online events to over 50. Having installed courses in English in several African countries and the ones in Spanish in Mexico shows the spreading geographical reach of our financial training webinars and popular OctaFX Q&A sessions. The financial expert and trading specialist Manesh Patel has excelled in these kinds of high-quality sessions, by offering them in Hindi.

CSR as a ‘badge of honour’
Since its inception, charity and humanitarian aid have always played an essential role in our corporate organisation and activity. Some of the most crucial partnerships that assisted OctaFX in providing essential humanitarian support were accomplished with the Hemkunt Foundation. Among them was a project to distribute medical equipment to hospitals in Delhi, Gurgaon, Mumbai and Bangalore – in times when the COVID-19 pandemic was at its most rampant.

Another undertaking was the support for the construction of an educational centre in Khandwa, Madhya Pradesh. That way, the local community received a place for vocational training that is able to house up to 1,100 participants. Together with the projects from other Asian regions, 15 independent humanitarian initiatives in the course of the past year alone were erected.

New frontiers
The company expanded its reach and profile as a mere broker, already proficient as an innovative and trustworthy player in the investment industry, to growing into a comprehensive investment partner this year – helping every participant of its services reach their investment goals.

We endeavour to stand shoulder to shoulder with our clients, enduring the ups and downs of the market, helping individual growth by sharing vital information, and collaborating with the industry’s best educators and experts. They have unveiled their most inspiring stories with the OctaFX community.

In India, OctaFX managed to capture the ‘Best Forex Broker India 2021’ award and the ‘Best Forex Broker Asia 2021’ award by Global Business Review Magazine and Global Banking and Finance Review, respectively.

These awards recognise the major achievements we continue to make, improving the product, making it better, simpler, and more convenient – the way the customer demanded it to be. An exciting and ever-evolving learning curve appears to have materialised between us and our trading community in India.

One that helped both sides to develop a more intricate investor mindset and a deeper analytical approach: a strong investment strategy. India – as a key Asian and world politics player – is on the brink of important and unique economic developments, for which the OctaFX team continues to express deeply rooted enthusiasm to be part of.

Post-crisis innovation fires Islamic banking forward

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Despite the double shock of the COVID-19 pandemic and raging global inflation, momentum from the Islamic finance industry has stepped up – again. While GCC countries are the most important movers, Islamic banking is gaining traction in Malaysia, Indonesia, Turkey and Pakistan. Despite the extreme adverse environment last year, global Islamic assets grew by 10.6 percent in 2020. This figure is expected to increase in 2022. With an estimated 1.9 billion Muslims around the world – nearly a quarter of the world’s population and the largest religious group in the world – the opportunity and necessity of Islamic finance is irrefutable. World Finance secured an advanced briefing from company managing director Robert Hazboun, who gave the low-down on their plans in an exclusive interview.

 

Did the pandemic change the business model of Islamic finance in any way?
We think so and in a positive way. COVID-19 showed how any bank’s ability to transition its business online is vital for survival. Digitisation and fintech collaboration for Islamic banks increases resilience in more volatile situations and provides new growth. Digitalisation is a priority. We believe the three aspects enhancing the industry’s resilience are digital banking services, issuing sukuk on a digital platform using blockchain technology, and improving cyber security.

Though the pandemic saw broad-based and revolutionary growth, we feel the sector has yet to fully take advantage of inclusive standardisation and the potential to grow sustainable financing. This is exciting and energising.

 

How do the drivers of Islamic finance compare to three years ago, pre-pandemic, in your view?
Gulf News has reported that the global trend of increased ethical consumerism is driving the appeal of Islamic products. We agree 100 percent. Also, the emergence of Islamic fintech is now driving the popularity and awareness of Islamic finance. According to IFN Islamic Finance, the UK has 27 Islamic fintech firms, followed by Malaysia with 19, and the UAE with 15, at least. This demonstrates the industry’s importance and potential. So, while the Islamic finance industry is steadily growing, even taking some hits along the way, its primary growth drivers remain solid. Even digging deeper roots. Our industry has huge potential to disrupt the global finance and banking sector – but in a very positive way.

 

Our service and software are about an on-going relationship that is cost-effective and long term hassle-free

What about demand from millennials and a younger generation?
We’re definitely seeing more demand from a younger generation. Millennials make up a big percentage of Islamic banking customers, which means they direct the growth and shape of the sector. This is supported by a study conducted by Alvarez & Marsal Middle East, which predicts younger generations will contribute to around 75 percent of banking revenue in the region over time. Many of our customers strongly attract millennials and the younger generation by offering innovative digital products and services, specifically catered to a young audience. Islamic banks must properly understand what’s relevant to the younger generation though, to attract and keep them as customers. This underpins understanding and trust in Islamic financing solutions. We feel it’s a win-win, ultimately.

 

What areas of Islamic banking promise to unlock the greatest innovation?
Although innovation in technology can be lower for Islamic banking compared with conventional banks, we’ve seen many of our customers dive deep into digital technology – many are early tech adopters and demand high levels of technological creativity. Similar to conventional banking challenges, Islamic banks face the same competitive challenges from fintech and tech disruption. Islamic banks must reimagine their way of doing business through innovation – they have no choice here. We feel there are no limits to reimagining an Islamic bank model that cooperates with a diverse group of partners. The bottom line is that Islamic banks have a once-in-a-lifetime chance to build an open banking environment supported by a modern, tech-savvy platform. We are here to support this, absolutely.

Product in brief

  • Deployable for a full-fledged Islamic bank, or as an Islamic window for conventional banks with a spread of configurations
  • Document Management System (DMS) for a fast, accurate document flow
  • Based on AAIOFI and IFSB standards with capability for local intellectual standards and Shari’a regulations
  • Powerful product building tools through parameterisation and Business Process Management (BPM)
  • Constant interaction with the customer during processes via omnichannel touchpoints
  • Fully supportive of robotics, AI, and digital coverage technology plus cloud availability to reduce costs

 

What role will ICS Financial Systems play here?
We have watched our customers grow and transform their businesses into digital-driven financial institutions. We are the core player in this field, committed to providing our customers with the most novel, tech-savvy, out-of-the-box products and services available, anywhere. Nothing has changed there. What has changed though is greater recognition that real value is about better productivity, or the peace of mind of free and on-going upgrades.
First and foremost, our service and software are about an on-going relationship that is cost-effective and long term hassle-free. That’s genuine value, we say.

 

How flexible is your software, particularly with regulation and cloud-based tech issues?
Our software is 100 percent fully digital, giving our clients full international standards, real-time business processing, and capabilities for tailoring their products on-premises, hybrid, or in the cloud. Our tools develop and evolve constantly to ensure our software can future-proof our customers’ activities across a range of banking capabilities that enrich the customer journey without compromise.

We know implementing new tech can often run up against old or new regulations. Therefore, we always work to ensure we have solutions that monitor processes in real-time, in case of potential problems or compliance issues, or even threats. All this means ICS Financial Systems supplies a standard of agility and digital excellence that other systems are judged by. We are confident about saying such a statement.

 

How close, or far away, is an interconnected Islamic global finance ecosystem, would you say?
We don’t see a global interconnected legal and regulatory framework for Islamic finance yet. The regulatory regime that governs Islamic financial institutions also differs greatly between countries. We strongly feel that Islamic finance serves the same foundation of ethical systems, wherever it is used, thanks to Shari’a Islamic instruments and concepts preserving and supporting Islamic economic behaviour. However, many international organisations have now been formed with the goal of establishing standards to enhance and standardise regulations. This is extremely encouraging to us and augurs well for wider acceptance.

 

Are there enough skilled professionals who understand Sharia-compliant products?
Unfortunately not. There is a lack of skilled professionals, which is why there is a huge demand for skilled professionals in Shari’a compliant products across so many jurisdictions, still. Thankfully our Islamic banking team is highly skilled with all the necessary Islamic banking certifications. We have always invested heavily in training and education and we continue to do so.

In focus:ICS Banks Islamic prime is an award-winning software suite designed not only to cover all Shari’a banking needs but to offer new levels of customer banking efficiency.

Three key features:

  • Its know your customer (KYC) feature means it maximises productivity and cost-effectiveness across all banking operations
  • Smart software solutions deploy cutting-edge tech like chatbots, cash management system (CMS), cardless payments and agency banking
  • It supports all known and approved Islamic instruments and their variants with in-built flexibility for an extra competitive edge, whatever the jurisdiction

 

What Sharia-compliant cloud banking features are your clients increasingly relying on and demanding?
ICSFS believes that in order to be truly digital, an Islamic bank must re-engineer the way it does business. All banks face growing competition from fintech start-ups and tech giants, with endlessly disruptive innovation. From early on, ICSFS had the foresight to capitalise on digital banking, providing a cloud platform that caters to each customer’s individual and bespoke needs, from digital-only Islamic banks and micro-finance to hybrid and cloud solutions.

 

What about other big-demand areas?
Although most of the Shari’a-compliant cloud banking features continue to be well utilised, we are now seeing a big demand for digital KYC, customer onboarding, blockchain, AI and robotics. We add to this list, customer account management, open APIs and loan originations. There are many other examples, too many to list here.

The platforms can be cloud-native or cloud-agnostic. Social engagement to financial inclusion are new business challenges. It’s a very diverse ecosystem out there. Lastly, we also never forget that organisations need a cloud computing solution that helps deliver corporate banking services such as wealth management services to their customers’ demands, but without significant burdens in expenditure. That is a given, always.

How Bank of Industry is driving Nigeria’s industrial growth

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For any nation, industrialisation is the bedrock of job creation, poverty alleviation and economic growth. As Nigeria’s foremost development finance institution (DFI), Bank of Industry (BOI) has the mandate of financing the country’s emerging industrial sector. By providing long-term financing and counter-cyclical loans diversified across industries, the bank plays a central role in the country’s socio-economic development.

This is critical at a time when the country is determined to diversify revenue sources and improve economic output to spur the growth of other sectors like building and construction, manufacturing, agriculture and renewable energy. In fact, there is a broad consensus that for Nigeria to attain long-term prosperity, it must reduce its overdependence on the oil and gas sector that remains volatile and has repeatedly plunged the country into recessions when global oil prices decline.

To achieve the goal of being the heartbeat of industrial development in Nigeria, BOI has been building a formidable capital base in recent years. In the past five years, the bank has raised over $3bn from the international debt market. These include a $750m syndicated medium-term loan in 2018, a $1bn syndicated loan in March 2020, a $1bn syndicated loan in December 2020 and a €750m ($787m) senior Eurobond in February this year. BOI was the first African DFI to successfully issue a senior Eurobond, which was also oversubscribed.

We have already put plans in motion to visit the international market again shortly as the COVID-19 crisis gradually begins to ease out. The overwhelming interest from our international investors over the years is a clear indication of their confidence in the ability of the bank to deliver on its development-financing mandates.

A helping hand
By building a strong capital base, BOI today has strengthened its financial capacity to lend to the real economy. Since 2017, the balance sheet size has grown from $1.7bn to $4bn as at December 2021. During the year, the bank posted an impressive 75 percent increase in profitability to $151m from $85.8m in 2020.

Having a strong capital base not only means that the bank is well positioned to promote Nigeria’s industrial growth but also ensures that the bank continues to be highly rated by global rating agencies. BOI’s ability to raise funds in the international debt markets has, to a large extent, been supported by both its strong ratings and support from both the Central Bank of Nigeria and the Federal Government. Last year, Fitch affirmed the bank’s long-term issuer default rating at ‘B’ with a stable outlook. Moody also affirmed BOI’s long-term issuer ratings of B2 and changed its outlook from negative to stable.

BOI continuously strives to work with key partners towards improving job creation opportunities and alleviating poverty. Though a public institution, the bank is a limited liability company. This gives the bank autonomy and shields it from undue interferences. Since BOI was reconstructed in 2001 out of the Nigerian Industrial Development Bank that was incorporated in 1964, it has supported enterprises across several sectors like agro-processing, creative industries, engineering and technology, fashion, renewable energy, healthcare and pharmaceuticals.

BOI also offers products that specifically target the youth population. The Youth Entrepreneurship Support Programme, for instance, is solely aimed at addressing the worrisome phenomenon of youth unemployment in Nigeria. The product is designed to encourage young minds and fund their business ideas. It also equips young people with the requisite skills and knowledge to be self-employed by starting and managing their own businesses.

In the past six years, BOI has disbursed about $3.57bn to over four million enterprises, thereby creating over seven million jobs. It is worth noting that the bank’s support for micro, small and medium enterprises (MSMEs), which are the engine of the economy and job creation, has been phenomenal. During the period, a total of $861.9m has specifically been directed to MSMEs. The impact has been the creation of about four million direct and indirect jobs.

A platform for growth
BOI recognises that operating in a country where poverty is still prevalent is a herculean task. It is for this reason the bank is implementing its 2022–24 medium term strategic plan titled ‘Sustaining Purposeful Growth.’ The plan is designed to build a stronger and more resilient bank. But most importantly, it serves as a guide to increase its impactful lending, particularly in sectors like agriculture, manufacturing, infrastructure, export and import, and real estate among others that will define Nigeria’s future that is bound to be characterised by less dependence on oil and gas.

As part of our strategy, the bank recently launched the Growth Platform, Africa’s largest executor of MSME interventions. The plan enables BOI to partner with governments, international organisations, private sector players and non-governmental organisations to execute large-scale programmes that support the growth, development and recovery of businesses and households at different stages regardless of existing limitations. Through the platform, BOI is leveraging emerging technologies like big data analytics, agent networks and financial tools to profile and fund over four million Nigerian enterprises. So far the bank has managed to deliver $472m worth of interventions through the platform.

In the past six years, BOI has disbursed about $3.57bn to over four million enterprises, thereby creating over seven million jobs

While availing credit and grants has been critical, the platform has been instrumental in driving financial inclusion. BOI recognises that bringing more people into the formal financial sector is one sure way to combat poverty. This is important for Nigeria, where approximately 60 percent of the rural population does not have a formal bank account. The fact that the platform has facilitated the creation of over one million mobile wallets and opening of about 350,000 bank accounts demonstrates the bank is on the right track in terms of increasing financial inclusion.

Sustainable strategy
As a DFI, our operations are based on global best practices. The bank recognises the challenges facing society and incorporates them in its efforts in championing the development on all fronts. As a result, BOI has incorporated sustainability in its operations. One of the bank’s operating principles is supporting enterprises with the potential to be profitable, competitive and sustainable and have substantial developmental impact. For BOI, the sustainability strategy is anchored on transforming lives and enterprises responsibly through sustained interventions in economic development, environmental protection, social impact, ethics, governance and partnerships. The ultimate goal is to improve the world for future generations.

As part of its role in securing the future, the bank ensures that the enterprises it supports do not engage in activities that are detrimental to the environment or to the cohesion of the society. BOI has fortified its commitment to sustainability by becoming an official signatory to the UN Principles for Responsible Banking. The Principles are the leading framework for ensuring that banks’ strategy and practice align with the vision society has set out for its future in the UN Sustainable Development Goals and the Paris Climate Agreement.

A network for change
Though being a homegrown DFI, BOI operates in a market that is competitive and Nigeria has become a preferred investment destination for other global DFIs. This is evident given that in July of last year, G7 DFIs and multilateral partners committed to investing over $80bn in the private sector in Africa over the next five years. Apart from global DFIs, the local commercial banking industry has also demonstrated its interest in funding the real economy. While BOI recognises that it cannot reach all of the 40 million enterprises in the country, the bank currently deploys technology to broaden its scope and serve enterprises more efficiently and effectively. Through this, we offer end-to-end processes and field infrastructure for transparent profiling and delivery of financing to MSMEs.

The bank is able to achieve this through a network of 22,000 field agents, leveraging the power of digital identity and biometrics including extensive data capture, partnerships and integration with financial institutions and fintech platforms. In particular, working with fintechs, a flourishing industry with over 200 active fintechs, BOI has been able to explore new areas of opportunities for enterprises in areas cutting across payments, savings, e-wallets, remittances, mobile and online money services, wealth management, merchant services, card business, investments, and insurance among others.

Offering customers smart, personalised experiences and solutions

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Garanti BBVA has continued to enhance the outstanding range of products for its customers, even as the pandemic presented challenges. Personalised solutions and a rich product range have been instrumental in boosting Garanti BBVA’s cash and non-cash loan portfolio. Garanti BBVA constantly improves its business model and processes with operational excellence a priority. In order to accelerate and strengthen value creation, the bank continues to reach more customers by being present wherever customers are. As of March 31, 2022, Garanti BBVA has more than 21 million customers and 18,500 employees. It has a wide distribution network, with 861 domestic branches, eight foreign branches (seven in Cyprus and one in Malta), and one international representative office. The bank offers an uninterrupted experience and integrated channel convenience in all channels. It has 5,396 ATMs, the latest technological infrastructure, and an award-winning call centre. It also has internet, mobile and social banking platforms. For Garanti BBVA, data and technology are key elements in driving its strategy.

Since 2019, the bank has gained more than 3.1 million new customers and has reached more than 11.5 million digital and 11.1 million mobile customers. Digital sales have accounted for more than 80 percent of total sales. World Finance spoke with Ceren Acer Kezik, Executive Vice President of Retail Banking at Garanti BBVA, about constantly investing in technology, benefiting from advanced data analytics and artificial intelligence.

Garanti BBVA stresses financial health in its offering. What does it mean by this term and what is it doing for the financial health of its customers?
We define the concept of financial health as the ability to balance income and expenses by managing assets and debts correctly.

This creates the capacity to build some savings. This is the foundation enabling you to plan a free and secure lifestyle for the future. Financial health is very important in terms of realising life goals and taking appropriate action to achieve those goals. We think it is important to create a financial profile of each person, analyse their spending habits and raise awareness about their budget. We encourage customers to be prepared for unexpected expenditure and to build the capacity to save for future plans by better monitoring their financial positions.

In 2021, amid the pandemic and its uncertainties, challenges and the need for change continued. Individuals and businesses had to live with a new normal. For individuals, in addition to protecting their physical health, being able to manage their expenses and savings correctly became important focal points. Fortunately, the vaccine has curtailed the effects of the pandemic, and helped to restore and build optimism for the future.

One of the basic principles of Garanti BBVA is to offer easily realisable financial solutions to its customers anytime and anywhere with the best experience. The bank conducts monthly surveys to better monitor the needs of its users. This helps us address what is working for customers and to address any concerns they have. Armed with the findings of this research, we can enhance the experience for users and develop new products that will address customers’ needs.

As part of its policy of responsible banking, Garanti BBVA also communicates the advantages and possible risks of its products and services. In this context, it communicates transparently with its customers in sales and marketing activities and conveys all the information they need in a clear and easy-to-understand manner. It offers practical solutions and aims to establish long-term and sustainable relationships based on trust.

Can you share details of the progress on the digital onboarding process in Turkey? At Garanti BBVA, how did you prepare for this process and what did you do in the last year?
Compared with traditional methods, digital onboarding creates a fast, time- and location-independent experience for the customer. This process is also very valuable in helping banks to reach and serve more customers. It not only supports digitalisation to a great extent, but also facilitates the spread of digital banking services to more people.

While helping more people to access banking services, it also contributes to the growth of the sector and the economy. The most fundamental change for the banking sector in recent years has been the increase in the usage rates of active distribution channels and the number of digital customers. One effect of the pandemic was to encourage customers to use these channels more actively. The rate of transactions realised at the branch fell to between two and three percent, from the previous level of between five and six percent. Despite the increasing share of digital channels, branches are still an important part of our business. Garanti BBVA Customer Communication Centre aims to enhance the financial life of its customers by increasing the number of options.

Our innovation has led to a variety of alternative communication channel services for customers. With its customer-orientated approach, the bank aims to maintain its leading position in the sector in 2022. What we call ‘Contactless Onboarding Technology’ digitalises, end-to-end, key processes such as becoming a customer and applying for a credit card. It delivers a contact-free, easy and secure experience for customers. Completely digitalising the remote onboarding process, this step has been an important phase within the rapid transformation in banking triggered by the pandemic.

Increasing the individual services offered by the Customer Communication Centre, expanding the scope of the Smart Sales Management project and increasing the diversity and effectiveness of products regarding customer needs are among other goals. In addition, the end-to-end onboarding experience, the acquisition of more customers from digital channels and the dissemination and optimisation of our Live Support Service will be on the agenda in the upcoming period.

How do you position artificial intelligence in areas such as technology, customer service and digital banking? What are you prioritising in the use of artificial intelligence?
Technologies such as artificial intelligence and machine learning are tools that help us create more value for our customers and provide them with a better experience. These technologies change and develop over the years. However, we never lose sight of the fact that people are at the centre of everything we do. Therefore, it is important to use these technologies to accurately identify customer-based needs and to offer smart, personalised experiences and solutions. Today, while we offer almost all of our products and services through our mobile application with an easy experience, we observe that it is also important to be able to provide the human touch when required.

For example, while we enable our customers to find answers to their questions with our artificial intelligence supported smart assistant UGI, we also enable them to reach our customer representative directly from the mobile application.

By providing the balance between the digital ecosystem and the human factor, we focus on creating the relationship model of the future and establishing a trust-based relationship with our customers. Artificial intelligence helps to make the data collected with different algorithms more meaningful.

How does Garanti BBVA create value for its customers, employees and stakeholders? What are you doing to add value to society? What are the main company values that determine the way the bank conducts its activities?
Garanti BBVA shapes its products and services in a customer-centred manner acting with the guiding principle that ‘the customer is our priority.’ This principle underlines the banks’ customer-orientated approach. Everyone who works at Garanti BBVA knows the importance of understanding their customers. As part of a strong commitment to responsible banking, we comprehensively share information with our customers. We also respond to customer needs with a results-orientated approach.

Garanti BBVA’s corporate culture includes innovation by valuing the opinions of its employees, who are encouraged to put forward ideas that will improve the customer experience. In every area, staff inspire their colleagues with the work they do. Garanti BBVA staff focus strongly on meeting customers’ needs. But they go the extra mile to find solutions to exceed customers’ expectations. Fostering Garanti BBVA’s work culture, our ‘One Team’ value encompasses employee collaboration, the importance of commitment to work, and the sense of responsibility that needs to exist in order to achieve the ‘common purpose.’

Garanti BBVA communicates with its stakeholders regularly, and attaches great importance to listening to their ideas. Garanti BBVA is an inclusive, forward-looking bank for all its stakeholders, in all areas.

Can you share your perspective and your goals for sustainability? What kind of products and services does Garanti BBVA offer to its retail banking customers as part of its sustainability efforts?
Garanti BBVA is taking a lead in sustainability to positively influence customers, decision makers and the sector. The bank strives to raise awareness of sustainability among stakeholders and the wider community. The bank has been working on sustainable development and the fight against climate change for 15 years. This is one of the bank’s strategic priorities. Garanti BBVA draws on its sector-leading know-how and experience to drive sustainable development in the market. Its business model embraces the opportunities stemming from sustainable development as well as climate change-related risk management. In 2020, together with the BBVA Group, we have made sustainability a strategic priority. While contributing more than $810m to the sustainable finance market, we increased the number of our products and services in the field of sustainable finance to 50.

We have achieved a major transformation in our business from both an environmental and social point of view. By expanding our sustainable range, we have also contributed to our country’s economy. We have invested more than $3.8bn in sustainable development. In March 2021, Garanti BBVA became the first bank in Turkey to announce that it will not finance coal and coal-related activities. The bank said that it will not finance new investments in coal-fired power plants and coal mines. It will eliminate its exposure to any investment in coal in its portfolio by 2040 at the latest. The bank has been the first and only Turkish signatory to the net-zero banking alliance. It is committed to align its portfolio with the net-zero emissions target by 2050.

In addition to green loan and gender loan, the bank offers its customers the rooftop solar power system (SPS) shopping loan for using solar power in their buildings and the environmentally-friendly building insulation loan for supporting efficient energy consumption in buildings and promote insulation investment. It also offers the corporate green auto loan, the first of its kind in Turkey.

The bank intends to lead the transition to more efficient hybrid and electric vehicles at advantageous low rates on the one hand, while contributing to the world’s future by encouraging replenishment of fleets with environmentally-friendly vehicles on the other. Based on its contribution to the environment and the quality of human life, we have offered a new shopping loan opportunity to encourage the use of electric bicycles.

Three Garanti BBVA Asset Management mutual funds with a sustainable theme raised money in 2021: Garanti AM Clean Energy Variable Fund, Garanti AM Sustainability Equity Fund and Garanti AM ESG Sustainability Fund Basket Fund.

We regularly organise events to communicate our sustainability strategy and we also run programmes to boost our staff’s knowledge of developments in sustainability.

Glass packaging offers a clear-cut vision for sustainability

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For BA Glass, sustainability is a core concept and one that enters into all aspects of life and human need. Sustainability for us is about having a green mindset every time we design and produce a glass container. As a company, we have been following an eco-friendly path year after year by carrying out actions and initiatives that allow us to reduce our impact on the environment and safeguard future generations.

For us, sustainability begins in our products. Given its unique properties and composition of natural materials, glass is infinitely recyclable. When we choose food and beverages in glass packaging, we choose to protect the health, not only of individuals and society but also of our planet. At BA Glass, our sustainability strategy is based on six pillars: customers, consumers, shareholders, people, environment and society – which allow us to ensure economic and social development as well as to protect the environment.

We have been developing initiatives that will help us to take a step forward towards a more sustainable future

After an impressive recovery in demand for glass packaging following the COVID-19 outbreak, we are facing a very challenging moment due to an unprecedented increase in energy costs, which is affecting the energy-intensive industries. The incentive to decarbonise the industry was reinforced and, at BA, we continue to develop our carbon reduction roadmap with the aim to achieve carbon neutrality by 2050.

We pursued our commitment to the Science-Based Targets initiative (SBTi) that promotes CO2 reductions. As part of this initiative, we are committed to a 50 percent reduction in CO2 emissions per tonne of glass produced, by 2035. And in just one year, we were able to reduce these emissions by 15.9 percent (scope one and two of SBTi criteria).

At the Porto Protocol event, we have made public our commitment to respect and protect the environment, through many different goals, such as reducing the use of natural gas and increasing the use of energy from renewable sources. Therefore, we have been developing initiatives that will help us to take a step forward towards a more sustainable future. Following our plan, in 2021, we built a third photovoltaic park, which is on the roof of our Plovdiv plant. And we achieved a share of 86 percent of renewable energy in the total electricity we used in 2021.

The ambition to become carbon neutral requires a major technological disruption in the industry regarding melting technology. Our shareholders already allocated €14.8m to the development of technologies that aim to reduce the amount of CO2 generated and its capturing and reuse, through R&D projects.

The development of a hybrid furnace is one of the projects where we committed several resources with the aim to switch from natural gas to renewable energy. Preserving and respecting the environment is part of our business strategy and so our commitment to the environment goes further and further.

Through the Glass Seeds Project, BA continues to endeavour to hold educational projects for the youngest generations, promoting equal opportunities and meritocracy in the regions we have our plants. Based on four main pillars: foundations, work, future and planet, this project contributes to the development of leaders and citizens, as well as for a sustainable future.

A PURE focus on sustainability
And because we do not stop in our mission to green our industry, we have launched our own sustainable brand: PURE. More than just a glass packaging brand, PURE is about being immersed in nature. PURE is born from the unique mindset that brings innovation and sustainability together in one brand, where nature comes first in every stage of the process. With PURE, we produce food and beverage containers that are sustainable from conception to delivery. Therefore, incorporating recycled glass into our products is a main priority, allowing us to extract fewer resources from nature and reducing CO2 emissions. Furthermore, we are constantly challenging ourselves to actively reduce the weight of our containers and again, in 2021, we reached a new record of the number of lightweight containers launched in the market.

At BA Glass, sustainability goes beyond what we do today. For us, sustainability is a long-term commitment that challenges us to reduce our impact on the environment, ensuring the future of the next generation. Sustainability comes within the glass, always!

EVs are driving market investment for batteries

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The war in Ukraine has accelerated the need for a new energy system in Europe to reduce dependency on Russian oil and gas. This transition is going to require heavy investment in everything from renewable energy to energy storage, expansion of power grids and energy efficiency improvements. It is also going to raise demand for all the metals used in electrification, and the recent energy crisis has shown how dependent we still are on fossil fuels like oil and gas during a transition period.

In our Global Theme portfolio, where we gather our thematic investments, we have had exposures to renewable energy, the energy transition, natural resources and smart materials for some time. These kinds of exposure are even more top-of-mind in this situation. Batteries are another hot area of investment. High commodity and materials prices and the accelerating energy transition are making the segment even more interesting, as initiatives are likely to increase.

Battery investment opportunities
Electrification of the vehicle fleet is pivotal to creating a sustainable energy system, since greater prosperity usually leads to increased transport. Emissions from combustion engines are no longer declining and customers are showing a preference for larger cars. Aimed at reversing the emissions trend, the sector is in the midst of a historical transition that involves massive investment. Battery power has taken a big lead compared to alternatives like hydrogen.

There are plans for major expansion of battery manufacturing, but materials supply needs to be scaled at a similar pace

Batteries are also attractive for several other use cases, including heavy vehicles and stationary energy storage. Vehicles, especially passenger cars, are currently the biggest use case so far and are driving the battery market.

Battery-powered electric vehicles (EVs) are going to take over the automotive market, at least if the actions of carmakers and the financial market are anything to go by. American Tesla has the fifth-largest market cap in the world. Likewise, the American Ford Motor Company’s stock rose a full 150 percent in 2021 when the electrified F150 pickup was launched before Tesla’s Cybertruck. Leading traditional car manufacturers are investing heavily in electric power, even though they are not major players in the segment. The further development of combustion engines is being phased out.

In 2021, 6.6 million fully battery-powered passenger cars were sold globally, up by 120 percent from 2020 according to Bloomberg NEF (see Fig 1). So far, this is only a fraction of the total market of about 70 million passenger cars in 2021. Tesla’s volumes grew by an impressive 70 percent, in spite of component shortages. The total market in China has doubled in size in a single year. Domestic manufacturers dominate – but the market is suffering from fragmentation and weak profitability, which has made Chinese automotive equities volatile.

The most exceptional thing about Tesla is not its growth (Chinese electric vehicle manufacturer Xpeng grew by 275 percent in 2021 compared to 2020), but that Tesla has high and rising margins. The company is actually reporting a higher profit margin right now than quality leader BMW ever has. This has intensified focus on Tesla’s integrated business model, where not only software but also batteries are developed internally. Parallels are being drawn to Apple’s strategy in mobile phones, which explains why the valuation is so high.

Earlier forecasts talked about growth for all-electric vehicles of about 30–40 percent a year until the end of the decade. When the technical shifts really take off, however, it is tricky to make forecasts and growth could be underestimated – as mentioned, the growth rate was considerably higher in 2021.

Bottlenecks set limits
The battery is the most expensive component in an EV and costs the car manufacturer about SEK 100,000 ($10,000) to buy, for 70 kWh capacity. Huge technical advances have been made and the cost per kWh is a fraction of what it was in 2010. Many believe that demand for EVs will be driven by lower prices, especially for batteries. At present, however, we are seeing steep price upturns for the battery metals lithium and nickel, making both batteries and EVs more expensive.

Batteries use some materials that have never been mined on a large scale before, especially lithium. There are plans for major expansion of battery manufacturing, but materials supply needs to be scaled at a similar pace. This is a significant challenge, which is likely to be overcome with time but will create different cycles in the chain. At present, semiconductor shortages are constricting the supply of products including EVs more than battery supply.

This has already, for instance, meant that Tesla failed to launch products at prices as low as it intended. One explanation is that high expectations for EV range require bigger batteries. For the Tesla Model 3, range differs 30 percent between trim levels (versions), with a longer and shorter range respectively (the price difference is 12 percent). In addition, both trim levels have been upgraded with larger battery capacity. EVs are still premium cars and rapid price drops cannot be expected. Driving characteristics are pushing demand and subsidies are helping. At present, however, charging stations are still too few in number – a huge expansion is required here.

China dominates
The car battery market is currently dominated by Chinese CATL, Japanese Panasonic and the South Korean companies LG Energy and Samsung SDI. Minor players like the Chinese EVE and Svolt have aggressive investment plans. A Swedish company, Northvolt, will begin production this year.

The growth rate for battery manufacturers basically tracks EV volumes with additions for increased battery capacity and subtractions for price erosion. 2021 was exceptional, with 100 percent growth due to the post-pandemic recovery and strong EV market. The market is tough, with expectations of constant efficiency improvements and heavy investments. Strong partnerships between battery and car manufacturers have become common to avoid under- or overinvestment. These agreements improve the battery manufacturers’ potential to achieve high capacity utilisation while securing volumes for the carmakers. But shared risk-taking can also reduce the battery manufacturers’ ability to boost margins when demand is strong. The car manufacturers take volume and price risks and must correctly forecast their market shares. Selecting a better battery technology than the competition is also important, of course.

The transformation of the power system is creating increasingly stronger incentives to invest in stationary energy storage

Chinese CATL is now the leading independent battery manufacturer, with high growth and profit margins. CATL has also been successful with both Chinese and foreign manufacturers, partly by having the capacity to offer different types of batteries. CATL’s sales this year are expected to be four times higher than in 2019 and the company has the biggest expansion plans in the sector. The share has been rewarded with high valuations.

LG Energy executed a highly sought-after IPO in late January and is building an even larger battery factory in partnership with GM in the US. Panasonic has mainly been a supplier to Tesla, which has driven the trend. Tesla and Panasonic are not as transparent about their capacity plans as other manufacturers. On Tesla Battery Day in 2020, the company stated production targets of 100 GWh for 2022 and 3,000 GWh for 2030.
 

 
Technical advances with new materials
Car batteries for EV operation consist of thousands of linked cells. Packaging them in a smart way can give car manufacturers a competitive advantage. Better packaging has compensated for the lower density of the LFP battery chemistry. Building the vehicle chassis where the battery cells have a structural function is another efficiency improvement initiated by Tesla. Processes to bypass energy-intensive furnaces have tremendous potential to reduce costs and environmental impact. Acids with lithium salt are currently being used as electrolytes. Research is in progress to replace such fluid electrolytes with solid state ceramic materials that produce higher energy density and reduced leakage and fire risk. The listed US company QuantumScape has carved out a profile here, although the company currently has no revenues. The market leader CATL and the Indian Reliance are studying sodium as a low-cost alternative to lithium. In addition, sodium-based batteries can be charged quickly.

Next market: Stationary energy storage
EVs are currently dominating the demand for large batteries. Meanwhile, the transformation of the power system is creating increasingly stronger incentives to invest in stationary energy storage to compensate for fluctuations in production. In particular, the shortage of natural gas has driven European electricity prices up by several hundred percent. Storage imposes different demands than EVs: A low price per charge is critical, while weight and size do not matter much. Both markets use similar batteries today, but the stationary market is going to be driven towards cheaper materials. The segment is going to rise when storage gets cheap enough that solar and wind power can compete with fossil energy sources, regardless of weather and demand. The market is in its infancy. Examples of equities with dedicated exposure are Fluence (US) and Freyr (Norway/US). Private individuals can also benefit from stationary storage in connection with power cuts or take advantage of cheap electricity hours – Tesla launched the lithium-ion powered Powerwall 2015 and has sold more than 250,000 units.

Investment opportunities
The balance of power is going to change as the journey continues. This should also be the point of departure for those who want to invest in the battery sector. Investors can choose among vehicle manufacturers, manufacturers of batteries and battery components, producers of the input commodities and companies involved in charging stations.

There is a lot to be said for using a specialised EFT to gain broad coverage in the battery segment, including equities in China and South Korea that can be difficult to trade in. An actively managed fund is preferable for profiting from sector dynamics. Carnegie Private Banking launched a discretionary portfolio, Global Stockpicking, this spring, which will be active in areas including this one. Some battery exposure is also gained through our Global Theme portfolio via thematic investments in smart materials and the energy transition. If there is one thing to be certain of, it’s an exciting time to be investing in the battery sector and there are plenty of investment opportunities for those focusing on the green transition.

Shaking up the cross-border payment experience

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International payments are fundamental to global trade and business as we know it today. Without an efficient cross-border transfer system, businesses and their banking partners stand to lose significant capital. Yet for decades, the day-to-day challenges of managing cross-border payments have plagued us. Delays, hidden fees, failed transfers, limited access and a lack of transparency throughout the chain have all contributed to making international transfers problematic and at times costly, slowing business and hindering relations.

In 2020, under the request of the G20, the Financial Stability Board created a roadmap to improve cross-border payments, with key targets including increased data quality, steps to coordinate regulatory frameworks and research into new and existing payment infrastructure. Yet issues still remain, and many banks and corporates continue to struggle.

At Bank of the West – a subsidiary of BNP Paribas headquartered in San Francisco – we’ve signed up to SWIFT global payments innovation (gpi) to help alleviate the most pressing of these challenges. The multi-year SWIFT gpi initiative has been rolled out in stages by the global banking community with one goal: to improve the cross-border payments experience for both senders and recipients. Thanks to greater end-to-end transparency, improved speed and the flexibility to cancel payments en route, this new service is a sought-after advancement in the global payments landscape.

Addressing a global need
Banks have long facilitated cross-border payments for their clients to enable international trade and business to thrive, but the process has often been overly cumbersome, slow and opaque. “Historically, clients have sent their cross-border payments through a black box, with no understanding of the full cost or the point at which funds would be credited to the recipient,” says Larry Feinberg, Head of Digital Payments for Corporate and Commercial Banking at Bank of the West. “Improvements to the cross-border payment experience are long overdue.”

Both banks and their clients have for a long time been subject to high costs and delays in transfers. This is partly due to the fact there are multiple parties – banks, market infrastructures and corporate businesses – required for the clearing and settlement of every cross-border payment.

Faced with these hurdles, pressure has been mounting for heightened transparency and a more streamlined cross-border payments system that minimises the number of intermediaries involved. This pressure has only been exacerbated by the exponential growth in cross-border trade, huge technological innovations and global events – all of which point to a clear need for faster payment solutions with better data around them.

Cross-border payment issues
Delays in recipients receiving the funds aren’t just an annoyance; they can lead to several complications, not least legal risk, according to Meghan Birmingham, Head of Transaction Banking for Corporate and Commercial Banking at Bank of the West. “Clients face legal and reputational risk when their vendors are not paid on time,” she says. “Timeliness and payment confirmation are critical deliverables for our clients.”

Cross-border payments often lack the certainty provided with domestic payments. Those delays can be especially costly for high-value payments, not least merger and acquisition transactions, where speed is critical. Without the ability to track statuses in real time and confidently confirm receipt of funds, we’re faced with several hurdles. Transaction costs can also be significant, especially for treasurers dealing with a high volume of cross-border payments. Fees can be high, and there’s often a lack of transparency around them, which can cause friction between corporates and suppliers. Intermediary fees deducted along the payments chain may be unexpected and lead to incomplete payments. In addition to this, exchange rates can be notoriously difficult to predict and can fluctuate unexpectedly, further adding to the problems.

Improvements to the cross-border payment experience are long overdue

The issue of transparency extends beyond just fees, too. In most industries, treasurers look to their bank to provide insights into the status of their cross-border payments. While banks are indeed well positioned to handle these inquiries – employing direct messaging with other SWIFT member institutions – this need for transparency places a significant burden on client service teams.

The lack of communication across the value chain can raise further costs for banks and their clients, while undermining corporate cash flow forecasts and ultimately straining relationships between suppliers and business partners. The challenges are multiple, and addressing them sooner rather than later is key.

The SWIFT Tracker
The aim of SWIFT gpi is to address these long-standing issues and to open the door to smoother, more transparent cross-border payments. Realising this potential requires all participating banks to be aligned in their goals and to adopt new, multilateral agreements that outline the business rules governing gpi services.

At Bank of the West, we have committed to doing exactly that. The rules are key to improving payment speed, increasing transparency around fees, enabling end-to-end tracking and helping to ensure remittance information remains unaltered throughout the payment chain. Fundamental to this transformation in cross-border payments is the SWIFT Tracker, a cloud-based solution for connecting all parties in the value chain.

This innovative technology enables significant enhancements in the speed, transparency and traceability of cross-border transactions. That’s helped in part by specifically focusing on the MT103 – a standardised SWIFT payment message used for cross-border wire transfers. The message includes all details about the transaction, including the date, amount, currency, sender and recipient, to help senders and recipients trace payments more easily and better manage their progress.

The key tenets
SWIFT gpi has four key goals. The first is making funds available the same day, provided they’re received before the recipient bank’s stated cut-off time. According to SWIFT, nearly 50 percent of gpi payments are credited to end recipients within 30 minutes, 40 percent in fewer than five minutes, and almost 100 percent within 24 hours. That makes the median processing time less than two hours (affected by various factors, including geographical location and the online hours of the relevant banks). It also depends on the number of parties involved; on average, cross-border SWIFT payments require only one intermediary between the sender and the recipient, making the process significantly quicker and more efficient.

The second goal is to ensure end-to-end payment tracking and confirmation is readily available throughout the process and with every transaction. Since the end of 2020, it has been obligatory for all gpi banks to provide final confirmation of payment for every MT103 message sent on the SWIFT network.

This means both clients and banks are able to see if a payment has been credited to the end recipient, or if it has been rejected or transferred outside of the network. The introduction of a new, unique end-to-end transaction reference (UETR) makes the tracking experience highly intuitive – much like how today’s parcels are tracked in real time and updated with locations, time stamps and delivery details. At Bank of the West we’re able to log in to the Tracker to check the payment status, which helps us improve liquidity management. It also helps us identify problem areas and to implement better service-level agreements as well as to see other gpi banks’ adherence to those SLAs.

In addition to this, the gpi tracker aims to improve transparency around fees throughout the payment chain, including any deductions against payment amounts and applicable exchange rates. It also aims to ensure the integrity of data provided by clients regarding their payments, providing insight into the purpose of the transactions.

As a further benefit, clients are also able to use the Stop and Recall service to electronically recall transactions immediately if an error has occurred or if fraud is suspected, streamlining the cancellation process. This can be done regardless of what stage the payment is at in the chain, as the recall request – initiated with the original UETR transaction reference – is directed to whichever bank is currently in possession of the funds. All of this is made possible by the ability to track payments in real time, allowing quick, easy access to cancellation data via multiple channels.

Harvesting the potential
Through collaboration with member banks and corporates, the SWIFT gpi program aims to remove friction points that have long persisted for cross-border payments while further extending connectivity between different markets. By integrating data-rich ISO 20022 messaging standards, the technology opens the door to more value-added services for clients, making a payment’s status visible from the time it’s sent until the moment it is received by the recipient bank. It also enables clients to view real-time status and fee information without having to rely on the bank’s client services team to investigate payment delays and fees.

“SWIFT gpi brings essential information to customers when they need it – immediately,” says Feinberg. “The information provided by gpi is not only transformational – it’s necessary.” The pandemic has shown the value of international collaboration, and that must extend to the banking and corporate world, too. It’s solutions like these we need if global trade and business are to continue to thrive in the face of future challenges.