Author: itsupport

The Zoom Boom

Posted on by itsupport

Economically speaking, it has been the kind of year that any entrepreneur dreads. After the long recovery from the Great Recession, many economic experts and business moguls allowed themselves to believe that the worst days were behind them, and that they would never again see such a crisis in their lifetime. But then along came COVID-19, plunging the world into the worst economic downturn since the Great Depression. 2020 success stories are certainly few and far between, but amid such chaos, certain individuals have thrived. Eric Yuan, founder and CEO of video conferencing phenomenon Zoom, is undoubtedly one of this year’s biggest winners.

When the world as we know it started to shut down back in early March, the word “Zoom” quickly joined the likes of “social distancing”, “bubbles” and “WFH” as part of our pandemic-related vocabulary. Everything from daily work meetings to high-intensity workout classes and Friday night drinks suddenly moved from the real world to the virtual one, and Zoom was there to facilitate it all. The company’s user numbers have skyrocketed since the onset of the pandemic, with over 300 million video call participants flocking to its platform every day during the month of April.

Meanwhile, Zoom founder Yuan has been enjoying the fruits of his labour, seeing his net worth soar by almost 400 percent in 2020, with his personal shares in Zoom now valued at around $17bn. But to credit Zoom’s success to the events of 2020 alone would be doing the company – and indeed, Yuan – a disservice. While many of us might not have heard of Zoom until a few short months ago, Yuan has been steering the company on a pathway to success ever since its inception in 2011. By focusing intently on the user experience and always making customer satisfaction and happiness a priority, Yuan has ensured that Zoom stands out from its competitors, showing that even in a crowded market, the cream always rises to the top.

Engineering meets entrepreneurship
Born the son of mining engineers in Shandong Province in eastern China, Yuan showed an instinctive entrepreneurial spirit from an early age. Clearly a driven child, Yuan was not yet ten years old when he started collecting discarded construction scraps, which he would then hand over to be recycled in return for cash. As a young adult, Yuan showed a burgeoning interest in technology when he chose to study applied mathematics and computer science at Shandong University of Science and Technology. It was during this time at university that Yuan had his first thoughts of what would eventually become Zoom. When visiting his girlfriend at the time – who he later married – Yuan would have to undertake a ten-hour train journey, meaning that the couple could only spend time together once or twice a year during the holidays. Speaking on the Evolving for the Next Billion podcast in 2018, Yuan said; “Someday if I can have a smart device and with just one click I can talk with you, can see you, that was my daydream, right? And every day I thought about that…the technology was not ready but the idea was there.”

Yuan had a clear vision of what he wanted to create with his new company – as well as an awareness of the pitfalls to avoid

After completing his masters degree, Yuan spent a fateful few months working in Japan in 1994, where he attended a speech given by then Microsoft CEO Bill Gates, who at that time was gearing up to release the groundbreaking Internet Explorer web browser. Inspired by what he had heard, Yuan felt the pull of Silicon Valley, determined to play a part in the innovations of the West Coast dotcom boom. However, his US aspirations were almost thwarted at the first hurdle, when his visa application was unceremoniously denied due to a translation-related misunderstanding. Undeterred, Yuan continued to make application after application – submitting a grand total of seven rejected requests in a year and a half – before finally being accepted on his eighth attempt.

In 1997, at the age of 27, Yuan was able to take the first step in the journey that would lead him to Zoom, settling in San Jose, California, and landing an engineering job with video conferencing company, Webex. His talents and drive soon established Yuan as a key player within the company, and he quickly rose through the ranks, eventually becoming the VP of engineering. In the 14 years that Yuan spent at Webex, the company grew significantly, establishing itself as one of the leading options for video calling and conferencing. The appeal of video conferencing really became clear in the mid-2000s, with tech conglomerate Cisco acquiring Webex for a cool $3.2bn.

But Webex’s video hosting software certainly wasn’t perfect – and Yuan was only too aware of this. By taking the time to speak with Webex users, Yuan took note of a growing list of common customer complaints, which included connectivity issues, video and audio lags and time-consuming installation processes for new users. Thus far, Webex had survived and thrived largely because of a lack of competitors in the video conferencing market, but Yuan recognised that it would only be a matter of time until other, more forward-thinking companies would start snapping at Webex’s heels, potentially offering a better service at a better price.

Yuan voiced his concerns and suggested ways to improve the software, but was met with resistance, ultimately leading him to part ways with the company in 2011. Not one to rest on his laurels, Yuan immediately began planting the seeds for his next venture: the ubiquitous video conferencing platform that we now all know as Zoom.

 

Curriculum Vitae

Born: 1970

Education: Shandong University of Science and Technology in Jinan, China

1997

Yuan moves to the US after an incredible total of seven rejected Visa applications. Upon entry he settles in San Jose, California, and lands himself an engineering job at the video conferencing company, Webex.

2007

Cisco acquires Webex for a total of $3.2bn, showing a huge vote of confidence in the video conferencing software that Yuan himself had played a key role in creating and developing during his time there.

2011

Yuan parts ways with Webex after receiving pushback on his suggestions for improving the firm’s video conferencing software. This same year, Yuan would raise $3m of investment to start his own video conferencing company.

2013

After much meticulous planning, Zoom officially launches in January. The company claims to have reached the impressive milestone of one million video participants just four months later, in May.

2017

Yuan’s fast-growing video conferencing phenomenon officially enters the exclusive unicorn club, and reaches a $1bn valuation shortly after securing $100m in investment from Sequoia Capital in January.

2019

After two more years of solid growth following the Sequoia investment, Zoom goes public in April. On its first day on the public markets, Zoom was valued at $16bn, making it one of the year’s most talked about IPOs.

 

An instant hit
From its very earliest days, the Zoom ethos has been focused squarely on one crucial thing: keeping people happy. In an interview with Forbes magazine, Yuan simply described Zoom’s company culture as “happiness,” explaining that his priority was making sure that everyone involved in Zoom – from its employees to its paying customers to its visiting video participants – were happy in all of their interactions with the platform. Having learned valuable lessons from his time at Webex, Yuan had a clear vision of what he wanted to create with his new company – as well as an awareness of the pitfalls to avoid.

Zoom might be the pandemic’s greatest success story, but the company’s recent triumph has been many years in the making

By 2011, when Yuan officially founded Zoom, the video conferencing market was quickly becoming a more crowded scene, meaning that his fledgling company needed to set itself apart from its well-established competitors – the likes of Skype and Google Hangouts among them. Along with taking a customer-focused approach, Yuan conceived of another key strategy that would enable Zoom to stand out from the crowd. Instead of pursuing an audio-first approach and then attempting to add video to that function, Zoom was to be built as a video-first platform.

This unique approach and clear vision soon won over investors, with Yuan able to raise $3m in 2011 to bring his idea to life. Working with a small team in California and a number of engineers back in his native China, Yuan was able to create the first Zoom iteration within two years, which performed incredibly well with beta testers, and eventually launched in January 2013. Yuan’s carefully conceived creation was an instant success. By May, Zoom claimed that it had rocketed to one million participants in its video calls, quickly securing another round of funding worth $10m.


From the start, investors and users alike could tell that Zoom was a little different to its competitors. The platform’s low data usage meant that video calls could still work for people with a patchy or slow internet connection, and its cloud-based nature reduced the need for time-consuming installation processes. The platform could also instantly identify what device its video participants were using and adjust accordingly, meaning that there was no need to create different versions of Zoom for Mac or PC. What’s more, at a cost of just $9.99 per month for its ‘pro’ package, it offered a cheaper alternative to its rivals, with arguably better functionality. As users flocked to the platform, investor interest in Zoom also continued to grow, with venture capital powerhouse Sequoia investing $100m in the company in its Series D round of funding in January 2017. This substantial investment saw Zoom valued at $1bn for the first time, officially making it a rare tech unicorn. But, unlike most members of the lauded unicorn club, Zoom was actually posting profits year after year. Following its $1bn valuation, the company enjoyed two more years of impressive growth, posting $330m in revenue in the year ending January 31, 2019. With such a healthy track record the next step was clear: it was time for Yuan to take the company public. That day finally came in April 2019, with company stock surging by 72 percent on its first day of trading. By its third day on the public markets, Zoom had leapfrogged Lyft to become the most valuable tech IPO of the year. Zoom had made it – but nobody could have predicted what was to come next.

Right place, right time
While Zoom’s IPO certainly put it on the map in tech and investor circles, Yuan and his company were still a long way off becoming household names. When it went public back in 2019, Zoom was still predominantly a business-focused communications tool, with most of its users coming from the corporate world. Among the general public, meanwhile, the platform was little known – after all, just how often did your average citizen hop onto a video conference, outside of a business setting?

Thanks to Yuan’s clarity of vision and, most of all, his commitment to customer happiness, Zoom is more than just a pandemic success story

Then came COVID-19, and almost overnight, our entire lives changed. Across the globe, governments issued orders requiring people to stay at home, leaving only for essential journeys such as stocking up on lockdown provisions.

Bustling city centres suddenly lay empty, and the lights were turned off in offices across the land as workers opened up their laptops and started clocking in from home. With social distancing measures coming into effect, and people abruptly separated from their friends and loved ones, technology became something of a vital social lifeline for many, with video calls helping to keep people connected while they had to remain apart. Zoom, then, became not just a vital tool to facilitate working from home, but also a way for people to connect with the world outside their homes. In the space of a few short weeks, Zoom hit the mainstream. Soon, Zoom quizzes, Zoom drinks and even Zoom dates were all just another run-of-the-mill part of our new normal. Simply put, Zoom was at the right place at the right time, offering an easy-to-use, reliable service that even the biggest technophobes could navigate with ease. Zoom might be the pandemic’s greatest success story, but the company’s recent triumph has been many years in the making. From his years at Webex, Yuan understood that the customer experience is paramount, and from its earliest days, Zoom has been committed to offering a superior service. This year, when push came to shove, this customer-focused mindset allowed Zoom to expertly leapfrog its competitors, establishing itself as the clear pandemic champion. But as 2020 draws to a close, we have to ask: is the Zoom boom sustainable?

Changing the world
As spring turned to summer and weeks of lockdown turned to months, a new, Zoom-related turn of phrase entered the public lexicon: Zoom fatigue. Even the most enthusiastic early lockdown Zoomers felt their passion wane as lockdown dragged on, with the novelty of virtual yoga classes and video call pub quizzes beginning to wear off. But fatigued as we might be, with fresh lockdowns being imposed on countries throughout Europe, we are likely to be Zooming for some time to come. Even at the end of these government-mandated lockdowns, however, many people – Yuan himself included – believe that we will see a fundamental shift in the way that we work, with regular homeworking becoming the new norm in the years to come. “Coronavirus has completely changed how people think about where or how you should work,” Yuan said in an interview with The Telegraph – conducted via Zoom, of course. “Millennials grew up realising that they can get the job done without having to go into the office. Give it maybe 10 years and the millennials become the leaders and then it will become very common. Coronavirus is just a catalyst.”

Similarly, Coronavirus might have been a catalyst for Zoom’s success, but it certainly wasn’t the cause of it. Those seeds were planted long ago, when Zoom was but an idea in the back of Yuan’s mind. Thanks to Yuan’s clarity of vision and, most of all, his commitment to customer happiness, Zoom is more than just a pandemic success story – it’s proof that a good idea can indeed change the world.

Overcoming a global crisis with the use of antifragility

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Nassim Nicholas Taleb, a brilliant scholar, mathematical statistician, former option trader and risk analyst, is an iconoclastic researcher whose work concerns problems of randomness, probability, and uncertainty. Among his contributions to the universe of ideas, we can include the popularisation of the notion of Black Swan: an unpredictable event, typically one with extreme consequences, often inappropriately rationalised after the fact with the benefit of hindsight.

It would be tempting to see the COVID-19 crisis and its unforeseen consequences as one of these black swans, or at least, if we cannot share this vision, we can try to utilise Taleb’s fascinating proposition for reacting to this crisis: that of antifragility.

Antifragility is the art of reacting and taking profit from stressors, volatility and unpredictability; it is turning a hazard to our advantage. It is a concept that reverses the common notion of hazards, turning them into an opportunity to make us better, even if initially it may make us feel awfully vulnerable. Antifragility is an idea that goes beyond the notion of resilience, of “to bend but not break”, because it implies a further step. While being resilient means resisting the storm in order to remain the same once the storm is over, being ‘antifragile’ means that not only are we undamaged by shocks, but we even improve, having developed what Taleb defines as “the ability to gain from disorder.”

Can this idea help us in the current COVID-19 storm? What we are facing is a global crisis, a multi-faceted phenomenon bringing the world into uncharted waters, the repercussions of which are not just sanitary, but also humanitarian, social, political and economic. In the financial markets, it has marked the end of an extended bull run that started in 2009.

 

The wealth management business
In a relationship-driven industry, wealth managers have been facing difficulties in the short term due to the high-touch nature of their business. In a scenario where physical situations such as face-to-face meetings are avoided, it may be difficult to maintain client engagement, to bring new clients on board or increase the Share of Wallet (SOW) with existing clients. However, wealth management firms can manage to turn social distancing and travel restrictions into an opportunity to build new competences, and to develop new ways for providing products and services.

Some say that we are living a double-trigger acceleration: the digitalisation process was already imposing a quick transformation to wealth management players, forcing them to update operational models, competences and ways of providing services. The COVID-19 pandemic has provided further stimulus to the ongoing trends, enforcing a definitive change, driven by the ‘perfect storm’: an unprecedented crisis on both the demand and the supply side that has brought about a financial crisis.

Unlike airlines or restaurants, wealth management firms have continued doing business even during lockdowns, managing their clients’ investment needs

These seismic circumstances have affected both investors and wealth management firms. Investors have suffered from the impacts on their portfolios because of market drops and record levels of volatility. Concurrently, wealth management firms have shifted towards transactional revenues, partially replacing recurring revenues that originated through assets under management. These shrank along with market performance, and the surge in brokerage fees from panic-driven trading activity has masked the underlying trend of falling revenues.

Reactions by players in this scenario may be very different. They might be fragile when faced with the shock because they are not properly equipped, or they can show resilience, finding alternative solutions to maintain their standard degree of functionality while the stress increases. Our business’ current reaction to the COVID-19 crisis is a robust reaction to an acute stress: it is enduring to some degree and carrying over, by operating according to the same general playbook.

Unlike airlines or restaurants, wealth management firms have continued doing business even during lockdowns, managing their clients’ investment needs and providing advice services, by observing the social distancing rules via the available technology. However, a robust and resilient business by definition goes back to its initial state once the external shock is over. The alternative solution is antifragility, which leads us to gain from chaos: only the players who manage to ride the wave of disruptive change quickly, to develop new competences and accelerate existing propositions, or acquire new ones, will have an advantage over competitors.

Antifragility is a competence that, today more than ever, needs to be acquired and developed. We must take advantage of the current circumstances to work on it and find our way to put it into practice.

At BNL BNP Paribas Wealth Management, our route to antifragility passes through making the most of the dramatic change in the trajectory and direction of industry trends observed in the wealth management business following the COVID-19 pandemic. This crisis has uncovered the limitations of existing business models, based on the centricity of the physical relation with the private banker, and has imposed the need to radically reimagine them.

While some wealth management secular trends have been altered or even halted by the current global health and economic conditions, other trends have registered sharp accelerations. Social distancing has forced us to quickly find solutions to ensure continuity of transactions and to improve data knowledge through scalability of existing digital solutions. The search for alternative ways to dialogue remotely (conversational banking), the utilisation of artificial intelligence in support to post-sales, a greater utilisation of big data both to evaluate commercial appetite and to better qualify advisory activities, provide just a few examples. Our being antifragile also means coping with five key attitudes we have been observing in relation to our clients:

1) Closeness: Need for increased opportunities for contact. This need can be satisfied by emphasising digital channels to reliably continue regular engagement between investors and advisers, even by teaching clients how to get the most benefit out of digital communication channels and tools to promote remote proximity.
2) Curiosity: Clients are more curious, they are more interested both in scenario analyses and investment typologies. In highly uncertain times, clients place greater reliance on their advisers, who must provide them with their best insights.
3) Cautiousness: The crisis has affected clients’ psychological profiles. They now have a greater need for security, not just for themselves, but also for their families, their wealth and their entrepreneurial activities.
4) Horizon: We have observed a tendency to shift towards longer investment horizons.
5) Belonging: We observe a stronger sense of belonging and social responsibility for clients’ communities and their countries.

We are convinced that some of these changes in clients’ needs and preferences, although brought about by the crisis, will not be temporary, but will constitute a structural shift, requiring a strategic reset of firm operating models.

 

Adding extra value
We need to transform our business models in order to provide an intensified client experience allowing multiple points of remote interactions based on digital channels, by providing mobile touchpoints with ‘anytime, anywhere’ access, while granting customised and timely communications with investors. The ultimate value added will depend on the ability to provide expertise through any means rather than an over-reliance on geographic proximity and physical interactions.

We need to consider technology as a value driver, and integrate it into every part of the value chain, from the on-boarding process with tools such as video conferencing and biometric authentication, all the way through to digital trading and reporting. We need to quickly reinvent advisory and relationship management by means of technology, while personalising the content and advice experience delivered across channels. The current uncertainty, market corrections, and high volatility have proven the value of financial planning and professional advice to investors. This will accelerate the trend towards more comprehensive financial planning and advice at the heart of the relationship between private investors and their wealth managers.

We need to use advanced analytics and data science to better understand and guide customers’ investment decisions, using data and analytics to fine-tune customer, product and pricing strategies to meet customer expectations.

 

Adopting a philosophy
We need to develop holistic coverage models to provide personalised experiences that go beyond simple investment advisory and adopt a philosophy of total wealth management, by taking advantage of synergies that may be activated within universal banks. By doing so we can create value for clients by providing access to different kinds of products and services like wealth planning, real estate, and lifestyle experiences.

Value propositions to clients will need to progressively evolve towards a perspective of “Impact Investing,” with a focus on investments that can produce a positive impact while offering interesting risk/return opportunities for clients. We must learn to serve a more informed generation demanding cleaner, greener investment portfolios and investment strategies that focus on environmental, social and governance principles.

The wealth management industry is a highly interconnected ecosystem where all the players (asset managers, banks, securities exchanges and technology partners) have to be involved to turn the paradigm upside-down and observe the context, understand the new latent needs, challenge our certainties and use creativity to develop new ways of working. Only those that will shift gears and deliver on the potential of these opportunities will likely establish or expand market leadership. We must all prepare for an industry that will look significantly different. Only in this way will the next storm not take us by surprise but instead leave us better than before. In the words of the Austrian writer, Karl Kraus: “Chaos is welcome, because order has failed.”

The five main imperatives for banks in a post-pandemic era

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The pandemic is mounting a historic challenge for the global economy and the business community as a whole is dealing with the largest economic disruption we have faced on a global scale since World War Two. Greece, similarly to most European economies, has been experiencing a deep downturn in economic activity, estimated to reach a 10 percent economic detraction for 2020. Projections point to a modest recovery of around 4.8 percent during 2021, as positive developments on the vaccination front allow for cautious optimism for the year ahead and the prospects of an economic rebound.

This new crisis occurred when Greece was accelerating its pace to recover fully from the global financial crisis that had a huge impact on the Greek economy. Eurobank, one of the four Greek systemic banks, had completed its economic transformation and dealt effectively, ahead of local peers, with the non-performing loans inheritance of the Greek debt crisis. In 2020, Eurobank materialised, despite the objective difficulties imposed by the pandemic, its complex balance sheet strengthening plan, that had begun in 2018 and that will eventually allow the bank to increase its competitiveness in the post-COVID-19 recovery phase.

Leaving the economic downturn aside, the pandemic has also brought along fundamental changes in customer behaviour that have reshaped retail banking, forging us to rethink our organisation, redefine our service and operating models and our value proposition to our clients and reframe our economics.

As a result, I see five main imperatives for banks, to position ourselves for the strategic long-term changes already underway in the post-pandemic era, encompassing: redesigning our service model, transforming digitally, adopting new smart ways of working, alongside with strengthening our risk management, and bringing environmental, social and governance (ESG) corporate purpose to the forefront.

 

Transforming customer experience
COVID-19 has accelerated the migration of retail banking customers, throughout the world, towards digital channels: more users of e-banking, fewer customers visiting our branches. In light of that change, retail banks need to reassess their distribution strategies and the physical-to-digital channels’ mix. A key concern is how much physical space is really needed and how to make the most use out of it. In my view, as it is also supported by recent research, customers will never cease to value banking branches, especially for those interactions that entail advice or help, where customers appreciate human contact.

Eurobank has already been making investments to accommodate customers’ moves from traditional to alternative channels, whether that is advancing our call centres’ infrastructure and functionalities, upgrading our automated payment systems, redesigning our e-banking and m-banking or adding new features on our award winning v-banking service, which allows for individual or business banking customers to consult and transact with their relationship manager by video. At the same time, we are also reinventing our customers’ experience in our new era designed branches that will be available this year. Our goal is to provide seamless, omni-channel customer experience, as defined in our bank’s new motto: ‘Eurobank is your bank, wherever you are: in your house, in your office, on the street!’

 

Technologically accelerated changes
The experience of the pandemic has highlighted the importance of deploying banks’ wealth of data in the service of a more personalised customer experience, redefining the industry’s former ‘customer centric’ approach to the new, individualised, customer segment of ‘one.’ Following the paradigm of other industries, which have framed our customers’ expectations, banks adopt micro-segmented customer engagement strategies that, based on customers’ behavioural data and past product purchases, customise product recommendations and personalise service and communications.

Going forward, banks are called upon to play a continued role in the pandemic recovery, addressing ESG imperatives and having a sustainable impact on society

In the post-COVID-19 era, banks will focus even more on enhancing the customer journeys, expanding their data sources and analytics capabilities so that customers may receive timely credit extensions and personalised financial transaction reminders throughout the day, in a similar way they receive movie recommendations from Netflix. In parallel, it is imperative that we build, as we already do, our analytical capabilities, incorporating machine learning algorithms to rate our customers’ experience and explore their insights on a regular basis and at every touchpoint and embed it in our decision-making to foresee customer expectations and rapidly address customer needs in a personalised and relevant way.

 

Cost efficiencies and innovation
Eurobank has already signed up on the digital transformation journey, aiming for paperless branches, digitised internal process, and automated infrastructures to maximise productivity of central office functions.

In the face of the tech challengers that also frame our customers’ expectations, we have set as a strategic priority the creation of in-house innovation boosters for quick time-to-market ideas from the lab prototype to small-scale population testing. A few examples of first-to-Greek-market products include: Eurobank wallet, e-commerce solutions (bundling banking and non-banking services), payment link (an easy to use and minimum infrastructure payment service offered to merchants during the pandemic), bio-card, and tourism electronic platform.

In parallel, creating sector-based ecosystems, and becoming a one-stop shop providing our customers with value-adding banking and non-banking services, has been a value creation source for our customers.

During the pandemic, we transitioned rapidly to having at times over 50 percent of our staff working from home. Moving forward, we plan to adopt hybrid remote-onsite working models that will help us to benefit from the related flexibility, cost efficiencies, and higher employee satisfaction rates. In the meantime, investing in digital collaboration tools and in our people’s digital upskilling and reskilling is a necessity.

 

Risk management and ESG
The need to mitigate the risk of an increase in non-performing loans, due to COVID-19, calls for investments in automated credit decision-making that combined with the deployment of transactional behavioural data will allow for enhanced risk management and lead to improved credit decisions. Advanced early warning systems and sophisticated credit portfolio reviews with advanced analytics are expected to be widely deployed in the coming years to address various risk considerations including sectoral concentrations.

Finally, the role banks assumed addressing the pandemic crisis, ensuring employees’ and customers’ safety and supporting economic recovery, brings corporate responsibility to the forefront. Going forward, banks are called upon to play a continued role in the pandemic recovery, addressing ESG imperatives and having a sustainable impact on society.
At Eurobank, responsible banking is at the core of our strategic priorities, with the design and implementation of green funding, socially supportive programmes and corporate social responsibility initiatives. During 2020 we launched biodegradable cards and electric car financing, we eliminated paper statements, and endorsed paperless branches and paperless internal procedures, while ensuring environmental certification of our buildings.

Finally, lessons learned and strategic directions driven from the pandemic, can definitely have a positive effect on our bottom line. Challenges triggered by COVID-19 have been putting an undeniable stress on the banks’ profit and loss. Nonetheless, improved productivity and cost efficiencies can be achieved as a result of our digital transformation; and targeted, personalised and relevant customer value propositions in conjunction with advanced risk management systems can drive our top line.

In the post-pandemic era, banks will play a pivotal role as the backbone of the financial system’s stability and as the driving force to a socially and environmentally considerate world, fuelled by advanced data analytics to allow our customers a personalised experience with flexibility, ease of usage and relevance to their lives.

Paradigm shift in sustainable investment for Latin America

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More than ever, the major environmental, social and economic challenges facing humanity today underscore the need to make structural changes to our economic system, both in the way we produce and the way we consume. Governments and corporate sectors are called upon to increasingly make decisions by placing sustainability criteria at the heart of everything they do, seeking to balance the creation of economic value with protection of the very environmental and social systems that support and make their existence possible.

The financial sector and capital markets play a fundamental role. The consideration of non-financial issues when making financing and investment decisions is gaining greater relevance as the risks and opportunities detected by applying ESG analysis become clearer.

In spite of the fact that sustainable investing is nothing new and has been steadily evolving for a long time now, from value-based investing to socially responsible investing (SRI), COVID-19 has served as a major catalyst for the future of ESG practices. It has underlined the need for joint action to be taken if we are to tackle the challenges we all face. There is a growing body of evidence that shows that optimum working conditions, transparency, mitigating negative effects on ecosystems and, generally speaking, having a positive impact on company stakeholder groups, constitute an advantage when it comes to creating added value and standing the test of time.

 

Adapting and evolving
Ultimately, sustainability is a company’s institutional capacity for building trust and adapting to new expectations, in terms of both the market and in relation to the relevant regulatory authorities. Addressing this fact, Christiana Figueres, Executive Secretary of the United Nations Framework Convention on Climate Change, has stated that 50 percent of the world’s corporations are now adapting to sustainable frameworks and recognising that doing so has a significant impact on their profitability.

The pandemic has exposed and exacerbated the challenges that we have faced for years, especially in the social arena. It is crucial to understand that many of its impacts are here to stay. The overall disruption seen so far has required a certain amount of intervention from both the public and private sectors to ensure the recovery of their economies, but this in turn has given us the opportunity to look ahead in terms of sustainability principles.

Within this ESG universe, we have defined climate change as a major factor, understanding it as perhaps the greatest challenge faced by humanity

The role of investors is no less important in this respect, since through their capital allocation decisions they are effectively injecting liquidity into the different economies, while encouraging activities that help enhance sustainability. Under the UK’s Green Finance Strategy, sustainable investing can be understood from three standpoints. Firstly, we have ‘Greening Finance,’ which consists of systematically integrating ESG criteria into mainstream investment analysis to help make more informed decisions. In this way, investors are provided with a more complete picture of a company’s strategy, risks and opportunities, and to potentially influence its practices to improve corporate sustainability standards. Secondly and thirdly, we have the ‘Financing Green’ and ‘Capturing the Opportunity’ components, which are about mobilising capital to sectors and technologies that pave the way towards cleaner technologies, enhanced levels of decarbonisation and greater sustainable development, and that are increasingly becoming good investment opportunities.

 

Continuous increase in numbers
Latin America has not lagged behind in this global transition; indeed, 2020 was a year in which sustainable investment has greatly expanded throughout the region. An example of this is the increase in the number of PRI signatories, which went from 28 in 2019 to, at the time of going to press, 69 in 2020. This shows a much greater interest and commitment on the part of institutional investors and investment managers in incorporating ESG criteria in their processes. Financial regulators and oversight authorities are moving ahead with new regulations and technical guidelines to promote the disclosure of ESG information by market players. We have also seen initiatives being taken by public-private associations such as the Green Finance Advisory Council in Mexico (CCFV), which recently launched an initiative signed by more than 70 institutional investors representing assets under management that account for 25 percent of the country’s GDP, requesting more disclosure from listed companies around their ESG practices and climate mitigation targets.

In addition to this, the Responsible Investing Program (PIR) in Peru, the Responsible Investment Taskforce in Colombia and the Green Finance Roundtable in Chile have gained greater importance in furthering knowledge, defining common standards and cementing collaborative relationships with issuers around the topic of sustainable investment.

 

Building momentum
At SURA Investment Management we are committed to strengthening our sustainable investment capabilities. As PRI signatories, we are making decisive progress with incorporating ESG criteria in our investment processes, doing so in a cross-cutting fashion with all types of assets. We have the firm conviction that this not only strengthens our investment criteria, but allows us to help create well-being and enhance sustainable development throughout Latin America. We understand sustainable investment as an investment philosophy, being aware that it is a process that we must build upon.

We are making good progress, having taken significant steps to factor ESG into our processes. Currently, our bottom-up analysis of potential investee companies includes a review of their ESG performance and their relationship with their stakeholders. To this end, we have developed a proprietary ESG assessment methodology that prioritises and weighs up environmental, social and governance factors within the context of the relevant sector. This provides an initial score based on input information that we obtain directly from these potential companies through ESG questionnaires, which we then proceed to supplement with analysis from an external data provider. Analysing a large dataset in this way ensures that our process is all the more robust when it comes to identifying investment risks or strengths.

Within this ESG universe, we have defined climate change as a major factor, understanding it as perhaps the greatest challenge faced by humanity; its increasingly tangible effects are having an impact on all sectors and geographies. Coordinating the efforts of different social actors is essential if we are to achieve the goal of not exceeding a 2°C increase in global warming. To this end, we recently formed an alliance with 2° Investing Initiative, a thinktank that works to align financial markets and regulations with the Paris Agreement goals. We will be carrying out a joint investigation on the potential for building a Latin American Market Portfolio that is aligned with this objective.

We are also incorporating ESG criteria in our decisions to invest in alternative assets. We carry out rigorous due diligence that includes an assessment of the environmental and social practices deployed by the projects in which we invest. Furthermore, we are striving to adhere to international standards. In terms of our infrastructure debt strategy, for example, we ensure that the projects that we finance are carried out according to the Environmental and Social Performance Standards of the International Finance Corporation (IFC) as well as its Equator Principles. This requires that, in addition to complying with all applicable regulations, they must provide a comprehensive view of their impact and take compensatory or mitigation action when necessary.

When it comes to our real estate investments, we ensure that all our property development projects carry green building certifications. We are currently drawing up a plan for integrating standards that will ensure the efficient use of resources as well as promoting the wellbeing of the people who inhabit them. An example of this ambitious process is the construction of the soon-to-be completed Nueva Córdova building. The first building in Chile to have a photovoltaic façade integrated into its structure right from the initial drawing-board stage, it will prevent the emission of 190 tons of CO2 per year. Furthermore, this project is currently in the process of obtaining its LEED Gold Certification, by incorporating technology designed to enhance the quality of its indoor environment and offering chargers for electric vehicles and bicycles.

 

Push things forward
Clearly there are challenges ahead when it comes to implementing sustainable investment practices: comparable ESG information must be frequently and readily available; markets must move towards more homologous assessment standards that allow for ESG criteria to be incorporated into the pricing process, as well as for more significant movements of capital. Another task ahead is adapting international methodologies to the reality of our own region, as well as establishing mechanisms to avoid ‘greenwashing’, since this would prevent the required structural changes from taking place. However, for us it is a very good sign that Latin America is joining forces with this global push for action and that more and more actors throughout the region are furthering their knowledge from the standpoint of being able to connect sustainability with financial returns.

At SURA Investment Management we are taking on an active regional role through our commitment to sustainable development, as a cross-cutting element of our investment philosophy as well as part of our core asset management strategy. We hope to set ourselves apart by drawing up ESG solutions and placing them at the service of our institutional investors. By doing so, we aim to contribute to the construction of a more sustainable region and planet, creating long-term value along the way.

At the heart of growth and innovation you will find IFCs

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The COVID-19 pandemic has caused unprecedented disruption to the global economy, pausing trade and business, and plunging major economies into crisis. However, as we reflect on what has been one of the most tumultuous periods in recent history, we recognise that there is now an urgent need to help global business get back on track. With an added layer of complexity for businesses around the globe, this is the moment when International Financial Centres (IFCs), like the British Virgin Islands (BVI), can come to the fore as conduits to global growth, investment and trade. IFCs are able to help businesses navigate the uncertainties of an ever-evolving regulatory landscape and help businesses to thrive in more innovative and diverse ways. As the global economy starts to build back from the COVID-19 crisis, there are four key areas where IFCs can help support the ‘great reset’.

 

Supporting emerging entrepreneurs
It is expected that by 2030 the global middle class will reach 5.3 billion people, and the key to this growth will be the ability to cultivate start-up and entrepreneurial cultures and allow them to flourish around the world. The World Bank estimates that 600 million jobs will be needed by 2030 to absorb the growing global workforce. In emerging markets, most formal jobs are generated by small businesses, which create seven out of 10 jobs. IFCs are already helping young businesses – vital to a burgeoning middle class – thrive in developing economies. With many start-ups operating under conditions of greater uncertainty, as well as facing more unique pressures around capital and access to funding, ensuring business-friendly environments with stable and clearly stated rules and regulations is key.

While current times have only enhanced these immense pressures for businesses, with alignment to international standards and increasing use of technology giving rise to greater synergy in international business, IFCs have been able to provide fertile ground to help start-ups grow and upscale. For many years, IFCs have allowed small businesses to set up secure and robust business structures offshore, so entrepreneurs can run their business with greater agility and without fear of tripping over arduous rules or prohibitively expensive administrative costs in their home jurisdiction. The tried-and-tested structures of IFCs have given those setting up a new business in these jurisdictions, as well as investors, more confidence to help a company grow. IFCs are therefore increasingly becoming an essential conduit for emerging entrepreneurs, making it easier for them to succeed.

 

Enabling sophisticated businesses
Alongside providing entrepreneurs with access to these tried-and-tested structures, IFCs have developed increasingly sophisticated mechanisms that have also enabled institutional investors and businesses to benefit from the ability to custom-build entities and transactions to meet their needs. In an industry report recently published by Vistra, which looked at global trends in international finance, the findings showed that “offshore centres have been some of the fastest to cater to the needs of increasingly sophisticated clients.” IFCs have developed complex business infrastructure and are specialised in providing financial services, particularly those that are vital for capital flows and facilitating inbound and outbound investment. For example, it is well noted that IFCs like the BVI are an important hub for overseas investment and have played a major role in the growth of a number of Asian economies, especially China.

Additionally, in an era of unprecedented economic uncertainty, mitigating risk and keeping assets protected from greater loss will play a hugely important part for many established businesses and their post-COVID recovery plans. IFCs provide a reliable and legitimate platform to facilitate cross-border trade and investment, especially with countries like China as we have seen with jurisdictions like the BVI. As China continues its remarkable recovery from the pandemic – which is forecast to be the only economy in the world to show positive growth in 2020, according to the IMF – IFCs will continue to play a vital role in this period of post-pandemic recovery for established businesses.

 

Championing the digital economy
One striking effect of the pandemic is that technological adoption and digital innovation have rapidly accelerated in all major economies. Despite initial hurdles, we have seen the continuation of deals, transactions, and other financial activities that have been made possible through adapting to digital methods and by using digital platforms. However, for those economies that are lagging in innovation, there is now a greater urgency to innovate digitally – not only to overcome the barriers presented by COVID-19 but also to keep up with the irreversible technological transformation that we’ve seen throughout the pandemic. For example, China has recently carried out trials of its digital currency and is actively pushing towards a cashless society. We have already seen that cryptocurrency has fast become a symbol of ‘stateless’ digital economies.

The potential for digital assets and a new digital economy is huge for the unbanked population in Africa, Latin America, Asia and the Middle East

By 2030, it is likely that currency managed on distributed ledger technology will be commonplace and could be instrumental in driving global business. The pioneers of stateless, digital assets are seeking jurisdictions that support and encourage these new asset classes. And IFCs are leading the way in developing and facilitating this new global technology.

A recent report found that the BVI, Cayman Islands and Singapore were the top three jurisdictions of choice for Initial Coin Offerings in the world in 2018. Moreover, another recent study found that 80 percent of all crypto hedge funds operating in 2019 were domiciled in IFCs. The potential for digital assets and a new digital economy is huge for the unbanked population in Africa, Latin America, Asia and the Middle East. We’re already seeing how mobile financial technology is revolutionising the movement of money around Africa, for example.

As innovative incubators for these technologies, IFCs can have a hand in making financial services available to billions. Furthermore, IFCs provide agile, sophisticated yet cost-efficient financial products within a supportive regulatory and business environment. For example, the BVI’s “incubator” funds, which target small start-up funds, allow clients to attract and pool a small amount of investment and manage it through their own fund while avoiding high administrative costs. These are also well suited to the digital fund space. These incubator funds enable a new manager to get established without having to appoint local directors, therefore speeding up the entire process significantly.

 

Adaptive regulatory environment
IFCs have a proven resilience and ability to respond to new regulation. As uncertainty and complexity define the growth environment in 2020, the importance of IFCs in exercising this resilience and adaptive regulatory regime to facilitate the formation of cross-border entities and guarantee strong shareholder protections cannot be overstated. Those within the industry recognise that in order to maintain a position as a leading IFC, there needs to be a strong track record of effective regulation. IFCs are often the first adopters of international standards set by global regulatory bodies, such as the Financial Action Task Force (FATF) and the OECD, and have often achieved a higher compliance rating compared to other financial jurisdictions around the world. The trusted and proven structures and neutrality of IFCs are able to provide businesses with greater security and confidence, with such structures also helping to enable economic stability and monetary benefits too.

According to the industry report by Vistra, for some clients, increased regulation is actually becoming a draw when choosing a jurisdiction. Therefore, in this age of continued uncertainty, businesses are finding reassurance in moving to jurisdictions that have robust regulatory systems. IFCs are also taking the lead when it comes to regulatory innovation, and understand that if we are to truly harness the power and opportunities of fintech, existing policies need to be updated and in line with a sector that is evolving fast. For example, when it comes to cryptocurrency or crypto-assets there is no bespoke regulatory regime at present, and most transactions that take place hinge on trust of the underlying technology. However, this is still a relatively new space and as adoption grows, there is an urgent need to regulate the sector in order to reap the benefits of crypto-technology and to foster good governance.

This is why the BVI is actively investing in regulatory innovation and recently launched its Fintech Regulatory Sandbox, joining many other IFCs that have been quick to establish regulatory sandboxes. This initiative enables fintech businesses to test new fintech products in a controlled environment and within a bespoke supervisory framework while protecting market participants. The process is designed to assess whether new financial products are compliant with existing systems and to help develop targeted regulatory responses. Initiatives like these are helping to stimulate innovation and leverage technology to deliver new financial products and services that improve business processes.

 

A key role in the ‘great reset’
IFCs are a sound platform for business establishment, growth and diversification and will be crucial to help stimulate emerging and developed economies in the next decade. As we have seen, a contributing factor to China’s economic growth has been due to IFCs like the BVI, which have continued to facilitate a large percentage of cross-border trade and investment among Asian companies – a trend that is only set to increase. As we look ahead and plan for business and economic recovery, we must continue to champion the unique facets of IFCs, from their ability to foster international business partnerships to their capability of incubating and supporting the growth of innovative financial technologies. In doing so, IFCs can play a major role in the ‘great reset’ in the post-COVID-19 era.

Embracing the new normal in the Philippines

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The year 2020 was expected to be a catalyst to economic growth, with even the World Bank citing the Philippines as having one of the most dynamic economies in the East Asia Pacific region, rooted in strong consumer demand, supported by a dynamic labour market and strong remittances. “Business activities are buoyant with notable performance in the services sector including the business process outsourcing, real estate, and finance and insurance industries,” reported the World Bank. These opinions were grounded on sound economic fundamentals and a globally renowned competitive workforce.

However, with the negative effects of the global pandemic on the economy, said projected growth has significantly slowed down in 2020. In fact, the Philippine economy fell into recession as GDP spiraled down by 16.5 percent in the second quarter of 2020 from the previous year, according to the Philippine Statistics Authority. Nonetheless, economic growth is projected to slowly rebound in the latter part of 2020, with an expected 7.3 percent contraction, and then further improving in 2021 and 2022 on the back of expected global improvements as well as the election-related spending boost in 2022.

 

The non-life insurance landscape
In 2019, total gross premiums written from the local non-life insurance sector grew by 13 percent to P92.479 billion from P81.469 billion in the previous year. However, as a result of the pandemic, the insurance industry, specifically non-life, is expected to be adversely affected by the decline in economy as well as its key industry drivers. With over half the net premiums generated from motorcar premiums, the non-life insurance sector is expected to take a huge hit on its premiums portfolio, especially with new motorcar sales taking a huge 39.5 percent drop as of August 2020, year-on-year. Similarly, other key industry drivers such as the property, stock market, tourism and travel sectors, among others, all suffered huge setbacks. Nonetheless, with lower claims incidences during the lockdown period and with continued work-from-home (WFH) arrangements until the end of 2020 for most companies, vis-à-vis, lower operating expenses, these may still balance off the expected drag in premiums, thereby resulting in continued profitable operations for the year. Further, with the mandated increase in capitalisation implementation in recent years, the remaining industry players are financially strong and are expected to survive.

We continue to grant full salaries and benefits to all, from the start of this pandemic up to the present day

Interestingly, the pandemic has forced insurance companies to embrace the changes of the new normal – digitalisation of operations was among its top priorities. As indicated in the past by the insurance commissioner, innovations in technology are changing the industry almost imperceptibly. At present, the industry has been thrown into a ‘black swan’ situation whereby most industries, excepting some establishments belonging to what we broadly now call the essential goods and services sectors, have been immobilised.

The insurance industry was considered non-essential and was thus not operational for several months, which propelled insurance companies to embark on more aggressive initiatives towards digitalisation of operations. The insurance commissioner has been pro-actively supporting the industry by extending submissions of regulatory reports and encouraging assistance programmes to employees and sales forces that are dependent on commissions for their livelihood. Equally important, the commissioner allowed insurance companies to implement sales initiatives through digitalisation, information and communication technology, or any similar technological platforms, subject to regulatory requirements.

 

Turning challenges into opportunities
While every industry and company is subject to shifts in political, economic, social and environmental conditions both globally and locally, it is the goal of Standard Insurance to continuously improve such that opportunities continue to open for us not just locally but globally, and not only in non-life insurance but in adjacent business as well.

Standard Insurance has always been prepared for catastrophic events, so when this pandemic happened, we were able to smoothly shift to remote working arrangements. Our in-house developed systems are all digital and integrated online. More importantly, all our systems are already in the cloud, which allows us to access systems from anywhere and makes the whole cycle of insurance operations possible.

We have assigned our management to one of two teams, each of which could run the entire company on its own, if it had to. As early as February 2020, the full cycle of operations was tested by these two separate management teams, with success, ready for implementation. Hence, Standard Insurance has been online and connected and has been one of only a few that were able to continue to work, immediately after the lockdown, and without a single day of missed operations throughout the pandemic. Continued interactions with brokers and intermediaries as well as internal communications coordination were done via video conferencing and other social media platforms.

To date, our digital analytics show that we are number one in terms of engagement in company websites and social media platforms compared to our competitors.

However, being a non-essential industry during the quarantine period, motorcar sales and insurance premiums generation have been a challenge. Collections likewise slowed down by approximately 20 percent of normal levels initially, but eventually picked up after implementation of the following measures the company mandated to mitigate the negative effects of COVID-19: We defended and increased our renewal ratios, we increased market share and we also maintained proactive collections.

In line with this, the company initiated several critical initiatives that will further improve its renewal business and get more switchers (business from competition) as well as other sales-related initiatives. Aggressive collection initiatives were likewise stepped up and cost-cutting measures have been put in place. In worst case scenarios, the TTC complex in Naic, Cavite, with housing facilities, telecommunications and wireless fidelity facilities, serves as a key business continuity planning (BCP) site outside Metro Manila. Further, all our affiliated companies’ business process outsourcing (BPO) offices can be used as BCP sites and we have in fact tested this possibility, with ease. These are offices of the Insurance Support Services International Corporation (ISSI) and Petsure, whose offices are located in Taguig, BGC and Quezon City, a total of four separate offices within Metro Manila, all well equipped with connectivity and space.

To maximise our online reach, our systems design and development team made our company website an e-commerce site, over and above the usual company information, products and services, among others. Our front office is able to sell e-policies to our clients and file claims online. All filed claims are automatically uploaded to our claims module and our claims front liners are notified immediately via our online platforms.

MyStandardOnLine (MSO) is a platform where all existing clients from the front office, or any intermediary platforms, can register, monitor, renew and pay policies. We have also launched Standard Prime, a loyalty membership programme that provides our clients exclusive offers, freebies and discounts.

As a game changer for our sales intermediaries, agents and sales associates, Standard Insurance launched ISSIoffice, an internally developed insurance office application linked to our major systems. It is an application software, using a smartphone or any telecomputing device, where the whole insurance cycle can be done, from negotiations between an intermediary and the client, to consummation of transaction and payment of premiums, as well as filing of claims and servicing of claims filed. ISSIoffice has an iteration capability where updates can be made online. Ultimately, we hope to gain market share with this tool’s prevalence and ease of use.

 

Cybersecurity in a pandemic
With WFH the new normal, the use of different technological platforms have increased the risks of cyber-attacks and data security issues. Hence, the cybersecurity team was elevated to play more important and visible roles to keep the business online without disruptions, to combat and protect the company from possible operational risks.

The team extended the use of our CATO mobile VPN software to both company-issued and personal computers and laptops to ensure safe usage. An alternative VPN portal from the Amazon Web Services (AWS) cloud is likewise provided for our business partners to use. Company-issued laptops come with our standard security configurations and endpoint security software, capable of detecting and stopping malware, as well as preventing the resurgence of dangerous ransomware that had victimised businesses even prior to this pandemic.

Furthermore, since online meetings are also part of the new normal, there is a surge in the use of video conferencing platforms in conducting collaboration meetings and training sessions, as well as internal and external communications.

Email communication now requires bigger storage, as all transactions, documents and files go through this medium. As such, the infrastructure team regularly reviews usage and upgrades user accounts as and when needed. Even with security measures in place, hackers are still finding ways through cyberspace to destroy, steal or cause harm. To combat this, the team regularly sends its security advisories to all company users, reminding them to be vigilant and strictly follow recommended protocols. By regulating the behaviour of our associates with reference to the use of devices, network and the internet, the cyber security team steadfastly endeavours to protect our company assets, our systems and our data.

 

Crucial role of human resources
Similar to our cyber security and systems group, our human resources department was also in full gear from day one of the pandemic. They were tasked to oversee the initiatives relating to the health and well-being of its more than 1,400 associates nationwide, thereby avoiding any operational breakdowns. These included extension of monetary assistance well within the first month of lockdown. During this time, some of their family members were on ‘no pay, no work’ arrangements so that aggregate family finances were drained and insufficient to meet their respective family needs.

Teleconsulting services and other related services, co-ordinated with our health insurance provider, were given. There was close monitoring of any suspected COVID-19 cases, and support for this, including contact tracing and assistance during quarantine, was immediately implemented. Shuttle services for associates working from the office as well as protective equipment were provided. To date, WFH arrangements are still highly recommended. More importantly, we continue to maintain a full complement of associates, without the need for retrenchment. We continue to grant full salaries and benefits to all, from the start of this pandemic up to the present day. On the whole, Standard Insurance has been able to continue business operations, maintain the team’s productivity, protect the well-being of its people and provide financial assistance to them when needed.

Core Europe: the art of how to prevail in retail banking

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We are living in one of the most dynamic and transformative periods of banking. These developments have been at work for some time and are not merely a result of the COVID-19 health crisis. On the contrary, the pandemic serves as an accelerator and catalyst for this transformational change. The traditional banking model is defined by persistently low profitability, structural cost challenges, a legacy approach to technology, and ever-changing customer behaviour. A focus on simplification, technology and efficiency will serve as key levers to help consolidate the banking landscape.

 

Banking in the DACH region
Almost no nation has been spared the economic consequences stemming from the COVID-19 health crisis, which was characterised as a global pandemic by the World Health Organisation (WHO) in early March last year. Early on, the crisis triggered unprecedented market volatility and uncertainty not seen since the financial crisis. The COVID-19 outbreak has led to varying responses, and at varying speeds, from governments across the globe. The developments this year will undoubtedly require a rethink of how businesses operate and engage with customers.

If we turn our attention to focus on Core Europe, the situation for banks in the DACH region (made up of Germany, Austria, and Switzerland) looks particularly interesting. Pre-COVID-19, the average return on equity for German banks was below three percent; while Austria consistently ranks as one of the most densely banked countries in Europe.

We are convinced that simplification and efficiency are key differentiators across the European banking landscape

The region is at times mischaracterised as being structurally unprofitable for banking. A good deal of the below-average profitability of banks in the region can be attributed to cost challenges, a legacy approach to technology, overly complex business models, and, to a certain degree, a fragmented banking market. We see this as an opportunity, in terms of applying an industrialised approach to banking, as well as presenting further opportunities for consolidation. More importantly, our focus is on the strong macroeconomic backdrop of the region, which helps to inform our view. The DACH region is a market with over 100 million people, roughly one-third the size of the US, with solid underlying macroeconomic fundamentals and ample fiscal capabilities, more true today than at any other point in time.

 

Robust government crisis responses
In the DACH region, governments quickly implemented effective policies to contain the spread of COVID-19 to avoid putting their healthcare infrastructure at risk. Austria, which is the core and foundation of our business, implemented a lockdown affecting all businesses with the exception of critical infrastructure earlier than most countries in mid-March, and a second lockdown, in early November. DACH countries have gone to great lengths to support their economies and have put in place extensive stimulus packages. In Austria this amounted to over €50bn, or approximately 13 percent of GDP, while in Germany the fiscal stimulus package amounted to over €1trn, or approximately 30 percent of GDP.

This was possible as a result of the DACH countries’ strong fiscal positions, with a relatively low debt-to-GDP ratio and low levels of both consumer debt and homeownership when compared with Anglo-Saxon countries. These are all good macro factors from a retail banking standpoint and should translate to a lower cost of equity, given the stability and low volatility of the region. With a strong macroeconomic backdrop, a stable legal system, a stable regulatory environment and low levels of consumer indebtedness augmented with strong risk management, conservative underwriting and an industrialised approach to banking, we believe this to be a formula for success in retail banking across the region.

 

Our role as a bank in times of crisis
It goes without saying that BAWAG Group’s business will forever be changed by the events of 2020. Despite the aforementioned all-too-familiar challenges, we see many opportunities across the European banking landscape. Defining core competencies, focusing on core markets, being laser-focused on a handful of core products and services, maintaining a conservative risk appetite, and simplification are keys to driving consistent and profitable growth. BAWAG Group entered the crisis from a position of strength, having transformed the business and having kept its strategy consistent over the years. More than ever, we see a commitment to simplification and efficiency as key, as well as greater caution and prudence in order to address the challenges ahead. As a bank, we have played a critical role in keeping companies afloat and guaranteeing the financial security of our customers. We refocused our efforts on the well-being and full service of our customer base during these difficult and challenging times. Our digitalisation and simplification efforts in recent years are paying off, as we are able to ensure smooth and consistent operations, stay focused on execution, and most importantly, deliver for our customers and local communities.

During the lockdowns, all branches in Austria and Germany remained open with strict safety measures and distancing rules in order to protect our front-line employees. We quickly launched a simplified online application process for payment holidays for our customers and provided immediate access to government guarantee programs for SME clients. The past few months have also triggered a significant shift in how we engage with customers as well as how our team members work together. The post-COVID-19 workplace and operating infrastructure will look very different to what it was before 2020. Since the onset of the pandemic, over 75 percent of our employees have been working from home. We have decided that a flexible working environment will be permanently incorporated into our operating framework. This will provide for a more flexible and dynamic work environment, improved work-life balance, and a continuous reassessment of our overall operating infrastructure.

 

Focusing on what can be controlled
For BAWAG Group, 2019 was a record year, delivering net profit of €459m, a return on tangible common equity of 16.1 percent and a cost-income ratio of 42.7 percent.

For the first nine months of 2020, BAWAG Group reported a net profit of €201m, a return on tangible common equity of 9.6 percent and a cost-income ratio of 43 percent. The underlying operating performance of our business remained solid with pre-provision profits of €495m; allowing us to take a conservative and prudent approach to provisioning given the uncertainties in both the scope and length of the pandemic.

Despite the challenges stemming from the COVID-19 crisis, we continued to transform our business and focus on the things that we control, accelerating initiatives to further simplify our operations. Specifically, we have taken the next strategic step in consolidating our domestic and international retail and SME businesses, focusing on providing standard products and services across the DACH region. We are combining our strengths across the company to centralise and enhance operations; this will ultimately result in greater simplification and most importantly, an enhanced customer experience.

 

The strategy of being simple and efficient
We are now looking into the future as the changes we have experienced over the course of the last year due to the crisis will serve as a catalyst for accelerated long-term changes across the Group. We are going to do our best in continuing to navigate these uncertain times, ensuring that we protect our employees, support our customers and local communities, and protect and grow our franchise. Our goal is to always maintain a strong capital position, stable retail deposits, and a low risk profile. We do this by focusing our strategy on mature, developed and sustainable markets while always applying conservative and disciplined underwriting standards across all of our products.

We are more convinced than ever that simplification and efficiency are key competitive differentiators across the European banking landscape.

Defining core competencies, being laser-focused on a handful of core products and services and continuously simplifying our business over the years has allowed us to establish a highly efficient business with a cost-income ratio in the low 40s. This generated mid-teen returns pre-COVID-19 and healthy pre-provision profits. This gives us the flexibility to proactively and prudently address potential risks arising from a severe economic downturn. We will continue to play our part in supporting our customers and our local communities while protecting and growing our franchise in the times ahead. We will focus on the things that we control, continuing to drive operational excellence and disciplined and profitable growth.

Taxation during a pandemic: challenges and perspectives

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We live in strange times. The COVID-19 crisis has seriously disrupted the world order, while at the same time putting significant pressure on public finances. Firstly, the flow of tax revenues is patchy and irregular, due to the decrease in the global taxable base, or the lengthening of the time taken by taxpayers to pay their taxes. Secondly, the numerous state aid, while insufficient to compensate for the real damage suffered by the affected taxpayers, is increasing the deficit over the successive lockdowns. The same applies to measures designed to mitigate the effects of the crisis on businesses, such as exceptional carry-overs of tax-eligible losses. At the same time, a significant proportion of taxpayers have been stripped of their resources, with this problem affecting both natural and legal persons.

The question is, how will states manage to balance their budgets, preserve their GDP and finance themselves, in particular through taxation, without putting the taxpayers, who are already in great difficulty, in an impossible position? This seemingly impossible-to-solve equation highlights another reality: the inadequacy of the tax system as it exists today, consisting of centralising the management of most of a country’s resources at state level.

As regards the balance of the budget, the first step that is immediately necessary is of course to reduce public expenditure. However, the decrease in public spending should be offset by an increase in private expenditure, otherwise GDP and economic activity will contract. Today, however, there is both a reduction in demand (impoverishment of certain sections of the population and a climate of insecurity unfit for spending) and of supply (prohibition of operation or discontinuous operation of enterprises). Therefore, one should boost business operations and empower consumers to spend more. It is, in fact, high time to remember that taxation is not only a financing tool but can also be used as an instrument of economic policy, especially since, even within the EU, the states still have autonomy in matters of fiscal policy.

We believe that, although this may seem paradoxical, the solution is to give up part of the expected tax. This is done by means of tax reduction mechanisms, tax cuts or exemptions subject to investing and/or hiring. States could then safeguard their GDP and, in the long term, their budgets. Thus, rather than collecting resources immediately through taxation, they could trust market participants to achieve better results in the medium and long term. In the short term, states could still borrow to meet their immediate needs, especially since current rates are close to zero and the Stability and Growth Pact (SGP) has been suspended in Europe.

 

Business taxation post COVID-19
The pandemic will end, and it would be illusory to think that the announced growth alone would be enough to solve the problem, since it would, at most, be a return to the current disrupted balance. Corporate taxation will have to be reviewed, with greater emphasis on the overall tax burden and not just on the nominal corporate tax rate. Indeed, if, at first glance, tax is usually calculated on profit, a multitude of other taxes and fiscal charges would reach that profit before being subjected to tax. If we add the wage cost, which is disproportionate to the economic achievements and production costs, we note that companies are severely handicapped. Reducing these tax and extra-tax burdens would increase hiring and investment, while avoiding outsourcing and other subcontracting to countries with lower taxes and/or labour costs. The same requirements apply to individual companies and to the liberal professions.

Of course, tax relief must take place following a precise strategy and with a ‘going concern’ focus. Indeed, the goal is not to increase the profitability of companies only for the benefit of their shareholders, but to transform them into a vector of growth benefiting all the players in the economy. This would allow the increase of the global tax base in a more healthy way, and ultimately reduce rates. The simple reduction of the nominal tax rate is therefore not sufficient: it is imperative that we have a system where businesses have an incentive to hire and invest. Particular emphasis should be placed on investment, in equipment and personnel, in research and development as well as in technological innovation.

If we add the wage cost, which is disproportionate to the economic achievements and production costs, we note that companies are severely handicapped

Indeed, the crisis has not only revealed the essential character of these fields, but also the dependence of states on the private sector, when the situation gets beyond their control. Therefore, it seems both appropriate and justified to promote the activities of such undertakings, mainly by introducing tax incentives, in order to enable these operators to develop their activities. Moreover, the development of these sectors, like many others, would contribute to the creation of high-value-added jobs, while attracting investors, and therefore capital. States would also benefit from this, by taxing the individuals and entities involved in these projects. These measures would certainly have a cost from a budget point of view, but the economic growth and the reduction of unemployment would greatly reduce the fiscal burden, which would ultimately have favourable tax consequences for all taxpayers.

This approach aims to achieve the ideal situation in tax matters, namely the situation where the need of the state to finance itself can be combined with the need for companies to make profits and the necessity for individuals to have a job: a very large taxable base, subject to a tax at a modest rate. To do this, it would naturally be necessary for states to agree to transfer, de facto, part of their prerogatives to the private sector, since the management of resources would mainly take place at enterprise level and following the strategy adopted by it.

In this way, not only would the measures be more targeted, but in the long term, the state would regain its natural place in the market, which, at most, is one of arbitrator and not of actor. The crisis has also brought back to the table the question of whether to tax GAFAM and other online sales or services companies, most of which will emerge stronger from the crisis. States may well consider introducing taxes based on turnover in their territories, either temporarily or permanently. Such a tax could be set at a modest rate, in order to prevent these companies from passing on the increase in their taxes to consumers and to ensure that such taxation is not seen as punitive, as some political statements could unfortunately suggest. However, given the significant importance of the expected taxable base, the revenue deriving from this tax would cover, at least in part, the cost to each state of the new measures recommended above.

 

And what about individuals?
In the area of taxation of individuals, states face two problems: the increase in full or partial unemployment, and the significant decline in the income of taxpayers (including those declared bankrupt following the crisis). The crisis has thus aggravated the usual asymmetry between the obligation to pay tax and the limited financial capacity of the debtor, or more simply, between the legal obligation to contribute to the state’s expenses and the debtor’s capacity to contribute, especially since the effects of the crisis are felt more or less strongly depending on the social group in question. In light of the above, states will necessarily see a decrease in tax revenues, since taxes mainly affect personal income and consumption. The impossible equation mentioned above reappears here: how could countries bring money into the state coffers while protecting already weakened taxpayers?

Once again, it would be wise to act in the long term, even if it means increasing government debt in the short term. In this context, one could imagine revising the system of progressive taxation, in particular by widening tax brackets, while introducing incentives for consumption and investment in specific areas of general interest. In this way, part of the direct taxes that the state would deprive itself of would return to it through VAT. These would be specific taxes on certain products, and also income tax levied on those who would have benefited from the increase in the buying power and investment of taxpayers. Indeed, it is clear that, for a stalled economy to restart, capital must flow, not remain confined to derisory – and currently negative – interest rate bank accounts.

It is said that in every crisis lies the seed of opportunity. The current situation could thus provide an opportunity for states to use tax in a much more diversified way than in the past. New tax legislation should be adopted, in order to adapt the current rules to the requirements of the market and needs of the society, as these needs are shaped by the new realities.

Trillions from home: how the trading industry thrived

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A far cry from the cut and thrust of a traditional foreign exchange dealing room, traders working from their home offices and spare bedrooms have proved the resilience of the world’s most liquid financial market. Demonstrating how hugely liquid FX has become, the latest Triennial Central Bank Survey of the global foreign exchange market from the Bank for International Settlements (BIS) found that in April 2019, daily trading in over-the-counter FX and FX derivatives reached $6.6trn.

To appreciate the key role of FX in the global economy, consider that any purchase or sale of goods or other assets denominated in a currency other than the base currencies of one of the counterparties will probably involve an FX trade of some sort. Imagine the impact should the market suffer a blow to its operations or, worse, a complete breakdown.

The outbreak of the COVID-19 pandemic in February and March of 2020 threatened just such an impact. Bank trading floors closed or at most retained just a few staff. How bad would it get? Could the market continue to function? For a number of years, particularly since the 2008 financial crisis, there has been a steady migration from traditional voice trading – think harassed-looking dealers shouting prices across a noisy dealing room – to electronic platforms. These can be single-bank, proprietary venues such as Citi’s Velocity, Deutsche Bank’s Autobahn or Barclays’ Barx and many others, or multibank platforms providing prices and matching counterparties across banks, institutions and brokers; 360T, Bloomberg and Refinitiv’s FXall are among the largest of these.

The benefits of electronic trading are many. For example, every trade has an electronic audit trail, prices and trades can be executed very rapidly and trades can be monitored for best execution. They feed into participants’ straight-through processing and accounting systems and there is very little if any human interaction and therefore little scope for human error. When it came to the lockdown, as long as market participants had access to their trading platforms with appropriate levels of speed and security, they could operate remotely. It was therefore e-trading platforms and online tools that enabled the global FX market to continue to operate.

 

Volume and volatility
Which is not say that it was all plain sailing. In the last days of February and into early March, daily volumes of trades increased enormously. Not only was there the pandemic impact, but governments across the world introduced a range of monetary and fiscal stimuli; there was the Russia and Saudi Arabia oil spat causing prices to nose-dive; many asset classes experienced a sell-off and a dash for cash; there was a clamour of speculation aiming to take advantage of the volatility spurred by diverging news and market analysis. “Volume across the board was up sharply in Q1 2020, including derivatives, most noticeably in outright forward contracts, which were up 40 percent in March,” commented Tod Van Name, Bloomberg’s Global Head of Foreign Exchange Electronic Trading.

On exchange currency derivative, offerings reflected a similar story across all geographies. For example, Singapore’s SGX exchange logged a 58 percent year-on-year increase in its FX futures contracts to the end of March.

Nonetheless, after an intense initial period of setting up connections and access for traders to work from home, the market continued to operate for the most part pretty efficiently. Execution algorithms came into their own, enabling trades to be conducted by computer-driven systems that monitored price volatility and volumes, to achieve the best possible trading outcomes. Relatively illiquid currencies, particularly those from some emerging markets, still required voice intervention, but these, as the BIS survey figures show, account for a relatively small proportion of global FX turnover. The BIS triennial survey, in terms of currencies, reported that the US dollar was on one side of 88 percent of trades with the Euro the second most traded currency appearing on one side of 32 percent of trades.

 

The code of good practice
Bearing in mind the market abuse scandals in the FX market in the years following the financial crisis, there was one crucial issue that the market had to answer to: with potential for mistakes and wilful misconduct, could the market retain its integrity with its participants away from the watchful eyes of their dealing rooms? The disciplines and controls that digital market platforms enable have gone a long way towards ensuring good market behaviour. The FX Global Code, “a set of global principles of good practice in the foreign exchange market,” introduced in 2018 by the Global Foreign Exchange Committee of the BIS, aimed to do the same. As far as we can see, its principles have been widely adhered to and have helped pilot the market through the turbulent times of the first quarter of this year.

In summary then, well-wrought technology tools combined with sound, widely adopted principles seem to have pulled the market through. They have proved that a multi-trillion-dollar global market can function perfectly well with its participants dispersed and working from their home offices and spare bedrooms.

Fulfilling the responsibility of being the people’s brand

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Despite the turbulent global environment and continuing uncertainty, Fubon Life has maintained outstanding performance with the advantages of financial stability, comprehensive distribution channels, and a diversified product portfolio in 2020. The cumulative net profit after tax for the first eight months last year reached NT$43.058 billion, equalling a year-on-year growth of 68 percent. In addition to the brilliant investment performance, the company’s premium income also performed well last year. The accumulated first-year premium income (FYP) from January to August 2020 reached NT$84.6 billion, and the total premium income was NT$374.4 billion. Fubon Life’s professional operation has also been recognised by the prestigious international financial media. World Finance has ranked Fubon Life as the ‘Best Life Insurance Company in Taiwan’ on nine occasions.

 

High-quality service experience
Fubon Life offers a comprehensive product portfolio and adjusts product strategies in response to the current economic situation. For example, in response to the COVID-19 pandemic, Fubon Life introduced the country’s first ‘Statutory Infectious Disease Periodic Health Insurance’ policy, which provides people with advanced insurance protection and all-round medical coverage. In addition, Fubon Life continues to leverage insurance technology to provide policyholders with a rapid and high-quality service experience, such as optimising and upgrading the ‘Policy Health Check System,’ and using system analysis results to help policyholders identify the protection gaps in five major areas: life insurance protection, accident protection, medical protection, long-term care protection and pension protection. Fubon’s professionally trained agents will then be able to recommend suitable insurance products to mend the gap as early as possible and improve the risk tolerance of the Taiwanese people.

Fubon Life’s goal is to become a people’s brand. In addition to fulfilling its responsibilities in assisting clients with strengthening their risk protection, Fubon Life also continues to deepen sustainable management such as ESG. It looks forward to leading the development of the industry through sustainable actions in governance, environment, and society. Benson Chen, President of Fubon Life, said: “Enterprises co-exist and prosper with society and the environment. The greater the influence of the company, the heavier the responsibility it shoulders. The award not only recognises our achievements, but also extends our responsibilities. Fubon Life will continue to take into account the company’s operation, social responsibility, and environmental friendliness, and follow the United Nations ‘Sustainable Development Goals (SDGs)’ as a development strategy for insurance and community services, with a view to solving social change issues in many ways and serving the common good of the society in Taiwan.”

The app acts as an online insurance education and health promotion tool

Fubon Life has long practised dementia care activities from the perspectives of prevention, assistance, support, and knowledge transfer. For five consecutive years, it has co-operated with the Federation for the Welfare of the Elderly, Taiwan’s main public welfare organisation for elderly welfare, to give away dementia patient bracelets in 100 hospitals across Taiwan. It is recommended patients wear the bracelet immediately after being diagnosed by physicians. After this model was introduced, the bracelet-wearing rate has increased by 42 percent, and the recovery rate for lost dementia patients is now very high, effectively reducing the psychological pressure of caregivers. This year, the scope of this service has been expanded, and more county and city government resources across Taiwan have been integrated to provide better support for families with dementia patients.

Knowledge and understanding are the starting point for improving dementia care, and the general public’s understanding of dementia is generally insufficient. Considering the many opportunities for interaction between children and elders at home, Fubon Life is actively committed to educating children on the issue of dementia. This year, Fubon Life joined hands with the Taiwan Dementia Association to expand the promotion of the ‘Dementia Education Seed Project,’ producing cartoons on dementia education targeted at children and adolescents to be broadcast in all primary schools in Taiwan. It is hoped that through these informative yet entertaining teaching materials, close to one million school children nationwide can develop the right knowledge and practice on dementia care, which will not only promote an atmosphere of happiness within the family, but also help patients with dementia at home to seek medical treatment in time. These efforts have laid a positive foundation for a dementia-friendly society.

At the same time, Fubon Life has also leveraged its core competency in launching spillover policies that promote health and strengthen medical protection for the disadvantaged population. These products encourage policyholders to walk more and quit smoking to enjoy premium discounts and in so doing, achieve the objectives of advanced disease prevention and morbidity reduction. Fubon Life has also developed a health promotion app called ‘Fun group’ that combines community activities with insurance education and health promotion. The app acts as an online insurance education and health promotion tool, as well as a social platform to promote the concepts of insurance and health management in people’s daily lives.

 

Development of green finance
Fubon Life promotes the sustainable development of green finance in a comprehensive manner. Through four low-carbon strategies including green procurement, an environmentally conscious workplace, paperless services and environmental protection, Fubon Life has launched its environmentally friendly practices and implemented green finance and responsible investment externally, to echo the government’s support for renewable energy development. In order to expand the company’s influence throughout society, Fubon Life not only integrates the concept of environmental protection into product design and policyholder services, but also provides diversified and paperless financial services for policyholders. It is estimated that green service processes reduced carbon emissions by more than 495 metric tons in 2019, equivalent to 15.2 months of carbon absorption capacity of Daan Forest Park. Fubon Life also organised nationwide river cleaning and plastic clean-up sessions. The company introduced the concept of the ‘recycling ecological chain’ by turning recycled plastic waste into mobile phone holders.

Through continuous internal and external communication, Fubon Life is able to raise the public’s environmental awareness, and the company’s practice in promoting environmental sustainability was even recognised with the first ‘National Enterprise Environmental Protection Award’, organised by the Environmental Protection Administration of the Executive Yuan. Fubon Life has long been concerned about the sustainability of Taiwan’s water resources. It has not only led employees in activities such as river cleaning and beach cleaning to protect the environment, but has also cooperated with the Wilderness Conservation Association in 2020 to raise the awareness of river waste disposal issues, becoming the first company in Taiwan to respond. It will join forces with the Wilderness Conservation Association in launching the ‘River Waste Quick Screening Survey Project’ for three years to investigate public hazards in a low-carbon, paperless manner, integrating the idea of citizen science to protect the ecological system. The project is aimed at finding more concentrated sections of river waste to facilitate efficient cleanup, and expand the company’s green influence for the sustainable development of the river basins in Taiwan.

In order to demonstrate the commitment of serving the Taiwan market as a people’s brand, Fubon Life has actively invested resources and deepened its corporate influence in terms of product development, service innovation, talent cultivation, social welfare, and environmental sustainability. The results of the company’s actions have also been recognised at home and abroad, including being named in Brand Finance’s Top 100 Insurance Brands in the World – number one in Taiwan, and winning the ‘Health Promotion Award’ and ‘Green Leadership Award’ in the Asia Responsible Enterprise Awards. Fubon Life also won the ‘Insurance Quality Award’ for three consecutive years in four separate categories. It has also won the RMIM Award for 10 consecutive years and has been voted as the most preferred employer by college graduates. In the future, Fubon Life will continue to focus on the core insurance business and leverage digital technology to create a better user experience for its customers. With the mission of being a good neighbour in the community, it will continue to pay attention to important issues such as dementia and aging, strive to shorten the gap between urban and rural resource allocation, and expand its influence to benefit individuals and families throughout society.

Producing sustainable glass for a greener future for all

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Ancient and naturally occurring, glass is the only packaging material that can be infinitely recycled without changing its initial properties. And given the natural properties of its raw materials, it has been considered the healthiest material, preserving the taste of food and beverages while ensuring that the contents are not contaminated in any way. Despite the amazing properties of glass, the glass packaging industry is aware that a lot can still be done in order to transform its production process into a ‘carbon neutral’ operation.

In BA, one of Europe’s leading glass packaging producers for food and beverages, with operations in seven countries and a turnover of €923m, we have been committed to sustainable growth for a long time, by working towards the reduction of our environmental footprint and the promotion of recycling as a sustainable behaviour in local communities.

For more than 20 years, the group has been investing in treatment plants to recover the glass collected after consumers’ usage, and reintroducing it into our production process by recycling. Indeed, today we own one of the most modern glass collection treatment plants in Europe.

But we want more, and in 2018 BA became a founding member of the Porto Protocol, thereby assuming new goals for 2030: to use at least 70 percent of electricity from renewable sources; to reduce natural gas consumption by 10 percent, replacing it with electricity; to reduce water usage by 75 percent; to increase the use of recycled glass by at least the same percentage as the increase in the collection rate; and to reduce CO2 emissions to at least the levels defined by the European Union.

To achieve these ambitious goals, the group implemented a holistic model, based on the measurement of our carbon footprint, the development and implementation of different projects to reduce greenhouse gas emissions (GHG), the development of new and greener technologies, and the investment in offsetting projects.

We measure our carbon footprint in all the three areas, considering the direct and indirect emissions of all our activity. This inventory will allow us to track and report our improvements with transparency, as this is one of our key values.

 

Making a difference
Several projects are currently in place to reduce BA’s emissions. These include an ambitious programme of light weighting our bottles and jars in collaboration with our customers. There is also an investment in photovoltaic installations on roofs, already implemented in two of the Iberian facilities, following a medium-term investment plan. Additionally there is the implementation of environmentally friendly technologies at our production sites, replacing the less energy-efficient ones.

We promote the use of alternative raw materials in the melting process, and increasing the rate of glass recycled in the raw materials, anytime it is available. Furnace energy optimisation will occur by applying data-based tools. Plus there is the continuous revision of transport routes, and replacing ground transport by sea transport whenever possible.

Concerning the development of new technologies, we should highlight an industry-wide project to develop the technology for a new hybrid furnace that will be fuelled by 80 percent electricity (compared with the current 20 percent), which will have an enormous positive impact on the reduction of CO2 emissions in glass packaging production. This project is being developed in partnership with most of the members of FEVE, The European Container Glass Federation.

Finally, thanks to the contribution of our shareholders, the group will be able to dedicate €7.3m of the 2019 results to support future activities in CO2 reduction and capturing, as well as the related R&D projects.

We invite you to learn more about our commitment to environmental sustainability, our projects and results in our sustainability reports, which can be found online. We all have a purpose. Our planet is suffering drastic changes regarding climate and its sustainability, and in BA we aim to be an active agent of its protection, towards a greener industry and a greener future. Now, it’s up to you!