Author: Max Tomlin

Afschrift continues to showcase the value of its tax optimisation expertise

Posted on by Max Tomlin

Everybody must respect the law. This also applies to tax lawyers – perhaps even more so than for other citizens. Likewise, states must respect the law as well – for instance, by admitting that taxes are only due when the law stipulates that they are.

As such, tax lawyers have a double mission: on the one hand, to help their clients respect the law, especially as legislation is exceedingly complex. On the other, tax lawyers must also find law-compliant solutions in order to enable their clients to pay fewer taxes, but without breaking the law. Even when limited to just one country, systems of taxation are complicated and difficult to navigate. When multiple countries and the spread of misinformation are factored in, it can be truly overwhelming.

Therefore, it is hardly surprising that businesses and individuals often turn to professional tax advisors to make sense of the complex systems they are faced with.

Staying on the right side of the law is essential, which is why choosing the right tax advisor or legal representative is so important

The media’s reaction to the release of the Paradise Papers in November 2017 demonstrated that taxation is clearly an emotive issue, but not one that is always properly understood. There are, for instance, various methods of reducing tax bills that are completely legal, whether they concern offshore businesses or not. Tax optimisation is not something that should be condemned – it is simply one aspect of prudent fiscal management, no different from an individual making the most of their tax-deductible expenses when completing a personal tax return.

Unfortunately, some governments appear to be committed to destroying tax competition, despite the fact that this is not to their advantage. Indeed, this is a disturbing trend that is becoming particularly apparent in the EU, where the power of key member states threatens to undermine our civil liberties.

Of course, staying on the right side of the law is essential, which is why choosing the right tax advisor or legal representative is so important. Providing valuable advice to its clients for more than 20 years and possessing an acute understanding of the internationalisation of customers’ activities (both private and professional), Afschrift Law Firm fits the bill perfectly.

Spirit of competition
At present, EU member states are in constant need of capital and, as a result, they try to collect the maximum amount of tax revenue. One of the methods that EU member states are using, under the pressure of more powerful members such as Germany and France, is to limit tax competition. As a result, measures are being collectively implemented in order to restrict tax optimisation.

This said, tax competition will never really disappear, and has even started to develop on regional or federal levels in countries such as Spain or Belgium. Even if governments attempt to prevent tax optimisation, opportunities will always exist. With states continually introducing new tax niches, which can create ways for companies to reduce their tax burden, it could be argued that tax optimisation is even encouraged by the state itself, albeit within a specific context. In any case, the more they are subject to heavy taxation, the more companies and individuals will resort to tax optimisation. The role of tax lawyers is to help them achieve their optimisation targets – all, of course, within the limits of the law.

Given that tax is defined as a compulsory contribution without consideration, it is understandable that taxpayers try to reduce this financial burden. Government efforts to prevent tax optimisation only result in the creation of new rules and, in turn, greater complexity. In order to deal with the application of these rules, companies and individuals are in even greater need of tax lawyers so as to avoid suffering the consequences of the state’s tax policy. This is especially true as tax competition will never really disappear, and has even started to develop on regional and federal levels.

Legislative shackles
In recent times, directives have been implemented to limit certain types of tax optimisation, such as the deduction of interest or royalties in relation to intellectual property rights. The implementation of these directives is the result of the joint and concerted action of several large EU members in order to make it less advantageous for companies to establish themselves in smaller EU countries, many of which use tax incentive policies to attract foreign investment. Indeed, it has become characteristic of the European Commission to use this tactic against its smaller members, including Luxembourg, the Netherlands, Belgium, Ireland and third countries like Switzerland.

Because of the size of these countries, they need to attract foreign companies by adopting tax-friendly policies. Without these advantageous tax policies, large companies would always base their operations in bigger countries. Having said that, it is important for national tax incentive schemes to be chosen very carefully so they are not classified as selective state aids, which are strictly prohibited in the EU.

For clients, trusting their tax specialist is hugely important. A client cannot entrust their lawyer with the intricate details of their finances if they are not certain that these details will remain confidential. This trust is the only way to make sure that clients disclose all relevant information, which is vital if lawyers are to provide their clients with judicious advice while always remaining respectful of the law. Essentially, the absolute protection of the client-attorney privilege should be upheld at all times.

Ensuring optimisation
If one wishes to avoid the creation of a virtual cartel of EU states, fiscal competition between countries – and even between territorial subdivisions and federal regions – is necessary. Such a cartel would always act against the interests of the taxpayer, as its actions will likely result in an increase in taxation. While the role of individual states has swollen in recent years, their efficiency has unfortunately not grown in correlation. Without fiscal competition, nothing would compel states to reduce tax, nor prevent them from making increases.

As history shows, politicians will always be tempted to increase their power and present their roles as essential. Meanwhile, voters prefer to see personal gain, rather than see taxes reduced for everybody. As a result, it is always more advantageous for politicians to propose plans that benefit their supporters as individuals, rather than reduce taxation in a uniform manner. Fiscal competition is therefore necessary in order to restrain the current trend that is seeing our societies become more and more controlled by the state. By their nature, taxes are set up by those in power; without competition, this power may become arbitrary. As such, in the event that tax pressure becomes too much, all citizens must have the right to vote with their feet by establishing elsewhere.

Nevertheless, fiscal competition does not seem to entirely disappear, even when faced with the pressure from the EU and the Organisation for Economic Cooperation and Development, which generally act in the interests of the most powerful states. Furthermore, even if unification could be achieved, this would not prevent the development of fiscal competition based on tax rates, the harmonisation of which is not being discussed at present.

It is also worth keeping in mind that tax optimisation is not solely the preserve of large multinational companies: individuals and small companies can stand to benefit as well. First, there are certain procedures implemented by the tax administration that are provided by law or by administrative practice. Moreover, the utilisation of the advance tax ruling procedure, through which a taxpayer may receive prior approval from the tax administration on any given future operation, is not reserved for big companies – smaller companies and individuals may also benefit from it.

Finally, tax optimisation does not always require an individual or organisation to have a great deal of influence or capital at their disposal. Lawyers and other advisors are perfectly positioned to recommend tax optimisation methods to smaller companies, which are developed specifically for them and adapted to their needs, by taking into consideration their distinct legal or accounting situation. It is in such a role that Afschrift Law Firm offers its services, providing a bespoke experience, no matter the size of a company, nor the status of the individual.

Ageas is looking to promote a shift in Portugal’s savings culture

Posted on by Max Tomlin

How much a population saves plays a crucial role in a country’s economic growth – too little, and it can act as a stranglehold with far-reaching, long-term effects. Portugal, sadly, falls into this category. The Portuguese population saves considerably less in comparison to other European nations, most notably Luxembourg, Sweden and Germany. This difference can be attributed to the few savings incentives offered to families in Portugal, while low interest rates on term deposits and a tax on savings applications – the highest in the eurozone – further exacerbate the issue.

The population of Portugal saves considerably less in comparison to other European nations

Furthermore, like other nations in Southern Europe, there is a tendency among the Portuguese to limit the diversification of their savings instruments. In contrast to Northern European populations, which tend to use the capital market for savings, the Portuguese continue to prefer term deposits and fixed assets, often investing in real estate instead.

As a result, household savings levels have declined steadily over the past 20 years, falling from a rate of 12.9 percent of available income in 1995 to just 5.4 percent in 2017. There were two exceptions to this trend in 2008 and 2012, which came as a result of Portugal’s financial rescue programme. According to data released from ECO Economia Online, at the end of FY 2018 the household savings rate was one of the lowest ever recorded in Portugal, at 4.4 percent.

Market impact
Over the last few decades, changing habits in Portugal have resulted in a bigger growth in consumption than we have witnessed for savings. This is partly due to an increase in consumer confidence, which has also led to a rise in the use of credit. In fact, during the first half of 2018, Portugal’s household debt burden grew from 70.8 percent to 73 percent.

12.9%

Portuguese household savings as a percentage of available income in 1995

5.4%

Portuguese household savings as a percentage of available income in 2017

4.4%

Portuguese household savings as a percentage of available income in Q2 2018

By restricting individuals’ ability to finance investment, the task of promoting the sustained return of economic growth becomes all the more difficult. In a vicious cycle, this is further exacerbated by the bad saving habits of younger generations. The state’s commitment to foster greater financial literacy and household savings is therefore vital for a healthier economy. It will also help to create a more informed society that is better aware of its rights and duties.

Being the largest bancassurance operator in Portugal and the number one life insurance company in terms of assets under management, we at Ageas feel a responsibility to help the much-needed development of the country’s savings culture. To this end, we are working on various projects at present. Our goal is to work closely with young people and to be part of the evolution of practical learning for financial literacy. Furthermore, we would also like to help the older generation, by creating decumulation solutions that prepare them for retirement. This is how Ageas wants to make a difference: by laying the foundations that help the Portuguese understand how to deal with these issues so they can make informed decisions when it comes to their money and investments.

We are also investing in cutting-edge platforms to clearly present our solutions to customers. In simplifying the communication process, we can help them understand all the necessary information, avoid pitfalls and overcome the fear of making mistakes, thereby helping them to move forward. This also has the added benefit of reinforcing their trust in us.

Financial literacy
Among the 30 countries analysed by OECD in October 2016, Portugal ranked 10th for knowledge, attitudes and behaviour with regards to money management. The OECD also revealed that the Portuguese are passive in the management of their savings: saving is an active choice for less than 40 percent of respondents. The OECD average, meanwhile, is 60 percent, while Norway’s is an impressive 80 percent. Along with the fact that few incentives related to savings exist, a lack of knowledge in this area is still very common.

Financial literacy is therefore a determining factor in our daily lives, especially as it is becoming more and more complex. The learning process should start at a young age. Fortunately, this evolution has already begun, with Ageas Portugal playing an important role: the challenge of promoting financial literacy has been incorporated into our global CSR strategy.

Financial literacy also plays an extremely important role in creating a new culture for saving, which means we need to be more aware of the practical relevance of financial literacy in its various aspects. Being a market leader in the life and pensions sector in Portugal reinforces our active role in developing the education of citizens towards saving. It is also important to reinforce civic education in schools as a way of affirming the importance of saving from an early age. At Ageas Portugal, we truly believe that the development of skills in this area and the creation of savings habits should start early, in order to develop a greater awareness of the need for good long-term financial management.

Retirement approach
Portugal is ageing. Today we live longer, with fewer children being born too. By 2050, only one in eight people will be considered young – that is, they will be younger than 15 years old. Despite the fact that there is some time to go before we encounter this scenario, Portugal is already the sixth-oldest country in the world. As such, it is simultaneously confronted with both the benefits and challenges of increasing longevity.

Given the international recommendations for living longer, it is curious to see that Portugal’s recent evolution points to an increased focus on the practices of active ageing, despite the lack of mobilisation in older people. As such, it is essential to determine the policies we must adopt in order to ensure the future of this new demographic age. In January 2018, we learned that the average age where people will be granted access to pensions will increase by one month in 2019, to 66 years and five months. Is this enough to ensure the viability of dignified ageing? We don’t think so.

The retirement pension is now recognised among the main causes for household indebtedness. This, combined with a high unemployment rate and the deterioration of working conditions, is very concerning for Portugal’s ageing population. Indeed, if the level of savings does not increase, the retirees of the future are likely to receive considerably less than current pensioners.

We have tried to alert older people to the risks of having a carefree plan for the future. We also need to focus on savings instruments that will safeguard them during their retirement years. Fortunately, our wide range of offers responds to the various needs that can arise during this phase. In a bid to create greater awareness, we have teamed up with a major media player to launch a cycle of conferences. The first of these conferences was exactly about this subject: ageing well.

Taking the initiative
We have many other initiatives in place too. For instance, Ageas has partnered with a group of like-minded companies to create SingularityU Portugal Summit Cascais, an event that brings the world’s leading experts on accelerating technologies together with Portugal’s brightest minds. As a founding partner, Ageas helps to connect great companies, entrepreneurs and future innovators with a view to creating new opportunities and training leaders to solve society’s biggest challenges through technology.

Go Far is another great example. It’s a joint venture between Ageas and the Portuguese National Association of Pharmacies, which has launched an innovative integrated health services network spanning more than 2,500 associated pharmacies. Services range from the administration of injectables to a wide range of analytical processes. As we know, pharmacies are highly valued by local communities, particularly among elderly people, who view them as a secure, trusted service when it comes to their health.

In a completely different area, we have created a new service designed for expats. The joint venture – this time a result of a collaboration with a real estate consultant – helps support clients in essential tasks such as looking for a house, opening a bank account or obtaining insurance.

At Ageas, we want our activities to be far-reaching. The insurance industry has changed completely: today, we need to go beyond insurance by enlarging our ecosystem with new partnerships, as the closed insurance world simply does not work anymore. We need to be in the front line for anticipating needs and tendencies, while also focusing on our customers’ satisfaction and requirements. In doing so, we will continue to play a relevant role in society while remaining a sustainable organisation that employs approximately 1,300 people.

Our role is not to merely provide the services requested by our customers: our role is to think ahead, innovate and act as a guide in terms of prevention, protection, preparation and assistance. Our mission is to support our main stakeholders – namely our customers, as well as partners, employees and society. We do this by offering solutions that not only insure against risk, but also anticipate it by listening to our customers and developing simple and innovative solutions that meet their ever-changing needs.

Cyprus is proving to be an attractive destination for investment funds

Posted on by Max Tomlin

As Cyprus continues to enhance its fund legislation, it has positioned itself as a flexible and cost-effective jurisdiction for funds and fund managers within the European Union. The island nation offers unique advantages that provide operational flexibility while also achieving a fine balance between the freedom of operation for asset managers and investor protection.

Cyprus offers unique advantages that provide a fine balance between the freedom of operation for asset managers and investor protection

The island’s recently created Registered Alternative Investment Fund (RAIF) reflects its commitment to continue enhancing its competitiveness in this respect. The local market works towards this goal through regular upgrades of both products and services. It has also positioned itself as a regional fund centre and a cost-effective investment platform into the EU, drawing on its strength of being a common law jurisdiction with a comprehensive tax treaty network spanning 60 countries.

Current considerations
At the time of World Finance going to print, the terms of the UK’s withdrawal from the EU are still being negotiated and are highly likely to change. However, asset managers (both inside and outside the EU) will still need to address the succeeding challenges. They will also need to identify the potential long-term opportunities that will arise in a European fund management environment that has already been significantly reshaped since the introduction of the Alternative Investment Fund Managers Directive (AIFMD).

The potential impact on investment funds domiciled in the remaining 27 member states of the EU (EU 27) varies from fund to fund, depending on the structure of the fund and its distribution strategy. It also depends on the fund’s level of engagement with UK service providers – particularly with regards to the manager and, in the AIFMD context, the alternative investment fund manager (AIFM), as well as the alternative investment fund (AIF) itself. Against this backdrop, Cyprus can offer long-term solutions for a variety of managers and funds planning for a post-Brexit Europe, including both managers in the UK and those located in countries outside the EU 27.

For UK asset and fund managers looking to benefit from European passporting and needing to maintain access to the wider European market and cross-border investors, it seems likely that a more substantial part of their business will have to be created and managed in the EU 27 in the years to come. Cyprus offers UK managers (and, more broadly, managers outside the EU 27) the ability to domicile funds and establish new management companies in order to ensure continued, unfettered European market access.

Post-Brexit, a UK AIFM managing an EU 27 AIF will no longer be able to do so as an authorised EU AIFM. Depending on the final deal, it should be able to continue to manage an EU 27 AIF as a third-country manager, similar to the arrangements already in place for US investment managers. Authorised EU AIFMs are currently permitted to delegate portfolio management to non-EU investment managers, subject to certain conditions. When the UK officially leaves the EU – again, depending on the final deal – it may well be necessary to have the UK entity approved by national competent authorities (NCA) of individual EU member states as a non-EU investment manager.

ESMA view
In the case of undertakings for collective investment in transferable securities (UCITS), the fund must be domiciled in the EU while also being managed by an EU-based management company. In the absence of a renegotiation of the status of UCITS management companies, a UCITS with a UK management company would need to appoint a management company in a EU jurisdiction, become self-managed if possible (although that is a more onerous option these days), or re-domicile the existing UK management company to another EU jurisdiction.

Fund distribution is an important consideration, especially given the dynamics of AIFMD. Under AIFMD, a marketing passport is not granted to the fund product itself, but rather to the AIFM. As only authorised EU AIFMs can currently access the marketing passport, EU 27 AIFs managed by UK AIFMs will be significantly impacted.

With respect to the concept of delegation, on May 31, 2017, the European Securities and Markets Authority (ESMA) published an opinion piece that set out the general principles on supervisory approaches in relation to relocations of entities from the UK to EU 27. Within it, ESMA published its opinion based on the scenario that the UK will become a third country after its full withdrawal from the EU, while also setting out nine general principles for NCAs on the avoidance of supervisory arbitrage risks. One of the nine principles requires NCAs to ensure that substance requirements are met – specifically, this implies that certain key activities and functions should be present in the EU 27 that cannot be outsourced or delegated outside the EU.

These important activities include internal control functions, IT control infrastructure, risk assessment, compliance functions, key management functions and sector-specific functions. The ESMA statement also said that special attention should be granted to mitigate the use of letterbox entities in the EU 27. As such, NCAs should reject any relocation requests where the main intention is to benefit from a EU passport, with all substantial activities or functions being performed through third-country branches. Furthermore, ESMA advised that outsourcing and delegation to third countries is only possible under strict conditions, subject to outsourcing or delegation arrangements between the EU NCAs and a third-country authority.

The Cypriot option
A Cyprus RAIF is available for subscription from an unlimited number of professional or well-informed investors. It is required to be externally managed by an authorised AIFM that has its office in an EU member state and is fully compliant with AIFMD. Setting up an AIFM is not a prerequisite and third-party AIFMs (independent management companies, or ManCos) are available, which can potentially offer a turnkey solution instead of setting up a proprietary AIFM. Given ESMA’s view on substance requirements for AIFMs, independent ManCos offer the ability to effectively meet substance requirements on the risk management side through more extensive human and technical resources in the event that the portfolio management function is delegated to a third-party investment manager.

In addition to the AIFM, the appointment of a depositary, a fund administrator and an auditor are mandatory requirements for the RAIF. Through the Cyprus RAIF, setting up a fund on the island is now significantly expedited (in principle, within one month). Cyprus RAIFs are also not subject to licensing or authorisation processes by the regulator, the Cyprus Securities and Exchange Commission (CySEC). CySEC only needs to be notified of the RAIF with a mandatory suite of documents; it maintains a special register for RAIFs that includes approved Cyprus RAIFs.
More importantly, given that the Cyprus RAIF must be managed by an authorised AIFM, it also benefits from all passporting advantages for distribution by way of the marketing passport. As a result, marketing Cyprus RAIFs across Europe is significantly rationalised when compared with non-EU jurisdictions, as the AIFM may rely on cross-border passporting arrangements to access all 31 European Economic Area jurisdictions without relying on private placement regimes.

There is no minimum share capital requirement for a Cyprus RAIF, and there is also legal form flexibility in terms of structuring, including the option to be open-ended or closed-ended. For many investors, including but not limited to unregulated investor groups such as family offices, the Cyprus RAIF represents an attractive investment vehicle from a legal, regulatory and tax perspective. It also allows an expedited, cost-effective fund solution to be brought to market. In addition, the Cyprus RAIF provides investor protection through the requirement to appoint an authorised and regulated AIFM that is responsible for ensuring AIFMD compliance (in practical terms, the regulator oversees the RAIF through oversight of the AIFM). It further benefits from a licensed depositary that is required to act independently and in the best interests of investors by performing oversight, cash-flow monitoring and safekeeping of assets duties.

Looking ahead
Against the backdrop of a pending Brexit deal, ESMA has focused on ensuring that minimum substance requirements are created for new fund management entities established in the EU 27. This is necessary in order to mitigate a creation of letterbox entities – a likely outcome without certain rules in place. As such, ESMA now requires a minimum of three full-time employees for an entity within any of the EU member states.

Specifically, these employees are required to work in the areas of portfolio management, risk management and the monitoring of delegates. ESMA has also clearly stated that relocating entities have to transfer the majority of their portfolio management and risk management functions into a new entity within the EU 27. As an emerging fund and fund management jurisdiction, Cyprus has the ability to offer fund managers and promoters cost-effective and compliant substance solutions to meet the increasingly demanding, complex and evolving legal and regulatory dynamics of the European fund industry. The country also serves as a practical long-term platform for fund managers and service providers to develop their fund business – all from one convenient hub.

AAIB is helping to drive the banking industry’s push towards sustainability

Posted on by Max Tomlin

In 2018, the United Nations Environment Programme – Finance Initiative (UNEP FI), which was created in 1992 to promote sustainable finance, brought together 28 banks representing $16trn in assets from five continents. These banks were tasked with creating a set of standards that would lay out how the sector could align itself with the Paris climate agreement and the UN’s Sustainable Development Goals.

AAIB is making a meaningful contribution towards the global banking sector’s work on sustainable finance

The Principles for Responsible Banking (PRB), which will be voluntary for banks, will define and affirm the banking industry’s roles and responsibilities in shaping and funding a future that is in dire need of sustainable finance. These overarching principles aim to bring banks together and regain the world’s trust in financial institutions by urging lenders to respond to social challenges and achieve sustainable development.

Pursuing its mandate to advance sustainable finance on a global scale, Arab African International Bank (AAIB) is assuming a leading role in the development of the PRB. According to Sherif Elwy, CEO of AAIB: “Sustainable finance could unleash the potential of a new economic era. By addressing financial inclusion and clean energy funding, we could significantly unlock the fortunes of the MENA region.” In context, Dr. Dalia Abdel Kader, Director of Sustainability and Marketing Communications at AAIB, stated that AAIB is proud to be part of driving the transformation of the banking industry through the Principles for Responsible Banking that advances the bank’s sustainability journey that started in 2003.

Active leadership
Sustainable finance is an integral part of AAIB’s brand. The bank’s sustainable finance journey started back when it was seriously contemplating how to pursue an aggressive growth strategy. We recognised that growth has both a material and nonmaterial dimension, and our focus went beyond the single bottom line to the triple bottom line. This is an idea that a company can take social and environmental performance into account in the same way that it does financial performance.

In 2003, AAIB became a forerunner in sustainable finance, setting up the foundations that have since become the cornerstone for an industry-wide change not just in Egypt, but in the wider region as well. Having been one of the first banks to develop a corporate social responsibility platform, AAIB’s sustainability agenda has not only grown in scope, it has also transformed AAIB from a philanthropic trendsetter to a bank committed to advancing sustainable finance in the region.

AAIB realised early on that it was important to join international frameworks in order to advance sustainable finance in a purposeful manner. In addition to joining the UNEP FI in 2018, AAIB became a member of global initiatives such as the UN Global Compact in 2005, the London Benchmarking Group in 2007 and the Equator Principles in 2009.

Parallel to its effort to integrate sustainability principles into policies and practices, AAIB took its mandate to the next level in 2014 when it kick-started an industry movement through MOSTADAM, the first platform to promote sustainable finance in Egypt and the MENA region.

MOSTADAM was launched to introduce state-of-the-art training programmes in sustainable finance, advocate policies and encourage sustainable banking products and services. It has progressed impressively, with more than 60 percent of Egyptian banks taking part in its train­ing module. In this regard, UNEP FI invited Dr Kader to present the success of MOSTADAM integrating an industry movement in Egypt during the Global Roundtable and Climate Finance day in Paris during November 2018.

Triple bottom line
The PRB is the first international framework to combine a bank’s profit-making with a forward-looking approach towards the environment. By developing these principles, the founding banks have set a clear path for the banking industry, investors, policymakers, regulators and stakeholders to compare the impact of banks based on their contribution to national and international social, environmental and economic targets. These principles will be a commitment that will push the banking industry upwards.

UNEP FI announced the banking principles at a global roundtable in Paris on November 26, 2018. The principles will be part of a global public consultation phase until September 2019. In the meantime, banks will be able to become endorsers and to start preparing for the implementation of the principles.

AAIB was assigned to co-lead the PRB’s implementation guidance sub-group with Greece’s Piraeus Bank, as well as to co-lead the principles and review sub-group with Piraeus Bank and China’s ICBC Standard Bank. The UNEP FI appointed Dr Kader to lead the MENA region in the engagement sub-group, which is responsible for promoting the principles within the region. As such, AAIB is committed to playing a vital and active role in the advancement of the PRB’s principles.

Nordea is making a case for the myriad benefits of sustainable financing

Posted on by Max Tomlin

Climate change is the biggest challenge facing our planet today. Many world-leading academics and national leaders have suggested ways of tackling the issue, but a consensus has yet to be reached. In a recent opinion piece for the Financial Times, however, Zoe Knight, Managing Director of HSBC’s Centre of Sustainable Finance, was clear about what needs to be done.

We are at a point where the world economy has become very large in relation to the resources the planet has to offer

“Financing growth in a way that is transparent on addressing sustainability challenges is a must for future prosperity,” Knight wrote. “There is no time to lose: sustainable finance is the answer.” This newfound acceptance is well deserved, with the sustainable finance market estimated to be worth more than $380bn in 2016 (see Fig 1) – a figure that is surely set to grow. This financial heft helped make renewables the fastest-growing segment of the energy market last year.

Nevertheless, it is important not to get ahead of ourselves. If mankind is serious about ushering in a low-carbon economy by 2050 (as the Paris Agreement requires), then a significant financial cost will need to be accepted. Shifting the energy sector alone onto a sustainable footing comes with an annual price tag of $3.5trn. By that reckoning, meeting the planet’s sustainability goals will be a hugely difficult task.

There is no doubt that everyone wants to live in a world that is socially, environmentally and economically sustainable. Despite this, poverty and hunger still exist, access to clean water is not available to all, and humanity’s consumption of resources remains at dangerously high levels. In addition, our failure to limit greenhouse gas emissions to the necessary levels means that catastrophic natural disasters are likely to become more common and increasingly severe.

A fragile world
We firmly believe that sustainable finance is the answer to decarbonising the economy. However, for that to be achieved, the financial sector requires a radically different kind of leadership – one that is bolder, more transparent and more outward-looking than the one we have at present.

As the leading bank in the Nordic region, Nordea is able to play a key role in encouraging a more sustainable future. In 2017, we had 160 meetings with companies that we invest in, with approximately 65 percent of these related to environmental, social and governance (ESG) issues.

We are not just focusing internally, either. Our sustainable finance newsletter and our first-hand reports from glaciers, coral reefs and other vulnerable environments continue to shine a spotlight on environmental issues around the world. By conducting a transparent dialogue with our stakeholders, we ensure that our own expectations regarding ESG issues are made clear at all times.

Still, more work needs to be done. The world of finance must shift from the presumption that the climate is unchanging, that the resources of this planet are infinite, and that growth can be realised indefinitely. We are at a point where the world economy has become very large in relation to the resources the planet has to offer – we are continuously pushing the limits. In order to truly enable the transition to a low-carbon economy, the entire system needs to change so that it does not undermine the activities being pursued to mitigate climate change.
Our current economic model has served us well over the past 250 years, but today it is under pressure. Throughout history, mankind has been able to tackle great challenges, including devastating epidemics, world wars and severe recessions. Climate change could very well be the most difficult challenge yet.

Speaking out
We need a collective response and should start by changing the flow of capital. The finance sector – a global toolbox with huge investment and lending power – is greatly underestimated in its capacity to achieve sustainable development. No other sector in the world is as far-reaching as the financial sector: with its interconnected markets, money can flow all over the world in mere fractions of a second. Everything about the financial sector, from corporate lending to IPOs, is, by its very nature, global.

15%

of total global energy is renewable

1%

of US car sales are electric

39%

of total greenhouse gas emissions are caused by the construction industry

Everyone involved in the financial sphere, from investors to consumers, is aware of how international cash flows can promote or hinder sustainability efforts. Although no one has yet been able to change the system in order to help with the planet’s decarbonisation, recent developments in sustainable finance
promise a brighter future.

Money, as everyone knows, makes the world go round. It is logical, therefore, to ask serious questions of today’s moneymen: first and foremost, how did we get to this point? And, just as importantly, how are we going to get out of it? What strategies do they have for employing the capital under their control, for instance? What importance are they attributing to climate concerns?

Our skewed economy speaks for them. Today, renewable fuels still only comprise 15 percent of the global energy mix, and in transport, only one percent of US car sales are electric. For construction, the carbon footprint of buildings is stuck at a stubborn 39 percent of total greenhouse gas emissions.

It is impossible for the energy-intensive sectors of yesteryear to maintain their dominance without acquiring the right financing. Unfortunately, the sustainable finance sector is complicit in providing access to this financing. Not directly, perhaps, but the financial sector as a whole – to which sustainable finance firms inextricably belong – has helped to keep the lights on in these fossil-fuel-burning industries.

As sustainable financiers, we need to be bolder in addressing the blatant contradictions within our own industry. For too long, the financial sector has been helping the climate with one hand while damaging it with the other. This counterproductive use of capital won’t stop until those within the industry speak up.

To do so will incur a backlash – of that, there is no doubt. Speaking truth to power is never easy. Yet, standing by in silence is no longer an option. We talk their language, we understand their world and many of us even share the same offices. At Nordea, we know that now is the time to make our voices heard.

Opening up
Globally, only a limited amount of total assets under management integrate ESG criteria in their investment decision-making processes. The uptake of these assets must accelerate faster to accommodate an effective transition to a sustainable future. If investors do not reevaluate the current capital flows to companies unwilling or unable to diversify their business models in line with a low-carbon economy, then these investors are expecting returns on assets that must eventually be written off in order for the planet to be safe. Increasing monetary flow to sustainable business models is imperative, from both an environmental and economic perspective.

Secondly, we need to become more transparent. Sustainable finance might be a small slice of the overall finance market, but its trailblazing ways are a beacon for everyone else. According to Knight’s Financial Times article, governments, businesses and mainstream investors look at the flow of low-carbon capital and “make decisions accordingly”.

If only this were the case. In reality, the investment trajectories of the sustainable finance market are more of a black hole than a bright beacon. For all but the most earnest analysts, spotting trends or identifying meaningful patterns is nearly impossible.

Opacity is hardwired into the culture of professional investors, but normalising a bad practice does not excuse it. If we are to genuinely act as a signpost for others, then we need to break ranks and demonstrate far greater levels of individual and collective transparency. As an absolute minimum, businesses must agree on a common system for disclosing climate finance flows and – just as importantly – for the action financed by these flows.

Finally, the sustainable finance sector is crying out for a more outward-looking model of leadership. Kick-starting and consolidating the sector has required huge internal focus and cooperation. Now, with the sector reaching maturity, we need to take those same attributes and direct them beyond our own inner circle.

Engaging the non-sustainable elements of our industry is just the start. We also have to be out there engaging with those who frame and fuel our modern economy – policymakers, legislators and company leaders alike. And not just in sub-committees with a sustainable finance label, but at the top tables of public debate.

The future of finance has to be sustainable. If not, it will have no future. We must step up and make that point loud and clear: if sustainable finance really is to be the answer to decarbonising our economy, then the hour has come for us to adopt a new form of leadership. On that score, there really is no time to lose.

Vertex is showing the benefit of a strategic approach to tax function modernisation

Posted on by Max Tomlin

The World Economic Forum Annual Meeting’s theme for 2018, ‘creating a shared future in a fractured world’, should continue to resonate strongly with tax executives in global companies. It certainly reverberates within senior leadership teams and boards, which have growing expectations regarding the value that tax functions delivered to their organisations.

More tax functions are now undergoing major changes in order to help organisations adjust to technology-driven disruption

Like most other organisational functions, more tax functions are now undergoing major changes in order to help organisations adjust to technology-driven disruption. A highly dynamic and challenging regulatory environment is also driving the need for this transformation. The sector is currently being characterised by sweeping US tax reform, the European Commission’s proposal for a historic overhaul of value-added tax rules, and a rising number of country-specific rules on real-time tax reporting.

Despite a growing need to evolve, new KPMG research indicates that tax functions are still “lagging at transformation”. According to its 2018 study Chief Tax Officer Outlook, 68 percent of the 300 CTOs and senior tax executives surveyed expect their tax functions to remain relatively unchanged three years from now, despite the growing need for transformation.

33%

of tax functions use data analysis to make informed decisions

For an organisation to close this gap, tax leaders, senior executives and the board of directors need to settle on a shared vision of what a transformed tax function looks like. To enable this shared vision, an organisation needs – aside from tax knowledge – skills in leadership, talent management, tax technology and a complete understanding of the tax function’s collaborations with crucial stakeholders. Aligning all aspects of an enterprise on a tax function’s future can kick-start stalled tax transformation efforts. A sound way to begin this process is by understanding how global tax policy disparities and a splintered enterprise technology environment are driving the need for major upgrades.

More, sooner
The most formidable challenges that tax departments currently confront boil down to two demands: the need for more, and the demand to have things sooner. Changes in tax policy and compliance requirements are giving rise to new risks, while also ratcheting up pressure on tax functions to collect, organise and report far more compliance data, all in real time.

These challenges are also commanding the attention of executive leadership teams and boards of directors. Both recognise that the successful management of tax risk now hinges on tax functions having proper access to data, and the right tools at their disposal to manage, analyse and report on that data. All of this supports an organisation’s ability to mount a strong defence of its tax reporting to regulators and enforcement agencies when necessary. CFOs need the tax function’s data management capabilities to be sophisticated enough to effectively manage a company’s tax risks to avoid unexpected impacts. These could include unforeseen changes to a company’s effective tax rate, or the need for an indirect tax reserve. For their part, audit committees understand that tax authorities maintain a zero-tolerance mindset concerning the data management errors that their increasingly rigorous audits pinpoint.

Successfully transforming tax processes and putting the right technology in place can be difficult in organisations with technology standardisation gaps or a tangle of finance and tax software platforms. These conditions exist in many global companies, and they explain why more finance and tax executives are introducing requirements for their companies to standardise and integrate enterprise resource planning (ERP) and major tax management systems across subsidiaries, business units and geographic locations.

The standardisation and integration of finance and tax technology marks an important, yet relatively early step on the tax function’s transformational journey. More progress related to tax technology management, as well as several other areas, is needed. The small but growing number of tax functions that are on track to achieve more dramatic upgrades within the next few years tend to focus on making improvements in several areas.

Bringing it all together
To thrive in the near future, tax leaders will need to continue doing everything they do today while also enhancing both their planning and their approach to technology and talent. Tax leaders must continue to keep a company’s effective tax in line with industry competitors, collaborate effectively with their CFOs and audit committees, manage their staff, and address budget and tax risks, all while delivering strategic value through tax planning. Tax executives will need to become much more technologically adept while also recruiting, retaining and developing a far greater number of tech-savvy professionals than they have in the past.

Infusing the tax function with more technology expertise requires tax leadership to understand the qualities that ‘tax technologists’ possess, as well as what it takes to attract and retain them. Hiring for technology skills does not necessarily mean finding tax experts who are fluent in Java, Python or C++. Instead, skilled tax technologists typically have experience with large ERP systems, including the latest releases of SAP and Oracle. Experience with systems implementation is also important, as is the ability to write simple queries and handle basic coding, while expertise with the offerings of a leading tax technology vendor is also highly beneficial.

As competition for tax technologists becomes fierce, tax leaders should keep in mind that this talent segment prefers not to join tax functions that require them to work with outdated, inadequate legacy applications. Instead, they prefer to join departments already equipped with advanced technology. Given the high cost of acquiring veteran tax technologists, most tax functions choose to develop existing tax staff through experience, training and education programmes.

KPMG’s research indicates that only 33 percent of tax functions currently use data analysis to make informed decisions. This gap is startling, especially given that high-performing tax functions are advancing their analytics capabilities while also assessing the benefits and use of advanced technology. This technology includes robotic process automation and the use of a centralised tax data repository.

Elevating tax functions’ technology management requires a clearly defined strategy. A documented tax technology plan should present a clear vision covering at least three years, a detailed list of the tax department’s IT needs, and a budget for meeting these needs. It should also include an analysis of frequent implementation and execution challenges likely to be encountered. This document should also detail all information systems that feed into the tax data repository. This type of ‘tax technology playbook’ can help tax leaders secure adequate technology funding from their colleagues in corporate finance and accounting.

Strong relationships with at least three internal groups will also be crucial for tax leaders to manage and continually improve. These groups include internal audit (IA), IT and accounting departments. IA departments can help make a compelling and impartial business case for investments in more advanced tax data management technology. As the IA department’s reports go to the audit committee, its recommendations are generally acted upon, especially when a recommendation reduces the risk of a material weakness or points out a significant deficiency.

Tools in place
Tax executives should recognise that leading IT functions now expect internal customers to access the information they need to conduct their own analyses from the organisational data supply. This approach requires more areas of the business to take greater control of their technology tools. For tax functions, this means possessing the systems and technology expertise necessary to access, stage and analyse tax data, both current and historic.

This shift notwithstanding, IT leaders and their teams remain crucial tax function collaborators. IT’s guidance helps ensure that tax technology investments adhere to the company’s IT strategy and the finance function’s IT plan. The IT department is also able to advise on specific technology selection, purchase, implementation, integration and maintenance, as well as vendor management policies and protocols. Effective tax-IT partnerships also help safeguard against cybersecurity lapses.

While a strong relationship between tax functions and finance departments has always been important, it has grown more crucial as both functions undergo significant changes. These transformations and the supporting technology changes they trigger must be aligned, as effective tax management heavily depends on access to data that resides in billing applications, ERP systems and other finance, budgeting and planning technologies. Leading tax functions currently participate in ERP implementations, upgrades and standardisation initiatives. To achieve full integration, tax leaders of the future will call on their close relationships with finance and accounting executives to ensure that tax technology requests feature prominently in budget decision-making.

As global tax leaders strive to advance major changes within their domains, they should keep in mind that the expectations bearing down on their functions will continue to escalate. For instance, tax professionals can expect to take on a more active role in strategy-setting and scenario-planning activities. These growing expectations and expanding workloads make a shared vision for a future tax function even more critical to the success of businesses around the world.

MASLOC continues to make a compelling case for MFIs in Ghana

Posted on by Max Tomlin

Ghana is one of the most abundant nations in the world in terms of natural and human resources. The country’s varied landscape consists of four main segments: forest, semi-forest, savannah and semi-savannah. Moreover, five out of its 10 regions have a coastal belt. Each of these segments and regions offers a wide range of natural resources, including different types of fruits, precious minerals and wood. They also boast salt, oil, gold, diamond, manganese, bauxite, iron, granites and marble, as well as cash crops such as cocoa, coffee and cotton.

The SME industry in Ghana is underperforming due to the difficulty in both accessing funds and leveraging integrated IT

With a population of just under 30 million, the country is home to great engineering talent, together with numerous medical and academic doctors, agriculturalists, artisans, financial managers and economists. And yet, despite its vast resources and highly skilled labour pool, Ghana continues to underperform. Thanks to a huge trade deficit, the depreciation of its currency persists, while its unemployment rate has also increased in recent years.

The equity gap
Our market is the defensive type. At present, there is a huge equity gap between micro, small and medium-sized enterprises (SMEs) – which form around 85 percent of the market – and large companies. It is clear, therefore, that after the industrialisation of the market, one of the best strategic policy options we have at this point is to make use of microfinance institutions (MFIs) – organisations that offer financial services to low-income populations. Indeed, the SME industry in Ghana is woefully underperforming due to the difficulty in both accessing funds and leveraging integrated IT to improve operations. Furthermore, most SME actors lack the requisite abilities or skills, as there is no formal training offered by most governments in Africa, including Ghana. The MFIs that do exist in the country often become bankrupt and collapse, thereby making it difficult for market players to access the support they need to succeed.

320

Approximate number of licensed MFIs in Ghana

90%

Percentage of Ghanaian population served by SMEs

Aside from the difficulty in accessing funds, a lack of automated systems, inconsistent power supply and the high cost of funds also add to the challenge; default rates, meanwhile, remain high. Sadly, the industry does not get the necessary attention it deserves from local authorities. This has created a huge gap between local markets and macroeconomic performance, resulting in a low standard of living across the country. Low-income earners are the group in need of most assistance, but unfortunately, they form the majority. Agriculture is the backbone of our economy and, unsurprisingly, its players are low-income earners.

Agricultural support
The banks in Ghana rarely lend to farmers or other agricultural actors. Many of the country’s MFIs only support those farming vegetables, and so offer few enterprises long-term loans. Instead of boosting our economy, this results in a great deal of our SMEs underachieving. The result is that economic growth currently only benefits the few, instead of the many. In fact, this is one of the most cited reasons why African countries do not attain long-term economic growth and stability.

When managing its discretionary budget, the government rarely considers MFIs. As such, according to the Bank of Ghana, the number of licensed MFIs in Ghana is only around 320. However, SMEs in Ghana serve approximately 90 percent of the population, demonstrating that the number of MFIs is woefully inadequate given the market size. This has contributed enormously to a low standard of living, a situation believed to be prevalent in most of Africa’s developing economies. However, the expansion of MFIs in all developing countries is essential.

At present, the most challenging factor is that women and young people, who are the chief actors in Ghana’s MFI industry, lack the necessary know-how and capacity-building skills. Consequently, the population’s value is extremely difficult to realise. A large number of our young people are not in business, although there are many potential entrepreneurs among them. The inadequate number of MFIs has also created an imbalance between supply and demand, thereby contributing to the high cost of borrowing for SMEs.

Africa’s MFI industry, together with reducing its reliance on leading economics, is a global concern. Africa, and Ghana in particular, must be able to organically develop a sustainable economy with very little support from other parts of the world, which can be achieved by identifying and maximising our core strengths. It is absolutely crucial for us to attain our ultimate goal of leveraging MFIs in order to develop the Ghanaian economy.

Union National Bank continues to be a beacon of stable growth in the UAE

Posted on by Max Tomlin

In recent years, the geopolitical situation in the Middle East and North Africa (MENA) region has slowed economic growth – a scenario that was exacerbated further by cuts in oil production. Thankfully, we are now seeing a turnaround: in 2018, domestic reforms and rising external demand prompted a long-awaited boost to business and consumer confidence. In turn, economic expansion is now being witnessed among some of the region’s oil importers. According to the World Bank, growth in the MENA region is forecast to have accelerated to 3.1 percent in 2018 and will increase further to 3.3 percent in 2019.

In 2018, domestic reforms and rising external demand prompted a long-awaited boost to business and consumer confidence

Against this backdrop, Gulf economies are expected to take the lead in terms of growth in the region, thanks to an easing in fiscal adjustments, greater infrastructure investment and ongoing reforms to promote non-oil activities. In light of these upcoming developments, World Finance spoke with Mohammad Nasr Abdeen, Group CEO of Union National Bank (UNB), about the UAE economy and the financial sector’s role within it.

How is the UAE’s economy faring amid regional pressures?
It’s relatively diversified, with a steady increase in the contribution of the non-oil segment in recent years. Driven by both oil and non-oil sectors, the UAE economy is expected to grow substantially at 4.2 percent in 2019, while the fiscal deficit will shift to surplus due to higher revenue from both oil and taxation.

Hosting Expo 2020 will further drive the economic activity, as the event will attract a large number of visitors, thereby boosting private consumption and services. Construction will gradually strengthen too, in response to private and public demand growth, as well as increased export-related investments.

Despite rising operating costs for businesses after the introduction of VAT, the UAE will continue to benefit from its ‘safe haven’ status. Off the back of these factors, real GDP growth is expected to average 3.5 percent over the 2018 to 2019
financial year.

How strong is the competition within the UAE’s financial sector?
There is increasingly intense competition among the 49 banks serving the population of nine million. Lower oil prices have resulted in slowing economic and credit growth, thereby reducing lending opportunities. Credit penetration is quite high and the macroeconomic outlook is challenging, resulting in lower margins. The room for meaningful growth for such a large number of banks is therefore limited.

Consolidation of the banking system will diminish the competitive pressure for funding and increase banks’ revenue base, realising synergies through economies of scale and a lower concentration of risk within loan portfolios. It will also increase banks’ competitiveness, reduce pressure on their funding costs and increase their ability to meet sizeable investments. Furthermore, the experience of bank mergers in the UAE has proved that well-executed deals can have desired results.

What other challenges remain in the sector?
Factors such as the implementation of VAT at the beginning of 2018 have, to a certain extent, impacted domestic consumer spending, while the recent strengthening of the US dollar is reducing the external competitiveness of the UAE’s economy, especially in its tourism sector. In addition, tightening monetary policy, higher fuel prices and rising interest rates are impacting activities across all sectors. Fortunately, these challenges are not impacting the UAE’s financial stability: the country is thought to have generated AED 12bn ($3.2bn) in VAT revenue during 2018 and is expected to generate a further AED 20bn ($5.4bn) in 2019.

What’s in store for the coming years?
In September last year, the Abu Dhabi Government announced an economic package of AED 50bn ($13.6bn) to stimulate the tourism sector and create new jobs in a bid to boost growth in the area. The Dubai Government also announced its own set of economic initiatives that include attracting more foreign investment and plans to increase the number of visitors to the emirate. Moreover, the Expo 2020 event in Dubai will drive GDP growth between 2020 and 2021 by boosting job creation, consumption and tourist numbers.

Recovery of the real estate sector is expected in 2019, helped by decisions such as mandatory unified leasing contracts and the classification of all non-freehold plots to improve transparency across the sector. Moreover, the move to grant 10-year residency visas for professionals, investors, scientists and meritorious students, in addition to a new law allowing 100 percent foreign ownership of companies, is expected to have a positive impact on the property market and the economy in general.

What role do employee engagement and wellbeing initiatives play in the sector?
Employee wellness is of paramount importance in propagating a culture of engagement across an organisation. An organisation’s workforce is its most important stakeholder and prized asset. In addition to providing the basics, such as training, development, performance objectives and rewards, employee wellbeing is crucial to an organisation’s success. Healthy employees are more productive and engaged, therefore a focus on quality of life, work-life balance, physical and mental health, and social, financial and spiritual wellbeing leads to a highly committed workforce.

Can you tell us about UNB’s employee engagement and wellbeing initiatives?
Over the years, UNB has consistently met its goals and objectives with regards to employees, customers and shareholders. However, in today’s dynamic and competitive business environment, it has become imperative for UNB to take a transformational approach to ensure its continued success in the years to come.

With the launch of its award-winning HR transformation strategy, Tahfeez, UNB has developed a value proposition with a host of employee engagement and wellbeing initiatives. Some examples are the Steps of Giving initiative, the New Me wellness campaign and monthly employee wellbeing events. These initiatives have been well received and have inculcated a sense of belonging and encouragement among UNB’s workforce.

Why are such initiatives important for the health of the economy more generally?
With a focus on creating happiness and wellbeing across the general population and workforce, the UAE Government has created the Minister of State for Happiness and Wellbeing cabinet position, and has launched the National Programme for Happiness and Positivity. In line with the lead taken by the government, public and private sector organisations have rolled out various initiatives that help drive sustainable productivity and profitability.

What impact has AI and digitalisation had on the banking sector?
The banking landscape is changing at a rapid pace. The fintech revolution is transforming the way customers engage with their money and financial services providers. From social and mobile capabilities to the storage and analysis of customer data, banks are now compelled to rethink the way they do business in order to deliver a better customer experience.

Customers now want a user experience that is specific to their needs. A bank’s success in the digital economy therefore lies in the data it accumulates and processes about its customers. The future is real-time and data-driven. By extracting meaningful insights, banks can create customer segmentation and deliver innovative products in a way that appeals to each individual customer.

What opportunities do they present?
Along with the IT industry, the banking industry has been among the biggest job creators over the past two decades. We are now at a point where technology is more efficient than humans, which is why AI is playing an increasingly important role in automating processes within banks. For instance, AI-powered bots are replacing manual processes, performing the same tasks in a fraction of the time and with 100 percent accuracy.

Traditional teller functions, Know Your Customer details and updates, account services, and salary processing are all going digital. The need for face-to-face interaction is therefore decreasing, but there is an opportunity in reskilling employees towards customer relationship management (CRM). We are also presented with new opportunities in terms of business models that are mobile-first and AI-driven. Due to the meaningful and actionable data available, there is a paradigm shift in lending models, whether it be instant loan approvals or peer-to-peer lending.

How have these technological developments impacted UNB?
Besides adopting emerging technologies, UNB regularly tests new services within the bank. The sales process has now turned digital with the implementation of a mobile-enabled CRM system. AI is being used in predictive analyses of customer transactions, account data and social data in order to make real-time, context-specific offers.

Similarly, some processes have been enhanced with robotic process automation. There’s smart recruitment through robotic interviews, the digitalisation of the onboarding process, welcoming clients at the Customer Care Unit through UNB Robo, chatbot for HR policies, and process automation for information technology and operations services.

Do you have any exciting plans involving these technologies that you can tell us about?
The UAE Government has created a Ministry of Artificial Intelligence to invest in the latest technologies and apply them in various sectors. Taking a cue, UNB has established a dedicated Digital Banking and Innovation team that is working with fintech accelerators in the region to identify emerging technologies and opportunities.

The bank is also working closely with government entities in the areas of blockchain, digital wallets and smart governance. Some of the projects on the anvil include voice biometrics, as well as an omnichannel banking platform that will incorporate retail and corporate banking services over web, mobile, digital branches, ATMs and kiosks. Services will include customer onboarding, instant lending and remittances, and the UNB Mobile Wallet for students. With all this in mind, the future certainly looks bright for the bank and the wider region.

Hungarian Post Life Insurance is harnessing digital value to grow its client base

Posted on by Max Tomlin

Over the past five years, Hungary’s insurance market has achieved almost five percent growth in gross written premiums, on average. This year, the sector is on track to achieve gross written premiums of over HUF 1trn ($3.48bn) for the first time in its history.

Digitalisation is not an end in itself, but it offers the means to provide greater value through higher-quality processes

Anett Pandurics, CEO of Hungarian Post Life Insurance, one of Hungary’s top insurance companies, told World Finance that despite this impressive growth, there is no reason for anyone to rest on their laurels. The market still has plenty of potential for further expansion.

Hungarian Post Life Insurance has always been at the forefront of the digitalisation of Hungary’s insurance industry. Since 2003, the company has aimed to meet clients’ demands by making its services quicker and more efficient. World Finance spoke to Pandurics about the challenges in Hungary’s insurance market and the opportunities the company has found.

What areas could insurance companies in Hungary expand upon?
The Hungarian National Bank’s 10-year strategic plan, which was created in 2017, predicts there will be more than one million new self-care savers in the years to 2027, including those who have pension insurance policies or voluntary pension fund memberships. We expect that more than 300,000 people will have pension insurance policies by the end of this year. There is, therefore, plenty of room for expansion in this regard.

Additionally, in response to recent economic development, households and companies that are already strengthening could and should increase their property damage coverage.

The opinions of experts in the central bank may seem optimistic. According to the bank, there is an opportunity to triple life insurance gross written premiums and double non-life gross written premiums during the 10-year period. If the growth seen in 2018 continues, this goal could be achieved. However, there are also a number of downside risks to consider and many tasks to be done in order to achieve this goal.

Could you elaborate on the current challenges in the market?
Although interest rate increases have already started in the US, Europe is still waiting for this to occur. According to forecasts for Hungary, we must prepare for an extremely low interest rate environment in the medium term.

We should also not forget that as a result of activity over the past decade, the volume of delayed investment on the retail side is fairly significant. People are consuming, restoring or buying new properties, and at such a time it is difficult to attract a large number of new long-term, self-care savers.

With regard to single premium insurance policies, the Hungarian National Bank expects that gross written premiums will expand by only HUF 2bn ($7.1m) this year. And even in the case of regular premium life insurance policies, the Hungarian National Bank estimates growth of only 2.1 percent.
Today, the aforementioned pension insurance is the main driver of the life insurance branch. This is where the 20 percent tax advantage, from which more than 200,000 clients benefitted last year, has a major role.

At the same time – according to a presentation given by Dr. Csaba Kandrács, Executive Director of Financial Institutions Supervision at the Hungarian National Bank, during the 2018 Portfolio Conference: while 85 percent of the respondents agree with self-care, 76 percent of them think money should be spent on something other than pension savings. In the survey, one insurance company questioned people aged 30 or over, out of whom every fifth person said they were too young to consider this issue.

What internal issues are making development more difficult?
Progression relies upon resources. These resources must comply with the new provisions set out by the legal regulatory environment. Before the financial crisis, there were 75 sets of rules regulating insurance companies – today there are 148.

It is telling that in Hungary, the total expense ratio calculation – which was implemented five years ago as a result of the self-organisation of the insurance companies – now runs parallel to the information provided in the key information document. Though the two statements stem from a common source in many aspects, they are not identical. This often causes problems in sales.

New ‘insuretech’ companies bring another element to the challenge. These firms only have to comply with a fraction of the requirements applicable to supervised institutions.

In many cases, digital enterprises like insuretech firms operate in areas where, under the banner of increasing access and improving client experience, they only have to comply with part of the requirements applicable in the classic regulated market. I feel that it is important to level the playing field to all insurance distributors.

What opportunities are created by digitalisation?
The insurance sector in Hungary has been at the forefront of digitalisation. The comparison of insurance premiums through online brokers has become an established practice in third-party liability motor insurance.
Insurance companies are also unique in that they have already been providing a significant discount to those clients who choose an electronic payment method or electronic administration.

Furthermore, digitalisation is also continuous in the acceleration of internal processes. For instance, 100 percent of Hungarian insurance companies keep online claim files. Moreover, even the claims assessment process itself is digitalised at most companies, or the claims inspection is carried out based on the photos taken or video conferences arranged by the client.

These initiatives make our clients’ lives faster and easier. There are also ongoing initiatives at competing firms that provide automotive or accident insurance cover for periods of hours, which may be started whenever necessary. Whether there is an actual demand for such solutions and which innovations will become economically viable are the big questions to consider.

How did Post Insurance begin its digital journey?
We have come a long way since Post Insurance began operating in 2003, when insurance policies were sold only by way of filling out paper-based forms. During the past 15 years, we have had numerous digital development projects aimed at providing better services to our customers, while simplifying our internal processes and facilitating the work of our sales personnel.

For instance, in 2003, a direct digital data connection was developed with the central registry of the Ministry of Internal Affairs in order to process the policies in an accurate and timely manner. Then, in 2005, we launched an electronic support system of insurance mediation at the country’s post offices. Continuous development of this system made it possible for all insurance administration to be carried out electronically at more than 2,300 Hungarian post offices. During the same year, we introduced a document management and file tracking system to support our internal processes. We have been selling insurance policies through our website since 2006.

We launched our e-learning system in 2009, which facilitates the training of our staff at post offices and digitalised our claims-handling processes. This year, we plan to fundamentally renew the system in order to utilise the most recent innovations in this field.

What other digital solutions have you introduced?
In 2011, we entered the social media scene and set up Facebook pages, through which we have been successfully communicating with our clients ever since. Thanks to this early start, we are ranked in first place among Hungarian insurance companies in terms of the number of followers.

We introduced a motor vehicle insurance product based on telematics in 2014, and in 2015 we created the Post Insurance mobile application. Many useful functions have been added to our app since then. For instance, we have added the feature of household insurance claims reporting with photos, and we were one of the first companies on the Hungarian market to make video claims assessments available.

In 2017, our new digital brand Hello was introduced. Through this, we offer our younger clients insurance policies that can be taken out in an easy and simple way. In the case of Hello, contracting and claims-handling processes are fully digitalised, and customer relations take place through online channels as well. In 2018, we continued to implement our digital innovations in order to ensure that a higher-quality, faster service that could become part of our clients’ everyday lives is provided.

Digitalisation is not an end in itself, but it offers the means to provide greater customer value through more efficient and higher-quality processes, alongside a continually improving customer experience.

In order to meet the demands of our customers, we constantly have to work on improving each and every element of the insurance value chain. Agility, for us, means that we have to learn continuously and strive to be faster and more customer-orientated than ever before.

Lombard International Assurance is adapting with the Millennial wealth evolution

Posted on by Max Tomlin

Some of the most high-profile global entrepreneurs we know today enjoyed success very early on in their careers: Sir Richard Branson became a millionaire at the age of 23; Carlos Slim, the telecoms tycoon, became a self-made millionaire at 25; and Facebook founder Mark Zuckerberg made his first million at the tender age of 22. Today, the net worth of these individuals runs into billions of dollars.

In an age of constant innovation and global connectivity, it is no surprise that Millennials also want advisors who are digitally literate

The world we live in is evolving, and so is the face of today’s high-net-worth (HNW) and ultra-high-net-worth (UHNW) individuals. The rapid rise of technology and digital innovation means we are seeing more and more entrepreneurs achieving HNW status at a younger age. According to the Wealth-X report UHNW Millennial Archetype, the number of ultra-wealthy individuals born between 1980 and 1995 currently accounts for 3.2 percent of the global ultra-wealthy population. Although a seemingly small percentage, this group is growing, and growing fast.

This group of individuals – Millennials – are amassing wealth much earlier than previous generations. They are also much more interested in understanding how to use it, while also being more inclined to contemplate the legacy their wealth will create for future generations.

Willing investors
HNW Millennials are eager to become more financially literate and be proactive in understanding where their money is going, in order to take a more hands-on approach to their investments. Almost half consider themselves ‘self-directed investors’, according to Spectrem Group. This means they want advisors who will take the time to educate them about their investment options, as well as wanting access to insights that are specific to their needs and portfolio so that they can make their own decisions.

In an age of constant digital change, innovation and global connectivity, it is no surprise that Millennials also want advisors who are digitally literate. They want easy, digital access to their portfolio information at any time, saving face-to-face meetings with their advisors for major milestones. Accenture’s Millennials and Money report uncovered that 62 percent of Millennial investors want platforms that actively use social media to share financial trends and recommendations.

However, Millennials still expect an on-demand, personal service from their trusted financial advisors. Over half of those with a net worth of more than $1m cited failure to return a phone call and respond to emails in a timely manner as the primary reason why they would change financial advisors, according to Spectrem Group’s research. This reason was closely followed by a lack of proactivity with new investment ideas, solutions and advice.

Today’s wealth planners must recognise that many Millennials expect sophisticated and intuitive technology tools as a basic service requirement, rather than a ‘nice to have’ option. However, they still also expect high levels of responsiveness and a tailored service.
This generation demands options when it comes to how and where their wealth is invested. They enjoy a wider choice of investment options than their parents and grandparents, and are also far more conscious of the broader societal and environmental impact that their investments will have. Of the Millennials surveyed in EY’s 2017 report Sustainable investing: the Millennial investor, 17 percent said they actively seek to invest in companies that use high-quality environmental, social and governance standards, compared with only nine percent of non-Millennial investors. Another 15 percent said they were interested in investing in companies and purchasing products from sustainable brands.

Broader horizons
Having earned their wealth at such a young age, their investment horizons are considerably longer than their older HNW peers, so this generation is also more likely to look at higher-risk speculative investments. Accenture’s aforementioned report showed that they are also more inclined to invest in commodity options, while a third are interested in investing in non-traditional assets, such as hedge funds and private equity companies.

Optionality requires a high degree of flexibility from a wealth planner. Such flexibility is also essential when catering for international individuals. Many HNW individuals of this age group consider themselves ‘global citizens’, having potentially grown up in one country but been educated in another, with business interests and assets now spanning a number of countries. The flexibility of this global citizenship brings added complexity to wealth planning, and so requires portable solutions across multiple jurisdictions.

Providing the optionality required to meet the demands of this new age of investors may prove challenging for some wealth planners. However, it will create opportunities for those who have the expertise and flexibility to tailor their offering to suit this new generation of HNW investors and entrepreneurs.

By 2020, the total net worth of affluent Millennials is expected to double and reach between $19trn and $24trn, so it is crucial for industry players to find a way to engage with this important target audience in order to stay competitive. In the context of greater demand for digital solutions, personalised interaction and a greater desire for investment optionality, there is a clear need for wealth planners to innovate and tailor their solutions to appeal to the new face of private wealth.

Original Group is offering unique experiences to its burgeoning customer base

Posted on by Max Tomlin

To effectively market an adults-only resort, the most obvious tactic is to focus your message on escapism. But while a sensual escape can certainly turn heads, it is not enough to build a sustainable brand.

Increasingly, travellers are seeking experiential and transformative holidays that go beyond the traditional all-inclusive model. To achieve long-term annual growth, Original Group, the leading expert in adult hospitality in Mexico, has found success by casting its net wider than conventional adults-only vacations.

Travellers are seeking experiential and transformative holidays that go beyond the traditional all-inclusive model

We don’t market nudity; we promote an encounter with one’s body at our clothing-optional Desire properties, and a lively, entertainment-driven experience with our Temptation brand. Our target audiences come from all walks of life, and our concept appeals to the curious, free-spirited and sophisticated traveller.

Desire resorts pride themselves on offering experiential getaways that go beyond typical adult entertainment by providing unique programming. The resort’s carefree, all-inclusive atmosphere presents the perfect setting in which our guests can go on a sensual adventure with themselves and their significant other.

To appeal to this desire for erotic adventure, the brand offers a singular experience presented with tasteful décor, daring programming and a voice and tone that encourages guests to be comfortable in their own skin. Our strategic messaging is always fearless, frisky and non-apologetic. We communicate openly and directly, but always respectfully. The objective is to create the perfect conditions for travellers to express their inner curiosity and let loose.

Finding the niche
At Original Group, our marketing strategy does not differ much from any other segmented business. Launching a niche product is an easier way for a business to get off the ground. Rather than trying to elbow your way into a crowded mass market where the competition can be fierce, niche offerings allow a brand to identify and reach targeted customers. For instance, our business has had great success as a sex-positive company.

Conversely, the challenge with a niche offering is that if it does not develop mass appeal, it can soon reach a limit to its growth. Some specialists will expand to new markets after outgrowing their initial audience, or will launch another niche product to sustain revenue growth.
We decided to widen Original Group’s appeal with the introduction of the Temptation brand, which includes options on land and at sea with the Temptation Cancun resort and Temptation cruises. With this dual offering, we aim to reach out to adults looking for lively entertainment with our ‘playground for adults’. In the context of an adults-only, topless-optional experience, Temptation offers international DJs, adventurous activities and sensational shows.

Customer first
While marketing is important for any unique business, this must be done carefully and strategically in order to protect the brand. A clever message may lure people to a resort, but a bad experience will certainly stop them from ever coming back. A resort’s marketing must be
accompanied by excellent customer service, quality entertainment and aesthetic appeal.

This is why Temptation underwent a multimillion-dollar renovation that enhanced the brand and offering, making it the perfect topless-optional getaway for the chic, confident world traveller. Our Temptation clients seek an all-inclusive experience that offers vibrant, fun parties and performances, while also providing a space in which to mix and mingle with new couples and single friends.

This focus on superb service is key for generating a strong following that really drives growth. By building a base of loyal customers who come back time and time again, Original Group is ensuring its future success.

Without a clear focus on providing high-quality customer service, it is all too easy for long waits, inattentive staff or shoddy service to drive away business, no matter how good the marketing or product may be.

People look at brands like Original Group for a specific experience, whether it is the ambience, customer service, style or feeling it evokes. And that is why we are careful to make sure all of the experiences we offer at our resorts meet the highest of standards. Over our 35 years of experience, we have learned to place a strong emphasis on customer service, regardless of the property.

Ultimately, across all industries, the tried-and-tested recipe for success includes a strong focus on customer service, a unique experience and a premier product.

Driving a digital revolution in the Dominican Republic

Posted on by Max Tomlin

For the past two and a half years, the Dominican Republic, which is situated next to Haiti on the island of Hispaniola, has boasted one of the strongest growing economies in Latin America and the Caribbean. According to data from the World Bank, the nation – one of the largest and most diverse in the region – has grown at an average annual rate of 5.3 percent over the past 25 years (see Fig 1). This strong economic base has allowed the Dominican Republic to achieve a favourable investment climate, as well as social and institutional stability. Together, these factors have helped spur transformative economic growth.

Digitalisation offers banks numerous opportunities to increase financial inclusion by providing customers with better access to financial services

Much of this growth is a result of the country’s financial system, proceeds from which drive resources to different productive sectors like tourism, agriculture, duty-free zones, energy and transportation. The Dominican Republic’s banking sector is one of the largest contributors to the country’s GDP development: the industry fosters the production and export of products and services through traditional financing and capital market structures.

But traditional banking is transforming. Around the world, digitalisation is shaking up the business landscape for lenders, and the Dominican Republic is no exception. World Finance spoke to Arturo Grullón Finet, Executive Vice President of Personal Businesses and Branches at Banco Popular Dominicano, about how the firm is leading a digital revolution in the Dominican Republic.

Inclusive banking
Banco Popular Dominicano was founded in the 1960s as an alternative to the large international banks that had settled in the Dominican Republic. Its mission was to democratise banking services in the country and support its social services to improve living conditions and benefit the wider population.

Digitalisation offers banks numerous opportunities to increase financial inclusion by providing customers with better access to financial services. Digital innovations can facilitate broader financial education in the community and help provide formal credit to a greater number of people. This, in turn, can have a large impact on the economy and the productive development of the country.

But the journey towards digitalisation is not without its difficulties. As Finet explained: “Banking challenges arise because we are always trying to improve our culture and technological infrastructure in order to offer innovative products, channels and services. These are increasingly better adapted and focused on our customers’ needs, making their lives easier and helping them to reach their goals.”

Banco Popular Dominicano strives to be an efficient financial service provider, but over the coming years it has plans to become much more than that. It is increasingly clear that next-generation banks must be able to reinvent themselves, placing greater importance on flexibility and digital banking. Finet said Banco Popular Dominicano will continue to respond to that challenge over the next couple of years: “Throughout 2018, we continued to distinguish ourselves from other entities of the national financial system with initiatives that add value to our different customer segments, based on a strong digital transformation model.

“In 2019, we will dive into richer online and remote service models in order to continue offering the most relevant financial solutions available in the market. We will also continue to foster the country’s different economic sectors.”

Leading the charge
Grupo Popular, the parent company of Banco Popular Dominicano, has been the main support for business growth throughout 2018. Grupo Popular heads capital market operations worth over $100m, attracting foreign investment and providing access to funds in support of local
productive sectors.

In this regard, Banco Popular Dominicano, as the Dominican Republic’s most prominent private capital banking entity, has long been considered a catalyst for social and economic progress in the community. Banco Popular Dominicano plans to continue the progress it is making by leading the digitalisation of the banking sector in the country. Currently, more than 77.5 percent of all financial transactions carried out by Banco Popular Dominicano’s customers are performed electronically. “This figure reflects Banco Popular’s leadership regarding the financial services’ digital transformation strategy throughout the Dominican Republic,” Finet said.

Banco Popular Dominicano in numbers

77.5%

of customers’ transactions are made electronically

556,000

registered customers on tPago

642,000

followers on social media

Through its mobile app, Banco Popular Dominicano offers customers reliable and convenient access to their financial solutions. The app meets the majority of users’ day-to-day needs and, together with the capabilities provided by the bank’s online banking model, makes banking faster and more convenient for customers. Because they do not need to visit Banco Popular Dominicano’s offices or connect to a computer to carry out a transaction, customers can save a lot of time and resources. “Our mobile application has over 450,000 registered customers. It is the most downloaded app for the Dominican financial system, and it has grown exponentially over the past year,” Finet told World Finance.

Banco Popular Dominicano also provides mobile solutions via tPago, a mobile payment solutions provider created by Dominican financial services firm GCS International. On this platform, the bank has more than 556,000 registered customers. Social media is another important tool in attracting digitally focused customers. Banco Popular Dominicano continues to lead the conversation throughout the financial sector’s digital communities, with more than 642,000 followers in total.

Through social media, the bank can develop more direct and convenient ways to communicate with its customers and the public. “We have added other means of communication so our customers can directly contact us through social media,” Finet said. “This includes our online chat, which is integrated in our institution’s web portal, through which we address concerns, complaints and suggestions in a quick and easy manner.”

Lasting change
Banco Popular Dominicano has laid out three key pillars for achieving its transformative vision. First, innovation will help the company introduce new digital solutions, products and service models that meet customers’ needs.

“Innovation is a core value of our financial institution,” Finet said. This focus led the company to launch its first digital centre in September 2018, where customers can make use of interactive tablets and phones. Those who are less experienced with digital tools can be trained to manage their finances through digital channels. “This is something that is completely new to the country,” Finet added. “The centre is part of our service network and is in line with international banking trends, thrusting customers towards digital breakthroughs and fostering self-service.”

Banco Popular Dominicano’s digital centre has focused on users’ new habits and the manner in which they understand and interact with banking services. The platform will also be used to launch the bank’s innovative products and services in the future. The digital centre includes a space where customers can attend educational talks on innovation, digital culture, personal finance, industry trends and more. Additionally, it features a coworking area designed to facilitate business meetings among the bank’s SME customers, entrepreneurs and their customers or partners.

“We believe that a greater acceleration of the digital banking model will occur, increasing our customers’ satisfaction, transforming our services and products, and helping us to achieve higher efficiency levels,” Finet said. This focus on technology plays into Banco Popular Dominicano’s two other key pillars for the years ahead.

The second pillar will see the firm continuing to ensure that technological and operational excellence is upheld throughout the development and maintenance of new services. This, Finet said, will instil the bank’s customers with a sense of trust, as well as boosting efficiency and speed. Finally, the bank will continue to strengthen risk management and develop the skills of its employees. “Our staff allow us to have the expertise to achieve the profitable growth we seek and keep us the best company to work for in the country,” Finet told World Finance.

Banco Popular Dominicano has been a catalyst for social and economic progress in the Dominican Republic for more than 54 years. In this respect, it has continued to differentiate itself from other financial institutions with initiatives that add value to the different customers it serves, fostering business growth, innovation and financial inclusion to transform the lives of many Dominicans.

Finet concluded: “In the years to come, Banco Popular Dominicano will continue to support the dreams and aspirations of thousands of Dominicans as it pursues a transformative digital strategy that contributes to the growth of productive and commercial sectors within the country.”

Bac Credomatic is facilitating digitalisation in Central America

Posted on by Max Tomlin

After many turbulent decades of civil conflict, social unrest and political upheaval, Central American countries are now in a period of significant transformation. Since the turn of the millennium, these nations – Costa Rica, El Salvador, Honduras, Nicaragua, Panama and Guatemala – have made great strides in quelling violent conflicts to usher in an era of improved social and political stability. This increased constancy has had a largely positive impact on the economies of Central America, with most nations enjoying consistent economic growth in recent years. Indeed, prior to the 2008 global financial crisis, Central American GDP per capita grew at an average rate of three percent annually, marking a strong and stable period of growth for the region. While the financial crash initially had an adverse effect on these emerging economies, Central America is once more experiencing steady growth, bolstered by flourishing free trade agreements and practical regulatory changes.

The demand for secure online payment options places greater pressure on financial institutions to keep up with rapidly evolving customer expectations

Alongside this remarkable social and economic transformation, the region is also currently undergoing a significant digital revolution. Internet and smartphone usage has exploded throughout Central America, with households across the region coming online at an impressive rate. Thanks to lower internet costs and a boom in mobile internet connectivity, internet penetration rates have almost doubled since 2010, with dramatic spikes seen in countries with previously limited connectivity, such as Nicaragua, El Salvador and Guatemala.

As the number of Central American internet users continues to grow by the day, the region is beginning to open itself up to a wealth of exciting e-commerce opportunities. Online sales are booming, with customers increasingly opting to make purchases from their mobile devices. However, despite its considerable growth across the region, e-commerce faces many challenges in Central America, ranging from online security issues to substantial regulatory hurdles. The demand for secure online payment options also places greater pressure on financial institutions to modernise their systems and keep up with rapidly evolving customer expectations. World Finance spoke with Juan Carlos Páez, COO of BAC Credomatic, about the challenges and opportunities of Central America’s digital transformation.

How has the e-commerce space evolved in Central America in recent years?
Over the course of the past decade, e-commerce has grown exponentially in Central America. There are many exciting opportunities for this new market to develop and evolve, and online sales continue to boast double-digit growth throughout the region. Considering the recent spike in both internet penetration rates and mobile phone usage, we can fully expect the e-commerce sector to increase in value over the coming years, as more customers are persuaded of the benefits of e-payments and online shopping.

70%

of BAC-Credomatic-owned point-of-sale systems are contactless-ready

80%

of BAC Credomatic’s card base is now contactless

Central America is made up of six small, open economies, each of which depends on imports for most of their consumer goods. As such, e-commerce has proved particularly appealing to customers, as it enables them to purchase goods that might otherwise be unavailable to them, or only available in limited quantities at their local department stores. Often, large retailers are simply unable to stock certain items due to limited customer demand, but these goods can be easily obtained online by those who want to purchase them. What’s more, online retailers also offer customers competitive prices, large product inventories and the convenience of shopping from the comfort of their own home. This is proving increasingly enticing for many time-strapped Central Americans.

In which areas in particular have you seen the most change?
In recent years, the app economy has begun to drive significant changes in the e-commerce market. Popular apps, such as Uber and Uber Eats, have made major inroads in the region, quickly becoming a part of everyday life for many smartphone users. Costa Rica – which boasts an impressive internet penetration rate of 86 percent – now has the highest percentage of Uber users in Latin America, gaining almost 800,000 users in just three short years. In-app purchases, such as Uber rides, have spurred e-commerce transactions across the region, substantially increasing the number of ‘card not present’ payments processed in Central America. Furthermore, a number of innovative payment options are beginning to flood the market, as financial institutions look to make card transactions more convenient and time-efficient for their customers. At BAC Credomatic, we have recently introduced the innovative payment solution MiPOS, which is a small, Bluetooth-enabled device that turns any smartphone into a card-processing device. Innovations such as these will help to make card transactions and e-payments more practical and secure for customers throughout the region.

It is also important to recognise that the very definition of e-commerce itself is constantly changing. On the one hand, face-to-face card transactions have evolved from magstripe to contactless, improving security and transaction speed. This improvement in ‘card present’ transactions is rivalled by the convenience of face-to-face e-commerce transactions, which include those provided by Uber and Compass, BAC’s automated RFID payment device for car parks. As these new e-payment technologies become increasingly more mainstream, they are set to redefine the world of e-commerce as we know it.

Have you had to overcome any regulatory hurdles in order to compete in this space?
Regulations can certainly pose a challenge for financial institutions looking to modernise their services, as technology often moves faster than regulators are able to legislate. For instance, when a new customer wants to join a bank or open up a new account, they are required by Central American legislators to provide a physical signature.

This time-consuming step significantly slows down the customer onboarding and verification process, and could greatly benefit from the introduction of digital signatures.

Once customers have successfully opened their account, there are further regulatory challenges to overcome. In one of the countries we currently operate in, the law requires that we take a signature to compare with a customer ID for every transaction – even low-level, commonplace ones. This is proving to be a significant barrier to introducing contactless payments, as customers are still obliged to sign for every transaction that they make, thus prolonging the payment process. As we look to further digitalise our operations and modernise our payment methods, we will be working closely with regulators across Central America to find effective solutions to these issues, and to further explore the benefits of innovative digital payment methods.

What are some of the innovative services that BAC Credomatic offers?
As the first company to offer credit cards and a native mobile banking app in the Central American region, BAC Credomatic has long been at the forefront of financial innovation.

More recently, we have been quick to adopt and take advantage of emerging technologies. In just two years, 70 percent of our BAC-Credomatic-owned point-of-sale systems have been upgraded to contactless-ready, while 80 percent of our card base is now also contactless. In order to capitalise on the recent boom in contactless transactions across Central America, we have also made sure to enable contactless payments on our innovative mobile banking app. Set for launch in early 2019, our newly redesigned app will include a digital wallet feature, allowing our customers to effortlessly make e-payments and complete in-store transactions using their smartphone.

In 2016, we launched Viajes BAC Credomatic, an exclusive travel platform where customers can redeem loyalty points, earning rewards such as discounted flights, hotels and tourist packages. This innovative website not only taps into the recent e-commerce boom that is sweeping through Central America, but also helps to strengthen our relationship with our valued clients, as their loyalty to BAC Credomatic is recognised and rewarded with a range of exclusive offers. Our rewards website has received more than 1.3 million visits in the past year alone, enabling customers to make use of our membership rewards scheme to redeem points and receive exclusive discounted travel opportunities.

How does BAC Credomatic manage to continually innovate in the competitive world of digital financial services?
At BAC Credomatic, we are constantly gathering crucial information that allows us to make practical decisions about investing in new technologies. In this endeavour, we have developed a three-pronged strategy based on how we combine the use of internal and external resources. Within BAC Credomatic itself, we have a team of almost 300 highly skilled developers who are engaged with improving all aspects of the bank’s active digital platforms, from our mobile app to our social media presence. This dedicated team has already proved successful in growing BAC Credomatic’s digital competencies, and there are many more exciting developments in the works as we look to ramp up our modernisation efforts.

Externally speaking, meanwhile, we are working with a number of innovative fintech companies and other suppliers of cutting-edge technologies. At BAC Credomatic, all of our external partnerships are subject to careful consideration, and we are committed to seeking out the most talented and forward-thinking companies to collaborate with.

Finally, we have also created an ecosystem of non-bank companies to serve as our internal fintech. These companies benefit from independent stewardship and are given a level of flexibility in their operations, allowing them to prioritise innovation and forge ahead with their digital development projects. This seamless and efficient three-pronged strategy has established BAC Credomatic as a leader in financial innovation, facilitating mobile payments and e-commerce opportunities as Central America continues its digital transformation.