October 2023

October 21, 2023December 18, 2023 byJeet Vasa

The gateway to success: Why businesses shouldn’t underestimate the importance of payment gateways

It can be very easy for businesses to assume that payment gateways come as standard and that one will do the job as well as the next, but nothing could be further from the truth. It shouldn’t be underestimated how important this juncture in the customer’s journey is, with many getting all the way to this point and then abandoning their cart because the process isn’t intuitive enough or, in some cases, downright confusing.

By Bob Kaufman CEO of ConnexPay

In this article, I’ll explore specifically what payment gateways are and what businesses should be on the lookout for to ensure they are using the best one possible.

What are payment gateways?

Payment gateways are the virtual equivalent of a point-of-sale system, allowing customers to pay for goods and services online from anywhere in the world, using a variety of payment methods. When done right, the end product makes it straightforward and convenient for customers to purchase goods, helping a business to grow its sales figures.

The best payment gateways are flexible and user-friendly, offering a variety of payment methods. They should be easy to integrate with any website and offer strong security features to protect customers’ financial information. When choosing a payment gateway, it is important to consider a business’s specific needs. If a business sells physical goods, it will need a gateway that supports credit cards and debit cards. If it sells digital goods, it may also need a gateway that supports PayPal or other digital wallets. Regardless of whether you sell physical goods or electronic goods, you need to offer multiple payment options.

The experience should be intuitive for the customer

If a customer in a store needs to wait for an extended period of time because the cashier doesn’t know how the cash register works, there is every chance the store will lose that sale. The intuitiveness of payment gateways is just as important. The interface should be user-friendly and the process of accepting payments should be simple and straightforward.

Equally, the process needs to work smoothly internally. A business’s finance team needs to be able to navigate its payment gateway’s user portal without any hassle to access financial information and customer purchase data. Information on customers’ payment processing fees, chargebacks and transaction are all included in this. A merchant being able to access this data and make meaningful sense of it is dependent on the payment gateway being easy to use, with intuitive navigation.

Actionable reporting and analysis

In addition to a user-friendly experience, another important feature to look for in a payment gateway is comprehensive reporting and analytics capabilities. A good payment gateway will provide a business with a payment management dashboard that gives them easy access to payment data. This data can be used to generate reports and insights that can help a business improve sales and marketing efforts.

For example, a robust payment gateway can use reporting and analytics to track sales and purchases, identify trends, and see which products or services are most popular with customers. A business can also use this data to improve its customer service by identifying areas where it can enhance the checkout process or provide better support. By taking advantage of reporting and analytics, businesses can make better decisions and improve its bottom line.

Better safe than sorry

Security is an essential aspect of the payment process. Customers need to feel confident that their purchases are safe, and businesses need to protect themselves from fraud, theft, and cyberattacks. As security technology evolves, so do the methods of cybercriminals. Therefore, payment gateways must be modern, sophisticated, and compliant with industry standards. They must be able to mitigate risks, reduce fraud, and accept legitimate transactions while flagging risky ones.

An integrated solution

Traditional payment systems are often siloed, which means that merchants must use multiple systems to manage their payments. This can be inefficient and time-consuming, and it can also lead to issues with data accuracy. A payment gateway that integrates with other business software can help to solve these problems. By integrating its payment gateway with its accounting software, inventory management system, and CRM, a business can get a single view of all payments. This will save time, improve data accuracy, and make it easier to track financial performance.

Enhancing customer support

Success depends on a business making sales, and sales rely on customers making payments. For payments to be made as easily and conveniently as possible, a business’s payment gateway needs to be reliable and efficient. If any technical issues or other problems arise, they need to be resolved quickly so that payments can continue to be made to the business without delay.

Effective customer support is essential for ensuring that a payment gateway is always up and running. Businesses need to be able to get help when they need it, quickly and easily. Look for a payment gateway that offers superb customer support, with clear instructions on how to contact support staff.

Making the right choice

Choosing the right payment gateway is an important decision for any business. Each of these factors is as important as the last. By prioritising all of them and seeking out a solution that facilitates them, a business can achieve their online payment goals and grow their business.

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October 21, 2023December 18, 2023 byJeet Vasa

How Embedded Banking is transforming customer loyalty

The impact of loyalty programmes for brands looking to foster lasting relationships with their customers has been well-established for years. Research from Nielsen, for example, found that the vast majority (84%) of consumers are more inclined to remain faithful to brands with loyalty programmes. However, 79% of consumers are no longer interested in simply earning points for their loyalty.

By Kim Van Esbroeck, Country Head for Aion Bank Belgium & Chief Revenue Officer for Vodeno/Aion

Today, the loyalty ecosystem is shifting. In the age of eCommerce, competition for the customer is more fierce than ever, and brands are turning to embedded finance to differentiate themselves and drive engagement.

To find out more about changing loyalty preferences, Vodeno commissioned a survey of more than 3,000 European consumers in the UK, Belgium, and Germany to understand how embedded finance is innovating brands’ customer loyalty strategies.

How is embedded finance being integrated into loyalty programmes?

Embedded finance is a broad term that covers a wide variety of banking products – from payments to lending to savings. According to the Vodeno/Aion research, branded debit cards and digital wallets are popular embedded finance solutions, with 48% of respondents having used a branded debit card and 40% a branded credit card.

Today, early adopters are seeing how embedded finance can supercharge their existing loyalty schemes by providing customers with financial products that add convenience and tangible financial benefits. For instance, the Starbucks loyalty app, which enables customers to earn rewards and pre-order coffee with their smartphone, holds more than $1.2 billion in deposits as customers load cash onto their Starbucks Cards and app. In context, this is more than 85% of US banks have total assets, making embedded finance a clear route to profitability. Another powerful example of embedded finance in action is Target’s REDcard, which offers customers 5% cash back on purchases, contributing over $8.9 billion in volume annually and 12.1% of all Target sales.

How are consumers responding to embedded finance?

In today’s eCommerce landscape, consumers expect a frictionless customer journey, and financial solutions that make their lives genuinely easier – like flexible payment solutions and Buy Now, Pay Later (BNPL) – are key.

When it comes to their loyalty, just under half (46%) are more likely to use a brand’s loyalty card to make purchases if it includes BNPL. This figure was highest amongst the youngest consumers surveyed, increasing to 53% for those aged 16-24 and higher still (65%) in the 25-34 demographic.

Vodeno’s research went further, revealing a strong consumer appetite for embedded financial products, citing that over a third (37%) of respondents are actively seeking out brands offering BNPL as a result of rising costs, while 40% are only loyal to brands providing financial benefits such as BNPL and cashback, rising to 50% among those aged 25-34.

The benefits of loyalty

Embedded finance has a direct impact on conversion and repeat visits, with respondents claiming they shop with brands offering embedded financial solutions more frequently. According to the findings, 36% visit the brand’s app or website three to five times a month, with this figure rising to 43% among the 25-34 age group. Additionally, more than a fifth (22%) of respondents say they are likely to make more purchases with brands offering embedded banking, while 23% are more likely to spend more money with them over competitors.

Building bonds that last

Embedded banking has already revolutionised the customer journey and now it is changing the loyalty game. Our findings indicate that consumers are already actively recognising the benefits of financial solutions offered at the point of need, which is incentivising bigger shopping baskets and repeat visits. In a fiercely competitive market, brands stand to gain from new revenue-building opportunities and stronger customer relationships, powered by embedded banking.

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October 21, 2023December 18, 2023 byJeet Vasa

Specified user FinTechs are helping lenders ride the AI wave for origination and underwriting

The Indian digital lending industry is undergoing a major transformation due to its unprecedented pace of growth. As per the recent stats – more than 200m people have availed of retail loans in a year and this is growing at 20% CAGR.

By Raman Vig and Sudipta K Ghosh co-founders of Roopya

The significant rise in the disbursement volume not only exhibits the uptick in the number of borrowers but also demonstrates the emergence of digital lending players in the market.

Many FinTech companies are overshadowing brick-and-mortar lending institutions by digitising every aspect of the lending process. This can be attributed to the rapid adoption of Artificial Intelligence (AI) and Machine Learning (ML) models that expedite and enhance the lending process. Given the scenario, the new-age lenders are moving from traditional risk models to a data-backed approach to be more relevant in the market.

A major step towards addressing gaps in the lending ecosystem

Data is the most critical element for any AI / ML model. In lending, credit bureau data and alternate data becomes the base for any propensity model for loan origination, preparing scorecards for underwriting, or even creating early warning signals on existing portfolio.

Hence data becomes the most powerful and significant force that drives the digital lending industry. In the present ambiguous scenario, the Indian lending industry has flagged several concerns on the dynamics of the data distribution of borrowers among lenders.

India has more than 1200 active lenders, out of which, only 1% have access to advanced data and analytics tools. This creates a significant gap on the supply side as small and mid-sized lenders lose out on the data-driven lending race. The new-age loan origination and underwriting tools which are accessible only to large-sized lenders create a huge disparity in data intelligence. Consequently, these lenders have to incur high acquisition and underwriting costs, ultimately leading to high-interest rates for borrowers.

Grappling with an unregulated lending scenario, the Reserve Bank of India (RBI) planned to put a guardrail on the ecosystem. The apex bank announced the appointment of a new set of FinTech companies as ‘Specified Users’ of Credit Information Companies (CICs) under the Credit Information Companies (Amendment) Regulations Act, 2021 based on stringent eligibility criteria. These Specified User FinTechs get access to credit data, run analytics and help digital lenders make data-driven decisions.

The appointment of Specified User FinTech players has not only regulated credit data distribution but also resulted in more streamlined and secure digital loan processing.

AI underwriting models

Every year, over 15 million ‘New to Credit’ borrowers enter the credit ecosystem. This makes loan underwriting a tricky process for lenders under the existing conventional models. Every customer or borrower has unique financial circumstances which bring uncertainty many inches closer to making credit decisions.

If an underwriting practice is not backed by data and analytics, it can lead to economic meltdowns for lenders. And that’s where Specified User FinTechs come to the rescue, providing lenders with the ability to interpret enormous data amounts much faster and more accurately than conventional underwriting practices. It equips lenders with AI and ML-backed underwriting models, adding an extra layer of better oversight on how data sets can be used strategically to come up with personalized solutions for each borrower.

FinTech players are one of the early adopters of technology. The advent of Specified User FinTechs helped lenders to venture into segments that were deemed high-risk by conventional lenders. Simply put, they have been successful in bridging the accessibility gap for underserved lenders, making them ride the wave of AI.

Predictive algorithm to streamline the lending process

In practical terms, AI works intuitively like predicting defaulted or paid loans. Specified User FinTech combines AI algorithms with ML classification mechanisms to create probability models for lenders to have better credit decision ability. The technologies are applied to improve credit approval, and risk analysis and measure the borrowers’ creditworthiness, which further helps small and mid-sized lenders scale with ease.

FinTech companies that are recognized as Specified Users have competencies to store huge amounts of credit data and build AI and ML models on structured and unstructured data sets. This provides more streamlined and better insights for borrower segmentation, predicting loan repayment, and helping in building better collection strategies. Besides this, Specified User FinTechs are helping lenders to be on top of automation whether in loan underwriting or pricing for personalized offerings.

On a similar backdrop, lenders’ ability to recognize early warning signs proves to be highly beneficial for lenders with credit risk management. Recognized by RBI, lenders can be certain of the credibility of Specified User FinTechs in terms of data and analytics.

Specified User FinTechs leverage the intuitive yet data-backed behavior that detects any suspicious borrower and red flags as fraud. Unlike traditional tools of analysis, it can alleviate the possibility of human errors arising from biases, discrimination, or exhaustive processing practices. By utilizing NLP (Natural Language Processing), lenders can accurately generate warning signals instantly.

Final Thoughts

The landscape of digital lending in India is continuing to evolve. Lenders can reap the benefits of data hygiene performed by AI and ML infrastructure established at the Specified User FinTech’s end. By automating and bringing all significant practices to one place, lenders are empowered to improve customer experience, take leverage of predictive analysis, enhance risk assessment, and improve credit decisions and breakthrough sales bottlenecks.

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October 21, 2023December 18, 2023 byJeet Vasa

The economic downturn will see greater innovation in FinTech: Three tips to thrive

It’s no secret that FinTech businesses have been fighting an uncertain economic environment over recent years. Landslide economic challenges have put every British business under extreme pressure, but our industry has shown its resilience. It’s the ability to adapt. To evolve. And ultimately, to continue to thrive despite uncertainty.

Hannah Fitzsimons, CEO, Cashflows

In fact, according to the latest CBS Insights report, FinTech companies are still thriving in the marketplace. And bigger businesses are taking note of the industry’s strength. Take Apple and its high-yield savings account for example. The company is actively seeking to increase and establish its fintech presence – and I wouldn’t be surprised if we see other Big Tech companies follow suit.

Why is FinTech maintaining its resilience?

People will always need to spend money, and with online payments being the second most common payment method in the UK, the opportunity for FinTechs is huge. Consider Buy Now Pay Later (BNPL); before the pandemic, BNPL was a term that many consumers likely hadn’t heard of, with a transaction value of just £34 million globally. In 2023, it’s predicted to reach a global transaction value of £300 million – a more than ten-fold increase – supporting consumers to access the products they love in a way that works for their financial situation.

Amongst wider economic challenges, fintechs need to continue this evolution. To consider the needs and wants of British consumers and design and deploy services that do not just meet but exceed expectations. In my experience, diamonds are made under pressure, and FinTech businesses need to harness this opportunity to not only survive but thrive.

Navigating the storm: Why strong leadership is essential

Strong leadership is essential to fostering innovation, especially in challenging economic times. Leaders must be able to navigate uncertainty, quickly identify emerging trends and be able to pivot strategies to stay ahead of the curve. To be able to execute this requires a strong, creative team. People are the most important part of a business, and as such, need to be supported through challenging times by business leaders.

To foster a culture of innovation where every employee feels valued, heard, and appreciated, FinTech leaders need to inspire their employees. They must be bought into the company’s innovation journey and feel passionate about its success.

The leaders who establish these relationships and build agility into the business from the top down can not only weather economic downturns but emerge from them stronger and more innovative than ever before.

The power of understanding consumers

In my opinion, innovation needs to make a real difference to the end user. Whether that’s giving a SMB rapid access to its business payments, or providing real-time spending behavior insights, the ultimate innovation measurement is the end impact.

However, before we can get to impact, businesses first need to identify the opportunity: understanding consumer behaviour and spending trends.

For example, at Cashflows, we’re always looking to innovate in line with our customers’ needs. To understand those needs, we surveyed small and medium businesses to understand their hesitations about switching payment providers. The research found that of the businesses that had switched merchant acquirers in the past, two in five experienced frustrations during the process. Companies cited challenges such as needing to submit significant amounts of documentation (61%) and having to share the same information multiple times (54%).

Using this insight, we created AI-powered fast onboarding to streamline merchant onboarding. Listening to customers influenced our decision-making and in turn, allowed us to create and invest in an innovation that would yield the greatest impact for not only our customers but our business.

From Insight to action: Creating and delivering a winning strategy

In business, you’ll hear how important a well-crafted strategy is almost every other day. Yet, many businesses are still yet to put a truly cohesive strategy in place. With the economic downturn changing customer behaviors and market conditions evolving rapidly, I think every business should have a comprehensive strategy to guide their product roadmap and effectively communicate a route through tough times.

When looking at innovation, particularly in an uncertain economic climate, a sound strategy will help FinTech day-to-day to adapt to changes and prioritize investments in initiatives that align with the company’s long-term goals and missions. In hard economic times, it’s easy to get lost in the day to day running of the business, fighting fires as they arise. However, by investing the time to develop a comprehensive strategy, FinTech businesses can boost productivity, stay ahead of the curve, and emerge stronger from economic downturns.

The key to success is the strategy execution. The strategy plays a crucial role in establishing the business’s direction; however, the execution of that strategy is what brings tangible changes throughout the company. This is where the workforce comes into play. To effectively implement a strategy, it is vital to engage employees and align them with the business’s vision and objectives. By fostering a culture of engagement between employees and the company, the organization will thrive, especially during challenging times.

Strong leaders, customer understanding, and a clear strategy. The points seem so simple yet foster huge opportunities for fintech businesses battling the economic downturn. We’ve already shown the amazing impact fintech innovations can have on supporting people and businesses through times of hardship. By taking stock and prioritizing strategic decision-making, the fintech industry will continue to thrive. I’m excited to see the next innovation that revolutionizes spending.

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October 21, 2023December 18, 2023 byJeet Vasa

Chargeback fraud is growing – can AI and Big Data stem the tide?

According to our research, 60% of all chargeback claims will be fraudulent in 2023. This means not just that merchants have to consider that chargebacks claims are more likely to be fraudulent than legitimate, but that individual merchants and the anti-fraud industry need to lay the groundwork to collect and analyze data that will show them what fraud looks like in real-time.

By Monica Eaton, Founder of Chargebacks911

While many industries are benefiting from so-called ‘big data’ – the automated collection and analysis of very large amounts of information – chargebacks face a problem. The information that is given to merchants concerning their chargeback claims tends to be very limited, being based on response codes from card schemes (‘Reason 30: Services Not Provided or Merchandise Not Received’), meaning that merchants would have to do a great deal of manual work to reconcile the information that the card schemes supply with the information that they have on hand.

While Visa’s Order Insight, Mastercard’s Consumer Clarity, and the use of chargeback alerts have reduced the number of chargebacks, merchants still have very little data on chargeback attempts. This article will look at how merchants can improve the level of data they receive on chargebacks and how they can use this data to create actionable insights on how to improve their handling of chargebacks.

What is big data?

2023’s big tech story is undoubtedly AI – specifically generative AI. Big data refers to the large and complex data sets that are generated by various sources, including social media, internet searches, sensors, and mobile devices. The data is typically so large and complex that it cannot be processed and analyzed using traditional data processing methods.

In recent years, big data has become a crucial tool for businesses and organizations looking to gain insights into customer behavior, improve decision-making, and enhance operational efficiency. To process and analyze big data, companies are increasingly turning to advanced technologies like artificial intelligence (AI) and machine learning.

One example of a company that is using big data to drive innovation is ChatGPT, a large language model trained by OpenAI. ChatGPT uses big data to learn and understand language patterns, enabling it to engage in natural language conversations with users. To train ChatGPT, OpenAI used a large and diverse data set of text, including books, websites, and social media posts. The data set included over 40 gigabytes of text, which was processed using advanced machine-learning algorithms to create a language model with over 175 billion parameters.

By using big data to train ChatGPT, OpenAI was able to create a language model that is more accurate and effective at understanding and generating responses than previous models. This has enabled ChatGPT to be used in a wide range of applications, including customer service chatbots, language translation services, and virtual assistants. Currently, technology very similar to ChatGPT is being used by Bing to replace traditional web searches, with mixed results, but, like self-driving cars, it is a matter of ‘when’, not ‘if’ this technology will become widespread.

AI and fraud

Chargeback fraud is a growing problem for businesses of all sizes. The National Retail Federation estimates that retailers lose $50 billion annually to fraud, with chargeback fraud making up a significant portion of that total. With the significant rise of online shopping, this type of fraud has become even more prevalent, as it is much easier for fraudsters to make purchases using stolen credit card information, forcing victims of fraud to then dispute the charges with their credit card issuer.

Chargeback fraud occurs when a customer disputes a valid charge made on their credit card, claiming that they did not make the purchase or that the merchandise they received was not as described. If the dispute is upheld, the merchant is forced to refund the money to the customer, along with any associated costs, and is typically charged a penalty fee by their payment processor. This not only results in a financial loss for the merchant but can also damage their reputation and lead to increased scrutiny from payment processors.

Where can machine-learning technology help with fraud? To understand this, we have to first understand its limitations. ChatGPT and Large Language Models (LLMs) like it are not Artificial General Intelligence (AGI) – the sci-fi trope of a thinking computer like HAL 9000. Although they can pass the Turing Test, they do so not by thinking about the given information and answering accordingly, but by matching what looks like an appropriate answer from existing text.

This means that while they can produce perfect text by copying existing text rather than ‘thinking’ about the substance of the question, they are prone to producing errors. This is something that isn’t acceptable when it comes to fields like fraud prevention – nonsense answers with a veneer of truth won’t work in the binary world of whether a particular transaction was fraudulent and unfounded accusations of fraud can damage a merchant’s reputation.

What is needed then are AI solutions built specifically for chargebacks. Companies like Chargebacks911 have been working on this for years now, and their solutions are based on big data models that have been built up over that time. Because of their extensive experience working in that field, they are the ideal partner to work with to bring AI up to speed and address the problem of chargebacks.

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October 21, 2023December 18, 2023 byJeet Vasa

How to achieve growth and strengthen resilience using automated AR and digital payment

Times are challenging for businesses of all shapes and sizes as we enter the second half of 2023. Market volatility and slowing growth are being driven by high inflation and interest rates, economic instability, and geopolitical pressures, on a micro and macroeconomic level.

By Marco Eeman, Managing Director, Europe, Billtrust

Only resilient companies will flourish, but the IMF warned of the increased risk of a ‘hard landing’ for the global economy just last week. It predicted a 25% chance that the annual global growth rate could fall below 2% this year – double its normal level.

For businesses to rise to these challenges, companies across all industries are taking a good look at their income and expenditure. Those that will ultimately succeed recognise that it is not simply cash flow that businesses should pay attention to, it’s how that cash is flowing.

Drive growth during uncertain times

A well-executed, automated accounts receivable process can positively impact a company’s cash flow, working capital efficiency, customer relationships, risk management, and financial decision-making. By optimising this process, a company can enhance its financial stability, profitability, and long-term success, even in an extremely challenging economic climate. Digital payment systems can also deliver a series of interesting advantages.

Increased efficiency and faster cash flow

Automated AR and digital payment systems streamline financial transactions by automating processes, reducing paperwork, and minimising manual errors. This efficiency leads to cost savings and allows businesses to allocate resources more effectively, contributing to improved profitability.

Timely and efficient invoicing and collections are crucial for maintaining a healthy cash flow, which has never been more important than it is now, as it allows companies to meet their financial obligations such as paying suppliers and employees. Digital payments enable companies to receive funds quickly, accelerating their cash flow. Compared to traditional payment methods like wire transfers, digital payments are processed in real-time or with minimal delay, ensuring faster availability of funds. A robust AR solution also automates collections tasks so any overdue invoices are sorted out faster, freeing up time that can be used in more value-adding spaces.

Expanded customer base and global reach

Streamlining the invoicing process can help foster positive client relationships and prove reputationally beneficial. An automated approach will simplify the invoicing process and minimise errors. Also, by accepting digital payments, companies can tap into a broader customer base. Many consumers prefer the convenience and security offered by digital payment methods such as credit cards, mobile wallets, and online banking. By accommodating these preferences, businesses can attract and retain more customers, leading to increased sales and profitability.

Automated AR solutions and digital payment systems facilitate international transactions and enable businesses to expand their operations across borders. Companies can easily accept payments from customers in different countries, opening up new markets and revenue streams. This global reach enhances business resilience by diversifying customer bases and reducing dependence on specific markets.

Data insights and cost reduction

Digital and automated payment and AR systems, and the added use of AI-powered tools, generate vast amounts of transactional data which enable companies to make data-driven, risk-adjusted decisions that reflect current circumstances and offer more control during a period of significant uncertainty. By leveraging analytics and data mining techniques, companies can gain valuable insights into customer behaviour, spending patterns, and preferences. These insights can inform strategic decisions, such as targeted marketing campaigns, personalised offers, and product/service enhancements. By leveraging data, businesses can optimise their operations, tailor their offerings, and boost profitability.

Automated AR not only allows companies to optimise their way of working, but it also allows companies to save paper, printing, and postage costs and eliminate expenses associated with physical checks, cash handling, and manual reconciliation. Moreover, digital payments can automate recurring billing processes, reducing administrative overhead and improving operational efficiency.

Choosing the right solution

Businesses must focus on compatibility when looking for a modern AR provider and make sure the solution is integrated with the open Business Payment Network (BPN) and interoperable with the larger payments ecosystem. It’s also important to work with an AR partner that has an in-depth understanding of evolving payments legislation. For example, EU laws are currently changing: in December the EU published the VAT in the Digital Age (ViDA) directive which will mandate e-invoices. It’s crucial businesses implement processes that are fully compliant with all relevant trading laws and choose tech solutions that help, not hinder this.

Conclusion

Digital payments offer numerous advantages that can contribute to building resilience and driving profits for companies. By embracing digital AR systems, businesses can improve efficiency, accelerate cash flow, access a larger customer base, expand globally, enhance security, gain valuable data insights, and reduce costs,

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October 21, 2023December 18, 2023 byJeet Vasa

Awareness and trust holding consumers back from pursuing Open Banking products

Although the IMF recently reported that the UK economy has once again avoided a recession, the rate of inflation isn’t expected to return to the Bank of England’s target rate of 2% until mid-2025 – later than expected.

By Stefano Vaccino, founder & CEO, Yapily

This means mortgage repayments, bills, credit rates, costs of household items and more will continue to pinch consumers’ finances. Indeed, research from the Nationwide Building Society found that 74% of people were worried about their finances and ability to cover essential costs in April – with the value of spending on essentials rising 9% since earlier this year.

Within this tough environment, however, consumers believe their financial providers are falling short, with our data revealing that 53% don’t feel that their financial needs are being met. The natural conclusion you’d think is to look for a new and, hopefully, better alternative. And yet, only a tiny 2% of consumers say they have started using new products and services – meaning that many of the population could very well be stuck in a financial rut. Not great given the current state of the economy when most people need to manage their finances effectively.

Consumers trust what they know

One of the main reasons consumers don’t feel their financial needs are being met that we identified in our State of Payments report was trust. Many consumers say they only trust products and services they have heard of or that are recommendations for family, friends, and colleagues. There’s a name for this: the familiarity principle (or the exposure effect) and while it generally happens subliminally, it also influences a lot of the decisions we make… from the restaurants we frequent to the financial products and services we use.

Interestingly, though, consumers said they would be open to securely sharing more of their data with financial services organisations, like their bank or with a personal finance app if it improved their financial well-being. This includes saving money more consistently, building their credit score, and reaching financial goals quicker like saving for a mortgage.

Such services are now being provided by many major financial services providers and FinTechs in the UK – and many are powered by Open Banking. But despite these encouraging findings, 76% of consumers said they either don’t care about whether a product uses open banking or would be less likely to use a product if it is enabled by Open Banking. Again, the trust issue creeps in as a quarter say this is down to them not knowing enough about it and being wary of the technology.

An awareness issue

The plot thickens further in the issue of trust. Though consumers say they are willing to share their data, many decision-makers in financial services organisations paint a very different picture. Almost one-third (30%) indicated that trust in data sharing is the biggest barrier they face as a company in driving the adoption of their Open Banking services and products.

So, there is a disconnect here in that fed-up consumers aren’t switching to new products and services to improve their financial well-being, even though the solutions do, exist thanks to Open Banking. This may be a result of a lack of understanding around Open Banking services or the true value they can deliver to their finances, but it undoubtedly presents a missed opportunity.

Conquering the disconnect

Financial organisations must conquer a broader awareness issue so consumers know that they could have access to better and fairer financial products that support their financial well-being. There’s an opportunity to bridge the trust gap and build confidence in Open Banking solutions to get consumers turning to new products that will power better financial experiences. These positive experiences will be key to raising broader awareness of the benefits of and, in turn, increasing demand for Open Banking.

This starts by highlighting the benefits of Open Banking vs traditional banking processes and how they impact financial well-being. For example, by highlighting that it’s easier to track spending and budgets more effectively when bringing all bank account and credit card information into one personal finance app.

Another area that needs more clarity is dispelling some of the myths that have crept in surrounding data privacy and security. Sharing financial information that was once only available to notoriously highly regulated banks, naturally raises questions about privacy. But Pay by Bank is one of the most secure payment methods and there’s a reason why: it was a top priority when PSD2 was drafted, so banks and providers are required to use highly secure and encrypted APIs. To access data in the first place, a service provider needs consumer consent and cannot access without it. Raising awareness of these issues will help ease worries and build trust around Open Banking.

Final thoughts

Now more than ever, people need tailored financial products and services that are right for them, particularly as the UK continues on unsteady economic footing. Building trust and awareness amongst consumers will be vital to drive demand for Open Banking services and importantly, let them know there are products and solutions available that will make managing their finances easier. We hope to also see the right steps taken by industry and government to ensure Open Banking can build on its seven million active users and be a success story in the UK in years to come.

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October 21, 2023December 18, 2023 byJeet Vasa

Why FinTech M&A in the UK is on the up and up

The UK FinTech sector will experience an upswing in M&A towards the end of 2023, as companies look to consolidate their positions in the market and take advantage of the potential for growth and innovation.

By Konstantin Dzhengozov, Co-Founder and Chief Financial Officer at Payhawk

While headwinds such as the turbulent geopolitical landscape, volatile stock markets, and rising interest rates and inflation have meant both companies and investors have remained cautious throughout Q1 and into Q2, pressure is mounting for them to complete transactions.

According to data from Prequin Pro, this is particularly pertinent to private equity firms that are sitting on a record level of $1.96 trillion (about £1.5 trillion) of dry powder. Thus, we will soon see a switch out of defensive cash strategies and into M&A. Figures from Ernst & Young’s latest CEO Outlook, for example, show that 50% of UK CEOs are planning to make acquisitions in the next 12 months and 67% are considering joint ventures.

VC funds, on the other hand, will not have the same capital reserves and might struggle to fundraise since they are unable to showcase success stories to potential investors in the current macroeconomic environment. This means they will start to pressurise their companies to consolidate, merge and create bigger organisations that will appear more capital efficient and thus have the potential for a more meaningful exit down the line.

Time to focus

Although most of the movement in this space will be motivated by necessity, there are countless advantages to M&A in the current environment. Firstly, it pushes companies to conduct vital internal evaluations to determine which assets are core to their business, allowing them to divest those they consider non-essential. This will ultimately result in a more mature company with a bolstered focus and cash to spend.

Secondly, it allows cash-rich companies to purchase spin-offs at a reduced price and go on to achieve better returns. According to PwC analysis, deals done during a downturn are often the most successful. Data from the 2001 recession, for instance, indicates those that made acquisitions had a 7% higher median shareholder return than their industry counterparts one year later.

M&A for geographical expansion

This concept will also prove useful when it comes to using M&A for geographical expansion. FinTechs that are already successful in the UK will likely look to acquire or merge with strong yet struggling competitors in other countries instead of enduring the rigmarole of setting up there from scratch. We have already seen the number of cross-border M&A announcements increase, with data from Investment Monitor’s Global FDI Annual Report 2022 showing a 45.2% jump in 2021 compared to the previous year – a trend we can expect to continue in 2023.

FinTech trends

Some of the key growth areas for M&A in the FinTech space will be Banking as a Service (BaaS) and Gen AI. As customers become increasingly dissatisfied with existing offerings, BaaS providers are rapidly gaining popularity and new players are entering the market. This is set to change, however, as regulators are beginning to force these organisations to strengthen control and their compliance functions to obtain a license-holding. Naturally, this would limit the number of new entrants in this space, making licence-holding companies extremely attractive and driving appetite for M&A or consolidation.

Gen AI can exponentially boost a company’s productivity and allow greener enterprises to disrupt big industries. Businesses already innovating in this space will become more valuable and there will no doubt be fierce competition to acquire them.

Overall, one can anticipate a flurry of M&A activity in Q3 and Q4. While not all driven by preference, companies positioned with both the financial resources and a thorough strategy will be able to capitalise on the current dubious market to make transformational deals that may contribute to their long-term success.

Analytics IBSi Blogs IBSi Flagship Offerings

October 21, 2023December 18, 2023 byJeet Vasa

Unlocking AML efficiency: streamlining compliance with automation

In today’s digital era, businesses are confronted with ever-increasing challenges in achieving anti-money laundering (AML) compliance. However, a new wave of AML experts is transforming the landscape by leveraging advanced automation and configurability capabilities.

By Fraser Mitchell, technical director at SmartSearch

Fraser Mitchell, technical director, SmartSearch

By leveraging fully automated workflows and extensive search configurability, businesses can tailor their AML processes, resulting in significant time and resource savings.

These automated workflows streamline crucial tasks such as data collection, analysis, and reporting, thereby reducing the risk of human error. Additionally, the configurability aspect enables businesses to adapt their AML practices to meet evolving regulatory requirements, industry standards, and emerging financial crime trends.

The adoption of automation and configurability fosters scalability in AML compliance. As businesses grow and transaction volumes surge, manual processes become increasingly overwhelming and prone to errors. By harnessing technology, regulated firms can handle larger volumes of data, analyse them in real-time, and identify potential risks more effectively.

Next-generation platforms are transforming compliance processes. By leveraging fully automated workflow capabilities, businesses can align their AML workflows with their internal processes, enabling seamless integration across different business functions.

This automation significantly reduces manual efforts and minimises the risk of human error, ultimately enhancing operational efficiency. Businesses can customise their AML workflows by utilising custom risk profiles and watchlist screening configurability. This level of customisation allows users to screen custom lists and adapt their processes according to the specific risk profiles of their clients. By tailoring the configurability to individual needs, businesses can optimise their compliance efforts and ensure regulatory adherence.

A bespoke workflow capability empowers businesses to create rules-based applications and assign tasks based on specific triggers. This automation provides timely outcomes and actions, simplifying the decision-making process for users. Additionally, configurable watchlist screening enables a seamless customer journey for legitimate clients. By automating these processes, businesses can improve customer onboarding and enhance the overall compliance experience.

With a fully-configurable solution, firms can customise their AML operations to align with their unique needs. The platform facilitates the seamless onboarding of clients by offering extensive search configuration, allowing businesses to identify high-risk clients more efficiently while streamlining the onboarding process for genuine customers. By utilising custom watchlists tailored to their specific business requirements, firms can proactively mitigate compliance risks.

In the rapidly evolving landscape of AML compliance, businesses need innovative solutions to streamline their processes and maintain regulatory compliance. Advanced automation and configurability capabilities offer a game-changing approach to AML workflows.

By leveraging fully automated workflow capabilities and extensive search configurability, businesses can customise their AML processes and focus on their core operations. The result is enhanced efficiency, improved customer onboarding, and reduced compliance risks. Embracing these technologies will empower businesses to thrive in the evolving compliance landscape while maintaining their commitment to regulatory standards.

SmartSearch’s commitment to supporting regulated firms with AML compliance spans over a decade. Their digital compliance solution has earned the trust of more than 6,000 clients and 55,000 users, including prominent financial services and property firms, and leading accountancy and legal firms.

Analytics Digital Banking IBSi Blogs

October 21, 2023December 18, 2023 byJeet Vasa

Digital Banking: Prioritising Financial Inclusion

In recent years, digital transformation and the rise of FinTech technologies have made digital banking increasingly accessible. Now, there is a wide variety of digital services available as banks continue to focus on delivering the best, most convenient services to their customers.

By Hans Tesselaar, Executive Director at BIAN

There is clear momentum happening in online and digital banking, with 416 million active users of online banking in Europe alone, an increase from 398 million in 2022. This is reflected globally, with 170 million users in 2023 in Latin America, expected to spread to almost 198 million next year. Emerging technologies can support this expansion, but it’s the responsibility of the industry as a whole to ensure financial inclusion and economic growth for all, which is a priority amid this growth.

Digital inequalities caused by this shift must be addressed through collaboration and emerging technologies, an area where some developing countries are leading by example. The role of industry standards is also incredibly important when looking to better deliver digital services to all.

Counting on industry standards

We can look to the Union Bank of the Philippines as an excellent example of this. The extensive use of legacy technology within banks means the speed at which these established institutions can bring new services to life is often too slow and outdated. This challenge is also complicated by a lack of industry standards, meaning banks continue to be restricted by having to choose partners based on the ease and cost of integration. This is instead of their functionality and the way they’re able to transform the bank.

To truly digitise, banks need to overcome these obstacles surrounding interoperability with a coreless banking model. This approach to transformation empowers banks to select the software needed to obtain the best-of-breed for each application area without worrying about interoperability and being constrained to those service providers that operate within their own technical language or messaging model.

By translating each of that proprietary messages into one standard message model, communication between different parts of organisations is, therefore, significantly enhanced, ensuring that each solution can seamlessly connect and exchange data.

Adopting emerging technologies to increase accessibility

While some elements of financial inclusion and digital adoption require a more considered approach, there are instances where emerging technologies are bringing transformative services to the unbanked.

The Union Bank of the Philippines, for example, overhauled its quick loans retail engine (RLE) to serve as the central platform for the bank’s loan and credit products, leveraging its reusability and ease. Using a combination of low-code, based on the BIAN Models, and the adoption of BIAN APIs, the bank sought to establish a seamless, fully digital experience that could scale up to meet the country’s huge demands for loans by the unbanked.

This has enabled the Union Bank of the Philippines to overcome the issues preventing the RLE from scaling to the mass market to reach the 51.2 million unbanked Filipinos. Through this innovation, those who otherwise wouldn’t have access to a fully digital quick loan service now do.

This is just one example of many, as fintech adoption continues to grow in emerging markets due to the increasing use of mobile phones and the internet, the large unbanked population, and the growing middle class. It will be no surprise to see more of these examples where banks look to digital services to reach the mass market over the coming years.

Creating a supportive ecosystem

As FinTech adoption continues to grow in emerging markets, banks must form an ecosystem alongside fintech, service providers, and aggregators. This will help banks when it comes to the speed they can introduce new products.

An effective ecosystem strategy will make banks more relevant to their customers, providing an opportunity to drive better relationships and bigger wallet shares by providing the speed, scale, and differentiated products that make the most of the opportunity presented by the significant shift to digital banking. With this approach, banks can focus on offering services to meet the demand of all customers, whether that be digital, analog, or reaching the unbanked population.

The journey to digitalisation

To be truly inclusive, banks must assess their customer base and look to meet its needs.

Where digital adoption risks leaving customers behind, banks must ensure these customers are prioritised through collaboration, access to offline services, and a slow, steady digital transformation process. In other cases, digital transformation is the answer to bringing financial services to the mass market. In both situations, industry standards can be the key to unlocking new technologies and providing services to those who otherwise wouldn’t be able to access them.

Putting the customer first and taking a collaborative approach will be how the industry brings all customers along on the digitalisation journey. As long as the priority for banks remains on financial inclusion and innovation increasingly supports this, there will never be a customer left behind.

October

How is embedded finance being integrated into loyalty programmes?

How are consumers responding to embedded finance?

The benefits of loyalty

Building bonds that last

A major step towards addressing gaps in the lending ecosystem

AI underwriting models

Predictive algorithm to streamline the lending process

Final Thoughts

Why is FinTech maintaining its resilience?

Navigating the storm: Why strong leadership is essential

The power of understanding consumers

From Insight to action: Creating and delivering a winning strategy

What is big data?

AI and fraud

Drive growth during uncertain times

Increased efficiency and faster cash flow

​​Expanded customer base and global reach

Data insights and cost reduction

Choosing the right solution

Conclusion

Consumers trust what they know

An awareness issue

Conquering the disconnect

Final thoughts

Time to focus

FinTech trends

Counting on industry standards

Adopting emerging technologies to increase accessibility

Creating a supportive ecosystem

The journey to digitalisation

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