Small business resilience and the evolution of ecommerce
The continuing shuttering of small businesses on high streets across the country is being accompanied by an unseen birth of new, exciting digital-only small businesses.
Periods of economic downturn typically result in a decline in new business registrations and at the beginning of the pandemic, it looked like UK SMBs were set to follow in this trend. For instance, statistics released by the ONS revealed that business creations slowed during April and May.
Despite this, Companies House figures reveal an overall increase in the number of new company incorporations in Q2 when compared to the previous year. This is indicative of a plethora of new business ventures inspired by our changing way of life.
Many of these emerging businesses are digital-first by necessity of the global lockdown they were born out of. Take for instance an independent hardware store which was already struggling prior to the pandemic. They may now find themselves in a position of renewed success, selling specific gardening tools via Shopify and Instagram marketing. While they may not have a strong credit history they do have a vast data footprint, owing to the numerous systems they rely on to run their business. Each data source, from their accounting package to their POS or ecommerce system provides a valuable yet siloed view of performance.
The shifting value exchange
However, the modern SMB expects systems and services to work together seamlessly and appears more willing to share their data in an open and automated fashion in order to ensure this. For instance, in September of this year, it was reported that the use of open banking had doubled in just nine months – an increase of one million users since January.
This increased appetite for interconnectivity between financial systems has opened the door to a much more collaborative, bespoke and diverse service between small businesses and their financial service providers. This is evidenced by the growing convergence of the POS, ecommerce and lending industries. Square Capital, Shopify Capital and Worldpay Working Capital are just some examples of funding facilities utilising transactional data to determine creditworthiness and offering finance at the point of need for small businesses.
Moving forward, customers who are willing to share their financial data digitally via accounting, ecommerce & POS package authorisation or open banking will likely benefit from a better service and more affordable products. For instance, lenders will be able to offer more favourable rates due to their enhanced ability to calculate risk and the notable reduction in the cost of serving these customers. The end result will be a shifting value exchange for small businesses whereby the benefits of sharing their data will become even more tangible than ever before.
The rise of ecommerce
The conditions of the global lockdown required existing businesses to pivot in order to remain viable. As a result, the period between April and July saw 85,000 UK businesses launch online stores or join online marketplaces. Many of these SMBs thrived during the pandemic as their adoption of ecommerce solutions coincided with a rapid increase in online sales, accelerating e-commerce growth by five years.
With the pandemic shifting the primary channel of trade online, gaining access to ecommerce and point of sale data is now crucial for financial service providers. The mutual benefits of doing so are multifaceted. For instance, commerce data can be used by lenders in particular to improve underwriting processes and credit decisioning. Small businesses will therefore benefit from a faster and fairer service which goes beyond traditional methods of credit scoring to consider their performance from multiple data sources in real-time.
This cultural shift towards enhanced digitisation and the growing importance of ecommerce will likely have a lasting impact on the way we think about the financial health of small businesses. In order to take advantage of this opportunity, financial service providers will need to replace siloed data with a connected ecosystem of unified financial data sources.
This article was written by Pete Lord, CEO and Co-Founder at Codat. Codat lets banks and fintechs plug into their small businesses and the software they use, giving them seamless access to real time customer data. Codat is building an ecosystem of connected datasets that handle the heavy lifting of integrations, leaving providers free to focus on improving their offerings for small businesses.
Photo by BedBible
On-Land Payment Infrastructure for Rapid Growth
Two means to help protect against cybercrime
Firms need a combination of robust policies/procedures and technology to help protect against themselves against cybercrime, says Anthony Rafferty, Managing Director, Origo
It seems hardly a week goes by without news of the vast sums of money which has been scammed or otherwise stolen by criminals through cybercrime.
The extent to which cybercrime is prevalent within pensions and financial advice services ”“ two of Origo’s principal areas of focus ”“ has been brought home during the Covid-19 crisis as criminals have ramped up their attempts to trick individuals and businesses into giving away personal and financial details to enable fraudulent transactions.
Recent reports have highlighted that the Financial conduct Authority (FCA) has been investigating more than 150 Coronavirus-related scams since the outbreak began (1) and spent over £300,000 on fighting fraud online in the first six months of the year (2).
The industry’s compliance consultancies have been warning financial advice firms on scams and email hacking. Paradigm Consulting recently warned advice firms about fake email surveys purporting to be from the Regulator (FCA) on the impact of Covid-19 (3), while ATEB Consulting warned on fraudsters hacking personal email accounts and impersonating clients to encash investments (4).
Alongside this are reports of company owners and directors receiving highly realistic scam emails from trusted organisations, including banks, requesting usernames, passwords, and bank details.
This increase in reports and news stories serves to illustrate that the threat to financial services businesses from cybercriminals cannot be ignored by any company.
Data published by the Information Commissioner’s Office (ICO) has revealed that phishing’ by cybercriminals was the second highest reported incidence of the inappropriate disclosure of data’ by company staff (5).
However, the most common incidence of data breach reported to the ICO was information being emailed to the incorrect recipient. That suggests a breakdown or lack of internal procedures.
Clearly, whether dealing with cybercrime or staff error, having a well-documented policy, robust procedures and monitoring of processes, can go a long way to preventing potentially costly data breaches.
Education is another area where firms can help protect themselves from external threat and internal error, including regular cybercrime awareness sessions and training of staff.
Implementing technology ”“ such as employing military-grade encrypted email, particularly when exchanging personal and sensitive information with clients or between organisations ”“ should become standard every-day practice. Encrypted email secures against hacking, enables authentication to ensure the right person has accessed the information, and provides an audit trail for security and regulatory purposes.
We are operating in a world where disclosure of information is a threat on many levels and putting in place preventative measures is essential for any size of firm within our industry.
(1)The data was obtained under the Freedom of Information (FOI) Act by the Parliament Street think tank’s cyber research team.
(2) https://www.ftadviser.com/regulation/2020/09/03/fca-spends-300k-to-fight-fraud/
(3) ttps://www.moneymarketing.co.uk/news/scammers-posing-as-fca-send-out-advisers-covid19-impact-survey/
(4) http://www.atebconsulting.co.uk/news/beware-email-hacking-scam/
(5) https://ico.org.uk/action-weve-taken/data-security-incident-trends/
How fintechs are driving financial inclusion
In this guest blog, Magdalena Krön, Rise Global FinTech Platform Director, Barclays Ventures, takes a look some of the work that the global fintech community is doing to address one of the biggest blights in society ”“ financial exclusion. This blog is based on the latest Rise FinTech Insights, a regular publication from Rise, created by Barclays.
One thing that COVID-19 teaches us, if we needed reminding, is how many people across the world remain disadvantaged by not having access to basic financial services. Although efforts to improve financial inclusion have come a long way in a relatively short period of time, there is still much more to achieve, especially for the 1.7 billion individuals who are currently unbanked(1). The work being done in the fintech space to address this issue, intended to open doors for individuals and families in a way that many of us take for granted, has seen entrepreneurs deploy everything from cryptocurrency to Open Banking and APIs in efforts to find new ways to support the financially vulnerable.
Chris Britt, Co-Founder and CEO of Chime ”“ a leader in the US challenger banking segment that offers internet-based, fee-free services ”“ says, “There is a huge segment of America that has a lot of anxiety around their money and day-to-day finances.” Helping them achieve “financial peace of mind”, he says, starts with providing a banking relationship that doesn’t rely on fees. “As many as 70% of Americans live paycheck to paycheck ”“ we offer free services such as early access to paychecks and overdraft protection.”
Innovative fintech thinking has come to the aid of another swathe of US society: the 2.5 million newcomers to the country on long-term visas who are, for the most part, unable to access credit. Collin Galster, Head of Business Development at Nova Credit, identified a solution to this problem facing the US’s foreign-born population, which is set to rise to 50 million by 2030. The company, a cross-border credit bureau, transfers individuals’ financial histories from one country to another, remedying the issue of lenders not being able to access enough financial information to feel comfortable lending, and therefore enabling immigrants to start funding their futures.
The need to tackle financial exclusion is felt even more acutely elsewhere. In India, for example, almost 11% of the adult population is unbanked. The report highlights a number of successful government initiatives, including Jan Dhan Yojana and Aadhaar Pay, that are spearheading more accessible paperless Know Your Customer (KYC) identification processes and biometric-based identity payment systems. This is a tactic that saw the number of people holding bank accounts increase by just over 50% between 2014 and 2017. Manish Khera, Founder and CEO of HAPPY ”“ a digital lending app targeting a multi-billion-dollar credit gap in India’s micro businesses ”“ emphasises how the internet now plays a vital role in facilitating and widening this access, citing the fact that India currently has 520 million mobile internet users.
Alternative banking solutions are springing up elsewhere, too. In east Africa, for example, Anisha Kothapa, Fintech Analyst at CB Insights, says cryptocurrency is being “adopted widely” ”“ offering a new way for the unbanked to save money and complete transactions without needing an account or credit card. One firm leading the way is Kenya’s BitPesa, a digital currency payments platform that “allows users to accept bitcoin payments, exchange bitcoin for local currency, and deposit bitcoin into accounts or mobile money wallets.”
In contrast to developing countries, their developed counterparts are enabling financial inclusion differently by focusing on customer engagement and transforming the entire banking business model. FinTechs in developed markets are also moving from mono-line to multi-line offerings and re-bundling products and services to acquire more new customers.
It’s not just individuals that face financial exclusion, the report emphasises, but SMEs and budding entrepreneurs. According to Grant Bickwit, Associate at Barclays International, access to capital is one of the biggest challenges faced by entrepreneurs. It’s a sad truth, he explains, “that both entrepreneurs and investors are still reliant on individual networks and legacy processes for sourcing opportunities, entrenching geographic and social limitations”. In response to this, online platforms like OnDeck and Kabbage, launched in 2006 and 2009 respectively, offered firms access to credit digitally ”“ a trend that has proliferated.
Rise innovators have been responding to some of the other unique issues brought about by the pandemic, from employment to supply chain management. Rise Mumbai members, MMS.IND and GeoSpoc ”“ experts in geospatial information systems, platform-building, and consumer and micro-market data ”“ have joined forces to develop a COVID-19 impact tool which provides insights into how the pandemic is affecting consumers ”“ and enables businesses to better predict demand and ensure supply chain optimisation. Meanwhile, over at Rise New York, Brainceek, a workforce simulation company, has been helping corporates design virtual summer internship curriculums, providing extra support for the hundreds of thousands of graduates entering a difficult job market.
Addressing financial exclusion is a huge task, but one that is achievable, particularly with targeted collaboration across banks, technology companies and fintechs and a focus on achieving financial inclusion for those 1.7 billion individuals.
Download all editions of Rise FinTech Insights here.
(1) https://www.worldbank.org/en/topic/financialinclusion/overview
Developing a Change-Ready Mindset
The only constant is change’. At least, that’s how Heraclitus put it, leading me to believe that resistance to change was as common in Ancient Greek society as it is today. Whilst quite obviously a lot has changed since 570BC ”“ medicine, architecture, Tesco Expresses ”“ our aversion to change, especially when forced, has remained steadfast. Over the last few months I’ve been speaking to a great many business owners, young and old, about the effects of COVID-19 on their businesses. What has really stayed with me is how many have really resisted these changes and still yearn to get back to business as usual’.
But what is business as usual? Can we go back to a pre-COVID method of operation? Even if we can, should we? Business owners have felt the full impact harder than many and for that reason I can understand the desire to sweep the whole affair under the rug and move on. However, in doing so we might just miss out on crucial opportunities.
The questions I keep coming back to are: if another global event occurred right now, how would your business be better able to handle the situation and what has been learned and implemented this time around to get your business into better shape? A big part of honestly facing up to those questions comes down to our own mindset and sense of control. When the pandemic hit and threw everything out of sync, the natural reaction was to cling onto what we knew and what gave us that sense of control and certainty, but very quickly it became apparent that wasn’t a viable option this time and nor will it be with future situations. The real issue here is that nobody truly likes being told what to do, especially not by a microscopic virus with absolutely no redeeming qualities and so, to come back to mindset, what can WE do to normalise our relationship with change to ensure it’s never forced upon us in future?
Managing change is a bit like going to the gym; the first time you go, it hurts and (speaking from personal experience) frustrates you when you haven’t dropped a stone by the next day. When you maintain a rhythm, the pain subsides and the benefits begin to show. So if we adopt the same relationship with change and by actively seeking it, stay ahead of the curve, we’ll slowly develop our mindset around change much like a muscle at the gym. With that in mind, I wanted to share with you my 5 steps for developing a Change-Ready’ mindset.
- Analyse what is happening now? ”“ Look at your business to really understand what is happening right now. Analysis tools like the PESTEL, competitor analysis, SWOT analysis are great tools to help you really understand the change. What are the indicators that change is needed: revenue has declined; customers aren’t buying through the shop any longer; or suppliers are no longer able to supply you?
- Identify the changes required ”“ What needs to change within the business to resolve this issue? Do you need to look at alternative channels to market, such as selling online? Do you need to look at or alternative suppliers? Do you need to completely pivot what you do?
- Identify the obstacles ”“ What issues are there with making that change? Once you’ve identified a possible solution, you need to apply your critical thinker and consider all of the obstacles stopping you form implementing that change ”“ Lack of funds? Lack of customer validation? Lack of man power (or woman power)?
Now at this point it’s worth noting that, as a demographic, entrepreneurs and business owners are phenomenal at rapid decision-making, however, in some cases this needs to be checked. When change is forced upon us, there is a risk that these decisions could be made on the basis of emotion rather than reason. Even when change is unexpected, there is usually a little time to step back, analyse and identify. If we don’t, required changes can be blown out of proportion and become too general to have a lasting, meaningful impact.
- Assess the risk & cost of change ”“ Determine the degree of risk and the cost of change looking at different scenarios to help you map alternative paths. Before progressing with any significant change you need to assess the risk and costs involved with adopting this new approach. How does this affect your overall costs? Do you need additional resources? Are there any risk involved?
- Plan the way forward ”“ Once you have all the information you can then decide on a clear way forward and put steps in place to integrate that change. Break it down into manageable steps and make sure you are testing at every step of the way to make sure the change is working.
There are two forces underpinning these steps. Firstly the clarity of your vision: if you know where you’re going and what you want to achieve, you’re likely to accommodate change better, provided you can see how it helps you achieve what you wish to. You wouldn’t get in your car and ask your sat nav where you want to go, so don’t expect the same from your business. If your vision needs a refresh, make sure you prioritise that! Secondly, resistance to change: as we’ve covered, this is a challenge millennia in the making, so take some time to understand your own resistance to change, by questioning where it comes from and when was the last time change adversely and/or positively influenced your business.
The ironic thing about all of this is that resistance to change stems from a perceived loss of control and yet, if our vision is unclear and our self-awareness is lacking, the uncomfortable truth is that we lost control long ago.
Mindset, Managing Change and a whole host of other business support content is available via the Royal Bank Business Builder programme ”“ a free virtual tool for new and established businesses. Open to everyone, Business Builder supports you to stay in control across a wide range of business topics, available 24/7. Sign up today by clicking here.
Why Scotland should harness its influence in the global fintech industry
Guest blog from Corporate Partner and Technology Lawyer at Addleshaw Goddard, David Anderson
In Scotland, we undoubtedly have one of the strongest fintech clusters in Europe. At the turn of the year, the Scottish fintech sector became the first in the UK, and only the third in Europe, to receive formal accreditation as a cluster of excellence from The European Secretariat for Cluster Analysis (ESCA).
The body looked at 36 economic factors before awarding Scotland this accolade, and our innovative, dynamic and collaborative ethos must, I believe, have had an important role to play in why we received this title.
Looking at growth from 2019 to 2020, the number of fintech SMEs based in Scotland increased by more than 60% from 72 to 119. This notable boost is something that we should continue to celebrate and use as a foundation to build upon to attract even more leading fintechs from across the globe to expand and invest in Scotland.
Most recently, it was announced that our fintech sector will receive a further £22.5 million of funding to establish a Global Open Finance Centre of Excellence (GOFCoE) in the Edinburgh and Central Belt region. Funded by the Strength in Places Fund, this is a remarkable opportunity for Scottish fintechs as the new research and development centre will explore how open banking and financial date can be used to deliver social and economic benefits.
We have world-class talent on our doorstep and as a Corporate Partner and Technology Lawyer at Addleshaw Goddard, I am fortunate to get the opportunity to work with a number of entrepreneurs, CEOs, advisors and customers in the fintech discipline every day.
As a firm, we recognise the importance and wealth of the fintech sector. That’s why in 2017 we launched our dedicated Addleshaw Goddard Elevate programme – a 10-month initiative for selected fintechs designed to accelerate them through legal challenges faced by start-up and fast growing businesses.
Year on year, we are enthused at the calibre of entrants to the programme and to date we have supported 22 fintechs with our expertise across financial services, regulation, IP and corporate and commercial transactions.
Successful applicants to Elevate programme receive advice covering funding, payments, financial regulation, investment and technology at no cost to them as well as ongoing mentoring and access to the firm’s resources. By combining our client-side experience with regulatory and legal expertise, gives us great insight into the concerns and priorities to help fast growing businesses become more productive and even more successful.
In 2019, we welcomed nine businesses to the cohort including Scottish businesses Amiqus , OBR-Open Banking Reporting and Trace, all of which are contributing to and bolstering the tech scene in Scotland. In the next few months, we will be launching the 2020/21 programme and are already looking forward to working with more forward-thinking technology firms with revolutionary ideas.
Whilst this paints an incredibly positive picture of the Scottish fintech sector, which is true, we must remember the Covid-19 cloud that currently hangs over our professional and personal lives. It is a challenging and sometimes worrying time, and the consequences of it will live on long past the ease of lockdown and other restrictions.
The last few months have, however, allowed many Scottish tech firms to adapt and highlight their invaluable contribution to society. I have been extremely encouraged at the response of Scottish technology businesses to the current situation as they adapt themselves or help to aid businesses, people and the economy with their agile approach.
For example, Airts, which uses AI tech to help people at large professional services firms plan projects, has reshaped its working pattern and working from home structure to ensure clients still receive an excellent service.
XDesign ”“ which plans, builds and develops digital products that solve your business challenges – has moved quickly to introduce new processes across the business to succeed throughout this challenging period. This has even resulted in the firm welcoming new clients and staff, which is incredibly encouraging for the industry.
A great local example of this came from Occupyd – which connects businesses to underused workspace ”“ who has used the time to support chefs and caterers access underused commercial kitchen space in closed pubs, cafes, churches and other locations. Occupyd also created a Secret Takeaways’ list which has helped diners in Edinburgh and London find their favourite local restaurant options which are not present on the main apps.
Tech has of course always been important, but through the covid-19 pandemic it is proving to be invaluable as we rely on it to communicate with family, friends, colleagues and in some cases, life-line services. From my perspective, I have seen an acceleration in strategictechnology projects which are driven by improving customer experience and developing the best possible customer proposition.
Looking to the immediate future, nobody can predict to what extent the pandemic will impact the tech ecosystem in Scotland. However, the agile, innovative and inclusive nature of the industry, particularly the fintech ecosystem gives me great confidence that we will come through this with the ability to continue our success and growth, but with new insights and perhaps a refreshed outlook.
Interested technology businesses can register their interest for the 2020/21 AG Elevate programme here.
Scotland is Tomorrow: Developing Responsible Investing in Scotland with rTech?
Scottish Fintech has been a key highlight of Scotland’s modern economic rotation. A more sustainable, inclusive and progressive ecosystem. It is helping to change the shape and face of Scottish e-commerce and finance but has it always been changing it to be more responsible?
Despite the COVID-19 lockdown, the delayed COP26 presents a unique opportunity to reinforce Scotland’s position as a global centre for responsible investing. In doing so Scotland competes with every other country to drive leadership and achieve United Nation Sustainable Development Goals (SDGs). Like Scottish Fintech and the formation of the Scottish National Investment Bank, developing and growing Scotland’s responsible investing landscape is a powerful way to move Scotland’s economy to something more purposeful. The key is collaboration, which stimulates innovation, which encourages inward investment, which produces change in Scotland and overseas.
May 2020 saw the launch of Ethical Finance Hub’s new report, Mapping the Responsible Investing Landscape in Scotland’, which examines the responsible investment market in Scotland, looking at:
- History: the history of responsible investing with a focus on Scotland;
- Ecosystem: the composition of the Scottish responsible investment market, and the linkages between different participants;
- Taxonomy: the terms used by Scottish fund managers to describe their approaches to responsible investment; and
- Market Size: The size of the responsible investing market in Scotland, and how it compares to Ireland and the rest of the UK.
The motivation behind the report was to raise awareness and support the growth of the responsible investing market in Scotland. Having engaged with a number of stakeholders, as well as undertaken internal desk-based research, it was apparent that, whilst data on the sector exists for the UK as a whole, there was little or nothing specific to Scotland available. A link to the report can be found here: https://www.ethicalfinancehub.org/investingscotland2020/.
The report sets out the following call to action:
“Across the globe individuals, organisations and governments are starting to move from talk to collective action as we strive to achieve inclusive economic growth without depleting natural resources. It is now widely recognised that the financial services sector has a fundamental role to play in delivering universally supported targets such as the Paris Agreement and the SDGs. However, despite its potential, the current financial system can be a cause of, rather than a solution to, some of the pressing challenges our planet and its people currently face. In trying to address this predicament Scotland is reflecting on its heritage and seeking to emerge as a leading centre for a new financial paradigm that looks beyond profit and shareholder value to deliver social, economic or environmental impact as well as financial returns.”
In parallel Scottish Fintech can now boast over 120 Fintechs, connected with 15 universities, 16 tech spaces, accelerators and incubators. The conditions are fertile for cross pollination between responsible investing initiatives and Fintech. Yet Scottish Fintech and Scottish Asset Management are, at best, acquaintances rather than partners driving true innovation in responsible investment. Only by linking the success and innovation of Scottish Fintech with the opportunity in responsible investing can Scotland truly compete and succeed as a global leader. Bluntly put, Scottish asset managers and asset owners are missing a step in utilising the talent within Scottish Fintech.
Indeed a key observation in the report was the lack of collaboration between Scottish Fintech and Scottish asset managers in creating new solutions to expand investment, improve data and clarify the taxonomy (the universe of terminology). This is totally in keeping with what I set out as a New Fund Order’, the enablement and transformation of asset management through Fintech.
Stephen Ingledew, Chief Executive at FinTech Scotland said:
“Fintech innovation in asset management and capital markets is a fast emerging trend with a growing number of fintechs in Scotland developing innovative propositions to help the sector be more efficient and deliver better outcomes to investors. THis is being boosted by Scotland attracting many international fintech firms for example Agrud from Singapore and Actelligent from Hong Kong, who are attracted to Scotland because of university research capabilities and highly qualified students and professionals.”
The Scottish Asset Management Market
With £8 trillion AUM (as at end of 2019) the UK is currently the second largest global centre for asset management after the United States. Within the UK, Scotland is the second largest financial services centre after London, and includes the headquarters of Aberdeen Standard Investments – the largest active manager in the UK with a total AUM of £525 billion as of June 2019. Scotland is also a growing centre for fund administration (also referred to as asset servicing’), with strong corporate links with firms based in London and overseas.
Today, asset managers in Scotland include: Aberdeen Standard Investments, Aberforth Partners, Amati Global Investors, Ardstone Capital, Baillie Gifford, Blue Planet Investment Management, Cadence Investment Partners, Cameron Hume, Castlebay Investment Partners, Circularity Capital, Cornelian Asset Managers, Dalmore Capital, Dundas Global Partners, Edinburgh Partners, Kames Capital, Martin Currie, Panoramic Growth Equity, Pentech, Revera Asset Management, RM funds, Saracen Fund Managers, Stewart Investors, SVM Asset Management, Walter Scott & Partners and Valu-Trac. The following are now subsidiaries of larger asset managers based elsewhere: Kames Capital (Aegon Asset Management), Martin Currie (Legg Mason/Franklin Templeton), Edinburgh Partners (Franklin Templeton) and Walter Scott & Partners (BNY Mellon). Firms originally founded in Scotland, like Newton (also part of BNY), still retain a Scottish presence.
In addition, a number of asset managers headquartered elsewhere have branch offices in Scotland including: Liontrust Asset Management, Investec, Janus Henderson Asset Management, Franklin Templeton, BlackRock and Barclays. Lastly there are a number of smaller boutique firms, many of which straddle fund management and financial advice such as; Alan Steel Asset Management, Balmoral Asset Management, Charlotte Square Investment Managers, KPW Investments, Murray Asset Management, Odysseus Capital Management, Par Equity, Rossie House Investment Management, Rutherford Asset Management, Social Investment Scotland, TCAM and Trafford. Together these asset managers manage a mixture of open-end, mandates and closed-end funds for domestic and overseas investors, across a broad gamut of asset classes. The vast majority noted above (if not all) are categorised as active managers’ (that is, they do not track an index). Currently there are no Exchange Traded Fund (ETF) or passive’ (index tracking) providers based in Scotland.
Fintech Innovation is Happening but not Everywhere
We see more innovation in the asset servicing part of the market but again could grow significantly from here. Currently Scotland does not have any investment exchanges upon which to trade assets. Currencies are traded without a centralised location, rather the FOREX market is an electronic network of banks, brokers, institutions, and individual traders (mostly trading through brokers or banks). Scotland has no central clearing companies; for asset managers, the main firms that serve the UK are Euroclear, Clearstream, LCH Clearnet and Calastone. All are based in London or overseas. Similarly all of the large global custodians like State Street, RBC, BNY and Blackrock (that control >90% of the market) centralise their custody operations outside of Scotland. Scottish stock brokers include Redmayne Bentley, Speirs and Jeffries (acquired by Rathbones in 2018) and StockTrade. However the majority of brokerage is controlled by large investment banks like Morgan Stanley, JP Morgan and Goldman Sachs outside of Scotland.
Meanwhile smaller providers like Valu-Trac, based in Inverness, and Multrees Investment Services, based in Edinburgh, offer a range of fund management, administration, custody and back office services. A number of asset managers (e.g. JP Morgan, Morgan Stanley, Blackrock) also base their asset servicing and technology operations in Edinburgh and Glasgow. Computershare is a global leader in financial services and data management, working with around 16,000 global clients and their 125 million customers and having an established operation in Scotland providing relationship management and registry services to around 150 listed companies in Scotland and beyond.
The analysis of the Scottish responsible investing market can be summarised in the following table of strengths, weaknesses, opportunities and threats.
Fig. Extract Mapping the Responsible Investing Landscape in Scotland’.
Page 55: SWOT Analysis’:
Conclusion: A Missed Opportunity
This innovation is not being replicated in the front and mid office of asset managers or asset owners and here the opportunity arises. Scotland lacks many of the traditional levers to stimulate responsible investment. This stymies the size the market could grow to. It also presents as a missed opportunity for Scottish Fintech. The goal is encouraging external investment into Scotland through asset management and asset owners. In doing so to become a global headquarters for responsible investment. Developing technology solutions and platforms to transplant these deficiencies calls on Fintech investment. The dawn of rTech’, responsible and sustainable Technology, with it the New Fund Order’ is set to becoming increasingly Green.
JB Beckett, Consultant, Ethical Finance Hub, Global Ethical Finance Initiative #GEFI #newfundorder #fintechscotland #scotlandisnow #scotlandistomorrow
Co-Author Mapping the Responsible Investing Landscape in Scotland’
Author New Fund Order 2.0 A Digital Resurrection’
Co-Author: The WealthTec Book’, AI Book’ and Paytech Book’
Photo by Karolina Grabowska from Pexels
Operational Resilience by Mihir Joglekar Business Analyst, AutoRek
Globally, organisations’ operational resilience is currently being tested as key members of staff are working remotely. The need to access data in real time has increased and reporting accurately has become more critical than ever.
Operational readiness can be defined as an organisation’s ability to anticipate, prepare, respond and adapt to uncertainties and disruptions to successfully deliver services to its client base. It requires both tactical and strategic thinking.
The Financial Conduct Authority (FCA) suggests organisations follow these three steps to support operational resilience (CP19/32):
- Focus on continuity of its most important business services.
- Conduct an extensive impact vs threshold exercise of all business services, and the levels of disruption that could be tolerated. This exercise should be conducted and reported at the highest level of seniority of organisational management i.e. board level.
- Consider disruption as a certainty and ensure adequate plans have been agreed to mitigate its impact to services.
The FCA reinforces the need for firms to develop and improve capabilities so that any systemic impact event is contained. Focus should be on time taken to respond, effective internal and external communication, particularly with customers. The FCA have also linked operational resilience as part of its objectives involving Consumer Protection, Market Integrity, and Effective Competition by ensuring resilient firms can support ongoing availability of services, thereby reducing harm to the consumer.
While operational resilience is not a new concept to the business community, what is missing is a complete approach to address resilience. Organisations may already have components like crisis management plans, disaster recovery plans and secondary sites etc., but unfortunately over the last two decades there have been a number of stress factors that have contributed to this subject being relegated as more pressing issues have taken priority mainly due to:
- 2000-02: Dot-com bubble and the impact due to its crash i.e. only 48% tech companies survived post event
- 2007-2010: Financial crisis trigged by subprime loans and reduced oversight of the industry at that point
- 2010-15: European sovereign debt crisis due to EU Member States taking on unsustainable levels of debt
- 2014-17: Chinese financial crisis with the popping of the stock market bubble
- 2019-21: Corona virus (COVID 19) related lockdown and economic downturn
The current “Great Lockdown” due do COVID 19 has simply functioned as a catalyst for serious action, triggering management and leadership team to renew efforts.
One way of differentiating operational risk from operational resilience is to consider the internal vs external force perspective. Operational risk is largely internal to an organisation due to a blend of systemic and non-systemic risks associated at micro level of business processes, while resilience is an organisation macro level initiative where all business units contribute towards establishing a resilient business and is inclined more towards external circumstances. Both risk and resilience are intrinsically connected and an organisation’s ability to effectively address operational risks across business functions will contribute to its overall resilience. The table below outlines these differences.
Following the publication of the discussion paper, Achieving Operational Resilience and the conclusion of the consultation process, the FCA has communicated its intention to review and where applicable, consider all feedback received as part of its final policy statement.
The FCA proposal include that firms:
- Identify and Categories their important business services.
- Set Impact Tolerance for each of these services.
- Test their ability to support these services across a range or scenarios
- Conduct active lessons learnt exercises
- Develop internal and external Communication plans
- Establish self-assessment and reporting documentations
Within the context of the current crisis our economic engines must start to fire up again and business must ramp up at the earliest safest opportunity. This is where AutoRek sees its innovative software making a significant contribution towards business, who still need to deliver service excellence to their clients in an unified manner, utilising new and innovative workflow and people management practices more than ever are reliant on distributed and remote team work.
In conclusion, organisations are now actively progressing their operational resilience programmes that will continue to evolve around new set-ups as leaders and managers gradually commence the return to a new and adaptive business as usual.
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An interview with Nicki Bisgaard, CEO at EedenBull
Congratulations on your recent announcement about the extension of your strategic partnership with Mastercard. Can you tell us a bit more about what it means for EedenBull?
Thank you. The strategic partnership with Mastercard is key as we continue to develop our new and innovative payment programmes, making it easier and safer for businesses to pay and get paid in an ever changing world. Both Mastercard and EedenBull service banks and their customers and seek to secure competitive advantages for the banks we service together. Having a partner like Mastercard strengthens our ability to innovate through direct access to Mastercard’s assets and expertise, it significantly strengthens our distribution power and it creates significant awareness throughout the European marketplace for who we are and what we can do. That said, there are obvious benefits to Mastercard too. Through EedenBull they gain access to highly specialized expertise particularly in commercial payments as well as an extremely committed team of developers.
Can you speak to us about some of the new developments at EedenBull?
As you know, we have already launched our Q Business payments and spend management platform which is a direct response to universal requirements of small and medium sized businesses, organisations of different sizes and the public sector for enhanced control, spend visibility, and streamlined payments processes. The programme is currently being distributed by 65 banks in Norway with several thousand businesses already using the service. We are continuously developing new and exciting features and functionalities, always with a customer centric approach, understanding and responding to customers’ real issues and challenges.
With the current COVID19 situation have you seen more companies approaching you to manage expenses remotely?
The short answer is yes. We are seeing a great interest in our services from exisiting and potential new partner banks around the world as well as from their customers. The pandemic has certainly brought about an increased awareness of payments related issues facing businesses of all categories and sizes. Even prior to the outbreak, we already had a situation where new regulations, new technologies and new players were changing the way businesses and consumers were thinking about payments. Many of the trends we saw emerging towards the end of 2019 have been accelerated by the pandemic. Think about contactless payments, e-commerce, cashflow, need for working capital to mention but a few.
You opened your Scottish office last year; can you tell us about what your experience of the Scottish fintech cluster has been so far?
It’s been great. Ever since setting up shop in Edinburgh, or even way before, we have enjoyed the support we have been receiving from the Scottish fintech community in general and FinTech Scotland in particular. The access to likeminded businesses and organisations, the government in Scotland and the many extremely talented people we have been lucky enough to employ has quite frankly been instrumental in securing the momentum and successes we have enjoyed thus far.
Are you looking to grow your presence in Edinburgh in the next 2 years? How many people will you be recruiting?
Just to make one thing clear: We are staying in Edinburgh, no question about that at all. We love being a part of the fintech scene in Scotland and are committed to continuing over years to come. We will be growing our presence in Edinburgh over the next 2-3 years for sure and will be investing further in attracting talent to work in our team in Scotland. I would be surprised if we by end of 2022 had not increased the number of team members by any less than 100%.
What are the main differences between scaling up a fintech in Edinburgh and Oslo?
What a great question. Upon reflection I would have to say that I think scaling up in Edinburgh isn’t very different from scaling up in Oslo. In fact, probably much more similar than compared to many other locations we could have chosen. We find that the cultural differences are fewer than the similarities, the talent pool is similar, the governmental support on the same levels and the fintech scene is energetic in both cities. There are some obvious current and historic bonds between the two small nations which made it easy for us to come to Scotland and has made it easy for us to stay and to grow in Scotland. We love being here.
An interview with AutoRek’s MD, Gordon McHarg
For those who don’t know AutoRek, could you tell us what you do and what makes you different?
AutoRek is a financial controls and data management platform which automates and streamlines data collection, validation and reconciliation of financial data. We were founded 25 years ago as a Glasgow based consultancy firm specialising in data management and bespoke applications development on the Microsoft platform. The majority of our customers are financial services companies with high transaction volumes and often complex data management requirements.
Our software is a configurable rules driven platform which can be applied to diverse business scenarios including Mortgage payments, Insurance premiums, ATM cash management, internal financial controls and various regulatory reporting requirements such as MIFIDII and CASS (client asset protection).
Over the course of 25 years, we have worked with our clients continually evolving our product to meet the needs of the financial services market adapting to new operational challenges and the ever changing local and global regulations. Our technology has also evolved transitioning from a client server windows application to being web enabled and is now available as a fully featured SaaS solution. Our upcoming Version 6 of AutoRek, scheduled for release August 2020 will be the first release of AutoRek with embedded AI & ML capability.
Making effective use of technology to solve business problems requires a team capable of understanding and delivering solutions. Our primary differentiator in the market is the capability of our people and the commitment of our team to deliver the best possible outcome for our clients.
You’ve signed some very impressive clients in the past few months including Nationwide and the Bank of England. What are the reasons of your success?
We have a number of the UK’s leading financial services organisations as clients which we are very proud to have on board and serve. The Bank of England and Nationwide, were of course, great names to add to our list. In both cases, we were competing with large global reconciliation platforms. Our understanding of the specific requirements of their business and the capability and flexibility of our software to deal not only with the huge volume but the complexity of data led to AutoRek being selected by both organisations.
You also appeared in the Regtech 100 list recently. This is a great achievement.
We were delighted to appear in the RegTech 100 list, one we have been associated with the last 2 years. It is always great to be recognised as a company for our efforts in the industry. It is hard to say if that has helped with recent wins, but it definitely didn’t put us on the back foot. These awards and recognitions are always great to appear in. It shows that our clients are satisfied with how we operate and that what we provide for them as a service helps them in their day to day jobs. They will certainly help AutoRek to be recognised as a leading software in future years.
Can you tell us more about your partnership with Cforia?
In 2019 AutoRek established a partnership with Cforia Software Inc,
a US-based global enterprise solutions provider delivering end-to-end global order-to-cash automation. CForia have embedded the AutoRek product into their Order to cash platform supporting automation of payment allocation and cash reconciliations. Our partnership is still at an early stage however having added 3 new global clients in the last 6 months it is looking very promising.
How has AutoRek been impacted by the COVID19 crisis?
In the early days of the pandemic the health and wellbeing of everyone at AutoRek was clearly our first priority. We moved the whole company to remote working one week prior to the government lockdown announcement. This wasn’t a particularly difficult decision as we were confident that most of our day to day operations could be executed remotely and that has proved to be largely the case. Some initial logistical challenges have been overcome and the initial novelty of video calling has worn off and become the typical day to day for most us.
As far as business is concerned our existing customers combined with a strong order book has kept everyone busy. Clearly there has been a significant impact on the market and going forward new business development will no doubt be challenging. That said, technology businesses are well positioned to help customers adapt to new operating environments, be that the support of effective home working or improving business efficiency through automation. Difficult market environments change business priorities and create opportunities for innovation, and it is important to be ready to adapt to meet client needs. A good example of this is the client money protection regulations introduced following the 2007/2008 Global Financial Crisis. This created an opportunity for AutoRek and now more than 30% of our clients use our software to help them comply with the regulation.
Operationally the company has continued to perform very well and deliver for our clients however undoubtedly many of our team, including myself, are missing the day to day interaction of the workplace. Our team culture is central to who we are as a company, while remote working has become the new “norm” and is undoubtedly here to stay we are all looking forward to the opportunity to get back together as a team.
What do you think the future of automated reconciliation is?
The availability, quality and integrity of data within a financial services company is critical to its success. Whether it is understanding the business performance of a new product line, delivering quality services to clients or complying with regulation a key requirement is almost always about getting data right.
Data volumes are growing at almost exponential rates and regulatory demands continue to create significant strain on the industry. At the same time market disruption from new Fintech start-ups and large multinational tech platforms like Apple and Google leave the more established financial services organisations needing to accelerate innovation while at the same time reduce the cost of operations.
Empowering key decision makers, finance functions, compliance or customer management teams requires tools which are easy to use and support non-technical users in collating, reconciling, aggregating and analysing increasingly large and complex data. Recent developments in robotics, artificial intelligence and machine learning technologies present significant opportunity to reduce the complexity, automate manual processes and accelerate decision making for our customers.
What are the main challenges for regulatory reporting?
Over the past decade, in the aftermath of the global financial crisis, the finance sector has been swamped by regulatory change. Large established organisations as well as new entrants are required to comply with these regulations while at the same time evolve their customer service offering to keep pace with the increasing expectations of the digital consumer.
- Being clear and transparent – Regulators continue to test firms with a focus on restoring confidence in markets and improving transparency and fairness. Automating and integrating regulatory reporting, increasing operational efficiencies and mitigating risks are key to relieving some of the pressures compliance brings.
- Managing Data – Both regulators and auditors expect organisations to be in full control of their data. This means understanding the completeness and accuracy of the data used to complete regulatory returns. AutoRek works in conjunction with existing systems to complete and perfect financial and operational control processes. Our solutions help firms overcome spreadsheet intensive data management and reporting processes, ensuring ongoing control and regulatory compliance.
How would you describe Scotland as a place to launch, develop and grow a tech company?
Scotland has a reputation globally of producing talented graduates with an excellent attitude to work. Our universities produce thousands of graduates in tech, maths and sciences allowing us to attract some of the world’s leading financial organisations. While this has an impact for home grown companies, e.g. when competing for staff, it has also been key to creating the thriving digital economy and growing Fintech sector that we have today.
Ultimately for most companies the key to success is having a great team. Of course, there are some overnight successes but the majority of businesses develop and mature over time. The fantastic quality of life with low commuting times and excellent cultural scene make Scotland a great place to start and grow a business.
What does the future look like for AutoRek?
Although we have a number of global clients, for the last 25 years, AutoRek has predominantly been working within the UK market focussed on Asset Management and Banking sectors. In 2020 and beyond (this year being slightly delayed), we are looking to grow our business in the US and further develop our presence in the Insurance sector. With having an established partnership with Cforia Software Inc, a working capital and accounts receivable (A/R) automation software, we are well on our way to achieving our goals.