Ian Kerr

March 20, 2017: India is on the move towards digitisation in trade. Our attendance at this year’s GTR India Trade and Treasury Conference in Mumbai certainly confirmed that. With delegates from more than 120 companies and the key banks in the region all energetically networking, we had an excellent opportunity to establish new contacts, strengthen existing relationships and take the pulse of the Indian market.

From our perspective, India looks very positive, advancing towards the national government’s target of increasing digitisation in all spheres of life, whether through a massive rollout of internet access, electronic payments and digital ID systems, or more importantly for us, through increasing readiness to convert to electronic presentation in trade documentation.

A strong sense of the upbeat approach to digitisation came in a panel I moderated looking at ‘Trade digitisation and its application for India: successfully implementing fintech into your company model’. This involved a discussion between Rugved Dhumale, Deputy Treasurer, Petrochemicals at Reliance Industries, and Rakesh Patwari Head of Business Development, Global Trade and Receivables Finance at HSBC India.

The pair reflected on the first digital transaction between Reliance and a customer in Italy, supported by HSBC and which was completed using the Bolero platform. Since it was also the first document exchange of its kind in India, they also discussed the potential benefits and challenges of wider trade digitisation for the country as a whole.

Rugved explained that the transaction had been two years in the planning, but it was the first step in the growing acceptance of digital trade documentation. Although there were various technologies available, the advent of Bolero meant the time for digitisation had arrived, given its ability to accommodate complexity and the differing nature of each transaction for the benefit of all of the counterparties.

Rakesh said digitisation was part of a ‘generational shift’ in international trade and part of HSBC India’s role as a facilitator. “Our purpose is to make the process simpler and smoother, and this (Bolero) brings visibility to every single stakeholder,” he explained.

Having the backing of such huge and respected Indian companies and institutions such as Reliance Industries and HSBC India is very significant step to help to increase digitisation in trade documentation. At Bolero, we already have important Indian banks as members of our community and after speaking to many of the corporate representatives at the event, it became clear that our digital innovation is now resonating very well among the country’s exporters.

There clearly is a groundswell of interest, encouraged by the recent report from Maersk and the Confederation of Indian Industry. Entitled ‘Stimulating India’s EXIM by reducing costs of trade’, this report showed how Indian exports could be boosted by between five and eight per cent if greater priority were given to infrastructure improvements, digitisation and the reduction of regulatory burdens and delays. It demonstrated that inefficiencies can account for anything between 38 and 47 per cent of the total logistics cost. A reduction of 10 per cent in these costs could yield more than $5 billion cost savings each year, a figure that should catch the eye of Indian regulators as well as the country’s corporates.

Although India is not currently as advanced as China in trade digitisation, the potential is huge, given that export growth projections for the country are considerably more than seven per cent for 2017-2018. In China, where Bolero already has many important customers, the realisation that exports will be required to sustain stellar growth rates has prompted the government to push the pace with a series of steps, including the establishment of export credit facilities.

Nonetheless, in India, there is now a real desire to embrace digitisation, led by companies with the vision and enthusiasm such as Reliance. There was no doubt that there is an upbeat mood in this fast-developing economy and trade digitisation should be very much at the centre of this remarkable country’s rapid emergence as one of the world’s great exporting economies.

Ian Kerr is the CEO of Bolero International

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What is your take on the electoral result in the Netherlands?

After the annus horribilis in which several elections resulted in unexpected outcomes (admittedly without the much feared negative impact on asset prices), this time we have had a result that is in line with recent polls and will not lead to a tremendous change in the policy and political approach of the country involved. That said, a negative aspect is the fragmentation across parties of the result (also expected), which will likely be a source of instability and difficulty for the government.

It remains to be seen how the incumbent premier, Mark Rutte, will try to form a new government. It seems clear that any coalition will involve at least four parties, ranging from the center-to-right to the left of the political landscape (generally, ‘Pro-Euro’); during the campaign, he repeatedly ruled out any possibility of repeating a coalition with Geert Wilder and his anti-immigration Freedom Party.

Do you think this could influence the outcome of elections in France?

Success breeds success: this was apparent last year with the rise of the ‘populistic’ movements across the globe.  This result could, therefore, suggest that a peak in the appeal of these ideas is behind us and that a more constructive approach to policy and politics and, above all, to Europe is gaining momentum. So, yes, in our view, it could have a positive influence on the French vote.

What is your assessment of the risk of a Euro break-up and how has it changed over the last few months?

A break-up of the Euro is, economically speaking, an unacceptable event. European Central Bank President Mario Draghi abruptly clarified this concept when he stated the fact that any country exiting the Euro would need to clear its Target2 balances first (which for Italy amounts to around €390 billion).

But what if Euro-sceptic forces start taking the lead in a number of countries? We think a useful analogy here is to imagine the Eurozone and Europe are a cyclist that is going uphill. They cannot stop pedaling until they reach the top of the hill (i.e., when everything is in order, and clearly we are not there yet) otherwise they will start to go backwards and will, eventually, fall down in a heap. This may appear a bit extreme: on some issues, the progresses and benefits of the currency and Union are clear; but there are other mechanisms, particularly in the field of sharing risks, solidarity and common policies, that still have to be resolved. And these have been put under severe pressure given the scale of the recent crisis. The cyclist must arrive at the top of the hill and commence the downhill journey before the next crisis arrives. Yet, if Euro-sceptic forces gain appeal and power in the Eurozone and Europe, we see an increased likelihood that our cyclist stops pedaling.

Last year, starting with Brexit, the probability of a ruinous standstill in Europe rose materially, although it is still considered a tail event. Higher spreads between OATs (the 10 year French government bond) and BUNDs (the 10 year German government bond) are the market’s assessment of that probability (which does not including credit risk or sovereign default risk). Meanwhile, the issue of a Euro exit, or adoption of a different currency, is a recurrent theme – most recently in the electoral positioning of political parties in Italy – is another perilous sign.

The Dutch electoral result has enabled this risk to recede a little, but there are a number of political issues ahead: elections in France, Brexit with the complication of a second Scottish independence referendum, the still unresolved Greek question, and possible political instability in Italy to name a few.

How can investors deal with geopolitical risk within a multi-asset approach?

Geopolitical risk remains, in our view, the main factor for investors to watch over the next few months. Financial markets are too complacent ahead of the wave of elections in Europe: equity volatility is reaching new lows even though the probability of a country leaving the Euro, as highlighted by the Sentix Euro Break-Up Index, is trending towards post Brexit levels.

If we also consider the uncertainties related to the execution of Trump’s policies in the US, and of his potentially unfriendly foreign policy for some Emerging Markets, we see significant risks of disappointment for financial markets. This also considering extended valuations in many developed equity and credit markets.

Therefore, we believe investors should consider implement hedging in an effort to partially offset the negative effects of geopolitical risk. There are multiple strategies available for investors: lowly correlated assets, such as gold; currencies that tend to behave as ‘safe havens’, such as the Swiss Franc, and, especially in case of rising risks in the Eurozone, the US dollar; or the use of derivatives to try to protect risk asset exposure. A multi-asset approach, which includes hedging among its investment strategies, can be beneficial in a period of rising geopolitical risk. It can efficiently combine the most effective hedging techniques, determining cost-efficient strategies for those risk events deemed most likely and impactful.

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January 18, 2017: XL Catlin’s P&C Underwriting Capital Management operation has appointed Anne Middleton to manage its ceded reinsurance placements globally.XL Catlin insurance companies offer property, casualty, professional, financial lines and specialty insurance products globally.

Previously, head of finance for several XL Catlin insurance businesses, in her new role, Ms Middleton, who is based in London, will be responsible for overseeing and negotiating the terms, structure and pricing of XL Catlin’s reinsurance programs. She reports to Mark Van Zanden, Chief Executive of XL Catlin’s P&C Underwriting Capital Management team.

Commenting on the appointment, Mr Van Zanden said, “Having strong reinsurance protection allows our P&C underwriting businesses to improve existing and develop new products to help our clients address their known, emerging and new business risks.  Anne will be a supportive partner to our business lines as we look to build reinsurance programs that meet our risk appetites and can help us achieve our underwriting and profitable growth objectives.”

Ms Middleton is a graduate of the University of Oxford. She most recently served as Head of Finance for XL Catlin’s Global Energy, Property & Construction lines of insurance, providing financial support, including analytics, planning, forecasting and risk underwriting monitoring to these business lines.

Prior to joining Catlin in 2012 as an ERM Capital Actuary, she spent five years with PWC as a senior consultant providing actuarial as well as wider economic and risk analysis.

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January 12, 2017: CAMRADATA, a leading provider of data and analysis for institutional investors, has collated the top 10 global investment trends for 2017 from a range of its asset management clients.

Sean Thompson, Managing Director, CAMRADATA says, “Our asset management clients have predicted that 2017 will be an extremely interesting year for investors. We are in a midst of a sea change in the global environment that will create both opportunities and risks.”

The top investment trends for 2017 from asset management firms:

A year of volatility in global markets

The political uncertainty in both the USA and Europe following the election of Donald Trump, Brexit negotiations and the forthcoming French and German elections are all going to have a big influence on the markets and continued volatility.

According to Mark Burgess, Chief Investment Officer EMEA and Global Head of Equities at Columbia Threadneedle Investments, “2017 will be a year of volatility as markets make sense of the promises and policies that politicians have promoted, and that volatility in markets provides the perfect opportunity for active management.”

Steven Bell, Chief Economist at BMO Global Asset Management EMEA, believes that Trump’s victory will be the ‘key driver of change’ and that the global economy is starting to heal. “A number of key indicators suggest that the world’s economy has been healing for some time. Monetary policy has played an effective role in this healing process but seems to have reached its limits with negative rates having disappointing effects in Europe and Japan. The baton should be passed to the fiscal authorities and Trump looks set to run ahead with it. Whether other countries will follow suit remains to be seen.”

Interest rate rises and falls

Most companies are predicting interest rate rises in the USA, but a fall in emerging markets.

Ricardo Adrogué, Head of Emerging Markets Debt at Barings, says, “Over the next year, global interest rates will likely move in different directions. As the US economy continues to gain steam, rates will likely increase while Europe and Japan appear on track to continue their accommodative policies. On the whole, EM local interest rates continue to fall as inflation remains healthy and growth remains tepid.”

Global inflation on the rise

Ricardo Adrogué, Head of Emerging Markets Debt at Barings, says, “Global inflation may rise but will likely remain relatively subdued over the next several years. Due to the lower inflationary pressures, we expect to see lower overall interest rates for EM local bonds where nominal yields offer significant compensation for risk.”

Bonds poised for solid performance

Robert Tipp, Managing Director, Chief Investment Strategist and Head of Global Bonds at PGIM Fixed Income, says, “Between the Brexit vote and the Trump sweep, 2016 was a year of surprises and bumps, but it was a generally productive year for the bond market. And, when we look at 2017, our best guess is that the opportunity in the bond market will once again outweigh the risks and that bonds are poised for solid performance.”

Embracing credit risk

Jan Straatman, Global CIO at Lombard Odier Investment Managers (LOIM), and Salman Ahmed, Chief Investment Strategist at LOIM, point out that in the world of largely low or negative rates, investors should consider increasing their exposure to credit risk through an allocation to corporate credit in 2017.

However, they say investors need to look beyond the higher-rated, investment-grade segment of this market where duration risk is a dominant force.

They comment: “We believe that to increase yield sufficiently, investors should move further down the credit spectrum. In our view, the so-called ‘crossover’ universe, which spans the lower quality investment-grade (BBB) and higher-quality high-yield (BB) rated issuers, provides significant return enhancement relative to investment-grade issuers while not exposing investors to the excessive default risk that is a feature of high-yield debt (rated B and below).”

Growth of global equities

The move into equities is another key trend.

Mark Burgess, CIO EMEA and Global Head of Equities of Columbia Threadneedle Investments, says, “Compared to their longer-term history, equities still offer better value than bonds – though this might change, should the ‘bond bubble’ burst in 2017.”

Steven Bell, Chief Economist at BMO Global Asset Management EMEA, says, “Higher US rates and a strong US dollar will see markets struggle to make much headway and although equities are our favoured asset class, stronger economic data could see bonds rally and shares fall at some point. In terms of sectors, recent trends look set to continue with cyclically orientated areas outperforming and bond proxies struggling. The prospects for emerging markets remain difficult as dollar strength and rising rates outweigh the benefits of better growth. But 2017 might be the year in which European equities finally outperform, ending half a decade of disappointment.”

Impact of technology

Technology will also have a significant impact in 2017.

According to Richard Turnill, Global Chief Investment Strategist at BlackRock Investment Institute, “Technological change is sweeping through industries, overhauling business models, reducing traditional jobs and limiting inflation. The rapid pace of technological change is causing disruption across industries and displacing jobs − and is arguably fuelling populist politics.”

Advances in artificial intelligence could have an even bigger impact on better-paying white-collar jobs in services industries such as finance. And fossil fuel companies risk being upended by renewables once energy-storage technologies improve.

Tony Kim, Portfolio Manager at BlackRock’s Global Opportunities Group says, “Artificial intelligence (AI) is the new electricity. The big bang is upon us. We have all this data, but we can’t do anything with it. AI is the solution.”

Opportunities for active investors to increase

Mark Burgess, CIO EMEA and Global Head of Equities at Columbia Threadneedle Investments, predicts that 2017 will be an active time for investors, and expects opportunities for discerning investors to increase. “Amid rising political uncertainty, fundamental analysis and expert asset allocation will be critical in order to achieve long term returns. The tide of global QE that had previously lifted all boats will begin to ebb in some regions and flow in others, and in that environment it will make sense to differentiate within and across asset classes.”

Challenges in Asia and Emerging Markets

Burgess predicts challenges for Asia and the Emerging Markets (EMs) that are exposed to the threat that Trump poses with protectionist policies. These include China, Mexico, Colombia, Malaysia, Korea and Thailand.

BlackRock Investment Institute also highlights China and the worries around China’s capital outflows and falling yuan. However, they also say China’s stabilising growth has eased some of the anxiety that rattled investors in early 2016. Nevertheless, there are still challenges ahead as ‘China is attempting a difficult balancing act: prioritising near-term economic growth while tackling debt issues for the longer-term good’.

Emiel van den Heiligenberg, Head of Asset Allocation at Legal & General Investment Management (LGIM), points out one of the key risks for 2017 is a significantly weaker Chinese currency driven by capital leaving the country. “Our base case is that the Chinese will manage a 5% real currency fall at the cost of lower foreign currency reserves and tighter capital controls, particularly given the Communist Party’s power transition in late 2017. We do not expect a sharp slowdown in growth. However, the risk of a faster devaluation is not immaterial and, as we saw in 2016, that would likely lead to weaker global equity markets.”

Major challenges in Europe

John Greenwood, Chief Economist at Invesco Ltd, predicts the challenges in Europe will lead to poor economic growth. The slow progress of bank resolution, the weakness of the European Central Bank’s (ECB) QE programme and the consequent descent into negative interest rates are among the headwinds holding back economic recovery.

He also highlights double-digit unemployment levels, leading to disruptive populist and xenophobic political movements, and referenda or elections in Italy, Holland, France and Germany. “At some stage, one or more of these electorates could overwhelm the governing elites, posing an existential threat to the established order – the European Union (EU) or even the Eurozone. Real GDP growth is likely to remain around 1.5% at best, with inflation falling far short of the ECB’s target of ‘close to but below 2%’.”

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IFM Correspondent

November 23, 2016: Falcon Private Bank has appointed Arthur Vayloyan as the Global Head of Products & Services and Member of the Executive Board, effective December 1, 2016.

Arthur Vayloyan has almost 25 years of banking experience. He joins Falcon Private Bank after a long-standing career at Credit Suisse. He pioneered Credit Suisse’s investment opportunities in microfinance and the creation of the award winning advisory process. He held various management positions at Credit Suisse, including Global Head of Investment Services and Products, Head Private Banking Switzerland and Global Head External Asset Management. He holds a Ph.D. in Physical Chemistry from the University of Berne and an MBA from INSEAD.

As a member of the bank’s Executive Board, Arthur Vayloyan will report to Walter Berchtold, CEO of Falcon Private Bank.

Walter Berchtold said: “The appointment of Arthur Vayloyan, a very senior private banking professional and expert in the field of investment products and innovation, complements our Executive Board perfectly. He will be responsible for redesigning our products and services strategy, enhancing our digital capabilities and supporting the bank on its path of transformation to future growth. We are delighted to welcome Arthur Vayloyan in our team.”

Arthur Vayloyan said: “I am convinced that the bank holds remarkable potential for future innovation and growth and I am looking forward to be part of this exciting transformational endeavour.”

The Executive Board of Falcon Private Bank will consist of Walter Berchtold (CEO), Urs Zgraggen (CFO), Erich Pfister (Global Head Private Banking) and Arthur Vayloyan (Global Head Products & Services) as of December 1, 2016.

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Suparna Goswami Bhattacharya

October 20, 2016: It is the last quarter of the year and things have changed drastically since January for the global economy. Asia, in particular, has witnessed a change in outlook by economists.

Back in January, things looked shaky. Chinese currency wobbles, deterioration in economic data rattled investor nerves. In short, back then it was thought that the global economy, especially Asia, will be witnessing a rocky year.

Jump to the present and things have turned out to be pleasant surprise. Stronger-than-expected growth in China explains Asia’s stable growth trajectory.

Frederic Neumann, co-head of Asian Economics Research, HSBC, says, “Thanks to China, Asia has indeed had a decent year so far. Brexit, too, did not overtly rattle nerves in Asia.”

Additionally, the US Federal Reserve’s decision to postpone interest rate hikes also contributed to the stability.

“Monetary policy delay in the US due to mounting global headwinds has taken the pressure off Asia’s exchange rate and financial markets,” says Ricard Torne, head of economic research at FocusEconomics.

China government plays Santa

There is little doubt that China’s economy fared better mainly because of the policy support it received from the government. One of the consequences of government-led growth has been a surge in housing prices, particularly in main cities.

“More recently, in an attempt to tackle burgeoning corporate debt, the government unveiled a series of measures, which included encouraging mergers and acquisitions, swapping debt for equity and facilitating firms’ bankruptcy,” states Torne adding that he expects the economy to grow at 6.6% this year and 6.3%  in 2017.

A reduction in growth though is not necessarily worrying.

Adam Cotter, head, Asia Pacific, Official Monetary and Financial Institution Forum, says, “Slower growth is normal for the world’s second-largest economy. GDP growth around 6% is still impressive by global standards.”

Though things certainly look more upbeat now with the renminbi’s inclusion in the SDR of the International Monetary Fund (IMF), it is unlikely to be a lasting phenomenon. The SDR is an international reserve asset created by the IMF to supplement its member countries’ official reserves.

“Notably, the likely tightening of monetary policy in the US in December would cause the renminbi to depreciate against the dollar temporarily. Since growth in recent quarters has been fuelled by short-term factors, notably government stimulus, this needs to be changed in the long run. Stimulus-driven short-term gains to the economy risk jeopardising its sustainability growth mode,” adds Cotter adding that China anyway is overly reliant on credit expansion.

Other growth engines

Though China continues to be the one of the most important drivers of growth in Asia and perhaps the world, the fact that its economy is rebalancing and maturing means other countries in region will have to pull up their socks.

Japan and Hong Kong are experiencing zero or sub-par growth.

“Japan’s aggressive monetary policy easing and bold fiscal stimulus are failing to jumpstart the economy and reviving inflation. This situation is exacerbated by appreciation of the yen and weak global demand,” says Torne adding that Prime Minister Shinzo Abe will have to launch the ‘third arrow’ of his reform plan in order to assure a sustainable growth trajectory in the future.

As far as Hong Kong is concerned, growth is lower than expectations, but the economy is shaping up remarkably better than at the outset of the year. The economy picked up momentum in Q2 2016, as GDP grew by 1.7% yoy, up from 0.8% yoy in Q1 2016.

“That said, the rebound in growth also came on the back of inventory accumulation, the impact of which will likely to fade in the absence of any meaningful pickup in demand over the coming months,” says Neumann.

Onus on India and Philippines

With other Asian countries slowing down, the baton for the world’s fastest-growing major economy is being passed to India. India is projected to rise up the ranks of the global economic league table, with economic expansion supported by favourable demographics and modernisation through reforms, says Cotter.

Adds Torne, “The government’s positive attitude towards economic reforms bodes well for the longer term growth trajectory and concrete steps have been taken to improve the business climate.”

However, growth remains lopsided across the economy and reducing stress on banks’ balance sheets is vital to boosting credit growth and supporting fixed investment, which was a weak spot in Q1 FY 2016, he says.

For Philippines, domestic demand is mainly driving growth performance.

“However, policy unpredictability associated with President Rodrigo Duterte could threaten the country’s healthy economic outlook. The Philippines will expand a strong 6.5% this year, overshooting last year’s 5.9% growth,” says Torne.

Asia losing its sheen

Despite Asia being called the main source of growth for the world economy, the fact remains that it is no longer growing at the expected pace.

“In a number of economies, debt continues to climb at a rapid clip. Meanwhile, whatever small lift came through on the external side is bound to quickly fizzle, with continued lacklustre demand in the West,” says Neumann.

“The region has lost some steam compared to the growth rates recorded in the aftermath of the global financial crisis. Weaknesses in the region are mostly related to the slow global economic recovery, which weighs on Asia’s all-important external sector. Domestic vulnerabilities have also played a role in Asia’s slowdown. These include Japan’s inability to tackle an ageing population and long-lasting deflation, and the slow implementation of economic reforms in China, India and Indonesia,” concludes Torne.

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October 19, 2016: Nasdaq (Nasdaq: NDAQ) has officially announced that Shanghai Futures Exchange (SHFE), one of the world’s largest futures markets, has launched a new market surveillance platform powered by SMARTS, Nasdaq’s flagship surveillance solution.

“We are truly honoured to be working with Shanghai Futures Exchange on their market surveillance efforts and believe that our partnership underscores the exchange’s commitment to maintaining the integrity and transparency of their marketplace,” said Ulf Carlsson, Vice President and Regional Manager, North Asia and Japan, Nasdaq. “As the Chinese exchange continues to increase its footprint globally, it simultaneously needs market monitoring capabilities that are scalable and match this growth. Our technology is proven across the board to be a true leader in the surveillance space, and we look forward to a long relationship with SHFE and supporting them in their efforts.”

The new system processes significant volumes of market information in real-time for SHFE to detect anomalies and also includes tools that allow analysts to make sense of the vast amounts of data for investigative purposes.

“We’re excited to work with such a rapidly developing exchange as the Shanghai Futures Exchange,” said Tony Sio, Head of Exchange & Regulator Surveillance, Market Technology, Nasdaq. “Markets globally have become increasingly sophisticated, and we continuously develop new technology to allow exchanges to monitor this activity. By taking in vast quantities of market events at the lowest level of detail, the tools build advanced models of the overall market as well as each participant’s behavior. Collaborating closely with SHFE, we have been able to incorporate the unique characteristics of a Chinese exchange into the solution. Market integrity is core to effective marketplaces and it is a privilege to be able to assist SHFE as the exchange evolves and grows.”

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Suparna Goswami Bhattacharya

June 29, 2015: The one industry which has gone through a sea of transformation in the last decade is the financial industry. It all started with the opening up of ATMs and the addition of online banking option. And now, the physical bank may not exist at all for the concept of online-only banks is fast catching up in countries like China, US and UK.

Basically, financial institutions opting for branchless banking will not have any kind of physical presencein any of the markets. However, they can offer all standard retail banking products, including current accounts, credit cards, savings accounts, personal loans, insurance and mortgages.

With the cost of managing a physical branch increasing and banks struggling to remain profitable, the new entrants in the space are trying their best to disrupt the way the industry functions. In US, Atom Bank, Ally Bank, Bank5 Connectare all internet-only banks with a focus only on smartphone interface. Similarly, in China we have WeBank, which has launched its online-only banking services, while Huangzhou-based MyBank will soon launch a similar service. In fact, the usually conservative China Banking Regulatory Commission has given its nod to these new lenders.

Over the past decade, online banks have established a significant and growing presence in the consumer deposits market. In the UK, First Direct, an internet-based retail bank, has around 1.25 million subscribers while in the US, the Ally Bank has just under 1 million users. Even in Japan, these banks have gained traction.

So what exactly has lead to a spurt in demand for online-only banks when traditional banksoffer online services as well? Though the large traditional banks still control the majority of market share globally, thenew entrants —online-only banks and online lending platforms — are growing quickly and starting to see broader acceptance with better products and more focus on customer service. Lower cost base, similar product portfolio at competitive rates, services tailored specifically to online only engagement are some of the factors leading to growing presence of such banks. In the US, for example, online only banks typically undercut traditional banks on maintenance fees.

“I’d argue that the recent banking scandals, in which the reputations of many leading banks took a hit, creates an opportunity for new, agile online-only players who might be perceived as offering a new approach,” says Windsor Holden, Head of Forecasting & Consulting, Juniper Research.

For online-only banks, with no expensive branches to manage, operating costs are lower and, hence, more profitable. US-based Ally Bank has enjoyed annual double digit growth in both retail deposits and customers, recently surpassing $50 billion in deposits. “Our lower operating costs allow us to pass the savings along to customers in the form of competitive rates, products and services. This customer-centric approach has been a factor in our leading position in the marketplace and overall growth,” says Diane Morais, President and CEO, Ally Bank.

In fact, these banks rely a lot on analytics to improve customer experience. “Removing the physical branch is only the beginning.  True value is driven by better analytics and technology that allows you to cater products for specific individuals and provide a better experience than one in the branch,” remarks Al Goldstein, CEO, Avant, a Chicago-based startup which provides online personal loans. The key is to create real time processes and transparency to empower the consumer rather than forcing them through cumbersome steps (online or brick & mortar), says Goldstein.

These banks realise that convenience is important to customers. “In addition to the latest digital technology for phone, tablet and computer that allows customers to conduct banking activities at anytime from anywhere, we offer live 24/7 customer care via phone or web chat,” says Morais.

So, will all banks go this way or are online-only banks just a wave that will soon lose its force? Even the most optimistic of the lot agree that there is still time till these banks completely replace the traditional ones. “Over time, we will take a massive amount of market share from traditional institutions.  I would predict 50% over the next 10-20 years,” says Goldstein.

“Feasible, yes, but not for decades. You need to provide engagement channels to cater to all your customers. If you remove physical locations, you run the risk of seeing your customers churn elsewhere. In Western markets, I’d say it’s highly unlikely to occur before most of those who predate ‘Generation Y’ – and who have less of an affinity with digital channels – have passed away,” remarks Holden.

Also Read:

Dinube rolls out first-of-its-kind digital payments network

Greek exit is cause for concern

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Jaya Smitha Menon

December 24,2014: For Barclays, the business of banking goes beyond the profit and loss statements they generate every quarter. They want to play a broader role in the community in which they live and do business. Their goal is to help change 5 million young futures by 2015.

In UK, Barclays is supporting the growth of Street League, a UK football charity. Street League uses the power of football to help unemployed 16 to 25-year-olds get into work and training across the UK. It provides an eight-week football and education programme, which develops key employability skills such as communication and teamwork, and offers several nationally-recognised qualifications. At the end of Street League ‘Academy’ programmes across the UK, 81% of graduates move into work, training or education.

In addition to the financial support Barclays provides to Street League, the employees help by running mock interviews, CV-writing and financial literacy sessions for participants. Paulette Cohen, Head of Global Programmes, said: “For 10 years, Barclays has been investing in sports facilities and programmes in the UK communities where they are most needed — creating sustainable resources and helping young people achieve their ambitions.”

Corporates like Barclays believe that businesses grow only if all the stake holders around it grow; be it the employees, customers, stockholders, environment or the society around. Corporate sustainability stems from this belief of enterprises. ‘Giving back to the community’, is a mantra the corporates have already chanted. But what differentiates corporate sustainability from corporate social responsibility is doing responsible business and a belief that sustainable business is the one which carries every stakeholder together in the organisation’s growth. Sustainability means looking inside and outside the organisation to understand the social and environmental impact it creates.

Today, over 72% of S&P500 companies are reporting on sustainability. These companies measure their sustainability efforts and bring out detailed report at regular intervals similar to the financial reports public companies publish every quarter. The role of a chief sustainability officer has also expanded in the last few years.

Adding value to the balance sheet

However, sustainability is not just about growing together. A recent study by the Smith School of Enterprise and the Environment (SSEE) at the University of Oxford and Arabesque Asset Management provides clear academic evidence of the financial rewards of corporate sustainability. The report reveals a strong correlation between corporate sustainability and stock price performance, with 80 per cent of research sources showing that stock prices are positively influenced by good sustainability practices.

The report titled ‘From the Stockholder to the Stakeholder’ also reveals that 88 per cent of studies link strong environmental, social and governance (ESG) practices with better operational performance in a company, ultimately translating into cash flows. Factors ranging from good workforce relations, environmental management and executive compensation are cited as amongst the most impactful on improved operational performance. Ninety per cent of analysed studies reveal that high ESG standards will lower the cost of capital for companies, with superior sustainability standards improving a corporation’s access to capital.

Doing responsible business

For every organisation, sustainability efforts are based on three pillars; compliance, efficiency and innovation. Understanding where the organisation stands in terms of compliance with environmental, social and cultural standards; improving the operational efficiency to achieve these standards and innovating to do responsible business based on ESG standards form the foundation of all sustainability efforts.

London Stock Exchange recently announced that it will partner with the United Nations Sustainable Stock Exchanges (SSE) initiative, joining nine other exchanges in the US, Europe, Africa and Asia to promote sustainable business practices among publicly listed companies worldwide.

“Stock exchanges have a crucial role to play in enhancing both the quality and quantity of environmental, social and corporate governance reporting by companies listed on their exchanges,” said Fiona Reynolds, Managing Director, Principles for Responsible Investment. “Only 3 percent of the world’s largest companies currently disclose information about their ESG performance. Better disclosure will improve the usefulness and comparability of information being reported in each market, enabling institutional investors to better manage risk and make more informed investment decisions.”

Food and beverages giant Nestle’s sustainability efforts include doing responsible sourcing. With consumers becoming increasingly inquisitive about the raw material used in the products they buy, Nestle felt the need to make their supply chain transparent and traceable. Nestle insists that its suppliers across the globe adopt internationally recognised good agricultural practices (GAP) that address environmental, social and economic sustainability for on-farm processes and result in the production of safe and quality food and non-food agricultural products. Such initiatives by organisations increase their credibility and brand loyalty, which has a long lasting impact on their balance sheets. “Profitability and sustainability are not mutually exclusive; quite the opposite in fact. It is almost a given that being more sustainable also improves the robustness and longevity of a company, but the other consideration is how it improves reputation. With growing consumer interest in sustainability, the reputational benefits that integrating sustainability brings are invaluable,” says Rebecca Pritchard, head of business banking, Triodos Bank.

A pioneer in the field of ethical and sustainable banking, Triodos Bank does business only with companies with good sustainability practices. Pritchard says, “Ethical investing is the only kind of investing we do. Every investment decision we make follows a rigorous research and selection process to ensure that the money our customers entrust to us is invested only in companies with the best sustainability performance. Our SRI funds invest only in companies that achieve a best-in-class combination of social, environmental and economic performance”.

Triodos Bank selects companies on the basis of strict social, environmental and governance criteria, and after a rigorous research and selection process that provides a firm foundation for every investment decision. “We also have an active engagement programme with the aim of raising awareness of sustainability, stimulating action and creating lasting change,” adds Pritchard.

In the last decade, companies hiring chief sustainability officers (CSO) have increased considerably. CSOs are the champions of the sustainability efforts of the organisation. One of the major challenges for a CSO is to convince the chief financial officer (CFO) to fund these sustainability efforts. But with growing evidence of sustainability adding value to business and balance sheets, the role of a CSO has become more strategic and evolved. But CSOs insist that an oversight and insistence from a board will go a long way in ensuring a sustainable organisation.

Sustainability is not the priority of corporate giants alone. It is a virtue in which every business should invest in.

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Tom Groenfeldt

November 4, 2014: The US is the last country with paved roads to adopt EMV, said Thad Peterson, senior analyst at the Aité Group, passing along a quip he had heard. That’s changing — almost all the new cards being issued in the U.S. today carry EMV chips and the card readers in businesses are increasingly able to read mag stripes, EMV and Near Field Communication (NFC).

EMV, which stands for Europay, MasterCard, Visa, is the standard for a security chip embedded in credit cards to protect consumer transactions. The tiny chip, visible on the front of the card, has approximately the processing power of an old 286 computer and interacts with a card reader when it is inserted at a store or restaurant, as Europeans know. They are accustomed to handing over their card and entering a PIN on the reader to authenticate it.

In the US, almost all credit cards have relied on a swipe to catch the details from the magnetic stripe on the back of the card. The mag stripe carries encoded information about the user which is relatively easy to copy and can be stolen in data breaches like Target, Neiman Marcus and Home Depot.

To some extent, the US has been a victim of its early mover role in combining cheap telecommunications with cards — almost all card transactions are processed in real-time by clearing them over telephone lines where they are subjected to some very sophisticated algorithms that look for fraud. Only the occasional tow-truck operator or crafts person at an art fair still uses the manual card copier, known affectionately as a knuckle buster, and even those users are moving to smartphone card readers like Square.

By October 2015, merchants will be liable for any fraud occurring from mag stripe cards, so the migration to EMV is underway.

“The migration won’t be complete, but virtually all the major retailers will be EMV-capable in time,” said Peterson. Stores still using mag stripe cards will continue to have the protection of real-time authorisation and existing fraud detection software, said Carolyn Balfany group head, US product delivery for MasterCard.

She said the industry is beginning to see consumer pull for EMV, interesting because the card companies have all but hidden the existence of chip cards from US consumers until last year.

BOM, the Canadian bank with a large presence south of the border, offered a chip and PIN Diners Club card, although you couldn’t find it on the bank web site. A couple of credit unions with well-traveled members, such as the UN and the US State Department, offered chip and PIN cards. But only recently have big banks and Amex provided them. Online travel sites have tales of frustrated American cardholders who couldn’t get a train ticket at an unmanned kiosk in Europe because their cards didn’t have chip and PIN.  That apparently is changing at last, although why American card companies were so slow to offer chip and PIN, at least to their high-end, well-travelled customers remains a mystery.

During the introductory period, EMV cards will be used with signatures, less secure than a PIN, but more familiar to users. Visa is an ardent advocate that signature is just fine; MasterCard prefers PIN but for now is settling for the new buzz phrase — chip and choice. Peterson expects that the cards will move users to chip and PIN eventually, but no card wants to be stuck in the bottom of a consumer’s wallet because it is too difficult to use.

Nobody wants consumers, who have 3 or 4 other credit cards in their wallet, to have a bad experience with one card and then send it to the back of their wallet, explained Aité’s Julie Conroy, research director for retail banking at the group.

Small merchants will be slower to adopt EMV. Peterson said that a lot of them aren’t aware that the change is coming, although he thinks in the next three to five years virtually every merchant will migrate to EMV.

In the meantime, the US with the least secure card system, has become a target for fraud which doubled from 5 basis points to 10 basis points, according to Conroy.

“It speaks to the fact that criminals are targeting the U.S. because we are the weakest link in the chain.”

Perhaps even EMV isn’t as safe as banks would like.

Brian Krebs whose website KrebsOnSecurity broke the Target story, reported earlier this month that three U.S. banks have been hit with fraudulent transactions for tens of thousands of dollars from Brazil, apparently growing out of card data from the Home Depot breach.

“They were all submitted through Visa and MasterCard‘s networks as chip-enabled transactions, even though the banks that issued the cards in question haven’t even yet begun sending customers chip-enabled cards,” he reported.

Neither Visa nor MasterCard has posted any response to the story.

The move to EMV is putting a strain on manufacturing. Credit and debit cards are typically replaced every few years, but EMV is pushing a faster replacement cycle. The migration, which has been talked about for years, really got underway just this year, said Steve Montross, president and CEO at CPI Card Group, one of the leading producers of the plastic cards with nine plants in the U.S. Canada and Europe.

“Banks are working hard on these migration plans,” he said. “They are not only worried about card production but consumer education, internal education and their own systems. Everyone is focused on payment security and the customer experience; they want to make sure the customer is not held up at the point of sale (POS) and discouraged from making the purchase.”

He is all in favour of starting with chip and signature and then perhaps moving to tokenisation or PINs.

“It’s important to get the smart card out there and have the whole infrastructure to do chip transactions. Whatever speeds that up the most, the path of least resistance, that is what I am in favour of because that provides the greatest improvement in security.”

CPI is running 24 hours a day seven days a week to meet demand.

“It’s harder to make EMV cards because they require additional steps. You need precise milling and a precise spot for the chip, which itself needs to be prepared for the information you will put on it.”

Even running 24 hours can be insufficient to meet demand, said Ray Wizbowski, vice-president for financial marketing at Datacard, which makes the machines used to produce cards. Its big machines used in central operations bureaus, can produce 3,000 per hour.

Fortunately, the company also makes machines that can be used to produce cards on demand in bank branches because many banks are maxing out their centralised card production.

When Target suffered a breach of its card security, a Tier One bank turned to its branch card issuance machines to meet demand, Wizbowski said.

“They had already deployed instant card issuance in 2,000 branches. They sent a letter to customers saying they were going to reissue cards within weeks, but customers who wanted one sooner could go to a specific branch to get one issued instantly. The bank went from issuing 10,000 cards a day through its branches to 25,000 a day, topping out at 50,000 one day.” Branches stayed open late and on Sundays to meet demand.

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