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Central banks are gradually warming to digital currencies

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Last April, amid the COVID-induced panic that engulfed the planet, more shocking news came from China. The People’s Bank of China (PBOC) announced that it would start testing its own central bank digital currency (CBDC), a first for a major economy. Government employees in four cities were paid in digital yuan, while four commercial banks began internal tests. By December, around 50,000 lucky citizens had received 200 e-yuan (£23) in their digital wallets to spend on apps such as the food delivery service Meituan. A new era had started.

 

A change of heart
It has not always been like that. When Bitcoin, the first cryptocurrency, appeared in 2009, central banks disparaged it as a fad, a dud, or even a fraud. Many banned its use. In 2013, China barred its banks from using it as a currency, citing concerns over financial stability. The same year, Paul Krugman, perhaps the world’s most famous economist, penned an op-ed entitled “Bitcoin is evil.”

Gold-backed sovereign digital currency offers a compelling solution to slowing economic growth and rising inflation that many markets around the world are experiencing

Fast forward to 2021, and the mood music has changed. Central banks around the world set up working groups to discuss the merits of CBDCs. A survey by the Bank for International Settlements (BIS) found that most developed economies are considering the idea. International organisations like the IMF weigh the pros and cons of a novel financial architecture dominated by CBDCs. The Bank of England has released a roadmap leading to a digital pound sterling, a prospect that could help the UK’s COVID-stricken economy benefit from negative interest rates, according to Andy Haldane, the bank’s chief economist.

As for the US, it is grudgingly joining the party, with Treasury department and Fed officials openly discussing the possibility of a digital dollar. One reason for this Damascene conversion is that commercial banks have embraced the blockchain, the technology underpinning cryptocurrencies, with leading banks such as JPMorgan Chase using it for cross-border payments and settlement. “What has spurred interest in CBDC issuance is the realisation that it offers a holistic solution for updating financial infrastructure and enables instantly settled payments at no cost to customers,” said Josiah Hernandez, head of the CBDC Group, a think tank specialising in sovereign digital currencies. One such venture is Project Ubin, a project designed by Singapore’s central bank that aims to provide a global payments platform for central banks.

Elvira Nabiullina, governor of Russia’s central bank

Sovereign digital currencies have also moved up on the agenda of political leaders, with G20 finance ministers contemplating the need for a global regulator to lay down the law in the Wild West of cryptocurrencies. G30, an influential group of central bankers and academics, advises policymakers to take action before rogue players do it first. Countries like Venezuela and North Korea are already using cryptocurrencies to push their agendas. The former has launched its own digital currency, aptly named the Petro, to bypass US sanctions. The Russian government is also considering issuing its own CBDC, backed by gold. Elvira Nabiullina, who heads the country’s central bank, has said that it could be used to settle trade transactions with other countries. In the current climate of debased fiat currencies, stablecoins, namely digital currencies backed by stable assets, are emerging as a safe asset. “A gold-backed CBDC offers a compelling solution to slowing economic growth and rising inflation that many markets around the world are experiencing,” Hernandez said.

 

Replacing physical cash
Another reason why central bankers are warming up to CBDCs is the slow but steady adoption of cryptocurrencies by the public (see Fig 1). Initial coin offerings (ICOs), once seen as a scam, are becoming a mainstream method for start-ups to raise capital. By late November 2020, the total market capitalisation of crypto assets stood at £476bn. COVID-19 has also boosted the use of digital cash, with digital payments becoming the norm. “The pandemic has led to an increased focus on digital cash to replace contaminable physical cash, in addition to creating more reliable, effective, and optimised mechanisms for the distribution of [COVID-19] relief funds. This led central banks to prioritise CBDCs,” Hernandez said.

Not surprisingly, it was a technology company that kick-started the race. In June 2019, Facebook announced the launch of its own digital currency, Libra. The project’s white paper stated that CBDCs could be integrated into the Libra network, sparking fears among central bankers that a private company would compete with them in their own game.

In a dramatic testimony to Congress last July, Mark Zuckerberg warned US policymakers that if they didn’t endorse Libra, China would move first. Chinese officials took notice, worrying that the yuan would not be included in Libra’s currency basket, amid a trade war with the US. “China’s trials have accelerated as a result of Facebook’s attempt to introduce Libra, even as the PBOC had been conducting research on a CBDC for many years,” said Dylan Loh, a China expert who teaches at the Nanyang Technological University in Singapore.

China first
Many interpreted China’s announcement last spring as a part of its distraction tactics amid the global furore over the pandemic, which allegedly started in Wuhan. However, it was far from a spontaneous move. Xi Jinping, the country’s president, had announced the launch of e-yuan on October 24, 2019, a day the government has named “China Blockchain Day.” Relevant infrastructure was long underway, culminating in the launch of a blockchain-based service network that can support applications in various fields, from healthcare to insurance.

Unlike other digital currencies, the e-yuan is not a cryptocurrency, nor is it based on blockchain technology. As a centralised currency, it will be issued by the central bank and circulated through China’s network of state-owned banks. Although China is gradually becoming a cashless society, it has no plans to ditch banknotes and coins. Users will be able to turn their deposits into tokens stored in digital wallets.

Domestic considerations have played a role. Government officials hope that a digital yuan will reduce transaction costs, facilitate cross-border payments and include China’s 200m unbanked citizens in the financial system. Some also point to a covert plan to rein in the country’s most popular payment services: Alipay (owned by Alibaba) and WeChat Pay. The government is imposing tougher antitrust rules on Chinese tech powerhouses, including the e-commerce giant Alibaba. Merchants will be able to use the digital yuan for free, whereas commercial payment systems charge a fee. “These two companies control 96% of the Chinese mobile payments market, and have been allowed to operate in a lightly regulated fashion thus far. Fiat money in digital form will likely result in a more resilient multiplayer financial ecosystem,” said Professor Michael Sung, Co-director of the Fintech Research Center at Fudan University.

 

Control via blockchain
In a country where the tight grip of the state rarely loosens up, the launch of a sovereign digital currency has raised concerns over privacy. Many believe that China hopes to stem capital flight, a problem that has worsened over the last decade, despite strict capital controls. A report published last August by the blockchain firm Chainalysis found that Chinese citizens had moved $50bn in cryptocurrency out of the country within just 12 months. The digital yuan could be incorporated into China’s notorious social credit system, which rewards citizens for good deeds such as donating blood or punishes them for defaulting on loans or jaywalking. “Cryptocurrencies demonstrate a new opportunity for states to incorporate their values and ideology into money, whether that’s monitoring people’s behaviour or how they spend their money,” said Olinga Ta’eed, a blockchain expert who teaches at Birmingham City Business School and is a member of China’s e-commerce Blockchain Committee. He added: “China never had any problems about saying this. They openly admit that there is some degree of control.”

 

Sidestepping sanctions
However, China’s plans could be even more ambitious. A CBDC used beyond China’s borders could consolidate the yuan’s position as a reserve currency, as Yi Gang, governor of the central bank, has implied. As a result, America’s most powerful weapon, the dollar, would lose some of its appeal. “There could be a ‘dollarisation’ effect across Asia for the yuan due to increased access through digital issuance and the strong trade and lending activity the country maintains in the region. This could lead to less dependence on the dollar in the region and other markets with similar ties to China,” Hernandez said. “China seems to be approximately five years ahead,” said Philipp Sandner, head of the Frankfurt School Blockchain Center at the Frankfurt School of Finance & Management.

He added: “If a country successfully launches a CBDC or a private payment system, such as Libra, is used heavily, it can change international capital flows substantially. Therefore, the dollar, as the most prominent reserve currency, could lose its dominance.”

A case in point are US sanctions. In a meeting of the BRICS countries in 2019, policymakers and executives from Brazil, Russia, India, China and South Africa discussed the launch of a common cryptocurrency as an alternative to the dollar. Such a system would help these countries skirt the international payment mechanism SWIFT, through which the US imposes sanctions on rogue states. “Having a CBDC and allowing other regional actors to plug their financial system into this infrastructure will help China reduce its reliance on the SWIFT payment system and thus reduce the costs of US sanctions,” Loh said.

Chinese media have reported that the government has considered the launch of a gold-backed token on the back of the country’s position as a leading gold exporter and its access to gold reserves elsewhere through its Belt and Road Initiative (BRI). China could force participant countries to accept loans in digital yuan to boost its adoption. “I have no doubt that China will eventually roll this [the digital yuan] out nationally. Once this is done, and teething issues are addressed, it can look forward to blending this with its BRI programme,” Loh said.

 

Europe lagging behind
Europe is watching the latest developments in Asia with consternation. The Eurozone recently came out of an existential crisis, culminating in the Greek referendum, and is now entering a period of uncertainty due to the pandemic. Many think that launching a digital euro would be too risky. For others, it seems inevitable. In November, Christine Lagarde, the head of the ECB, said that an e-euro will appear in two to four years, with a decision being expected by the middle of 2021.

Christine Lagarde, President of the European Central Bank

One reason why Eurocrats are suddenly keen on CBDCs is that they sense an imminent threat to Europe’s hard-won monetary sovereignty. “Libra and the Chinese CBDC were a wake-up call for central banks, including the ECB,” Sandner said. Last October, the ECB published a report mapping out possible iterations of an e-euro. One reason why it could be necessary, the report notes, is to assert the “strategic independence of the EU”, notably “if there is significant potential for foreign CBDCs or private digital payments to become widely used in the euro area.”

The main question is whether the ECB will enable ordinary citizens to open e-euro accounts at the central bank, thus bypassing commercial banks. Although endorsed by blockchain enthusiasts, such an innovation would increase funding costs and possibly raise interest rates on loans. The ECB’s balance sheet would also balloon, forcing the bank to acquire assets held against the digital euro. Fabio Panetta, who chairs the ECB’s CBDC task force, has said that the bank is exploring whether its settlement system could support retail depositors. However, most experts doubt that commercial banks would be left out. “They will put a stop to anything they think could be a threat to their core business, even if they pay some lip service to it. Central banks also don’t want the risks and the politics that go with retail accounts,” Ta’eed said.

 

The end of a dream
If the pandemic proved that borders still matter, the rise of CBDCs confirms the role of the state as a financial arbitrator. Geopolitical tensions had already slowed down financial globalisation, even before the advent of COVID-19. With the rise of insular trade blocs, the era of borderless financial markets might be coming to an end. “It’s ironic that after so many years of hollowing out the state through privatisation and globalisation, it now roars back through CBDCs,” said James Cooper, Professor of Law and Associate Dean at California Western School of Law. One reason why central banks may be keen on digital currencies, Cooper marked, is taxation. “Getting records of people’s financial transactions so there’s a tax basis is important, because the state relies on tax to generate revenue for state activity.”

Cryptocurrencies demonstrate a new opportunity for states to incorporate their values and ideology into money

For the early pioneers of the blockchain, however, this may be a wild awakening. Cryptocurrencies started as a libertarian dream that would free money from the long arm of the state, namely central banks and tax authorities. They may now empower the very Leviathan that Bitcoin’s inventors were trying to bring down. “A great dream often outlives its dreamer,” Hernandez said, pointing to other technological innovations that deviated from their original purpose. For more cynical analysts, such a development was inevitable. “Data is the new currency,” Ta’eed said. “Why else will the central banks support CBDCs, if not to effect some kind of control?”

Embracing corporate diversity by shattering the glass ceiling

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When Jane Fraser steps into her role as Citigroup’s CEO this February, she’s set to make history as the first woman at the helm of a major Wall Street bank. That’s big news for the industry, and it’s not the only example of recent female success stories in finance; in November 2019, Alison Rose made a UK first by becoming head of NatWest Group. The same year, Suni Harford became the first female president of UBS Asset Management. In January 2020, Stephanie Cohen stepped up to co-lead a new consumer banking and wealth management division at Goldman Sachs, putting her in line to compete for the CEO crown in the future.

These announcements mark promising progress – but they also highlight the reality that they’re still glaring exceptions to the rule.

The figures speak for themselves; women represent less than one in five positions in the financial services C-suite, according to 2019 data from McKinsey, despite the fact they make up nearly 50 percent of entry-level roles. In the investment sector the image is bleaker still, with women holding just 10 percent of senior roles in venture capital and private equity firms, according to a 2019 study by data firm Preqin. Add that to the fact the gender pay gap continues to reign supreme – with men earning 23.1 percent more than women in financial services on average, according to recent analysis by the BBC – and it’s clear there’s still a way to go. Institutions are under mounting pressure to improve the situation.

In 2018, the UK Treasury select committee published a women in finance report examining how the industry could improve its diversity credentials. More recently, David Swensen – head of Yale’s $31.2bn endowment and one of the US’s most eminent investors – threatened to pull money from businesses not increasing women and minority group representation in the coming years.

 

The maths gap
It’s clear the issue is at the forefront of the agenda – but what more should the industry be doing, and why are women still being held back from the industry’s top spots? The problem starts with the pipeline, according to Brad Barber, professor of finance at UC Davis’ Graduate School of Management and author of the study ‘Family, Values and Women in Finance.’ His research found that only 30 percent of recent finance majors were women, with fewer girls than boys pursuing maths, leading to a “math gender gap.”

“Across countries there is a correlation between the math gender gap and the representation of women in finance,” he told World Finance. “This suggests cultural attitudes, which vary across countries, may discourage women from pursuing math-oriented careers like finance. It’s also possible (even likely) that the general culture of finance, particularly the stereotype of Wall Street as a male-dominated culture, is not appealing to women.” The UK Treasury’s women in finance report indeed found that “alpha-male culture” continued to be an issue in the industry – especially around bonuses, where the style of negotiation was seen to “result in higher rewards for men and act as a deterrent for women.”

Changing that image, then, is crucial in attracting more women into the field. And that starts with education, according to Amanda Pullinger, chief executive of 100 Women in Finance, a global network working to empower women in the industry. “It’s about saying, how can we change perceptions around finance and inspire young teenage girls to pursue it as a career?” she said. “We know there are negative perceptions, but it’s an industry that can have enormous impact on the world. There are lots of roles out there, and it’s about getting young women inspired to consider them as a career.”

 

Barriers to progression
Yet even among women who do enter the field, the majority don’t progress to the highest ranks, according to Alexis Krivkovich, senior partner at McKinsey and author of several studies, including ‘Closing the Gap: Leadership Perspectives on Promoting Women in Financial Services.’

“Our 2019 data showed that companies in the finance sector start off with even representation between men and women,” she told World Finance. “But this drops by more than half by the time we get to the C-suite.”

The research found several reasons for this – but perhaps the most glaring barrier was the fact that many entry-level women simply didn’t aspire to the top spots, leading to a divisive “ambition gap.” According to the study, only 26 percent of entry-level women surveyed envisioned themselves in a top executive position, compared to 40 percent of entry-level men. This could be due to several reasons, with issues balancing family and working life the number one hurdle, according to the research.

There are lots of roles out there, and it’s about getting young women inspired to consider them as a career

Yet perhaps the biggest issue is the fact there are still relatively few female role models in the finance industry to aspire to. In a women in banking survey by the Institute of Leadership and Management (ILM), 70 percent of women cited the greater proportion of men in senior financial roles as a barrier to progression, and 41 percent said a lack of female role models was part of the issue. This creates a self-perpetuating circle. “As women go through the ranks, particularly on the investing side, they tend to be the only one in that group or the only one in the room,” said Pullinger. “And that sense of being the only one, particularly if you don’t have other women to look up to – that’s where a lot of women become discouraged, I think, and find it really hard.”

She believes increasing the visibility of women in senior positions, for example by encouraging public speaking and creating peer networks, is an important step in changing cultural stereotypes and encouraging more women to take the leap.

 

Sponsoring success
Having role models, of course, depends on women getting to these positions in the first place. And for that, the industry needs a bigger emphasis on sponsorship, according to Krivkovich. “Companies should be instituting formal mentorship and sponsorship programmes for younger tenure women,” she said. “They should also be coaching managers and senior leaders on how to encourage women to progress.” McKinsey’s research found that women who received advice on career advancement from managers and senior leaders were more likely to be promoted – but only 34 percent of senior-level women said they had received advice, compared with 44 percent of men.

And it’s not just about women supporting women; given men continue to dominate financial leadership positions, they’re critical in helping bring about change.

The ILM report found that a “lack of understanding between men and women within the industry” was one of the key obstacles to creating a more inclusive culture, concluding that “while it may seem sensible for women to be mentored or coached by other women, this is not necessarily the best solution.”

Pullinger likewise believes getting male peers involved is crucial in the march towards gender parity – especially when it comes to blasting entrenched stereotypes and encouraging women to take up less traditional roles. “In investment, I know so many women who have been pushed or encouraged to go into certain female-dominated areas, like the investor relations side,” she said. “What I want to see is a generation of young women, inspired by other female portfolio managers and analysts, coming into the industry and not being put off by the fact there aren’t many women on that side.”

 

Good for business
In any case, getting men involved in the fight for parity might well be in their interests. Several studies have shown businesses with greater diversity produce better results; McKinsey found companies in the top quartile for gender diversity on executive teams were 21 percent more likely to have higher profitability.

A 2019 report by Stanford Graduate School found that companies with more women performed better on the stock market, with investors considering these firms more ethical and more likely to think outside of the box. That’s likely to become even more important in the coming years, as Gen Y and Z come to dominate the market; in a survey by public relations firm Weber Shandwick, 67 percent of millennials said they were more likely to work at a company that had a formal, stated goal of improving gender equality in the C-Suite.

There are other arguments in favour of hiring more women in financial leadership. A study by economists Peter Kuhn and Marie Claire Villeval found that women tended to take a more collaborative, team-oriented approach – which could have several benefits when it comes to leading the future workforce.

As Pullinger puts it, “I think the world of work is going more and more to a structure where collaborative leadership is needed. And I think it’s understood that it’s no longer about command and control – that’s not how you create better results.”

 

Turning point
Institutions are waking up to this, with several recent senior promotions among women – not least Jean Hynes, set to become CEO of Wellington Management in June 2021, Deborah Zurkow, named Global Head of Investors at Allianz Global Investors in January 2020, and Bea Martin, who became Global Treasurer of UBS in December 2020.

“I have seen a lot more conversation between women and their partners around the distribution of what happens in the home as a result of COVID-19 and more people working remotely,” said Pullinger. “For those willing to have that conversation, I’m hearing that this could actually be a blessing in the long term.”

Krivkovich agrees this could be a game-changing era. “This time is a unique moment in our history where the future of representation hangs in the balance,” she said. “We are at a crossroads – if companies are thoughtful about their approach to diversity, equality, and inclusion, they have a lot to gain. But if they don’t address the unique challenges surfaced by COVID-19 – which in many cases has exacerbated the ‘double’ shift mothers usually take on – they could lose a significant portion of women from the workforce.”

Time will tell how institutions respond, but it’s clear that pressure is mounting – and those burying their head in the sand might have some very big questions to answer in the coming years.

There is an increasing need to build a sustainable future

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At a time when mobilising private capital is more critical than ever, the capacity of the public sector – traditionally the primary source of infrastructure investment – has been put into question by unparalleled fiscal spending in response to the COVID-19 pandemic.

Private investments in middle and low-income countries have provided less attractive risk-adjusted returns

The latest International Monetary Fund October Fiscal Monitor estimates that global public debt will approach 100 percent of GDP in 2020, a record high, while the World Economic Outlook October 2020 states that “there remains tremendous uncertainty around the future with downside and upside risks.” Policy interventions will play a crucial role in amplifying the impact of limited global finance to its maximum potential.

The Global Infrastructure Hub (GI Hub) recently launched Infrastructure Monitor, an analytical report and website that provides data-driven insights into selected G20 infrastructure priorities. The inaugural 2020 annual report focuses on mobilising private capital and establishing infrastructure as an asset class, by highlighting 10-year trends in private infrastructure investment levels and financial performance. The findings have significant implications for investors and regulators and are a building block on the road to infrastructure as an asset class.

 

Trends over the past decade
One of the key findings of Infrastructure Monitor is that worldwide, private infrastructure investment in primary markets is low and has been slowly declining over the past decade. Primary market transactions (new security offerings in either greenfield or brownfield infrastructure projects, for example) normally represent an incremental investment in infrastructure and are a more important metric for private capital mobilisation. In 2019, it came in at $106bn (0.13 percent of total global GDP), down from $156bn (0.25 percent of global GDP) in 2010. Private investment of $100bn per year is a drop in the ocean compared to the estimated $15trn global infrastructure financing gap. While mobilising private capital is key, Infrastructure Monitor shows a lack of private sector appetite for new infrastructure investment.

Another noteworthy trend is the simultaneous increase in secondary market transactions (the trading of existing infrastructure assets, for example), which comprised 75 percent of private infrastructure investment in 2019, up from 34 percent in 2010. Possible explanations for the declining level of primary market private infrastructure investment could include: a limited pipeline of bankable deal flow available to the private sector as PPPs or privatisations, regulatory impediments, higher perceived risk by the private sector, or lower borrowing costs for the public sector.

Analysis by income groups reveals that 67 percent of private infrastructure investment was in high-income countries over the past decade, calling for renewed emphasis on the United Nations Financing for Development action agenda. Private investments in middle and low-income countries have provided less attractive risk-adjusted returns. In particular, foreign exchange risk is fundamentally higher as the deals are almost entirely denominated in foreign currencies. With capital markets development in the Asia-Pacific and Latin American regions, the local currency component of deals has appreciably increased.

The study also sheds light on the sectoral composition of private infrastructure investment, revealing that transport and power (both renewable and non-renewable) have been the top preferences for investors over the past decade. Despite growing interest in cleaner energy sources, for middle and low-income countries, private investment in more carbon-intensive and less sustainable energy has remained greater than renewables. With emerging and developing countries expected to account for 90 percent of global power demand growth over the next decade, there is a huge opportunity for private investors to tap into this market and for renewables to play a more prominent role.

Meanwhile, we have also seen a notable decline in private investment in social infrastructure, such as schools, hospitals and public housing. Private investment in social infrastructure declined the most from $19bn in 2010 to $3bn in 2019. This is despite Moody’s data showing that social infrastructure typically experiences lower default rates than other infrastructure sectors, in both developed and developing countries.

 

Desirable risk-adjusted returns
Over the past decade, about three-quarters of private infrastructure investment globally was debt financed, and about a quarter was equity financed. In private investments, equity financing is typically higher than debt financing to compensate for higher intrinsic risk. On a relative basis, equity financing was higher in lower-middle and low-income country groups, the regions of Asia-Pacific and Sub-Saharan Africa, not to mention the transport, water and waste infrastructure sectors. Compared to other investment options, infrastructure equities have been less volatile and provide attractive risk-adjusted returns. Infrastructure debt is higher risk during the construction period, after which the yields are very predictable and stable. There is limited recognition of this distinct performance of infrastructure as an asset class compared to other assets having similar risk levels regardless of time duration.

A public policy challenge is to better understand how public resources can mitigate higher risk during the initial period (the construction phase, as an example) to enable greater private investment in infrastructure projects and enhance overall performance.

Now is the time for the industry to explore other options, with true partnership between the public and private sectors, to help close the infrastructure gap. This has become critical as governments around the world face fiscal challenges as a result of the COVID-19 pandemic. A global discussion on the policy implications of the data-driven insights identified in Infrastructure Monitor could help pave the way for a more resilient, sustainable and inclusive future.

Out of office: the global shift towards remote working

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In the early 1970s, NASA engineer Jack Nilles proposed telecommuting as an alternative to centralised office working. His vision was to reduce traffic, air pollution and energy consumption in city centres by establishing satellite offices, spreading the workforce more evenly across the country and heralding a better work-life balance. His book, The Telecommunications-Transportation Tradeoff, sparked widespread forecasts from futurists about the potential death of the office and the utopian birth of remote work. But the predictions didn’t quite come to fruition as envisaged.

Until now, half a century later, when a global pandemic has forced us into our studies, sheds, lounges and bedrooms, and brought about what many are hailing as the most significant workplace revolution of our time. 88 percent of businesses across the world made the switch to home working after COVID-19 was declared a pandemic, according to an international survey by Gartner. And for many it has ended up being more than a passing phase, with both employers and employees waking up to the reality that the office-based 9–5 first brought about in the Industrial Revolution – and maintained for the 200-plus-years since – may have finally passed its sell-by date. Several big-name companies have already announced plans to go remote. Twitter and Square said employees would be allowed to carry on working from home forever if they chose, while Mark Zuckerberg said in a public video in May 2020 that as many as half of Facebook’s employees could be working remotely for the next five to 10 years. On the same day, Shopify CEO Tobi Lutke tweeted that “office centricity is over, the future of the office is to act as an on-ramp to the same digital workplace that you can access from your #WFH setup.”

 

Long-term shift
These aren’t just one-offs; 74 percent of companies asked by Gartner said they would switch at least some of their employees to permanent remote working after the pandemic. And it’s not just a one-way system, with 77 percent of employees (and 82 percent in the finance industry) expressing a desire to continue working from home more than they did prior to the crisis, according to recent data from McKinsey.

This revolution hasn’t come out of nowhere, of course. Workers have been calling for greater flexibility for years, with millennials fleeing the confines of the office 9–5 en masse to join the ever-growing gig economy – which has been expanding three times faster than the traditional workforce in the US in recent years, according to a 2017 report, Freelancing in America.

Companies who aren’t bound by geography also have a global pool of talent to choose from

Prior to the pandemic, 80 percent of employees wanted to work from home at least some of the time, according to a State of Remote Work 2019 study by Owl Labs – but only 3.4 percent of the US workforce actually did work remotely, according to FlexJobs. Now all that’s changed – and how things play out in the future will be interesting to see.

 

The plus points
Research showing the potential benefits of remote work isn’t hard to come by; a study by Stanford University found that remote workers were 13 percent more productive than those working in offices, while American Express found that staff working remotely on its Blue Work programme (which lets employees choose from different styles of work) produced 43 percent more than those in the office, according to Global Workplace Analytics.

 

Additional flexibility
According to the same source, British Telecom, Best Buy and Dow Chemical all noticed a 35 to 40 percent increase in productivity among their teleworkers. And that’s just one of a number of advantages, according to Timothy Golden, Professor at the Lally School of Management. “Research has shown job satisfaction is increased by teleworking,” he told World Finance. “It provides additional flexibility to the worker, and often they’re able to better balance work and family and sort of manage that boundary.”

He also points to another key factor – staff retention. “Remote work is known to decrease turnover among employees,” he said. “That’s because employees have more choice and autonomy in how they conduct their work, and also because there’s more flexibility around location. If someone wants to move city, they can do so without leaving their job.”

Owl Labs’ 2017 State of Remote Work report found that companies supporting remote work had a 25 percent lower employee turnover than those who didn’t. Given the average company spends more than $4,000 on recruiting a new employee (according to the Society for Human Resource Management), improving staff retention rates could save businesses significant sums. It could also make attracting top talent easier in the first place. 35 percent of employees (47 percent of millennials) would be willing to change jobs if it meant they could work remotely full-time, according to a State of the American Workforce report by Gallup. More than a third would take a pay cut if the job allowed them to work remotely at least some of the time, according to Owl Labs’ 2019 findings.

Companies who aren’t bound by geography also have a global pool of talent to choose from. “Remote work widens the availability of talent to companies,” said Golden. “Potential employees could be anywhere in the world – they don’t have to be in the same city; they don’t even have to be in the same time zone.”

Then there are the more tangible cost savings; a State of Telecommuting report in 2015 found that companies saved an average of $11,000 per year for every teleworking employee. Dell has reportedly slashed its real estate spend by around $12m by offering employees the option to work remotely, while health insurance giant Aetna has saved almost $78m in real estate costs on the bank of its remote-working model, according to a report by Reuters. It’s not hard to see why so many are making the shift.

 

The challenges
Yet remote work doesn’t come without its challenges. Lack of face-to-face contact can take its toll, according to Golden. “One of the most common disadvantages is the sense of isolation,” he said. “There’s also increased difficulty communicating. It takes a bit more proactivity in terms of reaching out to others to ensure that your work relationships stay healthy.” Jeremy Stein, Managing Director of the British Contract Furnishing Association (who commissioned a report on the future of the workplace as a result of the pandemic), agrees. “Research highlighted collaboration and communication as the biggest obstacle to working from home effectively,” he told World Finance. “This was attributed to missing out on important information and a lack of informal communication points. A lack of personal development was also cited as one of the downsides.” McKinsey research meanwhile found that those working from home were more likely to be working “around the clock, and feel the need to be available 24/7,” according to senior partner Alexis Krivkovich, putting employees at risk of burnout. Others have expressed concerns around data privacy and the potential security risks of relying too heavily on video-conferencing technology.

 

The future workplace
For these reasons, many predict that a successful future workplace is likely to combine the benefits of remote work with the perks of office life. Barclays CEO Jes Staley has already stated intentions for the bank’s staff to return to the City at some point (despite reportedly saying in April 2020 that “the notion of putting 7,000 people in a building may be a thing of the past”). He said on a call announcing half-year results in July 2020: “We do need to get people together physically, I think, to evolve and improve culture and collaboration,” adding the bank would still maintain “a major presence in places like Canary Wharf.”

Stein likewise believes a central meeting point will still have its place. “The office is not dead,” he said. “One of the key themes seen is that the office of the future will act as a hub where teams can get together to build team culture, cohesion, collaborate and integrate new team members. What we are seeing is the demise of the 9–5, five days a week, where people commute in on overcrowded transport systems to sit at their desk for the day.”

But for some, the positives of going fully remote might just tip the balance. A survey by financial services firm Hitachi Capital found that more than one in 10 SMEs in the UK want to make almost all of their staff permanently remote. A third said they envisaged having over 50 percent of their staff working permanently from home. Jeanne Meister, founding partner at Future Workplace and author of The 2020 Workplace, believes we shouldn’t underestimate the change. “The COVID-19 coronavirus is becoming the accelerator for one of the greatest workplace transformations of our lifetime,” she said in a recent Forbes article. “How we work, exercise, shop, learn, communicate, and of course, where we work, will be changed forever.” That might sound dramatic, but we’re living in unprecedented times. Will the office as we know it still exist in a decade? That remains to be seen, but one thing is clear – we’re on the verge of a major shift that’s finally putting flexibility over facetime, and it won’t only be 1970s futurist Jack Nilles smiling at the prospect.

Open banking: a success story waiting to happen

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It might not be the most glamorous tale of innovation, but regulatory changes in England in 2018 opened the gate to the promised land of banking data. The open banking revolution, which regulated third-party service providers such as budgeting and investment apps that accessed bank account data, has been a cornucopia of opportunity with developers, investors and customers alike reaping the benefits. Open banking is the catch-all term for a series of reforms passed in 2018 that provide a regulatory framework for how banks deal with customers’ personal financial information. England’s Competition and Markets Authority (CMA) had been calling for it for some time, as a way to decentralise large banks’ power and influence.

Along with the Second Payment Services Directive, passed at the same time, it determined that UK-regulated banks are obligated to share customers’ financial data with authorised providers such as apps and other banks. The only caveat is that the user must give the third party permission. When the CMA started campaigning for these regulatory changes in 2016, the idea was to inject competition into the stale UK banking industry, and in turn drive innovation. In the CMA’s 2016 report on the UK’s retail banking market, they rechecked the scathing conclusion that the large, legacy banking institutions across the UK did not have to compete hard enough for customers’ business, which in turn was crippling the success of smaller challenger banks and financial service providers to access the market.

 

Progression and development
Their proposed solution was a slew of regulatory changes that would provide regulatory backing, and therefore a measure of security, to small and medium-sized businesses sharing their current account information with other third-party providers. “Open banking in the UK was a world first,” says David Beardmore, Ecosystem Development Director, at Open Banking Implementation Entity (OBIE). “We designed and built the framework like a playing field, and it has been very encouraging to see so many firms come and play on this pitch that we built using that framework.” But perhaps more promising is the breadth and scope of the open banking ecosystem today, he continues: “there are firms creating all sorts of use cases, including some that we never even conceived of.

The breadth and scope of the open banking ecosystem today is extremely promising

This really is innovation in action.” Since the measures were passed in 2018, over two million users – both individuals and small businesses – use open-banking enabled applications across the UK, according to OBIE. These applications range from apps to round up the change after a purchase and invest that cash, to credit building apps, to online mortgage brokers. There are significant benefits for small businesses too, not just consumers.
“There’s some really exciting propositions out there that can help small businesses using open banking to manage their cash better, and it can also help them seek funding,” says Imran Gulamhuseinwala, Implementation Trustie at OBIE. “In these difficult times for small businesses, we think that this is invaluable.”

 

Competitive arena
Significantly, open banking has allowed challenger banks like Monzo and Starling, which have a combined four million customers, to leverage partnerships with third-party service providers to offer investment, savings, and money transfer without the development cost and regulatory burden. This development represents a significant opportunity for app and service developers who occupy the B2B space, or are weary of launching direct to consumer products.

Though the industry has come a long way in the three years since the CMA ordered banks to share their data, there is still significant work to be done. According to research by Which? seven in 10 people “were unlikely to consider sharing their financial data, even if it meant that financial products and services were more tailored to their needs.” The main reason for this rejection cited by respondents was: ‘I am happy with my current banking arrangements so don’t see a need for an open banking product’ followed by ‘I am concerned about the security of my personal/financial details when shared with a third party.’

These responses suggest that the public at large is still largely unaware of the regulatory framework that would protect their data and their money, as well as of the myriad potential gains many of the apps provide.

Jenny Ross, editor of Which? Money says that “If open banking is to ever be a success, regulators and industry must do more to promote the benefits and demonstrate that customers are properly protected from data breaches and scams in order to boost trust in these services.”

Shipbuilders are staying afloat and surging ahead

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In the latest demonstration of the growing dominance of Asian shipbuilding, three vessels with a combined deadweight of 720,000 tonnes were launched in a single day in November 2020 from shipyards in China. And ominously for rival western shipyards, the vessels – a giant oil tanker and two bulk cargo ships – were built in double-quick time. The construction of the two cargo ships, each weighing 210,000 tonnes, took just 15 months from the signing of the contract to delivery. In a market that has become even more fiercely competitive than usual during the pandemic-triggered downturn, Asian shipbuilders continue to pick up plum contracts from all over the world, with China in the vanguard.

France’s shipping giant CMA CGM has handed China State Shipbuilding Corporation the contract for all nine of its pioneering LNG-powered box ships, capable of transporting 23,000 standard-sized containers. The first of the 400-metre-long vessels, Jacques Saadé, was delivered in September 2020.

 

Climate-conscious construction
Although Asian shipyards can build the biggest ships more cheaply than their western counterparts, it’s not all about price. They have embraced the latest, low-emission technologies, working with manufacturers of propulsion systems in the west. The LNG-fuelled Jacques Saadé, one of the most technologically advanced container ships, is a prime example. “In a similar way that electric vehicles stand in the spotlight in the auto industry, eco-friendly vessels like LNG-fuelled ships do in the shipbuilding industry,” an official of Hyundai Heavy Industries, one of the world leaders, said.

Although global orders for new ships, known as ‘newbuilds,’ collapsed by about half in the first nine months of 2020 as owners sat out the pandemic, Asian yards are rapidly bouncing back. China’s Yangzijiang Shipbuilding (YZJ) announced in early November 2020 that it had already secured $1.03bn worth of new orders, not counting the value of options (commissions for extra vessels contingent on a favourable market). “Our year-to-date new-order wins of over $1bn are more than we booked for the whole of 2019,” said YZJ executive chairman and chief executive Ren Letian. Orders that would once have gone to European yards have been snapped up by China. In late 2020, state-owned Guangzhou Shipyard International won the blue-ribbon contract for P&O’s two new 230-metre-long ferries that will start plying the English Channel in 2023.

In Seoul, as in Beijing and Tokyo, shipbuilding is seen as a flagship industry employing hundreds of thousands of people

Bristling with advanced technology and design, these double-ended, quick-turnaround ferries promise to become flagships on the 21-mile crossing, one of the busiest waterways in the world.

Meantime South Korea, another shipbuilding giant that prides itself on heavy industry, is also booking a run of lucrative commissions, like the $2.6bn order from United Arab Emirates state-owned oil and gas company, Adnoc, for three eco-friendly super-large crude carriers to be built by Daewoo Shipbuilding & Marine Engineering (DSME). The vessels will embody the latest low-emission technology in the form of a high-pressure, dual-fuel engine that can run on LNG, the first ultra-large crude oil carrier to do so.

A specialist in big ships, DSME has a full order book that includes nine LNG carriers, four container ships, two shuttle tankers, five very large crude carriers, and one very large crude gas carrier. Although orders are now pouring in, Asia shipyards had their difficulties in the downturn. Measured in terms of deadweight tonnes, output in China fell by 3.6 percent compared with 2019, while new orders declined by 6.6 percent, according to the Association of China’s National Shipbuilding Industry. Still, the revenues remain robust, especially for export orders that account for most of China’s contracts. Between them, the country’s 75 major shipyards posted revenues of nearly $38bn, down by just 0.5 percent, in 2020. In the teeth of competition from main rivals China and, to a lesser extent, Japan, the South Korean government also arranged the merger of Hyundai Heavy Industries (HHI) and DSME into an umbrella company called Korea Shipbuilding, giving the country a 20 percent share of the global market for new ships, especially the highly profitable gas carriers.

 

High demand for high-tech

The money’s no longer in relatively low-tech bulk carriers, having gone to the complex gas carriers that transport LPG, LNG, ethane and other low or zero-polluting fuels around the world. As the Wall Street Journal reported in 2019, LNG ships cost about £175m each on average with a profit margin that is nearly double that of more mundane vessels like bulk carriers that cost about $25m each. This is a business that South Korea is determined to dominate.

In Seoul, as in Beijing and Tokyo, shipbuilding is seen as a flagship industry employing hundreds of thousands of people. That’s why governments are willing to pump in funds by way of subsidies, and if necessary, bail-outs. For instance, the South Korean government provided a $2.25bn liquidity lifeline to the merger of HHI and DSME, plus a further $2.6bn in cash.

Yet South Korea has a fight on its hands. One of the busiest shipbuilders in all of Asia, state-owned Jiangnan Shipyard is also scooping up orders for high-margin gas carriers on top of the nine-ship contract from CMA CGM. In a coup in November 2020, Bermuda-headquartered Petredec, which owns the world’s second biggest fleet of very large gas carriers, signed with Jiangnan for up to six LPG carriers, all scheduled for delivery by 2023 in the kind of rapid project for which Asian shipbuilders are famous.

Simultaneously, the same shipbuilder is also constructing an aircraft carrier, three destroyers, a heavy-lift military hovercraft – all for the Chinese navy – and a sister ship to CMA CGM’s Jacques Saadé. To cap it off, in 2020 the yard signed a spate of orders to construct two giant ethane carriers, technologically advanced vessels that will be at the forefront of global shipping’s push towards decarbonisation as they transport the gas from the US to Europe. And looking ahead, it will be business as usual. At the end of October 2020, Chinese shipyards had booked nearly 57 percent of the global market for newbuilds. Ominously, they are also getting into cruise ships, until now a preserve of European shipbuilders.

Japan, Asia’s other shipbuilding giant, is watching all this government intervention with concern. Citing the mergers of China’s state-owned shipbuilders and of South Korea’s big two, Imabari Shipbuilding president Yukito Higaki sounded a warning to Tokyo recently: “Huge shipbuilding companies are now rising up in the world. I would like fair competition without any governmental support. However if current circumstances continue, it is possible that Japanese shipbuilders will not be able to stand on their own feet any longer.” This is a crucial issue for Japan where 99 percent of trade goes by sea.

 

The sun also rises
Looking to the future, Japan is relying on innovation in the pursuit of virtuous, emission-free shipping. And the newly delivered car carrier Sakura Leader represents a milestone in that direction. In an all-Japan operation, Sakura Leader is owned by NYK Line, powered by IHI Power Systems’ latest dual-fuel engine, and was built by Shin Kurushima Toyohashi Shipbuilding. For good measure Mitsubishi Shipbuilding provided the complex gas-supply system. Capable of carrying 7,000 units, the vessel is the first large, LNG-fuelled car carrier to be built in Japan and it certainly will not be the last. A sister ship for Sakura Leader is already on the way. Importantly, the engine ticks the International Maritime Organisation’s regulations on emissions without the need for ‘scrubbers,’ exhaust systems that clean up the burnt fuel’s residues.

The Japanese government, which has made zero-emission shipping a high priority, has designated the car carrier as a flagship project. Japan invented the car carrier – the first of these slab-sided vessels, virtually one giant container, was launched there in the 1960s and designers have been improving them ever since. The latest car carriers are built to the next generation ‘Flexie’ specification, that transport not just cars around the world, but trucks, bulldozers, railcars and other odd-sized units, all arranged on six floors of decks that can be raised or lowered according to need. As a bonus, a Flexie car carrier is narrower than previous versions so it can operate in more ports, but it can still carry up to 6,800 cars.

Japanese shipbuilders and suppliers work together in terms of innovation. Among other home-grown innovations, Flexie car carriers feature a spherical, sea-kindly bow and a tear-shaped stern that reduces wind resistance, both jointly designed by Mitsui OSK Lines and Mitsui Zosen Akishima Laboratories.

At the opposite end of the scale, Oshima Shipbuilding, which generally specialises in large ships, has become the hub for another all-Japan project with a big future – a fully automatic, zero-emission, battery-powered ferry. Launched in 2019, the little vessel known as e-Oshima is challenging Norway, the world leader in electric ferries, with its automated ship navigation system that sets the route and speed while simultaneously avoiding collisions.

For Japan, the e-Oshima is not a hobby project. It’s part of a joint, government-led programme to become a world leader in battery-powered transport by sea. “The ferry looks like becoming a symbolic vessel in the new age ahead,” notes the Nippon Foundation, an organisation devoted to green seas.

It is an absolutely huge business market and one that remains crucial in global logistics and seeing how the largest firms continue to compete with each other is certainly going to be riveting.

Banking sector recovery will require trust and good faith

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In 2020, businesses had to adapt swiftly through a precarious situation. We are now in a phase with a new set of requirements centred on resilience and a sustainable recovery. The lessons of this unprecedented period will help banks meet customers’ needs, navigate this turbulent time, and avoid online risks, guiding them through 2021 and beyond.

 

The heart of banking is still relationships
Even before the pandemic, an off-the-shelf, product-first approach was inadvisable. Now it’s irrelevant. COVID-19 underlined something we already knew: we are all interconnected. Amid the pandemic and economic slowdown, Bank of the West’s relationship management bankers redoubled customer outreach. We needed to know how our customers were, what challenges they faced, and about their short-term liquidity needs. Human relationships in commercial banking aren’t solely for crisis management; they also enable us to be present in an always-evolving business environment.

While corporate treasurers and finance managers are increasingly focused on strategic issues with distant horizons, there are meaningful conversations to be had with companies about longer-term ways they can adapt to opportunities now. Forward-thinking commercial banks are placing renewed value in customer relationships built on trust, good faith, and strategic relationships.

 

Rebalancing the platforms
As the pandemic’s impact progresses, digital transformation is clearly critical to recovery and business resilience. Banks should support corporate customers with digital channels that are open, flexible, and help companies adapt. However, effective commercial banks carefully balance digital solutions and human connection. Customers shouldn’t face a haphazard mix of traditional and digital platforms – or assume digital-only is sufficient. Banks have increasingly leveraged AI to deepen customer relations, improve anti-money laundering and fraud-prevention processes, and offer customers greater value. AI solutions work best with predictable transactions; the uncertainties of this recent crisis called for human connectivity. Banks that balance digital and human channels will prove essential to business continuity.

Forward-thinking commercial banks are placing renewed value in customer relationships built on trust, good faith, and strategic relationships

An integrated human-and-digital experience can support customers’ digital transformations while helping them navigate an uncertain future and endure. Nevertheless, it’s clear more business activity will become digital. Lockdowns and social distancing accelerated digital transformations. Companies that shifted to remote work swiftly and securely were at a great advantage with cybercrime spiking early in the pandemic crisis. This has been a jarring reminder of how critical cybersecurity and fraud prevention are to a company’s recovery, growth and resilience. Relegating cybersecurity decisions to IT is too risky: cybersecurity is operational security. Savvy commercial banks continue to strengthen fraud prevention while enabling businesses to engage in digital transformations that balance efficiency with resilience. Corporations need commercial banks that understand end-to-end security is central to operational resilience, and it is therefore non-negotiable.

 

Rethinking credit risk
When the future looks wholly different than the past, relying on backward-looking data models, even when (artificially) intelligent for measuring credit risk, becomes problematic. Financial ratios show a point in time and tell part of the story, but amid extreme uncertainty, commercial bankers must understand their clients’ overall financial wellness. Commercial banks that entered 2020 with a more granular understanding of their clients’ businesses will serve their customers well today and in the future.

Whether their industry is experiencing a boom or drought, CFOs and treasurers will be asking themselves if their bankers understand their needs and business objectives. A more holistic approach to measuring their financial wellness will enable commercial banks to give them a reassuring answer and make informed decisions. Businesses are also facing an evolving global compliance landscape. The regulatory consequences of the pandemic are far-reaching and will affect commercial banks and corporations.

When global lockdowns crippled predictable market dynamics, governments and regulators intervened with guarantees in the supply of services, human protections, and reactions to new barriers. The effects of these new measures will be felt differently across sectors and geographical lines.

Commercial banks are wise to re-engage with the principles of trust and humanity as we navigate this global pandemic and its aftermath. We are not over it yet, but there are silver linings. The majority of finance leaders believe they will be more resilient and agile in the long run. Banks need to ask themselves if they have changed enough to serve their customers now and in better times ahead. If commercial banks rise to the occasion now, the trust and value built during this crisis will pay dividends for years.

Disruptive innovation for return and positive change

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Disruptive innovation can attend to a market that is currently badly served. It can also present an outstanding relay to seek alpha in a return environment that has become less inclined to respond to classical financial instruments. The case of CeiROx Life Sciences, currently known as BioTissue, as a disruptive technology platform in the biotechnology industry, is eloquent in that it can be viewed as a standalone asset class. Disruptive technology can also be viewed as an extension of private capital in its quest to leverage the return of a financial portfolio.

Building return and looking for alpha has become an unparalleled challenge in a world characterised with the shattering of classic return metrics. Interest rates have become structurally low and flat in the aftermath of the financial crisis and with the subsequent sovereign European crisis and the current pandemic-related one. This has also led to continuous ‘corrections’ for equity returns. Furthermore, global equity returns enhancements such as correlation and what has become known as ‘decoupling’ has brought with it serious questions. Today’s pandemic only highlights this observation. It is in this context that disruptive technology can be viewed a relevant relay to generate alpha and growth in a sustainable manner. The key challenge becomes how to assess a disruptive innovation that can be pertinent in playing this role of leveraging return. In my opinion, the assessment can be achieved through both a quantitative and qualitative approach. I intend to go through these approaches using the case of CeiROx as well as to analyse the calibration of the associated return metrics.

 

Market dynamics
Quantitatively, a disruptive technology can be qualified as such in regards to the market it intends to serve. The big market premise is a condition for making an innovation truly disruptive. This condition measures the power of the innovation to alter the dynamics of the market. From this angle, we aim to build a business thesis that is pertinent and that stands out by recognising the fundamental and structural shifts in global demographics. With a world population that is witnessing both a higher life expectancy and a more active life-participation, the direct consequence is the potential tissue damage especially in cartilage in synovial joints. This translates to a multi-billion-dollar orthopedics market that we are intending to serve. In terms of order of magnitude, the current annual incidence rate of cartilage defects across all synovial joints can be estimated at 0.9 percent of the overall population. Males have a lifetime risk of one in six while females reach a risk level of one in four. Bringing together the aggregate patient population across all ages with degenerative or traumatic tissue defects, we get the following distribution of the target market over the next decade (see Fig 1).

The qualitative assessment of a disruptive innovation resides in analysing the characteristics of the market currently served. Indeed, the pathology of cartilage defect in synovial joints (such as the knee and the hip) is not a newly discovered one. Both degenerative and traumatic defects are a well-established problem. However, the solutions that have been brought forward have all fallen short of treating the underlying pathology efficiently. Most are only symptomatic in their effects while others are just delaying total loss of the joint’s functionality. This is the perfect example of a market that is maintaining the status quo. It is not about creating a new market, as is the case with artificial intelligence, for example, which makes its assumptions yet to be validated. CeiROx Life Sciences is addressing a market that is currently badly served, which allows us to serve an unmet medical need. This makes the market size assumption significantly hedged through on-going ill-treated cases because of the complexity of the underlying problem: destroyed cartilage cannot be regenerated through the body’s own healing system. We achieve successful treatment by creating new medicinal paradigms as we are pioneers of tissue engineering and the forerunner of regenerative medicine.

 

Four domains of innovation
Besides solving the status quo, assessing disruptive innovation is also reached through modelling the impact it accomplishes. A strong impact validates the disruption brought forward. We achieve great impact through the four domains of innovation: technology, product, process, and business model. From a technology perspective, our platform has developed through 20 years of research and developments of tissue regeneration concepts and applications from the skin to the bone. We have also given birth to the two latest generations for cartilage tissue regeneration: the third and today the fourth generation. We observed the limitations of the first-generation solutions that consisted of injecting cultured cells into synovial joints, and the second-generation solutions that consisted of associating to the cells’ membrane gels. We then developed a third-generation solution introducing a three-dimensional matrix as a carrier of the cells. We progressed afterwards to optimise our own solution through the introduction of a smart scaffold that ensures optimal cell distribution along with shape and mechanical stability. These have led to a strong clinical impact by achieving a good-quality regenerated tissue of hyaline type in cartilage, and restoring joint functionality.

The solutions that have been brought forward have all fallen short of efficiently treating the underlying pathology

In terms of product innovation, our fourth-generation chondro-tissue relies on developing a user-friendliness from medical, regulatory, and business perspectives. This has led in turn to a process innovation, which has been cut by half in terms of time. It has eliminated complex procedures with biopsy-taking and clinical treatment, cost-intensive cell-culture, and a burdensome regulatory framework. As in a domino effect, these aspects led to a business process innovation. The reduction in complexity through minimally invasive approaches as well as the possible scaling opportunities offer an innovative business process. While the first innovation domains focus more on the proof of concept in terms of clinical impact, the business process innovation domain focuses on the ‘proof of relevance.’ The latter assesses the economic impact that will condition the adoption of the technology, time-reduction and cost-saving being the cornerstone for successful market adoption.

 

Purpose and professionalism
The other dimension to assess a disruptive innovation is to study the qualities of return it generates. Both the direction of growth and its rate are important in boosting the quality of returns. This connects with the underlying premise of finance as a force of good: investment must flow to where capital is needed to solve the challenges of the moment. And in the effort to rethink capitalism, there is a need to rethink the ‘direction’ of growth – as opposed to the rate of growth only. Our business propositions evolve around both facets. In light of demographics, the direction can only be around a regenerative medicine solution as opposed to prosthesis replacement or short-lived symptomatic answers. Growth is also built on solutions that fully leverage the body’s own healing system without introducing components of metallic or animal origin. As to the rate of growth, it is strongly correlated with its direction. The demographic trends, along with changing lifestyles, will accelerate such a rate. In addition, disruption presents a perfect platform to express ‘decoupling.’ Almost always coming from an upstart outsider, in the words of Clayton Christensen, disruptive innovation provides great opportunities for effective diversification.

Above all, a disruptive innovation can have a strong foundation only if its components respond to the sustainability assessment. This is achieved through a comprehensive answer to a complex living problem. At CeiROx Life Sciences, we have made every facet of our response relevant in a disciplined and consistent effort. Purpose and professionalism are the building blocks for trust in a technology platform and in an investment thesis. As a sustainable value proposition, we respond to Prince Charles’s call that capital need not be geared towards investment that generates negative externalities. There is nothing more positive than a more able population.

Riding the wave of mobile money markets in Ghana

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The COVID-19 pandemic has indisputably changed the way we do business at Zenith Bank and our interactions with stakeholders – not the least in the digitisation of our banking services. With the rollout of a digital retail strategy aimed at driving financial inclusion, we embarked on an aggressive retail marketing and digital banking drive. As a result, Zenith Bank – which is well known for its prowess in developing innovative digital banking products and services – ensured that its customers enjoyed convenient, easy and accessible banking services tailor-made to their needs, since the outbreak of the pandemic.

When Ghana recorded its first case of COVID-19, we were well ahead of our peers in ensuring easy access to banking. Products that drive financial inclusion – such as our USSD Code product (*966#) – were enhanced to enable more customers who hitherto did not have bank accounts carry out banking transactions seamlessly.

‘Instant Account Opening’: with *966#, account holders and non-account holders can open instant bank accounts with minimum documentation and without physically visiting any of our branches.

‘Zenith Cash Out’: this service allows for the transfer of cash from any Zenith account holder to any cash recipient. The requirement for this service is a token that can be used to withdraw cash either at the ATM or any of Zenith Bank’s branches nationwide.

‘Merchant Pay’: this service is a collection solution for SMEs and corporate entities to receive real-time payments directly into their bank accounts. Payments are made via USSD or scan to pay – Zenith Bank’s QR code payment platform.

We also ensured that other products such as GlobalPay, ZMobile (our mobile banking app), Zenith corporate internet banking, point of sale terminals and our wide array of cards (Mastercard and Visa, Cruz-Card, Eazypay GH Dual Card, GlobalTravelWallet) were also enhanced to provide consumers with a better experience. Following the COVID-19 health and safety protocols outlined by the World Health Organisation (WHO), and in our quest to maintain our core line of business (an essential service required to run the economy of Ghana), we instituted a staff rotation policy with the aim of achieving social distancing to curb the spread of the virus. With the rotation policy, 50 percent of staff worked from home while the rest worked from the premises of the bank nationwide and vice versa on a weekly basis. With this in place, we also enhanced our teleconferencing tools, which we barely used prior to the onset of the disease. Teleconferencing tools such as Zoom and Teams have become our go-to apps for organising meetings, trainings, staff engagements as well as customer interactions.

 

A proud contribution
To further adhere to health and safety protocols, we provided all our branches nationwide with thermometer guns to check the temperature of staff and customers before entry to the bank’s premises. Handwashing units fully equipped with soap, alcohol-based sanitisers and paper towels were also provided at all branches of the bank for both customers and staff. Furthermore, per instructions by the government of Ghana, a ‘no mask no entry’ directive was strictly followed by every member of staff who was on duty at the bank’s premises as well as any customer who visited. To this end, the bank has since the COVID-19 outbreak provided disposable masks for its entire staff daily.

Customers are now more inclined, first, to live a healthy lifestyle and, second, to want to bank in an easy and safe way

In line with our mission “to continue to invest in the best people, technology, and environment to underscore our commitment to achieving customer enthusiasm,” we provided substantial financial support towards the nation’s fight against the virus. In April 2020, after the first case of the disease had been recorded in March 2020, we donated GHS 1m ($171,500) to the COVID-19 trust fund established by the government of Ghana as our contribution towards the fight against the spread of the virus, as well as to assist with the welfare of the needy and vulnerable in society.

Additionally, the bank made a contributory donation to the Ghana Association of Bankers (GAB). Proceeds from this, together with funds from other banks, were channelled towards donation to the Ghana Private Sector COVID-19 fund to build the Ghana Infectious Diseases Centre, donation of PPEs, masks and other hygiene products to major hospitals in Ghana and feeding of the less privileged during the peak of the pandemic. During the bank’s 15th anniversary in September 2020, the staff of the bank embarked on a CSR project themed ‘United against COVID-19’ where they donated COVID-19 hygiene products to hospitals and orphanages across the nation.

 

Increase in lending activities
In line with the central bank’s directive to lighten the economic burden on bank customers during the pandemic, the following measures were undertaken. The bank rolled out credit packages to ease the impact on businesses and our valued retail customers. We implemented a two percent flat downward review of interest rates for all our retail loans. Customers whose businesses had been impacted by COVID-19 directly and indirectly were also granted moratorium on both principal and interest for tenors ranging between three to six months. To encourage the use of the digital channels and also lighten the burden of our customers, the bank waived all fees for transactions via the following channels for a period of three months; 1) Automated Clearing House (ACH) – bulk upload via internet banking; 2) Ghana Interbank Payment and Settlement Systems (GhIPSS) Instant Pay (GIP); and 3) Mobile money interoperability. In partnership with Prudential Life Insurance, we also provided free COVID-19 cover to our customers who were adversely affected by or had to be hospitalised because of the virus.

 

Innovative digital products
Financial inclusion continues to form a major part of Zenith Bank’s strategy year-on-year. Since its inception, the bank has ensured the continuous rollout of a wide array of innovative digital products and services that are user-friendly and provide total convenience to customers. Digital channels afford the ‘unbanked’ an opportunity to leapfrog barriers to brick-and-mortar banking – such as cost and infrastructure – that historically have excluded them from the financial system to be able to perform simple banking transactions anytime, anywhere. Zenith Bank was among the first banks in Ghana to launch an app-based mobile banking service. Z-Mobile, which is available on both Android and iOS devices, enables customers to make instant interbank transfers, set up beneficiaries, top up investments, pay utility bills and much more right from their mobile phones.

According to a 2019 report by the World Bank, Ghana is one of the fastest-growing mobile money markets on the African continent. It is estimated that about half of the 20 percent of Ghanaian adults who have mobile money accounts do not have a bank account. This proves that mobile money is not just an enabler of cheaper and more convenient financial services for those who already have access but is also spreading the net to reach those who were previously financially excluded. According to GhIPSS, mobile money interoperability increased by 358 percent in the first quarter of 2020. Our strategic partnerships with major telecommunications and fintech companies have also leveraged mobile banking to reach the population’s unbanked citizens. For example, ‘Zenith’s Bank2Wallet’ service enables customers to link their mobile money wallets to their bank in order to make immediate transfers and payments remotely at any time of day.

We have always sought to be the pacesetter in the delivery of superior customer service. To this end, we have put in place strategies that ensure continued enrichment of the customer experience across all touchpoints. Our core service strategy hinges on four key elements: 1) entrenching customer-centricity; 2) consolidating retail and digital banking; 3) empowering staff to live our service tenets; and 4) customer segmentation for enhanced service delivery.

To provide customers with the best experience, we use several analytical tools to measure our performance with regards to how satisfied our customers are with the services rendered. These include the Net Promoter Score (NPS), which measures customer loyalty through the categorisation of customers into three major groups (promoters, passives and detractors), and Customer Satisfaction (CSAT), which defines how happy customers are with the bank’s products and services.

We have also continued to enhance our presence on social media platforms like Facebook, Instagram and, recently, Twitter. With the help of daily, weekly, monthly and yearly analytics, this helps us gather useful demographic information about our customers, and most importantly, maintain a solid relationship with clients via the digital space.

 

Future plans
The pandemic has ushered in a new, digitally oriented way of life for many people here in Ghana and across the world. Customers are now more inclined, first, to live a healthy lifestyle and, second, to want to bank in an easy and safe way. Always committed to developing cutting-edge technologically driven products and services aimed at making banking easy and on-the-go for its customers, we will continue to invest heavily in products and services that ensure that our banking services remain consistent and easily accessible.

We will continue to adapt to the new normal by keeping abreast of current trends and educating our vast clientele on the need to go digital. Zenith Bank in the next year and beyond will remain steadfast in its quest to becoming the banker of first choice to all our customers. Our focus areas thus remain exceptional customer service, strong financial performance, robust digital banking platforms and retail banking structure. In pursuit of these, we will continue to take advantage of the numerous opportunities in the marketplace

Putting customers at the heart of digital change

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Digital transformation has long been a strategic goal for Mashreq Bank, and the current situation has only accelerated the momentum. Rapidly changing customer behaviour and expectations are a major factor for us, and we believe this, coupled with changing regulations, is putting pressure on banks to increasingly turn to technology to offer solutions; not only to cut costs but also to increase efficiency and tap new streams of revenue.

The provision of digital services is part of the bank’s entire corporate strategy. Mashreq has always been an early adopter of technologies that disrupt the way we bank. A while ago, we invested in our digital innovation initiative and the investment has borne fruit. We strongly believe that this was the right strategy and will benefit our customers immensely going forward. The way in which the fourth industrial revolution has changed our world means that digital is ubiquitous: we live our lives through the digital sphere and it is only natural that every aspect of our financial lives exists digitally as well. We continue to invest in solutions that are innovative, but more importantly add value to our customers. Over the past year, customers have provided exceedingly positive feedback to our revamped distribution network.

Our entire retail and SME offerings have evolved in response to the changing needs of our customers, who embrace self-service technologies and digital banking with ease, while demanding more personalised and tailored solutions in terms of advisory and non-transactional services. The recent launch of our blockchain data-sharing platform, called Know Your Customer (KYC), which is the region’s first, is a milestone for us. The new platform will ensure a faster, reliable, and more secure onboarding and digital data exchange process, thereby removing existing cumbersome paper-based KYC processes. In addition, the platform will help oversee banks’ collection and management of KYC data. We were the first bank to launch a digital-only SME bank account and the first in the region to enable customers to complete the Know Your Customer (KYC) updates digitally.

 

What the customer wants
It is clear to us that customers – individuals and small and medium businesses as well as corporates – have wanted digital banking products and solutions for some time. We continue to invest heavily in data analytics and AI, and use robotics to automate a lot of operating procedures, manual entries and manual activities that are repetitive in nature. We also work with a large number of FinTechs in the retail space in the areas of payments, wealth management, credit underwriting, and customer identity authentication.

Mashreq was the first bank in the region to launch a digital banking proposition for SME, NEOBiz, a great example of innovation. Prior to the launch of NEOBiz, start-ups and SMEs reported difficulty in opening a bank account in the UAE and accessing financial services. In some cases, they avoided opening a local bank account and instead conducted their transactions via non-UAE-based foreign banks that subjected them to high international fees. NEOBiz has been able to address this with a 20-minute digital account opening application, email-based queries, and tablet fulfilment. This is a drastic simplification of a process that previously took up to three months in extreme cases. NEOBiz has now been operational for a year, and it continues to receive extremely positive feedback from our clients. In the current situation, customers expect support from their bank. In addition, they expect a full-scale digital service with a reduction in fees and charges, and access to value-added products and services. NEOBiz ticks all these boxes: perhaps that is the reason why it is winning the trust of so many customers. Additionally, the bank’s quick remit offering, which is a digital remittance proposition, is widely popular with both SMEs and individual customers.

Being a digital-only proposition, NEOBiz is also a lot more economical and gives the customer choices with complete transparency and flat fees. It offers 24/7 access through online and mobile banking in addition to call centres, interactive teller machines and even a virtual relationship manager.

The best part about this offering is that it brings third-party products such as accounting software, mobile point of sale and payment gateways as optional add-ons, at special preferential prices for our customers. For the SMEs, it acts as a one-stop shop and again delivers a superior value proposition. The bank is looking to introduce more offerings in the immediate future.

The opportunity for digital-only banking services and products is the ability to build upon the community of users

In addition, through the adoption of technology such as blockchain, artificial intelligence, data analytics and machine learning, Mashreq has been able to streamline lengthy documentation practices and cumbersome paper-based KYC procedures, ensuring a faster, reliable and more secure onboarding and digital data exchange process. Our long-term vision for NEOBiz is that it enables customers to focus on and expand their business. We have major enhancements in the pipeline to expand these services to achieve our ambitions.

The UAE has an exceptionally high smartphone penetration, at 96 percent of the adult population according to 2019 data from the Media Lab. Digital inclusion is a great equaliser, and this strong access to digital services through either a PC or a smartphone is enabling people to enjoy high-quality services and is an opportunity for many businesses and banks, like us, to cater to their lifestyle needs, like in areas such as e-commerce. In 2019 the UAE was named as one of the fastest-growing hubs for e-commerce in the region, according to a joint study by Dubai Economy and the global payments technology company provider Visa. Furthermore, the UAE is well renowned for world-class infrastructure, services and initiatives that are geared towards enabling smart cities, and therefore enabling digital services and financial inclusion.

 

Meeting the pandemic challenge
The COVID-19 outbreak has propelled the shift towards digital banking at an exponential speed and we see the opportunity to continue this transformation. Internally, at the onset of the pandemic, we gave our teams access to special technology kits for virtual desktops, and remote conferencing facilities, as well as controls and guidelines that are specific to each business unit. We have also created a microsite with a full suite of banking services, so that both our retail and corporate customers can meet their requirements easily and without hassle during this difficult time.

I can proudly say that in the past couple of months, when nearly 97 percent of Mashreq was working from home, we offered our customers uninterrupted services and seamlessly transitioned them towards digital banking. Today, 92 percent of our customer base has online and mobile banking credentials. This in itself is an indicator of the strength of our digital offerings and our clear position as a digital leader.

In 2019 alone, the number of transactions processed through the bank’s gateway increased by 126 percent year-on-year, allowing for hundreds of millions of secure digital purchases to take place. This percentage is significantly higher in 2020.

We recently collaborated on the launch of klip, the digital cash platform launched by Emirates Digital Wallet. This initiative, the first of its kind, will provide customers with a seamless, secure payments platform that is geared towards improving financial inclusion and driving contactless and cashless transactions.

We also launched two major platforms for our customers: WhatsApp Banking, to offer more convenience, as well as NEOBiz, the UAE’s first digital banking proposition catered exclusively to SMEs. The response from our retail and SME customers to these initiatives has been extremely positive, with consumers embracing the convenience and flexibility they offer. Our branch network has transformed significantly since 2019 and now boasts digital-only kiosks as well as personalised flagship branches for segments such as Mashreq Gold and Business Banking and SMEs. On the corporate banking side, the bank has also on-boarded most of its clients on Mashreq Matrix, our digital GTB global transaction banking, trade and cash management platform, which offers solutions for trade transactions, cash management, liquidity pooling and trade tracker capabilities.

 

Transformation is an ongoing process
The ability to collect customer data is often integrated into the operations and processes of digital banks right from the beginning. This data is used to engage with the customer post-acquisition, and also help them as they transact, thereby making the customer experience seamless and personalised. This offers unique insights into customers’ behaviour and empowers digital banks to provide valuable and relevant offers in real time.

The opportunity for digital-only banking services and products is the ability to build upon the community of users. In a connected world, co-operation and partnerships are key, as they foster a symbiotic ecosystem. This is of immense value to young businesses and SMEs, as we have seen through the enormous success of NEOBiz. Transformation in the digital space is an on-going process for us. The bank has invested in a technology organisational platform that will allow us to continue with our transformation drive efficiently and effectively.

Trouble is starting to brew at the top for the ‘big four’

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For many years, Mauro Botta had been a successful partner at the accounting giant PricewaterhouseCoopers (PwC) in California, where he was responsible for auditing Silicon Valley firms. After witnessing many cases of dubious bookkeeping, he blew the whistle on his employer in 2012, alleging conflicts of interest between PwC and its clients.

The Securities and Exchange Commission (SEC), the US regulator, did not take any action after investigating his claims. However, the case took its toll on Botta’s career. Although he had been working for PwC for nearly two decades, he was fired in what he claims was retaliation for his whistleblowing. He filed a lawsuit for wrongful termination, with the trial expected this spring. Botta does not mince his words about the accounting industry. “It’s absurd to have auditors being paid by the companies they are supposed to audit and who are also in charge of appointing them,” he said.

Conflict of interest is inherent in the system, Botta said. “Nobody would ever wonder why tax audit is done by the government, because this is in the public interest. So it is baffling that financial audit, which protects investors, has been outsourced to private corporations,” he said. “Are the companies that are scrutinised by the IRS (the US tax collector) considered its clients? Absolutely not.”

 

Collusion not an illusion
Although an outlier, Botta’s story illuminates the many problems facing the accounting sector. The recent collapse of Wirecard was just the latest in a series of scandals involving one of the ‘Big Four,’ as the accounting firms Deloitte, Ernst & Young (EY), KPMG and PricewaterhouseCoopers (PwC) are known. In December 2019, German prosecutors launched a criminal investigation into the EY partners who were auditing Wirecard, after it was found that €1.9bn were missing from the company’s balance sheet. “This was a failure of basic auditing. In a digital world, cash balances need to be independently verified,” said Atul Shah, an accounting expert who teaches at City, University of London. In the UK, the collapse of Carillion, BHS and Thomas Cook has raised similar concerns over auditing standards. In India, the local affiliate of PwC was banned from auditing public companies for two years due to its involvement in one of the biggest financial scandals in the country’s history. All major accounting firms have been associated with tax scandals, revealed through a series of document leaks, such as LuxLeaks.

Technology favours small players, while the global brand of the Big Four makes them more vulnerable to reputational risks

One reason why the Big Four are under fire is their expansion into areas beyond their traditional expertise. “They combine audit with consultancy and tax advisory [services]. Audit is about challenge, and the others are about advice, so the conflict is between fulfilling a legally independent role and a supportive consultancy role,” Shah said. In the US, this trend began in the 1980s when accounting firms started offering professional and management consulting services. The collapse of the accounting firm Arthur Andersen over its sloppy auditing of Enron, an energy firm that went bust in 2001, should have served as a cautionary tale, but little changed despite stricter regulation. Audit partners were increasingly under pressure to “cross-sell” consulting services to their audit clients, according to Professor Jeffery Payne, an accounting expert and KPMG Professor at the Von Allmen School of Accountancy, University of Kentucky, with their performance evaluations being affected accordingly. Over time, the Big Four became multinational behemoths, employing nearly one million people and generating $130bn in revenue in 2017.

“You would think that with the scale these firms have reached, the incentive to try to do something unethical is small, because they could afford to lose a big account like Wirecard. However, for a single partner, losing an account is a big disaster for their career,” Botta said.

Critics also point to collusion between regulators and accounting firms, with the former packing their committees with Big Four veterans. Botta pointed to the case of Wes Bricker, a PwC partner who, after a stint as chief accountant at the SEC, returned to his previous employer, as an example. One reason this happens, according to Payne, is that it is more efficient for audit firms and regulators such as the SEC to work together when dealing with complex issues: “Having prior Big Four partners and personnel likely makes these conversations more productive and improves the consistency of financial reporting.”

However, such an incestuous relationship often has dire consequences. In 2018, US prosecutors charged three former employees of the PCAOB, the US audit regulator, over leaks of confidential information to KPMG, their former employer. The picture is similar in the UK, where former Big Four partners are often recruited by the Financial Reporting Council (FRC). “There is plenty of evidence of regulatory capture and revolving doors between politicians, regulators and the Big Four,” Shah said.

 

Breaking up is hard to do
For many critics, the increasing dominance of the Big Four stifles competition; only breaking them up would solve the problem. Such voices are prominent in the UK, where the Big Four audited four out of five public businesses in 2018. The competition watchdog has recommended splitting audit from consulting services. “As it stands as a whole, there is not enough competition in the accounting industry.

There are significant barriers for entry – size matters and so does global presence,” said Ina Kjaer, former head of UK integration in the deal advisory team of KPMG and founder of Eos Deal Advisory.

In a plan issued last summer, the FRC requires the Big Four to operationally separate their audit practices by 2024, although it stops short of requesting a full-blown separation of audit from consulting services. The plan, which aims to ring-fence the finances of auditing departments from other operations, does not require auditors to be paid exclusively from audit fees, as requested by many experts. “The FRC plan does not go far enough, as it proposes a separation but not a full break-up,” said Kjaer, adding that introducing more competition in sub-sectors where the Big Four are involved, such as tax, restructuring and M&A deals, would be more beneficial.

Not everyone agrees with such a strict approach. “Breaking up the firms would not increase competition and would likely decrease their audit quality for large international companies. Auditing firms compete aggressively to obtain new clients from other firms,” Payne said. Even for critics of the Big Four, such as Botta, a break-up could do more harm than good: “It will worsen the conflict of interest problem because as a smaller firm, you want to keep all your engagements. You also lose the core competency and worldwide networks these companies have.”

 

The smaller players have an upperhand
Like many legacy companies in other sectors, the Big Four face an avalanche of technological disruption. Artificial intelligence, digital analytics and the blockchain are expected to make auditing processes faster and cheaper. Technology favours small players, while the global brand of the Big Four makes them more vulnerable to reputational risks, claim the academics Ian Gow and Stuart Kells in a recent book on the Big Four. Their management and consulting services are particularly vulnerable to disruption, according to a report by CB Insights, with start-ups such as Wonder matchmaking individual advisors with clients.

All major accounting firms have set up innovation labs, aiming to harness innovation to their advantage. But many question whether these behemoths can change their old ways. “The Big Four have been investing quite heavily in technology, but they are not yet ready to change their processes and operating models to take full advantage of the technology available,” Kjaer said. Strict regulation may also hamper attempts to embrace technology, according to Payne, who pointed to the obligation of US auditors to “observe” inventory counts as an example: “What does ‘observe’ mean? Do auditors have to be physically present or can they observe by watching a video streaming from a drone?”

 

More inclusion needed
The accounting industry has not avoided the wave of criticism coming on the back of the Me Too and Black Lives Matter movements. The problem goes deep, Kjaer said: “The accounting industry, as most industries, suffers from a historic legacy of a macho culture, where diversity, inclusion and equality do not matter.”Particularly the Big Four have come under fire over gender bias and lack of racial diversity. In the UK, the pay gap between male and female employees remains high; KPMG and EY reported median total earnings gaps of 28 percent and 18.9 percent respectively in 2019. Just 11 out of 3,000 UK Big Four equity partners were black last year.

The sector is slowly adapting to changing attitudes towards equality and diversity. Last year the UK branch of PwC launched unconscious bias training sessions. EY UK aims to double the percentage of ethnic minority partners by 2025. The problem, according to Kjaer, is that HR departments at big companies prioritise diversity KPIs that are too blunt, such as the number of women who get promoted. Although a positive measure, it is the bigger problem of lack of inclusion that goes under the radar, she said: “A more diverse workforce gets recruited and promoted, but they do not tend to stay at the company, as inclusion never really happens. Unfortunately, a lot of companies in our industry still have a culture based on internal politics and relationships, which makes them inhospitable in the medium term.”

A fully integrated digital ecosystem for insurance

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As one of the world’s largest and most populated countries, it should come as no surprise that China’s digital economy is of a scale to be reckoned with. With some one billion ‘netizens,’ businesses in China need to serve huge numbers of people and be reliable, accessible and, vitally, fast. Using the example of revolutionising car insurance claims with AI, image-based assessment, and reliable data processing, Ping An Property & Casualty Insurance Company (hereafter Ping An P&C), a wholly-owned subsidiary of the Ping An Group, explains how the insurance firm has achieved the seemingly impossible.

There are an estimated 340 million cars in China, all of which need insurance and multiple other services. As one of the world’s largest insurers, Ping An P&C has created an enviable digital offering for car owners: an app that settles accident claims in as little as two minutes. This app provides users with a one-stop experience, not only for accidents but for an ever-expanding range of auto services from roadside recovery to valeting, and, new for 2020, COVID-secure sterilisation. This is even more impressive when you look at the stats: there are 83 million bound vehicle users on this app, registered to over 123 million users, so the scale of the operation is mind-boggling, as is the market share covered by Ping An P&C’s unique ‘ecosystem’ approach.

 

A digital ecosystem
With the vigorous development of a new round of information technologies, especially digital technologies including big data and AI, it is imperative for the insurance industry to accelerate its digital transformation in order to keep pace. Since its establishment in 1988, Ping An P&C has adhered to a strategy of stable and healthy development, and in recent years has hired technology talent from home and abroad, and reshaped its organisational structure and corporate culture as a technology-driven company. The company developed such capabilities as cloud computing, big data and mobile applications, and advanced the digitalisation of its various businesses. The Ping An Auto Owner app is a product of this ecosystem transformation, and crucially provides an infrastructure for the company to reconstruct the auto service industry chain as a whole.

 

Super swift settlement
So how does it work? Take the platform’s distinctive service ‘vehicle loss calculation’ as an example. In the past, car owners had to be familiar with repair shop rules, the structure of vehicle parts, and be able to haggle over the price. The Ping An Auto Owner’s smart car loss calculation function has completely solved this issue. In the event of a traffic accident, the car owner only needs to take a picture of the scene, especially the damage caused by a collision, and upload it to the app. The loss report can be generated within seconds, and the premium for the coming year can be estimated immediately to help customers decide whether commercial insurance needs to be used or not. In addition, a reasonable repair price will be accurately generated, and a reliable repair shop recommended. This saves time comparing different repair shops and enables customers to obtain the best maintenance package.

The company has also taken quality and accuracy into account, laying a solid foundation for a data-driven system and ensuring the veracity of claims. In 2019, the precision of Ping An’s digital reporting and processing defeated over 100 international and local participants to take the top ranking in the Robust Reading Challenge for Scanned Receipts Optical Character Recognition and Information Extraction (SROIE). This in turn engenders consumer confidence, knowing that the app’s eye-watering processing speeds are underpinned by reliable technology and an award-winning level of precision.

 

Claims during COVID-19
Since the coronavirus outbreak began, Ping An P&C has added a new aspect to its services: that of epidemic containment. It strengthened its online services and fast-track claim settlement with these technologies, ensuring not only an efficient, convenient customer experience but critically, a minimal number of contacts. For example, its ‘one-click claims service’ enables 36 functions for car owners, including reporting, uploading car accident photos and documents, signing agreements, input of payment information, claims progress enquiries, and auto repair service booking.

It is human nature that we seek ease, convenience and simplicity when making decisions, and businesses the world over have taken advantage of this knowledge

It is not an automated service to the exclusion of any human interaction, of course. The company ensures its back office procedures are as smoothly digitalised as the customer-facing element, allowing claims settlement experts to be on hand to answer questions, help customers with the claims process, and ensure access to contactless, super-fast, easy services for car owners during the COVID-19 pandemic. In 2020 the online claims settlement service has been delivered to nine million customers and counting, 95 percent of whom have used the ‘one-click claims service’ function, and the app has achieved a 95.7 percent positive rating. During the epidemic, the fastest auto insurance claim took only two minutes to close.

Car owners’ various service demands obviously changed during the COVID-19 pandemic, and contactless online service including emergency electricity connection, car disinfection, automatic refuelling, pandemic prevention, annual car inspection agency and subsidies for green transportation were all launched on the app immediately so that Ping An P&C could provide car owners with more considered services while contributing to pandemic prevention and control. The app is even able to help car owners develop safe driving habits. The optional ‘safe trip’ feature can record driving behaviours – with the consent of car owners – and significantly reduces driving risks by providing risk assessments and prompts for bad driving behaviours and generating improvement plans.

 

An integrated service
But the convenience doesn’t end there. When it comes to insurance application and renewal, Ping An Auto Owner can generate personalised auto insurance plans in just seven seconds and accurately recommend product portfolios for customers based on AI image automatic classification, OCR recognition, smart marketing and other technologies.

The potential for expanding customer offerings and keeping people coming back again and again through convenience alone is obvious. If it only takes customers a few minutes to purchase insurance products thanks to AI-driven automatic enquiry, why would they leave the service and go elsewhere?

By building an ecosystem, Ping An P&C links users with service providers, helps partners improve their operating efficiency, provides users with considerate services, and effectively balances the needs of users and those of partners.

Through this ecosystem, Ping An P&C ultimately provides users with 80 types of one-stop services including parking payment, fuel card recharge, vehicle loss calculation and refuelling discounts. Up to now, Ping An Auto Owner has integrated a total of more than 190,000 outlets, including over 59,000 maintenance outlets, over 78,000 repair shops, and over 30,000 4S car dealers. This is another smart move on Ping An P&C’s part: with such an enormous market share and the convenience of staying with them year after year, it is in the interest of auto business owners to be affiliated with the name of Ping An P&C. This enables them to secure incoming business as well as providing the extra level of customer confidence brought about by association with such a huge insurance provider.

 

Looking to the future
With the rapid development of information technology such as big data and AI, the acceleration of digital transformation in the insurance sector is a must. Amid the wave of digitalisation and a persistently complex and volatile landscape worldwide, Ping An P&C’s new vision to be a world-leading technological property and casualty insurer has driven its increasing investment in scientific research. Moving forward, the company aims to become a property and casualty insurer that is powered by technology, data, and an ecosystem approach.

In its retail auto insurance business, over 90 percent of Ping An P&C’s quotes are made automatically, and the first quote is accepted. As no manual data entry is required, the turnaround time from quotation to policy issue is as short as 20 seconds. This is clearly an attractive option; if customers do not even need to fill out a form or go online to compare the insurance market, it is much less tempting to stray to a competitor.

It is human nature that we seek ease, convenience and simplicity when making decisions, and businesses the world over have taken advantage of this knowledge: consider Amazon’s one-click offering that makes online purchasing effortless. Ping An P&C is utilising similar factors when offering their 20-second turnarounds and in-app purchasing. Ping An P&C clearly knows that making things easy for their customers will lead to repeat business and allow customers to feel like they are on top of things, which in 2020 is no small feat.

Up to now, Ping An P&C has developed and offered more than 1,000 types of master insurances, and its business scope covers all the lawful property and casualty insurance you would expect, such as auto, corporate property, engineering, liability, cargo transportation, agricultural and more. In developing a way to turn the potentially stressful experience of auto claims into a secure, reliable, and almost instant process, you can’t help but wonder what other areas of insurance this comprehensive technology could be applied to in the future.

How the art industry evolved due to the global health crisis

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The art world was better prepared for the coronavirus pandemic than many other sectors. Though local and national lockdowns forced galleries to close their doors and leading auction houses to cancel in-person sales – including some of the most important dates in the global art calendar – a swift pivot to online activity helped protect the art market from some of the worst ravages of COVID-19.

It has not escaped entirely unscathed, though. From January to September 2020 there was a 20.2 percent drop in the number of paintings sold at auction, compared to the same period the previous year, according to analysis by Art Market Research Developments (AMRD).

With many auctions postponed in the first few months of the pandemic, there were simply fewer opportunities to trade, Sebastian Duthy, AMRD’s chief executive, told World Finance. As auction houses honed their online offer and buyers were able to return to the market, the outlook improved.

“If you had asked me a few months ago, I would have painted a much gloomier picture,” Duthy said. “If you look to the figures in July 2020, it looked much worse than what it was.” All in all, the impact of the pandemic on the market “is not as bad as one might expect,” said Duthy, offering as a comparison the period immediately following the 2008 financial crash, which saw a 26.6 percent fall in the number of paintings sold at auction compared with the previous year.

 

A buyer’s market
It’s not just the number of sales that has decreased but the value of those sales too, with AMRD’s All Art Index noting a fall of 8.5 percent in the average value of fine art objects (paintings, sculpture, prints and photography) sold at auction from January to September last year. This is partly down to the fact that the pandemic has created a buyer’s market, with reports of the phrase ‘COVID price’ being bandied around in art market circles. It’s also a by-product of the loss, for the moment at least, of the often glitzy in-person sales that have historically attracted the biggest ticket items.

“People want to be able to inspect what they’re buying. Of course technology finds ways to make it feel like you’re actually looking at the real thing and give people confidence that they are buying something of great quality, but nothing beats kicking the tyres yourself and having a close look,” said Duthy.

The analyst expects the market to bounce back as in-person sales are gradually allowed to resume and confidence returns, most likely in the second quarter of 2021. Even after that happens however, auction houses are highly likely to continue to benefit from increased online activity. The leading auction houses have had an online presence for a long time now with Sotheby’s first collaborating with online auction portal eBay in 2002 and Christie’s launching a live online viewing room in 2006. But the pandemic forced them to up their game, investing in new platforms to enable better customer experience.

This investment has borne fruit: while sales were down overall, online-only fine art sales at the three leading auction houses jumped 240 percent according to a report by art market analysis firm ArtTactic. For the first eight months of 2020, online-only sales at Christie’s, Sotheby’s and Phillips totalled $321m, compared to $94.4m for the whole of 2019.

This consolidation of the online offer has been crucial for the survival of auction houses in this period but it also represents an opportunity going forwards. Sotheby’s reported to ArtTactic that over a third of online buyers were transacting with the auction house for the first time and that over a quarter were under the age of 40.

 

Developing relationships
If these businesses are to continue to successfully engage these younger collectors, digital natives who may not have deep pockets now but might do in years to come, they need to be responsive to the needs of this group.

“An auction house does its business not just by finding sellers, but developing relationships, because that seller might want to buy something they then might want to sell down the line,” said Duthy. Even if auction houses’ proportion of online sales fall back to a fraction of what they reached in August 2020, the art market can only benefit from the technology and relationships developed during this period of crisis. “We’re moving into the biggest inter-generational wealth transfer ever from the baby boomers,” said Duthy. “You’re going to see the market pick up where it left off.”

Shining light leading the way in Brunei’s banking industry

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From a humble shop lot office in 1994 to becoming the largest conventional bank in Brunei and a leader in Brunei’s banking industry, Baiduri Bank has grown in strides over its 25 years of operation in Brunei Darussalam and its achievements have been recognised by numerous international publications.

“Our successes and position in the economy can be attributed to our commitment to local projects, interests and clients, our responsiveness to react to changes and the foresight to anticipate changes in the global and regional economy, as well as our global outlook,” Ti Eng Hui, CEO of Baiduri Bank, told World Finance.

Baiduri Bank’s core businesses comprise retail banking, corporate and institutional banking, while its wholly owned subsidiaries Baiduri Finance and Baiduri Capital specialise in consumer financing and investment solutions respectively. Today, technology plays a pivotal role in the successes of economies and businesses, and in improving financial accessibility for the general public, banks need to adopt more technological solutions to cater to customers’ evolving needs and requirements.

 

Technological advancements
With technology now playing a more pronounced role in how businesses and individuals conduct their banking, Baiduri Bank has developed several user-friendly mobile applications in keeping with the digital banking movement. The bank’s latest tech offering, Baiduri b.Digital Personal, is a digital banking and lifestyle platform. With a plethora of new features that put emphasis on enhanced customer experience and engagement, the Baiduri b.Digital Personal mobile app sets out to be the go-to solution targeting the young, tech-savvy generation who demand mobile services as their default way of banking. Additionally, Baiduri Bank also has a dedicated internet banking platform for businesses, known as Business i-Banking, which provides a modern, convenient and secure channel for businesses to manage their banking needs efficiently.

Meanwhile the Bank’s subsidiary, Baiduri Finance, also offers a standalone mobile app, the Baiduri Finance Mobile App, a tool catering primarily to hire purchase payments, among others. Understanding and being able to cater to the unique needs of the Bruneian customers is crucial to the success of any new offerings, and with automobile financing being a necessity for many, the Baiduri Finance Mobile App provides an easier and faster alternative to meeting their hire purchase needs.

Among their other digital innovations is the introduction of Brunei’s first online securities trading platform. “Through our subsidiary, Baiduri Capital, we provide the opportunity for our customers to invest in major stock markets including Singapore, Hong Kong (including the Shanghai-Hong Kong Stock Connect), Malaysia and the US,” Ti explained. “Our secure online trading portal allows customers to obtain quotes, place orders and review their account status and balance at their convenience.”

This solution, as well as others, is part of our plan to create a future-ready, dynamic and highly skilled workforce

Baiduri Bank is still the first and only bank in Brunei to offer an e-payment solution through MerchantSuite, an online platform facilitating the issuance of invoices and card payments without requiring a dedicated, and often costly, e-commerce website. MerchantSuite enables local small and medium enterprises to extend their market reach by allowing shoppers to pay online with any Visa, Mastercard or American Express cards. Baiduri Bank is also partnering with DST, one of Brunei’s largest telecommunications providers, to launch an e-wallet.

This partnership allows Baiduri Bank, the country’s largest card issuer with the largest merchant base, and DST to share resources and create the largest digital payment ecosystem in Brunei with connectivity to regional and international payment platforms. While technology has been the driving force behind practically all modern-day innovations within the banking sector and beyond, a crucial aspect that must never be taken lightly is data security. Baiduri Bank is the first and only bank in Brunei to be PCI-DSS certified, reflecting the bank’s steadfast commitment to uphold the global data security standard for processing, transmitting and storing cardholder data. Baiduri Bank is certified to the latest industry standard, PCI-DSS Version 3.2.1.

 

Building for the future
In line with the nation’s agenda to build a highly skilled workforce, Baiduri Bank has invested heavily in human capital development. “We have an agreement with world renowned Moody’s Analytics for the provision of a structured e-learning solution for our employees under various divisions of the bank. This is a first of its kind for a Brunei bank,” Ti told World Finance.

“This solution, as well as others, is part of our plan to create a future-ready, dynamic and highly skilled workforce in line with one of the goals of Wawasan 2035, the nation’s long-term development plan for an economy that is dynamic and sustainable,” Ti continued. Other initiatives include the implementation of SAP Success Factors, a world-leading provider of human capital management systems covering core human resource processes and talent management, as well as the launch of the Baiduri Management Associate Programme, a year-long development programme aiming to provide successful candidates with a solid foundation in banking through job rotations under the guidance of experienced managers.

In support of the nation’s economic agenda to diversify beyond the oil and gas sector, Baiduri Bank continues to play an active role in various local business development programmes. The bank has introduced the Baiduri SME Empowerment Series in partnership with Darussalam Enterprise (DARe), a statutory body with the aim to nurture and support local enterprises in the early and middle stages of the business life cycle. Ti said, “This initiative is aimed at implementing a series of skills training workshops designed to complement existing training programmes offered by DARe, thereby providing a more comprehensive, well-rounded training curriculum to local entrepreneurs, empowering them to achieve greater success in their business ventures.”

Baiduri Bank also offers a wide range of solutions for local SMEs to optimise their cash flow and finance their growth. Some of the financing solutions include working capital financing, instalment loans, property loans as well as trade financing options such as indent financing and accounts receivable financing. Through these financing solutions, local SMEs have access to short and medium-term capital to fund their operations or grow their business. Other products designed to serve SMEs include business credit cards, payroll processing and other day-to-day banking services such as fund transfers and bill payments.

 

Active support measures
Speaking on the bank’s response to the COVID-19 pandemic, “We activated our Business Continuity Plan (BCP) for a pandemic on March 12, 2020 after the World Health Organisation declared COVID-19 a global pandemic. But prior to the activation of BCP, Baiduri Bank had already begun taking precautionary steps as early as January 2020, when Singapore announced its first confirmed case,” Ti said. The bank activated split operations with alternate teams working in separate physical locations away from the primary site. The bank also performed professional sanitisation of all branches including its subsidiaries. Mandatory temperature screening, social distancing measures, as well as fabricating acrylic shields at teller counters to form a protective barrier, were swiftly implemented across all branches.

The bank also provided personal care kits for all employees as part of its efforts to ensure their health, safety and well-being. In support of efforts led by the Ministry of Finance and Economy and the Autoriti Monetari Brunei Darussalam (AMBD) to assist financially impacted individuals and businesses during the COVID-19 outbreak, Baiduri Bank has introduced several support measures to help mitigate the impact. For eligible individuals who are financially affected by the pandemic, the bank introduced a deferment of principal payment for personal and mortgage/property loans, an option to convert credit card balances to term loans and deferment of hire purchase principal payments through Baiduri Finance.

The bank’s support measures for corporate clients include a deferment of loan principal repayments for companies in all business sectors. Additionally, businesses under eligible categories including tourism, hospitality, air transport and food and beverages were also given waivers of fees and charges for trade and payment transactions. These measures were primarily intended to help alleviate the short-term cash flow problems for local businesses that were adversely impacted by the COVID-19 outbreak. In addition, the bank also implemented a fee waiver for online fund transfers between local banks to encourage its customers to utilise digital channels such as online or mobile banking or via the ATMs, in line with safe distancing measures.

 

Brand refresh
Baiduri Bank launched its refreshed brand in September 2020, following an intensive year-long process of planning, research and assessment in partnership with an international team of brand consultants. It is a culmination of a journey to find out how the Baiduri brand was seen by its business partners and employees and definition of a truer representation of who the bank is and what it stands for.

Ti continued to explain to World Finance: “Our community, and the world around us, is changing and we too must change with it. As we prepare ourselves for the next phase of growth, we want to take the opportunity to have a closer look at our core capabilities in the context of the changing world, and ask ourselves how we can redefine our vision to stay relevant, and to better communicate the strengths and values that make Baiduri unique. We also want to rally our people behind a shared purpose, so they are inspired to do their best to create meaningful impact in the communities we serve.”

 

Well positioned for opportunities
Baiduri Bank’s global outlook coupled with deep local insights, strong commitment to the domestic market and quick adoption of new technologies have contributed to its success as the leading conventional bank in Brunei. On the digital payment front, the bank fully supports the primary objective of AMBD’s Digital Payment Roadmap to create a digital payment ecosystem by 2025. With plans to continue development and enhancement of its electronic payment capabilities and e-banking services, the bank is on course to be a leading player in the digital banking realm in Brunei.

With a strong credit rating of BBB+/A-2 from Standard and Poor’s, coupled with high liquidity, Baiduri Bank is well positioned to capture opportunities in the market and drive sustainable growth as the leading and preferred financial partner of Bruneian businesses and consumers.