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Financial Industry in 2021: 5 things that may impact the sector

Coronavirus has disrupted the functioning of all major industries and the finance sector was one among the worst hit. This year, we are likely to see a risk averse industry, as fintechs and banks alike move into survival mode. Yet, this will also spur innovation. The shift away from cash will give a shot in the arm to digital payments, while lenders in particular will have to get creative to balance their risk against the need to dispense funds.

Here are five core trends that can have a major impact in 2021:

Lenders will seek improved visibility to combat delinquency: Businesses particularly, SMEs need liquidity to survive. Money lenders are focussing on enabling visibility and control after a loan is dispensed in order to balance risk with need. This way lenders will not release funds in lump sum but as and when it is needed. They also have the power to reject or approve payments in real-time, based on whether the request is aligned with the terms of the loan agreement.

Embedded payments to become more commonplace: Embedded payments has been around a long time where payments are so integral to the customer experience that it doesn’t even feel like you’re paying anymore. In the coming years, we will see an expansion in payment methods as the options available are wider now. Use of cash to drop below 15%, falling from 23% of all payments in 2019: The UK and Europe’s departure from cash is expected to continue to evolve. Physical cards will begin to rise in digital payment methods – virtual cards, digital wallets, and the likes of Apple Pay and Google Pay. Banks should turn towards preparing for this shift.

Back-end bank modernisation set to continue: Traditional banks are recognising the need to innovate faster, particularly on the front-end, to compete with the new waves of digital banks and fintech entering the market. While we will see continued modernisation on the back-end, as they try to unpick the complex web of legacy systems they sit upon, one would not expect this issue to be fixed in a year. Instead of taking on the risk of full migration, many banks will leave core services in place that are too risky to move, whilst shifting towards newer services.

Alternative lenders will open up the market to support the financial industry recovery: The process of securing a loan has always been quite painful – involving lots of self-reporting, paper statements and credit reports and it takes a long time before the results arrive. Fortunately, it looks like those days might be coming to an end with the emergence of a new breed of alternative lender focused on transforming specific niches of lending. New alternative lenders are changing the stakes. Using data and modern payment platforms, decision making is now a matter of minutes and hours and not months. We are seeing the same in Point of Sale lending with companies, now you can apply for a POS loan and get approved in seconds.  Fintechs to continue leading front-end innovation: Fintechs hold the monopoly on defining what is important in terms of features. From money management tools, to saving incentives, fintechs have  created new, attractive products with a speed and creativity that traditional banks simply cannot stand up to. However, success in this regard is rare. Banks will always act as a back-end while fintechs will continue to serve the customer from the front end.

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Finance

Euro zone ministers expect inflation to slow in 2022

The acceleration of euro zone inflation, driven energy prices, is mostly temporary. Then the price growth will slow down again. The euro zone finance ministers agreed that, that too the next year as forecasted by the European Central Bank and the European Commission.

Paschal Donohoe, chaired the talks of the ministers in Luxembourg. In a news conference he said that there was also agreement that the inflation spike was not an argument against the transition to renewable sources of energy. This is under the EU’s ambitious plan of reducing CO2 emissions to zero by the year 2050.

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Finance

Under new rules, borrowing for investment sensible

British finance minister Rishi Sunak said that the government borrowing to fund investment was a sensible thing. This is to allow under new fiscal rules that he is likely to announce, unlike borrowing for day-to-day spending. He said that borrowing for capital investment that is going to drive up their growth is probably a sensible thing for them. And that too particularly in an environment of slightly lower interest rate. Sunak stated this in an event on the sidelines of the annual conference of Britain’s ruling Conservative Party. This event was organized by the Taxpayers’ Alliance advocacy group. Sunak stated in that event, that borrowing for more day-to-day spending is probably less something that you would want to have as part of your framework.

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Finance

IMF board to interview Georgieva-sources

The International Monetary Fund’s executive board is going to interview Managing Director Kristalina Georgieva. This is regarding that; its reviews claims that she pressured World Bank staff to alter data to favor China in her previous role. Board members were initially expected to meet with Georgieva. But spent their time working on other regular business matters.

The board members spent hours for questioning lawyers from the WilmerHale firm. This is about their World Bank investigation report which alleged that Georgieva, as the bank‘s CEO applied undue pressure on staff, to alter data in the flagship “Doing Business” report to benefit China. Then, an IMF spokesperson said that the IMF board remains committed to a thorough, objective, and timely review of the matter. Georgieva has strongly denied the accusations.

The upcoming interviews could prove pivotal in either increasing support for Georgieva. This is with many IMF shareholders are keen to wrap up the board’s deliberations on the matter. The fund’s most influential member governments, including the top shareholder the United States, have withheld public judgment. The World Bank tasked WilmerHale with investigating the “Doing Business” data irregularities identified in 2020. The law firm’s report contends Georgieva. The former World Bank President Jim Yong Kim’s office pressured staff to manipulate data so that the China’s global ranking in the “Doing Business 2018” study of investment climates rose to 78th from 85th.

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