How can the industry change for the future?

The prospects of how important new technological advances can improve the future of the industry is a crucial industry looking forward, and it will be the subject of a major new study.

CCRMagazine and Data Interconnect will work together to review such questions as: what is important when considering change? What are the key barriers to change? What does the industry need from its new solutions?

What challenges are being faced by business? And how is the industry able to build successful business cases that will convince senior leadership?

Stephen Kiely, editor of CCRMagazine, said: “It has become something of a trope in the credit, collections, and enforcement industry that technology is an essential part of the future, but our aspect of the economy can sometimes struggle to access all the options that is needs.

“So issues such as best practice advice on how to build a business case is very important, and we need to get a feeling for what it is that the industry needs. So I do hope that our readers will want to take part in this important research project.”

  • To fill out the short survey, please go to this link. It should not take any more time than that and, as always, all responses will only be reported as aggregate figures.

FCA compliance survey to assess progress

As the credit, collections, and enforcement industry works to push even harder for strict compliance, a new piece of research will assess where creditors and collectors feel that they are, and whether the industry believes that it has the right tools for the job.

The research, which will be run by CCRMagazine and TriLine GRC, will ask crucial questions such as: what are the key regulatory compliance supervision challenges facing firms, how do firms currently manage and evidence FCA SYSC compliance and risk management governance controls, and whether firms are already in the process of implementing the FCA requirements under the SMCR.

Stephen Kiely, editor of CCRMagazine, said: “It is no secret that compliance is at the heart of everything that the industry does, it is a huge concern, which is why this month’s edition of CCR2 is covering this subject.

“But the practical reality is that ever more regulations are being placed on the industry so creditors and collectors will need to continue to adapt and evidence that they have complied in an appropriate way.

“This is an important piece of work, which we are proud to be collaborating with TriLine GRC on, and I hope that readers will want to take part in the survey.”

  • To fill out the short survey, please go to this link. It should not take any more time than that and, as always, all responses will only be reported as aggregate figures.

UK businesses investing £3 million each in AI but struggling with lack of strategy and skills

UK companies are currently spending an average of £3.1 million per company on AI technologies, with large businesses investing over £6.5 million, new research from content IQ provider ABBYY has found. The UK’s investment in automation projects averages at £1.2 million per company, but more than two-thirds (67%) aren’t educating staff well enough on how to use it and 1 in 6 said their business had no strategy in place or that they weren’t aware of one. Across the automation stack, the research found that content-centric process automation is a particularly promising area delivering benefits for businesses, and creating huge opportunities for early adopters of new-generation technologies.

Efficiency was the highest-ranking benefit for these technologies, with a majority of businesses already seeing improved efficiency from their automation investments. Content-centric process automation in particular impressed on efficiency – with over 62% seeing efficiency gains as a result of implementing the technology.

It also provided higher ROI than general AI technologies when it came to productivity, revenue growth and business transformation (see Figure 1). What’s more, content-centric automation beat businesses’ expectations, helping businesses grow their revenue, increase market share, and get ahead of the competition by 15% more than anticipated before deployment.

It’s clear that the majority of UK companies are still at the start of their automation journeys –on average, UK businesses use only two types of automation, and only 1 in 20 use the full automation stack. This demonstrates that there is still a way to go before the full potential of automation can be realised.

A potential reason for this lies in a lack of training – two thirds (67%) of those surveyed feel their organisation isn’t educating staff well enough on automation technologies, and a quarter (27%) of those who have not invested in automation admitted this is because they “wouldn’t know what to do with it”. This indicates a substantial automation skills gap in the UK. An increased focus on strategy would also benefit businesses struggling to make the most of automation and AI, as 1 in 6 said their business had no plan in place or that they weren’t aware of a plan (15.4%), and 61% of businesses only have a plan for up to 5 years.

“Automation isn’t a panacea – but the potential of automation technologies to transform businesses is abundantly clear. Making it work requires not only monetary investment, but also a watertight, long-term strategy and the right people with the right skillsets,” said Neil Murphy, Global VP at ABBYY. “But many businesses are still not adequately educating their staff on technology, and as a result, the technologies that deliver the most ROI are often overlooked. It’s no wonder that the benefits of AI and automation aren’t yet being fully realised.”

Tapping the full potential of automation for businesses requires a long-term strategy. AI solutions need to be trained and customised to fit the company’s specific needs, focusing on accuracy, reliability, and speed. Therefore, ABBYY is encouraging businesses to choose a provider who can offer guidance in training a system, and in full solution lifecycle support.

For solution providers, it is important to eliminate barriers to AI adoption by developing platforms and solutions that are easy to use, that minimise complexity, and that reduce dependence on IT experts for configuration. This is why ABBYY is focused on building powerful content IQ technologies and solutions that are quick and easy to set up and use.

Murphy continues: “Businesses aren’t providing adequate training on understanding the benefits of the whole automation stack, or how to train AI and automation solutions to fit their specific business needs. This, coupled with a lack of strategy, means businesses may be unable to reap the rewards of their innovation. Enterprises must focus on improving education and strategy to avoid missing out on the automation solutions that could truly transform their business, and to help them succeed on their digital transformation journey.”

Two year low for small business confidence

The proportion of small businesses predicting growth for the next three-months has fallen to 34% – its lowest level for eight successive quarters and, for the first time, the proportion of businesses predicting significant expansion has fallen below 5%.

The new research from Hitachi Capital Business Finance asked a nationally representative sample of 1,184 small business owners to forecast their growth outlook for the three-month period to 30 June. Whilst the percentage of small businesses predicting growth held firm at 36% over the previous three quarters – through a period of extreme political and economic uncertainty – this month sees the first fall in the number of small businesses predicting any form of growth – whether significant expansion or modest, organic growth.

This time last year, the spring months saw an annual high in business confidence, as businesses started the new tax year with bullish plans for the year ahead. This spring, confidence is sliding.

Hotspots where confidence is falling

  • Sole traders were least confident in their business outlook – only 28% predicted net growth for the period to 30 June, compared to 46% for those larger businesses with 10-50 employees. Similarly, sole traders were almost twice as likely to predict contraction than these larger firms (19% Vs. 11%).
  • Transport, agriculture and hospitality were the sectors where businesses were least likely to predict growth – 25%, 27% and 29% respectively [see note to editors for full table]. Compared to three months ago, the sharpest fall in growth predictions was noted in the Transport/Distribution sector (down 13% to 25%).
  • Significant variations were also noted by the age of businesses surveyed. Whilst young businesses in their first years of trading were those most confident in their net growth predictions (45%), older businesses that had been trading for 20 or more years were significantly less likely to predict growth (27%).

Asked what the barriers to growth where, market uncertainty (31%), unwillingness to embrace risk (17%) volatile cash flow (13%) and the cost of labour (12%) were all key factors. Further, when asked which initiatives small business owners were taking in order to secure future growth, key initiatives mentioned included: keeping fixed costs down (41%), improving cash flow (22%), tackling late payment (28%), expanding into overseas markets (16%) and investing in new equipment (12%).

On the upside, the north emerged as the country’s engine room for growth, with small businesses in the North West (43%) and the North East (41%) most likely to predict growth – compared to the national average of 34%. In contrast, small businesses in the west were the least confident: Welsh businesses were least confident about the future, closely followed by the South West – 23% and 28% respectively. In only three regions had the growth outlook of small businesses improved since the start of the year.

By sector, quite a lot of movement was noted since the start of the year. Despite a January of bleak trading announcements from the high street, the latest Hitachi Capital data reveals a sharp improvement in growth outlook from the retail sector among small businesses (up 9% on Q1 to 40%), with confidence in Real Estate rising by 17% since January. Conversely growth forecasts have fallen most sharply in the Finance/Accounting and Transport/Distribution sectors (falling 9% and 17% respectively).

Gavin Wraith-Carter, Managing Director at Hitachi Capital Business Finance said: “We are all living through a period of unprecedented uncertainty and, within that context, it is not surprising that small business confidence has taken a knock. It is too early to tell whether this is a short-term blip or the start of a trend.”

“The crucial subtext is how small businesses are reacting to how they are feeling. What is encouraging from our research is that whilst around four in five small businesses can identify current challenges, the vast majority are adapting by making new plans to achieve future growth. Investing in new equipment, expanding into overseas markets and tackling late payment are key issues that small businesses are prioritising to move their businesses forward – and now is a vital time for the banking and specialist finance community to be backing the small businesses that have the ideas, the plans and the passion to see market uncertainty as an opportunity to grow.”

Qualco technology debate for the industry

As the credit and collections industry continues to go through a period of intense change, senior professionals are set to gather to discuss some of the major trends in Collections Technology, in association with Qualco.

The debate will focus on several key pillars: framework and methodology, regulations, data, people, and how this reflects from the C-suite through to the collections floor.

The latest of CCRMagazine’s informed discussion events will again see the industry share its ideas, perspectives, and knowledge.

Stephen Kiely, editor of CCRMagazine, said: “In the ever-changing environment, it is crucial to share experiences, and consider whether your view of how you see the future is shared by other industry experts.

“We are proud to be working with Qualco on this discussion that we hope will be both thought-provoking and extremely interesting. Collections technology is hugely significant for the industry, so this debate promises to provide an opportunity for knowledge-sharing and insight. There is always a positive future for the industry, but we can only get there via debate.”

More than half of all landlords will purchase next property through a limited company

The latest landlord research from Foundation Home Loans, the intermediary-only, specialist lender has revealed that of those landlords who intend to add to their portfolios over the next year, over half are likely to do so within a limited company vehicle.

Foundation says that the research – undertaken by BVA BDRC and carried out in March 2019 with the results based on 829 online interviews with landlords – also shows that portfolio landlords (those with four or more buy-to-let mortgaged properties) are even more likely to purchase via a limited company, with almost seven in 10 of landlords with more than 11 properties in a portfolio, intending to do so in this way.

Just over a quarter of landlords intend to remortgage in the next year, although this rises to one in three for portfolio landlords. 29% of all landlords took out a new remortgage in the last year.

The use of mortgage advisers by landlords to secure their property finance also remains strong, with the research revealing that seven in 10 landlords used an adviser to arrange their most recent mortgage, however 23% did deal direct with a lender. Foundation believes mortgage advisers could utilise a strong marketing campaign to secure greater activity levels with those landlords who have previously gone direct.

When asked how they had first come across their mortgage adviser, 44% of landlords said it had been through a recommendation, 13% through an internet search and 9% via membership of a landlord body.

The research also reveals a number of key financial measures with regard to the ‘average’ UK landlord – the typical one has 10 properties in their portfolio, over half of which are owned via a buy-to-let mortgage, with the average LTV of those mortgaged properties down below 50%.

The average market value of a portfolio is £1.4m with average gross rental income of £66k. The amount of borrowing for each landlord is £427k across their portfolio, although there is a marked difference between those who own only one to three properties (£334k) and those with more than four properties (£1.073m).

Finally, 19% of landlords said they had seen an increase in tenant demand over the last three months, down 5% from the last iteration of the research. 37% had seen no change, 21% had seen demand fall and 22% were unsure. Those landlords in the Midlands are currently reporting the strongest tenant demand in the UK.

Jeff Knight, Director of Marketing at Foundation Home Loans, said: “Overall the report back from landlords seems pretty positive albeit with obvious concerns about falls in tenant demand and how existing and future regulatory and economic change is going to affect their portfolios.

“What we are clearly seeing is far more portfolio landlords active in the sector, and while there has not been the great exodus that many were predicting, it’s less likely that those with only one or two properties are going to add to them.

“Overall, portfolio landlords are showing serious ambitions for the future, while holding relatively low levels of mortgage debt and therefore risk for lenders. The market value of their portfolios is solid as is their annual rental incomes and, looking at these numbers, it’s obvious to see why they stress they’re in this market for the long-term.

“When it comes to both anticipated purchase and remortgage activity, many landlords intend to do either or both within the next 12 months – which is clearly good news for advisers – and for purchasing especially this is now far more likely to be within a limited company structure, plus we have more landlords remortgaging properties out of their individual name into a company. Advisers do however have an opportunity to pick up more business, given that over two in 10 went direct to a lender for their last buy-to-let mortgage.

“The growth in portfolio activity certainly chimes with our own business results for April with 62% of all our mortgage applications coming from portfolio landlords and 53% for limited company business. Our focus therefore remains on ensuring that we support advisers with these clients with an easy-to-understand limited company/portfolio landlord proposition that takes away much of the administration demands and presents products with flexible criteria and highly-competitive rates which are not higher just because the client is utilising a limited company.

“We believe the market will continue to head in this direction and our specialist focus in this area will continue to help advisers who are likely to see a growth in client numbers over the months and years ahead.”

Foundation’s range of buy-to-let products for those who are purchasing or refinancing through a limited company is currently available up to 80% LTV, is offered at an ICR of 125 times the pay rate for five-year fixed rates, has no maximum age, accepts newly-incorporated limited companies, and has a maximum loan size of £1.5m.

‘Brexit uncertainty puts more UK businesses into significant distress’

Grimsby-based Forbes Burton, a company rescue and insolvency specialist has warned that ongoing uncertainty over Brexit means more companies could be facing financial difficulties in the months to come.

This warning has come as new figures from risk management specialists Red Flag Alert and The Insolvency Service have been revealed, showing that almost 1 in 5 UK businesses are classified as being in ‘significant distress’.

Rick Smith, Managing Director at Forbes Burton says: “This is a real concern and should be taken seriously. For example, in the Yorkshire and Humber area, companies with Critical Problems (companies with County Court Judgements totalling £5,000 or more) rose from 130 Q1 2018 to 172 Q1 2019 and in the East of England, which includes Lincolnshire, the figures were up from 155 to 168 over the same period.

“The impact of the uncertainty around Brexit is really starting to take hold now and we may see even more increases in the number of businesses facing problems in the future.”

The construction industry, usually used as a ‘bellweather’ for the UK economy showed a 9% increase in businesses in financial difficulty. The East of England specifically showed a 6% increase from the from Q4 2018 to Q1 2019.

Rick added: “The hotels and leisure industry have also been hit hard by Brexit uncertainty. The reduced labour supply as the number of foreign workers falls and the cost of a 5% increase in the national living wage has pushed 9% more hotel businesses into financial distress as last year.”

Rick explains that the lack of business travel could have had the biggest impact on hotel profits, as businesses cut back on travel in light of the uncertainty over whether or not the UK can scramble together a Brexit deal.

Premier Inn owner Whitbread also recently reported a 40% decrease in annual sales since the Brexit referendum and blames lack of business travel as a major factor.

Rick continued: “Many businesses have been preparing for a no-deal Brexit for a while now, but if you haven’t, now is certainly the time.

“A no-deal Brexit has the potential to seriously disrupt business in the UK for an extended period. Every business should be ensuring that it has good cash flow and that all financial accounts are up to date. Should the country hit a period of even more economic uncertainty, it is essential that you know how healthy your business is and how well you can weather out the Brexit storm.”

“It’s also a good idea to check on your suppliers. I would always recommend you keep your options open. If your most trusted clients start to feel the pressure, ensure you can fall back to another more stable supplier. It’ll help keep your business strong and prepared for the future.”

It isn’t too late for businesses in the UK to find themselves back out of financial distress, as Rick explains: “The UK economy is generally in good shape and we are seeing a record number of people in employment. Hopefully, the government will be able to provide greater certainty around Brexit over the next couple of months which should increase confidence.”

Spring has sprung for UK retailers

The UK’s retail sector experienced big year-on-year growth in March, but department stores remain on red alert

The key findings from the Office for National Statistics showed

  • In the three months to March 2019 (Quarter 1), the quantity bought in retail sales increased by 1.6% when compared with Quarter 4 (Oct to Dec) 2018, following sustained growth throughout the first three months of the year.
  • All store types except department stores and household goods stores increased in the quantity bought in the three months to March 2019, when compared with the previous three months.
  • The monthly growth rate in the quantity bought in March 2019 increased by 1.1%, with food stores and non-store retailing providing the largest contributions to this growth.
  • Year-on-year growth in the quantity bought increased by 6.7% in March 2019, the highest since October 2016, with a range of stores noting that the milder weather this year helped boost sales in comparison with the “Beast from the East” impacting sales in March 2018.
  • Department stores were the only store type to decrease in the quantity bought when compared with March 2018, with a fall of 0.3% in March 2019.
  • Online sales as a proportion of all retailing increased to 18.6% in March 2019, from the 18.1% reported in February 2019.

Phil Mullis, Partner and Head of Retail and Wholesale at leading accountancy firm, Wilkins Kennedy, said: “These figures reinforce just how much of an impact last year’s ‘Beast from the East’ had on the UK high street; with this March’s mild weather helping strong year-on-year growth in respect of the value spent (7.3%) and the quantity bought (6.7%).

“Food stores contributed a significant chunk of this growth thanks, in part, to Mother’s Day (and food inflation), but on the flip side, people still aren’t going for big ticket items, which is driving the downfall at some household goods and department stores.

“The ongoing uncertainty surrounding Brexit and the fluctuation of the pound are some of the main reasons consumers are so reluctant to splurge at the minute.

“Given the volatility of the pound in response to Brexit movements, retailers importing goods would be wise to hedge against exposure to foreign exchange to aid budgeting certainty.

“While these statistics of growth are encouraging news for the sector, it was disappointing, yet hardly surprising, to see Debenhams enter administration.

“And finally, it is important to remember that retail isn’t dying, it is evolving to reflect what consumers now want when they are visiting the high street, and part of this process involves businesses either shutting down or receiving wake up calls to change and tailor their offering in order to survive.”

Over half of SMEs predict UK recession as Brexit bites

More than half (57%) of small and medium sized enterprises (SMEs) believe the UK economy will fall into recession this year, according to the latest SME Confidence Tracker from leading independent financial services provider, Bibby Financial Services (BFS). In line with this belief, confidence[1] among SMEs has declined by 5.6 points year-on-year, with UK businesses experiencing their least confident start to a new year since 2014.

This has had a knock-on effect on investment decisions; with the average amount of capital SMEs plan to invest in their business falling for the fourth consecutive quarter – from £103,648 in Q1 2018 to £64,600 Q1 2019.

This drop comes as an increasing proportion of businesses say they are holding back investment due to the uncertain economic environment within the UK, increasing from a quarter (26%) in Q4 2018 to a third (33%) in Q1 2019, the highest level since 2015. A similar proportion (30%) cite that uncertainty arising from the UK’s exit from the EU is holding them back, indicating there has been an impact on UK business investment because of Brexit.

Edward Winterton, UK CEO, Bibby Financial Services, commented: “If SMEs are the warning lights of our economy, this quarter signals to us that they see trouble ahead. We typically observe a seasonal bounce in SME confidence at the start of a year, as businesses begin with renewed optimism. This year, the bounce was lower than ever before, highlighting how Brexit uncertainty is taking its toll on UK SMEs.

“Political uncertainty is acting as a brake on the economy. It needs to end. Regardless of whether you supported leave or remain, Brexit has been an agonisingly slow process resulting in our SMEs pulling back on investment when our economy needs stimulus to grow.”

The data found that SMEs are calling for further support from the Government to help them through Brexit. Over two thirds (68%) would like the Government to introduce tax breaks for businesses, while almost two thirds (65%) want lower business rates, and half (50%) think the Government should ensure that tariffs on goods to the EU are avoided.

Winterton added: “There is often talk of protecting the City of London from Brexit, but our SMEs need protection too. I hope the Government will act to reduce the impact of Brexit on UK businesses.”

Operationally, SMEs are facing other challenges too, with almost a fifth (19%) telling us that rising costs were their biggest challenge. While others believed increased competition from other firms (16%) and late payment (16%) were their biggest threats.

[1] The SME Confidence Index is compiled by equally weighting SME sales performance over the past three months with anticipated sales performance over the three-month period ahead.

Consumer car finance market up by 2% in February

New figures released today by the Finance & Leasing Association (FLA) show that new business in the point of sale (POS) consumer car finance market increased 2% by volume and 6% by value in February 2019, compared with the same month in 2018.

The percentage of private new car sales financed by FLA members through the POS was 91.1% in the twelve months to February, 0.1 percentage points lower than in the same period to January 2019.

The POS consumer used car finance market reported new business in February up 2% by volume and 7% by value, compared with the same month in 2018.

Commenting on the figures, Geraldine Kilkelly, Head of Research and Chief Economist at the FLA, said: “The POS consumer car finance market reported further modest new business volumes growth in February, as consumer confidence remained subdued amid uncertainty about the outlook for the economy.”

“We continue to expect new business volumes in 2019 overall to be at a similar level to 2018 if there is a reduction in Brexit-related uncertainty.”