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Financial Services IndustryDecember 2011 - Issue 5
Vantage Point.n. A position that affords a broad overall view or perspective, as of a place or situation
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Vantage Point - Issue 5 December 2011
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Content ForewordDear Readers
In our final edition of Vantage Point for 2011, we are highlighting our most recent and relevant thought ware, published either specifically with a South African viewpoint or Globally by Deloitte’s financial services network.
The focus on “National Social Security Reform” discusses the Government’s renewed focus on social security reforms by proposing a National Social Security Fund (NSSF) aimed at reducing poverty and income vulnerability and supporting income security in old age. South Africans, for the most part, are not known to be avid savers for rainy days nor for their retirement and this is compounded by the fact that South Africa is one of the few countries in the world which allows for withdrawing retirement benefits prior to retirement. Currently there is limited fiscal support for saving which renders the current social security system incomplete and uncoordinated.
With discussions around mobile payments and mobile banking, we featured “Mobile Payments Debate” in the last edition of Vantage Point. Following on from this is a piece called the “Mobile Payments Ecosystem” which features the detailed landscape of the Mobile Payment ‘ecosystem’ illustrating all the parties involved in the mobile space, from Telecommunications, to Retail to Banking. For the most part the industry remains divided at present.
This edition’s Global piece “Rethinking retail banking growth” centers on the effective strategies for increasing revenue by building stronger connections to the post-crisis consumer.
I hope you will find this edition both interesting and useful. As always, your feedback is valuable. Should you wish to make any additional suggestions in respect of the newsletter or need to request further information on the topics covered, please send these to [email protected]. Many thanks to those of you who have sent in both suggestions and requests for information.
I wish you and your loved ones a blessed festive season ahead and look forward to the year ahead.
Best RegardsRoger VersterFinancial Services Industry Leader
Foreword .......................................................................... 2
National Social Security Reform ........................................ 3
Preparing for the future .................................................... 4
All angles covered ............................................................ 5
Mobile payments: A Deloitte analysis ............................... 6
Finally: Customer Analytics for Banks .......................................................................... 7
Integrated Reporting ........................................................ 8
Contacts ........................................................................... 9
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Vantage Point - Issue 5 December 2011
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National Social Security ReformEnsuring nest eggs don’t flee the coop
The challenge for reform is to build on the positive aspects of the current systemfor social security and retirement funding and to establish a more comprehensive framework whereby savings and self-reliance will be firmly rooted.
Click here to read more
The pension fund industry in South Africa plays a vital role in its economy by offering its members post- employment financial stability. South Africans, for the most part, are not known to be avid savers for rainy days nor their retirement. This is compounded by the fact that South Africa is one of the few countries in the world which allows for withdrawing retirement benefits prior to retirement.
Though stakeholders in the industry agree about preserving retirement savings, the majority of South Africans are not doing so thereby resulting in an added burden on the state. Currently there is limited fiscal support for saving which renders the current social security system incomplete and uncoordinated. This has led to the Government’s renewed focus on social security reforms by proposing a National Social Security Fund (NSSF).
These reforms are aimed at reducing poverty and income vulnerability and supporting income security in old age.
The challenge for reform is to build on the positive aspects of the current systemfor social security and retirement funding and to establish a more comprehensive framework whereby savings and self-reliance will be firmly rooted.
Clearly South Africa needs a social reform to encourage a saving mechanism to prevent it from becoming just a welfare state. However there are economic considerations in that innumerable wants are constrained by limited resources. The provision of pension benefits is a matter that concerns the whole population and it could place a financial burden on future generations to come.
National Social Security ReformEnsuring nest eggs don’t flee the coopCurrently South Africa’s private sector retirement system covers more than 60% of its workforce and it is estimated that only 6% of South Africans are expected to retire financially independent1
The pension fund industry in South Africa plays a vital role in its economy by offering its members post-employmentfinancialstability.SouthAfricans,for themostpart,arenotknowntobeavidsaversforrainy days nor their retirement. This is compounded by the fact that South Africa is one of the few countries in the world which allows for withdrawing retirement benefits prior to retirement.
Though stakeholders in the industry agree about preservingretirementsavings,themajorityofSouth Africans are not doing so thereby resulting in an added burden on the state. Currently there is limited fiscal support for saving which renders the current social security system incomplete and uncoordinated. This has led to the Government’s renewed focus on social security reforms by proposing a National Social Security Fund (NSSF).Thesereformsareaimedatreducingpoverty and income vulnerability and supporting income security in old age.
The challenge for reform is to build on the positive aspects of the current system for social security and retirement funding and to establish a more comprehensive framework whereby savings and self reliance will be firmly rooted.
Clearly South Africa needs a social reform to encourage a saving mechanism to prevent it from becoming just a welfare state. However there are economic considerations in that innumerable wants are constrained by limited resources. The provision of pension benefits is a matter that concerns the whole population and it could place a financial burden on future generations to come.
Government realising the urgent necessity for social reforms in South Africa has put forth discussion papers through National Treasury. In February 2007 National Treasury issued the second discussion paper. The broad principles and criteria proposed by National Treasury in its discussion paper are as follows:Principles• Equity-Fairandequitableratesofcontribution
and benefits for all participants• Poolingofrisks-Collectivefunding
arrangementsandnon-discriminatoryrulesand entitlements
• Mandatoryparticipation-Ofemployeesandself employed and voluntary participation from informal sector
• Administrativeefficiency-streamlineduse of payroll based contributions, modern information system and efficient payment arrangements
• Solidarity-minimumbenefitsthroughsocialassistance grants financed through the budget
Criteria• Adequacy-ofbenefitstothefullbreadth
of population, sufficient to prevent old age poverty and to provide a reliable means to smooth consumption
• Affordability-withinthefinancingcapacityofboth individuals and society without displacing other social or economic imperatives and untenablefiscal consequences
• Sustainability-financialsoundnessoveranappropriate time horizon under a broad set of reasonable assumptions
• Robustness-includingthecapacitytowithstandmajorshocks-shiftsineconomicprospectsordemographic trends
We anticipate a revised paper that is expected shortly from National Treasury.
1 Old Mutual Retirement Fund Survey 2010
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Preparing for the futureMeeting changing customerexpectations in life insurance
The life insurance industry is experiencing change on multiple fronts, with most of the attention on new regulation, increased competition, and advances in technology. Often overlooked — and probably the most fundamental change — is the challenge from rising customer expectations and a more risk-adverse environment.
Influenced by their interactions with companies in other industries, insurance customers today have higher expectations than ever before. In addition, the insurance industry is facing a new reality of lower margins and intense pressure to do more with less.
Meeting these rising customer expectations and operating pressures will likely require insurers to better leverage information and analytics from isolated uses to a central role in organizational decision making.
To be effective, insurance companies will likely also need an organizational structure that allows them to rapidly leverage the analytic insights to improve operations and address customer needs. Insurers that move quickly can capitalize on these challenges to build a competitive advantage.
To meet the opportunities presented in the new environment, most insurance companies should consider substantially enhancing their capabilities in three areas:
• Meet rising customer expectations Meeting expectations will require insurers to provide responsive, immediate service and the ability for customers to engage using a variety of channels. In addition, it will require interactions and product offers that are personalized to a consumer’s needs, combined with transparent pricing and features.
• Leverage information management and analytics Advanced analytical tools offer insurers the ability to achieve deeper knowledge of customer needs and internal cost drivers, make more accurate underwriting decisions, improve product development, and increase operational efficiency.
• Align the operating model Taking full advantage of analytics will require organizational capabilities that most insurers do not currently possess. These include creating a more efficient operational structure; analyzing operational data to gain early warning of changes in consumer sentiment; and designing a new organizational architecture that is based on customers, rather than channels or products, and that redefines the front and back-office functions.
Preparing for the futureMeeting changing customer expectations in life insuranceHow customer expectations are driving the need for a new operating model capable of fully leveraging information and analytics
The life insurance industry is experiencing change on multiple fronts, with most of the attention on new regulation, increased competition, and advances in technology.
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All angles coveredSolvency Assessment and Management (SAM)December 2010 Benchmarking Survey
The SAM 2010 benchmarking survey is based upon a questionnaire completed during December 2010 by executives of several South African insurance companies, and indicates that while there is greater awareness of the new capital and risk management regime, there is a wide variation of preparedness across the industry. Given the scale of work involved and the compliance timeframe, companies need to be making significant steps in their progress.
The survey highlights the current market situation, enabling you to see how your peers are tackling the challenges of SAM, but also helping you assess how advanced you are in your own preparations. Additionally it identifies areas where the market needs to take more action to meet - or beat - the January 2014 implementation date and to reap the business benefits that the new regime offers.
Some of the emerging themes identified by respondents in ‘key design decisions’ include budgets, resourcing and internal model approval, while areas of concern include a lack of resources in the risk, actuarial and finance areas, the cost of compliance, clarification around the final methodology underlying SAM and the lack of key skills within the FSB with which to engage.
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Additionally it identifies areas where the market needs to take more action to meet - or beat - the January 2014 implementation date and to reap the business benefits that the new regime offers.
September 2011
All angles coveredSolvency Assessment and Management (SAM) December 2010 Benchmarking Survey
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Mobile payments: A Deloitte analysisManaging change in the ‘mobi-payscape’
Mobile payments or m-payments, as an important element of the TMT and FSI industries are still largely being moulded by various players both from a technological, financial services and regulatory perspective. Both global and local technology standards defining m-payments still need to be defined due to the relative newness of the industry.
Now is the time to act if an organisation wishes to position itself for future success; stakeholders should begin developing business cases, evaluating risks, exploring partnership opportunities, establishing an implementation roadmap and conducting test-and-learn pilots prior to a full-scale launch.
Both global and local technology standards defining m-payments still need to be defined due to the relative newness of the industry.
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Finally: Customer Analytics for Banks
There’s a very good chance that after pulling together these different strands of data, the organization won’t know how to effectively use it.
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Customer behavior and preferences are changing at a more rapid clip than at any moment in recent history propelled by changes in technology and the economic environment. Banks that have built their organizations with a product-oriented focus (“if we build it, they will come”) should consider shifting to a more customer-centric footing in order to stay competitive.
The truth is, banks often have deep insights into their customers — in fact, compared with many other industries they are generally ahead of the curve. The issue lies in the fact that these insights are often not shared across the organization. While regulatory requirements can constrain the widespread sharing of customer data, there is still much that can be done to pull customer information up and out of silos to begin creating a more broad, centralized, enterprise-level view of customers.
Finding and sharing the required data at the relevant levels is only the start. The question then becomes: How can you use the data to discover customer insights? The systems and processes in place throughout most banks are generating more data than ever before, and it’s only growing. There’s a very good chance that after pulling together these different strands of data, the organization won’t know how to effectively use it. At least not by using the same old data and information management approaches.
Finally: Customer Analytics for Banks
That 360-degree view of the customer you’ve been talking about? Now analytics brings it within reach for banks.
How well do you know your customers? Ask that question of leaders at most banks, and they’ll likely answer “pretty well, thanks.” But is that enough? Not these days — at least not for banks looking to stay a step ahead of the competition. Customer behavior and preferences are changing at a more rapid clip than at any moment in recent history propelled by changes in technology and the economic environment. Banks that have built their organizations with a product-oriented focus (“if we build it, they will come”) should consider shifting to a more customer-centric footing in order to stay competitive. One way to effectively make that transition is to cultivate the seemingly mythical 360-degree view of the customer — one that accounts for their current value as well as their potential lifetime value.
The truth is, banks often have deep insights into their customers — in fact, compared with many other industries they are generally ahead of the curve. The issue lies in the fact that these insights are often not shared across the organization. While regulatory requirements can constrain the widespread sharing of customer data, there is still much that can be done to pull customer information up and out of silos to begin creating a more
broad, centralized, enterprise-level view of customers.
Finding and sharing the required data at the relevant levels is only the start. The question then becomes: How can you use the data to discover customer insights? The systems and processes in place throughout most banks are generating more data than ever before, and it’s only growing. There’s a very good chance that after pulling together these different strands of data, the organization won’t know how to effectively use it. At least not by using the same old data and information management approaches.
After years of investing heavily in business intelligence, it’s fair for many banks to wonder if there’s really a difference between real business analytics and the capabilities they’ve developed as part of their business intelligence (BI) investments. The good news is that BI still has an important foundational role to play in analytics — in simple terms, it’s great for slicing and dicing data to understand what happened in the past and monitor key performance indicators. Core platform implementations, back-office consolidations, transaction pricing assessments — these are prime examples of BI applications. The limitation is they stop short of anticipating what may be just around the corner.
If BI is about hindsight, analytics is about foresight — predicting and improving to
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Integrated ReportingNavigating your way to a truly Integrated Report
The average level of adoption of Deloitte’s interpretation of Integrated Reporting stands at 48%
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Following the September 2011 release of the International Integrated Reporting Council (IIRC) discussion paper, Towards Integrated Reporting – Communicating Value in the 21st Century, Deloitte can reveal the findings of the first Deloitte quarterly report on Trends in Integrated Reporting in South Africa. While guidelines have been established, there are no generally accepted set standards on integrated reporting making this a potential minefield for listed companies which need to know what is regarded as best practice and how to achieve it. Deloitte South Africa have recently undertaken a substantial research project into the quality and nature of Integrated Reports produced during the time of transition from the traditional Annual (financial) Report, supported in some cases by a Sustainability Report, to the Integrated Report as recommended by the JSE
The initial research examined the reporting documents of 50 companies, split between those with year-ends before the 1 March 2011 cut-off for integrated reports (pre-regulation companies) and those with a year-end subsequent to the deadline) post-regulation companies). Of those examined, some were early adopters: those companies which had produced an integrated report prior to the introduction of the requirement. The analysis covered seven subjects, 58 principles and 160 questions seeking to measure actual performance against best practice, and significantly, confirms that companies are no more than half way towards adequate integrated reports. The average level of adoption of Deloitte’s interpretation of Integrated Reporting stands at 48%. This indicates that companies in general have embarked on the journey, but have been generally slow in demonstrating the integration of the principles into their business model.
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Roger Verster
Financial Services Industry Leader
Yuresh Maharaj
Insurance Industry Leader
Kevin Black
Partner: Financial Services Industry
Lito Nunes
Partner: Financial Services Industry
Contacts
George Cavaleros
Partner: Audit - Cape Town
Wayne Savage
Partner
Dinesh Munu
Partner
Andy Rayner
Director
Mark Victor
Partner: Risk Advisory
Bertie Loots
Lead - Integrated Reporting
Nina Le Riche
Director
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