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How can commercial banking leverage and benefit from artificial intelligence technology?

“Artificial intelligence can help people make faster, better, and cheaper decisions. But you have to be willing to collaborate with the machine, and not just treat it as either a servant or an overlord,” says Anand Rao, PwC Innovation Lead, Analytics.

The quote neatly sums up our relationship with AI technology. Although we appreciate its potential, we feel edgy about its power and possibilities. However, despite this, it’s pervading our lives as consumers, whether we like it or not. Every time we receive a marketing email or product recommendation, we can be sure the algorithms have been at work and we are a far from random target.

Despite its image of being cautious and conservative, the banking industry as a whole appears to have had few qualms about adopting the technology – and it seems that, as consumers, we are happy with this. A mammoth survey of around 33,000 consumers by Accenture found that more than 70 per cent of us would be willing to receive computer-generated banking advice. “Automated servicing can be the sole source of data form some customers, even when making complex decisions around products,” says the report.

One of the main uses of AI so far has been in customer service. Chatbots are becoming the de facto alternative to banking apps. These use AI to simulate conversion through written or spoken text. Just as Amazon has humanised its digital assistant by calling it Alexa, so has the Nordic banking group Swedbank created ‘Nina’. This chatbot is clearly popular; within three months of being deployed, Nina was averaging around 30,000 conversations per month.

However, this is the sharp end of AI – the human/machine interface mainly used in the consumer-facing world of retail banks. But how does – or will – AI play out in a commercial finance environment?

The business sector is understandably more cautious, prudent perhaps, about adopting new technologies until they have matured. But as millennials take up more senior roles in the commercial banking world, they will be increasingly pushing for the rich functionality they know as consumers to also be integrated into their working environment.

Today, we are seeing signs that adoption rates of AI-based technology are set to take off in business banking too. More and more banks are borrowing retail banking experience to build out their commercial and business strategies. But while the focus of its use in the retail banking world has mainly been for customer service and sales applications, in commercial banking, use cases (initially at least) are likely to be more around streamlining operational processes.

In a sense, AI as it stands today, in this environment is all about automation, about making processes faster and more efficient. And there are a raft of applications here where automation is having a hugely positive impact.

Take the introduction of digital expenses platforms and integrated payments tools, both of which have the potential to significantly improve a business’s approach to how it manages cash flow. By having an immediate oversight, through live reporting of all spending from business cards and invoice payments, as well as balances and credit limits across departments and individuals, businesses can foresee potential problems more quickly and react accordingly. All these services become even more powerful when combined with technologies like machine learning, data analytics and task automation.

We are already seeing growing instances of AI and automation being used to streamline payment processes in banks. Cards can be cancelled or at least suspended quickly and easily and without the need to contact the issuing bank, while invoices can also be automated, to streamline business payments. This means businesses can effectively keep hold of money longer and at the same time pay creditors more quickly. Moving beyond straightforward invoice processing, intelligent payments systems can be deployed to maximise this use of company credit lines automatically.

Looking ahead, we see a string of applications for AI in the payments management field around analysing data with the end objective of spotting anomalies in it. With the short and frequent batches of payments data used within most enterprises today, it is unlikely that even the best trained administrator would be able to spot transactions that were out of the normal pattern. The latest AI technology could be used here to tease out anomalies and pinpoint unusual patterns or trends in spending that could then be investigated and addressed.

While this area remains in its infancy within the banking and financial services sector, with technology advancing, financial services organisations and the enterprise customers they deal with will in the future will be well placed to make active use of AI that will help clients track not just what they have been spending historically but also to predict what they are likely to spend in the future. AI will ultimately enable businesses to move from reactive historical reporting to proactive anticipation of likely future trends.

 

Source: Russell Bennett, chief technology officer, Fraedom

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Bridging in probate

Bridging loans are incredibly flexible and may be put to a variety of uses including resolving probate issues when concluding a will.

When a will is presented between various parties, it can throw up financial hurdles. There are numerous benefits to be gained by fast tracking the settlement process and using a short-term finance solution to meet resolution.

Annual bridging lending grows for third consecutive quarter

By using bridging, beneficiaries of a will are able to pay legal fees and inheritance tax straight away, releasing 70% of the value of the property immediately without making any interest payments which are covered by the loan facility.

This ultimately allows the beneficiary to market the property for a longer period of time to maximise its value which will be far greater than the interest payments on a bridging loan, rather than discounting the property for a quick sale or through auction.

Resolving debts

Carrying out someone’s will is not always as straightforward as we might like. Although the ownership of their various assets might be easy enough to resolve, the average person will take on a network of debts and credits which must be resolved in their will.

Bridging finance offers a person’s family some breathing space and they can use the loan to pay off debts instead of being forced to sell assets as quickly as possible. Bridging lenders are also highly flexible and quick to put solutions in place. There’s no red tape and it’s possible to create a loan structure that’s perfectly suited to individual circumstances

In many ways, a bridging loan for probate finance is very similar to a standard bridging loan. The loan will generally be for a short fixed term, commonly less than 12 months (though longer terms are available), and can be of any value from tens of thousands to tens of millions of pounds.

Inheritance tax

When concluding a will, beneficiaries will inevitably face tax implications which must be factored into the overall process. Again bridging can help streamline and manage this inevitable challenge by providing a quick fix solution.

Many estates in the UK become liable for inheritance tax, which must be paid within six months and typically a 40% share of the estate upon liquidation. Again, this financial pressure can be eased through the use of bridging finance, as it enables the will’s executors to restructure and refinance to meet the cost of inheritance tax.

Conclusion

Without bridging finance it would be very difficult to resolve the financial affairs that can be brought about in a deceased person’s will.

The time pressures that quickly become apparent would require that many estates be quickly broken down and sold, rather than being realised at their full value. Bridging loans are therefore a helpful tool that enables individuals to pass on their wealth through generations, and allows inheritors to benefit more from their parent’s estates.

Source: Mortgage Introducer

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How to deal with the proposed amendments to HMO licensing in England

The Government recently published the outcome of their consultation regarding changes to HMO licencing and it is anticipated that amendments will be made in line with their findings. The big question facing landlords is what will these changes to mean for them? Many landlords that are not currently affected by licensing will suddenly require one and I doubt very much that Landlords are even aware!

The current situation

At the moment, properties classified as large HMOs already have to comply with licensing. Your property falls into this category if it is rented to five or more people who are not from one household, it is three storeys high or more and the tenants share bathroom/toilet and or kitchen facilities.

The proposed changes

The Government is proposing the following changes which will increase the number of properties that are subject to licensing:

• Removal of the three-storey rule

• Incorporate flats that are situated above or below commercial premises

• Put in place a minimum size requirement of 6.52sq.m which is in line with the current standard for overcrowding (Housing Act 1985). This size is likely to be 10 Sqm for HMO’s in which all tenants have their own bathroom but share other facilities such as a kitchen.

The driver behind this is to provide tenants with a better standard of accommodation and prevent the sort of problems that exist at the moment with sub-standard quality of accommodation and overcrowding. In order to support this further they are looking at putting in place additional proposals which include the following:

• In order for landlords to obtain a license, they will now have to undergo a Fit & Proper Person Test

• Landlords must provide sufficient storage facilities to deal with the holding and disposal of all household waste

How could it affect you?

Whilst it is worth noting that these are proposals only at this stage, they are likely to take from April 2018. At this point, it is expected that landlords will have a grace period of six months, providing them with time to make changes to their properties so that they comply with the rulings.  After this, those that do not comply will be subject to a fine of up to £30k as well as possible criminal prosecution.

Whether you already own an HMO or are thinking about purchasing one, you need to be prepared to deal with the new rulings.  Under-resourced Local Authorities are also going to find themselves struggling to manage the increased workload as it is estimated that the number of properties requiring a license will double.  It is also likely that additional licensing schemes will still go ahead capturing the multi-lets with only four occupiers, not five.  If you already hold a selective license, switching it to a mandatory one should not be a problem.

The good news

On a more positive note, if you are looking to get into the HMO rental market by purchasing a new property, the banks and mortgage companies seem to be looking upon these types of licensed properties more favourably.

By providing all landlords in the UK with plenty of advance warning, the Government are hoping that the changes will not be too difficult to comply with and will increase the quality of HMO accommodation generally.

Source: Simple Landlords

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Mortgage lending climbs to £24.2bn in August

Gross mortgage lending reached £24.2bn in August on the back of a surge in remortgage activity, according to a UK Finance estimate.

The figure represents a 6.6 per cent increase on the £22.7bn recorded in July and marks the fourth successive month of growth in gross lending.

High street banks lent a total of £15.1 during August, described by UK Finance as being “in the same ball park as monthly lending over the course of 2017”.

At 27,768, remortgaging approvals by high street banks were well up on the monthly average of 25,056 over the previous six months and 15 per cent higher than in August 2016.

House purchase approvals were also up slightly to 41,807 – stronger than the monthly average of 41,133 over the last six months and 11 per cent higher than during the same period last year.

Other advances approved were 10 per cent higher than in August 2016.

A surge in remortgaging had been anticipated, with £35bn-worth of mortgages due to mature in September and October, according to CACI’s Mortgage Market Database.

UK Finance said it expected more home-owners to refinance in the coming months as a rise in interest rates becomes more likely.

UK Finance’s senior economist Mohammad Jamei said: “Housing market activity is in Goldilocks territory, growing only modestly since the start of the year, though the mix of activity has shifted towards first-time buyers, away from buy-to-let and cash.

“There is also some rebalancing across regions, as activity picks up in the north of England, Wales and Scotland, away from London, the south east and east Anglia.

“Despite resilience in consumer spending, annual growth in consumer credit has been slowing over the last few months. Across the UK some households have opted to save a little less, whilst others have not increased their borrowing.

“Meanwhile there has been growth in business deposits as non-financial companies hold cashflow and reserves amidst broader uncertainty in their trading conditions.”

Jeremy Duncombe, director, Legal & General Mortgage Club, said the figures showed the mortgage market was in a “strong position” and “clearly very much open for business”.

He added: “Amid Brexit, Trump and other global uncertainty, interest rates continue to remain at record low levels. However, with lender competition on a high and thousands of products available, consumers, and particularly first-time buyers, could be overwhelmed by the choice.

“This is precisely where brokers have a key role to play, helping consumers to understand the options available, navigate the market and encouraging them to secure their rates before the base rate inevitably rises.”

John Goodall, chief executive and co-founder of buy-to-let specialist Landbay, said: “In the buy-to-let market specifically, October’s PRA [Prudential Regulation Authority] changes are fast approaching, so some of this uplift is likely down to landlords making changes to their portfolios before the stricter lending and reporting criteria kick in.

“The changes are a good thing for the ongoing sustainability of the private rental sector, but many landlords are unaware of what the changes mean for them, so we could see a dip in Q4 lending levels while the industry adjusts to the new rules.”

Source: FT Adviser