A Summary on Mobile Identity – The New DNA of Trust

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About the Author: Rocky Scopelliti – Global Industry Executive – Banking, Finance and Insurance, Telstra

Among Rocky’s series of financial services industry thought leadership reports is one about “Mobile Identity”. The report examines the importance of mobile identity and trust among Gen X and Gen Y who together make up half of the global population. Information was analysed from 318 financial services executives across the Asia Pacific region, Europe and the US and 4,272 consumers across seven countries (Australia, Singapore, Indonesia, Malaysia, Hong Kong, UK and the US). The following is a condensed version of the 70 page report.

Importance of Mobile for Financial Services 

Mobile devices are becoming the gateway to the financial services world. It is increasingly rare to see a financial institution without a mobile application offering in this age that has moved from digital disruption to digital survival. In the last seven years since the smartphone was introduced, these devices have become the primary means for consumers to access financial services. “Both identities and consumption of financial services are now inextricably fused with our mobile device”.

Top Ten Insights

  1. Battle to acquire and digitally engage Gen X and Y is on
  • “Online pure plays” by UBANK and ING Direct have been relatively outperforming other Australian banks. They are both relatively new to playing field – UBANK was established in 2006 and ING in 1999 with both banks using Everification as part of their account opening process.
  • Bendigo Bank and other community institutions (building societies and credit unions) are having a tougher time attracting the younger demographic with the average age for a credit union customer around 51.5 years compared with 42.5 years for banks.
  • Digital channels seems to be a necessary precondition to attract Gen-X and Gen-Y customers.
  1. The basis of identity and security is trust
  • Despite customers trusting their financial institutions more than other types (e.g. government, telecommunications service provider, internet retailer), few are very satisfied with their current institution’s security performance.
  • Trust comes in multiple forms (e.g. knowing that personal information is kept secure, finances are safe and the institution’s reputation for data security).
  1. Consumers are more willing to share personal information with financial institutions than other types of institutions
  • The extent to which consumers share their personal information seems to increase as their wealth increases.
  • 47% of those with a net worth of more than US $1 million would share their DNA profile with a financial provider to ensure security.
  1. Robust authentication methods improve customer satisfaction
  • Only 42% are very satisfied with their financial institution’s authentication methods. Hong Kong had one of the lowest scores with 14% of people being very satisfied.
  • America is a clear leader in this area perhaps due to USAA’s* recent deployment of biometrics (facial and voice recognition technology) across its four million mobile banking app membership base.
* USAA is a San Antonio-based financial services company
  1. Identity theft is impacting Gen X and Y, particularly as their wealth increases and many think it’s the institution’s fault which will inevitably lead to customers defecting
  • 40% of people that have experienced identity theft or felt that their identity has been compromised believe that it was the institution’s fault
  • Over a third (35%) of consumers with a net worth of more than US $1 million have personally experienced security failings with their financial institution.
  • The top consumer concern with identity theft is financial loss, followed by inconvenience of resolving (e.g. setting up new account details & recovering lost funds).
  1. Passwords are a flawed authentication method – and everyone knows it
  • “The whole notion of passwords is based on an oxymoron. The idea is to have a random string that is easy to remember. Unfortunately, if it’s easy to remember, it’s something non-random. And if it’s random, then it’s not easy to remember.” – Bruce Schneirer, Author, 2008
  • Almost half (44%) of consumers have a small number of passwords that they use multiple times across their digital identities, and one in five (18 per cent) use just one common password across all digital accounts
  • 25% of consumers actually write down their passwords
  1. The industry still thinks customer prefer passwords but it’s time to look to authentication methods that garner greater trust
  • Fingerprint scanning is one such method and is perceived as the strongest method of authentication in Australia, Malaysia and Singapore. On the other hand, the United States and Hong Kong rate eye scanning as the most secure method. Indonesia and the UK believe strongly in facial recognition.
  1. The financial services industry recognises that it has underinvested in identity and security-related capabilities but this is expected to change
  • The dominant view in the industry is that the current investment in identity systems is less than appropriate (62%)
  • 87% of respondents anticipate that their institution’s level of planned activity and investment in customer identity will increase
  1. More secure, mobile-based identity is a key part of solution towards mobile as a primary access device for financial services
  • The most important factor when using a smartphone app was the security of access (i.e. only you can access the account). 36% of respondents chose this answer followed by privacy (personal details being protected).
  1. Mobile authentication methods are highly appealing and can have a very strong business impact including acquisition, retention or defection.
  • Gen X and Y are even prepared to pay for this security. An annual fee ranging between US$3 and US$20 (depending on the market) would be acceptable to many.
  • Consumers are split between whether they should be paying for the enhanced authentication methods as more than half consider authentication to be the institution’s responsibility.

For the full report – click here

Economic Risks for Australia and the World

The Federal Budget & Australia

  • A key underlying risk to the recent budget is the sustainability of the government’s revenue base.
  • The capacity to raise revenue is undermined by one such trend of the composition of growth away from wages and towards corporate profits.
  • The government collects 41% of its revenue from personal income tax and is the largest contributor to government revenue. This can be compared with the average 24% tax across wealthy countries.
  • Maintaining the path to surplus which is expected to be achieved by 2021 will require a disciplined approach to expenditure.
  • The level of public debt will need to be monitored closely as well to ensure that Australia does not “fall behind with an unsustainable and uncompetitive tax system” – John Fraser. It was only in the last few weeks that ratings agency Standard and Poor’s affirmed Australia’s AAA credit rating in response to the Federal budget although it noted that the government’s strong budget condition continues to deteriorate due to numerous years of fiscal deficits.
Source: John Fraser, Secretary to the Australian Treasury

Global Outlook – Risks

  • North Korea’s nuclear aspirations and tensions with South Korea and US is currently the main geopolitical issue and incredibly problematic for the United States government due to lack of viable solutions.
  • China’s main risk would be a financial crisis and the collapse of the renminbi. These risks are low but it is expected that there will be a continued economic slowdown. This is unlikely to materially affect the US as they are in a trade deficit with China (imports > exports) and therefore don’t depend on them as much as other countries. By comparison, Australia is in a trade surplus with China (exports > imports).
  • Europe continues to be in a state of political instability, where Britain, Germany and Italy will be going to the polls in the next 12 months. A key risk would be the break-up of the Eurozone, with other nations following Britain’s example of voting to leave the EU. The probability of this happening is very low as these nations are anticipated to steer away from doing so until they see what will actually happen with the UK economy. For others in the EU, it is certainly not an option without adverse consequences. Countries looking to leave the EU will need to re-domicile their assets and liabilities into a currency that is likely to devalue and dramatically reduce the wealth of its citizens.
Source: Hamish Douglass – Chief Executive Officer and Chief Investment Officer, Magellan Financial Group
*Attended the Stockbrokers and Financial Advisers Association Conference (SAFAA) 2017

Innovations for the Stockbroking Industry in 2017

  • MFunds – Launched in March 2014 as an easy way to access unlisted managed funds by going “paperless” and reducing AML requirements. From February this year, products with long-form PDS such as hedge funds and derivative products were allowed on MFund for the first time. Until now, only products with short-form PDS were allowed on MFund.
  • New ASX futures trading platform – In March 2017, the ASX replaced ASX Trade 24 with an upgraded derivatives trading platform that permits more dynamic combinations for option strategies and has new order type features. The new platform is more flexible and scalable than its predecessor.
  • Replacement of CHESS System – The CHESS system was developed by ASX over twenty years ago. It is a core system for the stock market in that it performs the processes of clearing, settlement and asset registration. In January 2016, ASX partnered with Digital Asset Holdings to develop, test and demonstrate a working prototype of a post-trade platform that could replace CHESS using distributed ledger technology (DLT, which is more commonly known as “blockchain”). A key decision is expected to be made by ASX towards the end of 2017 on whether to commit to implement DLT with the purpose of replacing CHESS.
  • Chi-X Launch of New Indices* – Chi-X is planning to launch new indices in the near future, including the Chi-X 200 Index that will cover the top 200 Australian stocks. It is unique in the sense that it will not include chess depository interests (CDIs) and international stocks. Consequently, the index will exclude stocks that are listed on the S&P/ASX 200 such as Fletcher Building and Resmed. This index will be launched in conjunction with other benchmark indices and they hope to follow that up with an ETF based on the Chi-X 200 index. *Subject to final regulatory approvals
  • Chi-X TraCRs – Expected to be launched sometime this year, transferable custody receipts (TraCRs) will become available for trading on Chi-X. A TraCR is based on an underlying asset that is located on the primary index of an overseas market (e.g. NYSE and NASDAQ). It is an investment vehicle that can help diversify portfolios and offer exposure to overseas stocks. TraCRs offer the advantages of being listed on an Australian stock exchange, receiving dividends payments in Australian dollars and being protected by Australian regulations.
Sources*:
Dominic Stevens – Chief Executive Officer, ASX Limited
Dr Shane Miller – Director, Chi-X Australia
Blythe Masters – Chief Executive Officer, Digital Asset Holdings
*Attended the Stockbrokers and Financial Advisers Association Conference (SAFAA) 2017

WWN #18 – The Not-So Super Saver Scheme

What’s been happening? The First Attempt

Labour Party’s First Home Saver Account (FHSA) was a 2007 election policy of the Australian Labour Party. It offered benefits such as a variable interest rate, a tax rate of 15% and tax-free withdrawal.

The scheme only lasted until 2014 when the Federal Government decided to abolish it due to the slow uptake by the public. The problem with the scheme was that in order to close the account and access the funds, you had abide by the cumbersome “four year rule” – deposit at least $1,000 every year into the account for at least four financial years. At the time, there was 47,400 accounts with an average balance of about $12,800 each. It was expected that more than 750,000 accounts would be opened but this was never realised.

What Now? Let’s Try Again

On Tuesday night, the 2017 Federal Budget was released and the First Home Super Saver Scheme (FHSSS) was announced. The scheme allows people to put away a maximum of $15,000 per year into their super before tax, up to a total of $30,000.

Contributions paid into super this way will be taxed at just 15% instead of the usual marginal income tax rates (e.g. 32.5% for someone earning over $37,000). Any returns generated on the funds while they are held in super will also be taxed at the low rate of 15%.

The potential tax saving is reduced if you earn more than $250,000 per year where the tax rate rises from 15% to 30%.Earnings can be withdrawn along with the contributions when home is purchased. The withdrawal will be taxed at the individual’s marginal tax rate less 30%. This measure is estimated to have a cost to revenue of $250 million to the government.

Mortgage Choice CEO John Flavell remains sceptical that this scheme will succeed based on past experiences of the similar FHSA scheme. The new scheme has some great incentives but its main failing is that it doesn’t allow home buyers to save a big enough deposit. The ever-rising prices in the nation’s capitals means that a $30,000 deposit is not going to enough. According to Superfund Partners director Mark Beveridge, the average person would only save about $2500 extra a year. If you are a couple and save the maximum amount over two years, the total benefit is still less than $10,000.

On the other hand, some prospective buyers have backed the idea on the basis that it was better than another suggestion to allow first home owners to directly draw out funds from their existing super for a deposit.

For an indication of the potential benefit of the FHSSS to you, the government has prepared a handy estimator – click here.

First Home Super Saver Scheme (FHSSS) – Key Facts
Maximum contribution amount $15,000/year reaching a total of $30,000
Maximum term Unrestricted
Contribution Tax Rate on Deposits and Related Earnings 15%
Effective Start Date (Contributions) July 1, 2017
Effective Start Date (Withdrawals) July 1, 2018
Withdrawal Tax Rate Marginal Income Tax Rate Less 30%


What’s Next?

The FHSSS appears to be one of many “crowd-pleasers” in the budget – politically friendly measures that are not particularly meaningful.

As noted earlier, initial feedback is critical of the new scheme’s success and the potential benefit in tax savings may not be significant enough to convince many prospective first home buyers to implement the scheme. It is also argued that putting more money into borrowers’ pockets without increasing supply will likely to add to home price pressures.

There is a great deal of uncertainty ahead as any changes outlined in the Federal Budget (including this measure) must be passed by both the House of Representatives which is controlled by the government and the Senate. This means that any proposed changes may not necessarily become law.

References:
https://www.domain.com.au/news/federal-budget-2017-sorry-firsthome-buyers-this-isnt-the-budget-you-were-hoping-for-20170509-1nxvdg/http://www.theherald.com.au/story/4653576/federal-budget-2017-five-housing-changes-to-know-about/?cs=3968https://www.commbank.com.au/guidance/economy/federal-budget-2017–affordable-housing-201705.htmlhttp://www.dailytelegraph.com.au/news/national/federal-budget/the-first-home-super-savers-scheme-wont-get-traction-industry-experts-say/news-story/01605e56fe59032e4c0a2204af98c241http://www.news.com.au/finance/superannuation/notsosuper-home-deposit-scheme-will-leave-average-aussie-just-2500-better-off/news-story/10883f75182084c0eddfe95cffce8a92

Living A Week in Sydney – Part 2

Day 5

6:30am – I wake up and make some cup noodles for breakfast. It’s ‘Friyay’ so it feels like the sun is shining even though it’s been raining for most of this week, including today.

11:36am – A quiet morning so I make the most of it by eating my lunch earlier. Microwave meal consisting of Caribbean jerk steak with cauliflower and green beans. I know there’s bound to be some tasks that will pop up later as Friday is never a completely quiet day.

4:00pm – I’m right. A range of different enquiries and tasks came through in the late afternoon. I don’t really want to leave this for Monday so I stay back at work until 6pm to finish most of it.

7:13pm – I’m not satisfied with just chicken breast and roasted vegetables for dinner so I make a special trip to KFC to buy their 24 pack of nuggets for $10. It was definitely worth it. $10.00

8:16pm – I play some computer games with a couple of mates before calling it a night.

Daily Total: $10.00

Day 6

8:30am – It’s so nice to sleep in! I eat a peanut butter sandwich for breakfast which I made the night before and head straight to the the gym.

10:14am – I make a slight detour after gym to Bunnings to buy some drain cleaner for tree root removal. Every now and then our pipes become clogged with roots from the palm trees that we have on our property. Before it gets worse, I am hoping that the two packets of copper sulphate that I buy will prevent the plumber from visiting us. $13.98

1:00pm – I have lunch, read some articles on the internet and work on my blog. I do a bit of online shopping and I notice that there’s cheap offer by Kogan at the moment for prepaid mobile plans. I sign up for a yearly one. $209.93

7:00pm – My brother and I order takeaway at our local Italian restaurant (Enzos) and we wait almost an hour before the food comes. I don’t think I’ll be going back there again as I’ve given them enough chances with a similar experience each time. $30

9:00pm – I spend some time catching up on housework – ironing shirts, cleaning, washing dishes, folding clothes etc.

11:13pm – Spend some time in front of the computer to wind down by listening to some music and then I’m off to bed.

Daily Total: $253.91

Day 7

8:17am – Wake up and get ready to go to church. I eat a hastily made peanut butter sandwich before rushing out the door so that I’m not late for the morning service.

10:42am – Arrive at the gym with mixed feelings as I was feeling lazy but I knew that I should go exercise. I manage to have a solid workout.

11:51am – An early lunch and early shower means that I have more free time in the afternoon.

2:00pm – I spend another hour or two doing some research for my blog as well as writing up posts. On quiet weekends like this, I’m able to put more effort into maintaining my blog.

6:43pm -I have a “leftovers” dinner tonight as we try and clear out the fridge to make room for new food. I eat garlic bread, pizza, fish, leftover beef brisket and leftover stir fry vegetables.

7:39pm – Finish some more housework before relaxing for the rest of the night. Monday here I come!

Daily Total: $0.00

Summary

Weekly Total Spent $290.43
Breakdown
Food & Drink $40.00
Entertainment $209.93
Transport $40.50

Pay Less Tax Through Super

Tax evasion is illegal, tax minimisation isn’t. The vast majority of people with an income have to pay taxes but there are ways to minimise your liability. A simple tax minimisation strategy that should always be utilised is making concessional contributions to your superannuation.

The Explanation

Individual income tax rates start at 19% for every $1 above the $18,200 threshold. If you earn below this threshold in a year then you can skip straight to Super Co-Contributions, otherwise keep reading. According to Living in Australia, the average salary in Australia was $78,832 in the 2nd quarter of 2016. This means that the average Australian is being taxed at the marginal rate of 32.5%.

Employers are currently required to pay their staff a minimum of 9.5% of their salary towards superannuation. Concessional contributions are voluntary additional payments made into your nominated super fund that are taxed at a preConcessional Caps 2016-17.pngferential rate of 15%. These contributions are normally salary sacrificed (paid before tax) and are subject to a yearly cap (see table). From 1 July 2017, the general concessional contributions cap will be $25,000 for everyone, irrespective of age.

It is possible but not recommended to exceed the concessional contribution cap, as this would mean that you are taxed at your marginal tax rate plus an interest charge instead.

Note: From 1 July 2017, the annual non-concessional contribution cap is being reduced from $180,000 to $100,000 and individuals with a super balance of $1.6 million or more will no longer be eligible to make non-concessional contributions.

Wait, there’s more: Super Co-Contributions

Personal super contributions that are made from your after-tax pay may qualify for government co-contributions. Under this initiative, the government will make matching contributions up to a maximum of $500 as long as you are earning less than $51,021 per year.

Super Co-Contributions.png
Low Income Superannuation Tax Offset (LISTO)

LISTO is another initiative where the government will refund the 15% contributions tax deducted from your super account, up to the value of $500, if you have earned $37,000 or less and have made concessional contributions. It is currently known as the low income superannuation contribution (LISC) but will be known as LISTO from 1 July 2017.

Conclusion

By putting more of your pay into super, you are able to pay less tax up to a certain extent. It’s a great way to boost your retirement savings and once your fund moves into pension phase, the withdrawals that you make along with any earnings on investments within the fund are tax-free. A key question to ask yourself now is: Do you want to pay 32.5% or 15%? Start contributing! 🙂

References
http://www.afr.com/personal-finance/six-tips-for-paying-less-tax-20150821-gj4dnt#ixzz4WFuYCxtM
https://www.ato.gov.au/business/super-for-employers/
https://www.ato.gov.au/Rates/Key-superannuation-rates-and-thresholds/?anchor=Supercocontributions#Supercocontributions
https://www.ato.gov.au/rates/individual-income-tax-rates/
https://www.livingin-australia.com/salaries-australia/

WWN #2 – Bellamy’s Australia: Burnt Milk Still Burning

bal-chart

Image Source: CommSec IRESS

What’s been happening?

timeline-for-bal

What Now?

After being in a voluntary suspension for five weeks since early December, Bellamy’s Australia (BAL) resumed trading on the 11th of January 2017. With the sales outlook looking bleak and major management changes occurring (Laura Mcbain removed and replaced by Andrew Cohen on an interim basis), it is little wonder that the share price rapidly fell on ASX opening for BAL.

A major concern shared by analysts include there being a high level of inventory in range of $105 to $110 million that may need to be liquidated at discounted prices due to lower than expected demand for infant milk. While analysts previously forecasted 2017 financial year earnings to be $46 million, it was slashed by Bellamy’s to somewhere between $22 million and $26 million.

As of 14th of January 2017, some revised target prices have been issued by various analysts:

  • Wilson HTM – $4.25 (hold)
  • Morgans – $4.75 (hold)
  • CLSA – $3.50 (N/A)
  • Ord Minnett – $3.72 (sell)


What’s Next?

There is a lot of uncertainty with Bellamy’s currently and that is reflected through the different value estimates above. Given the relatively low share price, it’s still difficult to say whether BAL is a bargain as there are numerous challenges that lie ahead, including: the board’s search for a new CEO, inventory management, major shareholder/board politics and China’s regulatory environment. BAL’s current share price also provides an opportunity for capital raising whilst exposing themselves to the risk of takeover by other companies. According to Morgan’s analyst Belinda Moore, she estimates that a company turnaround could take 12 to 18 months. In the meantime, it might be best to wait and see what happens.

References:
http://www.news.com.au/finance/business/breaking-news/bellamys-continues-to-slide/news-story/d126cd5b1bc2fd0abfc17f0b7f1a4c4e
http://www.abc.net.au/news/rural/rural-news/2016-08-19/bellamys-profits-surge-on-demand-for-organic-ingredients/7765630
http://www.fool.com.au/2016/12/05/bellamys-australia-ltds-share-price-is-plunging-should-you-sell/#
http://www.afr.com/business/retail/fmcg/bellamys-appoints-credit-suisse-as-advisor-20170112-gtq04z#ixzz4VXer0NkN
http://www.theaustralian.com.au/business/companies/analysts-cautious-on-bellamys-after-management-changes/news-story/0fe7df6484d126b6e25eca0c36c7fc16