Take a deep dive into the Sydney show in our event special edition
Lendtech: The molecular structure of Atom ISSUE 8
How the Asia
Race was won
‘There is nothing more disruptive than a female voice in fintech’
Regtech D-day for
Nom-omnichannel! All-you-can-eat digital banking with Backbase www.fintech.finance
The Fintech Papers Guest Editor Leda Glyptis invites you to ‘find your core’!
PLUS INSIGHTS FROM Wirecard ● FileFacets ● Glory ● Tinkoff Bank ● Pendo Systems Meniga ● Wells Fargo ● Galileo Processing ● Isracard ● SmartStream ● Saxo Bank ● Axa
Regtech: Can you rely on the truth of your data?
Star challenger: Why millions are joining the Revolut-ion
Smart thinking HAYTHAM KADDOURA REVEALS SMARTSTREAM’S BLUE-SKY TECH FUTURE
PLUS INSIGHTS FROM Atom ● Revolut ● Metro Bank ● Temenos ● Van Lanschot ● RBS Avaloq ● Quadient ● AxiomSL ● HSBC ● MotoNovo ● Raiffeisen ● TD Bank ● Tangerine
TICKETS ON SALE www.parisfintechforum.com
fintechs on stage
GUEST EDITOR SPECIAL: FINDING YOUR CORE 10 The spikey one... Meet guest editor Dr Leda Glyptis, respected commentator on financial services and newest member of the 11:FS superhero team, who’s not afraid to spike debate between ‘thinkers’ and ‘doers’
12 The Fintech Papers A provocative collection of thought pieces from the frontline of fintech
SIBOS 18 The Age of Fintech 2.0 Kevin Johnson, Head of SWIFT’s Innotribe, on why he believes disruptive fintech is maturing into a collaborative force
20 Blue is the colour... technology is the true game! SmartStream has pinned its colours to the emerging masts of AI and blockchain
25 Warming signs Finastra believes it’s time to bring the business banking customer in from the cold
29 The banking mindwarp Futurist and Founder of Moven, Brett King, speculates on a post-modern financial world
32 Featured fintechs
We welcome an awesome additional member of our team for this edition – Dr Leda Glyptis (right). A popular and respected figure in financial services, Leda has used her influence in global fintech to assemble a collection of thought-provoking pieces in what we're calling The Fintech Papers. You can also hear Leda’s thoughts on how the industry should be responding to the next big leap in technology – quantum computing – later in the edition. Leda is one of the speakers featured in a Sibos special, which explores a host of hot topic issues. Elsewhere we go inside Metro Bank, talking to its top executives on the unique position it holds on the high street and how it builds the ‘fandom’. It’s appropriate to have Leda – an expert in transformation – at the helm of this our 10th issue as we go through our own change moment.
The more eagle-eyed among you will have noticed a subtle difference to our cover. We've said goodbye to Fintech Finance and hello to The Fintech Magazine and its twin The Paytech Magazine. They'll have a little sibling coming along later this year called The Insurtech Magazine, so be sure to pick it up when you see it! Ali Paterson | firstname.lastname@example.org
Did you recognise last issue’s ‘spine tingler’: ‘The way to get started is to quit
talking and begin doing' Walter ‘Walt’ Elias Disney, quite possibly the greatest animator, producer and showman of the 20th century.
Catching up with some of the brightest stars at Sibos – Data Republic, ConsenSys, Digital Asset R3’s Corda and Pendo Systems
38 Choices, choices! Temenos pioneered the ‘marketplace’ in financial services. Now it’s fine-tuning the concept
41 A buyer’s market What makes Finastra’s FusionFabric.cloud a unique model
44 Going to the edge
Take a look at the key themes shaping financial services 12 years from now with Innotribe
32 Issue 10 | TheFintechMagazine
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50 68 70 78 48 Tinder for tech Join a new concept in business matchmaking at this year’s Sibos if you want to get up close and personal with a fintech
50 Innotribe stage Day 1: Trust Three speakers from the first day’s platform explore identity, blockchain and trust
55 Innotribe stage Day 2: Quantum And to think we thought ‘digital’ was difficult! Take our crash course in quantum computing for dummies
60 Innotribe stage Day 3: Artificial Intelligence Is AI a powerful force for good or a threat to life as we know it in financial services? We bring the experts together to discuss
65 Innotribe stage Day 4: Security It’s never a good idea to under-estimate your first line of defence, says Jane Frankland of Cyber Security Capital
LENDTECH 68 Bursting the credit bubbles Intelligent pricing of credit risk all comes down to consumers’ willingness to share and the industry’s ability to collect it, says Equiniti Credit Services
70 Lending at a molecular level Atom Bank has a straightforward strategy – keep an eye on costs and take your time. So how is the Atomic clock ticking along?
74 Bangers and cash MotoNovo Finance has a vision for a slick used car buying experience in a sector that’s ripe for disruption
CORE IT 76 Never too old... Van Lanschot Bank has been managing wealth for 300 years. And it’s not about to roll over and let the fintechs eat its lunch
78 A degree of certainty If there is one thing Martin Hohmann, founder and CEO of digital banking platform Five Degrees is clear on, it’s that the key to the future is an API-enabled core
80 Bending the core How Temenos’ super flexible core banking offer is giving banks control over their destiny
EVENTS 82 Jam today (tomorrow, too!) A ‘ruthless willingness to change’ will be the hallmark of banks that flourish in a tech-led world… and Temenos is helping them get there
84 We’ll always have Paris Financial CEOs around the world have quickly fallen in love with the Paris Fintech Forum. So, why are they so passionate and what they can expect as the relationship matures?
Issue 10 | TheFintechMagazine
BANKING ON BANKING ON
Software forbetter better Software for customer journeys customer journeys Avoka Transactis is a software platform Avoka®® Transact a software platform dedicated todelivering delivering outstanding dedicated to outstanding customer acquisition and onboarding customer acquisition and onboarding journeys in banking. journeys in banking. AAvoka increasesspeed speed market, voka increases to to market, addresses compliance and addresses compliance and risk,risk, and and improves bankcustomer customer improves bank satisfaction forapplications applications satisfaction for suchsuch as as account openings, loan applications, account openings, loan applications, or or business onboarding. business onboarding.
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BANKING ON BANKING ON
Software built better Software built forfor better customer journeys customer journeys
Avoka Transact a software platform dedicated to delivering outstan Avoka®®Transact is is a software platform dedicated to delivering outstanding customer acquisition onboarding journeys in banking. It increases s customer acquisition andand onboarding journeys in banking. It increases speed to market, market,addresses addresses compliance and and risk,improves and improves bank cust compliance and risk, bank customer satisfaction forapplications applications as account openings, loan application satisfaction for suchsuch as account openings, loan applications, or business onboarding. business onboarding.
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110 METROBANK 86 His master’s voice American entrepreneur Vernon Hill is known for his love of Yorkshire terriers and a Midas touch when it comes to running retail banks. He promised disruption when he entered the UK market in 2010 – and he’s delivering
88 The Mmmm Factor Satisfaction is what Metro Bank set out to guarantee customers. So how is it so darned good?
90 App-reciate it! Famous for its banking ‘stores’ the role digital is playing an increasing role in offering millions of Metro ‘fans’ choice
92 The culture club The clue to the importance that Metro Bank attaches to human relationships in banking is in Danielle Harmer’s job title: Chief People Officer
94 Striking the balance How does the challenger balance business and personal banking strategies alongside its physical and online delivery mechanisms? www.fintech.finance
86 96 Safe hands Metro Bank has some of the newest tech at its disposal to minimise risk. But it’s not the first line of defence
98 Better B2B Metro Bank is helping SMEs to trade faster and more efficiently as their loyalty to Tier 1s is tested
100 Right up our street Metro Bank stores are popping up in key retail locations across the country. How does it keep pace?
102 Nailing IT Metro Bank gives its chief information officer an executive seat on board. It’s an indication of the importance the store-led bank attaches to IT
CUSTOMER RELATIONSHIP MANAGEMENT 104 Raising expectations In the face of increasing competition, banks will have to become much smarter in the way they use loyalty schemes if they’re to get closer to their customers, says Affinion
106 There’s gold in them there data hills! Quadient’s rallying cry for incumbent banks... dig deep and chill out!
108 The heart of the matter HSBC’s Digital Development boss Josh Bottomley can’t explain why we’d rather have a robot open our chest than a bank account for us. But he thinks he knows what will fix distrust in digital financial services
110 The ATM sweet spot Banks are taking an increasingly pick’n’mix approach ATM hard and software, creating big opportunities for vendors, even in mature markets, says RBR’s Forename Surname
112 Power to the people The UK’s first fintech unicorn is alternative by name and by nature. It’s why millions are joining the Revolut-ion
114 All aboard! Not enough European banks are putting resource into digital customer acquisition, says Avoka – and they’re missing out
Issue 10 | TheFintechMagazine
BECAUSE THE WORLD CHANGED AGAIN TODAY.
In an ever-changing world, it pays to stay one step ahead at all times. To succeed, you need a trusted legal partner with hands-on industry experience, a comprehensive global network and a deep understanding of your unique business goals. We offer you in-depth industry experience, extensive international connections and innovative solutions to meet your businessâ€™ needs. Gowling WLG is an international law firm providing legal services around the world and helping you to succeed no matter how challenging the circumstances. For more information visit gowlingwlg.com Gowling WLG (UK) LLP is a member of Gowling WLG, an international law firm which consists of independent and autonomous entities providing services around the world. Our structure is explained in more detail at www.gowlingwlg.com/legal.
127 128 Coming of Age
11:FS SUPERHEROES 116 Fintech Assembled!
134 A jot of difference
An increasingly older population is in danger of being left behind by the digital banking revolution. But not at RBS, which is actively pursuing them!
Three more heroes enter the Hall of Fame
130 Best of the bunch
124 Suck it and see
Tangerine Bank has been climbing the technology tree for 21 years in order to pick off the sweetest financial fruits for customers. We peel back the layers to reveal its inner workings
North America’s TD Bank has a highly developed and carefully calibrated risk appetite, thanks to better data insight
127 Deep learning: The next frontier for AML
Three-factor authentication specialist Asignio, aims to improve security by encouraging account holders to write ‘a big note to self’
136 Crossing the data line Do you have confidence in the veracity of your data? According to an AxiomSL survey, the answer is probably not
LAST WORDS 138 Wisdom of the crowd
132 Standards delivered
Monitoring transactions for suspicious ones can be more efficient if you employ some intelligent assistance, according to Comarch
The arrival of Open Banking and PSD2 has focussed attention on the need to standardise APIs. It’s essential, but it won’t be easy or fast, says Bank of Ireland
Part of an epic financial trilogy, The WealthTech Book, distills the thoughts of an impressive collective intelligence. Will Dove feels the force
FINTECHMAGAZINE 2018 EXECUTIVE EDITOR Ali Paterson EDITOR Sue Scott ART DIRECTOR Chris Swales ONLINE EDITOR YASH HIRANI
PHOTOGRAPHER Jordan “Dusty” Drew SALES James Butcher Chloe Butler Tom Dickinson Shaun Routledge
VIDEO TEAM Douglas Mackenzie ● Lea Jakobiak ● Shaun Routledge Lewis Averillo-Singh ● Classic Dom Beasley FEATURE WRITERS Siufan Adey ● Tori Hywel-Davies Will Dove ● David Firth Tracey Fletcher ● Robert Horsfield ● Alex King ● Sean Martin Natalie Marchant ● Sue Scott ● Swati Sanyal Tarafdar
ISSUE #10 Fintech Finance is published by ADVERTAINMENT MEDIA LTD. Advertainment Media Ltd. Riverside Business Centre, Riverside Lawn, Tonbridge Kent, TN9 1EP
CONTACT US www.Fintech.Finance firstname.lastname@example.org DESIGN & PRODUCTION www.yorkshire creativemedia.co.uk
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Issue 10 | TheFintechMagazine
DR LEDA GLYPTIS
Guest editor: Leda Glyptis
The spikey one! Guest editor Dr Leda Glyptis is a well-known and respected commentator on financial services, who’s not afraid to spark debate between ‘thinkers’ and ‘doers’. She describes her career as a ‘Slumdog Millionnaire series of events’ which led most recently to her joining 11:FS. Here, she talks to Ali Paterson about curiosity, deconstruction and favourite dinosaurs ALI PATERSON: Your Twitter account has you down as a ‘fintech, banking and politics geek, immigrant and angry optimist’! Yours wasn’t a stereotypical route into financial services, though, was it? How did you end up here? LEDA GLYPTIS: Entirely by accident! And, yes, I have had what you might call a colourful background. I was an academic first but while I was finishing my PhD, I had three deaths in my family in the space of three months, which meant that I ran out of time and money before I finished my PhD. There is no mental space for grief and sadness in that situation. It was just a case of ‘I need to get a job to pay the bills’, so I shot out a million CVs.
TheFintechMagazine | Issue 10
I ended up applying for a research-based job. They needed a Middle East expert and I had been working on political reform in Turkey, so I thought that was close enough. Long story short, I ended up being offered a corporate job, working in the strategy department of a private security provider – gun for hire, kind of thing. While I was there, they started making a series of acquisitions to turn the company into a non-weapons defence technology provider. That was my first real flavour of working with tech. Then a bunch of university friends who’d built a banking product asked if I’d help sell it for them. I knew nothing about banking, but I now knew a little about IT. So, I joined a
startup that eventually sold its solution to one of its big banking clients and I got a job with one of the others – BNY Mellon –in business transformation. Again, I walked in saying ‘I know nothing about operations’ but the boss was like ‘it doesn’t matter!’ I’ve had a career based on a lot of curiosity, grabbing opportunities when they appear and being shameless about saying ‘I don’t know this or that’, which meant people put a lot of effort in to helping me accelerate the learning. It was my mentor at BNY, for example, who said ‘I think you should go for the innovation job that’s just opening up in Europe’. So I did and I got it. www.fintech.finance
It’s a bit like a Slumdog Millionaire series of events, without the millions or the slumdog, in that a lot of random things that happened to me during my career came together at that point. Having spent time in operations became really useful. Having spent time observing a merger and acquisition became very useful. Everything came together in this digital transformation piece, which I’ve been doing for the last 10 years or so now. AP: We first met at Sibos in 2015 and, since then, you have exploded on the speaker circuit. You certainly appear to enjoy the public speaking side of your role. is that for real? LG: I’ve gone from a job where I was expected to be a spokesperson and cheerleader for the company, which I was very proud to do – but it bound what you could say to what was important for the firm and what it was happy to stand by – to roles where my speaking is something that a company considers a part of what I do but not part of what they need to be associated with. It means that I’ve had immense freedom and I think part of the reason why I have, as you say, exploded on the speaker circuit is that, if you don’t speak on behalf of an institution and you speak on behalf of your own opinions and experience, it opens up a whole host of things you can say and champion because it fulfils a very different purpose. It’s been interesting to be able to push certain debates forward and put ideas out there; to test them with the community. I’m a big believer in bringing these things together. There are a lot of people who talk for a living and a lot of people who are busily doing in the background. I think it’s important to bring the explosion of ideas that you have at a lot of those events together with the realities of building stuff together, and say ‘Hey, let’s play!’. AP: Talking about ideas and building stuff. This is a weird question, but www.fintech.finance
imagine you get a call from Elon Musk. He’s sending a million people to Mars to create a civilisation from scratch and he wants you to come and build the finance sector. No legacy. How do you do it? What do you focus on? LG: That’s such a cool question, although I thought when you said ‘weird’ that you were going to ask me what my favourite dinosaur is… never mind! The biggest challenge we have in dealing with financial services at the moment, is that there’s so much legacy in the way and I don’t just mean systems. I mean that our entire organisations were built to support a certain way of solving problems, that are, in so many cases, 150 years old. So, if you think about all financial instruments – from the very simple function of money that goes beyond ‘I’ll give you some tomatoes and you’ll give me some bread’, to any complex financial instrument – they were created by people who were 50 per cent businessmen and 50 per cent opportunists, to serve a need. Then, entire organisational structures, support functions, systems and buildings were constructed to support that clear purpose. And we are so caught up in the delivery now that we very rarely stop to look at the purpose. So, if I had none of that legacy, I would take us back and say ‘OK, what is the purpose of financial services and what are the limitations of the technology I have in my hands right now?’ Because so much of what you can do now is real-time, you would completely eliminate a good chunk of products and services that are based on time lags and agency fees and antiquated risk management. Much of that would just go out of the window, because you wouldn’t need to think about existing relationships and existing careers. What you’d be left with,would be people going about their lives and business and figuring out what was required to support that. And then you would look at your trading infrastructure. You’d have to have a deep and profound argument with the other people going to Mars
about the fact that there was a little bit of casino in that trading infrastrucutre and there was quite a lot of our planning for the future tied up in that, too. Then you’d say ‘let’s have a heartfelt conversation about how we’re going to provide pensions. If we can think of a better way, great. If not, then let’s accept that there will be an element of guesswork and hope and gambling and keep it as separate as we can’. AP: As this is supposed to be an inspirational introduction to your guest editor slot, do you have any inspirational quotes that you can give us? LG: Yes, I have three and if you work with me, you hear these three a hell of a lot. One is from my awesome granddad, who always said ‘you choose who you are first, and what you do follows’. He risked being court-martialled in order to live up to this, so he totally practised what he preached. He was a cool dude. The second one is my mum, who says ‘for the things you can fix, don’t stress, you’re going to fix them. For the things you can’t fix, don’t stress, it won’t help’. The third one I use a lot and it’s from my first boss at BNY Mellon, who always used to tell us ‘you have to dance with the one who brought you’. In my years since working with him, I have seen so many people forget the helping hands they were given along the way when they reach success. His voice is in my head a lot and I actually now tell my own teams that there will be many people who will help them in ways big and small, and without them, they won’t get to the finish line. They’re the ones they should dance with.
We are so caught up in the delivery of financial services that we very rarely stop to look at the purpose
AP: And, lastly, since you brought it up, what is your favourite dinosaur? LG: The ankylosaurus. The spikey one.
Issue 10 | TheFintechMagazine Magazine
THE FINTECH PAPERS
Finding your Core
Guest Editor Leda Glyptis introduces a spirited collection of thought-provoking pieces from those engaged in the frontline of fintech
It’s official, we have gone mainstream. Fintech is now in the dictionary and your parents can at least describe to their friends what you do for a living without admitting they have no idea what you are actually employed at all day. And yet, for all the coverage, all the events, all the ground we have covered in becoming mainstream, fintech as a space is still more about anxiety, disruption, big bets and hard choices than it is about any specific skill sets or career path. It is the place where introspection drives organisations big and small to a single hard question. How, in a changing economy, do I find my position of viability and profitability that is true to who we are today as a business and meaningful for the customer tomorrow? Part of that is figuring out which way the world is heading. Part of it is figuring out what your own brand permission is, and your appetite for the hard yards ahead. Because this journey cannot be half-hearted. It is too hard for that. And because it’s hard, we decided to ask some people actually doing it ‘ what does finding your core mean when you are running a business, investing in infrastructure, or changing direction or jurisdiction?’. We have asked six practitioners (three
TheFintechMagazine | Issue 10
founders leading exciting, growing, bold businesses, three leaders driving momentous change within corporates and one former fintech founder, now author, to share their stories and views. The juxtaposition and balance was intentional. We invited contributions from a personal angle. From a functional angle. From a funding angle. What does it take to get it right? This selection of pieces is a conscious effort to move away from the generalities of ‘change is the new normal’ and discuss the realities of transformation in banking. The theme is finding your core, both from a business perspective (adjusting the business model, making hard choices) and from an infrastructure perspective (investing in your own core capabilities vs portfolio diversification, creating new vehicles, etc). We want to explore things that work and things that don’t, the hard choices made and the things that didn’t
There is no survival guide for the disrupted economy... Direction, choice and focus are essential and often hard to arrive at
translate well (how you invest in the market is not how you invest in yourself, the disruption is shared but the dilemmas faced by each business differ, etc). The people we invited to participate are people who have made and continue to make hard choices for and within their organisations. Their approaches, tone, stories and the choices themselves are very different and that’s kind of the point. There is no survival guide for the disrupted economy. Finding your core is neither easy nor binary and although the folks we invited have very different stories to tell, they all demonstrate that you need vision and commitment. Oh. And hard work. Direction, choice and focus are essential and often hard to arrive at. But it’s when you get there that the real work begins. Fintech has gone mainstream but the work taking place in this space never will as it is all about pushing boundaries, finding new revenue streams, constantly redefining your business without losing your way or your core. We see this collection of contributions as ‘dispatches from the front’, by the people fighting this fight, day in day out. It’s their story, perspective and vision of going for the win in a changing market without losing sight of why you are doing it in the first place. www.fintech.finance
Venturing forth Author and Co-founder of Fairshare, Karl M. Sjogren rethinks the funding model Venture-stage companies rely on investors to fund operations, but valuation is a challenge for investors and entrepreneurs alike because the fundamental question is ‘what is the value of an idea?’. My forthcoming book The Fairshare Model, offers a unique answer – that an idea is worth nothing. The book will describe a performance-based capital structure for companies that use an IPO (initial public offering) to raise venture
capital. The model describes two classes of stock – both vote but only one is tradable. The tradable stock goes to IPO and pre-IPO investors and to employees for past performance. For future performance, employees get a non-tradable stock that converts to tradable stock. By reducing valuation risk for IPO investors, the Fairshare Model makes it more likely that they will make money when they invest in a company with high failure risk. Venture capitalists use deal terms to protect themselves from overpaying for an idea – the Fairshare Model applies the concept to IPOs. If a rise in the price of the tradable stock results in conversions of performance
Time to break free
Kaidi Ruusalepp, Founder and CEO of blockchain-based Funderbeam, on escaping the limiting factors restricting growth companies
Funderbeam is an operating funding and trading platform for private companies, built on blockchain technology – colored coins on Bitcoin blockchain. Funderbeam tackles the problem of liquidity of private investments and their local nature in times when the technology connects us globally. If a startup or SME wants to raise growth funds, Funderbeam can open a fundraising campaign, offering investors tokens for their contributions. Funderbeam platform tokens are security tokens and this is where life gets interesting. New technology forces businesses and regulators to revise existing business models. Is it possible to offer the service more efficiently? Are www.fintech.finance
all intermediaries in the value chain in fact necessary? Blockchain technology is aimed at solving the trust issue. The financial sector is a trust sector. In the existing environment, the trust is built in institutions. Now that blockchain technology can record assets and provide the same level of trust around transactions, will it change our perception of the industry? Even though we talk a lot about technology, it is just an enabler. The real challenge for scaling is not so much related
stock, an issuer has reason to offer a low IPO valuation. The company also has a tool to motivate employees. When the team performs, they get tradable stock. Indirectly, the model also prompts another question, which is ‘how can the benefits of capitalism best be shared?’.
to the technology, regulation or cultures, but to the attitude. Is the new an opportunity or a threat? And do we see more risks related to the ‘stock markets on blockchain’ or is it something worth exploring? Scaling new business models in our industry starts with an open mind and true (real life) validation of them. The same applies to the regulators. In some countries and regions, including the European Union, the new is out of the norm. In some countries the law enables exceptions and, based on this, gives a chance to new businesses. So, entrepreneurs look for the best jurisdiction to accommodate their business. It has nothing to do with avoiding the regulation, you just can’t set up a fintech business by messing up with regulators first. You need to collaborate and discuss with them to build trust and be able to operate with regulator approval. One of the most challenging aspects of our business is the lack of a universal regulatory environment. So, the hardest choice for companies like Funderbeam is that of jurisdiction.
One of the most challenging aspects of our business is the lack of a universal regulatory environment Issue 10 | TheFintechMagazine
THE FINTECH PAPERS
Let's not pretend
They might earnestly wish to be more like fintechs, but incumbents are fundamentally different, with their own strengths and weaknesses, say DNB Bank’s Enterprise Architects Martin Vollan and Trygve Aasheim The phrase lipstick on a pig is an appropriate one for banking. But the reason is actually a good one; banks were the first customer-facing industry that truly went digital, as far as you could, back in the 1970s and 1980s.
The banks bought mainframes, truck loads of them, tandem systems and massive networks, all to assist clerks in branches in giving more accurate financial advice and automate the establishment of products. The investments were out of this world. The only other sectors with similar investments were the likes of military or government sponsored entities.
STATES With the support of regulators, Standard Chartered Bank has been busy shifting paradigms to come up with a new concept in banking, as Deniz Güven, its Global Head of Client Experience & Design, explains
Standard Chartered Hong Kong announced its intention to launch a virtual bank in June 2018 and, just a few weeks ago, we submitted our virtual bank application to the Hong Kong Monetary Authority (HKMA).
TheFintechMagazine | Issue 10
For an almost 160-year-old organisation like ours, this marks a new and exciting chapter in banking. We are at a unique and interesting point in time when you consider the cross-over and convergence between technology, banking and commerce. It’s a time of
systems. They all want to move faster with continuous deployment and methodology like software companies. Bankers are told all the time that fintechs or bigtechs are out to get them and that the banks will have their Kodak moment. But traditional banks still have a competitive advantage if they are able to execute and utilise modern technology and unite forces with strategic partners.
For the banks, the investment created a foundation of machinery that is still running. The main challenge is that it has become extremely customised and complex. A common architecture is to have one main core for each product domain. On top of that there is a massive set of support systems specially tailored to support that core and its products. This creates silos where the clerks act as the glue that moves customer information and data smoothly between the silos manually. But for digital processing it creates a mess of pre-fetching, web forms and complex integrations. And business logic is spread all over the place. Some is in the core together with the products; some is in the supporting systems; and some is owned by the clerk – making automation a huge challenge. Often you will even find important business logic in the integration systems, like pre-evaluation of a customer. So, when you are trying to deliver a new product or service that is a composite of several, you are working with a mess of highly complex integrated systems. Traditional banks, DNB included, understand the challenges with legacy core
The knowledge of complex banking value chains is instrumental in developing new services. A personal financial management solution is not as complex as, for example, trade finance or secured loans like mortgages. We are entering the next phase where the complexity of banking emerges,
disruption, and I use that word positively – disruption can serve as the impetus to make us think and act differently. Digital transformation has been the buzz phrase in digital banking for the last few years, and it has typically meant applying analogue services to the digital channel. With the virtual bank, we have the opportunity to build exceptional client experiences which are digital-specific, journeys that are native to digital platforms. By first understanding the needs and pain points of our Hong Kong clients, and then catering for them, in this age of open banking and application programming interfaces (APIs), this is how the bank can truly be a service. We are designing the future operating model of banking, and our approach is to look beyond traditional financial services by focussing on financial inclusion and creating valuable partnerships for a robust digital ecosystem. Our virtual bank will be the benchmark for all digital players.
The underlying foundation to the success of a virtual bank starts with a favourable regulatory environment. In September 2017, the Hong Kong Monetary Authority announced its support for the establishment of virtual banks to bring Hong Kong into the new era of smart banking. HKMA has been a trailblazer in this area – it has raised Hong Kong’s game in fintech, and further established Hong Kong’s reputation as a global financial hub. As we studied the HKMA guidelines and frameworks for virtual banking, we worked closely and fostered good relations with the regulator, which ultimately resulted in Standard Chartered Hong Kong being one of the first entities to submit an application for a virtual banking licence. Where do you start to re-design the paradigm of banking? We have placed the client experience at the epicentre of all we do. Our team collectively left our preconceived notions about what clients require, and returned to the drawing board. Through extensive ethnographic
It’s the ability to execute and deliver that matters. But don’t underestimate the underlying complexity of banking
moving the discussion away from legacy systems and challengers towards ability to execute. To develop true digital services and products, DNB is optimising existing legacy core systems. making them less dependent on the existing process orchestration layer and encapsulating each core. We are also exploring new technology with Cloud-native architecture built for digital native services. A key element is abstracting product features and capabilities out of the core systems into microservices. It’s the ability to execute and deliver that matters, and all banks are looking to software companies’ methodology to increase speed and agility. The banks have to do this while maintaining the customers’ trust, so there is no room for unavailable services. But don’t underestimate the underlying complexity of banking. Traditional banks might have a disadvantage in technology, but they understand the regulatory landscape and how complex products and value chains actually work and why.
research, we now have a solid understanding of what clients in the Hong Kong market need, want and expect from their bank – and we are excited to deliver. While our energies and efforts are focussed on Hong Kong, we are building the virtual bank in a way that can be scaled up and rolled out globally. We are building the bank of the future with both local knowledge and global talent; our plans are big and dynamic. If designing the future of banking excites you, let’s talk and re-imagine banking together!
Where do you start to redesign the paradigm? Our team left our preconceived notions and returned to the drawing board Issue 10 | TheFintechMagazine
Beyond the head: Find and feed your core Conny Dorrestijn, Co-founder of BankiFi (among many other things), invites you to nourish your inner fintech Many businesses are founded by the head: business plan, spread sheets and numbers. This must be done, but like a human being, it needs a strong core to prosper and grow: heart, lungs and stomach. The heart: A passionate focus – love what you do! Our latest venture, BankiFi, was born from interest in what – after 20 years of internet banking – was still lacking. Data and insights were still seen as dumb input for processes and services of a bygone era. Transformation was mere optimisation. There was an amazing world out there if you combined new thinking with new technology. At the same time, you could almost smell that people would wake up to data ‘grabbing’ and demand real value in turn. This bow of tension between a
fair and open world and the fear of ‘1984’ sat at the heart of every business discussion. We wanted to catch the momentum created by society and technology innovation, and spurred on by the regulators. This allows us to do what we love most: work with young talent (YouthShoring as we call it), create a fair and relevant playing field in financial services (in particular for long-suffering business clients), embrace the latest technology and bond our experience with curiosity to make it happen. This same heart will convince the head to keep going when things get rough. The lungs: A connected life – breathe in, breathe out Your environment is your oxygen: family, friends, the financial services ecosystem and more. The lungs of your business give you energy and
force you to give back. Take in inspiration from a wide range, don’t restrain yourself to your ‘industry’ but look at similar things going on in different business segments. Equally, no matter how focussed (timeconstrained) you are, you must mentor young talent and speak at events. The stomach: Built for endurance feed that body In addition to inspiration and guidance, you need to feed the body: fill your stomach with good stuff that makes it endure and grow: good talent, a good infrastructure, and yes, money. Investment or income – and preferably a combination of the two to keep your feet on the ground and your minds focussed. The intake and digestion is directly linked to how much and how fast you grow. Growing too fast can be a danger to the health of your company. Starvation leads to death. But if fed with varied and healthy ingredients (a diverse workforce, an infrastructure that is flexible) you will build a healthy company with robust DNA.
A NEW MINDSET As Santander seeks to ‘act more like a startup’, Manuel Silva, Partner and Head of Investments at Santander InnoVentures, talks to Guest Editor Leda Glyptis about how this new mindset is disrupting its core
LEDA GLYPTIS: Santander has a proven track record in diversified fintech investments and, equally, a commitment to investing in its core infrastructure to deliver client value. Talk us through how the priorities, choices and value drivers differ for those two activities and where they converge.
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MANUEL SILVA: Those two activities always converge as, for Santander, the client comes first. Everything we do needs to improve our client value proposition. Santander invests in startups through Santander InnoVentures (SIV), looking for the best fintech entrepreneurs innovating around new customer propositions (new interfaces, products and asset classes) or the technologies powering them (infrastructure, analytics, alternative channels). SIV looks to build a financially healthy portfolio to partner with those entrepreneurs and embed their technologies into our offering. Seventy per cent of the 20-plus SIV companies are engaged with Santander in one way or another. Sometimes SIV may invest in companies where the immediate application does not seem obvious to the
Smashing it: SIV is supporting startups – and learning from them
THE FINTECH PAPERS
The echo chamber of innovation I have always been enamoured of the idea of Schumpeter’s ‘gale of creative destruction’ as an intrinsic change agent in our economy.
The concept of incessant ‘destruction of the old’ paired with the ‘creation of the new’ resonates with me as a continuous wave of improvement, making the most of the opportunities and technologies of the time. As a tech company in the real estate space, we are continuously navigating this wave with our banking and financial services clients. Our clients leverage our technology in their primary processes, from deal underwriting to portfolio valuation and reporting. This level of integration requires direct and unfiltered engagement with the business to be successful, but this is generally not available because innovation is the remit of a specific group or team. We have encountered this often in our work with one of the largest mortgage lenders in the world. Dozens of pilots were initiated by their innovation team to explore new technologies, but in each case without any significant link to business requirements. The pilots were
Destruction is a necessary part of creation, says Teun van den Dries, Founder and CEO of GeoPhy. You must be prepared to break some eggs...
had to reinvent itself, shifting from initiator to facilitator and helping us navigate the more complex environment of a project with immediate utility. Following a successful pilot and implementation, the hardest challenge turned out to be achieving the full cycle of innovation. The innovation team has a mandate to ‘innovate and create’ and the business was able to leverage interesting but not impactful, as no that opportunity with a scope that would initiative was identified that would provide increased utility while saving have a positive effect on how this lender time and costs. The challenge was managed its business. They operated that while the technology provides a as a classic echo chamber, running superior solution for an existing innovation for innovation’s sake. internal system, no mechanism As one of the tech companies invited or structure existed to facilitate to participate in these pilots, we were an actual replacement. The old uncomfortable with this disconnect system was kept in place as a from business reality and identified legacy platform and is still a bottom-up requirement from running today, eliminating a business line that would the benefits of creative produce a very significant destruction. saving in cost and time. This Creation is a very resulted in a pilot to replace seductive and rewarding an existing internal system, Breaking out: exercise, but has to be with champions from the Creation without paired with destruction business involved from the destruction only to make a difference. start. The innovation team tells half a story
public eye. We are then probably looking to understand the evolving how our industry is morphing, to make sure our offering meets our clients’ evolving needs.
but the transformative process we jointly go through to get there is the real value, and how we contribute to advancing the industry while being the best ally to our startups.
LG: How do you choose which of your investments to also use as a client? MS: We endeavour to be a client of all our companies. Even more so, we endeavour to be their partner, which in our view is much more than just being a client. Being partners is more than revenue or capital, it is being a true supporting force to experiment, access our scale, benefit from our expertise. It is being a catalyst for growth and change, and it is at the core of our value proposition as investors. Being partners ultimately results in commercial contracts and added revenue,
LG: Often the hardest decisions are around executing with focus, which means not just doing new things but also stopping certain things or accepting they will no longer be core. How are you navigating this space? MS: If there is one thing to learn from entrepreneurs it is that focus is key and fast experimentation is the way to remain in focus. We support our companies through their experimentation process with our expertise, connections and capital. As Santander at large interacts more and more with startups, the bank is also acting more and more as a startup itself, rethinking how resources are allocated, ‘failing fast’ and focussing on the projects that most impact our customer proposition. So, SIV has been a cultural change catalyst for Santander.
Being partners is more than revenue or capital, it is being a true supporting force www.fintech.finance
LG: Santander has a successful track record for innovation among banks of its size and reach. What comes next? Will ‘innovation’, combined with new regulation, help the group refine its offering, or is transformation the core? MS: Both, perhaps across different time horizons. Recent regulatory changes, like Open Banking and the revised Payment Services Directive PSD2 across Europe, open up new opportunities for the short term. We believe that, as our customers are increasingly digital, large platforms with global products dominate adjacent markets, and data richness and variety continues its exponential growth, there will be a more fundamental change in the boundaries of our industry, our place in the global economic ecosystem and how, by becoming technology companies with entrepreneurial mindsets, we will power other’s success across multiple industries and geographies. That is the true vision we are pursuing.
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Kevin Johnson, Head of SWIFT Innotribe, on why he believes disruptive fintech is maturing into a collaborative force, the growing reach of the Chinese and when’s the right time to make a pitch
FINTECH FINANCE: For the benefit of those who haven’t come across you, what is Innotribe and why has it proved so inﬂuential in the fintech industry? KEVIN JOHNSON: Innotribe was launched by the global secure financial messaging services firm SWIFT back in 2008 as a way of bringing the financial services community together and creating a space for collaborative innovation. At that time, the fintech industry was very much in its infancy, but Innotribe allowed us to identify the insights and solutions being produced by fintechs and showcase them to the wider financial community, as well as our own members and customers. In essence, Innotribe is a fintech engagement programme with an accelerator built in. FF: In 2008, the notion of ‘collaborative innovation’ between incumbents and startups was pretty much unheard of, with fintechs still being considered the
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disruptive thorn in the side of the big banks. Fast-forward 10 years and is it safe to say that the hatchet has been buried between them? KJ: In recent years, I believe that the fintech industry has entered a new age of peace. First, there was what I like to call ‘Fintech 1.0’, which was heavily funded by venture capital and intended to disrupt the financial industry as much as possible. The incumbents recognised this rising technological threat and said to themselves ‘actually, some of the things that these companies are doing are very interesting’. As a result, there’s been an emergence over the past four or five years of a group of companies that I would label as ‘Fintech 2.0’. This new breed of start-ups are not interested in causing
disruption, but instead look to work hand-in-hand with more established players in order to help the industry tackle some of its biggest challenges. The reason why this trend of collaborative innovation has continued is because fintechs and incumbents naturally make great teams. Incumbents have scale and a strong element of trust. Fintechs, on the other hand, are very nimble and single-minded. The combination of a fintech’s laser-like focus on a problem with the scalability of an incumbent allows both sides to become winners. This concept of collaborative success is what encapsulates Fintech 2.0. FF: At the moment, we’re witnessing the birth of a new brand of financial ecosystem in the form of banks as platforms. Companies like Starling and Ant Financial are linking a broad range www.fintech.finance
Seeing as last year’s Sibos took place in Toronto, we’re indeed making a large leap east this year to Sydney. On the exhibition side of things, this has already made a big impact. For a start, we’re welcoming more Chinese banks and delegates to the conference than ever before. We’ll also be holding a big debate on the Asia-Pacific region’s current influence across the world of finance. One of the reasons why we move the location of Sibos each year is so that we can tap into the local voices of the host region and project them out via a global stage. For example, last year in Toronto we cast a spotlight on what was happening in terms of innovation across Canada and North America as a whole. This year, in Sydney, we’ll obviously be examining the worldwide implications of schemes such as New Payments Platform Australia, but we’ll also be zooming out to explore the financial solutions being forged in nations throughout the Asia-Pacific region.
of fintechs together to deliver an all-inclusive financial service. Do you see banking as a platform as the end game of collaborative innovation? KJ: Well, new regulation like the revised Payment Services Directive (PSD2) is certainly encouraging a ‘rebundling’ of the customer experience. I have my iPad in front of me now and I probably have around 300 apps on it currently, including financial ones. In order to perform all the banking processes I need to, I have to jump between so many different applications and, as a result, my digital and financial life is totally fragmented. Therein lies the raison d’être for platform banking – why should I have to go to 10 different places to do my banking? Take me to one. Companies like Ant Financial and Baidu have taken this complaint on board and are demonstrating how, as a bank, it’s possible to construct an entire, self-contained financial ecosystem. At the same time, challenger banks, such as Starling, Monzo and N26, are taking platform lessons from the big tech companies like Google and Amazon and applying the same principles to financial services. And it’s not just the startups that have taken this idea of intrinsic collaboration to heart. JP Morgan is spearheading the concept of the bank as a platform. Seeing as some of the largest financial players in the world are now prioritising the development of this new type of financial ecosystem, I’ve no doubt that we’ll witness even more inter-firm collaboration over the next few years, with a view to producing the unified banking platforms of the future.
If you’re providing a proof of concept for a bank and all they supply you with is a junior employee to carry out your admin for you, you need to walk away
FF: The phrase ‘financial ecosystem’ is certainly on everyone’s lips at the moment. Did this affect the choice of location for SWIFT’s Sibos conference this year in Australia? KJ: If I were to choose a country that was leading the world in terms of financial ecosystems it would be China. A lot of people still look to the West and the technology companies of Silicon Valley to determine what the next disruption wave will be, but Chinese products, like Alipay and Tencent, are where you can see real innovation in action. As such, we need to start looking to the East to observe new, revolutionary ways of working with customers.
FF: Speaking of forging solutions, let’s imagine that I’m an incumbent looking to engage in a light spot of collaborative innovation with a fintech. How do I kickstart the process of developing a solution together? KJ: I sit with ING on its FinTech Village programme and it will always begin each development cycle by identifying the business problem it wishes to solve. It does this by choosing a business sponsor and questioning them on the pain points its business is experiencing. Once a problem has been chosen, the door is opened to fintechs, who are given the opportunity to pitch their solution to the business sponsor.
This method of starting with a problem, as opposed to a solution, is absolutely crucial in ensuring a successful development process – more than 50 per cent of the startups that FinTech Village works with have managed to turn a proof of concept into a pilot and many of these have been taken forward to become real-world projects. However, as a bank, deciding which fintech to partner with is not just a case of picking the one with the best technology. You need to have a careful dialogue with it to make sure that, once you start working with it, not only is it going to solve your problem but it’s also going to fit in with the culture of your business, too. Having the best technology but no cultural fit will leave you with just a really nice press release at the end of it all. Think of the longer-term relationship, not just the proof of concept. FF: So, I’ve pinpointed my bugbear and found the fintech that’s going to help me to eradicate it. What’s the next step in this collaborative crusade? KJ: The next step is investment. However, I don’t mean investment in the traditional sense of just slamming some money down on the table. I’m talking about investment in terms of people. From a fintech perspective, if you’re providing a proof of concept for a bank and all they supply you with is a junior employee to carry out your admin for you, you need to walk away. The banks that are going to succeed in their collaborations are the ones that are putting forward their experienced business people to converse with fintechs, as that way they’ll be able to have the meaningful discussions that turn proof of concepts into pilots. The last piece of the puzzle is timing. Large corporate customers, such as banks, often have strict budget cycles. As a fintech, it’s vital to understand this – if you present a proof of concept to a bank just after its budget cycle has passed, it won’t be free to work with you for another six to 12 months – and by that time something new will undoubtedly have come along. So, do some research. Sit down together and have a frank discussion about your processes and availability. That way, you’ll both potentially save each other a lot of frustration and also form a bond of trust along the way. Issue 10 | TheFintechMagazine
Blue is the colour... technology is the true game! Haytham Kaddoura, CEO of SmartStream, has pinned his company’s colours to the emerging masts of AI and blockchain, as the market comes to a turning point in financial services history. Kaddoura joined Chief Techology Officer Darryl Twiggs to explain the strategy The road to becoming a technology superpower contains its fair share of potholes. Take Apple. In 1998, under the newly re-appointed Steve Jobs as CEO and following 10 years or so of faltering growth, it released the first all-in-one iMac and the ‘Bondi Blue beast’ proved an instant hit with consumers. The iMac constituted a technological turning point for the firm, as it ditched the outdated ﬂoppy disk drive and introduced USB connectivity to the masses. As innovative as the first iMac was, perhaps the greatest turning point in Apple’s history came three years later, in 2001, with the release of the iPod. Just as the iMac wasn’t the first computer to incorporate USB connectivity, the iPod was by no means the world’s first MP3 player. However, it was the first monumentally successful one and, following the creation of the iTunes Music Store in 2003, it helped Apple to become the largest music retailer in the world. If there’s one thing that we can learn from the story of Apple, it’s that sometimes it’s necessary to take a new direction in order to reap the biggest rewards. One financial technology company that is currently at a turning point in its history is global software and managed services provider SmartStream. Just like Apple
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with the iMac and iPod, SmartStream isn’t looking to develop new, unseen technologies. Instead, it’s taking existing technologies and designing solutions that truly tap into their potential. Haytham Kaddoura, CEO of SmartStream, is confident that his company’s products will prove to be just as revolutionary to the financial services industry as the iPod was to the music biz, albeit without the white earbuds and dancing silhouette commercials. “In terms of technologies, the direction SmartStream is taking for the future will focus on artificial intelligence (AI) and blockchain,” says Kaddoura. “What we’ve seen of these technologies so far probably only scratches the surface. We’re witnessing more and more substance being applied to theories on blockchain and more advanced models of AI are appearing every week. New labs and institutions are stepping into the AI and blockchain space, not just within fintech but also within the healthcare and insurance industries, for example. It’s no surprise, then, that these technologies
are making their way into our operations at SmartStream.” He believes the unexploited capabilities of AI and blockchain technology extend far beyond cost-cutting and improving customer service. “AI solutions can be used to strategically enhance the entire operations of banks,” he says. “They can give institutions a better control of risks, faster reporting capacity and the ability to make proper use of their data.” Judging by the improvements that can be made by employing an AI solution for data analysis, it’s safe to say that, up until now, companies have been underestimating the value of the information they have at their disposal. It’s a point Kaddoura’s chief technology officer and head of strategic initiatives, Darryl Twiggs, would agree with. He believes machine learning can take a company’s data processing from the equivalent of Commodore 64 to HAL 9000. “AI is going to deliver a much broader picture to banks,” he says. “One of the beauties of it is that it allows us to take
The direction SmartStream is taking will focus on AI and blockchain. What we’ve seen of these technologies so far probably only scratches the surface
data from a multitude of sources and then rapidly analyse that data in multiple dimensions. For example, it would take an individual many months to identify a trend across five or six dimensions, whereas an AI machine could execute an algorithm to recognise it very quickly. As a result of this, AI enables firms to perform analysis over wider sets of data in a quicker and more cost-effective manner, and that can lead to the identification of trends that would otherwise be missed.” This benefit of AI in terms of data analysis ties into its ability to provide companies with ‘a higher control of risks’ says Kaddoura. Data quality can supplement risk management and SmartStream’s new machine learning prototype is proof of this. “We’re using AI for predictive analysis within liquidity management, which I think is a first for the industry,” says Twiggs. “Our prototype uses history to understand the normal behaviour of the market regarding cash flows and payments in and out of financial institutions. From here, it predicts the continuation of that behaviour in real time so that we can track any abnormalities or unexpected occurrences. This information should prove highly valuable to treasury and custody practitioners.” So, if AI can satisfy all of a financial institution’s risk management and data processing needs, where does blockchain figure? The answer to that is payment reconciliation. Many believe a blockchainbased solution would eradicate reconciliations once and for all. But SmartStream has developed a proof of concept that assumes its survival. “The fact you’re putting data on the blockchain doesn’t mean that errors from the source aren’t going to occur,” says Twiggs.
Looking to the future: SmartStream CEO Haytham Kaddoura
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SIBOS: SMARTSTREAM “You’ll still have the trader with the fat fingers who selects the wrong fee schedule or supplies incorrect reference data. Therefore, reconciliation will still be required to confirm the payment that’s been placed on the block contains the correct value and identities. “So, blockchain won’t eradicate reconciliation, but it will change the way we think about it,” Twiggs adds. “Traditionally, reconciliation has been a post-settlement task, but a distributed ledger system will turn it into a real-time operation that occurs immediately after a trade has been committed to the block. This is crucial to ensure that the data is always correct between the two parties. Bearing in mind that post-settlement reconciliations currently occupy the majority of bank audit teams’ time, the benefits of a blockchain-based, real-time reconciliation solution are huge.” Having redesigned its solutions around AI and blockchain technology, SmartStream is also adapting the way in which it develops them. The company is partnering with banks during initial development phases, turning what were once solitary endeavours into collaborative efforts. But it recognises that the field is widening and the strategy now is to play on it with the lower leagues as well as the premiership teams in financial services. “For our AI and blockchain solutions, we’re actively engaging with Tier 1 financial institutions to ensure that our new products are well-aligned before they’re even announced to the industry,” says Kaddoura, who is a firm believer in allowing the clients to shape the direction of solutions that SmartStream develops. It’s not in the business of creating solutions to go in search of a problem. It’s promoted the shared service model for some years – SmartStream was the first to market with the concept of a reference data utility to which users contributed and benefited from the cost and time-saving reward, so it’s comfortable with the co-operative principle behind a distributed ledger system. In working up solutions based on both blockchain and AI, Kaddoura is conscious that the market is changing – and SmartStream must change with it. “Not only are we collaborating with Tier 1 firms, but we’re also developing solutions for the new, digitally-oriented institutions
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that are entering the market,” he says. “A lot of these institutions are growing quite rapidly and simultaneously taking a sizeable piece of the pie away from traditional players. As their offerings start to grow, they’ll eventually require solution sets like ours, so we’re specifically designing them to be accessible to Tier 3 firms. By providing modular solutions, we’ll be able to continually support them with only minimal alterations being made to what they originally installed with us. Our hope is that we’ll be able to grow alongside these Tier 3 firms, taking the solution with us so that it one day constitutes a product fit for the Tier 1 market.”
factor that has contributed to the somewhat sluggish uptake of these technologies in the financial services industry, according to Twiggs. “Banks have had to deal with a lot of post-financial crisis activities as well as a vast swathe of regulatory requirements,” he says. “These projects have necessitated substantial funding and this has left little capital remaining for the development of AI or blockchain solutions. Also, speaking of the technology itself, there have been a few teething problems concerning performance. For example, Bitcoin does around seven transactions per minute. That is nowhere near enough to meet the requirements of a bank. What banks require is the capability to conduct millions of transactions per second and only now is a blockchain infrastructure being made available that can carry out this volume of trade. Having said that, I do believe that we’ve now reached a point where both AI and blockchain technology are performing. Therefore, now is the time for banks to take the opportunity and start engaging with and absorbing the technology.” In many ways, the period of AI and blockchain stagnation that the financial services industry has experienced over the past decade is similar to Apple’s creative drought following the ejection of Jobs in 1985 from the company he founded. In terms of distributed ledger systems, progress has been almost non-existent, and AI certainly hasn’t lived up to the futuristic expectations that we’ve applied to it as a result of science fiction’s relentless conjecture. However, with companies like SmartStream dedicating themselves more or less entirely to the development of innovative AI and blockchain solutions, who knows? Perhaps the iMac of the financial services industry is just around the corner. I wonder if it’ll be bright blue again? ■ To read about SmartStream’s new innovation lab dedicated to AI, including machine learning, and blockchain, see page 40 of The PayTech Magazine.
We’re specifically designing our solutions to be accessible to Tier 3 firms. By providing modular solutions… our hope is that we’ll be able to grow alongside them
As SmartStream is demonstrating, the operational advantages to be had from AI and blockchain are almost unquantifiable. However, there’s one question that remains unanswered: why now? Neural networks have existed since the 1970s and we’ve been discussing blockchain databases ever since Bitcoin burst onto the scene almost a decade ago in 2009. Well, there’s more than one
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Warming signs Eli Rosner, Chief Product and Technology Officer at Finastra, believes it’s time to bring the business banking customer in from the cold In April 2018, when Citizens Bank, the trusted strategic and financial advisor in the US and one of the country’s largest retail banks, wanted to improve the way it delivered trade finance solutions to its corporate clients, it selected Finastra’s Fusion Trade Innovation to do the job. This new solution not only made its business scalable but also provided an integrated platform for multiple corporate banking applications – dramatically enhancing end-user experience. The platform entirely connected the various ports of corporate banking, supported every trade product the bank offered and also integrated with downstream systems through open application programming interfaces (APIs). Additionally, it had a high level of configurability. This type of move makes eyeballs swivel because customer satisfaction levels among America’s business banking clients have reportedly taken a plunge in recent years. Six months earlier, J.D. Power found an overall decline in customer satisfaction among small business owners, especially where an account manager was not attached to the portfolio. The 2017 U.S. Small Business Banking Satisfaction Study had surveyed 8,378 businesses that use business banking services, making it a noteworthy report. There was definitely something wrong in the way in which US banks treated their corporate customers digitally. The banks themselves were also missing a trick in the way they valued the digital information they already held on them. www.fintech.finance
Finastra, the developers of Fusion Trade Innovation, came about in 2017, formed by the combination of Misys and D+H. It has 9,000 customers globally, including 90 of the top 100 banks. This is not an organisation to swallow a record of poor customer experiences, which is demonstrated in its commitment to releasing innovative, integrated, frontier technologies. That was demonstrated again when it launched Fusion LenderComm as an app on R3’s Corda platform using blockchain. The first to go live on Corda, it turned out to be a path-beater on several counts. Fusion LenderComm allows financial institutions in the syndicated lending market to publish loan data, and lenders to leverage this information. Agent banks can define and publish lender-specific data to Fusion LenderComm through their own portal. This enables individual lenders to examine the loan data through the app, making the entire process fast, easy and cheaper. Additionally, Fusion LenderComm digitises communication with lenders – making the whole system efficient and minimising operational risk. There’s every reason for Frédéric Dalibard, head of digital for corporate and investment banking at Natixis, one of the banks that worked with Finastra during the pilot phase to help streamline information exchange between agent banks and
lenders, to call Fusion LenderComm a ‘groundbreaking initiative’. And David Rutter, CEO at blockchain consortium R3, praised the app for harnessing the power of blockchain technology, describing it as ‘an enormous milestone for blockchain’.
A growing corporate market Both Fusion Trade Innovation and Fusion LenderComm were designed to skyrocket customer experience, especially within the corporate banking environment, and Finastra’s timing was impeccable. Apart from the reveal about sinking customer satisfaction among business banking clients in the industry, a joint survey conducted by Celent and Finastra predicted that global corporate banking sector revenue is set to grow to $915billion by 2020, with a year-on-year increase of four per cent. The report also suggested that highperforming banks could grab a hefty portion of the corporate banking wallet and by ‘automation and deep digital adoption’ help the wholesale banking sector save between $15billion and $20billion.
Finastra is going to take the customer journey – be it a person or a corporate – and put it on steroids
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SIBOS By using Finastra’s existing Connected Corporate Banking and marrying it with its new open platform, FusionFabric.cloud, that’s precisely what the company aims to help them do. Eli Rosner, chief product and technology officer at Finastra, will use Sibos in Sydney, Australia, to show how the Connected Corporate Banking solution delivers an integrated and seamless solution to the corporate user and treasurer. Finastra will also demonstrate how data exchange and data fed into the solutions can help. Rosner takes the example of Finastra’s syndicated lending solution, Loan IQ, which has an automated process that creates all the loan data automatically within the app. “We are going to show a customer journey of a business user, someone who wants to open a set of gyms. It will follow them from asking for a loan through to setting up recurring payment requests for membership fees, then on to them growing internationally, asking for a syndicated loan – because now we’re talking about more money and they’re big enough to have a treasurer. So it’s about financial exchange across borders, trade across borders. “We are going to use the scenario to demonstrate how we can use FusionFabric. cloud as a platform as part of connected corporate banking,” says Rosner. Data and the customer journey matter for Rosner and Finastra. As with personal banking, Rosner believes that banks can monetise the information they hold on customers by utilising it to forge relationships that result in services that generate cash for the banks. They then stand to benefit as much from open banking and the revised Payment Services Directive (PSD2), as the third parties that are already arming themselves with pickaxes, ready to
mine the banks’ data vaults once customers give permission. Rosner recalls his experience of leveraging information in a retail banking environment to demonstrate the level of intelligence that can be achieved. He paints the scenario of a customer walking into a bank to transfer money to his son in Thailand. He’s greeted by a banking advisor who also invites him to have a chat about getting a better rate if he transfers the cards the bank knows he holds with other providers.
We’ve seen much faster innovation in retail and hospitality. But those days are coming to financial services “Then the advisor says ‘we know your daughter is going to graduate from college in the next three months and from the look of Facebook, she’s setting up a party. We have different partnerships with retailers to provide you with special coupons and discounts for that. But we also found a football game happening in the neighbourhood over that weekend, so transport is going to be a problem – we have a partnership with a transport company that can help. In fact, why not allow us to put the whole thing together for you through another partnership that we have?’ “Then they say ‘we see you’re buying quite a bit of health-related equipment on Amazon. We can offer you zero joining fees for a gym that is newly built in the area. And, by the way, you love Japanese food because we see it on your receipts. We have a special partnership with a top restaurant, so we can give you 30 per cent off ’.
“This is not fiction, it’s a true customer journey that I had a chance to implement in my previous company,” says Rosner. “And Finastra is going to take that type of customer journey – whether it’s a person or a corporate – and put it on steroids.”
Oiling the cogs Customer journeys are all about communication, he says. “And the thing that enables that between participants in the ecosystems, is the data. That’s why data is being called the new oil, the enabler of the digital economy. Data is the language that any device, any system, speaks by.” And when banks finally master that it allows information-rich relationships to be forged between banks and business customers, as well as non-customers. Robotic process automation and the natural language processing to enable this, engaging better with your customer base through loyalty programmes and through partnerships with other companies in your ecosystems – these are where innovation can help speed up digital transformation and promote high-class customer experience, says Rosner. “Partnerships with other members of an ecosystem happened quite a while back in the retail and hospitality industries. We’ve seen a much faster pace of innovation happening in those industries. But those days are coming to financial services,” he adds. Rosner points out that companies such as Airbnb and Uber – now with a market cap bigger than General Motors’ – don’t own any asset other than data; all they did was develop a Cloud platform that was all about sharing it. And that’s what he believes global financial sectors should strive to achieve. They all have the gold. They simply need to mine it. And fast.
Claiming the mountain: Financial ecosystems promote superior customer experience
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The banking mindwarp In the post-modern financial world, there will be no currency borders and no banks – at least, not as we understand the concept – according to futurist and Founder of Moven, Brett King FINTECH FINANCE: Collaboration seems to be the name of the game in the financial services industry at the moment – ecosystems, partnerships, marketplaces. Why? BRETT KING: So, I think the first observation I’d make is that, for many of us guys who started in the space a few years ago – who did the hard yards together, attended the early events – we feel like we’re all part of this big club of fintech category creators. What I'm saying is that there was already a lot of collaboration going on, even though it might have been informal – we’d talk about our experiences, some of the issues
and how we were solving them. But, you’re right, now we’re starting to see more formal collaboration emerging, particularly between incumbents and the fintechs. Primarily, this is a driver for cost saving because fintechs are able to deploy capital far more efficiently and faster to create innovation. Now that incumbents are realising this, the philosophy of ‘we’ve got to build it ourselves, it’s got to be all internal’ is slowly starting to change because they realise that, if they continue to do that, they’ll slip further behind and it’ll cost them more in the end.
Altered state: A future for banking, but not as we know it
Futurescape: There will be a new, collaborative blueprint for everything financial
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Probably 40 to 50 per cent of the jobs we have in financial services today will be affected in some manner by artificial intelligence over the next 20 years. It’s going to be very disruptive indeed FF: When the industry is not talking about collaboration, it’s discussing artificial intelligence (AI), the fourth revolution. What impact is this having on financial services today and what impact will it have tomorrow? BK: First you have to define what AI is. Right now, we’re talking about machine learning, deep learning and pattern recognition – broadly, cognitive computing, although I don’t think we’re at the point of cognition in machines yet. Then we talk about artificial general intelligence, which is maybe a decade or two down the track, and then strong AI in the future. But right now, it’s really focussed on two areas: conversational commerce and the interface between customers and the business, and, behind the scenes, taking what humans do currently – processes or policies – and putting that into code. In terms of those two, we’re still obviously in a nascent arena, but a lot of the stuff that’s happening around voice is very exciting right now, as is what's happening on the trading side, where we’ve seen whole trading floors replaced by algorithms. In the future, it’s going to touch a lot more. In the short term, it’ll be man with machine, versus man without machine, particularly in areas like robo-advising. If we just take that one area, in investment and wealth management, for example, robo-advisors are already performing at the same level as asset management teams, with 11 to 12 per cent returns, annually, and they’re doing that through algorithms. So, this is not decades away. This is going to happen shortly. In terms of the overall impact on
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financial services, probably 40 to 50 per cent of the jobs we have in financial services today will be affected in some manner by artificial intelligence over the next 20 years. It’s going to be very disruptive indeed. FF: If Trump pressed the red button on World War III, which financial services channel would be the first to go? BK: Well, that’s a cheery question! The theory is that a global conflagration would wipe out the telecoms infrastructure and so we’d go back to a cash economy. But I think this is extremely unlikely. What we’re seeing right now, in terms of policy, is the last dying gasp of a system trying to assert nationalism over a world that’s shifting very quickly, because of technology, to a really global commerce basis. What you see with Brexit and what you’ve see with Trump, is the last attempt
by economies to say ‘we’re different, we’re special!’, and try to redefine themselves by geographical boundaries, when those geographical boundaries mean less and less. In 20 to 30 years, I think we’ll just live with the fact that we are a global world and we are interchangeable. We’ll start to ask whether borders are, in fact, necessary. We have a long way to go, psychologically, before we get to that, but I think we are currently experiencing the end of an era, in terms of economies and countries thinking of themselves as islands. It’s something I address in my new book, Bank 4.0, which looks at first principles thinking in financial services, and where the future is emerging today. The big surprise is that it’s not coming from developed economies like the US or the EU, which is why the subtitle of the book is ‘banking everywhere, never at a bank’.
BANK 4.0: BANKING EVERYWHERE, NEVER AT A BANK King wraps up his series of books looking at the future iterations of the banking industry by asking 'does the bank have a future at all?' From selfie-pay in China to blockchain in Africa and augmented reality tech that informs the future design of financial systems, he argues that our current concept of banking will become rapidly outdated as we reimagine value, assets, investments and even our own identity. Published by: Marshall Cavendish International Available: as a hardback and Kindle edition via Amazon, bookshops and at bank4dot0.com
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SIBOS: FEATURED FINTECHS
Go with the flow Data Republic believes that if data can flow securely between individuals, organisations and governments, wiser decisions can be made and better outcomes can be delivered for both business and society as a whole. However, an increased amount of data-related regulation and associated legal, security and privacy risks are blocking this data sharing.
To solve that challenge, we have developed a data exchange platform called Senate to help banks, insurers, airlines, retailers and others to govern the way they share their data. The Senate Platform facilitates the exchange of second-party data assets, code libraries and algorithms according to the specific licensing terms of data owners, as well as centralising the governance around accessing various data marketplaces in order to manage marketplace interoperability. The platform has a managed governance layer and participant legal framework to ensure that the risk that is typically associated with data exchange is controlled. For example, data owners have a control panel for each data exchange where they can authorise project participants, negotiate licensing terms (permitted-use) with an audit trail, and specify security and egress checks for data provisioned in analytic workspaces on the platform. Another key characteristic of the platform that Data Republic handles is the de-identification of personally identifiable information (PII). For this they provide a PII management console for data owners where PII is stripped, tokenised, hashed and shredded before tokens
are stored on a decentralised matcher network. Data owners can then govern data-sharing projects, even matched customer analytics, with other Data Republic participants without their customer PII ever leaving their own organisation. Originally set up as a secure data exchange to enable organisations to start sharing and monetising their data, the Senate platform has evolved into an agnostic governance layer and technology suite for data owners to centrally control and regulate access and licensing terms of data shared with both the internal and external parties.
Data Republicâ€™s technology aims to tackle the privacy and information security challenges of data sharing Data Republicâ€™s technology aims to tackle the privacy and information security challenges of data sharing by minimising risk at each stage of a data-sharing journey; creating an ecosystem of companies that adopt common legal and technology protocols for data sharing, enforcing PII protection, facilitating strict governance of shared data against licensing terms and delivering centralised audit trails for data flowing in and out of a business.
Who should care? Since launching in 2016, Data Republic has seen rapid adoption of its technology from major Australian brands and service providers, including banks, retailers, state governments and airlines. Backed by
Westpac, Qantas Loyalty, National Australia Bank, QualgroVC and Australia and New Zealand Banking Group, its technology underpins a fast-growing ecosystem of more than 200 organisations across Asia Pacific, who leverage the governance framework and technology as an emerging standard for secure data sharing globally. Chief data officers and data leaders are looking to minimise risk and accelerate outcomes from data sharing, collaborative analytics and data monetisation. Meanwhile, analytics leaders situated in business functions such as marketing and supply chain, want to enrich their decision-making with second or third-party information assets, collaborate on data analytics with suppliers/partners and meet privacy and infosec compliance when sharing data. With Data Republic, organisations can share data with confidence that commercial risk is controlled and that information is de-identified to protect individual privacy.
BY LIBBY OWENS Head of Marketing for Data Republic Headquartered in Sydney, Australia, with offices in Singapore and Los Angeles, Data Republic is a data-sharing governance platform where organisations can safely share and license data, without risking consumer privacy or data security. Its Senate Platform has revolutionised data sharing between organisations by providing comprehensive legal, governance and licensing workflows that enable companies to share with confidence.
Ring of confidence: Data Repbulic has seen rapid adoption of its technology
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Reimagining financial services: Blockchain technology and dApps will shift the power balance
The new financial construct ConsenSys is a global formation of technologists and entrepreneurs, whose mission is to create technology that enables the world to build better systems for itself. In particular, we believe that decentralised architectures based on blockchain technology can produce better systems for the financial services industry. ConsenSys has become one of the world’s most active hubs of development on the Ethereum blockchain, an incredibly versatile and performant network, attracting a vast and talented developer community, as well as hundreds of leading enterprises who are committed to standardising the adoption of blockchain technology and propelling economies of scale. We are creating an ecosystem of Enterprise Ethereum infrastructure, open source protocols, core components and decentralised applications (dApps) to foster an ecosystem of growth and widespread adoption of both public and private blockchains. Blockchain technology and dApps have the ability to decentralise power away from existing authorities through the use of smart contracts, digital currencies and fractionalised asset ownership. It allows for transactions and agreements to be automated and trustlessly executed without the need for a third-party validator, creating endless use cases for consumers, organisations, governments and financial services companies that can use the platforms for payments, trade finance, tokenisation of fiat, remittances, custody, etc. This shift will bring change and innovation to current businesses, economic and social
paradigms. Transaction costs and barriers to entry will be reduced in various industries. The result will likely lead to an increase in economic exchange and prosperity. At its core, ConsenSys is a venture production studio and is hyper-focussed on incubating and developing blockchain solutions for enterprises and financial services organisations. The following ConsenSys enterprise projects will be on display at Sibos: ■ Adhara is a real-time, multi-currency global liquidity management and international payments platform based on tokenised money over a smart contractenabled distributed ledger. Adhara was the technical partner to the South African Reserve Bank in the award-winning Project KhoKha, which was a practical application of an enterprise Ethereum solution to the real-time gross settlement set up of South African Reserve Bank. By using a private-permissioned blockchain (Quorum) to create the tokenisation of the South African rand, the pilot demonstrated that a wholesale payments system could be built on Ethereum and process the typical daily volume of payments in two hours. ■ Kaleido was launched in partnership with Amazon Web Services and is the first-ever Cloud-based blockchain-as-aservice platform, designed to radically simplify the creation and operation of blockchain networks, and accelerate a
Blockchain and dApps have the ability to decentralise power away from existing authorities
BY JOE LUBIN Founder of ConsenSys ConsenSys is a venture production studio and software development consultancy, founded by co- creator of Ethereum, Joseph Lubin. It is focussed on incubating and developing blockchain solutions built on the Ethereum platform. Its vision is to re-architect financial services with the use of distributed networks. consortium’s journey from experimentation and proofs of concepts, to pilots and production. Part of Project i2i with ConsenSys and Union Bank in the Philippines, it helped to create a payment network built on Ethereum for rural community banks. ■ Trustology is a smart key management system to safeguard digital assets. ■ DrumG is building next-generation business networks within financial institutions by deploying a decentralised, anonymous and cryptographically secured OTC consensus data network among banks for true data ownership. ■ OpenLaw is a blockchain protocol for the creation and execution of legal agreements. ■ TruSet is establishing a new, primary source of truth for the financial services industry by creating multi-sided marketplaces for reference data without the intervention of vendors or service providers. ■ Alethio is an analytics platform to help enterprise users visualise, interpret and react to blockchain data in real time.
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People are important to us Since 2000, our business has been steadily growing. Our approach to technology has succeeded because we understand the financial industry. We always listen to it. Listening is part of our DNA. Technology is the life force of our business. But we also know that while AI and robots are pretty exciting â€“ well, we find them pretty exciting â€“ human beings are even more important. When it comes to understanding the challenges financial institutions face, and to deciding how technology can best serve those organisations, we realise that people are paramount. We want to know where you need to get to and how we can help you get there. That is why talking to you face-to-face is important to us, and why getting to know you at Sibos is our top priority.
Come along and join us on Stand I31, it will be the best coffee you taste at Sibos. smartstream-stp.com/sibos
SIBOS: FEATURED FINTECHS
A real Asset! Earlier this year, Digital Asset (DA) launched the private beta of its developer program around its smart contract language, DAML.
Since then, we have trained hundreds of software developers at Accenture, ABN AMRO, ASX, DTCC, GFT and IntellectEU to use the DAML software development kit (SDK). In the coming months, we plan to train more developers at partner and client organisations as we continue to receive requests for access to the DAML software developer kit (SDK) through daml.com. In July, DA announced a partnership with Google Cloud to bring our blockchain technology to the developers through the Google Cloud Platform (GCP). We also announced our new DAML platform-as-a-service (PaaS) offering, which will allow companies to more rapidly prototype distributed ledger applications without having to worry about the underlying infrastructure and platform configurations, ultimately reducing the time to market. Our partnership with Google provides developers with a full-stack solution that will unleash the potential for web-paced innovation on distributed ledger platforms. It will also reduce the technical barriers to distributed ledger technology (DLT) application development by delivering our distributed ledger platform and DAML modelling language to developers to Google Cloud. This exciting development demonstrates that blockchain is no
BY DAN O’PREY Chief Marketing Officer for Digital Asset In June, the Wall Street Journal named Digital Asset one of the Top 25 Tech Start-ups to Watch, a global list of well-funded and fast-growing start-ups. DA has raised more than $115million from more than 15 strategic investors across the world, encompassing the leaders within the financial and technology ecosystem who are uniquely placed to help drive adoption on a global scale. The Australian Securities Exchange (ASX) has confirmed plans to replace its mission-critical post-trade clearing and settlement s ystem with DA’s distributed ledger technology. providers and clients in other industries, such as healthcare. The next couple of years are going to be extremely exciting for DA and we’re delighted to be exhibiting and speaking at Sibos 2019. If you would like to meet the team, please visit our booth in the Discovery Zone at DZ65, or see our demos at the ASX and Google Cloud booths on the main floor.
We want a small team to be able to do in months what it takes entire departments years to do today www.fintech.finance
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New business on the block R3’s Corda is an enterprise-grade blockchain platform that removes costly friction in business transactions by enabling institutions to transact directly using smart contracts, while ensuring the highest levels of privacy and security. Corda was built by businesses, for businesses. It was developed in close collaboration with a broad ecosystem of more than 200 members and partners across multiple industries from both the private and public sectors. Released earlier this year, Corda
Enterprise is a commercial distribution of Corda. Optimised to meet the demands of complex institutions, it is fully interoperable and compatible with Corda open source and is designed for organisations with specific requirements around quality of service and the network infrastructure in which they operate. Corda and Corda Enterprise are the foundation of a vibrant ecosystem of interoperable applications. These CorDapps are built by our rapidly growing network of partners, harnessing the power of blockchain to overcome the specific challenges faced by their customers.
What makes us different? While there are other players in this space, R3 is the only blockchain software firm that combines the critical components for success: innovative technology, business experience, industry-wide collaboration and regulatory engagement. Working with the industry, we have rethought the blockchain concept from top to bottom to address critical issues such as privacy, scalability and interoperability. Corda’s approach to data privacy and security, for example, is groundbreaking in the blockchain space, as it only sends data to those who have a ‘need to know’. This ensures the confidentiality of trades and agreements while also capturing the benefits of a shared infrastructure. Backed by more than US$120million investment from in excess of 45 global companies and designed with input from hundreds of institutions, Corda is the most collaborative blockchain platform available. Our global team of more than 180 professionals in 13 countries is supported by another 2,000 technology, financial, and legal experts drawn from our global member base.
Captain’s log: Star date 2018 Our focus at Pendo Systems over the next 12 months is set squarely on explosive growth – organic, geographic and via key strategic partnerships. So we are confident that Pendo Systems’ impact in financial services will be bigger than ever! What makes us so certain? It’s simply explained by the fact that more and more financial institutions are waking up to the scale of the problem presented by unstructured data – and to the scale of the opportunity that unstructured data presents to their businesses. Having saved existing customers more than $90million (according to their own data), we have helped our partners discover a fast,
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accurate and repeatable process for accessing the insights and information hidden away in millions upon millions of difficult-to-access documents. As a result of our two-year history of success, our production-tested platform and experience with Tier 1 banks, Pendo has seen a dramatic increase in organic growth, a trend we see persisting through 2019 as we rapidly scale our business.
Exponential data The scope and scale of the increase in data (both in volume and in complexity) has grown exponentially. Perhaps our favourite stat about this arrived earlier this year from the EMC Digital Universe Study. It stated that ‘by 2020 there will be more data in the world than there are
stars in the universe’. Given that unstructured data is 80 per cent of the data held by business and it’s growing at 800 per cent per annum, the need for Pendo isn’t going away any time soon! We’ve always known that unstructured data is agnostic to industry, but it’s also a borderless issue, so Pendo’s geographic expansion plans play a key role in scaling the company. In our sights are new offices in Europe and the APAC region. We’ve scheduled meetings at this year’s SIBOS
SIBOS: FEATURED FINTECHS We place great importance on regulatory engagement, working with regulators and central banks to ensure Corda meets their requirements and allows them to capture the full benefits of blockchain technology. Corda is already being used in numerous industries, from financial services to healthcare, shipping, insurance and more. Working with our ecosystem, we are rapidly establishing Corda as the new operating system for global commerce.
Our ecosystem The focus for any platform needs to extend beyond the user; there must also be value application builders. We believe a platform’s strength comes from a flourishing ecosystem of partners: developers, support providers, application builders, systems integrators, independent software vendors and various other participants. They must see themselves as true partners, with their success and that of the platform inextricably linked.
We recognised early on the potential for these partners to generate significant revenue by contributing to an ecosystem of interoperable applications built on our platform. So, over the last three years, we have worked relentlessly to provide them with the support and freedom needed to develop innovative solutions that solve their customers’ specific challenges. Each of our partners has a shared goal – to harness the power of Corda’s unique take on blockchain technology to deliver distributed applications and services in new, more nimble ways at lower cost and with improved capital efficiency and new revenue opportunities, to end users. Our partners are working with us in a number of ways. With some, such as Microsoft, Amazon Web Services, Intel and Hewlett Packard Enterprise, Corda is being integrated with their technology. Some have built end-user applications on Corda, such as Calypso, Finastra, SIA and TradeIX. Others are delivering custom-built
Working with industry, we have rethought the blockchain concept from top to bottom with potential partners from Sydney who are keen to plant the Pendo flag Down Under. We’ll use the show to build on the tremendous response we received at SIBOS in Toronto last year, where organisers SWIFT did a great job curating a group of highly qualified fintechs. Because we were positioned alongside such companies, it had a fantastic impact on people’s perception of the Pendo brand. Plus, the audience at SIBOS provides us with an opportunity to showcase our capabilities in a highly effective and efficient manner. It was interesting that during Toronto the reaction from European banks was consistently ‘wow!’. They saw the Pendo platform as the perfect tool for dealing with the General Data Protection Regulation (GDPR) and, since then, we’ve
By 2020 there will be more data in the world than there are stars in the universe www.fintech.finance
executed projects that are analogous to GDPR here in the US. Our extensive strategic partnership efforts will help us to carry on impacting the finance industry. We’re already in discussions with several global companies from the professional services sector, which will enable the platform to extend its reach and attract other, new-to-us verticals. In fact, we’re close to announcing our first two strategic partnerships with other fintechs. They’re not our competitors – they just need access to the Pendo platform to capture and transform unstructured data. We’re also looking to partner with business process management (BPM) and robotic process automation (RPA) companies to provide the structured data that the Pendo platform can capture from unstructured sources. When BPM/RPA systems add unstructured data sources to the structured data they already consume, Pendo significantly enhances the value proposition of those tools. Platform enhancements are also hot on our to-do list and we plan to build several
BY DAVID E. RUTTER Founder and CEO of R3 R3 builds blockchain technology to revolutionise the way the world does business. It brings together a global network of more than 200 partners, to develop innovative apps on its platform, Corda – making it the biggest ever blockchain project. It’s this unique collaboration, which recently saw the commercial deployment of its first CorDapps, which Rutter believes will make it the leading platform for digital cash, assets and trade. solutions for clients on Corda and some are advising their clients on the business potential of the platform. As an open and inclusive platform, Corda‘s common protocol ensures seamless interoperability between all these apps and services, both on the open source platform and Corda Enterprise – just as our clients demand.
of them, following the recent arrival of our machine-learning tools. These changes will help to increase our customers’ productivity and make the platform even easier to use. We’re feeling confident, prepared and excited for Pendo’s evolution.
BY PAMELA PECS CYTRON CEO of Pendo Systems Based in New Jersey, USA, software solutions company Pendo Systems launched the first, production-ready machine learning tool capable of transforming unstructured data into structured data for use in downstream processsing systems –the Pendo Machine Learning Platform. Its mission: to explore new unstructured data sources, to seek out new uses, and to boldly go where no company has gone before.
Issue 10 | TheFintechMagazine
Limitless options: Temenos helps banks embrace diversity
CHOICES, S E C I O CH There was a time when the word ‘ecosystem’ was the preserve of biologists. But now that technology is creating so many new relationships and interactions in the business world, the term has been appropriated by the financial community. Today, biodiversity is matched by banking diversity – thanks to the increasing number of new players entering the financial services arena. Temenos, a software provider that works exclusively with banks and financial institutions, created one such financial ecosystem in the form of a marketplace. The first of its type – Temenos justifiably claimed the name – MartketPlace is described as a self-service store of curated apps that enables banks to access and try out the best fintech solutions from around the world.
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Temenos pioneered the ‘marketplace’ in financial services. Now it’s fine-tuning the concept, says Chief Strategy Officer Ben Robinson Ben Robinson, chief strategy officer at Temenos, says that because there is so much choice today, the challenge is to create a community where everyone can find the best solution for their needs. “For the banks,” says Robinson, “the difficulty is knowing what all the different fintech companies do, as there are now something like 20,000 worldwide. You have to identify exactly what a fintech can add to your business, which can be very time-consuming and demanding. What tends to happen is that banks interact
with fintech companies on a sort of serendipitous basis, by which I mean a chance encounter at a conference may be the start of a relationship.” What Temenos provides is an overview of the technology landscape, screening the market to find the best fintech companies – the ones that will add the most value to its banking customers. “Once we find the right fintechs,” says Robinson, “we smooth the way through a bank’s procurement processes. It usually takes about 18 months to get through procurement, navigating legal, security, IT and other hurdles, and then about another 18 months to integrate the fintech. What we do is integrate the software with our own software, which can massively accelerate the procurement process.” In addition, many of Temenos’ customers are now running sandboxes themselves to test their solutions www.fintech.finance
independently. The goal is to reduce procurement from years to days, hours and even minutes. “We’re still in months and weeks,” says Robinson, “but the aim is to get progressively quicker. We’re working on extending the scope, so it’s not just for back-office applications, but front-office banking services, too. For example, we just onboarded Raisin, the European savings marketplace, and we’re moving others in that direction, creating a marketplace for both applications and banking services.” Robinson says that Temenos is refining its web-based platform and that, in future, clients will be able to test and trial software on it themselves. The MarketPlace is supported by Temenos’ sandbox for developers looking to integrate products with the company’s T24 core banking system, but which also gives them access to MarketPlace members’ apps. He imagines a time when, having identified the need for a certain application, a bank will go into the MarketPlace to find the best solution, test the application with both technical and non-technical users, and satisfy itself that it will scale, that the architecture is sound and that it meets all of its functional requirements. At that point, there will be no need for protracted contractual negotiations because providers will ‘all conform to standard contractual terms’, which further speeds up the procurement process. When it comes to the MarketPlace itself, there is nothing standard about it. Variety is a distinctive feature, with companies of all sizes and descriptions coming together, from HID Global, to Assure Hedge. “The important thing,” says Robinson, “is not the size of a company, but whether it can meet the needs of our customers. We’ve created a demand-driven environment, rather than a supply-driven one and, in most cases, we’re onboarding the companies that our product directors and customers want. The objective isn’t to give a leg up to very small companies; it’s to match make the best solutions for our customers’ needs.”
Helping banks pass go Until now, most MarketPlace integrations have been with Temenos’ T24 banking www.fintech.finance
engine. “But we have a solution for portfolio management,” says Robinson, “which many providers have integrated with. We also have a solution for internet and mobile banking, so there are a number of solutions for which we’ve sought complementary solution providers through the MarketPlace.” Furthermore, Robinson says there is a pipeline of banks that have come to Temenos because they want to get access to this innovative environment. Often, no matter where the enquiry comes from, the motivation is the desire to fast-track a fintech solution. “It takes too long and is too complicated for businesses to do it themselves,” says Robinson. “They don’t want to do proof of concept or any sort fintech testing with their existing systems. Particularly if they’re running a legacy core banking system, integration is not simple. That’s why Temenos gets enquiries from businesses that are not using us as their core banking system. They come to Temenos so that they can run hackathons and do proof of concept. Then, hopefully, they’ll take the next step and use the MarketPlace and also become core banking solution customers. “It’s a kind of Trojan horse strategy, but not one that we planned or expected. We’re
The overarching objective isn’t to give a leg up to very small companies; it’s to matchmake the best solutions for our customers’ needs certainly pleasantly surprised by the number of enquiries,” he says. Such is the power of a mutually supportive financial ecosystem. And it’s the catalyst for many of today’s fintechs and the new banking model. “If you’re a bank, it makes sense to create an ecosystem,” says Robinson. “We now live in a world where the supply-side economies of scale are much less important than they were. What matters today is demand-side economies of scale. “The most important thing in banking is to preserve the customer relationship, because today the customer is not
just a consumer but an integral part of the product. “To maintain distribution involves working with a wide range of providers, which inevitably means cannibalising existing business lines. But do it at scale and you’ll have a large number of customers, and a large number of partners, so it’s a two-sided network effect.” Robinson points out that users can understand more about their customers’ individual charateristics, needs and spending behaviour from the data-sharing possibilities that ensue. “We see more and more banks realising they need to become ecosystem players,” says Robinson, “which is the rationale for our MarketPlace and especially the move to take it beyond being just an app store to become a front-office resource.” Finastra and others are now following Temenos' example in creating their own marketplaces. But Robinson isn’t worried. Quite the opposite: he thinks variety is needed to create a strong ecosystem and encourage progress.
Looking to the East Looking ahead, Temenos is focussing on the Asian market on the back of some good wins elsewhere. Having established itself in Europe, the MarketPlace now has a global role and, in recent months, there has been strong take-up in the Middle East and Africa. One example is a partnership with Venture Lab, a startup accelerator at the American University in Cairo, through which Temenos is supporting fintech innovation in Egypt by giving startups access to a sandbox service, using the non-production, Cloud-based version of its T24 core banking solution. Having hired a community manager to promote its MarketPlace in Asia, it’s now planning one of its famous innovation jams there. Meanwhile, in Europe, it’s teaming up with two ‘resource partners’. “Resource partners help the ecosystem work better,” says Robinson. “We’ve onboarded one called Pangea that will promote sales and we’ve linked up with another called Digital Knights that will manage product development resources and projects. You’ll see more of these partnerships in the future.” As he said: it’s no longer about supply – It’s about demand and collaboration. Issue 10 | TheFintechMagazine
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No boundaries: Finastra makes pan-global innovation possible
A buyer’s market
Finastra has built a unique business model for its marketplace in FusionFabric.cloud – one that it hopes will turn API development on its head, as CMO Martin Häring explains
Few fintechs have the pedigree and reach of Finastra. Established in June 2017, the company was formed by the merger of Misys and D+H, and the launch press release listed some impressive figures for the new business: 10,000 employees, more than 9,000 customers across 130 countries, and 90 of the world’s top banks are on the company’s roster. It was an auspicious start and it immediately set about preparing for what Martin Häring, CMO at Finastra, describes as the most exciting launch in the companies’ joint history: FusionFabric.cloud. Comprising three Cloud-based core components – a development environment, a management system and an online marketplace – he describes it as ‘changing the way banks develop, deploy and consume financial software’. The last of those – consumption – is made faster and easier by adopting an application programming interface (API) approach. “The beauty of FusionFabric.cloud is that when you use its architecture, all the participants can be attached to your banking back-end infrastructure,” says Häring. “That means a much faster innovation cycle. And whereas previously www.fintech.finance
it was just a handful of banks that were opening up their API gateways, and mostly to fintechs in the same geography, today there’s a global marketplace of hundreds of thousands of fintechs to choose from,” he adds. Finastra’s aspires to be the ‘Apple app store’ for banks, but FusionFabric.cloud is much more than a shop window. A whole lot of collaboration and innovation is achieved by opening Finastra’s core systems to third parties so that they can develop applications on top. “We connect lots of different products through APIs,” says Häring, “allowing fintechs to build applications that can then be viewed in a store. “We’ve duplicated more or less exactly what you see in the business-to-consumer world on the Apple side, creating a business-to-business environment for apps in the financial space. We charge a
The market will decide which fintechs will be successful. The best will survive. We’re not barring anyone from joining the platform
percentage for the apps if they run in that marketplace, which is a totally new business model.” In the true spirit of an open ecosystem, members of this community are not dictated to in any way by Finastra, but it hopes common sense and market forces will prevail. “The market will decide which fintechs will be successful. Just like in the consumer world, where people rate apps, the best will survive. We’re not barring anyone from joining the platform,” says Häring. In this society of equals, he anticipates that rules will emerge organically. “Standardisation will be the really interesting development,” says Häring. “We need to start standardising APIs so that, for example, if HSBC, Deutsche Bank or any other financial business comes to the marketplace, we can agree on certain standards, such as how to initiate a payment or how to disclose account information through the API. “Open Banking has done a lot of that, but it’s more about guiding banks through this process.” Finastra has already integrated IBM Watson into its platform to enrich the offer and is also talking with other technology providers. It encourages banks to link their infrastructures with Finastra, too. Issue 10 | TheFintechMagazine
SIBOS: INNOTRIBE “If a fintech wants to make use of an API, from a bank, from the Finastra technology stack or through IBM Watson, they should use a common API standard. So, before banks start to develop their own APIs, we talk to them and say ‘hey, we already have a payment initiation API. Why not use that instead of developing your own?’ The more we can industrialise and standardise, the larger and more versatile the fintech ecosystem becomes.” That means the door is now wide open to backends that were previously out of reach for developers of, for example, machine learning apps to help predict the next best product, or integrated voice activation or onboarding services, which banks would previously have addressed individually with technology providers. “One architecture, one API management system, is a much easier way of working, and you can hop on and hop off whenever you like,” says Häring. “There are no technology barriers to entry, no commercial barriers from high fees.”
Setting the standard Starling Bank is one of many now opening up their systems through proprietary APIs. And it’s a trend that Häring says benefits both the customer and the supplier. “When banking apps differ, each fintech has to work one-to-one with the banks,” says Häring. “This is not a scalable business model. Far better to work with a marketplace where all the players agree to a certain API standard. To use the payment initiation example, there should be the same technical interface for every bank, not different flavours for HSBC, Barclays, Deutsche Bank and so on. “Marketplaces depend on common standards,” he adds. “That’s how Amazon, Google, Facebook and others operate: they deliver de facto standards that every developer can use and the market leaders define the industry standards.” Does Häring worry that the marketplace might become saturated? “In the long run I think we’ll see the app store effect, with countless apps to pick and choose from. It’s important to remember who the app consumers will be – in other words, the customer of the customer. So, in
Consumer-led: Only the most popular apps will stand the test of time
the retail context, it’s going to be the end consumer of the banking services. “We need to ask what kind of service these consumers will want, today and tomorrow, and what level of sophistication they will expect. Consumer behaviour will define which apps will be successful and which ones will be integrated into banking platforms. If a bank such as Barclays wants to make onboarding, voice activation or payment services more convenient for its clients, it will look to the marketplace. The bank will search for fintechs that do this already and which provide services that are perceived positively by customers. That’s the virtue of the store approach, because only the applications that are liked by clients will get high ratings, while others will simply disappear.” How does Häring think the new regulatory environment will affect marketplace growth and innovation? What impact will the revised Payment Services Directive (PSD2), the General Data Protection Regulation (GDPR) and other regulations have? “I think the focus areas for regulators are data privacy, data security, how data centres are managed and the availability and reliability of applications for the banking infrastructure. Secure access to
data is something that needs to be discussed in the context of open marketplaces because access to banking data is only as secure as the last link in the value chain. “If the fintech programmes and applications don’t handle data in the correct way, then the bank still needs to make sure that the end-to-end data process is secure and always available. The regulators need to look closely at how marketplaces are organised from a security, availability and accessibility perspective and I think we’ll see some big moves here.” Häring says that Finastra is looking across all its products to ensure they are API-enabled – ‘above and beyond PSD2’, as he puts it – and helping banks to be PSD2-compliant. “We’ve attached PSD2 APIs to our retail and payment products but PSD2 is just the tip of the iceberg,” says Häring. “You need access to the broadest range of products and open APIs provide the gateway. Through APIs you can even create new business values for the bank and, of course, drive fast innovation with fintechs.” Thanks to open marketplaces and open APIs, the world is now the banks’ oyster when it comes to shopping for apps. The build or buy debate could be at an end.
One architecture, one API management system is a much easier way of working and you can hop on and hop off whenever you like 42
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INNOTRIBE: WHAT'S COMING NEXT
GOING TO THE EDGE Head of SWIFT Innotribe Kevin Johnson’s job is to reimagine the future every day. Here, he looks at the key themes shaping financial services 12 years from now FINTECH FINANCE: Innotribe is 10 years old this year. Can you tell us how it came about and what is your current agenda? KEVIN JOHNSON: Innotribe was thought up within SWIFT as a way of going to the edges of the financial services ecosystem to find out what was happening. Back then, Bitcoin, fintech, mobile, big data, all of these things hadn’t really taken off, so there was this unknown space outside of mainstream financial services and we wanted to give our community a way to tap into that, to understand it. At Innotribe we work to understand
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what’s on the fringes of the financial industry and bring it back to our community at events such as Sibos. Essentially, we do some very advanced forecasting, looking five to 10 years out, to see what’s coming and ask how the industry can take advantage of it. This time at Sibos, we’ll be looking forward to 2030. FF: Are financial sector leaders prepared to look this long term – in this case, 12 years ahead? KJ: It’s true, as an industry we’re very much focussed on the next quarter’s results, the next year’s results, and so on. I’m very fortunate that I get to go out and think about what the world could look like in five or 10 years. I’m then given a platform at Sibos to bring experts and leaders who can talk to the industry, share those thoughts, paint a picture of the world we would like. And, importantly, if we like this vision, to think about how we can build it.
Though many staff in a business will be thinking short-term, the chief strategy officer, chief digital officer and head of innovation are all responsible for looking further ahead. These are just some of the people we’re working with at Sibos. Ultimately, we need to explain how some of these far-future technologies and ideas solve challenges that we have today. Because if you can tie innovation back to a problem, you go from innovation theatre to applied innovation and that actually has an impact on the bottom line. However, if I look at what my ideal Innotribe audience would be, it wouldn’t just be the chief strategy officers etc., I’d want heads of business lines there too. I want people coming and telling us their business problems. The issues we discuss often require cultural change and so ideas need to go beyond a bank’s innovation department. To make a real impact, they need to affect the whole bank, which means www.fintech.finance
we need to start with things that managers care about. FF: So, what are the big themes shaping the financial industry in 2030 that you’ll be exploring at Sibos? KJ: Over the first three days of the show we’ll look at trust and the move to decentralisation, whereby individuals have control of their data, then move on to quantum computing and the future of artificial intelligence (AI). Before you introduce an AI strategy to your organisation, though, you need a data strategy, because if you put AI on top of bad data, you’ll get biased results. We’ll be running a session called AI and Ethics, looking at this. The people who are writing algorithms will have unconscious biases, so how do you remove that? You might remember an example of things going wrong like this when Microsoft’s Twitter chatbot had to be switched off because it started making racist comments. So, the first three days at Sibos, will
sieve algorithms that are quantum proof. So, our job at Innotribe is to engage and say ‘let’s look at the conversations that are happening now’. It’s not Innotribe's place to tell people what to do with quantum computers, but by bringing together academic researchers and people within the industry, we can draw the relevance out. We aim to educate, inform, inspire and then consider what we can do now to gain competitive advantage tomorrow. FF: The theme for day three is artificial intelligence (AI) – which covers an enormous spectrum of development. What are you hoping to tease out of it? KJ: A lot of what we call AI is actually process automation, which is using machines to replace humans in a process. It’s used where a process is efficient but is limited by human capital. At Sibos we want to look at machine intelligence. Machines are really good at certain things and an example I use is that IBM’s Watson is better at spotting cancer
FF: What are the implications for training people to understand and use AI? Do schools having a role to play, for instance? KJ: Yes, very much. Machine intelligence is not about replacing humans with machines, it’s about giving people the tools they need so that they can focus on the things they’re good at, the soft skills. If you listen to [Alibaba co-founder] Jack Ma, he says we need to train our children in not just STEM but STEMA subjects, so that’s science, technology, engineering, maths, as well as the arts. Those skills will help people to write the algorithms that the machines are going to run, while also developing the skills that make us human. Couple the softer skills with the cold, hard logic of a machine and that’s going to help humanity advance. FF: All this sounds expensive, especially if you’re patching it onto legacy systems of a bank. KJ: If you look at what’s happening in China, they refresh their systems every
examine the big themes that will exist in 2030 and, on day four, we'll ask how we can secure the future state that we’ve designed while protecting privacy along the way.
The issues we discuss often require cultural change and so ideas need to go beyond a bank’s innovation department
FF: Focussing on quantum computing specifically, what is the future for these machines in banking and financial services? KJ: Most of the talk today is about encryption because, in theory, a quantum computer will be able to break large number encryption within five to eight years. Large number encryption, such as the RSA algorithm, is what the industry is based on – every ecommerce transaction, every blockchain that’s been encrypted, all the bank transactions, all the archives will use this type of encryption. If quantum computing does break that, we need quantum-proof algorithms to re-encrypt everything. At the moment, the state-of-the-art encryption is 2048-bit RSA. In the next 10 years, the state-of-the-art encryption will be
than the world’s leading oncologists. It can ingest millions of biopsies, it’s been trained to know what cancer looks like and it will work 24/7 without coffee breaks to identify it. It gives you a probabilistic determination that ‘this is cancer’. I say machine intelligence, not artificial intelligence, because you still need to couple it with an oncologist who can sit down with the person who’s got cancer to explain what it is, the treatment plans and so on. The AI here supplements human capability. Essentially, a patient does not want a printout from a computer saying ‘you’ve got cancer’. What we must work towards is humans and machines working in harmony, getting the machines to do the bits humans are not great at but allowing the humans to focus on their strengths.
two to three years. Compare that to the established UK banks with legacy systems. Everybody assumes legacy is bad and it’s holding people back. But, actually, a legacy system is typically a solid, stable system that’s working well and the user understands its limitations. So, in terms of developing hardware for digitisation, we can have a new, lean, nimble core that runs alongside the legacy system and provides the digital features. Banks can deliver that great experience to customers, while providing a solid, trustworthy core, which they know works. It’s a question of being pragmatic. Rather than saying 'we need to throw everything out and start again’, which is a 10 to 15-year project, you can simply ask ‘what can we do today?’. Issue 10 | TheFintechMagazine
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Quotes from interviews & panel held in Paris Fintech Forum 2018 edition
Kristo Käärmann Transferwise, CEO & co-founder Most of the banks are very local businesses. We build something which has to work the same way anywhere in the world. Many banks now think about doing as N26 and integrate our services in their apps.
Nikolay Storonsky Revolut, CEO & co-founder In the next 2 years we’ll see local champions becoming global champions (…) and product will become much smarter and much more sophisticated in ways never seen before.
Anne Boden Starling Bank, CEO & co-founder PSD2 is breaking up the value chain. Unless the banking industry wakes up you’ll have a situation it won’t be the new fintechs sitting on top of banks, it will be the likes of amazon and big techs providing the customer interfaces, that will be connected onto old banks who provide the rails.
Jay Sidhu BankMobile, CEO & co-founder In the USA, in 5 years I believe that the traffic in bank branches will be only 10% of what it is today. So if the bank branches don’t shrink by 90% you will create operating inefficiencies.
Daniel Schreiber Lemonade, CEO & co-founder Insurance at its core is statistics and data. We are at a tipping point, in the next 18 months we’ll see a tip over where the young insurtechs have more data, deeper data and more predictive data and there are structural reasons that inhibits traditional insurance from implementing the same thing .
Shivani Siroya Tala, CEO & co-founder When I think of what comes next for us, there is obviously geographic expansion, but I also think about how can we use the understanding of our customers and the data that we have to further that relationship with products in saving, insurance, financial education, longer term investment products.
TINDER FOR TECH Innotribe will launch a new business matchmaking concept at Sibos. Head of SWIFT Innotribe Kevin Johnson and Denim Consulting’s Namita Bhide look forward to welcoming the potential partners
Innotribe’s Discover Zone at Sibos 2018 in Sydney this October looks at fostering an innovative connection between various stakeholders from across the financial arena. Dubbed ‘the Connection Machine’, it’s a novel matchmaking programme for banking and fintech delegates, set to provide a collaborative solution for financial institutions, fintechs and others in the financial ecosystem. Namita Bhide, a seasoned financial services mentor and founder and campaigner at Denim Consulting, has done the groundwork to get the maximum out of the conference for delegates in the minimum time. We caught up with her in conversation with the head of SWIFT Innotribe Kevin Johnson to explain the why, what and how of Connection Machine. FINTECH FINANCE: What’s the idea behind the ‘Connection Machine’? KEVIN JOHNSON: I felt this was something missing from conferences I’ve attended. If you’re a delegate, you wander around and you might meet some interesting people, you might
have some interesting conversations, but no one is curating the experience for you. We understand that people who come to conferences don’t have two or three days to walk an exhibition floor to find the right startup. So, it’s all about achieving the maximum impact in the minimum amount of time. It’s about facilitating connections. We identify the business problems that banking delegates have and connect them with relevant fintech startups and scale-ups that can deliver tangible results. If you come in with a particular business problem that you want to solve and you have the budget lined up to invest in this area, we try to showcase a solution delivered by fintechs in the Discover Zone. We asked Namita and Denim Consulting to work with us in interviewing the fintechs to understand their capabilities and senior bankers coming to Sibos to identify their business problems – all with a view to setting up those connections on-site and facilitating high-impact meetings. NAMITA BHIDE: I’d describe it as an applied innovation connection – a value service to assist bankers. There’s an increasing need in the industry to have better engagement with a modern
fintech ecosystem. Banks have problems they want to solve but don’t know what capabilities are out there. Some of the very interesting fintech startups and scale-ups in the Discover Zone have experience with other banks or are working in the broader ecosystem. If, as a fintech, I’m able to solve a problem in one area of a bank, chances are I can replicate that in another. FF: How do you connect the banks with the right people? NB: I talk to the fintechs to understand their capabilities. Then we reverse engineer the conversation with the banking community – those that have said they’d be open to having these kinds of conversations. We’ve shortlisted banks according to their focus areas, the kind of maturity they have, and so on. Banks also have to be open to engaging with these technology partners. And you need to have that level of commitment, that level of budget, you need to be invested to see this through – to see if you have a proof of value that translates into implementation. There is no hidden agenda. This is a service to the banking community in terms of helping them find capabilities that they may not be aware of.
Making connections: Innotribe's matchmaking will kickstart some impressive collaborations
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KJ: We’re trying to move the conversation on from ‘I need an artificial intelligence (AI) strategy’, or ‘I need a blockchain strategy’, to really helping our delegates dig into what business problems they’re trying to solve. Because if we can’t identify the problem, they’re not actually going to end up with a fruitful relationship. A large number of the banks coming to Sibos aren’t of the size to have their own incubator accelerator fund or innovation team. This is the type of organisation Connection Machine is aimed at – they have the same problems as larger banks but not the capacity to go out and scout for fintechs to solve them. FF: How big a part does the culture of organisations play in this – and how do you make sure the cultures fit? KJ: Culture and chemistry between people play a huge part – if you work with people you like, there’s a connection, right? The Connection Machine does non-conventional matching. We look at the nuances: bank A needs this sort of solution, but maybe only a couple of fintechs understand how to work within that kind of complex environment. That’s a crucial part of the work we are doing. NB: I have more than 20 years experience in financial services, I’ve worked across the world and set up banks, so I understand
BRIGHT SPARKS More than 40 innovative fintechs will be showcased in the Discover Zone at Sibos in Sydney. Here are just four that have been making headlines over partnerships recently… Belgian blockchain technology startup SettleMint specialises in using blockchain to integrate business with government solutions. It recently returned from a European trade mission to China organised by startups.be, where it took part in RISE, Asia’s most important startup conference, and was introduced to hardware engineering and venture capital firm, Shenzhen Valley Ventures. Last month, it announced a partnership with fintech accelerator Centurian to speed up the adoption of www.fintech.finance
both sides of the landscape. From my experience, I know you need to be open to a different way of working and 200-year-old banks obviously do a lot of very smart things, but other things they don’t do as well. When you are working with these new-age companies who can reach a conclusion faster than you can in a bank, it can be a shock to the system. I use the phrase reverse mentoring a lot with partners, because you have to be open to saying ‘OK, yeah you’re right, I hadn’t thought about it like that’ and vice versa. So, that element of culture and people is huge.
piece, these can give you an application programming interface (API) solution, and these can help you with the backend… let me set you up something with all three together so that you can build a collaborative proof of concept’. I think, for now, knowing the current level of AI, that’s not possible. So, we’re going to try this out for the first year and see what we can learn to deliver. This will help us provide an even better – and more relevant – Connection Machine in London in 2019. Sibos is a unique gathering of the financial community and SWIFT’s role is to bring that community together. As a neutral player, we’re doing this to help our community solve their community challenges. It’s not about pushing x, y, or z product, either – from SWIFT or from any particular startup. It’s really about being able to act as an independent platform. The value in the Connection Machine is sitting down with someone like Namita and her team and talking through problems, because then you can actually understand what problem you’re really trying to solve.
A good 15 to 20-minute conversation to really understand the underlying problem is part of the solution
FF: Would you ever bring in some sort of fancy AI to help link people? KJ: Possibly in the long term. But I think that the human touch is crucial and ºvaluable. A good 15 to 20-minute conversation to really understand the underlying problem is part of the solution. Understanding the root causes and then looking at the available capabilities might show that two/three startups are needed to solve all the issues – ‘these guys can help out with the frontend blockchain in the Middle East and North Africa. This Toronto-based fintech, which focusses on the world’s largest business corridors, offers real-time payment platforms to enable multi-currency payment solutions with instantaneous settlement. In July, Nanopay announced it had partnered with various banking, processing and accounting software companies to add business-to-business, cross-border and domestic transfer services. Among them, Interac, Canada's debit network, will support settlement across different currencies for high-volume remittance corridors. Digital identity management innovator Identitii establishes infrastructure for exchanging information using its token distributed ledger
technology, which travels within traditional settlement messages like SWIFT and ACH. Earlier this year, it partnered with robotic process automation company Blue Prism to create new solutions for securely digitising and automating corporate payment and trade transaction processes. In August, the Australian firm launched an $11million IPO on the Australian Securities Exchange to raise funds to develop Sierra, its anti-money laundering solution. Global fintech BankEx uses proof-of-asset protocol to bring bank-as-a-service and blockchain together to digitise traditional assets. This September, it collaborated with Codex Protocol, a decentralised registry for unique assets, to build an end-to-end solution to securitise valuable collectibles. The goal is to offer greater liquidity for collectors and more opportunities for investors. Issue 10 | TheFintechMagazine
DAY 1: TRUST
VALUE IN IDENTITY Ghela Boskovich believes that identity and the information that attaches to it is set to become the new asset class. In which case, could banks be its custodians? I’m so excited to be at Innotribe at Sibos about decentralised trust. The first day will cover the fundamentals of what this new, fragmented trust system looks like. At the root of it is a discussion around identity, not just in terms of individual identity and portable sovereign identity, but complex corporate identity and permission sets. These things are crucial and serve as the foundation for the transactions process, a process that is based on trust, which technology has allowed us to fragment and decentralise, especially with the use of distributed ledger technology (DLT) and blockchain. At Sibos, we’ll be reflecting on the questions ‘what is identity and why does it matter?’ and then ‘how does it actually facilitate trust?’. It’s important if you want to understand how your own business model is changing. Banks, for example, need to consider how to think about new types of assets, or clientele they’ll be serving. We’re starting to deal with digital things that have different types of value – digital assets and data liquidity; data itself is starting to have a very profound impact upon what wealth can be. I’m not just talking about crypto assets, but the notion of information and intelligence and insight serving as something of value. When we start to structure and securitise that value, we can actually put it into the marketplace and use it as a form of l iquidity or payment. A digital asset in this context is the insights and intelligence that we’ll be trading, and the most crucial component of that is actually the holder’s identity.
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Changing tides To avoid becoming obsolete, any business has to respond to the shifting models and marketplace and evolve. For instance, we are moving to a rental economy, with the likes of Airbnb and Netflix trading on access to things rather than ownership of them. At the end of the day, it’s about money and money movement, and the basis of that movement is trust. Parties don’t engage in business without a sense of trust and an assurance that the transaction will go through. And if you don’t understand the
Trust maps back to identity and identity is the primary focus in the digital world we’ve created notion at the root of this thing (that trust actually maps back to identity and identity is the primary focus in the digital world we’ve created), you won’t be able to understand how banking is going to evolve. Identity is becoming increasingly complex. It’s not just the purview of a government or a nation state, it now includes what ‘we are’ in a digital and commercial space and in a marketplace; how we travel, exist, how we think and behave. And because technology allows us to identify an individual with their biometrics (their digital footprint), all the transactions that exist in the commercial and the financial space become facets of identity. The General Data Protection Regulation (GDPR) now brings a very real privacy constraint around the subject of identity, so it becomes much more nuanced. We’re starting to ask ‘how do we grant people privacy in this very complex digital space?’ For me, it’s about
bringing government, marketplace and finance – and other parties – into the mix to discuss how we can create trusted transactions between disparate parties that don’t trust each other but could. Can we do it without a single, certified authority granting that trust? Or do we need something like a clearing house, escrow space or third party to validate it? It’s not necessarily the competitive advantage of being transparent that draws banks into the trust space. Rather that transparency in this sense reflects a legal transaction – that they meet compliance standards and survive regulatory scrutiny. Banks are in the prime position to be custodians of identity because identity is actually just a permission set. It grants people access to things, it gives them permission to initiate transactions. It also starts the process of regulating who has access to an individual’s information. Banks can be the guardians of that, to manage it for their client and also to be a repository for all the new digital assets that are coming down the pipe.
GHELA BOSKOVICH About the speaker: Ghela Boskovich is a seasoned commentator on fintech. She is programme director for Startupbootcamp Colab, which fosters commercial engagement between scaleups and banks, designing proof of concepts and addressing practical business problems. She is also founder of FemTechGlobal, working to increase diversity in financial services.
DAY 1: TRUST
Trust for a post-Facebook age Popular science author Steven Johnson is attending Sibos to talk about the issues he discussed in what became something of a cult piece for the New York Times called Beyond The Bitcoin Bubble, which examined how the world could make collective choices to improve the quality of living. His new book, Farsighted – How We Make The Decisions That Matter The Most, has just been published in the US where he lives and works. FINTECH FINANCE: Why did that New York Times piece cause such a stir? STEVEN JOHNSON: I had a growing sense that there are fundamental problems with the Internet and the way it’s structured, particularly with the social media layer on top of it… all of the post-Trump election issues that have come up with Facebook and Twitter, the fake news and Russian troll farms. There were more and more people writing op-eds saying ‘hey, the Internet is broken, we need to fix it’. It’s true that there are fundamental problems with the underlying architecture and I thought 'well, how would we go about fixing it?’ So, I persuaded the New York Times to let me go and investigate this question. And, as I investigated it, I increasingly found myself being drawn into the idea that the blockchain is the one potential way we could fix a lot of these problems. It’s not at all clear that it can, but it is, in a sense, our best hope. I’ve never had a response to a
Pre social media, the Internet was a democratic, says author Steven Johnson. Could blockchain help us return to that Eden? magazine piece like it. It was crazy how much pick-up it got for a 9,000-word piece about decentralised software platforms! But I think it resonated because I had not set out to write a piece about Bitcoin. There were a million pieces being written about Bitcoin, but what I was trying to write about was solving some of these fundamental problems and it just organically led to blockchain technologies as a way to do it.
It’s not at all clear that blockchain can fix all our problems, but it is, in a sense, our best hope FF: How does blockchain fit into your vision for a culture that has evolved trust? SJ: I think cryptocurrency is the initial proof of concept of the underlying technology, which is about decentralised trust. It’s the ability to keep the database of transactions of some form or another in this big distributed ledger and do it in a way that’s reliable and trustworthy. No single entity that owns and controls the database and yet it’s still reliable. This relates to the big point that I want to make during my talk at Sibos. And that is, the initial era of the Internet and Worldwide Web was so powerful because there were several underlying platforms or protocols that were open. They weren’t owned by a private company and they were decentralised in the sense that
the whole world could use them; no one was technically in control of them. Paradoxically, those open protocols enabled a massive amount of profitable activity. You had all these private companies building on them. It created Google, Facebook and Amazon. So, even though there was an incredible boom for private industry, it depended on a shared layer of code and protocols that nobody owned. That initial architecture didn’t include some key elements that turned out to be really important and probably the most important of them was identity. There was nothing in the original architecture of PC PIT or the Web that defined a person and that person’s connections to other people on the network. There were pages, links and packets, but no way of mapping identity and showing relations between people. At a certain point we realised that was really important, and we should include a layer for that. That layer got created – by Facebook, by Twitter and by LinkedIn, etc. And because it was so valuable it very quickly hit increasing returns and Facebook became effectively its own medium, sitting on top of the Web. Only one person owns 50 per cent of the voting shares in that medium, unlike the Web or the Internet that lies below it. That brings us back to my initial question, which was how, in this day and age, could we build some new open protocols that would restore the balance that we had in the early days of the Internet, in the Nineties, before Facebook and Twitter?
Return to Eden: Could blockchain help us back to a ‘better Internet’?
Issue 10 | TheFintechMagazine
DAY 1: TRUST
REWRITING THE BOOKS With the fierce force of a digital tornado, ConsenSys blew in almost overnight in early 2015 as a software foundry to develop decentralised services and applications that run off the Ethereum blockchain.
ConsenSys Lead for South Africa, Monica Singer, reimagines accounting using one transparent system of record
Created by Canadian entrepreneur and founder of Ethereum Joseph Lubin, the company now has more than 900 employees operating in a very specialised area of IT and finance. One of them is Monica Singer, former CEO of Strate (a South African Central Securities Depository). Following a 20-year career in banking, she now heads up one of ConsenSys’s 48 global ‘spokes’ as the South African lead. We talked to her ahead of Sibos where she will be taking part in the first day of debate in the Discover Zone.
auditor to verify that your financial statements are true and that you didn’t lie. And yet we still ask ‘why is it that companies fail?’! Not so long ago, in South Africa, a huge company called Steinhof lost billions in market value due to accounting irregularities. Now everybody’s asking ‘where were the auditors? Where was the board? Where were the bookkeepers?’. The truth is that the capitalist system we’ve created is broken, and that’s why we had a financial crisis. It’s why Satoshi Nakomoto (who’s credited with inventing Bitcoin) says in his white paper Bitcoin: A Peer-to-Peer Electronic Cash System, ‘what if, every time I do a transaction, that transaction is shared by ALL the actors, by ALL the parties I want in my ecosystem?’ . Now, imagine that you create an intranet – a permissioned, private ecosystem where all these actors can see the journal entry at the same time. The magical thing is that Satoshi’s formula, called ‘cryptography’, prevents any of us from cheating. This type of technology will create an immutable audit trail. It’s a general ledger that you only use once because you don’t need to have to make a copy to send to the taxman, your auditor, bankers and shareholders.
FINTECH FINANCE: Can you give us a simple explanation of how blockchain works and provide some examples of how it will be useful? MONICA SINGER: With double-entry accounting, which we’ve been using since the Middle Ages, every time you enter a debit you also have to record a credit. If I buy a magazine from you, in my books I’m going to enter credit magazine, debit cash. In your books, you’re going to enter credit cash, debit magazine. But in reality I don’t know what journal entry you make, and you don’t care what entry I make. Plus, we both have a bank and have to do daily reconciliations to make sure that what the bank is reporting is correct. At the end of the month, we maybe submit a VAT return. Then there is the annual tax return and the taxman doesn’t really know whether our records are accurate, either. If you’re a listed company, you need an
TheFintechMagazine | Issue 10
FF: So, we can’t cheat but how does it benefit the banking system? MS: Every day, the banks do their settlement – what they have to pay other banks and what they receive. Because the banks can’t trust each other, they have to submit all these positions, every night, to a central bank. Then the central bank says ‘I’ve got the positions of all the banks, but before I do the journal entries to transfer the cash between them, I need all these positions to be collateralised’. That’s done during the night in a batch processing mode using SWIFT secure messages. If a bank fails overnight, the central bank does not have to suffer the exposure, because, in reality, by doing these journal entries it is shifting the liability of the settlement. That’s why bank transactions are fully collateralised and every night the collateral sits there, not being utilised, but just as protection for the central bank. So, the central bank does the journal entries and by early morning all the banks’ treasuries receive notification that the cash has been transferred. That’s why you’re not going to get the electronic transfer funds (ETF) immediately if you bank with one bank and I bank with another bank. You’ll get it the next day. Project Khokha was run by one of the spokes of ConsenSys in South Africa and it proved that, if you put fiat currency on the blockchain, you can tokenise the balances of every bank and therefore you don’t need the central bank to do the journal entries during the night. You can actually do the journal entries of interbank settlement – real-time – every day. Imagine the benefits for the financial market. Firstly, it speeds up the liquidity (there’s no need for collateral), and there’s real-time settlement for the public, who benefit from immediate transfers. And we proved that it’s as fast, if not better, than the settlement through mainframe messaging. In fact, if it’s embraced by all the central banks, you have to start to reimagine the future of those networks.
Project Khokha proved you can tokenise the balances of every bank. Imagine the benefits for the financial market
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DAY 2: QUANTUM
And to think we thought ‘digital’ was difficult Banks have been grappling with the implications of the arrival of digital capabilities and associated economics for a good few years now. We have come to terms with the fact that it all exists and it will stay. But we are still working through how far it will affect our businesses and how much futility there is in resistance. Enter, stage left, quantum computing – and to think the ink on our latest ‘monetising APIs’ (application programming interfaces) deck is not even dry yet. Quantum computing comes with sentences involving words such as superposition and entanglement that leave the banker gasping ‘I only just finished understanding the last bit’. The good news is, you didn’t. You don’t know how the stuff you have now works and you don’t need to understand how transistors are different from binary digital electronic computers. What you need to grapple with (just as with the digital transformation you are in the midst of ) is what this new thing is capable of, how you could use it, what it could do for your business and, most significantly, how others will use it in a way that will change society and force you to change yourself (yes just like digital... but bigger).
Quantum computing might be beyond the average banker, but let’s not get caught again with our heads in the sand, says Leda Glyptis At the time of writing, the development in this field is still in its early stages (NASA and university laboratories, big corporate R&D labs and kids’ dreams) but the research is both practical and theoretical, funded mostly by governments and military agencies in pursuit of ever-greater processing and problem-solving speed than any algorithm we have today. There is also a hushed supposition that quantum computing will be able to do stuff we can’t do or imagine today. Just think about that. The temptation to say ‘well, I will deal with it when it’s commercially available’ is great. It’s not like we are not busy enough as it is. And yet, what recent years should have taught us is that technological advancement moves faster than ever and adoption cycles are tighter. If you wait, you may find yourself faced with radically transformed business conditions that you can’t quite overcome. We have also learned that looking for magic beans and silver bullets, trying
Partner. Seriously. This stuff is too hard for you to do by yourself
to do it ourselves and somehow steal a start on the competition, doesn’t work either. So what to do? Partner. Seriously. This stuff is too hard for you to do by yourself as a bank or any other organisation that seeks for these capabilities to be tools, not the heart of the business. Partner to understand whether the speed differential we are talking about makes a difference to your business. It will definitely affect life sciences, aviation and defence but it’s not a foregone conclusion that the speed piece will transform banking immediately. We are not there yet, our processes still lag behind current technical capabilities. But what we have learned the hard way is that technology finds better ways to do things which challenge existing jobs, empires and margins. And we also learned that, in defending those, we often neglect to think about new value, brand new ways of doing things, being useful to customers, making money. We started this current transformation with a defensive, entrenched mindset where learning and value exploration was needed. Let’s not make that mistake again.
No hiding place: Quantum computing will soon be hard to ignore
Issue 10 | TheFintechMagazine
The ROLL of the DICE There is still much we don’t know about quantum computing. But let’s see where the numbers take us, says Stacey Jeffery, Senior Researcher at CWI
“Not only does God play dice but... he sometimes throws them where they cannot be seen,” said Stephen Hawking in an apparent retort to Albert Einstein’s “God does not play dice with the universe.” The dice they were both referring to was quantum mechanics. But both scientist-philosophers agreed on one thing: the behaviour of the tiny subatomic particles that form the foundation for quantum mechanics was completely random. Today, those thinking of applying quantum computing to global financial services likewise remain uncertain of the possible outcomes – intended and otherwise. Experts suggest that quantum computing might help to legitimately unlock secrets from customers’ personal data - but they could just as easily help others hack into them. On the other hand, quantum computers may enable fast modelling of risk and performance to counter those very threats. Stacey Jeffery, senior researcher at CWI, a Netherlands-based research institute for mathematics and computing, believes there is a lot to be excited about. “In five years’ time, hopefully we’ll start seeing some of the first practical applications,” she says. “In that time frame I doubt a bank is going to be using a quantum computer but they might have some synergy with those industries, like medicine, that are benefitting from it. Traditional Newtonian computers process data in binary bits. Quantum computers chew down quantum bits (qubits) that might exist in multiple forms at the same time. They can solve certain problems at incredible speeds and convert complex problems into solutions. And they can factor large numbers, which, in the
TheFintechMagazine | Issue 10
wrong hands, means they can also undo current encryption standards. “The downside is that quantum computers will break a lot of our encryption. Although it’s unlikely this will happen in the next five years, when it comes to security, you want to be conservative. So people in finance should be thinking about it now. “There are already companies that sell systems for something called quantum key distribution, which is a way of securely communicating using the properties of quantum mechanics. This is not necessarily going to be the solution everyone should use for encryption in the quantum future. It’s an expensive way of encrypting and we’re still working out some of the security bugs. But, in theory, it could allow for strong encryption. Otherwise, you’re talking about algorithms, but we have not yet run a quantum algorithm that we couldn’t have run with a regular computer.
The downside is that quantum computers will break a lot of our encryption “At the moment, it doesn’t look like quantum computers would be a big threat to blockchain,” she adds. “That’s obviously an important question, but just as interesting is whether quantum could help to create a better version of blockchain.” Academic researchers as well as organisations like the National Security Agency, the National Institute of Standards and Technology and others agree that quantum computers will disrupt current security protocols that protect global financial markets. They are striving to build their own quantum computers
DAY 2: QUANTUM while also formulating quantum-safe cryptographic candidate algorithms. A study by the Identity Theft Resource Center (ITRC) titled The Impact of Cybersecurity Incidents on Financial Institutions found that in 2016 alone, there was a 56 per cent increase in distributed denial of service (DDoS) attacks on financial institutions and experts agree that quantum computing in the wrong hands might aggravate this figure. Banks, government agencies, insurance companies, utilities and others must put in place security arrangements and encryption techniques that might withstand a quantum attack. This also comes with a small note that quantum-safe encryption depends on mathematical approaches that even quantum computers might have a hard time resolving. The Commonwealth Bank of Australia (CBA) has founded Australia’s first quantum computing company, Silicon Quantum Computing. Along with Telstra, the federal Government, the New South Wales Government and the University of New South Wales (UNSW), CBA invested $83million to advance the development of the UNSW’s quantum computing technology. The founders believe such machines will enable better understanding of customers through real-time behaviour analysis, which in turn will enable CBA to offer them ‘products, insights and advice’. “Quantum is something where big players would have an advantage because it requires a lot of money,” says Jeffery. “That said, a lot of startups are getting funded, even ones that are trying to build a quantum computer.” www.fintech.finance
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DAY 2: QUANTUM
A quantum sledgehammer to crack a nut?
Tough to crack: Quantum computing could solve the most complex problems
The next technology wave is unlikely to see us consigning today’s IT to the scrap heap. Instead, we’ll have to figure out a way they can work together, says Ashley Montanaro Way back in 1922, English mathematician and part-time meteorologist Lewis Fry Richardson dreamed of creating a thinking machine, flexible enough to correctly anticipate phenomena as complex as the weather in real time.
Although Richardson did not have access to computers, the computational thinking goal he identified has never been more relevant or important. Quantum computing, with its breathtaking speed, could help us to understand climate change. But for the financial services industry, it’s the prospect of going beyond the boundaries of classical computing to supercharge artificial intelligence, that’s more exciting than saving the earth. NatWest is already experimenting. Last month, it announced it has started to use quantum-inspired algorithms (algorithms not reliant on qubits) for complex calculations. A successful test showed that, compared to a classical computer, it could ramp up processing speeds by a factor of 300 while providing greater accuracy. Managers now hope to use the software to help them reach decisions about their £120billion high-quality liquid assets (HQLA) portfolio, NatWest’s defence against financial turbulence. It’s now thinking about how quantum computing can supercharge pre-existing AI when combined with unsupervised machine learning, which, it said, could be used to detect fraud and spot money laundering with enhanced speed and scale. All
TheFintechMagazine | Issue 10
this, of course, could substantially reduce the cost of expensive training time spent on classical computers. The downside is that quantum computers might not be powerful enough for financial applications before about 2025. However, it is quantum computing’s enhanced capacity for detail and complexity that appeals. “It’s a common misconception that quantum computers can just operate on very large datasets very easily and much more efficiently than normal computers,” says Dr Ashley Montanaro, reader in quantum computation at the University of Bristol. His consultancy Q&I, comprised of quantum technology leaders, boasts of not just ‘knowing the state-of-the-art but building it’.
A quantum computer is likely to be used for solving smaller optimisation problems, but ones that are really challenging “The challenge with quantum computing, is getting large a amounts of data into the computer,” Montanaro explains. “Quantum computers are going to have relatively small numbers of qubits, or quantum bits. If you want to squeeze lots of data into a quantum computer, you need to have lots of qubits. So, it won’t be the case of big companies putting their database of thousands of terabytes into their quantum computer and analysing it. It is more likely to be
used for solving smaller optimisation problems, but ones that are really challenging,” he says. So, is our excitement misplaced? “Many mundane problems, which today’s computers can solve with ease are not amenable to quantum speedup: a quantum computer is unlikely to be used for word processing or web browsing, for example,” says Montanaro. “That said, quantum computers excel at certain specialised computational problems, some of which challenge today’s supercomputers.” So, it’s more likely that, where it is employed, quantum computing will work alongside classical computers to give a new edge to troubleshooting in business. “Making them fit into legacy IT infrastructure and IT systems is going to be a very important task in the coming years,” says Montanaro, which, given the limitations of legacy banking systems, is likely to send a shiver down the spines of CTOs associated with them. “What I would say is that the most important use cases of quantum computing for industries like this, are likely to be cases where they have very hard optimisation problems to solve, which have a small amount of data... figure out where their hard problems are and apply quantum computers to them alongside existing methods.” So, rather than risk an entire overhaul of its IT, a bank can take advantage of quantum tech in parallel with it. The fact that large-scale quantum computers won’t be available for several more years means you’ve plenty of time to plan for that quantum leap. www.fintech.finance
29 OCT - 2 NOV HONG KONG SHENZHEN
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DAY 3: AI
Secure and seamless
How do you reconcile risk control with the demand for frictionless customer experience? Richard Harris, Feedzai’s SVP of International Sales, believes the answer lies in ‘AI 2.0’ The fight against fraud needs to get personal to effectively deliver for both banks and consumers.
For Feedzai, that means building crime detection models that draw on 500 data features to pinpoint whether a transaction is genuine. And machine learning is at the heart of the process, so that security levels don’t need to be screwed down so tight that the user experience becomes intolerable. Richard Harris, Feedzai’s senior vice president of international sales, says risk controls must be almost invisible to the customer. “That means understanding who is on the system, how are they interacting, and asking whether they're behaving like they normally do,” he says. “You’re not treating your entire customer base the same and saying any transaction over a particular level is a risk. You need to say ‘person x’s risk is at this level, person y’s is at that level’. You need to have built a picture of who they are as individuals.” Harris says Feedzai was the first company to apply machine learning to payments on a mass scale. It screens half of all debit cards in the US in real time to make a decision about a transaction in less than a second. Building great artificial intelligence (AI) models is easy, he says – the challenge comes in ensuring they can be run in a real-time environment. “With debit cards, to make that model work we use 500 different features,” he says. “Those features are different calculations
TheFintechMagazine | Issue 10
about cards, ATMs, times of day, times of week, month and year, then specific time slices against those different variables. “So, what does this merchant normally do on a Monday, Wednesday or Friday? Or what has it done in the last hour, the last day, week, month, or year? What’s the average spend on this particular card, in the last day, week, month and so on? “With an installation as big as this we’ve got three or four different data centres running. You can build a model in the lab and calculate those features very easily, because you’ve got a static set of data. The tough part of the engineering is to make sure all of those calculations are available whenever I turn up and use my card.” AI was born in the 1950s and many of the algorithms employed today are based on those of that decade, says Harris. The key current development is that computers have the power to run algorithms on a huge scale. He is keen to point out that members of the AI community have a duty to build models that are fair and unbiased, based on data, not gut instincts. Fraud departments should
At Feedzai we’re packaging up the same approach to machine learning that the likes of Google, Amazon, or Facebook are taking
be either self-policing or follow the laws of the countries they operate in so that models don’t discriminate against ‘certain cardholders, groups or merchant types’. Another selling point for Feedzai clients is that it has the computing power to run powerful models. For the established banks in particular, the constraints of legacy systems can compromise performance. Harris says: “This is AI 2.0 and beyond, where we can finally deal with all the data in real time. At Feedzai we’re packaging up the same approach to machine learning that the likes of Google, Amazon, or Facebook are taking, so that a financial services company can use the technology. “There aren’t many banks doing a terrible job of fraud prevention, and that’s because it’s usually possible with any system to turn the screws up tight to stop fraud. But what banks are keen to do is relieve risk control because customers are complaining of the pain it’s causing them. With recent regulation, including the revised Payment Services Directive (PSD2), you can have different levels of authentication depending on your fraud rate, so if you’re controlling fraud, the inference is you must understand who’s making the payment.” A slick payment process is key to customer service, says Harris, and this is what keeps bank bosses awake at night. “CEOs fear their customer service is way behind that of Silicon Valley companies. They’re focussed on improving it to maintain the trust, customer base and brand that has been built up over decades.” www.fintech.finance
The moral imperative Author, investor and board advisor, Tony Fish, believes AI can be used to create a more ethical financial services… if we let it
DAY 3: AI
I have a prediction, and it is that the next victim of digital is not going to be an industry, it will be the hierarchy. People are used to forecasting the death of industries after VCR was replaced by DVD, digital streaming changed music, news moved from newspapers to online, and so on. But in the next few years we will realise that organisations don‘t need hierarchy because of the clever things we can do with blockchain and distributed ledger technology. It will be a huge upheaval. We won‘t need the flow-down of key performance indicators; we can change the entire way companies are managed. There’s a movement growing around ideas of open governance, which gives us better transparency, it gives us better governance procedures and processes and they are all self-automated. Until now, we‘ve had hierarchies because it was the only way to provide governance, but that will change. And for those who typically command these organisations, it will disfavour them and we‘ll see a power struggle. I‘m keen to talk about the ethics around artificial intelligence (AI) because, as a society, we haven’t had a grown-up, mature discussion about it. Individual understanding of it is usually based on personal experience. Take AI-controlled autonomous cars. For some people they’re a brilliant idea. If you‘re elderly and can no longer safely drive, you‘ll get your independence back. But if your family relies on driving to bring in a wage, it‘s your worst fear. A key ethical consideration for AI is around data sets. If I program a machine to learn what a cat looks like, but I only
load a dataset of white, fluffy cats, it won‘t then recognise a Siamese. The data is biased and you get a biased result. We’re exactly the same, and data about our society tends to have a bias towards white males. We’ve got to start our datasets again. The machines must learn their own ethics, based on neutral datasets. People don’t like that because it means machines will have different ethics to humans, which will prompt a power shift, and machines will make fairer decisions. So, when we talk about AI and ethics, the reason it’s controversial is because the natural power and balance that exists today is going to change. In the financial sector we know there are biases, and a simple one is a person‘s name. People with certain names are more likely to be rejected for credit because the system has learned people with these names have high default rates. The defaulting may have occurred in the
People with certain names are more likely to be rejected for credit because the system has learned people with these names have high default rates
1980s or 1990s, and it might not happen now, but the algorithms were written, or the data was learned, at a certain point in time. Regarding the availability of finance, and how people are judged and scored, we’ve got to grow up. At present we have a system that says the higher risk you are, the more you pay. So we have built a model that prevents the most needy from having access to money. We must address that by creating different systems that change the method so that those who need support get help. One way to allow banks to become more ethical is to make changes to end short-termism. At the moment, the return on investment must be greater than the cost of the capital, and banks have a fundamental problem because the cost of capital is currently higher than their return because of current market conditions. If we were able to agree that banking is fundamental to our economy, we would see that asking banks to publish quarterly results is mad.If we want a more ethical banking industry it must be allowed to act long-term but, at present, bank executives cannot ride the short-term risk because they'll lose their jobs. AI is a revolution and provides an opportunity to right past wrongs. We just need to stop for a minute and talk about it.
Issue 10 | TheFintechMagazine
DAY 3: AI
The rise of the (ethical) robots
Forget the dystopian scaremongerers, AI could be a powerful force for good, particularly in wealth and asset management, says Clara Durodie, Founder of Cognitive Finance Group Artificial intelligence (AI) is more than a solution for use cases, it has the power to reinvent whole business models. But too many business leaders have failed to grasp it and been scared off by media hysteria about its dangers. So says Clara Durodie, founder and managing partner of Cognitive Finance Group, which advises on AI within wealth and asset management. She argues that adopting AI is good governance because it can drive higher
returns on clients’ money. With an ethical AI model, whereby machine decisions are fair and explainable to clients, she argues algorithms can help to rebuild trust in a sector whose credibility is still compromised by the financial crash of 10 years ago. “It too often gets forgotten that ours is a service industry. We are trusted to manage other people’s money,” Durodie says. “Boards that don’t understand how this technology can help their business are not providing a quality governance
DAY 3: AI
Don’t be a DATA dummy AI isn’t the threat. Doing nothing about it is, says Diana Paredes, CEO and Co-founder of Suade Labs
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FINTECH FINANCE: The financial industry has talked about artificial intelligence (AI) for years. In your opinion, when will it start to fully realise the benefits? DIANA PAREDES: Banks have always had a lot of data but if it’s not normalised a machine can’t do anything with it. You cannot go the extra mile in the way Facebook and Amazon do. At Suade Labs, we’ve been working with clients to organise their data and we’ve been involved in conversations around good practices, so the first steps are now being taken. However, companies that are a potential threat to financial firms, the likes of Amazon and Google, have a much better
job. I keep repeating that AI is not just an IT issue, it is a board issue. Because it has a deep structural impact on the business model and competitive advantage.” Durodie speaks to too many bosses who have implemented AI systems but failed to consider the ethics of their models. These systems must be explainable, she says, especially those that are making decisions and actioning customer requests, such as an automated lending platform. “If we want to build trust among our customers as an industry, we need to be able to explain why a system made its decision – as a blanket principle,” says Durodie. “This technology can fill the gaps around trust that have developed over the years, primarily since the 2008 crisis. “I work in this space as a strategic adviser to boards and decisionmakers and, more often than not, when I ask what ethical considerations they have in mind when adopting these technologies they say ‘we didn’t even think about that’. “I would argue that ethical design is crucial, it’s on a par with accuracy. It takes a lot of time to unravel a system to make it explainable, but it can be done.”
understanding of what they should be doing with data and have given a very clear roadmap. The reason Facebook can do what it does is because its data is more structured than that of any financial institution. I think some firms have woken up and understand what's actually possible, but we’re not doing it properly in financial services yet. The likes of Facebook put us to shame. How awesome would it be, from a financial services perspective, if you could know, based on an individual’s transactions, what they are doing – for example, if they’re renovating their house? Regulation, such as the General Data Protection Regulation (GDPR), has helped because it has forced institutions to improve the accessibility of their data. And, because money is being spent on meeting rules on data, companies have realised they should do much more with it. FF: What do you predict the conversations around AI will be at Sibos this year? DP: I’m hoping there will be a call for action to really start discussing the issue. It’s www.fintech.finance
Unfortunately, a ‘neurotic movement’ of anti-AI sentiment over the past two years, whipped up by US futurist author Martin Ford’s The Rise Of The Robots has ‘paralysed a lot of decisionmakers in financial services’, she says. ”And when you’re paralysed, as a leader, you typically do nothing. In a space where you are benchmarked against how much computing power you have behind you, doing nothing means you lose competitive advantage as each day passes.” The main potential for AI in financial services is its ability to deliver personalised services at scale, says Durodie. “You can look after clients on a personalised basis, irrespective of the number of clients you have – I think that’s very powerful. But one thing our industry has failed to grasp is that AI is a tool to reimagine your business model. “People need to do more than just think of use cases for this technology, because when AI is adopted in silos its true value cannot be unlocked. “Before buying an AI solution from a provider, leaders need to consider and understand what impact it will have on the rest of the business model, such
common practice for financial firms to hire a third party to do their strategic thinking, but I think it’s shameful for a bank to outsource core discussions around how the business should be run. I’m hoping people will realise that it’s not a question of ‘if’ for machine learning, it’s ‘when’, and firms need to decide how they prepare. Other industries are embracing AI and working hard to get there. Google is revamping whole departments around AI and machine learning engineers. What are we doing in financial services compared to that? FF: Should banks build AI capability in-house, or collaborate on shared projects? DP: It has to be the right kind of collaboration, not just any collaboration. Sadly, collaborations in the financial industry can be inefficient. Staff can be reluctant to get involved with projects because they can be seen as low priority, and things are very meeting-orientated with lots of talking but not much getting done. Compare that to tech departments where things are run as opensource projects done over GitHub, sharing work www.fintech.finance
Google is revamping whole departments around AI and machine learning engineers. What are we doing, in financial services, compared to that? without much human interaction. It’s a lot more efficient. FF: What part do you see AI playing in compliance in the future? How can it help? DP: There are so many things, but a quick win would be the ability to identify outliers quicker. The next stage is thinking about how robots can do work more efficiently. It’s not about machines replacing humans, it’s that machines can enable humans to have a far more pleasant job. Anyone who worked on a trading floor 30 years ago, writing tickets and sending them through
as on revenue generation, or the company’s operations. “It’s absolutely essential to understand the impact on the workforce, because when you do that you can work out how to retrain your staff for new roles in this new world.” And Durodie’s answer to the claims that robots that think for themselves will take over the world?
Boards who don’t understand how this technology can help their business are not providing a quality governance job. AI is not just an IT issue “Just keep in mind that every single algorithm built out there has parents – the people who built it,” she says. “So robots cannot be uncontrolled and the sci-fi scenarios cannot happen.”
a fax, would that agree modern practices are better. Staff should not feel threatened by the evolution of technology, they should educate themselves and be the person who learns how to take decisions on the back of AI and machine learning. FF: So, how do we get away from fears about AI taking away jobs and seizing control of decision-making? DP: Well, if you don’t educate yourself, AI could become something that is handled by ‘geniuses’, and it’s beyond your understanding. The best way is to empower people is to teach them about it, demystify it. Because innovation isn’t something you can stop, it’s human nature. We need a much larger population educated in machine learning than we currently have - it should even be taught in school. What you don’t want is innovation overtaking the way people live and they have no idea how it happened. ■ Suade Labs produces technology aimed at helping the financial services industry comply with regulation. Issue 10 | TheFintechMagazine
Financial institutions often struggle to review more than 5% of their customer interactions We help shine a light on the other 95%
Business as usual & past business reviews We use pioneering AI to help regulated firms gather unique data from all their customer touch points, organise it at scale and draw actionable insights to drive efficiencies, performance and culture
DAY 4: SECURITY
THE FIRST LINE OF
DEFENCE The other day I was in a meeting with one of the UK’s most powerful financial organisations. I’d been invited in to talk to the team about the latest market trends and what I was seeing. We talked about many things – ransomware, the sophistication of today’s attackers, new technology solutions, regulation and the diversity and talent within our ecosystem. Then I brought up internal threats, specifically people. I asked them if they’d humour me for a few minutes and they agreed. “Close your eyes,” I said. “I want you to step into another’s shoes – someone who works at your company. Imagine what it feels like to be told that you’re a weak link. A threat. A liability. “Imagine what it feels like to have to undergo a standard security awareness training programme once a year or more, just because of this. To know that if you fail the test you’ll have to repeat it and that you may be penalised because you’ll be endangering www.fintech.finance
Invest in the tech, but your staff are your best protection against financial crime, says Jane Frankland, MD of Cyber Security Capital the organisation. Behind closed doors, some people may even be talking about you and muttering ‘you can’t fix stupid’. “Chances are you’ll find this irritating, or it may even worry or upset you. Maybe these words or phrases will go through your head before or after: them, us, division, exclusion, elitism, arrogance, a waste of time.” Their faces were solemn, their bodies were slumped in their seats and they all nodded their heads in agreement.
If everyone is thinking alike, then is anyone really thinking?
I continued. “Now let’s flick the switch. Imagine what it feels like to be told that you’re valued. Needed. Strong. Worthwhile. Someone who can help an organisation protect its assets, defend itself against cyber attackers, act as a shield and be effective. Chances are you’d be feeling more open to engage, learn and help.” Once again, they all nodded their heads, but by now they were smiling and sitting more straight in their chairs. I continued. “Let’s knock it up a level. Imagine what would happen if you were given a voice, had an opportunity to feed back to the organisation – the security team – and suggest improvements. The dialogue is now open. There is no them and us. You’re on the same team and part of something together. “What if you could be rewarded for your efforts, too? Chances are you’d be feeling much more empowered. Valued. Maybe you’d even be interested in learning more about cyber security – a topic that’s pretty cool right now.” Issue 10 | TheFintechMagazine
SIBOS: INNOTRIBE Feelgood factor: Empowering employees is an organisation's best defence
I asked them to open their eyes. By now their faces had lit up, they were fidgeting and desperate to talk. The room was energised. They understood what had just happened and we reviewed the human risk element and how security awareness training programmes are being implemented. I explained that it’s easy to get stuck in our ways, to follow the crowd, and to say or do what everyone else is saying or doing. But, if everyone is thinking alike, then is anyone really thinking? It’s much harder to challenge the status quo, and to look for better solutions. Yet, that’s what we must continually do if we’re to perform to a higher security standard and achieve better results. We must collaborate and use our resources more effectively, rather than divide, build walls and maintain silos. Communication can help us do this, as it draws on language, which is where change really begins. Add in images, visuals and sound, and you’re on your way to creating something that’s powerful, simple and effective. Here’s my high-level advice. Define your objective. To begin with, consider your objective and what you’re trying to achieve. This sounds obvious, but you’d be surprised how many fail to do this. The reason I know this is that they can’t measure and evaluate the results of their security awareness training programme afterwards. Imagine
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how delighted the Board would be if you could communicate this as a value. Assess user group profiles. Once you’ve established your objective and how you’ll measure it, look at your user groups and their risk profiles. Go through scenarios for each group, as not everyone has the same training needs. A questionnaire, which can gauge their level of security competence in accordance with their role often helps. Spending time training users in the same vanilla way, which is usual, not only bores them, but it’s costly too. It means that they’re not being productive elsewhere in the organisation. Tailored programmes, on the other hand, maximise engagement, and their overall understanding of the problem, which enables you to deliver and measure a much more effective security awareness training programme that produces immediate value.
We must collaborate and use our resources more effectively, rather than divide, build walls, and maintain silos
Plan your communication. Consider your communication methods, particularly your training modules. Over the years, I’ve seen highquality security awareness training videos that are extremely amusing. I’ve cringed at the scenarios and laughed a lot. They’ve made me smile and lifted my spirits. However, although they reached me emotionally, the end result can be that, despite the humour, few remember the learnings shortly after. All they remember is that they laughed, which kind of defeats the object. So, test the modules with a select and diverse user group to get their feedback prior to purchasing.
Adopt an entrepreneurial mindset. This means being open-minded, rather than fixed when you’re implementing the programme. Test, tweak, and get feedback from those using it. Connect with your employees, empower them, make them feel part of something, and find champions or ambassadors who can help you evangelise. We don’t know it all in security, and there’s no shame in admitting this, it’s what strong leaders do. We can always improve and being receptive helps us avoid being blind-sided. By making your employees your strongest line of defence and telling them this, you’ll end up creating a security culture that’s onside, that innovates, adapts to evolving threats and strengthens.
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BURSTING THE CREDIT BUBBLES Intelligent pricing of credit risk comes down to consumer willingness to share data and the industry’s ability to collect it, says Equiniti Credit Services MD Richard Carter Competition is fierce in the unsecured lending marketplace as access to credit remains cheap in an era of historically low interest rates – so much so that some fear lenders risk racing towards another credit crunch as they fight to maintain and grow sales. It’s a doomsday scenario that doesn’t bear thinking about. So, instead of competing only on price, why not harness the power of personal data to target consumer marketing, thereby reducing risk and improving sales? Sarah Jackson, a director at Equiniti Credit Services, a specialist loans software and outsourcing facilitator, recently raised a red flag over the mispricing of credit in the company’s blog. She wrote: “Years of low interest rates and fierce competition in the UK credit market have created a price war. Lenders are using cheaper loan products with wider consumer appeal to retain existing customers and capture new market share. This is a dangerous game and is leading to inadvertent mispricing of risk in the race to attract customers.” Jackson argues that although current market fundamentals appear sound – Bank of England figures show falling arrears levels and overall credit market growth – lenders are releasing cash too easily to higher risk borrowers. Her thoughts were echoed this summer by both challenger bank Secure Trust and high street heavyweight RBS, who both warned that bad debt could rise post-Brexit, leaving higher risk firms dangerously exposed. Meanwhile, Equiniti Credit Services’ own research reveals British consumers are increasingly relaxed about taking on debt, despite the continued uncertainty of Brexit, with credit once again being used
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to fund holidays and home improvements. The risk of unbridled borrowing is compounded by consumers’ increasingly precocious credit habits. Another study by the firm revealed that loyalty towards lenders now counts for little – 47 per cent of people are prepared to borrow from an unfamiliar source and 83 per cent research loans using a price comparison site rather than basing their decisions on a company’s reputation and their relationship with it. According to Equiniti Credit Services, only 18 per cent of borrowers want direct contact with their lender, dramatically down from 77 per cent in 2014, creating a chasm that makes the use of data to provide insight and reduce risk more important than ever,
If you have no credit profile, and you’ve no access to funding, you are more inclined to share information to get it As Jackson pointed out: “Lenders need to understand how customers' attitudes are changing and what they must do to keep them. “This means taking a data-led approach and embracing systems that deliver real-time customer insight. It means freeing up internal resources and offloading non-core activities to specialist partners to enable fleet-of-foot operational change. “The longer the mispricing of risk continues, the bigger the adjustment will be and the harder the industry will be hit.” Equiniti Credit Services builds platforms that underpin lenders' operations. Among
them is independent vehicle finance firm MotoNovo, which turned to the company to digitise its loan application and collections system. The solution Equiniti Credit Services came up with was based on Core Pancredit, now widely used by car dealers to match their customers with lenders and to complete the application process. Over time, Core Pancredit has added features such as vehicle valuations from Glass’s, data from Equifax credit search and Carport, a bespoke new-business capture application that enables staff to input faxed details and finalise incomplete applications. Equiniti Credit Services also recently worked with fintech Intelligent Environments to provide MotoNovo Finance with a digital self-service portal for car credit customers to manage their account. The digital omni-channel, self-service customer solution was an industry first and in 2017 it won Intelligent Environments and Equiniti Pancredit a joint Best Use of Technology Award at the Car Finance Awards. The solution was an example of Equiniti Credit Services working with industry to lay the rails on which lending runs smoothly. Its single platform covers factors such as regulatory requirements, reporting and capital adequacy. And with the use of application programming interfaces (APIs), new features can be plugged in as they are developed at the company’s new technology hub in Leeds. But Equiniti Credit Services’ managing director, Richard Carter, doesn't just help lenders plan for the future; he reimagines it. He can see a day when lending doesn’t follow a purchase – instead, it intelligently precipitates it by using data to predict when a consumer is likely to need to borrow money. For banks in particular, he argues, www.fintech.finance
it could improve loyalty among current account customers or existing borrowers, and reduce the threat of disintermediation and banks being reduced to utilities. “The biggest issue is a lack of loyalty among customers seeking additional loans coming back to the same provider. I think that’s an area of the market that can be helped to change dramatically because the data is there to predict demand. Imagine your own life: you're young, you leave university, you get a job, you're probably going to need a car to get to work. Then you settle down with a partner, start a family and you need a bigger car. When the children leave home you might downsize again to a saloon. If a bank can pick up those obvious lifestyle changes, they can offer the finance for the things customers need.” With more data come more opportunities to target marketing and put finance before the purchase, generating loyalty. And though consumers are rightfully reticent to give up such personal details, Carter says there are instances where they are willing to compromise in order to access credit. He gives the example of telematics boxes fitted to cars that bring insurance premiums down for high-risk drivers. He says: “There is no way on earth I would have any telematics fitted to my car, I don’t want anybody knowing where I drive, how quickly I go round corners or what time I go out at night in the car. But I can get car insurance relatively easily because I’m of a certain age.
“When my children come to get car insurance and they find the insurance is more expensive than the car, that’s the point at which you say ‘look, you’re going to have to give up some of your personal data. You’re going to have to put this box in because it’s going to save you £500’. “The same thing applies in finance, in my view. If you have no credit profile, and you’ve no access to funding, you are more inclined to share information to get it. Over a period of time, as you build up your credit profile by sharing a lot of information upfront, you establish a footprint and then you can slowly move away from it. Returning to my kids, at some point the telematics will only save them £50, so then they'll probably ditch it and pay the extra premium.” The British are particularly bad at taking responsibility for their financial literacy. As Carter has pointed out in the past ‘nearly 40 per cent of Americans claim to want to know a potential partner’s credit score before they even date them!’, but by comparison, UK consumers are wilfully ignorant even of their own rating, with less than 10 per cent being aware of their score. Carter has argued that lenders could benefit from consumers having more transparency when it comes to their credit status, so why don’t lenders themselves proactively provide them with it? “Apart from drawing the customer back to the lender’s site each month, this changes the dynamic between the customer and the lender,” Carter has argued. “How about extending it beyond customers to anyone who registers? The same benefits will flow; non-customers
will be drawn to the lender’s site each month and with the correct, targeted offer, could be converted. At the very least, the lender will gain a much larger marketing universe to target with appropriate products or trial new ones out on.” While credit referencing based on historic performance does not guarantee a customer’s future attitude or ability to repay debt, combining it with other data sources – from tracking where an online loan applicant moves the pointer on a digital loan calculator to their social media data exhaust – could improve credit risk and product relevance, says Carter. He’s excited about the opportunities he believes data can provide. “We have several clients that are launching new propositions, leveraging the power of our platform, and new clients coming onboard that are creating some really interesting products with tremendous potential to disrupt the way in which finance, and in some cases banking, are managed. “I’m looking forward into 2019/20 and how we integrate more of the data capability we have within the broader Equiniti Group, bringing all of that together to offer something that is hugely differentiated and allows financial services to move on at an increasing pace.”
Issue 10 | TheFintechMagazine
Binding the Atom: The challenger always intended to build its lending capabilities first
Lending at a molecular level Atom Bankâ€™s CEO Mark Mullen has a straightforward strategy â€“ keep an eye on costs and take your time. So how is the Atomic clock ticking along?
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In the world of physics nothing exists excepts atoms and empty space, but in the very crowded banking sector Atom, the two-year-old challenger bank, is certainly not alone. Operating solely through its mobile app with no cost-heavy branches to maintain, Durham-based Atom bank arrived with a nuclear bang and lots of opinions – much like its strategic board advisor, the American rapper and entrepreneur will.i.am (but more of that later). One of those opinions has to do with giving customers value for money. Chief executive Mark Mullen says that, while Atom bank is all about agility and taking risks by introducing new ways of banking and competitive products, it is committed to ensuring unnecessary costs are not handed on to customers. “The art of banking is to provide customers with a service that is valuable to them,” says Mullen. “But we think banking is hideously inefficient and customers pay for a bunch of stuff they don’t use. It also lacks transparency.“ Atom has yet to launch it’s much-anticipated current account, for which the Ts&Cs are still undisclosed, but Mullen has been critical of banks’ charging policies in the past, promising that Atom’s open platform model will act ‘in the best interests of transparency and fairness’. “It’s a complete myth that banking is free,” he says. “All the salaries, all the people, all the processes, all the branches – everything, ultimately, is being paid for by the customer. But whereas it’s not unusual for a bank to have somewhere between a 50 per cent and 60 per cent cost ratio, our business model is geared to operate below 25 per cent.” Mullen believes that, since all customers pick up the tab for their chosen bank’s costs, Atom’s biggest driver should be business efficiency – energy that’s obviously well-spent, given the number of customers it has persuaded to switch from traditional players (a still notoriously difficult achievement for newcomers and a huge focus in Atom’s business strategy). It’s grown its customer base to more than 17,000 and its loan book from £99million to £1.2billion over the year
to April 2018, raising £149million in March from one of the largest European fintech investment rounds of 2018, to further improve its tech and business capabilities. “The more money we spend on running Atom, the less value we can give back to the customer,” says Mullen. “It’s simple and really brutal, but costs will always be absolutely at the heart of what worries us and the most effective way we can manage costs is to stay centralised.” One of features that Atom first became known for was its price-led promotions, including favourable interest rates for lending, especially mortgages but extended to small businesses, too. Some were withdrawn fairly rapidly and Mullen acknowledges that there has been considerable risk attached to this launch proposition. While it has certainly helped to build Atom’s reputation among customers and brokers, (jumping into the top 25 of UK banks in its first year of trading and scooping the 2018 What Mortgage award for Best Digital Lender), there have been consequences. It paid out more than
It’s simple and really brutal, but costs will always be absolutely at the heart of what worries us and the most effective way we can manage costs is to stay centralised £5.6million in interest to savers than it secured from borrowers, according to its 2017 Annual Report. But then it hasn’t yet announced its target date to start turning a profit. “We’re like any bank: we have a risk appetite – risks we’ll take, risks we don’t take,” says Mullen. “We started off by offering re-mortgages only. We’ve recently launched first-time buyer and higher loan-to-value ratio mortgages, so we’ll go up to 95 per cent, but we’ve no agenda to go into what might be described as the sub-prime or
near-prime market. It just doesn’t fit the way our model works.”
API in the middle And the way it works is pretty unique. The bank went for an application programming interface (API)-enabled banking platform provided by MuleSoft, with the APIs acting as a form of middleware, allowing straightthrough processing of – in the first instance – mortgage applications. Atom’s agility allowed it to become master of its own architecture and therein lies a huge differentiator. It has provided curation and purchasing freedom as far as development goes because it owns its APIs and can thus pick and choose best-in-class components, while MuleSoft remains strong at the core. Atom has since migrated its savings to MuleSoft, too. The mobile mortgage offer is based on 100 per cent direct processing – auto-conveyancing, auto-valuation and auto-credit scoring – and the bank is incrementally shaving off processing time. In May, it reported having completed more than £1billion in mortgage lending, with application-to-offer time 14 seconds faster than a year earlier. This unprecedented processing rate has made all the difference to Atom which, as a pureplay mobile bank, needed to make sure service and API upgrades were super-fast. Now, rather than waiting 90 minutes to upgrade the server software for the middleware, it’s taking all of two minutes per API, which the bank tackles one by one. Similarly, MuleSoft has allowed it to design, build and test an API in one day and increase its ability to guarantee monthly API release cycles. In fact, every timeframe has been reduced to atomic speeds. There aren’t many banks that can say they have automated their mortgage process to such a degree and, for Mullen, it’s just the start. “We want to expand our mortgage range, we want to expand our savings range, and we want to automate our business lending proposition,” he says. Technology also plays a massive part behind the scenes of Atom’s customer experience. It has deployed Reevoo, the user-generated content platform, to improve customer engagement and provide better purchasing decisions.
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The Reevoo reviews feed into the bank‘s mortgage and fixed savings products, providing customer insight and intel. Meanwhile, Reevoo’s Fast Response tool empowers the bank to identify and respond to negative reviews and queries in a timely way. Using a combination of technology and a network of physical brokers is its chosen way of saving on mortgage lending overheads. This value-for-money ethos also explains its commitment to remaining under one roof and in the UK’s North East, rather than in London where the cost of property is significantly higher. “It’s just a very disciplined way of trying to build a business model,” says Mullen. While this all reflects its fintech-maverick approach to banking, there are other facets to Atom that reflect more traditional thinking. Mullen is clear about the bank’s proposition, which remains true to a more conventional banking model that’s balance sheet-driven, helping customers to save, borrow and secure competitively priced mortgages. “It’s as old as time itself but that was always our strategy,” says Mullen. “So, there’s no revisionism about that. It takes longer to do it than we’d thought but, frankly, if you’re not going to do it well, don’t bother.” That sums up Atom’s approach to introducing its first current account, too, which was originally planned for a 2018 release but looks increasingly likely to be postponed until 2019. Mullen says it will not launch until the Financial Conduct Authority (FCA) has concluded its inquiry next year into the profitability of current account banking, which he believes will provide important insights and possibly new legislation that will be critical to Atom’s next move. “You still have free-if-in-credit in the UK, which, as far as I’m concerned, is a barrier to competition because it doesn’t force banks to report on the true cost of providing banking services and transaction services to customers,” says Mullen. “We wanted to have our own payments vehicle in place, so we’re a clearing bank for
Taking its time: Atom will wait and see what the regulator says before launching a current account
It’s difficult to explain just how important time is in allowing a business to manage risk and to make better decisions. Just being here and learning makes such a profound difference
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the Faster Payments Scheme. That just makes our payment management efficient. Had we not done that, putting a transactional account in place would have just been uneconomical. So, our judgement is to delay [the current account product]. It’s not not to do it – it never was our intention to cancel it.” Equally, Mullen says that the Open Banking Initiative – in which he is involved – is an ‘interesting development, but still in early stages’ and another reason Atom won’t rush its maiden current account offer. “Let’s wait and see how Open Banking develops and how the regulator continues to view things, or what remedies might come forth… and let’s take a longer-term view,” he says. “You know, when you start building a business, you’re sort of fighting for your life
and you get into a cycle of trying to achieve deadlines on a monthly, bi-monthly, six-monthly basis, and it really is very difficult to break out of that mindset to start thinking about a decade hence. But we are now thinking in terms of a decade and that makes a world of difference to how quickly we think we need to do things. “It’s a very big market: there are 64 million current accounts. So, will it be possible for us to take more time and launch a product later? We think so.” It’s easy to get a feel for Atom’s culture. It’s a healthy balance between common sense and risk management, whether in recruiting additional staff, securing new premises and capital, creating a new type of internal culture or trying new technology. “We work on the basis that the sign over the door is ‘Atom’, so if anything goes wrong it’s going to come to us,” says Mullen. “In an Open Banking ecosystem there’s no point saying ‘I’ll refer you to the person www.fintech.finance
LENDTECH who manufactured that product’,” he says. Time will tell how it all plays out. “As the years progress, your ability to manage those risks improves because your team gets bigger, you stabilise certain aspects of your technology, your buying power and negotiating power improve, because suppliers and partners have more confidence that you’re going to be here tomorrow,” adds Mullen. “It’s really difficult to explain just how important time is in allowing a business to manage risk and to make better decisions. Just being here and learning makes such a profound difference.”
Rapping and switching Without having taken that time to create its pioneering fintech brand, Atom may not have managed to secure the input of one of the US’s finest multi-talented entrepreneurs, will.i.am.
foundation is especially interesting. We can learn from that and, in particular, his focus on science, technology, engineering and mathematics (STEM) and social inclusion. “He’s not an advertising asset,” clarifies Mullen. “He advises the board, not just on technology, but also on corporate social responsibility and investing in STEM partnerships. Because he’s such a well-connected individual, he’s got really interesting views about the development of technology in society. “We just think that having somebody who comes from a much more eclectic and diverse place adds a bit of grist to the mill.” Atom is passionate about diversity and is doing its bit to recruit new technologists, especially young women, which led to it signing a deal with The Prince’s Trust to become its science, technology, engineering and mathematics partner in the North East.
In tune: Rapper and entrepreneur will.i.am advises the Atom board
The announcement that he was becoming involved with Atom was met with equal measures of awe and confusion; many weren’t able to reconcile will.i.am’s technology-based ambitions with his stage persona. “The relationship with will.i.am is really interesting because he’s an exceptionally talented and gifted guy, and the work that we’re doing is actually much more connected to our agenda in our local community than to the intrinsic development of Atom,” says Mullen. “He has a technology business – he’s not just a recording artist or TV personality – and his engagement in his local community in Boyle Heights, Los Angeles, and what he’s done to create the i.am.angel www.fintech.finance
So, it’s not hard to see why these two mavericks – a challenger bank and a rap entrepreneur – might be drawn to one another. From the get-go, both parties have done it their own way.
An Atomised future Mullen is under no illusion that to achieve the bank’s goals it has to spin itself up and over everyday legacy thinking and innovate like never before, although not at the expense of old-fashioned ethics or integrity. “There are lots of lenders out there. We don’t promise to be in the business of serving all customers, but we are trying to be quite specific in that if they do choose us, we’ll try to make sure their mortgage is
processed as efficiently and as effectively as we can,” he says. Given one wish, Mullen – who was previously with HSBC and First Direct – would probably find a magic API to get customers to see switching as an acceptable and doable task because, like most other banking executives, he feels frustrated by the everyday punter’s reluctance to make any changes to their day-to-day banking habits. “The willingness of people to switch accounts is still very low and that’s in spite of a number of efforts by the industry to encourage switching – like the Current Account Switch Service (CASS) – to make it a more trustworthy and easy,” he says. “For the last 30 years, customers have been saying the same thing. That, first and foremost, they don’t think there’s a big enough difference between the banks to justify moving from one to another. That, secondly, it is an effort and there’s concern and uncertainty about direct debits and standing orders being sent and received correctly. If you’re worried about your mortgage payment being missed, that’s a niggle in the back of your mind. Thirdly, there’s not enough incentive – what’s in it for me as a customer? Not just is the service better, but also is it a better offer?” He acknowledges there are other factors coming into play now, too. “There’s been a period of pretty stable but low growth, economically, and, of course, with Brexit coming over the horizon, there are a few question marks about the general health of the economy lying ahead. So, not a very positive picture, although there’s also a whole bunch of opportunities in that.” What those might look like, Mullen doesn’t spell out. But it’s worth noting that Atom’s largest shareholder is Spanish bank BBVA. It received a waiver from the Takeover Panel to increase its stake in the challenger to almost 40 per cent when it helped raise some of the £149million growth investment in March. Its slice of Atom is part of $1billion it has sunk into fintechs globally, including three other startup banks as BBVA pursues a strategy of transforming itself into a bank-as-a-software company with a focus on leveraging data. On its own, an atom is a free spirit, dynamically going wherever it wants; bound in a molecule or deliberately fused with others, its potential is awesome. So say the laws of physics… Issue 10 | TheFintechMagazine
Bangers and cash
Jonathan Slater, Head of Strategy at MotoNovo Finance, outlines his vision for a slick used car buying experience in a sector that’s ripe for disruption
Most of us with a driving licence and not quite enough money in the bank have experienced the ritual of purchasing a used car on finance. You arrive at the dealership and begin perusing the cars on the forecourt, pressing your nose against some windows and kicking a few tyres. After four and a half minutes (long enough for them to size up you and the size of your wallet), a salesman saunters over and casually compliments you on your impeccable taste in motor vehicles (regardless of which car you happen to be studying at that precise moment). An exchange of pleasantries follows and then the salesman leads you over to a ‘cracking little motor’ that would be ‘perfect’ for your needs, giving the roof a hearty thump in confirmation. In the white-walled office that smells of air freshener at the back of the lot. You sit opposite as the salesman locates the vehicle on his database, twiddling your thumbs and admiring the Formula One Legends calendar hanging above his desk. Negotiations ensue; first on price, then on the terms of the finance plan. You shift awkwardly in your seat during the credit checking procedure, conscious that you’re looking way more anxious than you need to. After one final game of ‘he who speaks first loses’, you pay the deposit, shake hands and drive off into the sunset, utterly wrung out and unsure whether your partner will approve of the racing stripes and aftermarket sound system. But what if there were another way to purchase a used car on finance? What if you could pick your car, make your finance
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application and instantly receive a decision in principle from the comfort of your own living room? Established motor finance firm MotoNovo is turning this car-buying dream into reality with the recent launch of a new online platform. Findandfundmycar.com says what it is: a way to make choosing and purchasing four wheels as simple as an Amazon delivery. “I truly believe that, in the not-too-distant future, we will be able to research, spec up, finance and take delivery of cars from our homes,” says Jonathan Slater, head of strategy at MotoNovo Finance, who sees the platform as a key part of the ongoing disruption of the car finance market. “Our car-buying website constitutes an online digital platform that brings together both the vehicles and financing to deliver them both through one seamless experience. As a consumer, you’re presented with a wide selection of vehicles from our trusted dealer stock and a range of finance products that enable you to purchase these vehicles. The entire process can be initiated and completed in an online environment,” says Slater. So, great news for petrol-head couch potatoes, but also for the majority of consumers in the market for a new vehicle.
“We’re witnessing a technology-enabled customer revolution in a lot of different areas,” says Slater. And with more than 90 per cent of customers starting their car-buying journey in an online environment, there’s clearly scope for a vendor to allow those who feel comfortable to complete the process online, too. With findandfundmycar.com, you can see the car-buying process through to completion in your internet browser,” says Slater. “Equally, should the customer want to pursue a different route, they can look at vehicles online, commence a finance application and then go and visit the dealer in person. It’s this consistent flexibility that makes findandfundmycar.com such a unique proposition within our marketplace, and ultimately allows us to give our customers what they want, be that a fully online transaction or a blend of online and face-to-face services.” Findandfundmycar.com has made a big impression on the car finance community since its launch at the end of 2017. Along with consistently glowing customer reviews, MotoNovo has taken home a host of industry accolades for its new website, including the Innovation Award at Car Finance Conference 2017 and the Finance Provider of the Year Award at Car Dealer Power 2018. Its digital self-service portal for car credit customers to manage their online account also won MotoNovo suppliers Equiniti Credit Services and fintech Intelligent Finance a joint Best Use of Technology Award at the Car Finance Awards. As a disruptor in a niche market, MotoNovo is one of the new generation of lenders that Equiniti Credit Services’ boss Richard Carter sees operating in his www.fintech.finance
reimagined retail/finance environment, which is working towards one-click customer experiences that roll up purchase and funding. Indeed, with the recent introduction of Open Banking regulation, such as the revised Payment Services Directive (PSD2), Slater believes that findandfundmycar.com could be just the tip of the innovation iceberg within a sector that struggles to shake off the oily rag image. “In a couple of years from now, I think we may look back at PSD2 and Open Banking and see it as a watershed moment for change across financial services and adjacent markets,” says Slater. “They represent a huge opportunity for people already operating within the car finance market, but also for lendtech companies looking to leverage new regulation to provide exemplary consumer experiences. For example, Open Banking can ease the underwriting process at the front end by permitting additional data to be pulled in. This allows decision making to occur faster and more accurately, which could incidentally reduce the timescale of a finance application from around 10 minutes down to a matter of seconds, benefitting both the customer and the company.” Where many established car finance firms are currently fretting about the competition posed by lendtech organisations, Slater believes that this new type of company could actually aid bigger institutions in adding value to their solutions through collaboration. “Following on from PSD2 and the Open Banking revolution, I can see many lendtech providers teaming up with large financial services firms to create highly scalable propositions,” he says. “Both types of company have their own individual assets, capabilities and ways of working, and by bringing these together it’s possible to generate particularly compelling customer solutions. At MotoNovo, I’m looking forward to pursuing opportunities that may lead to lendtech collaboration, as I believe the future victors in the car finance space will be those companies that have successfully collaborated.” Despite manufacturers currently offering eye-wateringly good deals on brand new vehicles as a result of www.fintech.finance
escalating emissions requirements, the UK used car market remains remarkably strong. According to the Society of Motor Manufacturers and Traders, second-hand car sales in Britain dipped by only 0.4 per cent in the second quarter of 2018, with 2,093,429 used cars changing hands from April to June. While used car sales have remained steady, point-of-sale used car finance has seen significant growth over the past year, with an 11 per cent increase in value in June this year compared with the same month in 2017. This surge in the car finance market has not gone unnoticed by the Financial Conduct Authority, which is currently investigating ‘whether customers have sufficient, timely and transparent information when taking out motor finance’ in a report to be published by the end of the year. The report will focus on higher-credit-risk consumers in an effort to test whether the creditworthiness assessments of lenders are working in favour of consumers. While the news of such a report may well have made the blood run cold at some car finance firms, MotoNovo welcomed the investigation, with CEO Karl Werner stating that ‘a bright future for dealer finance has to be earned with a greater reputation for quality and customer care’. As other car finance companies rush
I can see many lendtech providers teaming up with large financial services firms to create highly scalable propositions
not appropriate, but it also allows us to personalise our offerings when it is. Different data sources (for example social media) can provide a bunch of behavioural data points that can be used to tailor the services that we ultimately offer to our customers. “When it all comes together, what you’re left with is a customer experience that is as relevant and rich as can be, no matter what your credit score.”
A lending revolution: Used car finance is ripe for disruption
to alter their credit assessment processes in response to the investigation, Slater is confident that the technology integrated within its solutions already ensures that MotoNovo’s unsecured lending is entirely responsible. “We’re not extending credit to people that can’t afford it,” says Slater. “We can be sure of this, thanks to the technology that underpins our digital assets here at MotoNovo. Not only does it prevent us from offering credit where it’s Issue 10 | TheFintechMagazine
Never too old...
Van Lanschot has been managing wealth for 300 years, but David Versteeg, Director for Digital and Innovation, is helping it drink from a fintech fountain of youth The second Payment Services Directive (PSD2), implemented this January in the European Union, has been described as the biggest banking industry shake-up in six centuries.
That’s the kind of shock you can probably do without when you’re nearly 300 years old. But Dutch group Van Lanschot Kempen is proving remarkably sprightly for its age. Its response to the new era of open banking was to redefine its market position, concentrating on wealth management for high-net-worth clients and digitally disrupting its own core. It sees PSD2 not as a nail in the coffin but as potentially unstopping the fountain of youth. Key to making the most of this rejuvenation was entering into a partnership with German challenger bank Fidor in March 2017 to upgrade its payments software and infrastructure using the fintech’s white label Payments Avenue. It was the first implementation of the system to be inspired by the open banking reforms. David Versteeg, director for digital and innovation at Van Lanschot private bank, part of the Van Lanschot Kempen group, said at the time that the collaboration with Fidor would allow the bank to be PSD2 compliant and enhance its client service. Fidor has used open application programming interfaces (APIs) to create the integrated fidorOS platform, through which it manages Van Lanschot’s user and account data and processes its payment flows. Collaborating with Fidor also meant working with a scalable, agile third-party system that gives process updates and innovations in real time. It was the latest in a series of IT investments that fundamentally changed the architecture of the bank. Versteeg explains: “We decided to build our digital channels from the ground up, using Cloud technology and taking a mobile and API-first perspective. We
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introduced an agile way of working and insourced a lot of the front-end development. That allows us to be fast and flexible in introducing improvements and innovations, including using third-party services. Previously, where we had to rely on third-party vendors using legacy systems, this was impossible to think of.” For Van Lanschot’s clients it meant an upgraded, smart and seamless user experience across iOS and Android mobile applications and desktop internet banking platforms, multiple accounts in multiple currencies, global money and peer-to-peer transfers. Other recent collaborative developments have included, in 2016, the launch of a discretionary management app and, in 2017, an investment advice app for investor clients. “Given that we use a mobile-first approach, and that investment is core to our offering, this is where we started developing to start with,” says Versteeg. “The current investment app we have for our clients is really state-of-the art. It has a very intuitive user interface and customers can see all sorts of cross-sections of their portfolio, as well as its performance and relevant news. “It also serves as a low-friction platform for communicating with their investment advisor.” This ongoing technical advancement strategy is fuelled by a realisation that, even in the complex territory of wealth management, customers want the ease of fulfilling tasks online. “In the wealth management industry, I don’t expect clients to want to have fully digital onboarding any time soon, simply because of the fact that the amounts at stake are just too high,” says Versteeg.
“I think people still want to have a face-to-face conversation with a banker. They want to look people in the eye. “Having said that, we are working on all sorts of technologies that ease the process. I think fully online onboarding, or mobile onboarding, is mostly relevant in the robo-advisory space, because the amounts are typically much lower, and that’s also a service we offer, through our subsidiary, Evi (the bank’s online savings and investment coach for new and experienced investors in the Netherlands and Belgium).” The most important requirement for organisations like Van Lanschot, according to Versteeg, is offering its clients choice. “One of the biggest challenges is the change in client expectations, driven by the big techs,” he says. “Nowadays, as a bank, you cannot dictate anymore how a client should interact with you. People are used to seamless mobile experiences, like they have with Facebook or Google, and this is where the fintechs come into play, because they really cater for that need. But this challenge also serves us with one of the biggest opportunities, because we can leverage our strong brand, and the strong trust relationship the banker has with the client. If we can step up our game and develop digital channels to offer a truly omnichannel experience, we can combine the best of both worlds. “A key consideration of our design and development effort is therefore ensuring that a client can choose whether he or she wants to interact with us via a face-to-face meeting, all the way through to self-service capability in the app and everything in between.” This focus has seen Van Lanschot increase its investment in IT resources by €60million between mid-2016 and 2019, in addition to its usual annual budget of
A bank cannot dictate anymore how a client should interact with it
€20million, while insisting that ‘digital service delivery must always go hand in hand with personal contact’. In its annual report, chairman Karl Guha remarked that ‘the impact of technology on all our businesses is profound’, adding that client behaviours had undergone a sea-change. Wealth management for high net worth individuals is a particularly tricky space to be in as an incumbent – striking the balance between highly personalised client service, a digital client interface and reducing costs in the face of competition driven by PSD2. In these circumstances, choosing the right technology is critical to maintaining profitability. As Guha put it: “The question is ‘how does one create a trusted space between our clients and ourselves in a digital environment?’ The answers are by no means obvious.” As part of the new strategy, Van Lanschot private bank, the separately operated online investment assistant Evi, Kempen asset management and Kempen merchant banking were brought together as the Van Lanschot Kempen group and adopted the new tagline ‘the power of one’. This expressed not just the combined corporate strategy, but also the bank’s fundamental belief in the role of the individual within the bank to make a difference. You could say it sums up the increasing autonomy of its clients, too. “The wealth manager of the future is a personal touch, supported with digital technology,” says Versteeg. “The key is, and will remain, understanding your customer, what motivates and challenges him or her, and adapting services accordingly. We see our bankers as guides, helping our clients to lead a rewarding life. “It’s wealth management, in the broadest sense.”
Age is no barrier: The 300-year-old bank is adopting the newest tech
Issue 10 | TheFintechMagazine
Find the golden key An API-enabled core is how to unlock a bank’s future, believes Martijn Hohmann, founder and CEO of digital banking technology provider Five Degrees
Unlocking the future: Five Degrees’ Matrix platform is an open, API-enabled system
Five Degrees founder and CEO Martijn Hohmann has an uncompromising view of transformation: “If banks don’t change, I think they will be outcompeted,” he says simply. He’s particularly critical of their slow response to the growing needs of business customers. In an article earlier this year he called out the established banks for neglecting the sector and warned: “Inertia is one of the biggest threats to big banks failing to capitalise on the opportunity that the SME segment presents.” That opportunity, he believes, is best served by adopting an open, application
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programming interface (API)-enabled system, such as Five Degrees’ Matrix platform. It’s a solution that it promises will work with any core legacy IT, enabling open API banking, supporting regulatory requirements and unlocking the potential of the fintech ecosystem. It’s been turning the API key in the lock for almost 10 years. “For us, the revised Payment Services Directive (PSD2) is nothing more than a regulated form of open banking and our system has always been set up for that because we believe that banks will use more third-party products that they sell through their client bases, or use
third-party channels to deliver services to their clients,” says Hohmann. For him, open banking is ‘basically creating a kind of internet of banks’. Take its recent partnership with BillPro, a global cross-border payments provider. It’s using Five Degrees’ digital banking platform in conjunction with its payment services so that it can launch APIs to any fintech wanting to become a banking service provider, without actually having to become a bank. “They deliver the backend, the banking licence, all the infrastructure, and we make sure that we open up all that infrastructure to the world,” says www.fintech.finance
Hohmann. “You can start a bank tomorrow by using their services. I think this is a great example of the financial industry redesigning the value chain. This is the part where distribution and understanding the client’s needs and servicing them, becomes disconnected from the balance sheet and from the banking licence. BillPro has a great vision of how to conquer that market – and we are part of that journey.” At the other end of the banking scale is another client, the 300-year-old Dutch private bank Van Lanschot (part of the Van Lanschot Kempen wealth management group). It came to Five Degrees with what Hohmann describes as a spaghetti bowl of different systems. “We helped them to restructure their IT landscape and they have an orchestrating hub now between the channels and their product systems, putting them in control of all the data,” he says. The project was particularly complex, due to Van Lanschot Kempen’s multiple entity structure, the swathe of people involved and the more advanced due diligence process required. But one of the more striking outcomes was that onboarding times were reduced from weeks to hours as the bank ramped up its know-your-customer processes. “With the Five Degrees system in place, Van Lanschot is working on a digital experience, which is much simpler because we can offer all the APIs for any type of activity that the bank wants to bring online (via apps or portals),” says Hohmann. "I believe it has become the most modern private bank in the Netherlands – maybe in Europe. “Now it can consider connecting other products and services that it doesn’t really want to own but still wants to deliver to customers. Our digital banking platform lets it do all this without the heavy cost of having certain products that it doesn’t have the skill to manage. “Meanwhile, the bank can support its clients with other services, such as book-keeping, accounting services and so on, because it runs through our digital banking platform.” In his experience it’s always the middle office in banking where frustration peaks – which is not surprising when you consider the number of applications being used at any one time. www.fintech.finance
“If you look at the Tier 1 banks across Europe, they have probably 1,500 to 2,500 different applications in one landscape,” says Hohmann. “So, although our system can handle it perfectly, these are not typically the banks we target. We just feel that these IT landscapes are too old, too complex and beyond repair. “In our opinion, the Tier 1s should just start all over again and move their clients to a new platform instead of trying to incrementally renew their landscapes. But it will take them five to 10 years, and I’m not sure how much time they have. “I would never want to digitally transform a Tier 1 bank. The question is: are we going to start seeing the mid-tier banks becoming far more agile and far more prominent in people’s lives?” Hohmann, who worked with ABN AMRO for many years, believes that the customer is probably the larger banks’
The Tier 1 banks across Europe have probably 1,500 to 2,500 applications in one landscape. We just feel that these landscapes are too old, too complex and beyond repair biggest asset and, as such, they need to maximise their value during the next five years or lose them to more nimble operators. He believes customers would rather be with a bank that not only protects but maximises their data for the customer’s benefit. “Banks should help me as a customer to leverage that data to get the best out of my life. If banks understand that, they can come up with great propositions based on modern technology that customers would love,” he says. To that end, cognitive banking is the hottest trend that Five Degrees sees at the moment because cognitive IT systems can learn and improve from changing customer information or as an organisation’s needs evolve.
Cognitive IT is anchored in machine learning, natural language processing (NLP) and human interface technologies, which makes it easy for it to interact with users, other devices and data sources. Compared to legacy computing, which orders and calculates on the back of preconfigured rules and programmes, cognitive systems work with dynamic situations – even information-heavy ones. It thrives on a diet of data. Munnypot, a robo wealth advisor in the UK, for which Five Degrees provides customer relationship management (CRM) and business process management (BPM) solutions, is a prime example of leveraging machine learning to predict financial needs in wealth management. In retail bank sectors, a similar solution could proactively recommend personalised loans or suggest transfers to a savings account. As far as IT goes, cognitive is the ultimate destination and data is the fast-moving vehicle that takes you there, says Hohmann. “Cognitive banking is something that many people talk about and not many do, but it is the future,” he says. “In our experience, cognitive banking can help tremendously to support the clients’ needs faster, better, reliably and consistently.” Hohmann sees Five Degrees’ role as that of a data orchestrater, understanding the relationship between data, who has access to it, who can change it and who is allowed to use it. “We understand all these relationships, rights and rules on the data and we can expose it to either the customer, so he/she can control his/her own data, or to an agent that’s been appointed by the customer, who can leverage the data on the customer’s behalf.” He sees a potential future role for the banks as ‘data custodians’, using artificial intelligence (AI) to help customers get the best deals in the market. While Five Degrees can deliver the building blocks, the banks still have a raft of responsibilities that can’t be outsourced. “Banks need to have the culture and the drive to become the best for their customers,” says Hohmann. “They still have to be passionate about their long-term vision and I see some really good examples of that in the market. We can support them on their journey.” Issue 10 | TheFintechMagazine
CORE IT Flexible banking: The Cloud allows for versatility and collaboration
Bending the core Darryl Proctor, Product Director for Payments and Universal Banking at Temenos, considers how its flexible core banking offer gives banks control over their destiny Customers don’t like service interruptions, and they especially don’t like account mash ups where confidential information is exposed and balances are bungled. Such was the unhappy experience of many TSB customers early in 2018 when the bank made its long-planned transfer of customer data from its former owner, Lloyds Banking Group, to a new platform operated by the Spanish bank Sabadell. Although it was sensible to move from a complex legacy system to an innovative digital platform, it proved to be a clumsy step. Well before the migration, an analyst at TechMarketView had suggested that it might be better to use off-the-shelf financial software suppliers such as FIS, Fiserv or Temenos – an approach employed by Sainsbury’s Bank among others. No doubt Darryl Proctor would agree.
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He is responsible for Temenos’ product planning and delivering its corporate and payments products. Because Temenos focusses exclusively on banks and financial institutions, and has more than 25 years’ experience as a financial software specialist, transformation/migration comes with the territory for him. “Ripping these pieces of technology out is proving pretty difficult for banks to do, but they know they have to change,” he says. “It’s all about being digital to the core. It’s the principle that Temenos lives by.” Tighter regulations, new entrants in the market and changing customer expectations have all increased the pressure on today’s financial players. And behind everything is the issue of technology – specifically, outdated technology. Because, while Proctor believes banks have been good at adopting the new
systems, the problem has been what to do with the old. Many banks, says Proctor, have taken the sticking plaster approach, making piecemeal changes and running repairs. Now they’re out of plasters, they’ve elected for major surgery and are starting to adopt new cores and developing new platforms. But without the right partners, it can – as TSB found to its cost – send the system into shock. And when delivery doesn’t live up to promises, as in TSB’s case, it’s a major blow to credibility. So, how do banks evolve in a controlled way? “One route is progressive renovation,” says Proctor. “It’s something the bigger banks tend to go for. They start small, taking a ‘friends and family’ approach, and do proof of concept to see what works and what doesn’t, what’s popular and what isn’t.” That contrasts with what he describes as the ‘big bang’ approach, adopted by, for www.fintech.finance
example, Santander Group, which selected Temenos Core Banking as the heart and lungs of its Openbank solution for retail and SME businesses.
Ahead in the Cloud Openbank was one the world’s first fully-fledged digital banks, now powered by an integrated, upgradable and scalable platform that can be deployed through the Cloud, whether private or public, or hosted on site. The Cloud is a key focus for Temenos and, according to Proctor, something all banks should exploit to the full. He sees it as a cost-effective, collaborative environment where data can be harnessed and shared within the limits imposed by customers. Could banks start to look like Amazon, controlling huge amounts of data that could be used in a wide variety of ways? “We’re still just on the fringes of what the Cloud can offer,” says Proctor. “In 10 or 15 years, banking will be very different. Right now, the opportunity is to build platforms as a service in the Cloud, allowing banks to innovate cheaply and swiftly. And, because the Cloud is so versatile and scalable, it can handle billions of payments.” Although not bound by the same regulatory issues as banks, he points to Amazon and Microsoft as examples of companies that have shown how investment in the Cloud can really pay off. In fact, he argues that ‘security offered by Cloud providers is greater than banks have in house’. He doesn’t believe the so-called GAFAs (Google, Amazon, Facebook and Apple-sized technology companies) have any desire to be regulated like banks – however close the Bank of Amazon appears to becoming a reality. His message to banks is ‘collaborate, yes, but don’t compete’. “If you have 30, 40, 50 banks running in the Cloud, not only is the total cost of ownership that much lower for those banks, but now they have all this data. If banks get together and start sharing data with customers’ permission, we’ve got an infrastructure in which they can adopt and sell more product. Even if it’s another bank’s product, it doesn’t matter. They become the ‘Amazon of banks’ by using the Cloud. “The likes of Amazon and Apple, while they offer payment services, don’t want to be regulated like a bank. Let banks do banking, let Apple do mobile phones. They know what they’re good at and the banks www.fintech.finance
are good at banking. It all fits into a nice little ecosystem. Think of it as a total Cloud where everyone contributes something and everyone wins. Most importantly, the customers, because they get a better service. Customers will move to banks that are using the Cloud and collaborating with technology providers that are developing services that customers want. I’d rather pay for a bank that offers better service in the Cloud by collaborating with lots of technology and software providers, than a bank that is not going to offer me the things I really need.” When it comes to meeting those needs, an open application programming interface (API) architecture brings additional benefits. “With an API, you have versatility and flexibility,” says Proctor. “Of course, I want every bank to run Temenos’ software, but I accept that they can’t all have our products, everywhere. So, you need a standard API capability for systems to interact; the more they interact, the better for customers.” Indeed, the Temenos payment hub has been designed with open APIs in mind, so that payments in and out of the hub are standardised. This avoids the situation where customer services can’t be centralised because APIs are hardcoded and non-standard, meaning they may have to be pulled out and replaced. “Our core banking application is founded on flexibility,” says Proctor, “which allows banks to be in charge of their own destiny. So, rather than coming to us every time one of our customers wants to do something, whether for the revised Payment Services Directive (PSD2), open banking, or some aspect of digitisation, they can do it for themselves, in real time.”
ago, we worked with ABN AMRO to develop a payments app. We’re well-versed in ISO 20022, so the app is designed with standards in mind, and we’ve immersed ourselves in the world of instant payments and mobile technology. Our philosophy has always been to innovate rather than adapt.” He makes a distinction between ‘digitised’ and ‘digital’. While other companies digitise their businesses, which implies adaptation, Temenos builds digital systems from the ground up, and can create entirely new businesses. “We let banks do what they do best – the banking – while we deal with the technology base that makes banking fit for the digital age,” he says. He's certainly seen technology fragment financial services, and adopted by incumbents to create new brands. One example being Pepper, a digital banking subsidiary launched by Israel’s Bank Leumi, which runs on Temenos’ Core Banking platform – an example of positive disruption from the inside. As a company, Temenos is looking to Australia and the Asia Pacific region to lead much of future technology development. It also sees them as growth markets for Temenos, particularly when it comes to cross-border trade. It’s why visitors to Sibos 2018 in Sydney will hear more about Temenos’ open banking initiatives, as well as its efforts to combat international cybercrime with financial crime mitigation software written into its core banking system. Recently bolstered by its artificial intelligence-based Suspicious Activity Prevention solution, it can immediately identify anomalies and is said to bring down false positives to 2.5 per cent compared to an industry standard of approximately five to seven per cent. Cloud-hosted or on-site, Temenos’ view of transformation is that the system ‘allows the bank to be in charge of its own destiny’, says Proctor. “So, rather than coming to the vendor, like Temenos, every time they want to change something, be it for PSD2, Open Banking or digitisation, they can do it themselves. “You’ve got to have a flexible core banking architecture to do that.”
If you have 30, 40 or 50 banks running the Cloud… sharing data with customers‘ permission, they can become the ‘Amazon of banks’
Innovate to accumulate Temenos believes in big, market-leading changes. An example is its move to 24/7 banking more than a decade ago. “We took away batch-based processing,” says Proctor, “and, believe me, there are still plenty of banks that still do it. With payments, where there are huge changes, we’ve never stood still. Around five years
Issue 10 | TheFintechMagazine
(tomorrow, too!) A ‘ruthless willingness to change’ will be the hallmark of banks that flourish in a tech-led world… and Temenos is helping them get there
The latest Global Retail Banking Report from The Economist Intelligence Unit and Temenos reveals that, for the first time in the survey’s five-year history, technology-driven trends and customer experience (CX) have eclipsed regulation to become the most significant factors shaping their industry. Of the 400 senior banking executives who participated in the worldwide study, 58 per cent predicted that changes in consumer behaviour and demands will have the biggest impact on retail banks over the course of the next two years. Meanwhile, 48 per cent of respondents identified emerging technologies, such as artificial intelligence (AI) and blockchain, as the second major influence – an expected result, given that ‘new technology is also stripping costs, increasing productivity and boosting fraud and compliance capabilities’, according to the report. With 43 per cent of votes, the category ‘regulatory fines and recompense orders’ had slipped to third place, indicating that banks were at last coming out from under the shroud thrown over them by the global financial crisis – for the first time
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they were more focussed on the opportunities for the future than they were about atoning for the past. This shift in strategic outlook appears to be due in part to the platformisation of many institutions and the opening up of their ecosystems to third-party fintechs. These reformed business models have improved agility, enabling incumbents to accommodate regulatory change. Somewhat ironically, however, agility appears to be the area in which regulation causes the most difficulties. Data protection and privacy regulation are cited elsewhere in the survey as ‘the biggest challenge that [companies] face concerning data and third-party access’. Nevertheless it’s good news for the fintech startups that took part in the Temenos Innovation Jam earlier this year, all of which are looking in one way or another to solve the banks’ challenges. The global competition, which runs on an annual basis, consisted of eight regional heats, culminating in a final showdown at the Temenos Community Forum (TCF) in Dublin. Ten winners from the regional rounds – held this year in Abu Dhabi, Amsterdam, Dublin, Geneva, Hong Kong, London,
Luxembourg and Miami – proceeded to TCF to compete for the opportunity to join the Temenos MarketPlace, a self-service digital store that provides banks, influencers and accelerators with access to a curated selection of the finest fintech solutions from around the world. Explaining the contest’s purpose, Ben Robinson, Temenos chief strategy officer says the Jam feeds into the company’s objective of delivering cutting-edge technology to its financial sector clients. “Our goal with the MarketPlace is to help banks to accelerate innovation by finding the most innovative solutions and pre-integrating them to plug and play with their Temenos Suites,” says Robinson. “The Innovation Jam competition plays a very important role in helping us to uncover the best fintech solutions.” More than 20 of the current MarketPlace providers have joined through this route. From a startup perspective, the MarketPlace is a critical opportunity to leapfrog initial barriers to entry. Not only does it allow direct access to Temenos’ 3,000-strong global customer base, but it also enables newcomers to deploy products within a matter of weeks. In line the Global Retail Banking Report, www.fintech.finance
the finalists of the 2018 Innovation Jam demonstrated a focus on CX, regulation and emerging technologies. Two of the 10 startups – and Uniken – embraced the current trend towards customer-centrism. Xtremepush is a global multi-channel engagement and experience marketing platform, which won the regional Innovation Jam in London last year. This time around, the fintech pitched a CX strategy that allows banks to deliver hyper-relevant messaging to customers across multiple communication channels. Meanwhile, Uniken offers REL-ID, a strategy that allows banks to empower customers through transparency. “Our solution is what I call customer-first security,” says Uniken’s CEO, Bimal Gandhi. “The REL-ID mobile-first security platform was designed for today’s world and today’s consumer. No more passwords, no more worry about stolen credentials, no need to divulge personal identifiable information (PII) or answer bizarre questions about their favourite foods or songs when someone calls in.” As specialists in cybersecurity, Uniken also inevitably engaged with regulation. By integrating identity functions, based on biometrics, cryptographic split keys and device intelligence, REL-ID is also a unified security platform that fully complies with global regulation. Apiax and Pushfor joined Uniken in the conversation on compliance and data protection. The first is a regtech startup that builds toolsets to ensure that digital compliance checks put in place by the banks are verified and up-to-date. The second provides an out-of-the-box solution that mitigates security breaches when sharing information by securing it at the source. The integration of trending technology such as artificial intelligence (AI), blockchain, algorithms and machine learning connected the products touted by Docswallet, Callsign, vPhrase, Trezeo and Cygnetise. Despite this common thread, however, each fintech targeted vastly different markets spread across document authentication, cybercrime, data translation, personal finances and signatory authorisation respectively. Financial terrorism experts, Belleron, earned the judges’ vote with CAPTURE – a system that combines cutting-edge technology with regulation and security www.fintech.finance
– and was crowned winner of the 2018 Temenos Innovation Jam. CAPTURE uses machine learning to detect banking attacks from external organisations and financial crime syndicates in real time. Belleron’s victory is shared with SONECT, whose cost-saving, CX-enhancing, location-based matchmaking platform won over an audience of 1,200 technology leaders and financial institution delegates from all over the world to take the people’s vote. Explaining its function, founder and CEO of SONECT, Sandipan Chakraborty says: “What Uber is to Taxis and Airbnb is to hotels, SONECT is for ATMs. “SONECT democratises the ATM industry by enabling any shop in the neighbourhood or any human being to act as a ‘virtual ATM’. In essence, we connect people who have cash with people who need cash, saving the banking industry billions of dollars of cash distribution costs in the process.”
The Innovation Jam competition plays a very important role in helping us to uncover the best fintech solutions Both products and their reception exemplify the recalibration of banking concerns disclosed by the Global Retail Banking Report. While many miss out on the TCF finals, a diverse selection of the most promising fintechs progress nonetheless to the MarketPlace. Among these is Priviti, which took part in this year’s London Jam. The latest newcomer to the digital store and another that deals with regulation, Priviti enables banks to grant and revoke consent related to the General Data Protection Regulation (GDPR) and the revised Payment Services Directive (PSD2), sharing documents for know-your-customer and anti-money laundering checks, underwriting and consent for advisory portfolio mandates. Commenting on the future of the MarketPlace, Robinson believes its full potential has yet to be realised. “We can turbocharge this platform by expanding the ecosystem around it,” he
says. “We started by creating relationships with accelerators and innovation hubs to help us access the best fintech firms and to have those firms build natively on our platform. We are now building up relationships with resource partners that can help our community to generate even more value from being part of the MarketPlace.” In fact, it has already hammered out a partnership with collaborative fintech platform, B-Hive. The consolidation of their ecosystems, announced last month, will provide Temenos with an even more extensive pool of talent from which to select the fintechs best suited to the needs of their customers. Perhaps Temenos’ next intake of fintechs will target asset management, as 25 per cent of respondents in the latest Temenos Multifonds Fund Survey felt fund administrators and transfer agencies were not keeping up with requirements. “To close this gap,” said 92 per cent of participants, “third-party technology providers have an important role to play in accelerating technical innovation.” Reflecting on the results of the survey, Oded Weiss, managing director of Temenos Multifonds, reveals that this corner of the financial sector is ripe for disruption. “To keep pace with the demands of the industry, third-party administrators now need to invest in the technology, data and services to help asset managers compete in the digital world, by opening up new asset classes, unlocking insights from data, improving the user experience, and increasing oversight and control,” he says. While the fintechs have certainly benefitted from the shifting financial zeitgeist, how should the banks proceed to capitalise on the changes? “There is some wisdom in watching the fintechs,” suggests the 2018 Global Retail Banking Report. “Learning from their inevitable missteps could be good for banks’ profits and their reputation.” Yet it is equally imperative that their approach does not remain passive. “The trust customers have in their bank will mean little if it cannot provide the services that accommodate their lifestyles,” continues the report. “Being steadfast in the protection of what makes them strong, and ruthless in their willingness to change everything else, is the order of the day for retail banks.” Issue 10 | TheFintechMagazine
We’ll always have Paris Financial CEOs around the world have quickly fallen in love with the Paris Fintech Forum. We sat down with its Founder and CEO Laurent Nizri to ask why they’re so passionate and what they can expect as the relationship matures FINTECH FINANCE: The Paris Fintech Forum was only launched in 2016 and has already become the must-attend industry event in Europe. What makes it so special and what can we expect to see from it in January 2019? LAURENT NIZRI: The 2018 edition was a great event with 2600 attendees, 240 top industry leaders on stage, and more than 400 Fintech CEOs who had come from all over the world to be in the audience or to join us on stage. We set out to be a global event with an international stage and there were 72 nationalities in attendance – the French were, in fact, a minority! We had astonishing panels, too – between CEOs of banks, insurers, regulators and fintechs. So, it’s going to be hard to top the 2018 Forum, but we intend to try. In terms of key speakers for 2019, the big breaking news is that Christine Lagarde, CEO of the International
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Monetary Fund, will be taking part in a panel discussion. We also have the CEO of the UK’s Financial Conduct Authority on a panel that includes the Market Finance Authority for France, talking to fintech CEOs. Among the leading lights in fintech, we’ll be welcoming Nik Storonsky from Revolut, Valentin Stalf from N26, Jacob de Geer from iZettle, Rishi Khosla of OakNorth, Kathryn Petralia, co-founder of Kabbage, Mark Mullen from Atom Bank and Anne Boden from Starling, as well as David Vélez, CEO and founder of Nubank Brasil. They will be joined by government ministers of finance from France and Belgium, among many others. When it comes to representation by financial institutions, so far we have confirmed the CEO of BNP Paribas, CEO of Société Générale, CEO of Groupe BPCE and CEO of AXA Worldwide who will be taking part in the main panel events.
FF: It’s an impressive line-up – what’s your secret sauce for securing this calibre of participant? LN: We set out to promote discussion and debate and our speakers relish the chance to take part in that. So, you might be the CEO of an established bank or the head of a financial conduct authority or a government minister and we’ll mix you up on the panels with fintechs of all sizes. They all get to meet each other again at the gala dinner at the end of the first day, which is an astonishing networking opportunity in an amazing venue. Financial industry events are often very male-dominated, so we worked very hard this year to go and meet with as many female leaders as possible, all over the world, and convince them to join us on stage for this new edition. A lot of them will be there, led, of course, by one of the most influential women in finance in Europe, Christine Lagarde. It’s also a very www.fintech.finance
multi- cultural event – almost 50 per cent of attendees came from outside of France this year and our target for the next is higher. The majority come from the UK, Germany, Belgium, Luxembourg, Spain, Switzerland, Holland, Canada and the US. It is still my ambition to become ‘the Davos of fintech’. We have it as our mission statement at the end of emails! FF: What changes have you made to the event for next year? LN: Previously, we’ve held two days of pitches, which are open to all kinds of fintechs – last year we had 120 of them, from companies with hundreds of millions of euros of funding down to the very smallest. This year, there will just be one day for companies below €10million of funding to go in front of an international venture capital jury. The results will be announced on the main stage on the second day. Also – and this is a tiny but symbolic thing – we’ve tinkered with our logo. We’ve added an ampersand, so it now reads Paris Fin&Tech Forum. Why did we add it? Because it represents what we are trying to do – bring people together. When we conceived the event, back in 2015, everybody was arguing that fintechs would kill banks, that the incumbents were dying and so on. From day one, we never believed that would be the only way. We do believe that a new world is coming, with new players – you will have new insurance guys, new bankers, perhaps some of the neobanks today will be among the top 10 banks in the world tomorrow. But the majority of players will work together. Coming back to the show, we’re in France, so food is very important, of course.! You can’t avoid it. Mastercard is hosting the first day’s Fintech Lunch in a one-star French restaurant. Orange is doing the same on the second day. These business lunches are always fully booked – often before the invitations go out. Again, it’s all about working with people. Then there will be the workshops run by our partners as well as a number of side events. So, everything we organise fosters cooperation. For example, for next year we have an astonishing line-up of partners organising one-to-one meetings and thematic meetups – real business dating. www.fintech.finance
You have BNP Paribas, Google Cloud, Visa, Orange, Allianz and HSBC in dedicated lounges – but they are not there to relax! These are lounges with a registration process for meetings to talk about real potential use cases. All the fintech and corporate attendees have the opportunity to organise specific one-to-ones with those guys to see how they can work together. The goal is new business cooperation. FF: I think you’ve introduced an app to facilitate that? LN: We had huge success with our dedicated meeting app, Brella, this year. It's a bit like Tinder in that anyone can say what they are looking for – investments, partnerships, fintech –and then they
When we conceived the event back in 2015, everybody was arguing that fintechs would kill banks, that the incumbents were dying. We never believed that would be the only way receive proposals, which, if they accept, they have dedicated time slots, in dedicated seats, booked for their meeting. Last year, we hosted more than 1,000 individual meetings like this. Our target next year is to have 2,000 and we think we’ll reach it because it's astonishingly popular.
The swings in Bitcoin's valuation caused lots of controversy earlier this year, so we’ll be looking at what happened and what to expect going forward. Then there is how do we face up to the new security threats that are posed by open banking? The ones being disrupted by all this are not just the banks, but also the IT industry. The CEO of Finastra will be on stage, discussing with CEOs of challengers like Mambu, how the core banking industry and the tech industry are both being challenged and transformed. FF: It’s more than the Forum that you’re planning for next year. Can you tell us about the first Paris Finance Week? LN: Coming to Paris is quite a trip to make for the almost 3,000 people we welcome. We wanted to show that our city has lots to offer. So, many of the banks and international hubs, even private sector players, are organising events in embassies, offices, technology incubators, etc, in the week before and after the Forum. There might be a hackathon on artificial intelligence (AI), a business tour, networking lunch or breakfast, thematic conference, investor meeting or even cocktails to choose from. It’s co-ordinated by Altéir Event (the Paris Fintech Forum founder) in partnership with Paris Region Enterprise, Paris Europlace, Acsel and Finance Innovation. ■ Paris Fintech Forum takes place on January 29 & 30
FF: What are the major themes that are emerging for next year’s debates? LN: Our stages will cover all the main topics – lending, payments, blockchain, neobanks, insurtech, regtech – but some of them will take more of a front seat. This year, we’ve seen many regulators taking positions on fintech, be it to do with blockchain, or how we can have more competition and foster innovation. So, we will have specific discussions between fintechs and regulators, including, of course, about the rise of blockchain. Issue 10 | TheFintechMagazine
METRO BANK: VERNON HILL
American entrepreneur Vernon Hill set out to build a high-growth retailer that happened to be a bank when he entered the UK market in 2010. With Metro Bank now expanding beyond London and 1.4 million accounts, he’s displaying a terrier-like determination to deliver on his disruptive promise Even in his native America where big personalities are not in short supply, Vernon Hill is viewed as something of a phenomenon in the banking industry. The real-estate entrepreneur who figured there was no reason a bank shouldn’t be as customer-friendly (and as successful) as a branch of McDonald’s if you applied the right retail strategy, is often credited with reinventing banking in the States. He set up Commerce Bank in 1973, aged 26, and grew it from a one-branch outfit
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with nine staff in Philadelphia, to one of America’s biggest franchises, with 500 branches, 15,000 staff and $50billion in assets. It earned Hill an elite place on the Forbes 20-20-20 list of CEOs who have held the top job for 20 years or more, and consistently delivered 20 per cent annual shareholder returns. He sold out in 2007, just before the global financial crash, for $300million. Turning his sights on the UK, then still reeling from the crisis, he proceeded to do the unthinkable – open the first new bank
You don’t have to be a dog lover to work at Metro Bank, but it helps… Sir Duffield the Yorkshire Terrier is Metro Bank’s Chief Canine Officer. It doesn’t yet qualify him to have a seat on the board but he does wander around head office. “You have to be careful you don’t step on him,” says chief commercial officer Paul Riseborough. He tweets regularly as @SirDuffield to more than 2,000 followers and his beady little eyes stare down from posters in the bank’s stores – where water bowls and biscuits are always available – alongside the slogan ‘dogs rule’. He probably has his own safety deposit box of gold bones.
on the high street in 150 years, just as everyone was going bust or going online. From the start, his philosophy was to create a retail brand that happened to be in the banking sector and one whose addiction to providing five-star service created not customers, but fans. The customer-centric culture was demonstrated in Metro becoming the first high street bank to offer opening hours outside of the 9-5 and at weekends, while glass-fronted branches on high-profile corner sites featured dog bowls and treats and flashing ‘Magic Money’ machines. From its original branch in Holborn, Metro Bank has grown to hold deposits of £13.7billion and has 1.4 million customers. It’s become, as Hill anticipated, a high-growth retail business. FINTECH FINANCE: Metro Bank launched in the UK when trust in banks was at an all-time low. Did that work in its favour? VERNON HILL: We started the quest to open Metro in 2008, in the middle of the crash, and what we saw in Britain was a closed market, run by a cartel of the big five banks, which took the customer for granted. We decided to bring over our American model, which is designed to build fans around service and convenience, and it’s as anti-bank as I know how to make it. We opened in June 2010 and our growth has been unbelievable. I don’t think any bank, on either side of the Atlantic, has ever seen growth like this and, as a result, British customers finally have a choice. FF: So you’d say that the American brand of customer service has been a key factor in Metro Bank’s success in the UK? VH: The British public had been trained to accept bad service, long queues and being abused. That’s not the American way. They’d lost trust in the big banks, even before the crash, so it was a perfect storm of the right model in the right place at the right time and customers embraced it. We work on eliminating every stupid bank rule we can find and making it fun. The secret’s not product delivery; it’s customer experience. Customers care more about that, whether they’re commercial or retail – and the commercial market is even more mistreated than the retail side. They both want the best from every channel and all the channels united. www.fintech.finance
FF: In your view, what’s the biggest challenge you face as a ‘challenger’? VH: When I opened Commerce Bank there were 23,000 separately-owned banks in America, and we were number 23,001. We had one office, little capital and no clue, and we turned it into an exciting, high-growth model by copying the retail sector, not the bank sector. Before we sold our American bank, we were getting 21 million in-store customer visits a month and what used to keep me awake at night were questions like ‘how did we make them happy?’ and, most importantly, ‘how did we respond when something went wrong?’. In the same way, Metro Bank is about how we manage this unbelievably high growth while not doing too much wrong and promising to constantly make things better. We have to deliver a better customer experience next year than we’re doing this. FF: Everyone is now talking about customer experience. Where do you fit in between the Lloyds and the Monzos? VH: When you think about a bank, new or old, we’re really in an IT business. When you have antique IT, it’s almost impossible to fix. When it comes to fintech providers, while there are lots of new ideas, most of them are icing with no cake. They’ve got a good idea on top, but it has to fit into a bank’s core system, and if you don’t have a modern core system, in the end, nothing works. That was a big advantage for Metro, we had the only modern core banking system in Britain in the Temenos T24. The problem with British banks is they don’t have a modern core. As you buy Windows and other systems, if you have a modern core, you can hang that stuff on and make it work easily. Because what the customer wants, and what we want, is what’s called, in America, a single client view. Everything someone has with us shows up on one screen and it’s all united. We are the only bank in Britain that has it but every bank in America has it. It goes back to what I was saying earlier, in the UK, for many years, the big five banks took customers for granted, under-invested
and underserved them. The customers knew this was bad and a change was needed – we didn’t have to tell them. Those large banks had the vast majority of the market, but they also have a peculiar problem. They’re very big, they’re very broken, their brand is damaged and their IT systems are one step above a quill. FF: You say your modern core system allows you the ﬂexibility to hang other IT on it from third parties. So how does Metro Bank look to collaborate? VH: We work with a lot of fintech ideas, from the big advantage of a modern core system, but we have to pick and choose and go with ones that add value in a space that we might not have, but which can be integrated in our whole delivery system. There are lots of bells and whistles, like the fact we now open current accounts online or on mobile in 10 minutes. These ideas make the offer better. But they are tools, they are not our business model. FF: You’re seen as the original challenger bank in the UK. But you’re nearly 10 years old now. As you grow, what’s to stop you becoming the incumbent? VH: That’s a very good question! I’ve been down this path of growing dramatically before. It’s not only the risk of getting worse, we also have to make it better all the time – we have to use our size to add services but not lose our core values. We’re out to disrupt the British banking system, not to make it a little bit better. We’ve turned the mundane, dull business of retail and commercial banking, into a high-growth, high-return, fun business, and what I learned over a long period of time, is that you need three parts to the equation. You have to create a differentiated, value-added model – no one needs a ‘me too’. Culture is important, and it has to be everywhere and match that model. And it’s not about what widget we’re selling our customers this week, it’s about getting them to join us, making them fans. Fans are important to any growth brand, because they join, they remain loyal and they bring their friends.
The British public has been trained to accept bad service, long queues and being abused. That’s not the American way
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METRO BANK: CHIEF OPERATING OFFICER
The Mmmm Factor Satisfaction is what Metro Bank set out to guarantee customers when it appeared on the UK high street in 2010. Eight years later, with a net promoter score of 82 against a banking average of 36, we asked COO Aisling Kane how it got so darned good? FINTENCH FINANCE: In your opinion, what’s the greatest challenge facing retail banks at the moment? AISLING KANE: Currently, the name of the game in retail banking is remaining relevant. Historically, banks haven’t thought about themselves as retailers, but this is changing as a result of increasing customer demands. Just as retailers routinely morph their operations as a means of meeting the transient wishes of their customers, so too must retail banks adopt a flexible approach if they aim to deliver what their customers want. Delivering what your customers desire goes beyond just listening to them carefully – you’ve also got to be ahead of the game by predicting what they want before they realise it themselves! At the end of the day, that’s what retail is and banks like us are playing in that space, just as much as clothing shops and tech outlets. FF: Fantastic customer service is obviously a major tool that retail banks can use to remain relevant. What methods does Metro Bank use to ensure that customer service is always at the forefront of what it does? AK: We have a secret sauce of three ingredients: culture, culture and culture. Whether it’s our physical stores, our agents on the phone or our communication via digital channels, we always make sure that we exude our culture and that is to serve the customer as best as we can. As a business grows in size, it becomes more of a challenge retaining an ethos like ours. Every new person that you bring into the organisation has the potential to dilute the culture and we work very, very hard to make sure that doesn’t happen. After all, if we lose our culture, what’s left that makes us special? We’d be exactly the same as everybody else and it’s that worry that keeps us awake at night. This year, as we head down the M4 and up the M1 corridors, we intend to protect our culture and the easiest way for us to do this is in our recruitment process. We hire
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for attitude and then train to guarantee that all our colleagues have what we like to call the ‘M Factor’. This is true for our back office colleagues as well as our front office employees. The guys in store can’t give a great service unless the people supporting them in the back are also providing a great service. In our opinion, the back office is really just an extension of the front. Obviously, for some back office roles we do need to hire people with technical expertise. For example, we often require technical experts in payments, and it would be impossible for us to train all of these employees up from scratch. However, if our technical experts don’t also possess that customer service gene, then things aren’t going to work out. Just because you don’t see customers on a day-to-day basis, doesn’t mean you don’t need to know how to speak to customers. If a customer of ours has an issue that requires discussing with someone in the back office, then that’s just what they can do. We’re not in the business of hand-offs. So, whether you’re working in the Metro Bank front office or back office, you need to be able to communicate with the customer and be a perfect cultural fit. FF: Judging by how particular Metro Bank is in its recruitment process, would you say that you value the personal element in your customer service more highly than the technical one? AK: There are certainly some customer service processes that will always require that human touch. For example, in cases of bereavement or card transactions going awry, the majority of customers prefer to be able to speak to a person. It’s very important to us that we cater for this sustained desire for human contact. Having said that, we are examining new technological tools, such as robotics and machine learning, to see whether we can employ any of them effectively. To be honest, we don’t currently have straight-through processing in all areas,
and we’re working hard to make sure that our processes are as slick and standardised as possible. Where appropriate, we wouldn’t hesitate to use technology instead of people if it allowed us to make our processes occur more smoothly. The more smoothly something goes through, the better service it provides to the customer. It’s not about eradicating people, but rather about delivering the best possible customer service. FF: This year, we’ve observed technical issues of an unprecedented magnitude occurring in retail banks. Has TSB’s total IT meltdown not made you nervous about introducing new technology into your back-office processes? AK: It’s always very easy to give banks a hard time when they fail at implementing a new system. However, I’ve overseen two complete replatformings in my career and I can assure you that they are very difficult things to do. The way to avoid catastrophe when conducting them is to make sure that the governance around your change programme is absolutely right. Once you know this is correct, you need to test, test and then test again, just to make sure that each and every one of your colleagues working on the change process is happy with it. If any of them puts their hand up and says ‘I’m not happy, we’re not ready to go’, then you need to stop the change immediately and go back to the drawing board. We have a culture of openness here at Metro Bank so that our people feel comfortable voicing their concerns regarding change programmes. Sure, our new systems may end up going live a little later than expected, but at least they don’t contain any nasty surprises! FF: At the tender age of just eight, Metro Bank doesn’t carry the same technology baggage as most other high street banks. What are the benefits of having a non-legacy system? AK: The key advantage for us is having a www.fintech.finance
system that we can easily bolt new technology and enhancements onto. When you have an old system, the chances are that the people who built it or know how to modify it have long since left the company and that leaves you in the dark when trying to adapt it. With our modern, platform-based T24 package, we’re able to parameterise and customise our core banking system to our hearts’ content. One of the features that we’ve prioritised in our customisation from the get-go has been the single customer view. As a customer, there’s nothing worse than speaking to an agent on the phone one minute, then the next having to explain your situation all over again to someone else. Customers hate being passed from one person to another. We have all of our CRM on T24, meaning that all of our customer information is in one place. That means our employees can easily look up a customer and find out about their previous interactions with us, which is hugely important in terms of maintaining high-quality customer service. FF: Speaking of T24, companies like Temenos and Microsoft are currently spearheading an industry-wide move towards the ecosystem model. What are the advantages of this type of model for organisations like Metro Bank? AK: They enable you to adapt very quickly to new technological developments in the industry. If a piece of technology comes along that, either internally or externally, could benefit our operations, then we have the option to implement it almost immediately. Once an enhancement is present in your own technology stack, you can begin the training process to make sure that your colleagues are aware of it and know how to use it. By working together and developing these new ecosystems, big technology companies are making it easier for banks like us to dip in and pick out the best new developments. We’ve benefitted from this already in the fraud space as we’ve been able to choose the best tech to enhance our defence systems. Of course, even with an ecosystem model in place, you need to be careful not to get carried away with all the shiny new stuff on offer. Before you take anything new on board, you need to analyse what the implications will be for the customer at the end of the line. If it doesn’t meet their needs, then don’t be afraid to walk on by! www.fintech.finance
Smiling all the way to the bank: It’s all about the customer
As a business grows in size, it becomes more of a challenge retaining an ethos like ours
Issue 10 | TheFintechMagazine
METRO BANK: DIRECTOR OF DIGITAL
App-reciate it! Metro Bank’s Director of Digital Alex Park, explains the role apps are playing in offering its ‘fans’ an embarrassment of choice When people think of Metro Bank, images of in-branch dog bowls, 24/7 service and magic cash machines probably spring to mind. But it’s as much about the use of clever digital technology to make its customers’ lives easier in various ways, according to the bank’s director of digital, Alex Park. FINTECH FINANCE: What part does digital play in your well-publicised strategy of creating a ‘fan base’ for the bank? Alex Park: It’s fundamental to our mission. We’re in a privileged position to experiment with such possibilities, thanks to our really clean tech stack, which gives us a single customer view. This summer we announced another fintech collaboration, this time with Israel-based fintech, Personetics. Through its artificial intelligence-powered, ‘self-driving finance platform’, we're offering our personal mobile customers the choice to opt-in on their app to a new personal finance management tool. It's part of our commitment to help make our customers' lives simpler. FF: How does that work and what advantages does it have for customers? AP: The personal finance management tool is able to provide customers with predictive alerts about their spending habits, as well as the ability to categorise their
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spending. It will provide customers with helpful nudges, so they can better manage their money, from providing an overview of how much was spent on a recent holiday, to alerting customers if they're about to stray into their overdraft. FF: How do you know this is something that your customers need, right now, and how do you know it’s working? AP: Customer research shows that people want help to understand and be in control of their finances. Insights addresses that need. And the personalised element – where customers rate how relevant the insights are – allows us to assess how well we are meeting that need.
better customer experiences. We already have a great open banking application programming interface (API) layer, driven by Apigee, which is part of Google. So, we’re in a good place to take the data we have, ingest other data and start to do some interesting things with it. FF: Will there be other collaborations? AP: We’re increasingly looking at collaborations. Our relationship with Personetics is an example of how, if you’ve a good integration layer via APIs, and an agile internal way of working, you can get something out to customers very quickly. From the fintech’s point of view, we offer great distribution, so there are trades to be made. In fact, we have an API team now explicitly focussing on asking ‘where are the opportunities in that?’. In the area of privacy and ID, for example, facial and voice recognition are maturing quickly and they are something we are piloting. But, more broadly, I think there is a pivotal role for banks here. We are trusted by customers and could become a repository for their ID, through which they can manage their broader identity in the digital world.
If you’ve a good integration layer, via APIs, and an agile internal way of working, you can get something out to customers very quickly
FF: How does this functionality fit in with Metro Bank’s commitment to personal service? AP: We’re doing something really interesting and new in the market here and we see Insights as having the potential to play a much broader role. We need to notify customers of various things and Insights could be the start of a better way of doing that – it could be a hub through which we deliver even
METRO BANK: CHIEF PEOPLE OFFICER
Thecultureclub cultureclub The clue to the importance Metro Bank attaches to human relationships in banking is in Danielle Harmer’s job title. She’s Chief People Officer, responsible for keeping the fandom alive It’s known for service with a smile, turning customers into fans and providing dog bowls in branches that are open seven days a week. Metro Bank’s ethos is to be different – to be fully keyed into its customers and provide a space where people actually enjoy conducting their banking business. But how does Metro Bank create that culture – and, more importantly perhaps, sustain it as the challenger expands towards 140 stores by 2023, increasing its workforce substantially. Chief people officer Danielle Harmer says it begins with the hiring process. “In our view, is it is easier to teach someone to be a banker than it is to teach someone to smile,” she says. “We’re looking for people who will smile, be helpful, go out of their way to try and get customers to fall in love with us, frankly.” Harmer joined Metro in 2012 after previous leadership and HR roles at HBOS, Lloyds Banking Group and Barclays. But the difference with Metro, she says, is the business’s culture of near-fanatical customer focus that is hammered home at every opportunity to colleagues. That, and founder Vernon Hill’s insistence that this is a retailer that just happens to be a bank. Harmer says: “When I first arrived, the chief executive, Craig Donaldson, said to me ‘I’m worried we’re getting too big, I don’t know everybody's name any more’. I’d come from Barclays, where we had
about 5,000 people in the building, and there were about 325 employees here back then, and I chuckled to myself. “Us Brits can be a smidgen cynical, so dare I suggest a new employee might not fully believe we’re as customer-focussed as we seem, especially if that employee comes from another bank. But with the cultural training we do, how we hire, how we get colleagues to share stories of success, even the names given to meeting rooms, the culture runs deep.” And if you think human resources is fluffy, at Metro Bank it’s central to the organisation’s success. “The behaviours and culture of your organisation are the biggest driver of customer experience,” says Harmer. “Of course you need great technology, great systems and processes, and you need a product that people need or want to engage with. But the biggest driver of ‘wow, I love that business and you should go and use them’ is the customer experience and the people that you deal with.” Harmer says the ‘hire for attitude, train for skill’ mantra applies for the majority of roles at Metro. It’s the John Lewis Partnership-syle of recruitment: and the joke used to be that if you had worked at Waitrose, you were guaranteed an interview. But for more specialised jobs the mantra
is ‘hire for attitude and skill’ – since the bank is too young to have home-grown a commercial banking director, for example.
Being the brand “A lot of our people come from retailers, rather than any one specific organisation,” Harmer says, “but for the likes of commercial bankers, the reality is we’re pulling people from other banks. So it’s even more important, with people who might have been institutionalised in another organisation, that we describe how you need to be to be successful here and to be part of what we’re building.” All colleagues undertake two days of training in Metro culture, called Visions, then people taking on customer-facing jobs who have no banking background join Metro‘s ‘University‘ scheme for between three and six weeks. The commercial managers, meanwhile, undertake three more days of onboarding so that they can work out ‘how I can be me and bring my experience, but in the Metro environment’, says Harmer. Meanwhile, Craig Donaldson‘s worry that the ‘Metro way ‘ risked being diluted by the bank‘s pace of growth is an issue the whole organisation aims to manage. Harmer says: “We have to make our culture even stronger for a network of 60
Crowd mentality: Metro's individuals work together seamlessly create a powerful whole
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stores and 4,000 people than it needed to be for a network of six stores and 100. “Our meeting rooms are called Red, Fan, Inspire and Amaze, and everyone wears an M pin. We all wear red on a Friday, to celebrate our culture, and we use Yammer internally, which is a form of social media. Yammer works really well because staff will share success stories about things they’ve done for customers or colleagues – and this is the wonder of how social media works – everyone piles in and comments and likes and shares. “Members of the leadership team may give someone a Recognise badge for great behaviour, or a Golden Metro Man badge if they’ve done something truly amazing. What we’re saying to people is simply ‘do more of that’. “Every message that we’re giving to our colleagues is ‘just find a way to help the customer, or if you support colleagues rather than customers, find a way to help colleagues’. Harmer cites two examples of company culture shining through – and in neither case were people specifically trained to act as they did. The first involved a visit by primary school children to the bank’s Watford branch on its opening day, to take part in one of Metro’s Money Zone sessions that teach personal finance. Harmer and boss Donaldson were watching from across the road in a coffee shop when they saw bank colleagues spontaneously break into applause as the kids trooped through the door wearing their high-viz jackets. The second was the actions of branch colleagues who witnessed a road accident outside – and wheeled out office chairs for the injured to sit on. “With the clapping, I said ‘look at that, just think
how special they’ve made those children feel’. We hadn’t asked our people to do it, we don’t train that, it’s just people behaving in a way that’s warm and welcoming, and trying to create an experience for the children,” says Harmer. “Of course, I shared that on Yammer, and we gave Recognise badges to the three people in the store who had arranged that school visit. She adds: “If a customer goes into one of our stores and it’s their birthday, there’s a good chance that bank colleagues will at least say happy birthday
When I first arrived, the chief executive said to me ‘I’m worried we’re getting too big, I don’t know everybody’s name any more’ to them, and maybe even sing! There’s also a fascinating behaviour in head office where people buy helium balloons when it’s someone’s ‘Metroversary’, the anniversary of them joining the bank. “In lots of other organisations you can imagine people would be told ‘well, you shouldn’t really have balloons, they’ll set off the alarms, it’s probably some sort of a fire hazard’ and so on. But because we have this relentless focus on having no stupid rules and enabling people to be at their best, it keeps them focussed on that simple
purpose of creating fans. People know what that looks like. They understand it.” Metro is the only high street bank to make it onto the top 50 of 2018’s ’best place to work’ list compiled by employer review firm Glassdoor. And Harmer says that when the bank runs its Voice of the Colleagues survey, around 96 per cent say they are clear what’s needed to create the Metro fandom. “I’ve worked in other organisations and people are more murky about core issues,” she says. “Everybody here gets it. If something feels like it’s in the way, they’ll challenge it, which is a cultural distinction for us. “For example, our colleagues who deal with IT, or payroll, know what frustrates people. If you say ’tell us what the problem is, bump it up, we’ll fix it’, you reinforce and strengthen the culture, because the culture has to be aligned to the purpose of the organisation.” Harmer reveals that IT colleagues came up with the idea of being able to block a lost Metro bank card via the bank’s app, because they knew it would be of value to customers. She says: “It was a couple of guys who have been here from day one who came up with that little gem. Now, I’m sure there are other organisations where people would have had that as an idea, but they might not have been heard in the way that they were here. Our director of digital Alex Park may see this as both a blessing and a curse, but if I look on Yammer today I’ll see people bumping up suggestions to him. “We need bright, capable people. Most organisations have those, but we’ve created an environment that enables them to align that to creating fans. They’re not focussed on the short-term sales and revenue. “That’s what we’re about.”
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METRO BANK: CHIEF COMMERCIAL OFFICER
Striking the balance Paul Riseborough, Chief Commercial Officer at Metro Bank, balances the company’s business and personal banking strategies alongside its physical and online delivery mechanisms to ensure it’s poised for future growth In July this year, soon after registering a fourfold increase in half-year profits to £24.1 million and predicting that two more years would be needed to hit its financial targets, Metro Bank raised a further £278million in capital. As the press speculated over intentions, founder Vernon Hill told investors: “It’s not capital to fill a hole. It’s about growing the business.” And he berated what he called ‘the British philosophy’ that ‘raising capital is somehow bad’. “Raising growth capital for a growth business at multiples well above book is a positive, not a minus. At the growth rates we’re experiencing, we need to be ahead of the growth capital curve,” he said. Chief commercial officer Paul Riseborough is one of those responsible for making sure that curve continues to bend in the right direction. He shapes Metro Bank’s commercial plan and ensures it delivers products, services and user experiences that both its personal, and increasing number of business customers value across both physical and digital channels. “Digital technologies bring loads of great things to banking, but people benefit from face-to-face conversations. The data’s very clear on that,” says Riseborough. “The nature of physical banking is changing, though." That’s precisely what the high street challenger set out to do, of course. Since its launch in 2010, Hill’s ‘retailer that happens to be a bank’ has done things differently to the rest. It opened its 59th store this September and plans to open more than 140 by 2023, while major banks are shutting their physical branches at unprecedented speed. Its approach based on investing in
valuable sites at the heart of commercial districts, has paid off. Personal and business customers have flocked to them. For stores open 12 months or more, average deposits are £276million each and one West London outlet enjoyed a return on capital of 30 per cent. Compared to his American banks, Hill says his UK branches are delivering returns that are higher by a factor of 100. It was, some thought, a little late joining the party when it came to online banking, launching internet current account services in 2013. But since revamping its mobile platform three years ago, Metro Bank has caught up remarkably fast, becoming the first on the high street to offer instant online account opening and racing ahead of other, purely digital, challengers to make data-led personal financial analysis available to customers from this summer. For Riseborough, the presence of stores is central to the success of the Metro matrix, though. “A physical presence engenders trust,” he says. “If I have a dispute, or a complaint, or I just want something, I can go and talk to a human being.” Of course, with just 59 stores, and most of those still in the South East of England, that’s not an option open to everyone. But the remarkable popularity of those that have opened so far has seen a large cohort of business customers switching to Metro Bank – in fact, according to Riseborough, it’s winning one in six of all business customers switching from other banks in its South-East stronghold. That’s not so surprising when you consider Metro Bank is now the only high street bank to offer a free coin-counting service, which small business owners value. And it’s the only one with a ‘walk out trading’ business
Digital technologies bring loads of great things to banking, but people benefit from face-to-face conversations 94
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account opening service. Launched this summer, it allows SMEs to open an account and start operating from it in less than a couple of hours, a feat that the incumbents operating merchant services for decades have yet to manage. Its famously dog-friendly stores also keep sociable hours, remaining open 24/7, evenings, mornings and weekends. At the half-yearly investor meeting in July, the bank stated that it had delivered an 87 per cent loan-to-deposit ratio without any reliance on wholesale funding, a 36 per cent increase in customer accounts, a 40 per cent increase in customer deposits to £13.7billion, and a 55 per cent growth in loans to £12billion. It’s recorded a 41 per cent year-on-year growth on current accounts, and deposits at Metro Bank stores are growing, at £6.2million. As far as business customers go, Riseborough says: “Nothing matters more to an SME than getting up and running. They can actually walk out of a store with a payment terminal and start operating that same afternoon,” says Riseborough. “It’s instant fulfilment with a local business manager in every store. “It’s the mixture that’s so successful,” he adds, “of good physical banking and great technology.”
Striking a balance: Physical and digital have equal weight
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METRO BANK: CHIEF RISK OFFICER
Metro Bank’s Chief Risk Officer Aileen Gillan has some of the newest tech at her disposal to minimise risk. But it’s not her first line of defence Whether it’s slurping spaghetti in a white shirt, removing a USB without safely ejecting it, or jumping in the shower five minutes before you’re supposed to go out on a date, risk-taking is a part of human nature. But for banks it leaves them exposed to a lot more than a big dry cleaning bill and a ruined love life. Which is why Aileen Gillan, chief risk officer at Metro Bank invests so much of her time in its first line of security defence – her collegues. “Risk is a people business,” says Gillan, who for the past six years, has steered the company through one of the toughest periods in the history of financial regulation following the global financial crisis. “During our induction programme I speak to every new cohort of colleagues. We call my session ‘Being the Most Professional Banker and during it, I illustrate how behaving in a way that’s consistent with our amazing values actually keeps the bank safe,” says Gillan. It’s not that she doesn’t have an arsenal of latest security tech at her disposal. The bank spent around £35million in the first half of 2018 alone on technology and technology developments, a large percentage of which was tied up with implementing Europe’s General Data Protection Regulation (GDPR), the Payment Services Directive (PSD2) and putting the fourth anti-money laundering directive in place. It has consistently used technology to stay one step ahead of
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threats without compromising the customer experience. That’s helped by having built a core banking system from scratch, the Temenos-hosted T24, with a digital banking front end supplied by Backbase, which has allowed it to outsource and plug in various components. But the capability and control that gives the bank is matched by a third ‘C’ and that’s culture, says Gillan. “Risk at Metro Bank is all about the three Cs: culture, capability, control. And it’s no coincidence that it starts with culture, because that sits at the heart of everything we do,” she says. “It’s the one thing that nobody else can copy and it’s why we spend so much time reinforcing those values and the behaviours that reflect them, because that is absolutely what makes us unique.”
Convenience and security At the heart of that culture is putting the customer first, in line with founder Vernon Hill’s principles of operating a bank by retailing standards. And a customer’s first experience of how the bank handles risk is during the onboarding process.
Real-time background checks and verification, fewer data entry points, and desk-top card issuance machines make for an airtight 10-minute procedure that reduces the chances of human error and awkward conversation about the weather while you wait for know-your-customer and anti money laundering processes to complete. For those who loathe the thought of sitting opposite a friendly stranger in one of Metro Bank’s growing number of high street stores, there’s now also the option of opening a current account online. In January this year, Metro Bank became the first on the UK high street to offer
instant account opening through use of a selfie. Launched in partnership with Jumio, the US-based identity verification specialist, it combines computer vision technology, machine learning and live experts to authenticate identification documents issued in more than 200 countries. In addition to processing documents in real-time, the Jumio-backed application requires a selfie in the event that an account holder wishes to transact in store without a card.
Simplicity is key Such efficiency – both in-store and online – is the result of continuous critical
evaluation and streamlining, aimed at achieving ruthless simplicity. “As a regulated business, we have a responsibility to ensure that we fulfil all of our regulatory obligations and run our business in a way that meets our regulators’ expectations,” says Gillan. “But I think the way that we approach regulatory change is probably slightly different, in that instead of starting with ‘the regulation says you’ve got to do A, B and C’ we’ll say ‘what’s the outcome? And let’s look at delivering it in a way that’s really great for customers and colleagues and fulfils all of the regulatory obligations’. We can always track back to the regulation and say ‘right, this is how we do it’. We’re really clear about how we can evidence that we’re fulfilling all of those technical requirements. “So, whether you’re in risk, or whether you’re in a customerfacing role, or whether you’re in operations, our core operating philosophy at Metro Bank is really simple. We’re all here to create fans for life. I don’t see any inconsistency in that and making sure that we fulfil all of our regulatory obligations. For me, the two fit hand in glove. “I think the ongoing challenge, as we grow, and as the regulatory environment becomes more complex, is that we continue to be able to do it in a way that makes sense for us as a business. “This stuff is complex and my job is to simplify the complex, so that nothing gets in the way of our colleagues delivering consistently amazing outcomes that enable us to create fans. ‘We’re building a risk data infrastructure that will support the growth of this bank, as we move through 2020 and beyond,to our 2023 vision. So it’s absolutely front of mind for us that the strategic management of data will be a key enabler for us, as we grow,
both in terms of risk management, but also in the way that we manage the business generally.” There is no blame culture attached to that aspiration, she insists. “We’re human beings, and we’re fallible, and therefore we make mistakes,” she says and how a bank resolves its mistakes is as important as the actions it takes to avoid them. “Our first value is, attend to every detail. Focus on doing the right things, the right way. Our second value is, make every wrong right. When we have made an error, we recognise it, put it right, say sorry, and then learn from our errors, so that we don’t make those mistakes again. “We look at those parts of our business where we may have experienced human error to understand how we can take the risk away. If people are making mistakes, it means there’s something that’s hard. So, our job is either to simplify the process, or to think about how they can use the systems more smartly to reduce that risk of error,” says Gillan.
Risk is a people business… I illustrate to colleagues how behaving in a way that’s consistent with our values actually keeps the bank safe If that means bringing in a third-party, it’s what the bank will do. Managing those third party providers and making sure their own systems are secure comes with the territory when you are a fintech born into open banking, but that environment in itself raises questions over security, believes Gillan. “PSD2 opened up the payments infrastructure, so lots of disruptors are coming in who are hoping to disintermediate. The flipside to all of these incredible technologies and the possibilities that they offer is risk. We need to understand the implications of using that technology for our customers and, from a regulatory perspective, that we continue to do the right thing.”
Issue 10 | TheFintechMagazine
METRO BANK: DIRECTOR OF PAYMENTS AND COMMERCIAL LENDING
Director of Payments and Commercial Lending at Metro Bank, David Thomasson, is keeping an eagle eye on technology that helps SMEs to trade faster and more efficiently as their loyalty to banks is tested
Having a good understanding of how a business works and its goal is key to helping companies of all sizes identify and offer the right payment solutions. “There are so many options for businesses, from the smallest to largest, in terms of the way in which they can both send and receive payments,” says David Thomasson, director of payments and commercial lending at Metro Bank. “What’s important for us, here at Metro, is ensuring that we’re giving the right solutions to customers, and that they can navigate through the seemingly myriad options available to them.” For Thomasson, it’s also about putting the business first and trying to fit into their processes and payment cycles, rather than shoehorn a client into the bank’s. It’s important to recognise that a business ‘is just trying to do business’ and that, from that customer’s perspective, the most important thing is that they can get paid and make payments in as seamless a way as possible, he says. Metro Bank was one of the first in the UK to let customers link their bank account to Xero accounting software, making it easier for businesses to reconcile payments they’d received throughout the day – a move Thomasson says was especially helpful for SMEs with limited staff. Small and medium-sized enterprises (SMEs) have long felt undervalued and underserved by many traditional banks. Fintechs are increasingly targeting this gap in the market by offering them services direct – a move that’s been ,
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facilitated by the revised Payment Services Directive (PSD2) and Open Banking in the UK. As Thomasson says: “The technology’s there to enable information transfer between entities much more effectively.” Nevertheless, banks, especially those on the high street, are still well trusted and it’s something that Metro Bank intends to leverage. Nothing demonstrates its unique combined advantage of being a new-tech challenger and high street retailer more than its Walk Out Trading service. Launched earlier this year, it allows customers to not only set up instant business accounts instore and, thanks to technology from acceptcards, leave with ready-to-go payment card and PIN along with online banking services. It also allows them to walk away with an already enabled point of sale (POS) machine
I’m keen to ensure we remain relevant in the world of merchant services – meaning they can accept payments immediately. The success of Walk Out Trading was said to have even raised eyebrows at the board meetings of rival banks, who’ve dealt in merchant services for years but still haven’t achieved the same level of fulfilment. It’s contributed to the bank’s impressive switch over rate – that and the store’s dedicated managers and free coin counting service (the only one left on the high street).
The success of the Walk Out Trading pilot has certainly helped raise Metro Bank’s profile in the business community. “I think we’ve got great noise in the market around that sort of stuff,” says Thomasson, “and I’m keen to ensure we remain relevant in the world of merchant services.” Looking to the future, he acknowledges the challenge in staying ahead of the pack, particularly when there is increasing consolidation in the business-to-business payments space. He cites PayPal’s $2.2billion acquisition of Swedish payments start-up iZettle as an example. It’s important to ‘keep in touch with who’s going to win, who’s going to succeed’, he says. With Metro Bank poised to bid for a chunk of the RBS small business book under a post-bailout deal condition with the UK government, Thomasson is keen to build out capabilities. That includes faster payments as well as extending the bank’s reach in international payments to ‘make it more convenient for our customers to make payments, in a place they want to, at a time they want to’. Longer term, Metro Bank is looking at radically different payment methods to cash, card and phone. Thomasson doesn’t give much away about the bank’s plans, but says wearables are ‘certainly coming into play now’. And what about blockchain? Metro Bank is ‘keeping in the loop’ he says, but until there are common standards and rules about how the technology can be used, it is focussing on current popular ways to pay. After all, it’s all about ‘working through what’s right for our customer base’. www.fintech.finance
METRO BANK: MANAGING DIRECTOR OF RETAIL BANKING
Head in the crowds: Customers are flocking to Metro Bank’s branches as its competitors shut theirs
RIGHT T E E R T P S R U U O Metro Bank stores are popping up in key retail locations across the country. How does Iain Kirkpatrick, MD for Retail Banking, keep pace? While major banks have shut 3,000 physical branches in the UK in the past four years alone in a massive withdrawal from face-toface banking, Metro Bank has paddled pluckily against the tide. As The Fintech Magazine prepared to go to press, the high street challenger was celebrating the opening of its 59th store in a busy shopping quarter in Bristol by inviting local residents and businesses to a two-day-long party. Currently furiously engaged in a rapid, nationwide expansion programme as it endeavours to open at least 140 stores by 2023, the big red ‘M’ being raised above pavements isn’t yet quite as ubiquitous as McDonald’s. But in terms of brand recognition, it’s getting there. The bank claims 88 per cent brand recognition in the localities where it has a physical presence and 58 per cent outside of them. Iain Kirkpatrick, MD for retail banking at Metro Bank, presides over this growing estate of open-all-hours ‘stores’, which turned British high street banking on its head in 2010 and now enjoys millions of customer visits a month. The ‘physical manifestation of the brand’, as he describes Metro Bank’s glass-fronted
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temples to customer service, roll out the red carpet to 1.4 million of them (at last count) who enjoy, in its chairman’s words, ‘the million little things we do to make this a convenient and fun business’. Those ‘little things’ include offering old-fashioned safety deposit boxes whose popularity took the bank by surprise, and the income from which now covers as much as 80 per cent of the rent in many stores; facilitating 15-minute account opening on site, with instant debit/credit card issuance; and being the only high street bank to still provide free coin counting (a boon for small businesses). The £3-£4million that Metro Bank invests on average in each store is repaid with astonishing usage rates. A 30 per cent return on capital is not unusual for a high-performing London site. But as that estate expands and the number of staff grows commensurately, how does Kirkpatrick make sure that the Metro experience is sustained so that the bank maintains its current net promoter score of over 80 per cent (a rate that is frankly unknown in the banking industry).
“We take what we do seriously, but we don’t take ourselves too seriously, and I think what that leads to is a really good relationship with customers, where they know we’re on their side,” says Kirkpatrick. That applies as much to the bank’s dogfriendly policy, inspired by Chief Canine officer Sir Duffield, the chairman’s Yorkshire terrier, as it does to the customer-inspired products and services it offers. “We believe in offering a very straightforward set of clear and transparent products with none of the complications that add money to a bank’s P&L but confuse customers,” says Kirkpatrick. “I think that’s probably the first part of financial inclusion. Do people understand what they’re doing with us? Yes, I genuinely believe they do. “We also believe you should treat your existing customers at least as well as your new customers, and not use them to subsidise marketing and acquisition. I think all of that gives you the relationship of trust that is so important.” Like Hill, he is passionate about the concept of an old-fashioned community bank. “We reach out into the community and support it. We want to be a very active part of where we are,” he says. “We have a local director and a local business manager. Those are people on the ground, in that location, that are based only in that location.” www.fintech.finance
The stores were involved in seeing 27,000 schoolchildren through Metro Bank’s Money Zone education programmes last year and ran 3,000 charity and community events, including networking and training for small businesses, which are an increasingly important constituent for Metro. As CEO Craig Donaldson puts it, the stores are the bank’s opportunity to deliver fulfilment at the point of sale and that requires a particular talent among customer-facing staff. “We hire for attitude and train for skill,” says Kirkpatrick. “We look for people who really want to give great service and then we take them through professional banking qualifications.” He sees a symbiotic relationship between the physical and digital, made possible by real-time technology based on good data lineage with an Oracle system that allows staff in both the front and back office a single view of the customer. “In stores, we also have what we call our welcome app,” says Kirkpatrick. “You are greeted by somebody with a tablet, www.fintech.finance
We take what we do seriously, but we don’t take ourselves too seriously, and I think what that leads to is a really good relationship with customers who will ask you what you want to see somebody for. They use a little bit of intelligence in the background, which tells them which colleagues are available or what stage they are at in an interview with another customer, estimates the wait time, and then gives the customer the choice of waiting in store, making an appointment or going off and doing something else until they text them to let them know they're free. We’ve used that in 1.5 million interactions now.
“Off the back of that we’ve learned how to roster our colleagues more effectively for when customer demand is different in different locations, because across a 12-hour opening shift, there are peaks and troughs. We’ve also been able to use it to learn what people are coming into the bank for and if there are things in our processes that we need to improve. If, for instance, some of the meetings are taking longer than we’d expected, is there something we can do? The welcome app is a great way to deliver better customer experience and allows us to learn. “We’ve still got lots of work to do, in terms of identifying the right sites, training colleagues, making sure that the Metro experience is consistent and fantastic wherever you go,” says Kirkpatrick. “It’s also about asking ‘how do we continue to improve service, and how do we continue to use digital as a way of marrying with the physical to create a better, all-round experience for customers?‘” Issue 10 | TheFintechMagazine
METRO BANK: CHIEF INFORMATION OFFICER
Top table: Metro Bank gives technological advancement board-level importance
Nailing IT Metro Bank describes itself as the revolution in British banking. Moreover, it’s an ongoing revolution because, to ensure it maintains the same momentum and drive as when it opened its glass doors onto the high street in 2010, it must continually focus on its core systems and services, reshaping – if not reinventing – itself as it goes along. Maintaining both an online business and a physical presence in its ‘stores’, and making sure customers don’t skip a beat moving between the two, is the challenge that Martyn Atkinson faces in his role as Metro Bank’s chief information officer. Atkinson is accountable for IT strategy and architecture, and has a seat on the board – a reflection of the importance Metro Bank places on technology. One of the criteria for continued success is to avoid accidentally ending up as a legacy bank. That may not be an immediate problem for a bank barely 10 years old, but Atkinson is hyper-conscious of the need to stay current, relevant, fast and flexible. “Every year it becomes harder, from an investment budget perspective, to meet all our requirements,” he says. “Whether opening new stores or responding to regulatory initiatives, it’s vital to make sure we maintain the same level of technological
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As a Chief Information Officer Martyn Atkinson is unusual in having an executive seat on the board. It’s an indication of the importance Metro Bank attaches to the tech that helps defines it innovation and advantage we started out with and which is the hallmark of our brand.” It requires a bold approach and an unflinching commitment to investment. “We’ve ripped out and replaced probably 75 per cent of our core technology since the start of 2010, so that we can stay up-to-date,” says Atkinson. “Some of that is mandated, simply because we offer, or receive, software as a service for some of our Cloud-based applications and we’re commercially and contractually bound to take the upgrades. The support from our application vendors helps to keep us moving forward.” Atkinson is keen to underline how seriously the Metro Bank board takes technology investment across a number of areas, such as its transaction banking, finance and regulation capabilities. “In addition, we have what’s called a resilience pillar,” he says. “I’m given ring-fenced operational and financial capacity and can look across my technology estate and marry it up with the technical debt register. It’s how we move things in and out correctly and stay on top of the business strategy. We need to know
where the business is going and what the requirements will be in three years’ time, and follow the right technology route to fulfil that.” Atkinson says the aim is to maintain the right level of budget to meet any eventuality, whether it be application refactoring or database upgrades. Ringfencing keeps resources available so that Metro can avoid legacy drag and hold onto its technology advantage. And this agility also gives it a regulatory advantage. “Over the years, other banks have been growing through mergers and acquisitions,” says Atkinson. “They’ll have many integrations and will be running applications that are 30, 40 or 50 years old, on mainframes, which makes accessing data problematic. We have a relatively open, microservices-built architecture, and as part of the revised Payment Services Directive (PSD2), we have an application programming interface (API) platform wrapped around the bank.” Atkinson is referring to the Apigee Google platform, which Metro recently deployed to power its compliance with PSD2 and encourage digital innovation. Apigee www.fintech.finance
enables Metro to connect and integrate relatively easily, enhancing the bank’s value. As Atkinson says: “When Apigee is coupled with the size and scale of Metro Bank, the speed at which we can move and how easy it is to have a conversation with us, it puts Metro in a strong and versatile position. We’re an attractive proposition for fintechs that are seeking business partners.” When it comes to collaboration and open banking, just like every other bank, Metro Bank has been busy focussing on PSD2 for the last 18 months or so, and it is now well-placed to integrate across all channels. “Above all, you have to have a technology platform that allows you to integrate seamlessly,” says Atkinson, “and Apigee allows us to do that at speed.” Metro Bank’s developer portal, built with Apigee’s Edge API management platform, provides access to the bank’s PSD2 API documentation and sandbox, which is a frictionless way to integrate with the bank. Developers can also access the API documentation and test simple API queries that return sample data. “We’re already working with a number of fintechs,” says Atkinson. “These are the fintechs that are immediately attracted to our brand and our speed of execution. One is Acceptcards, the UK independent payments broker, which allows our business customers to have a working payment terminal for physical point of sale. So, if you’re an SME customer, not only can you now come into Metro Bank and get your account opened in about 45 minutes, with Android and Apple Pay configured and the mobile app linked up, we also give you a payment capability to integrate with your business.” Metro Bank has also formed a relationship with Personetics, which Power to the people: Metro Bank understands how important digital capability is to serving its customers
We have a relatively open, microservices-built architecture and, as part of PSD2, we have an API platform wrapped around the bank creates personalised interactions to help customers take control of their finances. The company helped to develop Insights, Metro Bank’s AI-powered, app-based money management service, launched this year. Using predictive analytics, Insights continuously monitors transaction data and patterns in real time, identifying trends and events in users’ spending habits. These are translated into tailored prompts, to give customers more control. Atkinson credits the bank’s culture with making this kind of innovation and technology focus possible. IT is not seen as a cost centre, explains Atkinson. Rather, it is elevated to the top table as a fundamental enabler of business transformation,not just another business service. “We think about what customers want, and the design and proposition that best suits
their needs. We’re not a bank that says ‘you must use this channel’ or ‘you must follow this particular path or procedure’,“ says Atkinson. A good example is Metro Bank’s recentlylaunched instant online account. For the first time, customers across the UK can join the bank as current account holders from any location. “You can start your journey in a way that’s convenient for you,” says Atkinson, “whether at home, in the office, a coffee shop, or wherever. You can start online, then complete in store, or you can complete entirely online but then go into the store to pick up your card. Achieving this flexibility meant working with our MD of distribution, our chief commercial officer and our chief data officer. In other words, it was a team effort to get the right result.” Identification documents, along with a selfie, are uploaded directly onto account applications. Verification and authentication takes place in real time, so accounts can be opened in less than 10 minutes, including setting up internet banking. As CIO, Atkinson is acutely aware of the premium on digital talent. “Because of the digital revolution, there’s a fight to get the right skills and this is a real challenge for CIOs. There’s not a day goes by when we don’t see a new digital bank or fintech on the scene, and we’re all competing for the same scarce resources.” So why do people choose Metro Bank? “I think the reason is our growth story,” says Atkinson. “It’s our brand values, the goals we’re pursuing and what we represent. We’ve shown great innovation with our mobile app, our awardwinning performance, and our online current account. So, our technology and culture attract a lot of people. You could say Metro Bank has the right stuff.”
Issue 10 | TheFintechMagazine
CUSTOMER RELATIONSHIP MANAGEMENT
In the face of increasing competition, banks will have to become much smarter in the way they use loyalty schemes if they’re to get closer to their customers, says Affinion’s UK Country Head Karen Wheeler
Raising expectations Knowing what makes a person tick, their likes, dislikes and motivations, is a vital part of forming a relationship. And making blind assumptions is a sure way of doing exactly the opposite. So why do so many firms still use a 'one-size-fits-all' model for their customer marketing? Loyalty scheme and customer engagement agency Affinion believes personalisation is crucial and opportunities to achieve it are plentiful in this era of Open Banking. Forget blunt transactional models that simply reward spending, says the firm's UK country head Karen Wheeler, and instead find a challenge the customer faces – then resolve it. “Customers no longer want to be a number in a bank, or just a bank account customer,” she says. “Ultimately, they want to know that their bank understands them, knows their needs and can serve up a solution for them. “We are seeing a switch to far more targeted, personalised services. Every interaction with a customer is a chance for banks to impress them with a personalised service, ultimately making them aware of other areas and ways in which they can add value to their lives.” The ability to harvest customer data presented by Open Banking and the revised Payment Services Directive (PSD2) means organisations can gain clear insights into a customer's habits and preferences. For example, with a customer's permission to access their spending data, a bank and its marketing partner can see what is purchased and develop rewards accordingly. But Wheeler says too many banks are still missing this opportunity, citing a consumer survey by consultancy GFT
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Group, which found 68 per cent of respondents said the relationship with their bank was purely transactional, while 67 per cent said they would be more likely to take out a loan with their bank if it gave them personalised advice. “Traditional banks could learn a thing or two from challenger banks that are already doing this well,” says Wheeler. “The mobile-only bank Monzo uses data on its customers’ spending habits to offer them financial advice, helping them to save money, budget responsibly and find better deals. Last year, its data showed that nearly 30,000 of its customers used their Monzo card for transport payments in London, so Monzo advised them that they could save money by investing in a year-long travel card.”
Keeping one step ahead Founded in 1973, Connecticut-based Affinion has grown to become a business with 3,800 staff working across 12 countries. In recent years, it has left behind points-based reward programmes in favour of data-driven alternatives. Its offers to clients' customers include discounted travel deals, cinema ticket vouchers, cashback on exclusive entertainment and events, priority restaurant reservations and preferential rates on currency exchange. Another strand to help clients stand apart from rivals is cyber and ID protection services, which address both customer education and prevention. That prevention includes monitoring and scanning of the web, social media and the dark web to pinpoint whether an individual is at risk. The Online Data Monitor system was provided to German insurer DEVK Insurance, which had recognised that
consumers wanted greater protection of their personal data online. If a customer's data is being abused, they are alerted and are urged to call an Affinion helpline where staff will work to stop the breach. Wheeler says: “When a customer enrols with our product, and normally this is embedded with an insurance product, they can provide us with data. It might be their credit card, bank details or passport number. We will then encrypt that data and monitor for it on the dark and public web. “The services we provide are diverse and much of what we do is data-driven to meet the customer's desire for a personalised experience. “The reward and loyalty programmes that we run are based on customer preferences, what they’re actually interested in and what they’re going to use on a regular basis. So, through the insights we gain through our platform, we’re able to tell that they’re going to want a coffee first thing in the morning so we might be able to serve them up a free drink. They don’t want to receive something that basically has nothing to do with their lifestyle.”
Boosting loyalty Royal Bank of Scotland is an Affinion client and was helped to make its rewards easier to find and redeem, in line with its mission to be 'number one for customer service, trust and advocacy'. After discovering an opportunity to optimise the delivery and presentation of loyalty offers, Affinion devised a single point of access with an online hub. Offers included banking add-ons, plus a travel and events concierge, mobile phone insurance and vehicle breakdown cover. The hub provided easy access to these benefits, both online and over the
phone, across three brands and 13 packaged accounts. Affinion says the bank saw increased registration levels and improved uptake of account benefits among its customers, and was able to convert these self-service enhancements into cost savings for the bank. “Customer engagement is more important than ever,” says Wheeler. It’s well accepted that it costs more to attract a new customer than to retain an existing one so it’s vital that companies forge an emotional connection with their customer base. “Research from insight company Customer Thermometer shows the primary reason people connect with a brand is that it shows it cares about them. And once this connection is formed, loyal customers are much less price-sensitive, highlighting the difference that driving brand advocacy can make.” Wheeler also points to research by French business consultant Capgemini, which made the surprising discovery that often customers on loyalty schemes are no more loyal than those who aren't. Often, says Wheeler, that failure is due to the transactional nature of retention programmes, which only reward those consumers who actually make a purchase. She explains: “This type of ‘you scratch our back, we’ll scratch yours’ mentality isn’t always sustainable when it involves
consumer spending. At first it may interest customers to engage with an organisation, but once it becomes apparent that rewards are only available to those who regularly purchase products, the allure soon wears off. “They also tend to reward the customers who are most likely to stay loyal anyway. On the basis that, as consumers, we are most likely to seek out loyalty programmes with brands we already like, businesses can end up spending money to retain the very customers they had the least chance of losing to begin with. In essence, they’re subsidising purchases that would have been made anyway.” A second major problem with many loyalty schemes, says Wheeler, is a disconnect between offers and how they are redeemed. She says 79 per cent of retention programmes use mobile channels but only 24 per cent allow mobile redemption, which can frustrate customers. And a third major mistake is not ensuring that customers are aware of what rewards they are entitled to, or how they're redeemed. Wheeler says: “Our Connected
Businesses can end up spending money to retain the very customers they had the least chance of losing to begin with. In essence, they’re subsidising purchases that would have been made anyway
Customer research report found that a strong and lasting relationship happens when a company becomes a meaningful part of a customer’s everyday life. This is only possible through a loyalty programme that adds true value to the user’s life. For example, Virgin Money invested in lounges for its customers which offered no banking services at all. Instead, the hotel lobby-style areas in UK cities offer customers free newspapers, magazines, Wi-Fi and refreshments, as well as an area to watch TV and even play grand pianos. The programme resulted in increased brand loyalty and better sales.” On the subject of opportunities and threats presented by PSD2, Wheeler believes the EU legislation will increase competition for financial institutions and banks will need to fight hard to retain customers in the face of innovation from challengers. That means offering much more than traditional banking products, such as loans and savings accounts, because customers expect more. “It's here that Affinion can help because customers are expecting to have an experience, an emotional connection, and some of the products that we offer, in terms of the leisure, entertainment, lifestyle-type services, are really things that customers are telling us they’re interested in. “We can use customers’ data intelligently, working with the banks because customers have given permission to share that data with their bank. They’re now going to expect the bank to use it and provide services to them that they really want, need and are going to use. “With that you build an emotional connection, which will ultimately drive loyalty.”
Lifting spirits: A well-thought-out loyalty programme can set a bank apart
Issue 10 | TheFintechMagazine
CUSTOMER RELATIONSHIP MANAGEMENT
There’s gold in those digital hills When the UK adopted Open Banking in January 2018 and the European Union rolled out the second Payment Services Directive (PSD2) just months later, the banking industry and many of its critics predicted stiff competition. Conventional banks were forced to share customer data that the challengers lapped up gleefully. Fintech challengers appeared tough rivals with their light procedural baggage and technology prowess. However, a two-month survey across 1.5 million mobile users in the UK by mobile data analytics firm Ogury finds that the top 10 most-used banking apps still belong to traditional high-street banks and not newbie fintechs. Andrew Stevens, global banking specialist for Quadient, says it demonstrates that incumbents have some serious core advantages. “The first thing you’ve got to do is not get too stressed about it,” he tells them about the competition from challenger banks. Rather, they should look to mine the data gold they’re sitting on and then polish up on customer experience. “They’ve got a whole host of full banking products already available. They’ve got a whole host of data about the customer that these digital challenger banks don’t have. They can use it to their advantage – if they know how to use it to show that they really care,” he says. “All they’ve got to do is change the mindset and say ‘OK, we’re in a strong position, we’ve just got our own challenges’. Simplify that data, simplify the ability to get hold of that data very quickly and all of a sudden they’ve got all the benefits of a digital challenger bank without all the drawbacks of having a much smaller customer base and far less money to play with whenever you need to make a development.” What do the digital challenger banks offer customers when they sign
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Andrew Stevens, Global Banking Specialist for Quadient, issues a rallying cry for incumbent banks: chill out and dig deep up? A very limited platform, thinks Stevens. “There’s very little that you can do outside of your mobile app or an internet web page,” he points out, and there are occasions when customers prefer to deal with a real person. “I’m a fully digital customer myself, but when I took my mortgage out, I went to a branch because I was paying an enormous amount of money. I wanted to speak to someone, look them in the eye and make sure that it was the right thing to do,” he says, explaining the relative advantage of a conventional bank with a branch network or at least the ability to field a human advisor, against digital-only challengers. His message is that conventional banking institutions can regain supremacy if they infuse customer experience (CX). It can be a game changer, says Stevens – and he knows because he’s done it. His company, CX specialist Quadient, focusses on the financial services and insurance sectors, working across all their communication channels – mobile, digital, social media, print and physical branches. Its clients include ING, Fidelity, Allison Payment Systems, BMO Bank of Montreal, and many other financial heavyweights for which Quadient has created award-winning customer insight and journeys. Every year, Celent recognises the best practices of technology usage in different critical areas of banking through its Model Bank Awards. In 2017, BMO Bank of Montreal received this Award for the most effective deployment of
technology to automate business processes or decisionmaking. It was Quadient that had built the robust customer communications management technology to enable a seamless and intuitive customer and employee experience. It believes that the best mortgage rates, the best loan rates, the best credit card rates or the highest interest on a bank’s savings accounts do not in themselves create loyal customers because others can always outdo you. Rather, Stevens says, it’s about trusted relationships – and customers don’t mind paying more when they have a fantastic relationship with their bank. “If you’re building your relationships with your customers, you’re going to get the trust from them, you’re going to get advocacy from them, you’re going to get people saying to their friends ‘go out and get one of those accounts because it’s fantastic, we’ve got a really good relationship with that bank’,” Stevens says. But to achieve this, banks have to offer a really world-class customer experience. “People will talk about how they feel about the banks in terms of how easy it is to do things. They won’t necessarily care as much about the end result as they will about how they felt as they were getting that product or as they were being serviced with that product. That’s the customer experience,” he adds. So now we know what it is, what makes a good experience? “The communication,” says Stevens unequivocally. “We help any financial institution to radically improve the customer experiences, right at the core, right in the way that they can communicate with them,” he says. Quadient advocates putting communication at the heart of what banks do whereas, traditionally, banks
have always seen communication in terms of endpoints. “The banker goes through a whole process and then at a certain point he/she needs to contact the communications team because a letter, in old-fashioned terms, has to be sent out,. And that’s dealt with completely separately; it’s an endpoint,” Stevens explains. “The moment that is sent out, the journey ends. If the customer wants to respond, a new journey starts. The reality is, the whole journey should be seamless and end-to-end for the customer.” This is where Quadient innovates. Stevens says that the Quadient team understands ‘how to map the entire customer journey and then drill down from there into all the communication touch points’. So, whether it’s the customer journey-mapping software or the ability to interact across the different silos of an organisation, or it’s to do with the communication software that ensures messages are sent out in a format that the customer prefers – it’s linked. Quadient understands those linkages and builds the chain, too. For retail banks, customer experience is the new battleground. And the first step towards creating a seamless one is understanding precisely who those customers are. “There are lots of different types of customers that bank and they all want different things at different times,” says Stevens. He points to research that demonstrates that even digital customers, like himself, prefer to visit branches for certain things. “Banks can only create the level of experience that customers need by being consistent across every channel – a true omnichannel experience.” Stevens admits that it’s ‘incredibly difficult’ for banks to do this at the moment because of
their complex legacy systems. “But they can get there,” he assures them. A former COBOL programmer, Stevens doesn’t hide his fondness for legacy systems. Banks do not have a single but multiple old systems of storing records and it’s not easy to extract relevant data from all of them. Yet, he says: “It’s not the hardest thing in the world to write code fragments that will retrieve data from a system, but it’s understanding all of that data, being able to bring it together quickly in a way that you can guarantee full compliance. That’s the real trick when it comes to legacy systems, and that’s where many banks are really struggling. They’ve got so many systems that the gold they’ve got hidden in those hills is becoming a real problem for them.” That gold in the data is the great enabler for offering the customer excellent communication and experience. ”The more data you have around a customer, the more you can personalise everything, the more you can create things that are in the right language and the right tone for them, and the more you can understand and show that you care about them,” says Stevens. “That’s what relationships are.” Stevens is clear on the deliverables for banks. Say happy birthday on the right day. Send good wishes for anniversaries in the right way. Suggest a loan for that family vehicle when you know they’re expecting a baby and they have the ability to pay. Banks can show customers they care when they are able to use the
data they have on them… do you sense a ‘but’ coming? “But banks generally have too much data and they aren’t sure whether it’s accurate or not, there are so many different systems of record,” says Stevens. “They might have my birthday as being on three different days; my name might be Andrew in one and Andre in another. I’ve seen goodness knows how many different spellings of Stevens. Banks have a real problem pulling all of that together.” If they can ensure that the data they have is accurate, however, banks stand a good chance of using it to enhance the CX. Stevens points out that rules such as the General Data Protection Regulation (GDPR) and PSD2 are trying to drive customer experience by promoting use of available information. “Across Europe, there are very few financial institutions that have considered that as an opportunity to improve their customer experience,” he says. For example, GDPR should be used to demonstrate how smoothly customers can update information, instead of making the procedures hard and lengthy. “A bank can do it in minutes by explaining it all online. That actually will gain you trust,” Stevens observes, along with valuable word-of-mouth advertising. Crucially, all these positive vibes have little, if anything, to do with price. So, at the end of the day, it puts a smile on the customer’s face without engaging banks in a damaging race to the bottom. Doesn't that feel good?
Banks generally have too much data and they aren’t sure if it’s accurate or not
Issue 10 | TheFintechMagazine Magazine
CUSTOMER RELATIONSHIP MANAGEMENT
The heart of the matter HSBC’s Digital, Data and Development boss Josh Bottomley can’t explain why we’d trust a robot to open us up on the operating table but not to open a bank account for us. He thinks he knows what will fix mistrust in digital financial services, though In 1877, a New York Times editorial launched a scathing critique of Alexander Graham Bell’s newly-developed telephone, with a sober warning that it would soon make us ‘nothing but transparent heaps of jelly to each other’. Happily, we remain completely solid but technology still has its wobbly moments. Take the driverless, auto-pilot technology pioneered by Silicon Valley players Uber and Tesla. While their impressive breakthroughs have largely paved the way for the autonomous transport of the future, media reports of driver and pedestrian deaths related to the technology have entirely undermined wider trust in its implementation. In the financial world, too, it was HSBC that took a PR hit when, last year, its voice recognition software was proven less than watertight when a BBC reporter’s twin gained access to his account. Although, as security analysts pointed out at the time, voice authentication remains far more secure than passwords, which can be brute-force cracked, and the ‘twin issue’ has been well-known to biometrics experts for years. The bad press didn’t stop the bank rolling out biometrics, but Josh Bottomley, HSBC’s head of digital, data and development, acknowledges that ‘at the same time we have a big issue with trust’. He points to research that illustrates just how emotional customers get when it comes to who is handling their money. “We’ve some research that shows twice as many people would trust a robot to perform open heart surgery on them compared to a robot opening a savings account for them,” says Bottomley. The stat that Bottomley’s quoting – from HSBC’s 2017 Trust in Technology report – puts trust in robotic financial assistance at just seven per cent.
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Clearly, there’s work to be done and Bottomley’s view is that the only way to build confidence in banks’ frontier digital services is by assuming the role of a personal money trainer, leveraging data to inform and empower them – a kind of financial FitBit. “Banking used to be what I call episodic – you went to a branch or you called a contact centre, and you didn’t do it very often,” says Bottomley. “What I really hope for our customers is that we make it much more personal, relevant and continuous. “I’d be delighted if people said they liked HSBC, not just because its offers are better than its competitors’, but because they handle their money better when they’re banking with us. If we do that we can really reinforce the brand’s positioning.” Facilitated by the Open Banking environment, he sees potential in using insights gleaned from mobile financial data in particular to nudge customers towards healthier financial behaviours. But he’s conscious that customers are individuals and not all would appreciate the advice. “With that data, we can say, for instance ‘you’ve already spent X amount on coffees this month’, and many people will see that as the bank being helpful. But others might find that same information very intrusive and totally inappropriate for a bank to provide. That’s why
personal journeys are so important for this kind of implementation.”
Improving behaviours In May of this year, the bank launched the Connected Money app. Available to anyone with a HSBC current account, it allows users to view – but not manage – up to 21 different bank accounts on one screen. One of its core features is spending analysis: collating an individual’s spending data across different categories and account providers. The first of its kind from a major bank, the app’s infrastructure was made possible thanks to the revised Payment Services Directive (PSD2). “We knew our customers could make better financial decisions if they could
see their data from different financial services providers all together, but that’s been quite difficult up to now,” says Bottomley. “PSD2 has allowed us to do it.” In Hong Kong, HSBC’s award-winning PayMe social payments app, which allows users to send money instantly, securely and for free, irrespective of the bank they use, is building trust in digital finance at a different level. The fifth most popular app in Hong Kong, it is used for peer-to-peer transactions – to settle split restaurant bills, for instance. “What’s been really interesting is the social elements of PayMe: the sharing of information, which has been more broadly accepted than I would have expected,” says Bottomley. “I’m reassured that, increasingly, people are using PayMe not just to pay each other but also to pay small bills. So, it’s taking off in an ewallet-type dimension, which is terrific.” In June 2018, PayMe entered the ecommerce market with
Hong Kong’s HKTVMall shopping channel, which features some 3,000 retailers selling everything from instant noodles to hotel stays. The pairing is expected to continue to accelerate PayMe’s uptake.
A partnership approach As well as developing its own software, HSBC is, according to Bottomley, more than happy to partner with fintech companies in a bid to increase customer satisfaction. “I think there’s a lot of space for fintechs to help in particular areas, creating an experience that may be better suited to particular customers,” he says. That’s why, in 2017, HSBC partnered with FacePhi, a world-leading facial recognition biometrics provider based in Mexico that allows users to log in by taking a selfie. Such engagement with fintechs also facilitates the speedier delivery of new services to customers, says Bottomley. “When the iPhone changed its devices from
I’d be delighted if people said they liked HSBC not just because its offers were better than its competitors’ but because they handle their money better when they’re banking with us
a fingerprint ID to a facial ID, we were able to turn that around for our apps in just a matter of days, whereas previously that would have taken us months to get ready,” he adds. The Trust in Technology report concludes with a section addressing the ‘trust deficit’ that’s dogging the uptake of innovative platforms developed by the digital banking industry. It recommends, above all, increasing public education around new technologies and their attributes as a key method of allaying suspicion and building trust. This insight still doesn’t quite explain why more would be willing to have a robot tinker with their aorta than for one to establish a savings account in their name – or, for that matter, why two per cent more respondents would rather flip a coin over a mortgage decision than ask a machine-automated service for advice. For those looking for artificial intelligence to take over in the operating theatre, there is indeed technology to make that happen. Some of HSBC’s more daring innovations might just have to sit patiently in the waiting room for a little while longer before widespread adoption. But Bottomley is upbeat. “More than 41 per cent of our total customers are digitally active, which is a big increase from where we were,” he says. “The challenges and opportunities in the future will be in continuing to marry what customers want with what the technology can do.”
A question of trust: Could customers view banks as financial lifesavers?
Issue 10 | TheFintechMagazine
CUSTOMER RELATIONSHIP MANAGEMENT
THE ATM SWEET SPOT Banks are taking an increasingly pick’n’mix approach to ATM hard and software, creating big opportunities for vendors, even in mature markets, says RBR’s MD Dominic Hirsch RBR recently conducted an in-depth survey of some of the world’s most innovative banks to discover their perspectives on the present generation of ATM software and the functionality they anticipate from upcoming solutions in the years ahead. It found that advanced ATM application software is increasingly being adopted by banks to implement sophisticated customer identification and authentication in the self-service channel, to provide and enhance ATM personalisation and to optimise the overall performance of their ATM estates.
Shift in ATM software strategy RBR’s recent ATM Software 2018 study shows that the past 10 years have seen a noticeable shift in ATM software strategy among banks. Traditionally they would use ‘vendor-native’ ATM applications that come bundled with the hardware, but in many markets, banks now tend to evaluate and procure software and hardware separately. Indeed, multivendor deployments – those where some or all of the ATMs are provided by a vendor that is not the software provider – now account for 43 per cent of the world’s bank-grade ATMs. RBR found that a range of factors is driving the growth in multivendor software, including the facilitation of an omnichannel strategy, the ability to use new hardware providers, general cost cutting and the simplification of procedures. Multivendor
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solutions can at times suffer from accountability issues in the event of technical problems but, nevertheless, the positives of multivendor solutions clearly outweigh the negatives for a large majority of the banks RBR spoke to – a perception which has grown strongly in recent years. One of the main reasons why some banks continue to purchase both hardware and software together is that there are no conflicts of accountability when using a single supplier. A nuance of the multivendor landscape is that some banks have chosen to purchase ATM hardware and software separately, but for operational reasons still buy both from the same supplier. Most independent ATM deployers continue to follow a vendor-native model, as their machines typically offer basic services that would benefit little from an advanced software set-up.
Evolving customer interactions As has been the case for decades, the vast majority of ATM transactions worldwide continue to be carried out in the traditional format of payment card plus PIN. However, in recent years, customer interactions with the ATM have evolved, with manufacturers and deployers alike recognising the importance of offering advanced software solutions to facilitate these. As a result, the sector has become competitive. Contactless cards, near-field communication (NFC) mobile devices, Bluetooth, QR codes and one-time codes
Take your pick: Banks are increasingly choosing to unbundle ATM purchasing packages
are jostling for position to become the preferred mode of ATM interaction among consumers. While the majority of new projects across most markets are anticipated to prioritise NFC/contactless withdrawals, each option is likely to find its own market niche over time. NFC/contactless technology has been welcomed by customers of banks that have rolled it out. Banks have also seen it reduce the length of time it takes to make a transaction at the ATM – an important consideration in some markets, particularly those that are rapidly migrating transactions away from bank tellers and towards self-service solutions, and where long queues are common at busy ATMs during peak times.
Personalised solutions Not only do banks want to improve the range and quality of services offered to customers at the ATM, but they have long
of Europe and North America are now focussing on estate optimisation rather than expansion; this means efficient monitoring solutions are of critical importance and therefore have the potential to be a growth area for software providers. The market for ATM monitoring and management solutions is not just growing – some two thirds of banks interviewed during RBR’s research indicate that they now use a commercial solution rather than one designed in-house – it is also dynamic, with many of the surveyed banks having either recently changed provider, or are planning to do so in the near future. Some banks use multiple monitoring solutions to carry out different functions. This all means potentially huge opportunities for vendors of this type of software, even in markets where no new ATMs are being installed.
What next for ATM software? Industry stakeholders are already looking ahead to the next generation of software developments that could change the sector. Some of the leading commercial banks in Europe either have plans to adopt ‘thin client’ ATM architecture or are seriously looking at it. This would see the traditional ATM architecture in which a terminal houses a PC and carries out a significant amount of processing locally shift to one where the ATM is a streamlined model with processing carried out at a central location. sought to provide more personalised solutions for their customers. Historically, progress in this area has been slow, owing principally to technological barriers, budget constraints and competing IT priorities. The pace of change is now quickening, as multivendor ATM application software solutions are allowing banks to make tangible progress towards consumer individualisation. In Europe and Asia, for instance, customers of a number of banks can now select their preferred ATM transaction types, their favoured banknote denominations, and even primary interface languages. In addition to providing a seamless and customised user experience, sophisticated integrated customer relationship management (CRM) tools have brought a further major benefit – another channel to generate revenue for banks via targeted advertising campaigns, and
Multivendor deployments, where ATMs are provided by a vendor which is not the software provider, now account for 43 per cent of the world’s bank-grade ATMs promotional offers for other banking products such as credit cards and loans.
A dynamic software market In its evaluation of the development of ATM monitoring and management software, RBR’s ATM Software 2018 study shows that these systems have evolved over the past 10 years from basic monitoring of terminal uptime and transaction activity, to sophisticated solutions that can oversee and extract data from a broad variety of functions. Many banks in the mature ATM markets
Smaller institutions with limited in-house IT capacity are looking at Cloud solutions, which would see third parties hosting their data storage and processing remotely. We will probably also see software as a service (SaaS) grow in popularity among banks with limited in-house IT resources and who already outsource part of their ATM infrastructure. Banks’ security concerns are the main obstacle to the implementation of Cloud and SaaS solutions – but provided that these can be addressed, the next wave of change in the ATM software space may be even more radical than the current one.
Issue 10 | TheFintechMagazine
CUSTOMER RELATIONSHIP MANAGEMENT
Power to the people The UK’s first fintech unicorn is alternative by name and by nature, says Founder Nikolay Storonsky. It’s why millions are joining the Revolut-ion Nikolay Storonsky, founder of Revolut, is unafraid to speak his mind and devoutly anti-expectation. And why shouldn’t he be – given that in just three years he’s turned his company into the UK’s first fintech unicorn, with growth accelerating on a daily basis? Investors who backed his partially Crowdcube-funded venture and sold this summer would have made 19 times their original stake – thought to be the largest ever equity crowdfunding return. How has he done it? By turning established views on their head. Not least in the way Revolut acquires its customers. The company doesn’t market. Instead, it advances by word of mouth on a massive scale, adding 8,000 users a day. And they are so bought-in because the provider has them building it from the inside, out. Revolut is very much driven by the community of users it has built – an example of which is its summer recruitment drive for 1,000 BETA testers via its
community pages. In a recent blog it rallied them to help name products, attend Q&A sessions and get involved in community events. And this sense of ‘being part of the club’ goes down so well that customers have even badgered the company for ‘Revolut merch’. It’s hard to imagine the incumbent banks’ customers displaying their allegiance on a T-shirt in the same way! Describing itself as ‘the bank for the global lifestyle’, Revolut’s secret is fairly simple – it is cheap to use and productcentric. And this is enough to help it go global itself, with plans to branch out from Europe to the US, Australia and Hong Kong later this year. It has become one of the hottest digital challenger banks, with two million users and a valuation that last April sped past $1billion, making it, as well as the UK’s first official unicorn, the first digital bank to achieve break-even on a month-bymonth basis.
Enticing customers in with a free product, it then makes its money on premium services – including insurance, cryptocurrencies and, most recently, wealth management. Storonsky’s belief is that ‘it’s all about the product’, in contrast to the prevailing industry view that it’s all about the service. What really clinches it for Revolut is its ability to keep its prices low – it claims to have saved customers £560million so far in exchange fees, coupled with quick product delivery, driven by technology. It saw a gap in the market to steal competitive advantage when banks were charging, typically, eight or nine per cent for cross-border payment cards. “I’d experienced this problem personally. I travelled a lot and used to trade as well, so I could instantly calculate in my head how much money I would lose on each transaction,” says Storonsky, a former equity derivatives trader for Credit Suisse and Lehman Brothers.
In their hands: Many of Revolut's products are driven by customers
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“I started searching for a product for myself to avoid this cost and discovered it didn’t really exist, so I identified the opportunity to build one.” He believes the incumbents are being caught out by their lack of product focus. “They don’t have the right processes, people, vision or direction, so they don’t understand that it’s all about product. They first need to focus on what people want and how they want it, then build it, and then support it with the right risk and compliance systems. “Instead, they build in reverse and, when everything’s built, try to wrap a product across it, which is wrong because the result is not what people expect. People don’t care about your compliance or control strategy, they care about what they see and how they use it.” He adds: “We know what people want. Sometimes, we build things people don’t know they want, but when they see it, they understand they want it. “There are always lots of ideas flying around, either from our product teams or from customers. Then there is a prioritisation process where we select what we want to build and build it,” he continues. “We’ve got many, many product teams, probably about 30, all focussing on particular areas. These could be payments, a retail account, a business account or analytics.”
The zero marketing approach Building on what he sees as a fundamental mistrust of banks, Storonsky is famously straight-talking, telling one interviewer recently that he wouldn’t give them the ‘bull**** 95 per cent of founders talk’. Which perhaps explains why Revolut’s customers stay loyal even when the brown substance hits the fan, as it has in a couple of instances recently, with declined card payments and service outages. Rather than hiding behind a curtain of PR, he wrote a blog titled ‘Enough of the excuses, here’s how we’re going to stop these outages’, explaining the root cause and what the company was planning to do about it. “We’ve capitalised a lot on people not really trusting banks and being dissatisfied with the products they provide,” he says. “The more customers we have, the faster we grow, because there is an embedded virality in our product.” And Revolut is adding more products to its prepaid physical or virtual payment card all www.fintech.finance
the time, including cryptocurrencies, wealth management , insurance and lending – again, driven by customer demand. That was particularly true of cryptocurrencies. “We actually wanted to build a crypto service a long time ago, but we were not able to get approvals from schemes or banks to work with them. About a year ago, we managed to push it through, but the demand was driven by customers, not by the product team saying ‘OK, we need to build cryptocurrency’. It’s the absence of a huge marketing bill that enables Revolut to offer such sound value – something Storonsky has strong views about. “It’s more likely a friend or family member will tell someone about us, because they can send them money quicker, or they simply find out via the internet that this is the best way to save money on banking fees,” he says. “The way I view marketing is very simple. You’ll never have the budget to buy everyone, because there are six billion people on earth. So, it’s much wiser to actually invest this money in product, so that people sell your product.” One of the original digital challengers (which is currently applying for a banking licence via Lithuania), Revolut is now surrounded by competition in the payments and neobank space. However, it has eyes on the lending activity that still rests largely with the incumbents. “The lending space is interesting. About nine months ago we realised that, in credit and lending, it’s still possible to build much better products than exist now,” says Storonsky. “So, we assembled a team that just works on credit. They haven’t issued a product yet, because the process is quite complex and you need to get licences and build a whole scoring model and lending and repayment process. But I can already tell that our pricing for credit will be much cheaper than any other providers out there because credit businesses incur a lot of marketing cost to acquire new customers. We don’t market, so we don’t need to price our credit to compensate for this cost.”
Employing the best people is vital to Revolut’s ongoing success and that of UK challengers like it. “The level of your success is directly correlated to the quality of your people and we’re trying to hire the best,” says Storonsky. “But the reality is, it’s extremely difficult to find the right people in Europe. In Silicon Valley, there is already a huge community of developers, great designers and product guys. In London, that’s still being built. “Hopefully, the people who are here will be the future founders and bring in even more valuable companies, but we are still creating this ecosystem. The more tech companies we have here, the stronger the ecosystem becomes.” Revolut is open to collaboration if it gets it to where it needs to be. “We’re very pragmatic about it, we look at what the customer wants and the most efficient way we can get that. If it’s a partnership, and we can’t build it in house, we will partner. If we can build something much better in house, we will build it in house,” says Storonsky. “If we see an opportunity, we just do it. We’re quite fast, from decision to execution, and I wouldn’t exclude any opportunity.” He may not believe in spending hard cash on marketing, but his pitch is pretty sound. Describing why the next generation should buy into Revolut, he concludes: “It’s cheaper, compared to your normal bank account, and it allows you much more flexibility, like different security controls for your card and multiple cards. We have a tool so that you can set yourself a budget, and then we notify you every time you’re in danger of breaching your budget, allowing you to be safe with your money. It allows you to invest money and every time you spend with a card you can roundup your transaction and put it into your vault account. You can buy and sell cryptocurrencies, you can insure your phone or your travel for 50 per cent cheaper, and there are even more things coming.” Vive la Revolut-ion!
Sometimes we build things people don’t know they want, but when they see it, they understand they want it
Issue 10 | TheFintechMagazine
CUSTOMER RELATIONSHIP MANAGEMENT
Not enough European banks are putting resource into digital customer acquisition, says Avoka CEO (that’s Chief Experience Officer) Derek Corcoran – and they’re missing out “It is not the strongest of the species that survives, nor the most intelligent. It is the one that is most adaptable to change.”
Though scholars have long argued whether scientist Charles Darwin actually uttered these words (or something similar), they hold true for banks in the face of digitisation, according to Derek Corcoran. Corcoran is the chief experience officer for Avoka, a fintech with an onboarding platform that aims to deliver high customer conversion rates for its bank customers. With the emergence of the challenger banks, the move away from branches, and tech firms offering banking services, he says incumbent banks need to change quickly. But being light on their feet isn't a trait many possess. “Fundamentally, with onboarding they look at it from the bank’s perspective,” he says. “They look at what the bank needs in terms of information and how the bank's systems work, and, as they move to digitising that, they’re imposing how they operate on the consumer. “Unfortunately, the consumers don’t like that – and it's not the experience they have with a Spotify or an Amazon. Those firms develop systems from the customer perspective.” And, according to Corcoran, if they don’t like what a bank has to offer, those customers vote with their feet and simply walk away. “We spoke to a bank that told us 90 per cent of people who begin an application to open an account, abandon it. So, they’re converting 10 per cent of potential customers. If that was Amazon, whoever was responsible for that would have been fired,” he says.
TheFintechMagazine | Issue 10
Ahoy there, customers! Avoka, launched in 2002 in Sydney and now with offices in Denver and London, focuses entirely on onboarding with a Cloud-based software platform that links into a bank's system through an application programming interface (API). Furthermore, it allows banks to integrate the services of fintechs by acting as a hub between the two. The business also provides its customers with analysis of their existing platforms. Corcoran says: “Our platform gives the bank the agility to design from the customer perspective and build an experience that customers will actually enjoy completing. Then we can reformat that data so that it matches with what the bank needs. “Secondly, our analytics identify challenges within the application experience. We ask which field in the application form is causing a problem. From this, banks have spotted content that
it is necessary to make customers aware of, but is scaring them off. So, by identifying the problem text they can work with their compliance teams to make the wording less intimidating. We've seen conversion rates increase by 10 per cent just by making simple changes like that.” Describing how banks can use third-party solutions via its platform, Corcoran gives the example of a bank experimenting with e-signatures to complete an account. He says: “We’ve already built integration to Adobe, DocuSign and VASCO Data Security, so the bank can choose which they want to work with. If the identity service is not approving enough customers, www.fintech.finance
or not verifying enough identities because a bank has got some thin-file customers, maybe from overseas, we have half a dozen different identity providers that they can plug into their onboarding experience. “We’re acting as a hub, on one side collecting information from the customer, and on the other connecting to the fintech providers. Whether it’s photo ID capture, identity verification or fraud prevention, we’re allowing the bank to plug in those services. “We can’t build everything, there’s just too much investment going on in the fintech market. We’ve built in extendibility so that if a new vendor hits the market and they’re offering an incredible solution, we can plug them in.” Avoka Exchange is the marketplace where customers can see the 40 third parties they so far can currently use. Furthermore, Avoka allows banks, or their partners, to use its platform like Lego bricks to build their own integrations. Regarding the onslaught of recent regulations, Corcoran says adaptability is also vital so that a bank is customer-friendly when meeting know your customer (KYC) and anti-money laundering (AML) requirements. Instead of treating all customers the same and presenting everyone with an onerous list of identity questions, the smarter onboarding journey separates the straightforward applicants from less simple cases. He says: “Banks have traditionally treated every customer the same, regardless of whether they're a UK resident with a mortgage aged 50 and a clear employment history, or someone who has just arrived in the country. “The trend towards dynamic KYC means we can collect initial information about the customer, perform a verification, and say ‘yeah, you’re good’ if it's enough, or progressively dig deeper if it's not. That www.fintech.finance
could mean a bank employing photo identity capture, requesting selfies for comparison, or even a video interview. “Now, we wouldn’t recommend a video interview for everybody because it's an imposition and it could have a negative impact on the customer journey, but we work with clients so that they ask the right questions in a way that minimises that risk.” Worryingly, however, Avoka's annual market research has found that while Australian and US banks are continuing the digitisation journey with speed, progress is flat in Europe in 2018 – and Corcoran blames that on the weight of recent regulation. He says: “The General Data Protection Regulation (GDPR), Open Banking, the revised Payment Services Directive (PSD2), Brexit, all of these issues have taken focus away from the things a bank wants to do. “Our research team looked at 3,200 banking products, across about 50 institutions, and another finding was that while progress is being made in personal banking, it's not being made in business banking for the SMEs. “So, in effect, the industry is asking the busiest people, small business owners, who work an average of 54 hours a week, to come into a branch, which means they have to stop doing what earns them money. If there’s one segment of the population that really needs the convenience of digital for opening an account or getting a loan, it's the small business sector and it's really underserviced. “We believe banks have been so focussed on meeting the demand for personal consumers to be able to bank online, they haven’t had the capacity to deal with the opportunity in small business. I think it’s going to generate significant revenue for banks that take advantage.”
want what electricity can facilitate – cold food, lights, TV. Similarly, you don't want a 30-year debt. You want a home. You don’t want a six-year debt. You want a car. “I see us moving to the car industry model, where you choose a car then get the finance. There’ll be a bank behind that finance that's transparent to you but you don’t choose the car based on what the bank is. The banking product has become embedded in that transaction. “Recently, I moved from Sydney to Colorado and I put my personal details into our payroll system, then I went to a bank and gave my personal details to get a bank account. Then I went back to payroll and put the bank details in. Why couldn’t the payroll system have facilitated the creation of a bank account? “So, I can see a model where banks have an application programming interface (API) layer that’s focussed on sharing data to enable services to be completed outside of the banking environment. I could be on social media, telling my friends we're having our first child and the social media firm could suggest I start saving money and facilitate the establishment of a savings account, using the details on my social media profile.” Regarding the GAFAs (Google, Apple, Facebook, Amazon), Corcoran believes they want to provide financial services but don't want the complexity of being full-blown banks. Amazon may wish to provide a current account to reduce debit card transaction charges and, ultimately, its product prices; Facebook may become an interface of the banking system due to the data it holds. “If that’s where customers are headed, they will move to the models that suit them best, not to the ones that the organisations want to impose upon them,” he says. “Jeff Bezos, the CEO of Amazon, was quoted as saying it is scary not to change. So Amazon is continuously working to ensure it’s ahead of consumer expectations, because once those consumers go away, they've quite possibly lost them forever. There's the lesson for banks. Only the adaptable will survive.”
If there’s one segment of the population that really needs the convenience of digital for opening an account or getting a loan, it’s the small business sector
An embedded banking model Looking to the future, Corcoran says ‘embedded’ or ‘invisible’ banking will be a huge trend. “Nobody wants to bank, they need to bank,” he says. “I draw the analogy with electricity. You don’t want electricity, you
Issue 10 | TheFintechMagazine
Nigel Walsh (aka Iron man)
Partner at Deloitte Digital, Co-Host at InsurTech Insider ‘Look alive, Jarvis, it’s playtime!’ Tony Stark would feel right at home at ‘Walsh Tower’. With its multiple smart controls and facial recognition sensors, the InsureTech Insider presenter’s pad is an Iron Man’s dream. Walsh is no less obsessed with gadgets in his day job, where he sees insurance as being more essential to the financial fabric of society than banks. Hmmh, time to pull on the power suit and explore this phenomenon…
The head of media at 11:FS and producer of its Fintech and Blockchain Insider podcasts has made ‘webelebrities’ out of the 11:FS team, including Nigel Walsh and Jeff Tijssen. We’re proud to enter all three of them in our Hall of Fame!
TheFintechMagazine | Issue 10
(aka Mister Fantastic) Head of Consulting at 11:FS
If anyone knows about the power of transformation it’s Famous Four founder Mister Fantastic. What better alter ego for 11:FS’s head of consulting Jeff Tijssen, who demonstrates the shape-shifting power of digital every day as the challenger brand strides across the financial universe. Tijssen says there’s ‘something unique and quite special ’about 11:FS’. That’s not quite how a superhero puts it. How about Avengers Assemble!
Head of Media at 11:FS and Producer of Fintech and Blockchain Insider
The complex and shadowy, undersung Moon Knight struck us as just the right superhero for a man who fell into financial services from the entertainment industry and is rarely recognised for his superpowers, despite his sterling efforts behind the podcast scenes. Judge admits to being a tiny bit starstruck now by the techs titans. So, Jack Dorsey, if you're out there, give this man some credit!
Issue 10 | TheFintechMagazine
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Ollie Judge is rarely seen and not very often heard on the 11:FS Fintech and Blockchain Insider podcasts. Like his alter-ego Moon Knight, he shuns the light, but he can be tempted by beer and music… and the thought of Jack Dorsey as a guest, as FF’s Ali Paterson discovered. ALI PATERSON: How did you get involved with the podcast? Because, looking at your CV, you clearly have a very extensive financial services background. Not. OLLIE JUDGE: I kind of fell into it backwards. I worked in entertainment in Los Angeles and came crashing back to London where another podcaster, Myke Hurley, suggested me over Twitter to the producers, even though I had no podcast experience. It was a case of ‘how do I apply all the skills I already have, like storytelling and production, to the financial services world?’ I learned from other podcasters and I hope that we’re now the forerunners for storytelling in this space because storytelling is a way of humanising an industry – or indeed any big corporate. Even if you’re trying to get a business deal over the line, if you tell a good story, then you’re going to win people over a lot easier than if you spew stats at them. AP: Well snap, because my background was originally in film and I ended up in fintech, too. As a fellow outsider, what have you found people to be like inside the industry because, let’s face it, many other outsiders think bankers should be behind bars – and they’re the ones that say nice things about them! OJ: Fintech Insider’s approach is not to take the industry too seriously. I think the reason bankers have the reputation they have, is because they do take themselves too seriously. But we have a lot of the incumbent banks on our show each week and I’m getting to know them. It’s all about breaking people down a little, then that façade falls away. That’s the people who work in traditional finance, but the world that I came into was fintech. Young companies, and the young people within the industry, are very welcoming. They’re not just trying to change products, they’re also trying to change perceptions. When I go to conferences, it’s not all the people from the big banks www.fintech.finance
11:FS SEORSUPERHEROES EHREPUS SF11
running up to us, it’s the little startups that are really trying to change the world and with it they’re doing a good job of changing the dynamic of the industry. AP: Do people recognise you from Fintech Insider? OJ: Not me so much, but the other guys definitely get recognised in public. I get a lot of mention on the show, but I think I’ve only featured on three out of 230 or so! At the last Money20/20, someone did recognise me for my voice. So, I get a bit of kudos but it’s not like someone bumping into David Brear on London Bridge and wanting a selfie. It’s weird, this little world of ‘weblebrities’. AP: Who’s the best guest you’ve ever had? OJ: James Routledge. He runs an organisation called Sanctus, which is trying to become the Nike of mental health. He’s
Fintech Insider’s approach is not to take the industry too seriously. I think the reason that bankers have the reputation they have, is because they do
created this organisation that works with corporates as well as startups to make sure they have mental health structures in place. He came on the show, knowing nothing about fintech, but managed to apply all of his ‘mental health gym’ to it in about an hour, which I really enjoyed. I’m usually on my laptop when I sit in a show, but it was one of those occasions when I shut my laptop and just started watching this guy, because of the way that he was approaching mental health – he was like ‘this is how we support people. We’re moving forward’. I thought that was really great. AP: I know David Brear is very keen to get will.i.am from Atom on the show. Who would you like to see sitting on the Fintech Insider couch? OJ: I’d absolutely love to have Twitter’s Jack Dorsey on because he straddles tech and fintech and he called all this stuff with Square way before fintech took root. He’s a combination of tech knowledge with business savvy who studied fashion briefly, so he’s got this weird, eclectic past and gone on to do all this other crazy stuff. If he’s speaking at Money20/20 in Vegas this Fall, I might chase him down. Apart from celebrity guests, like Jack, it would be interesting to have someone who works in the transaction layer of Google – not the guy who’s leading payments, but an actual engineer who can explain how all the transactions happen on Google. That would be fantastic. AP: So, what can we expect to hear from the podcast for the rest of this year? OJ: We’ve launched our new narrative format now, which allows us to do deeper dives into big subjects, such as the General Data Protection Regulation (GDPR), artificial intelligence and the state of the challenger battleground. We’re also having a massive deep dive into fintech in the US, looking at who the frontrunners and hot startups are as regulations loosen up. In October, we have After Dark VII coming up at FinTECHTalents in London. After Dark is our live audience edition and FinTECHTalents have offered us a stage with 1,500 seats, music and beer, so I was like ‘yeah, let’s do that!’ Issue 10 | TheFintechMagazine
Mister Fantastic, aka Jeff Tijssen, is just getting into character at 11:FS, having come across from Capco to head up the consulting business in February this year. But he’s already demonstrating his shape-shifting powers as the team flexes to work with a lengthening queue of international (but not yet galactic) clients. FINTECH FINANCE: You came across from Capco to head up the 11:FS consulting practice at the beginning of this year. So what does that mean you do on a day-to-day basis? JEFF TIJSSEN: My role at the moment is very much a mix of educating clients and explaining what makes 11:FS different. We have a large number of new builds in the pipeline – across retail, SME, corporate and investment banking, asset management and insurance. That’s in the UK, Europe, the US, Asia and Africa – in fact we’ve been asked to build three banks in Africa where we don’t even have an office, which is pretty remarkable – and every single one of those opportunities is inbound, it’s clients coming to us. Which, I guess, means the podcast is probably the best business development tool I’ve ever had! When a client reaches out to us it’s down to me to set up the initial meetings to explain not just what we do, but also how we do it. The follow-up phase is about shaping the deal and then overseeing the actual work. I have both a business development and a delivery responsibility. There are three parts to the 11:FS business: I head up consulting, but there is also media and research, each one working to support the others. So, when it comes to a typical 12-week stint of building a bank, I’ll use some of the guys in the research team and some from marketing as well. FF: 11:FS is helping some very old institutions become digital banks. What kind of impact on the average consumer do you think you’ll have? JT: We don’t just want to be another consulting firm. We really want to
TheFintechMagazine | Issue 10
11FS SUPERHEROES 11:FS SUPERHEROES
change the entire industry and, by extension, the lives of consumers. In a couple of years, if not before, we want to be able to point to a number of things within the industry that we can be super proud of and say 'this was built by 11:FS'. FF: You have described yourselves as a tactical guerrilla force. What do you mean by that? JT: We don’t do projects. We tell clients ‘we’re building a business together here’, so the approach we take is fundamentally different. We often talk about special forces versus the conventional army that most consultancies show up with because I don’t want 5,000 developers from an offshore company; I want five of the best. It’s all about bringing together a small team of people who are highly skilled and experienced in doing this type of stuff, as opposed to introducing an army of people who are going to spend six months defining a strategy, then three months designing it and 12 months building it – before you know it, you’re two years down the line and you’ve spent an absolute fortune. A big consulting firm is often
We want to point to things we’re super-proud of and say ‘this was built by 11:FS’
incentivised by time and materials and, quite often, it’s going to take a lot of time and a lot of materials. Our initial phase involves literally a handful of people, which clients are often surprised by, especially when it comes to large transformation programmes. FF: What’s been the reaction to that? JT: I’ve never seen anything like it. We literally have clients tripping over each other to come and work with us. The fact that we’re now working in so many different continents and clients come to us from countries where we don’t even have an office (Asia too), is pretty remarkable. We position ourselves as a challenger consultancy because we think not just the financial services industry is somewhat broken, but the professional services industry is, too. Most consulting firms have a bench and usually 15 to 20 per cent of their staff are on that bench, ready to start new projects. We don’t have that, so we don’t have a massive overhead that the client needs to pay for. It does sometimes mean that if they want us to start next Monday, it might not be possible, of course, but then we’ll have a conversation with them about that. There’s something unique and quite special about the 11:FS brand. I’ve honestly never worked with a bunch of people who are not just super-smart, but also so driven and ambitious – and also have a lot of fun. FF: One last thing… what does 11:FS stand for? JT: There are different explanations, depending on how drunk we are to be honest! FS stands for financial services. The usual explanation for the 11 is that most organisations rank achievement from one to 10 and we wanted to turn it up a notch. As I said, that’s the official explanation… meet me in the pub afterwards and I’ll give you another!
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Much like his alter ego, Tony Stark (aka Iron Man), Nigel Walsh is obsessed with tech. A co-host for 11:FS’s fortnightly InsurTech Insider podcast, in his day job as a partner in Deloitte Consulting he pulls on the power suit to transform insurance businesses… FINTECH FINANCE: You’ve been a well-known advocate for the insurtech sector for some time, but how did you end up a media star on InsurTech Insider? NIGEL WALSH: I think insurance has sometimes been regarded as fintech’s poor cousin, but there are some really exciting things going on in the sector. In my role as a partner with Deloitte, focussed on the insurance sector, and as a mentor to startups, including on the StartupBootcamp insurtech programme, I get to try out all sorts of cool tech – from autonomous cars to the Internet of Things, tracking for ships and cars, and sensors in homes. But it occurred to me that insurance wasn’t doing a really good job of communicating that to the broader community. So, originally, I got involved in InsureTech Insider to open up and share what was going on. It was around the same time as the whole insurtech movement kicked off and, two years on, it feels like it’s all coming together. There is now north of $20billion invested in the insurtech sector, which demonstrates the focus people now have on better engaging their customers for a product that typically isn’t liked very much. FF: I’ve heard insurance described as a ‘grudge purchase’. You’ll never get around the fact that it’s something we’re obliged to have, will you? NW: Well, I could probably live my life without a bank account but I definitely cannot live my life without an insurance product. To drive a car or to get a mortgage, for instance, I’m mandated to have certain policies. So, my argument is that the natural home for orchestrating financial services is the insurance provider as opposed to a bank or a wealth manager. As to it being a ‘grudge’ purchase, your attitude to insurance depends on your experience of it. For those that have never used the insurance provider, but have cover every year, it feels like a bad bet – ‘I’ve
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bought something and never used it’. For those who have been through a claim and had a good experience, they see the value. In the UK, we’ve all been conditioned to go to an aggregator and buy the cheapest possible insurance. As a result, we’ve destroyed some of the value that we get from those products. Some observers have said insurance is going through an identity crisis. I think there’s a crisis of meaning for the customer. There’s a difference. FF: So how do you see insurance, as a product, developing? NW: I think you’ll have insurance as a by-product when you buy something else. You might buy the ability to drive from A to B and have insurance embedded or invisible in that service, in the same way that you get on a plane or into an Uber and you don’t think twice about the fact that that journey is insured in multiple ways. Then there are the value-added services that we’re beginning to get with insurtech startups. Neos is a UK company focussed on home insurance and partnering with Hiscox, Aviva, and Munich Ret to offer
Observers have said insurance is going through an identity crisis. I think there’s a crisis of meaning for the customer. There’s a difference
customers home sensors for water, smoke, security, etc. Then there are wearables, which are giving some really useful insights into behaviours, activity and medical conditions. Vitality is probably one of the best examples of that. Agriculture is one of the most innovative areas for insurtech. If you spend three hours in a field without moving, there’s a chance you’ve had a run-in with a piece of machinery. In the same way that we have wearables for humans on farms, we have wearables for animals with things like the Connected Cow, which tells you its location, temperature and activity, which gives you an insight into disease. In the marine industry, because of the complexity of the transaction for a marine insurance policy, XL Catlin, Amlin and a few others have partnered with Maersk, IBM, Microsoft and EY, to bring together something called Insurwave, which basically puts the entire insurance transaction for marine onto blockchain. In travel insurance, Revolut has launched its location-based product, using tracking so when you land in a country, it says ‘hey, you just landed in France. Would you like travel insurance while you’re here?’. FF: We know you’re a tech fanatic. What’s your favourite toy? NW: My house is entirely connected. While we were away recently, I had a device in the hallway that operated on facial recognition and video recording, so anytime there was movement – someone popping in to water plants and check post etc – it would flash up on my phone with something like ‘hey, your mother-in-law’s been round’! I bought an Alexa and threw it out, because it didn’t understand me. Google Home works really well, though. I’ve got a Samsung hub, a Philips Hue hub, Amazon, Apple, you name it. Some of them on the Cloud are fine, but what if the Internet goes down? I’ve Nest smoke alarms in the house, but if a fire takes out the router first, I’m stuffed. So, do I put in a, battery-powered sensor that can actually dial out in an emergency? If I were to put my IT hat on, then yeah, I probably should. But for the average insurer, why would I even do that? So, back to me being Tony Stark, all things are possible. We’ve just got to be careful we don’t end up connecting everything but doing nothing with the data. www.fintech.finance
Suck it and see
TD Bank has a highly developed risk appetite, but it’s carefully calibrated by data insight, as VP of Innovation Frameworks and Strategies, Tim Hogarth, explains Lollipops for all and dog-friendly branches that open at weekends and public holidays – there are even some branches in supermarkets. Welcome to the ‘Bank Human’TM.
Canadian-based TD Bank is so passionate about delivering a person-centred community service, where customers are more than the sum of their account number and sort code, that it went so far as to attach a trademark to the philosophy back in 2013. Now, it’s figuring out how to preserve and combine that touchy-feely approach with the by-the-numbers benefit of introducing artificial intelligence (AI) to the customer relationship. Canada’s leading bank by assets with 25 million customers both there and in the US (where it serves the East Coast, from Maine to Florida), acquired its first AI startup, Layer 6, in January this year. Using a range of data, including customer profiles, transaction histories, phone calls, secure ID images and video, Layer 6’s AI engine will help the bank to make sensible – and, hopefully, profitable – predictions. That might prompt the next-best-action for a customer, such as the offer of a loan or mortgage or piece of advice. It can also identify fraud and cybersecurity threats. The beauty of the engine, developed by Canadian programmers, is that it can be trained to produce specific results in real time without having to process multiple data streams separately, which is largely the norm, even now.
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“Banking has always been a data-centric business but, historically, using all of the available data as part of the banking relationship faced technical challenges,” explains Tim Hogarth, VP of innovation frameworks and strategies at TD Bank. “We have new techniques that let us use the data in more efficient and effective ways to deliver better outcomes for customers and the bank as a whole. We’re investing heavily in some of those technologies. Layer 6 gives us access to a brilliant team [including 17 data scientists] who are using groundbreaking techniques to analyse that data.”
It’s important for us to take on innovative ideas and explore. If we fail to, that in itself is a risk It’s not just about making hi-tech banking highly personal for TD Bank customers; the better the data, the better the business, as Hogarth explains. “The investment in companies like Layer 6 gives us a fresh perspective and helps us have a much deeper understanding of risk, which will give us a significant commercial advantage,” he says. “Data is the most objective and important way to understand the market, to understand a customer and
to understand what risks we’re ultimately going to take.”
Leaping ahead of the curve Harnessing the power of AI is part of a well-thought-out jump by TD Bank into new financial territory. “We have a very strong and deliberate risk appetite statement set at the top of the house and that flavours everything we do. It’s important for us to take on innovative ideas and explore. If we fail to, that in itself is a risk,” says Hogarth. He has been instrumental in encouraging the bank to make modern leaps of faith, albeit often strapped to a tech buddie and having first carefully calibrated the chances of success because, as he says, ‘innovation’s never going to work if you don’t partner with your risk teams’. “We have accelerated processes to evaluate risks when we’re exploring new technology, new partnerships or new ideas in order to get early proof points to better inform the bank’s larger strategy. Ultimately, if we can move things quickly in these explorations and learn, we can lower the risk for the organisation.” The acquisition of Layer 6 was a departure from the bank’s preferred method of working alongside independently run fintechs. While the Layer 6 team are physically separate – down the road from TD’s Ontario HQ – co-founder Jordan Jacobs has become chief AI officer, responsible for business and strategy at TD Bank Group. www.fintech.finance
“We partner with fintechs a lot and, typically, take small-scale investments in those companies, then have them operate at an extended reach from the bank,” says Hogarth, who is also responsible for TD Bank’s Innovation Centre of Excellence. For the past 18 months, it has been joining the dots between its initiatives and the bank’s wider business, as well as promoting external partnerships with the bank. “We want fintechs to thrive and not just work with us; we want them to work in the broader fintech ecosystem in Canada,“ says Hogarth, who has described the strategy as ‘less about bringing fintech into the bank and more about bringing the bank to fintech’. “We also want to learn from their fresh ideas and perspective, and cultivate that talent without having to put them into the centre of the organisation. Having them operate a little bit further away from us gives them that degree of independence and allows us to learn from them, rather than necessarily making them part of the core bank,” he explains. “A lot of these companies are very nimble and very creative – we don’t want to prematurely scale them. Banks are very good at being robust, scaled and static businesses, but when you have a small company with an idea that is still uncertain and evolving, giving them the freedom to explore and to change before it’s made part of the core customer offering is really important. “When we partner with a fintech, we look to gain value early on for both sides, but with the focus on their continued evolution. So, we have a lot of ideation and early-stage exploration of technology and we run hackathons. We take some of these ideas and experiment with them early in the market and, ideally, things www.fintech.finance
that work really well are put back into the organisation. We also have collision days where we bring in fintechs to present in pitch fashion on any given topic for 10 minutes, so our executives can quickly learn about their proposition and see if there is applicability to our business.”
The voice of the future
“We look to what customers are starting to use, what they’re talking about and see how we can embrace that technology to create better banking experiences,” says Hogarth. In other words, while lollipops might not always feature in its relationship with customers, TD Bank will continue to target their sweet spots.
Among the technology initiatives that have been spun out to Canadian TD customers is the opportunity to use Amazon’s personal assistant Alexa to make banking enquiries. Hogarth has described it as ‘the perfect example of disruption’, pointing out that no one knows how customers will use voice technology in future, so banks need to be prepared.
Sweet spots: TD Bank monitors what technology customers favour
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Deep learning: The next frontier for AML Monitoring for suspicious transactions is more efficient if you employ some intelligent assistance, argues Tomasz Czech, Business Solutions Manager at Comarch Up to $2trillion dollars representing five per cent of global GDP – that’s the estimated amount of money laundered worldwide each year, according to the United Nations Office on Drugs and Crime. The fight against money laundering is one of the top priorities of financial institutions – but it also poses a significant challenge for them. To combat the phenomenon means having a large number of human and technology resources at hand. And even then, the good guys have a hard time winning. But it doesn’t have to be that way.
The old way… One of the tools commonly used by financial institutions for detecting money laundering is the transaction monitoring system, usually based on pre-defined rules, which scans customer transactions for red flags. When a matching pattern is observed, an alert is generated and the case is referred to the bank’s internal investigation team for manual review. After multiple rounds of review, if the investigators conclude the behaviour is in fact indicative of money laundering, the bank will file a suspicious activity report. This kind of transaction monitoring has huge drawbacks – it suffers from false alarms reaching very high levels of up to 80 per cent for a start. Additionally, a rigid, rule-based system is likely to overlook complex interdependencies between www.fintech.finance
activities performed to launder money. Another important aspect is the maintenance cost, which is usually high, partially due to the necessity of assigning a large team of investigators to a task. Manual incident reviews engage multiple anti-money laundering (AML) teams, which may consist of hundreds or thousands of specialists. Transaction monitoring should – and can – be more efficient.
Enter deep learning The deeper money gets into the banking system, the more difficult it is to identify its origin. One of the technologies that has gained recognition in recent years is deep machine learning, being a subset of modern artificial intelligence (AI).
The deeper money gets into the banking system, the more difficult it is to identify its origin Deep anti-money laundering detection systems can spot and recognise relationships and similarities between data and, further down the road, learn to detect anomalies or classify and predict specific events. Anomaly detection has the potential to identify events that do not conform to an expected pattern in a data set and improve the breadth of detection by uncovering new money laundering
patterns. Once an anomaly is detected, it can be prioritised in terms of its probability as a real instance of money laundering. Cases with highest probability can be analysed first, which allows you to speed up the process: you get fewer false alarms, time savings and a better detection rate.
More is… more This is precisely how Comarch Anti-Money Laundering works. It can take the burden of performing routine tasks off bankers’ shoulders, reduce the total time it takes to analyse alerts and allow the bankers to focus on more demanding and complex challenges. A successful implementation of such a solution depends on high-quality data. The data scope covers know your customer (KYC), relations between clients, deposits, withdrawals, purchases, fund transfers, merchant credits, payments, trading activities, investments and many other things. The more complete the image of customers and their activity, the greater the chance of detecting anomalous behaviours. The other important aspect is the know-how – very few companies are experts in both machine learning techniques and financial services. Without interdisciplinary knowledge, building learning systems to detect certain types of financial fraud can be very tricky. Choosing the right technology partner is crucial. Money laundering will not disappear overnight. But, given time, deep learning can come to the rescue. Issue 10 | TheFintechMagazine
Coming of Age An increasingly older population is in danger of being left behind by the digital banking revolution. But not at RBS, as Wincie Wong, Digital Propositions Lead for Personal and Business Banking, explains When it comes to technology, the old saying ‘children are the future’ holds very true. Sit a 10-year-old down in a WiFi hotspot with a smartphone and, within minutes, they’ll have Snapchatted the Queen, written a piece of machine learning software and won 16 games of Fortnite. As that 10-year-old matures into young adulthood, they’ll be totally comfortable with adopting new fintech products as soon as they hit the virtual shelves. A branchless digital-only bank whose account I control solely from my phone? Great! An app that automatically places the spare change from any transactions into the hands of a robo-advisor to invest for me? Perfect! A fluorescent card that can store multiple currencies, allowing money to be transferred anywhere in the world for free? Sign me up! But, as wonderful as it is that financial services are catering so well to the needs and desires of a tech-savvy younger generation, there is a group of people who are becomingly increasingly marginalised by developments in the banking industry. For some, a reduction in the number of bank branches on the high street doesn’t mean more space for artisan coffee shops – it means less access to a banking channel
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that they understand and have become accustomed to. The replacement of chequebooks may go unnoticed by millennials, but it’ll leave plenty more wondering how to send birthday money to their grandchildren in the future. For older people, the idea of a digital-only bank often does not represent practicality, but rather adversity. If current global demographic predictions are anything to go by, this problem of financial marginalisation among the older generation is only likely to worsen over the next couple of decades. In 2016, 18 per cent of people in the UK were aged 65 and over and 2.4 per cent of the population exceeded the age of 85. By 2035, these percentages are set to have risen to more than 27 per cent and five per cent respectively. Seeing as the population of the UK is predicted to exceed 75 million in the year 2035, we can expect to have at least 20 million over-65s living in our country by then. Sure, in 20 years’ time many of these people may be comfortable with the notion of branchless banks and chatbot channels, but what about blockchain and the Internet of Things? What about nascent technologies that are yet to come to the fore? If younger generations are still scratching their heads over these developments, it’s safe to assume
that the majority of older people (with less technological awareness) will struggle to comprehend them at all. So, how can banks ensure that the needs of their older customers are catered for? Well, step one is to keep in mind exactly who your customers are and what would benefit them best, as Wincie Wong, digital propositions lead at RBS, explains. “Right now, in the UK, we have an ageing population. As a UK-focussed bank, it’s imperative that we identify and analyse both economic and demographic trends in Britain and UK population change is therefore key information for us. “As part of RBS’s digital propositions team, my task is to develop new customer experiences for our personal and small business customers and to make bets on what we should be designing for the future. “Previously, we’ve mostly provided products that are geared towards lending, mortgages and current accounts – services that are aimed at those living a life of wealth accumulation. Older people, however, have gone from a life of wealth accumulation to one of wealth decumulation. Seeing as the percentage of older people in our society is increasing year by year, we’re now thinking about what propositions we can create that are www.fintech.finance
adapted to the alternative needs of our older customer segment.” As well as expressing a preference for face-to-face interaction when it comes to managing their finances, a significant proportion of the older generation are unable to transfer to online or mobile banking as they don’t possess the requisite devices. Thus, the challenge for banks like RBS is in maintaining strong, friendly communications with their offline customers while minimising the economic strain of keeping all their high street branches open. RBS has devised a solution to this problem that piggybacks on a scheme it’s been running for more than 70 years. Since 1946, the bank has provided a Mobile Branch Banking service to customers living in remote locations (namely the darkest depths of Scotland). In recent years, the service has been extended to various locations across England and Wales where customers are likely to experience issues accessing their nearest bank branch, either as a result of disability or old age. Since 2016, RBS has operated 22 mobile branch routes across the UK, covering 11,000 miles and serving 600 communities each week.
The very mobile bank Over the past five years, the bank has added 28 new vehicles to its mobile branch fleet to support the expansion of the service, but what does an RBS mobile branch look like? No, it isn’t a high street branch on a flatbed truck – it’s a large van equipped with a www.fintech.finance
satellite, multiple iPads and high-visibility markings on handrails and steps, allowing older and disabled customers to make cash transactions, pay bills, deposit cheques and view their account balance,. RBS’s Mobile Branch Banking has been received positively by those who’ve used it and the bank now plans to implement Braille documentation and high-visibility lighting within the vans to further assist blind and partially sighted customers. So, it looks like you don’t need a smartphone to do ‘mobile’ banking, after all. The problem of visual impairment often comes with old age. In the UK, more than two million people over the age of 65 are living with sight loss and one in five people over the age of 75 suffers from blindness. As Britain’s population continues to age, more and more people will become unable to read the digits on their bank cards, let alone distinguish between a virtually identical credit and debit card. To combat this problem, RBS has designed and released a range of ‘accessible’ cards, featuring a number of easily identifiable markings. Its accessible debit card, for example, bears two vertical lines of three raised dots, whereas its saving card displays just one, allowing a partially sighted person to tell the two apart by touch alone. RBS’s accessible cards also feature an indent on the right-hand side to help customers insert the card correctly into ATMs and the font size of the card’s telephone numbers has been enlarged by 50 per cent. As a result of these improvements, RBS’s accessible card is the first banking product to be awarded the national quality assurance mark ‘RNIB approved’. Having telephone numbers that are easily readable is all well and good, but being put through to a convoluted, unintuitive call handling system can still prevent many older people from receiving the guidance they require from their bank. In the past, RBS has imposed target call handling times in an effort to reduce holding queues on its phone channels. However, the bank recently took the decision to remove these targets, as they encouraged agents to
rush explanations of key information and not to listen carefully to clients – something that made life especially difficult for older customers, many of whom were hard of hearing. Now, RBS trains and equips its telephone agents to identify routine calls (such as balance checks) so they can encourage customers to enquire through alternative, convenient channels. By gently pointing customers towards these more appropriate channels, RBS’s call handlers have more time for complex calls and for conversations with customers who require more help, such as vulnerable or elderly people. With its Mobile Branch Banking service, accessible cards and flexible call handling system, RBS really is pulling out all the stops in order to support its older customers through an era of rapid technological change. So, what about those young whippersnappers? While call handlers were patiently dealing with older customers’ queries, in January 2017, in partnership with IBM Watson, the bank was the first in the UK to implement an AI chatbot for digitally literate customers. The chatbot (whose name is Cora) currently answers approximately 100,000 queries a month – freeing up space in its call centres for those who need it. RBS also plans to release its own digital-only bank. It’s Wong and her team’s analysis of population, customer and technology trends that drives such developments. But once those trends have been identified, it’s often a matter of finding the right fintech partner to deliver them. Wong describes the banking industry’s evolving relationship with fintechs as having reached the engagement stage. But fintechs dedicated to the older user, such as Kalgera in the UK and Golden in the States, are few and far between. The test for incumbents like RBS may well be whether they can successfully juggle the radical innovation necessary to survive with finding appropriate support for their older customers. RBS has made a good start.
As the percentage of older people is increasing, we’re now thinking about what propositions can be adapted to our older customer segment
Issue 10 | TheFintechMagazine
Best bunch of the
Tangerine Bank has been climbing the technology tree for 21 years. Here, Mark Nicholson,Vice President of Client Experience, and Ali Razavi, Chief Information Officer, peel back the corporate layers to reveal how they go about picking the sweetest digital fruits for customers In the citrus fruit popularity contest, the plucky little tangerine has always been a solid mid-table performer, sitting comfortably between the clementine and the satsuma.
While it may not boast the reputation of its big brother, the orange, this easy-peeler in fact contains more than 31 per cent of our recommended daily amount of vitamin C, which can help us to live longer, healthier lives. Although it can’t claim to directly improve the longevity of its customers, the benefits of using Tangerine Bank are otherwise very similar. “Our purpose is to help our customers live better lives,” says Mark Nicholson, the bank’s vice president of client experience. “We have a very large focus on helping our clients to make smarter decisions with their money and to consequently achieve their long-term financial aspirations.” Just as choosing a tangerine over a Twix is beneficial to your waistline, selecting Tangerine Bank over another account provider could be beneficial to your wallet. The Canadian firm is currently prioritising the development of technologies that improve customers’ ability to save. “When it comes to helping Canadians make smarter decisions with their money, there’s no better way to be with them in the moment of truth than actually within their pocket,” says Nicholson. “We leverage mobile to ensure that our customers can
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truly understand their money from the palm of their hands and also to supply them with on-the-go insights.” In conjunction with developments in mobile, Tangerine Bank is establishing itself as a pioneer within the field of artificial intelligence (AI), also with a view to helping customers save their hard-earned cash. “AI is taking centre stage in a big way,” says chief information officer Ali Razavi. “Everyone’s looking to make predictions happen faster in order to deliver better, more timely products for their clients. At Tangerine Bank, we’re leveraging big data to discover what the best offer or course of action would be for each of our customers. Whether that takes the form of a spending warning or a piece of advice on how to optimise their rewards, we communicate our AI insights to the customer in real time to their mobile when they need it most.” The rewards that Razavi is referring to are associated with the credit card that Tangerine Bank launched just over a year ago – because the bank has come a long way from its origins as a digital native savings account provider. Last year’s introduction of credit lines is the latest step in CEO Brenda Rideout’s strategy to take Tangerine from a ‘niche savings bank’ to a key lender with a range of products. “Our credit card was one of the first translucent cards in Canada and we went through a long journey with our customers
to ideate and create it,” says Nicholson. “The offering itself is very innovative and unique. Customers get to choose which reward categories they would like to have two per cent cashback on and then we optimise the card around that. For example, you could choose gas and groceries or entertainment and restaurants. The really beautiful thing is that if, after three months, say, our data shows that this particular reward category isn’t meeting your needs, you can go back and change it to one that would.”
Keeping the offer fresh Anyone who’s ever forgotten to empty the fruit bowl before setting off on holiday could tell you what a 20-year-old tangerine would look like. However, despite a change of name (until 2004 it was known as ING Direct Canada) and recent handover of leadership to Rideout, Tangerine still appears to be ripening rather nicely, with more than two million clients and close to $38billion in total assets. Established as an online-first bank, it came into existence before the term fintech was even coined. So, what’s the Canadians’ secret to preventing those pesky spots of legacy mold from appearing and keeping their bank so fresh? “Tangerine has managed to leap a number of technology generations,” explains Razavi. “As a result, we’re able to run core banking systems in a much nimbler www.fintech.finance
Creative juices: Tangerine Bank ‘believes wholeheartedly in the concept of co-creating’
way than many of our larger competitors with a higher degree of legacy. Now, I wouldn’t say that legacy is a negative thing per se for large banks. It’s their heritage and it allows them to operate fast, sustainable systems. However, when it comes to change introduction, those legacy systems might be slower at implementing new processes than the systems of younger firms. “As a bank, it’s imperative that we continue to build new technologies and develop new concepts for our customers and moving away from monolithic applications and towards individual microsystems is the best way to speed up this process. We’re modifying small morsels as opposed to big chunks.” Continually introducing new and exciting technologies into your system is certainly a great way to add zest to your customer offering. However, fresh concepts don’t appear out of thin air and Tangerine Bank has worked hard to maintain its flow of juicy ideas. “We are a design-thinking organisation and that is something that we hold dear,” says Nicholson. “Our client engagement council comprises of 20 individuals who are certified in design thinking and help us to envision the future of banking at Tangerine. Working with them, we frequently iterate, prototype, test and look to fail quickly so that we can improve the experience of our clients on a weekly basis – not every quarter like you might witness at other organisations.
“Our innovation is very much grounded in latent consumer needs,” adds Razavi. “We’ve established a client-centric, technology-scanning partnership between our technology and client experience teams in order to identify what new technologies are coming to bear. We spend a lot of time scanning the market, understanding what our competitors are doing and making calculated decisions in order to adopt the most commercially viable approaches that benefit our clients. We have dedicated roles in innovation, but these people aren’t just there to look cool,” he says. “They’re there to take the next innovative idea by the horns and make it happen.” Or, as Rideout has put it: “We always want to provide Canadians with experiences that they didn’t even know they wanted.” Tangerines may be sweet and juicy, but it t akes more than one fruit to make a Michelin-starred fruit salad. The bank is aware that the key to successful innovation lies not in standing around like a lemon, but in forming a co-varietal bunch of technology partners, such as Sensibill, which provides customers with a receipts management app, and Nuance Communications, a specialist in deep neural networks and advanced AI algorithms, whose voice biometrics platform the bank first employed in its
For us, the customer experience itself should be the product and we’re never satisfied until it’s as sweet as can be
call centres. The bank also dips into Scotiabank’s Digital Factory software lab. “Trying to build from scratch comes with the cost of R&D as well as the issue of staying in tune with regulation,” says Razavi. “It’s therefore a very tall order to build everything yourself and when you design a new solution you need to decide what part of it remains internal and what part of it is delegated to a third party.” Nicholson adds: “We have strategic partnerships with academic institutions in both Toronto and Ontario where we incubate students to help us in our journey of discovery. And we’re also always on the lookout for potential collaborations with fintechs. As a bank, Tangerine has a very clear vision of who we are and who we want to become and when we look at fintechs, the first thing we consider is whether this or that company will actually be able to help us to achieve our goals. Being a young financial firm ourselves, we know what the fintechs are looking for when they knock on a company’s door and it’s always a case of mutual selection on both sides.” Razavi agrees. “We believe wholeheartedly in co-creating,” he says. “We’re moving away from doing work in large projects and instead we are beginning to develop our product in a more continuous fashion. By product, I’m not just talking about banking solutions. For us, the customer experience itself should be the product and we’re never satisfied until it’s as sweet as can be.” Issue 10 | TheFintechMagazine
The arrival of Open Banking and PSD2 has focussed attention on the need to standardise APIs. It’s essential, but it won’t be easy or fast, says Bank of Ireland’s Julie Connor The roll-out of UK Open Banking in parallel with Europe’s revised Payment Services Directive (PSD2), has been a gentle process so far – so gentle, in fact, that it’s gone largely unnoticed by the general public.
According to a report from PricewaterhouseCoopers (PwC) and the Open Data Institute, just 18 per cent of consumers were even aware it had happened six months after the country’s nine largest current account providers were supposed to have aligned their systems to it on January 18. In the end, only four met the original deadline, but inside all of them, everybody knew about it – not least because developing a set of open application programming interface (API) standards and protocols for banks t o work to under Open Banking, touches on almost everything they do. It was described by one as ‘the most radical change in payments ever’. Julie Connor, Head of PSD2 Impacts for Bank of Ireland, would probably agree with that. A recognised expert on the Single Euro Payments Area (SEPA), she represents the group and the Irish banking industry on a number of task forces and working groups, including the European Payments Council Task Force on Access to Payment Account and the Euro Banking Association’s PSD2 Practitioners Panel, as well as previously being
involved in the Instant Payments Taskforce, SMART working group and the board of Payments UK representing challenger banks. In other words, she knows a lot about standards and interoperability. So when she says ‘we need to get smarter and develop a more harmonised scheme for how APIs and open banking should work’, you know it’s something that needs addressing. The UK was determined to standardise Open Banking APIs early so that, initially, the biggest domestic players could provide and share information securely with third parties. But that is just the start. “We’ve got new players in the ecosystem, as well as the incumbents, so we need to have a very transparent way of all working together,” says Connor. “More importantly, our customers are part of this ecosystem and they are potentially shared customers in some situations, so it’s vital we all sign up to rules around best practice in terms of how we operate in the space.” The arrival of PSD2 this year required banks to allow access to customer data by third parties through APIs so that they can initiate payments, retrieve account information and confirm the availability of funds with the customer’s permission. But the EU regulation has not specified details for the APIs used. The draft Regulatory Technical Standards,
published in March, only covered technical framework conditions. In an attempt to provide harmony, some banks have collaborated to agree API standards. The Berlin Group, with around 40 bank members, is one of the biggest, and other groups have been formed in France, Slovenia and Poland. For UK-regulated banks, the Competition and Markets Authority (CMA) set up Open Banking Ltd, a not-for-profit organisation, to oversee the PSD2 process. Its standards were formed by the UK’s nine biggest banks – including Bank of Ireland, which, following an agreed extension with the CMA, came onboard with Open Banking in September. However, since the various European groups are working in isolation from each other, the frameworks they have devised differ over considerations such as data fields, consent models, authentication and message formats. “PSD2 didn’t get down to the level of saying ‘we need an API scheme, we want to make sure there’s a standard’,” says Connor. “So, potentially, it could be the case that we’ll have 6,000 flavours of APIs in Europe. We’re expecting the European Banking Authority to deliver some guidelines in terms of what a good API looks like. The standards bodies across Europe, such
Express wish: A standard for Open Banking APIs is becoming urgent
TheFintechMagazine | Issue 10
as the Berlin Group, have developed proposed standards and there’s an appetite for convergence. There has been discussion about formats for APIs – people have talked about JSON or XML. “From a European perspective, the Single Euro Payments Area (SEPA) was to introduce harmonisation with its use of the ISO 20022 XML open communication standard. The challenge with XML is that it’s flexible, so, while there’s a template, there are so many options that its use is probably as a guide rather than as a standard. This issue [of standards] is one of the things we need to look at for the next phase of the Payment Services Directive (PSD).” Yes, you heard right… the ‘next phase’. Connor says: “I was at a conference last year and joked that work on PSD3 would be underway already. To be honest, PSD4 has to be in the works now because of the pace at which innovation is occurring. “The EU is intent on forming a digital market and is really looking to strengthen that. For me, the PSD is a very important enabler of that single view of how we transact throughout the EU community. “So, PSD2 is a great stepping stone, but it’s only directional in terms of where we have to go to.” With regards to what the payment services legislation can offer to established banks, Connor echoes the widely-held view that they must use it to innovate or be left behind by the sector’s newest players. After all, APIs are hardly future tech. “The way banks have been talking about APIs recently, it’s almost like they
are something new, but APIs have been around since the last century,” says Connor. In retail, tourism and transport, they spawned disruptive newcomers including Uber, Amazon, and Expedia. “What we’re seeing is the financial sector catching up and trying to leverage what’s been around in tech for a long time. If established banks are still using a core of 20th century IT they will have a spaghetti junction of systems, all using data in different formats. The advantage of open APIs is that things can be standardised. You can access data in a uniform way in real time. “That’s the win-win of Open Banking. It’s not a one-way street because the innovation benefits both the new service providers and the traditional banking sector. We make data available, but then the consumers of that data can do something very interesting that benefits our customers, as well as theirs.” Connor adds: “Having a flexible system means that information is made available in a modular way in real time, as opposed to running batch processes and accessing it, maybe, that night or the next day. “As well as making data available, PSD2 compliance is positive for security. It ensures there’s full traceability, or auditability, of processes. When you’ve got a core banking system it’s much easier to protect and secure it, because things
are done in a modular, consistent way. It’s much more straightforward, transparent and easier to track what’s going on.” As for the customer, Connor believes they will turn to the established financial players in their desire for security and certainty in a fast-changing and technologically complex market. Since the banks have a reputation for stability, she believes consumers will want them as guardians of their personal data, placed at the hub of their online world. She says: “Disruption has been here for a long time, longer than the PSD and Open Banking. We’ve had fintechs and new service providers doing specific things really well, serving niches in the market. But I think customer loyalty has tended to always be there [with the banks]. “Customers want security, they want safety, they want to know that somebody they know and trust is minding their financial data. So, in terms of whether the banks will fragment due to Open Banking, I think rather it’s an opportunity for them to dive in and become these new service providers. They should push themselves to offer these new services as well. It’s not just for the new, digital, online parties to compete in this space. A lot of the banks I talk to are viewing this as an opportunity and looking to leverage and exploit the value-add that we can offer customers. “Banks can play in more than just the payments space – it’s also about security and being a trusted identity provider for customers. That’s where the sector will be going in the next 10 or 15 years. With PSD2, we’re only at the start of the horizon for this.”
Potentially, it could be the case that we’ll have 6,000 flavours of APIs in Europe
Issue 10 | TheFintechMagazine
A JOTOF DIFFE DIGITAL
Kyle Rutherford, Founder and CEO of three-factor authentication specialist Asignio, aims to improve security by encouraging account holders to write ‘a big note to self’ Along with ‘will you marry me?’ and ‘what’s for dinner?’, passwords are undoubtedly the most important phrases in our lives.
According to a survey by Dashlane, the average UK consumer has more than 118 online password-protected accounts, although they only use 6.5 passwords across these accounts (presumably the 0.5 is a password that they remember every other time). If, however, you’re a security snob and prefer each of your 118 passwords to be totally unique, that means you’ve got 118 different phrases to remember. Sure, you could scribble all of these phrases down on an A3 Post-it Note and stick it to your computer monitor, but you’d be making yourself an exceptionally easy target for hackers and family members looking to sponge off your Netflix account. However, what if the identity verification solution of the future lies in exactly that – a scrawled note; not in an obscenely large Post-it Note, but in something we all uniquely develop from an early age – our handwriting? Kyle Rutherford believes that handwriting is the perfect authentication biometric for the touchscreen era, and founded his company, Asignio, as a means of utilising the humble signature to secure the most crucial of data. “We’re a mobile authentication company based on handwriting recognition,” he says. “We authenticate the user by having them sign their initials, draw little pictures, or do whatever they like as long as it’s repeatable.” I know what you’re thinking: ‘I already have two-factor authentication set up for every website known to man. Each and every one of my accounts is the virtual equivalent of Fort Knox.’ Newsflash: two-factor authentication is no longer the pinnacle of account security. Asignio’s biometric signature solution constitutes one element of three-factor authentication (3FA).
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To recap. There are three possible categories of data that can be used to determine a user’s identity: something they know, something they have and something they are. A simple password is considered one-factor authentication, as the secret word or phrase is something that the user knows. Fingerprint technology (such as Apple’s Touch ID) is two-factor authentication, as the fingerprint itself is something the user is, and the device the fingerprint is registered to is something the user has. Asignio offers users the chance to protect their accounts with 3FA built around the unique signature or doodle as something the user knows, the registered touchscreen device as something the user has, and a unique style of writing (including shape, size, timing, and multiple strokes) as a biometric identifier, or something the user is. Three is indeed the magic number, as the Asignio team has proven. “Our false acceptance rates are 50 times lower than touch ID, making our solution 50 times more secure,” says Rutherford.
A timeless piece of knowledge From the Magna Carta to the Declaration of Independence, signatures have played a key role in human culture for hundreds of years. So, how has Asignio managed to transform such an antiquated medium of authentication into one of the most secure identity verification solutions on the market? Well, unsurprisingly, the answer lies in algorithms so clever they’d make King John’s head explode were it not for his crown. “We measure all sorts of different parameters in each signature, to ensure that it’s actually the registered user who’s drawing it,” says Rutherford. “Handwriting
always features unique characteristics, and maths algorithms can be employed to identify them.” According to Rutherford, a signature’s inimitable traits are exposed during the drawing process, as opposed to within the final image. As a result, Asignio’s algorithms have been designed to measure and analyse more than 25 different factors as a signature is being drawn. These include timing (such as the velocity of the curve and peak acceleration rates) and shape (for example, curvature variance and space between strokes). It all sounds rather complex, but if you boil it down, it’s remarkably simple. You know that little flourish you do at the end of your signature? No one does that quite like you do, and Asignio’s hi-tech solution recognises this. If this wasn’t clever enough, Asignio has also implemented some extra security technologies, such as geolocation and use pattern recognition. Asignio users can choose to switch on location tagging when they sign in to their accounts, preventing their signature from being authenticated in New York and the Maldives simultaneously. Not only this, but the company uses machine learning algorithms to track the change in a user’s signature over time as they become more familiar with the Asignio interface. As a result, the more you use Asignio, the stronger (and harder to replicate) your signature becomes. Even if someone downloaded your DNA from the dark web and 3D printed a clone of you, these additional security layers guarantee that said clone would still be unable to gain access to your accounts. That is, until trans-continental teleportation is invented. If you’re still a signature
The average UK consumer has more than 118 online passwordprotected accounts
RENCE sceptic, Asignio’s solution has one final trick up its sleeve that, it claims, allows it to trump both touch and face ID. You see, fingerprint and facial recognition systems evaluate hard biometrics. They verify the presence of physical traits that are biologically unique to the user and cannot be changed. As a result, should a hacker gain access to your fingerprint pattern, this particular biometric will be forever unsafe to use, unless you fancy lopping off your fingers and sewing on a couple of new ones. By contrast, Asignio’s signature solution authenticates a soft biometric – a behavioural trait as opposed to a biological one. Should a breach occur, you can simply change your signature to a new one in order to re-secure your account, no amputation necessary. And the solution works on anything with a touchscreen, for example a smartphone, iPad or any other tablet, while your personal information is stored off-device and doesn’t require any specific hardware. As well as being rather good at timing the speed of your signature, Asignio appears to have a knack for timing the release of products. According to a report from Good Intelligence, by the year 2020 around 1.9 billion bank customers worldwide will have adopted biometric authentication systems for a variety of financial services, such as ATM cash withdrawals, mobile bank app logins, and Internet of Things device authorisations. In the UK last year, more than 22 million people managed their current account on their phone, according to a report by CACI, and this number is set to rise to 35 million by 2023. “The consumer needs and expects a high level of authentication to be available on their smartphone at all times, and that’s encouraging this change in the marketplace,” says Rutherford. New regulation is also helping to drive the biometric boom. Strong customer
authentication (SCA) will become mandatory by September 2019 as part of the revised Payment Services Directive (PSD2). From next year, banks and other commercial enterprises will have no choice but to offer a minimum of two-factor authentication before proceeding with online and mobile payments. As a result, biometric authentication for banking is fast becoming big business; by 2023, worldwide revenue across the biometrics industry is estimated to reach $4.8billion – more than you could shake a stylus at. Having successfully established its product as a robust 3FA solution for the rapidly expanding biometrics market, Asignio has recently attracted the attention of some more veteran authentication firms. In October last year, the company partnered with MiTek, a global leader in mobile capture and identity verification solutions, to develop a fully-fledged identity-as-a-service (IDaaS) solution. “Combining MiTek’s ID verification capabilities with our easy-to-use authentication system provides secure biometric authentication tied to a valid identity,” says Rutherford. “Their deep understanding and expertise in identity verification complements our three-factor authentication.” Together, the two companies hope that their new IDaaS solution will lead the way in the fight against money laundering, identity theft, and other types of fraud and that it will help businesses to satisfy their know-your-customer requirements for years to come. Are data breaches and hacking scandals becoming a sign of the times? Not if Asignio has anything to do with it. You might want to jot that name down.
You are what you write: Asignio’s three-factor authentication is based on your scrawl
Issue 10 | TheFintechMagazine
Crossing the DATA LINE Do you have confidence in the veracity of your data? According to an AxiomSL survey, the answer is probably not. But CEO Alexander Tsigutkin offers a solution Regulatory demands on financial institutions to provide more detail about data, more often, is causing a crisis of confidence among senior leaders, according to data solutions company AxiomSL. An annual survey of customers at its user conferences this year discovered only 41 per cent of US bosses had faith in the accuracy of their company's digital information, compared to 52 per cent a year earlier. AxiomSL uses its conferences, which were held in New York, Singapore and Sydney in 2018, to discover where its customers' focus and fears lie. And, according to the company’s founder and chief executive Alexander Tsigutkin, that’s becoming abundantly clear. “Executives are aware that the data they are capturing isn't necessarily correct,” says Tsigutkin. “I believe the decline in trust in its accuracy is reflected in the challenges experienced by executives and staff trying to satisfy regulatory demand for more granular and analytical information.” And that matters to all of us – not just bankers. Because, as Tsigutkin’s colleague Harry Chopra, writing in a recent blog post, pointed out, without accurate data lineage it’s impossible to identify the kind of balance sheet vulnerabilities that were responsible for the global financial crisis – and, by extension, prevent another. Central bank stress tests increasingly require scenario-specific data, which will mean ‘the provision of core data will need to become more automated over time’ in order to extract it, says Khan. As an enterprise-wide data and risk management solutions company using flexible data modelling technology for more than half the world’s systemically
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important banks with $39trillion in assets under management, AxiomSL understands the challenge that presents. Tsigutkin believes data executives need to first focus on the ‘three Vs’ – velocity, volume and veracity. Crack these and he says a financial institution can leverage the full value of applying frontier technologies, such as blockchain and artificial intelligence, for both internal and external reporting. “Velocity of data means how fast the data is arriving and how frequently the data needs to be processed and aggregated,” he explains. “It used to be that data for credit was analysed on an annual basis, or for other purposes perhaps on a quarterly basis. Nowadays, many regulations require data to be processed daily, such as liquidity information, or on demand, such as in trade and transaction reporting.
Data is the last frontier problem that needs to be solved before institutions can really embrace high-end analytics “This brings us to the second V, volume. Obviously, such frequency of data processing means the volume is huge. There is such a multitude of reporting, for example the Comprehensive Capital Analysis and Review in the United States, or the Capital Ratio (ICAP) in Europe, or even the International
Financial Reporting Standards (IFRS 9) requirements. Data volume is also increased by the additional granularity of information – the number of data points has grown tremendously.” But perhaps the most important of the three Vs to meet – and the one that concerns management the most – is veracity. “If your data has veracity, you can create a connected enterprise, which not only improves accuracy of reporting but also analytics,” says Tsigutkin. “This therefore makes the enterprise more profitable and much better equipped to compete in the fintech space.” For the Asia Pacific (APAC) region, adapting to regulatory changes was the highest ranked concern in the AxiomSL user survey, flagged by 69 per cent of respondents, up from 57 per cent in 2017. “This makes perfect sense,” says Tsigutkin. “Significant initiatives from the Australian Prudential Regulation Authority and Monetary Authority of Singapore are now underway, which will heavily impact APAC financial firms over the next few years.” But, in an increasingly global market, it is not only domestic regulatory changes that concern them, as demonstrated in August when AxiomSL announced Bank of China had extended its use of the firm's strategic platform to meet AnaCredit reporting requirements in France. AnaCredit is a recent dataset with detailed information on individual bank loans in the Eurozone, which is designed to monitor financial stability. Bank of China had already been using AxiomSL’s platform to meet the Monetary Authority of Singapore’s 649 liquidity reporting www.fintech.finance
requirements. Now, the platform will automate the complex process of AnaCredit reporting for the Chinese banking giant by taking AnaCredit data from the bank's multiple systems and mapping them onto the European Central Bank's data structure to fill in the mandatory report forms. The deal reveals the adaptability of AxiomSL's system and its ability to meet local regulatory requirements, freeing up hours of compliance teams’ time, which, ultimately, reduces costs. Tsigutkin says: “In the past, institutions were very much concerned with return on investment. Nowadays, return on data investment becomes a really valuable framework for all progressive enterprises. “Our data lineage tool helps financial institutions to be more transparent and efficient, and understand what happens to data throughout the entire process. It solves data governance issues and keeps companies afloat of regulations as well as helping them with internal management.” The AxiomSL system gives a company a clear line of sight on all its data processes, giving a business confidence in the veracity of its reporting. “AxiomSL technology helps to demonstrate to auditors, as well as to internal management, the complete lineage, from data ingestion all the way to the production of the analytics,” he says. Crucially, this eliminates the need for constant reconciliation. “And, as we all know, reconciliation is still one of the most expensive processes in the financial industry,” says Tsigutkin. AxiomSL's survey also found its customers are planning to increase spending on risk and regulatory technologies this year (52 per cent in the US, 61 per cent of APAC respondents). On their wishlists, investment in data analytics came top, followed by big data mining and analysis, AI and machine learning, Cloud computing and blockchain.
For American respondents, those planning to increase AI spending were estimated to have doubled since 2017, to 54 per cent, while their interest in blockchain had almost tripled – only eight per cent were curious to see how blockchain could be used as an enterprise tool 12 months ago, compared to 21 per cent this year. For the APAC region, investment plans for Cloud computing stood out, with 54 per cent saying spending would rise, compared to 24 per cent a year earlier. All these figures are proof, says Tsigutkin, that business leaders are realising that the benefits of clean data extend beyond meeting regulatory demands. “The next step for financial institutions is to create an innovation-friendly environment that maximises the potential of data professionals’ expertise to enhance insight and respond to new opportunities,” he says. “Data is the last frontier problem that needs to be solved before the institutions can really embrace high-end technology and analytics. If they do that right, they’ll be able to embrace their own infrastructure and data, and satisfy client demand for speed, analytics and controls. And, of course, that brings us to the high-end technology, which includes the Cloud capabilities that vastly improve efficiency.”
Tsigutkin says that, after several years of major investment, technology budgets are now tightening and argues that firms will need to adopt a technology platform that can be leveraged repeatedly across various projects and applications to get best value and achieve sustainable growth. “Complying with the multitude of ever-changing regulations is a complex, time-consuming and costly activity, especially when the regulatory bar keeps rising,” he says. “Industry initiatives such as Basel regulation 239 have pushed data lineage to the fore. In the past, data lineage was a concern of the back office and auditing. Now it has moved forward to front-office end users who require access to granular details about data flow and governance rules without being overwhelmed by them. “Meanwhile, regulatory bodies have begun examining metadata more closely. As a result, CEOs and senior executives need to find a reliable way to move their firms to a data governance strategic advantage in a cost-effective and sustainable manner. Data lineage becomes a cornerstone of that data governance.”
The last frontier: Veracity of data is a major business concern
Issue 10 | TheFintechMagazine
LAST WORDS: BOOK REVIEW
Wisdom of the crowd Adding the word ‘tech’ to the end of otherwise unremarkable financial terms has become somewhat of a hobby of mine. On hot summer nights, I lie awake inventing obscure neologisms that could be mistaken for legitimate industry subdivisions. My favourite inventions include tilltech, chequetech and, of course, Markets-In-Financial-InstrumentsDirective-II-tech (a subdivision of regtech, which is already a subdivision in itself ). For the most part, my inventions are total whimsy, with the exception of asstech (no, not what you’re thinking, but asset management technology), a term that I coined during a particularly balmy night in August last year. Unfortunately for me, the powers that be have already granted this subdivision a name – wealthtech. Even more unfortunate for me, the definitive text on the subject has just been published by Susanne Chishti and Thomas Puschmann, and it’s called The WealthTech Book. Don’t worry, asstech – our time will come! Following the success of The FinTech Book, released in April 2016, the decision was made to extend the series with two more books using the same global crowdsourcing model. The WealthTech Book, subtitled The FinTech Handbook for Investors, Entrepreneurs and Finance Visionaries, was the first to hit the shelves earlier this year, quickly followed by The InsurTech Book (see our sister title The PayTech Magazine for a review).
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Part of an epic financial trilogy, The WealthTech Book distils the thoughts of a powerful collective intelligence. Will Dove feels the force It’s difficult to know who to give credit to for books that have been crowdsourced as extensively as this. More than 240 authors from 25 different countries suggested abstracts to be featured in the book. Having said that, it came down to Susanne and Thomas to cherry-pick the crème de la crème of the submissions and the collective IQ of The WealthTech Book’s contributors undoubtedly exceeds the savings of even the most ultra high net worth individuals. Despite the book’s communal provenance, it would be wrong to say that The WealthTech Book is suitable for the masses, perhaps save for the eight introductory chapters that outline some key topics (artificial intelligence, the millennial market, building applications, etc). The WealthTech Book doesn’t make for light bedtime reading, but nor does it set out to. This is a text for people who are serious about discerning the future of the wealth management industry and serious about making their mark within it. While the quality of insight is consistently good, I found certain segments more useful in a practical sense. My personal favourite chapter (thanks to Kris Grgurevic, chief growth officer at Niiio Finance Group) details how gamification can make wealth management accessible to first-time investors. Grgurevic references the
educational app Duolingo’s reward system, and, as a language learner (and perpetual novice) myself, I can relate to the competitive stimuli that it induces. If, after reading about robo-advice, client experience and blockchain, you feel ready to start your own wealthtech firm, then the book also has five personal accounts from the founders of Vestpod, Scalable Capital and others on how they built their wealthtech powerhouses. With such a wealth of knowledge, perhaps they should rename the trilogy The Encyclopaedia Financia.
The WealthTech Book: The FinTech Handbook for Investors, Entrepreneurs and Finance Visionaries
Co-edited by Susanne Chishti and Thomas Puschmann. Published by John Wiley & Sons. Available in paperback and Kindle editions. See thewealthtechbook.com Great for: Asstech entrepreneurs. Best read: Aloud by your robo-advisor, who is simultaneously managing your Quant Fund. Good read rating: ★★★★★
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Fintech Finance presents: The Fintech Magazine Issue 10