Fintech Finance presents: The Fintech Magazine Issue 11 by Fintech Finance

ISSUE 11

THE

FINTECH MAGAZINE 2019 Paris Fintech Forum ISSUE 8

ISSUE #8

Fast work! ‘There is nothing more disruptive than a female voice in fintech’

How the Asia

Payments

Race was won

11:FS

Hidden

Figures

of Fintech

It's time

they

took

Our

Superheroes return

a bow

Regtech D-day for

the

GDPR

Nom-omnichannel! All-you-can-eat digital banking with Backbase www.fintech.finance

The City of Light welcomes fintech’s brightest stars

PLUS INSIGHTS FROM Wirecard ● FileFacets ● Glory ● Tinkoff Bank ● Pendo Systems Meniga ● Wells Fargo ● Galileo Processing ● Isracard ● SmartStream ● Saxo Bank ● Axa

Feeding data to AI

Or how to take the L plates off driverless banking

ATOM explodes with will.i.am

Jim Marous

on his Disrupt Yourself tour, artificial intelligence and the Top 10 banking trends in 2019

So, what do rappers and challengers have in common?

A practical use for blockchain

ZorroSign discusses digital signatures

PLUS INSIGHTS FROM Rabobank ● Klarna ● BBVA ● Fingerprints ● ConsenSys ● Allevo SmartStream ● Signicat ● SWIFT ● Dorsum ● Google ● Pendo Systems ● Temenos ● 11:FS

Dégradé

Dégradé Ultra

@ParisFinForum

THE MOST EXCLUSIVE

EUROPEAN EVENT ON

FINANCE

FINTECH TIME

220+

150+

120+

60+

2600+

∞ networking

CEO speakers

countries

fintechs on stage

attendees

exhibitors

Christine Lagarde

Managing Director International Monetary Fund (US)

Minister of Economy & Finance (France)

Bruno Le Maire

Alexander de Croo

Pierre Gramegna Minister of Finance (Luxembourg)

Minister of Finance (Lithuania)

F. Villeroy de Galhau

Stefan Ingves

Eva Kaili

Robert Ophèle

Wim Mijs

Minister of Finance (Belgium)

Governor Banque de France (FR)

Governor Sveriges Riksbank (SE)

Member European Parliament (BE)

Carlos Torres Vila

Vilius Šapoka

Valérie Pécresse

President Conseil régional d’Île-de-France (FR)

Olivier Guersent

Chairman Autorité des Marchés Financiers (FR)

CEO European Banking Federation (BE)

MD FS & Capital Markets European Commission (BE)

Ann Cairns

Chairman BBVA (ES)

Philippe Brassac

CEO Crédit Agricole (FR)

Laurent Mignon CEO BPCE (FR)

Vice Chairman Mastercard (US)

Frédéric Oudéa

CEO Société Générale (FR)

Thomas Buberl

Kristo Käärmann

Kathryn Petralia

David Vélez

Nikolay Storonsky

Brad Garlinghouse

Maximilian Tayenthal

Mark Mullen

Charles Egly

Rishi Khosla

CEO TransferWise (UK)

President Kabbage (US)

CEO Nubank (BR)

CEO Revolut (UK)

CEO Ripple (US)

CEO Axa (FR)

Co-Founder N26 (DE)

CEO Atom Bank (UK)

CEO Younited Credit (FR)

Anne Boden

CEO Starling Bank (UK)

Laurent Le Moal

Scott Walchek CEO Trov (US)

CEO OakNorth (UK)

Jason Gardner

Viola Llewellyn President Ovamba (CM)

Roland Folz

CEO solarisBank (DE)

Nuno Sebastiao

Diana Paredes CEO Suade (UK)

Jack Zhang

CEO Airwallex (HK)

Eric Larcheveque

Christian Faes

Jaidev Janardana

Leanne Kemp

Yoni Assia

Erik Voorhees

CEO Marqeta (US)

CEO Ledger (FR)

CEO LendInvest (UK)

CEO Zopa (UK)

CEO PayU (NL)

CEO Feedzai (PT)

CEO Everledger (UK)

CEO eToro (IL)

CEO ShapeShift (CH)

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CONTENTS

GUEST EDITOR SPECIAL 8

You can't put lipstick on a pig... bankers have to change Guest Editor Jim Marous on why he tells bankers to ‘Disrupt Yourself ’

PARIS FINTECH FORUM 14 The fintech illuminations Paris Fintech Forum prepares for another technology spectacular

16 BBVA me up, Scotty... This is paytech, not Star Trek, and it's closer than you think

18 A hot digital date Our pick of the personalities to seek out at Paris Fintech Forum

TEMENOS: 25 YEARS 22 A sacred mission Founder of Temenos George Koukis reflects on life, business and humility

25 Keeping the faith Chief 'Temonosian', Andreas Andreades, on what others can learn from its culture of its success

26 Doing business the Swiss way Temenos CEO David Arnott on climbing a technology mountain – and staying at the top

SIBOS 2018 REVIEW 28 Make or break?

THEFINTECHVIEW

2019

ISSUE #11

For our first edition of 2019 we’re being thoroughly disrupted by Guest Editor Jim Marous (right). One of the top banking and fintech influencers, Marous is the co-publisher of The Financial Brand and owner and publisher of the Digital Banking Report. Currently globe-trotting on his Disrupt Yourself World Tour”, in this issue, he discusses some of the insights he shares with audiences in typically uncompromising style. That includes the need for bankers to embrace change and take risks. He also shares his thoughts around the use of artificial intelligence (AI) in banking to provide a customer experience that’s similar to the traditional neighbourhood merchant. And there’s a rundown of the Digital Banking Report’s Top 10 Retail Banking Trends and Predictions which this year places the accelerated use of data, advanced analytics and AI at the top

of the list of trends to watch for… Elsewhere in this issue, we celebrate a company that’s been shaking things up for 25 years – Temenos. And we look forward to the quantum age of computing that will likely signal another dose of disruption. The Regtech Superheroes join us for another 11:FS adventure and don’t miss our Big Fat Fintech roundup!

Did you recognise last issue’s ‘spine tingler’: ‘What you risk reveals what you value' by Jeanette Winterson CBE, an English writer, broadcaster and professor of creative writing.

Heavyweight fintech commentator Ruth Wandhöfer believes tech could be the best or worst thing that ever happened to the financial system

30 Down to business PSD2 is a golden opportunity for banks to make themselves indispensable to SMEs, says Allevo

32 Power to the people ConsenSys is on a mission to restore identity to its rightful owner

34 Back to the future What's next for banks and their customers?

37 Identity crisis Author Steven Johnson believes we have one more shot at building a digital network that respects pesonal data... if we're not already too late

39 The quantum leap Real use cases for advanced computers are only a small step away, according to Rigetti’s Dr Alejandro Perdomo-Ortiz www.fintech.finance

Issue 11 | TheFintechMagazine

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CONTENTS

80 54 40 Money, the universe and everything: Banking in a new dimension So you thought digital was difficult? Quantum computers are about to disrupt a financial galaxy near you

42 Driverless banking BBVA’s 'user-centric technologists' are steering customers towards an autonomous future

PREDICTIONS 44 Top 10 banking trends for 2019 Guest Editor Jim Marous summarises Digital Banking Report's 2019 Banking Trends and Predictions

THE BIG FAT FINTECH QUIZ 47 That was the year that was A fun look back at the fintech highlights from 2018

customer rather than the bank, they'll have earned their loyalty, says Guest Editor Jim Marous

56 The Year of Blockchain SmartStream believes blockchain could provide the 'single source of truth' that has eluded banks for so long

CUSTOMER RELATIONSHIP MANAGEMENT 70 The honest broker Rabobank has very clear views on what a trusted relationship with customers means in a digital age

72 Left to their own devices... Digital banking isn't one route to financial services, but many. And that has profound implications for the customer relationship, says RBR

11:FS SUPERHEROES 58 11:FS Regtech Avengers Four beings from the regtech realm discuss how they intend to defend the financial galaxy!

VERIFICATION 64 Keeping the faith Trust is a fragile thing, but when fintechs and banks come together, confidence grows, according to Rabobank

74 Delay tactics Klarna has tapped into a rich payments vein that's taking the online retail space by storm

76 Rapping to a new financial beat will.i.am and Atom Bank can both claim chart success‚ but the synergies between rapper and challenger go much deeper

66 Zign of the times

WEALTHTECH 52 Mood music Dorsum's white label app, My Wealth, aims to be the Spotify of digital investment services for millennials

AI & BLOCKCHAIN 54 An intelligent approach If financial institutions figure out how to use AI for the benefit of the

ZorroSign, the blockchain-enabled esignature specialist, is leaving an indelible mark on authentication

68 You are the key Achieving security and convenience in banking is a challenge, but Fingerprints believes touchy feely payments are the answer

80 Speak up for cash! Why is the Bank of England staying shtum? asks ATMIA

LAST WORDS 82 Appy new year! Tech titan Stuart Thomas’ top three money management apps

THEFINTECHMAGAZINE2019 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 ● Caitlin Innes Edwards David Firth ● Tracy Fletcher ● Rachael Harrison Alex King ● Natalie Marchant ● Sean Martin ● Sue Scott Swati Sanyal Tarafdar ● Emily Tatham ● Stuart Thomas

ISSUE #11 Fintech Finance is published by ADVERTAINMENT MEDIA LTD. Advertainment Media Ltd. Riverside Business Centre, Riverside Lawn, Tonbridge Kent, TN9 1EP

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Issue 11 | TheFintechMagazine

Disruptor: Marous believes the biggest impediment to change is bankers themselves

TheFintechMagazine | Issue 11

tech.finance

JIM MAROUS: DISRUPTION

You can’t put lipstick on a pig... bankers have to change FINTECH FINANCE: Jim, you’ve been touring Europe and the Americas for several months now with your Disrupt Yourself tour. It’s clearly resonating with bankers, but what prompted you to do it? JIM MAROUS: It was April last year, and I’d been doing a lot of speaking worldwide. But I realised that it sometimes felt like the message wasn’t getting through. I would talk about industry changes but I feared that perhaps we were going too far ahead of the curve and the people in the audience didn’t quite get what they had to do to make change happen. Because the final question for everybody was always ‘Jeez, but how do you do this?’ So, I started thinking about it and realised culture is a big deal. I mean, you can’t move an organisation without the culture changing. In most banking organisations the leaders are bankers. They’ve moved up the ranks from the bottom, they’ve moved forward. Plus, they’re somewhat older, they’ve had a successful career, they’re making a lot of money. But they’re not changing, they’re not doing what needs to be done. FF: OK. So what do you tell these people on your tour? How do they change their culture? JM: Well, first you simply have to embrace change, and that means you have to let go of what you felt secure about in the past. You have to let go of your successes, and say ’Im willing to change enough to change the culture’. And that doesn’t mean just the culture of an organisation. It means ’if I’m a banker, I’ve got to change my own culture. I’ve got to change what I put in my mind as the inputs, to create a new output’. Imagine you fail to do this www.fintech.finance

Guest Editor Jim Marous doesn’t pull any punches on his Disrupt Yourself tour. But is the message getting through? and you’re put on a digital banking team. It would quickly become apparent that you’ve got the wrong frame of reference, because building a digital banking structure isn’t about putting lipstick on the pig, as they say in the US. It’s really about rebuilding the organisation from the very foundation. We’re in a period right now where you’ve got to jump on the train at the station, and then you’ve got to be on the train, and commit to being on the train. Well, these days we’re talking about a bullet train and it’s not coming back. So, if you miss it, you’re going to be behind, and every day that you don’t change, you’re going to miss the chance to move forward. FF: It sounds like you’re urging people to take a leap of faith and realise that banking, and the world, is radically changing. JM: Yes. And to do that you’ve got to take risks. However, risk taking is not inherently what bankers are comfortable doing. If I think about my own story, I worked for a bank straight from coming out of college. I chose banking because it was stable, and it still is. You’re able to move up the organisation based on your tenure, as well as your skill set. I could have had nine different jobs, but still worked for the same company because of the way the banks are

structured. So my culture from the outset was to be risk-averse. What I needed to do, and what now I tell others, is embrace change. Be willing to take risks. Then ask yourself ‘where do I have to be, two years from now? And what do I have to do, on my own, to build a mentality, to build a person, that’s going be where the marketplace is?’. On a wider level, we’re seeing the result of people not doing that. There is disruption in the marketplace, the world and the economy, and people are protesting – they’re voting for Brexit, they’re voting Donald Trump into power. It’s mainly because they haven’t been prepared for what the future’s bringing. They want to go back to the past. But that train’s gone; it’s not coming back to the station. Your only option is to disrupt yourself. FF: How is this message received? I can imagine not everyone buys into it, especially if you’re facing an audience of established, successful people. JM: You’re right. When I go on the road I talk about various subjects, but the overall theme is ‘are you ready to embrace change, take risks, and disrupt yourself?’ Going from audience to audience, you see different levels of take-up. I was in Switzerland to speak to a group of wealth managers and investment bankers. I walk in and I see a room filled with men in dark suits. There were perhaps only five women in the audience and immediately I realised that maybe my presentation wouldn’t be as resonant there as it would be at another event.

Every day that you don’t change, you’re going to miss the chance to move forward

Issue 11 | TheFintechMagazine

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JIM MAROUS: DISRUPTION The person who sponsored me was extraordinarily happy with what I did, but the audience weren’t buying the fact that they’ve got to disrupt themselves. Still, there were some who came up and said ‘I see the writing on the wall, I’ve got to change what I’m doing’. My thought is that, in a group of three people, one will have disruption forced upon them in the next year. One will disrupt themselves. And one’s going to get a stay of execution. But they’ve got to prepare for the next thing. Because change is not going to stop, it’s getting faster. I think people take their positions for granted, but change is happening behind the scenes that they don’t even notice. Think about Google. If you do a Google search right now, you will probably get your answer on the first page. Just two or three years ago you could be trawling through the second and third page. FF: We speak to many innovators in our industry and, yes, it’s the GAFAs that they hold up as pioneers of customer service, and it’s that level of customer service that consumers now expect to get from their banks. Do you think banks are getting better at this? JM: Some are, some aren’t, but they will have to change to survive. The reality is, people don’t want to go to a bank branch. You can hear this in their language, they’ll say ‘I have to go to the bank today’. ‘Have to’ isn’t a positive term. On the other hand, improve customer service, reduce friction, and people will start saying ‘I did banking today’, it just happened. That’s where things have to go, but that demands disruption. Working with The Financial Brand and the Digital Banking Report, our aim is to educate bankers, help them make their jobs easier, it’s to disrupt complacency. Sometimes people think we repeat ourselves. Well, we have a challenge because bankers tend to continually repeat bad habits. The strategic planning process in banking hasn’t changed much over the years. I criticise it because strategic planning at most banks starts with last year’s plan. And then they make slight adjustments and say ‘oh look, I have this plan’. And usually, they’re told, on top ‘here’s our numbers we have to meet. Now you build a plan that’s going to meet those’. And it’s all fictitious, it’s all built on previous bad behaviour. www.fintech.finance

FF: Are there obvious examples in banking that you see that highlight this resistance to change? JM: Well, customer onboarding is one. I’ve done research now for 10 years into onboarding processes, and for 10 years the number of banks that have an engaging, multi-touch, multi-platform onboarding process has remained between 47 per cent and 53 per cent. When we ask how many banks will do it within the next year, between 35 per cent and 40 per cent tell us they will, and the rest admit it’s not in their plans. However, next year comes and the numbers don’t change. Which is intriguing to me because I know, from experience, that if you have a good onboarding programme,

month, to the same company, for the same mortgage. My bank knows who it is, what I pay, the length of the loan, everything about it, but they’ve never come to me and said ‘we can lower your cost’. Here’s another. My business bank is frustrating because it doesn't get some of the challenges that small businesses face. It makes certain things really difficult, ranging from having a limit on remote deposit capture of $5,000 a month, which isn’t enough for my subscription base, to not having a clean way to accept credit card payments. So, three years ago, I started using PayPal quite extensively to accept credit card payments. I realised it was seamless,

There is disruption in the marketplace, the world and the economy… people are voting for Brexit, voting Donald Trump into power, mainly because they haven’t been prepared for what the future’s bringing. They want to go back to the past you’re not going to stop doing it because it makes more money, and saves you more money, than the cost of the programme. FF: I’m sure some readers would be shocked by your analysis there. On a personal level, what is holding banking professionals back? JM: I believe it’s not the fact that bankers don’t understand what the problems are. It’s not even that they don’t understand what the solutions need to be. It’s actually getting down and doing it. They have to say ‘I’m going to take the data and do the analytics before deploying to the customer so that they know I know them better’. I’ll give you a glaring example. I’ve had a relationship with one major bank in the US now for 14 years. To me, it’s like having 14 one-year relationships, because the experience, the dialogue and the engagement have never changed. I’ve been making mortgage payments from my account with that bank to another company. So I write a cheque, once a

I got great reporting, I was able to track everything, there was never a return, but if there was, I could do it on the PayPal account. FF: So, you’re telling me that your bank risks simply becoming a utility and isn’t recognising that fact? JM: Exactly. I started making all my payments using my PayPal account. So, on a daily, weekly and monthly basis, all my inflows and outflows go through PayPal. PayPal is generating offers for bridging loans, small personal loans, it’s handling all the reporting for me. So, if someone asked me what my business bank is, the truth is, it’s PayPal. I retain the bank account for holding money, because PayPal doesn’t have insurance, so every once in a while I’ll transfer money to the bank. It thinks the relationship is still strong because it gets one to two deposits a month, and some withdrawals every once in a while, so it thinks it’s an active account. In reality, it isn’t. PayPal’s my business bank. ‘ Issue 11 | TheFintechMagazine

JIM MAROUS: DISRUPTION FF: As someone who takes a strategic view of the entire industry, are you seeing any cultural change happen? JM: Yes and no. For example, some banks still process all deposits and withdrawals nightly – once a day, not in real time. Some will process withdrawals before deposits, so a customer will get a non-sufficient funds notice and think ‘what on earth is this?’. The challenge for banks is to get out of their own way. Banks have realised they have to be frictionless like Amazon and Google, and data and analytics have finally taken over the number one spot. But the investment in that initiative is still not there. Look at the application of artificial intelligence (AI) in the industry overall. You'll see most of it is being applied to stop fraud and around privacy – it's being done for credit purposes. Banks have been doing that for years. AI still isn't being put to use to improve services for the customer. Banks use AI to know who their customers are, but not to show their customers that they know who they are. If I went to my bank and said ‘tell me everything you know about me’, they’d give me a whole list of all these amazing things they know, but they never apply any of that knowledge towards their engagement with me. FF: Does it frustrate you to repeatedly encounter resistance to change when you can so clearly see the potential that the technology has to improve the industry? JM: Of course. Customers deserve a GPS of financial services, not a rear view mirror. Don’t tell them they don’t have sufficient funds, warn them beforehand; tell them what they don’t know. Based on knowledge of a customer’s habits, tell them about headwinds you expect them to face, offer a bridging loan. We have that capability today. There was a recent study in the US around the underbanked and the unbanked, and it found that the underbanked and unbanked pay more in fees than any other segment of the population. So, the people who can least afford it, pay the most. But, they do that because it’s cheaper than the alternatives. Short-term loans, bridge loans for payroll, those things are very costly, so paying an overdraft fee is a cheaper way of banking. But it’s not the way it should be done. There are solutions out there that will help

TheFintechMagazine | Issue 11

those people with, maybe, a short-term loan that’s going to cost them a whole lot less – maybe save them $1,000 or $2,000 a year – and make the financial institution the same amount. So, you can actually serve that segment of the population better, again, because you can start to anticipate what these people’s needs are. It’s like doing a credit bureau check on a person, based not on the credit they’ve used, but maybe on how often they’ve paid rent. So, if a person is underbanked or unbanked, and they’ve paid rent and utilities for 15 years, and always paid on

Time to shift the paradigm: What drives Marous is complacency in the industry

time, putting these bills at the top of their priorities, are they not a good credit risk? They’re a great credit risk. FF: So, you’re saying that not only is this the morally right thing for a bank to do but, financially, it makes sense for the bank, too? JM: I am – now, there may be times that they hit problems, such as getting an unexpected bill. But yes, their bank should help them because it has the tools to help them. They can come up with a solution that the customer isn’t going to go bad on. Make it so the customer saves thousands upon thousands of dollars through a better relationship. And, more generally, what all consumers

want, and the only way they’re going to remain a customer of their bank, is if the financial institution partners with them for better financial decisions, rewards, lower costs, whatever it may be. The new technologies are there, through open banking and open APIs, that can make that experience better. FF: Finally, we’re very happy to have you with us in the editor’s chair for this issue of The Fintech Magazine. Could you tell us about your own personal journey of disruption? JM: Well, as I said, I started in banking straight from college. After my first bank, I moved to what was then called savings and loans in the States – and savings and loans came under tremendous pressure during the 1970s, because of the housing crisis, and a lot of them went out of business. So I then went into sales, and for 15 or 20 years, I sold to banks. I sold direct marketing, and then digital marketing, basically taking insight and information and using it to better target who you’re talking to. I’ll never forget, in 1993, Don Peppers and Martha Rogers wrote a book called The One To One Future. It was revolutionary, it was on every bank marketer’s desk because it talked about using information to build a one-to-one relationship with a consumer. It focussed on banking because of how much information banks had. They could reprint that book today and it would still be relevant, because we haven’t got there. I became a writer, initially, when I was selling, because it was a good way to get through the doors of bankers. I’d say ‘hi, I just wrote an article about a research report you might be interested in’, and that was my entry. All of a sudden, I realised I had a million page views, I was writing twice a week, it was getting longer, and I joined forces with Jeffry Pilcher at The Financial Brand, five and a half years ago, and the rest is history. What drives me, though, is frustration at the complacency. In banking we have a false sense of confidence because banks continue to find ways to make money, despite themselves, and a lot of times it’s simply through cost reduction. So, mobile banking was not built to make a better customer experience. It was built to move transactions from a branch to a mobile phone, to save cost. Customers deserve better. www.fintech.finance

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PARIS FINTECH FORUM

The fintech illuminations

As Europe’s City of Light prepares for a fourth financial technology spectacular, we asked Laurent Nizri, Founder of the Paris Fintech Forum, what to expect in 2019

The Paris Fintech Forum has emerged as the top fintech conference to be held in Europe. And the 2019 edition looks set to consolidate that reputation. Held over two days, on January 29 and 30, at the Palais Brongniart – appropriately, the city’s historic former trading exchange – the Forum is a truly international event. More than 2,600 people are expected to arrive from more than 75 countries. They will gather to hear the views of 280-plus speakers, almost exclusively CEOs and chairpersons from banks, insurance companies, fintechs and their regulators. Many will also take part in satellite events organised as part of the first Paris Fintech Week. Laurent Nizri is the founder and driving force behind Paris Fintech Forum. We asked him to give us a flavour of what to expect this year. FINTECH FINANCE: How would you describe the Forum to someone who has never attended and what’s new this year? LAURENT NIZRI: Paris Fintech Forum is the most exclusive event in Europe for finance in the fintech era. But introducing

TheFintechMagazine | Issue 11

new things every year is not the goal. Rather, we try to continue what we set out to build three years ago: to have a superior event in terms of speakers and attendees. We are doing that with significant geographic and vertical diversity – including payments, lending, insurtech, wealth management and regulation, to name a few. With very few exceptions, we limit the stage to CEOs and chairpersons. You may notice some small changes, largely as a result of feedback we received last year. In 2018 the pitch stage ran over two days, for example. This year, we’ve reduced that to one because people wanted more time for panels. We’ve provided more lounges, too, because the majority of our partners were keen to organise one-on-one meetings. This is where the real business is done. For example, if you want to develop a payments business, Visa will have a lounge with pre-organised, one-to-one meetings between attendees and top Visa executives. Since the size of the event is constrained by the size of the venue – and I don’t want to change it, I love this venue – the challenge has become how do we pack more into it each year? But I think we have succeeded. So, perhaps there are no

headline-making changes, but there is even better quality in the execution! FF: What do you believe sets you apart from other events of this type? LN: We believe too many events simply take your time – they’re tourism. What we try to do is provide people with a return on their investment – new partners, media exposure, new customers and, of course, an expanded network. We want everybody to find a good reason for why they came. Also, every year, we refuse partners because we want meaningful partners – partners who organise useful experiences for our attendees, real meet-ups and real workshops. This year, for instance, we have workshops by Mastercard, Deloitte, Linklaters, Wirecard, Finance Innovation and Crédit Agricole because we know they will provide meaningful content. It’s also a truly international event. Last year, 48 per cent of those attending came from outside of France; this year, we’re on a 53 per cent ratio. And on stage, that percentage is even higher. It’s closer to 80 per cent among the presenters. And the level of seniority is higher still. We www.fintech.finance

have only CEOs on stage, and a huge percentage of CEOs and C levels in attendance. That’s important because we want people to be able to make business decisions together. Then there is gender diversity. This year, around 25 per cent of the people presenting will be women. Incidentally, we are also hosting a debating lunch on the second day to discuss gender diversity in financial services. We will communicate on our website and on social media the conclusions and recommendations from that discussion. FF: You have introduced Paris Finance Week. Can you explain what that is? LN: Half of our attendees come from abroad – some of them are making significantly long journeys. It seemed silly to come all that way for only two days – even though our event is packed from 7.30 in the morning to late at night. So, we asked some people in the financial ecosystem to organise other things. This is the first year of Paris Fintech Week and we will have 10 to 15 side events. They are all much smaller than the main Forum activities, of course, but very focussed. We want to make it worthwhile for people to spend the whole week in Paris and discover other things, including more about our beautiful city. FF: Which themes are you most looking forward to exploring during Paris Fintech Forum? LN: There are many! We are always ahead of the curve with our questions. For example, we spoke a lot about the revised Payment Services Directive (PSD2) in 2017 and 2018, so there will be much less around that this year, even if for many people it’s still new. Instead, we will be focussing a lot on the future of digital finance with, for example, a panel including Christine Lagarde (CEO of the International Monetary Fund), the chairman of BBVA group, the Governor of the central bank of Sweden, and the Kabbage CEO. We’ll also talk a lot about Europe during the Forum. We’ll have a panel with the Governor of the Banque de France and an official from the European Commission to discuss that. There will also be a panel on innovation versus regulation with the CEO of Autorité des Marchés Financiers (AMF), a regulatory www.fintech.finance

body in France, a European parliament member and the CEO of Transferwise. And we’ll host the discussion that everyone will be waiting for – between the CEO of Swift and the CEO of Ripple. That one promises to be exciting! We will be talking a lot about digitisation – not just fintech, but how the whole financial system is digitising. We’ll have a panel with the CEO of Orange Bank, the CEO of Visa Europe and the CEO of WorldRemit to discuss this. There is also the issue about how to fuel growth, which will be addressed by the CEO of Euronext (the stock market), Jaidev Janardana, who’s the CEO of Zopa, the CEO of Seedrs and the CEO of PayU. Many people think we have seen everything already that can be done in payments, but another panel, including the CEO of Airwallex, the CPO and board member of Wirecard, the co-founder of SumUp and the CEO of Marqeta, will put them right on that! And let’s not forget blockchain – our blockchain and crypto panel will be back to catch up on the latest news and thinking.

Too many events simply take your time – they’re tourism. We try to provide people with a return on their investment A number of panels will be discussing artificial intelligence (AI), including one in the Grand Auditorium involving a big bank CEO (from Crédit Mutuel), a writer of AI fiction, Calum Chase, and the CEO of Feedzai. I’ve been speaking here of the general sessions, but we have plenty of other tracks where fascinating discussions will be taking place, too. FF: How do you go about selecting fintechs for the Forum? LN: Mainly, it’s an online application process. This year, we had almost 900 applications and I read every single one of them. I try to select the ones I think will be most interesting to my audience and I aim for diversity, both in geography and in the business verticals.

Ninety per cent of the fintechs you will see this year were not here in 2018. Last year’s line-up was a great one – but we try to give as many as possible a chance to be here at the Forum. FF: Have you spotted any new trends among this year’s applicants? LN: Not new, but what you do notice is the numbers. We’ve seen a huge increase in the number of blockchain projects, for example. And there’s a big increase in the number of very mature fintechs in some business verticals – in lending particularly. Also, we’ve received many more applications from emerging countries, including from India and China, among them CreditEase and Asset-Pro. And we see a lot of B2B2C fintechs, which are working with incumbents, not against them. One vertical we would like to see more applications from is wealth management. FF: You mentioned B2B2C. Do you see a change in the way established firms and fintechs are relating to each? LN: Fintechs are maturing. And, yes, it is hard to work together with banks but they can do it. And yes, they can also fail. Look at what happened between BPCE and Fidor. We should not be ashamed that a big bank tried and saw at the end of two years that it did not have the same objectives and the same DNA and decided to split. Rather, we should be proud that a big, tier one bank in Europe had the courage to do it and to do it again, because it continues to invest. And I’m sure that Fidor will also continue to grow by doing something else, just not perhaps aligned with BPCE. FF: Which model do you think has been most successful at fostering real innovation at large firms? Venture funds or accelerator programmes perhaps? LN: I think that such models are good for consultants to sell to businesses. The reality is that banks and financial institutions are all different. Some have a dedicated team for innovation, some are not very centralised. There are thousands of fintechs and they are all different, too. Some are run by newbies, some by very experienced entrepreneurs who know the ecosystem well. You have some with networks, some without; some with money, some without. So you must take it case by case. I don’t believe in a special recipe. Issue 11 | TheFintechMagazine

PARIS FINTECH FORUM

Teleporting to the future: When did you see Captain Kirk take out a credit card?

BBVA me up, Scotty... Imagine your face as your payment device and an app that puts your financial management on autopilot. This is paytech, not Star Trek, and it’s closer than you think, says BBVA Head of Retail Customer Solutions Gonzalo Rodríguez Cash lives in pockets and now banking is moving there, too. BBVA has achieved its aim of getting half of its personal banking customers to interact with it digitally, and for 2019 it hopes to have 50 per cent of them using its mobile phone app. The reason is simple – people who bank through an app tend to interact with their bank several times a day, compared to once every 10 days via a website or monthly through a branch, according to BBVA. Enabling even more of these ‘smart interactions’ is one of the ‘four pillars’ that drive its customer policy.

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“Developing the customer relationship is key for us,” says Gonzalo Rodríguez, head of retail customer solutions. “Our vision begins with enabling customers to do everything from their mobile app in a very simple way, from becoming a new customer, to organising direct debits, to accessing a product. As customers go mobile, the frequency of our interaction with them increases by up to two or three times a day, and this opens up the possibility of offering new experiences, products and services that were impossible in the past.” BBVA set its online and app targets in June last year. In December it announced it

had grown its digital customers by 23 per cent over the previous 12 months to 26 million – equivalent to 49 per cent of its total customer base – and of those, 21.7 million were using the mobile app. Key to migrating people to mobile has been giving the app, called Global Mobile (or the somewhat catchier GloMo for short), full access to all of the bank’s services – and, ultimately, across all of the bank’s geographies. Its work on GloMo earned BBVA the accolade of owning the best banking app in the world from analysts at US-based Forrester Research, who were impressed www.fintech.finance

by both GloMo’s functionality and user experience. BBVA’s commitment to digitisation also earned it the Bank of the Year Americas title from international banking publication The Banker in November, and it garnered further awards for its work in Peru and Paraguay. Providing all its banking services via a smartphone screen is just one leg on which BBVA’s ambitious digital strategy balances. Rodríguez says: “It’s very important to combine the best of technology and human advice – that's our second pillar. We still believe customers want human advice for things such as investment, mortgages and planning for retirement, but we need to do this in a way that is fully integrated in the mobile app. Customers can exchange conversations with their advisor on the mobile app, set up an appointment and, once they have decided on a product, sign up via the app. “The third pillar is building this amazing customer experience, so that means personal finance management tools, such as budgeting, and helping them to achieve life goals. Then the fourth pillar is smart interactions that put our products in front of the customer.” So, it’s built sticky features into the GloMo app, like an aggregation service that links with a customer’s non-BBVA banking products, such as savings and pensions accounts. In this way, GloMo becomes a personal finance hub through which customers can view their entire financial portfolio – and BBVA becomes an indispensable partner in the mix. Then there’s Bconomy, which allows a customer to compare their spending and saving records with benchmarks based on other customers with a similar profile. The service lists predicted transactions in the short term, based on recurring expenses and, by taking a strategic view, allows the user to set long-term savings goals. The service that really caught the eye of industry commentators, though, is house-hunting feature Valora, developed in partnership with Spanish fintech Madiva Soluciones. Valora uses augmented reality to give people the ability to walk down a street, point their phone at a property and discover if it is for sale or rent, then retrieve cost data and background information on the neighbourhood. “It gives our customers the data they need to make a better financial decision when www.fintech.finance

considering a house purchase or rental,” explains Rodríguez. “It is an example of how we are leveraging our data and third party data to help our customers to make better financial decisions. What makes a collaboration with a small tech company a great one is where we have a win-win partnership, as with Valora. Madiva had the technology and data already and we could put it to use. It can calculate the price of any real estate apartment here in Spain, or in Mexico, or Argentina, within seconds. We have been able to leverage that technology to take the home-buying experience to the next level.”

Apps without frontiers Part of BBVA’s success, says Rodríguez, has been the bank’s desire to share its tech solutions across territories, so services offered in Spain are quickly migrated to Mexico or Venezuela. “Our aspiration is to develop truly global solutions, and that means we are working to produce not only the user experience and design, but even the front end across different countries,” says Rodríguez. “We truly believe it would be a key source of competitive advantage for BBVA to be able to develop one component in Mexico, then integrate that component in Spain the day after. “We have already taken the first steps in that direction – we recently launched our core mobile banking app in Mexico and plan to roll this out to Peru very soon. It is already in place in Uruguay and we have a very demanding roadmap to roll it out to all BBVA geographies during 2019 and early 2020. The aspiration is to have the best capabilities, not just in countries such as Turkey and Spain, but across the board, so we develop as a group.” Payments is another area of focus for BBVA. The biometric technology employed in its selfie onboarding process is now being developed for payment verification, with a team at the bank’s headquarters in Bilbao tasked with creating a new, low-friction system that eliminates queuing to pay. You might think their vision is more Star Trek than paytech, but Rodriguez believes invisible purchasing based on

biometrics is comparatively close to being realised. He explains: “It would work in a restaurant like this: a customer picks up their tray, chooses their food, goes to the podium and just takes a picture of themselves with it. From that the technology calculates the amount that they should pay and completes the transaction. With biometric identification you basically skip the queue. You are able to pay immediately with no friction. There’s no need to even take out a credit card. “The whole payments space is going to change completely, and these changes aren’t far away,” says Rodríguez. Data, too, plays a part in BBVA’s modernisation plans to create what Rodríguez and his colleagues refer to as the ‘self-driving bank’. Its Bconomy feature is a clue to what lies ahead – whereas this feature examines repeat payments to predict future debits, the self-service bank would encourage the customer to let it suggest and make day-to-day personal finance decisions to improve efficiency. “We asked the question ‘how can we help customers have better day-to-day control over their finances and achieve their goals?’,” Rodríguez says. “Our feature where customers can see upcoming income and expenses for the next couple of months is a good estimation, but it’s not good enough. Our vision is that we don’t rely on a customer logging in to see that data, but instead suggest ‘hey, Peter, you are getting your real estate tax bill three weeks from now and you are likely to be overdrawn. Why don’t you advance your payroll? Or bring money from your ING account to BBVA, to avoid this overdraft?’ “So, the idea is to anticipate customer needs and, taking it one step further, even propose that the customer automates that. The system could ask the customer if in future it could rearrange their finances so that they don’t have to do anything to avoid going overdrawn. This idea of encouraging customers to relax, forget about their finances, and rely on BBVA to provide this day-to-day control, helping them to save or plan for retirement, is a concept we are already working towards.”

The idea is to anticipate customer needs and, taking it one step further, propose that the customer automates that

Issue 11 | TheFintechMagazine

PARIS FINTECH FORUM

A fintech affair to remember With France warming up for a hot digital date, here’s our pick of the personalities to seek out at Paris Fintech Forum

2018 was a year of dizzying highs and devastating lows for Paris. In November, the city of love and light descended into violence and chaos with the arrival of the Gilets Jaunes protests against government tax hikes. Yet a mere four months earlier, the wild celebrations of a jubilant nation played out against a backdrop of the Eiffel Tower and Arc de Triomphe after the country’s historic World Cup victory. Now the protests are winding down and memories of the football are growing evermore distant. But the city moves on and right now it’s gearing up to host the most exclusive digital finance and fintech event in Europe: Paris Fintech Forum. The annual two-day international bonanza returns for its fourth edition on the 29th and 30th January. Since its humble beginnings in 2016, organisers at Altéir Consulting have grown the Forum year-on-year and are still riding the wave of its 2018 success. With more than 240 speakers and 2,600 attendees from 72 countries, last year’s event will be a tough act to follow. This year’s committee, however, appears to have risen to the challenge – not least by winning the patronage of the French President, Emmanuel Macron. The forum will take place at the majestic Palais Brongniart, which is situated between the Louvre Museum and Place de la Concord in the affluent ‘Vivienne’ district. An exemplar of iconic Parisian neoclassical architecture, the Palais Brongniart formerly housed the stock exchange and is classified as an historic monument.

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The event has been granted use of its most opulent spaces, including the Grand Auditorium and Hall of Honour. The first constitutes the main stage, which will exclusively welcome CEOs of key players in banking, insurance and regulation as well as major world fintechs, for a series of interviews and panel discussions, led by international journalists and the founder of Paris Fintech Forum, Laurent Nizri. The second will host sessions on artificial intelligence (AI), the power of data, cybersecurity issues, the future of fintech and much more. Each will be led by international finance industry thought leaders and CEOs from across the world. Two more impressive stages will host round tables and lectures on topics such as regulation in Europe, blockchain, alternative lending, insurtech, payment, and wealth management, to name but a few. The CEOs of more than 60 fintechs in different phases of development will also give pitches. The line-up this year includes some powerful and intriguing speakers. Here’ are some to look out for:

Christine Lagarde The French politician and chair of the International Monetary Fund (IMF), will deliver a keynote speech. Lagarde was ranked third on Forbes’ list of Powerful Women of 2018, and 22nd on its list of Powerful People 2018. Lagarde took the helm of the IMF in 2011 in the aftermath of a crippling recession. Under her tenure, the organisation has weathered the Eurozone debt crisis, managed emerging market risks and the threat of a

trade war with China. In recent months, she has spoken publicly about the future of financial technology – with a particular focus on cryptocurrency, calling for ‘creative thinking’ on all sides to meet the challenges it poses to the current system of regulation. She also urges governments to actively participate in this innovation if they are to stay on top of fraud and money laundering. “Some jurisdictions are taking a creative and far-sighted approach to regulation by establishing ‘fintech sandboxes’ such as the Regulatory Laboratory in Abu Dhabi and the Fintech Supervisory Sandbox in Hong Kong,” she says. “These initiatives are designed to promote innovation by allowing new technologies to be developed and tested in a closely supervised environment.” The most spectacular failure of regulation could be said to be the 2008 banking crash. Ahead of its 10th anniversary last year, Lagarde attributed much of that failure to the sector’s male-domination and called for further gender reform. “If it had been Lehman Sisters rather than Lehman Brothers, the world might well look a lot different today,” she said.

Anne Boden Boden is another staunch advocate for diversity in the financial industry. The founder and chief executive of UK-based Starling Bank has more than 30 years’ experience in the banking sector and has held top jobs at UBS and Royal Bank of Scotland. In June, she was awarded an MBE for her services to London fintech. www.fintech.finance

The heart of European fintech: But the Forum welcomes speakers from across the world

It’s the most exclusive digital finance and fintech event in Europe In a statement in October, Boden called time on transactional banking and welcomed the dawning of a new age – one in which application programming interfaces (API) are king and financial institutions are refashioned into the service provider model. “The API economy is far more important and relevant than both the revised Payment Services Directive (PSD2) and open banking,” she says. “The true API economy does not need legislation for its survival or existence.” Boden’s vision of the future is an optimistic one that includes the usurping www.fintech.finance

of payments routing by software; integrated artificial intelligence (AI) and machine learning; and an automated clearing house that covers real-time and peer-to-peer payments.

Bruno Le Maire France’s Minister of Finance and Economy since 2017 is not one to mince his words. During an onstage interview at the Women’s Forum in Paris in November, he slammed pro-Brexit politicians and called them liars over their Leave campaign. He went on to condemn the UK referendum as an ‘historic mistake’.

Conversations around Brexit – of which there certainly will be a few since the deadline for the UK to leave the European Union is fast approaching – will more than likely be contentious and it will be interesting to see how Le Maire uses the PFF platform. Bruno Le Maire is not the only minister expected to take to the stage: watch out, too, for Johan Van Overtveldt of Belgium and Lithuania’s Vilius Šapoka.

Jean-Laurent Bonnafè The CEO of BNP Paribas spoke at last year’s Paris Fintech Forum and will be returning this January. BNP Paribas is the world’s eighth largest bank by assets and currently operates in 77 countries. Bonnafé is an example of the calibre of industry heavyweights who will be attending this exclusive event. Issue 11 | TheFintechMagazine

PARIS FINTECH FORUM

Pressing the right buttons: The Forum is the place where business gets done

Other representatives of major French financial service providers include Nicolas Dufourcq general manager at Banque Publique d’Investissement, Thomas Buberl of AXA, Frédéric Oudéa who is the CEO at Société Générale, and Laurent Mignon, the chairman of Groupe BPCE.

David Vélez The charismatic CEO and founder of Brazilian challenger NuBank is committed to helping people ‘find a way out of the current banking system and its revolving doors of complexity and bureaucracy’. Founded in 2013, by last year it had five million customers for its no-fee credit card and 2.5 million people signed up its digital bank account, launched a year ago. In 2018 it was one of the biggest challenger banks in the world.

Mariya Gabriel A Bulgarian politician and current European Commissioner for Economy and Society, Gabriel has received several awards, including ‘MEP of the Year’ in the Development category, the Order of San Carlos in 2016 for her outstanding contribution to Colombia in the area of international relations and diplomacy, and a further two awards for her contribution to gender equality.

Vanessa Colella The Chief Innovation Officer at US banking corporation, Citigroup, where she heads the firm’s innovation lab and venture capital arm

TheFintechMagazine | Issue 11

Citi Ventures, Colella’s work in conceiving and launching CitiBike led Citi to win Advertising Age’s 2013 Creativity Award and the Gold Pencil in 2014.

Susanne Steidl Steidl was made CPO and Executive Board Member at Munich-based global financial service provider, Wirecard, in 2018. Despite being new to the position, in the same year she was added to Payment Source’s list of the 25 Most Influential Women in Payments, which are seen as the ones taking risks with new ideas and investments and developing the technology that will forever change the way people handle money. “They not only set an example for their peers but also are unafraid to learn from newcomers and are diligent about encouraging a freshness and diversity of ideas,” according to Payments Source.

Patrick Byrne The founder of US retail giant Overstock, Byrne, is due to make an appearance at the Forum. In 2011 Byrne was named National Entrepreneur of the Year in the Retail and Consumer Products category by Ernst & Young. He recently caused a sensation after announcing plans to sell the retail arm of his company to focus on blockchain by early 2019.

Viola Llewellyn Llewellyn is the co-founder and President of Cameroon-based fintech service Ovamba. Founded in 2013, the company’s mission is to help African businesses grow by innovating fintech solutions for businesses in Africa’s

trade and commodities sectors. Llewellyn has given multiple TED talks on microfinance and the democratization of financial services in Africa. The region is rapidly developing, creating an exciting market that’s ripe for disruption.

Nuno Sebastiao The co-founder and chief executive of Feedzai, a Portuguese software company with offices in the UK, Silicon Valley, New York, Coimbra, Porto and Lisbon, Sebastiao has seen the company’s AI-led software adopted by the world’s largest banks and retailers to detect cyber fraud. Both an interesting speaker and insightful interrogator, Nuno interviewed Sir Richard Branson at last year’s Money 20/20. CEOs from emerging UK-based banks and fintechs will also take to the stage. Worth taking a seat to see are Revolut, OakNorth, Atom Bank, TransferWise, Everledger, Iwoca, Suade, LendInvest, and the insurtech Tapoly.Also make time for Jaidev Janardana, CEO of the world’s first peer-to-peer lending company, Zopa. Alongside the main stage presenters, panel discussions, fireside talks, and interviews, an additional two rooms of the Palais Brongniart will be dedicated to thematic workshops and conferences with representative of Google Cloud, Wirecard, Linklaters, Finance Innovation, Crédit Agricole, Deloitte and Mastercard. Additionally, more than 120 fintechs and more than 45 partners from banks, insurances, hubs, institutions, and solution providers will have the chance to take over pods and booths across two exhibition halls. It’s said Paris is a city for lovers… its love affair with fintech is clearly blossoming. www.fintech.finance

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TEMENOS: 25 YEARS

A sacred mission Temenos is the market leading provider of critical software to financial institutions globally. Having achieved more than 1,600 installations in more than 150 countries, it celebrated its 25-year anniversary in 2018. In this exclusive interview, Founder George Koukis reflects on wealth, business and the importance of humility “I’ve never worked for a bank, and my only credit to technology was that I could spell ‘computer’ – even then I was reminded not to spell it with a ‘k’, because I was Greek born and we don’t have the letter ‘c’. And yet we are where we are today.” It’s true that George Koukis has never worked in a bank, but as founder of one of the world’s most successful banking software firms, he has a pretty good handle on what goes on under the bonnet. Chairman of Geneva-based Temenos until July 2011, where he is still a non-executive director, Koukis began his software career in Australia, to which he’d emigrated from Greece with his wife, Eva, no command of English and just $70 in the early 60s. An accountant by training, he worked his way up from ‘office boy’ in Qantas IT department, went on to make a small fortune, lost it all in the ’87 crash and started again. “I was a migrant for 20 years,” he says. “I’ve cleaned toilets, I’ve been a waiter, I’ve washed dishes… you can’t imagine.” Older, wiser and wealthier than his 21-year-old self ever imagined, Koukis now features regularly on international rich lists, having picked up a dynamic but failing little Swiss banking software firm called Globus in 1993 for $948,000 and taken it public seven years later with a valuation closer to $1.5billion. By that time it had a new name – Temenos. “I wanted to find a name that would inspire me when I saw it,” recalls Koukis. “I’d forgotten a lot of the special Greek words by then, but I came across the word ‘temenos’ when I visited someone, who’d given a speech to the Temenos Academy in

the UK. I remembered it: temenos, an ancient Greek word, not used in today’s vocabulary, which means something sacred; when you have something of value, you put a wall around it. That is Temenos.” It’s a construct that represents not just Koukis’ protective attitude towards staff and customers, but towards the entire financial industry. Temenos isn’t just a brand; it’s a religion (even though he doesn’t agree with religions) with its own commandments – 16 of them. “Temenos is a combination of all people’s aspirations and dreams, what they want to do, what they want to achieve in life. It’s a platform by which everybody achieves their objectives,” says Koukis. He claims he had no financial goal when he handed over a cheque and – against all advice – picked up the shares for the twice-bankrupt Globus, which was in the process of being broken up by its creditors. Based on its software, Koukis would go on to launch T24, still one of the top 10 core banking systems in the world today. But it so very nearly didn’t happen. “I had six people telling me not to do it,” he recalls. “Some of those people later wanted to join the board and I refused to allow them.” Why? “Because one of their reasons [for advising him not to buy it] was that software in those days was the domain of the USA. One of them said to me ‘you’re Greek, aren’t you? What do Greeks know about software?’ That was racism at its worst for me. So, they advised me not to do it, I didn’t listen and if that was regarded as a mistake, I hope I will never make a right decision,” he says.

What hurts companies is arrogance, which breeds complacency, and the moment you’ve become complacent, you’ve lost it

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The arrogance of those advisors niggled him, so much so that he wrote humility into the 16 ‘human-centric statements’ that served in place of a financial roadmap for the company. “Number 15 said ‘the more successful we are, the more humble we should become’ because what happens in business and in life? The moment you are successful in something, you create an arrogant state of mind that, if you don’t check it, consumes you,” says Koukis. “What hurts companies is arrogance, which breeds complacency, and the moment you’ve become complacent, you’ve lost it. “Those statements are what created a camaraderie, a team concerned about the wellbeing of the banks, industry, our society, their colleagues, their subordinates, and to working towards a goal that was humane, rather than just about making money,” says Koukis. “I lost all mine in ’87, simply because I wanted to make more of it. I learned my lesson. It was an expensive mistake but I made it back again 100 times over. My advice to everyone is target success. The consequence of success will be money.”

A principled approach Among the other corporate principles by which its staff, who now number more than 4,600 in 63 countries, including development centres in India, is that ‘profitability is the consequence of happy clients’. And if that means you do stuff beyond the strict terms of the deal, so be it. “You need a system that does more things than that client dreamed of, and you need good services. When you provide that, nobody worries about the price. If I get what I want, I’m happy to pay a little bit more,” says Koukis. Temenos’ T24 core banking system has been on the market now for 16 years. This month, the company announced it had www.fintech.finance

been updated to T24 Transact, a next-generation, Cloud-native and Cloud-agnostic core banking system that will be available from April 2019. It’s a major milestone for the company, which has survived the growing number of technology challengers chipping away at the feet of the Temenos acropolis. “There have been 10 cases where I almost lost the company,” reveals Koukis. “But you create an environment where you feel you cannot fail. Temenos is an accumulation of values, of purpose. That means people worked harder to have a more perfect system, to have the right technologies.” There’s another ancient Greek word that he’s fond of: philotimo. It very roughly translates to doing something because it’s the correct thing to do, says Koukis, ‘irrespective of personal gain or loss’. “When you have people doing the right thing, not because they are getting paid twice the salary but because they believe it’s

correct, then normally that is very good for the company, for society.” It’s what led Koukis to buy a sizeable chunk of the Amazon rain forest that was offered to him as an opportunity to make a few million quick bucks and conserve it instead for the good of the planet and local communities. “When you think long term, everything is very clear,” he continues. “When you think short term, you tend to mess it up. “I had a 20-year plan for Temenos. When people came to acquire it, I told

them to go away, both in proper terms and with my most colourful expressions. “When I started this company, I would not have forecast that we would be here talking about these things, the way we are today,” he says. “I want to thank every single Temenosian from the bottom of my heart, because without them, nothing would have happened. You are my inspiration. You make me so proud because I put down the foundations but it’s good to see something beautiful being built on a beautiful block of land, isn't it?”

Core values: Temenos’ success stems from values like humility and humanity

www.fintech.finance

Issue 11 | TheFintechMagazine

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TEMENOS: 25 YEARS

Keeping the faith

Temenos isn’t just a super-successful financial software company, it’s a global tribe. We asked former Chief Executive, now Executive Chairman, and Chief ‘Temenosian’, Andreas Andreades, what we can learn from the culture of its success

Financial software powerhouse Temenos is celebrating its 25th anniversary this year, but according to executive chairman Andreas Andreades, ‘an anniversary without a reason for an anniversary is kind of a hollow story’. Luckily, Temenos’ anniversary isn’t a hollow story and it certainly does have a reason to celebrate, having seen revenue of $230million last year, up 11 per cent on the previous one. But perhaps nobody has reason to celebrate more than Andreades himself. Andreades joined Temenos 20 years ago as chief financial officer, was swiftly promoted to deputy then full CEO in 2011, and has helped navigate the company successfully through some of the most turbulent years the finance sector has ever seen, coming through the financial crash and surviving continual market disruption. To date, Temenos has acquired 13 companies, opening 2018 by buying Fidessa for a tidy £1.4billion, and closing it with news that it had acquired 100 per cent of Avoka, the Sydney-founded software-as-a service vendor. In fact, Australia has become an important market following a deal to buy local banking software provider and Temenos partner of many years, Rubik Software, in 2017. Now with offices in Sydney and Melbourne, Temenos’ Australian bank model was most recently adopted by challenger bank Volt. So, how has Temenos flourished while others have floundered? “People always ask me if there was a master plan,” says Andreades, “and there wasn’t.” www.fintech.finance

No master plan, but there’s certainly a prevailing attitude. “We have always believed that safeguarding our clients from technological obsolescence was a key proposition in how we do business. Throughout our 25 years, our product has remained very fresh,” he says. It’s this forward-thinking product offering that keeps Temenos thriving. Its products aren’t just up to date, they’re ahead of the game; one of the reasons they’re used by 41 of the top 50 banks in the world. But just how does it do it? According to Andreades, it comes from an acute awareness that failure to innovate means certain death: “After all, product superiority is something you can have today, but lose tomorrow.” This commitment to innovation isn’t just exhorted by Andreades, it’s embedded into the company’s culture at its core. “I know that a lot of people go on about company culture, but I do think that what we’ve done at Temenos is quite unique. We’ve created a passion to win, to do business with entrepreneurialism but without arrogance or complacency.” This blend of pioneership and humility has created a banking technology master race – what he dubs the Temenosians, a workforce of 4,600 in 63 offices across the globe. But it’s a community that’s not just made up of employees. Andreades regards Temenosians as being everyone from employees to partners and clients. And the one thing that binds them all together is trust.

“Trust has been a fundamental component of working together, and has delivered great success for everybody involved in this journey. I hope that same trust will continue to underpin our relationship for the next 25 years,” he says. Temenosians are risk takers, otherwise they wouldn’t work for or with a company that strives to innovate with such fervour, but they also trust that these risks will contribute to success. It’s a winning cultural combination. And perhaps nobody quite embodies that culture like Andreades. He doesn’t see Temenos as merely a financial software company, but as the facilitator of a safe, functional yet innovative banking system. As such, both it and he are on a critical mission. “I personally, and quite a lot of people at Temenos, have made our lives synonymous with the success of banking as a whole,” he says. Yet he remains remarkably self-effacing. When asked how he feels looking back on Temenos’ last quarter of a century, he replies: “Sometimes, I pinch myself and think ‘wow, is this for real?’” The word Temenos comes from Greek, and means something of value, sacred and protected. As Chief Temenosian, Andreades sees the company’s role as defending those qualities in the financial system. “I want to see us in a position where we can continue to redefine the way banking is done in the 21st century,” he says. “I think that’s a worthy cause for our next 25 years.”

People always ask me if there was a master plan and there wasn’t

Issue 11 | TheFintechMagazine

TEMENOS: 25 YEARS

Doing business the Swiss way David Arnott in many ways embodies the spirit of Temenos – or rather, he’s been infused with it. When he was interviewed for his first job here – as chief financial officer – nearly 20 years ago, he’d just sold a Luxembourg telecoms business and was ‘looking around for something to inspire him’. He found it in the cool, clean air of the Swiss Alps at the head of Lake Geneva, where he could indulge his passion for skiing. Over the course of a long lunch with the man he would eventually replace as CEO, now executive chairman, Andreas Andreades, Arnott found himself being seduced by the passion, innovation and humility that has marked out Temenos as a world leader in its field. It was by no means a conventional meeting. “I had no childminding at the time and my wife was working, so Andreas and I tried to have an interview with my daughter running around,” he recalls. “I became swept up in the potential of an idea that was so well thought through in terms of what you need to do to create a global software company and the opportunity that existed in banking. “I’d never stopped to think that banking was the last industry to write its own software. Andreas was so passionate and so clear-thinking in his vision of what we could do that suddenly the mountains and being in Geneva… who’d have thought that 18 years later I’d still be here!”

As a keen skier, Temenos CEO David Arnott knows you have to work hard to stay at the top Arnott, the first Brit to lead what is an exceptionally cosmopolitan company, has been CEO since July 2012, after serving as chief financial officer from April 2001. He joined at the age of 32. Since then, the group has grown from 300 employees to more than 4,600 with 3,000-plus customers and exceeding $730million in annual revenues. “Statistically, we shouldn’t be here,” says Arnott. “Only one in 100 companies run the gauntlet of getting big enough, raising capital through going public, coming through management change, and still protecting the investment in the product.” He attributes the company’s longevity to the imperative to innovate, which arises from a deep commitment to client service and the unusual company structure. “We’re Swiss for a reason,” he says. “There’s a humility to the Swiss, a professional pride. Look at their watch-making industry. Every country around the world has its own distinct culture but the people who work within Temenos, across cultures, demonstrate similar values: humility, the ability to work together, pride, integrity, velocity, the fact that we make decisions very, very quickly, we stick to them, and we run as fast as we can.

We wake up every morning full of energy, full of passion for ridding the banking sector of its legacy IT systems

“We’re extremely innovative, but we operate at scale, and we do all of that under the umbrella of a very strong culture that means we come together in front of the customer. Temenos operates like a Swiss clock – it’s on time, a good product, with a well-protected investment,” says Arnott. Core values are important, but so is a clear focus on the strategy they inspire. There are three components to Temenos. “First of all, there’s domain focus,” says Arnott. “All we do is banking. We live and die by it. We wake up every morning like teenagers full of energy, across the company, full of passion for ridding the banking sector of its legacy IT systems. “The second thing is the regional model. Getting the balance right as you mature from an entrepreneurial, small company, where the decisions are made across a floor in Geneva, to a global model where you need to retain agility, against potentially some very big players, requires a fine balance. “The third is R&D. We’ve been spending over 20 per cent on R&D since the beginning. We’ve gone through crises, ups and downs. Through every cycle, we’ve protected all the investment in product, and look where we are today.” What about tomorrow? Will Temenos continue to tick like a fine Swiss time-piece for years to come? Arnott has a ready answer: “We have to take everything we’ve done over the last 25 years and use that as the launching pad for the next 25,” he says.

View from the top: Temenos’ vision of the potential for software in banking is clear

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SIBOS 2018 REVIEW

MAKEORBREAK? BREAK? Heavyweight fintech commentator Ruth Wandhöfer believes tech could be the best or worst thing that ever happened to the global financial system Lax regulatory controls, credit over-extension and banker greed. The root causes of the last, and biggest ever, financial crisis are well documented. But the new fintech wave could become a destructive tsunami of unprecedented proportions without the right blend of forward thinking and collaboration between innovative startups, incumbents and regulators, believes Ruth Wandhöfer. Get it right, though, and the potential rewards are equally mind boggling. This superwoman of fintech should know. A banker, analyst, business mentor, non-executive director of various companies, speaker and author, she was named as one of the top 10 fintech influencers in 2018. The 2017 Digital Banking Report showed very low levels of commitment to partnership between banks and

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fintechs, and the past 12 months have seen Wandhöfer leading a crusade to change that trend. She believes the tide is finally turning. “How far have we come as an industry as a whole? After radical innovations like Bitcoin and a phase of death visions by disruption, all eyes are now on partnerships and value creation. Finally!” she says. “The continued growth and stabilisation of the emerging digital financial ecosystem is an area where a lot more needs to be done in bringing the old and new worlds together. “Instead of putting their heads in the sand, banks firstly need to seriously educate themselves on topics such as blockchain, cryptocurrencies, crypto exchanges, initial coin offerings and how to manage anti-money laundering risk – and then how to help bank this new ecosystem to create a safe and sound digital economy.” The result will be win win, adds Wandhöfer: “There are so many areas where fintechs conceptualise and deliver on efficiency, transparency and better service, that I continue to be amazed by what I

encounter. Some of the examples I’ve come across include the agent-basedmodelling experts Simudyne and trade finance digitisers Traydstream.” The 2017 Financial Stability Board report highlights the greatest current risks to the future economy as being managing operational risk from third party providers, mitigating cyber risks and avoiding macrofinancial threats stemming from the increase in, and pace of, fintech activities. Specific areas highlighted include the increasing use of artificial intelligence (AI) and robo advice; open payments, both consumer and wholesale via distributed ledger technology; trade finance and cross-border transactions. It reveals a sweet spot of risk where

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consumer demand and the need for regulatory safeguards cross, and recognises how, in many ways, fintechs pose both the problem and the solution to these issues. While setting the pace of industry change, they also have the sophisticated systems for more effective data gathering and analytics, greater transactional speed and cost reduction. Meanwhile, the incumbents have the regulatory knowledge and experience the fintechs need to satisfy consumer demands. The report states: “While there are currently no compelling financial stability risks from emerging fintech innovations, given the relatively small size of fintech relative to the financial system, experience shows that they [risks] can emerge quickly if left unchecked.” For Wandhöfer, much of the answer lies in developing the strongest possible understanding of the activities going on within and between institutions, fuelled by strong data and the ability to understand it. “To navigate the plethora of regulatory requirements that financial institutions – and, increasingly, all other businesses – face when it comes to laws like the General Data Protection Regulation (GDPR), the ability to get your hands around data and make sense of it has come to the fore as the baseline necessity that enables true risk management,” she says. Wandhöfer serves on the board of Pendo Systems, a company that helps banks and anyone else with a large, unstructured dataset, to structure and make sense of it, to make better economic decisions and comply with regulation. “This is the beginning of fuelling the AI revolution. The data keeps pouring in unstructured, so it will be an ongoing requirement to make things work better in banks and other large institutions,” says Wandhöfer. “Innovators have seen the potential that regulation brings,” she continues, “in terms of putting more constraints on institutions and demanding more solutions. “For many, many years, banks have been sitting on legacy technology but had to invest a lot more in regulatory compliance. Now the question is, how www.fintech.finance

do you revamp your internal systems to be more agile? How do you work much better with data, not only for compliance reasons, but for economic reasons; create new servicesand use solutions based on data? “Of the innovators I’ve been working with for the last 10 years, the more successful ones know the industry, and the problems within banks, very well, and have started designing new technologybased solutions to address those problems efficiently. So, it’s really become a partnership journey, in which little fintechs can start thinking differently and working with partners to front certain things.” Together, fintechs and established financial institutions can create a truly powerful financial services future – but not as we know it.

“We will see fintechs learning more and more about what the banks need,” says Wandhöfer. “And for their part, the banks have done a lot of work over the last few years on creating innovation labs, and working with clients and fintechs to augment their services. We’re finally seeing more learning and collaboration on both sides. “We’ve moved from a pure disruption discussion, to a collaboration and partnership discussion.”

A lot more needs to be done in bringing the old and new worlds together

Have banks finally cracked it? Co-operation with fintechs is, at last, accelerating

Issue 11 | TheFintechMagazine

SIBOS 2018 REVIEW

DOWN TO BUSINESS PSD2 is a golden opportunity for banks to make themselves indispensable to SMEs and Allevo helps them do just that. Ioana Guiman, Managing Partner at Allevo, explains how The final year of preparation for full implementation of the revised Payment Services Directive, now universally known as PSD2, is upon us. From September 2019 banks must be fully compliant, having carried out at least six months’ worth of trials with third-party providers (TPPs). If the focus of last year was on transposing the new directive into national legislation, the next nine months will see it shift towards adopting and monetising Open Banking. Financial institutions have held up their side of the bargain; now it’s time to get the clients on board. But persuading small business owners, in particular, of the

merits of sharing their financial data – on which the success of Open Banking is predicated – could prove difficult. According to a recent KPMG report Is Open Banking Open For Business?, a quarter of the 1,000 mainly low-growth, micro-firms and simple-structure businesses it questioned ‘will not share data with other financial service providers under any circumstances’. Their reluctance to engage with Open Banking is largely attributed to a lack of trust following very public abuses of personal data by tech companies such as Uber and Facebook. But up to half ‘might consider’ engaging in Open Banking with trusted financial service providers. Which

would lead you to conclude that high street banks and building societies are at a distinct advantage when it comes to monetising opportunities under PSD2, at least as far as business customers are concerned. But they ought to be aware of another statistic, too: while only one in seven SMEs are willing to share data with financial startups and new market entrants, KPMG found more could be persuaded to switch to those new providers if they were to offer faster, easier payments and a dashboard for all their business finances – loans, savings, assets and so on. “It is down to financial service providers to identify and implement the

Small businesses are a big market: But they have trust issues to overcome

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right tactics and business models to cater for these different customer groups,” the report concluded. In other words, trust and reliability must be coupled with personalisation and banks just need to find the right solutions for customers. It’s precisely those elements that underpin FinTP-Connect, designed by two Romanian fintech Allevo. It had already spotted the opportunity outlined by KPMG in the SME/ financial services provider relationship and set about mining it on behalf of banks. FinTP-Connect offers financial institutions full PSD2 compliance but, more importantly, allows banks to cater for the unique and various needs of their SME clients, which face a higher proportion of issues such as late payments, lack of automated financing to support ongoing trade and the need to manage their accounting and financials. “As an SME ourselves, we feel the pain,” says Ioana Guiman, managing partner responsible for business development at Allevo. “We would be very happy to pay a bank to take most of this off our shoulders. I want them to take over most of the manual operations and accounting overhead. I don’t want to be worried about my finances, I just want to focus on my business.” FinTP-Connect aims to allow her to do just that by facilitating automated data communication between third party account information service providers (AISPs), payment initiation service providers (PISPs) and the banks that hold the account information. As a result, payments are not only faster and easier but are also secure – giving banks that use the solution a compelling proposition with which to retain and attract SME customers. The solution achieves centralised management of requests initiated by a PISP/AISP on behalf of the final customers, retrieves and processes these requests, transfers them to the core banking system, and then returns responses back to the PISP/AISP. It consists of several individual application programming interfaces (APIs), each positioned at a different layer of a bank, and uses the PSD2 access to accounts framework developed by The Berlin Group as its default API standard, although other standards can be implemented. On top of this, the product offers

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financial aggregation, factoring, accounting and enterprise resource planning services that use the same infrastructure as the bank in relation to individual customers, allowing it to tailor services to SMEs. In other words, FinTP-Connect not only makes Open Banking work but goes beyond it in giving banks the tools to build their own marketplaces – in effect turning PSD2 to their profitable advantage. And it doesn’t have to stop there. “Just as the unbanked are not financially included, small businesses are almost completely left out of the financial chain, bearing the full burden of managing their finances. We work with banks to see what they can do to provide something that is relevant for the businesses they serve because, while individual customers are used to the cool features that fintechs offer and are prepared to exchange data with them, SMEs are often left out,” says Guiman.

While individual customers are used to the cool features that fintechs offer and are prepared to exchange data with them, SMEs are often left out “Our solution allows banks to authorise themselves under PSD2 as AISPs, so that they can aggregate the information of business customers and present them with relevant financial services – some examples would be balance sheet and reconciliation features, giving them quick insight into their liquidity, as well as new functionality, like predictive analysis and better credit scoring for their businesses – which in Romania is still a very painful process if they want financing of an invoice that’s approved by their customer, for instance.” Libra Internet Bank – last year’s winner of The Most Innovative Bank in Romania, which predominantly serves SMEs, real estate development and agribusiness – was eager to embark on proof of concept testing for FinTP-Connect in advance of the September 2019 PSD2 deadline.

“We are constantly concerned with the adoption of new technologies in our services,” says Libra Internet Bank’s IT manager, Alexandru Dionian. “As such, we responded with great interest to Allevo’s proposal to assess the FinTP-Connect proof of concept for alignment to PSD2.” The product faced robust assessment in a variety of scenarios. These included end-user multi-factor authentication and a TPP app, as well as access to customer transaction history and bank accounts via an authorised TPP. Additionally, FinTP-Connect also offers application programming interface (API)management, TPP identification, rules management for applying strong customer authentication, user activity tracking for TPP management and fraud risk management, as well as native format configuration. “We were very pleased about the collaboration with Libra Internet Bank and their openness to embark on such a large scale project,” says Sorina Bera, CEO of Allevo. “Once the business requirements and technical details were pinpointed, the bank and our team joined forces to perfect this solution in a record time, animated by the financial industry’s rapid and broad evolution.” The true power of Open Banking for small businesses has yet to be fully realised but success stories are starting to circulate in Europe. In the UK, for example, a beauty salon in Kent was one of the first in the country to source a small business loan using Open Banking data. Through Funding Option – a UK-based lendtech that connects SMEs directly with lenders across the country – the salon was able to source a £100,000 loan in less than 90 minutes. Could banks compete with that kind of service? Guiman believes so. “This ties to the project we are finalising that benefits from European funding: the FinOps Suite (TOSS) project. Its main outcome is an open source application that provides process automation for financial operations of SMEs and corporates. “I hope our solution changes the way banks are positioned,” she says, “not just as enterprises that offer credits and deposits, but using the level of trust they have with customers to provide a lot more than that.”

Issue 11 | TheFintechMagazine

SIBOS 2018 REVIEW

Power to the people ConsenSys is on a mission to restore identity to its rightful owners. Founder Joe Lubin and the company’s blockchain ambassador Monica Singer are leading the revolution In the language of flowers, tulips represent enduring love and philanthropy. In the language of finance, however, they allude to mania and market crashes. The cautionary motif owes its origins to Tulip Fever, which seized the Netherlands in the early 17th Century and is the first recorded instance of a financial bubble. The term ‘tulip’ is now ascribed to any movement that has been – or could potentially become – a victim of speculative trading and its own hype. Previous examples have included the South Sea Bubble of 1720, the dotcom stocks of the 1990s and the 2008 Global Financial Crisis. The most recent bubble to burst was that of the cryptocurrency Bitcoin in late 2017 – and that was unfortunate for the emerging distributed ledger technology (DLT) that underpins it because it led sceptics to call tulip on blockchain, too. In fact, ‘emerging’ may be an understatement. A recent survey conducted by the World Economic Forum revealed that 10 per cent of global GDP will be stored on blockchain by 2027. On top of this, venture capital funding for blockchain startups has grown year-on-year, reaching $1billion in 2017, according to CB Insights. Governments around the world have started to take the nascent technology seriously – publishing more than half a million new papers on the subject in the past two years alone. At the same time, leading technology conglomerates are also sinking money into blockchain at a breathtaking rate. IBM, for example, now has 400 blockchain projects running worldwide and recently announced another $5.5million for a blockchain solutions centre in Sāo Paolo. Long-time blockchain ambassador, Monica Singer, former head of South Africa’s Central Securities Depository, is among the enthusiasts. Singer left the

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position she had held for 18 years after her board refused to follow her advice on engaging with blockchain. “I was the only one that was totally convinced that blockchain was going to happen,” she says. But the mood is changing. “At Sibos 2017, I was on a panel with the European Central Bank, the Canadian payment system and some bankers. They all thought that I had been drinking when I began talking about blockchain! But this year, for the first time, I heard that it’s not if, it’s when [blockchain will happen]. That paradigm shift in one year is incredible.” It’s no surprise to her new boss Joe Lubin, though, who’s best known for his contribution to the open-source DLT platform Ethereum and for being founder of the blockchain software company ConsenSys that builds decentralised applications on it. ConsenSys is dedicated to developing DLT systems for the purpose of protecting identity and reputation, and facilitating legally enforceable agreements. Above all, it’s interested in repatriating power over personal information to the individual who owns it. With more than 1,100 employees around the world on every continent except for Antarctica, ConsenSys is a major player at the forefront of the blockchain scene. “We have around 50 different groupings, projects, products and companies across many different industries,” explains Lubin. “A decent number of them are either smack in the fintech space or adjacent to it, in identity, reputation and legally enforceable agreements. “Broadly, we focus on self-sovereign identity, on people controlling their own personal information,

enabling the encryption of that information and storage in personal data lockers (like a product called 3Box), with selective disclosure of that information if they choose to, either to monetise or de-identify it and lend it to a research study, for example.” He believes the issue of identity is fundamental to the irresistible shift ‘from a Web 2.0 world, where we have these internet properties that are siloed, walled garden systems, to a decentralised World Wide Web, where we have lots of decentralised protocols, all interacting with one another’. “Lots of those protocols will be like Ethereum,” adds Lubin, “a protocol-based, open platform on which we can build other protocol-based open platforms, in the music industry for instance, such as with Ujo Music.” Working with the open identity system uPort and the Decentralized Identity Foundation, ConsenSys is building Ujo Music to provide artists with a reliable platform that gives them a persistent identity – one where they are not at the mercy of service providers and retain control of their music and data. It also addresses key

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concerns around the monetisation and legal ownership of their work. Another app, Linea, gives control of medical information to the patient rather than having it locked in centralised databases under the custody of doctors’ surgeries and hospitals. “Imagine you have a database of your own medical information and, if you’re sick, you just send it to your doctor,” says Singer. “He/she doesn’t necessarily have to see you but can tell you what to take because the complete database is there.” Aside from the corporeal and copyright issues associated with identity, Lubin believes that combining identity with the ability to plug into network business models (where lots of different actors participate on open platforms and

inhabit different roles) not only enables people to manage their identity and personal information better, but also gives them much greater economic and political control – especially as a decentralised World Wide Web becomes the default. He too recalls a presentation at Sibos in 2017 when a picture of tulips was flashed up in relation to blockchain. This year, ConsenSys was ‘talking to all the major financial institutions at the highest levels’ about DLT. “They all either have ongoing projects using blockchain, or they’re very interested in running blockchain projects,” says Lubin. In fact, one of the first apps to be developed by ConsenSys is for the financial sector.

“Balanc3 is an application that does the general entries of assets and liabilities, income and expenses in real time,” explains Singer. “It gets audited in real time, too, and the records are in the blockchain. That means it’s an immutable record and fully transparent.” By targeting industries that have similar key touchpoints to finance on our lives, ConsenSys is on its way to achieving its overarching objective. “The main thing is that we are decentralising the big databases that have been created in the past – the Googles, the Facebooks, the Amazons,” says Singer. “These conglomerates have used us as a product and abused our information. We believe that the information should be in the power of the people and no longer under these companies’ control.” The World Economic Forum advises careful consideration of the areas to which blockchain is applied, cautioning that the technology ‘should not be a goal in itself but a tool deployed to achieve specific purposes’. In the case of ConsenSys, that purpose is no less than restoring a fundamental human right – to determine and control our individual identity… and no more talk of tulips.

The Googles, the Facebooks, the Amazons have used us as a product and abused our information

Identity crisis: ConsenSys aims to repatriate control of data to individuals

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Issue 11 | TheFintechMagazine

SIBOS 2018 REVIEW

Back to the future So, what’s next for banks and their customers? We gathered views at Sibos from those leading the way There’s no escaping the future. It’s a topic that filmmakers and writers visit time and again, endlessly speculating on where progress will take us. It’s also much debated in the banking world, as digital technology changes financial services more profoundly than they’ve experienced at any point in history. It was, not surprisingly, the dominant theme at the annual Sibos conference

Brett King, Founder and Executive Chairman of Moven A self-declared ‘futurist’, King is well-placed to comment on where financial services are heading. He channelled his industry knowledge into the Moven banking app, with the aim of building a bank account around customers. Launched in 2011, it was the first of a new generation of apps that are challenging traditional banking and Moven is a prime example of the quest for greater customer engagement – mobile and real-time services that help customers to manage their money more efficiently. This visionary approach is the focus of all King’s projects and interests. Originally describing himself as a financial futurist, he says: “I’m becoming more of a general futurist these days. “I’m interested in all the many technology developments that are

held in Sydney last October. More than 7,500 attendees – including bankers, technologists and fintech influencers – travelled to Australia from more than 150 countries to discuss the forces reshaping their industry. Three broad themes emerged: embracing a richer payments landscape, staying alert to cyber threats, innovation, data and the rise of Asia. Here are some reflections from those who were there.

changing business and society: artificial intelligence (AI), robotics, gene therapy, gene editing – technology in all its forms and applications.” And the financial industry should be interested in all of those, too, says King because the implications as we integrate these technologies into our everyday lives will be far-reaching. “It’s not just about inserting technology into banking,” says King. “Technologies will increasingly embed banking in our world.” He’s interested in the wider implications of that for society and how the jobs of the future will change our concept of work. “AI is creeping into more areas of our lives, taking over jobs usually performed by humans,” he says. “How will we define ourselves in the future, both as individuals and as a society, if we are no longer defined by traditional roles?” That of bankers will certainly be very different, says King. He points to his own challenger, which offered the first downloadable bank account,

as a sign of things to come. It indicates that banks must change fundamentally – a mantra taken up most notably by Spanish incumbent BBVA, whose chairman has openly said the bank is transitioning to become a software company. In King’s opinion, this future banking – or ‘Banking 4.0’ as he’s termed it in his latest book – can’t be achieved by tinkering with legacy systems; it requires a huge cultural change that will start from ground zero and requires rebuilding around the utility of a bank, not its products. It’s a case of first principles thinking being applied to financial services and he points to China, which has taken just such an uncompromising approach. There, financial technology, particularly mobile financial technology, isn’t reiterated from legacy systems. China’s experience underlines King’s view that it’s time to start from a clean sheet. Notably, his latest book has made its way on to President Xi’s shelf.

It’s not just about inserting technology into banking. Technologies will increasingly embed banking in our world 34

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Dr Eng Lim Goh, Vice President and Chief Technology Officer at Hewlett Packard Enterprises When it comes to artificial intelligence and machine learning, few people are as well-qualified to talk about the future as Dr Eng Lim Goh. As vice president and CTO at Hewlett Packard Enterprises (HPE), Dr Goh is responsible for high-performance computing and intelligence, developing next-generation architectures. One of Goh’s notable involvements is his collaboration with NASA, where he is principal investigator on a year-long experiment on the International Space Station. The results of this research will be used to enhance the reliability and resilience of HPE’s product line. “The most recent wave of artificial intelligence (AI) is very different from the previous one,” says Goh. “The traditional one is where a

Ulku Rowe, Technical Director of Financial Services at Google Cloud One innovation that appears to have an assured future is Cloud computing. According to market research from International Data Corp, banks could be investing more than $12billion in public Cloud infrastructure and data services by 2021. Ulku Rowe, technical director of financial services at Google Cloud, explained that the tech giant’s focus is to combine technical innovation with a culture of innovation that will help financial services companies. “That usually starts with security,” she says. “Cloud computing and artificial intelligence are key developments for financial services. Google is helping financial organisations to harness the latest technologies to improve their customer service.” Banks and big Cloud players are finding common ground. Potential rivals, they are now beginning to cooperate with banks turning to Google and others.

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prediction is made by domain experts in the financial industry creating models for prediction, using rules. The new way doesn’t use rules from domain experts; it uses historical examples – and many of them – to evolve the model for prediction. I think the two approaches will be complementary.” How will this research and knowledge be used in financial services? As AI matures, it can be applied in many areas, but – like King – Goh highlights its transformational impact on human relationships and jobs. People will be freed from the 9-5 to spend time on other activities as intelligent automation replaces manual roles, while AI will allow us to extract ever greater meaning and insights from data. It’s up to the financial industry to make the most of it.

Shayne Elliott, CEO at ANZ Bank Like Brett King, Shayne Elliott sees technology leading to big cultural changes. Elliott is the CEO of the Australia and New Zealand Banking Group (ANZ), and at Sibos he spoke of the need to create a new banking business. However, because the future is, by definition, unknowable, he is cautious about making concrete predictions. “I don’t waste my time trying to predict what the future might look like,” he says, “other than saying you have to be ready.” Echoing Brett King’s comments on the workforce, he adds: “The only way to be ready is to have the right kind of people. People who are capable of learning and adapting really quickly, are open to new ideas, look at other industries and professions, and are curious. They must take on other ideas and translate them into things that can work in a bank.” If banks don’t evolve, says Elliott, they will be overtaken by challengers, and he recently highlighted the threat to Australia’s ‘big four’ banks (which include ANZ) from the ‘non-majors’.

Phil Smith, Head of Marketing at Pendo Systems Pendo Systems is another business with its eyes set firmly on artificial intelligence (AI) and machine learning, recently partnering with Appian, a global leader in intelligent automation. “It’s an exciting step forward for Pendo Systems,” says Phil Smith, Pendo’s head of marketing. “We’ll add an unstructured data discovery tool within the Appian platform that will benefit both Pendo Systems’ and Appian’s customers. The tool allows customers to consume all data, both structured and unstructured, helping them to improve everything from the customer experience to global risk and compliance.” Hot on the heels of the Appian announcement, which was revealed at Sibos, Pendo Systems announced partnerships with two other fintech companies: Azimuth GRC and Global Comply Solutions. They focus on different parts of the regulatory and compliance environment and will embed the Pendo platform. Pendo’s strategy highlights another key trend: coopetition, with fintechs and financial institutions increasingly joining forces to create the cultural and technical changes that King speaks of.

Trends for 2019

Shayne Elliott may be right that it’s pointless making concrete predictions, but technology commentators agree on some things. For one, internet traffic will continue to rise, as will mobile-first solutions. Cloud computing, initially slow to take off, will gain momentum and become a priority for all businesses, while analytics will increasingly be sought to improve efficiency. On the downside, cybercrime will be a constant threat. The debate on banking’s future will continue at Sibos 2019, when the event comes to London for the first time in September. See https://www. sibos.com/about-sibos/future-sibos

Issue 11 | TheFintechMagazine

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SIBOS 2018 REVIEW

IDENTITY CRISIS Author Steven Johnson believes we have one more shot at building a digital network that respects pesonal data... if we’re not already too late Do you remember a time when there was no such thing as the internet? The inter – what? Such has been the speed with which the World Wide Web has become available to all of us, that we rarely stop to consider that the architecture on which it is built is just three decades old. In that relatively short space of time it has transformed popular culture, revolutionised business and changed lives – for better or worse. Author Steven Johnson, a keynote speaker on the Innotribe stage at Sibos in October, believes blockchain may be the technology to unleash a force of similar magnitude – and it is currently where the internet was at its conception. “Right now reminds me very much of a formative moment in my early 20s – when I first saw the World Wide Web in 1993 and I was like ‘OK, this is what we’ve been waiting for!’. I remember that sense of ‘this is clearly the future’. I feel the same way about blockchain,” says Johnson. “We should think of it as being an equivalent technology to the internet or the Web itself. This is the platform that can unify different networks and solve problems that we didn’t have in the early days of AOL and CompuServe.” Recent history – specifically the Facebook/Cambridge Analytica data www.fintech.finance

scandal – has shown there are fundamental problems with the architecture of the internet. There is a growing unease about how technology giants such as Facebook and Google are using our personal information and identity. In December, the Australian Competition and Consumer Commission (ACCC) regulator took the bull by the horns and called for a powerful new authority to pry into the algorithms and oversee the commercial activities of these two behemoths. The ACCC also asked for feedback on whether an ombudsman could be established to deal with complaints about digital platforms from consumers, advertisers, media companies and other business users. But could blockchain, which maintains complete anonymity and privacy of all users as everything is encrypted, protect us from being manipulated – even exploited? There is no single owner of the network. Every transaction, creation or modification is time-stamped and tracked, ensuring no misuse of the data. And, as all the data is stored across a distributed network, it also eliminates the security risks that attach to a central vault. By virtue of its democratic, immutable nature, Johnson believes blockchain can be used to create an open standard that defines our identity, one that individuals would control, wrestling the de facto power from the likes of Facebook. “The problem we face right now emerged because we didn’t build identity

into the original protocols of the internet or the Web,” he says. “There was a way of defining a page of information and a link from one page to another, but there was no way to define a person. And so, private companies like Facebook, Twitter and LinkedIn swept in and kind of solved that problem using these closed-source solutions. That served us well for a while, but we’ve begun to see the problems. It creates a whole number of headaches on a lot of different levels, in terms of privacy, in terms of control over our attention, in terms of manipulation – all things we’ve seen in the last few years. “My hope is that blockchain will solve that problem. But it may well be that we are too far along the path of having our identity defined by these closed protocols that are owned by privately held or public companies and we won’t be able to flip the model. We have to face that.” The tech giants are not about to take any move on their supremacy lying down. It’s worth noting that, in December, Facebook itself started hiring talent to join a new blockchain team. Exactly how it plans to leverage blockchain is still unclear, but the recruitment ad says: “Our ultimate goal is to help billions of people with access to things they don’t have now – that could be things like equitable financial services, new ways to save, or new ways to share information.” So, watch this space. The fight for our identity might have only just begun.

The problem we face now emerged because we didn’t build identity into the original protocols of the internet

Issue 11 | TheFintechMagazine

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SIBOS 2018 REVIEW A new dimension: Quantum computing is closer than you think

The quantum leap Real use cases for advanced computers are only a small step away, according to Dr Alejandro Perdomo-Ortiz, Senior Researcher at Rigetti Quantum is not the future; it’s already here. Only we’ve yet to figure out what to expect from it. While tech giants are busy building machines that compute in another dimension and we wait for concrete results from trials underway across the globe, experts on the Innotribe stage at October’s Sibos speculated on the scale at which quantum will erupt in financial services. They believe it’s going to be a strong driver of innovation across the industry. Quantum will certainly transform data transfer, transaction and risk management scenarios. Customer relationship management in retail banking and insurance is likely to become more efficient as quantum computing allows us to reflect on valuable information about customer preferences, based on their personal customer data, in real time. Quantum might improve security or – in the wrong hands – create an even greater threat. In short, quantum has the potential to disrupt financial services at an order of magnitude not seen before. And we should start preparing for this right now, believes Dr Alejandro Perdomo-Ortiz, senior researcher at Rigetti. “Quantum has moved from basic science to industry. The growth has been extremely fast in the past 12 months,” he says. “You can now jump in and start programming these devices. You can start thinking how to use them for applications within your company.” Among Rigetti’s partners, QxBranch is doing just that by developing predictive analytics that could be deployed in finance, for example, for optimising pricing decisions and uncovering insights www.fintech.finance

hidden in market data, detecting and assessing risk using advanced machine learning algorithms, and even helping one company to help predict the impact of social media on stock pricing trends. QxBranch is among the first to access Rigetti’s Quantum Cloud Services (QCS) platform, launched in September. A step on the way to Rigetti building a 128-qubit quantum computer (the most ambitious announced so far), the quantum-first integrated Cloud platform gives users access to Rigetti’s on-site quantum hardware and classic computers through a virtual programming environment. QCS is currently being used by more than a dozen industry and academic partners. While still not devoid of errors, the operations are magnificent enough to boost the performance of traditional computers well beyond normal levels. Rigetti plans to roll out the platform this year and expects that the so-called ‘quantum advantage’ from the applications that arise from it can be achieved in the next six to 36 months. It’s so convinced of it, in fact, that it recently announced it would award $1million to the person who uses QCS to find a ‘better, faster or cheaper’ resolution to a problem than a regular computer working on its own could. Rigetti has also been sharing its lessons with the programming community through its custom product Forest, a

software development kit that is an ecosystem in itself. It’s allowing them to use its hybrid algorithms, which are integrated quantum/classical computing systems that can correct some of the errors in the quantum outputs. The results exceed anything that can be realised using purely traditional computing. “Quantum computation is at a stage where pretty much everything we are doing at the moment is very important to determine the future of how computation is going to be done in financial services,” says Perdomo-Ortiz. And Rigetti is keen to involve the industry in its development at the earliest opportunity. “Having access to the devices is extremely important… to really play with them and understand their limitations. You can see real results coming out of the quantum processing units and you can see how you can integrate this with the standard pipelines that people are using in supercomputing centres to process financial data,” says Perdomo-Ortiz. Google ‘quantum computing’ and you’ll find references to new projects from Paris to Australia. It’s the space race of the digital age, with McKinsey estimating that investment in the field of quantum technology had topped €1.5billion by 2015, with every advanced economy each passing the €10million mark. Rigetti itself is competing with giants like Google, IBM and Microsoft to build the first and most powerful quantum computing device. But don’t throw out that classic computer just yet.

Pretty much everything we are doing at the moment is important to determine the future of computation in financial services

Issue 11 | TheFintechMagazine

SIBOS 2018 REVIEW

Money, the universe and everything: Banking in a new dimension

So you thought digital was difficult? You ain’t seen nothing yet… quantum computers are about to disrupt a financial galaxy near you

If you look closely at video coverage of the Sibos quantum computing (QC) sessions, held in Sydney in October, you can clearly discern the formation of deep new furrows across the brows of decision-makers. For financial institutions congratulating themselves on having just got their heads around fully integrated fintech solutions, the imminent arrival of another industry revolution must seem like a colossal slap in the face. Actually, it’s a wake-up call. Although QC is only in its infancy – the current industry record for such systems held in a quantum state stands at a mere 90 microseconds – there’s no doubt in the minds of the experts that we’re close to a quantum leap. Commanding the Innotribe stage at Sibos, an array of experts in the field of QC tried, as gently as they could, to impress on their audience the significance of what’s happening back in the lab. Among them were Dr Leda Glyptis, Dr Ashley Montanaro, and Dr Stacey Jeffery – all of whom spoke on the future implications of QC on the finance and banking sector.

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“Banking no longer has the luxury of taking the time to get comfortable by getting fully up to speed with new technology,” says Glyptis. “If you can’t adapt on the fly, you’ll be left behind.” So, although we’re a predicted five years from the production of workable quantum computers, the incubation period has begun. And, a bit like Alien, when it arrives, it’ll be a shocker.

A non-binary question What this incubation entails is the hybrid use of ‘classical computers’ – those we’re familiar with today – alongside quantum simulators. According to specialists from IBM, Google and Microsoft, algorithms and applications built on these hybrid systems – some of which have been made publicly available – will be directly transferable to the quantum computers of the future. So, the starter pistol has sounded: the great experimentation has begun. According to IBM, some 100,000 individuals worldwide have already engaged with its own public quantum simulator. Montanaro, who researches at the University of Bristol,

perceives that QC has reached a thrilling tipping point: “The field’s really exploded in recent years. It’s a very exciting time.” But what exactly are quantum computers offering the financial world, aside from a good deal of head scratching? The only way to answer this question without getting entangled in the equations is to examine the difference between ‘bits’ and ‘qubits’. Classical computers run binary code through bits; quantum computers do the same through qubits. What’s unique about qubits is their quantum nature: where a bit must either be a 1 or a 0, a qubit can exist as both simultaneously. Trust us, it’s not worth trying to get your head around that one. All you need to know is that the resultant power of a qubit is almost unimaginably superior to that of the bits we use today. In action, this means that problems supercomputers groan over for months could be solved nearly instantaneously by an operational quantum computer. IBM’s Dr Anna Phan, who was also presenting at Sibos, illustrates the difference by using the example of a caffeine molecule. A quantum www.fintech.finance

A mathematical teaser: But the rewards could be immense

Montanaro points out: “QC has gone from being a purely academic pursuit, being done in laboratories and in theoretical groups around the world, to being a huge industrial endeavour, worked on by Google, IBM and other Fortune 500 companies.” These projects have their sights fixed on one thing: quantum supremacy. That’s not the title of a forthcoming big screen homage to Stephen Hawking set in the universe of Jason Bourne. It’s the point at which a quantum computer will outperform a classical supercomputer. When that landmark is actualised, everything changes – and large parts of the rulebook that fintechs have been busy compiling will fly metaphysically out of the window. Among their tattered pages will be modern encryption methods, which will require a total rethink in the quantum age. That’s because encrypted data lies behind puzzles too difficult for classical computers to solve. For a quantum computer, such puzzles are no more than a back-page sudoku completed on the commute to work. So, it’s no surprise that

When Quantum Supremacy is reached, large parts of the rulebook that fintechs have been busy compiling will fly metaphysically out of the window

computer requires just 160 qubits to encode the energy state of a caffeine molecule. For a classical computer to perform the same function, it would require a computer chip the size of the Milky Way galaxy. You’ve got to admit, that’s awesome science. Now that we’ve got your attention, imagine how the astonishing new power of QC might be applied to high-frequency trading, risk analyses or financial modelling. You can be sure that everyone else in the financial space is busy turning such possibilities over in their minds. Before joining IBM, Phan worked with CERN (the European Organisation for Nuclear Research) team to find the Higgs boson particle and, as such, is no stranger to the breakthroughs that ‘big science’ can achieve. It’s with that in mind that her statement on behalf of IBM’s boffins is so meaningful. “We realised we couldn’t do this alone,” she admits. And so, to help make these new computers a reality, we’re witness to an unprecedented degree of collaboration. As www.fintech.finance

national security agencies were some of the first to react to the implications of a QC age. “Our current security solutions will be broken by QC,” says Jeffery once criminals have access to it.

A quantum time line If financial institutions have learned one thing from this decade’s fintech tsunami, it should be that change is inevitable – and that to hesitate is to lose. Digital transformation experts Atos this year released an advisory report titled Quantum Computing in Financial Services. It recommends financial institutions divert their research and development funds towards QC, building a team capable of manipulating this emerging technology for the benefit of their customers. The report urges banks to considerably widen their recruitment net to form their own groups of collaborative, experimental experts in the field. Meeting in a room filled with experts in

finance and QC, Glyptis observed a new kind of partnership emerging: “The idea of owning the hardware outright seemed crazy to the scientists. And the idea of not owning it seemed even crazier to the bankers,” she remarked. In this Glyptis is in agreement with Atos. “It’s a little scary to accept, but the people who will guide you to new possibilities are not bankers. They’re the experts who, right now, are figuring out what this brings to the table,” she told them. This is about long-term planning. Montanaro predicts that it’ll be around a decade before QC is practically applied to the finance world. Most estimates predict that medicine and agriculture will be the first to benefit in around five years. While Google boasts a quantum computer that can run up to 72 qubits – the current leader – it’s far off the scale required for wholesale remapping of financial algorithms. So, while there’s much to be starry-eyed about, for finance executives the pre-quantum phase is more a case of partnering and researching than it is a sandbox in which revolutionary new ways to implement the Black-Scholes-Merton Model can be toyed with. With a timely stab of realism, Glyptis brings us back to planet earth: “As things stand, banks today are not at the bleeding edge of what is possible technologically. Internal risk and compliance, sunk costs and legacy investments mean that banks grapple with their legacy behaviours and infrastructure. We are slower and clunkier than what is possible. Quantum will just have to get in line on that one.” Of course, she’s right. Banks will not be charging in the vanguard of the QC revolution. But if the full, theorised force of it does arrive in a few years’ time, we could see the shifting of the ‘legacy’ label from pre-digital banking methods onto their recent digital replacements. The upgrade, for certain algorithms at least, will be too juicy to neglect. Quantum computing applied to finance doesn’t require new knowledge – it requires new ways of thinking. As Phan puts it: “Quantum computing isn’t computing as you know it. It’s computing in a different dimension.” If financial institutions elect to go full Schrödinger, employing particle physicists alongside financial specialists, they’ll be banking in a new dimension, too. Issue 11 | TheFintechMagazine

SIBOS 2018 REVIEW

Driverless banking Derek White, Global Head of Client Solutions at BBVA, doesn’t describe himself so much as a banker as a ‘user-centric technologist’, steering customers towards an autonomous future The future of the financial sector will be defined by how people interact with money, says Derek White, global head of client solutions at BBVA. What fascinates him – and the multinational Spanish banking group that’s stated its aim to become a financial software company – is ‘how technology and human behaviour is coming together’. And in order to understand that better, in advance of last year’s Sibos event, BBVA announced a new service for fintech startups looking to work with the bank. Open Marketplace is a global network that has

already attracted several hundred members. It allows them to get in touch directly with the bank’s business units to offer technical solutions to challenges facing the banking sector. In fact, BBVA was among 36 corporations recently commended by the European Commission on their work in collaborating with technology startups. It was the second time the bank had been recognised for innovations including

Open Talent, the largest fintech competition in the world, which sees thousands of startups helping BBVA understand what the future of the financial industry will look like. The experience is ‘incredibly powerful’ for the bank’s core business, says White. And it can, in turn, help those startups understand its teams, technologies and business. The whole exercise is about ‘how to help us help our own customers’. White sees the power of ‘cultural transformation’ in such collaborations. “When you take the best banker in the world – a banker for more than 25 years who knows the industry inside and out –

Hands-free: Banking so easy, you don’t realise you’re doing it

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and sit them with a startup that’s disrupting that world in a way that they never anticipated, it’s like a physical transformation comes over them,” he says. BBVA has repeatedly made clear its aim to transition from traditional bank to software business. It invests in fintech through its venture capital arm, Propel Venture Partners, and through its recent partnership with Anthemis to create a venture creation studio in London. And has also launched several fintechs of its own – including insurtech Denizen, identity protection startup CoVault and money transfer app Tuyyo. White describes himself and his colleagues at BBVA as ‘user-centric technologists, creating the future of an industry’ – one that will be increasingly autonomous. As in the car sector, which started on the same trajectory some time ago, he says there are five levels of autonomy in banking. It begins with one single, automated element; level two adds more features until, at level three, the driver (in BBVA’s case the account holder) can be hands-free for periods of time. Level five automation has a steering wheel that’s merely optional – this is where banking is completely invisible; fully realising BBVA’s ambition for it to be intuitive, smart and fully customised. Autonomous driving is an example of car makers seeking to capitalise on disruption within their sector to help their customers make decisions in the future. Ditto digital banking. BBVA’s key principle for building a digital business is to make every product and service available in such a way that it can be done ‘above the glass’, as White puts it, by any customer. “The future operating model for any company, regardless of industry, regardless of vertical, regardless of the size of the company, is one human above the glass making decisions,” he says.

The power of data This is where customer interaction and data can prove revolutionary, says White. While the average banking customer visits his/her branch around 10 times a year, they visit the banking application on their mobile device more than 300 times, he points out. Overall, they complete more than 3,000 to 5,000 interactions per

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annum in such digital ecosystems, where there are multiple functions, such as chat, social media, entertainment and gaming. The ‘distributed nature of human behaviour’ these are encouraging is having a similar impact on society to blockchain's on technology, believes White. He cites the example of his sons having ‘distributed social interaction’ with their friends through a screen; the equivalent in his day of playing football with friends on the front lawn. “Sit that interaction model across a distributed technology model – that’s fascinating,” says White. Consumers are increasingly interacting in a range of digital ecosystems, where traditional industry lines no longer exist. From such interactions, one can glean

First you make interactions smart. It’s then about making them autonomous – to a point where customers don’t even have to make decisions about their money data. The banking industry has long talked about creating ‘data lakes’, but having data and not actioning it is useless, says White. This is where emerging technology like artificial intelligence (AI) becomes vital. AI and machine learning can translate data into interaction, personalising each and helping customers make decisions that are not purely transactional. “The power of AI is in changing the way people make decisions about their money in a digital world,” says White. He believes the bridge between digital ecosystems will be payments because they facilitate movement both within an ecosystem as well as in and out of it. And if payment technology drives our financial decisions, White sees banks as the engine. In the financial industry, the big tech world tends to consist of high-frequency, low-value interactions. Meanwhile, the banking industry is largely made up of low-frequency, high-value ones. But these ecosystems are beginning to converge,

White says. Big banks, with tens of millions of customers, are seeking to move upstream into where an increased number of digital interactions are happening, while big tech is looking to move downstream into higher-value transactions. “Where they converge, and who wins in the future, will partly be decided by human behaviour,” says White, the other crucial factors being regulation, currencies and who controls them, alongside fiat versus crypto.

Banking on trust Despite big tech leading the revolution in terms of payments, one advantage banks still have is the trust of customers, particularly when it comes to moving money. It takes a large degree of trust for someone to push a digital button and have the confidence that their hard-earned cash will be sent safely to somebody else, White points out. To get them to push more of those digital buttons, it is vital to create experiences that are ‘as human as possible around how people make decisions’. This can be done by using their data in a humanised way and leveraging tech to help, says White. “We also, of course, are helping to build trust in the physical environment, whether customers are visiting an ATM, a call centre, or one of our branches. But, increasingly, the traffic is in the digital world.” The principles are the same for both individual and corporate customers, he adds – individuals making decisions about their own money and those making decisions about their company’s money both demand personalised products and services. BBVA’s ambition is make sure they are available to every customer above the glass. “First you make those interactions smart, it’s then about starting to make them autonomous," he says, “to a point where customers don’t even have to make decisions about their money, whether to buy something for instance, because there are rules that are defined by the user themselves in an environment that they trust implicitly.” And that’s driverless banking.

Issue 11 | TheFintechMagazine

JIM MAROUS PREDICTIONS

TOP 10

BANKING TRENDS FOR 2019 Guest Editor Jim Marous is author of the Digital Banking Report’s 2019 Banking Trends and Predictions. Here, he shares his thoughts with contributions from some of the industry’s leading figures The impact of digital technologies, increased consumer expectations and the power of data, advanced analytics and artificial intelligence (AI) will define future winners and losers in the banking industry this year and beyond, according to more than 80 industry leaders who shared their thoughts for the 2019 Retail Banking Trends and Predictions report. These trends and predictions were also validated and ranked by responders to a global industry survey, with strategic priorities identified. The eighth edition of this proprietary research included insights from bankers, credit union executives, industry analysts, advisors, authors and solution providers from Europe, Asia, Africa, North, South and Central America, the Middle East and Australia. It found that the application of data, advanced analytics and AI is at the forefront of this year’s predictions. This was the first time that this trend had been ranked number one. Following the trend of improved use of data and analytics, the banking industry believes improving the customer experience and taking advantage of application programming interfaces (APIs) and open banking will be instrumental in 2019. The industry will attempt to achieve these goals under an umbrella of continued cost cutting, changing regulations and an increasing interest rate environment. As Chris Skinner, CEO of The Financer, says: “In 2019, we will see banks sharpen their focus on efficiency through technology, reducing the workforce and increasing their customer insights. This will be

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achieved by partnering with startups, offering open banking services and leveraging machine learning.” Brett King, CEO/founder of Moven adds: “Fintech has reframed the way banking fits into our lives. 2018 proved that this change is not a flash in the pan, but now a serious reimagining and re-engineering of the sector. 2019 is going to cement this trend.” Below are our top 10 predictions and selected insights:

Increased use of big data, AI and advanced analytics The use of data, advanced analytics and AI is the foundation for every trend in 2019. Unfortunately, despite the vast amount of data available, most financial institutions are still far from realising big data’s full potential. Going forward, the ability to glean and apply insights from internal and external data sources will provide opportunities for greater personalisation and channel optimisation. It will also differentiate the winners and the losers going forward. “2019 will be the year that we witness AI moving across the entire vertical of the financial services sector, including using face recognition technology for regulatory requirements (know your customer) to virtual agents on the front-end customer service side” – Imtiaz Adam, CEO of Deep Learn Strategies in London friction from 2 Removing the customer journey It is imperative that every step and touchpoint in the buying cycle becomes more streamlined, efficient, consistent and personalised from the consumer perspective. Financial institutions will need

to reimagine their core journeys from front to back by addressing key customer pain points, identifying new opportunities to delight customers in differentiated ways. “Digital technologies and the ‘network effect’ will cause a dramatic change in the traditional banking paradigm, with ‘transactional banking’ making way for ‘experience banking’” – Alex Kreger, CEO of UK-based UX Design Agency use of open APIs 3 Expanded APIs were not even listed in our 2016 report but is the number three trend in 2019. Banks are using APIs to develop and distribute products in partnership with fintech providers, facilitating innovation and reducing time to market. Banks are also using open APIs to offer a broader range of non-financial services, which will likely boost customer loyalty. “APIs and open banking will not be about account aggregation and dashboards – it will be about shifting the balance of power away from the banks in an always connected society” – David Birch, Global Ambassador at Consult Hyperion integrated, 4 Improving multichannel delivery The use of advanced analytics provides an opportunity for an optichannel™ experience, where the optimal channel is based on the customer’s need and preferred channel. For any organisation, the priority must be to make basic transactions instantaneous, while also making engagement (account opening and applications) digital from end to end. “For 2019, banks must re-prioritise their product development and delivery channel www.fintech.finance

efforts. It’s time to up-play product reinvention and delivery. Banks can no longer afford to let their products be the horse and buggy of the 21st century” – Ron Shevlin, Director of Research at Cornerstone Advisors

important as firms attempt to ‘own’ the payment relationship” – Matthew Wilcox, Senior Vice President of Marketing Strategy and Innovation at Fiserv

operating models” – James Haycock, Managing Director at Adaptive Lab

collaboration 5 Increased between banking and fintech

investment in innovation 7 Increased Investing in innovation increases in prioritisation in 2019, reflecting the need to respond to new, non-bank competition. Financial institutions are embracing the collaboration with fintech firms, using data and analytics to digitise processes. “2019 is the year that ‘innovation’ as a means of creating enterprise value is added to everyone’s job description. It’s time for everyone to find new ways of creating real value for customers, shareholders and communities” – JP Nicols, Managing Director of Fintech Forge

are threatening the banking industry also present significant opportunities. In fact, those organisations that can leverage big data, advanced analytics and new technologies to improve the customer experience can build trust, loyalty and revenues that are the keys to success in the future. These technologies include the hybrid Cloud, robotic process automation (RPI), artificial intelligence (AI), blockchain, augmented and virtual reality and quantum computing. “The management of successful banks will increase the IT budgets for advanced technologies to enable them to prepare for when the big boys (tech giants) jump into the fray” – Spiros Margaris, Venture Capitalist and Owner of Margaris Ventures

Legacy banking organisations will leverage the advantages of scale, stability, trust and access to significant capital to partner with fintech firms that offer them the agility, innovation culture and technological expertise they seek. The end consumer will be the primary beneficiary of this. “There will be some fintech firms that will continue to survive on their own, but there will be a lot that will not be able to succeed without partnerships, due to the need for Act now: You can no longer be a ‘fast follower‘

scale and distribution” – Bill Sullivan, Global Head of Financial Services Market Intelligence at CapGemini of digital payments 6 Expansion The long-anticipated surge in mobile payment usage may finally be underway as acceptance by merchants and consumer awareness increases. This surge is being reinforced by an increased emphasis on promoting peer-to-peer payments and new payment options, including the use of QR codes. “Financial institutions will continue to plant a flag in new payment options, which will result in new business models and segments of customers. The speed of payments and use of data will be critically www.fintech.finance

advanced technologies 9 Exploring Many of the new technologies that

and training talent 10 Finding With banking organisations

of new challenger banks 8 Emergence At the same time that some challenger banks will grow exponentially and expand to new markets, hundreds of smaller organisations may disappear as the banking ecosystem rewards organisations that have evolved to serve the digital consumer. As in the past, the most impacted product segment will be payments and retail banking services, according to our survey of global financial institutions. “Despite the huge investment banks continue to make, most will still struggle to shift to new business models. As a result, we will see an increasing number of greenfield or beta banks, allowing them to more rapidly pursue and prove new business and

pursuing massive digital transformation projects, one clear problem has emerged: there aren’t enough employees with the right tech skills to get the job done. In fact, this may be the biggest threat to the banking industry over the next several years as demand far outstrips supply, and non-banking organisations offer more enticing opportunities for qualified talent. “Banks will increasingly be engaged in a ‘war for talent’ as they are forced to compete with big technology companies in addition to traditional rivals in the financial services industry” – Eduardo Roma, Partner at Bain & Company There have always been options as to how to digitally transform an organisation and provide better solutions for consumers. The difference now is you can no longer be a ‘fast follower’. It is important to embrace change, accept risk and disrupt the institution/consumer paradigm. The key is to act NOW as opposed to simply talking the talk. This may require a change in internal culture, realigning the overall organisation and finding new talent. But there is little choice when organisations like Amazon, Facebook, Google, and a vast array of alternative fintech providers are moving fast to fill the customer experience void. Issue 11 | TheFintechMagazine

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Who was famously prepared to put his manhood on the block for Bitcoin? Which challenger launched an account for Martians? How did Starling turn payments on their head? These and more Big Fat Fintech Quiz teasers tested our game-for-a-laugh panellists at FintechConnect at the end of 2018. It was an awesome, bizarre 12 months. Here are some of the highlights… JANUARY Who can tell us what MiFID II stands for? Is it: a) Managers in Finance Ignore Directives; b) My index Finger Is Data; or c) Millennials insert Fun Instruments Downstairs? Those were our panellists’ not-so-serious suggestions, but what it actually stands for is the EU’s catchily titled second Market in Financial Instruments Directive, which came into effect on 13 January 2018. Despite being www.fintech.finance

the dullest acronym to come out of Europe, its noble aim was to improve the functioning of financial markets and strengthen investor protection. Not surprisingly, MiFID II largely went under the average consumer’s radar, but there was a LOT of talk about the more snappily-named UK Open Banking legislation. Pre-empting May’s European revised Payment Services Directive (PSD2), forced Britain’s biggest banks to open up their transaction data to third

parties. The idea behind it being that, by increasing competition in the industry, consumers would get greater choice of financial products and banks would have to do better to retain their custom. But what should have been hailed as a revolution in banking fell flat with the public, with a Moneywise poll showing that only nine per cent of people surveyed would use Open Banking, while a whopping 75 per cent said they wouldn’t. So much for making people’s lives easier... Issue 11 | TheFintechMagazine

THE BIG FAT FINETCH QUIZ Our Big Fat Fintech Quiz panellists agreed that the PR for Open Banking had put more people off than it had won over. That said, one of the companies to potentially benefit from it was Curve, the London-based fintech firm, which lets customers link all their bank cards to one piece of plastic. It finally had its full consumer launch this month, following a beta phase involving 100,000 users, with another 50,000 on the waiting list. That’s a LOT of cards to print. We also saw Mastercard announce that all of its customers would be able to identify themselves biometrically by April 2019. This means that all banks issuing Mastercard-branded cards will have to offer biometric authentication – such as fingerprint or facial recognition – alongside PIN and password security options. It will also apply to all contactless payments made at a terminal with a mobile device. 2018 started well for bitcoin users. eToro reported that on the stroke of midnight of New Year’s Eve 2016, one bitcoin was worth $967.60. By mid-December 2017, it had skyrocketed to approximately $20,000 – equivalent to a 1,883.6 percentage growth. Happy days! In a crypto rush to the head, software giant John McAfee tweeted that if bitcoin didn’t hit $1million by 2020, he would… erm… eat his manhood. Looking at the alt’s performance since, he might live to regret that. The previous 12 months had seen some pretty spectacular fintech fundraising rounds. In January, Irish rock star Bono got in on the act by co-founding investment startup, The Rise Fund, took its first bet on micro investing platform called Acorns. This offers an investing-and-savings app tailored to people with small amounts of disposable incomes and is said to be very popular with cash-strapped millennials. The Rise Fund has the backing of TPG Growth and its objectives are aligned to the UN Sustainable Development Goals. As they say, from little Acorns…

FEBRUARY February was a month for making some easyMoney, when the sister firm to budget airline easyJet launched an ISA invested in peer-to-peer property loans. Founder Sir Stelios Haji-Ioannou urged consumers to reach for the sky with a 4.05 per cent target return on his ‘conservative’ product. Two months later he would be

TheFintechMagazine | Issue 11

back with another innovative finance ISA that had a riskier profile and a higher target return. But pundits were quick to warn consumers to keep their feet on the ground. With no Financial Services Compensation Scheme protection for their investment, they said the ISAs might just be an easy way to lose your shirt. Meanwhile, Finland revealed a cunning way to cash-in on Chinese tourism by becoming the first country to offer holidaymakers a fully cashless visit with AliPay. Hotels, shops, even taxi firms were lined up to accept AliPay transactions, including a Lapland cab company called

attempt to combat this common misconception, Revolut introduced disposable virtual cards, which let Premium customers use a new set of card details every time they pay online. The mobile bank’s aim was to tackle card not present crime whereby card data is captured and cloned. Revolut’s virtual card created a single-use 16-digit PAN number which is then binned. And customers could generate one up to five times a day. But, hang on, our quick-witted panellists could think of at least two issues: it made Amazon’s ‘one-click’ checkout process rather less slick. And, surely, wouldn’t they run out of numbers?

Your starter for 10: FF’s Ali Paterson in the quiz master’s chair

Santa Line. Those Far Eastern tourists must have thought Christmas had come early. Back in Britain, Monese offered the first interplanetary financial product – a current account for anyone relocating to Mars. Customers didn’t even need to provide proof of address on the red planet. Another gimmick we enjoyed during February was Positivity Noel, an online radio station run by Noel Edmonds with the sole aim of bashing Lloyds Bank. The broadcaster wanted £60million in compensation for a scam that had destroyed one of his businesses a decade earlier. So, sitting in his radio DJ chair, he dusted off tracks such as Money by Pink Floyd, Money, Money, Money by Abba and since the fraud had left him in Dire Straits, Money for Nothing, just to make a point.

MARCH Contactless payments may be increasingly ubiquitous but in March an Equifax survey showed that UK consumers still preferred chip and PIN. Forty-two per cent of Brits liked to enter their digits when paying, compared to 34 per cent who preferred using a contactless method, the survey showed. And a key reason behind poor uptake was the public perception that contactless is less secure than cash. In an

Elsewhere, US payments business Square offered select customers $1 off their bill when they bought a coffee. Even more generous, they said customers could buy up to 10 coffees a day! Square’s motive was to increase use of its payment cards, but we can only think that with such a potentially ruinous offer, Square had examined transaction histories and was only offering the incentive to tea drinkers. Never mind coffee, American Express, sought to have its cake and eat it with the $13.3million acquisition of UK-based fintech company, Cake Technologies, the restaurant payment app that aims to take the hassle out of paying when eating out. Perhaps the most unusual story of the month, if not the year, though, was a group of Catholic nuns putting pressure on Wells Fargo to publish a report on the cultural and ethical root causes of scandals at the US bank. The initiative was led by Sister Nora Nash, of the Sisters of St Francis of Philadelphia, whose crusade had begun 18 months earlier when Wells Fargo admitted staff opened millions of bank, savings and credit accounts without customers’ knowledge to hit sales targets. Executives finally saw the light and agreed to atone for their sins. Amen to that. Our panellists were slightly bemused by www.fintech.finance

Standard Chartered’s announcement that it had appointed former Chelsea and Ivory Coast striker Didier Drogba as its ‘digital bank ambassador’ for a new launch in Africa, But Drogba is an Ivory Coast national treasure, UN Goodwill Ambassador, head of his own charitable foundation and with 1.64 million Twitter followers a smart signing.

APRIL In the spirit of April’s annual Take A Wild Guess Day – we’d not heard of it either – our panellists sought to answer that age-old question: is cash still king? A TNS Kantar survey for Business Insider showed that just over a third of Brits said they would be happy to stop using cash in the future. Only 17 per cent of adults polled ‘definitely’ envisioned going completely cashless, while 22 per cent thought it was likely to happen at some point. By

named chief executive of the London Stock Exchange. Was that The One Where Ross Got Mistaken For A Banker?

MAY Just as the screams of ‘bubble’ around crypto currencies reached fever pitch, we were told almost $1.2billion of it had been stolen since the start of 2017. The research came from the Anti-Phishing Work Group – and its chairman, David Jevans, predicted the launch of the General Data Protection Regulation (GDPR) would make things worse by restricting access to critical information useful to investigators. It did nothing to help the value of the best-known crypto – Bitcoin – which spent the whole of 2018 trending lower. In Singapore, OCBC Bank revealed customers could do their banking through Google Assistant. Questions about saving for retirement, checking unit trust prices and planning for child education costs were just some of the issues you could chat about. But

Give us a clue: But host Stuart Thomas was playing hard ball

contrast, a mere one in 10 said they would ‘definitely not’ give up cash in the future, while 18 per cent said they were ‘not likely’ to stop paying in hard currency. In a disappointing blow to their points total, all our quiz panellists estimated the percentage of people expecting a cashless society to be considerably higher – with forecasts of between 60 per cent and 80 per cent. Moving away from cash means more innovation in the financial sector, and the first quarter of 2018 saw venture capital-backed fintech firms raise a record $5.4billion, according to CB Insights. Of the 323 global deals struck over this period, there were a dozen rounds of at least $100million each. But where would a summary of the month be without April Fools’ Day? It appeared to come late with general confusion on social media on April 13 over why Ross from TV series Friends had been www.fintech.finance

OCBC had long been the bank that loved to talk – it already had its own online chatbot called Emma, and if customers didn’t fancy talking to her, Apple’s Siri was also fully trained to give banking help. Continuing east, the Commonwealth Bank of Australia sank deeper into a PR black hole of its own making. Customers were still reeling from finding it had charged dead customers fees for financial advice when news broke it had lost data tapes containing personal information for 19.8 million customer accounts. One theory was they’d fallen off the back of a lorry on the way to be being destroyed in 2016, but a search of undergrowth found nothing, and the bank kept it all quiet. But there was more to come. The bank then coughed to sending 651 internal emails containing data about 10,000 customers to the wrong email address – which ironically belonged to a US cyber security firm. Luckily for the Aussie bankers, the land down under is

about as far away as you can get from Europe or they could have been the first to feel the sting of GDPR’s much-feared ‘€20million or 4 per cent of turnover’ fine. On a lighter note, card reader makers iZettle struck a deal in London to let the city’s buskers take contactless payments. Armed with a reader, the busker could pre-set their desired donation amount so passers-by could donate quietly without disturbing the song. London Mayor Sadiq Khan was all for it, saying ‘it’s important we support the stars of tomorrow’, while lovers of frictionless payments might say ‘it’s only rock ‘n’ roll, but I like it’. And, finally, we learned Alec Baldwin was to star in a movie biopic on the life of supercar legend Ferruccio Lamborghini. A film about the bloke who made the Countach and the Miura? How boring, you might think. But hang on, it was being co-produced by Tatatu, a firm that runs on blockchain. Now THAT’S sexy.

JUNE June was the month of the Fintech Finance payments race and one team was tripped up by the one-day Visa outage. It was a cruel blow for Team Card, trying to get from Istanbul to Amsterdam using only plastic for the Money 20/20 Europe show. Visa blamed a faulty switch for blocking 5.2million transactions – and thousands took to social media to scream at it. But Team Card still came joint first in the payments race with Team Cash, beating rivals using crypto, mobile and wearables. Over at the Copenhagen Business School, students and staff were giving the finger when asked to pay for their lunch. A pilot scheme between Nordic payments firm Nets and FingoPay saw the installation of scanners that identified canteen customers by the veins in their finger – so no need for a card, wearable, or even a PIN number. Such a frictionless system was surely worthy of a thumbs up. In the crypto world, Facebook lifted its blanket ban on adverts for cryptocurrency imposed after the Bitcoin price surge in January. And Arsenal’s crypto partner CashBet raised $38million to launch its iGaming platform. Perhaps the biggest news was musician Akon adding an ‘i’ to his name to create his own cryptocurrency, Akoin. His plan was to build a futuristic ‘crypto city’ in Senegal, running on Akoins, using 2,000 acres of land given to him by Issue 11 | TheFintechMagazine

the country’s president, Macky Sall. Perhaps President Sall covered his ears when Akon said: “I think that blockchain and crypto could be the saviour for Africa. It brings the power back to the people… and not allow government to do those things that are keeping them down.” Closer to home, Starling launched joint accounts that couples could set up remotely via mobiles. NatWest trialled a cardless online payment system with Carphone Warehouse. And Halifax opened the country’s biggest bank branch. At around 13,500 sq feet over three floors it was possibly almost as big as the bank’s home town in West Yorkshire. It employed 50 staff, there to answer questions such as ‘how do I find the best mortgage?’, ‘how can I save for my child’s future?’ and ‘how the hell do I find my way out of here?’

JULY In July came news that fintech investment continued to storm ahead – $57.9billion across 875 deals during the first six months of 2018. Another record broken. The UK appeared to be doing spectacularly well, accounting for 27.8 per cent of the first-half total... until you realised 80 per cent of it was down to Vantiv’s acquisition of Worldpay for $12.9billion. Another big UK investment was PayPal’s $50million injection into cross-border e-payment group PPRO. That followed a string of deals from PayPal since May – it had bought iZettle for $2.2billion to expand its mobile point-of-sale opportunities, AI prediction platform specialist Jetlore for an undisclosed sum, AI-based fraud and risk management firm Simility for $120million, and gig economy payment facilitator Hyperwallet for $400million. That’s a lot of new pals. Challenger bank Starling did something startling – it turned its debit card around 90 degrees. The front of the card was given a portrait format, recognising the fact that we hold our cards in a vertical position when shoving them into ATMs and card readers. But it hedged its bets a bit – the card’s rear, where the 16-digit card number and other details now lived – retained a landscape orientation. And where was the owner’s account number and sort code? Gone, said Starling, since 93 per cent of people never use that feature. Meanwhile, in the US, Arizona launched the first official trial of driverless cars.

TheFintechMagazine | Issue 11

Team Fintech Finance: Celebrating the first Big Fat Fintech Quiz

Walmart customers could place an online stopping order, then a Waymo driverless car picked them up, drove them to the store to collect their groceries and took them home again. Er, right. Hadn’t they considered just using Walmart drivers in box vans to deliver the goods to their doorstep? Well, no, that wasn’t the point, said Walmart. Letting customers ride in driverless vehicles provided a great test case for Waymo. While in the car, customers could ‘text, nap, work... you name it’, said Walmart. Or scream in terror when they realised there was no one at the wheel.

AUGUST While Brits went away on their hols and racked up a big chunk of their collective £1billion annual overseas card usage bill, Wonga was going bust. The country’s best-known payday loans firm had reached the end after government regulation strangled the life out of its business model. Then independent MP Frank Field asked the Church of England if it could take on Wonga’s £400million loan book – could it really be Wonga’s saviour? After some soul searching, Archbishop Justin Welby said no. Speaking of not infront of the vicar... Playboy threatened to sue Canada’s Global Blockchain Technologies in a contract row over a new crypto wallet. The adult entertainment giant wanted GBT to help trial a new crypto – the Vice Industry Token – which could be earned and spent alongside other cryptos by customers of Playboy.tv. But apparently it went t*ts up. Meanwhile, Revolut launched a steel bank card. Designed as a status symbol for globe-trotting millennials, it came with Revolut’s Metal account, which offered benefits, such as cashback in a cryptocurrency, for £12.99 a month. The bank made 10,000 and soon ran out due to

Questions, questions: Host Lea Jakobiak

sheer weight of demand – the thing was three times heavier than plastic. Over in the States, antivirus pioneer John McAfee made his second infamous statement of the year: offering $250,000 to anyone who could open an ‘unhackable’ cryptocurrency wallet, created in partnership with BitFi. Within days someone was tweeting they were in. To which McAfee replied: “Well whoop-de-do! So what? Root access to a device with no write or modify capability. That’s as useless as a dentist licence in a nuclear power plant. Can you get the money on the wallet? No.”

SEPTEMBER As autumn approached it was comeuppance time, first for TSB chief executive, Paul Pester, who was eased out of his CEO chair following the bank’s IT meltdown in April, following a botched ‘upgrade’. Thousands of customers who were locked out of their accounts were still experiencing problems five months later. Although TSB said Pester’s package was ‘mutually agreed’, his farewell handshake was only worth £1.68million after seven years at the helm. www.fintech.finance

THE BIG FAT FINETCH QUIZ While Pester and TSB were negotiating the long goodbye, ING was getting a rebuke and finally a penalty of €775million for failing to prevent a lingerie manufacturer, a former telecoms company, and two fruit and vegetable vendors, among others, to siphon off its wealth. ING admitted that it was so engaged in its ‘hygge’ mode that it failed to spot the money laundering. ING’s behaviour further befuddled European regulators who were already agonising over whether to tighten regional controls of financial crimes. Back in the UK, it was revealed that more than £500million was stolen from bank customers in the first half of 2018. And almost 29 per cent of that was due to authorised push payments. Two-thirds were purchase scams, where victims paid in advance for a product or service, such as a car or holiday rental, which was not received or did not exist.

NOVEMBER This is the month for big bangs and fast bucks when we all spend an incredulous amount of money over the Black Friday and Cyber Monday weekend. It also turned out

LL OURS A O T S T THANK G PANELLIS IN AMAZ E BIG FAT ON TH CH QUIZ

FINTE

Jamie Campbell Bud Helene Panzarino Rainmaking Colab Fintech Robert Courtneidge Moorwand Sylvia Carrasco Goldex Sarah Broughton Blue Train Marketing Suresh Vaghjiani Tribe Payments Mark Curran CYBG Laura Bedborough Apply Financial Tony Craddock EPA Shaul David Independent consultant Andy Ramsden G+D Mobile Security Harrie Vollaard Rabobank Caroline Vaughan Innovate Finance John Ballantyne ACI Worldwide Veronique Constans Wirex Matt Ford Tandem Money www.fintech.finance

to be the month for a series of eccentric fintech events, starting with the Bank of England launching a cash versus cashless challenge, asking Brits who usually pay with change and notes to spend a week using cards and other electronic payment methods. It then invited those who generally go cashless to use notes and coins. The Bank asked participants to record and share their experiences, hoping that the experiment would help in designing, or simply visualising, the future of money. Guess which European currency ended up having the highest rate of counterfeiting as a result of this trial? Yup: the British pound. Meanwhile, a new business banking service called Anna Money entered the market with a mobile wallet card that meows when its owner uses it to pay. The psychology behind it stems from data that says 90 per cent of small businesses fail due to cash flow problems. Absolutely No-Nonsense Admin (aka Anna) believes the sound of a mewing cat every time a payment is made could prevent users making unnecessary expenditures… that or they’d drown the phone. While they weren’t convinced about Anna’s tactics, our panellists did at least acknowledge that contactless payments are so easy that consumers often don’t register they’re making them. It probably contributed towards a record $31billion spent in just 24 hours on Singles Day in

China – up from $5.5billion last year. The tradition came about as a consequence of China’s one child policy in the 90s, but took to 2009 for Alibaba founder, Jack Ma, to turn it into a retail bonanza. Talking about eye-watering sums, Monzo hit unicorn status as the month opened, having closed an £85million investment round. In 2016, when it held its first campaign, it took less time to hit £1million than you took to read this paragraph. That was 96 seconds.

Valentina Kristensen OakNorth Roger Vincent Trade Ledger Thorsten Terweiden Invest Hong Kong Chloe Butler Fintech Finance Paul Clark Tandem Bank Mishal Ruparel Banking Circle Ross Gallagher 11:FS Jags Rao Swiss Re Stuart Dorman Sabio Ado Fazlic Zwipe Nigel Walsh Deloitte Graham Kellen Schroders Paddy Faulkner-King Global Processing Services Amélie Arras Aevi Daniel Lowther CCgroup Matt Perks Nationwide Valli Ardalan Earthport Ron Delnevo ATMIA Liz Lumley VC Innovations Mike Normansell Wealthify Audelia Boker Glassbox

Peter Simon DataRobot Arun Fernandez Schroders Zhenya Winter ACI Worldwide Ryan Edwards-Pritchard Funding Options Steve Clarke Fintech Connect Damian Bell Cygnetise Ed Adshead-Grant Bottomline Julian Cork Landbay Partners Hanan Isaac Softelligence Teana Baker-Taylor Global Digital Finance Claire Hardy Worldpay Hetal Popal HSBC

DECEMBER As the year closed, Lastminute.com announced an extended partnership with Visa to launch a multicurrency card for its 10 million monthly users. This will allow cardholders to load multiple currencies, avoiding conversion rates. Wirecard will issue the prepaid cards and support the main functions through its mobile app. That didn’t get Wirecard onto the Finextra list of top five startups to watch in 2019, though. That honour went to Trussle, Circle, Monzo, Receipt Bank and TrueLayer. Brexit or no Brexit, our panellists believed that startups like these will ensure the continued health of London’s financial services sector. The eyes of the fintech world will certainly be trained on the UK as the capital gears up to host Sibos for the first time in the show’s history in 2019. Here’s to the next 12 months.

YOUR HOSTS

Ali Paterson Editor-in-chief of Fintech Finance Lea Jakobiak Head of video content at Markets.com Stuart Thomas Stu’s Review Joy Macknight The Banker Issue 11 | TheFintechMagazine

WEALTHTECH

MOOD MU$IC Dorsum’s ’s white label app, My Wealth, aims to be the Spotify of digital investment services for millennials. Director of innovation, Balint Fischer, explains how a generational shift in equity demands a harmonised approach Cast your mind back to 2017, Dorsum had just launched its Botboarding platform, which utilises artificial intelligence-enhanced chatbots to help financial institutions onboard customers. Its bots can not only assist with data collection to aid user profiling, but can also help new customers open accounts online. It won the Best of Show Award at FinovateEurope 2017, which solidified Dorsum’s reputation as a leading innovator in the wealthtech space.

TheFintechMagazine | Issue 11

But that was just the start. Now My Wealth has joined its portfolio of products, which include client acquisition tools and wealth management platforms. My Wealth has been created to address the big challenges that large financial institutions are currently facing in an ever-evolving market. “Wealth management is, traditionally, a very hard-to-understand domain of the financial industry, and it’s a bit scary for everyday investors and clients,” says Dorsum’s director of innovation, Balint

Fischer. “But we believe that the tools provided by digitisation give a great opportunity to narrow the gap between investors and financial institutions, making investing much easier.” As the wealth management sector is continually disrupted, it’s becoming harder and harder for the large, traditional players to keep up. “When traditional banks want to implement a new service or a new digital interface, they take a year, or several months at least. But when the same www.fintech.finance

challenge is faced by the big techs and startups, they can move much more quickly since they are not rooted down by their existing IT infrastructure,” says Fischer. “So, the big challenge for traditional banks – and not just in the wealth management domain – is that they have to somehow speed up their processes and implement new solutions and features much more quickly.” And there’s another imperative for change: “The main trend in the wealth management sector is that the wealth is moving to younger generations,” says Fischer. An analysis by Ribbit Capital predicts that, by 2030, millennials will hold around $20trillion in assets across the world. In North America alone, it’s expected that this number will increase by a further $30trillion after the baby boomer wealth transfer. “This is very important because generation Y and generation Z have definitively different attitudes when it comes to digital solutions,” says Fischer. “Traditional service providers and investment banks have to focus on the demands of these generations, such as seamless digital workflows and simple user experiences.” The My Wealth platform was built with these trends and challenges in mind. It brings a holistic, 360-degree portfolio overview to investors and helps them to understand the composition and historical progress of their portfolio. The app features easy-to-understand presentations, financial planning advice, trading features and goals and forecasts for different scenarios, all to provide a better understanding of the market, different market moves and how each might impact the investor’s portfolio. “We are also heavily focussing on client education, because the gap between the investment domain and the end client is a major issue for financial institutions. That’s why we are building investment games and other gamification tools to help service providers educate clients.” Gamified education services are likely to appeal to the emerging younger market, but it’s no secret that what younger generations really want are highly personalised services that are almost unique to each user, and this is exactly what Fischer is hoping to provide for them. www.fintech.finance

“Our vision is to provide the same user experience in the investment domain, that Spotify or Netflix provide when it comes to music and movies. After all, the universe of investments is just the same as the universe of music and movies. There are millions of stocks out there, just as there are millions of songs. Spotify uses data to give you advice about what music you should listen to, based on your taste, and Netflix gives you film recommendations using the same principle.” The hope is that bringing in third-party data will make the user experience even more tailored to the individual. Fischer gives the example of a customer that’s purchasing a lot of products from one company they are already 'invested' in emotionally. If the My Wealth platform has access to this data, it can encourage the consumer to invest financially too. But My Wealth isn’t just a highly personalised portfolio dashboard or an advanced robo-advisor. Fischer continues: “I believe it’s a unique solution because it merges traditional and digital advisory services into a more influential hybrid model. Clients can chat with self-learning, AI-driven chatbots and receive portfolio-related notifications and news, but they can also initiate a chat with their financial advisor and organise meetings and calls with them.” So the platform doesn’t just help investors and clients, it also provides unparalleled insights for financial advisors. An average private banker will have 50 to 100 clients and the My Wealth platform means they can see all the relevant client data in one place, with additional data collected by chatbots that enables more informed advice. In fact, Fischer boasts that My Wealth means it has ‘never been easier for financial advisors to stay in contact with their clients’. “Plus,” he continues, “from a compliance point of view, the My Wealth app can easily record the text chats and voice and

the video calls between advisors and clients. Using a digital platform to communicate with customers is not just more practical but, from a compliance point of view, it’s also much more efficient for the bank.” It’s the combination of digital service and communication facilitation that, Fischer believes, sets My Wealth apart from other apps. He reminds us that ‘five years ago, everyone was predicting that robo will be the only way in the long run; that in five years global wealth management would be fully robo, and so on. Well, it didn’t happen and I don’t think it will happen because, while we need all these digital tools to make it easier to match the investors with the investments, you still need the flexibility and accountability of a human advisor’. After all, investing is risky, which means consumers don’t want it to be a fully automated process. Robo-advisors aren’t going to replace their human counterparts, but they can make them more efficient and more informed. “You don’t need human aid when you are booking a hotel or airplane ticket, or searching for an item,” Fischer says, “but in the case of wealth management, in the case of your investments, you want to discuss your decisions with someone.” Wealthtech was a $2.5billion industry in 2017, compared to only $928.6million in 2014. But rapid market growth such as this isn’t always a blessing. Sector growth has already attracted a lot of new players and more are likely to follow. This makes it much harder for incumbents like Raiffeisen and BNP Paribas – both Dorsum clients – to stay differentiated. They have to continuously update their service offerings to remain competitive. So, is the My Wealth platform innovative enough to keep these big players fending off the inevitable competition? Fischer is enigmatic: “We have other tricks up our sleeves, you’ll see.”

Everyone was predicting that in five years global wealth management would be fully robo. Well, it didn’t happen and I don’t think it will happen

Issue 11 | TheFintechMagazine

ARTIFICIAL INTELLIGENCE & BLOCKCHAIN

An intelligent appro If financial institutions figure out how to use AI for the benefit of the customer rather than the bank, they’ll have earned their loyalty, says Guest Editor Jim Marous A few months back, I go to pick up my clothes from the laundry, the same one that I’ve been using for many years, and the lady in charge asks: “By the way, Mr Marous, have you become a doctor now?” As I struggle to figure where that came from, she reveals she found a doctor’s smock in the past week’s laundry. Relieved, I laugh. If I was a doctor, I wouldn’t be dry-cleaning the stuff; it would be too expensive. So, I explained that we had a celebration for my niece, who became a doctor, and we had all dressed up in smocks. What intrigued me in this interaction was that, out of the thousands of pieces of clothing she gets every week, she not only noticed the difference in my set of clothes, she also brought it up with me. Of course, she wasn’t using digital inputs, so this is not about any technology breakthrough. She was simply ready to find out about changes in my situation that could affect her business; she was eager to develop the personalisation in the business relationship and, by doing so, indicated that she was eager to serve me, the customer, better. This doesn’t require artificial intelligence (AI), which is creating a lot of positive buzz in the financial sector – but not in the right direction yet. This incident also made me wonder how my bank would react if, one fine morning, I changed my name to Dr Jim Marous. We can probably guess – first, no one would notice. Next, if they did notice, they might shove multiple new forms my way to

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sign in order to notify them of the fact that I have changed my name. Then, they might ask for proofs and validation. Armed with AI – and taking note of the dry-cleaning lady’s will to do better for her clients – big banks should pull up their socks now. They should come up and say: “By the way, we see you’ve changed your name to Dr Jim Marous. What kind of practice do you have? We have some specialists on board that can help you with your business.” That’s what AI enables businesses to do, and banks should lap up this opportunity. AI notices changes, responds to them, brings them to your attention and helps you pitch for new business. That’s what boosts customer experience, because it improves convenience, cuts costs and builds a stronger relationship with your customers.

AI helps lay the crumb trail Every year, at The Digital Banking Report, we examine how far AI has evolved. Our 2018 study confirmed that it’s still a great buzz term, especially in the financial sector, yet it’s still being used traditionally, mostly in fraud and compliance. A transition that uses AI to make an overall better user experience, to be able to communicate better with customers, to engage customers more actively,

has not yet happened – though incremental changes towards this have begun. Big banks are interested but still not ure how to use AI or machine learning to build a better mousetrap, to really reach out to customers with adequately mapped products and services, based on the information they own about them. And that, I believe, is a concern, because consumers will not have patience if banks are not able to use their data efficiently. Customers are only concerned about the value they get from their banks. The Digital Banking Report is optimistic that AI could be one of the five most exciting innovation trends that will define banking in 2019, if it is used to consolidate user data and build customer profiles in real time. Using this practical and deployable data wealth, financial institutions will be able to understand their customers better and also go one step further to provide financial advice and product suggestions. This nuanced use of data could boost security and efficiency, thereby enhancing consumer experience. By suggesting products based on the ‘next-best actions’ perspective, instead of the prevalent blind selling, financial institutions will actually be able to provide real value to their consumers. And once they are able to combine this capability with the advantages of open banking

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ach – artificial or not and connected devices, truly life-changing, milestone-marking innovation will happen in banking. Let’s look at an example here of how user information can be used to proactively affect customer behaviours. Suppose a customer with a two-year-old current account with a bank suddenly shows a big dip in the account balance, a first in those two years. The next best action for the bank should be to notify the customer of a possible negative balance. It can include information on how that can be avoided, suggesting consequences of the dip. The customer would be grateful to learn about this situation beforehand and might immediately correct the behaviour/dip. So this is a value exchange. This demonstrates emphatically that AI, if taken only by its face value, is not something banks can impress the customer with or hit him over the head with. Whether banks and financial institutions are able to impress and win their customers depends on how they use AI to open up new possibilities and serve their customers better. I recently did a raise-your-hand survey with 500 community bankers in the US. I asked them ‘how many of you have Amazon Prime?’Every single person raised their hands. I then asked ‘last year, in January, Amazon Prime increased its fee by 20 per cent. It’s a significant amount of money. How many of you, at least for a while, considered stopping your

Amazon Prime account?’ Nobody raised their hand. If I’d asked that same question three or four years ago, the response might have been different. Then, it was all about free shipping. Free shipping was an entry point for every retailer. Today, no one is charging for shipping anymore. So that’s no longer the only reason to have Amazon Prime. The reason you have Amazon Prime is because they’re using your data, they’re using your personality, your buying habits, your behavioural information, to create a better experience for you. Now, let’s get even more personal. Let me share with you my example of personal care products. I used to buy my shampoo, toothpaste or medicines at the drugstore or convenience store only when I ran out of them. Now, I am buying from Amazon. It knows my buying habits, it knows how often I buy certain things, it knows I buy toothpaste in this sequence, that I buy soap and shampoo in that sequence. So where it used to be ‘do you want to sign up for the soap of the month?’ or, ‘do you want to sign up for the deodorant once a month?’, we now have, in a digital concierge way, ‘Jim, based on your habits, right now you should be thinking of ordering your toothpaste’.

Big banks are still not sure how to use AI or machine learning to build a better mousetrap

Amazon doesn’t bombard you with something it thinks you’re about to buy. It simply prompts you, reminds you, and if you don’t place that order it'll nudge you again later. I think that’s where we have to go in financial services as well. Amazon is really setting the tone, it’s letting the customer know what’s possible. Once the customer realises what’s possible, they’ll become increasingly intolerant to inefficiency. So, AI or not, financial institutions have to offer the next best solution to customers and not just blindly push their products for sale. This is exactly what my dry cleaner was trying to do. She wanted to find out if I had become a doctor, because if I had, she might have offered me specialised packages for cleaning my smocks, which one wouldn’t treat the usual way. This was also how one-to-one relationships with more localised businesses used to work. You knew the store owner, she knew your preferences and customised services for you. The foundation lay in the will to serve. Now that we have AI to provide that personal data, can we replicate the relationship in banking? The banks have all the information about their customers. So why don’t they reach out to their customers and suggest what they can do for them? Why can’t my bank say ‘well, Dr Marous, now that you have changed your name, we can make your business better. We can make your life better. We can save you time’. That’s one thing I’m always short of and would really love to save. If banks and financial institutions could make that happen, they would truly have changed my life. For this, I’d certainly give them my relationship and loyalty.

An enticing proposition: AI and machine learning can be used to draw customers in

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Issue 11 | TheFintechMagazine

ARTIFICIAL INTELLIGENCE & BLOCKCHAIN

The Year of Blockchain SmartStream’s SVP of Strategic Initiatives, Darryl Twiggs, believes blockchain could provide the ‘single source of truth’ that has eluded banks for so long Barely a day goes by without a corporate announcement about banks using blockchain to galvanise transformation projects. In France, 26 companies and five banks recently completed a blockchain-led test around know-your-customer. Five and a half thousand miles away, one of the biggest banks in South Korea, Shinhan, has adopted blockchain ‘in earnest’ by commercialising blockchain-powered services, having provided the necessary training for about 400 employees. Such levels of global activity and investment are not surprising, perhaps,

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given the potential reduction in costs that blockchain promises. Accenture analysts recently predicted that implementing the technology could save the world banking sector up to $20billion by 2022. It interviewed 32 bank executives, virtually all of whom said their business was exploring blockchain, with the most prevalent use cases being intra-bank and cross-border transfers. Accenture pointed out that: “The biggest key to turning blockchain’s potential into reality is a collaborative effort among banks to create the network necessary to support global payments… In the words

of one executive we interviewed ‘the technology will only work if everyone adopts it. It has to be all or nothing’.” Collaboration and a shared network have been the cornerstone of SmartStream’s thinking since the company was founded. It’s taking a keen interest in blockchain development, alongside that of artificial intelligence, opening technology labs in Vienna, Austria, and Cambridge, UK, last year to accelerate its programmes. SmartStream has indicated that 2019 will be its ‘year of blockchain’, having launched its next-gen transaction lifecycle management solution Aurora

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(the follow-up to Corona) at Sibos in October. It is designed to support new industry standards in the digital payments world by providing connectors to SWIFT GPI, real-time gross settlement (RTGS) and, notably, blockchain-based networks. Blockchain goes to the heart of SmartStream’s modus operandi, as Darryl Twiggs, SVP of strategic initiatives for the global software and managed services provider, explains: “Many parties today process the same information in their own systems, and they come out with different results. So, for us, blockchain is a single source of truth, which can be exposed and used by all parties. “It’s common for back and middle office processes in the banking industry to involve a multitude of systems and external services, making them highly inefficient. So, a very simple foreign currency payment, for example, involves multiple parties, multiple systems and takes two to three days from the inception of that trade to its settlement. Blockchain would give us the opportunity to radically re-engineer those operations so that, instead of taking several days, it takes a few moments to complete and everybody can see that data in an instant.”

Explaining exactly how banks could be saved money in the process of data exchange, Twiggs went on record in 2018 as saying: “We process hundreds of millions of data points a year… and this would alleviate requirements to validate that data, a process most clients see as wasting time and money.” Blockchain is just one among several emerging technologies, including artificial intelligence and machine learning, that SmartStream is leveraging to improve the service for clients.

Blockchain gives us the opportunity to radically re-engineer [banking] operations “All of our solutions are artificial intelligence (AI), machine learning and blockchain-enabled,” says Twiggs. “We have already proven blockchain and built blockchain clients, which enables us to take data off the block, add data to the block and view it in real time. This includes reconciliations, collateral management and our cash and liquidity solutions. We’re

looking at providing blockchain networks to our clients, but also at the value-added services that we can layer on top of those. For example, over the last couple of years there have been initiatives that have looked at payments and cross-border payments that are often underpinned by a cryptocurrency. It’s understanding the consequences of those trades to the bank that’s important. So, they need a measure of liquidity management over the top of the blockchain network itself. We are interested in providing those additional value-added services as well as a basic blockchain network capability in our own right.” In common with the banking professionals quizzed by Accenture, Twiggs recognises that more banks and related organisations need to define the rules of engagement in a more robust network to start truly leveraging the power of blockchain for everyone’s benefit. That includes educating stakeholders within organisations so that others can understand the potential impacts. It’s perhaps an uncommon kind of coordination among banks – but vital to generating the positive network effects that make blockchain so compelling.

Making the links: SmartStream plans a number of blockchain-based, value-added services

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Issue 11 | TheFintechMagazine

11:FS SUPERHEROES

REGTECH AVENGERS

11:FS

Fresh from her recent elevation to the Fintech Superheroes Hall of Fame, 11:FS’s own Black Widow Sarah Kocianski was sent on a mission to rally four beings from the regtech realm and ask them how they intend to defend the financial galaxy 58

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Nick Cook aka Gambit

As head of regtech and advanced analytics at the UK’s Financial Conduct Authority, Cook directs all his character’s kinetic energy into changing the shape of the industry. This superhero regularly takes the form of a civil servant as he moves among fintechs, hosting techsprints, hackathons and other transformative events. While there’s little call for his card-playing alter ego’s famed hand-to-hand combat skills, Cook is responsible for shuffling the FCA’s own tech pack, building out its advanced analytics capabilities, use of data science and machine learning.

Sarah Kocianski

aka Black Widow

A first among equals in the Marvel universe, sassy Avenger the Black Widow is an intelligent agent… an appropriate alter ego for Sarah Kocianski, 11:FS’s principal research analyst and a regular host of its Insider podcast series. She puts her Fintech superhero skills to the test in this edition, using her supreme, Soviet-acquired interrogation skills to extract vital information for readers from her regtech targets.

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Diana Paredes

aka Scarlet Witch

One of this sassy sorceress’s superpowers is to alter reality in unspecified ways. In her real-life role as CEO and co-founder of London-based Suade Labs, Paredes is engaged in precisely the opposite. Her job is to reveal incontrovertible truths with a regulation-as-a-service software platform that allows financial institutions to process large volumes of granular data and output the required regulatory data risks reports.

Jason Boud aka Vision

With his superhuman analytical capabilities, allowing him to process information and make calculations with phenomenal speed and accuracy, the sympathetic synthezoid is a fitting regtech superhero. In his guise as Jason Boud, founder and CEO of Regtech Associates, he helps launch regtech companies and build products. As publisher of the RegTech Directory, Boud’s ‘Vision’ has been to create a global community of 1,300-plus companies to help financial institutions realise the true value of regtech.

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Issue 11 | TheFintechMagazine

11FS SUPERHEROES 11:FS SUPERHEROES

TheFintechMagazine | Issue 11

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SK: We’re told regulation is getting longer – there are 1.5million paragraphs in MiFID II – and humans just can’t manage this volume anymore. We’re also told that the UK is leading the way in regtech. Are both those true?

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SK: Nick, have you had other regulators come to you to see what you’re doing, and maybe learn from it with a view to doing similar things themselves? NC: Absolutely. Many, I think, initially approached it with a degree of confusion, scepticism – in some cases cynicism – about what we were doing. I think that’s because we have this competition objective, which a lot of regulators don’t have. But over the last couple of years, we’ve had an increasing number of more meaningful conversations, with many starting substantial regtech initiatives in their own jurisdictions. It’s becoming an increasingly global picture. Not ubiquitous, though. The first step is the thing that a lot of regulators struggle with – just engaging with the industry, spending time talking about what they want and how you can help. NA: I think the regulator’s doing pretty well at the moment in the UK. The FCA has taken its competition remit statutory duty very seriously – much more seriously than I thought it would, if I’m honest. You can see that in practice in things like the sandbox, the hackathons, just general

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One thing that we’re increasingly seeing as a successful strategy for individual regtechs is to hunt in packs – Nick Cook

now. Our innovation, basically, stops where the regulation begins, and so the more we see the regulators coming around the table, the better.

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SK: Regtech is such an open-ended term, you hear it applied to all sorts of technologies. So, why don’t we start by defining what it is we’re talking about in the context of financial services? NC: I think the FCA’s definition has changed a bit over time. In the early days, we tried to label it as a subset of the fintech market; we’ve recognised now that’s not quite correct. Broadly, it’s the application of new technologies, not just reusing the old ones. So, new big data analytics, machine learning, semantic technologies, network analytics to meet regulatory requirements, whether that’s compliance within institutions or for regulators to supervise and monitor financial markets. JB: My definition isn’t that dissimilar, although it lacks the word ‘new’. I think it’s just the application of technology to help firms satisfy their regulatory obligation. NA: Jason is right. Particularly with larger firms and more established players, technology that is surprisingly old, when it’s rolled out across their network or their customer base, can be quite ‘new’ to them. Adapting to technology is difficult for them, so things that a smaller player would regard as hopelessly out of date, they may still regard as quite scary.

NC: The pressure of regulatory compliance was what drove firms to consider how they meet that in a more cost-effective, cost-efficient manner. And, yes, we’ve been talking about it in the UK for about three years, while in other parts of the world it’s still a nascent industry. DP: And that’s quite critical, because the reality is we’re dependent on how quickly the regulators move. What I would like to see, is regulators putting their cards on the table as to how ambitious they want to be, because to really get digital supervision, you’re looking at a very different infrastructure than what you find right

The scale of the compliance challenge goes far beyond what mere banking mortals can endure. Enter our new regtech superheroes, who were joined by Nas Ahmed, General Counsel to 11:FS, to discuss how a sector minted in the aftermath of the crash is creating a new digital S.H.I.E.L.D for finance.

tone and message. I still think there is almost a lack of trust on the part of the industry, though, that you’re gonna stick to your word, and not beat them the first time something goes wrong. SK: So what problems can we solve? If you’re somebody the size of RBS or Lloyds, where can what we’re calling regtech help them? DP: Automating – all the way from transaction level to what you’re sending to regulators, or even the analytics that you have to do around that – has been key to our work and we’ve been able to demonstrate massive amounts of cost saving. Turning literally millions of annual recurring cost into just a few hundred thousand pounds. JB: A couple of years ago, if you sat within a financial institution, you were probably worried about the next big regulatory deadline, and, to a certain extent, you still are. You were also worried about the huge book of work you had to make sure your systems or your people could deal with those regulatory changes. I think there were 50,000 regulatory updates in 2015. Although that number may have reduced, it doesn’t mean the legacy problem’s gone away; it does mean that

In tribute to the late, great Marvel comic book creator Stan Lee, who died late last year, we’ve reproduced all the fintech superheroes who've populated our universe since the first 11:FS Avengers burst onto our pages in the second edition... See if you can identify who they really are!

some of the attention has shifted within financial institutions. We think there are 70 or 80 companies across the regtech sector that work in this regulatory change space, which is to do with how you map rulebook changes and regulatory obligations, right through the lifecycle of your products and services in your businesses, to the policies and controls, standards and training that you need. That whole process is pretty much managed in an analogue way, at the moment, in most institutions. How we move that to digital is one of the big focus areas in the industry right now. NA: For a large institution, it’s probably about reducing your very expensive, cumbersome, manual back office processes, where actually relatively small changes can make huge incremental savings. A new startup bank won’t have a risk team of the tens of thousands that an RBS will, and it needs some way of being able to cope with compliance with regulation in a resourcelight manner. Even something as simple as automated reporting for a small bank with a risk team of four is a massive benefit. From a risk point of view, automation is, generally speaking, inherently safer. The less manual something is, the less you can muck it up. That’s obviously topped with the caveat that, if your automated system goes down, you’ve got a very big problem, but, you know, as a general rule, it’s less risky for banks.

The nature of the mentality in the risk, operations, finance and cybersecurity departments makes regtech more difficult to be adopted. They’re just very scared of anything going wrong – Diana Paredes NC: Regulatory change and regulatory reporting are two big areas where a lot of money and attention, in terms of regtech, are piling in. But the third is financial crime. A lot of manual effort at the moment, a lot of inefficient processes, a lot risk, is attached to some of those manual processes as well as very high cost to comply. A lot of money is going into more efficient know your customer (KYC), new ways of transaction monitoring, that sort of thing. For us, there are a myriad of potential benefits and use cases for regtech. If firms can comply with their regulatory reporting obligations more consistently, more efficiently, then it delivers opportunities for us at the FCA to have higher quality data and, potentially, to change some of our requirements, on a slightly more dynamic basis, because then we know that firms can meet them in a cost-efficient manner. We supervise nearly 60,000 firms. We have no choice but to be data and analytics-led in how we prioritise that portfolio. So there are a lot of opportunities for us in how we mine both the data firms provide, and also public and open data sources, to help us risk-rank and prioritise supervisory effort. Issue 11 | TheFintechMagazine

Equally, we are not short of some manual processes ourselves at the FCA, so there are automation opportunities internally for us. I think, finally, for us, one of the areas that we’re also particularly interested in is how we use things like network analytics, to understand connections between market participants, whether they be connections between people, or between firms, so that we’re better at identifying fraudulent activity and bad actors. SK: So, this all begs the question, why isn’t everybody employing regtech? DP: Customers open the hood on some of these regtechs and don’t really see very much technology underneath. So, part of it is to do with the expertise that’s missing in the market. Also, we’re dealing with very traditional environments, where they’re not necessarily very open to the concept of failing fast and learning fast, because they just don’t want to fail at all. The nature of the mentality in the risk, operations, finance departments, cybersecurity departments makes regtech more difficult to be adopted. They’re just very scared of anything going wrong, so why would they try anything new? NC: You can see why the institution is going to be nervous about engaging someone that’s promising a shiny new solution to a longstanding problem, and who, themselves, have zero track record, zero capital resources to fall back on. These are pretty significant barriers to a large institution deploying a startup regtech. NA: The larger banks find the rolling out of regtech difficult – the niche, bespoke bits of their business, are fine, but if you’re rolling out something to your 15 million personal current account customer base, you want to be absolutely certain it’s not going to fall over. It’s also about prioritisation. These banks all expend a lot of energy keeping the show on the road and have their own change programmes. So, regtech gets squeezed out – it’s funky, it’s different, probably a lot of people there don’t understand it. Why would you throw money at that, as opposed

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to, maybe, repainting the branch network? You’ve also got to remember that the industry’s just come out of a 10 year period where it has been continually beaten up for the sins of the past, so to suddenly go from ‘let’s be as risk-averse as possible’ to ‘let’s take a punt on a new company doing something in a new way, and accept that, as part of that, we may fail to learn to get better’, that’s a big leap of faith.

Remember that the industry’s just come out of a 10 year period where it has been beaten up for the sins of the past. To suddenly go from ‘let’s be as risk-averse as possible’ to ‘let’s take a punt on a new company doing something in a new way’... that’s a big leap of faith on their part – Nas Ahmed

JB: Depending on which type of regtech you are, at the end of the day, you’re generally a cost to the business. So how can a regtech company move away from just the pure cost efficiency, cost saving business case, to something that adds value? I’ve seen some pretty neat demos of where a regtech built their product in to a banking platform and then demonstrated how more efficiency and more sales a relationship manager can drive by correct compliance decisions. And then the conversation turns away from being ‘we save you cost, we save you people, we lower risk’ to ‘actually, we increase the top line revenue’. I’m seeing regtech start to understand that and sell in a different way. SK: Are there problems in getting the old legacy systems to be able to integrate with shiny new regtech? DP: Our experience has been that when it comes to the data, you manage. When it comes to the legacy infrastructure, you manage. A lot more of it is to do with a legacy mentality – that’s easily 80 per cent of the problem for me. NC: Certainly, a lot of the larger financial institutions would tell you that the

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11:FS SEORSUPERHEROES EHREPUS SF11

Depending on which type of regtech you are, at the end of the day, you’re generally a cost to the business. How can a regtech move away from a pure cost efficiency, cost saving business case, to something that adds value? – Jason Boud

complexity of their legacy infrastructure makes it very hard to deploy a niche point solution in to that existing stack. Increasingly, you’re seeing mechanisms by which you can, to some extent, house the regtech solution somewhat outside of the core platforms and connect into it. We have a similar challenge. Underneath it, what we’re all experiencing are challenges of data access, data consistency, data models, data architectures. So, even if you can get over the hurdle of plugging in to the systems, a lot of institutions are held back from really leveraging regtech because their data isn’t in a sufficiently well-managed, well-governed, well-organised state. There’s quite a bit of investment that’s needed to get yourself fit and ready for regtech. I agree, though, that unless you’ve got a strong enough mandate that says ‘we’re going to find a way through these problems’, it becomes very easy to point to complex systems, data architectures, cybersecurity concerns, etc. So I think Diana’s right, there are ways around it and the more progressive institutions will find that way. SK: Finally, we are all advocates of regtech around the table. Is there anything we can do to make it easier to drive awareness and adoption?

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NC: I think one thing that we’re increasingly seeing as a successful strategy for individual regtechs, is to hunt in packs. A couple of years ago, the market was somewhat overhyped. You had a lot of startups going around, telling very large institutions ‘this legacy problem that you’ve had, that you currently spend hundreds of millions of pounds on, we can fix for you overnight’. I’m paraphrasing, but that was kind of the message, and it was overly-simplifying the problem. There’s still a bit of that puff, but what you’re seeing now is that regtechs are starting to recognise that the systems they’re trying to integrate with are complex, and if you just offer a point solution to a very specific problem statement, you may not be able to overcome the inertia of deployment that you’ll see in the large institutions. If you, however, partner up with other regtechs and start to offer something more end-to-end (given that there is a genuine resistance in the industry to buying very large, off-the-shelf, end-to-end, at the moment), I think that’s more successful. Passing work between one another, recommending other regtechs to an institution – because knowing who to speak to in an institution can be hard enough. Once you find that person, share them with your network and then you can probably come up with something that’s far more meaningful and valuable. JB: I’ve used the expression ‘put five or six regtechs in a tin and shake them up, and you might get something interesting’. I think the signal-to-noise is too high still. You can’t move for regtech conferences; there’s someone having the same conversation about regtech somewhere in the world at any second of the day, I’m convinced of that. So I think there’s a maturity that’s coming with the rise of the platform. I know a number of initiatives going on where people are looking to build platforms that are made up of many best-in-class regtechs and, for those platforms, and for the regtechs within those platforms, that enables you to gain access to and engagement with your end customer. It won’t be the only model that succeeds, but it may be one. Issue 11 | TheFintechMagazine

VERIFICATION

Held in trust: Could banks be our digital custodians?

Keeping the faith Trust is a fragile thing, but when fintechs and banks come together, confidence grows. Just ask John Erik Setsaas, VP of Identity & Innovation at Signicat, and Rabobank’s Product Manager for Rabo eBusiness, Daan van den Eshof Sixteen years ago, a consortium of the largest banks in the Nordic region launched an interoperable, multinational electronic identification (eID) scheme called BankID. The technology was the first of its kind worldwide and has continued to flourish where European equivalents such as Gov.UK Verify and Germany’s PersoSim have struggled. The Nordic countries’ eID success can be attributed to the early recognition that trust is the key to accessing personal information – and major financial institutions are high on trust. Commercial banks, therefore, play an essential role in the widespread adoption of identity-based services there.

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The implementation of the General Data Protection Regulation (GDPR) has jolted Europe awake, while the second Payment Services Directive (PSD2) has taken away the banks’ monopoly on data. So, incumbents are now joining forces with third party providers (TPPs) to close the digital identity gap that has emerged between the Nordic countries and the rest of Europe over the course of the past decade and a half. One of these is Rabo eBusiness. Launched in 2017, it’s a digital identity service provider (DISP) born of a collaboration between Dutch multinational commercial banking and financial services company, Rabobank, and the Norwegian digital trust provider

underpinning BankID’s infrastructure, Signicat. The majority of Signicat’s clients are already regulated industries. The Rabo eBusiness application programming interface (API)-based platform is flexible by nature, allowing clients to plug into its architecture and combine modules that enable them to best serve the needs of their customers. Examples of these interchangeable modules include passport scanning and selfie uploading for identity verification; electronic seals and signatures for document authentication; online logins and archiving solutions. Each promises to simplify electronic processes and automates manual ones to deliver digital transformation for businesses. www.fintech.finance

“We conducted some research early in 2018, which revealed that more than 50 per cent of potential customers abandon the digital onboarding process,” says John Erik Setsaas, vice president of identity and innovation at Signicat. By streamlining this process and eliminating the frustration, Rabo eBusiness keeps customers onboard to the end, in turn generating more revenue for the client. Even more impressive, with integrated know your customer (KYC) regulation compliance the technology cuts application, signature, and approval times in more complex applications from weeks to days, which further reduces operational costs and improves efficiency. Setsaas uses the example of BankID to explain the advantages of this process. “In Norway, coverage of BankID is 93 per cent,” he says. “If I wanted to become a customer of a different bank in Norway, I simply go to their website, I log in with BankID, and then I’m a customer. The KYC process has already been done by the first bank that the customer onboarded years ago. This information is now being reused by the other banks. Having a good eID solution is a win for all parties involved.” The Rabobank-Signicat solution not only promotes and accelerates digitisation of end user businesses but could also help to make the bank indispensable to them. The benefits of creating such value-adding services relating to finance are twofold. Firstly, customers are less likely to look elsewhere if all of their varying needs (trust services, financial management, etc) are conveniently accommodated by a single company. Secondly, these services provide the bank with another source of revenue as banks’ traditional core money-making activities are eroded by competitors. Explaining the motivation behind the decision to partner with Signicat specifically, product manager of Rabo eBusiness, Daan van den Eshof, says that the Norwegian experts were best placed to give it a considerable head start. “We had to make a decision on whether to make it ourselves or buy or partner,” says van den Eshof. “We chose to partner because we wanted to enter the market fast. We needed the knowledge and experience of a partner that has been present in it for more than 10 years.” Signicat is a member of the European Telecommunications Standards Institute www.fintech.finance

– the committee responsible for the standardisation of European digital signature and trust services. It has provided trusted digital identities for more than a decade, with a customer base that spans a diverse range of regulated industries, including insurance, energy and finance, not to mention government institutions. However, all of these impressive credentials are meaningless without the coupling of a trust entity. John Erik Setsaas admits that Signicat stood to gain just as much from the collaboration as Rabobank. “We have been audited and approved by the European Union as a qualified provider of trust services,” he says. “But we don’t meet the end users. They don’t know our brand. So, we need to collaborate with somebody that people trust. People trust banks: they trust them with their money.” A recent survey conducted by KPMG supports his claim, revealing that a significant proportion of small and medium-sized businesses would not share their data and credentials unless it was with a high street bank or building society. For Setsaas, it’s time to take things to the next phase. “The way I see it, the natural next step for banks is to be trusted with my identity data, manage that on my behalf and be my identity custodian,” he says. By working through partners, like Rabobank, Signicat has not only leveraged the bank’s position in society to gain legitimacy but also benefitted from its existing infrastructure, specialist knowledge of the European market, mature sales force, large client base and multinational scale. Both sides of the collaboration appear to be happy. Van Den Eshof puts this down to equal involvement in all stages of development. “Making it happen also means working on clients together, as well as on product development,” he says “For us, a great collaboration is where we share a common vision of the market and we have a common goal.” This shared vision encompasses the extension of their eID service in the business-to-business (B2B) space through the development of a digital signature solution. The two companies collaborated

with the Dutch Chamber of Commerce (KVK) on a product called Signicat Business Signature, which went live in Norway and Denmark in November. It allows document recipients to forward an order internally to a single person authorised to sign on behalf of the company; or to obtain multiple signatures where no individual has the authority to sign alone. The solution includes additional checks of business registers to ensure that the business is the correct legal entity and the signatory is allowed to act on its behalf. Signatures can be given in the form of an eID, a single-use password sent over SMS, or by scanning ID documents, while its Electronic Seal function renders documents such as invoices tamper-proof. Signicat’s strategic decision to partner with Rabobank to extend outside of its Nordic heartlands aligns with its government’s cross-border plans for digital ID. “One of our objectives is to pave the way for residents of the Nordic countries to use their own secure login credentials, such as their personal identity number and electronic ID, regardless of where they are,” says Norwegian minister of local government and modernisation, Jan Tore Sanner. Such standardisation of eID services will promote trade across Norway’s borders while also supporting the EU’s ambition to create a secure eID network. “A reliable system of electronic signatures that work across EU countries is vital for safe electronic commerce and efficient electronic delivery of public services to businesses and citizens,” an EU report stated last summer. With the rapid digitisation of financial services, the advantages attached to a pan-European eID network make its implementation somewhat inevitable. The only barrier to uptake is trust, which Setsaas admits is nuanced and delicate. “It is challenging for us to work in an international market, because trust is different in different countries,” he says. “It is very high in the Nordics, for instance, which is probably why adoption of digital services is so high, too.” Ultimately, the only way to win trust is to show rather than tell people you’re worthy of it. “Trust doesn’t come by itself,” says Setsaas. “You need to prove that trust.”

The natural next step for banks is to be my identity custodian

Issue 11 | TheFintechMagazine

VERIFICATION

IGN OF THE TIMES

ZorroSign, the blockchain-enabled esignature specialist, is leaving an indelible mark on authentication, as Co-founder Shamsh Hadi explains

The famous fictional vigilante whose calling card was the initial Z cut into objects and, occasionally, even his foes, defended the rights of the common people, while keeping his identity safe behind the moniker: Zorro. It’s fitting, then, that the blockchain-enabled esignature specialist ZorroSign is carving out a place in the hall of fintech fame by putting power quite literally at the common people’s fingertips. Its software dissects the DNA of digital documents to ensure signatures are authentic and tamper-proof. Ultimately, it aims to provide a highly secure solution to support the end-to-end flow of document signature processes, across industries and devices, with a complete digital transaction management (DTM) system. In its first three years of operation ZorroSign has been named no less than nine times as a top disruptor, so it’s certainly leaving its own mark. “When the company was founded, there was a major gap in the electronic signature space,” recalls co-founder and CEO Shamsh Hadi. “We saw a lack of security in digital signatures, which were basically just scanned. Second, we wanted esignatures to stand up in a court of law – just like wet signatures. Those were two big areas that needed solutions.” So, with rapier speed, ZorroSign set about providing them. The company had a major advantage: Hadi’s co-founder was co-author of the esignature patent that proved instrumental in the passing of the E-SIGN Act in the US in 2000. “Our solution is successful because of two factors: our electronic signature patent and the blockchain technology behind us,” says Hadi. Founded in 2015 in Silicon Valley, one of the reasons that ZorroSign is impressing in the DTM space is its

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engagement with blockchain to provide safe, secure and efficient esignature validation for documents ranging from everyday transactions to complex inter-bank agreements. There are five aspects to the ZorroSign DTM: electronic signature, compliant across multiple territories; the 4n6 token, which uses DNA-based forensics to authenticate users and documents; a rules engine; a document management system; and ZorroFill, which employs artificial intelligence and machine learning for auto-filling forms. All of these can be applied to document flows in the internal business, B2B, B2C and C2C. When Zorro’s pursuers arrived at the scene of his latest derring-do, there was never any doubt who had been

Our solution is successful because of two factors: our electronic signature patent and the blockchain technology behind us responsible for a bout of vigilante justice. Three swift slashes against a barn door were proof enough. But until ZorroSign introduced the use of blockchain in document forensic inspections, the same could not be said for the signatures on digital documents. It uses its blockchain-based 4n6 Token technology to verify beyond doubt the person behind the autograph. Hadi elaborates: “Our private blockchain technology provides our forensics token. That is where we capture the audit trail. So, what happened to the document? What date? What time? What device? What user? We also capture the final executed version of the document, its attachments

and anything else that is linked to it.” In other words, it gives a complete history of a document’s exposure to influence and it’s far more effective at doing it than human-powered forensic teams ever could be.

Speed and security ZorroSign’s technology, based on machine learning and artificial intelligence, has served to ramp up the speed with which legally binding documents with bank-grade security can be successfully closed in the financial space. Those benefits are being passed directly to ZorroSign’s customers, which include independent financial advisors, lenders, banks and credit unions. “We are more competitively priced because the technology we’ve been able to use reduces the cost of our operations,” explains Hadi. “We pass that saving on.” Having been intimately involved in the inception of esignature legislation in the US, ZorroSign is more than familiar with the regulatory framework in the States; but it is also 100 per cent compliant with international laws and standards. “We are very active in global compliance and we proactively ensure that we secure accreditation and compliance with all the standards around the world,” says Hadi. It was, for example, compliant with Europe’s General Data Protection Regulation (GDPR) well before its enactment in May of last year. Hadi puts it simply: “Our customers use ZorroSign because they know that it is safe, secure, authentic and, most importantly, they know that the person that they are transacting with is the real person because we can prove it.” The company uses application programming interface (API) technology to onboard onto the platform – the most popular route being via a www.fintech.finance

public Cloud offering that is supported by the Amazon AWS platform. ZorroSign plugs in as a software as a service (SaaS) to the platforms already used by institutions. But, as Hadi details, there’s a high degree of flexibility and choice. “On top of Amazon AWS, we also offer a hybrid version, which sees us using our APIs to connect to organisations’ frontend or backend,” he says. “Then there’s the more customised, specialised solutions to work inside institutions’ frameworks and, finally, for the institutions that have specific security and compliance protocols where everything has to run through their servers, we can offer our on-prem solution as well.” Being mindful of the constraints of the legacy technology embedded in many financial institutions

has no doubt facilitated the company’s expansion: ZorroSign has opened offices across 10 countries in three years. As one of the very first fintechs to employ blockchain technology to ground its security, it has been consistently setting the pace of development in the DTM market. That market was valued at $1,095million in 2017, with impressive growth forecast at a compound annual growth rate of 27.7 per cent, according to a recent report published by Polaris Market Research and Consulting. That’s no doubt enhanced by regulatory bodies in both the UK and the EU recently putting esignatures on a par with traditional ‘wet’ signatures for verification in a court of law. Aside from the improvements that corporates gain in process, speed and security, moving to an esignature-based system puts a big tick in the social responsibility box, too. If ZorroSign customers want to know how much paper they’re saving by adopting digital autographs, they can use the company’s Environmental Savings Calculator. For every tree these savings preserve, ZorroSign plants another worldwide. “Our green initiative is called

Paperless Life and we not only participate in programmes that help to improve the environment, like conserving trees and water,and reducing our carbon footprint, but Paperless Life also informs our decisions and direction for future product development,” says Hadi.

Signing on the move In October, ZorroSign announced an additional layer of security for users of its smartphone app – integration with iOS and Android biometrics systems. It's something Hadi sees as being crucial in a world where more and more people operate on the move. “Our customers now have the option to implement biometrics – retina, iris, facial and fingerprint recognition – on a mobile device to sign documents,” he says. “Users can now employ ZorroSign anywhere, anytime and using any device, with our unique security technology.” Better than a rapier any day!

Making their mark: ZorroSign’s platform is backed up by blockchain

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Issue 11 | TheFintechMagazine

VERIFICATION

You are the key Achieving security and convenience in banking is a challenge, but Thomas Rex, Senior Vice President responsible for the smart cards business at biometric solutions company Fingerprints, believes touchy feely payments are the answer When you fumble from underneath the covers to wake up your touch-enabled tablet or phone in the morning, your biometric key is probably being read by a Fingerprints sensor. The global leader in this technology, shipping hundreds of millions of them around the world, its sensors are now being deployed by some of the biggest smart card manufacturers – Gemalto and IDEMIA – with a view to speeding up transactions and, ultimately, bringing down the cost of card swiping for merchants and banks. As with many things, it’s the smart phone that can be credited with paving the way. “I think around 70 per cent of all new phones have a Fingerprints sensor,” says Thomas Rex, senior vice president of Fingerprints' smart cards business line. “People are already used to making mobile payments using their fingerprint, so it will be natural for them to move on to payment cards – and the market is huge.” And Fingerprints is well-positioned to capture it. Once its developers had made the technology leap from a phone to a card, all it needed was for a major card scheme to put its weight behind it. In 2018, Fingerprints carried out no less than 13 trials in seven different territories involving some of the biggest schemes and their technology suppliers as well as some more niche and local parties, such as the travel payment company AirPlus. All are interested in cracking the biggest conundrum in digital finance – how to achieve security and convenience for customers. Fingerprint-enabled cards

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address both, argues Rex: “People tend to forget their PIN, but by adding biometrics to a card it becomes the top-of-the-wallet card that you use the most. It’s safer, more convenient and, if you lose it, you don’t have to be afraid that somebody else can use it. It’s completely dead without your finger on the sensor. “When we talk to consumers, they say they are concerned about security, but at the same time they are annoyed with the transaction cap. The higher the cap you have, the bigger the security concerns. But the lower the cap, the less convenient. This is

The higher transaction cap you have, the bigger the security concerns. The lower the cap, the less convenience. This is where biometrics come in where the biometric card comes in. You can remove the cap and have both security and convenience. “A good example of this is happening in France where Société Générale has announced a pilot in which it has decided to completely remove its spending cap with the use of biometric technology.”

Convenient, secure… and cool The success of Mastercard’s and Visa’s trials last year is well-documented and yet,

despite forecasts that nearly 579 million biometric payment cards will be in use globally by 2023, examples of fingerprint-enabled plastic being used in the real world are still few and far between, with Cyprus and the Lebanon being in the vanguard of adoption. In his interim report in October last year, Fingerprints CEO Christian Fredrikson said the major payment card brands would most likely move ahead with certifying contactless cards during the first half of 2019, with a broader commercial launch expected in 2020. Rex believes fortune will favour the bold. “The technology is growing fast all over the globe, but particularly in European countries,” he says. “Big players like Mastercard and Visa are mandating now that all new cards must be contactless. Biometric smart cards are already moving quickly as the next step in terms of security and convenience.” McKinsey research found that roughly 30 per cent of us prioritise ease and convenience over security of our finances, while 10 per cent of people feel that not having a password at all is unsafe and the remaining 60 per cent are willing to make reasonable trade-offs in both convenience and security. Rex argues that fingerprint-enabled cards allow consumers to have it all – and let’s not overlook the ‘cool’ factor. “People love to use their new technology,” says Rex. The speed and security advantages of fingerprint-locked cards appeal to retailers too, he says. “There is a huge cost saving for every

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Unlocking the future: Biometrics offer security and convenience

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second you can knock off the transaction time for both low and high-value purchases – from using a PIN, where maybe a transaction takes 10 seconds, down to every payment being below one second when using biometrics to contactless card. This technology doesn’t need any new investment from the retailers, though. Their existing point of sale machines can be used. “We see a lot of interesting pilots taking place now and big banks are moving forward with it. Our role is to provide the sensor and the software around it, working with card manufacturers. “A technical stepping stone was scaling down the sensor to be working in the limited computing powered card environment. However, our collaboration with card manufacturers and other solution providers has, combined with the technology developed here at Fingerprints, overcome that. “All the announced dual interface pilots are using our technology because we have extremely low power and extremely good biometric performance, which are essential in a small payment card. Sensors can be made very secure while remaining fast and easy to use, and the biometry always stays with the user and is never forgotten.” In late 2017, Fingerprints also announced a partnership with NXP Semiconductors around its new, high-performing contactless fingerprint-on-card technology, and it’s supporting long-standing partner Zwipe (with which it’s conducted trials in Italy, the Lebanon and Cyprus) in its venture to introduce battery-less, dual-interface biometric cards with banks and loyalty programmes in China, through locally based Silone CardTech. Fingerprints has built its strategy around a simple phrase: you are the key to everything. As the Internet of Things and invisible payments combine, its products are likely to extend far beyond payment cards. “It’s a bright future for biometrics,” concludes Rex.

Issue 11 | TheFintechMagazine

CUSTOMER RELATIONSHIP MANAGEMENT

The honest broker Rabobank’s Head of Digital Channels & CX Alexander Zwart has very clear views on what a trusted relationship with clients means in a digital age

When was the last time you opened a familiar application on your phone to find it had been updated with an additional service you hadn’t asked for and didn’t know you needed? You spend the next 10 minutes trying to figure out how it works by which time you’ve forgotten why you’d opened it in the first place. Sound familiar? Well, that’s not something Rabobank customers will ever encounter on their banking app. “We will never put features on automatically,” says Alexander Zwart, Rabobank’s head of digital channels and CX. “When it comes to what the user is asking for, we have to find the right balance and not be too pushy – this is where banks take a different position from the big techs. I think customers and users really appreciate us for having that balance and putting them fully in control.” So, instead of bombarding clients with notifications on the next best thing in banking, Rabobank is developing a dashboard in its banking app ‘which is very easy to find, not stuck away in a website’, where people can select what level of service and automation they want and which kind of external apps they would like to connect to. A facility that gives clients an overview of all the third-party apps they have consented to is already available. And the reason it’s taken this approach is simple. Rabobank wants to be experienced as an honest broker in the financial lives of its clients. “We really want to make sure that trust factor – which is key to banks – is managed very well,” says Zwart. “Rabobank’s strategy is Growing a Better World Together and, for the Netherlands, we translate that into helping our business clients grow financially and helping consumers to live a healthy financial life. We translate that directly into our digital environment by giving them insights into their financial position and helping them to make the right decisions – even when they are

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unfavourable for us, sometimes, from a business point of view.” The latest series of features on the bank’s app help its eight million clients gain financial insights into personal spending, including cashflow analysis, heading-forthe-red alerts and telling them when a surplus can be diverted to savings. “The more interaction you create with your customer, the more relevant the experience becomes,” says Zwart. He’s been with the bank for nearly 11 years, over which time Rabobank has become better at understanding its customers’ lives through data, studied in ever finer detail. Nevertheless, he is conscious there are some demographics for whom digital banking isn’t an option. “We are a bank for everybody,” he says, “so it’s challenging to have an excellent customer experience for the more tech-savvy users and yet still find ways to get people on board for whom it’s more difficult to do stuff digitally.”

We want to make sure trust is managed well… helping customers make the right decisions, even when they are unfavourable to us from a business point of view That hasn’t stopped Rabobank from negotiating some of the most cutting-edge digital features of any local bank and Zwart has been behind substantial triumphs. For example, its work with Google on Google Assistant, which, in the first instance, has allowed customers to carry out basic banking through voice command, such as requesting a balance and setting up alerts for when they’ve gone over-budget or

reaching a previously set spending limit. “It’s a relatively small group so far who actually use voice control because it will take time before voice really gets big in the market. But this is also a group that’s very tech-savvy and gives us direct feedback to help us improve the customer journey. Our developers are in contact with them on a daily basis,” says Zwart. “We also visit conferences where the users and the voice developers are present, to get input from that side as well.” Easy payments are also bleeping insistently on Rabobank’s digital radar. In conjunction with IDEAL, Rabobank has created a QR code option on the app – a payment initiation method that’s taken hold in Asia (via WePay and Alipay) but has seen limited adoption in Europe so far. “Coming up this year is instant payments. Payments are becoming so fast that it’s like physical money – and that’s a big step up,” says Zwart. The same cannot be said for crossborder payments. Although in Europe SEPA has prompted dramatic improvements, he believes most banks still need to do more work on getting all international transfers up to an acceptable speed. “That’s something the industry has to solve in partnership with fintechs,” he says. The issue is particularly relevant to Rabobank, which has 800,000 corporate customers with a €130billion worldwide commercial loan book – the majority of it in the food and agricultural sector, in which the bank has its co-operative roots. “We’re delivering world payments as a service on our digital channel and online business banking channel, so it’s very easy to pay every country in the world in our online environment. We believe we are the first app in the Netherlands that allows you to do that,” says Zwart. But he is impatient to see more evolution, not least because the environment is becoming that much more competitive. www.fintech.finance

“Keeping up with the challenger banks and also with the big techs is a challenge and we are doing a number of things to achieve that,” says Zwart. “Maybe something that is less interesting for customers, but very important for us, is that we are creating the IT infrastructure that enables us to do it. By splitting up our app into all kinds of small services, we can put teams on them and benchmark those services against the market. “We are also really stepping up in the area of user experience. We don’t talk about customer experience in this company, but user experience. The reason behind that is banks, traditionally, when they talk about customers, talk about legal entities, especially in the business area. I think that’s the wrong definition, because if you are serving business clients, for instance, then it’s more important to understand the specific users. The CEO of a company with maybe 20 employees has totally different demands to somebody who is basically working in a bookkeeping department and has to make sure the payments are done each day. “You really have to focus on finding out the specific user need and ask yourselves ‘do we have a proposition that fits that?’. “That’s where we, as a bank, are really stepping up. We are setting up a user experience department which has a lot more knowledge about users and does more research than we did in the past, which then applies that research to create a very clear vision of what that user experience should look like in the coming years. “We’re improving step by step, not by making big leaps, because we see that users don’t like that; they don’t like a banking app that changes overnight. We want to make sure that every change we make is also Trust is key: a change towards a better user Rabobank offers experience, in the consumer area, impartial advice as well as for businesses.” through the app www.fintech.finance

Issue 11 | TheFintechMagazine

CUSTOMER RELATIONSHIP MANAGEMENT

Left to their own devices... Digital banking isn’t one route to financial services, but many. And that has profound implications for the customer relationship, says RBR’s Sam Blackwell Two-thirds of the world’s population now owns a smartphone and almost half of users spend at least five hours per day on their devices. Just a decade on from the launch of the first iPhone, mobile internet technology has made an irreversible impact on human behaviour. Beyond the startling changes in social and professional interactions, the smartphone age has redefined retail, with even traditional high-street brands elevating mobile from a desirable bolt-on to one of their primary delivery channels. Banks face the same challenges as retailers. Implementing an effective digital-first strategy could now be the main difference between success and irrelevance as customer attitudes and expectations rapidly evolve.

A customer-centric world For many financial institutions, the initial impetus for pursuing mobile banking – as with desktop internet banking some years before – was the cost saving achieved from migrating more everyday transactions away from branches. Given that regular payments and transfers carried out through mobile or internet channels typically cost banks around five to 10 per cent of those processed by tellers, the original digital leaders

made early gains. Today, banks’ mobile banking investment is driven more by customer demand for instant, one-click transactions, anytime, anywhere. For all banks’ efforts to develop mobile apps for their customers’ everyday needs, Marco Antonio Cavallo, technology and digital transformation expert, warns: “Customer expectations for banking services are being reset by the experiences being provided by online providers.” In essence, today’s digital consumers are no longer judging banks against banks for their service delivery; they are demanding that banking be as simple and convenient as setting up a playlist, ordering takeaway food or booking their next holiday. These standards are increasingly being defined by fintech disruptors, from Spotify to Airbnb, whose successes rest not just on providing frictionless transactions, but also on harnessing the latest technology to deliver a more proactive, predictive and, ultimately, personalised service. Banks have long been aware of the need to enhance personalisation while pushing forward with digitisation, an

approach encapsulated by omnichannel. In its true sense, omnichannel is not just the ability to transact seamlessly across different channels, but a paradigm shift from a product-centric to a user-centric experience. It allows for more consistent and progressive engagement with customers, anticipating rather than just responding to their needs and preferences. In practical terms, while mobile has been at the heart of much of the change, banks have also upgraded ATM software to personalise the user home screen and synced their teller applications with a customer relationship management (CRM) system to make the most of branch-based interactions.

Omnichannel to omnidigital Implemented successfully, an omnichannel strategy has taken banks a long way in upgrading their technological offering and improving customer interactions. However, as a concept it may soon become obsolete. According to Jason Bates, a co-founder of digital challenger bank Monzo: “Omnichannel is doomed, because it’s based on a false assumption. It grows from the idea that channels are equivalent and interchangeable.

At their fingertips: In the US, 46 per cent of banking customers alternate between mobile, tablet and desktop

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The problem is that truly digital banking isn’t just another channel… it’s more equivalent to having an experienced personal wealth manager watching over your finances 24/7, providing insights and proactively addressing issues.” In short, digital banking has a limitless potential to leverage artificial intelligence (AI) and machine learning to provide a highly individualised and cost-effective service, which is simply unavailable through the physical channels on offer to most consumers. Recent research conducted by PwC suggests that, for all the nostalgia for traditional face-to-face service, consumers are moving to digital at staggering rates. In 2012, a majority of US consumers (57 per cent) were classed as omnichannel – regularly using both physical and digital channels. By 2017, this segment had shrunk to 45 per cent of consumers and had been overtaken by the so-called ‘omnidigital’ (46 per cent) of customers who eschew physical channels wherever possible and alternate between smartphones, desktops and tablets. With these trends replicated across much of the developed and developing world, the implications for the future of retail banking are potentially seismic.

Bridging the gap between digital and physical

if not the card itself, during the visit, the customer is informed he will be notified by post in a week. When the notification finally arrives, it is a request to repeat the process as his passport expires in less than six months and is thus invalid. Exasperated, the customer abandons the application and opts for a product with a rival bank, despite its slightly less generous conditions. The reality is that such scenarios are playing out constantly at branches and contact centres. The critical issue is not one of technology but whether the bank truly understands its customers and is designing its service around their lives.

Digital first does not mean people second The ranks of omnidigital consumers are growing at striking rates and banks must focus relentlessly on providing these

Omnichannel v omnidigital: Customers are increasingly in the second user category

While the number of human interactions is continually being suppressed by digitisation, their value has never been higher

Despite the increasing preference of consumers for actively avoiding human contact for everyday banking, situations will continue to arise which necessitate a branch visit or a call to the contact centre. Many of these reasons relate to security and identity protection, which even the most digital consumer can appreciate. And it is these fleeting encounters that increasingly have the potential to make or break a customer relationship. Beyond digital fluency, banks should also remember millennials are characterised by a diminished sense of brand loyalty, expectation of real-time interactions and a growing tendency to research and compare everything. Let us consider two typical cases of how www.fintech.finance

banks’ physical and digital channels can easily either complement each other or clash. Our first omnidigital consumer discovers she can only change her address at a branch or by printing, signing and posting a form. Opting for a quick branch visit, she is greeted by front-of-house staff and immediately directed to an open-plan desk. A simple chip and PIN check and one security question is all that is required to check her ID. While the adviser is inputting the new address, he casually enquires as to the reason for the change: moving back to her parents’ home to save for a deposit. The adviser welcomes the customer back to the area and invites her for an informal discussion on savings and mortgage products. In need of reliable advice on these subjects, she gladly accepts and leaves the branch feeling the time out of her day was more than worthwhile.

Meanwhile, our second digital native has applied for an interest-free credit card deal found on a comparison website. Having completed a simple online form, he sails through a credit check but is informed a visit to his nearest branch is required to check his ID before the card can be issued. Arriving at the branch just before closing time, branch staff do not look overly happy to see another face in the queue and when he finally reaches the teller he is told he should have brought a printed copy of his application. Expecting to receive at least confirmation of a successful application,

customers with the frictionless and individualised approach to service they have come to expect. While the number of human interactions is continually being suppressed by digitisation, their value has never been higher. Even Mr Bates believes that digital banking still needs staff in different channels ‘to help customers start to use the digital service, get the best out of it, deal with problems and provide the human touch where it is needed’. Arguably, while digital and physical channels are now far from equal in terms of usage and functionality, a symbiosis will remain vital for lasting customer satisfaction. Issue 11 | TheFintechMagazine

CUSTOMER RELATIONSHIP MANAGEMENT

BUYING TIME

Sebastian Siemiatkowski, Chief Executive and Founder of Klarna, has tapped into a rich payments vein that’s taking the online retail space by storm The global payments industry has an estimated value of $1trillion – and that’s way too much. So says Sebastian Siemiatkowski, chief executive and founder of Klarna, the unicorn that’s been dubbed ‘Sweden’s rival to Paypal’. It’s a strange statement perhaps for the boss of a payments business to make, but Siemiatkowski has a track record of thinking differently, even controversially – and with his laser-like focus on customer needs, he believes the cost of payments is not justifiable. “McKinsey said the payments industry is a trillion-dollar industry,” he says. “A trillion dollars? For shipping digital numbers back and forth? It does not make sense and it’s not right. This industry has to shrink. I want to help shrink it, and I think there’s a massive opportunity now to do that. What Klarna wants to do is take a bigger piece of that shrinking pie.” With a valuation of around £2billion, Klarna achieved unicorn status a little over a decade after launching in 2005. It serves both the issuer and acquirer side of payments and its recent stellar growth has been driven by providing in-store and online payments options for global retailers such as Ikea, ASOS and H&M, the last of which took a one per cent stake in the fintech in October 2018. The company entered the UK in 2017, where it quickly became a leader in the ‘try-before-you-buy’ online retail space, jostling with the likes of Amazon Prime Wardrobe and Laybuy in giving shoppers the option to decide if they want to keep a product before charging them for it. Its Pay Later service – 14 or 30 days later, depending on the retailer – taps into a growing impatience among shoppers, one in three of whom have used a try-before-you-buy service, according to the Royal Mail’s annual Delivery Matters report, released in the UK in January. Klarna’s Pay Later service is now available at chains including Schuh, JD

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Sport and Topshop who are among the 17 per cent of retailers worldwide, according to the report, to have put try-before-you-buy at the heart of their returns offer. And it’s easy to see why: the same Royal Mail study says 60 per cent of online shoppers will not use a retailer again if they have a difficult returns experience, while 40 per cent said they would purchase more items if a retailer offers try-before-you-buy. Other Klarna payment services include Slice It In 3, where a payment can be split over three instalments at no additional cost, and Slice It, which works more like a traditional short-term loan, designed for larger purchases of £800 or more. The attraction for the online consumer is a fast, simple ordering process – they enter an email and delivery address and the payment is sorted later. Klarna assesses an individual’s creditworthiness by checking credit history and browsing behaviour. And while the business shoulders the risk of non-payment, it makes its money from retailer transaction fees – which the stores are willing to pay, since they typically see turnover soar when millennials take advantage of Klarna's short-term credit. Shoe retailer Schuh saw conversion rates rise 40 per cent for mobile and 25 per cent for desktop purchases when it introduced Klarna Checkout. The payment system was simpler than what went before and Schuh bolstered it with a 14-day Pay Later option. Siemiatkowski says: “What we’re trying to do is continuously innovate around the user experience. We seek to identify the pain

points that people have when they shop online – and there are a lot. “For one, we’ve seen a massive shift in the US and UK away from credit cards to debit cards. That means there are massive issues when you shop online. For example, when you buy something and you make a return, the merchant can be sitting on your money for up to three weeks. This is why Pay Later has really skyrocketed during the last 12 months in the UK after ASOS and a lot of other successful merchants launched it.

“The only thing we’re obsessed about is how we can save time and money, and make people worry less about their finances. What are the everyday problems that are left? What can we do from a shipping perspective, from a returns perspective, from accessing merchants’ customer care?”

All about the product In December, Klarna became one of the first payment services providers to join the Shopify Plus Technology Partner Programme, which will allow retailers in the US, UK and Germany, using the Shopify ecommerce platform, to implement the Klarna payment suite. But though such partnerships are clearly key to getting Klarna’s services in front of consumers, Siemiatkowski does not obsess about them.

“We try to not strategise so much, we try not to think about ‘strategic partnerships’ and all that kind of stuff, which makes for great press releases but very seldom results in anything that’s exciting,” he says. “Rather, it’s all about the product and improving it. And, I think, maybe as a consequence, if we are really successful, what we can do is help smaller merchants to provide experiences that are on a par with those from the bigger companies. “If we can remove the differences between the marketplaces and the small merchants, allowing them to operate in their own channels, allowing them to create great experiences, then that’s an amazing thing. I would be very proud as I headed home from work.” Armed with a banking licence, Klarna has launched its own plastic, but the poor potential for data collection from a card is a drawback, says Siemiatkowski. And it’s the data that allows it to gain insight into customer needs, to continue to innovate around customer service. He says: “Card networks today do not provide SKU-level data, which is essential to us and to the user experience that we give to our users. SKU-level data is going to be a big thing eventually, because once you have the depth of that data, combined with the wideness of what a bank knows about your life, there is an amazing amount of opportunity to make people’s lives easier. You can save them time, money and worries about their finances. So, I think that’s where it’s all going to head.” As regards Klarna’s geographical expansion, Siemiatkowski has been clear that he has no plans to enter the world’s single biggest market – China. He believes the likes of Alipay are too powerful a force to compete with. Instead, he pitches Klarna as a route for Far Eastern businesses to enter Western markets. But he does believe the West can learn from China's experience – particularly its centralised system for policing payment

We try not to strategise so much... it’s all about the product and improving it

Boxing clever: Try-before-you-buy has won over millions of customers

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fraud, which he believes the West will eventually adopt in some form, notwithstanding the different cultural attitudes to data privacy. “In Europe, and in the US to some degree, there is a very different mindset around the balance between privacy and security,” he says. “Look at anti-money laundering and know-your-customer policy. What has happened in Europe and the US is regulators, feeling insecure about how to confront these issues, have basically outsourced policing to the banks. They say ‘you scan through your transactions, you find the crimes, and you resolve them, and then report back to us’. Now, police don't normally outsource their activities, they don’t ask individuals or organisations to solve crime. “In China, they have realised that if the banks report all the data to a central unit, that unit can scan and recognise crime and fraud and that’s a policing activity. Now, obviously, with that comes a privacy concern. What if you have a central database that knows everything about all your citizens and users? But, regardless, I think that’s where we’re heading because it's simply a more efficient way of preventing crime. That said, privacy concerns will remain.” He believes there is no ‘silver bullet solution’ to businesses’ security concerns – a company simply has to find a level of protection that befits the transaction. “When we started Klarna, basically what consumers were asking for was safety, simplicity and flexibility. Card schemes were introducing security systems such as Verified by Visa and all that stuff, and in the UK it meant ‘enter the third, fifth and seventh character of your password’. That’.s an awful experience. “What people are starting to realise is that security has to be solved by risk-based assessments, depending on the potential for loss. The level of security for transferring one million pounds needs to be very different to me paying someone £10. So, you need to be able to assess the risk and, based on it, apply different systems in order to find that balance between speed and security.” Operating revenues at Klarna were up 36 per cent and transaction volumes up 40 per cent, according to its last interim report… And you thought the best thing to come out of Sweden was flatpacks? Issue 11 | TheFintechMagazine

CUSTOMER RELATIONSHIP MANAGEMENT

Rapping to a new financial beat Back in 1993, New York hip-hop outfit Wu-Tang Clan released what’s now seen as one of the genre’s seminal tracks. C.R.E.A.M (Cash Rules Everything Around Me) captured the city’s big divide. On one side of Upper New York Bay lies the ‘forgotten borough’ of Staten Island, where the group formed; on the other, reflected in the waters of the Hudson, the skyscrapers of Manhattan’s financial district, the home of Wall Street. At the time, rap and the financial industry couldn’t have been further apart: where rap music prides itself on subversion, the world’s biggest banks represented the very establishment that rap delights in lyrically savaging. But then the challengers emerged, creating exciting, edgy alternatives to established norms. And one rapper found he and they had something in common: disruption. For the past two years, the rapping entrepreneur will.i.am and the UK-based

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Atom Bank have been singing from the same song sheet. It’s a meeting of visionaries – he makes waves in music, Atom in finance. As will.i.am famously sang with the Black Eyed Peas, ‘it just ain’t the same; all ways have changed’. And when announced as a strategic advisor at the bank in 2017, his objective was simple: “I want to help Atom Bank navigate the changing of times.” Atom was the UK’s first digital-only bank when it launched four years ago. It found chart success within its first year, bursting into the top 25 banks in the UK with its record-breaking onboarding rates. In music terminology, a star had been born. More impressively, it’s not been out of the charts since, maintaining its position in KPMG’s global fintech ranking as one of the top 10 banks for three consecutive years. Meanwhile, when not in the recording studio, will.i.am has been creating products in fashion, wearable tech, AI software and Internet of Things platforms through his disruptive US-based tech company i.am+. And it’s that – not his seven-time

Grammy Award winning pulling power – which attracted Atom to him. As CEO and co-founder Mark Mullen says, the entrepreneur earned his position at the bank: “He’s not an advertising asset.” Nevertheless, they are an odd couple: a neobank based in North East England and an LA-born music legend. The man responsible for bringing them together is Mullen’s co-founder, the serial banking pioneer Anthony Thomson – Mr AT to will.i.am with whom he clearly enjoys a close connection, based on mutual desire to realise ambitious dreams. In a special edition of the 11:FS FinTech Insider podcast, recorded at Newcastle University last year, will.i.am says: “When I met Mr AT, Atom Bank was nowhere near being launched. He just came to me and said ‘hey, we’re gonna do this and when we do, we want you to be involved’. He says ‘we want to change what the word bank means to people – so much so that we’re even considering not even calling it a bank’. And that, to me, was wow! Mr AT’s one of www.fintech.finance

will.i.am and Atom Bank can both claim chart success… but the synergies between the rapper and the challenger go much deeper, as we discovered in this exclusive interview with 11:FS

Accidental banker: will.i.am has turned his talent for disruption to financial services

those guys and Atom Bank is his baby – it’s an amazing vision, I like what it means for people in the community.” In a series of recorded conversations posted on Atom Bank’s website, the pair exchange views on the nature of future-building. “You’ve got to be an optimist,” says Thomson, “you’ve got to believe there’s something better that can be done.” And for him, that optimism has paid off more than once. Metro Bank, which he also co-founded in 2007, became the UK’s first new high street bank in 100 years when it launched in 2010. He followed that with Atom, the first digital bank. And when he left his position as chairman in January 2018, ostensibly to embark on a book tour, he reemerged in Australia as chairman and co-founder of 86 400, another digital bank to challenge that country’s ‘Big Four’ institutions. 86 400 is due to launch this year (see box below). will.i.am shares Mr AT's irresistible itch to disrupt. Atom

Mr AT came to me and said ‘we want to change what the word bank means to people’. It’s an amazing vision – will.i.am

plays not only to the singer’s ‘creative innovator’ ambitions, but his social conscience, too. He’s focussed on bringing the benefits of technology to inner city kids, extending the chance of a better future because, as he says: “It’s not like you’re taking business lessons in the hood. “The folks that are going to be left behind are the folks that are not a part of the conversation. So I try my best to encourage inner-city kids to think and dream down this path, to educate and discipline themselves with skill sets like robotics, computer science and artificial intelligence (AI) at an early age.” The projects are funded by i.am+ because, as he quickly discovered, ‘it’s easier to raise money for AI than to get donations to educate people’. His business interests are both wide-ranging and far-sighted. Last autumn, i.am+ launched The Omega voice assistant platform in direct competition with the giants of Internet of Things provision – Google Home, Amazon Alexa, and Apple’s Siri – having already acquired smart home platform Wink in 2017.

A new world view: Leda Glyptis from 11:FS and rapper will.i.am

THOMSON CALLS TIME ON OZ BANKS

Meeting of minds: Atom Bank founder Anthony Thomson and will.i.am

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Unveiled in June 2018, Atom founder Anthony Thomson’s latest launch, 86 400, is looking to upset the dominance of Australia’s ‘Big Four’ banks by offering mobile digital banking to consumers. As with other emerging challenger banks, the business model sees digitally-driven savings converted into reduced costs for customers. Until recently, 86 400 has been operating in stealth mode; its 80-strong team busy ironing out the creases in its beta services before it’s publicly

available later in 2019. It’s currently awaiting a full banking licence, for which it’s applied to the Australian regulator. Named after the number of seconds in a day, 86 400 promises to offer round-the-clock, low-cost services to deliver to Australians what chairman Thomson claims will be ‘the bank that they deserve’. The business is currently fully funded by payments leader Cuscal and conversations with prospective investors are due to commence around now.

Issue 11 | TheFintechMagazine

CUSTOMER RELATIONSHIP MANAGEMENT Wink centralises control of smart home products through one easy-to-use app. Like Thomson, will.i.am is an optimist, particularly when it comes to the potential uses of AI for the good of society. “You can look at AI from the dystopian future perspective, and there’s a lot of that in film and journalism,” he says. “But, with faith in humanity and government, that won’t happen. If you’re building AI, the only governance is your conscience, so we are building AI for humanity. We’re building AI to turn the workforce into a super workforce, not to replace jobs. We are building it to empower people.” He understands the social implications of the technology that he and Atom are developing and he invites regulation. “No matter how much money you have, you can’t be like ‘yo, I wanna get to New York in an hour. I got $5billion in the bank. I wanna buy a stealth bomber’. That’s

Ambassador for change: will.i.am with the 11:FS Fintech Insider team

because there’s regulations put in place. But not for AI,” he says.

Futurist thinking Developing a line in wearable tech was a logical step for an optimistic futurist with prior experience in releasing fashion lines. At last year’s Entrepreneur360 conference in New York, will.i.am made the observation that what we call ‘wearables’ today will simply be called ‘clothing’ in the future. By the same logic, today’s challengers, like Atom, will simply be banks. HIs Puls smartwatch and other projects clearly demonstrate will.i.am’s value as an advisor to an Atom Bank board that has set itself the task of ‘redefining the relationship people have with money’. Despite the flight to online and mobile transactions, consumers remain skeptical

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about the role of tech in managing their finances. Even after the introduction of The Current Account Switch Service, run by BACS, the majority are reluctant to switch to a neo bank – whatever the benefits may be. To understand this disconnect, Durham-based Atom recently joined forces with nearby Newcastle University to investigate consumer attitudes towards financial institutions. The three-year project, named FinTrust, will look at the role of machine learning in banking, particularly in the context of automated lending decisions and whether these lead to bias and financial exclusion. A key priority is looking at issues around trust, identity, privacy and security. Speaking at the launch, will.i.am said: “People must have the absolute right to benefit from their own data… Banks like Atom, who are designing innovative digital financial products, need to be setting the

comprehensive personal data profile go right to the heart of why people are struggling to place their trust in some aspects of digital banking. “There is something missing in society right now, which is that I don’t have my personal data, my personal Cloud. Because of that, it brings a friction,” says will.i.am. There’s much for the team at Atom Bank to consider, then. And will.i.am’s presence in the board room – his unique perspective, eclectic experience and unwavering optimism in society’s ability to police AI and make it work for the public good – probably will help the digital bank reach the under-served communities he’s also determined to include in his brave new world. It’s likely to be a world where, ultimately, seamless financial activity is (perhaps literally) stitched into the fabric of our lives. Breaking into a spontaneous rap, he says this 4.0 industrial revolution is not like the ones that have gone before: “Where the car rendered the horse and cart obsolete, where the light bulb made the candlestick maker obsolete. This is a technology that will make the candlestick maker a better maker, the baker a better baker. It is going to make the raker a better raker.” Such faith in reinvention is something shared by fintechs who are challenging established banks and rappers challenging

If you’re building AI, the only governance is your conscience, so we are building AI for humanity. We are building it to empower people standards regarding the safeguarding and use of personal and financial data.” He makes the point that the unstructured data that's currently fuelling the banking revolution has become a key source of concern for consumers. “These days, your data really is who you are,” he says. “My name is William Adams – that’s what I was born as. Professionally, you know me as will.i.am. I’m 43 years old, my birthday is 15 March, my driver’s licence is X Y Z, my passport is L M N O P. “But those numbers and letters, that’s not me. Who I really am is who it is I know, where I’ve been, where I went, the words I use, what I like and what I don’t like. Collecting all that data will tell you damn near to the day exactly who I am.” The worrying implications of such a

the path laid out for them in the inner city. For both, progress is driven by a single-minded determination to see the status quo challenged and changed. Five years ago, in 2012, will.i.am made music history by becoming the first artist to stream a song from the surface of Mars. While not yet inter-planetary (that flag was planted by Monese, which announced the first bank account for Martians last year), Atom is pushing the boundaries of banking well beyond the traditional confines. It could certainly do worse than follow the example of will.i.am, whose rise to fame and riches was in spite of the institutional obstacles that stood in his way. So yes, rappers and challenger banks do have more in common than you might first think. www.fintech.finance

95% of data leaks are by human error not hackers!

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SPEAK UP FOR CASH!

Central banks from China to the Netherlands are pledging their support for cash as a payment choice. Ron Delnevo, Chairman of Cash & Card World and European Director of the ATMIA, says that sends a strong signal to those who’d rather see it disappear. But why is the Bank of England staying shtum? Until early last year, many thought that Sweden would soon inevitably be the holder of the dubious title of The World’s First Cashless Nation.

Then, suddenly, the clouds parted and the Swedish Central Bank – Riksbanken – recommended to the Swedish parliament that proposals be adopted that forced banks to provide access to cash deposit and withdrawal services at every bank branch in the country. Here is a direct quote from the Riksbanken Governor Stefan Ingves: “It is our opinion that all banks and other credit institutions that offer payment accounts shall be obliged to handle cash.” The Riksbanken’s intervention stunned the world and left the Swedish Banking Association lost for words – or at least any that made much sense. Threatening to report the Swedish government to the European Commission must rank as one of the biggest PR blunders in history! Game, set and match to Riksbanken? We shall have to wait and see – but the signs are good that Swedish commercial banks will now be expected to fulfil their obligations to provide a high level of cash services to their customers. In short, cash is now back on the agenda in Sweden, this time, hopefully, for good. I for one applaud Stefan Ingves for his newly revealed enthusiasm for cash and payment choice. Long may it continue. But it is not just Sweden’s central bank that has impressed recently. Many have. Take De Nederlandsche Bank (DNB), Holland’s central bank. As recently as 7 November 2018, DNB issued a bulletin with a very telling theme, namely ‘cash or cards –the customer decides’. In its bulletin, DNB reported survey

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already stopped accepting cash. In findings that a higher percentage of August 2018, the People’s Bank of China, Dutch retailers accept cash – 96 per cent the Chinese national bank, made a – than any other form of payment. forthright statement. That statement Tellingly, at the conclusion of its included the comment that ‘any vendor document, DNB stresses the importance found to have rejected cash would be of payment choice. Here’s what the Dutch punished’ and went on to confirm that the Central Bank had to say: “[Our] survey potential of a cashless society had been shows that cash payments still enjoy high ‘over-hyped’. Moreover, ‘cash has been acceptance rates, which are unlikely to fall rejected for some consumers in tourist to any significant extent over the coming attractions, restaurants, retailers and five years. The National Forum on the other industries. This damages the legal Payment System stresses that cash must status of the yuan, and hurts consumers’ continue to function properly as a means of rights to choose payment methods’. payment for both consumers and retailers, Clearly, neither damage to the Chinese even if consumers make less use of cash, currency nor the public’s right to payment as this will safeguard the accessibility and choice are acceptable outcomes for the stability of the payment system”. People’s Bank of China. This in a country where ATM numbers The Swiss National Bank (SNB) is have been declining and banks are another to have recently made very clear moving to a pooled system for providing its position on payment choice. In May ATM services, a modus operandi that has 2018, SNB reported the ‘multifaceted use led to a significant decline in bank ATM of payment methods by households in numbers in both Finland and Sweden. Switzerland. The results It seems that DNB may well not be prepared for Cash still [of our survey] indicate well-functioning a dramatic reduction in accounts the coexistence of cash and ATM numbers in Holland. for 79 per cent cashless payment methods, Many supporters of as well as a high level of payment choice for the of household satisfaction with existing public have had concerns purchases payment options on the that Holland was part of households’. potentially rushing Eurozone So, there is good evidence towards cashlessness even from both Europe and further afield faster than Sweden. DNB clearly shares that central banks are alert to perceived those concerns and is not prepared to threats to payment choice in general and accept that possibility. cash in particular. One aspect of particular Moving further afield, China has been note is that many central banks regularly subject to much recent publicity on carry out detailed analysis of the payments, with Alipay being portrayed payments market in their countries. as only one of several payment apps set This was highlighted at the European to soon remove cash as a viable payment ATM Industry Association’s recent ATM choice. Some businesses there have

the

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A world of cash: And most central banks are now happy to keep it that way

& Payment Innovation Summit. At the Summit, both the Bundesbank and the Banco de España, the respective central banks of Germany and Spain, produced detailed reports on payments in their markets. In the case of Spain, the report included steps being taken, in conjunction with Spain’s commercial banks, to ensure the Spanish public and businesses retain very convenient access to cash deposit and withdrawal facilities. Which is precisely, of course, what the Riksbanken has called for in Sweden. At the same ATM Industry Association (ATMIA) event, the European Central Bank presented its latest survey findings that cash still accounts for 79 per cent of household purchases in the Eurozone. With the continuing high level of cash use evidenced by the European Central Bank, it is surely hardly surprising that many national central banks take a very keen and proactive interest in the need to safeguard the role of cash in payment choice for their citizens. In a small number of countries, however, the position of the central bank is not so unequivocal. Some observers would include the Bank of England in this group. The delay in confirming that a new polymer £50 banknote would be issued has been cited by some as highlighting the Bank of England’s uncertain position in relation to cash. More important, www.fintech.finance

perhaps, is that the Bank of England, unlike many other central banks, does not carry out regular and publicly published payment market surveys. This omission leaves the UK vulnerable to the kind of over-hype condemned by the People’s Bank of China in connection with the supposed rush towards a cashless society. Put simply, every payments report quoted in the mainstream UK media is the work of vested interests – usually of the anti-cash variety. Surely, it is time for the Bank of England to step up and produce regular, detailed, unbiased reports and surveys covering the UK payments market? This would be a fitting legacy for Mark Carney to leave the people of Britain, when he eventually completes his notably successful period as Governor of the Old Lady. Another issue in the UK is that while, on paper (so to speak), the Bank of England retains an interest in cash itself, responsibility for the LINK ATM Network – now, of course, the most important channel for national cash distribution – has been ceded to the Payment Systems Regulator.

This division of responsibilities has clearly not worked in the public interest. Both bank branches and ATMs are rapidly being closed, undermining all types of access to cash, yet nothing substantive is being done by any regulator. It is almost certainly time for a new body to be established, one focussed on ensuring that access to cash is always convenient for both the UK public and businesses Finally – for now – it is surely not unreasonable to expect the UK’s central bank to make clear publicly and unequivocally that it will NOT accept the position of cash as a legitimate payment choice being undermined – as have the Riksbanken, DNB and the People’s Bank of China. In fact, the Bank of England seems surprisingly reticent. In a direct response to a question from me, Mark Carney recently stated that it is for the UK government to decide whether refusing cash for in-person purchases should be illegal. If this is the case, the Old Lady should surely loosen her stays and ASK the government so to rule, just as the People’s Bank of China must have asked. Surely, the financial inclusion needs of the British public merit the same interventions at central bank level. Issue 11 | TheFintechMagazine

STU'S LAIC FINAL EPS A THOUGHTS ISA 02/02 YENOM

Appy New Year!

Tech Titan and Payments Racer, Stu Thomas, our ‘man on the street’, gives honest reviews on the latest finance-related technology. So, what are his Top 3 money management apps to help us make good on our promises for 2019? It’s the start of a new year, so let’s crack open some financial fizz and celebrate my top three money management apps, launched by fintechs here in the UK. If you’re stuck with stuffy platforms from your current provider , make a resolution to up your game and get downloading – there’s even a little added incentive if you use the referral codes.

#1 CURVE We don’t have space to discuss all this flexible little card’s many superb features but here’s the core. Curve is designed to replace every single piece of plastic in your wallet. The app allows you to flip the card between the accounts you want to use, then you simply present Curve to the merchant as if it were the one you’ve selected in-app.

Curve is designed to replace every single piece of plastic in your wallet Spending through this card has several advantages, not least it allows you to easily track all of your outgoings across multiple accounts in a single app – you don’t have to spend half your day signing into multiple banking apps to check balances because Curve will do that effortlessly for you. But perhaps its biggest plus is that you can retrospectively change the

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card you used to pay, switching the debit to another card for up to 14 days after you’ve made the transaction. You’ve got to admit that’s neat! Want free cash? Use referral code YINLN for £5 pre-loaded to your account

£££

#2 CHIP This is the app for lazy savers; it takes the hassle out of saving by doing it for you. When you sign into Chip for the first time, you’ll be greeted by an AI assistant to take you through the set-up process. It takes a few minutes to link to your bank account before asking you what savings goal you’d like to achieve. Chip will begin to work in the background, figuring out what you can afford to put away towards saving in any given week and withdrawing it to your Chip saving account. The idea is that it will keep withdrawing small amounts, so that you don’t even notice the cash has gone, until one day – bingo! – you’re sitting on a sizeable savings pot. And you can earn up to five per cent interest on it, too! Want a higher starting interest rate? Use referral code F2DS1D

#3 STARLING OK, I know I’ve cheated here a little. Starling’s a bank, not simply a money management app, but Starling puts so many tools at your disposal to help you budget and handle

your finances, that it’s earned its place here. The app’s top functionality is ‘Spaces’, which allows account holders to create little pots of money that can behave in a variety of ways. You can set these to perform tasks such as rounding up the ‘change’ from a transaction and placing it automatically in a separate pot – and you can choose to increase the round up by multiples of one to 10. You can also set dates for a specific amount to be deposited automatically in a fund that you designate – perhaps you want to squirrel away £10 a week for nights down the pub – which can be set to end on a certain date or even after a certain number of deposits... mine’s a pint, thanks! To sign up, use the referral code 3CZGFFS7 To see more from myself, head on over to the YouTube Channel by scanning the QR code below or typing this into your URL bar (and don’t forget to subscribe whilst you're at it); www.stus.re/YouTube You can also find me ranting about terrible technology and being an A* keyboard warrior over on twitter at @StusReviewsUK If you think you have (or know of) a sweet piece of technology, a fantastical financial service or just a great gadget that you’d like to see here in this column or on the YouTube show, feel free to email me at hello@ stusreviews.co.uk. www.fintech.finance

#Sibos www.sibos.com