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FINTECH LONDON 2019 Prepare for the biggest Sibos EVER in the Financial Capital of the World! (So sorry New York!)

SmartStream’s latest AI release is the

DAWN OF A NEW AIR-A PLUS INSIGHTS FROM Pendo Systems ● Bankifi ● Citibanamex ● RBS ● Trulioo ● BPC ● EMQ Santander ● Banking Circle ● Starling Bank ● ACI Worldwide ● HSBC ● Bottomline ● Trustology


CEO speakers


fintechs on stage



2600+ attendees

Get ready for the 5th Edition!

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Dawn of a new AIR-a SmartStream AIR is hailed as a gamechanger – a reconciliation engine powered by artificial intelligence that has been trained on real-world data

14 The defence of our finances BAE Systems’ Applied Intelligence Unit takes a military approach to cyber attacks on our assets. First, know your enemy

18 Security: the end game The digital age has seen banks drawn into an intense, brain-melting, 24/7 real-time strategy game against cybercriminals and the cyber curious. Starling Bank discusses tactics

21 Return of the zombie LIBOR The sequel to the LIBOR scandal threatens to be a chiller for financial institutions sitting on an undead graveyard of unstructured data. Pendo Systems is teaming up with the good guys to drive a stake through its heart

24 Portfolio for change




It’s here, the biggest Sibos to date! To quote David Brear from 11:FS: “It’s like London has won the Olympics again.” So, this issue we’re going for gold with a packed edition, rippling with fintech muscle. We go into the data and security velodrome with the likes of BAE Systems and Starling Bank, where tactics are everything; enter the fastest race in the world (payments, clearly) with Apply Financial, BPC and others; deep dive into risk and regulation with Allevo, and watch SmartStream get off the blocks with AI. And, of course, we hang out with all the cool kids in the Discover Zone! But it’s not just about London. We look at some of the most interesting fintech markets around the globe, focussing on the LATAM nations and the exciting developments there in payments and financial inclusion; we

catch up with Ghela Boskovich in Japan; and, back home in the UK, we visit our friends in the north. Then it’s a sprint to the finish with challenges for business banking, insights into identity and crypto, and a review of Anne Boden’s new book. Did you recognise last issue’s ‘spine tingler’ ? “Your focus determines your reality ” was by Qui-Gon Jinn, the well-respected Jedi Master

The man who holds it at Santander Innoventures discusses fintech partnerships, AI-based predictive banking and the future of his industry

SIBOS: TECH & PAYMENTS 26 Joining the Dots How Volante is using Cloud-based payments technology to help banks monetise new opportunities arising from regulatory change

28 A global force for good All across the world, BPC is showing how digital money can change lives


32 ING on the inside ING’s benign Trojan horse strategy is benefitting the financial ecosystem


34 Speaking in code Validation software company Apply Financial set out to work with banks, ended up partnering with fintechs and is now seeing renewed interest from institutions as bank-to-bank payments look set to emerge as the preferred method of transaction

36 Stronger together Citigroup’s new Payment Outlier Detection solution is just one example of how a more inclusive approach to innovation can produce positive results


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82 56 75

48 39 Meet ‘The Enabler‘ Enfuce’s AWS-hosted platforms are changing the world of payments

42 Laying global pipes for money movement EMQ are the financial plumbers, transforming infrastructure for capital movement around the world

45 Chain of command Supply chain management software giant SAP says corporates are hungry for change – and blockchain is one way of delivering it

48 Big changes ahead for small business banking Banking Circle looks at the challenges and opportunities for fintechs serving SMEs

50 All aboard the Real Time Express Bottomline Technologies is helping to supercharge transactions by offering an alternative plug-in to payment rails… where will it take us?

52 In the business of doing business How Tinkoff makes its billions by behaving more like an ecommerce giant than a bank

SIBOS: DISCOVER 54 It’s all a matter of trust Trustology’s founder on the crypto space, Facebook’s Libra platform and building faith in decentralised finance

56 So, what is the future of… money? The Future of Money session will discuss the major disruptive trends likely to shape the financial services landscape and the notion of money itself. We take a peek over the horizon

62 A hitchhiker’s guide to the identiverse We probe the outer reaches of verification technology for an ethical solution to who owns our digital selves

68 When East beats West With the notable exceptions of Alibaba and WeChat and their respective payment apps, much of China’s innovation in financial and related technology is perhaps underestimated and underobserved by the West. What can ‘team China’ teach us?

71 Halt, who goes there? Companies can protect themselves against a growing army of imposters, while extending financial inclusion to those who legitimately need it, says Trulioo

75 Time to bite back Rivals are getting their claws into banks’ SME customers. But they don’t have to stand there and take it, says BankiFi

SIBOS: DIGITAL INNOVATION 79 Making a success of open banking It’s taken them a while, but institutions are at last responding intelligently to regulation that’s liberated financial services, according to Temenos

82 Epic AI Cora, the first digital customer assistant to be launched by a bank, is reaching out to NatWest and RBS customers in new ways

84 The platform pulsar Finastra went into open banking orbit with Now, it’s charting a bold course to the financial stars

SIBOS: RISKS & REGULATIONS 86 Yes, we can! With PSD2 now in place, Allevo believes banks already have the tools to change their models forever

89 Taking the strain TH Risk Solutions has five business pillars that prevent a fintech from crashing under regulatory weight Issue 13 | TheFintechMagazine


Embrace open banking and fintech collaboration with confidence

Avaloq provides a fast, ready to operate, digital wealth management solution out of the box. The solution is open banking ready and interfaces with a thriving ecosystem of proven fintechs and third party services. Plug in to the Avaloq community and co-create with wealth managers and banks responsible for managing $4.5 trillion of assets. Find out more, visit



120 94


108 Team finance

92 How to be a successful entrepreneur According to fintech author Agustin Rubini

120 The banking balance

HSBC Mexico is widening its choice of teammates as the rules of the banking game change

110 Tap-tapping on future’s door Santander has committed to implementing innovation ‘every day, every minute, in every solution’

94 Opening doors NDGIT believes PSD2 revealed a portal through which European banks can enter a new financial era

112 Payments! Let’s rumba Phenomenal smartphone adoption in Latin America has prompted an explosion in alternative payment methods, says ACI Worldwide

96 Dream big SVB is ‘venturing’ forth to help fintechs change the world

98 One giant leap for banking Now that the drama of liftoff is over, open banking will prove to be a cosmic jump for FS, says Crealogix


114 A new payments architecture BBVA is helping to build a new payments framework in Argentina

There IS life beyond London… FinTech North explores where the smart money is headed

105 The Japanese regulator as innovator

The scale of the digital challenge was clear when Citigroup moved into Mexico – a country where only half the population has a bank account

FACES OF FINTECH 118 The XYZ guide to investment

Ghela Boskovich finds a full circle approach to data sovereignty in Japan

124 Bite-sized banking Chetwood Financial is shaking up the components of banking and putting them back together in a different order

126 Wake up and smell the coffee! The erosion of convenient access to cash will make the emergence of cashless societies a self-fulfilling prophecy, fears ATMIA

THE PARIS FINTECH FORUM 128 Paris Fintech Forum is back ... and slots are filling up fast! LAST WORDS

116 Tech Mex

102 A tale of multiple cities

Anne Boden from Starling on taking a one-life approach to banking

136 Fewer unicorns, more zebras David Hoghton-Carter believes it’s up to responsible fintechs to define a new era of progressive economics

138 Up the revolution!

The next generation wants experiences, not products and with Dorsum’s My Wealth app, that’s what they get

Digital banking trailblazer Anne Boden’s new book is a rallying cry to the common people to ‘pick up your apps and march!’


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 Laimis Bilys

FEATURE WRITERS David Firth ● Tracy Fletcher Rachael Harrison ● Martin Heminway David Hoghton-Carter ● Alex King Natalie Marchant ● Sean Martin Sue Scott ● James Tall Swati Sanyal Tarafdar ● Emily Tatham


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Issue 13 | TheFintechMagazine



DAWN OF A NEW AIR-A SmartStream AIR has been hailed as a gamechanger – a reconciliation engine powered by artificial intelligence that has been trained on real-world data being used by global banks. We asked CEO Haytham Kaddoura, Global Head of Managed Services, Nick Smith, and CTO Andreas Burner what their (human) predictions were for the future

The beauty of artificial intelligence (AI) is that the more it’s used, the better it gets. And, after months of learning in its Vienna Innovation Lab, SmartStream’s AI has become very smart indeed; good enough to breathe new life into payment and liquidity management. SmartStream was not among the first to market with an artificially intelligent solution, and deliberately so. It has adopted a customer-first approach to developing SmartStream AIR, the software business’ latest intelligent reconciliation engine (it stands for AI In Reconciliation), which will be launched this autumn. AI is now also an integral part of TLM Aurora, SmartStream’s existing, widely deployed digital payments control solution. “We waited on the sidelines when


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others were going out there to tout AI. While AI appeared to be in everything, it was diffused and ill-defined,” says Haytham Kaddoura, SmartStream’s chief executive. “People were claiming AI was being used when what they had wasn’t really AI, or their solution couldn’t use it. “SmartStream AIR is a genuinely AI-powered reconciliation engine, plus we’ve introduced AI-enabled components into our core solutions. From this year, AI becomes central to our managed services offering and for our digital payments solutions.” Reconciliations have long been the lifeblood for SmartStream – Deutsche Bank being just one Tier 1 client to have outsourced its entire reconciliations operation to the company – so, when its Vienna lab was set up in early 2018 to be the test bed for future products, reconciliation was identified as one of the first AI use cases. Like many of SmartStream’s products, AIR is a plug-and-play, Cloud-based system, meaning it can be set up quickly and avoids major capital expenditure. Kaddoura says: “There’s no question that with SmartStream AIR we have a gamechanging product that achieves things no one else’s products can. It’s so much more efficient in areas such as exception management and data loading. And the major angle regarding AI is that AIR is smart enough

to detect what kinds of field you are trying to reconcile and offers its own analytics to do that. “Meanwhile, we also have the benefits of AI within the Aurora family of products that manage digital payment control. This shows that, for us, AI is more than just a label; it spans everything we do and offer. It’s a feature of new products and existing ones. This is where SmartStream is evolving to.”

Arise, Aurora, for an AI age TLM Aurora is the latest incarnation of the Transaction Lifecycle Management platform SmartStream has offered since 2006. It is designed to support the new industry standards for digital payments and covers mobile, cash and card payments, digital currencies, settlements and reconciliations. It connects with global payment system SWIFT gpi and blockchain-based networks. With payment transaction volumes exploding due to factors such as contactless technology, Aurora is designed to be scalable, cater for real-time analysis and reporting, and can support organisations of all sizes. “TLM Aurora is far more than just an upgrade,” says Kaddoura. “It’s the result of years of R&D at SmartStream and draws on valuable insights and intelligence from our clients and partners. As digital transformation increases, banks need more controls to link

From this year, AI becomes central to our managed services offering and for our digital payments solutions… This is where SmartStream is evolving to

existing infrastructures through a single solution. “We discussed TLM Aurora with several banks and focussed on the need for better data discovery, data modelling and data simulation. We recognised that liquidity management, reporting to the regulators and understanding future cash flows were critical on a daily basis.”

The power of the Cloud While the use of AI in technology such as internet search engines and sat nav software is now accepted and commonplace, its use in the banking industry is far less established. Tight regulation is one reason for banks’ reticence to adopt – when customers’ money is involved, both financial and reputational stakes are high. A survey of industry players by SmartStream, together with Waters Technology, found that 26.3 per cent of them had AI live in their back-office operations, while 27.6 per cent were trialling it at proof-of-concept stage. Another 19.7 per cent were considering a proof of concept, but a large number, 26.3 per cent, had no plans to use AI at all.

The figures show that, for all the talk, the outlook for AI-driven systems in the financial sector remains cautious Legacy IT systems are another brake on innovation for established banks, and that is why the Cloud-based software-as-a-service model is so important to SmartStream. The firm’s global head of managed services, Nick Smith, has witnessed an increasing number of existing clients, who had SmartStream services hosted on-premise, moving to its Cloud-based solutions. This, he says, is often due to the dawning realisation that their legacy systems had reached operational limits. He adds: “Upgrading servers is an expensive proposition for a Tier 1 bank. They can avoid that capital expenditure and the additional, and ongoing expense of maintaining the hardware, by moving to the Cloud. A lot of businesses have a Cloud strategy already in place, but we can demonstrate the value we add, part of which is around cost, but it’s also about the service delivery.

“There’s a real value proposition that trickles right through their organisation. And we can validate that by providing live case studies – people can talk to our clients and they will confirm exactly what we are telling them.” Plugging in SmartStream’s AI-driven software will now see them reap the benefit of systems with far more powerful forecasting power than had been available before, according to Kaddoura. “As well as better management reporting, they’ll get better predictive analysis that can forecast how particular transactions, or cash positions, will be affected by various external and internal factors,” he says. “If a payment gets delayed, for example, how does that play out in the treasury operations of the bank? Knowing this will enable better decisions about capital deployment. The areas it touches on are multiple – operational efficiencies, enhanced risk management and capital deployment.”

Sunrise on data: AI will enhance and improve reconciliation and payment control

Issue 13 | TheFintechMagazine



It’s super Smart! In developing its new generation of intelligent software, SmartStream has benefitted from its huge customer base of 1,500 clients, which include 70 of the world’s 100 biggest banks. It has learned by harnessing the data provided by these contracts. “We run operations on behalf of banks, and we deploy AI internally on what we run, and then realise those benefits elsewhere,” adds Kaddoura. “The software solutions we deliver are not driven by hypothetical issues we’re trying to prove, they are the result of work we have done and proved internally. We’ve put our software to the test with existing clients and it allows us to then develop our commercial products.”

powerful data analytics, SmartStream was able to take the step towards AI to re-engineer traditional work models across back-office processing. Kaddoura says: “Banks have collected data ever since they existed but it’s only in the last decade that they have started realising the value in it. Having the right data in the right format, updated consistently across their client base and operations, is now the big challenge. “There have been some major reports recently that have looked at the banking infrastructure’s ability to clean and enrich this data, so that it is useful from an AI utilisation perspective. AI is going to make financial services much smarter and more efficient. It has the ability to pick up data trends much faster than any human can and

shared between customers. On top of this, SmartStream has a 20-year plus reputation for serving the industry to uphold. Kaddoura says: “There’s a strong level of trust that is moving us increasingly into a greater strategic role in relation to these financial institutions. I think it’s down to the changing nature of the environment that banks are increasingly wanting to work strategically with a fintech such as SmartStream. “Bank IT departments, with all due respect, are not necessarily sufficiently funded, or geared up, to address requirements from a wider industry perspective. It’s much more efficient for a fintech player, which is well embedded with financial institutions on a global basis, to do so. SmartStream is happy to be playing that role. And it means our

that makes the banks much more responsive in addressing their own regulatory requirements, their feedback to clients and all their stakeholders.”

portfolio of products and services is growing.” Smith adds: “It’s been a J-curve in acceleration because we recognise that, in this day and age, nobody wants to sign up with a vendor and then hear it’s going to take six months before they see any benefit to their organisation. Our dedicated teams do this day in, day out and, as they’ve got smarter, the automation of client onboarding has got better and faster. “It’s also important to say that we’re not an outfit making a play because we see a space in the market. There’s a real commitment here and real investment at SmartStream, to make sure our clients are going to want a long-term relationship with us.

AI is going to make financial services much smarter and more efficient. It makes banks much more responsive in addressing their regulatory requirements, their feedback to clients and stakeholders Of course, data is key to the success of AI, and when a client buys into SmartStream’s AI solutions, they must also buy into its obsession with data hygiene. To process the vast quantities of data needed to cope with modern digital banking systems, the company has developed tools to organise and store data in a standardised format to avoid a garbage-in/garbage-out scenario. At the company’s core is the SmartStream Reference Data Utility, originally created in partnership with US banking giants Goldman Sachs, JPMorgan and Morgan Stanley. It helped the company’s first clients by providing complete, timely and accurate reference data on request. And with a history of such

Something to prove SmartStream’s launch of AIR and the AI enhancements to TLM Aurora fuel the financial sector’s potential to embrace an artificially intelligent future, which has until now been held back by low levels of internal IT expertise in AI and related fields, as well as a lack of investment following the credit crunch. SmartStream’s mutualised model provides a solution to these problems, since expertise is outsourced and the costs are effectively

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SIBOS: AI, DATA & SECURITY “I spent 25 years working in Tier 1 investment banks, doing the same role as I do today at SmartStream, running the day-to-day operations,” adds Smith. “The standards we bring to the organisation and our clients are exactly what the banks experience internally themselves, including the risk and control framework and the constant drive for improvement.”

An international spread SmartStream is a truly global company, providing solutions for financial players in every major region. So, clients are right to

ask how Cloud-based solutions can meet the specific demands of regulators around the world, and Kaddoura admits that in the past this has been an ‘Achilles heel for any Cloud services provider’. However, he argues that as hosting services offered by the likes of Amazon, Microsoft and Google become more geographically widespread, those providers lay the groundwork for compliance. He says: “Some of the challenges we face are in more mature markets, but to take Amazon Web Services (AWS) as an example, its data centre in Bahrain will help with a lot of our clients’ needs in the Gulf. Other centres are being rolled out globally.

“By working with Cloud services providers, we’ve helped to address these issues.” Smith adds: “AWS has a global footprint so, for instance, clients in Australia benefit from its Australian data centres and our clients in North America benefit from its data centres there. “One of the other benefits of using AWS is that we’re able to onboard clients quickly. “It can take six weeks from initiation to going live for a firm such as an asset manager with a global reach. That’s extremely fast and it’s down to AWS’s global coverage and our in-house capabilities.”

Winning edge: Perfection is the name of the game for SmartStream

FAST OFF THE GRID The emergence of AI in SmartStream AIR and TLM Aurora has been delivered within a mere 18 months, thanks to input from the company’s Vienna Innovation Lab.

Led by chief technology officer Andreas Burner, the vision was to create a lab with the ethos of a works Formula 1 motor racing team – whereby the very brightest technologists build and test potential products away from the main business’ ‘shop floor’. Haytham Kaddoura says: “At the start of 2018 the lab wasn’t even here. But we had been watching and listening to our clients’ needs closely, so we had clear ideas about what the market wanted. “We’ve been able to turn around products relatively quickly because we had concrete foundations. Unlike a company working from a concept, we already had the software solutions being used by clients, and we have developed the AI edge for them. What we can do that many rivals can’t is marry


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our history, our knowledge and expertise with this new technology. Our approach to building these software solutions is totally consumer focussed.” Nick Smith says that, because of this, reconciliation was an obvious area for the lab to develop an AI dimension, and it is now helping to reduce the manual, human work his branch of the business conducts. The exceptions gap has already been closed to around one to two per cent, and the target now is to use machine learning to narrow it further. “Clients don’t really care about auto-match rates of 98 per cent or 99 per cent,” he says. “They care about the remaining one or two per cent because that’s where their work effort is spent. The AI developed in the lab sets about this, monitoring that one or two per cent and reducing those numbers. The clients then benefit, because they see fewer exceptions flowing back to their organisation.” However, Burner is keen stress that his lab is looking beyond simply

automating human work. Because people with expertise in both the finance sector and data science are scarce, he argues they need to be used to their full potential. “In my lab there’s an excellent mathematician who created a machine learning model based on echo state networks – a very interesting technology to predict data,” Burner says. “It took him two months and it was amazing when we saw the results, how well it can predict around holidays and other events.” He adds that the possibilities for machine learning are continuing to grow. “You can train machine learning algorithms on thousands of levels: you can run it on your bank’s balance, you can break it down on a department level, you can break it down per currency or per country. “It will monitor and predict on those thousands of detailed levels where, as a human, it’s impossible; you would need a massive amount of people working on that.”

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The defence of our finances Industrialised fraud, digital money mules, social engineering… BAE Systems’ Applied Intelligence Unit takes a military approach to cyber attacks on our assets. Gareth Evans, Senior Business Solutions Consultant for Fraud Prevention, says know your enemy, work with your allies and don’t be a sitting target

Open banking, artificial intelligence (AI) and big data are all transforming the way people bank. But while greater connectivity promises wider deliverables, it also paves the way for the emergence of new vulnerabilities. The data-driven concept of open banking is being hailed as a way to revolutionise the financial services industry, increasing competition and innovation in the market. Criminals, on the other hand, see an infinite number of new vectors for fraud, making financial crime harder to identify and defeat. How to be open and at the same time more secure is the contradiction that many are working to solve. One of the biggest is BAE Systems, better known


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perhaps for national and supranational defence and security projects, from long-range missiles to military communications. Its Applied Intelligence Unit took the company’s expertise in electronic warfare and used it to improve the defence of our finances. It explores ways to confront new-age cybercriminals and develop effective strategies for cybercrime management with a proprietary suite of commercial applications under its NetReveal brand. Gareth Evans, BAE Systems’ senior business solutions consultant in fraud prevention, says that to be truly future-proofed, an institution must be a moving target – faster than the criminals seeking to attack it. On open banking, he

is clear about the benefits – and the risks. “It’s a huge opportunity for new players to come into the market, offer new products and services and change the interaction between the customer and the bank. It’s massive. But it also opens up more threats, more opportunities for fraudsters to exploit. I would say that both the biggest opportunity and the biggest threat at the moment sits within open banking,” says Evans. Open banking and the revised Payment Services Directive (PSD2), which sits at the heart of the open banking initiative in Europe, herald a shift from a closed banking model to one where banks must be able to support customer requests to share data securely with other trusted

SIBOS: AI, DATA & SECURITY third-party providers (TPPs), typically via application programming interfaces (APIs). As a result, a bank’s security perimeters are extended beyond its own infrastructure. “What we are seeing is the attack vectors widening,” says Evans. “In the past, people used to target your bank account because that was the obvious place to go after your money. Now, it’s not just a case of trying to get hold of your data via social media and looking at your online footprint – using Twitter to see when people are complaining, and then messaging them directly to say ‘hi, I’m calling from A, B, C bank, I understand you’ve got a problem. Can you give me your password, I’ll have a look’. Now, they’re using third parties. They're saying ‘hey, I’m calling from Uber’, or ‘I’m calling from Airbnb’. Customers are conditioned to not giving their bank account details or confidential information to a bank until they verify it, but I think they’re less ready to think like that when it’s somebody that’s not their bank calling them. “In the same way, with social engineering we’ve seen people like solicitors and the invoicing or procurement departments of organisations being targeted in order to commit fraud further down the line – not just going after the bank. I think that will continue. The bigger the digital footprint we have and the more the banks open up, the wider that attack vector is going to get. It’s not just the obvious targets, it’s the route that gets to that target.” Crowe Clark Whitehill, administrator of Cambridge Analytica, the political consultancy at the heart of the Facebook data scandal, says companies are now losing an average of seven per cent of annual expenditure to fraud, with the global cost topping £3trillion. And, according to the Financial Conduct Authority (FCA), the total annual bill for UK banks for fighting cybercrime and online fraud is £6.7billion. Banks need to move away from a compliance-based view of security, where businesses look at the controls needed to protect their assets, and think more like a potential attacker for whom contact information is now of more value than assets, says Evans. In July, the personal details of about 106 million individuals across the US and Canada were stolen in a hack targeting

financial services firm Capital One. The data leak, which affected consumers and small business owners who had applied for credit card products, included names, addresses, phone numbers, self-reported income, credit scores and payment history. While no immediate financial data was involved, context created with the other information was a phisher’s paradise. More than a hundred million Capital One customers are now at serious risk of fraud. The data breach, one of the largest in banking history, is believed to have been carried out by a lone hacker. So, is the greatest threat from the individual or organised gangs? “It’s a combination of both,” says Evans. “Fraud itself has become industrialised. You have organised gangs who go after the data, but it’s also segmented. Rather than one person trying to commit all the fraud in one go, they will have people who will just be mining data, people who do the data management exercise, trying to break that down into usable data and getting rid of all the noise. You’ll then have people who’ll use that data to target specific banks, in specific regions, in specific countries. There are also people out there who are out recruiting mules, so that they can move the money from the victim’s account, through the mule accounts to the destination. And then there are people who are doing no more than building tools to capture that data. “There’s a huge currency on the dark net, for instance, and in the black markets, selling fraud detection tools, cyberhacking tools, selling data, selling access to accounts. It’s an entire industry and there’s not one silver bullet to it. We need to understand the entire ecosystem.” Evans cites AI as one of the key technologies capable of stemming loss from fraud by making detection of small-sum crime that adds up to big losses more robust. It can help banks identify who the genuine user is by building up a detailed picture of their behaviour and spotting anomalies, or patterns, in transactions that might indicate fraud. “I think AI has so many uses across

banking, some positive, some maybe not so positive,” says Evans. “From a fraud defence perspective, we use AI to help improve models. Traditionally, we used to look at detecting fraud through a series of questions, if you like, but with AI we can become a lot more granular with that. “On the other side of the equation, banks are able to tailor user journeys to customers using AI, better understanding their behaviours and profiles. That can allow the bank to better communicate, to give a better experience, but it also makes it a more secure experience because it becomes more individual. So, simple things like the AI being able to understand what your communication preferences are, and how you start those communication preferences, which can give me confidence that it is the bank that’s speaking to me and not a third party.”

Security and AI Cloud technology is becoming an indispensable element of digital strategy for banks, enabling them to provide the on-demand services their customers are used to getting from other consumer industries. But concerns around security have often held banks back from embracing it fully. “I honestly don’t feel that Cloud necessarily changes the bank’s security, either positively or negatively, because the Cloud infrastructure today and the closed datacentre that the banks have traditionally used, are both very secure,” says Evans. “Even if it’s a public Cloud, the security is the same. That being said, I’ve never truly seen the banks as the real point of vulnerability so much as the customersof the bank. “Where I think the Cloud does add value is in smaller organisations that might interact with a bank as third-party payment providers, or other small companies that maybe don’t have the resources, financial and people, to shore up their defences. By collectively sitting under someone like Amazon, Google, or Microsoft, which do have those resources, they become more secure.”

Both the biggest opportunity and the biggest threat at the moment sits within open banking

Issue 13 | TheFintechMagazine


SIBOS: AI, DATA & SECURITY BAE Systems helps banks hand repetitive work to robots and automates as much of the process as possible to free up employees. Machine learning, AI and robotic process automation, it says, have much to bring to the table, and successful organisations will be those that combine human and machine intelligence. AI can play an important role in routine cybersecurity functions, such as filtering out phishing emails, which are difficult for people to spot. “So, one of the things we can do, specifically around social engineering and machine learning, is, rather than looking at binary scenario rules, which are effectively saying ‘what are you doing and is this you?’, we can look at many more data points, that analyse other similar behaviours to that which have previously resulted in, say, a social engineering fraud. “It becomes less reliant on understanding if you are you and rather asks ‘what is your behaviour and what does your behaviour look like against a selection of other behaviours that we’ve observed among other customers?’. We can identify examples of manipulation/social engineering by looking at patterns of behaviour, rather than at individual, linear behaviours. But that’s just one of the things that we’re doing with AI,” says Evans. “We’re also looking to become more efficient in terms of how we manage fraud. It’s not just about identifying fraud, it’s about how you manage the experience around that by dynamically looking at things like the customer interaction, to step up authentication, increase the journey where it’s riskier and decrease it where it’s not. “I often say that the most important thing in a fraud system is not actually detecting fraud, which sounds pretty strange, but it’s telling you, with confidence, when it’s not fraud – because if you know it’s not fraud, you can build a whole number of customer journeys into the equation and give the optimal customer experience, and you can allow that customer to have a really satisfactory view of your bank.”

A cross-industry response Banks that future-proof their compliance and fraud teams represent a moving target to single bad actors and criminal enterprises, but there is also a strong argument for active and early co-operation with competitors, regulators and law enforcement. Merely responding to threats isn’t enough. Banks prevented two-thirds of fraud attempts in 2018, according to trade body UK Finance, but a lack of support from authorities is making the job harder, believes Evans. “There isn’t really a deterrent to fraud,” he says. “But if someone has successfully stolen the money, then the police can

The most important thing is not actually catching fraud, which sounds pretty strange, but it’s telling you, with confidence, when it’s not fraud


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prosecute. So how do we work with law enforcement to get better at going after attempted fraud? We need to tackle the r oot cause and take out the mule accounts.” A recent report from Her Majesty’s Inspectorate of Constabulary and Fire & Rescue Services in the UK revealed that one police force filed 96 per cent of well-evidenced fraud reports without further investigation. “Within BAE, we’ve got something called the intelligence network, which is almost a kind of social experiment where we are trying to create thought leadership pieces in conjunction with financial services authorities to tackle subjects like cyberfraud,” says Evans. “Rather than put the onus on the banks, independently, or on the vendors, to come up with a technological solution, we’re

saying how do we collectively, as an industry, work towards solving the problem? How do we tackle this?’. “The BAE intelligence network helps in that task by running workshops, sharing thought leadership pieces, videos, etc. I think that, in many ways, the industry getting together to solve problems is probably a stronger solution than saying we just need to educate our customers, and putting a help page on a website.” Clearly, new technology like AI must be part of the industry’s arsenal in responding to and deflecting fraud, but banks must also look at, and be prepared for, who else is using it. If financial institutions

No silver bullet: Countering fraud relies on a number of things

see its benefits, so too will the ‘bad guys’. In March this year, cybercriminals used AI and voice technology to impersonate a UK business owner, resulting in the fraudulent transfer of $243,000 (£201,000), according to a report in the Wall Street Journal. An unknown hacker group is said to have exploited AI-powered software to mimic the individual’s voice to fool his subordinate, the CEO of a UK-based energy subsidiary. The hackers were then able to convince the CEO to carry out transactions in the guise of urgent funds destined for its German parent company. This kind of attack could be a sign of things to come, according to some cybersecurity specialists, who expect to see a huge rise in machine-learned cybercrimes, raising the question: will protection of our funds and personal security ultimately come down to who has the smartest robot? BAE Systems will be revealing its latest version of NetReveal at Sibos 2019. Two years in the making, it will help financial services out-think the bad guys… for now.


Security: The end game

The digital age has seen banks drawn into an intense, brain-melting, 24/7 real-time strategy game against cyber criminals and the cyber curious. Harriet Rees, Head of Data Science, and Simon Waring, Chief Information Security Officer, at Starling Bank, discuss tactics As more and more of us trust our finances and transactions to digital technology, an ongoing war of attrition is taking place between the global banking industry and cyber crooks. It’s a 24/7 conflict with constantly changing battlefields and rules of engagement. Could the next raid on your personal data be initiated by your kettle or fridge freezer by virtue of their connection to the Internet of Things? Will biometric advances enable criminals to render redundant still-evolving security measures, like fingerprint recognition, as even your body parts become too vulnerable to counterfeiters to be considered secure authentication? And will any smart phone be safe from increasingly sophisticated malware? This is the financial technology arms race that’s usually conducted behind closed doors. It’s one in which the boundaries between ‘good and evil’ are sometimes blurred for legitimate, tactical reasons. Take ‘bug bounties’. A small-but-growing number of financial institutions are now willing to crowdsource ‘curious’, as opposed to malicious, hackers ( ‘security researchers’ , to give them their sanitised title) to test the defence of their systems. They are rewarded for disclosing any weakness they detect in what have become known as bug bounties. Starling Bank runs a responsible disclosure programme, as Harriet Rees, Starling’s head of data science, explains. “The disclosure programme is essentially a break- the-bank programme where we invite people to try to break


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through the security systems. If they can, it allows us to then see where a potential vulnerability would have been.” The scale of the problem the industry faces is hard to ignore. Between 2017 and 2018, £1.2billion was stolen through digital scams and fraud in the UK alone. About a third of that (£393 million) was through personal details illegally obtained to make online payments, according to banking trade organisation UK Finance. Incidents of card-not-present (CNP) fraud grew by 49 per cent, while card ID theft leapt by 117 per cent. So, the conundrum now faced by banks is how to retain customers’ confidence in the security of their digital systems, while continuing to make the user experience as fast and simple as possible. Getting that balance right is especially critical to newcomers like Starling, which in 2017 became the first digital challenger in the UK to offer an app-only current account with a full banking licence using Cloud-hosted technology that it developed in-house, hosted by Amazon Web Services with Google as back-up. Key to Starling’s open banking business model is its Marketplace, which allows select third party providers to link directly with its 820,000 customer accounts over the Starling application programming interface (API). In addition, Starling offers a number of external integrations over third party APIs. Rees says protecting it from cyber attacks has been a key concern from day one, and is constantly evolving. For instance, in March this year, Starling started to rollout 3D Secure, a one-time password system for online payments by its customers, ahead of the imminent

introduction of new EU anti-payment fraud regulations that make such systems compulsory. "Fighting cyber fraud and cybercrime is important in every industry today, but we are a digital bank, so it’s our number one concern, and something that our customers feel confident that we are handling appropriately,” says Rees. The bank benefits from a purpose-built, dedicated interface that securely identifies every third party accessing customer data; the credentials of each third party are unique to them and the level of access they are granted is also unique to them, giving the bank maximum visibility. Starling would argue that, effectively, makes it more secure than methods used by some other banks.

Thinking the unthinkable Organisations that have embraced open banking have accepted that a castle and moat approach is no longer enough and the temptation to ‘do security by obscurity’ not an option. Instead, Starling’s penetration testing (or pen testing as it’s known) is a combination of sophisticated technology and psychology that combines the best human and artificially intelligent brains. And it is conducted both internally and using external specialists, who are parachuted into the most sensitive areas of the system to see what damage they can do in a controlled environment. “If we’re thinking like fraudsters and hackers, we have the right mindset, and can then try building the controls to prevent that happening before it happens for real,” says Simon Waring, Starling’s

chief information security officer. He explains that automated programmes are used to carry out much of the grunt work of internal testing but Starling’s software engineers also have to think outside the box – for example, to see what an misplaced letter in a numerical field for a telephone number might innocently

a lot more consistently across the board. When we’ve done it once and know it’s working, we can keep testing it in an automated fashion,” he says. “Being in the Cloud gives us all the tools we need to do that. We’re able to take metadata that shows how our data is used and feed that in to AI and machine

Cloud technologies, and the longer we keep doing that, the better we’re going to get at it.” Mindful of multi-target attacks, like Wannacry which immobilised systems worldwide, Starling is one of many financial institutions globally that are employing external security machine learning software. It monitors Starling’s and many other banks’ meta data and alerts them to emerging threats, even devising patches to eliminate them before a bank falls victim. Rees adds: “Today, we have masses of data to sift through and analyse, and that allows us to work in a way which is preventative of these sorts of attacks, rather than solely reactive. “Learning from industry-wide trends, we can put measures in place before they’ve even happened at our door, to make sure that we’re prepared when they do arrive.” Rees foresees that technology will continue to revolutionise what banks do for their customers, opening up previously unimaginable services. Just last month, Starling added two apps to its Marketplace that help its growing number of small business customers protect their own systems against cyber attack. Insurtech Digital Risks offers cyber insurance targeted to the needs of small and medium-sized enterprises (SMEs), while the CyberSmart platform identifies a business’s digital weaknesses in less than 60 seconds and recommends fixes using a simple online dashboard. It also helps customers achieve Cyber Essentials government certification. “It’s very exciting to be a financial institution like Starling at the moment, because there’s just so much going on in the fintech and wider banking space,” says Rees. “The challengers have elevated what customers expect from their banks. We now see some of the incumbents rising to that challenge; features we launched a few years ago are appearing in their apps. Do we see it as a threat? No, we welcome it. It’s better for all of our customers. The challenge for us is to keep innovating and keep up the pressure!”

We know that this is an evolving space and we always have to be one step ahead

unlock. It’s all about revealing the known unknowns in data security. "We know that this is an evolving space and we always have to be one step ahead of any cyber criminals out there,” adds Rees. The bank’s born-in-the-Cloud infrastructure gives it a distinct advantage in that regard, says Waring. “We’ve been able to implement controls

learning algorithms to detect anomalies. The Cloud allows us to do that at scale. We can plug into different systems, analyse that data to work out what’s being used where and, if something’s not right, we can drill down on it to find out what’s going on. “We will keep developing our own internal systems, based on

Issue 13 | TheFintechMagazine


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n r u t e R of the e i b m Zo The sequel to the LIBOR scandal threatens to be a chiller for financial institutions sitting on an undead graveyard of unstructured data. But Ann Heron, Chief Strategy Officer at Pendo Systems, is teaming up with the good guys to drive a stake through its heart So, what was it that so moved the Federal Bank of New York’s General Counsel Michael Held – not an office holder given to using inflammatory language – to describe it as ‘a DEFCON 1 litigation event if ever I’ve seen one’? It was five letters that spell out a concept so far removed from most people’s sphere of reference that the BBC had to post Janet and John-style explanations of what they meant when LIBOR first penetrated the public consciousness around 2012. (And, even then, it got the acronym wrong). The LIBOR scandal, as it came to be known, saw a sequence of major international banks, all members of

the cosy London Inter-Bank Offer Rate-setting club, hang their heads in shame and pick up hefty fines from regulators for manipulating a benchmark that impacts around $400trillion of financial products – from floating derivatives to your monthly mortgage. That was the first hint that LIBOR, once described as the world’s most important number, could be on a slow slide to oblivion. And by 2021 it will be well and truly dead, the nail happily banged into its coffin by regulators across the world who have instead been working up alternative, reference rates. In the US, the preference is for the Secured Overnight Financing Rate (SOFR); the UK is leaning towards the Sterling Overnight Index Average (SONIA); while other markets have chosen EONIA for trading in Euros, SARON for the Swiss franc and TONAR

The whole exercise has raised the terrifying prospect of a ‘Zombie LIBOR’ that persists in undead form in legacy contracts

for the Japanese yen. (And you thought LIBOR was tricky?). The problem comes not in setting rates for future products, but in determining what the rate should be for those pre-existing agreements that were pegged to LIBOR in the past. Not only is the adjustment not going to be a like-for-like swap, but financial organisations must first identify from the millions of records they hold, what needs to be updated and how. Legacy is probably an over-used word in financial services now, but the mathematical and administrative headache that it is creating for financial services companies is not one you’d want to inherit. The whole exercise has raised the terrifying prospect of a ‘Zombie LIBOR’ that persists in undead form in legacy contracts long after the real world has moved on. US advisors Arnold & Porter point out that ‘an estimated $350trillion of currently outstanding LIBOR-linked financial transactions expire after 2021 (in comparison, the US national debt is $22trillion)’. So, what can be done about it? Ann Heron, Chief Strategy Officer at Pendo Systems and herself a former senior officer at the New York Fed, has been close to the issue for some time. Issue 13 | TheFintechMagazine


SIBOS: AI, DATA & SECURITY “The industry has never seen a challenge of this scope, scale and complexity,” she says. “A manual approach to navigating the LIBOR documentation challenge simply will not work. Data discovery is the first critical step. The sooner a firm knows its LIBOR exposure, the sooner it can begin the onerous task of remediation and related operational system changes. So, time is of the essence.” With the clock ticking, Pendo Systems will be revealing its LIBOR Fallback Engine at London’s Sibos – it’s one that uses its advanced AI and machine learning ‘from data discovery to contract remediation through to data curation’. “This solution is made possible by combining two distinct capabilities,” says

A nuclear event for financial services: The world is about to push the red button on LIBOR

Heron. “The first is around unstructured data, the data that doesn’t fit into a table so it’s not machine-readable. LIBOR contracts and financial statements are great examples of unstructured data. If you can’t access and manage your unstructured data, it’s going to be nearly impossible to be successful with the LIBOR documentation challenge. “The second capability is workflow. Workflow is an intelligent system that is needed to handle the waterfall of logic and business rules associated with LIBOR decommissioning.” Pendo uses its proprietary software to tackle the discovery phase. Once it’s ingested all of the documents and determined if they’re LIBOR or not LIBOR, it scripts the data extraction rules to meet the client needs, creates a structured data


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set, which is the output summary of all the results, and provides a real-time audit trail for testing that’s designed to feed workflow tools seamlessly. “After Pendo has digitised these unstructured documents, we think it’s critical to keep them safe in an automated system,” explains Heron. “We don’t want them to slip back into the ether, back into a manual process. Up to this point we’ve made all of the LIBOR data attractive to a machine readable format, that can then be made ready for a subject matter expert’s review in workflow.” The whole process has been put together with close regard to what the regulators are looking for – even if, as yet, that’s not 100 per cent defined.

solution is also sustainable. It can’t be something that’s just spun off on Excel spreadsheets and emailed across an organisation. This needs to work for the next couple of years and, given the legal litigation tail on this, it has to be an enduring solution, so sustainability matters. It requires very advanced automation, but it needs to allow for just enough human insight to see around corners and, ideally, again given the litigation tail, the data should persist. “The regulators keep talking about ‘trust but verify’ or ‘how do you know what you know?’. The persistence of the data will allow enterprises to ask these hard questions a few months from now or a few years from now. “Most importantly, the logic needs to be transparent. Black boxes and intellectual property won’t fly. Auditors and regulators and an organisation’s counterparties will want to understand the decision logic and, ideally, the solution should be ‘green’. By green we mean it’s the opposite of one-and-done. It’s our intent that this solution can check all the enterprise risk management boxes – data discovery, remediation, and curation – at the core. This is the journey.” Heron doesn’t see the Fallback Engine as just being useful in a crisis, however. “There’s a lot of waste created if this is viewed as an administrative task just for LIBOR. What if the solution could also lift the efficiency and effectiveness of the

If you can’t access and manage your unstructured data, it’s going to be nearly impossible to be successful with the LIBOR documentation challenge The Alternative Reference Rates Committee (ARRC), a US industry group convened by the Federal Reserve Board and the New York Federal Reserve Bank to plan the market’s transition away from US dollar LIBOR, for instance, wants firms to measure progress in terms of forecasting. “And it has to be fact-based, so it has to link back to evidence and documents,” says Heron. “In terms of differentiators, the solution needs to work at both the enterprise scale and, ideally, be extendable to the broader industry. “Regulators will look to see that the

underlying credit agreement processes and derivative contracts. That’s why the Pendo solution is a differentiator,” says Heron. “What if you can get more out of this than just looking for LIBOR?” Leaving traders to set a rate from which they could profit, based on numbers they plucked out of thin air, turned out, as Katie Martin, capital markets editor for the FT, later put it, to be a bad idea. But if Pendo and its partners, in helping the industry row back from DEFCON 1, create a more positive legacy, then maybe some of the pain will have been worth it… and we can keep the zombies at bay.

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Portfolio for change

Mario Aransay, who oversees Santander Innoventures’ portfolio, discusses fintech partnerships, AI-based predictive banking and the future of his industry The Santander Group is on a mission. The Spanish banking giant is investing heavily to climb the digital banking tree, shaking out the best fintechs and specialists to work with as it moves on up.

Santander’s Innoventures portfolio was set up with $100million back in 2014 as a venture fund for promising startups. The idea was to identify useful technologies for the Santander Group and partner with them to help drive better customer service and experience. It has certainly been successful in spotting the high fliers, with Ripple, Curve and Kabbage among those backed to date. Mario Aransay is the man who oversees the portfolio, which focusses on five key verticals that have been prioritised due to the value they can bring to customers: payments, marketplace lending, e-investment advisory, client and risk analytics, and digital delivery of financial services. His team typically invests between $100,000 and $10million, but are happy to go higher if they believe it’s an exceptional opportunity. They carefully look for early-stage companies with a product or service that is mature enough for them to take to customers. The end game is to help these companies scale and grow by giving them access to distribution, expertise and brand. “When you bring in a partner, they have to be synergetic,” he says. “They have to be synergetic with the current stack that the bank may have built. They have to build on what already exists. Not only that, they have to anticipate what is coming. And, on top of that, they have to be capable of interacting with other


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partners. Together, we can bring really exciting solutions to our customers.”

AI leads the charge One specialism that’s emerging strongly from the portfolio is artificial intelligence (AI). In 2017, Innoventures invested in cognitive banking provider Personetics, which is an AI-powered personalised banking platform, and Gridspace, a leading platform for conversational intelligence that allows companies to analyse and operationalise speech and text inputs. “Personetics’ objective is to drive customer engagement in digital channels,” explains Aransay. “It does it through personalised insights. Leveraging artificial intelligence, it sources the transactional data of the customer and, with that, provides them with personalised insights. When you are thinking about being customer centric and empowering the client, the first thing you have to give them is knowledgeable and relevant insight about what is going on in their transactions.” These deals were part of a flurry of investment in AI that year. Another notable strategic investment was in the UK-based fintech Pixoneye, which offers predictive personalisation technology. It’s fair to say that predictive banking – using technology to help customers make the right decisions based on the data it holds on them – is a major part of Santander’s future plans, and the direction that it sees the industry moving in. The key is choosing the right technology partners to deliver these services. One of the defining elements for Santander in making that choice is that it can trust a partner will deliver

competitive solutions for the bank, even though it might be working with other banks at the same time. According to Aransay: “We found in Personetics a company that fulfilled not only by being a top-notch solution, but having the right soft partnership principles, which enable us to create value for the customer and for both organisations. We have found we can create a trust environment for collaborating on strategic projects for our bank, while it is engaging with other banks. We fully expect that partners will not only engage with Santander, but also with others, and I think that’s a healthy thing. The stronger the partner is, the better for the bank.” Personetics is working with around 30 banks, including Singapore’s UOB (United Overseas Bank). It’s a company in demand and, to meet it, Personetics has opened a new research and development centre in Nazareth to accommodate a team that has more than doubled in the last two years.

A comprehensive approach Santander is meanwhile busy restructuring internally to deliver its digital transformation plan. The bank recently hired a new chief platform officer, Aiaz Kazi, from Google to help it become an open platform. Open banking, introduced across Europe, thanks to the revised Payment Services Directive (PSD2), is a veritable gold mine for fintech, which has the opportunity to capture more of the banks’

A new direction: Innoventures seeks out the pathbreakers

traditional territory and revolutionise the banking experience for customers. The banks, in turn, have just passed the much-anticipated deadline to have the application programming interface (API) technology in place to comply with customer-sanctioned data sharing under PSD2. It’s been a tough regulatory hurdle, but they can now exploit it by teaming up with the right partners. “For years, banks have benefitted from consumer trust. But that’s not good enough anymore. Banks should also be responding to the complexity and time scarcity that people live with, and making it simple for customers to manage their finances. That is going to be enabled by technology. Technology is agnostic. You can use it for good or for bad. If banks want to keep the level of trust we have accumulated, then we have to use the technology under the right principles. “The banks have awakened and PSD2 has enlarged the ecosystem,” says Aransay. “The conjunction of the two is better services for customers.”

Going beyond the core AI-enabled robo-advice, for example, is a fast-growing trend across a number of product areas, including pensions, mortgages and insurance. It will now increase even more dramatically, thanks to the increased pool of data on which to base recommendations. Personetics is one of the leaders in this space, using cognitive banking to provide financial advice. The right partner, the right time.

We fully expect that partners will not only engage with Santander – and that’s healthy All of these impressive developments sit against a wider background of Banco Santander putting aside €20billion for digital investment over the next four years. As part of that, the global bank announced that it is investing $700million with IBM to build ‘the most advanced IT architecture of the financial sector’. A five-year global technology agreement, in addition to providing considerable annual savings for the bank on IT spend, will enable Santander Group to evolve towards what it hopes will be an open, flexible and modern IT environment. Interestingly, it also taps into Watson, IBM's renowned suite of enterprise-ready AI services, applications and tooling. In addition, Santander has now set up a Cloud Competence Centre, and is set

to benefit from building digital platforms just once for the entire group of banks, removing potential duplication and other frictions. Santander UK’s chief data officer, David Hayes, was quoted last year as saying: “I firmly believe technology will completely change banking in the next 20 years. The challenge for the industry will be to embrace those technologies – and the winners will be those that can do that in a way which is right for the customer.” No one can accuse Santander of not putting in the groundwork. Issue 13 | TheFintechMagazine



JOINING THE DOTS Nadish Lad, Global Head of Payments Product describes how Volante is using Cloud-based payments technology to help banks monetise new opportunities arising from regulatory change Volante is the brainchild of a team of financial messaging experts who in 2001, realised that simplifying and automating the integration of financial messages and data to and from the back-office systems of financial institutions and trading platforms, would reduce workload and costs while improving speed and efficiency. The idea worked, and the company gradually expanded to serving more than 90 financial institutions in more than 35 countries. In 2015, it launched the VolPay ecosystem of payments business services to promote digital payments transformation. RTP/instant payments is a fundamental component of payments modernisation, and Volante is keen to encourage its uptake by offering free RTP/instant payments processing as a service in the Cloud.


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We spoke to Volante’s global head of payments product, Nadish Lad as Volante prepares for London Sibos. THE FINTECH MAGAZINE: What do you see as the biggest challenge in payments at the moment? THE FINTECH MAGAZINE: The biggest challenge in payments is getting someone to pay for them! Why would anyone pay a bank to make a payment? It is expected to be a part of the bank’s job. On top of that, a raft of mandatory regulations continue to come in which are typically not revenue generating, yet must be complied with. These consume banks’ budgets, causing distractions and resulting in long implementation periods. So, with these two challenges in mind, how can banks make money out of payments? Through innovation and the creation and

servicing of new business models and propositions. This is where Volante helps by providing innovative solutions. TFM: But there are opportunities in regulation, surely? NL: There are, albeit indirectly, in the case of Europe’s revised Payment Services Directive (PSD2), for example. Open banking is an approach that enables compliance with PSD2 but also offers additional opportunities. There are many other ongoing market initiatives that are regulatory in nature that have proposed deadlines. These include initiatives such as SWIFT gpi, ISO 20022 migration, real-time payments and confirmation of payee among others. Then there is a technical wave, e.g. the use of an application programming interface (API) -–just another method of initiating a payment. It is important, however, to not consider these initiatives in isolation. If you look at the bigger picture, the ‘dots should be joined’ to create an overall joined-up payments experience with tailored propositions for a given segment, or for a

particular industry and only then, do you begin to see a business model and user experience that works in new and attractive ways. This is what payments modernisation is about – the re-defining of the complete payments lifecycle from the perspective of the end user experience. These new experiences will be the reason why someone would pay the bank to process a payment. If I am paying £10 to a colleague, it isn’t important that the payment reaches him in seven seconds or within the day – neither of us are likely to pay for it to be faster. But if I’m paying Deliveroo for a food delivery and the money reaches Deliveroo’s account in seven seconds and the notification is instantly received by Deliveroo, the company may very well not mind paying a fee for this real-time transaction because it has saved them having to pay a credit card transaction fee and, in turn, they also benefit from instant liquidity and cash flow. By the same token, if a bank was to target a company like Deliveroo or Uber with a holistic payments package or experience, using confirmation of payee, open banking and real-time payments – while each of these initiatives, on its own, doesn’t offer you revenue generation, when combined they add up to a strong value proposition and generate revenue for the bank. TFM: What happens when you try to scale that up across hundreds of thousands of transactions? NL: Scaling to huge volumes does have its challenges. But firstly, it’s about time to market and revenue. As a bank, if I develop a brilliant payments flow proposition using open banking, confirmation of payee and real-time payments for a taxi, a food delivery service or an online merchant, how long is it going to take me to implement? How quickly can I be first to market? And when successful, how do I deal with the scaling of transaction volumes? This is where Cloud is critical when it comes to handling volumes; it’s one of the dots that you have to join up with the other dots to make the overall value proposition work. Volante started as a Cloud-native payments solution; from the outset we focussed specifically on business services for agility and knew that we had to enable it to handle huge

volumes as well as have resilience. We’ve always worked with the very latest and agile technologies because Volante has always been about simplifying and automating processes. With VolPay we have created an ecosystem of fully interoperable business services, where banks and other financial institutions can easily pick and choose the services they need to create particular innovative workflows that they want to offer to their end customers. With our ecosystem technology and Cloud services, banks can move to an OPEX rather than CAPEX-based business model, simply flicking a switch t o increase the scale of volume handling or enable additional functionality. We talk about joining the dots because banks need to be able to offer services to their corporate customers who in turn, serve their customers, which could be end consumers (B2C) or corporates (B2B). By taking this ‘Lego’ building block approach, with interoperable business services in the Cloud, institutions can move very quickly, in terms of time to revenue and by launching attractive, convenient, resilient and scalable payment processing innovations, while remaining compliant with regulations. This approach is now accessible and open to all sizes of enterprises, financial or otherwise.

No bank should be disadvantaged because of their size and should still benefit from innovations in PaaS TFM: So why should banks come you? NL: Our vision was always to simplify complex processes and automate as much as possible through the use of smart software solutions; employing a ‘zero coding’ approach to configuration. That’s our culture. We believe in smart software, with minimal involvement of people to implement. That’s why we have naturally evolved towards creating an ecosystem of Cloud-native, microservices-based interoperable business services. You can swap and change, and move them around to deliver the desired proposition with ease. Because of the Cloud-native technology we use, the architecture of our solutions

and our focus on reducing complexity and building in automation, we are able to help our clients to rapidly adapt to new regulations and compete by offering new services. Over the years, we have gained a solid reputation of delivering in record time, be it on Cloud, on premise or as a service. TFM: How do you work around the culture regarding Cloud, particularly in some of the bigger organisations? NL: A shift in mindset is already happening within banks. The Microsofts, Amazons and Googles of the world – are backing this new model and banks have concluded that in order to modernise the whole financial industry, they need to look at the options in the market, too. There are geographies and segments where adoption is slower but, gradually, it is changing. And it’s not because of one single entity, it is the industry as a whole working together, driving this forward. I remember at Sibos two years ago in Toronto, asking a delegate what they thought about the Cloud, to which they replied somewhat tongue in cheek: “I think it’s excellent. I’ve got it in my basement, in my equipment room.” His point was that he trusted only his own security, without considering that the budgets companies like Amazon Web Services and Microsoft Azure spend on security are colossal, for the simple fact that their business models utterly depend on the strongest security measures possible. “How does your budget for security compare to theirs?” When I made this point, you could see the mind shift happening there and then. Things have evolved culturally as well as mechanically. TFM: What will you be saying to the folks at Sibos this year? NL: We, at Volante are not just focussing on our customer; we are also focussing on our customer’s customer. Let’s talk about what your end customers want, what their desires are, what their needs and wants are. And let’s look at the technology to help you put those things in place quickly. We want to encourage the market to accelerate adoption – indeed, as an example, we are offering free RTP processing on the Cloud, as a service. We believe that no bank should be disadvantaged because of their size and should still benefit from innovations in payments as a service (PaaS). Issue 13 | TheFintechMagazine



Digitally inclusive: BPC has a world view


FORCE FOR GOOD BPC’s Angelo Bertini, MD for the MENA region, Santiago Egas, MD for North and Latin America and Peter Theunis, MD for Europe, on how digital money is changing lives BPC is a global payments company that builds digital technology that aims to make cash transactions obsolete in the not-too-distant future, thus bringing an end to a monetary system invented by the ancient Greeks more than 2,500 years ago. But far from disadvantaging the very poorest sectors of society, as some might fear, BPC believes truly digital economies will be transformative in changing lives by extending financial inclusion. The payments technology expert is working closely with governments and other key stakeholders around the world to help make this step change happen. The sheer scale of the potential in reaching those who don’t have access to financial services is breathtaking, particularly within emerging economies in Latin America, Africa and parts of Asia. In Nigeria, for instance – the biggest economy in Africa – an estimated 80 per cent of the population is still unbanked. But what all these regions also share is extraordinarily


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high levels of smartphone ownership. And, in MENA (Middle East and North Africa) in particular, which is experiencing a demographic bulge, the moment to act is now as almost half of their populations and the most digitally aware are only just becoming economically active, according to UNICEF. BPC argues that a massive opportunity therefore exists to address the global imbalance, boost economies and impact ordinary people. It has already been involved in several successful collaborations, which it is now replicating in other countries. For example, working closely with the Ethiopian government, the company provided its SmartVista technology to unify payment systems among the country’s 17 largest banks. This national switch both encourages more people to open accounts as access to banks is made easier and results in cost efficiencies for the banks as many cash transactions are replaced by digital ones. BPC is now rolling out national switch programmes in other countries in Africa, including Nigeria.

Meanwhile, in Indonesia, it has teamed up with Mobile Tunai Indonesia, to create a ‘marketplace’ model of agency banking that enables people who had no previous credit history to open accounts. By doing so they can take advantage of being part of an open banking ecosystem, which, as well as offering them the ability to digitally pay bills and taxes, also gives them access to credit and, vitally for small businesses like farmers, even a platform to buy or sell goods. Among a host of other BPC projects currently underway is one to develop digitalised payment systems for public transport in countries in Latin America and Africa, with buy-in from governments. Angelo Bertini, MD of its MENA region, is convinced that a smartphone-based digital economy is crucial to the success of emerging nations, with cash or even card purchases replaced by token-based payment rails –such as the governmentsupported CoDi system in Mexico which uses QR codes. “More and more of those governments

are looking to bypass cards and go straight into mobile,” says Bertini. “They are talking about QR codes and mobile banking. I think a true digital economy is the key to their success. And that doesn’t necessarily mean, like in the US and Europe, where everybody still holds two or three credit cards and two debit cards. “The way they’re looking at it is to bypass all that and move into a digital economy. That also is a cost saving for these economies – the network you need to accept a token, which could be just a mobile payment, compared to one that accepts cards, is significantly cheaper.” The view that digital banking solutions will play a vital role in creating much higher levels of financial inclusion within developing economies is shared by Santiago Egas, who is also MD for North and Latin America (LATAM). But Egas also warns of two major hurdles that need to be overcome. The first is for governments to avoid overregulating and over-taxing the industry. The second, specifically in the LATAM countries for which he is responsible, is the need to overcome a deep-seated mistrust of banks by a significant proportion of the population. “The biggest challenge in Latin America is definitely government,” says Egas. “If government opens the door to new technologies and doesn’t create barriers, this will allow the evolution of financial inclusion in Latin America through wallets, online services and whatever other solution you can provide. “We have been talking about financial inclusion in Latin America for the past 10

year or more, and there’s been exponential growth in financial services but you still have countries where half of the population are completely unbanked,” he adds. While that has a lot to do with mistrust of the system, there is another obvious truth. “You can have all the technology in the world, but if you don’t have the money, then you cannot use the technology,” says Egas. “That’s where the big challenge comes in financial inclusion. And that needs a lot of effort from the top, from government and the private sector. “Financial inclusion is not all about sending and receiving money. It’s about constructing an ecosystem that will change lives.” There is certainly no shortage of innovation in Latin America, much of it bypassing the banking system entirely, most of it focussed on payments. Egas singles out RappiPay for particular mention. ”In just two years it’s gone from a food delivery app to become the biggest mobile wallet in Colombia,” he says. But it doesn’t really address inclusion. In Ecuador, on the other hand, there are already as many as 15,000 ‘corresponsales no bancarios’, independent agents working with banks where Egas believes inclusion can be accelerated with the right digital tools. In fact, he goes further, describing the opportunity to onboard consumers via these

digitally-equipped agents as ‘exponential’. BPC’s global reach and level of influence allows it to migrate successful projects across continents, according to his colleague, Bertini. “Because we have a common understanding, a common strategy within the company to go digital, it’s just a matter of adapting a technology to the particular opportunities or need of the country or the client. A success story in Mexico might apply in Indonesia, or in Myanmar, or Vietnam. The underlying technology is the same.” Many of these technologies are being developed by companies outside of Europe. Peter Theunis, MD for Europe and Southeast Asia, puts that down to much less complex regulations existing elsewhere, which can aid both the speed and diversity of innovations such as biometric authentication. The downside of this rush to market, he says, can be security, which, in some parts of Asia in particular, is seen as more of an ‘add on’ rather than being generally implemented. “They need to work on security before we can take it into Europe,” Theunis says. Wherever BPC is operating in the world, according to Egas: “We can help build a seamless experience, from the least well off in society to the most. “That’s what all the technology providers are working to do.”

More and more of those governments are looking to bypass the card and go straight to mobile

CHANGING LIVES IN INDONESIA BPC has forged a partnership with Mobile Tunai Indonesia (MTI) to develop a branchless banking system in a country with a population of 267 million people spread across 14,000 islands, of which 70 per cent have had no previous access to traditional financial systems.

A network of agents has been recruited who are tasked with onboarding customers who, by and large, have no credit history. An online payments platform was created that caters for customers’ daily

financial needs, including person-to-person payments, bill payments, taxes and smartphone contract top ups. Next came a digital marketplace to benefit local small business owners. The system allows credit to be extended for the purchase of supplies or equipment, which is repaid when the produce or products are sold. An added benefit of the marketplace is that it allows collaboration between customers so that they can team up to bulk buy at discounted rates from major suppliers and sell goods collectively.

The marketplace is also used to help customers access other services, such as insurance, and even recruit labour. “As well as supplying the technology, we also facilitate the creation of the ecosystems,” says Peter Theunis, MD for Europe and Southeast Asia, “because there are lots of moving parts and stakeholders who need to be brought together. There is also often government involvement, because as soon as you start to talk about financial inclusion, all sorts of benefit programmes kick in. It’s about much more than building a piece of software and installing it at a bank!”

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As Vice President of Product, leading innovation and development at Western Union Business Solutions, Scott Johnson drove the launch of WU Edge, a trading platform that’s offering global opportunities to thousands of small businesses With more than 550,000 agent locations across the globe, Western Union’s distinctive black and yellow logo has inspired huge brand recognition and loyalty over the years. Be it at a kiosk in rural Africa or a corner shop in London’s urban jungle, it’s universally recognised as the portal that enables migrant families separated by economic need, as well as small businesses that are often excluded from mainstream financial services, to survive. In 2018, it moved an astonishing $300billion around the world and handled more than 800 million transactions in individual remittances and commercial transfers – much of it paid and collected in cash. But the arrival of new, entirely digital money transfer agents is forcing a change in its business model; and open banking and application programming interface (API) technology is giving it the freedom to achieve it. Scott Johnson leads product innovation and development at Western Union Business Solutions as vice president of product. He sees open banking as a ‘massive opportunity’ to transform the way Western Union, and indeed the world, distributes its money. By creating aggregated services across multiple providers, he says, established financial services such as WU will benefit – and, ultimately, so will customers. “Whether it’s through APIs or embedded solutions, it’ll be possible to join forces with firms that in the past might have been competitors in order to provide better consumer experiences and solve problems more efficiently for our customers,” says Johnson. The driving force behind Western Union Business Solutions’ modernisation programme, Johnson helped launch WU Edge, the company’s digital platform and


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associated trading area for small and medium-sized businesses, in 2016, as well as Western Union’s payments solution for non-government organisations, who are often working in crisis conditions – the most demonstrable way it delivers on its brand promise to ’move money for better’. Edge enables SMEs to expand their global reach by letting them send, receive and manage international payments in more than 130 currencies in 200 countries and territories, while also connecting them with each other: suppliers with buyers and customers with products as well as services. Companies which sign up can link their dashboard to their WU holding accounts in various currencies, where they can initiate payments and integrate their accounting systems. By having greater visibility of all their accounts and contracts, and automating payment processes, Western Union says customers both increase productivity and gain confidence in their trading environment, as it extends them access to an international marketplace that in many areas of the developing world they probably thought unattainable. And the key to all this is collaboration with partners, says Johnson. “We try to pull in data from as many sources as possible, through various partners, whether it’s an accounting package or, in the future, open banking APIs,” he says. “[This means] we have a

They’re here to make a transcaction or hedge some FX risk… we want to make sure they can do it as quickly and efficiently as possible

richer sense of our customers’ overall financial picture and, ultimately, can provide them with advice so that they can make better decisions about their risk management and payment needs. “Edge, for example, has a rich set of reporting capabilities that allows businesses to understand their payables and receivables over time, and then model what changes in exchange rates could do to the cost of those goods, or their bottom line if they’re selling.”

Opening up opportunities The rise of open banking and, specifically in Europe, the revised Payment Services Directive (PSD2), enables third-party developers to create new digital financial management services. By September 2018, all financial service providers and online retailers are expected to be fully compliant with the European Union’s PSD2 legislation, which will have two principle effects, say Johnson. The first will be that it mandates good practices around strong customer authentication. “Many financial institutions have been very focussed on meeting the compliance needs of PSD2 first, making sure they have appropriate security and fraud prevention in their platforms and their APIs are ready.” After that, he believes the onus will be on European banks – which PSD2 forces to share data with third-party financial service providers through open APIs – to take one of two approaches. “I think the front-end experience is going to be critical here and the firms that have the most frictionless and seamless approach to user interface and user experience design will win,” he says. Their other option is to become part of the financial plumbing – the infrastructure that supports frontends built by third parties. “You can still win at plumbing,” says

Johnson, “but you have to have flawless execution. You can’t get things wrong.” Western Union is hedging its bets by adopting both strategies. “I think customer tolerance for exceptions will decrease and so, as a financial institution, Western Union is investing in making sure we can process even more flawlessly than we already do while also building great user experiences for our customers,” says Johnson. In the business services division, it does that by joining forces with its customers to solve their customers’ problems. This strategy recently delivered a solution for stressed-out students attending Temple University Japan Campus, allowing them to pay tuition fees and expenses in their preferred currency. With WU’s new international payment platform GlobalPay for Students, they can review payment options in advance using a price comparison tool and lock in exchange rates for up to 72 hours. They can then track their payment status though the WU online portal, with mobile messages and by email. The system uses an API to automatically input their details, including student number, name, invoice ID and amount of payment, provided by Temple. In March 2019, Western Union struck another alliance to deliver Edge this time to Latin America, partnering with virtual cheque book platform TuChequera to support the entrepreneur economy in Puerto Rico as it slowly rebounds from the disruption of caused by the 2017 hurricane that closed 5,000 to 8,000 businesses permanently. TuChequera hopes that by introducing customers to the WU payments platform, it can help the 44,000 that are left to look beyond their immediate trading environment and create a new momentum for recovery, even reversing the economic

migration that the hurricane has triggered. “We listen to our customers, we listen to the staff that interact with our customers, to understand what sort of needs they have. Then, once we identify a problem, we try to tackle it in the most innovative way possible,” says Johnson.

A way forward: Digital is transforming both Western Union’s and its customers’ businesses

The question of DLT Western Union has invested heavily in its frontend platforms and constantly iterates on user interface design, monitoring customer usage patterns to identify where they get stuck in order to smooth out any bumps in the experience. “Users are here to make a transaction, or to hedge some FX risk, but that’s not their core business. So we want to make sure they can do it as quickly and efficiently as possible, so that they can focus their time and effort elsewhere. Ultimately, we’re here to facilitate our customers’ business,” says Johnson. While opening up to third-party data integrations undoubtedly creates opportunity, it also raises concerns about data security and trust. To address these, Western Union gives customers full control over where and how their data is being used. “We won’t go out to their bank without the customer giving us permission,” says Johnson. “And, similarly, when we’re offering our services to third parties, we’ll make sure the customer authenticates it and we’ll give them a strong set of controls to be able to turn off that tap if they lose trust in a partner.” So, what of the future? Western Union is undoubtedly facing stiffer competition. TransferWise, one of a growing number of challengers, may have shifted only $5billion a month last year across 71 countries, but Odilon Almeida, president

of Western Union Global Money Transfer admitted recently that ‘it’s a race and we are running very fast’. That will involve moving more money digitally, which, as of March 2019, includes using distributed ledger technology (DLT). A partnership with Thunes (previously known as TransferTo), a crossborder payments network for emerging markets, uses the Stellar blockchain to enable Western Union individual and corporate customers to send funds directly into mobile wallets around the world. Western Union has also tested Ripple technology for remittances in certain corridors. One hundred and fifty years ago, Western Union sent a message over its telegraph system, confirming that cash had been deposited at one of its offices, so that funds could be released to the recipient at another. The technology has moved on, the distances are greater and the sums larger, but if this is a watershed moment in financial services, Western Union appears ready to meet it. Issue 13 | TheFintechMagazine




Olivier Guillaumond, Global Head of Fintech for ING Bank, explains how a benign Trojan horse strategy is benefiting the wider financial ecosystem Open banking is driving root-and-branch change across the financial services landscape, particularly in payments. Traditional hierarchies and legacy systems are ripe for disruption, meaning incumbents have to resort to defensive tactics in order to fend off attack from newer, more innovative, rivals.

In this climate, ING is taking what could be seen as a benign ‘Trojan horse’ approach to innovation, by seeking to make sure its payments platforms, which are largely developed in conjunction with fintech companies, are adopted by other providers and institutions – even those it might consider to be rivals. Why is this turf war over payments important? The $100trillion payments industry has traditionally been controlled by major institutions such as ING. But with the arrival of open banking and, specifically in Europe, the revised Payment Services Directive (PSD2) – not to mention the advent of payment-in-message apps, such as WeChat Pay and Facebook Pay as well as Libra cryptocurrency – banks risk seeing global payments and settlement taken out of their jurisdiction completely. Or, at the very least, they risk seeing throughput seriously eroded. And, as Olivier Guillaumond, the bank’s global head of fintech, says: “Payments is a volume game.” By making sure its payment platforms are adopted by other institutions, the bank guarantees the volume that it needs to sustain them. Sneaky but clever. Guillaumond prefers to describe it as creating an environment ’where you have ING inside. So, whether it’s within the ING platform or on someone else’s, we want ING payment to be everywhere’. And to achieve


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that, ING is working with fintech companies in a range of ways, not least by creating fintech firms itself – consumer money management service Yolt being a particularly successful example. It is also working with fintechs through collaboration and commercial contracts. “We have about 170 partnerships today, so it gives us huge access,” says Guillaumond. And it’s investing in them, too, either through its commercial venture capital arm, ING Ventures, or by merger and acquisition.

A Yolt out of the blue The launch of ING’s UK-based, in-house-built but independently operated smart money app Yolt in 2017 was useful reconnaissance for the payments push. Yolt was one of the first examples of a bank in the UK providing an aggregator platform for customers to manage money held by other banks. Now heading towards a million users, Yolt uses application programming interfaces (APIs) to allow

You can be self-professing, thinking you will change the world of payment by yourself, but payment is a volume game. We do not believe we can do it on our own customers to view and access multiple accounts held with more than 25 (and counting) financial institutions, including all the main UK high street banks. A Yolt for Business API was added in February 2019, offering similar businesses account information but, notably, also payment initiation services. Yolt is now widening its payments function further, announcing support for global acquirer and payment processing platform Payvision – in which ING took a majority stake in early 2018. Although not payment-related, Yolt is also

partnering with UK-based funding comparison site Funding Options, which has benefitted from ING investment, and recently signed a deal with pan-European savings marketplace Raisin, both of which cement Yolt’s position as an aggregator. Like Yolt, Belgium’s Payconiq also emerged from ING’s innovation cauldron, where it had its genesis in an ING accelerator programme. It allows online and offline businesses to accept smartphone payments and set up loyalty programmes. Having created the platform and made it available to five other banks, ING bound them even closer to its payments ecosystem by inviting them to take a stake in the company. In 2018, Payconiq merged with major domestic card-based payments platform Bancontact with the combined ambition to become the default payment service across the Benelux region. It’s an example of ‘ING on the inside’ if ever there was one. Stamping an even bigger footprint in the omnichannel payments space, the bank sunk €21million in crossborder business-to-business payments company TransferMate in July 2018. The intention is to offer the Ireland-based provider’s technology as a payment processing option for all of ING’s small business and corporate clients. All these partnerships are clearly good for business, but Guillaumond stresses that open banking and PSD2 are also beneficial for clients and customers. “We look at PSD2 in a very aggressive way,” he says. “We feel it’s a great moment for us to propose a very personalised service to our users and clients, as well as implementing our platform strategy.” He says the bank is keen not to impose technology on customers but, rather, to select solutions appropriate for them by embedding innovation in ING’s daily business – not, as he puts it, ‘something you do on the side’. Since 2016, 5,000 people across the organisation have been trained under its PACE programme – a methodology that encourages staff to listen to customer

Penetrating payments: ING’s strategy is to embed its platforms with other major players

feedback, so that the bank builds something customers actually want, rather than what it thinks they want. “The best way to know what the customer wants is to ask them,” says Guillaumond. “We’re trying to include retail as well as corporate customers as part of our development cycle.”

API at the heart ING is so far ahead of the curve that Guillaumond says creating application programming interfaces (APIs) for third-party technology companies was a given, even before it became a stipulation

under open banking and PSD2. And he sees the bank transforming its own infrastructure to be API-based within the next few years. “Modular, granular internal APIs, on which the ING ecosystem can operate, allows us to rapidly roll out best practice from one country to another,” he explains. “In parallel, we have been developing our open banking portal, which is our gateway to the developer community and to partners. We already made our sandbox available and now we’re going to translate some of the APIs that we’ve been working on internally to external roles. We’ll be

listening to the community as we do that.“ Payments via open banking are forecast to hit £300billion of transactional volume by next year. For banks like ING to continue to dominate the payments market, collaboration will be key. “You can be self-professing, thinking you will change the world of payment by yourself, but payment is a volume game,” says Guillaumond. “We do not believe we can do it on our own, so we are partnering with the major players in that ecosystem to make sure that the solution is the one that will help all of us be more efficient going forward.” Issue 13 | TheFintechMagazine



SPEAKING IN CODE Mark Bradbury, Managing Director of validation software company Apply Financial, set out to work with banks, ended up partnering with fintechs and is now seeing renewed interest from institutions as bank-to-bank payments look set to emerge as the preferred method of transaction THE FINTECH MAGAZINE: How has the payments industry changed over the past couple of years? MARK BRADBURY: Payments has historically been the monopoly of banks and big card providers, like Mastercard and Visa, but we’ve seen a sea change over the past few years, with fintechs coming in and breaking up that monopoly, providing better solutions that are better marketed, slicker, easier to use, faster, and with much more of a customer experience. Obviously, they’ve listened to their clients and delivered a better solution. So now you’re seeing a much wider choice for consumers and companies to make payments, and it’s driven the banks and incumbent card providers to look at acquiring some of the fintechs so that they can get more into the bank-to-bank payment marketplace. I think the biggest change, actually, is the move away from card payments towards bank-to-bank, and we’ll see more and more of that in the coming years, thanks to the fintechs. TFM: How have you seen banks and fintechs grapple with these changes? MB: I think the fintechs set out to dislodge the banks, and then the reality hit both that the best way to move forward is to partner. So, it’s not unusual to see companies like Currencycloud and TransferWise working very well with the banks to provide new, slicker models.


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The most important thing for fintechs is being able to provide a very automated, straight-through processing method for payments while keeping their costs down, because they’re working on very slim margins and don’t want to employ a myriad of staff in the back office, fixing problems. Apply Financial can help them with that by automating the process of validating everything they need for a straight-through payment, so that it goes through the system without human contact. TFM: What differences are there between fintechs’ and banks’ validation processes? MB: Fintechs came at it as greenfield. They’d learnt from the banks, which had to build up their own systems and tools, downloading data and coding rules. They did all the hard work to build validation solutions, but did so in the back office, and not built into a modern-day, browser-based environment. The new fintechs thought ‘we don’t want to build it ourselves, we’ll go to a company that’s got global experience of this’, which is why they come to us. TFM: Do you think adapting to instantly validated payments is essential for the success of fintechs and banks? MB: The world is moving towards instant payments, so they have to adapt, and I think they’re embracing this because we all – companies and individuals – when we make a payment, want it to arrive the same day, even in a few hours. Instant is a revolution. However, adapting to this is a challenge, because fintechs and banks have to make sure they do all the checks, including anti-money laundering, and the payment still leaves within seconds. Our clients are rising to that challenge. TFM: Speaking of speed, how easy is it to implement your Validate system into an organisation? MB: We haven’t reinvented the wheel, it’s a RESTful application programming interface (API) with a relatively straightforward

deployment. Our clients’ technical people can plug it in very quickly. We make sure that the different functions we provide are deployed correctly for them, tested for volume and latency, and pass compliance for regulated entities. It takes as little as four and usually no more than eight weeks to go live. TFM: What are the typical issues with validating crossborder payments? MB: It’s not just a bank account number and a bank code; many countries around the world have additional requirements. For example, there are 32 countries that have payment purpose codes. If you make a payment to India, for instance, which is one of those countries, you have to put in a mandated payment purpose code, which has certain wording. If you don’t, the payment will bounce back. In other countries, they need to see tax codes. So, we’ve built our application, within Validate, to be able to check those different elements. We provide fields for checking within our API, so that our clients don’t have to think ‘if we’re making a payment to Mexico, what do we have to put in?’. The system does it for them and we explain, to anybody who’s filling in those fields, exactly what they need to do to ensure a straight-through process. For example, if they’re putting in a particular type of IBAN (international bank account number), Validate will tell them if it’s correct and, if it’s not, what is wrong with it. We’re trying to make it easy for our clients to provide an intuitive service to their clients, so that the customer experience is much more enjoyable and it cuts out the human and data error that is causing one in eight payments to fail. TFM: Now that customers are getting used to instant payments domestically, how are you helping to increase that in areas further afield? MB: A lot of instant payment infrastructures are very similar to the one we have in the UK. The challenge is that you have to provide more detailed

information to validate an overseas payment and do it with speed. We can help with that validation but, over the next few years, I think the authorities will come up with a more efficient way of using instant payments, in terms of the type of information that needs to be validated. TFM: Can you tell us a bit about the work you’re doing with Franx in the Netherlands? MB: Franx is a new challenger bank set up by ABN AMRO, aimed at small and medium-sized enterprises. It came to us about two years ago when it was looking to build out a payment solution for overseas payments for its clients, as efficiently as possible, with everything driven by APIs. It was a match made in heaven for us, as it wanted to do things the way that we could provide them. It was looking at validating payments anywhere in the world. We started with

just IBANs for payments in Europe, but we’re now providing them with the ability to validate payments in 170 countries, within 225 financial jurisdictions. It’s been live for more than 12 months and Franx has everything it needs now, whatever payment requirements it’s presented with by its clients. TFM: How have changes in the payments industry impacted Apply Financial? MB: When we started the company in 2010, we were pitching our applications predominantly at banks. We very quickly realised that the better place to pitch would be to the new fintechs, because they were providing more customer-centric solutions – and key to us is making the customer experience a lot easier and eradicating human and data errors as part of that process. So, for example, take the Cloud-based,

crossborder payments for business provider, Currencycloud. We’ve been talking to it about this for quite some time and earlier this year we signed a deal to help Currencycloud validate, initially with IBANs, and then globally. Over the last nine years we were very focussed on working with the fintech marketplace and companies like Currencycloud, but over the last couple of years, I think the banks and card companies have looked at bank-to-bank payments, particularly crossborder payments, learned some lessons from fintechs, and probably even acquired some of them. So, we are now much more engaged with the banks than when we first started, because they have accepted an API world, Cloud-based applications, speed of operation and customer-centric applications. We fit right into that.

A lot of instant payment infrastructures are very similar to the one we have in the UK. The challenge is to provide more detailed information to validate an overseas payment and do it with speed

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Shared future? A joint approach to innovation is more powerful

Stronger together Artificial intelligence (AI) and its close cousin machine learning (ML) have myriad potential applications, perhaps the most prominent of which is the chatbots we’re all getting more and more used to interacting with daily, in lieu of real humans. Many of the use cases have thus far been driven by an increasingly demanding generation of customers looking for a more seamless service experience. Global bank Citigroup, though, is also mining the technology for corporate functions, including treasury risk management. Its Dublin-based Innovation Lab was behind the launch of Citi’s Payment Outlier Detection solution this summer, for accounts payable in 90 countries worldwide. Created by the bank’s treasury and trade solutions business with the support of AI and real-time risk


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CitiGroup’s new Payment Outlier Detection solution is just one example of how a more inclusive approach to innovation can produce positive results says Gulru Atak Gundem from the bank’s Dublin lab management company Feedzai, the new offering uses advanced analytics, AI and ML to help proactively identify anomalous payments that don’t reflect clients’ previous patterns. When it spots something that doesn’t seem to fit, it flags it in real time to a human employee, who can then make the decision whether or not to let it through. It could be an

irregular payment to a periodic supplier, or a new type of payment which is part of a fresh initiative, in which case staff can authorise it with minimal delay. The solution is an analytics tool that helps clients identify risks in payments, but it is not meant to replace client controls, and is not guaranteed to identify all risky payments. The new solution is timely, given the dramatic lift in global payment volumes, fuelled by factors including increasing digitisation and automation, as open banking takes hold. All of this has increased the stakes for sophisticated cyber attackers, the scale of whose relentless efforts mean banks must be more vigilant than ever. This, coupled with the rapid growth of instant payments and increasing client expectations around processing speeds, is also challenging corporate treasury

functions to look at fresh approaches. The new service’s launch followed an extensive global pilot with 20 clients. The Payment Outlier Detection system is designed to require minimal integration effort and it uses advanced statistical machine learning algorithms instead of legacy rules-based logic to analyse payment patterns. This enables the system to automatically adjust in response to changing payment patterns as businesses evolve, expand and globalise, says Citi. Gulru Atak Gundem, who runs CitiGroup’s Innovation Lab’s treasury solutions team, explained that this is just the latest example of the bank’s historic commitment to innovation. “It’s something we’re really proud of, because we opened our first innovation lab in Dublin in 2009, immediately after the global credit crisis. I think we owe a debt to the senior management at that time who were thinking ahead of the game,” says Gundem. “The industry, including Citi, lost some of our innovation muscles when we went through our own survival times and I think having the innovation lab actually helped us to create a content environment where people could continue innovation practice and share its practice and principles with the rest of the organisation, without risking the bank’s reputation.” With that in mind, how does the bank now go about bringing hothouse ideas like this latest project, to its day-to-day activities? “We’ve gone through lots of versions of our innovation labs. We’re probably now on version 4.0. Because what we noticed, over time, was that when you have an idea and the labs work on it, then try to give it away, it becomes almost like adopting someone else’s baby. The receiving party doesn’t really want to adopt it and the innovation lab doesn’t want to give it up. So we’ve found, over time, that it’s helpful to start working together on the ideas very early on, with all the relevant constituencies, both in the bank and outside of it. “And that’s how, two years ago, we conceived Citi Payment Outlier Detection. We are now enhancing it with one of our partners, Feedzai, and it’s leveraging machine learning and looking into the payments behaviour of corporate clients. But we started out working with our payments product partners very early on, our data scientists, the product managers and risk and control functions, because,

ultimately, we needed their approval as well. That turned it into a success, rather than the innovation lab ideating and trying to sell its own ideas to others.” To mark the 10th anniversary of the bank’s Innovation Lab in Dublin, Citi has launched a FinTech Challenge for transaction banking. It is ‘looking for fintech innovators with ideas that have the power to transform how we work and drive client value’. It is inviting fintech innovators to find answers to problem statements it has set out, including how it can reimagine the client experience and make data work smarter. Shortlisted fintechs will be invited to showcase their solutions to executive sponsors at the FinTech Challenge Day on 5 November 2019, at the Dublin Innovation Lab. They will also have the chance to pilot their solutions with leading Citi product teams in 2020.

The business models of our clients are being disrupted and transformed probably more than ever. That’s why we are speaking to lots of our corporate treasurers, to see how we can join forces and build our own ecosystems Citi operates in more than 160 countries and jurisdictions, with around 200 million customer accounts. Its Citi Treasury and Trade Solutions (TTS) arm provides integrated cash management and trade finance services to multinational businesses, financial institutions and public sector organisations. It boasts the ‘largest proprietary network with banking licenses in over 90 countries and globally integrated technology platforms’ and focusses on digitally-enabled treasury, trade and liquidity management solutions. Now that it’s brought its payment outliers technology to market, what’s coming next, in terms of innovations that are going to have similar impact on its corporate audience?

“I think we’ll see more and more solutions which leverage machine learning and natural language processing. In some cases, this is making things better for us internally, which will eventually turn into a better client experience. There are also more things that we plan to give to our clients, like leveraging cognitive contracting, using natural language processing to better negotiate contracts," she continues. “We also have a centre of excellence for blockchain in Dublin, as many of our clients, and especially their treasury departments, are interested in leveraging blockchain or distributed ledger technology (DLT) for certain pain points they’re experiencing, like inter-company settlements. We are also hearing from big tech, around things like issuing their own stablecoins, and are looking into those areas as well. “But I think our main difference is our focus on connected everything. If you look at the connected economy, connected mobility, the on-demand economy and so on, the business models of our clients are being disrupted and transformed heavily, probably more than ever. That’s why we are speaking to lots of our clients, our corporate treasurers, to see how we can join forces and build our own ecosystems. “Because I really think that it will not only be companies in the same industry that come together, but there will be more and more partnerships and different business models where companies from different industries come together and build their ecosystem. That’s how we are looking at the future. “My personal wish is that if the world is more inclusive, from a financial services point of view, it can achieve more. I think we will see it, because consumer behaviour and expectations are changing and will ultimately influence corporate behaviour. People who are asking for things in their personal life are asking more from their corporate experience as well, which will eventually democratise things. “Look at open source software. In the old days, we used to negotiate heavily when we were buying software, as most companies would want the IP to remain theirs. But now, most of what the big technology companies develop is open source, and look at how that has transformed the pace of innovation. Most of Generation Z, and I’m not even talking about Millennials, won’t be afraid to share their data.” Issue 13 | TheFintechMagazine


Cheers to 10 years!

Fenergo Celebrates 10 Years in the Business at Sibos

We would like to thank all of our clients and partners at Sibos for supporting us in our journey since we opened our doors in 2009. As changing client preferences, new and evolving regulation and disruption continue to shape the industry we are committed to developing solutions that meet the requirements of financial institutions today. To celebrate we invite you to join us at our 10 Year Anniversary party at Sibos on 25th September. To RSVP or discuss how we’ve been helping financial institutions transform client experiences, please visit us at stand number 121.


Meet ‘The Enabler’ Enfuce Cofounders Denise Johansson and Niklas Apellud on how Finnish tech is changing the world of payments Enfuce became Finland’s biggest fintech startup by revenue in 2018. In a respectably profitable 12 months, it turned over €4.1million. The universal nature of its services means Enfuce can operate wherever in the world that banking and electronic payment licences are available. That’s pretty much everywhere that uses alternatives to cash. And that is certainly well beyond its dynamic, but comparatively small, home market. The infinitely scalable nature of its cloud-based payment services was one of the reasons that International Smart Card, one of the biggest providers of electronic financial transaction services in the Middle East, renewed and extended an initial one-year partnership with Enfuce. The fintech went

on to successfully conduct the largest card migration in the region of ISC’s entire stock of close to six million cards, all executed remotely from Finland. This was a critical undertaking because ISC’s electronic payment system pays public sector salaries, benefits and pensions to millions of people, providing them access to their cash via its Qi debit card. The contract is a testament to the scale, integrity and fast execution of the services that Enfuce provides, says chief executive officer and cofounder Denise Johansson. “Enfuce is the enabler. We are both hub and integrator,” she explains. “We can enable any player in the payments ecosystem to launch any

service they want. It could be a consumer credit, debit or prepaid card; a corporate or fleet card; or tokenised payments. We have the full range of services and the platform to deliver them.” Chief technology officer and cofounder Niklas Apellund adds: “We’ve enabled payments on a global level for massive organisations, from big banks and financial institutions, and also for the little guys who want to dip a toe into the market and see if a product will fly. If it does, we can scale it for them using our pay-as-you-go business model. All this means we can make seamless payments available for everyone.” Enfuce envisions the volume and variety of payment methods only increasing and with it an expanding role for the company, as Apellund puts it, to ‘enable these players to build an ecosystem because that’s where you make new, improved services, for consumers’.

Global reach: Enfuce helps payment companies expand in and beyond their home territories

Issue 13 | TheFintechMagazine


SIBOS: TECHNOLOGY & PAYMENTS Enfuce was the first payment services company to launch Apple Pay in the Nordics, which Johansson believes is an example of the level of innovation in payments that has occurred despite the need for payment rails to evolve along with the products. “The technology has been around for decades,” she says. “It’s how products are packaged and how they’re sold to consumers that has changed.” And therein is still an infinite opportunity, particularly in the area of corporate payments. Statistics from the Innovation Readiness Playbook suggest that 74 percent of financial institutions offer corporate credit products and 94 percent are developing new products or planning to do so in the next year. Among top-performing financial institutions, 86.7 percent are already investing in corporate credit innovation. The attraction? This relatively uncrowded space is a lucrative one already delivering significant revenue to organisations with room for expansion. Yet businesses can struggle technologically to capitalise on this opportunity, given the more complex nature of such cards, which often need to be accessed by multiple users in one organisation and used for a range of purposes including supplier payments and expenses management, delivered with instant approval and digital issuing. “The infrastructure for consumer payments and corporate payments is the same,” says Johansson, “And, as a business owner, I would like to see more integrated payments for corporates. Enfuce has the platform for anyone that wants to embrace that change. We see huge market potential, globally, in helping the industry issue payment cards and at the same time improve their security and fraud prevention,” adds Johansson. “Corporates have been behind in terms of the security elements within their cards, so transaction fraud has been increasing over a considerable period of time.”

Stacking up: Card services are just one of a range of payment solutions offered by Enfuce

Enfuce not only has a full spectrum of innovative and compliant payment services but also the platform to deliver them however a customer wants


TheFintechMagazine | Issue 13

On the wider subject of security and compliance, Enfuce stands firm: “We don’t compromise,” says Apellund. “When you look at how we sell our service and how our customer data is handled, different countries and different customers have different requirements,” adds Johansson. “We need to follow each and every one of them. Security in the cloud is handled by ourselves and Amazon Web Services. Then, there are variances, such as with multi-currency payments, which are configurable within our system to enable global-level processing.” “There are two things separating us from other providers of these services and these are the aces up our sleeves for global expansion,” says Johansson. “One is the product range, where we enable everything from prepaid to debit, credit and instalment, to fleet cards. The second is that our platform is enabled for the whole world. A company

could start working with us in Europe and expand to Canada, Australia or Japan, with the same core platform. That is unique.” From their position at the top of a Finnish tech peak, viewing the whole world of payments, where do they see the future going? “More seamless payments, fast transactions, wherever I want to do them,” says Johansson, a self-confessed addict of Apple Pay on Apple Watch. “Payment products where I can make a purchase but then switch the payment method to one that gives me more benefits – one that offers me purchase insurance or better interest for a payment made by credit, for instance. I also see more ecoins, new currencies, being used in everyday transactions. What will it be? We’ll see.” And what will crypto do to its business model? “It will certainly affect the way we pay,” says Apellund, “yet, as an integrator hub, we are in a neutral position in that ecosystem. We can handle it... no problem.”

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Laying global pipes for money movement CEO Max Liu describes EMQ as the financial plumbers, laying pipes to transform the infrastructure behind capital movement around the world for businesses What do multinational companies, small-medium businesses, freelancers and digital nomads all have in common? They conduct crossborder payments like clock-work. In a hyper interconnected world, whether you’re an international enterprise, local startup or a business professional – receiving and sending money across borders forms an integral part of your life. SME owners settle payments to suppliers and employees from all over the globe, every month. For digital nomads juggling multiple projects, collecting invoices from all parts of the world is a daily task. Multinational companies offering financial services conduct international payments every second. Meeting the growing need is startup EMQ, which is working towards building a global settlement network.


TheFintechMagazine | Issue 13

“We are creating a simple one-stop integration via EMQ to ensure businesses can send money anywhere in the world and to any end point,” explains cofounder and CEO Max Liu. Headquartered in Hong Kong, the company operates a global money movement network that can effectively settle any crossborder movement of capital, while adhering to complex regulations and compliance standards in different markets. Its flexible and scalable infrastructure eliminates unnecessary intermediaries and directly integrates to all the end-points, facilitating a seamless, real-time and cost-effective crossborder settlement across Asia Pacific. The company’s network seamlessly integrates ecosystem participants to allow for more efficient financial settlement solutions.

“We call ourselves the financial plumbers; we lay pipes in every country,“ Liu says. “The application of EMQ’s network is flexible and adaptable. And can be deployed across multiple vertical industries,” he adds. EMQ’s grand mission is an ambitious one. Adhering to the financial regulations of many countries can be a complex and lengthy process if not managed well. EMQ adopts a ‘hub and spoke’ model, working strategically alongside a local partner bank in each of them. “Building bank partnerships across the region takes time and patience to cultivate,” says Liu. And for every country it enters, it also needs regulatory clearance. However, Liu’s company not only works towards building partnerships with

banks. In every country, it also builds comprehensive networks of strategic partnerships and last-mile solutions, offering customers immediate access to thousands of distribution points.

An enabler of inclusivity Such an extensive network also caters to the significantly unbanked population in Southeast Asia, allowing everyone to participate in the digital economy and addressing a key challenge in the region – financial inclusion. For a foreign worker in Hong Kong sending money back home the process is not as seamless as some of us who are accustomed to transferring money in a few clicks enjoy. Usually, the workers head to a World-Wide House, stand in line for three to four hours, fill out endless paperwork and then carry out the transaction at a window. Why is it so frustratingly inconvenient? According to Liu, it all comes down to ‘massive market fragmentation in the Asia Pacific region and the presence of multiple intermediaries within the payments ecosystem that lengthen and complicate the process’. In an effort to transform financial services and make it more accessible to the more than 370,000 foreign workers in Hong Kong, Tencent’s WeChat utilised EMQ’s technology to allow migrant workers to transfer funds back home via their mobile phones in real-time and at a more affordable rate. Their families could pick up money sent to them from cash pick-ups, digital wallets and bank accounts.

What previously could only be done on their day off and involved hours of queuing and filling out forms, could be done seven-days a week, 24-hours a day at an affordable rate. Through community engagement with foreign workers, Liu understood that adopting new technology wasn’t just a question of consumers learning the technical know hows. But it had all to do with earning their trust. Once that trust was established, they really enjoyed the convenience of using a mobile app to transfer their salaries and savings to their families back home.

We are creating a simple one-stop integration via EMQ to ensure businesses can send money anywhere in the world and to any end point “New technology not only saves time but can also influence consumer behaviour,” he says. “Rather than sending 80 per cent of your salary, the foreign workers can now afford to break them up. “These are the kinds of change we bring forth with our partners such as Tencent.” Through its neutral and independent network, EMQ has also forged strategic partnerships with several key industry players including Visa, Shanghai Commercial Bank, Kotak Mahindra Bank in India, and HDBank in Vietnam.

Even as the company grows beyond its home base rapidly, there was never any question for Max Liu that EMQ would begin in Asia Pacific. Liu explains: “We built the network here first because of the market across the Asia Pacific region is highly fragmented. “Every country in the Asia Pacific region has a different set of regulations, a different local settlement system and a different currency. Due to such challenges, businesses and individuals will increasingly require a network that is versatile while making crossborder payments streamlines, low-cost, secure, and real-time,” Liu says. EMQ works towards providing a unified, more affordable and efficient crossborder settlement solution for businesses and individuals in the region. By turning these challenges into opportunities for growth, EMQ has built a strong footprint in the region while expanding to the world’s fastest-growing economies. The company is currently operational in China, Hong Kong, Singapore, Japan, India, Indonesia, Vietnam, Cambodia, Thailand, Taiwan and The Philippines. So what’s next for EMQ? “Our goal is to allow companies and individuals to move money anywhere in the world in a seamless and compliant manner. Following our expansion in the Middle East, we’re launching our network globally. “By the end of the year, we will be able to offer pay-outs in Africa and Europe. And in 2020 we will be entering the US market and we’ve set our eyes on Latin America too,” says Liu. “We always follow our customers.”

Issue 13 | TheFintechMagazine



Chain of command

As supply chain management software giant SAP prepares to test a DLT-augmented RTGS payment platform, Falk Reker, Global Head of the company’s Business Unit for Banking & Capital Markets, says corporates are hungry for change The mood music around blockchain is changing, as a world of new possibilities emerge for the technology, many of them beyond financial services.

This fledgling innovation has had a somewhat Marmite-like appeal, with those who think it’s the answer to all the banking industry’s prayers, and others cautious until they see proof of what it can do. SAP is among those actively pushing at blockchain’s door. At this month’s Sibos event in London, which itself is themed ‘thriving in a hyper-connected world’, SAP will be seeking early adopters for a prototype real-time gross settlement payment platform, augmented by distributed ledger technology. Developed with its partner R3, the solution combines the R3 Corda blockchain platform, SAP Payment Engine and SAP Deposits Management solution. It’s intended to allow interoperability and integration between DLT-based and classic fiat currency-based payment settlement. SAP is the global enterprise resource management software provider, founded by former IBM engineers, that operates across diverse industry sectors, from pharma to banks, giving it a 360-degree perspective on blockchain and its possible benefits. Financial services institutions may well have these other sectors to thank for finally bringing this ‘bright young thing’ of tech out of the lab and into widespread use, by giving it a tangible commercial

value. SAP, which has had its fingers on the technology since 2016, is already using its Cloud Blockchain Platform service to track the progress of goods as diverse as drugs, sugar and yellow fin tuna through the farm and pharmaceutical supply chains. Falk Reker, global head of SAP’s business unit for banking and capital markets, is among blockchain’s advocates. He says the company is now ‘realistic’ about how it’s best deployed. “We don't believe everything will be based on blockchain in the future,” he says. “But there are certain processes that can certainly benefit. Areas like trade finance and security settlement are perfect examples. “Having the technology alone will not create success,” he cautions. “It needs to deliver business benefit and at Sibos we’ll be showcasing a joint solution we’ve developed with our partners to look at which areas of the crossborder payments process we can streamline, to create real-time payments and reduce complexity to a minimum.”

Universal value The Research and Markets think tank recently pegged the potential global market for blockchain at $80million this year, rising to $2.3billion by 2023, as the emerging technology that some have viewed as ‘a solution in search of a problem’, is increasingly applied to real-world issues. While SAP’s focus thus far has been mostly on its usefulness in trade finance,

supply chain management and payments, elsewhere, blockchain is being used to improve openness in industries from diamond mining to global logistics and photographic licensing, by giant names De Beers, DHL and Kodak. In all cases, it’s the technology’s huge potential for connectivity and transparency that are being sought. Its application in supply chain management is obviously key for SAP, given that, according to research firm Gartner, the company owns more than 25 per cent of the world’s related software. Customers access the blockchain via SAP’s Cloud-based apps. For example, major American supplier Bumble Bee Foods uses the platform to track the journey of yellowfin tuna from ocean to shelf, recording factors like location and size of catch, freshness and sustainability, allowing consumers to receive information on where the fish was caught and its journey to store by scanning a QR code. While it’s obviously good to know where the fish on your plate comeS from, it’s the potential to change the way the tuna was paid for, which is perhaps more exciting. Proponents of blockchain say it promises to dramatically alter the way global transactions – corporate and personal – are processed, given that much of the world’s money passes through multiple stages and stakeholders to authorise and transfer payments, with an average cost of seven per cent of the transaction. Reker says it’s time for such a step change. Issue 13 | TheFintechMagazine


SIBOS: TECHNOLOGY & PAYMENTS Clear direction: Wider industry applications are proving the value of blockchain

“With all the initiatives to go digital and cashless, why are crossborder payments still such an issue for banks? With DLT, they don’t have to be so cumbersome anymore,” adds Reker. “We’re seeing fintechs like TransferWise and others making great inroads into the market, and banks need to realise they need to move into this space. “Today’s systems are based on the economy we had in the 20th Century, yet the world has dramatically changed. The processes need to be streamlined, with central banks playing a stronger role and helping the private banks to be more efficient. We see from online retail payment providers like PayPal, which have managed to get a huge market share, how efficient things can be. Similar needs to happen on the corporate payments side.” It’s not all about blockchain, though. “We don’t want to provide only tools to our customers. We want to provide intelligence solutions, which could take the form of a chatbot, machine learning or blockchain to improve existing processes,” says Reker. But the sudden growth in blockchain’s potential value is resulting in an ever-more crowded operating space.


TheFintechMagazine | Issue 13

SAP is far from being on its own in announcing new solutions in the area of corporate finance.

Raising the stakes In August, the first major US bank, PNC, began using Ripple’s RippleNet DLT for crossborder payments. As a result, PNC’s business clients can use the system to receive real-time international payments. Meanwhile, computer giant IBM has developed a blockchain solution for crossborder payments by financial institutions, using the open source Hyperledger Fabric platform and partnering with open source blockchain network

With all the initiatives to go digital and cashless, why are crossborder payments still such an issue for banks? With DLT they don’t have to be so cumbersome and South Pacific financial services provider Klickex Group . “Corporates now expect the same digital experience as they receive in their private lives. The experience economy is critical going forward, because if you don’t provide a good customer experience, you're losing your customers very fast,” says Reker, “and that means hyperconnectivity at all levels. It’s key to driving seamless, real-time, tailor-made offerings at the right point in time. If you don’t have the connectivity, you cannot provide all the things customers expect today from a commercial bank. “Think how business is being done today. There are all these emerging ecosystems and platform networks and that's exactly where the banks need to be. “In the new digital world, there might not even be an industry called banking anymore,” he speculates. “Look at how the fintechs entered the retail banking market. They’re now supporting certain aspects of commercial banking as well and it’s absolutely crucial that banks and all types of software providers, like us, collaborate intelligently and be open to integrating with them. “If we can jointly provide a better service, we will all be successful.”

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Big changes ahead for small business banking Anders la Cour, Cofounder and Chief Executive Officer of Banking Circle looks at the challenges and opportunities ahead for fintechs serving SMEs SME is a term that covers an incredible range of businesses, from one-man bands to chains with more than 200 employees; local businesses or companies trading internationally and seasonal pop-up shops, to permanent local favourites. What they do have in common, however, is that they all need access to banking solutions. In addition, most will – at some point – need an injection of cash to jump start an expansion, purchase seasonal stock or replace broken equipment. The problem is, with the businesses

Helping the ‘little‘ guys: Not all SMEs are equal


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varying so dramatically in almost every way, no single traditional banking solution can possibly meet the financial needs of every one of them. There is no one-size-fits-all solution. It’s not just banks that are finding it difficult to serve SMEs effectively. Compared with the number of retail banking providers, few fintech or challenger bank solutions cater

specifically or successfully for the needs of SMEs, either. The result is that SMEs are often caught between retail and corporate banking offerings, with neither meeting their specific requirements. Cost is also a major issue for smaller firms. Interest rates may be relatively low today, but charges, fees, commissions and collateral requirements for lending continue to rise. Such financial exclusion is not just an inconvenience – it can have a catastrophic effect on a business.

Seeking solutions We recently commissioned MagnaCarta Communications to carry out research into these issues, which were published in our June 2019 white paper, Financial Inclusion For Europe’s SMEs: Building A Circle Of Trust. We have now commissioned a further study, which will be published at Sibos 2019. Having interviewed some of the people working right in the midst of the challenges, we have been able to gather firsthand, expert insights and experiences. Our hope is that this will help us find a way towards better financial inclusion for businesses of all sizes, stages and models. The additional research appears in a mini-paper we have called Circle Of Trust Or Out Of The Loop?. The report uncovers where changes are happening, where opportunities exist, and where barriers are beginning to come down to increase SME financial inclusion. It paints an inspiring and exciting picture of the future of SME banking.

What the experts said David Selves, Founder of The Selves Group, summed up the two main problems. Firstly, delays caused by card payment clearing, and secondly: “You can’t go and natter with your bank manager, you can’t explain to someone who knows you and your business that the transaction is approved and the money is on its way but just hasn’t cleared. Automated systems will turn down applications or reject direct debits because the funds are not in the account.” Kent Vorland, CEO of SmartTrade App, explained why this is such a serious issue: “Smaller merchants tend to have normal people problems. They need their money so that they can complete the jobs or orders for their customers, or to purchase stock for the customer who has ordered it. If they don’t have access to the finance they have legitimately earned, they might not be able to feed their family.” Roger Vincent, General Manager (UK&I) & CIO of Trade Ledger, was among those who agreed that some categories of SMEs are better served than others. He commented: “Above a turnover of £1million, banks will flick businesses over to corporate banking from retail, and that’s the gap where companies are massively underserved. SMEs are the driving force behind the UK economy. If we don’t start to tackle the problem of financial exclusion, we will be a long way behind the curve against other industries or other countries which are tackling the problem and stimulating growth within their countries.” Patty Zuidhoek, Director of Business Banking at Triodos Bank, highlighted the difficulties faced by banks, with the European Central Bank enforcing more stringent gatekeeping requirements: “All these checks and balances can be discouraging. A lot of large banks withdrew from SMEs because they want to take a standardised approach, which doesn’t work in this sector.” Paul Townsend, Non-exec Director of Vitesse PSP, confirmed: “There are certain client groups where a bank is perfectly

acceptable and works well. Where it becomes more challenging is when the client becomes more complex, requiring foreign exchange and cross-border payments, having a small balance sheet and low number of employees. This brings concerns around cost-to-serve.”

Broadening the SME banking horizon

and solutions to be distributed through other ecosystems. Either way, we are seeing a distinct shift away from exclusive relationships in favour of a more shared approach. Undoubtedly, banks must be involved in the conversation about the way forward – they are perfectly placed to lead on areas of strength and build collaborative solutions to fit this diverse sector, working together to help build a larger marketplace from which everyone benefits.

Although most alternative banking solutions in the market today cater for consumers, there is increasing provision What’s next? targeted at SMEs. Valentina Kristensen, Kent Vorland of SmartTrade App believes Director of Growth and Communications the market is more than ready for a better at OakNorth bank, said: “SMEs are still SME funding solution. not top of the agenda for most financial “One hundred per cent of the merchants services providers, but many are waking I have worked with over the past three up to the benefits. They are realising that years would be overjoyed, thrilled, to have if they get an SME on board, they will be access to their cash instantly, and would loyal and bring multiple cross-selling willingly pay a small fee or interest on opportunities within the business, amongst the loan, or a certain percentage of all the business owners, and there is potential transactions, to pay back a settlement or for employees to become profitable retail loan they needed,” he says. Not only that, customers too.” but he believes the solution could be As our report shows, delivered now. bringing about real change “I can assure you, every and better financial inclusion financial institution on earth for SMEs requires not only could put together a risk top-down directives from structure that would allow state authorities, but more these companies to have of a grassroots movement. access to that finance. And, This requires participants to on top of that, all insurance work together and develop companies in the world joint solutions, building would be happy to insure bridges between individual those liabilities, so the risk innovations already in wouldn’t necessarily even the market. lie with those offering Roger Vincent of Trade that financial inclusion. Ledger added: “We are All in all, there is a long line creating a new ecosystem of of companies that would financial services providers, benefit from being given in partnership with other that level of flexibility.” entities, such as Banking However, as our latest Roger Vincent, Trade Ledger Circle, to establish a new era report shows, the progress of financial services that will better serve and achievements will remain limited until customers and SMEs. If we better serve the further collaboration, communication and banking space through the incumbents, joined-up thinking becomes commonplace then the SMEs will benefit greatly as they within the financial services industry. will be able to access the services they want. As David Selves, of The Selves Group, In this new ecosystem, we can provide a commented, the potential is huge: new environment to better serve SME “A bank which took the bull by the financial services.” horns and really went in to support Banks are also recognising the potential SMEs would clean up.” of the ecosystem model and are facing a ■ To register for the new Banking choice between two strategic moves. They Circle Insight Paper, which will be can build their own ecosystem platforms, launched at Sibos 2019, go to www. or they can design interoperable services

SMEs are the driving force behind the UK economy. If we don’t start to tackle the problem of financial exclusion, we will be a long way behind the curve against other countries

Issue 13 | TheFintechMagazine



All aboard the real-time express Bottomline Technologies is helping to supercharge transactions by offering an alternative plug-in to national and international payment rails. General Manager and Director of Payments Ed Adshead-Grant speculates on where this fast-moving journey could end Real-time everything is the destination for Ed Adshead-Grant. That’s because instant transactions have the power to not just transform payments but challenge the way companies do business. Think real-time payroll, real-time access to liquidity positions and the impact that could have on corporate decision-making. The general manager and director of payments for payment specialist Bottomline Technologies waved its Real Time Payments Express Service out of the station this summer by launching a partnership with the UK’s Starling Bank. The new 24/7 service will allow smaller banks not directly linked to the country’s Faster Payments system, as well as corporates, to send, receive and track payments in real time to any UK bank account. As a business-to-business (B2B) player, Bottomline is focussed on providing a cheaper and simpler route to payments infrastructures like Faster Payments, by subscribing to a Cloud-based application programming interface (API). By buying into Bottomline’s services, customers can ride rails that ensure compliance with the plethora of regulations that surround payment systems. The regulatory and infrastructure cost burden is shared between Bottomline’s customers, so they don’t need to employ that expertise in-house. The service also has a bundle of features attached to it, such as a tracker to trace where the money is at any given time. Bottomline already supports CHAPS, SWIFT, Bacs, Visa B2B Connect, Direct Access Faster Payments, Paym, CASS and various others through its Universal


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Aggregator, which will now be further boosted by the Real Time Payments Express Service. We asked Adshead-Grant to lift the lid on instant payments and tell us how he sees our real-time future. THE FINTECH MAGAZINE: Faster Payments has been around since May 2008 but only a handful of banks have joined each year. The payments may be close to instant, but why has adoption been so slow? ED ADSHEAD-GRANT: These are critical national infrastructures, so there’s been a conservative approach to it. There’s been a desire to ensure that it’s resilient and it’s working at five-nines availability, so people are happy the payments are going where they should be, on time, every time.

Any treasurer in the world would love to have, at their fingertips, their cash positions globally It’s taken time to develop, but still, in the UK we’ve been pretty much first in achieving real-time payments. In terms of access to real-time payments, there wasn’t that much movement for a number of years because it was left to the core banks to sponsor real-time solutions. So, the industry came up with a new access model and Bottomline got involved in bringing new entrants to the real-time settlement scheme, which was an alternative to being sponsored by a larger bank.

TFM: Why would a small bank or corporate choose Bottomline as a gateway to Faster Payments over a big bank? EAG: In the early years, these businesses were sponsored by a core bank that had established access to Faster Payments, but they were held back by the time it took to get up and running. Demands of the sponsoring bank’s schedule perhaps didn’t fit the smaller bank’s needs, so they were beholden to the timetable of the sponsoring bank. These players wanted to have direct access to Faster Payments, so we came up with a direct access model that gives them more control over the service levels, the outages and what they can do, via a sponsoring bank. A story I like to tell is when we first switched on one of our customers for direct access to real-time payments. The previous month, their outage through a sponsoring bank had been 50 hours of downtime. That moved to just 36 seconds in the subsequent month. The call centre staff who had been taking calls from customers about outages actually cheered when those metrics were revealed. TFM: You’ve launched the Real Time Payments Express Service in partnership with Starling. What are the advantages of this software-as-a-service model? EAG: It’s a subscription and transaction model, a pay-as-you-go way of consuming technical services. The cost economics are much lower – the biggest costs being around compliance. With a lot of our work now in servicing financial services and payments, we’ve taken on the compliance burden that was historically in house. That’s all been future-proofed for the customer. Running software through the

Built for speed: Digital payments and open banking lead to a better service

Cloud also enables us to move quicker. Much of the positive feedback we get from our customers is around the extra services we provide. The real-time access is the core feature, but beyond that we have a series of fraud and sanctions-checking solutions that we offer, and cash management wraparound services that give control to the users of our solution. We’ve found that our bundle of features has been very successful for nurturing long-term partnerships in payment solutions. TFM: How do you predict the real-time payments market will change? EAG: Most obviously, the transaction amount limits will increase. Over time, the limit went up to £100,000; it’s now at £250,000. In the Netherlands, they’ve just launched real-time payments with no cap at all. The belief is, you have all of your front-end controls and checks in the system before you hit the button for the payment, which is at the end of the process. So, I think those amounts are going to go up, and it’ll probably challenge the CHAPS network, in terms of which one you would use. Bottomline’s role is to provide access to these solutions so that businesses can pay and get paid by using what’s available on the market. TFM: Looking beyond the mechanics of payments, how will real time change the financial system? EAG: With the introduction of ‘real time everywhere’, you can start to challenge the way people have been operating.

I like to put the words ‘real-time’ in front of all the different products and solution sets. So, you might be doing real-time payroll. What does that mean to a business? Could you be paying people on a daily or hourly basis? What does that mean for liquidity management? For cash flows? Or it may be real-time disbursements. Once you’ve plugged into real-time networks, you could be paying out insurance claims or loans in real time. That raises a question around whether batch payments will be needed in future. My personal view is that batch will move towards APIs and real-time flows. Another opportunity is real-time cash management. Any treasurer in the world would love to have, at their fingertips, their cash positions globally. With the real-time nature of payments and some of the supporting systems, you start to move to real-time cash management. What real time also does is link with the open banking paradigm that’s coming through, because real time and open banking to me are hand-in-glove. With open banking you now have real-time access to data that’s previously been in secure bank data vaults. That then triggers a real-time payment, so it comes together in terms of value propositions. TFM: Do you see banks embracing open banking to innovate new products?

EAG: I see banks in two camps, there are those that are doing the compliance only, and others which are looking to take advantage of what is a fundamental change in the model. So, a lot of business documents used to be dumb; an invoice was dumb. Now it becomes smart. In the digital world, with real-time payments and open banking, invoices can be linked with payments in the same file. It will help reconciliation processes by providing visibility of what’s happening. And that can improve the back office of companies trying to process payments and invoices together. TFM: What are some of the use cases you’re seeing in the field when it comes to open banking? EAG: We’re having interesting conversations with retailers which take payments from their customers using cards that now charge a percentage fee. We can redirect those payments under open banking, so the customer pays direct from their bank account, with significant cost savings for an organisation. Cards are under pressure in particular from the airline industry, and there’s a very public use case with the International Air Transport Association, which is looking to redirect consumer payments away from card rails onto banking rails. They’re looking at loyalty points, airline points, air miles and so on, which might just encourage customer behaviour to change. Issue 13 | TheFintechMagazine



In the business of doing business

Running one of the world’s largest super computers, with the biggest courier service in Russia and a raft of non-financial services, Tinkoff makes its billions by behaving more like an ecommerce giant than a bank, says CEO Oliver Hughes When is a banking app not a banking app? Perhaps when it offers cinema tickets, access to stock markets, taxi rides, holidays, even a secure way to pay police fines.

Tinkoff entered the financial sector to popularise credit cards in Russia but, 13 years on, it’s now firmly focussed on consumers aged 24 to 37 and meeting not only their needs when it comes to the dull stuff of financial life, but also delivering the lifestyle services they enjoy. With no branches, the bank was digital-only from the outset – which it claims gives it huge advantages over its bigger, bricks-and-mortar rivals. The bank’s founder – one of Russia’s super-rich, the serial entrepreneur Oleg Tinkov – has been dismissive of the ability of these, in his opinion ‘unfashionable’, institutions to get down with the kids. He’s also pleased to point out that his bank-beyond-a-bank differs from similar challengers in that Tinkoff is hugely profitable. His attacks on the competition are famously robust, but the figures back him up. In July 2019, Tinkoff, which pulls in around half a billion dollars a year in net income, was named most profitable bank in Central and Eastern Europe by Financial


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Times Group publication The Banker, with a return on assets of 7.2 per cent and a return on capital of 46.4 per cent, the latter also the second highest globally. Such a pragmatic focus on the bottom line helped Tinkoff survive both the 2008 global economic crisis and the 2014 Russian financial crisis. And it was evidenced by the bank ditching its home loans platform in May, because that particular income generator was failing to turn a profit. Now with net assets of £5.3billion, Tinkov himself considers the UK-listed bank too big to buy, and so it drives ahead with signing up millennial customers (almost two million were acquired over 12 months). “Over the last few years, there have been all these great startups, the neo banks, the digital models, but there’s been very little emphasis on monetisation; it hasn’t been completely apparent where the money’s going to come from,” says chief executive Oliver Hughes – clearly a man after Tinkov’s own heart. “I’m in the business of doing business, this is what Tinkoff is about,” says Hughes. “We deploy different ideas and approaches to acquiring customers and servicing customers, and we develop

new technologies to do so. We want to give them a great experience so they’ll stay with us, buy more with us, and we’ll make money from them.” What clearly is good business is the portfolio offered via Tinkoff’s mobile app which, since June, has been fronted by a voice assistant called Oleg (well, of course). Hughes says: “We have about nine million customers, half of them are borrowers and half are transactional customers, and in order to cater for the needs of our transactional customers we’ve been trying to push the engagement by adding more and more services. So, beyond all the financial services you’d expect to see – balances, repayments and transfers – we have loyalty systems, we have our own content, we give tips, advice, information about local events, sporting events, exhibitions.

We’ve gone further, too. We’ve integrated ticketing, so you can buy cinema tickets – we sell 300,000 a month – concert tickets, tickets to sporting events, travel tickets. We sell 100,000 airline tickets, you can book a taxi, book a table in a restaurant. The list goes on.”

Technology-focussed business At its ecommerce core is backend technology, created in-house by the bank’s team of 2,000 young developers, which allows transactions to be carried out with one click. A customer’s personal data is used to automatically populate fields demanded by service providers on the Tinkoff platform – some required by the bank itself, as is the case typically with financial products, and others by third-party providers, such as passport details when booking a flight via the travel feature. The app’s traffic police fines payment facility, which looks quirky to a non-Russian, clearly meets a need in a country where random police checks of vehicles are common and the traditional way of paying fines is bureaucratic. Another standout is the Tinkoff Investments service. Providing an online trading app isn’t so unusual for a bank,

but the impact it has had on the Moscow stock exchange has been enormous – in 2018 it was responsible for 40 per cent of all new retail customers. “In Russia, until a year and a half ago, investing in stocks, bonds, exchange-traded funds, whatever, was the privilege of a very narrow part of the population – a couple of hundred thousand people out of a population of 144 million, so it was completely undemocratised,” says Hughes. “So, we dipped our toe in the water and launched our direct market access mobile app. As well as being able to trade, there is no involvement from external parties, or annoying people pushing you stuff that you don’t want – or even misinforming you sometimes. We’ve now got 500,000 brokerage accounts opened, 400,000 in the last 12 months, so we’re absolutely skyrocketing. We’re changing the market and we’re opening the market up to retail investors who never did anything beyond having deposits before. “They’re now educating themselves, using small amounts. It’s generally low-ticket, entry-level stuff. Some people like bonds, some like Apple stocks, some people like Sberbank [the state-owned Russian banking and financial services company]. But they’re all building up a position and experience. We have a robo adviser and customers can take investment tips from external parties, too. “Over time, we anticipate that they will diversify their personal investments, so it’s a great trend that also helps to build up the capital markets, which are fairly underdeveloped in Russia.” Customer engagement is the number one goal for Tinkoff. Its founder’s ambition is for the app to become indispensable to 20 million people by 2022; for it to be the ‘first screen’ on a customer’s phone and for them to look at it 10 times a day. Hughes, meanwhile, likens Tinkoff to an ecommerce company in both its scope and ability to attract customers. Powering this growth is the bank’s Kolmogorov cluster supercomputer, which was unveiled in

spring 2019. Ranked as Russia’s eighth most powerful, it was created from a Tinkoff talent pool for which it can thank the science education legacy left by years of state-sponsored space programmes. As well as providing the power to crunch data in seconds rather than months, Kolmogorov is allowing the Oleg voice assistant to develop by harnessing artificial intelligence. Beyond that, Tinkoff is developing the technology to automate customer service processes, including voice recognition. Hughes says: “We have huge amounts of data and most of our people are analysts and technologists, so we know what to do with it. We use it not just to do targeted marketing and effective underwriting and risk management, but also to drive relevance for our customers. “Kolmogorov informs our decisioning in terms of targeting content. We drive content to people that’s relevant, based on machine learning algorithms, because we know just about everything about them: what they buy, where they go, who their affinity group is. It means the user experience is second to none.” Further development of the banking app, with the addition of both in-house and third-party services, is central to the bank’s plans to double its customer base and net income over the next three years. One area being examined is Tinkoff’s courier platform, created to deliver its products to customers across Russia. That platform has grown to 2,500 couriers and 32,000 drops a day, and claims to be the country’s largest door-to-door logistics operator. “We have been thinking about opening that up to sell partner services,” he explains. “We also have the largest distributed call centre in Europe, handling millions of calls with people everywhere in the Russian-speaking world. We can use that to sell other partners’ products, too. “There’s always this trade-off, between focussing on our own stuff, sticking to our knitting, and opening up the platform to other players to sell or distribute through it. I think, over time, we’ll be doing more and more of the latter.”

We drive content to people that’s relevant because we know just about everything about them

Issue 13 | TheFintechMagazine



A DeFi-nite improvement: Programmable custodianship is described as a paradigm shift

THE FINTECH MAGAZINE: Where do you think we are now with blockchain-based decentralised finance? ALEX BATLIN: Decentralised finance (DeFi) is evolving quickly. What we’re seeing is the first wave of service platforms and providers interacting with decentralised currencies like Bitcoin and Ethereum. A whole landscape has developed, with ways to onboard consumers from fiat currencies to crypto, to exchange between cryptocurrencies or create borrowing mechanisms. That’s crucial to extend the advantages of decentralisation and capture the full lifecycle and potential of this asset class – from issuance, through transfer, and then into lending, as well as creating algorithmic stablecoins like MakerDAO. So, it’s closing up the loop. All the activities needed for centralised financial services have emerging equivalents in decentralised finance now.


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We talk to Alex Batlin, founder and CEO of Trustology, about the crypto space, Facebook’s Libra platform and building faith in decentralised finance TFM: We know from our Payments Races that awareness of DeFi is growing rapidly, so what do you think the next challenge is going to be? AB: Changing perceptions. A lot of institutional players are still a little bit nervous about coming into DeFi, because of know your customer (KYC) and anti-money laundering (AML). DeFi needs to have a proven approach on this to build confidence. There’s still a view that Bitcoin is mainly used by criminals, when by far the biggest currency used for drug trading and

money laundering is still the US dollar! I think it would be pretty nonsensical and short-sighted to use Bitcoin for any sort of money laundering or extortion. Every single transaction and the paths for that transaction are recorded. It’s only a matter of time before systems and regulation mean it’s possible to identify everyone who was part of the chain. Soon, it will be much easier and far more effective to perform money laundering investigations on blockchain than via conventional finance. TFM: And that’s at the heart of what you’re doing with Trustology? AB: Right. We’ve implemented full KYC in TrustVault, our custodial wallet platform. We can perform deep KYC when a user joins us; for every new key, wallet, or account we create for them we know exactly how that maps across to other currencies, fiat or crypto.

And for we track every inbound or outbound transaction from those accounts in our Know Your Transaction system, by looking at the verified blocks on the chain. We can look at the number of hops and how exactly that transaction hops away, and if it ends up being sent to potentially a suspicious IP address. We can configure the number of hops we look at and see whether a destination address is linked to money laundering, or even terrorist financing. We have the ability to trace those transactions to a depth that’s not even possible in the conventional banking system. This gives you a reliable global view for AML purposes. I think that, when the conventional banking world catches up with what we’re doing on cryptocurrencies, this approach will be adopted as the de facto technology standard for fiat currencies in the future.

very soon for more institutional use cases. We’re integrating advanced hardware security modules and biometrics, alongside programmable custodial rules, to really keep user data safe. And we’ve got a simultaneous sign a transaction processing time of about 350 milliseconds. That makes it feasible for institutional clients to use the platform at pace. Plus, we are one of the first in the crypto space to be fully insured. We now support all major crypto assets, from Bitcoin and Ether to ERC-20 tokens, and we’re also expecting to launch support for signing any decentralised finance transaction, through integration with MetaMask’s secure identity vault tech. The most interesting idea we’re showcasing at Sibos in 2019 is our programmable custodian, where our clients can create their own rules, but let us execute those rules, so they don’t have to wait on us to enforce the rules for them.

TFM: So, what’s the premise that’s driving Trustology? AB: We believe that crypto assets are going to provide new wealth creation opportunities for everyone, and we want to help drive the world towards that. Blockchain reduces the cost of trust for financial transactions. And, once you reduce the cost of trust, you increase the velocity of trade and transactions, and you are able to provide support for more niche, underserved use cases, which have previously been considered too expensive to get into. You make it easier for people to participate in the ecosystem and create greater wealth. It’s about creating wealth for everyone, especially those underserved by conventional systems. To build that, we need to make sure we’ve got the basics in place. To use cryptocurrency, you need to be able to see your account, send and receive transactions and assets and manage your money. Think of Trustology as the equivalent of a web browser for the blockchain. There are a few out there at present, but we wanted to create a solution that is a step up, removing all the previous compromises. One that’s super secure, super easy to use and very fast, and we’ve done exactly that. So, we have a custodial wallet platform with an adaptable end-user experience. Initially, we’re going to market with a mobile wallet solution, the TrustVault app. We’re also adding desktop user interfaces

We have the ability to trace transactions to a depth that’s not possible with conventional banking… when the world catches up with what we’re doing on cryptocurrencies, this approach will be adopted as the de facto technology standard for fiat currencies in the future

That turns us from a service to a platform, which means we can then manage identity and transaction processing at a much lower cost than would have ever been possible with traditional custody. This is a genuine paradigm shift. TFM: We have to ask you about Facebook and its headline-grabbing move into the crypto space. What are your thoughts? AB: I think it’s positive. Essentially, it’s educating over a billion people about the benefits of cryptocurrency. When a serious technology player like Facebook sees

value in this, and promotes it to all those folks who may or may not have previously heard of blockchain technology, that’s a good thing. What it has prompted, though, and quite rightly, are some concerns around how centralised the Facebook solution will be. There’s always going to be a spectrum between full decentralisation and high centralisation. I think we will see how different approaches will play out, and I think we should welcome that. In some use cases, full decentralisation is useful, especially in a very international space, where there’s no obvious adjudicator. But in other use cases, a consortium of trusted enterprises might be good enough to create the right trust approach. Also, Facebook’s scale can make it easier to track transactions for KYC and AML purposes, and provide a focus point for developing regulation. That’s only to be welcomed, I think, because it can create solutions which improve the way we protect our society. TFM: To round off, what is your take on the future for blockchain? AB: One of the things I believe we lost as a society when we moved to processing fiat money electronically, was the ability to have anonymous transactions at the lower value end. That was a valuable and worthwhile capability for cash money. With blockchain, we can restore that by setting a transaction threshold, beneath which it’s possible to maintain complete anonymity for what’s on the blockchain, while, for higher value transactions, there can be a regulatory requirement to pay for KYC and AML, either individually or by outsourcing it to a third-party provider, such as a custodial wallet provider, like Trustology. And we’ll start to see a real shift towards DeFi when the cost differentials start to kick in. That will happen pretty soon, as the number of dominant interfaces and mechanisms drops off and platforms like Trustology can highly optimise the service that’s offered. The cost per transaction will drop to a fraction of what it is while a provider has to support a wider range of different instruction channels and mechanisms. So, over time, economics dictate that the old model will die, but it might take a long time before it does. Issue 13 | TheFintechMagazine


The monetary forecast: Is there a vision appearing?


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For nearly a decade, the Future of Money session at Sibos has been one of the most eagerly anticipated and keenly attended. It’s the forum where wise words have been shared and debated. It acts as a crystal ball, with top industry figures identifying and discussing the major disruptive trends likely to shape the financial services landscape and the notion of money itself. If you’re curious about what’s over the horizon, read on… This year’s Innotribe sessions will take place in the team’s visually-striking space at the heart of the Discover Zone, where the world’s most innovative fintech startups will be exhibiting and networking with potential banking partners. It’s a perfect setting to discuss and develop the future of the industry. The four-day Innotribe programme is packed with thought-provoking, sometimes controversial, sessions that revolve around the concept of trust. The opening keynote will be provided by rock star physicist Professor Brian Cox, who will pave the way for a series of insightful, provocative speakers from across the fintech, big tech and academic communities. But the now-famous Future of Money session, on Wednesday 25 September at 9.45am, is the jewel in Innotribe’s crown. London, long the centre of international currency markets and a hotbed of payments innovation, will be the welcoming host for this complex discussion. It will bring together a panel of leading industry thinkers to debate the notion that cash will soon be redundant. Does this mean that we’ll see a proliferation of new digital currencies enter the mainstream – or will we simply continue along the path of pure digitisation, with an emphasis on mobile money and its like?

Many commentators in the financial industry believe that crypto is the future, predicting that the anticipated development of a regulatory framework will drive further innovation and spark growth. In line with the central Innotribe theme of trust, the speakers will explore how we can work together to shift crypto from a financial ‘wild West’ to a more regulated, stable and integrated place.

Exploring a third variable One of this year’s panel is Tony Fish, Founder of AMF Ventures. He believes that the question we should start with is ‘what are the new characteristics of money?’. “Money was, and remains, among other things, a method of exchange,” explains Fish. “If money had stayed as only a mechanism of exchange, we would not be where we are today with the economy we have and the freedoms we enjoy. Money had to, and has, become an object or an entity. An entity is a thing with a distinct and independent existence.” He believes that, today, we have exchange and entity as the two key characteristics of money. Both are necessary. The coins in the pocket of someone crossing a desert are worthless unless they can be exchanged with someone else for water. Money requires exchange for its value to be asserted. In isolation, despite its accumulation, it has no worth.

The three new characteristics of money According to Tony Fish, founder of AMF Ventures, money will be defined by:


Responsibility and accountability New money will be accountable, traceable and trackable – the counter to consumerism, throw away, disposable. We need to think sustainability. No longer can you as a person or corporate abdicate responsibility for the actions of your money.


Humanity The exchanges you make using money become data and data, over time, enables insights. Insights become knowledge and, from knowledge, comes wisdom. The owners of the data (eventual wisdom) will know lots about us and so will we demand that they have a duty of care to us? Knowing something about me and doing nothing will not be an option. The owners of that data will have a duty of care; new money means more humanity.


Programmable Money can come with terms and execution. Trust in the institutions is not necessary as the money itself becomes the code, process and execution.

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SIBOS: DISCOVER “What are the other new characteristics which are divergent from the two of exchange and entity?” continues Fish. “Can money become something else? What if money has a new third characteristic which is its future?” In academic circles, this is known as the third variable. The thinking behind the third variable is uncovering things that don’t necessarily belong together but can exert influence. Fish has identified three options for new characteristics that need to be unpacked: responsibility and accountability, humanity and programmable money (see box, p57). The future of money is, he believes, more exchange (think Bitcoin) and more entity (think a distributed ledger technology (DLT) crypto linked to FIAT), but it’s also importantly about adding these new characteristics into the mix.

Divided demographics? Scarlett Sieber, managing director and chief strategy and innovation officer at CCG Catalyst, will be joining Fish on the panel. Sieber puts more emphasis on exchange than entity. She thinks that the younger generation, in particular, is moving away from viewing money as a tangible object and seeing it as a more abstract idea that ebbs and flows as money flows in and out of their accounts. And they want advice and context around their past and future purchases. “Cash use is certainly declining – the number of ATMs in the world decreased for the first time ever in 2018 – but it depends on the geography and users’ behaviour,” says Sieber. “In Norway, for example, the entire country is essentially cashless, whereas in the heart of New York City, I recently ate at a ramen place that only accepted cash.” Another panellist – Dr Leda Glyptis, chief of staff of 11:FS and CEO of 11:FS Foundry – has a similar view. “I’m a big believer that we will be seeing cash less and less in the future, with wearables, mobile and contactless payments, and digital cash, taking centre stage,” she says. “This is hardly a prediction, it’s already a global trend with


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Cash use is declining – the number of ATMs in the world decreased for the first time in 2018 – but it depends on geography and users’ behaviour SCARLETT SIEBER infrastructure being developed and refined to support real-time global payments, clearance and settlement – crossborder and calendar-defying. The main drivers are regulatory frameworks, ease of use and traceability and we will see more and more innovation in this space as the art of the possible is taking hold. “In general, younger customers favour cards and mobile for payments,” adds Sieber. “Whatever currency is easily

accessible via mobile devices will be the one that many will choose. Outside of that, cash will always have a use for purchases where privacy is at a premium. We see this in the US with the quasi-legal status of cannabis as an example. Consumers are wary of using cards for the purchase of something that’s legal in one jurisdiction but illegal in another. And many disenfranchised consumers are forced to use cash because they are paid that way, and may lack accounts to safely store their funds and access it in another form.”

The role of crypto When it comes to crypto, Sieber thinks it’s early days in terms of mainstream use. “Interest in cryptocurrency closely follows the fortunes of Bitcoin. Right now, Bitcoin is up from where it has been for several years, so interest is high. But crypto is viewed as an investment, and is still complex to use at the point of sale, as well as risky – Bitcoin may experience a price jump, so the cost of your coffee could triple overnight!” She points out that banks are still slow to embrace cryptocurrency because its legal and regulatory status is less than certain. That said, investors are on board, and interest in crypto continues to broaden in the general population. So, banks will eventually follow, once there is more regulatory certainty around it. Glyptis also plays down the role of crypto in the short term: “Although I don’t think it will go away, I do expect to see digital cash becoming more prevalent than crypto as we move forward.” She sees London as the ideal place to discuss this future. “The fact that we are in London this year will undeniably have an impact on the energy in the room,” she says. “Not only is London the home turf of most of the incumbents attending Sibos, but it’s the global capital of fintech. It’s not just the level of creativity and innovation that calls London home, but also the fact that London’s ecosystem has achieved a higher degree of maturity by virtue of having been going longer. The learnings and insights should be valuable for the entire community.”

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The arrival of CBDCs This year’s Future of Money session will be moderated by James Lloyd, partner and Asia Pacific fintech and payments leader at EY (Ernst & Young). He’s also excited by the prospect of Sibos’ debut in London. “If anything, I expect our session to be even more popular this year!” says Lloyd. “As perhaps the leading global financial services and fintech hub, London is the perfect location to consider not just the future of money, but also its changing nature. “A recent speech by the governor of the Bank of England, for example, in which he suggested that a new ‘synthetic hegemonic

currency’ could conceivably emerge to ‘dampen the domineering influence of the US dollar on global trade’, has brought to the fore one of the most intriguing developments in this space – the emergence of central bank digital currencies (CBDCs).” Lloyd agrees that the penetration of cash is declining globally, and expects this trend to continue. He thinks that what will replace it will differ from market to market – from mobile wallets to bank-to-bank transfers, to cryptocurrencies. “While customer demand will help shape outcomes, so too will the supply side,” he explains. “In particular, the changing

regulatory landscape. Consider, as an example, the pushback we’ve seen following just the announcement of the digital currency proposed by a certain social media company.” As with many areas of fintech, Lloyd believes that China is the most advanced when it comes to developing crypto for the masses, with the People’s Bank of China suggesting that its own CBDC is nearing deployment and may replace cash. “No matter which way this goes, expect to hear more about the seemingly inevitable rise of CBDCs,” adds Lloyd. “The future of money is nearly here – but are we ready?”

THE FUTURE OF MONEY LINE UP Tony Fish, Founder, AMF Ventures

Fish is a seasoned executive director with more than 25 years of experience in investment, innovation and high growth businesses. His professional life has cut across a diverse range of sectors, including venture capital, health, finance, digital fabrication, media, mobile, sport and education. His attention is currently focussed on AI, voice, ethics, DLT and cryptocurrency. He has founded, cofounded, sold and listed many businesses but remains passionate about highly disruptive technology that has the capability to scale fast and is at an early stage. A visiting lecturer and speaker on innovation, entrepreneurship, digital trends and early stage growth, he has authored and published three books.

Scarlett Sieber, Managing Director & Chief Strategy and Innovation Officer, CCG Catalyst Sieber is a respected leader, driving organisational change at startups and global enterprises alike. She is currently MD and chief strategy and innovation officer at the consultancy CCG Catalyst, where she advises financial institutions and fintechs on next-generation financial services. She is also a senior advisor for NASA’s Cross Industry Innovation Summit. Previously, Sieber was vice president at USAA where she led the newlycreated business development initiative.


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Prior to that, she was chief innovation officer for Opus Bank, where she led the digital strategy and transformation for Opus and its trust subsidiary, Pensco. She was chief operating officer and cofounder of data visualisation tech startup, Infomous, whose clients include The London Olympics, Super Bowl XLVII, NFL Films, The Economist, The Guardian and USA TODAY.

Dr Leda Glyptis, Chief of Staff at 11:FS and CEO 11:FS Foundry Glyptis is responsible for the 11:FS revenue-generating businesses and leading the growth of Foundry, the firm’s modular core banking offering. She describes herself as a recovering banker, with a long career in operations and IT across major banks, products and geographies. She is a renowned speaker, writer and academic in banking and fintech, and an expert in digital disruption, strategy and execution in financial technology.

Michael Moon, Managing Director for Payments, Trade and Communications, Asia Pacific, SWIFT Moon joined SWIFT’s Singapore office in 2012 and leads its payments, trade and communications functions in Asia Pacific. He partners with the payments and banking industry to deliver next-generation payment and settlement solutions.

Moon manages SWIFT’s strategic initiatives in Asia Pacific, many of which are reshaping the payments landscape globally. These include SWIFT gpi for crossborder payments and SWIFT’s instant payment system solutions in Asia Pacific (including the New Payments Platform in Australia for domestic real-time payments). He joined SWIFT from American Express, where he led group strategy and business development for its network, merchant and B2B businesses in Asia Pacific.

James Lloyd, Partner and Asia Pacific Fintech & Payments Leader, EY (moderator) James is a partner at EY, specialising in strategy and transaction advisory. He leads the firm’s dedicated fintech capability across Asia Pacific, with a particular focus on growth-stage and non-traditional financial services. He is also APAC leader of the firm’s payments practice. Prior to EY, James helped build and scale a venture-backed alternative-finance platform enabling banks to profitably offer short-term unsecured loans to underserved small businesses. Before that, he supported a bootstrapped ecommerce payment gateway in combining direct-to-market customer acquisition with whitelabelled full-service delivery for partner banks. Based in Hong Kong, James sits on a variety of governmental advisory panels and is regularly quoted in local and international media.


Will identity-as-a-service be the next banking business model? Will self-sovereign identity solve the paradigm of security versus ease of use? These and other questions will be explored on the Innotribe stage at Sibos. Alex King probes the outer reaches of verification technology for an ethical solution to who owns our digital selves How many times have you read an article that opens with the tired old maxim that ‘our identities are increasingly formed online’? It’s reached the point of linguistic exhaustion as our digital identities have

flourished across the boundless space of the internet. Sometimes we’re offered a poignant reminder of the almost absurd nature of the networked lives we now lead. Summing up our fully-fledged digital selves, philosopher Srećko Horvat wrote: “If you want to have a job, you have to be connected. If you want to maintain friendships, you have to be connected. If you want to go on a date, you have to be connected.” The username-password model was built into the fabric of our digital experience with the launch of the first email accounts, but the compulsion to sign up, log in and upload our identity has reached fever pitch in the last decade, as websites and apps demand we create additional siloed representations of ourselves in exchange for access. Most use personally identifiable information (PII) to share and monetise consumer data through their back end. PII cuts to the core of who we are, which is precisely why it’s so valuable for marketing purposes. But by onboarding with scores of sites, services and tools, the average person

now juggles dozens of disparate identities and maintains a dizzying array of verifiers to fire over the internet, simply to prove who we are. This, then, is the present-day ‘identiverse’ across which we map our lives. It’s a system and structure powered by the commercial value of data and guarded by initiatives such as the General Date Protection Regulation (GDPR) which, for the first time in history, established privacy as a human right. But data privacy is only one of the pressing contemporary debates. Identity is also about inclusion and exclusion – about ethics, human rights and bias-conscious technology. Importantly, it’s about who owns and trades our data – and who we can trust to store that sensitive personal information securely. That’s where financial institutions enter the picture. If data is the ‘new oil’, then who better to trust with our share of this valuable commodity than banks, which are already the custodians of our physical wealth? As trusted brokers in identity, banks may be the best initial experimenters in the developing identity-as-a-service (IaaS) space.

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An IBM report into the future of identity, published in 2018, suggests that banks are well-positioned to do just that. IBM’s survey of thousands of adults around the world found that nearly half would trust a major financial institution (FI) with their biometric data – a key emerging technology in the identity authentication space. By interesting contrast, only 15 per cent of respondents said they would trust a major social media site with such data. If such findings indicate FIs ought to wake up and smell the identity-infused coffee, there’s no better place to brew up the beans than the Sibos Conference. Its famously future-facing Innotribe Stage will this year be plunging the press on identity, percolating answers to the most pressing questions of our time. Debating under the gaze of a giant model jellyfish, Innotribe speakers will be gathering up the many tentacular strands that connect to the bulbous body of the identity industry: privacy, payments, know your customer (KYC), authentication and issues surrounding usability and trust. With identity a crucial element in verifying payments, risk-assessing new banking customers, authenticating online banking logins, and enabling consumers’ financial data to be shared across banks and fintechs, banks are already deep in the identiverse. The

question for the 2020 is simple: will IaaS be the next banking business model? One speaker attempting to answer this question at Innotribe will be Ghela Boskovich, founder of FemTechGlobal and a global fintech influencer. As she explains, the concept of identity is currently entangled with crucial issues regarding data ownership in the digital age. “Data is the fuel of the digital age, and the owners of that data literally have the keys to the future,” she says. “Right now, the crux of the identity debate

Data is the fuel of the digital age, and the owners of that data literally have the keys to the future... we now recognise that individuals own and should be able to control the access to, and distribution of, their personal data GHELA BOSKOVICH

is centring around ownership and control. And we now recognise that individuals own and should be able to control the access to, and distribution of, their personal data.” That’s been a big step in recent years, driven, in part, by the sea-change brought about by GDPR and open banking. Consumers are also more enlightened than ever about how their data is monetised, and increasingly suspicious of the tech firms that have proven, in the Cambridge Analytica scandal and elsewhere, to be careless custodians of their data. But privacy comes at a cost. The choice, at present, appears binary: convenience and ease, or privacy and security – but (for now at least) rarely both. Little has changed since Edward Snowden remarked at a SXSW (South by Southwest) event back in 2014 that consumers “have to choose between a service that is easy to use and reliable and polished, and a tool that is highly secure and impossible for the average person to use.”

Ready for the ride? Banks and others are already in the deep space of identity

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SIBOS: DISCOVER Reconciling security and user experience is therefore a huge priority for the future of identity – in the banking space and beyond. That’s certainly the view of Eric Sachs, another Innotribe speaker, who has 25 years’ experience in the identity industry, including a leading position in Google’s security team. “Friction has been a major market force driving innovation in consumer login systems but, unfortunately, reducing that friction has generally had the side effect of reducing security,” explains Sachs. “Enterprises are increasingly concerned about the public relations or regulatory risk of security incidents that leak consumer data. However, that has led many to deploy login security approaches that are unnecessarily heavy-handed and have very poor usability,” he says. Into the void between companies’ binary options fall considerable profits, as customers high-tail towards providers that offer login systems they prefer. Many outside observers might, at this juncture, point to emerging biometric technologies as the arriving cavalry, galloping opportunely into the centre of our attention as traditional verification systems stall and flounder.

with a smile’ through Ant Financial-owned Alipay. It’s even announced it will be filtering the face that smiles back at you following feedback from consumers that the ID checker made them look ugly. Recent use cases only serve to justify the position taken by the Department of Commerce. Facial recognition software – already notorious for racial identification flaws – was used at last year’s Champions League final to spot known troublemakers. After the event, it transpired that 92 per cent of those detained were false positives. The state of Illinois also recently passed the Biometric Information Protection Act (BIPA) – currently the only law that specifically requires companies to acquire explicit consent to collect biometric Modern digital banking tools: Searching for the sweet spot between friction and security

Friction has been a major market force driving innovation in consumer login systems; unfortunately it has generally had the side effect of reducing security ERIC SACHS Heralded by some as the ‘death of the password’, biometrics comprise those technologies that use our unique biological features to confirm that we are who we say we are. Users of the iPhone will, for instance, already be familiar with fingerprint and facial recognition technologies that allow them to access their devices and there is increasing interest in voice recognition in financial services. In 2017, the US Department of Commerce released a set of Digital Identity Guidelines that praised the use of biometrics in phones. Crucially, though, the paper recommended this be the only place they’re used. At present, biometrics are less a solution to the impasse in the identity verification space, and more a novelty way to unlock our devices. There is a notable exception – in China, facial recognition technology is being increasingly adopted by high street retailers for customers to ‘pay


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One source of hope and expectation in the identity industry is coming from something less sci-fi than biometrics but arguably far more ingenious: self-sovereign identity, or SSI. To understand the paradigm shift promised by SSI, we spoke to another Innotribe speaker – Kaliya Young, better known in the identity sphere as ‘Identity Woman’. Young has been a central trailblazer in SSI, and co-authored an authoritative book on the subject titled A Comprehensive Guide to Self-Sovereign Identity. Fast Company magazine named her ‘one of the most influential women in tech’ after her 15 years of theoretical and mathematical grappling with the problem of who we are. SSI places the individual in the centre of

information. A Six Flags amusement park was subsequently successfully sued for using fingerprint technology to issue tickets without giving visitors an opt-out. Sachs also explains why biometrics cannot, presently, kill off the password. “Let’s says you have an iPhone that gets broken, and you buy a new one,” he says. “To add your accounts on the new iPhone, you won’t be able to use biometrics because they were all stored locally on your old broken phone. You’ll still need passwords to your Apple account to set up the new phone. That is just one of the many edge cases that still require passwords.” While the use of facial recognition by Alipay in China might be benign, state use of biometrics both there and in India has been subject to sustained criticism since the technology’s introduction. If biometrics present ethical and technological problems, then where does the solution lie?

their own identiverse, with control over exactly what data they share with the digital galaxies they visit on a regular basis. As well as being a more efficient form of authentication, SSI steals back control of our online identities, as Young explains. “The current paradigm that’s in everybody’s head is that ‘I get identity from other things. I get a student number from my institution. I get a phone number from the phone company. I get an email address from Google, Yahoo or Microsoft’. All of these identifiers are given to us by someone else – and therefore can be taken away by them,” she says. “The new, emerging decentralised identity says ‘no – you generate your own identifiers in an infinitely large space of magic math, and you use those decentralised identifiers as anchors for different credentials’.” Decentralised identifiers (DIDs) are the key to self-sovereign identity.

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SIBOS: DISCOVER Stored in a digital wallet, they come with two keys: one public, and one private. In order to verify an identity, institutions are able to mathematically challenge an individual’s public key, and work out from that challenge whether or not they are the owner of their private key – all without an individual’s private key being shared. “I always wave my hands and say ‘look at the fancy math!’” says Young. “It’s a little counter intuitive because physical things don’t work like that. It’s best described as a new language, a new set of protocols – like we just invented HTML,” she says. Fancy mathematics to one side, the SSI system, according to its leading proponents, may just be the way in which banks and financial service providers overcome some of the key challenges they’re facing – whether in the fight for simultaneous usability and security in onboarding, or the battle to tackle financial fraud. Identity fraud, remember, costs the world $35,600 every minute. Elsewhere, confusingly complex onboarding processes, including regulation-enforced know your customer (KYC) protocols, drive consumers away, just as much as the data breaches that convenient and frictionless login systems can lead to. The combined cost of these two forces for FIs is incalculable – but significant enough to encourage banking executives to sit up and take notice of SSI. “It’s much more secure, cheap and fast – 10 times better than what banks are using right now,” insists Young. “The early adoption use cases within the banking sector use verifiable credentials issued to customers as a way to do authentication when they ring a call centre. This avoids the ‘what’s your mother’s maiden name?’ question and uses the credentials in their digital wallets instead. They use the magic of cryptography to prove you’re the same person. It’s way more secure and you’re way more in control.” This element of emancipatory control – with one’s digital identity owned by you instead of an intermediary like Facebook or Google – touches back upon Boskovich’s interests in ownership and self-determination in the identity space. As industry players such as Boskovich are keen to point out, the UN and World Bank have prioritised the creation of a legal digital identity for all as a Sustainable Development Goal to achieve by 2030. With


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only 55 per cent of the world online and nearly two billion individuals technically lacking identity, achieving this goal will be a mammoth undertaking for the world’s supranational organisations. In a commercial sense, the increased proliferation of digital identities will mean ‘banking the unbanked’ in untapped regions of the world. And in human rights circles, the same undertaking will uphold Article 6 of the Universal Declaration of Human Rights: the right to recognition everywhere as a person before the law. “Southeast Asia alone has 438 million unbanked people, which is 73 per cent of the entire population,” Boskovich asserts. “According to a study done by McKinsey, reaching the unbanked population in this region could increase its economic contribution from $17billion to $52billion by 2030.”

All of these identifiers are given to us by someone else – and therefore can be taken away by them… The new emerging decentralised identity says ‘no – you generate your own identifiers in an infinitely large space of magic math’ KALIYA YOUNG That’s a pretty compelling economic argument to justify plans to provide digital identities to markets outside the western world. Equally compelling is the argument that business models and policies to encourage participation – in bureaucratic and economic identities – will help the world’s most vulnerable people, balancing out some of the inequalities currently written into the global identity industry. “But for banks to validate identity well, and to do it ethically, we have to start designing business models and products that onboard the unbanked and the underbanked. And, for those who don’t buy the human rights reasons, we need to highlight the business

case for doing it right, too,” says Boskovich. This summer, Facebook published its eagerly anticipated white paper on its forthcoming Libra cryptocurrency and Calibra digital wallet. One of its central claims, to ‘bank the unbanked’ and create ‘decentralised identities’ eerily echoes the aspirations of Young and Boskovich. It’s possibly too early to tell how the scheme will play out, though author and futurist Daniel Jeffries may represent the majority perspective in his label for Facebook’s long-awaited initiative: panopticon money. “I’m suspicious of it,” Boskovich agrees, “primarily because corporations should not be the commercial owners of identity. From an inclusion perspective, it’s an interesting experiment, since more people have Facebook accounts than bank accounts,” she says. “But Libra is being compared to ETFs (exchange-traded funds), which would require regulatory oversight and KYC standards. So, if it’s ultimately regulated like an ETF, those regulatory requirements render the ‘inclusion’ argument moot. People will still have to prove identity initially to do Libra transactions.” Having previously described Libra as ‘very world domination-ish’, Young is confident that the social media firm isn’t about to wrench the reins from the community that has been doggedly directing the direction of travel for fair and fast identity systems over the past two decades. “Identity is too big to be owned,” she says, “just like the web is too big to be owned.” Whether Facebook’s intervention in the identity industry will be the era-defining change many in the identity authentication space have been waiting for remains to be seen. What’s clear is that the work going into solving this increasingly pressing problem isn’t happening inside the halls of Silicon Valley GAFAs (Google, Apple, Facebook and Amazon) – it’s happening across disciplines and industries. Horvat concludes his critique of digital connectivity by stating what may be the crux of identity in an increasingly connected world – that being inside one’s own identiverse is itself a requirement of modern life. “If you are out of the circle,” he argues, “it’s as if you don't exist.” If nothing else, the discussions at Sibos’ Innotribe stage should rally around that core idea – that we should all have access to digital identifiers that we own ourselves.


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When East beats West With the notable exceptions of Alibaba and WeChat and their respective payment apps, much of China’s innovation in financial and related technology is perhaps underestimated and underobserved by the West. Pascal Coppens, author of China’s New Normal, will use the Innotribe stage to explore what ‘team China’ has to teach us Is the world’s second largest economy leaving everyone else in the digital slow lane? ‘Made in China’ used to be a euphemism for copycat products, often of poor standard. Today, ‘Created in China’, or ‘Led by China’ is more appropriate. It’s the technology giant to watch – and, perhaps, to emulate. China’s rise as a technology superpower, spanning everything from mobile money to autonomous vehicles, is no surprise to Pascal Coppens. As the author of China’s New Normal, as well as many other works on China, Coppens has an expert understanding of China’s digital economy and the cultural traits that are fuelling its growth, having lived and worked there for 20 years. The Chinese technology revolution has been both swift and ubiquitous, catching the West by surprise, he says. From about 2008, mobile technology raced ahead,


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with China becoming not just a ‘mobile first’ nation, but practically ‘mobile only’ – certainly as far as cash is concerned. Smartphone payment services such as Alipay mean that the world’s most populated country is well on the way to becoming a cashless one, as mobile asserts itself as the primary way for Chinese consumers to access the internet and organise their lives. “Chinese consumers have fully embraced mobile commerce and digital business,” says Coppens. “And China has jumped from cash to mobile payments, leapfrogging the credit and debit card transitions familiar to the West.” Several factors have accelerated digital transformation. First, China is a nation of entrepreneurs and doers, says Coppens, and there is tremendous freedom and encouragement for people with ideas and vision. It contradicts our impression of China as a closed and reactionary society.

“It’s a misconception, says Coppens. “The Chinese have an enormous energy for progress and creativity. It is a consumer market where there is every incentive to build something new, create something different. There is a stereotype about Chinese control and repression, but the reality is that China has a better model than the West when it comes to advancing the digital economy. “It’s a teamwork mentality where things get done quickly, without some of the bureaucratic obstacles we encounter in the West. We talk about agile development, but China raises it to another level. There is no fear of failure – just a determination to try new things and push boundaries – and the government is very supportive, meaning regulations are implemented only after innovations have been tested. Things can move fast because they are allowed to, whereas regulation comes first in other countries.’

Customer focus has been a critical part of the digital journey. “The Chinese always look at what’s best for the consumer,” he continues. “This is not always so apparent in other countries, where customer focus sometimes means what a business thinks the customer wants and what it would like to deliver to the market, rather than staying close to user needs at all times. In China, customer centricity means customer loyalty. There is less business competition, more a collective desire to deliver what people want.” The country is also a master at creating the ecosystems that map and connect data; some of the most powerful through companies such as Alibaba and Tencent. There are countless smaller enterprises which are linked to these platforms, says Coppens, which creates tremendous depth and versatility. “What’s happening now,” he says, “is we’re moving to the next stage of development. The focus is shifting from connectivity and the internet to data and artificial intelligence (AI). The reason is that we’re accessing huge amounts of information and advanced algorithms are enabling us to analyse and harness it. China is particularly good at this. In the future we will see a massive uplift, thanks to the combined power of algorithms, AI, robotics, the Internet of Things and, of course, the roll out of 5G.” In 2017, the Chinese government launched the New Generation Artificial Intelligence Development Plan with huge ambitions to put China in the driving seat of the technology – quite literally, in the case of autonomous vehicles – by 2030. Companies like the world’s most valuable AI startup, SenseTime, the country’s biggest algorithm provider, which has commercial and research relationships in the US, Japan and Malaysia, are working hard to help it get there. Unisound, the voice services unicorn, iFlytek, another voice services provider, and another unicorn Megvii (which means mega vision) Technology, the startup behind the Face++ facial recognition platform that processes about 2.4 million face ID verification requests a day, are some of the others.

Coppens identifies ‘smart finance’ as one of the eight industries where China is taking a clear lead over the rest of the world, with AI being an engine of growth, interpreting data to get ever-closer to customers and mirror their needs and desires. Coppens says the Chinese place great trust in technology and what it can do. They are very receptive to the role fintech can play in their lives and the positive impact that AI and other emerging technologies, such as deep learning, can have. “Trust is the foundation for growth and it breeds confidence in innovation and innovators,” he says. “If you look at big players like Alibaba, they have a 360-degree view of their customers. They are totally plugged in to their needs and, because there is this high level of trust and they know all about their customers, they are much better able to serve them in the ways that they want.” In the West, that sentiment of trust sits uneasily with evidence that Chinese authorities are using facial recognition technology for racial profiling, targeting the country’s mainly Muslim population of Uighurs, whose treatment continues to draw condemnation from world leaders. In response to those concerns, Beijing-based Megvii, which is backed by Alibaba, said it wanted to guard against the weaponisation of AI in advance of listing on the Hong Kong stock exchange last month. It has laid down a code of conduct and established an ethics committee, saying it strives ‘ to find solutions that respect people’s dignity and privacy’. It clearly recognises that there is a disconnect between East and West that could threaten China’s obvious desire for help to realise the country’s technology vision. Notwithstanding the trade war of words with the US and a hardening of the relationship with Britain during the ongoing Hong Kong uprising, China has recently liberalised still further the rules around foreign investors taking stakes in Chinese financial services providers. Meanwhile, the UK Financial Services Trade and Investment Board continues to focus efforts on China this year, which

Things get done quickly, without some of the bureaucratic obstacles we encounter in the West. There is no fear of failure

include supporting the launch of the London-Shanghai Stock Connect, a landmark initiative which permits UK investors to access Shanghai-listed equities and vice versa. There is also the first UK Belt and Road Initiative Forum. Coppens agrees that we mustn’t make the mistake of turning away from the country and missing the opportunity for collective growth – not least because the nature of the new wave of technology means it will never be constrained by geopolitical borders. The message in Coppens’ book is that we must learn from, and work with, a country that was once labelled a copycat nation. No longer a follower, China is shaping everyone’s digital future.

All hail AI!

According to McKinsey, China could become the world’s biggest market for vehicles driven by AI – and the race to provide them in the ecommerce ride-hailing industry is already on. Didi, which drove Uber out of China in 2016, has just launched an autonomous taxi pilot in Shanghai, while China’s biggest self-driving car startup, also based in Silicon Valley, unveiled PonyPilot in Guangzhou late last year. It’s teamed up with Toyota to provide an autonomous vehicle ride-hailing service (above), competing against rival startup WeRide, which last month announced a joint venture for another service in the city. Chinese internet giant Baidu also hopes to bring 100 robo-taxis to Hunan province this year. Meanwhile, London-based Splyt Technologies signed a deal this summer with Alipay, giving Chinese tourists access to e-rides in 1,000 cities without having to download another app. The Splyt software divides fares between the local provider and the mobile booking platform.

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Halt! Who goes there? Zac Cohen, General Manager of Trulioo, explains how companies can protect themselves against a growing army of imposters, while extending financial inclusion to those who legitimately need it Global identity verification provider Trulioo is already able to validate some five billion people in more than 100 countries – and its reach is only growing as its market expands. The fintech recently entered Georgia, Qatar, Iceland and Bahrain – the last two having both been highlighted by intergovernmental organisation the Financial Action Task Force as requiring extra effort in combating anti-money laundering (AML). Trulioo’s single application programming interface (API) solution GlobalGateway addresses both AML and know-your-customer (KYC) requirements by pinpointing the most effective sources of data for each country. That may be government records, credit bureaux, or mobile network operators in areas with weak governance. Its digital identity network provides access to more than 400 procured, vetted and trusted data sources around the world – all through a single integration that at the same time complies with local privacy regulations. Identity verification is particularly challenging in emerging markets, such as India, Indonesia and Africa, where people are less likely to have traditional forms of ID. By helping to create a financial identity for these individuals, Trulioo is not only helping to fight financial crime, but also improving financial inclusion in areas where people may otherwise be left behind.

The Vancouver-based company this year teamed up with Refinitiv, a global provider of financial markets data and infrastructure, in a strategic partnership to enhance and expand access to digital identity solutions. According to Refinitiv’s second annual survey of more than 3,000 compliance professionals, up to 72 per cent of businesses around the world are falling prey to financial crime and intend to spend 51 per cent more to detect and prevent it, using Cloud-based data and technology, artificial Intelligence and machine learning. So, with the pressure on and regulatory requirements varying across the world, Trulioo’s general manager Zac Cohen discusses how companies can future-proof their services. THE FINTECH MAGAZINE: What advice would you give firms to make sure they keep up-to-date and flexible, for future changes in identity regulation? ZAC COHEN: Even structurally, and I’m thinking of Brexit here, you never know

what’s going to happen to the business environment. So, how do we manage that uncertainty? I think the first thing you have to look at is partnerships. A lot of people go out to the market looking for vendors but you need partners that can help you understand and interpret what’s happening today and what’s going to happen tomorrow, and help you prepare for that. The next important thing is interoperability – Trulioo has solutions in place that fit the variety of systems and environments that people do business in. Lastly, when organisations are launching, they need to have a global perspective, not focus on a single market because areas of your business might be affected by what’s happening elsewhere. TFM: So, you’re thinking perhaps of things like the Payment Services Act in Singapore, which will probably have a knock-on effect in other parts of the ASEAN (Association of Southeast Asian Nations) region. Are there lessons learnt from different geographies that can be applied to local markets? ZC: Absolutely. What we see in general is convergence of regulatory environments. Now one might be faster than another but, at the end of the day, we see pieces taken from individual markets and regulators, and shared or applied in different ways. So, we can always learn, and we have to take them into account. We have that type of flexibility in our solutions. You can take the pieces you need and not use those that don’t apply. For us, it means adopting a marketplace approach. We want to provide the services our customers need, when they need them, by layering different types of strategies, solutions and services within a single marketplace. We can help clients plan their expansion, depending on the regulations or compliance environment, or just the operational effect they want to see as a business, depending on the market they choose and when they launch. | TheFintechMagazine


SIBOS: DISCOVER Pass or fail: Organisations are most vulnerable during the account creation process

From our perspective, you do a single integration into our service and then it’s a quick configuration to launch anywhere in the world. TFM: There is a big difference, though, between dealing with Wells Fargo, for example, which has an enormous amount of data to be regulated, compared to, say, Monzo in the UK. ZC: I think that comes back to the question of how banks are different to challengers, and how they deal with change in different ways. The biggest challenge for banks tends to be legacy systems. Our approach has always been to offer them a platform perspective so that they don’t have to necessarily change what’s happening internally, but can connect to new options that satisfy the existing workflows. For fintechs, neobanks and challenger banks, the biggest thing is scaling their business. What they want to achieve is access to global markets, very quickly. With our product, it’s a simple API that can connect you to more than 100 countries. It’s centralised compliance, so you can manage all of those different markets with a flexible solution, through a single integration. The other interesting contrast between banks and fintechs is the developer-friendly focus. Most fintechs don’t want to have a phone call. They want to see your API. So, Trulioo has launched the world’s first


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Embed ID, which, with a single snippet of code, allows you to verify the entire globe, and use our services within minutes. It makes launching your services that much easier. TFM: When are organisations most vulnerable to bad actors infiltrating their systems? ZC: It’s really the account creation process. It’s that first interaction with the end user, that first handshake. At that point, you are most susceptible to fraud, because if you allow a nefarious individual, or bad actor, into your system at the start, it’s going to be that much more likely that you’ll have fraud problems later. It’s very rare that a legitimate user will later defraud or cause problems in your systems. Our identity verification solution is key to that initial onboarding. You want to make sure that the individual accessing your service is real. The best technique is a

With a single snippet of code, you can verify the entire globe, and use our services within minutes. It makes launching services that much easier

comprehensive identity verification solution and that will change depending on your user base, your demographic, your regulatory burden and the various issues that companies need to address for their service. But you also need to find that balance between a strong compliance regime, that identifies your users appropriately and securely, and also making sure it’s frictionless and quick, and that the user experience is enjoyable, so that you get that traction with your customer base. That’s what we provide. When a new technology is launched we often see that the first individuals to experiment are the ones you don’t want. You need to stay one step ahead of them and to do that you need a dual approach. By that I mean it’s not a point solution. It’s not a single technology. It’s not a single process. You need a workflow that complements various stages, depending on the user that you’re onboarding. Through our marketplace, for instance, you can access a variety of tools and services within the same technology suite and then you must be constantly reviewing your user base to ensure that, if something changes in the environment, or changes with your solution, you can apply the appropriate safeguard to compensate for that change. At the end of the day, access is key, and modernised organisations first and foremost require flexibility and versatility built into their fraud prevention systems.

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TIME TO BACK When a bunch of accountants looked at what was wrong with business banking, they started with four key things an SME does, day in and day out: invoice their customers, collect in the money, pay their suppliers and keep on top of their tax returns. Then they built a banking business app called CountingUp to assist businesses in these tasks. Soon, it became the most successful accounting and business banking app in the UK.

It rather proves the point that if high street banks want to continue to matter to SMEs, they have to pay attention to what the customer wants and offer it all to them on a single plate. It’s the example that Conny Dorrestijn and Mark Hartley, cofounders of business banking platform BankiFi, often use to demonstrate where the new battle lines are in SME banking – and the need for incumbents to step up. They reasoned that there had to be a way for banks to

Rivals are getting their claws into banks’ SME customers. But they don’t have to stand there and take it, say Mark Hartley and Conny Dorrestijn of BankiFi pick up on all the mundane but important tasks that sapped an entrepreneurs’ time – and devised a solution with the BankiFi business banking platform. Its founders don’t pull any punches when talking about the institutional inertia that’s currently forcing small business owners to look elsewhere. “Having a bank account and having a bank product doesn’t solve anywhere near the problems that you need to solve as a small business owner,” says Hartley. “Banks are creating their own problems. They are not being forward-thinking enough because, first and foremost, I don’t think they realise they have a problem. They are so organisationally entrenched in a siloed mentality of selling products and not really understanding what the customer wants from them. They have key

performance indicators that are all about short-termism, profitability, and shareholder value; they are about functionality and product, not about wrapping themselves around that very customer. So, banks never address the problems they should be thinking about in the medium to long term. Last, but not least, they have an absolute inability to innovate inside the status quo and they ‘hide’ behind the necessity to abide by risk, regulation, legislation, and compliance.” Ouch! But if BankiFi isn’t afraid to tell it like it is, it’s only because it’s convinced that banks stand to benefit most from offering these bundled business services. Banks, after all, have something many app-based service providers like CountingUp, don’t: the ability to lend working capital. Issue 13 | TheFintechMagazine


SIBOS: DISCOVER Availability of affordable, short-term credit is essential for every SME. How a bank offers this solution and how it treats its SME customers from start to finish can set it apart, says Dorrestijn. “With open banking, banks now have an instant view of your whole financial position and the health of your business, by looking at the invoices you send out, the people who pay you and when they pay. So they can tailor-make the lending to you, rather than just offer a line of credit you dip into twice a year. “We have a lot of sympathy for banks,” she adds. “They have picked up the tab for all the industry’s security and regulation issues. But we feel it’s now time for them to bite back – not let their profitable business be eaten away by all sorts of apps and niche players, but say ‘you know what? We can offer invoicing inside the bank account. We can offer personalised products’.”

Tools for the trade: SMEs want their financial services on a digital plate

The case for improving business banking services that they can monetise is made all the more compelling by the relative difficulty of being able to compete with challengers in the personal banking space. But it would be unfair to say every high street operator has been idle. They might have been slow to catch on, but they’re learning fast from novel ideas for improving and even attracting SME accounts, often collaborating with challenger fintechs in order to help SMEs develop their financial maturity and capabilities. In November last year, NatWest launched a free-to-operate digital business banking platform, Mettle, which is focussed on a better user experience. It also partnered with electronic receipt management system, Sensibill, to offer its SME clients assistance in billing.


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Nationwide, too, has plans to launch a digital business banking service imminently. It hopes to win 340,000 business banking customers in the next five years, and is currently collaborating with 10x Future Technologies to build its digital proposition. There are others providing access to alternative sources of finance through select partners, or discounted access to SME tools like Xero accounting software. Then there’s Metro Bank, which already has a ‘phygital’ (physical branch and digital app) business account and related services geared towards smaller entrepreneurs and freelancers. Isn’t that good enough? Sadly, much of the high street’s efforts are misguided, says Dorrestijn. “People will increasingly get bored of having to deal with hundreds of apps, and it’s not very caring of a bank to send you wandering around in a jungle of them. If a bank can bring the same services behind the face of its business bank account, that

more organisations offering services other than banks, around payments, etc. But those banks can now access data that their customers hold at other banks. One of those smart-thinking banks should realise that they can now see all my data in one place, and that they can act as the third-party processor under the auspices of PSD2 and open banking,” he explains. “We are all about utilising the legislation and regulation to enable a bank to make money from it; and we can show them how.” Financial market participants, be they incumbents or challengers, know what a December 2018 EY (Ernst & Young) report on the future of SME banking acknowledges: that ‘the major high street banks retain a substantial stronghold of the SME banking market, particularly business current accounts, where the top five banks account for around 75 per cent of the market. Whilst their market share is being eroded by the rise of challenger banks and fintechs, the incumbent players continue to hold affinity with their customers. SMEs continue to trust the brand and reputation of their bank, though they have experienced challenges in meeting their evolving service expectations’. That last observation should shake banks out of any complacency, says Hartley. “What we’re saying to a traditional bank is ‘you can do exactly what CountingUp, Tide, and Coconut have done in trying to take market share, by going directly to the end user. And, actually, you’ve got a massive head

Banks have a massive head start on all these newcomers, because they’ve already got millions of business customers; they just don’t service their requirements very well would be preferable to hopping from one app to another. Utilise your position as a trusted entity and offer services through the channel they know and often like. That's more meaningful to the everyday requirements of running a business.” Another way in which BankiFi is helping its clients is by monetising opportunities arising out of open banking and the revised Payment Services Directive (PSD2). “We describe it as the law of unintended consequences,” says Hartley. “The proposition by the Competition and Markets Authority in the UK is that people desperately want to switch current accounts, and move from one bank to another, and that there should be

start on all of these newcomers, because you’ve already got millions of customers, you just don’t service their requirements very well. So, why don’t you offer the same services as these new boys and girls in the marketplace?’. BankiFi enables traditional banks to offer that to their existing client base.”. “Banks do not need to invest ridiculous amounts of money,” adds Dorrestijn. “With our approach, a bank can put a toe in the water, put out a test, and embrace its business customers in the way it should. It’s not about marching in with 150 consultants. “You can do it,” she tells them. “But you’ve only got a limited period of time that the world will allow you to bite back.”

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OPEN BANKING It’s taken them a while, but institutions are at last responding intelligently to regulation that’s liberated financial services, says Kanika Hope, Global Strategic Business Development Director at Temenos

According to the recently published Economist Intelligence Unit (EIU) report, A Whole New World: How Technology Is Driving The Evolution Of Intelligent Banking, businesses see open banking as the top strategic priority by 2025.

Forty-one per cent of respondents also consider acting as a true digital ecosystem as well as a hybrid model, aggregating third-party products in addition to providing their own, as the primary business models of the future. Both of these are classic open banking platform models that we are already seeing today, where banks collaborate with third-party manufacturers and distributors to provide services to their own and others’ customers. By 2025, respondents also see the biggest competition coming from technology and ecommerce disrupters, and from partnerships between these giants and fintechs, rather than from payment providers or peer-to-peer (P2P) lenders or fintechs on their own. This mirrors what we at Temenos observe in the industry today.

Regulators embrace innovation From a regulatory point of view, over the past year open banking has received a big boost across

the world. Regulators are promoting competition and innovation while driving application programming interface (API), digital identity and security standards. In other words, they are encouraging open banking initiatives, both directly and indirectly. Europe’s revised Payment Services Directive (PSD2) was the pioneering initiative. This, along with its own open banking standards, introduced by the Competition and Markets Authority, made the UK one of the first markets to mandate open banking. In Australia, the government’s open banking initiative mandates the four major banks to make banking data available to third-party providers (TPPs) by June 2019. The monetary authorities in Singapore and Hong Kong have been aggressively driving API standards in recent months. Canada is expecting to see similar initiatives, with the Canadian Bankers’ Association focussing on digital identity as a precursor to an open banking framework.

Open door onto the future; Banks are stepping through

Issue 13 | TheFintechMagazine


SIBOS: DIGITAL INNOVATION banks above new entrants in keeping their personal and financial data secure.

The endgame – a consumer-centric revolution

Single interface: Collaboration and consumer education are key

But are banks ready? If we look at the more mature markets, the reality is that open banking adoption by incumbent banks has been slow. On the technological capability side, banks are not finding it easy. In the UK, four of the CMA9 banks missed the January 2019 deadline. A 2018 report by Finextra and APIMetrics UK, on the performance of the open banking APIs in the UK, revealed that several banks are failing to deliver adequate service quality levels to consumers for the mandated APIs, such as availability and latency. The challenges of legacy infrastructures were noted in the report. Furthermore, in Europe, only 41 per cent of banks are on track to be compliant with PSD2 ahead of this month’s deadline. Consumer awareness and apathy are another factor. In January 2019, one year on from the launch in the UK, 58 per cent of respondents in a YouGov survey still did not

To make a success of open banking, incumbents need to make consumers aware of the concrete benefits, while assuring them of the safety of their data know what open banking meant. Privacy and security concerns also play a role, with the disillusionment caused by recent incidents involving Facebook, Google and other technology giants in this area. Luckily for banks, they are still more trusted than third parties. Those consumers who were made aware of open banking in the same YouGov survey in the UK, categorically said that they would trust

To make a success of open banking, incumbents need to make consumers aware of the concrete benefits, while assuring them of the safety of their data. The key questions they must address are: how does open banking create greater choice and control over what consumers buy and from whom? and how does it provide increased convenience, targeted advice, transparency and personalised products at lower cost? At Temenos, we are seeing many of our clients starting to implement open banking successfully. Many have launched API marketplaces, initially aimed at third-party developers, that were oversubscribed within weeks of launch. One incumbent bank has launched an aggregator multi-bank personal financial management (PFM) app in its home country, while several digital challengers are exploiting open APIs to provide real value-add to their customers in terms of ease of payment or new services. Openbank, the digital bank of Santander Group, recently launched a charity marketplace. “Customers can go to the website, select a charity, set up an automatic transfer every month or year, and receive a tax receipt,” said its CEO, Ezequiel Szafir, recently. In the end, open banking will be deemed a success only when it is able to drive a consumer-centric revolution of sorts in financial services, i.e. helping to launch banking innovations that are intrinsically based on interconnectivity of data and services from multiple ecosystem players that become mainstream and make a tangible difference to the everyday lives of end users.

Nordea: Launching an open API Interface

In order to capitalise on PSD2, Denmark’s Nordea Bank had established a site for developers who wish to experiment with its open banking concept in a quest to become the ‘go-to hub’ for banking APIs in the Nordics. In February 2017, Nordea set up a site where third-party developers could register and request access to


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a soon-to-be released sandbox environment for testing prior to live production. Within three days of going live, the site had registered more than 300 sign-up requests from interested software companies and developers globally. The bank said: “We see this as an opportunity to embrace the changing

financial services landscape. Our goal is to strengthen our collaboration with fintechs and go beyond the PSD2 regulation by providing premium APIs which fit our customers’ needs. The first two APIs out of the hatch will include a payment initiation API for integration with third-party provider applications (PIS), and a payment account information API (AIS).”



Cora, the first digital customer assistant to be launched by a bank, is reaching out to customers in new ways – and new forms. JP McKenna, Innovation Lead for Personal Banking at NatWest and RBS, explains how she’s reshaping CX ‘Hey Google! Talk to NatWest Voice’ is how 500 customers are currently interrogating their bank in the first public trial of its kind by a UK high street name.

modelled on a member of the studio’s staff. But (unlike Avatar) there’s no news yet of a follow up. Instead, the experiment produced what the bank describes as ‘useful feedback’, which will inform the future direction of its AI projects. They’re greeted with a warm response Writing on the NatWest blog, the head from Cora, who’s friendly, helpful and of the RBS Open Experience innovation polite – everything you’d expect from space (or OX for short, from which Cora, a bank’s customer service agent but with the world’s first digital banking employee, one key difference: she’s not real. emerged), Kristen Bennie, says Cora has Artificial intelligence (AI) has many evolved with an enhanced ability to forms – from a fully functioning, walking, detect emotion. talking humanoid to a computer “Key to this enhancement was that we programme that analyses your facial used human-centred design techniques expressions and tone of voice to choose to create Cora. Her personality the most appropriate is one that is warm, familiar, customer services response. approachable and friendly, Cora can’t shake your and the feedback from our hand – yet. But she has customers has been positive. fast-evolved from a We wanted to create an rudimentary text-based experience that would chatbot introduced to encourage customers to not NatWest and RBS websites only converse with Cora, but to in 2017, to one that’s trust Cora. Hundreds of small now busy answering Hey, Cora!: The bank’s design decisions collectively half a million questions lifelike digital assistant have helped to create an every month. was trialled in 2018 all-round experience.” Before her trial with What the most recent experiment proved, Google Assistant via Google Home says Bennie, was that: “Customers were smart speakers, she enjoyed a brief open to having a dialogue with Beta moment of fame last year as a her – even those who are not as ‘highly lifelike digital human’ on digitally savvy. We also learned that smartphones, tablets and computer there are limitations to the technology screens. This visual version of Cora as it is today, but we understand could conduct two-way, ‘face-to-face’ where it is headed and how it will conversations with customers, as the develop exponentially.” bank pushed the boundaries of user interface AI in a limited trial. And she was pretty convincing – created Untold possibilities with help from the studio founded by AI at its most basic is unobtrusively the man who brought James Cameron's delivering better services to customers groundbreaking film Avatar to life and every day; but, clearly, it also has the


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potential to radically alter the bank’s relationship with them. Like other AI-based technology, the voice-centred Cora learns as she goes, helping the bank to achieve its big ambition of ‘being effortless every day, and making sure we’re brilliant when it matters’, as JP McKenna, innovation lead for personal banking at NatWest and RBS, puts it. “AI can really help us by supporting those simple interactions with our customers and giving them that service, when they need it and in an area where they’re happy to receive it, whether it’s through the mobile app or through a chatbot,” he says. The RBS Group’s approach to innovation is all about focussing on the customer and how new technology can help, shape or exceed customers’ expectations, according to McKenna. And it has already seen huge benefits from the introduction of Cora. “For our customers, we’re giving them a consistent service – it’s 24/7 – and Cora is always learning to learn and answer those questions in a better way.” Indeed, McKenna expects AI to improve tailored communication with customers as the technology matures and becomes more pervasive and accepted in our daily digital lives, such as with the current Google Home pilot. But it is important that the banking group gets it right and the development process is ongoing. “We’ve had to create new roles and new capabilities to make sure that we are using AI in the right way,” says McKenna. “For example, creating conversation analysts, who are reviewing the interactions with customers through AI and refining that all

the time, so it feels like the right tone of voice, it feels consistent, and it’s answering questions naturally.” Wherever it is applied, AI can also increase the capacity of bank staff by redefining what they do, although what Cora is not about is job cuts, stresses McKenna. “Rather, she gives us more capacity, as a bank, to free up our people to help our customers with the more complex challenges they may have, such as saving for their next financial goal. So it’s a huge benefit for the bank, as well.” Perhaps in the wider context, AI’s most useful service within banking is in improving security and mitigating fraud. “That’s definitely one of the big benefits,” says McKenna, “to harness large groups of unstructured data and really analyse that and provide insights for us. It’s a huge opportunity for us, as an industry, to look at AI as a way of helping our customers to minimise fraud. “We have our own internal AI centre of excellence, which is exploring new use

cases all the time as the technology becomes more mature. As a bank, we also have innovation assets in Silicon Valley, in Tel Aviv, across the UK and in Ireland, where teams are all looking at how we can bring the best of technology into the bank, to help us improve every aspect of it,” adds McKenna. “If there’s any new AI technology company with something interesting, we’ll be speaking to them and seeing how we can harness that. Even engaging with them to explore, collaborate and test some of these ideas to see if they’re of value to us as an organisation and for our customers.” The Scotland-based banking group has recently teamed up with analytics experts from the University of Edinburgh to focus on improving the customer experience. And earlier this year it was announced that NatWest would become the first UK bank to launch a data academy, which

aims to train 1,000 staff in its first year on how to best understand and harness data as part of a £1million initiative. McKenna describes the human-like Cora trials in 2018 as a ‘really interesting experiment’, not least because Cora has obvious benefits for blind and partially sighted customers, who may be unable to fully engage with typical screen content. It also appeared that others who have avoided digital services in the past for whatever reason, were more comfortable interacting with Cora in her human form. “It kind of points to where this could go in the future, where it’s about not just typing questions or using voice technology, but interacting with a digital human who could, potentially, mirror the behaviour of our customer service agents,” says McKenna. Filmmaker Cameron’s avatars lived in a world called Pandora… for NatWest and RBS it looks like Cora could be opening that box.

We’ve had to create new roles and new capabilities to make sure we are using AI in the right way... creating conversation analysts, who are reviewing interactions with customers through AI and refining them

Issue 13 | TheFintechMagazine



The platform pulsar Finastra went into open banking orbit with its hybrid developer platform and API marketplace, Now, CMO Martin Häring is charting a bold course to the financial stars The international team coordinating the Event Horizon Telescope released the world’s first image of a black hole early in 2019 – a visual rendition of the universe’s complexity. In peering 500 million trillion kilometres into the cosmos, mankind demonstrated an awesome capacity for farsightedness, brought about by innovation and collaboration. And it’s precisely this vision that London-based Finastra, the financial technology company whose name fuses ‘finance’ with ‘astra’ – the Latin for ‘star’ – aims to emulate in the banking universe. Recently named a UK Business Superbrand for the fourth consecutive year, Finastra works with more than 8,500 customers across 130 countries to deliver tech-based, business-tobusiness (B2B) solutions to help institutions keep in step with their customers’ changing expectations. In much the same way as nuclear fusion delivers the energy that sustains a star, it’s fair to say that the fuel that keeps Finastra burning bright, with an annual revenue of around $2billion, is the financial industry’s need to constantly reimagine the customer experience in the era of digital banking. That’s certainly the view of Finastra CMO Martin Häring, who puts the challenge that financial institutions (FIs)are facing in no uncertain terms: “Nowadays, banks are trying to answer the questions: ‘how can we provide a better customer experience?’ and ‘how do we create the best customer experience?’. This is where banks have struggled so badly.” But in the last two years or so, they’ve started seeing fintechs less as competitors and more as collaborators, says Häring. “They know that without agile, customer-centric programming, delivered by fintechs, they can’t survive.”


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He’s echoing the prevailing wisdom that the age and size of incumbent financial institutions (FIs) can actually serve to hold them back, with delays in innovation threatening a black hole-like inward collapse if customers spot better provisions elsewhere in the expanding financial universe. That emerging reality catalysed a period of feverish activity from banks, with a rush to onboard fintechs through incubator programmes and strategic partnerships, or to home-grow tech solutions as the industry pushed towards digitisation. Finastra’s most recent response to the new age of banking was launched in March of this year. Fusion Digital Front Office, a tablet-based platform that offers a simple way for community banks and credit unions to build upon customer

We firmly believe that most of the innovation will not happen in your own company; it will happen outside of it relationships outside of their physical branches by deploying staff in mobile, responsive units. It’s a well-timed provision, given that bank branches in the UK are closing at a rate of 60 per month, according to analysis conducted by Which? in 2018. Earlier this year, 1st Federal Credit Union and Vons Credit Union began piloting the Fusion Digital Front Office in the US, where branch closure rates also peaked at an all-time high last year. For Häring, though, collaboration between fintechs and incumbents is simply taking too long to adequately

serve customers by building solid new relationships in the virtual world. He’s also adamant that the singular, non-scalable partnership of a fintech to a bank is a terrible business model for entrepreneurial fintechs with their eyes on the global marketplace. “I have spoken to a lot of fintechs and they’ve said sometimes it takes between 12 and 18 months from the moment they knock on the door of a bank to the moment they can really integrate,” says Häring. “It’s a long, long cycle – it’s a very thorny and clunky model, it doesn’t scale and it’s not the right business model for the fintechs.” This was the key insight that led to the launch of – Finastra’s solution to delayed customer provisions in the financial sector. Supported by the Cloud capabilities granted by Microsoft Azure, Finastra’s platform-as-a-service portal connects innovative fintechs with modernising FIs, delivering upgrades to banking customers without those year-long development cycles. Spurred on by Europe’s transformational revised Payment Services Directive (PSD2) and the open banking initiative, enables customerserving breakthroughs, thanks to the plug-in or bolt-on possibilities offered by application programming interfaces (APIs). The platform hosts FusionCreator, a portal that allows FIs to experiment with fintech APIs in shielded sandbox environments, while also allowing fintechs to understand the APIs of major banks – all in the secure, isolated environment guaranteed by Microsoft’s Cloud. As it grows, will act as a vendor, displaying apps developed by the fintech community’s rising stars for purchase. “Every bank or fintech connecting to our platform will see what’s in the store,

Starstruck: Finastra is looking to expand the financial universe

with its cost and a rating system. The fintech programmes once, and then leaves it to the ecosystem to see if it’ll take off.” Bearing in mind that Finastra works with 90 of the world’s top 100 banks, it’s an attractive deal for fintechs creating new, customer-orbiting services. And the ability to jointly innovate with some of the banks partnered with Finastra is a rather different proposition to working one-on-one with a single bank and its unique digital architecture.

A hybrid business model For Finastra, this platform-as-a-service (PaaS) is an exciting new nebula of possibilities – one-part marketplace, one-part development portal. In both cases, the software provider plans to monetise by charging at the point of engagement – judging the price charged by API call volume and API complexity. “Overall, it’s probably a hybrid business model between what you see used classically by Amazon or Uber – purely connecting buyers and sellers – and a development platform like the ones from Apple or iOS,” says Häring. That’s not to mention, of course, the power Finastra will accumulate – in the form of data and industry-leading tech – through industry engagement with the platform. Some 300 fintechs are now registered on it and in May, ahead of its developer

conference and hackathon, Finastra revealed 61 additional APIs in its developer catalogue. Winner of the hackathon – Finastra’s opportunity to prove just how much quicker its platform can be for banks to better serve their customers with innovative tech – was a foreign exchange vacation spending money app developed by team HYBER. “We firmly believe that most of the innovation will not happen in your own company; it will happen outside of it,” says Häring. “We want to stimulate hackathons on our platform and what we call 90-day sprints. From the idea creation to a proof of concept with the client, it has to take only 90 days.” This breathless pace of development may hark back to the ‘hacker philosophy’ of the early internet, but it’s in the future that Häring believes we’ll see the grandest changes for banking customers and the technology they use day-to-day. “Next year, we’ll also be allowing third parties to put their APIs in our catalogue,” says Häring. “We’re completely open to that.” Open banking at its finest – and it’s in this way that the company hopes to gather a galaxy of services that pave the way for the bank-as-a-platform future that goes way beyond those explored by UK challengers like Starling, and is more akin to the universe as imagined by China-based Ping An’s OneConnect.

“They build a platform where the bank is no longer just your financial advisor. The bank takes care of your whole life. It connects with health services, car services, almost everything that you touch as an individual user throughout the day,” explains Häring. “The more banks collect data about you, the more they can cross-sell. So, a bank sees in its database that there is a client turning 18, and they have bought a car, and immediately there would be a cross-REST (representational state transfer) API call to an insurance company, saying ‘what is the best price I can get for this 18-year-old person?’, and it will offer that through the banking portal to that customer.” It’s a dream that Finastra is closing in on through its platform –creating an API marketplace that will allow banks to centralise their customers’ financial lives, creating an undeniable ‘stickiness’ that’ll transform the very idea of what a bank can do for its customers. It may feel like this consumer relationship revolution lies, like a distant black hole, hopelessly out of reach. But in its PaaS initiative, enabling light-speed tech upgrades and new constellations of collaboration, Finastra might just be launching an asset that reaches beyond the stars and into a bright future in which the customer is the centre of their own financial cosmos. Issue 13 | TheFintechMagazine



A relevant role: Legislation like PSD2 will force banks to step up to the digital plate

With PSD2 now in place, Ioana Guiman, Managing Partner at Allevo, based in one of Europe’s most opportunistic fintech markets, believes banks already have the tools to change their model forever. They just need to believe it European banks stand at the crossroads of threat and opportunity. Having fully implemented the technical requirements of the revised Payment Services Directive (PSD2) this month, allowing third-party service providers to integrate with all banks via an application programming interface (API), competition in the marketplace space is wide open. PSD2 has already brought in a host of new participants. By April 2019, the European Banking Authority (EBA) had recorded 891 payment institutions and 53 account information service providers registered under PSD2. But that’s just the start. To thrive in this open banking


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landscape, it’s generally accepted that banks must now act quickly and build a robust digital strategy, while also learning how to work alongside, or partner with, these alternative services providers. That’s proved to be a bit of a mind warp for some established institutions, not to mention a considerable challenge, which is where companies like Allevo have stepped in to help – by providing software solutions for process automation while keeping clients compliant with local and international standards and regulations. Now it’s also seeing an equal level of interest in its services from non-banking providers which want to

integrate with banks over APIs. Ioana Guiman, a managing partner at Allevo, based in Romania, believes that the prescriptive nature of PSD2 and similar open banking regulation is a big step towards solving one of the core issues plaguing financial services – that of interoperability. She doesn’t mince words. “We all know that the banking space is a bit behind in terms of serving the real needs of customers,” says Guiman. “Fintechs have shown us how some of the problems can be solved, and it’s high time that banks were married with the functionality unlocked by fintechs to deliver some of these services to

customers. I am looking forward to seeing how banks will take a more relevant role in this open banking-enabled space. They have the ability to act just like a fintech, aggregating data on behalf of their customers, and then analysing it to offer automated financing solutions to them.” Allevo’s modus operandi is helping clients to reuse what they’ve got and open the channels of communication, both between internal processes and with external partners. It’s now busy exploring beyond PSD2 compliance. “As part of our innovation process, we explore opportunities, turn them into prototypes, show them to customers, get their feedback, tweak them and then turn them in to products,” explains Guiman. A recent example of a product that has emerged from this innovation pipeline is an instant payments solution that Allevo has demonstrated to financial institutions. “When we work with our customers to deliver a product,” says Guiman, “we make sure that we analyse what their environment is and pick those components that can be reused. If they already have an authentication solution in place, an identity server, or anything of that sort, then why not reuse it? “I’m not looking to add any new luggage to their carriage, just reuse as much as possible and make systems work together, communicate together, to have an as lean as possible implementation.”

A maturing fintech hub Romania is embracing open banking. Earlier this year, a study by Exact Business Solutions revealed that 16 per cent of Romanian internet users currently utilise alternative financial services, with 40 per cent of these users choosing the fintech route because they trust it more. The Romanian fintech scene is young but dynamic, driven by both local startups – such as Argentum, SymphoPay and Smart Bill – and the entry of foreign fintechs. It has grown spectacularly over the past five years, attracting an equally spectacular amount of investment. In response, many of the country’s banks, such as Banca Transilvania, have rolled out open banking platforms that allow these hungry fintechs to integrate with bank services. “The fintechs and banks are not in a fight,” says Guiman. “It’s not a comic book

story where there are villains and good guys fighting one another. But an interesting point is that many of the fintechs active in the Romanian market are fintechs that are active in the European Union (EU), so any fintech that is passported to offer their services in other countries can offer the same service in Romania, whereas the banks in Romania are not all active within the EU. This raises the bar high, and prompts banks to ask what it is that these fintechs offer, what is perceived as valuable by customer and should they partner with them to offer these services to their customers?” The rapid adoption of digital banking app George, developed last year by Erste Bank for its regional entity Banca Comercială Română and London-based challenger Revolut, which launched in Romania in May 2018, shows there is appetite for change among consumers, particularly the younger ones. “George is useful in two ways,” says Guiman. “For the bank, it has this more effective communication channel with its customers and can use it to deliver more services, but it also serves as a tool for digital financial education for its users. The rate of financial inclusion in Romania is very low. In 2017, the national bank reported it to be around 60 per cent but it’s actually even less because there are a lot of dormant accounts. In the Romanian market, you need to find the balance between delivering financial education to people who need financial services, and making sure you have the correct business model.” Meanwhile, in a little over a year, Revolut, which set out to shrink the world with its borderless approach to transacting, has acquired around 100,000 Romanian customers. Its popularity, according to cofounder Vlad Yatsenko, is due to the fact that the local market hadn’t yet been seriously disrupted, so Revolut became the first choice for Romanians looking for a solution to the multicurrency problem faced by many migrant workers and students. According to the United Nations, around 3.6 million Romanians live and work abroad. The country has a unique currency

in the European shared economy, so there is a friction when working outside its borders. Revolut is providing them with a tool that does just what they need to do – send money abroad, receive money from their families, calculate easy conversions or take cash out when they need to. In 2019, Revolut extended Apple Pay and Fitbit watch pay to Romanian account holders and the company is set to introduce more functions and products, including new analytics and new vaults that can be shared with friends for joint saving. Yatsenko believes that fintechs entering Romania should look to solve specific problems. Like Guiman, he recognises the issue of financial education and inclusion in Romania.

’WeChatification’ of FS Guiman is optimistic that incumbents will respond positively to such challengers – although the model she predicts banks will ultimately adopt might come as a shock. Launched in 2011, China’s WeChat Pay started out simply as a messaging service but quickly became known as a ‘super app’ for users to not just connect with family and friends, but also to pay businesses from street vendors to large retail chains. Guiman thinks Europe’s banks will similarly become full-service providers for customers’ every transactional need. Indeed, Russia’s Tinkoff Bank, the world’s largest fully online bank by customer base, is well on the way to this, helping customers to book plane tickets, restaurant tables and hairdressing appointments. In the UK, NatWest’s in-Beta app Mimo is doing something similar. The WeChat model is ’the natural evolution of financial services’, says Guiman. “It is an important trend that we need to focus on. We currently have access to many apps, websites and services that all deliver just one type of functionality. Having all of these services in just one place would make it convenient for me to buy insurance and a valet service for my car, for instance, as well as pay my bills. We would very much like to be involved in enabling banks to offer those types of services to customers.”

It’s high time that banks were married with the functionality unlocked by fintechs to deliver services to customers

Issue 13 | TheFintechMagazine



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Takingthestrain There are five business pillars that prevent a fintech from crashing under the weight of regulatory compliance, believes Geoff Dadswell, CEO and founder of TH Risk Solutions. His job is to make sure they’re up to the job With the chant of ‘tech, tech and more tech’ ringing out across financial services, any firm could be forgiven for thinking it’s the answer to all its problems – from keeping customers happy to managing compliance. But they would be wrong, according to Geoff Dadswell, CEO and founder of TH Risk Solutions (THRS), the UK-based risk management consultancy that works with emerging payment providers, electronic money institutions and challenger banks. Because, in his experience, there’s no substitute for the ‘grey-bearded’ regulatory knowledge that the right people bring to an organisation, particularly those that are born digital. For them, THRS is sometimes a reality check. “There’s a strong belief that ‘the platform’ will deliver solutions for consumer experience and commercial success, too. We’re finding this is not always the case, and is instead

creating tension in terms of the traditional methods used by the UK Financial Conduct Authority (FCA) versus the perceived risk of certain fintech activities. “Organisations think ‘we’re managing ourselves in a particular way, based on what we know’, but it’s the things you don’t know, or are not focussing on, that you need to consider more thoroughly,” he says. There have been a spate of high-profile cases recently that tend to support that view. Earlier this year, UK startup Lendy collapsed, carrying half its peer-to-peer lenders’ money with it, amid ongoing FCA concerns. In April, the FCA confirmed it had required unicorn Revolut to take action after a whistleblower raised concerns around compliance issues. More recently, we have seen crossborder, multi-currency, electronic money institution, Ipagoo, enter into administration after the FCA ordered it to cease regulatory activity.

While Dadswell himself is careful not to point the finger at firms that fall foul of the regulator, he clearly sees a growing role for THRS in helping organisations to avoid such potentially catastrophic outcomes. “The FCA is getting more confident in regulating this space, which has been evidenced recently by some of the things it’s doing around reviewing safeguarding of funds as well as wider governance questions,” he says. “This is causing much change within organisations, which are looking towards upskilling in governance, risk and compliance. Because there’s historically been a skew towards technology expertise in these organisations, their idea has been ‘let’s set up our framework, become regulated and let the regulatory, risk and governance items look after themselves’. Invariably, though, they don’t. So, in the same way you get, over time, a technology debt in an organisation, a governance debt begins to reveal itself.

Issue 13 | TheFintechMagazine


SIBOS: RISK & REGULATIONS “We’re dealing with things like regulatory investigations and helping clients to identify people for roles to upskill, or help with those roles ourselves. We provide C-suite and executive level expertise, and have that ‘grey hair’ around understanding how a regulatory framework ought and needs to work in an FCA-regulated environment,” he says. One of the biggest issues is that the drive for technological innovation has led to its capabilities being vastly overestimated by emerging businesses, says Dadswell: “As you’d expect, a fintech organisation that has become a payment or electronic money institution, would like to see the technology it has created delivering the compliance solution.” But, increasingly, there is no margin for error if that faith in technology alone is misplaced. “We’re finding that the FCA is bringing its traditional methods of regulation to the payment space. It is looking for the three pillars of good governance, protecting client money, and managing financial crime – and every regulated fintech firm I have come across will say it has all of those things covered with a system that does that. However, we’re finding these things still need some degree of human intervention. Platforms often can’t fix everything, and not to the standard the FCA would expect.” Developing in-house capability isn’t the answer, either. “Companies are split into two camps, really. One is the typical startup view of the world, which is ‘I can solve everything about everything with my new proposition’, and it’s an admirable place to be at the start but very rarely works long term,” says Dadswell. “A good example of that is things like know your customer (KYC), which is done admirably by companies out there already. My view is that fintech firms would be far more successful if they strategically bought in services.” In many cases, firms’ internal cultures are their biggest blockers. “There’s this sense that culture in an

organisation is about imagination. In other words, ‘let’s just see how we can imagine what the world could be, with the solution that we have’. I find that leads to a technology bias and organisations are typically saying to us ‘we simply cannot afford to have the individuals we need to drive the cultural change we know we need, so can you help us with that?’ and ‘help us understand how we should approach the regulators and how they think’. “So, we seed the new culture by saying let’s look at the organisation from what I call the five pillars,” says Dadswell. “You may have strategic focus as one, commercial coordination as another and technological capability as a third, along with financial

In the same way that you get a technology debt in an organisation over time, you also get a governance debt that starts to reveal itself


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discipline, which is great, but you also need regulatory competence as the fifth pillar. The blend of those five things means a good, well-organised organisation with a risk-managed culture.” Some issues also just boil down to organisational maturity, he observes. “It’s about the growing process: have all parts of your business evolved in the right way? Have you got a good platform? Do you have lots of features on your app? How are you managing all this in the background? How are you preparing for the future? How are you developing? How are you funding?

“We went to one company to talk about risk management, then focussed minds on culture change. They felt their biggest risk was technology failure of their platform. When we started mapping it, it really was not, because they know how to run their platform and have safeguards in place for restoring their system in the event of a failure. Their biggest risks were actually funding and regulatory compliance.” And his view of the world beyond, where regulation is yet to come of age? “It’s partly about approach, certainly around expectations from regulatory bodies. The need to consider an EU-based presence is why some organisations are going to certain jurisdictions, like Lithuania.” THRS is fast expanding its geographical

Pillars of wisdom: There are five elements to compliance

reach and range of consultancy services. “We also help companies with things like managing their data management risk and General Data Protection Regulation processes,” Dadswell continues. “We get involved in financial sanctions and anti-money laundering (AML) compliance. All of those things are translatable to different verticals. As well as payments, we have been talking to companies in areas like lending and insurance. “Our focus is really around bringing a change in mindset to organisations, and helping them achieve governance change, which can be triggered by a number of things. It could be helping with the consequences of an investigation, or it could be support with developing the culture to better understand, and respond to, governance risk."

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How to be a successful

entrepreneur Agustin Rubini, fintech author, influencer and Founder of consulting firm, shares insights from his new book, Fintech Founders: Inspiring Tales From The Entrepreneurs That Are Changing Finance

THE FINTECH MAGAZINE: You’ve met and coached extraordinary founders during your career and shared some of their stories so that others can benefit from their experience. How important is it, do you think, to have a mentor or a coach to be successful? AGUSTIN RUBIN: More than half of the people that I interviewed for my new book use a coach or a mentor. As I assessed the interviews, it was interesting to find that the founders of some of the companies were actually mentors or coaches for other younger startups, like the founder of CurrencyFair, helping a fellow Irish company called Assure Hedge. Entrepreneurs are more productive when they get help to prioritise and keep them accountable. Mentors can help identify issues before they become a problem as they’ve often dealt with the same issues themselves in the past. TFM: What strikes you most about these fintech founders? AR: I feel deeply inspired by, and have profound admiration for, them! They are heroes that overcome so many hurdles, like fearless honey badgers, and never give in. I especially like fintechs focussed on financial inclusion. It’s great to see entrepreneurs transforming emerging markets and bringing countries closer to the developed


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world. Take, for example, entrepreneurs like Steve Polsky from Juvo, who is pushing to create financial identities for the billions of unbanked people around the world. Or Elizabeth Rossiello from BitPesa, who is offering a low-cost way to make cross-border payments in Africa. TFM: What criteria did you use for choosing the companies you profile in the book? AR: Entrepreneurship can be difficult. Our research suggests that, at most, only 15 per cent of fintech startups will make it. I wanted to demonstrate a mix of firms at different maturity stages. I have included unicorns like Brex and Tradeshift and acquired firms like iZettle or Holvi, but also companies in earlier rounds of funding. It’s great to see the challenges that founders face at different stages of development. TFM: What do you need to start a successful fintech and where do the best ideas come from? AR: I’ve discussed this in depth with Wong Joo Seng, CEO of Spark Systems. First, you must understand the problem in its simplest way and translate the solution clearly. Then you need to find the right team and get traction. Entrepreneurs should also make sure that the business model and financials make sense. Most startups begin when founders come across problems or experience problems themselves, sometimes in their personal lives. Picture the iZettle card reader. Jacob de Geer got the idea as he was trying to help his wife, who was importing sunglasses to sell at fairs and markets. She needed a quick way to charge for them, given that many loved her product but didn’t carry enough cash around. At other times, ideas come to finance professionals during their day-to-day job, as was the case with Tradeshift, where the founders had been working on digitising invoicing in the Nordics for a long time and

realised there was a global opportunity to connect businesses better. Or Roofstock, a property investment platform, where the founder was just trying to make his investments more automated. TFM: Do you think you need to have deep expertise to set up a company, or know something that the rest of us don’t know? AR: It is really important to develop a deep understanding of the problem that you are trying to solve. Usually, at least one of the founders has deep industry expertise, but if you don’t, it’s not really a deterrent. You can develop an in-depth knowledge of the intricacies of the industry, the way it operates and its challenges, in a short amount of time. Start by talking tirelessly to the different stakeholders in the ecosystem, including providers and prospective clients; this will help you develop into a true expert. Take the example of Karn Saroya, the cofounder of Cover, who created a successful insurtech startup without really having knowledge about the distribution or underwriting of insurance. By throwing himself into insurance, he is now one of the most knowledgeable professionals in the industry. TFM: What can people learn about funding from your experiences? AR: There is no one size fits all for funding. It used to be more difficult before venture capitalists started investing, especially for startups founded before 2010. For example, Stephane Dubois struggled to keep Xignite alive for six years until he got a sizeable investment from Silicon Valley venture capitalists in 2006. His company is now a key player, providing data to most of the best-known fintechs in the world. Nowadays, people have many more options, thanks to fintech creating a virtuous cycle. Small and medium-sized enterprise (SME) lending has diversified, equity crowdfunding was born, and there are initial coin offerings (ICOs) and security token offerings (STOs).

TFM: Was there any funding technique that surprised you? AR: There are some. If I had to pick one, I loved the way that Indian RentoMojo’s founder, Geetansh Bamania, without a big track record, managed to raise $2million in seed funding. His main weapon was a great idea and good old cold calling, combined with LinkedIn. Geetansh was bold in approaching some of the most successful angel investors and proved that it can be done. I also like the approach of SyndicateRoom, a crowdfunding platform that used its own service for raising funds. Or Fiverr, which has created its IPO documentation using a freelancer from its own platform. It is much easier for entrepreneurs with a track record to raise funds; venture capitalists (VCs) rank experience higher than the idea. So, a good strategy is to approach serial entrepreneurs like Anthony Thompson, Renaud Laplanche or Mike Serbinis to join your startup as advisors. TFM: Has any company surprised you by its ability to turn a profit quickly? AR: I was very impressed by OakNorth, a UK company that enables businesses to get mid-sized loans. It broke even after 11 months. The founders, Joel Perlman and Rishi Khosla, started the business based on a bad experience as customers, and it is now Europe’s fastest-growing fintech.

Entrepreneurship can be difficult. Our research suggests that, at most, only 15 per cent of fintech startups will make it TFM: Is there an optimum size and composition for founding teams? AR: I don’t think there is a specific perfect number of people. I have seen many companies start as a one-man band, like Juvo, Nav or Flywire. However, having two to three different founders can help get better results. In terms of roles, one will take the commercial and strategic helm, while another one will look at technology. A third person may look at operations as well as partnerships, although it depends a lot on the targeted niche.

TFM: Did founders speak about their regrets or the mistakes they made? AR: Not a single founder I’ve talked to regrets jumping onto the entrepreneurship bandwagon. Some of the founders enjoy growing the companies into proper corporates, and others like to move on to develop new ideas as companies grow – they simply like the thrill of the initial creation phase. But they all love the challenges that startups present. In terms of mistakes made, there were some common themes. Many people regret not having pinned down properly the problem they wanted to solve, which cost them money and time. Others regret making mistakes when scaling up, especially growing the team too fast. This is probably the most sensitive area that startups need to take care of – how to bring in people who are aligned with the vision and culture and who can add value immediately.

Lifting the prize: It’s all about the journey for many entrepreneurs

TFM: Just to close off, was there a founder’s story that really stood out during your journey? AR: Quite a few – it’s really hard to pick just one! I really like some stories from Latin America, where fintech activity is picking up rapidly. The case of Brex blew my mind. It’s the story of how a couple of teenagers, instead of playing video games, decided to create a payments network called for Brazil. They sold the successful company and off they went to start a new one that became a unicorn after just a few months. And they managed to do it while staying humble and true to themselves. Issue 13 | TheFintechMagazine



OPENINGDOORS ndgit CEO Oliver Dlugosch, and Head of Business Development, Franziska Zangl, believe PSD2 revealed a portal through which European banks can enter a new financial era. All they need is the API key The implementation of the EU’s revised Payment Services Directive (PSD2) heralds a new era of open banking in Europe that is likely to light the touch paper for a revolution in global finance. It will open doors to new customers and new revenue streams, fundamentally changing which business models are profitable. Failure to capitalise on this could be damaging. But how can a ‘traditional’ bank prepare and build the necessary capabilities to achieve competitive advantages for this future financial landscape? Become a specialised supplier with a unique selling proposition? Or transform itself into an orchestrator that hosts a range of individual services? According to Oliver Dlugosch, co-founder and CEO of digital banking solution provider ndgit, anyone sticking to non-customer focussed products will have a hard time of it – wherever they are in the world. “Clients’ behaviour is different now – how they buy things, how they select things. That’s where banks must catch up,” he says. On one hand, user behaviour is changing. On the other, new technologies are empowering new kinds of service. When it comes to digital transactions, non-bank organisations like Amazon and Netflix have demonstrated how networked platforms can be designed and exploited using application programming interface (API) technology – and they iterate fast. “Banks must react right now to find a scalable way to bring in three, four, five innovations per year and new complementary products; build ecosystems where banks are the navigator to the financial environment


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of the client, and plug it together in one frontend,” is Dlugosch’s advice. “Most of the innovation in the frontends of the banks, on mobile and websites, has came from fintechs,” he adds. “Things like ‘can I analyse my accounts?’ and ’can I just make a picture of a money transfer and then send it over with my mobile phone?’. “When banks connect to fintechs, they get that scalable way to bring innovation to their clients that’s fast and reusable because, if you’re using a platform, you can just plug in a new innovation. “If banks are not doing this, digital companies will – big players like Amazon and Google, providing strong tools via fintech partners. This is the role that banks should take; they should work with the fintechs, not be afraid of them.” Dlugosch describes ndgit’s role as providing a ‘middle layer, which enables banks to connect to third parties, doing 360-degree open banking’ – which is precisely what it helped 20 banks achieve last year. The company’s technology connects banks, insurers and fintechs to digital ecosystems, enabling them to take advantage of open banking APIs and PSD2 solutions provided by a wide variety of digital partners. Launched in Germany, the business now has significant reach in Switzerland too, where it was instrumental in introducing open banking in advance of PSD2 being implemented in the rest of Europe. It resulted in the client bank white-labelling its services, helping to build out a new financial ecosystem, and won ndgit a tech award for its efforts in 2017. Switzerland lies outside the catchment of EU regulation, but with the rest of Europe on the path to PSD2, traditional Swiss banks like Hypothekarbank

Lenzburg (HBL) realised they had to invest in next-generation platforms and services or risk getting left behind. HBL sought a framework that would grant fintechs authorised access to bank data and included a developer portal for easy marketing of its services. It also wanted to ensure its platform could match the requirements of PSD2, and at the same time comply easily with the obligations of its local payment environment.

The bank selected ndgit to deliver a tech backbone to support the central interface between its new system – Finstar – and its fintech partners. ndgit designed a flexible middleware that enabled it to connect easily with minimal effort through standardised APIs linked to the bank’s platform. But it’s not just in Europe that the impact of open banking is being felt. After all, the digital economy has turned every business into a global business, points out ndgit’s head of business development, Franziska Zangl.

“PSD2 is a good starting point for European banks to implement open banking strategies,” she says. “But it’s not the full potential that could lie behind the implementation of open APIs.” Be it Australia, the UK, Europe, Singapore, Switzerland or wherever open banking is currently being implemented, the motivations are similar but the drivers can be different. In many cases it’s being accelerated by legislation (as in Europe) or non-mandatory frameworks (as in Singapore). Elsewhere, it’s bubbling up from a dynamic market. The end result is the same, though: more competition between providers, the rise of the specialist service and greater cooperation between incumbents and new entrants equals greater choice for consumers through the rise of the API-facilitated marketplace. The difference between the two approaches (government or market-led) is often only the speed of change.

And speed is of the essence now, according to Dlugosch. “Banks should find a scalable way to bring in three, four, five innovations per year and new complementary products,” he says. “So, banks should create ecosystems where they are the navigator to the financial environment of the client and bring it all together in one frontend.” Zangl, says the effects of PSD2 are being felt across the globe. “It will totally have an impact outside of Europe,” she says. “What we see now is PSD2 swapping over – to Canada, Switzerland, and even South Africa. “In conservative markets, it’s important for banks to have a regulation pushing them to implement these services, but they should not stop there. This is happening in Europe already: banks see that there are a lot of third-party providers (TPPs) out there that want to use their data, and now I think they are understanding the opportunities.” Australia’s Open Banking, or Open Data, regime officially began on July 1 this year, with the country’s four major banks

mandated to give TPPs access to generic product data for credit and debit cards, deposit accounts, and transaction accounts via APIs. Customer data is expected to be included by February 2020. Elsewhere, Asia is widely considered by many to be the world’s most innovative region in terms of payments technology, and Singapore by far the most advanced within it in terms of open banking and APIs, despite there being no regulation in place to promote it. In 2016, the Monetary Authority of Singapore (MAS) published API guidelines to encourage banks to open up their systems in an innovative way, and since then has initiated measures designed to further promote the opening of its financial sector. Banks there are regarded as role models when it comes to applying use cases and providing an intuitive and developer-friendly portals. “But it’s not just opening up your APIs,” stresses Zangl. “It’s also about providing extended data services. “PSD2, for example, only covers a very small part of the potential that lies behind open APIs. It’s really just a first step in the right direction.”

Ban k reac s must t now right a sc to find a way lable brin to g thre in e four , , inno five v per ations year

Issue 13 | TheFintechMagazine




With new offices in Germany, a new lending licence in Canada and a JV bank in China, SVB is ‘venturing’ forth to help fintechs change the world, says Head of Global Treasury and Payments Advisory for the UK and Europe, David McHenry Silicon Valley was once described as being populated by eccentrics and dreamers – but there’s one bank that made it its business to take their ideas seriously.

Born, as the name suggests, in the technology foundry of Santa Clara, California, Silicon Valley Bank (SVB) shares a zip code with some of the most powerful big tech companies in the world and has funded and banked 30,000 startups which aspire to being just like them. That’s involved making shrewd – sometimes brave – decisions over which runners to back. Take Coinbase, for example. SVB was the only bank prepared to offer services to the crypto innovator when it launched in 2012. One of Coinbase’s early investors, Brad Stephens, recently said: “Coinbase was the only crypto exchange with a bank account. Had SVB pulled their banking relationship, Coinbase would have died and crypto wouldn’t have taken off for years.” Now reportedly valued at $8billion, Coinbase has just launched its crypto credit card in six EU countries and, although no longer banked with SVB, it represents the kind of company with a shape-shifting influence on world economies that the bank has an appetite to support. Such startups are inherently risky; negative cashflow, a lack of capital assets, with nothing to show to investors beyond an idea, they are a banker’s least favourite client. Indeed, they represent only around six per cent of the SVB loan book. But that’s not the only – or even the principle – way that it facilitates entrepreneurs. Launched 36 years ago as a bank that focussed on collecting deposits from businesses financed through venture capital (VC), it now banks and finances a growing number of venture capitalists themselves. With around 600 VC firms on


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its books, loans to private equity and VC clients make up just under half of its global portfolio. So, not only is it a lender of first resort for high-growth, high-risk startups and scaleups, but it also finances the financiers whose capital repays those loans. For SVB, it’s a virtuous circle and has contributed to its own stock performing more like a tech company’s than a bank’s, traders no doubt impressed by its above 23 per cent return on equity and a doubling of net income since 2016. Fortune clearly favours the bold. The bank now has more than $64billion in assets and works well beyond the Valley with companies at every stage of development – from startup/early stage (pre-Series A) clients, for whom it offers banking and currency services, to venture and growth stage (providing venture loans and finance options), and late stage companies (for which it provides cashflow lending, acquisition finance and help with leveraged buyouts. One of the most successful of the bank’s partnership decisions was Remitly, named in July 2019 as a World Economic Forum ‘Technology Pioneer’. It earned the title for the impact that its mobile money transfer service, which offers more than 600 send-to-receive corridor combinations, is having in 40 countries across Africa, Asia, Europe, the Middle East and South America. Now valued at $480million and with volumes growing at around 33 per cent a year (it currently moves $6billion around the world annually), Remitly has

been newly promoted to the Forbes Fintech 50, too. Clearly knowing a good thing when it sees it, SVB has also sunk significant funds into Remitly’s rival WorldRemit. Fintech – and within that the international movement of money – represents a key focus for SVB in almost all of the geographies in which it operates, but especially in Europe. “We follow where the technology ecosystems are evolving, where the investors are going with their funds,” says David McHenry, SVB’s head of global treasury and payments advisory for the UK and Europe, who is one of 300 staff in the expanding London office. “We bank VCs in the US, we have a banking licence in London, a lending licence in Frankfurt [where it has just opened a new office], a new lending licence in Canada and a joint venture bank working out of Shanghai, as well as offices in Hong Kong and Israel to bank these amazing companies. We get excited about what they can do to change the world,” says McHenry. Money might make the world go round, but it needs payment rails to run on and how they develop is of key interest to SVB. “When we look at VCs or private equity investing into companies or any of our technology banking clients which are making developer or supplier payments, cross-border transfers have always been a challenge,” says McHenry. “In particular, not having the insight into where that payment is and when it’s going to land,

We have some of the most demanding clients in the world that are all building great technologies and iterating very quickly

what it is going to cost and what’s going to remain of the amount that you sent at the end of the day. So, things like SWIFT, where you’re making it easier for these payments to go through the banks, with more tracking information, fewer lifting fees, and more insight across the spectrum, are a huge step forward for legacy wires. “But blockchain is also an incredibly cool technology that has definitely moved from science projects into some reality. We’re looking at how that could change things like global trade, managing assets or powering payment, even though there are still questions about throughput and scalability for different models. Mastercard and Visa have amazing payment platforms, for example, where they don’t need to rewrite their transaction pieces right now, because they have a tonne of throughput and it works. But, as new developments come along, they might well pick blockchain technology to build some of their core underlying structure.” SVB itself had a hand in mentoring PayStand, a blockchain-based, payments-as-a-service platform, which took part in Class 8 of Commerce. Innovated, a US accelerator programme focussed on growth and innovation in finance, which gives access to SVB, First Data and their networks. Launched in 2014, the scheme has worked with 32 commerce, payments and other fintech startups and, since graduating, more than half have raised funding or been acquired. PayStand itself went on to raise $6million in Series A funding to scale its model. Fast and frictionless crossborder and other payment systems are not just good investment targets, they are also important to SVB’s

own journey as a bank for entrepreneurs. “We have some of the most demanding clients in the world that are all building great technologies and iterating very quickly,” says McHenry. “Whether it’s SWIFT gpi integrations and host-to-host, or building out our application programming interfaces (APIs) that are powered by open banking standards in the UK, or other API standards that we have in the US for developers, we’re balancing out [our legacy technology] with ways that our clients want to integrate with us.” In its last annual report, SVB acknowledged that it could not itself be seen to be behind the curve when it came to adopting the latest technology, telling stakeholders that ‘a failure to introduce products or services that the market demands… could have an adverse effect on our business, results of operations, growth prospects and financial condition’. So, it's taking the initiative. This year, the bank introduced a new Innovators credit card for startups, which offers ‘venture-friendly approval’ while protecting the holder’s personal credit score and scaling the amount of credit available with the growth potential of the business. In its investor briefing it also said it is committed to building a new digital banking platform.

Are we nearly there? Global venture capital activity continues to break records and, according to SVB’s own survey of UK companies, this year 50 per cent will look to VC for funding. There is a note of caution, though: figures suggest that investors are becoming pickier, preferring to back proven, later-stage companies with the capacity to generate lasting scale and enduring profits. While the first half of 2019 saw investment in start-ups increase by just over 45 per cent year-on-year, according to Innovate Finance, 85 per cent of that came from later stage venture capital and private equity growth investment rounds, with angel, seed and early VC rounds accounting for 15 per cent. Indeed, Kausik Rajgopal, a senior partner at global consultancy McKinsey, recently warned it could be the ‘endgame’ for the sector if early-stage investment dries up, saying ‘loss-making firms with models based on burning through venture capitalists’ cash are doomed’. Against the background, SVB promises clients that it will strive to increase their probability of success. For companies like London-based regtech ClauseMatch, for which the bank agreed a $2.5million loan package in May to support its growth in Europe and Asia, and Canadian startup Xanadu Quantum Technologies, which the bank recently helped raise $32million in venture funding to build the world’s most powerful computer, that promise means ‘fintech eccentrics’, wherever they are, can continue to dream big.

Ready for take off: SVB and its VC partners strive to power fintech startups

Issue 13 | TheFintechMagazine



ONE GIANT LEAP FOR BANKING Richard Dratva, Chief Strategy Officer for digital solutions provider Crealogix, believe that now the drama of liftoff is over, open banking will prove to be a cosmic jump for financial services This July, the world celebrated 50 years since man first set foot on the moon – the giant leap for mankind that encouraged a generation of baby boomers to reach for the stars. But, as discussion turned to the legacy of Apollo 11 half a century later, commentators began to ask: what have we really achieved in space exploration since then?

The same might be said of digital banking. With the first ATM machine produced in London in 1967, two years before the moon landings, technology has, in many ways, been slow to deliver the cosmic strides in banking that customers might have expected over the following

52 years. Yes, nearly all banks offer basic digital banking services in 2019 – but has the promised revolution in personal banking capabilities really delivered? Enter the UK’s Competition and Markets Authority, which intervened decisively in the banking industry last year by introducing the world’s first Open Banking framework, requiring all banks to share their data to

Open banking has landed: Now banks need to look towards the future


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encourage innovation and competition across the sector. PricewaterhouseCoopers (PwC) has estimated that the initiative will have created a huge £7.2billion in revenue opportunities for financial services by 2022. So, with the framework now one year old, how has it – and the EU’s own mood setter for open banking, the revised Payment Services Directive – so far impacted the experience of consumers? Richard Dratva, chief strategy officer for digital solutions provider Crealogix, believes there is some cause to celebrate, but that the fledgling approach has a long way to go before it fully takes off. “It’s been quite successful, for a baby that is just one year old,” says Dratva. “But of course, in the early stages, everyone concentrated on just complying with the legislation and the regulation. “What we’re seeing now is the first signs that banks and fintech players are thinking about how can they use open banking to serve their customers better. We will see a lot more in the coming years.” A Fintech 100 company with more than 20 years’ experience in providing digital banking solutions, Crealogix was a natural fit for open banking, building its flagship, open architecture Digital Banking Hub to help banks integrate digital services as the new era dawned. Enabler firms such as Crealogix can add booster rockets to a bank’s digital transformation. With the optimisation period for open banking now set to begin, Dratva explains why progress appears to be slower than some observers and industry insiders might have hoped. “Open banking is probably not as successful as it was hoped to be by now, and I think that’s partly because of the protection approach,” he says. “When you say to a bank ‘you need to make data on your customers available to other bank organisations’, obviously, their first reaction is ‘gasp! There’s a risk here!’” It’s been the task of open banking evangelists such as Crealogix to turn the conversation more towards the opportunities than the threats of what was always a brave mission into the unknown. The company undertook a consumer survey to mark open banking’s first birthday in the UK, which found that only a third of UK citizens surveyed knew what it was. So far, so unsurprising. But two-thirds of those polled are keen to see and use the

services that could be generated by it – and nearly half would change banks to enjoy those services should they see them being offered elsewhere. That’s incentive enough for banks to get up to speed with consumer demands, on which Dratva is happy to elaborate. “In our surveys, we found that Millennials and Generation Z-ers were clearly much keener on getting everything in mobile apps – they’re all about instant gratification,” he says. “But it’s also about personalisation and simplification; how banks can provide the opportunity for the individual to manage and control everything themselves.” What consumers want, Dratva argues, are simple services – like swiping a portion of their income into a savings pot each month. The problem, until recently, has been the complexity of running such financial operations through banks’ legacy systems. “At Crealogix, we’re able to provide the orchestration between legacy systems, to which we are completely agnostic, by

Just to comply is perhaps enough to survive for a while, but you have to do more to prepare for this new type of banking in the future drawing the data from them and delivering that data forward in a way that the user experience is exactly what’s required. We do that by accessing pure data from the back office,” he explains. It’s an elegant solution, and one with the potential to help banks curate their own single-platform, multiple-service interface for their customers. Crealogix provides digital banking and wealth management software to more than 500 financial institutions worldwide, including Helaba, Hauck & Aufhäuser, and Hampden & Co – with clients lining up for its open and scalable digitisation solutions. In July, Crealogix was selected by the European challenger bank MeDirect (headquartered in Malta), to help it build a

digital investment platform fit for modern consumers. Released first in Belgium, the product drove €150million of new investments in its first 40 days. Another ongoing partnership, with LGT Vestra, is helping the wealth management firm put together a modern, user-friendly mobile app and centralised user portal – likewise expected to enhance client engagement. Choosing to partner with Crealogix in June, LGT Vestra will have been pleased to learn that Crealogix won a Systems in the City Financial Technology Award for ‘best wealth management user interface’ in July. Winning admirers in the field of user experience is exactly where Crealogix needs to position itself as open banking delivers more mature digital financial services. So, whereas the space race slowed after Apollo, will we see the competition accelerate around open banking? “Banks now need an engagement platform where they onboard new clients, where they upsell or cross-sell for their clients, where they can offer them third-party digital services within their financial ecosystem and build up a platform for them,” says Dratva. “This is totally new and it needs a different type of technology. That’s exactly what Crealogix Digital Banking Hub does for financial institutions.” Complex services with a simple user interface – that’s the direction of travel for the financial industry in the next half decade, Dratva predicts. The largest banks will toil with large, multidisciplinary teams to secure something akin to the engagement platform Dratva describes. For the rest, Crealogix has the answers: a modular leg-up to full digitisation. “Especially for the second or third tier banks, the solutions we can provide are a life saver and a cost-saver,” says Dratva. But he believes open banking shouldn’t be about surviving – it should be about thriving amid the new opportunities created by digital technologies. “Just to comply is enough to survive for a while, but you have to do more than that to prepare your organisation for a new type of banking. Everything is going to change in the next 10 years.” During that time, we can expect Elon Musk’s SpaceX rockets to explore brave new worlds, taking us beyond the legacy of Apollo 11. For financial services, lift off for open banking was a little over a year ago. Now it’s clear: open banking has landed. Issue 13 | TheFintechMagazine


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A tale of multiple cities In just three years, FinTech North has helped to establish a reputation for innovation and investment in groundbreaking financial services outside of London. Director Julian Wells explores where the smart money is headed

Northern lights: Leeds has become a hub for data and analytics

The UK’s position as a global leader in fintech is irrefutable. Last year, we were the top destination in Europe for fintech investment, attracting more than £16billion. In a battle of the tech cities, London is quickly catching up with San Francisco as home to the highest number of fintech unicorns. Showing no signs of relinquishing its status, the UK fintech sector continues to grow at pace, with the first half of 2019 bringing record investment. And, far from being confined to the capital, its roots have spread across the UK. The sector is thriving in many of our regional cities. Through our annual FinTech North conferences, which began back in 2016, we have witnessed firsthand the growth of the sector in the north of England and its economic impact. The advent of other regional fintech organisations, such as FinTech Scotland and, more recently, FinTech West, FinTech Northern Ireland and FinTech Wales, indicates a growing fintech presence in those regions, too. Despite this national picture, there is still work to be done on ensuring that the UK-wide fintech scene is recognised. There remains a perception gap, where the UK


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fintech sector is often thought of in terms of purely what London offers. This means that investment and other opportunities are often funnelled into the capital. More than 90 per cent of total investment into UK fintech companies goes to those in London. This is widely accepted to be due to the majority of investors also being based there. Perhaps they aren’t aware of the extent of our regional fintech ecosystems. So, with that in mind, what does the fintech scene look like outside of London?

Success stories Just over three years ago, we launched FinTech North to champion the growing fintech sector in the region, to showcase innovative startups and to create a platform to facilitate greater collaboration. Ultimately, the aim is to enable ideas to be shared and connections to be made that help the sector in the north to grow further. During that time, not only have the events themselves grown – with more speakers, more attendees and more host cities – but the organisations that have been part of our network from the very beginning have grown with us.

The fintech ecosystem in the north has also helped startups relatively early on in their journey. Manchester-based fintech Mojo Mortgages is a fairly new entrant on the scene, having launched in 2018. It is already making waves in the sector, picking up Best Mortgage Broker at this year’s British Bank Awards, and partnering with challenger bank and fintech unicorn Monzo to provide a remortgage solution. Richard Hayes, Mojo’s CEO and co-founder, says: “With companies like Mojo, which are breaking new ground in established industries, there’s no roadmap or rulebook, so FinTech North is a great forum to discuss a new idea or best practice with people facing similar challenges. We’ve benefitted from raising our profile with likeminded businesses, of which there’s an ever-increasing number in the north. It’s really becoming a bit of a fintech hotspot, which makes sense when you think that Manchester is a long-established leader in financial services and there’s a thriving tech and creative scene here, too.” The importance of utilising the existing regional fintech network is a sentiment shared by other leaders in the space. Founded in Leeds in 2016, TruNarrative

is a technology platform that provides identity, compliance, fraud and know your customer (KYC) controls to financial services and ecommerce markets. Business development manager, Carl Woodburn, says: “It is so easy for us as individual companies to drive towards our own goals and be blinkered to the value and opportunities of utilising the wealth of expertise on our doorstep. Without FinTech North exploring and mapping out the complex fintech ecosystem around us, we would have missed so many opportunities that we now are exploring locally.”

Regional identities While the breadth of fintech is seen across the UK, there are some sub-sectors that are proving to be particularly successful in the northern cities. Leeds, for example, has established itself as a data and analytics powerhouse. It’s the only major city outside London that has offices of the three main credit reference agencies: Experian, Equifax and TransUnion. It is also home to the Leeds Institute for Data Analytics, which receives considerable investment from multiple UK Research Councils and is working in partnership with organisations including TransUnion and YouGov. In Manchester, there’s a big presence in the payments market, which has largely arisen from its strong ecommerce industry. AccessPay, a platform for Cloud-based payments and cash management automation, is leading the charge. Earlier this year, the Manchester company secured £9million in investment – the biggest ever for a northern fintech. Manchester’s profile in the payments space is perhaps what has attracted other companies to the city. Fingopay, a London-based fintech which allows transactions to be made via your finger, chose Manchester for the global launch of its biometric payment solution. Liverpool has a long history as a hub for wealth and asset management, and is the largest wealth management centre outside London. More recently, it has become known as the UK city where Colu, an Israeli fintech company, launched a local digital currency: the Liverpool Local Pound. Following its success in Liverpool, it went on to launch in London.

selected Leeds as its UK HQ last year. Meanwhile, the UK Treasury has appointed six regional fintech envoys, whose focus is on helping to raise the profile of fintech outside London. We have also seen the northern cities pushing fintech up the inward investment agenda. The likes of MIDAS, Invest Liverpool and others regularly send representatives to international fintech events and play an active role in the FinTech North conferences. The same is true of venture capital firms. Asim Muhammad, co-founder and director of Manchester-based challenger bank Arro Money, says: “If you start a fintech company in Manchester, you’re going to get support, and there are venture capitalists that I see day in, day out, based in Manchester, who would love to fund new firms. For us, the FinTech North events Closing the gap have facilitated meetings with several There are many encouraging signs reputable venture capital organisations that the gap between London and the looking for the right investment.” regions is closing. The Financial Conduct While this is positive progress, there Authority (FCA) recently reported that are still gaps to be filled. applications to its For example, the north sandbox from outside has a lot of broader London went from digital hubs but is less than 15 per cent in missing the dedicated its first year, to almost a fintech spaces we see in third this year. London that could help The Department for to accelerate and enable International Trade (DIT) the sector further. has run three fintech The fintech sector missions to the Northern should not be seen as Powerhouse in the last 18 London versus the months, to encourage rest of the UK. We need international investment Asim Muhammad, to ensure investors into regions outside and the international London. This has Arro Money network can look beyond involved more than 60 London and see the exciting European fintech startups and scaleups opportunities that exist in the regions. We visiting northern cities to explore must also encourage more collaboration commercial opportunities. The DIT between the different ecosystems – programme has resulted in some of those something we are currently working on fintechs establishing UK operations there. One example is Estonian invoice processing with Innovate Finance, through the creation of the FinTech National Network. and automation specialists, Fitek, which

Newcastle is home to the UK’s largest fintech company, Sage, and in the North East more broadly there are success stories such as Atom Bank, Newcastle Strategic Solutions and emerging startups such as Paid, Honcho and Kani Payments. The region also now has fintech-specific support from Dynamo North East, which has launched a regional fintech cluster. All of these regions are home to universities that are showing an increasing amount of interest in fintech in terms of their academic, research and business engagement activity. Manchester Metropolitan University, the University of Leeds and the University of Huddersfield are among those to have launched fintech masters courses, helping skills provision in the regions.

There are venture capitalists that I see day in, day out, based in Manchester, who would love to fund new firms


■ 25 September: FinTech North Newcastle Conference ■ 10 October: FinTech North Glasgow Conference

■ 8 November: FraudTech & Financial Crime Seminar, Leeds ■ 10 November: FinTech North Forum, Glasgow

■ 14 November: FinTech North Liverpool Conference ■ 6 December: FinTech North Forum, Sheffield

For more information and to book tickets to any of these events, log on to www.fintech

Issue 13 | TheFintechMagazine


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The Japanese regulator as innovator My life has a way of coming round full circle. My first trip to Japan centred on banking. My most recent trip did as well. The first time was to showcase a fintech to the market, to bring a bit of the West to the East. The latest was about the East showcasing their fintech ecosystem to the rest of the world. The week-long trip was at the invitation of the Tokyo Metropolitan Government’s Access to Tokyo initiative. I was fortunate enough to be selected to join three others for the Tokyo Familiarization Trip for the Invest Tokyo Program. Full circle. It was time for me to see both sides of the proverbial coin. This theme of closing the loop has followed me in my career. I began fresh out of grad school to work for a utilities commission during the height of telecommunications deregulation. Then I transitioned to industry: same coin, both sides. I saw, from both perspectives, the impact new technology (fibre optics, mobile) had on business models, operating costs, universal service mandates, affordability, and the end customer’s experience and options on the market. I saw what it did to the revenue stream for incumbents and the rise of new challengers, ready to fight for market share. I saw a highly regulated industry crack open to disruption, old providers partner with or merge or acquire newcomers. Some even disappeared entirely. I had the opportunity to work on a project for NTT (Nippon Telegraph and Telephone), Japan’s biggest telecom provider, as the Japanese market underwent similar deregulation initiatives, characterised by disruptive technologies, institutional rigidities, and

Ghela Boskovich finds a full circle approach to data sovereignty in Japan an ever-changing standards and policy landscape. Telecoms is nothing like the industry it was before the start of deregulation 25 years ago. It’s no longer about phone services; it’s about data mobility at speed and scale. For telecommunications, technology was ultimately what provided competitive advantage and gave the challengers the opportunity to leapfrog heavy capital investment in traditional infrastructure. It meant customers had choice, and the market determined that those providers who offered mobility won, as they empowered the user with a freedom not previously associated with the phone on the desk or kitchen counter.

Financial regulators have learned that technology has no respect for the status quo… they are embracing open innovation, spurring on competition Twenty five years later, I’m watching the same play act out on a different stage. The actors are all the same: regulators, incumbents, challengers. The plot is similar: open the market to competition, regulate for stability, disrupt the status quo. This time, however, the stage is financial services. I have no doubt that, 25 years from

now, banking will be nothing like it was before its opening. It will not be about money services, it too will be about data mobility at speed and scale, and privacy. Technology will be the competitive advantage. But that wasn’t obvious 25 years ago in the telecoms industry. Financial regulators today have learned that lesson: that technology has no respect for status quo. Their response has been insightful: the regulatory sandbox – and now, through Global Financial Innovation Network, regulators across multiple jurisdictions are playing in a big ol’ happy global sandbox where they are embracing open innovation, spurring on competition, and pushing collaboration between institutions and competitors via tech. The Japanese regulator’s approach to the sandbox is called Connected Industries. It is a vision of industries creating new added value and providing solutions to societal challenges by connecting a variety of data, technologies, people and organisations in the midst of the global rise of the Internet of Things and artificial intelligence (AI). The Cabinet Office; Ministry of Economy, Trade and Industry (METI); Ministry of Internal Affairs and Communications; Fair Trade Commission and Financial Services Agency are coordinating efforts to bring the Connected Industries concept to life. At the heart of this is data. One of the Japanese regulator’s mandates is to better understand and regulate the use of AI in financial services; the wealth of transactional data banks hold spans all industries. How this convergence translates into added value or solves some of Japan’s social challenges (an aging society and extreme environmental impact, to name just two) is what the Connected Industries sandbox is meant to explore. Issue 13 | TheFintechMagazine


LOCATIONS: JAPAN Japan’s Unfair Competition Prevention Act also calls for better, and more ubiquitous, use of data at all levels across all industries – as a driver of business competitiveness. The Japanese regulator also establishes rules to ensure transparency and fairness in transactions between digital platforms/ companies and users. The Working Group on Data Transfer and Release is tasked with framing the rules of data exchange between users, providers and third parties. It’s this last point – this data custody chain – that is proving most interesting, given other types of data privacy and management regulation. I speak of the General Data Protection Regulation (GDPR), of course. Japan’s GDPR is the Trusted Personal Data Management Service. TPDMS lays out the liability chain for managing an individual’s private data once it has been shared with third parties. Certification as TPDMS is highly regulated by soft law, but the accountability for the choice of a relationship with a TPDMS personal data bank service is left up to the individual.

Leading the way: Boskovich, right, with the Tokyo fintech hub team at Finolab

What sets TPDMS apart from GDPR is the clear liability distribution across the personal data supply chain, where the individual also assumes liability for choice of third party management service. The other distinction from GDPR is that TPDMS insists that the individual’s data can and should be commercialised for their benefit, not the sole benefit of the company crunching that data. One bank in particular, MUFG (Mitsubishi UFJ Financial Group), has announced its ‘personal data bank’ service, which stores data such as purchase histories from individuals and provides them to private companies. Individuals control how and when that data is shared, and in return receive money or services as compensation. This data share is meant to be used for new


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product development, as per the Connected Industries initiative. Participating companies must specify the purpose and type of data being used. Recently, a fitness club, a travel agency and two other companies have been part of this proof of concept, conducted in the Japanese regulator sandbox. This is one of the first examples of identity being realised commercially. It has elements of self-sovereign identity (the concept that individuals have sole ownership of their digital and analogue identities, and ultimate control over how their personal data is shared and used), although the portability mechanism is still missing – and, for purists, it’s not sitting on the blockchain. But it is a valid experiment in identity interoperability across industries. It is also one of the first examples of banks embracing identity-as-a-service models, with MUFG acting as an identity custodian. It is also a shift in terms of using a trusted third party provider to act as authenticator for transactions. In the context of the

respond faster than institutional habits change. It is assumed that regulators only react to market changes. We’re seeing evidence that is no longer the case from the likes of the UK’s Financial Conduct Authority and the Singapore Monetary Authority, among others. Certainly, the Japanese regulator is breaking the mould. Their response to testing how technology and the market interact has been proactive. But while regulation may have sped up the rate of competition in financial services, it was not the catalyst. Markets naturally spawn competition; the flow of capital and market share naturally directs itself towards those who are more efficient or offer better perceived value for money. The natural cycle of deregulation favours the innovator above all. The market may naturally subsume smaller players over time, but the new natural monopoly (banking is a natural monopoly) will be forever marked by the scars inflicted by the smaller players: market share will go to the institution that has adapted and ingested the ‘evolved’ way – it will reflect the traits inherited in a new generation. These new traits are rooted in understanding the value of personal data. As we evolve into the next stage of openness – open finance, the credit side of the banking coin – we’ll start to come full circle back towards the commercial value of the individual. New business models will attempt to make the individual whole again, after the exploitation of personal data by the corporate.

In the context of the Japanese approach to open banking, the role of PISPs is that of identity authenticators – something that has yet to take hold in the European model Japanese approach to open banking, the role of payment initiation service providers (PISPs) is that of identity authenticators – something that has yet to take hold in the European model, and one completely absent in US financial services to date. This example of new business lines focussed on value add – with a commercial return to the customer – is not just novel, it is proof that the business model of traditional banking is fundamentally changing. No longer is it about money, it is about secure data mobility at speed and scale. It is an absolute truth that markets

Japan is the first mover here, the regulator leading the charge by recognising hyper-connectivity as a means to making individuals whole when it comes to their data sovereignty. The Japanese regulator has also learned lessons from other industries’ deregulation exercises, working to avoid those mistakes on interconnectivity, the true impact of technology, testing business model innovation and impact in a safe environment, and keeping up with market evolution. Fintechs – any techs – ought to be scrambling to play in the Japanese regulator sandbox.


Winning side: APIs will change the rules of engagement

TEAMFINANCE Mexico is a country addicted to cash. Between 80 and 90 per cent of transactions are settled that way and, despite it having the 15th biggest economy in the world, 52 per cent of the adult population does not have a bank account.

It perhaps explains why the most recent World Bank figures show Mexico as having the lowest ratio of tax revenue to GDP (gross domestic product) of any OECD (Organisation for Economic Co-operation and Development) country – at just over 16 per cent – as earnings seep out through the shadow economy. Keen to throw a light on those missing pesos, the government is employing a


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HSBC Mexico is widening its choice of team mates as the rules of the banking game change under new fintech legislation, says Head of Digital Juan Carlos Espinosa

carrot and implied stick approach to encourage financial inclusion, while at the same time creating a new, open banking framework aimed at the same goal. This month, the country will see the introduction of CoDi, or Cobro Digital, an instant payments technology that doesn’t

charge merchants for transactions, based on QR codes and mobile wallets. The ‘free’ nature of CoDi will, it’s hoped, persuade even the smallest merchant to promote its use over cash. CoDi is part of a wider drive by Mexico’s central bank and the financial sector to harness the growth of smartphones and improve access to financial services via digital means, since it requires users to open a bank account (or register their account with the central bank, if they’re among the 48 per cent who already have one). This is the carrot. But, as CoDi gains traction, analysts predict that consumers will hear the thud of the stick as the government mulls over banning the use of cash for road toll

payments and petrol station sales. At a stroke, drivers could be forced to use bank account-linked payment systems, making adoption of card or mobile wallet payments obligatory by default. “CoDi’s limit is going to be around 8,000 pesos per transaction, which is a little over $200 – big enough for most of the transactions ordinary people do,” says Juan Carlos Espinosa, head of digital strategy CoDi will run on the rails of instant payments system SPEI, which has existed since 2004 (the concept of real-time electronic payments is nothing new in Mexico) and be processed via the central bank, Banco de Mexico, with payment taken directly from the customer’s bank account. The seller generates a payment message – represented by a static QR code, dynamic QR code or NFC (near-field communication) message – which the buyer receives on their mobile device and accepts for processing. CoDi aims to be simple and low-friction, the vendor pays no commission and, because participants need to have a bank account, anti-money laundering (AML) and know your customer (KYC) are already taken care of. Espinosa says HSBC is pushing ahead with digital services in the belief that modern payment systems will become the norm in Mexico, along with holding a bank account and access to the other financial products considered mainstream in the developed world. “The government’s driving to reduce the use of cash and improve financial inclusion. HSBC already has two million users registered in our digital channels, with around 1.5 million of them active and regularly taking advantage of services such as instant payments between bank accounts using the SPEI system,” explains Espinosa. “Because financial inclusion is so important in Mexico, the industry has developed what we call a level-two account, which can be opened digitally, via a mobile phone, without visiting a branch. The customer gets a virtual debit card and can start making transactions quickly. From there, they begin to create a transaction history, which evolves their financial inclusion path. “We can direct them, give advice on how to budget and save money, and a credit rating is formed so that

the bank can offer credit products. The banks’ goal is to start that evolution with customers, helping financial education and inclusion, and then giving them products to meet their needs.” Last year, the country passed legislation commonly known as the Fintech Law, which mapped out regulations covering crowdfunding, electronic payments and cryptocurrencies. Next year, the rules will be extended to cover the use of application programming interfaces (APIs) to facilitate the growth of an open banking system that’s been directly influenced by the UK’s pioneering model, but will go beyond retail banks to encompass the entire financial system. It’s predicated on inviting third parties to develop digital banking products that will accelerate the use of cashless payments and the growth of current accounts. Espinosa says: “Next year, we will see banks and other financial institutions beginning to comply with open banking API requirements. We have three types of API: public information, such as ATM and branch locators and product finders, aggregated data APIs and transactional data APIs. “We are ready to begin running public information APIs. We’ve carried out hackathons and the infrastructure is in place. “The introduction of APIs will be huge and mean that, as banks, we can interact more fully with the fintech ecosystem. In relation to payments, under the Fintech Law, we will have other types of vendors issuing virtual cards, debit cards, credit cards and wallets, so the payments ecosystem will continue to evolve. Third parties will come to the market to start doing closed loop, such as pre-payment cards, or even open loop payments, with NFC and QR codes. That means more competition and, as a bank, we want to play with everyone. “We will be part of CoDi, but are also running pilots for other QR code services that run on alternative rails, such as ones charged to a credit or debit card. There will be many players and banks will need to prepare for different scenarios.”

HSBC has drawn on its own digital resources by applying systems it’s developed for other markets, in Mexico. “You don’t need to build anything from scratch,” says Espinosa. “There are many pieces, use cases, companies, apps and platforms you can connect with. “As a bank, we don’t want to be commoditised in the process, but we do need to partner with third parties and not worry too much about the stage they’re at. We aim to create partnerships for hackathons at an early stage to develop pragmatic projects that could escalate and become commercial products.” Espinosa reveals that much of the short-term focus is on mobile digital products, such as apps that cover a range of banking services, plus payments and rewards. The bank also aims to be ‘where the customer is’, meaning services through social media platforms. “We want to interact with messengers, such as WhatsApp, beginning with unauthenticated services and then on to processes that need authentication,” says Espinosa. “We could let our customers ask questions via bots, then evolve it into monetary interactions. “Another sphere we are focussing on is analysis of customer data so that we ensure we are relevant to our customers. But onboarding processes for new-tobank customers are of the utmost importance.” Whatever stage they are at, HSBC wants its customers to fully embrace digital services in order to free up staff in branches to give more complex financial advice. In that, the Mexican bank faces no different a challenge to its European counterparts. “We continue to be a very physical type of banking ecosystem – we have 1,000 branches here,” says Espinosa. “Because people tend to go into branches, you need to teach them to recognise which channel is more relevant to their needs. The user will have the ability to choose a channel, but you need to help them to understand why it’s better to conduct the self-service transactions away from a branch. We’ll be addressing that for the next 24 months at least.”

The introduction of APIs will be huge… as a bank, we want to play with everyone

Issue 13 | TheFintechMagazine



TAP-TAPPING ON FUTURE’S DOOR Such is the pace of competitive change in Mexico that, as an established bank, Santander has committed to implementing innovation ‘every day, every minute, in every solution’. According to Carlos Marmolejo, Head of Innovation, it’s working well With 515 fintechs operating in the country, Mexico has the potential to be Latin America’s most dynamic financial market. That was the claim of a Santander Mexico report released this summer which, in partnership with fintech association Finnovista, incubator Endeavor and the UK embassy in Mexico, recorded a 16 per cent year-on-year increase in fintech players. The country is ripe for massive change, with less than half of adults holding a bank account. Cash is king, but Santander believes that harnessing the potential of mobile phone apps and incentivising electronic payments will encourage consumers to embrace digital. “The mobile phone is the key to everything – it’s the branch we can potentially have in the pocket of every citizen in this country,” says Carlos Marmolejo, head of innovation at Santander Mexico. “Many people are underserved by the financial system. But if we can provide the first service they need, which is payments, and give them a good experience with that, the rest will follow.” For several years, Santander’s approach to digital services has been one of collaboration. The bank opened its digital factory – Spotlight – in Mexico City in late 2017, which has sought to harness both the knowledge contained within the global bank, and external sources such as fintechs and universities. It runs the fintech incubator Radar, which opened for its second round this summer and last year worked with three startups that specialised in peer-to-peer payments and QR


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code-based point-of-sale terminals. Among the fruits of such collaboration was the launch in May of Santander TAP, which allows customers to instigate or receive payments through chat platforms. At its launch, the bank said chat was used by 91 per cent of Mexican internet users. Marmolejo says: “At Santander we have two approaches to innovation. One is internal, our employees. Santander is a global bank and we are incentivising a culture of sharing information and ideas between regions, and it works well because innovations can be incorporated fast. “On the external side, we have the likes of the Radar programme, where we’re working with around 15 fintechs at our digital factory to provide new services for customers. “We offer the fintechs access to the various channels we have at our bank and we’re coming up with innovative solutions.” Mexico’s digital banking revolution isn’t just the responsibility of commercial banks such as Santander, however. The country’s government and central bank are keen to see both businesses and individuals switch from cash to more accountable

payment systems, to curb the black economy and improve tax receipts. This autumn sees the launch of CoDi, Banco de México’s QR code-based payment system that is free to use for both merchants and individual customers, who pay through an app linked to their bank account. Then there is the Fintech Law of 2018, which laid the rules for crowdfunding, electronic payments and cryptocurrencies, and next year legislates around open banking and application programming interfaces (APIs). Though Marmolejo says there remains a fundamental distrust of financial systems, he believes people’s needs around payments can weaken their grip on bank notes. “It’s true that people prefer cash, but in Mexico, families’ breadwinners often work in the cities and they need to send money home to villages or small towns,” he says. “Also, more than 20 million Mexicans live and work in the United States, and

they too need to send money across the border to relatives. So we see that as a big challenge, and Santander is, as a global bank, creating new solutions for those people. “We want to be a tech-focussed bank for Mexicans and we also want to be the bank for payments. Already, with Santander TAP, a payment can be made easily within the country using social media chat. Young people are quick to adopt such solutions, but older adults are also adopting digital services to meet their needs.” Marmolejo sees CoDi as a potential trigger for change. “The QR code programme will be key because it’s the first time in Latin America that one central bank has organised everything around a single payment method,” he says. “We will work with the central bank to take advantage of the new ecosystem and provide solutions to small merchants, such as micro loans. “In Mexico we have at least one million small shops, or ‘mom and pops’ as they’re known and, so far, they’ve not been accepting digital payments. If the government were to provide the ability to deposit individuals’ social security payments into digital bank accounts, those recipients could make payments through their mobile

The mobile phone is the key to everything – it’s the branch that we can potentially have in the pocket of every citizen in this country

phones at the mom and pops. The potential for financial inclusion there is huge.” Marmolejo believes the rate of change for digital banking will be so rapid that Santander cannot afford to wait until next year’s open banking legislation is published. It is already developing API (application programming interface) links with firms ranging from startups to major tech players, and providing a sandbox so that services are well developed when the green light for open banking is given. Mexico has examined the open banking model adopted in the UK and the EU’s revised Payment Services Directive (PSD2), but is expected to unveil something wider ranging, taking in all financial institutions rather than just major banks, as in the UK. “Open banking will be fantastic for customers because they can have the ability to choose better solutions in the market,” says Marmolejo. “For us, it’s a very big challenge because competition will potentially be fierce, and that is why Santander decided to implement innovation, every day, every minute, in every solution that we are launching. We see open banking as an opportunity to connect with the various solutions our customers find. The sharing of data with third parties will result in better services.” Marmolejo also points out that the launch of digital

payment systems like CoDi opens the door to artificial intelligence (AI), because levels of transactional data will grow fast. “If we are going to incorporate more people in the banking system, we will need more information, and managing that means algorithms,” he says. “AI (artificial intelligence) will be central because if we can analyse customers’ behaviour, we can provide them with better digital solutions. It may be that if a customer tries to make a transaction but does not have the funds, we can offer a micro loan, for instance. Knowing the customer better would allow us to do that. The first solution is payments and then we can provide others around it. “Changes like this will improve the lives of people in Latin America. And at the centre of it all is the mobile phone, which through apps means money can be spent and received, and bank accounts can be opened without needing to walk into a branch.” Marmolejo adds that a product such as Santander TAP, which puts the mobile phone at the centre of everyday spending, could drive financial inclusion due to its simplicity and user friendliness. “We are the first Latin American bank to offer such a service,” he says. “I can pay from 10 to 4,000 pesos using a chat conversation. The beneficiary can deposit that money, or open a Santander bank account using their phone and deposit the cash there. It’s the future, and it’s working really well.”

Messaging money: Santander was the first bank in LATAM to introduce money transfers over chat

Issue 13 | TheFintechMagazine




RUMBA With low financial inclusion rates, a bewildering array of alternative payment methods and little conformity between neighbouring financial infrastructures, the Latin American (LATAM) market is a particularly challenging one.

Added complexity has been driven by a dramatic rise in smartphone usage and a strong desire to find technological solutions for local and cross-border payments – by traditional providers and challengers alike. Last year, of the 1,166 startups in LATAM, almost a quarter were concerned with payments and remittances. ACI Worldwide isn’t a newcomer – it’s been active in the region for years, through several economic and political upheavals, and already counts four of the top eight regional banks as clients. As a major global provider of real-time electronic payment solutions for financial institutions, retailers and processors, it’s watched the technology landscape evolve rapidly. But its experience in real-time payments, particularly SWIFT’s Global Payments Initiative (SWIFT gpi) puts it in an ideal position to help drive change. “Challenges are bigger in Latin America than in Europe because of the traditional model of business,” says Karen Arroyo, solutions consultant at ACI Worldwide. “We still have a population used to their physical


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Phenomenal smart phone adoption in Latin America, has prompted an explosion in alternative payment methods, creating challenges and opportunities that ACI Worldwide is happy to meet, says Solutions Consultant, Karen Arroyo things, going to a branch and making sure that they have their money in their hand… so switching this thinking – from physical to electronic – is a pretty big challenge.” The World Bank estimates that nearly half (49 per cent) of all adults in Latin America, some 320 million people, do not even have a bank account, while account usage can still be extremely low, even among those who do own one, according to ACI Worldwide’s own research. But the potential to improve on those figures is huge – and increasingly attainable. The World Bank is optimistic, for example, about the opportunities for employers to help expand bank account ownership by up to 30 million adults, almost 90 per cent of whom have a mobile phone, simply by digitising wages that are currently paid in cash. But that’s

only half the story; the other half has to do with how they spend it. According to ACI Worldwide’s 2018 Real-Time Payments in Latin America: Potential For Massive Disruption report, point-of-sale (POS) purchases in the region represent only 10 to 30 per cent of all debit card volume, most people using their card to withdraw cash from ATMs to pay for purchases. A similar pattern can be seen in the number of POS terminals being used by merchants. While major modern retail establishments such as hotels, shopping malls and fast food chains accept cards, POS penetration among the tens of thousands of smaller and more traditional retailers is very limited. Only 10 per cent of small and medium-sized enterprises (SMEs) in Peru and 19 per cent in Mexico, for example, accept card payments, the ACI report adds. Undeterred, the ecommerce sector has found some ingenious workarounds for a region that is digitally literate but bank averse. While more than half of online shoppers do pay for purchases using credit, debit or prepaid card, cash on delivery is a widely offered alternative, given the high number of unbanked customers. A double-digit share of consumers in Mexico, Argentina and Colombia also pay for online purchases in physical locations, like supermarkets

stores, according to Research and Markets’ Latin America Online Payments Methods 2019 report. In Brazil, the cash-based payment method Boleto Bancário, commonly referred to simply as Boleto (or ticket) involves banks issuing a boleto at the request of merchants, which is payable at more than one million locations nationwide, providing an effective alternative to a card. In Mexico, the country's largest convenience store chain Oxxo, operates Oxxo Pay using mobile-compatible reference numbers and real-time payment notifications to merchants. Argentina has Pago Fácil and Rapipago and Colombia Efecty and Via Baloto, all of them cash-based payment solutions that typically represent around 20 per cent of total ecommerce transactions.

A standardised approach While traditional credit card schemes are still extremely profitable for card networks, issuers and acquirers, smaller businesses struggle to introduce point of sale (POS) terminals and accept card payments due to heavy operational costs. Settlement times also tend to be long, which can negatively impact merchants’ cash flow, further disincentivising adoption. Latin America has a cash settlement scheme ahead of much of the rest of the world and some markets, like Brazil and Mexico, can outperform those of more developed countries. But same-day bank transfers can often only be done during business hours and some transactions between accounts at different financial institutions can take days, meaning user experience remains poor. The problems are further exaggerated when it comes to transacting between countries. All in all, the bar is set high for anyone operating across the region. ACI believes that its real-time payment solutions can help to address these issues while also standardising systems for cross-border payments. The company’s software already powers more than 22.3 billion transactions in Latin America each year. SWIFT gpi, its cross-border API-embedded system, which will become mandatory for all in the SWIFT network by the end of 2020, aims to address concerns relating to speed, certainty and transparency in particular. By December next year, all financial institutions on the SWIFT network will have

to provide a unique end-to-end reference (UETR) for payments, both domestic and cross-border. This will enable end-to-end tracking and payment confirmations. Arroyo says there are obvious benefits to ACI working in partnership with SWIFT in the Latin America market. “We are the first certified provider for SWIFT gpi. We are together on this journey, making sure that we understand all the regulations, the mandatory steps we need to follow, to start inviting banks to become members,” says Arroyo. “ACI is offering solutions specific to their requirements – we are one step ahead. We are offering the banks what they will need before gpi becomes mandatory.” An inherent advantage of any digital payment over a cash transaction is the ability to acquire data, for the benefit of both providers and customers. “Banks that are becoming members of SWIFT gpi are seeing the benefits for their customer experience,” says Arroyo, ”because it can track all that data around the journey of the payment, instantly, even crossing borders. It gives us a lot of data to share, which can be used in services for other banks and for fintechs.” It means ACI can act as a partner to its clients rather than just a provider, says Arroyo. Another benefit is that ACI ensures SWIFT gpi is updated in real time for all mandatory and regulatory changes, so that banks and other providers stay ahead of the game, regardless of where they are, while also working as part of a wider, standardised system. “Because we have a platform that is already defined, we just have to add services to it,” explains Arroyo. “We are a middle layer between the core systems, the legacy systems and the intermediaries, making sure that the recipient and the sender are working together without impacting the client organisation,” she adds. Indeed, standardisation is the biggest issue facing banks in Latin America today, according to Arroyo. For example, Mexico’s standards differ from Brazil’s, which tend to vary from the rest of the region. “Most challenging is the response time, or the elements that should be covered in the journey of a payment,” says Arroyo. “We map the data and

talk the same language at the data level.” ACI’s SWIFT gpi solutions also offer benefits in terms of security and fraud management, with complete visibility of the payment journey giving customers confidence that their money is going where it should, fully tracked, without interruption. ACI is among several companies working to improve financial services and boost economic growth in the region. Latin America’s fintech sector is thriving, with more than 1,160 active startups in 2018, according to a recent Inter-American Development Bank and Finnovista report. This marked a rise of 66 per cent on the previous year, it added. There is also clearly a desire and the environment to find technology solutions for local and cross-border payments as use of the internet widens, particularly in some sectors, such as travel, which takes 40 per cent of its bookings (but not 40 per cent of its payments) by mobile phone, much of this across borders. A recent World Bank report showed that 55 per cent of adults in Latin America and the Caribbean own a mobile phone and can access the internet – 15 percentage points more than the developing world average. As Howard Blankenship, vice president of airlines for the Americas at CellPoint Mobile, recently pointed out: “Across Latin America, payment technology developments have the potential to revolutionise the travel market, which represents a substantial percentage of the region’s total gross domestic product. Supporting and implementing leading digital payment methods is imperative for travel merchants to better serve their customers and meet evolving market needs… They can start by adopting mobile and alternative forms of payment-centric strategies and identifying a trusted provider to implement them.” And that’s just one industry. ACI provides SWIFT gpi-enabled payment solutions to tens of thousands of merchants worldwide and has well-established connections with intermediaries and financial institutions. It may not be the newest fintech on the LATAM block, but it could definitely be one of the most influential as the continent matures towards new payments era.

Challenges are bigger in Latin America than they are in Europe

Issue 13 | TheFintechMagazine




ARCHITECTURE Banks like BBVA are building a sophisticated payments framework in Argentina. Leandro Alvarez, Solutions Development Manager for Individuals and Atilio Velaz, Solutions Development Manager for Businesses, believe it will be a stylish addition to the financial skyline Argentina is a country with great potential but a history of economic weakness. World Bank figures show that, since last year, the country’s currency, the peso, has gone from 15 to the dollar to almost 60, the economy is forecast to have shrunk by around four per cent; and prices have increased by more than 250 per cent, while real wages have fallen by a tenth. At the end of last year, the bank approved loans for Argentina totalling $950billion to stabilise the economy and tackle inequality and child poverty in particular. But inflation remains stubbornly high, despite a vote-catching freeze on the price of essential items in advance of an election next month. With a GDP of $518billion in 2018, Argentina is still one of Latin America’s (LATAM’s) biggest economies, plus it boasts vast agricultural resources and great capacity for renewable energy. But high public expenditure and a political culture riven by deal-making and short-termism are just two major reasons why Argentina has been in recession for 33 per cent of the time since 1950, and why much of its cash


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has fled abroad in US dollars. Such stark contrasts exist in the country’s banking sector, too – there are wealthy and educated customers and sophisticated businesses which demand the latest features digitisation can provide, while around half of Argentinians do not even have a bank account. Spanish banking giant BBVA (Banco Bilbao Vizcaya Argentaria) has remained committed to the country since starting operations there in 1928 – and, having ridden Argentina’s frequent economic rollercoasters, it sees digitisation as a way to normalise its finances, both at an individual and nation state level. Over the last 13 years, it has supported 13,375 secondary school pupils from low-income families via its financial education scholarship programme, which gives both money and lessons in personal finance. Simultaneously, it’s developing products that have been adopted in its other national markets, but which could persuade more Argentinians to join the financial mainstream. This is against a background of local innovation in digital payments, supported by government.

“Here in Argentina we have various new payment methods that are changing the market,” says Leandro Alvarez, solutions development manager for individuals for BBVA Argentina. “QR codes are growing in popularity, near-field communication (NFC)solutions are also taking hold across the country – I predict that how we make payments is going to change drastically in the short term. “We have worked closely as a team to look for global solutions, and what we are currently developing is the incorporation of new payment methods by leveraging solutions already being used in Spain.”

Mobile-ising consumers Globally, one of BBVA’s targets for 2019 is to get half of all its customers using its mobile app. The bank is migrating its GloMo app (Global Mobile) across all territories, with Mexico, Peru and Uruguay already using it among the Latin American markets. GloMo offers full functionality so that a customer can access all the bank’s services on the go. Though Argentina is yet to adopt it, expectations are high. The country was ranked the fastest-developing Latin

American nation in terms of digital banking products over the last three years, in a report by software firm Latinia. Its research indicates that artificial intelligence (AI) is being developed in six of the 10 Argentine banks it analysed – and that AI was being used well beyond customer assistance chatbots. It also noted that Argentinians spend an average of three hours, 18 minutes connected to the internet each day, which will have been a factor in BBVA persuading 59.4 per cent of its customers to use its online banking platform. According to a World Bank report last year, wide access to digital technology could enable rapid growth in financial technology use in the region. Fifty-five per cent of adults own a mobile phone and have access to the internet, 15 percentage points more than the developing world average. About 20 per cent of adults with an account already use mobile or the internet to make a transaction in Argentina. The World Bank goes on to suggest that ‘by digitizing cash wage payments, businesses could expand account ownership to up to 30 million unbanked adults – almost 90 per cent of whom have a mobile phone’. BBVA is doing its best to help push the country in that direction. “Four years ago, we started a journey by setting up an in-house design team and we turned it into the cornerstone for the creation of products and services within the bank,” says Alvarez. “We have also developed practices and procedures with input from our customers. We get them to validate ideas and products by monitoring their experiences as users. We need to understand where friction exists in the user experience. For us, product design is a field of expertise in its own right.” Among the initiatives to flow from that in 2019 is Salary Advance, a lending product that allows the bank to advance short-term loans of up to 20 per cent of a customer’s salary using the data it holds on the income and outgoings of the account holder. Salary Advance is predicated, of course, on your earnings being paid into an account, thereby encouraging financial inclusion: a very real example of how BBVA is banking the unbanked with a potentially big impact at both individual and country level. For commercial customers, the team has come up with a suite of digital products to improve the customer experience and their financial self-management. They include

Immediate Coupon Payment, a way of advancing 65 per cent of payments made with a Visa card – an initiative that has now been migrated to France. A similar service operates for cheques under Custody Cheque Discount, which allows commercial customers to make use of funds before they are cleared. Argentine businesses can also make use of mobile deposits for cheques, which are paid into a branch later, as well as digital agreements and mobile cheque discount services. Also introduced recently were Net Cash Commercial, a treasury management solution offering online financial loans for a period of six or 12 months. In all cases, the goal is to produce products that are simple to navigate, whether they are online or in branch, and it earned BBVA the Best Digital Bank in Mexico 2019 award at the World Finance Banking Awards last month (August). Alvarez says: “Improving the user’s experience is the big challenge that all banks share, and both commercial and individual customers are experiencing a process of empowerment whereby they demand more and more – a better service,

QR codes are growing in popularity. NFC solutions are also taking hold across the country – I predict how we make payments is going to change drastically in the short term a broader range of products, everything must be immediate, anywhere. “What we aim to achieve at BBVA is to incorporate the client’s vision in the creation of our products and services. People do not want to waste time when they interact with a bank or any other company,” he says. “They look for something immediate and easy to use. They look for relevant information that informs their decision-making. Therefore, we must seek to improve the information architecture; what kind of information we provide, and when, so that processes are simplified for the client. It all depends on the experience.”

New crossborder payment services, utilising SWIFT gpi, hit the spot in that respect – especially its end-to-end tracking feature. “When we first offered it, we were confident it would have potential, but still we were surprised by how much our clients used it,” says Alvarez. Looking at the bigger payments picture, both Alvarez and his colleague Atilio Velaz, solutions development manager for businesses, believe the payments as a service category is undergoing a revolution in Argentina. Not only is the country's central bank closely involved in the development of new processes, but some of the new digital payment products can be used by people without a bank account, which provides a potential route into onboarding them as customers. Velaz says: “The payment system in Argentina is changing fast and the Central Bank of Argentina, together with the whole banking system, has been working hard to implement new technological solutions. “Technology and innovation teams have been created within the Central Bank, and stakeholders such as fintechs and non-banks are part of the process, too. New payment systems include the immediate debit system, which is a solution that permits people to authorise a debit of their account – it sends them a debit and they use it. “Then there’s the Echeq, which is the electronic cheque. It is similar to an electronic transfer but has a deferral date, so is a useful vehicle for a business to pay its supplier. It’s aimed at SMEs and, being digital, it reduces cost.” The virtual wallet is another product undergoing stellar growth. Individuals can load up their wallet with cash rather like a pre-payment card to be used at contactless payment terminals, which are being rolled out across the country. QR codes are another fast-growing payment method. Alvarez says: “Ecommerce has an important presence already and it is fostering the incorporation of QR by means of discount promotions. We are developing a system alongside several partner banks for QR. We also understand what NFC could mean. It will speed up transaction times and remove the need to have a card, as you can make payments with your smartphone. This payment method will be adopted soon in Argentina, heralding a huge change.” Issue 13 | TheFintechMagazine


LATAM SPECIAL Hats off!: Citibanamex has set itself a £1billion challenge


The scale of the digital challenge was clear when Citigroup moved into Mexico – a country where only half the population has a bank account. Sinead O’Connor, Collaborator in Digital Customer Experience, believes mobile is the key When Citi invested $1billion in Mexico’s Banamex (rebranding it Citibanamex) two years ago, its aim was to make it the country’s ‘digital and data-driven Bank of the Future’ by 2020. Much of that development has been mobile-focussed, which lends itself to added-value services that customers can access ‘in the moment’ – user-based (or micro) insurance being a good example of that. For its property and casualty (P&C) insurance delivery partner, Chubb, it was


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an opportunity to extend its reach in a massively under-insured region by getting an insight into individuals’ everyday lives and risk. How to place the customer first – understand their choices and requirements, cater to their specific needs, attend to their various stages of life and generational differences – continues to present a knotty know your customer (KYC ) puzzle to insurers, and not just in Latin America (LATAM). But partnering with banks that use

their data to build up a 360-degree picture of customers at any given point in time, certainly helps. Mexico, for all the opportunity, however, is a whole different order of challenge. The second largest Latin American economy and the 15th largest in the world is growing steadily. Its current GDP (nominal) is $1.15trillion and in terms of purchasing power parity it’s $2.45trillion, which the International Monetary Fund (IMF) says is growing at a rate of more than 2.3 per cent. Automotive, oil,

financial services and tourism are the top contributors. Unemployment hovers at around 3.5 per cent. And yet around half of the population is unbanked. The government has provided a level of welfare and utility services; although two-thirds of its hospitals are private. Mexico is also a country vulnerable to natural disasters. Earthquakes, floods, hurricanes and other meteorological events such as the El Niño phenomenon are a constant threat. Reports suggest that the hurricanes Ingrid and Manuel left a $5.7billion trail of destruction in 2013, and in 2014, Hurricane Odile caused $1.2billion in economic losses. Yet, despite the risk of unforeseen events threatening both casualties and damage and destruction of property, access to insurance is just above two per cent. Meanwhile, Mexico is facing a demographic shift in population similar to that experienced by European countries, where the insurance industry is recalculating its exposure to risk: half the domestic Mexican population is forecast to be 50-plus by 2060 as substantially fewer children are born, emigration increases and the life expectancy of those who stay behind lengthens. Sinead O’Connor, a collaborator in digital customer experience at Citibanamex, says it all goes to make Mexico a unique market for fintech and insurtech. ”One of the challenges we have is obviously the level of access to banking and financial services,” she says. “Only half of the population has a bank account, and so there’s a way to go in terms of financial education. When we look at insurance, only a little over two per cent have access to it.” It means a major chunk of a new entrant or even an existing transformer’s efforts must go into educating people about the need for insurance and making the terms and conditions comprehensible and relevant to them. The other aspect of the challenge, says O’Connor, is ‘how do we ensure that we’re creating products that are suitable for the profile of individuals that operate here in Mexico today?’. Given the audience profile, Citibanamex believes it’s a smarter sell to offer entry level insurance at the point of need: a one-time car journey, for example, could be the baby step towards taking out broader P&C indemnity. There is another statistic that plays to this argument. While 50 per cent of the Mexican

population is unbanked and the insurance sector unorganised, the Ernst & Young (EY) Mexico Insurance Report 2018 suggests that almost 65.5 million people have access to the internet and 81 million use mobile phones. Of this, 76 per cent have smartphones. This offers a huge opportunity for global insurance companies to reach out to customers and provide communication and instructions about relevant insurance coverage and benefits through mobile apps.

A new CoDi of conduct This year, the country’s recently elected left-leaning government put its weight behind digital transactions by launching a pilot CoDi payment system. CoDi, which doesn't charge a processing fee and uses the existing SPEI payment rails, allows anyone with a mobile phone to scan a QR code with the transaction processed through the central bank. It’s hoped that by persuading merchants to adopt the system, millions of Mexicans will be coerced into opening a bank account, giving more people access to products such as loans, insurance or investments, the government has said. By the end of September, all six national banks, including Banamex, should be on board with it. CoDi could be a useful platform on which to offer bancassurance, which, according to EY analysts continues to see double-digit growth. Its study goes on to forecast that digital transformation and solutions will play a larger role in the country’s insurance market over the next 10 to 15 years. O’Connor adds: “One of the things I think financial institutions have thought a lot around, including here at Citibanamex, is what should be our core capabilities? What do we need to ensure that we’re getting it right? I think one of the challenges we have, especially large-scale retail banks, is that we do everything across the spectrum, for all segments and for all products, and so the depth and width and breadth of what we need to try and do to get it right is huge. One of the things that partnership (with insurers) is enabling us to do is focus on what these core capabilities need to be, make sure we’re getting those right and

then use partnerships with fintechs and other companies to help create a more seamless experience for customers. “The biggest opportunity today is ensuring end-to-end servicing and transacting in digital, making the interaction with insurance products easy for customers,” she adds. “From visualising the policy to creating modifications as needed and in a contextualised fashion, and processing claims.” More than 90 per cent of Citibanamex’s digital customers are now using the bank’s mobile app. “We’re growing at three times the rate in mobile as we are on internet,” says O’Connor. “So mobile obviously gives us the means to be contextual. Knowing where the customer is and what they are doing offers a huge opportunity for insurance to deliver contextualised products through mobile.” Citibanamex’s exclusive and long-term partnership with Chubb, announced in June 2018, allows the second largest P&C and auto insurer in Mexico to offer a broad range of non-life insurance products to Citibanamex customers through multiple channels: branches as well as digital and direct marketing. Its insurance products extend across P&C, auto and to business, including corporate accident and health. “In its strategic alliance with Chubb, Citibanamex is starting to leverage a lot of what we’ve already done around banking products: how, for instance, we profile our customers using cookies, Facebook and Instagram, with the objective of finding new, tailored means to offer relevant products to customers that have been shown to garner their interest,” says O’Connor. “Then we use direct digital channels to ensure that we can create seamless experiences.” It brings her back to the challenges insurers have in the region: “To make sure customers understand what the products are, and how they can use and modify them, because, obviously, when you put the insurance product into use, that’s when the perceived value is greatest. “They are the experiences that we need to build out on mobile today.”

The depth and width and breadth of what we have to try and do to get it right is huge

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Unscrambling investment: The My Wealth app uses gamification to guide next gens


guide to ınvestment

The next generation wants experiences, not products and with Dorsum’s My Wealth app, that’s what they get, as Bálint Fischer, Head of Innovation, and Imre Rokob, Director of Business Development, set out to demonstrate Generations X and Y are on a fast march along the road to riches and it won’t be too long before Generation Z is hot on their heels.

Indeed, it is forecast that $32trillion of wealth will be transferred from Baby Boomers to Millennials (Generation Y) in the next decade, meaning that by 2030 almost half of global wealth will be shared between them and Gen X. Why should that induce anxiety among bankers and other wealth managers? Simple. This new model army of


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high-net-worth individuals (HNWIs) who make up the mass affluent market are digitally adept and have long been used to organising their lives and lifestyles quickly and easily online, placing their trust in products and services offered by big tech brands including Google, Amazon, Facebook and Apple as well as fintechs. And, as their prosperity grows and their savings burgeon, they’ll expect the same digital ease and convenience in managing their investments, possibly looking towards those same trusted brands to provide it

– which is not a comfortable thought for the incumbents in financial services. These new generations of digitally articulate, but often financially less literate, investors will demand continual, real-time market updates, analysis, background information and education to be available literally and instantly at their fingertips. Their investment choices are likely to be very different from their parents, too – a key driver being environmental, social and governance (ESG) issues, an aspect of the investment market that some experts

FACES OF FINTECH: WEALTHTECH while nearly 70 per cent of HNWIs use mobile or online banking, only 25 per cent of banks or wealth management firms use digital channels for their clients beyond email or phones. It’s all too clear that those wealth managers who ignore or are too slow to react to this fast-changing world run the very real risk of losing legions of new investors in a market that is projected to grow by 16 per cent by 2025. “That’s a challenge to be solved by the banks and the wealth management companies: how to digitise their advisory model,” says Rokob.

A hybrid plan

predict could determine where €31trillion of X and Y loot is directed. Meanwhile, the industry will ignore at its peril the demands of the rising ranks of women investors who have overtaken men in controlling the majority of personal wealth in the US where they now have decision-making power over $14trillion. A recent survey revealed that, across all markets, 69 per cent of women are motivated by responsible investment products. The gap between what the industry now offers and what it needs to offer is stark, says Bálint Fischer, head of innovation for Dorsum, one of the biggest players in the software for wealth management market. “It’s pretty difficult for banks to understand what their new type of investor requires,” he says. “On the one hand, firms are under cost pressure and margins are getting lower, but at the same time, there is a generational shift going on in wealth management,” adds Imre Rokob, Dorsum’s director of business development. Research by audit giant PwC shows that,

In the first of a two-part white paper published earlier this year, outlining its future vision of the market, Dorsum stresses the urgent need for the industry to grasp the digital nettle and build partnerships with erstwhile rivals to allow the pooling of development resources. A cornerstone of Dorsum’s philosophy is the need for the industry to develop a Cloud-based, hybrid (digital and human) investment services ecosystem that firms can use to meet individual clients’ needs – something its research showed was demanded by 80 per cent of potential investors and also tends to produce much better yields. Indeed, Dorsum believes each firm should have a ‘microarchitecture’ of hybrid services to deliver personalised experiences for its customers, with fewer one-size-fits-all products. It is demonstrating that in its new white-label app My Wealth, which is linked to the Dorsum Wealth Management Platform, it has been delivering to banks for a number of years. “My Wealth for mobile and web is a client-facing application that lies on the top of the Wealth Management Platform. The platform collects all the data from the backend systems of the banks and digests it to show different portfolio compositions, history, and so on,” explains Fischer. But it’s not as simple as just curating the numbers. “We work mostly with European banks and we have to understand what the key issues and local challenges are in each of those countries and each of the banks we serve,” says Rokob. “Putting those things

together, we are not just providing a wealth management or investment management software solution, but an entire wealth management ecosystem.” My Wealth, launched in June 2018, sets out to ‘bring investment closer to everyone’ with inbuilt wealth management and trading functions and a wealth reporting system, together with an Easy Invest function that provides a pathway for rookie investors: set your goal, set the amount, choose your risk, pick what you believe in, review and invest. It’s as easy as ABC for the XYZs. “What makes it very different is a new way of profiling clients, focussing on their unique circumstances, on their beliefs, and providing investment advice based on that – not just on risk/return time, horizon time, and the usual chartered financial analyst terminology,” says Fischer. In developing the app, Dorsum also had to address the knowledge deficit among this new generation of wheeler dealers. “Wealth management is a difficult domain and one of our key challenges was to make it very simple,” adds Fischer. “Our educational content explains what compound interest and dividend payments are, for example, why they are important and how to realise a return on different kinds of instruments. We do that by using gamification and other tools to educate the end clients of the banks we work for.” My Wealth won the 2019 Finovate Europe Best of Show Award for its ease of use, but it’s still a work in progress. “The second stage of the development is called the Communication Centre and it’s a way to easily push different kinds of notifications, campaigns and compliance-related information to the end client,” says Fischer. Dorsum, which began life as brokerage software provider firm in 1996, before moving into building investment software for wealth managers, believes the future is less about building new products and more about building advisory experiences for a new wave of investors who perceive the world through a smartphone and for whom the ‘experience’ is everything. With the handholding My Wealth app, experiential investing is just what Dorsum aims to deliver.

There is a generational shift going on in wealth management

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Digital, and mostly mobile-only, SME business accounts have become the new battleground for challenger banks in the UK. A customer segment that for so long felt it had to put up and shut up when it came to banking facilities is now on a slow but purposeful march away from the high street – taking its £1.9trillion turnover with it. Let’s not kid ourselves; there’s still a long way to go. The big five retain around three-quarters of the SME banking market, but the growth trajectory of new entrants is steep and competition to provide services as intuitive, fast, flexible and cheap to business customers as they are to personal account holders, is intense. According to Anne Boden, founder of Starling Bank, which launched its first business accounts in March 2018, app-based banking that doesn’t distinguish between work admin and life admin is the way to go. That was reflected in a recent Starling ad campaign, carrying the slogans ‘say hello to a work/life bank balance’ and ‘we always mix business with pleasure’. “It’s about your sole account, joint account and now your business account coming together in one app to give you a fantastic experience,” says Boden. “None of us live separated lives any longer; we don’t come to work and just do work, we don’t go home to do our personal banking. Life’s combined, it’s a balancing act all day long.” No one knows that better than Boden, who sold her house in Swansea to part-fund setting up a new ‘technology bank’ – Starling – in 2014 and has grown it to become the leading digital bank in the UK with 820,000 accounts in all, of which 65,000 are SMEs. “I know all about running a small business, as we were in 2014, and needing the sort of working capital management tools that you didn’t get from your bank. As a small business owner with Starling, you can have all your notifications directly to your phone. “I run my businesses on my smartphone. I use the Starling bank app to tell me when we pay our suppliers. No other bank will offer us that service. So, Starling uses Starling!” Initially aimed at sole traders, freelancers and single director limited companies, Starling is one of a number of challengers to have successfully bid for a share of the

As the boundaries between work and personal life dissolve, so too do those between business and private banking. You need a one-life approach, says Starling Bank Founder & CEO Anne Boden RBS-administered, post-financial crash bailout fund to enhance its business banking offer. Under the scheme, the UK Government insisted that of the $45billion that RBS received to pick it up off the floor in 2008, it would give away £700million to rivals to increase competition for business banking services over which the high street banks had held a monopoly for years. After receiving £100million from the fund in February 2019, Starling is making good on its promise to ‘reshape business banking’ by removing its account holding restrictions on multi-director companies, preparing to offer a euro account, and getting into small business loans as it strives to ‘build the best business account in the market’. There are others that would claim this prize. Established UK-based and exclusively business banking entity, Tide, for example, which recently introduced international bank account numbers (IBANs), using Saxo Bank, to offer crossborder transactions. Monzo, whose founders worked and met at Starling Bank, is now also looking to the SME market, particularly companies transacting crossborder, as is app-based Revolut. German bank N26, a new entrant on the British banking scene, which operates in 24 European countries, is to introduce business accounts for its UK customers soon. Meanwhile, legacy building society Nationwide is also about to open its first business banking facility as part of a £4.1billion digital transformation project, which also offers

SMEs a face-to-face relationship with their bank through its branches. There is no shortage of competitors, but Starling is confident it can match and improve on whatever they offer – even the high street contender, by creating a proxy national branch network using the 11,500 British Post Offices that Starling partnered with in November 2018 to allow customers to deposit and withdraw cash (still an essential banking service for millions of small retailers). And it’s launching a web portal to allow customers to easily switch between their mobile device and a computer to manage their accounts, which is a particular demand of businesses. That’s not to take anything away from Starling’s mobile apps for both iOS and Android phones, which fetched it the Best British Bank and Current Account Provider titles for the second consecutive year, as well as the Best Business Banking Provider title at the British Bank Awards in March this year. But you can’t always run a busy business exclusively from your mobile phone – however much you might want to. The changes it is making demonstrate a listening culture at Starling – the absence of which among traditional providers drove Boden to start the bank in the first place.

The rise of Starling The daughter of a steelworker, Boden studied computer science before going on to build a career among the banking giants, helping to launch the UK’s first same-day payment service, but all the while becoming increasingly frustrated with the status quo. Her ambition in 2014 was to transform banking through technology but starting with a blank sheet. The entire team (there are no departments at Starling) designed an intuitive, one-app-only service giving account holders spending insights, support in reaching savings targets, ease of payment and control over flexible overdrafts, as well as convenient personal finance.

None of us live separated lives any longer; we don’t come to work and just do work, we don’t go home to do our personal banking

Issue 13 | TheFintechMagazine


FACES OF FINTECH: BUSINESS BANKING Payment-related activity, such as clearing invoices, ATM withdrawals, direct debits or standing instructions, even income and receipts, are updated in real time, with notifications popping up on the smartphone screen, enabling quick analysis of spending behaviour. Starling charges no fees to open or own an account, to make domestic transfers or withdraw cash, or for making payments while travelling internationally. All of this contributed majorly to the rapid onboarding of more than half a million customers, with a huge retention rate. “Something like 70 to 80 per cent of customers that have used Starling are still using it today,” says Boden. “We have very high active rates, and a very engaged customer base, so we’re excited by the sorts of customers we have, the way they've used the product, and how they keep on using it.” The Starling business model is a three-legged stool: one leg supports intuitive, fast (and currently mostly free) banking facilities for account holders, another is all about building a marketplace of bolt-on services to enrich the offer,. The third provides financial stability for the bank by letting others use its Cloud-based banking platform and infrastructure, for a price. It has supply contracts with the Department of Work and Pensions and fellow fintechs including Raisin, Square, Soldo, and Currencycloud. One example was its deal in summer 2019 with SumUp, Europe’s leading mobile point of sale company, to provide small merchants with access to faster settlements. Starling’s Banking Services business gives the fintech’s merchants not only real-time access to faster payments, but simple integration with Starling’s secure and PSD2-compliant APIs and full bank grade accounts with a set of unique virtual accounts. It’s all based on proprietary technology. “We built our infrastructure from scratch,” says Boden. “I had spent a long time in traditional banking, serving very large

companies and small companies and individuals, and I knew that if we were going to build a bank, we’d have to have really new, exciting infrastructure that allowed businesses to grow the way they want. The Cloud offers security and resilience like no other infrastructure and the great thing is, it is infinitely scalable. “Alongside that, we have a full set of APIs, so customers big and small

Banking as a service is key to our strategy, where we enable governments, corporations or other fintechs to use our can interface with us and direct us to make infrastructure payments on their behalf.”


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Starling’s assumption from the get-go was that the API economy is good for business – and not just its own. It was the first bank to genuinely embrace APIs to deliver services, “because this gives flexibility; it enables businesses to build upon other businesses,” says Boden. “That’s why banking as a service is key to our own strategy, where we enable governments, corporations and other fintechs to use our infrastructure.” By June of this year, Starling business customers could integrate Xero and FreeAgent Accounting software as well as Zygo insurance services via the bank’s online marketplace.

“There’s a growing line-up of other smart financial products that can work in harmony with the Starling Bank app – that’s where our marketplace comes in,” says Boden. “You’ll have access to a wider financial ecosystem through your mobile phone, giving you more choice and control over your money.” It all adds up to a money revolution – which, incidentally, is the title of

A Money Revolution: Boden’s new book explores the changing face of FS

Boden’s latest book on the changing face of financial services. “The Money Revolution is really a handbook for people who live outside the fintech bubble, ordinary people who want the tools to manage their financial health,” says Boden. In it she returns to the theme of how technology is dissolving the boundaries between work and play, especially in the expanding freelance and gig economy. Every day, Starling releases new features in order to be the change it wants to see. Such velocity of development is central to the bank as it heads towards a target one million customers. “Technology is at our heart,” says Boden. “We’re all engineers here. We’re building an organisation that’s all about embracing the best tech in the world and delivering it to the benefit of customers.” n See Book Review, page 140.

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BANKING Chetwood Financial is shaking up the components of banking and putting them back together in a different order. COO Mark Jenkinson explains why

Mark Jenkinson is technically a banker. But his view of banks is that they are outmoded, slaves to a concept of financial services (FS) provision that is no longer desirable or even, perhaps, deliverable. Instead, he and co-founder of Chetwood Financial, Andy Mielczarek, set out to do something rather different: use a UK banking licence to build a new, modular concept of FS. Chetwood Financial’s products are aimed at very specific customer segments. Unlike many challengers, this bank doesn’t want to own the customer entirely, but to serve small chunks of them. It’s not even worried that you don’t recognise the brand: the product is the thing and positive reviews for both LiveLend and SmartSave are proving that customers tend to agree. Three years ago, Mielczarek gave up his job as deputy head of HSBC’s UK Retail Bank to become CEO of Chetwood Financial alongside Jenkinson, who had more than 25 years’ experience with financial tech giants, including Temenos and Capco as retail partner. With Mielczarek’s experience of high street banking and Jenkinson’s nose for disruption, Chetwood feels like a good


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example of a project led by people who’ve seen what not to do and are seeking to change things. Now backed by a sizeable war chest agreed with Elliott Advisors, its proposition is simple and compelling: ‘using technology to make people better off’. Its ambition is to be a pebble in the shoe of existing financial providers – distributing its products via digital money shops and aggregators. “We are taking a different approach to the traditional banking model of owning customers and customer relationships in order to cross sell,” says Jenkinson. “We’re very specific; we build products for certain segments – we look carefully at how we manufacture and design a great, innovative product for a certain target customer base. That’s different to saying ‘let’s go start a bank’. You can’t come knocking on our door and get a mortgage here, or a credit card or current account over there – the full suite of what banking tends to be. We don’t have that customer ownership; rather, we own the customer experience when they have one of our products. It was always going to be a technology-driven idea.” That’s not to say customers will not in future have more choice. Wherever Chetwood thinks there is a product that it can do a better job for customers profitably, it will. But it won’t serve all segments with one brand. That is the future, according to Jenkinson. “What technology is allowing is the modularisation of financial services. Things are breaking up in a way that means expertise is starting to happen in smaller and smaller pockets.

“If you’re leading a traditional bank and you own the customer at the front end, with the branch network and the data centre at the heart of it, that’s a lot of bandwidth to cope with. As a CEO, what are you? The CEO of a tech firm? The CEO of customer relationship banking? Or is it the balance sheet in the middle? It’s impossible to be an expert in all of those things.” Many of his partner’s former banking colleagues, struggling to reconcile changes in both technology and customer behaviour, might ask themselves the same. But Mielczarek’s and Jenkinson’s focus is clear. Take its first product, LiveLend Reward, a dynamic loan that, using data from ClearScore (which is also one of the product‘s distributors), rewards customers who improve their credit score over time by discounting the rate at which they have to repay. For every 25 points that their credit score increases, LiveLend reduces the personalised APR by two per cent. The concept and execution secured Chetwood the Best Loan Service Provider award at the 2019 World Banking Awards. Then came SmartSave. It was designed as a simpler way to save by offering a one-year, fixed-rate savings account for a minimum £10k investment that earns interest from day one. Each product has its own platform that can be accessed across multiple devices and the products are also distributed through partners. It’s the Cloud that has allowed Chetwood to differentiate its proposition,

Modular concept: Chetwood Financial is a product-led bank

says Jenkinson, helping it contain costs while giving it flexibility to scale. “We don’t want lots of fixed costs; we want the cost of creating our product to be totally variable through the stack and the Cloud allows us to do that. Importantly, it also allows us to scale at component type levels. You don’t need to say ‘here’s my big application and I need this much space for it’. Cloud computing is much more subtle than that and more cost effective.” Crucially, a Cloud-based platform means Chetwood can keep security investment at a manageable level while not comprising account integrity. “In the Cloud, we have the benefit of the might of people whose job it is to look

after that infrastructure and tools. The Cloud providers spend so much money on security – more than we could – because it’s their job. It doesn’t mean we’re complacent, it means that we’re all working collaboratively.” Chetwood’s core banking platform was built from scratch using only Cloud and open source technologies by Yobota, also

Technology is allowing the modularisation of financial services. Things are breaking up in a way that means expertise is starting to happen in smaller and smaller pockets

a new entrant to the financial services market in 2016 and with a similar vision. Its platform-as-a-service structure is well-suited to developing highly flexible financial products at low cost, featuring what’s described as ‘brutally digital’ onboarding. Its modular system is ‘built for business ideas’ – something Chetwood isn’t short of. Jenkinson says: “One of the things that will change in the medium term (and isn’t specific to banking) is how we interact with technology. The mobile has separated us from the keyboard in little over 10 years. How might we interface with technology in the future? Voice, touch, vision and sensory will all come into play. As for banking, it’s about using data to build better and better products – not just to sell or service them!”

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Wake upand smellthe coffee! 126

TheFintechMagazine | Issue 13

In June 2019, the most powerful commercial banker in the United States was quoted as saying: “We want a cashless society. We have more to gain than anybody from a pure operating costs [view].” The banker in question was Brian Moynihan, CEO of Bank of America. So, in the life of this Brian, getting rid of cash is seen as a pretty high priority. I genuinely appreciate his honesty, even if I cannot agree with his direction of travel in relation to the future of cash. To be fair, Bank of America has invested substantially in its ATM estate over the years and it has been innovative in improving ATM services. But Moynihan’s statement underlines a very important truth: that there are hugely powerful corporate entities that would benefit from the removal of cash from our payment choice menu. Of course, there is absolutely no chance of the United States going cashless, not least because having the US dollar as the world reserve currency is a crucial pillar of the economic success of the country. Dollar bank notes are arguably Uncle Sam’s most important export. Another good reason America won’t go cashless is that far more of the country’s ATMs are operated by independent deployers (IADs) than by banks – and the independents clearly have a strong interest in cash remaining a payment choice for all. The problem for cash arises where those who favour a cashless society are in control of the distribution channels for currency. Why wouldn’t they shut down those channels, if they are allowed to, when it so clearly suits their commercial interests to do so? ATMs are the primary channel for cash distribution in all of the world’s major economies. This is unsurprising because, although ATMs were first introduced to provide bank customers with out-of-hours access to cash, those banks swiftly realised the potential for the machines to free up counter staff from delivering cash during normal branch opening hours, too. The staff could then be deployed to sell the products and services that their employers believed would maximise enterprise profitability. So, ATMs saved banks money from the start – and still do, although not perhaps enough to suit every bank’s finance director.

Ron Delnevo, ATMIA’s Executive Director for Europe, fears the erosion of convenient access to cash will make the emergence of cashless societies a self-fulfilling prophecy… not a democratic choice Some countries, of course, actually have very few ATMs – Somalia only got its first ATM in the last five years or so – and lack of ATMs can lead to some very enterprising solutions to the problem of how members of the public are to get the cash they need and want. Take Bolivia, with a population of 11 million and only around 4,000 ATMs meeting its requirements. The same population in the UK would be served by 11,000 ATMs, even after a recent 10 per cent reduction in machine numbers. The under-supply of ATMs in Bolivia has at least stimulated much-needed innovation, though. Ogilvy Bolivia, a major advertising agency, is forming an ambitious fintech startup called Blink, whereby users can hail nearby taxi drivers to dispense cash in exchange for an app-generated code, redeemable for the amount, plus a small commission at an ATM. The idea has already won a gold innovation award from Latin American awards festival El Ojo de Iberoamérica and a fundraising contract from a fintech accelerator, all ahead of its planned October 2019 launch. I applaud the ingenuity although perhaps the Bolivia banks should really be increasing the number of ATMs they operate. In the end, the taxi drivers need to be able to use their codes at an ATM to get their cash refunded! As I mentioned earlier, the UK is much better off for ATMs than Bolivia. The UK needs a significant number of ATMs because of the massive amount of cash in use for all purposes. In the decade ending in 2017, the value of cash in circulation rose from slightly less than £40billion to around £69billion. That’s an increase of

more than 70 per cent! Oddly, despite the huge increase in cash in circulation, the UK’s LINK ATM Network started to report a decline in ATM transactions in 2017. This is surely not unconnected with the fact that UK banks closed around 2,000 ATMs that year. It may not only be Bank of America dreaming of a cashless society. Banks are removing ATMs in many markets, often seemingly anticipating a fall in demand for cash, rather than reflecting an actual fall. This kind of situation is known as a self-fulfilling prophesy – and this particular one is not helping efforts to maintain payment choice for every citizen. What needs to happen to ensure cash remains on the payment choice menu? Firstly, we need a commitment to give all citizens convenient, local access to cash. Banks and IADs will be required to work together to achieve this, with viable economic solutions established to ensure there are incentives to deploy ATMs. Such incentives can lead to smart ATMs in every community, with multiple transaction sets to replace those offered by now-closed bank branches. Secondly, cash distribution channels, which can supplement the service provided by ATMs, need to be explored. The Bolivian taxi solution may not be the answer everywhere, but it indicates the creativity required. Thirdly, cash needs to be recognised in every market as a payment method that must be accepted in any circumstance where in-person payments are permitted. In a number of markets, including several states in the USA, the acceptance of cash is already a legal requirement. This should be the case everywhere. Those who support payment choice may soon only be able to smell the coffee – because, without legislation, they could find their local barista refusing to accept cash so they can drink it! n You can hear Ron Delnevo and 40 other payment experts at the ATM & Payments Innovation Summit in Rome on 15-17 October 2019. See https://

Banks are removing ATMs, often seemingly anticipating a fall in demand for cash, rather than reflecting an actual fall

Issue 13 | TheFintechMagazine



Paris Fintech Forum IS BACK Ali Paterson, Editor-in-chief of The Fintech Magazine, interviews Laurent Nizri, Founder of Paris Fintech Forum

Paris Fintech Forum has established itself as one of the main global events of the sector in only a few years. In January, the 2019 edition confirmed this reputation, and the upcoming 5th edition is on track to do the same. Held over two days, on 28 and 29 January 2020, at the Palais Brongniart in Paris, the forum aims to gather, as usual, 2,700 attendees to listen to more than 250 international speakers, almost all CEOs from global financial institutions, regulators and, of course, fintechs from all over the world. Most of the participants come from outside of France, with 70-plus countries present. For two years in a row the event has sold out a week before opening. Laurent Nizri, is founder and CEO of Altéir Event, which organises the Paris Fintech Forum. We asked him what we should expect from this fifth edition.


TheFintechMagazine | Issue 13

THE FINTECH MAGAZINE: How would you describe Paris Fintech Forum to someone who hasn’t attended, and why is this event so unique? LAURENT NIZRI: Paris Fintech Forum is the most exclusive European event on digital finance in the fintech age. There is no other event gathering as many international CEOs from across the industry, both among the audience and on stage. Another thing that sets us apart is that we purposely limit our capacity to 2,700 attendees to leverage real networking in a club format. We are a kind of ‘Davos of digital finance’. We have no keynotes and all the speakers participate in strong addedvalue fireside chats and panels in order to debate and exchange opinions on the future of finance. We are used to receiving numerous ministers, governors of central banks and other regulators involved in the industry. As an example, last January, among our 280 speakers were Christine Lagarde, MD of the International Monetary Fund; Bruno Le Maire, French minister of the Economy and Finances and his Belgian, Lithuanian and Luxembourgian counterparts; Carlos Torres Vila, chairman of the BBVA group; François Villeroy de Galhau, governor of Banque de France; Ann Cairns, vice chair of Mastercard; Laurent Mignon, CEO of BPCE; Thomas Buberl, CEO of Axa; Gottfried Leibbrandt, CEO of SWIFT and,

of course, CEOs and founders of the main global fintechs such as N26, Nubank, Atom Bank, TransferWise, Kabbage, Starling Bank, Zopa, PayU, Trov, Ripple, R3, Airwallex, Younited Credit, Ledger, eToro and so many others. One more key characteristic of this event is that we gather people together from a diverse range of sectors in all verticals. Indeed, we have tracks and sessions on credit/alternative lending, payment and neo banks as well as insurtech, regtech, wealth management, blockchain and cryptocurrency. Lastly, a key purpose of the Forum is to foster business meetings between key players. With more than 150 exhibitors, eight thematic lounges for conducting business and many side events dedicated to networking (VIP lunches, parties, etc), our attendees get multiple opportunities to strike up new partnerships or imagine future collaborations. TFM: Last edition, 80 per cent of the 180 fintech CEOs on stage were not present the year before. What is your selection process? LN: To be honest, it gets harder and harder. In the last four years we have already had more than 800 unique speakers, including the vast majority of the key Fintechs’ CEOs, globally speaking. So, finding new top successful voices of the industry is not that easy!

EVENTS: PARIS FINTECH FORUM few names that are 100 per cent confirmed: Ralph Hamers, CEO of ING; Carlos Torres Vila, chairman of BBVA (Banco Bilbao Vizcaya Argentaria); Frédéric Oudéa, CEO of Société Générale; Hikmet Ersek, CEO of Western Union; Nikhil Rathi, CEO of London Stock Exchange; Valentin Stalf, CEO of N26; Kathryn Petralia, president of Kabbage; Brad Garlinghouse, CEO of Ripple; David Gurle, CEO of Symphony; Brandon Krieg, CEO of StashInvest… among many others. TFM: You are mixing fintechs and top-level incumbents on stage. But what happens backstage – any real deals? LN: Since our very first edition, we’ve promoted cooperation between incumbents and fintechs. There is competition, of course, but ‘coopetition’ is really the word here. New entrants mostly disrupted tech solutions providers (core banking, regtech, robo advisors, credit platforms, application programming interface (API) providers, blockchain solutions) more than banks or insurance firms themselves. But to get back to your question, yes, real deals definitely happen! We very often receive messages from our speakers and

We select fintechs that are the best representative players in their sector

TFM: You also have many speakers from incumbents – including key CEOs. How do you get them to join the debate? LN: We all have our secret recipes! However, what I can tell you is that when a company is already engaged in a real digital transformation, their leaders are quite easy to convince to come and share with the crowd their vision of the future. Of course, some financial institutions are quite late in that process, so you don’t really see their top leaders on stage. TFM: Any scoops you can share with us on the already confirmed speakers for next January? LN: We usually publish the first confirmed speakers list in mid-October, but here are a



attendees, telling us about business deals, investment discussions or partnership agreements during the Forum. We plan the event for that to happen: innovation and business lounges are organised with our partners to foster meetings and partnership propositions; dedicated networking apps help you to find the right match for your needs and organise meetings, and there are numerous networking spaces. Last but not least, 64 per cent of our attendees this year were CEOs, C-level executives and directors. They are the decision-makers, which is key to making real business happen! TFM: Who are the main partners to organise such a big international event? LN: Every year, we gather around 200 financial partners, including major sponsors, exhibitors and institutions. We purposely limit the number of platinum and gold sponsors to 16. This year, our platinum sponsors are Arkea, Banking Circle, BNP Paribas, Mastercard, Sopra Banking Software and Wirecard. Gold sponsors are Capgemini, Finance Innovation, Forter, IDnow, Mambu, Rapyd, Rise, Temenos, Tribe Payments and Western Union. It’s a very diverse mix. Then there are almost 150 exhibitors and many dedicated partnerships.

An event held over 2 days to foster real exchanges between major players from different ecosystems.

280 speakers

Mainly CEOs & Managing


2700 attendees










50+ exhibitors & partners

120+ Fintech booths

bank, insurance, finance & institutionals

Directors of Banks, Insurances, Regulators & more than 150 worldwide Fintechs from all sectors at various development stages.

5 stages Session

For 150+ exclusive panels, fireside chats & pitches.

04_ff-the-fintech-mag_visual1.indd 1


Networking &




Fintech & Tech

Organized with our partners to discover, learn, exchange, do business through showcases, meetups & 1 to 1.

rooms 2 workshop Dedicated to our partners thematic sessions.


VCs / investors & media

29% CEOs & founders


35% C-level & directors

C-level & top management



What we aim for at the Forum each year is a real expert selection to offer our participants an up-to-date and state-of-the-art vision of what fintech is in the different geographies and in all financial domains. We do not claim that we select the ‘best’ fintechs; rather, we choose those that, at the time of the Forum, are the best representative players in their sector, bringing real innovation and/or being at the centre of a strong commercial traction. As a result, we don’t have a lot of early-stage companies because one of the objectives of the Forum is to e nable partnership between historical players and new entrants. This is possible only for startups that have already successfully taken the first steps in their company journeys and are strong enough to face the unavoidable hazards and timelines accompanying collaboration with big groups. Our selection is a mix of international unicorns and a plethora of startups, sometimes less known to the general public, which apply to be on stage via our online platform. This year, we expect to exceed the 900 applications for the last edition. As of 1 September 2019, we have already received 400-plus and that call for speakers is ongoing until the end of October. You can find more details and apply directly by going to www.

18% Mngt. team

Speaker dinner

Gala dinner

Closing party

Issue 13 | TheFintechMagazine 131 10/09/2019 21:02


TFM: What will be the key subjects on the agenda this year? LN: With five content stages and two workshop rooms, we’ll have many subjects covered. Among them will be: the future of retail banking, artificial intelligence applied to the finance industry and digital identity being the basis of everything. Moreover, as a global ‘red thread’ for the event, we’ll focus on the North America/Europe areas of commonality and points of difference in financial services development. And, as usual, we’ll also be looking at the ‘different realities’ of fintech and finance industry cooperation. But there will also be some surprises this year. We will host a full one-day track on payments with all the key actors in the value chain. In addition, some of our partners, such as Mastercard, Visa and Dejamobile, will host dedicated workshop sessions on the subject. The Paytech Magazine [sister publication to The Fintech Magazine] will host a payment breakfast and, of course, we’ll have many specialised actors in that field in the different exhibition halls. Last but not least, we are pleased to welcome Paypal as our exclusive partner for our astonishing annual Gala Dinner. So, payment will be a key thread for the 2020 edition of the Forum.

TFM: This year, you also launched Paris Finance Week. Can you tell us more about that? LN: More than 3,000 people, 50 per cent of them coming from foreign countries, gather every year for two days at Paris Fintech Forum. With this in mind, we wanted to encourage the emergence of other events in Paris during the last week of January in order to give attendees the opportunity to discover more about the diversity of the European finance and technology ecosystem. The success of the first Paris Fintech Week, with just under 20 events running, encouraged us to grow in 2020. If you want to organise an event, contact us! During that week we’ll also organise our first Financial Services Hackathon and a new conference focussed on the tech behind the fintech. More information on that will be coming soon. Those new initiatives, added those run by our partners, will lead to a full week packed with conferences and networking in Paris… it’s time to save the dates!

Three months of international business meetings in two days


TheFintechMagazine | Issue 13

TFM: So, can you sum up why people should be in Paris in January? LN: There are three main reasons: to learn, to network and to do business.

LEARN With more than 130 panels, fireside chats and pitches, gathering mainly CEOs and chairpersons from the whole finance industry together, you will without doubt learn more about the future of finance in the digital era than you will anywhere else. NETWORK In the intimacy of the former French stock market exchange in the centre of Paris, everything will be done to enable you to meet and interact with other attendees and our astonishing speakers: through our lounges, dedicated apps and the many lunches, dinners and parties that go on around the Forum. DO BUSINESS Our partners and attendees come to do business together. Over two days you will mainly meet decision-makers from banks, insurance companies, regulators and investors, as well, of course, as countless fintechs from all over the world. Three months of international business meetings, packed into two days! And, of course, the opportunity to spend a few days in the heart of Paris is in itself a very good reason to join us! ■ The fifth edition of Paris Fintech Forum will take place on 28 & 29 January 2020 at the Palais Brongniart. You can find information and book tickets to the event via the website, And follow all its latest news on Twitter @ParisFinForum.


PARIS FINTECH FORUM 2020 MAIN THEMES ● Banking & personal finance: The future of retail banking

● North America v Europe: What future for financial services?

● Data: It’s everywhere, but how does the finance industry really use it?

● Fintech & finance coopetition: Is it real life or fairy tale?

● Alternative lending & credit: The end of the beginning… or the opposite?

● Banks, GAFAs & fintech: The real battle may now begin

● Artificial intelligence: AI applied to the finance industry

● Finance as a platform: Time to look for the results

● Regulation & regtech: From local to global issues

● The rise of tech in fintech: The most disrupted are not the ones we think

● Blockchain & crypto assets: What’s the industrial reality in finance?

● Financial inclusion: The real fintech subject

● Digital identity: The basis of everything

● Insurtech: The billion-dollar question

● Markets & wealth management in the digital age: There’s huge potential but why still small revolutions?

● Payments: The value chain revolution

Issue 13 | TheFintechMagazine


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Fewer unicorns, more zebras

In the wake of Libra, social entrepreneur David Hoghton-Carter believes it’s up to responsible fintechs to define a new era of progressive economics The fintech landscape is evolving fast. Many of us are developing, or looking at, new businesses and approaches, from apps that make small but worthwhile improvements to the customer experience to potentially game changing, big-picture ideas. If you want the potential for disruption, though, you can’t get much more dramatic than Libra, Facebook’s recently announced, blockchain-based finance platform. The trillion-dollar question is, ‘what will this tech mean for our shared world?’. One of the masters of the crypto landscape, Daniel Jeffries, has presented a detailed and cogent analysis of Libra’s strengths, how it will work, its canny approach, and why it poses such grave risks to all of us. He writes: “Panopticon money. Lack of control. Identities linked to

everything we do so that companies know where we live, where we shop, who we’re sleeping with, who we’re friends with and more. They can track our digital and real life right down to the nanosecond. And they can see through your wallet like Superman seeing through walls and into your past, present, and even into your future with predictive analytics. They will control the flow of money and make or break businesses, communities and geographies. And that is a disaster for the world.” And Libra will undoubtedly be joined by more like it, as Facebook’s competitors look for their slice of the pie. These platforms

look set to extra-territorialise and centralise money beyond democratic scrutiny. There’s a clear risk that accountability can be reduced to a mirage of personal choice. This would be the realisation of a shared nightmare: a dystopian approach to centralising power and control over the international flow of wealth under the guise of convenience and efficiency. The future of finance could be precision-engineered for pure profiteering and data control, enabling the wealthiest to sidestep any kind of responsibility to our shared society and deepening the inequalities of wealth and power, which are a defining crisis of our time.

Reality check: Unicorns might bring individual wealth, but ‘zebras' balance profit with their impact on society


TheFintechMagazine | Issue 13

But there are alternatives. We can build technologies that serve people, communities and society. For my part, I’m looking at an approach to linking community and complementary currencies into a globalised ecosystem. I’m branding this InTACC (International Trading Alliance for Community Currencies). The InTACC vision is to enable communities and local businesses to trade goods and services while firewalling communities against wealth extraction and the risks that come with currency speculation. InTACC will be an open, democratic and transparent keystone platform for an approach to commerce – one that puts people and communities first. There’s the potential to build an extra pillar of the global economy, one which can help to underpin a new era of socio-economic fairness and justice. This can and should be one solution among many approaches to progressive community-driven finance and commerce. Examples of positive projects globally already include the Credit Commons Collective and approaches to using Ethereum for good. The context for all of this is a powerful one. Writing back in 1925, Russian economist Nikolai Kondratiev suggested that innovation and development in new technologies follows a wave pattern. A new innovation is realised, adopted and gains dominance in the global economy, driving a phase of high growth. Then the internal contradictions it embodies contribute to an economic crash and a phase of low growth. Looking at correlating events, it’s possible to see these waves contributing to ever-more dramatic political and social impacts on our economy, society and our environment. Money, where it comes from, how it flows, who ends up with it and what they do to keep it, often seems to be a crucial, practical element of how and why we innovate. And that means fintech ideas and approaches look more likely to affect how our society evolves in the century ahead. There’s a gravity, a sense of weight, to innovating at the balancing point of an entire civilisation. Futurist Alvin Toffler argued in his book

Future Shock that the overwhelming pace of change can prevent people from understanding the impacts that new technologies can have until Pandora’s Box has been opened. There’s the risk that we don’t see the negatives until they’re upon us, and then there’s too overwhelming a sense of powerlessness and bewilderment to take corrective action; too many competing demands, new ideas and the human factor, all at play in a dynamic system. The inequalities we face today are driven by the consequences of prior waves of innovation and entrenched by ‘future shock’. Baleful approaches to capital flow and appropriation have been putting the gains made in the democratic era at risk, not least from the tech-orientated financial products that drove the 2008 financial crash. And now we’re seeing the social impacts of data technologies on patterns of power and control, upon our privacy and human rights. If we fail to address this challenge in how we innovate for the future, Kondratiev’s sixth wave could break upon us hard and do damage to our shared society, which we might have a hard time fixing. All of this imposes a duty upon the fintech industry to understand the context we inhabit, to learn from both the positives and negatives in the history of innovation and lead by example. So, the essential question that any fintech business needs to answer, for itself and for society, is this: who do you serve, and why? There are two big-picture answers here. Option one is that we serve those few who want to hoard wealth as far away from communities as possible for their own power and benefit, at the great expense of everyone else. We create the tools and systems that enable them to do so, and enable deeper monopolisation, centralisation and oligarchy. Option two is that we serve our shared society, helping to ensure that everyone has access to the resources and assets they need to prosper. We create the tools and systems that support communities, localised businesses, non-profits and the ordinary citizen, and enable

The essential question that any fintech business needs to answer, for itself and for society, is: who do you serve, and why?

collaboration, cooperation, decentralisation and democracy. I believe, deeply, that the developing phase of fintechs can be at the forefront of progressive leadership. There’s a lot of potential to help shift the needle; to help solve the inequality issue by creating new structural approaches to how money works, moves and is used. Sometimes, though, it’s not easy to see what effect a new tool or system can have. The passion for a new idea and drive to bring it to market can mean we sideline analysing its deeper impacts. It takes a lot of thinking through, often from a more ethically detailed perspective than seems intuitive or necessary. It requires strategic and detailed future-scoping. And that, in turn, might take the product in a new direction or inspire a principled decision to keep it in-house as its user base expands – out of the ownership of those who might use it to exploit and control those users. For many fintechs, the goal is to be a ‘unicorn’. Develop a product that creates a commercial efficiency. Gain that seven-figure-plus valuation. Sell your product on to one of the big players and pocket the cash. Shrug off responsibility when said product is used to help reinforce market dominance or hit the vulnerable in their wallets. Serve profit and control, monopolisation and centralisation. But there’s a different model. So-called ‘zebra’ projects aim to balance purpose and profit, embracing their impact on society, trying to understand what that means. Looking to decentralisation, collaboration and cooperation to build a business for the long term, one that remains a part of a vibrant, open and diverse marketplace, providing the economic foundations of a vibrant, open and diverse world. So, let’s have more zebras. Build and use new technologies in ways that oppose deeper monopolisation. Be the change we want to drive. Take a positive lead. David Hoghton-Carter is currently seeking a cofounder to help develop InTACC. Prerequisites include exceptional software development skills, a genuine passion for democracy and decentralisation, and an eye for real innovation. If that sounds like you, or someone you know, you can contact David via LinkedIn.



LAST WORDS: BOOK REVIEW Time for a change: Power to the apps

Up the revolution!

Digital banking trailblazer Anne Boden’s new book is a rallying cry to the common people – the ordinary account holders, modest savers and amateur speculators – to ‘pick up your apps and march!’. Alastair Paterson joins them

It may have borrowed its distinctive brand colour of teal for the jacket, but Anne Boden’s new book The Money Revolution: Easy Ways To Manage Your Finances In A Digital World is not an advert for her Starling Bank (well, not overtly). Instead, it’s an examination of some of the most exciting companies in the wonderful world of fintech, and how they can affect (wait for it)… people outside the M25. The topic of financial inclusion is a broad one. In years gone by, the only option for opening a bank account was walking into a branch on the high street. Starling and others have changed that emphatically and forever, but what about other aspects of financial services? Where can you get a mortgage if not from your high street bank? Where can those lucky enough to have cash to invest find something other than a higher interest bank account advertised on ITV? If you are holding this magazine, chances are that you are aware of the hundreds of fintech firms, all tackling the variety of needs in the market, both directly and indirectly; but for the intended audience of The Money Revolution, that’s not the case.

Ordinary consumers’ lack of awareness could restrict their choices of what’s available. What this book aims to do is highlight that, for every need a consumer has out there – the desire to check their credit score, borrow money, pay off a mortgage, insure a new car or simply keep on top of day-to-day expenditure – there will undoubtedly be an organisation offering an alternative to the default. Boden left the high street to look at the banking industry with fresh eyes, and cut out the ‘cumbersome, legacy systems and inbuilt bureaucracy’. It was around the time of the start of mass smartphone adoption (while everyone was trying to reinstate the exact same model of the established business of finance that had led to the crash seven years earlier). She set up Starling in 2014 and it went on to establish a number of firsts: first challenger to connect to the UK’s Faster Payments system; the first to join the Current Account Switch Service; the first to launch a banking-as-a-platform offer… the first mobile bank in the UK. The way we handle our finances is changing all the time; in 2007, the thought

Ordinary consumers’ lack of awareness could restrict their choices of what’s available


TheFintechMagazine | Issue 13

of the mobile phone as the main channel for customers’ financial transactions prompted the same sort of reaction as the concept of decentralised finance today. And look how far the former has come! So, Boden isn’t content with enlightening her audience on how our finances are, generally speaking, handled now; she also looks at ways in which they might be handled tomorrow – through ecosystems and partnerships. Her main message is: “We are at the beginning of a revolution in the way we save, spend and manage our cash. Let’s make the most of it.” I’m with Boden – are you?

The Money Revolution: Easy Ways To Manage Your Finances In A Digital World by Anne Boden is published by Kogan and is available in print and Kindle format. Great for: Digital finance newbies Best read: If you don’t know your Wally from your Acorns Good read rating: ★★★★★

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Fintech Finance presents: The Fintech Magazine Issue 13  

Fintech Finance presents: The Fintech Magazine Issue 13

Fintech Finance presents: The Fintech Magazine Issue 13  

Fintech Finance presents: The Fintech Magazine Issue 13