Fintech Finance presents: The Fintech Magazine Issue 14 by Fintech Finance

MAGAZINE

ISSUE 14

THE

FINTECH Biometric ATMs

Keeping it human

Allen International’s phygital forecast

Go (mid) West!

RBR asks: Are they worth it?

Air we go!

SmartStream debuts its AI ‘gamechanger’

Why fintechs are flocking to Ohio

HOPE AND GLORY

MAKING ‘THE BRANCH’ GREAT AGAIN PLUS INSIGHTS FROM Royal Bank of Canada ● Cennox ● Monese ● Bold Pengiun ● Quadient JPMorgan Chase ● Recognise ● SafeChain ● Banking Circle ● European Banking Authority

250+

CEO speakers

160+

fintechs on stage

70+

countries

2600+ attendees

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networking

Get ready for the 5th Edition!

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CONTENTS

PHYGITAL 6

Banking, but not as we know it... Mike Bielamowicz, Chief Marketing Officer of cash automation technology provider Glory, predicts the future of worldwide branch services

13 Root-&-branch reform As high street closures peak, Cennox is taking on the challenge of branch transformation

16 Signs of life A fresh focus on value-added customer service is seeing a dramatic rebirth of branch banking, according to Allen International

18 Are we there yet? Biometric ATMs are gaining ground, but are they a worthwhile investment? asks strategic research company RBR

DATA & AI 20 Taming the beast How SmartStream’s new AI tool takes the bite out of onerous banking systems, making hulking data troves work better for FIs

THEFINTECHVIEW

2019

ISSUE #14

I very, very rarely carry cash, either in the UK or on my travels around the world. My Mum, on the other hand, is an example of people – from the older generations or different geographies – who still prefer to use cash. And if you own a restaurant, a hairdresser’s, or run a market stall, you want to be able to give your customer the option to use cash... even if you don’t do so yourself! This edition is all about the small and medium-sized enterprises, the ‘mom-and-pop’ shops as they’re known in the US, that want to be able to give their customers choice. And, given that includes being able to use cash, they need a way to deposit it and secure change to hand back. In this issue we look at the future shape of branches, point of sale developments and new banks entering the field to help service the backbone of any economy – SMEs.

We also have highlights from the biggest Sibos ever – in London – as well as a big ’ole section on Ohio and the North American market. The increasing shift to personalised service is another major focus... might sound easy to offer for a handful of customers, but we share insights into using data and tech to do it at scale! Did you recognise our last ‘spine tingler’? Who lives, who dies, who tells your story? is from the musical Hamilton, based on the life of Alexander Hamilton, founder of what became BNY Mellon.

22 Digital banking with a human heart Royal Bank of Canada is using technology to strengthen and personalise its relationship with customers – with impressive results

24 Driving change Personetics helps banks put their customers at the wheel of personal financial management. In doing so, it’s also moving the banks’ business up a gear

SIBOS 2019 REVIEW 26 Zoning into a brave new world Sibos 2019 took place at ExCeL London, the city’s mammoth conference and exhibition centre, in late September. The event saw the world’s banking and fintech communities collide in the Discover Zone with collaboration in mind. James Tall captured the action…

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13 Issue 14 | TheFintechMagazine

INSTANT LIQUIDITY, POSITIVE CASH FLOW

Bank on us

Improve access to liquidity, shorten settlement cycles and add more value for your clients. Bank on advanced payments. Bank on cash flow.

THE NETWORK FOR GLOBAL COMMERCE bankingcircle.com

CONTENTS

46 50

53 43

41 Leading the (Columbus) way

REGTECH 30 Coming on strong Why the European Banking Authority believes early adopters of strong customer authentication will have the advantage

LOCATIONS: OHIO

LOCATIONS: ABU DHABI 43 All about the customers Innovation ecosystem builder Unbound spoke to four unicorns at the FinTech Abu Dhabi 2019 Festival to discover their recipes for success

32 Bucking the trend Ohio is one of the best-connected places for success-hungry fintechs to set up home – and JobsOhio is helping them do just that

INSIGHTS

35 A joined-up approach How the mid-western American state has accelerated ID-Pal’s success

Brett King, host of the Breaking Banks podcast, Founder of disruptive American ‘bank of the future’ Moven, and author of Bank 4.0 is thinking the unthinkable… again

THE PARIS FINTECH FORUM 56 Paris Fintech Forum is back! Europe’s unique show returns for the sixth edition. Check out who and what you can expect to see in 2020

BUSINESS BANKING 60 Rebel with a cause

46 How to land a digital punch Sonia Wedrychowicz, digital transformation practitioner and thought leader, applies the rules of martial arts to bank transformation

37 Hive of industry SafeChain’s DLT-based real estate transaction processing system is an example of Ohio’s appetite for ‘rolling up sleeves’ to tackle tough problems

53 Breaking good

JPMorgan Chase and Otterbein University show the value to partnership to both the community and innovation

Mobile bank Monese built a reputation as a fintech disruptor from the get-go. Now, it’s turning its revolutionary zeal on the SME market

62 Back to the future How new bank Recognise will use cutting-edge technology to deliver the ‘old-fashioned’ human touch

50 Taking it personally

39 P-p-picking up pace Bold Penguin describes how the fintech is speeding up commercial insurance in a state that's home to many of America’s major carriers

True service is about caring enough to change lives, says customer experience specialist, Quadient

65 Showing the love for SMEs Banking Circle looks at the challenges and opportunities ahead for SME payment providers, and their vital role in financial inclusion

THEFINTECHMAGAZINE2019 EXECUTIVE EDITOR Ali Paterson EDITOR Tracy Fletcher ART DIRECTOR Chris Swales ONLINE EDITOR YASH HIRANI

PHOTOGRAPHER Jordan “Dusty” Drew SALES James Butcher Chloe Butler Tom Dickinson Shaun Routledge

VIDEO TEAM Douglas Mackenzie Lea Jakobiak Shaun Routledge Lewis Averillo-Singh Classic Dom Beasley Laimis Bilys

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

ISSUE #14

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Issue 14 | TheFintechMagazine

PHYGITAL

Banking, but not Mike Bielamowicz, Chief Marketing Officer of cash automation technology provider Glory, predicts the future of worldwide branch services Branch banking is undergoing perhaps its greatest-ever period of evolution, as financial institutions (FIs) seek to manage costs while searching for the sweet spot between digital and face-to-face experience that’s essential to attract and retain customers. Glory is at the forefront of this drive, providing everything from customer experience consultancy to design solutions, and the technology that brings the two together. Despite his busy travel schedule, meeting banking customers around the world, we caught up with chief marketing officer Mike Bielamowicz to hear his perspective. “Things are unsettled in branch banking at the moment. Traditional FIs know, intuitively, that branches are important to their businesses – as attractors, confidence builders or servicing points. But there’s a real challenge in balancing service delivery cost and customer experience, particularly compared to low-cost channels like mobile,” says Bielamowicz. “They still see the need for real people to deliver the right experience for more complex or sensitive financial matters. And they still need to have a physical location, or physical system, to deliver media like cash, cheques and documents, so they’re very much focussed on ways to optimise branch networks, which represent their highest operating cost. The risk, however, is that any kind of adjustment in physical locations means giving up something. Service capacity or brand visibility, for example.” These shared challenges play out in subtly different ways, in different geographies. “In the most mature markets, including most of Europe, the natural direction for optimisation is to reduce locations, size of locations or staff. This isn’t because of

TheFintechMagazine | Issue 14

the rise of digital-only banks, it’s about adjusting to the shift in customer behaviour towards the most convenient, ‘good enough’ experience for getting whatever they want. This is generating some interesting experiments in outsourcing service locations and managed services and, for the public, creating quite a lot of angst about access to banking services. “In huge markets like the United States, banks are reducing locations in some areas while adding new ones in others, because there still isn’t a single, truly national bank that operates across all 50 states, and banks are all fighting for the same customers. The new branches they’re opening have a different, advisorfocussed operating model, based around securing new customers or expanding existing relationships, with something that makes them look or feel unique. In the US, brand matters more than ever.

Banks that focus on their customers can strongly differentiate their brand and build a kind of service fortress around them “In Asia, Africa and Latin America, there’s just a growing demand for banking services. They’re in a phase of service point expansion of all kinds: mobile, ATM and branch. Able to avoid the legacy costs of the past, they’re building very efficient service networks from the ground up, around customer needs.

The purpose of branches “The fundamental question is ‘who still uses branches?’. By sheer transaction volume, consumers still make up the majority of branch visits, but they’re visiting less

often and, when they come, they’re bringing complex problems or transactions, on average three to four times a year. “What’s interesting, though, is that small and medium-sized enterprise (SME) customers are still coming to branches three or four times a week. They’ve got to make their deposits and get change to run their businesses. When you add together these two main use cases, you get a really interesting problem because, while around half of consumer transactions have left branches over the past 10 years to go to mobile or self-service channels, the transactions that still happen in the branch take twice as long and require more thought because they’re always complex, and the SME transactions are already long, and, arguably, low value. “Add to that consumer expectations of immediate gratification, and you have to totally rethink the service delivery process in branches. You’ve got to greet the customer instantly, entertain them while they wait, spectacularly serve them, and do all that across longer service hours, while somehow differentiating yourself from any number of other experiences, including the appealing digital bank alternatives. It’s quite a challenge.” Against this backdrop, banks are waking up to the hidden worth of those time-draining SME customers. “These guys are the lifeblood of the economy. They represent the largest employer group, create the most middle-class wealth, and probably most upper middle-class wealth. They have a particular need for banking services, especially deposit services that keep their limited revenue flowing back into their business to be reused, and the change services they need daily. Between that and regular, professional advice about things like managing cashflow, they need tellers, bankers or practical, accessible alternatives to both. www.fintech.finance

as we know it...

Branch of the future: Same services, done differently, with customers at the core

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Issue 14 | TheFintechMagazine

CONNECTED CUSTOMER EXPERIENCES

Bernhard Kristinn Photography

www.allen-international.com

PHYGITAL “SMEs have been left out of the conversation as nothing but a cost centre, but today banks are recognising that they are really valuable customers and they need to find smart, cost-effective ways to serve them. “There are lots of choices for deposit automation now, not just over the counter but through self-service or assisted-service devices. From a simple bag drop with deposit evidence to a receipt, or even direct real-time deposits through dedicated service equipment, these modern systems can create a real-time deposit credit for loose cash or cheques and do change automation, so that the SME customer can replenish their till with change – in many cases, 24-hours a day. That doesn’t necessarily help the small business in the small town where the last branch just closed, but it can be supported in other ways, through shared services with, for example, the UK Post Office or machines on business premises.”

to have, to being essential to how these new branches operate. They’re also starting to add peripheral technologies to address special needs, like multicurrency or coin counting, at both staff and self-service positions. “As banks try to shift away from transaction models towards advisory ones, we’re also seeing deployment of a class of self-service systems we call assisted self-service, a kind of hyper ATM that can handle more transaction types than a traditional, multifunction ATM. These allow for traditional ATM service delivery rules around cash limits and cheque processing to be overridden, with special software signalling staff to assist customers when a transaction is particularly complex, or physical identity verification is needed, or the customer decides they want human help.”

A shift of power These are examples of a dramatic shift in the typical branch vision “Fifteen years ago, consultants were talking about reengineering branch networks around hub and spoke models, to improve logistics by offering transaction services on the edges of these hubs, then, coming in from the edge, having branches with slightly more services like advisors, then, moving in a bit more, full-service branches that support businesses as well. “The idea was ‘we’re going to create an efficient branch model by forcing our customers to adapt’. It was a totally logistics-based operating efficiency model and had nothing to do with customers at all. Then, 2008 happened and, while banks hunkered down and tried to survive, everybody bought a smartphone. Almost overnight, the world changed and consumers realised they could reset their expectations of service, and we entered this world of immediate gratification where we expect our needs to be met instantly, on any channel, but the banks were slow to recognise that shift. “They’re now realising that competition’s different and they have to find a way to deliver all the services that branch customers want, through smart reengineering. They’re automating the non-value add part of face-to-face transactions and automation of physical media handling has gone from a nice www.fintech.finance

Looking ahead: New ways of processing cash will be critical

And this is where Glory’s cutting-edge TellerInfinityTM comes into its own. This smart system, which Bielamowicz describes as ‘the most advanced solution of its kind in the marketplace’, can automate tasks while identifying where human intervention is needed, because ‘banks that equip their branch and properly train their staff to focus on their customers can strongly differentiate their brand and build a kind of service fortress around their customers’. And facilitating such innovation is Glory’s reason for being. This 100-year-old Japanese company, with its international business headquartered in the UK, provides the catalyst to transform bank branches, retail stores, cash centres and casinos, eliminating manual cash processes to release staff time and space to focus on the customer experience. So, where is the perfect crossover between the human and the digital? “Customers will gravitate to the most

convenient channel that meets their requirement. If they can achieve success on a mobile app, they will, and we should drive the customer to the mobile app or self-service whenever that can really meet their need. “But there are two cases where we’ll continue to need banking staff involved. One is all about the bank, and its regulatory, insurance and financial control. We must manage know your customer (KYC), anti-money laundering fraud and other risk, and there are limits to the kinds of transactions we can safely, securely, legally do through automated channels. “The second case is what we call confidence and trust, which is all about the customer. There is a lot more complexity than the average person realises in their own family’s financial system, where accounts are intertwined, for example, and it’s hard for automated systems to manage this. And, of course, on the customer side, we all occasionally want someone to give us reassurance that we’re doing the right thing. The bigger the transaction, the more momentous the financial decision, the more likely it is that I’ll still want someone to hold my hand and I don’t want that person to be a robot.”

Finding the perfect balance So, how do banks successfully blend physical and digital? “Deloitte has created an interesting transformation model looking at change adaptation in three dimensions. Firstly, the work: what work can you automate, such as repetitive tasks with standard outcomes? Second is the worker. If we automate certain work, what skills do we need to fit customers’ needs? Those needs have changed. Simple teller transactions have left the branch, with the exception of SME and complex cases. So, we’ve got to adapt and retrain the workers to different priorities. The third dimension is the actual workplace: how do you transform branches to deliver the experience customers want? They’re coming for different reasons, they want the space to reflect those and the staff to be ready. “When you simplify and automate what you can in stage one, worker and workplace become focussed again on the customer, and it becomes obvious how your branch network should work because you know who you’re serving.” Issue 14 | TheFintechMagazine

PHYGITAL And here, too, Glory is seeking to innovate. “Understanding the new demands for branches starts with asking who uses them, how you can help them, and who you want coming to your branches. For example, SME customers come in not because they want to, but because they have to, to deposit money and get change to run their businesses. Less frequently, they want advice or to set up a credit facility. But a lot of those services can be delivered through automation, at the branch or the workplace. We’re deploying more and more of our CASHINFINITYTM solutions in the SMEs’ premises. CASHINFINITY could be viewed as a kind of commercial services ATM that lets customers deposit their revenue, as many times a day as they want, get that posted to their account and then, eventually, a cash in transit provider (CIT) will come and pick up the cash. “As more of these get deployed, really interesting changes start to happen. Banks start to see SME customers’ locations as potential transaction points for them – their store can become a kind of virtual ATM. We have just invested in a Singaporean company called SOCASH and another in Germany called CPS (known as Barzahlen), and we’re turning stores into transaction centres for banks and others – virtual ATMs, bill payment centres and on-ramps for underbanked people to join the digital economy. With the Barzahlen solution, I can walk in with cash and buy credit on Amazon, or PlayStation points. It’s an example of where the relationship becomes not just a banking one, but a partnership with holistic benefit for the consumer, the SME and the bank. A lot of our thinking is about how we can drive new kinds of communities through the products we offer. That’s what excites us, making the whole system more efficient and creating value for everybody.” And this could give rise to a new kind of democratisation, through partnership, which is less about the physical spaces banks operate in. “Digital banks, unlike traditional ones, are still mostly offering simple products, or partnering with others, like ATM networks, wherever there’s a desire for more complex products. They’re not trying to be all things to all people. “FIs need to understand which customers they want to serve, then work relentlessly to meet that customer group’s needs so

TheFintechMagazine | Issue 14

that they recognise ‘that’s the bank that’s all about me’, ‘that’s the bank that protects my data, and doesn’t use or sell it’, ‘that bank works to maximise my assets and minimise the costs and demands of my financial life’. Once the bank gets there, every other core banking service, from cash dispensing to full transaction services and certain kinds of loan products, can be outsourced or delivered through alternative means. The core value proposition for a responsive bank becomes ‘we’re your financial partner for life. We’re in your pocket when you need us, we’re in person when you need to talk to us, and we support you everywhere for your transactional needs’. That’s how brands will be protected in an era of invisible retail banking, where providers operate through, for example, Post Office branches. But without that importance in making our lives work, banks disappear and become utilities.”

Changing needs: Tomorrow’s branch customer wants it f or different things

Cash is here to stay And that is as much a social issue as a banking one. “A significant percentage of our developed economy populations are unbanked or underbanked, lacking access to the financial and credit system. There are estimates that, in the United States, as much as 50 per cent of the population is underbanked, so we think that both there and in the UK, it’s going to be very important that we maintain access to cash for people who take cash in revenue. There’s inconvenience in that system now, because there’s a mismatch between the cash people pay and the cost of the goods they buy, which creates the problem of change. A business gets a whole bunch of cash paid in, that it can’t give in change, so it has to deposit that, to get new change, and when it deposits it, that cash goes

through a really long and expensive cash cycle to end up in an ATM so that the same customer can go to the ATM, take the cash out and give it back to me. This really inefficient system has allowed the card cartels to overcharge for their services, but it’s still cheaper to transact in cash, for a typical business. “It’s down to market economics and the fact that people have been willing to pay for card transactions. Fintechs and banks want to find ways to bypass that system and they’re getting a lot of help from regulators. Open banking blows up the traditional digital payer system and we’re starting to see adjustments. Suddenly, Mastercard is willing to pay the retailer if they do a cashback transaction. They’re finding ways to change their fee structures, because we’re all realising what these systems cost, not just the digital payments system but also the traditional cash cycle system where you’ve got $30billion a year going into the CIT (cash in transit) industry, to give people back the money they took out of the ATM last week. These systems want to be disrupted and a lot of that’s going to happen with these really smart digital technologies. “If I’ve got Uber to drive me to the airport, why don’t I use Uber to drive cash from where there’s too much to where they need cash? Why do I have an ATM to give out money, if the money I need is sitting in the cash register at the store around the corner? These are systems that are being reinvented by companies like SOCASH and Barzahlen. This isn’t imagination or potential, it’s happening right now. Glory, Prosegur and Loomis are investing in these companies because we see the change happening. “We can totally redesign the distribution networks without giving up brand. We change the service edge of the bank, we create new point-of-service locations, stay associated with that location, ensure the customer checks our banking app 10 times a day and knows we’re available to talk to, in person or over the phone, whenever they want. And all of this together blocks the GAFAs (Google, Amazon, Facebook and Apple) from disrupting the banking industry. Because they want the customer’s information to use it for themselves. “The banks are in a unique position to say ‘no, we protect your information. We only use it for you’. This is why banks will matter, 50 years from now.” www.fintech.finance

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PHYGITAL Digging deep: Cennox is helping banks address the phygital experience

Root-&-Branch Reform As high street closures peak, Cennox’s UK & Ireland Sales Director Guy Thorne explains how it’s taken on the challenge of branch transformation It’s been another bad year for the high street. Battered and bruised from more than a decade of online shopping and digital banking, it’s not surprising that more and more stores, chains and branches have stoically chosen to pack up shop, investing instead in their digital provisions and remote customer service channels. What is shocking, though, is the rate at which we’re seeing everyday services vanish across the UK. In September, research from Which? announced that a third of all UK bank branches had closed in just five years. Simultaneously, the UK’s largest ATM network operator, Link, reported that free-to-use ATMs are disappearing at a rate of 250 a month – many attached to those newly boarded-up bank branches. A bleak picture this may paint – but it’s composed of brush strokes dictated entirely by consumer preferences. A 2018 report by www.fintech.finance

UK Finance put the proportion of British adults using online banking at 70 per cent, while a huge survey from Smart Money People found that banking in-branch was the preferred method of banking for only 11 per cent of people in the UK. Against this backdrop, it’s difficult to imagine a more beleaguered business model than that which services and equips bank branches. But Cennox – the Global ATM specialist turned branch transformation expert – appears to be entirely bucking this trend, developing novel alternatives to the seeming irrelevance of the traditional, physical bank

Moving with the times Founded in 2004, UK-based Cennox has grown steadily in the decade-and-a-half

that it’s been in the ATM game, operating from offices based in 14 countries and serving customers in more than 100 nations across the world. Over the course of the last five years, the firm has evolved from being a leading ATM installation, maintenance and security provider, to offering a more comprehensive suite of branch site transformation services – including brand design, interior design and construction services. Adapting to a root-and-branch, end-to-end approach has been Cennox’s strategy to survive and thrive in a time when demand is falling for hardware and site planning. Instead of vainly fighting against the prevailing flow, Cennox has carved itself a bountiful, parallel revenue stream, adaptive to the rise of digital banking, as Thorne explains. “Cennox as a business – I suppose like banks and bank transformation – is evolving,” says Guy Thorne, the company’s UK and Ireland sales director. “In the last 18 months, we’ve made a number of key strategic acquisitions in the UK market to broaden our service offering to the banks, recognising that they’re going through quite a dramatic period of change. And we’re trying to evolve our service offerings to help and support what they’re trying to do.” Issue 14 | TheFintechMagazine

PHYGITAL Those service-broadening acquisitions have indeed come thick and fast over the past couple of years. In early 2018, it was Essex-based ATM installation and security experts Acketts that joined under the Cennox banner; more recently, in October of this year, Cennox acquired another UK-based ATM security firm, named Lockpoint. The latter acquisition brought Lockpoint’s innovative Gryphon Locking System – through which ATM robberies have been reduced in both frequency and impact – to Cennox’s global customer base. A regular feature on the front pages of local newspapers, ATM robbery attempts are on the rise across the UK. According to a report by Cardtronics, a UK-based ATM operator, attempts to steal from British ATMs rose from 400 in 2014 to 723 in 2017. The report noted a worrying rise in gas attacks – an explosion way to dislodge the ATM machine – 70 per cent of which take place on petrol station forecourts. Alarmingly, a fifth of all ATM robbery attempts worldwide take place in the UK. So, Cennox’s acquisitions have enabled the roll-out of a far more comprehensive portfolio of security solution innovations for its customers. “These acquisitions have been really well received by the market,” says Thorne. “Our customers see these Cennox partnerships as very complementary and useful, helping to build our security profile.” In the same vein, earlier this year, Cennox partnered with HSBC to pilot a new software to reduce costly ATM cash trapping. Trapping disrupts ATMs to make them appear out of use as the victim uses the machine – with the thief pocketing the uncollected cash once the customer has abandoned the transaction. The software saw a 50 per cent decrease in trapping losses, and an 80 per cent reduction in data disputes across 50 cash machines in central London. Thorne makes the point here that cybercrime evolves alongside digital security, requiring Cennox to devise different, dynamic solutions as quickly as possible to deal with new threats.

“Technology is ever-changing,” he says, “and we’re trying to secure our customer’s assets – in terms of what they’re trying to protect. I think the banks want to be empowered, they want to be able to make their own decisions, they want to change as quickly as they’re able to. We’re hoping that we’re seen as a viable choice to look at flexible options, and create that empowerment through different products and services.” In many cases, this means Cennox is one of the few firms to work on a meaningful synergy between digital and physical infrastructure – producing software to protect hardware, while protecting the hardware that distributes cash to consumers around the world.

Mi.Pass helps banks become more familiar with their customers, so the interaction is more engaging from the second they step into the store

TheFintechMagazine | Issue 14

Refocus: Cennox is adapting and innovating to thrive

Eye on the future

Perhaps the most exciting product in Cennox’s bulging portfolio operates precisely on the boundary of the physical and the digital. With an eye on the seamless bank branch experience that consumers seem keen to see arrive in their towns and villages, Cennox’s Mi.Pass uses a customer’s mobile or tablet to identify and verify them as they enter physical banking spaces – providing the ability for banks to detect, connect and communicate with consumers without queues and machines. As Thorne explains – and as Cennox has learned from its dealings with financial services providers – it’s all about satisfying those consumer expectations for

engagement and convenience in their physical and digital banking experiences. “Mi.Pass helps banks to become more familiar with their customers, so that the interaction is a lot more positive and engaging from the very second they step into the store. We’re trying to come up with some engaging technology that helps our customers deliver that more appealing, more customer-focussed service,” he says. Here, we’re offered an early glimpse of how bank branches might evolve to survive in a digital age – and an intriguing suggestion of Cennox’s potential role in servicing the next iteration of ATMs and branches that will enable that shift. Mi.Pass is one of the innovations that might create paperless, queueless and painless banking visits for the next generation of customers. It’s why Cennox has flourished from the self-described ‘global ATM specialist’ of the last decade, to a far more ambitious title: ‘the UK and Ireland’s leading multi-vendor, self-service and branch transformation solution providers’. Only a mouthful of a description can do justice to Cennox’s ambitious breadth – the aim of which, Thorne says, is to provide customers with a set of services through which they can adapt to the changes brought about by the digital age. Now, Cennox is focussed on the ‘art of the possible’; its ambitions, it seems, have mushroomed from merely securing cash withdrawal sites to project managing their wholesale renewal. Put another way, with safety and security adequately provided for, Cennox appears ready to dig its teeth into something a little more creative – helping banks envision, plan and execute conceptual redesigns to breathe new life into their remaining branches. At a time when experts remain divided on the feasibility of the cashless economy and the longevity of high street banking, Cennox offers a refreshing take on the digital age phenomena we’re witnessing around us. It has pinpointed the root cause of consumers turning away from branch visits: the experience. By reminding us that user experience means as much in the real world as it does online, the ATM security provider-come-all-in-one infrastructural innovator, maps out for us a clear path into a synergised banking experience: secure, streamlined and, most importantly, readily accessible in towns and villages across the UK, and indeed the world. www.fintech.finance

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PHYGITAL

Revival: A new appetite for financial advice could breathe life into bank branches

SIGNS OF LIFE

Do legacy banks need to fall into step with many of their challenger rivals by moving to an entirely branchless business model in an increasingly digital industry?

No way, says Richard Benson, creative managing director of global consultancy firm Allen International, which facilitates branch transformation from initial customer strategy through to design and digital solutions. He argues that human interaction must remain a key component of what will admittedly be super-high tech branches of the future. That view, of course, might seem to be something of a paradox in an omnichannel world where an ever-increasing majority of people go online for their day-to-day banking needs and traditional banks have responded with wholesale branch closures. Indeed, in the UK alone, according to Financial Conduct Authority figures, the number of branches has fallen from more than 20,000 in the late 1980s, to fewer than half that today, with the rate

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A fresh focus on value-added customer service is seeing a dramatic rebirth of branch banking, says Richard Benson of Allen International

South America to Europe and North America, and Asia as well. I think what we’re seeing is more organisations grappling with the role of the branch, and trialling different things, each with different nuances depending on their culture and needs.”

of closures accelerating since 2012 as banks respond to ever falling footfalls.

F2F on the rise

Dramatic evolution But Benson argues that times they are a-changing and, in an ever-more crowded marketplace, legacy banks, and others, are waking up to the fact that they need to better engage with their customers, which means radically altering what their branches offer, including where they are located and even what times they are open. “We’ve been working with banks and retailers for about 28 years, but in the last couple of years we’ve seen more transformation than ever around the world,” he says. “And it’s not just in one area. We’re seeing it all the way from

But the real kingpin among that transformation, according to Benson, is the realisation of the still-vital need for face-to-face contact. “As with all retail, we can do things much more conveniently ourselves online. We carry the brands in our pockets and we do it much more quickly through the mobile,” he says. “What we’re witnessing, though, is that people demand more advice and more rounded human interaction, and that’s what they are coming to the branches for. They can do their transactions, the kind of mundane banking, really efficiently online. But in this age of many channels that people can use, sometimes just speaking www.fintech.finance

to someone on the phone, or dealing with it directly on your phone, is not enough. Coming into the branch to get that one-to-one human interaction is what’s really important. “People are coming with more complex needs, with things that they don’t feel comfortable doing purely on the phone or on their mobile. These are the more emotional things connected to their money. People are managing it in a different way and wanting more face-to-face contact to help them do that,” he continues.

Tech as facilitator Meanwhile, banks also have to equip their branches with the latest digital technology for existing customers to use while also facilitating the frictionless onboarding of new customers using secure KYC (know your customer) software. Benson adds: “We’re pretty much now seeing the paperless branch in most locations we work in with the ability to authorise and sign into new products and services more efficiently. We’re using a lot more biometrics with our clients. We’re using tablet-based signatory. So, again, there’s no paper in the process. That makes it a lot faster. But it’s not about just coming into a physical location to use technology. What we have is well-trained people who have empathy and can actually assist you in that journey, as opposed to just directing you to a tablet or a machine.” As an example, Benson points to the work Allen International has done in Ireland with banking group AIB where, drawing from its retail experiences, it created a high-tech branch in a Dublin shopping centre. The branch featured a central, interactive table incorporating digital avatars in branded uniform to help guide customers through its online services, alongside staff who, all bar one, were recruited from technology and hospitality industry backgrounds. Benson adds: “The reactions we got from customers were amazing. And the fact that they perceived AIB as a much more innovative and friendly brand because we’re putting this technology in a way that is easier to use, was very, very important.” Allen International is continuing to work with its clients to study their branch operations and establish where they can be best located, including, perhaps, hitching onto the Post Office network. “Most of the larger banks have been www.fintech.finance

over-branched. They’ve been sitting with large networks and not really keeping pace with the change that’s happening with digital,” Benson claims. “It’ll be of no surprise to anyone to learn that a lot of banks could be right-sizing their network by reducing it. We’re working with legacy, established banks and also the newer ones to find out what the ideal footprint for them is and therefore where they should create the physical touch points if they’re not the primary channel of choice. And I say they’re not the primary channel because, if you look at the stats, most people are using digital first and mobile first, and the physical channel is now becoming the support channel to those conversations. “We’re seeing a lot more banks in other locations, borrowing other people’s networks. It’s all about having the right service in the right place: location, location, location.” The role of those bank branches is also changing in some markets, going some way towards democratising financial services. “One of the more progressive things that’s happening is people using bank branches beyond their banking needs, as are their communities and small and medium-sized enterprises (SMEs) which,

We’ve worked with banks and retailers for 28 years, but in the last couple we’ve seen more transformation than ever around the world for a long time, have been underserved by the banking industry,” says Benson. “SMEs and entrepreneurs using the branches more as workspaces, not always coming in with a prescriptive ‘I need to cash a cheque’ or ‘I need to withdraw money’ but asking broader questions about how their financial wellbeing can be helped.” To that end, Allen International has helped establish ‘entrepreneurs in residence’ at some branches, in some cases using video conferencing, to offer expert advice and education to business owners. “Coming to the branch and speaking with specialists, be it about investment

or management of their cash, they’re learning. The role of the branch is becoming more about education,” Benson says. To that end, Allen International has worked closely with the Bank of Ireland in Dublin, the home city of Allen’s parent company Accenture. What started out as a study to improve student banking morphed into a project to help support budding entrepreneurs when it quickly became evident that many graduates wanted to start their own businesses. Working with Dublin University, Allen International initially remodelled the Bank of Ireland’s campus branch to look as ‘Google-like’ as possible, including a digital wall where people could post information about their society, allowing it to quickly become part of the on-campus community. “We put in there tidbits about how students could manage their finances and financial wellbeing at university, but we started to also introduce this idea of starting a business.” That led to the creation of Workbench, a space for entrepreneur startups, at the bank’s flagship branch in Dublin city centre, offering free, high-speed Wi-Fi, on-hand advice from a business expert and the opportunity to take part in network seminars. Such was its success that the scheme was expanded to other branches, usually close to university campuses. Benson says: “It wasn’t done with a hidden agenda. It wasn’t about just gaining a new set of SME customers. It was a way for the brand to give something back to the local community, which in this instance was a lot of fintech startups in Dublin, which is a real hub for them.” That, in turn led to the creation of the Start Lab initiative. “The bank realised that it had a lot of businesses and startups that could do with more intense help,” says Benson. “There were just two locations for Start Lab initially, in Dublin, where they were given more intensive help from the bank to fund their businesses and to structure them. They’ve had their first graduates who have launched successful businesses and they’ve replicated the idea now in New York. And it all came from that original question of ‘how do we help our customers and, ultimately, their SME businesses, grow? It’s a marriage of the brand, the physical and the technology, which we’re really proud of.” Issue 14 | TheFintechMagazine

PHYGITAL

Are we there yet? Biometric ATMs are gaining ground, but are they a worthwhile investment? asks Laura Raus, Research Analyst for strategic research firm RBR The noise around biometric authentication is increasing, with many in financial services hailing it as a more secure alternative to traditional methods such as chip, pin, passwords and memorable information. This is because unique personal factors, from fingerprints to iris makeup, vein patterns and even tone of voice, are harder for fraudsters to steal or manipulate. As a result, and with secure customer authentication (SCA) requiring organisations to verify the identities of transacting customers more thoroughly, financial services organisations worldwide are starting to adopt biometrics for everything from call centre voice recognition technology, to scanners installed in branches to determine that those entering are who they say they are. Biometric ATMs are one example of the use cases for this technology, and use biometric measures – such as palm or finger vein prints, or iris recognition – to identify customers and allow them to withdraw cash. This can be the only method employed, or it can be used alongside another format, such as a payment card, mobile device or PIN. The industry is also waking up to the vulnerability of ATMs, in particular, to identification fraud such as card skimming (where criminals insert another device into the card reader to record the customer’s card details when they use the ATM) and shimming (a version of this

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where thieves copy a customer’s card chip information in order to clone it). At face value, biometric ATMs might seem the obvious solution for providers looking to stay one step ahead of these fraudsters, but, at the same time, they represent a significant investment. Nevertheless, RBR has found that the technology has started to gain wider ground recently, after years of being a niche product limited to just a few markets. Biometric authentication itself has become less expensive and is being introduced in various spheres of life as a secure and convenient alternative to passwords and PIN codes. As a result, banks are increasingly considering this technology for their cash machines.

No longer niche Among the major banks across the world to invest in biometric ATMs recently is Russian Sberbank, which piloted ATMs with facial recognition in 2017 and has now rolled them out at numerous branches. More generally, Sberbank is deploying biometric authentication in various banking processes and actively encourages its customers to submit their biometric data to its in-house database. Biometric ATMs have yet to become commonplace in Europe overall, but RBR’s research shows that 20 per cent of cash machines in Poland had biometric authentication at the end of 2018, while in Spain, CaixaBank announced the commercial launch of facial recognition at

Brazil: 90 per cent of ATMs

some of its machines in February 2019. Turning to Asia, biometric ATMs exist in a number of countries. Aside from Japan, where ATMs with Fujitsu’s palm vein readers have been used since 2004, Pakistan stands out, where almost a third of all ATMs used biometric authentication at the end of 2018. The use of biometrics is encouraged by the country’s central bank. In fact, it has required the biometric verification of all bank accounts to combat money laundering, although alternative authentication methods are allowed for some customers with unclear fingerprints, such as the elderly. In South America, many banks are interested in introducing biometric ATMs, having seen how receptive Brazilian customers are to such technology. Ninety per cent of ATMs in Brazil were biometric as of the end of 2018, with the technology first introduced at the country’s cash machines in 2006, in the form of palm vein readers. In Argentina, a number of banks have introduced biometric ATMs since Banco San Juan deployed the country’s first cash machine with fingerprint recognition in 2017. There were no biometric ATMs in North America at the end of 2018, but it was reported recently that Wells Fargo wants www.fintech.finance

Expanding reach: By the end of 2018, biometric ATM use was increasing across the globe, in some places more than others

Poland: 20 per cent of cash machines

Pakistan: almost a third of ATMs

Saudi Arabia: around a third of cash machines Nigeria: only one bank using biometrics

to implement palm print authentication at its cash machines. Biometric ATMs are rare in the Middle East and Africa region, but have gained ground in Saudi Arabia, where the regulator is advocating such technology. In 2017, Al-Rajhi Bank introduced fingerprint detection at some ATMs, and by late 2018, around a third of Saudi Arabia’s cash machines were biometric. In Nigeria, too, the regulator is supportive of biometric ATMs. It recommended the deployment of the technology in 2017, although, by the end of the following year, biometric ATMs were still used by only one bank and on a small scale.

Not immune to fraud While biometric authentication has several benefits, it can be problematic if not implemented properly. One example was India’s experience with the Aadhaar biometric identity system, which involves the issuance of ID numbers to people after collecting their demographic details and biometric data comprising of 10 fingerprints, two iris scans and a facial photograph. The Aadhaar project was launched a decade ago to make it easier to access government services, but it in fact barred some people from essential services and it has been subject to fraud. www.fintech.finance

Even though biometric authentication is generally more secure than passwords, biometric credentials can be stolen. As an example, cyber security company vpnMentor revealed in August 2019 that it had discovered a data leak in its web-based biometric security smart lock platform BioStar 2, which enabled access to more than one million fingerprint records and facial recognition information held by the platform’s clients. In 2016, cyber security firm Kaspersky Lab said it had discovered more than a dozen underground developers selling ‘biometric skimmers’ (devices for stealing scanned fingerprints). It has been demonstrated that even photos can be used to create fake biometric credentials. In 2016, specialists from the University of North Carolina

At face value, biometric ATMs might seem the obvious solution for providers looking to stay one step ahead of these fraudsters, but, at the same time, they represent a significant investment

showed how realistic 3D facial models can be created based on social media photos of the target to undermine the security of facial recognition systems. In 2018, it was reported that security researchers have found a way to bypass vein-based authentication by taking photos of vein patterns and building a wax hand model based on them.

Imminent risks low, but… Even though it has been proven that biometric security can be broken, criminals have so far shown little interest in breaching biometric ATM authentication. This could be because, for now, much easier ways to steal money exist – for example, many ATMs across the world are vulnerable owing to continued use of Windows XP, which no longer receives security updates. Interest in stealing biometric credentials is likely to increase, though, as more devices and systems start using this authentication form. And the potential damage is large, as a person cannot change biometric credentials the way a password can be changed if it has been breached. This is particularly problematic if the same biometric credentials are used for authentication, not only at ATMs but also in other systems. While it may be some time before the deployers of biometric ATMs face such problems in practice, these devices are still fairly expensive, which doesn’t make the decision to roll them out an easy one. Issue 14 | TheFintechMagazine

DATA & ARTIFICIAL INTELLIGENCE

Taming theBeast

Brought to heal: SmartStream has figured how to make ‘out of control’ bank data useful

Data, they say, is the new oil. Regarded as one of the most precious resources in efficiency-driving, back-office innovation, it similarly requires processing and refinement before reaching true industrial productivity. But if misused, corrupted or breached, data can be as wild and untamable as an slick edging towards a virgin shoreline. In this sense, the bulging databases of the world’s largest banks, fizzing with diverse datasets sourced from across our networked world, represent both unbridled opportunity and an unstable, frustrating impenetrability. A monster with an insatiable appetite, company data requires bringing to heal before it can produce the industry-changing results we’re witnessing across the financial industry. Data hygiene, then, is of crucial importance in extracting the value from the data stores of financial institutions. It’s a

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SmartStream’s Andreas Burner explains how AI takes the bite out of onerous banking systems, making hulking data troves work better for FIs fact that transaction lifecycle management (TLM) expert SmartStream has been aware of for years, having built transaction data reconciliation and exception management solutions into the core of its services since its foundation in 2000. In servicing more than 1,500 customers, including 70 of the world’s top 100 banks, SmartStream has enjoyed two decades of unparalleled access to the world’s financial data, emerging as a market leader trusted to sift through and align transaction data across institutions, currencies and geographies, with unrivalled speed and accuracy.

Cracking the code It was SmartStream that last year launched its ‘Innovation Lab’ in Vienna, publicly committing to investing 20 per cent of revenue back into research and development each year. Since then, a crack squad of mathematicians, data scientists and financial experts has been tinkering with artificial intelligence (AI) and machine learning (ML) in the belief that the next generation of reconciliations will be automated through algorithms that know how to think. Heading up the Vienna lab as SmartStream’s chief innovation officer, Andreas Burner bridges the financial and technical fields, having been around since the company’s inception, following his tenure at Vienna’s University of Technology. For Burner, the puzzle of automating reconciliations has always felt like a brain-teaser fit for advanced ML. “Reconciliation is like a Sudoku – a big Sudoku where somebody changed some www.fintech.finance

numbers,” Burner explains. “It’s very typical in a bank that there is a data problem, not because of the bank, but because of the brokers or other parties that delivered the data, and it’s not solvable because some amounts and reference numbers are different. Reconciliation is about solving such data problems just like a Sudoku, for which machine learning is a perfect tool.” Here’s where things get interesting. For all the fanfare surrounding AI and ML at this year’s Sibos conference – deafening, you’d have to say, for anyone wandering through the Excel Centre’s labyrinth of stalls – it’s difficult to pick out more than a handful of successful, easy-to-onboard use cases for this future-facing technology. For now, at least, the hype greatly exceeds AI’s application. That’s not to say the Sibos enthusiasm for AI and ML was in any way misplaced. Research from independent fintech research firm Autonomous NEXT forecasts the aggregate cost savings that AI can generate across the banking sector to reach an astounding $447billion by 2023. Forecasting the not-so-distant future, SmartStream’s CEO, Haytham Kaddoura, has stated simply: “I think there’s no way back: AI is going to be sewn into the fabric of every institution.” For Burner, whose focus on the application of working AI at SmartStream has been central to his innovation role, the current claims of AI integration in the financial market seem a little inflated. “Everybody is saying they have it, and if you look in the community, we see many presentations mentioning AI. Many people are doing prototypes, but it’s really difficult to get that into production,” he says. “But in the SmartStream innovation lab, we’ve been researching how we can use machine learning on reconciliations for 18 months now and, about a year ago, we figured out that it’s really working, which our beta customers confirmed.” And so it was that, across the three-day Sibos gathering, SmartStream was able to proudly reveal the fruits that in-house AI research and development can bring to bear. As the firm put it: reconciliations have met their match. Sibos saw the unveiling of the company’s brand new, lab-incubated product – SmartStream Air. The ML-enabled, Cloud-based solution has been hailed as a ‘game-changer’ by SmartStream, transforming the process of matching transaction data in order to www.fintech.finance

provide near-instantaneous reconciliations of any data structure across any bank. And, unlike the claims of some AI innovators, this announcement wasn’t just hot air: SmartStream’s new AI product is already in use at a number of Tier One banks, solving those Sudoku puzzles with a speed and efficiency that far outstrips SmartStream’s competition in the reconciliation software market. It’s also the first – and only – ML-enhanced product of its kind currently on the market.

A truly intelligent solution Typically, it can take a number of weeks to fully configure a vendor’s reconciliation tool – and, without ML and AI, there’ll still be cumbersome exceptions to manage, spurring further delays and requirements for human oversight. SmartStream Air is Cloud-based and designed to integrate into banks’ systems within seconds, and the intelligence of its algorithms doesn’t just spot errors – it actively categorises, delineates and learns from patterns within transaction data. “Being Cloud-native, you can now do what has been done in weeks, in three seconds. You just upload the files. Machine learning will understand the nature of the files and do the recon in an instant,” says Burner. “It’s doing all of this super-fast, within a few seconds, with instant results. You just click on ‘go’.” Burner is happy to describe his AI lab creation in the revolutionary terms that befit a thinking computer. “It’s like a Terminator, you know: a robot that is replacing the human,” he says. “It’s really helping with workflows. It’s doing it faster. It’s giving suggestions. So it’s actually acting like you, as a human, would do reconciliation. “Machine learning tries to generalise problems, it doesn’t solve a specific one. But when it sees seven or eight instances of an issue, it tries to find out what is generic to it. And what comes with that is that it’s robust against data problems. If there is one digit different, it will still find the match.” September’s announcements didn’t stop there. Indeed, if anything, SmartStream seems to have underplayed the gentle

launch of further AI solutions into its existing services – including cash and liquidity management, reference data hygiene and facilitating corporate actions. SmartStream’s TLM Aurora, the next generation of its Corona platform, promises further operational efficiency savings compared to what was already the industry’s leading reconciliations platform. Aurora features the ability to observe the analytics layer of the service – in ‘TLM view’ – while allowing for recently released SWIFT gpi, RTGS (real-time gross settlement), and blockchain-based payment networks. “TLM Aurora is far more than just an upgrade, it is the result of years of research and development at SmartStream, with valuable insight and intelligence from our clients and partners,” confirms CEO Kaddoura. “As digital transformation accelerates, it will become even more important that banks have control processes in place that link to existing infrastructures via a single solution to intuitively leverage data discovery, data modelling and data simulation.” While the singular importance of efficient data processing may only just be dawning on banks, it’s been testing minds at SmartStream since their early work finding solutions to TLM issues at some of the world’s largest institutions. With AI and ML solutions now streaming from the Vienna Innovations Lab – and industry awards flooding back in – it seems SmartStream’s data handling prowess is unequalled. Kaddoura is positive about the firm’s future in AI. “Wherever you look, at any aspect of a bank’s operation, I think AI is going to touch everything that has to do with financial institutions,” he says. “For us, I’m glad that we’re at the forefront of the sector. It’s going to be a very interesting ride.” At the Sibos circus of innovation, attendees concerned with the grotesqueness of their transaction data will have viewed SmartStream’s presentations as an audience watches a lion tamer: with the awe and respect due to those able to make an unruly, unpredictable creature jump softly through hoops.

It’s like a Terminator: a robot that is replacing the human, helping with workflows, doing it faster, giving suggestions

Issue 14 | TheFintechMagazine

DATA & ARTIFICIAL INTELLIGENCE

Peter Tilton, Senior VP, Digital for Personal & Commercial Banking with Royal Bank of Canada, explains how it’s using tech to personalise its relationship with customers The Royal Bank of Canada (RBC) serves 16 million clients in Canada, the United States and 34 other countries. It maintains a strong focus on innovation, using technology to combine the best of traditional banking with a personalised approach that ensures that digital transformation both adds value and provides an essential human touch to its services. The bank has invested heavily in technology in recent years, and is committed to projects that use artificial intelligence (AI) and other advanced technologies to bring it closer to its customers. Peter Tilton’s role is to lead these digital initiatives for the bank, improving the everyday experience for its personal and commercial customers. That means simplifying and automating processes wherever possible. “We’re doing clever things with how people connect to our advisors,” says Tilton. “And we want to ensure that this digital progress is matched by the human factor so that we can help with big life events and questions, and build ecosystems that create more value.”

Intelligent approach Tilton provides an example of how RBC is using technology to connect with customers on a more meaningful level. “We’re finding ways to make it easier to speak with an advisor on the phone. For instance, we can pre-authenticate 75 per cent of our callers via voice biometrics. In addition, if you use our mobile app, you’ll get through to an advisor faster, because we know who you are, and we can pull up your banking information faster to start listening to how we can help. “If you’ve been going through your credit card statements and transactions, we can see the history and friction points.

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If you do need to speak to someone, we’ll have relayed all the relevant information, the context, and we’ll know that you might want to do something like block your card.” Tilton says this is a big step forward because, with millions of customers to serve, there is no way the bank could understand individual needs and circumstances in such fine detail without the help of technology. “In the past, we might have been able to do it for a person who visits a branch every week, or for our private bank customers,” he says. “But now we can personalise and get to know you with AI. You’re already pre-authenticated, we know what you’ve been doing and we’re using data in an intelligent way to serve you better.” Tilton traces the evolution of technology in Canada and says that things have moved very fast. “Around five years ago, approximately 48 per cent of Canadians had smartphones, so less than other parts of the world such as the UK and Asia. The total number of mobile transactions at RBC would have been below 10 per cent. Now, more than 50 per cent of our clients are digital users and mobile is our primary digital channel, with more than 50 per cent of digital transactions taking place via the mobile app.” Tilton says Canadian customers expect a high level of digital interaction for all their day-to-day activities, so to ensure it stays abreast of the technology curve and the latest customer-focussed innovations, RBC has been acquiring fintechs and partnering with others on joint projects. Despite the advantages of today’s technology, the evidence shows that customers still want to talk to real people. Interestingly, this spans all age groups, and the largest number of people visiting

RBC’s branches are, in fact, Millennials. “It seems counterintuitive,” says Tilton. “They might be technologically very savvy, but not so savvy financially, so there’s still a role for person-to-person advice. Conversely, the expectation of digital service, of being able to do things immediately, in the moment, is very strong. That’s why our customers want to do the majority of transactions on mobile. There’s everyday banking, such as making payments and looking at balances, and then there are things customers want to do on a monthly, housekeeping basis.” RBC has a versatile service called NOMI, which can tell customers what’s happening with their cashflow. NOMI (a play on ‘know me’) is an app-based solution driven by AI. Tilton says it’s very familiar in Canada and helps customers to save and manage their everyday finances. Among other things, it summarises daily banking activity across different accounts, categorises spending and lets them know if there has been any unusual activity. “Thanks to NOMI, we’ve provided nearly three-quarters-of-a-billion insights to Canadians,” says Tilton. “For example, there’s NOMI Find & Save, which is an AI-automated savings account that squirrels money away every day, based on what you can afford, and places it in an interest-earning savings account. There are about 180,000 savings accounts so far, and customers who use this facility are saving around $193 a month on average.” Budgeting is a key benefit of NOMI, emphasises Tilton. “I think we’ve really nailed budgeting. Banks have been investing in personal finance management for years, and most, including RBC, have struggled to get high engagement in areas such as transaction classification. Now, we have an AI engine that automatically classifies every transaction, and has the computer www.fintech.finance

power to process data constantly and set budgets automatically. NOMI provides friendly reminders to keep you on budget. I think it’s fair to say we’re a world leader in this type of technology.” But when it comes to blockchain, Tilton is more cautious. “We’ve looked at it but, to be pragmatic, there are not many truly successful blockchain programmes. We’ve used it in a digital identity programme which is starting to take off, but we didn’t need to use blockchain. It’s a mistake to use technology just for technology’s sake. You have to ground it in customer needs. Canadians are more worried about saving for retirement than any other people on the planet; they’re more anxious about money than any other concerns, so we use technology like AI to solve their pain points, not to push technology boundaries. “NOMI’s helping millions of people with nudges like: ‘you’ve had a duplicate transaction’, or ‘would you like to see your spend for the month – it’s gone up?’. Or maybe they will be alerted to the fact that their card has been used somewhere unusual. These are all great insights that make customers feel RBC is watching over them and protecting their interests.” This is founded on the concept of ‘reciprocity’. Tilton explains that NOMI is

an example of doing something for customers in the hope that they may do something in return. “NOMI wasn’t designed to sell accounts and make money per se,” says Tilton. “For instance, there are no fees for the Find & Save product. It’s just RBC trying to give Canadians control over their money, and we do that by giving them nudges that might help them with their finances. The return is in loyalty to the bank – that’s the reciprocity. We see the positive results in our net promoter score [an index that measures the willingness of customers to recommend a company’s products or services].” Personalisation is a key objective, says Tilton, because the aim is to embrace a wide range of different users and their needs. By way of example, he cites the younger generation for which RBC has recently launched a youth version of its mobile app. It’s one of very few banks to do so. “If you log on as a 16-year-old,” says

Tilton, “you get a completely different experience to the one I would. Likewise, we can tailor and personalise the experience if you are a small business or another market sector. “Fitting everything on a small screen is a unique challenge for banking. I can’t think of another digital or ecommerce industry where you’re working across daily, monthly and annual timescales, and fitting it all on a mobile device.” Tilton sees personalisation in banking becoming ever more refined. “We’re making big advances on a segment and individual basis, and we’re unifying everything with an omnichannel approach. This allows customers to move from digital to advisor, back and forth, creating a seamless history.” Blending the human factor with a high level of digital sophistication is what distinguishes RBC, and through initiatives such as NOMI, and the continued development of AI, it is placing customer experience at the centre of its strategy.

NOMI wasn’t designed to sell accounts... It’s RBC trying to give Canadians control over their money. The return is in loyalty to the bank technology boundaries

Digital human: AI is helping RBC’s relationshipo with customers become more personal – not less

www.fintech.finance

Issue 14 | TheFintechMagazine

DATA & ARTIFICIAL INTELLIGENCE

For millions of us, banking is simply a necessary evil for receiving wages and paying bills. It’s the most basic of contracts that leaves little direct dialogue between the vast majority of customers and their banks. And it does nothing to address the deep-seated legacy of mistrust in the system left by the financial crisis. But imagine having a personal banker; one who was on your side, who constantly analysed your spending and saving habits and was able to give you reliable financial advice and guide you to the best available deals around. Such services have been the preserve of the rich and privileged few, but were a tad far fetched for the masses… until now. With a blue chip list of about 60 banks across the globe, including six of the top 12 in the United States and Europe, it’s the service Tel Aviv-based Personetics has helped banks extend to 65 million ordinary account holders so far, using a combination

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Personetics helps banks put their customers at the wheel of personal financial management. In doing so, it’s also moving the bank’s business up a gear, as Jody Bhagat, President of Americas, explains of artificial intelligence (AI), machine learning (ML) and neuro-linguistic programming (NLP) to create what it calls ‘self-driving finance’. Jody Bhagat, Personetics’ president of Americas, says most people have little time to properly manage their finances. But by using its software to put them in control, banks cement a relationship of trust, and therefore loyalty, with customers – vital ingredients in the dogfight to retain and, importantly, grow business in the face of an ever-more competitive market.

Bhagat says: “We know that most people are busy with their daily lives, taking care of their families, doing their work, and they don’t have time to invest heavily in understanding and managing their finances. "Self-driving finance is a way for banks to help customers throughout their financial journey, and help them achieve their goals in a way that’s effortless and safe. Like the concept of automated driving, self-driving finance is not an all-or-nothing proposition; there are several stages along the maturity path to achieve self-driving finance. “The first stage is being able to better interpret and understand the data that’s relevant for customers. The second stage is delivering personalised insights; insights that help consumers manage their day-to-day banking more effectively. The third stage is what we call prescriptive advice; so, based on those situations and those insights, what action should customers take? And then the fourth stage is automation, which is doing it on behalf www.fintech.finance

Moving up a gear: Personetics’ ‘self-driving finance’ tools help banks get closer to their customers

of customers. All of this is underpinned by a sense of trust that banks create with them. Customer centricity and delivering a personalised experience has always been an ambition for banks. But it’s challenging to do, says Bhagat. “Most banks deliver extraordinary experiences perhaps only to their most profitable customers. Self-driving finance is a way of leveraging a deep understanding of each customer’s data and behaviour to deliver a personalised experience to the broad swathe of customers, as opposed to just the best ones,” he says. The results speak for themselves. One of Personetics’ clients, Canada’s largest bank, Royal Bank of Canada (RBC), has four million customers using its mobile app to access Personetics’ NOMI software. And Rami Thabet, RBC’s vice-president of mobile, says harnessing Personetics’ technology has had a spectacular impact on the bank’s business. “Surveys show that RBC is the North www.fintech.finance

American leader in customer acquisition through digital channels,” he says. “Thanks to NOMI, people open more accounts and we have deeper relationships with them.” And the impact at an individual level can be life-changing. “Take the example of one female customer of ours who was able to save enough for a house by the tool showing how she could set aside $150 a month – it made a meaningful difference,” says Thabet. Such results have propelled Personetics’ success, leading it to rapidly expand its operations with offices opening in London, New York and Singapore. This summer, it also won Frost & Sullivan’s 2019 Product Leadership Award in the Data-Driven Banking Industry, in recognition of the AI-driven solutions that are presenting an opportunity for banks to deliver personalised experience at scale, helping to elevate customer satisfaction levels and engender long-term loyalty. The company recently opened a research and development centre in Nazareth and, in May this year, it branched out beyond retail banking to offer software for small business customers, with a tool that helps them with day-to-day banking, cash flow and liquidity management. “The industry is in a state of rapid evolution, where the pace of change is really accelerating,” says Bhagat. “There are

inefficiencies and it’s more than just fintechs. We will see big tech, telecoms and other players that’ll leverage bank-in-a-box solutions to carve away at profitability pools that banks have today. “The economic structure of banking is also changing. Consumers are devoting more time to digital screens, yet still desire intervention from a banker in a personalised way when relevant. The days of consumers walking into a branch and a banker then interpreting their needs from that interaction, and deepening relationships through that model, are declining. The new model we see is leveraging the data you interpret from the digital channels and combining that with the banker to deliver real, personalised advice. “Interpreting, enriching and making data more useful is one of the core competencies of our business,” adds Bhagat. “We have more than 65 million customers using the platform, and this network effect allows us to understand what insights and advice are really meaningful to customers at a macro level, as well as at an individual level. “For each bank, we train our models to better understand the insights that are most relevant for their customer base as well as for the individual. We understand which insights customers are interacting with, which they like, which they want to see more of, and, for the bank, we create

Most banks deliver extraordinary experiences perhaps only to their most profitable customers. Self-driving finance is a way of leveraging a deep understanding of each customer’s data and behaviour in order to deliver a personalised experience to the broad swathe of customers three primary trends that we see today, the first is that banks are competing on experience, simplifying, streamlining and even beautifying it. The second is creating a more agile delivery model, being able to more rapidly deliver solutions into the market, take customer feedback, refine and optimise. And the third is anticipating customer needs and delivering advice that will benefit them.” The competition for those customers is not just coming from other banks, of course. “There are more threats in the market for banks today; fintechs are identifying areas where there are either opaque processes or

solutions that allow it to be more agile in its delivery, creating unique and custom insights that are highly tailored for their customers and proposition. “From a bank perspective, what will differentiate the winners will be three factors: those that can use customer data to create personalised interactions and advice; those that create a sense of trust with customers by operating on their behalf; and those that create automated solutions that help customers achieve their goals in a way that requires less effort, is safer and has a more certain outcome. But the real winners in this will be the consumers.” Issue 14 | TheFintechMagazine

SIBOS 2019 REVIEW

Zoning into a Brave New World Sibos 2019 took place at ExCeL London, the city’s mammoth conference and exhibition centre, in late September. The event saw the world’s banking and fintech communities collide in the Discover Zone with collaboration in mind. James Tall captured the action… SIBOS – or SWIFT’s International Banking Operations Seminar, if you prefer – is the annual conference, exhibition and networking event organised by SWIFT for the world’s financial industry. It has come a long way since the first edition in 1978, where 300 or so bankers were invited to Brussels so that SWIFT could maintain contact with its growing user base. Fast forward to 2019 and this year’s event in London was the largest in Sibos’ history, with SWIFT’s new CEO, Javier Pérez-Tasso, confirming that 11,572 delegates attended throughout the week. This easily trumps the 8,900 who attended Sibos in Amsterdam in 2010, where the industry tried to make sense of the financial crisis.

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Much of the draw was London itself, one of the world’s pre-eminent financial services and fintech hubs (despite the looming spectre of Brexit). Somewhat surprisingly, 2019 was the first-ever Sibos to be held in the city.

A growing fintech presence At the heart of the modern Sibos experience is the Discover Zone, which brings the world’s fintechs together with stakeholders from banks and other financial institutions to drive the connections and collaborative innovation required to future-proof the industry. This year’s Discover Zone was the biggest to date. It featured around 100 of the brightest fintech startups operating in areas such as regtech, cybersecurity, big data, blockchain and cash management. Hosted in an area adjacent to the main exhibition, which was comprised of some 200 banks, vendors and consultants, the fintechs were there to meet potential banking partners to grow their businesses and solve some of the world’s financial problems. The evolution of the Discover Zone mirrors that of the fintech-incumbent relationship itself, which has shifted from disruption to collaboration in the last few years.

It made its debut at Sibos 2016 Geneva, where Geneva’s then economic minister, Pierre Maudet, brought some of Switzerland’s top bankers to the Swiss Lounge to meet a number of fintechs. In 2017, Sibos visited Toronto and the ambition was to expand the Discover Zone. More fintechs than ever before attended, but the Discover Zone itself was still a bit of a sideshow to the main event. Bas Uildriks, managing director at financial crime and terrorism solution pioneer Belleron, brought his startup to Sibos for the first time in 2017, to exhibit in the Discover Zone. “That first year, we were tucked away under a staircase,” says Uildriks. “But we still received a tremendous response from the bankers and we also built a good rapport with the other Discover Zone exhibitors. In 2018, in Sydney, the Sibos team had listened to our feedback and the Discover Zone was in a much more prominent position. And this year, in London, the execution has been fantastic. It’s improved year on year and it’s now the only show we attend because our audience – the banks and other financial institutions – are all there, and there to learn.” This sentiment was shared by big data and machine learning specialists Pendo www.fintech.finance

Systems, another returnee to the Discover Zone this year. “In Toronto, in 2017, we felt a bit like animals in a zoo,” said Phil Smith, the company’s chief growth officer. “But now, given the evolution of the Discover space, it’s like the Sibos community has recognised and legitimised us as a company – not just an upstart startup!”

At the heart of the conversation The Discover Zone hosted both Innotribe and the Discover Stage – a new addition to Sibos where innovation stakeholders, such as the exhibiting fintechs, academics and innovation heads from the banks, could present to the broader Sibos community. The content for the stage was carefully curated and focussed on the most forward-looking topics – think use cases for biometrics, the advent of open banking and boosting financial inclusion – with the short sessions moderated by well-known voices from across the growing fintech ecosystem. But the star of the show was still Innotribe, SWIFT’s initiative to enable

collaborative innovation in financial services. Launched back in 2008, Innotribe has built a strong track record of putting on some of the most engaging sessions at Sibos. The four-day Innotribe programme was full of intelligent sessions that revolved around the evolution of trust in a digital future. Each day had its own underpinning theme – the concept of trust and digital identity, humanity’s interaction with technology, the future of money and currency, and then a detailed look at privacy on the final day. The opening keynote on the Monday morning was provided by rock star physicist Professor Brian Cox, who paved the way for a range of insightful and provocative speakers from across the fintech, bigtech and academic communities. Cox stated that trust comes from admitting when we are wrong and that ‘the most valuable experience a scientist can give is doubt’. This idea of being forced to think in different ways resonated well with an audience still feeling some effects of the financial crisis.

One particularly interesting Innotribe session was ‘The true meaning of identity’, where Kaliyah Young, an expert in digital identity better known by her blogging pseudonym ‘Identity Woman’, talked about self-sovereign identity (SSI). SSI refers to the idea of individuals or organisations having sole ownership of their digital and analogue identities, and control over how their personal data is shared and used. Young discussed how identity is socially constructed and contextual – and also quite new. The first passport was issued only 100 years ago and they weren’t standardised until the 1980s. We’re now moving towards using distributed ledger technology (DLT) to create blockchain-based, immutable credentials.

Gazing into the crystal ball Innotribe’s ‘Future of Money’ session at Sibos is one of the most keenly attended. The lively debate acts as a kind of crystal ball, with leading figures identifying and discussing major disruptive trends that will shape the financial services landscape and the very notion of money itself.

This year’s Discover Zone was the biggest to date. It featured around 100 of the brightest fintech startups

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SIBOS 2019 REVIEW Moderator James Lloyd, a partner at EY (Ernst & Young) and the firm’s Asia Pacific fintech and payments leader, took the audience on a journey looking at money’s evolution from a method of exchange created by early humans, moving into sophisticated societies and through to the imminent launch of a central bank digital currency (CBDC) in China. This year’s panel then debated the idea that cash will soon be redundant. This could mean that, ultimately, we’ll see a proliferation of new digital currencies enter the mainstream and mobile money become more prominent. In line with the central Innotribe theme of trust, the speakers agreed that the industry needs to work together on myriad regulatory issues to help shift crypto from a financial ‘Wild West’ to a more stable and integrated place. Tony Fish, founder of AMF Ventures and one of the panellists, said: “The short-term future of money is upstairs at the main exhibition; the search for real-time payments. Longer term, it’s linked to data and the new characteristics that need to be unpacked: responsibility and accountability, humanity and programmable money.” ‘Future of Money’ was logically followed by a deep dive into asset-backed tokens with Vita Bortnikov, a distinguished engineer at IBM Research. Bortnikov explained to delegates how once an asset such as real estate is tokenised, it becomes more liquid, more exchangeable and can reach the unbanked. Fractional ownership opens things up to a broader base of investors and creates a whole new secondary market. There’s work to be done, of course, but Bortnikov believes that asset tokenisation – rooted in blockchain as ‘a network of trust and market of the future’ – represents an exciting step change for the securities space. Another notable and future-looking Innotribe session was ‘Data for the people and people for the data’, delivered by author Andreas Weigend, who was chief scientist at Amazon in his previous life. Weigend made the point that we’re going through something of a data dilemma – what the KGB would previously look to get through torture, we now willingly put on Facebook! While privacy is, of course, a key concern, Weigend stressed that respectful use of data is crucial to answering questions, helping us to ask better ones, and predicting, optimising and automating in financial

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services. The value of data is threefold: understanding, innovation and knowing. He laid out five rules that will help companies succeed in the data arena, and they’re well worth remembering: RULE 1: Start with a question, not the data RULE 2: Focus on decisions and actions RULE 3: Make the implicit explicit RULE 4: Embrace transparency RULE 5: Respect and empower customers To illustrate his point about transparency, he shared an anecdote about a senior executive at a leading bank who sought to promote internal transparency by giving everyone employed by the bank access to his emails. No one was interested in the inbox, all eyes went to what he sent.

Humans are curious creatures and demand transparency in these tech-driven times. For the Innotribe closing plenary, prominent futurists Brett King and Dave Birch were called in to explore different possibilities for the future as viewed through the lens of science fiction and literature. In the last 50 years, science fiction movies have shown us a multitude of possible future scenarios, from the all-controlling Star Wars evil Empire to the universal peace of the Star Trek Federation. While some of their predictions are far-fetched, others feel much more possible as an extension of technology. For example, should we populate Mars, would there be a blockchain-based Martian currency? We’d need a method of exchange, right? The predictions from literature were fascinating. The oldest mention of a credit card – that totemic symbol of finance – can

be found in Edward Bellamy’s Looking Backward, published in 1888. The book is packed with lines that resonate on some level today – such as ‘no money, just use this card’, ‘an American card is just as good as American gold’, and ‘can women use them?’. King and Birch also analysed The Lessons Of History by Will Durant (1968). This book explains how 99 per cent of human history has been dominated by pyramid-shaped structures, with all the wealth and power at the tip, in the hands of a few. The one society that really bucked this trend was the post-World War II United States, which was responsible for 50 per cent of global wealth and implemented a diamond shape with an expanded, wealthy middle class. Right now, China is rapidly moving from pyramid to impressive diamond.

Looking to the East Talking of China, the world’s most populous nation was a particularly hot topic this year. Sinologist and serial entrepreneur Pascal Coppens took to the Innotribe stage to talk about his latest book, China’s New Normal. Coppens travelled through China in the 1990s while studying the language, and fell in love with ‘the passion, energy and resilience of the Chinese people’. He’s seen a lot of change. For example, in 1991 he was only able to stay in specially designated ‘hotels for aliens’. He said that the astonishing transformation of Shanghai best encapsulates the miracle of China, but that the next 30 years will be all about the invisible – artificial intelligence (AI), blockchain and other technologies that will change Chinese lives, in his opinion, for the better. www.fintech.finance

Coppens highlighted that 577.4 million people in China use mobile payments. There’s an entire generation of kids who have never encountered cash – they are used to paying for sweets with their smart watch. That’s the new normal. But the Chinese are going further than this. They can already pay by facial recognition in a host of Chinese convenience stores, while chickens are equipped with QR codes so that consumers can scan to see how much distance they’ve covered in their lives and therefore how healthy they are. China is so far ahead, it’s frightening. But China still has issues of its own. Tuesday’s second Big Issue Debate (one of the high-profile sessions in the plenary room) tackled Cloud, AI and privacy. The panellists talked about how privacy is seen

who accompanied the opening fanfare. A perhaps slightly-misjudged new addition. The opening speaker was Dame Minouche Shafik, director of the London School of Economics and Political Science (LSE), who is in the running for the governor post at the Bank of England, having served as deputy from 2014-2017. Shafik talked about how the current trade war is impacting the World Bank’s growth forecasts, and how organisations like SWIFT are hugely dependent on free financial flows. If the situation doesn’t improve, there may be a need for ‘parallel pipes’, which will be difficult for everyone. She said she was encouraged by an emerging understanding about intellectual property in trade discussions, but that there needs to be more understanding applied to other

and applied in different jurisdictions. This led to a heated debate between author Andreas Weigend and Qiang Yang, chief AI officer of China’s WeBank, with Weigend exasperatedly claiming that the Chinese government should be imprisoned as a result of its privacy practices. On a lighter note, there was a story about a Chinese consumer locked out of her WeChat because the facial recognition technology couldn’t recognise her after her nose job!

areas. She also predicted that AI and automation will affect at least 50 per cent of jobs over the next 10 years, but that these jobs will change rather than disappear. Next on stage was long-standing SWIFT chairman Yawar Shah, well known for his use of air quotes at Sibos. Shah highlighted how the payments industry is focussed on speed, transparency and efficiency – all elements that fintechs can help the banks with in a ‘coalition of the willing’. One new addition to this year’s programme were the ‘Views from the Top’ sessions – 30-minute talks from business leaders about issues close to their heart. First up was António Horta-Osório, group chief executive of Lloyds Banking Group, which is the largest digital bank with 60 million digitally active customers. Horta-Osório dedicated his talk to the idea of transformation through people.

A plethora of insights There were a range of other interesting plenary sessions and Big Issue Debates in the main conference. Monday’s opening plenary session put on a stunning show for delegates by employing the use of the latest audio visual technology. Less appreciated by the audience were the interpretive dancers www.fintech.finance

“The people that power the technology are the most important part of any new technology,” he said. This idea of ordinary machines enabling people to do extraordinary things was a common thread throughout the four days. The good news is that we’re still important, despite the rise of the robot. This year’s closing plenary was delivered by Thomas Kurian, CEO of Google Cloud. Kurian discussed how, in financial services, the product is fundamentally a digital one – unlike in retail and other sectors. So, as digital capabilities advance, financial institutions are equipped with ‘enormously capable tools’ to change and improve their products and services. Kurian is also a big advocate of open banking, explaining how it works well on two levels: it allows financial institutions to improve their core systems and empowers consumers by giving them a simplified, unified view of their financial situation. What’s next? According to Kurian, ambient computing (always with you, no need to log on) will see big growth in the coming years. Kurian shared the stage with author and trust expert Rachel Botsman, who explained how trust isn’t black and white; its contextual and subjective. We’re all on a spectrum that runs from a low trust state through to a high trust state, which is influenced by factors including age, social status and wealth. So, when financial institutions design products, they should take a moment to consider the trust state of their target market. She also made an interesting contrarian point that transparency (a particularly common industry buzzword) isn’t actually the cure for a lack of trust. Blanket transparency, she argued, doesn’t equal more trust – it actually reduces the need for trust. As she put it: “All companies should be able to have some secrets. Secrecy isn’t the enemy of trust, deception is.” The week was rounded off by SWIFT’s CEO, Pérez-Tasso, introducing a musical group who took the audience through some ‘Best of British’ hits by Coldplay, The Beatles and Adele. This was in stark contrast to his predecessor, Gottfried Leibbrandt, who would ceremoniously remove his tie to mark the end of Sibos week. Pérez-Tasso wasn’t even wearing a tie. Finance has entered a new age. Issue 14 | TheFintechMagazine

REGTECH

COMING ON STRONG Dirk Haubrich, Head of Conduct, Payments and Consumers at the European Banking Authority, discusses the arrival of strong customer authentication and what it means for payments and customer security When the revised Payment Services Directive (PSD2) came into force in January 2018, it signalled the beginning of sweeping changes to payments across the EU and the European Economic Area. As part of the revised directive, a new security framework called strong customer authentication (SCA) was created to tackle rising fraud levels and protect consumers when making online and mobile payments. But mobilising the industry to adopt SCA has proved challenging. Originally planned for 14 September 2019, the deadline for SCA implementation has now been delayed because of low levels of industry awareness and readiness. In October, the European Banking Authority (EBA) moved the deadline to 31 December 2020. This follows an earlier recommendation, in June 2019, that ‘limited additional time’ should be granted to allow issuers to migrate to authentication approaches that are compliant with SCA, and acquirers to migrate their merchants to solutions that support SCA.

No room for complacency However, this doesn’t mean that merchants should relax because the heat is off. On the contrary, those that comply with SCA sooner rather than later, optimising their systems for the new payments landscape, will gain a competitive advantage. SCA compliance may have a new deadline, but stronger authentication is an imperative that will not go away. The EBA’s head of conduct, payments and consumers, Dirk Haubrich, acknowledges the complexity of introducing SCA and the huge changes the full scope of PSD2 is bringing. “There are around 6,000 banks and around 1,500 payment and electronic money institutions in the EU. In the area

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of payments, the greatest challenge they face, this year and next, is the implementation of SCA. There’s also a big transformation as a result of PSD2 allowing third-party providers to access bank accounts, with their customers’ consent, which means banks must open up their services to competitors,” he says. Despite a long lead-in period that started with the publication of the SCA requirements in November 2015, industry has been slow to embrace them. “The EBA and our 28 national authorities, with whom we developed the requirements for SCA, have been monitoring readiness for a quite a while,” says Haubrich. “The basis for SCA is two-factor authentication, and it’s been known since 2015 that some of the existing authentication methods, such as reading out a credit card number and the CVV code on its back, will no longer be compliant. Although we’ve been providing additional guidance and clarification, we concluded that, in some member states, not every sector would be compliant by September.” What SCA means in practice is that payments must be authenticated by using two out of three possible security checks. The payment service provider can choose between something only you know (knowledge), something you are (inherence), or something only you have (possession). Knowledge can be, for example, the conventional username/ password, while inherence draws on the latest biometric techniques. Possession covers personal items such as a phone or a card with a chip.

such as merchants, that are not directly subject to EBA requirements, and this was one of the main reasons for creating more flexibility around deadlines and penalties for non-compliance. “Although the security requirements have applied since 14 September 2019, we have allowed national authorities to waive sanctions on those that are not ready,” says Haubrich. “Instead, subject to certain conditions, national authorities can agree migration plans with payment service providers (PSPs). All 28 national authorities across the EU have taken up this option. It’s a very unusual degree of flexibility, but it’s important to avoid friction and ensure business continuity.” Over the summer odf 2019, the EBA monitored and assessed industry preparations. This prompted the eventual decision by the EBA to limit the flexibility for national authorities to 31 December 2020. Its most recent opinion on SCA migration, issued on 16 October 2019, includes a critical path with all the ‘milestones’ and ‘expected actions’ that must be completed before December 2020. For example, by the end of 2019, PSPs must identify the authentication approaches that are available to their customers and separate them according to the two-factor authentication rule. The EBA’s message is very much that the race belongs to those already out of the blocks, which will enjoy a natural advantage in the new PSD2 landscape. Those that have yet to prepare for SCA should do so as soon as possible, despite the extra breathing space. In the new era of open banking, success depends on who can innovate and move the quickest. “There are quite a few competitors to

There are quite a few competitors to established banks and credit card schemes that are already compliant

Wriggle room Haubrich underlines that the low level of readiness applies especially to entities

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established banks and credit card schemes that are already compliant,” says Haubrich. “And, of course, because increased competition is one of the objectives of PSD2, as an EU regulatory authority the EBA must encourage competition in payment services across all 28 member states. We mustn’t protect incumbents such as card schemes: we must support PSD2 by fostering innovation and competition.” Haubrich adds that if any merchants doubt whether established PSPs will be compliant by the end of 2020, they will be drawn to alternative providers that can offer a smooth SCA transition. This should be a wake-up call to any that have yet to get to grips with their obligations. While there is a worry that stronger authentication will lead to friction at checkout, and therefore damage sales, the dramatic rise in card-not-present transactions has been a gift to fraudsters and damages both consumers and merchants, who face chargebacks from disputed transactions. PSD2, and specifically the SCA component, is a robust and necessary response to the growth of online fraud. Haubrich says that, although it may take some time to find the right balance between security and friction-free commerce, the long-term benefits are clear and increased security need not be incompatible with positive customer experience. It all depends on the careful application of two-factor authentication and judicious use of various exemptions allowed under SCA rules.

“The goal is to develop authentication strategies that make life easy for consumers,” says Haubrich. “Convenience and user experience are crucial. Ideally, we are looking for solutions that are suitable for both tech-savvy consumers, used to smartphones and app-based solutions, and consumers who are less comfortable with the latest technologies. The ideal SCA-compliant payment transaction must satisfy the needs of different types of user. There are positive signs that many providers are moving in this direction, while others will need a bit more time to make adjustments, not least because there is a cost implication.” Haubrich believes a key lesson from PSD2 is that the technical standards for security should remain at a high level. “We must stay business-model neutral and technology neutral,” he says. “We’re not in the business of favouring or prescribing a particular technology, approach or provider; we want to enhance competition and encourage innovation, leaving room for interpretation. That’s the spirit of the technical standards behind SCA. Firms can innovate and our technical standards don’t have to be updated every year to keep up

with changes in the market. Equally, that shouldn’t be seen as an opportunity to ‘game’ the requirements.” If you are in doubt whether something is compliant, you shouldn’t wait for the regulator to come up with a view, says Haubrich. Instead, he counsels staying on the safe side, ensuring compliance not only with the letter of the requirements but also with their spirit, because that will keep the regulator at arm’s length and enable the industry to innovate without too much scrutiny or restriction. The introduction of SCA and open banking, both enshrined in PSD2, sets Europe apart, says Haubrich. “The EU is the only jurisdiction in the world developing security and open banking requirements that allow third-party providers to access payment accounts in a highly secure way. It’s unique because no one else is going down that path yet, and it does so for 28 countries in a consistent way.” The very fact that enshrining security requirements into law is new territory adds to the challenge. From the regulatory perspective, it means treading a line between control and freedom. “We don’t want to overprescribe,” says Haubrich, “as that would block innovation.” At the same time, he firmly believes that those applying SCA in the right way, following the requirements set out in PSD2 and the EBA’s Technical Standards, will strengthen their businesses and consolidate their market position. Above all, the goal is to act now, as those that wait too long will lose ground to competitors that have embraced the changes.

Weighty issue: The EBA says firms should tackle the heavy lifting around SCA sooner, not later

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LOCATIONS: OHIO

Buckıngthetrend Ohio is one of the best-connected places for success-hungry fintechs to set up home, says Terry Gore, Director of Financial Services and Fintech at JobsOhio Perched on the eastern edge of the US Midwest, the state of Ohio is perfectly placed for fintechs to succeed. With easy access to some of the world’s greatest financial services markets and offering a pool of talent, the ‘Buckeye State’ – so-named after one of its indigenous trees – is positioning itself as a valid alternative to Silicon Valley and New York. Ohio offers fintechs and other financial services providers an opportunity for instant success, perhaps even more so than traditional destinations, says Terry Gore, director of financial services and fintech at JobsOhio. “It’s due to the unique value proposition the state has to offer in terms of the three things a fintech is looking for – the partners, the customers and the talent,” he says. Bordering the great Lake Erie and Michigan to the north, Pennsylvania to the east, Kentucky and West Virginia to the south, and Indiana to the west, Ohio is just a two-hour flight from 75 per cent of the US and Canadian financial services industries. It is also on the same Eastern time zone as major cities such as New York and Toronto. This means that fintech and financial services providers can benefit from easy access to key markets.

“Without having the expense and cost associated with being located there, they can still have an opportunity to get immediate customers in Ohio,” says Gore. “We’ve got 200 banks, for instance, that they can potentially partner with. But still just take a short flight and fly over to New York if they want to make connections there.” JobsOhio is a private, non-profit organisation that seeks to drive capital investment and job creation into the state by encouraging companies to make it their home. Its main sell to fintech firms is that every dollar goes further in Ohio, where they can get the same results and investments as in other, more established financial services centres – but with cheaper rents and lower operational costs. While much is discussed about fintech innovation in Asia and Europe, Gore believes the US is the best-placed market for creating and fostering tech talent. He puts this down to a number of factors, most notably, access to funding. “It started with what we saw at the height of this thing in Silicon Valley in California,” he says. “That created the opportunity, with entrepreneurs thinking ‘hey, let’s go to America. There’s funding there to allow me to build my company out’.” Gore adds that Ohio has plenty of available venture capital funding. “One of the largest venture capital funds, Drive Capital, is located here, and they have been a

driving force in helping to really expand that piece of the ecosystem in terms of making funding accessible to various stages of organisations, whether it be early stage or growth stage.”

The perfect recipe But innovation relies on more than just investment and Ohio offers fintechs the three key ingredients of success: partners, customers and talent. “They all go hand in hand here,” Gore explains. “You can have access to some of the biggest companies in the world – global companies, Fortune 500 – but, at the end of the day, if you don’t have talent to service them, it’s not going to really do you any good.” In addition to relatively close proximity to North America’s major financial centres, the state also has the sixth largest financial services industry in the US, Gore points out. It is also number three for top 50 bank headquarters and fourth for top 50 insurance headquarters by asset, according to JobsOhio. Last year, the state also passed legislation that protects

Warm welcome: Ohio is friendlier to fintechs than some established centres

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companies developing innovative uses for blockchain technology, in a regulatory boost for fintech firms. “Most people aren’t aware of that huge opportunity,” Gore adds. “A well-established financial and retail ecosystems already exist here, creating, again, that opportunity for immediate success.” Ohio’s other key offering is talent. “From a workforce perspective, we’ve got 245,000 employees in financial services. That’s nearly the size of New York City’s and larger than the city of London’s. I would also add that, yearly, we’re looking at another 44,000 – that’s graduating potential candidates for the sector. “When you start looking at the workforce, there’s a lot of potential opportunity, and so it really makes a lot of sense to take a closer look at Ohio.”

Success built-in The state has long had a reputation for backing and producing, winners. One of its biggest claims to fame is as a bellwether for US elections. Only three presidents in the last 150 years have won the White House without securing the swing state. In addition, Ohio has produced a total of seven presidents so far, a feat beaten only by Virginia, with eight. Other famous, not to mention groundbreaking, sons and daughters of the state include astronaut Neil Armstrong, film director Steven Spielberg, author Toni Morrison, Olympic gymnast Simone Biles and inventor of the lightbulb, Thomas Edison.

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When it comes to fintech, Ohio is committed to replicating such successes by boosting and nurturing its formidable tech talent. “There’s been a collaborative effort really across the board in terms of building out the workforce development. Everything from a state level to the individual, corporate level, but then also the educational,” explains Gore. He cites the example of leading global financial services company JPMorgan Chase, which has about 20,000 employees based in the state. “They recently partnered with one of the local universities, Otterbein, and part of that collaboration – around a fintech lab to work on emerging technologies like artificial intelligence and machine learning – has been tied in with the curriculum piece back at the university.”

Well-established financial and retail ecosystems already exist here, creating that opportunity for immediate success Meanwhile, science, technology, engineering and mathematics (STEM) initiatives in schools have also helped develop the state’s future tech workforce. Taking such a joined-up approach seems to have worked. Although JobsOhio – which largely replaced a government department as the state’s main economic development agency – has recently faced calls for greater transparency, last year it set records in new job commitments, payroll and capital investment across all its sectors. In April it announced that it had

worked on 266 projects, nearly threequarters of which involved small or medium-sized enterprises, to create a record 27,071 jobs over the period – a rise of 19 per cent over 2017. Its 2018 results also highlighted record capital investment of just over $9.6billion. Is there any other Ohioan attribute that could be contributing towards this success? Gore offers particular praise for the state’s diversity: “You can go to the rural and you can go to the urban – all very distinct personalities and a nice drivable distance. You can experience a totally different aspect of the state in a short hour’s drive.” Such diversity appears to be reflected in the state’s ‘3Cs’ – the cities of Columbus, Cincinnati and Cleveland. Each has its own unique ecosystems. “Columbus has a huge presence when it comes to banks and insurance companies,” explains Gore. “Then also from a retail brands perspective, L Brands has its corporate headquarters there.” Meanwhile Cincinnati has an ecosystem that includes consumer products alongside bank and insurance carriers. Procter and Gamble and Kroger, the largest US grocery chain, both call the city home. Finally Cleveland is a leader in bio health, due to the Cleveland Mayo Clinic being based there, and is also trying to build out as a blockchain hub. “Everywhere has its own uniqueness about it,” adds Gore. But, at the end of the day, it comes back to the three key ingredients of success – partners, customers and talent – which the state offers in spades. When you get to the heart of the matter, it makes a lot of sense to take a closer look at Ohio as a place to build out your business. You'll get far more bang for your Buckeye here.

Issue 14 | TheFintechMagazine

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LOCATIONS: OHIO Dot-to-dot: JobsOhio is helping ID-Pal make the right connections for continued growth

A joined up approach ID documentation and verification fintech ID-Pal has high praise for ‘open, creative and loyal’ Ohio. ID-Pal provides real-time identity verification services to businesses via an easy-to-use app and business web portal, claiming that information can be ‘submitted anytime, anywhere, in seconds’ to help financial services businesses satisfy anti-money laundering (AML) and know your customer (KYC) requirements. Set up in 2016 in Dublin, the company recently seized the opportunity to expand stateside and has never looked back, thanks to the support of economic development agency JobsOhio, which has helped it to forge partnerships with companies including Sherpa Technologies. Since inception, ID-Pal has also won significant recognition for its innovative approach, including being selected by the European Banking Association as a ‘top 15 startup’. THE FINTECH MAGAZINE: Would you say there’s a spirit of innovation and collaboration among Ohio-based financial services at the moment? COLUM LYONS: Absolutely! Ohio is the 6th largest financial services sector in the US. Innovation is everything everyone’s talking about and collaboration is key. If you look at any company, in any industry, they’re creating innovation hubs, looking for innovative people that are thinking outside the box, so I think we’re very much at the start of something new, a different way of approaching and looking at things. TFM: What has Ohio – and the JobsOhio economic development agency – done for ID-Pal? CL: We did an accelerator programme in Columbus, and JobsOhio was one of the partners behind it. We didn’t really know what to expect, but when we got here, www.fintech.finance

Colum Lyons, Founder of ID-Pal, gives us an insight into how the mid-western American state of Ohio has accelerated its success we realised how big Ohio is. It has 6,500 financial services businesses as well as Fortune 500 companies – it’s got it all and has definitely given us a footprint in the United States. JobsOhio has been unbelievably supportive in every aspect of our business. It has offered us help in any way we want, and advice in different areas of the business. Ohio itself reminds me of home. I’m Irish, we’re based in Dublin, and I think the people have the same mindset – they’re nice and open, they’re free and easy speaking and good fun. Ohio is also only a two-hour flight from Chicago, Boston and New York, so very much in the centre of everything, giving us access to different places. And, as a company that’s looking to scale into the US market, Ohio State University, based in

Making people feel like they belong to a particular goal is the key to success Columbus, offers a lot of good, raw talent, with 22,000 new students every single year, half of which are based in Ohio. Employees are also extremely loyal compared to the more cutthroat environments of New York and San Francisco. They grow up in Columbus or Ohio, go to college there and want to find employment where they’ve grown up and where their family is – it’s a testament to Ohio itself. Ohio is looking to encourage innovation by bringing in companies from

outside the state, to try to get that balance between homegrown businesses and others with different ideas. Our partnership with Sherpa Technologies, the innovation hub of Corporate One, came about through introductions from JobsOhio and has allowed us to expand our product across different markets. TFM: What is ID-Pal’s secret for success and what are your growth plans? CL: You have to treat your staff like your family. We’re on a path where we’re trying to change how the market looks at things and create innovation. So, being able to instil the belief about that within our staff, and have them on that journey with us, at our side, is important to us. We don’t have hierarchy within the business, it’s very much a flat line, where everyone’s voice is equal. We encourage people to speak up – whether it’s right or wrong, it doesn’t matter. Giving people that feeling that they’re belonging to something, like a family, makes them loyal to us, and everyone can see, week on week, what’s happening and the influence they have had on our product and the company as a whole. It’s hard, once you get bigger and bigger but I think if you instil that kind of culture within people at the very start, that you welcome people who want to make change and believe in what you believe in, and they are recruited by people who already believe in it, that helps to ensure we continue on the same path. It’s not easy in the tech game, where there’s a lot of competition and money floating around for tech people, but continuing to make people feel like they belong to a particular goal is the key to success. In terms of what’s next, it’s probably scaling more into the US. We also have operations in Europe and the Middle East, but our core focus for 2020 will be here. Issue 14 | TheFintechMagazine

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Today’s real estate industry is characterised by outdated technology and processes. In the US, most counties still rely on paper records to register land and property ownership, making the whole operation costly, laborious and open to fraud.

According to Rob Zwink, chief executive officer and cofounder of Columbus-based fintech, SafeChain, blockchain and distributed ledger technology (DLT) can solve these problems. The startup is on a mission to tackle the inefficiencies of buying and selling to help title companies, banks and local governments reduce costs and deliver a better experience for customers. When blockchain first hit his radar, Zwink was working at global banking giant JPMorgan Chase. He started thinking about how to apply the technology to problems he faced in his job, and it soon became clear that a logical use for it was land registry and property transactions. So, he quit his role with JPMorgan in 2017, and SafeChain has been building its USP ever since. “I’ve always been in technology and the promise of blockchain as a type of database just became fascinating to me,” he says. “SafeChain came about from the promise of the application of this very modern technology to an industry that is ready for 2.0 upgrade. “In the United States, people take a piece of paper to a retail bank branch to pay one of the largest financial transactions in their lives. We are applying modern technology to the last paper-based transaction, which can take up to six weeks, end-to-end. “Many government and title offices are just as interested in improving processes. SafeChain is part of that transformation, where buyers and sellers won’t have to pay one per cent of the selling price for inefficiency. It’ll be more efficient, less expensive and more secure.” www.fintech.finance

SafeChain’s DLT-based real estate transaction processing system is an example of Ohio’s appetite for ‘rolling up sleeves’ to tackle the toughest problems, says CEO and Cofounder Rob Zwink

Zwink, who founded SafeChain with Tony Franco and Chris Sauerzopf, looks to identify the type of gaps the company can fill by applying DLT and best practices to make the overall transaction as smooth as possible. It’s all a far cry from his first job as a paper boy on the streets of Marion, Ohio… or is it? “There are some parallels between being 13, delivering newspapers, carrying a big load. I remember putting rubber bands around newspapers, having them in one place, the newspapers in another, the bag in another, and realising that, if I shifted things around, it would be more efficient. “In the end, the path from paper boy to fintech CEO was about questioning ‘how efficiently can I get this work completed?’.” SafeChain’s real estate transaction processing system, SafeWire, is a fraud prevention software for title agents designed to verify bank accounts and keep wire

Buyers and sellers in a real estate transaction won’t have to pay one per cent of the selling price for inefficiency

Sweet spot: 'Hard-working' Ohio has been instrumental in SafeChain’s success

transfers safe, while reducing the amount of time it takes to close a property sale. By digitally identifying all transaction participants, it assures all agencies that the information cannot be tampered with or intercepted by unauthorised parties. This allows bank account authentication, two-way sharing of secure documents and continuous secure communication. As an added safeguard, it uses blockchain technology to securely store and transmit wiring instructions, bypassing a major source of fraud – business email compromise (BEC) attacks. Governments in the US and around the world, including those in Bermuda, Ukraine, Dubai and India, are exploring, or already placing property deeds on blockchain. Last year, Ohio became one of the first states to adopt legislation recognising its use to transmit and store electronic records. The move may reduce litigation around blockchain contracts and allow innovators to focus on developing new applications and products that leverage the technology, especially in financial services. This forward-thinking attitude, combined with Ohio’s appetite for ‘rolling up sleeves’ to tackle tough problems, and support for startups from the likes of JobsOhio accelerator Fintech 71, has been instrumental in SafeChain’s early success. “Ohio has been creative in using taxpayer dollars to attract businesses, lower their tax burden, give startups access to capital. The difference between Ohio and other states we’re also involved in, is that creativity,” says Zwink. “There’s real pragmatism around not doing things the way they’ve always been done, to ensure companies like ours stay here and thrive. People in Ohio look for difficult tasks and are willing to tackle them.”

Issue 14 | TheFintechMagazine

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LOCATIONS: OHIO

For homebuyers the mantra has long been location, location, location. And for commercial insurance players, that location is Ohio, according to Bold Penguin. The fintech launched four years ago in the state capital, Columbus, with support from economic development agency JobsOhio. Last September, it completed a $32million fundraising to provide the firepower to enhance its online insurance exchange platform. And chief technology officer Ben Clarke is confident it can recruit the developers needed to take the company forward, because both city and state government have helped nurture Columbus as a home for innovation. “This is a great place to plop an insurance business down in,” says Clarke. “If you look out of the windows of our office, you can see the headquarters of four or five insurance companies. Cleveland and Cincinnati have tremendous carriers, too. When you have lots of carriers, you’re going to have lots of brokers. So, the key parts of the supply chain we need are here on our doorstep.” Bold Penguin launched in 2015 with a vision to enhance, not disrupt, the commercial insurance market. Its main clients are major brokerages and insurance companies, and through its application programming interface (API)-based platform, it provides a marketplace where brokers and insurers can connect. One benefit has been speed – policies can be written in days or hours rather than the industry average of 20 weeks. Another is matching businesses with coverage that better suits their needs, as the Bold Penguin marketplace is bigger than a sole insurance broker could possibly offer.

Bold Penguin’s Chief Technology Officer Ben Clarke describes how the fintech is speeding up commercial insurance Member brokers can avoid turning custom away because it doesn’t fit their expertise, and instead receive commission for referring the business on. “Commercial insurance is vastly more fragmented than personal insurance – there’s little resemblance other than they are both called ‘insurance’,” adds Clarke. “There are 19,000 ways to categorise a business for the purpose of issuing insurance. You could have two

Columbus is an incredibly supportive place. And we try to be part of that. We try to support the things that are going on in the community landscaping businesses but one digs swimming pools and needs a different type of policy.” Given this level of fragmentation, being based in a state with an obvious insurance heritage is a distinct advantage.

Access all areas And Clarke says both Columbus and the wider Ohio state are conducive to success because of the pro-business culture that exists. He continues: “Obviously, the location is great, and, using a JobsOhio statistic, 60 per cent of the populations of both the US and Canada are no more than one day’s drive away.

“But also, it’s accessible in terms of people. So, if you want to do something great, if you have a passion to build something, getting to the people in the community who have influence and can help you is not nearly as difficult as in the bigger cities or ones with a longer history. “There’s very little hierarchy here. So, if you have something you really want to do and you’re talented, you work hard and build a name for yourself, people will take notice and you can then get to the folks in influence – specially if your goals will help pull the community up. “Columbus is an incredibly supportive place and we try to be part of that. We try to support the things that are going on in the community.” Clarke believes there’s no point in Ohio’s cities trying to copy the recipes that have made fintech hubs such as San Francisco a raging success. “I think the way Ohio retains talent is by being itself,” he says. “One of my personal pet peeves is when people try to create a little New York, or a little San Francisco. The world doesn’t need that. It doesn’t need a less sharp version of a tool that already exists somewhere else. “There are a lot of things that make Ohio great, that make Columbus great. And I think that celebrating and embracing these factors will attract people who match that vision and make them want to stay. We are considered one of the Rust Belt states, where maybe people think their best days are behind them. Here, people don’t believe that, and that’s partly a reflection of the way government has combatted negative perceptions. “JobsOhio has contributed to economic growth, both in the major cities and through its focus on rural communities, which I think is really important. I’ve hired hundreds of people over the last 10 years and I’ve always found both local government and state government to be hugely supportive of us. That's not true everywhere in the country.”

G N I K C I P P-PE C A P P U www.fintech.finance

Issue 14 | TheFintechMagazine

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LOCATIONS: OHIO

Leading the

(Columbus) way

Mike Watson, Executive Director of Digital Product at JPMorgan Chase and Head of the Point at Otterbein University, on community and innovation A hothouse of innovation, Columbus is leading the pack of Middle American cities taking over the fintech scene. In recent times, its thriving ecosystem and talent pool have supported the likes of Swedish payment solutions firm Klarna, and Forbes Fintech 50 newcomer Roots, the US car insurance company using artificial intelligence to review claims. But it’s not just startups that are innovating in Ohio’s capital. JPMorgan Chase’s sprawling McCoy Center houses 5,000 technologists who help the New York-based banking giant build the digital tools that are driving its millions of customer interactions. As part of this digital shift, it has partnered with colleges and universities including the Ohio State University, Columbus State Community College and Otterbein University to develop the workforce of the future and bring fresh insights to its innovation. Mike Watson, institutional data analyst at Otterbein University and executive director of digital technology for JPMorgan Chase, explains: “Columbus is open and forward-thinking. Our city lives by what’s become known as ‘The Columbus Way.’ We work together, across public and private sectors, academic institutions and non-profit organisations, to find solutions that help our communities, residents and businesses succeed. “JPMorgan Chase is proud to be part of this local fabric, working with non-profits and community partners to keep Columbus growing and thriving. We’re in a university city and lucky to have a rich pool of talent in our own backyard. www.fintech.finance

JPMorgan Chase’s partnership with Otterbein University is an example of its collaborative nature in action.” The Rust Belt may sound like an unlikely location for such digital endeavours but JPMorgan Chase, which has assets of $2.6trillion and employs more than 250,000 people globally, has roots in Columbus dating to 1868. It’s one of the region’s largest corporate employers. “Ohio is well positioned as a destination for tech talent,” adds Watson. “Columbus, specifically, has garnered national and global attention because it’s such a collaborative and innovative environment for emerging technology companies.

Our city lives by what’s become known as ‘the Columbus way’. We work together to find solutions that help our communities, residents and businesses succeed “JPMorgan Chase is deeply embedded into the community, and we like working alongside partners that are finding new, innovative ways to ensure our economy continues to grow and thrive.”

Academic credentials Founded in 1847, Otterbein University has been a key source of talent for the company, with more than 250 alumni currently working with it in the Columbus region, and the two organisations share a

financial technology innovation lab. “This is another way in which we are supporting the next generation of technology and talent, creating learning environments where students can grow and learn the skills that will be so critical for success in the future,” says Watson. “This is a great environment for us to come together with students and professors, and collaborate on what we think are some cutting-edge solutions. “When we talk about the need for innovative solutions, we understand that it’s helping people make the most of their money, their livelihood. We recognise the humans behind the numbers and focus on helping them along their financial journey,” says Watson. “We have to continue to push the envelope, not only in getting the information to our customers, or information from our customers, but making sure it’s secure; that the information goes to the people it needs to go to – and not to the people that should not have it.” Today’s burgeoning fintech centres tend to be smaller cities with business amenities like those of larger ones, while offering lower costs and a pool of educated, tech-focussed young workers. Ohio, and Columbus in particular, will continue to be integral to JPMorgan Chase’s worldwide operation. “Because we’ve been embedded in this community for more than 150 years, we have 150 years of learning and customer feedback, and 150 years with the group in the region that trusts us. They know that we handle their data responsibly and protect it like it was our own. “So, for us, why not Ohio?” Issue 14 | TheFintechMagazine

LOCATIONS: ABU DHABI Fantastic beasts: But it’s hard to find them in fintech

All about the

customer!

Most entrepreneurs and observers of the business world generally, are in awe of companies that successfully go from startup to unicorn status. Unicorn is a word we hear often, but we don’t always stop to consider how hard the journey to get there, is.

Daniel Seal, CEO of innovation ecosystem builder Unbound, spoke to four of the world’s greatest unicorns to glean their recipe for success

Data suggests that the unicorn success rate (from startup) is less than one per cent. The most bearish surveys suggest figures as low as 0.1 per cent. That is a 1,000-to-one chance. To set this in

context, over the last couple of years, bookmakers have had the Queen as 1,000-to-one to be the Christmas number one, and Bono at 500-to-one to be the next Pope!

www.fintech.finance

In other words, unicorns defy all reasonable probability to achieve what they do. So, how do they do it? What are their secrets? First – some context. My day job is as CEO of Unbound, an innovation ecosystem builder. We connect grassroots entrepreneurs, established corporates, dynamic brands, governments and trade agencies. All these elements are needed to inspire communities, foster entrepreneurship and build a digital future. But far too often these groups are not well connected. Issue 14 | TheFintechMagazine

LOCATIONS: ABU DHABI So, we were fortunate to be partnered with Abu Dhabi Global Market (ADGM) – one of the world’s most forward-thinking and dynamic international finance centres – for the FinTech Abu Dhabi 2019 Festival, an annual event that’s all about building these very innovation ecosystems. This year it included 13 global fintech unicorns.

Words of wisdom When asked, in the past, what advice I would give an aspiring entrepreneur, my instinct and experience always led me to the mantra ‘you always need a market looking for a product, not the other way around’. At the FinTech Abu Dhabi Festival, given the rarity of having these stellar fintechs in the same place at the same time, we

Stay close to your customers and obsess over their feedback. You don’t have to have the perfect app when you launch, but you have to provide awesome customer service to keep them coming back Mudassir Sheikha, Careem

Don’t focus on your valuation, but on the value you deliver for your customers OakNorth 44

TheFintechMagazine | Issue 14

decided to ask some of the unicorns directly what one piece of advice they would give. What is their secret? The answers, from Blockchain, C2FO, Careem and OakNorth, all coalesced around the importance of the customer. Nicolas Cary, cofounder and vice-chairman of Blockchain, a bitcoin block explorer service and cryptocurrency wallet, said: “Relentlessly focus on delighting your customers by creating something useful.” Colin Sharp from C2FO, creator of the first market for working capital, said entrepreneurs must be ‘utterly focussed on the customer, product and geography’, in order to achieve success. Mudassir Sheikha, cofounder and CEO of

Relentlessly focus on delighting your customers by creating something useful Nicolas Cary, Blockchain

Entrepreneurs must be utterly focussed on the customer, product and geography Colin Sharp, C2FO

Bright sparks: 13 unicorns were at this year’s FinTech Abu Dhabi Festival

the Careem ride-hailing app in MENA (the Middle East and North Africa region), Pakistan and Turkey, went further and said success hinged on a borderline obsession with the customer: “Stay close to your customers and obsess over their feedback. You don’t have to have the perfect app when you launch, but you have to provide awesome customer service to keep them coming back. Growth is your validation.” UK SME bank OakNorth said the same: “Don’t focus on your valuation, but on the value you deliver for your customers.” These responses, from companies which defy all the odds to succeed to the extent they do, speak volumes about understanding your market – be it your first customer or your millionth. The customer-centric principle remains constant, regardless of the size of company.

Single line of sight As a society, we have long-term goals and are more focussed on our futures than

previous generations probably ever have been – which is laudable and as it should be. Today’s entrepreneurs are as much about purpose as they are about profit, which is also as it should be. Companies that are genuinely sustainable in their thinking tend to be better run and more successful. But here’s the nub of it. I don’t believe, and the evidence doesn’t suggest, that any of these unicorns set out with the specific, sole objective of becoming a unicorn. They were concerned with the immediate future, getting their product exactly right and pleasing their customers. As the CEO of Careem alluded to – the product does not need to be perfect, the secret lies in listening to customers, continually adapting and shaping your offering to fit changing markets. Unicorn status is a destination reached by those that, with much hard work (and a little bit of luck) have applied these customer-focussed principles. www.fintech.finance

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INSIGHTS: TRANSFORMATION

How to land a

digital punch

Sonia Wedrychowicz is a digital transformation practitioner and thought leader, who’s successfully applied the rules of martial arts to big bank transformation

When I started kickboxing eight years ago, I had no idea how much it would help me with my work. Yet, I realised quite quickly that it made me unwind and that I feel fresh and open-minded after only an hour or two of intensive training. While listening to my instructor’s guidelines, I immediately realised that I could not only use them in the kickboxing ring but also outside of it. For the last few years I have been heavily involved in putting businesses on a digital path in Asia (driving the rollout of DBS Digibank) and in North America (with JP Morgan Chase), and I noticed that I can use kickboxing tips when dealing with their transformation challenges. Here are some of the common pieces of advice I have used, both in the ring and at work:

Photo by Tamara Pienko

Relax before you hit, don't stress, as it will make your impact less powerful

When I asked people what they thought was the most common word my instructor used during my kickboxing lessons, many guessed hit, faster, stronger, punch. In fact, it was none of these. The word mostly used by my trainer was relax. How many times do we make decisions under extreme stress, which blurs our perception and doesn’t allow us to see all the options clearly? Once we put the stress aside, and take a bit of time to relax and step back, we realise that the decision is much easier to make as there are lots of data points we can analyse and act upon. A smile and a joke are great ways to ease the tension in the conference room, make our minds and bodies take a deep breath and think much clearer again!

TheFintechMagazine | Issue 13

This principle, which I learned during my kickboxing, I have used while designing customer journeys in digital banking and the open application programming interface (API) portal that I was responsible for, as well as during the people transformation project. All of them seemed overwhelmingly complicated and tough at first, as they involved a large number of either customers or employees. The stress I felt at the beginning was tremendous, as I was afraid I would not be able to take all the variables into consideration that would make the project successful. And then I brought the kickboxing rule in: I realised that the moment I relaxed, I would start to see things more clearly. And it worked – huge projects were broken down into smaller pieces, we found people who were excellent at executing them and it all turned out very well. What also helped us was the understanding that, unlike in the analogue world, we didn’t need to deliver an elephant at the first attempt. Dividing the work into smaller items, starting with a minimum viable product (MVP), i.e. the minimum functionality that can work which customers can try to use and give us feedback on, was a big thing. It allowed us to deliver more value at smaller intervals and hence stress less, as we could always change the course before we went too far or it was too late. The data points were coming along the way and were allowing us to adjust the value proposition, based on the continuous feedback from our customers. The constant feeling of not letting the stress overcome our clarity of thinking and action was one of the biggest components of our success. There is a huge cultural shift necessary to make such a strategy successful. It

depends a lot on the senior management attitude and involvement. In a fast-changing environment, there is no room for a command and control management style. The leadership team needs to set a clear vision around what the organisation is striving to achieve and why, and then be carriers of the new culture, which is largely about creating a psychological safety net for the teams in order to unlock their creativity and full potential without a fear of retaliation.

Getting it right the first time doesn’t matter. Instead, learning from mistakes and improving every time has true significance.

I believe this lesson is especially significant these days, when we are all operating in an ambiguous environment in which traditional ways of doing things are not working anymore. As a result, we try new things, experiment and fail many times! But that should not stop looking for the next best solution and continuing our efforts. I had the same experience with kickboxing. I started from nothing and never thought I would ever get any belt. But with great difficulty, perseverance, sweat and tears, daily training and tiredness, failing more than winning, I achieved the blue belt status. Before I knew it, I went on and achieved all the other belts until I have fulfilled my biggest dream: I’m a black belt kickboxer. Such an approach is extremely relevant in today’s world, where the majority of our delivery www.fintech.finance

is digital and is done in agile, two-week sprints. This way of working is giving a lot of room for experimentation. We can try a lot of things by responding to our customers’ needs, observing their behaviour, iterating and trying again. We should never be afraid of mistakes: failure is not failure anymore, it is an opportunity to learn new things.

It’s not about how hard you hit: Black belt kickboxer Sonia Wedrychowicz

The competition does not sleep… it’s so much more important these days to take decisions quickly and not hesitate in pursuing them

www.fintech.finance

As in kickboxing, every time you experiment, even if you fail, you learn from it; your next move is going to be so much more powerful. So, relax every time you start something new and don’t be afraid that it might be a mistake as, according to Google, ‘if you have not failed enough, it means you have not tried hard enough’.

Once you’ve decided to punch or kick, don’t hesitate. Follow through and hope for the best.

Can you recall a situation when you had to decide on a strategy and, rather than realise it all the way through, you started having second thoughts almost immediately? As a result, did the decision fail to lead to the original desired outcome? And vice versa. I am sure you can count many successful projects where you followed through on your strategy, despite initial difficulties, and got it right faster than expected. This is exactly why it’s important to never hesitate when making a decision, and staying committed to it at all times. In the digital revolution era, time flies differently. The world of technology is moving so fast that one day lost on doing nothing is the equivalent of one week lost in the past; a week is like a month and one month delaying a decision is like one year. The competition does not sleep. And the environment has also changed – other banks are not your competitors anymore but you should rather watch out for other players that are entering by storm the space that has been reserved for financial institutions for more than 700 years. It is, therefore, so much more important these days to take decisions quickly and not hesitate in pursuing them. As in the last point, in the worst case scenario we will fail fast and will be able to correct ourselves quickly. But at least we will know the effect of that decision. One of the first quotes that I remember from the early days of my career was: “A bad decision taken on Monday is better than a good decision taken on Friday.” I believe the relevance of this quote has amplified multiple times in the past few years. Issue 13 | TheFintechMagazine

INSIGHTS: TRANSFORMATION

Be their master

After a few years of intensive training, I have achieved my black belt in American kickboxing – the highest level in a martial art where a vast majority of the grading is focussed on your individual achievement. It’s basically your blood, sweat and tears, failing more than succeeding, but always getting up to get better next time. If you want to become a master, not only do you need to practise more techniques yourself but, most importantly, you need to have students you are teaching and encouraging to score higher for themselves. It’s not about you anymore – it’s about bringing others along and helping them grow. I saw tears of pride in the eyes of my kickboxing instructor when I received my black belt – I was the first student he’d taught to that level. Does this remind you of the corporate world? There is only so much you can do as an individual contributor. There comes a time when you cannot achieve much more only by yourself and you need to start building teams and supporting other people. It’s about helping others grow as they become your true strength. Have you realised, the higher in an organisation you go, how little is done using your own hands and brain? The skill is in attracting the right people to join you, inspiring them and giving them encouragement and support to let them achieve higher results. Before you realise it, the amount of achievement is multiplying as everyone is contributing. By growing others, our mastery as leaders progresses

simultaneously – just as in martial arts. Sadly, we don’t see many leaders who transition from individual contributors, where it is all about themselves, into true leaders, when it’s all about our students, our employees, our people. But, interestingly, the digital transformation our organisations are going through is helping a lot in this space. The new way of delivering value to our customers is usually supported by an agile way of working. In agile, the biggest focus is on teams rather than the boss. The agile teams are created in such a way that they comprise of people with different skills, who can do the work that is assigned to them in a fairly autonomous way. In such a

It’s not about you anymore. It’s about bringing others along and helping them grow work environment, the role of the leader is changing dramatically. From giving orders and controlling the pace and progress of work, the managers are mostly focussed on making sure they have the best people on their teams and removing obstacles that do not allow them to achieve the team goals. Such leadership style is often referred to as servant leadership. In the agile way of working that is supporting our digitally transforming world, the boss’s role is mainly about

focussing on supporting the team and appreciating its efforts. It’s difficult to change others, so start with yourself – start incorporating the golden rules of martial arts into your life and you will see your career accelerate at a fast pace.

Never give up

When I recall my tenure in Asia when I was implementing a digital-only bank and then the open API portal and sandbox for a bank that was subsequently named the best digital bank in the world, it was like a combination of a rock and roll dance and kickboxing. We were, for sure, more rolling than rocking initially, while experimenting, iterating and working with our customers to make the value proposition better in each new release. The conversations with legal, compliance and operations departments were difficult at times, as we were constantly challenging the status quo and demanding new ways of thinking and doing things. Many times it felt like being punched in the face, standing up, correcting ourselves and trying again, until we finally achieved a tremendous result. Perhaps not surprisingly, my favourite leadership quote, which helped me out in the darkest moments of my career, comes from a well-known boxing character: Rocky Balboa. It’s the moment in the film when Rocky looks his son in the eye and delivers some fatherly advice: “It ain’t about how hard you hit. It’s about how hard you can get hit and keep moving forward; it’s about how much you can take and keep moving forward. That’s how winning is done.”

Agile working: The biggest focus is on teams rather than the boss

TheFintechMagazine | Issue 13

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INSIGHTS: TRANSFORMATION

Taking it personally True service is about caring enough to change lives, according to Andrew Stevens, Global Banking Specialist for Swiss customer experience solutions specialist, Quadient ‘Today, a business transaction is much more than that – it’s an opportunity to make a meaningful connection. A moment to make a positive impact on someone’s life [and] create a customer for life’. That’s the ethos of customer experience solutions expert Quadient and, according to its global banking specialist Andrew Stevens, it’s one every financial institution (FI) must buy into, or ‘die’. Swiss-headquartered Quadient offers end-to-end, highly personalised customer communications to organisations operating in sectors from retail banking to wealth management and insurance, on a worldwide scale. Its flagship Quadient Inspire suite of products is a multichannel, high speed, on and offline customer communications management solution, while the Quadient Digital Advantage Suite provides for ‘personalised mobile and web experiences integrated with core systems and aligned with non-digital communication channels’. Quadient Archive & Retrieval, meanwhile, offers quick access to historical documents and data across all channels for compliance purposes. Each suite of solutions works seamlessly with the others and through them Quadient helps to process eight billion personalised interactions each year.

Formerly known as Neopost, Quadient’s philosophy is centred on using customers’ data effectively to deliver relevant answers to their specific needs at the optimum time, and it has won a string of awards for it, including maintaining the Overall Leader position on the Aspire Leaderboard. The Fintech Magazine spoke to Stevens to discover more. THE FINTECH MAGAZINE: How important is it for financial institutions to offer a personalised customer experience in the digital age? ANDREW STEVENS: It’s way beyond critical. It’s become expected by customers in and beyond financial services. For example, the first time I used Netflix, it gave me a personalised recommendation for programmes I might want to watch. Fantastic. Second time, still revolutionary. Third time? Neat trick. By the fifth time, I’m expecting it. By the tenth, I’m not even just expecting it, I’m wondering why everyone else isn’t doing it. And financial institutions, too, have to keep up. It’s not just about who’s the best in banking, it’s about who’s best at delivering personalised customer experiences across all the digital world. TFM: Does the phrase ‘digital customer service’ have to be a contradiction in terms? AS: If you think

about it the way banks do at the moment, yes, it is a complete oxymoron: ‘we will send you data at a specific time, a bank statement or a credit card statement, and everything else will be when either we want something from you financially, or you humbly come to us and request it’. That’s not much of a relationship. Any good relationship is based on something for you, something for me; an equal trade. And that comes down to good communication. If banks start to communicate with their customers, they’ll do far better. The operative word is ‘with’. They must listen, understand and use their data to make recommendations, saying instead: ‘we’re adding value to you, not just taking your money’. TFM: Is omnichannel the answer? AS: There’s a combination of things here. The first one is the personalisation itself. There’s no reason why that has to just mean ‘I understand what your customer number is and the balance in your account’. It can be genuinely personalised conversations, like talking about someone’s child’s birthday. A high net worth individual with a private bank might want to go for an annual review, sit in a plush office with a leather-top desk and read a bound portfolio of all their investments. Or, they might want a digital version of

Spot the difference: Quadient believes success lies in treating customers as individuals

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www.fintech.finance

that communication they can take away, that allows them to play around with the information. They might want sliders on there, so that they can see what would happen if they took different versions of advice. They might want a reminder notification before the meeting, via smartphone push notification or SMS, instead of a PDF or HTML communication like they would get their actual report in. They might want their accountant to receive a version. There are all sorts of different things a customer could want that aren’t just the personal touch; they’re about really enhancing and augmenting it, and that’s where that omnichannel experience comes in, but if you don’t have one technology that runs all of that, you just can’t offer it. TFM: Is it possible to balance the personal touch with scaling quickly and efficiently, and how? AS: At Quadient, we’re unique in that we don’t try and tell clients what the experience should be. We let them decide. We provide the platform and toolkit they need, then it’s up to them whether they want to go as far as possible towards the segment of one, or just a generic communication. When it comes to our software itself, we modularise everything. If you’re a small organisation wanting to scale, you don’t have to pay for the whole ‘Rolls-Royce’ on day one, when all you need is a

wheel, or perhaps all you can afford is a wheel, but you can then keep buying as you need it. Underpinning everything is a scaling module, which makes sure that, as you work your way from small fintech to globally systemically important bank, or if you’re already at that level, the software scales with you, and can get all those communications out, in real time, as you need them. TFM: Will we see institutions that don’t take this omnichannel approach fail, or lose market share to others? AS: ‘Fail’ is a strong word in the short term, but I think in a couple of generations’ time, we could see some of the largest banks fail. In the short term, we will see them lose market share. At the moment, the digital challengers are driving customer experience, and they aren’t full service for every single type of product the traditional players offer yet. When they get there, and they will, they’ll be genuine competitors. So, in time, unless these traditional players have really bucked up their game, I can see some having real big problems.

In a couple of generations’ time, we could see some of the largest banks fail… unless traditional players have really bucked up their game

www.fintech.finance

TFM: Is the marketplace model part of the answer – organisations following the likes of Starling by offering additional products from other providers via their account or app? AS: The problem with this is unified experience. Starling offers a

phenomenal one, and their marketplace is fantastic. But customers are buying your products via other organisations, and not getting the same experience from them as they get from you. If you can find a way of offering the same experience through different suppliers, that could be the future. TFM: What can a tailor-made customer journey provide for an institution and its customers? AS: Bottom line, more money through happier and more satisfied customers. They are more satisfied because they feel an organisation actually knows and cares about them, and doesn’t require them to fill in page after page of manual forms. Once they’re happier, they’ll spend or save more with it. Look at the Celent Model Bank Awards. Two out of the last three years, we’ve been very fortunate that banks using our technology have won. Firstly, with Bank of Montreal, where we helped digitise their forms and onboarding experience, and, more recently, with Santander in the UK. Bank of Montreal customers have gone from a very painful onboarding experience to seven or eight minutes and everything’s done. Santander has gone through its entire commercial onboarding operation, stripped out all of the complex forms, made it all digital using Quadient software from our Inspire platform. Everything’s streamlined around customers and that pain of account opening has gone away. It’s going to earn a lot of money from that. It’s about using technology. It’s about saying ‘we have access to a whole host of information about you, let’s see how painless we can make it, based on that’.

Issue 14 | TheFintechMagazine

Banking made easy.

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INSIGHTS: WHAT NEXT? Explosive thoughts: Banking 4.0 will break the mould

Brett King, host of the wildly popular Breaking Banks podcast, Founder of the disruptive American ‘bank of the future’ Moven, and author of Bank 4.0, has made a career out of thinking the unthinkable… and here he’s at it again It might not be palatable for many Americans – and perhaps one in particular – but China’s drive to adopt the most advanced tools to shape financial services has left Uncle Sam standing. The ‘civilisational clash’ – as the US State Department’s policy planning director characterised the two super-economies’ fundamental differences over issues such as privacy and human rights – might have a part to play in the American banking industry’s latency. But, even so, it’s hard not to admire the speed and conviction with which China is leveraging technology to change the concept of transacting and personal liquidity. The average Beijinger has no problem sharing their data, be it behavioural, financial or biological, if it makes acquiring goods and services – and getting the wherewithal to pay for them – easier. And the country’s Central Bank is determined to facilitate that.

Its 2019-2021 Fintech Development Plan, announced in August, with a ‘focus on breakthroughs (to) significantly enhance the people’s digitalisation, networking and intelligence’, moves China closer than any other nation to what American fintech futurist Brett King has described as the ‘ultimate phase of disruption of banking’, or Banking 4.0: the blissful state of not having to concern ourselves about grubby cash because a combination of artificial intelligence (AI), biometrics, Cloud computing and (very) big data simply ‘embeds’ banking, unconsciously into our daily lives. The US is probably seven to 10 years behind China on that journey, says King . “Less than one fifth of banks in the United States allow you to open a bank account on a mobile phone today. Given that the iPhone is almost 12 years old, that’s just insane!” he says. And recent US ‘innovations’ in the form of the Apple Pay card and

T-Mobile Money – two tech companies that have morphed into financial service providers – only serve to confirm his point. “They are iterations on the existing model. Apple stuck a plastic card inside the phone and T-Mobile is offering a value store, a basic bank account. Neither is a particularly exciting example of next-generation banking,” King scoffs. Seven thousand miles away, however, something radical is happening. “Take a look at China as a template for what’s coming. There, 98 per cent of mobile payments take place across two technology platforms, essentially – Ant Financial’s Alipay, an evolution from Alibaba’s ecommerce platform, and Tencent’s WeChat Pay. These have captured all of China’s discretionary day-to-day spending. You can walk into a KFC restaurant in China, order using your voice and pay using your face. That’s more the type of payments activity that we’re going to see.”

Take a look at the Chinese market as a template for what’s coming... 98 per cent of mobile payments are taking place across two technology platforms. You can order using your voice and pay using your face www.fintech.finance

Issue 14 | TheFintechMagazine

INSIGHTS: WHAT NEXT? .” But while the evolution of the payment vector, from cash to card to phone to biometric, follows a Darwinian curve: Banking 4.0 – which lends its name to King’s latest book, Banking 4.0: Banking Everywhere, Never At A Bank – is a leap of a different order. “What if you can’t afford to buy your groceries, or your KFC, or your trip to Hong Kong from Shanghai?” says King. “Well, that’s when credit will automatically find you. “In the future, if you’re a business or an individual that needs access to credit, that’s largely going to be predictive or contextual. Based on a scenario or a use case, the credit facility will be available to you, when and where you need it. You won’t have to stop, do your research, go and apply for a loan. Bank thinking right now is ‘we’ll tell you about our bank, show you our products, you apply and, if you’re not too risky, we’ll let you have access to money’.

the role banks have in society and whether banking could be provided better by, say, a technology company like Ant Financial or Amazon,” King adds. “It’s also prompting us to question whether banks have consumers’ best interests at heart. It’s creating tools around financial wellbeing and contextual access to credit where there’s been no onus on banks previously to provide it.” In and of itself, though, open banking won’t extend financial inclusion by virtue of the fact that it self-evidently only benefits those who already have an account. “In the US, you see largescale inequality – one per cent of the population capturing a lot of wealth, while 72 per cent of Americans, according to the Center for Financial Services Innovation, can’t afford a single financial shock annually. We’re talking about a $400 unexpected bill – a school fee, a dentist fee, or a car accident.

you spend, and that you don’t have enough money in your bank account today to get all your usual groceries. So, as soon as you walk into that store, it provides the extra cash rather than waiting for you to get to the checkout and have your payment declined. “Or when you’re looking for a new home and you walk into a property that’s listed on some real estate agent website, you could already be presented with financing options, based on your credit history, your behaviour, what you can afford to pay. Maybe you’ll get a message that this house is too expensive for you.” That’s the level of personalisation we should expect in the future from our banking provider, says King, but banks need to get over themselves first. “A lot of the data is already there; it’s the execution of the customer experience where we fall behind. The banks aren’t incentivised Lightbulb moment: Banking that anticipates, and answers, customer needs?

“That entire process, the way it works today, will be broken.”

Banks on the brink Existing providers won’t just be able to digitise to survive this latest and most traumatising of banking’s four stages of development. It’s a lot more complex – and deadly – than that, says King. “It is too late for some banks. Their retail business is probably going to disappear over the next 10 to 15 years. The Chinese banks have already had to respond very fast and very aggressively to what’s happened there, because Alipay and Tencent’s WeChat Pay did so much damage to their business model. That hasn’t happened in Europe and the US yet, but it definitely is going to happen.” While open banking is not the only driver for this change, it will help to accelerate it. “Open banking is pushing us to reflect on

TheFintechMagazine | Issue 14

There’s a similar figure in the UK. So, the first thing to do with open banking is to look at the problem of financial health – give me all of my data, about all the money I’m spending, and let me figure out if there’s a better way to utilise my money,” says King. “It’s about moulding banking to fit your needs individually – that’s really where the big change is. Take one example: today, you walk in to a grocery store, fill up the cart and get to the checkout. You chip and PIN, or you swipe your debit card, and the cashier says ‘I’m very sorry, your card’s been declined’. And you’re like ‘what? Could you try again?’, like magically more money’s going to come into your bank account. Then you realise you didn’t get paid yet and so you say ‘sorry about that. Let me give you another card’. That’s currently how you solve the problem. But, if you think from a first principles design perspective, the bank knows where you go shopping, how much

to provide this approach, because of their product structures and their organisational chart. If you’re the head of the credit card department, you’re not going to be excited about this contextual experience, that gives someone credit to pay for their groceries when they walk into the store, because you know it’s the end of your department. If you’re in the mortgage team, you’re not excited about someone giving customers contextual access to a financing offer for a home when they walk into a real estate property, because you want them to buy a mortgage from you. The product structure and the organisational chart that reinforces it, is like an immune system that attacks these improved experiences. “That’s why many of the tech giants and the operating systems (OS) that will emerge, like voice-based OS, will more consistently be the driver for that change, rather than banks changing themselves.” www.fintech.finance

PARIS FINTECH FORUM

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 fifth 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 14

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 added value 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; 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 and 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! Each year at the Forum we aim for 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. www.fintech.finance

Starling Bank; Osama Bedier, CEO of Poynt; David Gurle, CEO of Symphony; Brandon Krieg, CEO of Stash; Arik Shtilman, CEO of Rapid; Julian Teicke, CEO of wefox Group; and Elizabeth Rossiello, CEO of Aza Finance, among many others. And still there are big surprises to be announced! 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 attendees, telling us about business deals, investment

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

TFM: Any scoops you can share with us on the already confirmed speakers for next January? LN: We just started to share our first confirmed speakers and among them you can find: Ralph Hamers, CEO of ING; Carlos Torres Vila, chairman of BBVA; Frédéric Oudéa, CEO of Société Générale; Hikmet Ersek, CEO of Western Union; Javier Pérez-Tasso, CEO of SWIFT; Ann Cairns, executive vice chair of Mastercard; Nicolas Huss, CEO Ingenico Group; Nikhil Rathi, CEO of London Stock Exchange; Valentin Stalf, CEO of N26; Kathryn Petralia, president of Kabbage; Brad Garlinghouse, CEO of Ripple; Anne Boden, CEO of www.fintech.finance

days

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.

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 decisionmakers, 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

52%

exhibition

international

halls

countries

1340

companies

37%



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 &

innovation

43%

Lounges

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.

12%

VCs / investors & media

29% CEOs & founders

82%

35% C-level & directors

C-level & top management

parties

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 enable 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.

18% Mngt. team



Speaker dinner



Gala dinner



Closing party

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TFM: What will be the key subjects on the agenda this year? LN: With five content stages (one more than for the last edition) 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 will host a payment breakfast and moderate a few sessions of that track and, of course, we’ll have many specialist 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 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! Among the confirmed sessions, we’ll have fascinating meetings organised by Haus of Fintech, CFTE, Fintech Australia, Finance innovation, the LHoFT, Digital Finance Forum, the UK embassy, and the French government’s fintech innovation programme Le Swave. Those new initiatives, added to our already announced parties and still-to-be-announced side events run by our other 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

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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, www.parisfintechforum.com. And follow all its latest news on Twitter @ParisFinForum www.fintech.finance

PARIS FINTECH FORUM

2020 MAIN THEMES

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?

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● Payments: The value chain revolution

Issue 14 | TheFintechMagazine

BUSINESS BANKING

Rebel with a cause Mobile banking disruptor Monese has built a reputation as a fintech revolutionary, impatient for change from the get-go. Ambreen Khasru, its Head of Business Banking, explains why its next target is better banking for SMEs Monese has racked up one achievement after another since it was founded by Estonian migrant Norris Koppel in 2015. He was inspired by his own frustrations at arriving in the UK and being unable to open a bank account because he didn’t have a fixed address or six months-worth of identity-proving documentation. Turns out, he was onto something, and globetrotters like him have bought into Monese’s offering in their droves – taking it to the one-million-customer mark this June, with an estimated 3,000 more signing up daily and managing a total of $3billion through their Monese accounts. What is it that’s convinced them to vote with their feet in such large numbers? A simple promise to keep things fast, easy and economical when it comes to opening an account, spending on the move and abroad, and managing their finances, according to head of business banking Ambreen Khasru. They’re no doubt also won over by this ethical company’s cause centred around financial inclusion and ‘doing the right thing’ in general. And Monese, which has offices in London, Tallinn, Lisbon and Berlin, is doing its best not to disappoint, launching one first after another to ensure it consistently delights its customers, in line with its goal of ‘‘making opening and using an account as easy as ordering an Uber… accessible to everyone, not just the select few with perfect credit scores and several months of utility bills’. It started strong, as the first 100 per cent mobile current account in the UK at launch in 2015, and has continued to innovate to the point where anyone in Europe can have one. Monese won ‘Best Challenger Bank’ in the 2016 European Fintech Awards. The European Commission awarded it €1.1million for product research and innovation, and it had also netted a total of $60million of series B funding by September 2018, to support product

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development and international expansion from high-profile investing partners including PayPal and the International Airlines Group’s Avios loyalty programme. Monese supports social – as well as financial – change. It offers free Premium accounts to UK-based refugees. There’s also its recent partnership with the Inclusion Signpost industry accreditation programme for inclusive products, and its ‘Europe is Open’ advertising campaign, which encourages people to remain connected when travelling around Europe, no matter what happens with Brexit. Perhaps unsurprisingly, the Sunday Times named Monese among its top 10 disruptors in its Fast Track Awards 2018.

And for its next trick… With its track record of trying to put right what it considers to be wrong in financial services, the latest bee in Monese’s bonnet is inadequate banking services for small and medium-sized enterprises (SMEs) as it seeks to base its business decisions on what its customers want. “We look at the customer, understand their needs and try to bring that to them,” , says Khasru. “As a technology company first and foremost, we can bring out products quickly and offer them services to help them deal with their financial positions and cash flow much more easily. “If you look at loans, for example, even if they have history with the bank, it takes almost a month, as an SME, to get approval. Whereas next our goal is to help SMEs get access to loans instantly, with the help of a third party who are experts in their field. “I joined the company a year ago. Monese is more known for its personal account, but the business account was something it had in mind so, when I

came onboard, I launched the offer within two months. It’s bundled with our personal account, so customers can have both.” And she worked hard at listening to make sure the bank got entry into this new space right. “I’ve been travelling around England, meeting incubators, accelerators, the Institute of Directors, the people who actually help develop SMEs, and one of the biggest problems for startups is their cash position and knowing where they are in the middle of the month. They think they’ve budgeted £10,000 to do marketing or whatever, and they’ve probably spent £15,000. So, what do they do? Where do they get the next £5,000? We're trying to help businesses know their financial position and how to deal with it, because cashflow is something that every business struggles with at some point or other.” As an early adopter, Monese’s agile approach to small businesses banking is massively helped by the use of Cloud-based hosting. “We couldn’t do what we do without Cloud-based technology,” says Khasru. “We use Amazon Web Services, which allows us to code much more easily and build microservices. So, if there’s a change in a business’s company name, or of director,

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those microservices allow us to react instantaneously and focus more on customer service because we can plug-in third-party products and get products to market much faster.” Khasru believes the single, biggest problem hampering SMEs is a fundamental one: accessing a bank account. “Half of our customer base today are startups. I worked for a startup, and it was

Our next goal is to help SMEs get access to loans instantly with the help of a third party who are experts in their field just so difficult to open a bank account because, firstly, we had no guarantee, no credit history, and most incumbent banks work on that principle. When you’re a startup, you’re just focussed on proving your product is worthy, but friends of mine who are entrepreneurs found that, to be able to open a traditional business account, they would have to meet with a business manager, sometimes one month after they had asked for that appointment, even if they had a current account with that bank.

“Opening a business account shouldn’t have to take that long. It takes a few minutes to apply to open an account with Monese, then we take 48 hours to do the due diligence, the know your business (KYB), relying purely on technology. “There are so many great technology companies providing very rich information, probably much better data than you get from someone going into a bank and presenting their ID and business plan. And, if we can enable them to see their financial position at any moment, why would they want to go to a personal banker? A company turning over millions of pounds might need a personal banker, but we’re talking about people who just want a chance to create a business and not have to worry about their financial situation.” Monese is also committed to making the UK’s Faster Payments service really work for SMEs. “Personal accounts have been digitised for quite a few years, whereas SME business accounts haven’t. However, basic banking features like receiving and making payments are really important because SMEs, in the past, would literally have to either wait for their statement to see that their monies had been paid, rely on their client telling them that they had put money into the business’ account, or login to the internet to find

out. Instead, Monese sends them a notification, whether they’ve paid for something or are receiving money for something. For SMEs, that’s really exciting, because having banking in the palm of their hand means they can work wherever they like, they’ll know that funds have been deposited into their bank, and the fact that Faster Payments, thankfully, exists, means that even paying their supplier can happen within two hours and they can know their financial position at all times.”

Access all (European) areas The same is true of crossborder payments, where Monese is innovating with its Eurozone account and European IBAN (international bank account number) initiatives. “Another challenge for SMEs is becoming international because, while, at the beginning they might focus on their domestic market, the international market is also really important for them,” adds Khasru. “The Monese personal account is already a dual account, with GBP and Eurozone versions, and we’ll soon launch a euro IBAN, which will mean British and European companies will be able to settle in either euros or sterling, with zero fees. It also means their suppliers and clients will be able to settle in the local currency. This is something that’s really important to us, because we’re all about financial inclusion and the person who comes into a new country and sets themselves up. I’ve adopted the same philosophy in business banking, but I’m taking it a little more slowly than when we did personal banking.” Knowing Monese, whatever else it has planned will be worth waiting for.

Against the flow: Monese’s products are all about financial inclusion – which now gives power to SMEs

www.fintech.finance

Issue 14 | TheFintechMagazine

BUSINESS BANKING

Turning back time: Blending traditional values with tech

Back to the future The list of new entrants to join the banking space in the last five years is an extensive one – Monzo, Starling, Revolut, to name but few of the most successful.

However, it’s not so often you get to witness the birth of one from the inside. And even less common that the newborn focusses its attention on delivering a personalised, ‘old-fashioned’ experience first and foremost, with digital as the supporting act. As chief technology officer, Monica Velasquez-Torres has a privileged insight into the forging of just such a bank – Recognise, which is likely to become the latest new UK entrant in 2020. With a track record like

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Monica Velasquez Torres, Chief Technology Officer for neobank-in-the-making, Recognise, explains how it will use cutting-edge technology to deliver the ‘old-fashioned’ human touch

Velasquez-Torres’ – the former PricewaterhouseCoopers technology consultant has helped bring numerous others to fruition, despite being only 29 – you would expect her mantra to be ‘digital and more digital’. But her vision for Recognise is instead for a highly personal bank that’s facilitated by tech. Or, as she

puts it, ‘technology with humanity’. “Everything comes down to your people, your processes, your control and also the technology, each of these having a lot of ramifications and needing to work very well together because, if one fails, the other will fail automatically. “Beyond that, and more importantly, it’s about our customers; what they want, how they want it, what channels they would like to interact with, and it’s about being careful about who your customers are. It’s about building a bank for their benefit, not building one based on what your own dream might be.” And herein lies Recognise’s second, related mission, because the specific type of customer it hopes to wrap its

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metaphorical arms around is ‘forgotten’ small and medium-sized enterprises (SMEs), specifically those with annual turnovers of up to £2million, which Velasquez-Torres describes as being the ‘backbone’ of the UK’s economy, and largely overlooked by the Tier One banking giants whose primary focus continues to be on the retail sector. “We can see that other banks are focussing too much on retail and ignoring this marketplace that is huge, with more than 5.7 million businesses just in the UK economy,” she says. “It’s a matter of recognising that SMEs are the engine of a country; they are the nation-builders and the backbone of the UK. But SMEs are feeling left behind by other banks because they offer no real touchpoint and the process of commercial lending is so complex and takes much longer compared to a retail one, so they can get lost if they don’t receive transparent communication across the journey. That’s what we’ve been looking at: how we can bring a better service, that is old fashioned banking, where they can actually talk to us, face-to-face, through different technologies. “It’s not just about chatbots, where customers can ask questions online. After all, although these might give them an answer, it’s not necessarily the answer they would like to have or the guidance they need. So, we’re going to be a traditional relationship bank, similar to a private bank, with technology and humanity. “For me, it’s about offering the right digital solutions, but not forgetting we are still human beings. Customers still need someone to help them with their questions. Especially SMEs, which need not just deposits but also investments and loans, to help grow their businesses. Giving them that knowledge and experience is our unique selling point, and we can offer the kinds of products they need to help them grow in a matter of days, not weeks or months as with other banks.” The name ‘Recognise’ was, in fact, inspired by its intention to bring the unsung users of financial services out of the shadows and into its service spotlight. This is where, Velasquez-Torres argues, a neobanks like Recognise has a significant advantage over its established rivals when it comes to serving SMEs, because it is much more technologically proficient and agile. www.fintech.finance

Facilitating this, at the heart of Recognise’s infrastructure, will be an Amazon Web Services, Cloud-based ecosystem. It is extending its ethos of togetherness to partnerships with third parties, including fintechs and more traditional providers, to deliver the optimum combination of ‘the very best of technology’. “Essentially, what we’ve done is to have a brain at the centre and, around it, different services we consume data from, and push data to, all with the help of application programming interfaces (APIs),” says Velasquez-Torres. “We call this our Lego bank for SMEs – a fintech marketplace, where you can plug things in and unplug them, according to need, giving us the ability to decentralise our information and inquiries and handle various sets of data in near real-time, and try new and different services – from new and more traditional providers – over the long term. “Instead of hardwired, integrated services, we are decentralising them and being very careful about how we do this across all of our services, to retain optimum flexibility.”

Everything comes down to your people, your processes, your control and also the technology, each of these having a lot of ramifications and needing to work very well together That optimum blend of old and new applies to its choice of partners, too. “In the credit space, where we need to do know your customer (KYC) and know your business (KYB) checks, the number of new players in that market is very low, so we have had to partner with traditional ones. And we’ve seen, by experiencing their technologies, how they are evolving and using APIs, which we can hook into, and consume data from. “This is how we want the bank to work, using this ecosystem of different partners, which is all part of the relationship banking proposition we want to create.” The inclusion strategy extends to its

physical locations, too. It plans to quickly expand outside of London by developing hubs, staffed by business development managers, firstly in Birmingham, then Manchester and Leeds, to connect with the SME sectors in each of those areas, with the specific aim of building long-term relationships with its customers. Velasquez-Torres says: “We are not looking for unicorns, we are looking for small/medium enterprises with a turnover of up to £2million, which are the backbone of any economy, in those places where it is very difficult for other banks to go. “Our model is all about being there for our customers. If we need to travel to service them, we will go there, which is why we will have these hubs where we can serve such SME customers well, where they need it most, enabled by our Cloud IT model. What we want at Recognise is to build relationships for a long time.”

A bank for the future, today The powerful City of London Group finance house, which sits behind Recognise, certainly believes it has identified a gap in the market. The new entrant’s journey began in 2018, when it acquired Echo Financial Services and rebranded it as Recognise with a founding team that included Jason Oakley, previously Metro Bank’s managing director of commercial banking. Earlier this year, it raised £15.2million for the project. In November, Recognise applied for a banking licence and, if everything goes to plan, expects to be up and running and accepting deposits by the end of 2020. While getting ready to launch, Recognise is also preparing for tomorrow by future-proofing its operations for the entrepreneurs of a decade’s time, according to Velasquez-Torres. “That is the challenge for me and the team, especially when we are going to have a change, in my view, in our customer base, between year two and year 10. Our customer base isn’t Millennials like me at the moment – but, hopefully, people of my age will become the SME owners and entrepreneurs of the future. “There are quite a lot of challenges when you create a bank, and that’s what I enjoy – changing the antiquated world to the new world.” And a brave, exciting new one it promises to be too! Issue 14 | TheFintechMagazine

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BUSINESS BANKING Heart of the matter: Each small business is unique and providers need to recognise that

G N I W O H S E V O L E TH s E M S R FO Access to finance has undoubtedly improved in recent years, but for SMEs (small and medium-sized enterprises), this improvement is not enough.

Almost all of them need finance in their first few years, but while loans are an essential lifeline to many, they alone will not solve all the financial challenges that these small businesses face. At Banking Circle, we are dedicated to improving access to banking solutions for businesses of all sizes, in all industries and in all geographies, whether they trade nationally or internationally. As part of this commitment, we regularly speak to businesses to find out what issues and challenges they are facing, and what the banking pain points are today. Recently, we commissioned MagnaCarta Communications to carry out a series of studies for us, looking into financial exclusion and how different financial www.fintech.finance

Anders la Cour, Co-founder and CEO of Banking Circle, looks at the challenges and opportunities ahead for SME payment providers, and their vital role in financial inclusion

provide up-to-the-minute feedback on the state of the industry, current provision, the challenges and what the road ahead looks like. By gathering this range of first-hand insights, we believe we can work together with the wider industry to find better solutions, which meet the current needs of SMEs facing potentially lethal financial exclusion.

The challenge of serving SMEs institutions can each play a role in supporting SMEs and improving access to banking and finance solutions. Earlier this year, we published a white paper, Financial Inclusion For Europe’s SMEs: Building A Circle Of Trust. Now we have published a payments-focussed insight paper, Pay, Set, Match! Payment Services For SMEs – Jump-starting A Virtuous Digital Payment Circle. Unique insights from experts working right in the heart of the payments sector

Effectively serving SMEs requires payment service providers (PSPs) and other financial institutions to have a true and meaningful understanding of the reality of small business life. Many PSPs are indeed SMEs themselves, which can be invaluable in assessing specific needs and the challenges SMEs might be facing. And this can put them in a strong position to develop solutions – working with like-minded partners – that exactly fit the bill. Issue 14 | TheFintechMagazine

BUSINESS BANKING But at the heart of the issue is the fact that PSPs must build solutions that are SME-specific, not based on a previous model built for larger businesses. And this is exacerbated by the fact that each SME is entirely unique – some are one-man bands, others have 249 employees; some are local businesses, others trade internationally; some are seasonal and others have a steady flow of income throughout the year. This immense variation creates a dilemma for financial institutions trying to build scalable solutions: no single payment solution can meet all the financial needs of every SME. There is no one-size-fits-all. One thing all SMEs have in common, though, is the need for banking accounts, and almost all will, at some point, need an injection of cash, to kick-start an expansion, purchase stock at the beginning of the season or replace broken equipment. A traditional business loan from a bank is generally too expensive, too inflexible and too slow to arrange for a fast-paced SME in today’s highly competitive, digital and international marketplace. As Kent Vorland, CEO of SmartTrade App, told us during our research: “Consumer products are not agile enough and providers have little knowledge of small businesses… Equally, the big boys have complicated functionalities, but nothing optimised for small merchants.”

Challenges facing SMEs

Nearly half of UK small businesses would be willing to move to a non-bank provider if their financial needs would be met in new and innovative ways

It didn’t take much investigation to establish that late payments, limited access to services and restricted credit lines are affecting the success and potential of SMEs of all sizes and stages. SMEs also commented that access to payment services is restricted, it takes too long to open a merchant account and there is little support for accounts payable. Each of these can have a significant impact on an SME’s ability to maintain and grow its client base and profit margin. In turn, this limits its ability to expand, reach new markets, increase product lines and better serve its customers. With 24 million SMEs in Europe making up 99 per

cent of private businesses in the region, employing around 60 per cent of the European workforce and contributing more than half of all business turnover, a problem holding back SMEs is a problem holding back the entire economy. David Selves, owner of the Selves Group of companies, commented: “Three to five banking days for card payments is still the norm, which causes considerable issues for many small businesses that need to restock rapidly.”

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… for business: But existing financial services for SMEs don’t fit the bill

Michael Ault, CEO and Founder of Universal Transaction Processing, added: “SMEs have been through an arduous process to get a merchant services account, and then it takes days to get their funds.”

PSPs to rescue?

Ivo Gueorguiev, the chairman of Paynetic, told us: “Any service providers deploying digital technology are ideally placed to serve SMEs and address the problems of scalability, access, utilisation and viability.” Supporting this view is recent research from marketplace lender Growth Street that showed nearly half of UK small businesses would be willing to move to a non-bank provider if their financial

needs would be met in new and innovative ways. The research conducted by MagnaCarta Communications also showed that artificial intelligence (AI) is being used to reduce audit processing times, automatically match payments to invoices, identify suppliers most likely to pay late and reduce fraud. Speeding up the process in this way reduces manual intervention, cuts the risk of manual errors and, of course, significantly reduces application and risk assessment time. In turn, this brings down the cost, delivering a more affordable, faster service to SMEs. But a big part of the role PSPs need to play is in educating SMEs about it. We found that many are yet to be convinced of the benefits of digital technology in general. And this means they are not actively seeking digital banking and payment solutions, despite the fact that these could deliver a far better service than they receive from their current banking provider PSPs cannot change the minds of millions of SMEs overnight, or alone. So, while PSPs should see themselves as a key element in that change, education must be carried out via a collaboration of financial institutions across the entire industry. Each provider must share responsibility for kick-starting adoption rates among SMEs. With many PSPs and other providers already delivering innovative ‘point’ solutions, and many ambitious SMEs currently underserved by their existing bank, the opportunity to build bridges and connect solutions is ready and waiting. Each provider has a role to play and value to add if they build relationships across the board. As reported in our insight paper, financial inclusion based on digital technology occurs over a broad spectrum of technology, communication, collaboration and analytics. Innovation and real change is only possible in an ecosystem where each player knows its role and appreciates that of others. Dialogues must be kept open and innovation must continue, in order to find and develop successful, effective, affordable solutions that will work for SMEs of all types, increasing financial inclusion and benefiting our economies as a whole. ■ For a copy of the latest insight paper, visit www.bankingcircle.com www.fintech.finance