Fintech Finance Magazine Spring 2017

Page 1

Issue 4

Spring 2017


What’s trending now in Europe

Avengers re-Assemble! 11:FS meets the new superheroes

Nouveau riche

Comarch, Axa, Aixigo & Moneyfarm on the future of wealth management

Spotlight on Canada

Tech, trade & Justin Trudeau

Featuring Geoff King, Christine Duhaime, Gerry Gaetz, Jan Pilbauer, Peter Aceto, Syed Quader, Dubie Cunningham, Nick Varnitski & Isaac Strang

PLUS INSIGHTS FROM Vayana ● Worldpay ● DWC ● Fajr Capital ● FCA ● Deloitte ● Aqubix AEVI ● Smartstream ● McKinsey ● Barclays ● Invoice Cycle ● Worldpay ● Teleperformance

Are you making it hard for your customers to pay? Did you know that more than half of all online purchases are paid for using alternative payment methods (APMs)? In China, customers prefer Alipay. In Finland, they prefer to pay by bank transfer. In the Netherlands, most online shoppers use the local payment method iDEAL. The most successful payment service providers (PSPs) will be those which offer their merchants the broadest possible range of locally preferred payment methods. That’s where PPRO comes in. We work with PSPs to give them and their merchants frictionless, one-stop access to hundreds of APMs worldwide. Get in touch today, to find out how we can help you go global. Want to know more? Visit or email


THEFINTECHVIEW Spring has sprung and New Year’s resolutions are a distant memory. Were almost a quarter of the way through 2017 and all pistons are firing here at the FF hub as we bring you the latest news and features in our fourth edition of Fintech Finance. In this issue we take you to Canada, looking at digital transformation, spearheaded by an exclusive interview with the Prime Minister himself, Justin Trudeau. Our Canada correspondent, James Ellis, was fortunate enough to visit the team at Scotiabank’s Digital Factory;, and we speak with iGTB, Manulife, Tangerine and RBC as they reveal some of the exciting things


A Tru knowledge economy

How Prime Minister Justin Trudeau’s innovation, investment and inclusion polices impact fintech

12 Building a payments superhighway

happening in this big, beautiful and increasingly influential country. We had a blast at FinovateEurope in February and bring you some of the highlights from the show, together with the latest from Pushfor

ISSUE #4 SPRING 2017 and Comarch and a sizeable feature discussing compliance. We also have our regular updates on payments, customer experience, security and data management, as well as the latest, much anticipated, instalment from the Fintech Avengers. There are exciting times ahead as we begin preparing for Money2020, and we look forward to bringing you that special feature in the next issue. Meanwhile, we wish all of our readers a prosperous continuation of 2017.

Ali Paterson |

Did you recognise last issue’s ‘spine tingler’: "There’s no shortage

of remarkable ideas, what’s missing is the will to execute them." – Seth Godin, American entrepreneur & author 26 A big orange glow

31 Passing it on

Reflecting Peter Aceto’s time at Tangerine

How RBC Wealth Management is addressing emotionally charged legacy issues

28 Biometrics meets Botox

BMO Financial Group’s interesting authentication plans


Payments Canada is taking the industry on quite a journey

14 Follow the trade winds

How Intellect iGTB is helping Canada go global

32 Is this the new normal?

Armada Labs on the future of lending

FINOVATEEUROPE 34 What’s so #great about Finovate?

Get the post-show low-down

36 Meet Myra

Your conversational wealth management AI from Comarch

16 Finding the right fit

Manulife gets up close and personal

18 We’re ready to party!

The new Financial Innovation and Technology Association

20 New kids in town

Canadian entrant ERI Bancaire on what you need to know when crossing the Pond

22 Banking in the fast lane

Scotiabank is building a breathless future for financial services

24 Firing on all synapses

Cisco’s helping to build Canada’s digital nervous system

Spring 2017

20 |



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Digital Digital Digital Transformation Transformation Transformation in in in Insurance Insurance Insurance Digital Transformation in Insurance This This This Congress Congress Congress will will will bring bring bring together together together 100 100 100 insurers, insurers, insurers, brokers, brokers, brokers, aggregators aggregators aggregators and and and solution solution solution This Congress will bring together 100 insurers, brokers, aggregators and solution providers providers providers to to uncover to uncover uncover the the the practical practical practical steps steps steps needed needed needed to to to succeed succeed succeed in in in a a digital a digital providers to uncover the practical steps needed to succeed in adigital digital era. era. era. Split Split Split into into into 5 5 digestible 5 digestible digestible themes, themes, themes, attendees attendees attendees will will will explore explore explore the the the challenges challenges challenges and and and emerging emerging era. Split into 5 digestible themes, attendees will explore the challenges andemerging emerging opportunities opportunities opportunities to to both to both both deliver deliver deliver operational operational operational efficiency efficiency efficiency but but but also also also exceed exceed exceed opportunities to both deliver operational efficiency but also exceed customer’s customer’s customer’s digital digital digital expectations. expectations. expectations. customer’s digital expectations.

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Traditional Traditional and and and non-traditional non-traditional non-traditional competition competition competition Traditional Traditional and non-traditional competition Operating Operating costs costs costs and and and technology technology technology Operating Operating costs and technology

Join Join Join us us us ininin May May May tototo transform transform transform your your your business business business and and and setsetset yourself yourself yourself apart apart apart from from from competition! competition! competition! Join us in May to transform your business and set yourself apart from competition! Limited Limited Limited FREE FREE FREE places places places for for for senior senior senior representatives representatives representatives from from from insurers insurers insurers and and and aggregators aggregators aggregators Limited FREE places for senior representatives from insurers and aggregators Register Register Register with with with the the the code: code: code: MK-VKAD MK-VKAD MK-VKAD Register with the code: MK-VKAD For For For more more more information information information about about about this this this event, event, event, please please please visit: visit: visit: For more information about this event, please visit: ToTofind To find out out out more more more contact contact contact Tofind find out more contact Organised Organised Organised byby Arena by Arena Arena International International International Events Events Events Group Group Group | | | Organised by Arena International Events Group |



50 38


72 48 WEALTH MANAGEMENT 38 Shock therapy

Axa’s Strategic Ventures Capital fund is shaking up insurance

40 It’s not all about the robots… Aixigo takes on advances in wealth management

42 Ploughing its own furrow

And Moneyfarm is reaping the rewards

50 Getting a deep clean

Helping to keep banks whiter than white with Aqubix’s new AML system

52 The value/cost conundrum Lessons in credit risk from McKinsey & Company

54 Chasing the ratings

Credit reference agency modeFinance has a big job to do in banking



44 Plugging the gaps

56 Top secrets

Deloitte Consulting warns against quick fixes

46 The WhatsApp of business Pushfor’s new messaging platform is taking off

48 We need a plan

John Griffiths-Jones of the Financial Conduct Authority on grand designs for post-Brexit Britain

Spring 2017

DSwiss has built a digital wall so thick no spy could penetrate

58 Time for a rethink

A new look at corporate security teams with Barclays

60 Hacked off

Frank Abagnale’s take on the future of crime

PAYMENTS & INNOVATION 62 Creative juices

Worldpay’s imaginative approach to tracking customer behaviour

64 Appy ever after

AEVI’s mPOS tablet Albert has met its match in Sofia

66 The missing LINK?

Ron Delnevo of the ATM Alliance considers a worrying trend

68 Close protection

Staying ahead of cashpoint cybercrime at RBR’s ATM & Cybersecurity Conference

70 So you think you’re a digital bank?

There’s a long way to go yet, says Jason Bates of 11:FS

72 Choices, choices

Daryl Wilkinson of DWC Ltd concludes his series on PSD2 |





STREAM TWO Capital Management



JON HINDER Head of Credit Risk Measurement Bank of England

ADRIAN BURBANKS Chief Risk Officer, Europe and the Americas National Bank of Abu Dhabi

JEREMY ARNOLD Chief Risk Officer, EMEA Nomura International

CATHERINE BRETT Chief Risk Officer, Corporate Bank Santander

KANWARDEEP AHLUWALIA Deputy Chief Risk Officer for EMEA and Head of EMEA Markets Risk Bank of America Merrill Lynch

RICHARD CHENGA-REDDY Global Head of Regulatory Affairs Standard Chartered Bank

STEPHEN SHELLEY Chief Risk Officer, Commercial Banking Lloyds Banking Group

PAUL BERRY Chief Risk Officer Mizuho International

WILL JENNINGS Chief Risk Officer, Europe Rabobank London

ED JENKINS Global Head of Wholesale Credit & Market Risk HSBC

BRIAN DILLEY Group Director of Fraud and Financial Crime Prevention Lloyds Banking Group

RICHARD SETTLE Chief Risk Officer, GSS Deutsche Bank TIMOTHY HUDSON Global Head of Conduct Risk UBS NIGEL WILKINSON Global Head of Regulatory Coordination, Chief Risk Officer Division Credit Suisse

Visit for the full agenda Register today by contacting or calling us on +44 (0) 20 7164 6582


CUSTOMER RELATIONSHIP MANAGEMENT 76 The data detectives Vayana is pursuing new lines of inquiry

78 Espresso banking

Alawwal Bank reinvents the branch format

80 Is anybody listening?

Outsourcing giant Teleperformance on paying close attention to customers

82 Wheels of commerce

Invoice Cycle is keeping them moving

FINTECH AVENGERS SPECIAL 84 The legend continues

Our heroes from 11:FS ask Leda Glyptis, Ricky Knox and Lesley-Ann Vaughan ‘what’s your super power?’




92 Back office heroes

Smartstream are looking after the pennies

94 Banking on the known unknowns

It’s what Brown Brothers Harriman has been doing for nearly 200 years



96 The path finders

Path Solutions believes there’s synergy between East and West

98 Brotherhood of banking Iqbal Khan of Fajr Capital and HSBC Amana on the UK’s role in Islamic finance

LAST WORDS 100 Follow the money, honey

Are female execs the real unicorns of fintech? asks FemTechGlobal’s Ghela Boskovich


102 2-minute guide to fintech Matthew Gardiner and David Mellor’s pocket lexicon




FEATURE WRITERS Neil Ainger, Tori Hywel-Davies, Will Dove, James Ellis, David Firth, Tracy Fletcher, Dylan Jones, Sherree Moore PHOTOGRAPHER Jordan “Dusty” Drew

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

CONTACT US www.Fintech.Finance Tel: +44 208 626 3619 DESIGN & PRODUCTION Yorkshire Creative Media


All Rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, photocopying or otherwise, without prior permission of the publisher and copyright owner. While every effort has been made to ensure the accuracy of the information in this publication, the publisher accepts no responsibility for errors or omissions. The products and services advertised are those of individual authors and are not necessarily endorsed by or connected with the publisher. The opinions expressed in the articles within this publication are those of individual authors and not necessarily those of the publisher.

Spring 2017 |


The question is, how do we ensure refugees have a successful path to integrating? Financial inclusion is part of that 8


Spring 2017


Growing a Tru

knowledge economy “What it takes to grow and prosper isn’t just what’s under our feet, it’s what’s between our ears,” Prime Minister of Canada Justin Trudeau told world leaders at Davos last year. We couldn’t even feel our ears as we trudged over Ottawa’s Rideau Canal Skateway – the world’s largest skating rink, equivalent to ninety Olympic ice hockey rinks – and up Parliament Hill to ask how his government was supporting an ideas economy in the minus-15 degree depths of a North American winter. But we persevered and for this special interview in Fintech Finance’s Spotlight on Canada, Trudeau explains how his inclusion, investment and innovation policies – the triple I’s underpinning the country’s future – are helping to drive growth in new financial services… The year that Justin Trudeau followed his famous father Pierre into the prime minister’s office in Ottawa, the financial services sector in Canada grew at five times the rate of GDP. That was in 2015. Figures just out show that last year, financial technology attracted its highest level of venture capital-backed investment in nearly two decades – up almost 74 per cent in 12 months, to C$264.8million. Compelling as his ‘between the ears’ proposition is for growing a knowledge economy, Trudeau can’t take all the credit for this expansion. His youth (at 43 he became the country’s second youngest prime minister) and celebrity status (he’s right up there with Timberlake and Bieber in Google search) have certainly helped refresh Canada’s image, and position it as a hip country to do business in and with – especially for millennial sectors, like fintech. But Canada’s digital credentials already extended way back to the birth of the first truly smart smartphone, and for many years it led the way in payments technology. Trudeau’s job now is to create an environment in which Canada’s naturally innovative developers can realise their global potential in an increasingly digitised world. And that’s not easy in a federation of 10 provinces and three territories, each exercising their own level of autonomy over regulation and pursuing different economic priorities. So, what is Trudeau doing? Spring 2017

Well, his first policy pledge, on the face of it, has little to do with fintech: Trudeau’s liberal response to the current Syrian refugee crisis brought back memories of his father’s compassion towards the Vietnamese boat people during the 70s. One of younger Trudeau’s first acts as premier was to remove many of the blocks to the settlement and full participation of refugees in society that had been put in their way by the previous Conservative administration. To date, Canada has welcomed more than 40,000 Syrians and its settlement programme, featuring both state and private sponsorship of individuals and families, is held up as a model by the Organisation for Economic Co-operation and Development (OECD). “In a world where terrorism is a daily reality in the news, it’s easy for people to be afraid. I understand that,” says Trudeau. “But the fact is that we laid out very clear plans, and Canadians get that it’s actually not a choice between immigration or security; that, of course, they go together.” A key part of the integration policy is financial inclusion of people whose status is difficult to determine, since many at the end of their long flight from civil war have little documentation. “The question that we always had at the front of our minds is ‘how do we ensure that these refugees have as successful a path as possible to integrating and establishing strong communities, to being a productive part of their communities and of our country?’ We just know that getting that right is more important than anything

else and financial inclusion is a part of that,” says Trudeau. The UK and Australia are now considering following his lead and developing private immigration sponsorship programmes of their own, but for Canada the rewards of such an open door policy go far beyond the approbation of Western governments. According to Christine Duhaime, founder of Canada’s Digital Finance Institute, it’s important to the development of Trudeau’s knowledge economy, too. “People from different parts of the world, who are escaping whatever it happens to be, are super-motivated and they’re often super-clever. Those are the tech brains that we all need,” says Duhaime. She points to perhaps the best-known of Canada’s digital brands, which laid in train the development of mobile apps and ultimately mobile banking. BlackBerry was co-founded by first generation immigrant Mihal ‘Mike’ Lazaridis. Born in Turkey, he was five years old when his Greek parents set off for Canada with three suitcases between them. He went on to not only make the Forbes rich list but establish the Institute for Quantum Computing at the University of Waterloo, the Lazaridis Institute to help tech firms scale rapidly and stop tech leakage, and most recently Quantum Valley Investments with childhood friend and BlackBerry partner Douglas Fregin. It provides financial and intellectual capital to develop and commercialise breakthroughs in quantum information science. |


SPOTLIGHT CANADA Inclusion is a theme that Trudeau returns to time and again – and not just in the context of foreign nationals, but of native Canadians, too. As the second biggest nation in the world in terms of land mass but with a population less than half that of the UK, it’s proved exceptionally difficult in the past for Canadian banks to cost-effectively distribute their products nationwide. The country’s sparsely populated northern territories have often been neglected financially in favour of the more densely populated south. But Trudeau’s government is determined to address the country’s economic imbalance, not least by encouraging banks to improve the delivery of their products, while at the same time stimulating spending in the northern territories through subsidised travel schemes and tax breaks for individuals. “We have invested heavily to help northern Canadians with the high cost of living and help our northern economies grow,” he says. “Because of its isolation, it’s a very expensive place to live. Through our work with the Northern Residents Deduction (tax relief) we’re helping to mitigate these higher costs and attract workers to the north. As part of new, 10-year investments in social and green infrastructure, we are prioritising investment in the development of affordable housing and climate change preparedness as well as encouraging technological advance, all of which are important to the quality of life for northern Canadians.” Technology company Cisco has taken a commanding lead. The digital transformation specialist kick-started the Connected North project to bridge the divide between north and south, pulling in partners across all sectors, not least financial institutions. “The move to digital is providing the foundation for reaching more remote communities, but doing this effectively will take a partnership – between government service providers, organisations like Cisco with our infrastructure and networks, financial institutions and education providers – to deliver a rich enough base to build a number of services on going forward,” says Geoff King, Cisco’s national director for the financial services industry. “The banks are integral to not only banking delivery, but all of the other services into those communities.”



The communication super highway being forged to the north is both a result of and a conduit for Canada’s fintech industry. “Canada’s financial services landscape is relatively concentrated in Vancouver and Toronto,” says Trudeau. “The Toronto area is already a major player in the financial services space, which means that numerous banking and insurance executives, who are important partners for fintech companies, are located there.” Both cities are developing R&D hubs – many of them led by established financial institutions keen to leverage the most inventive thinkers in fintech. That said, the government came in for sustained criticism last year for failing to do enough to guarantee a policy environment in which such experimentation and learning could thrive, while inconsistencies across the various legislatures have resulted in a thicket of federal and provincial regulations that deters start-ups and does little to encourage a

Our alignment on standards reduces an important source of uncertainty for fintech developers

study which will inform recommendations to government on driving competition and innovation in financial services. While domestically there is some way to go in creating a harmonised approach to risk and regulation, internationally at least Canada’s in the ball park. Last year, it adopted ISO 20022, the globally recognised payments messaging standard, as part of a major overhaul of the transactions infrastructure by Payments Canada. “Our alignment on standards reduces an important source of uncertainty for fintech developers and helps Canadian startups to scale their operations very quickly,” says Trudeau. “As a result, Canadian companies can more easily adopt new standards in areas such as payments, cybersecurity and electronic authentication. Canada’s quick adoption of tap-and-pay technology is one small example of this in action.” Trudeau’s government has also negotiated the final stages of the EU-Canada Comprehensive Economic and Trade Agreement (CETA), likely to be in place by

Listening: Trudeau awaits a competition report on fintech

national ambition. A recent industry briefing note from Scotiabank Digital Banking Lab at Ivey Business School also identified a need for government-backed investment in start-ups as well as incubator and accelerator projects.

Responding to concerns Trudeau’s government apparently listened because in February this year it held a fintech workshop under the auspices of the Commissioner of Competition that brought together entrepreneurs, banks, regulators and officials from Canada, the US and the UK to address some of the industry’s concerns. The feedback will contribute to the Competition Bureau’s upcoming market

April 2017, just as the UK illuminates the fasten your seatbelts sign and prepares its two-year long taxi towards takeoff from the EU. Canada’s fintech community was quick to spot an opportunity, packing 12 fintech CEOs from British Colombia and Ontario off on a visit in December to build connectivity with London’s fintech community, including at Fintech Connect Live. Vancouver-based relationship banking software provider Zafin was just one of those looking to invest in the UK as a base from which to expand into Europe. Zafin describes itself as ‘a proud Canadian company’. If Trudeau gets his fintech policy right, there will be many more. Spring 2017


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Building a payments super highway CEO Gerry Gaetz & CIO Jan Pilbauer explain the direction of travel for Payments Canada as it modernises transactions infrastructure “Payments are a friction in commerce. If payments are not smooth – and clearing and settlement is not happening efficiently and safely – the Canadian economy is suffering.” So says Gerry Gaetz, CEO of Payments Canada, which has embarked on the biggest ever transformation of a country’s financial infrastructure. Responsible for $200billion of transactions a day, the organisation formerly known as the Canadian Payments Association, published a road map last year of how it intends to reach its digital destination – and why the organisation that owns and operates the payment clearing and settlement infrastructure (including associated systems, by-laws, rules and standards) believes change is necessary.

A five-year plan Gaetz reaches for an analogy: “One way to think about it is like a system of highways and bridges. We have to make sure they can support what is going to run on them. Some of us have to build the physical infrastructure. Some of us have to create the rules, the laws that govern how the roads can be used. Others manufacture the cars and buses. “In an ideal scenario, the infrastructure – the roads and the rules – should support



innovation. So even if somebody comes up with a great idea – an autonomous car, say – you may want to tweak the rules but you want to have built the infrastructure in a way that is leverageable, even for new-use cases delivered by others. “That’s what we are trying to achieve with the payments infrastructure in Canada.” The five-year plan to construct a financial superhighway that’s going to touch almost every aspect of not just payments but all financial activity in Canada, is certainly ambitious. “When you look at the scope of change we are now introducing to the Canadian market, you’ll see we are looking at it holistically, because we understand that, to position us for the future, we need to address multiple areas,” says Gaetz.“It’s not only about introducing faster payments. Although, quite frankly, it’s probably the most significant change in payments that Canada has ever seen.” There are five key elements to the plan. The first step, which has already been taken, was to adopt ISO 20022, the international payments messaging standard that supports electronic payments. That happened in

The way ahead: Adopting the international standard for payments messaging was the first step on the road

Spring 2017

2016. The second – to build a new core clearing and settlement infrastructure – is still ongoing. Payments Canada is also looking to make improvements to some of the legacy payment capabilities ‘because we think that some of those will be around long enough that they need to be improved’. That’s the third task. Then there is a whole other body of work designed to make payments faster. “Finally, the fifth part is going to modernise entirely the rules and standards that support all of that,” says Gaetz. “And we’re doing it all at the same time.” Building a new, faster, data-rich payments capability for businesses and individuals to support domestic commerce and strengthen Canada’s international trading position today is a big enough undertaking. Making sure it’s fit for purpose tomorrow is even tougher. “This notion of future proofing is easy to think but really hard to do,” says Jan Pilbauer, the company’s chief information officer. “But everything that we’re doing today has an eye to what might be. “For example, distributed ledger as a technology could be really disruptive and not just in payments. So, whatever we put into place has to contemplate a distributed ledger-type world. “We’re actually doing our own prototyping of distributed ledger right now, even though it’s likely this first wave of modernisation will not rely heavily on it. But the next one could,” he says. Pilbauer believes the ‘one-click society’ makes change imperative and, in his view, a fully digital world can’t come soon enough. But as for

Spring 2017

a completely cashless one, we’ll have to wait and see. “Your smartphone tells you where you parked your car. You can order, pay, and ask for delivery of your shopping with one click. People want faster, they want easier, but at the same time, safer. So yes, let’s go all-digital. But I don’t think a cashless world is going to happen during my lifetime, probably not even in the lifetime of the next generation, not least because there is not a full alternative in the digital world yet.”

Staying one step ahead But blockchain might be coming fast down the tracks towards Canada’s small and open, global economy. “More cross-border business means more payments, more funds flowing. So that’s good for the country, good for business, and it means that payments need to be supportive of that,” says Gaetz. The first step was adopting the global standard ISO 20022 ‘so that we’re looking at a payment and the data that goes with it in the same way that Europe and other countries, would do‘, says Pilbauer. “That’s such a core piece, it’s got to be number one,” he adds. “Right now, most countries and most jurisdictions are worried about modernising within their own borders, but we’re all doing it with an eye to making sure we’re not making choices that would preclude making cross-border transactions more efficient. Blockchain can obviously speed things up. And if you can use that concept, add data to it, make it very secure, very fast and robust, able to handle billions of transactions, that’s kind of a panacea, right? “We have to figure out how to make that happen.” Luckily there’s no shortage of fintechs willing to help.

“There are lots of different companies looking at playing a role in financial services now,” says Gaetz. “They are looking for opportunities to make things better, looking at parts of business models that maybe have been under-serving customers. “A lot of power is moving into mobile devices. It’s forcing all of us to re-examine how we do things.” Nowhere will that be more evident than at Payments Canada Summit 2017, the country’s premier payments conference, happening in May. “We stage the conference once a year to bring together the best thinkers, the thought leaders in payments, to talk about innovation, how to make things better, how to work together to modernise,” says Gaetz. “Payments is a network business, a platform business, and you have to collaborate to get things done.” Payments Canada hopes the conference will attract a broader global audience to

We can attract international players to test drive their new, cool technology and services with Canadians Toronto this year, as the country bids to reclaim its once premier international position in payments. “We want to attract new players and Payments Canada is the place where they can tell us what they’re doing, tell us about their vision of the future alongside the existing players – banks in Canada that are working with fintechs, taking the ideas, and pushing the boundaries,” says Pilbauer. “Even though the Canadian economy is not the largest in the world, it’s still an important one, and Canada can be a good place to test new products. “If we make the core payments clearing and settlement infrastructure attractive enough, we can attract international players to test drive their new, cool technology and services with Canadians. “We want to take back one of the leading positions in payments.” |



When the trade winds blow Canada is poised to enter a new era of gobal transacting… and Intellect iGTB is ready to help, says Senior Vice President Syed Quader

Seven years in the making, the hard-won Canada/EU Comprehensive Economic and Trade Agreement, which is likely to be implemented by April, couldn’t have come at a better time for Intellect iGTB. The global technology company’s transaction banking division, which entered the Canadian market five years ago, is riding a wave of investment as the banks’ business customers look to take advantage of more liberal international trading arrangements. Pro-free trade forecasters predict that the agreement, commonly known as CETA, will boost commerce between Canada and Europe by 20 per cent, adding an estimated $8.4billion to the Canadian economy (equivalent to Can$11.8billion). Meanwhile, the co-sovereign Canadian provinces are also looking to sweep away barriers to trade and create a more dynamic internal market by the time the country celebrates its 150th anniversary in July. And, south of the 49th parallel, its mighty neighbour – the world’s largest economy and currently Canada’s biggest trading partner – is forecast for even stronger growth under the new American pro-business, anti-regulation presidency. Canadian banks, which are dominated



by five big players, at least two of which saw double digit growth last year, are well-positioned to respond to all these changes, according to Syed Quader, iGTB Senior Vice President and head of its Canadian operation, based in Toronto. “Our customers clearly are looking to position themselves for those opportunities and they’re doing it in a number of ways,” he says. “Technology is a very exciting area right now for our clients. We are seeing a lot of interest in fintech; there’s a lot of work going on in the entire digital space. Banks are very focussed on client experience – how to improve it, how to increase share of wallet with their customers, whether they be retail or commercial clients – and we’re seeing them embracing new technology in ways that we haven’t seen before.”

Technology focus iGTB’s work with the Canadian banks focusses on three key areas: digital technology, payments and liquidity management. “The first is really about providing a client experience that is simple and intuitive, as a way to upsell and cross-sell new products and solutions to customers and drive better fee income,” says Quader. “At Sibos, we launched a set of solutions around

contextual banking, which is the ability of banks to leverage data that they have on their customers and make recommendations around that data. It’s about understanding the context in which a customer is looking to execute a transaction and offering simpler, faster, cheaper ways to do it.” Its second focus – payments – is closely linked with developments being led by the country’s financial market infrastructure organisation, Payments Canada (known until recently as the Canadian Payments Association). Responsible for clearing and settling around $200billion every business day, it is embarked on a major modernisation of the country’s payments system, starting with the adoption in April 2016 of the financial messaging standard ISO 20022. “Payments Canada is looking at a real-time payments initiative, which is more than real time,” says Quader. “It’s looking at making significant advancements in the payments infrastructure and so there will clearly be opportunities for firms like us in the payment space. “When we look at the payments market, it’s really in two areas that we see opportunity. One is around payments orchestration and finding ways to make payments happen more quickly, more Spring 2017

cheaply and for a lower total cost of ownership (TCO). Then there is payments execution, which is about settlements – the other area where we see investment. “When you look at a bank’s current landscape and ecosystem, there is a lot of legacy that’s batch-based and when you’re trying to move to a real-time architecture, you have to find strategies to address some of that batch-based processing. We address that through our orchestration and execution solutions.” Finally, there is an increasing desire among banks to improve liquidity management. “Whether it’s a customer who wants to be able to look at their account balances across jurisdictions, whether they want to then move money across those balances in an automated way, or whether they want to do lending across different parts of their businesses, we think that liquidity solutions will become more important,” says Quader. “We think that those types of products will gain more traction in the marketplace because they allow the bank to position itself as a principal bank to its client, which is really where most of our customers want to be. Two global banks in Canada have already adopted the iGTB system.

Setting the pace Quader sees blockchain technology, processes and partners as key to facilitating faster, smoother transactions for clients as Canada enters a new era of global trade. “We have been a part of that blockchain world for some time now. Clearly, it’s very important for our payment solutions, products, like our payment hub, to be able to support a number of technologies in the blockchain space. Ripple and Earthport come to mind as supporting payment rails and payment transactions. We’re very much on top of that technology.” iGTB has already claimed that space, in fact, recently completing its first end-to-end international payment to Australia, using blockchain and the iGTB payments hub on behalf of a major Canadian bank, which is continuing to use distributed ledger technology. “There was quite a lot of prep work that went into ensuring our client in Canada and the counterpart in Australia had all their technologies, processes and people lined up to make sure that the transaction was successful. However, the transaction itself was very quick, just a few seconds. The Spring 2017

beauty of it is that it’s a very repeatable model. We can leverage that for all of our customers,” says Quader. And that could be transformational. “In Canada, typically the model for an international payment is to use a wire and, depending on the beneficiary and where they are, that could take a few hours or a few days. All banks in Canada are looking to improve on those kinds of timelines. But it’s not just about the speed of the transaction, it's also the cost and the certainty. With new kinds of payment modalities, like blockchain, you have room to improve across all three of those areas. Clearly, this can have a longer term impact. “We will be making additional investments in that (blockchain) space, in areas like reconciliation, and we will have additional announcements around that in the coming months,” adds Quader. With nine Canadian clients, iGTB has rolled out 20 projects so far, including with one of the country’s leading banks.

We’re seeing banks embracing new technology in ways that we haven’t seen before “It’s been a great partner for us,” adds Quader. “We’ve done a number of different things with them over the last couple of years, but specifically, there’s a project going live on one of our payment products to help manage their payments architecture. This has been a critical project for us because payments is a tricky landscape, given that these are high-value and high-volume dollar transactions. It’s an ongoing initiative, and so there will be additional phases that will be going live over the next few months.”

Award-winning strategy Awarded a Fintech Finance Gold Award for its market-leading digital transaction banking solutions in 2016, iGTB has enjoyed steady growth in Canada, based not on promises but entirely on its merits. “When we started here five years ago, we were doing fairly small projects, worth

below $1million and typically less than a year in duration,” says Quader. “It’s really not a very big market so, having had success with one client, people got to hear about it. We’ve been careful to make sure that we keep our commitments to our clients – not overselling, not under-delivering – and that formula has served us well. Today, we’re partners in some very large, strategic, multi-year initiatives with clients. Over the next two or three years we are going to be growing in line with some of those investments.” Although there are unknowns on the horizon – oil and gas prices are still struggling, there are high levels of personal debt linked to inflated property prices –Canadian economic growth continues at around three per cent a year under a financially resilient federal government. Banks also have robust balance sheets and an appetite for investment in digital technology. Given such a backdrop, Quader believes the financial services sector is set for growth here. “There are new players in the financial services space that are small, nimble and have new business models, whether that be in lending, cards or payments. Among the banks we see a lot of openness to embracing this fintech phenomenon. Where, typically, the size of these fintechs and the risk profile of some of them would have created caution around partnerships, today banks are embracing some of those technologies on a selective basis. “The entire mobile payments space is one where you see consortia being built. A lot of mobile payment solutions are just starting to take off here in Canada and I certainly foresee a lot of adoption of that technology.” More generally, he believes take up of digital technology will be driven by client experience at the front end, with more omnichannel solutions. Internally, meanwhile, banks will use new technology to improve processes, leverage data in new and better ways and ultimately drive customer acquisition and share of wallet. “I think the outlook is very positive for the financial services sector. The banks are well-managed, they are well-capitalised, they have the ability to navigate through the shocks and risks that inevitably happen. I’m very optimistic about where the financial services sector is going in Canada.” |



Finding the right fit

Canada-based financial services group Manulife is using fintech to design products that follow its customers’ lifestyles, as Isaac Strang, Product Manager and Innovation Fellow at the company’s Toronto Lab of Forward Thinking, explains “The deepest connections are those that connect the consumer to the product. People experience our brand through wearing it, having life experiences in it.” That’s easy for a close-to-the-skin brand like Levi to say, whose customers peel its jeans on and off millions of times a day. But how do financial services design a product that, like the best jeans, reflect the life you live and feel as personal to you as your 501s?

That’s the question some of the most creative thinkers in the industry have climbed into the LOFT (aka the Lab of Forward Thinking) to address for Canada’s leading international financial services and insurance group, Manulife. A physical network of innovation labs set up by the company in three key financial centres, the LOFT is exclusively focussed on finding the best emerging fintech solutions for customers. It describes itself as offering an ecosystem where worthy ideas are given a fighting chance or can fail safely. Its most recent lab (after Toronto and Boston) opened in Singapore in September 2016 with a brief to think big and build Manulife’s competitive advantage in Asia’s burgeoning fintech and insurtech sectors. It’s the LOFT in which some of the most intriguing blue-sky ideas are already being talked about – crucially, all of them customer centric and driven by hyper-personal data. Take the hypothetical Social. life, a purely peer-to-peer life insurance company that uses your social network to gather data for risk analysis. Or Welll, a quality-of-life insurance that relies on a skin-embedded device that automatically monitors brain chemistry to detect changes in your mood. Both are predictions that might not look so fanciful by 2025. “The LOFT has a mandate to look a little bit further forward, building up expertise in technologies that will ultimately help



us provide a better service to our customers,” says Isaac Strang, Product Manager and Innovation Fellow at Manulife’s Toronto lab. “It’s no secret that there’s a huge amount of disruption coming around the corner in our industries and our goal is to get ahead of that wave.”

Data-inspired development Based in Toronto’s commercialisation centre, known as MaRS (the world’s largest urban innovation hub), the lab recently partnered with indico, a Boston-based data solutions company that specializes in deep learning. The idea is for LOFT to use indico’s platform to develop an artificial intelligence (AI) and deep learning tool that analyses unstructured financial data, such as news articles and analyst reports , in order to present recommendations to investment researchers and portfolio managers.

Customers see us as a trusted partner and it means we can reduce the cost of providing insurance to them As a company, Manulife sees the value of such partnerships. In 2015 it hooked up with Vitality – part of the global Discovery group – to offer its insurance-related health app to life insurance customers. It’s a good example of how Manulife has redesigned products to keep up with fintech and changing consumer demands. “One of our advantages as an incumbent (in the insurance industry), is that we already have a huge amount of data and there are new sources constantly being added,” says Strang.

“If you look at Manulife Vitality, we’re now working with our customers through technology, like apps and wearables, to encourage them to live a healthier lifestyle, which will reduce the cost of their life insurance. “We’ve also been building the expertise behind us in artificial intelligence to process data that no human could, recruiting data scientists and using those guys to build models that help us analyse and, most importantly, use information for action. That allows us to move from a reactive model of insurance to a proactive model, where you start to be able to identify trends in people’s lives and see what might be coming up. Then you can reach out to people before issues arise.” Vitality is a great example of that. “By logging your fitness and health choices, it’s a subtle nudge to live a healthier life and you see behavioural changes that come with that,” explains Strang. “It’s a win/win for the customer, because not only are they becoming healthier but they also see us as a trusted partner and it means we can reduce the cost of providing insurance to them.” While no one within the company has direct access to the personal information collected by Vitality, a set of algorithms within the app promotes the customer to Bronze, Silver or Gold level, earning them a discount on their Manulife premium. “So if they get the flu shot, if they have an annual health examination, if they buy healthy groceries, they get points that help them go up a level,” says Strang. “There’s a gamification element to it.” “Most people are pretty happy to provide some information about themselves, if they’re getting decent value in return,” he adds. Data collection and analysis isn’t all there is to life on MaRS. One of Strang and his colleagues’ other goals is to make customer interaction with Manulife ‘ as easy as ordering a car or any other Spring 2017

on-demand service’. It intends to achieve that by being where the customer is – and that, increasingly, is on social media via their phone.

Getting deeply social A survey by The Economist magazine’s Intelligence Unit in 2013 found that while most companies know they need to radically change the way they communicate with customers, only 23 per cent use social media and 10 per cent mobile apps. That’s despite the fact that social media accounts for more than a quarter of time spent online, while a third of all internet usage is now happening via mobile. With the launch of chatbots on Facebook’s Messenger platform last year and lately the ability for Messenger bots to accept payments natively without sending users to an external website, the one billion users of that particular social media is a target too big to miss. “We’re moving increasingly into a mobile space and there’s a lot of technology that we’re leveraging to make things easier,” says Strang. “We’re seeing an explosion in chat bots and it’s part of our strategy to go to customers where they already are, rather than asking them to come to the website, allowing people to communicate with us on the platforms they’re on and making it all seamless.” Blockchain is another one of the megatrends that the big brains at the LOFT are charged with tracking. Strang views the distributed ledger model as having potential to not only make ‘everything smoother’, but also ‘reduce any questions about trust’. “It enables smart contracts, meaning faster contract execution, faster onboarding and also a way of verifying everything that happens. I think the corollary of that is a relationship with your customer that’s much more of a partnership,” he says. Buying a financial product may never be quite as exciting as pulling on a new pair of Levis, but if the point of the LOFT is to develop ‘more holistic and long-lasting customer relationships’, the Manulife brand could perhaps get as close to them as those 501s. Spring 2017

Up close and personal: Manulife is leveraging data and apps to wrap around its customers |



World stage: Canada’s gaining recognition as a mover and shaker in fintech

We’re ready to party Canada’s pioneering fintech sector has been a wallflower long enough, says Christine Duhaime, founder of the Digital Finance Institute and the Financial Innovation & Technology Association of Canada Given fintech’s hipster image, it’s somewhat surprising to learn that the genesis for the association that represents it in Canada was a series of cheese and wine parties. And it gets even more bizarre when the person telling the story is a specialist in anti-money laundering (AML) and counterterrorist financing law. Do polite nibbles and splitting the financial atom really mix? Apparently so.

institutions to start-ups. Not yet a year old, its mission is broadly to influence regulation, foster innovation and encourage investment in Canadian fintech by supporting the native industry and reaching out to other sectors at home and, crucially, abroad. Because, for all its dynamism, the Canadian fintech sector has been backwards about coming forward to the rest of the world.

“The Digital Finance Institute had started to build the fintech ecosystem in Canada and hundreds of people would come to our cheese and wine parties but they always wanted the opportunity to network more and build connections, meet investors and talk about their technology,” says the Institute’s executive director and founder of the new Financial Innovation & Technology Association of Canada, Christine Duhaime. She was quick to realise the enormous appetite among Canada’s emerging fintech community ‘to collaborate and to advocate policies that work for financial technology’. So she set about satisfying it by establishing the Association for everyone from financial

Duhaime believes the country has failed to shout about its digital achievements – and if lack of exposure is holding it back, she is in the perfect position to fix it. As executive director of the Digital Finance Institute, Duhaime helps frame policy and drive investment in Canadian fintech, domestically and overseas. Consistently listed in ‘FinTech’s Top 100 Influencers and Brands’, she is also a spokesperson for the global fintech community, regularly contributing to the financial press and TV. “We have always been really good at innovation and technology and the banks were actually doing financial technology but no one really called it that,” says Duhaime.



A question of image

“The UK poured tonnes of money into fintech promotion, as did Singapore; Hong Kong has; Copenhagen has. Nothing in Canada. For some reason it missed the Canadian government agenda.’ “We didn’t put a sign up there saying ‘We do fintech. So now we’re playing catch-up.’’ In the Institute’s September 2016 report, FinTech in Canada, stakeholders agreed that funding, engagement, policy initiatives and support from the Canadian government for fintechs could help the country become an international leader. “Because we got into payments really early, people thought that’s all Canadian fintech was about,’” says Duhaime. “Now we’re saying, ‘look, we’ve been amazing in all these areas – and we’re still amazing’.” Modesty aside, there have been other impediments to establishing the Canadian fintech brand, not least the country’s complex federal and provincial legal systems. “Each province has its own laws when it comes to things like privacy, securities, capital raising, etc. We have 10 different systems,” explains Duhaime. “So for somebody trying to raise money in Canada, or go public, it’s a cumbersome process. Spring 2017

The federal government tried to fix it, but our courts wouldn’t allow it.” Incubator hubs, including the impressive DMZ in Toronto, are playing a sterling role in fostering fintech innovation, she says, but the country’s secret weapon could be its famously diverse community.

The power of difference Canada’s prime minister Justin Trudeau’s pro-immigration policy offers a liberal counterpoint to the US president’s plans for travel bans. Duhaime believes the States is in danger of scoring an own goal. “The United States is a leader in tech, but it’s going to hurt them,” she says. “And what might harm the United States, in terms of their shutting the door to the best tech talent, might help us in getting those people into our country. “Canada has always been welcoming and I think that’s really helped us in terms of having an innovation strategy and building the best technology. Look at BlackBerry… it was one of our leading tech companies, started by immigrants. People from different parts of the world, who are escaping whatever it happens to be, are super-motivated and they’re often super-clever. Those are the tech brains that we all need, especially in the next revolution around artificial intelligence (AI).” It’s an area in which DFI is especially engaged and one that, as Duhaime would know, ‘needs the input of lawyers’. “It’s going to change everything – law, science, cars, everything we do. It isn’t going to be fintech that changes the world, it’s going to be AI,” she says. “The banks are now recognising that AI is the next big thing on all their platforms and services, including client and data management. They are starting from scratch and saying, ‘OK, AI matters, how can we redo this?’” Duhaime doesn't shy away from the fact that AI is both useful and potentially corrosive for society. She has previously cited a 2013 McKinsey report that predicted AI and robotic banking will displace 110 million full-time employees by 2025. And, as an advocate of financial inclusion, she believes that AI, (and its influence on the closure of bank branches), will damage the accessibility of financial services for the poor, the visually impaired, immigrants who don’t yet speak the native language and those who largely transact in cash. In Spring 2017

the past, she has said that technology should be there to cure financial exclusion, not to cause it. She believes the DFI can positively influence the ethics and evolution of Canada’s rapidly shifting financial landscape, if not the world’s. One unit at the DFI has been working on AI technology to predict where certain foreign nationals are likely to have fled and which global banks, albeit unwittingly, are assisting them move money. The same technology could predict terrorist financing activities and help prevent fraud. From a regulatory perspective, she is keen that her association guides tech giants to map common strategies with the banking sector so that they can incorporate constitutional values and responsible banking services. Anti-money laundering (AML) is a particular concern for the fintechs. “A lot of fintechs can’t reach scale because the AML piece is so expensive,” says Duhaime. “Nobody has ever solved the problem of how do you complete an accurate and time-consuming, expensive anti-money laundering legal procedure on an app? How do you onboard a client on a phone when they may be a complex company, they may have complicated management structures, they may even be a politically exposed person? It’s the next billion-dollar problem to be solved.” DFI is moving towards that by developing an AML chatbot that provides an informed space for the industry to pose questions. “It won’t onboard anybody, but it’s going to help banks have a dialogue with machine-learning discussions that explain things,” says Duhaime. “They can ask ‘what’s a politically exposed person?’ for example, or ’what’s a terrorist financing offence?’ and it will answer back. We’re coding it with interesting AML law. We believe it’s the only chatbot for financial crime ever created by practicing lawyers.” In keeping with its commitment to financial inclusion, DFI has legal talent from different backgrounds to help with coding. “We have a diverse group of people in law, bringing their life experiences and cultural biases to the project, which is great

because this will hopefully even it out,” says Duhaime. In the past, Duhaime has also used her profile to elevate the other pressing diversity question in AI: where are all the women coders? . “Data sets and coding are rarely created by women, a problem that Melinda Gates recently called the ‘sea of dudes’ problem. If we do not require inclusive coding in all AI, we will have a skewed society in the years to come, dictated by machines coded by an elite subset of men,” she wrote last year. Overall, her ambition is to lift Canada’s reputation for progressive fintech (and the more disruptive AI) and to provide high-level support to the country’s commitment to develop the sector further, which includes widening the conversation through the Financial Innovation and Technology Association of Canada. Ultimately, she says she wants to bring the AI community onboard with the fintech community “and then make sure we have a united voice for fintech in Canada”. “Once we have all of that, [we will] work to get regulatory systems in place that help the fintechs, and then make sure we support Canada in its fintech objectives internationally,” she says. DFI’s next event in March will see it bringing many of the leaders in AI together to offer the very first AI conference for finance in Canada. All the major banks will be in attendance. “We’re bringing people from AI and financial services together to have an open dialogue about where it’s going,” says Duhaime. “To ask what are the super-exciting things and what’s the fear? Are 50 per cent of us really going to lose our jobs and what is innovation going to look like?” Meanwhile, the Financial Innovation and Technology Association of Canada will mark its first anniversary in April with a networking event. Maybe it’s a sign of how far the industry has come in the past 12 months or an indication of how they intend to shake up Canada’s financial sector in the next, but they won't be serving cheese and wine this time; they'll be serving cocktails.

It isn’t going to be fintech that changes the world, it’s going to be AI |



Crossing a new frontier Nicholas Hacking, Director of Sales for OLYMPIC Banking System, the core banking system from ERI Bancaire, says crossing the Atlantic isn’t as scary as EU firms think The Canadian banking sector weathered the storm of the 2008 financial crisis remarkably well, emerging practically unscathed from a period of turmoil that left brutal scars on the faces of banks worldwide. Why? Demography and prudence, according to Nicholas Hacking, director of sales at ERI Bancaire . “In terms of banking, the Canadians are a fairly conservative bunch,” says Hacking. “That doesn’t mean that they don’t like things that are modern – it just means that they take time to examine something carefully before doing it. They never rush into things, unlike some other areas that tend to adopt the fashion of the week or month at the drop of a hat. “Not only this, but the Canadians have a mathematical advantage,” he adds. “When you judge the country in terms of the size of its economy, there are comparatively few banks in Canada. As a result, what you have is a robust, compact economy that is spread across only a handful of institutions.

Furthermore, the Canadian banking community is very close-knit (despite the vast geographical distances involved); Canadian bankers all seem to know each other. If you tie these factors together with a conservative investment strategy, it’s hardly surprising that the Canadian market remained secure and unified in the wake of a crisis that caused fissures to open up between the rest of the industry.” Perhaps the portrait of Canadians as rugged, hardy folk is not just a stereotype after all, considering the fact that the nation’s banks survived one of the harshest economic winters of all time with barely a scratch to show for it. Thanks to its consistent strength and resilience in recent years, the Canadian market is proving attractive to many European firms currently looking to go West, including ERI Bancaire . Hacking is confident of the advantages the country has to offer. “We’ve developed a strong partnership with a Canadian client, and we’re very pleased about that,” he says.“It’s a totally new geography for us, but we’re finding our client to be particularly helpful as we cross this new frontier.”

ERI Bancaire is the company behind the OLYMPIC Banking System – a modular, browser-based application that has been adopted by more than 300 banks and financial institutions in 50 countries on five continents, as a means of fully integrating and centralising their core banking functions. Adapting its software to fit a North American market has been an enlightening process. “We’ve been learning a lot from our client, not just in terms of Canadian specificities, but also about the more general workings of the financial industry on the other side of the Atlantic,” says Hacking. “Our application took them by surprise at first, since they weren’t accustomed to the level of integration and having so much functionality within one single package. We’ve recently spent a lot of time demonstrating to them just how much exists within the OLYMPIC Banking System, and how they can use all of this functionality to transform their processes.”

Knocking on the US door Like many other European firms planning to expand into North

Not such a wild West: Canada has a ‘robust, compact’ economy



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America, ERI Bancaire has opted to target the Maple Leaf as opposed to the behemoth that is the Stars and Stripes. Hacking believes it’s no coincidence that firms are spurning the US in favour of their northern neighbour. “Coming from Europe, Canada is a country that’s much simpler to start servicing,” he says. “Although it is much smaller in terms of sector size, compared to the US, there are still great opportunities to be had within the Canadian economy, and we’ve found it easier to engage in interesting conversations with Canadian clients as opposed to those based in the US. “Although we’re not currently trying to market ourselves stateside, we did try to dip our toe into the US a few years ago,” says Hacking. “Comments such as ‘you’re not American, you don’t develop in the US, your source code is not based here’ were somewhat frequent, and caused us to pause our operations across the Pond. “This time, we’ve avoided heading straight for the US and have instead chosen to generate a client base in Canada. I’m not saying that the Canadians have an identical approach to us – there’s obviously a very North American flavour to the way they do things – but it’s running very smoothly,” says Hacking. Once they’re on Uncle Sam’s doorstep, though… well, who knows? The fact that Canadian banks are keen to say ‘bienvenue’ to firms such

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as ERI Bancaire, may give them a route into North America without having to directly penetrate it. But institutions are often dissuaded from setting sail from Europe for fear of being capsized by the regulatory disparities that exist between the two continents. Don‘t be, says Hacking. “With the General Data Protection Regulation (GDPR) arriving next year and the revised Payment Services Directive (PSD2) on the horizon, the landscape of European regulation is currently fraught with difficulties for

Coming from Europe, Canada is a country that’s much simpler to start servicing firms,” he says. “Many may shy away from the opportunity to market themselves across the Pond, as they may believe that navigating a whole new set of North American regulations would prove too laborious for their business.

“However, we’ve discovered from our own experience that, in practice, North American regulations are not so far removed from European ones,” he says. “Across regions, there is very often a tendency for regulations to point in the same direction, albeit with a slightly different flavour. Of course, firms need to try to understand what the nuances of each particular jurisdiction are, although they rarely need to totally rework their products and services, as many may believe. Instead, a subtler approach is both necessary and effective, where institutions merely tweak their offerings very slightly in order to meet regulatory requirements. “Here at ERI Bancaire , we’re very lucky in this regard since our application is almost entirely parameter driven,” says Hacking. “This means that it’s relatively easy for us to manage regulatory differences, since we can just alter the parameters of our software to comply. For example, we would look at the rules surrounding know your customer (KYC) and the Markets in Financial Instruments Directive (MiFID) in North America, and then set about altering specific details within the OLYMPIC Banking System so that it is compliant within the US and Canada. Sure, this can be a fiddly process at times, but it’s worth the effort should you wish to access the rewards of a highly advantageous market, such as Canada’s.” |



Banking in the fast Scotiabank is building a breathless future for financial services. James Ellis went to meet Jeff Marshall, the man heading up its Digital Factory, and the bank’s VP of Innovation, Dubie Cunningham Name five things that come to mind when you hear the word Canada. Lumberjacks? Maple syrup? The phenomenally successful coffee chain of a certain all-star hockey player? The genesis of artificial intelligence and deep learning? Moose? Let me guess, you scored four out of five? “It’s a little known fact that the University of Toronto is the birthplace of modern artificial intelligence,” says Dubie Cunningham, Vice President of Innovation at Scotiabank. “The university’s Professor Geoff Hinton has made great strides in the research and promotion of deep learning, and we’re extremely fortunate to have the opportunity to work with the University of Toronto and other academic institutions throughout Ontario and Canada as a whole.” By ‘we’, Cunningham is referring to Scotiabank’s latest cutting edge brainchild; a 70,000-square foot research facility-cum-fintech haven called the Digital Factory. The Toronto-based



facility is dedicated to designing and delivering new digital solutions to the bank’s 23 million customers, although the factory is set to remain ‘connected to but separate from the broader bank’. “The Toronto Digital Factory is part of a network of five, each located in one our priority markets: Canada, Mexico, Peru, Chile and Colombia. They will allow us to create once and deploy across our footprint, so we can be five times more creative, five times more efficient and five times more customer centric,” says Cunningham. “The factories have brought digital technologists, digital marketers, designers and traditional subject matter experts from the banking industry, together with the aim of creating new and better experiences for our customers. It’s both a place of work and an approach to work, that approach being the constant pursuit of innovation.”

Customers first So what’s inspired Scotiabank to establish this fintech playground in the heart of

Toronto? According to Cunningham, the choice has not so much been dictated by Scotiabank as it has by its customers. “One of the biggest challenges currently facing the financial services industry is the changing nature of the consumer,” she says. “Historically, a new technical solution would be introduced without the customer ever having demanded it. Take the automated teller machine, for example. A huge push had to be made on behalf of the banks to encourage customers to migrate away from the counter and towards a hole in the wall. “Today, however, the situation is completely different,” says Cunningham. “Customers are now much more demanding in what they expect from their financial services provider as a direct result of their improved experiences in other fields. We’re no longer being compared to the other bank on the corner; we’re going toe to toe with Uber, Airbnb, and whatever music streaming app our customer is currently using. Just like with these companies, customers are expecting us to know exactly who Spring 2017

Keeping pace: The Digital Factory works with customers to develop and trial ideas

lane they are and to deliver a service that is entirely personalised and individual by anticipating their every need. “The bar is well and truly being raised on us,” she says. “That’s why we’ve founded the Digital Factory; to develop new technologies that directly respond to the demands of the consumer.” So, what’s the first step in developing an innovative financial service solution to please a rising, Uber-fied generation? To innovate the innovation stage, of course. The Digital Factory team uses a new technological development methodology that incorporates customer feedback at almost every stage. Jeff Marshall, who heads up the Factory, explains: “Traditionally, when developing a technical solution, a bank would create a set of requirements (without customer consultation) and then spend at least a year on an arduous project to bring these requirements to the public. Nowadays, that sort of timeframe is just not feasible. “By the time the technology is deployed, the customer is no longer interested, because their demands have already changed This is why we’ve adopted a unique, updated methodology here at the Digital Factory. “We’re rejecting the marathon Spring 2017

approach to development in favour of short, concentrated sprints. We’ll typically begin with a consumer insight or problem that requires solving, then we’ll co-create a prototype solution in partnership with the bank’s customers.” In practice, that involves inviting customers in to the facility and then giving them free rein of the technology in order to trial it. “We’re effectively bundling our development and market research together, and consequently accelerating our rate of deployment in response to a new generation,” adds Cunningham. This ‘sprint’ methodology requires an anticipation and acceptance of failure. “Say that we bring a group of customers into the factory and their feedback presents a unanimous dislike for a new piece of technology,” says Marshall. “Do we spend weeks scratching our heads and pondering how to rectify that specific piece of technology? No, because if we did that the market would have already shifted by the time we finally released the product. If a technology doesn’t work, we scrap it.”

commercially legitimate solutions to market at an unprecedented rate. Having said that, we make sure to conduct a comprehensive analysis of new technologies before investing a large amount in their development.” The team at Scotiabank has been extraordinarily forward-thinking in establishing a facility that seems to break all the traditional conventions of financial technology development. “We currently have about 12 use cases on blockchain technology, too, that have passed the initial development phases and are now being put into production,” says Cunningham. “One of the areas that we’re now looking to address with our technology is financial inclusion. We have a factory in Mexico, where over half of the population is still unbanked. One of the reasons is the lack of a formal credit history system within the country,” she continues. “The team at the Digital Factory are assessing ways of using AI to analyse alternative data sets (such as utility or mobile bills) so that these sources can then administer credit ratings to Mexican clients. Consequently, these ratings should permit a larger proportion of the population to access banking services. “It demonstrates how the Digital Factory could help millions to increase their financial literacy and simultaneously help them manage their finances using technology designed specifically for them.”

We’re rejecting the marathon approach to development in favour of short, concentrated sprints

Blockchain prototypes This concept of reiterating technologies extremely quickly is one of the driving factors in the success of the Digital Factory, says Cunningham. “It’s allowing us to deliver optimised,

Building the future: Jeff Marshall and Dubie Cunningham with FF’s James Ellis (right) |



Financial synapses: Cisco uses its experience in digital transformation to enable all sectors for digital commerce

Vital connections Geoff King, National Director for the Financial Services Industry at Cisco, explains how building a digital ‘nervous system’ is helping to unite an entire country Financial services does not operate in a vacuum – not only do all parts of a provider’s metaphorical ‘body’ need to work in unison, but they must also interact seamlessly with the social and economic context in which they operate. This is where Geoff King sits as the national director for the financial services industry at Cisco. Given his background with the Toronto Financial Services Alliance – a strategic partnership of major financial services organisations, government and educational institutions – he’s the ideal man to plug banking into the work of digital transformation specialist, Cisco, which operates across multiple sectors. The company takes a 360-degree approach to devising digital solutions, seeking to understand how an organisation is impacted by its environment and vice versa. As its strapline ‘spectacularly good at securely connecting things and people’ suggests,



its ethos is based on building lasting digital solutions that act as the ‘central nervous system’ of a business, while also making sure its virtual synapses are firing messages outside the organisation. "I am one of four who work within an organization called Industry Digitisation", King explains. "Our primary focus is to help clients harness the full economic impact of Cisco’s solutions through our knowledge of the industries we cover. We do so through joint innovation partnerships, process innovation and technology platforms, products and services that enable our clients’ key business outcomes. "I bring a financial services and industry background to that portfolio. My colleagues cover healthcare, oil and gas, mining, cities and real estate. Together, we help clients transform from physical to digital operating and service delivery models that create new revenue streams and superior employee and client experiences.

Embracing possibilities King believes such a collaborative approach – a willingness to be creative and interact with developments in other sectors and the wider economy – is essential to ensuring the future health of the financial services industry, which accounted for 4.4 per cent of overall Canadian employment in 2015 and 6.8 per cent of Canadian GDP. “The Canadian finance industry has traditionally been quite strong and continues to be so,” says King. “A couple of things are continuing to fuel growth in the sector. One is a fairly stable economy, but the other positive influence is the large number of immigrants coming into Canada, creating a new client base and new market and business opportunities.” As an example of Cisco’s social impact, King cites a project called Connected North in which the company is working with key partners to narrow the country’s north-south digital divide by digitally

Spring 2017

enabling services, including healthcare and education, for citizens in the more remote northern regions. “Canada’s banks are national in scope and well-represented in every province and major city. As you go further north, though, things become more remote in terms of geography, and the communities are much more dispersed. So, covering that is a challenge in terms of the infrastructure that is available to deliver services to them,” he says. However, things are changing. “There are mining projects being developed in various parts of the north, for example, and that’s bringing new businesses and work teams to those areas,” he adds. In their wake come better financial services as the infrastructure to deliver them improves. Digitisation is not only essential but unstoppable, believes King, and Canada’s financial services companies have the opportunity not just to move banking forward, but also to help enrich the whole physical and economic landscape of their country. With its focus on making connections, King believes Cisco is the right company to help them join the dots. “The move to digital is providing the foundation for reaching more remote communities, but doing this effectively will take a partnership – between government service providers, organisations like Cisco with our infrastructure and networks, financial institutions and education providers – to deliver a rich enough base to build a number of services going forward,” he says. “The banks are integral to not only banking delivery, but all of the other services into those communities.”

The new digi-comms In this vast landscape where physical movement can be difficult, the potential for using visual digital technologies, such as online video, to bring people together with service providers is obvious – and it’s something Cisco is keen to help its financial clients exploit. “At the heart of what we do is providing the foundation and the capabilities for interaction and communications. That’s not only at the network level, but also at the employee and business-to-client level. We’ve worked with a number of clients over the years to deploy video interaction capabilities, supported by their contact Spring 2017

centres and with the necessary security to encrypt those conversations,” says King. “As a result, several of our clients are now changing the way in which they distribute services, specifically mortgages and loans. Rather than all clients having to visit a branch, they can also now do it via digital, supported by video. This remote, face-to-face capability is driving productivity, increasing sales, increasing the number of clients that advisors can serve in a day and improving customer satisfaction.” Cisco is now feeding this experience in remote communications into the Connected North initiative. “We’re looking at how we can help use this technology to bring things like medical and education services into more remote communities, to help people improve their lives and health. This is important because, to get medical advice and visit the doctor, some of these citizens have to travel for miles and days for a simple check-up. “We have doctors now providing video-enabled healthcare into some northern communities. We have classrooms

Financial services are critical to Canada’s economic growth and technology is transforming the operating model in the north being connected to classrooms and teaching staff in the south. It’s really changing lives and the banks are part of that collaboration.” It’s quite an achievement, when you consider Canada’s size and the remoteness of some of its communities, that it is among the largest countries to have a completely banked population, thanks to the work done by the likes of Cisco and its infrastructure of influential partners. “While we don’t build the financial products, we provide banks and other financial organisations with the digital operating infrastructure for them to be able to deliver these services,” says King. “For example, every bank, every insurance company, as it goes digital, needs

to have a much more intelligent, powerful, secure network at the heart of this. We see this as being akin to the central nervous system, in biological terms. That network allows for all of that information, that workflow, to move right across these financial institutions. “Our interaction and communications platforms are the enabling force for anytime, secure interaction between the business and its clients – a complete foundation for digital commerce or digital finance.” But Cisco’s mission goes far beyond success for the banks themselves – it is about safeguarding the longer term prosperity of a whole nation. “Financial services employs upwards of 791,000 people in Canada and it’s a mainstay of the country’s economic prosperity, both historically and into the future. So, a strong and vibrant financial services sector is essential for continued economic development,” says King. “It needs to be vibrant and healthy and it needs to grow. It must also meet more of the needs of Canadian citizens, providing accessible services for their personal lives and for businesses, by incorporating digital delivery to make that whole system of access to money, transacting, payments and settlements, faster. “Canada’s major banks and insurance firms are also using their collective strength to help fuel high-growth businesses and have launched a joint private-sector fund that provides long-term financing.” Fintechs, of course, also have their part to play. “Their arrival has brought more citizens and clients into the marketplace, some of whom might not have been able to access traditional banking services before,” says King. “These new players are forming alliances with banks, such as CIBC with Borrowell. The capability being brought to bear by fintechs is complemented by the solid infrastructure, compliance expertise, large-scale operating footprint and customer base of these incumbent banks. “Financial services are critical to Canada’s economic growth, and technology is transforming the operating model. Banks, in particular, are looking at a smaller operating footprint, based on a smaller, more agile, version of the traditional branch,” adds King. “We can help them work smarter to provide limitless service to any client, reducing cost while also improving access and service.” |



A great big orange glow Tangerine became Canada’s most successful direct bank under Peter Aceto. As he steps down to make way for a new CEO, we reflect on how his unusual leadership helped define a ‘warmer’ generation of online financial services



Spring 2017

Photo courtesy of Basseloped

It’s fitting that Peter Aceto, founder and boss of Canada’s leading digital bank, Tangerine, should help make financial history on his last day in the job. In handing over to his colleague of 17 years, Brenda Rideout, Aceto made way for the country’s first female bank CEO on March 1. Ironically, less than a week earlier, Bloomberg had bemoaned the fact that there were no women occupying the top executive position at any of Canada’s banks, let alone the Big Five. Bill Downe, CEO of the Bank of Montreal, was quoted as saying it was ‘inevitable’ that one would be appointed – but given how well kept a secret Aceto’s departure was, he probably wasn’t expecting it to happen quite so soon. It was fitting that Aceto should prompt such a cultural shift because he’s been credited with doing more than any other to change leadership thinking and style in financial services – and beyond. Author of the book Weology: How Everybody Wins When We Comes Before Me, in 2015, Aceto is the lawyer who built Canada’s leading direct bank to serving more than 1.9 million clients and holding close to $40billion in assets, based on a philosophy of ‘conscientious capitalism’. But his people-first leadership strategies took a while to develop. In his book, he clearly remembers a toe-curling incident at a party shortly after being appointed to a senior lending position at ING Direct (as Tangerine then was), when he was publicly caught out not knowing the bank’s current interest rates. At the time, he was irritated and humiliated. “I was a lawyer before joining ING Direct and when I started my new job at the bank, I was trying to be something I thought I was supposed to be,” Aceto has said. “I thought there was a way to behave, a way to dress, a way to talk. And someone who knew me very well sat me down and said, ‘Peter, I know what you’re like, I know what you love, and you’re being someone else at work. If you were true to yourself, people would enjoy working with you even more.’ “That was a game-changer – one of the most liberating moments in my life, because it gave me permission to actually be myself.” During his nine years at the helm, Tangerine went on to become one of Canada’s 10 most admired corporate cultures, winning six Ipsos Best Banking awards, as Spring 2017

well as top employer and customer satisfaction awards. Last year, he announced it would be targeting a million new customers over the next few years as it consolidated its position as Canada’s seventh biggest deposit taker and sixth biggest provider of home loans, by focussing on customers looking for alternatives to traditional banks. “I think we are on the edge of a tipping point where we will see millions of Canadians choosing a model like this,” he said at the time. “We think today there are somewhere between 10 and 12 million Canadians we call ‘direct ready’ – consumers who would be willing to buy one or more products from a bank they never meet.” He identified the three key growth areas as being credit cards, wealth management and chequeing accounts.

Consumers don’t trust corporations much. So, if you have a business that’s really built on transparency, that can be powerful At the time Aceto took over as CEO, morale was low. Staff complained that the organisation was being run like a machine. “In that first year, it was very much about leading by example,” he says. “I spent hours talking to our employees. I ignored the org chart and talked to whoever I wanted, whenever I wanted, and really tried to smash some of those traditional views of hierarchy… and force other leaders in the organisation to do the same. “I took customer calls every single day. I sat down, got on the phone and really began to understand the challenges the call centre staff were facing. It was very tiring but also very exciting.” From his desk outside the CEO’s office that he'd rejected, he often responded to calls and emails from customers directly. The day he stepped down, one of those recalled how Aceto had personally replied to a blog she had written, regretting the departure of a particularly cheery member

of staff who knew her by name in one of branchless Tangerine’s Toronto Cafés – a kind of financial internet café where customers bank online and meet advisors. “@PeterAceto commented on my blog in 2012, then shared it with staff. The next time I walked into @TangerineBank, I was greeted by name,” she Tweeted last month. Such accessibility to the big boss was one of the totems, along with trust and transparency, that came to define Tangerine under Aceto. “I think consumers, in general, don’t trust corporations very much,” he says. “So, if you have a business that really is built on a platform of transparency and doesn’t mind letting customers see what you’re talking about in the boardroom, that can be powerful. “I talk about the good and the bad on social media. And I deal with unhappy people too. If we make a change that is negative for some consumers, it’s important to be part of the conversation and share our experience and perspective. Because that conversation is happening on social media anyway, whether I’m involved or not.” When ING Bank was acquired by ScotiaBank in 2012, prompting its rebrand to Tangerine, ‘forward banking’ became the mantra and customers, as much as staff, were expected to buy into it. Aceto explained it recently by saying: “We’re a business model that is for a specific group of Canadians. So if there are consumers who really need a face-to-face interaction with their bank, we’re not going to be able to make them happy. They might like our rates, they might like that we don’t charge fees, but we need to make sure we don’t accidentally get customers who need the service those fees pay for. So we have to be thoughtful, sometimes, about saying, ‘I just don’t think we’re going to be able to make you happy.’. And if we have to, we ask them to leave. “In my book I also talk about consumers treating our people badly – being rude. And I don’t think that’s acceptable, so in the case I wrote about in the book, I felt I had an obligation to do something about it, and I did. I shut down their account.” Unorthodox maybe, but there’s no disputing the strategy has been a winning one and, as Aceto leaves quietly in a big orange glow of ‘pride, gratitude and love’, you can be sure that whatever he’s planning next, he’ll be himself. |



When biometrics meets Botox Taking authentication to the next level has been an interesting journey for Steve Peterson, Head of North American Corporate Credit Card Products at BMO Financial Group Last year, BMO announced a biometric authentication pilot in conjunction with MasterCard, using fingerprints and selfies for security instead of pin numbers or signatures. The pilot rolled out to several hundred BMO employees. How is that going? Steve Peterson: Our soft launch has gone very well and we’re going into full production with MasterCard this autumn. For all BMO employees using it, we put them through multiple surveys, asking how they liked the enrolment process, usability and if they had concerns. People love it and have found it easy to use. Were there any concerns raised about biometric authentication? SP: Some of the questions from users I'd never have anticipated, like ‘if I got Botox done would the selfie still work?’ A lot of the questions gravitated around the selfie, such as ‘what if I have a receding hairline or facial hair?’ or ‘what if I changed to coloured contact lenses?’ The algorithms focus on the T-zone and the authentication process takes a bunch of distinct measurements. So facial hair or hair on top of your head wouldn’t make a difference, nor would changing to coloured contacts. With Botox gone wrong or an accident, ‘selfie pay’ might require a re-enrolment. The other issue was to do with customer experience at the checkout. As part of the rollout, the tool leverages MasterCard SecureCode, which is a private code for your MasterCard account that you can use when shopping online. Biometrics can replace the need to enter this code at the checkout. Depending on a client’s shopping pattern – for example, with a small ticket transaction at



a larger merchant – the merchant may decide not to prompt for MasterCard SecureCode, so the cardholder would not get a biometric prompt. This could cause concern for the user, so we are automatically enrolling all customers into SecureCode. Our roll out will include comprehensive FAQs and client education to ensure enrolled cardholders are aware of potential differences in experience. Do cardholders ever get annoyed at all these checkpoints? SP: We’re using a risk-based approach with SecureCode vendors. For instance, the railroad service Amtrak is a SecureCode vendor. If you’re always taking the train and buying tickets every day and the purchases are within a dollar range, we don’t need to keep bugging you. Once the tool realises your established pattern, we don’t need to get verification because we want to limit the interruption in your daily life. Verification will be needed when transactions don’t look right, though.

link, put in the password. As part of the process, the device and phone number go through some quick authentication components. If the device allows for both selfie and fingerprint authentication, you can choose which one you want. Some devices don’t support fingerprints, but they’ll have a camera in which case we will go right to selfie for authentication, take a picture – boom, it’s quick. It took me less than a minute to enrol. What will users value most? SP: The biggest challenge for most of our customers in the US is fraud. Despite that, there’s still relatively slow adoption of chip technology at the point of sale. The issuing community is getting chip cards out there, but the retail community is lagging behind. Until the US becomes more militant about getting chip terminals in place, it’s still going to be highly vulnerable to breaches. We don’t see anything close to the frequency or size in other jurisdictions.

Some of the questions from users I’d never have anticipated

Do biometrics work with all devices? SP: Apple has made more inroads than Android because of security concerns. But we’re also working with MasterCard to get a BlackBerry option. BlackBerry is a big Canadian institution, so a lot of businesses in Canada have them. What is the enrolment process? SP: We send two emails, one with a link and one with a password. You go to the

What will it take for the US to switch to chip and pin from signature then? SP: The UK started as a signature environment and within a couple of years flipped to pin. I can see the same thing happening in the US. But it’s going to have to hurt the retail community before they make a change. At some point the hotel industry will have to make the transformation as well. And when they do, I will breathe a substantive sigh of relief. Spring 2017

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Legacy in limbo Is the hard-earned cash of one generation safe in the hands of the next? Research from RBC Wealth Management, which is extending its services into robo advisor platforms, would suggest not When it comes to giving and receiving wealth, most high net worth Canadians are woefully unprepared to transfer their inheritance, with less than one-in-four having a full plan in place. Yet, within a generation, an estimated C$400billion is going to change hands. According to new research by RBC Wealth Management, conducted with Scorpio Partnership, not only do the majority of Canadians lack a detailed plan to pass on their assets, but only one third of their beneficiaries have financial planning in place to make the most of the gift. “Our research shows that inheritance typically begins at age 29, so Canadians need to act now to ensure their legacy lasts,” says Tony Maiorino, head of RBC Wealth Planning Services. “There’s no time like the present to adopt a ‘learn before you earn’, strategy so that the next generation can be educated and prepared to stand on their own feet financially.” The research was undertaken among 3,105 individuals with average assets of US$4.5 million in Canada, the UK and the US. They included men and women, professionals, retirees and business owners, as well as givers and receivers of wealth. Other key findings from the report were: ■■ Almost 60 per cent of Canadian parents aren’t confident that their children will preserve or grow their inheritance, yet nearly 70 per cent listed their children as their top inheritors Spring 2017

companies in the world, is very aware of. According to a 2016 report from Roubinet ThoughtLab, 59 per cent of investment providers had made it a priority to build, partner or acquire fintech capabilities with ‘anytime, anywhere, any device’ access on their shopping list along with omnichannel customer experiences, technology-enabled planning tools and improved performance analytics. RBC Wealth Management is among them. It added NextCapital to its robo advisor lineup late last year following an earlier tie up with Blackrock’s FutureAdvisor platform, which it initially intended to target at clients “When it comes to navigating who wanted to use automated succession planning, we know it’s investment strategies and an emotionally charged topic and tools or those ‘just beginning families generally prefer to keep to build wealth’. their financial dealings private,” ■ In addition to the main says Leanne Kaufman, head of legacy report, RBC Wealth RBC Estate & Trust Services. Planning: Nest eggs Management will be releasing “Speaking with a professional need protecting, says four research papers in 2017, and opening your network can Leanne Kaufman looking at the challenges help ensure the nest egg and opportunities that women, small Canadian families have built is protected business owners, blended families across generations.” and millennials face when it comes to These inheritors, of course, might not inheritance. The full report and a survey be using the same investment tools and that allows Canadians to compare their advisors as their parents. It’s a generational answers to the findings, is available change that RBC Wealth Management, at one of the top five wealth management ■■ The earlier children are educated, the more confident they will be at making sound financial decisions. In fact, 66 per cent of those who began structured financial education before the age of 18 now rate themselves as confident ■■ Canadian children remain in the financial dark over their parents’ inheritance plans, with only 37 per cent of parents comfortable discussing the details with them ■■ More than half (56 per cent) of Canadian inheritors had no guidance before receiving their financial windfall

When it comes to navigating succession planning, we know it’s an emotionally charged topic |



All-you-can-eat data, but who’s using it? The credit sector still largely relies on crowdfunders, digital-only banks and fintech firms for innovation. But what will the ‘new normal’ in lending look like? Neil Ainger asked Armada Labs’ Chairman Ralph Ayala, CEO Nick Varnitski and COO Eugene Pratasenia “The more data one can collect on the consumer or corporate, the better educated a loan decision will be,” says Ralph Ayala, chairman at Armada Labs, which provides white-labelled credit score data and analytical systems to financial institutions (FIs) and the new disruptive financial technology firms that are keen to shake up their marketplace. North America is its home market, but Armada sees the same trends in the supremacy of data and the rise of fintech innovation in Europe, too, as banks struggle to overcome their silos. Established FIs are increasingly looking outside their own bespoke software, data centres and legacy IT, to find new solutions in the Cloud and among more nimble collaborative fintech partners. Ayala cites unstructured ‘big data’ and the investigation of multiple sources – not just an Experian score, as a bank would traditionally use – as the key success factors in maintaining a risk profile that lending

firms are comfortable with, without unnecessarily turning away business because you don’t have the systems to quickly analyse, accept or reject applicants from online or mobile channels. Younger millennial customers, in particular, want a digital service. “Armada Labs understands that every company – whether an established FI, crowdfunder or challenger bank – has its own philosophy and ideas about who to approve and for how much,” says Ayala. “Internally, we call this the ‘secret sauce’ and are confident we can build a flexible system that can accommodate firms’ different risk profiles and niche target audiences. “What is distinctive about the newcomer fintechs is that they use a lot of different data to determine their decisioning factors.” Unstructured ‘big data’ from social media and other sources can be mined for useful information, particularly using artificial intelligence (AI) machine-learning techniques or more standard business intelligence (BI)-type analytical tools. Even just un-siloed information on a new bank’s data-centric systems can be used to approve loans in the atypical fintech-based fashion. “For instance, a Harvard

graduate with an engineering degree but no credit history will often automatically get turned down by a traditional bank,” says Ayala. “A fintech neo-challenger bank wouldn’t do that, nor indeed would a fintech-enabled traditional bank that is overhauling its digital platform. They’d be more savvy and knowledgeable because they’re using more varied, deep data.” According to Nick Varnitski, CEO at Armada Labs and a managing partner alongside Ayala, there is no document collection or presentation headache with the fintech-based approach to loans, risk and decisions, either. This makes the process less stressful for the end consumer. “There is no painful credit check and, because it’s all online, no need to collect a whole bunch of documents to prove ‘hey, here’s my income and how I’m spending it and where I live via my electricity bill, and so on’. All you really have to do is give access to your US or Canadian current account,” says Varnitski. “Then our technology goes in and grabs all the transactions and does its analysis, understands what your cashflow is,

Not had their fill yet: Appetites for lending are determined by the quality of the data



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how much money you’re making, where it’s going and so on, in order to build an effective financial model of your personal finances. A decision can then be made based upon that. No human need be involved, which aids efficiency, speed, accuracy and control.”

Fintech revolution This fintech revolution in credit is being supported by the increasing adoption of Cloud computing by FIs. Armada is Amazon AWS approved for this reason and with the opening of a new AWS data centre in Canada, it’s targeting that market for growth. The explosion in ‘big data’ is also feeding the revolution. Its usefulness is amplified by easy access to cheap processing power in this era of ‘big computing’. “Capital One in the US made a strategic decision a few years ago to close down their own data centres, save money and move their workflows into the Cloud,” explains Armada’s COO, Eugene Pratasenia, adding it was Amazon AWS in their case. “By 2020 this migration should be complete. Others are following their lead and often realising it can be more secure and resilient than if the data was hosted in-house, and served by expensive internal staff.” In future years, the revolution will also be supported by open application programming interfaces (APIs), and regulations that are mandating this approach and freeing data, such as the European Union’s revised Payments Services Directive (PSD2) and the UK regulatory authorities’ Open Banking mandate. These coming rules and others like them will force banks to share their data – potentially leading to the rise of

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MoneySuperMarket-type aggregators that will offer comparisons and battle to provide end users with the best deal. However, the technology itself is the biggest push factor. Smart FIs have realised they must improve their game in order to compete with newcomers and are seeking to collaborate with, or acquire fintechs, to gain the technological expertise, flexibility and data-centric approach they need to make their size and existing client base count in delivering economies-of-scale savings and performance benefits. “Towards the end of last year, the big banks in North America entered into partnerships with sizeable fintech players. It’s obvious they’re not going away,” says Pratasenia. “Banks lost some traction in the consumer and SME loan and credit arena to fintechs, especially among millennials, so

Investors are now looking under the hood of fintech firms to see who’s truly got the best technology collaboration is a way to remain relevant and ensure they’re not displaced or disintermediated,” he adds. The collaboration trend works both ways. “It’s good for both,” says Varnitski, pointing out that fintechs get access to very lucrative client bases and banks to knowledge and agile practices that they’re going to need in the new digital age. “Armada has had very large entities here in the US come

to us to partner and gain access to our technology,” he says.

Predictive capabilities No revolution lasts for ever and a ‘new normal’ FI working arrangement and technological approach will eventually materialise that values predictive analytics, or at least an agile enough infrastructure template that can accommodate future change. “Fintech was a hot topic and everyone, especially investors, was jumping on firms and putting money into them just because they had fintech in their name or literature,” says Ayala. That isn’t the case anymore. “Everyone is more strategic and cautious. There is a big change. Investors are now looking under the hood of fintech firms to see who’s truly got the best technology,” he adds. Some partnering FIs may already have got the data-handling and predictive expertise they needed out of their fintech associates and perhaps now feel equipped to battle the best of the remaining newcomers. Others have bought the knowledge they need. However, the majority of banks are still behind the curve, so even though the excitement over the ‘fintech revolution’ may have passed, most banks still need to improve their predictive capabilities. “For instance, a fintech would send out a targeted alert to a customer advising them they’re pre-approved for a $35,000 loan on their next car because they know they need one. A bank would probably send out an alert randomly,” says Ayala. “I do think banks will get there, but it’ll take them a long time.” |



#Finogreat! Everybody’s talking about FinovateEurope, held at London’s Billingsgate in February. Fintech Finance’s Dylan Jones eavesropped on the conversation Described by one writer from the Wall Street Journal as ‘the Super Bowl and World’s Fair rolled into one’, FinovateEurope was back on the gridiron in London this February, putting fintechs on the offensive. The beauty of this event is that it delivers. Not only does it give organisations, large and small, a platform to demonstrate new products, discuss how problems are being solved and what niches are being filled; it’s also where deals are done. “Within six weeks of demo-ing at our first Finovate, we were closing deals from leads that we received from it,” said a satisfied Scott Pitts, CEO of paperless transactions platform oFlows (now part of Adera) after last year’s event. His was among the 16 per cent of companies to have been acquired after appearing at the shows. More than half of businesses have secured customers and just under half have secured funding as a result of attending Finovate since the first event was held 10 years ago. FinovateEurope 2017 allowed businesses to show off a broad range of technologies. Biometrics, engagement platforms and trading platforms were among the many featured, allowing both veterans and newcomers to fully immerse themselves in the potential future of finance. These technologies were explored in workshops where visitors showed a keen interest in understanding the applications in their respective fields. Alongside the presentations, Fintech Finance took the opportunity to talk to presenters who gave a unique insight into where these new developments will take them. Of the 72 companies present, seven won a Best of Show award for their specialism



from the Finovate organisers. Backbase, Crealogix, Dorsum, eToro, Memento, SaleMove and Tink were all judged to be offering something unique that represented a radical progression from which the entire industry could learn and benefit.

Time to chat This year is promising to be a revolutionary one for chatbots and virtual assistants as customers start to feel more comfortable around AI. Two of the Best of Show winners – Backbase and Dorsum – focussed entirely on this technology. Backbase’s demonstration concentrated on how artificial intelligence in the wake of the marketliberalising revised Payment Services Directive (PSD2) can turn a mobile app into a smart virtual assistant. Many of the visitors frantically accessing their Twitter accounts to comment on it could have done with one. In fact, according to Felicity Hudson, head of Hotwire PR’s fintech practice, which analysed the 4,620 tweets around this year’s

event, PSD2 was the most talked about subject after #fintech itself, which signals how big an impact it's likely to have. The snowstorm of emojis that Finovate generated was also symptomatic of how utterly indispensable social media has become – and why companies like Backbase are keen to find useful ways in

Jolly good show: Visitors took to Twitter to comment on Finovate (inset)

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which to utilise social media’s mostused platform, the phone, to create a fusion between our professional and personal lives. Another example was eToro, which also won an award for its worldwide social trading network, currently consisting of more than five million members. The platform has transformed trading and investing into something sociable, enjoyable and, perhaps most importantly, much more transparent.

Innovation Central Some of the most exciting innovations to be seen were around security and biometrics. Among them, Worldcore announced a joint project with BioID, in which the latter’s facial recognition app will be used to secure Worldcore a second form of biometric authentication named FaceKey. Fraud and how to combat it was an ever-present theme at the show. With memories of the 2016 Tesco Bank hack involving

40,000 accounts still raw, many companies were demonstrating prevention technology. Chicago-based anti-fraud specialist Rippleshot has successfully raised $2.6million in seed funding to bring its total development pot to $4.6million, allowing it to hire more developers and data scientists. According to co-founder and CEO, Canh Tran, its technology will enable card issuers to track trends in activity of cards that have been compromised. Its Cloud-based system will also be able to issue real-time declines to prevent further individual losses, with the company claiming it will be able to prevent ‘more than half of fraudulent spend from compromised cards’.

The snowstorm of emojis that Finovate generated was symptomatic of how utterly indispensable social media has become Finovate is more than just a showcase. It’s become an important part of the fintech ecosystem; somewhere that relationships are forged, not just between start-ups but also between the minnows and the mammoths. The UK’s Big Four banks attend FinovateEurope, along with many of the world’s leading financial institutions. And it’s this connecting that makes finance fun. Hubs that allow the collaboration and discussion of revolutionary ideas are hard to pull off, but FinovateEurope and its sibling shows held in the US and Asia, have become phenomenally successful at it. Next up is Finovate Spring, one of two US shows, which will feature 71 presenters in April in San Jose. Later this year, FinDEVr, a conference that is focussed solely on the technology side of fintech, shines the spotlight once again on London. There’s only one appropriate response to that… #great!

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At your command: Voice-activated technology is the future, says Comarch


REASON Maciel Wolanski, Chief Technology Officer at Comarch Financial Services, introduces Myra, the conversational wealth management AI, who likes living in the fast lane

At last year’s Finovate, Comarch wowed the crowds with virtual reality (VR) technology for the wealth management market, which proved the company was well up for captaining a ship into uncharted territory. The audience was captivated and it heralded one of those rare moments when you can almost perceive an audible intake of collective breath.



This year, as one of the show’s highlight sponsors, it sped into the limelight again with Myra, a virtual in-car investment assistant, employing conversational AI, voice recognition and voice synthesis. Her job, said the company, was to keep an eye on the driver’s portfolio while they kept their eyes on the road. Myra hangs out on your smartphone until you gain the privacy of your car when she appears on its central unit and immediately starts talking.

The ultimate in-car accessory, Myra brings you up to speed on portfolio alerts, lets you know how stocks are trending, can mark to buy and sell, and even searches out relevant industry news. This wealth management app on wheels is emblematic of Comarch’s singular approach to the omnichannel concept. Established 24 years ago in Poland, the multinational software house and systems integrator retains a Krakow headquarters Spring 2017

and operates in 50 countries. It specialises in areas such as finance and banking, telecomms, the services sector and public administration. Its financial services division focusses on designing, implementing and integrating solutions and services for banks, insurers, asset management companies, pension and investment funds and brokerage houses. Maciel Wolanski, chief technology officer and head of R&D at Comarch Financial Services, believes that the real future of banking will have arrived when the power, functionality and interface of the mobile phone is optimally engineered for high-level voice-activation – or what he refers to as ‘adapting new peripherals’. Citing a study by Harvard Health Watch, which found that the average person in the UK and US spends about 600 hours behind the wheel (equivalent to seven per cent of our lives), Wolanski says the technology industry is missing an opportunity if it doesn’t forge ahead with new ways to optimise our drive time.

Focus on mobile There is a growing sisterhood of voice-activated intelligent assistants – millions of iOS users in the US and Australia are familiar with a female Siri while Amazon’s Alexa is now installed in seven per cent of US households. In fact, she and Myra are good pals – the two apps can talk to each other. “But this is only part of the bigger picture,” says Wolanski. “Today, smartphones are such powerful devices, it’s a waste for them to be just an end user device.” Out of all the channels that banks use to allow customers to interact with them – and it’s a crowded proposition – mobile phones are the device that most warrants development, he says. It’s no secret that banks are struggling to provide a seamless, convenient customer experience, regardless of how (or where) those customers do their banking. It is a huge challenge delivering a consistent omnichannel customer journey, from in-branch to online (desktop/tablet), and ATM to mobile, when the support for all those activities is in separate silos. “You create this huge matrix and banks have problems providing a proper user experience using four or five channels,” says Wolanski. “To break those silos into a single process is so much work for the banks. Spring 2017

“This is the second pillar of our research and development: trying to unite as many channels as possible using the mobile phone. We try to solve the problem of silos in the banks by using a smartphone as a kind of omnichannel hub.” His vision is for the mobile to become an ‘uber channel’, which can be adapted to different criteria, so eliminating distraction between different channels. The other variable that needs addressing, says Wolanski, is the application programming interface (API) of each channel, so that the bank doesn’t lose sight of the customer’s actions, especially once the revised Payment Services Directive (PSD2) comes into force in January 2018. “Having one application on all of those end-user devices will solve the complex problem of silos,” says Wolanski. “Of course, it cannot fulfill all channels because that is impossible. We wouldn’t be able to do the branch, ATM, or any other traditional channels this way. But the goal is to have as many channels and as many devices, umbrella-ed under this one solution to eliminate the friction and eliminate the silos in the user experience.”

The voice interface is huge and I think this revolution’s already started Aside from PSD2 itself, Wolanski says there's another big challenge facing the financial sector. He believes that, if there is a moment when a newcomer irrevocably influences the landscape in financial services, as Uber did in the taxi industry, then blockchain could be it. “I think blockchain technology is something that can completely change the landscape and create new players, or eliminate existing players, but nobody knows where and when exactly,” he says. “If you need a money transfer, it eliminates the trusted party for authorising many payments. You want trading? You want settlements? You want trade finance and every possible small bit of what our banks are doing? Blockchain technology, as a peer-to-peer concept, has the potential to completely change the way it’s done.”

And when you think a life-changing ‘moment’ may eliminate you, what better way to defend yourself than by understanding how the opponent works, inside-out? “Comarch started looking to understand it better and take part in the proof of concept for the blockchain technology, especially in the area of trade finance and capital markets,” says Wolanski. “In our opinion, it’s not a question of whether the blockchain will take some part of this industry, it’s more ‘when’.” Comarch is looking forward to collaborating with banks so they can learn how to leverage blockchain for themselves. “We want to work with some financial institutions on creating some proof of concepts. It would probably be around trade finance because we see this as one of the most interesting areas where we can apply blockchain technology, especially as we are a provider of, let’s say, old-school trade finance systems. So we have a good knowledge around how we can help in that area.” That said, Wolanski doesn’t subscribe to the notion that one blockchain conglomerate will become omnipotent in this future banking landscape. Rather, it will be divided into smaller domains of power. “I think that, if it happens, it probably will not be as one ‘Uber’ taking all. Financial services are so complicated… maybe someone will take over how payments are done, maybe someone will take over how the initial public offering is done. Someone else will take over how you issue your bonds, etc. So, definitely there will not be a single player that reinvents banking.”

A matter of time But it’s voice activation (VA) – a more instinctive way for humans to communicate than, say, using a mouse or a screen – that really fascinates Wolanski. Ultimately, he wants to create technology that allows functions to be voice-activated while the phone is still in a pocket or a handbag, optimising our time, not just in the car, but everywhere. There’s a way to go yet, but the ability for humans to use natural speech patterns without having to carefully formulate questions or orders to make VA technology work smoothly, is a priority objective for Comarch. “The voice interface is huge and I think this revolution’s already started,” concludes Wolanski. |



Shock therapy Global insurer AXA’s new Strategic Ventures Capital Fund is helping cushion the organisation against future disruption by investing in technology start-ups as diverse as sales bots and digital health advisors. Fund chairman François Robinet explains the strategy Failing to spot new market trends and technologies can destroy established companies, no matter what their size. When change happens it may happen fast – and the big players can be the slowest to respond, despite having the most to lose. So one global insurer is hunting down what it considers the most disruptive and innovative new technology entrepreneurs and pulling them in close. With a war chest of $250million it is directly funding start-ups to ensure it is the first to know about new ideas and benefit from them. The AXA Strategic Ventures internal venture capital fund, launched in 2014, is headed by chairman François Robinet and his vision can be summed up in one word – options. He has no interest in predicting the future. But Robinet believes a partnership with innovators that are relevant to AXA’s strategies or business means AXA can help lead change rather than struggle to keep pace with it. “We want to create options,” he says. “To be diversified and to be able to capture different technology, different possible changes, short-term or long-term, so that we can be part of any major evolution. “I think it is important in this business not to have a crystal ball. What I’m trying to do for AXA Strategic Ventures, and also the wider AXA Group and even the wider financial services industry, is to create options. We know that there are all these technologies that are coming into play. But what we don’t know is how they will combine among themselves, and therefore what effect they will have on our industry.” Robinet argues that the finance industry has seen little disruption in the way of major new players. While retail giants have been squeezed by Amazon



and personal transportation is being turned upside down by Uber, the long-established banks and insurers, including his own, still reign supreme. But he recognises the industry has seen huge disruption from within and his venture capital fund seeks to benefit from the brilliance of the brains in areas such as fintech. “The insurance industry is not known for its great consumer experience, which is in contrast to the societal purpose of insurance,” says Robinet. “We believe that innovation and technology will allow us to bridge that gap.” AXA SV has been running for two years. Its team of 14 staff has two investment strategies – early stage and growth. For

It is important in this business not to have a crystal ball. What I’m trying to do is to create options early stage it identifies small start-ups with a product or idea, but with few or no customers as yet. The fund has €100million set aside for this strategy and the businesses will receive up to €2million each. With growth businesses, AXA SV is looking for firms with a proven business case that need investment to increase scale. This strategy has €150million earmarked and up to €15million can be spent on each investment. Robinet is keen that the firms his fund invests in will have access to the expertise of AXA’s insurance and fund management staff. And the entrepreneurs’ services can

potentially be pitched to AXA’s 107 million customers worldwide. So far, 26 companies have joined the fund. “One of our end goals when we talk to start-ups is to say we will help their development by connecting them with the AXA ecosystem,” says Robinet. “Therefore, it is important that our scope is consistent with this approach and that’s why we invest in everything that is relevant for the insurance and asset management business. It’s not just in pure tech, it’s everything that involves a customer touchpoint, from marketplace to data analysis. It is very broad.” This broad focus is apparent when you examine the firms within the fund. They include an Italian start-up that has created a device and app that turn a smartphone into an alcohol breath tester. Then there’s an app and website that link users needing health advice with medics, a basic US bank service that is operated through a phone, and an online platform helping first-time house buyers in France. Many of the start-ups are focussed on customer interaction – an area AXA is keen to learn more about. Some are closely tied to AXA’s core business, such as US-based Policy Genius, an online insurance broker that uses a three-minute questionnaire to match users with insurance policies. There’s also New York-based Wellth, which works within the healthcare space. It provides individuals with methods to manage their chronic health conditions – such as reminders to take pills, check blood pressure or do exercise. But importantly to AXA and any organisation that buys into it, Wellth gives insight into patient behaviour as a means of lowering health costs. Other companies in the fund fall outside AXA’s current realm, such as Neura, which allows users to personalise Spring 2017

A changing world: AXA SV’s strategy is to keep up with the future

existing apps and technology. Robinet explains: “Neura is a technology/ big data company, connecting devices. So this technology allows us to understand the context of a person, based on the different connected devices around him or her. It leads to predictive analysis. So this one is very promising – and I would say in a not too distant time frame. “Another company in the portfolio that I’d like to mention is Blockstream. It is in the blockchain world. It’s a company in San Francisco providing infrastructure for clients that want to use blockchain. Their success will depend on the development of blockchain and the different aspects of blockchain, such as Bitcoin. It’s a fantastic team, they have developed a fantastic product.” In terms of wider trends, Robinet says the development of artificial intelligence is a key area. One of his fund’s investments has been into Gasolead, a sales bot that identifies leads and suggests strategies to sales staff. “I see a lot about predictive analysis,” says Robinet. “But the robo adviser space is a Spring 2017

difficult one, because the unit economics are not clear. It’s clearly a good tool but we don’t see how it can be a good business at this point.” Robinet also sees the asset management industry being revolutionised by mechanisation. “I think we will see more and more applications using artificial intelligence on the consumer-facing side, but also on the processing side, that’s for sure,” he says. “In financial services we will start to see the first application of virtual advisers, or virtual agents, for insurance. They will be chat bots, but at an almost human level.” He believes the same will happen in asset management due to the reliance on data processing. “Clearly, it [active asset management] is an expertise, you take a lot of information and you get the best out of it,” he says.

“This is set for disruption because this is where artificial intelligence will play a bigger part in the future. “All expert jobs will be massively disrupted by artificial intelligence. If you have a machine that can beat the best asset manager, asset managers will be replaced by artificial intelligence. I’m completely convinced of this.” Regarding his own future, Robinet aims to expand his team into Asia this year. With six offices up and running in Europe and the US, his next target is Hong Kong. “Asia is basically the new frontier, China in particular,” he says. “There’s so much to do in the insurance space and that’s why we are going.” |



All your eggs... Large and much smaller clients could be serviced better

Wealth for all

Modernising wealth management isn’t all about the march of the robots, says Mario Alves, Director of Sales and Marketing at Aixigo. But it’s nevertheless set to be transformed – and with it the fortunes of millions of smaller investors

It’s fair to say that wealth management has, until now, been perceived as a service reserved for the financial elite – those who want to squeeze a new Lamborghini or two out of their already sizeable fortunes. At least, that’s the stereotype, but it’s one that’s about to change, according to



Mario Alves of Aixigo. He believes that the wealth management industry is poised to undergo a revolution as a result of digitalisation; a revolution that will open up the service to those at the opposite end of the financial spectrum, particularly those looking to save for retirement funds. “We believe that wealth management is going to become a mass market offer,”

says Alves. “With digitalisation, we can deliver services of high customer value to absolutely anybody willing to invest money, however small that amount of money may be.” As he enters his fifth year as director of sales and marketing at the Aachen firm – one of the largest independent providers of technology for financial

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advice and support in Europe – Alves has developed a pretty clear notion of what he believes the wealth management customer is looking for, regardless of their financial status. “They basically want just two things,” he says. “The first is, unsurprisingly, good results. As an investor, the aim of the game is to witness strong performance in your investments, although this is highly dependent on market development and the level of risk that a particular customer is willing to accept. “The second thing that customers desire is a high level of transparency throughout their wealth management dealings. "With these wishes in mind, the basic customer’s needs can be summarised as follows: someone, or something, that can locate the right instruments to invest in, identify the appropriate risk level, consistently monitor the customer’s investments, and then automatically rebalance the portfolio or alert the customer should any action be required. “Not only this, but all data should be available whenever and wherever the customer may want it, and in a format that is both readily understandable and highly transparent. How can we deliver this extraordinarily complex service? The answer lies in the digitalisation of portfolios, and it’s about time financial institutions accepted digital wealth management as both a realistic and functional concept.”

delegating these tasks to a digital system, human specialists are released from the burden of intricate number crunching to be able to focus entirely on the equally important factor of customer service. “In effect, by utilising digital wealth management, advisors and organisations can serve more and more customers without any increase in human effort,” says Alves. Which, of course, makes it cheaper. “This means that they are freed up to assist smaller investing customers. For example, using a digital portfolio, the likelihood of wealth management firms turning a profit from an investment as small as £10,000 is dramatically increased. As a result, less affluent clients are becoming an entirely legitimate consideration in the eyes of wealth managers.”

The human touch That said, even in an industry where the web of digitalisation is spreading at an unparalleled rate, Alves believes that there’s little chance of the wealth management sector abandoning its human heritage. “Here at Aixigo, we accept that there will always be a need for the human touch in investing,” he says. “The same can be said for bank branches, despite the murmurings of many of those in the financial industry. I started my career in the wealth management department of a small regional bank in Germany – real bricks and mortar stuff, and a world apart from my

Through the provision of digital portfolios, customers now can easily access their information online or on their mobile, which is decreasing the need for regular personal reporting delivered by wealth management advisors. "This caters to the wishes of those customers who prefer to take a more independent approach to their wealth management,” says Alves. “However, contrary to the claims of many robo advisory evangelists, if you let the customer choose which service they wish to use, a large proportion of them will still make use of a human being at some point or another. “That’s why, here at Aixigo, we believe that a hybrid concept of wealth management can deliver the best margins and generate the greatest customer loyalty. On the one hand, digital portfolio services should be completely intuitive and accessible to the customer, but on the other, a human specialist should always be available to aid the more delicate decision-making processes. “Through digitalisation and dynamic algorithms, our team here at Aixigo are turning this hybrid concept of wealth management into reality.”

A fundamental shift At London’s Finovate conference in February, Alves and the Aixigo team’s new digital wealth management portfolio application programming interface (API)

It’s about time financial institutions accepted digital wealth management as both a realistic and functional concept But just how does digital wealth management open the door to those in a less financially extravagant position? “Digitalisation is causing an unprecedented increase in efficiency among wealth management firms, which in turn is allowing them to broaden their range of clients and accept customers who would previously have presented no chance of any profit to their business,” says Alves. “Through digitalisation, tasks such as data gathering, monitoring, simulating, and correction are all being handled by specialised algorithms. So, these algorithms can carry out the tasks much faster, more securely, and more efficiently than a human specialist ever could. Not only this, but by Spring 2017

role here at Aixigo,” says Alves. “There will be branch closures, as predicted, but there will also be branch openings. "The role of the branch is being rewritten in response to customer needs and the possibilities presented by technology. Beforehand, branches delivered services via humans that nowadays most customers access on mobile applications or online. However, they are still referring to human beings when it comes to vital financial decisions and this service is still being delivered in branch. “As with consumer banking, wealth management customers are becoming more savvy about deciding which channels they’d like to use,” says Alves.

received a highly positive reception. “Our API has already been established as an effective on-site solution, and we will soon be delivering it as a Cloud offer,” says Alves. “We’re fully intent on pushing our digitalisation concepts forward, and the financial institutions we speak to seem to share our enthusiasm for our ideas. “In my mind, there’s no doubt that the incumbents will acknowledge the opportunities presented by digitalisation in the months to come – they’re already beginning to understand that digitalisation doesn’t just entail the creation of an app or a mobile site, but that it in fact constitutes a total re-evaluation of the way in which they conduct business.” |



Growing the money market Moneyfarm has been ploughing its own furrow as a ‘hybrid’ wealth management robo advisor. Co-founder and CEO Giovanni Daprà is now reaping what he sowed It has been five years since digital wealth manager, Moneyfarm, planted its feet in Milan and just one year since it opened its robo-doors to UK investors. But Moneyfarm’s success – like the technology it adopts – is evolving at quite a pace. As with other digital players, Moneyfarm’s model of ‘creative disruption’ has prompted significant discussion and anxiety in the wealth management market, which is facing up to the fact that it might have to relinquish a healthy tranche of its customer base to these new kids in town – much like airlines did to budget operators in the 1990s. In 2016, Citigroup predicted that such companies could reach £3.8trillion over the next decade. And an indication of the strategies that might get them there came with news this February that Moneyfarm had teamed up with Uber to offer a co-branded wealth management app to its 40,000 self-employed UK drivers, giving access to pension and ISA products. Moneyfarm sits within the hottest fintech category of ‘robo advisor’. That is, online



wealth management services that offer automated, algorithm-based portfolio management for financial planning. Although, in the case of Moneyfarm, it’s a hybrid service, because while its onboarding process starts with an automated risk-profiling questionnaire that generates a recommended exchange-traded fund (ETF) for clients, behind the app lies a human team, which gives ongoing phone and online advice and manages client investments. What it shares with other robo advisors, however, is significantly lower cost when compared to traditional wealth management companies. “I used to work for Deutsche Bank, building investment products for the banks to distribute to customers, and I could easily see that the market had been over complicated for no real reason,” says Giovanni Daprà, Moneyfarm co-founder and chief executive officer, who graduated with an MSc in mathematical trading and finance from Cass Business School, London. “It’s pretty simple if you do it the right way, [but] everybody aimed for increased complexity and decreased transparency to

be able to charge the customer more to the customer. I saw there was really no need for all that and you can do a much better job using simple solutions at a completely different price point from anybody else in the market.” Daprà and fellow co-founder, Paolo Galvani, dismissed the easy option to re-use and re-package some of the thousands of financial products available and instead asked 'how can we build a solution to answer the question most people have – how can I manage my wealth?'”

Customer engagement Moneyfarm’s business model makes customer engagement a high priority and this commitment to offering advice and providing solutions and recommendations is what sets it apart from many other robo advisors. “We empower the individual, giving them advice and the ability to execute the advice, which I think is a very powerful combination for somebody who doesn’t have the skills, expertise or time to look for the best [investment] product in the market,” says Daprà. Spring 2017

Growing the market: The most successful robo advisor in Italy is now scaling up in the UK

“I think that millennials today, at least from our experience, are less attracted to our proposition because their behaviour around money is a little bit different.” The technology behind Moneyfarm had a complicated digital gestation since everything was bespoke. “We effectively built from the back-end to the front-end. Everything has been developed in-house and our technology drives most of that,” says Daprà .”We were able to build it in a much more agile way, which has been much more effective from a cost standpoint. “It is a business model innovation because it’s the combination of online access, direct distribution channels (so no branch), no sales method, no distributor. And managing the relationship as we do – in a hybrid model with both the platform and the phone – can achieve a completely different cost structure for the business. That allows us to offer a very valued service at a much cheaper price.” Moneyfarm is multi-platform, pitching up on desktop and, of course, on mobile where Daprà believes ‘probably 80-90 per cent of our customer interaction is going to be in the next three to five years’. He feels strongly that, in terms of content, desktop and mobile do not have to be strict carbon copies of one another. “Sometimes people need the focus of sitting in their office or at home and looking at the computer to make big decisions. But for the day-to-day, you generally use the app. I think that the secret, in a sense, if there is one, is not translating what you have on the desktop to mobile. We actually started from scratch, developing the mobile proposition from day one. “We want to continue to be multi-platform, but also we really want to try to be where the consumers are. Today, the platforms are mostly mobile. Tomorrow that might be different.” Wherever and however customers access the service, Moneyfarm needs secure boundaries to keep its financial stock safe and digital predators – the hackers – out. “We have built in a layer of security below what you can see and we are continuously revisiting our security

Our game plan is to stay ahead of the curve. We did this five years ago and only now has the industry started to move “The ETF portfolio is discretionarily managed by our profile team and investment team and you have the ability to completely see what we do and how we’re changing it.” Moneyfarm was originally launched with millennials in mind but the entrepreneurs quickly realised they’d got the wrong demographic. The first generation to have grown up online might have the digital experience but they lacked sufficient disposable income to invest, to allow the company to scale. So it turned instead to the more financially buoyant Generation X. “The reality was that our customer is closer to Generation X, says Daprà. “I think it’s partially linked to the amount of wealth that people have, but also to their thinking around wealth. Now we target customers between 35 and 50 years old. Spring 2017

infrastructure to make sure there isn’t any gap,” says Daprà. He adds that it is the complex API layering on the mobile app that prevents anyone from accessing the Moneyfarm databases or server – and the same goes for the desktop platform.

A hybrid model It's the only aspect of Moneyfarm's operation where transparency is not the watchword. It’s embedded in the wealth management journey for clients. The platform is considerate enough to accommodate even the most basic of questions because Daprà doesn't want to alienate less financially savvy clients. It’s partly to create a more level playing-field and partly to add more value. “Most people don’t really have an idea of how to invest their money and we give them the solution, but we also give them advice and recommendations for how to do so,” says Daprà.“If you have any questions, you can call us and we can give advice or recommendations over the phone. I believe that if you actually answer correctly basic questions, you probably take out 90 per cent of the issues in the world of wealth management,” he says. “So we’re not going to tell you which stocks to buy but we can guide you through the basic planning questions. Generally speaking, this is where it delivers value.”

Ahead of the curve A winner in the recent FinTech Finance Awards for wealth management, Daprà believes that Moneyfarm being the oldest in the youthful robo advisor industry gives it a competitive advantage. “We are more efficient. We are much more cost effective and you don’t run the risk of having, say, 5,000 advisors telling different stories to 5,000 customers. That’s very important,” he says. “I think it’s also the reason why all the incumbents have now said they want to launch a robot, or partner with a robot, and I think it’s going to be hugely beneficial for us. “Our game plan is to stay ahead of the curve. We did this five years ago and only now has the industry started to move,” says Daprà.“We’re thinking of what we should do for the next five years. For us, the key aspect is personalisation of the service and its expansion. It might be very different from what it is today.” |



Plugging the gaps There are plenty of quick-fix solutions available to financial services companies facing a tsunami of regulation. But have they thought through the consequences? asks Bruce Laing, Partner in advisory firm Deloitte Consulting In recent years, regulation has become one of the biggest issues in financial services, paving the way for a number of regtechs as well as specialist consultants providing comprehensive, integrated solutions. Deloitte Consulting is one of them. It offers a number of services to the banking, insurance, capital markets and investment management sectors, enabling clients to meet goals, plan new strategies and keep abreast of changes in regulation and customer expectations. “The biggest problem that the industry faces is the sheer scale and complexity of regulatory requirements. This is combined with strict deadlines that seem to be coming thick and fast from every angle, including MiFID II, General Data Protection Regulation (GDPR) and the revised Payment Services Directive (PSD2) to name a few,” says Bruce

Laing, a partner at Deloitte Consulting. “We are seeing banks and other sectors respond in a way that could prove to be problematic in the long-term. “With the added pressure the industry is currently under to reduce costs, many have chosen to adopt a number of short-term fixes across various parts of their business rather than developing a clear strategy that takes into consideration the best interests of their entire organisation.” Companies are trying to plug in solutions wherever and whenever they can to meet the deadlines. But bearing in mind the timelines, should something be done to ensure that this doesn’t have dire consequences later on down the line? “What we are doing at Deloitte is examining regulations from a data process point of view to identify fundamental similarities, turning them into solutions that

address that commonality rather than chucking in more and more different components that need managing,” continues Laing. “As such, we have transitioned from being a purely advisory firm to actually helping banks to execute some of the suggestions we give them – a service that financial institutions actually both want and need in this current climate. Indeed, the industry has evolved from ‘we need your expertise’ to ‘we need you to help us get this in’ and that’s huge. “In some of the projects we’re involved in, we get commissioned by one specific part of the bank. The value that Deloitte brings is to look across the bank as an entity and question how solutions in one area of the business might impact others. This, in turn, allows us to build knowledge that employees working within a financial service may not necessary have – looking

Plug and play: But is it a good idea?



Spring 2017

in from the outside, after all, offers a completely different perspective. When you have that level of insight, you become an invaluable tool to your clients.”

Changing attitudes As Laing explains, there has been a shift in the way clients are viewing regulation and compliance. “As part of their aim to achieve complete compliance, banks have become much more scrupulous about their policies. Monitoring of social media and taking unstructured data over the phone has also moved up a gear.” On the back of the regulatory changes, there has also been a massive influx of new organisations – regtech companies that are using the power of technology to leverage existing systems to produce regulatory data and reporting in a cost-effective and flexible manner. “I think the main advantage of these regtech firms is the speed and agility with which reports can be configured and generated,” says Laing. “They are also good at listening to the needs of the regulator rather than those of the specific financial institution, resulting in solutions that are purpose-built to comply with regulation. In doing it this way, and not

Spring 2017

over-complicating the solution, they have also managed to reduce compliance cost. “In the longer term, the data and processes to support existing systems for regulatory compliance should form the basis to address multiple regulatory requirements, rather than unique solutions that only tackle one issue each. It will help to simplify legacy architecture. “But despite all of these changes and developments, there is still a long way to go to address these problems fully and I expect that financial services clients, be they insurance or retail- focussed, investment banks or even asset wealth

is consolidation of the smaller regtechs through either partnerships or acquisition by the bigger players. “Alongside this, I can see banks being smaller than they are today, with the focus placed on what makes them different from their competitors. That’s not to say that this isn’t being done already, but it is likely that this way of working will become more prevalent. “We, too, spend a lot of time trying to find small regtech or fintech companies that we think are interesting, either partnering with them or developing a relationship, as it gives us new insight for

We are seeing banks and other sectors respond [to regulation] in a way that could prove to be problematic in the long-term managers, are going to require more and more from their advisory and technology partners to help run their operations. A number of firms are already offering or looking to offer these services, and I think it is only a matter of time before there

us to use with our clients. At the same time, we’re partnering with other third parties as well as building more integrated solutions that will help the industry move forward. It is these kinds of developments that have allowed us to develop from a purely advisory partner to where we are now – which is ensuring our clients are doing the right thing, with the right controls, and are compliant.” ■ The Deloitte team will be at April's Innovate Finance Global Summit 2017, at the Guildhall, London. |



Pushing ahead John Safa, Founder and Chief Technology Officer of Pushfor, is on a mission to make the secure messaging service the ‘WhatsApp of business’ In the entrepreneurial space, it’s so often an unadulterated passion that jack-knifes the innovator into action. In John Safa’s case, it was his hobby in architectural photography that prompted the discovery of an annoying gap in the market when he couldn’t share his content securely by restricting how it was used, viewed and shared – and, importantly, by preventing its unlawful copying. Leveraging a background in architecting solutions for desktop, Cloud and mobile platforms, Safa developed Pushfor – a secure content-sharing and messaging platform for business. It’s so secure, in fact, that it can track pushed media across any channel in real time (and pull content at any point, too), customise viewing permissions, block the sharing of screenshots and provide a comprehensive audit trail, including usage analytics. Safa pictured a platform that would ape WhatsApp in the business space, so he also engineered the same but more secure basic components for Pushfor, such as instant chat messaging, voice and video calling options, all of which are compliant for the financial services industry. Now in its fourth year, the startup, is generating a healthy revenue pipeline. It announced in November a further £1.2million in secured investment to fund the company’s expansion and product roadmap. It has also secured worldwide customers and launched a series of projects in financial services. Safa is determined to disrupt the current conventions of business communication in order to optimise security levels, especially as new regulations, such as the EU’s General Data Protection Regulation (GDPR) and MiFID II come into force. The US also has a strong penalty culture around breaching data control. “We’re taking on the email situation,” explains Safa, Pushfor’s founder and chief technology officer, who has an impressive portfolio of 30 or so patents under his belt and a track record in founding companies.



“A lot of banks still use legacy email platforms, a) because they can be monitored and b) because it’s just standardisation. The problem is, a lot of these newer apps have crept in [to the work environment]… a lot of people now use instant messaging because it’s quick, direct, and convenient. “There’s a reason why Deutsche Bank has banned the use of WhatsApp. I think banks are aware that unauthorised apps are being used and they’re going to have to start saying ‘we need to lock this down’. Deutsche Bank has taken the lead but there will be others.” He cites a conversation with a senior executive in fintech who told him that he took pictures of documents and sent them via WhatsApp when he needed to communicate something important.

I think banks are aware that unauthorised apps are being used and they’re going to have to start saying ‘we need to lock this down’ “The problem is, a lot of these popular apps, like WhatsApp and Snapchat, are not based in a secured environment. They’re based overseas. So obviously banks get very paranoid about where their data’s sitting.”

A business ally The magic behind Pushfor lies in its ability to convert and project content in high fidelity to any device – but it’s not ‘sent’ to the device, it’s real-time ‘pushed’. The file never leaves its source and the recipient device doesn’t need the originating software to view or engage

with the content, either. Unlike WhatsApp, with its end-to-end encryption, Pushfor allows its business users to monitor every aspect of its content sharing, even offering a geo-tagging option. In this way, Pushfor becomes a true business ally, especially when it comes to filling in annual data protection forms. The problem, says Safa, is that WhatsApp data centres are out of these organisations’ control and therefore pose a security threat. The last thing financial institutions, which are now under greater regulatory scrutiny, want is to be blindsided by staff seduced by the convenience of an unauthorised instant messaging service. “We were recently involved with one of the Big Fours which was doing a huge northern European merger,” Safa explains. “Many thousands of clients, consultants and partners were involved in the decision about whether to do it and they used a white-labelled version of our app to share more than 2GB of content. “Emailing 2GB of content is a nightmare. The alternative is having some sort of shared drive. The problem is the content is then rendered on the device, which makes it easy to leak. “The great news is that you probably didn’t hear about that merger, because our app did its job. So, effectively, our app allowed partners and consultants to get this information really, really easily, but the organisation had the protection of functions, such as not being able to take screenshots and forward it, and they could also see who’d used it, who hadn’t, who had read it and who hadn’t.” Enhancing employees’ quality of life by ‘enabling your workforce to continue to use funky tools’ makes for a more enjoyable work experience, believes Safa. And that positively impacts productivity – not to mention recruitment and retention. But with Pushfor the company has control and visibility on what’s going on with that data. So far, says Safa, clients have been Spring 2017

impressed by the app’s capabilities, especially viewed in the context of the imminent GDPR legislation, which comes into play in May 2018 and after which any breach of personal data will incur exceptionally hefty penalties – up to four per cent of turnover or £20million, compared to the current cap of £500,000. Meanwhile, MiFID II, which takes effect from January 2018, will drive an unbundled model for investment research and banks will need to measure and control the dissemination of research content, says Safa. This plays well to Pushfor and its features around tracking and controlling content, producing audit trails of use, coupled with its rich analytics around content consumption and user behaviour. Driven more than ever to contain data haemorrhage, banks are looking to make their accountabilities easier, says Safa. “I think a lot of it’s an educational process. When they know what we can offer, banks are really enthusiastic and we’ve found there are horizontal growth opportunities in organisations. We go into one key area and they all start talking – suddenly, it’s being used in multiple areas. “We talk about fintech as numbers and

achieving these objectives will require a renewed emphasis on security. The Pushfor proposition fits perfectly into this.” The company is now looking to make the app more intelligent with deep learning. “For example, if I push the content to the wrong person, it will start to learn from that. I could push content to another user and they don’t read it, which has compliance

issues – it will then start prompting the user, and learns from this, too," says Safa. “It learns who we normally send content to and who we don't, and also prevents issues like accidentally sending it to the wrong person. IT departments like it because they can host it and the business can do the analytics, so they know what’s being read, how long it’s being read for and who’s not reading it. So for compliance and usage, it makes people more accountable.” Safa believes the app’s appeal will make its use so ubiquitous that the term ‘Push’ will enter the language in the same way that Google has. “People talk about ‘Googling it’ and ask you to ‘WhatsApp it’. We want to become ‘the Push’.”

Scene shifting: Pushfor has already proved its usefulness

biometrics, but what drives fintech is content. It’s documents and spreadsheets and if you can't get them from A to B in a secure way, you haven't got a business." Pushfor has just signed its first deal in North America and has appointed its first senior VP in the territory. India is also in its sites. Uday Singhi, President and CEO of Metdist Limited, one of Pushfor’s three newest investors, recently said: “The Indian government is firmly committed to the dual objectives of financial inclusion and technological empowerment. In a densely populated and culturally complex society Spring 2017 |



Building a better future As Chairman of the UK’s Financial Conduct Authority, John Griffith-Jones must come up with a grand design that makes the regulatory system fit for purpose As business operators, we have all experienced regulation in one form or another, and probably fancy ourselves as expert in pointing out what we consider to be bad regulation. Good regulation is, however, more elusive. And now is a propitious moment to talk about it. The UK financial services industry’s direction of travel for the past 40 years, and especially since the financial crash, has been closely harnessed to EU and wider global initiatives. And while the next two years will necessarily be focussed on achieving Brexit in accordance with the Government’s negotiated outcome, there will come a time when we will need to step back to reflect on what we have, and to step forward with what we need. The Financial Conduct Authority (FCA) has been consulting on its own mission, which, together with the input received from respondents, will be crucial to our future success. I will not in any way pre-empt the end product, but rather set it in context with the other building blocks that will create an optimal outcome for conduct regulation. What are these building blocks? I suggest there are five: ■■ Government policy ■■ A clear set of objectives for the regulator and a clear perimeter of coverage ■■ A well developed and shared understanding of risk tolerance ■■ Operational excellence ■■ A basis for measurement of inputs, outputs and outcomes, including intended and unintended consequences, with transparency of results



Each of these provides challenges to the FCA, and no doubt to the regulatory community at large. So let me tackle them one by one.

Government policy As a general principle, regulation is appropriate where, left to its own devices, the free market produces an outcome that is not in line with the elected government’s policy and where intervention will produce a better result. Typically, such interventions are in respect of: ■■ Social policy, for example, universal access to the banking system; and ■■ Economic policy, for example, the control of natural monopolies, such as the payments systems In some instances, policy is relatively stable, enjoying cross-party agreement, and support from regulation is straightforward. But in others it is not: the government of the day decides to change the pensions regime, the regulatory regime must follow suit; the government wants a cap on the cost of pay-day loans, the regulator is asked to implement one. With Brexit in train, we should not seek to hide from change but co-opt it and clarify its impact on the regulatory regime as quickly as is possible. Sometimes policy objectives compete. The politically desirable outcome of ‘have cake and eat it too’ is seldom available. And sometimes we all wish that the government had had a clearer policy when something happens which had not been anticipated. What can we learn from this? That policy is for elected government, not for the regulator. This is not to say that the regulator should be passive; the FCA is capable and

willing to draw government’s attention to the consequences of policy change. But experience tells us that regulation acts most effectively as a support for government policy and not as a substitute. It also makes clear that regulation cannot be independent of government, although regulators most certainly should be independent in the discharging of their duties.

Objectives and perimeters We have come to realise that the more detailed the regulation we have, the greater is the challenge of keeping it all current. The FCA has an overriding strategic objective of ensuring that markets work well, supported by three operational objectives, all written into statute: protecting consumers, promoting competition and enhancing integrity. They are clear and valuable, particularly when they knit closely with specific policies. But they are somewhat high level and it is difficult to divine the FCA’s likely response to individual issues based on these alone, hence the work on our mission to close some of the gaps. The question of the perimeter – what firms, what transactions and which products or services are covered by regulation – has proved more problematic than you might have expected. The process for setting LIBOR fell outside the perimeter; physical trades in commodities are outside the perimeter, but futures fall within; many small businesses feel aggrieved that they are not better protected from some of the actions of their banks, in part because they are excluded from the ombudsman’s regime. The problem is exacerbated further by the remorseless march of technology. Rules that were designed for the paperwork era do not work necessarily for the online one. Spring 2017

The distinction between advice and guidance, once reasonably clear, has become much greyer with platforms and the potential for robo-advice. High-frequency trading is a million miles from open outcry trading on an exchange. Artificial Intelligence puts the pooling of risk via insurance under pressure as individual odds become increasingly forecastable. An additional challenge comes from the differential pace of take up of new ways of doing things by the general public. And we have come to realise that the more detailed our regulation is, the harder it becomes to keep it all current. There is no silver bullet, but the financial sector may have something to learn here from other regulators and the FCA is seeking to embrace developments through its Project Innovate and Sandbox initiatives.

Risk tolerance The expression ‘risk tolerance’ covers a multitude of sins, but at its uncomfortable core lies a recognition that we do not live in a perfect world, that our rules are going to be broken periodically and that we shall be accused of being deficient in allowing, or not preventing, such infringements. For some regulation, there is a natural zero tolerance – air traffic and nuclear power safety being examples in point – but this cannot be the case for financial conduct. On the other hand, attempts to quantify ‘acceptable’ detriment, typically numbers of people affected or amounts involved, unsurprisingly cut no ice with the people disadvantaged. The approach adopted by the FCA has evolved, but there is more debate to be had. In essence, we have to distinguish between ex-ante and ex-post. Ex-ante we seek to anticipate the material things that are more likely to go wrong and to pass rules, conduct supervision, or occasionally to ban practices in order to reduce the likelihood of such events crystallising. Sometimes we can foresee issues before they surface, but more frequently it is the speed of response to early signals that is key to containing the scale of the damage. Sometimes, regrettably, it has to be a case of learning with hindsight, but this is still better than letting history repeat itself. Given these inevitable fragilities we need ex-post to have a system of safety nets. And we do: redress programmes, the Financial Ombudsman Service, the Financial Services Compensation Scheme, which are designed Spring 2017

to protect those within the perimeter up to certain limits with access to the law courts. We have learned from experience that ex-ante prevention is much better and much cheaper than ex-post cure. Pay protection insurance (PPI) is the ultimate case in point with a cost of rectification to date of more than £25billion for what was in essence an add-on product.

Operational excellence We need to understand psychology as much as being financial analysts. Human bias, over-optimism, herding, hindsight and, dare I say it, apparent irrationality, are alive and well in some consumers. So, unfortunately, are the asymmetry of knowledge, market power, and regrettably the temptation to cheat in some firms. At the micro level, there is no manual that can tell a conduct regulator how to deal with each situation. The exercise of good judgement can be aided by technology, but not supplanted. Do we authorise that firm, allow this product,

Sometimes, regrettably, it has to be a case of learning with hindsight, but this is still better than letting history repeat itself investigate that whistleblowing report, conduct this competition study, pass such a rule, or initiate enforcement proceedings? These are micro decisions that have to be made every day and it is a fact that the public perception of the regulator rests as much on them as it does on the big picture. At a macro level, effective deterrence lies at the heart of operational excellence. Creating a regime where firms self-regulate to promote ‘good finance’ is the ideal to aim at. For that to happen we need to design our activities so the proportionality of our rules, the chances of being caught breaching them and the consequences of so doing, align firms’ self-interest with the desired regulatory outcome. The greater

the divergence of interest, the higher the costs of the regulator doing sufficient work to secure a given outcome and/or the greater the likelihood of detriment. Effort and effectiveness need not be in linear alignment. A powerful example of this in practice recently has been the introduction of the Senior Managers’ Regime. Done at a comparatively modest cost, the regime has resulted in senior management concentrating on their firm’s conduct in a much more focussed manner, without the need for greater supervision.

Measurement & transparency In its recent paper, Performance Measurement by Regulators, the National Audit Office set out some key concepts for the measurement of regulatory success. The three principles of economy, efficiency and effectiveness can be broadly measured as inputs, outputs and outcomes. In the case of conduct, the last of these is not readily capable of quantitative evaluation, particularly when seeking to measure misconduct that was prevented. Equally, the apparently ideal state of nothing having gone wrong may be due either to the excellence of the regulator or to the inadequacy of the detection system – time will tell! But a measure is valuable, not least because it gives the public confidence that the job is being done. Proxies such as surveys, reported complaints and suspicious activity levels help to paint a picture, and become more persuasive if consistently measured over time. The soft measures we have suggest the FCA is headed in the right direction.

Conclusion The separation of the old Financial Services Authority into its two parts has had the consequence of giving conduct regulation a status and focus that it never had. The building blocks that I have described were not sitting in some intellectual builder’s yard pre-hewn to the right dimensions, and there is still, in my opinion, some way to go before we get them all where they need to be. We should also be cognisant of the fact that success is not siloed into these five compartments. Regulators need no reminding that we are only as good as our weakest link. Rome may not have been built in a day, but built it was. We should be ambitious for our future, if a little patient with our rate of progress. |



A deep clean Banks and other financial services have been buckling under the increasing compliance burden for years. But now there is a genius automated system that helps keep them whiter than white. Aqubix Director Kristoff Zammit Ciantar explains The best inventions are always deceptively simple; the ones that have everyone muttering ‘why didn’t I think of that?’ under their breath. Aqubix’s KYC Portal (KYCP) is one such – and it’s riding the crest of a wave as a result. This automated compliance monitoring and anti-money laundering (ALM) service was launched last November to a rapturous reception from both overworked compliance officers and institutions buckling under the strain of the cost and risk associated with ever-changing regulatory requirements; regulations that they’re finding it increasingly hard to keep pace with. There have been some high-profile cases recently that have highlighted the flaws and vulnerability in complex manual compliance processes, including Deutsche Bank’s $630million anti-money laundering fine and HSBC’s Moroccan drug lords scandal. As the challenges around AML increase, PriceWaterhouseCoopers has predicted that the global cost of complying will shoot to more than $8billion this year.



“The biggest challenge at the moment across not just the financial industry, but any organisation that has to conduct compliance and anti-money-laundering (AML) due diligence, is ever-increasing regulation,” says Aqubix director, Kristoff Zammit Ciantar. “I did some research recently that suggested the work companies have to do to keep in line with regulatory requirements is increasing by 18 per cent every year. And at the moment, the processes for all this work are manual, done by human beings. “Companies have to have compliance officers to process all the applications, all the forms and all the documents, and assess risk. This means the process also depends on the human bias of the compliance officer him or herself – resulting in instances of money laundering not being spotted.” According to Zammit Ciantar , the majority of fines are as a result of organisations failing to identify suspicious behaviour and act on it in time. And the biggest risk of all is existing customer monitoring.

“When we asked companies at Finovate 2017 – including big named banks from the Netherlands, UK and US – if they are compliant in terms of past vetted subjects, the answer was a resounding ‘no’, says Zammit Ciantar . “This is clearly a major industry issue. Organisations are so focussed on meeting increasing requirements surrounding the onboarding of new customers that legacy risk issues are on the back burner. “Yet regulations state that companies have to ensure all the past vetted subjects sitting in their database, remain constantly compliant. They have to do ongoing reviews to ensure there are no expired documents and undertake constant screening checks. Yet almost no one that we’ve met so far is compliant on that, because the reality is it’s impossible to keep up with the past vetted subjects as well as onboarding new customers.”

Entering the time warp The revised Payment Services Directive (PSD2) and ever-more-stringent General Spring 2017

Data Protection Regulation (GDPR) are placing additional pressure on already strung-out compliance teams, too. The more regulators try to standardise processes like these, the more work it creates for compliance officers. Without an automated system to fall back on, the only way they can keep pace is to throw in more resources, but this in turn adds to the potential for error and fraud. “For example, a friend of mine is the chief financial officer of a hotel business, and even hotels have to conduct compliance. He told me about someone from one of the big banks calling to ask about a transaction that took place in 2013, two years after the event,” continues Zammit Ciantar . “He couldn’t believe it. This kind of thing happens not because banks’ systems are slow, but because when they identify a possible anomaly a team then needs to work on it. But they are so focussed on onboarding new clients, they can’t get to it quickly enough. This is a typical example of why companies are being fined.” This is where Zammit Ciantar believes the Aqubix system can help. “When we created it, we analysed the requirements of banks, and one of the biggest challenges was that, even across the same industry, each organisation operates according to its own risk appetite, and regulations are open to a degree of interpretation,” says Zammit Ciantar . “For example, without naming names, it has become almost impossible to open a bank account with one of the biggest banks because they ask you for everything and will reject you if your application shows even the slightest element of risk. But then if you go to one of the smaller banks with a higher risk appetite, you’ll open an account easier and faster. “This meant that one of our biggest challenges was to create a system that allows the client to configure it to their own jurisdiction and unique risk appetite.” Paradoxically, it is difficult to achieve a harmonious approach when regulations prohibit organisations from sharing customer information. KYCP has to work within these complex layers, to enable banks to both ensure compliance and understand their customers better. “I think that’s one of the bestselling features of our product. The system is firstly configured by each client to reflect all the regulations they want to handle, both at jurisdiction level, Spring 2017

industry level and in keeping with their internal risk appetite. They can then tweak this information as regulations change and new ones emerge,” says Zammit Ciantar .

Back to the future By far the Aqubix programme’s biggest selling point, though, is the ability to look backwards as well as forwards, dramatically reducing firms’ risk of exposure. “Our system automatically goes through all of a company’s past vetted subjects and updates the risk assessment for each subject, based on the latest regulation – something which it’s virtually impossible to do manually,” explains Zammit Ciantar . “And if re-screening someone against the updated regulations results in them going from, say, green to amber, the system will flag this up as something the physical team needs to act on straightaway.” So how does this highly sophisticated tool score an individual’s risk level? “The system comes as a shell. There is no scoring in it, there are no predefined rules. We built it this way so that we could tailor it across different industries and because we understood that firms work very differently from each other, even within the letter of the regulation. “We created what we’re calling a risk scoring engine, which allows the client to input all the risk they currently check for. It then scores customers against an automated version of the risk registers currently used

“Recently, I was approached by a representative of a major bank, who asked me how much time it could save her compliance team. I asked her how many of the cases her compliance team currently look at are green, and her answer was 60 per cent. So, my answer to her was ‘that’s 60 per cent automatically saved by the system, because once you input the risk register, populating its fields as you go along, it automatically highlights these as green – things you don’t even need to look at’. “So, as well as relieving the workload of the compliance team, our system enables them to focus more on the ones that are a problem, rather than the ones who are green.” Aqubix already has an impressive list of takers of its technology across sectors including banking, insurance, gaming, law and even real estate. Initial installation takes around two weeks, followed by an extended period of between two and three months to upload a company’s information. “We start by sending customers a list of all the things they need to collect together. This is a lengthy process because most of their existing information will be on Excel spreadsheets, or printed forms. Some data will be sitting in document management systems,” explains Zammit Ciantar . “We then show them how it all needs to be inputted and configured. This process, if a company puts someone full-time on it, inputting eight hours a day, will take a maximum of two weeks. Most companies

Organisations are so focussed on meeting requirements surrounding the onboarding of new customers, legacy risk issues are on the back burner in organisations. Risk registers are the constantly updated checklists, usually in printed format, like Excel, that are used by most compliance officers to vet customer applications. They use these to check which boxes a person ticked in their application and come up with a score. “Our system allows any client to input that risk register using our scoring engine, and then automatically calculates the level of risk, across all the subjects – new and past – instantly.” As well as helping to protect banks from risk, it saves them a mind-boggling amount of time.

can only give it a few hours a week and so it typically takes longer. However, they’re taking advantage of this analysis period to fix any existing gaps and make sure they are catering for all regulatory requirements, so that when they input their information into KYCP, it’s all sorted once and for all. “It’s therefore a relatively small amount of short term pain, for huge longer term gain.” Astounded by the level of interest the product is attracting, Malta-based Aqubix is starting to roll it out, faster than planned, to other EU countries this year… to the sound of a million sighs of relief from compliance officers everywhere. |



Credit risk: The value/cost conundrum McKinsey & Company believes banks need to reset their value focus and digitise credit risk processes to meet pressure from regulators, investors and challengers. In the first of two articles, four of the global consulting firm’s senior advisors explain why – and then how External and internal pressures are requiring banks to reevaluate the cost efficiency and sustainability of their risk management models and processes. Some of the pressure comes directly or indirectly from regulators; some from investors and new competitors and some from the banks’ own customers. The impact is being felt on the bottom line. In 2012, risk and compliance made up about 10 per cent of total banking costs. In the coming year the cost is expected to rise to around 15 per cent. Overall, return on equity in banking globally remains below the cost of capital, due to additional capital requirements, fines and lagging cost efficiency. All of this puts sustained pressure on risk management, as banks are finding it increasingly difficult to mitigate risk through incremental improvements in risk management processes. To expand, despite the new pressures, banks need to digitise their credit processes. Lending continues to be a key source of bank revenue across the retail, small and

medium-sized enterprise (SME) and corporate segments. Digital transformation in credit risk management brings greater transparency to risk profiles. With a firmer grip on risk, banks may expand their business, through more targeted risk-based pricing, faster client service without compromising risk levels, and more effective management of existing portfolios.

Incumbents under pressure Five fundamental pressures that relate directly to risk management are being exerted on banks’ current business models: customer expectations of digitally managed services; regulatory expectations of a high-performing risk function; the growing importance of strong data management and advanced analytics; new digital attackers disrupting traditional business models; and increasing pressure on costs and returns, especially from financial technology companies. Customer expectations: Traditionally reliant on physical distribution, banks are finding it difficult to meet changing customer needs for speed and simplicity, such as

Juan Antonio Bahillo Monné

Andreas Kremer

Saptarshi Ganguly

Ida Kristensen

is a Partner at McKinsey & Company with a special focus on financial institutions, risk management, private equity and restructuring

is a Partner in the Boston office of McKinsey & Company, where he principally works with clients in retail and commercial banking



fast online credit approvals. But demand for online and mobile experiences will only increase: mobile payments are expected to quadruple by 2020. At the same time, internal users of risk reports have heightened expectations around quality and timeliness. Regulatory and supervisory road map: There have been a raft of new regulations, mapped by tighter supervision and enforcement action. In the US, more than $200billion in fines has been levied since the financial crisis and more than 4,000 matters requiring attention (MRAs) are still outstanding. So, regulators are expecting the risk function to take a more active role in the context of new, digitised business models. Regulations are being put in place to address cyber risk, automation of controls and issues relating to risk data aggregation. Directives specify requirements for data management and the accuracy and timeliness of the data used in stress testing. Data management and analytics: Rising customer use of digital banking services and the increased data this generates, create

is an Expert Principal in McKinsey’s Berlin office and a member of the McKinsey Risk Management Practice

n The article on which this feature is based first appeared on the McKinsey & Company blog

is a Partner in McKinsey’s Banking and Risk practices, based in its New York office.

Spring 2017

Customer segments















(inc SMEs)

Large corporate

Financial assets and capital markets

Spring 2017

Share of global banking revenue n <5.0 n 5.0-7.5 n 7.5-10.0 n >10.0


Banks are beginning to respond to these trends, albeit slowly. Over the past several years, leading banks have begun to digitise core processes to increase efficiency – in particular, risk-related processes, where the largest share of banks’ costs are typically concentrated. Most banks started with retail credit processes, where the potential efficiency gains are most significant. Digital approaches can be more easily adopted from well-established online retailers: mobile applications, for example, can be developed to enable the origination of tailored personal loans at the point of sale. More recently, banks have begun to make efficiency gains in SME and commercial banking segments. The automation of credit processes and the digitisation of the key steps in the credit value chain can yield cost savings of up to 50 per cent. But digitisation can also protect bank revenue, potentially reducing

Share of fintechs in digital banking space % of start-ups and innovations in fintech database, by segment and product

Lending and financing

Fighting back


Account management and depostits

opportunities and risks. First, banks can integrate data sources and make them available for risk modelling. This can enhance the visibility of changing risk profiles – from individuals to segments, to the bank as a whole. Second, as they collect customers’ data, banks are mandated to address privacy concerns and protect against security breaches. The importance of strong data management and advanced analytics can be seen in more robust customer differentiation, e.g. risk-based pricing, and in the development of early warning techniques to identify exposures. Fintech companies and other innovative attackers: These start-ups are extending innovation throughout the digital banking space, creating a competitive threat to traditional banks but also potentially valuable opportunities for partnerships (Figure 1). Risk management is critical in enabling banks to compete or collaborate with these challengers. But it also positions banks favourably if the fintechs are taking inappropriate risks. Pressure on cost and returns: The return on equity for global banking remains below the cost of capital, despite lower risk losses. JP Morgan Chase is spending more than $1billion in risk and compliance and HSBC is adding more than 3,000 resources. The new competitors are beginning to threaten incumbents’ revenues and their cost models, and can operate at much lower cost-to-income ratios of below 40 per cent.

Products and capabilities leakage by five to 10 per cent. For example, by putting real-time credit decision making in the front line, banks reduce the risk of losing creditworthy clients to competitors as a result of slow approval processes. Finally, credit risk costs can be further reduced through the integration of new data sources and the application of advanced analytics techniques, generating richer insights for better risk decisions. The use of machine-learning techniques, for example, can help banks improve the

Implications for risk Faster innovation from thousands of fintech start-ups creates new opportunities in risk management Potential partnerships are available to accelerate the risk function's transformation Internet technology is enabling crowd sourcing and risk disintermediation – but also giving banks opportunities to increase connectivity with their clients’ digital ecosystems (e.g. peer-to-peer lending integration)

predictability of credit early warning systems by up to 25 per cent (Figure 2). So, while significant effort has been expended on the digital credit risk interface, the translation of existing processes into the online world falls far short of expectations by the customer. Next issue: We’ll look at how banks can digitally improve their client facing processes and go deeper into the credit risk value chain to find opportunities to create value through digitisation.


Reduce cost of risk mitigation 10-25% better predictions

Reduce operational costs 20% of opportunity overall

Meeting customer demand for digital services (real-time decisions, self-service credit applications)

Advanced analytics and machine learning increase accuracy of risk models (admission, monitoring, workouts) and reduce number of judgement-related errors

Digitised process execution to ensure that time and resources are spent on value-adding activities

Integration of new data sources (internal, external, unstructured) to generate better insights and make better decisions

Automated credit work flow to minimise manual data loading and errors

Minimising risk of losing good customers to competitors as result of slow approval processes Integration with third parties for credit (fintech companies, peer-to-peer lending) Dynamic risk-adjusted pricing and limit setting

Standardised inputs and outputs and paperless credit risk processes

Real-time data processing, as well as digital risk reporting and monitoring for forward looking risk management |



Chasing the


Fintech has made consumer risk scores available within minutes, so why is it so hard for corporates to gather the same, real-time information on their peers? Valentino Pediroda, CEO and Founder of modeFinance, is doing his best to change that Fresh from February’s Finovate conference in London, Valentino Pediroda reflects on the current trends engulfing the financial world: “Events like Finovate provide some of the best windows through which to observe the direction that the industry is moving as a whole,” he says. “To my mind, February’s conference highlighted the immense efforts currently being made in consumer banking. The consumer sector is accelerating at an unprecedented rate, and I’m perpetually impressed by the efficiency of the banks regarding personal loans. “All this is great,” says Pediroda, “except for the fact that, here at modeFinance, that’s not at all our field! modeFinance is, and always has been, firmly situated within the corporate world. Does this mean we’re going to sit back and watch as the consumer sector steams ahead of its corporate counterparts? Absolutely not. In



fact, we’re making it our mission to bring some of this acceleration across to the corporate sector and to push our market back to the forefront of the financial world.” Founded in Trieste, Italy, in 2009, modeFinance one of the few companies officially registered as a ratings agency by the European Securities and Markets Authority (ESMA) for both corporates and banks. As CEO and founder, Pediroda is aware that the corporate credit risk landscape has changed dramatically since the birth of his firm almost 10 years ago. “Our focus is on credit risk analysis and credit risk methodologies,” he says. “As a company, we’re continually developing new analytical models for forecasting credit risk, specifically within the corporate world. However, we’re currently facing several significant challenges that are directly influencing the course of our business. “The first is the total atomisation of credit risk analysis technology, particularly within the inter-bank sphere,” says Pediroda. “The

second is the complete integration of all internal data – again, this particularly concerns banks and their partners. We all know that financial institutions deal with an inordinate amount of data on a weekly basis, and our goal here at modeFinance has been to create a solution that automatically integrates this data into a credit risk methodology. How have we done it? We’ve designed, from the ground up, our own web-based platform for credit risk analysis and that platform is integrating the internal data of our clients as we speak.” Challenge accepted, platform designed, and modeFinance’s credit risk methodology is now being used by just under 40,000 banks worldwide, with the company’s client base covering nearly 100 per cent of the global financial map. However, following the successful deployment of its analytical platform, modeFinance is now faced with a new dilemma as a direct result of its expansion, both globally and domestically. “Of course, we’re delighted with the Spring 2017

Top rate: modeFinance has set out to make corporate credit referencing easier

distribution of its client base isn’t the only thing keeping the team at modeFinance thoroughly occupied. “Our business is in gathering and analysing information in order to generate credit risk ratings,” he says. “Only, the precise information that needs to be gathered and analysed varies dramatically from client to client, depending on the particular sector of the client in question. “Details of goods that a company is buying or selling, the financial history between companies, and even qualitative data, such as whether a country is important within a specific market or not, are all examples of information that we frequently have to source. “I remember dealing with an automotive company that asked me to provide a credit risk rating on the insurer of their prospective supplier! The list of possible data metrics is truly infinite, yet we must always have – at our immediate disposal – the information necessary for the credit risk application services delivered to our clients.”

Challenge for banks

widespread global adoption of our methodology,” says Pediroda. “Having said that, the crucial task of geographically adapting our service is proving to be no mean feat. For example, in our home region of Europe, it is relatively simple to source and collect data due to the majority of client information being made public. However, take a trip to North America and our role becomes much different, focussing less on the extraction and integration of data and more on the evaluation of listed companies. Move on again to the AMEA countries and priority switches to investment fund analysis. We’re constantly tweaking our portfolio in order to cater to the needs of all regions, and to ensure that our service is relevant to as many clients as possible.”

Infinite metrics Speaking from a more domestic perspective, Pediroda explains how the global

Flexibility, then, is ultimately the name of the game for modeFinance. Pediroda and his team have wholeheartedly embraced the endless challenge of adapting their credit risk methodologies to consider global financial trends and client-specific needs in real time. However, the question that remains is why modeFinance’s solutions are having such a monumental impact on credit risk analysis, and who can expect to benefit the most from the company’s automated data integration technology. Pediroda believes that the answers to these questions are sitting on our doorsteps. “Banks, especially in Europe, are beginning to experience some problems regarding credit risk analysis,” he says. “Intra-bank loans have always been commonplace and the system worked perfectly well when shared trust in the banks was still robust. However, as trust began to dwindle following the financial crisis, no longer were institutions happy to take such a relaxed approach towards the

credit risk analysis of their peers. “This change in perception has, unsurprisingly, caused an exponential rise in the importance of credit risk analysis in the eyes of the banks,” says Pediroda. “However, there is still a remarkable imbalance between the perceived importance of credit risk ratings for banks and the number of banks that have actually been rated. There are around 45,000 banks worldwide, yet only around 4,000 of these currently have a rating. This discrepancy has been hindering the efficiency of the corporate finance landscape for nearly a decade, and modeFinance is working hard to eradicate it.” The loan application loop between banks has been notoriously slow, with credit risk evaluations an arduous process of manual data collection and document production. “Banks need that time to make money, and are no longer willing to wait for evaluations,” says Pediroda. “modeFinance’s automated integration system lets banks know, in real time, exactly what’s happening regarding the finances of their peers. As soon as an institution changes something, our platform automatically updates their rating and transmits this evaluation back to the bank. “We’re rejecting an antiquated loan loop and instead optimising credit risk connections across the corporate finance world by establishing powerful, real-time links using our adaptive solutions.” At Finovate in February, Pediroda presented modeFinance’s latest brainchild – a mobile credit risk analysis application called s-peek. “We understand that everyone requires credit risk analysis services, even very small corporates,” says Pediroda. “Unfortunately, these companies did not previously have access to this kind of information, with credit risk agencies reserving their services for larger institutions. Speaker has been developed with the aim of helping small to medium sized enterprises around Europe, by facilitating their access to credit risk analysis and consequently allowing them to make informed financial decisions without the need to invest in a laborious evaluation process.”

There are around 45,000 banks worldwide, yet only around 4,000 of these currently have a rating… this has been hindering the corporate finance landscape for nearly a decade Spring 2017 |



The name’s Safe… SecureSafe

DSwiss, creator of one of the most secure Cloud-based document safes, has built a digital wall so thick no spy could penetrate it, says CEO Tobias Christen Do you need James Bond-level protection for your sensitive financial and corporate documents?

You may think Swiss bank-style security is overkill, but Zurich-based DSwiss offers Q-sophistication levels of encryption for free – and argues that in the wake of former CIA whistleblower Edward Snowden’s revelations, we should all be using it. “Snowden made it clear that mass surveillance can easily be exploited for the purposes of industrial espionage,” says DSwiss chief executive, Tobias Christen. “All internet traffic is continuously being watched. This means we must protect sensitive data with measures that go beyond hypertext transfer protocol secure (HTTPS) encryption.” His company’s online file storage system, SecureSafe does just that with a data guarantee that it calls ‘Zero Knowledge’. With its myriad of encryption levels it promises that only the account holder will ever see what is stored inside. Each document gets its own encrypted key and the keys are stored in an encrypted keychain. Not even DSwiss IT staff can break into it.

Belt and braces approach SecureSafe was launched in 2008 and can be had on a subscription basis or for free if you are able to cope with a 100MB storage limit. The firm also develops SecureSafe as a white label product and Swiss bank UBS rolled out its own version – UBS Safe – in the autumn. “Banks work with us because we designed privacy into the safe from the beginning,” says Christen. “Every document you upload is encrypted with its own key. This key goes into a keychain, the keychain is again encrypted and in the end you have a



personal/private key pair that is encrypted with a key that is not stored. “So there are five mechanisms on top of each other. You would need to drill down through all five to be able to breach it.” As a result, Christen says SecureSafe has never suffered a security breach and no data has been lost. That’s also partly because DSwiss takes a belt, braces and another belt approach – customers’ data is stored three times. “We store it twice in a location in Zurich and once deep in the Swiss mountains, in the former military headquarters of Switzerland, which is now the most modern data centre,” Christen explains.

Snowden made it clear that mass surveillance can easily be exploited for the purposes of industrial espionage “You have three copies of your data saved. If one is corrupted through hardware failure or whatever, we always have two secondary copies that we can take and switch live.” Another feature of the system is double protection during file transfers. SecureSafe encrypts data twice during uploading or downloading from a device to a user’s online account. In addition to transfer encryption with HTTPS, data is also encrypted using an AES-256 advanced encryption standard algorithm. DSwiss says that this means data will remain protected, even in the event of the

HTTPS protection being compromised. The additional encryption protects against so-called man-in-the-middle attacks, for example in internet cafés and airport lounges.

Increasing business risk Such high levels of lock-down should be a wake-up call for companies that keep sensitive documents as attachments on webmail servers. Webmail breaches by hackers are not uncommon and Snowden’s revelations suggested spy agencies have been granted access to accounts. Christen is unimpressed by the security systems many firms have in place. He says: “Nowadays, many companies outsource certain services to external service providers. “What stands out is that these external service providers are increasingly being bought by American and Chinese corporations. This potentially means that the end-customer data is exposed to a higher level of risk. “Also, SMEs sometimes have local IT companies set up and run their IT. The security level that is offered is typically limited to so-called perimeter security, or firewalls, and, in the best-case scenarios, active server patch management. “Furthermore, data is stored in data centres, which can be located in countries that have only a very rudimentary data protection regulation put in place. In my opinion, this does not suffice for sensitive data.” It’s led him to conclude that secure Cloud services must specialise themselves in order to be able to ensure the required level of privacy protection in the face of changing security threats. “In the old days, cyber criminals were quite often isolated individuals with Spring 2017

limited financial resources. They were principally motivated by curiosity, pride or revenge. Today, the offenders are mostly motivated by economical perspectives and they are often engaged by governments. This means that we increasingly see well-organised and well-founded groups at work.” That’s a scenario also painted by Snowden, who Christen regards as a ‘modest and authentic human being’ not seduced by doctrines and hypes. “Of course, I was particularly pleased to learn that we have already implemented all of his tips in our SecureSafe setup,” he adds.

Nation of secrets Switzerland is known as being the soul of discretion when it comes to financial privacy and SecureSafe benefits by association. “We have very strong privacy laws in Switzerland; we protect the data as strongly as the European privacy laws require it and even stronger,” says Christen. It’s helped to attract B2C customers from about 150 nations and more than a million end users to the company’s products. UBS launched its version of DSwiss’s online bank vault, UBS Safe, partly because it believed its customers would be attracted by a product that echoed the levels of security employed by a Swiss bank and partly because it identified it as an effective way of encouraging customers to stay long-term. Like SecureSafe, UBS Safe can be used to store any file the customer wishes – it is not just for bank documents. It also acts as a secure place to keep passwords for other online accounts and it suggests improvements if it recognises that a password is weak. Furthermore, the bank encourages customer participation by using UBS Safe as the default inbox for correspondence with its customers – so, for example, current account statements are posted there. The bank says that five months after launch, 15 per cent of its customers had activated the feature. Christen says customers soon come to appreciate how easy SecureSafe and white-label installations offered by UBS and others are to use. It's so popular, in fact, that it’s thrown up a problem. With Spring 2017

007-safe: DSwiss has never suffered a breach

so much stored in your personal vault, how on earth do you find anything? DSwiss is now working on a search facility with UBS, so files can be located easily, regardless of how many documents have been locked in the safe over the years. It will be the first full-text search function with complete privacy protection, so advanced, that when launched Christen claims it will be ‘better than Google’. That’s quite a claim to make in a double encrypted environment. “Customers can search within documents, despite all the levels of encryption,” Christen explains. “You accumulate documents that are important to you in life – contracts, policies, stuff about your kids, health, financials and so on. But when you need to search for something after several years you’ve probably forgotten when and where the file came from. With this search facility you can type, for example, the search term ‘cost’. It shows you all the documents that contain ‘cost’, but not only those, it also shows you the ones that have ‘expenses’,

which is a synonym of cost, or derivations of cost, such as ‘costs’. “So you get a long list of search results. Now, the next step is to drill down into this list and you select categories that SecureSafe automatically creates with smart analytics. It takes just a few clicks. It’s better than Google.” A couple of years ago, DSwiss added the basis for a secure communication platform with the SecureSend and Team Spaces features, suited to a B2B market. Now it is also working to improve the ease of uploading files and looking at methods of further enabling the sharing of files with third parties. For consumer end users, that could be other family members who would need access to a will, for example, or a professional, such as a solicitor. “The idea is to preserve everything that is important to you in the safe,” says Christen. “And you can keep it there for as long as you want – maybe forever.” |





Barclays security chiefs Troels Oerting and Elena Kvochko consider whether it’s time we re-imagined the role of global security teams to start delivering a more holistic service Cyberattack remains a fast-growing business, despite the investments organisations are making in their cyber defence. Significant drivers for it are increasing sophistication of the threat and companies’ prioritisation of openness and functionality over security, together with a lack of relevant tools on many of their premises. What is often overlooked, however, but remains important, is a lack of holistic management approaches and organisational silos. Security models have grown organically over many years, but haven’t been significantly adjusted to the changing landscape. In the past, the organisational security focus was on physical security to protect against attackers operating in close geographical proximity. Companies stored their assets in safes and enhanced physical locks on doors. During the first, second and third industrial revolutions, global companies



tried to adapt to the development of crime, where the threat changed from being local to regional, then to national and, finally, to international. In the so-called fourth industrial revolution, global companies are facing a different threat again. Physical locks to protect assets have become irrelevant. Technology brought progress and scalability of business; institutions have been able to serve more clients faster from anywhere at a lower cost. Our neighbourhood is no longer a local district, but the entire globe. And the perpetrators of attacks are no longer within miles of reach, but rather in unknown locations, where they may appear unreachable – behind proxies and encryption, with no need to travel. Modern crime is low risk and brings high returns. Technology gave rise to crime-as-a-service. Consequently, almost all attacks against institutions now have a cyber dimension, in which technology is used as an attack vector

to obtain money or information, or deface an institution. Financial crime is closely related to cybercrime.

Raising the blockades The ecosystem surrounding an institution is composed of employees, stakeholders, physical locations, on-premise and Cloud infrastructure, and third-party providers. All of these components work in parallel towards a common goal, but are independent of each other. In addition, many business units are also structurally isolated from one another. Security models for many large global organisations should account for the often disjointed nature of the technology infrastructure and business units within the organisation and have a holistic approach to better detect, react to, and recover from, sophisticated security threats. These models should be able to coordinate with reporting lines, enable real-time sharing of information, Spring 2017

Physical v virtual: Companies must take a holistic approach to crime prevention

differentiators, since the biggest loss that a company can incur is failure to uphold the implicit agreement with its shareholders, customers, regulators and other stakeholders to keep their sensitive or valuable digital assets safe, thus undermining their trust.


Focussing on all types of threats to enable rapid reaction Security teams should support prevention and mitigation of crimes, regardless of their nature or their detection methods. This one-stop-shop approach could gather intelligence, forensic evidence, and help investigate and recover financial losses. It should also make sure that any new modus operandi – any new tools and techniques – are exchanged with the appropriate partners (inside and outside the company) to enhance cyber hygiene and resilience. Internal policies to face the new threats and risks should be updated accordingly.


Restructuring the Internet-facing infrastructure and ensuring specialist analysis and remediation of threats A coordinated 24/7 intelligence, investigatio, and rapid reaction security team would lead to reduced losses and costs and improved security. Initial steps should be oriented towards:

and ‘corporate memory’ with the ability to recognise patterns across channels, products, entities and lines of business. To address this, in our view, information security should be integrated with physical security and financial crime divisions in global companies in order to see crime in a holistic way. There is a need to establish an intelligence-led defence, resting on adequate cyber hygiene, and physical and cybersecurity controls, with the ability to detect and react to the right ‘signals’. In our view, companies should focus not on notions, such as ‘information’, ‘cyber’, or ‘physical’ to describe security, but simply on the core purpose: to deliver security.

There are three ways to re-imagine the role of global security teams:


Streamlining internal security operations In order to ensure effective defence, cybersecurity programmes should be run on common datasets and work alongside law enforcement entities, based on global acceptable standards with respect for data protection and privacy. Given that products will be delivered online, security, safety, privacy, and trust should be enhanced, ensuring that all available information and intelligence are analysed. Trust and security are at the centre of competitive

Information security should be integrated with physical security and financial crime divisions Spring 2017

■■ Enabling holistic pattern recognition to distinguish between ‘normal’ and ‘abnormal’ behaviour, to accurately detect suspicious behaviour ■■ Allowing cross-channel visibility to detect complex patterns of behaviour that may involve multiple layers across channels, products and accounts ■■ Establishing an alert management system to automate decisions and score risk before the investigation process and establishment of a central case management plan is initiated ■■ Creating the ability to link complex cases in which threats are detected locally within a business line, but are part of a global threat that targets several business lines By integrating the functions, building security operations centres and focussing on all aspects of security – people, processes and technology – companies can direct, monitor and control security and trust as a whole. This way they can uphold maximum security for less investment. |



Stolen identity: We leave traces of ourselves all over the Internet

The future of crime With an infamous history of fraud and forgery behind him, Frank Abagnale has become one of the FBI’S most valuable consultants. Here, he explores how advances in technology provide a gateway for criminals It has become well-known over the years that I served my time for financial fraud, came out of prison when I was just 26 and have been working with the American government for 37 years. Yet, people only remember me for what I did before that. To this day, when I’m interviewed for a newspaper article, it tends to be more about what happened 40 years ago than what I’ve done with my life since. It’s not that they hold my past life against me, it’s just all they really know about it. I am very fortunate that I live in a great



country where everybody gets a second chance – I made a mistake, paid my dues, brushed myself off and started all over again. I am proud to say I’ve been married to my wife for 37 years, brought three beautiful children into the world, and have been able to watch my oldest boy finish law school and become an FBI agent. It was beyond my imagination that, with my background, my own son would become an FBI agent! The other question that I’m frequently asked is ‘if I had technologies that are available now back then, how would this have affected my ability to con people?’ It

is important to remember that what I did was 50 years ago and it is about 4,000 times easier today. To forge a cheque then, for instance, you needed a Heidelberg printing press, you had to be a skilled printer and know how to do colour separations, negatives, type-settings and so on. And remember, those presses were 90 feet long and 18 feet high! There was a lot of work involved in creating a forged cheque. Today, you just need a computer and the Internet – and it only takes 15 minutes. You then go down to an office supply store, buy security cheque paper and put it in your colour printer – it’s as simple as that. Spring 2017

The great identify theft In the Sixties, information was hard to come by. When you created a cheque you had no way of knowing where in reality the bank for British Airways, for instance, was, or who was authorised to sign the company’s cheques, and you didn’t know their account number. Today, you can call any corporation in the world and tell them you are getting ready to wire them money and they will tell you the bank, the wiring number and the account number. They will even send you a copy of the annual report, which includes the signatures of the chairman of the board, CEO and treasurer, if you ask them nicely. When I did what I did, I made $2.5million over a period of five years. If I was stealing identities today, I’d be looking at more like $20million or even possibly $50million. If Spring 2017

you can ‘become’ somebody else, what you can do in their name is unbelievable, whether it’s getting mortgages, credit or jobs. Technology breeds crime and that means we are constantly trying to develop counter technologies to stay one step ahead of these fraudsters, who are trying to use it negatively. Let me offer you an example of how such technology can be used. If I’m in the airport and I take out my iPhone and take a picture of you walking through the airport, I can use PittPatt – an application that used to be used by the FBI but has been bought by Google – for facial recognition. If you are on Facebook, or you are identified by your image online somewhere else, for example a company website, I can find out who you are within seconds. If you happen to tell me where you were born, your date of birth and that kind of information, then I’m 98 per cent of the way to stealing your identity. The other common scam that we are seeing is that people are using phone apps to scan and deposit cheques. A few weeks ago we had a man in Kansas City, who sold his home and was given a cheque for $583,000. He asked for a glass of water and while the agent was away, scanned the cheque with his phone to deposit it into his bank account. When the lady came back, he told her that he’d changed his mind and would prefer for her to wire him the money. He then handed the cheque back and the buyers wired him another $583,000. Sometimes I wonder where these people were when I needed them! The thing is, developers often create these tools without considering the potential negative uses for them. I wish they would spend time thinking about that and trying to eliminate the possibilities.

master criminal sitting somewhere in Russia or Hong Kong or Beijing. In a lot of instances, it usually turns out that somebody at the company did something they weren’t supposed to do. They read an email or went to a website they weren’t supposed to – in other words, they opened the door that allowed the criminal to get in. It’s not that these hackers are talented; they just wait, knowing that within a company of 10,000 employees someone is bound to open that door. The crimes that concern me the most are those that use cybercrime to shut down infrastructure, electricity, communications systems, the Internet and so on. It also troubles me that last year the US Inland Revenue Service (IRS) paid out more than $5billion in false tax return refunds. People use online tax services like TurboTax and file for taxes under someone else’s name and then they get the refund due to the person before they even know about it. By the time they file their own tax return, the IRS has already paid out money and the victim of the fraud has to wait around a year to get things straightened out. Most of the perpetrators are down in Florida and Miami – mainly gangs – who have started to realise there’s a lot more money doing this than in drugs. After all, it’s a lot easier and there’s a lot less risk involved. The problem we have today is that crime has become truly overwhelming. So we have everything from Wall Street fraud to embezzlements to cybercrime, and then we have to deal with terrorism on top of that. A lot of crime is going on in a number of different areas but there are very few resources to deal with it. Technology is the future of crime; we just need to make sure that we are prepared for it as far as possible. ■ Frank Abagnale is an advisor to Trusona, an American security software supplier that develops Cloud-based, password-free identity authentication technology.

I made $2.5million over a period of five years. If I was stealing identities today, I’d be looking at more like $20million

Cybercrime gangs Every case involving cybercrime that I’ve ever consulted on, I’ve never found a |



Bright sparks: From payments within the Internet of Things to reshaping mPOS

Creative juices As Director of Technology Innovation at Worldpay, Nick Telford-Reed’s job is to make payments simple… although sometimes that’s easier said than done Someone once said that ‘innovation is creativity with a job to do’. And at Worldpay that job falls to Nick Telford-Reed. As the company’s director of technology innovation, he’s tasked with finding ever more inventive ways to stay ahead of some familiar curves within the financial services industry – the ones tracking consumer behaviour against technology and regulation. And the most exciting demonstration of the creativity needed to do that was a hackathon last September in which his team invited 80 developers – some as young as 12 – to pile into its Worldpay Within software development kit (SDK), which tests prototypes of payment services within the Internet of Things (IoT). “It was the most energising and engaging thing I think I’ve been involved with, it was incredible,” says Telford-Reed. “We had more than 250 people apply to take part, from whom we selected 80-plus and ran it across a weekend. It’s



extraordinary, the amount of pizza and soft drink that can be consumed by the developer community over the course of 48 hours! But, you know, the creativity that people can apply when you’ve built these little prototypes is extraordinary. “The winner ported the SDK to an architecture we’d not even considered, and built two little Lego houses, one of which had photovoltaics and a wind turbine. When the house had an excess of energy, it could find out which other houses in the vicinity needed it. Then, using our SDK, it negotiated the price, the service discovery, made the payment happen and sold its energy to the neighbours. We had some 12-year-olds turn up, who hacked the camera from an Xbox 360 Connect so that you could wave at it and it would make a payment. Amazing! “Building those proof of concepts, we find, is a really fantastic way of engaging with the whole payments community, whether it’s at Money 20/20, or the

Merchant Risk Council, or our own customer events, like Rethink.”

Regulation as innovation But back to reality and an issue that no amount of pizza and Lego will make fun – the revised Payments Services Directive (PSD2), due to come into force in 2018. Although even that, it seems, can fire Telford-Reed’s imagination. “We see regulation as being not only an essential part of our industry, but actually a key source of innovation,” he says. “Worldpay owes its existence, in many ways, to the original directive in Europe, so we see the launch of its sequel as an opportunity to take stock of the industry not just here, but globally.” The multi-billion dollar question, of course, is what will be the impact? “I think you can divide it up into three essential pieces,” says Telford-Reed. ”One that’s already being seen is the effect on the economics of the payments industry, with Spring 2017

interchange fee regulation. Then there’s the structure of the industry, with card schemes like Visa and MasterCard responding to that. And then you’ve got the effect that will be felt directly by retailers and by the people who are trying to pay. Here, I think you’ll see the rise of a new class of payment methods that are structured around direct credit transfer – push payments from your bank account – and the related issue of strong authentication.” The tension between truly frictionless transactions and security is a theme he returns to often and nowhere is it more apparent than in the realm of ‘invisible payments’. “These are payments that you might experience, for example, with Uber. You order the car, get in, get to your destination and get out; you rate the driver, the driver rates you, and then you go your separate ways. Nowhere in that experience is there a definitive moment where you make the payment. And yet one has occurred. “We’ve seen these invisible payments in the remote channel and now we’re increasingly seeing them in the physical world. Amazon launched its new store concept recently with the idea that customers would be able to walk into a store, pick things up and walk out again. And that creates an interesting tension between the frictionless experience that retailers want to give you, and you as a consumer still having the opportunity to take the decision to make a payment. If it’s an Uber, that’s not such a big deal, but if you’re somebody who has to think very hard every month about whether you’re going to buy food or heat the house, then the payments industry has got to make sure that decision is in the hands of the person that needs to make it.” A move away from the industry’s current architecture, built around pull payments using credit cards, to push payments, which leave consumers in charge, could be a way of ensuring that consent exists. Regulation could even accelerate the pull-me, push-me switch. “Bitcoin works like that and indeed PSD2 is very keen on this idea of opening up the banking infrastructure with banking APIs, not just to bring together information about your bank accounts, but also to facilitate this idea of making payments directly out of them. That’s a significant change in the industry and it’s going to be interesting to Spring 2017

see how that lands with consumers,” continues Telford-Reed. “However, one of the key factors in the rise of electronic payments in the UK and in the US, which are probably two of the larger markets, is that consumers are comfortable and confident using cards online because they know that if something goes wrong, they can turn that payment around and get their money back. That reversibility doesn’t really exist in any other payment method, or not in such an easy and systematic way. “So, one of the conversations we’re having on a global basis is that while push payments are inherently more secure, because you’re not passing your payment credentials except to your own bank or your own provider, once consumers realise that when there’s a problem they can’t redress it easily, that might really affect their confidence in using them.” That’s just one of the interesting conversations to be had. The other is around data collection, particularly the use of biometrics, in which Worldpay is also active. In 2016 it experimented with placing a camera in a PIN entry device to explore using facial biometrics as an added authentication to prevent fraud.

We’ve seen invisible payments in the remote channel and now we’re increasingly seeing them in the physical world “For the most part, consumers didn’t spot the camera but when we told them it was there, their confidence using the device fell,” says Telford-Reed. “As soon as we told them it was to prevent fraud, their confidence rose again, but when we suggested it might be used for other things, like sentiment, gender or age analysis, it fell right through the floor. The reality is that if you’ve used an ATM in the UK or walked through any retail environment, you’ve been photographed. But the payments industry still needs to

have that conversation, so that people really understand what we’re doing and why we’re doing it. Critically, financial services must just use the information for the purpose for which they’re collecting it.” Addressing these issues is core to the work Worldpay, which supports more than 300 alternative payment methods, from Boleto in Brazil to ELV in Germany, does with its customers. “Payments is a really complicated business and it’s not the core business for most of our customers,” says Telford-Reed. “They come to us to help reduce the complexity of the payments landscape. So we spend a lot of time watching the market, listening to customers, understanding what countries they’re going into, what geographies they want to enter, what payment methods their own customers are going to want. We also spend a lot of time talking to the regulators, participating in industry forums and helping to develop international standards.” The company – which was established in 2001 and was acquired by RBS before being taken back into private ownership in 2010 and listing on the London Stock Exchange in 2015 – has seen remote channels grow to take more than 40 per cent of all transactions in some of the territories in which it operates. But that doesn’t mean it’s abandoned the physical world of payments. Far from it. In what might appear a counter-intuitive move, Worldpay launched its first point of sale (POS) terminal in 2016. My Business Hub, of course, isn’t just a POS – as the name suggests, it not only accepts cards, but also has till capability and acts as an inventory manager. The plan is to couple that with Worldpay’s data dashboards to deliver more insight to retail customers. He’s watching with interest the march of QR code-based technology, already successful in the Far East, gaining ground among consumers and retailers in continental Europe. And remember the work Worldpay’s been doing on biometrics? “An area of research that we’re excited about is whether you can reduce the footprint of those POS acceptance devices right down,” says Telford-Reed. “We’re already familiar with mobile POS (mPOS) and those little PIN entry devices in taxis and so on. But we think you can go even beyond that and this year we’ll really going to begin challenging what mPOS looks like.” |



To have and to hold AEVI has followed the launch of handheld mPOS tablet, Albert, with Sofia. It’s a partnership that will lead to lots more little apps in the Global Marketplace. Mike Camerling, Chief Product Officer, explains The union of Albert and Sofia has all the hallmarks of a marriage of convenience, but it could turn out to be a match made in heaven for secure payment solutions provider AEVI. Albert, its mobile point of sale (mPOS) tablet, named after the genius Einstein, has been joined by a smaller handheld device that also works under the company’s Global Marketplace umbrella. Sofia was embraced, despite being made by a rival to AEVI, the Hong Kong-based BBPOS. The deal, sealed late last year, underlines AEVI’s vision of an open marketplace where the firm can remain at the forefront of, and adapt to, the latest payment trends. “The BBPOS WisePOS was AEVI-enabled as Sofia because of its complementary character next to Albert,” explains chief product officer Mike Camerling. “We listened to our customers and their merchants, what use cases they like to cover, and found Sofia ticked many of the boxes required. Some merchants had even specifically requested this unit for their business.” AEVI had developed Albert in tandem with the Commonwealth Bank of Australia and first launched it Down Under in 2015, taking it to the US last year. The tablet runs on Android mobile technology and has an integrated, encrypted PIN pad, card reader and receipt printer. Supported by AEVI’s Cloud-based Global Marketplace, vendors can download tailor-made B2B apps to unleash the device’s potential. The Marketplace also provides productivity apps for Albert, such as customer feedback or back-office programs. But Sofia is the first third-party POS hardware to be supported by it. All apps that have

been developed for Albert can be run on Sofia, and it allows AEVI to provide a mobile POS that is ideal for transport and delivery firms due to the BBPOS machine’s smaller four-inch screen format. Outside of AEVI’s network, the Sofia terminal is marketed as WisePOS by BBPOS. “We changed the market with Albert,” says Camerling. “I mean, nobody believed at first that we would be able to process the PIN entry transactions through a touch screen-based terminal, but now it’s a normal trend. A lot of other companies have followed and we are open to collaborating with them and for them to connect to our Marketplace.".” Now the device has been established, Camerling is closely watching how fast the tech is adopted by the retail, leisure and transport sectors – and anyone else who needs an integrated mPOS.

The wider family AEVI is a subsidiary of German IT solutions firm Diebold Nixdorf, which has a long history and a huge portfolio of payments hardware. While AEVI can draw on that infrastructure, including access to a cross-border payments gateway, it is positioned to react to market innovation. “We are creating an ecosystem where banks and acquirers can provide high-quality B2B apps to their merchants on any relevant device they need,” says Camerling. “The AEVI-enabled approach allows our value-added app partners to develop their app once but it runs on all connected AEVI-enabled devices. A standard if you like. So, it’s the foundation for a rich marketplace where everyone can find their ideal combination of apps, devices and services. “We believed in an open strategy from the start," he adds. “Merchant acquirers

want to combine a specific device with a set of apps for a specific vertical in a unique proposition. That is the new way of competing. AEVI never planned to manufacture a full-range of devices, there are people who are much better at that. Our job is to provide choice.” Regardless of whether customers want to embrace new payments systems, Albert and Sofia can offer real value for smaller vendors. But those in Europe who are not using contactless POS terminals need to upgrade by the end of 2019 to continue working with both VISA and Mastercard. And that deadline presents an opportunity for AEVI’s mobile-based tablet systems over traditional machines. While there’s competition in the sector – one of the most recent rival mPOS machines was launched in February by ECR Retail Systems for the airline industry – AEVI believes its strength lies in the innovation being offered by third-party app developers who make their products available through Global Marketplace. “We are using facilities in the UK where we see lots of innovation, especially in London,” says Camerling. “There are a lot of companies that have brilliant ideas about how we can deploy and develop our apps or develop security. “Smaller merchants can use the experience of big retailers because of the value-added services we provide through apps running on the Android system.” The more apps that are developed for Albert and Sofia, the more vendors are able to tailor their mPOS so that it offers effective solutions for their business. And as AEVI’s Global Marketplace of apps as well as the connected devices are white-labelled, a bank’s or acquirer’s brand remains at the forefront during the payment process.

We changed the market with Albert... A lot of companies have followed and we are open to collaborating with them 64


Spring 2017

About 50 app developers are now linked with Global Marketplace. One of the latest to join was Edinburgh-based Appointedd in late January. It offers scheduling software that allows firms to manage bookings online, such as beauty salons, private healthcare practitioners or personal trainers. Appointedd says the app has already proved its worth, being used by half a million small merchants worldwide. Another recent addition is Australia’s Kounta, which turns Albert and Sofia into all-in-one business management systems. Covering everything from stock taking and ordering to staff performance, its aim is to boost efficiency so staff can focus on customer service and not be ground down by a clunky payment process.

More app-y events Loyalty schemes are another type of app that has been made available to AEVI customers. In October, Welcome Real Time’s was launched to allow vendors to offer loyalty incentives while the customer is paying. Developing a slick loyalty scheme based on customer intelligence was only really open to major retailers before the emergence of such apps and the software is a good example of how AEVI is helping smaller vendors to level the playing field. Another addition late last year was TruRating, which asks the customer for anonymised feedback during the payment process, using a score from zero to nine. Because the question is posed in a quick and simple format, the developer says 88 per cent of customers answer it, which provides an easily quantifiable method for a vendor to assess performance. So far, it has gone live in the UK, Australia and the US, with 3.3 million ratings provided. Camerling says AEVI is closely monitoring what proves a hit with vendors so as to guide his firm’s strategy. He says: “We aim to be in a position to develop new products as quickly as possible when opportunities arise. Overall, we know where we need to go, but we can adapt along the way.” With a €30million fundraising from investors HPE Growth Capital and Adveq completed in October, AEVI has the war chest to expand. The company says the money will be used to further accelerate growth and extend its global presence.. Spring 2017

Albert and Sofia: AEVI’s mPOS partners |


PAYMENTS & INNOVATION Under threat: A row over payments could see 8,000 free-to-use ATMs lost

The missing LINK?

Ron Delnevo, Executive Director, Europe, of the ATM alliance ATMIA, considers an urgent threat to a network that delivers a lot more than cash

The LINK ATM network of cash dispensers is world-renowned – and for good reason. The UK public appreciate LINK because they can be confident that the debit cards they carry, issued in the main by high street banks, can be used in almost any ATM they encounter – 99.9 per cent are connected through the network. LINK allows banks and independent ATM deployers (IADs) to work in harmony and It is disappointing that many countries have, as yet, failed to replicate the model because it enhances public service, improves financial inclusion and provides an environment in which transparent competition between all ATM deployers can flourish. The fact there are now around 72,000 ATMs in the UK is a testament to the success of LINK – and, of course, to the enduring popularity of cash. The machines are well used by the public compared to most other countries in the world. More than 50,000 of the UK’s ATMs are free-to-use, with customers not paying a direct charge when they make a cash withdrawal. It means that there is roughly one for every 1,000 members of the



card-carrying population and, on average, each person visits at least once a week. Most free-to-use ATMs in the UK are what are commonly called ‘through- the-wall’ (TTW). They normally provide a 24/7 service and are usually located on high streets, in shopping malls and in transportation hubs. Their average cash withdrawal transaction levels are between 5,000 and 6,000 per month. Few other countries in Europe can match this usage level; In fact, a good case can be made that there should be more ATMs in the UK.

The LINK Interchange A fundamental tenet of the LINK Network is that a card issuer pays a fee to an acquirer each time one of their cards is used at the acquirer’s ATM. This fee is called the LINK Interchange and it is set every year. A methodology for its computation was developed more than a decade ago and approved by the UK Office of Fair Trading. Each year, every LINK member calculates its costs in each of the categories provided for in the methodology. The data is then sent to auditors at KPMG, who use the data to evaluate the cost of providing a cash

withdrawal and balance withdrawal at a free-to-use ATM. It is made a little more complex because separate Interchanges are calculated for branch and off-branch ATMs. The clear logic for this is that the costs of providing and operating an ATM associated with a bank branch are significantly lower than for an off-branch machine where ATM operators may face additional installation and security costs, third-party site rental costs, property taxes, cash-in-transit charges and so on. The methodology for the calculation of the Interchange isn’t perfect – some costs have to be estimated by the participants – but the model has long been accepted as equitable by LINK members. In any event, the LINK Network has flourished in terms of the number of ATMs participating and the quality of cash access offered to almost everyone living in the UK. It has served to significantly improve financial inclusion, with special efforts being made by LINK members to place ATMs in communities where there is a preponderance of residents who rely solely on cash to budget and manage their finances – as millions do. So, all in the LINK garden is rosy? Unfortunately, not. Spring 2017

The wrong target One or two of the bank members of LINK are now seemingly unhappy at the amount of Interchange they are paying out to other banks and IADs. They have asked for a substantial reduction, with a figure of 20 per cent often quoted. Many observers find this a strange proposal for the banks involved to put forward. Whilst recognising they have a duty to their shareholders to improve profitability and that one way of doing so is to reduce costs where feasible, the general consensus seems to be that LINK Interchange is not an appropriate target for such reductions. There are several points that can be made to justify a continuation of LINK Interchange, without it being subject to arbitrary reduction. Firstly, LINK Interchange is essentially a cost recovery mechanism. Acquirers recover from issuers the cost of delivering ATM transactions. The only way a profit can be made is through individual acquirers becoming super-efficient and lowering their costs. However, the profit per transaction that can be earned in this way is very small and, as such, can be regarded as an equitable reward for the efficient acquirers. Secondly, banks that have a problem with their outgoings in relation to Interchange have a solution in their own hands. Quite simply, they need to install more off-branch ATMs so their customers and the customers of other card issuers can use them. This could reduce their Interchange net outgoings significantly. A number of UK banks have been enthusiastic deployers of off-branch ATMs and, as a result, enjoy a net surplus in relation to their LINK Interchange accounts. Thirdly, in recent years, one or two banks operating in the UK have largely or completely divested their off-branch ATM estates. They must have been aware when doing so of the likely impact on their Interchange position. It is surely disingenuous of them to now claim surprise.

The clock’s ticking In any event, at a meeting of the LINK Network Member Council in January 2017, it was agreed that a working group would be set up to examine all the options in relation to LINK Interchange. This group has been asked to report back to the Council before the summer with recommendations. The importance of ring-fencing the current arrangements in relation to LINK Spring 2017

Interchange payments is underlined by data provided to the ATM Industry Association (ATMIA) by IAD members, showing which of their machines are now ‘at risk’, either of becoming pay-to-use or being removed completely should LINK Interchange be reduced by 20 per cent. The data shows that these companies would have to look at removing upwards of 35 per cent of their free-to-use ATMs. This could amount to a loss of more than 8,000 machines in total and an estimated reduction of £14.7billion of cash in circulation each year. While London stands to lose the most cash points, the five cities outside the capital that would be worst hit are Belfast, Glasgow, Birmingham, Sheffield and Cardiff. Collectively, these towns stand to lose more than 20 per cent of the independent free-to-use machines at risk. The regions that will be worst hit include the rural South West, Scotland, and the urban South East outside London, where, respectively, 44 per cent, 40 per cent and 33 per cent of the independent free-to-use ATMs could be withdrawn. These are regions that have also suffered the most bank branch closures recently.

Removing upwards of 35 per cent of free-to-use ATMs could amount to an estimated reduction of £14.7billion of cash in circulation The ATMs provided by independent companies have become increasingly important to UK consumers. The number of free-to-use withdrawals from independent ATMs in 2015 was 747 million, up by 49 per cent from the previous year. The number of free-to-use ATMs run by independent companies rose by 28 per cent in 2015. It is clear that Independent cash machines play a vital role in ensuring all citizens have convenient access to cash.

‘Dire’ consequences Of course, off-branch, bank-operated ATMs could also be badly impacted if the LINK

Interchange is slashed. There are around 15,000 such ATMs in the UK and if 30 per cent are lost due to Interchange cuts, this would mean nearly 5,000 further ATMs lost from the LINK Network. These losses, when added to the potential loss of 8,000 IAD ATMs, underline the extent of the threat to cash access in the UK. If the LINK Working Group does not come up with proposals that can be agreed, there is a risk that one or more banks may leave LINK. Many believe that, should this happen, the LINK Network could not continue. This would see the end of universal free access to cash at UK ATMs, coupled with a loss of thousands of ATMs. Taken together, the consequences are likely to be: ■■ Massive inconvenience to the public ■■ Less financial inclusion, with the millions of UK citizens who solely use cash put at significant risk of damage to their welfare ■■ The creation of ‘cash deserts’, where communities have absolutely no access to deposit or withdrawal facilities for notes and coins. This would damage both individuals and businesses, with the health of local economies potentially substantially undermined ■■ The demise of LINK would severely restrict the speedy roll-out of community financial services hubs, effectively groupings of smart ATMs, where local residents and businesses could carry out 99 per cent of the transactions previously available at bank branches. With more branches closing every week, this is a vital consideration for maintaining and enhancing genuine financial inclusion in the UK Such consequences are too dire to contemplate. If LINK members cannot agree a solution that provides for a long-term future for the network, with Interchange arrangements that reward efficient and innovative ATM operators, the Government and Payment Systems Regulator will surely intervene to impose just such a solution. Far better, of course, if LINK members can put their own house in order, but we are only two minutes from midnight, so there is little time left for them to do so. ■ John Howells, CEO of LINK, will be speaking at ATM & Cash Innovation Europe 2017 in London on June 13 & 14. |



Staying ahead of cashpoint cybercrime Hackers have a new target – the world’s ATMs. RBR’s ATM and Cyber Security Conference aims to stop them, as Conference Manager Emily Camara explains Safeguarding ATMs has never been more of a challenge for banks and independent ATM deployers (IADs), with the ongoing threat of physical attacks and the increasing reality of cyber hacks. It is against this backdrop that strategic research and consulting firm, RBR, is organising its annual ATM & Cyber Security 2017 conference and expo on 10 and 11 October in London. We asked Emily Camara, conference manager at RBR, what to expect. Fintech Finance: Why is ATM security such an important topic? Emily Camara: For many years, banks and independent ATM deployers have been battling against physical ATM attacks, from skimming to cash grabbing, from ram-raids to explosive attacks. Despite advances in security technology, criminals remain one step ahead, meaning banks need to continuously refine their strategies and update their solutions. More recently, cyber attacks on ATMs have become a reality for many banks across Europe and beyond. The threat is not just money that might be stolen or fines that might be imposed but, most importantly, that consumer trust, once lost, is extremely difficult to regain. FF: How worried should ATM deployers be about cyber attacks? EC: In a recent spate of attacks in Asia and across Europe, cyber criminals gained access to banks’ networks using phishing scams. This ultimately led to them being able to send a remote command to



infected ATMs, forcing them to spit out the entire contents of their safes. Unlike physical crime, which is carried out on individual ATMs, cyber criminals target multiple machines, and indeed entire networks, significantly increasing potential losses and disruption. Banks and regulators have put protection against cyber crime high on their lists of priorities. Cyber attacks are a strategic threat that banks and other ATM deployers cannot afford to ignore. FF: What can banks do to mitigate the risks? EC: Banks need to adopt a mix of human and technical solutions. Staff training on topics such as password management, access policies and identifying suspicious emails is important, as are more technical solutions, such as encryption, whitelisting, firewalls, fraud monitoring, cloud security, distributed denial of service (DDoS) protection and so on. Ultimately, every organisation will need a solution that is tailored to its specific requirements. The speaker agenda at ATM & Cyber Security 2017 will include case studies on the approaches different banks are taking and the exhibition area will offer delegates the opportunity to see some of the solutions available and get advice from industry experts. FF: So what else can we expect from ATM & Cyber Security 2017? EC: RBR has been running ATM security conferences for more than 10 years. The events are known for their dynamic and comprehensive speaker agendas, featuring senior executives from high-profile

institutions across the globe, and the high level of bank attendance as a result of synergies with RBR’s research activities. The ATM & Cyber Security 2017 line-up includes presentations from BMO, Bradesco, Citibank, Metro Bank and the US Secret Service, plus a host of motivating case studies. Running parallel to the conference is an expo where the industry’s leading solutions providers will showcase their latest technologies. There is plenty of networking time factored in to the two-day schedule, including a complimentary drinks reception at the end of the first day to which all delegates are invited. FF: How can people get involved? EC: There are several ways companies and individuals can participate in the event. We still have a few speaking slots available – if anyone has an interesting

Cyber attacks on ATMs have become a reality for many banks across Europe and beyond case study they would like to share, they can contact my colleague, Stephen Reinhardt (stephen.reinhardt@rbrlondon. com). We also have a range of exhibition and sponsorship opportunities, but we would advise companies to move quickly as we have limited availability. For more information on these options, I can be emailed at emily.camara@rbrlondon. com. Finally, if Fintech Finance readers are interested in attending the event as a delegate, I’d invite them to visit our website at

Spring 2017


Rajesh Agrawal Deputy Mayor of London for Business

Brett King CEO of Moven and Host of Breaking Banks

Giles Andrews Co-Founder & Executive Chairman, Zopa

Céline Lazorthes Founder and CEO & MANGOPAY

Ian Dyson Commisoner City of London Police

Steel Mohnot Partner, 500 Startups

Maria Gotsch President and CEO of the Partnership Fund for New York City

Jens Spahn Parliamentary State Secretary Federal Ministry of Finance, Germany

For the full speaker list go to 10 th - 11th April 2017 Guildhall, London Tickets available now at £795

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So you think you’re a digital bank? There’s a long way to go yet! says the ‘Iron Man of fintech’ Jason Bates, Co-founder of Monzo Bank and lead Avenger at 11:FS It’s official – the financial services industry has been digitised; we’ve successfully transferred the offerings of a bygone analogue world onto our contemporary devices. According to the history books, first passbooks were eclipsed by statements, then statements were vanquished by online banking and then we all threw our computers into a skip upon the arrival of the mobile banking app. We’ve reached the pinnacle of digital finance and we all deserve a great big pat on the back, right? Wrong. “We haven’t found digital yet,” says Jason Bates, co-founder of Monzo Bank. “In fact, all we’ve been doing is simply digitising. This means taking what we’ve already got and putting it onto a new platform, for example smartphones. Digital, on the other hand, is a whole new paradigm,” he says. “It’s a new way of working across all market sectors, and it’s going to spark a revolution in the financial services industry.” As far as success stories go, there are few more inspiring than that of Monzo Bank. The challenger broke the world record for



equity crowdfunding, raising £1million in 96 seconds, and then proceeded to generate a waiting list of more than 100,000 people for its Alpha app. Two years on from its creation, Bates has had chance to reflect on the reasons behind the bank’s success, and believes the team’s digital (that’s digital, not digitised) approach played a vital role. “With Monzo, we genuinely started with a blank sheet of paper,” he says. “Then we asked ourselves, ‘how do we want to impact our customers’ lives with a digital offering, as opposed to a digitised offering?’ To find the answer to that question, we made a list of the virtues of digital offerings: real-time intelligence and context; the possibility of extension through connection with other application processing interfaces (APIs) and, ultimately, the fact that it’s a service, not a product. From here, we considered how best to deliver those virtues within the everyday financial activities of our customers, and the result was Monzo – a bank that goes beyond basic transactions to digitise financial information.”

One aspect of Monzo Bank that has proved exceptionally popular among its customers is the speed of the app – the way in which you receive notification of a transaction on your Apple Watch before the petrol station till has even had a chance to print the receipt for your three Snickers bars. Bates explains, however, that it’s not so much the speed of the app that Monzo’s customers appreciate, but more the bank’s adoption of an authorisation-based (as opposed to a settlement-based) statement. “Fifty years ago, you tucked your bank notes into your wallet and felt safe knowing they were there,” he says. “When the time came to make a payment, you pulled out a £10 note, and there would be £10 less waiting in your wallet for the next time. Whereas, in this world of plastic that we find ourselves in, you could have £1million on a card or be in £3million of debt to the bank, but from a wallet perspective it all looks the same. “The problem with settlement-based statements is that, without a visual indication of funds in your wallet, it can be very difficult for people to manage and keep up to date Spring 2017

A new paradigm: The truly digital bank is a long way from the digitised

with their finances,” says Bates. “The banks have always believed that customers would sooner know exactly how much is legally in their account (i.e. what’s been settled) as opposed to what’s been authorised. For example, you might spend £100 today, see that the transaction is instantly authorised, but then have to wait three days for the deduction to show on your account balance. “At Monzo Bank, however, we asked ourselves what customers really wanted to know, and came up with the opposite answer to the traditional banks. If I’m visiting a shopping centre and spending money all day, it’s of no use to me to check

This interim period between the demise of the digitised and the dominance of the digital bank is pretty exciting my account at various points throughout the visit and see that my balance has remained static – I want to see a deduction in funds that have been authorised. It’s this authorisation-based system that Monzo customers refer to as the speed of the app, and it’s a feature that would have been Spring 2017

impossible to implement had we employed a digitised, settlement-based methodology for our service.” Last year, Jason took a step back from the day-to-day delivery of Monzo Bank in order to co-found 11:FS – an ‘all-star team helping banking execs to deliver organisational change and next generation products and services’. As well as establishing himself as one of Fintech Finance’s official Fintech Avengers (memorably depicted as a sort of Iron Man with guns in the Autumn 2016 edition), his work with 11:FS is helping banks to make the jump from listlessly digitised to full-blown digital. “We’re talking to a lot of execs, boards, and senior managers across a variety of banks, both here in the UK and abroad,” he says. “It’s our mission to explain to them the changes that are happening, and then offer ways in which they can adapt themselves to this new, competitive landscape. “More often than not, the team here at 11:FS actually ends up helping banks directly with their proposition development, as well as the trialling and launching of their new products. And we’re not just working with the big banks, either; the tier two and tier three banks have smelled blood in the water. You no longer need 1,000 retail branches on the high street in order to be the big bank. In terms of digital, there’s no reason why a bank from the lower leagues couldn’t step up and assume the position of dominant player.” The sheer number of new digital banks is testament to how juicy a prize is up for grabs: alongside Monzo there’s Starling,

Tandem, Atom, Lute, Monese, Pockit, and the list goes on. “What’s interesting about the emergence of these digital banks is that they each seem to be adopting slightly different market penetration tactics,” says Bates. “Some are targeting a particular demographic, whereas others are targeting a specific type of functionality, such as remittances. Some are unbundling the market, but others (like Monzo) are saying that you shouldn’t need 20 different apps on your phone to access banking services, and are rebundling the banking interface. “This interim period between the demise of the digitised and the dominance of the digital bank is proving to be pretty exciting,” he says. “It’ll come as no surprise that the 11:FS team have rather a lot on our hands right now… needless to say, we are recruiting.”

n Meet more of the fintech superheroes at 11:FS in our special feature on page 84. |





In the second and final part of his series looking at the impact of PSD2 and the Open Banking Standard, Daryl Wilkinson of DWC Ltd explores how application programming interfaces (APIs) could fundamentally change customer relationships The API economy describes the way APIs can positively affect an organisation’s profitability – not only but especially in the banking sector. The growth of APIs has enabled business to tap into a new digital value, to reach out to more customers and to disrupt established industries. Companies can now generate additional revenue by exposing APIs as business ‘building blocks’ for third-party applications. For example, under the Open Banking Standard, banking data can be shared through secure, open APIs so that customers, whether individuals or businesses, can manage their finances more effectively. It will allow third-party developers, such as fintechs and retailers, to create helpful services and tools for customers, giving them real-time access to their own banking data, providing better options for choosing and making the most of their financial products. Fidor Bank in Germany is a leader in this field. As well as offering traditional banking, such as accounts and loans, it has developed innovative services aimed squarely at its digitally enabled customers, such as crowd-sourced funding and peer-to-peer lending. Customers have a social presence (they can sign into the Fidor community through Facebook Connect), too. Here they can



share advice on household costs and investment strategies, rate financial advisors and review financial products. And Fidor encourages active participation in this community through cash-based incentives. By having a fully rounded customer service, Fidor engenders trust and ongoing involvement. The cost to Fidor of customer acquisition is just 20 per cent of that typically incurred by a high street bank in Germany. The bank is also building an external community of businesses that use its core

■ The application programming interface (API) economy is projected to be a $2.2trillion market by 2018 banking services. In March 2015 it launched its open API platform, which lets third-party developers create apps and services that interact with customers’ banking products. Adding value in this way allows the bank to collect more personal data, which it enables its customers to access and manage through a customer information

system, giving them control and visibility, and further cementing trust with the bank.

Banking as a platform As the concept of banking as a platform (BaaP) develops and automatic account aggregation services mature, such transparency for customers will improve. When seeking out new products, such as current or savings accounts, customers will be able to make meaningful comparisons by viewing details of different product offerings across multiple providers in one place, using their preferred website or app. And for those customers in need of a loan, APIs could even lead to better loan terms because lenders will be able to access customers’ historic transactional data and determine the appropriate risk level. Mortgage providers could also use APIs to access bank data from prospective customers’ accounts, potentially speeding up the application process. Aggregation and BaaP are not reserved solely for third parties and new market entrants; established banks will also be able to exploit these new opportunities by integrating the APIs of their competitors into their own websites and apps. Introducing new personal financial management tools – using big data to offer the best option on particular products and enabling the customer to compare and manage all their accounts in one place Spring 2017

– could mean the difference between a bank becoming a customer’s go-to platform for all their financial needs and losing meaningful communication with that customer altogether. With the customer empowered to make an informed choice of products and services by themselves, the huge internal pressure within banks to cross-sell and up-sell should reduce, leaving time for banks to focus on quality customer service and developing the best new products.

Fraud prevention This API-first approach could also reduce levels of fraud. With new access to customer data and an open platform that monitors activity across all of a customer’s accounts at once, third-party fraud detectors could offer customers better monitoring and notification services. That said, one of the key concerns for customers is how fraud is dealt with once detected. The increased use of APIs and partnerships will mean that the responsibility for responding to fraud and liability for losses will depend on the type of collaboration between banks, fintechs, and third-party API providers. In the case of a white label agreement, whereby the bank’s brand is on the product and the partner is silent, the responsibility should remain with the bank as the product owner. By holding responsibility and advertising that it will protect the customer, a bank could alleviate one of the main concerns of customers moving to a digital banking product. That is not the typical level of protection offered by banks today. Where there is more of a partnership approach, who picks up responsibility would depend upon the nature of the agreement between the bank and the fintech, although in this case the liability for fraud would probably shift to the latter, which may worry the customer, as the fintech may not be able to offer the same level of protection and compensation as a bank.

Monetising/managing APIs There is a significant amount of value to be had from providing financial institutions with the tools and resources needed for adapting to technological changes in the banking industry. There are three models that organisations may be able to use to monetise APIs: Spring 2017

■■ Pay per use – a company will make its transaction data available to third-party apps that, for example, compare prices or analyse customer behaviour ■■ Subscription – fees accrue during a defined period for an agreed price, rather than on a pay-per-use basis ■■ Revenue sharing – these models will typically generate sales of a company’s own products (e.g. an online storefront) from which the app developer gets a share It is likely that banks will have to pay third-party developers and fintechs under one of these three models. But a further option for banks is to develop their own APIs, potentially even charging other organisations for using them. The downside for the banks is that there is considerable capital and commitment required to develop APIs from the ground up. Initially, at least, banks are likely to monetise APIs based on payment processing and customer authentication services. These would be relatively easy to develop and implement, building on standard tasks and data they already hold. An example would be a service enabling customers to complete product applications via an API, which would reduce cost and time for the bank, while making applications easier for the customer. Over time, a bank’s API estate and relationships will become complex, with many APIs in use across its systems and by customers, including: ■■ APIs that the bank has developed ■■ Third-party APIs that the bank is utilising ■■ Third parties that are using the bank’s APIs Banks will need to track all of these meticulously to facilitate maintenance of services and deal with any problems with software or fraud issues.


■ RBS has run eight hackathons in the last 18 months with the aim of generating ideas and learning about open innovation Banks can manage private APIs internally, but managing public (or open source) APIs will be more demanding. Banks will also need to analyse how often the APIs will be used and plan for growth in the service so that any surge in volumes does not cause problems or downtime. They need to decide whether to keep control of the way their public APIs are run, or allow developers to use a bank’s APIs as they choose, albeit it within set parameters. If a bank’s requirements are too stringent, this could make an API too complex and costly to design for, and developers will not make use of it. For banks, it will depend on the level of risk, control and investment they are comfortable with. Fidor has elected to open up its API system, but only to a limited extent and with no interaction with real customer data, which seems an appropriate and workable model to follow. Fintechs and third-party developers bring new skills, experience and methodology to generate ideas and innovation that extend way beyond the banks’ more traditional approach. They enable banks to keep up with changing customer expectations and benefit from

Opening up development

French banking group Crédit Agricole set up its own CA Store in January 2012, an online marketplace that crowdsources ideas for new banking applications from customers and gives third- party developers the tools they need to create them in response. So far, more than 50 teams of developers have contributed to the project. The CA Store uses an open API so the technology is shared freely with third-party developers and can be integrated into new programs with no loss of compatibility. The developers never have access to any real customer data. Having customers help design new apps and services has led to some innovative solutions. One app was designed to notify customers of account overdrafts. Another makes a game out of saving, with awards posted on their Facebook pages when customers reach a savings goal. |


PAYMENTS & INNOVATION ■■ new channels of distribution (e.g. wearables), frictionless on-boarding, optimised front-end user interfaces and seamless omnichannel integration. While at one end of the spectrum UK challenger Atom Bank is building its digital service on the Unity gaming platform (allowing customers to interact with their financial information using gamification features, personalisation within the app, 3D graphics, and voice/selfie recognition combined with biometrics for security); at the other, the Big Four are establishing an expectation that banking can be done digitally, remotely and interactively. In March 2016, for instance, RBS announced that it was cutting its face-to-face advice service at the cost of 550 jobs and instead using robo-advice advisors as a low-cost way to offer an investment service to customers.

Threats and opportunities As the conditions for ‘utility banking’ are created by these new developments, the EU and UK regulations present both a threat and an opportunity to traditional banks. They will enable customers to open accounts and manage their own financial products and services with increasingly little human interaction. The threat to banks is one of disintermediation with customers and losing the opportunities that face-to-face interaction brings. The opportunity is increased efficiency and the ability to provide the services that are attractive to digitally enabled customers. Through Open Banking and collaboration, financial institutions can also begin to integrate their data with that of ■ 61 per cent of British customers would be interested in banking services provided by alternative suppliers, such as John Lewis, Amazon and Apple other financial institutions and open data sources (Facebook, Google, Companies House,, to name a few), creating entirely new business models. For example, incumbent banks could offer new products, such as peer-to-peer lending and online trading, through APIs embedded into a social media app (such as Facebook) and/or through their own proprietary apps, opening up new revenue streams.




The John Lewis Bank?

UK retailer John Lewis has always been at the forefront of customer service. It regularly receives awards and scores consistently highly in shopper surveys for customer experience and trustworthiness. It has also picked up accolades for its omni-channel development and was crowned Best Multichannel Retailer at the 2014 Retail Week Awards. The same year, John Lewis increased its online sales to £1.1billion – a third of its overall sales – with online sales growth of 25.6 per cent. Having proven itself as a leading retailer for customer service, there is no reason John Lewis cannot apply the same principles to financial services. It has the innovative leadership, brand values and resources to create its own banking platform. It already has its own credit card (the Partnership card, launched with HSBC) and insurance products (which were under the Greenbee brand – now John Lewis Insurance), as well as providing broadband and home telephone services. John Lewis could integrate these services, along with the huge amount of customer data it and partner Waitrose has to offer a comprehensive digital banking service. It already has the advantage of a strong brand name and recognised customer service level, two of the most important requirements for customer attraction. There is little doubt that the API is set to play a major role in the digital transformation of banking. It will provide banks with a new route to current and untapped markets, a mechanism to leverage the innovation emerging from the fintech and wider digital developer ecosystem, and a means to transform their internal technical platforms and disaggregate their historic vertical model.

The new retailer banks Organisations that are quick to react to PSD2 and establish themselves as account information service providers (AISPs) could gain a massive advantage over slow-moving banks. They would gain access to all of a customer’s financial information in one place, giving them a huge quantity of data, which will provide lucrative cross-selling opportunities. Large, established retail organisations may be well-placed to take advantage of the new regulations and digital technology, and we may see some of these breaking into digital banking and becoming AISPs. By building on existing databases and taking advantage of the assets they have already built up, retailers may find launching as AISPs gives them a new way to deepen customer relationships and provide an even more personalised service. For example, a retailer could recognise that a customer has just taken out a mortgage to move house and that it has been some years since their last purchase of a sofa. That information could be used to offer the customer a low-cost loan, offset by

current account balances, to purchase one. Customers are already integrating their favourite retail brands into their everyday lives through omnichannel interaction, so the integration of banking services is a logical next step. Savvy retailers will certainly be thinking about APIs as a key part of their strategy for the coming years. Price comparison websites are also likely to move further into the banking environment. Again, these organisations have branding and market presence, coupled with a huge amount of customer data, at their disposal. They already use technology to gather different types of banking product and service information together in one place. These websites have made the fact that they are independent a huge selling point. By enabling customers to use their websites to access personalised financial information across different banks and building societies, they could become truly independent banking platforms, maximising value for customers without having the cost of providing any financial products themselves. Whether it's traditional financial services providers, digital banks, retailers or another type of challenger that maximises the opportunities created by the new banking regulation, remains to be seen. What is certain is that the regulation will bring dramatic changes to the industry, increasing competition and enabling customers to have control over their financial information like never before. Spring 2017

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The data detectives Vayana’s been successful in helping banks make the most of analytics to seamlessly transition into omnichannel services. But it knows there’s more to be had from data. CEO Kannan Ramasamy is on the case “Data! Data! Data! I cannot make bricks without clay!” Arthur Conan Doyle's fictional detective Sherlock Holmes knew the importance of data to drive decisions – and Vayana is sold on it, too. India-based Vayana’s acquisition of SolutionNET in 2009 was the catalyst in creating a ‘one-of-its-kind’ omnichannel customer experience for banks. Now, by investing in expertise for analysing data from those channels, it aims to help banks develop meaningful contextual customer experiences. “We serve about 30 banks in India, the Middle East and Africa,” says Kannan Ramasamy, Vayana's CEO. “We market an integrated service, where we can understand patterns and trends at the cellular individual customer level, and then algorithmically suggest additional services of interest to that customer on their next digital visit to the bank. This whole data-centred conversation between the bank and the individual customer will get smarter and smarter as we get more data on the customer.”

Digital readiness Vayana's banking client portfolio includes tier one banks, but many are smaller tier-two and tier-three operations that benefit from Vayana's expertise to build and integrate online banking into their own IT systems. What started as Internet banking for desktop computers has moved into

mobile, tablet and now wearable apps as technology and trends have developed. And in September a leading bank in Saudi Arabia went live with Apple Watch banking built in partnership with Vayana.

Data’s the cornerstone “Each customer’s context is different and they have a unique and compelling story to tell,” says Ramasamy. “Our value is realized by banks as we work with them on developing and executing a omnichannel road map.” He is keen to stress that the speed of digitisation of the channel depends on the ability of a bank to adapt to market and technological changes. "The Saudi Arabia bank initiated an 18-month digital transformation project, including a rebranding effort,” says Ramasamy. “The bank's aim was to ensure their retail banking service did not require a visit to a branch. It managed to get more than 80 per cent of its customers using digital channels, allowing its branch network to focus on serving as consulting centres for customers seeking wealth management services.” With Vayana's front end in place, data following a customer’s behaviour and transactions can then be mined and put to use. “The first phase of having the data and being able to present it to the bank is already in place. Data is currently available on the use of the channel, such as ‘what do they do while on the channel?

What are the services being accessed across channels? Do any parts of the services offer opportunities for new services or products, which are unfulfilled or require multiple visits by the customer?’” says Ramasamy. “Eventually, machine learning algorithms will be able to provide real-time responses to engaging a customer with offers that are meaningful and timely,” he adds. “We believe that between 15 and 20 per cent of our customers are keen and eager to move in this direction. “Getting this rolled out and showcasing the positive business metrics will get others on board as well. Our current assets, such as digital onboarding, dateline, social connect and personal financial management ,will bring a structure and context to a rich end user experience.” Ramasamy believes channel data could also open up revenue and franchise building opportunities by having services from a bank’s SME customers targeted to retail customers. “I can’t think of a better way for banks to extend their commitment to partner with their customers than by becoming digital and data savvy,” he says. Given its global reach, Vayana uses expertise gained in one region to serve another. Ramasamy, who is based at the firm's office in Boston, US, says the business is already moving to expand its footprint in the ASEAN region and has begun the process of engaging in discussions for a roll-out in North America over the next 12 to 18 months.

This whole data-centred conversation between the bank and the individual customer will get smarter and smarter as we get more data on the customer 76


Spring 2017

Data is key: Vayana’s algorithms will be forensic

Kannan Ramasamy In his role as CEO of Vayana, Ramasamy provides strategic direction and leads the SolutionNET omnichannel and digitisation business. He has been in senior business and operational roles with Fortune 500 companies, including various GE Capital businesses. He was the founding CEO of GE Capital’s consumer and auto finance businesses in India and later moved within GE Capital to hold executive positions in the US. After his stint at GE Capital as President US Operations, he built Scandtent Group’s US business and followed that with a business transformation of Dallas-based Aegis Communications Group as its president and CEO. He has contributed to many companies, including Bank of America, American Express and Pond’s, in management roles. He is a serial entrepreneur who loves to build and invest in businesses that have a clear edge in the markets they choose to serve. He has a B. Tech from IIT, Chennai, and MBA from IIM, Calcutta. He lives in Massachusetts, United States.

Spring 2017 |



Espresso banking Smooth operator: Alawwal’s introducing café culture banking in Riyadh

Do you want sugar with your bank statement? Extra froth on your wealth management advice? A new tie up between the Gulf Cooperation Council countries’ Alawwal Bank and western coffee chain Costa could see customers opening an account in the time it takes to brew an espresso. That’s no reflection on the speed at which Costa’s baristas work, but on the superfast format of Alawwal’s first digital branch. Launched in the busy Nakheel Mall, a flagship shopping development in Riyadh, what's known as the bank’s IBDA format is the first of a new wave of retail branches introduced by Alawwal in response to changing customer lifestyles. With a growing population of digital natives in the Gulf region, and the arrival of Gulf International Bank’s Meem – Saudi Arabia’s first online bank – in 2015, the digitally connected, relaxed style of the IBDA is a sign that the traditional operators are repositioning their offer. Designed to create a seamless and personalised service and delivered in a

Alawwal Bank has opened a first-of-its-kind digital branch in Riyadh… and it has a distinctly relaxed feel café-style setting, the open-plan IBDA is the fresh face of retail banking in a kingdom where Alawwal, which has an estate of 45 conventional branches and 265 ATMs, has operated since 1926. “Technology in banking is well beyond an option,” says Mubarak A Al-Khafrah, chairman of Alawwal Bank. “Customers are looking to do banking on the move, reducing face-time with banking advisors, and IBDA is a new way to integrate a digital environment with the ability to build relationships with our customers. Integrating state-of-the-art technology with traditional services will help us effectively serve them, whatever their need.” While they’re browsing at more than 200 branded outlets in the Riyadh mall, such as Diesel, Gap and Body Shop, visitors can also drop in to discuss the latest banking

products. And in the time it takes to grind the beans and pour coffee into the cup at the Costa counter, they can apply for, instantly open and receive a debit or credit card linked to a new account. Zones within the IBDA are designed to cater to different customer needs. It is equipped with advanced interactive tables where visitors can navigate through the bank’s offerings, view demonstrations and apply for products, while bank staff are also available to provide advice. Meanwhile, existing customers can access a self-service interactive video banking facility. Soren Nikolajsen, MD of Alawwal Bank, says: “Our customers’ dynamic lifestyles continually put pressure on the bank to adapt in order to deliver financial services that are relevant and accessible at all times. “IBDA is an exciting and innovative new way to redefine the banking experience for our customers, where the latest technology and traditional banking services can coexist. “Customers are, of course, also welcome to just come in for a chat and a coffee!” Latté, anyone?

IBDA is a new way to integrate a digital environment with the ability to build relationships with our customers 78


Spring 2017

Retail Banking Banking Conference Conference & & Awards: Awards: London London 2017 2017 Retail 11th May 2017 • Waldorf Hilton, London 11th May 2017 • Waldorf Hilton, London

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Top industry movers and shakers will meet to debate the importance of new strategies, business practices and partnerships in Top industry willtomeet to debate the voice importance new strategies, business practices partnerships in themovers industry.and Weshakers invite you become an active in this of discussion to shape the future of retailand banking. the industry. We invite you to become an active voice in this discussion to shape the future of retail banking. For more details please contact Victoria Pennell on or call +44 (0) 20 3096 2634. For more details please contact Victoria Pennell on or call +44 (0) 20 3096 2634. Event supported by Event supported by Headline Sponsor

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Is anybody listening? Consumers have more ways than ever to ‘talk’ to their bank, but that doesn’t always mean they’re being heard. Outsourcing giant and contact centre operator Teleperformance makes it its business to listen, as Richard Nicholls, VP, Business Development, explains Kids in a sweetshop is the image that springs to mind when Richard Nicholls of global outsourcing company Teleperformance talks about today’s banking generation. The so-called ‘fourth revolution’ that’s overtaking financial services means they can bank over any platform they choose, from desktop computer to their watch or phone. And with whomever they choose, from one of the Big Four to a bank that carries the name of their favourite shopping brand. They’re spoiled for choice. But whatever it is they want, you can be sure they want it now, now, now. “The mobile revolution is really hard to ignore. There are probably 60 million unique entries on a mobile banking app every day,” says Nicholls, who is Teleperformance's vice president of business development. The combination of unprecedented choice and an ultra-savvy consumer generation means they are less likely to remain loyal to one financial brand, which means they all have to work doubly hard to keep customers. Nicholls refers to it as the ‘whimsical’ generation. “It presents a challenge in terms of how companies maintain a relationship with them,” he says. “Customers’ behaviour has changed. They’re now mobile and acting in a very different way. They feel less loyalty towards traditional brands and at the same time there are a huge number of new business entrants, niche providers that are taking a very small slice of a particular market, but are doing it very well and free from legacy. When you put those three factors together, inevitably, customers will move around more and it becomes a lot harder for traditional brands to maintain their customer base. “I think modern customers are quite whimsical. They might be on a mobile app, then revert to a more online channel,



but then, if they’re passing a branch, they want to go in and have exactly the same type of experience they’ve become accustomed to elsewhere.”

Turning up the volume: Teleperformance listens across all channels

Under the microscope Because Teleperformance offers omnichannel customer experience solutions to financial brands, including big names, such as Barclays. It maintains 311 contact centre services in 65 countries, giving it a unique insight into the behaviour of these fickle financial consumers as well as experience in how to treat them well. It even has a Lisbon-based lab employing 100 people, which puts this new species under the metaphorical microscope in a bid to really understand what makes them tick. It then uses this information to guide its clients on making potential improvements to the customer experience they offer. “The lab staff spend their time analysing what’s happening in the market, researching trends, understanding how one particular sector relates to another, where they can share best practice and cross-pollination of ideas. We use the reports and white papers they produce to go back to our existing clients and talk to them about things that might be pertinent to them,” adds Nicholls. This includes everything from high-level industry or sector trends around performance, through to detailed client analysis across different customer journeys and different elements of each customer journey. “We then look to re-engineer particular elements, to make them smoother and more efficient, such as opening a new channel or designing a channel differently, or moving a service to a different part of the world. That all sits on top of the standard performance

management you would expect from a provider like ourselves.”

Altering perceptions Public perception of outsourced customer relationship management (CRM) is a tainted one with such services frequently conflated with ‘offshoring’, often to poorly trained foreign contact centres. “This is a common misconception. In fact, offshoring is just one element of the outsourcing industry,” says Nicholls. Countries such as India, Guyana, the Philippines and South Africa are still popular destinations for organisations looking to control cost by outsourcing customer management, but this doesn’t necessarily mean the standard of service, or the quality of conversation a customer will have, will be diminished. “It’s important if an organisation is going to offshore something, that it is doing so for the right reasons – and with the right type of provider that will be a Spring 2017

custodian of its customer – above and beyond trying to save a few pounds,” says Nicholls. When you do get it right, though (and in the case of Teleperformance, it clearly does, since the company is on track to become a €5billion revenue enterprise by 2020), Nicholls believes outsourced customer relationship management can work just as well as in-house. Whoever’s handling it, though, needs to make sure they have 360-degree visibility of the conversation a customer is having across all channels. “It’s a challenge that faces many organisations, especially banks, as legacy systems often mean that customer interactions are logged in disparate places,” says Nicholls. “We try to bring it all together via a number of strategic partners who provide some really awesome tools that can show where a customer has come from and where they might go back to, so that

anyone speaking to them can quickly see the whole picture. “There’s nothing worse than a customer having to re-explain themselves every time they deal with someone new, via a different channel.” Customer really is king, as far as Teleperformance is concerned, and it has a healthy respect for the ‘whimsical’ generation’s evolving demands. It knows that to succeed, organisations will need to keep pace with them. “First of all, it’s about trying to really get under the skin of what the customer journey needs to be. Customers can behave spontaneously, so really trying to understand how and why you should change something, what’s needed and how it will serve the customer is vital,” says Nicholls. “Then the way you improve it is to put yourself in the customers’ shoes. Their driving force is that they want things to be easy – whether it’s a telephone conversation, an email interaction, a webchat, or being online or self-serving.”

Socially savvy The stakes have never been higher, either. Just as savvy on social media, today’s customers are just as likely to air their

There’s nothing worse than a customer having to re-explain themselves every time they deal with someone new, via a different channel Spring 2017

frustration at a provider on a channel such as Twitter, as they are to complain directly to a customer advisor – perhaps more so. Stories of less-than-positive experiences have the potential to spread quickly among an individual customer’s hundreds of followers and be spotted by influential financial media commentators, such as MoneySavingExpert, even before the company realises it’s out there. Last year, Teleperformance monitored 231,840 hours of social media engagement – equivalent to one person browsing on social media continuously for 26 years. “Every organisation we work with is diligent in trying to mitigate against things going wrong. But it’s a fact of life that something’s going to at some point,” says Nicholls. “So you have to accept it and make sure you’ve got a team of people around your organisation that can respond in the right ways when it does.” Some organisations choose to prioritise the level of social danger each customer represents. Beyoncé complaining of a tardy response from a customer service advisor might expect a speedier Twitter response than the average Joe, for example. “An individual’s influence score is a metric you can now include in the catalogue of what you look at,” says Nicholls. “So, when responding to a particular customer, you can understand what their sphere of influence actually is. It’s not necessarily something that’s being adopted by all, and I tend to like it when organisations want to give a great experience, no matter who you are, but it is a metric that’s out there.” Nicholls’ vision of future banking is one of ultimate customer convenience – and how that’s delivered is only on the horizons of our imaginations at the moment. But Teleperformance is preparing for all possibilities. “If you look at how the branch network is changing, there are fewer branches and customers don’t go into a branch as often as they used to. So we’re already starting to move towards a more virtual world,” he says. “With the rise of virtual reality, I think it’s quite possible for contact centres to help customers experience being inside a branch from the comfort of their living room.” |



Oiling the wheels of commerce Invoice Cycle is helping to keep the economy moving with bespoke online solutions for small business. VP of Business Development Sam Fromson explains why invoice financing needed a gear change The late payment of invoices can cripple a small business, but sadly it is a fact of life for many of them. At any one time, a third of payments are overdue and 37 per cent of suppliers have hit cashflow trouble as a result, according to latest research by the UK’s Federation of Small Businesses (FSB). While that’s bad news for the economy, it’s created an opportunity for the alternative finance market, which has been peddling fast to catch up. In the space of just five years, it’s estimated to have



grown from almost nothing to £1.6billion – an astonishing acceleration. Among these alternative providers is Invoice Cycle. Set up in 2013 to provide SMEs with a quick and simple invoice finance solution by handling customer transactions through its online interface. “We’re constantly talking to our small business clients,” says business development boss Sam Fromson. “We look to offer features that will make life as easy as possible for the small business owners that we deal with.”

Although Invoice Cycle operates in a niche market, it addresses a substantial need. The FSB study into late payment of invoices, published in November 2016, surveyed 1,000 firms and discovered 30 per cent had been forced to use an overdraft to cover late payment. The average delay was six weeks and 60 per cent of overdue invoices were for bills of more than £1,000. The average value was £6,142. The report concluded: “When large businesses pay late, it can put small firms out of business, it’s as simple as that.” Spring 2017

Invoice Cycle’s loans are there to bridge just such cashflow gaps . The firm believes its product is more suitable for a small business than those offered by high street banks, which are hobbled by slow and costly internal processes and procedures that don’t allow them to respond flexibly enough to SMEs. Fromson says: “Banks are trying to put in place these big factoring arrangements or long-term financing facilities. They take an incredibly long time to make decisions and often they will give you something that’s not entirely fit for purpose, just in order to be able to say that they didn’t decline your loan application. “That would be at the end of a three-month process and many small businesses will then take what they’re given, just to avoid the misery of going through the application process again.”

From months to minutes Invoice Cycle offers loans of £5,000 to £250,000 over one to 12 months, and aims to release cash within minutes of an invoice being offered as collateral. So far, it has provided more than 1,200 loans. As a business model, its biggest challenge is not borrowers defaulting, but building trust with business owners who have no experience of fintech financing. And that’s despite many feeling they’ve been stuck in a bad marriage with their banks for years. “People stay with the people that they know, even if they’ve treated them badly in the past,” says Fromson. “Even if they haven’t looked after their rates properly or if they’ve been offering them bad deals. “But there’s still a wariness about using alternative lenders. When customers find us there is an initial ‘wait, but you’re not my bank, so how can I borrow money from you?’ But in general the value proposition that we’re able to provide is something that people see quite clearly and it is exciting when they understand it. “When a business owner comes to our service and realises he/she can get a decision instantly, can get funds within the next couple of days and a product that is flexible and tailored to the business’s needs, then there’s this lightbulb that goes on in their head, thinking ‘oh, wow, cashflow doesn’t have to be so bad’.” Fromson says the margins that can be made from invoice finance loans to SMEs are too low for big banks to work with due Spring 2017

to their huge overheads. So, while banks will provide business accounts, finding a suitable lending model for small businesses is problematic. He says: “The banks have expensive processes that they need to go through and they’ve time-consuming manual operations that need to be serviced. It’s not worth them issuing a finance facility, or invoice finance, for less than £100,000. “So it’s really left to the people with much lower overheads and a much more agile process, who can be really good partners for these smaller businesses.”

Financing v. factoring Invoice Cycle uses an online tool to assess a borrower’s level of risk. It promises to take into account company assets that are not normally recognised by banks and the sign-up process takes around five minutes. At present, the lender aims to approve loans within 24 hours. Once approved, customers can then upload further invoices to access more lending but the model does not require a long-term contract.

When a business comes to us there’s this lightbulb that goes on in their head, thinking, ‘Oh, wow, cashflow doesn’t have to be so bad’ Invoice financing as opposed to invoice factoring, where an outstanding debt is sold at a discount to a third party which then pursues the debt, is especially suited to smaller businesses, says Fromson. In his experience, many small firms fear factoring will harm the relationship with a customer – which could also explain why 80 per cent of small firms told the FSB they never charge interest on overdue invoices. “We talk to a lot of businesses and one of their big concerns is the relationship with their customer,” says Fromson. “Just imagine you’re a small business and you’ve just managed to land a contract with Tesco. Tesco’s payment terms are 60 days but you can’t afford to wait 60 days for

payment. The last thing you want is for a factoring firm to be calling up Tesco and saying ‘this supplier is cash strapped. They need to factor. You need to pay up directly’ because that’s going to ruin the relationship with Tesco. Tesco aren’t going to want to deal with the supplier any more. “With Invoice Cycle’s secured lending facility it’s a completely confidential service. They upload the invoices, we don’t contact the issuer, and they’re able to draw down funds as and when they need, for the length of time that they need them.” The payoff for such a flexible facility is cost. The comparatively higher interest rate charged reflects the risk and short-term nature of the lending. “We would never advise someone to finance their entire business with the funding we offer,” says Fromson. “We’re trying to be very honest with our customers, to give them what is right for them and make sure that they come away with a financial facility that’s affordable, sensible, flexible and practical for them. But obviously we can’t be right for everyone.”

Faster and further The firm’s model promises clarity with no upfront fee and the repayments include all costs. Now Invoice Cycle is working on technology that will make the experience even easier for customers. Soon they will be able to upload invoices to the dashboard on their account simply by photographing them with their mobile phone. Fromson says: “An invoice gets uploaded straight to your dashboard, processed, and you can draw down sums on it five minutes later. This is the type of features that we’re constantly talking to clients about.” Now expanding into Germany, Invoice Cycle is hoping business owners across Europe will be experiencing the same ‘lightbulb moment’ as UK customers to whom it’s so far loaned around £20million. Founder and CEO Gideon Shaw was quoted around the time of the company’s $4million seed funding bid in 2016 as saying: “While small and medium-sized businesses face numerous challenges on their road to success, waiting for invoices to get paid should not be one of them.” If every payment was settled on time, the FSB estimates 50,000 more businesses could be kept open. But until that time comes, Invoice Cycle will continue to keep the wheels of commerce turning. |



The legend continues... Fintech Finance’s superhero universe is expanding with the addition of three more digital dynamos who are changing Planet Earth, one app at a time. Here, they discuss evil threats, special powers (and Harry Potter, curiously) with three of the original Avengers from the 11:FS consulting team – Simon Taylor, David Brear and Jason Bates

Leda Glyptis

Described as one of the most driven people in fintech, Leda began her career in non-weapons defence technology before pivoting into financial services and building the innovation team for BNY Mellon, moving on to become a Director at Sapient Global Markets. She was recently appointed to Head of Innovation at Qatar National Bank.

Lesley-Ann Vaughan

Since 2005, Lesley-Ann has worked on extending mobile financial services to mostly unbanked populations. She was part of the team that developed the ground-breaking M-PESA money transfer service in Kenya and, as founder of MiLA Consulting, now works primarily in African markets.



Spring 2017

Ricky Knox

Ricky has a long pedigree in financial services as both an investor and entrepreneur, building and selling successful zeitgeist businesses. Currently a Managing Partner at specialist financial technology private equity firm Hexagon Partners and Non-Exec Director at Azimo, his new project Tandem Bank fully launches in 2017.

Fintech Insider is a popular podcast by our friends at 11:FS. Each week David Brear, Chris Skinner, Jason Bates and Simon Taylor chat through the week’s news and are joined by some of the biggest names in banking and fintech, from CEOs to the leading lights in reporting and news presenting. Some of their stellar interviews over the last three months were with Ricky Knox, Leda Glyptis and Lesley-Ann Vaughan. n Don't forget to subscribe to regular industry insights at the podcast

Spring 2017 |


David Brear, Co-founder and CEO at 11:FS, sits down with Leda Glyptis, a doctor in political science, advocate for diversity in financial services and one of our favourite fintech leaders. Here, she talks profit and open banking, the aftermath of Brexit, and asks ‘where are all the women?’ David Brear: You grew up in Athens. What brought you to the UK? Leda Glyptis: I was born and raised in Greece at a transitional period of great madness and great opportunity. I was bookish, into my studies and very curious. When I decided I would leave the country, my mother said ‘if you’re gonna go, you’re going to Cambridge because I read it’s the best university in Europe!’ DB: Tell us about your time at BNY Mellon, looking at innovation. LG: My time there coincided with Mellon rebuilding its platforms, so you could talk about digital transformation and not just be a voice in the wilderness. I had freedom to do things and try things, but the flip side is that business model innovation is the hardest thing. BNY Mellon is very conscious that it represents an area of banking that has to remain as secure as possible. At the same time, there are many permutations of the future that don’t look very profitable. Eventually, I felt that what I was doing had come to a successful end of a cycle. How do you leave a place that loves you and you love them? But I felt that if I didn’t, I would spend the rest of my career there. DB: What’s exciting for you about open banking and application programming interfaces (APIs)? LG: We are able to do things that feel, to non-technical people, like a Harry Potter moment. For the technologists, it means that what is possible is now commercially viable – whereas, for a long time, a lot of technological capability was not permitted for use in banks. Now, we can re-design what we do. It’s inspirational – but it’s also terrifying because we have to do a lot of learning, a lot of imagining, and figure out how to do all that and make money. DB: Do you think there’s a happy ending in this for banks? LG: The challenge we have presented them





with is that a lot of things being put on the table attack profitability. What is missing is the value proposition; this is where regulation has changed the game. The people sitting behind the desks are faced with their entire knowledge base becoming redundant and, at the same time, we’re expecting them to be creative and imaginative in this new future. Banking is about managing and making money. It is the making of money that is the unspoken question in a lot of these things. So there need to be conversations on both sides. On the bankers’ side, nobody said the way they make a living was guaranteed forever. On the other side, banking is a business, and a business that isn’t profitable goes out of business. DB: Why aren’t there more women in banking and fintech? LG: I think we’re dealing with two pretty heavy legacies here. One is, if you teach your son you’ll teach him how to fix his bike, but fix your daughter’s for her. You create expectations among boys and girls, which is why we see fewer women going into science, technology and mathematics. So you start off on the back foot. ‘Ungendering’ of the environment starts at an early age.

The second is when you get into the workplace. I’ve found that being a woman doesn’t necessarily close doors, but it makes being in the room harder. It is up to you to do something about things that (a) shouldn’t be happening and (b) shouldn’t be your problem. I would say the thing that holds women back is the daily decision of ‘should I let this one slide?’ It’s a daily war of attrition. There’s also an unconscious bias. I have had so many instances where I’ve arrived for an event and people say ‘have a cup of tea, love, we’re waiting for Dr Glyptis; he’s not here yet’. We need to take the differentiators away. Parental leave is a good example. If parental leave is a requirement, because it makes you a better human being, then, all of a sudden, you ‘degenderise’ quite a lot. What matters is that organisations create a space for different voices, which will liberate everyone and actually bring the goods in. It will allow for conversations where you remember not to talk in acronyms, because there are people there who didn’t grow up in the same place as you. DB: What’s your feeling about changes in the US and Brexit? LG: We’ve got a systemic crisis on our hands if we are going to put really complex things to the vote, but not expect that all citizens will be willing and able to understand what it is they’re voting on. We’ve seen people vote on a gripe or on inadequate information – things that were exceptionally complicated were oversimplified. Responsibility lies across the board. I am an advocate for responsible citizenship. You should not consider yourself morally absolved from reading a piece of legislation before going on to vote for it. DB: How do you feel about the UK now? LG: I came for an opportunity. I came fully grown, which means cheaper to run. I have been lucky enough to be healthy. I happen not to have had children. So, the services I have consumed have been minimal; my contribution has been high. Immigrants tend to be net contributors to the economy. I hope the place that made me feel welcome will find itself again. DB: What is your golden rule that you never break? LG: If you choose who you are, what you do will follow. Spring 2017

Lesley-Ann Vaughan co-created mobile money transfer service M-PESA (M stands for mobile and Pesa is Swahili for money) on behalf of Vodafone affiliate, Safaricom, in 2007. It’s since accumulated more than 16 million users and transformed the Kenyan economy. An electrical and information sciences engineer, she has gone on to set up MiLA Consulting, specialising in mobile financial services. 11:FS Avenger Simon Taylor went to meet her… Simon Taylor: Can you explain what M-PESA is? Lesley-Ann Vaughan: It’s a way to transfer money from one person to another, using a mobile phone. You don’t need a bank account. Instead, you register with M-PESA for free and we use a cash agent network of 70,000 stores in Kenya to move money in and out of the system. People in Kenya were scared of bank accounts, so for a lot of them who’d moved from the countryside to work in Nairobi, the only way to get money back home to their families was to take it themselves or send it with bus drivers. It was risky, expensive, and took a long time to get there. Now, they can do it instantly – ‘fast, easy, secure, safe’ was our value proposition. ST: But that’s not how M-PESA was originally conceived, is it? LEV: No. In 2005 the original product was microfinance. We worked with the Microfinance Institute and Safaricom on a way to make microfinance more effective, efficient and cheaper to administer. As part of that we were giving people in the field mobile phones and training them to use them. The person to person (P2P) money transfer service and Buy Airtime for your phone went into the pilot alongside the microfinance portions of the business. There were no smartphones in 2005 and no APIs, but we created a digital service using very basic, short messaging (SMS)-led services that were encrypted end-to-end to triple data encryption standard (DES). Although we had security experts doing bank-grade encryption, it wasn’t hard for the end users to use it – and a very simple user experience was key. ST: Somebody described M-PESA as being like the Galápagos. It has





wonderful features that you don’t see anywhere else, not least having 80 per cent of the market! LEV: That helps a lot, right? The big feature of M-PESA was the amazing viral growth. The regulators allowed us to be able to send money to anybody, any phone number, without a registration, which meant that, as an early adopter, if you got your mum on the system, for example, you’d pay less for the overall transaction. It was simple, but we had to think really hard about the onboarding process. You had to leave the agent’s store with the service working and therefore we pushed quite hard on the know your customer (KYC). I remember sitting in a room in Cambridge with our anti-money laundering (AML) officer, our product manager, and some of the tech guys going, ‘you have to photocopy the ID? But it’s a rural shop in the middle of Kenya. They don’t have photocopiers!’. There were all kinds of other challenges, too.

Anyone who’s worked in emerging markets with agents will know that they are the cornerstone of mobile money. Selling virally into a region, you need to have trained agents – if you don’t, it hits your brand and damages trust. That said, there are a lot of ways you can help agents. For instance, giving them access to data that helps them know where they can replenish their float. You could send a motorbike with cash and route plan if you could see the patterns in your data. That’s the kind of clever stuff that’s coming out now and it’s where I think some of the newer, API-centric fintech can add a lot of value in helping us get cash moving around the country. ST: How important are APIs in making M-PESA itself work then? LEV: The first thing we did in 2007, was to offer cardless ATM transactions so you could use a digital agent to withdraw money without a card. But it was a closed silo system. Our next integration was with Western Union to send money from the UK to Kenya and we needed an API for that. Our bill payment solution is useless without APIs. If you can land the money in the bill payer’s account but they don’t know it’s there, they’re not going to update their systems. It’s standard nuts and bolts payments gateway stuff, but the development of all these things has happened in parallel with M-PESA. ST: What are the key lessons you’ve learned around APIs? LEV: Listen to your developer community. The customers are effectively your developers, especially if you’re going for a ‘developer pays’ model. Develop as part of your sales process. If a developer likes your service, they’re going to encourage their management teams to buy the one that they want. And the most important thing you can do is have somebody who is technical as part of your management, someone who can talk developer language and tell you what your API package should be. ST: What’s been the impact of M-PESA? LEV: There was a paper last year1 that said lives in Kenya are being improved with M-PESA, which is, just like, wow! It’s changed the infrastructure, changed the fabric of Kenya. It’s even got its own a verb: to ‘M-PESA’ someone. 1

Spring 2017

Serial entrepreneur Ricky Knox’s fintech journey started in foreign exchange with ClarityFX before setting up remittance platforms Small World and mobile-only Azimo. This year he’ll attempt to redefine what banking looks like with the launch of app-only Tandem. 11:FS Co-founder and Ironman of fintech, Jason Bates, asks what’s next? Jason Bates: Before we move on to Tandem can we talk a little about remittances because you're still involved in mobile service Azimo. Where are remittances going now? Ricky Knox: Nearly three years ago, Facebook approached Azimo and offered Mike (co-founder Michael Kent) the role of head of their financial services. They said they saw the future as being instant, peer-to-peer remittances over their Facebook network. We spent some time with Mark Zuckerberg and it was clear that he was sort of dismissing all the stuff that was going to make this hard and saying ‘Look, you guys will have this done in four months.’ We ended up turning them down on the investment, but then about two years later they did launch remittances in the US and they’ve recently announced that they’re going to do this internationally, as well. That’s certainly the direction we think things are going next. It’s actually something we’re doing at Tandem, as well, but making it much more one-click, mobile-number based. Rather than having an extensive set-up process for each beneficiary, the person receives the money into a wallet and can put it into their account if they want to, or not. It takes a lot of the friction out of the process. JB: So you think a lot of payments will move to the WhatsApp/Facebook kind of platform? Or is there another route? RK: I don’t know whether they will move onto those platforms specifically but if you look at what WeChat have done with their red envelope service, I think it will become as easy as that to remit money. The red envelope is indicative because it took off as a game, and because of the gambling angle, more than it did because people wanted to use it as a way to pay. Venmo, on the flipside, which is a specific network just





for sending money, has been a massive success and really does seem to have cracked the peer-to-peer thing, but it hasn’t cracked monetisation because it has no international element. I think the international Venmo, which is really where we want to take Azimo, is an exciting next evolution in that market. Blockchain is super important, definitely a seminal technological shift for us, but I’m not sure that it’s as relevant as people think it is to remittances. Where I do feel that there is another big shift in terms of the technology is what Zoom, even Remitly, and the others out there are doing around internet money transfer businesses. They may have a mobile front end, but the paradigm is not a social one. We’ll see whether Facebook ends up owning it. Snapchat wants its own money transfer and we may end up partnering with them. JB: What led you to found Tandem? RK: I wanted to do something large and impactful that was able to transform a decent number of people’s lives and wasn’t something I got bored with after two years. With Hexagon Partners (Knox’s investment vehicle), we’d invested in a load of stuff around the edge of financial services but banking was so broken in the middle. Banking had evolved with this patrician feel to it. While it didn’t work very well, at least you felt the banker sitting in your local branch had your best interests at heart. In the process of moving away from that to cut

costs, the banks had lost our trust that these guys were out for me rather than just out for the bank. It felt that there was a place for a ‘good bank’, that was trying to do the right thing. So, we’ve built a team that combines the best of fintech and tech with the best of banking. It’s been super hard, we’ve had to search for a needle in a haystack to find bankers with the right values, bankers with enough of a tech orientation. JB: What does it mean in terms of Tandem’s products and services? RK: The question is, if you could trust your bank and they were doing the right thing by you every time, what would you want your bank to do for you? Nobody wants to buy a financial services product. It’s utterly uninteresting. This is something that should be a facility that takes place in the background, that you never have to even interact with. If you trusted somebody absolutely, you could have a facility that just provided the loan when you needed it, put money aside when they knew an event was coming up or even just when you had extra money. All those things could be completely automated. We see a day in the not-that-distant future, when you don’t buy or choose a product, you don’t have that moment when you go ‘Can I be bothered to get a personal loan for this or shall I just stick it on the credit card?’ All those stupid decisions that require a spreadsheet and at least an A-level in maths. I think people are making baby steps in this direction but we really want to build banking as a solution. JB: There are lots of people who are currently isolating specific journeys. So where does Tandem fit? RK: We believe in the reaggregation of banking. If you look at disruption cycles, in retail for example, we’ve seen this reaggregation trend in internet marketplaces. The key is access to your own and other people’s products with an easy buying process where you’ve taken out the layers of hassle for the customer. I think that we’ll see a similar pattern in financial services and the drivers are stronger. Customers want one place where they can have choice; to go and look at the market and check they’re getting a good deal. But on the other hand, to have hassle-free journeys curated for them. So that’s what Tandem will be. Spring 2017


Back office heroes If turnover is vanity and profit is sanity then Smartstream is helping the banks keep their wits about them by focussing on what are often hidden costs, as Bharat Malesha, EVP Fees and Expense Management, explains

Staying ahead of the technology game by developing whizzy new interfaces and apps to dazzle clients is just one of the myriad challenges facing banks as they battle leaner, meaner financial providers. Not half as sexy is plugging the cost drain resulting from both clumsy historic infrastructure and the introduction of technology to improve customer service and meet the demands of modern regulators. To have a hope against new entrants with less history and fewer overheads, the post-credit crunch banks must be more efficient. Simple, surely? These are financial institutions, after all. Of all people, they’ll know the cost of doing business down to the last penny. Well, no, says Bharat Malesha, Smartstream’s EVP Fees and Expense Management. In fact, the new technology itself is compounding the hidden cost problem. “The technology complexity around the architecture, and the regulations adding to that complexity, has created a significant cost base for running those technology platforms, and running the technology services themselves,” says Malesha. “Another important issue they face is their quality of data, from lack of attribution to availability, and inconsistency within the data and how it is delivered. “All of these things are holding banks back and impacting on their fees and expense management. The cost of execution is the second largest non-comp expense on any major bank’s P&L.” Smartstream sees its job as providing transparency around those costs by forensic analysis of data. It enables banks to understand exactly where the pennies are going, down to an individual transaction – and so make sure they are charging the right amount for their services to ensure a healthy bottom line. The company will even go further, using the data to automatically update outputs, such as rate cards, and



generate a daily profit and loss summary. If any proof was needed of just how important that all is, Santander’s recent announcement that it was upping its charges – partly in the wake of the revised Payment Services Directive’s (PSD2) cap on interchange fees – was it. The cost of running a bank is only going one way – up.

Tracing every penny Smartstream’s tools put such costs under a virtual microscope and allow them to use this granular detail to inform, not just how much banks charge for their services, but whether outsourcing to third parties might even be a better value proposition. That’s significant when one of the biggest ways banks can waste cash, is investing in in-house systems that enable them to keep pace with fast-changing regulations, says Malesha. “They are investing but their challenge is that many of their platforms have been integrated over a period of time, through acquisitions from different banks. So there’s been no proper integration, to enable them to truly deal with the challenge from regulators.” Linked to this is the plethora of data they don’t have the capability to understand or act on. “The evolution of technology has created a massive amount of data, and the increasingly global nature of the financial industry is resulting in a huge requirement to mine that information and pull it together,” says Malesha. “Structuring that information into something that makes sense is one of the biggest challenges facing financial services today.”

Time to focus: Fintech’s future is in back office utilities and identifying anonymous costs

Spring 2017

The cost conundrum For Malesha, it’s all about transparency. “Banks’ biggest spend is on the brokerage, clearing and exchange fees that enable them to trade,” he says. “There is a direct correlation between their revenue and their cost base, and improving that cost base has a direct impact on their bottom line. That’s why it’s extremely important to understand it. Part of their problem, though, is the lack of transparency over their costs – by floor, by market, by providers – in order to understand the value they can leverage through their charging, in an appropriate way. “Fees and expenses are variable charges. Our combination of industry-leading technology and services provides clients with transparency. It adds integrity to the fees they negotiate out in the market because they can link these back to the fees they are paying to provide that service. “We also provide our clients with volume information, throughout the month, in terms of their floors and the optimal way of using them, to help minimise their costs and allocate that back to the businesses they are dealing with appropriately. We can measure both the profitability of our clients’ transactions, and the value they provide to clients, based on their core spend base.” So exactly what kinds of costs are involved? “Every trading interaction a business has with the market incurs a fixed or variable fee. These include execution, exchange and brokerage fees. Further

Spring 2017

downstream, there are clearing and settlement fees. Post-settlement, there are custody requirements and a lot of other non-transactional fees that are part of this variable expense base and also include membership fees, communication fees and port fees,” explains Malesha. Just one of the clever things Smartstream’s system does, is to act as a kind of anchor for those variable costs, by translating this extensive and complex information into a simple format, giving banks a clear, end-to-end view of what they are spending and with whom. “We maintain a rate repository for clients, containing the rates they have agreed with third parties, including published rate card information, which we manage for markets globally,” says Malesha. So how does this kind of 360-degree view play out? “For example, when a bank is executing at a market, with a certain floor, that floor needs to be properly identified, and its cost properly understood. We have been able to calculate that at a transaction level. “Then, from that transaction level, we are able to roll that up into a business unit, by clients and other parameters that drive those costs and fees. “In foreign exchange trades, there might be 10 brokers charging for a deal. Our system can pinpoint which one is most optimal from a cost standpoint and provide that intelligence back to the bank. This includes analysing what volumes they do with each vendor, what the floor means when it comes to a certain point in a month, and if their volumes are high enough to enable them to benefit from available discounts and tiering features.” The rise and rise of digital capability is fuelling Smartstream’s mission, too. “Rate cards have traditionally been in a paper format. Modelling that into an electronic format now gives us the ability to apply it to a transaction systematically, rather than trying to manually work it out,” says Malesha. “Digital technology has injected a lot

more control and automation into the fees and expenses life cycle. We can now process much larger volumes with a clear, daily view of P&L, rather than having everything done manually over the month-end.”

Added-value products Fees and expense management isn’t all that Smartstream is concerned with, though. It offers a whole portfolio of complementary products and services. “Simplification and standardisation of processes and architecture is another big aspect of what we do,” says Malesha. “For example, we can simplify and execute the reconciliation process across different systems, creating significant value for the client. “We’ve also created a utility for reference data with a combination of banks, including JP Morgan, Morgan Stanley and Goldman Sachs, to be able to provide a consistent format across all their clients, more efficiently.” In fact, it’s from those ‘unsung’ back office elements of the financial services industry, that Malesha believes the real enabling will ultimately come. “I think the future for the financial industry is in utilities – the back-office processing that is not the focus area of banks. Banks will want to move out of that area and actually rely on external fintech that can provide them that service and be very cost optimised at the same time. “So, I think we’ll see a continuous growth in the fintech industry, focussed on automating and standardising processes. This is the same trend we’ve seen in other industries, including car manufacturing. Processes are not that different from bank to bank and so introducing consistent, seamless architecture that enables them to interact with each other and with clients will deliver dramatic value.” And this is where Smartstream’s focus lies for the foreseeable future, in automated processes with customer at their core – both its own and those belonging to the banks it deals with.

I think the future for the financial industry is in utilities – the back-office processing that is not the focus area of banks |



Banking on the known unknowns

As one of the oldest banks in America, Brown Brothers Harriman has successfully adapted to unforeseen changes, time and time again. Today, it’s the job of Chief Information Officer Mike McGovern to second-guess the future

When Brown Brothers & Co was founded in 1818, the American Civil War was some 50 years away and there were just 20 stars on the newly adopted national flag. No one then could have predicted the motorcar replacing the horse, let alone contactless payments and branchless banks. But the privately owned American financial institution that became Brown Brothers Harriman (BBH), has made it its business to prepare for the unknown – particularly the known unknowns around data management and regulation, and their potential effects on its individual and corporate clients and trusted intermediaries. “We’re seeing the impact of regulation across the board in terms of its impact on both the sell side and buy side of the business and in every jurisdiction we operate in across the globe,” says chief information officer (CIO) Mike McGovern, who’s spent a lifetime juggling and interrogating data in the US and the UK. “It can be challenging to produce data with sufficient flexibility to be able to meet future needs because the regulators themselves have evolved in terms of what is sufficient and what is best in class with respect to reporting. And I see



that continuing to evolve; I don’t see it stopping any time soon.” An unpredictable regulatory future makes investment in data strategy and managing the lakes of structured and unstructured information a priority. “Our data agenda incorporates a desire to create the right governance around the data assets that we’ve built,” says McGovern. “We’ve built our federated data warehouse infrastructure, purpose-built data marks are in place, and we have various dimensional data sets that we’ve loaded into those environments. “The focus is now shifting to being able to provide analytics around that data – smart data, more than big data –focussing on the ability to handle semi-structured, as well as structured data, in a way that helps us to inform the next set of required solutions to the next set of, as yet unposed, questions.”

New tools in the box BBH has already used those analytics to develop and release a suite of tools for its investor community, including a number of reporting vehicles, the aim being to increase their efficiency and inform decision making. Among them are Infomediary, InfoFX, InfoAction and InfoFX

Dealboard. It also provides middle and back office solutions, be it on a software as a service (SaaS) basis or a more complete outsourcing capability, “We serve primarily institutional investors, outside of our wealth management business, and Dealboard is a great example of the kinds of tools that we’ve created for them,” says McGovern. “It highlights opportunities to take advantage of strike points in the foreign exchange (FX) markets. Dealboard makes sense of a huge amount of time series data and focusses a lens on what’s appropriate to the currencies and timescales that a particular client is investing in. “It’s great to be able to process large amounts of data, but unless you can make sense of it in a way that creates some opportunity and closes a gap with respect to information availability for a client in the context of their business process, you’re not delivering value. And we seek to deliver value of that type in all of our client products.” The systems team delivers comprehensive solutions that bring one global technology platform to BBH’s internal and external clients. It’s an operating model that’s already characterised by high levels of automation and efficiency, but McGovern knows this is no time to stand still. “We’re looking to implement Spring 2017

Brave new world: BBH is as much a fintech provider as a bank

improvements around automating the development process itself. So dev ops – the notion of having a completely automated, integrated process that goes through not just development and testing, but also the deployment and production use of a system,” explains McGovern. “We are highly focussed on the next generation of our data strategy as well. And all the tools to support the more effective delivery of, for example, expense information, or invoices to our clients for any of the services we provide.” It has been so successful at developing proprietary technology platforms for clients, intermediaries and its own core functions of investor services, private banking and investment management, that the bank has also become a third-party supplier to other financial institutions. “We view ourselves in many ways as a fintech,” says McGovern. “We even have a product area called

fintech and we offer several of our platforms as a service. The best example of that is our custody platform. We are providing it to two large financial institutions. We view it as a core strategy to offer our platforms to clients who have adjacencies in terms of service requirements. It adds to our value proposition because if we can support large global institutions with our platforms, they become more effective from a competitive perspective. “We believe that investing in select proprietary platforms that truly deliver trusted, value-added and differentiated services to our clients, is where we should be focussing our discretionary IT investment.” All this requires not just an investment in technology but in the skills to support it, and, as a CIO, McGovern sees himself increasingly in a tussle for the best. “I view the war for talent as one of the most important battles to be fought by the C-suite,” he says. “We invest a great deal of time and

We view ourselves in many ways as a fintech…We even have a product area called fintech and we offer several of our platforms as a service Spring 2017

energy in our internship, grad-hire, and training for existing staff, but I believe it starts with being able to express a vision as to where the organisation is going and what the meaning and purpose of that organisation is. “In our systems and technology area, we’ve implemented a career framework that helps people see a clear path to the job opportunities they have within our firm. “I also think that by providing our employees with tools that enable them to act on information, we can help guide them towards the opportunities that will inform their future careers.” As he looks forward to BBH celebrating its bicentenary and back over an inglorious period in global banking history, McGovern says: “Over 200 years we have evolved our strategy as the world has changed to stay relevant to the needs of our clients and the markets in which we participate. “There was a lot of good that came out of the industry’s response to the financial crisis and I think our deployment of fintech shows a bank taking more responsibility for helping its clients – I think that is what they, and indeed the general public, is looking for banks to do. “And so we believe that fintech is not only the raging force in our industry, it’s also part of our future at BBH.” |



Alternative view: Path Solutions has built a dynamic Sharia-compliant platform

The Path finders As the global financial crisis brought banking giants to their knees in the West, Sharia banking innovator Path Solutions watched and waited. Now, it’s making Islamic finance work across the world, as CEO Mohammed Kateeb explains With 1.6 billion followers of Islam worldwide – roughly 23 per cent of the population – and a significant proportion of these unbanked due to geography and infrastructure limitations, the potential for



expanding financial services that are based on Sharia principles is immense – but far from easy. The Islamic faith requires banks to offer products and services that comply with religious law laid down by the Qur’an.

Most notably, that forbids banks charging or receiving interest, instead investing funds for profit. Even then, bankers must restrict their activities to controlled risk-taking. Arguably, had their Western counterparts been similarly proscribed,

Spring 2017

the spectacular financial crash of 2008 could have been largely avoided. But it’s even more complicated than that. “The Islamic finance industry is very, very unique. Unlike conventional banking, standard-setting often happens at a bank level. So you have to be very close to the customer and understand his needs,” says CEO Mohammed Kateeb of Path Solutions, which has been providing the Islamic financial industry with software services for 25 years. “You also need a very dynamic platform, that allows you to customise any functionality and product, down to a customer level. We basically cater for customers whom a conventional system wouldn’t be able to serve,” he adds. Path Solutions provides a portfolio of Sharia-compliant solutions and services, covering retail, commercial and investment banking, and fund management. Its iMAL offering integrates

have a presence in over 11 countries worldwide, including financial hubs in London, Kuala Lumpur and Dubai.” And that presence is likely to grow. According to a recent analysis by Moody’s, the Islamic banking sector continues to outpace that of conventional banks in most regions in which Islamic banks have been established. Path Solutions already has America, Russia and Luxembourg in its sights, although recent political events have raised a question mark over the first. “Now that Donald Trump has taken office in the US, we’re watching the situation very closely to see how it’s going to impact our market,” says Kateeb. “But basically, we go where Islamic banking systems are needed. Our niche expertise means new customers seek us out.” That led Path Solutions most recently to South America, where it helped its first Islamic-compliant bank to open. “At any given time, you will find one

It takes such knowledge-building very seriously indeed. “To develop a deep understanding of Sharia requirements, we have worked very closely with organisations that set relevant standards, like the Islamic Financial Services Board in Malaysia, adopting their guidelines,” adds Kateeb. Islamic banks nevertheless want to play on a level field with non-Sharia-compliant banks and Path Solutions offers them next-generation systems, including treasury, accounting, retail banking, corporate banking, risk management and asset management, to facilitate this. “Many of our customers are start-ups that want to create an Islamic bank and are struggling with the idea. We help them with an end-to-end solution.”

The fourth revolution Kateeb believes even Islamic financial services are firmly in the grip of the ‘fourth revolution’ – the digital-plus stage

The Islamic finance industry is unique. Unlike conventional banking, standard-setting often happens at a bank level with any core banking system and is built on open architecture, combining low-cost and running with the use of established computer languages, such as HTTP/S and XML. It enables a faster route to market for products, a selection of delivery channels, all with built-in Islamic operational standard-compliant workflows, and system controls.

Into the light Although the crash was a symptom of banking norms in the West, it was nevertheless significant for Path Solutions. “I started as vice chairman, then became chairman. Following the financial crisis, I stepped in as Group CEO,” says Kateeb. “It was like a dark tunnel. We didn’t really know what was happening, so we took it as an opportunity to strengthen the company, focussing on our internal processes, implementation methodology and customer support. “We were very successful in transforming the business to meet international standards and since then we’ve doubled the number of our customers and opened new development centres in countries like Egypt and India, to access more talent. We

Spring 2017

region is more active than another because of regulations or the economic situation,” says Kateeb. “For example, they started Islamic finance in Morocco last year, so you will see a lot of activity in Morocco for us. North Africa in general is very active these days, but also deep into Africa. The Middle East is a mature market, where we work with existing customers and there are some in South East Asia. In England, we have three customers already.”

Changing the landscape Path Solutions isn’t just a player in the modern Islamic finance industry, it has helped lay the ground rules for it. “Before Path Solutions, there was no IT vendor serving the Islamic finance market and therefore it had very little standardisation. Every bank was doing its own thing, with its own Sharia board,” Kateeb explains. “Every country had its own standards, so every engagement we had was a learning experience. We had to understand the different phases of the product life cycle and our customers’ needs. As a result, we know more about Islamic finance than our competitors.”

of technological development. “This will touch on everything we do, across every industry, but financial services more than any other – with established banks having to work alongside new technologies,” he says. Recognising the scale of this ongoing change, Path Solutions is investing heavily in research and development. “Our customers’ top priority is going digital, closely followed by strong analytics to really understand their customers’ preferences. So we need to offer an open platform that allows them to connect to any new technology without a lot of headache. You have to create a platform that is very dynamic and allows you to customise any functionality easily, even on the user level. We realised early on that a conventional system would not be able to serve these customers and we designed this system based on the market needs. So from the ground up, we built our system having Sharia regulations and Islamic finance in mind, and we developed our core to be dynamic, so that we can constantly forge new solutions for everything within the scope of our customers’ imagination.” |




Iqbal Khan, CEO of Fajr Capital, founding CEO of HSBC Amana and advocate of the Islamic finance industry, looks at the UK’s role in a new brotherhood of banking The UK became the first country outside the Muslim world to issue an Islamic bond, known as the Sukuk, in 2014. But Islamic finance had actually come to Britain some 1,200 years earlier when Offa, the King of Mercia, minted a coin with the words ‘There is no God, but Allah alone’ in Welsh on one side and in Arabic on the other. Why? Because he wanted to trade with the Moors in Spain, who refused to deal in anything but a gold dinar.

Fast forward to the 1970s and financial institutions in Britain were again playing an important role in facilitating Islamic finance by becoming correspondent bankers to Islamic financial institutions, setting up what is probably seen now as the arcane system of test keys, which were exchanged between banks for the safe wiring of funds. Ten years later and syndicated finance promoted by London banks, including ANZ and Citibank, provided a pathway for surplus liquidity from Islamic financial institutions to be directed into cross-border lines in a belt of states called the IDB member countries, including Pakistan and Turkey, which were running budget deficits and needed money to grow. The Islamic banks were closer to the risk, they could understand it better and they could price it better. The competitive relevance of Islamic finance was becoming very clear now to both London and Europe. It was left to Chancellor Gordon Brown to give Islamic banking in the UK the final push. In a keynote speech to a Muslim Council of Britain conference, he positioned Britain as the gateway to Islamic finance, building on the good will that had already built up among professionals in the City – the accountancy and, crucially, law firms

that handled the many Sharia-compliant cross-border transactions being documented under UK law. In the 1990s, equities opened up as an asset class and a critical moment came with the issuing of the first equity fatwa – given in Europe after HSBC Amana took one of the most prominent Sharia scholars from Egypt on a tour of pharmaceutical companies and carmakers. We told him ‘Sheik, we want to buy pieces of these companies’ and he agreed that, as long as the sectoral guidelines were in place, exceptions would be granted for equity investments. And so the asset management universe was mobilised. Soon afterwards, Britain launched the PFI initiative of public private partnerships, which not only attracted Islamic finance, but also became a model for many Muslim countries to follow. Finally, the decision by the London Stock Exchange to create new indices for the Sukuk in 2014, with the political backing of David Cameron’s government, had a demonstrative effect throughout Europe and across the wider world in attracting an increasing number of non-Muslim as well as Muslim investors to this market. Global Sukuk issuances rose to $77.1billion last year. So, the relationship between Islamic finance and the UK is clear and well-established. What now are the challenges for Sharia banking going forward? We need to take the pension capabilities from our core markets in Europe and transfer them to the Islamic world under Sharia-compliant structures, because although the perception is that the Muslim majority markets are in a period of population boom, the reality is that people are marrying later and having fewer

We know that the conventional banking system has an inherent problem of systemic risk



children. In 30 years’ time, we will have one of the largest shrinkages of population ever witnessed in human history. Pensions are going to be very, very important. We also need to widen access to retail Islamic banking through e-enabled platforms for highly dispersed communities and, alongside that, improve financial literacy and Islamic finance opportunities for entrepreneurs.

An alternative future But there is perhaps an even bigger opportunity to be had and it’s to do with authenticity in financial services. The concept of mutuality, cooperative banking, cooperative insurance and cooperative asset management – which I personally believe is an area that offers huge growth – is at the heart of Islamic finance. One of the biggest challenges the global banking industry has today lies in creating role model institutions and role model economies. We know that the conventional banking system has an inherent problem of systemic risk because, about 50 years ago, banks hijacked the payments system and financial intermediation, and combined the two. Islamic economies need to demonstrate a separation between these. We need to have narrow banks, which will manage people’s money as custodians and provide a service, while the financial intermediation shifts to a Modaraba1 and asset management-based model. It is only when we do this that we will have a system of banking and financial intermediation that does not carry the risk it does now. Together they will bring greater authenticity. Martin Luther King Jr said: “Through our scientific genius we have made the world a neighbourhood. Now, through our moral genius, we must make it a brotherhood.” And it is in that last area that I hope Islamic finance will have the biggest impact on European banking. 1 Modaraba is a profit-sharing contractual arrangement between an investor and a managing trustee

Spring 2017

Authenticity: Islamic banking could provide an alternative model for the West

Spring 2017 |



Follow the money, honey It’s official: women are good for business. So why are there still so few of them in senior positions in fintech? asks Ghela Boskovich, founder of FemTechGlobal There’s nothing quite like sharing a vision of a utopia with others to intoxicate one to the point of an opiate haze where everything and everyone is lovely, loving… and lethargic about doing some of the hard slog that actual Utopia requires.

■■ As of 2015, in the top 20 fintech companies globally, women make up only 7.9 per cent of key executives – only slightly better than the industry average ■■ Women constitute only four per cent of global banking CEOs

I’m still buzzing with that happy hum from having quite literally circled the globe over the past year or so to take in Femtech-laden fintech event; to talk with fascinating, diverse people who are contributing to the creative collective in this industry. From a Femtech breakfast in Copenhagen, to a fireside chat with the dashingly delightful Jon Webster in London; from a crowded panel discussion in sweltering Singapore to partnering with Finovate to shine the light on some stellar solutions spearheaded by women; to a payments savvy Femtech panel at Next Bank Silicon Valley who didn’t once talk about what it was to be a woman in the industry, but instead dished, diced, dissected and discussed the future state of payments in all its nuanced glory. Femtech fever – yeah, I have it. And I luxuriate in the frenzy of connecting with amazing people all around the world who embrace diversity as a guiding principle and are committed to inclusion in their own organisations. Lethargy is not an option. We can’t give lip service to it; we actually have to change things in this industry. Why? Because there is a business case for having more women in executive positions. Better revenue raises the tide; everyone benefits, and there’s money to be made. Whether your motive is profit, productivity, or parity, there are ample reasons to get off your keister and actually put your shoulder to the Femtech wheel. A few numbers that will make you sit up and take notice – and these, my friends, are central to the business case for making women an integral and normal part of the executive teams in financial services. First off is the dearth of women in this space:

Looking at these numbers, I’ve concluded that women in the exec suite are the unicorns in fintech. Now check out the (dramatic pause here, because these numbers are ridiculously dramatic) significant impact women’s leadership has on revenue – because there is a profound and direct correlation between higher revenue and more gender diversity:

■■ Only seven per cent of fintech organisations employ female executives



Women in the exec suite are the unicorns in fintech ■■ Companies with top quartlle representation of women in executive committees perform better than companies with no women at the top, by 47 to 53 per cent return on equity (RoE)1 ■■ Companies with higher gender diversity in leadership positions achieve 15 per cent more returns than the industry median ■■ BUT the financial impact isn’t realised until women constitute at least 22 per cent of the senior executive team The financial impact of women in senior executive roles is striking, according to a 2015 Credit Suisse study: the RoE was 27 per cent higher and the dividend pay outs were 42 per cent higher in companies where women comprised 10 per cent of the top operational roles, compared to those companies with five per cent of women in top op roles.

The bottom line is: women are great for business. We’re profitable for business. We’re revenue drivers. And not just in the boardroom, we’ve got seriously potent impact as a consumer base that’s ripe for products that cater to our needs. Need proof positive? I’ve got numbers for you here, too. Check out our purchasing power: ■■ Women drive 80 per cent of consumer purchasing and household financial decisions2, yet are rarely considered when financial products are designed ■■ Women’s global income was predicted to have grown by $5trillion to nearly $16trillion in 2017 – almost twice the growth in GDP from China and India combined3 ■■ By 2028, women will control nearly 75 per cent of discretionary spending worldwide Pretty serious money, right? And it’s money businesses are leaving on the table if they don’t include half the population in the business decisions and ignore them as a market with money to spend, invest, and spread around. For some of us in Femtech it’s about community, for some it’s about connection, for others it’s about wanting to create a version of Utopia – a world we want to live in. But for those who balk a bit at the touchy feely fantasy of gender equality for any number of reasons, let’s boil it down to business. It’s about the money, honey. And women are damned good for business. 1 World Economic Forum, Global Gender Gap Report, 2015 2 vwLUAssets/Women_ the_next_emerging_ market/%24FILE/ WomenTheNextEmerging Market.pdf 3Boston Consulting Group

A longer version of this article originally appeared at www. Spring 2017

The World’s Biggest Show in Lending and Fintech

March 6-7, 2017

The Javits Center - New York City LendIt USA 2017 Speakers Include:

Scott Sanborn

President & CEO Lending Club

Patrick McHenry

Congressman United States Congress

Jackie Reses

Square Capital Lead Square Capital

Noah Breslow CEO OnDeck

Secure your ticket now at Special 15% discount for Fintech Finance readers: Use FFINANCE17USA at check out.

100,000+ 5,000+ sq ft of Expo Hall


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2-minute guide to fintech Matthew Gardiner, fintech consultant and founder of Catch London, unpacks six of the hottest topics in financial services for David Mellor Question: What do fintech and Brexit have in common? Answer: There’s a lot of noise about both. I decided that Brexit had to go in the ‘too difficult’ folder for the moment and that I would apply my mind instead to fintech, so I could nod knowingly when someone brought up the subject. I spent a large part of my career in investment banking, dealing with a portfolio of technology start-ups, but I’m probably not alone in feeling that the lexicon of finance I knew so well, now often sounds like a foreign tongue. So I asked fintech guru and founder of CatchLondon, Matthew Gardiner, to translate.

Illustration: James Mellor Creative


is for… AI & Augmented reality

David Mellor: Isn’t artificial intelligence (AI) an oxymoron, like customer service and IT helpdesk? Matthew Gardiner: Probably not! As robots observe humans and replicate our commands and behaviours, will they begin interacting with each other and potentially become the master, not the servant? A current example of AI in action is Google's Neural Machine Translation System. If a system can improve the quality of translation between languages, could it achieve quality ‘cross-translations’, e.g. if the bots can cope with English to French and French to German, could they ‘triangulate’ and translate English to German? Another example would be Wikipedia, where software bots reportedly automatically override each other and change definitions. The point about Google's AI developing its own language to optimise its process, is that this is a language it has written itself that nobody understands. DM: Why should banks be worried about augmented reality? MG: We are much closer to a world where you could have data popping up on the

Chat bot: ‘Hang on, I’ll pass you over’

lenses of your glasses as if they were a mini-screen. Taking bank services to the customer would move beyond the internet/mobile phone to real ‘on the move’ options. Whether seeing your bank balance in this way would impact your physical balance remains to be seen!


is for… Blockchain

DM: What is it and why is there so much hype surrounding it right now? MG: A blockchain is essentially a record, or ledger, of digital events, which is ‘distributed’, or shared, between many different parties (or nodes). It can only be updated by consensus of a majority of the participants in the system. And, once entered, information can never be erased. Bitcoin (a decentralised digital currency) runs on a blockchain that contains a verifiable record of every transaction ever made. With this exception, blockchains and distributed ledger technologies are currently restricted to silos of activity, but if the interoperability issue can be solved, their applications are significant.


is for… Machine learning

DM: Why could it be the next big thing? MG: More examples are popping up of how big data can be accessed and exploited. If banks don’t do this, they will lose the initiative in terms of control. Machine

learning interrogates data to seek out patterns that provide deep insights and inform predictive models. These can be programed supervised or unsupervised. So, social media sites might use data interrogation to decide which content is delivered to subscribers.


is for… Payments

DM: What’s the threat to banks? MG: There are a number of companies engaged in processing payments and the attraction of associated balances. Entities include Facebook, Amazon, TenCent, Baidu, AntFinancial and Google. While most still require support from licensed banks, they will probably acquire banking status and disintermediate the banks. TenCent has a bank; AntFinancial is entering global markets with partners, including Ingenico.


is for… Regtech

DM: I guess it is only a matter of time before the bank regulators muscle in? MG: It’s happening already. They are adopting a proactive stance as they seek to balance global banking stability with making it easier for innovators. Over the past five years, a number of startups have emerged that aim to use technology to tackle regulatory requirements. Since 2012, this space, called regtech, has raised roughly $2.3billion across 317 deals.

Matthew Gardiner founded advisory firm CatchLondon, which works with financial institutions, high-growth technology businesses and VCs on blockchain, payments, compliance, risk, cyber security and data architectures. David Mellor, of David Mellor Mentoring, coaches start-ups and high-growth companies. He is the author of books on entrepreneurial thinking, including the Crew To Captain series and Inspirational Gamechangers – How the Best Business Talent Create Astonishingly Successful Companies.



Spring 2017

Two decades of Trusted Payment Technology

An Evolving Industry Over the past 20 years the payments industry has witnessed significant technology evolutions; Chip and PIN, Instant Issuance, Contactless Payments, Mobile Applications, and now Biometric Identification. New markets such as the Internet of Things (IoT) are presenting opportunities to payment service providers, enabled by advances in wearable computers, connectivity, and automation. Underpinning many of these advances is the worldwide adopted MULTOS technology.

Industry Backed Design Leading MULTOS community stakeholders form the collaborative MULTOS consortium, global businesses and firms highly respected within their related IT security markets. Their expertise and delivery capability ensures they can service all aspects of the supply chain, from small innovative proof of concept designs through to large volume projects.

Intelligent Homes®

The MULTOS open standard provides sourcing flexibility via inter-compatible products, and the robust design and flexible provisioning allows continued payment technology innovation. *correct as at February 2017

Protecting Thousands of Brands

2017 is a MULTOS ecosystem double celebration. It marks the 20th anniversary of the technology and the secure device shipment volume exceeding the one billion milestone. This is a significant achievement for the smart card platform suited to applications that demand superior security such as high-end EMV banking cards, government-issued national ID cards, and now making inroads into new markets such as smart connected devices. Thousands of companies leverage MULTOS security and flexibility, harnessing “Secure, Fast, and Easy” processing. MULTOS has achieved the highest security evaluation of any smart card platform - both ITSEC E6 and Common Criteria EAL7. MULTOS is the only operating system that mandates and performs an independent Type Approval program.

The Next 20 years… Rising cybercrime emanating from increased hacking is an escalating concern. Consumer demand for connected services, and business drive for efficiency are fuelling global social and technological changes which call for increased security, flexibility, and convenience. The continued global adoption of smart tokens and cards will draw upon MULTOS, and new innovation will be leveraged through the technology. The hyper-connected world will continue to design in MULTOS embedded components for hardware based Root-of-Trust protection and multi-function capability, thus supporting the business models of the future.


IoT Trust Anchor


Because the next bank of the future… all about people

MAKE THE RIGHT SOFTWARE CHOICE The bank of tomorrow will be all about people. People will choose the way they connect to their bank. They will do this when they want, and how they want. The bank of the future will enable people to personalise the services they use and how they interact with their bank – online, at the ATM or on their mobile phone. It will be possible for people to begin a transaction on one channel and finish it, at a convenient time and hassle free, on another. And it will be personal, with qualified bank representatives offering advice and support to their customers, across a range of channels, with the ability to draw on up-to-date and data-rich information to deliver outstanding service. Auriga’s technology not only makes all of this possible, ensuring positive and compelling experiences, it is proven to do so. This is why choosing the right software today, will make the difference tomorrow. Contact us today to find out how we can help you and your customers succeed. Please join us in London at Self-Service Banking Europe 2017 Stand 4&5 May 23&24