Fintech Finance presents: The Paytech Magazine Issue 01

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PAYTECH MAGAZINE People in payments: ISSUE 8


Fast work!

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

How the Asia


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Nom-omnichannel! All-you-can-eat digital banking with Backbase


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

Take a deep dive into DLT with Gowling WLG

Point of sale:


Who’s winning the culture-tech clash

Making real-time payments a reality

Money20/20 USA: Raising the stakes in Las Vegas


PLUS INSIGHTS FROM Alipay ● Worldpay ● PPRO ● CoinCorner ● PayU ● ACI Worldwide AEVI ● Galileo ● AIB ● Visa ● Square ● Apply Financial ● BAML ● Fime ● Finastra ● Multos

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Be on stage Enjoy a free POD Be listed in 2019 Altéir Fintech Book *before 30/10/18, conditions apply, details on our website


MONEY20/20 VEGAS 10 Welcome to the biggest payments party! Meet us in Las Vegas, where delegates work hard and play hard at this year’s Money20/20 USA

12 Changing the pattern of payments How Finastra’s push towards the Cloud is helping to redesign payments in the USA

14 Who do you think you are? Identify specialist Bianca Lopes on why banks have a split personality when it comes to knowing their customer

16 Welcome to estreet When the world goes out to shop, it takes one of 300-plus payment methods with it. PPRO Group asks 'is your's one of them?'

PAYMENTS 20 Ever increasing Circles Financial utility provider Banking Circle has ambitious plans to expand. Why is it good news all round?

24 Consumer convenience built on a security bedrock…



According to PwC’s touchstone Global Fintech Survey, payments and funds transfer are the two areas of banking being disrupted most by newcomers. It’s an area where we’ve already seen some of the most audacious innovation – and that was before the revised Payment Services Directive (PSD2) and Open Banking in the UK. You need sunglasses to watch this space, so bright are some of its rising stars. Payments technology now deserves to be recognised as an industry in its own right. So we decided to give it some space to express itself properly. Enter The Paytech Magazine, our dedicated title and sister publication to The Fintech Magazine. In this first edition, we look at the

Holy Grail of real-time cross-border payments, the impact of an open API culture in both established and emerging economies, the explosion in competition in point of sale and take a deep dive in the disruptive daddy of them all... blockchain. Enjoy! Ali Paterson |


Whatever form it takes, that’s how future payment technology will be shaped, says Multos.


26 The next great retail disruptor? Chinese tourists Alipay and Blackhawk Network reveal what visitors to the West are teaching merchants, processors and acquirers about payment choice

28 Brewing up a storm There are two sure-fire ways to improve your customer experiences and business ops. It’s time to wake up and smell the coffee, urges Prepaid Technologies

31 When retail takes crypto mainstream…


Galileo Processing argues that the key to speeding up the adoption of cryptocurrency lies in unlocking its liquidity

32 Pressing the repeat Nuapay and WorldPay chiefs share their thoughts on the growth in recurring payments – and how best to meet it

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There has always been an unnecessary trade-off between security & convenience... Thanks to Zwipe´s unique technology consumers can have the best of both. Utilizing Zwipe’s technology platform located inside the card, your next payment card will be biometric. Helping consumers feel safer when making contactless payments while eliminating the need for transaction limits. To see how Zwipe is making convenience secure visit


54 38 58 64 34 Banking to a different beat Allied Irish Bank has put itself under the surgeon’s knife and vital signs are good. We gown up to take a look

36 The Appliance of data science Why tie up money and staff in timeconsuming payment validation when a Cloud-based service can perform it for you? Apply Financial has the answer

38 Ready for take-off? The jet fuel’s burning for instant payments in retail banking – but are corporates taking a more measured approach? We ask Bank of America Merrill Lynch

40 Full throttle innovation SmartStream has a new Innovation Lab that’s building a ‘Formula One future’ in finance

42 Smart moves ATMIA says 'hola' to next-generation machines at the upcoming 2018 ATM & Payments Innovation Summit in Madrid

REGTECH 44 Rules of the playground PSD2 signalled that it was time for incumbents and fintechs to learn to play together nicely. Avaloq is monitoring behaviour

46 The road to regulation... …is increasingly paved with innovative opportunity, says Raiffeisen Bank International

48 Money talks HSBC’s new app aims to liberate buttoned-up Brits to engage frankly over their finances. It’s a conversation that’s long overdue

PEOPLE IN PAYTECH 50 Striking a balance The European Women Payments Network argues that more a more gender-diverse industry is good for companies and customers

54 The Insider track We share highlights from a special PayTech Insider podcast... with thanks to you know who!

58 Financial services open up to a new era The Open Banking Implementation Entity studies the emerging picture of life under Open Banking

POINT OF SALE 60 Perfect geometry The success and acceptance of Jack Dorsey’s other tech business rests Square-ly on its people-empowering motto

62 Sweet app-ortunity! AEVI’s Global Marketplace invites SMEs, banks and acquirers to put their hand into a pick’n’mix of apps for POS devices

64 Time to share Intrapay argues that not only should merchants and payment providers work together to improve the payment experience, but processors themselves must collaborate

66 Running rings around POS In the point-of-sale space race, Castles Technology’s Saturn series is serving an expanding universe of cashless payments

68 The speeds of change Like many of the financial institutions it works with, Visa’s European operation is adapting its innovation and investment strategy to one based on co-creation. So how’s that working out?

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94 98 70 74 CROSS-BORDER PAYMENTS 70 Riding the payments wave Worldpay looks at how data is transforming the role of payments providers

72 Now is the time! ACI Worldwide is seizing not just the day, but the second, when it comes to instant cross-border payments

74 Ahead of the field OTP Bank is pulling ahead in the digital payments race, but you never know what’s coming down the track

76 Walking the walk How FIME is helping to ensure big organisations don’t trip up during tricky payment migration

78 Making money mobile TransferWise began by shifting cash across the world under the banks’ noses. Now it’s collaborating with them. Why?

80 The world around U

96 It's all a bit different

PayU has pursued a hyper local payments strategy in high-growth markets like India while quietly building a cross-border network

Coinfloor believes regulation is crucial to establishing Bitcoin as a trusted asset, traded by the financial industry’s biggest players. So, how is the exchange business gearing up for when crypto goes mainstream?

BLOCKCHAIN 82 Onwards & upwards It’s been one hell of a Bitcoin ride, but CoinCorner’s convinced the journey’s worth it

84 Blockchain special: The ultimate disruptor

LAST WORDS 98 Stu's Reviews: A cashless desert?

Following the 2018 Gowling WLG report into blockchain’s current and potential impact on financial services, we joined the international law firm in hosting a roundtable debate that brought together Bitcoin racers, blockchain purists and those who had no idea what a DLT was, to lead them on a discussion around the block. This is what they said…

YouTube’s tech Titan and veteran Payments Racer Stuart Thomas joins The Paytech Magazine as our ‘man on the street’, giving honest reviews of the latest financial technology


PHOTOGRAPHER Jordan ‘Dusty’ Drew SALES James Butcher Chloe Butler Tom Dickinson Shaun Routledge


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

The Paytech Magazine is published by ADVERTAINMENT MEDIA LTD.

CONTACT US www.Fintech.Finance

FEATURE WRITERS Siufan Adey ● Tori Hywel-Davies ● Will Dove ● David Firth ● Tracy Fletcher ● Robert Horsfield ● Alex King ● Sean Martin ● Natalie Marchant ● Sue Scott ● Swati Sanyal Tarafdar

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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.

Issue 1 | ThePaytechMagazine



Delegates work hard and play hard at Money20/20 and, in Vegas, Global Content Director Pat Patel and his US teamwill be inviting a super-star-studded guest list to do both

Welcome to the payments party! FINTECH FINANCE: You run four Money20/20 conferences during the course of a year. How do they complement each other and how do they differ? PAT PATEL: Having four conferences provides Money20/20 with truly global coverage of what’s going on in each of the key regions around the world. We leverage our deep understanding of the markets and the fun stuff going on in each for all of the events. That way, we can provide the cross-pollination of ideas and advancements needed to stimulate thinking and commercial development. Naturally, the core of each show will gravitate around the dynamics and nuances occurring within that specific market. So, our Las Vegas event focusses quite heavily on the opportunities and challenges within the financial services landscape in the US and we pepper it with some of the other groundbreaking stuff occurring in Europe and Asia (as well as the rest of the world). But we are selective in the sense that it has to be relevant to the US market. Our upcoming new China event is weighted towards the amazing developments among tech players, like Ant Financial, Alibaba, Tencent and PingAn Group, and the largest banks in the world. Similarly, we’re bringing a US flavour to this event to really compare and contrast the philosophies and approaches of the two countries. For example, our coverage of artificial intelligence (AI) will have an East vs West approach to show how both of these leading markets are making groundbreaking advances. The China show promises to be a great


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addition to the 20/20 family, so make sure you join us in Hangzhou in November. FF: What excites you about Vegas 2018? PP: Where do I start? There’s so much going down in Vegas this year! We’ve a legend coming all the way over from the UK in the shape of Sir Richard Branson, who will be sharing his entrepreneurial journey, highlighting the financial services aspect of his career and also his views on how tech will disrupt industries over the coming years. We also have Shaquille O'Neal, the legendary basketball player, who recently joined a fintech company called Steady as an advisor. Steady won our 2017 startup pitch and raised $9million last summer. Following the hot news of the merger between Stellar and Chain to form Interstellar, we have Jed McCaleb and Adam Ludwin confirmed to speak. It will be interesting to hear about their vision and how this merger will drive value. We also have Jason Thompson and Reuben Lai from Grab coming over to share their amazing story of how it developed from humble roots in ride hailing to become a financial services supernova, having received $1billion in investment this year from Toyota.

Grab developed from humble roots in ride hailing to become a financial services supernova with $1billion from Toyota this year

We also have Anand Sanwal, the CEO of CB Insights, who will provide some great insight into the current state of financial services and tech in an edgy and data-driven way. I’m probably looking forward to that session the most. I saw him present in New York earlier this year and I can honestly say it was one of the best 20 minutes on stage I’d seen in years – a complete knowledge bomb. The last thing to mention is our Rise Up programme, which was created to address gender imbalance in leadership positions within the financial services and fintech industries. Rise Up is designed to provide support and actionable skills for women to take the next steps to increased seniority within their careers. This exclusive programme will expose participants to contacts, mentors, executive training and learnings that will catapult their careers to the next level. Outside of the stages, we will be having a series of meetups in our expo hall to drive a sense of community and really bring people together. So, get involved and meet some like-minded people. Finally, at our industry party we have T-Pain performing live. It’s gonna be a dynamite event this year! FF: What is the best thing you have heard said at Money20/20 Vegas? PP: It’s got to be when I overheard someone saying they’d spent the night partying with both Lenny Kravitz and Snoop Dogg, when both performed during the 2015 event. He looked terribly hung-over and, judging by the smell, I’m pretty sure he was still in his clothes from the night before!

Meet our conference partners RBR events bring together the world’s leading banks and industry experts – join our growing partner lineup...

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Changing the pattern of payments With a push towards the Cloud, Finastra is among the next-generation of service providers leading one of the biggest redesigns of the last 40 years in US payments processes and technology. Mihail Duta, Head of Product Management for Payment Solutions in the Americas, picks up the thread Until recently, little had changed in US payment methods since the 1970s. In-store credit card transactions required signature authorisation until April of this year; legacy rails such as Fedwire and Automated Clearing House prevail as the electronic transfer networks of choice in the banking sector; and cheques are still common forms of payment, despite being near-obsolete in Europe. Today, though, the US is catching up with the rest of the world with regard to real-time payments. While other countries were quick to embrace real-time payments, the US market was challenged by multiple factors. There is the sheer size of the US banking ecosystem, for one – all operating on legacy software, making a universal update a daunting endeavour. And the US didn’t mandate adoption of real-time payments, as had been the case elsewhere. “I think there is a cultural aspect as to why we’re still doing some of the things the way we are,” says Mihail Duta, head of product management for payments solutions in the Americas at financial software company Finastra. “I think it’s a generational conversation as well. Furthermore we have established rails that, while not new, are


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working. In the US, we’re a little more conservative when it comes to change.” That said, Venmo and Zelle have made significant inroads in the person-to-person (P2P) payments space in the US, but adoption of The Clearing House’s real-time payments (RTP) for business-to-business (B2B) payments has certainly lagged. To access this new payment rail institutions will have to make significant investments into updating their payment systems and, in many instances, they are still struggling to develop compelling business cases for doing so. According to Duta, however, conservatism is a value that the banks cannot afford because while the institutions have held back, other private companies outside of the sector have seized the real-time payments market, causing a paradigm shift in the way that individuals and businesses interact with money. Venmo and Zelle’s recent success in the P2P space is encouraging, but progress must not stop there, says Duta. He urges the banks to use this new momentum towards real-time to justify updating existing systems to enable business-to-business payments in real-time, as well. The Clearing House’s real-time payments (RTP) was launched in 2017 as a

new real-time system for all US financial institutions to use as a platform for B2B payments innovation. “The banking sector has got to come up with solutions to retain and expand its customer base and revenues,” says Duta. “That’s not going to happen by continuing to do things the same way as it has done for the last 40 years. Broad adoption of real-time payments is one way to evolve to counteract the threat of industry disruptors and grow their business.” But innovation isn’t just a matter of ripping out the old rails for newer, shinier versions. Payments hubs will have to continue to serve the old while adapting to the new. Recent hosted payments technologies have democratised payments hubs, which were once only accessible to the largest banks. And because they sit in the Cloud, they can easily evolve to address the most current market demands. “It’s futureproofing,” explains Duta, “because today we’re talking about real-time payments, but tomorrow we could be talking about artificial intelligence. It’s about having a system in place to help banks take advantage of what’s here now and easily adapt to what will be needed in the future. Banks should be prepared for such changes with minimal disruption.” By moving payments functionality to the Cloud, financial institutions can meet virtually any challenge, including the ability to quickly and easily add access to new payments schemes, says Duta. They can scale their payments business to grow with the increasing volume of electronic payments and can ensure technology is in lock-step with any new regulatory mandates. “Financial institutions need to navigate all these challenges while maintaining superior customer service, increasing revenues, reducing risk and driving down overall operating costs. Hosted payments hubs make this possible,” he says. A recent research report from Celent, commissioned by Finastra, US Payments in the Cloud: A Response To Uncertain Times, suggests that the way forward for banks lies in combining hub and Cloud. Duta offers Finastra as an exemplar of how veteran institutions can modernise while mitigating costs and upheaval. Last year, the third largest fintech in the world advanced its move to a platform-as-a-service model with the launch of its Cloud-based payments hub for

domestic and international money transfers. “By offering our next-generation payments hub as a hosted solution, Finastra is able to provide its clients with rapid time-to-market and ease of implementation,” says Duta. “The advantages of a fully outsourced payments processing model include reduction in the maintenance effort and total cost of ownership as the technology and business services are maintained by Finastra. This can be especially appealing to smaller financial institutions with fewer resources, or banks of any size that see value in freeing up staff and budget for innovation in other areas.” The Cloud payments solution is just one area of innovation that Finastra will be showcasing at the Money20/20 conference in Las Vegas this October., is Finastra’s platform-as-a-service solution designed to unlock innovation in financial services. Via the platform, Finastra is seeking to change the way that modern banking software is built and distributed, encouraging collaboration by opening its core systems to third parties to develop applications on top.

The banking sector has got to retain and expand its customer base. That’s not going to happen by continuing to do things the same way Simon Paris, CEO at Finastra, says: “We firmly believe that collaboration is the new way of innovating and FusionFabric. cloud makes this possible. The move to bank-as-a-platform or banking-as-a-service will redefine the future of financial services and we are at the forefront, bringing banks and fintechs together to allow faster innovation at much lower costs. “We are changing the way that financial services software is developed, deployed and consumed, like no one else – building the foundations of a completely new financial services ecosystem and marketplace, thereby unlocking the potential of people and businesses alike.” Underpinned by Microsoft Azure, the platform offers full application programming interface (API) functionality,

which allows not just banks, but also fintechs, system integrators, universities and consultants, access to Finastra’s broad spectrum of core services. Once plugged in, they can exchange knowledge and build and deploy apps worldwide with unprecedented speed and ease. Examples of the wide range of innovators signing up to the platform include Raise Partner, Paretix, University College London and California-based provides a unique solution for voice banking and chat used by banks and credit unions. It is working in the developer environment to enhance and extend its deep learning capabilities. Rachel Batish, CRO and co-founder at says: “Accessing Finastra technology and APIs through the platform is extremely efficient. It brings additional value to our solutions and, importantly, to our clients. The platform gives us access to more than 9,000 financial institutions and our goal is to deliver the capability to build cross-channel conversational solutions in minutes to close to 30 per cent of them.” In the academic sector, the hub has already become a valuable educational tool for Chinese exchange students at the UK’s University College London (UCL). “The architecture gives our students an amazing opportunity to develop with open APIs, to collaborate and drive innovative ideas,” explains Professor Donald Lawrence, computational finance director at UCL. “It also comes with the added incentive that the architecture allows them to monetise their creations for potential use by Finastra’s customer base.” Access to such a diverse ecosystem, coupled with easily configurable APIs, will only benefit US financial institutions and allow them to stay at the forefront of banking and payments technology, says Duta. But for Finastra, the payments shake-up has only just begun. While many of the hub’s early adopters have built applications on the peripheries of paytech, it has mainstream payments providers in its sights, particularly those that use it to improve customer experience. “At the end of the day, you can have the greatest banking and payments systems in the background,” says Duta, “but if the customer experience doesn’t match it, then the chance of success is not good.” Issue 1 | ThePaytechMagazine



Who do you think you are? It’s remarkable how many features of the financial services industry can be explained by using the analogy of a trip to the pub. Take fintech incubators, for example. These are the equivalent of gathering all your smartest mates together on a Saturday night, heading to a mutually convenient location and setting the financial world to rights until the early hours of the morning, or until one of you falls off your chair (overcome not by the drink, of course, but the sheer brilliance of your ideas). Then there’s digital identity verification, which Bianca Lopes – entrepreneur in residence for FinTechStage – illustrates with the infamous car key dilemma. Say you visit your local every Friday evening for a drink with a close friend. You’ve always been a strictly one-pint-and-I’m-done sort and are therefore safe to drive home. However, after one particularly tough week at work, you order three double whiskies and polish them off in quick succession. Your friend confiscates your car keys, as any good friend would, and proceeds to walk you home. This is how digital identity verification should work, according to Lopes. Let her explain: “A lot of the time, people think that every transaction requires only


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That’s the question Bianca Lopes, digital identity expert and currently Entrepreneur in Residence for FinTechStage, will be posing to visitors at Money20/20 authentication,” she says, “when what they actually require is permissioning, and permissioning changes as your context changes. In the car keys example, your physical identity and biometrics haven’t changed, nor has your driving documentation. What has changed is the context, in that this week you’ve become drunk where you normally wouldn’t. “A financial services company would be the friend in this analogy, who conducts a risk assessment of your context and removes your permissioning (the ‘car keys’) as a result.” Does that explain it better? “We often confuse the many facets of identity,” continues Lopes, who’s built an entire brand around herself as The Naturally Curious Human and is kind of fascinated by these things.

“First of all, there’s origination, which constitutes the creation of accounts or documentation such as passports. Then comes authentication – now that you’re identify has been created, we need to make sure that you are indeed you. For this, we can use a broad range of potential attributes. Something that you own (a smartphone) or something that you know (a password) can serve this purpose. Then, finally, we have permissioning, which is 'are you technically allowed to do this?' Your password and passport haven’t changed, but do we still want to let you in? “A lot of people in the industry are still confused about what this final attribute entails,” says Lopes, “but that’s what makes digital identity such a fascinating topic.” As an experienced speaker in technology, identity, trust and data, Lopes has become one of the leading voices in digital identity within the financial services industry. Previously chief identity officer at Canadian biometric verification firm BioConnect, as Entrepreneur in Residence for FinTechStage she’s using her expertise to drive collaboration between regulators, incumbents and governments on the subject of digital identity. She is also a contributing editor for,

Identity crisis: Poor interoperability in financial services means we’ve no clear idea what identity is

have been tasked with delivering a strong customer experience. As the fifth Anti-Money Laundering Directive (AML5) comes down the pipeline, it’s unlikely to feature as a topic of conversation during the marketing team’s weekly meeting, whereas the product team will have been fixating upon it for weeks. The fact of the matter is that the financial services industry doesn’t have interoperability and we therefore don’t have a clear understanding of what identity actually is,” she says. So, according to Lopes, maintaining a siloed structure is a big ‘no-no’ in terms of digital identity, as it prevents financial services firms from effectively updating their processes. However, an industry-wide lack of interoperability isn’t the only thing that’s bothering the strategist. “I think that the notion of security and convenience being a pendulum should be thrown out right away,” says Lopes. “Asymmetric cryptography and other forms of tokenisation have advanced enough that we no longer have the right to blame the poor design or user experience of a platform on the fact that ‘it’s really secure’. After all, the recent hacks of certain large, clunky companies have proved that this isn’t even the case. “Moving forward, we need to strive for digital identity systems that validate and learn continuously in a non-intrusive way, just like you and I do,” she says. "If you and I talked every day on the phone, I would become very familiar with your mannerisms to the point that I could instantly tell if you were angry or upset. This might lead me to make a different decision about how to progress with our conversation. In digital identity terms, this could lead to the removal of your permissions. “In some senses, the way of the future is almost the way of the past,” says Lopes. “Technology should allow the identity industry to take the form of a small village, where everyone knows each other and constantly observes each other’s behaviour.” If the identity industry one day simulates a small village, with more than 11,500

Every single person in a bank is operating with a different part of what constitutes the identity of a human… we therefore don’t have a clear understanding of what it is

a global media platform based in London for whom she hosts meaningful conversations between business leaders on the themes of identity and privacy. In her spare time (or whatever is left of it), Lopes acts as an independent consultant, helping large enterprises to revise their identity and data strategies. In working with numerous established financial services firms, Lopes has witnessed all sorts of digital identity disaster stories. However, she believes that the entire industry is guilty of one particular sin, and that significant progress in the field of digital identity can’t occur until companies atone for it. “As an industry, we operate almost totally in silos,” says Lopes. “Every single person in a bank is operating with a different part of what constitutes the identity of a human. On the one hand, you have the IT guys sitting in a corner talking about private keys and asymmetric cryptography, but they’re not conversing with the design team who

previous attendees, Money20/20 USA already resembles a large town. At this October’s conference in Las Vegas, Lopes has been granted the honour of master of ceremonies (MC) for the first day. “I get to co-create the agenda with Money20/20 and I’ve therefore made sure to include a few topics that I’m personally obsessed with,” she says. “I’m very excited to present on the subject of identity around the world. We’ll be doing a showcase of how identity in each country encounters certain social, economic, political and regulatory restrictions, and this should help to explain why regions have developed their own particular identity schemes over time. What makes my Danish NemID (identity card) so fundamentally different to my Brazilian CPF (natural person register)? What’s so special about my SIN (social insurance number) in Canada? “Why can’t every country utilise the same identity systems? These are all questions that we hope to answer by looking through the lenses of different international clients. “Alongside this rather broad identity topic, I’ll be focussing on some specific authentication technologies at Money20/20 and discussing their potential implications. “There’s no shortage of buzz around voice authentication, but not every voice provider is the same. Eighty per cent of companies using interactive voice responses [on their desktop interface] use a different voice provider to the one they’re implementing in their mobile app, which begs the question of whether consistent customer experience or fraud prevention is being achieved. “Of course, blockchain will also feature in our identity conversations and I plan to discuss the ethical ramifications of new concierge and self-sovereign models that have appeared in Canada in recent years.” Despite making a name for herself as a writer and speaker in the field of digital identity and dedicating the last few years to helping companies to establish an identity-first strategy, Lopes has gone through something of a personal identity crisis in preparation for Money20/20 USA. “I have three different avatars for Money20/20, which is frankly hilarious seeing as I’m acting as the MC for identity at the conference,” she says. “In spite of the split personality disorder that I’m currently exhibiting, I’m still a lover of the identity industry, though – and want to see it change.” Issue 1 | ThePaytechMagazine



Welcome to estreet

When the world goes shopping, it takes one of 300-plus payment methods with it. If you don’t want to lose a sale to rivals down the internet highway, you must know how your customer wants to settle the bill, says Ronnie d’Arienzo of PPRO Group The world might be a global shopping village, with people buying products across both borders and currencies, but their choice of payment method often reflects distinct cultural preferences.

As such, companies wanting their online business to thrive would be wise to understand how the payment landscape varies across the world, says Ronnie d’Arienzo, chief sales officer for PPRO Group, which makes it its business to understand the psychology behind the global online spending spree. Ecommerce accounts for about a tenth of the total $28trilion global retail market, but it’s growing so quickly that it is contributing significantly to overall economic growth, according to Nielsen’s 2017 What’s Next In E-Commerce? report. While fast-moving consumer goods (FMCG) sales, both off and online, are growing at an annual rate of four per cent, total retail ecommerce is enjoying a combined annual growth rate (CAGR) of 18.4 per cent, according to Nielsen, with the trend set to continue. Anyone who wants a slice of it, needs to know what their customers – and potential customers – are likely to select as their payment method at checkout. But with 300-plus significant alternatives worldwide, no one business can accommodate every transaction preference. That diversity of choice presents an increasing challenge to payment service providers (and by extension their merchants) in choosing which of those payment products to support That’s where PPRO steps in. It is an epayment specialist that understands and aggregates various payment types at a global level and works with payment service providers (PSPs) to identify and provide the infrastructure for the most relevant ones in different markets. So, what exactly is an ‘alternative payment method’? That depends on your cultural perspective, says d’Arienzo. “We see it is all payment methods outside


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of international credit cards – so anything other than the likes of Visa, Mastercard, Diners and AmEx.” He identifies three key reasons driving differences in payment choice between countries: cultural psyche – which plays a huge part in payment differentiation even between close neighbours, such as Germany and the Netherlands; a collective stubbornness when it comes to letting go of well-established products, such as plastic debit cards in the UK; and a nation’s instinctive curiosity and inclination to accept innovation, as seen with the popularity of niche products across technologically broadminded Scandinavia. People in Germany, for example, have an historic aversion to debt, which likely dates back to the hyperinflation seen during the interwar years, says d’Arienzo. There bank transfer is the predominant payment method, making up just over half of all payments (51 per cent), according to PPRO’s 2017 Payments and E-Commerce Report Western Europe. Cards account for 12 per cent of payments, while ewallets take up nearly a quarter (23 per cent). Popular payment alternatives in Germany are services such as Giropay, which makes a direct transfer from a customer’s bank account to that of the seller. There is also Barzahlen, which lets users withdraw or deposit cash at affiliates with an app-generated barcode. Bank transfers are also prevalent in the Netherlands, where they make up 71 per cent of payments. Cards account for 15 per cent, ewallets five per cent and all other payment types, including cash, make up the remaining nine per cent. Important Dutch payment services include iDEAL, similar to Germany’s Giropay, and AfterPay, which lets users buy now and pay later. By contrast, in the UK, cash makes up nine per cent of all ecommerce payments, while bank transfers account for just four per cent. British consumers use cards for over half of all payments (52 per cent) and

ewallets for 27 per cent of them, PPRO’s report added. Direct debit is a particularly popular way to pay, especially for subscription services, across the country. Meanwhile, Sweden is expected to be the first European market to go cashless, with the percentage of krona used for online purchases now down to a paltry one per cent, according to d’Arienzo. But here, as elsewhere in Scandinavia, there is a preference to pay later, such as on receipt of goods, or in instalments, particularly for big-ticket items such as cars. This has led to the fast uptake of services such as Klarna, which lets consumers spread purchases into interest-free monthly payments. Further afield, ewallets have taken China by storm, having become the most popular form of online payment method, responsible for 49 per cent of ecommerce transactions, according to PPRO’s China Insight report, which said one of the socio-political factors behind the rise of the ewallet over credit cards was the issue of trust. Third-party

Buying power: Consumers want to use their payment method of choice

services such as Alipay addressed such concerns by offering a secure payment method for both buyers and sellers. Does population size make a difference to the establishment of a completely different digital payment ecosystem? d’Arienzo doesn’t think so. “The country that’s growing fastest in Europe is Portugal and it’s relatively small in terms of size of population, compared to Germany and the UK. So, I think it’s really down to cultural preferences more than anything else,” he says.

Embarrassment of choice All this diversity of choice presents an increasing challenge to payment services providers (PSPs) and, by extension, their merchants, in choosing which payment methods to support, as d’Arienzo illustrates. “Only 42 per cent of all online purchases made across Europe use a credit card. So if you only offer a credit card [as a payment option], then you’re missing out on about 60 per cent of all consumers who want to make a purchase,” he says. Similarly, he cites a survey carried out by PPRO that showed more than two-thirds (70 per cent) of consumers have abandoned

their shopping cart because they didn’t find the payment method they wanted. “It’s essential, particularly for merchants that are looking to attract consumers from overseas, that they’re really astute and aware of what preferences consumers have from different markets and different industries as well,” says d’Arienzo. PPRO seeks to address these problems by understanding markets at a granular level, making recommendations based on its insights and then providing the plug-in application programming interfaces (APIs) to facilitate the respective payments. The role of PSPs is key. But, while they need to offer merchants a portfolio of products, ‘what they can’t do is offer everything’, d’Arienzo says, because the checkout process would become overly complex, deterring customers. PPRO offers a solution to the dilemma of being caught between offering too few payment choices and too many. “We have one technical integration, one contract, to provide access to all of the payment methods globally,” d’Arienzo explains. Rather than compete with them, it works directly with PSPs, to complement their service provision for their customers, the merchants, by offering white labelled products. New entrants to the market, particularly from the US, are increasingly recognising the importance of having a variety of payment options to attract overseas customers, d’Arienzo says. Signing up to PPRO’s platform gives them knowledge of what products to use and speed to market. Established PSPs, meanwhile, can keep up to date with the latest features through a central system, without having to do their own costly and burdensome reporting and reconciliation. PPRO’s engineering and product teams monitor the payments landscape on their behalf, keeping pace with developments and making sure the latest API is available through its platform. Not having to worry about app integration frees up the customer’s engineering teams to develop other products that benefit the business, argues d’Arienzo. “And that’s the value proposition that we bring.”

Only 42 per cent of all online purchases made across Europe use a credit card. If you just offer that, you’re missing out

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∞ networking

CEOs speakers


fintechs on stage



Quotes from interviews & panel held in Paris Fintech Forum 2018 edition

Bruno Le Maire Minister of Economy & Finance of France We are one of the first countries with Luxembourg that has allowed the banks to develop the blockchain, and I strongly believe that the blockchain is really the future of fintechs and one of the most promising technology that we have now on the table.

François Villeroy de Galhau Banque de France, Governor I don’t oppose incumbents and fintechs, on the contrary I feel responsible for good balance between the various actors and for a convergence between 2 absolute necessities, on one side financial stability and on the other side financial innovation. The future of finance relies on this convergence

Jean-Laurent Bonnafé BNP Paribas, CEO Fintechs help us in our transformation. We help them in their development. It’s a mutually beneficial partnership in which we cooperate and grow together.

Gottfried Leibbrandt Swift, CEO I am completely convinced that the incumbents are only going to survive if they bring innovation to their core business (…) and use the technology to really innovate themselves at their core, instead of keeping at a peripheral thing that you just sort of dabble in.

Stéphane Richard Orange, CEO We are the first operator to launch a full true mobile bank. Our approach has been to start with the user interface and to create a fully digital experience. Our target in 10 years is to become a leading player in mobile bank as a daily service, family designed, and simply to use.

David E Rutter R3, CEO I ve been as negative as you can on ICOs but the reality is that they are here to stay, and when these two extremes [venture world Vs ICOs] are going to converge, ICOs will become better regulated, venture guys will have to evolve, and overtime the real threat could be to the banks.

CIRCLES Financial utility provider Banking Circle has plans to expand under a new deal struck this summer. CEO Anders la Cour explains why it’s good news all round Banking Circle's potential to expand its sphere of influence received a huge boost this summer with news that it had been bought by Swedish investment group EQT. After several years of development under the wing of Denmark's Saxo Bank, the financial utility company was acquired just a month after the launch of its SME lending product. Banking Circle co-founder and CEO Anders la Cour had already revealed his intention to expand both the company’s products and geographical reach. Now he had the war chest to do it and, just last month, the company struck a partnership agreement with China-based Alibaba. Banking Circle’s first service, a cross-border payments product, emerged in early 2016 and it already had a €60billion run rate for annual payment volumes by the time of its acquisition. With Saxo Bank acting as an incubator that ensured liquidity, Banking Circle was able to grow fast – and, la Cour says, Saxo will retain close links after the EQT deal. “The acquisition by EQT is a major milestone for us because it will give us the funding needed to grow our business,” he says. “Saxo Bank was a great partner for the first part of the journey. They ensured we got a great head start. Because we were not the Saxo Bank core business, we always knew from the beginning that one day we would have to part ways, but they will stay as a virtual partner for us. “In that respect, we now have partnered with EQT, which will deliver the operational and financial resources to help us on the


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next part of the journey. The funding will allow us to acquire licences in new areas and to grow our product capabilities and our geographical presence.” As a financial utility, providing the ‘pipes and plumbing’ for business transactions, as la Cour puts it, Banking Circle's cross-border payment product offers an alternative to the current complex and inefficient correspondent banking model. The company has been a pioneer in its field, but it is not alone in building low-friction, cross-border payment solutions on digital rails, and EQT's backing will allow it to bolster its position in the market. EQT has promised to provide Banking Circle with access to its expertise in the technology, media and telecoms sectors, and its global network of industrial advisers. It said when the deal was announced: “We have followed Banking Circle for several years and are impressed by the company’s management team and unique innovation capabilities. Saxo Bank and Banking Circle’s management team have built an innovative, secure and highly automated platform to make competitive,

The funding will allow us to acquire licences in new areas and to grow our product capabilities and our geographical presence

faster and more transparent payments across borders. Cross-border payments is a large and rapidly growing market dominated by traditional players. Banking Circle has built a disruptive solution with a strong value proposition.”

Bridging the lending gap Using a Cloud-based system built on the Oracle FLEXCUBE platform, the Banking Circle cross-border payments utility can execute business-to-business transactions at a lower cost and within seconds, not days. To banks, the product is sold as an outsourced solution, and for other financial services companies it offers an alternative to managing multiple banking relationships in different regions. By joining Banking Circle, businesses can issue multi-currency international bank account numbers (IBAN) for customers in their own name. Its clients include card acquirers, payment services providers, foreign exchange payment providers and banks. Now that same utility model will be applied to SME lending, which smaller banks have struggled to effectively deliver partly because it can be difficult for them to collect the necessary credit information. The white-labelled service will be offered by partner banks and fintechs under their own branding via an application programming interface (API). La Cour says the entire application will take no more than three days – rather than waiting sometimes weeks for a bank to come to a decision that often proves to be a negative one.


Virtuous circle: The company's mission is to help banks move up the value chain, says CEO Anders la Cour

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Tailored lending: “We have the scale, so we can deliver at low cost,” says la Cour (right)

Banking Circle lending is also tailored to provide the flexibility needed by smaller firms which often need short-term facilities to overcome liquidity problems created by, for example, late payments. During research this year, Banking Circle discovered that while larger SMEs were often willing to take out traditional one to three-year loans from a bank (68 per cent), only 36 per cent of microbusinesses would do so because their needs were more to do with immediate cash flow. It also found that smaller businesses rely more heavily on overdrafts because the inflexibility of a traditional bank loan is often deemed too risky to take on. Under Banking Circle’s SME lending service, repayment amounts can be fixed or flexible so that a business owner can increase repayments when trade is good, and reduce them when funds are tight. “Larger banks would definitely develop their own solutions because they can be in both parts of the value chain, but for those lower down the scale, it makes sense to buy a product in,” says la Cour. “We have the scale so we can deliver it at quite low cost. So why would you want to develop an in-house solution? It is far better to focus on improving your customer experience and engagement. We are here to help the banks move up the value chain and to avoid becoming a utility, because we are the utility. “The more banks that join us, the more


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fintechs that join us, the better it is for everyone. That's one of the reasons we've scaled up so fast, because irrespective of whether you join us on the supply side or the demand side, or both, you will gain value,” la Cour adds. “And because we don't take on corporates or consumers as customers, we don't compete with our clients. We only allow regulated entities to operate on our payments platform.”

Mining the value chain Banking Circle currently has around 100 employees and is headquartered in Denmark, with offices in Luxembourg and the UK. But expansion plans will see it enter North America and South East Asia, with work already underway to open offices in those regions. A switch to a Luxembourg HQ is also being considered. Furthermore, la Cour has spoken of a desire to obtain a banking licence so that the business can further develop its product range. Banking Circle is bullish about the potential in Asia in particular because banking infrastructure has been slower to develop in many Asian countries than in Europe or the US. And that provides an

advantage for fintechs in the region because many traditional banking methods have been leapfrogged in favour of digitised services. La Cour says: “As for our overall direction, we won't be making any major changes because things are moving in the right direction for us. “We'll focus on continuing to build our infrastructure, growing it and making sure we enhance the product capabilities so that our clients can grow their business into new verticals and new areas, should they want to. “Looking forward over the next one to three years, I believe banks will continue the trend of outsourcing their non-core services. They need to focus on their core, which is enhancing their client relationships in their domestic geographical areas. “If they focus on the end customer, and try to keep that stickiness, they can let others do some of the ‘boring backend stuff ’, and that's what we benefit from. “I welcome the growth of competition in the part of the value chain that is close to the end client. That growth means there are more potential clients for Banking Circle to serve.”

We are here to help the banks move up the value chain and to avoid becoming a utility, because we are the utility


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Consumer convenience built on a security bedrock That’s how Paul Wilson, Commercial Manager for secure operating system MULTOS, describes the future of payment technology – whatever form it takes FINTECH FINANCE: What do consumers really want from today’s digital payments industry? PAUL WILSON: As consumers, we all make the choice to transact with businesses in order to benefit from their products and services. I think it’s fair to say, though, that the actual payment aspects of the agreements are the least palatable part of the process. If we could avoid parting with our hard-earned money, of course we would! So, what do we want or need as consumers to sweeten the bitter pill? In short, I believe consumers want quality of service and convenience. Some time ago I enabled a well-known mobile payments near-field communication (NFC) application on my handset and, with great enthusiasm, embarked on my new payment journey. Being an insider in the digital security industry, perhaps I’m not a typical consumer, but I experienced a few issues and found the payment experience to be inconsistent and, thus, inconvenient, which resulted in me reverting back to my trusted contactless cards in my wallet. Should I have persevered? Perhaps. But maybe I’m more of a typical consumer


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than I thought. For me, and I suspect for many consumers, the payment process has to ‘just work’. Maybe I’ll go back to mobile payments, but not just yet. So, along with quality and consistent experience, ease of use and convenience are top of the list in my view. It seems the payment schemes agree and, hence, over the last year we have seen major payment brands extend their support and encouragement to make contactless payment standard across the Middle East, Africa, Europe, Latin America and the Asia Pacific regions. Much of Europe has already embraced contactless payments and research indicates that the United States is to rapidly adopt them in the coming years with an increase from 25 million contactless cards shipped to the US in 2016 to a predicted nearly 230 million by 2021. Linked to contactless payment, recent feedback from a small European pilot study indicated that many users preferred the ease of use and ‘cool factor’ of contactless wearables over traditional card-based methods – it’s an interesting extension for consumers. Within the industry there is also growing expectation for banks to issue contactless-enabled

biometric sensor cards that should allow consumers even greater convenience to tap and pay at higher amounts by checking the cardholder’s physical identity as opposed to requiring a contact and PIN-based transaction. So, contactless payment is really just the beginning of ever-increasing consumer convenience. FF: What is MULTOS and how do the MULTOS Consortium members support consumers? PW: MULTOS is the trading brand of a secure operating system and management architecture originally designed for smart payment cards and now also implemented for ID cards and various embedded and connected devices. It was ‘designed by a bank for banks’ by a NatWest bank team in the United Kingdom more than 20 years ago, and is now an open, industry-led standard for secure payment and other devices. Updating chip card profiles and migrating to and introducing new card products can be expensive. Unlike many other similar technologies, MULTOS is an open standard with a robust approval scheme that allows issuers or product owners to obtain certified MULTOS products from multiple vendors without having to manage compatibility variances between vendors’ products. Also, MULTOS uses a single personalisation script for all profiles and products. This greatly simplifies the process of change, reduces operating costs and also helps prevent development mistakes, which can lead to project delays and late product launches. MULTOS is a true open, business-enabling technology, preventing ‘vendor lock-in’ over the supply chain and delivering tangible cost efficiencies. Major vendors support the technology as well as their own

proprietary offers because banks really appreciate these benefits. MULTOS is a smart business concept for issuers wishing to retain control. More than one billion MULTOS cards and smart devices have been deployed so far. The MULTOS ecosystem consists of more than 3,500 banks and other businesses around the world, which are leveraging the benefits of MULTOS technology. The MULTOS Consortium is a growing and distinct subset of these companies, including global and respected businesses in their related sectors. They ensure that the open standard remains current and that the supply chain remains competitive, reliable and delivers secure, flexible, quality products and services. Some of the Consortium members focus on business-to-business (B2B) solutions that indirectly support consumer services and consumer product encoding, and, of course, many members supply end consumer digital security products and solutions, such as cards, wearables and mobile devices, as well as a range of encoding and support services for payment, digital ID, access and financial services. Ensuring convenience and quality are their primary concerns. FF: What role does security play when consumers are primarily concerned with convenience? PW: Sometimes security and convenience can be opposing forces, where too much security can hamper usage and high convenience can be difficult to adequately secure. The old-fashioned password is an example of high convenience with minimal security, assuming you can remember it, that is. A three-factor authentication process is generally considered ideal for security – leveraging something you know, such as a PIN code, something you have, such as a digital key inside a secure chip, and something you are, such as the iris pattern from your eye – it’s a military facility access grade level of security perhaps but, of course, not very convenient. For consumer convenience, a balance needs to be struck. Most consumers are not particularly keen on

security processes and sometimes see them as barriers, but most do appreciate why they are needed. Protecting consumers’ sensitive data, their identity, transaction details and, of course, their funds, is a must in today’s cyber crime world. Falling short of basic security cannot only be bad for consumers, but can also be bad for businesses, often resulting in negative exposure and potential fines. In Europe, the new General Data Protection Regulation (GDPR) may result in some businesses being fined for security breaches. .

Sometimes security and convenience can be opposing forces… a balance needs to be struck Security is a core facet of MULTOS technology and has ensured that it has remained robust and fit for purpose for more than 20 years. Most MULTOS products apply banking-grade security to protect consumers and businesses. Some of the more advanced products have achieved the top levels of approvals, such as the Common Criteria EAL7. With ever-advancing cyber threats, the advanced security of today could well become the basic level required tomorrow, so MULTOS is well-positioned to support businesses and consumers in the evolving payments markets.

FF: Where do you see innovation taking consumer payments in the future? PW: Greater adoption of contactless innovation is only going to continue and probably become used almost everywhere. Spin-offs from the contactless card are NFC wearables, such as rings, watches, wristbands, fashion items and devices embedded in objects or clothing. Some of these are more suited to promotional activities, but I can see future generations being comfortable with using NFC devices to pay. I see those devices all linked to a single account in future. I saw this service structure starting to happen in the prepaid market a couple of years ago, but I have not seen much happen since. Personally, I would value having the choice of a wristband, a ring or a card when making a NFC payment, all linked to my main credit account. I think then payment becomes much more consumer lifestyle-friendly. Another innovation I see happening more is to do with provisioning – loading payment credentials to devices as required by consumers. Some offerings allow this today, but most payment devices are loaded in a factory environment, which, of course, is business friendly and cost efficient, but often not particularly consumer friendly. We are fortunate in The MULTOS Consortium as one of our newer members is actively offering these services. As already mentioned, replacing the PIN code with a biometric fingerprint is a recent trend. Developing in parallel with NFC payment, this has the potential to further reduce the effort for consumers when paying while potentially increasing security. Assuming this works consistently for consumers and is cost efficient for the banks, we could see this really take off. We are starting to see payment being built into vehicle systems, allowing drivers to pay via their dashboards. We can expect to see much more crossover between consumers and the Internet of Things (IoT) when it comes to payments. Perhaps with the integration of artificial intelligence (AI) and IoT we will see connected devices choosing to pay on our behalf? That may not be too far off. Signalling the future: Contactless is ‘just the beginning’

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The next great UK and North American retail disruptor? Chinese tourists Rita Liu, President of Alipay Canada, and Talbott Roche, CEO and President of Blackhawk Network, set out best practices for engaging visitors and learning from their mobile, cashless payment lifestyle There is an ever-growing, yet often overlooked retail customer base in North America and the UK with tremendous purchasing power – and no, this isn’t yet another article about millennials. Chinese nationals are increasing their travel to North America and the UK and have become a significant economic driver for retailers in those markets. In recent years, overseas travel has become the norm for Chinese nationals. Last year, they travelled overseas 131 million times – a seven per cent increase over 2016, according to the China National Tourism Administration. Among the top overseas destinations for Chinese tourists, travel to the US and UK has increased by 25 per cent and 38 per cent respectively. Canada, specifically, has grown its number of Chinese tourists from 195,000 visitors in 2010 to 672,300 in 2017, and has set a goal of doubling this number by 2021. Moreover, spending by Chinese tourists reached $261.1billion in 2016, according to a report by the International Association of Tour Managers. Chinese tourists wield significant purchasing power that should make North American and European retailers sit up and take notice. There’s a great economic opportunity in catering to Chinese tourists’ shopping and payments habits, which differ from North American and European behaviours. Nielsen’s Outbound Chinese Tourism and Consumption Trends 2017 Survey gives an insight into the consumption and payment behaviours of Chinese tourists who travel overseas. These findings offer North American and European etailers and retailers valuable best practices to attract


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the Chinese shopper, who is more mobile-enabled and who prefers cashless payments more than North American and European consumers have to date. Some of the key findings from the research include: ■ Most Chinese tourists use mobile payments when travelling overseas During their most recent overseas trip, 65 per cent of surveyed Chinese tourists used mobile payments to pay for their travel expenses, compared to just 11 per cent of non-Chinese tourists, and the use of mobile payments is on the rise. Seventy-seven per cent of surveyed Chinese tourists reported spending more via mobile payments on their most recent overseas trip than they did on trips abroad in the previous two years. ■ Chinese tourists are using mobile payments for shopping, dining and visits to tourist attractions When asked about top travel expenses, Chinese tourists reported shopping (25 per cent), hotel accommodations (19 per cent) and dining (16 per cent) as their top three expenditures. Shopping is the category that Chinese tourists utilise mobile payments for the most, followed by dining and tourist attractions. Among those surveyed, 63 per cent of Chinese tourists reported having used mobile payments for shopping and more than three-quarters (76 per cent) hoped to use mobile payments for shopping during future overseas travel. ■ Chinese tourists exhibit significant purchasing power When examining spending overall, Chinese tourists exhibited much stronger purchasing power than non-Chinese

tourists, and they are willing to spend even more than they already do if they are able to use mobile payments. On average, Chinese tourists spent $762 per person towards shopping on their most recent overseas trip, compared to the $486 non-Chinese tourists spent. An overwhelming 93 per cent of Chinese tourists reported that they would consider using mobile payments during their travels abroad if more overseas merchants accepted mobile payments, and 91 per cent would be more willing to spend and shop if merchants accepted Chinese mobile payment brands. Additionally, as disposable income for Chinese tourists continues to grow, the travel experience outweighs cost when deciding on a travel destination, and they are willing to spend more. Surveyed Chinese tourists ranked cost as the fifth biggest consideration behind beauty and uniqueness of tourist attractions, safety, ease of visa procedures and friendliness of locals to tourists when selecting a destination or attraction.

The shopping habits of Chinese consumers may lend a helpful roadmap for engaging American and European consumers in the future

With the evident impact of Chinese tourism, North American and UK etailers and retailers should consider the best ways to attract Chinese visitors and cater to their payment preferences. Additionally, the shopping habits of Chinese consumers may lend a helpful roadmap for engaging American and European consumers in the future. North American and European shoppers are likely to become increasingly mobile and rely more on cashless payments, much like Chinese consumers already are. Best practices include: ■ Make consumer preference a priority by offering choice It is not uncommon for Chinese tourists to use more than one payment method when travelling overseas. Surveyed Chinese tourists reported that out of every 10 payments they made on their most recent overseas trip, 4.2 were bank card payments, three were cash payments and 2.8 were mobile payments. Beyond the traditional payment methods like cash and credit cards, Chinese tourists will also likely use more than one mobile wallet or payment platform and are used to multiple options being accepted by Chinese merchants. Similarly, domestic shoppers’ payment methods vary based on their situation, current deals or rewards or a general preference. ■ Satisfy consumer demand for speed and convenience Chinese tourists travelling overseas report that the primary benefits of mobile payments are speed and convenience. Using mobile payments to pay with a quick scan is much easier than dealing with the hassle of change, worrying about losing cash or having a credit card declined. Many surveyed tourists also reported being able to better track their spending by using some of the value-added services and features that mobile payment platforms offer, such as the direct conversion of their spending The way to pay: overseas into Chinese yuan. Chinese shoppers By offering mobile payments, North are streets ahead

American and UK merchants can provide domestic shoppers with the same speed and convenience. ■ Elevate mobile payments beyond payment tools to engagement tools Beyond ease and convenience, mobile payments also offer Chinese tourists better access to benefits and rewards. Many mobile wallets offer users promotions and the Chinese tourists surveyed also reported that, in many cases, the exchange rates in mobile wallets generally displayed very close to the most favourable exchange rate for the day. When they calculated the difference, they considered the benefit to be equivalent to a promotional discount. For domestic shoppers, merchants should work to view mobile payments as more than just payment tools and consider integrating greater engagement opportunities into the mobile payment experience, providing greater value for consumers. Delivering deals and rewards into mobile payment apps can help merchants promote their mobile wallet capabilities while also increasing the amount of interaction with both existing and prospective customers. Chinese shoppers’ propensity for mobile-enabled and cashless purchasing has led Chinese merchants to recognise and leverage the many advantages of mobile payments. Although many domestic shoppers still need to be educated on or introduced to the benefits of mobile wallets, it would be in the interests of North American and UK merchants to learn from the Chinese shoppers and Chinese merchants, and expand mobile payment adoption and messaging. Not only this, but these retailers should also consider taking steps to accommodate Chinese tourists in their own countries, given the growing presence and strong purchasing power of Chinese tourists.

China National Tourism Administration 2018 International Association of Tour Managers 2018 3The Outbound Chinese Tourism and Consumption Trends: 2017 Survey is an online survey conducted by Nielsen on behalf of Alipay in December 2017. The sample size included 2,622 Chinese and non-Chinese tourist aged 20-50 who have travelled overseas in the past year and are also planning to travel abroad within the next year. 1 2

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Brewing up a storm There are two sure-fire ways to improve your customer experience, according to Brian Thornsberry, Senior Vice President of Marketing and Sales at Prepaid Technologies. For anyone who’s not employing them, it’s time to wake up and smell the coffee Brands that pair flexible payment solutions with innovative technology are fulfilling the demand for seamless and enjoyable customer experiences better than their competition. Look no further than the wildly popular Starbucks rewards app, which boasts more than 15 million US members and has cracked the code on combining an engaging loyalty programme with mobile ordering and payment services. There’s a common script that organisations can follow to brew their own exceptional customer experience: integrating the process of receiving and making payments with your enterprise and third-party platforms and services. Businesses should use prepaid payments and rewards products to enable the overall user experience and drive growth of their core products and services. Whether it’s improving sales, engaging employees, managing expenses or speeding up commerce – prepaid solutions that are woven into the fabric of an organisation’s technology drive better overall experiences. The most common methods of accomplishing this involve using application programming interfaces (APIs) and payment tokenisation: making it faster and easier than ever for businesses to integrate new solutions into their existing workflows and systems, while enabling best-in-class customer experiences to achieve business results.


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Using APIs to maximise resources Using APIs to integrate the delivery and management of prepaid payments and rewards into existing business systems can deliver superior experiences and outcomes – and make much better use of internal resources in the process. Clinical research sites, for example, focus on securing and retaining patients throughout a clinical trial – which can last months or years. To continually engage patients and ensure consistent programme participation, they can use APIs to streamline patient reimbursement. By integrating their clinical trial management systems and workflows with prepaid payments applications, they reduce manual work (and the errors that come with it) and gain more visibility and control. It makes it simpler to create a positive, branded experience for trial participants that can be easily scaled to multiple programmes. APIs can also enable and integrate any payment system function, from card activation and funding, to fraud prevention and reporting, which quickly adds value. Finance and human resource teams can use APIs to integrate payments directly into their employee onboarding and benefits management programmes. There are a myriad of other opportunities, which include seamlessly delivering prepaid payment cards as an alternative to direct deposits for individuals without traditional bank accounts, and enabling managers to

instantly issue spot rewards to customer service or salespeople through their sales automation tool or employee portal. Leveraging APIs from prepaid programme managers, businesses can also significantly reduce the complexity that would otherwise fall on internal development teams. Rather than learning about and communicating with numerous APIs from players across the payments ecosystem, such as a processor, fraud solutions provider, automated clearing house vendor and others, developers can integrate an entire payments or rewards programme using just one set of APIs from the programme manager, which serves as the payments expert and programme coordinator.

Security that makes it easier to pay Payment tokenisation can be thought of as a Europay, Mastercard and Visa standard (EMV) for non-card applications – where the traditional payment card account number is replaced with a unique digital token in online, contactless, mobile and in-app transactions. It makes it easy to enable secure transactions without the need for multiple technology integrations.

Starbucks has cracked the code on combining an engaging loyalty programme with mobile ordering and payment services

Businesses are using this capability to make it as simple as possible for customers to spend by keeping tokens, instead of card numbers, ‘on file’ for recurring payments, and to enable one-click online or mobile checkout. By doing so, businesses eliminate both the friction associated with repeatedly entering a payment or rewards card number into a device and the security risk of storing card account information online. Tokens also allow payment accounts to fit seamlessly and securely into virtually any existing enterprise system. Whether it’s order management, customer relationship management or HR and benefit systems, employees or programme administrators can view account history and process

transactions or fund programmes without having access to sensitive card information, further streamlining programme implementation while reducing the opportunity for fraud. Using tokens in this manner reduces the scope of systems that are subject to Payment Card Industry (PCI) compliance, also reducing the cost and burden on human resources and systems by eliminating related activities. What’s more, additional data fields can be included on tokens, giving organisations transaction-level insights that can be used to build better payments and rewards experiences and improve transactional efficiency.

Getting more from rewards Businesses have been using prepaid payments and rewards to make memorable customer and employee experiences for years. Today’s collaborative technology tools allow brands to get more out of each programme. Expediting and streamlining the integration of payments and rewards tools reduces operational burdens on businesses. Time and resources once spent on complex integrations and manual processes can be saved to drive programme profitability, or redirected to new product and service innovation that’s only just begun. Issue 10 | ThePaytechMagazine


ACHIEVE FULL VALUE FROM YOUR SWIFT gpi INVESTMENT ACI Worldwide® offers a portfolio of SWIFT gpi capabilities — the solution can be tailored to your business needs 1. ACI’s SWIFT gpi Enablement with ACI’s UP® Real-Time Payments™ solution enables full gpi participation, without additional integration 2. ACI®’s SWIFT gpi Data Service solution is available to drive additional value from your existing SWIFT gpi investment by reducing customer investigations and improving CX 3. ACI’s SWIFT gpi Connect solution sits in front of any payments engine to fully support all SWIFT gpi requirements, removing the need for an extensive modernization project

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The crypto flow While there’s still considerable debate over the hype and speculative value of cryptocurrencies, the significant investment and growth1 in cryptocurrencies indicate that they are bound to be part of the future of payments. So, what’s next? The law of supply and demand should apply to the cryptocurrency market, but, currently, it is all about demand. This disequilibrium of the cryptocurrency market is seen in the radical swings in cryptocurrency value, which make it a poor currency replacement at this time. The asymmetry of the market also means that, for the average person, cryptocurrency is illiquid. Would unlocking the available supply of cryptocurrency increase liquidity and lead to a cryptocurrency market that approaches equilibrium and efficiency? By actually using cryptocurrency as currency, it could unlock the available supply of cryptocurrency and increase the rate at which value is exchanged from one transaction to another. The key here is to enable major retailers and other high-volume acceptors of payments, like utilities, to accept cryptocurrencies. If these businesses were paid in cryptocurrencies, they would convert payments to dollars so they could then pay their suppliers. This would unlock the supply side and have a multiplier effect throughout the supply chain. Over time, retailers and utilities might even make payments in cryptocurrencies.

Clay Wilkes, founder and CEO of Galileo Processing, asks ‘will unlocking greater liquidity speed up the adoption of cryptocurrency?’ Payments companies are in a unique position to facilitate the use of cryptocurrencies and the evolution of the cryptocurrency market by creating a gateway between the existing financial world and the evolving one. Building payments products and solutions that enable consumers to deposit in US dollars; buy, sell and hold cryptocurrencies; and transact in US dollars or cryptocurrencies could

Payments companies are in a unique position to facilitate the use of cryptocurrencies

significantly influence the current market. Galileo built the Galileo cryptocurrency application programming interface (API) to bridge the gap between cryptocurrencies and mainstream payments. Galileo’s cryptocurrency solution enables customers to seamlessly deposit funds denominated in cryptocurrencies to their accounts, and spend those funds with the ease and immediacy they’re accustomed to when using payment cards or mobile applications. Galileo’s cryptocurrency API is the first of its kind to enable issuers and fintechs to offer the ability to transfer funds and make purchases in real time at the point of sale. All transactions are conducted in fiat currency and converted to cryptocurrency. Solutions like the Galileo cryptocurrency API allow fintechs and issuers to develop their cryptocurrency strategies, integrate with mainstream payments and make cryptocurrencies readily usable. The introduction and adoption of solutions like this may be a turning point in increasing cryptocurrency’s liquidity and addressing the current state of disequilibrium in the cryptocurrency market.

Business Insider; Bitcoin exchange Coinbase confirms its unicorn status with $1.6 billion valuation Aug. 10, 2017 https://www. coinbase-now-unicornvaluation-series-dfunding-2017-8


Releasing the crypto lock: Over time, retailers and utilities may accept payments in digital currencies

Issue 10 | ThePaytechMagazine



Binge bonanza: Direct Debit has been boosted by subscription services

Pressing the repeat Sean Fitzgerald, CEO of Sentenial and its Direct Debit processing platform operator Nuapay, joins Spiros Theodossiou, SVP Product Management for Worldpay, in discussing the future of recurring payments Make no mistake, there’s a war raging over our wallets – and we’re not talking about the age-old conflict between cash and cards. It’s subscription services that are currently locked in the bloodiest battle for supremacy. You might have noticed that it’s most certainly not all quiet on the subscription music front – Spotify’s soldiers have entrenched themselves in defence against the armies of Apple Music. Meanwhile, in the video theatre of war, Hulu and Amazon Prime Video’s forces have encircled Netflix’s citadel and are deploying an arsenal of excellent exclusives in order to sustain their siege. In the snack offensive, Graze and Treatsie have resorted to guerrilla tactics in an effort to seize control of the food box space. Whether you’re a Loot Crate loyalist or a Dropbox devotee, there’s one payment service that has already risen victorious from The Great Subscription Skirmish. In its annual analysis of the payments market, Payments UK announced that a total of


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£1,262billion was paid via Direct Debit in the UK during 2016. That’s 4.1 billion account-2-account payments, making it the most popular transaction method after cards and cash. According to BACS, 90 per cent of UK consumers already have at least one Direct Debit set up on their account to pay regular bills, which is perhaps why Payments UK predicts only modest growth in the Direct Debit market – an increase to 4.4 billion by 2026. But the size of the market, the increasing popularity of subscription services and the greater autonomy and certainty that Direct Debit gives to customers over other recurring payment methods, has led Worldpay to invest in its future. As more regular payments account for more and more of the funds leaving our wallets, the pressure is on for financial services firms to implement robust Direct Debit solutions that can meet the demands of a burgeoning subscription economy. In June this year, Worldpay announced that it would be incorporating Sentenial-owned Nuapay’s solution into its platform as a means of providing a

comprehensive Direct Debit management service to its merchants across Europe. Over the following three months, Worldpay experienced a 50 per cent drop in Direct Debit decline rates among its European customers. Spiros Theodossiou, SVP product management at Worldpay, is particularly pleased with those results. “With the revised Payments Services Directive (PSD2) coming along, we’re seeing more and more account-2-account payments happening in Europe and we really needed to find the right partner to enable us to obtain the highest acceptance and lowest decline rates for all these payments,” says Theodossiou. “We’ve been working with Sentenial for a while now and have received the combination of a great product in Nuapay and a great team helping us to get the solution in place. The 50 per cent reduction in our decline rates since we adopted Nuapay is proof of the success of the partnership,” he says. The result of a £9.8billion merger between the top US and UK merchant acquirers, Vantiv and Worldpay, Worldpay Group processes an average of 40 billion

transactions annually across 146 countries and 126 currencies. With an unmatched integrated technology platform, the company offers clients a suite of products and services that are designed to satisfy all of their omni-commerce needs. Nuapay, meanwhile, established in 2003, is the authorised Payment Institution subsidiary of Sentenial. Fully licenced by the UK Financial Conduct Authority, it supports Direct Debit and credit transfers, including SEPA Instant, emandates, current accounts and Open Banking, in a single, integrated environment, updated in real time, using a range of application programming interfaces (APIs). For Direct Debit customers, it handles the entire process, from signing the mandate to record keeping and reconciliation. “At Worldpay, our goal is to enable our merchants to gain the best coverage and acceptance possible,” says Theodossiou. “The ability to see a significant rise in transactions is fundamental. With consumers paying directly on their sites, even a small percentage increase in acceptance rates (thanks to fewer declines) equates to more money in their pockets. We want to make things smoother and easier for our customers, and what better way to do that than to improve their sales?” As well as drastically-increased acceptance, minimal chargeback rates and quicker settlement times can be achieved with Nuapay, thanks to its robust data pool and proprietary algorithms. These features are obviously a key selling point, although it’s the little things that set Nuapay above the competition for Theodossiou . “Some partners that we’ve worked with haven’t been particularly flexible,” he says. “Nuapay’s parent company Sentenial, on the other hand, has exhibited a high degree of flexibility that has allowed us to deliver the functionalities that our merchants need. For example, it made sure that the names of our merchants were being passed through to consumers. All of a sudden, the consumers could see who they’d made a purchase from and use this information in their budgeting. It’s the little things like this that make a big difference to the experience that merchants provide to their consumers, and consequently make our service much more valuable to merchants,” says Theodossiou.

Heralding a new era Much like any other payment type, the world of recurring payments is set to be

rocked by the introduction of PSD2 and Open Banking. Sentenial foresaw this disruption and concentrated on producing a Direct Debit solution in Nuapay that could weather any regulatory storm. “What we’re approaching right now is an inflection point in the financial services industry, as rails-based payment systems are cracked open,” says Sean Fitzgerald, founder and CEO of Sentenial and Nuapay. “We’ve invested heavily in Nuapay over the course of the last few years, to ensure that it has the strength and resilience to reliably serve top-tier customers across the world for years to come. As a technical provider, we pride ourselves on the security and operational robustness of our platform,” he says. As traditional payment systems are ‘cracked open’ by new regulation, the question remains as to whether we will witness a significant transformation in consumer payment habits. “In an effort to reduce fraud, European regulators are looking to ensure that consumers have as many payment options as possible. As a result, it’s highly likely that we will see a distinct change in consumer payment patterns,” believes Theodossiou. “However, I also believe that both large and small merchants will have account-2-account payments made available to them by PSD2, and this could provide them with access to previously unreachable markets. I don’t think there’ll ever be a world where consumers no longer use cards and only rely on account-2-account payments, but as Direct Debits become easier to establish and more stringent authentication mechanisms are introduced to the card space, I’ve no doubt that platforms like Nuapay will become increasingly crucial.” Indeed, the increasing ease with which Direct Debits can be established is one of the main factors driving the subscription economy. For subscription services, providing a frictionless and uninterrupted customer experience is absolutely critical, and payments play a key role in this. From the word go, a friction-free payment procedure can help to deliver seamless customer onboarding and an intuitive signup process. However, the battle to gain

customers doesn’t end at signup for subscription companies; their involuntary churn rate (when a service is cancelled without the customer’s knowledge due to payment problems) must be kept low should they wish to remain in the fight. Unfortunately, reducing churn is easier said than done for subscription companies. A broad range of circumstances have an impact on refusal rates – in the US, churn normally peaks towards the end of the month before people are paid, and also during the night when banks tend to tighten their risk systems. The outage and malfunction of legacy systems also frequently interrupt payment flows and raise the failure rate of recurring transactions. Thus, being able to circumvent these issues (as well as any new ones that arise) is a priority for Direct Debit management platforms serving subscription companies, and that requires companies like Nuapay and Worldpay to exhibit a high degree of flexibility in their offerings. Thankfully, they’re both fintechs, and flexibility is consequently their middle name. “Everyone wins when a partnership focusses on the merchants’ success in areas like improved customer acquisition and retention,” says Fitzgerald. ”That is exactly what fast-growing fintechs like Worldpay and Sentenial/Nuapay are proving. Together, we are ideally positioned to help merchants get the most out of Direct Debit payments.” “Now, everything is agile,” agrees Theodossiou . “As technology companies, there are two advantages that we can all have: knowing our customers better and being able to deliver and develop products faster. Our merchants’ requirements are changing every single day as they introduce new customers and new products. As a result, we need to be constantly evolving and improving our experience, and that’s why it was so critical that we chose a partner like Sentenial/ Nuapay that could be as flexible and honest as we needed them to be in terms of delivering those improvements,” he says. “There is no ‘done’ in software today.”

With PSD2 coming on board, we’re seeing more and more account-2-account payments happening in Europe

Issue 10 | ThePaytechMagazine



Banking to a different beat The implementation of the revised Payment Services Directive (PSD2) in Europe in January gave Open Banking a transfusion of energy that was amplified in the UK with the introduction of its own Open Banking regulation. Big banks and fintechs began pulsing with newly valuable lifeblood: big data. Of the nine biggest banks in Britain and Northern Ireland (known as the CMA 9), Allied Irish Banks (AIB) was one of the most responsive on the Open Bank operating table. It already has a history of tapping emerging technological veins. Five years earlier it had opened The LAB, which stands for ‘Learning About Banking’, in Dundrum, just south of Dublin. A physical branch, open seven days a week, it was a first-of-its-kind in Ireland and set out to help AIB’s customers learn about existing and developing digital services. As the January 2018 Open Banking deadline drew nearer, AIB was already waiting with its defibrillator fully charged, prepared and excited to bring the new financial services era to life.


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Allied Irish Banks has put itself under the surgeon’s knife and vital signs are good. Fergal Coburn, Head of Digital Products and Payments, gowns up “In January, when the deadline came for the CMA 9 banks to fully comply with the Open Banking standards, six of those banks couldn’t comply on the day,” says Fergal Coburn, AIB’s head of digital products and payments. “But AIB, along with two other banks, did. It’s an important message to send to the market: that we’re open, ready and agile.” AIB’s aggressive compliance with the rigorous demands of Open Banking and PSD2 can be put down to the contribution of individuals such as Coburn – who was brought in to the bank to supercharge its post-2008 digital acceleration strategy. The bank’s ethos of staying ahead of the technological curve is clearly paying off.

“At AIB, we have been first-to-market with a fully capable, regulatory-approved application programming interface (API) capability in the UK. It’s something we’re very proud of as a small Irish bank, having been the first bank to fully meet all of the standards for this regulated interface,” says Coburn. AIB has worked hard to toe the regulatory line while ensuring its interface is able to win the hearts and minds of the third parties it’s newly able to work alongside. “We got great feedback from the eight parties we’ve currently onboarded with our development portal,” says Coburn. “We’re connecting seamlessly with these third parties, which means they’re attracted to working with AIB. That’s a really important emphasis for us in these early days.” So, as well as saving the bank’s directors unnecessary palpitations as the January deadline arrived, AIB’s readiness to usher in API-enabled, third-party fintechs, improving service provision, has been an important part of its innovation strategy. As Coburn elaborates, it’s a strategy

Heart of the matter: Banks are undergoing Open surgery

customers can now, within the mobile banking app, make a payment of up to €1,000 without any authentication, without any friction as far as they’re concerned.” The new technology essentially drapes a layer of skin over the organs that process, authorise and secure AIB’s customer payments, hiding what Coburn calls the ‘ugly side of the shopping experience’ under smooth processing. Where Open Banking is the throbbing heart, the payments sector might accurately be depicted as the circulatory system through which the majority of useful data flows. It’s projected to experience significant growth in the post-PSD2 banking era. “If we look at payments within AIB, we probably process more than 60 per cent of all value movement in Ireland today,” says Coburn. “That makes us a huge, critical financial artery for the Irish economy, especially among business partners.” The bank’s aortic function within the Irish economy means that AIB has impressive nationwide penetration into bundles of data which third parties, as well as AIB’s internal analysis platforms, can transform

We process more than 60 per cent of all value movement in Ireland. That makes us a critical financial artery for the Irish economy

that reflects a growing understanding that customer expectations of the banking industry are changing. “Consumer connectivity to the world of assets and their volume of interactions within the digital world are dramatically increasing,” he says. “This means consumers are hyper-connected and hyper-informed. Their expectations are being set by Google and Amazon – they are truly the ‘now generation’ and they want instant gratification, which is challenging to deal with.” As such, AIB has been working to embrace a fintech-enabled future: one that’s as frictionless and user-friendly as an Amazon Prime delivery or a last-minute Uber cab-share. In the realm of payments processing, Coburn has overseen the curation of friction-free payments through AIB’s open payments platform – the first of its kind in Ireland. “Within AIB mobile banking today, we do Apple Pay and Google Pay – but we’re also the first bank to do frictionless open payments on mobile,” says Coburn. “So, AIB

into better services for customers. “We’re in a great starting space, in terms of the datasets we hold and the trust we hold with consumers,” says Coburn, who sees a huge part of his work as an attempt to create the ‘ultimate consumer experience’. That means bringing in chatbots for high-volume tasks and targeting the pain points in the journeys of regular banking customers. That’s not to mention the large element of AIB’s digital transformation that’s focussed on nurturing SMEs in less-than-steady, post-Brexit Ireland, by injecting new, streamlined services.

As simple as… In 2015, AIB announced its partnership with global trade credit insurer Euler Hermes, leading to the creation of its credit insurance app, Simplicity. The app

offers the risk-free assessment of five potential or existing overseas clients to service all-at-sea exporting SMEs. Introduced a year before the Brexit vote in 2016, it was a prescient move on the part of AIB. The next frontier, says Coburn, is SME lending. “Today, almost 80 per cent of all our consumer lending is automated: end-to-end, through our digital channels – a very significant achievement,” he says. “We’ve now followed that with SME lending – a more complex lending proposition. So, at the end of 2017, we went live with the first strand of end-to-end SME lending with up to €60,000 available for a SME loan for a certain cohort.” As Coburn explains, it’s a system that requires more cutting-edge technology the more cash is involved. “It’s much more difficult when we get into higher-value, complex, multi-party, limited-company lending. So, we’re actively working on that, and we expect some significant deployments by the end of the year,” he says. Enriched datasets, gathering disparate data through third parties with access to multi-banked customer information, is part of the answer. “Open Banking and PSD2 give us access to a far wider dataset,” Coburn says. “But it’s because AIB’s market share in Ireland is already so large that we have been able to automate some SME lending decisions already.” The other accelerating factor for SME lending is the adoption of distributed ledger technology (DLT) as a means to streamline large, complicated loans and payments. R3, a consortium of major banks and big players within the fintech revolution, is looking at enacting precisely that, and it’s AIB’s stated aim to involve itself in the vanguard of interbank DLT payments. The enactment of such major changes is, for Coburn, something that requires a change of heart from some of the biggest institutions in the industry that are still processing to a different beat. “There are more than 15,000 fintechs in the world today,” he says, “and banks are beginning to see them as huge opportunities for creative, problem-solving collaboration. We’re using them to solve pinpointed problems and knitting that into our core banking capabilities.” His finger is firmly on the pulse. Issue 1 | ThePaytechMagazine




DATA SCIENCE Why tie up money and staff in time-consuming payment validation when a Cloud-based service can perform it for you? It’s a question banks are increasingly looking to Mark Bradbury, MD of Apply Financial to answer More Brits will be banking via their phone than through a computer next year. That's the prediction of analysts at consultancy CACI, who forecast that 35 million of them will bank using an app by 2023, up from 22 million last year. Such a rapid rate of behavioural change underlines the demands being made of banks to ensure they are abreast of the latest trends and have the tech in place to remain competitive. Mark Bradbury, who has spent years championing Cloud-based utility solutions for the banking industry, believes they’re finally catching up. The managing director of Apply Financial says: “We’ve worked very closely with banks, we’ve worked closely with partner companies who sell in to the banks, and we see a change in their attitude. “Cloud is no longer difficult for them. Application programming interfaces (APIs) are being embraced because they allow banks to get more functionality into their user interfaces and into their middle and back offices. It gives them far more than they could achieve in-house.” London-based Apply Financial was established in 2010 and is the creator of Validate, a Cloud-based software service to verify bank payments. Its API works by plugging into a customer’s payment system at the front end. Once installed, it uses algorithms to identify and analyse the payment information being inputted to ensure it is valid. It cross-references account numbers and bank branch codes and, if problems are found, the payment is stopped before it can incur an error fee from a bank. Some of Apply Financial’s big-name clients include HSBC and Barclays, credit card giant American Express, insurer Axa


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and phone retailer Carphone Warehouse. Bradbury says the software is relevant to both consumer and business transactions. “All banking transactions start at a bank account and end at a bank account, either domestic or overseas, and commercial banking and trade finance are exactly the same,” he says. “It's a different message type but, ultimately, it ends up in a bank account. So, it’s really important that a payment is validated because of the volume of transactions that take place within those areas of banking. If it’s a trade finance deal and delivery is subject to payment – if, say, you have a boat full of bananas or other perishable goods at a harbour that’s waiting for a payment – you wouldn’t want the payment to either fail or be delayed because of errors. That would be catastrophic for that shipment.”

You might imagine payment validation would be relatively uniform around the world [but] we cover 220 countries and we’ve different detail validation for 170 Bradbury believes regulatory demands around payment validation will ramp up during the next two years as regulators clamp down ever harder on criminality. He says: “Banks will have to do a better job of validating their payments and the bank account details of their clients, because the emphasis will be on them to validate that that person does have that bank account.

“They will have to prove that they exist, and that they have money in the account. There are many reasons why you would want to run such checks, but perhaps the most important of them are to ensure payments don’t fail and that payments are not fraudulent.” In outsourcing the payment validation process to a utility provider like Apply Financial, a bank should expect that provider to be abreast of the latest standards since it is purely focussed on that one function. And, indeed, Apply Financial provides expertise in cross-border payments that demand a huge range of protocols to be applied around the globe. “You might imagine that payment validation would be a relatively uniform process across all countries around the world, but even in the international bank account number (IBAN) countries there is no standard for what is needed to straight-through process a payment,” says Bradbury. “We cover 220 countries and we’ve got very detailed validation for 170 of those. To give an example of what you can be faced with in a non-IBAN country, look at Mexico. It has something called a CLABE and to make a payment to Mexico or in Mexico you have to have a tax code. If you don’t provide the tax code the payment won’t straight-through process. “There are other regulations in other countries that require you to have the purpose-of-payment code, or maybe even two purpose-of-payment codes. There is no simple standardised approach. We store the means by which you can validate data and it helps our clients feel confident that even in the more ‘eccentric’ countries we can help them get 100 per cent straight-through processing.” Such expertise is a strong selling

Cloud burst: Banks are becoming more comfortable with the idea of software-as-a-service

point for banks and other businesses for which payment validation is just one of scores of functions they need to perform. The culture shift in the financial industry to Cloud-based, software-as-a-service applications to fulfil non-core processes, such as that provided by Validate, is a powerful trend, says PricewaterhouseCoopers (PwC) in its report Financial Services Technology 2020 And Beyond: Embracing Disruption. It argues that plummeting data storage costs have helped usher in the era of the Cloud and made it easier to manage big data and apply analytics, while also reducing the barriers to entry for smaller fintech businesses. PwC says public Cloud investments are growing quickly and spending on private Cloud is also increasing, while traditional infrastructure spending has plateaued. Bradbury says Validate took off four years ago after several years of hammering

home the message about using softwareas-a-service solutions. “For the first four years, talking to people about having a fantastic solution in the Cloud, accessed through an API, was tough to get banks to sign up to,” he says. “I’ve worked with banks for many years and I've found they are very good at the detail and understanding exactly why they want to use something, and deploying it in a very professional, methodical way. Because we’ve already worked with quite a few big banks, we can use our experience to explain to them what it is like to live with a client-based API solution. How the bank deploys it, how it tests it, what the benefits are to the customers, and what the benefits are to the bank, its operations, and in its call centres. “So, we’ve gained that experience over

eight years, and we find now that banks that come and talk to us want to hear stories about the other banks’ experience of it.” Bradbury adds that banks are ‘going back to the drawing board’ with regards to customer experience, and it’s partly driven by competition and by regulations demanding they publish tables that compare their customer satisfaction ratings against those of rivals. Bradbury believes the process to be vital in keeping up with the challenger banks and their typically intuitive user interfaces. “What’s key to us and our banking clients is that customers are asked for as little information as possible to be able to validate – and maybe enrich – a payment to make it a straight-through process. “We work very closely with clients to make sure they have the minimal number of fields. Our experience of dealing with major banks that have looked at payments through a mobile interface, or tablets, laptops, desktops and so on, means we bring a lot to the table.” Issue 1 | ThePaytechMagazine



Ready for take-off?


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The jet fuel’s burning for instant payments in retail banking – but are corporates taking a more measured approach? We ask Peter Jameson and Ad van der Poel, joint heads of EMEA Product Management for Bank of America Merrill Lynch’s Global Transaction Services Everyone is desperate for instant payments, right? It’s the financial services equivalent of splitting the atom… the Holy Grail. Well, not quite everyone. The co-head of EMEA product management for Bank of America Merrill Lynch’s (BofAML) global transaction services, Ad van der Poel, agrees that in retail banking there’s a head of steam for real-time payments across the globe at cost-effective rates. But he points out that many of his corporate clients are still trying to handle the impact of this on their sector. “Everybody loves to receive instant payments. It’s always pleasant to get money into your account, right? Our retail clients in particular are interested in instant payments and how they integrate into the consumer user experience. But I also speak with treasurers who are more reluctant because, of course, it means they need to have money in the account all day long to process these payments instantly,” he says. BofAML knows that differentiating between the two groups is important, because in the hullabaloo of digitisation and compliance, the individual concerns of corporate customers have sometimes been overlooked. It also knows that, as the instant payments pressure builds on back-office processes, they need as much support as it can give them in automating those transactions. Peter Jameson, who takes joint responsibility for EMEA product management, agrees that there is ‘a distinction between what consumers are looking for – which is more around ease of access, experience and mobility – versus large corporates and other businesses which are looking more for predictability, managing by exception and risk management’. “Within this digitisation journey you have different client segments looking for different things,” he says. And that’s what BofAML has tried to answer by launching a swathe of digital

business solutions over the past year, matched to different clients’ pace of change.

Taking the pain In August 2017, the bank collaborated with the London fintech HighRadius Corporation to use its cutting-edge, machine-learning technology to develop a software-as-a-service (SAAS) programme called Intelligent Receivables. It uses artificial intelligence (AI) to enable large and complex businesses with big-volume payments to reduce costs, decrease days-sales-outstanding (DSO), improve cash forecasting and ease the process when remittance information is missing. All that while managing payments across the globe. Intelligent Receivables was designed to improve end-customer experience many times over by addressing the broad areas of pain in transaction and receivables. BofAML continued to enhance its technology in January 2018 by launching another initiative called Virtual Payables. Through this, BofAML offered a streamlined payment process that’s flexible, yet controllable. Virtual Payables enables commercial purchasing customers to connect with the bank’s virtual card system, allowing them to create single-use account numbers in real time. With this, BofAML became the first issuer in North America to generate single-use, virtual card accounts directly from the processor. It meant that BofAML clients would no longer need to store credit card numbers on file because all card account and payment information would be shared over email and a secure website. The programme uses an application programming interface (API) for initiating payments via batch file delivery from its accounts payable and/or enterprise resource planning (ERP) system.

Van der Poel believes open banking will have a major beneficial impact on corporate clients. It’s why the bank is focussing on deploying API technology to connect with third-party platforms, especially outside the US. “Although Europe’s revised Payment Services Directive (PSD2) and the UK’s Open Banking regulation has a large focus on the consumer side of the banking business, we actually think it’ll be mutually beneficial on the corporate side as well,” says van der Poel.

Arms around data Regulation that prises open bank data centres is encouraging BofAML and others to ‘get our arms around data in a way that makes it really useful for our clients’, in the words of van der Poel’s boss Matthew Davies, head of global transaction services in Europe. While Davies acknowledges that transaction banking does not embrace radical change easily, he believes it will move on ‘more over the next five years than it has in the last 35’. And one of the biggest drivers will be blockchain, a technology for which BofAML’s parent Bank of America owns around 50 patents as it figures out how best to apply distributed ledger technology to internal processes across its various divisions. Van der Poel and his team certainly believe this technology will make crossborder payments faster. “As they go from one jurisdiction to another, so it makes it more complex; there are more rules, more validation controls. But there’s a strong belief that with the latest technology, cross-border payments can become near-instant as well,” says van der Poel. BofAML has already quickened the payments pace at home and abroad. But the next few years could be really super-sonic.

Within this digitisation journey you have different client segments looking for different things

Issue 10 | ThePaytechMagazine



Chief Innovation Officer for SmartStream, Andreas Burner, is heading up a new Innovation Lab that’s looking under the bonnet of blockchain, artificial intelligence and machine learning technologies in order to build a ‘Formula One future’ in finance

In the fast-moving world of financial technology, you need a turbo-charged approach to development if you’re to get your ideas off the grid before the rest of the pack catches up. Which is why SmartStream looked to F1 to provide inspiration for its new innovation team. Based in Vienna, its mission is to develop, then test, cutting-edge solutions to meet the needs of the financial industry, with successes being deployed to the wider business and its clients. The managed financial services group has pulled together mathematicians, computer scientists and applied data experts to work on the research and development projects. Their boss, SmartStream's chief innovation officer Andreas Burner, says: “The automotive industry has innovation centres, such as Formula 1 teams, where they work at the limit of what is possible, then feed back their successes to their product centres


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– the car production lines. We are using that model. Where we develop solutions with artificial intelligence (AI) and blockchain that are successful, that innovation will go back into SmartStream products, so they'll be available for our customers as well.” Burner explains that by keeping the innovation team separate from day-to-day operations his staff can have space to learn without disrupting SmartStream's contracted business. Their focus will be on evaluating and developing artificial intelligence (AI), specifically machine learning, and blockchain models that help to drive down costs and boost workflow efficiencies for middle and back-office processes. While AI has been employed across a multitude of areas, from facial recognition to autonomous vehicles, Burner says the demands of the financial industry mean his team needs to study the full spectrum of what AI and machine learning offers. That has presented him with recruitment challenges, because his staff need not only knowledge, but experience of the areas

that SmartStream’s clients operate in and the specific demands that places on technology. For example, he says: “If a potential customer applies for a loan online and is rejected by a machine learning algorithm, the bank has to be able to feed back on that. So, in the financial industry, we cannot use algorithms that are not able to explain why a decision is taken. “There's a craft in machine learning in deciding which algorithm you apply to what problem. Ethics come into it because money is a sensitive subject.”

A problem shared… The projects being examined by the innovations unit were chosen after SmartStream's product teams and external partners were asked what their biggest problems were. “To start the process of innovation we asked our product managers in SmartStream where they thought we could apply AI,” says Burner. “They had so many ideas! So, we then had to filter those ideas

previously decentralised operations are being brought under one roof, and the number of solutions used across a company is being streamlined. Another general trend is moving staff from mundane tasks to new roles where they can develop skills to attract more business and grow it. In June, Deutsche Bank announced it was outsourcing its reconciliation processes to SmartStream – an area where the firm has years of experience. The bank is keen to simplify its IT environment, while cutting cost and meeting ever more stringent regulatory requirements. SmartStream estimates that some investment banks have 3,000 staff working on reconciliations, so where AI can be applied, the savings are potentially huge. Banks need reconciliations because errors are introduced when data is entered by a trader, or there are errors in reference data, securities information, foreign exchange rates, fees and expenses. While applying blockchain to these processes won't eliminate errors, allied with AI, digital systems will be able to recognise where a potential problem is hiding. Burner says: “With the reconciliation process, where you load data, you transform data, where you match data and you do exceptions, each of these parts of the process has so much potential for optimising and applying machine learning. In the financial industry there are many workflows. At present, there are many manual processes with lots of staff carrying out the work, so this is a natural application for AI. Whenever you do things that are very similar but not the same every time, a machine can learn when a process strays away from what is normal. “We can use machine learning to support a staff member’s work. So, for example, when a person is tired and mistakes creep in, a machine can find them. In this area we use AI as an analytics tool and we’re looking to pick data feeds and try to find out connections between data that you cannot easily find as a human being.” With regards to Deutsche Bank and SmartStream’s other reconciliations customers, the development of blockchain

There is a craft in deciding which algorithm you apply to what problem. Ethics come into it because money is a sensitive subject

and consider whether there was a business case, as well as a use case, for the client. “The way the Vienna lab works is that we specifically work with partners, and we specifically work on use cases that our partners want us to proof. We do a proof of concept and if we are successful, we feed it back to our product centres. In this way we are working on real-case scenarios, real-case data. There's a saying in machine learning that machine learning is only as good as the data you have. So it's important to have clients to work with us.”

The beauty of blockchain SmartStream provides financial software and managed services and it counts 70 of the world's 100 top banks among its customers. Many of its clients are involved in re-engineering projects, whereby

should mean reconciliations move from the post-settlement stage to post trade. That means a validation will be made before the trade is published to the wider market. Burner says the beauty of blockchain is its inherent simplicity and security. “When blockchain first arrived in 2008/2009, everyone thought of it only in terms of cryptocurrency. It was only some years later that we found out there’s much more to it and rules can be applied so that it can be used for smart contracts. Then we found it’s not just about the end customer, it can be applied in business-to-business activities, which is very much our area. “Because blockchain can be applied whenever there’s a workflow in place, you can simplify workflows that are distributed both between companies and within companies. There are so many applications in areas including trade finance and corporate actions, where switching to this new technology is a big cost saver. “Our product range is all about workflows, with corporates working together and decentralised storage. All that points to using blockchain technology. At the moment we are very much looking at our products and working out how we can employ it.” Burner’s Innovation Team has been involved with SmartStream's preparations for Sibos and will be showcasing its latest developments. In the area of cash and liquidity management, which is governed by rules such as the Basel Committee on Banking Supervision 248, it will have a solution that employs machine learning to ultimately ensure banks meet their regulatory requirements. Burner says: “We have a system that understands how a market behaves under normal circumstances and what it means when a market behaves abnormally. Under the BCBS 248 regulatory requirement for banks, they have to look at stress of their counterparts, of currencies, of countries, and so on. We have an answer to that, which uses machine-learning algorithms and it is something we will be showing. “We will also be demonstrating our use of natural language processing (NLP) in our products. One area is the classification of emails so they are sent to the right team within an organisation. Then finally, there's blockchain. So there are many areas of work that we will be presenting at Sibos.” Issue 10 | ThePaytechMagazine



Connecting with the future: The cash machine… but not as you know it

Smart Ron Delnevo, ATMIA’s Executive Director, looks forward to the 2018 ATM & Payments Innovation Summit in Madrid and its focus on next-generation machines The ATM Industry Association (ATMIA) annual European event is always something to look forward to – and the 2018 edition even more so than usual. Freed from the shackles of a London residency, ATMIA Europe will be firmly nailing our pan-European colours to the mast, as the ATM and payments industries strut their stuff in Madrid from October 17 to 19 this year. Magnificent Madrid, the beautiful capital of a wonderful country. There could be no better venue for a payments industry event that has as its overarching theme ‘Seeing the Future, Today’. And, of course, there is a big future ahead for ATMs, with the next generation of smart ATMs beginning to replace disappearing bank branches as community touch points, underpinning genuine financial inclusion for all. Gone are the days when ATMs simply dispensed cash. Around Europe, we will be seeing machines installed that can provide all of the services once available only on bank premises. Every smart ATM installed will bring new vitality to the communities


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they serve. Local businesses will flourish, allowing people to work and live in their own thriving neighbourhoods. So, this is the vision that will be vividly illuminated at the ATM & Payments Innovation Summit. Speakers from Europe and further afield will gather, prepared to elaborate on the conference theme, ready to demonstrate just how exhilarating the future can be for both ATMs and cash. There will be speakers from several central banks, including the Bank of Spain and Bundesbank. They will be joined by senior figures from the European Central Bank, all speaking to the continuing importance of cash in mature economies

Gone are the days when ATMs simply dispensed cash... Every smart ATM installed will bring new vitality to the communities they serve

and often presenting market research findings that confirm the efficacy of their thinking. Commercial banks from around Europe will also be well represented at this event, focussing on how the digital revolution that banking is currently undergoing can combine with smart ATMs to deliver ever-increasing excellence in customer service at affordable cost. The 400 payments professionals attending the summit will also hear speakers from outside Europe, including the Bank of Mexico and the largest ATM operator in Brazil. The common thread will be how innovation is being introduced for both cash and ATMs, which can lead to improved efficiency and security, lower costs and higher revenues. From even further afield, the Bendigo and Adelaide Bank will be presenting in Madrid, introducing to a European audience its unique formula for providing community branch banking. Europe always wants to learn from groundbreaking innovation elsewhere and this Australian briefing is the latest in a long line of them introduced at ATMIA Europe events.

On the afternoon of the day before the main summit, ATMIA will be staging two workshops in the conference venue. These workshops, free for summit attendees, offer a first-class opportunity for in-depth learning on the important subjects covered. Each of the following workshops will last around three hours.

WORKSHOP #1 The new operating model aimed at ensuring commercial success for startup or small independent ATM deployers

This workshop is a unique opportunity to learn in detail about the European ATM landscape and how startup and small independent ATM deployers can operate successfully within it. Hosted by CashFlows, a leading bank identification number sponsorship provider, it will furnish participants with a wealth of information that will better equip them for industry challenges. This is a must-attend session, covering subjects such as key actors, commercials, revenue streams, onboarding, contracts and service level agreements. Speaking of innovations, ATMIA Global will use the Spanish summit to launch the blueprint for interoperable ATM software, developed by the ATMIA-led Next Generation ATM Consortium. The Consortium is a unique grouping of more than 180 companies with, collectively, unrivalled expertise in all things ATM. The aim is to future-proof ATM software, allowing for the additional services needed as smart ATMs take centre stage in the provision of convenient access to financial services for all. As if that was not enough, the presenters already mentioned will be joined by A-list speakers from equipment manufacturers, software developers, cash management organisations, security system providers and outsourcing contractors, all with their own take on what the future holds and how they can help

ensure a better one for all, including, most importantly, the end users. In all, there will be around 40 presentations during the two main days of the event, on October 18 and 19, all kicked off by a genuine, gold-plated celebrity speaker, in the shape of Chris Bertish, who describes himself as a ‘Speaker. Author. Waterman. Ocean Pioneer’. It sounds a very fair description of a man who has done everything, from surfing waves the size of four-storey buildings, to winning multiple stand-up paddle board world records. He paddled 7,500km solo and unsupported across the Atlantic to raise money for charity, has inspired audiences around the world and been an ambassador for positive ocean and climate change projects. I hope that’s ‘wetted’ your appetite for the summit. I look forward to saying ‘hola’ to you in Madrid!

WORKSHOP #2 Innovate through technology The industry stands at an exciting crossroads of old and new technology: development of the old (e.g. moving to Windows 10) versus the introduction of next-generation ATM architecture. The same can be said about payments technology in the era of Apple Pay, Bitcoin and the revised Payment Services Directive (PSD2), where modern meets legacy, such as the magnetic stripe. This workshop includes a review of available technology, current regulations and business trends, while Payment Redesign’s Eric de Putter and Marcel Ficken, along with clients and partners, will present their thoughts on every important aspect of this crucial subject. ■ If you would like to attend the 2018 ATM & Payments Innovation Summit, please contact Mary Lawrence, the ATMIA European conference director, at to register.

Issue 1 | ThePaytechMagazine



Rules of the playground It’s no use banks sulking over PSD2. Much better to make the most of the new kids on the block and learn to profit by playing together nicely, says Jiten Varu, Chief Product Officer for core banking provider Avaloq Imagine the financial services industry as a school playground. Over by the swings, you have the fintech freshmen; small in stature but exceptionally nimble, they can easily outrun their seniors – the incumbent banks – who are sitting atop the climbing frame, swinging their legs. The climbing frame has always been their territory and they intend to defend it. In the middle of these two cliques, enjoying a friendly kickabout, are the third parties. They’ll play with anyone who wants to, so long as they bring a ball. There’s one group missing – the playground monitors. It’s their role to ensure that everyone gets along and shares the space with each other. So, what type of firm performs this conciliatory role in the financial services industry? The answer to that would be core banking systems providers, according to Avaloq’s Jiten Varu, because it’s through their application programming interface (API)-enabled platforms that banks gain access to fintech services and vice versa. Avaloq is one such core banking system


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provider and Varu, its chief product officer, is proud of the congenial financial ecosystem that his company is helping to build. “If you take a macro view of the industry, it’s clear that everyone within it must learn to play together nicely,” he says. “Banks, fintechs, third parties and ecosystem providers all need to learn how to share revenue. “For a number of years, Avaloq has been pushing the formation of relationships between our partners. When we talk to fintechs and third parties, we bring them into the Avaloq family and help them to understand what it is that banks need. “It’s our view that financial ecosystems and APIs are here to stay,” adds Jiten, “and our current strategy makes us very well-positioned to nurture the growth of these ecosystems.”

Top marks for data With more than 150 customers and $4trillion in assets managed through its software, Avaloq has arguably been promoted to the role of headteacher at Financial Services High, or at the very least a head of department. According

to Varu, a strong emphasis on data has helped it climb this hypothetical career ladder. “We have an extremely scalable platform with data at the centre of our strategy and architecture for the platform,” he says, “so there are very limited reconciliation points when you work with an Avaloq solution. We have more than 150 sets of feature points on our APIs and we have a number of fintech and third-party partners that we can work with. By bringing all of those together, you get more than you would with a traditional vendor.” Just as data sits at the heart of Avaloq’s business strategy, so too should other financial services firms be implementing robust processing models that cater to an increasingly data rich environment, he says. “Consumption of data is currently very strong,” says Varu. “Every organisation, be it a bank, fintech or third party, needs to realise the value of leveraging data. If you want to leverage data, you need to consider which datasets you want to employ, as well as the quality and usage of the data itself. That’s why I use the phrase data veracity – if you can’t comprehend the

data in hand then you’re really in trouble. The players that are winning at the moment are the ones with the strongest data understanding.” On the subject of data leverage, nothing has thrown the cat amongst the pigeons quite like the revised Payment Services Directive (PSD2). Where banks could previously hold payment information beyond the reach of fintechs and third parties, they now have no choice but to descend from their climbing frame and learn to share. “PSD2 has levelled the playing field for all financial institutions,” agrees Varu. “With the maturation of the Cloud and the introduction of a new wave of Open Banking APIs, the pace of technology adoption is rapidly accelerating,” he says. “In the past, software solutions were released every six to 12 months, whereas nowadays you have risk-taking fintech entrepreneurs that are pushing out prototype solutions in a matter of days. “Not only are fintechs releasing new solutions at a rate of knots, but they’re also taking established micro functionalities of banking and insurance and applying a much more customer-centric approach to them,” says Varu. “As with any customer-centric approach, a greater sense of trust is engendered in the consumer since the solutions are emotionally connected to individuals. This ensures that users have the best experience with these products and that allows fintechs to build larger customer bases a lot more quickly. This is how, with a little help from PSD2, fintechs are succeeding in disintermediating the banks. “In building our ecosystem, we’re responding to the challenges posed by PSD2 and the disintermediation of traditional operating models so that established financial institutions can respond to the fintechs that are entering their space,” says Varu. “As an incumbent, the first step in mounting a defence against fintechs is to reorganise yourself to be much more dynamic and responsive to new solutions. They must start examining new revenue models and strategies that could lead to future collaboration with ecosystem partners and fintechs.”

Playing to the piece

revolution is the direct-to-customer strategy. The sandwich model once known as B2B2C has lost its filling as a result of B2B businesses choosing to pursue relationships with end customers. “We’ve lost that step in the middle,” says Varo. “For example, institutional asset managers would normally distribute their service via a buy-side asset management firm which would then pass on the solutions to the end client. Today, however, asset managers are driving a direct-to -customer strategy and the same thing is beginning to happen in the retail space. Give it a few months and I’ve no doubt we’ll see a similar strategy being implemented in the private banking space.” Despite his conviction that established financial institutions need to prepare themselves thoroughly for the inevitable

Banks, fintechs and third parties need to learn how to share revenue… We’re responding to the disintermediation of traditional operating models so that FIs can respond to fintechs entering their space fintech onslaught that PSD2 will instigate, Varo doesn’t believe that new regulation should be considered as a thorn in the side of the incumbents. “I actually think it’s a positive,” he says. “Bringing transparency to your customers is very important, because that’s what ultimately leads to trust. Right now, PSD2 is being associated with payment data and current accounts. However, new regulation provides a lot more scope for innovation than just that. For example, if you were to connect someone’s payment data with the location and personal data on their smartphone, you’d definitely be able to conduct some highly beneficial analytics,” he says.

“These could then be used to add value to the service that you’re providing to the customer. Banks need to embrace the challenge of discovering ways in which they can leverage PSD2 to provide a better customer service, like this. The best way to do it is to take a look at all of the datasets, APIs and third parties that are available to them and choose the ones that are best aligned with the requirements of PSD2. “Everyone’s assuming that, in a few years’ time, there’s going to be a new version of current regulation that will open datasets up in an additional direction. So, with that in mind, now is the perfect opportunity for banks to make some assumptions and try to predict what these extra datasets will be. “As unbelievable as it seems, we’re experiencing a quiet period right now [with regulation], and institutions should take advantage of this to connect up some periphery datasets ready for the future.” Having recently supplied its software-as-a service banking suite to both fintech startup Bank of Asia and traditional giant HSBC, Avaloq certainly has both ends of the FS playground covered. Bank of Asia is using the service to facilitate the launch of a new digital bank, whereas HSBC will employ it in its private banking operations across Europe. As Varo says, the company is always keen to welcome additional institutions into the Avaloq family, so perhaps we’ll witness some new Avaloq-led play dates in the near future. For the time being, however, break time’s over. Back to class! Activity time: Avaloq encourages fintechs, banks and third parties to collaborate

One such strategy that both leverages PSD2 and capitalises on the open API

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THE ROAD TO REGULATION... … is increasingly paved with innovative opportunity, says Christian Wolf, Head of Group Transformation at Raiffeisen Bank International From its home country of Austria, Raiffeisen Bank International (RBI) has a market that reaches across Central and Eastern Europe. And even though the universal bank recently announced its withdrawal from Poland, this was mainly a strategic move that will release funds for expansion elsewhere. The main reason for exiting Poland was RBI´s insufficient market share. In addition, there had been wrangles with the local regulator. But this should not imply that RBI has a bad relationship with regulators, or that it sees regulation as a barrier to innovation and growth. On the contrary. According to Christian Wolf, RBI’s head of group transformation, regulation is an opportunity for any bank that can work collaboratively with the regulators and the growing

At a crossroads: Collaboration with regulators is the way forward


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number of fintechs and innovative startups that are the engines of change. “Regulators have turned a corner,” says Wolf, “and rather than purely monitoring and challenging, they are now creating regulations that encourage innovative environments. Certainly, in the past, some regulations were perceived as a threat, but attitudes are changing and there are opportunities for those that rise to the challenge of the new banking landscape and the possibilities that it offers.”

Because RBI works across a wide range of different markets, with different legislative frameworks, it needs to be very conscious of how it uses data and what the local requirements are to be compliant. Then there is the issue of technology, which is also about negotiating differences and creating industry progress through compatible systems and common platforms. “We are dealing with a wide variety of systems,” says Wolf, “which means our infrastructure is quite diverse. It’s not easy to bring these together so that they can interact and exchange data, but it’s something we must all face and, ultimately, take advantage of.” Given the wave of new regulations, including, in Europe, the revised Payment Services Directive (PSD2) and the General Data Protection Regulation (GDPR), which also affects any country in the world with customers in Europe, banks must ensure they have the right systems in place to control data and use it both constructively and legitimately. Wolf says that in order to run new business models, such as open banking, RBI must strengthen its infrastructure and be careful how it brings external data into the bank, where it will be combined with existing data and then analysed and interpreted – the aim being to ensure that the data is used for the benefit of the customer. It must also be used in a way that enables RBI to better interact with potential fintech partners. “PSD2 heightens the cooperation model,” says Wolf. “We’re drawing in a lot of data and enriching it with what we have and maybe taking it out again and sharing it. So, it’s important to have a

comprehensive view and understanding of any data under our control and to be able to interpret it quickly.” According to Wolf, PSD2 creates an urgency to adapt globally. RBI has used the directive as a fillip for its open banking journey. “Although many countries are not touched by PSD2-like regulations,” says Wolf, “they’re still going into a platform-based open banking environment. PSD2 is a starting point, a driver of innovation in the European banking industry, forcing us to open up to the outside world.” He says the urgency is because PSD2 is redefining the customer interface with banks, meaning that no one can afford to stand still and do nothing. “To succeed, you must aggregate data, harnessing it for the benefit of customers, and create personal financial management solutions,” he says. “We take this very seriously at RBI and we’re looking at things that go way beyond what the regulatory requirements impose on us.”

APIs – a middle road RBI’s vision is strongly international and focussed on flexibility. When it comes to connecting services internally and externally worldwide, Wolf says that because the bank is dealing with such a welter of jurisdiction and systems, it’s not possible to have a big bang solution. Instead, RBI’s approach is to create a digital ‘in between layer or application programming interface (API)’, for use internally and externally. The next step, he says, is to start modularising core banking components in order to make the overall operating environment more flexible. It’s a process of progressive innovation, taken one step at a time. Innovation is also strongly apparent in the bank’s blockchain strategy. While many people still think of blockchain mainly in terms of Bitcoin and other cryptocurrencies, RBI is exploring the potential of crypto assets. “The technology advantage of blockchain,” says Wolf, “lies in use cases for such things as digital identity and know your customer (KYC). This is what we are

working on and we’re developing a very good knowledge of what technologies are available now, or emerging, and how they might be used in banking.” The bank’s membership of the blockchain consortium R3 is an example of its commitment to developing new technologies. R3 works with numerous partners across multiple industries, including many of the major international banks, to develop a universal blockchain platform, Corda, which is primarily intended for financial transactions. The industry-agnostic Hyperledger Fabric initiative, is another cross-industry, open-source collaboration, which is also of interest for RBI. In addition, it was the first Austrian bank to join global think-tank, the Blockchain Research Institute. “We consider blockchain a kind of team sport,” says Wolf. “It’s not something we can build or solve on our own, so we need to choose partners and find the right direction to go in.”

We consider blockchain a kind of team sport. It’s not something we can build or solve on our own, so we need to choose partners and find the right direction to go in Partnership, or at least collaboration, is now a driving force across the industry, as Wolf confirms. “A few years ago, we had this constant battle between fintechs and incumbent banks, all fighting for the same ground. Now, we’re cooperating to develop the same ground. “At RBI, we totally understand that in order to be agile and quick to market with our products, we must cooperate selectively with fintechs. So, we search the market to find the quick movers, the players who can help us maximise our technology.” One way that RBI achieves this, is through its fintech partnership

programme, called the Elevator Lab. Launched in 2017, Elevator Lab has already scored some notable successes. For example, a regtech startup called Kompany has signed a contract with RBI to develop and implement a know-your-customer (KYC) solution. The aim is to lower the time and costs involved in meeting regulatory requirements, with customers benefiting from value-added functionalities such as real-time and automated, cross-border commercial register checks.

A fertile environment RBI, which attracted more than 400 fintech applications to its current Elevator Lab programme, has also created an in-house entrepreneurship programme called Innovation Garden to encourage ideas within the organisation that can be developed with the help of fintechs. And then there’s its new corporate venture capital vehicle, called Elevator Ventures, which will help to make investment decisions regarding new technologies. In the second round of Elevator Lab, RBI selected fintechs from the areas of advanced analytics (CityFALCON from the United Kingdom and SESAMm from France), investing and tradingtech (FINABRO from Austria and Limitless from the Netherlands), new branch experience (social banking app PayKey from Israel and customer experience management platform Pisano from the United Kingdom), open banking (Cambrist from Ireland) and regtech (CopSonic from France). Looking to the future, and particularly from a customer perspective, Wolf believes the industry needs more integrated solutions like these. “This is the platform debate engaging the industry today,” he says. “We must concentrate on integrating services and providing added value for customers. Everyone now expects the same seamless integration we’re experiencing in other areas of the economy.” Many banks grappling with the regulatory roadmap have still not embraced digital as a staff to lean on, but RBI is definitely giving it its full weight as it strides along the innovation highway.

Issue 1 | ThePaytechMagazine



MON€¥ T£LK$ HSBC’s new app aims to liberate buttoned-up Brits and get them to engage frankly over finances. It’s a conversation that’s long overdue, says HSBC Digital Chief for UK & Europe, Raman Bhatia "People are more comfortable to talk about sex than they are to talk about money,” says Raman Bhatia, the dashing digital chief of HSBC, UK & Europe. He’s pondering the level of customer engagement with digital banking apps and platforms, which he thinks is too low, partly because customers are bashful about getting up close and personal with their cash. “Customers are using mobile banking apps very frequently now, but what they do with them is simply check the balance, move money around and make payments. It is a very transactional relationship,” says Bhatia. And he wants to make it more intimate. It’s why HSBC was the first high street bank to launch a standalone account consolidation app, Connected Money – to encourage customers to open up. “I think the fundamental job of a bank like HSBC is to create financial capability and financial prudence among our customers,” says Bhatia. “And the way to do that is to have data in a flexible environment, to have very rich metadata around the data, to have very explicit consent management from the customer on the use of data, and then finally have the ability to do interesting things with that data, to create experiences for our customers which make their banking much more engaging and relevant.” Bhatia arrived at HSBC having taken a career trip around the digital travel industry, which was an early adopter of big data analytics, using it to transform the customer experience – as anyone who remembers what life was like booking accommodation or finding a flight before Expedia and Airbnb took it out of our hands will testify. In banking, Bhatia believes data has a higher calling. It should be used to elevate people’s lives and finances. For him, it translates to building that ‘one place which provides not just access to financial


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products, but broad financial advice around money management’. “That’s what we’ve been trying to do here at HSBC,” he says. The Connected Money app, launched for UK customers in May this year, enables them to see all their UK current and savings accounts, mortgages, loans and cards held across 21 banks, including rivals Santander, Lloyds and Barclays, in one place. There is also a spending analysis feature and it comes with access to in-app messaging to give customers greater insight into their finances. At launch, the bank said it was working on a piggy bank feature that rounds up debit card purchases and puts the change into a savings account together with a savings ‘nudge’ tool, too. Although such services were already being offered by the disruptors, one fintech observed somewhat enviously that HSBC’s Connected Money app was a ‘sledgehammer’ in the aggregator market, by virtue of the bank’s size and influence. With Connected Money, Bhatia explains, HSBC is ‘providing a lot more context around the spending, not just with HSBC, but with other banks if they (the customers) are multibanked, and that’s uniquely possible in the UK now with Open Banking’. He thinks, if done well, this will improve financial engagement, which in turn will establish HSBC as the go-to financial brand in the ‘heart of people’s decision making’.

works is similar to Google’s local search engine, but placed in the heart of the financial domain, introducing users to better or more relevant financial products and services, be it credit cards, utility switches or investment tools. During the pilot phase this summer, Artha was used by 2,000 existing First Direct customers and almost 4,000 new ones, as the bank collaborated during the Beta stage with financial service providers such as Nutmeg, Flipper, Moneyfarm, Wealthify and American Express. “We’re just trying to see if customers have the appetite to seek third-party services in an app provided by a bank like First Direct,” says Bhatia. He believes what’s brewing is a massive change in the culture of financial handling and mindset, which is underlined by collaboration and hand holding at various levels. He says it’s important for financial organisations in general, and HSBC in particular, to collaborate with both small and large tech players that are addressing the financial needs of customers in order to

App-solute freedom Earlier this year, HSBC’s branchless bank, First Direct, also launched an app called Artha (Hindu for life goals), developed by UK-based web and mobile app developer Bud. It too enables users to bring accounts from the UK’s largest banks into one place. It then reviews customers’ financial behaviours, analyses and categorises the data on their spending trends and, based on this information, suggests financial products relevant to them. The way Artha

Trusted partner: HSBC is positioning itself at the heart of people’s financial decisionmaking

arrive at the future banking ecosystem. “We can be a key player at the heart of such an ecosystem, around which multiple players can coexist. We can partner with small fintech players in creating a particular service for customers, but equally we can partner with big tech players where they have the customers and we have the financial know-how,” he says. Positioning HSBC as the ‘enabler’, would certainly go some way towards protecting it from the threats posed by future Amazon and Facebook ‘banks’. The revised Payment Services Directive (PSD2), Open Banking, and the General Data Protection Regulation (GDPR) might have acted as catalysts to push the financial sector towards more transparency and competitiveness, but HSBC had been sharpening its technology to initiate a competitive marketplace even before they were introduced. Bhatia believes it has now reached the stage where it can shoulder the challenges and responsibilities that come with the freedom legislation gives it to use data from multiple open sources. “Especially in the wake of GDPR, banks have the responsibility as trusted custodians of customers’ money and data, to be very mindful, very transparent, explicit about how customers’ data is being used and what the value exchange is. Our focus here at HSBC is to ensure that

when we use customers’ data, it is to personalise the banking experience, to make it much more contextual and relevant for our customers.” Apart from the Connected Money app and the marketplace banking app Artha, HSBC has also launched a pilot project to use data from employers and other banks to improve lending decisions. “There are particular use cases that we are exploring, for instance how do we ensure that we have better lending outcomes for customers when we are able to see their complete financial

picture if, for example, they are not primary banked with HSBC?” says Bhatia. “If all this pans out well, and by that I mean the data governance around all of this has to be very explicit and clear, then customers are better off because they have better choices.”

The fundamental job of a bank like HSBC is to create financial capability and financial prudence among our customers

Issue 10 | TheFintechMagazine


Striking a balance



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The European Women Payments Network argues that a more gender-diverse industry is good for companies and customers When the UK’s Treasury department published its Women in Finance Charter in 2016, it couldn’t have predicted the perfect storm that would erupt around inequality in the workplace 18 months later. The #MeToo movement sparked in 2017 by allegations of abuse of power and sexual misconduct in the film industry made women in the workplace front page news. And when new data subsequently emerged, highlighting huge inequalities in pay and career progression for women across all sectors, corporate boards sat up and listened in ways that previous statistics that had been staring them in the face for years failed to. Evidence in 2015 that women made up only 14 per cent of executive committees in UK financial services, hadn’t resulted in a moral outcry in 2015. But by early 2018 the fact that female BBC presenters were being paid less than their male colleagues did. The official launch of the European Women Payments Network (EWPN) captured this zeitgeist. Founded by Martha Mghendi-Fisher, whose background in payments includes merchant acquiring, ecommerce and card-present processing, EWPN’s remit is to help women in payments and fintech take the diversity and inclusion conversation across borders. “We ask ourselves, over and over, where are the women in the top layer of the financial industry? Why are we not fully represented? Why are we getting stuck somewhere in between? What is holding us back?” she says. “I want to try to figure out why we are so under-represented.” Mghendi-Fisher created the platform for women to share their experience ‘while we figure out how women who have been lucky enough to get to the top can nurture other talented women starting up or stuck somewhere in between’. It recruited some powerful female figures in fintech to its cause, including Miranda McLean of Banking Circle and Silvia Mensdorff-Pouilly of ACI Worldwide, who serve on its executive board. It also counts Natasha

Kyprianides of Hellenic Bank, Viola Llewellyn, co-founder and president of African fintech Ovamba Solutions, Andrea Dunlop from PaySafe and Christine Bailey of Valitor among its advisors. This month, EWPN is in Amsterdam for its second annual conference – the only pan- European conference specifically focussed on women working in fintech and payments – featuring interactive panels, deep-dive workshops and plenary sessions with key female figures. Topics include leadership, female founders, bridging the gender gap and inspiring future generations of girls into the sector. It would be nice to think the EWPN is pushing at an open door. Finding practical ways to close pay gaps and break glass ceilings are now firmly on the agenda of many firms, according to Megan Butler, director of supervision at the FCA for investment, wholesale and specialist firms. She says: “Having worked in this industry for 30 years without seeing much change, something has happened in the last year.

We ask ourselves, over and over, where are the women in the top layer of the financial industry? “Firstly, there was the continuing success of the Women in Finance Charter. Secondly, the publication of gender pay gap data. Thirdly, we cannot ignore the #MeToo movement and the growing sentiment that enough is enough in the creation of toxic environments that belittle and harm women. “My sense is that business sentiment has shifted.” That can only be good news – not least for the majority of consumers of online payment services. According to a First Insight report on retail disruption released earlier this year, just 22 per cent of men frequently shop on mobile devices compared to 40 per cent of women. When designing the algorithms attached to those transactions it pays to have someone who can identify and empathise with the person at the other end of them.

A clear vision of payments Dr Christine Bailey, a member of the EWPN’s Advisory Board and CMO for Valitor, takes a 360-degree look at CX The irony of chasing the perfect ‘wow’ moment for customers is that you can actually end up creating a worse experience. The bright shiny object of the front-end customer experience – be that a perfectly designed website, slick in-store engagement or the latest innovations in augmented reality – is only a passing moment. Yes, customer’s love to feel good when they buy, and that is an essential differentiator for retailers, but if this initial experience is not supported by the second and third touchpoints, any value gained will be lost just as quickly. Customers want businesses to process their payment effectively, deliver the product securely and handle returns efficiently. Customer experience does not end once they choose to buy. Many businesses are starting to find this out the hard way. According to Forrester, 50 per cent of companies cannot link investment in customer experience to an upturn in revenues. If customer experience is not tied to a profitable business, a complete customer journey, value proposition or product that people actually want to buy at their own convenience, it will not meet the needs of either the consumer or the business. There has to be substance behind these actions.

Chasing the vision It is hardly surprising that companies dive head first into doing everything they can to attract customers before the point of sale. After all, competition is fierce. With every month that passes, consumers are demanding more. More convenient methods of purchasing products, more personalised approaches, more speed. In fact, PwC has highlighted speed, convenience and a blend of technology and people as the elements of customer service that are worth paying more for. Let’s take one of the core elements of the customer experience as an example, the process of buying a product. Of course, retailers should be concentrating on making it as easy as possible. Yet, for any improvement to be sustainable, it has to be compatible with the wider business and contribute to profitability.

Time to refocus In principle, implementing chatbots or innovations like biometric payments will provide customers with the

convenience and speed they desire. Such technology helps customers to buy and return what they want, when they want and Voting with their feet: how they want to. Yet, business Good customer experience has to be grounded in things management teams need to people really want focus on ensuring this makes the selling process equally easy for the organisation in question. How staff use new technology is a prime consideration. Depending on the composition of a workforce, some technologies may require significant training to be used to their full potential. This will require investment of time and money. Even then, there may be practical considerations, like whether employees will find the technology easy to use or if it will take up time that could be better making more sales? Another issue is whether an item like a new payments system integrates with the company’s existing infrastructure. A new payments system has to make it easy for the retailer to collect customer data if they are to deliver the required personalised experience. Third – and a personal pet hate of mine – is returns. If customers buy something online, they should be able to return it in-store. If they buy in a foreign currency, they should be able to be refunded in that currency. However, these simple requests are seemingly too difficult for even some of the biggest retailers. In truth, they are not. The technology is readily available to join up the whole experience. It’s all in the planning and completeness of vision. Linking all of these considerations, is that every business can improve its customer service, but it is incumbent upon management to know to what extent it can support new initiatives, without damaging itself.

Make change a reality Without considering all this and defining how meeting customer demand ties in with the smooth running of the business, organisations are not going to be able to sustain a positive customer experience. The perfect customer experience will remain a mirage that tempts and disappoints customers and businesses alike.

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WHY diversity and inclusion are good for business Andrea Dunlop, European Women Payments Network Advisory Board Member and CEO of acquiring and card solutions, Paysafe Group, says employers are missing out There is no doubt that diversity and inclusion are on the agenda for executive teams and leaders. Over the last 10 years, I have seen much more discussion on this across all areas of industry. But what does it mean? So often it seems to just be associated with gender equality, but it’s so much broader than that. I was reminded of this on a recent panel, which got me thinking ’what constitutes an inclusive working environment?’ Let’s face it, we have all at times felt unrecognised with no voice. I know I have. So, in my mind, being inclusive is about creating an environment that thrives on our differences: where we recognise that people are different and that there is nothing wrong with that; where everyone has a valuable contribution to make; where no one is discriminated against based on their race, religion, sex or sexual preference. Everyone deserves the opportunity to develop skills and talents to reach their full potential and work in a safe, supportive and inclusive environment, where they are rewarded fairly, recognised and have a voice on matters that impact them; where the benefit of having a range of perspectives in the decisionmaking process is valued. It is also important to appreciate that a one-size-fits-all approach is not realistic. People have different needs, so a flexible approach to support individual and business needs is required. This is the case with dyslexia, autism and attention-deficit hyperactivity disorder (ADHD). It’s estimated that at least 10 per cent of the UK population is neurodivergent, with mental health impacting one in five people. However, most workplaces are not really set up to support this, so employers are missing out on people who bring a different perspective. While there is legislation covering aspects of age, disability, race, religion, gender and sexual orientation, these are the minimum standards, so an effective diversity and


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inclusion strategy must go beyond this. In the late 1990s and early 2000s, Morgan Stanley paid out $54million, and Smith Barney and Merrill Lynch paid out more than $100million each, to settle sex discrimination claims. In 2007, Morgan Stanley faced a new class action that cost the company $46million. In 2013, Bank of America Merrill Lynch settled a race discrimination suit for $160million. There is good evidence that companies perform better when they have a diverse workforce. It must be a company-wide mission where each employee knows they are valued and in return is held accountable for their contribution.

Diversity and inclusion is good business But why should boards and executives ensure companies have diversity and inclusion programmes in place? Analysis shows that companies in the top quartile for gender, racial and ethnic diversity are likely to be more successful. McKinsey produced a report in 2015 that revealed: ■■ Companies in the top quartile for racial and ethnic diversity are 35 per cent more likely to have financial returns above their respective national industry medians. For gender diversity, this figure is 15 per cent ■■ Companies in the bottom quartile for gender, ethnicity and race are less likely to achieve above-average financial returns than average companies in the data set ■■ In the United States, every 10 per cent increase in racial and ethnic diversity on senior executive teams saw earnings before interest and taxes (EBIT) rise 0.8 per cent

Being inclusive is about creating an environment that thrives on our differences

■■ In the United Kingdom, for every 10 per cent increase in gender diversity, EBIT rose by 3.5 per cent. We all want to work in environments where employees can share their ideas and speak up without fear and it’s accepted that a diverse workforce helps companies develop products and services that meet the needs of the wider society.

Ensuring diversity programmes are not paying lip services I am not saying that creating a diversity and inclusion strategy is easy - it’s no small effort and requires strong, sustained, and inclusive leadership. But the culture and identity of a company comes from its leadership and the people within it, not just a branded exterior. So, what can companies and their leaders do about all this? The most effective diversity programmes are about engagement at all levels, and it is this that sparks success. All the reports show that diversity is a good thing for business. And, as of this year, it’s been propelled to the top of the agenda across many industries. But while the benefits are being recognised, I believe diversity still has to be forced because natural selection bias may lead us to replicate the learned behaviours of the past. And however provocative the commitments from the boardrooms (which are still too often full of white males) may be, too many performance measurements continue to be based on the same metrics that would be appropriate for anyone – such as sales achieved, the delivery of functional points, number of applications processed, and so on. If companies truly want to address the imbalance, they need to adapt a longer-term strategy, adopt an inclusive approach from the inside out and live it every day – not just pay lip service.

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Insider track ‘Challenger consultancy’ 11:FS doesn’t see itself as a company, but as a movement for change in financial services. It’s way up there (and some would say, way out there) among the most influential businesses in the fintech marketplace.

When 11:FS, the awesome team behind Fintech Insider, agreed to let Ali Paterson host his own Paytech Insider podcast, we couldn’t help but listen in

The British startup, which began life as a group of three like-minded fintech heroes working out of their local Starbucks, has scaled significantly since its inception in 2016 – as its imposing client list testifies… Barclays, Bank of America, BNP Paribas, Microsoft and Monzo among them. And it’s done it without spending a penny on conventional marketing. It didn’t have to. Its wildly successful Fintech Insider podcast, broadcast three times a week, attracts one million listeners and is downloaded in more than 100 countries. The concept is simple: as the name suggests, it’s a bunch of industry insiders talking among themselves about fintech issues of the day. Sometimes whacky, often insightful and always compelling, Fintech Insider has since been joined by Insurtech Insider and Blockchain Insider. To mark the launch of the Paytech Magazine, managing editor Ali Paterson went to them with the idea of hosting his own show... Paytech Insider! For this special edition, Paterson was joined by Andrew Mitchell from global

payments company JCB, who describes himself as a ‘JCB lifer and odd-job guy’ with a focus on strategy, new connectivities and business compliance; Emma Pearce, who is responsible for content at mega annual fintech show Money20/20 Europe; and Robert Courtneidge, who has left behind a 30-year career as a major fintech lawyer to become CEO of new payment company Moorwand (which, incidentally, has its own podcast… hmmm, wonder where it got that idea?). Recorded over the summer, here are the highlights of what went down…


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Apple Pay – a hero or an also-ran? In response to the headline ‘How Apple Plans to Win the Mobile Payment War’, Paterson wanted to know what the consensus was on Apple Pay as a mobile payment? “I’ll be straight up and honest about that: I’m a convert,” said Andrew Mitchell, who wasn’t until he lost his wallet in London and became stranded. “I called my wife saying ‘please give me your card

number!’ and bang – I’m an Apple Pay user from thereon!” He’s not sure what Apple Pay’s intentions are. “Is it data collection? Do they want to be an ubiquitous payment scheme? To me, they’re kind of riding the rails of what we at JCB do as a card scheme – they go to issuers, they go to acquirers, they get acceptance. Now they’re starting to talk about peer-to-peer payments – that’s an interesting market, and if we look at the post-PSD2 (revised Payment Services Directive) world and how that’s changing things – payment initiation service providers (PISPs) and all these different new market entrants and disruptors – I’d imagine they’ll make a leap into that space at some point.” For Robert Courtneidge, most Apple Pay subscribers are ‘passive users’. Yes, he uses it in the Apple store but for everyday transactions, he’d sooner flash his Kerv ring. “The last time I used Apple Pay was in Kiev airport when I realised I’d left my

wallet at home. I managed to survive the rest of a week’s business trip; it’s surprising how far it can take you. I’d almost call it a safety blanket,” he said, adding that consumers will get used to emerging payment methods slowly making their way into the ecosystem. “A lot of the stuff that is coming through on the technology side, like PIN on Glass, stuff that Visa and Mastercard are doing to remove POS terminals, will be standard, seven or eight years down the line. So biometrics and other solutions through mobile are probably going to come through, but it has to pioneer somewhere, and the Apple, Samsung and Google Pays of this world are the pioneers, I think.” They weren’t pioneers when it came to QR codes, though. Apple only provisioned payment by QR code to Apple Pay last year, long after WeChat and Alipay had launched to the Asian market, where – unlike in the

Holding emoney is a burden to a European financial institution… people are holding it in Latvia, Lithuania, Malta, Estonia, anywhere but the UK West – QR codes are now an ubiquitous transaction and marketing feature. Andrew hinted that JCB might introduce it to payments, especially in India, while Courtneidge agreed that, given the WeChat proposition, which ‘is spreading like wildfire, everyone’s saying we should go to QR codes’, noted that it’s not dissimilar to M-Pesa in its potential for take-up – in some territories at least.

Tencent and Alipay – the one billion dollar question The one billion under discussion was the revenue that the two companies were reported to be set to lose from a new

China central bank requirement for third-party payment groups to have to hold all customer funds in reserve. Considering that Alipay owns 53 per cent of the Chinese mobile payments market and Tencent 40 per cent (according to Beijing-based consultancy Analysys International), does this suggest that the alternative payment providers are officially becoming recognised as being more like banks? "Even if you look at Basel III capital requirements for banks, this is much stronger,” said Mitchell. “I see it almost as a hostile move.” Courtneidge added: “They’re basically copying the European emoney regulations, where you have to hold 100 per cent of the emoney issued, and that’s been a problem throughout. It was one of the reasons why people like Vodafone never wanted their Pay as you go being an emoney, because having those contracts you have to hold that stack of cash and you can’t do anything with it. “Holding this cash is a burden to a European financial institution, so people are holding it in Latvia, Lithuania, Malta, Estonia, anywhere but in the UK because it’s ring-fenced – it’s a safeguarded account. Issue 1 | ThePaytechMagazine


PAYTECH INSIDER “This whole idea of holding 100 per cent of capital, plus two per cent on top of that, means that emoney issuers find it difficult to make money. Whereas the banks have only got, maybe, between eight per cent and 20 per cent that they’re holding in liquid cash, and the rest is invested; they can do overnight deposits to make returns on it. Emoney issuers can only make money out of interchange, which has pretty much gone away – foreign exchange is probably the only choice now – and fees. It’s a much more difficult proposition.”

Biometrics – you gotta hand it to ‘em! As a wearable payment fan, GlobeNewswire’s report ‘SmartMetric announces new biometric credit card designed to make online transactions safer using fingerprint in-card authentication’ frustrated Courtneidge. “What’s the point of building tech into little tiny cards?” he said. “Wearables are going to be around longer than cards. People will probably end up injecting stuff into your bloodstream when you’re born and then you’ll be followed for the rest of your life. It’ll track through your eyeballs!” Pearce recalled a speaker on last year’s Money 20/20 US panel discussion who did have a payment chip under his skin and the audience was fascinated, not repelled by it. “Pretty much 80 per cent of the questions were things like ‘what can you do with the chip? What does this do? Have you got one for your kids?’,” she said. Not surprisingly, Courtneidge would wear one: “I like minimalist – minimalist is good. The less you carry, the better!” Asked whether JCB would consider having a fingerprint on the card itself, Mitchell was inclined to think palm vein over fingerprint will be the biometric of choice. “Rather than going wearable, we’re going pure biometric,” he said. “We’re trialling it. We’re working with one or two partners and it works pretty well. “My question here is around online, card-not-present transactions. Online fraud is the major problem. Once you implement EMV particularly, your face-to-face problem goes away with magstripe transactions, but after that, you have a card-not-present problem. Obviously, we have the revised Payment Services Directive (PSD2) looking at secure customer authentication, so I guess it could be useful in that


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environment, but it’s very interesting now when you look at how regulators are interpreting the new laws and what is secure customer authentication.” “The whole question of biometrics, and building in biometric identity within a blockchain solution, around a payment, and whether the blockchain is separate to the payment or part of it, is clearly where the future is going,” added Courtneidge. “You need some means of connecting to that piece of the blockchain to enable the information to come out (at least that which you’re happy to come out), for that particular transaction because, obviously, someone doesn’t want their whole medical record coming out when they're just buying a packet of crisps in the corner shop. But, clearly, they’d want all their medical records when they’d just been involved in a road traffic accident and the ambulance was there. “So, it’s how you build all of this. I think there is a lot of work being done in the blockchain industry to build these solutions, but they’re not necessarily built around the moving of value on the blockchain. They’re built around building ID on the blockchain and letting the value move through the traditional methods. “You don’t have to have both together. I think that’s why Ripple has been quite successful with the banks, because it’s a messaging system, rather than a transfer-of-value system, and when they’ve tried to use it for transfer of value, it’s never worked quite as well.”

and for many years, in the electronic money and prepaid industry, the best business solutions are in the SME market, because of the cost savings you can make and frictionlessness of using that type of service. So, I think there is a big disconnect,” he said. “This is arguably why invoice factoring is such a growth segment,” said Pearce. “There are a lot of companies that are jumping on that bandwagon and it was definitely a really big talking point at Money20/20… to change things for SMEs.” JCB’s Mitchell – himself a small business owner – steered clear of invoice factoring. “You don’t even know when the client has paid the invoice. You don’t have that communication with the client. And you’ve got to get the client to email, very specifically, when they’ll be paying, which is kind of half the battle – knowing when someone’s going to be paid. If you get that far, you might as well keep it in-house, rather than go somewhere else,” he pointed out. “There are a couple of small companies that do invoice cycling instead of factoring – they look at your invoice, then run loads of data and analytics on it, and say 'right, we’re going to effectively treat this as your security’ and send you, say, 80 per cent of the money now and then take a weekly direct debit, or something similar, so it’s like a small loan. It’s a nice mixture between an unsecured loan and invoice factoring. “I think those sorts of new products can fit in quite neatly for the SME market. There is a lot of opportunity for bankers to get creative and come up with new ways to finance invoices and deal with these sorts of trade and SME problems.” “If they can be bothered,” added Courtneidge. “That’s why the fintechs are out there – they can see these niches and exploit them quite rapidly, and they can still plug in the backend to a bank, to get a line of credit. Look at something like Tide, which was set up purely for the SME market and it’s taking more new SMEs than any other bank or fintech in London now. These are the companies coming through that are going to help SMEs, which is the most needy sector in banking.”

What’s the point of building tech into tiny cards? Wearables are going to be around longer

Citi’s slicker business banking – are SMEs the Cinderellas? Fintech Finance’s story about Citi’s attempt to create a frictionless experience in the business banking environment prompted the question 'have SMEs been ignored in the pursuit of customer experience?' While major corporates with large treasury departments addressed the problem with the banks several years ago – with the EU-wide real-time gross settlement system TARGET, for example – Courtneidge agreed that ‘the problem lies with the smaller businesses, the SMEs, which have always been locked out’. “They’ve always had the highest charges,

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Access for all: Open Banking will extend the reach of financial services


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Opening up to a new banking era

Most consumers are unaware of what the UK’s Open Banking regulations mean. Does it matter? asks Imran Gulamhuseinwala, Trustee of the Open Banking Implementation Entity and a keynote speaker at PayExpo Alongside enabling innovation, transparency and competition, Open Banking will – for the first time – put the customer in control of their data, privacy and finances.

Open Banking is not just for the sophisticated, the financially literate or the wealthy, says Imran Gulamhuseinwala, trustee of the Open Banking Implementation Entity. “It will expand the coverage of financial services dramatically by making it easier and cheaper to access the type of bespoke services that were previously the preserve of those who could afford them,” he says. “Critical to this is our belief that the customer must be in charge and able to control every aspect of how their data is used; by whom, for how long and for what purpose.” One of the most significant implications of Open Banking for businesses is speedier payment processing. In many parts of the world, reporting is restricted to prior day and – in a limited number of cases – intra-day reports. There is clearly demand for better information on cash positions and transactions. Application programming interface (API) technology enables instant interactivity between businesses and bank systems, supporting real-time reporting. Some would argue that real-time payment processing is more significant in retail banking than in the corporate space but, for both, data has become the new collateral – real-time data enables real-time credit decisions, financing and more relevant service propositions. Gulamhuseinwala, who will deliver the keynote address at the PayExpo event from October 9 and 10, acknowledges that we are just at the start of the Open Banking story and that new technologies and practices take time to bed in. While he is confident that it will change the way the

economy works, he also accepts that this promise will take time to realise – several years, at least. “However, Open Banking is not happening simply because the regulators are mandating it. It is happening because there is commercial opportunity,” he says. “It is happening because there is an opportunity to make the financial infrastructure of a nation more efficient, more flexible and better able to serve customers.” A YouGov survey published in August 2018 revealed that close to three-quarters (72 per cent) of UK adults had not heard of Open Banking. However, YouGov’s director of financial services research, Matt Palframan, agrees that the initiative is more of an evolution than a revolution. In that case, its debatable whether consumers need to be fully briefed about

Open Banking is not happening simply because the regulators are mandating it. It is happening because there is commercial opportunity the changes to financial services at all. It could be argued that consumers don’t need to understand Open Banking; third-party providers and other stakeholders just need to make the market more compelling so that consumers can benefit from it. On the other hand, this year’s Facebook data scandal has left consumers more concerned than ever about sharing their personal data. Palframan’s question about whether or not a truly innovative product or service can create real disruption in the market and overcome concerns of data

sharing, has thrown down the gauntlet. “Fintechs are already demonstrating that you can come into the market and provide a great proposition because the barriers to entry are so low,” adds Gulamhuseinwala. “There is an opportunity to challenge some of the established players and I anticipate seeing non-financial services companies (such as mobile phone operators, pure tech companies and insurance companies) also entering this space. All of those lines are going to blur.” However, with more than three-quarters (77 per cent) of YouGov respondents expressing concern about sharing financial data with companies other than their main bank, it is important that consumers understand the changes happening and why newcomers are joining the market. Consumers need to be educated on the number of steps that have been implemented to ensure Open Banking gives them even greater protections than they receive today. Only third parties regulated by the Financial Conduct Authority (FCA) can use the Open Banking system, which is built with rigorously tested software and security. “Sharing customers’ data with third parties can only happen with their explicit permission,” concludes Gulamhuseinwala. “In the event of fraudulent payments, banks are required to reimburse the customer fully and, of course, the customer is further protected by data protection laws and also has full recourse to the Financial Ombudsman.” ■ Imran Gulamhuseinwala will be talking about the progress made in the early days of Open Banking and exploring the opportunities that lie ahead at PayExpo 2018. To see him take to the stage, follow the link to register: Issue 1 | ThePaytechMagazine



Perfect geometry The success of Jack Dorsey’s other tech business rests Square-ly on its people-empowering motto, says Hardware Lead Jesse Dorogusker When Liam Dargan was researching ways to reinvigorate trade in the historic Lancashire town of Darwen, he found that more than 95 per cent of businesses in the once-busy three-day market dealt solely in cash – as did many others locally. He was quick to strategise that what the town – with its thousands of school and college students – needed to survive was an upgraded payment infrastructure, allowing it to offer smart, competitive services to its customers. In short, small businesses needed card readers and the software support to go with them. Which is how Square, the less-well-known tech child of Twitter founder Jack Dorsey, became involved in a project that redrew the town’s commercial future. For Square, this was an ideal opportunity to demonstrate the power of what it had set out to do: put affordable, secure mobile card readers in the hands of even the smallest startup and watch it transform their business. And so it gave the traders of Darwen its Square readers for free, along with training and marketing support to help them catch up with the advanced technology. As a bonus, they got their first £1,000 of card transactions processed without charge. Generous maybe, but it fitted with the motto of economic empowerment that Jesse Dorogusker, hardware lead at Square, says the company has ingrained in its mission. “We want businesses to always make a sale. We’re also innovators and trying to look forward, so we have to live between the world everyone is in, including magnetic stripe cards and cash and cheque, and the world that everyone’s headed towards, which is mobile devices and secure, authenticated payment types, like chip and PIN and contactless.” Even in Darwen, where local Lancastrians were wedded to their cash,


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the plain and simple design of the point of sale (POS) from Square meant it was embraced by merchants and customers, young and old alike. Dorogusker says the hardware, with its Apple-inspired lines and simple commissioning, is key for Square to achieve this large-scale acceptance. “You can buy it yourself, set it up in the middle of the night and sign up for Square in five minutes, and you don’t have to go to a bank, you don’t have to fax in any forms and you don’t have to be approved by anyone except through our simple onboarding process,” he said. This, together with the extremely low costs at which Square is able to offer its products, complete with encryption and security, has helped it capture an estimated three to four per cent of the $2trillion SME global payments market.

We have to live between the world everyone is in, including mag stripe cards and cash and cheque, and the world that everyone’s headed towards Darwen wasn’t the first community that Square nudged to achieve this paradigm shift from cash to card. For Holywell in Wales, Square prepared and equipped 55 of the town’s independent businesses to accept card payments, which in turn inspired almost all the other remaining businesses to follow suit. “There are millions and millions of underserved businesses throughout the world. Square serves a few million globally, so you do get to pretty

substantial scale in designing and developing card readers,” says Dorogusker. “I think you have to have the will to simplify the product. When you couple a smart card reader to a super-smart mobile device, like an iPhone or a tablet, you can really offload a lot of the computation and display functionality and things that are in more traditional terminals and distil the reader down to its simplest essence, which is why our card reader is so simple, so accessible, but also so low-cost.” Which is great if POS devices are going to be around forever, but according to an audience survey at Money2020 Europe this Spring they’ll be extinct in the next five to 10 years. So how does he square that circle? For Dorogusker, POS might transform, upgrade and evolve. “But as long as there are physical spaces and buyers and sellers, there’ll be a technology that mediates that conversation, that displays information, that shares information, that connects you to online commerce and inventory from other stores and also manages your authentication, which is sometimes a payment card, sometimes biometric,” he believes. Hardware and technology will remain and ‘there’ll always be a purposeful managing of this collaboration between a buyer and seller to make a sale and live in the local environment. We’ll evolve over time and so will physical spaces’. Keeping time with those changing physical spaces across continents, Square is expanding its operations fast. In the US, it is reworking its application for industrial loan company (ILC) status with the Federal Deposit Insurance Corp (FDIC) to be able to collect government-insured deposits and offer its customers small business loans. Meanwhile, it collaborated with ecommerce giant eBay to provide seller financing through Square Capital to

A Square deal: The company set out to give SMEs the building blocks for POS

the tune of $500 to $100,000 in the US. Under this arrangement, eBay sellers will be able to obtain financing for any business need, without filling in endless forms and in less than one business day. In the UK, Square launched its cash app this year, which turned out to be a rather simplified version of its powerful US variant, allowing customers to make payments within the country, but not with attached credit, cash or cryptocurrency facilities. It also launched the Square stand, which turns an iPad into a full POS system. In the stock market, Square’s share value has more than doubled in 2018 and is predicted to rise further. At the end of September, it hit $100 per share for the first time and analysts forecast Square’s earnings to rise by more than 61 per cent in the current quarter and nearly 69 per cent over the year. This follows Credit

Suisse raising its price target for the Square stock to $81 from $44 in the last week of July, reasoning that in economies built on micro-trade where governments are also pursuing a smart payment policy – such as India, which saw debit card transactions alone increase by 82 million in the 12 months to May this year – there’s plenty of room for growth at Square. “Card acceptance is not universally distributed and not easy for everyone to accomplish, so bridging the gap between

consumer preference for card and sellers not all having those tools of business has been a great opportunity for us,” says Dorogusker. “Even the smallest of businesses and individuals who are just getting started or are doing it as a hobby, can have access to tools that they never had before and really thrive, either as a part-time or full-time gig, in a way that they haven’t been able to before. “It’s also put a lot of pressure on cash. I think people have underestimated the costs of cash for a very long time and card is a superior option, in many cases, for buyers and sellers.”

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From POS to POI As Vice President of Content and Value Added Services, Nicky Koopman is responsible for AEVI’s marketplace and the developer community that supports it. Here, she explains the concept and how it’s reaching out to an increasingly savvy SME market FINTECH FINANCE: What does AEVI do? Nicky Koopman: We provide acquirers with the foundation of next-generation acquiring services. We enable them to move and manage their classic payments proposition into a new value-added world of apps, payments and smart devices. Our clients are the merchant acquirers, value added resellers (VARs) and independent solution vendors (ISVs) and we have a community of app developers providing business-to-business applications for our clients and their merchants. FF: Can you tell us more about AEVI’s developer community? NK: AEVI works with third-party software development companies that have solid business solutions for merchants. Our community portal is where we bring these app developers and merchant acquirers together to share all the information needed to build, develop and prepare the apps that run any AEVI-enabled device, from vendor-agnostic smartPOS to non-payment devices. The right combination of apps and devices for each merchant’s business transforms the traditional point of sale (POS) into a real point of interaction (POI). We believe it’s time to get out of the POS business and focus on the POI, where payments are just one of multiple applications that merchants use to make their businesses more profitable and consumerfriendly.

FF: How easy is it for this community to onboard on to AEVI’s system? NK: Super-easy. Developers just register on and, from there, they can find all the solutions they need. It’s straightforward to merge apps on Android to our SDK and then they’re ready to go. FF: Can you tell us more about the AEVI marketplace? NK: Marketplace is one of the three components of our Digital Service Center, which also compromises AEVI Payments and AEVI Estate. The Digital Service Center enables acquirers to pick and mix solutions for any stage of their digital strategy and get access to a one-stopshop, containing a foundation of content and services to support that.

The marketplace is where we showcase the app content available for merchant acquirers to tailor their proposition to their merchants. It allows them to find the sweet spot for their merchant vertical, to offer the best-suited business solutions for their merchants. Using the marketplace, merchant acquirers can offer them the same types of solutions that the Tier 1 retailers are able to afford but that would otherwise be out of the reach of SMEs.

We’re not just talking about payment devices, but a full business solution for the SME market FF: Where do you see AEVI taking its marketplace in the future? NK: We are already active from Australia to the US and everywhere in between, but there are a lot of markets still to conquer and a lot more ways in which we can serve merchants better. We will continue to provide the foundation for next-generation acquiring. Giving our customers access to a one-stop-shop of content and services to support theirdigital strategy to improve top- and bottom-line performance, merchant acquisition, retention, cross and upselling opportunities.

Innovation for SMEs: AEVI helps its clients extend Tier 1 services to small businesses


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Raising the bar of what payments can & should do.

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Time to share Payments is a fast-paced sector – new technologies and payment methods are entering the market all the time. This means that the way consumers want to pay for goods and services is rapidly diversifying, as each individual seeks out a more convenient, seamless payment experience.

People are no longer happy to wait in line to hand over cash – they know that payments can be smoother and quicker. The same, of course, goes for online shopping behaviour: consumers expect a smooth checkout process with the least amount of friction and data entry points. As a consequence, regional variations are proliferating, with consumers in China, for instance, demanding different payment methods from those in Europe and North America. Meeting customer demand for seamless payments can have a positive impact on merchants’ businesses. Research conducted by Strategy+Business, for example, highlights the business benefits of creating a seamless experience for customers – it can generate repeat business for the service provider, avoiding friction that leads to abandonment.

Merchants failing to act Despite these changing times and the opportunities presented by new technology, many merchants still rely on a one-stop-shop, one-size-fits-all payment solution. There is an expectation that customers should change and adapt their particular payment habits to match what the retailer has on offer. Such thinking will not wash for much longer. Consumers have a choice when it comes to the merchants they shop with. If a business doesn’t meet their needs – whether by not offering the right products, by not providing the right channels, or by not accepting the payment methods they prefer – consumers will simply take their money elsewhere. If this happens, the merchant will lose out, not just on that sale, but on repeat business in future. If merchants are serious about continuing to appeal to their existing customers, or if


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Intrapay Chief Commercial Officer, Matthijs Pronk, argues that not only do merchants and payment providers need to work together to improve customer experience, but processors must collaborate, too

they want to target new demographics or international markets, they need to change their approach to payments. They need expert local knowledge and cannot rely on any one payment partner’s approval rates alone. Nor should they be satisfied to have a single point of failure – merchants still want to be able to accept payments, should anything go wrong with their payment partner’s system.

Addressing the problem So, what can be done to address these issues for merchants? Increasing the number of payment connections a merchant has is one way to achieve this goal. This not only increases the number of payment options available for customers, but also helps to mitigate the risks associated with a single point of failure. Nevertheless, to simplify their business operations, many merchants may still prefer no more than two processors. Another important move is the development of open-source payment solutions. These are particularly useful, as they can provide connections on demand, allowing merchants to accept a range of payments without having to rely on any single provider. Interest in this area is growing and we can expect open-source systems and those players with an open mind and agile technology to be embraced by a large number of merchants. The development of such solutions, however, will rely on knowledge sharing and co-operation between payment providers

Interest in open-source payment solutions is growing and we can expect them to be embraced by a large number of merchants and others in the industry. As my colleagues and I explore in Intrapay’s new Manifesto, this kind of collaboration is needed to help the market continue to meet the payment needs of their existing and future customers.

Working together To achieve this level of collaboration, and build a payment ecosystem that works for both consumers and merchants, will take time. It will mean nurturing close working relationships not just between merchants and processors but between different processors, as well. There are some great examples of

Collaborative thinking: More openness in payments will deliver benefits for all

successful collaboration already taking place in the industry and the payments world is far more open than it was five years ago. Thanks to Money20/20 and similar events, there is greater knowledge sharing and more opportunity for partnerships to grow. For me, though, the most important factor influencing this collaboration has been the evolution of open and quicker integration possibilities between technologies, thanks to the development of application programming interfaces (APIs). These provide clearly defined methods for different apps and technologies to communicate with each other easily. Used by payment providers, APIs can allow different

payment solutions to be compatible with each other, helping to streamline the ecosystem for merchants so that they can offer their customers the payment options that are needed at any given moment. This is just a snapshot of what is possible. The industry is becoming more demanding, driven by the desire to have more and better features, products and services. And this drive is coming from our consumers, aka the shoppers. Processors cannot deliver all best-in-class solutions on their own – this makes the need for collaboration all the more urgent. The industry has laid some solid foundations for collaboration and

sharing in recent years. Now I would like to see the sector go further, fostering partnerships between schemes, issuers, acquirers, processors and merchants. There needs to be even more openness – of accessibility, transparency, data and understanding. Working together, we will all be able to design a payment solution that truly minimises the friction in the transaction process, while achieving other goals, such as cutting false decline rates and fraud. In doing so, we can take a major step forward in creating a payments process that truly works for everyone, from the consumer to the merchants and processors. Issue 10 | ThePaytechMagazine



Running rings around POS

In the point of sale space race, Castles Technology’s Saturn series combines cutting-edge design and innovative features to service an expanding universe of cashless payments. Europe CEO Filippo Scibilia is on a mission… The release of the 1990s Star Wars prequels saw the franchise create figurines featuring a just-developed gimmick that allowed two characters to interact. Near-field communication, or NFC, was the closest high-tech toys could come to ‘The Force’.

Back then, the concept of a cashless society was as fantastic as the idea of flying cars, intergalactic space travel for all and cryogenic immortality. Twenty years later, the last three are all a Vulcan heartbeat away from being possible, while NFC technology has become the principal feature supporting contactless and mobile payments. The cash-free future arrived early.

Facilitating this rapid replacement of the ‘old world’ of money exchange, the point of sale (POS) terminal market is expanding as reliably as the universe itself. With digital payments eclipsing what remains of traditional tendering, retailers have had little choice but to onboard new, up-to-date hardware to meet the changing payment methods of their customers. And that’s exactly what Castles Technology, the Taiwan-based POC terminal manufacturer, aims to offer, providing digital payment solutions to more than 60 countries worldwide. It’s an international company with bold globe-conquering ambitions: with offices in Europe, the US, Singapore, Japan and China, it’s presently the fourth-biggest provider of stationary POS terminals in the world.

For an organisation hoping to reorientate itself towards the centre of a changing payments hardware solar system, that’s three places too low. Castles went public in 2016 and currently boasts a market capitalisation of $95million, but it’s up against titans like Cisco, Verifone and Ingenico, all of which have considerable gravitational fields of their own. As Castles Technology Europe’s CEO Filippo Scibilia explains, it needs to do the simple things right to enhance its orbital field of international clients. “We need to follow the trend towards innovation in our market in order to support our customers and partners,” he says. “We’re always facing demand for change in the electronic payments area, so we are working hard to contribute towards innovation through a mix of cutting-edge design, technology, security and business processes.” The hunger for change that Scibilia describes doesn’t just mean servicing emerging markets with sleek new POS

A galatic payments battle: Castles Technology has teamed up with DishOut to win it


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terminals: it’s about anticipating an ever-more high-tech future. “For merchants, just to have credit or debit card acceptance is not enough anymore. POS terminals have to provide more benefits and become multiple-services, multiple-application points of acceptance.” Crucially, these services and applications reside on consumer smartphones – and that’s where the value of NFC becomes truly apparent. Of the 109 million POS terminals operating worldwide, it’s estimated that less than a quarter are NFC-enabled to support contactless payments by cards or smartphones. This is expected to skyrocket to 78 per cent by 2022, according to a study conducted by Grand View Research. Correspondingly, the market for POS terminals is expected to grow from $48billion in 2016 to an astronomical $116billion by 2025. The increasing desirability of NFC-enabled terminals is only one stream that’s pouring rocket fuel into the industry’s tank. In 2016, the Indian government launched its Digital India programme, removing high-value rupee notes from circulation as both a symbolic and shrewd move towards a cash-free economy. Similar initiatives are underway in China, Japan and Taiwan, with reimbursement schemes encouraging retailers to jettison cash and instead invest in POS systems. Eastern governments’ willingness to embrace this changing monetary ecosystem has thrust Asia into its position as the fastest-growing POS terminal market in the world, with the greatest demand expected to revolve around mobile POS (mPOS) devices. Castles is perfectly positioned to service this demand; already the number one provider of POS terminals to the Middle East, this is the next big market up for grabs for participants in the POS space race, and a Taipei-based, technologically advanced company like Castles is coming up with the goods. Its new line, the Saturn range, is exactly what’s needed for Castles to run rings around the competition. Taking its name from the most iconic and mesmeric planet, it’s clear that attractive design was a central vision for these terminals.

“Look and feel is important,” says Scibilia, “so we always concentrate on elegant design to create something special. But these beautiful objects need to do much more to compete in the POS market. We have a mobile device with an embedded printer, with all the accessories available, like fingerprint readers, an industrial QR code and a barcode reader. They’re a very portable POS platform – excellent for traders on the move.” The demand for these mobile POS terminals is driven largely by emerging markets, with increasing smartphone penetration and affordable wireless technology combining to entice traders to make the leap to digital payments. It’s a very different story in developed markets, though and, once again, this is an area in which Castles aims to take the initiative.

Exploring the payments galaxy In April of this year, Castles struck a strategic partnership with US-based paytech company DishOut. Announcing the deal on its website, Castles promised to deliver ‘tools for independent software vendors (ISV), independent sales organisations (ISO), merchants and consumers’.

These beautiful objects need to do much more to compete in the POS market... For merchants, just having a piece of hardware on their desks is nowhere near enough “This partnership,” it continued, “delivers multiple payment options including credit, debit, EMV (Europay/ Mastercard/Visa standard), NFC, Prox and closed-loop payments that include campus card, gift and loyalty, corporate commerce and hotel room key.” Keeping cutting-edge, Saturn-series design at the core while offering glowing concentric rings of additional services, Castles and DishOut seem to be working on an omnichannel, multiple-services combination of hardware and software to service the developed markets in which the uptake of cashless payments is, perhaps surprisingly, far slower.

The same goes, ironically for Castles’ home market of Taiwan. Only 13 per cent of consumers there use mobile payments, with 73 per cent of respondents to Nielsen’s 2016 Mobile Shopping, Banking, and Payment report blaming security concerns as a major factor. For a technologically developed nation, Taiwan lags far behind the pace of mobile payment uptake set by developing neighbours, including China. The Taiwanese government has set a target for 90 per cent of Taiwan’s payments to be conducted by smartphones by 2025. Whether Castles will be a major player in convincing consumers to feel secure in this switch remains to be seen, but Scibilia says: “We have to continue working towards creating the most secure environment for retailers and consumers. It’s fundamental to our vision.” Beyond security concerns, the Castles/DishOut collaboration looks set to ease the other major barrier to mobile payment uptake in countries such as Taiwan: the sheer scale of the growing payments galaxy. What consumers and retailers are waiting for is a system that accepts the multiplicity of payments apps and ewallet options flooding the market. It’s an issue that Castles’ partnership with an ambitious paytech software company ought to relieve. “We will allow the POS devices to manage not only acceptance of cards, which is typically credit or debit international schemes, but also new digital methods of payment, which can be, for example, Alipay, in order to facilitate easier trade for merchants,” says Scibilia. “For merchants, just having a piece of POS hardware on their desks is nowhere near enough any more. They want to see their devices handle every payment type a consumer approaches with.” The global payments provision industry has been given a compound annual growth rate (CAGR) of 10.1 per cent between 2017 and 2022 and, with the Saturn series and a new, innovative partnership to move forward with, Castles looks set to service much of the demand in the most profitable, fastest-growing areas of the market. Currently featured on the Forbes Asia’s Best Under A Billion list, Castles has cleared the launchpad for a new period of expansion into the deep space of payment technology. Issue 10 | ThePaytechMagazine



The speeds of change

Like many of the financial institutions it works with, Visa’s European operation is adapting its innovation and investment strategy to one based on co-creation. We asked Bill Gajda, Senior Vice President, how fast that’s going This summer, Visa’s European operations launched a fast-track onboarding programme for fintechs wanting to work with the electronic payments giant and made a $100million commitment to invest in promising examples. What do the two have in common? Both are strategies to enlist a new generation of innovators who will speed


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up transformation in the payments technology industry. It’s an acknowledgement that the ‘old guard’, despite its considerable market advantage, can’t figure out the future on its own. The fast-track programme kicked off in the UK in July and is delivered in partnership with alternative banking, payments and processing provider, Contis

Group. Explaining the motivation behind the move, Bill Gajda, SVP with Visa, acknowledged that working with behemoths like itself hasn’t been easy. “It takes quite a bit of time to understand how our system works and to get approved as a partner,” he says. “So we’ve developed a programme that can – in a matter of weeks instead of months – onboard a promising startup, give it access to some

basic Visa services and allow them to work with our infrastructure to build its businesses. This makes it easier to get started as an emerging fintech in Europe.” The programme offers startups access to contactless Visa debit cards, prepaid cards and current accounts, complete with IBAN, Faster Payments and Direct Debit functionality. Meanwhile, customer support from Contis provides an environment that is fully configurable to application programming interfaces (APIs), so that ideas that just could be the next-best-thing in payments can be fully tested and developed. The $100million promise, announced alongside the programme, has already facilitated one ground-breaking partnership – between Visa and an Israeli startup called Behalf. According to David Simon, SVP global head of small business and medium enterprises at Visa, the emerging business-to-business (B2B) platform ‘has demonstrated a commitment to expanding the purchasing power of small businesses by using digital payments to offer faster, more convenient and secure experiences’. As part of the agreement, Visa will offer Behalf’s clients tokenised Visa Virtual cards for business purchases, beginning in the US. It is Visa’s first investment in an Israeli company, having just opened an Innovation Studio in Tel Aviv in Spring 2018, and the inaugural investment through the venture fund. It’s also part of a strategic offensive in the B2B card-based payments space where Visa remains a leviathan but with a number of minnows now nibbling at its tail. Its two new initiatives are symptomatic of the changing relationship between incumbents like Visa and disruptors in a transforming fintech landscape. It’s one in which established players need to learn to work at ‘two speeds’, says Gajda, in order to support legacy systems alongside innovative payment methods. “We have this legacy infrastructure that may be moving a bit slower than some newer technologies, but it’s foundational to the security and soundness of everything we do – the banks are the same,” he says. “We need to protect our core business and support our core infrastructure, and that of our partners, by working at that original speed, which

probably means slower development and fewer releases. We also have to develop new muscles, new capabilities and new approaches. We have to open up our networks, focus on rapid co-creation, human-centred and API-based design. Fail fast, iterate quickly. That’s the second speed that we all have to work at.”

Extending Visa’s reach With more than 16,600 financial institution clients, 44 million merchant locations and 3.1 billion cardholders worldwide as of December 2016, the Visa franchise operates one of the largest retail electronic payment networks in the world. Moreover, it is expected to continue to grow its earnings at roughly 32 per cent in 2018, having grown revenues year-on-year by 15 per cent in the third quarter. It’s offering that scale, credibility, security and access to global infrastructure in exchange for progressive ideas and agility. The $100million commitment comes off the back of several previous strategic investments in European and international fintech startups that allowed Visa to extend its reach.

We have to open up our networks, focus on rapid co-creation. Fail fast, iterate quickly One example was last year’s equity investment in Klarna Bank, a Swedish digital banking platform founded in –2005. Originally an online retail payments provider, popular among tech-savvy millennials, the last 12 years have seen Klarna grow rapidly and acquire digital banking capabilities to become one of the largest banks in Europe, with more than 60 million customers across 90,000 merchants in 14 countries. It is expected to continue on its upward trajectory after reporting a 27 per cent increase in revenue to SKr4.53billion ($546million) and triplingits net profit to SKr346million ($555million) in 2017. Visa also chose to sink money into YellowPepper, a mobile payments pioneer in Latin America and the Caribbean. The new partnership hammered out in May

of this year allows Visa to establish itself in a previously inaccessible region through the promotion of tokenised payments and push payments. In return, YellowPepper has become a certified Visa Token Service Provider, meaning almost any Internet-connected device can become more secure for commerce. In addition to negotiating partnerships with existing digital payments platforms, Visa also launched its own version late last year. Called Visa Direct, the digital service enables real-time, person-to-person, business-to-customer, and business-to-business push payments while allowing companies to leverage its global network of retail locations. The platform is designed to help financial institutions, merchants and technology companies to meet the demands of consumers and merchants that increasingly rely on connected devices to send and receive payments. In order to accelerate the availability of Visa Direct to merchants in Europe, Visa partnered with Worldpay, a global leader in payments processing technology and, once established, the service will expand worldwide. Payments originating in the US, however, will be facilitated by international money transfer providers, MoneyGram. Meanwhile, Visa is also due to launch a cross-border B2B remittance service facilitated by blockchain technology in October 2018. Visa B2B Connect aims to improve B2B payments by offering real-time notifications and cryptographically linked transactions, which are designed to ensure an immutable system of record. In a recent interview, chief financial officer at Visa, Vasant Prabhu, cited speed, certainty and security as the main advantages of sending money with Visa Direct and Visa B2B Connect, which he expected to appeal to emerging companies with new business models and no loyalty to established money transfer services. App-based platforms also, of course, reduce expenditure on dedicated merchant terminals – making collaboration cost-efficient while also turning Visa’s potential rivals into partners. As Vasant Prabhu put it: “Right now, we’re well-positioned to go on the offensive.” Issue 1 | ThePaytechMagazine



Riding the payments wave In the fluid world of payments processing, it’s the task of paytech firms such as Worldpay to operate so deep in the depths of the industry so as to be invisible on the surface of the ocean of global trade. But it emerged like a leviathan in August 2017 when Vantiv, the US credit card processing company, purchased Worldpay, the UK’s largest ecommerce business, for $10billion, creating a $29billion global payments powerhouse with a net revenue of $3.6billion a year. Worldpay’s whopping valuation is a dramatic reflection of the world’s changing spending habits, says its executive director Ron Kalifa. As consumers adopt mobile wallets and pay through digital means, they create an incredibly valuable byproduct: waves upon waves of data, which Worldpay – already having the most cross-border licenses of any payments provider – is helping its customers to ride. “The payments sector has gone from being a relatively dull environment, to an extremely significant one,” says Kalifa. “It’s gone from being boring into the boardroom. From being an operational activity, to a strategic one.” The statistics revealed in Worldpay’s annual Global Payments Report are clear that not only is the world turning away from hard cash payments, but also that data will drive a profound evolution in


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Worldpay Executive Director Ron Kalifa discusses how data is transforming the role of payment providers how payments companies make their profits. According to the report, the Swedish, for instance, only use cash in 20 per cent of their transactions – against a global average of 75 per cent – while Asia is leading the mcommerce wave, with 22 per cent of their payments processed using an ewallet on their mobile device in 2016. In the same year in China, mobile payments accounted for $5.5trillion of trade – 50 times more than the US, which only totalled $112billion. Findings such as these help direct Worldpay’s new relationships, and so it’s little wonder that it has become established as what Kalifa terms the ‘bidirectional’ gateway through which China is able to trade with the world, partnering with the likes of WeChat, Alipay and other payment systems. With India predicted to become the world’s second-biggest ecommerce market in the next two decades, expect Worldpay – which possesses the most cross-border licenses of any payments provider – to lead payment processing access on the subcontinent, too. On top of these regional strategies, it’s Worldpay’s ambition to provide individual retailers with sufficient information – gathered from its specific transaction data – to drive more spending.

Kalifa sets out three central Worldpay objectives: “We’re always trying to increase sales for our customers, to reduce their costs and to mitigate against fraud”. Proponents of a ‘post-cash’ society cite benefits including more efficient tax collection; the safety and convenience of consumers as they’ll no longer be required to carry cash; and it benefits retailers by better equipping them to tackle fraud. It also, of course, allows them to use transaction data to improve their relationships with their customers. It’s that latter capability that Worldpay is most interested in. Busy funnelling more than 40 billion transactions a day across 146 countries, in 126 currencies, and through more than 300 independent payments systems, when you consider the sheer size of Vantiv and Worldpay’s combined reach, their ability to provide nuanced data-driven services to individual traders is simply staggering. “We have spent somewhere in the region of £500million to £600million on a technology infrastructure that supports the cross-border, global capability we have. It’s how we can facilitate a retailer who wants access to multiple markets –and we do it all through one pipe, one capability, one technology. “But data is at the heart of what those transactions are about,” says Kalifa. “The real value is in how

you bring your customer and merchant together, so that they have a better relationship – a better understanding of each other’s needs and capabilities.” Clearly, this is a complex arena involving the harvesting, processing and analysis of gigantic masses of both data and metadata across globalised traders – and it’s something that Kalifa believes Worldpay is best-placed to offer within a payments-providing sea that’s bobbing with competitors.

Casting the data net wide According to Kalifa, ‘retailers don’t want to have multiple relationships with payments providers’ because, as he points out, it means none of them will possess all the data points required to paint a full and accurate picture of a company’s trading relationships and trends. Worldpay’s solution is its omnichannel system, integrating payment channels to connect up data points into one coherent whole, utilising the entirety of

the data canvas to paint a full analysis of a customer’s interaction with each and every one of its customers. “Legacy systems are a real challenge for banks and retailers,” Kalifa continues, “and that’s where a payments provider like Worldpay comes to the fore. Banks decide they can’t be in the business of transaction data analysis, so they outsource. We’ve strong partnerships with banks, and it works really well.”

To a certain extent, consumers are playing into its hands: “Mobile payments have skyrocketed in the last two years,” he says. “2017 saw something like a 328 per cent rise of in-store mobile payments. People are more comfortable with using mobile technology to pay for products purchased in stores and that trend will continue.” With consumers displaying increasingly promiscuous buying habits, though, the trick is to reward those consumers who return to the same retailer, says Kalifa. Worldpay can provide the data analysis to help with that, too. “It’s about how to create loyalty between the retailer and the consumer. How does the consumer get appreciated for the fact that they go back to the same store on a weekly basis? It’s up to the new technology players to start coming to the fore with that,” he says. "If you look back over the last 10 or 15 years, I’m not sure many people would have predicted where we are today. Things have moved fast. Data will play a big part in the ecosystem that we’re in and it will be much more about solving the challenges that retailers are facing.” Worldpay’s developing suite of solutions will certainly be one to watch as the data tide rises. Data surf is up: The real value of transactions is in the data

Payments have gone from being an operational activity to a strategic one

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Now is the time! ACI Worldwide is seizing not just the day, but the second, when it comes to instant cross-border payments, as Craig Ramsey, Head of Real-Time Payments, explains 2018 has been a groundbreaking year for the worldwide adoption of real-time payments (RTP) infrastructure. Yet, despite the acceleration in the domestic payments market, cross-border transfers in the main continue to be an expensive, opaque and far-from-instant process. Many international payments are at the mercy of inflexible correspondent banking models with a continued reliance upon the same manual procedures that facilitated payments in the 1970s, not to mention hidden fees and unstandardised legislation. In an age of increasing global interconnectivity, the importance of bringing international transfers up to speed is self-evident. And that’s precisely what universal payments provider ACI Worldwide sets out to do. “Real-time payments (RTP) are obviously key to the future of payment processing,” says Craig Ramsey, the company‘s head of real-time payments. “No one expects anything other than real time and the ‘always-on’ mentality being part of the future. It has to be there forevermore.” Indeed, this year alone has seen the launch of three initiatives across Europe, the United States and Australia, which have added a further one billion customers to those already accrued by existing live schemes in China and India. Now, more than half the global population has access to RTP. This figure is only set to grow as more systems go live in Belgium, Portugal, Slovenia, Spain, the Democratic Republic of Congo, Hong Kong and Malaysia over the course of 2018. Meanwhile, initiatives in France, the Netherlands and Hungary gear up to launch in 2019 with the potential to be joined by more in Peru and Colombia. As domestic RTP ubiquity increases, so the pressure will continue to build for the same speed of delivery in cross-border money transfers. And for those that can step up to it, the prize is huge. By 2022,


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international business-to-business (B2B) transactions are expected to exceed $218trillion, up from $150 trillion this year. Furthermore, a recent study conducted by ACI found that more than three in four organisations expect – or are experiencing – customer service gains from real-time payments. For companies operating on a global scale, any delay in digitising international payment systems could have serious ramifications. In addition to encouraging global trade, Ramsey believes that instant international payments will catalyse innovation. “Fintech can overlay services on top of those real-time rails,” he explains, “to provide a new service to the customer.” Cross-border B2B transfer values facilitated by disruptors and fintechs is indeed already expected to grow from $10.4trillion in 2017 to $29trillion by 2022. Incumbents that fail to modernise will not only deny innovators vital opportunities, but also deprive themselves of value-adding collaboration. And yet, realising instant, cross-border payments is easier said than done. “You can’t just turn on real time,” states Ramsey. “A bank must have the back-end systems, it must have the backend processes, it must have an always-on mentality. “Sometimes, a bank’s core system needs to be taken offline for a short period of time,” says Ramsey. “But the services have to be 24/7. There’s no downtime, even for upgrades.” Each of these crucial components faces its own respective challenges, but to begin with the necessary automation requires forward thinking and heavy investment. “Innovation can be expensive,” says Ramsey. “We need to ensure that there’s an appropriate business case to

generate the margins and the revenues required to pay for it.” Instant international payments also present banks with additional challenges under anti-money laundering and know-your-customer legislation. While the regulations are a positive move towards improving security, they add another layer of complexity to an already tedious process. “It’s not just about know-youroriginating customer,” explains Ramsey. “The originating customer needs to know the beneficiary customer as well.” Real-time and international payments might appear to be two irreconcilable concepts. But ACI would beg to differ. An authority in global payments technology, it’s been bringing global payments up to speed for the past 40 years. To date, the company provides payment solutions to 5,100 organisations worldwide, of which 1,000 are some of the largest financial institutions and intermediaries in the world. “Our universal payments technology that we’re providing to banks really aims at 24/7 operation to ensure that the payments can happen fast,” says Ramsey. “We can’t take more than a second to process a payment, end-to-end, and that includes all of the core banking, fraud and handling checks.”

You can’t just turn on real time. A bank must have the back-end systems, processes and an always-on mentality

A flexible and agile system

In the past year, ACI has delivered this technology to several international RTP initiatives, including Single European Payments Area (SEPA) Instant Credit Transfer (SCT Inst), and Payments Network Malaysia Sdn Bhd (PayNet), which is making waves as a member of Asian Payments Network (APN). Last November, the European Payments Council launched SCT Inst, a pan-European

scheme that is available around the clock and enables both internal and external transfers of up to €15,000 in less than 10 seconds. However, the scheme only allows transfers in a single currency – Euros. Asian Payments Network (APN), on the other hand, has made a quantum leap in opening up frictionless multi-currency payment channels between territories. Around the same time as the launch of SCT Inst, leading payment system operators across Thailand, Vietnam, Indonesia and Malaysia signed a memorandum of understanding to connect their respective infrastructures and enable RTP between the regions. Other signatories include

National ITMX Co. Ltd (ITMX), Network for Electronic Transfers Pte Ltd and PT Rintis Sejahtera (Rintis). Preceding the connection of these various payment networks, PayNet chose to integrate ACI’s Universal Payments solution into its core infrastructure. The company now has instant credit and request-to-pay capabilities for ecommerce and person-toperson payments. Furthermore, ACI’s proxy address resolution solution allows payments to be addressed seamlessly by mobile numbers, National Registration Identity Card numbers and business registration numbers. Explaining the motivation behind the decision to use ACI, Peter Schiesser, CEO of

PayNet Group, says: “ACI’s solution provides the flexibility and agility that PayNet needs to continue innovating and improving the value proposition of electronic payments.” He adds that the decision was an investment in the company’s future. “Our ability to rapidly bring to market the payment products of the future is essential to keep abreast with the fast pace of change in the epayments market,” he says. Schiesser also cites futureproofing as the main incentive for the recent alliance with other Asian territories. “Our collective resolve for regional collaboration will ensure our payment services remain relevant in a fastchanging, innovative and globally interconnected world,” Schiesser adds. While talks are ongoing, the APN initiative is fully mobilised, with service expecting to roll out over the next few years. This gives each country enough time to negotiate regulation and gear up for regional interconnectivity. In addition to modernising incumbents, ACI also supports disruptive service providers. The most notable of these is SWIFT, the bank-owned cooperative that specialises in secure financial messaging services. SWIFT is the primary communications network between more than 11,000 banks, security organisations, market infrastructures and corporate customers in more than 200 countries and territories. It recently launched its own Global Payments Initiative (gpi), which relies on secure APIs, predictive analysis and artificial intelligence to grant customers greater transparency over transaction fees. The company claims to process half of all global transactions within 30 minutes and most of the rest, which usually require complex currency conversions, compliance checks and regulatory authorisations, arrive within 24 hours. The only SWIFT gpi-certified solution on the market, ACI enables banks to leverage SWIFT’s services and currently supports around nine per cent of its global traffic. With such progress being made in the space of a single year, there appears to be no turning the clock back. “We certainly won’t be returning to batch systems,” declares Ramsey. “The new normal is now, not some time tomorrow.” Issue 1 | ThePaytechMagazine



Good going: OTP Bank is leading digitisation in Hungary

Ahead of the field

OTP Bank is pulling ahead in the digital payments race, but you never zknow what’s coming down the track, wagers OTP Group’s Ferenc Böle For many European banks, 2018 must have felt like being in an endless Grand National, jumping regulatory fences and avoiding the technical ditches as they’re forced to put legacy out to pasture in favour of emerging fintech systems.

But in Hungary, the most testing hurdle is yet to come as banks saddle up for the introduction of the country’s instant payments scheme in July 2019. The regulatory equivalent of the National’s notorious Becher’s Brook, it’s described by Ferenc Böle, who sits on the board at OTP Bank Russia and Vojvodanska Banka – the Hungarian OTP Group’s 2017


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acquisition, based in Serbia – as ‘the biggest challenge in the industry’. “The whole market is working on it,” he says. OTP Bank, Hungary's former state-owned bank, is now a public company and one of the largest independent financial services providers in Central and Eastern Europe, with multiple subsidiaries and a representative office in Beijing. It offers a full range of private and business banking, with dedicated services for larger enterprises and local government (including treasury). It’s also by far the biggest innovator in Hungary’s financial sector.

And Böle regards the introduction of Hungary’s instant payments scheme, which is closely modelled on the Single European Payments Area Instant Credit Transfer (SEPA Inst) protocols for Eurozone countries, as an important milestone for OTP. “Usually, banks’ core legacy systems don’t provide this functionality, so to move from batch, end-of-day processing towards a 24/7, 365-days-a-year availability, with zero service downtime – this is a huge challenge for everyone,” he says. Fintech solution providers are therefore, he believes, fundamental to Hungary’s changing banking system.

“The technology to replace the core banking systems is simply not ready yet in Hungary, so we need to mix together the legacy technology and brand new technology used in Western Europe and Asia, and find a balance – all on a very tight schedule,” says Böle. And it will be a sprint to the finish. From concept to launch, Hungary’s instant payments system will have taken just two years to implement – much faster than most of its EU neighbours’. The speed of the task is not helped by the fact that the local market lacks highly-skilled individuals capable of moving technology forwards. OTP Group’s answer to this conundrum has been to partner with ACI Worldwide, an electronic banking and payment solutions provider with whom it already enjoys a number of operational relationships. With a track record of efficiency in delivery, collaboration with ACI Worldwide guarantees to speed up OTP Bank’s digital development to a confident gallop. “For the last couple of years, our actions at OTP have been forced by the regulations,” says Böle, “but, on a larger scale, we’re reconsidering our ability to perform a real and full digital transformation that builds our success and influence.”

Accelerating development It’s not just timely regulatory compliance that earned OTP Bank the Euromoney Best Bank in Central and Eastern Europe (CEE) award, or Global Finance magazine’s Best Bank in Hungary award, both issued this year. With pre-tax profits up 76 per cent and a loan book that increased by 11 per cent in 2017, OTP’s success has hinged on a readiness to adopt new technologies and a willingness to engage with fintech startups. “Hungary is very much part of the fintech hype,” says Böle. “A lot of Hungarians are leading successful startups in the fintech industry. It’s great for OTP: we are working with them, we are continuously monitoring the market, looking for new ideas, and looking for partnerships with these fintechs. We don’t consider them as major challengers for us or as threats, but we see mutual benefits and better services for our customers.” Engagement with these dark horses is driven through the banking group’s OTP Lab – a startup accelerator powered by Nestholma that puts young fintechs

through their paces in intensive three-month development programmes. In May 2018, the last OTP Bank accelerator hosted a range of ambitious newcomers to the CEE financial technology scene. Among their number were: Keystroke DNA, a behavioural biometrics security fintech; Prais, a Slovakia-based online real estate valuation platform; and the year-old Hungarian banking tech company Family Finances, which is rapidly gaining influence in Hungary and beyond. The merits of closer ties with potentially disruptive startups are clear, although Böle touches upon a further OTP-specific benefit of fintech collaboration. “Hungary is a small country. With only 10 million possible clients, it’s a relatively limited market,” he says. “However, it does mean that we can build up something in this market, try it, test it, adapt it, and later on we can roll it out on a larger scale.” OTP currently operates powerful international subsidiaries in eight other countries in the CEE economic area – from minnows like Montenegro to regional titans

A lot of Hungarians are leading successful startups in the fintech industry. We are continuously monitoring, looking for new ideas and partnerships Ukraine and Russia. Moreover, with Hungary’s economy growing by four per cent in 2017, it looks set to take a central role in the consolidation of CEE banks, and OTP clearly expects to play a pivotal role. In 2017 the OTP Group said it had its sights set on acquiring at least five banks and was making a $1billion war chest available for purchases. Its chairman and CEO was quoted at the time as saying: “We’ve waited for 20 years for this wave of banking consolidation in Europe. It’s finally happening now.” In Hungary, OTP hasn’t held its digital horses. The first bank to issue contactless cards in Hungary, in June 2017 OTP Bank also launched its own contactless mobile

payment solution, integrating it into its Simple mobile banking app, which in turn was developed by the bank’s fintech branch, OTP Mobil. A shrewd move towards increased digitisation, its implementation sits alongside recent Deloitte research into Hungary’s demographics, which puts smartphone penetration at 55 per cent – although not all smartphones are equipped with the near-field communication (NFC) enablement which is essential for mobile transactions.

Hungary – a dark horse In many ways, Hungary appears to lag behind even its immediate European neighbours in terms of electronic literacy: only 34 per cent of its population uses mobile banking and a comparatively low figure of 60 per cent possesses Facebook profiles. Add to this the fact that only 50 per cent of retailers in Hungary possess a point of sale terminal and it might appear OTP has put the cart before the horse with its digital innovation. But one encouraging move away from the predominance of cash in Hungary is the government’s instigation of a monthly cap on free ATM withdrawals. It is hoped this will be enough to push consumers towards electronic payment methods, including using contactless cards and mobile wallets. Böle insists that the bank must continue to present innovative and desirable services. “We’re dedicated to innovation – not just in what customers want, but in how we can teach customers and drive them to use those available technologies, products and services,” he says. OTP’s active participation in larger digitisation efforts across Hungary shows that it is keen to usher in the digital future of banking sooner rather than later in its country of origin, even if its international subsidiaries already boast more impressive adoption rates. The bank is a core member of the Hungarian Mobile Wallet Association, for instance, which is concentrating on increasing NFC payments as the future of the country’s transaction system. As OTP Bank approaches the initiation of Hungary’s instant payment scheme, Böle’s looking further down the track. “What’s best for the next two or three years won’t be best for the next 20 years,” he says, “so now we must consider what we can do to stay ahead of the field.” Issue 10 | ThePaytechMagazine



Walking the walk Christian Raccuglia, Marketing Manager for FIME’s digital transformation offer, and Stephanie Pietri, Head of Marketing Communications, explains how it ensures big organisations don’t trip up during tricky payment migration Little kudos can be attached to a company that doesn’t practise what it preaches, but it’s even more impressive when doing so is difficult to achieve once the business has expanded beyond a certain size. Global payment specialist FIME is that company: it doesn’t just talk the talk, it walks the walk when it comes to getting to the next level in the payments ecosystem. And that’s comforting when the client itself is often struggling to reconcile a slow-moving legacy infrastructure with fast-moving external developments. Established some 20 years ago, FIME has grown in quite spectacular fashion since the digital revolution took hold. In 2016, the company’s annual revenue topped €48million. Its Paris headquarters is orbited by around 20 global offices (in which 13 languages are spoken) with seven test laboratories, and more than 3,000 clients in 180 countries. It is now not only a world leader in testing payment solutions, but also provides consultation, training, test tools and certification services, and it accompanies its customers on large-scale, high-value projects from start to finish as their implementation partner. It helps to make sure that the payment technology in the customers’ hands (be it a smart card or mobile) doesn’t fail across the billions of transactions that take place worldwide every day and, as such, it’s a critical player, albeit not a name known to the consumers who rely on it. In other words it’s part of the financial furniture and it understands what it means to be a big fish surrounded by smaller and therefore theoretically more agile minnows. “We have been part of the payment system evolution for a long time,” says Stephanie Pietri, head of marketing communications. “And it’s now clear that this industry is going through a period of unprecedented change. While change is good, it’s never easy, and there are many challenges


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instance, with Amazon Go in the US, you enter the shop, you get your goods, you leave the shop, and you receive a payment notification. Uber has also worked on making the payment disappear from the taxi. In the same way, banks also need to think of ways to propose valuable payment services like this to end users, leveraging their data. “Then there is regulation. In Europe we have two main changes – the General Data Protection Regulation (GDPR) and the revised Payment Services Directive (PSD2), which improves security on mobile and online, and also opens the doors to fintechs and startups, to leverage banks’ data to propose more services to end users.” But FIME gets that it’s tough to deliver, which is why Raccuglia says banks should try to focus on both a short and a long-term vision. “It’s difficult for big organisations to adapt quickly,” he says. “So, we think there are two “It’s not just about defining how to use kinds of transformation: short-term, to adapt the data, of course, it’s also how to protect to and comply with current regulation, as it. Banks need constantly to improve the way they protect data privacy while working well as new services, like mobile; and long with other companies, such as fintechs, with term, which is all linked to open banking whom they need to share and exchange that and big data – adapting the system, organisation and processes, while keeping data. But better collaborations will increase in mind that the system should also be the kind and quality of services.” sustainable over time. For Raccuglia, the payments landscape “As far as regulation in the short is one of the fastest-changing features of financial services and he identifies a handful term goes, it’s about deploying systems that are more of fundamental trends responsible for secure, with strong creating the current tipping point. Firstly, authentication there is the emergence of alternative for any payment formats and instant payments. “The usages are moving and changing,” he transaction, says. “We all know that no one likes to spend time paying. And we see the payment becoming less visible for the end user. We’ve seen many initiatives that reflect this. For that banks must address to keep their central role in this new fintech world.” According to her colleague Christian Raccuglia, marketing manager for company’s digital transformation offer, staying relevant and agile comes down to better use of data. “We are all entering a new world driven by data and it’s even more true for banks,” he says. “They can leverage a huge amount of data every day to improve existing services and add new, valuable services – just like any internet player is doing right now.

While change is good, it’s never easy and there are many challenges that banks must address

Step-change: As a large, established organisation, FIME knows transformation is tough

online or on mobile. It’s also about opening new standardised application programming interfaces (APIs) for third parties that would like to have access to a bank’s information to aggregate data for customers,

or initiate payment directly with banks. This is big stakes as far as banks are concerned because they are not used to sharing this kind of data. “With regards to mobile, it’s important to think about adapting the customer journey for more connectivity and real-time transactions to match their needs. If they don’t do that, banks risk being pushed out of the picture by giant internet players, or merchants that want to control the relationship and the customer journey within their shops. “For the long term, it’s about how to build a system that will be future-proofed. Sustainability is a big challenge for banks but there are some components that could simplify that. For instance, many banks are thinking about migrating to ISO 2022, because this kind of protocol is more flexible and it gives access to new functionalities, or at least will simplify the way organisations communicate with third parties in the future because it’s better standardised. It will bring more interoperability locally, but also globally.” In order to help banks successfully navigate these pathways, FIME has developed a migration framework for digitising the payments process, from initial

EMV (Europay/Mastercard/Visa) contactless migration, to launching mobile and Cloud-based payments. It comprises of four key stages: analyse, design, specify and then deploy. “Banks have to make choices that will be strategic, so they need to be well-guided and accompanied by a trusted implementation partner that has significant experience in the market,” says Pietri. “This is where FIME consistently provides excellent support. We work with every facet of the project: certification, testing, consulting and training.” The analysis and design stages involve working closely with companies on identifying their own strategic goals. When those are complete, FIME gets into the nittty gritty of specification – of card, terminal, mobile, network interface, terminal configuration and personalisation preferences – before validating the system based on regulation and payment scheme requirements. FIME is agnostic about who it works with and its laboratories are accredited with 23 schemes. Most recently, it announced that it was the first to have both its test tool and laboratory qualified for eSIM testing by GlobalPlatform, the association of digital service and device providers that work to develop industry standards. This year, it also became the first testing provider to be accredited by JCB to support issuing banks with their JCB EMV migration and certification projects, allowing 86 million JCB cards to be used across 19 countries. Two years ago it was responsible for ensuring the smooth rollout of Turkey’s first domestic scheme, known as Troy, which involved it in every stage, from understanding the requirements and process of developing a payment scheme, to defining the scheme’s technical specifications for both contact and contactless payments and developing the certification body and test tools. It is now working with Saudi Arabia’s mada (formerly SPAN) payment system to develop testing and validation that will make the certification smoother and cheaper. “We know that for banks and other large organisations it’s not always easy to adapt quickly to this kind of change,” says Pietri. “That’s why it’s often simpler to work with an implementation partner to speed up transformation. This is the role of FIME.” Issue 1 | ThePaytechMagazine



Makingmoneymobile mobile Matt Briers, of international payment service TransferWise, began shifting cash across the world under the banks’ noses. Now he’s collaborating with them. Here’s why... Every year, the world becomes a smaller place. The Earth isn’t caught in the shrinking cycle of some cosmic tumble dryer, thankfully, but improvements in travel and communication are allowing more and more of us to pursue employment opportunities abroad. More than five million British citizens now live and work outside of the UK and almost 40 per cent of the population of London was born outside of Britain. There are similar demographics for major cities across the EU and Asia. We are a nomadic species and modern technology is enabling us to hop borders as easily as chalk lines on a playground. But while we humans can move from country to country as if we’re playing a global game of hopscotch, the same cannot be said for our money. If you’re living and working in Australia (the most popular destination for British expats) and wish to send cash back to the UK for your nephew’s birthday, your bank will charge you dearly for the privilege – as much as nine per cent of the transaction amount, according to the World Bank. That means you’d be many Australian dollars out of pocket. However, there is another way to make an international transfer without breaking the bank. In fact, it doesn’t involve banks at all, but rather a self-proclaimed


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‘technology company’ called TransferWise. If that wasn’t innovative enough, when making an international payment with TransferWise, your cash never technically crosses any borders at all. Instead, you send your money to TransferWise’s account in your country (Australia), it converts the amount to the desired currency (GBP) at the true rate, then it pays your recipient from a money pool in the country of destination (UK). The result? International money transfers that are cheaper, faster, and much more convenient than ever before. “We offer an international payment service that is up to eight times cheaper than the one offered by your bank,” says Matt Briers, CFO of TransferWise. “Where you’d likely have to wait four or five days for a payment to arrive if using a bank, we offer instant transactions on many of our routes. All payments can be sanctioned on the TransferWise smartphone app, completing the triangle of price, speed, and convenience that we’ve been building over the last seven years.” As you can see, there are clearly savings to be made in both time and money with TransferWise. Sending £100 to Australia using its service would generate a fee of just £1.40, whereas you could pretty much move that decimal point one place to the right if you enlisted your bank’s help to make the transfer. So, how can TransferWise afford to charge such a low fee for international transfers compared to banks? It all comes down to technology, as Briers explains.

“Banks have spent an awful lot of money on their transfer technology, although it tends to be solely domestic rather than international,” he says. “For example, a UK bank may employ sophisticated payment technology in Britain, but to enable international transfers it still has to rent correspondent networks from foreign banks. Over time, this has led to the creation of an international patchwork of banking systems for sending money around the world. All of these systems feature compliance and maintenance issues that must be overcome and they also rely on highly manual processes to remain in operation. As a result, there is an excessive cost base to operate this type of processing system, with banks typically spending between $30 and $40 per international transaction. “TransferWise, on the other hand, is bringing technology into play as a means of reducing all of these costs,” says Briers. “We only have three main cost buckets to worry about. Firstly, there’s the cost of moving money in and out of accounts, for which we have to pay a small fee to the banks per transaction. Secondly, there are the operational costs of onboarding and verifying customers as well as customer service. We’re minimising our costs in these areas by employing automatic verification technology and automating

compliance processes. So, if you were using TransferWise for the first time, you would simply open our app and enter your details. Our automatic verification tools allow us to instantly verify your identity in the background. Customers don’t need to visit a branch or undergo any face-to-face authentication, increasing the convenience factor of our service and lowering our operational costs. “Thirdly, we’re constantly investing in the building of our product, although this is fundamentally reducing our costs in the other two areas,” says Briers. “We’re linking many bank accounts around the world to create a network with a fully automated payment flow and we’re always moving money from account to account in all directions, reducing the need for us to ever actually make an international transfer ourselves. These two factors have allowed us to drastically reduce the unit cost of each individual money transfer we make and we’re committed to passing these savings directly back to our customers.” Speaking of customers, TransferWise now has four million of them, and moves approximately £3billion internationally every month on their behalf, saving them £3million a day compared to if they used a traditional bank. Not bad at all for a seven-year-old company, but Briers and the TransferWise team are hoping that new partnerships will help to supercharge these numbers. In June this year, the company partnered with Groupe BPCE (France’s second biggest banking group with more than 15 million retail customers) in what it hopes will be the first of many successful collaborations with large institutions.

“Banks like BPCE are recognising that they need to offer their customers a great international transfer service and that integrating our product into their website and app is a highly efficient way to do it,” says Briers. “We’re always measuring our NPS (Net Promoter Score) and are proud to say that, on many of the routes we offer, we have an NPS of between 80 and 90 per cent. That means that 80 to 90 per cent of our customers would recommend us – a figure that many banks could only dream of for their international transfer services. By implementing our product into their platforms, banks can instantly offer an amazing international transfer service that’s both cheaper for them and cheaper for their customers.”

By implementing our product into their platforms, banks can instantly offer a transfer service that’s cheaper for them and cheaper for their customers If the current trend of banking service modularisation continues, it’s likely that we’ll see many more partnerships between TransferWise and large banks. However, the good news for Briers and the team doesn’t stop there. “A few months ago, we announced that we were becoming part of the Bank of England’s Faster Payments Scheme,” he says. “This means that, instead of having to exploit Open Banking to work through banks, we’ll have our own real-time gross settlement

account, allowing us to operate much of our functionality ourselves. We’ll be able to design and build our own independent platform for cheap, instant payments, reducing friction even further.”

A strategy based on ‘wishes’ Since the company’s launch in 2011, TransferWise has been extending its service to more and more countries across the world. However, choosing which nation to expand to next requires a far more strategic approach than simply throwing darts at a wall map. “We prioritise our future routes using a system we call Currency Wishes,” says Briers. “If you go onto TransferWise and can’t find the currency you want to send to or from, you can add your email to a wishlist for that currency. We regularly check these lists to determine what our most requested currencies are and we draw out our expansion strategy accordingly. “Our Currency Wishes tool recently resulted in the addition of Brazil and Hong Kong to our service,” he says. “We’re also launching in India very soon and plan to extend to Thailand, Indonesia and Malaysia in the near future. It’s frustrating knowing that there are people out there who want to use TransferWise but can’t, so we’re working around the clock to deliver our service as soon as possible to those populations that want it.” With customers in more than 80 countries (and counting) now enjoying access to TransferWise’s service, perhaps it’s time for banks across the world to stop passing the buck. They can have TransferWise do it for them instead.

Currency race: Transferring cash around the world need not be slow or expensive

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The world around U PayU has pursued a hyper-local payments strategy in high-growth markets like India while quietly building a cross-border network. CCO Matthias Setzer and Rahul Kothari, Chief Business Officer of Enterprise Business at PayU India, are at the heart of it We’re all familiar by now with the mantra ‘think global, act local’ but few have taken it to heart quite like PayU. Owned by multinational media and ecommerce giant, Naspers, the fintech subsidiary operates in 17 markets across Asia, Central and Eastern Europe, Latin America, the Middle East and Africa. Over the last 16 years, it has deployed more than 300 payment methods and payment card industry (PCI)-certified platforms, which currently process around 1.2 million transactions per day. PayU’s chief commercial officer Matthias Setzer believes that the key to its success lies not in imposing one homogenised global payment strategy, but in offering a broad spectrum of local services, now with integrated, cross-border capabilities, fine-tuned for local financial landscapes.


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“We went hyper-local on a global scale,” he says. “We have local card schemes, local debit cards, local cash payment methods – in Latin America, for example, we offer more than 30 cash payment methods.” Most recently, the company has turned up the heat in India. “It’s a fascinating market,” says Setzer. “One of the most exciting things I’ve seen in payments in all of my career.” Indeed, the region was named ‘the fastest growing ecommerce market in the world’ in the latest Global Payments Report from Worldpay, while a survey conducted by Credit Suisse Research Institute predicts that the value of India’s digital payments space is expected to increase fivefold to $1trillion by 2023. Within the next 10 years, two thirds of the world’s spending power will shift to Asia. One of the main forces driving paytech innovation in India is the government’s

demonetisation policy – ostensibly an effort to crack down on tax evasion, the move away from a cash-based society has not been without controversy. Nevertheless, there’s been a big rise in smartphone use, which has transformed India into a paytech playground. And it’s one that PayU seeks to dominate, having bought rival platform, Citrus Pay, with a cash settlement of $130million, to strengthen its foothold. Citrus Pay provided a ready-to-go platform on which to launch new services, allowing PayU to target its existing local consumer base with a simple strategy, which Rahul Kothari, chief business officer of enterprise business at PayU India, describes as: “First, focus on taking the latest payment options to consumers. Secondly, make them as easy as possible. “There was a long wait and a lot of unfulfilled promise in India, but now it’s

Infinite possibilities: PayU is opening up exciting new payments horizons

The new licence is part of a bid to strengthen its credit business in untapped high-growth markets. Currently, the company only derives about two per cent of its overall revenue from credit, but the launch of pioneering credit-based solutions like the Citrus Pay app LazyPay could change that significantly. LazyPay allows consumers to make online purchases with the option to pay later, to reduce friction at online checkouts. It is the first deferred payment facility of its kind in India and, since launching in April of this year, the platform has linked with more than 100 merchants across food, travel, entertainment and bill payments, processing more than 800,000 transactions. PayU has also invested $11.5million in the Mumbai-based fintech startup PaySense, which offers fully digital loans with flexible repayment options of between three and 24 months. Thus far, the it’s served customers in more than 50 cities across India and has disbursed more than 60,000 loans in the last 12 months.

Local payment platforms are the only way to allow a consumer to pay the way they want

developing. That’s why we have invested heavily in our payment infrastructure,” says Setzer. Kothari adds: “We’ve been operating deliberately under two platforms to have full connectivity and uptime. It was a conscious choice not to wire off Citrus. We consolidated infrastructure and we built a lot of common tech around it. From an Indian consumer’s point of view, we are a very Indian company. “Our payment leadership in India, our hyper-local strategy at the global scale, and India being a key focus market for all global companies has really put us in a sweet spot. We become default choice for anyone trying to address India payments.” And it’s paying off handsomely. For the fiscal year ending March 2018, PayU recorded global revenue growth of 58 per cent, of which India accounted for 47 per cent. It has also provided it with an opportunity to expand beyond payments, to credit facilities. In September, PayU received approval from the Reserve Bank of India to operate as a non-banking financial company (NBFC).

The theory is that by offering credit services it will encourage more users to go online, which in turn will generate more data that can be used to streamline current and future products, according to Kothari. “The more we can build a transaction history of a consumer, the more we can offer instant credit to them,” he explains, adding that the strategy is all about making PayU the go-to platform for payments. “What we are trying to do is horizontally expand within the transaction cycle, so that we are able to take care of most of the transaction,” he says. It builds neatly on PayU’s core hyper-local model. “It costs a little more to operate these local platforms, including local service, local connectivity, local data centres. But it’s the only way to allow a consumer to pay the way they want. If you don’t offer the preferred means of payment, a merchant misses out,” says Setzer. Now, it’s a case of joining the dots between that wide range of local platforms with direct internal connectivity and

reaching across borders to create a new global network. The company mobilised this stage of its masterplan last year with the unveiling of the PayU Hub. At the core of the open platform is an application programming interface (API)-first design that grants PayU’s globally distributed architecture reliable and scalable access to local payment processors throughout its 17 markets. The hub now provides merchants in these countries with access to 2.3 billion potential new customers. “The PayU Hub offers a very seamless integration with all of our platforms,” says Setzer. “It’s one API, 2.3 billion people, all PayU platforms, all PayU payment methods, and more.” In addition to the PayU Hub, the company this summer acquired Israeli payments platform, ZOOZ. The deal enables ZOOZ and PayU to work together to build a modular, flexible, real-time ‘payments OS platform’ that can support evolving merchant needs. “This not only helps merchants worldwide to upscale their operations and provide a better customer experience, but also offers analytics and optimisation capabilities that equip them with unprecedented insights. Through the ZOOZ platform, you can also hook up with dozens of other payment providers on the planet,” says Setzer.

On a mission Within the next two years, the value of the cross-border market is expected to reach $994billion. Nearly two thirds of this figure will have been generated in high-growth areas like Asia and Latin America by way of a wide range of alternative payment methods. For Setzer, facilitating that trade is about more than pushing messages across a platform, though. “India has the biggest number of people that could benefit from financial inclusion. Offering them the most advanced access to modern technologies, offering them the first initial forms of responsible credit and lending is not just fascinating, it’s also the right thing to do. “That’s really something – to bring millions of people online for the first time and allow them to trade with someone in a foreign country. Trade helps make the world smaller and PayU is removing financial borders. A world without financial borders is one where everyone prospers.” Issue 1 | ThePaytechMagazine



Onwards&upwards upwards It’s been one hell of a Bitcoin ride, but CoinCorner’s Danny Scott, Molly Spiers and Liam Wiltshire are convinced the journey’s worth it Of all the new kids on the financial technology block, none has courted controversy quite so much as cryptocurrency. Edgy, unpredictable and with unsavoury associations with the Dark Web, it has enthusiasts and detractors in equal measure. For every John McAfee threatening to eat delicate parts of his anatomy on national TV if Bitcoin doesn’t hit $1million by 2020 there’s a Jack Bogle (of Vanguard fame) telling Bitcoin investors they’re ‘stupid’. And so it’s been ever since the first cryptocurrency to be traded on a blockchain emerged nine years ago. For one small team of supporters, ironically headquartered over a Lloyds bank branch on the Isle of Man (otherwise known as ‘Bitcoin island’, thanks to the welcome sign its regulators hung out for cryptocurrency exchanges), legitimacy, rather than astronomical exchange values, is the prize. And the bosses at CoinCorner are doing their level best to make at least that aspect of an industry about which everything is virtual very real indeed. This year, it hopes to be among the first to offer a ‘completely instant’ crypto Visa debit card. “This will be a Visa/Mastercard-style card that’s CoinCorner branded,” explains co-founder Danny Scott. “A customer will be able to go to Tesco, spend £20, and if they have Bitcoins in their CoinCorner account, it’ll automatically deduct £20 worth of Bitcoin from it. It works just like an ordinary bank card but with Bitcoin in their bank, instead of cash.” Similar in concept to the Wirex card – much talked about but also still to be launched – CoinCorner’s will be one of only a small but growing number to offer Bitcoin transactions via plastic. They include Coinbase’s US-based cryptocurrency credit card, launched in 2015 and Taiwan-based WageCan’s Visa-based payments for international travellers. Russia-based credit


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card Cryptopay is one of the largest Bitcoin debit card solutions and now has 40,000 users around the world, processing 100,000 virtual and plastic transactions per month Although they still only represent a tiny proportion of the global plastic payments market, they help to address one of the fundamental problems associated with cryptocurrency, which is that for most ordinary mortals, it remains a vague concept about as far away as Pluto is from their daily lives. Up until now, 80 per cent of cryptocurrency deployment has been as investment-for-profit, with only 20 per cent of usage as a currency. But while the number of major retail names now accepting Bitcoin is still miniscule, they do include influential brands such as Amazon, Microsoft, Expedia and Shopify. Nevertheless, until you can walk into a Starbucks and buy a latte with Bitcoin, mainstream adoption is likely to be elusive – as our most recent Money2020 Bitcoin racer discovered when she struggled to cross Asia using nothing but a Bitcoin wallet earlier this year. With no real, tangible value, the best known ‘alt’, Bitcoin, has been on a spectacular, speculator-fuelled rollercoaster ride, boosted this summer by rumours that formidable investment house Blackrock was taking an interest in adding that and other cryptocurrencies to its portfolio. Bitcoin hit a new high after a six-month surge and its market capitalisation in July was estimated to be $127billion. While CoinCorner is determined to widen acceptance of cryptocurrency by countering negative publicity, making it more accessible and talking up the positives, it’s also appealing to the niche investor with the launch this year of a premium service called CoinCorner Concierge. It’s exclusively for investors handling minimum transactions of £100,000, up to a couple of a million.

Not for the faint-hearted Launched in July 2014, CoinCorner was one of the first UK-based digital currency exchanges. It introduced a mobile app and application programming interface (API), as well as credit and debit card payments, within its first year of trading; it attracted angel investment in 2015; and it reached 100,000 users earlier this year, which resulted in it trebling the workforce at its island HQ. It may be kitted out with AstroTurf, Xbox consoles and beanbags, but there’s a lot of hard work going on here. The company was conceived as ‘a solution to a simple problem – wanting to buy Bitcoin from the UK and online from somewhere you trust’. But Scott and his partner soon discovered it wasn’t quite that simple, due to the ‘lack of rules and regulations which make the process fraught with dangers’. So, they started implementing best practice systems, working exclusively with the Isle of Man government to ensure that CoinCorner was fully aware of any changes to regulation, giving the company some stability in a notoriously volatile environment. The team still had to hold onto their seats when the surge came. “A lot of the mainstream media kicked off, then the Bitcoin price went crazy and we had a sudden, massive influx of traffic – December alone accounted for 30 per cent of revenue and signups. It really started to take off,” says Scott. “We’ve trebled in size from five to 15 people in the last 12 months, so it’s been a bit of a rollercoaster ride, but there are a lot of companies out there, competitors of ours, that have been growing at an even faster pace. They had to go to the extent of turning registrations off on their websites because they couldn’t handle the customer base, which is great for the industry, and great for us as well.” To keep up with the spike in demand, CoinCorner removed its euro and sterling investment limit and added Ethereum,

Ripple and Litecoin partly to take the pressure off Bitcoin, but also because their processes had matured to the point where Scott says he felt confident in dealing in them. A broader portfolio has also helped to broaden the customer base. “In the early days, it was the techies and geeks who were driving the technology and innovation,” says Scott. “Now we’re starting to move more to mainstream, but we’re also seeing a move towards more high net worth (HNW) individuals, financial institutes and businesses looking to invest in Bitcoin.” In fact, it’s in servicing this wealthier type of customer, that Scott foresees the greatest opportunities. According to a recent survey from the deVere Group, 35 per cent of high net worth individuals have already been exposed to Bitcoin or will be before the end of the year. “There are a lot of HNWs on the Isle of Man and we have great access to a lot of the businesses here, as well as corporate

service providers that look after a lot of those high net worth individuals and headquarters for businesses around the world. So, we’ve introduced a bit of a premier service for these guys,” says Scott. CoinCorner Concierge was trialled earlier this year, so the team could figure out what this more sophisticated class of investor wanted and could tailor a product for them. Scott has said that he recognises ‘transitioning from fringe currency to an investment asset class will be a major change for Bitcoin and other crypto assets’. Not least, market participants will want to have confidence in both regulatory controls – in which the Isle of Man is some way ahead – and their service provider. “Our clients can access their assets at any time and can be assured that these are kept securely in cold storage while not required,” says Scott, whose Concierge clients are also given the opportunity to broaden their understanding of the factors driving currency. It reflects Scott’s belief that alternative currencies will become a new asset class, not just for day traders but also long-term investors. Meanwhile, CoinCorner is also working on transforming its app into a fully functional mobile wallet. “We’re working to make the app we currently have as good as it can

be, because we know that’s where the market’s going. So we’re refreshing the interface and introducing other alt coins as well,” says Scott. “There are an estimated 2,500 different types of coins out there now, but we’re only adding those that we feel are reputable enough and have a big enough development team.” Ethereum, Ripple and Litecoin were available from May this year, but they are some way behind the market leader. Liam Wiltshire, CoinCorner’s senior developer, adds: “We’re starting to see the adoption curve for Bitcoin really ramping up, because people are starting to understand what Bitcoin could mean for the world. “I don’t think banks have put the same resources into developing the second layer on top of Bitcoin that really talks to the everyday user – as they have with mobile banking. But that’s going to start coming now, with things like the Lightning Network and Coinbase and Bitbase putting resource into that user experience.” Marketing manager Molly Spiers adds: “We’re focussing on educating the public about Bitcoin. We’ve created a learning portal to explain what these cryptocurrencies are. We’re also launching a YouTube channel with short videos that are easy to understand. We want to bring Bitcoin and other cryptocurrencies to everyone.” Hell of a ride: But Bitcoin isn't a basketcase

In the early days, it was the techies and geeks who were driving the technology

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Following the 2018 Gowling WLG report into blockchain’s current and potential impact on financial services, we joined the international law firm in hosting a roundtable debate that brought together Bitcoin racers, blockchain purists and those who had no idea what a DLT was, to lead them on a discussion around the block. Here’s what they said… There has been no shortage of surveys this year on the business case for blockchain. It’s been accused of holding long-term promise with not much evidence of short-term reality. Blockchain investors have been described as suffering from a myopic ‘irrational exuberance’. Others

have warned that the technology is unlikely to live up to its ‘miraculous’ promises, while conceding it has undeniable potential. But don’t all game changers start out like that? Whatever the analysts’ views, those delivering projects based on the blockchain and other distributed ledger technology (DLT) are probably visionaries in the best sense of the word: they can see a better world for everyone emerging from the current, if somewhat confused, beginnings.

That said, our roundtable participants, brought together by international law firm Gowling WLG, authors of recent report, The Ultimate Disruptor: How Blockchain Is Transforming Financial Services, were all pretty much agreed on one thing: that

Missing link: Could blockchain change the financial world as we know it?


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cryptocurrency and particularly Bitcoin has become an unhelpful ‘poster child’ for the technology, notwithstanding the fact that blockchain ‘daddy’ Satoshi Nakamoto created the public transaction ledger specifically for it. The panel believed it was time for the industry to talk up the much wider use cases for blockchain. So we gave them the opportunity.

Blockchain for enterprise solutions BTL Group, one of the contributors to the Gowling WLG white paper, was the first blockchain company to list in 2015, having identified that the real potential lay in using the software behind Bitcoin as an enterprise solution. In the report, BTL co-founder and director, Guy Halford-Thompson, put it like this: “For me, Bitcoin is just a use case for blockchain. If blockchain is the internet, then Bitcoin is email. But of course, the internet does a lot more than enable email. We tell people

to forget cryptocurrencies and use blockchain technology to reduce the cost of their IT infrastructure.” Roundtable participant, Adriaan Brink, of BETR, agreed. “We are using prehistoric infrastructure systems that haven’t evolved since the beginning of the internet. So, this is a jump, a leap of faith into a new type of tech,” he said.

People are going to have to collaborate, potentially with competitors. It’s a big shift of paradigms Adriaan Brink, BETR “It may take 20 years, because even now people are trying to patch system after system, which involves going to the Cloud and being more agile. But the reality with blockchain is that it changes the business models. People are going to have to collaborate, potentially with competitors. It’s a big shift of paradigms.

“For people who want to understand blockchain, my advice is ‘don’t focus on it, don’t focus on how blockchain connects all those elements: rethink your business model’.” He believed blockchain would force enterprise and IT into a dialogue they had never really had. “Blockchain technology is going to force everybody to learn,” said Brink. “I’ve spent five years just educating people. You want to understand what this can do for you? Then learn how it works and collaborate with people to build it." Anna Poberezhna, CEO of Smart4tech, on the other hand, believed that all that decisionmakers needed to understand about the blockchain was three things. That it was ‘cheaper, faster, better’. “From the tech side, it’s algorithm, it’s protocol, it’s distributed ledger, distributed database. From the business side, it’s supply chain efficiency, it’s risk mitigation, it’s disintermediation,” she said. The widespread adoption of blockchain would accelerate changes already happening in the marketplace.


Where is the investment BEING SPENT? There are several major projects that illustrate the level of investment now going into blockchain development: ■■ The R3 Consortium of more than 100 banks and financial institutions, regulators, trade associations, professional services firms and technology companies, which has been working on the development of Corda, a DLT software solution specifically for financial services, since 2015. ■■ The Hyperledger Project is an umbrella project of open source blockchains and related tools, started in December 2015 by the Linux Foundation to ‘bring blockchain technologies forward to mainstream commercial adoption’.

■■ Project Ubin, run by the Monetary Authority of Singapore (MAS), is exploring the use of DLT for clearing and settlement of payments and securities. A key part of Ubin is its partnership A recent report by the International with R3 on a proof-of-concept Data Corporation, estimates that (POC) project to conduct inter-bank payments using was spent on blockchain and DLT. blockchain solutions in 2017. This amount ■■ BP, TOTAL and Eni is expected to more than double to are using blockchain technology for gas during 2018 trading reconciliations. and, by 2021, levels are expected to reach ■■ VISA’s B2B Connect is the pilot phase of its blockchain-based, business-to-business Taken from: The Ultimate Disruptor: How Blockchain Is payments service. Transforming Financial Services (Gowling WLG, 2018)

US$945million US$2.1billion US$9.2billion

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“We see a lot of peer-to-peer finance right now, for example, and blockchain will speed up the processes because there is much more transparency and many more sources of trust.”

Trust and sharing Transparency is core to the concept of the blockchain, since no alterations can be made to data once it’s placed on the repository by any one author and it can’t be deleted. It's often referred to as a ‘trustless’ system for that reason and it’s why it is considered to be the ultimate audit trail. As one contributor said, ‘in order to trust no-one you have to trust everyone’. The panel agreed that blockchain held enormous potential to cut time and cost in back-office systems involved in proving veracity, such as know-your-customer and anti-money laundering processes. But it also impacted on the wider ‘trust’ between businesses and between business and government. “It goes back to provenance, proving who you say you are and, in the supply chain, showing where something’s come from and where it’s being delivered to,” said Jonathan Millet, cofounder of blockchain enabler block3. It was ironic, then, that Bitcoin had itself become infamously connected with money laundering. But Vlada Bell EMA lead for token capital markets at token issuance advisory firm Blockchain Reserve, believed that would eventually be programmed out of the system.

"Blockchain is an open ledger, so you can see where everything goes. The only point where obscurity comes in is wherever it touches the real world,” said Bell. “Thirty years ago you could send £50,000 and no-one asked any questions. Now they ask all sorts of questions. But with this system the audit trail’s there. You can go on Etherscan and see where everything’s gone, from every single account, in an instant and there’s no control nexus.” For regulatory bodies, the blockchain could be as much a threat as a bonus. “If somebody says they’re a director of such and such a company, where do you go to check the records? Companies House,” said Dave Cockle of Invoice Cycle. “So, do we ignore Companies House in future and move on without them or do we say ‘look, this is where we could see all the information that you have developing into something else. Are we going to make you redundant or will there be some collaboration?’” When it came to reporting under the second (and perhaps a future) Markets in

ISISYOUR YOUR COMPANY COMPANY ON ON TOP TOP OFOF THE THE DEVELOPMENTS DEVELOPMENTS THAT BLOCKCHAIN BLOCKCHAIN CAN BRING? CAN BRING Definitely They've made a good start, but there is a way to go We are only just starting to think about it Not at all 0%



Taken from: The Ultimate Disruptor: How Blockchain Is Transforming Financial Services (Gowling WLG, 2018)


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The cost of regulation is getting more and more expensive: that’s ripe for disruption

Dominic Melo from iSignthis

Financial Instruments Directive (MiFID), logic suggested that blockchain was the best tool. But would regulators insist on it? There had been a huge global legislative force to get all derivatives trading onto the same playing field, so the blockchain concept is of enormous interest to that part of financial services. If blockchain’s efficiencies became of paramount importance in this area then the panel thought there would be scope for regulators insisting on using it. “I think efficiency is the key word here,” said Dominic Melo from iSignthis. “And it comes back to the back-office question because the cost to audit a distributed blockchain system is infinitesimally smaller than anything else. So, from a back-office point of view, cost of audit is really a case of 'does this hash match this hash?' And if the answer to that is 'yes’, then everything that I told you happened. It’s cryptographically guaranteed. And it’s that cost of audit that I can see pushing the regulators into a corner, in a way. They have to insist on this [using blockchain] because the cost of regulation is just getting more and more expensive and that’s ripe for disruption.” Continued on page 92

Sponsor of the Money2020 USA Payments Race Š 2018 Worldpay, LLC and/or its affiliates. All rights reserved. Worldpay, the logo and any associated brand names are trademarks or registered trademarks of Worldpay, LLC and/or its affiliates in the US, UK or other countries. All other trademarks are the property of their respective owners. Worldpay (UK) Limited (Company No. 07316500 / FCA No. 530923), Worldpay Limited (Company No. 03424752 / FCA No. 504504), Worldpay AP Limited (Company No: 05593466 / FCA No: 502597). Registered Office: The Walbrook Building, 25 Walbrook, London EC4N 8AF and authorised by the Financial Conduct Authority under the Payment Service Regulations 2017 for the provision of payment services. Worldpay (UK) Limited is authorised and regulated by the Financial Conduct Authority for consumer credit activities. Worldpay B.V. has its registered office in Amsterdam, the Netherlands (Handelsregister KvK no. 60494344). WPBV holds a licence from and is included in the register kept by De Nederlandsche Bank, which registration can be consulted through Each of Worldpay (UK) Limited, Worldpay Limited, Worldpay AP Limited and Worldpay B.V. is part of the Worldpay group of companies including Worldpay, Inc. (a Delaware company).

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LINKS IN THE CHAIN#2 On to a winner: BetterBetting is one of a number sports betting sites using DLT

Striking while it’s hot

BetterBetting is one of a crowd of cryptocurrency-linked sports betting sites to have emerged in the past two years. But this one is a bit left field Practised punters in horse racing can pick a winner by studying the runners’ form. It’s something Adriaan Brink, founder of the new decentralised sports betting marketplace, BetterBetting (BETR), has in spades. Author of the first online gambling site, launched in 1995 in Liechtenstein, he’s been around the digital gaming industry for more than 20 years. He thinks he knows a technology winner when he sees one and blockchain currencies were his odds-on favourite in 2016. As Bitcoin began to gain legitimacy that year and the network rate exceeded 1 exahash/sec for the first time, Brink started whiteboarding ideas for what he describes as a ‘revolution’ in online betting, based on a token called BETR. By late 2017, having already had buy-in to his crypto from operators of sportsbooks in Asia and in South America, Brink was ready to launch an initial coin offering (ICO) which raised the equivalent of $5.5million. It allowed him to reimagine the way online sports books work and to lay ‘the railway tracks for money to move around the system’, as he puts it, based

on a free-to-use open source model with APIs for integration with existing providers and zero margins. All bets are stored on the blockchain, providing full transparency and demonstrable fairness in all transactions. It also does away with the middleman. With an estimated $50billion tied up in sports books accounts or in escrow at any one time, there’s a lot to play for and Brink is going for high stakes: to become the ‘exclusive crypto currency of some of the world’s leading gaming operators’, no less.

Sports betting is huge – way north of $50billion. If we get one percent we are a $500million token By August the platform was already being nominated for awards. Brink and the team developed their own distributed directory of sporting events and markets, pulling in information from multiple sources. In-house software allows punters to place bets as contracts onto its blockchain from mobile and desktop devices. “In sports betting, prices move very,

very fast. An average premier league game will have perhaps 250 markets with maybe three to five selections, so you are looking at 500 to 1,000 prices that change all the time,” says Brink. “Players get near the goal, the prices change – that’s how sports betting works.” To accommodate these high-speed transactions, the team developed the Better Betting Node (BBN), which is a distributed database of pricing. “Anyone can put prices on or take them off. It essentially creates a sports book,” says Brink. The cryptocurrency is key to monetising the service. As with Wagerr (which it’s up against for the CEEGC Best Cryptocurrency Gaming Platform Provider 2018, along with a host of others on the crypto gaming block), BetterBetting has capped the number of tokens in circulation and it has a buyback policy to prevent dumping. “Our currency is for a very specific market – small spending. But sports betting is huge – way north of $50billion. If we get one per cent of that market, we are a $500million token.”

Issue 1 | ThePaytechMagazine


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The future of money? David Siegel, startup mentor, blockchain entrepreneur and dark chocolate connoisseur (according to his LinkedIn profile) has a simple ambition: to change the future of money. And by that he doesn’t just mean adding another cryptocurrency to the estimated 1,500 different coins and tokens currently in existence. Although he’s done that too. In 2017, Siegel and his partners raised more than $20million in 60 hours through an initial coin offering (ICO) for The Pillar Project. One of a number of distributed ledger technology (DLT) initiatives to have come out of the 20|30 blockchain venture studio he co-founded in Vilnius, Lithuania, the Pillar Project is the realisation of the decentralised digital life Siegel envisaged for us all in his 2009 book, Pull. The title refers to the way in which services are magnetically drawn to the individual rather than he or she having to push their personal and financial information out there to capture them. It’s a model that informs much of the current person-centred, intuitive technology development taking place in financial services. But The Pillar Project isn’t just one product – it’s the whole package that reimagines the way we live. The future timeline includes this year’s launch of a token wallet,

described as ‘a smart wallet for the world’, an ‘intuitive management platform for digital assets’ that stores, transacts and tracks cryptocurrencies and tokens. Next will come a regulated ICO marketplace where companies and startups can launch their offers directly to qualified investors; an offers engine that allows users to buy and sell tokens and cryptocurrencies that will also work as an ecommerce platform; and, finally, a personal data locker where individuals can share or restrict access to all of their personal information at will – just as Siegel imagined we would. 20|30, meanwhile, having raised £1million in seed funding, is currently focussed on tokenising equity and other securities for client firms. This summer it made it into the UK Financial Conduct Authority’s fourth regulatory sandbox where it will be allowed to test its method of raising capital in a more efficient and streamlined way using a distributed ledger. The test will be facilitated by the London Stock Exchange Group and Nivaur, a UK-based startup that claimed to have launched the first blockchain-based investment product earlier this year and which is integrated with the LSE’s Turquoise Platform. 20|30 hopes to demonstrate a commercially-viable model for tokenising company equity that will persuade institutional investors to buy into the

concept. Siegel was quoted at the time as saying he wanted to ‘work our way up the ‘capital stack’ to reinvent private equity and, eventually, public markets’. He isn’t a man short of big ideas. In August, Siegel presented his blockchain-driven vision for the future of money at a presentation to fellow developers in Vilnius, where the first co-working space for DLT technology, connects stakeholders in Asia, Australia and Europe. Essentially, he wants to put the world’s economy on ‘auto pilot’, arguing that a combination of digital money and monetary policies based on nominal gross domestic product (NGDP) targets as opposed to real or inflation-adjusted GDP, could virtually remove the risk of recession. The model would require central banks to take a leap of faith, eliminate fiat currencies and keep a digital reserve, but there would still be currency competition. He estimates you’d need roughly one digital currency for every 100 million users to make the system work. He figures it would give it enough responsiveness to shocks to be able to put the world economy on a more stable path. “Very few things are more valuable than preventing major recessions.” Better than chocolate, even.

Very few things are more valuable than preventing major recessions

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BLOCKCHAIN: ROUNDTABLE That same immutability of blockchain data also raised questions over the General Data Protection Regulation (GDPR) and the right to be forgotten. But Jack Thornborough, from the not-for-profit The Pillar Project, explained that its digital wallet is looking to reverse the concept of personal data being held by third parties, using blockchain technology to return the control of their data to the individual. It is creating a ‘pull’ model for data sharing. “Rather than pushing information out there and new information being held in silo apps, or filling in your details multiple times for different organisations, companies pull that data, meaning you are in control of it,” explained Thornborough. “Blockchain can give ownership of your stuff back to you and that’s powerful, especially in financial services.” Thornborough believed the technology could similarly give new economic power to

individuals. “It’s a crazy idea, but technically speaking, I can have my own blockchain, I can put all my data onto it and, instead of giving it for free to Google or Facebook, I can monetise myself. I can decide I’m going to sell my time and issue 1,000 tokens by saying ‘OK, I’m 20 years old. I’m at uni. I’m super-smart – go look at my blog. In 20 years I’m going to be worth a lot more. You can buy my time right now and help me to go through uni and pay my bills’. I think the era of tokenisation has not even started yet.” Where the full strength of the blockchain could really be tested, however, is in governments.

Blockchain in government Dubai has already declared its intention to become the ‘first blockchain-powered government’ by 2020. According to Smart Dubai, moving to a paperless system, initially by insisting all visa applications,


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bill payments and licence renewals are transacted over the blockchain, will save the emirate $1.5billion a year. “Dubai, in its inimitable fashion, has just embraced this technology” said Tony Fielding, a director in the tech team of Gowling WLG in Dubai. “Its first initiative is to have all government entities run on the blockchain by 2020. Whether that will be successfully implemented remains to be seen. The regulation in relation to this is, I think, deliberately vague to keep it relatively technology neutral. Then they can just mould regulation around what will make it achievable.” Government adoption of the blockchain raises the question of interoperability. A permissioned distributed ledger operated by a national government would almost inevitably have to talk with another permissioned or permissionless ledger. Equally, there comes a time when those

Of the record number of businesses accepted onto the UK Financial Conduct Authority’s (FCA) fourth regulatory sandbox this summer, 40 per cent were there to test innovative products, services, business models and delivery mechanisms that made use of blockchain and other distributed ledger technology (DLT). Of those, six were using it to automate the issuance of debt or equity and two were using it to support the provision of insurance. NatWest is exploring DLT to build a governance model and the majority were geared towards small business applications. Christopher Woolard, executive director of strategy and competition at the FCA, said the authority had accepted a small number of firms testing propositions relating to cryptoassets because it was ‘keen to explore whether, in a controlled environment, consumer benefits can be delivered while effectively

managing the associated risks’. In a speech earlier this year to the Authority for Consumer Markets and Conference Panel in the Netherlands, Mary Starks, director of competition at the FCA, said that while she was optimistic about the promise of DLT, some of the competition questions it raises are familiar ones. “The distinction between public and private networks has parallels with open source versus proprietary software – and there are comparable debates about the advantages of making technology freely available (including to new entrants, which lowers barriers to entry) versus the prospect of private gains as a spur to investment and innovation,” she said. “Permissioned networks have a gatekeeper who can control access, while permissionless networks are open to the public. If such networks developed to become essential infrastructure (for example, in clearing and settlement) then there could be competition concerns around access to these networks if they were closed or permissioned. “Another familiar risk of new technology-driven developments is that an early mover (interestingly, not necessarily first mover) can

also need to communicate with each other. As Gowling WLG's David Brennan, co-chair of its global tech sector, pointed out: “Blockchains need to talk to each other because, otherwise, how is all this going to work long term, if this is the new infrastructure for the world?" “All of these data sources and different workflow types don’t exist in isolation,” agreed Ruth Milligan from techUk. “So, the government blockchains are going to have to talk to the supply chain blockchains, the supply chain blockchains are going to have to talk to the producer blockchains. How are you going to overcome that interoperability between all of these different blockchain types in a way that’s easy to implement and also easy to integrate into existing systems? Because there’s going to have to be an integration phase?” she added. “The way I see it happening is that you will

have this intermediary state between blockchain and the status quo, where there are going to be connectors into existing data structures, as we have them at the moment, bringing blockchain on very slowly. As part of that, the interoperability between blockchains is also going to be introduced.” Anna Poberezhna, of Smart4tech, said the solution for blockchains that need to connect is... another blockchain. She believes the third stage of development – blockchain 3.0 – is ‘a hub connecting many different blockchains – as the intranet of companies has with the internet’. “People are already building it,” said David Peyronnin of Qlear Technologies. “You have Cosmos, you have, to some extent, OmniLedger,

become dominant. In future we may see similar issues around dominance arise in connection with blockchain. “We will need to understand this technology, its strengths and its vulnerabilities, and its implications for competition, much better before we are comfortable entrusting it with significant swathes of our financial infrastructure.” In August, the Authority announced that it was forming an alliance with


Platform that facilitates the issuance and manages the lifecycle of regulated bonds using DLT.


Platform that uses DLT to allow small companies to raise capital in a more efficient and streamlined way.


Service that uses smart contracts on a blockchain to provide fully automated, decentralised flight delay insurance.


Blockchain-based digital platform that enables companies to issue and administer debt and equity securities, including bonds backed by cryptoassets.


Capital-raising platform for SMEs and institutional investors which facilitates the issuance process of debt and equity securities. Globacap use DLT to simplify and streamline the issuance process.


Governance model based on DLT that enables organisations to work collaboratively on developing and running decentralised applications. The model codifies society rules in smart contracts on a blockchain creating a digital mutual. NatWest will open source the code after successful testing.


Funding platform that uses DLT to facilitate the issuance of shares in private companies more efficiently.

Universal Tokens

Service that leverages blockchain technology in the distribution of insurance products to increase trust and improve user experience.

World Reserve Trust

Service that facilitates cheaper and faster global trade payments and settlement using the Sīlùbì, an asset-linked smart token that utilises a permissioned DLT network.


A DLT-based platform that allows companies to raise capital in a more efficient and streamlined way.

We will need to understand this technology, its strengths and its vulnerabilities, and its implications for competition regulators across the globe to create a ‘global sandbox’, allowing innovative firms to conduct cross-border testing more easily and helping them scale their ideas. The FCA will work alongside 11 other regulators from jurisdictions such as Hong Kong, the US, Australia and Abu Dhabi on the Global Financial Innovation Network (GFIN) initiative, which will look at issues including DLT and ICOs. The FCA’s current cohort of companies looking at DLT are:

you have Polkadot, which is the baby of Gavin Wood, who coded Ethereum. So, it’s the same top guys a nd the same loops. We just need to make sure that we’re all on the same page.”

Risk and regulation Alongside the issue of interoperability was the question of regulation, which so far has come in knee-jerk responses to cryptocurrency crises on the blockchain.

Issue 1 | ThePaytechMagazine


BLOCKCHAIN: ROUNDTABLE Earlier this year, Gowling WLG shared on its website news of a crackdown on initial coin offerings (ICO) by the US Securities and Exchange Commission, after it halted one ICO for conduct constituting an unregistered securities offering, and also suspended trading in a small cap stock that trades in digital coins and cryptocurrencies. The US is by far the most popular country in which to base an ICO, with 16.3 per cent of all offerings currently taking place there, according to the ICO Watchlist. But Gowling WLG warned that ‘no longer can participants in ICOs and cryptocurrencies turn a blind eye to the existing securities regulatory framework‘. “ICOs are the bit that causes most firms to take a step back and be nervous,” David Brennan, co-chair of Gowling WLG‘s global tech group, told the panel. But how, or even should, regulatory authorities be involved in regulating the blockchain itself? At the time of the roundtable, Penny Sanders of Gowling WLG's Financial Services Regulation team believed that regulatory authorities were not fully informed enough to respond.

There will be new business models that create new opportunities for value and new jobs David Brennan, Gowling WLG “If you look at how governments globally have responded to the ICO space, everyone’s standing looking at each other, waiting for somebody to move first,” she said. “We mentioned Dubai before but everyone’s in the same place. Nobody knows what to do and they need to see the examples. They’re waiting to see what businesses are doing to get enough information to be able to regulate off the back of it. Gowling WLG is looking at pulling together an international consortium of lawyers to try to help those regulators globally move forward.” James Lawson Baker, of Optiva Securities, agreed that ‘it‘s a borderless technology but everyone‘s scratching their heads in their regional jurisdictions’. The consensus, as in the Gowling WLG white paper, was that a regulator shouldn't

be regulating technology. The panel thought blockchain would be better managed through international standards emerging organically – although in China they are already being imposed by a national authority.

Living up to the hype It‘s inevitable that a technology as transformative as the blockchain would have a dramatic impact on jobs – both those it displaced and those it created. “But I don’t see it as new versus old, it’s about integration. Distributed business models will create more fluid work movements and patterns that are open to anyone,” said Colin Paterson, CTO of Quant Network. Gowling WLG’s David Brennan agreed that new business models would create new opportunities for value and jobs, but said many clients he talked to were still struggling to identify use cases ‘out in the real world’ yet. One of the key takeaways from the Gowling WLG white paper was the number of companies who, as Brennan put it, ‘still haven't quite got their heads around blockchain yet’. So, if not now, when?

Roundtable: A wide cross-section of expertise and experience from financial and related services joined the debate

Conclusions from Gowling WLG’s white paper, The Ultimate Disruptor: How Blockchain is Transforming Financial Services ■ Technologists, blockchain entrepreneurs, regulators and influential business people need to make sure everyone understands the difference between Bitcoin and blockchain. Its business impact could be reduced, or significantly delayed, if the negative PR currently associated with cryptocurrencies is permitted to leech into opinions about the software. ■ Blockchain and DLT are all about sharing information, not only internally within firms, but also with customers and, in many cases, with competitors. The development of the technology will


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happen much faster if competitors collaborate and regulators are involved in the development process. ■ Regulators could also find the technology directly makes their role easier. The level of transparency delivered by blockchain and DLT makes fraud and human error much easier to spot. ■ There needs to be continued investment in the development of blockchain and DLT. The setting up of consortia seems to be a preferred approach of our experts. These also encourage sharing across businesses. ■ Businesses need to make sure their employees understand the impact of

blockchain and that it is not about reducing internal costs by cutting jobs. They need to look for other opportunities for their staff, which build on the efficiencies delivered by blockchain. It is an opportunity to expand capabilities, rather than make people redundant. ■ Intermediaries, such as lawyers and accountants, need to be prepared to change their business models to maximise the potential of blockchain and DLT. ■ Regulators need to catch up with technological developments in this area, but the technology itself does not require regulation.

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Too hot to handle? Regulation will help take crypto mainstream

A Bit different

Coinfloor is unusual among crypto exchanges in that it’s designed for institutional investors, of which there are comparatively few. CEO Obi Nwosu believes regulation will be crucial to establishing Bitcoin as an asset that’s trusted by the biggest players, who will then take it mainstream FINTECH FINANCE: Describe Coinfloor in a nutshell. What makes it stand out from the crowd of cryptocurrency exchanges and who are your customers? OBI NWOSU: We’re the UK’s longest-running and most liquid Bitcoin exchange, and are made up of a group of cryptocurrency exchanges that are 100 per cent designed for institutional and sophisticated investment traders. And that’s the key. Most others are focussed on retail, allowing anonymous, or near-anonymous, access for investors. We have a number of offerings, and we’re known for trustworthiness, through transparency, reliability and security. We have a pre-emptively-compliant approach which feeds through everything we do, and we work with regulators in the UK, Europe


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and abroad to put in place good regulation for Bitcoin and other cryptocurrencies and crypto assets. We have a number of innovative products, including Coinfloor Exchange UK, which, as well as being the longest-established exchange in the UK, is among the longest-established in the world; and Coinfloor Gibraltar, which we’re hoping will be regulated under Gibraltar’s new distributed ledger technology (DLT) licensing framework, a principles framework we’re really excited about. FF: Their unclear legal nature and lack of a trustworthy infrastructure has so far prevented the big money from flowing into cryptocurrencies and initial coin offerings. Do you believe regulation, such as rules laid down by the European

Union’s Anti-Money Laundering 5 (AML5) legislation, will bring credibility? ON: Yes, the change will be huge. Already there’s AML5 in Europe and new regulation being enacted in Gibraltar and Switzerland, as well as further afield in Japan. AML5 covers the world’s biggest single economic bloc, Europe, and means that, to transact in and with Europe, you’ll have to comply. Though most of the current volume is retail, we expect it will flip. That’s why we’re excited about the regulation that’s coming in over the next six to 12 months. Once the cryptocurrency space is regulated, the very biggest institutional players, who represent the majority of volume in the traditional markets, will enter our market. We’re having conversations with some of them.

FF: How, exactly, do you achieve greater legitimacy in dealing with what are perceived as rather intangible assets? And, given that Coinfloor is targeting major investors, what mechanisms do you employ to ensure security, transparency and peace of mind for your customers? ON: We are one of the few exchanges to do what’s known as 100 per cent multi-signature cold storage, which is the best practice way to custody clients’ cryptocurrency. To my knowledge, every successful hack of a cryptocurrency exchange has involved cryptocurrency secured with keys that were kept online. Even if a percentage of your codings are kept online, they are at risk, which is why all of ours are secured with keys that require multiple additional keys to sign transactions to spend, and then these keys are secured offline, stored in underground vaults at the Bank of England. We also enact greater transparency. We are the only exchange in the world that has an unbroken record of performing what are known as cryptographic proof of reserves, which are a way of using cryptocurrencies, and very simple smart contracts on the blockchain, to publicly audit your holdings of cryptocurrency, so that you can evidence that you are solvent, haven’t been hacked and are not running a fractional reserve (trading with your own customers’ money). We’ve had this system since our launch five years ago and it’s one of the reasons we’re trusted. FF: Who are your nearest rivals in the cryptocurrency sphere? ON: There are others that take a similar approach, such as CME Group and Cboe Global Markets. Then there are Circle Invest, Coinbase and Gemini, which have a mix of retail and institutional traders. We’re in the minority at present – the 200-plus exchanges that focus on more anonymous users represent 89.5 per cent of current trade volume. FF: It is said that the cryptocurrency futures market is one area prone to potential manipulation. Do you have a solution to that? ON: There has been a lot of demand for physicallydelivered futures in the cryptocurrency space because, originally, the only offerings that existed were

cash-settled futures. The problem with those is that you never need to actually deal with the assets and have the experience of custodying the currency safely. You also have to check the price on another market at the time of close, and that other market is the stock market, which tends to have much lower liquidity than the futures market because, on the futures market, people are trading something they don’t have, in much higher volumes. You’re also telling the market, in advance, that you definitely need to sell something at a point in time, and the exact amount you need to sell it for. So you’re giving other people in the market information about what you’re going to do in the future and people could try to use that knowledge to manipulate the market that you’re going to use to work out the price. And that’s the fundamental concern traders have with the stock. In much more traditional markets, where the volumes of trade are much, much higher than in cryptomarkets, that’s not so much of a problem, because it takes billions to move the stock market, if not trillions. Until the crypto market is considerably higher volume than it is now, maybe 100 per cent higher, the safest option is to go with a physically delivered offering, because then it doesn’t matter what the prices are at settlement, as you’re delivering the physical assets. So, trading in physical assets and choosing your customers carefully are important. Then, we have a number of features including continuous variation margining where, if we think that the amount of cash a customer has put up front won’t be enough to cover their losses if they were to sell right now, we will take action in the form of auto liquidations or margin calls. Many other exchanges, if not most, in the traditional space, will perform these checks once a day, and then a margin call or liquidation once a day. We do continuous variation margining, so every time the price varies, and even if it doesn’t, we will still check several times a second.

Every time the price varies, we check to see if anybody’s out of position, and we take the appropriate action then. Because we come from the crypto space, we know that the products are going to be far more volatile than many other markets for the next few years, so our system checks up to, potentially, several hundred times a second, everybody’s positions, and don’t even wait a second before taking action. That’s a big reduction in risk. Another feature is what we call margin ramp up. In the last seven days of a futures period, instead of waiting until the last day to ask everybody to provide their Bitcoin, we ask them to start delivering it in the seven days leading up to delivery. This means that if there’s a potential issue, we find out earlier and can liquidate or move it across to other people in more than enough time. It took nearly two years to build this because it operates in a way which is very different from other systems. FF: Where do you see the cryptocurrency trading market being in one year’s time? Will your predictions of a shake-up happen in that period? ON: The introduction of regulation, such as AML 5, means the exchanges that are focussed on anonymous traders will have to change – and it’s a massive jump that they need to make. It involves everything from having to check every one of their employees, to maybe changing their management team because they all have to meet certain standards, changing certain processes and maybe say goodbye to a large percentage of their customer base. Early players in the market were the risk-tolerant ones. Now we’re seeing the more conservative, players coming in. And once regulation is in place we’ll see the proprietary trading firms enter, that do market making and so on. We’re seeing hedge funds, asset managers and family offices also take an interest. This step change will happen once these organisations become comfortable with the level of risk.

Early on in crypto, the players in the market were the risk-tolerant ones. Now, we’re seeing the more risk-averse, or conservative, players coming in

Issue 10 | ThePaytechMagazine



A cashless desert? Hello I'm Stu, host of the YouTube channel Stu’s Reviews where, over in that crazy corner of the Internet, I review pretty much anything to do with consumer technology, gadgets and gizmos in a humorous, if often haphazard, way. Most of you, though, might know me better as the bearded, cash-toting warrior and almost-hero of The Payments Race, organised by Fintech Finance and Money20/20. But more of that later. So what am I doing here? Well, with the lines between finance and technology becoming ever more blurred, we consumers are increasingly expected to be familiar with a bewildering range of apps, platforms and hardware in order to handle our own money. So, in looking at ‘fintech’, as it’s come to be known, I’ll be taking a straightforward approach to things in this column and asking, from the bloke-on-the-street’s perspective, ‘does it work and what is it good for?’. That’s pretty much what I was doing when I signed up for the Payments Race, which took me right out of my comfort zone as a technology evangelist. Using only cash against rivals who had more modern payment methods such as Bitcoin, card and mobile, I set out to see how something as old as society itself functioned as a modern transaction method. Over the course of four races, I travelled through 17 countries, which was an interesting challenge. I like to think of myself as a ‘tech native’, so my preference has always been to use technology-related

YouTube’s tech Titan and veteran Payment Racer Stuart Thomas joins The Paytech Magazine as our ‘man on the street’, giving honest reviews of the latest financial technology payments systems. However, the fact that I'm not lying in a shallow grave somewhere in the Cambodian jungle tells me that cash as a payment method is far from dead. For that reason, it’s probably appropriate that before I start using this column to talk to you about future technology, I should step back and share my thoughts on the concept of a cashless society. Despite the modern drive for the abolition of physical cash, it’s still a prevalent payment method in almost every country. For example, if you want a massage on the beach of Barcelona, the person who only uses their mobile phone to pay will find themselves applying their own lotion – the masseuses work only for cash. As for hailing a taxi in Marrakesh, I’m afraid that if you’re only using your bank cards, you’ll likely find yourself marching alongside the camels to your destination. Don’t misunderstand me, I enjoy the ease of technology like Apple Pay as much as the next person, but cash does seem to be accepted in more places than not. In fact, I don’t remember the last time I saw a sign saying ‘cash not accepted’, but just

As for hailing a taxi in Marrakesh, if you’re only using bank cards, you’ll be marching alongside the camels to your destination


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yesterday at the local pub, I could see one looming above the bar that read ‘card payments not accepted – machine broken’. No refreshing Bavarian lager-beer for the coinless then. If you’re thinking that a broken machine in a country pub somewhere in the Welsh mountains is insignificant, I disagree. It indicates that we have to acknowledge the limitations of current technology. It proves that people still need choice in the way they make and take payments, regardless of where they are in the world. If people don’t want the hassle of cash getting lost at the bottom of their bags, sliding down the back of the sofa and fouling up the washing machine, then why is it that, according to a recent survey, around 80 per cent of the British public still carry it? I agree that a cashless system would have its benefits, but it would also have notable limitations. The question remains: how would you pay for that pint when the machines stop working without it? To see more from Stu, head over to his YouTube Channel by scanning the QR code below or typing this into your URL bar (and don’t forget to subscribe while you're at it!): You can also find him ranting about terrible technology and being an A* keyboard warrior over on twitter at @StusReviewsUK If you think you have (or know of) a sweet piece of technology, a fantastic financial service or just a great gadget that you’d like to see in this column or on the YouTube show, feel free to email Stu at hello@