Fintech Finance presents: The Fintech Magazine Issue 31

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A fast track to success

ISSUE#31 Capgemini ● Cynergy Bank ● BNP Paribas ● HSBC ● BVNK ● Mastercard Crown Agents Bank ● SmartStream ● BPC ● MongoDB ● Instnt ● Freemarket ● League Data INSIGHTS FROM ACCELERATORS & FUNDING Tatyana Kratunova of gives top tips for a pitch that puts founders on… CASHTECH CHANGE MANAGEMENT
fintechs getting hard cash into the hands that need it CREDIT UNIONS & BUILDING SOCIETIES MUTUAL RESPECT Mambu and Sandstone Technology tackle sensitive transformation RISK & REGULATION TRUST IN ME
bank-led ID schemes that inspired NatWest ’s new service WEALTHTECH FOR RICHER FOR POORER Moneyfarm and Wealthify on the evergreen challenges of wealth management for the masses
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PAYTECH STABLECOINS BY STEALTH?
adoption might already be wider
many think
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OPERATIONAL BLUNDERS ! WE’VE GOT YOUR BACK. smartstream-stp.com
Searches: compliance automation regulatory reporting data optimisation controls

ACCELERATORS & FUNDING

6 Cover story:

The acceleration game

The landscape of startup accelerators could be getting a boost from a downturn in fintech investment. Tatyana Kratunova provides some insight into what sets the FIS Fintech Accelerator apart and what it takes to get on board

10 The hard yards

Mastercard’s Start Path programme has been rooting for fintech founders for a decade. Programme Leader Sabrina Tharani explains why the company is so invested in supporting companies at the kick-off through ‘radical collaboration’

13 A fintech icebreaker

After a difficult year in which many fintech founders got a frosty response to funding requests, did Slush23 signal a venture capital thaw? We report from the heart of the investment and innovation conference in Helsinki RISK & REGULATION

16 A new way to KYC

We speak to Sunil Madhu, Founder and CEO of Instnt, to find out how it’s aiming to ease the burden of fraud loss whilst helping financial institutions onboard more customers

18

Knowing me, knowing you

As NatWest rolls out a digital ID service for its customers, Stacey Wilkinson explains why bank-led identity solutions are a natural evolution of FS

20 Time for T+1

The US and Canada are ramping up the heat on market participants with the settlement cycle for most trades in securities shifting from two days after the date of trade to one in May. Roberta Bill tells us how SmartStream’s AI can help them beat the clock

THEFINTECHVIEW

“Tier 1 banks really need to be publicising that they are utilising blockchain technology to move money cross-border. That will naturally have a positive impact on the market.”

Those are the words of Jane McEvoy, VP of platform partnerships at BVNK, in our interview on page 32.

Jamie Dimon at JP Morgan has never been shy about his bank using blockchain to move money – nor about his simultaneous, fierce opposition to Bitcoin (and all other decentralised currencies), bluntly telling a senate hearing into the US banking industry in December 2023: ”If I was the government, I'd close it down.”

As of the end of last year, JPM’s own centralised stablecoin, the JPM Coin, was transacting $1billion daily between wholesale clients over a JPM-built permissioned distributed ledger network. It allows them to make mostly US dollar but also an increasing number of foreign currency payments, proving McEvoy’s point that there’s more demand out there for, and willingness to use, alternative payment methods by business and banks than might be widely thought.

So are stablecoins becoming the worst best-kept secret?

Volumes are still tiny, compared to conventional payment flows (at JPM, $1billion out of more than $8trillion moved through the bank every day), but big institutions and regulators are clearly more inclined to accommodate these tokens than other forms of crypto (Singapore, Hong Kong, the US and the UK all plan to have rules in place this year or next).

It’s been difficult to have conversations with investors about blockchain-based projects over the past 12 months, their status tainted by events in the crypto asset market.

At the investor/innovation event Slush (reviewed on page 13), though, Mastercard showed its faith in the technology, sending a signal to everyone present that it’s bigger than Bitcoin and any investor who doesn’t give it time of day, will regret it.

Did you guess last issue’s spine-tingler?

“I spend a lot of money and I love it” was comedian Katherine Ryan at The FF Awards, 2023!

CONTENTS
Issue 31 | TheFintechMagazine 3 34 62
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ISSUE#31 l 2024
Editor FINTECH M A G A Z I N E
Sue
Scott,

PAYTECH

23 Answering the call

Crown Agents Bank is one of the few operating in the challenging environment of overseas cash aid, delivering billions of dollars every year directly into people’s hands. We asked Head of Global Payments Mobile Sales, Nkosi Moyo, how it uses technology and data to help

26 Counting the cost

With almost five million UK households struggling to pay essential bills, Chair of the Payment Choice Alliance, Ron Delnevo spoke to Cash Perks’ Gareth Evans about the vital role of cash innovation in alleviating financial hardship

28 Treasury lines of sight

Bruno Mellado, BNP’s Global Head of Payments and Receivables, explains how the bank is giving corporate treasury a clear view of data

31 From camel trains to DLT… could we finally ‘fix’ cross-border payments? James Grant looks at the technology driving progress

32 A gateway to future global payments?

BVNK’s Jane McEvoy tells us how stablecoins and distributed ledger technology are smoothing the still bumpy payments border crossing… and perhaps faster than we think

34 Playing to win Freemarket has built its cross-border payments platform around the needs of SMEs that struggle to find banking partners they can rely on. The company’s Business Development Director Alana Condratov understands what they really, really want

WEALTHTECH

37 Making it

We spoke to Simon Holland from Wealthify to discover how robo-advisors are adapting to the changing retail investments space, whether they really can alter the savings habits of a nation, and the partnerships that are increasingly key to their success

40 Building a long-term plan

Twelve years and £3.7billion in assets under management later, Moneyfarm founder Giovanni Daprà says the wealthtech has ‘crossed the hurdle of survival’. So what now?

44 There’s an app for that!

We asked one informed user of wealth management apps to give us his Top 3. These are tech guru Stuart Thomas’ picks

CREDIT UNIONS AND BUILDING SOCIETIES

46 The future is calling

Building societies disrupted finance once before… now they need to get ahead of the curve by adopting mobile strategies, urge Sandstone Technology’s Jennifer Harris and Michelle Yu

50 North star

Yorkshire Building Society’s Tina Hughes explains how digital innovation has made a traditional mutual in the north of England more relevant than ever

52 Small but mighty – the rise of Atlantic Canada’s credit unions

When Mambu was offered the seemingly mindboggling task of introducing a core banking system to 40 autonomous financial institutions simultaneously, it jumped at the challenge. Carrie Forbes from League Data and Mambu’s Fernando Zandona take up the story

ASIA

56 Nimble and SaaS-y: South East Asia’s mobile money

Payments technology company

BPC is at the heart of the region’s growing wallet economy. Its MD for APAC, Terry Paleologos explains why startups and established players alike are adopting a software-as-a-service strategy to service it

58 A holistic approach to reinventing finance

From AI to quantum computing, Singapore champions safe exploration of technologies that could transform FS. What’s important now is how they can be made to work together, says HSBC’s Chief Digital Officer Shayan Hazir

60 Pioneering a digital financial revolution

Labuan International Business and Financial Centre has created a welcoming environment for fintechs in Malaysia, particularly those offering Shariah-compliant tokenised services

ARTIFICIAL INTELLIGENCE

62 Hype and hope

It’s still a potential gamechanger, but there’s been a more sober discussion around generative AI at the start of 2024. Dan Pears, an advisor with Capgemini, HSBC’s AI chief Edward Achtner and Wei You Pan an expert in FS data platforms for MongoDB, reflect on reaction and reality

66 All the Gen

Thanks to ChatGPT and Bard, consumers are more familiar with – and perhaps more concerned about – this generation of AI than any previous iteration. That means banks have to tread a very careful path, says NatWest’s Jonathan Hall

68 Claiming the high ground

Cynergy Bank’s investment in digital technology is for one purpose only: to free up staff to make a difference to SMEs, says

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CONTENTS
TheFintechMagazine | Issue 31 ffnews.com 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. THEFINTECHMAGAZINE 2024 ISSUE #31 EXECUTIVE EDITOR Ali Paterson GENERAL MANAGER Chloe Butler EDITOR Sue Scott ONLINE TEAM Katy Garnham Lauren Hinton ACCOUNTS TEAM Tom Dickinson Leksy Volkova Shaun Routledge CONTACT US ffnews.com DESIGN & PRODUCTION www.yorkshire creativemedia.co.uk ART DIRECTOR Chris Swales PHOTOGRAPHER Jordan Drew ONLINE EDITOR Lauren Towner HEAD OF CONTENT Douglas Mackenzie FEATURE WRITERS David Firth Tim Goodfellow James Grant Martin Heminway Natalie Marchant Fiona McFarlane Tracy Mitchell l Martin Morris Frank Tennyson Charlotte Scott Fintech Finance is published by ADVERTAINMENT MEDIA LTD. Pantiles Chambers 85 High Street Tunbridge Wells, TN1 1XP PRODUCTION Taylor Griffin VIDEO TEAM Max Burton Luke Evans Louis Jean La Grange IMAGES BY www.istock.com PRINTED BY JamPrint "PROUDLY NOT ABC AUDITED" FINTECH M A G A Z I N E

Shaping the future of eCommerce payments

Following on from the highly successful London event in May 2023, we are thrilled to announce that ePay Europe will return to London in 2024. Leading retailers, ecommerce professionals, payment solution providers, fraud and security experts will be in attendance. With an impressive line-up of leading industry sponsors and exhibitors, the event provides a valuable platform for industry, to collaborate and explore the latest trends and innovations in the Payments industry.

Visit www.epaysummit.com for tickets

Join the biggest stage for the most unique ecommerce payments agenda 21 MAY 2024 LONDON
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more information #

Getting a startup off the ground is no walk in the park and external support, financial or otherwise is almost always necessary. One way to get that is through accelerators, incubators, or boot camps.

Over the last 10 years, more and more have entered the fray. Offering the opportunity to connect with other entrepreneurs, tap fresh sources of funding, and benefit from mentors at the highest levels of their respective industries, it’s no wonder these immersive fintech training grounds have become a popular option for founders seeking to get a head start. There are hundreds across the world to choose from, and there’s certainly no shortage of startups seeking places, with fierce competition for the best-known programmes, such as Y Combinator in Silicon Valley and those run by AWS and Barclays.

One of those focussed primarily on the fintech industry is the accelerator run by FIS, which launches its ninth programme in 2024. To date, 80 companies have graduated from the FIS Fintech Accelerator, covering a wide variety of verticals from across the globe within fintech. It too is seeing intense competition for places.

“We’ve been receiving more applications each year, with last year being the most

we’ve ever had, and I expect the trend will continue,” says Tatyana Kratunova, who heads up the programme.

Of course, a natural growth is likely to occur with increased recognition of programmes and a slate of successful alumni, but there’s clearly something else going on.

One driving force could be a funding environment that’s seen steep decline in investment. Global fintech investments dropped by 48 per cent in 2023, compared to 2022 and the amounts raised were the lowest since 2017; $51.2billion was invested into the sector across 3,973 deals. There is certainly a reluctance to issue new capital in this market, despite there being dry powder available – as much as $311billion in unspent cash, according to some venture capitalists’ estimates. Instead, firms are often focussing on more established companies or bolstering their existing portfolio. This isn’t good news for startups with an unproven idea and no actual product to show for it. In lieu of investment sums – some of which are perhaps unwise in the first place – accelerators present an alternative and safer route for everyone concerned.

And there’s every reason to believe they provide exactly what founders are after.

According to Beauhurst’s 2022 accelerator study, 40 per cent of UK companies who have attended an accelerator have raised equity investment, and 57 per cent of UK unicorns attended one prior to reaching their billion-dollar valuations. All three of the big UK challenger banks went through a similar process.

A Sifted report, which surveyed accelerator graduates, found the most frequently cited reason for joining was ‘to get funding more easily, followed closely by networking’. One founder described the experience as ‘networking on steroids’.

But you have to choose wisely. According to another survey of 20 top European VCs, many accelerators simply aren’t worth the founder’s time. Of the minority 28 per cent in the Sifted report who didn’t find their accelerator useful, many said it was because they didn’t secure the funding they had hoped for; others because they’d experienced poor or insufficient advice, with mentors on the programme not having the right experience to help them.

Many startup accelerators take a small stake in the business – five to 10 per cent –in exchange for the introductions, training and support they receive, and, according to Sifted, founders generally thought it a fair

The Acceleration Game

The landscape of startup accelerators could be getting a boost from a downturn in fintech investment. Tatyana Kratunova provides some insight into what sets the FIS Fintech Accelerator apart and what it takes to get on board

6 ACCELERATORS & FUNDING: COVER FEATURE
TheFintechMagazine | Issue 31 ffnews.com FINTECH M A G A Z I N E

exchange, although it’s not always a win and could make a company less attractive to future investors. That said, an overwhelming majority (86 per cent) believed ‘the right accelerator was worth taking part in’.

“The value differs, depending on the type of accelerator you go to and who’s running it,” agrees Kratunova. “There are some where they will take equity, and they will give you the initial cheque to develop your idea, but they might not be able to get you to your target customers as quickly, for instance.”

For FIS, the focus is very clearly on the connections and experience it can give startups. We dived in, to find out what sets the FIS Fintech Accelerator apart and what it’s like joining the ‘FIS family’.

WHAT’S IN IT FOR ME – AND FIS?

All investors are seeking a return. Likewise, most accelerators – at least, those run by commercial organisations – aim for some kind of mutual benefit, and most founders likely want to know why FIS decided to invest significant resources in startups.

“We’re looking to drive innovation in financial services,” says Kratunova. “That’s our first objective. The reason we do this is to provide support to the fintech

community, because we believe it can benefit from our overall reach. If we can support them by providing budget for early

proofs of concept with our internal lines of business, that’s valuable for them and us, in understanding that new technology.

What does it take? 3 considerations for founders

Want to know how to bolster your accelerator application? FIS Accelerator Programme Lead Tatyana Kratunova shares three things to remember.

Be Specific

Focussed products will always do better. “Fintech founders need to be very specific with their solution,” says Kratunova. “We hear hundreds of pitches, and a lot of them blend together, using similar words, like ‘innovation’, or ‘fraud’, and ‘exclusive’. We want to make sure they come with a very niche understanding of their solution, and trust that we’ll be interested.”

Know the Industry

Get a head start by doing your own networking and getting a feel

for the needs of big companies and what’s top of mind.

“For instance, exciting for us this year is the development in regtech that’s happening in the US,” says Kratunova. “Of course, fraud is always dominant. And I think there is a lot about data and analytics, and AI, in between that. Those are the key thematics that we are looking to challenge the norm on. Companies wanting to be part of the Accelerator, reflect what’s needed in the industry”.

Be Hungry

It’s tough out there, so you’ve got to be committed. “Because it takes something special to create a business in the current environment, you need a real drive and passion, as well as the subjectmatter expertise in that specific field.”

FIS AcceleratorFintech2024 Opens March 4

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alumni have an impressive track record
A head start: FIS Accelerator

“We want to make sure that we have a comprehensive overall view of how our customers can benefit from technology that we are partnering with, as well as our own technology that we’re developing.

“The accelerator programme supports fintechs, our banking and corporate customers, and other venture and investment firms, through the alumni that we’re creating. FIS uniquely sits in the centre of the ecosystem and, as such, we feel a responsibility to foster innovation and provide connection.”

and the programme commences in early September. The selection process is thorough. The FIS team meets ‘every single person who applies’, says Kratunova.

“I am a strong believer that a presentation cannot tell you a story in the same way as a founder and their passion for their company can. Through progressive discussions, we try to understand the key elements of their solution, as well as their founder story. Obviously, we want to make sure that there is a strong founder, and a strong story, so that we can get to that target vision.”

FIS POWERS THE FINANCIAL SOLUTIONS BEHIND NEARLY EVERY BUSINESS IN THE WORLD… WE WANT TO BE ABLE TO SHARE THAT NETWORK WITH BUSINESSES CREATED IN THE LAST 18 TO 24 MONTHS, BECAUSE WE BELIEVE THAT COMBINATION IS INVALUABLE FOR GLOBAL

So, what do founders and startups get by joining the FIS accelerator?

The ubiquity of FIS within the financial ecosystem is probably what makes this accelerator one of the most powerful.

“We power the financial solutions behind nearly every business in the world,” says Kratunova .“We want to be able to share that network with businesses created in the last 18 to 24 months, because we believe that combination is invaluable for global innovation.

“We put startups in front of 30, 40 or 50 banks, and by the end they’ve exposed their knowledge and ideas to the different customers we have, and often realise their whole story needs to change, or their pricing needs to change, and are able to have those really prompt and honest discussions around, market fit, pricing, and due diligence. We’re able to open these really raw and honest conversations, that inform key decisions in the startup.”

WHAT’S THE DEAL?

So how does the process actually work?

The idea is great in theory but what’s the commitment? For a lot of startup founders, time is not a resource they have a lot of, so deciding to dedicate some of it to a lengthy boot camp is a big decision to make.

Applications for the FIS Fintech Accelerator programme open on March 4 this year, and 10 companies will make it through the selection process. They know whether they’ve made it by July 4. That’s followed by a four-week incubation period

INNOVATION

Selected founders get untapped access to FIS customers and have very direct conversations, she says.

“We also provide budget for the initial ideation. I think it’s important in the current market, to be able to start with an idea straight away because time is of the essence in that early ideation stage,” says Kratunova. “Ultimately, the goal is to have a customer willing to get that initial solution, with the support of our business internally. That’s what I see as success for the Accelerator.”

Of course, the hard work ‘starts after the

accelerator, when you actually come to executing the idea’, she adds.

WHAT ARE THE RESULTS?

Kratunova says that typically graduate companies ‘have drastically improved their customer base through partnership, or have found different innovative ideas to drive forward in the market’.

Success stories she highlights include Neural Payments, in the P2P space, TrustStamp, providing ability to validate onboarding of new and existing customers through biometrics, and Stratyfy with predictive model development and decision optimisation services to reduce risks. But it’s the overall impact that is most impressive.

“If I look at our cohort of alumni in the last eight years, our companies have raised more than $1.5billion in capital, which is incredible,” says Kratunova. “They have won nine Finovate awards in that timeframe, and four of our most recent companies have been named by GGV Capital U.S. in its 2024 Fintech Innovation 50 list of the most innovative fintech companies.”

And that’s the type of company surely every fintech founder wants to keep.

■ Applications for the 2024 FIS Fintech Accelerator cohort opens on March 4. You can apply via the FIS Fintech Accelerator webpage https://www.fisglobal.com/ fis-fintech-accelerator

Luminous Alumni

FIS has developed a reputation as a go-to accelerator. Here are three of the most successful startups to have come through the programme

Ohio-based Neural Payments was founded in 2018 and provides payment services such as digital adoption, lower transaction costs and simplifying tech integrations. It was part of the 2022 cohort and has raised $11.58million1

Part of the 2020 programme, TrustStamp is an AI-powered identity and fraud mitigation solution, using biometric onboarding. Founded in 2016, the Atlanta-based company went public

in 2020 and is now listed on Nasdaq (Nasdaq: IDAI)2.

Founded 2017 in New York, Stratyfy was one of the FIS Fintech Acclerator’s 2020 cohort of alumni. Its predictive model development and decision optimisation services are designed to reduce operational and financial risks by combining human expertise with algorithmic fairness. To date, the company has raised a total of $10.16million1

1 PitchBook Data, Inc 2 TrustStamp 2024

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Power your businesswithPPRO Localpayments. Globalreach. Oneplatform. Visitusat www.ppro.com Power your businesswithPPRO Localpayments. Globalreach. Oneplatform. Visitusat www.ppro.com

THE HARD YARDS

Mastercard’s Start Path programme has been rooting for fintech founders for a decade. Programme Leader Sabrina Tharani explains why the company is so invested in supporting companies at the kick-off through ‘radical collaboration’

At a time of tight squeeze on fintech investment, a startup or scaleup needs all the help it can get: and having one of the biggest payment technology companies in the world on your side certainly improves your chances of reaching the fintech superbowl.

Launched in 2014, Mastercard’s Start Path engagement programme has already propelled many aspiring players into the big league. More than 380 companies across 54 countries have taken part. And, as the programme has matured, it’s had as much of a social impact on the innovation ecosystem as a financial one by targetting support at discrete categories of under-represented founder – including female and minority entrepreneurs. Like a good quarterback, Mastercard clearly sees its role as knowing where everyone is on the pitch and playing to their strengths.

Over the past 10 years, Mastercard – as mentor to, and investor in, the

startup community – has responded as the world changed, launching strands for fintechs focussed on digital assets and open banking.

It started a Start Path cohort specifically for Ukrainian fintechs and entrepreneurs, so they could contribute to the rebuilding of their country’s economy following Russia’s invasion. And, after a worryingly steep decline in the size of fintech raises and deal counts in 2023, Mastercard joined Barclays and the London Stock Exchange to back a £1billion investment fund specifically for UK companies.

Start Path itself is about more than money, though: it helps fintech startups access strategic partnerships, co-innovation opportunities and engagement with the payment giant’s global network – a strategy that was somewhat unusual a decade ago.

“The narrative then was about radical disruption; how are we [the incumbents] going to get disintermediated, and what

are the companies out there that are trying to take our share?” says Sabrina Tharani, who heads Start Path today.

“But now, 100 per cent, it’s about radical collaboration, in my opinion. And I think that’s why programmes like Start Path are so successful, because not just did we realise that, as a large, kind of, legacy institution, but startups also figured out that by partnering with organisations like ours, the banks, even other payment networks, there is a faster path to scale.

“And so, for us, fintech is one of the most critical customer segments for our business. They are going to fuel the next generation of growth, the next generation of technologies that will create more inclusive economies, but also help us build better experiences, that we couldn’t otherwise do ourselves.”

It’s not a cynical endeavour, she insists – not just about Mastercard selling them services, or getting them to buy Mastercard assets.

Making a point:

Mastercard’s Start Path is helping targetted fintechs realise their potential

ACCELERATORS & FUNDING: MASTERCARD
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“It’s about how we collaborate together to coinvent new products and services, bring them to market more efficiently, and do so in a really meaningful way, that’s going to bring more people into the financial economy,” says Tharani.

There are a few critical components to building those partnerships.

“Transparency and trust are paramount to making sure that the relationship works,” she says. “So going into any type of partnership conversation, you need to make sure that there is visibility into the objectives on both sides, that your incentives are aligned, and you’re able to have and broker honest conversations.

“Without that type of trust built in from the beginning, you’re not going to have a successful relationship.

“The second thing I tell all of our Start Path partners is that you have to be obsessed with the problem, not the solution. We are not looking for a really fancy, shiny new product that we’re going to need to find product-market fit for.

“We’re trying to solve some of the world’s biggest challenges: financial inclusion, open banking, connectivity of data around the world. We’re even trying to figure out sustainability challenges, like how do we help consumers better understand their carbon footprint through their purchases?

“These are massive global challenges. We want to find partners as obsessed with the problems as we are, and who are building solutions that have a good fit.

“Lastly, we think about how we jointly bring solutions to market together. What are the unique variables that Mastercard has that can help the startup be successful? And what are the things that

In mid-2023, Mastercard selected the first five startups to join its inaugural Start Path Small Business programme, which is specifically aimed at helping entrepreneurs grow their businesses by offering digital solutions beyond payments.

The cohort included Cumplo, DigiAlly, PayGoal, Tribe Fintech and the then one-year-old London-based Uome, an

they do that we know we can’t, or maybe we could, but we can do it better and faster together. What is that equation? What can we bring to the table? What can they bring to the table? And then how do we jointly bring that to market?”

BETTER TOGETHER

The advantages for companies handpicked for Start Path, which range from seed to Series B, are immense. They gain access to Mastercard’s technology, worldwide product teams and regulatory experts, along with its channels and customers in its global network of more than 20,000 banks. The end game is very clear, insists Tharani, and that is to sign partnership deals.

“This is not innovation theatre – it’s very much about what are the tangible

Fintech is one of the most critical customer segments for our business. They are going to fuel the next generation of growth

projects that we can work on together, and how do we sign deals as quickly as possible with these customers and partners?”

Crucially, it helps the fintechs with business development.

“Everyone in the portfolio gets a sponsor on my team, who’s really their ambassador, their quarterback for their Mastercard engagements, who helps them navigate a complex corporate matrix,” says Tharani. “That unlocks internal opportunities, but we also put

them on some pretty big stages such as industry conferences.”

So how does Mastercard measure the success of its Start Path partnerships?

Firstly, says Tharani, it’s the number of commercial deals it has signed with those fintechs over the course of a year, thereby solving key pain points for Mastercard and its customers. One such success is with UK-based real-time payments processor Kani, which went through the Start Path programme in 2022 and is now preparing to expand into the US.

But there is another important metric, Tharani reveals, which reinforces Mastercard’s strategic role in the ecosystem. It involves tracking how many of Mastercard’s customers leverage the partners that it brings to them.

“When we go to a Tier 1 bank, and we introduce them to a startup in our portfolio, we’re proud to see that bank sign up directly with that company, even if Mastercard is not part of the equation,” she explains.

“It means that we’re building value across the fintech ecosystem, helping expand the industry, but also servicing our customers, and giving them access to these really innovative solutions.”

She acknowledges that the recent slowdown in economic growth and slough in investment for fintech founders following the insane peaks of 2021/22, has ‘changed the way that we have to approach the conversation’.

“I think we went back to business basics – how to build a good company, how to properly scale your business model – and we’re finding that the resilient founders are going to be successful in partnerships with Mastercard in the future.”

small business programme

API platform that was created to make life simple for the self-employed community, particularly creatives, entrepreneurs, tradespeople, accountants, consultants and freelancers, by enabling them to run their firms from their phones.

Users of the Uome app can build client relationships, send invoices, get paid, do their tax preparation and send project updates all in one place. It now includes a subscription model with additional tools.

Start Path boss Sabrina Tharani says: “We think small business is going to be a pretty major topic next year, so we’re doing a lot in the small business space, helping businesses get easier access to capital, helping them unlock digital opportunities, helping them with payment acceptance in more innovative ways. It’s a huge growth area, for not just Mastercard, but for the payments industry overall and the economy.”

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SPOTLIGHT

After a difficult year in which many fintech founders got a frosty response to funding requests, did Slush23 signal a venture capital thaw? We report from the heart of the investment and innovation conference in Helsinki

Once confined to sci-fi and the back offices of coding enthusiasts, AI is now a hot topic at the household dinner table and in fintech networking conversations alike. So, it’s no surprise that global funding in AI and GenAI startups reached almost $50billion in 2023, an annual increase of nine per cent in an otherwise dire investment year for the sector.

Despite the controversial firing and rehiring of OpenAI CEO, Sam Altman, the foundation model company garnered the most funding – and public – interest. Microsoft committed to spend $10billion on the startup over several years last January in the largest VC round of 2023.

The upheaval at OpenAI coincided with the irretrievable downfall of another Sam: Sam Bankman-Fried. Bankman-Fried was found guilty of all seven counts of fraud and money laundering in November, concluding one of the biggest fraud cases in American history and cooling investor enthusiasm for crypto projects to Arctic temperatures.

This was the backdrop for Helsinki’s annual investment and innovation conference, Slush, which welcomed more than 13,000 attendees from the global startup and VC community to the depths of a Finnish winter in December.

Founded in 2008 with a modest initial audience of 250 attendees, in 2023 it spanned two sell-out days, with a pre-opening ‘Day Zero’

serving as an exclusive investor and founder day. On Day Zero, a selection of pre-screened guests could enjoy a number of Slush and externally organised ‘side events’ dotted around the Messukeskus Siipi Conference Centre and the wider city.

From startup tram-and-art tours, investor yoga and padel, to intriguing 'Pre-seed Sauna and Ice Dips' and the more prosaic 'Navigating the New Horizon: EU Foreign Subsidies Regulation and Investment Strategy', Slush offers every opportunity for ideas to stew and relationships between investors and founders to foster.

The bulk of Slush2023’s programme unfolded in the labyrinthian Messukeskus. Navigating the subterranean conference room, at any given moment the boom of a speaker delivering a TED-Talk-style oration from one of the event’s four stages cut through the din. Fragments of advice on fundraising and inclusive hiring practices from the Founder Stage could be heard over fireside chats between VCs and founders of startup success folklore, including Severin Hacker, co-founder & CTO at Duolingo, and French entrepreneur and engineer, Romain Huet, head of developer experience at Open AI and former product manager at Stripe.

Prophetic insights flowed from talks on the Horizon Stage, with 30-minute events entitled ‘AI Won't Take Your Job, But The People Using It Will’, ‘Dawn Of A Surgical Renaissance’, and ‘The Modern Customer Experience Revolution’.

The Builder Stage, meanwhile, offered a structured programme of 15 seminars supporting would-be founders through every phase of building their

company, from ‘#01 Validating Your Problem’, to ‘#15 Pricing Your Product’. The Builder Stage itself was constructed from stone and sand, materials that, according to Slush, symbolise ‘the foundation upon which great companies are built – strength and endurance’. Slush was equally keen to shine a light on up-and-coming founders, with a series of sector showcase events at the Start-Up Studio.

Notwithstanding an astonishing number of cafés and food halls, the best coffee –oat-milk lattes infused with rose – could be found in the heart of the coveted Investor Lounge. This hallowed space, shrouded by floor-to-ceiling black curtains and flanked by a reception desk of polite gatekeepers, was a hall full of numbered industrial-style benches and tables where founders and investors could pre-book short one-to-one meetings through the Slush event app.

Savvy investors max out their limit of 50 meetings here with the most promising founders that align with their investment theses. A partner at a UK-based VC observed that investors could find more potential investee UK startups in the Slush lounge than months of deal origination activity in the UK.

Even without access to the app, investor or founder, you were still able to identify your target at the conference. Every attendee was mandated to wear an oversized ticket on a lanyard with their name and QR code linking to their Slush app profile. The ticket was easily identifiable for passers-by and had to be visible at all times, presumably on pain of being ejected into the subzero Finnish gloom. Tickets were colour-coded and labelled – ‘Investor’, ‘Start-Up’, ‘Attendee’, and the occasional ‘Volunteer’ and ‘Ecosystem’ – but they need not be. Despite the flares of LED lasers and dimmed lighting, investors were easy to spot, cutting through the crowd, sporting blazers and gilets. Founders, meanwhile, adopted what has become the global uniform of the ‘tech bro’.

A fintech ice-breaker

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In white trainers, jeans, and, of course, a hoodie, they could be found all over the centre, revelling in the insights of their peers.

Founder confidence was palpable at Slush, despite those jawdropping events of 2023 and a decrease across the board for VC investment in early-stage companies. Global startup investment fell to $285billion in 2023 – a 38 per cent decline year-on-year, down from $462billion, and the lowest for venture funding since 2018 (Crunchbase). Fintechs, once the darlings of the investment scene, amassing more than $210billion globally in 2021 (KPMG), fell out of favour in 2023, experiencing a decline of more than 48 per cent from 2022 (S&P Global).

The Americas attracted most investment for fintechs, accounting for more than half

fit and develop strategic commercial and investor relationships. The Mastercard Lighthouse is divided into two categories: FINITIV and MASSIV. FINITIV supports startups pioneering traditional banking innovation, while MASSIV stands for Make and Scale Social Impact Vision.

WARMING TO CRYPTO (AGAIN)

While cryptocurrencies and digital assets still pose a number of challenges to investors – including a fragmented market, lack of regulation, and trading complexities – it appeared fintechs seeking to overcome these market-wide challenges, and working with regulators to do so, were overcoming setbacks to the sector last year. The most striking confirmation of that at Slush was Mastercard Lighthouse's FINITIV 2023 Overall Winner, Fideum Group.

the investment volume in Q3 2023 (Statista). However, London secured its reputation as a leading financial capital as the UK fintech scene rallied towards the end of the year the global downturn, securing $1.4billion in funding during Q4 alone, with five deals surpassing $100million, demonstrating a turning point for the sector as fintech companies reach maturity.

With this maturity, established banks and financial institutions are turning to fintechs for innovative solutions. These strategic relationships were evidenced at Slush as the head of innovation at Mastercard, Mats Taraldsson, introduced the Mastercard Lighthouse programme and pitch competition, which is financed by the company’s Nordics & Baltics division.

The programme, a partnership between regional banks, delivers structured workshops with fintechs and banking partners to help establish product-market

critical need for innovative solutions that Fideum addresses – creating a seamless, regulated pathway for institutions to engage with digital assets. This win is a nod to our foresight in solving real market challenges and Mastercard’s alignment with our goal to transform the financial sector.”

Fideum’s success signals the evolution of blockchain technologies away from a limited cryptocurrency use case. Blockchain today is increasingly used to support wider blockchain-enabled infrastructure and data-driven AI models – infrastructure that is already familiar to investors and makes for more accessible investment opportunities as they assess the viability of a business and consider their board seat.

Fideum also aims to solve a sector-wide challenge: striking a balance between innovation and regulation, where privacy and security are high priorities for financial services. The company is one of many examples of a wider trend that’s seeing startups shift focus from SME and smart payments, to blockchain and fraud prevention, as Inez Molnár, consultant at Mastercard, noted in her introduction to the pitching companies.

The Nordic and Baltic partnerships that underpin the Lighthouse programme are emblematic of a region that leverages ecosystems to share resources and create a hotbed that enables tech to thrive. Including

A partner at a UK-based VC observed that investors could find more potential investee UK startups in two days at Slush than months of deal origination activity in the UK

Emerging in 2023 following the merger of GenBlock and blockbank, the Lithuanian-based entity enables traditional financial players and SMEs to integrate crypto-related assets and services into their B2C and B2B offerings while remaining compliant. Fideum is currently active in more than 120 countries and is supported by 30 institutional partners, and is now invited to pitch to Start Path, Mastercard’s global start-up engagement programme.

Commenting on the award at Slush, Fideum Group CEO, and co-founder of blockbank, Anastasija Plotnikova, said: “Being honoured as the Mastercard Lighthouse FINITIV winner is a testament to Fideum’s vision of bridging the gap between traditional finance and the burgeoning digital asset market. Mastercard’s recognition highlights the

an innovation powerhouse like Estonia, for instance (which has birthed an astonishing 10 unicorns from its population of 1.2 million), in a ‘New Nordics’ grouping is a wise move for a fleet of economies seeking to launch technologies on a global scale.

‘New Nordics’ was a term coined by Eric Lagier, former head of mobile at Skype, and managing partner of byFounders, a venture fund focussed on seed stage startups in the region. Speaking at the conference, Lagier fervently encouraged them to ‘build for tomorrow’ and think big, beyond the problems of a localised market.

As the conference-goers (are we Slushers?) crunched their way home, down Helsinki’s frosted streets, the investment setbacks of 2023 melted into distant memory. Thanks to the Finnish, we all felt 2024 was the start of something new.

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FINTECH M A G A Z I N E
Fast funding: Investors and founders ‘speed date’ at Slush2023

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A new way toKYC

We speak to Sunil Madhu, Founder and CEO of Instnt, to find out how it’s aiming to ease the burden of fraud loss whilst helping financial institutions onboard more customers

A bank account, credit card or loan should be accessible to everyone, but getting one isn’t always straightforward. When a bank’s onboarding process shuts the door, it’s often those who are just beginning their financial journey who lose out.

Imagine you’re a young person getting their first credit card, hoping to boost their credit rating and get on the property ladder. Or what about the millions of people in the wake of misfortune who just need a bank account to begin their road to recovery? These are the people affected by know-your-customer (KYC) solutions that don’t know their customer very well at all.

For the banks, though, there’s a very good reason this problem exists. Getting it wrong is just too costly. According to Javelin Strategy and Research, US identity fraud losses alone totalled $43billion in 2022. Even though this was a reduction from the previous year, it is still an astronomical figure that affected 40 million adults in the US. In the UK, new analysis from Experian reveals identity fraud there rose by 22 per cent in 2023, compared to the year before.

Data also suggests that the types of fraud occurring have shifted. ‘First party fraud’, where consumers use their own identity but with inaccurate information

or open an account with the intent to defraud the lender, now represents 31 per cent of all fraud, up 10 per cent from the previous year.

It’s an area that entrepreneur Sunil Madhu knows all about. He’s the founder of Instnt, a US-based KYC platform that launched in 2019 with a mission to streamline the onboarding process without increasing financial businesses‘ risk exposure or excluding innocent customers.

REJECTION AND LOSS

With analysts estimating that somewhere between 10 and 25 per cent of every dollar of consumer loan receivables is written off to first-party fraud, trillions of dollars are lost annually across industries. So, the fight against fraud is justified but due to siloed KYC processes, there is a danger it can be inefficient.

A study from software company Fenergo showed that 48 per cent of banks globally have lost customers due to a slow onboarding process – and that loss is further compounded when you factor in the sheer cost of KYC compliance.

One of Instnt’s own case studies said a client’s ‘anticipated growth of more than 100,000 monthly sign-ups had been cut short, thanks to a legacy risk and compliance management toolbox that disproportionately rejected more than

60 per cent of customers. Unsurprisingly, and sadly, ‘90 per cent of the users rejected were those with credit-thin files, including Millennials, Gen Z and Immigrants’, the company said.

This may seem an egregious figure but it is prevalent in the US, where compliance legislation is not as progressive as in Europe and smaller community banks rely on legacy infrastructure.

So how do they solve fraud effectively? Madhu explains that one approach is taking ‘past negative behaviours that suggest someone may be a first-party fraud risk, such as whether they have defaulted on a loan, or missed payments, and share that in a common database which businesses can subscribe to’.

Of course, consumers do have the right to assess and challenge this data, but that’s assuming you have a credit history.

“This is a very naïve way of looking at fraud,” says Madhu, “because a lot of young people coming into the market don’t have that spread of information. In an on-demand economy, they are going to end up getting penalised, causing financial exclusion for the future of the market."

Even if these people were to be accepted, there’s a very real danger they could get unfairly marked as fraudulent if the first payment is missed. Madhu says that’s often all fraud detection is based

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on. It can be a pretty good indication that the user is fraudulent, but it could equally be because of an individual’s economic circumstances. A black mark next to their name could be the beginning of a painful process.

Madhu believes ‘it’s prudent to look at the problem differently’. In fact, he views it as a loss optimisation issue and, therefore, concluded that insurance could play a pivotal role because there’s a dual problem here: a costly KYC process to solve for the very real and costly threat of fraud, but which has the unfortunate side effect of losing potential business. Instnt has a compelling solution to prevent those losses compounding, he says.

A UNIVERSAL SOLUTION

Instnt’s core product, Instnt Accept, fights the problem on both fronts by providing the technology needed to onboard efficiently whilst also insuring against losses caused by true KYC fraud.

“We’re providing a capability that has not existed before,” says Madhu. “We’re saying ‘you don’t have to worry about classifying people as fraudsters’. If you end up incurring a loss, by allowing a particular person in who has been approved by Instnt, Instnt is going to take that loss off their balance sheet.

“We’re the first vendor in the market that will price and underwrite the fraud loss risk that a business holds.

“Traditionally, because everybody has had to build their own risk management and compliance infrastructure, they have held on to their losses. They’ve had no option of insuring away those losses because no insurance company had developed the capabilities to do this.

“We’ve solved this problem by creating the underwriting, as well as the technology piece. That allows us to own and manage the overall fraud loss.”

Insnt has partnered with A+ rated insurance companies to provide this service and Madhu points out that it’s only able to do that because it can pool the fraud loss risk across its client base. In theory, this should allow businesses to say yes to more customers, especially those with a thin credit file.

“The beauty of this consortium approach is that, because the business no longer has to worry about fraud loss management, it can focus on growth, and that perspective also allows it to optimise the customer onboarding process and eliminate a lot of friction and drop-off,” argues Madhu.

It’s a bold strategy and one that is made even more appealing by the addition of Insnt’s latest product, Multipass, launched in October 2023. This has the potential to reduce the ongoing costs of onboarding the same person multiple times for separate products. After all, the fraud issue is not closed with the initial onboarding process, as shown by the growth rates of FPF.

We’re the first vendor in the market that will price and underwrite the fraud loss risk that a business holds

“We provide capabilities for that entire lifecycle, beyond account opening, ensuring it is the same person doing the transaction, and the account has not been taken over because that’s also a significant problem in the industry,” says Madhu.

It’s been estimated that, by 2023, 22 per cent of adults in the US had been victims of account takeover. In the UK, incidences of account takeover fraud rose

by 79 per cent between 2022 and 2023, according to industry body UK Finance.

Multipass adheres to, and is made possible by, open and interoperable standards. It’s something that the US-based company recognises has more in common with the regulatory landscape of the UK and EU, but Madhu believes greater focus in the US on ‘privacy regulation and compliance will drive the adoption of technologies like Multipass’.

To explain the product, he uses the example of being onboarded at a bank for a standard chequing account and returning some time later to face the same labour-intensive process again for another product from the same institution.

“This happens because of the silo-based approach that’s been taken towards customer onboarding. Instead, we can bring the customer to the product or service within one click. In terms of friction avoidance, that’s the closest you can get them,” says Madhu.

Through this product, which Instnt is calling a ‘portable KYC solution that lets a business’s good customers access any product or service with a single click,’ it generates a reusable, verifiable credential or identity for that customer.

“This digital pass is securely and quickly sent from our platform to the mobile application of that business, inside which we provide an embedded identity wallet,” says Madhu.

There are similar products on the market but it’s the encryption and storage of that pass on a decentralised blockchain that makes it stand out.

“In the traditional model, that identity would have been stored in a database that could be hacked, exposing the business to reputational harm, and other types of loss such as cyber liability exposure,” says Madhu. “In this new model, we eliminate that.”

Resetting the board:

Insnt believes it’s made a breakthrough in managing the cost of KYC

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Knowingknowingme,you

As NatWest rolls out a digital ID service for its customers, Stacey Wilkinson explains why bank-led identity solutions are a natural evolution of FS

Question: who probably knows more about you than anyone else – even closest friends and family?

Answer: Your bank. Why? Because, as regulated institutions, we have long expected our banks to uphold the highest standards of security and probity and we’ve been happy to trust them with not only our money but also something even more valuable: our personal identifiable information – our names, date of birth, and addresses.

Not only that, but, as many of us have a long relationship with a bank (65 per cent have been with the same provider for at least 10 years, according to research from the UK’s Financial Conduct Authority in 2022), we’ve left them with a very rich transaction data trail to learn of our spending habits, lifestyle and changing status as we pass through life.

And, in line with financial regulations around data privacy, onboarding and fraud protection, we will also delegate authority to them to share elements of that information on a need-to-know basis with third parties – and third parties will trust that it is correct. Therefore, in an ever-growing global digital economy, banks are surely well-placed to be the guardians of our digital identities as they look to extend services to customers by leveraging open banking and APIs.

However, while other countries have long offered bank-led digital IDs to their citizens for use in both private and public sectors – BankID in Sweden was the

world’s first, way back in 2003 – the UK has been something of a sloth. And that could be due, in part, to a somewhat fractured backdrop at government level.

A government-led plan to lead the way with its Government Gateway digital identity scheme for all its services was first announced in 2001 but subsequently became embroiled in internal disputes between the tax office and the department for Government Digital Services (GDS), with the tax office developing its own services, using an existing Government Gateway ID.

Government Gateway was eventually superseded in 2019 by Gov.UK Verify which, at the end of 2022, was itself replaced by Gov.UK One login, on to which an increasing number of services, including the tax office, have since started to migrate (are you keeping up?)..

There’s a great collaboration opportunity between public and private sectors

Without a public mandate to create a compulsory national digital identity scheme, the government is now allowing the private sector to provide digital IDs by establishing the Digital Identity and Attributes Trust Framework – a set of rules and standards designed to establish trust in digital identity products.

And, taking learnings from hugely successful bank-led digital ID schemes in

other countries, the UK’s major banks are waking up to the opportunity.

In late 2023, Lloyds announced it had partnered with tech firm Yoti to unveil its Lloyds Bank Smart ID app, giving its customers a way to prove their identity and age through their mobile phone.

A few months earlier, in April, NatWest had announced its Customer Attribute Sharing digital identity solution, developed by its Bank of APIs department.

Stacey Wilkinson, product owner for NatWest’s digital identity solution, is in no doubt of the role banks can play in the adoption of digital identities in the UK, ‘built on the foundation of trust that banks have with consumers’.

“Banks in the UK can take learnings from markets with widely-adopted digital identity solutions that are being used in financial services, but then can also be used to access a gym, or to hire a car, and other uses outside the financial sector. In Belgium, one of the biggest drivers of adoption was being able to use your itsme credentials to log in to the Belgian government website. So there’s a great collaboration opportunity between public and private sectors.”

NatWest’s digital solution allows its customers to share their bank-held data with third parties using three options, effectively creating a ‘one-stop shop’ for smoother and speedier digital experiences.

“First we have provision, where a customer can choose to share their bank-held attributes in their raw format,

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so name, date of birth, address and email, to speed up onboarding journeys on third-party sites,” explains Wilkinson.

“Second is verification, where a customer can ask the bank to verify that the attributes they’ve shared elsewhere are correct. So, for instance, if I need to prove that I’m over 18 to access a service or a particular product, my bank could vouch for me.

“And third, is address update notification. If I update my details with the bank, I have to update them with a number of other service providers that I already share my data with. I just want to do that once, and have my bank share that, with my consent.”

Digital identification specialist OneID is the first consumer of NatWest’s Customer Attribute Sharing service, making it available to businesses across a wide range of use cases, including e-document signing and digital onboarding.

Wilkinson describes the potential benefits to businesses as being ‘astronomical’, not least when it comes to reducing fraud.

THE TRAILBLAZERS

Giving recent evidence to a UK Government Parliamentary Committee, OneID cited that the BankID scheme in Norway had reduced fraud to 0.00042 per cent of payment volumes as it was used by most people for most online transactions.

”I think fraud reduction is the biggest opportunity for businesses,” says Wilkinson.

“Second, is enhancing customer experiences. If a customer is going through an onboarding journey, they may have 10 clicks to get to the checkout, filling in their personal details, or taking a photo of their passport. Those journeys can take up to five minutes when they are used to seamless one, two, three-click experiences elsewhere, and businesses are striving to deliver that now.”

In payments, including cross-border, it means they can provide instant verification at the point of sale. But Wilkinson also sees how identity-sharing APIs can be used to create opportunities for banks in embedded finance, where their relationship

with consumers is often disintermediated by third parties.

“To be active in an embedded finance ecosystem, you need to know that it is your customer at the other end of the screen, and that is where digital identity has a huge role to play. There’s a great opportunity for banks to be more present in that space,” she explains.

All this rests, of course, on banks retaining the trust of their customers and their willingness to allow their data to be shared. Under NatWest’s system, the customer is in ‘full control, the entire time’, says Wilkinson, and can revoke that consent at any point.

Bank-led ID schemes in Europe

BankID (Sweden)

Partners: Danske Bank, Handelsbanken, Ikano Bank, Länsförsäkringar Bank, SEB, Skandiabanken and Swedbank. Mobile operators Telenor and Telia.

Number of users: Eight million

Description: BankID was the world’s first banking electronic ID (e-ID), in 2003. Today, most internet and mobile banks, financial companies and payment solutions as well as state and municipal e-services use it. An unrelated version of BankID also operates in Norway with 4.2 million users.

itsme (Belgium)

Partners: Belfius, BNP Paribas Fortis, KBC/CBC and ING. Mobile network operators Orange, Proximus and Telenet.

Number of users: Nearly seven million

Description: About 80 per cent of Belgians between the ages of 16 and 74 have set up an itsme account since its creation in 2017. The app is used to login into government services and banking applications, and to verify

identity for an array of official services. The application is often used as a replacement for e-ID card readers.

MitId (Denmark)

Partners: Banks are represented by their industry organisation, Finance Denmark, with the public sector represented by the Agency for Digital Government.

Users: Nearly five million

Description: MitID is a digital ID that can be used for various purposes, including transferring money in online banking or logging into public self-service solutions. The minimum age to get MitID is 13.

“These are financial-grade APIs that we have built. It is a very trusted point of connectivity for customers. They use open banking right now to share information such as their account details and transaction history. Putting the identity attributes on top of that, and giving the customer control, just seems like a natural extension of open banking.” Look

Introduced in 2022, MitId is the third generation of Denmark’s e-ID.

Finnish Trust Network (Finland)

Partners: The majority of Finland’s banks, including Osuuspankki, Nordea, Danske Bank and Handelsbanken. Mobile operators Telia, DNA, and Elisa.

Users: More than five million

Description: Finland’s primary digital identity scheme is a combination of mobile IDs and bank IDs. Introduced in 2019, FTN is now used by thousands of public and private services.

Smart-ID (Baltics)

Partners: All major internet banks in the Baltics, including SEB, Swedbank, LHV and Luminor. Mobile operator Telia.

Users: More than three million

Description: Launched in 2017 by SK ID Solutions, Smart-ID built on its earlier offerings, ID-card and Mobile-ID. Smart-ID is now the most popular mobile authentication solution across Estonia, Latvia and Lithuania.

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The race is on for a quicker, but still secure, banking experience
who’s talking:

TimeforT+1

The US and Canada are ramping up the heat on market participants with the settlement cycle for most trades in securities shifting from two days after the date of trade to one in May. Roberta Bill tells us how SmartStream’s AI can help them beat the clock

Trading settlement times have been reducing gradually since, well, since certificates were delivered on horseback. But in recent years we’ve seen settlement cycles climb down from five business days (T+5) to two (T+2).

Now, the US Securities and Exchange Commission (SEC) is shortening settlement cycles for broker-dealer transactions in the capital markets from two business days, post-trade, to one business day. This will happen in the US on the first trading day after Memorial Day (May 28). Canada, where markets are overseen by the Canadian Capital Markets Association, will move to T+1 the previous day.

The acceleration is partly influenced by the ‘meme stock’ phenomenon of 2021. Catalysed by investors on the Reddit forum r/WallStreetBets, which first used the social network to talk up the value of GameStop stock, it really highlighted how data in the outside world (social media in particular) was travelling faster than internal market systems.

Brokers were unable to keep up with the volume of trading taking place and both markets and regulators found themselves on the back foot in 2020. Understandably there is a desire within capital markets to reduce operational risk and the pre-settlement risk of counterparties not delivering on the settlement date.

HSBC relationship director Neil Atkinson has been quoted as saying that ‘removing one day’s exposure to that risk could translate into a 41 per cent reduction in the volatility component of central counterparties’ margin requirements’. He also said the reduction to T+1 would impact investors around the globe, due to the US capital market being the largest in the world.

In theory, the efficiency and reliability of trades should improve, and trading costs should decrease.

Respected US market commentator Jim McCaughan observed in the Financial Times: “Markets that don’t offer T+1 should be expected to see declining liquidity and to lose out to any competitors who can

trade the same securities with such a settlement.” Now, in Canada and the US, they will have no choice.

But the change is not without its challenges and there are several considerations for financial institutions as the date bears down upon them. One of the main concerns is whether legacy systems can handle this sudden increase in speed.

The necessity of the move doesn’t ease the fact it has probably come a little sooner than preferred, given the complexity. This view was shared by one brokerage technology firm BetaNXT, which also pointed out the differences between this development and the move to T+2 in 2017, which involved the industry pushing regulatory change. This time, the SEC is pulling the industry towards the shorter settlement cycle, in response to trends.

The Indian markets moved to T+1 in 2023, and whilst their pioneering is likely to be rewarded, there are lessons to be learned. For example, the rate of late settlements has increased, as some players

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experienced operational disruption due to the change. Many will be seeking to avoid that in the American markets.

Accounting systems will, inevitably, need to operate more rapidly as any failures will become costly to deal with. One of the main implications of this move, and what will likely cause the most headaches, is the need for reconciliation and confirmation to be watertight when there’s less time to carry out these responsibilities. It's argued that automation in trade-related functions is going to be more necessary than ever.

This is a sentiment shared by Virginie O’Shea from Firebrand Research, who was quoted by Swift as saying: “Same-day affirmation under T+1 will be more painful for firms who are still using manual processes. This will require firms to move to full automation.”

THE CASE FOR AUTOMATION

In 2023, reconciliation experts SmartStream Technologies released a whitepaper report, in partnership with WatersTechnology, looking ahead to the T+1 date and what the impact would be. The report claimed that, in complying with the SEC’s mandate, ‘firms will need to automate trade-related processes that are currently manually intensive.’

Roberta Bill, product manager for SmartStream Air, the reconciliation software powered by AI, which was developed in the company’s Innovations Lab, says tools like this are becoming increasingly important as institutions move towards tighter time frames.

“In the financial sector, you have a lot of work, such as data validation, that relies on manual data entry,” says Bill. “A lot of hours and manpower go into it. Using AI can relieve the system when you automate things like data validation and data entry.

“SmartStream Air can be used as a handy co-pilot, to get you through those day-to-day duties, which usually take hours. They can now be done in minutes.“

The SmartStream/WatersTechnology paper found that collateral management, intraday liquidity management and reference data management were all functions that would be impacted by the T+1 move. Indeed, almost 80 per cent of respondents to the companies’ survey believed their own reconciliation

functions would be impacted. The paper went on to stress how important reconciliations are to the trade settlement process and how the compressed time frame of the incoming T+1 settlement cycle, combined with growing data volumes, will exert pressure on firms’ reconciliations infrastructure –particularly those comprising fragmented legacy systems and manual processes.

“Firms should therefore have a proven reconciliations system able to handle multiple asset classes and large data volumes and be capable of dealing with new and existing data formats,” it said.

The paper points out how AI and machine learning have been deployed in this area to great effect and cites examples of reconciliation involving large and complex datasets, reducing them from days to seconds, while accruing a number of other benefits.

Bill outlines where a combination of AI and human intervention could play a serious role in streamlining reconciliations.

“It’s important to have real-time data at your fingertips, to pull up when there are breaks, and when there are exceptions in the system,” she says.

SmartStream

Air can be used as a handy co-pilot, to get you through day-to-day duties, which usually take hours. They can now be done in minutes

“Human intervention is needed in those cases to read breaks and exceptions, but AI helps make that time more efficient. So, rather than waiting days for those bits of information, as some of the banking sector currently does, you’re getting it in seconds and can reconcile the data straight away.”

Given the changes happening in the US, that’s likely going to be more necessary than ever. Bill goes on to point out other ways the SmartStream Air platform could help institutions to not only keep up with new time constraints but also keep in line with regulations. As a co-pilot, she says, it can help with complex in-house governance and compliance policies.

“Banks and FIs use Air AI to automate their reporting to visualise and rectify the situation as quickly as possible. This removes the need for manual end-user applications and means they can use Air as their core framework,“ explains Bill.

SmartStream has clients that use SmartStream Air reconciliations to comply with Europe’s MiFID II and other regulations governing trading in and with the EU.

“They’re using it for transactional reporting and their traded on trading venues (ToTVs), making that more accurate and further cutting down time," she says. “They’re able to pull reports and enter data very quickly. Our ‘drag and drop’ allows for file upload within seconds, so that cuts down on the time that you’re manually inputting a file.“

That such technology is available should be good news for US-based institutions facing tighter timeframes. As HSBC pointed out, it’s clear that ‘developing improved automation will be key to maximising the benefits of a global shift to T+1’.

And what of T+0? There’s certainly a desire to get there and the Indian markets are already heading in that direction. In theory, the technology is already available to make it happen, says Bill. As she points out, for banks and institutions, ‘to be able to pull real-time data directly from their servers and their systems and to see when issues are occurring, mitigates risks, reduces working times and makes systems more efficient’. And that sets them up to deal with T+0 if and when it happens.

The shift to atomic settlement won’t happen overnight. We need to cross the immediate hurdle of T+1 first. And, as HSBC’s Leahey points out: “Right now, anything approaching real-time settlement would jeopardise important risk reduction and capital efficiency within today’s settlement infrastructure.“

But a key way to achieving T+0 effectively is likely going to be partnering with third party technology providers. The SmartStream/WatersTechnology paper found that almost half (47 per cent) of respondents were already looking to third-party providers to make T+1 happen, setting them up for a successful transition to T+0 further down the line. But, for now, it’s one step at a time.

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Innovation

Answering call the

Crown Agents Bank is one of the few operating in the challenging environment of overseas cash aid, delivering billions of dollars every year directly into people’s hands.

We asked Head of Global Payments Mobile Sales, Nkosi Moyo, how it uses technology and data to help

When disaster strikes in countries perpetually plagued by challenges like civil conflict, disease and famine, there’s often a crisis of conscience in the well-off West over sending cash to help.

There’s a suspicion – backed by evidence in the case of some of the biggest donation events of the last few decades – that it won’t reach the frontline of need, but be diverted to fund arms or pocketed by corrupt officials.

Nevertheless, cash is still the most useful form of financial support in a crisis, according to Dr Kate Orkin of Oxford University. Her studies have revealed that cash transfer programmes are the preferred method of government intervention in low and middle-income countries. This, she says, citing reviews by

the World Bank and Overseas Development Institute, is because there’s a recognition that, if delivered direct to them, ‘poor people spend cash well’.

“Cash has the added benefit of giving people autonomy to spend on what they need most,” she says, adding: “Emergency, fast cash is a smart investment in long-term poverty alleviation.”

Between 2016 and 2019, the value of cash and voucher assistance doubled from $2.8billion to $5.6billion, making up nearly 18 per cent of all international humanitarian aid, according to the most recent research by the Cash and Learning Partnership (CALP) Network, which researches and promotes the use of cash assistance.

Cash aid has been proven to stimulate long-term business activity, it gives people dignity and agency over their own lives, and generally leads to a multiplier effect as communities and individuals come together to get the most value from it.

But that doesn’t mean that getting it to them is easy. There are a raft of challenges for non-governmental organisations (NGOs) and charities, and the financial institutions and payment services providers serving them.

Not only must they often overcome a lack of rails and connectivity, but factors like corruption, fraud, geographical inaccessibility and political unrest can make the safe passage of both hard cash and electronic payments difficult.

Crown Agents Bank (CAB) is a UK-regulated FX and payments service provider, specialising in global FX and cross-border payments for hard-to-reach markets, using a combination of widespread local networks and technologies suited to each situation.

Its head of global payments mobile sales, Nkosi Moyo, says: “One challenge is just getting the funds into the country. The next considerations are ‘what can we do about beneficiaries who are not banked? How do we move funds to a remote village? And how do we make sure beneficiaries being paid are the validated ones and the funds are not being diverted to other uses?’.”

GiveDirectly is just one of the charities it’s worked with to overcome those hurdles. A not-for-profit organisation founded on cash assistance using mobile phone deposits, it has collaborated with CAB to help families living in extreme poverty in African countries, including Kenya and Rwanda.

Charities operating in East Africa were struggling to deliver funds to vulnerable communities in rural areas lacking infrastructure and where people often don’t have a bank account, all of which made last-mile funds delivery difficult and reliant on multiple third-party service providers who might not be trustworthy. And each take a cut, of course, meaning less funds reach their destination.

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Facing the challenge: Getting cash to vulnerable people in hard-to-reach places isn‘t easy

To counter this, GiveDirectly wanted to use mobile transfers to send funds straight to beneficiaries. CAB had acquired the remittance business of mobile payments gateway solution Segovia in 2019 and CAB’s compliance controls as a UK-regulated bank enabled the transfers to happen at scale via that channel.

Its mobile and bank payment capabilities cover 100 per cent of GiveDirectly’s markets, saving valuable time, compared to traditional rails. One example was sending funding into Malawi during the pandemic when, despite transaction volumes exploding from 15,503 pre-COVID to 201,960, CAB bulk transaction technology meant GiveDirectly saw lower costs for transactions ($168,694 USD pre-COVID versus $98,803 USD during COVID) across its East Africa programmes.

GiveDirectly was able to use CAB’s technology to open new payment corridors, too, even during lockdown, allowing more funds to reach end beneficiaries at one of the most critical times in the charity’s history.

So, how has the bank ended up playing such a vital role in world events?

CAB can trace its roots to the UK not-for-profit international development company Crown Agents, which has worked closely with the British government, other public institutions, individual donors philanthropists and the corporate sector for more than a century. CAB was spun out of Crown Agents as a private company in 1989, but over its long history, it has increasingly specialised in foreign exchange trading. It’s a line of activity that admittedly caused it some difficulties following its initial public offering (IPO) last summer, after a number of changes to the market conditions in some of its key currency corridors triggered a profit warning, four months in.

But FX market conditions aside, CAB has achieved huge success, processing £34billion in FX and payments and notching up 56 per cent six-year revenue growth. That’s a lot of help distributed to a lot of people.

According to CEO Bhairav Trivedi, CAB is driven by social impact: to ‘drive financial inclusion, formalise financial markets and strengthen the

local economies’. And, following its acquisition by private equity firm Helios in 2015, it began a digital transformation journey to continue delivering on that.

CAB collaborated with SoftCo to integrate an end-to-end, procure-to-pay solution, encompassing everything from vendor management to invoice capture, matching, and invoice approval, for more efficient and accurate processing.

Help where it’s needed:

CAB’s impact has been felt across the world

In 2020, to better manage risk and improve efficiency, controls and customer experience, with Deloitte and Outsystems it introduced three portals – EMpower Payments, Empower FX and EMpower Pensions – for workflow management, direct customer interactions and administration. Its earlier acquisition of US technology company Segovia, meanwhile, had enabled CAB to extend its payment network, include mobile money and integrate Segovia’s modern payments infrastructure into its already extensive FX capabilities.

“We give clients clear guidelines for formatting payments for a particular corridor, and information that should be included, including documentation for certain countries,” he says.

This is complemented by CAB’s macro-level insights.

“Our business is primarily FX and payments. We cover about 100 countries and currencies. From an FX perspective, we have a sense of what clients are calling us for, when they want to exchange from one currency to another, the deals we are processing, win rate, loss rate, how quickly we can settle and get the funds into whichever account,” says Moyo.

“We can also see how many transactions are being held up in screening queues, which can go straight through and which need repair. That helps us understand clients’ challenges in formatting and sending to us, and ensure better quality data.”

The generalised move towards instant cross-border payments is increasing NGOs’ expectations.

“There is an element of instant,” says Moyo. “Some countries can pick up and apply your instructions to a beneficiary’s account. In the mobile money space, too, mobile money operators can receive and make instant payments, enabling us to deliver value to a beneficiary’s wallet within 10 seconds.

“Some local payment infrastructures have yet to be upgraded to support instant payments, but payments will get faster as countries tackle this, and transaction costs should come down.

Moyo heads CAB‘s global payments business, supporting NGOs and large multilateral donor organisations. Much of his focus is on those vital last-mile payments. He explains that CAB aims to minimise the complexities and delays in moving money around higher-risk zones, and across regulatory jurisdictions, through clever use of data.

“We’re also interested in the role digital currencies may play, especially central bank digital currencies. Some clients are showing an interest in stablecoins for moving funds from A to B, and we find this interesting in terms of cross-border micropayments.

“The development sector is keen to see banks support finding more efficient solutions for getting value to beneficiaries in remote parts of the world that don’t have access to banking services. Mobile money addresses some of the challenges but some beneficiaries don’t have mobile phones.

“We have to be constantly looking at what’s out there in the market – areas like offline card solutions – and what smart partnerships we can get into, to enable better services for our clients.”

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FINTECH M
Mobile money: The race is on to find more efficient solutions

Looking

Counting cost the

With almost five million UK households struggling to pay essential bills, Chair of the Payment Choice Alliance, Ron Delnevo spoke to Cash Perks’ Gareth Evans about the vital role of cash innovation in alleviating financial hardship

As the cost-of-living crisis intensifies in the UK, the need to provide immediate financial support to struggling households has dramatically escalated.

When it comes to aiding those in financial distress, the growing call is to prioritise cash payments over food parcels or shopping vouchers.

In a way, this is simply the UK catching up with what’s happening globally in relation to humanitarian aid, with the proportion made in cash increasing from less than five per cent two decades ago to around 40 per cent today.

This ‘cash first’ approach in the UK is being championed by a number of anti-poverty charities, from the Trussell Trust to the Child Poverty Action Group. As well as international precedents, It is based on mounting UK evidence

– including from a recent All-Party Parliamentary Group report – that not only does cash provide greater dignity and choice but, importantly, is also shown to deliver greater impact than other forms of assistance. When things are tight, cash is crucial for budgeting, offering greater control and clarity in spending.

The benefit of direct cash payments has also been shown to extend beyond individual households, creating a positive ripple effect on sometimes struggling community economies, especially among small businesses, which often smoothly recycle cash locally.

Yet for local councils, housing associations and charities, the process of disbursing cash support has to date been far from straightforward. It can prove time-consuming, complex, and particularly challenging to make

payments to the most financially vulnerable members of society.

This includes the 1.4 million individuals without bank accounts, the 14 million UK residents still relying on unarranged overdrafts annually, and those in specific distressing circumstances, such as newly arrived migrants, individuals facing homelessness or those seeking to escape domestic violence.

One tech-for-good startup using innovative technology to help overcome the challenges of getting cash payments instantly to those wbo need it most is Cash Perks. It enables cash payments to be instantly sent to those in most need via SMS text messages, allowing the recipient to immediately collect their funds, 24/7 locally, via more than 17,000 ATMs across the UK, without the need for a bank account or mobile banking

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app and reducing the processing times from days to minutes.

Gareth Evans, founder of Cash Perks explains: “Our mission is to provide instant support to those facing financial hardship, as we believe that providing cash is the most effective and dignified way to assist people in crisis. We are proud to offer an innovative and straightforward method that helps council, housing association and charity partners overcome the many challenges of delivering payments to those in most need.“

Evans was inspired to create Cash Perks while working with Clarion Housing, the largest housing association in the country, where he was designing an emergency food and fuel grant scheme for its residents. Research had highlighted both the business case for providing such emergency payments in the form of cash, and the lack of practical options for sending those cash payments. That spurred Evans to create a more efficient solution for both recipients and organisations providing the support.

All of these organisations have been helped to distribute virtually instantly vital welfare and emergency payments.

The popularity of Cash Perks’ service as far as payment recipients are concerned has been highlighted by the company’s own impact survey. Fifty-five per cent of those supported, preferred ATM cash collection, followed by bank transfer (36 per cent), cheque (four per cent), food parcel (three per cent), and shopping vouchers (two per cent).

The platform can also be used by credit unions and community development financial institutions to transfer funds instantly to their customers.

The benefit of direct cash payments has also been shown to extend beyond individual households

Having already received recognition in the UK in the shape of various awards for digital innovation, social impact and public sector transformation, Cash Perks recently emerged triumphant on the world stage, at the CashTech Innovation Awards in Istanbul, picking up an ‘Oscar’ for its use of technology to improve access to cash.

Since its inception in late 2020, Cash Perks has disbursed nearly £6million, via 50,000 individual payments. This has been achieved in partnership with some of the largest councils in the country – such as Leeds, Barking & Dagenham, Haringey, and Kensington & Chelsea – as well as leading social landlords, major national charities, such as National Emergencies Trust, and local charities like North Paddington Foodbank and Manchester Citizens Advice.

CASE STUDY

HOW GIVING CASH SAVED ONE COUNCIL £75,000

Barking and Dagenham is the 21st most deprived local authority area in England. The council was the first to adopt Cash Perks back in late 2020, initially piloting it to send hardship payments for those customers without bank accounts.

Following the success of the pilot, including significant efficiency savings, the council has now embedded the Cash Perks solution, using it to disburse millions of pounds of emergency and welfare payments annually.

The decision by key organisations to use Cash Perks to distribute support coincides with a wider return to cash use by the British public. According to 2023 British Retail Consortium figures, cash use the previous year grew for the first time in a decade, rising to 19 per cent of all transactions (from 15 per cent in 2021).

The BRC said that reflected ‘a choice by many households to use cash to budget more carefully during the onset of the cost-of-living crisis, as well as a natural return to cash usage following the move

Rob Nellist, welfare services manager at the London Borough of Barking and Dagenham, says: “Cash Perks was a no-brainer and has enabled us to pick up emergency cases and have support payments issued within the hour.”

Within its Children’s Services directorate, Cash Perks has been specifically used to completely replace its complex and time-consuming petty cash system that previously required social workers to escort clients to collect their payments.

It is estimated to have already saved more than 3,500 hours of social worker time – equivalent to £75,000.

to contactless during Covid’. And all the evidence suggests that it’s helping many keep their heads above water.

CashTech 2023 winners

Run by the online French cash thinktank CashEssentials with Sesame, a cash management platform provider, the CashTech Innovation Awards, held during the Future of Cash Conference in Istanbul, recognised three innovative companies that leverage software and modern technology to improve cash services.

Sharing the winners’ podium with Cash Perks in November 2023 were:

Managecash Personal from Otokod Technologies in Turkey

The first consumer app in the Managecash portfolio of B2B products that automate and track cash operations throughout the cash supply chain, Managecash Personal enables consumers to access cash from shops or individuals using a QR code without the need for a POS terminal or hardware. The app is currently being piloted in a closed test.

One Donation Dollar from the Royal Australian Mint

An estimated six million distinctive ‘Donation Dollars’ (one AS$) are now in circulation in Australia, having been launched in 2020 as a tangible way to encourage people to give a small amount more frequently. Distributed through banks, the Donation Dollar has so far generated an additional AS$55million in incremental charitable giving, which will only increase in future years.

Ella Lukos, then business improvement manager with Children's Services at Barking and Dagenham Council, explains: “Cash Perks has not only allowed us to support our vulnerable clients much more efficiently, but also helped our social workers to cut down on time spent to try to deliver the funds to their clients. The process is simple to follow, allowing us to easily track and analyse the payments”

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The Payment Choice Alliance, January 2024
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Treasury lines of sight

Bruno Mellado, BNP’s Global Head of Payments and Receivables, explains how the bank is giving corporate treasury a clear view of data

A recent survey for the 2023/4 edition of the Journeys To Treasury report, published by BNP Paribas, together with PwC, SAP and the European Association of Corporate Treasurers (EACT), found visibility on cash flows to be the top priority for CTOs.

Indeed, drilling down through the numbers, more than 43 per cent of European treasurers saw transparency on cash flow forecasting as their primary focus for the next 12 to 24 months, in order to inform decisions when managing investments, exposures, hedging, and raising debt.

Real-time reporting, real-time liquidity and real-time payments collection were all top areas of interest. Working capital optimisation and treasury technology infrastructure were also seen as priorities. This resonates with treasurers’ primary concerns across the globe, as also seen in the Key Treasury Challenges Survey in Asia Pacific.

However, centralisation and standardisation are likely to be further

topics of significant interest over the next 12 to 24 months, as BNP Paribas notes in the Journeys To Treasury report. Factor AI and ML into the treasury mix and that could bring the treasury function to entirely new levels, it suggests.

In short, collecting and processing the vast volumes of data flowing through the function in a secure, comparable, and centralised way is essential for emerging tools to deliver optimal outcomes.

“When it comes to the technological innovations that European treasurers are prioritising, data analytics leads the way, as senior management increases the pressure on treasury to make use of the vast swathes of data flowing through the function,” the report’s authors observe.

Against this backdrop, BNP Paribas, with its bird’s eye view of global financial flows and as custodian of individual corporate client data, believes it has a role and an opportunity – even a duty – to help in that regard. And to do that effectively, it had to consider its own approach to data management.

“The exciting part is that we now have more data to know not only what is going right, but also what is going wrong and how we should intervene to make processes more efficient for our corporate clients,” says Bruno Mellado, global head of payments and receivables at BNP Paribas.

But one of the key challenges for the bank was figuring out who should have access to that data and how, he says.

“One of the key principles I’ve been involved in from the beginning is the need-to-know principle. The bank has a lot of access controls and mandates, where the question is, ‘who needs to see the data?’. So if I am a commercial person, I’m only able to see what I need to see, for the purpose that I have to use it. That requires a lot of rules-based approaches, a lot of systems that say, ‘this is masked; this you can see’.

“For example, in suspected fraud cases, you have to be able to drill down – but only the person who has permissions to drill down – to see why this is a fraud case or even if it is truly a fraud case. Then, when you call the client to say, ‘hey, are you sure

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this isn’t a fraud?’ they are appreciative that you’ve looked at their data.

“Knowledge is the key to all of this,” continues Mellado. “So when we talk about payments, and the data behind a payment, you need knowledgeable people to know what a payment in Brazil means, compared one in Europe, or China, to understand currency differences and regulations, as well. Say there is a new regulation on VAT introduced somewhere and you need to pull up all transactions where VAT is applied. We need to understand the request, work on the data with enough security and protection, and provide it to regulators. Or a client might say, ‘how much VAT am I paying, overall, worldwide?‘ and you have to work out what the local product in Brazil looks like, compared to the one in Canada and in Belgium, and produce a single XML-based report, that says, ‘this is how many payments, how many channels, how many users”.”

The power that this information holds is transformational, says Mellado.

“I’ll give you just a very basic example. If I pay you instantly, but you are not able to know who paid you, for how much, which invoice, it doesn’t matter if the payment arrived with you in a few seconds, you still cannot do anything about it. But if the payment arrives instantly, and you have the data to know which invoice and vendor it is, you can say ‘he’s already paid, he has no outstanding invoices, I will give him more products‘. That provides a lot of benefits, and for economies, it makes a huge difference.

“At some point, we realised that everything that the bank is doing is an actual event,” continues Mellado. “Hence, the more granular you’re able to capture

your data, the more you can do with it. So, we built a technology that allows us to centralise that data in an event-based context, which can then be accessed to know what happened. The hardest part is identifying what you need to know. But if you have the tools, and have centralised those tools, it’s easier to get those answers.”

Large corporates are complex beasts. A global big pharma or automotive manufacturer, for example, will tend to have a number of legal entities, with elements of their businesses distributed around the world. And there had been an assumption – indeed Mellado himself assumed – that these sophisticated organisations’ treasury departments ‘probably knew it all already’. But it turned out, they had the same data challenges as the bank – and didn’t have the skills or resources to fix the problem.

At some point we realised that everything that the bank is doing is an actual event. Hence, the more granular you’re able to capture your data, the more you can do with it

“So, showing them how many users there are, how many payments have been made in foreign currency, how many service requests have been raised and remain outstanding from a specific entity – these are insights that corporates can use to better manage their large and distributed organisations,” says Mellado.

A EUROPEAN FOCUS

BNP Paribas is a global leader in the area of corporate and institutional banking, but it’s also driving the transaction banking agenda in Europe – indeed, its transaction banking revenues in EMEA were up nearly 60 per cent last year. It is a founding member of the bank-led, 16-member European Payments Initiative (EPI) whose aim is to create a unified, independent, competitive and open pan-European payments system by leveraging the instant account-to-account payments

infrastructure available in Europe to improve efficiency and remove intermediaries in the payment flow. The plan is to enable next-generation payments for consumers and merchants in Europe across all types of retail transactions. Initially, it will support person-to-person (P2P) and person-to-professional (P2Pro) payments, followed by online and mobile shopping payments and then point-of-sale.

In September 2023, EPI confirmed ‘wero’ as the commercial name for its digital wallet solution, having acquired iDEAL and Payconiq in the Netherlands and Belgium. The long-term objective is to position wero as the preferred digital wallet in Europe and rollout is expected from mid-2024 onwards in France, Belgium and Germany, followed by the Netherlands and other countries in 2025.

Elsewhere, BNP Paribas and Startup Studio 321, recently launched Panto, offering marketplaces a dedicated payment management solution.

This vertical integration of payment chains by banks is an example of the standardisation and centralisation of data referred to in the Journeys To Treasury report. And BNP Paribas is actively engaged in delivering it. As Mellado himself recently noted in an interview elsewhere: “A lack of standardisation creates additional layers of complexity for corporates trying to centralise APIs. My vision is to develop more of those standard APIs that allow for specific purposes, such as the return of funds, for example.”

Currently, the bank is working with non-Web 3 technologies to give its corporate and SME clients insight into the data that accompanies all these transactions – individually and in aggregate – to inform businesses’ processes and give them a strategic overview. But, in a recent partnership with fintech Sis ID, aimed at collectively reducing risk exposure, a unique repository shared by more than 15,000 companies was created to certify the data of third parties via a private blockchain. BNP Paribas also acted as co-lead (along with Goldman Sachs) in arranging a £77.7million Series B funding round recently for Fnality International that’s also using distributed ledger technology and could have an even bigger impact on treasury management.

Watch this space.

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From camel trains to DLT... could we finally ‘fix’ cross-border payments?

James Grant looks at the technology driving progress

In 2022, the European Central Bank (ECB) confidently predicted that: “After more than 1,000 years of search, the holy grail of cross-border payments can be found within the next 10 years.”

By that it meant a solution allowing those payments to be immediate, cheap, universal, and settled securely.

Improving this process is of increasing importance worldwide. The FT recently quoted one study claiming that the cross-border payments industry as a whole will rise from $190trillion in value in 2023 to $290trillion by 2030. Cross-border e-commerce is thought to account for only around $3.5trillion of that, so there is clearly a gap that needs addressing for SMEs. But, despite the obvious demand, the solutions on offer remain comparatively expensive and remarkably sluggish compared to domestic systems where consumer bank users in developed economies can effortlessly and instantly transfer cash in-country whenever required with the click of a button.

The complexities of the cross-border process often obscure the cost, and currency exchange fluctuations bring further challenges, while compliance and regulatory hurdles brought in to mitigate issues around money laundering, can slow the entire process of transferring cash internationally to a crawl. For many SMEs, though, it’s not really the time but the cost that constrains them from trading overseas. Even corporate international payments labour under an average 1.5 per cent transfer fee, rising up to 6.3 for remittances

(up to a whopping 8.4 per cent in SubSaharan Africa), according to the ECB.

This often adversely impacts vulnerable populations such as migrant workers and those least able to shoulder the transfer burden. And it can prevent successful integration between economies, stunting the international aspirations of SMEs.

So, what does the ECB imagine will improve things so substantially? In 2022, it produced a working paper that concluded there were two feasible solutions for large-scale money movement that didn’t unduly destabilise monetary systems globally. They were the interlinking of domestic instant payment systems and central bank digital currencies both with a competitive FX conversion layer.

Meanwhile, the market is driving innovation, including using distributed ledger technology (DLT and blockchain). Decentralised ledgers eliminate the need for financial intermediaries, potentially substantially reducing processing and settlement times and costs, while increasing transparency and security.

Stablecoins, meanwhile, which depend on DLT, are also emerging more strongly as a class of cryptocurrency that minimises price volatility. They too are being used to deliver faster transaction times, lower transaction costs, give greater accessibility than traditional banking services (particularly important in developing economies), high

The complexities of the crossborder process often obscures the cost, and currency exchange fluctuations bring further challenges

transparency and security. They enable users to enjoy the technological advantages that crypto solutions offer, with price certainty.

Incumbent cross-border behemoth Swift has countered the crypto competition with more agile solutions like Swift Go, which is better designed to meet the needs of smaller-scale payers dealing in lower-value transactions in more than 120 countries.

Smaller businesses do not necessarily have to invest hours into understanding the finer points of any of these solutions because the rise of API-led applications allows new functionality to be tested and adopted by them with ease.

Vindication of this API-led approach is supported by recent McKinsey research into the idea of ‘decoupling’, whereby activities that are traditionally linked together, separate. By embracing the concept of decoupling, banks can switch out troublesome parts of their payment processing journey, and replace them with APIs that accelerate the flow of cash.

When viewed in the light of this modular reimagining of currency flows, it’s easy to see where businesses like BVNK (page 32) and Freemarket (page 34) have a role to play in the new era of payment processing.

The benefit of radical innovation when moving money between countries has been evident ever since mediaeval Arab traders started moving luxury goods into Europe and came up with the forerunner of the bill of exchange. One day soon, perhaps sooner than the ECB thinks, the majority of cross-border transactions will be sent – and be settled – instantly in a re-architecting of how we move money that could bring substantial opportunity to users and businesses alike… and it won’t cost a king’s ransom.

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A gateway to future global payments?

BVNK’s Jane McEvoy tells us how stablecoins and distributed ledger technology are smoothing the still bumpy payments border crossing… and perhaps faster than we think

Cross-border payments have been in a rut for a long time. As domestic payment systems accelerated into near-instant bank transfers, automated oversight and free, contactless transfers of even large sums of money, international transfers remained dogged by slow speeds, high prices and laborious methodology. This often penalised groups of people and businesses who could least afford to wait or pay for the service.

Although major alternative cross-border providers and innovations have emerged to alter the status quo more recently, could a new wave of blockchain-based solutions break the dam and take international payments into a transformative era, one where real-time settlement, achieved without the need for clearing services, is

a reality for all? IBM’s dictionary definition of blockchain is useful in understanding how it could have such a profound impact on the payments space.

“Blockchain is a shared, immutable ledger that facilitates the process of recording transactions and tracking assets in a business network… As a transaction takes place, it’s recorded as a ‘block’ of data, which is linked to the previous and subsequent block, forming an irreversible chain.”

Any distributed ledger technology (DLT) therefore eliminates scope for replicated records; creates immutable evidence of transfers that cannot be edited; and generates smart contracts that define and ensure the terms of those transfers.

Permissioned or public, DLT is a transparent, high-speed transfer highway. And when that technology is paired with

stablecoins – a cryptocurrency designed to maintain stable value relative to another asset, typically a fiat currency or commodity – it’s a highway that can bypass legacy-based, cross-border payments systems with their inherent currency conversion costs and challenges.

Perhaps that’s happening more than is publicly acknowledged or recognised, which is a pity, says Jane McEvoy, VP of platform partnerships at BVNK. She contends that the major roadblock on that DLT superhighway isn’t one created by technology, but rather by perception – specifically, the instability associated with cryptocurrencies, which exist in their own parallel universe, but have hijacked the discussion around use cases for DLT.

BVNK bridges traditional payment systems with distributed ledger technology, and evidence from its clients

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points to increasing institutional support for blockchain and stablecoins, which could drive a larger cultural shift.

“Tier 1 banks really need to be publicising that they are utilising blockchain technology to move money cross-border. That will naturally have a positive impact on the market, and move away from this mindset of crypto being part of a ‘big bad world’,” says McEvoy.

“We have a number of clients that we’re working with at the moment for whom there’s huge benefit in using blockchain technology. Trust [in blockchain] will come from higher adoption.”

Meanwhile, recent institutional buy-in to stablecoins from key players includes Société Générale, which in December 2023 became the first major bank to publicly list its own. The Bank of England has recently kicked off a series of discussions around how best to regulate the use of stablecoins in the UK economy, indicating it’s a case of when, not if, stablecoins will become a feature of the payments system.

economy means clients are doing a lot more business in LATAM, Africa, too, and a number of clients are paying invoices in stablecoin because the end receiver would rather be paid in that than their local currency, due to its volatility.

“The only way the payee can initiate stablecoin payments is through blockchain technology. In fact, stablecoin settlement is one of the largest pieces of our book to date. With blockchain, every transfer is traceable. There’s a higher level of security. And that’s really important for doing business in an emerging market, with the concerns around whether funds are actually going to arrive.

Tier 1 banks really need to be publicising that they are utilising blockchain technology to move money cross-border. That will naturally have a positive impact on the market

Even Swift, the global banking cooperative that re-imagined the international payments transfer space in 1973, has gone from dismissing the potential of ledger-based stablecoins to running its own experiments in blockchain-based payment solutions.

Paypal has launched its own stablecoin, PYUSD, and VISA is doubling down on making stablecoin settlement capabilities available to merchant acquirers, using the Solana blockchain. But while mature economies play around the edges, emerging ones are embracing the dynamic combination of DLT and stablecoins.

As the value of global stablecoin settlements reached a milestone of $7trillion in 2023, Latin America emerged as a leading adopter, with a Mastercard survey showing 51 per cent of consumers there had used digital currencies for purchases, with one-third relying on stablecoins for routine shopping.

“We’re seeing more of an impact on business between these emerging markets and back into Europe,” says McEvoy. “The globalisation of the

“At BVNK, we have products for each different stage of the journey. Take a large electronic money institution (EMI), or even a bank, that is focussed on cross-border payments. They want to dip their toe into the stablecoin arena, and they’ve had some client demand to do that. We offer a seamless onramp and offramp for the end user and there’s no exposure to crypto in that flow because we manage all of it, from a treasury and operations perspective.

“So they can basically accept crypto as a means of payment, and receive fiat instantly. At the other end of the spectrum, we can offer crypto-as-a-service, for want of a better way of describing it.

CASE STUDY

“I very much see a stablecoin wallet sitting alongside your EUR, GBP, USD wallet,” continues McEvoy. “And you can initiate payments and receive payments from that if you’re in a country where they accept crypto as a method of payment.”

So what does all this mean for ‘conventional’ money? Could the rise of ledger-backed stablecoins ultimately disrupt the finance space so that central banks are redundant?

According to Christian Catalani and Jai Massari at the Harvard Business Review, the rise of stablecoins may lead to an adjustment in how we use money and the role of the central bank, rather than a revolution. They believe ‘true stablecoins’ and central bank digital currencies (CBDCs) will happily co-exist in a multi-rail currency environment.

This sentiment is echoed by McEvoy: “There’s no way I see blockchain being the only means for moving money cross-border. We will have a multi-rail system – we’ll still use the likes of SEPA in Europe, CHAPS and BACS in the UK, or even ACH in the US, for funding transfers. However, in order to send them back to the sender, you might use blockchain.

“It’s about marrying up the two, and that’s not going to just need buy-in from banks and enterprise clients; it will also take a lot from a regulatory perspective. A multi-rail system, though, that uses both blockchain and local methods for moving money, is ultimately where we are going to get to.”

Nova: Stablecoins speed up settlement for SMEs

Noda is a global payment services provider that allows SMEs in ecommerce, travel, igaming, and financial services to accept open banking payments as an alternative to cards.

It works to broaden their operational and customer base without the excessive fees or complicated processes that are traditionally associated with international transactions, which can take days.

By 2022, Noda was receiving an increasing number of requests from clients for stablecoin settlement.

“Some fintechs we spoke to couldn't support the stablecoin payment flows we

needed,” says Noda’s COO Anastasija Tenca. “For those that could, it wasn’t always easy to make these payments, and required a lot of effort from our team.”

But BVNK proved the right fit. After just a few months of using its virtual accounts and stablecoin infrastructure, Noda moved 90 per cent of its stablecoin settlements to BVNK and now converts €2million into USDT stablecoins every month, to pay out to merchants

“Another important thing is that BVNK takes its commission directly from us, meaning our customers always get the exact amount that we promised them,” says Tenca. “This change has made our customers much happier.”

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Playingtowin

Freemarket has built its cross-border payments platform around the needs of SMEs that struggle to find banking partners they can rely on. The company’s Business Development Director Alana Condratov understands what they really, really want

Cross-border payments are big business. Already sitting at an enormous estimated annual value of $190trillion, they are predicted to rise to up to $290trillion by 2030. A number of accelerating factors, from the ever-expanding impact of globalisation, to a new-found enthusiasm for working abroad, means cross-border trade has the potential to supercharge in theory, the growth of businesses of all sizes.

But often not if you're an SME. That’s because they find it hard to access the most affordable, efficient and effective cross-border payment mechanisms. And one segment in particular struggles more than most: those operating in verticals that are considered by major financial institutions to be too high a risk to bank.

‘Risky’ is not necessarily a comment on the character of these companies. In many cases, they inhabit an economic space whose services form a perfectly routine part of daily life, including financial institutions, money services businesses, and payment service providers. But, like online gaming businesses and forex brokers, they are all highly regulated.

The nature of the markets these companies inhabit means licensing around payment transfers, and ensuring their operations are compliant with regional financial rules, need particular scrutiny. As a result, traditional banking providers often simply do not have the appetite to process their money, or may tack on a suite of extra processing fees with little to no explanation.

Here the issue of a lack of transparency is even more acute than in the wider field

of cross-border payments, due to the fact that these SMEs often have to rely on multiple intermediaries – many more than conventional businesses do – to complete a transaction.

Even among the vast majority of low-risk SMEs in the UK who depend on incumbent banks for cross-border payments, 55 per cent complain of ‘unfair pricing’ as their biggest pain point, followed by speed of execution at 45 per cent and reporting transactions at 42 per cent, according to recent research from ClearBank. So imagine how much bigger the cross-border headache is for their ‘high-risk’ peers. A new class of fintech solution provider, however, has risen to solve

their challenges, offering cost-effective solutions that ensure these companies don’t have to trade at a disadvantage. Among those alternative providers is Freemarket, a cross-border and FX treasury management solution.

“These particular verticals are underserved,” says Alana Condratov, Freemarket’s business development director. “There are specific needs and requirements for each but most of the time they are to do with regulation, cost and lack of transparency.”

She believes giving them access to more cross-border payment rails and methods, including blockchain and stablecoins, new real-time payment infrastructures, and online payment marketplaces that open

These particular verticals are underserved. There are specific needs and requirements for each but most of the time they are to do with regulation, cost and lack of transparency
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the door to multiple banking rails, will address those challenges.

Freemarket has developed a platform that can connect many of those alternative methods for international transfers and, right now, it’s seeing increasing demand from its clients –and its clients’ clients – to make the payments in stablecoin.

“There are more and more conversations in the market happening around stablecoins,” she says. “I think they will make cross-border payments more efficient. In the future, they will also be more affordable, and we see them becoming more mainstream.”

Freemarket is working to satisfy the demand it has seen for

stablecoin-based transfers with fellow fintech BVNK, which, as Condratov describes it, ‘sits at the intersection of traditional rails and decentralised finance’.

“They stitch together this maze of different gateways through their platform and take away the headache of access to complex regulatory standards,” she says. “They are outpacing a lot of the traditional players out there, by using their API technology and platform to give access to multiple rails.”

As with most areas of finance, Condratov sees the market moving towards more bespoke solutions, with vertically-orientated real-time providers giving forex brokers, for example, access to a cross-border payment solution built

for their specific business needs and the regulatory demands of their industry.

She says this will force traditional players to pursue partnerships or lose a major chunk of the market. Indeed, Bain & Co recently listed bank-fintech collaboration as a key driver in the finance space.

“The market itself is very open to collaboration,” says Condratov.

“Traditional providers are really stepping up their game in terms of either creating their own solutions, or partnering up with fintechs to create a common solution to tackle the cross-border challenges out there.

Royal flush of solutions

Meeting the needs of a growing global community as regulatory stakes rise

With the size of the global online gambling industry set to rise to $184.28million by 2032 (an increase of 190 per cent within a decade, according to Statista), operators’ need for a resilient international payment system has never been more apparent.

However, the inherent tension in this is that, historically, the industry has been regarded as high-risk by many traditional institutions who are therefore reluctant to provide operators with cross-border payment services.

A changing regulatory environment only makes these institutions more nervous. The UK's Gambling Review of 2020, for instance, took three years to publish a White Paper containing 20 significant policy changes, including financial risk checks with a target date for implementation of summer 2024.

But it’s not just the UK. Across the world, regulators are focussed on anti-money laundering, responsible/safer gambling and consumer protection as live studios and community-style online gambling products grow alongside more traditional ebetting, while gambling in the metaverse is just beginning and the crossover with online gaming continues.

According to Freemarket, the main

challenges operators face arise from these regulatory changes requiring greater transparency. But the Freemarket mantra – ‘fintechs see opportunity where their traditional counterparts see risk’ – has fuelled its mission to better support the growing number of operators in this sector.

Targeting large but also, crucially, small to mid-size companies who particularly struggle to strike up workable relationships with big banks, Freemarket handles currency conversion across 40 (soon to be 100) currencies and settlement

“[But] it is the fintechs that are the driving force behind providing solutions to meet the needs of SMEs.” Getting

Virtual IBANs capture sales more effectively, which can help companies streamline their payment reconciliation, reduce errors and fraud, and improve cash flow with faster and more transparent payment confirmation and tracking –essential in an era where players pay digitally and expect instant payouts.

Other features include maintaining separate accounts for player and operational funds, managing global liquidity in real-time, and repatriation of funds in real-time across all intracompany

by drawing on the complimentary services of others in its peer-to-peer market, allowing it to circumvent traditional payment transfer providers such as banks if their FX rate isn’t favourable, but plugging into a global network of bank and non-bank financial partners, as well as local and international payment service schemes.

accounts. And all these solutions can be slotted into a gaming operator’s existing tech with an API integration.

Importantly, Freemarket handles all the compliance and KYC, with comprehensive documentation for the secure and openAPI-compliant RESTful API and providing licensing requirement services.

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gambling operators grow safely
is helping online

Making it

We spoke to Simon Holland from Wealthify to discover how robo-advisors are adapting to the changing retail investments space, whether they really can alter the savings habits of a nation, and the partnerships that are increasingly key to their success

The world of retail investing has changed a lot since Wealthify was founded in 2016 with a mission to make investment accessible to all.

It was one of the first to offer a primarily app-based service that championed fractional shareholding, giving ordinary people the opportunity to invest with as little as £1 – a modest incentive that opened the wealth management door to a wider demographic.

Of course, Wealthify now has its fair share of competitors. There are other plan-based robo-advisors like Nutmeg and Moneyfarm, as well as retail investment apps such as eToro, Trading 212 and Freetrade that all teleport the confusing world of stocks, shares and indices from the trading room floor to your mobile phone. There are more opportunities than ever to ‘make your money work harder’.

But competition isn’t Wealthify’s prime concern – rather it’s still about convincing more of the UK population to invest in the first place.

Wealthify’s own research from 2023 found that 85 per cent of Brits still prefer to let money sit in a savings account. Research from Money.co.uk at the start of this year

told a similar story. It showed that £8.3billion was put into fixed-rate bonds and ISA accounts in August 2023 and that 57 per cent of UK adults were using savings accounts as their main way to save money – no doubt spurred by the Bank of England’s decision to raise the base rate that month by 0.25 per cent to 5.25 per cent (although now, the expectation is that it will sink back to around three per cent by the end of 2025).

A significant barrier to investing uncovered in the Wealthify survey was that 69 per cent of savers just don’t trust where their money is going; there is a distinct reluctance to switch from legacy institutions to fintechs.

Investment apps often flaunt their superior user experience as a good reason to join them. It’s a value proposition that has undoubtedly encouraged many people to change their habits and seek out a robo-advisor, but it’s nowhere near the surge predicted during the pandemic when lockdown created a spike in interest in do-it-yourself and do-it-for-me investment apps. The correction we subsequently saw in the markets and the impact that had on thousands of inexperienced

enough investors to sustain standalone wealthtech apps in the long run.

But Wealthify isn’t standalone. It has been fully owned by the financial services giant Aviva, since 2020. And it may be that future success in the sector will be determined wwby similar partnerships and acquisitions.

WALLS COME TUMBLING DOWN

Wealthify launched with the ambition of breaking down barriers to investing, ‘the biggest of which was having enough money to invest, which we solved’, says its chief product officer Simon Holland. Accessibility and continuous improvement remains its focus – the app was ‘rebuilt from the ground up’ just over a year ago and Wealthify is currently trialling a pilot under the UK’s open banking standards to allow customers to see all their money in one place. “It’s helpful for answering important questions like ‘do I have enough money to put away at the end of the month?’ and having that in one space, rather than having to hop between apps,” says Holland.

“We’ve found that if you give people the confidence from knowing how much money they’ve got in their account, they’re able to make much better decisions [because] with long-term investing, there’s always a fight between putting money away for the future and spending it now.”

While a human customer services team is always on hand, 80 per cent of users only interact with the wealthtech through its app, so closely monitoring how they are behaving and engaging with it, is key. Above all, it’s a matter of communication.

investors who had dabbled in DIY investment for the first time might have heightened the trust issues that Wealthify identified. The question then is whether there are ever going to be

“It’s really important for us to make sure that people can do all of the things that they want to do, whether that’s move money around, top up money, etc,” says Holland. “Understanding investment performance is also obviously critical.

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“But, with Wealthify managing their investments for them, they also need to understand how we’re managing their money, what investment changes we’re making, what’s going on with markets, and how our plans are positioned to go through particular market events.

“Our investment team write their weekly investment updates that look at what’s going on in markets and that goes through a content writing team that strips out the jargon. There’s a good dialogue between those teams, to make sure it still says what it needs to say, from a market’s perspective.

“"And when people speak to our customer care team, we're tracking whether this content is relevant and answers the questions they have about market events, and how they impact their investments,” says Holland.

That support is particularly necessary due to the high volume of young people using robo platforms. According to Wealthify research in 2023, 68 per cent of Gen Z have considered investing in the past year and data from the CFA Institute published in the Financial Times says that more than 80 per cent of Gen Z had started investing by the time they turned 21. Popularisation through social media and ‘FOMO’ are cited as reasons. That only 15 per cent used finance professionals to help them make decisions is further evidence that apps play a key role in young people’s financial education. The problem for the wealthtechs, though, is the relatively small size of their individual portfolios. Those with larger funds, generally older people, aren’t investing via such platforms. Of the people surveyed, only 20 per cent of those

over 66 have considered using a robo-advisor. Which brings us back to the question of how long many such wealthtechs can survive on their own.

PARTNERSHIPS ARE KEY

Wealthify is not alone in the fintech world in joining forces with an established institution – investment apps Nutmeg and Moneyfarm have struck similar deals with other big names. In Wealthify’s case, Aviva’s funds have certainly helped it to scale, as CEO Andrew Russell acknowledged in a recent interview, saying how such a partnership ‘can help smooth the ups and downs of a typical funding cycle by keeping investment flowing in’.

With long-term investing, there’s always a fight between putting money away for the future and spending it now

The benefits of such a partnership cut both ways, particularly if a legacy institution can leverage the startup’s tech and customer demographic.

“I’ve worked in several large financial institutions, and I know the challenge they have [with technology],” says Holland.

The Wealthify platform and name are embedded in Aviva’s website; it continues to operate with autonomy but with the backing and big-brand affiliation that would appear to be crucial to a robo-advisor’s continued success.

That doesn’t preclude it from working with other legacy institutions, such as with

TSB Bank in the UK to provide an investment service for its customers.

“TSB, obviously, has a great offering, in terms of current accounts, savings accounts, etc, but it didn’t have an investment offer,” says Holland. “That was a clear opportunity. We’re good at the investments, and they’re good at banking, which makes it a really great partnership.”

It’s bridged the gap to other newer banking apps where the business case made sense, too.

“We’ve had a longstanding collaboration with Starling, where customers can link their bank account to us with their app,” continues Holland. “We also share investment information with them, if the user consents.”

While there isn’t an open banking standard for wealth management, yet ‘we’re working with the industry to see if that’s something we can develop, because I think it is important that people should be able to access things how they want’, says Holland.

“Ultimately, we’re a long-term investor,” he says, “so we want to make sure that people are able to put money away and not have to access it for a period of time.

“Being able to manage their day-to-day finances means they’re able to better manage their long-term finances and apps give us an opportunity to help in that space, understand how people are feeling about the amount of money they’re spending and the costs they are facing, which is obviously really relevant at the moment. But also how they feel about the money they’re putting away – and helping them feel more excited about it.”

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FINTECH M A G A Z I N E
Consumer confidence: Education and communication are pivotal in growing robo-advisor takeup
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Experience

Building a long-term plan

Twelve years and £3.7billion in assets under management later, Moneyfarm founder Giovanni Daprà says the wealthtech has ‘crossed the hurdle of survival’. So what now?

A slick, self-serve platform, low-fee products and the option of human advice, pitched at the digitally savvy. Sounds great – except those customers are, typically, young with only modest amounts to invest. It’s been dubbed the ‘hybrid robo paradox’, and it means life can be tough for this new breed of fintech seeking to disrupt the stuffy world of wealth management.

The first robo advisers launched in the UK a decade ago when the Retail Distribution Review forced financial advisers to agree charges upfront instead of taking a commission for selling products.

Using questionnaires to determine a customer’s attitude to risk, the robo advisers were and remain attractive to younger investors due to their low management charges. But that reliance on clients in the accumulation stage of life means many robos are constrained by an average customer investment of less than £10,000, according to the Financial Times

It’s a challenge Moneyfarm founder Giovanni Daprà readily admits constrained his own wealthtech’s growth during the early stages – but almost 12 years later he says his business has safely ‘crossed the hurdle of survival’.

“It took a long time to acquire assets. It’s hard to scale, and to scale fast, but in wealth management, it’s even harder [than in other sectors of fintech] because people take a long time to make decisions about their money,” says Daprà. “So we built a very strong operating model, which is

a combination of asset management, engagement and technology, all three of them delivering the experience and service we want to provide.

“Underpinning this, we own our tech stack, which will deliver value for the next 20 years and allow us to innovate and disrupt what is a very backward industry where change has been very, very slow.”

Moneyfarm was launched in Italy in 2012 and four years later began operations in the UK to where it moved its headquarters. It now has 130,000 active investors and manages £3.7billion in assets, and its financial results reveal both customer numbers and assets under management were increasing at around 15 per cent annually last year.

The firm reports its average customer holds £26,000 with it and more than a third of its investors are women – an unusually high metric when 75 per cent of women don’t invest at all, according to a survey last year.

A STRATEGIC SPREAD

Daprà reveals the Moneyfarm strategy for growth now is twofold – to become a ‘total wealth manager’ for its customers, supporting them from youth to retirement, and build out its white-label B2B operation.

It currently offers a stocks and shares ISA, junior ISA, SIPP and general investment accounts, with traditional risk-rated portfolios and sustainable investment portfolios to choose from.

Customers can also access funds managed by star-name asset managers through its Liquidity+ product, and trade

shares, ETFs and mutual funds through an execution-only service.

But, since 2018, it’s also provided white-label services and its client list now includes eToro, Poste Italiane – the largest distributor of financial services in Italy – Unicredit’s Buddybank and Banca Sella. Most recently it developed the &me investment app for the company’s stakeholder M&G.

Acquisitions are another strategy strand to create a wider offer for customers – the 2023 takeover of Profile Pensions means Moneyfarm customers can now track down old pensions and consolidate retirement earnings more easily.

Following last year’s frenetic period of growth, Moneyfarm launched a brand refresh in January with a TV and billboard advert campaign for the UK and Italy to highlight the business’s wider focus.

Daprà says: “My vision for Moneyfarm is what we would call total wealth management. I want to be able to support our customers from the early accumulation phase – so where we are today – when they are starting a family and start to have disposable income and savings, to building for the future, up until retirement.

“To do that you have to create an adequate offering to generate value for the customer in all their life stages. I don’t think anybody has done that in the digital world yet and we are already much further advanced than anybody else.”

The white-label operation has, effectively, become a business within a business for Moneyfarm.

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“We’ve basically plugged into big distributors who have a lot of customers that we wouldn’t be able to access, either due to brand affinity, cost, or maybe they’d rather go into a branch to make their first purchase,” says Daprà.

The product offer will continue to develop as Moneyfarm seeks to attract older, more experienced customers, he adds. But the core principles of ease of use, transparency, low fees and independence will remain. And good customer service has been, and always will be, key to the Moneyfarm proposition.

“Being the person who, not just as a platform, but as a counterpart, helps you make the right decision, is where I want to take Moneyfarm,” says Daprà.

NAIVETY AND ADVICE

A survey conducted for the firm by brand consultancy Siegel+Gale revealed 88 per cent of retail investors would value ‘the guidance and reassurance of an investment professional at some point in their investment journey’.

Under Moneyfarm’s hybrid robo model, customers can speak to a consultant at any time, but they will first encounter one during the onboarding process, after choosing their investments, which are algorithmically picked, based on their attitude to risk and financial goals.

Daprà says, so far, the firm has won business from people who are typically reluctant to invest due to ‘cognitive overload’ when faced with the huge range of options for their savings.

“Because investing can seem complicated people tend not to do it, they procrastinate,” he says. “Making investing accessible is where we

drive value for the customer. During the onboarding journey with Moneyfarm, you get a video call with one of our consultants, which explains what the portfolio is and how it works. That call allows people to be 50 to 75 per cent more confident, to understand the fluctuation of the market and long-term performances.

“So, it’s all about building a customer’s confidence at a price point that is very different from the traditional industry’s.”

Investing always comes with a risk caveat, but Daprà believes the biggest risk most customers face is losing sight of their long-term goals due to their inexperience.

He says around 70 per cent of them log in to the Moneyfarm dashboard every week. That indicates to him that the

WE HAVE TO BALANCE WHAT THE CUSTOMER WANTS WITH WHAT THEY NEED… A COMBINATION OF SKILLS IS REQUIRED TO ADDRESS SUCH AN EMOTIONAL AND COMPLEX TOPIC AS MONEY MANAGEMENT

company has to be an educator, too, so they aren’t spooked by market fluctuations.

“We need to create an experience that is simple, but provides the information the customer wants without leveraging their inherent bias,” he says. “For example, if we show them the intraday performance of a market, the customer will crave that information, but it’s

not necessarily the right information to look for because it will incentivise bad behaviours. They may see the S&P has dropped one per cent and wonder whether to sell or buy.

“So, we have to balance what the customer wants with what they need, and how we do that is by having investment consultants talking to product managers, so emotional need is translated into an experience that works for the Moneyfarm user. A combination of skills is required to address such an emotional and complex topic as money management.”

It means product development must be, in Daprà’s words, slightly more ‘Apple’ (building the product, then finding customers) than ‘Lean Startup’ (being guided by customer interest).

“In wealth management, it is very difficult to ask the customer what they want, because they will say, ‘I want 10 per cent a year, with no risk’,” he says.

“Because of this, writing educational content is important for us. If you are a customer of Moneyfarm, you might see one or two push notifications a week from us, talking about the market, the outlook for the economy or basic financial planning – 101 kind of tips.

“That overlay of content and education is part of the service. People value it, and it’s a differentiator for us.”

Pigs might fly: People will always say ‘I want 10 per cent a year with no risk’

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There’s an app forthat!

We asked one informed user of wealth management apps to give us his Top 3. These are tech guru Stuart Thomas’ picks

Once upon a time, there was an app called ‘I am rich’ by German software developer Armin Heinrich. It cost $1,000 and did nothing but display the message ‘I am rich, I deserve it, I am good, healthy and successful’.

It’s long since been removed from the app store along with all imitation apps. Apps that define you as being rich are now in short supply. What are not in short supply are investment and savings apps that promise to make you richer (with the caveat that past performance isn’t a reliable guide to future returns, of course).

They offer a modern take on helping you grow your savings and make the most of your money. But how do you pick out the diamonds in the rough, so to speak, and work out what apps are actually going to aid you when it comes to saving and investing?

These three savings and investment apps have helped me make the most out of my money over the past year, starting with perhaps one of the best-known.

You shouldn’t be using one of these… You should be using them all
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FINTECH M A G A Z I N E

Best for: in-person customer advice

Moneybox’s Cash Lifetime ISA (LISA) comes highly recommended by a man who should know – the UK’s most famous money-saving expert, Martin Lewis. It’s one of a comprehensive list of Moneybox savings accounts and investment funds – the latter held within a stocks and shares ISA, stocks and shares LISA or a general investment account (GIA) – alongside pension and mortgage services, making Moneybox a one-stop-shop for squirrelling away money on a regular basis.

Launched in 2016 and confidently predicting it will see a full year’s profit in 2024, Moneybox had more than £5billion in assets under management, as of November 2023. Through its Cash Lifetime ISAs, it has supported more than half a million aspiring first-time buyers to save for their first homes.

But what I found most appealing about Moneybox is the human touch. We’ve all become accustomed to wasting time with a chatbot that sends you in circles until you find the magic combination that gets you through to a real person. Through the Moneybox app, it’s easy to speak to one of Moneybox’s dedicated support advisors –in fact, you can put faces to their names on the website. It’s this high level of human interaction that earns it a gold star from me.

Best for: investor forums

For those with an appetite for more risk-driven options to grow a rainy-day fund, Freetrade is an app that allows the masses to invest in stocks and shares at zero commission.

Freetrade was in the first tranche of commission-free trading apps that launched in the UK in the late 2010s in the wake of pioneer robo Robinhood’s emergence in the States. Freetrade brought

many of the same features with it – like instant trades, zero commission trading and, my favourite feature, fractional shares.

Freetrade makes trading easy to understand, easy to navigate and easy to invest. There are more than 6,000 companies listed and fractional shares give you access to some of the biggest, like booking.com, which would otherwise be out of reach for many.

It offers a few other services, too, such as a stocks and shares ISA with complete control over which sticks the ISA contains, along with personal pension options. And it recently launched high-yielding, easy-access cash investments as well as British-government-backed Treasury bills – both an attempt to unlock some of the cash on bank deposit, that’s been building up on the back of the best rates in years.

But my favourite feature has to be the community element of Freetrade.

You can read posts from users about a particular stock or company, essentially giving each stock its own ‘profile’, which can be a good way to find out if a stock is the right investment for you.

Over the past six years, Freetrade has attracted more than 1.4 million users who ‘want to invest, but don’t know how’. Like others in this space, it will be interesting to see how it responds to the arrival of Robinhood, which, on its third attempt, is due to go live in the UK in 2024.

Best for: money management

This list wouldn’t be complete without looking at the best use of artificial intelligence to help you on your savings and investment journey. And my AI of choice is Plum.

Plum describes itself as ‘a budget app, investment app and money saving app, all in one’. It integrates with your bank account and gets to work analysing your habits.

Now, on the one hand, letting some algorithm analyse how many pints I buy at my local Wetherspoons doesn’t sound great, but if you can get past that, then the benefits are impressive.

Once Plum has worked out what I can afford to save, it will automatically calculate a figure each week that it thinks I can safely set aside without affecting my daily life, at which point it will draw that figure from my account and stash it in my Plum savings.

And, if you let it work its magic, they can quickly grow, especially if you take advantage of a host of clever features such as Money Maximiser, which keeps money in your savings Pocket (aka pot) for as long as possible (maximising interest), before providing a weekly flow of cash back to your everyday bank account to cover spending; round-ups; and, if you’re struggling to repay debt, a configuration that allows it to use your bank overdraft to save extra money.

There’s a high degree of user flexibility, too. Saving rules can be enabled or disabled individually, and auto-deposits can be set to your financial ‘mood’ at the time with five saving settings from ‘Shy’ (-50 per cent) to ‘Beast Mode’ (+75 per cent).

Premium users get access to additional features, including gamified goal setting.

Although not as comprehensive an offer as Freetrade, Plum is an easy way in to investing, too, offering a stocks and shares ISA or a GIA.

And that, I think, is the key point here: you shouldn’t be using one of these apps. You should be using them all.

They all excel at different things. Moneybox offers brilliant LISA and ISAs for a tax-free way to gain interest. Freetrade offers more risk, but unparalleled control over your investments in the stock market. And Plum will do all the hard work for you by using algorithms to work out what you can save.

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The future is calling!

Building societies disrupted finance once before… now they need to get ahead of the curve by adopting mobile strategies, urge Sandstone Technology’s Jennifer Harris and Michelle Yu

Building societies were the most radical of movements – established to force social change by enabling ordinary people to own their own homes.

However, in the 150 years or so since, they’ve come to be associated more with tradition than progress – with their focus on human-centred financial services, built on relatively binary business models, and a predominantly middle-aged, affluent customer base.

The explosion of digital is leading them to reignite their revolutionary spirit, recognising they must modernise to continue enabling the financial aspirations of future generations. That’s largely because those potential customers – members of the up-and-coming Generation Z – are demonstrating increasing impatience with anything analogue, living their lives via their mobile phones. They define tomorrow, but, of course, it’s not just the younger generations who favour digital today.

“When we look at some of the statistics in the UK, in particular, that over 90 per cent of UK residents log in to internet banking or mobile banking regularly, it isn’t a channel that can be ignored,” says Michelle Yu, chief product officer at Sandstone Technology, which provides digital banking solutions to a broad range of financial institutions.

Yet, many building societies are struggling to do what’s needed to transform, due to challenges like the current economic and market headwinds, an increasing regulatory burden and the cost-heavy structures on which their personal touch is predicated.

Ironically, the mutual values and social purpose these worthy institutions espouse are precisely what the conscience-driven ‘Zoomers’ want. But companies must find a way of capturing their imaginations amidst a myriad of other online noise, which depletes customers’ available attention for everything – including managing their personal finances.

Sandstone Technology understands that challenge and is enabling a number of building societies to offer mobile banking services via its plug-and-play solutions that use the functionality, speed and efficiency of modern technologies like artificial intelligence (AI) to deliver the hyper-personal approach building societies are know for, but digitally.

That absolutely doesn’t mean that there has to be a trade off between digital and in-branch services, but in a paper co-authored by Sandstone Technology in December 2023, it’s clear it believes any financial institution that hasn’t seriously considered the trends being set by Gen Z, needs to.

The company’s advice is informed by a detailed understanding of exactly what this key target audience of the future wants, from research it conducted through CedarIBSi. The findings, published in a white paper entitled Redefining Banks With Mobile Apps: Acquiring And Retaining Gen Z, make the case for

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All

digitally-enabled, retail banking support as a route to ‘reset customer relationships to build trust and brand loyalty’.

And it outlines compelling reasons why Gen Zs – currently aged 12-27 – should be a real focus when building societies and others are shaping their digital offerings. Not least among those is because they make up 20 per cent of the UK’s population and their influence will only grow: by 2025 the 42.9 million Gen Z-ers globally will account for $360billion in disposable income.

This critical segment, it argues, is best reached via their phones: “The remarkable 98 per cent smartphone ownership rate among Gen Z is a key factor in shaping their expectations of the banking sector… four million Gen Z will establish new bank accounts each year until 2026 and mobile banking usage will double… 49 per cent of Gen Zs plan to get a digital-only bank account in the next five years in the UK.”

Crucially, for UK buildings societies, it adds: “According to the Office for

National Statistics, in the UK, exceeding 80 per cent of household wealth is currently owned by individuals aged 45 and older. Over the next three decades, this substantial wealth is poised to transition between generations through inheritance or generous gifts – a major shoutout… to focus on mobile banking.”

The report suggests these customers want personalised experiences, have no patience for lengthy onboarding processes, are highly price-sensitive and prepared to move providers to secure better deals, feel vulnerable and reliant on their parents due to a lack financial knowledge, want everything super-fast and prize trust and security. Phew... they’re nothing if not demanding!

At the same time, they are suckers for gamification, interactive user experiences and providers that take the time to help them manage their money well through budgeting features, educational tools, personalised financial insights, based on their spending habits, and virtual challenges like earning badges for reaching their savings goals.

Conscience-driven, they especially like providers with good environmental, social and governance credentials and are particularly impressed by friction-reducing features like voice and AI-powered assistance.

Above all, they want to build a relationship with their providers, albeit mainly virtual ones, feel a strong sense of brand identity and belonging and are best won over by personalised experiences and information and products to suit their lifestyles, powered by data analytics and AI. Also important is intuitive and interactive user experience and user-centric design, such as the ability to customise their dashboards.

“To Gen Z, mobile banking apps, are limited to being mere utilities right now,” the report continues. “However, to make these apps their go-to productivity tool, [they] should represent the key to a realm of individually tailored financial experience.

In an age where customisation reigns supreme, banks that grasp the pivotal significance of mobile apps in delivering

bespoke, on-demand banking services, position themselves for enduring success.”

Of course, the way we all bank, carry out payments and acquire goods and services is becoming more and more of a lifestyle choice, so predicting short, medium and long term consumer trends and mirroring those in their products and services should be ongoing for financial providers.

But, as business advisory firm Grant Thornton pointed out in a separate report, entitled The Challenges Facing UK Building Societies, in late 2023, it’s difficult for these organisations to keep up with that agenda.

It pointed out that mortgage activity –their main income source – was projected by trade body UK Finance to be down 28 per cent in 2023; they also face unique challenges stemming from their relatively high fixed cost bases – according to ONS data, building societies closed just 12 per cent of their branches between 2012 and 2022, while banks closed 44 per cent – and that’s on top of the increasing cost of maintaining regulatory compliance.

“Diverting funds away from member services for costly transformational projects such as IT infrastructure can sometimes be more challenging,” the report acknowledged. But one solution might be to partner with fintechs.

“With building societies, the teams tend to be quite small, so they run a bit lean, and it is hard for them,” agrees Wu. “But a lot of that can be done by outsourcing to fintechs who can provide services in the cloud, and manage that service for them.

“The digital channel actually doesn’t replace the in-branch channel,” she stresses. “It is important that financial institutions and building societies continue to offer both, and that they complement each other.”

STAYING RELEVANT

The need for building societies to evolve or risk becoming a footnote in financial services history, is starkly illustrated by the fact that, in 2008, before the global financial crisis, there were 59 building societies in the UK and now there are just 43. Only two of those building societies offer their customers current accounts – which are seen as a key customer relationship-building tool.

49 per cent of Gen Zs plan to get a digital-only bank account in the next five years in the UK –Redefining Banks With Mobile Apps: Acquiring And Retaining Gen Z

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the digits: Gen Z live life on their smartphones and building societies must meet them there

Owned by their members, these much-loved ‘mutuals’ add a diversity to UK financial services that is worth fighting for. According to trade body the Building Societies Association: “As of 30 September, 2023, societies served almost 26 million consumers across the UK and had total assets of over £507billion. Together with their subsidiaries, they have helped over 3.5 million families and individuals to buy a home with mortgages totalling over £375billion, representing 23 per cent of total mortgage balances outstanding in the UK.

“They are also helping over 23 million people build their financial resilience, holding over £370billion of retail savings, accounting for 19 per cent of all cash savings in the UK. As well as digital services, they operate approximately 1,300 branches, holding a 38 per cent share of branches across the UK.”

Jennifer Harris, chief customer officer Sandstone Technology, explains how digital channels like mobile and banking apps, combined with internet banking platforms, can help these people-centred organisations strengthen and expand their contribution.

We tell them ‘let us do the heavy lifting with the tech so that you can focus on what you’re good at’. It’s about organisations using the skill base of the whole fintech ecosystem to achieve their transformation goals

“Lacking current accounts, building societies tend to back away from mobile app usage. Their internet banking platform is their number one digital way of reaching customers but we believe strongly in complementing that with a mobile app because there aren’t many people these days that don’t have a little ‘mini computer’ in their pocket, 24/7,” she says.

“Traditional channels like call centres and branches are still incredibly important but they’re typically only available during certain time periods. Consumers’ behaviours are changing, too. The retail industry has taken a whole level of friction

away from transactions and consumers now expect that level of service from their banking. So, it’s about using the digital realm to improve their customer experience, service and support – making sure they’re using those high-cost call centre and branch channels only for high-complexity matters. That’s where that human element really comes into play.”

Adopting Cloud-enabled solutions like Sandstone’s BankFast and Mobile App offerings, ready-made to offer 24/7 omni-channel banking, can help overcome building societies’ legacy tech limitations. But it is a new way of approaching IT.

"A few in the UK are already currently using our mobile app,” reveals Harris. “It’s about putting it out there, measuring, reviewing, making minor changes, if necessary, and going out again. It’s about making sure the building society understands it is a living, breathing thing and they can’t just leave it to stagnate.

“They must keep regular updates going, they need to make sure it’s available – in the case of a mobile app – on all the latest mobile platforms; and, with internet banking, make sure all browsers are covered, to offer a good experience.”

Sandstone Technology draws on extensive experience of helping providers elsewhere embrace mobile services.

“We’ve had multiple customers whose mobile app ratings are now up near five, from being right down at one or two. And sometimes that’s been achieved just by looking at the configuration of the product. Sometimes, small changes in configuration, can make a massive difference to the customer experience.”

Harris acknowledges that ‘one of the toughest things can be integration with their core banking platform because a core upgrade requires significant investment in money and time’.

“But they don’t necessarily have to do that level of upgrade to reap the benefits of a digital channel. It’s about choosing the right partner to provide front-end capability that has an ease of integration to core,” says Harris.

“Challenges around capacity and skillset, not just budgets, mean a lot of building societies are looking at outsourcing. They don’t necessarily have the size of IT teams required to achieve this level of transformation. We tell them ‘let us do the

heavy lifting with the tech so that you can focus on what you’re good at’.

“It’s about organisations using the skill base of the whole fintech ecosystem to achieve their transformation goals.”

BEING YOUNG AT HEART

Many people’s first recalled interaction with a financial institution is with their building society, and that emotional connection is something the sector can still leverage, but using mobile apps, says Harris.

“Not having current accounts doesn’t mean they have to block younger customers out – they too have savings goals and want to get on the property ladder,” she explains. “These organisations can still use their customer base to reach their children, and their children’s children. It’s about thinking how they can promote their offering to them.

“A lot of it also comes down to user interface and experience. A mobile app won’t save them if it’s difficult to use, isn’t intuitively designed and doesn’t offer the interactivity young people are used to.

Building societies can’t ignore the data in terms of the popularity of the digital channels and how they can complement in-person service

“So, the question for building societies is how they can take advantage of things like hyper-personalisation around chatbots for instance, to achieve the most value for their customer base.”

Michelle Yu underlines the case for mobile app adoption: “Building societies can’t ignore the data in terms of the popularity of the digital channels and how they can complement in-person service.

“Younger users of financial institutions will absolutely be using mobile apps to access their bank. The idea of stepping into a branch to open an account just doesn’t come into their mind. They feel like they should be able to engage through mobile apps.

“So, if building societies aren’t there, they will lose today’s generation. It’s important to future plan for that customer market.”

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North star

Yorkshire Building Society’s Tina Hughes explains how digital innovation has made a traditional mutual in the north of England more relevant than ever

Since time immemorial, the good people of Yorkshire have had to contend with some ludicrously lazy stereotypes. Straight out of a Monty Python sketch, they are, according to the ill-informed: stubborn, frugal, flat-cap-wearing, pigeon-racing, ferret-fancying, cricket-worshipping curiosities, who consider their place of birth the best thing since sliced bread (Hovis bread, of course).

That’s not how they see themselves. “If you ask a Yorkshireman what they think about being from Yorkshire, they'll use words like openness, integrity, fairness, honesty and trust – and I

think we have a culture that really thrives on that,” said Yorkshire Building Society’s director of business transformation Ben Sampson, who described himself as a ‘local lad’ in an interview last year with Technology Magazine

YBS does indeed celebrate its ‘Yorkshireness’ with a history that goes back 160 years. Being local and mutually owned allows it to act in the interests of its members, not some far-flung, anonymous shareholder who looks only at the bottom line for a profit big enough to pay a generous dividend.

It’s wrong to assume that means YBS is parochial in its outlook, though. In fact, the building society boasts a national branch network and a reach of three million customers, many beyond its traditional heartland. It is now the third largest building society in the UK, with total assets of £62.2billion, according to interim results published in July 2023, and has grown to become one of the biggest lenders in the country. It’s very good at what it does, too, in terms of

financial performance, compared to, for example, some of the big banks. And that might be because it’s stuck to the knitting – it’s stayed focussed on mortgages, savings products and commercial lending.

Clearly, YBS is a building society very much on the front foot. But how has an organisation with such a strong connection to the past, been able to adapt to an increasingly tech-savvy consumer base or, indeed, prepare for a future where digital platforms are the norm, rather than the exception?

According to YBS director of digital channels and marketing Tina Hughes, it’s a conundrum that’s weighed heavily on it.

“Any mutual, or any organisation not thinking about, ‘how do I service a customer through digital?’ is on the route to being ‘a Blockbuster’,” she says, referring to the mega-successful high-street video store that failed to see the digital streaming culture thundering down the tracks and went bust in 2010.

“For example, we know 80 per cent of all savings products opened in the

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industry at the moment are done digitally, so it’s about making sure we’ve got that digital service, channel and experience, for our members now, today and tomorrow.”

By Hughes’ own admission, YBS was hampered by legacy technology –inevitable when you are talking about a business of such vintage – but she says that going back to YBS’s key value of ‘customer first’ helped shape an authentic transformation. In truth, embracing digital and establishing a sophisticated footprint across all its brands has actually brought the building society closer to its consumers – whether they be young digital adopters or traditional older members. And, because it is part of every community it operates in and has a responsibility to make sure no member is left behind, the technology has, in some ways, had to work harder.

“Everything we have built is with the consumer in mind,” Hughes explains. “Our experiences and journeys have to be based and found in, ‘what are they looking to do? How can we make that as easy for them as we can, and in a way that’s appealing?’.

“And this applies to all our customers. Yes, it’s absolutely about appealing to people who are digital natives – they are comparing our service to a whole host of other services in their daily lives – but also not forgetting that our existing base, not just younger members, wants to use things digitally, too. Especially since COVID-19, we are seeing a lot of our older customers wanting to do things from the comfort of their own homes.”

Embarking on that journey was not something that YBS was keen to do alone. Recognising that its strengths lay in knowing its customers, and that third parties (namely fintechs) had the skills and experience to deliver a successful transformation, was utterly vital to success.

“Very few organisations choose to build it all themselves these days,” says Hughes. “Why would you, when there are people out there who can probably build it faster, and have more experience or knowledge in that space? So, working in partnership is sensible. It increases your speed to market. It also means you can do more.

“One of our recent collaborations, for instance, was over how we could enable people to pay into their accounts faster. It’s great that they’ve opened an account with us but what they want is to be able to pay

in, that same day, really, really quickly. So, we worked with third parties, using their experience in payments combined with our knowledge of members to help us go faster and bring great harmonisation between product and services.”

Another collaboration in 2021 saw YBS adopt the OutSystems platform, which allowed the building society to provide consumer-friendly apps faster. A new online mortgage calculator, for example, resulted in a 54 per cent higher mortgage conversion rate. Meanwhile, an enhanced savings account application journey saw a 40 per cent faster journey when opening a savings account. “You can open an account in less than three minutes,” confirms Hughes.

A NEVERENDING JOURNEY

Treading the path between modernisation and retaining the elements of YBS that make it special to its three million customers, has been a tricky one to navigate. With many of its often older members still preferring to use one of YBS’ 227 branches and local agencies across the country, how does it satisfy – and not alienate – that important demographic?

We are focussed on digital services, but that shouldn’t negate our thoughtfulness about the customer who still wants to come into the branch

“I would say we are absolutely focussed on digital services and digital experience, but that shouldn’t negate our thoughtfulness about the customer who does still want to come into the branch,” says Hughes.

“For example, we spoke about how quickly a customer can open a savings account. That can happen remotely or in-branch, with a colleague supporting. We always think about accessibility and how we can bring that to life through all of our channels. A customer might prefer to be assisted in a branch and our retail colleagues are hugely supportive, trained, and thoughtful about helping them select the best and right channel for them.

“We don’t want to push somebody towards something that’s not suitable

– it’s absolutely about making sure we’re supportive in understanding why a channel might be right for them, and how it might help with their day-to-day banking. And, I said, actually, quite a lot of our older customers are now doing things from the comfort of their own home, now they know what digital enables.”

Putting the customer at the heart of its offering meant teams across IT, compliance, customer service, branch and others, all came together to build the YBS digital experience, working to a common and agreed goal. And although Hughes is ‘massively proud that YBS has built a customer experience that fits with the needs and wants of a variety of different types of consumers,’ she says it would be foolish to think that’s the end of the journey.

“As a building society, we were founded on continuous improvement. We have lived that for a long time and will continue to live that. It’s about being very clear about where you are going to play, what services, propositions, and help you can provide your members, and how you do that to the very best of your ability.

“Of course, it’s being thoughtful about what’s coming down the track, too,” Hughes adds. “Anybody who’s not thinking about AI, at this point, is missing a trick. We’re also thoughtful about big players, such as your Googles and your Amazons, coming in to disrupt traditional banking methods. But we need to understand the services they’ll provide, and how they’ll provide them, and how they might complement or disrupt what we offer.

“From our point of view, we are continually thinking about how we will innovate, how we will keep up with the rest of the market, and what that looks like. Expectations change, tech changes, other disrupters are out there doing things differently, so you might want to say, ‘well, that’s really good. How could we…?’ ”

With a structure large enough to punch its weight but nimble enough to respond to an ever-changing economic landscape – while still remaining loyal to those admirable Yorkshire qualities of ‘openness, integrity, fairness, honesty and trust’ – Hughes is confident that YBS can respond to whatever the future will bring.

“It’s continuous,” she says. “Our job is never done.”

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Small but mighty: the rise of Atlantic Canada’s credit unions

When Mambu was offered the seemingly mindboggling task of introducing a core banking system to 40 autonomous financial institutions simultaneously, it jumped at the challenge. Carrie Forbes from League Data and Mambu’s Fernando Zandona take up the story

Consumer priorities are changing and people across the world are increasingly putting purpose above profit. But while banking boardrooms might only slowly be waking up to that fact, credit unions and co-operative banks were founded on the principle.

They exist in almost every country in the world and are particularly popular in North America, the Caribbean and parts of Asia. In Canada, a third of the working-age population is a member of a credit union, so their heft in financial services and the wider Canadian economy can’t be underestimated.

The sector has racked up an impressive number of technology firsts there, too: they were the first financial institutions to offer full-service automated banking machines; the first to have fully functional online banking; the first to do cheque imaging… but, because of their relatively small size individually, they’ve never made global headlines. Until now, perhaps.

“What makes a credit union different is it’s owned by its members, so you’re not a customer, you have a share, you have a say, you have a democratic vote in how that organisation goes forward,” explains Carrie Forbes, CEO of League Data, a cooperative itself, which provides banking solutions to more than 40 credit union members in Atlantic Canada.

“Credit unions came to be more than 100 years ago, as we were moving from the agricultural era to the industrial one. People were being left behind in the economy and so the question was, ‘what can we do, locally, to build our own economy?’ And that’s still their role today.”

If anything, in a post-pandemic world, disrupted by global issues such as climate change and conflict, where technological advances and socio-economic imbalances have prompted many to rethink where they put their money, that role is even more important. “We’re back to that real need again, all around the globe,” agrees Forbes.

Indeed, one survey by Mambu, one of League Data’s key technology partners, showed that nearly three-quarters (73 per cent) of consumers worldwide are now more likely to use a financial services provider that puts purpose over profits.

FREEDOM TO EXPAND

Credit unions were historically embedded in and bespoke to specific communities – hence their smaller size. But in Canada, they were also prevented by legislation from expanding outside of their state boundaries until 2012.

And even after that, technology constraints made it hard for them to take advantage of the prospects for growth. But now, with the advent of open banking and a new core banking system going on line for League Data’s members, there’s not just a country-wide opportunity for them, but even a global one, according to Forbes.

League Data has been providing banking technology – from core systems

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to networks to cybersecurity – to its members since 1975. By aggregating IT resources, they kept the costs low.

“The difficulty for these organisations is that technology changes so fast. Having the right people, with the right skill sets to drive forward; keeping up with really expensive cybersecurity, which takes your innovation dollars away; being able to partner with the right organisations, and knowing where to go… it just gets more and more challenging,” says Forbes. “Costs are huge, risk and liability are huge.”

With the regulatory landscape changing, League Data decided to replace its members’ core banking system in 2021. It knew that would involve not just a change of technology, but a change in the way the businesses operated. It therefore wanted a long-term technology partner rather than a vendor who was ‘going to walk out at the end of the project’, says Forbes.

“You need somebody with you on the journey, because you’re going to have to solve things together as you retool the business model,” she explains. “So we went looking for someone who was going to be aligned with us and also keep up with all of the very different changes. It’s complex… 40 institutions, all doing things in different ways and our region is very unique.”

Mambu’s philosophy and use of cloud-native, API-driven and therefore highly flexible, solutions really resonated with League Data, and Mambu CEO Fernando Zandona also saw huge synergy in working with credit unions.

Credit unions and fintech are like peanut butter and jelly. Credit unions don’t have scale to in-house develop, but partners make that happen

“At Mambu, we believe that banking and financial services can change the world for the better,” he says “We wanted to bring innovation and simplicity to the credit union segment. And we are with them, every step of the way.”

Being a single platform – ‘the same Mambu that is running in Asia, is running in EMEA, is running in America’ – and configuration based: “You just click buttons, and build products in minutes, instead of

months, because you don’t have to code,” says Zandona. “It’s a unique perspective and customers just love that.”

Transforming one credit union is hard enough, transforming 40 over the course of a single year, all wanting to exercise slightly different choices, according to their business model and appetite for new technologies, was an extraordinarily tricky project to manage. While not all of them chose to exercise every digital choice, as Mambu and AWS’s implementation partner, Persistent Systems, put it at the time, it opened the credit unions’ eyes to the art of the possible. And for League Data and its members, it’s been transformational in all senses of the word, says Forbes.

“In order to make an integration into an old system, we were looking at a very rigid, long timeline, and extremely expensive. We were kind of forced to use Band-Aids and tape to make it look elegant and you never really get the true end result, it’s often disappointing, it’s not delivering that experience they want.

“With the composable system we have now with Mambu, we don’t have that barrier of code. We can go in and, within days, create products that would’ve taken us an 18-month cycle. That is such a game-changer; we can’t wait to see what’s going to develop.”

EMBEDDING COOPERATION

Mambu isn’t League Data’s only technology partner. “Credit unions and fintech are like peanut butter and jelly,” says Forbes. “Credit unions don’t have the scale to in-house develop, but partners make that happen.”

And they’ve come together at just the right time as the Canadian market enters into open banking, which will enable consumers to follow in the footsteps of their UK, European and Australian counterparts and gain access to services such as account aggregation, faster loan and credit application processing and personalised budgeting tools, among others.

Forbes observes, “We knew this is where we’d have to go. We need a flexible system that can adapt quickly, so our credit unions aren’t left behind – not just in terms of having to meet the open banking regulation, but in terms of the opportunity it can bring them. It’s all about speed, flexibility and the ability to collaborate, which is what cooperatives do.”

What will perhaps come as a surprise to

some is that the legacy systems between Canada and the US are so different that it’s been easier for Canadian companies such as League Data to work with providers in the UK and Europe, as the systems are similar. But another benefit of moving towards a more API-based environment such as that provided by Mambu is that geography will become less important and Atlantic Canadian credit unions should soon be able to work more meaningfully with their US counterparts.

“That’s really cool, especially in the global cooperative movement, because overall, although our regions are slightly different, often the things we’re trying to solve are quite similar,” observes Forbes.

When it comes to her credit unions’ future, she believes the world is now their oyster. While there remain challenges in blending a traditional high-touch model with the digital world, the opportunities for expansion will be there once the regulation is. ‘Consumer-driven banking’ legislation, as open banking is termed in Canada, was originally scheduled for 2023 but the realistic target now seems likely to be 2025.

We wanted to bring innovation and simplicity to the credit union segment. And we are with them, every step of the way
Fernando Zandona, Mambu

Once that happens, “I really think credit unions in Canada are poised to go global,” says Forbes. “Because now they have the tools, they’ve got the smarts, they have the heart, they have a lot to offer.”

There’s a lot they can learn from other regions, she adds, but now, with flexible technology, they can shape their offer in line with their principles.

“I think we’re about to make a shift in our thinking about what we can do and not get so tied behind ‘we have to chase what banks are doing’. And that’s exciting.”

The very first credit union, set up in eastern Europe in the mid-19th century, asked members to commit to two things: live a moral life and plant two trees every year in their parish. Perhaps if it had gone global, by now it would have solved one of the world’s biggest problems. Perhaps League Data’s credit unions still could.

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Nimble and SaaS-y: SE Asia’s mobile money

Payments technology company BPC is at the heart of the region’s growing wallet economy. Its MD for APAC Terry Paleologos explains why startups and established players alike are adopting a software-as-a-service strategy to service it

Back in 2018, a smartphone loaded with payment options powered the winner of this magazine’s South East Asia Payments Race across the finish line. At the time, we observed that the region would become ‘a honeypot for app-driven mobile finance services’.

A lot has happened in the South East Asia fintech landscape since. But, without wanting to sound too self-satisfied, we were right. A slew of smart banks have been drawn to that honeypot, riding on an improved digital payments infrastructure, including cross-border rails, such as the Monetary Authority of Singapore and the central bank of Malaysia’s recently announced cross-border QR code payment link between the two countries.

The Philippines’ first virtual bank, Tonik, received its banking licence in January 2020. Cake by VP Bank emerged in Vietnam, onboarded a sweet four million customers

in three years and picked up a bunch of awards in 2023. And GX Bank will be the first to take advantage of Malaysia’s digital banking licences this year. And that’s just a tiny sample.

In December, Jonathan Bautista head of the Pre-Sales Group for APAC at payments technology company BPC forecast a ‘transformative shift in the Asia-Pacific financial landscape, with mobile commerce driving digital wallets as the premier choice for online payments and widespread QR code adoption signalling a unified and efficient payment ecosystem in 2024’.

The company, which has had a foothold in the region since 2003, quotes research that suggests digital wallets will account for 65.4 per cent of APAC e-commerce payment methods this year – a trend that’s led by prominent regional providers such as Alipay, GCash, Gojek, GoTo, Grab (a partner in GXBank), MoMo, and PhonePe.

BPC has not only been involved as a technology partner in launching many neobanks in the past six years, but it’s also been instrumental in building the national digital architectures that support them, from Nepal’s electronic payment system to Singapore's NETS. As such, it has a broad view of the technology, regulation and market players driving change. So far, they’ve mainly been fintechs who have pulled themselves up by the

bootstraps. They needed cost-effective, fast solutions, coupled with experienced support, to get a foothold before others, with bigger resources, muscled in, says BPC’s managing director for Asia Pacific, Terry Paleologos.

“Typically, smaller players like fintechs and non-banks, were looking to issue single products quickly, and Cloud-based capability gave them speed to market and reduced infrastructure management cost,” he says. “This is creating a bottom-up trend where smaller players are getting to market quickly and mid-tier operators are now seeing other advantages, like being able to scale in multiple locations.

“Now, that upper echelon of large infrastructure banks is also starting to not just test the waters, but develop roadmaps that say ‘in the next two or three years, we want to be able to do this or that’.”

Because we are very established in certain markets, we take the role of being a trusted voice

Recently recognised by Celent as one of the world’s best global digital banking providers, BPC has been evolving its own business model towards providing Cloud-based, software as a service to all of them. It also acts as a ‘critical friend’ to providers, whatever their size.

“Banks are moving from the big infrastructure role they played, outsourcing those capabilities, to become more flexible and scalable,” says Paleologos.

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“Because we are very established in certain markets, we take the role of being a trusted voice and helping with two- or three-year forward planning very seriously.

“As there’s a lot of transformation taking place, it’s important for us to be able to impart knowledge, and to be much more of a solution provider than simply selling software,” he adds.

“It’s important that we’re able to problem solve, and we’re moving from having implementation engineers and developers, to having proper solution architects that help the customer understand what their problems are, then ensure our solutions are solving those problems as they go forward.”

He believes use of SaaS will become even more widespread over the coming years.

“I think it will be fairly ubiquitous. There have always been challenges in some markets, with regulations around being locally hosted, but some players want to scale in multiple countries, and doing implementations market-by-market can be time-consuming,” he adds. “So, I think everyone will have some component they offer as SaaS. A lot more dedicated instances will start to flourish.”

An example of innovations that BPC is generating to cater for this trend includes its BPC Processing service, focussed on delivering next-gen payments. It was designed to cope with the ‘proliferation of new means of payment and the growing popularity of mobile wallets and wearables, which is adding complexity to the payment ecosystem’. It enables users to cater for multiple types of provider via one platform, offering end-to-end omnichannel payment processing, encompassing issuing, as well as online and popular alternative payment methods. Users can also experiment with new check-out experiences like instalment payments and third-party financing for purchases.

The service is a key tenet of BPC’s strategic shift towards SaaS in order to mirror its clients’ evolving requirements.

In 2023, the company’s senior VP Peter Theunis wrote: “It’s clear SaaS models will stand as a cornerstone of innovation in the financial sector. Its ability to provide flexible, scalable, and cost-effective solutions makes it an indispensable tool for financial institutions looking to stay competitive in a rapidly changing landscape.”

Three years ago, the company established a SaaS processing centre in Pakistan through a PCI DSS-certified local Cloud data centre, to serve the growing demand for local Cloud-based services from banks, fintechs and payment service providers (PSPs). With its 220 million-strong population, many of those people owning smartphones, Pakistan is a prime example of a SE Asian country that has seen significant growth in digital payment value and volume.

BPC recognised that the advent of the digital economy and an explosion in neobanks, wallet companies, digital-only banks, smart city and buy-now-pay-later services in markets like this meant that ‘future growth could be guaranteed only by adopting a Cloud delivery model’ that caters for the growing storage needs involved. This has led to BPC adopting Oracle Cloud Infrastructure (OCI) and decommissioning its on-premise data centre, migrating its SmartVista payments platform to always-on

CASE STUDY

operator OCI, allowing new clients to provision it ‘in just a few clicks’.

According to Oracle’s website: ’‘The elasticity of OCI means that SmartVista can accommodate top-tier banks running 2,000 transactions per second as well as rapid consumer growth among neobanks, fintechs, wallets and BNPL players, such as Cake in Vietnam, for whom time to market is the essential ingredient for success.”

Paleologos concludes: “With transformation accelerating in Asia in the past two or three years, our focus is on understanding and leading some of the trends. We’ve seen a great spurt of innovation, most recently in Malaysia, where six new banking licences were issued in 2023. That not only results in new entities and innovation, but also makes older, more established players start to reimagine how they do business, what systems they use, what transformation they need to do, how they can be more flexible and competitive and how they can reduce costs.”

The payment ingredient in Vietnam’s Cake

Cake is a collaboration between VP Bank, one of Vietnam’s leading banks, and the financial arm of Be Group, an on-demand platform (principally delivery and ridehailing) in SE Asia.

Aimed at improving access to financial services for Gen Z and Millennial Vietnamese specifically, Cake chose Mambu as its core banking partner and BPC for its payments technology, both providing flexible solutions, which could deliver rapid time to market for new products and services.

BPC’s SmartVista platform helped Cake to open up a wide range of digital services to a market of around 90 million

people. The bank was able to issue Visa credit cards in less than two minutes using SmartVista Card Management and Card Issuance, while SmartVista Fraud Management means 360-degree transaction monitoring with AI, machine learning, and customer behavioural profiling.

Cake has grown rapidly and its services now include money transfers, payments, savings, investments, consumer loans, and credit cards.

Over the past 12 months, it’s partnered with Vietnamese corporations with huge consumer bases, including financial ecosystem Viettel Money, state-owned telco VNPT, and car maker VinFast, and it has launched a co-branded card with

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A holistic approach to reinventi ng f inance

From AI to quantum computing, Singapore champions safe exploration of technologies that could transform FS. What’s important now is how they can be made to work together, says HSBC’s Chief Digital Officer Shayan Hazir

Singapore stands out as a South East Asian success story – a small country that punches above its weight in economic, geopolitical and financial matters, currently ranked as the third financial centre in the world behind New York and London.

It maintains its position through a combination of shrewd policy-making and a proactive approach to industry collaboration, encouraged by the Monetary Authority of Singapore (MAS), the country’s financial regulator.

The term regulator brings to mind a conservative, compliance-focussed institution whose main task is to ensure corporate entities do not put profit before risk. And it does that. But MAS takes a notably progressive approach –one that actively promotes innovation and facilitates collaboration.

“The way our regulator operates is not as a conventional regulator. It’s not only putting up guardrails, protecting the financial ecosystem, but really enabling it. And that’s exciting,” says Shayan Hazir, chief digital officer at HSBC, recently named the best bank for digital solutions in Singapore for 2023.

HSBC, MAS and the wider financial ecosystem in Singapore, are pursuing four technology strategies: namely, generative AI (GenAI), blockchain, quantum computing, and mobilising fintech to tackle sustainability and help plug the $6trillion funding gap identified by McKinsey to achieve net zero by 2050.

Heng Swee Keat, Deputy Prime Minister for Economic Policies in Singapore, expanded on some of those strands –AI, blockchain and ESG – at the 2023 Point Zero Forum (a high-powered thinktank of banks, regulators, and industry leaders brought together by the Swiss government and the Singaporean not-for-profit Elevandi, which focusses on technology innovation and its adoption in financial services).

Central to his speech was the importance of fostering a ‘spirit of collaboration and co-creation [which] will best enable us to ride new waves of opportunities afforded by technology, while collectively guarding against downsides and unintended consequences’.

Some of the technologies to which he was referring have, of course, already been widely implemented. HSBC has, for example, most recently deployed AI to help increase the impact of anti-money laundering efforts, working in partnership with Google Cloud to detect and reduce risk and even identify criminal networks.

Other examples include Project Epsilon, a blockchain-based solution targeted to help the real estate industry streamline their end-to-end processes with their suppliers, and the recently-launched Zing, a multi-currency payments app which allows members

to send money internationally across more than 30 currencies, and spend across the globe.

HSBC’s Hazir believes there’s much, much more, though, to be achieved by applying all the above technologies holistically and less as siloed, standalone tools.

“We need to breathe imagination and creativity into the design of financial products on a first principle basis,” he says. “Start with the intent of meeting the needs of consumers and corporates, and assessing needs in today’s context.

“Most of the models of financial products are decades-old and need to be reimagined with today’s technology. There is no sense in building new technology based on historic, antiquated design.

“There are significant inefficiencies in old, traditional financial systems, which can be redesigned and rewired, because we have the capability to make them more accessible, scalable, safer and more efficient.”

Most of the models of financial products need to be reimagined

In effect, he’s saying let’s design products and experiences that are fit for purpose, and then build the technology behind these new capabilities. And that means industry-leading banks and fintechs must create an environment where pioneering technologies like AI, DLT and quantum computing can cross-benefit one another and thrive, says Hazir.

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At the same time, they must not lose sight of the real-world problems they are being used to solve. Honing in on the areas of focus for HSBC, he says: “Commercial use cases around blockchain and DLT are extremely exciting, and we’re going to see some amazing innovations in that space.

“Artificial intelligence is not all about generative AI, although it is a ‘tipping-point technology’ that’s brought it into the mainstream and created an opportunity for people to get hands-on with AI. We must however ensure that we provide the right safeguards so it is safe and responsible in nature.

“Then there is sustainability – not only from a perspective of transition finance, but also data and the platforms that are going to make a huge difference in data

orchestration and disclosures – which is a very current topic because there are so many different standards.

“Further down the line, but still relevant, is quantum computing. A recent study said that for certain AI-related tasks, a quantum computer was over 180 million times faster than a classical computer – that changes the game for what we can do with data and AI.”

Hazir stresses: “It’s important that we don’t look at these four in isolation but in confluence. That, to me, is what’s missing right now, and is something that we need to push forward.“

There’s the unexploited positive confluence of these innovations, of course, but perhaps Hazir is also encouraging his colleagues to ask more of the ’what

happens when’ type questions about the impact on organisations and society more broadly, when all these innovations mature and exert a combined effect.

It is, after all, at the intersection of technologies, that both great and disastrous things happen. AI didn’t get very far in the commercial world without Cloud and big data, but now look at the potential power for good and, well, not so good, that we’re now all debating.

“We’ve got to whiteboard the solutions now for this future that we are all trying to define together,” says Hazir.

“Whether that’s going to be fintechs, or technology companies, or other banks, we have to be absolutely open to collaborating – and HSBC is fundamentally open to that as being the way forward for all of us.”

HSBC & MAS: pioneering innovations

HSBC is among a number of partners across the finance landscape working with MAS to get to grips with some of the most dynamic emergent technology available.

Project Guardian attempts to bring distributed ledger technology (DLT) to Singapore’s $4trillion asset management industry. The project has three objectives: to run industry pilots with traditional financial institutions and fintechs to understand opportunities and risk areas; assess longer-term transformational impact and aim for safe development of an ecosystem; and establish policy guidelines and a framework.

HSBC, Marketnode and UOB have run a pilot, testing the issuance and distribution of a digitally native structured investment product. If successful, this will allow financial assets to be broken down into their constituent parts, making them more accessible to smaller-scale investors.

Those behind the project are looking to establish a common layer of ‘independent trust anchors’, ensuring independently verifiable proofs of ownership. Once achieved, the project seeks to represent securities in the form of digital bearer assets and back these with regulatory safeguards to ensure market manipulation and operational risk are minimised.

Project Mindforge seeks to build a risk framework for leveraging the power of generative AI in the financial sector. Much ink has been spilt highlighting the industries, processes and roles that will enjoy boosted productivity thanks to GenAI, but issues pertaining to data risk, inbuilt model bias and potentially more cybercrime pervade many of these discussions.

With Mindforge, HSBC and MAS set out to define rules for the responsible use of GenAI, with a view to spurring GenAI-powered innovation that doesn’t destabilise or undermine trust. Along with a consortium of industry heavyweights

that includes Accenture and The Association of Banks in Singapore, they have defined seven ‘risk dimensions’ for guiding AI development.

Project Gprnt, pronounced ‘Greenprint’, aims to create a digital infrastructure and ecosystems for green and sustainable finance. It has three objectives: to grow a vibrant green fintech ecosystem in Singapore and beyond; to drive partnerships across various stakeholders in the green finance space; and to develop trusted data flows for ESG information.

A Gprnt Marketplace seeks to connect green fintech and green technology providers to investors, financial institutions and corporates, while an ESG Registry – an initiative to utilise blockchain to record and maintain the provenance of ESG certification – will eventually be built with a view to applying this certification to industries including rubber production, palm oil extraction, aquaculture and more.

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A new horizon: HSBC aims to be at the forefront of technological advancements within the Singapore market

Pioneering a digital financial revolution

With no small ambition to become Asia’s premier international financial hub, Labuan International Business and Financial Centre has created a welcoming environment for fintechs in Malaysia, particularly those offering Shariah-compliant tokenised services

The Labuan International Business and Financial Centre (Labuan IBFC) in the Federal Territory of Labuan was established by the Malaysian government in 1990. It is governed by a sole regulatory body, the Labuan Financial Services Authority (Labuan FSA), which comes under the oversight of Malaysia’s Ministry of Finance.

Labuan IBFC Incorporated Sdn Bhd (Labuan IBFC Inc.), a wholly-owned subsidiary of Labuan FSA, serves as the official promotional and marketing agency for the centre.

Situated strategically in the Asia Pacific region, it is well-placed to leverage opportunities in one of the world’s fastest-growing regions, in accordance with its tagline of being Asia’s premier international financial hub.

Labuan IBFC provides a diverse array of business structures and investment solutions designed to streamline cross-border transactions and facilitate international business activities for global investors and enterprises. Key service sectors encompass banking, risk

management, wealth management, activities in the capital markets, leasing, and commodity trading. These solutions are available in conventional, Shariah-compliant, and digital formats, offering flexibility, and catering to a wide range of preferences and needs.

THE GO-TO HUB FOR FINTECHS

Establishing a company or obtaining financial activity licenses in Labuan IBFC offers several advantages, making it an attractive centre for businesses. These include:

■ A favourable tax regime, making it appealing for businesses seeking tax efficiency. Labuan IBFC boasts a clear and uncomplicated tax system that is applicable to Labuan entities engaged in Labuan business activities, as per the Labuan Business Activity Tax Act 1990.

■ A transparent regulatory framework, ensuring stability and transparency for businesses operating in the jurisdiction. Labuan IBFC adheres to global standards and best practices in its regulatory and supervisory framework. This includes strict protocols

related to anti-money laundering and terrorism-financing activities where the regulator, Labuan FSA, is a member of both the Asia Pacific Group on Money Laundering (APG), as well the global Financial Action Task Force (FATF).

■ Currency and fiscal neutrality. Labuan IBFC allows transactions to be conducted in multiple currencies. This means businesses operating within the jurisdiction can deal in various currencies without restrictions. This flexibility in currency choice enables businesses to mitigate currency risk and facilitates international trade and investment. In the context of Labuan IBFC, fiscal neutrality means that the centre offers a simple and transparent tax regime for businesses seeking to optimise their tax liabilities legally.

■ Robust support within the business community through established associations representing key industries in Labuan. These industries include banking, risk management, digital financial services, and corporate services. These industry-specific associations play a pivotal role in

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fostering collaboration, sharing expertise, and collectively contribute to the growth and development of Labuan IBFC. The strong network of support from these associations enhances the overall business ecosystem, promoting synergies and ensuring a collaborative environment conducive to sustained success across diverse sectors.

SOLUTIONS-DRIVEN

Digital financial services (DFS) in Labuan IBFC encompass a wide array of financial offerings, ranging from simple platforms for trading fiat and digital assets to more complex digital asset exchanges, as well as fundraising for blockchain-based tokenisation. Given that the centre has positioned itself as a hub for digital innovation since 2017, the DFS sector in Labuan IBFC has continuously experienced growth, with a total of 105 providers in 2023. Labuan IBFC’s digital ecosystem comprises three main pillars:

■ Digital financial institutions – digital banks and insurtech providers

■ Digital service providers – digital asset issuance, digital asset trading platforms, digital asset management and digital securities dealers

■ Digital platforms – payment portals and digital securities exchanges

To ensure a good balance between business operations and market stability, the centre acknowledges the significance of safeguarding DFS operators from cyber threats and disruptions. In response to the escalating risks posed by increased digital and virtual transactions, the centre’s DFS sector is governed by a Digital Governance Framework.

The framework outlines essential regulatory prerequisites for ensuring good governance and effective management of cyber risks. Additionally, the centre’s Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) regulations have undergone further enhancement, incorporating electronic know-your-customer procedures for DFS businesses to observe.

SHARIAH COMPLIANCE

Operational requirements for Labuan digital banks were somewhat relaxed in 2023, with these entities allowed to

continue operating under a temporary regulatory relief framework. This initiative will enable Labuan digital banks to further develop their business models, enhance their customer experience and contribute to the overall financial ecosystem. Some of the measures adopted include reducing the minimal capital requirement for Labuan digital banks from MYR 200 million to MYR 50 million (or its equivalent in any currency) as well as reducing the non-interest security deposit from MYR five million to MYR 2.5 million. Further details can be found here.

Labuan IBFC not only provides conventional and digital financial products and services but also offers a range of Shariah-compliant options. This comprehensive approach is supported by extensive Islamic legislation and a dedicated Shariah Supervisory Council. With a robust infrastructure in place, Labuan IBFC aspires to position itself as a digitally conducive market with Islamic finance capabilities. This entails offering international investors Shariah-compliant frameworks for DFS setups. To bolster its global standing in Islamic finance, Labuan

The Islamic Digital Asset Centre initiative serves as a unique avenue for the global community to engage in digital transactions while adhering to Islamic principles

IBFC plans to harness digital innovations and address environmental, social, and governance (ESG) considerations. In line with these objectives, Labuan FSA recently announced full income tax exemption on Islamic financial structures for five years, starting from 2024.

Labuan FSA was recently honoured with the e-branding award for fintech Islamic financial services by The BrandLaureate BestBrands. This recognition came several months after the regulatory body launched its Islamic Digital Asset Centre (IDAC) initiative. IDAC’s objective is to centralise and establish a secure space for all Islamic digital assets, in line with Shariah principles. The initiative was conceived with the goal of attracting Islamic fintech investors and techno-preneurs to utilise Labuan IBFC as a strategic entry point into Asia.

IDAC offers a distinctive business proposition for investors, providing a Shariah-compliant platform for global transactions within the digital finance landscape. As an alternative to conventional digital finance, IDAC serves as a unique avenue for the global community to engage in digital transactions, while adhering to Islamic principles. A publication on IDAC was released in Q4 2023, offering a detailed summary of the initiative for a broader audience, accessible here.

PRIMED FOR GROWTH

DFS providers in Labuan IBFC have demonstrated remarkable achievements in recent years. These include pioneering activities such as the listing of the first institutional tokenised sukuk, obtaining the first license for a Shariah-compliant ESG digital assets exchange, successful listings involving the digitisation and tokenisation of various assets, as well as being awarded by the ESG Association of Malaysia for the establishment of a carbon credit tokenisation platform.

These groundbreaking initiatives highlight the innovation and success of DFS providers in the centre, contributing to the advancement and recognition of DFS within the global financial landscape.

Having operated for more than three decades, Labuan IBFC has transformed into a robust and dynamic financial centre. Despite encountering numerous challenges and external uncertainties, Labuan IBFC remains Asia’s premier international financial hub.

Post pandemic, Labuan IBFC unveiled its Strategic Roadmap 2022–2026, outlining crucial objectives as a financial hub. These include the continued development of Labuan IBFC's insurance sector, global promotion of its Islamic solutions, and support for niche and emerging segments.

Labuan IBFC remains optimistic about business expansion in its DFS sector, given the immense growth in the digital space due to the unrivalled convenience of conducting digital transactions and payments. The centre is confident that its digital ecosystem provides a comprehensive toolbox that underlines Labuan IBFC’s position as the region’s digital gatekeeper.

■ Author: Labuan IBFC. For more information and updates about Labuan IBFC, follow @LabuanIBFC on LinkedIn or Facebook, or visit www.labuanibfc.com.

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Hype & hope

2023 was indisputably the Year of Generative AI; the year when ChatGPT exploded onto the scene and successfully catapulted the niche AI subsection outside its usual realm of computer science and into almost every conversation.

From individuals to businesses, everyone began to recognise how their worlds could be transformed (or upended) by AI. In fact, the term was mentioned so many times that Collins Dictionary voted ‘AI’ its Word of the Year.

Aware of a hype storm brewing, technology experts such as Edward Achtner, the division head for HSBC’s Office of Applied Artificial Intelligence (OAAI) cautioned for a measured and thoughtful approach to be taken due to the significant risks and the large amount of work still required to get it right. Yet

It’s still a potential gamechanger, but there’s been a more sober discussion around generative AI at the start of 2024. Dan Pears, an advisor with Capgemini, HSBC’s AI chief Edward Achtner and Wei You Pan an expert in FS data platforms for MongoDB, reflect on reaction and reality

conviction that GenAI was ‘the’ ticket to success was at the top of its hype cycle. Conversations on how it could be used to

boost revenue, add capabilities, fix data systems, and improve decision-making dominated boardroom discussions.

Reports from McKinsey, Bain & Company, Accenture and others, all claimed AI would add value of at least $1trillion for banks and financial institutions. Industry magazines were filled with mentions of companies diving into pilot projects. Players of all sizes eagerly backed AI service providers on the stock market and the latest and greatest GenAI startups, who were able to line their coffers with billion dollar raises, despite the global fundraising slump.

In stark contrast, GenAI has had a muted start to 2024, with many pilots being put on hold, and much of yesteryear’s euphoric energy now hardened into recognition that businesses need to slow down and grasp the limitations of this technology appropriately if they hope to become part of the new cohort of firms propelled stratospherically by it.

For those familiar with applied machine learning (ML), large language models (LLMs), and the already extensive use of AI within financial services, like HSBC’s Edward Achtner, the sudden fixation on it as if it were an exotic commodity, was baffling.

“Sure, there was a revolution in some respect over the last 12 to 18 months in terms of the capability and the accessibility of AI, but a new phenomenon it was certainly not,” he says.

“HSBC alone has 1,000 AI applications, with the oldest dating back a decade.”

For Dan Pears who consults with financial and insurance firms as Capgemini’s vice president for insights and data practice, the realisation that the interest had

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ratcheted to an excessive level came when it went from ‘an interesting toy to something front and centre of almost every single conversation I was having with my clients’.

Much of that was down to one product – OpenAI’s ChatGPT. Thanks to the unprecedented levels of media attention on its customer-facing interface and surprisingly human-like output, ChatGPT seeded concern about generative AI eclipsing existing products or services, and motivated executives not just within the IT departments but up and down the chain of command to begin clamouring for an AI implementation agenda.

Unfortunately, the buzz gave a somewhat conflated idea of the technology’s current capabilities, which in turn influenced decision-makers to push on the innovation gas pedal and spend time and capital on projects to transform their company’s data into GenAI… only to realise that 2 + 2 didn’t equal 4 so easily.

According to research by American firm Everest Group on the GenAI pilots of 50 Fortune 500 companies, 90 per cent won’t be moving into production anytime soon, if at all, and frustrations are high. Everest’s research found a huge percentage of companies not only discovered that generative was the wrong technology to address their business need, but that they had better technologies already developed and in place!

Similarly, a chunk of Dan Pears’ client list is made up of teams who inadvertently bit off more than they anticipated.

“One of the two biggest project types that we’re working on at the minute is with clients who finished or have almost finished their first sets of experimentation and are beginning to realise that AI or generative AI is not the expected magic wand,” he says.

“What they’re finding instead, off the back of their first forays into the technology, is that a lot of remediation work is required: they still need to make sure the data is fit for purpose and for consumption, they still need to make sure the governance and lineage is there, and they still need to make sure that their architecture can, in fact, scale to adopt this sort of capability production.

“In short, they realise they have considerable course-correct work to do.”

THE HURDLES TO ADOPTING GENERATIVE AI

With its straightforward ability to learn and execute preset tasks using predetermined algorithms and rules from a closed dataset, traditional AI showed the industry that it could be a fantastically reliable task performer, especially in business areas that need traditional deterministic or predictive models.

In contrast, the freshly emerging generative or ‘creative’ AI does not perform tasks, so much as produce words and images upon a prompt, a capability which it hones by digesting vast datasets in order to learn to identify underlying patterns.

For companies with a long-standing history in AI proficiency, 2023 was focussed on the smart discovery and testing of tools, like Goldman Sachs with its AI-based tool to write code, or Citigroup using GenAI to assess the impact of new US capital rules.

But for those without, their journey more than likely included lessons like learning that generative AI is not a genie-in-a-bottle tool capable of magically organising a company’s data estate into groundbreaking tech for them.

A lot of the challenges that are in generative AI are probably also in traditional AI development

Another, arguably more important lesson was grasping generative AI’s riskier characteristics: like its lack of governance models for output validation, which muddies its reliability, its need to be trained on external Cloud datasets which turns it into a data-leak hazard, and its propensity for generating hallucinations, which it props up with fictionalised sources.

“A lot of the challenges that are in generative AI are probably also in traditional AI development – data quality, volume of data, and so on,” observes Wei You Pan, director of financial industry solutions for developer data platform provider MongoDB. “Also other aspects, like the bias in data, governance, policy.

“The one that is a bit more glaring in generative AI is the issue of hallucination,

whereby the generative AI comes up with answers that seem to be right, but actually may be far from the truth. There are a few techniques that can be applied to deal with that. One that people often talk about is prompt engineering, where you try to give more context to the generative AI model. And if you want to go a bit further, to capture a lot of the relevant data and later supplement this contextual prompting using an approach called retrieval-augmented generation.

“MongoDB, for example, could be applied in this context, because this contextual data could be stored in the database, together with vector embeddings and our new vector indexing and search capabilities, and that could be sent to the various generative AI models through a framework.

“We work with various orchestration frameworks, like LlamaIndex, LangChain, and so on, to help orchestrate this framework in a user-friendly manner.”

The risks associated with GenAI nevertheless make early adoption tricky, especially for industries who, like financial services, need technologies with an exacting level of precision that is predictable, repeatable, reliable, and, additionally, auditable. However, experts are confident that, with continued efforts, generative AI will be able to produce ethical products.

As surmised by Edward Achtner: “It will take time for generative to get there, but at some point in the future, whether it be months or years away, I am confident that it will.”

So, what’s his vision for future GenAI uses in banking, then? Achtner is putting his money on hybrid use cases that will assimilate traditional AI with creative AI to handle tasks containing analytics and hyper-personalised content creation, along with the development of sophisticated ‘co-pilots’, which will work alongside staff members in a supporting role, boosting their efficiency, capacity and capability.

Companies can, of course, turn to third parties to help build their first generative applications – experts like MongoDB, whose general-purpose developer data platform is proving to be a nifty asset for firms hoping to get their foot in the door of GenAI.

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“When trying to build generative or even traditional AI applications, having the ability to leverage an external database like our own can be invaluable,” explains MongoDB’s Wei You Pan, “because it allows for the storage of organised data and skills central to GenAI. To assist, we make a point of adding features like natural language co-pilots, which can be asked to generate visuals, vector reading, and user interfaces that allow developers to issue query languages to the database, using the UI.”

MANAGING AI STRATEGY

According to Dan Pears, the biggest lesson of all is realising that 2024 is the right time to finalise a company’s strategy.

“I believe we are still looking at a three to five-year window before generative will be scaled across the financial services industry, but as the understanding that GenAI doesn’t solve problems that have already existed in getting analytics at scale settles, and the hype fades, firms will realise that generative won’t materialise without a measured approach and strategy.”

Dan Pears’ advice on how to do this is simple. “Whatever the size of organisation, take a step back to think clearly about the continuum of innovation from proof of concepts and production, and, secondly,

I believe we are still looking at a threeto five-year window before generative AI will be scaled across the financial services industry
Dan Pears, Capgemini

think on a company’s risk profile and its attitude to innovation. The firm’s appetite for change, and for the cost of that change, are extremely important because they are going to be at the centre of this technology, a source of contention, and a determinant of what will move forward.”

Pears also recommends drilling out the answers to questions like ‘what problem is the business trying to tackle? Who is the primary consumer of the technology? Which business process will host that AI technique? How will the impact of implementing the technology be measured? How will the value of the technology be monitored and maintained? What will be the total cost for the innovation? And how much are we willing to pay for this technology?’.

In tandem, HSBC’s Edward Achtner also urges companies to prepare the workforce for a generative future.

“The education of employees is among the most important elements of an engagement strategy, so that they’re not only comfortable but can really embrace generative as a means of helping them be their absolute best within their personal and professional development,” he says.

“We’ve done three things around that. One is to have published the HSBC AI and Big Data Standards and Principles, for not only our employees, but the world to see. Two, we’ve launched bank AI literacy programmes to train technologists and non-technologists alike on responsible and ethical AI product development. And third, to rise to the incredible demand that we’re getting from our clients, as well as our teammates, we now have an accredited AI ambassador programme.”

Wei You Pan completely agrees that non-IT users need to be trained ‘to

understand that not everything produced by a generative AI model is accurate’.

“The workforce needs to have the expertise to see what could be wrong –be it an error, a bias, or a discrepancy in policies, regulation, or compliance – and know what to do next to ensure business success,” he says. “If you rely on a machine to automate this process, without a human to inspect the results, I think we could be faced with quite terrible results, that could result in non-compliance. People need to have the expertise to see what could be wrong, and maybe have a framework to feed this back. They need to be trained in

The education of employees is among the most important elements of an engagement strategy, so [they] can really embrace generative AI as a means of helping them be their absolute best
Edward Achtner, HSBC

policies and regulatory compliance education, so that they could use the results in a way that is fair and compliant.”

“Our relationship with GenAI will be one of augmentation by nature,” suggests Dan Pears, “with a verification step that is altogether different from the traditional definitions of verification at work but being applied in domains everywhere as we speak.

“As an organisation that has worked in this field for some time, even we are still coming to grips with how this defines and changes the way we operate with clients. But I also believe that’s part of GenAI’s magic.”

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FINTECH M A G A Z I N E
The ABC of AI: Staff need to learn it’s a co-pilot, not the captain

A FINTECH M A G A Z I N E

happy solution?:

mindful of consumer concerns, NatWest is embracing the opportunities that AI provides

Thanks to ChatGPT and Bard, consumers are more familiar with – and perhaps more concerned about – this generation of AI than any previous iteration. That means banks have to tread a very careful path, says NatWest’s Jonathan Hall

The institutions we trust with our finances had their technology toolboxes filled long ago with AI and its subsets, including machine learning (ML) and deep learning (DL). And, on the whole, there has been little consumer interest in how those technologies were applied in banking.

We’ve simply been happy to benefit from the results, with faster credit decisions, helpful budgeting apps and personalised offers and pricing.

Generative AI is a little different. The public has come to know a lot about that in the past 18 months – and not all of it

good. How therefore should banks approach it?

Take UK banking giant NatWest. It recently announced a collaboration with global technology developer IBM using generative AI to develop Cora+, a substantially upgraded version of the virtual assistant many of its customers are already familiar with. With a GenAI reboot in the background, Cora is now designed to respond more accurately to customer inquiries.

– to drive towards its goal of helping 10 million people manage their financial wellbeing by the end of 2027.

“We already deploy AI right across front, middle, and back office, in a whole range of use cases,” says Jonathan Hall, NatWest’s head of digital for commercial and institutional business. But it will act with caution as this new, improved version with its apparently limitless applications fast develops, he adds.

As with any AI, Hall says, the use case is not the constraining factor. “It’s about an organisation’s aptitude for the technology, it’s the capacity to then deploy it, and its risk appetite to do so.”

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Whilst
NatWest is also expanding its partnership with Amazon Web Services (AWS) to accelerate the use of AI –including AWS’s generative AI solutions TheFintechMagazine | Issue 31 ffnews.com

The areas where artificial intelligence in all its forms can most help the bank and its customers remain the same.

“One is personalisation, and how we can deploy for customers, to really give that relevant, hyper-personalised experience,” says Hall. “The second is around protection. That largely is about how can we improve our risk management capabilities: we can get more predictive, in terms of some of our forward-looking risk assumptions.

“The third area is around ops, just increasing optimisation and digitisation, efficiencies, reducing cost.

“Then the final one is around workforce augmentation and knowledge; how we, internally, can deploy AI. Because we’ve so much data, spread across so many different franchises, pooling some of that, and making it really accessible for some of our teams, is also just a huge, huge opportunity for us.

“So, AI and GenAI is exciting, but we’re taking an approach that I’d describe as mindful innovation with safe exploration. We are going to be very diligent and choosy about where we play in this space.”

The bank certainly isn’t ready to let GenAI operate with any degree of autonomy.

“The majority of the things that we’re looking at with the new technology we term ‘co-pilot’,” says Hall. “That’s a less risky way for us to deploy this. That means it’s not direct to customers. We will deploy it side by side with a relationship manager, or a web chat agent, or a telephony handler, so it will actually draw information forward as it analyses a web chat in real-time, for example. That will help speed up interactions with customers, and then we can test the outcomes with our specialists.”

So where does Hall see AI making a difference in core banking tasks like, say, ensuring the accuracy of collateral valuations or in risk management?

“Traditionally, what you’ll find in banks is that the credit processes don’t talk to each other,” says Hall. “We might do some scoring up front, but then we might hold the security for customers on a different platform. And while we might have some very good descriptors about what security we hold against those loans, using AI, we can pull in different data

sources, use the unstructured to structured type principles that this technology provides, to give us much better real-time valuations and assessments. That means a customer may be able to draw down further against that security. It might also have an impact in the back office on our risk-weighted assets – how, for instance, commercial real estate valuations are changing over time.”

When it comes to risk management, ‘the move from static to real-time early warning indicator systems is really what the opportunity is‘ continues Hall.

“As these systems can pull in lots of different data, you can imagine dashboards that could change, red, amber, green, on certain parameters. We have some of that stuff deployed in certain areas. Is it pervasive across the whole risk management framework? Not yet. But I can absolutely see an environment in which we end up in that position.”

Ensuring the integrity of data that is being compiled from a vast array of structured and unstructured sources is,

WE’RE TAKING AN APPROACH WHICH I’D DESCRIBE AS MINDFUL INNOVATION WITH SAFE EXPLORATION. WE ARE GOING TO BE VERY DILIGENT AND CHOOSY ABOUT WHERE WE PLAY IN THIS SPACE

of course, paramount for any business. And it’s an area that Hall says has been revolutionised since the early days of databases when the industry adage was ‘garbage in, garbage out’.

“There are programmes now which can clean up data for you, as it goes through. So, for example, it can identify where there are duplications, it can identify trends, and where there are particular datapoints that sit outside of those trends,” he says. “So, actually, the coin has completely been flipped, in that respect.

“However, there’s a kind of further consideration, which is, as the technology is increasing in complexity, and is advancing, then, as a bank, we need to ensure that the models are transparent.”

Another key use area for AI in financial institutions is in the constant battle to combat fraud. AI can help identify fraud via transactions and/or movements in a

vast ocean of data by detecting and flagging unusual patterns. Machine learning can therefore train AIs to become the bloodhounds of the global financial streams.

Hall acknowledges that NatWest is keenly aware of the issue, for which it calls on third-party specialist help.

Continuing, he says: “We have got to continue to upgrade all of our systems, and help protect our customers, so we’re constantly scanning the market to see what the best-in-class opportunities are. We absolutely need third parties to help us solve some of these problems.”

A further area getting close attention from all who use AI in customer-facing industries is how to comply with the UK’s recently introduced Consumer Duty regulation, which stipulates that firms must design products and services that aim to secure good consumer outcomes.

Interestingly, Hall makes the case that AI can be used to ‘self-police’ products to ensure they comply with Consumer Duty.

Explaining the process in detail, he says: “We can start deploying this technology to look at far bigger datasets than humans would be able to get through. But we can also bring in customer feedback. We can take transcripts of calls, etc, and then analyse those to get a real sentiment, to make sure, number one, that the customer has been able to make an informed choice, that our due process and frameworks have been followed, and we can then combine it with the data from the output to make sure the customer has gone on and used that product as it’s been designed.

“There’s a whole range of examples and use cases where we can start deploying some of these technologies to evidence that we are being compliant.”

For now, though, the closest NatWest customers will come to experiencing generative AI is with the new Cora.

“We’ve created a closed large language model, based on our website, and some other information,” explains Hall. “So, instead of having to search through pages, a customer can, in a very conversational way and with a prompt – which we’re probably all used to now, by working with ChatGPT or Bard – have Cora pull it forward for them in a much more efficient way. That’s very exciting.”

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Claiming the high ground

Cynergy Bank has been clear that any investment in digital technology is for one purpose only: to free up staff to make a difference to SMEs. Rana Bhattacharya tells us about its journey

When Cynergy Bank opened its new HQ on Ludgate Hill – the highest point in the City of London, overlooking St Paul’s Cathedral – and immediately began blitzing more than 200 billboards in St Paul’s Underground station with its adverts for small business banking, there was a sense that something subversive was happening.

London’s Square Mile is famous, after all, for its global financial institutions and their corporate mega deals. A typical deal for Cynergy was the £2.25million loan it had announced the month before for Sheyenne Ltd, a firm that runs two self-storage facilities in Devon. It was no doubt transformative for the company, but it would never have made the City pages of The London Evening Standard.

It’s the country’s 5.6 million smaller firms, though, who make up 99 per cent of the UK business population and create half of private sector turnover, according to Federation of Small Businesses data.

And they rarely get the recognition they deserve, much less the banking services.

So, when Cynergy planted its flag on Ludgate Hill in December, it was a statement of intent: to put the interests of the economy’s unsung heroes on the map as well as give them access to the same focussed and expert level of financial services as the corporates enjoy.

Since its creation following a £103million consortium takeover of Bank of Cyprus’ UK operations in 2018, Cynergy has undergone a programme of modernisation to keep pace with digital change. It struck tech partnerships with firms such as Wipro and Google Cloud to ensure it could compete on speed and user experience with online-only neobanks. But, importantly, the technology was ever only deployed in the service of the bank’s most important assets – that is, its customer relationship managers.

The bank’s chief digital and information officer Rana Bhattacharya says: “We aim to be the ‘human digital bank’, so we are

data-driven, efficient, but with relationship managers that our clients can call upon.”

It wanted to completely reverse the ratio of time they spent in front of customers and time spent managing internal systems at the bank – from 20:80 to 80:20 – and it’s well on the way to achieving it with the help of AI and other technology. And it hopes that will persuade more SMEs to join it, because a vanishingly small number currently switch accounts from the high street giants. In fact, an industry survey in January revealed that SME switching was at an all-time low since the UK’s Current Account Switch Service began in 2013 –only used by 0.5 per cent of firms a year.

That seems to scream in the face of evidence that, of the £275billion SME cash held on deposit by British banks, £150billion was earning no interest at all in 2023, while the rest accrued £7.5billion less than big firms might have enjoyed. That was attributed to a lack of skills and confidence to negotiate among SMEs or just a lack of time to shop around.

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Cynergy, meanwhile, is consistently in the top three for offering the highest variable-rate, easy-access business saver accounts, and for paying interest on deposits of up to £25,000 held in its £25-a-month business current account.

The bank is focussed on property finance, SME business finance and private banking, but its headline-grabbing best-buy savings products have won it fans among savvy consumers, too.

In the last 12 months, it’s picked up a string of awards, including Best Online Savings Provider at the Personal Finance Awards, Best SME Specialist Banking & Business Services Provider at the SME New UK Enterprise Awards, and Best Variable Rate ISA Provider for the fifth year

it can be applied to a multitude of tasks for a bank.”

Those tasks aren’t unique to the banking industry, but they can nevertheless improve a bank’s internal processes, so staff can get on with providing exemplary customer service.

“For instance, as part of improving staff productivity, we have used AI for our human resources team to free HR colleagues from answering repetitive questions from staff so they can do higher-value work,” says Bhattacharya.

“Questions such as ‘how many holidays do I have?’ are answered in policy documents, so we have worked with Google to ingest such information and provide a natural language interface, so

running at the Moneynet.co.uk awards.

Last summer, Cynergy’s growth plans were boosted when it secured £20million of Tier 2 capital funding from British Business Investments, a subsidiary of the British Business Bank. Hailed as a milestone investment at the time by chief executive Nick Fahy, Cynergy plans to use it to provide at least £250million of additional lending for its SME and property entrepreneur customers.

“We don’t do the typical high street lending,” explains Bhattacharya. “We look at more complex lending, and we aim to turn that around very quickly.

“Importantly, we genuinely care about our customers, and we don’t necessarily use a computer to decide whether we’re going to take a deal or not. But AI is certainly a productivity tool for us and

now, if one of our colleagues has a question, they first go to that interface, and if they don’t get the response they need, they can ask an HR colleague.”

governance and control must sit with colleagues who make the key decisions.

“And whatever a bank does has to be explainable, and a concern I have with continuous learning models is that they may give answer ‘A’ on one day, and give answer ‘B’ to the same question the next because it has subsequently learned. How do you explain or navigate that?”

Much of Cynergy’s digitisation has been handled by technology provider Wipro. And Bhattacharya says its partnership with Google has also proved crucial.

He says: “A lot of organisations will choose a provider that can provide frameworks and models that work as accelerators. With Google, we also have access to people who know the frameworks and tools that can help us on our journey.

“Ultimately, we’re looking at it from a perspective of ‘are there deliverables that we could automatically create, where we have the data, we have the inputs, that take effort away from colleagues?’.”

In the banking space, AI has an obvious and ever-increasing role in customer contact centre assistance, as well as in due diligence work, reconciliation and in spotting fraud.

“However, the more heavily you use AI in your business, you might find anomalies that could significantly impact your business,” observes Bhattacharya.

“So, firms need to enforce a regime of regular testing and surveillance to ensure

These tools will remove the minutiae of laborious administrative activities so we can focus on our customers

Cynergy’s digital transformation has included developing a loosely coupled IT architecture so it can now plug-and-play partners’ products.

“What we ask ourselves is ‘how do we make our colleagues more productive?’,” says Bhattacharya. And while that absolutely could mean using AI in guiding them on a lending decision, ‘we’re conscious that using it brings both positives and negatives’, he adds.

“From a regulatory and compliance perspective, automation can be employed to provide guidance to both customers and colleagues within the bank, but the

what they are using is still fit for purpose, as they commissioned it.

“Let’s not forget, AI is processing data, and within Europe, we’ve got some of the strongest legislation, so an organisation really needs to understand where its data is going, how it’s being used, who owns it, who owns the outputs of the insights that are coming from an AI.

“Nevertheless, in our drive to be the human digital bank, AI will be used to ensure we are data-driven and efficient. These tools will remove the minutiae of laborious administrative activities so we can focus on our customers.”

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The human touch: Technology allows Cynergy to better serve SME customers

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