Financial IT Winter Edition 2023

www.financialit.net • Winter Issue • 2023

STAY AHEAD OF THE CURVE: TOP 3 BANKING TECHNOLOGY TRENDS TO WATCH IN 2024 Michael Heffner, Vice President, Solutions and Industry Go To Market, Appian Corporation

BANK-FINTECH PARTNERSHIPS CAN SHAPE THE FUTURE OF CROSS-BORDER PAYMENTS Steve Naudé, Head, Wise Platform

THE YEAR AHEAD: PREDICTIONS FOR 2024 Rene Siegl, Co-founder and Executive Chairman, IXOPAY

Andy Schmidt, Vice-President and Global Industry Lead, Banking, CGI

THE THE BIG BIG PICTURE PICTURE IN IN GLOBAL GLOBAL BANKING BANKING AS 2024 APPROACHES, WHAT ARE THE TRENDS THAT REALLY MATTER?

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Featured Story

THE PAYMENTS BANK FOR THE NEW ECONOMY

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Winter Issue • 2023

Featured Story

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Editor's Letter

AIRBORNE (SIC)

2023 WAS THE YEAR IN WHICH GENERATIVE ARTIFICIAL INTELLIGENCE (AI) TOOK OFF. WHERE MIGHT IT BE HEADED OVER THE NEXT THREE YEARS? At the intersection of financial services and technology, there are always large and rapid changes. However, they almost never have a direct impact on all the protagonists.

ISO20022, for instance, provides a new language for banks and fintechs that are involved in payments: however, it is not something that the banks’ and fintechs’ clients need to worry about much. The European Union’s Digital Operational Resilience Act (DORA) implies costs and benefits for financial institutions in much of the world: nevertheless, it does not

Andrew Hutchings, Editor-In-Chief, Financial IT

really affect the day-to-day operations of most specialised fintechs. The same is true of Open Banking.

AI, though, is different. For years prior to 2023, predictive AI – which uses data from the past to predict the future – has provided opportunities for some financial institutions and fintechs. 2023 saw the emergence of generative AI, which can create new and original content. What really matters is that generative AI will – one way or another – have an impact on all organisations: for this reason, its arrival is probably the biggest change to have taken place since the inauguration of Financial IT in late 2012.

Unsurprisingly, many of the contributors to this edition of Financial IT have devoted their articles to the prospects for generative AI as they look forward to 2024 and subsequent years. In no particular order, their opinions include the following: • ‘AI-powered decisioning complete with case management, data, and insights provides the foundation for more accurate, automated risk decisions across the entire customer life cycle – enabling a superior customer experience and allowing financial institutions to maximise the lifetime value or customer relationships.’

• ‘Banks know that AI offers the potential for improved customer service. They see it as a source of more and better insights.

They want the benefits that come from greater automation.’

• ‘The lending industry to date has been impacted much more by predictive AI

than generative AI. That means there’s a greenfield opportunity to be among the first to deliver significant generative AI-driven enhancements within the loan servicing space.’

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Winter Issue • 2023

• ‘A strong AI strategy combined with data and process automation is how you’ll succeed in 2024.’

• ‘The CEO of a Dutch compliance tech firm recently put it nicely when he described AI as a “co-pilot”. In the financial services context, this means aiding fraud teams by speeding up fact-finding and strategy, rather than replacing people power. …

Where generative AI will add significant value is in providing enhanced insight as to why cases have been referred (for example generating contextual notes that aid streamlined working) and suggesting potential investigative paths based on each specific case.’

• ‘The exciting thing about AI is that no-one can perfectly predict its future impacts.

That’s why it’s vital for lenders and service providers alike to stay adaptive – ready to respond to and capitalise on the opportunities that present themselves as the pace of innovation continues to increase.’

It remains to be seen whether there are as many use cases for generative AI over the next year as our contributors seem to expect. It is possible that 2024 brings far more talk than action. Nevertheless, it is a very safe bet that generative AI will have had a transformative effect by the end of 2026.

Over the next three years, it is also certain that all protagonists will gain a much clearer understanding of the limitations of generative AI. It has the capacity to be used for ill as well as for good. Its output is only as good as the data that is supporting it. Humans will continue to play a key role in determining the flight trajectory. In these respects, generative AI is like any aircraft that is based on very new technology.

Andrew Hutchings, Editor-in-Chief, Financial IT

Although Financial IT has made every effort to ensure the accuracy of this publication, neither it nor any contributor can accept any legal responsibility whatsoever for consequences that may arise from errors or omissions or any opinions or advice given.

This publication is not a substitute for professional advice on a specific transaction.

No part of this publication may be reproduced, in whole or in part, without written permission from the publisher.

Entire contents copyrighted. Financial IT is a Finnet Limited publication.

ISSN 2050-9855 Finnet Limited 137 Blackstock Road, London, N4 2JW, United Kingdom +44 (0) 208 819 32 53 Editor-In-Chief Andrew Hutchings andrew.hutchings@financialit.net Publisher Chris Principe chris.principe@financialit.net Managing Director Eddie Heaton eddie.heaton@financialit.net Business Development Manager Katherine Emirosan kemirosan@financialit.net Research Abdu Turdialiyev Jamshid Samatov Production/Design Timur Urmanov PM & Marketing Nilyufar Sodikova nilyufar.sodikova@financialit.net Founder Muzaffar Karabaev

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Founder’s Letter

REFLECTING ON 2023 AND LOOKING AHEAD Fintech in 2023: Balloon, Bubble or New Normal?

Over the last decade or so, fintech has exploded onto the scene, revolutionising the financial services industry as we know it. A recent report from the The Boston Consulting Group’s report stated, quite rightly, that the sector has been fuelled by various innovations that have shaped a generation. However, fintech has faced challenges over the last two years – with the impact greatest on smaller start-ups.

Throughout 2023 especially, there was a notable adjustment in fintech valuations. On average, valuations dropped by approximately 45%, a significant shift reflecting changing market dynamics and investor expectations. This adjustment was even more pronounced among earlystage fintech startups, some of which experienced valuation declines of up to 75%, forcing many to shut down. This stark reality has been a wake-up call for the industry, highlighting the need for sustainable growth strategies and achieving profitability.

These are hard times for fundraising rounds and valuations. According to Venture capital firm Atomico, investments into European tech startups are on track to fall another 39% this year, from $83 billion in 2022 to $51 billion in 2023. I suspect fintech-only numbers are even worse for early-stage startups. CNBC reported that Revolut had its valuation cut by shareholder Schroders Capital by 46%, implying a $15 billion markdown from its $33 billion valuation, according to a filing. Atom Bank,

Muzaffar Karabaev, Founder, Financial IT

a U.K. challenger bank, had its valuation marked down 31% by Schroders. The valuation troubles of Klarna have also been well publicized.

Despite these valuation adjustments and the challenges they brought, there are reasons for optimism. As the year draws to a close, we're witnessing a resurgence in stock market levels, which are approaching near-peak figures again. This rebound is a positive indicator, suggesting potential recovery and renewed investor confidence, with some exits on the horizon. However, Indices are a bit misleading because the brunt of the gain is due to mega- market cap players, particularly the likes of FAANG stocks, Visa, Mastercard and Nvidia.

However, recent developments can be seen as a sign of industry maturity – rather than anything more ominous.

Nevertheless, we should not assume it will be plain sailing in terms of public market listings for fintechs. For example, London’s most prominent IPO of the year, CAB Payments, saw its shares collapse by over 50 percent, with many new listings in the US trading well below 30-40% from their initial public offering prices. As much as I'd like to sound optimistic, these listing flops will likely continue to test IPO valuations to new lows in 2024. Stripe’s long-awaited listing is being delayed, likely because the founders are holding out for far more than their $50 billion valuation. They can afford to wait as long as they can turn a profit in 2023 and thus avoid the need to raise cash or cash out. Rumours of BNPL giant Klarna planning to list in London have been circulating, as its board established a Back to the Table of Contents

Spring Issue • FinovateEurope 2023

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Publisher’s Letter

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Founder’s Letter

new holding company in the UK as part of its preparations for a potential blockbuster IPO. These reductions in valuations and share prices also present a great opportunity for existing major financial services firms, especially in the M&A space. If traditional players continue to be slow movers, fintech firms should consider merging with their struggling peers. Recent research by financial software provider Finastra suggests that banks, in particular, will turn to fintechs to foster growth. Its poll of almost 750 banking leaders worldwide found that 56% of respondents want to make use of a network of integrated fintech solutions, with only 6% preferring to build functionality in-house. About 75% of banks plan to engage with an average of three fintechs over the next 12 to 18 months. The timing couldn't be better to do deals.

Potential for "WeWork" Style Closures?

We must not forget that, even though many fintech companies have attractive valuations, most are operationally lossmaking. The question on many minds is whether the fintech sector will experience a situation similar to WeWork's high-profile shutdown. The possibility of overvalued fintech startups facing a reality check could lead to more market corrections. In the UK alone, we have seen Fronted, Koyo, and Cardeo shut down, to name a few. US-based Ness closed its doors just a few days ago.

For me, the most notable shutdown was in Africa recently. Dash, a prominent Ghanabased payment startup, closed after burning through US$86 million of investors’ cash!

Let's hope we avoid further shutdowns and instead see faster deal-making, exemplified

by GoHenry's acquisition by Acorn in the US.

Will Crypto Recover Somehow in 2023?

There are indications that the US government is poised to adopt a more

welcoming stance towards the crypto space. Asset management titan BlackRrock is hopeful that the Securities and Exchange Commission will soon approve a spot bitcoin ETF, allowing investors to gain exposure to the cryptocurrency without having to own it directly. Grayscale Investments is also pushing for the SEC to approve the conversion of its bitcoin trust into a spot bitcoin ETF following a favorable August decision by the US court.

However, there are still plenty of reasons for investors to be cautious. The SEC has several lawsuits pending against some of the biggest names in the industry, including Binance and Coinbase, as it tries to force more players to register with the regulatory agency and classify digital assets as securities. Binance's settlement helps clear the way, and there are signs to be optimistic about it. With digital currencies becoming more mainstream and institutional players entering the space, regulations and enforcement are likely to become stricter to ensure compliance and consumer protection. I’d add that there is one buzzword that is heard far less around the world of fintech than it used to be: that word is … Blockchain

Will AI Be a Game Changer in Fintech?

Given that ChatGPT has become a mainstream AI household name in 2023, the recent buzz around AI is understandable. I am also keen to see how Inflection’s Pi.ai, with its whopping $1.3 billion fundraising, will make the buzz louder! AI has been used in fintech for some time, mainly for real-time fraud detection, credit scoring, and underwriting.

In my view, it’s not a silver bullet and won’t be a massive game changer in the near term. It also depends on how large hosting infrastructure providers such as Microsoft, Google, and Amazon allow their AI/ML tool integrations to startups on their platforms. Let's not forget that financial products are highly

regulated, and these new Large Language Models (LLMs) are not easily explainable, presenting a challenge in their application.

If an AI model cannot explain why one customer was granted a bank account while another was not, it could lead to significant problems.

As Open Banking requires financial institutions to make their banking data available to all, this presents significant opportunities for start-ups to process massively unstructured data to develop game-changing products: in-particular, these include AI solutions that benefit consumers from discrimination and compliance perspectives.

Looking Forward Will Elon Musk's X become a fintech entrant in 2024? Is Meta/WhatsApp gearing up to join the Fintech and Payments party, all while helping merchants cut transaction costs? Will outof-fashion PayPal go for the acquisition of a lower-cost provider in the payment space and shake up the competition again?

What about the prospects of Monzo's new fundraising (rumored to be from Google) or will there be a major fintech to fintech merger? Neobank profits will increase and may end up blending in and competing with high street banks, or will there be a merger between a traditional bank acquiring a digital one? Will Revolut obtain a banking licence from the elusive UK regulator, despite being a fantastic product and having the largest customer base in Europe? I am eagerly anticipating Stripe and Klarna’s exits, which I believe will ignite more funding confidence in our space. However, we cannot forget that the fintech space is overcrowded, and there will likely be more consolidation and shutdowns in the future.

Ah, the Visa and Mastercard tag team – the dynamic duo of the payment universe. Can anyone break their duopoly to cut merchant fees for SMEs completely bypassing them?…

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Winter Issue • 2023

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Featured Story

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Contents

FOUNDER’S LETTER

EDITOR'S LETTER 2

AIRBORNE (SIC)

Andrew Hutchings, Editor-In-Chief, Financial IT

COVER STORY

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REFLECTING ON 2023 AND LOOKING AHEAD Muzaffar Karabaev, Founder, Financial IT

LEAD STORY 14 STAY AHEAD OF THE CURVE: TOP 3 BANKING TECHNOLOGY TRENDS TO WATCH IN 2024 Michael Heffner, Vice President, Solutions and Industry Go To Market, Appian Corporation

16 BANK-FINTECH ARTNERSHIPS CAN SHAPE THE FUTURE OF CROSS-BORDER PAYMENTS Steve Naudé, Head, Wise Platform

18 THE YEAR AHEAD: PREDICTIONS FOR 2024 10 THE BIG PICTURE IN GLOBAL BANKING Andy Schmidt, Vice President & Global Industry Lead, Banking, CGI

Rene Siegl, Co-founder and Executive Chairman, IXOPAY

FEATURED STORY 20 THE YEAR AHEAD: PREDICTIONS FOR 2024 FROM ANDREW RIABCHUK, THE FOUNDER OF AKURATECO Andrew Riabchuk, Founder, Akurateco

24 FUNDING INSIGHTS AND PAYMENTS MODERNIZATION STRATEGIES Vijay Oddiraju, CEO and Co-Founder, Volante Technologies

28 STRUCTURAL MARKET SHIFTS IN FINANCE ARE DRIVING INNOVATION Cengiz Kiamil, VP Market Development, Fenergo

30 LEVERAGING AI TO POWER MORE PERSONALIZED AND PROFITABLE CUSTOMER RELATIONSHIPS Kathy Stares, Executive Vice President of North America, Provenir

32 PUTTING MONEY BACK INTO CUSTOMERS’ POCKETS …AND ENCOURAGING CHANGE FOR GOOD Andrea De Gottardo, CEO, Kroo

36 AI’S IMPACT ON LENDING Eddie Oistacher, CEO and Co-Founder, Peach Finance

38 IS AI FRIEND OR FOE WHEN IT COMES TO FINANCIAL FRAUD? Rob Bevington, Head of Data Science, Synectics Solutions

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Andy Schmidt, Vice-President and Global Industry Lead, Banking, CGI

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Cover Story

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THE BIG PICTURE IN GLOBAL BANKING AS 2024 APPROACHES, WHAT ARE THE TRENDS THAT REALLY MATTER?

An interview with Andy Schmidt, Vice-President and Global Industry Lead, Banking at CGI Financial IT: Andy, if you asked me to name just one topic from the global banking sector that has featured very prominently in Financial IT magazine over the last three years, Open Banking would probably be the first to come to mind. The European Union’s Second Payments Services Directive (PSD2) is well established. As 2024 approaches, it is worth considering what is the state of play with Open Banking. Put another way: at a time that many organisations are talking the talk, who is actually walking the walk?

Andy Schmidt: There is still a lot of potential to be realised with Open Banking. It is vitally important to many banks and fintechs. However, a lot of banks have higher priorities at the moment – such as the state of the US and global economies and the everchanging regulatory environment.

Moreover, having a regulator telling you that you can – or should – do something is emphatically not the same as actually doing it. Open Banking is a great idea. In practice, many banks are still working on the privacy and security issues that are involved with making client data available to third parties.

So, who is actually walking the walk?

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I would highlight the organisations that are encouraging the growth of Open Ecosystems that can safely connect banks with partners with end clients. These are the companies that are solving the problems and that are providing use cases.

A good example is the UK’s Open Banking Exchange, which CGI is working with.

last decade or so, high – and rising – that is much more important for corporate clients than previously.

There are other players who really are walking the walk. Capital One, Wells Fargo and J.P. Morgan, for instance, are leaders in terms of their investment in research.

Financial IT: Thank you. Arguably the top topic in the last 12 months has been artificial intelligence (AI). What’s the state of play there? Who’s actually walking the walk?

Andy Schmidt: A lot of people forget that AI has been a key feature of global banking for a long time. Banks have used chatbots in their conversations with individual clients for over five years. Fuzzy logic has been employed to identify suspect transactions and to reduce financial crime for a lot longer than that.

Of course, the emphasis has shifted.

Banks now see AI as something that can automate routine tasks and/or to get valuable insights. For example, Citi and Singapore’s DBS are seeking insights that will help their clients with liquidity and cash management. At a time when interest rates are, by the standards of the

Financial IT: Technology determines the future prospects of banks. However, other things can matter more in the here and now. What is your take on the brutal rise in official interest rates that have taken place over the last 18-24 months?

Andy Schmidt: In a lot of the world, this has been good news for the banks.

Higher lending rates have boosted net interest margins (NIMs) for many of the institutions. This is because the rates paid by the banks to depositors have not increased by nearly as much – if at all: this is something that some regulators are looking to change.

What is important, though, is that the day of reckoning from higher rates has yet to arrive. In Canada – for instance – and a lot of other countries, certificates of deposit and fixed-rate mortgages which date back to the era of ultra-

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Cover Story

low interest rates have yet to mature.

When they are (or are not) rolled over at substantially higher rates, it will become clearer what is the impact of this truly massive shift.

Finally, I would add that tightening of monetary policy – in response to actual inflation, expected inflation and other factors – usually requires some time to have an impact. It may well be years before the global financial system regains equilibrium.

Financial IT: Of course it’s not just official and lending rates that have gone up.

There has also been a brutal rise in bond yields too. What, in your view, is the effect of that?

Andy Schmidt: Obviously this is something that banks’ risk management teams have been looking at for some time. I believe and hope that they have appropriate strategies in place.

Financial IT: Where does the EU’s Digital Operational Resilience Act (DORA) fit into all this?

Andy Schmidt: DORA is positive for three reasons. First, it formalises and provides a regulatory basis for what many institutions are doing anyway.

Second, it further encourages the use of cloud-based solutions. Third, it will have a global impact because of the links that

many large EU-based institutions have in other parts of the world.

I would add that some institutions have achieved amazing levels of operational resilience already. One Canadian bank that we work with experienced a complete outage at its main cloud-based services provider. It switched to its alternative cloud-based services provider and was completely online – with total synchronisation of data – in just 12 minutes. Half of that time was taken up by a conversation with the regulator in relation to how it proposed to solve the problem.

Financial IT: It looks as if DORA is another change to industry-wide regulations and standards that is – whatever they may say in public – good news for large and established players.

Andy Schmidt: I would put it slightly differently. I’d say that changes to regulations and standards generally improve the competitive edge of existing players.

In addition, I’d note that it usually takes some time for the changes to have a full effect after they are introduced.

ISO 20022 is a good example of this.

Many people had been looking for an industry-wide standard for a long time.

However, even now it is not used or interpreted in a completely consistent

manner, globally. There is something like a global language, but we are a long way from a global accent: that can give rise to misunderstandings. Fortunately, the Bank of International Settlements (BIS) is working to improve the linguistic harmony.

Financial IT: If you had to highlight just one thing to watch in the global banking industry in 2024, what would that be?

Andy Schmidt: In two words, my answer would be: generative AI. Banks know that it offers the potential for improved customer service. They see it as a source of more and better insights. They want the benefits that come from greater automation.

However, they are also dealing with the question of how to use generative AI responsibly. It needs to be used for good, benefiting customers and society, as well as the institution.

Watch that space…

Financial IT: Thank you.

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Lead Story

STAY AHEAD OF THE CURVE: TOP 3 BANKING TECHNOLOGY TRENDS TO WATCH IN 2024 Did you make it to this year’s Sibos conference in Toronto? As the world’s premier financial services event, Sibos is one of the best places to take in advice and predictions from expert – even prescient – leaders in the industry. So, what did some of the most trusted voices in finserv have to say about what we should expect in 2024?

Here are the highlights.

The combination of high interest rates, high inflation, and increased economic uncertainty means banking leaders in the financial services industry have had to narrow their focus to their most core concerns. Many are aiming to improve operational cost effectiveness, reduce risk when it comes to regulatory compliance, and keep their customers happy with excellent service.

Technological advancements will have a big impact on the future of banking and the banking landscape as a whole. Banks that adopt artificial intelligence (AI) and other advanced technologies will be able to adapt to changes in the financial industry more easily than those that dismiss them as optional.

Here are three key banking technology trends covered at this year's Sibos conference that are on the rise in the financial services industry.

Trend 1: AI will continue to change banking technology for years to come.

It may seem like artificial intelligence has become the hot topic of the day, but it's not a trend that's going away any time soon. AI has the power to transform the banking industry when it comes to risk management, operational efficiency, customer experience, and more. Digital transformation with a good AI strategy will equip financial services organizations that embrace it to become more agile as the financial landscape changes.

AI use cases in the financial services sector.

Regulatory risk and compliance: Artificial intelligence can discern patterns and behavior to identify risks early. By analyzing historical data and predicting future scenarios, banks can assess market risk, credit risk, and operational risk and make their risk mitigation efforts more effective.

Customer service: Customer satisfaction and customer retention in the banking industry are of utmost concern. When you combine AI technology like chatbots with employees working

to solve the critical problems that customers face, you're able to improve outcomes and better engage people with personalized experiences. Additionally, AI customer service offerings provide further data analytics on customer behavior, which improves service offerings and marketing efforts.

Operational efficiency: AI can automate mundane, routine tasks to help save time and create operational efficiencies. It has the ability to analyze data and information faster and more accurately than humans can, which improves the visibility within an organization so leaders can make better decisions, faster.

Trend 2: Data is king and key to making the most of AI technology.

At Sibos 2023, it was clear generative AI had captured the attention of financial services leaders. But amidst the buzz, it's easy to forget that AI is nothing without good data.

One of the top trends we saw at the conference was a focus on that data. Many traditional banks and financial institutions are still using spreadsheets created and maintained by humans, which increases the potential for human error and risk.

Connect your data.

Siloed data results in a narrow perspective and an incomplete view.

Wherever possible, connect data across disparate systems to create a unified view and harness its full potential. This not only enhances AI automation, but it also ensures everyone who needs to access it within your organization has the most accurate information.

For large banks, this has been a challenge. Technology that makes use of data fabric can help. A data fabric helps you work with data in a virtual architecture so you don't have to migrate it from one platform to another to use it. With a data fabric, it’s as if all your data is connected, no matter where it lives.

Maintain the integrity of your data.

If your data isn't of good quality – meaning as complete and accurate as possible – the technology that relies on it won't work.

Bad data can also lead to bad business decisions, regulatory fines, and customer dissatisfaction. Improve the accuracy of your data by involving IT teams in the process of defining, standardizing, and otherwise handling it. Look for places where there's friction in Back to the Table of Contents

Winter Issue • 2023

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your data entry processes and work to improve those workflows to enhance the integrity of your data.

Stay alert to AI and data privacy concerns.

Leaders are right to be concerned about privacy when it comes to data and AI. Information that's fed into the language models of many AI products is used to train the model for future output. If you feed it proprietary information or sensitive customer data, that information may be exposed publicly, creating additional risk for companies regarding ownership rights and regulatory concerns.

The solution to this in the financial sector is private AI. With private AI, the language model is internal to your company and is only trained on your own data. This provides you with the benefits of AI while maintaining a high level of security for your organization and customers. It also means the AI outputs specifically reflect your customer base, giving you better insight into the needs and habits of those you serve.

Trend 3: Digital assets and tokenization are on the rise. Automation can help.

Most large asset manager banks and financial organizations are exploring digital assets, tokenization, and blockchain technology.

The digitization of these assets will bring more real-world assets to a wider range of potential customers and allow money to move more easily around the world securely.

A growing number of investors are interested in investing in these new assets for wealth management, but traditional business models don't always make that possible. Fintech companies and modern banks are leading the way in addressing pain points and solving these data challenges.

How are modern banks doing it? AI automation. Many of the tasks associated with digital assets can be facilitated using automation, like assessing the value of assets, financial forecasting, and more.

AI can also be used for the risk assessment, risk management, and regulatory compliance of these financial products.

Future-proof your organization with AI-powered tools.

Financial services companies are facing massive change within the industry. Banking leaders need to be aware of how technology can help them adapt to save on operating costs, improve banking processes and digital experiences for customers, and reduce risk. A strong AI strategy combined with data and process automation is how you’ll succeed in 2024.

Appian’s data fabric.

The Appian AI-Powered Process Platform includes a powerful data fabric for connecting and unifying data across your organization to support faster, better business processes.

Integrate data from any system, implement row-level security rules with low-code, and eliminate manual tuning with Appian’s patented architecture for automatic data optimization – all while reducing integration maintenance costs by up to 70%.

Learn about Appian's integrated data fabric capabilities. Watch our on-demand webinar.

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Michael Heffner, Vice President, Solutions and Industry Go To Market, Appian Corporation

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Steve Naudé, Head, Wise Platform Back to the Table of Contents

Lead Story

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BANK-FINTECH PARTNERSHIPS CAN SHAPE THE FUTURE OF CROSS-BORDER PAYMENTS People and businesses are more interconnected than ever. In today’s global economy, international payments have taken on new significance in enabling cross-border travel, trade, and investment. Despite this, moving and managing money internationally continues to be expensive and often unpredictable due to the inefficiencies of an opaque and outdated traditional banking system.

As it stands, international payments are neither sustainable nor economical for individual customers or SMBs. High fees and a lack of transparency especially prevents micro, small and medium businesses (SMBs), which already operate on razor thin margins, from tapping into their full growth potential and accessing new markets. A 2021 Wise report found that 56% of SMBs are put off from going international due to the frustrations with existing international banking processes.

It is no wonder that there has been a boom of fintechs and specialised digital providers that offer cheaper and faster payment experiences and are increasingly becoming the platform of choice.

Yet, banks still capture a lion’s share of cross-border payments. Platform switching can be a chore for many customers, who are familiar with and have deep trust in their bank providers, and often lack resources or knowledge when it comes to trialling new ways of managing money. Despite the plethora of options available to customers today in the form of fintech and specialist providers’ apps, it can be time-consuming and emotionally difficult to redirect money to a new provider.

It’s also not always obvious to customers that they need another provider for international payments, because hidden fees make it difficult to know that you’re getting a bad deal. So, for all of these reasons, the most convenient place for them to manage money internationally is with their existing bank provider.

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Cornerstone Advisors research

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The industry should be looking not to competition, but to partnerships, to solve the problem of international payments. The benefits of partnerships are compelling.

According to Cornerstone Advisors1, nine in 10 financial institutions consider fintech partnerships to be important to their business, up from 49% in 2019, and nearly two-thirds of banks and credit unions have entered into at least one fintech partnership over the past three years.

There are significant opportunities to be unlocked from combining the agility and technology of fintechs with the reach and infrastructure of established banks. These partnerships can serve as a catalyst for global growth – with each new integration, more people and businesses get access to faster, better, and transparent international payments.

Such integrations are often achieved using cross-border payment APIs (Application Programming Interfaces) which are embedded into a bank’s existing infrastructure. They help businesses, banks, platforms, and financial institutions scale their capabilities quicker, streamline their payment processes and ultimately grow revenues – removing many of the frustrations and costs associated with building out new functionality in-house.

However, as transformative as they are, it’s not always easy for banks to work with API solutions. Historically, banks have been asked to integrate new and advanced technologies into their systems but are given minimal allowances for what’s different about their core architecture. The reverse should be in fact true; fintechs should focus on offering adaptable solutions that can be layered with the bank’s existing capabilities.

For example, banks rely on compatibility with existing financial architecture, including messaging networks such as Swift. Wise Platform recently unveiled a collaboration with Swift to increase cross-border payment options for financial

institutions and their customers. Our new Correspondent Services solution enables banks to route Swift messages directly to Wise, allowing their customers to benefit from the convenience of Wise and the breadth of Swift without needing to implement any major changes to their systems.

Another key element to the success of bank-fintech partnerships is that both parties have a mutual understanding of goals. Both parties must see eye-to-eye on risk management and commit to a collaborative approach.

With the increasingly fast-paced rate of financial innovation, there has been – rightfully – increased regulatory attention on compliance framework in fintechbanking partnerships, which can make partnerships appear riskier than they are and overshadow benefits. However, this worry can be alleviated if banks choose fintech partners who have demonstrated strong compliance expertise and have experience managing regulations across different markets.

As the global economy becomes increasingly interconnected, it is clear that fintech companies should no longer be seen as simply disruptors or competitors when it comes to international payments.

Rather, they are integral partners who will play a major role in transforming international payments for good. Strategic partnerships between traditional banks and fintech players will redefine crossborder travel, trade, and economy, and provide the foundation upon which people and businesses can take part in a global marketplace.

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THE YEAR AHEAD: PREDICTIONS FOR 2024 Looking to 2024, we are beginning to see a new payments landscape forming as the result of evolution, rather than revolution.

As a number of technologies mature, they paint the picture of an open payments landscape, one where payments are fast, in-app and seamless. But while payments will be easier for the average consumer, the plethora of payment options and the need for merchants to cater to diverse and geographically dispersed markets will bring its own challenges. This goes a long way to explaining the increased interest in payment orchestration, which has become something of a buzzword of late.

Open Payments Mean Open Opportunities We are finally entering the era of widespread real-time payments. The open banking revolution – spurred on by legislative changes in the EU and elsewhere – opened up the payment market to a wider range of businesses, allowing fintechs to offer services that were traditionally the domain of banks. With this came faster bank transfers – at least in some regions. With the launch of FedNow, the US is finally catching up with regions like the UK, EU and Brazil in this regard. Coupled with the recent announcement that instant payments in the Single Euro Payments Area will no longer incur fees, a further barrier to widespread adoption will be removed.

Embedded finance goes beyond open banking and its close relative, open finance.

It transcends the fintech space, as we see brands such as Starbucks and Lyft partnering with financial institutions to offer embedded financial services. Consumer brands have begun launching their own apps with built-in payment capabilities and loyalty rewards for paying via the app – Starbucks being a prime example here. Lyft is paying out earnings via their own branded checking accounts, reducing the incentive for drivers to work for competitors by offering exclusive rewards for payments made via their branded debit card. Apple leverages embedded finance

to facilitate payments using its Apple Card, and, along with Google Pay, Apple is already a significant player in the payments landscape and continues to diversify its offerings. Smaller businesses may need to partner with technical providers if they want to similarly capitalize on this opening of the market.

With the EU’s digital Markets Act set to come into effect, it looks like an upheaval is coming that will further open up the payments market. While Epic Games continues to be embroiled in US court cases over the requirement for in-app purchases to be processed via the app store provider, Apple and Google will no longer be able to apply these terms in the EU. The DMA will allow developers to integrate their own payment processing within apps, opening up the app payments landscape and allowing vendors to work with the payment providers of their choosing.

Improved Customer Experience on the Cards In line with the evolutionary nature of developments, network tokenization builds upon the established concept of tokenization to improve the customer experience. It will streamline future payments by addressing pain points related to declined transactions from re-issued cards. Network tokens are issued by the schemes directly and reference card details stored directly at the schemes. If the card data changes due to the card being reissued, the token retains its validity and can continue to be used by merchants to process transactions without them needing to contact consumers for updated card data.

a buzzword of late. This makes sense – a diverse and global payments landscape forces merchants to cater to a similarly wide range of payment methods, and a global app needs to be able to handle payments everywhere. Payment orchestration helps merchants manage all their payment integrations via a single platform and makes integrating new payment methods much easier.

However, there is a risk of the term becoming diluted as more players offer their own spin on it. We remain convinced that a provider-agnostic approach is a central tenet of payment orchestration.

With more traditional PSPs offering orchestration services, there is an inherent conflict of interest at play. Payment orchestrators typically charge a small flat fee per transaction, with no incentive to prioritize one PSP over another. The revenues derived from routing transactions through a provider’s own network dwarf these revenues. This incentivizes PSPs to prioritize their own networks, as these are the real cash cows, but this runs counter to being agnostic. This is not to downplay the importance of PSPs in the ecosystem.

But payment orchestration is about giving the merchant the power to process large transaction volumes according to the merchant’s needs, which is at odds with an approach that is not agnostic.

Payment Orchestration: From Niche Term to Buzzword Finally, we are noticing a significant increase in interest in the concept of payment orchestration – something obviously close to our hearts at IXOPAY. A niche term only a few years back, payment orchestration has become something of Back to the Table of Contents

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Rene Siegl, Co-founder and Executive Chairman, IXOPAY Rene Siegl founded IXOLIT, the forerunner to IXOPAY, in 2001. Initially focusing on developing bespoke eCommerce platforms, the need to integrate payments solutions for clients eventually led to the birth of the IXOPAY Payment Orchestration Platform in 2014. Since then, IXOPAY has grown into a platform trusted by global brands to manage their payments worldwide.

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THE YEAR AHEAD: PREDICTIONS FOR 2024 FROM ANDREW RIABCHUK, THE FOUNDER OF AKURATECO Greetings from the forefront of the payments industry. With over 15 years of hands-on experience in the e-commerce realm, I've witnessed the relentless evolution of payment technologies and consumer behaviors. As the founder of PSP Platon and the visionary driving Akurateco's innovative Payment Orchestration Platform (POP) and White Label Payment Gateway (WLPG) solutions, I've dedicated my career to shaping the future of payments.

About Akurateco At Akurateco, we don't merely provide payment solutions; we create ecosystems that empower Payment Service Providers (PSPs) to excel.

Our Payment Hub, comprising POP and WLPG, is a dynamic space where payment processes are simplified, security is fortified, and business growth is nurtured. Akurateco is more than a company; it's a catalyst for payment excellence.

Now, let's embark on a journey into the future of payments, where I'll share insights and predictions for 2024. From AI-driven transformations to the challenges of regulatory compliance, we'll explore what lies ahead in the ever-evolving payments landscape.

The orchestration layer, a technical framework turned into a distinct business entity, gained prominence. Many players realized its potential, particularly in new geographic markets.

Consumer preferences continue to lean towards integrated payments. Payments should seamlessly blend into the user experience, whether it's making a purchase or transferring funds.

The trend emphasizes a frictionless and attractive payment process.

Innovations like Google Pay and Apple Pay, enabling payments via smartwatches, smartphones, and NFC, enhance conversion rates.

These methods not only offer convenience but also add an element of gamification, motivating users to complete transactions.

Advancements in Payment Technology Payment technology is ever-evolving, introducing diverse payment methods. The more payment methods a business offers, tailored to user needs and geographies, the higher the conversion rate.

Technologies like payment network tokens, including VTS and MDES, allow recurring payments even after a credit card expires, providing a seamless experience for users.

The Evolution of Payment Trends

Regulatory Changes and Compliance

In 2023, one of the standout trends was the rise of artificial intelligence (AI). While AI in payment systems is still in its infancy, it's gaining traction. AI has the potential to revolutionize payment methods, user behavior analysis, and fraud prevention. It will play a pivotal role in making payments more secure and efficient.

Additionally, Buy Now Pay Later (BNPL) has been gaining popularity in recent years. BNPL is not only convenient but also adds an element of novelty to the payment process, motivating customers to make purchases.

Embedded payments were another highlight. These payments seamlessly integrate into various platforms, making transactions smoother. With the proliferation of platforms, embedded payments are here to stay.

The trend of standardization and stricter compliance continues.

International payments, Know Your Customer (KYC), and Know Your Business (KYB) processes face increasing regulation. Bank compliance regulations have become stringent, at times hindering business operations. Automation, third-party services, and specialized companies that focus on customer and business checks, transaction monitoring, and compliance are helping businesses navigate these challenges.

Artificial Intelligence is revolutionizing the compliance landscape by offering intelligent solutions that not only ensure adherence to regulations but also enhance efficiency. AI-driven systems can swiftly analyze vast amounts of data, detect anomalies, and adapt to evolving regulatory frameworks. This not only simplifies compliance tasks but Back to the Table of Contents

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Andrew Riabchuk, Founder, Akurateco

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also provides businesses with valuable insights for strategic decisionmaking, making AI an indispensable tool in the realm of regulatory compliance.

Adaptation to evolving compliance requirements is essential, particularly in international payments. Automation and specialized services are vital tools. Compliance standards such as PCI DSS and ISO 9001 provide well-defined guidelines, ensuring robust protection.

Staying informed about the latest developments in compliance is truly important, but a careful approach to incorporating compliancerelated features is equally crucial. Striking the right balance is key to gaining a competitive edge.

Emerging Technologies In today's interconnected world, the ability to integrate third-party services and technologies is paramount. While AI plays a crucial role in fintech, it's connectivity—enabled by open APIs, universalization systems, and low-code/no-code solutions—that takes precedence.

This connectivity empowers businesses to implement third-party services, adapt to market trends, and validate hypotheses effectively.

Security and Fraud Prevention As technology becomes more complex, the potential for security vulnerabilities increases. Approximately 70% of product development relies on existing code, making it challenging to identify all potential vulnerabilities. Social engineering attacks, particularly social phishing, have become more sophisticated, often targeting individuals or groups with access to sensitive information. This underscores the need for robust cybersecurity measures.

Implementing industry standards such as PCI DSS and ISO 9001, along with regulatory compliance, is vital for protecting customer data and maintaining trust. Outsourced services specializing in security, credit card data protection, and personal data security can offer additional layers of protection.

Cross-Border Payments and Global Expansion The globalization of the economy is driving the growth of crossborder payments. Multinational players, such as Airbnb and delivery services, are expanding their presence, leading to the emergence of new payment flows. With people living more internationally, the importance of cross-border payments cannot be overstated.

Businesses can manage currency exchange and regulatory challenges by leveraging outsourced services like TransferWise or Revolut. These services provide essential features like currency exchange and cross-border transfers, making international expansion more manageable. However, for businesses whose USP revolves around currency exchange and regulatory expertise, building inhouse solutions may be a viable option.

market make them indispensable in the ever-evolving financial landscape. It's essential to recognize that while they currently occupy a central position in financial processing, there's a growing need for accelerated technology adoption. Solutions similar to Akurateco, which specializes in payment orchestration, could prove instrumental in meeting these evolving market demands.

Customer Experience and Personalization Customers expect frictionless, cross-device, and convenient payment experiences. Emerging technologies such as SDKs for mobile apps, payment tokens, and plugins for user-friendly CMS (Content Management Systems, such as WordPress, Joomla, and Drupal) will be crucial in meeting these expectations. Embedded payments in gaming platforms and marketplaces are also expected to gain prominence.

Strategic Collaborations and Industry Partnerships It's clear that collaboration is the cornerstone of progress in the fintech industry. At Akurateco, we've embraced this spirit of partnership wholeheartedly. Our strategic collaborations with industry giants such as Visa, Mastercard, Netcetera, Elavon, Amazon AWS, and Avalon underscore our commitment to pioneering solutions that shape the future of payments.

These partnerships not only strengthen our position in the market but also empower us to offer our clients and partners the very best in payment technology. By sharing insights, expertise, and resources, we collectively drive innovation and elevate the industry as a whole.

Conclusion As we look ahead to 2024, the payments landscape continues to evolve rapidly. The convergence of technology, compliance, and consumer expectations will shape the industry's trajectory. To thrive in this dynamic environment, businesses must remain agile, adaptable, and collaborative. By embracing emerging technologies, staying vigilant on compliance, and prioritizing security, businesses can position themselves for success in the year ahead.

The role of payment gateways and the importance of seamless customer experiences cannot be overstated. As we navigate the complexities of the global economy, collaboration and connectivity will be the cornerstones of innovation and growth.

In conclusion, payments are set to grow in complexity and reach, and the fintech industry must rise to the challenge, ready to provide solutions that meet the evolving needs of businesses and consumers alike.

The Role of Payment Gateways Payment gateways play a pivotal role in simplifying global transactions. Their technological prowess, flexibility, and speed to Back to the Table of Contents

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FUNDING INSIGHTS AND PAYMENTS MODERNIZATION STRATEGIES Interview with Vijay Oddiraju, CEO and Co-Founder, Volante Technologies

Today, Financial IT speaks with Vijay Oddiraju, CEO and Co-founder at Volante Technologies, a global leader in cloud payments modernization that raised $66 million in its latest strategic investment round.

Financial IT: When considering the payments modernization landscape, what factors do you think impacted the recent investment into Volante?

Vijay Oddiraju: There are many drivers, both technological and regulatory, causing financial institutions to invest in payments modernization. Real-time payments, the adoption of ISO 20022 and the industry’s growing reliance on cloud being three key factors. In fact, a recent global survey revealed a seismic shift towards cloud-based Payments as a Service (PaaS), with an almost fourfold (364%) year-on-year increase in the number of institutions planning to outsource their payments processing to a PaaS provider.

Close to home in Europe, one of the biggest regulatory changes on the horizon is SEPA Instant Euro. Just last week, it was announced by The Council and the European Parliament that payment service providers will be required to offer the service of sending and receiving instant payments in Euro - in addition to providing standard credit transfers

in Euro. Anticipated to be mandated by the European Commission in 2024, the new rules should see the development of competitive EU-wide market-based payment solutions and with it, drive the industry need for payments modernization partners.

Financial IT: What approaches are institutions taking in pursuit of payments modernization and how is Volante helping?

Vijay Oddiraju: Any financial institution looking to modernize can choose from four fundamental approaches.

Taking SEPA Instant payments as the use case, a typical first approach entails adopting new instant payments technology while leaving current domestic and cross-border services and systems largely unchanged. The second approach uses instant payments as a springboard to partial modernization, deploying components for smart routing, embedded preprocessing, corporateto-bank integration, and other valueadded services to modernize domestic and cross-border payment processing, while maintaining the older systems as gateways. The third approach is to position instant payments as the start of a complete payments modernization program, replacing legacy systems over

time with the latest payments technology infrastructure.

The fourth focuses on keeping compliant with regulation, and the mandated use of ISO 20022 is a good example of this. While this may be a feasible short-term strategy, it has drawbacks in terms of failing to establish a platform for differentiation from competitors.

The approaches are not mutually exclusive, and can be combined in different ways. Depending on the appetite for innovation, Volante helps each and every organization find the right balance of these approaches so that they can modernize efficiently and effectively.

Whatever that balance, financial businesses must understand that the world of payments is changing rapidly and that they must innovate to stay relevant. To grow market share, they must bring new services to market faster.

Cloud-native technology and Payments as a Service are proven time-to-market accelerators, and that is why they sit at the heart of Volante’s solutions.

Financial IT: Can you provide us with a brief overview of Volante's journey into payments modernization, and its current status?

Vijay Oddiraju: Founded in late 2001, just after 9/11 and the dot-com crash, Volante’s Back to the Table of Contents

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Vijay Oddiraju, CEO and Co-Founder, Volante Technologies

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co-founders and I, motivated by recent events, had a vision: a world in which financial services were resilient, digital, and available to all – instantly, any time, anywhere. Our mission: to be the trusted partner to our customers, giving them the freedom to evolve and innovate at record speed. We achieve this through automation and simplifying complexity, enabling institutions to adapt, and innovate quickly, especially in times of crisis.

Creating a platform now described as "low-code," "cloud-native," and "microservices-based" (though those terms didn't then exist), we swiftly gained industry recognition becoming a leading player in financial messaging automation, attracting major global financial businesses as clients. In 2015, recognizing the limitations of existing payment systems, we pivoted, launching the PaaS offering that we are known for today.

Volante has seen enormous success over the past few years. Topping the IBS Intelligence Wholesale Payments Sales League Table (SLT) for three years running, Volante has set an unprecedented industry record. This success is backed

by Volante’s customer base of more than 150 financial institutions, with blue-chip names like Goldman Sachs, Citi, BNY Mellon, and Poste Italiane. Four of the top five global corporate banks are now Volante clients, as are 8 of the top 10 US financial institutions. Together, Volante and its customers have been able to score several “firsts”:

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The first instant payment in Saudi Arabia, with both the sending and receiving bank being Volante customers; The first-ever US real-time payment was processed by Volante, between BNY Mellon and US Bank in 2017; A Volante customer originated the first real-time bill-pay service in the US.

All of this activity has given us a great deal of momentum going into our most recent investment round.

Financial IT: After a substantial first capital raise in 2020, now, almost three years later, as you have completed the second one, how do you perceive the evolving FinTech investment landscape?

Vijay Oddiraju: The timeframe from 2020 to 2023 has proven to be highly dynamic.

During lockdown, the focus was on the digital experience, with FinTechs across the board seeing significant amounts of investment. It was in 2020 that Volante raised $35m USD in growth equity financing led by Wavecrest Growth Partners with strategic participation from BNY Mellon, Citi Ventures, PostePay and Visa Inc. Fast forward to post-pandemic and amidst rising interest rates, venture capitalists and investors paused and became more selective about which companies to invest in, selecting on the basis of a company's ability to rapidly grow market share in a profitable, cashgenerating manner. In this new regime it

is companies that meet these new stricter criteria that are seeing the lion's share of the funding.

It is during this period that Volante secured $66 million in an investment round led by Sixth Street Growth, the technology growth investing arm of Sixth Street, with participation from Wavecrest Growth Partners and Wells Fargo Strategic Capital. Volante’s promising outlook is grounded in the market-share leadership held today, combined with a rapidly growing addressable market for payments modernization, and a clear appetite for cloud-native PaaS approaches. These approaches enable institutions to control their own roadmap and innovate faster than their competitors.

Financial IT: What do you plan to do with this investment?

Vijay Oddiraju: This latest investment will further accelerate the product roadmap for our customers, particularly in global and domestic real-time or instant payments, UK New Payments Architecture (NPA), and domestic and cross-border ISO 20022 modernization.

It will also allow us to expand the reach of our Payments as a Service offering further into the mid-tier bank segment, especially in the U.S. and Europe, where FedNowTM Instant Payments, The Clearing House RTP®, and SEPA Instant Payments, respectively, are driving the adoption of modern payments technology.

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STRUCTURAL MARKET SHIFTS IN FINANCE ARE DRIVING INNOVATION The financial services sector has been spurred towards digital transformation in recent years, driven chiefly by potential efficiency gains, changing regulations, and increased competition from digital-first banks. Change is happening at pace, adding to the challenges facing Chief Executive Officers (CEOs).

To succeed in their digital transformation journey, financial institutions (FIs) must align the corporate vision with putting the client experience first. Cloud-based solutions are playing a vital role in the digital transformation of the financial services sector, especially for those that struggle with the challenge of legacy IT infrastructure.

Digital Transformation Rewards Innovation Businesses across the world are investing time, money, and resources to digitalize existing services and processes that will benefit them and their customers. Analysts at BCG estimate that, globally, FIs could grow collective revenues by $100 billion per annum for the next decade if they were to reach the “highest level of digital maturity”.

Innovative FIs are creating clear points of difference between them and their competitors. One example of this differentiation in practice is customer lifecycle management (CLM). The client onboarding and ongoing review elements of the customer lifecycle – the Know Your Customer (KYC) process – can be particularly

time- and resource-intensive for the FI and potentially frustrating for the customer.

Fenergo’s research from 2023 found that KYC represented between 31-40% of the total compliance budget for three in ten (30%) banks, with 25% taking 61-120 days to complete a single corporate client KYC review and a further 26% of banks taking between 121-180 days.

At Fenergo we’ve seen this play out in real-time across engagements with corporate and institutional banks that need to implement changes to innovate and grow.

CLM associated costs prior to deploying a one-platform solution can balloon to over $50 million without providing commensurate value to the business.

All too often, FIs rely on manual processes to satisfy regulatory requirements, which is costly, inefficient, and risks the client becoming frustrated with having to repeatedly supply documents. There is an opportunity to innovate here. A unified CLM platform connected to an ecosystem of internal systems, data providers, vendor solutions and customer channels is the most efficient way to approach compliance.

As we have seen, those companies completing their digital transformation successfully are in the minority. Deloitte’s study of 4,000 global organizations over 10 years revealed that Fortune 500 companies that get the right combination of digital transformations could unlock up to US$1.25 trillion in additional market capitalization.

Conversely, Deloitte warns that digital

transformation failure – caused by a lack of senior buy-in, for example - could erode market value, with more than US$1.5 trillion at risk.

In short, the rewards of digital transformation can be significant, but positive outcomes depend on FIs choosing the right products and implementing them correctly.

Combating the Risk of Disintermediation Digital transformation is not a choice; it is a race. Failure to digitally transform could cause significant damage to a brand or, worse, lead to its ultimate demise. For example, Blockbuster did not adapt to a market that was fast digitalizing and paid the price.

No FI wants to go through the same experience. However, technology is impacting factors such as time, effort, and capabilities, meaning there is a high risk of disintermediation in elements of the supply chain that banks traditionally owned.

FinTechs are targeting the front end of the supply chain, catching many businesses unprepared.

With new market entrants already cutting into market share, not digitally transforming will expose banks to the ever-greater risk of disintermediation and, ultimately, irrelevance. Fintechs can disintermediate FIs because they’ve begun without mountainous legacy technology issues and due to a Back to the Table of Contents

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Cengiz Kiamil, VP Market Development, Fenergo Cengiz heads up the Market Development division of Fenergo, bringing clarity and understanding to market challenges and identifying areas for growth. He has over a decade’s experience in commercial, corporate, and institutional banking as well as digital strategy and innovation experience from across the financial services industry. Cengiz was previously at Standard Chartered Bank in Singapore and HSBC in both London and Hong Kong.

compliance first approach to digital strategy which allows them to service their target market rapidly and iterate on products without worrying about compliance issues.

But there are some powerful success stories that have emerged from this new paradigm. Some banks have diversified their approach to accessing funds by taking advantage of underused methods of raising cash. Brokered deposits have risen by 86% in a year, banks have been able to access $1.2 trillion in funding through these risky deposits and are garnering attention from regulators due to their appeal across the banking sector.

This risk, primarily found in the lack of clear information on the beneficial owners of the deposited cash, can be mitigated through digital processes that properly parse KYC data to provide banks with real insights into who owns the money coming into their accounts and satisfy regulators.

These points underline the importance of partnering with experts on the digital transformation journey. A do-it-yourself approach to digital transformation could be catastrophic for financial institutions in a highly competitive and fast-changing technology environment.

How Cloud Technology Can Help FIs Avoid the ‘Tech Debt’ Trap How can financial institutions ensure that they are among the successful digital

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transformation stories? The time is right to digitally transform as people are comfortable with banking online and using financial apps. The market is mature and therefore users’ expectations of a seamless, secure, and convenient experience are high.

Legacy systems often create challenges and increase costs when trying to integrate new capabilities, meaning IT teams may miss deadlines and projects could run over budget.

One way to address the challenge of this tech debt is by using cloud-based Softwareas-a-Service (SaaS) solutions through a partner-led ecosystem, for example, when managing CLM. Turning to SaaS reduces extraneous costs as well as the reliance and pressure on legacy systems by tapping into a secure, specialist external resource.

Bloat in the form of extraneous costs is a common problem when servicing legacy CLM infrastructure, hardware, networking, and consultant costs are all common when building in-house. At Fenergo we’ve estimated that across our engagements this figure often totals up to $1.5 million in aggregated costs annually for solutions that cannot facilitate future growth.

A cloud-based approach enables FIs to move more flexibly and manage operational expenditures more effectively. FIs can also tap into cutting-edge technology without needing to maintain a team of experts or complex infrastructure onsite.

Migrating some or all services to the cloud should be a long-term, strategic

project. For any adoption of cloud-based solution to be successful, it requires breaking down operational siloes and looking more holistically at the organizational set-up.

Senior buy-in and training are essential to help foster a SaaS-focused culture.

Choosing the right technology partner is also crucial. For example, at Fenergo, we help FIs to transform the end-to-end client lifecycle experience with on-hand experts to guide them through the process, from design through to implementation and beyond.

Historically compliance upgrades cost over $2 million for complex regulation updates, with digital solutions that cost goes to zero.

It’s Imperative to Succeed at Digital Transformation As the financial landscape continues to evolve, FIs are looking at ever more innovative ways to find efficiencies and meet their clients’ high expectations.

Teaming up with the right partners is crucial to ensure avoiding the potential pitfalls many banks have encountered and to make the digital transformation journey a success.

Take a look at how KYC trends in 2023 are driving the need for digital transformation.

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Kathy Stares, Executive Vice President of North America for Provenir, a global leader in AI-powered risk decisioning software, processing more than 4 billion transactions annually for disruptive financial services organizations in more than 50 countries worldwide. With more than 20 years of experience and accomplishments in financial services technology, Kathy brings deep knowledge and curiosity about risk decisioning innovation.

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LEVERAGING AI TO POWER MORE PERSONALIZED AND PROFITABLE CUSTOMER RELATIONSHIPS Use of risk decisioning platforms often focuses on onboarding and loan origination, however investment in the beginning of the customer journey is only the start. A financial institution’s growth depends not only on attracting new customers, but also on maximizing the value of its existing customer base.

This is especially true as the increased competition from both established and new players has led to FIs recognizing the need breed new levels of customer intimacy with the right services and support at the right time to retain and maximize the lifetime value of their customers. Research has shown that upselling increases revenue by 10-30 percent on average, and the probability of selling to an existing satisfied customer is 60-70 percent.

While sophisticated, automated onboarding/origination solutions are key, it’s important to also focus on the tools FIs use for the rest of their decisioning.

By eliminating siloed systems and sharing intelligence, today’s advanced decisioning platforms will enable more accurate, faster decisions across the lifecycle, mitigating a bank’s risk and maximizing its growth.

In it For the Long Haul: Risk Decisioning Goes Beyond Onboarding Beyond onboarding new customers, risk decisioning supports a wide range of strategic activities throughout the customer lifecycle.

Examples include: • Upsell/cross-sell opportunities – Targeting customers effectively with AI-powered intelligence to enable the right offers at the right time, increasing the likelihood of acceptance.

• Strategic risk mitigation – Testing and deploying additional data sets and AI models for proactive credit line

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management and regularly evaluating a bank’s risk exposure and predicting portfolio performance.

• Pre-collections and collections strategies – Accurately predicting potential defaults before they happen, and identifying the best treatment strategies and most effective communication channels for the customers that do.

A unified decisioning platform, covering everything from credit, fraud, compliance and product decisions, is key to long-term success, growth, and profitability. And its use can cover a wide array of use cases from lending to SMEs or offering Buy Now, Pay Later products, auto loans or credit cards, while spanning all engagement channels (digital banking, traditional branches, etc.).

Using AI-Powered Decisioning to Maximize Customer Value Across the Entire Lifecycle Data and analytics are the key to smarter risk decisions across an FI’s customer portfolios, but ensuring the right people have access to the right data at the right time can be challenging. The key to cohesive and accurate decisions is ensuring risk teams, fraud analysts, data scientists, etc. all have access to the same data sets. Irrespective if the goal is fraud prevention, identifying upsell opportunities, meeting compliance requirements, or determining collections strategies, the ability to access and integrate both real-time and historical data is key.

If integrating additional data sources, expanding to new regions, launching iterative products, responding to fraud threats, or making changes to workflows is difficult and time-consuming, then it’s unsustainable.

Having to rely on the internal IT teams or a software vendor for any of the above slows down the time to market, limiting a FI’s

ability to respond to evolving consumer needs and changing market conditions.

Additionally, it’s critical to know how current risk models are performing, if a loan scorecard is still accurate, how reliable the fraud scores are, or how many customers are defaulting on payments and heading towards collections. Having instant access to insights has a huge impact on risk tolerances, revenues, and future growth. Without an ondemand, integrated view into how a bank’s decisioning models are performing across the lifecycle, it’s challenging to change course, alter processes, and power profitable product innovation.

Easy machine learning model deployment is essential to enable an FI’s ability to accurately respond to market threats or opportunities before the competition can.

It’s important to note that getting the right risk models in place is not a one and done situation; consumer behavior continues to shift and risk models need to keep pace.

Decisioning for Customer Journey Success Attracting and acquiring new customers is only one element of business growth. In times of economic uncertainty, it becomes even more critical to proactively manage and mitigate risk to improve customer retention, reduce defaults, and maximize revenue opportunities.

AI-powered decisioning complete with case management, data, and insights provides the foundation for more accurate, automated risk decisions across the entire customer lifecycle – enabling a superior customer experience and allowing FIs to maximize the lifetime value of their customer relationships.

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PUTTING MONEY BACK INTO CUSTOMERS’ POCKETS …AND ENCOURAGING CHANGE FOR GOOD Interview with Andrea De Gottardo, CEO at Kroo Financial IT: Congratulations on your rapid growth since obtaining a UK banking licence in 2022. Could you share some insights into what has contributed to Kroo's success in attracting 145,000 accounts and £765 million in deposits?

Andrea De Gottardo: Thank you! Kroo was founded in 2016 with the mission to change the banking industry for the better and put money back into customers’ pockets. I think our success reflects that this message is resonating with UK consumers and industry experts.

The banking industry is based on a model that puts profits above customer needs, and the fact that many of the high street banks have so clearly failed to pass on rising interest rates to their savers has made many people sit up and notice what is happening. Ultimately, banks have been reaping financial benefits at customers' expense for too long, and Kroo has been unafraid to challenge that.

Since launching our current account, we have consistently raised the interest rate in line with each Bank of England hike and introduced our ‘tracker’ rate set at 0.9% below the Bank of England’s base rate on 15 October 2023. This shows our commitment to transparency.

Financial IT: Let us talk for a moment about your recent fundraising success.

What inspired Kroo's decision to pursue a crowdfunding campaign on Crowdcube at this stage?

Andrea De Gottardo: This crowdfunding round is more than simply an investment opportunity. Kroo is redefining customers' relationship with their bank, empowering them and inviting them along on the journey.

Community has been at the heart of Kroo since its inception. As an organisation, it remains committed to building a community of like-minded

trailblazers who genuinely feel they can influence how Kroo manages their money and that it is an organisation they can trust.

Due to the low point of entry for investments in crowdfunding, everyone can be involved and become part of the movement. This is only the start, but we see it as the chance for customers to get a seat at the table.

Financial IT: Could you elaborate on the specifics of the crowdfunding campaign, such as the target amount, use of funds, and any incentives for investors?

Andrea De Gottardo: Our crowdfunding target is £1 million. We’ve got some exciting plans in the pipeline to expand our product offering, launch new product features and scale personal loans.

If the business is successful, investors could make a return in multiple ways:

Andrea De Gottardo, CEO, Kroo Andrea has been the CEO of Kroo for over two years, bringing to the role over a decade of experience in the financial sector. He started his career at Deloitte as an Analyst and then progressed to State Street Bank where he took on the role of Risk Manager.

Before joining Kroo, he previously spent five years at NatWest where he started as Group Credit Risk Appetite Manager and went on to become the Head of Risk Back to the Table of Contents

Appetite Portfolio Decisioning, where he supported on the embedding of Economic Capital and Stress Testing tools and was responsible for the Internal Capital Adequacy Assessment Process (ICAAP), among other systems.

He has extensive experience in project related and PMO activities, as well as effectively coordinating a large number of senior stakeholders.

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if we go public on the stock market, we start buying back equity from investors, or there is a future liquidity event.

Whatever happens, shareholders get to be part of our future.

It is important for all those who support our crowdfunding to understand how they may expect to realise a financial return on their shares. We expect to reinvest retained profit in the short term to help us grow.

Financial IT: The "tracker" interest rate set 0.9% below the Bank of England's base rate is an interesting concept.

How does this benefit your customers, and do you plan to introduce more innovative financial products in the future?

Andrea De Gottardo: Our tracker feature is all about the transparency it provides on the interest rate we offer to our customers: it challenges the traditional profit extraction model that uses teaser deals to hook customers in without supporting them long-term. We conducted some research earlier this year that revealed that 42% of people 1 cannot accurately calculate interest when asked. Our ‘tracker’ rate takes away the guesswork and shows our commitment to passing on interest to customers in line with changing rates.

We are constantly developing new and innovative features that help meet our customers’ needs. We have some exciting new products in our pipeline that we are really excited to share. But more on that in the New Year…

Financial IT: Inviting your customer base to become investors sounds like a

1

unique approach. How will customers' investment influence the decisionmaking process and services/products offered by Kroo?

Andrea De Gottardo: As mentioned before, in inviting our customer base to become investors, we want to form a community that genuinely feels they can influence how Kroo manages their money, now and in the future. We want them to feel empowered and have a say in an industry where this usually isn’t the case.

In the long term, this could mean a variety of things, including allowing our investors to tell us what features they want the most and driving us forward on decisions around what is most important to them as consumers. In its simplest form, it means that we are committing to always being customerfocused above all else and listening to what they want and need from their bank. When their needs change, so will we.

Financial IT: In your efforts to create a ‘powerful movement to change banking for good’, have you established partnerships with other companies or initiatives that share a similar vision, and how will these partnerships help you achieve this goal? (allpaycards, etc.)

Andrea De Gottardo: Yes, we have worked hard to ensure that all our partners share our values, and we are really proud of the collaborations we have formed. Our partners join us on our journey to give back to communities worldwide, and One Tree Planted is an excellent example of this.

One Tree Planted work with us on our reforestation project, which plants two trees for every new customer who opens a current account with us, with the goal to plant 1 million trees by the end of 2024. Customers can decide where their tree is planted in the app. They can plant fruit trees to fight hunger in India or help restore Guatemala's southwest coast.

Financial IT: What is the long-term vision for Kroo, and how do you see this crowdfunding campaign as a step toward realising that vision?

Andrea De Gottardo: Kroo’s long-term mission is, and always has been, to challenge the broken banking system that continues to put profits ahead of customers. We need an incredible community behind us to achieve this, which crowdfunding is now playing an important part in building. The funds raised will be used for product enhancements, app development, loan scaling, and growing Kroo’s customer numbers so we can compete with the big banks.

Changing the banking industry is no easy feat, and we know it will take time. Nevertheless, if we can continue to build our community and challenge the outdated banking practices still enforced by the big banks, then we know we can make a difference.

A quantitative survey was commissioned by Kroo and conducted online by Opinium Research from August 4 - 8, 2023, with 2,000 UK adults.

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Winter Issue • 2023

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AI’s IMPACT ON LENDING Interview with Eddie Oistacher, CEO and Co-Founder, Peach Finance Financial IT: Please introduce your company and provide an overview of its core operations and services.

Eddie Oistacher: Peach Finance is the industry’s most configurable loan management and servicing platform. Our API-first lending technology enables fintechs and traditional financial institutions to quickly launch and confidently scale lending programs. With Peach, lenders can support virtually any type of lending product, including BNPL, credit cards, cash advances, personal loans (installments and lines of credit), retail installment contracts, business loans and novel constructs.

Peach gives lenders a system of record with more than 250 configuration variables, plus a Servicing Suite with a lending-specific CRM, borrower portal, agent portal, omnichannel communications, payment processing and reporting. Meanwhile, our Compliance Guard™ module combines compliance-vetted rules with borrower status monitoring to help lenders stay compliant in their servicing operations.

We’re proud to partner with many of today’s foremost lending innovators, including Square, Mission Lane, Lendable and Remitly.

Financial IT: Could you shed light on how Peach is leveraging AI technology to move the lending industry forward?

What innovative applications of AI are you implementing?

Eddie Oistacher: It’s been exciting to see numerous applications of generative AI unfold across a wide range of industries over a relatively short period of time. However, the lending industry to date has been impacted much more by predictive AI than generative AI. This means there’s a greenfield opportunity to be among the first to deliver significant generative AI-driven enhancements within the loan servicing space.

To understand the opportunity within servicing, we should first recognize that servicing has long been a source of frustration for borrowers.

Irritating chatbots, lengthy hold times and inflexible borrower portals are just a few of the reasons for borrower dissatisfaction. It’s become a truism within lending that far more resources are invested in acquiring customers than in retaining them.

We should also acknowledge that loan servicing is a significant cost center for lenders. Agents’ time is expensive, and

anything that can be done to increase agents’ productivity goes right to the lender’s bottom line. And yet increasing agent productivity is more challenging than it sounds. The reality is that until recently, smarter servicing software hasn’t existed for every use case, and where it has, the modernization process has often been so expensive or so risky as to make it impractical. The result is that agents continue to be hamstrung by outdated software and disparate systems that don’t talk to each other, while lenders continue to expend far more resources on servicing than they should have to.

Before long, we’re going to see generative AI deliver a big improvement in both borrower satisfaction and agent productivity. At some point, of course, chatbots will be able to solve for the majority of customer inquiries. But long before that happens, AI will become very good at making agents’ lives easier and enabling them to do their jobs better.

To start with one small example, we’ve recently launched a Case Notes Summarization feature within the Peach CRM. With the click of a button, agents can now generate an AI-powered summary of historical case notes.

Especially in the context of collections, Back to the Table of Contents

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Winter Issue • 2023

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Eddie Oistacher, CEO and Co-Founder, Peach Finance Eddie Oistacher is one of today’s foremost experts on modern lending technology. Eddie is CEO and Co-Founder of Peach Finance, the leading API-first loan management and servicing technology platform. Previously, Eddie led the product team that built Affirm’s loan management, servicing and compliance software from the ground up.

At that time, there was no lending technology platform with the power to adapt to evolving markets, regulations and customer preferences. Eddie founded Peach to solve this problem, creating the first platform designed to power the lenders shaping our financial future – regardless of industry, scale or asset class. Peach now helps lenders of all kinds to launch and scale innovative lending products and to modernize their existing portfolios with Peach’s industry-first Self-Service Portfolio Migration™ capability.

Eddie lives in the Bay Area with his wife and three kids.

where cases are typically worked by multiple agents and may contain dozens or even hundreds of notes and calls, this can save agents minutes per case, resulting in many hours saved per week – while enabling them to be better informed when they interact with borrowers. And this is just one relatively simple feature.

We have launched or are working on a host of other servicing enhancements powered by AI, such as call transcription, call coaching, smart reply, suggested responses, AI-driven chatbots, agent self-service training and help, and collections optimization. And there are many more solutions that we’ll announce in due course.

While it’s too soon to publicly share numbers around the impact of our AI-driven innovations, what I can say is that even some of our smaller innovations can have a sizable impact on agent productivity. Given that so much potential is still untapped, AI-driven servicing enhancements are poised to have a significant impact on the economics of lending.

You can learn more about the innovations we have planned on our blog.

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Financial IT: In the realm of credit risk assessment, AI can be a game-changer.

What are the advantages for lenders and clients?

Eddie Oistacher: Lenders have been utilizing AI for more than a decade in the realm of risk and underwriting. Here, it’s predictive AI like machine learning (ML) that’s had the largest impact, rather than generative AI. Many lenders – and many service providers, for that matter – have made underwriting and risk their bread and butter. Core to this value proposition are large, proprietary datasets that are analyzed by predictive AI to identify patterns, which can in turn be used to better predict future outcomes.

Generative AI is gearing up to make its own mark on credit risk assessment, too.

As Alex Johnson of Fintech Takes recently pointed out, small business lending has been hampered by the difficulty of gathering and standardizing the inputs needed to make intelligent and uniform underwriting decisions. As much as 80% of small business lenders’ time is spent gathering and formatting these inputs. Predictive AI isn’t well suited to these tasks, but they are squarely in the wheelhouse of generative AI. Expect to see significant advances in the near future.

Financial IT: Do you foresee any other important developments in the use of AI in lending over the next few years?

Eddie Oistacher: In addition to the servicing and underwriting trends outlined above, we expect AI to play an increasingly important role in augmenting employee productivity across almost every department. We’ve already seen many companies deploying AI to boost the productivity of their software engineering teams, and we expect this practice to proliferate across job functions – which will have the effect of increasing the pace of both execution and innovation.

The exciting thing about AI is that no one can perfectly predict its future impacts. That’s why it’s vital for lenders and service providers alike to stay adaptive – ready to respond to and capitalize on the opportunities that present themselves as the pace of innovation continues to increase.

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Rob Bevington, Head of Data Science, Synectics Solutions Rob has been with Synectics for more than 18 years, first joining as mathematics graduate. Before specialising in data science, Rob worked on various Synectics products and pilot schemes, accumulating vast counter-fraud knowledge.

Rob has been central to the development of Precision – Synectics’ award-winning predictive analytics tool. As Head of Data Science, he continues to work on Proof of Concepts designed to tackle emerging challenges in fraud prevention.

At present, Rob is leading an expert Synectics team in a groundbreaking PoC with Pay.UK, who run the UK’s retail payment infrastructure.

IS AI FRIEND OR FOE WHEN IT COMES TO FINANCIAL FRAUD? Back to the Table of Contents

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Winter Issue • 2023

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In the world of financial fraud, artificial intelligence (AI) has a bad reputation. AI is increasingly associated with the most sophisticated fraud and scams. These crimes are evolving quickly, and organisations are scrambling to adapt.

And AI threats mean business, shooting right for the top. Take the case of the CEO who transferred €220,000 to a fraudster after a call from someone they thought was their employer. In fact, AI had been used to mimic a real voice.

These concerning events are happening more frequently. Not just with voice gen but with a whole host of solutions geared towards manipulating reality, identities and financial history.

It’s clear that organisations must evolve their fraud prevention strategy to keep pace.

But how? When it comes to AI-enabled fraud, the answer could well be to fight fire with fire.

fraudulently approve transactions and launch disturbingly slick phishing attacks.

The power of insight and direction.

AI-enabled fraud prevention is evolving too.

Established AI models that blend supervised and unsupervised machine learning are already adept at referring cases that require investigative resource (and quickly ruling out those that don’t). This is especially true for models that link to and learn from syndicated fraud intelligence datasets.

This is a process unlikely to be replaced by purely generative AI solutions, due to the risk of ‘hallucinating’ referrals.

Where Generative AI will add significant value, is in providing enhanced insight as to why cases have been referred (for example generating contextual notes that aid streamlined working), and suggesting potential investigative paths based on each specific case.

Scams to expect – 2024 and beyond.

In the real world, right now.

AI is being used to create a myriad of documents, not just synthetic IDs. Generative AI will be the architect of fake payslips, bank statements, certifications and even employment histories. Any documents that can be used to commit fraud will be faked.

Beyond individual documents, expect a surge in fake websites used to support large purchase and investment scams. At the same time, synthetic IDs will become harder to spot – with fake faces used alongside seemingly genuine documentation to create an illusion of authenticity.

These predictions are shared by our Solutions Consultancy team, headed up by Chris Lewis. In particular, Chris and I hear of growing worries about AI-based facial replication.

Financial criminals will no doubt exploit generative AI to tap into the facial recognition technology found in consumer’s smartphones. From here, criminals can

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The good news is that AI will play a major role in fighting fraud, too. Fraud typologies might be changing, but preventative technology and techniques are advancing just as quickly.

We already know that some solutions leveraging generative AI can detect synthetic, manipulated or replicated imagery.

However, the true value of AI in the fight against financial fraud almost certainly lies in its ability to make life easier for those identifying and investigating suspicious activity. Both in terms of accelerating investigations as a whole and narrowing focus on the highest risk cases earlier.

In many ways, generative AI will become the ultimate unstructured data assistant in financial fraud defence. It is incredibly well-suited to mining and making sense of vast sums of complex information.

Financial services use cases are already emerging – clear when speaking with our Customer Success team, led by Osman Khurshid, who confirms that AI is hugely relevant on the frontlines.

From automatically generating case summaries and fast-tracking potentially expensive claims, to even suggesting fraud check rules in line with a new vertical’s customer journey. So long as generative AI is well-supervised, it could revolutionise efficiency and outcomes.

The CEO of a Dutch compliance tech firm recently put it nicely when he described AI as a ‘co-pilot’. In the financial services context, this means aiding fraud teams by speeding up fact-finding and strategy, rather than replacing people power.

Avoiding potential pitfalls.

A caveat to AI’s undoubted role in fighting financial fraud is that there will always need to be a balance between artificial and human intelligence.

Humans are fallible. Even more so when they’re missing some of the information. This is where generative AI comes in. It is able to analyse vast quantities of data to identify fraud patterns and trends, even if they’re continually changing – providing invaluable co-pilot skills.

The human touch is here to stay.

Humans are needed to ensure AI-supported processes remain ethical and compliant.

First, to check that the features feeding AI models aren’t unfairly influencing results and introducing bias that could exclude some customers. And ultimately, to make the decisions that matter.

There’s nothing artificial in the claim that AI poses one of the biggest risks to financial services. But managed the right way, it will also be the ultimate assistant in fighting those risks.

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Transforming correspondent services Back to the Table of Contents

Winter Issue • 2023 Modernise your crossborder payments without the cost and complexity of overhauling your infrastructure.

Featured Story With our new Correspondent Services product,41 your customers can send and receive money internationally faster, at a lower cost and more conveniently than ever.

Trusted by customers from Milan to Mexico City — including yours

16 million customers worldwide trust Wise to support their international payments – including many of yours. Wise Platform allows banks and fintechs to leverage Wise’s technology. Meaning you can offer your customers the benefits of our global cross-border payments network directly from within your existing banking app.

Enabling instant international payments shouldn’t require a major technical overhaul. Our new Correspondent Service product ‘Send’ allows your bank to quickly improve your customer’s experience, building upon the scale, reliability and convenience of the Swift infrastructure that you already use.

Faster Thanks to our global payments network, 57% of payments arrive in under 20 seconds. And 94% arrive within 24 hours.

Lower cost Streamline your correspondent services and reduce the fees taken from your customers’ payments.

More transparent Retain access to real-time payments tracking via Swift GPI, ensuring visibility into payment flows for your customers, and streamlining reconciliation operations.

More convenient Transform your cross-border payments services without a major technical overhaul.

And give your customers a one-stop solution for faster, low-cost and more convenient domestic and international payments.

Find out more platform.wise.com/correspondent-services

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Winter Issue • 2023

Where Decision Makers Meet Join us at the Guildhall in London on the 15th and 16th April 2024 where we welcome the brightest and best from the financial services and FinTech ecosystem to discuss and debate the crucial issues facing the sector now and in years to come.

2000+ Attendees

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Secure your ticket today innovatefinance.com/ifgs2024 Back to the Table of Contents

50%

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