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THE FINTECHTIMES.COM

THE WORLD'S FINTECH NEWSPAPER

UK WELCOMES EXCEPTIONAL TALENT

The Role of DLT in Asset Management page 06

3 Lessons From Spotify For CostEffective Private Securities Sales

page 9

How to create a Fintech? page 10

“Making Insurance Sexy Again”

page 16

Supermoney: A New Era Of Digital Payments page 20

#20 | JUNE 2018 | £2

TOP PICKS FROM MONEY 2020 AGENDA

INSURTECH TO RESHAPE THE INDUSTRY (AGAIN)

THE BLOCKCHAIN

BOOM: PLAYTIME OVER?

Blockchain in 2018; the fun and games are done, bring on funding and growth. With the Wild West that was 2017 quickly disappearing over the horizon, 2018 has already proven to be the beginning of Blockchain’s true realisation; legitimate use-cases, proper corporate structure, actual governance. Bye bye blocks**t, it’s going to be a good year! Continued on page 2

Centralised vs Decentralised page 22

20 Issues Later:

DEAR BLOCKCHAIN, YOUR DAYS ARE NUMBERED

SCAN ME

An Interview with Katia Lang, The Fintech Times CEO page 30

Join the conversation: t.me/radixDLT ... and find out why at: radixDLT.com


FINTECH NEWS AND UPDATES

News Updates

THE FIN TECH TIMES

Fintech industry calls for clarity on immigration policy, as new data reveals potential for 30,000 new jobs Innovate Finance, the independent membership association that represents the UK’s global fintech community, alongside WPI Economics, today releases a report on the potential effects of future changes to the country’s immigration policy on the UK fintech sector. The report provides new insight on the scope of the UK fintech sector, which currently represents 76,500 employees, of whom 42% are from overseas (28% from EEA countries, and 14% from non-EEA countries). The report also forecasts that on current performance, the sector is set to grow to more than 100,000 employees, and the number of UK fintech companies more than double to 3,300, by the year 2030. However, 82% of companies say they already face difficulties in recruiting non-EEA migrants. Under the most likely scenario for future immigration policy, in which the system for EEA migrants moves closer to that for non-EEA migrants, the report predicts a shortfall of 3,200 highly-skilled workers by 2030, at a cost to the UK fintech sector of £361m. As Charlotte Crosswell, CEO of Innovate Finance, said: “Without a flexible approach, the UK fintech sector stands to lose its global pre-eminence with fintech companies already facing challenges in recruiting appropriate skills and talent. However, the potential size of the loss has not yet come to pass and, if managed correctly, may not materialize.” Catherine McGuinness, Policy Chairman of the City of London Corporation added: “As the financial services sector increasingly turns to technology to shape its future, it’s essential that the UK is able to attract international talent to unlock the full potential of this thriving industry.” Innovate Finance is proposing six policy principles as a foundation to develop a proportionate policy response and mitigate the impact of uncertainty on the fintech sector, which are: • A call for a flexible approach to the development of one immigration system that demonstrates complementarity between international talent and the UK’s local skills base for fintech; • Recognition by the government that fintech is not just a beneficiary, but a driver for enabling a future migration system which benefits the entire UK economy, potentially providing the solutions to many of the

operational difficulties the current system faces; • Support for smarter methods of sponsorship that will enable costs to smaller fintech companies to be reduced; • Recognition that the definition of ‘highly-skilled’ is not necessarily based on academic achievement, but a more sophisticated analysis of experience; • An undertaking that the UK should continue to assess key skills to evaluate where the gap in digital skills exists, creating a mechanism for training local talent; • A call for continued investment into education that reflects the changing digital nature of the UK economy by ensuring this is reflected in the curriculum.

FCA to publish cryptocurrency review The Financial Conduct Authority (FCA) has announced its intention to outline its views on cryptocurrencies later this year, as revealed in its business plan for 2018/19. The UK’s financial regulator noted cryptocurrencies have been “an area of increasing interest for markets and regulators globally” and acknowledged the Treasury Committee’s intention to launch an enquiry. In response, it said: “Cryptocurrencies themselves are not currently within our regulatory perimeter. However, some models of use or packaging cryptocurrencies bring them within our perimeter, making the landscape complex.” Ultimately the FCA is trying to develop a coherent strategy for dealing with the issues and risks that cryptocurrencies raise. The regulator also addressed its concerns relating to cryptocurency derivatives and the fact they are not regulated, though they are capable of being “financial instruments under MiFID II”. Earlier CryptoUK, a self-regulatory trade association for the UK cryptocurrency industry, addressed several Members of Parliament (MPs) to advocate for favorable regulations in the sector, news outlet City A.M. reported May 1. The association set out its proposals in writing to the Treasury Select Committee’s inquiry into cryptocurrencies today. The inquiry intends to examine the role of digital currencies in the UK, including risks connected to their usage by consumers, businesses, and the government.

IMF REPORT SAYS CRYPTO DOES NOT ‘POSE RISKS’ TO GLOBAL FINANCE

Cryptocurrencies “do not appear to pose risks to financial stability,” the International Monetary Fund (IMF) said in its recent report. “It is impossible to know the extent to which crypto assets may transform the financial infrastructure and whether most new crypto assets are likely to disappear as in past episodes of technological innovation (as many tech companies did during the boom of the late 1990s, for example). Before they can transform financial activity in a meaningful and lasting manner, crypto assets will first need to earn the confidence and support of consumers and financial authorities.” The report adds that, in order to gain this confidence, there will need to be a consensus among the global regulatory community about what crypto assets are; a security or a currency. The IMF thus follows in the footsteps of other financial institutions this year, notably the Financial Stability Board (FSB). The head of the FSB, Bank of England governor Mark Carney, told the G20 in March that crypto assets “do not pose risks” to the world’s economy. Meanwhile, IMF chief Christine Lagarde has similarly adopted a weighted stance on crypto, acknowledging its “benefits” while simultaneously warning about illicit uses which require attention. “A judicious look at crypto-assets should lead us to neither crypto-condemnation nor cryptoeuphoria,” she wrote in an official blog post.

Editor-in-Chief: Katia Lang

Published by Disrupts Media Limited

PRINCIPLES • • • •

To deliver fintech opportunities and solutions to mainstream audiences To identify social, economic, political, and cultural trends To bring stakeholders together to develop solutions To connect the elements of the fintech ecosystem

2 I June 2018

40 Islington High St, London N1 8EQ editor@thefintechtimes.com thefintechtimes.com

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Max Dunne Kate Goldfinch Nathan Gore

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Copyright The Fintech Times 2018. Reproduction of the contents in any manner is not permitted without the publisher's prior consent. "The Fintech Times" and "Fintech Times" are registered UK trademarks of Disrupts Media Limited.


COVER STORY BLOCKCHAIN FOR ENTERPRISES THE FIN TECH TIMES

THE BLOCKCHAIN BOOM: Continued from page 1

PLAYTIME OVER?

NATHAN GORE Editor

Back in April, The Blockchain, AI, and IoT Expo took place at the London Olympia. It brought together the brightest and best minds in fintech, as well as some of the most interesting startups in this space. The event felt like we were seeing the maturing of Blockchain technology as a whole. No longer the preserve of university coders and tech specialists, many individuals from established industries are now getting involved with the scene. People with over 10, 15, 20 years of experience in sectors like financial services, marketing, and banking, have left the traditional side of the industries behind and are now pursuing development in these fields, either as founders or co-founders of startups, or taking up key positions in already established startups. As Maciej Kranz from Cisco put it: “Soon all of these industries will essentially be ‘tech’ industries, it is only a matter of time.” With regards to the wealth of experience that is being brought to the wider fintech industry, it is very encouraging to see, whether through partnerships and involvement in AI and IoT technologies, or as the leaders or advisers of these tech companies. Speaking to Oleg Seydak, Founder and CEO of Blackmoon, a fintech based blockchain company, about this recent development, he gave us his opinion: “More and more people from traditional industries will see the potential of the Blockchain use-cases in their home industries. So yes, of course I do believe that more and more financial professionals, like more traditional IT guys, people from logistics, from manufacturing etc, will see how they can implement advantages of blockchain for their day-to-day needs.” The key thing here is seeing the use cases - new ways in which the industry can benefit from these technologies. In Oleg’s case, he had a background as a hedge fund VC, leading 2 investment firms from 2010 until 2018, before moving into a more entrepreneurial style of business. He saw that the principles underlying cryptocurrency could be applied to real-world, tangible assets, allowing them to be tokenised and traded, whilst running a Blockchain platform with all the benefits of a decentralised ledger system, but avoiding the volatility and myriad of other issues that cryptocurrencies such as Bitcoin face on a regular basis. This is how Blackmoon was formed. This is a nice example of taking a traditional industry and a fledgling one, and bridging the gap between them, thus bringing benefits to all involved. And there are

many other such examples, often with people with many years experience in the financial services industry being best positioned to tap into this market. Speaking of that, the abundance of financial services industry professionals within this space is a testament to its current potential, and also its future legitimacy. Unlike many others previously, who are experiencing the financial services industry for the first time via blockchain tech (such as university grads, developers, and first-time business entrepreneurs) and who tend to be a bit more ‘anarchist’ in nature, these new entrants into the Blockchain market are a lot more accepting of the need to respect the current systems and infrastructure. We got a chance to sit down with Mance Harmon, Co-Founder and CEO of Hashgraph, a company that is bringing a new blockchain solution that aims to be free of the limitations of the current main players. He was one such person that agreed that success will come through accepting current structures and markets: “It is not the case that the mainstream infrastructure is going to die and go away. That’s not the way technology markets work ever. You may have the very best technology in the market, but if there is no path to market adoption, then it doesn’t matter. So you have to find a path to adoption, and that’s what we are doing. We do have the best technology, but we recognise that’s not sufficient. In addition to performance and security we have to address the stability and the governance and regulatory parts of governance. You have to address all of them, so that’s what we have done.” Cryptocurrencies, using blockchain technology, are often pitched as being a decentralised alternative to current systems, such as the banking infrastructure. Just because these technologies and tokenised solutions are exciting and fast-moving, it doesn’t necessarily mean that they are going to replace the current solutions, or that these ones should be ignored. It isn’t just a respect for the workings of the current system which is why established industry players are shaking things up within the fintech sphere. It’s the fact that they often have a vision of the use cases that can transform their current industry by applying fintech technologies, such as Blockchain. Blockchain BaaS platform Stratis agreed that the experience of who you are working with in this industry can play a major part: “Another problem is you get these guys that just have an idea and they can roll of and get 20 million funding. When you actually strip things back they have no experience in the industry they want to move in. Now if you look at someone coming to the industry from financial services for 25 years, that’s a person that I would like to head up a blockchain startup, someone that clearly knows what he’s doing. Let’s say you were using blockchain tech (ours or someone elses) to work on proving authenticity of Art. But the person who is implementing it for you, they have no connections with art-house, no connections with artists, they have no connections with art galleries. They are going

Someone coming to the industry from financial services for 25 years, that’s the kind of person that I would like to head up a blockchain startup someone who clearly knows what they are doing!..

to have to find it. That’s why we only work with companies that are established industry players, that have paved out a market from themselves and seen some success. We know they can take the funding from the Blockchain and scale up to their business or release some of their product. People always ask me - what should I look for when looking for an ICO and what I always say is look for experience, make sure they know what they are talking about”. If this type of mentality persists, then it is likely to point to the future of the fintech scene, with experienced financial services people taking existing problems within their industry/sector and applying Blockchain solutions to them. And it’s more than that too, a good idea means nothing if you haven’t got the means to pull it off and to see it through to fruition. There are many factors involved in whether or not a company will be able to ‘see it through’, but one of those will be about the team, and the people involved in the project. Experience in having raised large amounts of investment and involvement in having managed rapid growth of a company - these are all things that would make a team more likely to succeed, and actually have a measurable, real-world impact with their technology and their solution. Mance Harmon from Hashgraph concurred: “From the very beginning, I have always believed that if you build the very best product in the world, everything else is going to fall into place. The best companies in the world have the very best product, and that’s where we focused. We knew from the beginning that we just did not want to publish a white paper based on a billion dollars, and then go to build something. We wanted to solve problems first, making enterprise great first, and then publish the details of the project, which of course we had.”

London is a fintech hub - but for how much longer? Most of these companies, being on a bit of a world tour, were understandably quite excited to be in London, one of the main tech/fintech hubs of the entire world. But, regulation in the UK has not exactly been swift in dealing with the new blockchain-based world, in terms of regulating ICOs, cryptocurrency, and the like. The relevant regulatory bodies may, to some, be seen as having dragged their feet so far over the matter. We are still at the stage where it is unlikely

June 2018 I 3


COVER STORY BLOCKCHAIN FOR ENTERPRISES THE FIN TECH TIMES

for a startup based in London to also conduct their ICO in London. Not that it stops everyone, however, as we found out in our chat with Stratis: “We were recommended to be the most tax efficient - to set up out of Malta, out of Japan… in all those very tax-efficient places. We decided to incorporate in London purely because of who we are going to approach with our solution and how we are going to operate. In the long run basing ourselves in London will just make things easier.” Still, this is a less than ideal situation. Any environment in which a company cannot feel comfortable registering in their own country in order to conduct various or all aspects of their business, is clearly something that needs to be remedied. Tokeny is a company which is running a platform aimed at ‘de-risking’ ICOs, fully auditing and preparing any company that is their client before they launch an ICO. We spoke to Luc from Tokeny about the current problems that the UK as a jurisdiction is facing, and how that may be holding London back: “I think the UK, like other big countries, has difficulties when it is trying to move fast. They (the UK) are at the centre of the financial world. Smaller countries, Luxembourg and Monaco for example, can move a lot faster when adapting, like with what Singapore did last year. I have no doubt that the UK will eventually move in the right direction, but of course it takes more time than smaller jurisdictions. So I am not really worried about it, I have confidence in what they are going to do, they have to do the right thing at the right moment, and to take the right steps. They are likely looking to the rest of the world to see what they are doing first and to learn from them. Step by step, they are going to be building the next generation of financial products and framework to support this.” The nature of the Blockchain world is that it is a global industry, with applications anywhere and everywhere. For the majority of those in attendance at this event, this was merely another stop on the ‘world tour’ that has probably already taken them around Europe, with another leg in Asia being next up. The global nature of this industry leads to a lot of jurisdictional ‘window shopping’ by companies, in terms of where they decide to base their company or

ICO. Luc added: “Choosing the right jurisdiction is very important, of course, when it comes to the ICO. But now you can be compliant in some jurisdictions very easily, like, if you go to Gibraltar or Singapore, the lawyers and the law firms know what to do. Not many laws, so that is why it is easier and it has less risk. In other countries, like the UK, it is a bit harder obviously, but it is still possible. We are, on our side, jurisdiction-agnostic in what we do, we just make sure that they are compliant in the jurisdiction that they want to launch their ICO in. It is becoming more clear how to work in each jurisdiction. Each country is now going through the process of defining what a crypto asset is, and how you handle it with taxes and everything. I hope that a company from the UK can run their ICO in the UK, and the same for anywhere else - unfortunately that is not currently the case, but I hope this will happen soon.

Blockchain steals the spotlight– but don’t forget about AI and IoT The close links that have emerged between all three industries are becoming a common sight, with so much collaboration happening, often powered by big events. AI and IoT are, as of now, much more established technologies, and are already deeply linked within the various industries in which they apply. Blockchain, being a relatively nascent technology, still has some way to grow to be on par with the rest of them. We caught up with Maciej Kranz, Vice President of Strategic Innovation at Cisco, who described the relationship between IoT and AI as being “like the body and the brain, with IoT absorbing the data and then AI processing the data”. Blockchain can then provide a decentralised platform upon which a business solution can be hosted, and then may utilise IoT and AI to add value to their company or startup. Maciej continued, with regards as to how Blockchain fits into this: “Any industries where you have people doing a lot of different transactions with each other, that is where Blockchain tech can really come into its own, providing a trusted platform. From my perspective, and something that we saw a lot of on the show floor, is that this is going to be a year where these three technologies, combined with cloud architecture, will start being deployed in production,

The future of the fintech scene, is with experienced financial services people taking existing problems within their industry/sector and applying Blockchain solutions to them... and it is very exciting to have reached this milestone. We want them to be generating the data, take this data and analyse it (often using AI technology systems to do this), and then create decisions and outcomes, and in some cases IoT can end up being used to implement these things.” Whilst Blockchain is the newer of these three technologies, the success of companies utilising the Blockchain may actually rely on their ability to fully utilise the technological solutions of the other two. One thing’s for sure - the fintech scene is thriving. This space is rapidly maturing, and the future looks exciting, as the initial cash-grab ICOs and Blockchain solutions are fading away. Combining Blockchain technology with established industry know-how is likely to result in a successful outcome for any new company in this space.

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4 I June 2018


COVER STORY BLOCKCHAIN FOR ENTERPRISES THE FIN TECH TIMES

SMART CONTRACTS: WHERE ARE WE GOING? AGATHE BARCELO In April, we were lucky to sit in on some interesting conversations regarding smart contracts at The Blockchain Global Expo 2018 in London. Talks mainly revolved around the development and future application of smart contracts, whilst also acknowledging their inherent limitations and challenges.

A brief overview of smart contracts It is often said that smart contracts are digital platforms that enforce a relationship with cryptographic code. This automatic, certain enforceability of the contract leads us to the statement: ‘smart contract technology enables a world where trust can be digital’. Although their implementation is in its early days, and much improvement is still needed (technologically speaking), the concept of smart contracts is not a particularly recent one. In fact, the use of computerised systems to enforce such contracts has always existed. The difference offered by blockchain technologies lies in the fact that it provides the opportunity to develop electronic contracts that feature genuine autonomous execution. The distinctness between smart and traditional contracts lies in two differences, something that underpinned the discussions heard at the Expo. The first difference is the fact that smart contracts can allow for partial performance by computers, without the parties’ direct intervention. The second is that the enforceability of a smart contract can be either of the traditional legal kind, or a novel execution of computer code. The enforceability of these contracts was a major concern during the Expo.

The legal question The idea that computer code and legal drafting were two antagonistic concepts provoked great discussion during the panel ‘Smart Contract Management and Innovation’. During this panel, different experts, like Alfred Shaffir, CEO and Co-founder of iOlite, and Marcus de Wilde, Business development Manager at Applied Blockchain, worked together to reconcile both ideas and explain their different views on the matter. The central role that human decisionmaking and interpretation plays was acknowledged by the speakers in their analysis, especially in two specific scenarios. The first was that complex contractual arrangements with legal requirements cannot be encrypted into smart contracts, highlighting the fact that legal complexity cannot always be equal to a code. The second revolved around legal governance. Traditional contracts allow us to recognise the parties, also a distinctive feature of smart contract technology. The antagonism between developers who are experts in coding, and lawyers who master the science of law, makes smart contract performance sometimes challenging. Speakers raised the issue on whether “programming code is very different from everyday language we use to draft contracts” and asked open-questions like “Is code law? Should law undermine the code?” Finally, speakers concluded that “programming code is very different from everyday language we use to draft contracts”. This main question further relates to a broader concept offered by Harvard Professor Lawrence Lessig, author of ‘Code, and Other Laws of Cyberspace’ and introducer of the phrase which predicted that ‘The law of cyberspace will be how cyberspace codes it’. This is commonly known as ‘Code is Law’.

The idea that the code used in smart contracts is just regarded as a code, with no room for ambiguity or arbitration, was further discussed by Dr. Frank Emmert, Co-Founder of PrepayWay, on the Panel: ‘Smart Contracts on the Blockchain: Legitimacy, Validity, and Enforceability’. During this panel, Dr Emmert analysed three sets of three different problems that can be encountered between the seller, the buyer and the platform when forming, performing, and enforcing smart contracts. Finally, Emmert detailed how their business plan was built around solving the problem of arbitration. More significantly, smart contracts are not always secure, and this security greatly depends on the program and code used. Probably the most known platform, Ethereum, uses the ERC-20 token standard and Solidity code. The most famous

upgradability problems arising from the technology. Another way to overcome the technical problems inherent in smart contracts is to alter the nature of the Blockchain technology being used. This is what Stratis proposed at the Expo, via their panel presentation. Stratis is the platform that is using C# coding in smart contracts. Whilst their platform has other goals and potential use-cases, part of the logic behind it is to process the installation and development of blockchain by using a more familiar programming code than Solidity. This would go some way to addressing the risks and security problems that are inherent to the smart contract platforms, as well as to increase the universality of smart contracts and their subsequent audit. In a discussion The Fintech Times had with Chris Trew, the CEO and Founder of Stratis, he very clearly stated Stratis’ goal and the problem they are aiming to solve: “What differentiates us is that our smart contracts can be coded in C#. So if we take Ethereum for example, the platform discussed uses a new language, whereas with ours it chooses mature language with mature tools and a huge community of developers that know this language. Once we start seeing smart contracts using C# coming through, there will be a huge community able to audit those smart contracts and therefore limit the issues that other smart contracts platforms have had.” The Global Expo offered us the unique experience to see how different experts view the developments and have tried to overcome the limitations of these applied technologies that are very likely going to disrupt the business world.

The future

case of security shortfall with regards to smart contracts was the hacking of the DAO (Decentralized Autonomous Organization) on the Ethereum network, accounting for a loss of $55m. Interestingly, the hacker reaction highlighted the interesting parallels and differences between smart contracts and their real world equivalents. Because the hack was conducted in complete accordance with the coding principles within the DAO, the participants fully supported this hack, which then led to the now infamous hard fork of the Ethereum network. This is reflective of the ‘Code is Law’ principle popularised by Professor Lessig, and a concept that proved a hot topic on the panel ‘Smart Contract and Innovation’. Furthermore, following a recent research effort into Ethereum smart contracts, one company found tens of thousands of bugged contracts, which could potentially allow for the relatively easy theft of tokens.

The Tech The other challenges that are currently present in smart contracts have originated in the technological limitations in their underlying software. Like any programmed code, smart contracts are subject to vulnerabilities and, as complexity increases, so do the risks. Paradoxically, the technological advantages of smart contract logic has become a disadvantage. As Mike Barbarelli, Full-Stack Developer from FarmaTrust, commented; “Obviously, the fact that blockchain data and information is immutable, is a positive feature. But it also represents a problem when you are trying to built features on top of the blockchain.” Blockchain developers like Mike Barbarelli have been looking for different strategies to tackle the

Having analysed the major challenges discussed at the Blockchain Global Expo 2018, it would be interesting to forecast the possible improvements of smart contracts, both in the short and long-term. Looking to the shorter term, applications of smart contracts will develop for automated and straightforward payment contracts. As a long-term trend, the development of smart contract technologies may herald the beginning of a general transformation of contracts from paper documents to self-executing code-agreements. However, there is a desire within the community to move away from conventional thought processes of execution and enforceability. A tempting shortcut might involve focusing on artificial intelligence (AI), which is rapidly maturing, and relying on the fact that soon computers will be able to process human language on a par with humans. This means that an AI solution would be able to interpret the language of a contract and carry out its performance, essentially as robotic agents of the parties. Enthusiasts of blockchain technologies may argue that the fact that a smart contract would not be recognised as a traditional legal contract is ultimately irrelevant, if it effectively performs the same function as a traditional contract. As Mike Barbarelli stated: “As you probably well-know, data is what powers the engine of artificial intelligence right now, and it is better to have more cleaner and reliable data. I think as smart contracts continue to utilise them, and more is learned over time, that will simply make it a better data-set for the AI that may interact, execute or enforce them.” Despite the current challenges discussed, in the longer term, it is difficult to imagine that the execution and performance of legal agreements will not be transformed by the trends of digitisation that are remodeling many other spheres of human activity.

June 2018 I 5


BLOCKCHAIN FOR ASSET MANAGEMENT THE FIN TECH TIMES

DLT- IS THERE REALLY A USE CASE IN ASSET MANAGEMENT? O

nce again, the Fintech Times found themselves lucky enough to be eight floors up, down the road from Moorgate, and enjoying the fantastic views of the city from the Alphabeta building. Our most recent visit was for an event hosted by Codify, SEI’s RegTech incubator, to discuss all things asset management and DLT. A panel of experts explored the various use cases that artificial intelligence could provide to the asset and wealth management industry. AI, blockchain, IoT – all these things tend to go hand in hand at the moment, and now everyone wants to know what blockchain and DLT mean for the asset management industry.

Rising number of companies getting involved It was interesting to see a variety of figures from different sectors of the financial services industry in attendance at this event. DLT and blockchain were on the tip of everyone’s tongue, and everyone wants to know what the latest developments will mean for them – whether in their role as a traditional asset manager, or in a slightly different field. This is represented across the wider industry too, with many large firms starting to realise DLT’s potential in assisting their own solution development. For instance, BNP Paribas’ asset management division recently completed a full, end-to-end fund transaction test using blockchain technology. They are one of the first to take part in this type of blockchain testing – evidently trying to establish themselves as a company who are at the forefront of technological innovation. Coinbase, the well-known cryptocurrency exchange operator, has also followed suit with its recent launch of ‘Coinbase Custody’, which is a custody service that will provide secure storage for institutional investors looking to trade cryptocurrencies. According to CEO Brian Armstrong, “Over 100 hedge funds have been created in the past year exclusively to trade digital currency. By some estimates, there is $10b of institutional money waiting on the sidelines to invest in digital currency today.”

Why are they getting involved? According to a report published by the technology company Calastone, blockchain could save asset managers $2.7b by utilising the online ledger technology, instead of relying on manual methods of buying and selling funds. It all comes down to efficiency, according to Thorsten Peisl from RISE, one

6 I June 2018

of the panelists at SEI’s event: “People have to go through intermediaries, whose purpose is to manage the accounts for asset managers through various different infrastructures. An asset manager wants to focus on investment positions, and the service provider wants to provide access with low risk. When we see DLT and blockchain technologies being used now, I see them as an alternative infrastructure that allows incumbents to come together to better manage data and more efficiently process transactions and the like.” Peisl illustrated that the benefits were clear-cut when running their operational tests and cost-benefit analysis on the settlement of U.S. Equity: “Asset managers on the buyside can see savings of 25 to 45 percent without having to change all of these other environments, and that is great if you are thinking that market is very cheap and efficient already.” With these kinds of efficiencies promised, many can see business models within this industry rapidly changing. Control is another interesting facet behind asset managers’ motivation to get involved with DLT, particularly on this side of the pond. Jonny Fry, CEO of TeamBlockchain Ltd., explained, “you can draw parallels on the split between the American and European (and in particular, the U.K.) systems. The U.S. is focused on the constitution and having a code of conduct, whereas the U.K. looks to more of the spirit of the regulations and how things are being conducted. The Americans (Facebook, Google etc.) control the data, whereas the EU has GDPR coming into force, putting people back in control of their own data.” Combined with these regulatory developments, DLT and blockchain technology offer many interesting possibilities in terms of building trusted identity solutions. This is important because KYC and AML currently result in huge costs being incurred throughout the

asset management business. That’s where Fry sees the main benefit of DLT coming into play: “At this time, I would say we fully understand the whole technology behind this or perhaps the full ramifications of what it will all mean, but I think it will massively change both the buy and the sell side of things – a radical change. This is the big opportunity in KYC and AML – with DLT acting as a solution to the problem of all these huge costs.” South Korea’s largest telecommunications operator, SK Telecom, has also recently announced that they will be launching a blockchain-based asset management and payment service, which will “allow users to manage all bank accounts, credit cards, mileage points and other non-financial assets, including cryptocurrencies, in one basket, and enable transactions of the assets based on trust,” according to Oh Sehyeon, Executive Vice President. The key part of their offering is that “subscriptions and verification processes for services will be managed by a blockchain-based, digital, real-name authentication program.” This seems to be just the start of larger companies turning to DLT for their KYC and AML processes, and these developments will also benefit asset managers. Products such as ‘Coinbase Custody’ reflect the increased number of tools that are being made available to asset managers dealing with cryptocurrencies. In the past, custody services have been lacking for firms engaged within the cryptocurrency sector, which may have even presented a barrier to entry into this market.

So why aren’t we there yet – what’s holding us back? The main problem, according to panelist George Morris from Simmons and Simmons, is that “it’s not just a question of ‘are there DLT use cases within the asset management industry?’ It is more about asking if there are actual ways of utilising the technology in these use cases. Really that comes down to the development of the product. I think there is still a long way to go in terms of the solutions out there on the market.” Marcus Wilde, Applied Blockchain, concurred: “I think it is too early. The technology isn’t really there to support the use case yet, so whilst it is nice to dream of all these cost

and savings, we have to ask ourselves if the technology will ever really be ready.” This is a view acknowledging that the industry, as a whole, clearly does have some hurdles that it will need to overcome before it is able to fully embrace DLT solutions. One of the most prominent issues is regulation. Back in April, the FCA announced that they were going to conduct a consultation on the regulation of blockchain technology, causing great excitement within the industry and among the panelists and audience at SEI’s event. It was December (essentially a lifetime in the fintech world) when the FCA actually came out with a statement and clarification that they don’t concern themselves with regulating technology itself, but rather the outcomes of said technology. And they viewed the uses of DLT (aside from cryptocurrency) in this way, so for now, they weren’t getting involved unless there was tangible output from such technology. This provided clarity, but the Treasury Select Committee’s involvement could potentially muddy the waters. According to Morris, “One recent conversation was extremely down on crypto, bringing the whole discussion down, and blockchain ended up being portrayed in a negative light. It’s worrying if the government’s position is anti- blockchain. We want the U.K. and London to be the best place for blockchain technology in the world – a business hub – because it has so many use cases in asset management and beyond.” This is a definite issue within the industry, as DLT use cases for asset management are being ‘lumped in’ with discussions about cryptocurrency’s pros and cons. In many cases, they couldn’t be more different. Finally, there exists concern over how things will work in the collective space. How do you get everyone to agree on solutions and move forward with various developments? This is a particular problem specific to blockchain – a globally used technology that often lacks a central leader due to its very nature. Morris agreed this was a concern: “One of the other issues is that blockchains are designed to involve many different participants who operate in the same market (with a general lack of trust). That creates a big problem in terms of getting things off the ground. How do you go about getting all these people speaking


BLOCKCHAIN FOR ASSET MANAGEMENT THE FIN TECH TIMES

EXPERT OPINIONS

to each other?” Despite these concerns, all of the panelists were, to varying degrees, excited about blockchain’s potential. Peisl weighed in on this issue, bringing us back around to a more positive frame of mind: “I disagree about the technology’s timeframe. Existing technologies, such as HyperLedger, are not built for the posttrade industry and what we need to do within this industry. Lawyers would like to see things like timestamps – accurate points of time for settlement and changing of ownership. This doesn’t exist as a concept in the blockchain world. I fully agree that the generic toolboxes out there are not very useful, and we don’t want to use them. It is all about these proprietary solutions, separate of the existing infrastructures – this is what we do. So you pick the business problem that you are trying to solve and then see how to customise your tech to fit this – not the other way around.” So the solutions, even if they aren’t there quite yet, will come. Perhaps it’s just a matter of DLT being adapted for the specific use cases within the asset management space.

The future for DLT and asset management: cautiously optimistic? A common theme among the many technologies within this space is apparent. DLT won’t necessarily make other things obsolete, but it’s going to improve processes for a lot of businesses and make them rethink how they conduct overall business. Peisl added, “asset management will not change business models; direct application will not happen; but asset management will benefit from how this is all changing, even if it is indirectly. Risk and cost reduction is the benefit, and asset managers are the ultimate beneficiaries.” Once again, one of the event’s important takeaways, reflecting the general industry trends, is that blockchain’s use in asset management is separate from its use in cryptocurrency, and the two should never be lumped together. New asset classes, for example, may be revolutionary, but the asset management industry is looking for evolution. And the signs are there – DLT may be the technology to empower this evolution.

“DLT can play a role in creating transparency and real-time access to information” RICHARD GODWIN, Blockchain Strategy Lead, SEI How big will the impact of Distributed Ledger Technology (DLT) be on the Asset Management Industry as whole? And, how close do you think these changes are to actually happening? It will take a little more time for the industry to land on the right platform on which to build. Right now, most proponents are spreading their experiments across various platforms, trying to find the right fit for the various problems they’re attempting to solve. We believe the Corda platform is the closest to production-ready for this industry. Later this year – perhaps Q3 – we’ll start to see use cases finally in production on the Corda platform. What are, in your opinion, the main benefits that DLT will bring to Asset Management? Reconciliation costs can be effectively eliminated. We can have instantaneous settlement times for financial instruments that currently take up to 45 days to settle. Reduced transactional friction and manual processes are another major benefit. DLT facilitates the automation of many steps in the business work flow process through the use of smart contracts. What are your thoughts on the use of other technologies, such as AI, in conjunction with DLT (both in this specific sector, and more broadly)? I don’t want to oversell DLT’s impact. It is not a panacea. However, it is extremely valuable given the proper application. Where information sharing is a crucial piece of a business process or transaction, DLT can play a role in creating transparency and real-time access to that information for all participants to the transaction. Trade finance, insurance, healthcare, real estate, and obviously, financial services are examples where I think DLT could have a major impact.

THORSTEN PEISL, Chief Executive, RISE Financial Technologies

According to estimates provided by Oliver Wyman, Accenture, McLagan and others, DLT based processes can generate 30% savings from what is spent today. Today the industry spends about 30 billion per year on post-trade services across the entire securities services space, and asset managers by themselves do represent by far the largest portion of that spend, which translates to roughly 10 billion in savings. We did a very detailed cost research study recently for a large Continental European asset manager and an implementation of DLT for them would bring 24-48% cost savings for their settlement activities alone, so the high-level estimates of 30% seem altogether reasonable to us. With large numbers in play on both sides of the equation to drive ROI, you can see why the financial services industry is one of the leading industries for DLT adoption. The overall impact of DLT across all the functions of an asset manager over time will be very large, as complimentary activities such as exchanges, and the legacy market infrastructures that support them, make the switch over to DLT technologies. With respect to today’s DLT activities, a well-designed DLT solution will bring benefits across multiple functions, and is designed to be as future proof as possible. These activities are taking place now and will deliver considerable impact over the next 1-3 years. Right now, the use of AI in conjunction with DLT is limited, DLT does not have the huge data sets needed for true AI and we are not building them with DLT, we are rather focused on bringing industry processes into new business models powered by the DLT value proposition. That said, there are a couple of areas where AI as an input or output DLT linkage can make a lot of sense. Identify management is one area, having established an immutable identity record that can be update by AI surveillance of the entity and any risk factors identified provided back would be very insightful. As the DLT datasets get built out and grow, no doubt you will see more applicability of AI in the DLT landscape.

JONNY FRY, CEO, TeamBlockchain Ltd.

DLT will have a huge impact in asset management, as it has the opportunity to remove many of the current third parties which have led to the annual management charge of many mutual funds being stated as 1%, yet the total expense ratio often being 2.5% or even higher. A good example of this is the work that the Northern Trust and PWC are doing to simplify audits of Private Equity fund. Initial Coin Offerings have created a new asset class, which to date is uncorrelated with other major asset classes. This offers fund managers an opportunity to diversify their portfolios and potentially improve the risk adjusted returns for their investors. I see DLT a little like the skeleton of a body, and from this we will see other technologies hang off it, like AI, IoT, Big Data etc. For example, there is a Spanish listed company called Nostrum, who are building a Crypto Franchise model to expand their chain of fast food restaurants in France and Spain from 138 to over 800 in the next five years. They have developed the technology so that when you go in to one of their restaurants, they recognise you via your phone. You can then pick food and a drink, and when you sit at a table and look up at a monitor, there will be a picture of your face and the items that you have selected. All you then do is put your thumb up and it will deduct the price from your phone, send you a confirmation of what, where and when you purchased and update your wallet. Using IoT and DLT, this removes the need to handle cash and reduces the number of staff that you need in a restaurant, while making it faster for one to buy and pay for food. The above is not without its challenges, including regulation and tax, but it is encouraging that the FCA are listening and not stamping out innovation, but actually, via dialogue and examples like the sandbox, are encouraging the industry. it faster for one to buy and pay for food.

June 2018 I 7


BLOCKCHAIN THE FIN TECH TIMES

Decentralised technology changing the financial world - fresh insights from Blockshow, Berlin The problem of creating trusted digital identities to improve customer experience is among the core challenges for the incumbents and challengers in the digital era. Can blockchain help? The Fintech Times spoke to the participants of Blockchow Berlin. The below companies, spanning a wide range of industries, are all ushering in the next wave of blockchain technology and bringing a number of unique use cases to life.

MIKE SAYFULLIN, CEO Enecuum:

Today, we see the global finance taking the conservative approach and fighting blockchain. This situation resembles the one with Uber and regular taxi drivers, except in this case it will unravel much faster. Bankers realistically have very little chance of pushing away the change. Attempts to create a strict regulatory environment that is unfriendly to blockchain, such as what SEC is doing right now, is rather an interim process to clean the market of scam projects. If we want blockchain to become a part of everyday life, the blockchain community has to focus on two big goals: 1. Superior scalability and transaction speed. Let’s take a simple example: today PayPal processes 115 transactions per second, VISA 2000, and the fastest blockchain platforms reach 1100 TPS. Enecuum efficiently solved the speed problem - we opened our own testnet where transaction speed right now reaches 60,000 (!) transactions per second, which completely covers current business and traditional payment needs. The company keeps improving the throughput to reach a speed needed for IIoT infrastructure. Enecuum developers found a proper solution to the scalability problem and designed a completely new approach for storing transactions - the HyperDAG. The approach guarantees high security and scalability. 2. Building trust of the global finance and audience that is new to the technology. This task is much more complex but is still solvable. We need to consolidate the Crypto industry and bring founders of different projects together to work for the common good.

8 I June 2018

GABRIELE GIANCOLA, Co-founder and CEO of blockchain-powered loyalty ecosystem qiibee:

Blockchain technology’s potential

for saving on transactional costs and improving operational efficiencies is driving renowned financial institutions such as Santander, Credit Suisse, and UBS to invest millions in blockchain research. Two areas which stand to benefit from the use of blockchain technology is fraud reduction and Know Your Customer (KYC): unlike traditional, centralised databases which are prone to cyber attacks due to a single point of failure, blockchain technology is a collection of transactions saved in separate blocks and is therefore less liable to data breaches and hacking. With regards to KYC, blockchain would allow independent client verification by one organisation that could be used by any other organisation, resulting in a significant reduction in administrative and compliance costs, and saving financial institutions the US$60-300m spent each year on client due diligence. Digital identities are also becoming more widely used, and blockchain technology allows users to make digital identity applications more secure and trustworthy. Unlike username and password combinations which are vulnerable to being hacked, a trusted digital ID is created with a verified identity document once a user’s information has been checked, allowing companies to verify if customers are who they claim to be.

THOMAS SCHOUTEN, Marketing Director at Lisk :

Decentralised

technologies and blockchain are already having transformative effects upon the world of traditional finance. Their further application by traditional financial institutions promises only to lead to further fundamental changes to this somewhat stagnant sector. The levels of security and immutability furnished by decentralising technologies will provide new storage solutions within the financial sector for documentations and loans, saving institutions billions of dollars as a result and drastically decreasing processing times. Recent estimates by Accenture show that the global financial industry could save up to $10 billion USD by using blockchain to store and process clearing and settlement – this figure is independent of blockchain’s other applications within financial markets and the savings they can accrue. As such, it highlights only a fraction of the positive effects which blockchain can have on traditional finance. Blockchain technology similarly benefits customer experience by allowing the creation of trusted digital identities. The beauty of blockchain is that once a given transaction, or piece of information, is registered on a permissionless, fully-functioning blockchain, it is virtually impossible to manipulate or alter that data. If a customer opts to store their personal information on a decentralized ledger, they can enjoy full transparency as to what way their data is used – giving them levels of security and assuredness previously unknown to them. If a financial institution also opts to make use of a decentralized ledger to store customer data, it leads to far greater clarity in its service offering, improving customer experience. This improved service offering, giving customers renewed levels of transparency and security – which are increasingly valued in the modern economy – results in the business becoming more competitive, and leads to greater success in the long term.


EXPERT COLUMN THE FIN TECH TIMES

3 LESSONS

FROM SPOTIFY FOR COST-EFFECTIVE PRIVATE SECURITIES SALES We draw on Spotify’s recent IPO, tokenised securities, and the new economy ethos to unlock better possibilities for making private offerings. platform a one-stop shop for music lovers. But with over 70 million paying subscribers and 10 million new subscribers joining every 6 months, the company leads on digital music consumption, and all while maintaining strong values and an ethical approach to its business.

Lesson Two: Secondary Markets Can Provide Attractive Liquidity for Investors but Comes with Limits

JEFFREY SWEENEY CHAIRMAN & CEO, US CAPITAL GLOBAL Lesson One: Start with a Sound Business Model Building a business on a sound, ethical footing creates better outcomes for all involved. Companies can get the best of both worlds by combining the use of innovative technologies with measures that protect stakeholders, and so create and protect their legacy for the long-term. In Spotify’s recent launch into the public (retail) securities markets, we see a landmark case that features modern and best practice private capitalisation, a solid company ethos, and investor protections. The direct listing for Spotify, a music-streaming company, on the New York Stock Exchange on April 3 is unusual for an IPO in that the primary goal was not to acquire further capitalisation. Instead, it has been an opportunity for existing shareholders to cash out, while making those same shares accessible to a wider pool of mom and pop investors. This seems to reflect the company’s commitment to growing at a pace and through a process that serves its shareholders as well as its customer base. Compared to predecessors such as Napster, whose initial premise was to rip off music artists by sharing their songs online for free without permission, Spotify provides a consensual meeting point between music labels, their artists, and their fans. The company’s business model is not without its challenges, as the lack of direct ownership of content means it has to rely on third parties to make its music-streaming

Turning our attention to capitalisation for private companies, we can observe that Spotify executed best practice in the private securities markets. From its inception, the company has taken the usual path from attracting investments from family and friends for their angel round, to growth phase sponsor-backed rounds, to raising capital via sophisticated, very high net worth investors who were Qualified Purchasers (QP, $5M min investable assets). This was followed by a long growth phase with further investments from additional Qualified Purchasers (QPs). But in its scale-up phase, we see there was a divergence from the traditional route of early round funders buying, holding, and growing Spotify’s private securities to then sell it on in an emerging private secondary market to new investors. Unfortunately, this opportunity was unavailable to high net worth, accredited investors. The reality of long gestation periods to an IPO for tech companies like Spotify means that we are seeing the emergence of a robust secondary market for private securities for these large-cap companies (those valued at over $1 billion). Through this secondary market, certain investors are able to purchase private securities from early investors or employees, and so provide them with liquidity while participating in further raising the value of the company. Spotify has been an excellent example of a company having a very active secondary market for many years while the company pursued growth, away from the limelight of an IPO. Companies allowing the sale of their private stock to provide liquidity for investors can indicate a positive ethos of doing right by their shareholders. However, this secondary market is not always an option for young companies and their early supporters, as the expensive and inefficient transaction process tends to limit the pool of participants only to institutional investors. With block purchase minimums of $5 million and the associated high transactions costs, the vast majority of high net worth and qualified investors are effectively shut out of this market. That Spotify was able to successfully participate in this narrow market is a testament to the company’s appeal among investors. Spotify has continued to honor its commitment to its investors by finally ‘going public’ and directly listing its stock on the public markets, and in so doing, bypassing the

expensive process of having investment bankers formally underwrite the process. This move has provided liquidity to the company’s early investors much more easily than a secondary sale could ever do, while finally allowing retail (individual) investors to buy stock and participate in the company’s growth and prosperity.

Lesson Three: Security Tokenisation of Private Offerings Could Expand Participation Pool Ahead of IPO For pre-IPO companies wanting to encourage investments from a greater pool of participants, tokenised private securities could offer a suitable alternative to traditional secondary market sales. It is important to note here that a tokenised security is starkly different from an Initial Coin Offering (ICO), which solicits investments without issuing any security or equity in return – to the detriment of investors. ICO issuers will often declare that their offering is not a security and is therefore exempt from the securities laws that are in place to protect investors from inappropriately risky investments. Tokenised securities, on the other hand, are very much regulated and come with the same value and legitimacy as traditional securities. By using the underlying blockchain architecture that ICOs are based on, smart issuers can take an innovative technology and use it to improve the security and efficiency of their regulated offering. ‘Tokenising’ a security would mean tying an offering to its own secure blockchain ledger and recording all transactions related to that particular security on that digital ledger, so that the chain of ownership is transparent and uncontested. While this is still an emerging practice among issuers, the tokenisation of securities could potentially allow companies and investors to solve many of the historical problems and inefficiencies that have been faced by companies like Spotify who want to provide secondary liquidity to their shareholders. Using blockchain technology for the compliant sale of securities can help reduce transactions costs while improving security and transparency. This in turn can help expand opportunities for liquidity and participation to a wider circle of investors, which can only mean better possibilities for all involved. Spotify may have missed out on adopting this emerging model for increasing its investment participation pool prior to its IPO, but it doesn’t seem far-fetched to conclude the innovative young company would have considered it, had it been an option at the time. But the good news is that, for the new Spotifys of the startup world, tokenised securities could very well be the answer to better liquidity and participation that helps to draw greater investments and rapidly increase shareholder value. June 2018 I 9


THE STARTUP LIFE THE FIN TECH TIMES

Image: contsimples.com.br

HOW TO

CREATE A FINTECH By: Daniel Tammas-Hastings, RiskSave

Traditional finance careers are currently in short supply whilst finTech gets more and more interesting. So, if you have a finTech concept, then we’re here to help. We ask how can you create your own finTech?

of the complexities of even running the smallest businesses. Professional investors cannot only help accelerate traction, they can also help with risk management and operational concerns that entrepreneurs often overlook. Frustratingly both viewpoints are partly right. But if you find a VC you like, earlier is better in my opinion.

First we assume that you have the skills necessary to create something usable. In start-up land (and Level 39) they call this an MVP or Minimum Viable Product. What should you do next?

Once you have begun developing the product, mundane matters of operations and compliance become more and more relevant.

The first question: To fund or not to fund?

The second question: Regulated or unregulated?

With large institutions flush with money and excited by Fintech, finding the right funding partner can be the start of a relationship that takes you all the way to IPO. But get it wrong and it can lead to a total loss of control. Another worry, if you pick the wrong corporate partner, you may alienate potential clients. It’s always worth asking whether you need professional funding. If you have minimal cash needs and /or have access to friends, family and angel networks you may achieve product market fit without being overly diluted and compromising your vision. VCs and entrepreneurs will often disagree on when to first seek outside investment. Most founders will say that you should remain independent as long as possible using your own resources, this is commonly known as bootstrapping.

Whether you sit under the FCA’s watchful eyes is not always clear. The first step is to consult the FCA Handbook in particular the Perimeter Guidance Manual. Regulations can be confusing and on the surface contradictory so you may have to contact a consultant or the FCA to help. Fortunately, with The FCA have a dedicated team to help you with this. Known as Project Innovate.

By bootstrapping you can avoid dilution and have more time to work on their concept without the distraction of funding and investor meetings. Most VCs I know say that in many sectors winner-takes-all applies and that speed is important. First time founders particularly should be aware

10 I June 2018

The third question: Which route to market? Here are the three routes to market for an AltFi proposition. 1.Project Innovate. The Financial Conduct Authority (FCA) as part of its mandate of stimulating competition and lowering consumer prices has been at the forefront of stimulating innovation within its markets. As such it has created the Regulatory Sandbox to aid novel propositions to market. The sandbox is a way for companies to test propositions in the real world, which makes it easier

for younger companies to go to consumers and with more clarity. The Sandbox has had firms as small as Bud (UK startup) to HSBC (slightly larger) receive regulatory guidance as they test innovative product. 2.Full Authorisation: the traditional approach. Direct authorisation has the advantage that FCA employees will have taken to analyse your business model and that you will have a direct relationship with your regulator. The drawback can be the cost and the lack of control over timings. Authorisation can often take up to a year, with little control over costs or timeframes. For this reason many start-ups and even established firms entering new markets choose. 3.Becoming an Appointed Representative: To accelerate their route to market, some fintechs utilise an ‘FCA Umbrella’. Here they don’t apply for authorisation direct. Instead they are supervised by another regulatory firm (such as RiskSave) which has the relevant permissions. The regulator will hold the principal (FCA Umbrella) accountable for failings in the AR’s activities. The process for becoming an AR is measured in weeks rather than months, and the regulatory hosting firm will often advise on compliance and operational issues lowering the fintech firms’ employees’ requirements and costs. In practice the most appropriate approach will depend on the proposition, and the budget available. Once the MVP is complete and you authorised (directly or indirectly). Then it’s time to see if the idea made sense. Good luck!


TALENT THE FIN TECH TIMES

WARD HADAWAY ADVISES GROWING FINTECH SECTOR ON EXCEPTIONAL TALENT VISA SCHEME LAW firm Ward Hadaway is continuing to play its part in helping to bring some of the world’s most talented tech sector people to Fintech companies across the North of England and further afield.

By Flora Mewies, Employment and Immigration Solicitor at Ward Hadaway The Top 100 UK law firm, which has offices in Newcastle, Leeds and Manchester, is working with regional technology organisation Tech Nation on the Tier 1 Exceptional Talent visa scheme. The scheme aims to make it possible for tech talent from around the world to come and work in the UK’s digital technology sector. Flora Mewies, an Associate in the Employment team at Ward Hadaway in Leeds, said: “Technology has always played a key role in the financial sector in ways that people might not have realised which has in turn spurred on innovation and you could even say an evolution. “The world of E-commerce is all around us and as a result, we now have a financial technology infrastructure which most people use daily. More than 42% of digitally active adults now use the services of at least one Fintech firm and more than 20 million people in the UK make use of banking apps. “Fintech North Leeds has the biggest Fintech presence outside of London with several hubs, including Future Labs, Duke Studios, Platform, Workspace Hub and University Business Centre, and the sector is growing all the time. “Ward Hadaway recognises this and is an active supporter

of Fintech North events. The Fintech North Leeds conference has recently taken place as part of the Leeds Digital Festival. It attracted more than 300 people from banks, building societies, start-ups, technology firms, investors, advisers and academia. “We recognise that tech sector skills are a scarce commodity across the country and we are seeing both banking and Fintech doing their best to acquire those skills.” According to figures issued in a recent survey by Tech City UK, more than 50% of businesses highlighted a shortage of highly-skilled employees and nearly 25% described sourcing talent as a major challenge. Tech Nation, the organisation which champions the digital sector and growth of digital businesses in the North of England, has the ability to endorse applications for the Tier 1 Exceptional Talent Visa. Currently this allows up to 200 exceptionally talented individuals in the digital technology field to come and work or set up businesses in the UK every year. This has now been extended (from April 2018) so that there are an additional 1,000 endorsements available each year for the Tier 1 Exceptional Talent Visa, albeit these will be issued to the relevant endorsing body across six sectors, on a first-come first-served basis. Ward Hadaway has been an official legal partner for the Tech Nation Visa Scheme since 2015. Immigration experts at Ward Hadaway provide legal support for companies across the North who are looking to employ world leaders or rising stars in the tech industry, and those individuals thinking of applying for a visa to work in the UK tech industry. Flora added: “The Government is engaging with Fintech firms to discuss how the UK can continue to attract the best international talent, including what they are looking for from a future immigration system. “We have been working with Tech Nation as sole immigration advisors for the North and were pleased to raise further awareness of the Tier 1 Exceptional Talent visa and continue to provide support to applicants and employers. “We have recently successfully obtained visas in the Fintech sector, examples of which include a technology partner and delivery lead and a senior technical consultant. “Many of the companies in the sector are leading the world in their respective fields which means that, whilst the vast

majority of jobs they create will be home-grown, having access to exceptionally talented people across the globe can help them to get even further ahead of their competitors. “The Tech Nation Visa Scheme aims to help them do exactly that, ensuring that the economy benefits from exceptionally talented individuals from overseas whilst keeping in line with Government immigration targets and policy. “We are delighted to be involved in the scheme, to be working with Tech Nation, tech companies and the highly talented individuals across the North to ensure the region benefits from a world of expertise, as the countdown to Brexit continues.” Ward Hadaway continues to advise a number of companies including many of those in the Fintech space looking to recruit and/or retain staff on the options available to them for recruiting outside the EEA. It has also helped many talented tech people secure their endorsements and visas to work in the UK tech sector. Ward Hadaway has hosted a number of Tech Nation events this year designed to raise awareness of the scheme and of visa requirements in general. The events have focused on the experiences of those who have come through the scheme and provided an opportunity for local businesses, entrepreneurs and organisations to ask questions and learn more about hiring talent from overseas to fill their vacant tech roles. Flora added: “It’s extremely important to invest both time and effort in the preparation of the application in order to highlight key skills and achievements. Applicants need to be endorsed by Tech Nation as having either exceptional promise or exceptional talent in the field of digital technology. “This is where we can assist as experts who have prepared numerous applications and successfully helped candidates obtain their visa, bring their dependants to the UK and ultimately apply for indefinite leave to remain in the UK and settle here permanently.”

For more information on the issues raised by this article, please contact Flora Mewies at flora.mewies@wardhadaway. com or on 0113 205 6797.

Experts in business immigration advice www.wardhadaway.com Newcastle | Leeds | Manchester

June 2018 I 11


INSURTECH

RESHAPING

THE FIN TECH TIMES

the Insurance Industry KATE GOLDFINCH NATHAN GORE Insurtech is now a big deal, and it is here to stay. No longer just a mere overlooked subdivision of the wider fintech industry, it is beginning to make waves in its own right. According to data from CBInsights, Insurtech investment averaged $1.7 billion a year from 2014 to 2016, compared to $250 million a year from 2011 to 2013. Insurtech is now a truly global phenomenon, with the UK, Germany, China and India now being significant markets in their own right. There has been a rise in the media buzz around this sector too, thanks to some mega funding rounds generating headlines. Zhong An ($930 million), is China’s first property insurance company which is selling all of its products, and handling all of its claims, completely online. Oscar ($400 million), is a technology-focused startup that has experienced rapid growth, and expects to generate nearly $1 billion in revenue, and enroll a quarter of a million members in 2018. Recent launches of startups like USbased Lemonade and UK-based Trov, have also gone a long way to generating investor excitement in this sector.

The 3 technologies driving the rise in insurtech

Source: Accenture “The Rise Of insurtech” 1. Analytics One ‘big data’ startup making waves in the insurtech space, is The Floow. The Floow gathers data from phones and invehicle ‘black boxes’, and aims to help make insurance premiums more accurate and also attempt to reduce the likelihood of a driver having an accident. They have received £13m equity investment, coming mainly from China-based investment group Fosun, with investors United Electronics Co., and Direct Line Group also involved. 2. AI + ML As a case example of investments into AI-driven automation, there is AIG who have invested in Human Condition Safety, an early stage company matching wearable technology with artificial intelligence. Machine-learning is changing the way insurers do business, and it gives them 3 12 I June 2018

distinct advantages. The first is to mine greater volumes of data, and the second is to scale analytics across the organisation by working smarter and faster. Thirdly, by answering more complex questions from “will this customer leave me to renewal?” to “what can I do about it?” it enables companies to grow up their predictive accuracy. Also machine-learning has real world applications, in the insurance fraud detection sector. One company making waves is Lemonade, who in 2017 raised $120 million in a series C funding round, led by SoftBank. This USbased startup claims to be “a purpose-built, technology-first, vertically-integrated and legacy-free insurance carrier” as well as the first P2P insurance company in the world. They rely on chatbots and ML in order to cut down on paperwork and process claims faster. They also pitch themselves as an ‘ethical’ solution, as they have an annual ‘giveback’ scheme, in which they donate all unclaimed money to good causes. 3. IoT IoT can help to catch consumers’ behaviour shifts and to develop different pricing models (e.g. telematics – ‘pay as you drive’ model); to collect big data and to turn it into something that benefits customers through launching relevant products. And also IoT allows the implementation of automatic claim processes using different devices. A good case example of this is Cozify, a Finnish company founded in 2013, who provide wireless system installation and maintenance services for home automation. In 2017, they partnered with LocalTapiola in order to launch the first Smart Home Insurance in Scandinavia. The aim is to combine an open home smart system with an extensive home insurance protection, in order to save the customer money and provide ease of mind. For instance, in the case of a water leak, fire or burglary, a smart home with notifications enables the customer to be proactive, rather than reactive when dealing with an insurance-relevant emergency/ situation.

How are Traditional Insurance Companies Responding to these changes? The insurance sector, like with many other traditional sectors, has been notoriously slow at adapting to emerging technologies. They also find themselves faced with everchanging regulatory requirements, complex IT infrastructures, and significant changes to the traditional distribution model. As Accenture’s ‘The Rise Of Insurtech’ report puts it: “traditional insurers are more than 300 years old, whereas many insurtechs are less than 300 days old. This can lead to significant

challenges and differences surrounding culture, workforce, agility, and technology. It can also lead to misconceptions on both sides and, occasionally, a lack of common understanding about the size of an opportunity or how best to realise it.” A look at some of the statistics behind this situation- conducted via surveys- really tell more of the story. Firstly, three in four insurance companies believe that some part of their business is at risk of disruption, but only 43% have fintech at the heart of their corporate strategy. These are the main numbers that indicate the current state of affairs within the wider industry. Furthermore, less than a third of insurers are exploring partnerships with fintechs, and only 14% have a more active participation by investing in and/or supporting fintech incubators. According to the same report, however, nine in ten insurance executives, the greatest percentage out of the financial sector, believe that at least part of their business is at risk to Fintech. So whilst these companies are aware of the challenges that this new technology will bring, it appears that- at least previouslythere was a lack of appetite within the industry as to formulating a specific strategy for how they are going to best approach this. Given the rapid pace of the fintech industry, however, it is unlikely that they continue to ignore possible relationships for much longer.

Traditional Big Players putting money where their mouth is

Source: Accenture “The Rise Of insurtech” So, as we have seen, there is plenty of innovation within the insurtech sector, coupled with a general lack of recognition from within the established insurance companies as for the need to work with this new technology, or to adapt themselves. This may have been the case for the whole industry a few years ago, but it seems it is not the case at present, for everyone. Big, traditional industry players have now woken up the promise of fintech.

Investments in blockchain-related startups across industries have grown to more than $800 million, according to McKinsey – and the insurance industry is taking note. Since 2014 AXA, Generali, Allianz, Lloyds of London, Mutual Insurance, and MetLife have poured millions into blockchain research, determined to strengthen ties with consumers, regulators, and each other. Eos Venture Partners, a specialist venture capital investor, has announced their intention to raise a $100m debut fund. The fund will be one of the first global, independent insurtech investment funds, and will be targeting early and growth stage investments. Sam Evans, one of the General Partners, commented, “insurtech is one of the fastest growing investment sectors globally, and is a compelling space in which to invest. There are tremendous opportunities to drive innovation and Eos is positioned at the heart of this new and exciting sector. The global insurance industry is facing an unprecedented period of change, that will see a trillion dollar value shift between winners and losers.”

What’s next for the Insurtech industry? “Insurers recognise that the everyday lives of their customers are being transformed by new technologies. They also recognise that this transformation is affecting their own industry, which is undergoing an ecosystem disruption caused by technology-driven new entrants and existing competitors alike. Insurers are thus facing increasing pressure to evolve and reinvent themselves before that disruption hits the bottom line,” Accenture’s ‘The Rise Of Insurtech’ research explains. Just how important is Insurtech to the industry? Will it be only a minor disturbance, a footnote in the history of an established industry accustomed to thinking in terms of decades, if not centuries? Or does Insurtech represent something more serious; not just hype but a new frontier, one that perhaps will pose a threat to incumbents? And will Insurtechs bring insurance to the next level by unlocking the power of customer-centric thinking and digitalisation? While many insurance companies initially ignored Insurtech activities and denied their relevance, the picture has clearly changed. Virtually all major insurers and reinsurers have initiated digitalisation programs. Quite a few have responded by setting up captive accelerator or incubator programs, or by making direct investments. Providing traditional players with some recommendations on how to facilitate the companies’ growth, we ought to mention the importance of driving innovations through collaboration. Combining the depth of incumbents’ experience, with the creativity and agility of start-ups, will accelerate the industry’s digital transformation and enhance its ability to respond to future challenges.


INSURTECH THE FIN TECH TIMES

EXPERT OPINIONS

“Time-to-market is the biggest challenge insurers face today…” Udi Ziv, CEO at Earnix – the advanced analytics solutions provider for the global insurance sector, shared some thoughts on the future of datadriven insurance business Udi, how do insurers need to reinvent existing business models to follow customer needs? Insurance has always been a data-driven business, but new forms of data and new ways of processing them are disrupting past business models. For example, with the take up of telematics and IoT, current insurance product offerings will be revolutionized by usage-based pricing that can accurately assess and price the risk on an individual level. Add to this changing consumer expectations, where providers are expected to have an understanding of their customers and be able to predict current and future needs, insurers must reinvent their product lines and how they market them to be customer-centric at a level previously unseen. All of this is enabled by these new forms of data and exponentially more powerful means of analysing it, for example AI and machine learning. Companies that can adopt these skills and go-to market approach will be able to excel in today’s market.

“With the take up of telematics and IoT, current insurance product offerings will be revolutionized by usage-based pricing” What TOP-3 the most crucial shifts / trends do you consider for the insurance industry this year? After many years of investment, digital transformation focused on operational efficiency continues to drive change within the insurance industry. The next horizon we see is “Customer-Centric Digital Transformation” which takes the concept of personalisation to an entirely new level, to include not only customer engagement, but the ability to personalise

product offerings based on the individual’s risk factors. Consider global technology leaders like Amazon, Netflix, Google and Apple and their levels of personalised customer experience, and apply that to the financial services industry. Unlike most other industries, financial products often have a cost and profitability based on the individual’s risk factors, Customer-Centric Digital Transformation uses advanced analytics to personalise the relationship between financial institutions and customer, not only for better engagement, but also for better profitability. Related to this is the need for speed in a world that is dominated by online real-time customer interactions. Financial institutions are seeking ways to upgrade their systems to operate in this environment, however are held back by the risk and cost associated with replacing core systems and don’t have the liberty of time. To overcome this, financial institutions are seeking innovative ways of adding real-time capabilities to their IT landscape, enhancing their current systems by adding new real-time capabilities for the most critical customer-facing interactions. This strategy enables leading institutions to not only keep pace with customer preferences but compete with fintech disruptors. Also part of this transformation is the emergence of data-driven enterprise, using deeply embedded analytics powered by AI and machine learning and integrating these with core systems to produce a new level of customer insight. These systems will be able to understand how to price risk on a one-to-one basis with surprising accuracy, and therefore will significantly change the products and distribution processes offered by the financial services industry. The integration of AI and machine learning into real-time production systems, which can apply these advanced analytics at hyperspeeds, will provide the competitive edge to early adopters. What insurtech companies will become acquisition targets? Analytics is a top priority for senior management in the financial services industry. Fintech and insurtech companies that can effectively harness new data and new ways to process them will attract funding and become acquisition targets. While the past few years have seen great activity and investment in companies that renovate core operations in order to reduce costs and speed up processes, the next phase will be focused on customer engagement. Insurers need to be able to provide the kind of experience that consumers have come to expect from technology leaders. For financial institutions this means deep seated analytics that can customise risk-based products for each individual customer.

What is the biggest problem traditional insurers are being challenged? Established insurance companies are being challenged in many ways, whether it is the ability to transform their operations to meet the demands of a real-time digital world, or the fintech/insurtech community finding opportunities to disintermediate and disrupt, there are multiple forces challenging the market place status quo. Time-to-market is the biggest challenge insurance companies face today, because the scale of the changes necessary and the time it will take do not jive with marketplace realities. Whether it be systems changes, distribution changes, or even changing business models, change is needed now, and large traditional insurance companies must find ways to address these issues quickly.

GIDO VAN DE GEEST

Head of Operations Elmore Insurance Brokers Limited Insurers need to re-invent themselves both from a product and a distribution point of view to serve their commercial customers better. It needs to be much easier to buy a product, less data input requirements, more big data background analysis and customers should have continuous policies that adapt to the changes of the business to ensure continuous coverage, no more annual renewals. Companies expect a similar insurance purchase process as with their personal policies, make it convenient, competitive and most importantly respond immediately in the event of a claim and it will be a success. TOP-3 the most crucial shifts for this year for the insurance industry? 1. Several insurtechs (like Bought by Many, Digital Risk) have now come out of their labs into the real world, it’s very possible for a few to make an impact and take market share away from incumbents. 2. GDPR – possibility for the first fines to be issued, which will test the cyber insurance policies and their coverage. Regarding cyber insurance I expect many companies to be underinsured for their exposure. 3. Continuous low interest environment, coupled with high losses in prior years and excess capacity is resulting in margin pressure, possibly leading to further consolidation and insurers withdrawing from the market. If we draw a parallel with the fintech industry, it seems it’s not the supportive solution providers that receive the biggest

capital, it’s the challenger ones that need and receive the biggest amount of funding, and rightly so. The relationship-based insurance industry is changing to a more data driven, less face-to-face one, offering the right solution, at the right price (honour your existing customers) in an easy to use fashion, using the right language, wide range of distribution channels and style with a complete product offer will attract the interest from investors. Besides all the well documented macro challenges (interest rates, regulation, margin pressure) traditional insurers are challenged by a significant amount of inflexibility (legacy systems), lack of trust and misunderstanding about the real needs of the customer. Pricing on policies is not transparent (renewal policies more expensive than 1st time purchases??), current application processes are alright, but then any changes to those result in needing to make phone calls and spend time answering numerous security questions and dealing with the various members in the call-centre. I believe in the blockchain/smart contract type of solutions and would hope these will be mainstream in a few years, enabling a quick and efficient purchase process which will give both parties trust in each other and will eliminate unnecessary overhead from the process, lowering the premiums paid, claims costs, fraud and allows for continuous insurance cover, hallelujah!

PHOEBE HUGH CEO & Co-founder Brolly

How do insurers need to re-invent the existing business models to follow customer needs? The biggest problem traditional insurers are facing so far it is themselves. Insurers need to start by focusing on what people need rather than what is best for them as a company. Insurance is a key part of people’s lives, but is overly complex and based on a model that overcharges, penalising loyalty and taking advantage of the fact that people are disengaged. In the UK we’re seeing the impact of tech on the insurance industry with a new wave of companies and approaches coming through; and this year we’ll see the start of that shift - with consumers actually switching from incumbents to new startup models like Brolly. June 2018 I 13


INSURTECH THE FIN TECH TIMES

How INSURTECH Will Accelerate The Social And Economic Impact Of Insurers In partnership with Digital Insurance Agenda Financial institutions are usually presented as the utility companies of the economy. That obviously does not reflect the sector’s importance. The financial sector plays a key part in the social and economic development of every community, country or continent. Although most people may not realize it, financial services are at the heart of the daily lives of individuals and businesses. A large percentage of homeowners – in some countries more than 80% – have taken out a mortgage. An ever-growing part of medical costs is covered by insurances. A vast number of businesses is financed by banks. All the great challenges we face in the coming decade – climate change, natural disasters, poverty, ageing, health care, water, waste, energy, you name it – require solutions in which financial services play a key role.

Leverage assets and competences for social and economic impact In our discussions with insurance executives across the globe we learned that virtually everyone is aware of this important role and committed to playing this role to the best of their abilities. Over the last decade the concept of corporate sustainability or corporate socially responsible business has acquired new meaning. It is no longer a matter of doing something for charity or having a climate-neutral office. It is about accepting broader responsibilities and always keeping the greater purpose in mind: the company’s role in society, serving society. It is about the raison d’être of the company itself. And to have a big impact on society, it is about leveraging specific assets and competences.

Consumers long for institutions that care The fact that the insurance industry is reaffirming its commitment to contributing to social and economic development is essential from a business point of view. Today’s consumers make their choices not only based on price and product features but also on what they know about a company. Reputation and social responsibility are becoming increasingly important in their perceptions. Consumers are longing more than ever for institutions that care. This trend will continue to gain in importance because of the rise of millennials. This generation is considered to include the most socially conscious consumers to date. For many, ‘sharing and giving’ has replaced ‘taking and having’ as their status symbol of choice. More than any other generation they make a direct connection between the degree to which they trust a company and how this company behaves and acts socially. They also want to see their norms and values reflected in the company they work for. They want to work for companies of which they can be proud.

Insurtech allows carriers to play a bigger part We believe the insurtech community is able to support the insurance industry in taking this role much better than ever before. Just like entry barriers have been eroded due to the advancements in technology, resulting in all sorts of new ideas and concepts introduced in a cost efficient fashion by new entrants, we also notice that new technologies are taking away the hurdles that previously existed to play that bigger part. A first analysis of the 2,000 insurtechs in the DIA insurtech database reveals there are already various areas where insurtech

14 I June 2018

innovations are applying such new technologies resulting in substantial social and economic impact. Let’s take a closer look at three examples of such domains.

1. Improving patient care and decrease health costs in an ageing population Everyone in the health community agrees that in most developed markets current health systems are not sustainable due to the rapidly-ageing population and rising healthcare costs. Traditionally healthcare delivery has been focused on face-to-face interactions, resulting in high costs. Connected healthcare devices allow healthcare providers as well as health insurers to extend their reach and interactions with patients. Sharing data among all stakeholders, optimal use of this data and remote patient monitoring have the potential to change the business model entirely, keeping healthcare efficient, affordable and accessible. Connected health devices therefore form the foundation for entirely new business models in health; shifting from a transactional to a relational, collaborative, participatory model, assisting customers to manage their health over time. Allm: Allm (Tokyo, Japan) is dedicated to reshaping healthcare by developing HealthTech medical communications platforms for healthcare professionals and the medical industry, using cloud technologies and smart devices. A more efficient communication and new innovative technologies help to improve decision making and can save more lives and reduce costs while improving customer experiences. www. allm.net/en/ Chunyu Doctor : Chunyu Doctor is the largest online telemedicine platform in China with more than 100 million registered users. Chunyu offers among others a solution that includes built-in medical decision rules that can automatically alert the care provider if the patient appears to be at risk for deterioration in their health status. The use of these medical decision rules not only helps provide efficient and highquality healthcare, but also decreases costs for insurers as these notifications can help to prevent complications of the patient’s underlying condition. The philosophy of the programme is to empower patients by giving them greater responsibility for their own care. chunyuyisheng.com

2. Financial inclusion: micro-insurance solutions that give access to protection to previously unisurable low income families There are around 500 million so-called smallholder families, which equals around 2 billion people, living on less than $2 a day. Typically these households rely on agricultural production and small entrepreneurial activities for their livelihoods. It doesn’t need explanation that this is a vulnerable group. For instance illness or death, or a poor crop, easily has a great effect on the financial situation of the family. Until recently, it has been difficult for insurers to offer protection to this low-income segment. The traditional distribution models are just too costly to serve this population. And for instance risk assessment is usually based on formal information, which is not available. But fortunately, this is beginning to change. Thanks to all sorts of digital innovation

there is vast opportunity to make insurance more accessible to these underinsured populations using totally new business models. Currently, the spread of mobile phones to rural areas and the use of prepaid platforms are pivotal in these new business models, to cover ‘the last mile’, to really reach these customers in a cost efficient way. At DIA Munich 2017, Vikas Chhariya, global head of digital partnerships AXA Group, mentioned Aadhaar, India’s national biometrics identity program, as an interesting new platform. Banks need to comply, so that fingerprints will give hundreds of millions Indians access to financial services, including insurance. In all cases these new business models foster collaborations among service providers in the financial, agricultural and telecom sectors that promote financial inclusion among these smallholders giving them access to a wider set of financial and other services. Jamii: Jamii Africa (Dar es Salaam, Tanzania) is a mobile micro-health insurance for the low-income families at $1 a month. Jamii launched in January 2015. Jamii is 100% paperless and 100% cashless with all administration processes from onboarding, premium collection, benefit ledger management, claims processing to claims payout being done via mobile phone. Cutting insurance administration costs by 95%. jamiiafrica. com BIMA: DIAmond Award winner BIMA (Stockholm, Sweden) provides insurance and underwriting to millions of lowincome people via innovative partnerships with major mobile network operators and financial services businesses. They offer a range of affordable life, personal accident and health micro insurance products. BIMA partners with leading telecoms players such as Telefonica, Orange and Axiata Group. Consumers can pay for insurance via deduction of prepaid airtime credit. In just six years, the BIMA model has transformed the insurance landscape in the countries where they operate, proving that it is possible to reach consumers at the bottom of the pyramid at scale. BIMA has over 24 million registered customers in 14 countries across 3 continents, 93% living on less than USD 10 per day. bimamobile.com

3. Offset the damage caused by natural disasters with new technologies Last year, insurers had to pay out no less than $135 billion to cover losses from natural disasters, hurricanes and floods, according to Munich Re. Including uninsured damage the total loss amounted to $330 billion. Only in 2011, when the earthquake and tsunami in Japan took place, losses were higher. Typically, the role of insurers is limited to being nothing but the payer after the catastrophe has struck. But the data on disasters and the specific risk management expertise and new technologies that are now available, allow insurance carriers to play a much more important role to reduce the vulnerability to disaster risk of every client segment they serve and other stakeholders as well. This may vary from using insurance data, knowledge and tools to enhance resilience before a disaster happens, to offering relief and helping people to get back on their feet again as soon as possible once a disaster has occurred. A variety of technologies enable insurance carriers to play


INSURTECH THE FIN TECH TIMES

Telematics to change the way we drive within five years that role; e.g. the internet of things, use of open data, geo-positioning, advanced data analytics, blockchain, drones, imaging and social media. Already a decade ago US insurer Progressive started using social media to communicate around catastrophes. For example by using Twitter around severe weather events, contacting customers to give them relevant information; e.g. about which emergency number to call or where to find the Progressive catastrophe team on location. Farmers and Allstate are two examples of carriers that created a drone fleet to assess damages even before a catastrophe area is accessible again, to take care of swifter payments so that customers feel more secure and can start thinking about rebuilding things. And of course drones have proven to actually save lives in areas with rising floodwaters. In a report commissioned by Britain’s Department for International Development, catastrophe modelling firm RMS said that on a disaster with a loss of $30 billion every dollar immediately paid out through a parametric insurance has the same impact as $3.50 of slower-moving payments. A parametric policies, based on blockchain technology, automatically initiates payments once a certain parameter is triggered, for instance if water reaches a certain level. Understory Understory (Minnesota, USA) is a smart weather hardware and analytics company that creates unprecedented details of how weather affects people and businesses. The data applications for Understory’s sensors are enormous, as $485 billion of the US economy fluctuates with weather. With Understory’s white-labelled weather and home safety insurers can easily help their customers know what to do to prevent potential property damage. understoryweather.com

Written by ROGER PEVERELLI and REGGY DE FENIKS To get more insights visit digitalinsuranceagenda.com

Aldo Monteforte CEO and founder The Floow

The realities for most people in 5 years time:

More than nine in 10 insurance chiefs (96%) predict significant changes to motor insurance industry in the next ten years, with the majority (53%) expecting telematics to be used by most drivers within five years, according to new international research by YouGov. Telematics based premiums were more likely to be a reality in the next five years than the widespread adoption of hybrid or electric cars, according to the respondents. While 53% agreed most premiums would be based on actual driver behaviour, only 48% thought most cars on the road would be hybrid, and 39% thought most cars would be electric cars. These findings are from a new study for The Floow, conducted by YouGov among insurance business leaders. The respondents drawn from insurers in the UK and USA were asked to consider how they thought motoring would change in the next decade and the issues that insurers would have to tackle as a result. In the next 10 years, a third of those surveyed (34%) believed telematics would become the new benchmark for the industry, and 31% predicted that all drivers would have an overall score for their driving ability, which would affect the insurance premiums they then paid. Beyond telematics, a quarter (24%) envisaged seeing fully autonomous cars as a reality within 5 years, 20% saw most people using peer-topeer car sharing and ride sharing, and a tiny fraction (3%) even saw flying cars as a real possibility. The greatest impacts on the insurance industry after telematics and autonomous cars were to do with perceptions about mobility and car ownership: 29% of respondents believed there would be greater car sharing, replacing outright car ownership, and a move to usage based insurance. Other changes included greater incentives for people to drive less (24%) and an even greater provision of insurance services from non-financial brands.

An ocean apart? Comparing insurance leader predictions between the UK and USA, respondents in both countries shared a vision for widespread technology advances in the next 10 years. When it came to advances in the nearer future (the next five years), UK insurance leaders were significantly more likely to envisage electric (48% Vs. 33%) or hybrid (58% vs 41%) cars on the roads as a norm. However, US insurers were far more

Total

UK

USA

Car insurance premiums based on driving behaviour

53%

54%

52%

Hybrid cars

48%

58%

41%

Car insurance premiums based on mileage travelled

48%

52%

45%

Electric cars

39%

48%

33%

Driver coaching based on telematics data

29%

38%

23%

Autonomous cars for business use

24%

10%

33%

Autonomous cars for personal use

21%

6%

32%

Peer-to-peer car sharing

20%

8%

29%

Peer-to-peer ride sharing

20%

12%

26%

Autonomous taxis (excluding business use)

15%

2%

25%

Flying cars

3%

2%

4%

None of these

3%

3%

4%

Don’t know

5%

1%

10%

The ways you think the motor insurance industry will change in 10 years’ time Total

UK

USA

Autonomous cars will have required insurance companies to totally rethink risk

55%

52%

57%

Telematics will become the new benchmark for defining risk and pricing of policies

34%

38%

30%

Drivers will have an overall score for their driving ability, affecting their premiums

31%

22%

38%

There will be greater car sharing, replacing outright car ownership, and a move to usage based insurance

29%

22%

33%

There will be significant market consolidation

27%

24%

29%

There will be a move to holistic family insurance policies that cover a range of needs

24%

20%

26%

There will be greater incentives for people to drive less

24%

20%

26%

There will be even greater provision of insurance services from non-financial brands

20%

20%

20%

The insurance industry will focus more on ‘mobility’ as an issue

18%

10%

25%

The peer-to-peer / sharing economy will make insurance more of a commodity product

18%

16%

20%

Don’t know

10%

16%

6%

Not applicable - The motor insurance industry will not have changed in any particular way

4%

6%

3%

Other

2%

-

3%

Source: The Floow study, conducted by YouGov among insurance business leaders

likely to be anticipating autonomous cars (32% vs 6%) and peer-to-peer car (29% vs 8%) and ride (26% vs 12%) share. As Aldo Monteforte, CEO and Founder of The Floow, commented: “The extraordinary rate of change that is occurring in personal mobility and the insurance industry is being driven by two factors: the possibilities of what technology can offer; and demand for uniquely tailored policies to ensure drivers are paying a fair amount for the way they drive. On a wider scale,

the technology is there to encourage us to drive better and make our roads safer, benefiting everyone. “Our relationship with cars – how we drive, if we drive, whether we own, co-own or rent them – is already changing, and with this will come changes in the insurance sector. Insurance leaders are correct to predict that telematics will be a game changer in the field of insurance. We are entering the age where we can precisely quantify the risk of every driver, redefine insurance, and help them become safer on the roads.” June 2018 I 15


INSURTECH. FOUNDER INTERVIEW THE FIN TECH TIMES

“Making insurance sexy again” Interview with Nikolaus Suehr, CEO and Co-founder of KASKO

What do you think about the forecast that this year consumers will actually switch from incumbents to insurtechs? Who forecasted this? They certainly must see different data than I do. It depends. There are already subsegments, like first time rental insurance buyers in NY going to Lemonade (around 20k customers), massive amount of micro insurances being purchased in China through embedded insurance on Alibaba offered by Zhong An, good uptake by digital brokers WeFox (250k customers) and Clark (100k customers) in Germany and recent success by insurance pure plays FRI:DAY (15k customers) and Nexible (20k customers), all of which show early signs of take off. However, the wave is yet to come and this has everything to do with customer inertia. I myself have dedicated most of my waking hours over the past 3 years to finding new products and services with insurance companies to respond to changing customer demand and increasing competitive pressures. In order to win, insurtechs need to focus on getting to the right customers at the right time, as Lemonade does for first time buyers, Zhong An by integrating into Alibaba, WeFox and Clark getting a broker mandate so existing contracts are assigned to them as well, and FRI:DAY and Nexible buying customers from the aggregators.

Are insurtechs ready to scale businesses and to serve B2C clients themselves, or can they only work in a collaboration with incumbents? This one is easy: Insurtechs are definitely able to service B2C clients. The question is whether they and their investors are patient enough to figure out how best to attract customers. Going direct is nearly impossible, as incumbents will outspend you, so you have to go into niches and mix direct with content and community management. This can work well for pets (like with Bought by Many, who have done a terrific job), classic cars, hobbies (e.g hunting, biking, travel) and different SME industries (e.g. freelancers, dentists, lawyers). However, these niches are by definition small and thus require investors with some patience as you scale through the different sub-segments. Alternatively, you go head-to-head - most startups use 16 I June 2018

aggregators here to scale fast, but then you get the sweet poison of cost-conscious, quick to change aggregator customers, who can go as fast as they came. Personally, I believe that collaborating with incumbents is a much faster route to sustainable scale, as they not only have an existing customer base, but strong ties to distribution partners within aggregators, brokers, banks, retailers and OTAs to capture more new business. Finally, whilst incumbents still struggle to truly up and cross-sell to their customers (due to lacking technical infrastructure and products that are modular, so that you can pull different micro-insurances such as smartphone, travel, etc. into one cohesive multiline framework, holding all the relevant risks - both personal and SME commercial - in one central contract), at least they have the products in place and the required licenses. Insurtechs, on the other hand, will need to build these up at a time where their low customer base won’t warrant the business case yet, and they will need to show their investors a higher CLV, so they might take brazen bets on higher CLV which might never materialise. So, yes, they can scale, but they need to make sure that CAC and CLV stay in line with investor expectations, especially when CLV is very tricky with insurance, as some customers stay 25 years, whilst others stay only one year or even a couple of months with daily/ monthly cancellations.

How do insurers need to re-invent the existing business models to follow customer needs? Insurers don’t need to re-invent their existing business model, but update their distribution and product models, move into a bi-modal IT operating model and inject an entrepreneurial function. Customers will increasingly follow platform and ecosystem providers that offer holistic premium services and low cost enabled by technology around topics such as wealth, health, mobility, travel, hobbies, work, home/ family, etc. This means that insurers will need to open up their digital product inventory to interact with these platforms through REST APIs and widgets where onboarding and negotiation to participate is reduced to hours and days instead of months and years. Due to the nature of these platforms and the massive amounts of data that customers share with them, insurers will need to be able to mass customise these products to ensure insurance fits like a glove. In order to achieve this, insurers will not only have to upgrade their existing IT systems to lower operational costs on the existing book of business, but they will have to invest into a new more flexible meta-

layer (or partner with companies such as KASKO, Instanda etc.) that allows insurers to serve the customers end-to-end in a separate system (to overcome initial integration challenges into the old systems, which will soon be replaced) geared towards openness, connectivity and low time and cost, to market, design and launch new products to figure out just how the changes in consumer behaviour impact insurer products.. Finally, all of this will only be feasible if insurers move away from a top-down command and control waterfall approach to digital transformation, and enable the product and market managers to react to market opportunities unencumbered by someone else’s IT-pipeline or marketing plan, and define different phases from MVP to scale, where new opportunities can be tested quickly, and, once they pick up scale, be integrated into the larger corporate body. Working with 17 insurers in 5 countries, having created more than 40 insurance products (and >100 variants) in over 40 distribution channels, we see the challenges that insurers face but also how the change makers in the organisation increasingly get the upper hand. And players like KASKO will hugely speed up the change process - the flywheel is already in motion.

How can insurance products be simplified and personalised? When we engage with insurers we focus on 10 aspects: 1. Allow the customers to buy online. If your product is not competitive enough that you can show it in the light of day, fix your product. 2. Create a modular product engine, so that you can service different customers and distribution partners, different calibrations and offerings of the product. Life tends to be more nuances than S, M, L. If car manufacturers can do it, insurers will too. 3. Offer flexible duration - make it easier for customers to subscribe to your insurance product by making it daily or monthly cancellable, so that customers have less a of a decision to make when switching to your product. Conversely, offer discounts for multiannual contracts. 4. Pay something back if there was no claim - this creates trust. 5. Enable customer referrals by lowering the premium for every customer who was referred and stays on as a customer, or use group purchasing to lower your costs of providing products without demand. 6. Offer a cancellation service to your customers. Most of them already have an insurance policy. Make it super easy for them to cancel their existing policy, or go a step further by offering a subsidiary cover, so that

customers can start being insured with you, but just have to pay the difference in cover from your new to your old policy. 7. Use third-party data sources to make the underwriting both easier (less questions) and more granular (more answers) by tapping into third-party databases such as social data, open banking and SME data bases. 8. Use chatbots and AI to improve pricing and underwriting, and use simple if-then coding to minimise get towards auto-payouts and regulation on simple claims.

Which insurtech companies do you think will become acquisition targets? We are already seeing that insurers like to buy distributors or enablers that can help them digitally transform parts of their value chain. Down the line this will largely depend on the perception of the company. For example: Lemonade positions itself as a tech company doing business. This will mean that acquirers ultimately can include tech companies, as well as insurers and banks, whereby the target price will be determined more by the efficiencies in the operating model than gross written premium and underwriting profit.

What is the biggest problem traditional insurers are experiencing? Inside-out digital transformation in our fastpaced environment, ridden with uncertainty, simply doesn’t work anymore. These multi-million Euro change programmes are probably some of the largest shareholder value destroyers in the industry. There are several reasons for it: Firstly, insurers have no IT capacity, and what they have is focussed on regulatory compliance and usually works with outdated technology frameworks. Secondly, normal IT vendors and integrators earn too much money on the current waterfall model. Moreover, I suspect that most CIOs and IT architects actually come from these vendor companies, so this way of doing things is learned and thus hard to dismiss. At least, digital accelerators and innovation departments labs also failed to deliver any meaningful results. These entities are usually so far detached from the business units that they fail to deliver actual value to them. However, the business units are central to these efforts being validated and scaled. Allianz recently closed down their acceleration efforts, repurposed Allianz X, in an investment vehicle only. If these guys can’t do it, who can?


CYBERSECURITY

CYBERSECURITY Cybersecurity investments in Q1 increased by more than 25% YoY THE FIN TECH TIMES

Investments in companies offering cybersecurity solutions for the financial services industry were up 27% in Q1 2018 compared to the same quarter last year, according to research from FinTech Global. Although total investment has been declining since Q2 last year, this is due to the irregularity of large deals rather than a complete downtrend.

by 12.9 percentage points from 80.6% to 67.7%. This further decreased in Q1 2018 reaching 63.7%. The drop was mainly offset by an increase in deal share in both Europe and the Middle East & Israel. Europe’s share of deals increased from 12.6% in 2014 to 15.9% in 2017. This trend continued in Q1 2018 to reach 18.2%.

There is a lack of later-stage deals this year

Similarly, the Middle East & Israel’s deal share jumped from 4.4% in 2014 to 11.7% in 2017. This figure reached 13.6% in Q1 2018, more than triple the original value. The growing cybersecurity hub in Israel is the catalyst for this shift. Israel has developed a strong cybersecurity ecosystem that promotes collaboration between the government (including the military), private sector organizations and universities.

Capital invested in Q1 2018 reached $725.8m, a decrease of 18.2% from the previous quarter. The drop in total investment in the opening quarter of 2018 can be attributed to a lack of later-stage deals valued above $100m. There were two such deals during the previous quarter, including a $150m private equity investment in Skybox Security, a cybersecurity management platform, led by CVC Capital Partners. Conversely, investments valued under $100m actually increased by 30.3% in Q1 2018 compared to the previous quarter. Despite the fall in total investment, deal activity increased for the first time in four quarters with a total of 44 deals completed. The largest cybersecurity deal so far this year was a $75m Series B investment in Ledger, a developer of security solutions for cryptocurrency and blockchain applications, led by Draper Esprit.

Investors are increasingly looking to companies outside of North America From 2014 to 2017, North America’s share of cybersecurity deals dropped

US venture capital firms and corporates are the top backers of cybersecurity companies

Global cybersecurity investments, Q1 2017 - Q1 2018 (USD, number of deals) 1,518.9m 67

Q1 2017

813.9m

RICHARD TENG

Willis Group

Abu Dhabi Global Market

RUTH WANDHÖFER Global Head of Regulatory & Market Strategy

Citi

Q2 2017

Q3 2017

Less than $100m

Q4 2017

$100m and above

725.8m

Q1 2018

Number of Deals

Source: FinTech Global

Global cybersecurity investments by region, 2014 - Q1 2018 (as a % of total number of deals) 100% = 206

4.4% 12.6%

2.4%

100% = 243

9.9%

1.6%

100% = 239 3.3%

10.5%

2014

15.9%

2015 North America

2016 Europe

100% = 214 4.7%

100% = 44 4.5%

11.7%

13.6%

15.9%

70.3%

18.2%

67.7%

63.7%

2017

Q1 2018

Middle East & Israel

Other

Source: FinTech Global The data for this article is sourced from the FinTech Global platform. More in-depth research, data and analytics on investments and companies across all FinTech sectors and regions around the world are available to subscribers of FinTech Global at www.FinTech.Global. ©2018 FinTech Global

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June 2018 I 17


MONEY 20/20 SPECIAL: AGENDA THE FIN TECH TIMES

The Money 20/20 2018 Agenda

Top

9 picks

by Max Dunne With over 1500 companies and 5000 delegates in attendance last year, Money 20/20 Europe was the conference of choice for those in fintech, financial services, and payments. Since then fintech, and blockchain, have gathered even greater momentum; this fact combined with an impressive roster of speakers, and a wide variety of themes, suggests that this year’s conference may surpass all those before it! With this in mind, this month I take a look at some of the most interesting items on the agenda in Amsterdam at Money 20/20.

Scaling and sustaining Fintech in London Everyone knows that London is the fintech capital of the world, right? So how do you make sure your fintech succeeds? You either get in touch with me, or you head over to the Spiegeltent Stage and listen carefully to London’s Mayor for Business, Rajesh Agrawal. Ideally both!

Fintech Insider Live @ Money 20/20 Fintech’s favourite podcast, say no more.

Startups working with corporates, is there a secret sauce and how might regulation affect the recipe? Building relationships between startups and corporates is pretty much my daily bread and butter, and at times it’s definitely easier said than done. Melding businesses with vastly differing cultures, working methods, and end-goals, can throw up all manner of issues; and an ever changing regulatory landscape only complicates things further.

18 I June 2018

Wherever you may be on the business spectrum, just make sure you’re at the Carousel Stage in time for this.

Decentralising power is the only truly transformative element of the blockchain, everything else is just hype Blockchain has opened up a world of opportunities; equally it’s opened up a can of worms. Working with Blockchain businesses; ICOs; and Cryptocurrencies; on a daily basis, I know only too well that for every true use-case out there, there are at least 10 bonafide scams. Understanding the power of blockchain is the first step to avoiding said scams, get over to the Ringside Stage to get smart.

DLT: Reinventing the economy Not a day goes by where I don’t read something shared by Oliver Bussmann, CEO & Founder of Bussmann Advisory AG. With nearly 30 years of experience across various industries, Oliver is one of the true thought leaders in an age full of false prophets. If there’s one person you should be following, it’s definitely Oliver! Oh, and by the way, Distributed Ledger Technology is pretty interesting too!

The Payments Race This year’s Payments Race sees five influencers battle it out from Istanbul to Amsterdam using their chosen payment methods; mobile payments, cryptocurrency, cash, plastic, and wearables. They have to travel through as many countries as possible, and complete a whole host of challenges. The result is great content, and a great demonstration of the viability of different payment methods. Make sure you

As our Director of Business Development, Max Dunne spends his days gaining further insight into the Fintech and Blockchain ecosystems. Through his regular column, Max shares his opinions and expertise with you.

head over to the Big Top Stage to find out who won, and more importantly who had the most fun along the way!

AI will make banks AND Fintechs disappear I mean, where do I start with this one? AI is potentially the most interesting topic out there at the moment; the scope it holds is still far beyond our current comprehension. Daniel Hegarty, CEO & Founder of Habito, will be drawing on his considerable acumen to put the fear of life into banks and fintechs alike. So it will be interesting, relevant to all, and who doesn’t love to watch bankers squirm!

Startup Pitch competition: The Final Now in its third year, the Startup Pitch competition promises to be tougher than ever. The heats will be pretty tasty, but the final is definitely not one to be missed; I love garlic bread, but I’d never prioritise it over steak!

Onboarding, verifying and unlocking the commercial potential of Europe’s un- and underbanked As the name suggests, the un- and underbanked present an, until this point, massively missed opportunity. Why’s it interesting? Capitalising on this latent potential would not only provide a great deal of third-party benefit, but also lead to a generally stronger economy; WIN-WIN! Look out for people in Fintech Times T-Shirts.... See you all there!


MONEY 20/20 SPECIAL: EXHIBITORS THE FIN TECH TIMES

Money 2020’17 VS Money2020’18

What are the Top 3 challenges for the financial sector for the upcoming year?

We remember the main topics of the event in Copenhagen last year. Let’s have a look at how it compares with the new agenda!

2017 focus: • • • • •

• •

• • •

Commerce becomes increasingly connected Immediacy is everything The ideal authentication process must be invisible Data is the oxygen of our financial lives The shifting narrative as startups become more open to work with incumbents Technologies with connection to financial inclusion to drive wealth and the rise of cashless economy. An engagement between startups and established players is becoming a trend Decentralised technology and its promise to the world Crypto bubble and overhype Sandbox: to be or not to be

2018 focus: • •

• • • •

Blockchain and its real life application Creating a trusted digital identity to improve customer experience (biometrics, blockchain etc) Decentralised paradigm of financial world and smart contracts economy Crypto market transitioning from the ‘Wild West’ to more regulation Open banking as a new opportunity for customers and fintechs Innovations pushing regulators to change their strategies: everything should be better, faster, and cheaper. Sandbox as a tool to put a jurisdiction on the fintech map and to attract New wave of incumbent banks driving innovation forward by increasingly integrating a startup mindset Connected world and IOT as a part of our lives

Emilie Casteran,

Head of Digital Strategy for Banking and Payment at Gemalto

Nigel Verdon, CEO and Founder of Railsbank

One challenge that we are focusing on at Money 2020 is Digital Identity. As consumers, we already all own several digital identities – namely the usernames and passwords we use when accessing all kinds of online services. But these are often weak, and difficult to remember. We believe new trusted Digital Identity schemes are going to emerge and that Financial Institutions should play an active role as part of these. These new platforms will verify end-users’ identities and then creates a Trusted Digital ID and Strong Authentication credentials that can be used to across several online services, simultaneously improving the customer experience while boosting online engagement.

Compliance is a major constraint to fostering innovations in the traditional banking sector, due to the complexity of cross border compliance and the extensive compliance roadmap banks have to adopt.

Linked to the creation of Trusted Digital Identities is biometrics. Biometric technology will play a major role in helping to verify customers when accessing online services, or making purchases. However there are other areas to consider, such as in authenticating card payments. The introduction of a new biometric EMV card with a built in fingerprint reader is something we expect many more banks to explore in the year ahead.

But they’re not disruptors. No fintech in recent years has really disrupted the finance industry - many claim to have, but in reality have not. At Railsbank, we do not believe the world needs a ‘disrupted’ finance industry. We want our banks to be safe and not disrupted, but we want a better way to interact with our banks.

Regulatory compliance is another major challenge. With just over a year left before PSD2 comes into force, financial institutions don’t have long to go. The new version of the Regulatory Technical Standards (RTS) introduced some interesting new elements to the calendar, one of which is that banks will have to offer their open APIs to Third-Party Providers (TPPs) for testing and integration, 6 months before the final implementation date. This means that their APIs must be ready not by September 2019, but six months earlier: March 2019. There has also been recently more focus on the impact of the new Strong Customer Authentication (SCA) requirements in terms of user experience. Banks are looking at implementing a comprehensive risk management and authentication framework and leveraging different authentication modes and methods.

Speed of partnering is another issue - engaging with a start-up is extremely difficult. Too many startups end up almost dying because they do endless pilots with banks and see this as ‘success’. The conversion rate of pilot to ‘real deployment’ in the bank is very low. Fintech firms are innovators in the field - they can see the world through eyes a bank cannot, due to legacy and internal ‘group think’.

I see an industry where there has been a structural shift from ‘bank centric’ to ‘customer distribution centric’; banks having to consolidate core, low-margin and un-differentiated product into industry utilities, like payments and current accounts; and people and businesses accessing banking through platforms aligned to their lifestyle, and not individual bank front ends. The top three challenges for the financial sector for the upcoming year? Brexit, Compliance and Liquidity.

June 2018 I 19


MONEY 20/20 SPECIAL: INTERVIEWS THE FIN TECH TIMES

Xpress Money

Interview with

Sudhesh Giriyan COO, Xpress Money Services

Xpress Money is a company focussed on tackling the global problem of financial inclusion. Founded in 1999, Xpress Money is the remittance arm of the Travelex and UAE Exchange family, and was launched as an affordable instant money transfer service. Since then, the company has striven to enable migrants to send and receive cash from a network of locations across the world and, whilst doing so, has become one the fastest growing remittance companies in the world, with over 200,000 locations in 165 countries.

Fast Moving Consumer Goods (FMCG), and I have found that there is a lot of commonality between the two. FMCG involves a lot of management, situations in which you have a distributor and retailer. Similarly today, with our business, we have a super agent at the top that we have other agents below, which almost mimics the FMCG model. The experience that I have in FMCG and in the consumerdelivery industry has definitely come in handy, even though it was many years back. There are lot of things that I implemented back then, that I have have been also able to implement here in this industry.

We sat down to chat with Sudhesh Giriyan, Chief Operating Officer at Xpress Money, to discuss how they have got to this point, where they are going next, and what fintech means for improving financial inclusion - both in the western and developing worlds.

Talking about the different places in which you operate – how do you see the differences between the more emerging markets and the fully developed ones in their approach to cryptocurrencies?

Hi Sudhesh, great to talk with you. Can you give us a quick explanation of what you guys are up to right now? We are a growing organisation, reaching many countries year after year, and on track to keep expanding into these different markets. We have spent a lot of our time in places that are not that advanced, the ones in the developing world. We are all over the place, utilising technologies such as mobile wallets and the like. We also have very, very strong partnerships with nonprofit organisations, fintech companies, banks, telecoms, and international corporations, and retail partners.

And how about yourself, how did you ended up with Xpress money? Have you always been working in this area? I have been working with the firm for 14 years now. And I have seen a lot of expansion and partnerships going on in many countries. Prior to this I had experience in

20 I June 2018

I have said this in the past, that we really have to look at the way in which Africa has embraced technology, especially in their usage of mobile wallets. I don’t think there is better example of adoption of this technology than Africa – it is likely that an African country will be the first to fully adopt a cryptocurrency system. I am, however, unable to say with any finality as to what specific country in Africa that would actually be, to take on this challenge.

Who would you say is leading the pack right now in terms of these developments? Nigeria is a country have been in the news a lot recently, they are a very important market from a global perspective, particularly as they are one of the largest recipients of remittance, with some interesting rules also. Nigeria has again embrace the mobile wallet-technology so that’s why it may be one of the first countries to fully adopt cryptocurrency.


MONEY 20/20 SPECIAL: INTERVIEWS THE FIN TECH TIMES

Capco

Ian Hooper and Senol Mehmet, Co-Heads of Banking and Payments at Capco:

What are the constraints to foster innovations in the traditional banking sector? We see three main constraints for the larger banks: the disadvantage of being banks; the power of retail and tech giants; innovating against legacy.

Banks have hardly the space to innovate. They are highly regulated to manage systemic risk, infrastructure risk, and conduct. The financial cost and management focus to deal with this has been enormous. Furthermore in reality it’s hard for Banks to exceed the expectations of their customers, easy to disappoint – for example, branch closures, security breaches and post-merger integration issues. We often hear that banks aspire to be like the large tech and retail giants, whether in product innovation infrastructure data or customer. The competition are so strong and move at great pace, covering more and more ground, edging into financial services. Banks make marquee hires from these companies. How many go the other way? Finally, the complexity of legacy - once revered as stable available reliable and functionally rich - combined with the impact of years of growth and consolidation for our banks - has led them to a place where innovation has been seen as difficult. The world’s big innovators don’t have this problem yet. As with everything solutions are being found, and innovation is finding a way. The smaller banks have a different challenge. They just don’t have the scale to fund investment in massive innovation or the customers with the appetite to consume it.

Do you consider fintechs as disruptors or innovators? They are both. At the outset, fintechs were seen as disruptors, their agility and niche-specialty impacted traditional bank revenue streams such as p2p lending and payments. However increasingly fintechs are becoming integral parts of traditional bank ecosystems - as technology advances and new regulations emerge, fintechs can provide solutions at an efficient time-to-market and commercially attractive price point, enabled through cloud-based solutions and API MicroServices oriented architectures. We’re certainly learning a lot about change and innovation from the fintechs. We don’t think we can yet tell what the lasting legacy is.

Describe “Banking in 2028” – how do you see the role of banks in 10 years? Pervasive, fragmented, embedded, long-term.

Digital will be normal, perhaps a retro term again.

Some banks may have moved out of lend save pay into platform enablers and providers into high ROE business. Some banks may focus on customer lifecycle, products and low ROE business. Some may change ownership and be consumed by larger (possibly tech companies) to play a part in an ecosystem or conglomerate. Today’s touchpoints will probably be gone, embedded in actions - KYC could be from birth, financial planning and relationship management for life. And they will be long-term investment and savings based, because we’ll be dealing with 40 years of retirement for the standard European customer.

June 2018 I 21


THE FIN TECH TIMES

A Clash of Two Philosophies: Centralised vs Decentralised KATE GOLDFINCH Managing Editor

The existence of decentralised technology and cryptocurrencies can be considered as proof of society’s demand for decentralisation, as well as demonstrating the possibility of a new paradigm of financial systems and investment models. It is also conceivable that decentralisation may become a vital factor for the future prosperity of nations. There currently exists many examples of centralised financial systems, supervised and led by regulators, which are closed and wholly controlled within their own ecosystems. Today, we can see an entirely new philosophy coming into play. It is a philosophy which demonstrates the possibility of the existence of a system that is not controlled by anyone, that is completely open and, moreover, is entirely secure. This is potentially what the future will look like. As we look at it today, the Bitcoin network has scores of both benefits and drawbacks. Among the latter, we can list the transaction speeds and fees, pseudonymity, the high risk of criminals gaining access to accounts, transactions designed to be irreversible (this can be a problem where a transaction is made by mistake), and several further issues. Many of these problems are due to the technical setup of the Bitcoin network, and are already in the process of being addressed. One such solution is the introduction of the Segregated Witness (SegWit) protocol, implemented in February 2018, which was intended to provide protection from transaction malleability and an increase block capacity. But despite these difficulties, and quite apart from the increased interest in Bitcoin itself, other factors are prompting Bitcoin’s growing value and focusing mass investor attention on the world’s first cryptocurrency. As this attention and demand grows, the number of queries and transactions in the Bitcoin network grows with it – something that the network itself is unable to properly handle. These ‘growing pains’ on one hand make perfecting the whole system a priority, while on the other hand can lead to the appearance of entirely new cryptocurrencies, (as we will see), which could achieve different kinds of functionality more effectively on a technical level. One area which is open for such improvement was mentioned earlier – user anonymity. Extensive anonymity is something that is offered nowadays by several alternative cryptocurrencies, which appeared in the wake of Bitcoin, and which aimed to bring innovation or redesign to the Bitcoin network. These have sought to provide complete anonymity and total financial freedom for their users. Among this list of ‘anonymous currencies’ are Monero, Zcash, and Dandelion (redesigning the Bitcoin network for anonymity), and several others.

22 I June 2018

Now it is time to say decisively that the Bitcoin network – the first decentralised digital currency – in some ways, has been a test-bed for debugging a wholly new kind of financial system for handling the decentralised transfer of assets. Network glitches have led to debates in the crypto community that have prompted the appearance of new technological solutions, increased the range of cryptocurrencies around the world, and further spread the ‘decentralisation virus’ at the mass user level. This clash between traditional and new, decentralised philosophies serves to recruit more and more supporters and detractors for each of the two theories. These days, Bitcoin has both fans and foes, which means there are conflicting and contradictory visions for the future of cryptocurrency, and for the decentralised paradigm as a whole. There is no unity of opinion – either on what Bitcoin’s prospects are, or on what Bitcoin’s price should be. Whereas over the past year, advocates of decentralisation were forecasting Bitcoin’s value to hit a million dollars by the end of the decade, today its rapidly fluctuating value and frequent downturns mean only a few continue to voice such optimistic projections. The strategies of Bitcoin’s supporters and detractors are themselves changing – and all caused by the fact that this year saw the start of the ‘war of the systems’ – (or ‘war of the worlds!)’ – the centralised versus the decentralised. Today, with regulators the world over intent on bringing decentralised systems to heel and making plans to bring in a global strategy for managing cryptocurrency markets by the end of 2018, the number of decentralisation supporters in the ‘traditional camp’ has noticeably decreased (which is hardly surprising) – or they are having to change their ‘camp’. It’s a standoff that clearly explains statements made by some officials, that sometimes contradict the actions of the companies they lead. To give one example, in spring 2017, Wences Casares - a board member at PayPal – shared his positive assessment for the relative growth in the price of Bitcoin for the upcoming decade. His announcement sent shockwaves through global markets – because the end-price he put on that growth period was no less than one million dollars. Yet, in December 2017, came the announcement that PayPal was freezing all user accounts connected with any cryptocurrency-related activity. Copycat blocks were swiftly brought in by the Mastercard and Visa payment systems – whose cards had, for around a year, allowed access to various different cryptocurrencies, for those of their users who wished to carry out cryptocurrency transactions from any location. To give an example, Wirex’s cryptocurrency service had, at various times, set up collaborations with both payment systems – only to then abandon them, due to the enforcement of global policies by Mastercard and Visa. Meanwhile, cryptocurrencies and decentralisation have been leading to radical changes in investment markets – making them more accessible to small and mass-market investors. Since these markets are often poorly regulated, (for example, the ICO markets), they are still characterised by a number of unpleasant side-effects, sometimes involving fraud. Even so, shifting the investment paradigm

changes the traditional access route to investing and also to the concentration of capital. And it’s here that the clash of jurisdictions and regulators for this new investment capital begins. There are already those who accept this new paradigm (for example, Japan), and those who won’t accept it (while it hasn’t outlawed Bitcoin, China has made trading or owning bitcoin a real challenge for its citizens -- and Bitcoin is banned for banking institutions). The winner is going to be whoever can set up a framework that works for decentralised projects, which would then attract a ‘new wave of investment capital’ to their jurisdiction - that would really impact the future prosperity of a nation.

“The Bitcoin network has scores of both benefits and drawbacks. Among the latter, we can list the transaction speeds and fees, pseudonymity, the high risk of criminals gaining access to accounts, transactions designed to be irreversible, and several further issues. Many of these problems are due to the technical setup of the Bitcoin network, and are already in the process of being addressed...”


THE FIN TECH TIMES

YOU WOULDN’T BE

HERE IF YOU WEREN’T

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Learn more. www.seic.com/seiwealthplatformuk 020 3810 8000 This information is issued by SEI Investments (Europe) Limited, 1st Floor, Alphabeta, 14-18 Finsbury Square, London EC2A 1BR which is authorised and regulated by the Financial Conduct Authority (FRN 191713). June 2018 I 23


BUSINESS CASE THE FIN TECH TIMES

SUPERMONEY:

A NEW ERA OF DIGITAL PAYMENTS? On the Thursday before Easter, in the sophisticated surroundings of ‘M’ Threadneedle Street, deep in the heart of the City, we were privileged guests to an investor event hosted by Supermoney, an ambitious UK digital payments start-up. Supermoney is the brainchild of Joel Smalley, 47, an experienced polymath and Dean’s List MBA from Rotman School of Management in Toronto where he studied under the stewardship of renowned integrated thinker, Roger Martin. The event was hosted with the intention of illustrating to those in attendance why Supermoney represents the future of blockchain-based digital payments. We listened through Joel’s presentation and then had a chance to talk to the rest of their team. Cryptocurrency has been heralded as an attempt to address all of the deficiencies of the current banking and payments systems. However, downsides of these cryptocurrencies like Bitcoin, are both numerous and very well documented by the media and industry insiders. The premise behind Supermoney is to take everything that is good about blockchain tech and apply it to ‘real world’ money and assets. It is part of a nascent economic model known as ‘tokenomics’ – transactions based on digital tokens that are issued, sold and traded in blockchain-based markets and services. The goal is to neatly sidestep the downsides of cryptocurrencies, namely high volatility, incompatibility with financial regulations, and low mainstream acceptance, and by doing so, they will be able to satisfy the customer demand for convenience, without compromising value or security. This seems like an ambitious goal, so how are they going to do this? They plan to take fiat money deposits under an e-money licence, place them into a bank account in the name of the customer and then generate a crypto token that represents this value. This token will then behave, and be used, in a similar manner to a normal crypto token. This presents a clear divide when compared with other typical cryptocurrencies in that the ‘Super’ token is collateralised with physical assets and does not reside on a public network. Free of these usual cryptocurrency burdens, the Supermoney team claim, their customers would then be able to conduct instant global payments, at low costs and with high levels of security. These are all, in principle, well known benefits of participating in a decentralised blockchain network, over conventional payment solutions. The adoption of tokenisation also conveniently supports the next biggest asset class after money - namely gold. One of Supermoney’s biggest investors and supporters is Claudio Fioresta who represents Resonor Gold. Claudio explains why he is a passionate supporter of the business - “Money was born as a financial instrument reflecting the value of an asset. That asset was gold. Supermoney is using new technologies for creating safe, stable, revolutionary financial structures and procedures that most likely will become standard practices in the future. We need to start re-thinking what money really is 24 I June 2018

and Supermoney is already two steps ahead.” We also asked Joel about the commercial viability of their project – “we will charge our customers a tiered monthly recurring fee, dependant on the volume of their transactions and other premium services. In addition, we will derive revenue from other partners accessing and utilising our network and its members.” So, they have a sustainable model, and are harnessing blockchain and cryptocurrency technology but why does this industry need their new solution?

Payments Systems – in need of a shake up For most people, their main priority is for things to be fast, safe, and easy. When we think historically about payments, the past 50 years or so have led to many improvements in this regard, but many of these have been superficial and not without additional risk. Joel had strong opinions around what has (and hasn’t) improved when it comes to the banking system and, in particular, how the back-end operates: “in the 1950s we had the introduction of cards, which allowed customers to get instant settlement at the point of transaction but this still required time, capital, and human resource to move the funds from bank to bank behind the scenes… “Then in the 90s, with digital wallets and mobile phones, we witnessed further improvements due to pioneering companies such as PayPal but again this was only really changing the front-end experience. Ultimately, what you find is that you are just alternating between different veneers over the legacy banking systems, adding cost for superficial convenience.” To a certain extent, Bitcoin and other cryptocurrencies have highlighted that there is a clear desire from the public, startups, and corporations for up-to-date digital solutions that can solve the current inefficiencies and outdated practices that our modern banking and finance systems still face. But what has also become clear is that cryptocurrencies do not have all of the answers to these problems. Supermoney, however, believe that they do. It comes back to the ease of use, the value, and the security that they propose to offer. For instance, they will provide 24/7 instant payments and the convenience of choosing whatever interface the user prefers – mobile, web, card or even API (application programming interface). Subsequently, they picture this system as having the potential to be completely automated and intuitive, using the latest developments in ML and AI. What Supermoney wanted to repeatedly emphasise to us was that their solution works seamlessly for consumers, corporates, and financial institutions. To this end, Supermoney illustrated how they also aim to make things easier for corporate customers by easily integrating with their legal, accountancy and payroll systems for example. Following on from that, Supermoney aims to provide value for their customers by giving them access to wholesale

rates and costs for aspects of payments – foreign exchange, bank transfers, card issuance and acceptance. They aim to accomplish this by passing all their internal efficiency gains to their customers, earning the bulk of their revenue from monthly subscription. Finally, and possibly most importantly for many of their potential clients, they are attempting to address the issue of security, an area where a decentralised ledger solution such as blockchain technology really comes into its own. Supermoney will be utilising standards and tools such as asymmetric cryptography (the fundamental public/private key security of blockchain networks), optional multisignature (where two or more keys are required to authorise a cryptocurrency transaction), hardware wallets (like Trezor or Ledger), and HSMs (hardware security modules – physical computing devices that safeguard and manage digital keys for strong authentication and crypto-processing) for their institutional partners. They will also provide autonomous escrow - a smart contract (that automatically controls binding agreements between separate parties under predetermined conditions) will take the place of a third party within an escrow arrangement. This solution facilitates so called ‘atomic swaps’ where the exchange of money and product or service occur simultaneously, eliminating counterparty risk and lowering costs. The Supermoney system also allows members to interact without having to share sensitive personal data – a hot topic at the moment thanks to Facebook – staying well onside of the new GDPR data regulations but also complying with KYC and AML requirements. Documents can also be stored in the ‘Supervault’ and linked to transactions, making them easily referenceable and shared using push technology allowing access to be easily revoked. Supermoney also have a plan in place to deal with their other client-type – financial institutions. Since the core operating system is a distributed ledger, it is naturally easier and more efficient to collaborate with these institutions, without having to be tightly integrated at the commercial level.

Distinguishing themselves from other blockchain technologies. Supermoney intends approach their ledger solution in a different way when compared to those who have gone before. This is because Supermoney will be using a private (or permissioned) decentralised ledger, with financial institutions and other trusted authorities acting as nodes on their ‘Superledger’ network. This network is initially being built on a private fork of Ethereum in collaboration with industry leader, Applied Blockchain, but is designed to be chain agnostic and therefore being future-proof. According to Joel, they are pursuing this solution in order to achieve improvements in network trust, resilience, and robustness, something which could be a potential win-win for everyone.


BUSINESS CASE THE FIN TECH TIMES

The underlying philosophy of most cryptocurrencies is often anarchist in nature, attempting to circumvent and eliminate the need for banks and the wider banking system. This has, however, created a situation where these blockchain-powered companies and currencies are not being supported and accepted by UK banks. This manifests itself in the current situation of general lack of mainstream confidence in crypto. The Supermoney team were able to convince those in attendance that they will not succumb to these mistakes, however, because they are not like other crypto solutions. According to them, this is because they are providing a system that recognises the importance and relevance of the banking system and fiat currency. As Heath Jamal said: “We don’t want to pursue the disregard of banks that others in crypto do, as this increases risks and regulatory costs, and barriers to mainstream acceptance.” That doesn’t mean, however, that they will be cosying up to all the major banks. They will focus on working with just the ones that suit their principles, banks that are switched on to new developments. For example, in the UK they are using Clearbank, the first clearing bank for 250 years. They only clear transactions, storing money overnight at the Bank of England and don’t lend commercially (relevant to Supermoney’s obsession with mitigating risk). Joel was the very first contractual customer of Clearbank when they opened for business last year. Both Supermoney and the investors that we spoke to were very enthusiastic about the fact that their project is backed up by a solid team and has a realistic use case – something that they believe truly sets them apart. Unlike most fintech startups, it is a team full of individuals with financial services backgrounds, deep experience within the industry. As Richard Jones says – “bankers solving banking problems with technology”. It could well be the case that this traditional know-how materialises into a clear advantage over the competition.

So, who is in the team, and what is their background? •

Founder, Joel Smalley, an experienced derivatives and bond trader, risk manager and quantitative analyst who

spent most of his earlier career at JP Morgan Chase but the last 4 years in international payments; Co-founder Nick Andrews, also a former banker and executive chairman of MPAC, a highly respected regulatory consultancy practice as well as a board member of Wells Fargo UK, subsidiary of one of the largest banks in the world; Richard Jones, senior UK and international banking leader with 20+ years of experience at HSBC as Head of Payments and Cash Management in the UK and Group CEO of Crown Agents Bank, a UK challenger in the international payments space; Heath Jamal, investment banker turned barrister with experience working for the CPS and as legal specialist and mentor for global fintech accelerator programmes; Jamie Tidman, computer scientist who founded Fintek, a software and design agency specialising in financial technology whose technology is utilised within Supermoney; And finally, Mark Abbott, serial entrepreneur with 25 years distribution experience in the financial service industry as an ultra-high net worth insurance broker.

The composition of their team does give some weight to their claim that they have people onboard with a great amount of experience working in the relevant traditional industries. Supermoney is an interesting concept but it’s part of a growing trend, in that you are seeing more and more blockchain startups who are either being conceived by, or hiring, traditional bankers and financiers. It seems that this approach, marrying traditional industry experience with new technological solutions, may in fact be the perfect ingredients in a recipe for success.

How does a relatively new start-up access this historically traditional market, and how are they going to compete with the relatively new big players? Joel and his team have been working on these twin challenges for some time now. Their plan is to take their existing relationships in verticals such as in the travel industry and ecommerce and offer the benefits of their system to them and their customers. They are able to do this because their network is backwards compatible, in the sense that it comprises a multicurrency bank account and debit card. Supermoney can offer merchant accepting as well as issuing so it fits perfectly within the existing payments networks from end to end. Once these early customers see how this new technology has improved their experience, Supermoney then expects them to convert to full Supermoney members, growing the network virally for the benefit of all members. Over time, more and more transactions will be completed wallet to wallet rather than using conventional bank and card payment rails. As Nick explains further, for example: “using regtech, we can employ digital on-boarding that allows us to get these customers onto our systems in a very short period of time, which makes a better user experience as well as exceeding the requirements for regulatory compliance.” So, if they have managed to get some traction and a foothold in the market, how will they deal with the fierce competition? Whilst this particular niche of the wider industry is a relatively new one, there are already several indirect competitors out there such as Monzo, Revolut,

Transferwise, and perhaps even Ripple. These companies have already raised significant capital and experienced massive growth, reaching over 500k users in record-setting times. When speaking with the Supermoney team, they actually saw these impressive numbers in a positive way, as they indicate, with the right product, large and rapid growth in this area is not unprecedented. The market is already enormous, yet has the potential to grow even larger, and therefore the mere existence of competitors should not act as a barrier to entry. Joel expects growth in the market to come as a result of the 4th Industrial Revolution - the expansion of the autonomous Internet of Things. Supermoney is perfectly positioned for that, an advantage over even the most recent digital banks.

Why have people been investing in them? To get a flavour of why this company is likely to be successful in what they are doing, we took some time to chat with someone who has put their money where their mouth is – an investor, Sarah Abuljadayel from Let’s Deal. First, Sarah spoke about why they had got involved with blockchain companies: “You know, sometimes it’s about financial return and then maybe sometimes you just want to learn from these new companies. We know the future is technology and we want to be part of this. Everyone is talking about fintech!” So, what about Supermoney in particular drew Sarah to them? “Their experience was a big factor – each with over 20 years working in related industries they definitely know what they are doing. I believe in them being able to carry out things in the long term – I have complete faith in them. They have the know-how to go the distance!” As for Supermoney itself, what excited her the most about this company and their products? “From day one I will be paying less in transactional costs, the tech is ready to go, and they are using their banking experience to make the whole system better with a better customer experience. They are not just looking at changing little things, making marginal changes.”

What’s going to happen next? Supermoney have been preparing to launch in this area for the last 4 years, with most of the team behind Supermoney running a wholesale international payments business, in order to demonstrate the viability of their core model. With £60k in monthly net revenue, and a month-on-month growth rate of 10% they are suitably convinced of it its viability and they are now ready to develop their ideas further, building a completely new payments network. To do that, of course, they need investment. Their seed round of investment has just closed, allowing them to move to the next stage of their expansion. But as they do, costs are likely to increase as their network grows, requiring regulatory and working capital, and funds to develop, support, and market a beta and then finished product. It is, therefore, likely that they will be looking for further investment later this year. We hear reports that there are already some distinguished banks that have expressed potential interest. We will be sure to look at them again in the near future, to find out how close they have come to making the same impact on payments as PayPal did 20 years ago. In the meantime, you could discover more information on their website – moneywire.co – or by seeking out the team on LinkedIn.

June 2018 I 25


TAX THE FIN TECH TIMES

Fintech companies likely to benefit from EIS updates By Jon Dawson and Paul Twydell

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Jon Dawson Manager at haysmacintyre Jon is a Chartered Accountant at haysmacintyre, and specialises within the Creative, Media and Technology sector, with a particular interest in FinTech companies. Jon has extensive experience in working with fast growth scale-up businesses and understands the importance of regular communication backed up by strong technical experience.

ome of the most revolutionary businesses in the fintech space were born in the UK and in 2017 we saw 31 companies based in London make it into the Fintech50. The continued growth of fintech start-ups in the UK has provided (and will continue to provide) vast opportunities for private investors to invest in exciting businesses. The Enterprise Investment Scheme (EIS) has meant these investments can be made in a tax efficient way and the scheme is attracting a range of investors like we haven’t seen before. From sophisticated financiers to first-time investors who are exploring crowdfunding platforms, EIS provides benefits to the investor such as income tax relief of up to 30% of the cost of the investment, and exemption from capital gains tax (CGT) on the eventual disposal of the shares. For investments in companies which have been carrying on their business for less than two years, the similar but separate Seed Enterprise Investment Scheme (SEIS) is available on the first £150,000 of investment, allowing income tax relief of up to 50% of the funds invested. Most of the rules for the SEIS are the same as for the EIS; this article concentrates purely on EIS for ease of reading.

Paul Twydell Tax Director at haysmacintyre Paul is a Chartered Accountant and Chartered Tax Advisor within the Business Tax Team at haysmacintyre. He specialises in tax issues concerning businesses within the Creative, Media and Technology sector and is expert in advising on the Enterprise Investment Scheme (EIS) and associated shareholder matters.

Since the EIS was launched in 1993-94, over 26,000 companies have received investment and over £16 billion of funds have been raised , with the number of companies seeking investment under the scheme being at its highest level ever.

How is EIS relief obtained? EIS relief is claimed by an investor in their personal tax return. However an investor is not able to make this claim unilaterally under self assessment and can only make this claim where a certificate of entitlement to the relief is issued by HMRC. The investee company must apply for the relief on behalf of its members and can only do so after it has been carrying on its trade, or R&D activities, for four months. So that investors can have peace of mind that an investment should qualify under the

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EIS prior to making their investment, HMRC offer a non-statutory clearance, known as Advance Assurance. It is not a requirement of the scheme that Advance Assurance must be obtained in order for the reliefs to apply but we often find clients and their investors want that peace of mind.

Such factors could be plans for increasing revenues, customer base and the number of employees. The second condition is that the investor has a real risk of losing all of their investment where there is a commercial risk of the company failing in the market.

HMRC aim to review an Advance Assurance within fifteen working days of a company making an application. However with the increased number of applications being made to the specialist department which deals with EIS, HMRC have not been able to meet this time limit and we have experienced applications taking up to fourteen weeks to be looked at – worth bearing in mind if you’re planning on raising further investment in the foreseeable future.

HMRC have not suggested that these tests have set criteria to meet, but moreover that the overall business plan has, with reference to certain factors, an overall feel that there is an intention for growth and a risk of failure. HMRC have provided guidance on these factors and provided examples on their website.

HMRC are looking to streamline their processes, and in order that the generous tax reliefs afforded under the scheme are targeted to companies which most need the investment and acceptance under the scheme is given in the most timely manner, HMRC have introduced some recent changes as to how the scheme is operated. We expect that fintech companies will be amongst the biggest winners when HMRC implement their proposed changes.

New rules – risk to capital HMRC are looking to target EIS relief to small, higher risk, early-stage trading companies that would otherwise struggle to access the funding needed to enable them to grow and develop, as they have little or no track record. However, it has been the case that the EIS scheme has been used by investment managers for capital preservation schemes investing in property backed businesses, such as pubs, crematoria and nurseries, where the income tax relief is used in part to provide the return on investment to the investors and it may not be the case that the investor is under any real risk of losing all of their investment. The new rules will only grant EIS relief where a company can meet two conditions: firstly that there is an intention for the business to grow and develop over the long term, not just for the three year period in which an investor’s EIS relief is at risk.

In the fintech space we expect there to be many companies who will be able to demonstrate that this test is met: where the technology is new with no proven business model, or requires a certain amount of take-up from the market and a high number of users before it will turn a profit then there is unlikely to be a guaranteed return. HMRC advise that where a company uses subcontractors to perform the bulk of its work this can be an indication of a capital preservation scheme, but we have been advised that where the company lacks the skills in house and subcontracts, for example, the front-end development of their platform, this fact is unlikely to breach the test on its own. HMRC have advised that as the Advance Assurance is not a statutory clearance they do not have to confirm that EIS relief is or is not available in advance of an investment. Accordingly they will not answer any Advance Assurance application where there is a risk that the risk-to-capital conditions could be breached. That is not to say that a company cannot apply for EIS relief after the investment has been made, where the eligibility of the EIS claim can be reviewed in relation to the facts at that time. Whilst it may appear that this new rule will affect firms seeking investment in a negative way, for firms in the fintech sector this may actually have a positive result. Firstly, HMRC estimate that 60% of the applications they were dealing with previously will now fail the risk-to-capital condition, which should speed up fintech firms obtaining a timely response from


TAX THE FIN TECH TIMES

“HMRC are looking to target EIS relief to small, higher risk, earlystage trading companies that would otherwise struggle to access the funding needed to enable them to grow and develop.” HMRC as to whether their business will qualify under the schemes. Secondly, whilst this rule change will not result in investment managers who are seeking low risk returns for their investors suddenly switching to investing in high-risk startups, it may be that certain individual investors seeking relief under the EIS may now be more interested in putting their money into non-property backed investments.

New rules – information needed for a request for Advance Assurance Another factor which has led to HMRC taking so long to review applications is that applications are dealt with on a purely first in, first out basis. More than a third of Advance Assurance Applications provided by HMRC to date have not resulted in an investment and have either been purely speculative in nature, or been requested so far in advance of the company being in a position to raise funds from the market that the assurance received becomes obsolete (e.g. where the company pivots its trade). To remedy this, HMRC have advised that they will only process an Advance Assurance claim where all of the following information is provided by the company: • a copy of the latest available accounts of the company (and its subsidiaries if applicable). If the company has not yet drawn up a set of accounts, HMRC does not expect it to do so for this purpose; • the company’s business plan including financial forecasts; • details of all trading or other activities to be carried on by the company and any subsidiary, and a note of which company or companies will use the money raised, and how; • a schedule of all previous EIS funding or other risk-capital state aid raised; • details of the amount the company hopes to raise, and a schedule of the activities, and amounts, on which it (or its subsidiary) intends to use the money; the amount does not need to be precise but should be close to the actual amount needed and not state rough figures such as ‘up to £5 million’ • an up-to-date copy of the Memorandum and Articles of

Association of the company and of any subsidiary, and details of any changes to be made • a copy of the register of members at the date of submission of the Advance Assurance application • details of any subscription agreement or other side agreement to be entered into by the shareholders • confirmation that the company expects to be able to complete the declaration on form EIS1 in due course • details of the potential investors* or, if the company is using an intermediary to provide investors, details of the fund managers or other business promoters who are expected to provide these investors. • the latest draft of any prospectus, information memorandum, pitch deck, brochure or similar document relating to the relevant fund raising or offer to be issued to potential investors. • any other relevant information, for example documents to support a company’s view that it is a knowledgeintensive company, and group structure diagram. The general rule is that if a document is to be provided to investors or is publicly available so as to be used by a proposed investor in order to make a decision as to whether to invest, this should be sent to HMRC with the application. *Most contentious of the above points is to provide a list of proposed investors. Where investors would not be willing to invest without Assurance being granted, it may be the case of the ‘chicken coming before the egg’ for the company to provide this information where its investors are not yet committed. HMRC have advised that they are looking for some evidence that the company has potential investors, to make sure the company has a prospect of getting an investment if it receives an Advance Assurance. That would mean that an investor, fund manager or crowdfunding platform is engaging with the company. It is unlikely that HMRC would consider merely being on a crowdfunding platform to be evidence of a proposed investment; the company would need to evidence some traction on that platform.

Is EIS investment the right sort of funding for all fintech companies? In more general terms, we have had several discussions with our clients as to whether investors seeking EIS relief are suitable for some fintech companies in view of the potential markets and products which those companies may be interested in both at the time of the investment and in the future. In order for EIS relief to be given to an investor it must be the case that the company does, or intends to carry on a qualifying trade which does not consist, to a substantial extent, of non-qualifying activities. The ‘tech’ part of fintech would normally be a qualifying trade where the company developed the bulk of its intellectual property itself. However companies undertaking financial activities (or the ‘Fin’ part) are excluded from raising EIS monies should they be undertaking activities which are normally provided by a bank, acting as agent on behalf of a bank, or bearing their customer’s financial risk. ‘Substantial’ in this circumstance would mean that more than 20% of the company’s activities breach the EIS rules, for which there are several methods by which a company can define how its activities are undertaken, for example with reference to turnover, employee time or how profits are generated. For some fintech companies it will be clear from the off that they are not going to qualify under the EIS and these companies are happy to seek non-EIS funding. With others the position is not so clear cut. The company may be a purely softwarebased concern at the time of its funding offering, but in time may seek to obtain a banking licence or FCA Approval to enter certain markets which would render it non-qualifying, or its non-qualifying income may creep over the 20% test naturally within the three year period. As the company must meet the EIS guidelines for its qualifying activity from the time of its investment to a period ending three years afterwards, there could be a risk that investors could obtain the tax relief in the beginning, but subsequently the tax relief is withdrawn. The consequences of which are the investors being faced with an

unexpected tax bill and the directors faced with an angry group of shareholders. Clear communication to investors with regard to the future intentions of the business and the risks of losing qualifying investment status are key here. What may not be appropriate in certain circumstances would be for the directors to restrict what the company does solely to maintain EIS relief for a group of investors. Under company law the directors must work to promote the best interests of the company and protect the shareholders as a whole. Should a company delay its entry into new finance-based markets purely to protect the investors’ tax relief, or restrict certain non-qualifying income streams for the same reason, this could be seen as a dereliction of directors’ duties and legal advice would need to be taken by the board. It is also important when making an Advance Assurance application that the company makes full disclosure to HMRC as to what it intends to do in the three years following investment, to the best of its knowledge at the time, in order that HMRC would be bound by any Assurance given. If incorrect, incomplete or misleading information is provided when the Assurance Application is made then the Assurance may not be worth the paper it is printed on and the investor’s tax relief is at risk. The team at haysmacintyre have a wealth of experience in advising companies on EIS matters including assisting with structuring business operations in advance of raising finance, outlining the risks of losing EIS status to our clients and preparing Advance Assurance Applications for EIS and SEIS. When making an Advance Assurance Application we aim to provide the most comprehensive explanation of the company’s intentions for the trade and use of funds and endeavor to outline where the company is likely to meet each individual piece of legislation governing the EIS scheme so as to streamline a response from HMRC. By taking this line we have, in many cases, obtained Assurance from HMRC firsttime without any subsequent queries raised by the Inspector. If you or your company would like any assistance in these matters please contact fintech@haysmacintyre.com for further enquiries.

June 2018 I 27


DUBLIN TECH SUMMIT THE FIN TECH TIMES

Banking in 2028: Mobile, open source, invisible and decentralised KATE GOLDFINCH Banking has changed significantly over the past ten years. Consumers now expect an ultra-personalised user experience wherever they are. Now it’s up to the banks to get on board.

The Fintech Times moderated an exciting panel discussing “Banking in 2028 – the state of the industry“ at the two day technology conference set to take place in Dublin on April 1819 2018 - Dublin Tech Summit. The event aimed to forge meaningful and lasting relationships and networks for its 10,000 attendees from 72 countries across 2 days. The futuristic panel spotlighted the key trends for the industry to expect within 10 years. Despite the growth of innovations in financial industry, banks are often reactive in how they sell products. As an example, the consumer has to actively request an overdraft increase or go through a process of application and approval to get a credit card. The rise of fintechs and neobanks pose serious implications for incumbents if they fail to remain innovative.

Banks vs Fintechs Within the exciting discussion “Banking in 2028 – the state of the industry“ panelists debated how digital disruption is shrinking the role and relevance of banks and what is the influence of Fintechs. As Gary Conroy, CCO at TransferMate, said: “Consumer payments have seen radical innovations in recent years with contactless cards, one-click checkout and mobile payments. The focus is on the customer experience and removing friction from the buying process, and technology advances have accelerated this change.” TransferMate is focused on bringing a seamless payment experience to business customers. This is why the company has developed its technology to integrate with the world’s leading accounting and enterprise resource planning systems, avoiding double entry, saving administrative overheads and providing an integrated, frictionless experience for business

customers. “As well as disrupting the front-end customer experience, TransferMate has built a propriety, end-to-end global payments network. TransferMate controls this network end to end, enabling cheaper, faster and easier cross-border payments. By completely bypassing the traditional correspondent banking network, we have built a smarter way for businesses and banks to send and receive international payments,” Gary Conroy explained. Answering the question to “is fintech mostly about competition or collaboration?” Gillen Kelvin, Head of Customer Experience at KBC Bank, said: “Fintech = Moving

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from competition to collaboration (4 Fintech providers involved in the development of KBC Instant On-boarding App released last year, and a number of others engaged in our immediate roadmap (Instant Credit / PFM / Open Banking etc..).” At the same time, he noted, that despite all the hype, Fintechs have by and large failed to establish themselves as dominant players, or topple the incumbents, in any market. “Fintechs haven’t dramatically changed who the major players are, but are materially changing how they compete.” Where Fintechs have succeeded is twofold: · Firstly they are defining the direction, shape and pace of innovation with the industry. · Secondly they have reshaped customer expectations, setting new and higher bars for user experience. “Retail Banking needs to respond by leveraging its strengths (scale & ownership of customer interface), addressing weaknesses (Innovation & Customer Experience), take advantage of opportunity (partnership & cost) while being aware of the bigger threats (platforms (GAFA) & security),” Gillen Kelvin clarified.

What Open Banking brings to the industry Switching from the general matter of financial industry disruption to the 2018’s hottest topic – Open Banking enabling customers to have a choice, and a free market, we have analysed, either Open Banking (PSD2) is an opportunity, a threat - or both for incumbents and Fintechs and how it affects businesses in the meantime. As Gillen Kelvin from KBC, said: “Open banking is a huge opportunity for ‘challenger banks’ and Fintech (probably little real incentive for incumbents, but necessary ‘defensive’ option).” “KBC is developing open bank capability (already ‘live’ in Belgium) with local deployment by year end. Vision is to enable all customers and non-customers to manage their personal finances through a superior mobile application (will extend beyond banking in 2019 (travel, parking, eat, etc..).” The only honest answer to this is – “both” and to my mind the reality is that it’s too early to call any bets on winners and losers, Duena Blomstrom, Founder & Author of Emotion Banking, noticed. Duena has worked with multiple TIER-1 banks like Lloyds, Santander, BNP Paribas, ING and others, and also has a background in psychology. “Due to how ill prepared banks are, how hard it is to achieve scale if you are a challenger and how slow in showing their hand GAFA is, it’s still “anyone’s game” when it comes to seizing the Open Banking opportunity. It could well be that a major global bank will execute perfectly and becomes the Money Moments™ Provider of choice or that a challenger bank will take flight and create addictive experiences, it could be that Alexa gets smart and insinuates herself into our everyday financial episodes but it could equally be that your favourite corner shop dreams up a killer app and aggregates your Lloyds account and your Amazon purchases in it.” As for Joao Reginatto, Director, European Product and Operations, from Circle, Open Banking is a tremendous opportunity, but he thinks it’s not as interesting as blockchain technology. “I see Open Banking as on and off ramps that will exist temporarily to bring customers along a journey to native digital money. Similar to how in the early days of digital photography, printing services were extremely hot as people didn’t have very useful use cases for digital photos and so would “cash out” to their previous, analog equivalent. Similarly, as money becomes a native digital asset, people will stop moving in and out of traditional banking and hold a lot more digital value solely in new services.”

Banking in 2028 As a conclusion of the panel discussion, we asked panelists

to share their thoughts on “How banking will look like in 10 years?” “I am not sure banks will ‘exist’ in 10yrs time – certainly not in their current format. And barring the emergence of single ‘killer’ platform (Gmail, FB, Amazon etc..) Fintech’s will largely remain ‘niche’ players, servicing distinct sets of consumers with very specific needs. 10yrs is a long time (iPhone wasn’t launched in Ireland 10yrs ago) – but given advances in AI, blockchain and cloud computing it is hard to envision a future that doesn’t involve some kind of ‘platform’ that enables personalised AI to manage our day to day finances in an ongoing and proactive manner that was optimised for each individual,” Head of Customer Experience at KBC believes. Nobody knows exactly how the role of banks will change, but it is clear it will change. “From an overly simplistic point of view, when money becomes a native digital asset, deposits and credit aren’t much more than updates to digital money databases. In that frame, banks are regulated database operators. What happens when regulation allows distributed ledgers to be used as digital money databases? That allows for an era of “visible” banking in terms of risk and treasury, quite different from what we have today. On the consumer side, the trend seems to go in the direction of “invisible” banking, where new distribution allows things like payments to be embedded in the actual consumer experiences (multiple apps for this), similarly for statements or investment portfolios, etc,” Joao Reginatto, Director, European Product and Operations, at Circle commented. He believes, that not only Fintechs but especially technology companies will be all over this space. Circle in particular is interested in helping build a new global and open infrastructure for value exchange on top of blockchain tech and crypto assets, while building new consumer finance experiences that are natively connected to that. “It is a slightly longer term perspective than most companies, but one that we think has a lot more value.” Business customers’ expectations are changing, starting with frictionless user experience, right through to the payment execution. “It’s a fun and exciting time for us as a company and for the industry as a whole,” Gary Conroy noted. Retail banking is indubitably on the verge of a major shift, Duena Blomstrom believes. “Within the next few years retail banks in particular, will have to decide if they want to remain part of what I call, “The Relationship game”, meaning have a direct connection with their consumers or, if they are alternatively, satisfied to become the pipes behind other structures. The raise of Fintech along with significant changes in regulation, and ever-growing customer expectations, are the factors bringing this about. To remain in the Relationship game, a major shift needs to happen, a major overhaul in the bank’s’ structure, in its very DNA, where they will modify their culture so that they can redesign their old “product suit” into experiences, significant Money Moments™. Hence my extreme urgency in advocating immediate and razor sharp effective cultural change for banks. If they manage this great challenge and change in time to become Design Led Organisations as I describe it in my book “Emotional Banking™: Fixing Culture; Leveraging Fintech and Transforming Retail Banks into Brands” then it’s entirely possible that in 10 years Banking will be transformed. Strong brands will have emerged, that will invisibly intersperse themselves seamlessly, into the consumers’ digital life, by providing value through Money Moments that are relevant, welcomed and beloved. In 10 years, my son will be driving his first Tesla, wearing the first bionic, smart Ted Baker garments, entrust his home to Google and his personal devices to Apple and Invisible-bank with Bank X! What’s more, he will be able to proudly name all of these entities as part of who he is.” P.S. Certainly, the future is full of unknowns, but we do believe that the next 10 years will bring about even more efficiencies for both businesses and consumers.


STARTUPS TO CHANGE THE WORLD THE FIN TECH TIMES

Startups and ideas to change the world

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DAVID POPE

MAYA KUMAR

NICHOLAS PIËL

FRANCESCO SIMONESCHI

Marketing Director HooYu

Head of UK & Ireland Luno

CEO Surfly

CEO and co-Founder TrueLayer

ooYu is a global identity confirmation service used not only by businesses that need to check their customers are who they say they are, but also by consumers who want to check another person’s identity. HooYu helps protect consumers from scams and financial loss by giving them access to the same technology that banks and online businesses have been enjoying for years to make sure their customers are who they say they are. HooYu is also used by money transfer sites, lenders, banks and sharing economy sites to confirm customer identity. We verify a person’s digital footprint, authenticates their ID document and conducts a biometric facial check comparing a selfie of the customer with the facial image on their ID document. HooYu also extracts and verifies data from digital footprint sources such as Facebook or LinkedIn or ID document sources such as passports, driving licences or proof of address documents. HooYu then examines, compares and crossreferences customer identity across these multiple sources to deliver an identity confidence score. HooYu ensures that people are able to prove their identity in today’s online, digital, 24/7 mobile world. We help everyday internet users to know that the people they are dealing with online are who they say they are and to build trust and confidence. Everyday HooYu protects internet users from romance scams, airbnb scams, recruitment scams, investment scams by enabling them to ask the person they are interacting with to prove their identity. The company helps businesses to reduce account opening abandonment by creating a smooth online customer journey so that account opening can easily be completed whilst still meeting Anti-Money Laundering compliance requirements. HooYu’s unique blend of identity verification technologies means that customers can be verified in real-time without having to force a customer to go into a branch or to email in copies of ID documents and then wait hours or days for account opening to be completed. So far there have been no challenges to scaling HooYu, our clients can choose to use HooYu via our back office portal or integrate HooYu into their site or app.

L

uno is a digital currency wallet and exchange that makes it safe and easy for people and businesses to buy, sell, store, use and learn about digital currencies like Bitcoin and Ethereum. Our vision is to upgrade the world to a better financial system. The way people think and use money is changing fast. The existing financial system was built for a non-digital age, ignoring the needs of the modern individual. Decentralised digital currencies (i.e. controlled by no central authority) are enabling us to reimagine the financial system, leveraging efficient technology to upgrade the world to something better: money that is cheaper, faster and safer, private yet transparent, interoperable and programmable and with open and equal access for everyone. People still do not know where to find a service provider they can trust, an easy but also a safe place to buy digital currencies. Luno ensures they provide this option to users by building bank grade onboarding processes and robust security systems to safely and securely buy/sell, store and use Bitcoin and Ethereum. Educating people and demystifying myths of our industry is key to growth - there is a scarcity of objective, high quality educational materials that explain things about the industry to non-technical people. Luno aims to overcome this by offering our online Learning Portal on our website and app. As we grow across Africa, Asia and Europe, localisation in terms of language, customer engagement, payment methods and other product features is key to ensuring we are offering a global product at a local level. We deal with these global challenges by speaking to our customers directly in each country, using their feedback, working with local partners and hiring the best talent who understand the market in which we operate. Other external challenges relate to how the traditional financial system views digital currencies. Luno actively communicates and engages with the wider community so they better understand digital currencies and are open to work together to cultivate a sustainable and positive impact on society and the economy.

S

urfly, a Dutch company based in Amsterdam, has developed a visual engagement tool for sharing web sessions online. With Surfly co-browsing solution and video chat, support agents and advisors can remotely assist website visitors. Unlike screen sharing, Surfly’s unique approach does not require you to download any software or plugins, nor does it require any installation - making it simple, fast and safe. With Surfly’s turnkey service, advisors can move seamlessly across different communication channels (Telephone, Whatsapp, Facebook, Phone or web chat) to a collaborative web-session as they engage with their customers. Moreover, during a co-browse session support, agents and advisors can also share and view documents that reside on their local machine by just dragging them into the browser window. In today’s financial world, customers want that financial services firms understand their needs and wants. If a financial services firm fails to exceed the customer expectation, they tend to lose their customer. Great customer experience starts with a relationship of understanding and this requires tools that will help an agent to understand a customer and drive customer loyalty, which in turn drives retention, recommendations, and most importantly trust. Our clients achieve the highest customer satisfaction rates among all other communication channels. This is backed up by industry reports such as Forrester reports, “Co-browsing has a much higher satisfaction rating (78% satisfaction rating) than asynchronous electronic channels (email, and web selfservice)”. Surfly has reinvented the way financial services firms interact with their customers. The company has helped big insurance carriers to enhance the customer experience, as well as, improve customer satisfaction. With the help of co-browsing and video chat, agents and advisors can securely navigate a webpage alongside their customer, guide them through complex forms and processes, or use annotation to highlight and emphasize areas of interest. In fact, cobrowsing with video chat can be a very effective way to strengthen the emotional bond between a company and a customer - enabling agents to connect emotionally and establish customer intimacy during high-value purchases.

T

rueLayer builds APIs that enable companies to securely and quickly access the financial data of their customers and make payments, provided that they have given their explicit consent to make it available. We’re helping to make Open Banking a reality by building the technical backbone that allows companies to quickly and efficiently build new products and services. We provide our service for free to charities and non-profit organisations. Clockwise, a credit union, is already working with us to speed up how loans are assessed for people unable to access traditional financing. We’re keen for more charities to take up our offer and build products that really help people. Financial inclusion is a core benefit of Open Banking and one of our fundamental beliefs. We are certain that new Open Banking-based services will soon become available that make universal banking a reality and liberalise the credit market. Our goal is to power a new era of financial innovation - so we’re working to facilitate a financial world, where every consumer, particularly the unbanked, have access to financial services and products that would enhance their lives. Open Banking is still in its infancy and many consumers do not know how it will reduce their costs, increase their choice of services, and generally, give them a much better financial experience by improving competition. Security is naturally a critical part of Open Banking - everyone needs to be able to trust that their data is safe especially in the current environment. This is why we undertook several months of hard work to gain a license from the Financial Conduct Authority and ISO 27001 certification on security management. Consumers need to know that TrueLayer’s systems are as secure as any major bank.

June 2018 I 29


INTERVIEW: MEET YOUR MAKER THE FIN TECH TIMES

I GOT 20 ISSUES BUT FINTECH AIN’T ONE! An interview with the Fintech Times CEO and Founder KATIA LANG BY RUPEN G KALSI After twenty informative (and amazing!) issues of The Fintech Times, we felt it was about time you met the face (some might say brains!) behind it all; introducing Katia Lang. Now a fixture on the fintech scene, having been named as one of the Top 100 Women in the industry, it’s a surprise to learn that Katia began her journey as a flame-haired graphic designer. Why did you set up the Fintech Times? Well we started as a magazine in 2015 when I came to London from Zurich with no idea of what to do. After hanging around Google Campus I realised there was no one covering the start up scene in print media, so we started a magazine! It was a cute-looking glossy magazine called Disrupts and it was in every coffee shop around Old Street and Shoreditch. The problem was that we couldn’t make any money from it. Anyway four months into that, after producing a ‘fintech themed’ edition of Disrupts, we launched the Fintech Times because we made more money and connections from that issue alone than we had from all the previous ones. We thought that “this is the direction things are going.” Why make a newspaper when you work in such a futuristic industry? Isn’t it a bit of an anachronism? You wouldn’t believe how many times people have asked us this question (!) I get it every time… Sorry! No it’s actually a good question. Print media isn’t dead. We know that thanks to Disrupts, which became popular with people like Xero and Barclays – big companies. We were popular, and we hadn’t created another online blog about bullsh*t, or another f*cking app – do you know the amount of apps being produced everyday? They looked at us because we had a very cool-looking, printed, glossy magazine. Also I have a graphic design degree so I’m pretty good at putting things together on a page. So it was never a question for us whether to do it in print, but it was a question whether to make a newspaper. Making the fintech publication in an old school format was quite a cool thing to do – it just felt right to do it in this way because, whilst the sector is very new, the people who need to know about it are quite old school. The bankers, the lawyers, and the investors read everything about fintech because they need to know this information. And they read papers do they? They do! They love them! You said you did a degree in graphic design

30 I June 2018

what’s your educational background? How did you get from graphic design to Fintech? Well that was one of my degrees – I was an artist. When I was 22 I won a competition to do a magazine for a contemporary art museum. Nobody expected me to win it because the people competing with me were big agencies – proper grown up people! I was this girl, 22, completely mad with bright orange hair and piercings. They asked me if I could run an editorial department and I said “yes of course”, and that’s how I got into print media and publishing. You mention degrees – plural – what are these degrees you speak of? My four degrees are a Bachelors and Masters in Art and Graphic Design – and I did a psychology degree on the side, part time. Then I did an MBA in Switzerland, which probably makes me the first graphic designer with an MBA in the whole world. It was business and finance that then led me into fintech. It’s nice to see that someone in fintech has a creative mind as well… It’s an interesting thing I noticed when I was at Google Campus. After my MBA, after all my artistic adventures whilst being a painter and an art magazine publisher, I felt I missed creativity in arts – as weird as it sounds. Then I found this creativity, a bunch of ideas, and some dedicated and interesting people - in the startup scene. It made me want to help those people, to give them a voice and write about them – that has always been my mission. I think my love for creative people and ideas is my main passion in life. At every point in time there’s a new thing that disrupts something previously created. That’s what the art scene used to be about, and now the tech startup scene is! Hence Disrupts magazine, right? Would you say the spirit of Disrupts magazine and this creative energy is what you put into Fintech Times? I think so yeah. I love to interview those amazing startup founders – that’s what we do. It’s probably not a ‘businessy’ thing to say, but it’s what I love to do.

If you had to give a piece of advice to someone starting a startup what would it be? Founding and running a startup makes you a better person, more creative, agile, fast thinking, and fearless. I think everybody should try it at some point, but we need to lose the idea that you should succeed no matter what. It’s a great experience and, even if it doesn’t work out, it’ll still be something to tell your friends at the dinner table. However, there are types of people who kind of can’t do anything else, unfortunately – like me! If I could work for a bank I would, but I can’t because I am just wired the wrong way somehow. I’ve been doing my own thing since I was 16. I know people who are a bit like me, and we call ourselves ‘unemployable’ that means we can’t bear being told what to do. That just leaves us no other option but to start something again and again no matter what. Well I definitely relate – that’s why I became a journalist. Coming back to startups, what’s the biggest challenge you faced setting up the Fintech Times? The biggest challenges for all startups are customers and money. Having a “normal” business in the startup world is a challenge. We exist in the world of mega-hyped tech startups and crazy inflated valuations, where people think in terms of millions and billions. Whereas, with us, we are the media platform for this world, with massive potential – but in a way just a normal company. We aren’t Monzo or Revolut, but we talk to the same investors! We have the passion and the guts to be disruptive, but we lack the heritage of, say, The Guardian, and the Unicorn hype of a fintech startup… So we are doing some other thing, being in between, and connecting those worlds of old and new, and disruptive and traditional. Going back to fintech in 2017, you said that artificial intelligence would dominate the year, so what do you think is going to be the big thing this year? This year, I think it’s going to have something to do with this boom around cryptocurrencies and ICOs. In particular, the

digitalisation of financial assets – so called ‘tokenisation’ – is going to have a big impact in the more traditional industries, asset and wealth management and similar. It’ll be interesting because the digital world will reach another level. In 2018 tokenisation is a word we’re going to hear a lot. It is a very male world you’re working in. I read that women make up only 29% of the workforce in Fintech, which is low considering that they are half the working population overall. How do you think we should solve that? I think we should invite them to mixed events and mixed teams, and look to get them inspired. The best team is 50/50, the best cofounding team I had was female plus male. All the time everything needs to be both. I don’t want to separate the two because the more we are separate the worse it gets. We should just hire the best person for the job – if they happen to be women, great! It’s hardcore but true. I don’t think the startup scene has an issue with either female or male founders – it’s very diverse – but for whatever reason women don’t choose it. It’s a good question in itself as to why they don’t find it attractive. Maybe they just don’t believe in themselves enough. We need more role models, of course. Women that refuse to masculinise themselves, yet being successful and fulfilled in a maledominated business world. Maybe a bit like Sarah Wood (the founder of Unruly). Well as a woman in the industry you are flourishing. You were recently named one of the Top 100 Women in Fintech, how did that make you feel? I’m grateful because I never thought about promoting myself specifically as a ‘fintech person’. I felt that because I didn’t run a fintech company that’s why, in the past, I’ve never made it onto one of these lists. But, we have created a fintech ecosystem and support companies, and that deserves to be mentioned. It’s nice to have a voice of my own because I’ve been focused on giving voices to other people for so long.


FINTECH EVENTS THE FIN TECH TIMES

Events 8 June

16-19 June

Asia Blockchain Expo Singapore

Blockchain Economic Forum San Francisco, USA

Asia Blockchain Expo was created to connect, educate, collaborate and involve the masses about the latest trends in this cryptocurrency and Blockchain space. To explore opportunities and discuss various use-cases across different industry verticals. Furthermore, it gives a platform for cryptocurrency and Blockchain industry leaders to meet up and exchange ideas. Presented in a series of top-level keynotes, interactive panel discussions and solutionbased case studies with a focus on learning and building partnerships in the emerging Blockchain space, Blockchain Expo will explore the industries that are set to be disrupted the most by this new technology.

BEF SF is a four-day event that is expected to be attended by over 2,000 participants, including many leaders from the world of technology, business, media and politics. The forum will host over 40 inspiring discussions on blockchain opportunities for strategic development of real sector companies, industry regulation, technology updates, as well as marketing and PR for blockchain and crypto startups. Blockchain Economic Forum is designed to empower pioneers to find ideas, investments, partners, and friends. Together we will make crypto official and widespread in order to automate capital markets, money and states. bef.latoken.com

6-13 July

LONDON FINTECH WEEK 2018, Finovate Fall, NYC, USA London, UK Join 1500+ senior financial and banking

asiablockchainexpo.com

13 June

23-24 June

CryptoCompare & MJAC London NON central CONF Leon, Spain Blockchain Summit London, UK This is the event from the community to the A must-attend event if you are looking to find out more about blockchain technology or digital currencies such as Bitcoin and Ethereum. An exhibition featuring 50+ companies that are making waves in the blockchain industry, plus investment panels, business panels and presentations from the likes of Ripple, Coinbase, Coinfloor, Citi, VanEck, BlockEx and BP Prime. Come and join the pioneers, innovators and thought leaders of the blockchain industry. mjac.io

community. There are not speakers, there are speakfriends who are awesome brilliant blockchain minds and big hearts, and above all it is gonna be fun. There are scheduled talks and panel discussions as well as you are invited to spend an unforgettable weekend in such a magic and special city as León. The NON central CONF is not a ICO´s shop window, it is a divulgative, non-profit event with the objective of raising blockchain technology knowledge, awareness and successful use cases, strengthen links between different communities and #BUIDL

11-12 June

noncentralconf.com

LeadersIn Tech Summit London, UK

28 June

The LeadersIn Tech Summit brings together tech leaders to discuss the macro issues facing every business. Book your ticket today and benefit from access to true tech leadership, inspiration, innovation and insights through high-level presentations, interactive panel debates and closed-door think tanks, all led by today’s and tomorrow’s most successful businesses.

Investing for impact 2018 The Economist London, UK As with the previous The Economist summits on investment and impact, speakers and audience members will include leaders from the world’s premier financial institutions, wealthiest families, largest companies, innovative startups and most influential foundations.

tmt.knect365.com/leadersin-tech-summit/ events.economist.com/events-conferences/ emea/investing-for-impact-2018

24-26 September

Fintech Week is a series of conferences, exhibitions, workshops, hackathons, meetups and parties. Each day we focus on a different topic. We always ensure that there is plenty of time for networking and meeting other innovators. The main conference/exhibition takes place at the QEII Centre in Westminster, but other events take place across the City of London, Canary Wharf and “Tech City.” Expect 600-1,000 conference delegates per day from over 50 countries and 3,000 – 5,000 participants in events throughout the week. fintechweek.com

4-5 September Internet of Insurance Conference London, UK Come along to the 3rd Annual Internet of Insurance Conference in London to find out more about how emerging technologies are enabling insurers and reinsurers to streamline process, achieve new insights from risk-profiling and offer new ‘crossindustry’ services premised on preventing incidents. Through a combination of enduser case studies and expert insight, Internet of Insurance will equip delegates with the skillset to capture future market share by leveraging IoT, AI and data to minimise risk, prevent claims and improve customer experience.

executives, venture capitalists, press, industry analysts, bloggers, regulators and entrepreneurs from all over the world. 70+ innovative fintech companies will have just 7 minutes to demo their latest solutions live. No slides or video are allowed! Our competitive application process means only truly innovative companies will be on stage. In addition to seeing the latest innovative technologies live on stage, you will hear about the latest regional trends and macro issues affecting financial technology. finance.knect365.com/finovatefall

22-24 October CRYPTO INVEST SUMMIT, Los Angeles, USA Crypto Invest Summit is coming back to the Los Angeles Convention Center on October 22nd - 24th in Los Angeles, California. The summit will feature a robust agenda spanning a variety of cryptocurrency related themes including investment analysis, marketing strategies, trends and insights from industry experts. The summit will bring out some of the biggest investors and entrepreneurs in the crypto space, like previous speakers Tim Draper, Crystal Rose, Mance Harmon, Ran Neu-Ner, Marcus Lemonis, Robert Herjavec, David Siemer, Bill Barhydt, Scott Walker, Adam Draper, Amy Wan, Aubrey Chernick and Apolo Ohno. cryptoinvestsummit.io

ioi-uk.internetofbusiness.com/

March June 2018 I 31


THE FIN TECH TIMES

32 I June 2018

Profile for The Fintech Times

The Fintech Times - Edition 20  

Back in April, The Blockchain, AI, and IoT Expo took place at the London Olympia. It brought together the brightest and best minds in fintec...

The Fintech Times - Edition 20  

Back in April, The Blockchain, AI, and IoT Expo took place at the London Olympia. It brought together the brightest and best minds in fintec...

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