Fintech - Q2 2022

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Q2 2022 | A promotional supplement distributed on behalf of Mediaplanet, which takes sole responsibility for its content

Fintech

“How can the sector continue to create positive change for society.”

“Open banking technology empowers people to use their data.”

Janine Hirt CEO, Innovate Finance

Henk Van De Hulle, CEO, Open Banking Implementation Entity (OBIE)

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IN THIS ISSUE

“The deployment of financial technology has been key to addressing fraud.”

Julian David CEO, techUK

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“A CBDC has the potential to deliver real benefit to UK consumers and business.”

Jana Mackintosh Managing Director of Payments and Innovation, UK Finance

The UK fintech sector can be a force for good The global fintech market has experienced steady growth and is expected to reach £380 billion by 2030. In the UK alone, the sector will employ over 100,000 by 2030.

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he numbers speak for themselves – the fintech industry is clearly growing from strength to strength, but what lies ahead? And perhaps most importantly, how can the sector continue to create positive change for society and establish a more inclusive, democratic and effective financial services sector?

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The financial behaviour of individuals and SMEs is changing. As an example, nearly 70% of adults in the UK now use less cash.

“AI is most effective in replacing mechanical and repetitive work processes.”

Larry Cao Senior Head, Industry Research, CFA Institute

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@BusinessandindustryUK

Change in financial behaviour The financial behaviour of individuals and SMEs is changing. As an example, nearly 70% of adults in the UK now use less cash. Fintechs are making finance accessible to the masses, enabling customers to save, manage, grow and understand their money in a more direct and transparent way whilst contributing to a more inclusive financial ecosystem overall.

Fintechs also have the opportunity to shift the demographic of talent within financial services. The latest survey by EY and Innovate Finance showed an increased commitment of fintech to diversity and gender equality.

Financial services are indeed integral to our lives, yet there are still barriers and challenges that many consumers face on accessing basic financial products and services.

Over the years, fintech entrepreneurs and founders have proven that a better financial services system is possible.

@MediaplanetUK

Developing a society of the future The fintech sector understands the power that the industry has when it comes to the wider environment, societal and governance (ESG) agenda.

The current cost of living crisis has once again drawn into focus the need for our financial systems to work even better for individuals and SMEs. How financial services respond to this crisis will be key to how our society develops in the future.

In October we will host the second edition of Innovate Finance’s annual ‘Fintech as a Force For Good’ summit.

Fintech founders, senior government officials, investors, policymakers, regulators, NPOs, NGOs and international hubs will debate key issues facing society and explore how the fintech sector can continue to support a fairer, greener and more sustainable world for all.

Maintaining global leadership To reach such ambitious objectives, the UK needs to continue the momentum and build upon its current global leadership in financial innovation. This must be done by industry, regulators and government working together, continuing to push ahead, continuing to create an environment where innovation can thrive, and continuing to demand better financial services that work for all.

WRITTEN BY Janine Hirt CEO, Innovate Finance

Contact information: uk.info@mediaplanet.com or +44 (0) 203 642 0737

Innovate Finance is the independent industry body that represents and advances the global fintech community in the UK. More at innovatefinance.com

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Fintech expertise is helping shape the future of banking Digital acceleration has skyrocketed as technology and innovation provided by fintech companies is helping shape new financial products for banking customers.

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his digital financial advance is being driven by the creation of platforms that allow expertise to flourish and brings corporate innovation together with agile fintech companies.

INTERVIEW WITH Sonal Lakhani Global Head of Programmes and Strategic Initiatives, Group Innovation Office, Barclays WRITTEN BY Mark Nicholls

Paid for by Barclays

Creating growth for the ecosystem Barclays teams are collocated with 100+ fintech companies at Rise offices in London and New York. More than 7,500 participants has engaged with Rise through mentoring, networking and accelerator programmes. From the 19 Building innovation accelerator programmes Barclays has run at their Rise Sonal Lakhani, Barclays’ Global Head of sites, four companies have gone on to gain Programmes and Strategic Initiatives, Group unicorn status and the 190+ alumni portfolio Innovation Office says: “We have evolved are now at a market cap valuation of more our corporate innovation model with a focus than USD 7.8 million. on creating more growth for the fintech Magdalena Krön, Rise Digital Strategy Providing a space to ecosystem as a whole. We are supporting Director says: “We launched our virtual founders all the way from validating a membership, Rise Connect, in February of exchange knowledge business idea through to scaling their this year to extend the reach and benefits to and expertise is bringing companies to Series A and beyond.” an audience beyond our physical locations.” productivity to an Lakhani points to the development of Rise Connect offers exclusive membership the bank’s Rise Start-Up Academy digital for fintech founders and their executive industry that is relatively skills building programme for early stage leadership teams. The membership offers unconnected in terms of founders and the injection of USD 30 million opportunities for business development, how you build innovation. investment and mentoring support. The into the Female Innovators Lab by Barclays and Anthemis to invest solely in early-stage power in the network is connecting with female founders building a fintech company. peers in the industry and accessing support On the Female Innovators Lab, Lakhani says: “By from industry experts, clients and partners. doubling down on investments and engagements with “Providing a space to exchange knowledge and expertise female founders, we want to contribute towards abolishing is bringing productivity to an industry that is relatively the gender gap in entrepreneurship and wealth while unconnected in terms of how you build innovation,” says accelerating economic recovery.”

Krön. “The power is in enabling fintech leaders to access a peer-to-peer network as they create and scale new products for financial services.”

INTERVIEW WITH Magdalena Krön Rise Digital Strategy Director, Barclays

Find out more at rise.barclays

The fintech sector understands the power that the industry has when it comes to the wider environment, societal and governance (ESG) agenda. ~Janine Hirt, CEO, Innovate Finance

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WRITTEN BY Henk Van De Hulle CEO, Open Banking Implementation Entity (OBIE)

Digital ID and the technology deployed to combat fraud

Emerging financial opportunities for UK consumers and small businesses

The UK has long been a leader in financial services innovation, so it is no surprise that we have led the world with our pioneering approach to implementing open banking.

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he goal of open banking is to drive innovation and competition in UK financial services for the benefit of consumers and small businesses.

Open banking allows consumers and small businesses to leverage their financial data to move, manage and make the most of their money.

There has been strong growth as we have moved closer to the end of implementation Roadmap; in 2021, we witnessed a 60% increase in the number of active open banking users, with adoption increasing at a rate of 1 million new users every six months. This year we are seeing that momentum continue.

Supportive environment for fintechs So, what is driving this growth? While a lot of our initial focus was to get the building blocks in place, we also created an environment for fintechs to grow, innovate and ultimately, provide real-world solutions for consumers and an estimated half of the UK SME’s.

Open banking technology empowers people to use their data to unlock the apps and services that are specific to their financial circumstances. What people care about are tools that can help them make better decisions about the things that really matter to them: How much should I save? How much can I spend? Should I borrow?

Helping people manage their finances Our own research findings (featured in the Open Banking Impact report) found that of those customers using personal finance management apps,

75% said it was helping them to keep on top of expenditure. Meanwhile, 64% credited the apps as helping them keep to a budget. Similarly, 64% claimed that open banking savings apps had increased their total level of savings, providing a financial buffer.

We are also in the middle of rolling out variable recuring payments (VRPs) and expect related products to be more widely available this year. We think it will really transform the way people save and in turn build financial resilience. VRPs are like a clever direct debit as they boost savings by offering customers more convenient ways to save and make their money work harder, for example to earn higher interest or to avoid overdraft charges.

This is more important than ever as we see significant increases in the cost of living.

Open banking potential in other areas of our everyday lives We have built the open banking rails and the network, all of which can be leveraged to support other initiatives and sectors, such as open finance (insurance, pensions, etc) and smart data (telecoms, energy, utilities).

The Government and regulators are keen to ensure open banking doesn’t become a missed opportunity. As with any public good, the positive impact of open banking for consumers, businesses and the wider economy will multiply as adoption grows.

Innovation in financial services has empowered companies and individuals in their financial decisions, making transactions faster, cheaper and more efficient.

WRITTEN BY Julian David CEO, techUK

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he deployment of technology has been key to addressing fraud, particularly in a fast-evolving environment. From the adoption of digital identity to the increased use of artificial intelligence and regtech, fintech and the technology sectors have developed critical new solutions to financial crime.

Urgent need for a viable regulatory framework Online fraud has a profoundly corrosive effect on the public’s trust and subsequent willingness to engage with digital innovation. When it comes to financial services, ensuring reliable, safe and secure authentication is critical.

From onboarding new customers to transferring money to the correct recipients, fraudulent activities can inflict a devastating impact on both consumers and the wider economy.

Digital identity is already being deployed by fintech and the financial sector to combat fraud, but also to increase speed and efficiency of use for the consumer. In the war against financial crime, it has become a powerful tool but to make the most of this technology the UK needs a robust, effective and flexible regulatory framework in place as soon as possible.

Should the UK fail to get digital ID right and miss the opportunity to drive forward the market, there is a real risk that it falls even further behind those other jurisdictions globally that have already recognised the importance of digital identity in their economies.

The emergence of new technologies such as AI has enabled companies to detect new threats and ensure better and easier compliance with regulations.

Empowering financial services firms Besides the development of game-changing solutions such as digital identity, the emergence of new technologies such as AI has enabled companies to detect new threats and ensure better and easier compliance with regulations.

With technologies such as AI, machine learning, robotics, distributed ledger technology and biometrics, fintech and technology companies can enable regulatory compliance to become both the sword and shield against economic crime. Such a benefit not only reduces the burden of cost and complexity but also improves the capacities of financial services firms by automating compliance processes.

A greater level of flexibility and clarity in the legislative framework whilst maintaining adequate safeguards will be essential to bolster innovation and empower financial institutions with modern digital tools to prevent and tackle fraud. techUK looks forward to engaging with industry and Government to pursue the development of a world-leading regulatory framework in the UK to prevent fraud.

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How a regulatory directive turned into a catalyst for innovation Consumers are directly benefitting from a deeper integration of financial services with the entire financial system defined by unprecedented levels of personalisation and efficiency.

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pen banking is maturing to a place where financial institutions are no longer defined by rigid and out-dated practices and brands who initially had no connection to the finance space are now redesigning the digital customer experience with this at top of mind.

WRITTEN BY Duncan Robbins Open Banking Delivery Partner, Endava

Paid for by Endava

Moving banks from side-line to centre stage As banks look to secure their future relevance in the digital economy, open banking has become a key strategy for establishing credibility, developing a footprint in the data economy and creating a steppingstone towards new business models. The advancements in this space have gone beyond CMA requirements for variable recurring payments (VRP) with NatWest Group making made the UK’s first-ever VRP for ‘non-sweeping’ use cases.

While the current requirements for VRPs only apply to sweeping, banks have a new opportunity to deepen their relationship with customers on multiple levels: improving value propositions and customers’ lifetime value, enhancing relevancy and retention and putting their brand back at the heart of their customers’ payment experiences.

Merchant focus: improving customer economics An engaged open banking system and real-time payment rails have contributed to A2A payments evolving as one of the preferred emerging payment methods. They are expected

to contribute around 20% of all e-commerce transactions in Europe by 2023. By integrating A2A payments with open banking APIs and multi-factor authentication, businesses can guarantee a frictionless payment experience and directly benefit from decreased fraud and refunds losses without impacting the customer’s checkout experience.

Merchants’ inclination to lower costs and faster settlement capabilities compels higher adoption rates and an added level of appeal is directly tied to the lack of card processing fees that are standard in card networks. Additionally, these instant payment networks can accept both one-time and recurring payments via mobile or desktop use cases.

Everything begins with the customer Since all business strategy is customer centric, both bankingas-a-service and embedded finance keep the consumer connected to the business until the transaction is closed.

In a best-case scenario, customers have a frictionless and convenient shopping experience with the option to engage in banking transactions only when needed.

With embedded finance, there is a collaborative and interactive effort between financial institutions and organisations offering these options where the goal is to ensure a single point of contact with for all financial needs.

The symbiotic relationship in turn drives higher value to customers through delivery innovative operational processes through the financial offer.

Read more at endava.com

Online fraud has a profoundly corrosive effect on the public’s trust and subsequent willingness to engage with digital innovation. ~Julian David, CEO, techUK

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AI adoption is on the rise in finance According to our data and field research, an increasing number of firms and professionals in the financial services industry are seeing the benefits of AI (artificial intelligence) and big data.

WRITTEN BY Jana Mackintosh Managing Director of Payments and Innovation, UK Finance

Addressing the challenges and opportunities of digital money

Over the last few months there has been significant amounts of work done on the potential development of a UK Central Bank Digital Currency (CBDC).

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BDC would be a new form of digital money issued by the Bank of England. I am part of the Bank of England’s Engagement Forum on this matter, which is considering a wide range of complex issues around how a CBDC might operate in practice.

As well as the practical design issues, there are potential impacts to the economy. Banks take in deposits and use them to issue loans, which drives economic growth. I can take out a mortgage, borrow money on a credit card or buy a car on finance because we all keep our money with a bank. These firms have a duty to their customers to keep their money safe – and are under sophisticated regulation to make sure they do. If a CBDC breaks this process it could have a knock-on impact on wider economic growth.

Challenges that lie ahead One of the most important questions is around interoperability between different forms of money. Businesses and consumers may need to exchange a CBDC for the notes, coins and Delivering real bank deposits we benefit for all use on a daily basis.

These issues and A CBDC has the This is something many more need to be that will need to be worked through and potential to deliver real done seamlessly and this work will take benefit to UK consumers time, but what is clear efficiently for a CBDC to deliver value. to me is the desire and businesses.

Similarly, how from the financial a CBDC supports services industry to person to business payments is an serve the UK economy with the right open question. Whether someone can products and services. A CBDC has the use a CBDC to pay for groceries or buy potential to deliver real benefit to UK some drinks when out with friends consumers and businesses. could be a key factor in its design.

Challenges exist along the way, but also opportunities. Those firms willing Investing in new infrastructure to tackle these challenges will be at Merchants and consumers may the forefront of a new era of smart and have to change the way they make responsive financial services. and receive payments and firms will have to invest in new CBDC software and infrastructure. Whether current business models will support this remains to be seen.

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WRITTEN BY Larry Cao Senior Head, Industry Research , CFA Institute

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here and how these technologies are being applied and the factors that differentiate successful adopters from the less successful have also emerged.

Uses of AI and big data in finance AI is most effective in replacing mechanical and repetitive work processes. We observe many use cases at banks and insurance companies where AI scientists are adding computer vision algorithms, a form of AI, to the routine processing of deposits and insurance claims. This allows them to redeploy employees from these mundane tasks to more productive and interesting work.

NLP (natural language processing), another popular AI technique, is also widely used by asset managers and securities brokers alike in processing financial filings, news articles and social media to get a complete and updated picture of a company.

The scalability of AI technology allows analysts to follow far larger numbers of companies than before, enabling them to enhance the quality of their research and/or enter new markets. Voice recognition can now do dictations faster and more accurately than an average person. Analysts use the technology to turn corporate earning calls into transcripts quickly which are also fed into NLP programs for analysis.

The scalability of AI technology allows analysts to follow far larger numbers of companies than before.

Key success factors for AI adoption in finance Over the years we have observed that successful financial services companies in AI adoption have one thing in common: they have all built what we call T-shaped teams.

This is an AI adoption project team including both specialists from finance and AI, connected by an innovation function, a group of professionals well-versed in both finance and AI that can help specialists communicate with each other and prioritise projects. All three types of professionals are needed for these projects to excel and for companies to stay ahead of the game.

Of course, before they get to developing T-shaped teams, successful financial institutions had senior management teams who understood the importance of embracing AI technology, offered their support and built a collaborative culture. Without that foundation, few projects of any kind can succeed.

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I can take out a mortgage, borrow money on a credit card or buy a car on finance because we all keep our money with a bank. These firms have a duty to their customers to keep their money safe – and are under sophisticated regulation to make sure they do. ~Jana Mackintosh Managing Director of Payments and Innovation, UK Finance

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AI is most effective in replacing mechanical and repetitive work processes. ~Larry Cao, Senior Head, Industry Research , CFA Institute

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