MoneyMag EU 2017

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Towards collaborative innovation

Matthias Kröner, CEO, Fidor Bank, on the journey of European banks towards open banking

Embrace the changes

Views and advice on PSD2 from Worldline’s CEO, Gilles Grapinet

Handcuffed by heritage

An interview with Chris Skinner, CEO, The Finanser, on the legacy challenge banks are facing

The future of money

David Birch, Director of Innovation, Consult Hyperion, sharing points from his new book Before Babylon, Beyond Bitcoin

The Queen of Disruption An interview with the European Commissioner for Competition, Margrethe Vestager, on PSD2 and the EU Commission’s vision for the European financial market and the fintech industry.

Joining forces to innovate

Casper von Koskull, CEO, Nordea, on partnering with Nordic fintech hubs

MAIN THEMES: 01 Finance of the future p.7 | 02 PSD2 - towards open banking p.33 | 03 Payments and commerce p.71 | 04 Emerging fintech hubs p.113


MoneyMag, June 2017 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior permission of Norfico. Unlawful use of this publication is covered by the Danish Copyright Act. The information contained in this publication has been obtained from sources the proprietors believe to be correct. Norfico cannot be held responsible for information or statements in this publication which turn out to be incorrect. Furthermore, Norfico cannot be held responsible for content that does not derive from Norfico but is included in this publication deriving from third parties. If Norfico becomes aware of any incorrect information included in this publication, we will make efforts to issue a statement correcting this, but accept no legal liability.

MoneyMag was developed by Norfico in collaboration with Money20/20. MoneyMag was published by Norfico, Applebys Plads 7, 1411 Copenhagen K, Denmark, Editor in chief: Michael Juul Rugaard, Graphic design: Hanne Simone Grafisk Design - Printed in Ballerup, Denmark by Dystan & Rosenberg - Photos: Adrian, Carsten Andersen, Morten Bjarnhof, Roman Boed, Thomas Høyrup Christensen, Gunnar Hildonen, Tuala Hjarnø, Adrian Lazar, Ewan Mackenzie, Carsten Medom Madsen, Jens Marcus, JackieMbarr, Martin Morris, Adam Mørk, Florian Plag, Seier+Seier, Kristoffer Trolle. Please see list of sponsors and advertisers on page 149. ISBN 978-87-986343-4-8


Welcome to MoneyMag p.4 | Money20/20 Europe p.6

Finance of the future

02 PSD2 – towards open banking

1.2 Handcuffed by heritage An interview with Chris Skinner, CEO, The Finanser Ltd. p.12

2.1 The Queen of Disruption An interview with the European Commissioner for Competition, Margrethe Vestager, on PSD2 and the EU Commission’s vision for the European financial market and the fintech industry. p.34

2.3 Embrace the changes Views and advice on PSD2 from Worldline CEO, Gilles Grapinet, and Worldline’s internationally renowned PSD2 Programme Director, Michael Salmony. p.44

2.2 A community of 120 individual banks The Nordic data centre SDC helps small and medium-sized Danish, Norwegian, Swedish, and Faroese banks prepare for PSD2. p.40

03 Payments & commerce

3.1 Winning the hearts of banks in an instant By Sandro Camilleri, CEO, Matica Technologies. p.72 3.2 Paying with a finger could be the future Nets and Hitachi are developing a proof of concept that will allow consumers to pay by inserting their finger into a finger vein scanner. p.78

1.3 Think beyond digital – go cognitive! An Interview with Likhit Wagle, General Manager, Global Banking & Financial Markets, IBM p.16

2.4 PSD2 – Opportunities, obligations, and obstacles Basic features of PSD2 and how to embrace the opportunity and reach beyond compliance. p.48

04 Emerging fintech hubs

4.2 Working together to compete Copenhagen Fintech Lab facilitates connections between fintech businesses and start-ups, with beneficial results. p.118

1.5 Before Babylon, beyond bitcoin Excerpt from David Birch’s new book p.24

2.5 Towards collaborative innovation Ten questions for CEO Matthias Kröner on Fidor Bank’s views and experiences of open banking p.52 2.6 Unlocking the legacy An interview with Sarbajit Deb, Chief Business Officer, and Jignesh Jariwala, Global Head of Consulting Banking & Financial Services at Larsen & Toubro Infotech (LTI). p.56

1.6 The innovation imperative continues By Tek Yew Chia, Partner, KPMG Singapore & Bent Dalager, Partner KPMG Nordics p.28

2.7 One identity hub for Europe’s banks Over the past 10 years, the Norwegian digital identity solutions pioneer, Signicat, has built and expanded the first cross-European Identity Hub p.60 2.8 The tricky encounter The imminent wave of new encounters between banks and third party providers (TPPS) caused by PSD2 raises a lot of complex questions. p.64

3.6 Three fintech trends to remove friction from transactions By Nelson Holzner, CEO, AEVI. p.94

3.8 Bridging streams of great change By Daniel Kornitzer, Chief Product Officer, Paysafe. p. 102

3.7 When everyday things begin to transact The era of the Internet-ofThings (IoT) has already begun. An interview with Infineon’s Director Business Development PL Payment & Wearables SCS in the Chip Card & Security Division, Ursula Schilling. p.98

3.9 Towards a global real-time ACH network Interview with Vocalink CEO, Paul Stoddart. p.106

4.3 Doing business in digital Denmark Copenhagen Capacity is workings closely with Invest In Denmark to support companies from different sectors to establish their businesses in Greater Copenhagen. p.122

4.6 Istanbul – a fintech hub spanning two continents Istanbul’s young and well-educated population, combined with its geographical proximity to both Europe and Asia, should help the city achieve its goals as a future leading fintech hub. p.130

4.8 Excerpt from the report A tale of 44 cities By Deloitte and the Global FinTech Hubs Federation. p.138

4.4 Joining forces to innovate The biggest Nordic bank Nordea is partnering with fintech hubs in Stockholm, Helsinki, Oslo and Copenhagen p.126

4.7 The engineers of finance Amsterdam has long been a leader in the financial sector, and the city is now taking this centuries-old tradition into the present day by becoming one of the world’s leading hubs for financial technology. p.134

3.3 Fostering innovation An interview with Bill Gajda, Senior Vice President, Innovation and Strategic Partnership, Visa CEMEA. p.82 3.4 Smart tokens to release the potential of value added services An interview with Giles Sutherland, Carta Worldwide’s VP of Strategic Alliances. p.86 3.5 Tap, swipe,click: The future of payments An interview with Eric Purdum, Head of Global Payments Strategy and Product at CeleritiFinTech. p.90

4.1 A new Northern light In Norway, a group of innovative people, backed by Nordic Finance Innovation and BankAxept have created the largest fintech network in the Nordic region. p.114

1.4 The future of money An interview with David Birch, Director of Innovation, Consult Hyperion p.20

4.5 Fintech post Brexit It is likely that Britain will be aiming for a hard exit from the EU. But are we any closer to knowing what the consequences of this will be for the European fintech industry at large? p.140 4.9 The bots are coming… The PR & communications revolution By Alice Thomas, MD Consulting p.144

MONEY MAG // Table of contents


1.1 Passion, knowledge, honesty and courage first, technology second By Duena Blomstrom, Chief Growth Officer Temenos Marketplace, Founder of Emotional Banking™ p.8

Welcome to MoneyMag All conferences, all events even the most exciting ones like Money20/20 - are brief and elusive by nature. People come together, words are spoken, thoughts and views are shared, and important relationships are established or consolidated. And these things are all good and necessary to keep our fascinating world of fintech evolving, vibrant, and energetic. But to supplement or complete the experience of the elusive and the brief, you occasionally need something more tangible; something more time resistant, something that grasps and fixes the important points, elaborates further on them, perhaps adding another perspective, and puts everything into a context, a framework and a format that enables you to take the words, the thoughts, and the ideas away with you, keep them, recapture and share the essence of them, and be inspired all over again. This is why MoneyMag, in print and digital formats, and structured around some of the same themes as the actual Money20/20 event, makes sense. And this is why we are excited about the launch of this new magazine which we hope and believe that you will enjoy. In MoneyMag you will find articles, interviews and commentaries around four main themes: • Finance of the future • PSD2 – towards open banking • Payments and commerce • Emerging fintech hubs.


Finance of the future So much is going on in the world of finance and fintech. Keeping up with the pace of change and trying to wrap one’s head around all the new trends and technologies can easily turn into a full-time occupation. Because of this, there is a high demand among the current cacophony of loud voices for gifted people with a clear vision and a keen sense of the important directions and the sustainable trends. Of course, the identities of these oracles are always up for debate, but, to get MoneyMag off to a flying start, we have chosen a few of our personal favourites and asked them to gaze into their crystal balls and comment on some of the trends within finance and fintech. Three of them are well known human beings – Duena Blomstrom, Chris Skinner, and David Birch. The fourth – Mr. (or Ms.?) Watson – is harder to pin down, and we have asked one of his/her spokespersons, Likhit Wagle from IBM, to speak on his/her behalf. With increasing success, we see fintech solutions being applied to other industries like insurance which heralds the dawn of ‘insurtech’. We could easily have dedicated a whole magazine to this exciting topic but will have to make do with an introduction to the topic delivered by KPMG. PSD2 - towards open banking The Second Payment Services Directive (PSD2) is on everyone’s lips this year. It will continue to be so at least until the EU directive becomes national law in all the EU member states, the so-called Regulatory Technical Standards (RTSs) from the European Banking Authority (EBA) have finally been approved by the EU Parliament, and the European banks (the ASPSPs) have complied with the requirements of the directive.

To cover this fascinating and highly important topic, we have put together several articles and interviews, including a comprehensive interview with the worldfamous EU Commissioner Margrethe Vestager, about the EU’s visions for PSD2, and for regulation in general, going forward. As part of the PSD2 theme, we also have the pleasure of introducing such notable people as Fidor CEO Matthias Kröner, as well as Worldline CEO Gilles Grapinet, and Worldline PSD2 expert Michael Salmony. And in our effort to give a varied overview of the many significant implications of PSD2 we are pleased to have three more companies’ views of PSD2. Those companies are India’s LTI, and the two Nordic companies SDC and Signicat. Payments and beyond Payments are - still - a cornerstone in fintech and an essential theme for this magazine. ‘Beyond’, however, indicates that payments alone should never become the sole focus. What is interesting is the consumer experience, and the reduction of friction. As AEVI CEO Nelson Holzner writes: “This is bringing banks and fintech start-ups closer, to create a seamless consumer journey which extends beyond payments.” Furthermore, ‘Beyond’ points to the importance of finally releasing the potential of value added services, which has been an unfulfilled promise in mobile payments for years. Canada’s Carta Worldwide has set out to deliver on this promise by launching so-called Smart

Tokens, “designed in a way that can deliver more advanced functionality, more intelligence, and more value to the user experience.” ‘Payments and Beyond’ is the most comprehensive theme in the magazine with additional views and thoughts on innovative new solutions from heavyweight industry players such as Matica Technologies, Nets, Visa, CeleritiFinTech, Infineon, Paysafe, and Vocalink. Emerging fintech hubs Last, but not least, MoneyMag has put together a series of articles about recent changes and developments in the landscape of emerging fintech hubs. The primary focus is on the Nordic region with articles about Nordic Finance Innovation (NFI) co-founded by Norwegian BankAxept, on Nordea’s collaboration with Nordic fintech companies, and on the latest news from the Danish fintech scene according to Copenhagen Fintech and Copenhagen Capacity. But apart from this Nordic mini-theme, we are delighted to present articles about current fintech developments in places like Istanbul, Amsterdam and London. Furthermore, as part of this theme we are happy to publish an excerpt from the report A Tale of 44 cities by Deloitte and the Global FinTech Hubs Federation presenting a global overview of the bestperforming fintech cities; fintech VC deals; and regulatory sandboxes. MoneyMag is edited and produced by Norfico in collaboration with the organisers of Money20/20, and we at Norfico are extremely grateful to the Money20/20 Europe team for its support during the production process. We sincerely hope that you – the readers – find MoneyMag interesting, stimulating and entertaining, whether you choose to read the magazine in print or digitally. // Happy reading! Michael Juul Rugaard & Kristian T. Sørensen, Founding Partners of Norfico



PSD2 is probably one of the most disruptive pieces of financial legislation ever to be created by the European Commission. It requires all 4,000 European banks to open up their customer’s payments accounts to so-called Third Party Providers (TPPs) – fintechs, merchants, and even competing banks. Furthermore, it gives rise to a race towards elimination between those banks whose modest ambitions equal compliance and nothing more, and those with a much broader vision, aiming far beyond compliance and into the promised land of open banking.

MONEY MAG // Welcome by Money20/20

Money20/20 Europe Where Europe’s Fintech Superheroes come together to build the future of money By Sophie Wawro, Event Director, Money20/20 Europe Welcome to the second edition of Money20/20 Europe, here in wonderful Copenhagen.

Sophie Wawro

In its first year, Money20/20 Europe brought together 3,725 attendees, including 500 CEOs, from over 1,000 companies and 50 countries. This year we are proud to welcome you to the sequel. The unparalleled community you are now a member of is comprised of visionaries and luminaries: the people who are building the future of money. I’d like to thank all the participants of this year’s event without you Money20/20 would not exist. I’d also like to give my most sincere thanks to our sponsors. Arranging Europe’s largest fintech event comes with a lot of obligations, but you make the Money20/20 world go round, and we are very grateful for that. Last, but certainly not least, I want to thank the amazing group of more than 400 speakers joining us in Copenhagen to discuss 15 themes ranging from Bank (R)evolution and Shared Ledgers to Data, AI & Algorithm-based Innovation and Mobile Payments & Wallets. What a privilege to be part of an industry in which such a number of innovators have so many exciting industry-changing announcements and opinions to share. Isn’t that just fintech in a nutshell? 6

Obviously, I cannot name all our speakers here, but let me mention just three of the many extraordinary thought leaders and frontrunners that you will be able to meet and listen to here in Copenhagen. I am especially proud to present for our opening keynote the already legendary Jack Dorsey, CEO & Co-Founder of Square, Co-Founder of Twitter, and member of the board of The Walt Disney Company. Hot on the heels of Square’s recent entry into Europe, Jack will address how the company continues to innovate and what lies ahead for the industry. I am also excited to hear from Rita Liu, Head of EMEA, Alipay, who will share with the Money20/20 audience the European vision of Alipay – with over 400 million users, arguably the world’s most successful mobile wallet and a mobile financial services phenomenon. We’re also delighted to be welcoming back to Money20/20 Europe Carlos Torres Vila, CEO of BBVA - perhaps the most innovative and forward-thinking of the major European banks. Carlos’ keynote promises to shed light on BBVA’s strategic plans for its technology between now and 2020. So, on behalf of the Money20/20 team, I’d like to offer you the warmest of welcomes to Copenhagen and to Money20/20 Europe 2017.//

01 Finance of the future

Duena Blomstrom

Passion, knowledge, honesty and courage first, technology second This is the 4th Money20/20 I’m attending or speaking at and over the past few years I’ve been asked many deep questions about the future of banking in its sessions or on the corridors. Should banking fear a Kodak moment? Is it going to be about the technology, the culture and people or the relationship to the customers? Is it really vanishing or just changing into wholesale and if so, are there business models around that and are banks honest and prepared? Where are the threats coming from? Better consumer models from experience layers such as challenger banks or the big tech giants? By Duena Blomstrom, Chief Growth Officer Temenos Marketplace, Founder of Emotional Banking™

All of these are valid questions and the mere fact that the discourse around them exists is extremely encouraging and indicative of the fact that we may see real, meaningful change in sufficient time for banks to still be competing in retail banking and wealth. Before this, in the years before Money20/20, the chatter would be almost exclusively around technology trends and what banks could build or buy and implement to gain some competitive advantage to the closest competitor. 8

It would be common to meet banks deeply preoccupied with whether the comparable bank in their geography would publish their ‘find an ATM’ feature before them. Or banks that remained convinced that introducing a ‘click here to find out more’ about our loans in their online banking portal should be the main lever for their yearly growth strategy. As years passed, it changed from small front-end improvements of their internet banking or mobile app to looking for solutions of more substance – personal financial management (PFM), onboarding, robo-advisory. Their full

The changing tide These days the tide is changing, and while there is still talk about AI and the promise of blockchain, the bulk of the industry discourse is - thankfully starting to be around bigger themes – business models and how they are affected by big changes such as PSD2; speed of change in the proposition for the end consumer and whether there is anything banks can do to change (or maintain in the case of the challengers) their internal culture to enable truly customer centric models. The thesis of my Emotional Banking™ theory and upcoming book is simple: Banks have to change their culture to be able to use technology to build true and lasting customer experience. Bankers owe their consumers an honest examination of their emotions to build real, useful and significant Money Moments for them. By the same token, bankers owe bankers an honest examination of their emotions so that they can cultivate sine qua non change agents such as passion, knowledge, honesty and courage. Banking Superheroes Over the past few years while building the methods and researching the book, I have been extremely fortunate and met many bankers who are willing to do both. They already have – and are willing

to keep building- knowledge, they are courageous enough to want to breed passion in others in their organisations and they have enough fire themselves to be honest and daring. One of these bankers, Julia Furedi from Unicredit, will lift the veil on how she became one of these Banking Superheroes – although she is too modest to agree to the term - in a speech here in Copenhagen, but there are thankfully others like her and I’ll be naming a few in my talk about ‘Putting Emotions back in Banking’. The mere fact that Julia will be speaking and giving us a glimpse as to why they are implementing the ‘Build a Voice’ and ‘Keep it real’ Emotional Banking™ methods is a sign that the industry has matured. It is perhaps the first time a fintech conference has hosted a banking speaker who is neither a pure technologist or a digital strategy person but belongs to a much less visible category – HR. That’s a sign of coming of age for the industry, that the discourse has now extended to pivotal areas such as human resources. The people in charge of their people. At the same time, it is a sign of maturity for the bank to recognise it is about culture and people and to have individuals exceptional enough in key positions in HR that they can drive that change. These Banking Superheroes come in many shapes and sizes. It isn’t about their gender, their department or their position - although of course, one could


MONEY MAG // 1.1 Finance of the future

potential was not always seen and many banks learned hard lessons when they couldn’t see the opportunity for deep change behind the shiny UI and simply wanted a pie-chart or an ability to log-in by thumb.

MONEY MAG // 1.1 Finance of the future

argue that bravery is easier at the top but about the basic attributes they have that make them thirsty for more and better. Over the next few years, we should hopefully see armies of new Banking Superheroes because there is a lot of latent passion and courage lurking under the surface and as knowledge grows, and they feel empowered to be more curious and daring in what they bring to the table, they will open up and give us the full measure of their abilities. Every banker can be a technologist, a business person and a designer - and all of those are needed in our complex technology and industry combination. From the branch teller to the muchvilified board member, each banker who is willing to learn, has the courage to change and help change and the passion to put it all together can become an inspiring new Banking Superhero and in order to build a real brand, they all need to. Avoiding the Kodak Moment Real brands benefit from the deep emotional investment of each and every employee. It fuels what they build together and makes their proposition to the consumer so much more significant. Calling it “internal branding” is doing it a disservice as it tends to send someone reaching for the closest sticker printer so that all employee laptops look the same, or at best organise a couple of team-building episodes. There is no such thing as ‘internal’ or ‘employee’ branding. A brand is a brand, is a brand. When it’s solid and beloved, that love is both internal and external - and if your employees are not also your most engaged consumers and your biggest advocates, then that love is not there and the brand is not a real brand. If banks want to achieve becoming real brands and recognise how important that is they need to stop thinking that building them is the job of the marketing department and understand it is about an overarching ethos that needs to run through the entire organisation. Every banker is a consumer and they must


remember it with every interaction. Every banker must be a fintech’er and, irrespective of their department or job description, when they fall in love with understanding the technology they will become an evangelist. Every banker must believe they can affect change and row in the same direction so they can keep an honest discourse and use real language to passionately make their point.

PASSION KNOWLEDGE HONESTY COURAGE How many banks have these engraved in heavy marble plaques in some grandiose hallway as part of their mission statement - and how many truly have them at the core of their organisation’s soul? If we accept there is a time imperative to banks changing so they avoid a Kodak moment, we must accept we need to do some of this unpleasant, uncomfortable work around emotions. One of the reasons that makes financial technology addictively fascinating is the very fact that it exists at a unique intersection of numbers, technology, services and products and intense human feelings and needs. No other industry has this complex matrix of fully quantifiable and largely subjective vectors. Nothing holds more importance to humans than money, except family and friends, and there is no industry built around the latter. In our industry, we are meant to serve very basic human needs at times that elicit very elaborate emotional responses, yet we insist we do that while only focusing on the

MONEY MAG // 1.1 Finance of the future

actual numbers and the technology that delivers them to the customer. The end of the easy path It is undoubtedly the easier path and it has carried banking through the past hundreds of years while the coffers were locked behind heavy doors, but technology has opened those locks and allowed non-banks in - and that means it’s the end of the easy path for the traditional banks. Some of the new challengers, the big technology houses in particular, come to banking not only with an approach to tech that is game changing in the depth of its knowledge and the speed of its possible execution, but also with inbuilt real Passion, Courage and Honesty – their own Superheroes poised to become Bank Superheroes overnight. They already have a brand. They don’t need to waste any time

wondering who is too old to understand and deploy distributed ledgers, they don’t need to stifle ideas because someone’s bonus may be in question, they don’t need to fear innovation because it may be career-ending and they don’t fear analysing their emotions and those of their consumers’. They are the real threat. Being here in Copenhagen and being open about all this may just be the silver bullet to stop that threat. If every one that reads this reaches inside and slips into their Bank Superhero outfit on then the battle of the best ones can begin - and at the end of it, no matter who was knocked out, the consumer will be the real winner. //


Handcuffed by heritage Chris Skinner

Chris Skinner needs no introduction in the fintech and banking space. His work is shaping the future of financial services as a great many of the world’s leading banks look to Chris Skinner and his publications for advice and inspiration when shaping their strategies and solutions. We met Chris Skinner for a discussion on the latest global trends and how banks, mainly in Europe and North America, are dealing with the challenges of their legacy systems and position to face the dramatic changes taking place in the financial services market. By Kristian T. Sørensen, Norfico Legacy economies vs. innovation economies Chris Skinner describes how Europe and North America are mainly shaped by an ageing financial services infrastructure which was put in place before the internet and which therefore needs refreshing. While both Europe and the US are what Chris Skinner labels legacy economies, he notes that Europe is ahead in terms of trying to overcome the issues because the US also struggles with an antiquated regulatory structure, which further impairs innovation in banking. PSD2 is an example of how European legislators actively work to accelerate innovation and development, but, according to Chris Skinner, PSD2 is more a result of the regulators acknowledging and reacting to a more overarching global trend: “What I see happening is the unlocking of financial data through opensourcing, which is far wider than an open API for payments. It is a smorgasbord of APIs across the whole of the landscape of customer information that links front and

back-office. The front office is all appsbased, and the back office is all artificial intelligence and analytics”. This trend of flexible platforms and the unbundling of financial services apply even more clearly to another group of economies – the innovation economies. Chris Skinner highlights China as the fastest movers in the financial services innovation: “China has leapfrogged the legacy economies as it has developed everything in the last 15 years as fresh, new internet-based services. This is why Baidu, Tencent and Alibaba are offering services which are light years ahead of everyone else”. But the fast development of China is not the only thing shaping the future of financial services: “We also see completely new ways of thinking about financial services coming out of the Philippines, Indonesia, Latin America, and in particular sub-Saharan Africa – they are creating a mobile wallet based financial services economy that is completely new and different from anything we have seen before”, says Chris Skinner. The legacy challenge Chris Skinner does not shy away from firm opinions. He is annoyed by the state of the core systems of the legacy 13

MONEY MAG // 1.2 Finance of the future

An interview with Chris Skinner, CEO, The Finanser Ltd.

economy banks. The banks, he claims, only continue to get away with building on this foundation while they have what he calls “legacy customers”. When asked if there really is nothing good to be said about legacy platforms, his response is swift and blunt: “No, there is nothing good! It is an indictment of their management that we’ve got such rotten systems at the core of our banks.” According to Chris Skinner, the outlook for these banks is quite bleak: “If the management does not rise to the challenge of dealing with this issue, then these banks are going to die out. There is no way you can survive in a globalised internet economy with systems that are built for batch overnight updates – it is ridiculous.”

distributing products through a physical network to aggregating, curating and distributing data through digital networks. But it requires a completely new approach to the data management. Chris Skinner explains that the challenge for banks in Europe and North America is that the legacy infrastructure ties data to products and processes. He compares this to data-driven companies like Amazon, Apple, Google, Facebook, Tencent, Baidu, and Alibaba, who would never silo data, but rather work on a holistic enterprise level. Without a holistic approach to data Chris Skinner says, banks will have a huge problem. “Banks are plagued with dirty data. You cannot work efficiently in an internet age with that structure as you cannot apply machine learning and artificial intelligence to do data analytics on dirty data. It is not possible to give the customer an experience equivalent to an Amazon or an Alibaba if you’ve got dirty data.”

If the management does not rise to the challenge of dealing with this issue, then these banks are going to die out. There is no way you can survive in a globalised internet economy with systems that are built for batch overnight updates – it is ridiculous.”

The banks have, to a large degree, failed to solve this legacy challenge because they have only used new technology to facilitate distribution, for example via branch or ATM networks. This way of thinking in terms of product distribution is, Chris Skinner says, as outdated as the systems powering these processes: “The distribution structure is now irrelevant because the core of the bank of the future is a digital structure combined with an enterprise data architecture that can analyse the customers’ digital footprints and service them effectively through a device-based front-end user experience. The devices are not channels – they are just accesscapabilities to data”. Turning banking on its head Understanding the ongoing paradigm shift will, according to Chris Skinner, turn banking on its head when moving from 14

As an example of where the banks fall short due to lack of analytical capabilities and thereby open the way for competitors, Chris Skinner quotes Ollie Perdue, the millennial CEO of the neobank Loot in the UK. According to Ollie Perdue, he and his fellow millennials cannot see the value in transaction overview provided by the traditional banks. Historical data is a view of the past, but what millennials want is a view of the future – they want to know if they can afford to go out, afford to travel and afford their tuition. According to Chris Skinner, traditional banks cannot provide these type of service because their legacy systems are built for branch

ledger-based historical debit and credit recording rather than for cash-flow forecasting. When asked what banks can do about the legacy challenge, Chris Skinner explains, “we are handcuffed by heritage because the data is locked into the processing systems. If you moved the data from the AS/400 or similar engine from the 1980s into a private cloud structure where you cleanse the data into an enterprise data architecture, then the data becomes independent of the processing. Once data becomes independent of the processing you can literally take out the engines over the weekend and replace them with new ones”. This way of operating resembles what consumers are used to from the app economy of smartphones: “On your Android or Apple phone, you wouldn’t expect apps never to be updated. Typically, they are updated every week – why don’t banks update system once per week? Because

they can’t – in fact, they are lucky if they can update them once a year,” Chris Skinner concludes. Coming together While legacy economy banks, in Chris Skinner’s opinion, are clearly challenged, they have something to bring to the table in collaboration with the fintech startups. Chris Skinner explains: “The fintech startups I have encountered are quite naïve about financial markets. They think that banks are big, slow and ugly and then they discover that yes, they are big and yes, they are slow, but they are only ugly because they are forced to be that by the regulators and by the structure of the markets. Gradually a lot of the startups, once they understand the regulatory requirements of financial services, learn that they too are required to be a little bit ugly.” Chris Skinner believes that the two groups need to come together: “The fintechs need some grey hairs in their boardrooms, and the banks need some diversity and youth in their boardrooms – That is what fintech is all about – the ‘tech’ is bright young things, and the ‘fin’ is people who have been around for a while.”//


MONEY MAG // 1.2 Finance of the future

Arken, Museum of Modern Art, Copenhagen

Think beyond digital - go cognitive! An interview with Likhit Wagle, General Manager, Global Banking & Financial Markets, IBM

Likhit Wagle

For the majority of the world’s banks, the full potential of digitisation has yet to be realised. Instead, most banks are currently focused on digitising the enormous amount of processes, procedures and tasks that used to be handled manually. According to IBM, however, banks must now go beyond digital and start focusing on the potential of Artificial Intelligence (AI) technologies, or the cognitive space as IBM terms it. But what does going beyond digital really mean to banks and how can cognitive technologies, such as IBM’s Watson, help to achieve this? By Michael Juul Rugaard & Kristian T. Sørensen, Norfico To answer these questions, Likhit Wagle, IBM’s General Manager, Global Banking & Financial Markets, believes we must first consider the highly dynamic environment which the banking industry is currently dealing with. To do this, he has identified four key ‘pains’ for the banks which are relevant to their transformation from digital to cognitive. ”Firstly, we are still in a very low growth environment. And for the foreseeable future, particularly in Europe, we will remain in a difficult, low growth environment,” says Likhit Wagle and continues:

Aller Building, Copenhagen

“Secondly, fintechs are challenging the banks. The revenues of fintech communities today already represent about 30% of the global banking industry. Thirdly, regulation is not 16

going anywhere - it is here to stay. I don’t think any government in the world is going to accept a situation again where banks must be bailed out by taxpayers.” Likhit Wagle says there are several technologies maturing at the same time now which are going to change the industry: “At IBM, we strongly believe that in addition to cloud, cognitive is the other technology which truly has the potential to transform banking,” he explains. Cognitive below the waterline Likhit Wagle likens the current situation to an iceberg, with banks so far only having dealt with those aspects of digitisation that are above the waterline. This includes looking at how customers can access the banks using digital technology and online channels. “However, there is also a problem with this improved customer engagement,” says Likhit Wagle. “Even where it has

Instead, IBM has started explaining to clients about the essential role cognitive technologies will play in the part of the iceberg that lies below the waterline. This part includes essential end-to-end digitisation and the automation of a huge number of processes and procedures within the bank.

“Firstly, if all a bank does is digitize then at best it will just bring them up to par with some of the fintech businesses,” he explains and continues: “But it is unlikely that the banks are going to be able to exercise a digital advantage that is sustainable, because the fintechs have been very smart about operating in areas where there are relatively low levels of regulation - and they are also companies that have very little legacy.” “The second reason is that there is one key asset which the banks already possess and can utilise much more going forward,” Likhit Wagle adds. “That asset is data. Fintechs will find it difficult to replicate the depth and quality of banks’ data. IBM strongly believes that if the banks start to use this data, and use cognitive technology to take advantage of the data, then they will start to establish clear blue water between them and the fintechs.” IBM’s CEO, Ginni Rometty, has also spoken about how “data is going to be the fuel of competitive advantage in the future.” In addition Ginni Rometty believes that, provided banks understand the power of data as a key asset, they still have a strong position despite the increasing competition from fintechs.

At IBM, we strongly believe that in addition to cloud, cognitive is the other technology which truly has the potential to transform banking”

Likhit Wagle elaborates: “It is all about simplifying your application landscape - which you can do as part of the migration to cloud technology - and which will give you not only flexibility and agility, but will radically reduce the cost base of your business. Those aspects of a digitisation program will be critical if the banking industry is truly going to return to respectable levels of profitability on the one hand, and on the other be able to compete with the fintech companies that are challenging them.”

Creating a competitive edge So, why does IBM believe banks need to go beyond digital and into the cognitive space instead? According to Likhit Wagle there are two main reasons:

For small banks and fintechs too And yet IBM’s Watson technologies

The Silos, Copenhagen


MONEY MAG // 1.3 Finance of the future

resulted in a better customer experience, in mature markets this is not doing a lot for the banks. Their return on investment is quite low because they operate in a heavily saturated marketplace.”

MONEY MAG // 1.3 Finance of the future

received early criticism for only being accessible to big banks, mostly due to the high cost of up-front investment needed - both in terms of time and money. But according to Likhit Wagle, Watson’s solutions are no longer dependent on the size of the bank. And because the cognitive IBM space is based on cloud and APIs, it is now available for anyone - including creative fintechs. “Cognitive is not only for the big banks,” Likhit Wagle adds: “We are very much coming at this from the perspective of being able to make APIs available. And we have a rich portfolio now of Watson APIs, which are available to the developer community for the benefit of both our clients and for fintechs of all kinds. The APIs are being consumed on a transaction basis and developers are using those APIs to build into the applications that are relevant to them.” Likhit Wagle argues that this API mechanism and the use of cloud technology make cognitive technologies ‘very democratic’ and no longer something that is only reserved for, or relevant to, the big banks. “If anything, I think it is going to be just as relevant for the smaller banks and the fintechs as it is for the big banks,” he explains: “And that is another reason why banks need to go beyond digital and think about being cognitive – because their competitors are already doing so.”//


FACTS ON COGNITIVE COMPUTING Cognitive computing enables banks to set strategic priorities they could not imagine previously. It can benefit an entire bank in three ways, which are: 1. D eeper engagement with customers: The cognitive bank provides personalised services to customers by means of continually deeper insight, context and learning. A new cognitive solution will feature customer service robots that understand speech, gestures and even customer expressions. 2. N ew analytics insights: Cognitive capabilities can improve applications used by customers through better decision-making capabilities. A cognitive solution, for example, would expand the use of wealth management advisors beyond ultra-rich clients. 3. T ransformed bank operations: The cognitive bank can make improvements that offer greater visibility into specific business challenges and support decisions across an entire organisation. For example, helping align policies, procedures, controls and standards across an organisation to meet regulatory requirements.

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David Birch

The future of money

Consult Hyperion has consulted on, and helped to shape, the payments industry for three decades. Its co-founder David Birch is a well-known and highly respected speaker, thinker and writer on the topic of payments, digitisation and identity. His last book Identity is the New Money has become a reference work in the world of digital identity. We met him in Copenhagen to hear about his new book Before Babylon – Beyond Bitcoin and his views on the future of money. By Kristian T. Sørensen, Norfico Dave, with Consult Hyperion, you have always worked at the intersection of finance and technology – since way before the word ‘fintech’ was coined. Looking at the development of financial services technologies or fintech, do you think the technology will change the role of money? “If technology brings down the threshold for issuing money, you will have more choice about the kind of money you can use. I have a suspicion that you might want to use a kind of money which reflect your values. People could choose to use Danish Kroner, a Sharia compliant Islamic e-Dinar or even money issued by some rebellious province like the ‘Jutlandic Groat’. The technology allows anybody to create money now and we should see more experimentation in that space. Let’s pick LEGO® as an example because we are in Copenhagen. Suppose LEGO® wanted to

raise some more money; they could do it by issuing conventional corporate bonds or they could issue their own LEGO® money. To start with, that LEGO® money might trade with a little bit of a discount but, once people realise that Lego money means that they can buy more LEGO® products and services downstream, they might want to hold on to it or store it for their pensions savings account.” Besides the ‘LEGO® money’, could you also imagine having ‘electricity’, ‘heating’ and ‘water money’ in your pension savings account? “Some people might think that it is very complicated to manage different currencies, but people are used to doing this. A couple of hundred years ago it was not at all odd to have five different currencies floating around and switch to the one that made the most sense at the time you were to use it. Today’s technology means that it wouldn’t have to be you who managed these currencies – it would be your phone. Your phone is a superpower that pretty soon will have always-on access to an AI that is smarter than you. When it comes to the choice of LEGO® money, Islamic money, electricity or whatever, my AI will sort that out – I won’t care.


MONEY MAG // 1.5 Finance of the future

An interview with David Birch, Director of Innovation at Consult Hyperion.

What the future doesn’t hold is some world currency that we will all be using. We can’t even get the Euro to work for both Germany and Greece, so how would we make it work for the whole world? We are heading towards a world of more kinds of money not fewer.” What kind of entities do you think will be issuing money in the future? “Money can be produced by different types of issuers. In the book, I use these five Cs to explore who could issue money: Central banks, Commercial banks, Companies, Cryptography and Communities. It is not at all obvious that the money of the future will look like money does now. In the book, I state that technology takes us back to the money we had before: hyper-localised and specialised money.

issue money, and they have to behave in certain ways – but that’s just the way things work now – it is not a law of nature, and there is no evidence that this is the most efficient way of doing things.” So the future of money as well of financial services, in general, is defined both by technological development and regulatory development? “We are at a stage where everybody has a smartphone – everybody is connected to the internet – we can do everything we want with those technologies. We have been through this ‘fintech era’ of innovation and experimentation that the banks couldn’t afford to have done themselves.

We are already in the future of money – it is bits and bytes already, but we have not mentally accepted it The strategic yet. I’d like to see ‘smart focus will now gradually shift from money’ that represents what we can do values. It could, for example, with technology be ethical money that isn’t to what we are allowed to do worth anything if you try within the increased regulations. This to buy guns with it.”

Something like a barter currency might sound like a crazy idea because of the complexity. But, again, we will have mobile phones with chatbots and AI – they could presumably compute millions of barter chains in a fraction of a second and find a chain that works for everybody so why would you need money as an intermediary?” Do you think more kinds of money are a good thing? “There is certainly an ecological argument for having lots of different kinds of money – if there is only one kind of money and something goes wrong that is quite a problem. Of course, having different kinds of money makes it harder to manage. But I think the argument should also be made the other way around. Why is central bank money better? Central bank money is the result of a very particular institutional arrangement of a bargain between the nation state and the business classes. We allow the commercial banks to 22

marks the start of the ‘regtech era’. What shapes our clients’ business strategies most is no longer the technology – regulation has become the key factor.”

Is this a completely new trend, or do you have an example of how earlier regulation in banking has impacted strategies and maybe even driven innovation? “In my new book, I share one of my favourite case studies – a very interesting fact in history. In England, we established the dominance of the Bank of England which issued all the bank notes, whereas in Scotland – up until 1844 – the banks issued their own bank notes and they had to compete to keep the value of those bank notes up. It is interesting that in this case where banks had to compete, they had fewer bank failures and when the failures did occur, they were less drastic. And all the innovation from that ‘first fintech era’ – all of the inventions that we associate

with modern banking – checking accounts, cheques, etc – all date back to that competitive period in Scotland. Regulations are what shape our business then and now.” I guess you are thinking of PSD2 when you talk about regulation that shapes the financial services industry right now – how should banks embrace this particular piece of legislation? “Most of the PSD2 work that we in Consult Hyperion do with banks today focuses on trying to find a spectrum of viable strategies. Among those strategies there is the ‘dumb pipe’ strategy which might actually be a good strategy for some banks. If they can transform into a super operationally efficient ‘dumb pipe’ – deliver the best possible APIs, carry massive volume at the highest service level – then why not? They can be the preferred point of contact between third parties and the banking systems. I think ClearBank is a very good example

of an organisation which has come in with a new type of banking strategy. Not to create a challenger- or a neobank – which is most often a subset of the existing banks – but to do something different. Another potential set of strategies for the existing banks involves becoming the customers’ preferred point of contact with financial services. Many banks have now realised that they can access each other’s accounts and maybe can come up with a better proposition for the customers this way instead of handing it over to third parties like Mint.

I feel very bad for the coin collectors because I want to get rid of coins. Coins are astonishing historical artefacts – in 10,000 years’ I also have a time when archaeologists suspicion that we will get from Alpha Centauri specialist banks – for example, you dig up what remains of might want to have Nairobi and discover an a ‘Saga Bank’ for old people and mPesa handset, I don’t an ‘MTV Bank’ know what they are going for young people. These banks are to make of that. Phones all actually running don’t carry the same on top of the same white labelled cultural narrative that platform. I can see coins do.” that there is an

opportunity to deliver services that are much more closely linked to the different groups rather than one size fits all.” //


MONEY MAG // 1.5 Finance of the future

The Circle Bridge, Copenhagen

Excerpt from David Birch’s book

Before Babylon, beyond bitcoin Futurology How can we begin to think about this redesign of money for a postindustrial age? Well, we can begin with a modest step and then try to work forwards. While sketching the outlines for this book in 2015 I was challenged to envisage the payments landscape in 2025. I thought this challenge would be a good platform to stand on to try to see what impact the new technology of payments might have on money itself. The first question to tackle was what approach to take, just to reach that more limited goal of trying to picture payments at the modest distance of a decade from now, when we can see that so much is going to change on the technological, social, business and, most importantly of all, regulatory fronts? Well, one of the techniques of futurologists trying to assess the magnitude and direction of technologyinduced change is to find an appropriate point in the past to compare with. If you want to imagine the changes coming a generation from now, they would argue, you must look back two generations into the past to correct for the accelerating pace of change.


That line of thinking suggests that if we want to imagine digital money a decade from now, we need to look back two decades into the past and understand the landscape and dynamics of change. A simple way of doing this is to look at the technologies that support products in the marketplace and, particularly, at the security needed to make them useful. This perspective-led approach makes good sense for the topic at hand because the mid 1990s were a cusp in the co-evolution of payments, technology and security. Twenty years ago, the world was experimenting with different kinds of debit proposition, smart card technology, offline operation and ‘electronification’ in the massmarket (salaries, benefits, bill payments and so on). Some debit systems failed and some succeeded, but the experimentation began a period of growth that saw the debit card rise to become the consumer’s instrument of choice while prepaid solutions began to spread in the mass market. The march of electrification means that the direct debit has become the way that most consumers pay most regular bills (eight out of ten UK adults have at least one). The rise of the web led consumers and businesses to want new solutions, yet it was another decade before the United Kingdom led the world in introducing instant payments (i.e. real-time transfers between payment accounts held by regulated institutions). Despite ‘typically British’ scepticism, the Faster Payment Service (FPS) has been an outstanding success (IBSintelligence 2013), bringing us to the point where British consumers expect to be able to use their mobile phones to send money from one

Technology and timeline In 1995 the financial sector was focusing on making the most effective offline payment system possible (which led to the Europay–MasterCard–Visa (EMV) standard that is used in all ‘chip and PIN’ cards) and using it to displace cash. It was doing this just as the whole world went online, with the mobile phone already in use and the web around reW hAldAne And brett King the corner.

ecause d rtest guy ney.”

ogy IFe

MICHAel J. CAsey, Co-AutHor oF tHe Age oF CryPtoCurreNCy: How BItCoIN AND tHe BloCkCHAIN Are CHAlleNgINg tHe gloBAl eCoNoMIC orDer

“Marvellous. A deeply researched and brilliant synthesis of history, technology and futurology, and a worthy follow-up to Birch’s pioneering 2014 book on identity as the new money.”

keNNetH rogoFF, tHoMAs D. CABot ProFessor oF PuBlIC PolICy AND ProFessor oF eCoNoMICs At HArvArD uNIversIty

“David Birch knows his stuff. His writing, as well as being on the pulse of fintech, is always diced with fantastically obscure stories from history, so it never fails to be both witty and informed. You, the reader, are simultaneously entertained and educated. What more could you want from a book?” DoMINIC FrIsBy, AutHor oF BItCoIN – tHe Future oF MoNey?

“Whether you agree with his controversial predictions or not, David’s fascinating tale of the interrelationship between technology and money is required reading for those interested in either or both of them.”

AlAstAIr lukIes CBe, CHAIr oF INNovAte FINANCe AND tHe PrIMe MINIster’s BusINess AMBAssADor For FINteCH

Cover image: ‘Money Engine’ by Austin Houldsworth ( Banknotes become fuel in this vision derived from his work for the Future of Money Design Awards.


xplosion of rofound s role in ng and Babylon will be y various back to ightful, a tour de sted in

“Taking a journey through the past and future of money with David Birch is not only eye-opening, it’s immensely entertaining. You get Milton Friedman mixed with Bill Bryson. With money undergoing one of its periodic paradigm shifts, I can’t think of a better guide than Birch for navigating this exciting yet highly disruptive moment.”

BeFore BAByloN, BeyoND BItCoIN

We know where not to look, and that’s on our desks. We are already past that inflection point. The installed In Europe, the base of smartphones smart card was and tablets is already used in a variety bigger than the of electronic purse installed base of schemes with desktop and laptop the intention of PCs. The installed displacing cash base of iOS devices at retail point of alone will soon exceed sale. Most failed the installed base and had no impact of all PCs. By 2020, on the world global shipments of of retail. In the PCs will be lower than BeFore BAByloN, United States, by global shipments of BeyoND BItCoIN comparison, we tablets (according to From Money that we understand to Money that understands us saw myriad efforts a Statista prediction to create Internet made in July 2015). DAvID BIrCH London Publishing But perhaps we Partnership alternatives to cash and cheques, should be looking and while most of beyond smartphones? those also fell by Just as the designers the wayside, one of them did not: PayPal. of 1995 set about building for an offline PayPal rode the existing rails to deliver a world just as it went online, we should more convenient service to consumers, be thinking about the next infrastructure, something that the established players not the current one. And this, I strongly could have done, but didn’t. Speaking suspect, is the ‘Internet of Things’. The simplistically, online won! But note that Thingternet (as I cannot resist calling it) while the electronic purse failed, the will naturally stimulate entirely different technology that was being used to business models. deliver it to the mass market (the smart card) became so widespread it is now The impact of these changes will of unremarkable. course extend to retail. The US Food It is very tempting when looking at Marketing Institute predicted that the current landscape – in fact it is by 2025 customers would no longer irresistible – to see the current flurry wait in lines to check out at grocery of experimentation around Bitcoin stores but would walk out of the door

the full and the route. nomists e to tory or


through this lens. It may well be that the new payment mechanism never obtains traction, any more than Mondex or DigiCash did, and we will never use Bitcoins at the corner shop, but that the evolution of the underlying technology, the shared ledger, turns into an infrastructure so pervasive that it becomes as unremarkable as the smart card did. The World Economic Forum certainly sees things this way: it says that new financial services infrastructure built on shared ledger technology will ‘redraw processes and call into question orthodoxies that are foundational to today’s business models’ (Bruno and McWaters 2016).


MONEY MAG // 1.6 Finance of the future

account to another, instantly and reliably. Around the world countries are following in these footsteps and evolving that infrastructure still further by bringing in more sophisticated data representation and management to add the ability to carry value-adding data along with the payment.

while a ‘frictionless checkout’ would automatically account for products in their carts – and this prediction was even made before AmazonGo’s pilot store was unveiled. This is certain to impact the payments business and not only drives us on towards cashlessness but also drives payments further ‘underground’ in retail environments. These trends pivot on the mobile phone of course, shifting to an appcentric model, in which mobile devices coordinate fast, safe and transparent solutions. As I write, one in five payments in Starbucks is already mobile, so this is hardly a radical view. Now we have Android Pay and Ford Pay, Walmart Pay and CVS Pay, Tesco Pay and Chase Pay. The trend is clear, cash drawers and tills are vanishing from retail, and this means that retail transaction flows will be reconfigured. Using money in shops, over the phone, on the web and to pay a friend will all become the same experience. Connected devices, instant payments, strong authentication to a token held in tamper-resistant memory will be the converged infrastructure for the invisible payment and will form a platform for the next money. Where next? Think for a moment about the Cutty Sark, the famous old sailing ship that is dry docked in Greenwich, London. It was a vessel known as a ‘tea clipper’, built for speed, and at one time it was the fastest ship of its size afloat, famously

Bella Sky, Copenhagen

beating the fastest steamship of its time and doing the Australia-to-United Kingdom run in sixty-seven days. (Yes, I know there’s no tea in Australia but the Suez Canal meant that she only carried tea for a few years and was then set to work bringing wool up from down under.) When she was built, high speed was economically important and there was considerable pressure from the tea companies to get the fastest ships: they weren’t built just for the fun of it, or to show off technology, but because of economic imperative. She was commissioned in 1869. Note the timing: the fastest sailing ship was built well after the first steamships arrived. The first iron-hulled steamship, the Aaron Manby, had crossed the English Channel in 1822. The first steamship with a screw propeller, the Archimedes, had been built in Britain in 1839. Brunel’s iron-hulled, screw-driven SS Great Britain had crossed the Atlantic in 1847. Christopher Freeman and Francisco Louca (2001) summarize this crossover well: However, it had taken a fairly long time for the steamship to defeat competition from sailing ships, which also began to use iron hulls. The competitive innovations in sailing ships are sometimes described to this day as the ‘sailing ship effect’, to indicate this possibility in technological competition for a threatened industry. In the long run, the sailing ships vanished, except for leisure, and

Perhaps this ‘sailing ship effect’ can be applied to money. The Bitcoin blockchain is one kind of shared ledger: one of the first steamships, the equivalent of the Archimedes. It isn’t the kind of liner that eventually transports passengers across the Atlantic in unparalleled luxury and it isn’t the kind of tramp steamer that transported most of the world’s goods to global markets and it isn’t the kind of dreadnought with which Britannia used to rule the waves. It’s the kind of steamship that shows that steamships work and sets off a chain of innovation that triggers a sustainable change in the way that the world works. Let us imagine for a moment that this tortured analogy holds and that the invention of the shared ledger will, just as the steamship did, trigger one final round of innovation in the ‘legacy’ financial services infrastructure (push payments exchanging fiat currencies between accounts held at regulated financial institutions). Well, if Money 2.0 is going the way of the tea clipper, what will that Money 3.0 steamship look like? Many years ago my colleague Neil McEvoy and I argued in Wired magazine that while the new technologies for the medium of exchange were being deployed in a reactionary fashion to

bring improvements to the current money system of national fiat currencies (i.e. the sailing ship effect, although we did not think of it in those terms at the time), they would in future drive such decentralization and be used to create non-fiat currencies (Birch and McEvoy 1996). Our argument was that emerging technologies – particularly the synthesis of cryptographic software and tamperresistant chips – would, we said (as did many others), make the cost of entry into the currency ‘market’ quite small. Many organizations beyond central banks and commercial banks might then wish to create private money. This could be as a means of supplying credit, as envisaged by the Nobel-winning economist Friedrich Hayek in 1970s, or it could be a means of encouraging customer loyalty, as explored by lateral thinker Edward de Bono in the 1990s. There might also be idealistic reasons, as explored by ‘Satoshi Nakamoto’, the mysterious inventor of the cryptographic asset Bitcoin (Vigna and Casey 2015), and others since 2008. I will explore all these possibilities in my ‘5Cs’ of money creation (central banks, commercial banks, companies, communities and cryptography) in more detail later in this book, before settling on a narrative for the ‘next money’ that is likely to surprise you.// Read more and order your copy here: http://londonpublishingpartnership.

MONEY MAG // 1.6 Finance of the future

the steamships took over. But when the steamships first came onto the scene they stimulated a final burst of innovation from the sailing ship world, which then stimulated the building of some great ships as a kind of last hurrah.

The innovation imperative continues In today’s technology-enabled world, the insurance industry is standing on the cusp of a major renaissance. Innovative technologies and business models are changing the way people think about insurance — giving rise to new products, services and opportunities to enhance customer value. By Tek Yew Chia, Partner, KPMG Singapore & Bent Dalager, Partner, KPMG Nordics Investor interest in insurtech, the cutting-edge technologies helping to change the face of insurance, is exploding, and is poised for more growth in the year ahead. For companies in the insurance industry, innovation is no longer a choice; it is an imperative. Consumers themselves are demanding better options. They recognize the new value they are receiving as a result of innovations in banking and other sectors, and they want their insurance providers to give them the same level of value and customization. Tek Yew Chia & Bent Dalager

Companies that are unwilling or unable to embrace innovation as a means to respond to the demands of their customers will quickly become irrelevant. The rapid rise of insurtech investment Insurance companies have recognized the importance of innovation for the last several 28

years. A reflection of the growing significance being placed on industry transformation has been the rapid rise in venture capital (VC) investment in insurtech globally, much of which has involved corporate investors. In 2015, VC investment in insurtech was US$590 million — a considerable sum compared to 2014’s US$404 million. In 2016, however, investment in insurtech skyrocketed, doubling the previous year’s investment total to break the US$ 1 billion mark by a significant margin. As insurtech companies mature and show success, investments in insurtech will likely continue to grow, leading technologies to evolve even more rapidly. This will only put more pressure on insurance companies to either embrace innovation or find ways to take advantage of what other companies are doing. Recognizing the opportunities presented by insurtech In the banking sector, fintech innovation over the past few years has led somewhat to a dissolution of the banking value chain. Any number of technology startups have shorn off a part of the

The insurance industry is now facing a similar dissolution, with insurtech companies looking to unpack different areas of the insurance value chain in order to create business opportunities. Many traditional insurers recognize they need to up their game in order to respond to these challenges without losing market share. For these companies, one of the strongest opportunities presented by insurtech is the ability to disrupt and enhance the insurance business model; for example, by opening new channels for insurance products, by speeding up the claims processes or by providing mechanisms to tailor insurance products based on data analytics. Insurers willing to work with insurtech companies on these types of initiatives rather than seeing them simply as competition will be in the best position to respond to the rapid evolution of the industry.

products. Identifying customer pain points and challenges can be a good place to start as resolution of these problems can have a positive resonating impact on an organization’s entire operations. 2. Identify insurtech opportunities Once the problems needing to be addressed have been defined, insurance companies can then approach identifying and working with insurtech companies in a number of ways. For companies with a well-defined problem, finding a company with a technology able to address that need may be the most effective solution – for example, by running an innovation challenge with a partner like Matchi to identify relevant insurtech solutions.

Before deciding which innovations to invest in, insurance companies should define the problems they want to resolve.”

Approaching insurtech investments and opportunities Recognizing the value offered by insurtech companies and being able to take advantage of the opportunities they present are two very different issues. Each traditional insurance company needs to independently determine how best to approach insurtech given their unique circumstances and situation. As a starting point, companies should consider the following activities: 1. Define current problems Too often, companies get caught up in an exciting new technology without looking at how that technology can help them. Before deciding which innovations to invest in, insurance companies should define the problems they want to resolve – whether that’s reducing claims wait times, decreasing operating costs or providing more tailored insurance

For companies with a more complex or series of problems to address, developing an in-house innovation lab (i.e. digital garage) can be a good way to help foster innovative solutions. In this model, a traditional insurer would foster the growth of a group of insurtech companies while having them work on solving their specific business challenges. A number of these labs already exist in the insurance sector, including Met Life’s LumenLab in Singapore – which focuses on driving insight-driven solutions, and Allianz’s Data Lab – which focuses on harnessing digital innovations and advanced analytics. Aviva also hosts a digital garage to support collaboration and innovation between commercial teams and creative designers. For this model to be effective, the role and relationship of innovation relative to the strategy of the group, core functions of the organization and any transformation programs would need to be well established. 3. Address integration challenges Regardless of how traditional insurers go about identifying or developing innovative technologies, they need to also remember that technology is only 29

MONEY MAG // 1.7 Finance of the future

banking operations (e.g. payments, lending) and developed niche, tailored service offerings for either businesses or individual consumers.

as good as their ability to implement it effectively. As part of their innovation approach, insurers need to examine their ability to integrate technologies obtained from insurtech companies within their operations. This might include evaluating the innovation culture of the organization in addition to any technology barriers that would affect changes from being implemented. Companies can then use this information to design a better road map for change so that innovations are not created in a vacuum without the ability to properly execute them.

to the long-term ability of insurance companies to compete. Looking ahead over the next 12 to 24 months, some trends to watch include: Technology enablement Managing legacy systems is a big barrier to innovation for companies in the insurance space — and insurtech companies know it. As a result, there will likely be a focus on technologies that can make legacy systems integrate more easily, such as by opening up application programming interfaces so that companies can fully take advantage of the outcomes of any partnership endeavors.

As part of their innovation approach, insurers need to examine their ability to integrate technologies obtained from insurtech companies within their operations.”

4. Bring together the right partners The big buzzword in insurtech right now is partnering. While insurtech startups need access to distribution in order to scale their businesses, most don’t have the time, patience or money to get involved in the more tiresome, regulatory and capital intensive parts of insurance that would make their organization independently sustainable. That’s why many successful insurtech startups have developed a strong symbiotic relationship with traditional market incumbents. These companies partner with established insurers that have the distribution networks, capital and regulatory expertise, but lack the technical know-how to develop specific solutions. Insurers can approach insurtech the same way — by looking for the right partners who can help them address problems and gaps so that they can be more effective. Focus on the future As insurance companies look to understand and take advantage of insurtech, insurance-focused technologies will continue to evolve. Focusing only on what’s hot right now may mean insurance companies lose sight of what opportunities might be right around the corner. Keeping abreast of evolving trends in insurtech is critical


Cross-industry applicability Insurers should keep up-to-date on technology innovations in fields like retail, banking and automotive as they may have applicability to the insurance space. As these other sectors converge with insurance, they will provide new opportunities and threats to insurers. For example, banks and vehicle manufacturers may use convergence to capture more of the insurance value chain, or insurers could work out how to partner with them to open up new markets. With industry boundaries blurring, more opportunities are coming into play. Proactive technologies Over the next year, there will likely be an increase in technologies that can help insurance companies provide more proactive services to their customers. A number of companies already offer these types of solutions, including Helium — which provides

environmental sensors that notify users when conditions change, and Kinetic — which has designed wearable devices aimed at reducing workplace injuries. Improved customer experience One of the biggest areas of opportunity for insurance companies when it comes to insurtech over the next year will be the ability to vastly improve customer experience through data and analytics. Most insurance companies have an immense amount of data at their fingertips. Being able to use this data to provide tailored services to customers or to help them manage their risk more effectively could become a key competitive advantage in the future. The insurers that can get customers to trust that sharing their data will result in better products, services and experiences for them will get the most value out of D&A. What’s next? Insurers today need to do more than understand the importance of innovation and the opportunities presented by insurtech companies — they also need to be able to leverage and integrate insurtech solutions within their own enterprises if they are going to grow and be sustainable. While insurance companies face significant challenges, those able to make the most out of working with insurtech companies — whether through acquisitions, direct

investments, innovation labs or services agreements — will be well positioned to be industry leaders in the years to come.// VC investment in insurtech

>$1 bill

$590 mill $404 mill




Source: Pulse of Fintech Q4 ’16: Global Analysis of Investment in Fintech. KPMG International

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MONEY MAG // 1.7 Finance of the future

Havneholmen housing, Copenhagen

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02 PSD2 – towards open banking

The Queen of disruption Margrethe Vestager

By Michael Juul Rugaard, Norfico Doomsayers repeatedly tell us that the European Union has become weak, paralysed, and in a deep crisis because of countless challenges and problems piling up throughout Europe. These include the influx of refugees; high unemployment; economic uncertainty in some parts of the union; the constant threat of terrorism; global warming and climate change; and most recently Brexit and the fear of other possible exits. While these are all undoubtedly huge challenges, is the European Union really as weak as some like to think? Looking at the regulatory initiatives undertaken by the EU Commission since the global financial crisis in 2008, and considering that the Second Payment Services Directive (PSD2) – the most disruptive piece of financial legislation in years – was conceived by the EU Commission, this all seems to tell a different story – one of a determined, proactive, and courageous European Union. I met with Margrethe Vestager in Copenhagen to discuss the EU Commission’s vision for the European financial market and the fintech industry, and to hear her views on financial regulation and PSD2 in particular. As a starting point, I asked her to comment on my two versions of the state of the European Union and whether the interpretation of the EU as strong and brave actually rings true?

Margrethe Vestager (MV): Well, at least it makes much more sense than just focusing on the problems because obviously, there are a lot of challenges that need to be solved. The handling of migration; refugees who need to be protected; climate changes; unemployment in several countries, where investments are essential to fuel the economy. There are a lot of issues to deal with. Sometimes people tend to forget that we do have a track record without historical precedence. So far, we have enjoyed 70 years of peace in Europe; we have recently celebrated the 60th anniversary of the signing of the Rome Treaty; we have experienced the fall of the Berlin Wall and the German reunification and today we have a European democracy that actually works. These are all great achievements. Margrethe Vestager appears on Time Magazine’s 2017 edition of the 100 Most Influential People list under the category of so-called Titans. She has served a long political career in Nordic politics, both as party leader and several times as a minister for Denmark. In 2014, she was appointed EU Commissioner for Competition, and her tireless work in favour of creating a level playing field for all market players in the Single European Market has made her world-famous. As part of her current work, financial regulation is an area of great interest to Margrethe Vestager, and PSD2 is close to heart.


MONEY MAG // 2.1 PSD2 – towards open banking

An interview with the European Commissioner for Competition, Margrethe Vestager, on PSD2 and the EU Commission’s vision for the European financial market and the fintech industry.

out of the crisis. If you look at the banking sector, when the crisis began there was hardly any common banking legislation. The employees in the Directorate General for Competition, whom I am responsible for now, created the foundation for the banking legislation we have today, to a large extent while using the state aid instrument.

When we look at the crises that define our everyday lives and much of our thinking about the future, the fact that we succeeded in getting through the financial crisis and the national debt crisis bodes well for the future. As the financial crisis rolled over Europe like a tsunami - one which started in the United States - it initially caused a lot of problems. But then things got reorganised, and that is why we have a completely different and much more coherent legislation today which is shaping our European economy, creating fair competitive conditions, decreasing the possibility of rule arbitrage, and forcing everyone to compete on innovation, quality, and price. This means a lot for me personally in my work because it gives a completely different perspective on life than if you only see the problems and feel paralysed. Michael Juul Rugaard (MJR): In your opinion, has the financial crisis almost been a good thing when looking at Europe? MV: Since it could not be any different, I do think a lot of good things came 36

Decisions were made, I believe, for more than 120 European banks. Some have been fundamentally restructured so that they are completely different banks today. Others have been liquidated in an orderly manner to ensure stability. This has led to the fact that we now have a new European legislation in place for banks that are in trouble, but also legislation covering capital requirements, banking supervision at European level and the entire payments area, which is a completely different situation than it was before the financial crisis. MJR: Did the EU realise in the aftermath of the financial crisis that it is simply not possible to let the financial sector develop on its own - that it must be regulated relatively strictly to stay on the narrow path of virtue and not let greed take over? MV: I think we have to stick to the regulatory track. Of course, you should not try to tackle a tsunami of trouble with a tsunami of rules, and one should deal with it objectively and ask what it is that you want to achieve. But that fundamental responsibility is now placed where it should be, and that is with the owners of the banks. If you want access to the benefits, you must also take responsibility for the risk of a downside. The demands made on bank management today are quite different than ten years ago, and I think that’s quite right.

It is therefore crucial to have regulations that allow banks to trust each other. And also that you have a wellfunctioning sector which manages money and payments in a way that you know what the others are doing, and what the others are covered by. A country without a payments system breaks down in a very short time. MJR: Is there such a thing as an EU vision for Europe’s financial sector?

that cash is quite dangerous to carry around, they are very expensive, and fraud, corruption, and moonlighting are very often associated with a cash-based economy. Therefore, there are some significant societal gains in dealing with payments digitally instead. MJR: Another part of the development in the payment market, in which you have played a rather active role, is about harmonisation, openness, fair competition, etc. Now we are approaching the theme of PSD2 and the new requirements for banks, among other things, to open their payment accounts for third parties. Can you tell me about the ideas behind that directive? MV: The first payment directive - PSD1 – came into effect in 2007. And in 2013 the then EU Commission, led by José Manuel Barroso, proposed the Revised Directive on Payment Services. The reason for PSD2 was that the first directive proved insufficient. National standards developed which resulted in a fragmented market. The idea behind PSD2, which I think succeeded in the legislation text, was to create the foundation for a genuinely European market with better consumer protection and with increased room for innovation in this area. It provides new business opportunities; creates development throughout our digital sector; and gives consumers other options because payments become more secure and many of the transaction costs we know from our analogue reality are getting smaller.

It’s so exciting that the monopoly on payments has been broken. I want to see even more innovative solutions in the market.”

MV: Well, it is very basic. The financial sector, like all other sectors, must be a business where investors get a suitable return. But it must also be a sector that is useful for the rest of the economy because the financial sector is a vital pillar.

I think one of the most neglected debate topics in Europe is how the lack of access to capital impairs growth. As a result, Juncker’s investment fund has decided to provide access to funding for 250-300,000 small businesses and start-ups through national programs. But of course, we should not only bet on public capital or publicly-funded capital. We need a more diversified capital market. The financial industry must also be a proactive sector that helps to promote modern and innovative solutions. Some of the problems with an old-fashioned cash-based payment system are the fact

MJR: I could imagine that if you ask Visa and MasterCard, they will say that regulatory initiatives like the PSD2 and the multilateral interchange fees (MIF) regulation were made to impede large American companies like them. Do they have a point? 37

MONEY MAG // 2.1 PSD2 – towards open banking

I also believe that it makes sense now and then to trawl through the rules to see if something has been too intrusive, too radical or too detailed. Yet when looking at what regulation has meant for financial stability and the development of the banks as businesses, I think regulation has played a very, very important role. Also to ensure confidence, because one of the triggering factors for the financial crisis was that the banks lost confidence in each other, and the outside world lost confidence in the banks.

MV: I do not quite understand what the motivation for that should be? While our mission is to serve the Europeans and European consumers we are committed to being neutral both regarding corporate ownership, regarding the nationality of companies, and whether they are public or private entities. The basis of MIF is to set some reasonable fees to make payments - for the benefit of the European consumers and the benefit of business owners.

banks should exploit the opportunities and embrace these developments. The entire payments area is changing drastically. I think that PSD2 is the necessary push that will make the banks start moving forward. Otherwise, new competitors will enter the scene. MJR: And they already do that... MV: Yes, they already do. We can see it here in Copenhagen. Copenhagen is developing a hub for this type of technology because the city has decided to make the most out of the new opportunities.

PSD2 is the necessary push that will make the banks start moving forward.�

MJR: If you ask the banks what they think about PSD2 you will hear that they are divided, even though they are all aware of the directive and know that it is a must. Many of the small and mediumsized banks are concerned about the compliance burden and the possible competition from the new third parties. But then there is the other category of banks that view PSD2 as an opportunity to take a leap into further digitisation and to open-up and become part of an open banking and open API reality. What do you think? Do the banks have reasons to be worried, or should they consider PSD2 almost as a helping hand? MV: PSD2 has been adopted and will be transposed into national law, and the idea is to create a different payment system than we have today. I think the


MJR: I was actually just about to ask how you see developments in the fintech landscape at the moment? MV: First and foremost, the banks have an advantage because there is a lot of inertia regarding money and payments, and it is hard to make people think of anything but their bank when it comes to these things. But having said that, there is also a very fast and powerful development going on globally. Strong forces want to be part of the payments sector because it is such a big market.

payment is an essential societal area, which we believe should be done in a different way in the future. There are not many examples of this in our history of legislation, and the banks should seize this opportunity to do something new.

MV: It is also the legislation that ensures that consumers can trust the services in the market, and trust the companies that become third parties, because it is a regulated area and not just The Wild West.

MJR: Could you imagine that Europe had agreed on something like PSD2 if there had not been an EU?

The fintech area is special in this way because it is driven by innovation - business innovation as well as technological innovation – while the regulation ensures that it is not a lawless area. This is not something you see very often.

MV: No, this could not be done without the EU and the opportunities the EU creates. The opportunities for innovative companies in small member states would not have been so far-reaching without the EU. PSD2 brings a fragmented market back together and as such opens for great possibilities for all.

PSD2 brings a fragmented market back together and as such opens for great possibilities for all.”

MJR: It has often been said that fintech companies want to disrupt the banks, but the most disruptive player in the European financial world in recent years seems to have been the EU Commission – not least because of PSD2. Does this make sense in your opinion? MV: Yes, that makes sense. But even more interesting is that it is an example of an area where there has been a political will to shape the future because of some previous experience. It is the elected representatives from all nations, and ministers from all member states, who have said they want this. We are ready for this challenge because

I think it’s so exciting that the monopoly on payments has been broken. I want to see even more innovative solutions in the market. And the fact that it is happening in a proper and regulated way makes it extremely interesting. MJR: Do you plan a PSD3 soon? MV: We have to make this one a reality first. I want things to be done properly. In my experience, it requires twice as much leadership bringing legislation to life than it requires adopting entirely new legislation. MJR: So there’s plenty to do now? MV: Yes, and we need to see how it all plays out.//

Margrethe Vestager’s cases as EU Commissioner for Competition include “decisions under EU state aid rules where companies such as Apple have been granted undue tax benefits which allowed the company to pay substantially less tax than other businesses. When it comes to antitrust issues, companies can be big but should not abuse their market position by restricting competition.”


MONEY MAG // 2.1 PSD2 – towards open banking

MJR: Yes, a lot of things are happening in the fintech industry all over Europe, and I guess you could say that PSD2 is a helping hand to the fintech companies because it gives them the opportunity of becoming Third Party Providers?

A community of 120 individual banks The Second Payment Services Directive (PSD2) represents a compliance challenge for all of Europe’s approximately 4,000 banks. Hopefully it will prove to be an opportunity as well. But for the vast number of small and medium-sized banks with scarce resources, PSD2 is instead often perceived as a burden. Jesper Scharff, CEO of SDC

And yet what if these banks came together in communities to take care of the basics that they have in common, such as compliance requirements, instead of trying to battle on alone? In some markets, like the UK, this is considered a radical new idea. In others, like Denmark, these communities of individual smaller-sized banks have already been in existence for over 50 years. Such communities are even embracing PSD2 and the fintech movement. SDC is currently the only cross-Nordic data centre serving more than 120 Danish, Norwegian, Swedish, and Faroese banks. By Michael Juul Rugaard, Norfico A few months ago, something very interesting happened in the UK financial market. For the first time in more than 250 years a new UK clearing bank - with the obvious name ClearBank - was launched. In past decades, the UK has only had four clearing banks with the ability to process all types of payments, and the majority of other UK banks, financial services providers, FCA-regulated organisations and fintechs have had to rely on one of these four big banks whenever they needed to access the payments infrastructure in the UK - and beyond. The launch of ClearBank offers a new option for these 40

market players, and because ClearBank has no relationship with any of the player’s end-users, and the services it provides are basic – but highly relevant – infrastructure services, competing players have a common interest in supporting the new initiative. In fact, ClearBank is something of a novelty in the UK. But its core concept, which is to establish a neutral bank of banks particularly geared to meet the needs of the small and medium-sized financial players, is not as new as it sounds. The Nordic community idea In the Nordics – and particularly in Denmark – the same principle of equal access to advanced financial services infrastructure has played a major role in the financial market, ever since 1963 when the first data centre for banks SDC was established as an association, under the name Sparekassernes Datacentraler.

From bookkeeping to full service Originally, SDC was established with the aim of providing electronic bookkeeping services to Danish savings banks. Just ten years after its establishment, almost all Danish savings banks who needed EDP services had joined SDC. Since then the number of systems, solutions and services offered by SDC have expanded significantly and have been adapted according to technological developments, market changes and new regulatory requirements. SDC’s services now includes full access to the most advanced and comprehensive Nordic finance IT platform, designed specifically to offer full IT support for small and mediumsized financial institutions seeking to operate and compete in the highly demanding and affluent Nordic financial services market. These services include everything from back-end systems, such as core banking, data warehouse and wealth management systems to stateof-the-art mobile banking and mobile payment apps.

The regulatory challenge For the majority of the large and leading international banks, the compliance part of PSD2 is a manageable problem, and their dedicated teams of PSD2 specialists are undoubtedly at an advanced stage in developing their strategic plan for how to make the most out of PSD2. But for the large number of small and medium-sized European banks, this is unlikely to be the case. According to recent surveys – one of them a Nordic survey conducted by Worldline – the majority of banks in this group are not even close to having clear PSD2 strategies ready. While they know the basics of PSD2, they often do not have specialised internal resources allocated for any strategic planning in this area. Even if they are doing any work towards this, their primary focus is on the compliance part and little, if anything, beyond that.

We have a clear obligation towards the banks in our community to help them in several different ways.”

Jesper Scharff, CEO of SDC, explains: “In the SDC community, there is room for everyone – from the small, local savings bank to the major Nordic credit institution, and the fintechs as well. Our Nordic IT platform offers the strength of the biggest actors and the flexibility of the smallest. Each SDC bank shares an ‘engine room’ with a community of 120 Nordic banks. This gives the small and medium banks a strength and resilience to match that of the largest banks while allowing them to devote time and energy to what matters – creating the best possible banking experience for the end users.”

A PSD2 role model The challenge of PSD2 is an excellent example of how important a role the Nordic data centres often play for their member banks. Clearly, compliance responsibility always lies with the banks themselves. But for the more than 120 small and mediumsized SDC banks, their participation in the SDC community means that they can obtain specialised assistance to meet the new compliance requirements and deadlines. In addition, they can also seek advice and concrete assistance when developing their PSD2 strategies over and above basic compliance issues. “We have a clear obligation towards the banks in our community to help them in several different ways,” Scharff explains. “Obviously IT advisory, technical assistance, and access to our many solutions and services are some of them. But we also feel very much obliged, on behalf of our member banks, to follow,


MONEY MAG // 2.2 PSD2 – towards open banking

Today, Denmark has three banking data centres specialised in - and owned by - small and medium-sized banks. SDC is currently the only cross-Nordic data centre serving more than 120 Danish, Norwegian, Swedish, and Faroese banks.

MONEY MAG // 2.2 PSD2 – towards open banking

understand and put into perspective any new regulatory initiative from EU.” He continues: “PSD2 is certainly one of the most important challenges for banks in recent years, and SDC has numerous ongoing PSD2 initiatives - ranging from basic compliance projects to advanced strategic studies and analyses of how to enable our member banks to utilise PSD2 as a springboard into the future of Open Banking.” Scharff adds that this is something which the majority of SDC’s more than 120 Nordic banks would never have had the capacity to do on their own, had they not been part of the ‘SDC community’. Open invitation to fintechs As part of SDC’s analyses and preparations for PSD2, the data centre has also been in dialogue with some Nordic fintechs. Because SDC is built on the principle of collaboration, and that formula has proven to be effective for SDC in so many other circumstances, the idea of inviting creative and innovative young fintechs into the SDC community seems like the most logical and promising way forward. “SDC sincerely welcomes and embraces the exciting things going on in the world of fintech these years,” Scharff says. “We want to be part of

SDC OPEN BANKING PROJECT SDC want to help their bank clients get the most out of PSD2 by enabling them to open up their infrastructure to allow third party providers such as fintechs to integrate with the banks. With that purpose, SDC started a rather ambitious Open Banking project in May 2017.

it, and our member banks want us to help them understand and benefit from the new developments. That is why we are reaching out to the fintech community and actively supporting it – for example in Copenhagen, SDC is one of the partners of the co-working space Copenhagen Fintech Lab.” Scharff continues: “To a large extent, I think we will see disruption being replaced by cooperation for the benefit of both the banks, the fintech companies and end consumers. This development is already under way, and we certainly want to support it on behalf of our member banks.” //

SDC IN NUMBERS Financial institutions Financial institution branches Employees in SDC financial institutions Customer accounts in SDC financial institutions Customers in SDC financial institutions


120 715 9,500 8.5m 3.6m

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Embrace the changes Views and advice on PSD2 from Worldline’s CEO, Gilles Grapinet, and Worldline’s internationally renowned PSD2 Programme Director, Michael Salmony. By Michael Juul Rugaard & Kristian T. Sørensen, Norfico Leading one of the top solution providers in the European payments industry, Worldline’s CEO Gilles Grapinet and the company’s PSD2 Programme Director Michael Salmony are in close and ongoing contact with many of the players affected by PSD2. We met the two for a double interview to hear their insights and perspectives from an industry facing great changes. The overall question is whether this rather radical intervention from the regulators’ side will really be a good thing for Europe and the market players that it involves? Time to revisit the strategy Gilles Grapinet sees PSD2 as an ambitious and innovative, yet timely initiative from EU: Gilles Grapinet & Michael Salmony

“Fundamentally PSD2 is a recognition of a trend that we have seen over the past two decades. Since the birth of the internet, we have seen the importance of the platform economy where you multiply the value that you bring to the entire economy by opening the systems to the creativity of other players.”


Gilles Grapinet has no doubt that PSD2, despite the challenges it brings especially for the 4,000 banks in Europe, will turn out to be very beneficial going forward. “I really believe that PSD2 as a regulation will prove to be very positive for the financial services industry – but it requires that we choose to embrace it to reveal its full potential and not only see it from a compliance standpoint as a regulatory burden. PSD2 is in essence about innovation, and if adopted proactively, it should allow banks to increase growth and bring better services to their customers by rethinking their value-chain while keeping a good level of control on the customer relationship.” The need to revisit the strategy and rethink the value-chain position does not only apply to banks. It applies to anyone who wants to play a role in the future of the European financial services landscape and therefore also Worldline itself. “PSD2 is such a disruption to the way we traditionally have been thinking about the roles in the value-chain that I am observing that every player is reassessing their strategies around PSD2,” says Gilles Grapinet. Compliance is a huge task Gilles Grapinet acknowledges the importance of compliance requirements

Before the banks can start exploring the opportunities with Open Banking, they first must comply to a long line of requirements in the new directive, and this compliance exercise is not a simple task. Worldline’s PSD2 expert Michael Salmony fully understands that the requirements of openness in PSD2 can be almost scary for banks and users as it forces banks to give third parties access to users’ accounts. Michael Salmony explains: “Complying with PSD2 is a massive effort in itself especially since a lot of banks are sitting on legacy systems. The first thing they must get to grips with is the fact that they need to comply with quite a lot of laws and regulations. This includes, of course, the access to account API requirements and the requirements around strong customer authentication (SCA), but it is actually much broader than that. PSD2 also covers more traditional areas of payments like cards and contactless and data protection, fraud and risk management etc, so there are lots of changes across the banking and payment world because of PSD2. And for different parts of these regulations, the banks will have different compliance obligations and different deadlines.”

many interesting strategic options in the new digital value chain as well as new commercial options for new sources of revenue. Also merchants can save costs through free initiation of immediate, confirmed payments from any bank in Europe – and maybe even more importantly get access to much luscious transaction data from the user (provided he consents of course). Thus the scope of PSD2, although coming from the payments space, brings innovations well beyond basic bank account and opens up banking for innovations for everybody. Significant geographical differences Even though the deadline for PSD2 compliance is approaching very fast, the PSD2 readiness and the level of ambitions in terms of reaching beyond compliance (where of course the biggest business opportunities reside) differ a lot depending on the type and geographical location of a bank.

I really believe that PSD2 as a regulation will prove to be very positive for the financial services industry – but it requires that we choose to embrace it to reveal its full potential and not only see it from a compliance standpoint as a regulatory burden.”

But even though banks must invest a substantial amount of time and money, Michael Salmony emphasises that Open Banking good for all, surprisingly especially maybe for banks, since the access to account requirements give the bank account – and thereby the banks – a whole new centre stage position and

“There is a broad spectrum of engagement at the moment. Some banks are looking at PSD2 more as a threat and may be very conservative about it. Their ambition is just to comply and get out of this topic as quickly and cheaply as possible. That is one extreme, and the other extreme is banks who really embrace PSD2 and really want to see this as an opportunity for themselves and for the market and say: ‘Okay, if we grow the market together, then we will have a much larger pie, and then we want to have a nice slice of this new and bigger pie. And we also want to find our strategic position in this new ecosystem not as defenders against attackers but aggressively shaping the market ourselves. We need to be digital players and want to exploit all the new business opportunities this affords’,” Michael Salmony explains, and continues: 45

MONEY MAG // 2.3 PSD2 – towards open banking

as part of the regulatory framework. “Banking and payments are highly regulated for good reasons – and only through regulation we can bring the level of security, standard and ultimately trust to leverage the platform economy.”

“Contrary to what one might think, there is actually no great correlation between innovation and size. Some of the big banks are really innovative, but not all of them, and then there are some small ones who are leading the way. Fidor Bank, for example, is very innovative. In contrast, geography seems to be more of a differentiator with some countries and regions being more conservative, and some which are much more open. Like the UK for example, which is massively embracing this, and of course the famously innovative Nordics as well.” The importance of choosing the right partner For Worldline PSD2 has been high on the agenda for a long time, and the company has carefully prepared itself to assist its European clients in the best possible way. Gilles Grapinet explains that Worldline differentiates from most of its competitors because the company can deliver a full A to Z PSD2 solutions and support to banks, merchants and fintechs. “Our vision of PSD2 is much more than just bringing an API to connect to the core banking system. PSD2 is a way to shape and create what we believe will be the platform economy of retail banking and payments. What Worldline does well is orchestrating real-time end-toend business processes involving third parties. We cover every need and feature from transaction security including strong customer authentication to scalable fraud and dispute management systems as well as bringing strong capabilities to manage the directories of authorised TPPs,” says Gilles Grapinet and continues: “We believe this comprehensive approach will be key to keeping the banks at the centre of the coming PSD2 ecosystem. We look at PSD2 as a way


to shape a set of interlocking business processes – properly orchestrated and connected to the existing business of the financial institution on the one hand and on the other hand offer these capabilities to the TPPs like merchants and fintechs and beyond to transport, retail, media, government and more.” Gilles Grapinet expects that the European market will see hundreds – if not thousands in the long term- of organisations that want to benefit from the options of acting as TPPs. Only the biggest of these will have the will and the skill to operate their own infrastructure which makes the demand for ‘white label TPP services’ significant. He confirms that Worldline already sees this interest in the market. Europe first With Europe’s thousands of banks and now potentially hundreds of TPPs and fintechs, Worldline has plenty on its plate serving the European market in the coming years. But Gilles Grapinet already sees a global perspective and potential for the open banking services and solutions brought on by PSD2. “Europe will pave the way. There is no similar level of sophistication anywhere else. We will create the benchmark for open APIs and open banking at scale. The rest of the world will be looking to Europe for inspiration. We will benefit from investing heavily in Europe to reach critical mass and the level of expertise that will allow us to bring the services beyond the oceans at a later stage,” concludes Gilles Grapinet.

GILLES GRAPINET ON HOW THE NORDIC COUNTRIES ARE LEADING THE WAY FOR PSD2 IMPLEMENTATION: “The creativity of many Nordic companies – including fintech companies – is so high that we can expect the Nordics to pave the way by demonstrating what we can do with PSD2. This is also why we in Worldline are so keen to invest in the Nordics – because we know the level of adoption and innovation will lead the way for continental Europe. When I look at the evolution of electronic payments over the decades, the Nordic countries have been leading in the race towards cashless economies, bank-based identity, innovative use of mobile and more. I therefore expect to see Nordic banks, merchants and citizens embracing PSD2 and Open Banking as quickly as they have done for all the other significant payment innovations.

way we transact, but also the reason to phase out certain legacy payment means. The preferences in the Nordics for transparency and a ‘clean economy’ are further encouraging everyone to pull in the same direction. In that way, I think the Nordic countries are shaping the world of the future to some extent – a world that is more sustainable, helps towards a fairer society and with fewer threats. One must recognise that payments have a role to play in that development – the more cash and cheques and paper invoices etc, the more risk we bring into the economies and the societies. When I look at PSD2 from that standpoint, I am absolutely convinced that it will be a way to further improve efficiency for the greater good of our societies.” //

The cultural dimension entrenched in this region is key when it comes to money and payments. Not only in the


MONEY MAG // 2.3 PSD2 – towards open banking

The Silos from the water side, Copenhagen

PSD2 – Opportunities, obligations, and obstacles Regardless of where your business sits within the fintech ecosystem, you are most likely to have an interest in one of the most disruptive pieces of legislation ever brought forward and adopted by the European Union – the Second Payment Services Directive, also known as PSD2. In this short article, we look at some of the basic aspects of the new directive. By Michael Juul Rugaard, Norfico PSD2 is not optional. European Union directives are mandatory, and have to be adopted on a national level across the Union and the deadline for PSD2 adoption is fast approaching. By 12 January 2018, the transposition and implementation of the directive into national law must be completed in all EU member states. However, the national implementation is only one side of the matter. Equally important are the requirements and deadlines that the legal entities subject to the directive (primarily banks, fintechs, and merchants), must adhere to.

Copenhagen Airport

According to PSD2 all European banks (or ASPSPs as they are called in the directive), must comply with the directive’s requirement for Access to Account (XS2A) no later than 18 months after 48

the approval of the final Regulatory Technical Standards (RTS) on Strong Customer Authentication (SCA). There have been delays in the approval process of the RTS, in part because the European Banking Authority (EBA), (which is responsible for the RTSs), has been overwhelmed by questions and comments from hundreds of European companies, resulting in an implementation date which will likely fall somewhere between October 2018 and April 2019. Access to Account Access to Account (XS2A) is the single most important, most talked about, and most disruptive news in PSD2. Access to Account means that all European banks are required to allow access to their customer’s payment account to Third Party Providers (TPPs), provided that the holder of the payment account has given his or her approval, and that the TPP in question is approved by the national financial supervisory authority and included in an official TPP register.1

The two types of services are described in Article 66 for Payment Initiation Services (PIS) and Article 67 for Account Information Services (AIS): “Article 66. Rules on access to payment account in the case of payment initiation services. 1. Member States shall ensure that a payer has the right to make use of a payment initiation service provider to obtain payment services.” And: “Article 67: Rules on access to and use of payment account information in the

case of account information services. 1. Member States shall ensure that a payment service user has the right to make use of services enabling access to account information.”2 Strong Customer Authentication Other important news in PSD2 besides XS2A, is a significantly enhanced focus on security in relation to any digital transaction performed in an online environment – whether a payment initiation or account information transaction. The purpose of this is, of course, to reduce the level of online fraud, which has increased perilously in recent years, thereby strengthening both trust in the industry and the protection of European consumers.

1. P lease read the article “The Tricky Encounter” at page 64 in this magazine to get a closer insight into the many complex questions that this seemingly trivial part of the directive raises. 2. h ttp:// p. 92 and p. 93 3.

This enhanced security focus by the EU is reflected in new requirements in the PSD2 for Strong Customer Authentication – two-factor authentication – as described in article 97 of the directive.

Article 97 of PSD2 Authentication 1. M ember States shall ensure that a payment service provider applies strong customer authentication where the payer: (a) accesses its payment account online; (b) initiates an electronic payment transaction; (c) c arries out any action through a remote channel which may imply a risk of payment fraud or other abuses. 2. W ith regard to the initiation of electronic payment transactions as referred to in point (b) of paragraph 1, Member States shall ensure that, for electronic remote payment transactions, payment service providers apply strong customer authentication that includes elements which dynamically link the transaction to a specific amount and a specific payee. 3. W ith regard to paragraph 1, Member States shall ensure that payment service providers have in place adequate security measures to protect the confidentiality and integrity of payment service users’ personalised security credentials. 4. P aragraphs 2 and 3 shall also apply where payments are initiated through a payment initiation service provider. Paragraphs 1 and 3 shall also apply when the information is requested through an account information service provider. 5. M ember States shall ensure that the account servicing payment service provider allows the payment initiation service provider and the account information service provider to rely on the authentication procedures provided by the account servicing payment service provider to the payment service user in accordance with paragraphs 1 and 3 and, where the payment initiation service provider is involved, in accordance with paragraphs 1, 2 and 3.3


MONEY MAG // 2.4 PSD2 – towards open banking

The TPPs are divided into two categories depending on the purpose of the Access to Account. The first category includes the so-called Payment Initiation Services Providers (PISPs), the function of which is to initiate a payment transaction on behalf of the account holder. The second category is labelled in the directive as Account Information Services Providers (AISP), and their function is to deliver services to the account holder utilising the payment account data.

MONEY MAG // 2.4 PSD2 – towards open banking

4. T hat being said they need to be approved as TPPs which could potentially be troublesome.

Compliance demands for banks When the RTS concerning XS2A and SCA are finally approved, all 4,000 European banks must be able to offer efficient and updated APIs for all TPPs requesting access to their customers’ payment accounts. In essence, this is the compliance challenge that the banks in Europe are currently facing as a direct consequence of PSD2. In less than a year they need to be able to handle a potentially huge number of requests for XS2A from European fintech companies of all kinds, as well as from competing banks, some of which have taken on the opportunity of becoming a TPP themselves.

Beyond compliance The overall European picture at the moment is that the largest and most innovative European banks have their own internal teams of PSD2 specialists, and have their PSD2 strategy more or less ready by now, and many intend to go far beyond just being compliant. For the very long tail of small and medium size banks compliance is a big challenge in its own right; they do not have the capacity to allocate inhouse resources solely to focus on PSD2, and they are struggling to grasp the essence of PSD2 and to put forward any kind of strategy that goes beyond the most necessary requirements.

No matter if the banks view PSD2 as a threat or as an opportunity, compliance is mandatory, and the deadline is approaching quickly.”

Whether the banks regard this challenge as a threat or an opportunity depends on several factors such as size, geography, level of digitisation, and culture. Based on these parameters it seems reasonable to assume that a large bank has an advantage over a smaller one with fewer resources; that a Nordic bank from a highly digital country like Sweden or Denmark where cash is hardly used anymore, has an advantage over an Eastern European bank from a country still heavily dependent on cash and more manual processes; and also that a bank with a modern and innovative mindset and culture has an advantage over a tradition-bound counterpart.


No matter if the banks view PSD2 as a threat or as an opportunity, compliance is mandatory, and the deadline is approaching quickly. Opportunities for TPPs When it comes to the TPPs – the PISPs and the AISPs – their focus is not on the compliance obligations4, but on the many exciting opportunities, if they understand how to utilise them. PSD2 certainly introduces an elimination race among competitors, and the many thousands of young fintech companies all over Europe will need to make sure they have their strategy right and are poised to capitalise on this golden opportunity provided to them by the EU.//

Towards collaborative innovation An interview about Open Banking with Matthias Kröner, CEO, Chairman of the Executive Board, Fidor Bank

Matthias Kröner

German Fidor Bank received its license in 2009. Its banking model is based around its online community, where users are financially rewarded for giving and receiving knowledgeable financial advice, as well as evaluating and reviewing financial products and services they are interested in. We sent Matthias Kröner 10 questions about Fidor Bank’s views and experiences of Open Banking. By Michael Juul Rugaard, Norfico 1. On Fidor Bank’s website it says that: “Fidor is one of the world’s most innovative banks and has received several international awards for its disruptive, transparent approach to banking.” What is a ‘disruptive, transparent approach’ to banking? Through our community, we invite members to help build the bank’s future services, including the chance to name its upcoming debit card, as well as suggest new functions and features they would like to see or even the new pricing of a service or product. This model is a first in the digital retail banking industry and really focuses on putting the customer at the heart of our products. Even today, our business model is still quite unique.

Matthias Kröner CEO Fidor Bank

2. Fidor Bank operates an open platform - like a kind of App Store for open API 52

banking – which hosts independent services from third parties. What is the basic idea behind this structuring? When we opened our banking API two years ago, we had the vision to provide banks and third parties with open access – providing the opportunity for sharing information and further collaborations in order to innovate. We did run a beta test in Germany which proved to be successful. Today, Fidor Bank’s customers can select from over 40 offerings provided by third party partners - ranging from crowd lending, investment, insurance, financial tools and more. We created an ecosystem that allows customers to design their own bank by selecting apps that are relevant to them. This was only possible by partnering with the best fintech/insurtech in the market to create a banking marketplace. 3. How do you define Open Banking? I would define Open Banking as a path to ‘collaborative innovation’. It seems clear that opening a bankinginfrastructure via APIs, which enables third parties to build new applications and products around existing financial

5. How does this new banking model benefit the bank’s customers? Up to now banks had control over the customers’ data with opening APIs, the control goes back to the consumer as these will need to provide permission for third parties wanting to innovate on a bank’s APIs to access their personal data. Besides that, openness simply is creating transparency, which creates increasing competition and by that a better offer for the customer. Furthermore, technical openness allows us to better integrate banking into the customer’s digital lifestyle, whatever that might look like. 6. Does Open API banking pose any threat for the traditional banks? I don’t see it being a threat for banks in general, I see this more as an opportunity. But yes, banks need to cope with that. The ones that still do not see that challenge will face a tough future. Digitisation and the internet have dramatically changed how consumers are banking, and also their expectations

towards banking products and services. Opening APIs is only shaking up the banking industry, pushing it to accelerate, to change, to adapt and to collaborate in improving existing financial products. 7. Do the banks run a security risk by opening up? Fintechs and third party providers have much to learn from traditional banks, and in return so do the banks. Of course, there will always be fraudulent attempts (as in most industries) but banks have had plenty of time to consider this and implement the necessary precautions before opening their APIs.

8. What is the Fidor history of Open Banking? Who had the idea originally? Honestly, this decision was made out of sheer necessity. As the fintech development accelerated, we needed to overcome our static/closed shop thinking once we decided to tackle that development. The question in those days was: Will we do everything on ourselves, or will we be open? We decided to be open. Technical openness formed the essence of our culturally-open banking concept when creating Fidor. We reflected this vision through our community concept, an open place for people to discuss financial topics. On the technology side, it seemed obvious to take the route of offering open APIs. As innovations get unveiled faster than ever, we believe banks can leverage existing fintechs to remain competitive - you need to be agile and adapt to the customers’ needs


MONEY MAG // 2.5 PSD2 – towards open banking

institutions, is about trust, collaboration and pushing innovation. 4. What is it that this API banking model enables the banks to do? By January 2018, all financial institutions will have to comply to the new PSD2 regulations to open their APIs. Most banks have already started moving towards this and are preparing to open their APIs. It will be a complete shift for banks, many existing banking products will be disrupted, but for the better 2018 will be an interesting year as we will see many new innovative banking products being launched. Opening their APIs will also push banks to accelerate their processes internally, become more agile so they can innovate faster and continue to compete with other challengers that may emerge.

MONEY MAG // 2.5 PSD2 - Towards Open Banking

Royal Danish Theatre, Copenhagen

over time. Open Banking helps us stay at the forefront and adapt these market changes. 9. What is your view on Open Banking in terms of PSD2? Fidor has always been a strong advocate of Open Banking Services - this is largely seen through our open API infrastructure and our approach to integrating Fintech partners throughout the Fidor Bank platform. PSD2 represents an opportunity for the European banking industry to push innovation and really change the current banking landscape as we know it. This is how the non-Europeans see it. And it means that new market players need to understand that to have a unique chance and opportunity to enter the market. This might also be the reason why domestic banks are not really happy about it. Regulators are also moving towards Open Banking in certain countries. It seems obvious that banks would need

to adapt quickly and move away from their legacy systems. 10. Fidor is often listed among the ‘challenger banks’ – but what is Fidor challenging exactly? Traditional banks or the banking industry in general? Well, as we did not create this label and we did not choose it, it is difficult to answer why we are included in this segment. From our perspective, we are challenging the attitude and culture of the existing banking industry. Technology is only a way of making that happen, of organising that challenge. But it is not the reason why we challenge. We aren’t competing with banks or challenging these, however we do want to push the industry to change and to push innovation further - you could say at Fidor we are mainly challenging the overall approach to banking and how financial products should always be customer-centric. //

MATTHIAS KRÖNER’S ADVICE FOR BANKS WHO WANT TO REAP THE BENEFITS OF OPEN BANKING: Embrace open banking, partner with fintechs when it complements your strengths and have a clear and distinct positioning in the market. All that matters is what value you can bring to the customer and how relevant are you to them.


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Unlocking the legacy An interview with Sarbajit Deb, Chief Business Officer, and Jignesh Jariwala, Global Head of Consulting - Banking & Financial Services at Larsen & Toubro Infotech (LTI). LTI is the technology arm of the industry giant Larsen & Toubro, which, over the past 20 years, has established itself as a leading global IT consultancy and integrator firm with more than 21,000 people working across offices in 27 countries. We spoke to Sarbajit Deb and Jignesh Jariwala to hear about their insights gained from working closely with banks across the globe and how a cross-industry focus can benefit the ongoing PSD2 dialogues and help prepare banks for new types of collaboration. By Kristian T. Sørensen, Norfico The customer is king When asked about the main consequences of PSD2, Sarbajit Deb brings up the old idiom ‘the customer is king’. This has applied to retail commerce for decades, but until now less so in banking, where customers historically have been referred to as ‘account holders’.

Sarbajit Deb & Jignesh Jariwala

“Sometime back, we at LTI discussed how for banks the customer is moving from being an ID in a database to being a ‘persona’, who has likes, dislikes, connections, communities and influencers. Now through PSD2, customers have become ‘owners’ of access to their own accounts and account data. It is a fantastic thing for the European financial market that the customer takes centre stage, because this will lead to competition. It will now provide a level playing field for new entrants, and that in turn will drive innovation, which will benefit everybody,” says Sarbajit Deb. He continues: 56

”It is also good news for the banks. There will, of course, be regulatory, technical, functional and business challenges for banks, but these challenges serve as a shot in the arm to drive innovation and provide a level playing field for all the relevant stakeholders. So, ultimately, the PSD2 regulations will help everybody in taking the growth-curve of innovation, data security, customisation, transformation processes and, ultimately, the future business model of banking, to a different level.” The legacy challenge Working with banks across the globe and deep within the banks’ core systems, like core banking for retail, private banking, corporate banking, cards & payment systems, wealth management and many other ancillary verticals of the banks, LTI sees challenges and transformation opportunities for legacy systems every day and has analysed how these systems are challenged by the changing dynamics in the market. ”The legacy challenge is omnipresent right now across the globe. Transactions are growing on the digital side of banking alongside the increasing

“Everybody in the ecosystem has to find ways to work together – almost as a team. Historically most successful payment solutions have been built through collaboration – and with PSD2, new types of players that can take the roles of AISPs or PISPs have to work with banks, existing payment hubs, core banking solution providers, fintechs and other stakeholders to be successful. We at LTI understand this and are working with all the relevant entities by having a 360-degree approach,” says Sarbajit Deb.

LTI is working extensively to prepare the required interfaces and APIs on top of existing legacy systems, along with business and systems model transformation through customisation and innovation, the provision of consultancy services. This allows banks to address the new challenges and opportunities, and data security models. The company is rigorously following the Regulatory Technical Standards (RTS) from EBA to be in line with the defined principles and aligning itself with other stakeholders from different sectors who will be impacted, directly or indirectly, by PSD2. Jignesh Jariwala believes that this cross-sector work benefits all parties:

A global market for PSD2 services As an EU regulation, PSD2’s primary implications are clearly in Europe, but its innovative nature is driving a change in banking systems that is also in demand elsewhere in the world. Jignesh Jariwala explains:

Everybody in the ecosystem has to find ways to work “PSD2 is a catalyst together – almost as a for development team.” where banks

“We already have good examples in the APAC region as well as in North American markets, where several banks have transformed their legacy systems in a way that prepares them to embrace open banking much more ambitiously. This was, in many cases, a transformation that was long overdue.” Collaboration is key Embracing open banking calls for close collaboration between different stakeholders. LTI believes that bringing expertise from different industries allows for a better alignment of expectations and requirements whilst at the same time ensuring that the different parties benefit from each other’s experiences.

are changing entirely in line with the future business model, considering the ever changing dynamic and demanding behaviour of the customer, and getting in-sync with all the other players who have now been given a level playing field. Other international banks and non-banks which are interested in getting a chunk of the European market for financial services, will also have to transform their business models in line with the directive. Most of the banks have already started working on this through collaboration, partnership and transformation and will definitely get first mover advantage. With PSD2, banks will further change their operating models, and their technology stack as well. These advancements from Europe are also helping us with our continuous learning curve and will definitely constitute one of our best practices in serving our clients globally.” Recommendations to banks Jignesh Jariwala shares his thoughts about the most important considerations banks need to relate to in the light of PSD2:


MONEY MAG // 2.6 PSD2 – towards open banking

regulatory requirements. And on top of that, you have increasing customer demands and expectations – all of this will obviously have a big impact on the legacy systems. Organisations will have to identify appropriate channels for creating third party interfaces to allow for data access via APIs. They will have to build, implement and test the APIs to ensure that they are fit for purpose and meet technical, security and regulatory requirements in terms of PSD2,” says Jignesh Jariwala.

MONEY MAG // 2.6 PSD2 - Towards Open Banking

“Organisations need to decide whether they simply fund the cost of regulatory change, or they invest in future business strategy. Banks that want to become TPPs in their own right will also have to define their requirements for the collection of third party data. The most important and most immediate challenge is data security. As banks have to provide access to the customer’s data by exposing their APIs, work related to data security will be of the utmost importance and will be in the first quadrant in terms of actionables. At LTI, we understand this challenge and have proven experience in helping clients globally on data security, data centre migration and other security and compliance related works on various banking and payment platforms.” Says Jignesh Jariwala and continues: “The other important thing to focus on is how PSD2 can be leveraged to prevent customer attrition and create new revenue opportunities for banks. In Germany and Sweden, we are already seeing fintech players working as Payment Initiation Service Providers or PISPs. Banks should look to these models and learn from their successes and investigate how they can ‘acclimatise’ these types of solutions to the banks’ own platforms and services. Banks will have to reinvent processes, methodologies and systems for a valuebased enhanced customer-experience journey through PSD2. They will also have to work extensively on newer business models, and on improving


operational efficiency with innovative solutions. That’s why we are witnessing more and more banks experimenting with their APIs, collaborating with service partners, focusing on customer centricity and setting up innovation labs. It will fundamentally change the payments value chain. We at LTI have a strong viewpoint on how digital technologies will help the banks to achieve this. We have experienced this through the various successful digital transformation journeys that we prepared for our clients globally.” All these activities require the banks to take a good look at their core and legacy systems and conduct muchneeded assessments of these systems, their capabilities and adaptability and whether they are fit to match the banks’ strategic and operational requirements. Finally, these systems need to be compliant with the current regulatory requirements as well as prepared for the upcoming changes that are bound to happen. Sarbajit Deb concludes: “Banks might as well prepare mentally for a PSD3 – because the ongoing debate and discussion regarding screen-scraping might lead to PSD3 in future. The banks’ continued success will depend on their ability to adapt to the changing regulatory requirements and provide customer-centric propositions.”//

Are you ready to deliver on the full promise of PSD2? Find out if your systems can meet the opportunities of Open Banking by requesting a free audit.

One identity hub for Europe’s banks Over the past 10 years, the Norwegian digital identity solutions pioneer, Signicat, has built and expanded the first cross-European Identity Hub for Europe’s 4,000 banks. Around 200 banks have already joined the hub. By Michael Juul Rugaard, Norfico Gunnar Nordseth, CEO, Signicat

“I think we have to stick to the regulatory track”, says EU Commissioner Margrethe Vestager in an interview on page 34. So regulation is certainly here to stay, and recent regulatory initiatives such as GDPR, AMLD4, eIDAS, and PSD2, will undoubtedly be followed by more in years to come. One of the common characteristics of these recent regulatory initiatives is how identity is increasingly taking centre stage. This is unquestionably a reflection of a larger trend as expressed in David Birch’s book Identity is the New Money and in an interview in 2014 where he says, “Looking at the situation now, you can’t help thinking that maybe some kind of Single European Identity Area would have made more sense that a Single Euro Payments Area.” To enable banks and other players further to realise their digital ambitions by leveraging the existing eID solutions or by delivering their own, Signicat 60

has built a dedicated identity on demand platform. With this in place, Signicat has established itself as Europe’s leading ‘Digital Identity Service Provider’ or simply ‘DISP’. One of the features of the DISP platform that will be of critical importance in the light of PSD2 is its ability to enable banks to handle the new requirements for Strong Customer Authentication (SCA). PSD2 leading the way Looking specifically at PSD2, one of the main themes of the comprehensive EU directive is authentication, which is all about the ability to verify a certain digital identity. Article 97 of PSD2 imposes Strong Customer Authentication (SCA), which means at least two-factor authentication, in all online-transactions going forward. The first paragraph of Article 97 states: “1. Member States shall ensure that a payment service provider applies strong customer authentication where the payer: A. Accesses its payment account online; B. I nitiates an electronic payment transaction; C. Carries out any action through a remote channel which may imply a risk of payment fraud or other abuses.”

Implications for the banks These new SCA requirements are expected to have important implications for European banks for two reasons: Firstly, the banks are by default liable and responsible for the handling of SCA in accordance with PSD2-related transactions made by Third Party Providers (TPPs) – whether PISPs or AISPs. Secondly, the number of SCA transactions is expected to increase massively as a direct consequence of PSD2 as soon as the directive is fully implemented and the TPPs have had some time to promote their new services (AIS and PIS) across Europe. Gunnar Nordseth, CEO of Signicat, is prepared to help the European banks handle the PSD2 Strong Customer Authentication (SCA) requirements by providing ‘Authentication as a Service’ through the company’s cross-European DISP. Gunnar Nordseth explains: “SCA is certainly an issue that European banks need to be prepared for – and the sooner, the better. The largest and most innovative European banks are already preparing, but this is just the tip of the iceberg and the vast majority of Europe’s banks still need to plan for the future handling of SCA. The problem is that they must comply and they have quite limited time to do so.” All banks in Europe share this same challenge, which is to handle SCA in the most efficient, flexible, user-friendly and cost effective way. Yet SCA is not one of their core competencies. Authentication as a Service This scenario obviously creates an opportunity for a specialist to

step in and offer a pan-European ‘Authentication as a Service’ solution, which will effectively ease the banks’ SCA pains and enable them to focus on their core businesses. “This is exactly what we are doing at Signicat. Based on ten years of experience working with two-factor national eID schemes, we have developed our DISP platform as an online identity hub. This DISP platform offers Identity On Demand services for customers, regardless of geography or eID,” Gunnar Nordseth says and continues: “Strong customer authentication is a fundamental part of the DISP platform, which means Signicat is best placed to scale its services to banks all over Europe in need of SCA assistance. We originally offered this service in Northern Europe, and it has now expanded into the Benelux region, UK, Germany and Spain to meet customers’ demand.” Today, more than 200 European banks and financial institutions, as well as insurance companies and government agencies, are connected to Signicat’s DISP platform. As well as the responsibility of authenticating users, many customers have mandated Signicat to provide electronic signing, identity proofing and document preservation. Basic DISP services to banks Under PSD2, Europe’s 4,000 banks will be required to offer SCA services to all authorised Third Party Providers (TPPs), which will require the banks themselves, or their current platform or service providers, to implement and maintain these SCA services. Alternatively, they can choose to outsource the SCA task to Signicat, making use of Signicat’s DISP platform and ‘Authentication as a Service’ solution, thereby freeing up time and resources to focus on their core business. The DISP platform’s main PSD2 related features are its services to identify and authenticate individual customers and to allow siloed information to be accessed by other banking areas. The DISP also


MONEY MAG // 2.7 PSD2 – towards open banking

While paragraph 1 talks only about payment transactions, paragraph 4 emphasises that the requirements encompass transactions made both by Payment Initiation Services Providers (PISPs) and by Account Information Services Providers (AISPs). This means that SCA should also be imposed in cases where the transaction is a data transaction and not a payment transaction.

MONEY MAG // 2.7 PSD2 – towards open banking

National Aquarium, Copenhagen

opens the possibility for banks to be able to offer identity services to third parties – e.g. to AISPs and PISPs. Beyond PSD2 - partnering with Rabobank “A common theme for our customers is the need to support all available eIDs in the markets in which they operate, and they do not want to invest heavily in order to implement this,” says Gunnar Nordseth. Among financial institutions already using Signicat to support their eIDs are Banco Santander, BMW Financial Services and large Nordic region insurance and finance companies like SEB, If Insurance and Tryg. “The fact that Signicat operates its DISP platform means that our customers can select which eIDs they want to activate and Signicat sets up a service providing access to the eIDs,” says Gunnar Nordseth.


Recently, leading Dutch bank Rabobank announced that it had joined forces with Signicat to launch a Digital Identity Service Provider (DISP) for businesses in the Dutch market. Rabobank wants to utilise the DISP to offer a range of online login, identity, signature and archiving solutions under its own eBusiness banner. Rabobank initially intends to focus on five customer groups: energy, telecom and insurance companies, healthcare institutions and financial services providers. The idea is that Rabo eBusiness services will make it easy for businesses to enable functions such as onboarding new customers, digitally signing contracts and offering a dashboard for invoices or expense claims. “What we are doing together with Rabobank is a good example of how Signicat’s Digital Identity Hub can assist not only with PSD2-related SCA compliance services but at the same time offer a bank a uniform way of handling identities across all platforms and channels,” Gunnar Nordseth concludes.//

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The tricky encounter According to PSD2 - Article 66 and 67 - all European banks must comply with the directive’s requirement for Access to Account (XS2A) no later than 18 months after the approval of the final Regulatory Technical Standards (RTS) on Strong Customer Authentication (SCA). When this finally happens, the banks should have their APIs ready and they should be able to grant the Third Party Providers (TPPs) access to their customers’ payment accounts, provided that the TPP is approved as a TPP and that the bank customers have allowed the TPP to act on their behalf. This new encounter between the banks and the TPPs raises a lot of complex questions that we will look closer into in this article. By Michael Juul Rugaard & Kristian T. Sørensen, Norfico One of the main questions is the unsolved problem of how the European banks can make an easy and secure identification of Third Party Providers wanting to obtain access to bank customers’ payment accounts in accordance with PSD2’s Article 66 for Payment Initiation Services (PIS) and Article 67 for Account Information Services (AIS). Article 14 of the directive requires the member states to establish a public register of ‘authorised payment institutions and their agents’. And Article 15 appoints overall responsibility for the register on a cross-European level to the EBA.

Gemini Silo, Copenhagen

The register of approved TPPs, which can obtain access to customer accounts in European banks (provided the bank customer has given his or her


approval), should be based on national registers in all the member states, and it should be updated instantly whenever a change occurs. These are good intentions, but in reality serious problems could arise: Firstly, the member states most likely do currently not have any updated national TPP registers to draw from, and it will take considerable time and effort to establish such registers. Secondly, the national financial supervisory authorities rarely have experience in operating systems for handling automatic updates of a central European registry – let alone in real-time, if the requirement for updates and notifications ‘without delay’ is to be fulfilled. The EBA has already stated that they do not have the resources needed to ensure that the central TPP register is updated instantly, which means that somebody other than the EBA must ensure that both the national registers are established and updated and that all updates are transferred to the central EBA register.

However, even if some of the member states manage to establish and maintain a national register, it is most likely to fall short very quickly since the TPPs applying for access to account may come from all over Europe and therefore will not appear on the national list no matter how detailed or updated it might be. For instance, if a Swedish TPP wants to operate on the Danish market it must inform the Danish authorities beforehand. The problem arises if the Swedish authorities decide to withdraw their permission, and nobody informs the Danish authorities, since there is no obligation to do so. These problems might just seem like technicalities, but the fact is that in a situation where the European banks are unable to perform a fast and trustworthy assurance of the TPPs wanting access to customer accounts the banks may face serious difficulties meeting the requirements of the PSD2 directive. A matter of security Obviously, the banks cannot jeopardise security by opening up to TTPs unless they have absolute certainty of their identity.

this means that anybody can find the names of the TPPs registered and claim that they are one of them, a secure authentication method and procedure is needed for the banks to ensure that the TPPs are who they claim to be. Digital certificates The directive itself does not suggest any method in particular of securely establishing the identity of a TPP knocking on a bank’s door, but in its consultation paper published in August 2016 the EBA (in chapter 3.2.4) thoroughly discusses “common and secure open standards of communication for the purpose of identification, authentication, notification, and information” and as part of this suggests the use of eIDAS certificates as the way for TPPs to identify themselves towards the banks/ ASPSPs. The EBA explains the advantages and a single downside of this solution: “The advantages include that qualified trust service provider issuing the website certificate would verify for a legal person the name of the legal person to whom the certificate is issued and, where applicable, the registration number as stated in the official records and would take liability in case of oversight. In addition, the certification authority is itself subject to supervision by the supervisory body designated by the relevant Member State under the eIDAS framework to ensure that it performs its verification properly.

But the case is much more complicated, because just getting the registers in place doesn’t solve the problem of verifying a certain TPP’s identity. The register only solves one part of the problem, since the banks still need to be able to ascertain whether a TPP, claiming to be one of the TPPs recorded in the register, actually is that TPP.

On the downside, however, it is not yet clear whether any certification authority will have applied t o the supervisory body designated by the relevant Member State under the eIDAS framework for the status of qualified trust service provider under eIDAS by the time of implementation of the draft RTS (i.e. October 2018 at the earliest, and certainly not by the delivery deadline of the EBA’s RTS in January 2017).”

In accordance with Article 15 in PSD2 the “EBA shall make the register publicly available on its website”, and since

Furthermore, who will ensure that the issuer of a certificate makes sure to block the certificate, if the authority 65

MONEY MAG // 2.8 PSD2 – towards open banking

National or European coverage This is not a simple task, and it seems to call for resources and competencies from a dedicated and independent specialist body which will be able to establish consistent procedures in all member states for the collection of data and develop and maintain a PanEuropean register on behalf of the EBA and all the EU countries.

decides to withdraw a permission given to a TPP? More practical questions Amongst the parties who have been considering the problem of how the TPPs should identify themselves when approaching the banks/ASPSPs, there seems to be a broad consensus that the use of digital certificates is an appropriate and preferred solution. But this raises a couple of new questions about roles and responsibility – and about new registers or lists of different types of European certificates and their issuers to be added to the already discussed EBA TPP register. Who should issue the certificates? The eIDAS Regulation (EU) No 910/2014 says that ‘qualified certificate for electronic signature’ should be issued by a qualified trust service provider and meet “the requirements laid down in Annex I” of the regulation. And in Europe as of January 2016, 25 EU member states already had eID schemes issued by qualified trust service providers which will be allowed to issue PSD2 certificates for the TPPs as well. Some examples of qualified service providers are the organisations behind public eID-schemes such as BankID in Norway, BankID in Sweden, NemID in Denmark, Tupas in Finland, DNIe in Spain, iDIN in Netherlands and ESTeID in Estonia. The Pan-European perspective was one of the most important aspects of the eIDAS Regulation adopted in 2014, and it meant that people and businesses were able to “use their own national electronic identification schemes (eIDs) to access public services in other EU countries where eIDs are available.” Is yet another list needed? The same goes for digital certificates approved accordingly to the regulation, but despite the fact that this is in many ways a very important innovation, it might also add even more complexity to


the bank’s handling of the presumably many new TPPs approaching them for the purpose of getting access to customer’s payment accounts. Even though a Danish bank is certainly able to recognise the issuer of the Danish NemID called DanID as issuer of a digital TPP certificate the same bank is not likely to be familiar with a Spanish or Estonian issuer. One might argue that recognising the issuer is irrelevant as long as the certificate lives up to the eIDAS requirements, and although this is true, the banks which have to open up their accounts are still likely to want a list of approved issuers of certificates to go with the list of approved TPPs. Who to appoint the issuers? Even if we disregard the possible need for such a list the introduction of digital certificates raises some additional and still unanswered questions. Though the EBA recommends the use of digital certificates, they have not appointed any qualified trust service providers as issuers, and they have not given any information about who should handle the appointments of service providers across Europe if not EBA themselves. This might seem trivial, but somebody needs to take responsibility for contacting the relevant service providers across Europe – like DanID in Denmark – and inform them about the task as issuers of the digital certificates i.e. when and how the task is expected to be carried out. How do the TPPs get the certificates? Furthermore, the EBA still hasn’t provided any information or guidelines for the TPPs about how to obtain the certificates. The TPPs need to know from somebody that they are expected to obtain a digital certificate before approaching the banks. They also need a list of issuers, if the idea is, that they are responsible for contacting them, which seems logical. And they need some information about the procedures.

In case a TPP is about to close down one would expect that all certificates issued to the TPP should be revoked immediately. The issue here is – again – that neither PSD2 itself nor the EBA has delivered any guideline as to how these cases should be handled. But it seems obvious that some sort of authority with a mandate to revoke certificates is needed to conduct controls on a regular basis. We are not only missing an EBA register and a list of issuers of certificates. There seem to be several unanswered questions and non-existing processes and procedures that need to be in place before the encounters between the TPPs and the banks make sense, and the banks dare to open up their accounts as required by the PSD2. This situation is partly due to a huge workload especially in the EBA. Bringing PSD2 into force is a gigantic task, not at least because a lot of stakeholders have contributed with questions to the EBA, and the EBA is obliged by law to answer all of them individually.

independent and dedicated service provider is needed to focus solely on these issues. This new role will be of a coordinating nature, and it will aim at establishing clear communication lines between the TPPs, the ASPSPs, the national issuers of digital certificates, the EBA, and the bank/TPP customers. It will encompass a mapping of both the issuers of certificates and the TPPs – and thereby act as a direct help for the EBA. Additionally, the role could be extended further and include a service for the banks to outsource the regular checks of already issued certificates as well as regular checks of issuers and not at least the TPPs. Whilst we at Norfico are engaged with this subject, and are happy to remain involved, we would like to invite the EBA and other relevant parties within the PSD2 ecosystem to think about how best to handle these challenges. In order to successfully cut through the complexity, we need procedures and processes as well as dedicated resources to focus entirely on making this work in practice. // This article is based on the white paper The tricky encounter published by Norfico June 2017. You can download the white paper here:

The bottom-line is that one of the most fundamental prerequisites for a successful roll-out of the new European Payment Service Directive is solid construction, particularly behind the highly important encounter between the TPPs and the banks/ASPSPs, and at this point, we find this construction - perhaps - inadequate. Introducing a new role For these complex issues to be solved, we believe that the introduction of a new role within the PSD2 ecosystem might be necessary. The EBA cannot accomplish this task alone; some


MONEY MAG // 2.3 PSD2 – towards open banking

What if a certificate must be revoked? Finally, who is going to keep an eye on the issued certificates across Europe? The fact that a TPP qualifies for a certificate at a certain point in time does not mean that it still meets the requirements a year or two later.

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Let’s get started on your journey today. We’re the European affiliate of Bank of America Merchant Services, a global leader in payments, eCommerce and security solutions. We help clients effectively manage and grow their businesses by enabling them to deliver a great commerce experience for their customers.

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Contact us today at or stop by Conference Room 7, Congress 1st Floor. 1 Based on bankcard, other credit and PIN debit sales volume and transactions. Per the Nilson Report, March 2017, Issue 1105. Merchant Services are provided in the E.U. by BofA Merrill Lynch Merchant Services (Europe) Limited, authorised as a payments institution by the Financial Conduct Authority (UK) and Bank of America Merrill Lynch International Limited.

We process more than

15.2 billion

transactions throughout the United States, Canada and Europe.1

Find your potential

03 Payments and commerce

Winning the hearts of banks in an instant By Sandro Camilleri, CEO, Matica Technologies

Sandro Camilleri

1. E MV stands for Europay®, MasterCard® and Visa® and is the global standard for debit and credit card transactions. 2. M cKinsey, The Rise of the Digital Bank, 2014 3M atica research highlights growing customer demand for instant issuance in European banks – see http://www. newsroom/

It’s hard to imagine another sector experiencing the fastpaced digital transformation that our banks are going through, especially when one considers this traditional marketplace had relatively little change integrated beforehand. So much is at play – and so much at stake, too. How can our industry cope with the demands of change so fast? We understand the transition from magnetic stripe cards to chip and pin cards (EMV)1, which the U.S. is now integrating after Europe’s full adoption with a view to reducing fraud and making payments more secure. And we understand the incoming changes, including imminent regulations like PSD2, from the historical context, coming as it does on the back of 2008’s global financial crisis. And then there’s the ever-increasing threats posed by emerging challenger banks such as Metro Bank in the United Kingdom, and Kontist, Germany’s first bank for freelancers. A different type of disruptor is blockchain technology, which is genuinely revolutionary and will inevitably change the face of banking forever once it arrives in the mainstream. 72

Banks everywhere are enduring unprecedented pressure to fundamentally improve their customer experience while also having to be hyper-vigilant about cost efficiencies and generating new revenue streams. Banks need to save money. The global adoption of digital banking services provides the means by which they will achieve this. Integrating relevant and innovative digital transformation is at the forefront of keeping all banks – whether multinationals or networks of regional banks – relevant, competitive and ultimately, profitable. Cutting through all of the myriad forms of transformation are two regular features: 1. Card payments 2. On-boarding customers Banks are learning how to create a seamless, enjoyable and financially rewarding customer journey by ensuring that their card payment and customer recruitment options are optimised thanks to a raft of new digital methods. One analyst report2 estimates that “digital transformation will put upward of 30 percent of the revenues of a typical European bank in play, particularly in high-turnover products such as personal loans and payments. We also estimate that banks can remove 20 to 25 percent of their cost base by leveraging this digital shift to transform how they process and service. Put together, the economics of a digital bank will give it a vast competitive edge over a traditional

Before we look at how these two components can contribute to the success of transformational banks during this challenging time, let’s consider debit and credit cards figures. Contrary to the mobile payment rumour mill, cards (or ‘smart cards’) are not about to go out of fashion. Between 2015-2017, we will see a total shipment of 50 billion cards, almost half of which (22%) are EMV cards.

Joined-up Services in the Digitally Transformed Bank Branch Research conducted in


18-24 year olds are as keen about using bank branches as their middleaged counterparts.

“Even though I use online banking, I still want to be able to visit a branch, either to consult and get advice, to pick up cards or documentation, or finalise an application”

Across the world, the compound annual growth rate (CAGR) is very healthy: Asia is 11%; Middle East and Africa 9%; Americas 7%; Europe 4%. In 2015, contactless smart cards were forecast to grow by 30% in the following five years and while Asia Pacific, (China, India, South Korea and Japan), is considered the fastest growing market, Europe remains the second largest with a market share of 24.4%.

A fundamental link is now being created between the online service and the branch service, so that customers can move seamlessly between the online and offline environments.




68% 65%

Top 4 research

Joined-up Customer Service Customers want a joined-up customer service. Topping the list is joined-up query handling and problem solving.

Consumers want in-branch advisors to be able to call up all their banking details and profile through the secure card and PIN process.

Looking at the U.S. market, we’ll see that between 2012 and 2015 the country’s debit card payments grew at an annual rate of 7.1% by number of transactions, or 6.8% by value. Similarly, credit card payments grew annually at 8% by number of transactions, or 7.4% by value.

Debit and credit cards are a key tool in achieving joined-up customer service. Millennials frequently regard the inability to pay by card as a strong enough reason to take their business elsewhere.

Research produced by numerous reputable organisations supports our understanding – even in the face of trending payment methods such as NFC (e.g. Apple Pay) and wearables like the Kerv ring. So, I am in no doubt that cards are here to stay for a long time yet.


“When a problem occurs with my account or other bank services, being able start to resolve it online and then visit the branch and talk to an empowered advisor, who has ” all my online activity details to hand.


Personalised Product Information


That’s cards, but what sort of services influence customers’ choice of banks?


Earlier this year, Matica Technologies commissioned an independent study.3 [MindMetre Research] into the key services that bank customers from four European countries, (UK, France, Spain and Germany), would like to receive through a digitally transformed bank. After a preference for a seamless process between online and in-branch customer service (78%), the second

Customers want the digitised branch to be a place where they can browse product information ahead of face-toface meetings.


Instant Card Issuance An average of 73% of respondents would like to be able to apply for a debit or credit card online, then pick it up from a branch the same day; or walk into the branch, fill in an application and have it printed on the spot.

Copyright © 2016 Matica Technologies AG, All rights reserved. All trademarks stated are the property of their respective owners.


MONEY MAG // 3.1 Payments and Commerce

incumbent… getting digital banking right is a do-or-die challenge.”

most popular choice (73%) across all countries was to collect, renew or replace bank cards in a bank branch itself (see box). During Matica Technologies’ bank transformation research, consumers nominated their four most important customer benefits that arise from digital transformation and which influence their choice of bank: 1. J oined-up customer service – where the customer can manage issues online, and then pick up the request face-to-face in the branch (78%). 2. Collecting, renewing or replacing bank cards in the branch itself (73%). 3. A ccess to the customer’s full profile so bank advisors can see customer details, including online activity, to deliver relevant advice and decisions (70%). 4. P ersonalised product information available online so the customer can interactively research and browse bank products (62%). Financial instant issuance (FII) is a reasonably new process allowing banks to issue highly secure debit and credit cards in local branches rather than sending them off to a centralised place that services thousands of cards a week. It is a process which facilitates the onboarding of new customers but equally, offers convenience to those who have lost, stolen or misplaced cards and need a quick solution. It’s something Matica knows all about having been one of the world’s first companies to build instant issuance technology – and indeed, being a leader in central issuance innovation as well. It’s specialised technology, which personalises smart cards on-site without compromising the cards’ important security features, and lets bank staff place their customers’ cards straight into their hands, face-to-face. This has a significant chain of profitable effects. If the customer is newly recruited, using the on-boarding process to hand


over a credit and/or debit card at the point of conversion enhances his/ her brand experience. The welcome, the preparedness and the ability to immediately spend serves to unify an almost perfect customer journey. In fact, there are even banks using instant issuance as a unique selling point in their above-the-line marketing campaigns. For the bank that offers instant issuance, there is also a well-timed opportunity to cross-sell and upsell other financial products as customers’ new cards are handed over in the branch. These opportunities don’t even have to reside solely in the bank branch because the best instant issuance systems are designed to be light enough to travel to other venues such as airports or retail stores. It is a perfect moment for bank staff to help customers download associated apps and demonstrate them or introduce offers. And in the future, the Payment Service Directive (PSD2), the data and technology directive that will drive increased competition, innovation and transparency across the European payments sector, will bring even more opportunities to grow revenue streams and enhance customer retention. Maybe this instant issuance moment can be used to explain how to use APIs once open banking is here? Globally speaking, it has been estimated that instant issuance will absorb 10% of the overall figure for financial card issuance. And between 2014 and 2018, it is estimated that the CAGR of financial instant issuance in the U.S. is 33% –a considerable hike north. So why does this score points for bank branches? Psychologically, the immediacy of the customer’s feeling that s/he belongs to her/his new bank scores highly on customer experience – receiving a new smart card achieves this. Similarly, the empowerment to immediately go shopping has the capacity to make people happy – always a winner as far as the marketing director goes. Plus, no waiting for seven to 10 days, sometimes even longer, until the postman delivers the card and a few days later, your PIN.

Instant issuance is directly linked to helping banks to make unimaginable cost savings. Alongside Matica’s research, plenty large-scale research and strategy papers assert that the digitally transformed bank can turbo boost its financial performance to meet any of its challenges head on; instant issuance is an easy win.

Meanwhile, the activation rate of credit cards in the U.S. is 53%, and of that 53% only 58% of them are recorded as making active purchases.4

4. U S Federal Reserve Payments Study 2016

And yet, during the first 30 days after a customer receives a debit card in their local branch via instant issuance, there is a recorded 32% increase in its usage.4 Wow! It is reasonable to say that the overheads in distributing cards by couriers and PIN numbers by separate post becomes financially uneconomical – unviable even – when you consider the exchange for that cost is not balanced by activation and concurring spending. Therefore, by deploying instant issuance technology and removing the distribution costs banks can take advantage of an opportunity to save two lots of costs. Further, activation and spending rates are significantly better through instant issuance.

Between 2014 and 2018, it is estimated that the CAGR of financial instant issuance in the U.S. is 33%.”

These next statistics blew my mind. In the U.S. approximately 850 million debit and credit cards are in circulation but less than 50% of them are actually being used. On closer inspection, get this: the activation rate of debit cards released through the post after being issued in a centralised location in the U.S. is 88%, which seems reasonably high until you discover that only 65% (of 88%) are making active purchases.4

More and more banks, whatever their size or nationality, are weighing up the returns on investment of instant issuance when they consider the relatively

Do you agree with the following statement?

Card was instantly issued Card was centrally issued

The card requesting and receiving 69% experience was very satisfactory 67%

I was happy to be able to use the card so soon

55% 52%

The card requesting and receiving progress 65% was very convenient


The card issuing process improved my overall 58% impression of the bank


The card issuing process improved my impression 57% of the bank’s security


It would have been a major inconvenience to 57% have to wait longer for my card


How quickly I received the card did not make 35% any difference to me


G.A. Javelin – 2015 – Instant issuance payment cards: Fulfilling Consumers Expectations for Immediacy.


MONEY MAG // 3.1 Payments and commerce

See the research below from G.A. Javelin, which not only illustrates the preference for instantly issued cards (owing to its convenience) over cards that arrive in the post but exposes attitudes towards the bank’s security and the customers’ overall impression of the bank.

MONEY MAG // 3.1 Payments and commerce

low costs and negligible change management requirements in relation to the productive results. Or rather, they are weighing up the costs of not investing in instant issuance! So what should banks’ IT managers look for in their new FII devices? The technology needs to meet the physical security requirements for financial card issuance. The system must offer key lock/unlock mechanism by electronic solenoid to protect consumables, input hopper and reject hoppers, as well as mechanical keys to be used in case of power failure. Also, cards shouldn’t be visible in the input and output hopper. Encoding the EMV chip over the Ethernet (single wire connectivity) is required and to have more of one hopper on-line (to issue different type of cards without changing the card stock) should also be high on the agenda. Last but not least, the security MasterCard and VISA holograms need to be ‘preserved’ and neither printing nor lamination covering the hologram is permitted.

and grow and adapt their systems as business needs change because our technologists design them to be highly modular. It’s only a matter of time before more of the world’s banks see the wisdom of what’s staring them in the face and decide to invest in financial instant issuance to take their performance to the next level of its digital transformation programme. It’s like being a teacher watching your students slowly grasping the facts behind mathematic equations until finally, the whole class is getting it! I mean, we only have to look to the U.S. market, still only half way through its EMV transition, to appreciate the demand for instant issuance. By the end of 2018, the country looks set to have installed FII in about 37,500 bank branches having jumped from 14,000 branches in 2014.

During the first 30 days after a customer receives a debit card in their local branch, there is a recorded 32% increase in its usage.”

In addition, in Matica’s case, all our instant issuance products, which are desktop size, allow banks to start small


In fact, I’m banking on no matter how many cool new buzzwords or trendy payment methods we see emerging, smart cards will remain the method of choice for a long time. And if banks want to stay secure, grow their customer base and their profits, instant issuance is a brilliant starter investment for those that take their digital transformation seriously. //

Shaping tomorrow’s payment through innovative security chip solutions

Paying with a finger could be the future Jan C. Plenge, SVP of Digital Innovation, Nets

As Nets launches its Dankort app, which allows consumers to pay with their national debit card in a locked-screen functionality across large Danish retailers, the company’s Digital Lab is already looking towards the solution of tomorrow. Together with Hitachi, the company is codeveloping a proof of concept that will allow consumers to pay by inserting their finger into a finger vein scanner, eliminating the need to bring along anything but yourself when popping out for a loaf of bread. By Norfico As the average Dane waits in line to pay for her lunchtime latte and BLT, chances are her debit card will not even touch the terminal. Instead, the contactless functionality of Dankort, the national debit card in Denmark, allows consumers to ‘tap and go’ within mere seconds. With the exponential growth in contactless transactions in 2016, the contactless Dankort has paved the way for the Dankort wallet and app launched in the spring, making the piece of plastic potentially superfluous as more and more merchants upgrade their terminals to accept contactless and mobile payments. But the race towards an even smoother payment experience at point-of-sale continues. Recently, Copenhagen-based Nets has teamed up with Japan’s Hitachi to co-develop a proof of concept that will allow consumers to authenticate themselves by inserting their finger into a finger vein scanner to authorise a transaction.


Merchants and consumers will benefit Biometric technology has the potential to speed up the authentication procedure considerably: “Using your body as means of identification will greatly improve the user experience. It will get customers through the point of sale faster, and, even if they’ve left their wallet or phone at home, they will be able to pay for their groceries using just a finger,” says Jan C. Plenge, SVP of Digital Innovation at Nets. Nets’ collaboration with Hitachi ties in with the Nordic digital payment provider’s strategic focus on innovation and co-development with partners and customers. Plenge seems comfortable integrating the company’s latest commercial launch with Hitachi’s finger vein-scanning technology, initially in a lab environment. “It’s not cutting-edge technology which is an advantage. It’s technology that we trust and innovation where we don’t experiment with infrastructures that have a societal impact. By co-developing with Hitachi, we merge two existing

“Unless we try, we shall never know if there actually is a case for giving consumers a supplementary version of their debit card that allows them to pay with their finger.”

a dialogue with our merchant customers on how they see consumers wanting to pay in their stores going forward. There’s a lot of potential in using the body as means of identification, and it’s interesting to see that older consumers too seem favourably disposed towards using a biometric solution such as a finger vein scan,” concludes Jeppe Juul-Andersen. He adds that part of the explanation for this could simply be that millennials would never leave their house without their smartphone which they perceive as an extension of their own body.

Using your body as means of identification will greatly improve the user experience.”

Biometrics will facilitate the payment experience at points-of-sale When launching the Betaversion of the mobile Dankort in spring 2017, in collaboration with Danish banks and the retail sector, Nets invited consumers and technology specialists to join the Dankort Idea Lab in creating the Dankort app 1.0 which allows consumers to pay with a locked screen. The final app was released just before the summer. “Retailers want a Dankort app that future-proofs Dankort as the preferred in-store means of payment for Danish consumers,” explains Jeppe JuulAndersen, SVP and Head of Dankort at Nets, reiterating that Nets’ vision is to make mobile payments as fast and convenient as contactless payments. If that means combining state-of-the-art Dankort app technology with biometrics at some point in the future, then why not do so? Thus, while busy rolling out the Dankort app and the Dankort for Androids, the management at Nets’ Dankort team is also finding the time to present retail customers with a future solution that could make transactions both swifter and more secure. “It’s very early days yet, but a proof of concept is an excellent tool for starting

Nets expects to be able to test the proof of concept in an actual store by late summer.

Finger vein-scanning is proven technology in Japan While the technology behind finger veinscanning is relatively new in Europe, it has shown solid traction in Japan. High levels of ATM fraud in the nineties led the Japanese government to ask Hitachi to develop technology that would reduce card fraud levels. After four years of R&D, the company concluded that doing away with the piece of plastic would make fraud next to impossible. “A fingerprint, or even a face, can be stolen and used for scam purposes. But each of us has a unique vein pattern which can be used as a highly secure means of authentication. Our technology simplifies the vein pattern and turns it into a code which will then be combined with Nets’ technology,” explains Tom Christensen, Chief Technology Officer at Hitachi Data Systems. Finger vein authentication uses leadingedge light transmission technology developed by Hitachi for patternmatching and authentication. Nearinfrared light is transmitted through the finger and partially absorbed by haemoglobin in the veins to capture a unique finger vein pattern profile, which is then matched with a pre-registered profile to verify individual identity. In a happy union between Japanese 79

MONEY MAG // 3.2 Payments and commerce

technologies – the Dankort app and the finger vein scanner – into a proof of concept that could potentially benefit both our merchant customers and their consumers by making the payment experience even smoother, faster and more secure,” Jan Plenge says, emphasising how working with a proof of concept on a trial-and-error basis allows Nets to find the best solution for consumers, banks and merchants.

MONEY MAG // 3.2 Payments and commerce


and Nordic high technology, Nets then creates a finger vein token which is stored along with the vein pattern. This is used to replace the vein pattern with a unique key, which in turn is used for tracing the token representing a virtualised Dankort. This is not unlike Nets’ tokenisation technology which enables contactless and mobile payments. No two vein patterns are alike, which means that fraud levels are very low for finger vein scanning, making the technology relevant to both low and high-value transactions. To counter fraud even better, Tom Christensen suggests using two fingers when registering the Dankort with the scan solution – one finger to represent your card, and a second finger as a password in order to establish two-factor authentication.


Live demo at stand D26 during Money20/20 Copenhagen With the aim of ensuring faster time to market, in 2016 Nets introduced Digital Innovation, consisting of the Digital Lab with two teams working on user experience and engineering. The Digital Lab prototypes and builds proofs of concept in transformative and emerging technologies such as IoT, AI, biometrics, blockchain, robotics, Virtual Reality and more, in close dialogue with end-users, customers and fintech start-ups. The lab environment allows Nets to try out new ideas that go beyond the scope of daily tasks in the organisation. Digital Lab team members will be on site throughout Money20/20 in Copenhagen on 26-28 June to demo and explain the functionality of the Pay by Finger proof of concept co-developed by Hitachi and Nets. //

We are inviting the growing payments ecosystem of developers, start-ups, tech companies, banks, merchants and processors to dream up the next generation of digital commerce solutions. Visit us at the Visa Lounge in the atrium area, read more on, or contact us at

Fostering innovation An interview with Bill Gajda, Senior Vice President, Innovation and Strategic Partnership, Visa CEMEA Visa is a global payment technology company connecting people and businesses in over 200 countries. In 2016, almost 141 billion payment transactions worth almost USD 9 trillion went through Visa’s network. Being a global company Visa knows the payment trends in every corner of the world.

Bill Gajda

We asked Bill Gajda a few questions to get the payment giant’s perspective on the ongoing rapid development of payment technology. By Ulrik Marschall, Norfico Urik Marschall (UM): How is Visa participating in the fast development of payments that we are seeing right now? Bill Gajda (BG): Earlier this year, we opened our new European Innovation Center in London. The Center joins a growing global network of innovation centers and smaller design hubs in Berlin, Dubai, San Francisco, Singapore, Miami and Tel Aviv. The Centers foster innovation by enabling our clients and partners to collaborate and engage with Visa developers and product specialists, helping to develop the next generation of commerce experiences for consumers, merchants and businesses. Central to that will be the ongoing expansion of the Visa Developer Platform. The platform gives developers at merchants, financial institutions, technology companies and start-ups self-serve access to some of Visa’s most popular payment capabilities. Using the Visa Developer Platform, developers can 82

pick and choose from a suite of APIs, SDKs, and documentation for digital payment and commerce solutions. UM: Visa recently announced a collaboration between you and IBM’s Watson Internet of Things platform. What is this collaboration about? What does Visa expect to gain from this collaboration? BG: IBM and Visa recently announced the industry’s first collaboration that brings the point of sale to everywhere Visa is accepted, by allowing businesses quickly to introduce secure payment experiences for any device connected to the Internet of Things. The Internet of Things is not only driving a more connected world, it’s also changing the way we live, shop and pay by moving data and the point-of-sale to wherever the consumer wants to be. IBM and Visa share a vision and commitment to embed

UM: There is a trend of payments moving from plastic to mobile. How will this development affect Visa? BG: The most significant shift in the payments industry is from plastic to digital. With this in mind, Visa’s mission is to ensure that every Internet-connected device, appliance or wearable, can become a secure place for commerce. Visa is looking towards the horizon to offer merchants and consumers a more secure, simple and consistent purchasing experience, regardless of where they are and what device they are using Visa has already established the foundations for the future of commerce. We have more than 3.1 billion Visa account holders worldwide and 44 million merchants. Our system offers global interoperability – no matter the place, the currency, the language or culture. Contactless card payments have transformed the way we pay – the ease of ‘tap and go’ payments have proven popular across Europe. We have found that more and more European consumers are now choosing to pay via mobile device, whether that’s to make a purchase online or in-store. Indeed, we forecast that by 2020 more than half of all Visa transactions in Europe will be made using a mobile device. But, as we look to the future, I expect that we’ll have the option to use a range of devices to complete a payment – for example a television, refrigerator or a car. UM: With the proliferation of mobile wallets, will the consumers be aware that they are paying with a Visa card

when they think they are paying with, for example, Apple Pay? – i.e. will the wallets become the payment brands and the payment instruments become the payment methods? BG: Actually, as an increasing number of devices become connected, trusting the safety and security when using those devices become more important to the consumer. As such, we think that consumers will become more aware of who they are using to make those payments – not just how – because they will want to choose a company that gives them the confidence that their account information will be used safely. This is why we have invested heavily in technology such as tokenisation. Pioneered by Visa in 2014, the Visa Token Service is the technology that underpins popular mobile payment services including Apple Pay and Android Pay, providing consumers with a secure way to load and access their payment account on a mobile device. The technology sits at the heart of Visa’s Internet of Things vision, enabling secure and convenient commerce on any connected device, such as phones, tablets, wearable devices, even automobiles and appliances UM: Being a global payment company, does Visa see the movement towards digital payments as a global trend? Are some regions moving faster than others? BG: Yes, while some regions are adapting much faster than others, digital payments are definitely a global trend. In developing markets, Visa is helping craft global payments standards that are accelerating the adoption of digital payments in cash-heavy societies such as India with BharatQR, in the same way we have previously with Chip & PIN and contactless. We are then able to offer the mVisa service which aids in overcoming merchant infrastructure issues as it allows consumers to use their mobile phones to make cashless purchases at merchant outlets, pay bills remotely and even send money to friends and family members by securely linking their 83

MONEY MAG // 3.3 Payments and commerce

payments and commerce into any device – from a watch to a ring, appliance or car. The collaboration brings together IBM’s Watson Internet of Things platform and cognitive capabilities with Visa’s global payments services that are used by more than three billion consumers globally. As a result, IBM and Visa can support payments and commerce on virtually any of the 20 billion connected devices estimated to be in the global economy by 2020, according to Gartner.

MONEY MAG // 3.3 Payments and commerce

Visa debit, credit or prepaid account to the mVisa application. It digitizes the underlying account and allows consumers to transfer funds from their account to the retailer’s account reliably and securely by scanning QR codes. UM: In Europe, PSD2 will change the traditional payment structures. Where is Visa in this transformation process? BG: Today’s changes in technology – specifically the growth of APIs – now support and enable businesses to ‘own’ or develop only a small part of the payments value chain – that could be authentication or messaging or geolocation, for example. With the launch of the Visa Developer Platform, we are enabling companies to integrate our many payment services into their own offerings, making it easy for a company that develops technology for any part of this chain. UM: Will consumers be able to pay account to account via Visa in the future? BG: Around the world, due to the rise of the sharing economy and the proliferation of mobile devices, consumers and businesses expect to be able to pay and be paid quickly, securely, conveniently through any channel they choose. As the global leader in payments, Visa can uniquely take advantage of its existing network of 17,100 financial institutions, more than 40,000 merchants and three billion Visa accounts in market around the world to offer secure, convenient and costeffective money transfer solutions. Visa Direct leverages the existing payment network infrastructure, making the platform a highly cost-effective and secure solution that is scalable to markets around the world. The development of the ‘push payments’ market could dramatically change the


way consumers, businesses, issuers and acquirers move money around. Through fast funds enablement, realtime payments can be offered at a significantly lower cost as vs building a new infrastructure. Push payments could allow the industry to replace trillions of dollars in cash and checks with an easier and faster alternative. Because of this opportunity, push payments could be a source of new fee revenue for financial institutions as they solve customer pain points with faster payment solutions. UM: How do you think a typical payment transaction for a consumer will take place in 10 years? And will that also be a Visa payment? BG: Within the next 10 years, we think the shift to connected devices – be they connected cars, connected televisions or other appliance – will enable fast, seamless opportunities for consumers to purchase goods and services quickly, easily and in the moment. Additionally, authentication of those payments will continue to improve, using a variety of data points such as geolocation, past shopping behaviour, and biometrics to confirm that the correct person is making that purchase, improving fraud prevention while decreasing the need for passwords and PINs. UM: Will Visa of the future mainly be an acceptance brand or a technology platform? BG: As the payments industry shifts from plastic to digital, Visa’s mission is to ensure that every internet-connected device, appliance or wearable, can become a secure place for commerce. Visa is looking at the horizon, enabling merchants and consumers to have a more secure, simple and consistent purchasing experience, regardless of where they are and what device they are using. //

£ €


Smart tokens to release the potential of value added services Giles Sutherland While the ability to pay using a phone or another smart device rather than a payment card is a convenient use case on its own and one that has drawn much media and consumer attention over the past decade, most industry white papers and analysis have concluded that, for mobile payments really to take off, focus needs to shift to use cases for mobile wallets beyond payments. The Canada-based mobile financial services pioneer, Carta Worldwide, has introduced to the market the concept of smart tokens and smart tokenisation to release the potential of Value Added Services. We met Carta Worldwide’s VP of Strategic Alliances, Giles Sutherland, to hear more. By Kristian T. Sørensen The introduction of Host Card Emulation (HCE) effectively solved the conundrum of bank and mobile network operators having to collaborate to deliver mobile payments. With HCE also came a more standardised approach to the known discipline of tokenization – the act of substituting sensitive data with a non-sensitive equivalent. ”With tokenization, the mobile payments industry took a great leap forward,” says Giles Sutherland. He continues, “One thing was the reduction in ‘commercial complexity’ introduced by HCE, and subsequently the digital wallet players, but tokenisation 86

brought with it a much-needed decoupling of the payment transaction and the underlying processing. This principle of abstracting interfaces from the engine has been part of the ‘tech gospel’ for years, but has finally found its way to payments.” From tokenisation to smart token While basic tokenization is used to substitute the 16-digit payment card PAN with a token of no intrinsic value. Carta Worldwide’s second generation tokenization, the smart token, uses logic and code to add intelligence to the transaction and take it beyond transaction security. The smart token enables programmable payments, meaning that it becomes possible to define a set of parameters

“While much time, effort and money have gone into solving the ‘how’ of mobile payments, in recent years there hasn’t been enough time spent asking ‘why’ – why do consumers want to use mobile instead of plastic? Why do merchants want to accept payment via mobile instead of the current payment instruments? Smart tokens are enabling a new wave of innovation that will make possible more contextual, personal, and local use cases driving compelling value that will finally see mobile payments reach critical mass.” One of the example use cases for smart tokens that Giles Sutherland shares is the support of improved payment solutions for children in place of cash. The smart token could either be prepaid or have the parent’s payment instrument – be that a payment card or a bank account – as the funding source and be deployed to the child’s wearable, mobile wallet or other smart device allowing the child to pay in the school canteen.

New loyalty solutions Another instance where smart tokens could play a role is in relation to the distribution and redemption of loyalty solutions like points, discounts and offers. So far, most loyalty solutions have been at best closed loop and very local. This is mainly due to the fragmentation that proprietary solutions have caused in the value added services market. One of the main barriers has been redemption, where the solutions have faced challenges of complex integration and continuous upgrading of POS terminals and systems. The processing of the smart token would solve redemption issues by being able to ‘intercept’ a transaction and route it through to a given merchant’s loyalty system in the same way that a traditional transaction can be routed as a bilateral transaction or routed through to a card network. In this way, smart token technology cuts through complexity by making it possible to deliver value added services and to deploy them at scale without having to upgrade the point of sale systems.

A Smart Token is a credential with programmable properties that allow the application of the value to be dynamic based on specified use cases.”

Upon purchase, the processing of the smart token would ensure that the child could only spend a certain amount, since the transaction would only be approved during school time and at one particular merchant – in this case, the school itself. As well as restrictions on merchant category, time and amount, the smart token could, with proper integration, even be programmed to reject purchases if the child were about to buy certain types of product. This could, for example, be used to protect children with certain allergies from buying something they cannot tolerate.

“What is elegant about the smart token solution is that you don’t have to worry about how you deploy it. Instead, you can leverage the existing market infrastructure, thereby actually reducing the complexity of the ecosystem rather than adding to it as most solutions have done so far. It becomes simple to deploy, and it doesn’t require heavy input and buy-in from the different stakeholders in the ecosystem. This allows the stakeholders, through different partnership constellations, to focus their resources on the actual services rather than the infrastructure needed to support them,” says Giles Sutherland.


MONEY MAG // 3.4 Payments and commerce

specifying, for instance where, when, for what and by whom a transaction should be authorised. These new programmable payment opportunities enable value added services (VAS) at scale – for the benefit of consumers, merchants, and issuers. Giles Sutherland explains,

MONEY MAG // 3.4 Payments and commerce

He adds, “The smart token is designed in a way that can deliver more advanced functionality, more intelligence, and more value to the user experience. Smart tokens can provide advanced functionalities and ubiquitous services while still being interoperable with the existing ecosystem – including the acceptance infrastructure. The key is the rule based authentication which occurs on the backend so that from an acceptance infrastructure perspective this solution is agnostic.” Token of Anything The inherent qualities of smart tokens open a range of potential use cases; first within the EMV payment paradigm, then by the tokenization of account based payments in a PSD2 setting and beyond.

But smart tokenization does not end with traditional transactions or loyalty redemption. Eventually, it will also be possible to use smart tokens on a much broader scale as a possible candidate for a future ”Token of Anything” – part of the much-talked-about Internet of Value. “This way, the introduction of smart tokens brings us closer to the idea of ‘smart money’ currently discussed by thought leaders like David Birch who advocates a future of local currencies rather than global ones. With smart tokens we can – at least in theory – support a digital marketplace where anything of value can be tokenized and exchanged. This could pave the way for a future return to an optimised version of the barter economy, in a digital and, therefore, a global setting,” concludes Giles Sutherland.//



Beyond Payments

Stand D30.

For payment solutions that go beyond the ordinary.

Tap, swipe, click: The future of payments Interview with Eric Purdum, Head of Global Payments Strategy and Product at CeleritiFinTech about the ongoing transformation of the payments sector. By Ulrik Marschall, Norfico Eric Purdum As the global payments industry celebrates its fiftieth anniversary, the pace of change continues to accelerate on multiple fronts - from card and electronic payment products to the growing mobile, e-commerce and faster/instant payments markets. Organisations are being forced to take a long, hard look at how to best innovate with limited resources, an increasingly complex regulatory environment and rising cost pressures. CeleritiFinTech was launched in 2015 to reimagine some of the most popular banking software in the market. The original architects of the Hogan Core Banking, CAMS II Card and PTS System applications, their expertise is in helping banks modernise payment environments and integrate the latest in customer-centric banking technologies - while maintaining their investment in existing platforms. We sat down with their Head of Payments, Eric Purdum, to discuss how the payments environment is changing. Ulrik Marschall (UM): How have payments evolved as part of a bank’s portfolio? 90

Eric Purdum (EP): Forty years ago, banks might have only offered a single card. Now, they must integrate and support myriad card and electronic payment products such as prepaid, debit, credit, EMV chip, private label, loyalty and rewards. Servicing the growing mobile, e-commerce and faster/ instant payment markets is critical if institutions want to retain and grow their customers. The Internet of Things has also changed the way we look at new opportunities for payments, not only in ‘tap to pay’ capabilities but also in peerto-peer lending. This requires handling real-time payment transactions 24/7 across countries in a secure, consistent and flexible manner. UM: The growth of international regulation has had a significant influence on payments. What are some of the changes you’re keeping an eye on, and what should banks be preparing for now? EP: At least thirty countries are working on a real-time, or near-real-time, payments system, which means dozens of governing bodies creating regulations around domestic and global money movement. With many institutions operating in multiple regions, the priority will be on developing technical solutions that will maintain regulatory compliance

UM: ‘Cashless society’ and ‘Omnichannel’ are common buzzwords used when discussing customer-driven trends in the payments space. What do they mean to you? EP: It’s the idea that the digitallyempowered customer is extremely close to leveraging our highly-networked industry to pay (or be paid) for any goods and services at any point of sale using any Internet-enabled device. While cards are still a dominant player in the financial space for secure cashless transactions, consider how many times a week you pay a bill or buy a product online. As consumers gain confidence in electronic wallets and ‘tap to pay’ technology – well, let’s just say I’m not investing in leather wallet manufacturers. UM: When looking at the next ten years in payments and delivery, what should financial services providers be focused on? EP: Right now, instant and faster payments are major market drivers as customers are unwilling to wait a day or two to send or receive funds. However, the payments infrastructure and technology base is over forty years old and aligned with ISO 8583, a rigid bitmap format that will not sustain the changes we expect to see. Global providers are looking at the ISO 20022 message as a better option for growth, but new messaging will also require a substantial technology refresh across the industry. UM: CeleritiFinTech delivers multiple banking, payments and lending solutions rather than just focusing on a payments niche. How does that broad portfolio influence your perspective on payments?

EP: Payments are integrated into every aspect of customer banking, so any solution needs to take that into account. Providers need to be increasingly agile in developing new technologies to meet customer demands, but limited budgets and backlogs in many in-house IT shops means that implementation can take years. By the time they succeed, customers have already moved on. As organizations look to modernize one aspect of their core banking platforms, we think they should take a holistic view of their entire process. That includes whether they should remain a ‘development shop’ or focus on their core business model and engage someone like CeleritiFinTech who can offer trained, on-demand personnel for their solution development needs. Having provided payment solutions in over thirty countries, we think it’s inefficient for every client to have to start from scratch rather than benefitting from our acquired knowledge and experience. UM: In the software and applications space, ‘new’ is usually equated to ‘better than before’. You argue in the payments space that ‘new’ and ‘proven’ are equally important. How do you think CeleritiFinTech has been able to demonstrate that? EP: Consider the billions that have been invested into core technology over the last few decades. Technology refreshes, regulatory changes and mandatory investments will always challenge an organization’s strategy, so why continually start over? Organizations simply don’t have the resources for major software changes every time a new regulation pops up. We believe that previous investments should be recognized for their value, and that organizations can modernize more costeffectively if they progressively build up by investing in solutions that adjust to meet changing demands. Consider that the CAMS II Card System came to market in the 90’s - and it’s still the payments foundation for many major financial providers because they find it secure, stable and highly adaptable. Our Payments Transaction Software (PTS) is another flexible, market-proven platform 91

MONEY MAG // 3.5 Payments and commerce

in this emerging space. The Second Payment Services Directive (PSD2) is another example of EU regulatory changes that institutions are having to respond to. Setting the foundation for the Single Euro Payments Area (SEPA), this regulation will enforce an openness to the DDA account that banks have never seen.

MONEY MAG // 3.5 Payments and commerce

The Black Diamond, (Royal Library), Copenhagen

operating in twelve countries, supporting clients with differing regulatory requirements, customer demands and market opportunities. UM: If you were advising a financial services provider on modernizing their legacy payments platform, what are the three things you would recommend they focus on first? EP: Obviously, the first would be to focus on relevancy and their interaction with all of their customer touch points. Are their customers able to easily access the payments capabilities that they need and want? The second would be to determine their integration with other systems, from customer relationship management tools to


settlement processes. A seamless, endto-end information flow that eliminates data silos is a must-have for every organization. Finally, I would ask: Are they solving for now, or five years from now? The industry is moving at digital speed and the development curve must keep up with changing customer demands. I believe the best way to achieve this is by leveraging skilled third party providers like CeleritiFinTech. As I’ve stated previously, we have the solutions and strategy to maintain and modernize core payments systems, effectively enabling our clients to transform themselves to meet customer demand in a timely and profitable manner. //

Three fintech trends to remove friction from transactions Nelson Holzner By Nelson Holzner, CEO, AEVI New technologies designed to transform finance seem to be emerging every day. From Bitcoin to challenger banks, European fintech innovators look set to revolutionize the way we do business and handle our money. Much of this innovation is driven by the goal of reducing friction in the consumer payment experience. Innovation in the payments landscape is vital for growth. Consumers with one foot in the physical world of commerce and the other in the virtual world are increasingly demanding in their expectations. This is bringing banks and fintech start-ups closer, to create a seamless consumer journey extending beyond payments. This unprecedented collaboration and integration is evident in three key areas: the point of sale, omni-channel transactions, and cross-border commerce. The Rise of the SmartPOS Merchants have traditionally been locked into fixed payment systems 94

that force consumers into a static point of sale framework. Banks and acquirers have been hemmed in by hardware vendors offering little innovation beyond price point and technical specifications. Consumer spending habits are changing faster than traditional payment devices. With always-connected smartphones, today’s consumers can bypass the friction they experience in a brick-andmortar store and shop online with the aid of e-commerce apps that increase choice and buying power. For high-street merchants to keep pace, a new breed of SmartPOS payment terminals is required that can radically transform the in-store shopping experience with features that match, or improve upon, that which is available online. Banks are waking up to the demand for a modernized in-store payment experience and turning to fintech companies to provide SmartPOS solutions that enable merchants to create a mobile and tailorable payment experience for their customers. The SmartPOS must do more than accept payments. It does so with a bevy of emerging B2B apps created by fintech start-ups to enhance the

This shift towards SmartPOS reflects consumer spending habits. BMI’s Mobile Maturity in Retail survey indicates that 90% of mobile-reliant consumers believe stores offering mobile services improve their shopping experience. Further, 88% of these connected consumers say the availability of mobile services can influence where they shop.

payment is a service, not an obstacle, in that process. For banks, this means embracing openness and choice. The natural inclination to disregard fintech innovators is self-defeating – in today’s digital world, banks must be willing to disrupt traditional business or risk being disrupted themselves. Collaboration with innovators is the only way to bring new solutions rapidly to market. A benefit to this is that as consumers become more connected to their shopping experience, they are more likely to spend. On average, an omni-channel consumer spends 50-300% more than a single-channel consumer. The less friction there is for a customer when making a transaction, the more comfortable they are to part with their money, benefiting both bank and merchant.

Fintech companies are already providing solutions that enhance the customer payment experience, both on- and off-line.”

The emerging SmartPOS solutions encompass apps and services that will become part and parcel of instore transactions, such as social media promotions, buying advice and hailing a taxi. Most importantly, they save time. These apps and services are invaluable to merchants looking to differentiate themselves and compete with online retail giants, such as Amazon.

Omni-channel It may seem that the consumer has all the power in this increasingly mobile, omni-channel world. This is probably true, but it doesn’t mean that businesses can’t use this to their advantage. Consumers think of shopping as one seamlessly integrated experience and are accustomed to the convenience of click-and-collect services, express nextday delivery, and mobile payments. If high-street merchants are to survive, they need to replicate that experience in-store. Again, fintech innovations are rapidly emerging to tackle this issue. Omnichannel payment solutions that accept traditional forms of payment and integrate mobile and online channels will become the norm. Merchants need to be able to deliver a similar experience whether online or in-store, and it must be seamless in terms of product selection, ordering and payment. Consumers may want to buy online and return in store, or vice versa, and

Cross-border capabilities The world is increasingly connected and modern consumers don’t want their shopping experiences to be limited to their country of residence, just as merchants don’t want to be blocked from expanding beyond borders. The flawed, and frankly outdated, approach by banks and merchant acquirers to cross-border capabilities makes life difficult for both parties. International retailers with wide sales networks confront separate payment systems and service providers in different regions. This is costly, driving up the price of goods, and it often makes consumer shopping and payment more complex. An open payment ecosystem with crossborder capabilities simplifies processes for banks, acquirers and merchants and removes the barriers for consumers to purchase, regardless of geographical location. Payment frameworks being developed by fintech companies enable banks to offer merchants the ability to 95

MONEY MAG // 3.6 Payments and commerce

consumer experience. These include everything from integrated digital loyalty schemes to apps that automatically allow customers to split a bill.

MONEY MAG // 3.6 Payments and commerce

accept and process cashless payments from different countries through a single payment gateway. By removing the barriers to cross-border payments, merchants can do business in countries previously beyond their reach and consumers can purchase goods and services from a wider pool of international merchants. The way we pay is changing and the genie will not go back in the lamp. Instead, banks and payment providers need to focus on the new opportunities available, adapting their solutions to meet emerging consumer demands. Fintech companies are already providing solutions that enhance the customer payment experience, both on- and offline. As the Revised Payment Service Directive (PSD2) forces banks to open account information to fintech innovators, it is imperative they set a course that takes advantage of the three consumer-driven trends discussed. Consumers want an open and secure payment ecosystem. Those who can deliver a frictionless transaction experience have a lot to gain.//


When everyday things begin to transact Ursula Schilling

As one of the world’s leading suppliers of semiconductors, Infineon has delivered more than 25 billion security chips to the global market over the past 20 years and therefore knows more about securely connecting smart devices than most. We met the company’s Director Business Development PL Payment & Wearables SCS in the Chip Card & Security Division, Ursula Schilling, for an insider’s perspective on securing the connected commerce of tomorrow. By Kristian T. Sørensen, Norfico The era of the Internet-ofThings (IoT) has already begun. Every day new smart devices emerge, from our increasingly sophisticated smartphones to wearables, to smaller and simpler gadgets and even toys. Each of these smart devices is capable of connecting and interacting and, increasingly, also capable of transacting. Ursula Schilling has no doubt about the potential impact of this development. “The Internet of Things is one of the most important technology trends of the 21st century. By connecting billions of electronic sensors and control elements to each other and to interconnected networks, the IoT will contribute to increased efficiency, greater convenience and improved lifestyles for every citizen of the world. The impact will be seen everywhere from factory floors to office buildings, merchant stores for payments, mass transit systems to connected cars, as well as in our homes which will become smarter and smarter.” The development will be fast, Ursula Schilling estimates 98

that the number of connected devices will grow at a rate of 15-20 % year on year over the next five years and that by 2020 we will see more than 28 billion connected devices worldwide. While Ursula Schilling welcomes this development, she calls for caution: “Despite the obvious advantages of upcoming IoT technology, we can’t overlook its weaknesses, namely the real need for security, as financial and safety risk are substantial. To protect customers along with their data, the solution is the so-called Root of Trust – a security chip which is hardened to withstand attacks and integrated into the IoT device, network, or server. Depending on the intended application, the chip used can provide different levels of protection that fulfil some or all of the roles for hardware security.” Paving the way to connected commerce The road to connected commerce for smart devices started gradually with the introduction of electronic payments and payment cards. While the first chip cards were created in the 1970s, it was not until EMVCo introduced specifications in the late 1990s that chips started to



connected people






installed IoT devices

of data created

market potential


cement their role as the primary solution for securing sensitive payments-related data.

as acting as the ‘master’ in all the cases where other devices are powered by tokenized version of the physical card”.

An equally important factor in the prevalence of card payments has been the development and deployment of the acceptance infrastructure of POS terminals. Until the introduction of contactless technology, POS terminals were strictly bound to the form factor of plastic cards.

Ursula Schilling does, however, see a role for cards on a par with other devices: “The smart card can complement the smartphone in the same way other companion devices like wearables such as fitness bands and smart rings can”, she says. She continues, “fitness bands and the like will start to increase their footprint in transaction statistics over the next couple of years. We work closely with many of the providers of these, and we expect many new payment enabled devices to enter the market over the next 1-2 years.”

Despite the obvious advantages of upcoming IoT technology, we can’t overlook its weaknesses, namely the real need for security, as financial and safety risk are substantial.”

With the introduction of contactless driven by payment scheme mandates, the bond between the form factor of cards and POS devices was broken, allowing new types of smart devices to start interacting and transacting with the POS-based acceptance infrastructure.

While she believes that mobile payments face a promising future, Ursula Schilling thinks that EMV cards will be around for years to come. ”EMV cards will remain in the consumers’ pockets as they will serve as a backup for alternative payment solutions as well

The key to success: flexibility and trust One of the main prerequisites for mass adoption of new mobile devices will be convenience for end-users equivalent to card-based payments together with a level of security they can trust. As card not present (CNP) fraud rates continue to rise, Ursula Schilling fears that we will 99

MONEY MAG // 3.7 Payments and commerce


Source: Broadband Commission for Digital Development by the United Nations, 2015, International Data Corporation (IDC)

MONEY MAG // 3.7 Payments and commerce

see the next big wave of payment fraud coming from cloud-based payments (HCE) and remote mobile payments over the next 2-3 years. Ursula Schilling acknowledges that the introduction of HCE (Host Card Emulation) has had a positive effect on mobile payments driven by banks, having reduced the complexity of negotiations between these banks and mobile network operators or mobile phone manufacturers. But she also recognises that this development has introduced additional risks. Ursula Schilling believes that, to mitigate this risk, the industry will revert to hardware-based security as this proven technology comes in increasingly more flexible and smaller form factors. Hardware-based security will be the de facto standard for securing payment credentials and other sensitive data in wearables, since their demands and security requirements will be different from smartphones. Ursula Schilling explains this by describing her personal preferences for attractive payment scenarios powered by smart devices. “I don’t want to take out my $800 phone every time I need to pay for a coffee or when going into the metro. What I really want instead is a simple, inexpensive, waterproof wearable device with me all the time to serve as a companion to my mobile phone. To ensure the performance and security level of such a companion device, hardware-based security is a must.” Ursula Schilling also emphasises how new and convenient security features

like biometrics themselves increase requirements for smart devices. “Biometric security solutions will increase the need for hardware-based security. Biometric data is unique and personal and should stay private and securely protected in a trusted environment. Personally, I wouldn’t be comfortable with storing my biometric data in the cloud, and I am sure many people will feel the same. And unlike a sixteen-digit PAN, biometric data cannot be reissued if compromised.” Thus, Infineon believes the benefits of hardware-based security – better performance, improved security (including tamper resistance), and security partitioning (protection against malware in the operating system and application code) – make a strong case for use of this technology in IoT and for mobile payments, including cloudbased payments (HCE) & remote mobile payments. Looking further ahead When asked about the primary future drivers of transactions in an increasingly connected world Ursula Schilling is in no doubt. “Smart cars capable of payments will be the next big wave that may hit within the next 3 years. This will go beyond transactions for just parking and road pricing – it will also allow you to order and pay for your pizza directly from the car’s touch panel, so it’s ready when you come home. Looking further ahead, we will probably have to wait another five years for our smart fridges to start ordering and paying for the milk.”//

8-Tallet, Ørestaden, Copenhagen 100

Around the Block(chain) with KPMG Will blockchain eliminate millions of middle office jobs or completely solve the trust gap in financial services? Will it ‘revolutionize’ the asset management sector? While these questions are circling the block, one thing for sure is, there are real benefits that should be taken seriously right now. Visit us at Money 2020 28 June at the Bella Sky Hotel Room 2382/2383 Learn how KPMG and Fundsquare’s FundsDLT saves 70 percent in cost and time of funds distribution, or how our blockchain-enabled KYC platform, developed with Bluzelle can help improve customer experience while reducing potential for fraud.

© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

Bridging streams of great change By Daniel Kornitzer, Chief Product Officer, Paysafe

Daniel Kornitzer

What will the global payments landscape really look like in 2020? As physicist Nils Bohr once remarked, making predictions is hard, especially about the future. But in an industry as fastmoving as payments, the future is here every day; a fact that is forcing every player to work harder than we ever have done to stay relevant and prosperous. At one level, of course, the core proposition will remain unchanged – moving money from point A to point B as quickly and safely as we can. But Paysafe’s particular mission – to help our merchants to do better business, while serving consumers faster, more securely and more relevantly – keeps us focused on much more than just payments. As the digital landscape shifts beneath us, we find ourselves at the confluence of three great streams of change in today’s payments industry – fintech in its many variants, heightened consumer expectations, and significant regulatory change. Technology versus innovation Today’s financial services industry is awash in new technologies that promise to reinvent every aspect of our fiscal lives. But it’s becoming clearer every day that


real innovation comes not just from the technology itself, but from the creativity and business models it enables. Take everyone’s favourite current example, Uber, which has tied existing payments, mapping and logistics technologies together in a way that is busily disrupting the entire transportation industry. There’s no single magic ingredient; it’s the recipe as a whole that has produced something much greater than the sum of its parts. You clearly don’t always need an Uberlike recipe to do great things with technology. In many cases, the broad benefits of today’s big tech trends are well understood; mobile, cloud, analytics and biometrics are already helping us deliver new services faster, more securely and more intelligently. In other cases, their real value may not become fully clear for years or even decades, even those with a lot of time and resources thrown at them. Look no further than blockchain for just one example; an amazing technology which is the subject of a thousand pilots and studies, but which has not yet found a mainstream long-term role inside major financial services organisations. The reality is that no single idea – even something with the potential of blockchain – is likely to reinvent whole industries on its own, let alone one as complex and diverse as financial services. We need to look beyond the technology itself for new sources of inspiration.

MONEY MAG // 3.8 Payments and commerce

The Øresund Bridge, Copenhagen

Great expectations Just as technology and business models are changing fast, so too are consumer behaviours and end-user expectations. Today, we expect every experience and encounter with technology to be as good as or better than the last, whether that’s a phone or a payments app. We expect customised experiences that deliver truly personalised service based on lifestyles and preferences, not just more sales opportunities.

Regulate to accumulate Finally, the third great modern driver of change – regulation – presents significant opportunities for innovation, but big challenges for the complacent and unprepared too. Europe’s forthcoming PSD2, in particular, will give new players access to consumer banking data, promoting competition and innovation by encouraging the emergence of new players, especially in internet and mobile payment services. The incumbents with deep pockets – notably banks – have a head start when it comes to navigating complex regulatory landscapes. But sudden and rapid change is much more familiar territory for the technology community, who are arguably better placed to capitalise on new opportunities quickly and decisively. After all, embracing change and turning it to advantage is in our DNA.

But it’s becoming clearer every day that real innovation comes not just from the technology itself, but from the creativity and business models it enables.”

But it’s our ever shifting behaviours and cultural norms that we think will really drive the next wave of innovation. In just a few years, it’s become entirely normal for children to rely on voicecontrolled digital assistants to help with their homework. (“Alexa! What’s eight times nine?”) We routinely get into cars with strangers we summon via the internet, after decades of cultural conditioning to not ever do such a thing. These changes in the perception of technology, and the place it holds in our lives, are very profound, and will completely overturn the way that we think about building consumer-friendly products and services in the future.

Building bridges Focus on any one of these streams alone is unlikely to yield long-term benefits for organisations faced with a dizzying array of new challenges. But when


MONEY MAG // 3.8 Payments and commerce

looked at in combination, new ideas and opportunities inevitably start to emerge. One example is our GOLO app, launched in North America earlier this year. With GOLO, consumers (and in particular commuters, now responsible for a fifth of m-commerce sales) can find, pay for and arrange collection of goods and services in the places they happen to be; not just where the biggest merchants would like them to be at a set time and place. As the line between online and offline blurs, we’re building a new bridge between the technology – in this case, smartphonebased apps linked to a variety of payment options – and the physical, consumer behaviour-driven world. We’ve built a bridge which is creating more traffic for merchants and more options for consumers. That’s an important shift in the conventional m-commerce model, mediated by technology but driven by changing consumer expectation. Ideas like this are more than just tools for the digitally savvy metropolitan masses. Bridging the gap between online and offline is also central to full inclusion for the financially underserved; not just the 2 billion people worldwide who still have no access to formal financial services of any kind, but also the many other people who still choose to use cash rather than cards or digital wallets. They deserve flawless payment experiences too, but they currently have few options for transferring their money to where it needs to be or spending it online; one reason for the continued success of our paysafecard voucher-based system, which lets consumers shop online and top up digital wallets as well as spend money in physical stores. These are just some of the problems and opportunities we need to


address in the coming years. Handled properly, technology has the potential to transform every aspect of the financial landscape; everywhere from conventional consumer/ merchant environments, forex and risk management to economy-specific services that take account of sudden regulatory or infrastructural changes, such as India’s recent demonetisation event. The trick is to be ready to seize any and all opportunities when the big changes happen – not just in terms of technology, but thinking and processes too. Partnering for innovation Paysafe already occupies an enviable position at the confluence of today’s streams of change. We’re big and experienced enough to take on the most complex technical and regulatory challenges everywhere we operate, while remaining agile enough to respond quickly to change. But we’re still culturally tied very closely to the physical world too, as part of our direct relationship with a truly global merchant and consumer community. That makes us unusually well suited to the challenges ahead, both as strong competitors in our own right and as partners to the rest of the industry too. Last month, for example, we became one of the first PSPs working with Google to provide in-app Android Pay capabilities to our merchants in Canada; just one of the partnerships currently in the Paysafe pipeline, and a strong indicator of our future direction. Making predictions about the future is never going to get any easier. But whatever it holds, Paysafe will be a part of it – building bridges wherever it goes.//

Nordic technology, business and communications consultants in the booming fintech industry

Norfico offers strategic advisory and communication services with a dedicated focus on fintech – including ID, payments, regtech, and insurtech. We support our clients’ development of strategy, markets, platforms and positioning by combining in-depth industry knowledge with efficient use of strategic and tactical communication. @Norfico

Towards a global real-time ACH network Interview with Vocalink CEO, Paul Stoddart

Paul Stoddart

For nearly 50 years, Vocalink has facilitated payments between people and businesses. Founded in the UK, the company designs, builds and operates payment systems that run all over the world. At the beginning of May 2017, it was announced that Vocalink had been acquired by Mastercard. We asked Vocalink’s CEO, Paul Stoddart, about the future of payments from the perspective of a company where payments have evolved naturally but which now faces the challenges of new payment structures. By Ulrik Marschall, Norfico UM (Ulrik Marschall): The world of payments is changing at a speed never seen before in this industry. How has this affected Vocalink’s perspective? PS (Paul Stoddart): We believe that we have very much been a driver for this change in terms of payment technology. For example, it was the evolution of our Faster Payments technology in the UK which led to the development of our Immediate Payments Solution (IPS) which has now been implemented in countries around the world, including Singapore, Thailand and the US later this year. It is also our IPS technology that is being leveraged to drive the transformation of the UK cheque processing market this year, based on the ISO 20022 global messaging standard and with added Request to Pay functionality. We have developed mobile payments technology that allows the customer to pay for goods 106

through their banking app, providing a layer of bank-grade security - which is an entirely new and secure way to pay (Pay by Bank app). In addition, our data insights business, Accura, has created a solution that uses cutting-edge analytics to identify and flag suspected fraudulent payments and we are continuing to develop other antifraud solutions. We see ourselves at the forefront of innovation, driving positive change in the market. UM: Vocalink has been used to having a very central position in the payments infrastructure. How will you maintain this position when new ways of paying emerge almost on a monthly basis? PS: We currently sit at the heart of the UK’s payments infrastructure, which is of the utmost importance to us. And, while we have held this position for many years, we are far from complacent. As we move through a time of change in the payments landscape, many financial institutions and fintechs are making it

Now that we are part of Mastercard, our goal is to offer more choice for consumers, corporates and banks, and, by providing world leading technology, we hope to maintain our position as an integral part of the global payments ecosystem. We support competition, because it drives innovation from all corners of the market, which ultimately has a positive impact on businesses, governments and consumers. UM: In Europe, PSD2 will change traditional payment structures. What is Vocalink’s stance on the regulation? PS: PSD2 will enable a much more open, accessible and standardised payments ecosystem.

PS: As a Mastercard company, Vocalink will now benefit from Mastercard’s global network, proven reputation and market leading brand to bring our technology to new customers around the globe, in turn transforming the global payments landscape. UM: Who will learn the most from whom? Will you increase your focus on card-based payments or will Mastercard increase its focus on account based payments? PS: We complement each other; the combination of Mastercard and Vocalink will enable a more holistic approach to retail, person-to-person and businessto-business payments and a broader range of services, which will drive choice and efficiency, reduce fraud and provide better data insights. Vocalink’s world so far has been primarily focused on clearing, and Mastercard’s on its card-based network. We have both been evolving over the past decades and together we can leverage our respective expertise and create more than one and one equalling two.

We are in the middle of a global instant payment adoption curve and we believe that all markets will have something similar within the next 10-15 years.”

It will undoubtedly put some pressure on the banks. Our aim is to provide banks and other financial institutions with different options to leverage PSD2 and benefit from it. UM: How has becoming part of Mastercard changed your perspective and options?

PS: Our vision is still the same, we want to shape the world of global payments, by powering economies and empowering people. We are now a part of Mastercard and can tap into each other’s strengths to provide our solutions to economies around the world and deliver further on our promise and bring more choice to payments. Together, we represent a single point of connectivity into the global payment environment. UM: Will this give you even more of a global focus?

UM: Vocalink is one of the front-runners in real-time/faster payment systems. Are we moving towards a payments world that will become 100 % real-time? Locally, regionally or globally? PS: Definitely. We are in the middle of a global instant payment adoption curve and we believe that all markets will have something similar within the next 10-15 years. The opportunity is there for players like ourselves, for businesses, governments, corporates and banks, a number of which operate cross-border, to benefit from this new wave of payment technology on a global scale. Consequently, economies should benefit from a significantly more efficient payment network underpinning economic activities. 107

MONEY MAG // 3.9 Payments and commerce

their priority to innovate and develop new products in order to compete in the market, and so are we.

MONEY MAG // 3.9 Payments and commerce

The Royal Danish Playhouse, Copenhagen

However, our heritage and indeed our international success, has been driven by our world class service and capability underpinning the UK economy and that will always remain high priority. UM: How do you see the world of cards and Automated Clearing House (ACH) combining following Mastercard’s acquisition of Vocalink? PS: Traditionally, there have been two payment networks being built; card-based and ACH. The card-based networks were initially domestic, and have steadily evolved into the global systems we see today. ACH is on a similar trajectory and we anticipate a world of global ACH interoperability.


These domestic systems have evolved locally over the past few years and now we’re in a phase where ACH companies are starting to expand, being bought or merged. The second phase is the paths coming together, which is what the acquisition of Vocalink by Mastercard is really about – it’s about bringing together a global card-based network, with a global real-time ACH network. Our job is to seamlessly unite those networks to generate real value and increased choice for businesses, financial institutions, governments and consumers in doing so.//

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Innovation Engine For Digital Payments Issuer Processing & Card Management Digital Payment Solutions Smart Tokens

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04 Emerging fintech hubs

A new Northern light In Norway, a group of innovative people, backed by solid fintechs and banks, have created the largest executive network within fintech and banking in the Nordics. Why? To create an open forum for innovation and cooperation across the Nordic region and to connect to the global fintech ecosystem. By Ulrik Marschall, Norfico A wave of new collaboration is sweeping across Europe, giving rise to the term ‘co-opetition’ – that grey area between cooperation and competition that many companies have historically avoided. However, as banking and finance services undergo fundamental and structural changes in how they operate, attitudes towards co-opetition is changing, fuelled by demand for platforms that allow for sharing of tech knowledge across industries - and between market participants. There are few places where this trend can be seen as clearly as in the Nordics. Since its inception at the end of 2015, executive network Nordic Finance Innovation (NFI) has attracted 95 Norwegian and Swedish tech and finance companies with more than 200 executives, with the aim of boosting collaboration of Nordic strengths.

Northern light, Tromso, Norway

“NFI is the largest fintech organization in the Nordic region, with offices in Oslo, London and soon in Singapore. We facilitate global partnerships and help build 114

innovative partnerships between Nordic companies that would otherwise not have happened. The results so far are tangible,” says Narve Hansen, Chief Innovation Officer at BankAxept, one of NFI’s owners and founders. How Nordic Finance Innovation got started BankAxept, Norway’s national payment scheme, was created through collaboration of the Norwegian banks 26 years ago. Since then, it has developed a world-class payment platform that is efficient and secure. As innovation in the financial industry has sped up, BankAxept has been charged by its owners to stay ahead of international developments. ”We realized that to succeed and realize our ambitions, we have to engage with a wider range of technology specialists inside and outside banking, and across industries,” Narve Hansen says. BankAxept together with KnowIT reached out to Iren Tranvåg, who was chairman of the Financial Service Club - a Europe-wide forum for fintech executives founded by Chris Skinner in 2004 - to establish and head up an executive network in the Nordics. Modeled on Financial Service Club, Nordic Finance Innovation was founded in January 2016, and Chris Skinner joined NFI as co-owner and Chairman of the

“Nordic Finance Innovation was founded with a vision to take advantage of a fundamental Nordic collaborative culture driven by thought leadership and inspiration,” Chris Skinner says. “We want NFI to be known as a knowledgeable, credible, respected and highly independent network where we contribute the best international speakers on the topics that are shaping the future. Our members meet people they just would not meet at a typical industry conference.” The Nordic strengths The Nordics boast some real comparative advantages, making the region a hot testbed for financial technology and services. It is NFI’s mission to enhance these strengths as a collaborative platform:

development,” says Narve Hansen of BankAxept. “Where else do you see traditional competitors hook up to discuss common initiatives, and marvel at the level of insight gained from being open?” Narve Hansen asks. Pan-Nordic ambitions Last year, NFI recruited 80 members, primarily from Norway and Sweden. Danish and Finnish companies will be invited in this year, with a projected 320 members – 80 from each country – by the end of 2018. NFI welcomes all organizations in banking, telecom, media and retail industries. “But we are selective about who the companies send to represent them. It must be the person in charge of technological innovation or with a mandate to make big decisions,” Iren Tranvåg explains.

The speed of technological Every quarter, innovation is high, and it NFI holds can be difficult for any one meetings in each Nordic company to understand country with the ramifications of new world-class speakers on technology and to see its topics such potential.” as Artificial

“The Nordic region has the world’s highest mobile saturation and most advanced networks, incredible access to data on an individual level, high levels of automation, and a leading role in developing fields like cloud technology and IT security,” Iren Tranvåg says. “In NFI, we bring executives and their change agents together across industries. We are forging strong relationships and know-how on topics that are keys to success in a supercompetitive global environment.” Under its slogan “Inspire Change”, NFI wants to change the traditionally secretive business culture by facilitating meetings, workshops, study trips, lectures and round-tables. “The speed of technological innovation is high, and it can be difficult for any one company to understand the ramifications of new technology and to see its potential. Great, new ideas can be fostered by having a vibrant crossindustry arena for discussing global

Intelligence and Machine Learning, Financial Platforms, and Security. NFI has held meetings in Norway, Sweden, Denmark and Finland, as well as round tables and executive dinners with Chris Skinner and discussions of how global trends will affect the Nordic market. “I am always impressed by the level of insights shared when CEOs, COOs and CTOs gather around our tables. It is interesting to see how members gather in groups to discuss the insights,” says Tranvåg. NFI ‘Intrapreneurs’ and The Fintech Brief – Living out the vision NFI members have already been introduced to several initiatives to back NFI’s ambitions. The newsletter The Fintech Brief (daily updated on 115

MONEY MAG // 4.1 Emerging fintech hubs

Board. He sees great potential in Nordic innovation culture:

MONEY MAG // 4.1 Emerging fintech hubs

Iren Tranvåg and Narve Hansen (right) together with owner of Lattice80 in Singapore, Joe Seunghyun Cho

is a carefully curated mix of must-reads and can’t-misses from the international world of fintech, curated with Nordic sensibility. It is edited to inspire and inform professionals in finance and technology, with highly relevant information from the industry. September will see the debut of the first quarterly NFI Report, with relevant data on Nordic finance and technology initiatives, surveys and articles. “The report will establish the Nordics as digital frontrunners. We will continue to deliver high-value products and services to our members in the future,” Tranvåg says. NFI has also set up “NFI Intrapreneurs”, a special program for young executive talents from leading companies. The team of ten has been tasked with developing ideas for uniquely Nordic collaborative projects that can be launched globally. The group answers to an advisory board from NFI, and are offered meeting facilities, study tours and promotion via NFI’s communication channels. In April 2017, NFI Intrepreneurs from DNB, Danske Bank, Santander, Gjensidige Forsikring, Frende Forsikring, Telenor, Retail Payment, Lindorff, Schibsted/ and IBM attended a study trip to Singapore to connect with fintech companies and the general innovation culture in Asia. Several partnerships were formed leading to initiatives that are currently being evaluated by the advisory board. “Young people want to open up and can be the driving force for collaboration


in their respective companies. Among our members we have ambitious, knowledgeable, engaged, impatient young talents that will solve inefficiencies they see around them. We want to strengthen and support these forces,” Iren Tranvåg says. “Hopefully, some of the ideas being evaluated can result in actual start-up workshops here in 2017”. The trip to Singapore also resulted in a new partnership with the world’s largest fintech hub Lattice80. In September, NFI is inviting 60 Nordic executives to the inauguration of their new office in Singapore. The Nordic way Many organizations naturally fear sharing competitive advantages and losing business as a result. NFI wants to create a collaborative culture by showing that it is possible to share useful information without divulging intellectual property or company secrets. The ongoing developments in the financial technology are impressive, in startups and legacy institutions alike. Legacy banks are looking for a balance between developing their own solutions, and tapping into the ‘game changing’ solutions possibly being presented by startups. “At NFI we believe that cooperation of banks, startups and merchants is essential to stay ahead,” Narve Hansen explains. “The Nordics are highly digitalized compared to other regions and we have an opportunity to play a leading role in creating global, digital solutions”. //

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Working together to compete Copenhagen Fintech Lab facilitates connections between fintech businesses and start-ups, with beneficial results. By Ulrik Marschall, Norfico In a meeting room in the centre of Copenhagen representatives of universities, banks, and big fintech corporates gather to share knowledge about blockchain. These subject experts and professionals are used to explaining the theories of blockchain to those eager to learn, but this scenario is unusual for them. Today, they sit facing the board, and they are the students. Five young blockchain start-up founders are their tutors. Normally, the roles would be reversed with the group of experts mentoring the new start-ups, lecturing them about the pitfalls of the industry and how to design and executive clear strategies. But what is normal when you are among fintech start-ups with a passion for a technology which most people find difficult to comprehend?

The Harbour Bath, Copenhagen

The scenario described above took place at the Copenhagen Fintech Lab in May, and it shows what is possible when you create an environment where fintech start-ups gather to develop their ideas, and then invite established businesses


to the Lab to meet and talk. Ideas and consulting go both ways. “We call this project an ‘open innovation session’ where we invite our members to share knowledge and be mentored by a group of start-ups. Start-ups look at things differently, and their ideas are not influenced by what is considered normal for the businesses,” says Simon Schou, Chief Innovation Officer at Copenhagen Fintech. He explains that the workshop is an example of how they, at the Lab, are exploring new ways of co-working between start-ups and corporates. A unique setup The Copenhagen Fintech Lab is one of the successful initiatives from Copenhagen Fintech, a nonprofit organisation set up to create a connection between the established businesses and the new start-ups. The project is backed financially by partners, sponsors and members, which include the City of Copenhagen, private tech businesses, banks, the Financial Services Union and the Danish Bankers’ Association. They all share the same goal; ‘To create a Danish fintech ecosystem of the highest Nordic standards’. The involvement of a financial services trade union makes this fintech hub unique. “We have created Scandinavia’s first co-working space dedicated to fintech entrepreneurs. And our objectives have been to form an environment where

We meet him on a typical day at the Lab, where another workshop and presentation at the premises by a Copenhagen Fintech member has attracted some of the start-up tenants. Simon Schou is busy setting up the meetings and making arrangements between the members and fintech start-ups which will further develop the concept of Copenhagen Fintech. This also includes sessions where the start-ups can get legal counselling, PR advice or accounting tips.

concluded that there was potential to make Copenhagen a successful Nordic fintech hub, but some specific actions had to be initiated first. While these action points were addressed by Copenhagen Fintech from the start of 2016, the financial services union, Finansforbundet, decided to immediately allocate an office building to fintech start-ups, and on 6 November 2016 the Copenhagen Fintech Lab officially opened at the offices at Christianshavn in Copenhagen. “Currently we have 85 people in 34 fintech start-ups working out of this Lab. We are still growing, and fortunately, we have still available space. As each startup business grows, their demand for space changes, so right now, we are in a constant process of setting up new workstations in the building,” says Simon Schou.

We call this project an ’open innovation session’ where we invite our members to share knowledge and be mentored by a group of start-ups.”

He sees it as a huge advantage that so many different companies are supporting the organisation. It gives the individual startups more options as they can co-work and get valuable input from different players across the industry. The concept of Copenhagen Fintech is building on a common understanding among the members, that it is important to create new, exciting fintech solutions that can generate jobs, as well as expertise that both the members and society can benefit from. Where other businesses’ natural reaction would be to build fences to prevent new start-ups from getting foothold, the organisations behind Copenhagen Fintech have chosen a proactive approach and to support the development of successful fintech start-ups. Successful fintech start-ups have been through the Lab The Copenhagen Fintech Lab was formed after a report by Rainmaking Innovation and Oxford Research, which was published in December 2015. It

Within the Lab’s first year of existence some successful start-ups have already outgrown the Lab. “We see that start-ups like Hufsy, Chainalysis and Cardlay have grown so big, that they either have moved completely or partly out of the Lab. I would like to think that the framework and facilities we provided for them here have been a part of their success. It will be interesting to follow them in the future,” Simon Schou tells. A shout out to the international fintech ecosystem The week of Money20/20 Europe will be very busy for Simon Schou and his colleagues because Copenhagen Fintech is involved in the world’s largest fintech event - and at the same time it is hosting Copenhagen Fintech Week (25 – 30 June) with lots of side events including matchmaking and networking activities, extended Lab showcases and


MONEY MAG // 4.2 Emerging fintech hubs

fintech start-ups can connect to people from the business world, and where businesses can look for talent and ideas that might be relevant for them. I think this is a very strong driver to create a successful business,” says Simon Schou.

MONEY MAG // 4.2 Emerging fintech hubs a huge fintech barbeque around the Copenhagen Fintech Lab. “When we have so many international fintech start-ups, businesses and investors visiting Copenhagen, we want to show them what we can do here and, hopefully, make them realise that we actually are pretty successful at making user-friendly solutions that are easy to roll-out and that we are exploring different ways of co-working. If they like what they see, they are more than welcome to join our organisation,” says Simon Schou as our interview concludes, and our interviewee rushes off to his next meeting. Danish FSA has recently decided also to establish a fintech lab The Danish government has decided to set up a fintech lab and a regulatory sandbox with the purpose of making it easier for start-ups to navigate through Danish financial regulations. In April 2017 the Danish Financial Supervisory Authority, FSA, announced that they also will be setting up a fintech lab with the purpose of creating and fostering entrepreneurship and innovation in Denmark. The entrepreneurship panel will help the Danish government shed light on how framework conditions can get better for both entrepreneurs and growth companies in Denmark.//


FACTS ABOUT COPENHAGEN FINTECH LAB: Started in 2016 1500 m2 modern office capacity 85 people in 34 fintech start-ups (May 2017) Chainalysis, Cardlay and Hufsy among the successful fintech that have been based at the Lab. Copenhagen Fintech partners are: Sparekassen Sjælland – Fyn, Spar Nord Bank, Finans Danmark, Finansforbundet, Nets, Købstædernes Forsikring, SDC, Københavns Kommune. Copenhagen Fintech sponsors are: TIA, Experian, Danske Bank, Netcompany, Nordea, Festina Finance, DJØF. Copenhagen Fintech members: The organisation has more than 130 members, representing fintechs, financial institutions, consultancy agencies.




COPENHAGEN FINTECH Find us at Applebys Plads 7, 1411 Copenhagen - 7 min Metro ride from Money20/20

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Photo: Thomas Høyrup Christensen

Doing business in digital Denmark The European Union ranks Denmark as the most digital country amongst its 28 member states. The population is the most e-ready in the EU with 88% of Danish internet users using eBanking, with 82% doing their shopping online, and Danes amongst the most intensive users of video on demand. Denmark’s digital public services are also highly advanced, with a strong tradition for collaboration in the Nordics that has always characterised business - especially within financial services, where hundreds of banks have shared both infrastructure and development over the years. By Norfico

This Nordic tradition for collaboration has proven a success within Greater Copenhagen’s fintech community, where collaboration not only covers existing and new players in the financial services sector, but also between the financial sector and the public sector. Private and public entities have worked together for decades building new infrastructure and developing technology solutions. One example is the successful Danish eID solution, NemID, which was launched in 2010 and whose next generation solution will shortly go out to international tender.

The Black Diamond (Royal Library), Copenhagen

A booming fintech ecosystem Every year since 2012, the World Bank has ranked Denmark as the easiest country in Europe to do business in. Copenhagen Capacity is working closely with Invest In Denmark to support 122

companies from different sectors to establish their businesses in Greater Copenhagen. “Greater Copenhagen is the best platform in Europe for companies to be successful,” says Oliver Hall, Head of Tech Investments at Copenhagen Capacity. He continues: “A lot has happened recently, especially for fintech companies. The European Blockchain Center has just opened in Copenhagen, and the Emerging Payments Association has recommended Denmark as a prime location for regulated companies if the UK loses passporting rights post-Brexit. All of the large bank IT-system providers in Denmark have created a joint APIsolution for entrepreneurs to tap into a large number of banks here, the Danish FSA has established a task force dedicated to support foreign companies entering Denmark, and we have a regulatory sandbox on the way.” The ecosystem’s growth is reflected on investments as well. According to

The world’s first cashless society Almost 75% of the Danish scale-ups mapped in a recent report on the Danish scale-up ecosystem are located in Copenhagen, offering easy access to customers and business partners in the rest of Europe. “With an airport only 25 minutes away and flying times of just over one hour to London I can get into central London quicker than some of my old colleagues can from their homes in the home counties,” says Omar Shaikh, co-founder of COCOA Invest, who previously worked in the City of London for companies such as Schroders PLC and Capita Financial.

meetings through to hiring talented young designers with none of the language barriers.” A smarter way of doing business The metropolis of Greater Copenhagen spans Eastern Denmark and Skåne in Southern Sweden. The region’s 79 municipalities are home to 4 million inhabitants and constitute Scandinavia’s largest recruitment base of highly skilled employees. The region offers world-class research facilities, a creative business environment with access to the markets of Denmark and Sweden, and a unique work-life balance for all. Copenhagen is widely acknowledged as one of the world’s leading smart cities, pioneering the solutions for a more sustainable future. The smarter way of doing things also applies to the conditions for setting up or running a business in the city, and the smarter way of doing business boosts productivity and leaves room for creativity.

Greater Copenhagen is the best platform in Europe for companies to be successful.”

COCOA is an independent, online saving and investing company, challenging the traditional banks and the way people save and invest by cutting out the middleman. Through five funds with different risk profiles, clients can build up their own personalised investment portfolio. “Denmark makes a fantastic market when developing a fintech company. Danes are naturally open to new technology – in fact, I have all confidence that this will be the first cashless society – but at the same time, they are rightfully hard to impress. If you have the right formula to work in Denmark, I believe it will work almost anywhere,” Shaikh says. “And I cannot emphasise enough how valuable it is to operate in a country where English is so second nature. Frankly, the level of English ability is so good I often forget I am not living in a country where this is the first language. This allows us to conduct high level

Because of a well-functioning, wellmanaged and tested public sector, businesses are guaranteed a stable and predictable environment in which they only need to focus on their core business. Combine this with Europe’s most flexible labour market, combining security for employees and great flexibility in hiring and firing practices for businesses, and you have all the ingredients needed for a tested recipe for successful results. Finding the right talent Since 1994, Copenhagen Capacity has convinced foreign companies, investors and talent that Greater Copenhagen is a great place for business, and in 2015 began devoting more attention to the fintech industry – including access to talent. Partnering up with fintech companies in Greater Copenhagen, Copenhagen


MONEY MAG // 4.3 Emerging fintech hubs

Deloitte, fintech investments in the Nordic countries have tripled in size from 2015 to 2016 and the number of investments has surpassed both Germany and the UK in 2016.

MONEY MAG // 4.4 Emerging fintech hubs

The Bicycle Snake, Copenhagen

Capacity posted 36 open jobs in the sector through targeted online banner ads, and the interest has been overwhelming: “Tech talents are a scarce resource with fierce global competition for them. During our 8-week campaign period, we had 175,000 views worldwide and we delivered 326 screened candidates to the companies involved in the campaign,” Oliver Hall says and continues: ”Our job is to help companies plug in to the network – co-working spaces, legal and financial experts, the regulators and financial institutions, the incubators and accelerators, commercial and tech partners – as well as assist with market research and finding talent.”


COPENHAGEN CAPACITY Copenhagen Capacity works closely together with the national investment promotion agency Invest In Denmark. As part of the Ministry of Foreign Affairs of Denmark, Invest In Denmark, is represented in central hot spots around the world and provides premium business start-up and development services to foreign companies and investors on local markets.

Welcome to Greater Copenhagen We support foreign companies, investors and talent in making a successful start in Greater Copenhagen – free of charge




Information gathering and analysis

Business establishment

Expand and retain

• Market overview • Cost/quality benchmark analyses • Mapping potential partners, costumers and service providers

• Practical business start-up assistance

• Talent attraction

• General advice on legal, financial and corporate structure matters

• Benchmarks on performance

• Fact-finding tours

• Identifying business and funding opportunities

• Land and property search

• Industry insights

• Introductory meetings with business clusters and public authorities

• Expansion support

• Identify new business opportunities • Advice on consolidation of your business case

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Oliver Hall Head of Tech Copenhagen Capacity +45 33 26 87 67

Lasse Grøn Christensen Team Leader - ICT Invest In Denmark +45 33 92 01 62

Joining forces to innovate The very nature of banking is changing – and Nordea is changing with it. People may not think of traditional banks as innovative and tech-savvy, but Nordea wants to challenge this perception. By Ulrik Marschall, Norfico

The new Nordea HQ, Ørestad, Copenhagen

Nordea cannot develop new products and services alone, which is why the bank is incubating new ideas with partners to hatch innovative solutions. By joining forces with fintechs and benefiting from their competencies, experiences and ideas, Nordea is convinced that it can create more choices and more value for its customers.

Microsoft. According to the Chief Digital Officer at Nordea, Ewan Macleod, this partnership will also contribute to a more entrepreneurial Sweden. A number of people from Nordea will move into the SFH’s office space after the summer.

Nordea CEO Casper von Koskull thinks it is important for the bank to be where the innovation is happening. For this reason, the biggest Nordic bank is taking up residence at fintech hubs around the region. Partnering with fintech hubs in Stockholm, Helsinki, Oslo and Copenhagen allows the bank to be near the marketplace and to talk to the wider fintech community, including startups, financial institutions and regulators.

Seeking new partners According to Macleod, collaborations like this will speed up time to market so that the bank can offer new, relevant and valuable solutions to its customers faster than if it were to develop them alone. Nordea also collaborates with Oslo-based TheFactory, which is running two tracks – FintechFactory and InsurtechFactory. Nordea is a partner for both programs.

Nordea partnered with Copenhagen Fintech last year. Its most recent partnership, with the Stockholm Fintech Hub (SFH), enables the bank to collaborate, co-create and converse with fintech start-ups, bigger companies working in the fintech space, other banks and new players like IBM and 126

“We don’t yet know exactly what kind of services and benefits the cooperation will bring, but that’s what makes this so exciting,” says Ewan Macleod. “We’re here to learn and see what we can achieve together with partners.”

In addition to collaborating with fintech hubs, Nordea is also partnering with fintech start-ups in the Nordic region, such as Spiff in Norway, which has developed a new social savings app, and Fjuul in Finland, which has developed a fitness app that turns exercise into rewards, such as discounts on insurance. Partnership is at the core of Nordea’s banking philosophy as it seeks new partners, new ideas and new business models to delight customers. Casper von Koskull sees customers banking via an ecosystem of players. Some will run

“It’s a completely new banking landscape,” von Koskull says. He invites start-ups to contact him or Ewan Macleod if they have a new product or an idea. Acting like a fintech Customers and society will benefit as old and new companies work together to develop better products and services. “I think we all benefit,” von Koskull says. “We will forge partnerships, we will make investments and we will probably also do M&A in this space,” he adds.

attractive as a partner. “In the coming years, we will use our strength as the largest bank in the Nordics to accelerate our transformation process. In 2021 we’ll be a trusted organization with a passion to serve and create value for our customers through simple, digital, sustainable and efficient solutions,” says von Koskull. “We want to be the preferred choice for customers and a valued member of society.”

Creating a new ecosystem The fintech ecosystem includes established financial institutions like Nordea as well as start-ups, regulators, educators, tech providers, investors and professional services companies. These are all Nordea is companies seen currently as core to the investing community and NOK 8 billion, which Casper (around EUR von Koskull sees 900 million), as critical in their into the digital ability to serve world every customers as well Casper von Koskull, CEO, Nordea year. “That as Nordea’s wider makes us one of the biggest investors in societal and environmental ecosystems. almost any sector in the Nordic region, and certainly the biggest fintech in the Von Koskull believes that, in order region,” von Koskull says. “So we are, in a to adapt to the changing banking way, a fintech. But it’s not only about the landscape, Nordea needs to be open to money we invest because we also need different mindsets, inspiring employees to act like a fintech,” he adds. to continuously take the pulse of the bank’s current and future customers. Von Koskull says that acting like a Perhaps the biggest change to the way fintech means being willing to embrace the banking industry is operating is change and having people who can what’s known as open banking. Nordea take ownership and drive that change. was one of the first in the Nordic In other words, it is important that the region to announce the open banking bank has a corporate culture based developer portal, where fintechs and on collaboration, courage and passion other external developers are invited to - that is, passion for its customers, create new products and services for who are impatient, empowered and Nordea’s customers at a faster pace than knowledgeable. Customers now expect the bank could by itself. So far, more immediate, accessible service from than 600 users have signed up. “This is a companies, including banks. fundamentally new way of working,” von Koskull says. Nordea’s commitment to creating a truly digital, values-driven financial services He explains that finding Nordea company will also make the bank more employees who have been willing to

It’s about doing things completely differently. We’re managing the bank to be a better bank for our customers. We want to be at the forefront of digital development. It’s all about creating new, exciting services.”


MONEY MAG // 4.4 Emerging fintech hubs

the customer interface, while others will deliver specific products or the underlying infrastructure.

MONEY MAG // 4.4 Emerging fintech hubs

devote time to meeting start-ups has not been difficult – quite the contrary. “What’s not to like about being asked on a date with a start-up? It’s exciting, inspiring and you just might find a match that will change – if not your life – then maybe the future of banking,” says the CEO. Nordea’s employees meet with startups as mentors and experts to discuss, challenge and verify their concepts. The bank professionals can introduce new contacts, open doors and provide data to validate ideas. Nordea hopes to learn from the collaboration, and it also expects to bring to light some of its own weaknesses that it needs to work on to accelerate the bank’s innovation capability. Previously, Nordea has run its own inhouse start-up accelerator programs, where several hundred Nordea employees interacted with start-ups as mentors, business partners and experts. The experience and results are uplifting. Out of the 14 teams that joined the second accelerator program, Nordea continued in dialogue with ten. The bank later signed pilot agreements with four of these and has also launched one commercial service. Nordea will continue to move towards more open collaboration as the Nordic bank explores partnership opportunities, both within and outside its home markets. These partnerships are a winwin for all parties – the start-ups, the bank and not least the customers. ”Our role will be to listen, to contribute and to see what we can all do for the benefit of a greater good,” concludes von Koskull.//

Casper von Koskull, CEO, Nordea

PAGE 128128

NORDEA AT A GLANCE The largest financial services group in the Nordic and Baltic Sea region and one of the largest banks in Europe Leading positions within corporate and institutional banking as well as retail banking and private banking Largest customer base of any financial services group in the Nordic region with approximately 10 million household customers and around 0.6 million corporate customers. Leading position in sustainable financing and responsible investments Euromoney 2017 Awards for best provider of private banking services in the Nordic region and the Baltics for the ninth year in a row 2017 Global Retail Banker award for “IT Innovation of the Year” for Nordea’s Simplification program Morningstar Awards 2017 for two Nordea funds.


In March 2018, Singapore will host the inaugural Money20/20 Asia; shining a light on the region’s unique opportunities, connecting the companies and individuals who will create the future of money across APAC and the world. Come and speak to the team today on our Sales Lounge to find out more about our bespoke sponsorship packages, which can include exhibition space, meeting rooms and branding. Don’t miss out – make your mark at the definitive industry event for Asia Pacific.


28TH JUNE | | @money2020 | #m2020asia

Istanbul – a fintech hub spanning two continents Founded in 2016, FinTech Istanbul plans on becoming a global fintech centre through strategic partnerships and closer cooperation with other international fintech hubs. Istanbul’s young and welleducated population, combined with geographical proximity to both Europe and Asia, will further help ensure FinTech Istanbul achieves its goals. By Ulrik Marschall, Norfico The founding of FinTech Istanbul Interbank Card Center (BKM) has a special role in the Turkish financial infrastructure, having brought banks and financial institutions together for over 27 years. BKM is the only company which provides switching, clearing and settlement for card transactions in Turkey and also operates the National From Digital 2012 to Wallet, BKM 2016, Express, some in addition 200 to the fintech domestic start-ups scheme, in Turkey TROY. In fact, raised BKM is one a total of the most of $65 successful million Dr Soner Canko, CEO, BKM fintechs in with $29 Turkey due million to its range having been invested in 2016 of innovative services. Since 1990, BKM alone. This accounts for almost has also worked to create a cashless half of the total invested in all society and is a driving force behind start-ups during the same year, the development of the Turkey’s fintech and it is almost $5 million more ecosystem. than the total invested in fintech “When the strong banking industry from 2012 to 2015. opens to collaboration, the dynamic For many years now, Turkish banks have been well-known and respected in the financial services industry for being at the forefront of innovative, digital services - and so embracing fintech was only a natural progression.

Having a young population of 80 million, Turkey has a strategic advantage to become a fintech hub thanks to its geographical location connecting Europe and Asia.”

Lighthouse at the entrance to the Bosphorus


I invite all those searching for the next great fintech hotspot to learn more about Istanbul and Turkish fintech. They may very well find what they are looking for here on the Digital Bosporus.”

With BKM’s sponsorship, FinTech Istanbul was established with a mission to support Turkish entrepreneurs and bring together fintech firms. The organisation aims to follow global and local developments in the financial sector and assemble the best minds to produce unique ideas and solutions, as well as technological innovation. Through collaborations such as ‘’ in Turkey, as well as Innovate Finance and Global FinTech Hubs Federation (GFHF) in the international arena, FinTech Istanbul aims to keep the fintech ecosystem informed about developments, provide networking and information sharing opportunities and to support joint projects all around the world. Furthermore, the organisation

fintech leaders and the launch of a website for sharing the latest fintech information and developments. Fintech start-ups: competitors or innovative partners? Among the main challenges for FinTech Istanbul were how it could boost the national awareness of fintech, develop compelling arguments for banks to embrace fintech start-ups and encourage the creation of mutually beneficial partnerships. Turkey’s fintech sector was facing the same discussions and challenges from established tech corporates and banks as have already taken place in other now establishes centres. The key subject of debate was whether fintechs 131

MONEY MAG // 4.6 Emerging fintech hubs

entrepreneur ecosystem and the will continue working to increase the qualified labour force are added to number of these valuable collaborations these, the advantage becomes more and keep pushing Turkey’s fintech valuable. We believe that thanks to ecosystem towards new horizons. such advantages, Turkey will become one of the countries offering an ideal One of the first tasks of FinTech Istanbul environment for fintech start-ups by was to find out how the newly founded carrying its organisation break-through could in recent years support one stop further. the fintech In line with this sector. This objective, we resulted in it will continue running an working with a impressive great passion list of events for Istanbul to during its first become a global year which fintech hub” said included Dr Soner Canko, training Oliver Bussmann, Founder, programs, visits CEO of BKM. Bussmann Advisory from global

MONEY MAG // 4.6 Emerging fintech hubs

FinTech Istanbul’s activities since 2016: aunching the training program, L “FinTech 101 Trainings”, which aims to provide start-ups with background knowledge about the fintech industry. More than 200 graduates have attended the four training sessions run so far, including a session on Blockchain.

are competitors to existing businesses, or if they are instead innovative entrepreneurs with ideas that can be relevant for established corporates as well. According to FinTech Istanbul, there is now a broader understanding between banks and start-ups in Turkey that both parties’ individual successes are dependent on cooperation rather than competition. Such collaborations provide banks with easy access to new technologies and services, while the start-ups benefit in terms of gaining increased visibility as well as access to financial expertise, support, and scale. FinTech Istanbul certainly has a busy agenda, and if its plans and objectives are any indication then it is only likely to continue working tirelessly towards the development of a powerful fintech hub in Turkey – and for the region as a whole. “I invite all those searching for the next great fintech hotspot to learn more about Istanbul and Turkish fintech. They may very well find what they are looking for here on the Digital Bosporus,” says Oliver Bussmann, Top 10 Global fintech Influencer, at a meet-up arranged by FinTech Istanbul during 2016.//

Dr Soner Canko, CEO, BKM 132

osting four fintech meetings H which brought together around 300 stakeholders from the sector for networking and the exchange of information. I nviting global fintech leaders such as David Birch, Oliver Bussmann, Chris Skinner and Chris Mager to Turkey to share their experience with the local fintech industry. haring the most up-to-date S and quality content in the field of fintech on its website (www. and through its social media accounts. aunching a blog on the FinTech L Istanbul website covering the latest and most valuable fintech news, articles and industry-related videos in Turkey. ecuring direct agreements and S partnerships with a variety of global fintech hubs for establishing international collaborations between community members.

Source: The Turkish FinTech Ecosystem – Progress Report 2016 by Fintech Istanbul and Melike Belli.

Ministry of Economics, Energy, Transport and Regional Development

Welcome to Frankfurt, Welcome to Hessen Germany’s leading FinTech ecosystem – perfect Conditions for International Investors About 100 FinTech companies

€ Financial Center

Seven incubators and accelerators ICT Region

Home of the European Central Bank (ECB) and the German Central Bank Frankfurt Stock Exchange – among the world’s largest stock markets Around 10,000 ICT companies with more than 120,000 employees

German FinTech Hub

DE-CIX: the highest-capacity Internet hub worldwide PAGE 133

The engineers of finance Amsterdam has long been a leader in the financial sector, and the city is now taking this centuries-old tradition into the present day by becoming one of the world’s leading hubs for financial technology. By Douglas Heingartner Since as long ago as 1602, when the East India Company introduced tradable stocks, Amsterdam has been a pioneer in financial innovation. It was the first European city to open an options market (the European Options Exchange in 1978), and Dutch banks were frontrunners in terms of online and mobile banking, as well as in phasing out old payment methods such as cheques. The city’s pioneering spirit is still thriving, as Amsterdam quickly develops into one of the world’s leading financial technology hubs. The city is now home to about 350 fintech companies and 15,000 employees working in the fintech sector, developing novel solutions for everything from online payments and transfers, to high-speed trading and bitcoin.

Amsterdam Lookout

A strong base that welcomes new players There are many reasons why Amsterdam has become a fintech capital, perhaps the most important being the city’s already strong financial sector. Major international 134

banks such as ABN Amro, Rabobank and ING are all based here, as are several large pension funds and insurance companies. In fact, the financial sector is the largest business sector in the Netherlands, employing 230,000 people in the Amsterdam Metropolitan Area alone. Perhaps just as important is Amsterdam’s flourishing start-up sector. The city consistently shines in international rankings; it was rated Europe’s secondbest start-up city in Nesta’s European Digital City Index 2015, and 46 per cent of the country’s start-up job vacancies are in Amsterdam. Some of these financial start-ups have already hit the big time. The financial world took notice when Amsterdambased Flow Traders raised almost 600 million EURO in its July 2015 IPO. Along with Amsterdam companies like Optiver and IMC, they make the city a driving force in the world of electronic trading. Likewise, when the valuation of Amsterdam’s global payments start-up Adyen (which fittingly means ‘new beginning’ in Surinamese) grew to $1.5 billion in late 2014, it became Amsterdam’s first unicorn, firmly putting the city on the fintech map. Top talent and savvy customers Another crucial factor is Amsterdam’s remarkable talent pool. Global technology employers such as, Uber, Netflix, TomTom and Tesla have no problem finding highly-skilled workers who are drawn

MONEY MAG // 4.7 Emerging fintech hubs

to Amsterdam’s exceptionally high holds a full banking licence, is a new quality of life, English is a second kind of bank that has been dubbed the language here, with 90 per cent of the WhatsApp of payments. city’s Dutch locals speaking it. For expats, the opportunity of a tax-free Stable and reliable allowance of 30% on their income is an The fintech industry also depends on important pull factor. With two large fast and reliable data connectivity, universities based in Amsterdam and an area in which Amsterdam excels. eight within a one hour radius, there is The city’s AMX-IX Internet exchange also a boundless supply of world-class is the largest in the world, and 11 of financial, commercial and technical the 15 undersea cables connecting talent. Fintech companies in particular Europe to the Americas converge in need staff who understand data, the Netherlands. Data storage is also and that need is being met with the not an issue; the Netherlands accounts recently-opened Amsterdam School of for 20% of the EU datacentre market. Data Science, Getting to a collaboration and from between all major several local European academic and global institutions capitals is that will train very easy with Pieter van der Does, Co-founder & CEO, Adyen thousands Amsterdam of data Schiphol specialists. Airport, only seven minutes away from the Central With its rapid adoption of new Business District by train. The airport technologies, Amsterdam is also an has 323 direct connections and was ideal testing ground for new financial voted Europe’s best business traveller products. The Netherlands already airport in 2016. has some of the lowest levels of cash payments in the world, and its mobileJust as important is a reliable and banking penetration rate of 63 per stable government. The Dutch cent is the highest in Europe. It is Authority for Financial Markets (AFM) convenient banking services such as and the Dutch central bank, DNB, have these, enabled by fintech companies, proven enthusiastic when it comes to which are particularly sought-after by welcoming innovative financial firms. young people. Amsterdam’s Bunq, for A smooth and transparent visa system example, which launched in 2015 and also makes it relatively easy for fintech

Amsterdam is a breeding ground for startup success.”

Adyen office


MONEY MAG // 4.7 Emerging fintech hubs

Pieter van der Does

Bunq office

companies to bring in international experts (as socalled ‘knowledge migrants’), which speeds up the process and eliminates much of the red tape.

Source: AMS Magazine ( business) Photos: Philip Jintes/ The Forbes Collection

In 2016, the Dutch government appointed the economist and former politician Willem Vermeend as special envoy to the fintech sector, and in the same year the AFM and DNB set up the InnovationHub, a platform to support innovative financial services, including a regulatory sandbox. The ostensibly staid DNB has even been experimenting with blockchain technologies, and recently outlined a scenario of how its DNBcoin prototype might function in the distant year of 2140. When a central bank is that keen to entertain the idea of change, it looks as though like Amsterdam’s fintechfriendly environment is in it for the long haul. //

Dutch people are open to new and innovative ways of banking. There is a lot of activity and a lively scene of startups, especially in Amsterdam. That attracts investors.” Jeff Lynn, Founder of Seedrs in FD magazine (Financieele Dagblad)


FinTech Central International companies active in the fintech sector are increasingly taking notice of Amsterdam’s prowess: Fintech titans such as PayPal, Bitpay, Worldpay and Ebury have a considerable presence here, the Chinese bitcoin company Bitmain acquired Amsterdam-based Blocktrail in 2016, and India’s HCL Technologies opened an Amsterdam office in early 2017. “We did a very thorough assessment of different places, and were very impressed by the kind of start-ups here, especially in fintech,” says Sudip Lahiri, HCL’s head of financial services for Europe. “That’s why we have to be here, where the action is.” Holland FinTech Founded by Don Ginsel in 2014, this private Amsterdam-based organisation connects more than 300 member companies from across Europe to its knowledge base and network of more than 10,000 people around the world. “The Netherlands’s rich entrepreneurial history and the structures that it has created can also lead to a certain inertia,” says Ginsel. “But at Holland FinTech, we are showing how access to innovative financial services can overcome that inertia by empowering people and businesses alike.”

‘Amsterdam has a thriving tech community.’

Yvonne Agyei Chief People Officer

Excerpt from the report

A tale of 44 cities by Deloitte and the Global FinTech Hubs Federation, 2017 Overview – Index Performance Scores 46 New York








108 Warsaw

Copenhagen 71 Toronto

In the graphic below, a lower Index Performance Score indicates the hub is more conducive to Fintech growth.

Amsterdam 70










Brussels 127






Luxembourg City 83 Paris

Chicago 20


111 Zurich

Silicon Valley

Tel Aviv


55 99



Madrid 132 Mexico City 181

57 Lisbon 124








Hong Kong

Lagos n/a Bangkok 137








Bangalore n/a

Index Performance Score New Hubs Old Hubs 1–25


Abu Dhabi





Kuala Lumpur 101

Johannesburg 187

n/a Auckland



Jakarta 255

t fur

Ja ka r



a Dh

Ist an bu





Ho ng K


Edin bur gh

Dubl in



ls Brusse

kok Bang



u Ab

rd ste






r galo Ban

Overview – Hub Indicators


243 Sao Paulo


A lower Index Performance Scores indicates that the Hub is more conducive to FinTech growth based on the amalgamation of three global indices.

Go ve rn m Inn en ts ov Pro at up xim ion po Pro ity cu xim to ltu ity e xp to r e cu Fo rti sto rei s gn m sta er rtu Re gu p lat io n



rg bu

es nn ha Jo

ala Ku



ur mp Lu

os Lag


on Lisb on


urg City Luxembo



Mexico City Milan

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Old Hubs





Better than average

Better than average



Not good

Not good

Mo sco w

Na iro bi

Ne Os lo






Tel A viv

Tok yo

to ron







u ag Pr

Zu ric h

ris Pa

lo au oP


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This diagram lists the Hubs from left to right in alphabetical order. The colours of the Hub Indicators reflect the response given by the Hub Representative in relation to this category.

wY or k

To read the full report and to find out more about Deloitte’s and the GFHF’s activities in global Fintech, visit their websites at fintechhubs and

Global FinTech VC deal value 2016 The map below shows the 2016 global FinTech deal values for countries covered by this Interim report. Note that Bahrain, Hungary, Kenya and UAE had deal values less than $1 million and therefore were not included in the map below. Germany $384m Denmark $32m Norway $4m Sweden $62m

Netherlands $20m

Russia $7m

India $272m

China $7.7bn

Czech Republic$6m Poland $1m

Belgium $28m


UK $783m Ireland $524m Luxembourg $2m

Canada $183m

France $68m Switzerland $34m

US $6.2bn

Spain $12m Taiwan $6m

Italy $9m

Mexico $72m Hong Kong$170m

Brazil $161m

Indonesia $5m

Turkey $17m

Globally, $17.4 billion invested over 1,436 deals in 2016

Australia $91m

Israel $173m Thailand $19m

≥ $500m

Malaysia $4m

Nigeria $1m

≥ $100m

Singapore $86m

≥ $10m

New Zealand $7m

South Africa$15m

< $10m

Source: PitchBook Compiled by Deloitte

Map of regulatory sandboxes A regulatory sandbox is a regulator-driven initiative which allows businesses to test innovative products, services, business models and delivery mechanisms in a live environment. Typically, some regulatory requirements are amended to create a bespoke framework for the duration of an on-market trial. The map below shows all live and proposed regulatory sandboxes (and similar regulatory initiatives). Proposed sandboxes are ones on which a formal statement has been made by a regulatory or government body. Live sandboxes are ones which have already began accepting applications or conducting trials. As this is a dynamic space, the map is accurate as at time of publication.

Norway Proposed Financial Supervisory Authority (FSA) of Norway, ICT Norway

Netherlands Live Dutch financial supervisors the Authority for the Financial Market (AFM) and De Nederlandsche Bank (DNB)

Thailand Proposed Bank of Thailand

Russia Proposed Central Bank of Russia

Denmark Proposed

Canada Live

Hong KongLive

FSA of Denmark

Hong Kong Monetary Authority / Applied Science and Technology Research Institute

Ontario Securities Commission (OSC)

UK Live

Taiwan Proposed

Financial Conduct Authority (FCA)

USA Proposed Federal Reserve Board / Treasury Department / Securities and Exchange Commission

Financial Supervisory Commission (FSC)

Singapore Live Monetary Authority of Singapore (MAS )

Australia Live


Australian Securities & Investments Commission (ASIC)

Proposed Formal statement made by a regulatory or government body Live Accepting applications or conducting trials

Malaysia Live

Switzerland Proposed

Bank Negara Malaysia (Central Bank)

Financial Market Supervisory Authority (FINMA)

Dubai Proposed

Source: Innovate Finance Compiled by Deloitte

Dubai Financial Services Authority (DFSA) Dubai International Financial Centre Authority (DIFCA)


Abu Dhabi Live

Indonesia Proposed

Abu Dhabi Global Market (ADGM)

Bank Indonesia (Central Bank)

MONEY MAG // 4.8 Emerging fintech hubs

The ‘Connecting Global FinTech’ Interim Hub Review was published in April 2017 by Deloitte on behalf of the Global FinTech Hubs Federation (‘GFHF’). The review builds on the 2016 report of the same name and provides an overview of FinTech ecosystem developments in 44 cities across the globe.

Fintech post Brexit We now have a new anniversary to celebrate – or bemoan. On 23 June 2016, the UK went to the polls and voted in favour of Brexit, and since then we have also learned that Britain will likely be aiming for a hard exit from the EU. But are we any closer to knowing what the consequences of this will be for the European fintech industry at large? By Michael Juul Rugaard & Kristian T. Sørensen, Norfico Since last year’s referendum, a lot has been said and written about the possible consequences for Britain and the European Union of this – to put it diplomatically – rather bold and curious move. But since Britain hasn’t left the building yet, the jury is still out on whether or not Brexit is going to change London’s current status as the leading European, perhaps even global, capital of fintech. Unsurprisingly, representatives from London and continental Europe tend to disagree and have reached somewhat differing conclusions. But even the most pro-Brexit Brit has to admit that this level of insecurity cannot be good for business. The fact that London’s future status is in question has generated a sense of urgency in the financial community, particularly among London’s fintech companies and investors.

Metro Station in Copenhagen

Consequently, the continent’s rising fintech centres – such as Paris, Berlin, Frankfurt, Amsterdam, Stockholm, and Copenhagen – smell blood in the 140

water and are taking this opportunity to promote their hubs as worthy alternatives to London. Hazards ahead Overall, London’s fintech industry faces three possible threats post-Brexit. Firstly, Britain will in all probability have to wave goodbye to its passporting rights, which vitally provides licensed financial institutions within EU access to all parts of the European market without restraint. Secondly, Brexit might result in a change of legal status for thousands of foreigners working in the fintech industry which may result in many of them moving elsewhere. Thirdly, Brexit could easily – and probably already has! – dampen down the appetite for investing in London’s fintech firms. Is the exodus beginning? In February, Simon Black, chief executive of PPRO Group, underlined the risk of losing passporting rights to The Guardian, adding that all the Londonbased fintechs he knew were seriously considering moving parts of their business away from the British capital and into ‘safe EU heaven’ within the borders of the Single European Market. ”I don’t know of a licensed fintech company in the UK that isn’t looking at

Around the same time, the Emerging Payments Association (EPA) also published a report entitled: ‘Passport to the Future’ based on a survey of its members. The purpose of this survey was to analyse the possible consequences for British fintech companies if the UK lost its passporting rights post-Brexit. One of the report’s findings was that the EPA’s members believe the “removal of passporting rights will have a significant negative impact on fintech, payments and the UK economy”. In addition, some 88% of EPA members stated that passporting rights were “important or very important” to their current businesses. And over 91% of EPA members also believe that passporting is “important or very important to the UK’s fintech sector and its continued growth2”.

MONEY MAG // 4.5 Emerging fintech hubs

options,” he said. ”Everyone is thinking about it and anyone that is any size, that is employing more than ten people, is active. The exodus is beginning. It will be more visible in 2018.1”

instead of in London from now on. He added: ”Uncertainty means that maybe if you’re building the next fintech business, you shouldn’t build it in London today until everything clears up again and we understand what’s going to happen with access to talent and so on.3” No going back On 29 March 2017 Britain crossed the point of no return when Prime Minister Theresa May triggered Article 50 of the Lisbon Treaty. That same day, the CEO of Innovate Finance, Lawrence Wintermeyer, explained his concerns: ”The UK fintech sector relies on global investment and world-class talent. The triggering of Article 50 may pose challenges to these fundamentals.4” Two weeks later, in City AM, he added that passporting rights, alongside investment and access to talent, were the main areas which he expected to be impacted by Brexit. But interestingly, he also went on to say that less than 20 per cent of Innovate Finance members that are authorised to passport use it and, “member surveys indicate that many look to scale their businesses to the US before Europe.5”

I think London will remain one of the world’s great cities; it is going to be one of the hearts of finance for many years to come.”

The importance of passporting rights has been further stressed by countless executives and analysts within the fintech industry since last year’s referendum. Included among them are the likes of Tomas Likar, VP of Strategy at Hyperwallet; Samish Kumar, CEO at Transfast; Tim Levene, Founder of Augmentum Capital; Edan Yago, Founder of Epiphyte; Richard Lumb, Head of Financial Services at Accenture; Erik Engellau-Nilsson, Head of Communications at Klarna and Ahmed Badr, Legal Lead at GoCardless. Recently, the co-founder of Transferwise, Taavet Hinrikus, also came close to undermining the agenda of a governmentfunded fintech event in London when he announced that, due to the passporting issue, Transferwise will be locating its European headquarters on the continent

However, this percentage may still rise as fintech develops further – providing of course that passporting is still available to them post-Brexit. And the fact that many members of Innovate Finance are looking to scale their businesses in the US first does not mean that they have no interest in doing the same in Europe at all, it may just be at a later date. Lawrence Wintermeyer’s statement about triggering Article 50 also inspired a Fintech Insider podcast entitled: “Article 50: Signing the divorce papers”. In the podcast, well-known fintech analyst David Brear, commenting

1. 2. h ttp://, p. 2 3. 4. 5.


MONEY MAG // 4.5 Emerging fintech hubs

on Wintermeyer’s statement, said: ”Personally, I still feel very, very nervous about what this next chapter with regards to Article 50 means, and I do still dramatically fear we are throwing away the good work that we have done to get us to the point we are at with regards to leading the globe when it comes to the fintech ecosystem.6” But representing a more optimistic view on behalf of London’s fintech future, Managing Director at Barclays, Paul Titterton, who also participated in the podcast, added: ”I am erring on the side of being more optimistic. I think London will remain one of the world’s great cities; it is going to be one of the hearts of finance for many years to come. We have got the talent, we have got the right regulatory regime, and I personally do not see any major changes.7” Sure in its uncertainty It is hardly surprising that ambitious and innovative Brits find it difficult to accept that Brexit will result in such unfortunate outcomes. And after all, nobody truly knows what Brexit might lead to in the long run. But what we do know is that Brexit has created uncertainty about London’s continuing status as Europe’s capital of fintech. Several competing countries and cities are vying to take London’s crown, and it already seems that some may be likely to succeed.

6., 7:35 7. h ttp:// 12:15 8. h ttp:// p. 28

142 PAGE 142

In its aforementioned report, the EPA shortlisted Cyprus, Denmark, Ireland, Luxembourg, Malta and Sweden as the six most advantageous alternative countries for any fintech firm which decide to leave the UK. Its findings were based on parameters such as ease of setting up a business, ease of setting up a bank-account, regulatory environment, and local establishment requirements. The EPA concludes: ”As the report outlines, there are some very good alternatives to the UK available to those who want to operate in the EU and some specialists to ease the path. If passporting is not addressed as part of the UK Government’s Brexit negotiations, then these real and viable options could entice many of HM Treasury’s estimated 60,000 fintech employees to move their operations abroad.8” To what degree these, and other, countries will be able to curry favour with the London fintech community remains to be seen. But one might hope that the outcome of Brexit - and the new fintech initiatives it has fuelled – will be to boost the European fintech market instead of just creating a fall-off in London. We believe that the European fintech industry has the potential to keep growing - not just at the expense of London - and ultimately create a more geographically distributed, yet tightly connected, fintech scene. //


The bots are coming… The PR & communications revolution There has been an increasing number of articles about how the evolution of Artificial Intelligence (AI) and Robotics will render a large part of the global workforce obsolete and without employment. For a long time those working in the ‘knowledge economy’, such as journalists, public relations executives, bankers et al, have considered themselves immune to such ‘industrial revolutions’. In this article we explore whether we, in the knowledge economy, are really safe from automation – and how focusing on expert knowledge and traditional ‘front-office’ skills will keep our profession relevant throughout the communications revolution. By ContentBot Alice Thomas, MD Consulting

In 2013 Ken Schwencke, a journalist and programmer for the Los Angeles Times, developed software to help him (and his newspaper) get earthquake reports out as fast as possible (and ahead of the competition). His work resulted in ‘The Quakebot’: an automated way to turn notifications of earthquakes (over a 3.0 magnitude) from the US Geological Survey into copy, complete with map and headline, for the Los Angeles Times’ content management system. An earthquake below 6.0, and the report goes to the copy edit desk for approval; above 6.0 and it goes live on the Los Angeles Times website - without review. Photo: Adrian, Flickr 144

‘All very interesting’, you say, ‘But what has this got to do with communication?’ Well, as ‘The Quakebot’ demonstrates, it isn’t just blue collar jobs which are at risk from automation. Public Relations & Journalism: Change in Action PR and journalism are particularly ripe for automation – oddly enough, for exactly the reason that you would think they would be protected: value. Because journalism is a high-value, high-pay industry, it has been seen as worthwhile investing in automated systems which will release cost benefits over the long term. For example, North Carolina based company Wordsmith will, for $1,000 a month, generate unlimited ‘natural language generation’ (NLG) articles, at a rate of 200 x 200 word articles in 0.5 seconds. You read that right. Two hundred articles. In half a second.

And this drive towards automation isn’t just confined to the communications side of financial services – financial institutions themselves are increasingly turning to artificial intelligence and robotics. JPMorgan chief information officer, Dana Deasy, explains: “Anything where you have back-office operations and humans kind of moving information from point A to point B that’s not automated is ripe for that.” Examples of this is action include; Deutsche Bank hiring programmers over traders and investment bankers; JPMorgan adopting a learning machine, called COIN, which is interpreting financial deals – work which previously took lawyers and loan officers 350,000 hours a year; Robo-Advisors are shaking up the investment management industry.

So what does this mean for marketing and other service-based businesses and professionals? Faced with such a radical technology revolution, communications professionals now need to take a long, hard look at the real value of what we offer. Bu Lo, cofounder and CEO of online investment manager FutureAdvisor, points out that technology will also continue freeing up human financial advisors from mundane tasks “so that they can focus on providing uniquely human value, like coaching and mentoring”. In my view, the same is true for communications professionals as well. While success is often measured by output, much of our value is derived from our expert knowledge and traditional ‘front-office’ skills such as emotional intelligence, conflict-resolution, co-operation and collaboration as AI can’t yet compete in these areas. At MD Consulting, we focus on creating value through our extensive experience and knowledge of the fintech space, our large network of industry and media contacts, and by collaboration. Our membership of the Global Fintech PR Network is an example of collaboration that benefits our clients: we have firsthand access to global expertise in the fintech space that can help keep up to speed with industry trends globally, which enables us advise our clients with more authority and where appropriate we work with our global colleagues on specific projects. So while it does appear that many communications outputs can be automated, the value from having an experience human on your team cannot be under-estimated. The Bots haven’t quite taken over yet!//


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Other examples include The Associated Press (AP) has been using automation to ‘write’ earnings stories for some time, Bloomberg editor-in-chief John Micklethwait has recently announced that the news organisation is creating a team tasked with determining how automation can be used throughout the company, and in January 2015, AP’s assistant business editor Philana Patterson said: “Automation has freed up valuable reporting time and reduced the amount of data-processing type work [staff] had been doing. Once you set up automation, and go through a rigorous testing process, you reduce the prospect of errors. In fact, we have far fewer errors than we did when we were writing earnings reports manually.”

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