The Fintech Power 50 "Special Supplement Sibos 2019 London"

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"Small businesses face big banking problems" Anders la Cour, CEO & Co-Founder of


B-Hive is a European collaborative innovation fintech platform that brings together major banks, insurers and market infrastructure players. Together, we work on common innovation programs and build bridges between our corporate partners and our start-up and scale-up community members. We aim to put Brussels on the map as the smart gateway to Europe and leverage on the opportunities offered by the digital transformation for the financial services industry. We believe that building bridges between important fintech hubs and the Eurozone enables both European and non-European companies to grow and expand.

Connecting the dots in fintech Parvis Sainte Gudule 5 – 1000 Brussels, Belgium

WELCOME TO Sibos – the world’s premier financial services event – will this year focus on the theme of ‘thriving in a hyper-connected world’ and will address new technologies, value propositions and business models, and the culture, skills and working practices that organisations need. With the Fintech Power 50 celebrating the most influential, innovative and powerful figures in the global fintech industry, from disruptive startups to established operators, we’re the perfect media partner for Sibos 2019. Fintech is a fast-evolving sector with expert entrepreneurs establishing new companies that offer innovative technologies capable of transforming the way we pay for goods and services. The Fintech Power 50 combines the marketing support of major fintech


Fintech Power 50 is proud to be an official media partner at Sibos 2019 held in London for the very first time publications, with the business development opportunities and support services of an accelerator programme. It is a unique concept that has been growing exponentially since it was introduced last year. This year, the Fintech Power 50 has included some of the biggest hitters in the global financial services industry, including world-renowned futurist and speaker Brett King and fintech expert Chris Skinner – all covering the future of business and technology. Businesses honoured in the list range from fintech unicorns, such as Revolut and N26; challenger banks like Starling Bank; and innovative

blockchain ID and payment solutions, such as Nuggets. During Sibos 2019, we will be sharing our Fintech Power 50 Annual as well as this specially produced supplement supporting the key themes of Sibos London 2019. Within this supplement, you’ll find insights and thought leadership articles on innovation within corporate entities, new technologies, such as artificial intelligence and blockchain, cryptocurrency regulation and the importance of data sharing. Let us know what you think – join the discussion on our social channels or in the news section of our website. We’d also like to take this moment to remind you to vote for

your favourite fintechs to make sure they are considered for inclusion in the Fintech Power 50 2020 Annual. We have already seen a fantastic response with nominations flooding in for companies, such as Oak North, Monzo, Funding Options, Jumio, iProov and The industry must now vote from now until mid-November for worthy candidates to join the Fintech Power 50 programme in 2020. The final 40 companies will be revealed in a ceremony at the end of this year. ■ To vote for your favourite business, visit the Fintech Power 50 website: www.

COMPANY INFORMATION WEB: LINKEDIN: https://www. thefintechpower50 TWITTER: @thepower_50

FOUNDER Jason Williams CHIEF OPERATING OFFICER Mark Walker CHIEF MARKETING OFFICER Christophe Langlois HEAD OF ADVISORY Adrian Cannon HEAD OF TALENT Sian Morris PARTNERSHIPS DIRECTOR Katia Lang EDITOR Claire Woffenden ART DIRECTOR Chris Swales DESIGN & PRODUCTION PRINTERS Park Communications Limited, London PUBLISHED by THE POWER 50 LTD 41 Luke Street, London EC2A 4DP. UK


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©All Rights reserved 2019. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means,electronic, photocopying or otherwise, without prior permission of the publisher and copyright owner. While every effort has been made to ensure the accuracy of the information in this publication, the publisher accepts no responsibility for errors or omissions. The products and services advertised are those of individual authors and are not necessarily endorsed by or connected with the publisher. The opinions expressed in the articles within this publication are those of individual authors and not necessarily those of the publisher.





INNOVATINGWITHPURPOSE SWIFT is the original fintech. Before ‘disruption’ was fashionable, SWIFT disrupted previously manual processes to unlock huge efficiencies in the financial system, dramatically increasing reliability and reducing operational risks. We have not stood still since we were founded in 1973 to create a worldwide financial messaging service. Over the decades, we have pioneered secure technology, services and standards to continually improve financial services. The industry looks a lot different now than it did in the 1970s and with emerging technologies, such as APIs and blockchain – as well as rising competition in the sector – it is changing perhaps faster than ever before. What’s more, there is no sign that the pace of change is

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Sean Sarginson, Global Head of Innovation at SWIFT, on what’s in store for Sibos attendees and how technology is fundamentally changing the financial sector

slowing. The industry is adapting to new regulatory realities, acceleration in international commerce and, crucially, changing customer demands – namely for speed, transparency and traceability. In recent years, SWIFT has made important strides and with its global payments innovation (gpi), we are radically overhauling the very core of correspondent banking. Since gpi launched in 2017, it is not an exaggeration to say that it has transformed cross-border payments – which are now typically made within minutes or even seconds. But we’re not sitting back and resting on our laurels. SWIFT is taking a lead role as the financial services industry shifts towards application programming interface (API) technology. APIs are emerging as the new way to realise automation in the industry. It has already transformed other sectors, enabling ecosystems that challenge existing business models from transport

(Uber) to hospitality (Airbnb) and is now proving sufficiently robust for increased use in financial services. At SWIFT, APIs are at the core of our strategy and a key part of how we deliver a faster, more transparent experience to our customers. As well as using APIs within our own services, we are also taking the lead on behalf of the industry. We recently published a blueprint for common API standards that concluded that a successful transition to an API-based economy is only possible if we converge towards a standardised approach. Using our experience and expertise, SWIFT is at the centre of efforts to avoid fragmentation and to eliminate the needless complexities that can frustrate progress. Advances, such as distributed ledger technology (DLT), cloud and robotics, frequently grab the most attention, but at the moment API technology, because of its maturity and myriad uses, is arguably the

most powerful enabler of innovation in payments and other areas of banking. This does not mean we are not open to new technologies – we are. However, we do not believe in using technology to perform ‘circus tricks’. We innovate and use technology for a real purpose – to improve solutions and solve real world problems. Take DLT. We have been monitoring the development of DLT for several years at SWIFT and have ourselves explored the technology. Recently, we conducted one of the most extensive blockchain proofs of concept executed to date – both in terms of participant engagement and the scale of the infrastructure deployed. It showed that while significant progress has been made with the technology, it is still not clear if it is mature and scalable enough for mission critical applications. We identified areas that need to be addressed were it to be used in cross-border payments – for instance, integration with bank’s existing back office applications and co-existence with existing processes. In a recent development, we have connected gpi with enterprise software firm R3 to trial a new gateway to interlink trade and ecommerce platforms

with gpi to support the growing demand among trade ecosystems for secure and reliable settlement. While DLT-enabled trade is taking off, there is still little appetite for settlement in cryptocurrencies and a pressing need for fast and safe settlement in fiat currencies. We are also looking at e-voting using DLT – exploring whether it can help simplify the currently inefficient management of shareholder meetings and the associated voting processes that are often time-consuming and resource intensive.

For us, technology is an enabler, not the driver. Every time we move forward, we make sure to equip our community We will continue to experiment with blockchain in our laboratories as a possible long-term technology, as many do – and, if and when it is ready to use, we will deploy it. For us, technology is an enabler, not the driver. Every time we move forward, we make sure to equip our community with the best tools they need to embrace innovation cost efficiently.

SIBOS DISCOVER: INNOTRIBE, THE DISCOVER STAGE AND THE FIRST SIBOS HACKATHON Sibos Discover will host more than 100 fintech companies this year from early stage to growth startups. It will be an unprecedented opportunity to learn about the new technologies and business models that are coming to market and driving change in financial services. Innotribe, 10 years on from its inception, will take Sibos attendees on a deep time journey into the future with an incredible line up of speakers to guide them: from Professor Brian Cox to Kaliya Young (aka Identity Woman), to Brett King and Dave Birch. The Discover Stage will bridge that future to the present and make it tangible. The programme promises to be equally as exciting and surface a number of critical questions to be addressed by the people and companies that are living through them right now: trust and open banking; dramatic impacts of new technologies in India,

southeast Asia and China; the future of tokenisation and cryptoassets; and much more. Finally, for the first time, Sibos Discover will host a hackathon that will explore the potential of APIs to unleash the creativity of developers. Sibos attendees will have the opportunity to vote for their favourite project at 12pm on Thursday at the Innotribe stage. Visit for more details on the exciting programme we have lined up and info on how to register.

COMPANY INFORMATION WEB: LINKEDIN: company/swift/ TWITTER: @swiftcommunity




STANDING OUT IN A DIGITAL WORLD Customers today are gravitating towards digital experiences and digital products. As technology and digital services continue to take over more aspects of our lives, the financial sector has not been immune. In 2018, the global fintech sector raised a record breaking $52.5billion, surpassing 2017 with a significant margin. 2019

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Sharing knowledge and experts across different domains will drive innovation in the financial industry, says The Glue shows no signs of slowing down, confirming the fintech sector as one of the fastest growing industries. The financial industry, as we knew it, has shown its resilience and robustness

after going through a series of crises and will continue to play an important role in our lives for the foreseeable future. But it’s facing an onslaught of change, with new

technology and new, never-before-seen competitors. At The Glue, we are convinced that in the next five years, change will happen much faster than in the last 50. The shake-up brought about by credit cards in the 1950s and ATMs in the 1960s will be a ripple in comparison. Let’s have a closer look at what is reshaping the financial world today.

T H E LET THE SIX FORCES BE WITH YOU Since The Glue’s inception in 2015, we have talked to hundreds of banking, insurance and finance professionals. Our conversations revealed a true appetite for change. All know very well that financial institutions must act now if they want to leave an indelible mark. Here are six forces of change that drive decisions for the different sponsors in the financial world.


Legislation: PSD2, MiFID II, GDPR and SRD II Financial markets are heavily regulated to protect consumers, governments and businesses from the impact of bad practices and fraud. Legislation also prevents consumers from taking too much risk and entering into suboptimal contractual relationships. In Europe, legislation is a powerful and ever-evolving force to be reckoned with.


Low interest rates Aiming to boost inflation and stimulate growth after the financial crisis in 2011, European central banks have driven interest rates to an all-time low. Combined with higher capital requirements for banks, low interest rates put pressure on banks’ margins and traditional business models.


Digital transformation Digital banking is the new black. To stay top-of-mind in the daily lives of consumers, banks and insurers invest in the channels and technologies that dominate contemporary media, culture and entertainment.


Globalisation Globalisation has opened up economies and new markets


HELPING BANKS STAY AHEAD to all entrants. Underpinned by technological change, international powerhouses can now easily provide their services through a global marketplace and challenge local incumbent banks.


Customer expectations The four forces above have moulded today’s consumer into a needy, spoiled and demanding client. Nothing less than a perfectly seamless and worry-free experience is the standard. Provide anything less, and you’ll be perceived as subpar.

We offer digital banking and insurance marketplaces that save time, generate new revenue and enhance the future resilience of digital finance architectures


New entrants and challengers Companies, such as PayPal, took the industry by storm. Others, such as Apple Pay, have followed suit, and the world is anxiously waiting to see what Facebook’s Libra will bring to the equation. Google and Amazon benefit from PSD2 to piggyback on data that traditional banks have been gathering for decades. Clearly, there is no shortage of digital disruptors. They have no technological legacy or technology investment to protect, and they understand millennials’ needs for quick and simple banking.

The Glue helps banks to innovate and democratise their offering. We offer digital banking and insurance marketplaces that save time, generate new revenue and enhance the future resilience of digital finance architectures. From ideation and strategy, concept and development to spin-out with venturing capabilities. Our vision is one of alliance. We combine the strengths of customers with ours to realise the digital ambitions of the financial services industry. Let’s have a closer look at one of our customer cases.

HOW A BELGIAN TIER 1 BANK INNOVATES BOND TRADING WITH A DIGITAL MARKETPLACE In recent years, Belgian bank Belfius has established itself as a reference partner for companies and public organisations seeking to diversify their financing. Its operational model of trading in primary debt capital markets did not change fundamentally over the past few years: a manual and thus expensive process. This means that it is a business that is very hard to scale. Furthermore, this is a market with low levels of transparency while its actors are asking for faster and more transparent access. This spurred Belfius' efforts to explore new ways. Together with The Glue, it launched Dot-Capital, a digital marketplace for bond trading. The Dot-Capital project is fully in line with Belfius's strategy: aiming to provide real value through an innovative approach where people and

digital solutions merge and complement each other. Since its launch, more than €43billion has been handled through Dot-Capital. More banks, both national and international, are poised to join the platform to further increase the transparency and efficiency. The marketplace has been fully built on The Glue’s API-based framework: the data layer, integration layer and business logic, as well as the front-end screens. This framework is a bank-grade solution, featuring all essential non-functional requirements, such as scalability, high-availability, security, consistency and guaranteed data persistence.

OUR VISION Financial institutions are uniquely placed to deliver the next generation of digital-native financial services. At The Glue, we imagine a future of efficient plug-and-play platforms for financial transactions, where consumers, banks and insurers interact seamlessly. The Glue gives you options to democratise your offering, in a collaborative way. We support your platform strategy with funding and venturing capabilities. A unique fintech partner.

COMPANY INFORMATION WEB: LINKEDIN: company/the-glue-solutions TWITTER: @TheGlue_fintech





London: A global city for fintech London has always been the home of bold ideas and invention. Innovators in finance and technology have flocked to this city to create, disrupt and offer solutions to solve the challenges of the times. From the first ATM installed in North London in the late 1960s, to the present day rise of the challenger banks, innovation has always been thriving in London. In more recent years, we've seen a myriad of digital financial products addressing the needs of the financially excluded and small businesses, while also ensuring cyber resilience is kept at the forefront of new technology. Today, London is known across the world as a global hotbed for fintech innovation. London provides access to everything a business needs to succeed, all contained and collaborating within one city. A fintech entrepreneur can pitch to a venture capitalist (VC) over breakfast, chat with a regulator over coffee, hire top tech talent at lunchtime, present to a global financial institution in the afternoon and network with fellow entrepreneurs in the evening. Having been the centre of global finance for centuries,

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Dhaval Gore on why the capital’s passion for innovation and financial technology will prove a solid fit for Sibos 2019 London is conveniently positioned within a time zone that allows the capital to administrate financial transactions globally, from the Americas to Asia in a single business day. It is home to more than 250 foreign banks employing 150,000 people, more than 250 VC funds, a deep talent pool with around 44,000 people employed in the fintech sector and world-class universities producing a highly skilled and diverse workforce to create our future entrepreneurs. London is also home to the globally respected and progressively minded regulator, the Financial Conduct Authority and its world leading 'sandbox' and 'Fintech Bridge' initiatives, which allow innovators to test their products using consumer and market data. UK customers, particularly Londoners, are early adopters of tech products with one of the highest ecommerce spending per capita and a 42 per cent fintech adoption rate compared to a European

average of 33 per cent. London is also home to many of the world's global corporations who are increasingly seeking engagement with innovative companies as they look to digitise their services to remain relevant to their customers. London continues to attract talented and skilled individuals from across the globe; innovative foreign fintech firms use London to launch into new markets and, because of this, London has record levels of foreign investment. And despite these challenging times, London will continue to be home to world-class talent due to its fundamental strengths in finance, insurance, technology, professional


advice, research and its relentless drive to evolve and create new ideas and business models. Moreover, London will always be a cosmopolitan, outward-looking city open to trade, talent and investment from across the world. With more than a third of all European funding being poured into London fintechs, there's an incredible ecosystem present in the city, one difficult to match anywhere else in the world. We are delighted to be attending and supporting Sibos 2019, hosted in London for the very first time. Sibos is an ideal opportunity to showcase all that the capital has to offer in innovation and financial technology and we look forward to a week of discussions and making new connections. Please come and visit our stand (Stand 4 in the Discover Zone) and meet some of the capital's hottest fintech companies, including Bankable, Funding Options, Jumio, PixelPin, iProov and Shieldpay. Our expert team is also on hand to help you find the right connections and resources to navigate London’s exciting ecosystem.

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Barclays leads the way with open innovation

RISE TO THE FINTECH CHALLENGE Welcome to London – the ‘Unicorn Capital’ of Europe. With its unique blend of talent, investment, international reach and innovation, London is Europe’s biggest startup ecosystem. In the heart of this ecosystem lies Rise, the #HomeofFinTech, created by Barclays. Rise is a global community of the world’s top innovators working together to create the future of financial services, backed by our own network of industry experts, mentors, investors and partners. In the past, banks kept up with changing customer behaviours either by building their own products, or by acquiring companies to plug particular technology or knowledge gaps. As barriers to entry come down

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and it becomes affordable to set up a new business using the latest technology, many banks are finding it hard to keep pace when working in isolation. More and more financial services providers are waking up to the realisation that when it comes to innovation, the more efficient solution to building or buying is to collaborate. For Barclays, it is no longer a question of should we partner with fintechs but instead, how we can do this in a meaningful way that generates mutual success.

KEEPING PACE THROUGH OPEN INNOVATION As we head into what the World Economic Forum chairman calls the ‘Fourth Industrial Revolution’, Barclays’ relentless focus on innovation becomes even more

relevant. A popular route to accelerate innovation within an organisation is through ‘open innovation’ – an approach adopted by Barclays. Open innovation engages with different groups and individuals to create the best and most innovative solutions possible. At Barclays, we have deployed distinctive open innovation strategies: ■■ The Barclays Accelerator, powered by Techstars, is an intensive 13-week programme designed to fast-track the next generation of fintech businesses, while also bringing innovation applicable to Barclays. With help from Barclays, Techstars, and a team of high-level mentors, the participants aim to evolve their business propositions and solve

problems at the cutting edge of fintech ■■ Rise, created by Barclays, is a global community of the world’s top innovators working together to create the future of financial services. With a diverse network of fintech talent, a world-leading accelerator programme and workspaces based in the main fintech hubs of the world, Rise is an exclusive place for fintech companies to connect, create and scale together with Barclays ■■ Innovation forums and challenges are run through the Group Technology and Innovation Office for Barclays colleagues worldwide, allowing us to come together outside of our day jobs to collaboratively solve problems

B A R C L AY S B A N K This is not a step change for Barclays. For more than 325 years, innovation has been part of our DNA. It’s allowed us to co-create with our rich, diverse network of colleagues, partners, customers and clients around the world. This has led to a host of industry firsts, from installing the first ATM in the UK to generating the world’s first trade transaction using blockchain technology. In order to remain competitive and relevant, Barclays will continue to connect, create

Earlier this year, we announced our expansion to our Rise New York site. John Stecher, chief technology and innovation officer at Barclays said: “The fintech community is growing faster than ever with a number of game-changing start-ups. With the expansion to create our largest-ever Rise site, not only can we give those in our Accelerator programme the room to grow – we can also help to house more of the best and brightest innovators. We’re excited to further build

We’re proud to welcome our clients into this ecosystem where they can tap into our global innovation network to help accelerate their own business. With access to our global fintech community, a space to explore new opportunities and a front seat to our latest thinking on emerging trends and technologies this has become more than just a network. This is a movement of corporate entrepreneurs actively pushing the boundaries for their industries. For that reason, there’s never been a

better time to connect and collaborate with Barclays to explore new opportunities for your business and your clients. Please contact your Barclays relationship director to find out more about Rise and Barclays’ approach to innovation.



and scale with these new industry players at pace, in a mutually beneficial way.

RISE AS A CATALYST FOR GROWTH Rise operates a global network of state-of-the-art workspaces in four of the world’s top fintech ecosystems: London, New York, Tel Aviv and Mumbai. With more than 150 fintech companies who call Rise home, and a virtual community of more than 7,500 members, we have access to a huge range of change-makers in the industry. Our mission is to better connect technology, talent and trends from our network to accelerate innovation and growth for Barclays, start-ups and clients.

relationships that foster growth for start-ups, and opportunities for Barclays to work directly with businesses transforming the financial services industry.” Each year, we welcome more than 90,000 people across our global Rise sites comprising the entire fintech ecosystem; from innovators and industry to investors and influencers. While our customers and the world we live are in a constant state of evolution, we want to continue leading these changes rather than simply responding to them. We think creatively about new services, new products and new ways of delivering them, and our collaborative approach means we can share knowledge, platforms, skills and responsibility like never before.

FLUX digitises receipts and rewards from within your banking app. The team at Flux created a solution with a mission to digitise, automate and organise receipts while creating more valuable interactions with a positive environmental footprint. Barclays and Flux partnered by integrating Flux into Barclays’ Mobile Banking test app ‘Launchpad’ that has 40,000 live users and is also working with merchants who are clients of Barclaycard’s acquiring business. SIMUDYNE is a simulation technology company that offers senior leaders at organisations and governments a new way to more effectively harness the power of agentbased modelling, artificial intelligence (AI) and machine learning to test drive their decisions and drive growth. Simudyne’s clients include global banks, regulators and exchanges. Barclays is working with Simudyne to help better manage risk, as well as looking at revenue

generating use cases across all of its businesses. Simudyne is also helping build out Barclays’ talent base for data scientists.

SIGMA is the world’s first non-credit risk rating agency that generates financial crime and governance risk ratings on emergingmarket financial institutions and corporates. Using publicly available data, AI and machine learning they are able to establish ratings, bringing a much needed solution to the problem of de-risking and its negative impacts on emerging economies. The solution replaces outdated and inefficient bilateral due diligence in favour of a ratings approach analogous to the role that rating agencies perform for credit. Sigma participated in Barclays’ 2017 New York Accelerator, powered by Techstars, class and, as a result, Barclays owns a small equity stake in the business. Barclays Corporate Banking is currently trialling Sigma.




HOW WILL WE TRANSACT IN YEARS TO COME? To look forward and change, it is important to look back

FUTUREOFMONEY Here’s a story that I found so interesting that I discussed it in my book about the history and future of money, Before Babylon, Beyond Bitcoin. It is a utopian vision that happens to have something to say about money. This struck me as rather unusual for a utopian vision since, as Nigel Dodd observes, utopias from Plato’s The Republic to Star Trek don’t seem to include money at all, never mind M-PESA or Bitcoin. The story has a ‘guy who falls asleep under hypnosis and awakes a century later to find a model society, then finds it’s all a dream’ narrative arc that is hard to read with modern eyes, because the perfect society that the author imagines is a communist super state that looks like Disneyland run by

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David G.W. Birch asks if the technological transformation of money will leave us happy ever after or looking back with nostalgia?

Stalin. Everyone works for the government and, since government planners can optimise production, the 'inefficiency' of the free market is gone. The time traveller at the centre of the narrative is told by his host in the modern era, the good Doctor Leete, that cash no longer exists. Instead he informs him, the populace use 'credit cards'. (He then, as it happens, goes on to describe what are in fact offline pre-authorised debit cards, but that is by-the-by.) While the author does not talk about phones, the internet, aeroplanes or the knowledge economy, he does make a couple more insightful predictions about the evolution of money. When talking about an American

going to visit Berlin, the good Doctor notes how convenient it is to use cards instead of foreign currency: "An American credit card," replied Dr Lette, "is just as good as American gold used to be." What an excellent description of the world after the end of the gold standard, our so-called 'Bretton Woods II' era. However, I think that the most fascinating insight into the future of money comes later in the book, when the time traveller asks his 21st Century host: "Are credit cards issued to the women just as to the men?" and the answer comes back: "Certainly." That answer might alert you to the age of the text, which in fact contains the earliest mention of a credit card that I have found anywhere as part

INDUSTRY VIEW of a fictional narrative. The book is by Edward Bellamy and is called Looking Backward, 2000–1887. It was written in 1886, a century before the credit card became the iconic representation of money and it was one of the best-selling books of its day. I have a 1940s edition in front of me as I write (Bellamy 1946), so it was still being reprinted 60 years later! The discourse on money in that book is a wonderful example of how science fiction is not about the future but about the present: the retort 'certainly' is clearly intended to surprise the Victorian reader as much as the prediction of glass tunnels that surround pavements when it rains. It took a writer, not an economist or a technologist, to ask a simple question and get a surprising answer. Hold that thought. A good rule of thumb for futurologists is that if you want to look 50 years forward, you need to also look 100 years back because of the increasing pace of change. 100 years ago, we had the telephone and markets connected by instant, global communications. We had the Bank of England and the Federal Reserve. We had wire transfers. We had the world’s first commercial aviation service, created to accelerate the clearing of cheques between Chicago and New York. We were also coming to the end of the era of the classical gold standard under the pressures of the First World War, now we are coming to an end of the Bretton Woods II era and, as The Economist observed recently in an article Into the Woods on 17 August, it is not at all clear what is coming next! What will replace the International Monetary Fund (IMF), central banks and

commercial banks offering credit when it comes to creating money? The reaction of regulators around the world to Facebook’s proposed Libra digital currency seems to indicate that the incumbents are not going to give up without a fight. Yet given the history of financial markets and institutions, we know that change is inevitable as the structures reshape under social, regulatory and technological pressures. It is not good enough to simply say that the incumbents are wrong. We must help to create a vision of future banking that helps us all – and I include the regulators in this – to shape strategies that lead to a financial sector that serves society better.

What will replace the International Monetary Fund, central banks and commercial banks offering credit when it comes to creating money? BUT WHAT VISION? If we set aside both the misplaced view that the status quo will prevail and the Bitcoin maximalist's fantasies of a completely decentralised society, where do we look to find believable alternatives. We all hear the speeches of the regulators, read the annual reports from the bankers, see the demos of the technologists and the slide decks of entrepreneurs. But have any of these created a vision in your mind? Perhaps it's time to return to art to develop a narrative just as surprising to contemporary audiences as Bellamy's was to a Victorian one. So, what do we now see a couple of generations from

now? The world of Star Wars with a ‘galactic credit’ that is universally accepted. That doesn’t seem right to me. A single currency doesn’t really work between Germany and Greece, so how it would work between Earth and LV-426, or the world of Star Trek with no money at all, save the gold pressed latinum of the Ferengi (valuable because it’s the only substance that the replicators can’t produce)? How about the world of Charles Stress’ Neptune’s Brood where there is fast money and slow money that relies on cryptography so it only travels at one-third the speed of light? How will people transact? Will it be the world in Robert Heinlein’s Beyond the Horizon where the government has an ‘integrated accumulator’ (what we would now call a blockchain) to record all transactions and the finance minister has dashboard to see just how the economy is doing? The integrated accumulator sounds very much like the 'compubank' in Margaret Attwood’s The Handmaid’s Tale which tells what happens if this machinery falls under the influence of fanatics, in that case as theocratic US administration that bans and blocks women’s payment cards? Will cash, indeed, be banned or will it simple be cash as in William Gibson’s Count Zero where the protagonist finds himself in a near future where he ’had his cash money, but you couldn’t pay for food with that. It wasn’t actually illegal to have the stuff it was just that nobody ever did anything legitimate with it’. (Which, frankly, sounds like Sweden rather than some future dystopia.) What if money as we know it vanishes as a transactional

medium of exchange? Will it be the world of Bruce Sterling's Distraction in which distributed servers manage reputation as a currency, a theme also present in Cory Doctorow’s Down and Out in the Magic Kingdom. I am naturally attracted to these images of a future in which identity, trust and reputation reconnect us with our neolithic heritage (indeed, a few years ago I wrote a book called Identity is the New Money) and dispense with many kinds of intermediaries! Will this free us or will it fulfil the prophecy of the Book Of Revelation 13:16-17 that 'no man might buy of sell save that he has the mark, or the name of the beast, or the number of his name' enslave us? Should we begin our scenario planning for these transactional environments now (hint: yes) or should we leave the technologists to choose a future for us? In the Innotribe closing keynote this year, Brett King and I will be looking how writers have thought about the future of payments, banking and money to see if their narratives can help us to formulate strategies in this space and to see if we can find the hard question and surprising answer for the world of 50 years from now. I have an idea of what it might be, but let’s see how Brett, me and the Innotribe audience develop our thinking on the day. David G.W. Birch is an author, advisor and commentator on digital financial services.





SMALL BUSINESSES FACE BIG BANKING PROBLEMS Banking for small and medium-sized businesses (SMEs) is rarely simple. Depending on the size, structure, ownership and history of the business, and the bank they speak to, their banking options vary dramatically yet rarely suit the business need. Application and set up takes too long, costs are too high, credit repayments are inflexible, solutions are off-the-shelf – whether that is a retail banking shelf or a corporate banking shelf. The difficulty for traditional banks, challenger banks and fintechs alike, is that no two SMEs are entirely alike. There may be 5.7 million SMEs in the UK alone, providing an incredible opportunity for any financial services provider, but with their vastly differing needs, no one solution can serve every SME, and no banks or fintech can build 5.7 million tailored banking solutions.1 At least, not quickly enough or at a price an SME can afford. However, what SMEs do have in common is a need for banking solutions and an almost inevitable need for additional funding, whether that is for

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Without more industry creativity and collaboration, life will be difficult for SMEs, says Anders la Cour, Co-founder and Chief Executive of Banking Circle

London and includes insights gained from some of the people working right in the heart of the challenges and the solutions hitting the market today. Speaking to these experts gave us first-hand insights and experiences, uncovering where changes are happening, where opportunities exist and where barriers are beginning to come down to increase SME financial inclusion.


jump-starting an expansion, purchasing seasonal stock or replacing broken equipment. As a business passionate about increasing financial inclusion for SMEs, we recently commissioned MagnaCarta Communications to carry out research into these issues. We published the initial findings in our June 2019 white paper, Financial Inclusion for Europe’s SMEs: Building a Circle of Trust. A second report, Circle of Trust or Out of the Loop?, will be published at Sibos 2019 in

Kent Vorland, CEO of SmartTrade, explained why SME financial exclusion is such a serious issue: “Smaller merchants tend to have normal people problems. By that I mean that the problem isn’t that they want money so they can go on holiday or go out for a nice dinner. They need their money so they can feed their family, complete the jobs or orders for their customers, or to purchase stock for the customer who has ordered it.” Roger Vincent, general manager (UK&I) & CIO of Trade Ledger added, “Above a turnover of £1million, banks will flick businesses over to corporate banking from retail and that’s the gap

where companies are massively underserved.” Paul Townsend, non-exec director of Vitesse PSP Ltd confirmed: "There are certain client groups where a bank is perfectly acceptable and works well. Where it becomes more challenging is when the client becomes more complex, requiring FX and cross border payments, having a small balance sheet and low number of employees. This brings concerns around cost-to-serve."

BROADENING SME BANKING HORIZONS The good news is that providers are beginning to realise the potential held by the SME banking market. Valentina Kristensen, director of growth and communications at OakNorth Bank said: "SMEs are still not top of the agenda for most financial services providers, but many are waking up to the benefits. They are realising that if they get an SME on board, they will be loyal and bring multiple cross-selling opportunities within the business, among the business owners and there is potential for employees to become profitable retail customers too."

BANKING CIRCLE BUILDING A CIRCLE OF TRUST Working together can improve financial inclusion for smaller businesses

As our report shows, bringing about real change and better financial inclusion for SMEs requires participants to work together and develop joint solutions, building bridges between individual innovations already in the market. Vincent of Trade Ledger added: "We are creating a new ecosystem of financial services providers, in partnership with other providers, such as Banking Circle, to establish a new era of financial services that will better service customers and SMEs in the banking space. If we better serve the banking space through the incumbents, then the SMEs will benefit

greatly as they can access the services they want."

WHAT’S NEXT? Vorland of SmartTrade believes the market is ripe for a better SME funding solution, saying: "100% of the merchants I have worked with over the past three years would be overjoyed, thrilled, to have access to their cash instantly, and would willingly pay a small fee or interest on the loan, or a certain percentage of all transactions to pay back a settlement or loan they needed." Perhaps controversially, he also believes providers could deliver the solution now: "I can assure you, every financial

Bringing about real change and better financial inclusion for SMEs requires participants to work together and develop joint solutions

institution on earth could put together a risk structure that would allow these companies to have access to that finance. And on top of that all insurance companies in the world would be happy to insure those liabilities, so the risk wouldn’t necessarily even lie with those offering that financial inclusion. All in all, there is a long line of companies that would benefit from being given that level of flexibility." However, as our latest report shows, the progress and achievements will remain limited until further collaboration, communication and joined-up thinking becomes commonplace within the financial services industry. As with any ecosystem, it must be perfectly balanced in order to function effectively. The banking ecosystem must include all types of

financial services providers, from big banks to start-up fintechs. Only with providers working together in such collaboration, not competition, will we see financial inclusion reach its peak. To register for the new Banking Circle Insight Paper, which will be launched at Sibos 2019, visit www.bankingcircle. com/circle-of-trust-or-out-ofthe-loop-pre-register. 1 documents/SN06152/SN06152.pdf

COMPANY INFORMATION WEB: LINKEDIN: company/bankingcircle TWITTER: @bankingcircle




BEST LINE OF DEFENCE It’s hard to go a week without the news of a large-scale data breach. Sadly, we’ve all grown a bit complacent when we hear these stories. But, each of these breaches has a ripple effect which has slowly chipped away at the collective online trust between consumers and modern enterprises. Organisations no longer trust that consumers are who they claim to be and consumers do not trust organisations to keep their personal data safe.

WHAT IS AN ACCOUNT TAKEOVER? Account takeover (ATO) fraud is a type of identity theft where a bad actor gains unauthorised access to an account belonging to someone else – usually accomplished by using bots. A successful ATO attack typically results in fraudulent transactions and unauthorised shopping from the victim’s compromised account.

HOW IS ATO PERFORMED? Most often, the attacker will use lists of email addresses and passwords stolen en masse from hacked sites and then try those same credentials to see if they can gain access to online accounts. There are a number of steps involved in a successful ATO attack:


Purchase password databases: Cybercriminals know users commonly reuse the same password across

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With a rise of account takeovers and data breaches, it's time to reconsider using passwords, says Robert Prigge, President at Jumio different services. Obtaining stolen credentials from the dark web is just the first step


Credential stuffing: The next step for the attacker is to test the stolen credentials against the target organisation. These can be manual or automated attacks with bots using credential stuffing tactics


Unlocking accounts: Once the attacker has identified valid credentials for a user account, they can either fraudulently login to extract value for themselves or sell the working login to others


Phishing attacks: Often the data extracted from one account leads to more ATO and other forms of cyberattacks, including password resets and phishing attacks


API exploits: Cybercriminals can feed a list of successful logins into apps that rely on application programming interfaces (APIs) from one of several personal financial data aggregators

PRIME ATO TARGETS Fraudulent access to customer accounts has always been

a concern for financial institutions, but today ATO attacks can affect any organisation that relies on a simple username and password for account logins. ATO targets regularly include gaming, technology, retail, restaurants, online travel and reward programmes where a criminal tries to obtain products and services. In other scenarios, the criminal’s goal is to collect personally identifying information to be used for other forms of fraud and identity theft. These types of attacks often target healthcare, the public sector and even academic institutions.

SAFEGUARDING AGAINST ATO ATTACKS ATO takes advantage of the weaknesses created by your customers/users that are more difficult to close. Businesses can impose additional security hurdles for users when they log into their accounts, but this often translates into more friction, which leads to increased abandonment. Unfortunately, even when the customer may be to blame for unauthorised access to their account, the organisation is still held

responsible by customers, the media and even in court. Modern organisations, especially financial service organisations, need to take responsibility and develop alternative authentication mechanisms that balance the user experience with account takeover detection and deterrence. Jumio recommends a five-step strategy to defend against ATO attacks:


Turn to biometric authentication: Stopping ATO starts when a new account is created. Organisations need to thoroughly vet users during account opening with sound identity proofing technologies. This means going beyond credit bureau lookups and evolving towards biometricbased identity verification that relies on establishing a reliable trust anchor, such as a government-issued ID (e.g. driver’s licence) and a corroborating selfie. Better biometric authentication solutions include certified liveness detection which ensures the user is physically present and detects advanced spoofing attacks (i.e. the use of a picture or video to impersonate a legitimate user).



Don't rely solely on passwords: Organisations must evolve past passwords because they’re inherently vulnerable and enable ATO. Yes, this involves change, but tailwinds are making the transition from password to biometrics easier. Two-thirds (67 per cent) of consumers are comfortable using biometric authentication today, while 87 per cent say they’ll be comfortable with these technologies in the near future.2 This trend has been accelerated by the broad adoption and familiarity of facial recognition integrated within the most popular smartphones (e.g. Apple Face ID and Samsung’s facial recognition feature).3


Educate your users: Because consumers routinely recycle the same password across multiple websites, we’re unintentionally simplifying the job of today’s cybercriminal. Only one per cent of people know and care that passwords have patterns and those patterns can be tracked or broken.4 This suggests the need for consumer education on a massive scale. Educate

your online ecosystem and help them recognise these spear-phishing and social engineering attacks, understand their fraudulent nature and know how to report them.


Take an adaptive risk approach: A multi-layered security approach is the best way to minimise the risk of a financial institution’s customers falling victim to account takeover fraud. This approach brings together several solutions that protect bank operations and customers without any negative effect on user experience including accurate identity verification, biometric authentication, transaction monitoring and anomaly detection.


Pay attention to fraud signals. There are a number of fraud signals that, if noticed, can help detect ATO attacks. For example, if a customer is logging in from an unauthorised device or location (IP address), that’s a fraud signal. If a user is using proxies, VPNs and cloudhosting services to evade IP

Modern organisations, especially financial service organisations, need to take responsibility and develop alternative authentication mechanisms that balance the user experience with account takeover detection and deterrence

blacklists, that’s a fraud signal. Modern enterprises need modern tools to defeat armies of bots used to test millions of stolen credentials and access protected accounts. ATO has become rife across consumers’ digital lives, with hackers using phishing, credential stuffing and brute force techniques to crack everything from email inboxes to Uber and Netflix accounts. ATO shows no sign of slowing as evidenced by the daily barrage of data breaches (many of which include the theft of usernames and passwords) and the parallel growth in the dark web and cyber toolkits to perpetrate attacks via bots. Companies need to reconsider the password as their go-to authentication methodology. We need to start building in the necessary safeguards to more reliably ensure that the user logging in is the actual account owner and not a fraudster impersonating that user with stolen login credentials. The good news is that today’s

users are getting more comfortable and familiar with biometrics, as are CIOs – 86 per cent of CIO, CISO and security VPs would abandon password authentication if they could.5 In this era of no trust, it’s not surprising that companies are starting to pay more than lip service to online security and alternative authentication methods. While conventional wisdom holds that consumers will value speed over all else, more and more consumers are placing a premium on security and prioritising it as a must-have feature for protecting their online accounts. 2 biometric-authentication-finding-balance-uxsecurity/ 3 4https://blog.preempt. com/weak-passwords 5 sites/louis columbus/2019/07/14/passwords-arethe-weakest-defense-in-a-zero-trust-world/



CONFIRMING YOUR CUSTOMER'S IDENTITY Companies need to take a multi-layered approach to account verification




HEY SIRI…WILL OUR BANKS BE DIGITAL CASUALTIES? James Thomson, Chanticleer columnist at The Australian Financial Review, writes about what the future looks like for the banking sector with banking technology expert and fintech founder Brett King Hey Siri, can I afford to go out to dinner tonight? That seemingly innocuous question could provide a window into what the future looks like for the Australian banking sector, according to banking technology expert and fintech founder Brett King. Over the next decade, disruptive fintech firms – possibly led by Chinese giants, such as Alipay parent Ant Financial, which King says will eventually become the world’s dominant bank – will force incumbent banks to shift from a focus on products to the delivery of predictive

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experiences based on their customers’ behaviour. Using data and artificial intelligence, a bank or payment provider will be able to answer the question of whether the customer’s finances support that dinner – or perhaps even look at customers’ calendars, spot a dinner appointment and send a reminder a few days earlier to warn them whether or not to rein in spending. Perhaps the better question is: Hey Siri, will our banks really pull this off? King, who is the founder and chairman of New York-

based fintech Moven, has a dog in this fight. Moven, which works with banks in eight different regions, provides behavioural models that help banks drive better engagement and retention – little 'nudges' such as spending alerts and notifications, and savings prompts. Brett King says banks will struggle to keep up with the likes of Chinese giant Ant Financial. King, was speaking at the FINSIA summit in Melbourne, says Moven’s experience with TD Canada Trust – Canada’s second-biggest bank – provides a good

example of what the future might hold. Half of TD’s customers use Moven’s platform, called My Spend. This group has seen a four to eight per cent reduction in monthly spending thanks to the various nudges they receive compared with a controlled group. This creates real loyalty and stickiness, he says; the attrition rate for the Moven group of customers was 0.5 per cent, compared with 3.8 per cent for the control group. Technology will only help drive this further, King argues. Imagine a world where you will walk into a supermarket and be

INDUSTRY VIEW offered a small amount of credit to cover the weekly shop. Or where you might walk into an electronics store and be warned that with the rent due next week, buying that gadget wouldn’t be smart. Or where you might be prompted to shift the surplus from your weekly discretionary spending budget into a savings product. This last product is already available in China, where Yu’e Bao has built about $250billion in deposits to become the world’s largest money-market fund. But King argues the ability to provide even more personalised advice – and, where necessary, a credit or savings product – in the right way, at the right time, is how the next generation of banks can get ahead.

Artificial intelligence and other forms of automation could change or even wipe out as many as half the jobs in a traditional bank What does that mean for traditional banks? For starters the credit card is dead, and so too is the branch – even in rural and regional areas, where King argues digital inclusiveness should be a bigger concern than retaining branch networks. Secondly, artificial intelligence (AI) and other forms of automation could change or even wipe out as many as half the jobs in a traditional bank. Thirdly, the way banks will be disrupted can be seen already from markets, such as the UK and China.

Consumers will test disrupters by taking a single product with them – say a digital wallet that offers a super easy way to pay or transfer funds – and use that product for some discretionary spending. Then, 12 months to 18 months later, consumers will have sufficient confidence in the fintech to shift most of their day-to-day transaction activity across. Better interest rates will have little impact on this shift, King argues. Rather, it will be the experience – ease of use, personalisation, the provision of techniques (like those nudges) to change behaviour – that makes the difference. There are a few caveats here. While China has shifted fast to mobile payments, its regulatory system is much different to that in places, such as the US and Australia, where even signing up for a bank or payments account requires what King says are decidedly old-fashioned, and now quite risky, identification methods. Nonetheless, King argues we should look at how Chinese giants, such as Ant Financial have blown up the very idea of coming into a bank to sign a bit of paper if we want to understand where the sector is going from a global perspective. And, he says, this hyper-automated, data-driven, nearly completely digital world is just a decade away. Perhaps banks can keep up – certainly technology could transform their cost bases, giving them room and resources to innovate.

But King argues the local sector’s broad strategy of simply taking their current products online is simply not enough. This article was originally printed in The Australian Financial Review in September 2019. chanticleer/hey-siri-will-ourbanks-be-digital-casualties20190903-p52ne3



Brett’s next project is his new book, due out in 2020, on the impact AI and technology will have on society. It’s more than a sequel to his bestselling book Augmented, it is an exploration of how governance, politics, economics and social cohesion will be impacted by technology automation, increased longevity and climate change. The systems of government and the economies of the world that emerged out of the industrial revolution, further shaped by two global wars, have fundamentally been about the scarcity of resources and the concept that to win, others must lose. The economic philosophies of those, such as Adam Smith, John Maynard Keynes, Ayn

Rand and Karl Marx, formed belief sets that were adopted by politicians and economists over decades as doctrine that shaped our daily lives. Rather than evolve these models, we seem to have struck a period of ideological stagnation, and recent populist movements appear to be aimed at preventing us from moving forward, romanticising the good ol' days. At a time when technology seems ready to unleash its most disruptive potential, are such movements symptomatic of the fact that we stand on the cusp of some of the most significant changes in human society since the days of Plato? An era that turns political models, economic theories, education and policy on its head.





IT’S GOOD TO SHARE Business to business (B2B) data sharing is not a new phenomenon. It has great potential to unlock a whole new spectrum of efficiency and profitability for your business. Yet while the opportunity exists, there are assumed and real challenges to scale it. Data sharing between the automotive industry and big tech is on the rise with self-driving cars benefiting from advances in a number of technologies. Fiat Chrysler has partnered with technology giants Google and Samsung to improve vehicle connectivity

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Karan Jain on why businesses need to recognise the benefits of sharing information if they are to grow and innovate

with data sharing between the organisations at the heart of the collaboration. While car giants BMW, Ford, Groupe Renault and General Motors have come together to form a consortium with tech giants, including IBM and Accenture, that will explore the potential of blockchain in the car industry. In financial services, the current business environment is complex. Eroding margins, high reg costs, rising customer expectations, entry from big tech and weekly new fintechs can create quite an overwhelming puzzle to solve. However, B2B data sharing presents itself as one of the

foundational pieces that can help unlock new opportunities for growth and defence going forward. Data sharing between firms involves combining what is traditionally a private dataset, with another from the same or different industry. It can help better identify trends across the industry, help cut regulatory costs and enrich your core product set with cross-industry insights. McKinsey Global Institute estimates that this type of open data sharing will create $3trillion per year in value-added products and services across the global economy. The demand for data collaboratives is

growing. Firms who are ready to share data with others to solve complex industry problems will find themselves ahead, strategically and financially. While adding value to customers, it gets us closer to solving social challenges, such as financial inclusion, wellness and fraud.

REGULATORS Regulations, such as Open Banking, Europe’s second payment services directive (PSD2) and the general data protection regulation (GDPR), support the data sharing movement by creating frameworks that enable collaboration privately and securely. This provides confidence on safety, privacy and rights of the data holder. Recently, the Bank of England’s Future of Finance report supports the notion of data sharing between firms for the benefit of the customer and emphasis on the role with adding stability to the payment infrastructure, as one of their priorities. A vital component of a Financial Action Task Force (FATF) report recommends information sharing, which is described as a critical component of an effective anti money-laundering framework. An extension to several existing initiatives that bring together public and private sectors, such as FinCEN in the US and the Joint Money Laundering Intelligence Taskforce in the UK. At the Financial Conduct Authority’s (FCA) recent Financial Crime Tech Sprint, the regulator suggested data sharing was the solution for cracking down on illicit sales and modern slavery, affecting

40 million worldwide. Data sharing is a crucial element for fighting financial crime as one of FCA’s top priorities – ‘using a network of firms to defeat a network of criminals’.

WELLBEING Public sector collaboration can also reveal untapped value. When Hurricane Katrina struck, the direct-mail marketing company Valassis shared its database with emergency services to help improve aid delivery. In Chile, analysts from Universidad del Desarrollo, UNICEF and the GovLab collaborated with Telefónica, the city’s largest mobile operator, to study gender-based mobility patterns and design a more equitable transportation policy. Only by combining datasets are these insights possible.

openness continue, Deloitte points out that most organisations remain underprepared for data sharing. In 2017, the consultancy concluded that only one per cent of businesses were currently trading data in business-tobusiness relations, and two per cent had adopted an open data policy to share data. On the bright side, 90 per cent of consumers trust banks to share their data securely, according to Boston Consulting Group. Despite the benefits, a majority of firms still consider data sharing an unknown. The most common objections are: it’s not secure; we have privacy concerns; it’s anticompetitive and there’s a need for common data standards. Examples, such as Cambridge Analytica, are often confused with these approaches and

What is your data sharing strategy? Businesses who adopt data openness are innovating at higher levels Data sharing will also serve to make artificial intelligence (AI) more robust. The output of AI is only as useful as the underlying models, which are only as effective as the quality and quantity of the underlying data. Imagine bigger, more accurate data sets for all your AI initiatives. Public datasets like this are non-imaginary, they are utilised in academia at large, and the trend for sharing research datasets continues to grow year on year. This assists with minimising bias from the more comprehensive data sets leading to better decision-making. One could easily argue that there is a higher cost to not collaborate on data with other firms. Yet, should the trend of

drive unwarranted distress regarding data sharing. Emerging technologies, such as homomorphic encryption, enclaves, multipart computation and zero knowledge proofs, are enabling more private information sharing to a point within existing legal and regulatory frameworks.

BEAM ME UP, SCOTTY What is your data sharing strategy? Businesses who adopt data openness are innovating at higher levels. The European Commission’s research into data sharing in 2018 found that companies that spend more than €50,000 on reusing data sets were

making seven times more improvements to their product and services. There are also new business models emerging centred on data sharing. Firms are already shifting from being technology companies to being data companies. Existing data-sharing initiatives in the market are aiming at significant social and regulatory problems. The approach is widely used in automotive, healthcare and increasingly in cybersecurity collaboration. One can get started with common industry problems. Non-competitive use cases, such as money-laundering and cybersecurity, are ecosystem challenges and difficult to solve in isolation. In both fields, a significant amount of effort is duplicated between firms to validate a bad actor or threat. By sharing anonymised insights between organisations, we can generate an industry-wide view that streamlines the cost and effort required among each firm and strengthening the position. I encourage you to explore the possibility of data sharing with a trusted group or think tank that is defining best practice to start sharing data between businesses with a diverse range of participants, including regulators, firms, technologists, lawyers and academics.

WRITER'S PROFILE Karan is an independent advisor to the fintech community globally, based in London. He has 15 years of banking and technology experience with a passion to advocate technical enablement in financial services.






LOVE US NOW! For nearly three decades, SmartStream has been at the forefront of innovation in reconciliation software solutions, evolving its offering over the years into areas, such as cash and liquidity management, corporate actions and expense management. Headquartered in the UK, with staff deployed across 20 global offices, SmartStream’s base of 2,000-plus customers includes more than 70 of the world’s top 100 banks alongside leading asset managers, custodians and broker dealers. Innovation with a purpose is important to SmartStream. In 2018 it established a Innovation Lab in Vienna, employing a mix of data scientists, mathematicians, computer scientists to design and develop artificial intelligence (AI), machine learning and blockchain technologies and data driven solutions that 'deliver better business outcomes'. The SmartStream Innovation Lab is the ‘baby’ of Haytham Kaddoura – CEO of the company for three years and a member of its board of directors since 2007 – who wanted technology to be developed in full cognisance of its impact. He explains that by ‘monitoring, watching and

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SmartStream’s CEO Haytham Kaddoura discusses AI strategies, technology innovation and ‘game-changing’ new products

learning’, SmartStream is now in the position to introduce new products to the market that will be like 'nothing else anyone has done before’. “Everyone is talking about artificial intelligence and it certainly appears to be the new watchword. We have seen a lot of people say they have AI, but at SmartStream we’ve had artificial intelligence for years, even before this term was coined. It’s what we specialise in,” says Kaddoura. “The difference is that we have actual solutions. Everything we bring out is purpose built, it has AI in it but because it needs to be in it, and because it makes a difference.

For us, it’s not important to be first, but to be the best.” “So, anything we do is the result of years of research and development with valuable insight and intelligence from our clients and partners. Through artificial intelligence we can identify patterns and behaviours, improve response times and spot any anomalies in transactions to provide customised offerings to customers.” According to SmartStream, data scientists at its Innovation Lab have been working closely with banks that increasingly want high levels of automation and greater control of their risks and operations to develop and assess new products that go beyond the conventional way of processing data to ultimately drive down costs, improve profit efficiency and boost workflow efficiencies. At Sibos, SmartStream will launch three of these products with Kaddoura confident that it is better to be a ‘teeny bit late to the party’ in order ‘to get things right’. “We have a solid foundation with a lot of our clients who rely on us for their strategic direction and for our level of assurance. So, we really wanted to assess all the hype before stepping into this space so what we do is right

the first time and not just hopping on the bandwagon. What we are presenting at Sibos has been developed for quite a while and has already been verified with financial institutions and we know they are going to be real game changers. If you liked us before, then you’re going to love us now.” SmartStream products showcased at Sibos 2019 will include:

AIR AIR (artificial intelligence in reconciliation) uses the AI algorithms to reconcile any data structure in any data form or structure.

MANAGED SERVICES WITH ARTIFICIAL INTELLIGENCE The AI looks at exceptions and identifies opportunities to improve auto-matching, reduces the amount of manual

Everything we bring out is purpose built, it has AI in it but because it needs to be in it, and because it makes a difference. For us, it’s not important to be first, but to be the best

effort required by users performing reconciliations, reduces the number of exceptions feeding to client(s)' organisation for review and resolution, reduces the number of exceptions feeding regulatory reporting e.g. FCA’s CASS reporting, Risk Weighted Asset Calculations etc, and improves operational risk ac curacy within an organisation by continuously monitoring and controlling.

DIGITAL PAYMENTS CONTROL This is SmartStream’s first product within its Aurora suite of solutions aimed at the mid-tier market. It delivers a state-of-the-art post swipe/ post tap operational control centre, that allows users to focus on disputes and turn-around-time which has a direct impact on the customer experience. The AI matching is integrated, fully scalable, high-volume capability, PCI compliant and covers all digital payment instruments from ATM, credit/debit card, mobile, wallets and Open Banking. SmartStream will be at exhibition stand Q131 at Sibos 2019 and will be providing an update on the status and developments of its current suite of solutions and how digital strategies can benefit from AI.

COMPANY INFORMATION WEB: LINKEDIN: company/smartstreamtechnologies TWITTER: @smartstream_stp





MAKEYOURMARK In many ways fintechs have redefined perceptions of what a bank is and what it means to its customers. Right from the start, their razor-sharp marketeers realised that the answer wasn’t in offering better interest rates or other fiscal incentives, it was about putting people at the centre of their brand. Not customers and demographics but individuals and communities. It was about building brands and services that focussed on lifestyle, convenience and positive aspirational values. Today, customer experience has become perhaps the single most important focus for digital banks. Huge amounts of time, energy and investment have been poured into optimising digital apps, activation, support services and card distribution. But in the world of digital banking where so many aspects have become less tangible, the physical card and its packaging have also become important vehicles not only for physical engagement but for cementing brand values and welcoming

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There’s great value in remaining tangible in a digital world, according to Dane Whitehurst people into the fold. In this industry, the plastic card isn’t just a bank card, it’s a membership card and, in the absence of a handshake, the way it is presented through its packaging fundamentally defines the first, ‘hello, welcome to the club’. Packaging with opening mechanisms that delight, inform and elicit a true ‘wow factor’ have become very popular in this space. They offer a great brand experience and also act as a powerful marketing tool for social media marketing. We all seem driven to share the things we find most beautiful and packaging has become a personal billboard for the influencer in us all and it gives brands the potential to reach far beyond their own sphere of influence. In a world where

advertising is almost inescapable, the result is mass-exposure but in a way that feels more subtle and based on choice (we choose who we follow and what we search for) and this helps consumers to retain a sense of control. Most recently the design team at Burgopak have been working hard on a new ‘optimised’ range of products that combines the ‘wow factor’ of their most popular formats (and some new additions) with a carefully researched and sympathetically embedded focus on optimising each part of the supply-chain, including production, shipping, fulfilment and postage. Each format has been painstakingly stripped-back

The physical card and its packaging have become important vehicles... for cementing brand values and welcoming people into the fold


WEB: INSTAGRAM: @dane. whitehurst, @burgopak

to reduce materials, water and energy consumption, and assembly time. A number of the formats also have the option for an integrated seal-and-tear strip negating the requirement for an additional envelope and speeding up the fulfilment process. Designed specifically for plastic card products, tickets, invites and other flat media, the range can be adapted and resized to suit specific requirements. With up to 25 per cent less material, 70 per cent less glue, 300ml less water and 150 watts less energy required to produce each pack, the net result is not only an obvious reduction in cost but also a considerable reduction in the environmental footprint. It is a body of work that wholeheartedly subscribes to the philosophy of perhaps the greatest industrial designer of our age, Dieter Rams: ‘Less, but better’.


INTRODUCING THE BURGOPAK PAYMENTS PACKAGING RANGE. Six innovative solutions designed to maximise branding and engage the consumer. Each hold a unique unveiling mechanism you won’t find anywhere else. Make an impression. Promote interaction. Reinforce your brand values. Request your free sample today. WWW.BU RGO PAK .CO M




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KEEPINGYOURBALANCE(S) From a certain perspective, the traditional cornerstones of transaction banking remain unchanged. Yet the evolution of the way they are delivered, the tools used to enable them, how we think about them, our understanding of the value they offer and how they generate revenues, continues apace, turning transaction banking on its head. Banks need to offer frictionless customer interactions through a user experience optimised to reflect corporate segment, sector and persona, that anticipate all the firm's possible next actions, show unasked their outcomes if executed and highlight the best one, given the current context of time, location, balances, policy, history and even predicted future. These attributes are delivered in the most recent evolutions of Contextual Banking Experience: the white-labelled front-end channel from Intellect Global Transaction Banking (iGTB) with its rich history running transaction banking for more than 80 banks worldwide. Built from the ground up on APIs and micro-services, CBX’s modular components can be

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Virtual accounts enable business to control money the way they want, says iGTB's Ashok Vedartham and Phil Cantor

used to supplement existing portals with additional capabilities, or as a visibly stunning keystone of a transformation programme to propel a bank’s transaction banking into the 21st century. CBX incorporates its own entitlements, self-service and workflow engines and includes product ‘domain packs’ with hundreds of predefined use cases to help banks accelerate the implementation of new capabilities across domains, including account services, payments, collections, cash flow

forecasting, liquidity, working capital – and virtual accounts. ‘Real’ (i.e. regulated) accounts were created by banks, for the bank’s convenience. Run your business the way it pleases your bank, Sir. With virtual accounts, now firms of all types and sizes can control their money the way they want, split the way they want, report how they want and manage the way they want, free from the tyranny of needing the bank’s permission, following bank processes, having mandates to sign and regulations to check just to tweak the division of the dosh. Oh, and it doesn’t just save the firm a ton of hassle, it saves the bank even more unproductive work.

requirements or simply a simpler position view. That’s why we say it is turning transaction banking upside down. Virtual accounts can provide an immediate increase in frictionless self-service and reduction in operational costs without loss of transaction revenues – in two ways:


■■ Managing customers’ own money better Customers create a hierarchy of virtual accounts closely resembling their organisational structure ■■ Managing customers’ clients’ money better Customers manage monies belonging to third parties and there is a need to segregate funds inorder to meet regulatory requirements

Virtual account management is not a feature any more than real account management is. It is a revolution in itself and an underpinning framework, allowing for acting on behalf of others, escrow (whether for lawyers, real estate managers, insurers or others), client money management, a better form of pooling and obviating sweeping, satisfying Basel III

The systems must provide: ■■ Self-service for account opening, management and closure ■■ Management and control of account hierarchy ■■ Account number management so that the virtual accounts can coexist with the regulated accounts in the bank’s ecosystem

iGTB Implementing a virtual accounts capability brings its own challenges. Providing virtual accounts with even basic capabilities requires careful integration with some of the bank’s core systems and infrastructure. Add in capabilities, such as payments initiation or receipt and the challenge increases.


The virtual accounts is a quiet revolution that lets a business run how it wants to run, not to suit the bank’s convenience management and closure for all the variations are another vital component. Transaction support for payments and collections with a virtual ledger for all subaccounts help make virtual accounting real.

iGTB’s Virtual Account Manager provides an end-to-end, front-to-back, soup-to-nuts contextual solution for managing virtual accounts. It is designed to provide a flexible approach to implementation, with multiple integration options and the potential to deploy services incrementally – so, for example, get to market quickly with liquidity then adding more sophisticated capabilities, such as the so-called ‘xOBOs’: liquidity-onbehalf-of (LOBO), paymentson-behalf-of (POBO), collections-on-behalf-of (COBO) and receivables-onbehalf-of (ROBO)v. Full transaction reporting across all virtual accounts, naturally. Sophisticated account numbering patterns cater to the requirements of different markets and geographies, with bank- or customer-defined numbering, sub-account hierarchies and contextual virtual accounts. Both single and bulk issuance with automated, as well as manually defined series are standard. Self-service for account issuance, life-cycle

■■ LOBO is where traditional liquidity solutions are used in conjunction with virtual accounts. As there is natural concentration of funds within a hierarchy under a physical account, concentration structures across hierarchy can be a strong use case for LOBO. More advanced use cases can be notional pool alternatives, Nordic cash pool and the like. ■■ POBO is where a payment is made using a virtual account, where both the virtual account and physical account ledger are impacted by a debit. The finer point is that in case of true POBO, the ordering party details are additionally provided. This is usually used by large customers to reduce number of accounts with the bank while retaining segregation, natural concentration for better treasury management and visibility. This has benefits to

Service provider Service Recipient Purpose Money manager

Lawyer Lawsuit Client Legal fees Escrow agency

Landlord Apartment Tenant Security deposit Landlord


Lender Mortgage Borrower Insurance/Tax Escrow agency

bank as it helps manage net stable funding ratio (NSFR). And, also used by payment factories to manage the payment business of multiple customers. ■■ COBO is where the collection of money by customers from their payers is made using virtual accounts. In most markets with the advent of electronic clearing, push payments have overtaken the traditional pull collections. Here too, if virtual accounts are used by a subsidiary or third party, we would have true COBO, where the ultimate creditor needs to be specified. ■■ ROBO Reconciliation of customers’ receivables using virtual accounts is called ROBO. The virtual accounts in this case can represent complex hierarchy of sub-accounts and contextual virtual accounts. Here those virtual accounts can represent a subsidiary or a payer counterparty or even an instance of transaction like invoices. Thus, by applying advanced reconciliation rules and matching criteria, customer’s receivables can be better managed: eliminates all that wondering who paid you and means you don’t need to share (and cannot easily change) your receivables account IBAN. Virtual accounts can ensure straight through reconciliation.

visibility at different levels of segregation. Because of the high level of self-service functionality built in, banks can scale their escrow offering tenfold or more by virtualising the holding and sub-accounts. Different configurations are optimised to different use cases with different content, fields and workflows. This provides a hugely close-to-business feel for end users, enabling banks to run focussed campaigns and so increase market share in previously under-served segments.


WEB: LINKEDIN: showcase/igtb/ TWITTER: @i_gtb

The client money manager and escrow solution from iGTB, whether for independent escrow agents or self-escrow, enables complete segregation of funds and provides their

MONEY IS BEST IF IT’S MANAGED PROPERLY So iGTB’s virtual accounts offer multiple modes of xOBO and escrow or client money enablement for the bank. From being a back-end engine enabling the existing channel to offer virtual accounts, to being a sophisticated contextual banking experience using CBX. It can also work with banks’ existing payment engines or can be used with the state-of-art Payments Services Hub from iGTB. Great flexibility, then, to bring your virtual accounts offering rapidly to the market with existing systems, progressively shifting to more sophisticated solutions as fast or as slow as the bank can take. iGTB bank clients won 34 awards in 2019: evidence that the world’s best corporate banks bank on iGTB.






Planning a bright future Seeking international opportunities and building bridges to enable global growth is essential for maintaining the UK’s fintech success, says Tom Helm and Sameer Gulati at The Department for International Trade Financial technology has provided us with a new lens by which we view and manage our relationship with money. No longer a small and emerging sector of the UK economy, today fintech employs more than 76,500 people, across a diversity of geographies. Moreover, with a sector that represents 1,600 companies and is worth approximately £7billon to the economy, it is clear that the future of financial services must also be one which includes the story of fintech. Looking at fintech over the last five years, the introduction of the Competition Mandate at the Financial Conduct Authority (FCA) in 2013 represented, to some, a catalyst moment for our industry. Including the specific aim to help drive competition in financial services, the FCA's work has since led to the formation of Project Innovate; its work on regulatory sandboxes; and its most recent efforts to drive cross-border, multilateral coordination between regulators through The Global Financial Innovation Network. It's through these efforts (and more) that the UK is often considered to have the most innovation-friendly regulatory environment. This in turn allows our domestic fintech sector to test, trial and innovate within the purview of regulators.

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However, forward-thinking regulation is only one ingredient that helps to explain the UK’s comparative advantage in fintech. To understand further its growth we must also consider our access to capital and talent. The UK has consistently ranked among the top three countries globally (alongside the US and China) for attracting capital into fintech. Indeed, last year alone the UK attracted $3.3billion of investment into fintech (of which $1.7billion represented venture capital). 2019 shows little signs of a slowdown – with the UK already attracting $2.9billion of investment in the first half of this year. If we combine this with the breadth of financial and professional service firms in London alone (64,000) – which is the highest concentration anywhere in the world – it becomes evident that the UK not only attracts significant overseas investment into fintech, but also possesses a healthy level of consumer and commercial demand for such services. The third key ingredient for the development of fintech is a steady stream of talented

individuals. Once again, the UK does well globally, with three of the top 10 universities and 12 in the top 100. However, there are areas for improvement – not least the need to ensure that the fintech sector represents the diversity of talent which resides across the UK. With female founders making up 17 per cent of fintech companies; and women receiving only three per cent of venture capitalist fintech funding – there is much to be done to ensure equality of opportunity exists across the industry. So, where will this leave the UK's fintech sector in years to come? Increasingly, fintechs are making the transition towards providing services for audiences abroad and perhaps the next chapter of our story will be showcasing British ingenuity on a global scale. This is where the Department for International Trade (DIT) can provide assistance. With a network of overseas staff in embassies and high commissions in 108 markets around the world, our principal aim is to help British firms access markets abroad and to catalyse foreign direct investment into the UK. With this aim in mind, the DIT team has an ambitious

programme to help support fintechs as they look to achieve scale further afield. Such as signing five ‘Fintech Bridge’ agreements between the UK and China, Singapore, South Korea, Hong Kong and Australia – the latter two in which DIT is piloting enhanced support to enable firms to ‘land and expand’ in these markets. Or the signing of the Financial Innovation Partnership, which brings together the DIT and HM Treasury, alongside our counterparts in the US Departments of Treasury and Commerce – all with the stated aim to help drive future bilateral trade and policy between the US and UK. The British fintech sector has shown itself to be a truly significant area of growth, innovation and expertise. However, we must continue to fortify the ingredients which have supported the expansion of this sector, both domestically and globally, with the realisation that the future of financial services is intimately entwined with the future of financial technology.

COMPANY INFORMATION WEB: organisations/department-forinternational-trade TWITTER: @tradegovuk












BUILDING THE FIRST API-BASED GLOBAL TRANSACTION PLATFORM FOR SMEs WHY IT MATTERS Small and medium-sized enterprises (SMEs) are poorly served by banks today, certainly in payment services, foreign exchange and hedging. Recognising this problem, and how to solve it, was the basis for Form3 and Ebury’s successful bid for the Banking and Competition Remedies (BCR) grant, worth £5million. Form3 and Ebury are two highly innovative, fast growing and cloud-native UK fintech companies, designed to scale rapidly and to provide substantial benefits to small businesses globally by offering SME-focussed financial institutions (banks and fintechs) access to their transaction platform. The platform provides SMEs easy access to global payment services to help them optimise supply chains and better serve their clients. SMEs need this support to grow and provide a vital contribution to the UK economy. Form3’s market leading API technology and payments expertise, combined with Ebury’s global SME transaction service, will

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REDUCING COST, RISK AND COMPLEXITY “Form3 together with Ebury are committed to providing easy to use services that reduce cost, risk and complexity for SMEs. This will enable business owners to improve distribution and supply chain flexibility and allow them to focus on servicing their customers and growing their business.” Mike Walters, Chief Product Officer, Form3

ensure customers can access International Payments (pay in and pay out) FX and Trade Finance and settle in up to 140 currencies globally. In addition, customers can provide preferential payment and collection capability using the same API. It is essential that financial institutions improve their service offering to SMEs so customers aren’t forced to find alternatives.

will be able to provide services that traditionally only global institutions could offer to their corporate customers. SMEs will receive a far better service at lower cost, fully integrated with their business account provider.

“We are super excited to open up this channel to Financial Institutions (FIs) that wish to offer a truly global transaction banking experience for their SME customers” Toby Young, Chief Technology Officer, Ebury Visit Form3 (stand 43B) and Ebury (stand 6C) at Sibos from 23 – 26 Sept at Excel, London.



A WIN WIN Financial institution providers in the SME space

Scaling for international payments? Don’t let legacy technology restrict you from progress. Provide your customers with access to International Payments (pay in and pay out) FX and Trade Finance and settle in up to 140 currencies globally. No need to manage multiple technology partners or build your own banking network, trust Form3 to manage everything for you. In addition, provide preferential payment and collection capability using the same API.

We want to hear about your business and where you’re headed. @f3fincloud


ARE YOU READY? Mark Walker of FinTech Power 50 and Marcus Hughes, Head of Strategic Business Development at Bottomline Technologies, discuss Open Banking and the second European Payment Services Directive MARK WALKER: What are the upcoming deadlines set by regulators under Payment Services Directive 2 (PSD2) and who is affected? MARCUS HUGHES: Although PSD2 became effective on 13 January 2018, a transition period until 14 September 2019 was allowed before the European Banking Authority’s regulatory technical standards came into force. However, as the deadline approached, there were growing concerns that the industry was not sufficiently prepared for this significant change and that the impact of the new rules could potentially result in a significant decline in ecommerce. As such,

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extensions to this deadline have been requested and negotiated in the UK and Europe. In contrast to the UK’s Open Banking, where the nine largest banks are required to publish application program interfaces (APIs) for sharing customer data, PSD2 spans all 28 countries of the EEA, plus Iceland, Liechtenstein and Norway. It also affects all banks and payment service providers. MW: What are banks, fintechs, developers, regulators and consultants doing to prepare? MH: With the help of consultants and fintech partners, most banks recognise

that it is strategically important for them that their approach to these new challenges should not be defensive, where only the minimum is done to open up APIs to third-party providers. Instead, they are proactively developing their own account information services and payment initiation services to compete more effectively. Banks also appreciate that experienced fintech firms and consultants with expertise and technology can help them comply with the new regulations and develop new customer propositions. These relationships are proving more important than ever under PSD2.

MW: How will PSD2 revolutionise the financial services payments landscape? MH: PSD2 is driving radical change in the way businesses and consumers pay and get paid. These new regulations are already having a major influence on the banking and payments industry – not just in the UK and Europe, but around the world. PSD2 introduces a new approach to sharing bank account information and manage payments more securely which will give rise to exciting new services and business models. This is good news for payment service users, whether they are consumers or

BOT TOMLINE businesses of any size. Countries around the world are closely watching developments in the UK and Europe and are already designing their own versions of this new approach to managing data and payments. The first Open Banking solutions to hit the market have tended to target consumers, such as account aggregation services which allow consumers to view all their payment accounts via a single, easy to use app. But banks and fintechs are realising that the small business and corporate sectors represent a rich opportunity to offer exciting new value propositions. MW: Are there any downsides to be aware of? MH: When Open Banking was launched in January 2018, the press focussed more on the potential security issues of sharing data with fintech firms than the exciting new ways for consumers and businesses to pay and manage their finances. This was despite the fact that a key objective of PSD2 is to make payments and account access more secure and replace unregulated screen scraping’. PSD2 requires Strong Customer Authentication (SCA) involving Multi-Factor Authentication (MFA) and transaction risk analysis, with exemptions only for demonstrably low risk transactions up to €500. Some payment professionals complained that the greater security requirements actually run the risk of increasing the friction in payments. This is precisely at a time when there is strong market demand for easier, seamless payments which effectively disappear into the background of our private and business lives and happen automatically when we

exchange value. It is important to strike a balance between these two extremes of maximum security and frictionless payments. Recently concerns have emerged regarding One Time Passwords (OTP) due to evidence that the Signalling System No 7 (SS7) protocol used by telecoms providers is vulnerable to hacking. Fraud risk will enforce established security techniques, such as password plus hard or soft token, while driving wider adoption of biometric identification techniques (fingerprint, retina, visual and voice recognition). Otherwise, SCA runs the risk of introducing more friction into the payment user experience.

Banks and fintechs are realising that the small business and corporate sectors represent a rich opportunity to offer exciting new value propositions We may see greater segmentation of payment service users, each served by a separately regulated entity with different levels of security requirement: some payment service providers (PSPs) may target lower risk customers/merchants for a frictionless user experience, while others may ring-fence higher risk customers/ merchants and apply full MFA. A further risk of PSD2 is fragmentation of API standards across Europe. Unlike the UK’s Competition and Markets Authority, which collaborated to develop a common API, the European Commission felt a single common API standard would be anti-competitive.

They therefore left the technical details of PSD2’s APIs completely open, encouraging market forces to define them. Unfortunately, this position risks creating fragmentation. A number of different consortia have formed across Europe to develop their own APIs at a national or regional level. It remains to be seen how standards will evolve across the EU and whether the UK’s own Open Banking model might even become the API standard of choice for Europe. The EU’s decision not to impose a common API standard risks and the differing transition dates makes the adoption of the new payment initiation and account information services more complex and time-consuming than originally planned, both of which could impact the success or failure of this initiative. MW: Who are the challengers that might benefit from the new payments ecosystem? MH: Consistent with its objective of increasing competition in payments, PSD2 is attracting a wide range of organisations all wanting to operate as third-party providers and offer account information services and / or payment initiation services. Banks, fintech firms and even regular corporates, such as tech giants, large retailers and online merchants, can become regulated third-party providers. While many new/challenger banks have launched PSD2 solutions, making it easier to compete against large incumbent banks and other PSPs, it’s not only them that are entering the market. Fintech firms believe that PSD2 provides an ideal opportunity to disrupt

the payments market with innovative and personalised offerings, targeting very specific market segments, for example millennials, small businesses etc. An interesting consequence of PSD2’s Payment Initiation Services is that it is enabling large online merchants to reduce the high fees they currently pay for receiving payment online by credit and debit cards. Large online merchants are beginning to either become regulated as payment initiation service providers (PISPs) or partner with PISPs. This enables them to obtain payment direct from their customers’ bank account. It is becoming increasingly evident that the tech giants, such as Google, Amazon, Facebook and Apple, are positioning themselves to make a decisive shift into payments. Thanks to PSD2, the fact that large online merchants are able to switch to push payments and reduce the volume of card payments being accepted online will ironically help them reduce their credit card fees. While an unintended consequence of PSD2, this positive result for tech giants was probably the last thing on the European Commission’s mind in encouraging competition and innovation. Undoubtedly tech giants have a great opportunity to capitalise on the opportunities created by Open Banking and PSD2. But they are not first into the market. A number of banks have already made a reasonable head start.






CRYPTO-ASSETS FINDING THE RIGHT PERIMETER The crypto-asset market is still in its infancy, yet it is becoming increasingly difficult for regulators and market participants around the globe to keep up with fast-moving developments. The striking feature of this novel market is the large portion of crypto-assets held by retail investors as opposed to regulated financial institutions or high net worth corporates. Regulators are still grappling with how to appropriately regulate and supervise the potential risks posed by this emerging market without stifling innovation. Jurisdictions around the world have taken a variety of different approaches to address the risks presented by crypto-assets to consumers, as well as wider financial stability concerns. These range from simple warnings to consumers about the risks posed by crypto-assets to partial or outright bans. Some regulators, such as the UK Financial Conduct Authority, have also adopted a 'regulatory sandbox', allowing for market entrants to test innovative products and services in a controlled environment, with support in assessing the regulatory treatment of the proposed business model and any adjustments that may need to be made. Other jurisdictions have even implemented a specific regulatory regime for crypto-assets, for example the Abu Dhabi Global Market, the

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By Barney Reynolds and Matthew Humphreys of Shearman & Sterling UAE’s newest financial centre. Worldwide, many regulators are also collaborating with each other to ensure a coordinated response to regulating innovative products and services. In the UK, as in much of the rest of the world, the regulators’ response to crypto-assets has instead been to consider how these assets and related activities may be dealt with by existing regulation, which was not designed with such assets in mind, rather than attempting to address any new policy issues at this stage. This short note considers the sorts of crypto-related activities that might fall within the scope of existing UK regulation, taking into account recent guidance published by the FCA.

CLASSIFICATION OF TOKENS The FCA has identified three broad categories of token. For activities relating to a particular token to fall within the scope of UK regulation, the token itself must generally be a regulated financial instrument. This table explains the different types of token and whether, in the view of the FCA, they are likely to be regulated instruments in the UK. The type of token involved in a particular activity will normally determine the

extent to which that activity is regulated in the UK. However, every situation needs to be individually assessed.

ADVISORY AND BROKERAGE SERVICES Advisory and brokerage services are generally regulated and cover a wide range of financial instruments. In UK regulatory parlance, such services would normally constitute the regulated activities of 'dealing in investments as principal or agent' and 'advising on investments' where they are carried out in relation to regulated financial instruments, e.g. shares, bonds, units in funds or derivative contracts. Other regulated services may also be provided by a broker, such as 'arranging deals in investments' and 'safeguarding and administering investments'. The regulation of these activities means that service providers need to be authorised to provide them in the UK. Advisers, brokers, wallet providers and other intermediaries in the crypto market would equally need to be authorised if they provide such services to retail or wholesale clients for crypto-assets that fall within the scope of UK regulation. For example, a crypto brokerage firm that executes

transactions in security tokens on behalf of clients could be carrying out a regulated activity. However, the likelihood is t hat many of the intermediaries currently providing services in the UK crypto market will be doing so in relation to exchange tokens, such as Bitcoin. As indicated by the FCA’s guidance, exchange tokens are normally unregulated. The need for authorisation is therefore unlikely to be an issue for many intermediaries in the crypto markets at present. Nevertheless, as discussed below, some regulation may apply even if the token involved in a particular business activity is not a regulated financial instrument.

ISSUERS OF TOKENS A relatively recent trend is for centrally-issued tokens to be offered to the public in an event known as an 'initial coin offering'. This mirrors 'initial public offerings' in the equity capital markets, in which shares are issued and allotted to the public for the first time. In any traditional offering of equity or debt securities, a number of regulatory issues are engaged, including requirements under the EU Prospectus Regulation and, where the securities are being admitted to trading on a regulated trading venue, various listing, disclosure and transparency rules may apply. Securities offered to the public in the European Economic Area

require a prospectus to be published, which must be approved by the regulator in the relevant EEA Member State (e.g. by the FCA in the UK). The Prospectus Regulation regime is onerous and requires detailed disclosure concerning the issuer, its accounts and the terms of the security, which must be reviewed by the relevant EU regulator. Traditional equity or bond offerings that are not directed at retail investors often make use of an exemption under the Prospectus Regulation to avoid the need to publish a prospectus that complies with the extensive content requirements of the Prospectus Regulation. For example, offers of securities whose denomination per unit amounts to at least €100,000 and offers of securities addressed solely to 'qualified investors' do not require a Prospectus Regulation-compliant prospectus to be published. Wherever there is an offering of tokens to the public in the EEA, it is therefore important to consider whether the offering would fall within scope of the Prospectus Regulation. The Prospectus Regulation broadly applies to offers of 'transferable securities', a key characteristic of which is 'negotiability on the


capital markets'. The FCA’s view is that a security does not need to be listed to be 'negotiable on the capital markets'; it must merely be capable of being traded on the capital markets. This will be the case if, for example, a security can be transferred from one person to another, resulting in the transferee acquiring full legal ownership. The classification of the token will also be important – the FCA guidance suggests that security tokens would be capable of constituting transferable securities provided that they meet the relevant criteria. However, it is less clear whether tradable exchange tokens or utility tokens will fall within the definition – the answer will depend on their detailed characteristics. There are clear risks involved in offering tokens to retail investors without a prospectus, since the purpose of the prospectus regime is to protect retail investors from information deficiencies when buying securities. If similar risks arise with crypto-assets but a merely technical interpretation indicates that the prospectus regime protections do not apply, this could motivate regulators to seek to reinterpret their regime or get

it swiftly changed. A lack of clarity as to which assets fall within the regime amplifies these risks and it can be hard to find reputable law firms who will issue a legal opinion confirming that the prospectus regime does not apply. Consequences of failing to publish an approved prospectus are significant including, in the UK, criminal penalties.

PAYMENT SERVICE PROVIDERS In the UK, payment services are regulated under a separate regime from investment services. To fall within the scope of UK payment services regulation, a firm needs only to carry out a prescribed 'payment service'. This means that business activity involving any form of crypto-asset could be caught if it involves the performance of a payment service, for example money remittance. The FCA has confirmed that activities relating purely to crypto-assets, such as the operation of a crypto-asset account or the transmission of crypto-assets, are not within scope of payment services regulation, which governs activities relating to 'funds', defined as 'banknotes and coins, scriptural money and

Utility token


Tokens akin to regulated financial instruments, such as shares or bonds, that confer holders with similar rights.

The regulatory issues discussed in this note are by no means exhaustive and firms engaging in activities related to cryptoassets would be advised in all instances to seek legal advice as to potential regulatory issues that may apply. For example, market participants will also need to ensure that they comply with applicable anti-money laundering laws. The Fifth EU Money Laundering Directive, which is due to come into effect in January next year, brings crypto exchanges and crypto wallet providers into the scope of the AML obligations under the EU-wide AML regime. These businesses will need to carry out customer due diligence on prospective clients, among other requirements.

The FCA gives the example of tokens that provide the holder with a right to a share of the issuing company’s profits, to be paid annually. Such tokens offer similar rights to shares and so are likely to be regulated. The ‘tokenisation’ of a financial instrument does not affect its regulatory status.

WEB: LINKEDIN: company/shearman-&-sterling-llp TWITTER: @ShearmanLaw


Exchange token Tokens that are intended and designed to be used as a means of exchange, functioning as an alternative to traditional fiat currencies. Unlike fiat currencies, which are backed by a central bank, exchange tokens are not issued or backed by any central authority. Security token

electronic money'. However, the use of crypto-assets to facilitate a service involving traditional money, for example transferring money overseas using crypto-assets as an intermediary mechanism, may still be captured by regulation. Firms leveraging cryptoassets to facilitate payment transactions or building payment networks using crypto-assets should consider whether the ultimate service provided to clients constitutes a regulated payment service. If so, authorisation as a payment institution may be required to comply with UK rules.

Tokens granting holders access to a current or prospective product or service, but which do not grant holders rights that are the same as those granted by regulated financial instruments.






SPOTLIGHTONTALENT Great companies are built around great people, which is why it’s so important to attract the most talented and skilled employees to join your organisation and help grow your brand. The Fintech Power 50 has recently set up a new talent division to help its fintech member companies grow their businesses into successful organisations. The new division recognises that it's not only important for companies to have great products and processes but also the opportunities to develop their next-generation workforce. Finding the 'right' talent, skillset, experience and cultural fit is an essential driver of success, but this mix is often challenging to find. Individuals with specialised knowledge and technical abilities are hot property and the war for top talent is becoming increasingly competitive. Talented individuals are drawn to organisations that continually innovate their products and refresh their systems and processes, as well as their strategic initiatives, in order to delight customers and outwit competitors. They are attracted to companies that have a great employer brand; market positioning, culture, environment and benefits – key decision factors when choosing to work for an organisation.

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Attracting, engaging and retaining the right people can give your company the edge, says Sian Morris, Head of Talent at The Fintech Power 50

The Fintech Power 50 already provides a great platform for raising the profile of its member companies and to promote their innovative solutions, and now it can help members identify the best talent to work for them. When companies look to grow into a global business

Finding the ‘right’ talent, skillset, experience and cultural fit is an essential driver of success, but this mix is often challenging to find

landscape, scalability becomes key and business leaders must embrace new ways of thinking about their company's organisation structure, talent and how they approach transformation. With the right leadership and talent in place, an aligned culture of vision, goals and values helps to create high performance organisations. The global workforce is changing, and the only constant is change. Technology is becoming more digital and mobile; therefore, companies need to become more global, diverse and tech savvy. Technology provides opportunities for people to work globally and remotely which enables businesses to operate 24/7. Companies expanding in the digital arena and entering new markets, create a 360-degree spectrum of needs, internally and externally, domestically and internationally, impacting on recruitment, HR and talent needs. The Fintech Power 50 talent division can help member companies meet these needs by delivering strategic solutions in attracting, selecting, hiring, onboarding, developing and retaining talent. This enables members to focus on other key business priorities and save time in the process. The service focusses on best practice HR, recruitment and talent consultancy services

and solutions globally across its member networks, credited with specialist knowledge and experience in technology and fintech working for startups to corporates. The Fintech Power Talent team can provide the following services: ■■ Recruitment services; attracting and selecting key talent, hiring across role specialisms globally ■■ HR consultancy services to include setting up in new markets and geographical territories: ■■ Set up HR framework ■■ Policies, procedures, employment documentation ■■ Compensation and benefits ■■ Consultancy / advice ■■ Employee relations ■■ Learning & development ■■ Background checking The Fintech Power 50 Talent division is keen to connect with HR and recruitment talent leaders from its member network with future plans including a forum for thought leaderships events and workshops. For further information or advice, get in touch with Sian Morris, Head of Talent at The Fintech Power 50 at or on 07899 804961.


Real-time operational control and proactive exception management

Our customers tell us that they need to use transformative digital strategies to remain relevant in today’s challenging financial landscape. Strategies that will allow them to improve operational control, reduce costs, build new revenue streams, mitigate risk and comply accurately with regulation. To help you make the journey towards digital transformation, we provide a range of solutions for the transaction lifecycle. AI and Blockchain technologies are now embedded in all of our solutions, which are also available in a variety of deployment models. Digital transformation. Reaching the summit just got a little easier.

Stand Q131 / pre-book your meeting:

Booth D120 | 23 - 26 Sep 2019 | London

Turn Transaction Banking on its head