Fintech Finance presents: Building a Bank for the Future in Association with Banking Circle

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IN ASSOCIATION WITH

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Building a bank for the future E CO S YS T E M S

AI C U LT U R E

SCALING C LO U D

INSIGHTS FROM Mambu ● DBS ● Citi ● PwC ● Recognise ● Judo Bank ● BBVA ● Bunq ● Tandem Starling Bank ● Finastra ● EPA ● Meniga ● ING ● Wells Fargo ● Rabobank ● Bud ● ACI Worldwide

WELCOME

The bank now leaving from platform...

“If anybody in a bank is telling you they know what the bank’s going to look like in five or 10 years and can guarantee their market, then I think they may be in for a shock,” says Elliott Limb, chief customer officer for Cloud-native banking and lending software-as-a-service provider, Mambu. “I think the biggest thing banks should be doing right now is building for an unknown future.”

Events of the past few months have surely demonstrated the truth in that statement. While, with sheer force of effort and heroic staff, the banking industry has hauled itself through the chaos of closed branches, home working, overwhelmed call centres and rapid-fire emergency changes to credit and loan agreements brought about by the pandemic, legacy systems have been severely stretched.

Those that had already adopted a Cloud-based, composable or platform approach, on the other hand, barely missed a heartbeat. For those clients, Elliott Limb was able to deliver solutions to unprecedented problems straight out of the box, within days.

Strategic IT development plans may be on hold for many, but the experience of COVID-19 is surely shaping future thinking – resilience and flexibility must be top of mind. The platform bank that leverages services via application programming interfaces (APIs) and Cloud-hosted systems makes more sense than ever.

“The development of financial services cannot be easily split into a pre- and post-coronavirus timeline,” observes Banking Circle’s white paper Ready For The Rebuild? Rethinking The Value Of Digital Infrastructure. The report reveals that the challenges that existed before are the same ones executives cited during the pandemic as their most pressing concerns: regulation and constantly evolving customer expectations. www.bankingcircle.com

But CEO and co-founder of Banking Circle Anders la Cour comments: “It’s clear from survey respondents and interviewees that understanding of digital financial technology and the appreciation of the need to re-engineer businesses (digitally) from the ground up is still limited.”

His own organisation benefits from a decoupled, Cloud-based architecture, consisting of smaller components and services, offering maximum flexibility of response to changing demand from different markets for infrastructure services.

The white paper set out to discover if the digital destination or just the nature of the journey banks are on had changed in 2020.

It asked questions around issues impacting the banking environment: if opportunities for growth were still where businesses expect them to be; how the role of financial infrastructure is affecting thinking around value creation; what businesses are doing to build in resilience and agility; and last, but, definitely not least, how organisational culture affects their ability to adapt.

Reflecting on his organisation’s attitude to development, Mark Buitenhek, global head of transaction services at ING, says: “We don’t allow the ‘not invented here’ syndrome. Instead of HQ saying ‘this is the way we do it’, we cherish what is different.

We want to understand what is different.

We keep our eyes wide open and we’re always open for change.”

That is the spirit in which the following pages should be read.

The Banking Circle white paper, Ready For The Rebuild?

Rethinking The Value Of Digital Infrastructure, published with Magna Carta Communications, is available to download via the link https://bit.ly/3f2wkOd. The findings are based on quantitative research and one-to-one interviews carried out with leading fintech companies, service providers and banks across Benelux, Denmark, France, Germany and the UK in April and May 2020.

I N S I D E WARS: 4 CULTURE SHAPING A DIGITAL BANK How can banks, fintechs and other financial institutions make sure they adopt the right culture to fuel rapid growth and success?

8BANKING ON THE CLOUD

Only five per cent of senior banking executives in key European markets are exploring what their organisations need to make them more responsive. What will it take to move them on… and up?

11 SHOCK WAVES

Fintech commentator Jim Marous told banks ‘embrace change, take risks or events will overtake you’. Then COVID-19 happened…

12 HAMMERING HOME AI

There’s a risk that artificial intelligence becomes the solution looking for a problem. Undoubtedly a hero technology, it nevertheless needs to be wielded wisely

A 15 BUILDING GLOBAL FOOTPRINT

Infrastructure services are opening up the playing field for platform banks

FOR 16 SCALING SUSTAINABLE SUCCESS

Adoption of the latest digital infrastructure services promises to help neobanks scale rapidly and sustainably

ECOSYSTEM 20 YOUR OR MINE?

Partnerships mean banks now have a range of choices that could yield success

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NAILING THE CULTURE

CULTURE WARS: SHAPING A DIGITAL BANK

How can banks, fintechs and other financial institutions make sure they adopt the right culture to fuel rapid growth and success as banking services digitise? The interface between culture and technology has never been more important, writes James Tall Around 10 years ago, staff at Amazon received a memo from the big boss, Jeff Bezos. In a five-point mandate, he instructed all Amazon teams to henceforth expose their data and communicate only via service interfaces, now known as application programming interfaces (APIs). This required planning and designing interfaces from the ground up, so that they could be exposed to outside developers.

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The memo sparked a huge transformation in terms of technology, governance and culture within the company – without it, maybe Amazon Web Services and the Amazon marketplace wouldn’t exist in the way they do today.

And, in writing it, Bezos showed he’d not only understood that data needed to be ingested and used in a dramatically different way, but that the culture of an organisation has to change, too. In other words, there has to be an open culture for an open technology platform to exist.

The interface between culture and technology is crucial to unlocking innovation and growth. And it becomes especially important when companies enter the much-sought-after rapid growth stage.

What was central to Bezos’ vision is also critical to open banking – how many times have you heard Amazon invoked by neobanks and others as the totem for a customer-centric business model?

But when it comes to implementing measures to achieve Amazon-shaped goals, commitment can be more sketchy – especially when other, often technology, issues are front of mind.

So, it’s worth considering: does culture prompt the adoption of

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certain technologies, or does the appearance of new technology produce changes in culture? Financial organisations are often guilty of drooling over the shiny new tech without actually considering what behaviours could influence its success or failure if it’s adopted. In fact, there’s a strong and increasingly popular argument that the right culture is more important than the technology.

Tandem’s CEO Ricky Knox told an audience at Paris Fintech Forum earlier this year: “The shifts in technology that have occurred in the past five years or so have enabled banks to bring a better product to market that appeals to customers and attracts a large number of people into the business. If it wasn’t for the Cloud, agile methodologies, AI (artificial intelligence) and so on, we couldn’t do what we do today. However, I don’t think that our competitive advantage in anything beyond

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the shortest term is technology. Culture is actually much, much bigger.”

His fellow panellist, Rabobank’s chief digital transformation officer, Bart Leurs, agreed. “We’re faster than ever before, thanks to technology,” he said. “But culture is way more important. We embarked on an agile transformation over the past year at Rabobank. Today we have 4,000 people across the business working agile and the cultural impact of this is way higher than the technology supporting it.”

Does culture prompt the adoption of certain technologies, or does the appearance of new technology produce changes in culture?

It’s well-known that incumbent banks and other financial institutions have battled outdated legacy technology systems, manual processes and high operating costs for years. This has tended to result in a distinct corporate culture that’s pretty inflexible and resistant to change. It’s therefore somewhat surprising that in a new white paper to be published by Banking Circle, only seven per cent of financial leaders surveyed said that they consider internal cultural change to be the most challenging aspect of banking in the current macro environment.

In the words of Joseph Healy, founder of Judo Bank and former National Australia Bank executive: “When I look inside these large organisations, I believe the cultural concrete has set…

stimulating progress in areas needed large banks are slow moving, they’re to keep up with the rapidly changing complex, they’re bureaucratic, they chop market. This is why banks and financial and change people every three, four, institutions are increasingly choosing to five years. There’s not a lot of evidence, partner with fintechs (albeit often in a anywhere in the world, of where big safe sandbox environment) in the hope banks have adopted innovative that they’ll blow a fresh breeze through technology developed by others and the organisation. According to a recent made it as successful as it otherwise Fintech Disruptors report, 84 per cent of could’ve been.”

Nordic bankers believe fintechs will help A little harsh maybe, but those who them to achieve their goals, whether work in change management would argue enhancing customer experience, finding that a cultural shift definitely needs to new business models or discovering new precede heavy investment in technology; revenue streams. Such partnerships that a digital bank culture needs to be naturally shape the attitudes of a bank. created and reinforced by everyone from Collaboration, not competition, is the newest starter through to the board now seen as the primary driver of and CEO, top-down and bottom-up. disruption. Fintechs imply change by Singapore’s DBS Bank is a great example their very nature and of a bank that adopted that approach When I look partnering with them among its 25,000 employees – so inside these is proving to have much so that it’s now seen as a model a beneficial impact for embedding digitisation across large organisations, on bank culture as banking services.

I believe the cultural much as the tech.

It can be a difficult challenge concrete has set when a bank’s legacy system and Joseph Healy, There’s a big processes have been in place for Judo Bank difference decades, acting as a comfort blanket. The good news, though, is between the cultures that introducing a digital culture at Revolut, Monzo and doesn’t require the elimination of the incumbent banks. what’s already in place.

It’s not that one’s bad In more entrenched cultures, and one’s good, or external inspiration better than the other is often key to

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Dexter Cousins, Tier One Recruitment

Agile tech requires an agile mindset: Banking as a platform demands culture change

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NAILING THE CULTURE And, as strange as it may sound, COVID-19 has actually provided a fantastic opportunity for firms looking to get a better understanding of the intersection between the two.

Companies have spent Q2 learning about their business model, people and processes.

They have a better idea of whether the organisation is comfortable with uncertainty and change. They can explore what worked when locked down and what human interactions people still want.

Automation definitely helps, but there’s still plenty of room for the human touch within the value chain. For example, Nick Day, CEO of Small World Financial Services, told attendees at a recent webinar organised by money transfer industry body IAMTN that, as well as the predictable big surge in digital traffic, his team was hitting the phones harder than ever to engage with agents and customers to support those without access to digital technology, and therefore government updates.

WINNING THE TALENT Digital transformation is a journey, not a destination. It’s not a box to be ticked, a service just to be brought in or a switch to be flicked. While many organisations have

responded to the recent wave of pandemic-induced change by adopting a more open-minded attitude to the workplace and its relationship with technology – be it distance working or Cloud-enabled processes – it’s not mission accomplished as tech will continue to evolve, as will customers, laws and society itself. Organisations need to evolve with them. It’s a journey that demands an open, flexible attitude from staff. And the experience of working through an existential crisis over the past few months has rather proved whether they have the attitude to adapt and grow in a constantly changing digital environment – or not.

“What’s interesting about COVID is that, thanks to changing attitudes about home working, it’s really opened up the talent pool,” observes Alex Chirica, a consultant at UK specialist fintech recruiter Broadgate Search. “You see some companies – banks and fintechs – try to rush [recruitment].

They hire a lot of people very quickly but then, after two years, they get rid of them all and start from scratch. They realise they’ve made bad hires. Since COVID, if a client of mine wants someone, but they live in Switzerland, there’s no longer any reason why they can’t have that candidate.”

Judo Bank kicks on

The one position companies appear to be getting less keen on is a chief digital officer (CDO). Although that sounds counter-intuitive as the pace of transformation quickens, according to PwC it’s an indication that organisations are beginning to recognise that everyone needs to take responsibility for change.

In a report last year, PwC noted that ‘new technologies need to be introduced, for sure, but legacy systems also need to be revamped, internal processes changed, and employees persuaded to adapt to new ways of working — all of which cuts across a company’s organisational silos. It is often at this moment of realisation that the CDO role is elevated to the board level, with capabilities that enable transformation across those silos. Looking ahead, we think that as transformation becomes part of the core business, the next step will be for the CDO to disappear. Digital transformation will become the responsibility of every member of the executive team’.

A CDO, or in some cases a chief digital information officer (CDIO), is where growth and control meet: an individual who helps a company realise its ambitions by converting more traditional, analogue businesses to fit-for-purpose digital ones, using the

One over on the big banks: Judo’s culture is significantly different, says Joseph Healy

How Australia’s SME provider is preserving its startup zeal

Judo Bank co-founder Joseph Healy is under no illusion that organisational culture is critical to the success – or failure – of a technology-first business.

Given his long experience of working at senior level inside big financial institutions, he’s acutely aware of the atrophy of imagination that legacy creates. It’s why he spent as much time thinking about building an agile and open ‘attitude’ as he did an agile and open tech stack to support Australia’s new SME bank.

Only by having both, he believes, can a new-generation bank ensure resilience.

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FintechFinancepresentsBuildingABankForTheFuture

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We today have 4,000 people across the business working agile and the cultural impact of this is way higher than the technology supporting it

10 million users, and 700 potential of technologies and to 2,000 employees. That’s a data. There’s a lot for them to huge amount of complexity consider. They need to look to deal with in a six-month at everyone they work with timeframe. These kinds and think about their skills of challenges are very and professional background symptomatic of high-growth, – legacy or fintech – and how rapidly scaling businesses, to best balance those.

Bart Leurs, whether fintech, neobank It’s indeed important that Rabobank or any other tech. when people move from “There’s a big difference bank to fintech, or vice versa, between the cultures at they move at the right time Revolut, Monzo and the in their career and at the incumbent banks,” he adds. right stage of a company’s “It’s not that one’s bad and growth. This can have a huge one’s good, or better than impact on the culture they the other, it’s just that each are becoming part of. environment requires a certain “The key is finding at what type of person. point somebody from a big Chirica agrees that a hire needs to be bank comes in and has a real impact,” says the right cultural fit to add value to a Dexter Cousins, founder of Australia-based fast-growing firm: “Sometimes I say to [a recruiter Tier One People. candidate] ‘look, it’s a mess, but this is why “The challenge is always assessing skills they need you’. It’s really about finding who and the ability to deal with an environment the candidates are who will thrive in that that’s constantly changing. business, and make it even better.”

“I remember when we did the search for One thing’s for sure: it’s extremely Revolut’s Australia Country CEO, we took important to have someone at C-level that brief and I think it changed four times because in the six months we were working that can help push digital transformation on it, the business went from four million to forward. In the survey for the Banking Circle

“I’ve been involved in several efforts to launch in-house venture capital businesses, to develop new things, but, at the end of the day, the complexity, the competition for capital and the relatively short career span of many bank executives, means that the patience, enthusiasm, resources and entrepreneurialism needed to make these things successful, represent serious barriers,” he says.

For that reason, he’s allergic to the idea of ever selling out to them.

“History says that, if you’re consumed by a large organisation, you’re given all sorts of promises and commitment about being left alone but they rarely last more than one year. The person you got on with and trusted inside the large bank either leaves or is promoted, and the new one doesn’t share the same enthusiasm or vision. You start getting hit with lots of costs that don’t belong to your business and, eventually, they end up damaging or killing the business they bought.

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“So, given how passionate I am, and my colleagues are about Judo, and our strong belief that we can build a world-class SME bank that, over time, represents a huge legacy for the team that built that bank, I would personally consider it as close to a nightmare as you can ever imagine if we ended up being acquired by a large bank.”

Instead, he’s instilling a permanent startup culture, even as Judo Bank goes through a rapid period of growth. It’s piling on staff and opening new offices as it competes with the Big Four – Westpac, Australia and New Zealand Banking Group

We’ve insisted that, as people join the company, they have an equity stake in it so that they think like owners and not just as employees

white paper, only six per cent of financial leaders identified executive management buy-in as essential to realising the success of infrastructure innovations and investments. That indicates that the interdisciplinary teams that play such a key role in technology selection don’t have much board-level representation.

This is a problem. In any programme of change, senior support and leadership is widely regarded as crucial. The disconnect highlighted in Banking Circle’s white paper suggests the cultural infrastructure that supports a bank isn’t regarded as a major change project or something that has a significant impact on business performance. That’s not just misguided but potentially damaging.

The white paper ultimately concludes that the culture wars can be won, but adds that to succeed in the digital age, companies must take internal culture, communications and talent as seriously as technological change. “It’s imperative to get the executive board fully on board,” it says. “Technology and infrastructure alone can’t create partnerships, serve customers or build an ecosystem. Insight, vision and leadership are also necessary for scaling up, scaling down, moving sideways and working in new ways.”

(ANZ), Commonwealth Bank and his former employer National Australia Bank – to service the country’s SMEs. “We see this company’s future being defined by our ability to look at data as a strategic asset,” says Healy. “We wanted to build a high-tech and high-touch company: a customer-facing, human dimension to how we engage with our business customers, enabled by bleeding-edge, Cloud-based technology, so that when people come to do business with us, it’s easy for them and for our people.”

Scaling as quickly as it has this year, Healy recognised, though, that it might be hard to replicate and sustain the passion and drive that staff had for that vision in the early days. “To engender that same feel, passion and motivation within our people is the single biggest issue we’ve got,” he says. “So we’ve insisted that, as people join the company, they have an equity stake in it so that they think like owners and not just as employees.”

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TOOLS OF THE TRADE: CLOUD SERVICES

Banking on the Cloud When asked during the pandemic how quickly their organisation was able to adapt to industry change, only five per cent of senior banking executives in key European markets said they were exploring how and what they needed to do to be more responsive. Natalie Marchant asks what it will take to move them on – and up 2020 will forever be associated with a life-threatening global pandemic, economic turmoil and widespread business uncertainty.

It will also be remembered as the year that technology literally came home, with millions of businesses and individuals finding innovative new ways of working together while physically apart.

Cloud enables us to be nimble and work in step with our clients as they scale.”

BBVA Open Platform is part of BBVA’s push to maximise the potential for open application programming interface (API) platform banking more widely. It is both a platform bank and a BaaS supplier. Ahead of Europe’s revised Payment Services Directive requirements three years ago, it launched BBVA API Market in Spain, initially making 11 banking APIs available The lack of flexibility in many existing for third parties whose services it offered banking services – already frustrating for to its account holders. The bank initiated some – was laid bare by the pandemic. a similar roll-out in Mexico, but its Open More than anything, organisations needed Platform is only available so far in the US. to be adaptable, agile and resilient – three One of the most forceful arguments characteristics most strongly associated for adopting a Cloud-based architecture with Cloud-enabled systems. is that it frees up organisational space Having an exclusively, or even partially, to focus fully on the customer, enabling Cloud-based infrastructure means that the business to change, pivot and grow new capacity and capabilities can be as users seek stronger, seamless digital tested and added on quickly and easily, journeys and personalised with minimum disruption financial services. The to users. Individual pieces The hybrid well-documented problems of architecture can also transformational banks have with legacy be replaced or updated, approach is really systems sap the mental with little impact on the important because energy and investment that rest, making for an it ensures clients could be better deployed extremely flexible and unlock value every on those front-end projects. secure service. In fact, step of the way Pieced together over the without Cloud it’s hard Ciaran Chu, years, many on-premise to imagine platform ACI Worldwide systems are not only difficult banking or bankingand costly to maintain, but as-a-service (BaaS). also often unable to run and As Abhishek Gupta, update in real time – an CEO of BBVA’s BaaS annoyance for personal business, BBVA Open customers but a major Platform, says: “The true impediment for SMEs and differentiator is our corporate treasurers. As Cloud-native technology recently as 2017, 43 per cent stack. Being built on the

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FintechFinancepresentsBuildingABankForTheFuture

of US banks were said to still use COBOL, a program language dating back to 1959.

The design of such systems, along with the complexity introduced over many years of incremental upgrades, makes it impossible to employ modern development best practice such as agile methodology and continuous deployment. Upgrades and service additions are labour-intensive and costly on server-based systems.

Nearly everything we access in our lives via the internet – from email to Netflix and social media – exists in the Cloud. But, as core banking provider Thought Machine’s CEO Paul Taylor says: “The one exception is the financial services industry, which is new to the Cloud or, to be blunt, slow to the Cloud.” This is despite Cloud technology being able to solve the fundamental problems that plague it, he adds.

Temenos CEO Max Chuard agrees, describing Cloud as an enabler for new business models. “We see Cloud as a way to differentiate, as a way to offer different types of models for banks. Ultimately, for me, banking in the Cloud is all about the innovation this can bring to the industry,” he says.

So, the advantages of moving away from a server-based system to the Cloud are both technological and organisational, making for leaner and more agile operations. And it also allows banks to embrace innovation from outside the bank itself – for the benefit of the provider and customer alike.

This hasn’t entirely escaped the notice of decision-makers. But, while many traditional players in the sector had

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slowly begun to shed their objection to the Cloud (much of it based on outdated concerns around security), the coronavirus pandemic brought the need for change into sharp focus.

A case in point during the crisis was the administration of the UK’s government-backed Coronavirus Business Interruption Loan Scheme (CBILS) during the early stages of the pandemic. Despite many SMEs needing immediate financial support, thousands struggled to access funds quickly enough from high street banks. Of the £350billion set aside by HM Treasury to support businesses, just £5.5billion had been paid out to 34,000 applicants in the first four weeks of CBILS – reaching just half of those that had applied.

And yet, when asked during the pandemic how quickly their organisation was able to adapt to industry change, only five per cent of senior banking executives in key European markets told infrastructure provider Banking Circle that they were exploring how and what they needed to do to be more responsive.

Just three per cent said legacy systems

One of the most forceful arguments for adopting a Cloud-based architecture is that it frees up organisational space to focus fully on the customer

tap-to-activate numberless cards. were a substantial block to their ability When asked why it felt the need to launch to respond and keep up with change. a brand-new bank, Mox CEO Deniz Güven This apparent complacency towards said Standard Chartered bosses technological transformation was also considered whether their existing model reflected in responses to a question could defend their market about the greatest Being built on as the sector opened up challenges facing banking the Cloud to non-traditional in the current macroplayers – and the answer, enables us to be environment. More simply, was ‘no’. than half (57 per cent) nimble and work in Cloud-native banks highlighted the impact of step with our clients like Mox are acutely aware regulation followed by the as they scale that technology is a implications of constantly Abhishek Gupta, never-ending journey – and evolving customer BBVA Open providers of Cloud-based expectations (53 per cent) Platform systems and services are and pressure on pricing keen that legacy banks and margins (36 per cent). understand it’s one that can Pace of technological begin with a single step. It change came in fourth doesn’t mean a wholesale at 32 per cent, followed move to off-premise by transitioning from systems (indeed, maybe traditional to digital it never should be one or delivery channels at a the other), but without similar percentage.

Cloud-enabled technology, such Whether this is indicative that many institutions won’t be able to compete feel issues have been addressed or that with the new breed of platform banks. the pandemic has thrown up more And, while they were cushioned against pressing problems, it is not easy to say. the current crisis by strong balance But what is worth noting is that transition sheets, they might not be able to to digital was a concern for about half of withstand the next shock unless they commercial banks, compared to just one embrace that idea. in five payment service providers.

As Elliott Limb, CEO of ‘composable Conversely, one banking giant that has banking’ provider Mambu, puts it: definitely recognised it cannot transform “Digital means building for what quickly enough for one of its markets is individuals need and building for an Standard Chartered. In response to the unknown and unpredictable world.”

Hong Kong Monetary Authority’s Smart During the pandemic, Mambu ably Banking initiatives, it recently launched demonstrated that point by responding virtual bank Mox to selected external to rapidly changing requirements – such customers there, with plans for wider as payment holidays – consulting all its release later this year. relevant customers then building and The app-based bank runs on Thought rolling out a solution to each of them Machine’s core, Cloud-based platform and within two to three days. The quick follows the traditional challenger model turnaround stands in stark contrast to – with instant remote onboarding, the administration of the Government’s goal-oriented spending and support loans which were, by and large, shopping calculators. Mox run over legacy systems and were heavily also plans to launch criticised for failing to respond quickly or comprehensively enough.

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TOOLS OF THE TRADE: CLOUD SERVICES Cloud ultimately provides many advantages for banks that were not born there, but moving to it undoubtedly requires massive cultural and technological change, internal reorganisation and investment. Right now, the uncertainty caused by COVID-19 has slowed, to a greater or lesser extent, such strategic plans, despite the pandemic has proven the move needs to happen. Banking Circle’s white paper suggests that some banks think they have already done enough to improve those three key differentiators, adaptable, agile and resilience.

Ciaran Chu, head of public Cloud at global payments provider ACI Worldwide, has his doubts that they have. ACI works with many well-established international banks and is so convinced that Cloud-enabled services are the future that it is positioning itself in the Cloud to demonstrate the advantages to its clients. This, it believes,

will help them reduce costs, increase scalability and improve speed to market by making them more agile. It recently launched its Universal Payments product on the public Cloud through Microsoft Azure, alongside on-premise solutions.

Chu believes the pandemic has definitely accelerated many banks and other providers’ transition to the Cloud, but stresses there is no one-size-fits-all approach for its deployment. Instead, he advocates his clients adopt a hybrid transformational programme to ensure they leverage the best of their on-premise solutions throughout the process.

“Then you can grow your business out and focus on transformation,” says Chu, “as opposed to getting involved in a big migration or setting up a new solution in the Cloud and then thinking ‘am I going to spend the next 18 months just recreating what I had on-premise?’

“The hybrid transformational approach is really important because it ensures clients unlock value every step of the way, whether that’s faster time to market, reduction in cost or being able to launch more surrounding services that enable them to differentiate themselves.

“The big thing to watch in the next six-to-12 months,” adds Chu, “is operational capabilities. The architectural vision is well-signposted: containerised solutions, consumed via open APIs with a low-cost database that allows you to scale up and back as needed and can be plugged into surrounding services. You get to that by breaking down your solutions, ensuring that you’re leveraging all the native capabilities of Clouds. The key there being that you don’t get locked into a specific Cloud. I think the regulatory advisory, in the next few years, in any case will be for the ability to seamlessly move between them.”

Mox goes to the digital max

Standard Chartered-backed and Cloud-enabled Mox is one of the first eight digital-only banks to be granted a licence by the Hong Kong Monetary Authority

Launched in partnership with telecoms providers HKT and PCCW and Asia’s largest travel agency, Trip.com, Mox aims to deliver a range of lifestyle benefits alongside retail banking products in order to create a truly personalised experience.

From its very inception, Mox has aimed to do something different.

Ahead of its recent brand launch, the challenger bank interviewed some 2,000 people and came to the conclusion that they all – regardless of age – wanted new, better experiences.

So, among other things, Mox has promised Asia’s first all-in-one, numberless bank card, alongside more traditional challenger bank offerings such as spending analysis and goal-based saving. There are no minimum balance requirements or hidden fees.

“What we are trying to do, with the help of digital technology, is to create the same and best customer experience for everyone,” says CEO Deniz Güven.

“Generation Mox is becoming like an

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attitude… a behavioural approach. You can be 18 or 80, it’s not important for us.

We try to understand customers’ needs and their pain points.”

All in all, Mox identified 87 of those pain points during its early market research, which inspired the team to create a new service-led bank, a radical alternative to Hong Kong’s traditional offering. And, to

Changing the technology structure of an international or even a regional bank, is like changing the engine of an aeroplane while it is flying

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deliver it, Mox opted for a Cloud-native, customer ledger approach, with its core system provided by Thought Machine, and Feedzai key among a number of other vendors providing additional services.

Güven is a firm believer that the bank’s Cloud-based technology stack brings with it distinct advantages over primarily server-based banking.

Chief among those are flexibility, portability and future-proofing.

“Changing the technology structure of an international bank, or even a regional bank, is like changing the engine of an aeroplane while it is flying,” he says.

“In Standard Chartered Group, we don’t want to change the big engine. We want to build small aircraft to attack some markets – and Mox is an example of that.

“The magic of Mox Bank is that we are a separate, standalone, licensed, owned bank and this is extremely important because it means we have the flexibility to run quickly and with a different culture.” www.fintech.finance

COMMENT

Shockwaves Leading fintech commentator and publisher of the Digital Banking Report, Jim Marous, spent the better part of 2019 on his Disrupt Yourself tour, giving banks an uncompromising message: embrace change, take risks or events will overtake you.

Then COVID-19 happened…

COVID hit completely unexpectedly.

And those organisations that were the furthest along the digital curve were the most prepared for the unexpected.

When bank branches were forced to close and everyone asked ‘now what?’ the ones that were faking digital, those that replicated paper systems with automated

ones and weren’t ‘thinking digitally’, found they had the biggest hurdles to jump to move to the next level.

When we conducted research for the Digital Banking Report, 70 per cent of organisations said they had digital account opening. Three questions later, we asked ‘how many of you require the consumer to come into the branch to finish the process?’. Seventy per cent said they did. That’s what I mean by faking it.

If they really want to see how it’s done, they should look to China – to organisations like WeBank and Alipay that are built from a digital structure out. WeBank’s digital mainframe allows it to test different innovations on live computers. Because it has so many backups in the digital world, it can take one of them and say ‘let’s replicate what reality will be’. It’s conducting 20 to 30 updates a month, when most financial institutions in the States, and probably in the UK, too, have a, quote/ unquote ‘major update’ every six months to a year.

So, first, you need to catch up: restructure your organisation from a digital perspective, because there are going to be other surprises beyond COVID-19. And the consumer’s going to present you with some of the biggest.

They will demand more and more of you and that’s not going to be driven by what some other financial institution, somewhere else, did. It’s going to be driven by what a retailer, a restaurant, a hospitality company, an airline, has done, perhaps with a one-click identification procedure or a compelling engagement proposition.

Organisations internally – their people – have to disrupt themselves.

That is why I believe the organisations at risk right now are your mid-sized, mid-level financial services providers.

Funding has become pretty tough for fintechs. If they’re running a big shop but don’t have venture capital funding, they’re running out of cash.

They’ll be looking for partners because that’s natural for them. But if you’re a mid-sized, traditional financial institution with legacy people who have been moved up the ranks because of their time with the company, that’s the worst thing imaginable for them.

Right now – with the whole world looking at equity, diversity and gender – bringing more women and people of colour into financial services, which as an industry is the furthest behind, is a good call. But if you bring in new blood, people with new thinking and great ideas who have been educated in digital technology, the last thing you want to do is put them through a legacy onboarding programme, learning how we do it. No. You should be asking them to teach you how to do things.

A good example of doing things differently is Marcus, the new digital bank by Goldman Sachs. It basically set up the entire organisation around the consumer experience. It’s not adding services until it can do it right. So, it doesn’t have a chequeing account yet but it does have savings and lending accounts, it has the Apple Card, and it’s soon going to have a loan package around the Amazon Merchant. But it’s going to make sure that every step that’s not absolutely required isn’t in the customer application process.

Unfortunately, financial institutions in their legacy mental state often look at the worst-case scenario, for what could go wrong and build for that, as opposed to doing what Rocket Mortgage, in the US, does, for example. If Rocket can have an application for a mortgage done in five minutes, please don’t make me take 10 minutes of my life to open a bank account.

There are going to be other surprises beyond COVID-19. And the consumer’s going to present you with some of the biggest

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TOOLS OF THE TRADE: ARTIFICIAL INTELLIGENCE

e m o h g n i r e m m Ha There’s a risk that artificial intelligence becomes the solution looking for a problem. Undoubtedly a hero technology and an indispensable part of the digital transformation toolkit, Alex King nevertheless suggests the bank of the future needs to wield it wisely From the post-war science fiction of Isaac Asimov to the present-day wizardry of Silicon Valley, artificial intelligence (AI) has, for the best part of a century, captured humanity’s collective imagination.

But it’s only now that AI has ascended to what US research firm Gartner would describe as its long-awaited ‘plateau of productivity’.

AI is being rolled out, booted up and plugged into tech stacks worldwide – another ‘new normal’ to get our heads around this year. And, as so often happens with technological milestones, the debate rumbles into new territory, abandoning questions of ‘when?’ for the far more pressing ‘how?’.

A survey of more than 400 global banking executives, released in June by the Economist Intelligence Unit and Temenos, found that 77 per cent of respondents see AI as a key differentiator between winners and losers among banks.

Get AI implementation right and banks are likely to prosper; engage with AI at the wrong time, or in the wrong way, and they will lose out to firms that made wiser, more far-sighted bets. The stakes, as we accustom ourselves to a post-AI-acceptance landscape, are incredibly high.

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Adding a further dimension to the debate are those digital-native fintechs and rapidly-digitising banks that have concluded, as Deloitte did last year, that banking customers ‘still prefer the human touch’. These financial institutions (FIs) are wavering on AI and its implementation just as the means to achieve near-total automation have finally emerged.

Bringing some lucidity to the debate is Starling Bank’s Jason Maude, quoted in Banking Circle’s forthcoming white paper on the future of banks’ digital infrastructure. “Anyone who gets excited about AI,” he says, “is like someone that will get excited about hammers. AI can be a solution to a problem, but you need to make sure you have the right problem.”

Maude is referencing the cognitive bias termed ‘Maslow’s Hammer’ – if the only tool you have available is a hammer, everything starts to look like a nail. The problem is, some of the foremost thinkers to apply AI to banking processes have publicly stated that AI is applicable across the board: a magical panacea for forward-thinking financial institutions.

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Having worked with university professors to produce her epochal book Decoding AI In Financial Services, Clara Durodié, founder and chair of Cognitive Finance, is one of those confident that AI has industry-wide use cases. “We’ve identified that every single business process in every single business model in financial services can be automated intelligently using some form of AI,” she declared at January’s Paris Fintech Forum.

“That’s very impressive,” she added.

“That’s anything from customer engagement to sales and marketing, to functional finance, like accounting, through to IT as well as legal functions. All of these are business processes that can use AI.” Given the breadth of the current implementation of AI in the financial industry, it’s hard to disagree with Durodié.

Nasdaq has integrated AI in its fraud prevention and data analysis processes, while Goldman Sachs released research showing how the labour of six traders www.fintech.finance

banks is significantly simplified, scrubbing could be replaced by a single AI developer. exclusive of one another but, rather, Neobanks and software-as-a-service (SaaS) front-end friction for consumers. And represent two different approaches that’s just one example. merchants are now well-accustomed o the same problem. UX and UI It’s no wonder, then, that AI was the hot to deploying technologies under the innovations in the 2020s will be driven topic at this year’s Paris Fintech Forum, umbrella of AI – applying machine

by AI, and AI in the value chain will unanimously declared the most important learning and natural language processing directly influence how developers design technology to get right in the 2020s.

(NLP) to, for instance, authentication the delivery of next-generation products Cognitive Finance’s Durodié reminded – all Cloud-based and painless to and services to banking customers. the Paris audience that AI is a years-long integrate into open architecture through The low-hanging fruit for AI strategic realignment, involving continual application programming interfaces implementation may well be in the investment and infrastructural preparation. back end. This technology is highly (APIs). Increasingly, these kinds of “In our work with decision-makers, services are being offered over replicable and it’s coming out of we try to steer them away from thinking infrastructure-supporting platforms the labs of SaaS providers with dozens about the next two years; we tend to from third parties such as Trulioo of banks on their books, which levels advise our clients with a five to 10-year in identity verification and Finastra in the playing field for all those with a horizon,” she said. “Why is this important? fraud control. Reconciliations SaaS plug-in-and-play digital infrastructure.

Because the future is an AI-first financial provider SmartStream is betting the According to last year’s WatersTechnology services industry. We take a house on its own proprietary AI, its chief report, 70 per cent of FIs rely on external five-to-10-year horizon and we help technology officer Andreas Burner providers for their AI integration, them understand the infrastructure declaring that AI will eventually mean which means that leveraging this kind and the prerequisites they need to hit ‘technology will be self-aware. It will of AI, though important, isn’t what will that AI-first place.” work on data without ever having seen set banks apart.

This is big-picture, strategic thinking the data – like we, as humans, do’.

Simon Paris, CEO at Finastra, hits And so let’s return to Maslow’s Hammer. – but what about the nail on the head when he Anyone who the here and Retro-fitting banks’ digital infrastructure says: “Technology is very rarely a now? When asked gets excited about with AI for all back-end, back-office unique differentiator, but how you this year by functions is being sold as a no-brainer by leverage it is.”

AI is like someone Banking Circle SaaS firms. That’s because cost reduction Ricky Knox, CEO at the digital-first that will get excited what their top through automation represents challenger bank Tandem, is in about hammers a win-win scenario for financial agreement: “I don’t think that our Jason Maude, We’ve identified services providers and consumers competitive advantage, in anything Starling Bank that every single alike: they both enjoy a better beyond the shortest term, is business process in product at a lower cost. Most banks technology,” he admits. already recognise that potential.

Competitive advantage, in the long every single business Last year, a WatersTechnology report term, looks likely to stem instead from model in financial found that 75 per cent of surveyed a technology-agnostic recognition services can be financial institutions (FIs) regard of consumer expectations, and not automated intelligently AI as particularly beneficial for the rapid-fire handling/mishandling using some form of AI two parts of their business: cost of AI. Consumers demand services Clara Durodié, reduction and data analytics. that automation makes possible.

Cognitive Finance A case in point, Rabobank’s chief But, with the greatest respect to digital transformation officer, Bart HSBC’s Pepper, that doesn’t mean they challenge was, Leurs, describes how AI-facilitated want to shake it by the hand.

58 per cent of FIs data analysis has benefited his An effective example of a consumerof all stripes cited Tier 1 bank. “In anti-money led, AI-augmented business model is the ‘creating a user laundering and know your customer UK’s new SME bank, Recognise. Jason experience (KYC), for example, by having proper Oakley, the firm’s founder and CEO, (UX) and user data and really good algorithms, explains how his bank is cutting through interface (UI) that the moment’s technological navel-gazing we’re able to find fraud, which we’d works for a wide otherwise never be able to find with to provide human value to UK SMEs, range of customer manual, human work,” he says. based on data analysis served up by AI. types’ as their number one. The second Leurs’ comments validate the “Since the financial crisis, the SME was ‘the role of AI and related technologies decades-old promise that AI won’t just segment of banking customers has in the value chain’. That presented a perform better than humans; with the been orphaned,” says Oakley, “left challenge to 50 per cent of all respondents right data, it can do jobs humans cannot without community-based relationships and 70 per cent of retail banks. possibly do. With better, more reliable and forced into call centres. There isn’t As any broad-minded technologist and more instantaneous KYC checks, for that real understanding, that bespoking, will tell you, these two concerns are not example, the onboarding process for that intimacy.

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TOOLS OF THE TRADE: ARTIFICIAL INTELLIGENCE that leads to analysis and decision-making “At Recognise, we want to know our in those fields better than humans.” client, know about their business and be According to the granular breakdown of accessible directly, on the telephone, over data contained in the Banking Circle white Microsoft Teams, Google Hangouts or paper, striking an acceptable whatever. For that to happen, at scale, we digital-to-human balance is the precise need to use the best of technology to get challenge that’s felt most acutely by fintech to understand the client, their story and providers. Such firms are concerned with their business, their background and their how human interaction fits in with their aspirations and where they’re looking to predominantly digital systems. Situated take that business.” closest to the power of AI – and most aware In retail banking, the same hybrid of its superhuman capabilities – fintechs in human/AI rule applies, as Tandem’s Knox particular appear to be struggling to explains. “Banks can no longer afford to provide one-to-one customer service – the model doesn’t work,” he says. “There are technologies, such as AI, which in and of themselves are going to transform the experience we have of interacting with your bank, and I’d argue that, if used effectively, they’ll massively improve and extend the range of services the bank can provide.”

A sound customer retention strategy for banks of the future, then, might be the fusion of AI’s power with the capacity of mere mortals for delivering computer-generated advice. In saved hours of human productivity alone, Gartner predicts AI-augmentation will recover 6.2 billion hours by 2021. conceive of human roles in And that has Where information the banks of the future. powerful implications. asymmetry exists Citi’s Gulru Atak, who Outside of financial today… machines heads up Innovation for services, more effective can process data that treasury and trade solutions cancer diagnosis is the leads to analysis and as part of Citi’s Institutional go-to example of how decision-making Clients Group, sees no AI-augmentation ought to better than humans contradiction in work. Research papers have ‘hyper-personalisation’ proven that AI is more Brett King, being the ultimate goal of effective than a human Moven Bank AI. In fact, she’s convinced doctor at determining a of its humanising uses. cancer diagnosis, but is “I think AI will fuel incredibly insensitive when a delightful, personalised it comes to delivering the client experience,” she says. news. As such, there’s still “Show me that you know an important place for me is something that our oncologists in hospitals – for clients tell us all the time now. Technology guru Brett – AI enables us to do that.”

King, executive chairman at Wells Fargo’s head of Moven, anticipates this innovation, Lisa Frazier, also belongs to this relationship with AI will pervade through a school of reasoning. “We see the future of AI number of sectors, including banking. in being a coach for financial health, in real “We need to think about human time, to help the customer make their information asymmetry,” he argues. “The decisions with the best information that reason you go to a lawyer, a banker or a tax they have,” she argues. “That’s what AI is advisor is that they know more about that really about. It’s an exciting area, because topic than you do. What we’re finding, in you start to see the creativity in humans areas where information asymmetry exists coming together with machines and doing today, is that machines can process data

AI has forced banking executives to reconsider the positions of humans acting like robots within their firms. Meanwhile, consumers appear to be pushing back against robots acting like humans

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FintechFinancepresentsBuildingABankForTheFuture

things we never thought were possible.”

Wealth management, investment advice, personal financial health assessments – the verticals through which AI can trickle insights to banking customers are numerous. And, as banking-as-a-platform becomes increasingly feasible, the quality of customer service, and the quality of the analysis backing that up, will be the key differentiator in customer acquisition and retention.

On this front, though, the leverage of AI towards personalised advice is understood as a longer term objective. The Temenos report asked those surveyed to rank their tech investment priorities for 2020 and for 2025. ‘Hyper-personalisation’ was deemed a priority for 15 per cent of respondents in 2020 – rising to 24 per cent in 2025.

ONCE-IN-A-LIFETIME MOMENT Banks are already in transition. AI has forced banking executives to reconsider the positions of humans acting like robots within their firms. Meanwhile, consumers appear to be pushing back against robots acting like humans when it comes to important financial decisions. Upon AI’s plateau of productivity, a great realignment of roles and responsibilities is already taking place within banks.

Durodié sums up the predicament they are in. “Early on, we invested in human capital and very little in technology,” she explains. “Now, we find that we cannot be sustainable as a business if we don’t invest in technology. What is the immediate impact? We need to level off somehow: we need to retrain the people we’ve got, and some people will lose their jobs.”

In terms of balance and effectiveness, then, it seems that assigning robots the robotic jobs and humans the human jobs – and having them work together and to their strengths – is the path forward.

It’s worth reminding ourselves, though, that if AI is today’s high-tech tool that banks are excited to get their hands on, a hammer is useless without a human to wield it.

Durodié may be blunt about the short-term employment prospects of those caught up in the transition but she has a point when she says that it’s incumbent on everyone in financial services to ‘use AI and all emerging technologies to enrich their careers’.

“It’s a once-in-a-lifetime opportunity, and I would encourage everyone to get onboard and educate themselves.” www.fintech.finance

COUNTRY FOCUS

Building an international footprint Infrastructure services are opening up a global playing field for platform banks.

Sue Scott asks if they have the ambition to step onto it If you’re a financial service, with ambitions, perhaps, to become a unicorn, where in the world would you look to grow your business?

When researchers asked that question of a range of providers based in the UK, France, Germany, Denmark and Benelux, most weren’t tempted to look beyond their own back yard.

Eighty-four per cent of banks and paytechs questioned for Banking Circle’s white paper, Ready For The Re-build? Re-thinking The Value Of Digital Infrastructure, expected to find opportunities for growth over the next two years in Western European states, while just over half saw Eastern Europe and the Mediterranean as potential regions for expansion.

Few want to follow in the footsteps of N26, Monzo and Revolut, which established in North America this year (just a quarter of respondents saw that as the promised land), much less would join the UK’s TransferWise in the United Arab Emirates (digital might be the new oil, but just 11 per cent smelled success in the Middle East and North Africa). For most, China, Sub-Saharan Africa, Russia, the Commonwealth of Independent States, and Central Asia were barely on the radar, while South Asia and the Association of Southeast Asian Nations, India and Latin America – all tipped to be digital honeypots owing to the density of population, smartphone penetration and large swathes of the population being under- or unbanked – appealed to between 18 and 31 per cent.

This lack of global vision could be a symptom of uncertainty caused by the pandemic but, more likely, has to do with the difficulty in harmonising compliance, standards and protocols across www.bankingcircle.com

multiple and unfamiliar markets.

Seventy-five per cent of those in Benelux, for example, cited that as the biggest challenge. That said, it’s something of a misnomer to think that building financial businesses in Europe is a synch. As Thibault de Barsy, vice-chairman and general manager of the Emerging Payments Association of the EU, based in Luxembourg, says: “The biggest problem for digital solutions in Europe is that it is not a truly unified market. It’s not even about cultural differences. We’re talking about basics, like regulation and tax.”

Anders la Cour, CEO of Banking Circle, which delivers financial infrastructure to other banks and payments businesses, agrees.

“Take the Single European Payments Area (SEPA),” he says. “[It’s] come into existence largely with the aim of removing complexity.

Still, the complexity of clearing through SEPA is enormous. ISO standards have been implemented slightly differently in different geographies, each bank may interpret formats differently, different technology providers exist, and there are several settlement schemes.”

He would argue that mission-critical infrastructure services for clearing, ID verification and fraud control, all of which extend beyond borders, remove the road

blocks to expansion, making access to distant markets easier and cheaper.

The composable banking model is supremely flexible, ideal for replicating in different territories and adapting or replacing products and services according to local demand. Banking Circle itself is based on that model, supporting its own vision to expand beyond Europe.

Already active in Asia, Alibaba’s financial arm is among its biggest clients.

“Over the next couple of years, Asia will be a strong strategic focus, given the growth opportunities there,” says la Cour.

“Our own architecture is decoupled into smaller components. We can replace or update individual pieces with limited impact on the rest and easily add more functionality. For example, direct clearing for new geographies, which may require new connectivity, formats, protocols and interaction with new clearing technology providers.”

According to Findexable’s Global Fintech Rankings 2020, there are still growth pockets within Europe. But it is, by and large, a mature market where the competition in most areas of financial services is only likely to become more intense. Some of the most exciting opportunities lie on further shores: Findexable highlights India, Brazil, Mexico, UAE, South Africa and Argentina, where regulatory, innovation and ecosystem efforts are being focussed to build fintech success at scale. And there are plenty more bubbling up behind. Kicking the ball around the back yard might make you successful in the lower leagues, but there’s a global pitch to play on and, increasingly, infrastructure services that put the premiership within reach.

Asia will be a strong focus in our strategy, given the growth opportunities we have seen there

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DESIGNING FOR GROWTH

Scaling for sustainable success

The financial services market is exploding with exciting neobanks and other new entrants. They’ve a long way to go to catch up with the incumbents, but the adoption of the latest digital infrastructure services promises to help them scale rapidly and sustainably, writes James Tall A wave of neobanks are making headlines all around the world.

Europe’s biggest have moved on from being simply electronic money providers and have secured banking licences. In the UK, according to Accenture, they tripled their customer base to almost 20 million users last year as they compete among themselves and incumbents for the fastest, smoothest onboarding and the most exciting platform services.

But in the great scheme of things, they’re only just learning to walk.

“Let’s hold on for a minute, nothing has been achieved yet,” says Tom Stafford, CEO of Hong Kong’s DST Global. “The talented founders are building great teams, but ultimately the EBITDA (earnings before interest, taxes, depreciation and amortisation) of these businesses is still negative. And in terms of the $12-15trillon global banking market, they’re a fly on the backside.”

Ouch. A stark comparison maybe, but also a useful reality check. Neobanks, while promising, have a long, long way to go.

Panellists taking part in the US/Europe Cross Eyes On Fintech Launch & Scale session at this year’s Paris Fintech Forum agreed with Stafford, and questioned whether some business models, even those that are scaling rapidly, are even truly sustainable.

One certainty is that the ability to access specific third-party infrastructure services is

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a big, timely boost for these new entrants and their life prospects.

“Over the last five years, it has helped hugely that new infrastructure tools – the likes of Galileo and Plaid – have been developed and built,” says Stafford. “So, if you’re starting a digital bank, you can simply plug into a platform like Deposit Solutions and instantly have a way in which you can offer a savings product without really building a lot on your side.”

Over recent years, Plaid, Deposit Solutions and a raft of other new fintechs have emerged as infrastructure providers.

These agile platforms are selling services to financial institutions not only to improve the end user experience or to add additional capabilities, but also to more fundamentally change It was the way these financial providers operate – or, at least, important to that’s how they should be seen. start small to refine There’s no doubt that digital the proposition… infrastructure services can lay But our ambition the foundations for growth, is definitely global but a survey by infrastructure Norris Koppel, provider Banking Circle indicates Monese that leaders across the financial services industry (legacy and new gen) still don’t ‘get’ their full potential. When asked how important infrastructure was in enabling them to capture today’s opportunities, the overall majority (63 per cent) believed it had a role in helping them to

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offer new services and 56 per cent believed it would help them respond better to customer needs. But there was markedly less appreciation of the role of www.fintech.finance

Doing the heavy lifting: Infrastructure services are key to growth

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We’re slightly more calm, less aggressive in our growth and more focussed on creating those products that really make life easy

If you want to enter new markets there are some success factors: competitive advantage, a market with a critical size and ease of adapting your own system

Thibault de Barsy, Emerging Payments Association (EPA)

Ali Niknam, Bunq

infrastructure services in reaching new markets, responding to the unexpected or helping businesses to compete.

As the researchers noted: “The survey shows a patchy understanding of the diverse roles of customer-facing digital innovations and the underpinning infrastructure, despite a broad understanding of the importance of digital. For example, only one quarter of respondents felt infrastructure has www.bankingcircle.com

a role to play in helping them respond better to unanticipated events.”

It’s crucial that they quickly connect the dots and understand the role of infrastructure as ‘the rails’ and new applications, services and solutions as ‘the brains’, they added.

“Infrastructure isn’t about delivering against a single business goal or enabling a sole use case. It may not be sexy, and it may not grab the headlines in the same way

as technologies like robotics and artificial intelligence (AI) do, but without the right infrastructure, a business can be superficially strong while fundamentally weak.”

Tim Sievers, CEO of Deposit Solutions, is one who does see the strategic value in leveraging infrastructure.

“We spent a lot of time customising our product to ensure that it was the right fit for the US market,” he told an audience at Paris Fintech Forum earlier this year.

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DESIGNING FOR GROWTH “We had to tweak our proposition but we were happy to – we had to be able to use our infrastructure for open banking solutions there and not build a parallel set of rails, which makes no commercial sense.”

START SMALL, GROW BIG! Such global ambition appears to be part of the DNA for many neobanks.

Monese founder Norris Koppel has talked of his vision to cover as many countries in the world as possible within eight years, but also advocates starting small. “We knew it was important to start small to refine the proposition. We chose the UK as a launchpad because of its very friendly regulator, status as a fintech hub, and good access to capital. But our ambition is definitely global,” he says.

Matt Oppenheimer, CEO of money transfer company Remitly, is a firm believer that most transformational companies have plan for world domination, but also highlights the importance of honing an offering in a single market before stretching your wings.

“We initially focussed on just one payments corridor, the US to the Philippines, but now service over 700,” he explains. “You have to start off by navigating the chicken-and-egg problems in terms of regulation and compliance – having the capital to meet [US states’] net worth requirements, a product that regulators can audit, a product to raise capital and partners to disperse funds who will want to see your licence.” of this annus horribilus – have taken their Ali Niknam, who self-funded French feet off the gas temporarily, there is still a mobile bank Bunq, which has an clear appetite for growth among fintechs. eco-friendly USP, has taken a TransferWise, for example, has continued different approach to most its ambitious expansion When you move challengers. “We’re slightly into the United Arab beyond your core Emirates (UAE), while Mambu more calm, less aggressive area, you then need to in our growth,” he says. is strengthening its position consider how you take “We’re more focussed on in northern America. the opportunity set to creating those products that Banking Circle’s white different markets really make life easy, and paper reflects this sense people really like to use. of optimism. Despite the where you don’t have “I think a part of pandemic, the industry existing infrastructure sustainability is that you clearly believes that Emmalyn Shaw, have a business model opportunities for growth Flourish Ventures are there for those best able that is capable of being profitable,” he adds. “We to take advantage of them. have losses but at least the There is a belief that the unit economics are healthy.” newer participants and While Monese has now technologies that are reigned back its fund raise in shaping the competitive light of COVID-19 and N26, landscape will help them Revolut and Monzo – who a make the most of ll entered the US at the start international opportunities

One of the key barriers to achieving scale is the ability to align with local regulations and compliance… ‘plug-and-play’ infrastructure services can help

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FintechFinancepresentsBuildingABankForTheFuture

by enabling them to offer more services across new markets. Europe’s financial services providers are true internationalists.

When questioned about how big the opportunity was to grow their company over the next few years, the most common response was four to five per cent, with only a few anticipating sub-one per cent expansion, despite COVID-19.

In terms of geography, Western Europe is still seen as the land of plenty, followed – at a considerable distance – by Eastern and South-East Europe. Notably, North America is not seen by many as an area of opportunity anymore, while Russia is viewed less favourably than Sub-Saharan Africa. (To be fair, research firm Findexable is on record as saying that ‘fintech’s future will arrive fastest in Africa’. One to watch).

THE REGULATORY QUESTION One of the key barriers to achieving scale is the ability to align with local regulations and compliance requirements. Of course, ‘plug-and-play’ infrastructure services can help companies to get around some of these issues, but there is a lot to consider if you want to take on multiple markets.

In the Banking Circle survey, 75 per cent of respondents in Benelux and 71 per cent in France said that managing different standards across multiple markets is a www.fintech.finance

major challenge to rolling out banking services internationally. In Germany, 70 per cent highlighted integration with diverse technology systems and protocols as a headache.

One tip offered by the panellists in Paris was the distinct advantage of kicking things off in the UK. Generally, most global regulators recognise and respect the work of its Financial Conduct Authority and so passporting from the UK market really helps. In some jurisdictions, notably in Brazil, Hong Kong and the UAE, regulators have taken the lead from UK rule-makers, so it feels like familiar territory.

In fact, the UK’s success has prompted a new sense of competition between European regulators, with Germany’s BaFin (Federal Financial Supervisory Authority) actively promoting its jurisdiction to neobanks, and the French Autorité des Marchés Financiers playing an essential role in promoting fintech adoption among French banks and consumers alike. This is seen as a good driver for growth prospects.

The Gen Z bank that’s going viral

VIEW FROM THE VCS

A bank so disruptive that it could only have been made for teenagers, Zelf is entirely based where they are – on messenging platforms.

And how do investors rate the neobanks’ prospects for growth?

“I would say that the UK and Europe are still the right markets to start making bets in,” says Emmalyn Shaw, managing partner of Flourish Ventures. “When you move beyond your core area, you then need to consider how you take the opportunity set to different markets where you don’t have existing infrastructure. The common approach is to apply for a banking licence, rent a charter partner and use a local back-end processor. But you also need to research and understand the local consumer base and get the unit economics working to push your value proposition and, ultimately, scale.”

DST Global’s Stafford has invested in the likes of Revolut and Nubank, the largest fintech in Latin America. He knows the market. “The job of an investor is not to dictate but rather to support,” he says.

“Whether Nik Storonsky at Revolut wants to expand into eight countries or 198, our job is to help him achieve that.”

Indeed, he estimates that there will be 10 fintechs each with a $100billion market cap in 10 years’ time. But a lot will depend on their ability to sync their offer with digital infrastructure services to light a rocket under their growth. www.bankingcircle.com

Zelf isn’t your average neobank.

It’s challenging the challengers

Powered by Treezor and available on WhatsApp, Viber, Telegraph and Facebook Messenger, its totally app-free model and 30-second sign up for basic transaction services are designed expressly for impatient Gen Zers.

Launching initially in Spain and France, which were selected for their regulatory framework and contactless capabilities, 350,000 people are already enrolled there. Key to its marketing, Zelf offers monetary incentives for referring friends, which is bound to appeal to often cash-strapped adolescents – and it’s gearing up to go viral.

“We felt that France and Spain presented the perfect opportunity,” says founder and CEO Elliot Goykhman. “In terms of the population size, contactless level, expenses per capita, these are the first two countries, from which we’ll make sure that we cover all of Europe, then come to the UK and to the United States.”

The goal for Zelf is to have half a million customers by the end of 2020.

Within just two years, Goykhman is

pushing to have five million users, a full banking licence and a global presence.

Paid-for Premium, Parent and Pro accounts, transaction interchange fees and yet-to-be-announced additional revenue-generating financial services are the basis for the business model.

Freemium banks are nothing new – and most are still waiting to see a profit. So what, if anything, makes Zelf different? With no app to maintain, Goykhman says it’s incredibly cost-effective to run. It encourages users to opt for wallets rather than plastic, so issuance is substantially cheaper, too.

We’ll extend not only globally, but also to different parts of human life He aims to ‘extend not only globally, but also to different parts of human life’.

“For example, people have voice assistants with Amazon, Alexa, Apple Home, etc. They’ll be able to give voice commands to those appliances about their finances, so anything from paying their utility bill to sending money to friends [via Zelf].”

One of the conclusions of the Banking Circle white paper was that banks are locked in an echo chamber, listening to and meeting the changing needs of existing customers – but not the next generation.

Zelf certainly can’t be accused of that.

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BOLTING ON A VALUE CHAIN

Your ecosystem or mine?

Banks should not feel threatened or restricted by the rise of ‘partnership’ financial services, rather they can extract the nectar of success from them, writes Sue Scott “We have to acknowledge that we now have to share clients not compete for them. It’s no longer an exclusive relationship with the bank. Come together, cooperate, and digitise as much as possible.”

That’s Paul Le, who leads on data and platforms for Dutch multinational bank ING’s trade business.

It’s a pretty awesome statement; a ‘reset’, both of the cultural orthodoxy in banking and the technology around which it is built. At its heart is a recognition that customer behaviour, encouraged by regulators and facilitated by data and digitisation, is changing dramatically. As with every other area of their digital lives, customers are looking for ease of use, new experiences and infinite choice in their financial services.

Even if one bank alone could provide all three, securely, and remain profitable, it’s unlikely that it would be rewarded with undying loyalty.

Take the famously conservative Brits.

Research by Sopa last year found one in three now hold two or more current accounts with different providers – an increase of 36 per cent on the number recorded in 2015. Meanwhile, intelligence company Compelo estimates that 61 million accounts remain idle in the UK as customers move their main banking activities elsewhere. Challengers are not (yet) the main beneficiaries of this capriciousness. Only Monzo and Starling Bank showed clear gains in the BACS table of UK current account switches last year.

Nevertheless, that leaves all banks with a dilemma. If account holders continue to move between banks, looking for the sweetest service, like bees seeking nectar from the brightest flowers, the potential for

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new ‘found money’ ecosystem, based on banks to track their financial habits and open banking. The card, which runs on gain the insights they need to build the Mastercard network, is exclusively personalised offers is compromised, available to iPhone users and exists making it harder to retain those customers. physically and in the Apple wallet.

Meanwhile, in the retail banking sector, a When a consumer uses it, they receive whole host of other non-banking providers a percentage of cashback on Apple are offering a range of personal financial Pay, while Apple benefits from the management apps that are moving interchange fee that Goldman Sachs towards offering payment, loan and collects from the merchant. But, when the mortgage services that are a substantial card is used to buy Apple products, the part of bank’s income. There’s a similar tech company pays no interchange fee, existential threat to wealth management saving two per cent, which it uses to fund and trade transaction services, too. promotional discounts. As you might As Microsoft puts it: “From an ad hoc expect, Apple has designed a slick digital wallet to real-time payments, budgeting interface for customers to the blurring of industry lines and track spending on the card. encroachment into traditional banking Crucially for Goldman Sachs, which territory is the new reality.” loaned $10million to users within the first In that case, how does Paul Le’s two months, it said the Apple Card was philosophy of camaraderie translate into the most successful credit launch ever a business model? (although comparisons “Anybody who’s trying Existing financial with individual cards are to build something that hard to come by). isn’t ecosystem-led, open institutions and Lúdvíksson sees this and isn’t collaborating, banks need to adopt and other initiatives as I think they have a short this new and different evidence that banks are shelf life,” says Elliott mindset – thinking of well-positioned to compete Limb, chief customer their competitors as – not by owning the officer for banking- and potential collaborators customer, but by owning lending-as-a-service in an environment the customer interaction. provider Mambu. ”Gone where consumer Ed Maslaveckas, CEO are the days where multi-banking is of Bud, the AI platform ‘collaboration’ just means becoming the norm for personal finance, a bank demands its Mike Kennelly, PwC which provides banks customers pay a certain and others with data way and the technology intelligence and fulfilment vendor sells what the capabilities to create new bank wants. Now, we’re features, believes that all working a lot closer. ‘no single institution can Composable and offer all services to a collaborative are customer’ and that a absolutely fundamental to competitive market is making this market work.” the best way to deliver what Georg Lúdvíksson, CEO they need. It was probably an inevitable and co-founder of white label digital short step, then, for the company to banking solutions provider Meniga, launch its own payment application points to the newly minted partnership programming interface (API), which between Apple and Goldman Sachs in the it did at the end of June this year.

US, to provide the Apple Card, as an Designed to provide an alternative to example of how just such collaboration card payments and bank transfers, it can deliver value to all parties. doesn’t require users to share card He describes the new consumer credit details with third parties. card partnership as creating an entirely

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“People look at open banking and think about aggregation but, in many ways, that’s the least disruptive part of it,” says Maslaveckas. “The value comes when you can understand someone’s financial data and help them to act on the insight. Most of the time that action will result in a payment being made.”

Maslaveckas pointed out at the beginning of this year that ‘a million people are now connected to the open banking ecosystem and the volume of traffic on the network doubled between November and December [2019]’.

“On the supply side, 76 per cent of fintechs we are tracking have accessible APIs and 30 per cent already have full read, write, create, fulfil and transact APIs,” he said. “Pretty much anything that a customer would want to do with their finances is available via API – so the potential product catalogue either is, or will soon be, extensive’.

Banks are well-positioned to compete – not by owning the customer, but by owning the customer interaction PwC is so convinced that legacy banks need to move towards API-driven, ecosystem banking, where they can leverage third parties like Bud to extend their customer reach and implement a new disruptive business model, that it has launched its own model bank – albeit within a new digital ecosystem bank sandbox platform that it will make available to banks and lenders.

“We have shown how this can be done with relative ease by linking to some of the most disruptive, innovative APIs available,” says Mike Kennelly, director of financial services technology consulting for PwC. “Existing financial institutions and banks need to adopt this new and different mindset – thinking of their competitors as potential collaborators in an environment where consumer multi-banking is becoming the norm,” he adds.

Last year, PwC published a report that looked at all partnership announcements between banks and third-party providers www.bankingcircle.com

(TPPs) between 2012 and 2018 in the service. That means that it is no longer German market. Just to be clear, the vast the centre of the customer’s universe majority of these partnerships were – a deeply unsettling change of mindset, working partnership and not equity based. process and technology for a bank.

From it, researchers identified seven It could, of course, do both. layers to a financial ING recognises that Anybody who’s services ecosystem: people don’t need banks, networks; infrastructure they need banking, and trying to build and core banking has set out to ‘find ways something that isn’t systems; a to empower people ecosystem-led, open and transformation function; and businesses on their isn’t collaborating, I think API provider; API preferred platforms with a they have a short shelf life integrator; an and easy experience Elliott Limb, Mambu clear aggregator; robo – or become a platform advisor, and other business ourselves’. customer services.

Meanwhile, BBVA has Each had its own already planted a foot in discrete capabilities both camps. It has its and revenue model.

Open Platform in the With so many providers US, allowing fintechs now involved in the act and others to plug into of ‘banking’, it begs the its services, and an API question ‘where does the bank make any Marketplace in Europe through which money?’ That, PwC suggests, depends customers can access TPP products. on where it chooses to position itself.

Such open-minded attitudes to Either it can try to scale its own ecosystem adapting the business model to a new with third-party services or it can expand environment might be the exception. into the broader financial services ecosystem, selling its unique capabilities as a

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Sweet success: Could collaboration see banks bloom in an ecosystem future?

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BOLTING ON A VALUE CHAIN According to the Banking Circle white paper, Ready For The Rebuild? Rethinking The Value Of Digital Infrastructure, only one in five of the financial services organisations it surveyed said they were worried about competition from new entrants.

It may be true that challengers are, as one commentator puts it, still just a ‘fly on the backside’ of banking, and that the GAFAs (Google, Amazon, Facebook and Apple) have no interest in becoming fully fledged financial services providers (as Apple VP of internet services Jennifer Bailey insisted last year, ‘we’re not interested in being a bank and particularly not the regulated part of that’), but most are nevertheless looking for banks to, in effect, white label their financial packages for

customers. If they are not exactly worried about the new entrants, banks should at least be figuring out a way to gain some value from partnering with them, given the fragmentation and disintermediation that’s already being seen in financial services.

There’s another motivation for partnering up, too: sometimes it’s just the right thing to do. As the COVID-19 pandemic escalated there were numerous examples of fintechs and banks coming together spontaneously to help – there were, of course, also some glaring examples of where better co-operation could have put things right a lot sooner.

Among the former was Swiss payment technology giant BPC, escalating plans to spin out a new ecosystem of partners, including banks, to improve the incomes of

thousands of poor farmers in India with the Safal Fasal (Successful Harvest) marketplace platform. The aim now is to use the same model to positively impact the lives of 10 million producers across the world.

The company’s Santiago Egas says the ecosystems it’s building ‘will be part of digital banking at the next level’, with the marketplace generating its own credit scoring, based on data and insights.

Fintech author Ruth Wandhöfer believes the next few years will deliver many more such business models and solutions through ‘a rebirth of infrastructures and a large-scale digitisation of value’. Meanwhile, the benefit of being part of an ecosystem is the resilience it confers on its constituent parts: both flowers and bees benefit.

PwC HELPS JOIN THE DOTS As far back as 2012, accountancy and professional services giant PricewaterhouseCoopers (PwC) warned that traditional banking was at a tipping point, with digital at its fulcrum.

And in what, even then, was a fast-changing industry, PwC urged banks to acquire or partner with innovators that were acting as ‘catalysts for change’.

The alternative was to develop those capabilities alone – both an expensive and risky effort, it cautioned in its The New Digital Tipping Point report, published in January 2012.

Fast-forward nearly a decade and PwC has taken its own advice to heart by forging partnerships with a group of carefully selected fintechs that are experts in their fields to develop a platform banking ecosystem, which will be made available to banks and other lenders in a sandbox environment.

As you might expect, the wealth of opportunities enabled by open banking and open APIs are at the centre of the project designed to allow PwC’s

customers to attract more business .

Importantly, PwC says its sandbox ecosystem demonstrates the ease with which a legacy bank model can switch to a partnership bank model.

The financial advantages of doing so are clear. Analysis by PwC estimates that technological step changes in the banking sector could bring a boost of more than £34.6billion to the UK’s economy by 2030.

PwC’s digital banking ecosystem is founded on a network of Cloud-based platforms using software-as-a-service APIs. Among its key fintech partners is Credit Kudos, a challenger credit bureau which hit the headlines during the COVID-19 pandemic by developing, in the course of a single weekend, an app to enable the UK’s five million plus sole traders to self-certify their projected loss of incomes using open banking data.

Credit Kudos plays its part in PwC’s ecosystem by delivering more precise and refined risk and affordability measurements to lenders, thereby allowing them to make faster decisions, increase acceptances and

reduce defaults. In turn, people searching for credit, including the traditionally underserved, can quickly and easily access new, bespoke products by securely sharing data from their bank accounts.

Another of PwC’s key partners is Salt Edge, a leader in open banking solutions. PwC uses its data aggregation technology to automatically structure and categorise bank data fetched through open banking channels for tracking, budgeting, payment and planning purposes. Additionally, the ecosystem incorporates Salt Edge’s personal finance management app that connects bank and e-wallet accounts.

“The third wave of digitisation is emerging where open APIs and open platform banking are rapidly changing the shape of financial services,” says Mike Kennelly, PwC’s director of financial services technology consulting.

“Legacy banks need to move towards ecosystem banking where they can leverage third parties to extend their customer reach and implement a new disruptive business model.”

Only connect: Ecosystem banking will become a profitable new normal

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