Fintech Finance presents: The Fintech Magazine 16

MAGAZINE

ISSUE 16

THE

FINTECH

COVID-19: the legacy

Aptitude Software’s CFO guide to forecasting post-pandemic

Betting on Clouds

Neobanks answer the call

What the world’s SMEs have in common with the filthy rich

Why ACI Worldwide believes the only way is up

Stand up for fintech!

ClearBank’s frustration as Westminster dithered

SCA: Securing the future

G+D’s Gabrielle Bugat and Andy Ramsden on a critical moment to shape the way we pay

INSIGHTS FROM Mambu ● Feedzai ● Citi Bank ● Rizq ● Nuance ● BPC ● Bunq ● Galileo ● free2 Kuda Bank ● ClearBank ● Mox ● Starling Bank ● Recognise ● 220 ● Klar ● DBS ● Banking Circle

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CONTENTS

COMMENTARY 19 Stand up for fintech!

Fintechs have been straining at the leash to help government save SMEs during the COVID-19 crisis and their frustration is palpable. We asked Nick Ogden, CEO of ClearBank, which is lobbying for more fintech-led lending, and Alexandra Frean, Head of Corporate Affairs for Starling Bank, one of the few accredited to deliver it, what’s holding the sector back

34 Cash meeting disasters head-on The Cash Learning Partnership, a network for innovation in humanitarian aid, is seeking fintech solutions to solve world problems

50 A fintech box set Paris Fintech Forum ended a five-year run in January 2020, leaving fans on a cliffhanger.

Now you can relive the last epic instalment with a special online edition

67 How a hacker mindset is responding to COVID-19 Lubaina Manji, Senior Programme Manager at Nesta Challenges, on the transgressive fintechs taking their place on the financial frontline

75 Executive measures Senior fintech recruitment specialists Tier One People and Broadgate Search on when and why you should hire a banker

91 The show must go on Strategic research and consulting firm RBR holds a series of annual banking events in the UK and overseas. So, how is it adapting them in light of the global pandemic?

96 Crowd-pleasers What persuades fintech startups and scaleups to go down the crowdfunded route? Veteran money raisers Smarterly and Money Dashboard discuss strategy, paybacks and surprises with Seedrs and Crowdcube

www.fintech.finance

THEFINTECHVIEW

2020

ISSUE #16

Four months in, and everyone’s talking about a ‘new normal’. Is it?

At the start of this pandemic, we tried hard to avoid editorial contagion: the reckless spread of the word ‘virus’ to every feature we published. But as stock markets appeared to lose touch with reality, internet traffic jumped 60 per cent, Zoom went from being a proper noun to an everyday verb, and a new generation – some suggest The Quaranteens – emerged, it became clear we’d succumb.

So, there are no apologies for all the references you’ll find to COVID-19 in this issue because, as Aptitude Software CEO Jeremy Suddards points out on page 16, ‘it’s not like the banking crisis or even the dotcom crisis where there was a sort of self-infliction at industry level’. This one has infected every layer of the economy, impacted every member of society, and the unconscionable inequalities it’s revealed pulled many of us up short.

What’s fintech’s role in all this? BPC, which we feature on page 32, believes the sector should be working even more closely with governments to accelerate digital adoption where access to financial

services limits freedom, hope and health; Nigeria’s Kuda Bank (p43), aims to provide not just a financial but also a social service in lockdown and beyond; The Cash Learning Partnership (p34) is appealing to fintechs to help deliver voucher aid safely to where it’s needed most. They are but three examples of the technology making a critical difference to people’s lives.

Interestingly, the recruiters we interview on page 75, say it’s companies with these ‘mission-driven’ objectives that attract the top talent – a point forcefully echoed during the Paris Fintech Forum’s Fintech For Good debate (p66).

So is this the ‘new normal’? It shouldn’t be if normal implies just another stasis: one unfair world order swapped for another that doesn’t address the fundamental problems. And those are what fintech can address.

Sue Scott, Editor Did you recognise last issue’s ‘spine tingler’?

“Success is liking yourself, liking what you do, and liking how you do it” was by renowned author Dr Maya Angelou

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CONTENTS

22 8 26 36

14 REGTECH 8

COVER FEATURE: The standards bearer: what’s needed to make SCA a success?

The roll-out of secure customer authentication has once more been delayed, this time as a result of the COVID-19 pandemic. G+D’s Andy Ramsden and Vendorcom’s Paul Rodgers discuss how the time might be best used to refine the scheme, while Gabrielle Bugat describes G+D’s wider role in payments development

14 Securing the future The COVID-19 pandemic has forced us to rely on digital finance more than ever. We ask ID verification player Trulioo if it will demonstrate the true potential of open banking?

16 Predicting the unpredictable Aptitude Software on how CFOs can best forecast their way out of the current economic crisis

COUNTRY FOCUS 22 Cracking fintech FinTech Wales is implementing a 10-year road map, spanning schools, business and government, to create an incubator the size of a country

www.fintech.finance

24 From fossil fuels to fintech Famous for its wealth, amassed largely thanks to the ‘black gold’ it mines in abundance, we look a t how a strong regulatory framework is helping the UAE make a seismic shift towards a new economy focussed on finance

26 Tear down the wall!

Now, more than ever, fintechs and enablers of Mexico’s new digital financial infrastructure will have to dismantle the barrier created by financial exclusion. Neobank Klar, Mastercard and Galileo consider what needs to be done

30 Xchange of value The head of DBS’ Startup Xchange initiative tells us why he thinks Hong Kong will continue to be a beacon for fintechs

32 Flicking the smart switch Policymakers must allow digital pioneers to help rebuild economies post-pandemic, says the boss of BPC North & Latin America

NEOBANKS OF THE WORLD 36 Getting to grips with SME banking In judo, you lift and throw opponents on their backs, pin them to the ground and apply various chokeholds or joint locks until they submit. It’s what SMEs might like to do to big banks. But Judo Bank has a better idea

40 Faith in numbers Islamic banking hasn’t really delivered for modern users. But emerging electronic money institution Rizq is planning to fix that

43 Free thinking How a ‘crazy’ idea to start mobile-only, fee-free Kuda Bank is making perfect sense in a country where access and price are key barriers to inclusion

46 The rainbow bank Bunq’s founder promises to take users to a world of banking they’d never seen before…

48 Millennial millionaires and how to serve them How 220, the world’s first digital ‘private members club’ bank, is setting out to meet the newly-gilded generation on their own terms

Issue 16 | TheFintechMagazine

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CONTENTS

84 62

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81 64 Moving on… and up

CLOUD & SCALE

The pandemic has prompted banks and payment intermediaries to scrutinise operations as many accelerate planned transitions to a Cloud environment. Ciaran Chu, Head of Public Cloud at ACI Worldwide, talks through some of the key considerations

52 Building for an unknown future Composable and collaborative are the watchwords for the new normal in banking, according to Cloud-based banking and lending SaaS provider, Mambu

81 A year of challenge, a year of change Banking Circle believes that, now more than ever, a financial utility is needed that provides banks and others with a ready-made way to offer real-time settlement for businesses

84 A moment that matters With a branch in most neighbourhoods, Nationwide has made a virtue of being the bank on the street where you live.

So how is a massive swing to online channels during the current crisis affecting it?

DATA & AI

55 Cloud control Feedzai CEO Nuno Sebastião reflects on, among other things, which challengers are best placed to succeed, and how Clouds are changing the industry

70 Next-level normal Citi’s Gulru Atak and SmartStream’s Andreas Burner discuss how COVID-19 is propelling use cases for artificial intelligence in financial services, and how the best approach lies in collaboration between human and machine

59 87 ways to make banking better New virtual bank Mox isn’t keen on conventional numbers, be it the metrics used for market share or the 16 digits on a card. There’s only one big one that bothers the CEO and he’s tearing up the rule book to eliminate it

62 Citi in the Cloud Citi was one of the first big banks to adopt a private Cloud to help it respond to a changing client profile.

We explore how it helps shape the bank’s approach to payments

87 Age of reason Why do boomers have such a hard time getting unsecured loans when many have guaranteed pension income? The same question occurred to Paul Lindsay, so he set out to answer it with free2

72 Spotting the difference Nuance Technologies believes there is only one way to stay ahead of the deepfake masters and that’s to employ the same technology as they do

CUSTOMER EXPERIENCE

LAST WORDS 98 Stand-up, fall-down comedy

78 More please for SMEs Neglected and hungry for change, small businesses deserve better – and Recognise will give it to them, promises CEO Jason Oakley

Ali Paterson has spent his pandemic binge watching HBO’s hit hi-tech show Silicon Valley.

Here’s what it taught him…

THEFINTECHMAGAZINE2020 EXECUTIVE EDITOR Ali Paterson EDITOR Sue Scott ART DIRECTOR Chris Swales ONLINE EDITOR Eleanor Hazelton

PHOTOGRAPHER Jordan “Dusty” Drew SALES Chloe Butler Tom Dickinson Karen Estcourt Shaun Routledge

US CORRESPONDENT Jacob Bouer VIDEO TEAM Douglas Mackenzie Lea Jakobiak ● Laimis Bilys Shaun Routledge Lewis Averillo-Singh Classic Dom Beasley

FEATURE WRITERS Hannah Duncan ● David Firth Tracy Fletcher ● Andrew Gaudion Martin Heminway ● Alex King Natalie Marchant ● Lilliane Moffat Sue Scott ● James Tall Swati Sanyal Tarafdar

ISSUE #16

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Issue 16 | TheFintechMagazine

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REGTECH: COVER FEATURE

The standards bearer

What’s needed to make SCA a success?

The roll-out of secure customer authentication has once more been delayed, this time as a result of the COVID-19 pandemic. We took the opportunity to bring G+D’s Andy Ramsden together with Vendorcom’s Paul Rodgers to discuss how the time might be used to refine the scheme, and asked Gabrielle Bugat about G+D’s wider role in payments development Strong customer authentication (SCA), part and parcel of the revised Payment Services Directive (PSD2), is a new European regulatory requirement that’s aimed at reducing fraud and making online payments more secure.

It’s a crucial moment for the payments industry – from banks to merchants and all the layers in between – because, to accept payments and meet SCA requirements, merchants will need to build additional authentication into their checkout flows. SCA will require authentication to use at least two of three stated elements: something the customer knows (such as a password or PIN), something the customer has (for example, a phone or hardware token), and something the customer is (a fingerprint or facial recognition).

But the new regime has stuttered into existence. Originally slated for introduction in September 2019, several countries have delayed or phased implementation. Now it’s been pushed back again in the UK, from March 2021 to September 2021, as a result of the chaos unleashed by the COVID-19 outbreak.

A statement issued by the Financial Conduct Authority (FCA) in April said the additional six months to implement SCA for ecommerce will ‘minimise potential disruption to consumers and merchants’.

There have been similar calls for a postponement in Europe.

Doing the right thing versus doing it right Firms are still required to take all necessary steps to comply with the revised plan and follow the critical path to avoid the risk of enforcement action.

But UK Finance, as a key coordinator for the industry, will now spend time

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further discussing it with all stakeholders before agreeing the way forward with the FCA. And, despite it having been on the cards for some time, there needs to be a lot of very detailed discussion, says Andy Ramsden, head of global solution sales for financial solutions at payments technology giant Giesecke+Devrient (G+D).

“It could go badly pear-shaped, if it’s not done correctly,” he says. “I still see some problems around how you can interpret certain things in the regulation.

We talk to banks on a daily basis, some of which think, for example, that using the SMS channel is a tick in the box that will get them through PSD2 compliance.

Then you talk to other banks that are very clear that this is actually a weakness, that it’s far better served with biometrics.

Because banks are interpreting it in many different ways, this is causing all sorts of problems. There’s a real grey area as to what is compliant, and what’s not.”

Paul Rodgers, chairman of trade association Vendorcom, which was established in 2003 to bring together all the key players from across the European payments ecosystem, agrees.

“I think the real challenge we have here is that we’ve had a banking authority legislate in an area that is not purely within the banking domain,” he says.

“The multi-layered, multi-faceted, highly-distributed ecosystem that is the payments world means that different people will look at this in different ways.”

Many will see the delay as a welcome relief; additional time to get ‘SCA-ready’ – it’s estimated that more than 70 per cent of payments processed today still aren’t compliant with the specifications. But both Ramsden and Rodgers believe it’s the regulators that need to use the time to avoid an approach that could, in its

current form, set payments, and particularly ecommerce, back several decades. No one doubts that SCA is a good idea, particularly given the recent acceleration towards ecommerce and the commensurate rise in fraud. But if abandoned carts are the result of frustrated consumers clambering over digital security assault courses, then nobody benefits.

Food for thought A 2015 Dashlane analysis of data from more than 20,000 users found that each, on average, has 90 online accounts. And here’s another fun fact.

A Study of Authentication in Daily Life was conducted in the US by Dartmouth College, HP Labs and Disney Research on behalf of USENIX, the advanced computing systems association, which tracked a cohort of 26 people to see how many times a day they authenticated themselves across every conceivable device. And they found it to be, on average, 45.

What these stats illustrate is that proving who we are is as unavoidable as breathing and just as essential in the digital age. But doing it securely, if it’s not to feel as though we’re putting on an oxygen mask every time we make a payment, could be a real challenge.

As Ramsden is quick to point out: “Many of these problems never used to exist when you met face-to-face. But now, with so much interaction and transaction forced from a position of distance and isolation, it’s been thrown into sharp relief.

“Most of the devices we use have to be treated as not trusted. When I’m accessing my account through my app, the bank doesn’t know where I am, it doesn’t know what device I’m accessing it from, in some cases. And with all these opportunities that we, as customers, now have, the criminals have even more. www.fintech.finance

Q&A with Gabrielle Bugat, Head of Division for Financial Solutions at Giesecke+Devrient THE FINTECH MAGAZINE: Last year, G+D announced it was launching a biometric card trial with Crédit Agricole.

Can you tell us more about that?

GABRIELLE BUGAT: Our biometric payment cards with integrated fingerprint reader will enable Crédit Agricole customers to make quick and easy contactless payments. They offer the highest level of security, personal data protection and performance. All one needs to do is place a finger on the impression reader to securely authorise the payment process. We’ve seen limit increases being raised on contactless cards as a result of the pandemic. This solution will mean that people feel more confident paying higher amounts without using a PIN. We’re working with other partners, including NXP Semiconductors and Mastercard, on this, and it’s worth noting that France is a great market to try it out in, with 57 per cent of French people saying that contactless is their preferred method of payment. We forecast a real boom in this type of solution – not just because of COVID-19, although it certainly has been a trigger. As such, we’re busy developing new products.

G+D has always been a part of shaping the way we pay: it lays within the core of what we do – Gabrielle Bugat, G+D United approach: G+D’s Gabrielle Bugat and Andy Ramsden

www.fintech.finance

TFM: Given there was previously a reluctance to increase the cap on contactless card payments because of security concerns, how might this influence consumer behaviour and how might manufacturers respond?

GB: It’s an understatement to say 2020 has been a challenge for many sectors, with businesses and consumers discovering new ways of living, working, socialising and operating. As part of the new normal, card technology has come under the spotlight for its role in supporting social distancing and keeping the economy’s wheels turning.”

Security is, of course, a crucial element, providing consumers and businesses with the confidence that their account, card or device has not been compromised.

One of the latest developments is advanced biometric technology.

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REGTECH: COVER FEATURE

Visa and Mastercard have been very active in this area with the Visa Ready scheme and the Mastercard Biometric Card, which combine chip technology with fingerprints to verify a cardholder’s ID for in-store purchases.

Other security developments include tokenisation and dynamic card verification value (CVV/DCVV) technology. Tokenisation enables banks to turn an account number into a token that prevents fraudsters from identifying it. These tokens can be placed in various physical devices or used for ecommerce or mobile phone transactions.

From a card manufacturer’s perspective, G+D has a strong legacy in terms of innovating solutions and products based on necessity. We have faced global crises in the 19th, 20th and now 21st century, so we’re confident that we can continue taking on world challenges and securing payments.

“So SCA came about to make sure that we can have the security we need, at the right time, and, if it’s done properly, to make it simple for customers. And that’s the trick: anybody can apply the security, but it’s got to be usable, and we’re talking about using it many times a day – checking bank balances, paying someone. We’re constantly authenticating ourselves.”

Founded in 1852, G+D is easily one of the longest-established players in the payments industry. It offers both physical and digital security technologies that protect millions of people every day, as they pay by cash, card or smartphone, interact with their cars or use their identity

or technology issuer, the customer, the merchant, the people in the background, the payment service providers (PSPs) and then all the people running the financial value chain. Everyone has a role to play.

“From an issuer perspective, they want to protect their assets because potentially they’re liable, but the customer also has a responsibility and if they don’t protect their password, then potentially they’re liable as well. It’s a mixed, muddled market.

When you then layer PSD2 on top of that and all the complexities, I think it becomes even more difficult.

“The consequence could be that everyone wants to apply their own

Biometric first: G+D is working on a fingerprint-enabled card for Crédit Agricole’s account holders in France

TFM: Would you like to see the delay in implementing SCA used to agree a more standardised approach?

GB: With or without the pandemic, there’s a need for the industry to unite on a standardised SCA solution. Regulators need to allow enough time to put SCA into play so that customers’ payments experiences are convenient, frictionless, simple and secure, regardless of where they bank.

TFM: G+D has been at the forefront of calls for global payment standards.

How might they be achieved?

GB: G+D has always been part of shaping the way we pay: it is at the core of what we do. Responding to global market demand for independent and standardised payment solutions, together with IDEMIA, last year we announced our intention to create the White Label Alliance (WLA) to provide a new security solution for next-generation payment applications. The aim is to design and maintain an open, comprehensive and standardised framework to meet the requirements of open and closed payment systems. Based on the Europay, Mastercard and Visa (EMV) standard, this solution ensures scalability for all technologies: cards, terminals and mobile devices. It’s strongly committed to open standards.

We want to thrive with our partners and evolve together. We greatly value being open and transparent in our relationships.

The close cooperation within the Alliance shows the effort to define open payment specifications that benefit all end users.

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documents when travelling. As a company, it has led development in the area of biometric cards and, among several biometric partnership projects it’s currently involved in, is a pilot announced last year with Crédit Agricole to introduce the first of such payment cards in France. The cards are manufactured and customised

by G+D Mobile Security, with NXP Semiconductors providing the all-in-one electronic module and embedded software, and Mastercard supplying biometric specifications and support.

A call for collaboration and standardisation Both Ramsden and Rodgers are clear that it’s not just the act of authentication and how frictionless and secure it is that needs to be worked on, but also the liability that attaches to it in a complex value chain.

“You’ve multiple players in that value chain,” explains Ramsden. “You’ve the card

The consequence could be that everyone wants to apply their own individual security and you end up with a botched, monolithic system that becomes completely unusable – Andy Ramsden, G+D individual security and you end up with a botched, monolithic system that becomes completely unusable.

“When I access one bank, I need to use a one-time password dongle and I press a button and enter six digits, whereas with this other bank, I need to receive an SMS, and with the next bank I use my user ID and password. It becomes a bit of a nightmare for me, as a user.” www.fintech.finance

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REGTECH: COVER FEATURE Rodgers strongly advocates collaboration to ensure the best delivery.

But there’s a problem: such collaboration is currently barred under competition rules.

“Consistency is really important, and how the banks work together to roll this out is absolutely key. But that ability for the banks to work collaboratively is actually countered by most regulators,” explains Rodgers. “It’s only by establishing a common foundation, that is easy to communicate, and easily implementable, that we’re going to get that baseline service right.”

If that hurdle is not addressed, when SCA finally does go live, both men believe there is huge scope for consumer confusion.

This is exactly why technology companies and fintechs are now competing to find

Cracking the problem: Consumers authenticate themselves multiple times a day

alternatives that avoid the need for a clunky user interfaces –biometrics tied to banks that, in effect, act as gatekeepers of your identity being one of them.

“SCA is going to apply unnecessary levels of friction to the ecosystem, and that will create a negative customer experience until we can get a common, ubiquitous, foundational approach,” says Rodgers.

“That’s what some of the SCA programmes around Europe are trying to do, but there’s little or no consistency across the different countries. So that has another implication; for certain merchant sectors, particularly hospitality, travel, and general crossborder trade, the digital single market from a European ecommerce perspective has virtually been killed by the

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inconsistency that has been applied, and the lack of real leadership that the European Banking Authority has shown.”

Ramsden is keen to look for the positives.

“I really do think there’s lots of great stuff coming out of PSD2, which helps with application programming interfaces (APIs), open banking, and the promotion of biometrics,” he says.

“And, being positive about this, especially for merchants, one of the big issues we all have is the friction of making a payment through our mobile or online, so we’re seeing tokenisation, not just for issuers that are tokenising payment credentials for things like Apple Pay and Fitbit Pay, but also merchants, tokenising card-on-files.

“There have been some real horror stories

and maybe use biometrics to authenticate myself for the SCA process. Make it as easy as that. All these types of solutions are really starting to happen now.

“But I also echo the points Paul makes.

We need consistency, too, because, at the moment, there are some great solutions but they’re ad hoc, and that’s not good.

“I also agreed that we need collaboration.

I worked in the mobile operator space when near-field communication kicked off. We failed horrifically to collaborate, because we were used to competing. And, lo and behold, Apple, Google and Samsung came in and ate the cake off the table.

“Banks need to be careful, because if they don’t do something then, once again, it’ll be Google, Apple and Amazon who come

Consistency is really important, and how the banks work together to roll this out is absolutely key – Paul Rodgers, Vendorcom about merchants that have had their databases hacked, and credit card details stolen. If you tokenise that, you take away much of the risk for the merchant.

“Then we have EMVCo doing some great work with the schemes around Secure Remote Commerce, or in-app payments.

When I browse through an app and I want to make a purchase, it takes me through to my banking app to make the payment. I don’t want to store my credentials in a taxi app or a coffee shop app, forget that I ever loaded it there and three years later find their database has been hacked. I’ve got a bank that I trust, so let me store my details there

in, because they’re already delivering great experiences. There’s no reason banks and merchants can’t do the same, but they need to get their act together. I say ‘they’, I mean we’re all involved in it, as an industry.

“So, to recap, if you want SCA to be applicable to mass consumerism, it needs to be everywhere, and it needs to be consistent. That approach worked well with chip and PIN: we all do the same thing.

Irrespective of whose card it is, you put your card in, type your four digits and take your card out.

“That’s where we need to get to with SCA, and we’re not there yet.” www.fintech.finance

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REGTECH: IDENTITY VERIFICATION An ‘open’ question: Will the crisis drive demand for 'plug-and-play’ ID services?

Securing thefuture

The COVID-19 pandemic has forced us to rely on digital finance more than ever. Will it demonstrate to the public the true potential of open banking?

Here, identity verification player Trulioo’s Chief Operating Officer Zac Cohen, and Director of Growth Rutherford Wilson consider the impacts THE FINTECH MAGAZINE: We’ve seen the pandemic propel digitisation up the banking agenda in the West, but has it slowed down discussions on open banking projects elsewhere?

ZAC COHEN: Organisations that were prepared for and already at a higher level of advancement around open banking are those that are now able to take better advantage of it. But the reality is that it has slowed down discussions in many jurisdictions and countries, simply because the priorities right now are very different.

You’re right in that we’re seeing an unprecedented need for digital innovation, though, so while the formal discussions and rollout plans might be temporarily

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taking a backseat, need for digital channels and strategies has skyrocketed.

The primary purpose of open banking is to level the playing field for fintech and establish a common, secure methodology to access and share information. And that pressure to have the adoption advanced is extremely high from fintechs and consumers alike. So, it’s all really coming to a head and I’m hoping that this will convince authorities and regulators to continue to push to make it possible.

RUTHERFORD WILSON: Where the larger banks have completed their implementation of the open banking infrastructure, some companies are starting to use that, yes. And that means we’re

going to see a very interesting test over the next couple of months because, in the pre-COVID era, there was a very slow consumer understanding of what open banking was and many different opinions associated with how secure it was and whether it was going to be useful. All those concerns are going to fall by the wayside now, perhaps, as the pandemic forces adoption of some of these more innovative technologies.

ZC: I agree. When we look at this in the rear-view mirror and ask ‘what has fundamentally changed in the market because of the pandemic?’, I believe digital adoption, and a digital preferred path, are going to be among the elements. www.fintech.finance

TFM: Given this acceleration of adoption, what are some of the considerations for moving these digital projects forward?

ZC: Online transactions and interactions, and access to fintech services, are must-haves today, not nice-to-haves. Adoption is currently maybe segmented by certain target populations – or folks that are more comfortable with certain technology layers. Now this is the only path we need to take, and that’s going to create a huge amount of innovation in very short order.

So, the first thing you always have to think about is the user journey. What is that interaction like and how seamless is it? We’ve done a lot of research recently around how consumers choose to use one online service or another and it’s all about that first interaction, the account opening process and the ease of use. Balancing that seamless customer journey and the regulations, privacy and standards, are really the critical elements in terms of how to make these projects successful, and that isn’t always easy to do.

Those who are in catch-up mode right now the best things to consider are ‘who can I partner with?’ and ‘what kind of technology is out there that makes this easier and allows me to launch quickly?’.

RW: The organisations that may have had a lightweight digital onboarding solution in the past are now seeing most of their business going online and they’re going to discover that it’s not as simple as buying a product, putting it in place, and letting it rip and run.

This is where people in the vendor space need to pay attention and start to evolve and innovate. One dynamic we’re starting to see is the advent of the low-code movement, where people are grabbing

There’s definitely going to be a market for organisations that can help you secure your data as a packaged product and, potentially, even remove the liability associated with it – Rutherford Wilson www.fintech.finance

platforms that are off-the-shelf for not just a small, minute piece of functionality, but for a full use case, and they’re putting those in place because the speed that customers need to move at has just doubled.

TFM: Security is something you know a lot about at Trulioo and it’s a key aspect of open banking. How can organisations protect their customers’ information and not just keep it secure, but also make sure that the customer knows it’s secure?

RW: Being able to store and manage personal identifiable information (PII), and also adhere to the regulations – the General Data Protection Regulation (GDPR) as an example – is going to become more of a commodity. There’s definitely going to be a market for organisations that can help you secure your data as a packaged product and, potentially, even remove the liability associated with it.

ZC: From our experience of helping to build a regtech company that services and deals with fintechs all day long and handles sensitive information, the big thing in terms of ensuring customer data is secure. Additionally, to ensure you’re building the right architecture around that, you need the compliance, security and business teams all working together as one.

We can no longer have organisations where the compliance team is in the backseat, or security comes after the fact in sort of a product strategy or operational rollout. All those business units really have to be part of the strategic planning from day one, and to make sure that all those angles are satisfied.

When it comes to regulation or compliance or security, some executives think of it almost as something that you have to do. In fact, it’s a competitive advantage and when you realise it’s a revenue driver, especially nowadays, that becomes an executive priority and really bleeds through the culture of the business.

TFM: If we look just at the UK, it’s said that 70 per cent of payments processed today are not compliant with new rules around strong customer authentication (SCA). In fact, the regulator has extended implementation by six months as a result of COVID-19. In Europe there are similar calls for an extension. When it’s finally rolled out, which sectors do you see being impacted the most?

We can no longer have organisations where the compliance team is in the backseat, or security comes after the fact in sort of a product strategy or operational roll-out – Zac Cohen ZC: SCA is, on the face of it, around transactions, merchants and buying things online. But we see so many different fascinating and interesting use cases today, so it’s going to have an impact, potentially, across all verticals and all industries.

RW: Just from personal experience, I am seeing industries that are not necessarily traditional, online businesses being impacted, like my local gym. They are now trying to create an online version of their experience, and they have to figure out ways that they can get people to log in and authenticate themselves. There’s a new world that’s about to unfold beneath us, so I absolutely believe that this impacts all verticals and we’ll see some very surprising ways that that’s going to play out.

TFM: Because financial services is such a closely regulated industry, do you think your bank account could become the thing that authenticates who you are?

Let’s say the gym in your example needs just to confirm your name and address.

Could they just ask for your bank details?

RW: I think it will depend on the risk appetite and the amount of friction that the need for bank details creates.

However, I do believe the pandemic is certainly going to drive organisations to consider alternative options.

ZC: I think it’s really about choice. It’s about identifying yourself in a way that you’re comfortable with as a consumer and that also provides a level of security that a business needs. Trulioo has always taken that approach – ours is a network model, a layered approach. We believe there are a variety of paths that should be able to work for the end goal, and all of them should be seamless.

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REGTECH: FORECASTING

PREDICTING THE UNPREDICTABLE If CFOs want to forecast their way out of the current economic crisis, Jeremy Suddards, CEO of Aptitude Software, suggests this is the perfect moment to turn inclement conditions to a future advantage by adopting a data-led approach What’s the one job you wouldn’t want right now? How about forecasting for finance teams?

Or providing solutions to complex compliance issues?

Jeremy Suddards was still only relatively recently installed as CEO of Aptitude Software, a company whose sole focus is on the chief finance office, when the pandemic hit. Not only did he suddenly find his staff flung to the four corners of home working but, as the market dropped for six successive sessions in six days, CFOs were scrabbling for help in predicting what was essentially the unpredictable.

“Many of them were experiencing market falls they had never seen before,” he says. “It’s not like the banking crisis, or even the dotcom crisis, which I’m old enough to have lived through, where there was a sort of self-infliction at an industry level. This was right across sectors.”

Nobody knows what shape this recession will take or how long it’ll last.

For finance teams, there are so many ‘unknown unknowns’. Regulators are now manoeuvring around temporary changes and tackling operational challenges, too – like a less glamorous Lionel Messi on a very wet pitch where the goal posts keep moving.

The ongoing market volatility feels like a rogue firework display. We’ve seen vast changes in consumer appetites and slippery lockdown rules, which are not easy for businesses to decipher. So how are companies reacting to all of that?

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“We saw a lot of our clients almost huddle down at the start,” says Suddards.

“Then they suddenly worked out that if they had to model every bit of their business, the only place they could do that from is the data in the accounting function. Forecasting is only real when it hits the P&L. But if the accounting data isn’t automated, you don’t have the ability to run those scenarios.”

Certainly, for anyone reliant on manual processes, it could take weeks – weeks they don’t have – to figure out what lines to pull or how to conserve cash.

“And the minute you give a board one set of scenarios, believe me, they want another one straightaway. So, I think we see this moment as a catalyst for automation,”

If you’re doing something that’s not going to be more than 20 or 30 per cent of your business in three years’ time, you shouldn’t be doing it says Suddards. “There was a quote from McKinsey recently, which I loved, which said ‘we’ve moved digitalisation forward five years in eight weeks’. I completely agree. You’ve got to have an economic reason, a great technology, but some other catalyst, too. And this is it.”

One significant permanent outcome of the pandemic, he believes, will be a

move to more regular reporting for listed entities in the UK, as happens in the US. “The good thing about our business is that we can help clients in the short term, but we can also help them with long-term forecasting and simulation. We’re just releasing a forecasting and simulation product, which our clients are now even more eager to get their hands on because I think quarterly reporting is going to become more standard for all companies.”

According to Suddards, if firms want to stay relevant, now more than ever they need to address lumbering manual process blockages. And Aptitude, which for 20 years has been helping CFOs navigate rapid finance and technology change, is standing ready.

“If you’re a bank or an insurer, you’ve maybe digitised your frontend – set up all your channels, got a mobile app and can sell your products online. And you’ve digitised some back office systems, too – you might even have outsourced a few business processes, offshored them. But there’ll still be some elements in the middle which businesses have sort of decided to live with, or the business case hasn’t been there to improve them,” says Suddards.

“Well, those are the bits that will slow the business down post-COVID. Because the world’s going to get faster, and commerce is going to get faster, expectations and reporting are going to get more aggressive. If you’ve got a slow wheel inside your organisation, the organisation will only go as fast as it does.

“With some CFOs, 60 or 70 per cent of their team are just running the same

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report on a monthly or quarterly basis.

They’re manually turning the handle on it.

I talk to insurers that have 600 people in their finance department, I mean, this is a huge issue.”

Interestingly, being forced to adopt distance working has given them an excuse to change that.

“If they’re all remote, and Phyllis can’t walk down to Bill to go through that manual process, the opportunity to really automate that is now, so that a) you’ve got control of the numbers, but, more importantly, b) you’ve the automation in place for the future. That allows the CFO to spend all of their time on strategic foresight without worrying ‘can I manually close the books this month?’.”

So, as the man with all the tools to help predict the unpredictable, what, in Suddards’ opinion, should CFOs be focussing on right now?

“They are the guardians of reporting, and they need that to be absolutely rock solid, to make sure they can make some bigger strategic decisions, but with less risk attached to them. I think a CFO will want to look at all of the costs that are going to be expended over this year, and probably most of next year as well, and work out how much of it is absolutely needed and how much of it is discretionary. Then, ask themselves what are the five to 10 things that are going to drive the business forward and sustain it, not for the next six months, but from January 2021 and even 2022?

“You have a period of time, at the moment, where, in my view, every dollar of investment you make now is probably going to pay back two or three when the market returns, so make sure those investments are really carefully thought through. If you’re doing something that’s not going to be more than 20 or 30 per cent of your business in three years’ time, you shouldn’t be doing it.

“If I think about my market, for instance, I know that, over time, the partner model is going to really drive our success, so we’re doubling down on how we do partnerships, on our learning and development to work out how we make sure those channels open, we’re doubling down on the markets we think will recover fastest.

www.fintech.finance

Clear line of sight: It’s even harder to forecast in the midst of the COVID-19 storm

“So, I think it’s about those manual processes; the M&As that you’ve built up over time but never really integrated; it’s the transformation of some of those systems where you felt you’d get another three or four years out of them if you just sweated them, and nothing happened. Those are the things you need to focus on. You’re not going to go and tackle your core banking system or replace your main policy system. Those things are just too long, too fraught with danger, too much risk, and the capital outlay is too high. But there’s a whole set of microservices that you can really address.

“If you’re currently half-baked on a transformation programme, there is a point where, of course, you could say ‘you know what, we’re just not gonna do that?” But what we’re seeing is that those that have really started that data and analytics transformation journey are doubling down on it, rather than pausing, because they’re realising that this probably won’t be the last time we’re in this situation. More importantly, they can be a winner out of this, rather than just survive it.”

The Aptitude website features a movie short called CFO Hero. Set in the near future, it stars an executive armed with intelligent data and an automated forecasting suite that gives her the upper hand in a menacingly tense City of London.

If you’re a CFO inclined to heed Suddards’ advice, that hero could be you.

Issue 16 | TheFintechMagazine

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COMMENTARY: WESTMINSTER

Stand up for fintech!

Fintechs have been straining at the leash to help government save SMEs during the COVID-19 crisis and their frustration is palpable. We asked Nick Ogden, CEO of ClearBank, which is lobbying for more fintech-led lending, and Alexandra Frean, Head of Corporate Affairs for Starling Bank, one of the few accredited to deliver it, what’s holding the sector back

Lockdown measures have hit the UK’s six million small and mediumsized enterprises (SMEs) hard.

More than 70 per cent have been forced to adapt their normal business around the rules, and, according to the Enterprise Research Centre, 70 per cent more firms went bust between the start of March and mid April than last year. But could that be just the beginning? Almost a third of businesses in some regions are said to be at high risk of collapse.

Getting them access to government support is essential and fintechs are banging at the door to help, but their

cries seem to be falling on deaf ears.

Chancellor Rishi Sunak’s 80 per cent government-backed Coronavirus Business Interruption Loan Scheme (CBILS) and, later, the lighter touch 100 per cent guaranteed Bounce Back Loan Scheme, were designed to give SMEs an urgent cash injection. A staggering £350billion has been set aside by the Treasury and tens of thousands of businesses are frantically submitting applications – what’s missing is the distribution.

“For whatever reason, we’ve relied initially on the incumbent banks – and I’m not knocking them. When they found out about what was expected of them, they

must have been horrified,” says Nick Ogden, CEO of UK settlement bank ClearBank.

“Sadly, now there’s a general realisation that we have a big issue. The distribution of the loans that we needed to get the economy running is behind the curve.”

Ready to take the strain Just over £5.5billion had been paid out to 34,000 companies in the first four weeks of the CBILS to the beginning of April – reaching just over half of those who applied. The agonising pace of incumbent banks took a heavy toll on those SMEs that needed immediate help.

A game of high stakes: The government is in danger of damaging its fintech prize, says Nick Ogden of ClearBank

www.fintech.finance

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COMMENTARY: WESTMINSTER Alex Frean, head of corporate affairs for Starling Bank, which is among four additional lenders signed up by the British Business Bank to help get CBILS moving, agrees that what’s needed is urgent fintech action and not bank scapegoating.

“Once it became clear that CBILS was not going to work, there appeared to be a reluctance to do anything about it and it all became very, very political. It was supremely unhelpful for the Government to start bank bashing very early on,” she says.

One of the few fintechs that have also been approved to process Bounce Back Loans, Starling has a head start on other challengers.

“Starling is in a different position to a lot of the other fintechs because we’re a fully licensed bank”, says Frean. “So, we have lots of liquidity and money to lend. We’ve just been working as hard as we can to get it out the door. Our frustration is perhaps not as great as we’ve seen among the fintechs that are not deposit-taking institutions.”

For those alternative lenders, it’s an uphill battle. The coronavirus lending schemes are not a conduit for taxpayers’ money; they require lenders to come up with the cash and offer it to businesses – at government-capped low rates in the case of the BBLS. And, under CBILS, they are taking 20 per cent of the risk if it’s not repaid.

That presents another problem, says Ogden. “Many of the fintechs, certainly in the lending arena, relied on a wholesale market to raise the funds that they lend.

The wholesale market has gone north by around 10 per cent and so they end up in a situation where even if they could raise money to lend at those rates, it would be perceived as being usury by the Government.”

Notwithstanding that, there are plenty of willing helpers. Ogden is leading a consortium of 167 fintech lenders, who want to channel £5billion of the total £350billion in government support to help their customers under the CBILS. They have access to private capital markets and can make agile credit decisions to underwrite the remaining 20 per cent.

He’s already set up the platform, using ClearBank to facilitate the process.

With more than 70 hopeful businesses onboarded and ready to go, he’s mustering his considerable influence to try and make it happen. To ignore

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Companies like ClearBank, Starling, Monzo and other successful fintechs have been held up by ministers as this shiny success story in the UK. But I don’t think that got very deep under their skin – Alex Frean these alternative lenders, he says, would be to undo the huge effort government made to level the financial services playing field after the financial crisis. If ever there was a time to take fintech mainstream, it’s now.

“The Government has not leveraged the distribution channels that existed in the UK, which have been created largely as a result of the Government,” he says. “All the great work that’s been done by the fintechs to widen the distribution… that’s been lost in the rush, (albeit the slow rush) to try and deliver a solution to the marketplace.”

The elephant in the room That irony is not lost on Frean: “Companies like ClearBank, Starling, Monzo and other successful fintechs, have been held up by ministers as this shiny success story in the UK. But I don’t think that got very deep under their skin,” she says.

So, government-backed business loans aside, are fintechs being used as a badge of honour at parties and ignored in business? Does our government really understand what fintech does or has there been a bit of blagging?

“We [fintechs] have to step up,” says Frean. “We obviously haven’t done a good enough job of explaining our capabilities to the Treasury, to Downing Street, to the decision-makers and their advisors… we clearly had not got that message through.”

When people feel stressed, they can develop tunnel vision: the inability to see the bigger picture or recognise alternative solutions, which may be just on the periphery. If this is what’s stopping government from embracing the potentially economy-saving role of fintech,

it’s a huge waste of the millions of talented and unique business that hold the nation together. It’s also the awkward elephant in the room. There’s a feeling that businesses are sinking unnecessarily, as fintechs and alternative lenders get blocked from helping.

“We had a gap of probably three weeks, when businesses could have got themselves sorted out, could have responded to what’s going on, structured their business plans for the future, plans to emerge from this economic disaster,” says Ogden.

But if they continue to flounder, the UK’s fintech sector is also in danger, as it loses increasing numbers of SME customers.

“It’s important someone understands very soon that not only could they end up damaging the economic heartland of the UK, but also the prized fintech community.

From the outset, it’s being damaged and destroyed by the lack of inclusion in the support programme,” warns Ogden.

“It’s been a collective effort from everybody in the industry, trying to shout to the politicians ‘hey! hey! we can help, you know’. We have 167 alternative lenders set up. We have the ability.”

Across the board, fintechs are standing up for Britain’s SMEs. Now it’s time for the Government to stand up for fintech.

“The good thing about fintech is that it is full of people, like those at ClearBank and Starling that are willing to speak out – who understand the old world and the new world and how we can all help,” says Frean.

They don’t want to prove a point; they just want to be on the ground in a crisis.

As Frean puts it: “There isn’t time for an ‘us and them’ mentality right now.

There’s a job to do.”

It’s important someone understands very soon that not only could they end up damaging the economic heartland of the UK, but also the prized fintech community – Nick Ogden www.fintech.finance

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COUNTRY FOCUS: WALES

FinTech Wales is implementing a 10-year road map, spanning schools, business and government, to create an incubator the size of a country.

Hannah Duncan investigates FinTech Wales is shaking up the nation with ambitious plans to future-proof employment.

Ripping up the rule book, tech CEOs are appearing in schools while competitors collaborate in government offices.

It’s part of a 10-year plan, which strives to pave the way for innovation with more research, more partnerships and by plugging national skills gaps as FinTech Wales looks to build a nation of (very employable) tech heads and (very investable) opportunities. They call it a road map, but it’s more a fourdimensional matrix: a colossal coming together of leaders to fight for the economy by leveraging fintech.

“Providing the environment and mechanisms to support a resilient and growing fintech and financial services sector is a real opportunity to put Wales on the global map,” says general secretary of FinTech Wales, Gavin Powell.

“Developing a road map of the technical needs of the sector is at the core of that and will give a competitive advantage to the stakeholders involved.

It will identify common technology challenges, which will help to drive collaborative projects for next-generation products and the necessary skills pipeline.

It will also allow the sector in Wales to become much more proactive about the technology and skills needs of the future, allowing more timely interventions, planning and preparation to take place.”

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For some time, this small nation of just three million people has been layering and increasing its worldwide digital offering. It has an outstanding resume, with all eight of its universities pumping out highly-skilled tech graduates. Fintech has become a national priority.

Why? Because of the impending rise of artificial intelligence (AI) and machine learning. Research by Future Advocacy shows that more than 26 per cent of jobs in Wales’ services-heavy economy could be automated away within the next decade, with potentially devastating effects on the country’s infrastructure, not to mention Welsh self-esteem. Much of the impact is likely to be felt on the street: retail employment makes up around 14 per cent of Welsh jobs, most of which could be washed away as the e-commerce tide rises. Nasdaq predicts that globally it will account for a staggering 95 per cent of purchases by 2040. And while international internet giants rake in a healthy profits overseas, revenue for local governments could be slashed, affecting all areas of public service.

So, determined not to get left in a digital rut, the Welsh government, FinTech Wales, and schools and businesses across the country, are collaborating to fire up tech. Government papers even hint at igniting skills among future generations by shaking up the national curriculum.

Universities and research facilities in Wales are already among the best for tech developers. Last year, Cardiff University opened its landmark AI MSc programme.

Working with fintech rock stars such as Amplify, BAE Systems, McKinsey’s QuantumBlack and DeepMind Technologies, the masters degree incorporates project-based

learning using world datasets to address global problems. Bangor and Swansea universities have opened world-leading programmes in coding, cybersecurity and software, too.

As students graduate, the country is filling with tech experts. That’s the beauty of being a small country, the paradigm is easier to shift and this may account for the higher-than-average number of startups.

Nurturing these tiny fintechs is essential. The Development Bank of Wales (backed by the Welsh government) has been a pivotal source of seed funding, loans and equity for 70-plus tech businesses. Set up in 2001, the bank has invested more than £43million so far and all this activity is attracting more angel investors who are encouraged to make use of a portal developed by Global

www.fintech.finance

The golden egg: Wales is incubating fintechs and the talen to support them

I see every reason Wales can be a centre of technology excellence in areas such as analytics and digital Welsh to browse the new companies and plant money directly.

Typical of Wales, nothing beats community spirit. Everywhere you look there are events, pitching workshops and get-togethers. Nobody is getting left behind and the support is immense. From the startup boot camps organised by

www.fintech.finance

Global Welsh and Hodge Bank, to the FinTech Wales forum – designed to identify and smash down tech barriers, there are many digital fingers in digital pies.

As Wales-based insurer Admiral’s head of change, Matt Wintle comments: “We should be proud of the work we do in technology in South Wales, where we have some great companies enjoying huge success, largely powered by their technology capabilities. We have a wonderful opportunity to make more of this, as well as the growing academic capabilities we have, to be much more proactive in our development of the sector and the talent that supports it.

“I see every reason Wales can be a centre of technology excellence in areas such as analytics and digital, if we can be organised and forward-thinking, and shout about how proud we are of what we have already achieved!”

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COUNTRY FOCUS: UAE

Famous for its wealth, amassed largely thanks to the ‘black gold’ it mines in abundance, the UAE is making a seismic shift towards a new economy focussed on finance, says Chris Kiew-Smith, Head of Technology for the Financial Services Regulation Authority It’s fortuitous that the United Arab Emirates (UAE) began embracing one of the biggest economic changes in its history at a time when the value of the substance it built its riches on plummeted to decades-busting lows.

Demand for oil in April fell by as much as 25 million barrels a day, prompting crude prices to tank towards US$20 a barrel as the COVID-19 pandemic brought industry and transport to a standstill. But a dramatic contraction in demand – some predict by as much as a third this year – has exaggerated a trend towards less reliance on fossil fuels in favour of greener energy.

Anticipating this change in world order, the UAE is attempting to redefine itself as a leading global financial powerhouse – and it means business, pouring a significant amount of its riches into making sure it stands out in a crowded space.

The organisation leading the onslaught is the ADGM (Abu Dhabi Global Market) fintech growth catalyst, an entity created five years ago which includes many leading lights from the Western financial, legal and regulatory worlds, such as the UK’s Financial Conduct Authority (FCA) and British supreme court judges, who have relocated to this ‘promised land’ of innovation.

A driving force behind ADGM’s inception was providing some of the globe’s wealthiest people, who live in the region, with the ability to manage their finances and

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assets at home, rather than via financial centres like London and Switzerland.

The ADGM and its sister body, the Financial Services Regulatory Authority (FSRA) – Abu Dhabi’s bespoke regulatory system, established to help fuel its growth – are backed by Saudi’s super rich, including its royal family, as well as other state funds, to the tune of US$1.5billion.

This lucrative funding pot is helping to persuade firms from fintech startups to co-locating incumbents, to head to the UAE, which sees itself as a ‘gateway to China’ and the rest of the Middle East and North Africa (MENA) region with their seemingly boundless growth opportunities in financial services. In fact, ADGM has already signed partnership agreements with state-owned Chinese organisations and opened its first international office in Beijing, to help regionally based firms access this large and lucrative market.

Low-cost global payments unicorn TransferWise is the latest fintech to exploit the UAE’s unique position, setting up an office in Abu Dhabi last October. It says it was attracted by the territory’s exceptional global payments opportunity, fuelled by a populace made up of 90 per cent ex-pats as well as pent-up demand across MENA. The territory is proud of its enabling ecosystem, characterised by a flexible, digitally-powered, legacy-free and independent legal

Shifting sands: Abu Dhabi has been preparing for a new world order

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and regulatory framework, modelled on those in the West; a state-of-the-art sandbox and a RegLab for safely testing new concepts.

No surprise, then, that the ADGM has notched up a serious list of firsts already, including the first digital sandbox with a participating regulator; the first fintech regulatory sandbox; the first application programming interface (API) framework; the first calibrated venture capital manager in MENA and the world’s first compliant cryptoasset regulatory framework.

At the same time, ADGM is partner in and home to the recently launched global tech ecosystem, Hub71, in which it has invested Dh100billion to enable it to drive tech transformation with input from capital providers, business enablers and strategic partners. The regional Mubadala Investment Company is leading this initiative, with influential partners like Microsoft and the SoftBank Vision Fund.

Homegrown and foreign fintechs benefitting from this fertile economic breeding ground so far span segments from payments to digital banking, among them Ant Financial’s global payments pioneer WorldFirst and blockchain-based payment technology company Pyypl.

The Dubai International Financial Centre (DIFC) is now home to 737 active financial firms, up 18 per cent since 2018, and 64 per cent since inception, and with a current market worth of around US$700billion.

Incumbents find it attractive, too.

Standard Chartered and BNY Mellon have recently set up offices in Abu Dhabi, to help their regional clients seize the significant opportunities a stone’s throw away.

The UAE’s ambitions seem boundless.

In April, it announced plans to launch regulated digital asset trading in the second quarter of 2020, with secure, decentralised digital asset exchange DEX among the first companies granted in-principle approval. Its founder and CEO Leon Smith heralded this as a ‘landmark moment for ADGM but also the wider Middle East financial industry’.

Innovations, so far, include three regtech pilot initiatives aimed at helping financial services firms achieve better compliance and risk management outcomes, faster and more cost-effectively – including an artificial intelligence (AI)-enabled regbot to speed up licence applications through automation, and a partnership with financial technology www.fintech.finance

as a service (TaaS) company OneConnect to develop the ADGM digital lab, described as ‘a platform where financial institutions and fintech firms can collaborate, test and develop innovative solutions with direct participation from the FSRA’.

These are just some of the ways in which those oil pipelines are being replaced with digital ones, made possible by the UAE’s homegrown, state-of-the-art legal, regulatory and licensing framework, Chris Kiew-Smith, Head of Technology for the FSRA, and formerly of the UK’s Financial Conduct Authority, explains that the area also boasts a registration bureau and will soon have its own exchange, facilitated by Singapore.

“As a government agency, we have an objective to grow the GDP of the national economy,” he says. “To do that, we’re trying to grow a best-in-class technology ecosystem.”

This includes $18billion invested in SoftBank’s Vision Fund 1 by sovereign wealth fund, Mubadala, for technological development. The central Abu Dhabi

Our Digital Lab will create an entirely new fintech marketplace, hosted online and run by the financial centre with the regulator very deeply involved Ghadan 21 Ventures Fund is a Dh50billion, (£10billion), stimulus package coming from the Crown Prince’s Office for various sectors of the economy. This fund has also given US$145billion for early-stage startups, with the Abu Dhabi government co-investing with venture capital (VC) funds to also help grow the area’s VC fund industry.

Helping companies at all stages of their development is clearly important, and another fund, the Mubadala Catalyst Fund, is ploughing US$1billion into later-stage companies with established products that are pushing for scale.

“We are open to any sector within financial services getting involved in the ecosystem here – banking, capital markets, asset management, insurance or payments, a startup or a mature company,” says

Kiew-Smith, who explains that the regulator sees itself as fulfilling an enabling role.

“We’ve tried to think as futuristically as we can, in terms of what regulatory frameworks a next-generation financial market would need. If we imagine, for a moment, that everyone is application programming interface (API)-enabled, tokenisation is real and digital security and digital assets can be freely traded, what, from a regulatory point of view, would make that clearer?” he adds. “Because, from a regulatory perspective, it’s not about making it easy, it’s about making it clear and transparent,” he says.

“For example, in June 2018 we released a cryptoasset regulatory framework, which people immediately think of as a risky market – which is precisely why financial sustainability, appropriateness of operation and strong regulation are so important.

Some people would call ours an onerous framework, and that’s deliberate. We regulate for anti-money laundering (AML), custody, technology, governance, market integrity and consumer protection, and I’m passionate about that.

“No other cryptoasset regulatory framework in the world regulates for market integrity, preventing insider trading, market manipulation and market abuse.”

Which areas of financial services does Kiew-Smith see coming to the fore?

“If I had to pick three areas they would be capital markets, asset management and commercial banking,” he says.

“We’re trying to offer next-generation financial services [to these and others], using the best technology available. People say banks should think more like Apple, Netflix and similar firms. We take the pillars that make them successful as our inspiration: research and development; having the best tools and talent; investing heavily; and growing the ecosystem and creating new marketplaces, like the Apple App Store or Netflix boxsets. We’re doing all those other things – and, with the cryptoasset regime, creating our new markets, too. Our Digital Lab will create an entirely new fintech marketplace, hosted online and run by the financial centre with the regulator deeply involved.

“If you have a blank sheet of paper, as we’ve had, and combine that with incredible enthusiasm for technology and a willing and hungry market for new products, it’s an extremely exciting time.”

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COUNTRY FOCUS: MEXICO & LATAM

TEAR DOWN THE WALL! Now, more than ever, fintechs and enablers of Mexico’s new digital financial infrastructure will have to work hard to bring forward services that Mexicans desperately need in the wake of COVID-19.

Neobank Klar’s Stefan Moller, Mastercard’s Pablo Cuaron, and Galileo’s Tory Jackson look at what’s being done to dismantle the barrier created by financial exclusion Mexico has endured a litany of unflattering caricatures over the years. Despite boasting the fifteenth-largest economy in the world, measured by GDP, coverage of the country in the international media has tended towards the unsympathetic, focussing on kidnap, corruption and that wall.

So, it’s a welcome shift in emphasis for Mexico to now be trumpeted as the ‘must-watch’ nation for fintech in 2020, with plenty of positive press about its new regulatory structure. Billed as the most fertile territory within the LATAM market for both financial innovation and adoption, this may be Mexico’s best opportunity yet to catch up with booming Brazil.

That’s certainly the thinking behind its Fintech Law – created in 2019 and due to be fully instituted this year. An industry-wide overhaul of Mexico’s banking regulations, the new statute has been widely praised by industry players.

Observers anticipate that 2020’s open banking legislation will go further than both Europe’s revised Payment Services Directive (PSD2) and the UK’s Open Banking regulations, helping to encourage collaboration in Mexico’s fledgling fintech space.

The Fintech Law has helped Klar, one of Mexico City’s most promising fintech startups, operate within a financial ecosystem of increasing trust and

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transparency. The neobank, which supports a five-minute digital account opening process with zero transaction fees, raised $57.5million in debt and equity seed funding in September 2019 – the largest fundraise of its kind in Mexican history.

According to Klar’s CEO, Stefan Moller, the legal framework provided by the 2019 law has been a huge boost for firms like his.

“Having a framework that allows new entrants into this space is very beneficial,” he says. “The Fintech Law allows entrants to get a foot in the door, and to do it with enough robustness that you are not putting anyone’s money at risk.

With a gradual, more modular framework, we’re confident that there will be more innovation, given that players such as Klar are now stepping into the arena.”

Meanwhile, Mexico’s central bank, Banco de México (Banxico), has cast its sizeable sombrero into the ring by rolling

The Fintech Law allows entrants to get a foot in the door, and to do it with enough robustness that you are not putting anyone’s money at risk – Stefan Moller, Klar

out a standardised QR payment system of its own. Released as Código Digital (or CoDi) in October 2019, the technology is another sign that Mexico is taking its new role as regional fintech leader seriously, tilling the nation’s digital soil ready for a plentiful fintech harvest.

It’s gestures such as this that tempted Utah-based Galileo Financial Technologies (formerly Galileo Processing) to open offices in Mexico City back in February.

Galileo’s application programming interfaces (APIs) are designed to support seamless third-party integration, plugging fintechs into a host of ready-made solutions to help get their products off the ground. Klar was revealed as Galileo’s first strategic partnership in Mexico, after a joint announcement released in April.

Tory Jackson, Galileo’s Country Manager in Mexico, also pays homage to Mexico’s efforts at financial modernisation: “The CoDi system allows for participants to be able to use QR codes to do inter-bank transfers, enabling them to send money from one bank account to the next,” he says. “Together with the Fintech Law, I think Mexico’s really done a lot to push financial inclusion, to get different tools into people’s hands.”

But even before the timely intervention of state-led legislation, which experts regard as world-leading as well as region-leading, Mexico was attracting global attention for fintech. One quarter www.fintech.finance

of the MINT nations – the world’s most valuable emerging economies, composed of Mexico, Indonesia, Nigeria and Turkey – the country had already been earmarked by investors as having the right ingredients for exponential financial inclusion. Among those ingredients are demographic factors. Mexico’s median age is just 28, compared with 38 in the United States. With 41 per cent of the population aged between 25 and 54, neobanks are salivating over the country’s large, young, tech-savvy consumer base. Sixty-nine per cent of people regularly use the internet and social media and, of those, 72 per cent already use two or more fintech services, against a global average of 64 per cent, according to Statista.

Smartphone penetration is likewise cited as a reason behind Mexico’s high valuation in the eyes of investors preparing to boost LATAM’s financial infrastructure. In 2015, smartphone penetration in Mexico sat at 50 per cent; by 2017 that had risen to 60 per cent. According to data from GSMA, 76 per cent of Mexicans are forecast to own a smartphone by 2025.

That said, Mastercard Mexico’s Director for New Trade Flows and Market www.fintech.finance

Development, Pablo Cuaron, cautions against using this data point alone to guarantee an improvement in financial inclusion.

“Smartphones and digital penetration do represent a huge opportunity for financial inclusion, but I think that this variable tends to be overemphasised,” he says. “If we want financial inclusion efforts to succeed in the market, we need to think beyond just smartphone penetration; the vision we have at Mastercard for financial inclusion is to bring access and then to drive usage.”

With its global experience and extensive work with fintechs, Mastercard should be considered a trustworthy judge in these matters. Having run an international series of development sessions with fintechs, Mastercard consolidated these into the Accelerate programme in October 2019. One component of Accelerate, labelled the Fintech Express, is designed to help startups like Klar to scale rapidly through local markets.

In April, Galileo became the first API software innovator to achieve Mastercard certification in Mexico; the firm also

We’re bringing true global capabilities, investment muscle, and innovation capabilities to the market just as it’s opening the door to a number of new players – Pablo Cuaron, Mastercard jumped aboard Mastercard’s Accelerate programme, which will help Mexico City’s newest fintech facilitator pioneer the development of the country’s digital financial infrastructure.

“As of last year, Mastercard started operating the domestic switching platform in Mexico,” Cuaron explains, “which brings global and international standards to the domestic ecosystem, opening the doors to players, such as Galileo and Klar, that are familiar with other operations elsewhere.

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COUNTRY FOCUS: MEXICO & LATAM services. And, for Stefan Moller and Klar, “We’re bringing truly global capabilities, that’s precisely the motivation for entering investment muscle and innovation to the the Mexican market at this time. market just as it’s opening the door to a “The business that we’re trying to build number of new players.” seems in some way validated by the crisis,” While Mastercard, Klar and Galileo Moller says. “During the crisis, the business all have valid reasons to feel optimistic, Mexicans won’t be reaching for the maracas continues to operate, and the demand continues to grow - now more than just yet. Even before the COVID-19 ever. These have been some of our most lockdown, Mexico had been posting successful weeks, in terms of consumer fairly unexceptional economic figures, traction; it just highlights that digital-only with millions of Mexicans struggling models are the future.” on or beneath the poverty line. Since Moller’s being modest. Since the the lockdown, the outlook for a large beginning of the pandemic, Klar has in proportion of them has become almost fact tripled its customer base, as Mexicans intolerably worse. That’s according to a scramble for alternative payment methods sobering report from Oxfam Mexico, which and sources of credit. Galileo’s Jackson recently claimed that, as a result of the has likewise observed a growing hunger coronavirus crisis, three million businesses for digital payment methods. and 28 million workers would be at risk “COVID-19 has made adoption accelerate of financial ruin without urgent state faster,” he says. “Where cash has really intervention. Over a third of those at-risk dominated Mexican payments for a long workers already lived in poverty, and a time, this really provides a unique further 16 million have no access to social opportunity to push the security benefits. With market to adopt new Mexico’s lockdown types of products.” easing, the world will Perhaps predictably, be watching as LATAM’s Mexico’s incumbent second-largest market banks have thus far been attempts to rebuild slow to service the and regenerate. changing needs From the perspective of their customers, of Mexico’s fintech scene, displaying the same though, the financial hostility towards change vulnerability of Mexico’s – and towards upstart 126 million citizens is, in fintechs – that part, due to the country’s Tory Jackson, characterised the early previous poor efforts Galileo fintech wave in mature at financial inclusion. markets. For one of the most populous Mexico’s population is largely unbanked or countries in the world, Mexico is serviced by underbanked, with pockets of financial an incredibly small number of banks – services infrastructure existing only in the around 40 or 50, compared to the country’s largest cities. There are whole thousands of FIs that serve Americans provinces of the country that cope without across Mexico’s northern border. a bank branch or ATM. Cuaron says Mastercard has registered As a result, 44 per cent of the adult a strategic split between incumbents population of Mexico own no financial and fintechs in Mexico; one that it is keen products, and only 15 per cent have access to address. to a credit card. And when you look at SMEs, “At Mastercard, it always comes back which account for 90 per cent of Mexican to: how do we make the most out of both businesses, only a third have access to loans worlds? How do we make both players from the country’s banks. Perhaps the most talk to each other, and get the most out shocking statistic is the difficulty Mexicans of each other?” he says. have in accessing credit: middle-class For long-time followers of the global consumers in Mexico see only three per cent fintech revolution, the end of the conflict of their credit applications approved.

Cuaron highlights is clear: collaboration will Clearly, financial inclusion should be a priority in Mexico, which trails Brazil in most win the day. For now, though, the nodes of Mexico’s financial ecosystem will have to metrics concerning access to financial

There’s been a wall in Mexico, as far as financial inclusion goes – and I think that wall is really starting to come down –

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work hard to form new relationships that support services Mexicans will desperately need in the wake of the coronavirus crisis.

Happily, as Jackson points out, Mexico can benefit from the accumulated wisdom of markets such as the US and the EU – as well as Galileo’s own experience in connecting with FIs across different markets.

“Mexico is in a great position, because it’s really able to learn a lot from more mature markets,” says Jackson.

“I do feel like there’s been a bit of a wall in Mexico, as far as inclusion goes – and I think that wall is really starting to come down. The general population is becoming more and more aware, and that’s driving more innovation, that’s driving more people to find the best products. People in Mexico need them, even if they don’t know that they do yet.”

Moller agrees: “Klar is trying to make a difference, trying to differentiate the value proposition in a way that is substantially better,” he says. “For example, offering credit to those that don’t have it right now, which is part of what Klar is trying to do; offering tangibly better financial products to them. All this will help shift consumer behaviour, as well.”

In 2019, Mexico enjoyed a record year, both in terms of fundraising deals and in dollars raised in seed rounds.

As well as Klar’s record-breaking raise, the home-grown payments startup Clip secured a $20million investment from Japan’s SoftBank Group in May 2019. In September of the same year, Goldman Sachs provided Mexican business loan provider Konfio with $100million in credit, enabling the firm to lend to thousands of small and medium-sized Mexican businesses. Mexico’s fintech network stands 273-strong at the time of writing, and looks set to grow impressively in 2020 in spite of the economic impacts of COVID-19.

With Mastercard and Galileo supporting fledgling firms such as Klar, we’re already seeing the creation of a rich, diverse and interconnected ecosystem of digital financial services emerge from Mexico City and into the LATAM region as a whole.

Moller sums up the mood best.

“At Klar, we’re starting from scratch but, in a strange way, we almost feel we have a head start – even though we’re only a year old,” he says. “Because I think, going forward, it really is digital-only or nothing.” www.fintech.finance

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COUNTRY FOCUS: HONG KONG

Medhy Souidi, Head of DBS’ Startup Xchange initiative, tells us why he thinks Hong Kong will continue to be a beacon for fintechs Hong Kong has for decades been a gateway from West to East – and it’s a gate that’s mostly swung both ways. The current political standoff over China’s apparent dismantling of the one-country-two-systems framework, threatens to knock it off its hinges.

The US has warned it will strip Hong Kong of its special trading status, while the UK has offered sanctuary to almost half the population in the wake of protests against China’s plans to introduce a national security law on the territory. The UK claims the law violates the handover agreement struck with Hong Kong in 1997, intended to protect the territory’s judicial and political independence at least until 2047.

Meanwhile, both HSBC and Standard Chartered banks have publicly supported it.

What will it all mean for the third most important financial centre of the world, through which, according to data from the Society for Worldwide Interbank Financial Telecommunication, about three-quarters of all Chinese renminbi payments flow and where China plugs into the world’s capital markets?

The American Chamber of Commerce in Hong Kong published the results of a survey last month that showed more than a quarter of companies questioned were considering moving elsewhere. But, so far, there has been no flight of human or

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financial capital. And, as far as fintech is concerned, the geography doesn’t change.

Whatever the colour on the political map, Hong Kong still sits on the doorstep of one of the biggest, most digitally advanced populations with a beguiling R&D resource clustered around China’s leading tech companies just across Victoria Harbour.

When DBS Bank was looking in 2018 to establish its new Startup Xchange – an incubator that seeks out startups that might offer solutions for bank customers and the bank’s own business units or create commercial products with it – Hong Kong was an obvious base, alongside Singapore. Not least because Hong Kong’s still independent Monetary Authority had been carefully working towards a new financial regulatory environment, one that gives investors, service providers and consumers confidence in digital financial services.

A Faster Payments System, supporting both the Hong Kong dollar and the renminbi, was introduced in 2018, enabling cash transfers by mobile or email. In January 2019, the HKMA began the phased introduction of open banking by launching the Open Application Programming Interface (Open API) Framework. Later that year, it granted Hong Kong’s first virtual bank licences. And all banks are being encouraged to adopt common KYC practices for e-onboarding that include technology for both identity authentication/verification and identity matching, such as facial recognition.

The compliance framework sounds familiar to those from the West, meanwhile the digital lights shine bright across the Greater Bay Area in China’s fintech lab of Shenzhen. China’s plan for

the Greater Bay Area, to which Hong Kong belongs alongside Guangzhou, Shenzhen, and Macau, is set to play a major part in moulding Hong Kong’s future, with some media calling it the blueprint for China's plan to beat Silicon Valley.

“There are about 70 million people in the Greater Bay Area right now. It’s three times the size of the San Francisco area and the same as the New York metropolitan area in terms of GDP.,” says Medhy Souidi, head of DBS’s FinTech and Startup Xchange initiative. “The plan is to develop an international innovation and technology hub – imagine putting New York City next to Silicon Valley. It will develop the infrastructure and connectivity between the people in the different cities and build a global, modern industrial system.

“Shenzhen is a pool of talent for AI and data; there are a lot of developers there.

Many companies with headquarters and offices in Hong Kong, are also crossborder in Shenzhen or Guangzhou, to support the development and increase their technology capabilities and skills.”

Meanwhile, Hong Kong is a conduit for investment into the mainland and contributes its banking knowledge and expertise. And, of course, it gives access to a much bigger market than the island’s seven million inhabitants.

“In mainland China, you have both successful B2B and B2C business models, and it’s quite easy for B2C companies to acquire a couple of million users,” says Souidi. “In Hong Kong that’s difficult, because it’s only seven million people, so most of the fintechs there are really focussing on B2B, or B2B2C. My job is to oversee these companies, propose the

www.fintech.finance

different services to DBS, and help with a digital transformation that will make the bank almost ‘invisible’ [in terms of frictionless user interface] through the new technologies.”

It’s the value, not the tech Startup Xchange is essentially a matchmaker to help DBS and its clients pair problems with the startups who are developing the technology that might provide a solution. “The programme is focussed on four areas of technology that will help businesses stay relevant in the long run: artificial intelligence (AI), data science, immersive media and the Internet of Things (IoT),” explains Souidi.

“We really try to focus on the value proposition, we don’t care so much about which technology it’s using, though – if it’s blockchain, AI, or machine learning. What we try to do is to see if the technology is suitable for the bank, if the integration is easy, and if we can implement it quickly.

Quick wins are very important to us: first to see the feasibility of the project, and then the feasibility of the result. Can we see, after proof of concept, some metrics that show the difference between what we have currently as a process, and what we can expect to have with the new process?

“Does the technology answer a problem for the industry? Some startups have a weak proposition, because they don’t really take care of a problem. Or sometimes they come with a solution that doesn’t address all of the problem.

As I said, the technology is not the most important thing, though; it is how you can leverage on the value proposition.”

The results of StartupXChange were strong from the off, as just a few months after its launch, it had matched 21 startups with different DBS Bank units and SME clients.

So where specifically does Souidi think the opportunities lie?

“I think nothing is more exciting than AI development, especially here where we can see, in both banking and the fintech industry, many challenges. Some of that is about how we can integrate AI in to the business. But then also how you can structure and streamline that data and make it easy to

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understand not only for the systems, but also for people to analyse it.

“For large organisations, I think we need to focus also on the lack of standardisation of data and risk management. This is really important for the bank and the ecosystem.

“The ecosystem is definitely the biggest thing that everyone wants to focus on, how to integrate different services, and have different actors in your universe and work with them seamlessly. That’s why I mentioned invisible banking – how we can help to do transactions, collection of money, payment, transfer, remittances, all those things, differently and seamlessly, for everyone, corporates and individuals.”

Helping to enable that ecosystem in Hong Kong is Cyberport, a digital

The plan is to develop an international innovation and technology hub… imagine putting New York City next to Silicon Valley

community made up of a number of technology companies that can prove both beneficial to the Greater Bay Area and in relationships between Hong Kong, China and the rest of the world. Lee George Lam, Cyberport’s chairman, has been keen to promote it as a place where Hong Kong and the US can collaborate on everything from digital entertainment to artificial intelligence. Cyberport houses about 600 tech companies and it’s startup survival rate is impressive at 72 per cent.

“Hong Kong is the fifth fastest growing startup ecosystem in the world and it’s a diverse ecosystem, counting about 12 per cent fintechs,” says Souidi, who also points out that, since 2010, Hong Kong’s fintech startups have raised US$940million, compared with US$387million raised by those based in Singapore.

How freely those US dollars will continue flowing into Hong Kong is up for debate, but Cyberport and StartupXchange are both examples of the territory’s dedication to finding ways to keep the gate open.

Flying the flags for fintech: DBS chose Hong Kong to colocate its Startup Xchange partly because of its proximity to China’s tech centres and massive market

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COUNTRY FOCUS: COLOMBIA & LATAM

Flicking the smart switch Santiago Egas, Executive Vice President & Managing Director of BPC Americas, believes policymakers must allow digital pioneers to help rebuild economies, post-pandemic It’s been almost 10 years since the global Maya Declaration was signed in Mexico at a forum held by Members of the Alliance for Financial Inclusion.

The international signatories were central banks, banking system supervisors and other financial regulatory authorities – Mexico’s and several of its regional neighbours among them. Each committed to putting financial inclusion at the top of their national agendas through various measures, such as creating an enabling environment for new technology that could widen access and lower the cost of financial services for the world’s poorest people. But, in Latin America as a whole, two out of every five workers still don’t have a transaction or savings account, according to the World Bank.

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As COVID-19 pushes many of the LATAM region’s economies to a precipice, Santiago Egas is becoming impatient. As boss of Swiss payment technology giant BPC’s Americas operations, which stretch from Canada to the southern tip of Argentina, he has some strong views on how best to effect positive change.

“More than half of the region’s population is unbanked, not including the underserved who have limited access to financial services, credit, financing solutions or savings schemes,” Egas says.

“Some cannot even get a prepaid card.”

And yet Brazil and Mexico have some of the highest rates of mobile and smartphone penetration in the world and the emergence of fintechs is fuelling innovation.

For years, governments and industry have talked about addressing financial inclusion; now it is the key issue across the region, particularly as it grapples with the COVID-19 pandemic.

“Many of Latin America’s economies were struggling even before coronavirus.

More than ever, customers and businesses need access to finance to enable them to fulfil their economic potential,” says Egas. “Now is the time for technology to deliver the initiatives that have been discussed over the last decade. BPC’s mission is to have these services deployed quickly, efficiently and securely.”

That includes providing accessible and affordable banking services and

enabling payments for feature phone or smartphone users who do not have a payment card. Other issues include how to provide services that reflect the user’s status, requirements and current benefits, and helping SMEs access working capital when they do not have an established relationship with a traditional financial institution.

“Financial inclusion makes the headlines, but the Maya Declaration is yet to make a significant impact on people’s lives,” says Egas. “The demand for innovation is palpable and the need for speed is evident across the region. It necessitates a collaborative approach between policy makers, financial institutions and fintechs.”

Private enterprise, he says, can move quickly if allowed to do so.

Connecting physical and digital From BPC’s South America HQ in Bogotá, Egas looks out over a city that has seen its poverty rate increase to 12.4 per cent, and with the Colombian economy heavily export-dependent, that’s likely to get worse. The prices of crude petroleum, coal, coffee and spices have all slumped during the crisis, with coffee prices down by almost 23 per cent so far this year. The whole region is suffering.

According to Egas, this makes it even more important for Latin American countries to leverage technologies to mitigate COVID-19-related economic contraction (expected to reach 5.3 per cent this year according to the UN) and spiralling unemployment, which will force many consumers and businesses to seek credit.

Those without access to regulated financial services will have nowhere to turn but to

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unregulated lenders, charging what Egas describes as excessive interest rates.

Although it might be slower than he would have liked, progress is being made, however – and BPC is at the heart of it, connecting digital and physical environments. It’s not in the business of creating solutions for the sake of digital innovation, he says – rather, it is focussed on finding answers to critical issues.

The company is creating digital ecosystems that bring together banks, processors, merchants and governments to deliver relevant services to customers to fulfil their everyday financial lives.

These services are realised through BPC’s SmartVista suite of applications that address three key (and related) areas: banking, mobility, and commerce. In Panama, its technology is at the heart of a national switch programme that has unified the payments systems of the country’s biggest banks and encourages people to open accounts as access to banks is eased. It also brings cost efficiencies for the banks as cash purchases are increasingly replaced by digital ones.

BPC is at the heart of the digital transition in terms of smart city transformation, too, and by providing digital payment platforms, particularly for small, one-person or family businesses at the vulnerable end of a very long supply chain. As such, it believes it can help governments across Latin America soften what will likely be a very painful ride over the next few years, post pandemic.

“We have already supported the national payments processor and switching company (Telered) in Panama and we are doing the same in Colombia,” says Egas.

“We are also undertaking national projects in Ecuador and the Dominican Republic.

“We make an impact everywhere payments are present.”

He points to Colombia where BPC is involved in a new cashless ecosystem that sees travellers use digital wallets and QR codes to ride the bus network.

“This technology is being used in some parts of Europe but it is relatively new in Latin America and will transform the way people

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make payments, move around and live in cities,” says Egas. “It is making payments invisible, allowing users to pay with a tap of their mobile or card without having to work out complex fare tariffs and zones or queue at a desk or kiosk.”

Another concept with transformational potential is BPC’s digital business ecosystems, particularly those aimed at agriculture and which have already been successfully implemented in India. There, more than 75,000 farmers have signed up to BPC Marketplace Safal Fasal within the past five months. This platform connects buyers and sellers and improves the income of individual farmers by giving them access to multiple buyers; multiple input companies at reduced prices; financial services to include them in the real economy; and access to advisory services for more sustainable crop production. Buyers, in turn, benefit from access to a large and varied segment of farmers and their produce; ease of procurement and planning in a fragmented market; and better logistics and tracing and therefore a better and more balanced price with reduced risk.

Launched during the COVID-19 outbreak, Safal Fasal (Successful Harvest) marketplace has already succeeded in rebuilding broken supply chains that relied heavily on physical connections. The wider mission is to positively impact the lives of 10 million producers across the globe within the next five years.

Egas describes BPC’s marketplace ecosystem as having the potential to take digital banking for small businesses to the next level in Latin America, too, delivering real value beyond payment.

“Our marketplace platform connects everyone in a B2B ecosystem, from unbanked to banked users,” he says. “Small

agricultural businesses often don’t have access to financial services or, if they do, they either lack trust in financial institutions or cannot afford their services. And when they need finance they are forced to pay high interest rates for loans that are too small for their needs.”

The marketplace can allocate personalised credit for working capital to all participants, including small retailers that need a loan to buy products from other participants. It also enables instant payment upon delivery – a new concept for farmers who previously had to wait for intermediaries to pay them, leading to financial insecurity. The ultimate objective is an end-to-end cashless process.

“It will be part of digital banking at the next level because the marketplace will have a loan component that bank participants are contributing to, with its own credit scoring based on purchasing or selling data and insights,” says Egas.

BPC has evolved from being a software company based on licensing models and standard products to catering for the specific needs of clients.

“We are deploying faster, scaling efficiently and providing flexible technology,” Egas concludes. “We are co-innovating, leveraging our new payment processing centre to serve the Latin America market. Our plan for 2021 is to establish additional processing facilities across the region and provide full software-as-a-service models and solutions to clients and partners. More and more, we take a partnership approach with added value services that help go to market faster.”

The demand for innovation is papable and the need for speed is evident across the region. It demands a collaborative approach

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COMMENTARY: HUMANITARIAN AID

Cash meeting head on Ron Delnevo, Chairman of The Cash Learning Partnership, describes how the network for innovation in humanitarian aid is seeking fintech solutions to solve world problems On Boxing Day 2004, shaky mobile phone images captured a catastrophe unfolding in the Indian Ocean. An earthquake in the ocean floor – one of the biggest ever recorded – propelled a deadly tsunami towards the beaches of Indonesia, Thailand and Sri Lanka.

More than 200,000 people died that day and hundreds of thousands more lives were impacted.

As humanitarian actors scrambled to deliver cash transfers for affected populations to access goods and services in those local markets that were still functioning or recovering, five organisations came together to found the Cash Learning Partnership (CaLP).

Originally involving five humanitarian organisations, in 2016 the decision was taken to expand the number of members and CaLP now has more than 90. They include local and international non-governmental organisations, United Nations agencies, the Red Cross/Crescent movement, donors, specialist social innovators, technology and financial services companies, researchers and academics, and individual practitioners.

All CaLP members are working within the space of cash and voucher assistance (CVA). Collectively, operational CaLP members deliver the vast majority of humanitarian CVA worldwide.

CaLP works on the premise that the potential of cash and voucher assistance

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cannot be fully realised by organisations working alone. Since its inception, CaLP has had a fundamental role in scaling up the quantity and quality of CVA in humanitarian responses, based on the simple question: why not cash?

To make this happen, it has been involved in building the capacity of CVA in the humanitarian sector through developing and operating courses (online and in person); building the evidence base, with research and knowledge management; advocacy and coordination, and provision of technical expertise on emerging topics.

CaLP plays the key role of convener with the members of the network and beyond, to highlight, discuss and foster mutual learning on issues impacting both now and in the future.

The organisation has contributed to significant progress over the course of a few years, as thinking and processes have changed in the humanitarian sector, making the shift to using cash transfers possible.

In 2018, the use of CVA in humanitarian programming was estimated at US$4.1billion. This was a 68 per cent increase from the US$2.8billion in 2016, which itself was around a 100 per cent increase on 2014. In addition to this volume increase, the focus on quality means that the CaLP network is concentrating on finding the most effective ways to reach those in need, putting affected people at the centre of decision-making.

CaLP also plays an important role as a barometer for how the humanitarian CVA system is performing, by issuing a comprehensive biannual State of the World’s Cash report.

The CaLP network continually scans the horizon to spot emerging trends and issues, summarising, synthesising and analysing these to provide easy access for all stakeholders. This requires close attention to the use of technology in the humanitarian sector and an understanding of how the new digital trends and risks can affect the work of CaLP. The increase in humanitarian cash transfers over the last decade has been accompanied by a growth in the use of digital delivery mechanisms, including bank cards for payment or retrieving cash at ATMs, along with transfers through mobile phones and electronic vouchers.

Such technology has been used successfully in some of the most remote and challenging contexts, such as Afghanistan, the Democratic Republic of Congo, northern Mali and Yemen.

There is a world of opportunities to explore as to how new technologies can support the delivery of CVA to humanitarian aid recipients. For example, the Global System for Mobile Communications said recently that two-thirds of the 3.7 billion people not connected to the internet actually live in areas that are covered by 3G or 4G signals. Using this technology, once beneficiaries’ data is registered online, a service provider can, in one click, transfer money to the recipient’s phone number.

Another example of innovation comes from Jordan, where CaLP members such as the United Nations High Commissioner for Refugees use iris scanning technology at ATMs, requiring no card or PIN, to provide 8.5 million individuals in need with up to 130,000 cash withdrawals on a daily basis.

In 2018, the use of cash voucher assistance in humanitarian programming was estimated at US $4.1billion

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With the rise in technology use come increased risks, including those related to the security of beneficiary data. In addition to being the overall ethical responsibility of the organisations collecting data, this can be a life-threatening issue in some specific conflict zones. CaLP has been at the forefront of making sure members are constantly informed and equipped to recognise and resolve such data protection issues, convening face-to-face meetings, running webinars and releasing podcasts.

Recognising that humanitarian cash transfers are just one element of the financial flows that can emerge during humanitarian emergencies, CaLP, always mindful of the links to the broader financial assistance landscape, also aims to provide thought leadership on emerging issues likely to impact humanitarian CVA. In 2019, CaLP itself identified the need to work differently, to take advantage of emerging opportunities and to prepare for new challenges. With a new strategy for 2020 and beyond, CaLP will strive to become a network structured to help members understand future trends and

be ready for them. This includes the ability to quickly react to immediate challenges such as COVID-19. CaLP has been issuing guidance, identifying best practice from the field and helping the whole network understand what the pandemic means for the use of CVA and the operations of CaLP members.

An example of that is evidence gathering to determine whether CVA programmes during the crisis have been negatively affected by anti-money laundering and counter-terrorist financing (CTF)sanctions. CaLP is aware that CVA is being scaled up to meet growing needs during the pandemic, with humanitarian actors at national and global levels working to expand cash programmes to reach newly affected people and, in some cases, switching existing in-kind programmes to cash. However, CaLP has also heard anecdotally that some programmes have been unable to pivot to CVA due to the potential chilling effect in relation to

sanctions. Calls for simplified customer due diligence and the revision of sanctions on which these measures are often based, are best supported where CaLP can obtain examples of impact from practitioners.

With a strong platform provided by 90-plus members, CaLP is a gateway to meaningful partnerships in the field of humanitarian assistance. This is a significant opportunity for the private sector, working with CaLP, to offer thought leadership on payment choice and innovation in financial services, and to see how to leverage such leadership to deliver the best outcomes for humanitarian aid recipients.

So, an exciting future beckons for CaLP – and an excellent management team is in place to meet the challenges, led by Karen Peachey, CaLP’s very experienced and committed executive director. One thing is absolutely certain; the future of CaLP is in very safe hands.

■ To learn more about the Cash Learning Partnership, please visit www.cashlearning.org/ My thanks to CaLP’s Anna Kondakhchyan and Alice Golay for help drafting this article.

Cash help: Financial technology has a role to play in humanitarian aid

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NEOBANKS OF THE WORLD

Getting to grips with SME banking In judo, you lift and throw opponents on their backs, pin them to the ground and apply various chokeholds or joint locks until they submit. It’s what SMEs might like to do to big banks. But Judo Bank’s co-founder Joseph Healy, has a better idea…

Judo is all about using speed and agility to out-manoeuvre opponents bigger than you. What better name, then, for a challenger intent on running circles around what it sees as the lumbering giants of SME banking in Australia?

As the country emerges from the COVID-19 pandemic, facing a predicted 10 per cent contraction in GDP as 30 years of growth ends in what's been described as ‘a shattering, warp-speed recession’, two-year-old Judo Bank (formerly Judo Capital) has flexed its junior muscles and honed its ‘high-touch, high tech’ technique to deliver real change.

This summer, it will move into profitability – a major achievement for any neobank, let alone in such short order. Over the last 18 months, it has hired close to 200 staff and is expanding into offices in Sydney, Melbourne, Brisbane, and Perth during the next few weeks. Meanwhile, its stature in Australia’s SME financial services market grows. In April, the government announced an additional $500million (roughly £268million) of funding exclusively for Judo Bank to help smaller businesses through the COVID-19 pandemic.

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“The key is that they make a realistic assessment of conditions and take a six-month view; assume that, in many businesses there’ll be no revenue for the next six months, but plan to make sure that the business survives and comes back not substantially weaker,” says Judo Bank co-founder Joseph Healy. That said, he’s optimistic that the recovery will be U-shaped: Australia has been lucky in that respect before. “Although the one thing that I keep reminding our bankers is that we are fundamentally in the business of managing risk. The thing is to make sure that, when loans do go wrong, you’re not surprised by the emergence of some credit losses.”

In the past 12 months Judo Bank’s combination of data-led intelligence and human judgement has largely avoided those, although COVID-19 may be the acid test.

“We’re confident that we are well set up to manage through this,” says Healy.

“I’m sure there’ll be a few more customers that’ll get in to difficulty, and a few that we’ll lose money on, but, in the overall scheme of things, it’s well within our expectations.

“Our loan book is relatively fresh. We’re not like a major bank that may have had loans sitting on its books for five, 10, 15 years. The vast majority of the lending we’ve done has been in the last 12 months, so the credit analysis isn’t dated. And we’ve stayed very close to our customers. As soon as we started seeing the onslaught of this crisis, we had our bankers on the telephone, then on webinar, speaking to customers, making sure that they were across the risks in the business, reassuring

Flooring the oppostion: Traditional banks have ‘lost sight of what they were there for’, says Healy

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them of our support, that they shouldn’t panic. That constant contact with the customer has been a big part of Judo Bank’s success so far.”

It shares the same agility and attitude towards the crisis as many small business owners and Healy believes that they will be looking to a bank that ‘applies judgement, not just strict formula and rigid policy’ as they transform their businesses after 2020.

By combining human experience and relationship building with data and artificial intelligence (AI) in a Cloud-based business that can then execute the necessary business processes very quickly, Judo aims to deliver on that expectation.

“There is no question that the major banks have taken small to medium-sized businesses for granted over a number of years,” says Healy, who like most of Judo’s executives, worked at a senior level for National Australia Bank. “Banking has fundamentally changed. The banks lost sight of what they were there for – to serve the economy and particularly the SME economy.”

As much as Judo is a digital bank, it’s not defined by its technology; rather, Healy insists, it’s enabled by harmonising it with its people and processes.

With a fully integrated lending platform and customer origination delivered by nCino, Temenos providing its core banking system, and an AI/business intelligence-enabled data vault infrastructure, all supported by its Cloud partners Amazon and Microsoft, Judo is using data to build an intimate picture of the businesses and industries it lends to. That enables it to understand and respond to the sector in a way that, Healy argues, traditional banks can’t.

“In the banking industry, people have not built a respect for data,” he says. “We www.fintech.finance

see the future of this company as being significantly defined by our ability to look at data as a strategic asset, data not just on the businesses we lend money to, but on the businesses that we decide not to lend money to, or businesses that we’ve lent money to that get into difficulty. Our data on that customer is complete and is of a high quality.”

It’s also dynamic: data gathering isn’t a once-and-you’re-done exercise, says Healy, and the success of his organisation will depend on keeping it fresh.

“To engender that same feel, passion, and motivation within our people, to see data as critical to our future, is the single biggest issue we’ve got,” he says, “given the legacy of the industry, in terms of its very poor regard for data and very clumsy technology that’s built over many decades.”

With more than 2.2 million small businesses and 51,000 medium-sized businesses in Australia in 2019, accounting for 35 per cent of Australia’s GDP, it’s hard to believe that this is a market that is poorly catered for by the traditional banks. But Judo, which leveraged the biggest Australian fund raise of 2018, to operate as an alternative lending institution while it was awaiting its full banking licence, identified a gap in the SME lending market of about AU$90billion (about £48billion).

“SMEs were basically being offered a one-sizetakes-all proposition from the banks, there was no innovation… it was very automated, so there was no judgement being applied. The first thing we had to do was demonstrate that we could grow our business by lending. The second was to say ‘and we can help fund that lending through business and retail deposits’, which we’ve done; we’re about 90 per cent loan-to-deposit funded now,” says Healy.

This clarity of purpose impressed investors, who returned for a successful third equity raise this spring, taking the total to AU$770million (about £413million), and providing enough capital on current forecasts for two years’ growth.

“When we were raising this last round of capital, investors who came into that round

said ‘you guys are doing exactly what you said you would do. The consistency in execution, the consistency in vision, the consistency in the purpose behind the company is undiminished from four years ago,” says Healy. “There’s a lot to be said about consistency of your strategic narrative, and consistency in your pursuit and execution of a vision that you have clearly mapped out in all its dimensions.

When people see you doing that, they get an enormous amount of confidence.”

Those investors will hopefully feel their confidence was well-placed when Judo moves into profitability this month (June).

“Having been planning this for four years, turning profitable is quite a milestone,” says Healy. “We said that we would get to profitability when our lending book reached about AU$1.6billion and 90 per cent of lending funded by retail deposits, and that’s pretty much where we are today.”

Healy’s ambition is not for Judo to become the biggest SME bank in the country; but it is for it to become the best. As much as he is attuned to the opportunity in servicing the sector, he is also aware of the operational risks involved in going too far and too fast. Scaling as quickly as it has this year could make it hard to replicate the passion and drive employees had for being part of a startup.

“So, we’ve insisted that, as people join the company, they have an equity stake in it, so they think like owners, not just employees. Our people and culture vision is very simple: to be the most trusted employer in Australian banking, full of employees who are raving fans, working in the best job they’ve ever had. It means there’s an element of a mission and purpose around this bank,” says Healy – something he thinks legacy institutions find hard to replicate.

“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 and the competition for capital, and the relatively short career span of many executives, means that the patience, enthusiasm and

Banking has fundamentally changed. The banks lost sight of what they were there for – to serve the economy and particularly the SME economy

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NEOBANKS OF THE WORLD High-touch, high tech: Judo Bank looks on data as a top strategic asset

entrepreneurialism – which does not exist inside large banks but are needed to make these things successful – represent serious barriers to success for them,” he says.

“Therefore, trying to buy a startup is an obvious alternative to creating it yourself.

“The problem for the company they might be seeking to buy is that history says 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.

“People change, the person that you got on with, who you trusted inside the large bank, either leaves or is promoted somewhere else, then you’ve got a new person who doesn’t share the same enthusiasm or vision.

“You start getting hit with lots of costs that don’t belong to your business, and bureaucracy. Eventually, they end up really damaging or even killing the business they bought. There’s not a lot of evidence, anywhere in the world, of where big banks have adopted innovative technology developed by others and made it as

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successful as it otherwise could’ve been.

“So, given how passionate I and my colleagues are about Judo, and our strong belief that we can build a worldclass SME 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.

“The other part of me, of course, says ‘well, you could make a lot of money from it’, but, frankly, I think building something that stands the test of time and is part of changing an industry, is a much bigger prize.”

The Australian government looks to be pinning its hopes on a business-led recovery to minimise the effects of a looming recession, which was triggered by a lockdown that meant one in five Australians lost their jobs or had their wages cut between March and

April. Two-thirds of Australian businesses have reported taking a hit to revenue due to COVID-19. Healy believes it is time for many of them to change their business models completely.

“To paraphrase President Obama, let’s not waste a crisis,” says Healy.

“I think we will see transformational change, or at least the beginning of transformational change, in many business models and particularly small businesses, because small businesses can change faster than larger businesses. They’re more agile, more adaptable.

“I’m an optimist, I think the entrepreneurial spirit that makes great SMEs has been ignited by this crisis and we’ll see the tangible product of that in the years to come.”

And Judo Bank will no doubt have become a black belt in SME financial services by then.

I personally would consider it as close to a nightmare as you can imagine if we ended up being acquired by a large bank

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NEOBANKS OF THE WORLD

Faithinnumbers It’s hard enough launching a new bank. That Akmal Saleem chose to launch a shariah-compliant lifestyle bank in the UK in the midst of a global pandemic, must put Rizq in the category of most ambitious startups of 2020.

It was beaten out of the stocks only marginally by newcomer Niyah but, even then, it’s not exactly a crowded market: only a handful of UK providers offer banking services that strictly follow Islamic rules around money management and many of those are underused by British Muslims. The Islamic Finance Consumer Report 2019 from Gatehouse Bank revealed that nearly half have never used a sharia-compliant bank, often because they believe that only those who actively follow the Islamic faith are allowed to.

But now the ethical principles under which those banks operate are suddenly making a lot of sense to many people of all faiths and none. The pandemic has caused many in the UK to question issues to do with financial systems – the principles underpinning first world economies that have driven banking to a precipice before in the West. They are looking for something new, something fairer and more inclusive.

And Rizq aims to provide it.

“Essentially, we’re ethical. We want to provide a service for as many customers as possible, from whichever faiths and backgrounds,” says Saleem.

That said, Rizq’s core target, at least initially, are the UK’s 3.4 million Muslim customers whose personal financial management needs are still not being met by most neobanks. They want ethical choices that fit with the tenets of their faith and practical tools to help them achieve their financial aims within that.

Rizq is using advanced technology, informed by knowledge of the Islamic faith, to provide modern services within an ancient belief system. The two are not mutually exclusive, insists Saleem.

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Islamic banking hasn’t really delivered for modern users.

But emerging electronic money institution Rizq is planning to fix that, says founder Akmal Saleem “We are about building good products at a hybrid level between the traditional and the digital. We can give people using traditional Islamic banks in Europe what they require, but also appeal to a younger generation with different emerging needs, and bring that together in one experience.

We understand what Muslims in the West, at this moment in time, want,” he says.

“Rizq is the UK’s first fully alternative Islamic digital banking application. It is extremely simple to sign up to. Users can make lightning-quick payments, set up budgets, donate to charity and collect cashback in some of the most popular retailers.

“Most digital banks within our space are only focussed on mobile,” he adds. “We believe web banking and online banking are still important tools for people, so we’re making sure that works really well and is integrated.”

paying or collecting interest, on which traditional savings products and mortgages in the West are based.

“We’re developing incredibly innovative ways to solve the credit card issue and developing savings accounts with no interest,” says Saleem. “Our value proposition fundamentally understands the economics that need to go with the business model to make this sustainable. But it’s not just about the interest-free element,” he stresses.

Rather, Rizq uses digital to incorporate Islamic principles at its core.

“It’s about how we use our digital platform to make the paying of Zakat [one of the five pillars of Islam by which every Muslim with the capacity must pay 2.5 per cent of their wealth to help people in poverty] easy. How can we help people during Ramadan, and with their obligations towards things like performing Hajj [pilgrimage]? That’s something that hasn’t been done before. I’m talking about things like developing artificial intelligence functionality, which automatically calculates people’s Zakat, so that they can pay it with a click of a button. That’s really powerful for Muslims.

We’re also developing an auto-donation functionality, so every time someone uses their debit card, they can pay a chosen charity a proportion.”

Rizq’s original plans to launch this June to a customer base of 500 to 1,500 people – building to 45,000 customers by the end of this year – may be delayed by the coronavirus pandemic. But Saleem remains hopeful it will be up and running

by July, helped rather than hindered by a values shift among the wider population. That places it in direct competition with more ‘vanilla’ challengers like Monzo and Revolut.

We want t provide a service for as many as possible, from whichever faiths and backgrounds

Tools to help keep the faith While full details of its specific product offering have yet to be revealed, Rizq will launch with a current account, later joined by a premium account, and features include shared accounts with budgeting help.

At the time of writing, Rizq was awaiting confirmation of its licence from the UK Financial Conduct Authority to operate as an e-money institution under shariah law.

That forbids followers of Islam from taking part in any financial service involving

www.fintech.finance

“We couldn’t have predicted the pandemic, but people are going to rely more on digital-based products and services after we come out of this situation,” says Saleem.

As well as Rizq and Niyah in the UK and insha in Germany, a plethora of smaller players are springing up, attracted by a sizable opportunity – the International Monetary Fund pegs the value of the Islamic finance industry at $2trillion. But Saleem – a communications expert-turned-financeentrepreneur who also founded ethical Islamic investment firm Maarij Wealth – believes Rizq has a unique offer because it’s been shaped by a personal need.

Like all the best entrepreneurs, he could be said to share James Dyson's famous, grumpy frustration: ‘I just want things to work properly’.

“For 10 years, since I started my first business, I was looking at what products and services were available to me to develop my business in a sharia fashion, like micro and SME financing,” says Saleem. “There was virtually nothing. I’ve travelled the world to find something, but found everyone was just wrestling with these complex problems around developing alternatives to interest-based products across the spectrum. So, I’ve been thinking about those next areas that need developing – beyond tailored products and services.”

He adds: “So far, it’s been a failure of the industry as a whole. From the traditional banking sector to the Islamic banking sector, we can’t see anyone addressing Muslims’ banking problems at the multiple levels we can.”

Iqbal Khan, who founded HSBC Amanah, famously talked, post-financial crisis, about Islamic banking being the benchmark for ethical banking, and the Islamic Bank of Britain saw an influx of non-Muslims looking for its banking products. So, why hasn’t the digital side of their delivery been addressed before now?

“Because of similar problems to those faced by incumbents in digitising mainstream banking,” says Saleem. “The infrastructure wasn’t there. Three, four years

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ago, it wasn’t easy to build a digital bank.

The market is also maturing. Muslims were a few years behind in terms of the products and services they engage with, so there wasn’t the demand. But younger Muslims are more tech-savvy.”

With applications for Rizq accounts in test mode and the app downloadable now from Apple and Google Play, Rizq’s below-the-line social media marketing strategy has already demonstrated there is a pent up need.

“We have been approached by banking groups from the Middle East, Europe and Southeast Asia. Indonesia is a really important market, with 200 million Muslims, and we want to go there, but in the right way,” says Saleem. “We’re completing a small seed fund round at the moment, which is attracting significant interest, so going global is there for us.

“Our values are clear and as we launch and people see what we do and how we operate, even non-Muslim people who want more ethical banking will start to adopt our product.”

The tagline on the fledgling brand’s Facebook page is ‘your Rizq is written’, meaning everyone should seek to achieve what Allah has deemed sufficient for them, sharing the rest with those that need it most. It’s a spiritual and economic levelling up that chimes well in an age when many are seeking a more equitable society.

A command handed down 1,400 years ago is shaping the development of a digital bank.

Ancient and modern: Shariah principles of ethical finance chime with shifiting values and a tech-savvy generation

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NEOBANKS OF THE WORLD Empowering the people: Kuda’s no-fee model is all about financial liberation

Free thinking When the people of Lagos, who’d been under full lockdown for five weeks, were given their socially distanced freedom, many chose not to head to a park or the markets.

They headed straight for a bank.

Pictures quickly emerged online of endless queues and busy banking halls as people who had no other means of withdrawing and depositing funds rushed to make transactions.

Kuda Bank, Nigeria’s first mobile-only challenger, which is headquartered in the city, used the opportunity to remind its Twitter followers: ‘your phone is the safest bank right now’.

Observing the dangerously besieged branches, Kuda co-founder and CEO Babs Ogundeyi, must have been reminded of why he’d been driven to provide customers with an alternative bank in the first place: to give people the freedom to choose how and where they managed their finances . ‘We don’t have branches’, its marketing reads, ‘because you don’t need branches’. His second thought must have been just how big a hurdle this new ‘bankofthefree’ faced in persuading Nigerians to change their habits.

“I just felt there was a better way to serve people – and the majority of people,” says Ogundeyi, recalling his journey from financial analyst with PriceWaterhouseCoopers, to manager www.fintech.finance

Babs Ogundeyi’s ‘crazy’ idea to start Nigeria’s first fullylicensed, mobile-only, fee-free bank is making perfect sense in a country where access and price are key barriers to inclusion. Less than a year in, Kuda Bank is providing not just a financial service, but a social one of the State Microfinance Institute, to fintech entrepreneur.

By the ‘majority’, he means the 60 per cent of adults who don’t have a bank account but can sign up in minutes to Kuda’s basic product, which is capped at a maximum deposit of 300,000 naira (or roughly 10 months’ salary at minimum wage). The 40 per cent of people who do already operate an account can switch in seconds and get the full monty with no restrictions. But, in either case, there are no fees. None. And that’s a key selling point.

“We’re tackling the two things, access and price,” says Ogundeyi. “And we’re seeing a lot of progress – even within our institution, a lot of people who didn’t operate within financial services are opening bank accounts – as well as

people who have accounts switching to easy-to-use, no-fee banking.

“People gravitate towards us because we’re a very price-conscious continent.

But Kuda goes beyond price. It’s really about the freedom that it gives you as a customer; the freedom to completely understand what your money is doing; the freedom to be able to save money effortlessly. And, with a credit product coming out shortly, the freedom to have access to a little extra money,” adds Ogundeyi. “Our goal is to provide a service that is free to the consumer, and then to keep figuring out the best ways to utilise the deposits they keep with us, to monetise those. The best way to do that is by extending credit to people who need it immediately. That’s, effectively, what a bank is. You take money from somebody that doesn’t need it immediately, and extend it to somebody that does, and make interest on it.”

For many challengers in the West that have struggled to maintain a fee-free structure, the model is enviably simple.

But that doesn’t mean Kuda isn’t furiously peddling at the back end.

“On paper it’s relatively easy, but to put it all together and execute on it, make sure that the technology doesn’t break down and the regulators are on side… if you can do all of that, there is a huge market,” he adds.

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NEOBANKS OF THE WORLD Such models depend on scale, and Kuda has big ambitions. At current rates of onboarding it’s on target to hit 500,000 and possibly one million customers by the end of 2020. Its intention, though, is to financially liberate not just Nigerians but the whole of Africa.

Ogundeyi points to the levels of financial inclusion seen in China and across Asia since the introduction of mobile banking.

“We’re really at the tipping point and we believe we are the bank to push this revolution forward,” he says.

The bank’s ethos is one of honesty and open communication – criticism as well as suggestions are met head-on. And, much

has a bank account, everyone has a mobile phone? Indeed, last year, the government allowed the first telecoms provider to start facilitating money transfer services.

MGN Nigeria was licensed to provide cash transfers through mobile money wallets using its retailer network, mirroring the phenomenally successful M-Pesa, also operated by telecoms, in Kenya. MGN also plans to launch a payment service bank, for which it is still waiting approval.

As to why legacy institutions are not launching their own mobile-only banks, Ogundeyi says: “There are so many factors.

“You have, obviously, the mindset that there’s an old way of doing something and

Staying on good terms: Kuda leverages the traditional banking network to provide some services

as it has defined itself as being different from traditional banks, it’s kept on good terms with them, leveraging their network to provide, for example, cash deposits at some and free withdrawals for customers via Access Bank’s and Access Diamond Bank’s 3,000 countrywide ATMs. “It’s not about challenger banks, or Kuda Bank, taking on traditional banks,” says Ogundeyi. “It’s about how we make banking better, easier, cheaper and that increases our whole market. We have around 200 million people in Nigeria, but only around 80 million are using bank accounts. What can we do so that 80 million use their bank accounts and bank services even more, and the other 120 million also start using bank accounts, so it increases the pot for everybody? That’s the way we look at it.”

It begs the question, why did it take until late 2019 for Nigeria’s first fully licensed, full-stack, mobile-only bank to emerge, given that, while only four in 10 people

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it has been successful, from a commercial perspective, so why change it? As a traditional bank, you literally have to disrupt yourself to see this opportunity and there are a lot of risks involved in dismantling what has worked so well for centuries.”

So, if not a bank already in Nigeria, what about a new entrant from overseas stealing Kuda’s digital thunder? Nigeria is Africa’s premier destination for foreign direct investment in fintech, and specifically Lagos. In one week in November 2019, $360million was invested in payment ventures, more than half of that coming from Chinese backers.

Far from being fazed by it, Ogundeyi welcomes the increasing international attention and is confident of the position Kuda Bank holds in the market after less than a year.

“Banking is about relationships, it’s about understanding people. We believe very strongly in our ability to understand the

market we’re in. It’s going to be a huge learning curve for anybody that doesn’t understand that market and the psyche of the people in it.

“If you look at it from another angle, though, the more people play in the sector, the more believable it becomes. If you’re the only one, it’s a lot more challenging to convince people that this is the right way,” he adds. “So, if we have a couple of strong Nigerian players, and you throw a foreign company into the mix, it goes a long way towards convincing them that this is the way forward. And our desire is for this to be mainstream.

“We’re not afraid of competition, we

We’re trying to do something different, we’re trying to revolutionise the way people see a bank. If other people come in and help with that, that’s a good thing embrace it, because we’re trying to do something different, to revolutionise the way people see a bank. If other people come in and help with that, that’s a good thing.

“A lot of people have told me, and I have told myself, that one has to be crazy to do this, to venture into this kind of thing,” says Ogundeyi. “But I’m crazy enough to have put a team together that also buys into the belief that this is definitely the new way to provide financial services.” www.fintech.finance

NEOBANKS OF THE WORLD

The raınbow bank Bunq’s founder Ali Niknam promised to take users to a world of banking that they’d never seen before. His mobile-only challenger is still on that yellow brick road and people are loving the journey Angered by the failure of financial institutions during the 2008 recession and prompted by a sense of social duty to offer an alternative to what he saw as broken banking, serial entrepreneur Ali Niknam started working on bunq, a subscription-based mobile challenger, in 2012.

In 2014, it gained its European banking permit, the first in more than 35 years, and when it launched in 2015 in the Netherlands,

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it was the only licensed European challenger bank to be completely self-funded. It remains unique in that to this day.

Niknam had invested €44.9million of his own money into bunq, the ‘rainbow bank’, beyond which he saw a place where dreams that customers dared to dream really can come true: a bank that not only listens to them, but conducts itself according to a code of ethics built around sustainability. That extends to the balance sheet, which, Niknam says, is imminently capable of showing a profit.

The self-styled ‘bank of the free’ has not only seen users offset 12.3 million kilogrammes of CO2 to January this year (which translates to more than 13,000 flights from Paris to New York) through its Green Card, a metal card launched in 2019 that plants a tree in partnership with Eden Reforestation for every €100 spent; it also allows account holders to dictate what their deposits are invested in. Currently, there

are eight ethical options to choose from.

Customers can even suggest newer avenues for their funds in line with their principles, and bunq will consider them.

Subscription-based and offering a primary account with sub-accounts, each with its own IBAN (international bank account number), bunq works hard to create features and products its users love.

In April, it expedited the launch of its +1, a version of a joint account that offers users greater flexibility, particularly in light of coronavirus. Existing premium customers can invite a friend or relative – a trusted ‘plus one’ who is not a bunq customer in their own right – to share a sub-account for a monthly subscription.

Its bunq cards are integrated with Apple Pay and Google Pay in selected countries, and users can even create an online-only card for e-commerce purchases. For Apple iPhone users, bunq also integrates with Siri, allowing them to perform some common www.fintech.finance

create something they value. So we took our time to do just that.

At bunq, we do still have losses, but the underlying business model is healthy, the unit economics are healthy and it’s projected that, if we wanted to, we could make a profit a couple of years down the road.

We have taken a different approach; we’re slightly more calm, less aggressive on our growth and more focussed on creating those products that really make life easy. tasks using voice. Its fee-free travel card, launched in 2019, is a prepaid card wrapped in a Mastercard and you don’t even need a bunq account to open one. Now operating in 30 markets, across seven languages, the challenger is routinely demonstrating how banking can be different. Here Ali Niknam explains how he gets bunq to do that.

THE FINTECH MAGAZINE: Can you describe the genesis of bunq and how and why you launched without venture capital (VC) or other external funding?

ALI NIKNAM: I started coding when I was nine. I started investing in stocks when I was 12, and founded my first company when I was 16. I founded my first really successful company, TransIP, when I was 21.

It is, today, the world’s third largest domain name and web hosting provider. But in 2008, in the amidst a financial crisis, I saw a lot of people – both ordinary people who couldn’t afford their mortgages and bankers who were mostly just doing their jobs – getting caught in the crossfire.

Being an engineer who loves to create products people love to use, and also very socially engaged and environmentally conscious, I figured ‘while everybody is pointing fingers to figure out who to blame, why not spend that time and energy creating a new type of bank that is completely different to what people are used to?’.

Bunq was to show everyone what a bank could be, how user-centric it could be and what a different experience you could have.

I chose to fund it myself because I really wanted us to be focussed on our users and create a product they love, rather than getting caught in the VC game of running after vanity numbers. For a company to be healthy and sustainable, first it needs to understand its users and then it needs to www.fintech.finance

TFM: You were pretty fast out of the stocks with the new +1 account, though.

Was it purely a response to COVID-19?

AN: The amazing thing about bunq is that our users are really engaged with us.

They’re engaged because they notice that somebody is actually listening when they come with a suggestion, a hint or an idea, and implements it. We had a lot of bunq advocates who said ‘hey, I want to have an easy way to share this experience that I love so much with the people around me’, but we expedited the release of +1 because of COVID-19. Because we’re mobile first, onboarding is super easy.

You can invite someone in just one tap.

You can literally become a part of the bunq community in 90 seconds.

TFM: How has the pandemic affected your working operations?

AN: Because we’re very modern and mobile, we were like ‘OK guys, work from home if you can; go to the office if you must’. So, for us, not much changed. More meetings are being kept virtual and we really didn’t have many operational issues. We did have some downstream. For example, the production of the cards happening all over the globe means we need to make sure we have enough stock. But, otherwise, working from home has been great. In fact, in certain regards, I get more done now because I get interrupted less!

TFM: How do you plan to stay current while not committing yourself to huge and ongoing technology investment?

AN: As with any technology platform, there is a huge advantage of being able to start afresh. If you want to keep having that advantage, it takes effort and discipline, and an understanding of technology.

There are a number of factors that would contribute to helping prevent huge spending to stay current. First, which

really can’t be underestimated, is having somebody aboard, in a serious position, who actually understands technology and is capable of making the right calls and ensuring whatever is necessary actually takes place. I’m obviously a coder. I love coding. I was coding until 5am this morning to make sure that the +1 launch went well.

Second, avoid getting behind, because as you start accumulating technical debt, as with normal debt and interest, it ramps up much quicker than you would anticipate.

Third, educate users to expect constant change. We aim to be current at all times.

That means the interface will get better every time, the card will get better every time, the experience will get better every time. It also means that there will be continuous change. If you don’t enjoy that, then bunq is not the place for you.

Being clear about that enables us to have an environment where we are encouraged to continue innovating.

There will be continuous change.

Being clear about that enables us to have an environment where we are encouraged to continue innovating TFM: What’s your proudest moment?

AN: With +1, we hit techcrunch again.

That’s obviously something to be proud of. Users’ responses are very positive, which is logical because we’re creating stuff people actually want. Also, I really love the Green Card and the fact that we planted 200,000 trees in less than four months! There are a number of other things I’m excited about that are launching soon.

TFM: Atom Bank has will.i.am, Klarna’s got Snoop Dogg. If bunq was personified by a musician, who would it be?

AN: It wouldn’t be one person, bunq would be a festival. That’s why we have the rainbow colours: we are not just one thing, we are together and we’re different. n The full story behind the launch of bunq is told in a book, Break Through Banking, available through Amazon.

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NEOBANKS OF THE WORLD

Millennial millionaires and how to serve them When I felt left out of Zurich’s elitist wealth management circles, I dyed my hair red and got a new tattoo.

When Henry Fudge felt the same, he founded a luxury private bank.

Both of us are Welsh and both of us moved to Switzerland as soon as we finished university to rub shoulders with the oh-so-discreet advisors to the super-rich.

“It was definitely a culture shock,” says Fudge. “I don’t think there’s anywhere more foreign in terms of economic welfare than Zurich compared to say some parts of Cardiff. Not to put Cardiff down, I love it, but it’s a different world entirely.”

He’s right: the accents, the attitude and, most of all, the affluence can be staggering. “In Zurich, you hear people talking billions, not millions,” he says.

Around 100 private banks cluster at the foot of the Alps in the country’s financial hubs of Zurich and Zub. These tax-efficient locations are home to a sprawling wealth management industry, which is populated mostly by older white men in expensive Italian suits, with grey comb-overs and Rolex watches.

They’re often managing old money for other aging white men. But, as Fudge discovered, that’s not what Millennials who are minting it want.

Barely a Millennial himself, at the tender age of 24, he’s CEO and co-founder with YouTube influencer Sam Harry of 220, a ’private members bank’ for fellow influencers, entrepreneurs, innovators and investors. Crucially, it’s the first all-digital private members’ bank.

Unlike competitors, 220, which is due to launch this summer, has been created for young affluent people, by young affluent people, the idea sparked by an exasperating conversation Harry was forced to have with a mortgage broker who struggled to get what an influencer-cum-Facebook Gaming Partner did for a living.

Of course, the super rich don’t need a mortgage broker – they don’t need a

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The co-founder of 220, the world’s first digital ‘private members club’ bank, set out to meet the newly-gilded generation on their own terms. He let Hannah Duncan into the not-so-secret circle of the young elite mortgage. But it got the pair thinking, and they realised they’d stumbled on the elite end of a US$24trillion problem. That’s the estimated value of today’s Millennial generation, according to UBS bank: roughly 1.5 times the size of the US economy in 2015.

Somewhere between the ages of 22 and 38, they’re sitting on a comfortable pile of liquid and other assets accumulated through inheritance, entrepreneurial activities or other income – often a combination of all three.

And they either don’t know how to handle it or feel traditional wealth management services are stuck in a timewarp. According to Fudge, they broadly fall into two groups.

“The savvy investors are people who have accumulated or inherited certain assets and are looking to invest them in a very price-efficient way. Then you have the customers who just want the investment handled for them, taken off their hands.

“There are thousands of these entrepreneurial or first-generationwealth Millennials with banks whose services suck,” says Fudge. “They’re too expensive and they’re old-school. It’s just pretty tragic, so we thought we’d do something about it.”

Bridging the gap between fintech and private banking, he’s confident that 220 will upstage the old incumbents, who have an almost-zero digital presence.

“If you look at some EY numbers, it says only 23 per cent of wealth managers consider digital to be a core strategy focus,” says Fudge. “I find it hilarious. It makes me think of my Nan going ’I don’t know how to work with this digital. Can you show me how to do it?’. I feel like she’s going to ask me to show her how to use Facebook, which is almost outdated (sorry Nan!). So, I asked, what did they mean by digital? And it turns out it includes everything up to using a firm’s main website as a marketing presence, as in using it to publish information on a website. So, there’s up to 77 per cent of wealth managers who don’t even care about having a website.”

To be fair, previous generations of the super-rich have tended to err on the side of discretion to the point of invisibility, introduced to advisors through a closed network of similarly retiring clients who are rolling in it. Services advertised in the public view would be anathema to them.

But Millennials and Gen Zers are not their parents. These nouveau riche are digital natives: they ARE their website and they expect their bank to be on the same (web)page as them, figuratively speaking.

According to a recent Accenture study, 67 per cent of Millennials expect to have robo-advice, 63 per cent expect to connect directly to advisors through an app and 62 per cent want a platform that incorporates social media. Millennials find multiple channels cumbersome and hate anything which isn’t straightforward, so they’re not well-suited to traditional banks. They want the special service that www.fintech.finance

There are thousands of entrepreneurial or first-generation-wealth millennials with private banks whose services suck. It’s pretty tragic, so we thought we’d do something about it a luxury bank can offer, without the lengthy paperwork and high fees.

“The average onboarding time for one leading wealth management bank is four weeks, which is pretty archaic,” says Fudge.

“We’re looking to offer the most premium banking service of all of the neo banks. For those who are looking for support in terms of investments that would correlate to the www.fintech.finance

colossal $60trillion-plus market for private wealth. But no one’s offering in that space.”

Traditional wealth managers have tried (and mostly failed) to scoop up this not just well-but-Louboutin-heeled generation. So, where has fintech been?

“I think fintech undersells itself and basically comes in and goes ’yeah, we’re kind of quirky and cheap’,” says Fudge. “It hasn’t realised that, in fact, the world of private banking is a perfect place to apply fintech because, of course, the whole idea of private banking is that someone else will take care of the finances for you.

Fintech is the ultimate private banker.”

Offering an exclusive banking service that works around the digital lifestyles of affluent Gen-Zers and Millennials is one thing. But Fudge believes it also solves a deeper, more complex problem that often

confronts the newly anointed rich. 220 doesn’t just sell private banking and concierge services, it sells acceptance.

The look and feel of the bank card came up a number of times in our conversation.

“We offer the nicest card in the market.

It’s ceramic steel, gloss metal,” says Fudge.

“I had a comment from a girl who said that she always has a sinking feeling in her stomach when she sees a guy pull out a Monzo card on a date, because she feels like she’s going to pay for half the drinks. And I’m like ’ouch’. That’s the worst insult I could ever have. Essentially, I want someone to pull out our card and go ’oh sh*t!’.”

220 is there to out-snob the snobs.

It’s a sexy rebellion against old money and old thinking. It’s ceramic steel card is two fingers to baby boomer banking and antiquated mindsets. Would I have tried to get one when I first went to Zurich? You bet I would.

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COMMENTARY: PARIS FINTECH FORUM

A fintech box set Paris Fintech Forum ended a five-year run in January 2020, with founder Laurent Nizri (right) leaving fans on a cliffhanger. Now you can relive the last epic instalment with a special online edition, including all 150 panel debates and interviews. Hannah Duncan tuned in for her fintech (Net)fix When we heard that Paris Fintech Forum, was coming to an end, we let out an almighty ‘NONNN!’.

Organised by the insanely well-connected Laurent Nizri, the Forumhas been our must-attend, red carpet industry event for the past five years. Anybody who’s anybody had to be there.

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Bitter endings and fresh beginnings: the heartache of being a fintech founder with Renaud Laplanche

One of moderator Laurent Nizri’s all-time favourite talks, one of the godfathers of fintech, Renaud Laplanche, discusses his love affair with the industry, from pioneering the idea of ‘lending to strangers on the internet’ with LendingClub to its grand initial public offering (IPO) and the baby blues he suffered after leaving his prized business.

“I love this video because we had a really frank discussion,” says Nizri. “You can find a CEO talking about his company on any online video, but here we go in-depth about what it’s really like. This interview summarises everything that the PFF was about: sharing and caring for the good of the industry.”

TITLE: Fireside chat with a serial fintech entrepreneur STARRING: Renaud Laplanche – CEO, Upgrade (US)

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It’s brought together the best of the best and seen more unicorns than Harry Potter strolling through the Forbidden Forest.

Strangely, it wasn’t the impact of COVID-19 that

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Sophie Blakstad steals the show with her incredible work in Niger

We love Sophie Blakstad’s powerful contribution to this four-corner debate on mission-focussed fintech, which gets to the very heart of what it means to be ‘good’. We were blown away by her clear and passionate message about talented entrepreneurs who operate businesses in rural Africa, many without even access to mains power. Moderated by our very own Ali Paterson, he comments: “Sophie is an absolutely badass. So cool and one of the best public speakers I’ve ever seen.”

Viewed by many as the most important session of the day, this is a ‘must watch’.

TITLE: Fintech For Good STARRING: David Reiling – CEO, Sunrise Banks (US) Sophie Blakstad – CEO, Hiveonline (DK) Emmalyn Shaw – Managing Partner, Flourish Ventures (US) Alexandre Mars – CEO, Epic Foundation (FR)

brought it to a close, though; the decision had been made some months previously

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A-listers Mastercard, Western Union and the European Banking Federation in a career-defining PFF epic

“Since day one, I’d wanted PFF to be the Davos of digital finance.

When we did this panel, I knew we’d made it. This was a Davos session,” says Nizri. We’d agree. We love this video because it shows three veteran operators being refreshingly open on some difficult topics, including customer trust, gender, race, connectivity and sustainability.

Stand out performances all round.

Highlights include Western Union CEO Hikmet Ersek explaining what fintech taught him, and executive vice chair of Mastercard Ann Cairns passionately firing out compelling statistics on financially underserved women.

TITLE: Cooperation In Finance Industry At Digital Age STARRING: Ann Cairns – Mastercard Executive Vice Chair Wim Mijs – CEO European Banking Fed Hikmet Ersek – CEO Western Union

www.fintech.finance

because, after five critically-acclaimed shows, the last thing Nizri wanted was for it to slump in the ratings.

“I have a big ego,” he admits. “I only do the best. If I keep going for another five years, it will get boring. There needs to be a different PFF, but we only want to come back if it will be meaningful. So, until further notice, my interview with serial fintech entrepreneur and former CEO of LendingClub, Renaud Laplanche (see our review below), was my last.”

To our final question, though, “Is this the end of the PFF journey?", he replies: "I am an entrepreneur, an end does not really exist, it is only the

2

beginning of something else. Stay tuned!"

As the credits fade on the Forum as we’ve known and loved it, the good news is you can now binge watch the final edition. For a fraction of the price of a ticket, whether you’re already a fan or just curious to see what the fuss has been about, you can access all 150 recordings of every panel session online, including the general discussion on the main stage and other tracks with titles like The Disrupted Bank, Alternative Finance, Payment Summit, Insurtech, Regulation for the Future, Wealth & Investment At The Digital Age, Money Money Money, ID & Trust, and Women In Finance. There’s also more digital drama in the pitch sessions.

A €120 subscription gets

you video-on-demand access until January 2021. Go to www.parisfintechforum.com/ videos2020. Diamond ticket holders for the 2020 show enjoy a free pass.

So, if you’ve exhausted Netflix, Amazon Prime and Disney too, microwave the popcorn and settle back as we count down our top five PFF moments to enjoy.

COMING SOON...

Look out for another Nizri ratings winner – The Fintech Club online event. This time, the focus will be exclusively on the fizzing fin and tech scene in France.

11:FS’ Jason Bates challenges the challengers

If this panel were a Nineties pop group, they could be called ‘The NEO CEOs’, but that’s probably about all they’d have in common. With frank and fresh views on what it means to be a challenger bank, they have wonderfully different motivations and visions. 11:FS’ Jason Bates is a demanding moderator who brings out clashing perspectives and contrasting ideas. Asking seemingly innocent questions like ‘what is a neo bank?’, before disagreeing with all of them, is exactly why we love him! Bates ploughs on, digging around these cheerful challengers’ psyches, like a fintech badger: provocatively suggesting that they’re no different to incumbents and pressing them on their USPs. There are some stand-out speakers in this panel. A highlight for us is Diana Brondel, CEO of Xaalys, talking about the need for financial literacy from childhood. This is a brilliant insight into the diversity of neo banks, although they do seem to agree on one crucial thing… no spoilers, we’ll let you discover it for yourself.

TITLE: Neo Bank Reloaded STARRING: Diana Brondel – CEO Xaalys Marko Wenthin – CEO Penta Norris Koppel – CEO Monese Michal Smida – CEO Twisto

www.fintech.finance

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Kiss and tell: what it’s really like to partner with a bank

This is unmissable viewing for any fintech considering a bank partnership. It reunites moderator Nizri with two calibre fintech founders. Clearly on familiar territory, he starts the interview with a cheeky French quote about idiots and teasingly refers to Kantox as a mosquito compared to a large bank. We love the frank friendliness of this little ensemble. Watching them feels less like observing an on-stage panel and more like we’re eavesdropping on an intriguing conversation... which is exactly how panels should be. The participants are bold and honest as they get real about why partnerships with banks can be slow, controlling or too complianceheavy. Quite an eye-opener.

TITLE: Working With A Bank, Let’s Speak The Truth STARRING: Kathryn Petralia – Co-founder & President Kabbage; Philippe Gelis – Co-founder & CEO Kantox

BONUS FEATURE

When we asked Laurent Nizri what his all-time favourite interview was, he instantly went back to a 2019 talk that featured a seriously impressive panel.

“It was by far the most stressful interview I ever did,” recalls Nizri. “And I’ve done more than 300 of these, so I don’t get nervous. But being on this stage, I remember the adrenaline of it all, and I loved it.” Who was sitting on the comfy chairs? Christine Lagarde, then MD of the International Monetary Fund, Kathryn Petralia, president of Kabbage, Carlos Torres Vila, group executive chairman of BBVA, and Stefan Ingves, governor of Sweden’s Sveriges Riksbank. Characteristically pristine and precise, Lagarde talked, among other things, of how fintech can help end violence towards women and the effect of deep-rooted cultures on data sharing. It’s a masterful performance. With more than 30,000 views on YouTube, this video has become a piece of fintech history.

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CLOUD & SCALE

“If anybody in a bank’s telling you that 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 bit of a shock,” says Elliott Limb.

As chief customer officer for Cloud-native banking and lending software-as-a-service provider, Mambu, his job is to prepare them for it – after all, neither he, nor anyone else could have predicted in January 2020 how different things would be in April. The pandemic has grimly proved his argument for a) composable, Cloud-based banking services, which give greater flexibility of response to changing world circumstances, and b) collaborative ecosystems, because we really are all in this together. They were compelling trends before the crisis, but as the banking system wakes up to the new reality of trading post-pandemic, Limb believes you’d be foolish now to resist them.

Working with fintechs, including some well-known unicorns such as the UK’s specialist business lender OakNorth, German challenger N26 and global money transfer service TransferWise, as well as top-tier banks and telcos, Mambu allows clients to rewrite the score for financial

Composable and collaborative are the watchwords for the new normal in banking, according to Elliott Limb, Chief Customer Officer for Cloud-native banking and lending software-as-a-service provider, Mambu services. Wrapped around its core banking platform is the Mambu Process Orchestrator, giving companies the ability to ‘compose’ their own business processes and services in a low/no-code environment.

An ecosystem of vendors is available to plug into customers’ platforms over the Mambu application programming interface (API), which powers more than 6,000 loan and deposit products, while a Cloud-native system provides the security, accessibility, flexibility and potentially infinite scalability that’s increasingly demanded in a fast-changing environment, says Limb.

That elastic capability in particular has been tested and proven by many clients servicing small and medium-sized businesses – one of the sectors that Mambu focusses on

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and Limb, as a former entrepreneur, knows well. He has bitter memories of the difficulty he experienced in establishing individual relationships with banks so that they fully understood his specific business needs, and the frustration of being shunted to a call centre.

The ability to build close ties with SMEs and customise packages to suit them through the Mambu software as a service (SaaS) model, is what has attracted newcomers in SME banking, such as Recognise in the UK. “People sometimes misunderstand SaaS; they think it’s a code-based deployment mechanism,” says Limb. “But it’s a lot more than that. It’s a mindset, it’s about building the ecosystem, it’s the pricing and it’s the rollout implementation.”

It’s also decentralised – which turned out to be vital for Recognise, launching in the midst of a pandemic, with teams working from home during the critical implementation phase. And that’s likely to become an increasingly important feature of SaaS as work patterns change.

“The lockdown has not stopped us from rolling out and working collaboratively; we can still get things done,” says Limb. “A pure SaaS model, and a pure collaborative way of working like this, means we can all be working from home in different parts of the world. The software just rolls out because we can implement as teams across companies.

known future www.fintech.finance

That is a massive change, and this is what people need to wake up to. It is such an important shift in the market.”

Changing the game Recognise CEO Jason Oakley looked long and hard for a suitable banking platform before deciding Mambu was the best fit for his company’s mission to shake-up business banking.

“The beauty of the Mambu Process Orchestrator is that the tech allows you to create bespoke solutions, it allows you to get to one-to-one and really connect with the client and understand them. That changes the game,” Oakley says.

It begs the question whether the tens of thousands of SMEs still served by more traditional banking structures, and which have struggled to get the immediate help they need during the crisis, would have fared better if those banks had been based on a fundamentally different technology.

Explaining how Mambu is responding to the crisis, Limb says: “If we pick up any requirements from customers at any time, we can turn them around very quickly.

In this crisis, we suddenly saw payment holidays were needed, different loan calculations, interest rebates. As soon as a request came in, we pulled together a crack team – say it was for SME financing – and, as we’d had a request from one of these types of customers, we immediately reached out to the other 10 to ask ‘are you seeing this?’. We then delivered that solution within two to three days, straight out of the box, and rolled it out to all of them. They didn’t need to go through an implementation phase, it just worked. That way, we could help them to help customers who are in a crisis; the underbanked, the SMEs who are struggling, the people who need access to funds or to change markets and make regulatory changes,” says Limb.

“We’re seeing that, around the world, regulators are saying ‘give interest payment holidays’. We can roll that out in a matter of days. We can move with agility to do the right thing, not just for us, for our clients and for their clients, but for humanity and the economy in general.”

Mambu recently struck a deal with UK-based business banking platform Tide to boost Tide’s revolving credit facilities and overdrafts for SMEs. It has entered into a partnership with TransferWise to allow Mambu’s customers to plug into TransferWise’s API to enable simplified international money transfers. It has tied up with Singapore-based Goldbell Financial Services, a business finance provider, to power Goldbell Evolution Network (GEN), a private debt investment platform.

Collaboration and composability were key fundamentals to all of those, says Limb.

Anybody who’s trying to build something that isn’t ecosystem led, isn’t open and isn’t collaborating, I think they have a short shelf life “Putting a composable infrastructure in place acknowledges that not all banks are the same,” says Limb. “Gone are the days where ‘collaboration’ just means a bank demands its customers pay a certain way and the technology vendor sells what the bank wants. Now, we’re all working a lot closer. Composable and collaborative are absolutely fundamental to making this market work.”

The complex server-based systems, still commonly used by many legacy banking giants, carry a significant disadvantage, according to Limb, who also warns that it is not enough for them just to try to transfer part of those structures to Cloud-based platforms.

“Even some Cloud solutions are very much legacy solutions being wrapped in a Cloud, so you still don’t get the agility, you don’t get that cost/income ratio aligned to your revenue,” he says.

“It always used to be a choice between best of breed and best of suite, when you were looking at software vendors, and how you selected software as a bank.

Now it’s best fit. Composable is at the core of everything we do. It’s almost like Lego blocks. We should allow our customers, and our customers’ customers to develop exactly what they need as a business, and we believe that, as long as we pre-validate and have the right connectivity to all of our partners, all of the technology and solutions, we can drive an ecosystem that delivers that. It’s going to evolve and change. There’ll be better players in different markets and, over time, we can plug people in and out; we just have to be at the core of what is changing, making sure that we can drive any of our customers to deliver whatever it is they need to give their customers the best experience.

“We have completely open API documentation, that anybody can see,” he adds. “And we completely believe in driving connectivity in the ecosystem. In fact, anybody who’s trying to build something that isn’t ecosystem led, isn’t open and isn’t collaborating, I think they have a short shelf life. Honestly, I think the biggest thing banks should be doing right now is building for an unknown future.”

Work in progress: The bank of the future will never be ‘done’

www.fintech.finance

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CLOUD & SCALE

Cloud control

Feedzai has worked with Cloud-native Mox on fraud control as it prepares to launch as one of Hong Kong’s first virtual banks. Here, Feedzai CEO Nuno Sebastião reflects on, among other things, which challengers are best placed to succeed, and how Clouds are changing the industry Feedzai is a market leader in developing machine learning technology to combat fraud and counts major banks and financial institutions across the world among its strategic partners, including Standard Chartered’s new Hong Kong-based digital bank Mox. Completely Cloud-based, Mox will roll out its virtual accounts later this year as one of the first eight digital-only banks to be granted a licence by the Hong Kong Monetary Authority. Silicon Valley-based Feedzai chose Hong Kong as the base for its Asia-Pacific (APAC) operations a couple of years back and see the region as a focal point for its growth in coming years.

We asked Feedzai co-founder and CEO Nuno Sebastião to reflect on the APAC market and the Cloud-based approach that Mox and others there are taking.

decade now, whereas they’re really just starting in Europe and the US – and the innovation around the way apps are used… we thought this is a market that’s going to be ahead of the West. They’re going to leapfrog, due to the regulatory environment and the innovation, but also the way people operate.

We wanted to be there to learn, but also to bring our technology to help build this experience that puts customers at the centre and makes sure that companies like us can do our job without ever being seen, without any friction in making sure the risk is managed. They don’t want to have what we have in Europe or the US: second factor authentication with the messages and double passwords. That’s a horrible experience for consumers. People

are ahead of that in Hong Kong. We want to be part of what these users expect and are comfortable with.

It’s where, I believe, a lot of the innovation in fintech and banking is happening. That was why we went there. We have almost 30 people in the region now and we’re going to grow.

TFM: What has it been like working with Mox on its virtual bank launch?

NS: When I first met some of the people at Mox, I thought ‘these guys are going to build something really fast’.

And in 20 months they did. They were able to create from scratch and take live in a major, sophisticated market, a product that is unlike anything we have seen yet. And they did it with a clean technology stack and a goal of onboarding customers fast and offering them a good experience, because that’s what brings people in.

THE FINTECH MAGAZINE: Why did Feedzai move to Hong Kong in 2018 and how does that market acompare with the West?

NUNO SEBASTIÃO: The way money moves around there – they’ve had contactless payments for more than a

Asia-Pacific gateway: Feedzai identified an opportunity for Cloud-based services in Hong Kong

www.fintech.finance

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CLOUD & SCALE To us, at Feedzai, that’s the dream partnership. Other, let’s just say established players that are trying to adapt, are oil tankers; it takes more time to negotiate a contract than it took Mox to go from idea to putting a product on the market.

With Mox there is a vision, there is a mission, there is a statement: ‘let’s get the product out there, and let’s bring the right partners that will enable us in that journey’.

That, to us, is our favourite environment to operate in, because it allows us to give value, to work in tandem, to share responsibility. That’s very important, because this is a joint journey. Collectively, we are a team. It doesn’t matter if you’re a vendor or if you’re the initiative, it’s the

Mission controlled: This partnership is making it happen, fast

team that needs to deliver something.

It’s everyone together.

That is so aligned with our core values that it’s just natural to us. What is not natural is things taking forever, having to go through these long procurement cycles.

I think the end consumer, the ultimate beneficiary of this, does not get any benefit from that. It shouldn’t be done like that and the industry needs to change. I think Mox, in that region, is spearheading the change.

TFM: There has been a reluctance, especially among major banks, to adopt the kind of Cloud-based system that is at the heart of Mox. What are they missing?

NS: Historically, it’s all about control.

They want to control the machines; they want to control the connections; they want to control the physical cables.

Well, I can demonstrate, over and over,

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that this doesn’t work at the speed at which innovation needs to happen. Cloud is now a given; it works, it’s safe. We’re supporting all of our clients in a fully distributed way.

Why? Because, mainly, it’s Cloud based.

The banks – and I could give you examples in Europe, the US, and even in Latin America – that more recently were saying ‘no, no, no, we need to control everything, it needs to be secure’, well we and the rest of the community have compared the benefits of them having an on-prem, server-based mainframe – and there are some – to the benefits of being Cloud first and connecting application programming interfaces (APIs). And there’s no one out there that can claim that the old

tomorrow another vendor comes up with a better solution for any given product, because it’s a connection of APIs. I think that also makes vendors more honest because you have to earn it every day. If the APIs and system are Cloud-based, and easier to disconnect and connect, it makes everyone strive for a continuously better product. We’re always up to that challenge at Feedzai and that’s the way it should be. There is no turning back on that movement.

TFM: Of the challenger banks that you have dealt with – without naming names! – who do you think will be winners and who losers?

NS: The challenger initiatives that are sponsored by a main bank, or which are spun out, that have the domain knowledge – people who come from the industry so they know how these institutions have to operate – with a desire to innovate, but also have the engineering knowledge.

Those, in my view, have the better teams from the get-go and those will be the ones that will succeed.

Other challenger banks often start from an engineering mindset, typically venture capital (VC)-backed, and they will probably go faster in the beginning, but they will make many mistakes. I think those that come from the banking domain and have that industry knowledge, will not make so many mistakes.

The reality is that Cloud allows innovative banks like Mox to rip and replace if tomorrow another vendor comes up with a better solution for any given product. I think that makes vendors more honest because you have to earn it every day way outstrips the benefits of the new way.

So, we’re seeing a shift to Cloud, even in very hardcore countries that have historically been very conservative.

A lot of it is driven by the likes of Mox, which say ‘I need to get my product out in this timeframe’. Just to procure the hardware for that would probably have taken you six months. To have the physical server it controls would take you another.

And for what benefit?

The reality is that Cloud allows innovative banks like Mox to rip and replace if

The winners will be those that can get the mix in their teams and have the domain knowledge. They know how to operate in banking, to create that trust and, at the same time, build a tech stack, innovate and put products out there that are what the market wants, faster.

It’s natural that, if you look at the number of challenger banks in different regions, not all of them will succeed. You know, it’s kind of a Wild West out there. There will be consolidation, at some point.

That is just natural. www.fintech.finance

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CLOUD & SCALE

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Ways to make banking better

New virtual bank Mox isn’t keen on conventional numbers, be it the metrics used for market share or the 16 digits on a card. There’s only one big one that bothers CEO Deniz Güven and he’s tearing up the rule book to eliminate it In scoping the market for a radical new approach to banking in Hong Kong, global financial player Standard Chartered compiled a list of things that frustrated customers about legacy systems. There were 87 separate pain points.

“And we’re not talking about complaints like ‘there are queues in front of the branches’,” says Deniz Güven, CEO of Standard Chartered’s new challenger Mox. “I’m talking about real pain points. The people of Hong Kong want to do banking quite differently. So, we are creating a service-led bank to solve the pain points.”

Mox is built on a new business model – a partnership between Standard Chartered, information and communication technology giant PCCW Global, telecommunications company Hong Kong Telephone (HKT) and Asia’s largest online travel agency, Trip.com.

One of the first eight challengers to be granted a virtual banking licence by the Hong Kong Monetary Authority (HKMA), www.fintech.finance

Mox (which started life as SC Digital), is alone among this disruptive cohort to be backed by a legacy bank.

Yet the need for established Hong Kong institutions to act on sweeping changes brought about by a new regulatory era was spelled out in a KPMG report only last year.

It said: “The development of virtual banking in Hong Kong forms part of a larger ‘unbundling’ story in the banking sector.

Our view is that this unbundling will eventually lead to a ‘rebundling’ of services in new and innovative ways as customers will ultimately prefer to use a single efficient interface for all of their banking needs.

“This rebundling will lead to a smaller number of winners in the market, likely comprising the few traditional banks that are able to adapt to digital technologies and open banking, new virtual banks and fintechs that are able to knit together seamless services through application programming interfaces (APIs) and other technologies, or some form of hybrid.”

Güven, former global head of design and client experience for digital banking at Standard Chartered, says the HKMA’s Smart Banking Initiative was indeed the trigger that shot Hong Kong’s oldest note-issuing bank into the virtual vanguard.

“We asked ourselves two questions: can we defend our market from non-traditional players with our existing operating model?

Can we attack this market with our existing model? The answer was an obvious no.," he says. “That’s why we started to think about launching Mox.” The name telescopes mobile, money and experience and its journey began with a research project that reached out to more than 2,000 people from different client clusters. The 87 different pain points in Hong Kong retail banking that it revealed were in part, Güven believes, because ‘when it comes to end-to-end digital services, this is still a premature market’.

And that’s despite Hong Kong being aaa cauldron for fintech innovation.

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CLOUD & SCALE “Mobile banking penetration in Hong Kong is approximately 45 per cent.

When I compare this to some countries in Europe or the US, I can easily see 65, 70, even 75 per cent,” says Güven.

That’s something Mox has set out to change by taking a somewhat different approach to how it segments the market: in that it doesn’t. Rather, it’s attempting to create its own cross-generational digital fan base with Generation Mox. Güven explains the rationale: “If you are building a digital bank from scratch, a new operating or future operating model, you need to redefine the segmentation criteria. ‘Mass and emerging affluent’ resonates a lot if you are in banking, or if you are a telco business. But is this enough to define your customers?”

That’s clearly a rhetorical question.

“We take a behavioural approach with Generation Mox,” says Güven. “You can be 18 or 80, it’s not important to us; we try to understand customer needs and their pain points. Two people who are both 30 years old, might be expecting the same things from life, their spending patterns might be the same. But these are not related with demographic.

“Then there are income models. For banking, these are extremely important, but if you want to go for the long tail, if you want to serve underserved people, especially in a market like Hong Kong, you need to create something different.”

Underserved by the banking sector in a region with one of the largest concentrations of financial institutions in the world, with 154 licensed banks and 47 local representative offices crammed into an area 110 times smaller than New York? Really?

“Everyone has bank accounts here, everybody has a lot of plastic cards in their pocket; but if you are not affluent in Hong Kong, yes, you can feel really underserved,” says Güven. “So, with the help of digital technology, we are trying to create the same best customer experience for everyone. This is Generation Mox.” No conventional demographic also means no conventional way of measuring success.

“Of course, I know my breakeven, and I

know my financials, and I know my customer targets,” says Güven. “But we are not aiming to get market share, we are aiming to get ‘heart share’.”

It sounds like an emoji and it is very much aligned with the digitally engaged customers it seeks.

“Heart share will be the combination of many things – I’m not only talking about Net Promoter Score. For example, the people in Mox have a target to onboard a customer in a couple of minutes. Instead of aiming to attract 20,000 customers tomorrow, if they decrease that onboarding time by one second every month, that is going to create Caring, sharing approach: Mox is about winning hearts and minds

You can be 18 or 80, it’s not important to us; we try to understand customer needs and their pain points

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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.”

Among the first of several groundbreaking initiatives it’s promising when Mox rolls out fully this year, is the introduction of Hong Kong’s first numberless bank card,

extra heart share. It is also really connected with the culture inside the bank.”

Mox took the decision to opt for a Cloud-native customer ledger approach with its core system provided by Thought Machine, security by Feedzai, and a number of other vendors providing additional services.

Güven is a firm believer that its Cloud-based technology stack brings with it distinct advantages over server-based banking. Chief among those are flexibility, portability and future-proofing.

“Changing the technology structure of an international bank, or even a regional

launched in association with payments giant Mastercard.

“In Hong Kong, the most important thing is security,” says Güven. “If people lose this card, nobody can use it, because there is no number on it. If you want to freeze your card, you can do it through the Mox app; and if you want to activate it, you just tap. Your mobile app is becoming your remote controller.”

Within eight days of Mox opening applications for its founders’ metal numberless card, it had received almost 20,000 requests, and that was achieved without using any paid media or commercials to publicise it.

It’s clearly already won their hearts. www.fintech.finance

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CLOUD & SCALE

Citi was one of the first big banks to adopt a private Cloud – or on-premise infrastructure – to help it respond to a changing client profile. Stuart Riley, who leads the Institutional Clients Group Operations and Technology team, discusses how it helps shape the bank’s approach to payments A growing number of financial institutions are cautiously unlocking the potential in Cloud technology to boost services and customer experience – not least to deal more efficiently with the increasing volume of low-value transactions over different payment rails and the security around them.

The substantial growth in lower value, contactless payments as consumers move away from using cash for everyday transactions, as well as the move towards P2P (peer to peer) payments, has undoubtedly been boosted by the COVID-19 pandemic, and the uptick in adoption is likely to continue once we come through the other side.

The intensity of demand created by COVID-19 demonstrated the ability of certain systems, such as Cloud technology, to cope better than others when it comes to rapid scalability. Citi, a leading global bank, is one institution that is responding well to the evolving payments landscape, offering clients a broad range of options, all facilitated by an extensive internal Cloud computing network that has been in place since 2017.

Wholesale banking operations, like the Institutional Clients Group (ICG) at Citi, find themselves having to adapt because their client business models are changing, increasingly predicated on real-time, high-volume, low-value

A

transactions in the gig-based, digital-native economy being shaped by the Ubers, Airbnbs and Spotifys of the world. These companies are also famed for their agility, moving into new territories and rapidly generating business there. The challenge for the banks is how to keep up with them.

“Where we were traditionally dealing with payments for corporates, we’re moving to dealing with payments for their end customers,” says Stuart Riley, who heads up the bank’s Institutional Clients Group Operations and Technology team.

“The companies you associate with things like taxi rides and renting properties are now our clients, and they’re putting tiny transactions through our pipes. So, be it trading, foreign exchange or our payments businesses, we need to be able to massively scale them up because transactions are tending to become smaller in size and larger in frequency, and therefore the throughput is growing exponentially.

“Without automation, there’s absolutely no way you can scale those businesses, so it’s absolutely critical. You need a technology platform that’s 24/7.”

It’s not just about the choice of underlying system architecture, though.

“Things like machine learning and artificial intelligence are becoming commoditised, in the sense that

we can all get hold of good machine learning libraries from the likes of Google and Amazon, which have very good platforms to offer those capabilities. What really matters is what data you have to put into those platforms, and how you use them. What’s important is not necessarily the specific choice of underlying technology a bank or institution chooses, but bringing those things together and how it deploys that to bring services to market.

“At Citi, we’ve been cautious in terms of making sure that we really had a secure environment before we rushed into public, Cloud-type environments, but we’re absolutely pursuing those agendas.”

Getting on board faster Faster, secure onboarding, in particular, has become a technology objective as the bank sees clients migrate their businesses across the globe.

In April 2020, Australian regtech Kyckr extended its partnership with Citi and now supplies application programming interface (API) and portal solutions to its ICG and Trade and Transaction Services (TTS) unit to underpin faster customer onboarding. Kyckr’s customer verification platform is said to be one of the largest portals for customer verification globally, offering banks access to intelligence on more than 170 million legal entities across 120 countries.

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“What’s often misunderstood is that it’s not always onboarding of new clients; it’s often onboarding existing customers that has moved into new territories, new geographies or new client types. That means they need new accounts with us.

So it’s often about servicing our existing large customers and making their businesses work more effectively,” says Riley. “We’ve standardised onboarding globally, but we’re still obviously compliant with local laws and regulations.

The companies you associate with things like taxi rides and renting properties are now our clients, and they’re putting tiny transactions through our pipes. Without automation, there’s no way you can scale those businesses “Crossborder data is a big issue, and there are countries where we have to ensure that the data stays in the country.

That could affect what data we can aggregate, what data we can utilise. But we now have a framework that permits us to do that and still move into those geographies as quickly as is sensible.

“When you think about things like anti-money laundering or sanctions screening, if those processes are not automated now, through the use of

machine learning, then, in the future, it’s going to be incredibly hard to scale those businesses, because you can only scale them to the extent you can scale your operational staff, and that’s not going to be feasible.”

As these digital-based businesses expand across the world, the pressure grows for their payment capabilities to localise. They must allow new customers to pay with the method they prefer in order to attract and retain new clients. So, Spring by Citi was launched as a new service in 2019, offering wholesale banking clients digital consumer payments options. It leverages Citi’s considerable experience in open banking – it was the first corporate bank to connect to open banking in the UK – and extensive plug-ins to local payment schemes across the world, giving its clients the ability to collect from a wide range of payment methods, including cards, e-wallets and new bank transfers such as Request to Pay and Instant Payments.

Citi is collaborating with some of the world’s leading fintechs to incorporate up to 140 alternative payment methods into the Spring by Citi service. These include Global Payments’ card processing solutions as well as PPRO’s access to local payment methods.

“Most countries, and many central banks, are looking to adopt some form of instant payment network in their country,” says Riley. “We’re working alongside them so that we can make sure we’re one of the first in the market to operate on their instant payment rails. But, from a Citi perspective, what’s

really important is not just delivering the local experience of instant payments, but making sure our customers feel like they get a seamless service that essentially allows them to operate crossborder, almost as if there were no currencies. If you imagine a world where there were no borders, and there were no currencies, and we all operated with one currency, that’s an ideal state for a company that wants to operate everywhere in the world.”

Riley is a big advocate of collaboration and partnerships with fintechs.

“Our London lab is a great example of how we’re doing that,” he says.

“We have a dedicated space for fintechs to speed up their development, which allows them to quicken the delivery of products to us. In some cases, we invest in the company, in other cases it’s just a pure partnership, but in all cases our aim is to essentially to transfer our intellectual property to them. That then creates a product or service that we can integrate back into our environment.”

Riley, who leads a diverse and inclusive team of engineers and other professionals in around 90 countries, is also quick to highlight the importance of talent.

“This year alone, we announced that we’re hiring an additional 2,500 engineers. It’s obviously a very competitive market, and it’s hard to attract technology talent at that scale when everybody’s competing for it.

“The thing that’s really important to me is what the engineer’s experience at Citi is, because if they have a great experience here, they will attract other engineers.

The best talent will deliver the best software.

It’s a self-fulfilling cycle.”

Above and beyond: Citi is leveraging its private Cloud to offer scalable payment services to corporate clients

www.fintech.finance

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CLOUD & SCALE

Moving on... and up The pandemic has prompted banks and payment intermediaries to scrutinise operations as many accelerate planned transitions to a Cloud environment. Here, Ciaran Chu, Head of Public Cloud at ACI Worldwide, talks through some of the key considerations The COVID-19 pandemic has catalysed a behavioural shift towards contactless, digital and wallet payments as users avoid going out to ATMs and bricks and mortar bank branches.

Recent data from Link shows UK ATM withdrawals falling 60 per cent during the lockdown; PayPoint, which offers in-store bill payment services for consumers in the UK and elsewhere, saw card payments increase 75.3 per cent year-on-year in the first two weeks of April; while, according to the UK’s Office for National Statistics, the proportion spent online soared to the highest on record in April 2020 at 30.7 per cent. A similar picture is building across many countries.

The accelerated demand for online and digital payment services has encouraged fintechs, neo and legacy banks to quicken their pace, increase their processing capacity, design new products and, in many cases, prepone planned launches.

Industry experts believe the habit is here to stay. Retailers continue to work out ways around restrictions of physical distancing and lockdown during the pandemic. Consumers continue to look for reliable, cheap yet secure methods of real-time and digital payments and transfers. At ACI Worldwide, this meant the launch of new capabilities in its UP Immediate Payments solution aimed at extending application programming interface (API) connectivity to allow its clients a simple integration into any digital channel. Broadly, this means ACI Worldwide customers will now be able to benefit from real-time payments and

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transfers via internet banking, mobile banking, mobile wallets, e-commerce portals, bill pay apps and social media payments, with the added benefit of connectivity and fraud management now integrated in a one solution.

Only a few days before the launch of new capabilities within UP Immediate Payments, Wundr, the London-based retail payments platform, selected the UP e-commerce payments solution to enable its mid-tier and large retailer customers to connect to alternative payment methods.

It said at the time that it was looking to enable end customers to conduct crossborder payment processing and local acquiring with ease.

As part of its delivery of real-time, any-to-any electronic payment solutions for banks, intermediaries, merchants and billers, ACI Worldwide had to make pandemic-specific, automated updates to keep payment options flexible for clients.

Against this backdrop, we asked its head of public Cloud, Ciaran Chu, how he sees them responding to the new environment as we emerge from the crisis.

THE FINTECH MAGAZINE: During this pandemic, the Cloud has demonstrated its ability to handle a sudden change in demand. How ready are banks and intermediaries now to move business critical operations to it?

CIARAN CHU: From a recent study we ran with Ovum of 1,200 C-level bank and financial intermediary executives, 93 per cent are sold on Cloud computing, with 84 per cent saying it was mission critical and they want to move to it in the next 12

months. Not only do banks understand that security in the Cloud is enhanced, in many cases beyond their data centre levels, and a lot of them are convinced by the elasticity of the service – containers, elastic scalability, and DevOps. But now they’re also reassessing their operating models. That’s the big shift being accelerated by COVID. They want to make it easier for end customers to consume their services, be that fraud management, core banking, merchant capabilities or payments. So, what’s become important is the overlay of services – and this is where the payments-as-a-service piece taps in.

It’s not a one-size-fits all for Cloud deployment; you want to ensure that you’re leveraging the best pieces of your on-premise operation while you transition that away. Then you can grow your business out and focus on transformation, as opposed to getting involved in a big migration or setting up a new solution in the Cloud and then thinking ‘am I just going to spend the next 18 months recreating a lot of 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 help them differentiate themselves.

TFM: With the astonishing increase in the number of transactions during the pandemic, we’ve seen a corresponding rise in online fraud. How can fraud monitoring be wrapped into a Cloud-based payment-as-a-service?

www.fintech.finance

CC: The more data you can access, the more opportunity you’ve got to not only stop fraud but also, importantly, negate the false positives, which are a massive issue and will continue to be with the shift to online channels. At ACI, we’re able to plug in our capabilities around our core payment and fraud application.

Users have an end-to-end, holistic way of monitoring not only their traditional card payments, but also their real-time payments, in a scalable environment.

I think that is a game-changer.

Some of the additional value that ACI brings, given our depth of fraud expertise, is providing business support.

We have dedicated expertise within ACI that will support clients in evolving their rules, and then plugging in their business processes to the solution so that they can manage them more effectively.

We launched a partnership demo with Microsoft Azure earlier this year to show the ACI fraud application orchestrating with the Microsoft toolkit, which is available to view via the Microsoft Tech Centres. And then we have our database-as-a-service running native within Azure, which ensures that clients can scale up and scale down as needed.

Where there are extremely high volumes, such as in India and Brazil, where there’s a big real-time capability, it’s crucial that the solution performs at a very high transaction throughput but is able to back off as needed. This means that clients can focus on protecting their businesses at an optimal cost point. They’re not overpaying for their central processing unit and resources. They also

have the support of the ACI staff who are experts in the application and can ensure that the rules being put in place do not have to be bespoke to one bank: if we’ve three or four institutions that are all doing it slightly differently, they can maybe benefit from a more holistic approach.

TFM: So it’s not only in fraud management that ACI is offering consultancy services?

CC: For a long time we’ve been focussed on being the best software provider. What we’re really looking at now is helping customers find the optimal way to run their businesses. Being able to utilise the major payment wallets in a certain marketplace, for example, means they don’t need to maintain 100 payment apps. We’re looking at things that are going to drive their growth at an effective margin.

Some of the additional value ACI brings, given our depth of fraud expertise, is providing business support TFM: How can companies ensure that they constantly evolve and never get trapped in a technology straightjacket?

CC: The model we implement is ‘establish the basics, ensure that it’s scalable and automated in its deployment’. That means you’re not tying yourself down to a massive legacy architecture that’s going to become harder and harder to maintain over time. Using automated deployment and continuous delivery ensure that you can spin up more environments.

If I look at some of the European providers we’re currently working with, alongside Azure, in deploying their solutions, they’re saying ’we’ve got our on-premise

capability, what we want to ensure is that we unlock new capability, bit by bit, and show a return’, which then obviously helps to build out a more engaging ecosystem and makes it easier for them to partner with other providers. Taking that one-to-many approach, with all of the DevOps capability, ensures that they’re not getting locked into a single, monolithic architecture which, with all the regulations in the coming years, is going to be more costly and harder to maintain.

We’re versed in evolving those offerings for Tier 1 solutions. We efficiently maintain their operational compliance and overlay the technology advances with a single service wrapper that ensures those banks and institutions can move away from their high level of maintenance and focus on being the trusted provider of choice for their consumers.

For us, it’s about how you ensure that clients are not having to maintain all of the operating components around the core technology. I think, in the past, that’s been something of an oversight. It takes up an awful lot of their time, and it’s something that clients – banks, intermediaries, or merchants – want to get away from.

TFM: What evolutionary aspects would you watch out for as organisations strive to keep up with Cloud architecture?

CC: The big thing to watch in the next six to 12 months 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. How you get to that is by breaking down your solutions, ensuring 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. That requires an end-to-end operational review, focussing on a few key use cases where you can unlock value.

Out-of-the-box solutions: The Cloud will drive new flexibility in the way FIs operate

COMMENTARY: COVID-19

Alleviating symptoms: Fintechs have risen to the economic challenge presented by the pandemic

How a ‘hacker’ mindset is responding to COVID-19 It’s widely recognised that banks are now comfortable collaborating, rather than competing, with the UK’s fintechs and I believe one of the main factors behind this is a fintech’s agility and ability to quickly pivot.

It’s these same qualities that make UK fintechs an integral part of the economic response to COVID-19, and we are seeing a huge wave of innovation already in the works.

I’m reminded of a recent piece by Financial Times innovation editor John Thornhill, in which he wrote about ‘hacker mentality’ and incremental innovation. He argued that you need hackers to rattle the status quo and that organised hackathons are a way to find solutions to our biggest problems, provided the ideas are implemented. As he put it, a ‘tech-for-good mentality may yet prove one of the most effective means of coping with the complex challenges of the 21st century’.

This mentality is something we’ve definitely seen in the UK fintech scene over the past few weeks. This sector has huge www.fintech.finance

Lubaina Manji, Senior Programme Manager at Nesta Challenges, on the transgressive fintechs taking their place on the financial frontline and how it’s supporting the new wave of responders potential to draw on the data provided by open banking to adapt its products and services to better support the population as we continue to struggle through the coronavirus outbreak and its ramifications for our health, wellbeing and finances.

Open Banking Limited has been compiling a list of the huge number of fintechs adapting their services to the current situation on the #PoweroftheNetwork section of its website. One of the most notable fintech contributions to the battle so far is the Covid Credit calculator, which was developed over a weekend by a collaboration of fintechs,

including Fronted, 11:FS and Credit Kudos – an idea sparked by a conversation on social media. Together, they rapidly created a platform that could help self-employed workers prove a loss of income if needed as proof for new government benefits.

It is this type of problem-first thinking that originally led Nesta Challenges to develop the Open Up 2020 Challenge, in partnership with the UK’s Open Banking Limited. The Challenge launched last summer and 15 finalists have secured funding from a £1.5million prize pot to develop innovative solutions that use open banking to transform how people across the UK manage their finances.

Research conducted to mark the launch of the Challenge last summer identified millions of people already struggling to stay on top of their finances. One in three (29 per cent) said they regularly run out of money each month – equating to around 15.2 million people – and it’s safe to say that the impact of COVID-19 has made this situation even worse.

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COMMENTARY: COVID-19 Between the start of lockdown on 23 March and 5 May, 2.5 million people applied for universal credit, compared to the usual 220,000 per month, and our latest research found nearly half (45 per cent) of people who are concerned about their finances are cutting right back to basics, while 31 per cent are reducing any unnecessary costs.

All the solutions the finalists are working on as part of the Challenge use open banking data to help their users better manage their money. But many of them – like other fintechs across the UK – have now pivoted to focus on new, pressing issues fuelled by COVID-19.

For example, Wagestream, a service allowing people to access unpaid wages when they need them, has released a number of new features designed to ease financial difficulties during the pandemic.

This includes immediate overtime payments for under-pressure healthcare workers; anyone who logs an overtime shift as COVID-19 can now access 80 per cent of the wages earned immediately.

Meanwhile, digital debt adviser Tully recently revealed that with pay cuts, reduced hours, furloughing and redundancies, in excess of 17 million people have suddenly found it much harder to meet their usual bills and payments. In response, the Nottinghambased fintech has announced the launch of its COVID-19 Relief and Wellbeing Network to help people financially impacted by the crisis request payment holidays from companies like utility providers and credit card companies.

Another finalist, Canopy, has launched a solution for existing renters who are struggling to make ends meet, allowing them to purchase a deposit replacement insurance policy to unlock the money tied up in their rental deposits. This could prevent tenants who are in financial difficulty getting caught in a spiral of debt and also provides added protection for life events such as critical illness and job loss and – now – COVID-19. Canopy will also be contributing £10 from each policy sold until the end of June 2020 to frontline NHS workers and homeless charitable organisations in support of the life-saving work being undertaken.

Other finalists that are making changes include budgeting app Moneyhub, which has extended its free trial from

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This sector has huge potential to draw on the data provided by open banking to better support the population as we continue to struggle through coronavirus one month to six months, and Cleo, which has published a range of tips and tricks on social media to help users make more of their money when staying at home. Portify, which is focussed on supporting gig economy workers, also recently announced it would offer zero per cent interest advances to select members

on expected Self-Employed Income Support Scheme grants, to help them while waiting for the grants to kick in. This announcement was made after it found that the income of gig workers dropped by 30 per cent in April.

We’ve been extremely impressed with how all of our finalists have adapted to these difficult times and, particularly, how they have remained focussed on supporting struggling customers. No one could have predicted the situation that we’re now in, and the future seems equally uncertain. However, we’re very lucky to have a burgeoning fintech industry in the UK that continues to work on adaptive solutions that meet the ever-changing needs of society.

I’m sure this proactive ‘hacker’ mindset will lead to even more innovation in the coming months.

The transgressive thinkers rattling the status quo Portify, which has extended free credit to gig workers during the pandemic, was set up in direct response to changed (and often less secure) working patterns.

Founded in May 2017 by Sho Sugihara (CEO) and Chris Butcher (CTO), it closed a £7million Series A funding round at the end of last year to help address the financial volatility many modern workers face, especially those who take part in the gig economy or are self-employed in sectors such as the creative industries.

Credit Kudos, one of the driving forces behind Covid Credit, went through a recent £5million Series A raise, led

by AlbionVC, which was joined by Triple Point, Plug & Play Ventures, Ascension Ventures’ Fair by Design fund, and Entrepreneur First (EF). A number of fintech angels also participated.

Co-founders Freddy Kelly, who started his career in Silicon Valley including with Bitnami and TXN, and Matt Schofield, who was involved in the team at Universal Music that used consumer listening behaviour data to more effectively invest in musicians underserved by the major record labels – both saw an opportunity to flip the

data paradigm to empower individuals.

Their aim is to build a more inclusive financial system for those overlooked by the traditional credit bureaus.

Wagestream, which works with employers to allow employees to draw down a percentage of their income in the month for a small, flat fee, recently closed a Series A round of £40million.

It has two simple goals: to destroy the pay day loan industry and to give UK workers financial freedom. CEO and co-founder Peter Briffett is a serial entrepreneur with experience founding, scaling and selling businesses.

Tully, founded by Steve Bradford and Stuart Bungay in 2018, uses open banking technology to give people a holistic picture of their financial position in minutes – all done online. Free to use for consumers, it works with them to build an accurate budget on which it bases its free debt advice and a personal plan to get users where they want to be. That includes the option to choose a flexible debt repayment plan that adjusts to the user’s financial situation every month.

www.fintech.finance

To change banking and lending, you need to be able to change yourself.

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Compose the bank you want to be .

DATA & ARTIFICIAL INTELLIGENCE

Next-levelnormal Citi’s Gulru Atak and SmartStream’s Andreas Burner discuss how COVID-19 is propelling use cases for artificial intelligence in financial services, and how the best approach lies in collaboration between human and machine COVID-19 has triggered a ‘new normal’ in many aspects of our lives, and banking is no exception.

Previously unseen patterns in data, which have torpedoed normal forecasting, together with widespread disruption to working practices, have made a compelling case for artificial intelligence (AI) and Cloud adoption.

“In the banking environment, we’re dealing with a massive amount of data as the number of transactions increases around the world, but banking software is still 10 or 15 years old,” says Andreas Burner, CIO at financial software and managed services supplier SmartStream. “We’re working on projects with several Tier 1 banks and whenever we look at potential use cases for AI, it’s immediately a big data use case. So, you’re really looking at two technologies: machine learning, which can deal with a lot of data and Cloud computing to set it up.”

Citi is also busy looking at the best use cases for AI across its banking divisions.

“One good example is around risk management for our corporate clients,” says Gulru Atak, who heads up Innovation for Treasury and Trade Solutions, part of Citi’s Institutional Clients Group. “We have introduced Citi Payment Outlier Detection, which looks at corporate clients’ past payment behaviour and predicts potential outliers that might be operational mistakes or cyberattacks. It gives the client another decision point to assess whether or not it’s a valid, legitimate payment.

“It’s a great tool and one that’s becoming more important these days because, following COVID-19, we’ve seen bad actors trying to benefit from people working from home through sophisticated cyberattacks.

Our new tool enables our clients to better predict those outlier payments that are outside of their typical patterns.”

Late last year, the first technology to emerge from the innovation lab that Burner

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heads up for SmartStream in Vienna, was launched. SmartStream AIR, which stands for AI in Reconciliations, an intelligent reconciliation engine, has seen rapid uptake and Burner believes it’s an example of how AI can provide a bright outlook for financial services. In fact, he goes further.

“We want to make financial services software as simple as looking for a weather forecast, or using a navigation system,” he says. “You simply enter your city on your device and you get your forecast. They have a lot of data behind them, but you don’t feel it. I believe that financial services can be that simple. We are thinking of new and simpler ways to distribute applications, and exploring smart assistance that can help you to run workflows and better complete daily tasks from home.

“It’s actually a good time for technology.

The new normal will push us to a new level, and that’s good.”

Show me that you know me is something that our clients tell us all the time and AI enables us to do that – Gulru Atak Atak agrees: “I think AI will fuel a delightful, personalised client experience,” she says. “Show me that you know me is something that our clients tell us all the time and AI enables us to do that.”

Racing to real time The move to real-time processing over the past few years has already had a consequential impact on liquidity management and reconciliation at banks. But, since the pandemic, real time has become the top priority.

“What we’ve seen from clients over the last three to four years is the desire for

everything to move to real time, and demand is now moving to just-in-time.

With COVID-19, this has become even more of a priority for our clients,” says Atak. “It’s an area where we see great benefits from machine learning, predictive analytics and AI. Being able to reconcile your accounts receivable is traditionally a very human-based activity, but you can leverage machine learning to automate the process.”

Burner gives another example: “We’ve been working on a machine learning project with a bank in Asia. It’s a big team and they have to do a reconciliation each day, which is a very exhausting task for a human. When you analyse the data, you see that in the morning everything is matched correctly, but in the afternoon, when the team gets stressed as they rush to hit deadlines, the matching quality significantly decreases.

“When you run machine learning, you can learn from the behaviour in the morning and then warn users if they match something that a machine would not match, increasing the quality in the afternoon. Or you can fully automate it, to help overloaded users process the messages.

“We didn’t plan for COVID-19, obviously, but the interesting thing is that people who’ve typically reconciled with pen and paper are now looking for alternatives – the easier the better. So, we need to adapt all our products for this new normal.”

So, the good news for those worried that machines will soon render us obsolete is that both the software provider and the banker believe the real value of AI lies in using it to augment human decision-making, not to replace it. This hybrid approach is largely derived by AI’s ability to process data at much faster speeds than mortals, whether that’s detecting outliers or providing personalised www.fintech.finance

information on customers, but the fact is it still requires the human touch.

“There are several studies in the medical domain where they tried to use machine learning for radiology imaging,” says Burner.

“They found that the machine has a certain percentage and humans have a certain percentage, but the combination of the two outperforms everything. You need that combination in banking as well. Machines aren’t yet clever enough to understand all the relevant outliers.”

The purpose of AI is to help eliminate pain points for humans, agrees Atak: “We focus on automating certain human-based, manual tasks and providing tools for better decision-making.”

Through one such tool, Citi Global Collect, the bank is eliminating a particularly painful point for its global client base – foreign exchange exposure.

Citi clients can now upload and send digital invoices through Global Collect, and the payer chooses when they want to pay and

what currency they want to use. So. if payers want to pay 60 days after receiving the invoice, they pay the agreed amount when they received the invoice, regardless of rate changes later.

Fintechs are playing a big role in Citi’s technology strategy. The bank developed Citi Global Collect through a partnership with HighRadius, a newly ‘unicorned’ accounts receivable startup that Citi Ventures, the bank’s corporate venture arm, has invested an undisclosed amount in.

We want to make financial services software as simple as looking for a weather forecast or using a navigation system – Andreas Burner

“We’re not just relying on our own build,” says Atak. “We’re leveraging partnerships with the likes of HighRadius.

Another company called Cashforce supports our cashflow forecasting.

We’re also currently piloting a smart contract negotiation tool for our legal teams. While they’re negotiating contracts with corporate clients, they have the opportunity to be able to learn from previously-negotiated contracts, leveraging natural language processing and machine learning together, which is really fascinating.”

AI has been widely deployed since COVID-19 emerged to plot the likely spread of the pandemic and in developing drugs to combat the disease. But when the dark cloud of pandemic clears, if Burner and Atak are right, its impact in financial services will be no less critical.

Best of both brains: A h-AI-brid approach to problem solving is being adopted more rapidly

www.fintech.finance

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DATA & ARTIFICIAL INTELLIGENCE

Spottingthedifference Imitation might be the sincerest form of flattery – but not when it comes to customer authentication. Brett Beranek, Vice President and General Manager for Security and Biometrics at Nuance Technologies, says there is only one way to stay ahead of the deepfake masters and that’s to employ the same technology as they do We’ve seen Carrie Fisher come back from the dead as Princess Leia, and Donald Trump apparently give speeches that are shocking even by his standards.

They’re ‘deepfakes’ – the 21st century version of Photoshopping – which see voices and faces copied with incredible accuracy then manipulated using artificial intelligence (AI) software.

Some of the fakes that circulate on social media are obviously for fun. But others are designed to deceive and distort and, given the increasing sophistication of these clones, there are clearly implications for biometric security systems.

Fingerprint scanning has been commonplace since the arrival of the iPhone 5s, while facial and voice recognition is employed for everything from opening online bank accounts to identifying individuals in crowds.

Last year’s Deloitte Mobile Consumer Survey revealed that, in the UK, 44 per cent of respondents with a smartphone used fingerprint recognition, and 11 per cent used facial recognition. And, while traditional security systems that employ passwords and tokens have a chequered history of breaches and outages, biometric systems have also been compromised.

In 2017 a BBC news reporter set up an HSBC bank account protected by voice recognition security – then his non-identical twin managed to mimic him and gain access.

Another example came last year when ‘ethical hackers’ at VPN Mentor broke into security platform BioStar 2 and opened files containing personal details, one million fingerprint records and facial recognition data that could be used to access buildings reliant on biometric security across the globe.

So, what’s the answer? Assume biometric systems will be attacked and write code that searches for the giveaway

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signs of a deepfake from the outset, says US software firm Nuance Communications.

Brett Beranek, Nuance’s vice president and general manager for security and biometrics, says: “We’ve assumed, right from the get-go, that a fraudster may have access to your voice, and that’s why we’ve developed technologies to ensure that we can detect if what we’re hearing is a synthetic voice.

“The fact that fraud has become a $4trillion-a-year problem, and that it’s growing by double digits every year, is a testament to the failure of traditional authentication methods. But I think fraudsters will adapt their techniques and start attacking biometrics so it’s critical that biometric vendors provide solutions to counter those types of spoofing attacks.

The fact that fraud has become a $4trillion-a-year problem, and that it’s growing by double digits every year, is a testament to the failure of traditional authentication methods “A lot of people have seen some of the deepfake videos that have populated the internet in recent months, and it has really become a source of anxiety, not only for consumers but also for organisations.

There is a question around trust: can we trust what we see and what we hear?”

Nuance began developing biometric security systems in the 1990s and voice recognition software was among its first products in 2001. Since then, levels of sophistication have

exploded and, in recent years, AI has been employed to continually push the boundaries.

“For many years, we’ve been at the forefront of AI technology, which is the technology used to create deepfakes,” says Beranek. We’ve found ways to detect deepfakes. When a deepfake is created there are fundamentally two components to it. One is the visual aspect, creating a visual representation of a person doing something that they have never done, and the second is the audio aspect, which creating their voice, saying things that they’ve never said.

“We can analyse that voice and detect anomalies that are being created by the synthetic speech engine. Our customers, such as financial institutions, have a great interest in this technology to prevent fraud attacks, but I think this is a technology that can be beneficial to society as a whole. I can foresee that news organisations, for example, would use our solutions to determine if a video that they’re seeing is legitimate, or if it’s a deepfake.”

Much of Nuance’s work for the financial sector is around providing products for contact centres, so that traditional security measures such as passwords, PINs and challenge questions can be ditched in favour of more efficient and secure alternatives.

The advantages of biometric security are threefold, says Beranek – it makes life easier for the customer (fewer or no passwords to remember), it should be more secure and it’s cost efficient because contact centre call times are shorter if a machine is verifying a customer’s identity in the background.

Light-speed security Last year, Nuance launched its Lightning Engine, which the firm says can identify a caller within half a second. There are two www.fintech.finance

potential methods of identification – the software can verify someone’s ‘active voice’ when they say a phrase such as ‘my voice is my password’, or it can verify the ‘passive voice’ during their conversation with a contact centre agent. It uses fourth generation deep neural networks (DNNs) and combines voice biometrics and natural language understanding (NLU) to set up a unique voice profile during account enrolment, which subsequently allows someone to be identified in less than half a second. Nuance products also identify customers through selfies and behavioural patterns, such as how they interact with their device, be it a tablet, keyboard or phone.

Beranek says the ubiquity of biometric security systems on phones has helped the public overcome their initial resistance to them.

“Two things have changed. Because biometrics have become ubiquitous with mobile devices, consumers can use them on a daily basis and most choose to do so to access their device and apps. Whether it’s putting their finger on the fingerprint reader or placing the camera in front of their face, they realise it’s a more convenient method than typing in a PIN or a password.

“Also, consumers understand it is a more secure way of authenticating. We’ve all read in the news about widespread hacks, and fraudsters gaining access to databases of compromised credentials.

That creates a lot of anxiety and drives the shift to biometrics,” says Beranek.

Due to Nuance’s long history with biometrics, the firm now has a wide range of tools for organisations to deploy. Barclays, for example, first used Nuance’s voice biometrics verification for its wealth management arm in 2013, then, after positive customer feedback, began to roll it out into its retail banking business three years later. Chatbots are another Nuance product for the financial sector.

Which solution is adopted should be driven by examination of the customer’s business process, says Beranek.

“More than 500 organisations have deployed Nuance biometric technology www.fintech.finance

so it really is tried and tested. The biggest challenge for our customers is to think through the business processes, and consider how they need to change when moving from a legacy authentication method to biometrics. We can definitely guide organisations on that journey, but the key message is to move away from thinking about it simply from a technology perspective.

“We’ve had reports of significant reductions in fraud losses following the transition to biometric technology – one of our customers in the UK reported £330million in annual fraud savings, so not only is it more secure, it is significantly more secure than those legacy methods.”

Notwithstanding the huge benefits of convenience, Beranek says Nuance’s

approach to biometrics is primarily security focussed.

“Smartphone manufacturers have done wonders for the biometric industry, but their approach has been very much a convenience play, to make it easier for you to access your device. We look to enable enterprises such as banks, telecoms and government organisations, to ensure they can prevent fraud. So, finding ways to mitigate fraud then providing a convenient way for consumers to access services,” he says.

“How to validate consumer identities is an important consideration for a fintech because usually they don’t have a network of branches where a customer can walk in and present themselves and their ID. And so the ability to validate identities online, in a digital format, using biometrics, becomes key to their business model.”

Would you know a deepfake if you saw it?

Nuance Technologies trains its systems in AI so that you don’t have to spot them

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COMMENTARY: HIRING

Executivemeasures For the first few weeks of the COVID-19 crisis, millions of people across the country found themselves subjected to a crash-course in epidemiology: viral r-rates, ‘the curve’, and dramatic graphs comparing death rates across the world.

Over the final few weeks of the same crisis, it’s to be expected we’ll be shown a different set of graphs; national debt, economic contraction, and the unemployment rate.

In the US, a report from the Federal Reserve has already predicted an 32.1 per cent of people will be without a job – a figure considerably higher than the 24.9 per cent at the height of the Great Depression. In the UK, state support websites crashed under the weight of tens of thousands of new Universal Credit claimants – the highest demand for unemployment benefits since 1996.

Against this backdrop, streamlined and innovative companies have coped best – happily adjusting to the ‘new normal’ of remote working while demand increased for their technological products. Among them, fintech firms – and particularly payments firms. If it wasn’t already accepted doctrine, COVID-19 appears to have underscored that the future – of both finance and workplace practices – is digital.

Indeed, there was already a rebalancing of the financial services job market as a result of digital activity rather than lockdown-related inactivity. In 2019, Deutsche Bank announced job losses of 18,000 – one-fifth of its staff. HSBC shed 17 per cent of its European workforce in the same year, while Barclays made 3,000 workers redundant in 2019. The decline of the bank branch, and the automation of banking processes – both precipitated by fintech innovation – are largely responsible. www.fintech.finance

Senior fintech recruitment specialists Dexter Cousins of Tier One People and Alex Chirica of Broadgate Search on when and why you should hire a banker

introducing talented professionals to growing fintechs across the UK and the EU. On the other side of the world, Sydney-based Tier One People specialises in matching C-suite and leadership talent with positions in Australia’s growing fintech sector. By concentrating solely on fintech skills-matching, Tier One People has gained the trust of big name partners like Revolut, Stripe, Klarna and TransferWise. The firm’s founder and director, Dexter Cousins, doesn’t like sterotypes either, but former You’d think any bank executive who banking execs aren’t always a neat fit, he unexpectedly found themselves on the says. It very much depends on where the golf course would be a target candidate fintech is in its growth. for a fintech. But, according to recruiters “I keep getting these calls saying who work specifically with the sector, ‘hey, I’ve got 20 years’ experience in that’s not necessarily the case. banking, I want to work in fintech’. But “The main challenge I’ve had is trying to these companies are at the cutting edge change the mentality of hiring managers of innovation, and the reality is that in fintechs when it comes to hiring nobody’s excited by anybody who’s got people from the big banks,” says five years’ experience in Alex Chirica, fintech banking, never mind 20,” recruitment consultant at says Cousins. “The key London-based Broadgate thing is to be able to Search. “There’s this identify at what point massive stereotype somebody from a big that, if you work in a big bank can come in and bank, you might not be have an impact. A hands-on enough, or startup of one to 50 might delegate too much. people is a different It’s my job to make sure business to one of 50 to those stereotypes are 300, and different again removed, helping fintechs Alex Chirica to one of 300 to 2,000.” understand that there are Fintech founders people who work in big themselves are not always the best banks who are very hands-on.” person to make that call.

Some, in fact, have famously rolled up “I’ve interviewed more than 300 fintech their sleeves and started their own leaders in Australia and overseas. We’ve challengers – any fintech that rejected tracked their businesses, watched some Anne Boden before she started Starling grow and others go bust. Less than one Bank might have kicked themselves. per cent of those founders or leaders had Broadgate Search operates from offices a background in HR or talent. But they in London, Dublin and Manchester, with a were all experts in it!” says Cousins. pan-European reach. It specialises in

There’s this massive stereotype that, if you work in a big bank, you might not be hands-on enough –

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COMMENTARY: HIRING Recruiters to fintechs know which senior candidates will thrive in the startup environment.

“Sometimes I say to candidates, ‘look, it’s a mess, but this is why they need someone like you to come in’,” explains Chirica. “Those candidates who truly have a passion for their job will respond with ‘oh my god, that’s amazing. This is the perfect challenge’.

It’s about finding out which candidates will really thrive in that environment, and which candidates are a bit more passive and won’t enjoy the challenge.”

TOP TIPS FOR

FINTECHS 1 2

recruitment challenges are very symptomatic of high-growth, rapidly-scaling businesses.”

Often, recruiters need to be firm by setting expectations for fintech bosses, who expose their ignorance of HR and recruitment when they list specifications for an unrealistic, one-person role. “We call it the search for the blue-eyed unicorn,” laughs Cousins. “It’s about five different people in one.”

For Chirica, transparency and honesty are key to leaving her fintech partners satisfied with her candidate recommendations – and in tempering their sometimes inflated expectations.

“If a client is willing to treat me as a consultant – where they’re going to listen

Forget what you think a big banker is; not everyone fits the stereotype To find the best candidates, use a retained consultant who knows your business – not the high street recruiter who’ll have 20 CVs on your desk tomorrow You think you know what you want, but do you know what you need? Listen to the advice Don’t be unrealistic – you’re unlikely to find someone who can wear 20 hats in the business and look good in all of them

3 4

“We always joke that, at these firms, it’s not about riding around on a skateboard, drinking kombucha, dreaming up how to solve world hunger with the blockchain; it’s serious work, it’s very stressful,” adds Cousins. “When somebody’s coming out from a big bank, we need to see they can handle that. You’ve got a very defined role in a big bank; in a smaller business, you’re a ‘specialist generalist’. You’ve got to do whatever it takes to get the job done.”

Meanwhile, the sheer pace at which fintechs scale – which is blisteringly quickly, as Monzo, Revolut et al have demonstrated – requires flexibility and patience from fintech-specialist recruiters.

“When we did the search for Revolut’s Australia Country CEO, I think the brief changed four times,” says Cousins. “In the six months that we were working on that search, the business had gone from four million users to 10 million, and 700 employees to 2,000. That’s a huge amount of complexity to deal with in a six-month timeframe, for any business. So I think these kinds of

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you message someone about their business, make it about something they could improve on or you’re commercially aware about.”

Cousins’ advice is to focus on impact rather than experience. “Don’t tell me how many years’ experience you’ve got; show me what you achieved,” he urges. “Don’t tell me that you were a financial controller; show me where you’ve saved the business money, show me where you’ve made the business money.”

Both Broadgate Search and Tier One People share an ambivalence towards traditional recruitment processes, like interviews, resumes and professional profiles. Cousins and Chirica are clear that

TOP TIPS FOR

to the expert market mapping that I’m giving them – I know the quality of my delivery is going to be so much better,” she says. “In my experience, candidates can’t wear 20 different hats at once.”

But what about ambitious professionals looking to work their way into an exciting fintech? Right now, the recruitment market in non-critical roles is slow, but what do our recruiters have, by way of advice, to help find work, post-COVID? “Recently, I’ve been a massive advocate on social engagement and networking,” says Chirica. “I’m telling my candidates to make a list of the 20 fintechs they find interesting, and to connect with the CEOs, the COOs, the CROs, and to drop them a message – because everyone’s online right now. ”Hiring managers want to see you be entrepreneurial, they want to see you have this commercial knowledge and, specifically in my sector, hiring and recruiting for financial crime and compliance, you know, if you’ve worked at HSBC for 20 years but you’ve been the ‘no’ person, they don’t want that. So, if

CANDIDATES 1 2 3

Leverage LinkedIn – especially during lockdown – to connect with fintech founders and execs Talk up your measurable successes rather than your experience Understand that, for pre-scale startups in particular, a hands-on attitude can be more important than miles on the banking clock Be prepared to take a significant pay cut at executive level… but the ride will be worth it

4

recruiting for fintechs is about more than candidates’ on-paper credentials – they need to show they can hit the ground running in the specific, fast-paced environment that is a financial startup For Cousins, the current coronavirus crisis might just open the door to a new, savvier, and more bespoke recruitment tradition.

“What I’d love to see come out of COVID is that we truly start to assess people based on their potential to perform and deliver in specific environments,” he says. www.fintech.finance

CUSTOMER EXPERIENCE: SMEs

More please for SMEs! The pandemic has highlighted how traditional financial services are failing six million or so SMEs that together create the majority of wealth and employment.

Neglected and hungry for change, they deserve better – and Recognise is determined they get it, says CEO Jason Oakley Across the world, small business owners are lying awake at night to the sound of economies crashing to the ground.

Many who, even at the best of times, walk a daily tightrope of balancing income against outgoings, have seen trade and, critically, cash flow, fall off the proverbial cliff because of the COVID-19 pandemic, forced to shut during lockdown or see their customer base wither and even die because of it.

In the UK, the government stepped in

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to help with the British Business Bank-administered Coronavirus Business Interruption Loan Scheme (CBILS), which soon provoked cries of dismay from the bosses of smaller SMEs (small and medium-sized businesses) which found themselves excluded by the onerous criteria and application process. It took more than a month for the Government and banks to agree further help in the form of the Bounce Back Loan Scheme (BBLS), announced at the end of April 2020, which saw £2billion of loans secured in the first 24 hours.

That initial delay in meeting what was subsequently demonstrated to be an obvious need just adds grist to the mill for those who think SMEs have been poorly served by the banking system; how almost six million smaller businesses who, collectively, are the UK’s biggest private sector employer, have been starved of the oil of liquidity for far too long; how, as experienced banker and entrepreneur Jason Oakley puts it, they’ve been ‘orphaned’ by the legacy banks who hold all the power.

“It’s nothing short of a scandal, the way SMEs have been taken for granted,” he says. “I worked for the Royal Bank of

Scotland Group in the early 2000s and we had something like 35 per cent market share. There were relationship managers, there was intimacy, there was community-based banking, there was accessibility. Of course, the financial crisis caused a real problem for the big banks but the SME segment has been orphaned, frankly. It’s been left without community-based relationships and forced into call centres.”

After the financial crisis of more than a decade ago, the UK government attempted to break the stranglehold that major banks have on SME banking services and, specifically, lending. It set up a £775million Banking Competition Remedies scheme, funded by RBS as part of the bank’s rescue deal from the taxpayer. The scheme hasn’t been a runaway success: most recently, two organisations charged with distributing the money have given it back. And Oakley, who’s now CEO of Recognise, which is on track to have a full banking license by the summer, believes SME bosses have had enough. Later this year, it will be helping SMEs with its own lending products.

“Recognise is passionate about bringing basics back to SME clients,” says Oakley. “And basics are knowing your client,

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knowing about their business, being accessible directly – on the telephone, over Microsoft Teams, Google Hangouts, or whatever the technology – being responsive and being creative. There isn’t the understanding, the bespoking, the connectivity or the accessibility of solutions by the big banks because it’s an oligopoly. They’ve had about a 90 per cent share of current accounts and over 75 per cent share of senior debt, but while we’ve seen innovation in retail, we’ve seen virtually none in SME banking.”

With a clear insight into the problems caused by legacy platforms, Recognise deliberately set out to make its technology future-proof, building its architecture around Mambu, a Cloud-based banking and lending software-as-a-service (SaaS) provider.

“Because technology is constantly innovating with new apps and new opportunities, we need a composable architecture, something that’s sufficiently

The SME segment has been orphaned.

It’s been left without community-based relationships and forced into call centres

flexible and adaptable, so that we don’t have to keep re-platforming, which causes lots of cost and inefficiency,” says Oakley. “With Mambu’s composable architecture, where you can plug in an application programming interface (API) or take out an API, you can think about how you create a platform that’s still going to be relevant and valid, and provide a cutting edge customer experience in two, three, four, five years’ time by constantly refreshing the architectural components.

“That’s the other reason why SaaS is critical – that momentum is unstoppable and banks, frankly, are not the best at managing IT, so getting in a third party that’s the expert, and using their expertise to enable you to give a great customer experience, means you can use your expertise, which is dealing with clients and coming up with banking solutions.”

The latter have been sadly lacking during COVID-19, bringing the shortcomings of SME banking into sharp focus, according to Oakley.

“Look at people’s stories about trying to speak to their bank, to contact a relationship manager that knows anything about them,” he says. “They’re forced into call centres which, typically, are about telling you what your balance is or transferring money. How can you have a sensible conversation, as an SME owner, about cashflow, the business, the need to furlough staff, the

need to continue to meet your VAT bills, payroll bills, and all the other complexities associated with running a business?”

Larger banks’ portfolio management of SME clients has reduced individual businesses to being a number with no nuance or depth of understanding, he says.

“The downside to segmentation and portfolio management is it’s like sheep dipping. Everybody gets the same treatment, no matter whether you’re good, bad, or indifferent.

“Recognise fundamentally starts with every relationship being important because, let’s not forget, SMEs make up more than half of GDP, they represent 99 per cent of all employers and over 60 per cent of all employment.

“If we do not support these businesses over the next few weeks and months, the knock-on impact on employment and the economy is going to be severe.”

In fact, it’s forecast that the UK could suffer its worst recession since the 1700s.

Is that a good time to start a bank?

“It couldn’t be a better time,” says Oakley. “As much as I would not wish it on the economy – I see the stats about 35 per cent GDP attrition, which is just a number that you can’t even contemplate – there are a lot of good businesses out there that need support. SMEs are incredibly resilient, incredibly passionate, they work incredibly long hours. Often, it’s a cause, as well as a source of building wealth and profitability. And we’re looking forward to getting out there and supporting them.”

Prayers answered: Recognise aims to plug the banking gap for SMEs

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CUSTOMER EXPERIENCE: BUSINESS BANKING

Now more than ever, a financial utility is needed that provides banks and others with a ready-made way to offer real-time settlement for businesses, says Banking Circle CEO Anders la Cour Six months in and 2020 has proved just how unpredictable life, business and banking can be.

How can a business of any size plan and prepare for the realities of a pandemic, with little to no warning and lingering uncertainty regarding the resumption of any kind of ‘normal’?

The global restrictions imposed on most businesses brought to light the fragility of many firms, and the lack of provision available through traditional channels to help them through difficult times. Even in a ‘typical’ year, without a

pandemic, smaller businesses and startups are often at risk of collapse if payments are delayed, or they are unable to access loans quickly enough to continue trading as normal in the event of equipment failure, for example.

Banking Circle has reported in the past on research that revealed around a quarter of online SME merchants would have to let employees go if they could not access additional funding, and a similar number feared their business might fail as a result.

Revolut Business also commissioned a study in late 2019 that investigated the challenges SMEs face in accessing credit, getting paid and finding suitable financial partners. Its findings very much support our own SME research, published in 2018, 2019 and 2020.

In March 2020, Revolut Business published a detailed white paper entitled 2020 Vision: Taking A Closer Look At

Antiquated Banking Practices. Looking back 10 years, it highlights the significant and rapid change that has occurred since.

For example: “The global financial crisis was still just unfolding… fewer than one in five people (19 per cent) had access to a 3G smartphone, just one in 10 (10 per cent) of European SMEs had taken an order online. It was an economy dominated by cash and cheques.”

For small businesses, standard practices and routines have gone through enormous change and streamlining in the past decade. Revolut highlights just some of the ways in which we used to conduct business, which now seem unbelievably inefficient and slow: “It was common to prepare accounts on paper and go to meet accountants weighed down with hard copies of invoices, receipts and statements. [SMEs] met with lawyers to draw up contracts and planned their work in team meetings and with paper diaries and planners.”

A YEAR OF

CHALLENGE A YEAR OF CHANGE

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CUSTOMER EXPERIENCE: BUSINESS BANKING The new ‘normal’?: The pandemic highlighted the need for responsive SME banking services

All of this was our normal then; it is impossible to accurately predict what will change in the next 10 years. But one thing we can say for certain is that payments have not kept pace with this change, and by then will be even more out of date and inefficient, excluding more businesses than ever. Something needs to change, and it needs to change quickly.

The importance of payments The difficulties around borrowing are well-known, but what is often forgotten is the impact payment systems can have on a smaller business. The ability to process payments quickly and at low cost is vital for any business in this fast-paced digital landscape, and the ability to do that across borders is becoming more important every day.

Everything is faster today. Society is more connected. Digitisation allows consumers to purchase goods from sellers anywhere in the world, without a second thought for details like foreign currency exchange rates. While this is great for international trade, boosting the global economy and helping to break down borders, it requires a lot from the underlying provider and, eventually, the SME seller takes the hit – in transfer fees or slow settlement cycles stalling cashflow.

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Some still believe instant payments and settlement are a luxury businesses simply do not need [but] real-time or instant payments, as well as reduced settlement times, are essential to allow SMEs to keep up the pace Some still believe instant payments and settlement are a luxury businesses simply do not need. After all, payments have always taken days or weeks in the past. But if an SME wants to keep up with the rest of the market, it needs the ability to restock rapidly, to expand to new markets and territories. That requires working capital, which in-turn requires faster payment processing. To deliver that, financial services providers need to start working together more closely. We must collaborate to deliver solutions which help rather than hinder SME growth. Real-time or instant payments, as well as reduced settlement times, are essential to allow SMEs to keep up the pace.

The Banking Circle solution Fully licensed but free of legacy systems, Banking Circle delivers financial infrastructure for payments businesses and banks at low cost but without compromising on compliance or security.

We also provide access to the payments SMEs need, regardless of borders and size of operator. We have the benefits of being both a bank and a fintech – and pass those benefits on to our partners.

Working with a third-party financial infrastructure provider like Banking Circle, banks and other financial institutions can increase financial inclusion by offering their customers faster, cheaper banking solutions such as multi-currency banking accounts, local clearing, crossborder payments and flexible business lending – without the need to build their own infrastructure and correspondent banking partner network.

We enable financial services businesses to do what they’re really good at – serving the end client successfully and efficiently.

As a business, we have always been committed to improving financial inclusion by building dedicated new tech, rather than tailoring or tweaking existing solutions.

As a result, we now offer bespoke, flexible, scalable and future-proof solutions. www.fintech.finance

CUSTOMER EXPERIENCE: RETAIL BANKING

A moment that matters With a branch in most neighbourhoods, Nationwide has made a virtue of being the bank on the street where you live. So we asked Channel Service Director Carole Layzell how a massive swing to online channels during the current crisis is affecting it

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Nationwide, the world’s largest building society and one of the UK’s few remaining mutuals, prides itself on being there for the ‘moments that matter’.

And, right now, the 130-year-old institution, like most of us, is adapting to a pretty big moment in history.

It’s become known as the ‘best bank on the high street’ – by being just that… on the streets that many of its rivals have already fled. While the big four – HSBC, Lloyds Banking Group, Royal Bank of

Scotland Group and Barclays – drove a wave of closures that saw a third of bank branches shuttered for good in less than five years, Nationwide has maintained 96 per cent of its estate and last year committed to keeping a branch in every town that has one until at least May 2021.

But the lockdown and social distancing has triggered a massive change in customer behaviour. The bank saw an 89 per cent rise in people signing up for its digital banking service between mid-March and mid-April compared

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to the month before. And Nationwide’s channel service director Carole Layzell acknowledges that leaves a question mark over exactly what customers will want in the future.

That Nationwide has topped most customer service rankings over the past few years is something it’s incredibly proud of, she says: “I think it just starts and finishes with our people. Our people are absolutely amazing.”

And they’ve truly stepped up to the plate over the past few months, as the organisation reprioritised services, including branches, to meet changing demand.

“What we’re seeing from members is that what might have been important to them yesterday is very different to what might be important tomorrow,” says Layzell.

At the start of the outbreak, for example, a lot of people with holidays booked were worried about travel insurance and getting refunds. But as lockdown continued, member sentiment turned towards more pressing domestic concerns, such as how to pay utility bills or request a payment holiday on credit card debt.

Nationwide proved nimble in its ability to scale and resource to meet its members’ needs. One of the first things it saw was a reduction in branch-based transactions but, rather than close them, it turned branches into mini contact centres, so that they stayed at the heart of the community.

“They’ve been taking the overflow, because many more people are choosing to phone us for products and services,” says Layzell. “We’ve made sure that we are listening to our members and that we’re there for them every step of way – to reassure them and then, obviously, change our products and services in response.”

The crisis has highlighted the need, for example, for members to be able to go in and out of physical and digital channels seamlessly – starting in one and finishing in another.

“We know that our members really value face-to-face contact, but when it comes to the fast and simple stuff, they want those digital channels there as well. One day, they might choose to interact with us through a digital channel, but then there might be a moment that really matters to them, or there’s a bigger financial need, and that’s when the human touch is really, really important, says Layzell. www.fintech.finance

Nationwide had already been examining ways in which it could serve its members digitally ‘with a human touch’ prior to the outbreak; it trialled last year and is now extending its Nationwide in-branch video service, available since 2015, to members ‘on the go’, allowing them to access Nationwide specialists from wherever they are via personal and handheld devices. The service will initially offer appointments for protection and investment advice – what Layzell calls ‘more in-depth conversations’.

The Society has also started to use experienced frontline staff to train its IBM Watson-driven smart agent, Arti, to respond to coronavirus-related queries, such as how to request a mortgage payment holiday. Between the end of March and early May, Arti had participated in more than 10,000 online chat conversations about that one topic alone.

“These opportunities have become more relevant as things stand today, but they are technologies that we’ve been looking at for some time,” says Layzell.

Now, the question is how they can be scaled up quickly and what it means for Nationwide’s traditional model.

An ongoing branch role While the pandemic has undoubtedly caused Nationwide, like its rivals, to pivot its resources towards digital services, Layzell remains confident about the ongoing importance of the bricks and mortar branch to its customer service.

“Because one thing that has come out of Covid-19, whether or not it’s permanently changed people’s banking behaviour, is that community has been more important than ever,” she says.

“For Nationwide, the future is going to be about the role we play in that community. And I think our branch becomes pivotal in that, in terms of connecting the community and offering services in a very different way.”

While it might not see as many across-the-counter transactions as it

used to, for example, that frees up in-branch staff to have more in-depth conversations on matters such as income and expenditure; issues that come to the fore in times of crisis.

“I think so many people have been caught out because they didn’t have enough savings; they haven’t had enough to fall back on,” says Layzell. “So, we need to consider what role we can play to help them make sure they that cushion; that they are budgeting in the right way.”

With so many members moving online, branches could also take the lead in education, such as around digital skills and fraud awareness, she suggests.

Branches aren’t the only more traditional form of banking that Layzell expects to still have a place beyond the pandemic. She thinks physical cards will remain a primary method of payment, not least because they cement the bond between customer and bank – something at the heart of the Nationwide ethos.

“And consumers still trust the card, whether it’s a physical or virtual card through their mobile – because it’s almost as though they have their bank, or their building society, in their pocket,” she says.

Out of adversity comes triumph and, overall, Layzell sees this as a time not only to adapt and embrace change, but also one in which Nationwide needs to stick to its roots. It remains committed to its core purpose of helping its 16 million members buy their homes and save for their futures.

“The values that Nationwide was built on 130 years ago still very much form who and what we are today,” says Layzell.

“We want to make sure that there’s a roof over everybody’s head with affordable housing, that we can support our members in being able to achieve their dreams.

“I see this as an exciting time for us to say ‘how can we start to have some really great conversations with our members?’. And to obviously invite more people to come and join us.”

One thing that has come out of Covid-19, whether or not it’s permanently changed people’s banking behaviour, is that community is more important than ever. The future is going to be about the role we play in it

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EVENTS

EVENTS

EVENTS

EVENTS

2018 SSBA20

BT20

BSEC20

SSBE20

Vietnam 23-24 Sep 2020

London 17-18 Nov 2020

London 9-10 Dec 2020

London 9-10 Dec 2020

self-service and digital financial inclusion branch and security

branch design customer experience strategy

self-service security access control logical and cyber

self-service fintech digital banking

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Meet our conference partners RBR events bring together the world’s leading banks, fintechs and industry experts – join our growing partner lineup...

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ATM Software

Renovite Transforming payments

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CUSTOMER EXPERIENCE: LENDING

Getting with it: Borrowing against pension income offers a new lease of financial life

AGE OF REASON

Why do boomers have such a hard time getting unsecured loans when many have guaranteed pension income?

The same question occurred to Paul Lindsay, so he set out to answer it with free2

The cliché of the flat-capped pensioner tending his allotment, or the silver-haired couple spending weeks sipping wine on a cruise ship are just that – clichés.

The reality is that, while the number of over-55s in the UK is growing, they're working longer, too. But while the demands on their money don’t go away, their financial options do, because banks are typically less likely to lend, the older people get.

Former chancellor George Osborne’s pension freedoms announced in his 2014 budget brought more flexibility for the over-55s seeking to access their pension pots. But what if you are one of those who aren’t enjoying pension freedoms and need a lump sum?

From June, older people have another option – new player free2 enters the market www.fintech.finance

with an unsecured loan offering of up to £150,000 over a repayment period that can span 20 years. The London-based lender is walking where others fear to tread because it assesses creditworthiness based on the borrower’s pension income, which could include a final-salary pension, annuities and state pension.

Its loans are applied for online, with an artificial intelligence (AI)-driven decision engine assessing the applicant’s surplus income. Then, a final-stage phone call ensures the customer is bona fide, is clear about the implications of taking on the debt, and the product is right for them.

“If you’re over 55 and you want to borrow large sums of money unsecured, it’s extremely difficult, particularly if it’s over longer terms,” says free2 founder and chief executive Paul Lindsay.

“We talked to a few lenders and the main reason is that they lend against an existing origination process that is not geared up to deal with people over 55.

They underwrite loans using a process created by the Financial Conduct Authority that is not designed for what they consider to be vulnerable customers, so they shy away from it. Instead, a lot of lenders in this market prefer to go down the secured route, particularly equity release.”

Right now, over-55s have even fewer

choices. Twenty-three per cent more people than in the first quarter of last year triggered pension drawdown when the COVID-19 pandemic hit. But the average value of those pensions fell by 15 per cent over the same period – harder than after the 2008 financial crash. If ever there was a time for a better option, it’s now.

Just the start Free2’s unsecured loan is the first of a series of products that will be aimed at over-55s. In May, the firm announced a securitisation facility worth up to £200million from NatWest Markets to fund customer loans, and junior debt funding of £105million from a European special situations fund to provide working capital and new customer loans.

Lindsay says the potential market for the unsecured loan product is £50billion, with a target demographic of 7.5 million people. The statistics underline the opportunity – the Office for National Statistics projects that more than 24 per cent of UK people will be aged 65 or older by 2042, up from 18 per cent in 2016. But they’re not idle and many will continue to earn income after state retirement age.

ONS data shows that around 72 per cent of those aged 50 to 64 were working in 2018, compared to only 59 per cent in 1998.

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CUSTOMER EXPERIENCE: LENDING Lindsay, who has worked in financial services since 1986, says there are any number of reasons why an older person would want a lump sum, not least because the bank of mum and dad is staying open for longer as younger generations are less financially secure. Many want to help a son or daughter onto the property ladder or pay for their wedding. And there can be valid reasons why a borrower wouldn’t want that lump sum to come from their pension pot.

Tax is one, another would be the Money Purchase Annual Allowance, which puts a £4,000 annual maximum on money you can put into a pension once you’ve accessed your pension savings. And, of course, any withdrawal is eroding your long-term retirement income. Free2 borrowers must have any combination of annuity, state pension or company pension scheme to be considered for an unsecured loan but, for all of the above, Lindsay says funding a loan from guaranteed income could be a better option than liquidating savings.

“An unsecured loan could be a better alternative to taking your 25 per cent tax-free lump sum from a pension,” Lindsay says.

“In this unfortunate world we find ourselves in, there’s much more pressure on the bank of mum and dad. But another potential area of demand is people who took out interest-only mortgages, which need to be repaid by the age of 65. Instead of taking out another guaranteed product, if they’ve got pension income, our loan could be a better alternative.”

Interestingly, free2’s story did not begin with unsecured loans.

The plan had been to facilitate a new secondary annuities market.

“In 2015, the then Chancellor, George Osborne, announced legislation to allow people who had bought annuities in the UK – prior to pensions freedoms – to be able to sell the benefit of that income into a cash lump sum,” Lindsay explains.

“What was interesting was that 43 per cent of the five million people who had bought them didn’t want to buy an annuity in the first place; it was just something you had to do at that time. I had worked in the

industry a long time and I knew there was no business process to allow people to sell the benefits of their annuity. So, we spoke to the Treasury and created a platform that would allow the auction of these annuities.

“Fast forward a year, a new chancellor came in and the legislation was delayed. But there was still a huge consumer demand. So, we asked ourselves if there was a better way for people to generate a cash lump sum than selling the benefits of an income annuity, which would have been expensive and have tax implications. We realised we could simply lend people the money against their retirement income.”

Financial institutions are not thinking laterally about people in this age demographic and how to design a process to be able to support them

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The result of that thinking is the platform that’s going live now.

So confident is free2 in the automated risk assessment process that, if the borrower dies during the loan term, the debt is written off.

Lindsay says: “We go through extensive steps that are more akin to a mortgage application process,to ensure that the applicant has the assets and the spare income from their guaranteed pension income to be able to fund a loan.

“The next thing we do, which is unique, is have a mandated telephone call to check the consumer understands what they’re about to enter into. This call is powered by a set of questions that are generated by our decision engine but are asked by a human.

“We’ve been working with a university

psychology department that’s been looking at vulnerable customers and we’ve developed a process for generating sets of questions to assess someone’s cognitive status, or find out if they’ve been coerced or are involved in fraudulent activity.

That’s part of our overall underwriting process – no one else does it and I think it will set a new gold standard for dealing with vulnerable customers.”

He’s dismissive of that other cliché that older people can’t handle technology and want to access their financial services through a branch: 96 per cent of free2’s target demographic already use online banking.

Dispelling the myth: 96 per cent of free2’s over-55 market already use online banking

In time, the loan product will be marketed through independent financial advisors as part of inheritance tax planning processes, but the application will remain solely online with help available from staff via email or a phone call if a customer needs it.

“We’re targeting people who are financially savvy, so if they have a particular financial requirement for a lump sum as part of their financial planning process, we’re providing more choice than exists today,” says Lindsay. “A lot of choice for larger amounts of money is only secured, which doesn’t suit many people.

“It’s all about giving people more options in considered decisions. There are lots of financial products available to people under 55 that are not available to those over it – financial institutions are not thinking laterally about people in this age demographic and how to design a new process to be able to support them. So, we will develop a range of products, over a period of time, that are designed specifically, and only, for them.” www.fintech.finance

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COMMENTARY: EVENTS

THE FINTECH MAGAZINE: Physical events were obviously one of the first activities to be suspended when the pandemic started, so can you tell us how RBR’s strategy has had to evolve in 2020?

EMILY CAMARA: RBR has always been, and continues to be, passionate about the value of physical conferences.

Bringing people together and sharing knowledge is core to our offering and, quite simply, you cannot beat face-to-face interaction. Our event partners echo this sentiment and are still keen for us to run physical events this year, if possible.

Therefore, our main strategy has been to push back our conferences to the last third of the year in order to reduce uncertainty and maximise participation.

In addition, we are going to co-locate two of our flagship events right at the

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Strategic research and consulting firm RBR holds a series of annual banking events in the UK and overseas. We caught up with Conference Manager, Emily Camara, to discuss how the company has adapted its event strategy in light of the global pandemic end of the year. With a large number of industry conferences having moved to Q3 and Q4, co-locating brings value to those delegates and partners who are keen to participate in both events and already have a busy schedule planned.

For all of these events, we are working closely with our venue partners to monitor the social distancing situation and ensure that appropriate measures are put in place.

TFM: Co-locating two of your events sounds an interesting strategy.

Which events are being held together, and is this just a one-off?

EC: We have decided to co-locate Self-Service Banking Europe 2020 (SSBE20) and BankSec 2020 (BSEC20).

The events will take place in the Park Plaza London Riverbank hotel on December 9 and 10. At present, the co-location strategy is a one-off because the subject areas are largely separate, but we will seek feedback from all our stakeholders before making a firm decision.

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COMMENTARY: EVENTS

SSBE20 focusses on self-service, fintech and digital banking, while BSEC20 centres on physical and digital security, including self-service security, access control and cybersecurity – and so, while the topics are different, they complement each other well.

It is important to emphasise that the events are not being merged – quite the opposite, in fact. They will retain their individual focus and have separate agendas. There are some delegates and some of our sponsors and exhibitors, however, who have a strong interest in both areas and, for them, there is significant value in co-locating. For others, they can either participate in just one of the events or take the opportunity to find out more about other key banking topics.

TFM: Has RBR considered hosting virtual conferences instead of physical events?

EC: Yes, absolutely, we have been reviewing virtual conferences since well before the current crisis. Given the current uncertainty, we have made a commitment to all our partners for 2020 that if physical conferences cannot happen, we will run a full, two-day virtual conference instead.

While there are aspects of physical events, particularly face-to-face interaction, which are difficult to replicate, online conferences create opportunities to reach an expanded audience and involve speakers who might otherwise not have been able to participate. Features such as video-on-demand allow additional content, and for people in different time zones to watch sessions at a time that is most convenient for them.

TFM: How have RBR’s events evolved over the last few years, even prior to COVID-19?

EC: The event theming is constantly evolving to ensure we continue to deliver cutting-edge case studies and explore the key topics that banks want to discuss.

This is partly why our events attract such a high number of senior executives from banks across the globe. For example, at all our events in 2019, at least half of delegates were bank executives, and more than 40 countries were represented at each UK event.

On the exhibition side of things,

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networking and meetings have become increasingly important. Exhibitors are moving away from simply giving a one-size-fits-all demo and instead are keen to engage with their prospective clients on a deeper level and try to understand how they can help with specific challenges the banks are facing.

The booths themselves are reflecting this – whereas, a few years ago, most booths would be used for showcasing equipment, nowadays it is just as common to see a sofa, coffee machine and maybe the odd screen or two.

The events team at RBR is always aiming to bring in new initiatives in order to keep the events fresh and to provide extra value to our partners. For example, at our co-located self-service and security event in December, we have introduced a feature in the exhibition called Expo Live, giving sponsors and exhibitors a platform to share insights and news with attendees.

We also added an initiative a year or two ago to help facilitate introductions at the booths, which has been appreciated by our partners.

Bringing people together and sharing knowledge is core to our offering… quite simply, you can’t beat face-to-face interaction TFM: You mention that the theming has evolved. Can you expand on that?

EC: The banking industry is rapidly evolving and we strive to reflect that in our events. SSBE, for example, used to focus heavily on ATM technology and strategy.

While those are still important and feature in the event, we’ve branched out to include other key self-service topics such as mobile, internet banking, digital and fintech.

In a similar way, we have evolved the BSEC theming to reflect the key security topics that are high on banks’ agendas.

Several years ago, BSEC largely focussed on ATM security (gas explosions and skimming, for example), whereas it now also explores cyber, branch security and other self-service security issues.

TFM: RBR is also well-known for its research and consulting activities – how do these relate to the conference business?

EC: The various areas complement each other extremely well, first and foremost in terms of content. As we are close to the industry, we are continually following the latest trends and can ensure these themes are reflected in our conference agendas.

We also work regularly with banks around the world as part of the research process, meaning we are already engaged with the most relevant people in the industry who often end up speaking at or attending the events. Similarly, on the sponsor and exhibitor side, many of the organisations that support our events are also clients of our research and consulting work.

TFM: How can readers get involved in RBR’s events?

EC: It’s probably worth summarising our event plans for the coming year.

Self-Service Banking Asia 2020 takes place in Ho Chi Minh City, Vietnam, on September 23 and 24. Like its European counterpart, this event focusses on self-service technology, mobile channels and fintech, but also incorporates some branch and security topics. Then, we have our flagship branch event – Branch Transformation 2020 – which looks at branch design, customer experience and branch strategy and takes place in London on November 17 and 18.

We finish the year with the co-located events we have already discussed – SSBE20 and BSEC20 – taking place in London on December 9 and 10.

There are a variety of ways in which readers can get involved in these events. We are always looking to add interesting bank case studies to our agendas and would love to hear from anyone interested in presenting; we have a range of exhibition and sponsorship packages for companies that would like to promote their brand and meet potential customers.

Alternatively, individual delegate tickets can be purchased.

■ For more information, contact ec@rbrlondon.com or visit www.rbrlondon.com/conferences www.fintech.finance

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COMMENTARY: FUNDING

CROWDPLEASERS What persuades fintech startups and scaleups to go down the crowdfunded route? Veteran money raisers Smarterly and Money Dashboard discuss strategy, paybacks and surprises with Seedrs and Crowdcube

Back in 2018, two British challenger banks acquired unicorn status after successful investment rounds. They were Monzo and Revolut – fintechs par excellence, with similar products and similar visions for the digital future of British wallets and bank accounts.

As well as competing for market share in the growing European fintech scene, Monzo and Revolut had also been competing for a rather special accolade: becoming the UK’s first ‘crowdfunded unicorn’.

In the end, it was Revolut that took the crown, after a Series C investment round saw it raise $250million to quadruple its valuation to $1.7billion in April 2018.

In truth, of course, both Revolut’s and Monzo’s fundraising efforts could at best be described as hybrid. Over the course of their brief histories, they’d paired lucrative professional investment rounds with crowdfunding listings that offered ordinary people the chance to secure equity in their growing firms.

Crowdfunding success stories have been hitting the headlines for nearly a decade now. The Oculus Rift VR headset became an early triumph after raising $2.5million on US-based crowdfunding platform Kickstarter back in 2012, only to be purchased by Facebook two years later – for a whopping $2billion.

Unfortunately, for Oculus VR’s 10,000 initial funders, Kickstarter is a ‘donate and reward’ platform. Those initial investors were rewarded with merchandise, rather than a gigantic equity buyback following the Facebook purchase.

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While Kickstarter and Indiegogo tend to crowd-finance creative projects, London-based Seedrs, and Exeter-based Crowdcube, have both created platforms to help crowdfund explicitly for-profit firms. Both platforms have hosted multi-million pound Revolut crowdfunding offerings, with Crowdcube also helping Monzo make a splash in 2018 when it raised £20million in just two days – including an astonishing £3million in the first 60 seconds after the page went live.

Importantly, both Seedrs and Crowdcube are modelled as ‘fund for equity’ crowdfunding platforms, which means investors have an ongoing stake in the success of the firms they fund. This, in turn, tends to make them superstar advocates for, and users of, the firms they help to finance.

“It’s an incredibly powerful dynamic,” says Darren Westlake, CEO of Crowdcube. “You have investors who become super-referrers, and super-loyal people to your business; they become your advocates and your evangelists, and tell people and refer people.”

As with Monzo’s memorable ‘Golden Ticket’ referral mechanism, this dynamic is all about incentivising customers to go the extra mile to grow the business they’ve backed financially.

Jeff Kelisky, CEO at Seedrs, offers an example of how this dynamic can play out.

“When Oppo Ice Cream raised with us, they signed up to sell in Waitrose. But they’re a small company, so they don’t have the resources to go and police whether Waitrose is actually honouring the contract,” he says. “So, they gave their investors a mission. They said ‘look, next time you go to your local Waitrose, take a photo of where we are on the shelf. We’re supposed to be on the top shelf. And make sure the label is facing forward!’. And they got three things out of that. They got

photos from across the country, their investors felt like part of the journey, and, of course, they all bought ice cream on that visit, too.”

Another beneficiary of Seedrs’ platform, and another British fintech, Smarterly has twice raised through crowdfunding.

Smarterly specialises in workplace savings, enabling employers to help their staff create savings pots direct from their payroll. As the firm’s co-founder, Phil Hollingdale, explains, crowdfunding even appears to work for firms with a B2B product.

“Our business model is B2B, and my perception

You have investors who become super-referrers, and super-loyal to your business; they become your advocates and your evangelists – Darren

Westlake, CEO, Crowdcube www.fintech.finance

was that most investors through these platforms only really invest in stuff they consume on a daily basis,” he says.

“We had a target of £600k, which we raised through my network, and then, through the crowd, we raised another £1million from 570 investors. I was surprised by that, and absolutely delighted!

“We’ve now got about 1,200 investors through the Seedrs platform, so the focus is to get them to become customers, and, for us, because of our business model, that means getting them to become ambassadors for Smarterly and introducing us to their

coming to us to raise awareness, to acquire new customers and also to convert those existing customers into super-evangelists.”

Monzo has reported that its shareholder customers are three times more likely than others to refer the bank to a friend, while gohenry, the crowdfunded financial literacy app for children, has reported that 99 per cent of its shareholders’ children have downloaded the app.

Firms that crowdfund may also benefit from the expertise and advice of their crowd investors. Money Dashboard – the Edinburgh-based personal finance app – has gone so far as to create an investor community portal, facilitating these productive feedback discussions.

Through the crowd, we raised another £1million from 570 investors. I was surprised by that, and absolutely delighted!

– Phil Hollingdale, co-founder, Smarterly

employers, so we can start a conversation with them - that’s worked extremely well for us.”

Clearly, crowdfunding is used as much for marketing and customer engagement as it is for the financial boost itself – indeed, the funding appears, in many cases, secondary to the marketing. “For the companies themselves, they’re not really coming to us to raise money any more,” agrees Crowdcube’s Westlake. “They’re www.fintech.finance

“We benefitted from the fact that we already had a tightknit, passionate base of customers who wanted to get involved with the product, so giving them the opportunity to was great,” says the firm’s Growth Manager, Sean MacNicol. “The investor community is where they can bring up things that they’re not happy about. The skew in our investor base, through Crowdcube, is that they’re people that are already pretty savvy about other startups and companies in our space, so their level of feedback is excellent.”

It’s little wonder that an increasing number of firms – and especially fintechs – are opting to crowdfund as a simultaneous source of working capital to traditional venture capital sources. As well as embodying the ‘democratisation of money’ ethos of fintechs, crowdfunding’s auxiliary benefits, promoting brand loyalty and peer-to-peer marketing, have helped the global crowdfunding market expand blisteringly quickly. Valued at $10.2billion in 2018, the market is forecast to nearly triple – to $28.8billion – by 2025. In Europe, the UK is leading the charge, having captured 73 per cent of that market by 2016.

But how does a successful crowdfunding campaign evolve into this ongoing engagement? For Hollingdale, it’s all about communication. “I made an investment in a business a couple of years ago, through Seedrs, and that particular business is lousy at communicating, and it really frustrates me as an investor,” he says.

“At Smarterly, we’ve worked hard to communicate with investors on a regular basis. If the investors are hearing positive news about the business, and the business is prospering, hopefully that’s going to make them feel good, and therefore start shouting about the business, and help promote it.”

Money Dashboard’s MacNicol is in agreement: “Aside from the actual value of the business, investors really want to see that progress has been made since the first time they invested – they want to see what the company has actually managed to achieve with that initial capital. If they’re comfortable with the fact that the business is moving the right way, they’re probably going to get involved again, because they want to continue being a part of that,” he says.

Registering this additional responsibility, both Crowdcube and Seedrs have taken steps to help their investees communicate better with the crowd that funds them.

“We’ve built an investor relations portal that allows companies to send out regular updates, regular communications on their financials, all of those things,” says Westlake.

“The easier we can make it for companies to do it, the more likely they are to do it.”

Seedrs became the first crowdfunding platform to get Financial Conduct Authority approval, in 2012, and Kelisky has built the obligation to communicate with investors into the fabric of the platform.

“Our approach has been to look at a sort of lifecycle approach to our relationship with the business and the investors,” he says. “One of the obligations, under our legal framework, is that the entrepreneur must keep the investors up to date on a quarterly basis.”

Since crowdfunding platforms are themselves fintechs, sharing a vision of financial access and literacy with the companies they host feels totally intuitive.

And it’s totally delivering the goods. n This interview took place at LendIt Europe in late 2019, part of the LendIt Fintech event series that is due to restart in October. See www.lendit.com/europe/2020/ Issue 16 | TheFintechMagazine

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LAST WORDS: TV REVIEW

Stand-up, fall-down comedy Ali Paterson has spent his pandemic binge watching HBO’s hit hi-tech show Silicon Valley. Here’s what it taught him…

Like many people during lockdown, I’ve been spending far too much time on Netflix. Specifically, anything related to COVID-19 explained, documentaries on disease control and the next big pandemic, with some incredible interviews with people who have made it their life’s work to study what we are now facing.

One common thread seems to connect all of these people. I kid you not, it’s the 1995 movie Outbreak.

Movies and TV shows have tremendous power to inspire and ignite a spark, both positive and negative. For every virologist motivated by Outbreak to defeat disease, you have a world-class d***head who wants to be Jordan Belafonte from The Wolf Of Wall Street. Which brings me back to my guilty binge watch.

I’ve just finished the series finale of HBO’s startup tech culture comedy, Silicon Valley.

For anyone working in the startup scene, this is a must-watch. It follows the highs and lows of working at a startup,

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from seat-of-your-pants MVP to petrifying seed pitches and VC rounds and giddying scaleup, to excessive success and (in some, but not all cases) failure.

Data geek Richard Hendricks is the fictional founder of startup Pied Piper (think about it), which he built (painfully) to launch his data compression app. The aim of Pied Piper is to – ahem – ‘make the world a better place’ and in the final sixth season he and the team finally look likely to realise their ultimate dream: to build a new, decentralised internet.

What’s great about Silicon Valley, especially in the first few seasons, is how it captures the agony and ecstasy of working in the crazy world of startups. In one of the earlier episodes, there is even a visit to a tradeshow, with pitches on stage that could have been lifted straight from some of the early days at Finovate!

But, as in life, it is the characters that shine. Some of the traits are universal across

any industry – from Richard’s hopefulness slowly atrophying into ruthlessness; to Erlich Bachman who wants to be Steve Jobs, but is more of a Sean Parker (we’ve met a lot of super cool people just like this).

You should really watch it because they don’t make any more fun of us than we deserve – Bill Gates Silicon Valley knew from the outset what a rich vein of comedy the tech and VC world could provide – quite literally when it comes to ‘blood boy’ coders (see Season 4) – but especially when set against the crazily wealthy workforce of the actual Silicon Valley.

Ultimately, though, what this show is about… is failure. How to own your failures, grow from your failures, how failing isn’t always OK, except when it is. And that is probably the most Silicon Valley important thing Seasons 1 – 6 to remember Available to stream when entering for HBO subscribers the startup space. or you can purchase individual episodes or entire seasons on Amazon Prime.

www.fintech.finance

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