Fintech Finance presents: The Fintech Magazine 18 by Fintech Finance

ISSUE 18

THE THAT WAS SIBOS 2020 Our roundup of this year’s surprise virtual blockbuster

GET READY FOR IMPACT Ethical wealthtechs on why green is the colour

WHO GOES THERE?

THE ONLY WAY IS UP

What happened when Atom hitched its wagon to the Cloud

DOCUMENTARY EVIDENCE?

Zac Cohen on why ’s risk-based approach to IDV is more compelling than ever

BNY Mellon is proving the case for paperless trade

INSIGHTS FROM Thought Machine ● Atom bank ● Banking Circle ● Cocoa Invest ● Clim8

Freetrade

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Mobiquity ● Santander

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Wells Fargo ● Finastra

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NorthOne

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AIB ● Avaloq

Visa Business Solutions

Helping you and your customers thrive

Panel discussion

Frictionless finance: using data to accelerate and connect businesses Watch the discussion live on Wednesday 7th October 21:00 CET, or on demand afterwards, via the Sibos 2020 Conference Portal. Join Alan Koenigsberg, Global Head of New Payment Flows, Visa Business Solutions, and a panel of leading industry experts as they discuss how data strategies around the world are being leveraged to accelerate and connect businesses. Hosted by EY.

CONTENTS

COMMENTARY 22 The digital touch Peter-Jan Van De Venn of digital consultancy Mobiquity, says the pandemic emphasises the need for banks to create human-centric, digital solutions in imaginative ways

42 HP sauce... the rise of Hyper Personalisation Marcel Van Oost on what he believes will be one of the most prominent trends in financial services over the next few years – and the fintechs making it happen

52 Boom! That was Sibos 2020! The first Digital Sibos, driven online by the COVID-19 pandemic, attracted a record crowd, albeit a virtual one. James Tall tuned in

64 Banks post-Covid: The uncomfortable truth Fintech influencer and publisher of the Digital Banking Report, Jim Marous, discusses the report’s latest findings and questions if the wrecking ball of the pandemic will finally lead to true transformation

73 A year of living dangerously Bank of America’s Head of Global Financial Institutions, Paul Taylor, looks at the heightened need for security and stability, and why established banks are vital right now for business continuity and customer confidence

86 The plastic billionaire and Old Master cash Ron Delnevo, Chairman of Cash and Card Consultants, ponders whether his fortunes would have been better served investing in a priceless work of cards, not art!

KYC & BIOMETRICS 8 Who goes there? Meeting the global identity challenge In a world shifting to digital at lightning speed, identity verification solutions provider Trulioo is helping regulated and non-regulated businesses alike find a proportionate, risk-based, secure response

THEFINTECHVIEW

2020

ISSUE #18

Clim8 is an impact investment wealthtech that cuts through the greenwash to focus on the E in ESG. Cocoa Invest, a halal investment startup, believes there is a moral vacuum at the heart of corporate governance that’s making a mockery of ‘ethical’ portfolios. Stake, meanwhile, can’t understand why it’s so hard for small-change investors to get a foothold in the biggest stock market in the world. Each is addressing a specific investment issue and fixing it in a unique and inventive way – and they all

feature in our extended look this month at a sector that has itself continued to attract big dollars during COVID-19. Their success speaks volumes about society’s changing attitudes and priorities – shifts that will be facilitated by fintech as it builds a Sue Scott, Editor better tomorrow. Did you recognise last issue’s ‘spine tingler? "If one is white passing, one benefits from white privilege" – Klarna’s Nina Mohanty

Catherine Wines, WorldRemit It was with sadness that we learned of the death this month of one of the pioneers of the mobile remittance industry, Catherine Wines. Co-founder in 2010 of WorldRemit, with Ismail Ahmed and Richard Igoe, Wines (right) helped make low-cost, simple-to-use money transfer services a reality for thousands of migrant workers who hitherto had relied on relatively high-cost, slow cash transfers home. She understood how putting financial services literally in the palm of your hand could have a transformative impact on the lives of individuals and their communities. Her commitment to inclusion and diversity was reflected in the work she did beyond her board role at WorldRemit, not least in encouraging disruptive startups as a judge on Tech Nation’s fintech programme. A true fintech hero.

8 52

13 What’s that you say? How Nuance voice biometrics is supporting the pandemic’s unsung heroes at call centres around the world, including Santander UK

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22 Issue 18 | TheFintechMagazine

Emerge Better

S A FE . INNOVATIVE. AGILE. C O NNECTED.

We can help support your strategy. Let’s talk. bottomline.com/ paymentsmodernization

The importance of payments modernization has never been more urgent in addressing new customer behaviours and expectations. We have the opportunity to improve our organizations. In our world, that means improving the way we help our customers pay and get paid – the way we engage with our customers and the way we protect them against fraud. The modernization will be different for every payments organization, but this much is clear – manual and paper-based payments and analog banking processes simply aren’t agile or resilient enough for such an important function.

CONTENTS

38 47 34 22 17 Cracking the bio matrix Is friction-free banking possible? We look a how AIB is accelerating the customer journey while strengthening security

20 You are the key NatWest Bank’s Head of Effortless Payments on why he believes biometrics will eventually be people’s technology of choice for identification and access control

WEALTHTECH 25 A Stake in the future Online trading platform Stake is on a mission to give a new generation of ‘sofa investors’ access to the world’s biggest stock market

28 Wealth and values As Cocoa Invest gears up for the launch of its ethical investment app, Founder Omar Shaikh reflects on faith, money and doing the right thing

31 Power to the people Freetrade was keen to break up the oligopoly that it saw operating in UK stockbroking when it launched in 2015 – 250,000 ordinary users later, it’s still finding ways to change things

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34 Time to strike it rich? Like many online trading platforms, AvaTrade has seen a surge of activity as forces – not least a global pandemic – combine to create huge market volatility

36 What’s brewing? What investment platform Wealthify has in mind for the Welsh startup

38 Clim’ing out of a crisis The team at sustainable investment platform Clim8 Invest have their eye on one prize, and are cutting through the greenwash to reach it

40 Stacks of potential A new-found interest in investing online, and a determination to take control of their finances, is driving India’s digitally-savvy millennials to demand a new kind of service. Stack Finance, knows exactly where they’re coming from

INFRASTRUCTURE 44 Up, up and away Having captured the Cloud, UK-based, mobile-only Atom bank has begun a new stage on its journey

47 Redefining the future of finance Collaborative fintech has a vital role to play in changing the world for the better, and Finastra can play a key role in helping to make that happen

50 One step at a time Thought Machine Founder and CEO Paul Taylor believes Cloud-hosted banking infrastructure is irresistible. But how, if you’re an incumbent, do you achieve it? The answer is ‘carefully’

NEOBANKS OF THE WORLD 57 Building crypto bridges Nick Jones, CEO of Zumo, explains why his firm’s crypto-to-fiat payments wallet is a crucial stepping stone to mainstream cryptocurrency adoption

Issue 18 | TheFintechMagazine

THE BRANCH OF THE FUTURE BECOMES REALITY

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CONTENTS

60 62

70 Getting your clicks

60 A magic formula Teaching kids money management is a challenge for families across the world. US-based Greenlight is using its unicorn status to reach more of them

62 Making the small mighty Challenger business bank NorthOne wants to help SMEs not just survive but be recognised for the heroes that they are

The etail explosion spurred on by COVID-19 is a golden opportunity for the industry – if it can collaborate over payment security, says G+D

DIGITAL TRANSFORMATION 77 The rise of modern banking Søren Skov Mogensen, Chief Growth Officer for infrastructure provider Banking Circle, believes dramatic and rapid changes to consumer habits during COVID-19 has helped bake new models into banking

PAYMENTS 66 AIR we go again! We discover more about version 2.0 of SmartStream’s groundbreaking reconciliations program from CEO Haytham Kaddoura

80 The door is now 'open' The Avaloq.one platform has seen increased demand from all parts of the banking and wealth management industry as fintechs and institutions address issues exaggerated by the pandemic

68 P is for payments Next year, the Nordic countries will introduce a new, crossborder payments system that replaces domestic clearing houses. It’s driven by the region’s six big banks, including SEB’

83 And now for the recovery Lloyds Bank is adopting an API-first approach, and working ever-closer with fintechs, to help build a path out of the crisis for business

ARTIFICIAL INTELLIGENCE 89 Smart thinking Can AI really make running reconciliations as intuitive as a phone app? Just watch, says SmartStream AIR’s Victoria Harverson

92 A is for Augmented Artificial intelligence is becoming ‘part of the business fabric’ at Wells Fargo – it’s a utility as essential and anonymous as electricity. For now, at least...¶

95 Trading priorities BNY Mellon’s Joon Kim considers the potential for AI and other digital technologies to transform the trade finance industry

LAST WORDS 98 Broken banks: The rise of Starling We all think we know the Starling story, but if you’re a fintech junkie, Anne Boden’s short history of broken banking and how she fixed it is still compulsive reading

THEFINTECHMAGAZINE2020 EXECUTIVE EDITOR Ali Paterson

US CORRESPONDENT Jacob Bouer

EDITOR Sue Scott

ONLINE EDITOR Eleanor Hazelton Lauren Towner

ART DIRECTOR Chris Swales

PHOTOGRAPHER Jordan “Dusty” Drew

SALES TEAM Chloe Butler Tom Dickinson Karen Estcourt Serena Khemaney Shaun Routledge

VIDEO TEAM Lewis Averillo-Singh Laimis Bilys Lea Jakobiak Daryl Kotze Douglas Mackenzie

FEATURE WRITERS Hannah Duncan ● David Firth Tracy Fletcher ● Andrew Gaudion Martin Heminway ● Alex King Doug Mackenzie ● Natalie Marchant Sean Martin ● Fiona McFarlane Martin Morris ● Sue Scott James Tall ● Swati Sanyal Tarafdar

ISSUE #18 Fintech Finance is published by ADVERTAINMENT MEDIA LTD. Pantiles Chambers 85 High Street Tunbridge Wells, TN1 1XP

IMAGES BY www.istock.com PRINTED BY LA Printers Ltd "PROUDLY NOT ABC AUDITED"

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

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Issue 18 | TheFintechMagazine

KYC & BIOMETRICS

Who goes there? Meeting the global identity challenge In a world shifting to digital at lightning speed, identity verification solutions provider Trulioo is helping regulated and non-regulated businesses alike find a proportionate, risk-based, secure response. Here, Chief Operating Officer Zac Cohen tells us how COVID-19 has triggered a seismic change as governments, businesses and individuals balance what seem to be the opposing challenges of staying solvent and staying alive. Consumers have transformed their behaviour to keep safe from coronavirus infection, maintaining their basic supplies and general lifestyles during repeated lockdowns by making a dramatic shift to digital everything. As a result, bricks and mortar shops, hospitality and leisure providers have had to pivot at unprecedented speed, to provide take-away, online, streamed and click-and-collect options, to salvage some remnants of the success they previously enjoyed. To enable this, they’ve completed years-worth of transformation projects to introduce secure ecommerce capabilities in a matter of weeks. It’s tough for existing financial service providers, too. They too are dealing with a huge increase in digital transactions – and a commensurate rise in fraud – all while furiously trying to keep pace with the seamless experiences that customers are being offered elsewhere, ever-

TheFintechMagazine | Issue 18

mindful, of course, of the regulated environment they’re working in. All of which spells a unique opportunity for identity verification solutions provider Trulioo, which is stepping up to the challenge of a demand never seen before. Billing itself as a one-stop-shop for secure customer onboarding and authentication, it has grown to serve hundreds of small, medium and large clients in 195 countries and counting – it recently extended its operating footprint to Pakistan. Trulioo provides them with everything from initial user experience strategy and design, through to solution implementation via its extensive range of plug-and-play solutions, and supporting analytics. Initially serving regulated industries, including financial services, the past year has seen Trulioo bolt on non-regulated sectors like retail, marketplaces and community platforms. And, boy, is it glad it did, given the demand for ecommerce over the past eight months, which has driven increased need for Trulioo’s secure online identity verification solutions. Its proportionate, risk-based approach to ID verification is a flexible, modular service from which clients pick what's appropriate for them, depending on their regulatory status, where they are in their business lifecycle, which demographic/ channel they're dealing with, and where in the world they are onboarding. And all this against a backdrop of increased competition and closer regulatory and media scrutiny, linked to high-profile cases where bank controls in particular have spectacularly broken down. The company’s Chief Operating Officer Zac Cohen gave The Fintech Magazine’s

Editor in Chief Ali Paterson his take on this turbulent marketplace and what Trulioo is doing to help organisations of all shapes and sizes, adjust to it both now and for the future. THE FINTECH MAGAZINE: What have been the significant ID and fraud prevention developments of 2020 and how has it impacted Trulioo? ZAC COHEN: Businesses have had to deal with an incredibly fast shift to offering their products and services through digital channels. That creates lots of pressures around updating their systems and tailoring their services to this new, online-only reality. Meanwhile, consumers, forced into this online-first environment, have also faced changes related to privacy and security, how their user data is being leveraged in that online world, and how the companies they interact with protect it. Many large banks already had systems or processes in place that they’d built, but are having to accelerate development because, whereas a portion of their services might previously have been available through a digital-only channel, now they all need to be. And, with more organisations offering online-only vehicles, competition for a good user experience is much higher. Banks and neobanks have to make sure their onboarding workflow is high-calibre, or they’ll lose customers. Neobanks and digital-first banks, meanwhile, had an advantage, up until now. They were more attuned to leveraging technology first, taking the entire workflow around the first interaction with a new consumer to an online environment. What’s been changing is the dynamics and demographics of the environment itself. www.fintech.finance

We’ve expanded the number of customers using our services, and the use cases, by a wide margin. We’re now helping non-regulated institutions as well as these regulated ones. A lot of new, non-compliant customers have come to us looking at risk, fraud prevention and how they can create a safe ecosystem for users, and we’re building that for them. Basically, when it comes to identity verification, we’ve shifted from a nice-to-have to a must-have digital world for organisations and consumers. Businesses have had to upgrade their digital onboarding applications quickly, while consumers are having to use more online services and to use their personal information more readily, raising concerns around how organisations are protecting it, and how much users are willing to give at any point in time.

towards privacy and processing controls for onboarding consumers in a digital world. Demographics have also changed. We’ve seen a younger generation come online, and a more global environment where institutions have had to look at their rollout and technology stacks to address changing jurisdictions from a central console. These two major shifts have forced organisations to rethink how they manage onboarding and their identity verification stacks, to continue to provide a quality service, worldwide. Because, wherever they are, consumers resist too much friction in the process, or it

In terms of identity verification, we’ve shifted from a nice-to-have to a must-have digital world for organisations and consumers TFM: Beyond the immediate crisis, what are the biggest challenges to delivering ID verification effectively and maintaining a robust process, especially when scaling crossborder? ZC: It’s very rare, these days, that organisations’ long-term plans involve a single country. Most neobanks that launch in the UK or Canada, where we are based, for example, have plans for expansion outside those markets in time. So, they need to make sure they can scale their process and take advantage of the global economy easily. There are two things to note here. Regulation has created a huge shift www.fintech.finance

being incredibly slow. They expect a high-value service quickly, that explains to them why they’re going through a certain process. So, once a company builds a compliance and onboarding workflow that keeps users safe and reduces fraud, they need to be able to pattern match that and scale it out through multiple countries, as they go. We’ve had a tonne of success with this.

Access for all: Fast and seamless IDV is key to financial inclusion, says Cohen

Issue 18 | TheFintechMagazine

KYC & BIOMETRICS We’ve purpose-built our technology to make sure we can satisfy identity verification requirements for everything from a single person startup to a global organisation with tens of thousands of employees in countries worldwide. The need for this will only increase with ever-more rigid regulatory requirements, and fraud that’s increasing dramatically with the COVID-19 pandemic. TFM: Trulioo says it takes a modular, proportionate approach to identity verification. Can you talk us through it? ZC: During the account opening process, it’s all about risk mitigation and compliance obligations. Then, organisations need to look at how much friction they’re placing on the individual trying to set up. Too much and they might abandon the process; not enough and they risk increasing fraud. We recommend our customers take a risk-based approach, using specific techniques for initial authentication then, as the individual does different activity within an application, like trying to make a large transfer or open a different service within an organisation, layering in additional protocols to make sure they’re continuing the identity verification process. In the banking world, we call that ‘perpetual KYC’, which is based on different triggers that change or add to the identity verification process as someone goes along, rather than trying to force every single protocol into the initial authentication stage and risk the user abandoning. Every single new technique you layer in will reduce the potential that the individual signing up is not who they say they are. This could be just verifying their name, address, date of birth or other attributes through a reliable database; or also collecting information from photo ID, having the individual take a selfie for image comparison or asking them to verify their bank login. However, there are low-risk and high-risk applications, so businesses need to understand their user onboarding workflow to ensure they’re not putting low-risk individuals through useless procedures and vice versa. TFM: How useful is biometrics as an authentication technique when adopting this risk-based, layered approach? Of the authentication options, biometrics is definitely an effective product to use. I wouldn’t say it’s the lowest friction,

TheFintechMagazine | Issue 18

although friction all depends on the use case and user. The comfort users have with one process or another changes over time. Whereas, 15 years ago, people were nervous about putting any type of information online, nowadays they have varying degrees of comfort with submitting a passport photo or something similar. It’s critically important that organisations make sure their technology stack is versatile and dynamic enough to allow for these changing attitudes, and that they’re transparent about the information they’re collecting and the security protocols that are in place. Nothing is worse for reputational risk than breaching personal information or, from a consumer’s perspective, more important than safeguarding their information and only using it when absolutely required.

There are low-risk and high-risk applications, so businesses need to understand their user onboarding workflow to ensure they’re not putting low-risk individuals through useless procedures and vice versa

TFM: Can you explain Trulioo’s marketplace approach? ZC: There are many different point solutions that can address a single use case for identity verification or a certain type of fraud. However, when you look at the broader activity of organisations today, and those that operate in multiple countries, with different demographics and sometimes dozens of different use cases, point solutions begin to break down very quickly. Trulioo has always taken a marketplace approach. Our platform allows a single

application programming interface (API) access point to dozens of different products and services, and hundreds of different data partners on one platform – a dynamic solution to changing use cases they might have at any point in time. Then there’s our intelligence layer: information we’ve learned from analysis and managing our network. This means we can make strong observations and recommendations for our customers, in terms of best practice. The future, for Trulioo, is to be the single most robust identity marketplace in the world, and we’re becoming that by releasing more products and services that can answer the identity question in a modular way easier. We’re helping businesses achieve a frictionless experience and launch in any country they wish, by applying the right type of product at the right time. TFM: How do we balance financial inclusion and onboarding people with little or no ID seamlessly? ZC: One change we’ve identified is individuals moving from country to country, area to area, and organisations launching their products and services to a wider net of individuals. We want to provide access to the online economy for people who are new to a country, or individuals in developing countries that might not have the same access to a passport, birth certificate or other documentation that most of us take for granted. This is a very important challenge for the identity industry overall and, in our view, the best way to approach it is to expand the types of information you can leverage to perform verification. Three, four or five years ago, we would not have used a mobile phone number as a main identifying attribute for an individual or have had the ability to accept a residency permit as opposed to a passport or birth certificate. These kinds of new and different attributes reflect the changing dynamics and demographics of people that are new to a country. We can now leverage a single technology stack as part of a risk-based approach to prove that individual’s identity. Financial inclusion is very close to Trulioo’s heart and we love working with organisations that are trying to meet that challenge head-on. It’s all about participation and accessibility, regardless of who someone is or where they’re from. www.fintech.finance

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KYC & BIOMETRICS

Santander UK is using voice biometrics to improve call centre experience. Its Strategic Change Manager Gavin Smith told us how When lockdown hit the UK, bank customers hit the phone. Call centres became the banks’ front line as millions of people, fearful for their financial future, inundated staff with requests for mortgage and payment holidays. Themselves under siege from the pandemic, many bank centres were left with a reduced number of operatives fielding the most challenging calls of their career from makeshift offices in kitchens and bedrooms. The logistical challenge was immense and, notwithstanding the crippling workload, which led, in the early stages of the crisis, to frustration and delays, call centre staff across the industry rose to it magnificently. They were among the unclapped heroes of the hour. In a crisis, call centres provide what no digital experience ever could: the warmth of human contact – a listening ear, an empathetic response. But not just during a global pandemic. Between 2017 and the depth of the crisis this summer, the number of active telephone banking customers the world over has almost doubled, according to figures released in September by Global Data, indicating that digital channels alone are not enough to resolve customer

problems. The recently published UK Banking Channel Forecast by Business Intelligence, which looks at where banks should focus staff resources and investment over the next five years, believes that trend in demand for telephone services will only continue, the pandemic having demonstrated the continued preference for human assistance. If that is the case, bosses who saw contact centre capacity at some banks fall as low as 60 per cent due to fewer UK staff and the closure of centres overseas, will be looking for ways to maximise the time available to each call. And, if the forecasts are correct, then telephone banking demands as much attention as digital when it comes to creating smooth customer experience. Santander UK began addressing those twin challenges a year ago with the introduction into call centres of VoiceID, a system that leverages Nuance Technologies’ fraud-preventing biometrics. A version of the software had already been successfully deployed by Banco Santander

Mexico in response to the government’s more restrictive identity and verification rules for authenticating bank customers there. More often than not, customers forgot the complicated sequence of PIN numbers, leading to 60-65 per cent of 1.4 million customer calls failing at first try. On average, agents then spent 72 seconds on a more in-depth verification process, eating in to both their time and the customer’s. Nuance’s VocalPassword solution cut that to 30 seconds. “Biometrics enable a seamless experience by allowing our contact centre colleagues to know they are speaking to the correct person so they can focus on providing them with the service they expect from us,” says Gavin Smith, strategic change manager at Santander UK. “We have a fantastic customer journey where we use the telephone number that the customer is calling from to identify them, and their voice to verify them. We use multiple strategies to verify our callers, which means we don’t rely solely on the biometric for identification. This ensures we can be confident the caller is who they say they are, but it’s a much faster, easier and secure experience than keying in ID numbers and PINs or going through several questions.”

What’s that you say? www.fintech.finance

Shout out to call centres: They came to the fore in a crisis – and it looks like they’re here to stay

Issue 18 | TheFintechMagazine

KYC & BIOMETRICS Santander UK customers who have enrolled in VoiceID are asked to verify themselves once by repeating the phrase ‘at Santander, my voice is my password’ when calling in. It’s matched to a stored ‘voiceprint’, created during their enrolment, satisfying the ‘something they are’ element of Secure Customer Authentication, the phone on which they’ve made the call being ‘something they own’. Although customers can elect to enrol themselves in VoiceID, it can be a challenge making them aware of the service, says Smith. “Our biggest biometrics and authentication challenge is finding the best

New wave: Voice biometric technology is becoming more intelligent

way to register our customers quickly and conveniently for voice biometrics. Customers don’t tend to call us specifically to register their voice print. We are determining a way to register them without diverting from the original purpose of their phone call to us, and minimising the amount of time they need to spend on the call,” he says.

Acceptance increasing? According to research released this summer, customer acceptance to bank use of biometrics is growing. When logging into a bank app, 48 per cent said they would use a fingerprint scan, 25 per cent said they would use a facial image, and 23 per cent would enrol a voiceprint. Only 13 percent said banks should never collect biometric data, according to FICO. In fact, 71 per cent said they would rather provide biometric data to banks for security purposes than employ usernames and passwords. It indicates that, at some level, customers are conscious that they are often the weakest link when it comes to protecting their

TheFintechMagazine | Issue 18

accounts: more than 20 per cent admitted to having between two and five reused passwords for all financial accounts, while one in 20 have just one for all of them. Interestingly, more than seven out of 10 said they were happier providing a biometric print to a bank than a government agency. (In Mexico, Banco Santander has infact already used its voice identification technology in partnership with government agencies to speed up state workers’ applications for pension funds). The FICO results are in contrast to a survey carried out just a year ago by

biometrics – by speaking aloud a voice biometrics phrase – is the easiest and most secure way to do this.” Voice biometrics belongs to the group of biometric technologies that analyses not just physical but also behavioural traits. When Santander customers make an imprint of their voice, the technology is identifying more than 100 behavioural and physical voice characteristics, such as pronunciation, tone and pattern, to create an encrypted record. And, as with all machine learning, it’s getting more knowledgeable by the day. Nuance, for example, claims that its system should allow for someone aged 20 to create a voiceprint and still be using it when they are 80 because the technology will understand the aging process and maintain its integrity. The voicetech provider is now using deep learning to improve recognition further, using only a small amount of labelled data. Its technology is used widely across industries handling sensitive personal information, including health where it is active in contactless consultations, and financial services. Among the latter, National Bank of Australia (NAB) is aiming to enrol 250,000

Our approach is to let customers know we have a shared responsibility to keep their money safe. VoiceID is the easiest, secure way Paysafe Group, which found that 56 per cent of consumers in North America and Europe had concerns about biometrics and 81 per cent preferred a traditional, password-based approach. “Our customers in the UK have reacted positively to voice biometrics,” says Smith. “If a customer doesn’t fully understand how it works, we find that investing time in answering their questions in a way they understand, free from technical jargon, really helps them. The number of customers registering for voice biometrics is increasing, which is a good indicator that they are starting to embrace this technology. “We aim to strike a balance between security and good customer experience,” he adds. “Our approach is to let our customers know that we have a shared responsibility to keep their money safe, and that taking a few seconds to register for VoiceID voice

customers in its own VoiceID by the end of this year, having launched it in November 2019. The Nuance Gatekeeper technology behind it not only matches the caller against the voice imprint on record, but crosschecks against the device being used, geolocation, and uses liveness detection to ensure the caller is not a recording or a voice synth. Across all its biometrics products, Nuance claims that with eight billion successful authentications yearly, it has prevented more than $2billion of fraud. “In future, I believe you will see more of an omnichannel strategy with a range of different biometrics being used across telephone, digital and in branch,” says Santander’s Smith. “As the technology develops, and customers become more familiar with and trusting of it, banking will become easier and even more accessible for everyone.” www.fintech.finance

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KYC & BIOMETRICS

Cracking the bio matrix Is friction-free banking possible? Fergal Coburn, Chief Digital Innovation Officer for AIB, discusses how it’s accelerating the journey for customers while strengthening security with biometrics As every bank customer knows, security is usually the enemy of speed. However, although online and mobile communications have enabled swift and easy access to a wide range of financial services, security must never be sacrificed to convenience. Hence the development of strong customer authentication (SCA). Now that security has been forced to catch up with technology, the challenge is to protect customers without losing the benefits of digital transformation. In other words, how do you tighten controls without introducing friction to banking and undermining user experience? For Allied Irish Bank (AIB), the largest retail and commercial bank in Ireland, the challenge is being met through transformation programmes led by Fergal Coburn, AIB’s chief digital and innovation officer. Coburn has a wide-ranging role that spans both retail and commercial needs. As he explains: “I cover all our digital www.fintech.finance

channels and customer segments, including mobile, internet banking, our payments and cards development products, open banking services and, particularly, our future application programming interface (API) capabilities.” Although the deadline for complying with eCommerce SCA – part of Europe’s revised Payment Services Directive (PSD2) – has been progressively pushed back, with the latest extension due to COVID-19, there will be no escaping the new security regulations. SCA means that the vast majority of online card payments in the European Economic Area (EEA) must satisfy two-factor authentication. The need for transactions to meet two out of three possible checks (something you know, something you possess and something you are) has increased the possibility of friction. ‘Something you are’, also known as the ‘inherence factor’, is best served by biometrics, such as fingerprint, voice or iris recognition. When it works as intended, biometrics is a swift and seamless solution. And, Coburn says it must be applied more widely if the industry is to ensure that SCA doesn’t become a drag.

The alternative, knowledge-based solution – or password approach – is not only clumsy and time-consuming, but passwords are also easy to forget and often have to be reset. And that, as Coburn points out, is becoming more demanding because of the different password standards and characters that are required. “Biometric techniques – face ID and touch ID in particular – can remove a lot of the friction, although there are many solutions and it’s difficult to always know which is the best to apply,” says Coburn. Is there also a reluctance to use biometrics because of privacy concerns? “Trust is a factor,” he agrees, “and the latest research suggests that only one in three people is comfortable using biometrics.” But the advantages are hard to deny. “You don’t have to reset biometrics,” he says. “It’s a control that’s fixed and unchanging, and it’s detached from the service you’re using. Traditionally, both the service you use and your authentication credentials are stored together. Now, an important separation is happening.” Because biometric recognition is seamless and instant – no PINs to remember and key in – it provides a positive user experience. Issue 18 | TheFintechMagazine

KYC & BIOMETRICS AIB is pursuing a number of biometric initiatives. One is in relation to its mobile app, which has almost 30 million logins per month, with about 13 per cent of those coming through a biometricauthenticated device. Coburn says this is bound to grow, since more devices now include face or touch ID, which is particularly helpful for SCA. The bank has also implemented voice authentication. “We’re the first company in Ireland – in any industry, not just banking – to implement voice ID,” says Coburn. “In the past year, 200,000 of our customers have enrolled for this service. If you phone AIB, your voice is identified and you have immediate engagement with our staff. It removes 20 or 30 seconds from a call – the frictional bit that has no value for customers and is a chore.” Coburn says that AIB’s biometric solutions, particularly voice authentication, have not led to an increase in fraud, which also means it’s helping to build trust among customers. The bank plans to extend voice authentication into AIB’s mobile app, to open up the service and make it more seamless and user-friendly. Customers will be prompted to say a phrase, which will be authenticated and allow immediate access. Coburn believes it is possible to balance security with speed and accessibility, and still meet customer expectations for convenience. But design is critical, he says. “You achieve the right balance by looking closely at the customer journey, retrofitting security checks where they’re essential, and making them intuitive. If the balance is wrong, there’ll be low take-up, lack of trust and frustration. People will revert to what’s familiar and trusted, such as passwords.” AIB works with third-party experts to ensure that doesn’t happen. It used German company IDnow, an artificial intelligence (AI)-powered ID verification specialist, to develop its mobile service. IDnow has built security across hundreds of institutions, says Coburn, and acts as

a ‘huge accelerator’ for the bank. “IDnow is a partner that understands this technology space,” he adds. “That gives us a platform to develop biometrics, with customers logging in to AIB via face or voice recognition and benefiting from video calls. There may be a little friction, but it’s better than having to go to a branch. “Moreover, as near-field communication (NFC) develops, we’re going to be matching face IDs with information stored in digital passports, which will remove a whole load of friction around onboarding but still be able to apply robust security.” It opens up the possibility of banks adding a whole new revenue stream: as identity-as-a-service (IDaaS) providers.

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No one left behind As technology advances, Coburn acknowledges there is a danger that some

Facing the future: Biometrics will be essential to security and usability, says Coburn

Biometric techniques – face and touch ID in particular – can remove a lot of friction. It’s a control that’s fixed and detached from the service you’re using

biometric verification. We want a versatile and secure tool that allows you to verify your identity, whatever the circumstances. “Say you’re an AIB customer and you’ve lost your card. A Google search will take you directly to a feature that will freeze the card for you. If you have a biometric phone, you can instantly activate that service. In future, all our banking services, such as resetting PINs, freezing cards, taking out personal loans and doing fund transfers, will be done seamlessly and securely with help from biometrics.”

“As a bank that probably nearly half the population of Ireland now uses and accesses, it gives us a huge opportunity to add value to our customers by being an identity provider for them,” says Coburn. “Things like IDaaS are really strong valueadd services banks can begin to offer their customers, particularly banks with a large share in their home market, where they have a significant cohort of the population. Becoming their trusted partner for identity is another sticky factor and reason why customers shouldn’t want to leave you.” For now, the goal is to remove friction at every point where the bank interacts with a customer, be it when talking with a member of the bank’s staff or using a digital channel. “Take our mobile banking app,” says Coburn. “It’s almost seamless if you have face ID. That’s what we expect from

people, particularly the elderly, will become ‘disenfranchised’ because they are not comfortable with the user interface. For these more vulnerable customers he says AIB will soon be introducing a range of specific solutions. Looking ahead, he sees a convergence of standards such as FIDO2 and OpenID Connect as being vital for the widespread adoption of biometrics. Equally, he believes large Cloud providers will make AI accessible to companies and service providers worldwide, helping to build biometrics and other advanced ID solutions faster. However, trust and privacy are still issues, particularly in Europe, which will mean slower adoption compared to other parts of the world. That major banks will have to work harder to attract and keep customers is undeniable: some have lost thousands during an unprecedented period of demand for digital services. AIB fared relatively well in that regard, compared to many others during the crisis: maybe Coburn’s ‘sticky’ strategy is working. www.fintech.finance

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KYC & BIOMETRICS The way to pay: Biometrics may be the only viable method

You

A RE

the key

Biometrics are playing a key role in NatWest Bank’s retail payments strategy. And, according to David Crawford, Head of Effortless Payments, they will, eventually, be people’s technology of choice for identification and access control Bank executives often need business cards the size of a building to explain their purpose in life – and then it’s not always clear from the job title. So, David Crawford’s has a refreshing simplicity. Head of Effortless Payments at NatWest Bank precisely explains his mission: to take the hard work out of making transactions for retail customers – and much of that is being achieved with the bank’s pioneering use of biometrics.

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Making payments quick, easy but secure enough to satisfy tougher Secure Customer Authentication (SCA) requirements being introduced under the revised Payment Services Directive (PSD2), is the juggling act that all banks are going through as the legislation makes them responsible and liable for ecommerce payment fraud. SCA, which must be implemented by the end of 2020 for payment institutions in EU member states and in September 2021 for the UK, is also occurring at a time when contactless payment use has rocketed during the COVID-19 pandemic. Crawford and NatWest believe the answer to better security lies in using customers’ biometrics rather than relying on traditional security measures like PINs, passwords, or even signatures. Back in 2018, the bank teamed up with Visa and card manufacturer Gemalto to be the first in the UK to successfully pilot a fingerprint-activated debit card, which allows spending up to £100 per transaction. A year later, and in association with

Mastercard, it successfully trialled a fingerprint-activated credit card and, moving away from cards altogether, it has also developed a prototype fingerprint-activated payment fob. In August 2019, it started a three-month trial into voice-activated banking with 500 of its customers using Google smart speakers. The results revealed that customers were happy to use voice banking for everyday tasks, like checking balances or switching funds between accounts, but were less comfortable using it for more complicated purposes, such as setting up mortgages or pensions. Underscoring its potential benefits were a cohort among the trial group of visually impaired or physically disabled people, who were the most enthusiastic about embracing the technology for all their banking needs. Crawford admits that the general public’s continuing unease about allowing their biometric data to be stored remains the single biggest challenge to overcome. And www.fintech.finance

he’s probably close to putting his finger on it when he says: “The more we talk about biometrics to customers, the more we’ll potentially alienate them.” Because evidence suggests that when the power of biometrics is, literally, put into a customer’s hands, any reservations they had dissipate. “Customers have loved the experience of being able to do things through biometrics and, largely, that’s because they don’t really think of it overly as being biometrics,” Crawford explains.“What customers actually see is the extension of contactless. Customers already really like contactless – we know that – and, particularly in the current COVID situation, contactless is being used more and more. But during the trial, customers really valued the ability to pay for things over the now £45 contactless limit with their card because it was biometrically authenticated. So, the biometric element was almost a secondary factor to the convenience for them in some respects. In fact, they liked it so much that, in many cases, customers were saying it would be quite good if they could biometrically authenticate transactions under £45. It gives that sense of security, that if someone were to take your card, they can’t even pay for a Mars bar with it,” says Crawford. “Some of the other things that customers loved about it are not the things you might’ve thought. A good example of that was an LED light on the card that confirmed whether the authentication had been successful or not: it flashed up green for yes and red for no. There was a real wow factor in having an LED on your bank card, telling you if the payment had gone through.“ Questions were raised during the trial over security: what would happen if criminals resorted to copying someone’s fingerprint using sticky tape - Mission Impossible-style – or even (more sinister) by acquiring fingers. “There two things I would say to that,” says Crawford. “One, there are easier ways of a fraudster making £100 than having to go to the trouble of chopping off your finger. And the second is that the biometric sensors are a lot more sensitive than that – they actually are able to read subdermally, not just your fingerprint, for example, but the blood vein patterns underneath your fingerprint. So they can be incredibly sensitive, in terms of what they pick up.” Other European banks have also carried out trials with biometric credit and debit www.fintech.finance

cards, notably French bank BNP Paribas, which is now in the process of rolling out biometric cards to up to 15,000 of its customers in a partnership with Mastercard and Gemalto. So will NatWest follow suit? Crawford says that decision has still to be made due to the production costs of the cards in their existing form and the current low level of merchant acceptance in the UK. Work is also continuing on the payment fobs and he signals that a third form of biometric wearable will soon be revealed. “In some respects, it was strange that we started off with the card because it was probably the more difficult to do. But it was very popular,” he says. It was also very expensive for the bank. “What we have to consider is, firstly, if we did it for every card, can we make it cost-effective? And, secondly, if that is the customer’s main card, their main payment device, we need to see better merchant acceptance than we are seeing today. Those are the two factors when weighing up whether it’s the right thing to do, going forward. But it was a really good test and we learned a lot from it.”

The more we talk about biometrics to customers, the more we’ll potentially alienate them… Customers loved the experience of being able to do things through biometrics, largely because they didn’t really think of it as being biometrics The bank also conducted trials of a biometrically enabled key fob that could make payments. “It was just a way of testing something away from the card format – the kind of thing that you might use when you’re out running, for instance, and just want to leave your card, possibly even leave your phone, behind. Does that work? “Now we’re in the third phase of looking

at other forms of wearable. Hopefully, by the end of this year, we’ll be able to talk about our next steps in the world of biometric wearables, and we’re very excited about that. The whole area around digital ID, various other biometric ways of authenticating someone, and using anti-impersonation methods when opening an account, are all things we’re looking at.”

Crosshead to break copy There is another, important and growing area in which biometrics are deployed, and it has to do with behaviour. Behavioural biometrics use machine learning to build up profiles of ‘normal’ patterns of doing things, which are, tailored to an individual – it could be the way they hit their keypad for instance, which device they choose to make a transaction from, or the sequence in which they do it. Crawford believes that these background programmes could play an increasingly significant role in protecting customers’ accounts from unauthorised use. Since early 2020, the bank has used ARIC Risk Hub platform from behavioural biometrics provider Featurespace for transaction monitoring, which reported NatWest saw an immediate increase in the value of stopped fraud and scams. It also had a significant impact on false positives. The number of legitimate transactions being declined is an increasing issue as regulation and banks’ sensitivity to fraud increases the level of monitoring. As with the Featurespace partnership, NatWest is reaching beyond its in-house teams to come up with solutions. “We have a really good understanding of payments, and the way that customers want to make them; what gives them value, what they like to see, in terms of security,” says Crawford. “But then translating that into the engineering, and coming up with products that meet those needs, is really something that we need a wider ecosystem to help us with.” Looking to the future, Crawford forecasts that technologies such as 5G, the Internet of Things, AI and quantum computing will render keyboards, and therefore PINs and passwords, obsolete – making biometrics the only viable alternative. “It seem to me that biometrics will be the only answer in five to 10 years,” he says. Payments by then, as his title suggests, will be entirely effortless. Issue 18 | TheFintechMagazine

COMMENTARY: DIGITAL ONBOARDING

The COVID-19 pandemic has fuelled an historic shift to digital, as consumers the world over rely on contactless options for everything from essential shopping to managing their finances. Yet, many financial services providers are struggling to meet this surge in demand for digital services head-on, according to research by digital consultancy Mobiquity. It studied more than 50,000 UK customer reviews of banking apps within the Google Play and Apple app stores to see what ‘frictions’ most got people’s goat. Its findings are a wake-up call for providers that haven’t yet taken note of the seismic shift in customer expectations and grasped their digital strategies by the horns. Mobiquity’s Friction Report To Benchmark UK And NK Mobile Banking Apps found the biggest problems surrounded authentication. Almost a third (30 per cent) of digital banking app customers experienced issues logging into apps through their devices. One in five (20 per cent) had issues with username and password or passcode authentication. However, customer service also left a lot to be desired, with almost a quarter (24 per cent) of customers waiting too long for it and a fifth (22 per cent) feeling their issues went unresolved. Mobiquity’s vice president of global financial services, Matthew Williamson,

Peter-Jan Van De Venn, Strategy Director of digital consultancy Mobiquity, says the pandemic emphasises the need for banks to create human-centric, digital solutions in imaginative ways said of the report: “As the use of digital payments increases during the pandemic, so has mobile banking usage. “Nowadays, banks cannot risk treating their customers as passive observers, building products and features that do not take their feedback into consideration.” Committed to ‘developing solutions to get to the heart of what customers need and want by combining strategy, creativity and engineering’, Mobiquity is determined to help banks do something about these somewhat alarming trends. Its website states: “COVID-19 has changed customer expectations around experience and the ability to receive a fully digitised and paperless service, with the decline of in-branch customer interactions.” And improvements in onboarding are among the most urgent needs, as banks seek to preserve their bottom lines in a volatile economic environment by attracting new customers.

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This has increased the need for banks to implement digital onboarding to respond to these expectations, along with the ability to stay adaptable for future pandemics and crises that require social distancing and digital-only services, believes Mobiquity. And the real trick is to do all of this in a ‘personal’ way, or as the company puts it: “At the same time, for banks to retain their customers they must ensure their digital onboarding is human-centric, translating the customer relationship from the physical to the digital world without losing the connection.” Mobiquity’s strategy director Peter-Jan Van De Venn describes why improving onboarding is so vital: “Onboarding is the process with the biggest drop-offs because it’s still necessary to get a lot of information and people don’t like that, so the easier banks can make it, the better. “It’s more important these days, not just because people expect it, but the pandemic means there is an extra demand to onboard new customers without having people in branches. “We [only] see demand increasing, but there are still many banks that don’t

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have full digital onboarding,” he continues. So, what’s stopping them? “Some banks might still believe in the personal touch, and want to see the client. There are also areas where regulation might be an issue, like business banking. Banks are getting fined for anti-money laundering (AML) violations and this has raised the bar in terms of doing business banking onboarding fully digitally. “For me, it’s very simple; I see banks in a certain regulatory area that can do it, so others should be able to do it too, right? “But then, automating costs money, so there needs to be a business case. For some, it might just be too costly to do. Or the right technology might not be ready to enable it, because the bank hasn’t yet taken the pain of bringing its systems to the next level, with the flexible architecture to easily add applications.”

Solutions to suit all sorts Mobiquity can help those banks that do wish to go ahead, to connect their internal infrastructures to external plug-in solutions for things like ID verification, as well as building custom solutions, says Van De Venn. It takes an ‘end-to-end, strategic approach to creating the flexible architecture necessary for frictionless onboarding’. “We have the capabilities to build, consult and design, as well as developing a long-term IT strategy to cope with today’s customer demands and, even more importantly, future ones,” Van De Venn adds. Not doing it is not an option. “Our research shows

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that the banks have to move on in the whole digital journey, not just in onboarding, and we will see an increase in the number that provide full digital onboarding – because it only works if it’s fully digital. Partly digital most of the banks already do, but full digital onboarding will increase, to make the process as easy as possible. “It’s a big hurdle to go into a branch and people do it less and less these days – if they have to go to the branch because a wet signature is needed or they need to identify themselves. Onboarding is one of the most important processes, because getting new clients is at the heart of growing their businesses. At the same time, the number of digital-savvy clients is only increasing. “The younger generation are getting older and they are used to having the best digital solutions when they go online, in the big tech environment. Customer experience is key, so it’s very important that banks are able to cope with those high demands. That means they need a frictionless process.”

is close to customer needs, is where we differentiate,” he adds. This blend of the digital and the human has the potential to reach parts of the industry that have been no-go for automation in the past, like wealthtech. “Five years ago, a lot of private, wealth management banks would say ‘our target group doesn’t want it’, and, for the short term, they might be right. There are a lot of people who still like to go into the bank, but that group is getting smaller and there is a whole new one that grew up with technology that is demanding it. That’s why, in recent years, we’ve seen digital wealth management propositions popping up for the 30-year-old millionaires, of which there are significant number, just in Europe. This is a group that is growing and growing. “Maybe, for them, personal interaction is still important, but then let’s use technology as a supportive layer. Digital is for everybody. For example, we’ve seen many private banks focussing more on wealthier clients, simply because the less wealthy are too expensive to serve. For that middle group, there is a business case,

It’s possible to make life better for clients by providing them with technology, but still be there if they want you. The private banks that do that well can run a cost-efficient business As well as keeping customers happy, enabling full automation helps the banks Mobiquity works with keep costs down, says Van De Venn. “It lessens the operational impact for banks and reduces costs. The regulators are also very happy because an automated process is really controllable, auditable and consistent. It’s a win-win-win situation,” he adds. Another by-product of digital onboarding is freeing up overstretched in-house teams to focus more on customer service – with this in mind, Mobiquity bills itself as a tech company but with a human heart. “Tech is important, but making tech that people really want and

in terms of wealth management, for digital and personal-at-a-distance solutions. “There are many people who are OK with doing a lot themselves, but just want confirmation from their relationship manager. It’s possible to make life better for clients by providing them with technology, but still be there if they want you. The private banks that can do that well can run a very cost-efficient business for this target group that they might have tried to get rid of, in the past, because they were too expensive to serve.” And Van De Venn believes the future is full of infinite possibilities like this. “Open banking means banks can build their own propositions, making use of multiple others to create their own infrastructure,” he says. “They have the opportunity to be that personal brand for clients, but still offer multi-bank services. “In this digital world, you have to continuously listen to your clients and adapt.” Issue 18 | TheFintechMagazine

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WEALTHTECH

Stake in the future

The pandemic has created a new generation of investors, disillusioned with non-performing savings products and eager to take control of their assets. Online trading platform Stake is on a mission to give them access to the world’s biggest stock market, as Co-founder and COO Dan Silver explains While some of us fought lockdown boredom by taking up home breadmaking and kindling an interest in patios and flower borders, others were finding a much more profitable use of their time. Amidst the restrictions of the COVID-19 pandemic, many of us decided to take more control of our money – and our personal stake in the economy. Much of this increase in financial interest has been tracked by research published by the deVere Group. It identified that, in Europe, the coronavirus pandemic inspired a 72 per cent rise in the use of fintech apps. Among those are an increasingly number dedicated to giving more people access to what’s broadly described as wealth management, but in the current climate might be better termed ‘restricted means management’. Online trading platform Robinhood, for example, reported a 10-fold increase in net deposits in March, while Acorns and Public similarly saw surges in usage. Another was Stake, which is exclusively focussed on giving anyone who wants it www.fintech.finance

a foothold in the largest stock market in the world: the US. Launched in 2017, Stake is a commission-free trading app for stocks and exchange traded funds (ETFs). Initially made available in Australia and New Zealand, it has been active in the UK since February 2020. Earlier this year, it was soft-launched in Brazil – the next step as it continues on its mission to bring Wall Street to the world.

People are now seeing shares not just as financial products, but as companies that have a direct relevance to their own day-to-day As co-founder and COO Dan Silver sees it, the pandemic has opened people’s eyes to how the financial markets have a direct impact on their lives. “I think it’s made people relate directly to companies that have been either significantly positively impacted or negatively impacted,” he says. “They can

look and say ‘I want to go and invest in Zoom’, or, ‘I want to invest in Peloton, because I’m running those cycle classes’. Or, conversely, ‘I don’t want to touch P&O’. Whatever it is, people are now seeing shares not just as financial products, but as companies that have a direct relevance to their own day-to-day.” With this in mind, Stake’s mission statement is to make the US markets ultimately accessible to anyone, anywhere. “It’s a bold aspiration, but really, our view is that the US stock market is the largest market in the world, it represents more than 40 per cent of the world’s market cap, and everyone should have the opportunity to invest in it,” says Silver. These more active, small-fund, retail investors require transparency in a process that's historically been very opaque (particularly when it comes to fees), easy to understand, safe and fast to execute. Stake aims to deliver on all of these. “It’s a great time to be in brokerage and a great time for customers to be getting into the market. There are more options, more access, better opportunities than there ever before,” says Silver. Issue 18 | TheFintechMagazine

WEALTHTECH “But with a lot of new providers entering into a market, you really need to understand what each one stands for, and what products are they actually serving? So, for example, if you’re somebody who wants to buy a share, a provider can market that in many different ways, but in some cases they may be offering contracts for difference, which is a product where the majority of customers are actually going to lose, not make, money. “You’ve also got a lot of people offering non-transparent fee structures – people go into it thinking that they’re getting a great deal, and suddenly they’re not. Or customers are in some ways being made into the product – being brought in on a low-cost offering, but then being upsold into other more risky assets. So, a lot of it’s about transparency in the industry. Stake is on a mission to make sure that there’s full transparency and open it up.”

Leveraging open banking frameworks and plugging in APIs with third parties that are expert in those areas, has allowed Stake to focus on its main priority of continuing to enhance the core product, all the while getting more new customers excited by new tools and ever-improved data to support their investment decisions. “We want to make sure we're staying true to our mission to provide the best access to the US markets that we can,” says Silver. Stake’s core platform remains free, save for a nominal charge for FX fund

Global expansion Stake is all about owning the user experience and the customer interface, says Silver, while partnering with others to make sure the backend lives up to the promise – and ensuring ‘a good commercial outcome from this [for them] as well’. Key partnerships with identity verification provider Trulioo and payments partner TrueLayer has streamlined two crucial components: ensuring swift and watertight KYC in whatever jurisdiction Stake’s operating in, and making deposits and FX transfers to US dollars to trade simple, fast and cost-efficient. Stake has found ways to leverage open banking to tackle all of these, ensuring a smooth customer onboarding UX that gets clients set up and trading as soon as funds hit the account. “To be able to do that, you’ve got to have a way for people to fund in-app,” says Silver, “rather than having to leave the app to make the transfers. “You also need to understand exactly what the local requirements are in different markets. Probably 80 per cent of our product is similar, but the 20 per cent that’s localised is very important, whether that’s in terms of the onboarding fields and questions, and how we verify customers – that obviously differs by jurisdiction – or how people move money into accounts, whether it’s sterling, or Aussie dollars. So there are small but impactful differences.”

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Focus on US: Stake sees itself as a specialist

sheet, cashflow – for customers, because they were saying ‘it’s great that I’ve got access to all these companies, but I just don’t know which to buy’. “We can provide the level of features and functionality for the people who want more sophisticated tools to be able to get into the US market. We can offer that, with the quality of the UX that you’d expect from a new age broker,” says Silver. “There are a number of neobrokers that are, sort of, add-on features to existing products, they may not necessarily understand the trading product as well as we do – we’re just US stocks, so we’re specialised – and they may be a bit more clunky on the UX. They’re not necessarily fit for purpose for a lot of the new entrants into the market.” And there’s another aspect to this mission. While the investments made by the new market player that Stake can create might be tiny compared to institutional and high net worth individuals using conventional brokers and wealth managers, they can nevertheless, by virtue of their numbers, have an important impact on the economy. There’s evidence to suggest they might even be more stable traders during a time where investments are shed rapidly by large net wealth market players as the pandemic continues to play out. With Stake’s sights set on expanding further across Europe, many more ‘ordinary Joes’ will be given the opportunity and means to indulge their curiosity in US listings; and, with interest rates tanking, many more disillusioned savers might decide it’s time to seize that chance. “People are looking at ways to build their independence,” says Silver, “be that financial independence or lifestyle independence – not being beholden to big companies, big businesses. “I think that’s why people have been so attracted to the markets in the last few months. They see it as a great way to make their money work harder for them.” A great way to get a Stake in their future.

80 per cent of our product is similar but the 20 per cent that’s localised is very important, whether that’s onboarding or moving money into accounts

transfers, and gives users unlimited commission-free trades, advanced (limit and stop) order types, live market data, real-time execution and fractional shares, among other features. Stake is also currently free-trialling a premium service, Stake Black, due to go live for $9/month in January 2021, which provides more sophisticated features, such as analysts’ ratings and price targets. Stake Black demonstrates the platform’s commitment to continuous enhancement of both technology and data for all users, says Silver. “For example, we’ve recently released not only price targets and analyst ratings, but also full financial data – P&L, balance

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Bridging real life to digital. At BPC, we are bridging real life to digital by equipping our clients with the right technology to create payments services that fit right into the customers’ lives. Real life needs of people who make payments or do business transactions converge into digital services. Is it a traditional card payment, mobile wallet or an instant payment, is it initiated via a mobile, through an agent of embedded into an app via an API? It no longer matters; everyone wants it fast, easy and secure, and not having to think about it. We have been doing this for 25 years, for more than 230 clients in 80+ countries, using the model that best fits the business objectives – be it in house, managed services or complete outsource.

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WEALTHTECH

Wealthandvalues Personalised wealth management app Cocoa Invest – with its halalbut-diverse investment portfolio, monitored by real advisors, headquartered and regulated in Bahrain with offices also in Denmark and Sweden, and a UK founder – is what you might call a truly universal hybrid.

It’s the brainchild of Omar Shaikh, who upped sticks for Copenhagen in pursuit of love, lifestyle and the best environment in which to build his own wealthtech, and has been quoted as saying that: “Danes are very hard to impress. If we can be successful here, hopefully other markets will be easier to conquer!”. Born in Britain, where he took his degree at Edinburgh University, Shaikh developed his financial acumen at Schroders PLC (as part of a specialist fund of hedge funds business, managing more than $6.6billion), and at Capita (where he was an authorised corporate director for some of the UK's largest hedge fund clients), before focussing on shariah investment strategy as an advisor to a Middle-Eastern family office. Although important to him on a personal level, it took a while for the penny to drop that Islamic financial solutions weren’t as readily available as they might be – particularly since the ethical framework on which they are built ticked so many boxes beyond the faith-based. “I believed that the small rustlings of Islamic finance I saw in London were amplified elsewhere, but stepping outside of London into Europe and the rest of the world, I found access to faith-compliant options scarce and people’s understanding of them nominal,” says Shaikh. “In fact, I became a dispenser of sharia-compliant investment advice to friends, family and strangers wherever I went. “Watching the financial industry walk past such a large market just for lack of providing the transparency needed by observant Muslims was upsetting. But not as upsetting as seeing investors wanting to invest yet being too afraid to because of the uncertainty surrounding conventional products’ ethicality.”

TheFintechMagazine | Issue 18

As Cocoa Invest gears up for the launch of its ethical investment app, Founder Omar Shaikh reflects on faith, money and doing the right thing

So, determined to make a difference, Shaikh began building a solution in 2015, locating his company in Copenhagen, having moved there with his Danish girlfriend, now wife. A comparatively small, if talented, fintech hub when he arrived, Copenhagen has since become one of the Top 20 cities in Europe for fintech, according to the latest Findexable rankings. Over the next four years or so, his core mission to provide a truly modern application that removed barriers and uncertainty around halal investing, shaped every aspect of product development – from securing agreements with the most reputable fund managers to building a team of both active and passive investment management specialists and, finally, designing an app to be intuitive to millennials and baby boomers alike. The passion and drive generated by this process led to him wearing several hats. In 2017, he was appointed Trade and Investment Ambassador for Scotland with a focus on fintech, having by then served as board member to Copenhagen Fintech. Shaikh holds a strong affiliation to both the UK and Denmark – and both have had a significant influence on his current project, enabling him to tap into Europe’s best tech talent. It’s why Cocoa Invest was spotted by the Central Bank of Bahrain – part of one of the world’s most important Islamic finance hubs, which is building an open banking framework that suits the Cocoa Invest model. “Being singled out and invited to the sandbox of such a prestigious institution is a badge of honour for any

startup and, as Cocoa was to be an Islamic-compliant product, it made sense to create our first headquarters in the Kingdom of Bahrain,” says Shaikh of his decision to apply to be regulated there. “I remember feeling trepidation early on in the project, given that its geographical location was so far from our teams in Denmark and Sweden, but we were very impressed by the setup, the enthusiasm, and the balanced 50/50 gender split on many of the financial institutions’ boards present in Bahrain, which infused their support programme with incredible energy,” says Shaikh. “The team running the fintech programme at the Central Bank is incredibly talented, knowledgeable and forward-looking, and run almost exclusively by women, which is so refreshing.” So, why was Bahrain so taken with the Cocoa app? First and foremost, it will make it easy for anyone to start shariah-compliant investing. Users simply download it, define their profile, define their attitude to risk, and they are off. Whether or not they choose to brush up on the difference between exchangetraded and mutual funds, their money is safely spread across vetted investments and watched over by Cocoa’s experienced, certified portfolio managers who monitor stocks, Islamic bonds, real estate and commodities from all over the world. Take a closer look at its portfolio breakdown and you begin to understand why Shaikh’s startup caught the eye of Bahrain and users in Europe and the UK – thousands of whom are on the waiting list for the hoped-for December launch. While halal portfolios are very often weighted

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towards the safer options of real estate, gold, government sukuks (shariacompliant bond types) and unimaginative Islamic investment certified stocks, Cocoa Invest is also securing some in energy, IT, telecoms and healthcare. According to its website, the average plan will typically allocate up to 12.54 per cent to the year’s hottest sector. Therefore, it gives small investors a portfolio diversification that has customarily been reserved for ultra-high net worth individuals.

Green and clean Shaikh’s portfolio choices close the gap between halal investing and its most closely-related and universally-appealing cousin, ethical investments. Like many already operating in the area, Shaikh identified the similarities between both investment types and has cleverly used them to open the shariah market to a much wider, and not necessarily faith-based, demographic. “I remembered watching environmental investing take flight in the early Noughties and finding the similarities between ethical investing and Islamic finance remarkable,” he says. “Both were heavily guided by ethical issues, such as environmental improvement, health and safety breaches, GMOs (genetically-modified organisms), human rights violations, military and nuclear power, etc. Both of their concepts of what ‘ethical’ stood for were evolving in real time, with innovation to dispense appropriate policies. Both relied on a stringent review and selection process to identify suitable products. The only difference was how the financial industry perceived them, one being seen as admirable, the other restrictive.” Shaikh is now keen to introduce clients to green sukuks. “As one of the few Islamic

fintechs, we see huge potential for this ethical, transparent and green financial instrument as part of our investors’ long-term portfolios,” he says. By highlighting the scrupulous methodology shariah specialists use to screen investment targets – proactively reviewing companies’ commitment to benefittinging the world from a shariahcompliant and therefore implicitly environmental, social and humanitarian point of view – Shaikh has managed to dispel misconceptions and expand Cocoa’s potential market from 1.8 billion Muslims to, potentially, the entire globe. Shaikh explains: “Ethical investing, as a trend, is on a sharp incline, but company morals are increasingly eroding, often without the public’s knowledge. And, perhaps more worryingly, we are witnessing more greenwashing of bonds. This type of behaviour is impossible with shariah compliancy.” The requirement to remain continuously certifiable by a third party means that Islamic products potentially have a stronger stamp of ethical authenticity than conventional ones. But Shaikh believes it goes deeper than that. “For us, we are certifying principles by which we live. Whether stocks make money or not, the pillars of what we believe to be morally right remain standing. It’s a really personal thing we owe to ourselves and our customers.”

Ethical investing, as a trend, is on a sharp incline, but company morals are increasingly eroding

Cocoa Invest is also scrupulous in its due diligence of suppliers – among them payments platform TrueLayer and ID verification provider Onfido. “We need to have the confidence that, where we do outsource, we outsource to the very best,” says Shaikh. “Onfido did a lot of due diligence on us; likewise, we did an awful lot on them. And the same with TrueLayer. I think what we’re finding, as an industry, is that a lot of the heat’s come out, a lot of the naivety as well, so service providers are equally cautious about who they want to accept as customers.” Beyond these key services, however, this founder otherwise wants to keep hold of the intellectual property: Cocoa Invest’s backend was built in-house. “Although there were components we could’ve outsourced, we wanted to remain in control. I have seen some fintechs over-outsourcing for speed, and I think that is a huge risk,” says Shaikh. “We can build it from scratch, so we’re not dependent on other people’s systems. We don’t like black boxes. Ultimately, we’re the ones regulated, so if something goes wrong it’s our neck on the line.” There’s lots more to come, including artificial intelligence tools for day-to-day financial management, while the portfolio continues to expand. “We’re looking at sharia-compliant real estate investment trusts, probably based on a Nordic underlying investment, and Islamic pensions,” says Shaikh, “as well as a whole host of things that we can do for consumers, knowing that everything we do is completely ethical and shariah-compliant, and that we’ve sourced the absolute best products and services.”

The good and the great: Ethical is the default for third-party verified, shariah-compliant investing

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Issue 18 | TheFintechMagazine

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WEALTHTECH

Power to th he people Technology has long been praised for its ability to democratise but, while it has already worked its revolutionary magic on many aspects of personal finance, it’s been a little slower off the mark when it comes to trading stocks. For many people, their concept of traders is still skewed by the images of excess and privilege on a Wall Street populated by wolves like the real Jordan Belfort and fictional Gordon Gekko. But innovative apps and other platforms are now putting a slice of the same pie into the hands of the average Joe. London-based Freetrade is a commission-free trading app that aims to get everyone investing. Founder and CEO Adam Dodds set up the company in 2015 after relocating from Canada as a manager with KPMG and discovering that the investment account options in the UK were archaic and clunky, to say the least. “When I moved here, six years ago, I needed to open up an investment account and realised how underwhelming all the options that were available to me were, and how painful it was to open an investment account,” explains Dodds. “There was an oligopoly that still www.fintech.finance

Adam Dodds was keen to break up the oligopoly that he saw operating in UK stockbroking when he launched the everyman investment app Freetrade in 2015. Now, 250,000 ordinary users later, he’s still finding ways to change things somewhat exists, here in the UK – a handful of stockbrokers that had settled into a nice, comfortable £12 commission structure. So it was painfully obvious someone needed to come in and smash that up.” That person, it turns out, would be Dodds. Setting up Freetrade proved to be something of a personal challenge, too. Having worked as an accountant and then in corporate finance mergers and acquisitions, he saw plenty of companies with what he calls ‘shakier business models’ than the one he was proposing attracting funding. “I was really getting sick and tired of my day job, at the time, so it was just ‘let’s go and do this,’” he explains. – ‘this’ being the

funky Freetrade app, which now boasts more than 250,000 users. With the coronavirus pandemic and Brexit pushing already-low savings interest rates even lower in the UK, there were plenty more people this year looking for alternative forms of investment. Indeed, the app has seen its customer base double in 2020. Appropriately for an investment expert, Dodds had an eye on future growth from the get-go and determined that the only way Freetrade could become commission-free and sustainable was by owning its platform, end-to-end. So, the company built its own tech stack running on Google Cloud, in order to give the app the agility and ability to scale to meet its future ambitions. From a user perspective, its proprietary Invest By Freetrade system enables them to carry out trades cheaper and faster than if it used third-party solutions. But perhaps Freetrade’s most important innovative features are those on the surface – most notably its game-changing fractional shares approach. Some US stocks cost hundreds of dollars, if not more, for a single share – meaning many smaller investors miss out due to the share price being beyond their budget. Issue 18 | TheFintechMagazine

WEALTHTECH Fractional share trading means people can choose the amount of money they invest – from as little as £2 – rather than the number of shares they buy. Freetrade then works out how to get the user as many shares as possible for that price, with any resulting dividends split, based on the fraction of the stock owned. “Fractional share ownership as a concept has been around for a really long time; you just need to think back to DRIPS (Dividend Reinvestment Plans),” says Dodds. But turning that into a mainstream product in an industry that’s slow to update is tricky. “We challenge all these kind of preconceived notions of how a stockbroker should operate, or what a product should

Debunking trading: Freetrade is for everyone

be, and fractional shares is a pretty obvious one,” says Dodds. “Why would you need to have this arbitrary amount of money to buy a share of a company? It’s all fractional ownership of the company anyway.” A particularly popular feature is Freetrade’s free share referral programme, which has proved the company’s biggest engine for growth – although Dodds is quick to give his colleague, CMO Viktor Nebehaj, the credit for coming up with that initiative. “Incentivised referrals are pretty common,” he explains. “But where ours is a bit different is that instead of giving cash, we give a share and you don’t quite know what it’s going to be. It could be a Tesla,” he teases, citing the most valuable carmaker in the US, whose investors have seen their share price grow from $7 in 2013 to more than $438 today. Dodds is quick to shoot down any assertion that Freetrade in some way gamifies investing, but does acknowledge that the free share initiative is ‘a bit of fun’, somewhat like a mystery reveal game.

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“It gets you investing right away,” he says. “All of a sudden, we’re minting brand new shareholders that have never owned shares in their lives and they can feel a bit of excitement, feel proud to be a shareholder, and hopefully follow that up with some more investing behaviour.” There’s a real sense of community among Freetrade’s users and it's something the company continues to nurture. Dodds puts this down to its crowdfunders and, once again, praises his marketing colleague. “Viktor started off the community board before we even had a product,” he says. “That’s why people are so engaged, as well, I guess, because they really care about the company and what we’re doing.”

listed venture capital (VC) firm,” says Dodds. “Then we did it again and we plan to do it again, each year, until maybe an IPO.” The effect of this is that Freetrade is, in many ways, like a public company with 10,000-plus individual shareholders. The majority do not have a significant stake – all less than one per cent – but while other companies may be thinking about the VCs on their board, Freetrade thinks about its investor-customer base. “And, of course, they’re thinking about us, as well,” says Dodds. “And they want to promote the business to everyone they know… it’s a bit of a virtuous circle.” Freetrade’s sense of community extends beyond its own platform, too, with ideas and information shared on platforms such as WhatsApp – mirroring the company’s transparent, inclusive and mutually-supportive ethos. Freetrade is also constantly innovating. It recently launched a premium service called Freetrade Plus, giving members a bigger choice of stocks to invest in and advanced order types, for £9.99 a month. Later this year, it will also make available its self-invested personal pension (SIPP) for a monthly fee of £9.99 (or £7.00 to already premium members).

All of a sudden, we’re minting brand new shareholders that have never owned shares in their lives and they can feel a bit of excitement, feel proud to be a shareholder Powered by its people Crowdfunding has been central to Freetrade’s business model, with the company raising some £20million in alternative finance since its inception. In contrast to venture-backed startups, this has allowed the company to keep customers at the heart of its business. “We started in 2016 with a tiny crowdfund, £170,000, taking advantage of the SEIS government tax break,” he explains. “Then we followed that up, eight months later, with a £1million raise; a year later with £3million. So, we just, kind of, got our funding through our future customers.” It was only when Freetrade reached the limit of what it could do in a given year – about £7million – that it looked for its venture capital partner. “I think we found it in Draper Esprit, the

But central to Freetrade’s mission remains its goal of enabling everyone to benefit from having access to wealth creation, with its website proudly stating: “We believe we can make an impact on rising inequality and make the world a more equitable place by giving access to markets and educational information.” For, as Dodds points out: “Finance is notoriously bad for using jargon to try and make it seem like it’s more complicated than it is.” In addition to providing a ready-to-go app and supportive communities, Freetrade addresses this issue through comprehensive blog posts on how to get started, new investment opportunities and the latest features. For, as every revolutionary knows, knowledge is power and education drives greater participation – even in wealth creation. www.fintech.finance

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WEALTHTECH

Time to strike it rich? Like many online trading platforms, AvaTrade has seen a surge of activity as forces – not least a global pandemic – combine to create huge market volatility. To cushion the risk, CEO Dáire Ferguson has introduced a new product for both newbies and practiced hands in the world of investing There is nothing like market volatility to whet the appetite of the small investor – and 2020 has seen huge asset price swings as fear, then hope, swept in. COVID-19, Brexit and the US presidential election have wreaked havoc on valuations, and huge quantitative easing programmes from central banks in spring underlined the extent of the peril markets faced. During the fortnight before the UK went into lockdown on March 23, the FTSE 100 crashed by 27 per cent, pushing the equity market close to meltdown. Conversely, positive news from Pfizer and BioNTech about a coronavirus vaccine on November 9 drove the London index 4.7

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per cent higher in a day, and the US Dow Jones index closed three per cent up. For those with an appetite for risk, there has been abundant opportunity – and online broker AvaTrade witnessed rising demand for its services as new customers signed up when countries locked down. Now the Dublin-based business's challenge is to keep these new clients, which it is doing by helping them avoid big losses. At the forefront of AvaTrade's offer is the product AvaProtect, which can be bought when a trade is placed. Similar to insurance, customers pay a premium to protect against losses for anything from one to 72 hours. It covers forex, gold and silver trades, and there are plans to add equity indices by the end of the year.

For chief executive Dáire Ferguson, AvaProtect, plus a focus on educational tools on AvaTrade’s trading website and app, is what differentiates his business from competitor sites. “Managing the risks is by far the biggest challenge facing our customers and we have gone the extra mile in simplifying this and providing market-leading tools,” he says. “Increasingly sophisticated risk management tools should open up the industry to a wider audience and we hope that our AvaProtect offering will be among the vanguard here – appealing to the first-time traders and experienced users alike. “The concept is really simple. If you buy

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an asset, you have the option to buy protection for that asset in the form of AvaProtect. If the asset has dropped in value when the protection period expires, AvaTrade will refund you the difference, minus the cost of the protection.” Ferguson explains that the AvaProtect fee is typically only a fraction of the sum being spent on the investment, with pricing based on the options market. “It prices risk as a function of market volatility and the duration of the protection,” he says. “It works much like paying a premium on an insurance policy and enables customers to feel more confident when executing their strategies, knowing that the downside risk is limited, while the upside is unlimited.” Ferguson says that news of huge market movements drives customers’ passion for trading, plus the fact that interest rates are near zero which prompts people to seek a return on their savings when cash accounts offer little incentive. “With COVID-19 dominating the headlines lately, it already feels like a lifetime ago when Brexit was leading the daily news agenda and every major news announcement would cause a swing in the financial markets,” says Ferguson. “Meanwhile, in the US, talk of trade wars and protectionist policies were reshaping the political landscape, which meant financial markets were already experiencing a fair amount of volatility. For savvy traders, these geopolitical tensions and the increased volatility provided ripe opportunities to profit on significant price movements. “We have seen a significant increase in people signing up to our platform in recent months, which is great, but the challenge is making sure we can keep these new users on board throughout this economic crisis and beyond.”

Building a fan base AvaTrade was launched in 2006 and focusses on contracts for difference. Though not one of the industry’s giants, it has built a solid reputation as a broker with strong customer service, market-leading technology and protection in the form of regulation. There have been minor stumbles along the way – AvaTrade has been punished for breaking market rules on a handful of

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occasions – but the firm has now achieved regulation in eight jurisdictions, winning it the 2020 No. 1 Broker award from business publication The European. That, says Ferguson, gives clients the confidence to put their money on the table. That's especially true for people who new to the game – among AvaTrade’s target demographic are football fans who have a background in sports betting. The business was Manchester City’s official global trading partner for a time, from 2018. “Being present in a market – and, crucially, having the relevant licences and regulatory approval – are critical in developing trust and this is central to our approach,” says Ferguson. AvaTrade further nurtures its investors through confidence-building educational tools on its platforms. It also offers copy trading via its new AvaSocial platform for forex dealing – a feature that has proved successful for rival eToro (which, interestingly, also has an extensive Premier League and Bundesliga partnership

are depositing $100 or $1million. All our customers receive a call upon signing up, along with ongoing dedicated support in their local language. “This is not only a fair approach, it also makes business sense – for all we know, the new user depositing their first US$100 could be an oil sheikh testing the waters, so we want to make sure they’re immediately impressed by our service.” To enhance that user experience, AvaTrade employs the MetaTrader platforms, a benchmark for forex traders, and has leveraged them to offer the MetaTrader 4-based mobile app AvaTradeGo, and advanced platform MetaTrader 5, which covers a wider range of asset classes, with advanced tools and features. Their advantage is that they feature real time insights from traders, sending the user live social trends and push notifications to give them a better chance of making the right call at the most opportune time.

Managing the risks is by far the biggest challenge facing our customers and we have gone the extra mile in simplifying this and providing market-leading tools

AvaTrade’s commission model is geared to high trading volumes – earnings come via a spread between bid and ask prices. Ferguson says: “There are different ways for trading houses to make money. One approach, similar to sports betting, is to simply keep the exposures of their clients so that if their users win, the trading house pays out and when they lose, the house profits. However, this approach is not open to regulated brokers and, in any case, it tends to lead to short-term partnerships. “As a regulated broker, we want to seek out longer term partnerships with our clients. So, what we do is charge a small commission per trade – a spread – in return for executing buy or sell orders. We aim to keep our spreads tight so that the cost to our clients is minimal and feels effectively fee-free, which means that our focus is on the volume of trades – the more our users trade, the more profitable our model. “This aligns nicely with our focus on education and risk management for clients,” he adds. “If our traders make good trades and profit, they tend to keep trading and so we profit together. That’s why we offer so many resources and tools such as AvaProtect to ensure our clients win as much as possible.”

programme). Such support tools are no doubt being lapped up by many of the AvaTrade customers who joined it this year. Ferguson believes many people used the extra time provided by lockdown, and in some cases furlough, to enter the world of investing or to build on what they already knew. To that end, AvaTrade seeks to arm its customers with the tools and skills they need for success, because, as he points out, ‘successful traders are repeat traders’. “We want to make sure all our clients have everything they need to succeed, so we have created a highly replicable service model that ensures everyone receives the highest quality of support,” he says. “Our support is the same for all clients, whether they

A partnership model

Issue 18 | TheFintechMagazine

WEALTHTECH

Hannah Duncan sat down for a cuppa and chat with Andrew Russell, recently appointed CEO of investment platform Wealthify, to ask what new owner Aviva has in mind for the startup How do you feel when a giant corporate acquires a startup? Excited? Or does your face squeeze up like you’ve bitten a lemon? I wasn’t sure what to expect from Aviva, the UK’s largest general insurer and

leading life and pension provider’s total acquisition of online investment service Wealthify. As a freelancer, I’ve worked with Wealthify and always felt impressed by its warm, inclusive vibes. It’s not often that you feel at ease in an investment house. Truth be told, it’s not that often that you’re surrounded by Welsh accents in wealth management, either, so that amped-up the cosiness. Offering a cup of tea to the room is standard practice and when you pass someone in the corridor, you’ll get a beaming smile – not an awkward floor nod. Most of all, it’s the energy. Everyone has that Friday feeling, even on a Monday. So, it was with some trepidation that I reached out to ask the

new CEO, Andrew Russell, for an interview. What if the guy I spoke to turned out to be a strait-laced, tie-wearing corporate robot? OK, so, first impressions... Andrew is a friendly guy – he let me call him Andy – and he’s a Yorkshireman, so I feel that would be a natural fit on the tea-offering front. Did he also have the Yorkshire reputation for straight talking? I wanted to know exactly what he wants to change about Wealthify and why?

A question of culture First, some background. Aviva bought the majority stake of Wealthify in 2018, for £18million. As part of the deal, it got the option to purchase the founders’ shares, too. Of the three of them – Richard Theo, Michelle Pearce-Burke and Richard Avery-Wright - Pearce-Burke is still managing the investment team as chief investment officer and Avery-Wright is still a director. But Theo stepped down from his role as CEO when Aviva took full control earlier this year. The insurance and investment powerhouse decided to put one of their own at the helm, making Andy Russell the new CEO. Russell’s now steering Wealthify’s ship, with it’s 40-strong crew of tech,

What’s

brewing? 36

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investment and marketing experts, not to mention the 30,000 loyal customers. Russell has built up a good wodge of experience. “I’ve spent 20 years in financial services, the last 11 in Aviva,” he says. “I’m a chartered accountant by trade, I was the CFO of Aviva’s retirement products.” He’s worked his way around Aviva, across a lot of different teams, as an internal consultant, so he’s no stranger to leading new groups of people and developing financial products. “You get dropped into a variety of different scenarios,” Russell explains. “It prepared me for that jump into the CEO seat.” Russell won’t be moving to Cardiff; he’ll be staying in Ripon in his native Yorkshire. The future of work is surely remote – and as fintech advocates we can’t grumble too much about that – so, let’s not hold the fact that he hasn’t crossed the border against him. Something I was keen to uncover, though, was how painful the culture clash was going to be. Wealthify is too good to get squidged up into a corporate machine and minced out looking like every other mainstream product. I wanted to get Russell’s take on the general vibe. “I’d describe it as a participation culture,” he explains. “People are just energised and get energy from taking Wealthify, which was a concept, through to a scale-sized business.” In other words, it’s the team that makes this fintech unique and he knows it. “When you walk into this company, you can see that living, breathing culture,” Russell continues. “You can feel it, when you talk to people.” He’s keen to nurture that passion and bring it to a higher level. “My job as CEO is to maximise the value of Wealthify and I’ll only do that by protecting and nurturing the culture – that fintech startup culture that exists in the guys in Cardiff.” Getting into that startup mindset is essential, but tricky for some old schoolers. When I worked in traditional wealth management, team emails were so formal, you’d think you were being taken to court. ‘Photocopy this’ became ‘revert the enclosed in duplicate’. And the first time I offered the room a coffee (maybe it’s a Welsh thing), I received a blanket www.fintech.finance

stare and one embarrassed laugh. I couldn’t imagine some of my former colleagues ever being able to loosen their ties and embrace the startup culture or see it as equal. I’m sure Aviva isn’t that bad, but it must be somewhere on the continuum, right? For Russell, the different cultures are not a concern. On the contrary, it’s a positive. “I'm a big believer that learning is very much a two-way street,” he says. “We [he’s already using the inclusive pronoun – that’s a good sign] will gain considerably from Aviva’s knowledge and reach. But, equally, Wealthify is a nimble, agile company that develops great tech, so there will be learnings on both sides.” According to this CEO, even the competing products represent an opportunity. Creating a family of products for different audience types is a nice way to round the circle and offer the full

My job as CEO is to maximise the value of Wealthify. And I’ll only do that by protecting and nurturing that fintech startup culture that exists in the guys in Cardiff shebang, giving Aviva a strategic advantage in the market. For customers, there could be some unique opportunities as well… I’ve noticed a bunch of cashback offers recently. And I’m wondering when the first insurance discounts might begin – one to watch out for.

Future riches Speaking of things to watch out for, what’s on the radar for Wealthify? As a priority, Russell wants to hammer out a clear company mission. “A clearly articulated purpose statement is so important,” he says. “When the world goes crazy, it's really important to have that kind of core message to come back to and just challenge yourself to stick to it.” I’m guessing ramping up the customer numbers must be one of his KPIs as the new CEO.

“We want to inspire as many people as we can to move from savings to investments,” Russell confirms. “Our job now is to serve as many people as we can.” He’s also committed to keeping the low fees of less than one per cent, which is good news for customers. What was a little more surprising was when the conversation turned towards ethical investing. So many robo-advisors offer rubbish sustainable investment options. Wealthify’s is pretty good. It’s transparent about its funds. It takes no time to check what its ethical portfolios contain – which is more than can be said for many others. And while I might not agree with everything in those portfolios at least Wealthify is trying. It works with what’s available and it’s an early adopter. Russell says he wants to work with customers to boost this sustainable investing shelf. “Our ethical product is our biggest growing product. It’s something we’re going to continue to get behind and improve as we go on,” he says. As a sustainable finance freak, I’ll be keeping a close eye on whether the ethical funds will move towards impact (making a positive change) or responsible (just cutting out some bad stuff like gambling, pornography, alcohol and tobacco). Fingers crossed for impact.

The verdict So, what’s the consensus? I think that Wealthify will inevitably head off in a more corporate direction. How could it not? But it’s not a bad thing. With the financial muscle of Aviva, it could be great news for customers. Russell’s contacts and experience will open fresh opportunities. And he has a chameleon-like ability to flip between fintech and incumbent environments. All useful stuff. I have a lot of faith this will work. I’ve met the team at Wealthify, and nothing will kill that fire and energy. No city slicker can take away the friendly warmth. No buzzwords will override the chatty laughter. And no corporate acquisition will smother their all-consuming passion to keep doing better. So, whack on the kettle, who’s for a tea? Issue 18 | TheFintechMagazine

WEALTHTECH

Duncan Grierson and the team at sustainable investment platform Clim8 Invest have their eye on one prize, and are cutting through the greenwash to reach it Sustainable investment funds have doubled over the past three years. And the pandemic has played an accelerating role, as investors reassess their values and redirect their wealth. Research by Morningstar reveals that net sustainable investment flows in the States hit $30.7billion by the end of the third quarter, compared to $21.4billion in the whole of last year, helping to push the global sustainable investment market to a record high of $1,258billion in assets under management. But the true trailblazer continues to be Europe. Soaring ahead,

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sustainable investments surpassed the $1trillion mark this year. Unsurprisingly, we’ve seen swathes of funds repurposed and ‘greened’ (around 32 in Europe) and 166 new sustainable funds created to meet demand. It seems everyone wants a piece of the lucrative green market. Along the way, a fair amount of new digital wealth managers have appeared, too, each one striving to be more ethical than the last. One of the latest is Clim8 Invest. Launching soon, it’s a symbol of our times: an app that empowers ordinary folk to invest for the environment. When Clim8 launches, it will offer customers a

choice of investment portfolios. “Our day-one product is aimed at keeping it simple; these are the themes we’re investing in and everybody gets a piece of what’s in our portfolio,” says CEO and Founder Duncan Grierson. “Exactly what they get will depend on their risk appetite: are they cautious, adventurous or something in the middle?” There’s nothing unconventional there. Generally, investment portfolios are categorised by risk and the investments are available within a stocks and shares ISA wrapper or as a general investment portfolio. A quick count reveals there are around 28 mainstream digital wealth www.fintech.finance

managers in the UK. Of these, at least three already offer ready-made ethical portfolios. Clim8 will have to compete with industry giants Tickr, Nutmeg and Wealthify, not to mention other environmental fintechs that are popping up left, right and centre. Added to this, the robo-advice industry is notoriously difficult to master, with even godfather of digital wealth platforms, Nutmeg, so far failing to make a profit. So, what makes Clim8 different? Firstly, it’s got some serious industry backing. Board directors from the likes of Monese and N26 are behind it. Clim8 has raised £4.4million, including from a venture capital fund backed by the British Business Bank and more than 3,000 retail investors via two crowdfunding rounds this year. Secondly, its focus is on protecting the environment. Inevitably, as ethical investing gains popularity, some managers are capitalising on the trend without helping the planet much. Clim8 is different, claims Grierson. “There has been a lot of jumping on the green bandwagon,” he says. “We bring something a whole layer above that, which is expertise and experience around sustainable investing.” Appearing to be more sustainable than you really are, known as ‘greenwashing’, is the latest corporate embarrassment. In the UK, the Competition and Markets Authority (CMA) announced in November 2020 that it will be taking action to scrutinise the ever-rising sustainability claims from companies. Using sustainability as a marketing technique has become all too common. In the summer of 2019, US research found that the number of sustainability labels on bathroom products had grown by 150 per cent since 2013. In 2018, these labels appeared on 16 per cent of US products overall. The same thing has happened in the investment industry. Within ESG (environmental, social, governance) funds across indexes created by ratings provider MSCI, you’ll find British American Tobacco, Coco-Cola, British Petroleum, Royal Dutch Shell and PespiCo. And, recently, ESG fund managers were left defending UK fashion house Boohoo’s double A rating after allegations emerged about how some of its suppliers exploited workers. Boohoo subsequently launched its own investigation, suspending some companies in its supply chain. H&M is another fashion www.fintech.finance

brand currently under fire for greenwashing from the Norwegian Consumer Authority. It’s a problem of our time, with 60 per cent of 650 frustrated institutional investors questioned in one survey agreeing that greenwashing is the most significant obstacle to sustainable investing. “The only way you can avoid the greenwashing that some people in the asset and wealth management industry are doing is with bottom-up analysis,” says Grierson. So that’s what he is doing. Together with a team of experts, Grierson’s building the investment portfolios himself, and the stocks guest list is strict. “We’re not just negatively screening out fossil fuel, weapons and tobacco companies, and all those other nasties. We’re going all the way to the other end of the spectrum and looking for companies that have products and services that are solutions to the climate change crisis,” he says. “Members of our investment team have a combined 50 years’ experience of investing in clean energy and sustainability behind

We’re not just negatively screening out the nasties. We’re looking for companies that have products and services that are solutions to the climate change crisis them. We think of ourselves as pure play and very much focussed on the E in ESG. So, to be in our portfolio, companies need to have a product or service that is making a difference to sustainability and climate change.” Unlike many other ESG funds, this means that Clim8 is not planning to include tech giants like Alphabet, Apple, Amazon or Facebook. In its view, they are simply not doing enough for the planet to justify it. So, here’s the crunch question: are Clim8’s investments any good? Using historical simulations, the team at Clim8 have found that its portfolios would have delivered impressive returns. “Over the last year, our balanced portfolio would’ve given investors a return of 16 per cent after fees,” Grierson reveals.

“So, it would’ve been giving very good, outperforming returns, despite not having any big tech in there.” In fact, it’s no secret that, overall, sustainable investment funds have outperformed traditional investments over the past decade – always with the caveat that it depends how you define ‘sustainable’. Over the past 10 years, the average return has been 6.9 per cent and, over the past three years, an impressive 11.3 per cent. In this context, Clim8’s would-be returns are compelling. That said, of course Clim8 has had the benefit of building a portfolio in hindsight.

No turning back According to Grierson, the ‘green rush’ – of investment into, as well as demand for, sustainability – won’t be turned back now. Even those who deny climate change cannot deny the favourable investment performance of sustainable companies. “Cynically, even if you don’t believe in climate change, if you look at the performance of your money in companies that are on the right side of history, you would have done well,” he explains. “And we believe that’s going to be an ongoing thing... as consumers and as companies, as buyers of those products and services move more and more in that direction. We only see this going one way.” There’s a myth that millennials are the only ones who believe in sustainable investing. Given the current economic climate for younger people, that could spell disaster for up-and-coming green investment platforms like Clim8. But S&P Research shows that sustainable investing is multi-generational. And, perhaps more importantly, people with vastly different wallet sizes are on board, too. Recent findings from CREALOGIX indicate that 19 per cent of wealth from high-net worth clients will be inherited by millennials by 2027. And 60 per cent of them are unhappy with their parents’ advisors, citing unsustainable investments and a lack of technology as some of the main issues. Platforms like Clim8 represent a turning point in our history. They offer a way forward for people who want a better tomorrow. From just £25, it empowers anyone, no matter their age or wealth to make a difference, not just to their own wallet – but also to the world. Issue 18 | TheFintechMagazine

WEALTHTECH

Stacksof of pottential A new-found interest in investing online, and a determination to take control of their finances, is driving India’s digitally-savvy millennials to demand a new kind of service. Smriti Tomar, CEO and Co-founder of Stack Finance, knows exactly where they’re coming from… For decades, India has rejected the stock market. A meagre two per cent of people there invest, compared to seven per cent of their near-neighbours in China, and a whopping 50 per cent of US Americans. Instead, parents, grandparents and great-grandparents have tended to secure their offspring’s future in gold. Indian households hoard around 25,000 tonnes of the stuff, making them the largest domestic gold-holders globally. A 2020 study by PGIM India Mutual Fund reveals that retirement planning is low on the list of priorities for Generation X and baby boomers. Many spend their savings

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on lavish weddings for their children, who are expected to take care of them later. But India’s youngest generations are different: they’re more mobile and less tied to tradition. Thirty-four per cent of millennials and 40 per cent of Gen Zers want to move away from their family’s locality, compared to just 27 per cent of older generations, so that now only 37 per cent of India’s pensioners live with younger family members. Couple that with the fact that 68 per cent of millennials treat technology as their ‘sixth sense’, and the fact that the median age in India is just 26, and change seems irreversible. The COVID-19 crisis has only served to confirm that. Since the pandemic, the number of people opening damat (or securities holding) accounts hit record highs, with 2.4 million opened between March and June, an increase of 5.6 per cent. Trading platform Sharekhan reported a 95 per cent jump in activity over May and June, with 60 per cent of its customers being millennials. And SamCo saw new accounts grow by 150 per cent over the same period, with 65 per cent of its customers aged between 21 and 35. Online trading broker Zerodha is adding double the number of accounts per month, compared to pre-crisis, and trading activity is up 50 per cent. India’s young adults are hungry for digital wealth. Capitalising on this trend is Stack Finance, co-founded by dynamic CEO

Smriti Tomar, Vidit Varshney (COO), Yashwardhan Pauranik (CPO) and Tushar Vyas (CBO). This soon-to-launch, all-in-one personal finance assistant and automated investment service is built for India’s 400 million-plus millennials, by millennials. Tomar is one of the two or three per cent who do actively invest in the markets. Ever since her student days she’s had a passion for money management and investment – inspired by reading a Warren Buffett book at 16. Soon, she was the go-to girl for family and friends who struggled to handle finance. In college, she began working for a startup and invested her stipend in stocks. Eager to increase her knowledge and expertise, she studied books, took courses and tried out products to plan her financial life. But she found it all ‘so confusing and tedious’ that she quit to launch Stack Finance, initially as an offline financial management service. It wasn’t long before the team launched a digital version in beta, leveraging artificial intelligence and machine learning to create a personalised, automated financial advisor. It’s a mobile ‘super app’, which stacks all a person’s financial assets and liabilities in one digital drawer and helps to manage them, pointing towards investment opportunities. Tomar likens it to Mint in the US – only better, in her view. www.fintech.finance

Account aggregator “Stack is basically an aggregation-plusexecution platform,” Tomar explains. Using open banking principles, users will be able to link their current accounts, savings accounts, investment platforms, insurance and more. “Nobody in India really aggregates all financial services together, even though they are so interdependent that they should exist in one place and be talking to each other,” says Tomar. “That’s something people miss out on in India. The whole financial system, even the fintech industry, right now, is very fragmented.” While bringing these platforms together is a smart idea, implementation is not easy. In theory, India is ahead with open banking, but in practice the pace of financial change is slow. India’s first credit bureau CIBIL was set up in 2001 but, famously, it took more than 10 years for banks to share lending information with it. There have been stop-start attempts at digitising finance, like the 2015 Digital India campaign, which still lumbers on. “Indian policymakers, especially in financial services, are great at copying other regulations, but they are lacking when it comes to innovating around the regulations,” says Tomar. “There was no concept of open banking for a long time in India. Now, around six to seven companies are allowed to aggregate financial data and they’re regulated by the central bank.” That’s not to say the Indian government doesn’t have ambition. It led the establishment of IndiaStack, the world’s biggest open application programming interface (API) project that allows governments, businesses, startups and developers to utilise digital Infrastructure to work towards presence-less, paperless and cashless finance – ‘stack’ being a reference to the technology. One of its early successes was the nation’s now hugely- successful United Payments Interface (UPI), which allows for real-time, bank-to-bank mobile transfers, and has really come into its own during the pandemic, hitting record transaction highs. But in a country where the vast majority of transactions, despite COVID, are still in cash, and gold is a common bartering tool, Stack Finance is limited in how much information can be digitally linked. It’s a child of its time that still has a lot of learning to do. Guiding India’s millennials and Gen Zers www.fintech.finance

around finance could be a game-changer for the economy. India has one of the highest proportions of young people in the world, with more than half of its 1.3 billion population under the age of 25. Sadly, it also has one of the lowest levels of financial literacy. Just 24 per cent of the population understands basic financial concepts. “It’s so ironic that all our lives, in school or college, we’re taught things that would enable us to make money eventually, to ultimately fulfil whichever goals we have, but, unfortunately, nobody really talks about how to then manage that money,” says Tomar. “I have never been able to figure out why that gap exists.” Not only will Stack aggregate all of the financial services in one place, it will also offer personalised notifications and advice, to help plug that gap. “Once you’ve linked all your financial footprints, it brings intelligence to bear,” Tomar explains. “So, for example, let’s say you’ve taken two consecutive loans, it will alert you that your liabilities are now starting to increase. If [you] do not have an emergency fund, we send you a notification that you need to have one, in fact we already have it built in, so you just need to subscribe to it.” Her ultimate goal is to create the Stack Coach, which she describes as a ‘personal finance manager sitting in your pocket’ that cuts through the jargon. “You just tell it a few things about yourself – like ‘this is my financial life and this has been my history’, and it should be able to take care of everything for you from that moment. It would tell you if your investment portfolio were not diversified enough, and help you track your money each and every day… that’s the level of personalisation we want to achieve. Something so automated, so personalised, that you can just sit back without worrying about where your money is going and how it is performing. “You know, personal finance, ironically, right now, is not really personal; it’s very generic. The products that are available – apps and marketplaces – give you thousands of options, but then you’re just confused, or left to figure it out yourself. I want to create Stack Coach for everybody

– a personal finance manager, which is something a lot of millennials right now in India are not able to afford. I want to make it so personalised and scalable that everybody can avail themselves of that kind of a service without much cost.” The research is on Tomar’s side. According to 2020 surveys, most Indians are keen to have a financial advisor – and preferably a digital one. High on the list of must-haves is an in-depth knowledge of products, markets and sensitivity to the customer’s needs. All of this looks promising for a digital financial assistant like Stack Finance.

Ramping up revenue Many fintechs operate on a Silicon Valley-inspired business model, where they get users first and figure out how to make money later. And, sadly, this can be their downfall. The industry famously fails to deliver profits. Stack Finance is different. “We tweaked the business model a bit,” explains Tomar. “We do not really rely on one revenue stream.” Stack will generate income in three ways. Firstly, by providing white-labelled services to banks and other financial services providers. Secondly, via the proceeds from providing affiliate products to their customers. And, thirdly, by offering premium accounts to customers that go beyond the basic service level. The team members’ technical expertise (Tomar is also a qualified blockchain developer), business model and clear potential has already won them a string of accolades at home and abroad – and Stack is not even out of beta yet. Importantly, it’s also attracted funding. US early-stage VC fund SOSV and MOX – its mobile-only accelerator – led the first round, raising an undisclosed sum from local investors. By 2022, there’ll be 820 million smartphone users in this youthful nation. And, having suffered two global recessions already, India’s millennials are not prepared to let others make financial decisions for them anymore. Stack Finance, named as one of Tinder’s Top 10 female-founded Indian startups in May, speaks to this generation. And, when it launches, those millennials will definitely be swiping right.

Personal finance, ironically, right now, is not really personal; it’s very generic

Issue 18 | TheFintechMagazine

COMMENTARY: CUSTOMER-CENTRICITY

HP sauce... the rise of Hyper Personalisation Marcel Van Oost on what he believes will be one of the most prominent trends in financial services over the next few years – and the fintechs making it happen Netflix, Amazon, Spotify and other tech giants are at the forefront of hyper-personalisation strategies. They apply digital tools to offer an omnichannel service that is more tailored to the consumer every time he or she uses it. I’d like to introduce you to some fintech startups that are helping banks lead the way in this area, too. But, first, what is hyper-personalisation, really? It combines real-time data and cutting-edge technologies like artificial intelligence (AI) to deliver more relevant

product or service information to users. It allows companies to combine all this data to create comprehensive profiles, aka personas, and offer the most relevant recommendations for products and services. According to Accenture’s 2019 Global Financial Services Consumer Study, consumers have a strong appetite for greater personalisation from banks and insurers. The report pointed out that this should go beyond just highlighting a consumer’s spending patterns and should, instead, extend to offering genuinely-tailored advice and offers. Customers choose digital products that they feel connected to, products they can engage with, products that make them feel good. US financial educator EverFi tells us that ‘89 per cent of consumers choose financial institutions based on how well they incorporate personalised experiences’.

A common problem in the banking sector is almost infinite product variants that customers can choose from: some may feel overwhelmed with this range of options, but personalisation tools can lead them to relevant products or services in a straightforward way. A major advantage of hyper-personalisation in banking is that it allows banks to remove any obstacles in the sales funnel and create a seamless shopping experience. Mainstream banks are already offering some degree of personalisation in their banking services. For example, more than a million Bank of America customers use an AI bot called Erica in their app, which helps them to pay bills, shop and more. But the real game-changer in banking services is the fintechs taking this feature to the next level. US fintech startup Otomo claims to have reframed banking around each customer’s life, wants and

Each an individual: Hyper-personalisation reveals the customer beneath

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www.fintech.finance

needs. With its patented technology, partners can empower their customers to easily organise money in relation to their goals, preferences, comfort levels and earning styles. With Otomo’s conversational user interface (UI) and allocation engine, customers can, for example, decide which percentage of their income goes into which savings pot and send it there automatically, unless their balance falls below a certain pre-set level. “We define hyper-personalisation as a framework to deliver comfort and efficiency on an individual basis at scale,” says Khellar Crawford, founder of Otomo. “Rather than solve for the average person, Otomo was created with the financially vulnerable in mind. We built in flexibility and safety nets to provide control and peace of mind to those who need it most. The result was a new universal basic. The opportunity is to offer people more than predictive, one-size-fits-all systems. It’s especially important when it comes to something as vulnerable as money,“ adds Crawford. Another US fintech using hyper-personalisation is Fanbank, the first-ever personalised commerce platform for small businesses. By adding Fanbank to their point-of-sale (POS), they can intelligently recognise customers and drive their next purchase. Remembering customers creates a personal connection with every transaction and increases customer visits, spend and, ultimately, profit. Fanbank uses machine learning (ML) and small business

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owners can build their own unique campaign or leverage major brands to promote their business much more cost-effectively.

Millennials and Gen Zers Taking financial services hyper-personalisation to millennials and Gen Zers is a different game altogether. These new generations are not only digital natives but also more financiallysavvy. Plus, they have a different way to spend their money – both in how they transact and what they choose to spend on. Spending more consciously, paying attention to their own carbon footprint and choosing brands with the same values as them are extremely important for millennials and Gen Zers. I’ve previously written about a new breed of online banking services for under-18s and young adults that are placing the responsibility on their young users. In many cases, adolescents and young adults will have full control of their spending and earning. This greater financial responsibility, combined with

We define hyper-personalisation as a framework to deliver comfort and efficiency on an individual basis, at scale

a more environmentally-conscious way of life, requires a different approach to hyper-personalisation, such as that taken by Mitto, a Spanish neobank focussed on teens and young adults. On top of offering a high level of personalisation with tools that pinpoint spending habits and maximise the ways in which users can save money, Mitto has a business ethos that focusses on conscious spending and reducing carbon footprints. It offers a carbon footprint measuring tool that tracks the CO2 impact of their users’ purchases and compares them with those of their friends. By understanding the impact of each of their purchases or payments, the bank can nudge them towards more sustainable behaviour. Mitto also offers discounts on sustainable brands and services, bringing together consumers and brands with the same values. With a tag line of ‘Awake the Activist Within’, founder and CEO Marcos Cuevas has been quoted as saying that the bank aims to create ‘the biggest marketplace on sustainability, the one-stop shop for everybody to make it easy to respect the planet’. A newly-launched Crowdcube campaign will see it attempt to expand beyond Spain to the rest of Europe. Hyper-personalisation is one of the strongest financial services trends in the coming years. Fintechs investing their time and creating a product or service that offers a high level of it will be the winners in the banking battle.

Khellar Crawford, Founder, Otomo

Issue 18 | TheFintechMagazine

INFRASTRUCTURE

and Having captured the Cloud, UK-based, mobile-only Atom bank has begun a new stage on its journey. Chief Technology Officer Rana Bhattacharya is enjoying the ride Atom bank’s announcement, in September 2019, that it was replatforming from third-party data centres to Google Cloud – in effect taking the opportunity to re-architect its entire operations and processes barely three years after launch – shouldn’t have come as any great surprise. It was an inevitable next step for a bank built on the premise that it would always leverage technology to maximise the customer experience. And, much as Atom might have wished it, basing a bank entirely in the Cloud just wasn’t feasible on the run-up to 2016, given that financial regulators at the time hadn’t established a clear position on Cloud hosting. In 2018, Atom announced that it would be working with Cloud-based infrastructure provider Thought Machine, moving to its Vault core banking platform, embracing the use of the Cloud and setting up an in-house site reliability engineering (SRE) function. So, how’s it going? “I won’t say that the journey has been easy,” says Rana Bhattacharya CTO and director of technology and change, “but then nothing worthwhile is.” It wasn’t, he stresses ‘just a lift and shift model’ move. “To realise our vision, we

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wanted to have a Cloud-native platform, so we partnered with Google and Thought Machine to basically build a cutting-edge banking stack that will serve Atom for the future. Ultimately, we want to be a different sort of bank, one that uses technology to achieve operational efficiencies that will allow us to better compete on price for the benefit of our customers, as well as providing improved and very different experiences to those of high street banks. “By virtue of having the right tools and technology, we’re getting a lot more out of that investment than we would have done in the past from a comparable spend perspective,” he adds. What that means in practice is that the bank now has more capability to respond to changing customer needs, faster: it gives it the flexibility to, in effect, spin up an entire version of the bank, test and deploy in a heartbeat. Against this backdrop of agility, pure-play home and business loans provider Atom secured £10million from the Banking Competition Remedies fund (the fallout fund from the RBS taxpayer rescue deal) to transform banking for small businesses, and, among its commitments, pledged to invest at least £15million of its own funds to launch new tools and products through to 2024. Although that work was somewhat overshadowed by COVID, it then won accreditation as a lender from the British Business Bank, to provide secured loans through the government-backed Coronavirus Business Interruption Loan Scheme (CBILS), working through its network of 200-plus independent brokers to deliver the money. With the bank also planning to raise further capital via a

share issue, possibly next year, its new infrastructure will soon be put to the test. A demonstration of the direction its agile product development is taking is The Kitchen, essentially an online innovation lab, launched in November, in which any member of the small business community is welcome to help cook up and test new business banking products as part of a close-knit group of other like-minded entrepreneurs. It’s an example of how Bhattacharya’s hope that Cloud technology will put clear blue water between Atom and the major high street banks, which have long dominated SME services, will play out. Saddled as they often are with 30-40 year old mainframe-type systems and a patchwork of technology resulting from past merger/acquisition activity, it’s a lot less easy for them to decouple should they wish to rapidly develop new services, he says. “It’s both expensive and time-consuming to do backend changes on more traditional legacy platforms,” says Bhattacharya. “But the backend is what’s providing the services customers interact with through any application or website. If you haven’t got resilience in your backend, you’re not providing the best service to the customer, through whatever window they’re using.” As a technologist, he’s excited by the exponential possibilities presented by the Cloud. “Before, if I wanted to build a new development environment it could take me something in the region of 42 weeks (using third-party data centres). The kit arrives, gets installed, gets shaken down, operating systems and applications are installed, you test it, then you commission it. You’ve got a variety of contractual relationships involved during that process, as well as technical www.fintech.finance

The next level: Atom bank has transitioned to Google Cloud

activities happening; and all that takes you to a massive lead time. Now, I can create that in a week,” says Bhattacharya. Cloud, combined with DevOps, means he will be able to script it so that new environments can be spun up, from both a development and testing perspective, as well as providing a greater level of monitoring and control in production. Put another way, an organisation using the Cloud has direct control around provisioning the environment and installing the software. “And it’s done in a repeatable process because you’re using things like DevOps, whereas, in more traditional landscapes, you haven’t got that,” says Bhattacharya. “So, effectively, customers can see a swifter

hosting the things we need to host and controlling them, but we’re also renting features, each with their own experts, who are looking after other things for us.” Among these managed, specialist suppliers are TruNarrative, which is leveraged via the Thought Machine platform to look after Atom’s real-time anti-money laundering (AML) transactional monitoring processes, used for sanction checking, and Dutch fintech, SurePay, to help protect customers against fraud and prevent misdirected payments, using Confirmation of Payee software. While the average customer will not likely have an opinion on the Cloud – they’ll simply and rightly be expecting the benefits

that customers will respond to. And, with improving operational efficiencies, coupled with shorter product cycles, it’s likely to be a win for both parties over the longer term. A key part of this transformation is, self-evidently, making better use of data, and it’s exploiting technologies such as Kafka – an open source, stream-processing software platform developed by the Apache Software Foundation – to maximise that. “Now that we’re moving into the transactional side of banking, we wanted to create a new data architecture, which leverages what I call liquid data,” says Bhattacharya. “With Kafka, if something happens in one system, that event gets pulled out and, if you’re interested in it, you

To realise our vision, we wanted to have a Cloud-native platform, to build a cutting-edge banking stack that will serve Atom for the future volume of change coming through that is more aligned to their expectations.” Another advantage of the Cloud platform is security. “You can’t (as a small organisation) really buy the level of security that the likes of Google pump into their infrastructure,” he adds. “But you benefit greatly from the investments it makes. Google also has priority traffic over internet service providers (ISPs), so things just naturally start feeling faster and the experience gets better, as well.” Ultimately for Bhattacharya it comes down to systems being more configurable, and controllable by Atom. It’s a change in the balance of power and relationships between it and third party suppliers. “We’ve insourced more because we want to control what we believe matters (to customers),” Bhattacharya notes. “We’re www.fintech.finance

of a ‘modern estate’ ,as Bhattacharya puts it – Atom, nevertheless, went to the trouble of explaining, via its website, the reasons for adopting it. How, with Thought Machine providing a core infrastructure, Atom is now freed up to do what it does best, namely, developing products in response to its customers’ demands. A true fintech, maybe it just thinks everybody is as crazy-excited about banking technology as it is – or it truly believes that any organisation trying to definitively move away from banking of the past has to take customers with it on the journey. And that means being transparent and ready to talk to them.

Impatient for progress Looking ahead, Atom, unsurprisingly, wants to leverage the ‘banking machine’ it has set-up to build more products and services

can react to it. So, for example, if a payment came into one of our accounts, that’s an event and if I want to send a notification to my customer, based on receiving that payment, they’ll get that notification in near-real time. If I want to get hold of an aggregated balance by product, in real time, I can see what the total balances are across all our customers. Basically, we have access to real-time data to prompt and enrich our customers’ experiences over time. “We just went live with a new product on our platform and, while we have the same sort of reporting we had before, we’re now looking (based on this data) to leverage it more, for us and our customers.” The journey will never be over for Bhattacharya. He’ll always be looking to catch the next wind of change: but now Atom’s got a Cloud to ride it on. Issue 18 | TheFintechMagazine

INFRASTRUCTURE

Pulling together: Digitisation enables collaboration – and that’s good for all

Redefiningthe Redefiningthe futureof future offinance finance SMEs have long complained of being left in a financial services and funding wilderness by incumbents. The solutions that Finastra is offering those institutions via its innovative FusionFabric.cloud aim to bring those businesses in from the cold.

In fact, as Finastra’s Wissam Khoury puts it, the company is on a mission to change the world, one app at a time, with small and medium-sized enterprises (SMEs) high on the company’s broader agenda to achieve financial inclusion for all. The Banking for Humanity strand at this year’s virtual Sibos explores just that – the role of the finance industry in everything from better access to bank accounts and loans, to lowering carbon footprints, digital adoption and diversity. Finastra’s contribution to solving some of those issues is to use platformification. Khoury, who is head of international at Finastra, believes banks’ previous reliance on building their own in-house solutions has been one of the main inhibitors to innovation, because building out on complex legacy systems is challenging and takes far too long. However, the new era of open banking provides a fresh opportunity for the collaboration essential to overcoming this. As well as fulfilling the needs of consumers, pulling together could fuel growth and new income streams. www.fintech.finance

Collaborative fintech has a vital role to play in changing the world for the better, and Finastra can play a key role in helping to make that happen, says its Head of International, Wissam Khoury

FusionFabric.cloud is an open and collaborative development ecosystem bringing together banks and other financial institutions with analysts, fintechs, universities, consultants, developers and systems integrators, to find rapid-fire solutions to industry sticking points – and solve real-world problems along the way. Among its three core components, the FusionCreator developer portal and application programming interface (API) catalogue enable users to access datasets, build applications and roll out solutions quickly – including REST (representational state transfer) API management, a sandbox environment and developer documentation. Its FusionOperate secure production environment, hosted on Microsoft Azure, allows users to connect their apps to Finastra software without building their own Cloud infrastructure, and includes monitoring tools for reliability, redundancy and security. The

FusionStore app marketplace is where apps developed within FusionFabric. cloud are ‘monetised, promoted, discovered and consumed’ – including quality checking, validation, marketing and extensive marketplace data to aid decision-making. Committed to increasing innovation speed, Finastra’s vision is to become the ‘number one platform for financial services’ by optimising cost of ownership; driving efficiency with open standards; accelerating growth through new and improved solutions; improving customer experience; offering ‘infinite’ innovation options through APIs, and investing in data curation and growth to fuel artificial intelligence (AI)-led developments, all aided by the scale of its developer network and Fusionfabric.cloud's diverse partnerships. Finastra is also collaborating on a microfinance initiative in Kenya, bringing together fintechs, a UK university and wholesalers to provide better solutions for assessing SMEs’ creditworthiness, thereby lowering the estimated $19billion funding gap in the country. As Khoury puts it: “We’re redefining the future of finance. A key aspect is finance for good and improvements to financial services and literacy… helping our customers to create positive outcomes for millions of people, with the COVID-19 pandemic creating a fresh urgency. Issue 18 | TheFintechMagazine

INFRASTRUCTURE “The push for open banking, platforms and marketplaces… these changes, across the market, will have to happen, and will stay forever. Our CEO, Simon Paris, talks about deepening the role of financial services to help millions of individuals, SMEs and communities to navigate the future,” Khoury adds.

The moment is now “There has been lots of progress in the last 10 years: open banking, open APIs, open communication between banks and third parties and between banks themselves. But more has to be done now, and it has to be done with a huge focus on how to do it the right way. It needs to take into account the new dynamics that have arisen during COVID, with a huge focus also on the existing challenges in finance, such as financial inclusion.”

Building blocks: Finastra aims to make it easier for banks to adapt for the greater good

SMEs’ restricted access to funding is an example of existing issues rendered even more difficult by recent events. “They have probably been hit hardest as a result of the pandemic, but it has potentially made business banking for small businesses a real focus. It has to. Otherwise, we’re going to face lots of issues because SMEs rely on cash, often don’t have history for credit and struggle to access funds or negotiate better rates. “There are two causes of this. One, it’s expensive for financial institutions to give loans to smaller organisations. The second problem is that SMEs don’t have the data required by the credit or lending models used by big banks to assess their creditworthiness and risk appetite.” Which is where FusionFabric.cloud comes into its own, by enabling financial providers to rapidly build or access cost-effective solutions that both better serve consumers

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and provide the banks themselves with new income streams. “The power of data is under-utilised by the banking sector,” believes Khoury. “We can have access to metadata to model the creditworthiness of an SME and assess its credit ratios in many different ways other than just looking at its balance sheet and income statement. This includes the nature of the business, its experience, successes and gaps in the market. By deep diving the data that’s already there, financial institutions can change the way they provide their approvals for SMEs, to contribute better to that funding gap.” Through FusionFabric.cloud, Finastra is looking beyond financial services, to offer the kind of forward-thinking technology being utilised by other industries to great effect. “We are not using any creative technology that doesn’t exist today, and

experiences and provide more insights, more data, more user-friendly interfaces for their client base, which is already used to getting that service from a non-banking environment,” he adds.

A collaborative approach But how can banks collaborate as he describes, without losing their essence? Banks need to offer a range of services to the end user – and not necessarily their own. With a collaborative approach, they can become one-stop shops, says Khoury. That will improve the end-user experience as well as increasing revenue. “Today, banks face new entrants into the market, which are not traditional competitors or banks,” says Khoury. “We all know that technology providers are entering payments and lending. Over the last two years, banks have realised the only way to ride that wave is to collaborate with fintechs, rather than putting them at arm’s length, to provide a single service to their clients. “Banks can participate in this journey in many ways. They can partner with fintechs through direct investment; buy or launch their own fintechs. Or they can open

Let’s collaborate, work together and, more importantly, since we are moving at a very fast pace, let’s not leave anybody behind

that’s the beauty of it,” explains Khoury. “The technology that allows us to redefine the future of finance, in theory, is already being used by other industries – look at retailers or ecommerce. We’re trying to bring that technology, in a very secure way, to the banking sector, along with the regulator and banks themselves. We’re taking their history and solutions and adding these technologies on top, to provide new services.” Collaboration is the way forward, he believes, including ‘open banking, open APIs, sharing of data’, for all of which Finastra wants FusionFabric.cloud to be a major catalyst, and all predicated on the platform-as-a-service principle. “Moving forward, it has to be about arriving at a place where financial services, including smaller fintechs, can come together in a marketplace, exchange

up their systems and utilise technology like ours to access multiple fintechs. “They need an intermediary, which is what we are offering, utilising the latest technologies to enable them to develop apps, via our open APIs, within a few months to just a few days. Our store then enables them to manage their app in the Cloud. Or they can choose one that’s already there, download and use it.” Thanks to this technology, the future is coming fast. Khoury concludes: “Let’s collaborate, work together and, more importantly, since we are moving at a very fast pace, let’s not leave anybody behind. “Take care of financial inclusion, narrow the gap for SMEs, get the money supply and liquidity up and running. At the same time, ride the wave of digitisation.” www.fintech.finance

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INFRASTRUCTURE

Incremental elevation: Approach migration in stages, says Taylor

step at a

Thought Machine Founder and CEO Paul Taylor believes Cloud-hosted banking infrastructure is irresistible. But how, if you’re an incumbent, do you achieve it? The answer is ‘carefully’ It’s been estimated that more than one in five adults have opened an account with a challenger bank in the UK, the majority looking for a higher degree of personalisation, reasonable and transparent fees, and superior customer service. Not much to ask, you might think. And certainly challengers, almost exclusively

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born in the Cloud, don’t have to worry about how their infrastructure will cope with delivering it: it just does. Legacy banks, on the other hand, have a tendency to ‘spend more of their time worrying about infrastructure than they do about banking’, according to Paul Taylor, CEO and founder of Thought Machine, whose software-as-a-service core banking platform, Vault, is designed to give them the head space to focus on the customer. Cloud-native Vault is becoming a go-to for new-to-market as well as Tier 1 banks. Notable among the latter is UK banking group Lloyds, which bought a 10 per cent stake in the company in 2018 during a Series A funding round and came back to support a Series B raise, led by Draper Esprit with an extension led by Eurazeo Growth that closed at $125million in July.

Lloyds has adopted Thought Machine’s ‘incremental approach’ to migrating its 30 million customers to Cloud-based services. Banking giant Standard Chartered, on the other hand, chose Vault to power its new standalone digital bank Mox in Hong Kong, while UK challenger Atom Bank uses it as its core. The fintech recently sealed a deal with pan-European banking service Monese, too, and ‘all your cards in one’ fintech Curve has selected Vault for its new Curve Credit offering. The Lloyds and Standard Chartered tie-ups are indicative of a rapid growth in partnerships between incumbent banks and infrastructure technology companies such as Thought Machine, revealed by a recent Banking Circle survey. It showed that 80 per cent of retail banks and 74 per cent of commercial banks in www.fintech.finance

Europe have worked with such providers. That’s good news for Taylor. “Banks have got drawn into becoming infrastructure-heavy companies,” he says. “Banking is about providing credit to customers, managing payments, managing deposits, and being a secure store of value for your customers. Its principles haven’t changed since banking was invented in the early Renaissance. But it’s nearly impossible for a bank to get its energy focussed on this because the demands from the technology and the constraints from the technology, the issues with regulators, the issues with data security, are dominating. “A big problem with traditional core banking systems is they really are designed for branches and, if not branches, then call centres; they’re really not designed for immersive, real-time, data-centric user interaction,” adds Taylor. “Many developers of apps have become very frustrated working in traditional systems because they just cannot get access to the information and the features they need. A modern core, that has been built to enable the bank to do whatever customer proposition it wants, frees them up.” That said, banks must select their infrastructure partners carefully. “What you want is a suite of technology providers that you trust to be capable, of doing what they say they can do,” says Taylor. “There’s no point in using a know-your-customer verification company if you’re just as worried about them as you would be about your own system, for example. It’s the same with the core banking engine. Our goal is that the bankers should just be thinking about, ‘how do we want this credit card to operate? How do we want these fees to operate? How do we want interest payments? How do we want to extend credit? How do we make all this available through apps to the customer?’. They shouldn’t have to worry about how it actually works under the hood.” Despite Banking Circle’s upbeat assessment of the sea change in attitude towards allowing infrastructure partners to take the back-end strain for a bank, Taylor says there is still a long way to go. “I would like to see banks get back to the core business of how to lend, create, and deposit money and from that I think we’d all be in a better place.” www.fintech.finance

With so much of the world’s new technology being developed using Cloud-based systems, that’s the best way for them to achieve it, too. “Cloud is the target platform for nearly every enterprise in a five-year time frame” says Taylor. “We also believe that it’s probably got a 15 to 20-year lifecycle. We’re happy we can build Cloud-native technology and not be looking over our shoulder for something radically different coming down the line in two to three years.”

The silent enabler One of the clear advantages that Cloud has over on-prem systems is scalability. “There’s technology scaling, and then there’s market and customer scaling. It’s not for me to say how a bank goes from a 100,000 to a million customers; they’re very clever at doing that,” says Taylor. “But the key benefit of the Cloud is what we call horizontal scalability, as in it should be able to deal with any level of traffic, with basically zero interference or worry from the bank.

Many developers of apps have become very frustrated working in traditional systems because they just cannot get access to the information and the features they need “Look at Netflix,” he says. “The key reason why it works is that if you were using a traditional architecture, you’d be freaking out as to how to balance all the streaming technology every day – and, as everybody knows, streaming demand doubled as everybody went into lockdown. A traditional architecture wouldn’t cope with that. But the Thought Machine system does; it’s been designed to. A genuinely Cloud-native system, written with a microservice architecture, employing Kubernetes and horizontal scalability, will give you unlimited traffic capability. Then a sophisticated core banking engine will give you the ability to add in all the products you want, in just the way you want.” Banks should look to the Cloud as a silent enabler, he says.

“I would be happy if not a single customer realised the bank was working on our infrastructure, working in the Cloud. What I care about is that it works, and that the end user is happy. If the end user is happy, then the banks will be happy.” Getting there, though, if you're currently operating on a legacy system requires careful handling. What he is not advocating is a ‘big bang’ migration; in fact, just the opposite. TSB’s monumental IT failure, which locked 1.9 million of its customers out of their accounts in 2018 ultimately costing it £330million, surely disabused banks of that idea. “I think it’s impossible to contemplate a big bang scenario now,” says Taylor. “These things have to be done carefully. I would say at least do it in two steps. Firstly, prove that the new architecture can do everything it’s meant to do. For example, create a Cloud-based copy of a traditional bank, run it with some new customers, who onboard organically, try out the systems, make sure everything’s working correctly. Hybrid platforms do not seem to have worked very well – it seems to be nearly impossible to get an API microservice architecture to operate efficiently with, say, an old-style credit card system, so most of the discussions we’re having with banks is about creating a completely new bank in the Cloud, where everything, the payments, card, anti-money laundering, onboarding, credit scoring systems, etc, are all, in some sense, Cloud native and they interact with Thought Machine’s core banking engine. “Once you’ve figured out how you get a genuinely Cloud-native architecture of all the components, then put together a product-by-product, or a region-by-region migration plan. Those two things together give you a good chance of getting it right.” Launching a speedboat bank is, by comparison, of course, much easier, as demonstrated by Standard Chartered’s Mox. But Taylor believes there is now an unstoppable force for major banks to go Cloud digital, judging by the conversations his company is having with many of them. “Those conversations are all versions of ‘within a five-year time frame we want to be in the Cloud and we want to be free of legacy. We want to be able to operate faster and operate without this enormous cost’,” says Taylor. Again, it’s not much to ask, is it? Issue 18 | TheFintechMagazine

DIGITAL SIBOS 2020

That was 2020! d, attracted a record crow ic, em nd pa 19 DVI CO rching s, driven online by the atured a lot of soul-sea fe da The first Digital Sibo en ag d ce du re e th sh insight into these troubled times, society, as well as fre lp he to e or albeit a virtual one. In m do to s ll tuned in ity realising it need frastructure. James Ta in l by a financial commun cia an fin d an s ie ents, currenc the digitisation of paym Exploring the future of money Since 1978, for one week every year, Sibos has brought the global financial community together in one place to explore the state of play in the industry. The popular annual event has plotted a course through some pretty momentous occasions: Sibos 1990 was held in Berlin shortly after the fall of the Berlin Wall, while, in 2008, thousands of bankers gathered in Vienna to firefight amidst the financial crisis. But, until this year, it had never encountered a global pandemic. In the midst of COVID-19, Sibos 2020 was moved online and delivered a condensed programme of content for delegates tuning in from their home and office – often the same place now, of course. The overarching theme for the conference was ‘driving the evolution of smart finance’, with speakers exploring digitisation, data, diversity and more.

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Whereas previous Sibos events have featured hundreds of concurrent conference sessions, meaning that attendees have had to power walk between different rooms, this year’s streamlined agenda included just 73 Sibos TV programmes and online panel sessions, spread across four days. With everything back-to-back, there was no excuse for missing anything. The digital format also resulted in the largest ever ‘attendance’, with more than 22,000 delegates registering. To put this into context, the previous largest gathering was 11,500, in London last year. While something intangible was, of course, lost by the inability to meet in person and converse, network, and strike deals with peers from around the world, Sibos 2020 still provided those watching with valuable insights into what is probably the most challenging market we’ve ever witnessed.

One of the most eagerly-anticipated sessions each year is Innotribe’s regular, flagship ‘Future of Money’ panel discussion, which brings influencers together to debate the very concept at the heart of finance, dissecting the socio-economic, political and cultural implications of money. The 2020 edition kicked off with author Lana Swartz, who recently released New Money: How Payment Became Social Media, explaining how, throughout history, money has typically been categorised by location or class (pre-French Revolution, for example, the rich didn’t use money – they just remembered obligations!), before becoming more general – and social – in our lifetimes. “We’re coming off the back of the 20th century where money became a mass media we all understood,” she said. “We used big, centralised infrastructures and www.fintech.finance

within five years, 43 per cent within 10 state-issued currency. But we’re now moving towards money as a more diverse, years, and 14 per cent as early as next year. The panelists backed up this more social currency that is tied to new bullishness. Changchun Mu from the technology. This may feel strange for People’s Bank of China confirmed that the many – but we should realise we’ve been country is now piloting its digital living with money plurality for years as currency, while Bank of Canada’s Scott we’ve used our Starbucks points cards, Hendry advised that the and so on, alongside bank has been looking cash. Moving forward, Banks have to harness at CBDCs for a few years we’ll see this plurality AI and other new and recently announced becoming more and technology to make that a decision on more important. digital payments and issuance is imminent. “The wider question is services better and faster. And in France, Société ‘are we going to be using PayPal and Square are Genérale has entered currency at all?’,”added now bigger than the into a proof of concept David Birch, principal of top 10 European banks with the French Central 15Mb Ltd. “In terms of combined – Jamie Dimon, Bank, looking at how to evolution, money was a JPMorgan Chase settle financial securities substitute for memory as through digital currency. we started to engage with more and more people. Social media and the Views from the top internet are pushing us away from that The Sibos team curated an impressive again... to a world where it’s artificial array of CEOs and famous financiers to intelligence (AI) and mobile devices that deliver keynotes. A recurrent theme are discussing what basket of assets you during this year of COVID-19, climate need to trade. People will become the disasters and George Floyd, was the vanishingly small part of transactions.” financial sector’s wider role in society. The opening address was delivered by Jamie Dimon, Chairman and CEO of CBDCs: a key moment JPMorgan Chase in the US, in which he The ‘Future of Money’ panel moved on to shared insights from his five decades in tackle new types of digital currency such financial services, and had some stark as Bitcoin and Libra, before inevitably messages around the pandemic. ending up at the rapidly-emerging idea of central bank digital currencies (CBDCs). SWIFT’s chief innovation officer Thomas Zschach was on-hand to discuss the banking co-operative’s thinking. “Just about every central bank is doing something to explore and evaluate options around a state-backed digital currency,” he said. “It’s being driven by wider changes in the economy and how rapidly, especially since COVID-19, everything else is becoming digital. So, simply put, money and payments have to ultimately become digital as well. Many central banks are looking at retail applications and use cases, but I’d say it’s still pretty early days.” CBDCs were a hot topic across a number of the week’s sessions. In ‘CBDCs: Ready For Global Take-off’ the moderator asked attendees to vote on a Slido poll about when they believe CBDCs will truly take hold. Interestingly, zero per cent said ‘never’, suggesting that the financial community believes it’s a question of when, not if.: 43 per cent said it would be www.fintech.finance

“The world was not prepared, but it should have been,” he stated. “COVID-19 has highlighted the cracks and flaws in how we run our country, but I do think the banks have responded well. We got our people working from home quickly, and it’s amazing how fast bureaucracy has disappeared! At JPMorgan, we saw $9trillion in volume one day – 50 per cent higher than normal – but our client service has been flawless. “In terms of social responsibility, our approach is evolutionary rather than revolutionary. George Floyd shone a spotlight on something that we already knew – in terms of jobs, education and so on, the black community has been left behind for years. It’s structural and we’ve not done a good job of tackling it. But, at JPMorgan, we’re working hard, as we always have, to advance black pathways.” Dimon also covered the role of technology and digitisation in changing the financial world as we once knew it. “Every management team is now asking what they can do with AI. It can figure out stuff that humans will never be able to. Banks have to harness AI and other new technology to make digital payments and services better and faster,” he said, pointing out that: “PayPal and Square are now bigger than the top 10 European banks combined.”

al punch: Packing a virtu racted a Digital Sibos att record ‘crowd’

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DIGITAL SIBOS 2020 Elsewhere in the programme, there was a thought-provoking conversation between Alison Rose, CEO of NatWest Group, and Lord Nicholas Stern, climate adviser to the bank. NatWest is taking a leading role in driving change, calling for every financial institution to think about how it can get to net zero carbon emissions in the next 30 years. This decade is critical, with experts highlighting that the world needs to cut emissions by 50 per cent to hit targets. “We’ve already lost two-thirds of biodiversity in the last 50 years, which has made pandemics more likely,” warned Lord Stern. “It’s time to think about true investment in the future, and remember that responsible investment has been shown to perform well by all traditional criteria. Financial institutions can be crucial leaders in the story; if the private sector is moving ahead of governments, then we can put pressure on them to move faster.” In the closing keynote, Citi’s CEO Michael Corbat stressed that the financial sector doesn’t operate in a vacuum. “We can’t help questioning if there is a better way to live and work – the social movements unfolding may point the way,” he said. “Us hard-nosed business people tend to see the world as it is, not as we would like it to be. “I believe there are three concepts at the heart of business that are due for reconsideration. The first is the notion of reciprocity. Traditionally, when it comes to the balance of trade between financial institutions, we give as much as we receive. But in a world racked with inequality, we owe more. We have a larger

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obligation to deliver fairness in how we hire, serve customers and promote talent. “The second is return on equity – for society. It’s about the changes we need to make to address balance and promote inclusiveness. So, when I now think about return on equity, I’m thinking wider. I’m thinking about things like equal pay for women, but also about the fact that banking is no longer just for bankers – it’s for fintechs, big techs and others who are involved in improving financial services. “The third is to do with re-examining ownership. There’s a difference between ownership and stewardship. Think about a forest. An owner may chop it down for timber, while a steward is more likely to think in generational terms. We should be stewards of financial infrastructure and the wider world.”

Outside influences A big plus point of Sibos is that it brings in perspectives from outside of financial services; new voices that can help the financial community to look at challenges from a different perspective. One of the highlights of this year’s programme was the Innotribe opening welcome, delivered by Mick Ebeling, founder and CEO of social innovation lab Not Impossible, who was recently named by Fortune Magazine as one of the World’s Top 50 leaders and is a recipient of the Muhammad Ali ‘Humanitarian of the Year’ Award. In an inspiring session, Ebeling outlined how all of us can make a positive difference by redefining what we think is possible. He discussed the accidental birth of Not

Traditionally, when it comes to the balance of trade between financial institutions, we give as much as we receive. But in a world racked with inequality, we owe more – Michrael Corbat, Citi

Impossible; the company was first conceived when Ebeling went to a benefit bash for Tony ‘TEMPT’ Quan, a legendary LA graffiti artist who was diagnosed with a progressive disease of the nervous system in 2003 and subsequently became paralysed. With his mind intact but only able to move his eyes, Quan had been forced to give up his art. Touched by his story, Ebeling organised a crew of hackers and artists to invent the ‘Eyewriter’, the world’s first low-cost eye-tracking device. It cut the cost from $15,000 to an accessible $100 and unlocked Quan’s ability to create again by just using his eyes. This first project taught Ebeling the concept of committing, and then figuring it out. Not Impossible has since gone on to establish the world’s first prosthetic lab, powered by 3D printers to provide Sudanese amputees with more affordable replacement limbs, and it is currently running Hunger Not Impossible, a simple, text-based service that connects kids and families in need with prepaid, nutritious, to-go meals from nearby restaurants. Ebeling’s message to delegates was: “overcome absurdities with beautiful, limitless naivety and remember that doing good is just good business.” He pointed to the brand benefits Intel received when funding the prosthetics project, backing up a recent Harvard Business Review study showing the quantifiable advantages and quicker growth enjoyed by companies with a strong social conscience.

Building the case for diversity In recent years, the issue of diversity has become more and more central at Sibos, as it slowly rises up the corporate agenda. The week’s final ‘Big Issue Debate’ saw a panel of experts argue that investment in diversity needs to move up a gear in order to improve risk mitigation, innovation and returns. Moderated by Julia Streets, founder and CEO/host of the Diversity Podcast, the session explored the potential economic and social benefits of seeding diversity among a client base, and considered how a more data-based approach could be beneficial. Glenda So, head of post trade at the Stock Exchange of Hong Kong (HKEX), favoured creating ‘some sort of measurement to help people identify problems and let people be encouraged or motivated by the progress’. www.fintech.finance

Innotribe’s ‘Contrarian Views On Digitisation’ session also picked up on the diversity theme. Theodora Lau, founder of Unconventional Ventures, challenged the view that technology has been a great leveller, pointing out: “In the US, the typical white family has eight times the wealth of the typical black family. Fintech is meant to democratise access to financial services, but it’s still inhibited by a lack of real diversity. Leadership teams are all alike, so how are they going to provide a real solution without an understanding of what it’s like to be from a low-income or marginalised group? As we assemble teams, we must think more about embedding diversity – of age, sex, experience, as well as race – to help target the right audience, measure what matters and engage with the right people.”

A fresh approach The digital format of Sibos 2020 itself increased the diversity of the sessions. Innotribe’s ‘60-Second Challenge: Ethical Dilemmas’ was a quickfire, interactive session with delegates voting on how they’d respond to each conundrum. Erin B. Taylor from Canela Consulting, for example, asked whether it’s sexist to provide financial services that are exclusively for women, such as female-friendly credit to help with access to finance. Fourteen per cent thought this was definitely sexist, while 35 per cent said not at all – we develop products for specific consumer needs all the time. Martin Gronemann from ReD Associates, meanwhile, wanted to know whether it’s ethical to make investment decision-making more or less automated. The audience was split, with 35 per cent believing that it should be more automated to drive better and wider decisions, versus 34 per cent who thought it should be less automated, because we lose something when we take away the human touch. Then there was the Innotribe Hackathon, which had been running throughout September and culminated during Sibos week. It tasked collaborative teams, drawn from across 23 organisations, with creating a prototype and pitch for a new product to illustrate how advanced AI and machine learning can solve challenges in three different areas: managing risk, enhancing customer experience and improving financial inclusion. The two finalists for each category, www.fintech.finance

Fintech is meant to democratise access to financial services, but it’s still inhibited by a lack of real diversity. Leadership teams are all alike – Theodora Lau, Unconventional Ventures

picked by a panel of industry judges, then made their final pitch and the winner was chosen, via Slido, by Sibos delegates. Some of the solutions were remarkable, given the short turnaround. The winner of the financial inclusion category, for example, explored using extended personal payment history data to provide better credit to the financially excluded. The team, headed by Finastra’s Philip Crisp, created a solution that leveraged Finastra’s Fusion open banking system, machine learning techniques and a know your customer service inspired by SWIFT’s KYC API (application programming interface).

The ‘big number’ moments Despite being exclusively online, Sibos was still the stage for some big industry news. This included Swiss digital banking platform Avaloq’s announcement that it was being acquired by the Japanese NEC Corporation. In a virtual press conference, CEO Juerg Hunziker, highlighted how each is recognised as a market leader in its own field, and explained how the deal will accelerate Avaloq’s long-term growth and global expansion. “After 35 years in business, we needed to think carefully about our corporate development,” said Hunziker. “We’ve found the perfect partner and the market thinks so, too – NEC was up 2.48 per cent on the Nikkei index on the back of this announcement. The Japanese and the Swiss both operate with a lot of respect, and we share a lot of values. We believe this partnership will be a

The weirdest thing that ever happened at Sibos… was a virtual concert featuring a split-screenful of senior financiers, jumping around in pyjamas, hitting kitchen pots and pans with utensils. I kid you not, Zoomers. If the worst you’ve experienced is a glimpse of your co-worker’s partner in the buff as they drift back from the bathroom during one of your out-of-hours team meets, then you missed a treat. The ‘closing event’ on Thursday saw C-suites reverting to their tiny selves as Tom Morley, the improv drummer from 80s band Scritti Politti, encouraged the audience to ‘make music’ with whatever they had to hand. Morley, who recorded with David Bowie and – appropriately – Madness is now a corporate trainer and entertainer. He was certainly the latter and, after the year we’ve all had, we needed that! successful one for employees and clients, as well as other stakeholders.” This new partnership highlighted what Sibos is all about: international and customer-focussed collaboration. Despite being forced out of its Boston venue, Sibos 2020 was a successful week that provided delegates with much food for thought as the financial community considers how to emerge from COVID-19 in better, not worse, shape than before. Issue 18 | TheFintechMagazine

NEOBANKS OF THE WORLD: CRYPTOCURRENCY

The very word cryptocurrency evokes a sense of entrenchment: a technology under siege, protected by layers of heavy locks, whispered secrets and Dan Brown-style enigmas; a distant castle of code to which most consumers see no bridge, surrounded by a moat of confusion, abstraction, geekiness, and early-adopter bravado. That was certainly the impression that Nick Jones, CEO of Zumo, had when he arrived on the blockchain scene three years ago. “What excited me, about blockchain, was the idea of a people-powered internet and people having sovereignty over their data, whether that’s financial or otherwise. That really got my juices flowing,” says Jones. “But I was fairly horrified at the cryptocurrency user experience, the complexity, the deliberate level of early-adopter snobbery there was around it – a bit of a boys’ club – and reputational issues, some of them deserved, some not. You know: the initial coin offering (CO) bubble, lots of borderline scams, centralised exchanges being hacked, difficulties with the on-and-off ramp.” This insular inaccessibility inspired Jones and co-founder Paul Roach, to build Zumo: a bridge over the troubled waters separating cryptocurrency from the financial mainstream. “We began by thinking there had to be a better way: we had to be able to build something that captures the self-sovereignty and decentralised nature of blockchain, but is usable by

ordinary people, because this is the whole point of these protocols being developed,” adds Jones. “They were supposed to make things simpler, more transparent, cheaper and faster for people to transact. Instead, it had become insanely, unnecessarily complicated.” It was putting off the very people it was designed for. So, in 2018, Jones and Roach got together in Edinburgh and founded Zumo, a fully-decentralised digital wallet and payments platform, which enables users to buy, sell, store, send and soon, crucially, spend digital money anywhere in the world. The mobile wallet, which will be joined by a debit card early next year, currently supports Bitcoin, Ether and sterling currencies, with US dollar and euro functionality due in 2021. Zumo partnered with payments-as-a-service firm Modulr

We realised early on that mass adoption was never going to happen unless we had an easy bridge between the new world and the old – a way of getting in and out

– currently favoured by Revolut; Sage and Liberis - to add British pound (GBP) functionality to the platform soon after Zumo’s launch in May 2020. This addition realised Jones and Roach’s vision of creating a ‘seamless fiat-to-cryptocurrency payments system’ through which users will soon be able to spend their cryptocurrency as fiat money anywhere a debit card is accepted. For Jones, this is the essential stepping stone for crypto-cash to enter mainstream acceptance. “We realised early on that mass adoption was never going to happen unless we had an easy bridge between the new world and the old, and a way of getting in and out. That’s why we’ve ended up building out our consumer product. “We’re not maximalists – we don’t believe hundreds of years of financial systems are about to be washed down the drain in five minutes. But we’re building a bridge between two parallel systems, trying to increase the interactivity between them,” explains Jones. Running alongside the consumer app and wallet is ZumoPay for merchants.

Building crypto bridges Nick Jones, CEO of Zumo, explains why his firm’s crypto-to-fiat payments wallet is a crucial stepping stone to mainstream cryptocurrency adoption www.fintech.finance

Issue 18 | TheFintechMagazine

NEOBANKS OF THE WORLD: CRYPTOCURRENCY A plug and play application programming interface (API), it allows instant crypto-to-GBP and euro conversion so that merchants never have to handle any crypto funds.

An accessible currency Zumo’s communications are humble and relatable, and the firm’s social media is scattered with jargon-busting posts, YouTube explainers and a cheery referral bonus to help engage users’ friends. Visit Zumo’s website and you’ll see bold mission statements like ‘smart money for everyone’ or ’creating a new fiscal democracy’. These slogans have some clout with younger consumers, 77 per cent of whom believe that ‘the traditional financial system is built to favour the rich and famous’. That’s according to research from Allianz’s Generations Ahead study. The same study found millennials’ financial engagement is shaped by their experience of the 2008/09 recession: 24 per cent saw their parents suffer a major financial setback at the time of the crash, and 57 per cent say that, as a result, they are unlikely to ever invest in the stock market. “They know it hasn’t been fixed since 2008, people are very aware of that,” Jones says of the financial system. These findings mean Zumo is big on trust – and maybe that’s why it’s keen to avoid being regarded by consumers as a bank. “We’re what’s known as a non-custodial wallet,” explains Jones. “So we don’t take custody of any of our customers’ funds, whether they’re a business or an individual user – and that’s one of our core differentiators: we give a genuinely self-sovereign experience to our users.” In Zumo’s introductory video, Jones says it even straighter: “We’re not bankers. Zumo can’t borrow your funds. We don’t invest it, loan it, lose it or even touch it – your money is always yours.” That’s because the cryptocurrency owned by Zumo users is stored on-chain, just like any cryptowallet, with the huge added benefit that Zumo customers can spend directly from their phone and, in future, from their debit card. Zumo charges a simple 0.5 per cent transaction fee whenever users transfer cash between the currencies the app supports. Having assailed the trust deficit, Jones is also interested in spanning that most talked-about gulf in the financial

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world: accessibility. That means looking to markets beyond the UK, many of which have a higher regard for crypto, largely as a result of disillusion with governments’ fiscal management and institutionalised corruption. “If you’re living somewhere in the world with an up-and-down central currency and hyperinflation, we probably do function as a de facto alternative to a bank,” says Jones. “In a lot of emerging markets, the communication challenge has kind of been settled by how unfit for purpose many of the traditional systems are there. Probably the hardest group to communicate with, in fact, are people in western societies, who don’t think it’s important. But in, for

as they roll out Zumo internationally. “We always seek to work with a partner or partners that can provide the regulated element, the local fiat element, so that we don’t have to go through state by state, or country by country regulation,” says Jones. In September, Zumo closed a Seedrs fundraiser over-target, with some 650 investors and £1.5million. That might have had something to do with Bitcoin trebling in value from March to August. An estimated 1.1million new cryptowallets have been created in the UK this year. Zumo itself has witnessed a 400-per-cent jump in cryptocurrency transactions across the platform since launching the app in May. Good news indeed for the Scottish fintech, whose offices are located

Global currency: Zumo plans to take its democratic finance model worldwide

example, Ghana, where consumers don’t particularly trust the banks anyway and don’t want to keep their money there, the main threat to your wealth is keeping your money in the house and someone coming in and stealing it. So, having the money locked up in a hyper-secure mobile wallet, which is not subject to hyperinflation makes a lot of sense to people. “In fact, we just did a social media report looking at the places in the world where the sentiment is most favourable towards cryptocurrency, and you can pretty much draw a map of those places: high adoption of technology and smartphones but a low level of trust and some economic issues with central banks.”

Global perspectives Zumo has an eye on African and Latin American markets, and the firm is engaged in conversations with Indian partners about rolling out its currency wallet there, too. Understandably, Jones and his team favour a strategy of building out local partnerships

a hop, skip and a jump from the iconic cantilevers of the Forth Bridge. But if Zumo is to emulate the engineering marvel on its doorstep – building a safe and convenient crossing between fiat and crypto currencies – it will need to appeal to as many consumers as possible. “If you’re a crypto native, we’re a cool, non-custodial wallet platform, with a fiat on-and off-ramp. And if you don’t know what any of that stuff means, and you’re somebody who’s just interested in the crypto space, then we’re a really safe and easy way to take your first steps into it,” Jones says. And that’s the key, it seems, to draining the moat around cryptocurrency. Consumers need to feel that their money is safe and secure when in crypto form. And they need to feel that their first steps towards the crypto-castle aren’t on a wobbly pirate’s plank but a firm, supportive and well-engineered platform between the old world and the new. www.fintech.finance

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NEOBANKS OF THE WORLD: KIDS’ FINANCES

A magıc formulla Teaching kids money management is a challenge for families across the world. US-based Greenlight is using its unicorn status to reach more of them, as CEO and founder Tim Sheehan explains How many times were you told as a kid that ‘money doesn’t grow on trees’? And how often, as an adult, did you wish it would? Greenlight, a two-million-customer strong physical and digital prepaid debit card and personal financial management tool for kids of any age, set out in 2017 to gently explain the financial basics while at the same time creating future generations of more financially secure grown-ups. It’s one of an increasing number of providers in this space, from America to Asia, Europe to Australia. In the UK there’s an excited crèche of them: Starling Bank launched its Kite debit card in September 2020, aimed specifically at six to 16-yearolds; Revolut got in on the act with its Junior prepaid and parentally-controlled account last year; and Gohenry, a comparatively old hand in the youth market, has now added a Teen account (13-18 year olds) to its portfolio. There are plenty of others, such as Nimbl and RoosterMoney, all experiencing a growth spurt, but each with slightly different demographics and subscription models. With a monthly membership fee of £2.99 per child and 50p per additional load (in any given month) on the child’s card, Gohenry, for example, isn’t the cheapest option out there. But with more than one million members in the US and UK, it has a well-established presence, having originally been rolled out back in 2012. Climbing strongly up the charts more recently, Atlanta-based Greenlight might disabuse kids of the notion that money grows on trees. But it can honestly encourage them to believe in unicorns – because, as of this year, it is one.

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Greenlight successfully raised $215million in its latest funding round in September, valuing the company at $1.2billion. Like ’digital piggy banks’ elsewhere, Greenlight’s prepaid debit card and app for kids is designed to enable parents to manage their children’s spending – the app being able to allocate specific stores or categories where kids can spend their cash. Other features include receipt of real-time notifications for mum and dad when the card is used, the ability for parents to transfer money to their child’s card for allowance or incidental expenses; and being able to manage weekly or one-time rewards, such as for finishing chores. Greenlight also protects the cardholder with a parent-controlled PIN number, ATM access controls and a feature automatically blocking wire transfers, money orders, lotteries and cashback from purchases. Later this year, the company intends launching an investment account, aimed at helping little Warren Buffetts build wealth over the longer term. The card is issued by the Community Federal Savings Bank in the US, which also holds funds.

SETTING A NEW GOAL Tim Sheehan, co-founder and CEO of Greenlight, describes the startup’s mission as ‘helping parents raise financially smart kids’ by shining a light on the world of money. That includes providing a card ‘with parental controls wrapped around it’. “There’s also a built-in savings account with the ability to create and track savings, so that the kids can visually see the progress being made towards their goal.” Given that most of the general population hasn’t received any financial

management education by point of leaving school, Sheehan argues that, ultimately, it comes down to how much parents themselves know. “And even if they do know, they don’t have a lot of time to teach kids these key concepts,” he says. They can, however, help set savings goals with Greenlight, and watch their digitally-savvy kids watch their money growing through the use of visual trackers, for example. The tools also give parents a practical means of teaching mathematics in a more entertaining way: adding up deposits and subtracting payments via a savings account ledger while, later on, their offspring can learn about the intricacies of compound interest as they watch their savings accumulate. Sheehan’s approach is based on sound educational psychology. He acknowledges the work of the late Professor Seymour Papert, the South African-born mathematician, computer scientist and www.fintech.finance

We’ve tried to build the product in such a way that it’s integrated into parents’ and kids’ lives so that the learning happens naturally

educator, who spent most of his career teaching and researching at the Massachusetts Institute of Technology (MIT) in the US. Papert was a pioneer of artificial intelligence (AI) and of the constructionist movement in education, which advocates studentcentred, discovery learning, where students use information they already know to acquire more knowledge. Lego Mindstorms (an initiative to develop programmable robots based on Lego building blocks) also came out of the MIT Media Lab, Sheehan observes. It’s an important point because: “If you let kids construct, or participate actively in their learning, they tend to learn much better,” he says. “With Greenlight, we’ve tried to build the www.fintech.finance

Do you believe in unicorns? Greenlight is living proof they exist in kids’ finance

product in such a way that it’s integrated into the parents’ and kids’ lives, so that the learning process happens naturally.” The lessons work – one 13-year-old customer even used it to kickstart his own book publishing business. Beyond that, a major consideration for Greenlight has been to make the registration and onboarding process simple. “As a parent, you sign up. You’re done. We send you the cards, you have full access to the app, your kids can log in to the app, and they can each see their own stuff,” says Sheehan. The new funding round will allow Greenlight to flex its digital muscles and educate kids across the full spectrum

of personal finance. That could mean, for example, designing apps for specific age groups, based on knowledge. “That’ll be another area we’ll look at,” he says. Fundamentally, the question he’s addressing is: “What things should you understand, growing up, so that you learn healthy financial habits? That’s really the key because it’s those habits you’ll take with you (through life),” says Sheehan. “We’ve tried to focus on what’s unique about Greenlight. We want to make sure we own the user experience and, over time, add more and more value to the product. As with any successful product, you need to consistently add content if you want people to continue buying it and/or subscribing to it. And that’s what you’ll see us doing.” Issue 18 | TheFintechMagazine

NEOBANKS OF THE WORLD: SMEs

It’s a sad fact of our modern value system that we equate size with success. The bigger the business, this flawed logic goes, the better –and those companies that have floundered on the Darwinian fight to the top have simply succumbed to their inadequacies, their in-built flaws. According to this creed, pursuing growth is obligatory, not optional; scaling-up is second-nature, not strategic.

SMEs – the beating heart of the US economy – are struggling. NorthOne’s CEO, Eytan Bensoussan, explains how his challenger business bank wants to help them not just survive but be recognised for the heroes they are

Yet, there are millions of small business owners in the US with no plans – and no need – to expand. Content with their slice of the pie, the proprietors of SMEs have often bootstrapped themselves to a position where employing a handful of people is a huge achievement: they’ve worked hard to realise their American dream. These aren’t economics majors on a crusade to add zeros to their net worth; they’re humble and provincial, and, together, they happen to employ half of all American workers. So, why is financial administration still such a nightmare for these small

and medium-sized enterprises (SMEs)? “Historically, small businesses have been a very difficult segment to serve for classic banks,” says Eytan Bensoussan, CEO of small-business challenger bank NorthOne. “They also have a lot of idiosyncratic needs that are unique to their business, so there’s no easy way to do a one-size-fits-all kind of offering. That makes it quite unprofitable to serve them at scale. “The other part of it is that, even if these businesses execute perfectly, they

still go out of business. As a financial service institution, you look at that kind of cohort, thinking ‘how much will I invest in a group of customers where there is a natural churn of up to 50 per cent within five years?’. It makes the balancing of a portfolio of investments much tougher. “And the vast majority of businesses will never get into corporate banking services. They’re going to stay a small business. That’s what they want. That is their definition of success. So they will be permanently underserved. And that’s the problem.” It’s one NorthOne has set out to fix. Founded in 2017 and launched in August last year, the digital bank has its sights set on the pain points that can be overwhelming for SME owners. Even if you have no experience with SME administration, you’ll know what these dread-inducing tasks look like: the inanity of invoicing; the tedium of balancing the books; the endless paper trail and the eternal siren sound of the tax return. “I grew up in a family of small business owners,” says Bensoussan, “and much

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of my childhood is filled with memories of sitting on my grandfather’s lap after he’d stopped working for the day. He was an electrician and he used one of those old calculators, with the reels, into which you’d type the numbers, and it would just spit out the paper. “This took hours and hours and hours. Much of my family had that same pattern: the anxiety around closing your books, the frantic search for invoices – this was the ebb and flow of my childhood. But when you start stepping back, you think ‘that’s crazy’. This was a good electrician – he should have been spending more time fixing wiring in buildings, rather than trying to close accounting ledgers’.” Why should skilled labourers and busy business owners have to wade through a Kafka-esque blizzard of bureaucracy just to do their jobs while larger firms enjoy access to a warming buffet of corporate banking services? That’s the premise from which everything flows at NorthOne.

Levelling up services Its mobile app – currently available in the US – is a timely intervention for admin-allergic SMEs. The app offers cashflow analytics and dedicated tax accounts. The derisking, de-stressing effect of these features is more important than ever as businesses bear the brunt of the economic impact of coronavirus. “COVID switched our unleaded fuel for jet fuel,” says Bensoussan of the impact it had on NorthOne’s growth. “We started seeing orders of magnitude more businesses looking for bank accounts that were untethered to branches.” It’s not difficult to see why: while stocks in the tech giants have been soaring, it’s SMEs that are suffering the sharp end of dramatically reduced footfall in towns and cities across America. To date, the pandemic has forced 70,000 US businesses to permanently close, leaving close to a million unemployed. Data from the Census Bureau suggests five per cent of surviving SMEs expect to shut up shop for good in the next six months, while a survey from the National Federation of Independent Businesses found that 21 per cent of American SMEs believe they’ll have to close if conditions haven’t improved by spring. This isn’t pessimism – it’s realism. SMEs in America are heading towards the gnashing jaws of two narrowing trends: lower www.fintech.finance

consumer spending and less federal support. The Paycheck Protection Program, which 70 per cent of SMEs took advantage of to keep their workers on the payroll earlier this year, is on course to end on a cliff-edge as Democrats and Republicans grapple over the finer detail of future fiscal safety nets. All the while, thousands of America’s much-loved ‘mom-and-pop’ stores – small-scale family retail businesses – are exposed to what’s looking more and more like a full-blown economic depression, the scale of which is still difficult to determine. And, in a year defined as much by Black Lives Matter protests as by the coronavirus, the Federal Reserve Bank of New York revealed that black-owned businesses were more than twice as likely to close as a result of the pandemic. All this underlines the fact that SMEs need help – life support, even – and providing it would serve to mitigate the inequalities that coronavirus has exposed in US society. NorthOne’s tagline commitment is to ‘rebalance the economy from the bottom up’ – and that starts with providing SMEs with accessible banking services with 24/7 support.

I grew up in a family of small business owners... the anxiety around closing your books, the frantic search for invoices. This was the ebb and f low of my childhood “Small businesses are overwhelmed by financial management,” acknowledges Bensoussan. “So NorthOne, at its core, is trying to fix this historical wrong, where the burden of financial management is thrown onto the small businessperson who’s been trained to be a dentist, or a mechanic, or an electrician – not a financial analyst.” Bensoussan and his team interviewed hundreds of small business owners to build their banking product – and with a subscription business model, they’re incentivised to keep listening as businesses continue to onboard with them.

“It’s a $10-a-month charge, and the thing we are incentivising is to make sure you come back next month. That’s it,” Bensoussan says. “The way we win is by every one of these customers coming back, month after month, and this forces us to, at the beginning of every month, reset and say ‘OK, how do we earn their business again?’.” NorthOne’s obsessive stress-busting philosophy – leaving no stone unturned in its mission to simplify financial tasks – extends to its mobile onboarding. It’s a three-minute process: no queues, no call centres, no hold music. “When we started building NorthOne, we said ‘it’s got to feel like you’re signing up for an Instagram account – something really easy to get on board with’,” says Bensoussan. “To be able to bring access to finance essentially to anybody with a phone in America, is actually really valuable. Branches are closing in rural areas – even in some parts of cities. With a smartphone, you don’t need to travel 45 minutes to open a bank account, you can just do it right from your couch.” Bensoussan’s background as an academic with a masters in business administration, and as an advisor with global management consultancy McKinsey & Co, has led him to believe that small businesses have the ‘potential to reduce income inequality, empower immigrants and provide disproportionate leadership opportunities for female and minority businesspeople’. In other words, SMEs aren’t just the beating heart of the economy – they’re also representative of its soul, its character, its moral compass. Firms like NorthOne don’t seem to believe in a survival-of-the-fittest economy of heavyweight monopolies, slugging it out for more and more market share. They’re in it for the little guy – a valuable ally for all the unsung heroes of the local economy in these turbulent times. “The small businesses of America don’t get to have their name on Time Magazine, they don’t get the fanfare – but they’re providing for their families and communities,” says Bensoussan. “They remain faceless to the broader world, but an enormous effort goes into making that happen, day in, day out.” NorthOne recognises their effort, equipping them with the tools they need to continue making it – even as COVID’s second wave crashes on their shore. Issue 18 | TheFintechMagazine

COMMENTARY: TRANSFORMATION Breaking bad: The COVID wrecking ball has exposed weaknesses and strengths

Banks post-Covid: The uncomfortable truth Fintech influencer and publisher of the Digital Banking Report, Jim Marous, is famous for telling it like it is. Here he discusses the report’s latest findings and questions if the wrecking ball of the pandemic will finally lead to true transformation There now appear to be two acceptable ways of feeling about COVID-19 in the banking world. Surveying the damage exacted on corporate budgets, customer numbers, employment rates, and personal lives across countries and sectors, it’s understandable that the first, gut-felt reaction is one of deep sadness and unease. The second focusses on the unexpected upsides of the pandemic and how banks managed to pull rabbits out of hats to weather the storm.

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But, as a growing number of banking executives interpret COVID as the incentive they needed to rip up old floorboards and deliver innovative products that would have otherwise taken years to roll out, there’s another truth emerging, too: of a polarised industry where the niche players and the behemoths prosper, leaving the vast majority in the middle squeezed. That’s according to fintech influencer, co-publisher and face of The Financial Brand, Jim Marous, and it’s one of a number of findings revealed in his most recent Digital Banking Report. Being privy to banks’ internal conversations provides reliable but disquieting insight, and it’s led Marous to conclude that, notwithstanding the impressive somersaults banks performed during the crisis, and the enormous impact that had on keeping the economic wheels turning, the impediments to true digital transformation that existed before the pandemic have not been fully overcome.

‘True’ innovation The World Economic Forum’s How Digital Innovations Helped Banks Adapt During

COVID-19 implied that the floodgates to transformation have been opened, But In one of Marous’ recent Banking Transformed podcasts, guest Sanat Rao, global head of Infosys Finacle, which provides core products to 200 banks, warned against interpreting such commentaries as the whole story. “One should not get too excited about the fact that, as a result of this transformation, innovation has really been accelerated… It is easy to pass off many changes as a result of innovation but I don’t think all of them can necessarily be categorised as that,” cautioned Rao. He used the example of UK banks increasing the contactless spending limit from £30 £45 at the start of lockdown, to underline the difference between true innovation – that being the fundamental rethinking of a system – and spontaneous change brought about by necessity or law. “No one wanted to touch cash, people weren’t able to interact physically. There was no choice,” he pointed out. According to his definition of innovation, only a handful of recorded initiatives during www.fintech.finance

the crisis – such as the Indonesian government’s repurposing of a stored value card for skills programmes to a benefits payments card for cash purchases – were in fact pioneering. The Innovation In Retail Banking 2020 report backs this up with statistics showing that bank executives ranked their own performance as having been significantly ‘less innovative’ than last year, despite increased transformation. Actions were simply reactive to client behaviour, which changed overnight and by brute force to reflect health and safety requirements. Marous says ‘faking digital’ still persists. “That means having a digital app, being able to check off a box and say ‘I have digital account opening’ or ‘I have digital loan engagement’ is not enough. It’s not about taking what’s currently there and just putting it on a digital device.” At the start of the pandemic, banks were ‘forced into digital for two months’, says Marous, but most never provided the digital ease and speed that is required. “They opened up the drive-through teller, then they opened up banking-byappointment. In the last two weeks, I’ve had two sets of companies ask ‘what should we do about building our interactive teller machines?’ Don’t buy them, obviously! I mean, why are you trying to build an interactive teller machine if, to keep customers safe, you don’t have as many coming into branch?” Aside from the very largest corporations, like Chase Bank, which have enough financial backing to support a network of empty, low-earning buildings through foreseeable lockdowns and increased customer phobia of high-traffic zones, Marous urges re-purposing real estate as swiftly as possible and redirecting resources towards the real survival tools – Cloud computing, embedded banking and AI support among them. According to his research, transaction volumes in branch were already 60 per cent down on what they were 10 years ago, before COVID-19 cut them down by another 40 per cent. “Don’t keep investing in the branch structure. In fact, you may be better off selling that branch structure, or giving it to the community,” Marous urges banks. “We have to get out of the mindset of how we make our branch customers happy. They lived two months without branches. They www.fintech.finance

can be kept happy. I’m not a proponent of closing all branches – but customers don’t need them the way they need digital today.” He attributes the fog of fake digitisation to crisis marketing and the old chestnut of legacy culture combined with vested professional self-interest holding back transformative innovation, when the Cloud computing has put it within every bank’s reach. “If the culture doesn’t change, what we have is a legacy fiefdom down the whole organisation” says Marous. “Most leaders have been at that bank for 30 or more years. They have surrounded themselves with people that came up through the ranks with them. Nobody wants to disrupt what‘s currently working, and, even if it’s not working, they could be as long as 10 years away from retirement and thinking ‘there’s more risk than reward here’. Unless the culture can be changed because the leadership wants to change by embracing it, taking risks and disrupting themselves, what they are left with is an organisation with a vested interest in what they’re doing today, not what they can do tomorrow.”

Caught in the ‘blind zone’ The Great Acceleration Review of sectors’ revenue performance before and during COVID, published by consultancy McKinsey in July, showed that out of 23 industries globally, banking is projected to suffer the single largest revenue loss, and is stuck in not only the bottom quartile, but on an accelerated downward curve. Its advice is to them is to embrace a bold, radical portfolio or restructure their industry. The Digital Banking Report’s findings give a more nuanced, if still troubling, perspective. It can be paraphrased as: the larger traditional institutional and neobanks are still faring well; they’re getting funding, they’re investing in digital technology and they are growing. The smallest organisations are also doing well because they had less needs so were able to pivot quickly. But mid-range organisations have found themselves in what Marous terms a ‘blind zone’. They’re

not functionally efficient, they’re hampered by legacy tech and culture and, unlike the big banks, they don’t have the cash to invest in changing it. “We’re seeing this in all our research on innovation, digital transformation, financial marketing, customer experience and use of data,” says Marous. “The middle range bank is stuck between ‘we know exactly what we need to do and how we can do it, but we don’t do it’ and, on the fintech side, ‘we thought we had a solution here, there are four other solutions in our space now that are bigger. How do we get scale and funding?’. Unfortunately, a lot of fintech firms were built around the funding mechanism. That was easy. Now they’ve got to look at how they make revenue.” If what his research shows is true, some very familiar organisations need to begin to rethink their business model, prepare to be bought out, merge, or melt away. Meanwhile, Marous highlights neobanks such as Chime, Dave and Varo in the US, and WeLab in Hong Kong, as pointing to a way forward. They are all examples of models built on the Cloud, using data to fully realise ‘embedded banking’, which treats customers as individuals. According to McKinsey, embedded solutions will become a market worth more than $7trillion by 2030, twice the combined value of the world’s top 30 banks today. And that focus on individual customers is something that has resonated during the pandemic. As Sanat Rao of Infosys Finacle told Marous, the need for banks to demonstrate empathy – and often the demonstrable lack of it – was exposed during the pandemic and consumers will have long memories. “Given that COVID-19 has been such a traumatic experience for many people, customers, whether they are individuals or small businesses, will remember their experiences during this period,” said Rao. “They will very well remember which banks showed empathy and were able to react and offer them the kind of support and services they required – and which banks forgot to do that.”

We have to get out of the mindset of how we make our branch customers happy. They lived two months without branches. They can be kept happy

Issue 18 | TheFintechMagazine

PAYMENTS: ARTIFICIAL INTELLIGENCE

AIR we go again! Fintech Finance Executive Editor Ali Paterson discovers more about version 2.0 of SmartStream’s groundbreaking reconciliations program, powered by fast-learning AI, from CEO Haytham Kaddoura ALI PATERSON: It’s a little over a year since you launched SmartStream AIR, your first Cloud-native product to apply artificial intelligence (AI) to reconciliations, at Sibos. This year‘s event was held under very different circumstances, but you were there, rolling out version 2.0 already. So, what have the last 12 months taught you? HAYTHAM KADDOURA: Running AIR 1.0 with major Tier 1 institutions has given us a good understanding of where AI adds significant value to their operations. As a result, we realised that there is even bigger scope for the service. So, our innovation lab in Vienna has been working on making AIR even better by incorporating features that have never been seen before in the industry. Chief among those is Affinity. This is AI that learns not only from what people do – but also from what they don’t do. It’s called observational behaviour learning and it’s pretty much what we all, as human beings, do from a very young age. We look at how we can apply that to the reconciliations space. Once the records have been matched, there are 10-to-11 per cent of exceptions, on average, that need manual intervention. That represents billions of dollars of cost for institutions, as well, of course, as additional risks. Our AI engine observes the operators, how they do the manual matching, and makes its first assessment of that data directly based on the history of what that institution has been doing, on how the records were being handled,

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in the past. Affinity then goes into live learning mode, observing in real time as operators change the rules and regulations, and the matching criteria. Applying that learning pushes up efficiency significantly – it means we are talking way beyond 98 per cent – more than a typical reconciliation platform. Reducing an 11 per cent exception rate down to two per cent has massive impact on a bank’s operations, whether you’re looking at capital-as-a-service or cash and liquidity management, it trickles down through most financial institutions and has an impact across different functions – because, in today’s world, we’re looking at many more people working from home with the increased potential that creates for errors, combined with massive growth in volumes of payments data and additional regulatory pressures. AP: So, let’s address the elephant in the room here… AI takes over tasks that were performed by people. So, why not just throw a huge number of staff at this problem instead? HK: Doing it the old way, throwing people at it, is exceptionally difficult these days. It’s hard to onboard them and they don’t have the physical environment where they can interact with each other and validate. Now that workforce is heavily work-from-home oriented, that actually creates exponential problems. By contrast, AIR, which learns from observing behaviours, has a massive impact on speed and efficiency, and allows people to really focus on what’s important – and that’s the exceptions. What our AI takes over are the relatively mundane tasks, so that the people can be skilled up to make more meaningful and strategic contributions within institutions. In very few instances have I found that the introduction of AI has led to the ultimate dismissal of people; it’s more about re-skilling and re-utilising them because there is a significant skills shortage across the board, especially for these operational roles. Whether it’s us, our competitors,

financial institutions or our clients, everybody is looking for the same people. And everybody wants to put them to more strategic use. Sometimes AI is incentivising people to upskill. There’s a generational change, too. Accepting mundane roles is becoming less and less attractive to younger generations. AP: We’ve seen, during recent months, a huge increase in the volume of payments, I’m talking specifically about low-value card and wallet payments. If you’re doing a million reconciliations every hour but then, in a year’s time, you need to do 20 million, how does adopting AIR help with that? HK: That’s the beauty of a Cloud-native platform like AIR. It was built from scratch on Cloud technologies, so it’s able to expand by hundreds of times the existing volumes of some institutions. During lockdown, it was quite difficult – and still is, in certain geographies – to physically expand the hardware. We’ve seen instances of institutions reporting tenfold growth in volumes during the pandemic, which, of course, were totally unplanned for. But we coped with it. A Cloud infrastructure, as opposed to a physical one, allows for much, much faster expansion and adaptation. AP: We’ve been focussing on SmartStream AIR but, of course, you have a huge number of other products – not least your Reference Data Utility (RDU) – and managed services. How does AIR 2.0 work with the rest of the SmartStream portfolio? HK: Well, for a start, we are usually the first client for any new product. So, when my innovation lab comes up with a technology, we insist that it is first run within SmartStream’s managed services. We build our models based on maximising operating efficiency for us, and that translates into greater savings for our clients. So, AI is fully embedded within our managed services and the benefits our www.fintech.finance

clients get from adopting AI within their environments directly are exactly the same as the ones we are driving for. AP: So, the Reference Data Utility (RDU), for example, is using AIR 2.0, which lowers its costs, and those savings are passed on to clients. So, even if they’re not a direct customer of AIR 2.0, they are benefitting from it? HK: Exactly, we tend to share the upside and clients expect that. I’ve had a lot of discussions where a bank’s senior management expects us to be building efficiency into their process and, subsequently, lowering what we charge them, over time. And that’s the proper model. Yes, there are higher onboarding costs, but that trickles down, with time, as a result of efficiencies. AI is also being deployed and embedded within our flagship reconciliations solutions. In addition, we're also looking into areas such as intraday liquidity stress testing for our cash and liquidity management solutions. So, yes, the impact of AI is exponentially growing, both internally, in what we utilise as services, and in what our clients need.

AP: Decades ago, banks would try to keep everything in-house. They’d have their own internal datacentres, their own developer team, etc. New entrants are born into an ecosystem – a forest of services, so they don’t, for example, have to worry about being a specialist in know your customer (KYC). How do SmartStream and AIR fit into this ecosystem? How do they work within the marketplace of third-party providers? HK: Surprisingly, you still have the odd financial institution that insists on doing it themselves, and, nine times out of 10, that project is halted within a year or two, due to cost overruns. There is value in giving projects to a company that is experienced, knows what the best practices are and has learned from multiple institutions. We can simply do it faster, much more efficiently, and have proven it, over and over again. We’ve been handling managed services for financial institutions for almost five years now, and we’ve seen a massive jump in demand. It’s expanding because it hits clients’ bottom lines very fast, in terms of the efficiencies we bring, both from a cost and an operations perspective. Right now, it’s super hard to build a business case where a financial institution needs to bring in the hardware and the people necessary to run something non-strategic.

I don’t think there is an option for anyone running any significant reconciliation not to have AI-enabled technologies

AP: Banks do have a bit of a reputation for investing in technology and then not using it properly – and with an incredibly powerful AI tool like AIR I’m guessing that could be a danger? HK: The beauty of AI, and the way we are rolling it out, is that it requires minimal intervention from the technology gurus at financial institutions. It’s like downloading an app on your mobile phone, clicking it, running it, uploading the files… it’s self-explanatory. I’d say practically idiot-proof. For any client that wants to come onto our AI platform, it’s literally a matter of taking out a subscription. They just drop us a line, we enable access to our Cloud platform and, either through Amazon Web Services (AWS) or Microsoft Azure (and, by the way, we’re looking at other platforms), it’s done. They can hit the ground running within less than a day. www.fintech.finance

Shareholders have an eye on that. They expect performance. If it’s not a strategic or core function, and therefore one that could be outsourced, it doesn’t make sense to bring it in-house. AP: Returning to SmartStream AIR, what are the future potential use cases? Is there an opportunity to apply this technology to elements like security and data analytics, or are there other, unexpected areas where AIR can be deployed? HK: We're looking at heavily transaction-driven industries, from telcos to transport and insurance. More broadly, the impact of AI will continue to grow, even in our day-to-day lives, where we see it impacting on everything from our washing machines to our fridges and the way we run our cars. It’s making our personal lives easier, and makes the work of financial institutions and other of our clients easier, too. When it comes to reconciliation, I don’t think there is an option for anyone running any significant reconciliation not to have AI-enabled technologies. It’s nonsensical. You’ve got something that makes it more efficient, smarter, less error-prone. Why wouldn’t you adopt it? Will there be disadvantages? I don’t see that many yet. Whenever new technologies are introduced, there are implications for resources, for the way we run our lives… but then it’s a matter of transition.

Intelligent choice: SmartStream’s AI is accelerating reconciliations

Issue 18 | TheFintechMagazine

PAYMENTS: NORDICS Flying the flag: SEB is enabling fast crossborder transactions for the Nordics

is for payments Next year, the Nordic countries will introduce a new, crossborder payments system that replaces domestic clearing houses. Driven by the region’s six big banks, it’s an example of how they can build trust and deliver superior customer service, says SEB’s Head of Transaction Services, Paula da Silva Frantically digging around in your wallet to find a bank card will one day be a thing of the past. Future generations will instead ‘consciously agree’ to pay, even if they don’t physically authorise a transaction, with payments embedded in everything we do – particularly when it comes to the more mundane tasks. Want to buy a movie, as you do every time you turn on Apple TV? Your system will recognise that and pay for it accordingly. Run out of groceries? Your smart fridge will put an order through for you automatically, just as it did last week. A pipe dream for now, but perhaps not for as long as we think. Payments are

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becoming increasingly frictionless and real time – particularly in the Nordics, where countries have long led the way in cashless transactions. “The banking industry cannot be the hindrance to the Internet of Things being adopted,” observes Paula da Silva, head of transaction services at Sweden’s SEB, which is also the Nordics’ leading corporate bank. She’s seen the bank transform its payment services almost beyond recognition as society and technology have evolved over the past 30 years, and she is only too aware of the commercial incentive and systemic importance of incumbent banks in the payment space. Right now, she’s in a position to make sure they are doing the right thing.

SEB is one of six of the region’s banks that have joined forces on the P27 initiative – the first, bank-owned panNordic payment infrastructure for Nordic currencies and the euro. The name derives from its ambition to facilitate payments for the Nordics’ 27 million inhabitants. Da Silva is currently chair of P27, although she makes it clear that it will ‘eventually have an independent chairman, according to the rules and regulations of the shareholders’ agreement’. Meanwhile, she has been facilitating the set-up of the company, a task she has clearly relished, precisely because it facilitates the seamless data journey and circle of trust that she believes banks have the ability – indeed the necessity – to build. www.fintech.finance

Along with Sweden’s Handelsbanken and Swedbank, Finland’s Nordea and OP Financial Group and Denmark’s Danske Bank, SEB is helping to create not just Europe’s, but the world’s, first crossborder payments platform in multiple currencies. P27 is due to go live by the end of 2021. Its major, immediate impact will be to give individuals and corporates the ability to make payments across accounts in the Nordics in real time, explains da Silva. But in order to achieve this goal, there will need to be trusted mechanisms put in place to replace the traditional correspondent banking routes – and that means a great deal of upheaval for the banks involved, not least in the way they manage data. “Today, you have an account with us, we have an account with the correspondent bank, that bank has an account with the customer,” explains da Silva of the current procedure for sending, for example, Swedish krona to Norway or euros from Finland (the only country in the Nordics to adopt the euro) to Denmark. Trust in the correspondent banking system is implicit. The secret to crossborder, real-time payments of the future will be having what she calls a ‘closed circuit’ of trustworthy partners, with systems such as P27 in place to ensure the parties are who they say they are from the outset. “You can create mechanisms that ensure whoever is in that closed circuit is a trustworthy party, and then you can let the money go,” she says. She cites Sweden’s peer-to-peer payment system Swish, which enables both consumers and corporates to make quick payments by smartphone, as a good domestic example of how such a platform can work. “That can definitely be extrapolated between countries. You need to use the same mechanisms of trust,” she says. That theme of trust is central to payments, whatever the context, and comes up time and again in da Silva’s analysis of the banks’ role in modern payment mechanisms. It’s important that we trust that the contract between the buyer and the supplier has been set up correctly, and trust is embedded in the way banks use data analytics to sort routine automatic payments from those that need flagging to us. www.fintech.finance

“Most of your life – 90 per cent or more – you do the same things over and over again,” says da Silva. “We don’t need to alert you every time you pay rent, for example, but what if we see a really high bill from a restaurant that you’ve never been to before? “We don’t need to inform you every time you make a payment because, most of the time, you have chosen to do so yourself. That’s where data comes in. We can use it to predict your behaviours and when those behaviours are out of the ordinary, whether you are a company or a private individual, and we inform you about it, as a customer you take trust from that. You know we are watching over you. That’s what we are trying to achieve.” To get to that point, however, requires data handling in the back office to be radically different from how it used to be segregated between departments for their own discrete use. One of the biggest lessons da Silva has learned over the years is the importance of ‘getting your house in order in the back to be really good at what you do at the front’. “When you look at the end-to-end customer process, you understand that the back office is really the cumbersome part, but also the one that will make a bigger impact,” she says.

You can create mechanisms that ensure whoever is in that closed circuit is a trustworthy party There have, of course, already been many significant changes in back office processes. Da Silva harks back to her early days with the bank, taking payment orders and sending them by post. “When a customer asked ‘where is my payment?’, it was difficult to answer. But often they accepted that it took two weeks for it to reach whatever country and enter their account. That was OK but now they want it like this,” da Silva adds, snapping her fingers. “It’s pretty different.” The impact that is having on the back office is seismic. And the most important thing banks can do in response – in fact the thing they have to do if advances such

as P27 are to be successful – is remove departmental ringfencing of information. Da Silva believes banks now need to create a new role to manage this. “We don’t have this kind of role in banking’s DNA; we have credit people, front office staff and so forth,” she says. Citing the example of payments data, da Silva explains: “If you’re using that in the markets area, or in the financing area, you cannot go and alter it. It needs to be static so that it’s predictable; so, field 12 needs to include exactly the same thing. To make sure that happens, you have to have people that are responsible for driving that data across the bank. “It’s a big undertaking but very important – for the industry, the bank and the customer – so that we have a predictability in what they use from us and know how we can best serve them.” Streamlining back-end data processes comes with other benefits – notably in compliance. While the changes may be painful during the transition, the uniform presentation of data that systems such as P27’s platform will require, for example, matches up with what many regulators are looking for and makes the whole job of reporting easier. “The good thing about what is required from regulators, right now, is that we need to do the same exact work for our customer offering. So, when we have the structured data with which to report to the authorities, we have the same structured data to be able to predict our customers’ needs.” P27, when it arrives, will be a triumph of co-operation between big banks that have done things their own way for a long, long time. The utility of the idea is clear: “Instead of having domestic clearing systems, we will have Nordic ones across the countries and currencies up here. And that, of course, means we won’t have to invest – all of us, in four different countries – in goodness knows how many systems,” says da Silva. “It’s a way of getting together and using our combined investment strength to make sure we have something that is good for the community.” It’s an historic change she’s helping to steer. “Yes, something to tell the grandchildren,” says da Silva. And then she pauses. “Only, of course, they won’t know what a payment is, because by then it’s all going to be embedded!” Issue 18 | TheFintechMagazine

PAYMENTS: ECOMMERCE

GETTINGYOURCLICKS The etail explosion spurred on by COVID-19 is a golden opportunity for the industry – if it can collaborate over payment security, says G+D Mobile Security’s Vice President Jukka Yliuntinen

Hands up if delivery services like Amazon have become your fourth emergency service during lockdown. The biggest example of an online retailer stepping in to help consumers access supplies and stave off boredom during months out of social circulation, this megalith of ecommerce isn’t the only one to come into its own as a result of COVID-19. In fact, the unprecedented circumstances sparked by the pandemic, which has characterised much of 2020 so far, have sent an already significant trend towards ecommerce spiralling upwards. Thanks to increasing numbers clicking to source everything from household essentials to entertainment since March, Goldman Sachs has revised its growth predictions for ecommerce upwards – from 16 per cent per year for the next three years, to 19 per cent. In its July report, the US bank stated that ‘we’ve seen an acceleration in innovation over the course of the crisis as companies have rolled out curb-side pick-up programmes, contactless checkout and personalised consignment deliveries, and retailers and marketplaces have adapted to reflect the shifting needs of consumers focussed on the new essentials’. Meanwhile, in the UK, footfall in retail stores is still – eight months into the pandemic – almost 35 per cent down on last year’s levels, suggesting that those businesses still here are also conducting more of their sales online. All of which is pushing online payments, and the associated need to ensure payment security, right to the top of the finance industry’s agenda. Yet, just as the requirement for enhanced security becomes stronger than ever,

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regulators like the UK’s Financial Conduct Authority have been forced to re-think their implementation deadlines for the introduction of the new Secure Customer Authentication (SCA) regulation, which will help to provide that protection – from 31 March to 14 September, 2021. The main issue forcing this delay is a lack of industry consensus around how it should be achieved, with the one-time passcodes (OTPs) currently being used by many organisations widely viewed as cumbersome and inadequate, and different organisations favouring widely varying solutions, from biometrics to tokenisation. The complexity and cost involved in bringing their online operations up to spec means many smaller merchants have been slow to respond, which is understandable, given they are still focussed on survival. Balancing seamless user experience with the necessary security uplift is no easy task for the processors either, with authentication hurdles oft-cited as a major cause of shopping cart abandonment.

Merchants are increasingly making the decisions about how payments will be made available Meanwhile, as these implementation crinkles are being ironed out, an already burdensome fraud problem is accelerating rapidly. Enter key players like mobile security expert Giesecke+Devrient (G+D), which has experience in the security of all payment types and is working closely with issuers and merchants, as well as card networks, to find solutions that provide a virtually imperceptible payment experience while keeping payments secure. Founded in 1852, G+D offers both physical and digital security technologies used by millions of people, worldwide, every day, to pay by cash, card or smartphone, interact with their cars or use their identity documents while travelling. It has led development of biometric cards, and a relationship with Crédit

Agricole on a combined chip and fingerprint recognition solution is one of a number of productive partnerships it has established to push this technology forward. Card giants Mastercard and Visa are also both active in this area, using G+D technology to offer their Visa Ready and Mastercard Biometric, fingerprint-based solutions. Tokenisation and dynamic card verification are among the other SCA-related developments taking place – where banks can turn account numbers into tokens placed into physical devices or ecommerce systems and mobile transactions, to bar access to fraudsters. In July, G+D was approved by Mastercard as a ‘digital activity customer’, enabling it to onboard and make technical and commercial services available to third-party businesses wishing to enable digital payments in fields like Internet of Things (IoT) and card-on-file (where ecommerce providers store customers’ chosen payment details to enable uninterrupted transactions) through the Mastercard Digital Enablement Service (MDES). While card-on-file solutions are becoming more prevalent, they aren’t without risk, as significant hacking incidents over the past couple of years, including the Easyjet breach in May 2019, which saw nine million customers’ details stolen, have shown. G+D has supported calls across the industry for more discussion and collaboration over SCA implementation, as studies show the average person has 90 different online accounts and needs to authenticate themselves 45 times a day. Agnostic about which payment method it supports, G+D offers security solutions for all of them but is part of a collaborative industry movement calling for universal standards to bridge the usability/security gap.

Up for the challenge Jukka Yliuntinen is responsible for G+D’s digital product portfolio development. He says: “Online payments have seen phenomenal growth over the last decade, www.fintech.finance

but even more during the last couple of years. Retailers and merchants have seen a huge increase in capabilities for offering their services online, and there is increasing consumer demand for online shopping because it’s so easy and they can pick and choose, compare and get home delivery.” And for these online providers, trying to ensure SCA compliance while opening up their APIs for authorised third-party access to customer data, collaboration is key. “We’ve traditionally been about helping issuers provide means of payment, from cash to cards, including payment devices in the field,” says Yliuntinen. “With digital, the same applies. We enable issuers to have their digital payment cards enabled in different types of wallets and endpoints. “But merchants are increasingly making the decisions about how payments will be made available and in that sector we now provide services for digitising cards-on-file, where there is a big market. “For example, Amazon recently announced that, together with Mastercard, it will tokenise all its cards-on-file [in 12 countries including North America, Latin America, the Middle East and Europe], which is consumer-friendly because, beyond the payment, no details are stored and, even if the merchant database is compromised, you’re not compromising the card. “The other area is authentication, especially SCA, because it’s essential to know who is making a payment. It needs industry-wide networks of issuers, acquirers and vendor communities, like us, contributing to that security, user-friendliness and performance,” says Yliuntinen. G+D is taking its own steps to help solve this industry-wide dilemma. “We recently, announced that consumers can use their Europay, Mastercard and Visa (EMV) contactless card as a second form factor for strong authentication, to increase security by combining smart card-level hardware with tapping their own near-field communication phone rather than a point-of-sale terminal,” he adds. Working at every stage in the payments value chain gives G+D a privileged perspective on stakeholders’ relative strengths and weaknesses. www.fintech.finance

“From the security point of view, you cannot do it alone, you are always dependent on somebody else,” says Yliuntinen. “The issuer is dependent on how the whole transaction flow goes from acquiring back to them. And then there are the devices and software or hardware, that need coherent, end-toend security. Big techs and IT giants like Apple, with its Apple Pay, Apple Cash and now Apple Card, have a really strong position and are gaining market share. Internet is enabling payments and online shopping, and these players have the means to do it, from enabling the devices, such as mobile phones and tablets, through to the software and services. “Traditional players like issuers, acquirers and the banking community have a chance to compete, but they need to act much faster, to offer trust, which is the advantage they have. They have fairly good solutions, and are, ultimately, the ones that have our money deposited with them.” As co-chair of Mobey Forum’s Digital ID Expert Group, he urges banks to wake up to this opportunity to be the guardians of payment security. Last year, the Forum called for banks to take charge of national identity systems. It renewed that call in the context of track and trace systems

for combatting coronavirus this summer. The reasoning is clear: inherent consumer trust makes banks the ideal guardians of digital data verification schemes that protect consumers during data gathering to support everything from ecommerce payment verification, to coronavirus infection control. Whether banks are willing to step into such a potentially politically-charged role remains to be seen. But, notwithstanding the challenges around getting SCA right, Yliuntinen believes it could help the whole economy – not just the big guys. “It could pave the way for an etail explosion, with more, and smaller, retailers getting involved,” he says. That’s not to deny the resource, cost and technical challenges they face in doing so, but, given the current threat to the survival of traditional stores, do they have a choice? “Online will be dominating, including new services created by COVID, like ordering lunchboxes online, which made a big difference for small restaurants. Small businesses have found that this new way of selling could be very good for them.” It could, in fact, be a lifeline.

ed: and spe Security nsure one e How to g promisin m o c t u o e th with is r e the oth tion big ques

Issue 17 | TheFintechMagazine

COMMENTARY Resilient in a crisis: Bank of America saw massive increases in digital deposits, traffic and clients

The

year of digital acceleration If fintechs are an ever growing part of the banking future, the pandemic has underlined why established banks are still the bedrock of our financial system. And when it comes to large global banks, few have stronger roots and better credentials than Bank of America.

As one of the world’s leading financial institutions, Bank of America provides individual consumers, small and medium-sized business and large corporations with a wide range of banking, investing, asset management and other financial and risk management products and services. And, like every other financial institution, it is closely managing the long-term impacts of the coronavirus. A bank of its size and historical resilience tends to inspire trust, and there’s no question that it has a wealth of experience and resources to provide the direction and stability needed to help rebuild economies and manage business balance sheets. Paul Taylor, who heads the bank’s global financial institution division for global transaction services, is well-placed to comment on what he sees as a re-evaluation of priorities as a result of the global health crisis. “Strength and stability will always be www.fintech.finance

Paul Taylor, Head of Global Financial Institutions, Global Transaction Services at Bank of America, looks back on 2020. He discusses the ongoing need for security and stability, and why established banks continue to be important for customer confidence and delivering the right technology some of the top priorities for clients,” says Taylor. “They want to know we can deliver the right technology, and how we are set up to handle liquidity, credit, country, counterparty and client risk, and, of course, know your customer and compliance. “Big banks have the scale and the right security focus and investment, which engenders confidence and helps to keep clients safe,” he continues. “And, beyond security, we also have terrific insight into market trends and needs. We are data warehouses on a grand scale, with deep knowledge about transactions between different

counterparties, and different countries and currency corridors.” All of this data and artificial intelligence (AI) is hard to replicate and manage for most companies, says Taylor. He notes the bank invests around $10 billion every year in technology, $3billion of which is channelled into development initiatives. When it comes to industry trends, Taylor says the number and variety of channels have been growing for more than a decade, providing a wider canvas for AI, machine learning and other digital innovations. Open banking and the revised Payment Services Directive (PSD2) have accelerated this trend, with application programming interfaces (APIs) playing a pivotal role. “Investment in APIs is one of the best things to come out of the last 10 years,” says Taylor, highlighting a recent development. “This year we launched a set of new capabilities, built around APIs, which specifically focus on foreign exchange. Our foreign exchange (FX) trading API enables live trading for our clients, something we’ve never been able to do via an API before, andit also allows bundling of trades. Real-time trading is of course critical for FX, and APIs facilitate that.” Issue 18 | TheFintechMagazine

COMMENTARY

Taylor explains that the bank also offers a ‘guaranteed rate’ API. Rates are fundamental for competitiveness in FX markets, and the guaranteed rate API allows Bank of America to provide the best, most up-to-date rates, and to introduce a level of certainty around the rates for a fixed period. Another benefit, says Taylor, is that the APIs allow clients to interact with CashPro, the bank’s treasury middleware for corporate and financial institutions. CashPro is available in several formats, including mobile, and Taylor says there has been a record increase in logins to the mobile app this year and record volumes. “Since the start of the global health crisis, we’ve had more than 20 days where we processed more than $1billion via the mobile app,” he says. “A few years ago, that amount of trade through a mobile app would’ve been unthinkable. This year, it has been essential.” Taylor says that the global health crisis has been transformative for digital business and particularly banking. “In 2020 there was a big switch from manual processing, manual payment, the whole manual supply chain, through to digital delivery. We’ve never had a bigger

is that having a clear framework for quality and delivery, a kitemark of certainty, is a distinct advantage. It’s what clients want when the going gets rough. And, in some ways, it’s now more important than being able to rush a product to market. This is the reassurance and stability that regulated institutions like Bank of America provide.” Looking beyond the crisis, and the need to build back better, Taylor says that if 2020 has taught us anything, it’s that business continuity is paramount. Calm in a storm: Even through home working, the bank maintained continuity

Since the start of the global health crisis, we’ve had more than 20 days where we processed more than $1billion via the mobile app. A few years ago, that amount of trade through a mobile app would’ve been unthinkable. This year, it has been essential year-on-year increase in mobile payment approvals, nor a bigger increase, in mobile cheque processing – paper cheques being scanned, processed and settled through our mobile app.”

More need for vigilance The increasing use of digital channels heightens the need for regulation and compliance. Digital risk is a side effect of the many new ways in which we have been working in 2020, and Taylor reiterates the importance of maintaining security. “Regulation creates confidence,” he says, “and what we’ve seen this year

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technology, channels, connectivity, networks, and with partners.” Partnerships may well be the most important success factor for the future, Taylor adds. “Many companies, financial or otherwise, are trying to bridge the gap between their ability to invest, and their need to stay current in what is an extremely challenging year. Having a reliable partner, or partners, helps to close the gap and minimise risk. “Our partnerships are extremely valuable. We partner with some of the world’s

“The ability to guarantee a service, guarantee security and stability, and simply carry on business as usual – that’s the most important thing,” he stresses. “Whatever shock the world throws up in the future, continuity from a technology standpoint, as well as from a liquidity and credit perspective, is fundamental. Working with a well-capitalised institution, one with enough resources to support you and, naturally, your cash, that’s what will really count in the future we now face. ”If anything, this year has demonstrated that we need to be flexible with

biggest technology providers and financial institutions, and the most creative and cutting-edge fintechs. Every one of our partners responds to a different need and we have detailed criteria to make the right selection. Above all, we always look to satisfy the needs of our clients.” With managing risk being key for Bank of America, Taylor believes the bank was well prepared for the recent crisis. “The massive increases we’ve seen in deposits, digital traffic and clients wanting to do business with us this year, speaks of our strength and resilience, and that we are perceived as a haven in times of uncertainty.” Whatever the next crisis may be, whether another pandemic or a financial meltdown like 2008, Taylor is confident that Bank of America will provide the strength, stability and digital tools its clients need.

www.fintech.finance

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DIGITAL TRANSFORMATION

When breadmaking machines started climbing up the Amazon best seller list during lockdown, Søren Skov Mogensen couldn't help wonder how it might impact the way banks made, ermmm, dough. Not so much consumers’ new-found enthusiasm for baking their own loaves, you understand, but rather the altered transaction and purchasing behaviour that it represented. “A global pandemic has really led to changed customer needs and situations, and every bank will need to be empathetic towards that,” he says. “Customers now sit at home ordering bread machines – many temporary habits will vanish, but some will stay. I think the inclination to shop online, and technologies supporting that, will become increasingly important. “We see customers asking for smooth, seamless, strong solutions that can make a stressful day feel better. That means banks will have to deliver products that are easier, more digital, and more compelling to customers. As part of that, the back end of the bank’s operating systems has to be as strong and efficient as possible, and that’s where Banking Circle comes in.” The dramatic and rapid impact of the pandemic on the way we live our lives, means the proving time for developing these solutions has never been shorter. This is putting further pressure on incumbent banks already facing

Søren Skov Mogensen, Chief Growth Officer for infrastructure provider Banking Circle, believes dramatic and rapid changes to consumer habits during COVID-19 has helped bake new models into banking a seemingly unstoppable force of digital-only challengers ready, willing and able to take advantage of open banking, facilitated by regulatory changes under the revised Payment Services Directive. Mogensen uses the example of banks’ anti-money laundering processes to highlight how the change in working practices, brought about by the pandemic, has demonstrated the need for back-office technology like artificial intelligence (AI). “Up to now, employees have had to go through transactions rigorously to ensure compliance on each one,” he says. “When, suddenly, staff must work from home, the dynamics in an anti-money laundering (AML) transactions monitoring office changes. With an AI-based transactions monitoring solution, the dependency on people sitting together, working collectively on transactions monitoring,

is less, and we can augment the professionals’ abilities and capabilities with AI-based propositions.” In its recent, three-part report on the future of banking after the pandemic, Ready for the Rebuild, Banking Circle concluded that most traditional banks are ready to embrace the technology revolution and adopt new ways of working. Indeed, Banking Circle’s research found that 90 per cent of European banks and financial institutions are already building technology design and architecture into their business plans, and 80 per cent of retail and 74 per cent of commercial banks have already worked with infrastructure providers. Mogensen says that, from his experience, established banks are ‘thoughtful’ institutions with sometimes centuries-long experience of long-term planning, but the growing importance of digital channels has shown immediate action is now required. “I think most bank executive management groups now find that the plans they had are actually good plans; however, they need to accelerate both the front-end digitisation and the back end to cope with current circumstances.” And that calls for flexibility within the organisational structure, with traditional management hierarchies no longer fit for purpose, and the need to employ third parties to provide cost-effective solutions never greater. The truism that people don’t need banks, they need banking, has also never been more relevant in this age of white-hot competition.

The rise of modern banking www.fintech.finance

Issue 18 | TheFintechMagazine

DIGITAL TRANSFORMATION To that end, Mogensen says banks must work as flexibly as possible to quickly respond to their customers’ demands. “Working in an agile way means one thing: listening to the customer to develop propositions for their needs. The only way to do that effectively is to collect customer data and learn from it,” he says. “So, customer data collection, application and development go hand-in-hand with the agile ways of working being adopted.” Respected analysts McKinsey recently held a discussion about the critical importance of agile working methodologies as banks adapt to a paradigm shift amid changing markets and customer behaviours. McKinsey partner Francesco Di Marcello, based in Moscow,

Stronger together: Incumbent banks and fintechs can gain from collaborating in a crisis

observed that agile ‘de-risks the digital angle of your strategy’. “For years, banks have tried to ‘value assure’ the results of large IT programmes, after experiencing large and expensive failures,” he said. “Now, the paradigm has shifted and market and client behaviour is changing so fast, it is difficult to plan the detail of a five-year project right from the start. An agile approach allows banks to solve pain points in the client journey in a micro fashion, and build on these changes incrementally.” To do that, they need to utilise technologies such as AI, perhaps eventually even quantum computing, to analyse customer data and quickly adapt to their needs, as well as Cloud-based platforms to overcome the limitations of outdated mainframe stacks, and maybe blockchain to securely process transactions like crossborder payments, says Mogensen. He advocates that banks look to the rapidly developing third-party fintech ecosystem to get value for money and avoid burning through budgets by trying to go it alone. “It comes down to working out what you do best,” he says. “These big banks have a very large sum of money to invest in

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development every year, and you can imagine how that gets eroded by compliance and regulatory efforts, by just keeping the lights on and maintaining effectiveness, leaving only a fraction for changing the bank’s proposition. “That’s the challenge for executives. They need to make sure that remaining amount is focussed on specific agendas. There will be things that are left behind, but it makes sense to introduce a third-party provider that focusses on one thing to build a strong proposition. It’s is a matter of taking the best from both worlds and building a stack that is compelling for the customer.”

More signs of collaboration As many legacy banks grapple with the

“We see a stronger commitment to take in third parties that have infrastructural propositions that, frankly, the banks often don’t have on their own. I think the propositions of both banks and fintechs are becoming more mature. “This is something we see in our own development; that our solutions become stronger and stronger; our financial infrastructure, our access to direct clearing and settlement gets solidified with every day we work on them. And, as we grow stronger, we become more and more relevant to banks and hence they express an increasing interest in our propositions.” So, where will this all lead? “I think what we’re seeing here is a new situation,” Mogensen says. “We’re seeing increased evolution because customers were always going to move online, but COVID-19 has accelerated that evolution. And, as with any evolution, the survivor will be not the strongest, not the fastest, but the party that can adapt the quickest. And that’s the question; who will adapt in a fast way to the circumstances we’re in?

As with any other evolution, the survivor will be not the strongest, but the party that can adapt the quickest. There’s not going to be a winner or a loser… incumbents and fintechs will learn a lot from each other enormous task of digital transformation, it is clear that the role of chief financial officers, who hold the purse strings, is more important than ever. Mistakes can be enormously expensive, as evidenced last year by Nordic bank Nordea which wrote off a €735million IT impairment charge as it tried to integrate its different platforms. There is also the risk of incurring technical debt from an accumulation of consequential costs of failures – like software outages or the simple fact customers go to a competitor because they don’t like the platform on offer. Mogensen says these vividly real risks have created a greater spirit of cooperation between legacy banks and fintechs. “What we can say, as a third-party provider to banks, is that we see a greater openness towards working with third parties on infrastructure,” he says.

“I think the incumbent banks have shown their ability to adapt to circumstance very quickly in previous crises, but they are also pressured by regulatory and compliance agendas. They also have heavy legacy systems and there is a limit to their ability to just change direction or adapt quickly. “Fintechs don’t have the same experience in handling situations like a global pandemic, but they have proved to be fast in adapting to new circumstances, and they are constantly pivoting. “So, who’s going to win? The big organisation with a lot of experience in handling global situations or fintechs that can adapt fast? “I think the jury is still out. If you ask me, there’s not going to be such a thing as a winner and a loser, necessarily, but there will be increased partnerships and collaborations, because incumbents and fintechs will learn a lot from each other.” www.fintech.finance

DIGITAL TRANSFORMATION

Competition isn’t the enemy; mediocrity is. And innovation is the cure. That could summarise the view of the man heading up Avaloq.one, the platform bringing banks and wealth managers together with fintechs to create fast, powerful solutions to real-world bankers’ problems.

Anders Christensen used to sit in a banker’s chair. He knows how complex things can get; and with complexity comes delay – and cost. “We’ve all seen the proofs of concept dying deaths after 18 months of trying to create something. Avaloq wanted to change that,” he says. “We wanted to not only speed it up, but do it in a way that you can scale.

The

door is now ‘open’ open’ The Avaloq.one platform has seen increased demand from all parts of the banking and wealth management industry as fintechs and institutions address issues exaggerated by the pandemic. Heading up the platform is Anders Christensen, who believes the API-first approach will lead inevitably to ‘open’ finance

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And we wanted to do it with impact.” And so, Avaloq.one was born in April 2019: an ecosystem whose lifeblood is application programme interfaces (APIs). “I think everyone is interested in the one thing none of us has, and that’s time,” says Christensen. “Everyone wants to innovate faster. So, if you can now do 100 steps in 50 and you can scale it to five fintechs instead of one, potentially deploy it to your other geographical locations very quickly… all these things help everyone.” It would be disingenuous if Avaloq’s own internal onboarding and development timescales weren’t constantly being challenged themselves – and they are. “It used to take us three to six months to onboard a fintech to the Avaloq platform. Now we’re down to two weeks with a standard contract of five pages, which gives you a lot of the screening, scouting, onboarding, commercialisation – and it’s browsable, for everyone to see. That leads into the scale argument, which is really about technology off the shelf. We have many different types of APIs and with AMI Web Services that all comes together and connects the Avaloq platform, securely and safely. In the future we will also be able to measure the data flow from it, to any third-party provider.”

The world’s ‘fintech finest’ Avaloq, the Switzerland-based digital banking specialist, offers powerful Cloud based core banking and wealth management technology to clients worldwide. In Switzerland alone, it hosts 35 banks in the Cloud. Around the world, it has four service centres offering business processes as service (BPaaS) and software as a service (SaaS) operations, handling the back office as well as frontend solutions for several of the world’s top wealth managers and private banks. But by 2019 it was becoming increasingly obvious that the infrastructure on which these institutions ran could not respond fast enough to keep up with services from emerging neo banks and other financial services providers. So, Avaloq.one was launched as a platform to which fintechs could self-onboard and self-integrate with open APIs and access to sandbox capabilities.

www.fintech.finance

Once a solution was proven to work, fintechs only needed to integrate their solution to the Avaloq Banking Suite once to engage with Avaloq’s clients, who would themselves then have access to pre-integrated fintech applications, and all available in one marketplace. They could also collaborate with those techs on bespoke solutions. The person chosen to ensure continuous screening of emerging innovations and validation of fintech solutions as Avaloq set out to build this ecosystem of the world’s ‘fintech finest’, was Christensen. For him, everything starts in the sandbox. A testing environment for code and technology changes, it’s where Avaloq will soon be creating fully realised avatars – models of a client’s bank in the Cloud that allows its own developers and third-party fintechs to test technology and solve practical issues in as close to a real-life environment as possible, using anonymised data. The company has just completed a successful pilot for this advanced testing, reveals Christensen. “We’re bringing to market an advanced sandbox, which will be a synthesised version of the bank, anonymised of customer identifying data, in the Cloud. So that means you will have your front, your middle and back ends – we will recreate what you really are, and you will be able to use this as your playground to work with multiple fintechs, connecting to your tech stack. The front end, of course, takes some graphical user interface (GUI) integration, if you want to build it into your web banking. If you connect straight in to the Avaloq core platform, then you could also just exchange fields of data.” It’s in the area of wealth management that Christensen is witnessing some of the most exciting demonstrations of the power of this approach. He points to Delio, a white label private market wealthtech from Wales that onboarded to the Avaloq.one ecosystem last year. It has now successfully connected to a number of Avaloq clients. “We’re currently looking at how we put Delio’s environment, social and governance (ESG) solution into production with more Avaloq banks worldwide,” says Christensen. “Delio provides a marketplace for private placements, which fits nicely with the

www.fintech.finance

Avaloq stack at the front end. At the back end, you have companies like NetGuardians, which does AI fraud detection. It’s something you never see, but it’s ever present.” As well as making technology more accessible to wealth managers, Christensen is keen to see the use of APIs make wealth management more accessible to clients. “One of our mottos is to democratise wealth management,” he says. “We believe that everyone should have access to the same level of service, at a much cheaper cost, through technology.” In May 2020, India-based specialist in next-generation digital services and consulting, Infosys, entered a strategic

We see a future of switchboards; API management platforms, enabling traffic to and from different ecosystems where you no longer own your clients or need to protect them. They are your clients, but they can also be other’s partnership with Avaloq to provide clients with end-to-end wealth management capabilities through digital platforms, deliver efficient scaling, standardise implementation via proprietary Infosys tools, and help wealth management clients transform legacy systems into cutting-edge digital advisory platforms. And in July 2020, Avaloq collaborated with Investment Navigator to extend the platform’s regtech capabilities. The target is to offer checks for fitness and suitability while distributing investment products, offering regulatory guidance on cross-border business activities, and simplifying compliance while

driving operational efficiencies for wealth managers at a reduced cost. This year, Avaloq also launched its own product for wealth managers, Engage. It enables conversational banking through WhatsApp, WeChat, and other social platforms and it took off during the pandemic as customers began engaging in a new way with relationship managers, securely trading and reviewing portfolios over their smartphones. The COVID era many more changes in the fintech space. Remote working and social distancing led to an increased demand for digital onboarding and banking tools. At Avaloq, too, requests for digital tools and particularly those around ESG products and decentralised finance, have increased. “Banks had more time to think, so they’re coming to us with requests for fintechs. We thought we would be impacted by little or no sales during the pandemic, instead we are going through a tonne of different conversations on both sides,” says Christensen. Where all this is heading, he believes, is open finance. “All our ecosystems are converging. We see a future of switchboards; API management platforms enabling traffic to and from different ecosystems where you no longer own your clients or need to protect them,” he says. “They are your clients, but they can also be other’s clients and vice versa by virtue of having access to other ecosystems.” Today, the Avaloq platform has banks developing solutions together with fintechs and selling them to other banks. “For example, we had a bank, a non-Avaloq client in Liechtenstein that’s really strong in blockchain. It’s not interested in our banking stack per se but it would like to place its blockchain service which it developed for itself, in the marketplace and sell to other banks,” Christensen says. “For me, this is the definition of open banking; when partners come together to develop a solution that is sellable to others in the ecosystem. It’s a solution that no one could’ve come up with on their own. Then you know you are truly entering into an innovation ecosystem.”

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DIGITAL TRANSFORMATION

With more than £9billion in government-backed lending, 33,000 capital repayment holidays and 20,000 fee-free overdrafts arranged during the first few months of the pandemic, the UK’s biggest bank by customer numbers kept calm and carried on. Under the hood at Lloyds Bank, an innovation policy best described as ‘relentless incrementalism’ – an approach to digital transformation designed to avoid the cardiac arrest inflicted on organisations by ‘big bang’ migrations – was proving its mettle, particularly when it came to business banking. Around £2.4billion of a £3billion digital transformation plan had been spent by then on technology innovation, and changes to working practices across the organisation, since 2018. “A lot of that technology investment has gone into things like robotics, including around the loan process, where we’ve improved the time of getting approval to customers. So, with the Government’s COVID-19 Bounce Back Loans, for example, the majority of customers received their funds within 24 hours,” says Andrea Melville, managing director of

commercialisation and propositions in Lloyds Bank’s Global Transaction Banking Team. Now, as UK businesses face the long, painful haul back to a hoped-for recovery, she is conscious that the sum of all the parts the bank has been incrementally improving over the past two-and-a-half years, must add up to so much more if it’s to help businesses weather this storm. According to the most recent Lloyds Bank UK Recovery Tracker, which has taken the pulse of the stuttering economy over the summer, 13 of the 14 sectors it monitors saw stronger growth than their global sector equivalents in August. The caveat is that they were almost all hit harder than their international peers, so they have further and faster to go. Melville, who is responsible for a number of strategic initiatives across the transaction banking product suite, covering application programming interfaces (APIs), data and blockchain, believes the bank’s APIs, many developed with client input in the Lloyds Bank lab, will be critical to helping that recovery. “Lloyds Bank has a strong cultural curiosity, which results in lots of proof of concepts, lots of pilots, research and listening. We focus on understanding

clients’ needs and wants, constantly trying to reduce friction, and openly evaluating whether to buy, build, or partner to deliver what we need,” says Melville. That’s resulted in a cascade of application programming interface (API)-supported business tools being developed over the past year, including a payables API using the UK’s Faster Payments rail, which has now handled £1billion in transactions; a new asset finance API for brokers and a trade tracker API that provides visibility of deals in the supply chain, all of which can help in the immediate aftermath of the crisis. “What we’re seeing is that trends that were already there in the market before the pandemic, are accelerating on the back of it,” says Melville. “There is a lot we could do to help chief finance officers and chief information officers around leveraging APIs – automating key treasury activities such as balance sheets, statement retrievals, sweeping and foreign exchange (FX) hedging. “On the data side, it’s about bringing it all to a single spot – it could be banking data and accounting data – which will create a much more holistic view to help with working capital.

the recovery Andrea Melville, MD of Commercialisation and Propositions in Lloyds Bank’s Global Transaction Banking Team, believes adopting an API-first approach, and working ever-closer with fintechs, will help build a path out of the crisis for business

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Issue 18 | TheFintechMagazine

DIGITALTRANSFORMATION “When it comes to cash management and payments, in addition to the payables API, we have a new platform called Gem, which has market-leading capabilities, designed for our bigger clients. It offers a lot of internal analytics and is designed to be a real aid to decision-making.” The bank’s existing International Trade Portal gives customers background market knowledge and practical resources to equip them for international trade, and, given the impact not just of the pandemic, but Brexit too, it’s a tool that she’s keen to promote. “This is a time in the market when there’s a lot of potential disruption to supply chains, so it’s really important that people understand more around what their options might be for international partnering,” says Melville. “We need to make sure we’ve got the right insight, both for the bank’s own internal decisions and to help businesses. To help them manage cash flow, but also to understand this external market which is constantly evolving.” As well as providing products that improve the customer experience, Lloyds Bank’s strategy has been to simplify its IT architecture and use its own data more efficiently; to create a scalable and resilient infrastructure and enhance Lloyd’s multi-channel customer engagement. “We can’t only look at one side of the coin; we need to make sure that we’re looking at the frontend, but also the systems that sit behind it,” says Melville. “Customers need great digital onboarding, they need great UX, but they also need end-to-end processing and automation.” At the heart of its internal transformation is creating agile workflows. “Around a third of all of our change programmes are delivered through agile methodology and we’re on target for that moving up to about 50 per cent by the year-end,” says Melville. “But we have to balance providing new propositions and services, with maintaining relationships with the customers we already have.” Partnering with fintechs is a vital part of

that, according to Melville. “It adds a huge amount to the equation. They can help us leapfrog to new technologies, they can also help us with a test-and-learn approach, one aim of that being to reduce our cost of change, both in terms of time and financial expenditure.” Like many legacy institutions Lloyds Bank traditionally adopted a ‘castle and moat’ approach to innovation; working internally on solutions without much engagement with fintechs outside the bank’s walls. Now it’s recognised that fintechs can help it bring propositions to customers much faster than it could on its own. An example of that is accounting software provider OneUp, with which Lloyds Bank is conducting a live pilot.

We’re constantly and openly evaluating whether or not we would look to buy, build or partner to deliver what we need

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standards, ISO (International Organization for Standardisation) certificates, penetration tests – all things we need to make sure we’re delivering to. “When we look at how to make partnering more fintech-friendly, it’s about creating the right rails. But fintechs can really help with this too, by making sure that they’re more partner-ready, by understanding the industry standards held by banks, particularly around security.”

Tech to the rescue In common with many others, Lloyds Bank has taken a big hit from the pandemic-related crash – it reported a second-quarter loss of £676million for the three months to June – while, at the same time, coming under pressure to respond to extraordinary demand from government to support businesses and individuals also

From response to recovery: Lloyds Bank is addressing the next stage

“Cash flow management and really understanding what’s happening in your data is so important right now,” says Melville. “Businesses really need to be looking to use data as a driver of their strategy and decision-making.” She credits the bank’s design team with having a ‘strong cultural curiosity’. “It results in lots of proof of concepts, lots of pilots, lots of research and lots of listening.” Lloyds Bank is currently working with fintech Validis, for example, on how it can import data from its customers in a standardised manner. “We’re looking at fintechs that do things around synthetic data, data matching and graph technology,” says Melville. “It helps us better understand the benefit for our customers, the use cases, the risks and the mitigants. “Banking has a sourcing model that really needs to be faced into,” she observes. “There are lots of governance and security

reeling from COVID’s impact. Banks were already trying to reduce costs; now they are trying to deliver new services quicker and reduce costs. But signs are that they are not taking their foot off the technology pedal. The Lloyds Bank Financial Institutions Sentiment Survey, released in September, showed almost nine in 10 senior leaders saw tech investment as a strategic priority for the next 12 months; almost two-thirds plan to increase investment in their own technology and core systems and roughly a third will focus on fintech offerings. “Since the pandemic, we’ve done things like upgrading the business banking online lending tool to enable faster decision-making, but also free up relationship managers’ time, to really be there to help customers,” says Melville. “We’ve also had to redeploy a significant number of colleagues across the operational teams to make sure we can meet demand and strengthen critical processes. Now, for us, the next stage is helping Britain recover.” www.fintech.finance

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COMMENTARY: PAYMENTS

Ron Delnevo, Chairman of Cash and Card Consultants, ponders whether his fortunes would have been better served investing in a priceless work of cards, not art! I have always loved art and, in particular, paintings. My love is purely for originals. I like to own something unique. My budget doesn’t extend to buying old masters but, over the years, I have acquired a number of canvasses. Now, I must make clear that I have bought only works that I have liked. My first priority is getting pleasure from having them hanging on a wall that I also own. However, in buying more expensive items, I have also had one eye on the potential for them to be good investments. Hope springs eternal, as they say! It just so happens that, in late 2005, I bought what I viewed as a lovely landscape, painted by an English artist named David Smith. I had wanted one of his creations for quite a while and finally took the plunge by investing around $10,000 in a canvas depicting a particularly idyllic stretch of the River Chelmer in Essex. So, there I was, in 2006, proud owner of a $10,000 work of art – and an investment. How does my investment now compare with others I could have made at around the same time? Well, since I work in the payments industry, I thought of that industry first for a comparison. Happily, there was an easy option for the purposes of comparison, namely Mastercard, which went public through an Initial Public Offering (IPO) in May 2006. Taking account of subsequent share-splits, my $10,000, invested in Mastercard in 2006, would have left me the happy owner of 2,600 Mastercard shares

today. As I write, each Mastercard share is quoted on the stock market at $331, leaving my 2,600 shares worth a very cool $861,000. Plus I would, over the same period, have earned more than $10,000 in dividends. So, one way to look at it is that the dividends alone would have given me a 100 per cent return on my investment over the last 14 years. Of course, I alighted on an exceptional stock for this comparison. It happens that Mastercard has even outperformed Apple in terms of returns for investors. Needless to say, while the revelation of Mastercard’s stock market performance answered the question ‘how much?’, it also begged the question, ‘why?’. One reason is rather obvious. Though Mastercard did go through an IPO, the company was no new and naïve kid on the block. In fact, the history of Mastercard dates back to 1966, the year England won the football World Cup – yes, that long ago! – and 12 months before the world’s first ATM was installed in June 1967. Of course, corporate names sometimes change over the years, so what started as the Interbank Card Association didn’t adopt the name Mastercard until 1979, the year the UK elected its first female Prime Minister. I am sure that, in Mrs Thatcher’s famous handbag, there would have been at least one Mastercard, adding a little weight when she used her accessory to deal with errant cabinet ministers. Mastercard used its new name to good effect, becoming the first payment card to be issued in the People’s Republic of China, long before the planet’s first debit card was issued in 1987 – and prior to the awful stock market crash of 1988, However, the next 20 years were not ones in which Mastercard hit the headlines. True, the now famous ‘priceless’ advertising theme first started appearing in 1997, but, apart from that, the only significant piece of corporate deal-making that really impacted Mastercard’s long-term prospects was its

alliance, then integration, with Europay International in 2002.

Growth ambitions In 2005, the year my UK ATM company Bank Machine was acquired by Cardtronics, I remember discussing with my fellow directors that the activities of Mastercard (and Visa) would be likely to have an adverse impact on cash usage over the next few years. We certainly got that one right! Mastercard achieved warp factor growth shortly after its 2006 IPO. Between 2008 and 2012, it integrated with Europay France and acquired no fewer than four other companies: Orbiscom; DataCash; Trevica and Truaxis. But, in fairness, the most important acquisition Mastercard made in this period was its shiny and dynamic new CEO, Ajay Banga. This recruit had worked for Citigroup for many years and it didn’t take him long to make his mark at the card giant. He did so rather dramatically, just six months after his arrival, by declaring war; Mastercard’s keynote ‘War on Cash’ had begun! More acquisitions followed at steady intervals. Over the next few years, the following companies succumbed to Mastercard’s charms: Provus; C-SAM; PinPoint; 5one; NuData Security; VocaLink; Trans-Fast (now TF Pay); Brighterion; and Nets. That’s roughly one acquisition a year since Ajay Banga arrived at the company. The CEO is now 60 years old – he certainly didn’t waste his 50s! Buying so many companies would normally set the alarm bells ringing – some organisations acquire in this way to disguise the fact that their core business is in decline. Not in Mastercard’s case, though. It has mainly bought new platforms or, in some cases, businesses that added to its corporate skill-set. As well as acquisitions, Mastercard has been able to form alliances with a number of major partners, including China UnionPay, which lays claim to being the world’s biggest card issuer. Mastercard

The plastic billionaire and Old Master cash 86

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clearly sees promise in China, for in February this year the company announced that it had regulatory approval to re-enter a market it first visited 30 years previously. So, what will the future hold for that $10,000 invested in 2006? Mastercard is a brilliantly successful company, which has consistently invested in its future. A good example is the establishment of Mastercard Labs in 2010, which serves as an incubator for new ideas that can power the organisation to even greater success. It also invests massively in marketing. In one recent quarter, spend was a cool

$170million, a 26 per cent increase on the same quarter of the previous year. Mastercard can, of course, afford to spend big – in the same quarter, its revenue was approaching $3billion. There is absolutely no doubt in my mind that this company can build on the success of the last 15 years to achieve even greater things. After all, the ‘War on Cash’ that its CEO declared a decade ago is nowhere near being won. Eighty per cent or so of the world’s payments are still made using cash. Every percentage point Mastercard can win away

The ‘War on Cash’ that Mastercard’s CEO declared a decade ago is nowhere near being won

from cash is probably worth a billion or more dollars a year in extra revenue. Perhaps luckily for cash, Ajay Banga has decided to move on from his role as CEO. He may feel it is a good time to hang up his card machine, capitalise on his share grants and have some well-earned R&R. A talented, as well as lucky, man. Most generals don’t fight a war for 10 years, see off only around 10 per cent of the enemy and retire as billionaires. Cash, of course, has been around for 2,500 years and, though never supported by any significant marketing budgets, has survived many attacks. However, even if it is fighting a war that can never truly be won, there is little doubt that Mastercard can go on making significant territorial gains, building on the phenomenally successful strategy devised by a brilliant CEO. What will those 2,600 shares be worth in another decade? I would not be at all surprised if the $10,000 that became $810,000 increases again to $3million-plus within the next 10 years. Put another way, i f you haven’t got Mastercard in your share portfolio – assuming you possess such a thing – you must be at least one apple tree short of an orchard! Oh, I almost forgot: how has my investment in paintings been going, over the same period? Sadly, the lovely landscape I purchased for $10,000 in 2006, although it remains as pleasing to the eye as ever, is valued at less than $3,000 today. The artist – thankfully – lives on, but he has been too prolific to make me wealthy. So, I will keep my painting and continue to admire it, hanging above my fireplace – although I have to admit I sometimes wish I was looking at a nicely framed Mastercard share certificate instead!

Master-piece: The card company’s shares were more than worth it

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Issue 18 | TheFintechMagazine

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ARTIFICIAL INTELLIGENCE

Intuitive design: SmartStream wanted a user interface that behaved like a lifestyle app

Smart thinking Can AI really make running reconciliations as intuitive as a phone app? Just watch, says Global Head of Business Development for SmartStream AIR Victoria Harverson In the world of retail payment apps, it’s all about the user experience: you want it to be fast, intuitive, and reliably do what it’s supposed to do, under the watchful eye of regulators, time and time again. But while that is increasingly what’s being served up to consumers, in the back office – where those real-time payments, initiated by a myriad of different payment options, are being processed and, ultimately, reconciled – things are often decidedly less ‘frictionless’. So, in September 2019, SmartStream Technologies, which provides Transaction Lifecycle Management (TLM) solutions to thousands of customers in financial institutions, harnessed the power of artificial intelligence (AI) to inject some of the user-friendliness that the world’s become used to, into reconciliations. The aim was to create a smarter, faster, more accurate process – and Cloudenabled SmartStream AIR, which had been trained on real-world data from top banks, didn’t disappoint. www.fintech.finance

With a voracious appetite for large volumes of complex payment information, it proved capable of saving thousands of human hours in routine processing, while flagging exceptions that were becoming increasingly hard to spot. Described at the time as ‘like having a highly-skilled virtual operations team on hand that you can tap into on demand’, the level of interest in the service surprised even the CEO who’d expressed such confidence in it. And, just as you’d expect to regularly receive updated versions of your everyday apps, SmartStream AIR 2.0 is now ready. Here, Victoria Harverson, who joined the company in April as a senior team leader for Asia Pacific sales and was recently promoted to global head of business development for SmartStream AIR, tells us why she is so excited about its potential. “One of the reasons I joined SmartStream was to get my hands on AIR because, as a data quality application, it’s entirely unique! AIR leverages pure AI to match any data, for

any reason, in an instant. But version 2.0 has a number of enhancements. “Firstly, SmartStream now has PCI DSS certification, which enables SmartStream to get deeper into the payments segment, as it allows it to host different kinds of card and digital payments data. AIR is also SOC 1, SOC 2, SOC 3 compliant and meets ISO 27001 and 2 standards. “Secondly, the user experience has been enhanced so that the interface behaves very much like a consumer application. Imagine you’re at home on the sofa and you download an app from the App Store. If you can’t figure out how to use it in just a few minutes, you’re probably going to delete it. SmartStream had that in mind when it looked at the user experience for AIR 2.0. You can figure it out intuitively, no training is needed. Just provide it with any data, in any format, hit the ‘Start AIR’ button, and the AI does the hard work for you, giving good quality match results at the first pass. Issue 18 | TheFintechMagazine

ARTIFICIAL INTELLIGENCE “The original version of AIR used self-supervised and unsupervised learning techniques but, with version 2.0, SmartStream introduced a new feature called Affinity. It’s an observational learning program that mimics human behaviour. That took it to the next level. “AIR 2.0 builds upon the concept that you don’t really need to understand the data, as a business analyst might, before you put it into the solution. Every single iteration that you make, every configuration, AIR 2.0 will learn from. When you feed it more complex data, different types of formats and structures, observational learning enhances the solution’s capability to understand what the end user is trying to achieve. If you tweak a setting, based on a dataset that you have given to AIR to achieve a better match result, Affinity will learn it. Now, in my industry, that’s groundbreaking. “AIR 2.0 will also help with ultra-high volumes, particularly in enterprise banking, where SmartStream is are very much the incumbent strategic solution for data management and reconciliation, and where you need to be able to process extremely high volumes. “AIR is a very real, tangible AI product with a very simple delivery model. You can use AI to check any transactional datasets for accuracy and completeness, so this could be trades, positions, fees, instruments or asset classes. It doesn’t matter to the AI, it’s completely agnostic. The AI in AIR can be used for data quality, as well, in the sense that you can look at linking system data together and checking that they reflect the same things. You can even use it to quickly define reference data standardisation designs and, in the context of something like a small buy-side, use it to quickly validate third-party reports for the regulators that you’re currently using administrative staff or a third-party to execute. This is an area of operational control and efficiency that doesn’t always need the same level of human effort, interaction and skill. “SmartStream has been very successful in defining optimum workflows to manage data, particularly in the reconciliation space, so it’s really the next logical step to disrupt itself and the market by removing a lot of the human heavy lifting and replacing it with AI and machine learning components. How far that rationalisation

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affects a workforce is really a question for each organisation that chooses to adopt AI to answer for itself. Those organisations will be looking to reduce complexities and human error risks, and lower costs in their businesses. An outcome of that will be fewer people dedicated to mundane, manual data-matching activities. But there’s also an opportunity for those individuals to be reassigned to tasks that focus more on growth and differentiation.

Cloud first: Partnering with AWS gives a high level of security

switch things in and out regularly. This type of AI technology, for that use case, is transformative. “You need to be able to partner with the best in the business, when delivering AI. You need to build your AI on the latest technologies and focus on performance, maintain the highest levels of security and be ready to fit your AI into applicable ecosystems to stay up-to-date. SmartStream has built its solutions on the very latest technology – AIR, in fact, uses some of the same technology as Netflix. It’s also built on Kubernetes for fast upgrade capabilities and the ability to change and deploy new features very quickly. The company partners with Amazon Web Services (AWS), because of the $1billion or so AWS spends every year on cybersecurity. “SmartStream AIR enables even large institutions to go live on the same day. It’s a software-as-a-service, web-based application, so you can be anywhere in the world and use it. We just set up the security permissions and give access to the users. We can automate the data submissions going into the application or you can manually drag and drop in the files yourself, but, either way, you’re ready to get started immediately, there’s no upfront implementation project to consider. Nine times out of 10, you’re likely start seeing a return on investment in the first week of using AI in this way, because it represents a genuine step change. Processes that usually take weeks and months are done in minutes with SmartStream AIR and the software-as-aservice subscription pricing models for large institutions make total cost of ownership transparent and controllable. “You have to disrupt or be disrupted in today’s world. SmartStream has been in business for 40 years and, combining that experience from around 2,000 customers, 70 of which belong to the top 100 banks, means it knows the clients’ business and technical problems inside out. It already designed the best practices for data reconciliation but with AIR, it wanted to achieve something unique, something really new. Believe me, it’s done it.”

AIR 2.0 builds upon the concept that you don’t really need to understand the data, as a business analyst might, before you put it into the solution

“Another use case where we’ve also seen a really big win for AIR is IT system migration projects. Replacement and switching out of big tools and systems, is really the biggest barrier to change in financial services. We can compare a database of old architecture versus new architecture, using AI, in minutes, whereas those sorts of system replacement projects are often measured in months and years. “My experience with banks, over many years in fintech, is that they have hundreds of legacy systems and landscapes of applications, some of which interoperate well and some that don’t. There’s non-standard information and data in each application – and that’s a reconciliation use case in itself! But you can’t really advance your technology stack unless you’re able to

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ARTIFICIAL INTELLIGENCE

Embedded AI: It’s being ‘woven into the fabric’ at Wells Fargo

is for Augmented Artificial intelligence is becoming ‘part of the business fabric’ at Wells Fargo, according to its Senior Vice President, AI Enterprise Solutions, Bjorn Austraat – a utility as essential and anonymous as electricity. For now, at least … For decades, science fiction has warned that artificial intelligence (AI) is on a crash-course with humanity: that minds superior to our own will inevitably wage war against their creators, coding inhumanity into the superhuman brains of the future. But there’s always been a parallel discourse – subtler, perhaps, than the space operas and rampaging robots of the silver screen – which imagines humans and machines forging a closer and closer union. These futurists argue that, following this theory, we’d combine ever-tighter into ‘cybernetic organisms’. The human would evolve, inexorably, into the cyborg. Even as certain experts grumble that AI has dramatically under-delivered on its hype, it’s difficult to deny that we’re on our way to cyborg sentience – in our

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communication, our consumption and our digital-first workplaces. But we’re not there quite yet, according to Bjorn Austraat, whose position as senior vice president of AI enterprise solutions at Wells Fargo gives him a panoramic view of AI’s current and future applications. Like a diplomat on the Star Trek Enterprise, Austraat’s role sees him mediate between organic brains and cybernetic minds – finding ways in which they can collude and collide productively. “Many years ago, in my very first job in Austria, I was an interpreter – working at conferences, at the United Nations, as a translator,” he says. “Back then, I helped people understand each other; today, I jokingly say I have the same job, just that now it’s focussed on translating between the languages of business, data science and engineering. And those languages and

cultures are quite different. The challenge comes in tying them together: getting them aligned, balanced and moving in the same direction.” Contrary to fears that AI is set to eclipse the need for human intelligence in the workplace, Austraat sees its smartest application – in banks and elsewhere – as working in synergy with our own minds: an alliance of computer IQ and mankind’s EQ. “AI is really best used when it’s augmenting, so we speak of augmented intelligence, rather than artificial intelligence,” he says. “Because it’s augmenting people, it frees them up from very routine work or things that are simply not possible. “AI is very poor at having empathy or common sense, or creativity. So those are the qualities that we absolutely want to free up humans, from their routine work, www.fintech.finance

to do – the creative and uniquely human-suited work. For instance, if somebody called into a bank and said ‘I’m going to get married’, the correct response would be ‘wonderful, I’m so happy for you’ – but that’s something that is not accessible to machines. We could fake it, but it’s really not the domain of AI to be empathetic.” On such a call, AI is best left to hum innocently and productively in the background, leaving a human operative to think creatively about rapport-building responses. That’s exactly what one recent AI solution enables at Wells Fargo – a cyborg-spirited innovation that the firm calls Advanced Listening. Monitoring all of Wells Fargo’s customer communication channels, Advanced Listening AI can guide customer service representatives to respond intelligently to customer queries, and can understand and categorise the gist of every interaction. Then algorithmic models look for changes and emerging trends to provide a better customer experience. The bank’s Complaints Data, Analytics, and Reporting (CDAR) team, which sits within the Enterprise Complaints Management Office, established in 2019, has developed Advanced Listening tools and processes that leverage natural language and speech recognition. CDAR also helps to identify new complaint trends and emerging risks, along with performing diagnostic analysis to identify potential systemic issues. That is critical for a bank that’s worked hard to regain the trust of both customers and the regulator in the wake of its invalid accounts scandal. For a period of 14 years from 2002, the firm’s targets-based sales approach saw Wells Fargo staff issue millions of unverified accounts to customers without their knowledge or consent. The scandal, which has cost it close to $3billion in court actions, spoke to the weak spots in the human mind, and some inevitable pitfalls of human management. It’s difficult to imagine a team-up of man and machine making the same mistakes. Avoiding those sorts of consequential costs would probably swell the $447billion that Autonomous Next research recently predicted as being the aggregate potential savings from AI deployed in the banking sector by 2023. AI promises to co-create a new era of productivity, compliance and customer www.fintech.finance

satisfaction at Wells Fargo by sitting alongside Austraat’s colleagues. “AI is really becoming part of the business fabric at Wells Fargo – the era of early experimentation is over and now it’s being infused into a lot of processes – sometimes as a utility, sometimes as a driver and a leader of transformation,” says Austraat. “Our AI projects span everything from machine learning to natural language processing, customer experience, team member experience, fraud prevention, the deposits team, and much more.”

Pioneering approach to AI Wells Fargo famously sports the logo of a six-horse stagecoach, trailblazing into the American west, a throwback to the country’s Gold Rush, more than 160 years ago. That trailblazing is now focussed on making use of financial data to build AI models that work hand in hand with human clerks. But Austraat and his team are keen to avoid the hammer-nail trap of green-lighting every AI project that sweeps across their desks. “When people come to our team with an AI idea, the very first question we ask is ‘is that a good idea for AI?’. And sometimes the answer is ‘yes, absolutely, this is the sweet spot for AI, it can do really well there’, but sometimes the answer is ‘no, this should either be solved with robotic process automation (RPA) or an Excel spreadsheet, or rules’. We can write interesting code – an interesting science experiment – but, at the end of the day, it has to deliver value for the enterprise.” That was the logic behind Wells Fargo’s creation, in-house, of its predictive analytics tool, servicing mobile banking customers with AI-generated spending reports and savings recommendations. The bank has also previously worked with chatbot specialist Kasisto, which joined the six-month Wells Fargo Startup Accelerator programme in 2014. While in the programme, business leaders within Wells Fargo provided mentorship and guidance to help refine its solutions.

Austraat is clear that AI firms offering software-as-a-service (SaaS) aren’t the whole answer for bank, though. “Partnering is great, but it’s also really important for a highly-regulated bank to have a core competency within AI,” he says. “You need a blend – you want to tap into the innovative spirit of the very large third-party ecosystem, but, at the same time, abdication is not OK. You need to be able to stand up to the regulator and say, with good conscience, that you did everything you could to make sure that your AI is fair, unbiased, and robust.” Austraat is also clear-sighted about where and when AI is an appropriate investment. “AI, at the end of the day is just software, math, it’s not magical,” he explains. “So, one of the roles we play within Wells Fargo involves both evangelising and having pragmatic conversations around AI. Some things it’s good at, some things it’s not very good at. We don’t have general purpose AI, à la Terminator or Commander Data on the Star Trek Enterprise. We have speciality AI that’s very, very good at one task – like reading 800,000 pages of text in seconds.” AI is clearly nowhere near working autonomously, without human oversight. All it can do – for now, at least – is whirr in the background, awaiting tasks that human bank staff would rather outsource to task-specific algorithmic assistants. “Ideally, AI is invisible,” Austraat says. “It’s like electricity: it just works. You don’t want to see sparks, you just want to see the work output: the toast was toasted, the light comes on. As we move into the industrialisation phase of AI, the technology should simply become a background utility.” Far from the gun-toting Terminator, then. Instead, what Austraat is describing sounds a lot like the cyborg future first theorised in the 1960s: humans and machines so synonymous, that the distinction between them vanishes – and the technology itself becomes as invisible as the very qualities that make us human.

We don’t have general purpose AI, à la Terminator or Commander Data on the Star Trek Enterprise. We have speciality AI, that’s very, very good at one task

Issue 18 | TheFintechMagazine

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ARTIFICIAL INTELLIGENCE

BNY Mellon’s Joon Kim, Global Head of Trade Finance Product & Portfolio Management, considers the potential for AI and other digital technologies to transform the trade finance industry THE FINTECH MAGAZINE: Have the defining characteristics of the lending industry, and particularly trade finance, changed as a result of the COVID-19 coronavirus pandemic? JOON KIM: We were already in a low interest rate environment and didn’t think it could actually go lower, but we’re now seeing exactly that. Before COVID, overall trade finance volumes and international transactions were very active; it was a competitive landscape, the volumes were there and overall growth was very strong. COVID has changed a lot of things. As well as lower interest rates, the international business supply chain has gone down substantially and there is some geopolitical tension among countries. So, we are facing challenging times, to say the least. Trade finance is still a very paper-intensive business. For two parties to complete a transaction, they require original documents, and that’s a manual process. Because the pandemic has

everybody working from home and unable to retrieve, send and pick up these original documents, it has created a huge challenge that has really emphasised the importance of having a business continuity plan in case more, similar events occur. In terms of supply chain, because one party, or one country, depends on the others, once there is disruption it becomes very difficult to complete transactions. That’s why there is now more emphasis on creating more of a supply chain landscape domestically so if supplier disruption takes place in one corridor, you have alternative options within the same country. There is going to be a lot of change and that’s part of the reason people are really focussing intensely on operational efficiencies. TFM: We’re in an extended Sibos season this year – previous events have seen much talk of blockchain and distributed ledger technology (DLT) coming along as an alternative to paper-based trade finance processing, but that certainly hasn’t happened overnight. Why has this area been slower than others, when it comes to digital transformation, and will the pandemic accelerate adoption? JK: The short answer is definitely yes, it should accelerate it. A few years ago, the fintechs all

came in with initiatives focussed on payments, but then recognised that payments are pretty well automated and use a lot of technologies to settle incoming and outgoing amounts. Then they realised the area of trade finance was very labour- and paper-intensive. So now more fintechs are looking at solutions in this space, like digitising documents, etc. When the fintechs first arrived, banks and other financial institutions saw them as competitors, but today it’s much more of a partnership. They work together to see how we can create the digital journey that everybody is looking for. A blockchain or distributed ledger technology (DLT) component is still a more experimental area because, as I said, there are multiple parties involved in trade finance and everybody has to be onboard in order for blockchain transactions to occur. However, at the same time, there are a number of other innovations taking place within trade finance, utilising machine learning and optical character recognition (OCR), so that we can convert those paper documents into a digital format and the machines are able to process those transactions without manual intervention. Those are some of the critical areas that many banks, including us, are looking at, and I think, in the long run, we are going to create a much more streamlined process, which will eventually enhance the client experience.

Trading priorities www.fintech.finance

Issue 18 | TheFintechMagazine

ARTIFICIAL INTELLIGENCE TFM: To use a Jeff Bezos term, it does seem like the flywheel is starting to turn and we’re becoming more efficient in how we’re using information. What does that actually mean for wholesale, corporate customers? JK: There are a number of initiatives, using technology like OCR, artificial intelligence (AI) and machine learning, to better understand client behaviours. We ask questions like ‘why is this client not using a particular service?’ or ‘why is a client using this particular type of a service?’, and we do further analytics behind that to create solutions for the client experience. While the technology being used for individual-to-individual transactions is faster, when you’re dealing with wholesale banking for large institutions and corporates, adapting to innovations in digital data becomes more challenging because they are used to certain ways of doing business. However, this is a key initiative for many of the banks I speak to. What this actually means differs according to each client’s core objective. On the finance side, the data analytics is going to help optimise working capital. If a particular corporate client is paying out after they receive funds, they are optimising their working capital, but many banks are trying to understand the balance sheet perspective of the corporates, to see how they can improve working capital. On the processing side, it’s really about looking at their transactions – for example, if they are paying certain fees, the analytics could tell us that if they fix one common error, they will no longer have to pay those fees because transactions will occur in a straight-through format. Once a bank is able to create the analytics and provide that kind of value proposition to a client, it creates a more positive experience on both sides, with better efficiency, a better cost structure and a boost to their bottom line. That’s the journey we are all trying to take because it allows us to have better engagement with clients and, when we enter a solutions structuring meeting, we can get into a more strategic discussion

about what clients are looking for. This is where data analytics, and data digitisation become really, really critical. TFM: In banking, 10 or 15 years ago, you had your own on-premise data farms and teams of developers. All of a sudden, banks are opening up and working much more as ecosystems. What is BNY Mellon’s position within this ecosystem, and what does this partnership mentality mean, on the trade finance side of things? JK: We look at it at the high level. Everybody wants to become bank-agnostic, meaning clients do not want to use and log into multiple systems and segregate the different types of experience, depending on what platforms are being provided on a proprietary basis. They want to have a

Rather than focussing on features, functionality and technology, we can optimise our resources and focus on clients’ needs

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single login, to process all their transactions through multiple banks. This is where the fintechs come into play. Rather than building their own platform, products and services from a client portal point of view, banks see no real reason to create something, not knowing whether it’s going to be applicable three or four years down the road. This is where collaborating with a fintech that creates its own consortium of many banks, sharing similar thoughts on what needs to be done, comes in. Fintech collaboration has become very important, and banks are relying on technology specialists to build while they provide the services and enhance the client experience. If we don’t do that, and go back to the old legacy ways of corporates and banks doing transactions on a bilateral,

paper-to-paper basis, that’s not sustainable for the future, which is where that collaborative effort with fintech companies becomes essential. This leaves banks to focus on what we’re good at. If you look at the trade finance side, you have letters of credit, collections, etc, but while such traditional finance will still exist, many are moving into the open account space around supply chain, receivables and open account financing. Banks are in a position to provide various working capital solutions to large corporates, SMEs and mid-sized businesses, depending on their specialisms. This is where we can start creating solutions for those. Rather than focussing on features, functionality and technology, we can optimise our resources and focus on clients’ needs.

At your service: Technology partnerships will allow banks to concentrate on client needs

As a result of this unfortunate pandemic, people are recognising that innovation has to take place faster. While they might previously have taken the attitude ‘we’ll do it the way it is’, the need for business continuity plans, offices shutting down and people not having access to paper documents, has created alignment within the banking industry as to what’s needed for us to move to the next level. So, the innovation in trade finance will continue to take place. Some of these innovations will be easier than others, so we do have to work with the various regulators to create a streamlined structure where everybody has an experience that is much better than today. Five years from now, I think we will have a very different type of discussion about esignatures, digitising documents and sharing them among the banks, and then our hope is that the paper portion will be substantially reduced, creating much better efficiency and enhancing the client experience. www.fintech.finance

LAST WORDS: BOOK REVIEW Decline and fall: Starling Bank was among the first to challenge the old order

BROKEN BANKS:

THE RISE OF STARLING We all think we know the Starling story, but if you’re a fintech junkie, Anne Boden’s short history of broken banking and how she fixed it is compulsive reading, says Doug Mackenzie

Fintech as an industry is small, almost to the point of cliquiness, so when one of its forerunners pens an insider account that charts the beginnings, trials and tribulations of the sector, everyone takes notice. Anne Boden has written a detailed work – despite it being under 300 pages long. And, just to be clear, the juicy section on the infamous Boden/Blomfield split during the launch of Starling Bank is just a minor part of it. This gossip-worthy milestone in fintech’s short history somewhat inevitably seized the headlines leading up to the book’s release, but the real joy comes from reading how Boden upset the whole darn industry applecart. It’s easy to forget what banking was like before the challengers came along: an industry that was licking its wounds after the 2008 crash, characterised by greed and incompetence. Large, empty branches, poor digital offerings and early closing times – everything that would make the savvy digital banking customer of today grind their teeth. It’s against this backdrop that Boden starts the story – in Dublin, as she heads into work at one of the worst-hit institutions of the crisis, Allied Irish Bank. It was on this journey that she started to pull together her ideas of what banking should really look like. In this regard, the work definitely has a typical ‘business’ book formula: a plan that no one had thought of before, and a playbook of how that plan was executed.

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Boden rapidly takes us through the significant ups and downs of what was no easy feat – banking is, after all, an obstinate beast. To achieve change, she would need to attract talent (enter stage right Tom Blomfield, the CTO who would later leave to found rival Monzo and other familiar players in the fintech ecosystem); funding

It’s easy to forget what banking was like before the challengers came along… large empty branches, poor digital offerings, early closing times (almost exclusively given to men, with Boden pointing out gender disparity that will leave readers aghast); and, ultimately, regulatory approval (the final hurdle to achieving the seemingly impossible). While a lot of the stories are already widely known to those in the fintech community, in Boden’s book we finally have a narrative provided by one of the leading actors – which is also where, potentially, the book comes unstuck. While Boden has said that Banking On It is not a memoir, it still gives one player’s side of the story – although I’m sure we will hear the other versions in the near future.

Undoubtedly, the strongest aspect of the book is the hunt for venture capital. Boden brings to life a parade of obscure and absurd individuals that could make or break her new bank: from an investor wrapped in a fur coat who wanted her to beg, to the incredible anecdote about how Harald McPike, Starlng’s biggest backer, came into the picture. Having nearly lost Starling Bank, Boden had to start again. That much turmoil might have spelt the end for most businesses but this is where her affable and hardworking nature shines through. While the narrative is strictly from Boden’s perspective, Starling has stayed true to Anne Boden’s vision outlined in the book and they look set to become the first of the UK’s retail Neobanks to achieve profitability.

Banking On It: How I Disrupted an Industry by Anne Boden is published by Penguin Books and is available in hardback and Kindle editions. Great for: Reminding us why we’re all here Best read: Before you launch your next bank Good read rating: ★★★★★

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