Fintech Finance presents: The Fintech Magazine 19 by Fintech Finance

ISSUE 19

THE

PAYMENTS & ECOMMERCE

Klarna chameleon Why Down Under is the poster boy for BNPL ARTIFICIAL INTELLIGENCE

A question of ethics How Scotiabank’s responsible AI coped in a crisis

NEOBANKS

TRADTECH

SUPER-FAST OR SMART? TECH TACTICS FOR A VOLATILE, POST-COVID MARKET

GAMEON!

The bank of fun

Story of Denmark’s Lunar landing SCALING

Second wave Mambu and Tandem’s new partnership proves change is good

INSIGHTS FROM AIB ● Meniga ● Scotiabank ● ING ● Nuance ● Metro Bank ● Torstone ● Klarna Railsbank ● Bottomline ● DNB ● SmartStream ● BGL ● G+D ● Glint ● FICO ● Goldman Sachs ● Citi

uary

2021 NEW NORMAL NEW FORMAT A full year of hybrid events

February

March

April

May

June

July

BEYOND FINANCE OPEN BANKING PAYMENT DIGITAL ASSETS INSURTECH SUSTAINABLE FINANCE PFF FINTECH AWARDS 

parisfintechforum.com

August

September

Octob

CONTENTS

COMMENTARY 14 Innovation where you least expect it So, you think cash is dull? Ron Delnevo would beg to disagree

20 Me, me, me… the next chapter in fraud prevention Nuance Communications foresees greater reliance on biometrics

28 The new CXellence If the competitive advantage for insurers is now CX, how should they respond? We asked BGL and Sabio

42 If you’ve got it, use it! Railbsbank’s Claire Green, former England Women’s Rugby player, on upping your game in fintech

54 The big green debate Meniga, Scotiabank and Rabobank on the role banks can and should play in a more sustainable future

65 A short history of financial time

THEFINTECHVIEW

2021

ISSUE #19

There’s a pattern of play that can be designed into video games called ‘the compulsion loop’. It’s defined as ‘a habitual behaviour that a human will repeat to gain a neurochemical reward: a feeling of pleasure and/or a relief from pain’. When thousands of Robinhood and other amateur day traders put the squeeze on short sellers in GameStop stock this month, many institutional investors found themselves stuck in just such a loop – although more to relieve financial pain than experience any pleasure. In excess of half a billion shares in the struggling video games retailer traded hands in one week, according to data analyst Sentieo, which means every available share was switched about eight times. Behind

the scenes, firms were running white-hot to keep up. So, in this post-GameStop issue, we look at the implications for technology and traders of dramatic changes to markets, brought about in part by the pandemic, and chart the insatiable quest to knock fractions of a second off high-frequency trading. Then we ask ‘is speed enough?’. You’ll find another urgent argument for a change in investment behaviour in our Big Green Debate on page 54. And see what happens when an asset as old as time meets digital cash on page 45. Did you recognise last issue’s ‘spine tingler’? "This is the fight of our lives, and we're going to win. Whatever it takes”– Steve Rogers (aka Captain America) Sue Scott, Editor

Regulators require timestamping of trading data. But how do we know it’s accurate?

74 The halo effect Metro Bank and Mobiquity debate whether there’s room for digital and physical banks, post-pandemic

TRADETECH 6

Fast bucks Three early enablers of HFT on whether ‘smart’ now beats ‘fast’

11 The squeezed middle

Torstone Technology’s Brian Collings on COVID-induced volatility and what it means for post-trade processing

SCALING 17 Fast and flexible Mambu and Tandem on their new partnership, and why challengers can’t afford to stand still

PAYMENTS & ECOMMERCE 22 Lest we forget G+D’s Jukka Yliuntinen on why and how banks can help us recall who we’ve given our account details to

24 Relieving the pressure The shifting plates below the global payments landscape demand an agile strategy. Valitor has one www.fintechf.com

54 42 28 Issue 19 | TheFintechMagazine

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CONTENTS

40 26 The oh-so-fashionable way to pay

We asked Klarna’s General Manager for Australia and New Zealand, why Down Under is a poster boy for BNPL

22 72 The art of cyberwar

NEOBANKS 45 A new gold standard Consumers can access their own, inflation-proof currency with Glint

49 The bank of fun

31 Pushing the digital payments envelope How Visa Direct’s expanded capabilities are helping financial institutions and businesses

Danish challenger Lunar is ready to ‘change the way people do banking’

52 One last thing… Why has fintech taken so long to address end-of-life account closures? The same question occurred to Settld

CROSSBORDER 32 Tracking and tracing Intix on why knowing where a transaction is and has been is crucial to banks’ decision-making

THE INVESTORS 58 Inclusive thinking How digital ID solutions are a crucial part of Citi Ventures’ impact mission

35 On a mission You can’t wait for the end of the day to take control of transactions that ‘don’t compute’, says SmartStream

61 The network effect Goldman Sachs led Trulioo’s most recent funding round – but it brings more to the table than cash

38 Payments without frontiers: a Nordic journey DNB Bank and Bottomline consider if northern Europe is a standard bearer

REGTECH 68 The electricity of change

40 The third-party piece Banks must embrace tech providers, says Eric Bayle at Société Générale

Open banking was the spark, but when will it ignite open finance, ask Moneyhub and Envestnet|Yodlee

The TIBER-EU framework for dealing with cyberthreats might be said to be based on Sun Tzu’s Art of War, as AIB’s Howard Shortt and Nettitude’s Anthony Long explain

ARTIFICIAL INTELLIGENCE 76 Creating responsible AI operations ‘Doing your best’ to make sure AI behaves ethically will soon not be good enough, warns FICO

79 Power and responsibility Scotiabank couldn’t have intervened to help millions of families at risk of financial distress during the pandemic without AI. But it’s super-conscious of ethical hazard, as Phil Thomas at Scotiabank Canada explains

LAST WORDS 82 Beam us up, Scottie! Do the economics of the Star Trek universe have something to teach our post-COVID world? Ali Paterson boldly goes in search of answers in the pages of Trekonomics

THEFINTECHMAGAZINE2021 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 Diana Alexandra ● Hannah Duncan David Firth ● Tracy Fletcher Andrew Gaudion ● Martin Heminway Rebekah Lancaster ● Natalie Marchant Sean Martin ● Martin Morris John Reynolds ● Sue Scott James Tall ● Frank Tennyson

ISSUE #19 Fintech Finance is published by ADVERTAINMENT MEDIA LTD. Pantiles Chambers 85 High Street Tunbridge Wells, TN1 1XP

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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 19 | TheFintechMagazine

TRADETECH: HFT

FASTBUCKS FAST BUCKS As Amazon Web Services floats the concept of a stock exchange in the Cloud, we brought three of the early-enablers of high- frequency trading (HFT) together to reflect on the low-latency journey and whether ‘smart’ now has the edge over ‘fast’

In the film The Hummingbird Project, high-frequency traders in the mid-West go to extraordinary and dramatic lengths to knock a millisecond off the latency in data transmission caused by the 1,172.2 miles sitting between them and the New York Stock Exchange. Back in 2011, when the film is set, they reckoned a millisecond advantage was worth about $5billion. Things have moved on since 2011. Now, you’re talking picoseconds – that’s one trillionth of a second. But speed still equals money… or does it? Before the introduction of electronic trading silenced trading pits at exchanges across the world, men (and they were all men) clutching fistfuls of paper, shouted and gesticulated in a frenzy of buying and selling, leaving many floors looking like a Bet Fred bookies on Derby Day when the closing bell sounded. One of the most riotous and colourful, thanks to the many different blazers worn to help identify the status of who you were trading with, was the Chicago Mercantile Exchange. Ten thousand people traded on the floor of the Chicago Exchange in 1997, the year electronic trading was introduced. Five years later, only 10 per cent remained. “I was a token rocket scientist for the broking firm that hired me out of my physics department in the mid-80s,” says

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Greg Robinson, recalling his apprenticeship ‘waving his arms about’ on the trading floor of Australia’s SEAT exchange. But, after the introduction of electronic trading, it wasn’t long before he and others like him, with engineering backgrounds, were being recruited to start a race against time that’s transformed the industry. Now director of the engineering department at Cisco, which provides the physical network architecture to facilitate trade, Robinson previously founded a high-frequency trading (HFT) firm that moved into building its own hardware ‘in order to start getting the market data off the wire more quickly, and the orders onto the wire more quickly’. “After that, we decided to sell shovels, rather than stay as miners, and so the trading side diminished and the hardware side grew out of that,” he says. The firm, Exablaze, was acquired by Cisco in January 2020. Among the staff that moved over with Robinson was James Beeken, who started his career building 1,000-plus-position trading floors, with multiple screens, a complex communication panel and thousands of connections to counterparties all over the world. “They were all highly-stressed individuals, highly-opinionated individuals, and there

were just massive sets of infrastructure,” says Beeken. “The trading floors consisted of all these chaps in coloured jackets, running around, shouting and waving. The step change happened in ’86, when the London Stock Exchange went private.” While that was undoubtedly a Big Bang moment that signalled the widespread adoption of electronic trading, he believes it was the MiFID I (Markets in Financial Instruments Directive) regulations in Europe that ‘really put competition on the table’, and fired the HFT starting gun. “With competition came the ethos of ‘I’ve got to be first’,” says Beeken. “The first to hit a price, to get a trade, that became the all-important thing. And, from there, we tried to make networks faster, trying to get colocation principles for datacentres up and running, trying to get datacentres closer to stock exchanges, looking at everywhere in that trade execution cycle where we could start pulling out time. “Back in the beginning, we could pull out huge amounts of time, for relatively low infrastructure cost. But, as that journey goes on, we’re looking at increasingly smaller amounts of latency, at ever-increasing cost to achieve it.” Kevin Covington is familiar with that particular rabbit hole. A pioneer in www.fintechf.com

developing proximity, now called colocation, or colo, services, he helped to come up with the concept of data centres in which equipment, rack space, cooling, security and bandwidth were all made available for rent, together with the connectivity to telecommunications and network service providers. It was an essential part of the ultra-low latency trading story. “We figured out that you could go around and buy bits of rubbish

datacentres that just happened to be located near to the exchanges’ data rooms,” says Covington, CEO of industry consultants Change Alley, who was working for extranet provider Radianz at the time. “We called it ‘proximity hosting’; it’s now called ‘colo’ and it’s a big industry, but I was buying racks in what were effectively cupboards in buildings, and hosting trading algorithms for people. That fired off this whole madhouse.” In the US, Covington’s team built the first fibre network to connect this ‘hodgepodge’ of racks to each

In the beginning, we could pull out huge amounts of time for relatively low infrastructure cost. But, as that journey goes on, we’re looking at increasingly smaller amounts of latency, at ever-increasing cost to achieve it James Beeken, Cisco

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of the exchanges. As alternative trading networks, like BATS, which provided a gateway to NASDAQ, started to emerge, there was an even greater demand to colocate near established exchanges, as it was realised that the albeit infinitesimal speed advantage provided the chance to grab a piece of the market. “That caused an increased feeding frenzy on these proximity sites,” says Covington. “The trouble with that was that we were running out of power and footprint, and people were arbitraging on footprint by buying all the racks, so that somebody

else could get in there. That was really the first public realisation that latency awas important. From that point, in 2004, onwards, it’s become a mantra and everybody’s focussed on improving it.” As Robinson explains: “When we first started, hundreds of milliseconds were fast, because you were comparing yourself with human reaction times and we thought that getting down to anything in microseconds was going to be super-fast. But we all have customers, these days, that prune their fibre cables to a minimum length, to save that extra nanosecond. “How much a speed advantage is worth is determined by the venue you’re trading in. If you’re trading into a venue with a very high jitter [congestion] in its network, then you may be fastest, but you may get shuffled to number five in the queue as the orders find their way into the matching engine. So, beyond a certain point, you’re just buying a ticket in the raffle rather than winning the prize. “I know, from personal experience, when we were trading that just finding a few extra microseconds multiplied our revenues by a factor of five overnight. But, of course, someone else comes along, and you go from peacock to feather duster very quickly.

“ Everybody’s on their toes all the time, and that’s part of the reason why this industry has moved so fast.” As a result, the people in it have markedly changed: chancers with a nose for a deal have been replaced by those with doctorates who can literally engineer one better. “Some of the smartest people I’ve met find their way into the HFT world,” says Robinson. “They live and breathe how they can find an edge and they find their edges in the most remarkable places.” HFT really took off after the 2008 crash as exchanges, which desperately needed

I was buying racks in what were effectively cupboards in buildings, and hosting trading algorithms for people. That fired off this whole madhouse Kevin Covington, CEO Change Alley

liquidity in the market, were prepared to pay a supplement or fee for HFT, which is characterised by high volumes, albeit those volumes are only in the market briefly. HFT became a feature of the industry, but its impact led to concern that it’s made the markets less fair and less accessible. A report published in 2020 by the UK’s Financial Conduct Authority concluded that the practice causes the overall volume of trading on global stock markets to decrease by as much as US$5billion a year, its conclusion based on the fact that latency arbitrage, allows for better prices to be snatched up by HF traders before regular investors. Issue 19 | TheFintechMagazine

TRADETECH: HFT Time is money: Traders are using technology to gain picosecond advantages

The arbitrage practice also has the effect of reducing the incentive for those on the other side of a trade to offer these better prices, which also costs retail participants. Despite the regulator’s misgivings about the negative impact of HFT, it is not going away anytime soon. Indeed, tech giants like Cisco are continuing to develop products such as smart network interface cards – ultra-low latency and high-resolution timestamping adapters – which can deliver sub-600 nanoseconds wire-to-application-to-wire performance out of the box. “That, in itself, is a fairly eye-watering performance,” says Beeken. “And then we give our clients a set of tools we call ExaSOC so they can fine tune these cards to their networks and improve the performance characteristics even further.” Field-upgradeable SmartNICs promise to provide up to 10x latency performance. “Our whole ethos is to drive out those nanoseconds in the platforms we build,” says Beeken. Work is also going on in the sphere of FPGA (Field Programmable Gate Array) hardware, which allows customers to write their own complex codes to develop trading solutions – again emphasising the role of tradetech engineers. But that’s a situation only enjoyed by

TheFintechMagazine | Issue 19

three or four companies which are tuned The Hummingbird Project ends with… to the lowest possible latency, according well, we won’t spoil it for you. But where to Robinson. And that has resulted in an does this tradetech story go next? Will ironic twist in the tale. exchanges evolve into being Cloud-based Having spent the past 30 years getting institutions, for example, to reduce data to transmit faster and the huge costs of faster, it's not about the maintaining their speed of trade on the day network infrastructures? anymore, but rather how Amazon Web Services fast you can forecast it. already works with capital “People are now starting markets, including to move away from the NASDAQ and the Stock nanosecond-based trades, Exchange of Thailand. It’s into maybe microsecond recently undertaken a forecasting and having ‘proof of concept’ with models which are dynamic, The Singapore Exchange where you can be a bit and London-based Aquis smarter, even if you’re not Exchange to show that faster,” says Robinson. trading shares in the Cloud “Nobody wants to be slow can be fast and reliable. on purpose, but if you can’t Covington foresees that Greg Robinson, just get those super-fast there could be a conflict in Cisco trades there’s still plenty of ensuring market regulation room for sophisticated, high-frequency and compliance are maintained with that trading. There’s a sweet spot for everybody.” approach. Beeken, though, is less sceptical: With larger firms of high-frequency “We’ve got artificial intelligence, we’ve traders now experimenting with machine got machine learning; we’ve already got learning and updating their models of data from the exchanges in the Cloud, so the world accordingly, intelligence as we’re already on that journey towards an much as speed equals money – creating entire exchange operating in the Cloud.” opportunities for ‘another wave of startups We’ll perhaps leave that plot twist that are a little bit smarter’, says Robinson. for a sequel interview.

People are moving away from nanosecond trades into microsecond forecasting… you can be smarter even if you’re not faster

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TRADETECH: POST-TRADE AUTOMATION

The squeezed middle The pandemic, with its associated cycle of lockdowns and restrictions, has significantly shaken up the trading sector, not least by challenging high-touch middle office processes, often now carried out in a remote-working environment. We spoke to Brian Collings, Chairman and CEO of Torstone Technology, to get his take on COVID-induced market volatility and what it means for post-trade processing

It’s a hectic time for the world’s traders. Increased market volatility and volume are putting pressure on existing infrastructure, which is straining under the weight of operational changes prompted by the all-encompassing pandemic – most significantly homeworking. Markets have yo-yo’d with every lockdown/relaxation, vaccine progress/shortage announcement, signalling flights to and from assets as investor confidence waxed and waned. Bored newbie retail investors, stuck at home, piled into (mostly day) trading, in unprecedented numbers, creating swings last seen during the dotcom bubble – a trend that will likely continue into 2021. Then, there has been the dramatic shift of capital away from badly-hit sectors such as high street retail and transport, and towards others, specifically tech companies, which attracted never-before-seen wads of cash. Even within sectors, markets quickly followed consumers as they redirected spending from one category or channel to another, be that fashion to home improvement, or

in-store to ecommerce. Between mid-March and the end of August 2020, for example, computer game company Nvidia was up nearly 95 per cent, according to Morningstar Direct. Delta Air Lines, meanwhile, plunged by more than a third. As equity prices hit new highs at the start of 2021, trading volumes for stocks and options also set new records. With all this unprecedented activity going on, no wonder trading houses have been reaching for better tech, particularly as operational changes – most significantly, working from home – put additional strain on traditionally high-touch processes... an area that’s become a key, middle-office issue now for many of Torstone Technology’s clients. A leading provider of post-trade securities and derivatives processing via its Inferno platform, Torstone has offices in the key trading hubs of New York, Toronto, Hong Kong, Singapore and Tokyo, in all of which it’s seen interest in its Cloud-based, software-as-a-service (SaaS) solutions surge, prompting plans to increase its workforce by a third this year.

Ups and downs: Stocks have seen unprecedented volatility due to COVID-19

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Issue 19 | TheFintechMagazine

TRADETECH: POST-TRADE AUTOMATION At the core of the platform’s appeal is its ability it allow clients to flex quickly to new requirements, help them navigate the chaos and future-proof their organisations for what Brian Collings, chairman and CEO of Torstone Technology, predicts will be another equally-challenging 12 months. “Unlike the credit crunch in 2008, banks and brokers have done well. We’ve seen some of our clients’ daily volumes going up fivefold,” says Collings. “But you’ve got to have infrastructure to cope with that. And we’ve other things around the corner – the ongoing impact of the US elections and Brexit –that are going to bring more operational issues along with those transaction volumes increasing.”

of underinvestment as firms prioritised the front offices they saw as profit centres, people are now having to move pretty quickly to make sure that automation is there. “Generally, I think the scalability of what the SaaS platforms can provide has been the key to getting through parts of this pandemic.” There have been some notable new client wins over the past few months for Torstone, such as Credit Suisse, which has now automated the post-trade operations of its institutional equities trading business in Canada after going live on Torstone’s platform. Torstone has also partnered with Tosho Computer Systems to administer

Burn out? The industry needs tech solutions to help firms cope

According to a recent report published by Firebrand Research and Torstone, pandemic-led market volatility and the resulting industry-wide shift to remote working have highlighted multiple post-trade challenges for trading firms. The most significant include a higher number of exceptions to resolve in a shorter timeframe than normal, and pressure on collateral management systems as firms are required to engage in a significant increase in substitutions and margining activity. “Some of the operational processes in legacy systems just can’t cope with those volumes and increased workflow around the margining,” says Collings. “Being on the Cloud has been a saving grace for much of this increase in operational flow, because I think where we’ve seen some of the operational issues highlighted is in those manual processes; those necessary interactions between people that have now moved to email, phone and video because they are not in the office. Those processes are now being really closely examined. “We’ve seen a particular focus on the middle office, which is the area that has struggled most. I think, because of decades

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myriad concerns raised at a recent roundtable discussion hosted by Torstone. While the industry debate rumbles on, Torstone itself is well-positioned for such upcoming regulatory changes, thanks to its 2019 investment in Percentile, a Cloud-based risk and compliance technology specialist. “These regulatory changes coming in are putting more pressure on settlement; with the type of volumes we’re talking about, even a 0.00001 per cent failure rate is going to be costly,” says Collings. “That’s why the middle office is becoming an increasing focus for us, because the more you can get right there, the better the picture becomes in terms of downstream settlement.” Torstone is ready to help lead firms into the new normal, which, says Collings, will see significant mutualising of the cost base. “The pandemic has put extra cost pressures on everybody, and nobody can do everything themselves – not to the specialist degree they need. It’s about making sure processing works efficiently and firms aren’t giving away the crown

It’s all about mutualising the cost base. The pandemic has put extra cost pressures on absolutely everybody, and nobody can do everything themselves – not to the specialist degree they need

connectivity to the Japan Securities Depository Center (JASDEC), the central securities depository for Japan. Financial services hosting provider Tosho will provide its own data centre to administer proximity connectivity services, as well as expertise in the Japanese securities market. The direct connectivity to JASDEC completes a full post-trade life cycle solution for both domestic and foreign brokers in Japan, while reducing operational costs for both yen and non-yen products.

STAYING AHEAD OF THE REGULATORY CURVE The efficiency of post-trade processing has been a hotly-discussed topic in the broker community, and the next wave of EU regulation, in the form of Central Securities Depositories Regulation (CSDR), adds yet another challenge to the mix. CSDR, which has now been delayed until February 2022 in light of the ongoing pandemic, is predicted to directly affect brokers’ performance and ability to make markets in certain sectors, according to the

jewels if they outsource their middle and post-trade areas to providers like us. We, in turn, need the support of the infrastructure. So we’ve outsourced to Cloud providers, because we’re not specialised in that. “So you can see this ecosystem is very much coming together with standard APIs between financial firms and vendors creating the glue." The adoption of APIs is encouraged by the use of processing protocols such as SWIFT for post-trade activity in the middle office and FIX, which is all about speed, volume and low latency, in the front. 2021 will see more volatility, changes around digital assets and increased pace of regulation, foresees Collings. “Legacy systems will find it harder to adapt to such profound changes,” he says, “and that will drive further acceleration towards Cloud-based platforms.” www.fintechf.com

COMMENTARY: ATMs

Innovation where you least expect I remember attending an event organised by the UK Payment Systems Regulator (PSR), a few years ago, where a senior partner from a huge consultancy was chairing the morning’s proceedings. He wore a very expensive suit and an air of supreme confidence, keenly aware of his own authority in relation to all things innovation. The guru had almost completed his opening remarks when, with an amazed look on his face, he told us that: “Innovation goes on in the most surprising places. Why, only this morning, I even heard of an innovation in the ATM industry!” Unluckily for ‘Mr Amazed’, his audience included several genuine experts in all things ATMs. The PSR found itself buried in their complaints on social media, to the extent that, before lunch, the crestfallen guru had to return to the stage to give a shamefaced apology for being ignorant of the fact that the ATM industry is a veritable fulcrum of innovation. In fact, both ATMs and cash are benefitting from a continuous flow of it. Some small, some major, but all play their part in delivering constant improvements. During my time as CEO of Bank Machine, I saw many such small changes introduced – the most memorable, perhaps, being the introduction of Cockney as a language option on ATMs in London, which brought worldwide publicity and substantial extra business to our machines! Fast-forward to today, and there are three innovations that I’d highlight as having a positive impact on ATMs and cash in 2021 and beyond. The first is a new entrant to the UK ATM market: the Compact400, designed for retail environments. As you can see from the images opposite, this machine takes up very little space in the shop window, which is a vital consideration for retailers. The in-store footprint is also among the smallest ever for a through-the-wall ATM, and the inner

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So, you think cash is dull? Ron Delnevo, Chairman of Cash and Card Consultants, would politely beg to disagree… workings of the machine include a single, uniquely-compact cash dispenser, designed specifically for retailers who wish to self-fill. A collection of small innovations brought together, like this, in one product can have a transformative impact on the market, and this ATM will certainly be transforming many shop windows in the coming months, as operator Cash On The Move, which had the ATM designed and built to its specification, installs them around the UK. Moving on to cash itself, an oft-heard complaint from the public is that too many coins accumulate in pockets and purses. Often, these coins find their way to a seemingly permanent resting place in jam jars and the like. There are seven billion 2p coins alone circulating – or contributing to the jam jar economy – on our small Island. But it’s not the 2p pieces that weigh most heavily upon us; it’s the £1 and £2 coins that threaten to make holes in our pockets and give us all arms like Turkish weightlifters. Too many coins often means too few banknotes and that is certainly the case where £1 coins are concerned. I have lost count of the number of times a shop assistant has apologised to me by saying ‘sorry! No £5 notes’, and then handed me enough metal to ballast the Queen Mary 2. Going back to my Bank Machine days, the now governor of the Bank of England, Andrew Bailey, asked me some years ago to help him get more fivers into circulation. Knowing that helping the central bank guarantees me a knighthood before the Grim Reaper calls, I instantly came up with

an innovation. Namely, £5 note-only ATMs. My own company installed around 200 of them, helping to increase the number of £5 notes in circulation by more than 1,000 per cent, from around 10 million to more than 110 million. Today, no one seems to have the appetite to fill ATMs with low-denomination banknotes, so our pockets overflow with the highest-value coins. But help is on the way, in the shape of another innovation from a company that wants to take coins off our hands –British startup Shrap, founded in 2017. It has a clear vision to build a more efficient alternative to those heavy coins. It may seem an odd time to start tackling the issue of coins; the mainstream media would have everyone believe that cash is already dead, after all. But, as of November 2020, there had, in fact, been a 10 per cent increase in the value of banknotes in circulation in the UK, from a pre-pandemic £70billion to a then-current £78billion. And, importantly for Shrap, there are at least £5billionworth of coins out there, too. Shrap aims to change this with a hybrid app/card that replicates the features of cash: it’s bearer-based, free and anonymous to use, and inclusive of all in society. Deployed at point of sale, the customer pays in cash but the merchant issues the change onto the customer’s Shrap app or card. The solution eliminates the need for businesses to maintain a float of coins, which are increasingly expensive to handle. Instead, each holds a digital float on the Shrap platform, allowing change to be issued electronically when a customer makes a cash purchase. For consumers, Shrap acts like a digital jam jar, allowing change to be stored and spent – anonymously and for free – on the platform (although the option to withdraw it to a bank account does come with a charge). Interestingly, Shrap’s model also presents a solution to one of the biggest www.fintechf.com

challenges faced by wallet providers: how a cash-favouring customer can load funds onto their wallet. With Shrap, this is done as part of a direct exchange for cash with a business at point of sale. Even as a lover of cash – someone who wants to go on using banknotes literally forever – I find the idea of reducing the number of coins I have to cart around very appealing. Shrap will be hoping that tens of millions of UK cash users share my enthusiasm. The final innovation I want to highlight is somewhat related to cashback, a little-used service introduced into the UK as far back as 1987. There seems to be a desire to resuscitate old-style cashback as a significant element of public access to cash in the UK. While cost issues are often cited for its historic lack of success, it is my strong belief that the major obstacle that has prevented cashback from being widely adopted in the UK, is uncertainty. The public haven’t known which businesses offer cashback; whether they would be asked to make a purchase; whether they could/should ask for cashback or not; whether they might be refused or, perhaps, be offered a lower amount of cash than they wanted; whether they would be charged to get their money. And here I must declare an interest. I have believed for some time that retailers can

play an important role in meeting the cash needs of their local communities, and I had been looking for a solution that could bring this about. Last year I found it, in the shape of a company called Sonect. In fact, I liked this solution so much that I am now supporting the UK launch. Sonect’s app-based service was launched in Switzerland four years ago. It neatly removes all the uncertainty of traditional cashback, giving the public using the service total confidence that they can get the cash they need. Using the Sonect app, they can reserve the amount they want, even before leaving home, to be picked up locally at a participating business. The businesses – mainly retailers and cafes – contracted to provide the Sonect service, commit to having the cash available, using the Sonect Retailer App to confirm their real-time ability to provide

Digital innovation is moving at an astonishing pace – and, rather than killing off the world’s favourite payment method, it can help to make cash even more convenient

cash in the required amount to each Sonect customer. In short, it is a ‘click & collect’ service for cash, with the tills in every participating business effectively become virtual ATMs. Uncertainty removed. Peace of mind created. And it’s free for consumers to use. Ultimately, Sonect will connect many thousands of UK businesses with cash to dispense in communities around the country, to millions of consumers who will have their demand for cash satisfied. More good news is that, during 2021, cash deposit functionality will be added to the Sonect app. This further innovation will give both the public and businesses a vital local cash deposit service, something that an increasing number of communities lack due to the continuing closure of bank and post office branches. So there you have it. Three innovations that will make cash more convenient to both access and use in 2021, while at the same time helping to reduce the costs associated with cash circulation. In other words, a win-win for everyone. Digital and technological innovation is moving at an astonishing pace – and, rather than killing off the world’s favourite payment method, it can help to make cash even more convenient and user-friendly. ‘Mr Amazed’ will no doubt morph to ‘Mr Astounded’!

Next-gen ATM: The Compact400 is designed for space-conscious retail

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Issue 19 | TheFintechMagazine

Let’s talk about the next wave in AI, Machine Learning & Managed Services

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SCALING: BUILT TO CHANGE

Fast andFlexible The UK’s Tandem completed a core transformation last year with composable banking technology provider Mambu. Here, Tandem’s Chief Operating Officer Nick Bennett and Mambu’s Chief Customer Officer Elliott Limb share their thoughts on delivery-led culture, the innovation ecosystem and why not even neos can afford to stand still Digital challenger, Tandem, entered the UK market in 2016, promising a new approach to banking. Targeting the gig economy’s younger demographic with app-based money management tools, including an account aggregator and budgeting overview, it later added a cashback credit card and generous savings products. Among the early cohort of neobanks, combining mobile-only open banking functionality with deposit and lending facilities was an unusual approach. But

Tandem’s uncomplicated, fresh offer and simple user interface quickly attracted 950,000 customers. Five years is a long time in fintech, however. Customer expectations, rival challengers and, indeed, the economy, have moved on dramatically. And, last year, Tandem began to adapt accordingly: it decided to dump the credit card, acquired green lender Allium Lending Group to offer new green savings and home loan products, appointing Allium’s CEO as its chief commercial officer… and moved away from Fiserve’s Agiliti core banking platform to adopt a Cloud-based, software-as-a-service model. By striking a new partnership with composable banking provider Mambu, the aim is to shift the bank from being largely a consumer of technology services, to being an innovator in its own right, as Tandem repositions itself as ‘second wave’ challenger and ‘the good green bank’. In a recent global webinar, hosted by The Fintech Magazine, Nick Bennett, chief operating officer for Tandem Bank and Elliott Limb, chief customer officer at Mambu, discussed how the right processes, technology and people can help to prioritise an innovation and delivery-led culture, and enable an integrated ecosystem to operate with a contemporary mindset. It was the first time the two companies had talked publicly together about the new partnership.

For Bennett, whose consulting and banking background has largely been focussed on taking companies through the scale-to-growth phase, Tandem ticks all the necessary boxes because it’s focussed, as Bennett describes it, on ‘doing something different… thinking about how you solve financial problems, how you manage finances from a consumer point of view, rather than from a bank perspective; and driving a service-based approach to banking, as opposed to the product-based approach many banks have’. Investors, who supported an additional £60million fundraise last spring, obviously agree. Meanwhile, Mambu’s platform vision of composable banking means clients develop the banking experience best suited for them and their customers, without being tied to a specific vendor, product or technology. Unsurprisingly, Tandem ticks the necessary boxes for Elliott Limb, too. “This is a radical innovation, and we want to be there for the journey, at the core of it,” he says. ‘Business-as-usual’ in banking would be fine, according to Bennett, if it was working and meeting the needs of consumers. “I think it’s quite evident, though, when you look at how other sectors are being disrupted, that financial services is one of the last bastions of the industry still holding out.

Off to a good start: In Mambu, Tandem found a technology that could keep up with its ideas

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Issue 19 | TheFintechMagazine

SCALING: BUILT TO CHANGE So, for us to replicate business-as-usual would, I think, just be a bit of a failure.” Despite the huge digital shift that challengers have already forced on the industry, for Bennett, that’s a job which is still only half done. “I think the next wave is really about genuine disruption, genuine innovation, where you look at a very different way of servicing customers and break down some of the concepts of what makes up banking and financial services,” he says. And that’s why Tandem chose the composable banking route. “When you look at the Mambu proposition, designed as it is in a way that’s very easy to use, very configurable, it gives you a lot of power Elliott Limb, as well as a low cost base.” Mambu Explaining that proposition, Limb says: “We have a saying at Mambu, which is that banks were built to last; now they’re built to change. Banking has basically been driving with the handbrake on since it started, and, from an innovation and agility standpoint, we’ve got to move further forward.” And the decision to let that handbrake off is entirely in the hands of the industry, says Bennett. You can’t blame regulators now for a lack of propulsion, although he acknowledges that when Tandem was founded the UK regulator’s distinctly lukewarm attitude to Cloud banking influenced its choice of stack. “Fundamentally, they see Cloud now as an enabler to competition, and to supporting the disruption we’ve been talking about,” says Bennett. The real business risk for challengers is slowing down, adds Limb, and that’s driven not just by the tech, but also by the culture they’ve built around them – the ‘connective tissue’ as one commentator has described it, with which everyone in the company is bound together. A collective culture allows them to focus on the important things as one mind, so that the impetus for driving the company is bottom-up, not top-down. “When you look at the way the neobanks are coming at it, (having) good tech (amounts) to probably a two or three-year advantage, but actually culture is probably a five-to-10-year advantage,” says Bennett. “While big banks are deploying a lot of cash, improving their digital propositions, culture

is going to be a major inhibitor for them. And, along with some of the other, more practical considerations, what it will fundamentally drive is internal tension.” When you build an ecosystem with a bank-centric culture, an ‘egosystem’ invariably emerges, says Limb. But if you get people to understand you’ve moved to shared strategies, values and outcomes, it isn’t simply their own culture, but a shared one. “Co-innovation, co-technology is great, but it’s fundamentally about human beings and the way we operate together,” says Limb.

Banks used to be built to last; now they’re built to change

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The second wave: Neobanks cannot stand still

“We wanted to make sure that, at the core, we had a really flexible, very composable architecture that allowed us to innovate. We made that choice about 18 months ago, which is when we really started to engage with Mambu and others. “The bank has built a new platform and new product architecture, and is putting out a completely new set of services, of which Mambu is part.” The timeframe was impressive: three months to get the first minimum viable product (MVP), built using composable banking principles, into customers’ hands, illustrating ‘how quickly we can move through the engineering and product lifecycle to get something out’, according to Bennett. “We’ve also added in a completely new payment infrastructure, which is integrated over the Mambu platform, we’ve built up our new compliance tooling and a couple of new products on the mortgage side already, too. You can do that very quickly; in most cases, in weeks.” The choice of such a fast, flexible technology that can keep up with the speed of ideas coming out of Tandem’s digital teams, reflects the rapidly-changing environment in which neobanks are now operating, says Elliott. “People used to choose best-of-breed or best-of-suite technology. Now it’s best-at-time,” he says. And, while Mambu’s composable model has proven super-quick at releasing successful products that help realise a bank’s strategy, it also means, of course, that a bank can change its mind just as quickly if necessary. “It allows you to undo wrong decisions and, more specifically, remove the impact of making wrong decisions, because you can fix them quickly,” says Elliott. He believes that standard five-year transformation programmes in banking no longer make sense, due to the uncertain times in which we live. As Elliott says: “Who knows what a bank is going to be in five years. Do we even know what a bank is going to be in three?”

If you don’t have a strong tech platform and strong DNA around tech, in the next five years, as a bank, you’re going to find it really tough

“Driving it together is the only way innovation can happen in future, especially with shorter transformation timelines.” The composable architecture on which Tandem is now scaling its business is a reflection of this new Nick Bennett, financial ecosystem’s Tandem collaborative nature. “If you don’t have a strong tech platform and strong DNA around tech, in the next five years, as a bank, you’re going to find it really tough,” says Bennett. “That was one of the fundamental things we recognised, which is why we’ve been on this journey to get that environment and capability in place. We knew, with Mambu, we had the right partner.

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COMMENTARY: BIOMETRICS Who not what: Biometric authentication will increasingly be used to protect customers and businesses in 2021

Me, me, me... a new chapter in fraud prevention The events of 2020 left many organisations and their customers more vulnerable than ever to digital fraud. Brett Beranek, VP and General Manager for Security and Biometrics at Nuance Communications, foresees greater reliance on biometrics as a solution Whether within our workplaces, our homes, or even our cars, artificial intelligence (AI) technology has quickly become part of almost every aspect of our lives. Activities and interactions we wouldn’t think twice about – such as messaging a live chat agent on our favourite retail website or using our voice to verify personal details with our bank – typically incorporate the use of conversational AI. In many cases, there is a good chance that the AI technologies we are interacting with have been developed by Nuance Communications. For more than 20 years, the company has pioneered voice technologies, natural language understanding and machine learning that are designed to transform the way people work, connect and

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interact with each other. It holds more than 3,000 patents, and its AI-powered, intelligent engagement solutions are currently trusted by 2,500 leading brands worldwide. In fact, Nuance supports 31 billion intelligent customer interactions, and prevents £1.5billion in fraud losses every year. Financial services institutions, including 95 per cent of the top banks worldwide – for example, NatWest and HSBC – are deploying Nuance technology to provide frictionless, virtual self-service and live assistance through digital and voice channels, secured with biometric solutions that increase customer retention, expand share of wallet, and reduce operational costs.

A NEW FRAUD LANDSCAPE While the current COVID-19 crisis has brought many businesses and operations to a standstill, one area it hasn’t diminished is fraud. The sad truth is that fraudsters don’t stop their crimes because of a pandemic. In fact, they often seize the immense change that comes with an event like this to ramp up their activity – targeting individuals and businesses while they are at their most vulnerable and least protected. With the current, widespread shift towards staying – and therefore working – at home, many businesses and their

customers are finding themselves coming up against more frequent and more sophisticated styles of attack. Many organisations are simply not prepared, and do not have the latest safeguarding tools in place to shield themselves from financial loss and protect their customers from identity theft. In such an uncertain time, it has never been more important for organisations to bolster their cybersecurity strategies and arm themselves with the technology to keep fraudsters at bay while maintaining usual levels of service. During these unprecedented times, companies have continued to turn to Nuance’s AI-powered biometric solutions as a means of protecting their employees and customers alike from fraudsters. By automatically identifying when fraudulent calls are being made, these technologies are proving an invaluable tool for helping to protect customers looking to make digital transactions during this unusual time. They also help to shield work-at-home agents, who are often the weakest link in the cybersecurity chain, by improving internal security checks and verifying their identities. This prevents fraudsters from pretending to be them in order to gain wider access to businesses’ sensitive information. With the uncertainty around the pandemic still raging and fraud attempts www.fintechf.com

continuing to increase, many businesses will be wondering what lies in wait this year, and how they can effectively protect both their employees and their customers. With that in mind, we spoke to Brett Beranek, vice president and general manager for security and biometrics at Nuance Communications, to find out what he thinks this year’s fraud prevention trends will be. Here are his top five.

Forward-looking chief information and security officers will transition to password-less authentication, with the twin goals of customer convenience and enterprise security Consumers want a digital experience that is easy, secure and free of passwords. As more people shift to online channels in order to bank, socialise, play, and shop, users are demanding a more sophisticated and secure experience. Passwords have lulled consumers into a false sense of security for years, especially as the number and variety of devices on which apps are used skyrocketed, each requiring critical information to be entered repeatedly – and, thus, each instance an opportunity to track and steal that data. It’s more important than ever for companies to demonstrate to customers that they take their security seriously. Consumers are now more conscious than ever of the risks surrounding their identity. They will start to demand more from the businesses they deal with. Organisations can’t afford to do things only based on return on investment – better security is now a question of customer retention, loyalty and corporate social responsibility. integrated approach to fraud 2 An prevention and authentication will be the key to protection against flimsy device-side biometrics Customers are going to demand security protocols that identify them, in particular, not just someone who may have their identification. We are seeing a noticeable shift away from technology that does not authenticate the identity of the actual person interacting with security measures. It is no longer enough to authenticate using passwords, PINs, or SMS confirmations, for example. That information is too easy to obtain. Biometrics such as voice recognition, behavioural recognition, fingerprints and eye scans www.fintechf.com

are critical to a secure online presence. Thanks to years of interacting with smart devices, customers often already feel comfortable with fingerprint ID and facial recognition. Unfortunately, most of these device-side biometric authentication methods don’t have any real impact on stopping fraudsters because, firstly, it is challenging to determine who has created the biometric print and, secondly, the prints are limited to a specific device, making them difficult to leverage across multiple channels and impossible to port from one device to the next. Their ‘value’ begins and ends with being free. It is server-side biometrics, such as voice patterns, that will result in both significant fraud prevention and frictionless, convenient customer experiences. AI will enable 3 Cutting-edge biometrics to solve increasingly complex security challenges Earlier this year, Telefónica, a Spanish multinational telecommunications company and one of the largest mobile network providers in the world, engaged Nuance to help it deploy voice biometrics to analyse the sound of clients’ voices, to determine whether they are 65 or over. This critical determination helps the bank provide world-class anti-fraud protection to an age group that is highly susceptible to fraud.

It is server-side biometrics, such as voice patterns, that will result in significant fraud prevention and frictionless, convenient customer experiences Harnessing state-of-the-art technology will allow organisations to not only prioritise or adapt services for specific customer demographics, but also strengthen fraud prevention efforts by providing additional biometric factors to consider. will need long arms 4 Security to protect against increased fraud brought on by remote working As companies extend working from home indefinitely in what Harvard Business Review’s most recent cover tags as The Work

From Anywhere Future (Nov-Dec 2020), fraud against remote workers and frontline agents will increase. Companies will need to work quickly to combat voice fakes (ultra-realistic speech cloning) and deepfake voices (the use of AI to create speech, accents, and tones) to seamlessly secure interactions with workers worldwide. Traditional security measures will also need to operate at peak performance with so many individuals outside organisations’ firewalls. Remote work also represents a potential for increased occupational fraud. Unsupervised employees with access to personal identifiable information have a new opportunity to steal valuable data. Under the increased pressure brought by challenging social and economic times, conditions are right for a surge in occupational fraud. Forrester Research echoes this sentiment, forecasting that 33 per cent of data breaches will be caused by insider incidents, up from 25 per cent today. care will make a drastic 5 Customer shift to video/virtual settings As virtual consultations, transactions and interactions become the norm between brands and consumers, digital channels will need to be as secure and convenient as if these interactions were happening in person. Video customer care is a trend that’s emerging as a result of COVID-19, and voice biometrics are a critical aspect of authentication and keeping customers safe. The Industrial Bank of Korea (IBK) has already implemented Nuance’s voice biometric technology to ensure robust, sophisticated customer authentication, as virtual transactions rise significantly. Reporting 100 per cent consistency in validation rates, IBK has, in this way, been able to revolutionise the digital banking experience. Beranek is confident that 2021 will see greater digital security and peace of mind. “But the traditional ways of doing things, even ones so fundamental as the online password, no longer suffice,” he says. “Biometric security, based on verifiable traits such as a person’s retinal scan, fingerprints, and voice, will replace subjective codes that are too easily stolen and misused,” he concludes. “Adopters will make a quantum leap in their security protocols and find a smooth transition to a more secure digital presence.” Issue 19 | TheFintechMagazine

PAYMENTS & ECOMMERCE: SUBSCRIPTIONS

Lestweforget... Widespread amnesia about which and how many organisations hold our account details is not only bad financial practice, it also leaves us wide open to fraud. G+D’s Head of Digital Payment Solutions Jukka Yliuntinen says banks can give us a nudge The gradual drift from an ownership culture to a rental or subscription-based economy was, like many digital trends, boosted in 2020. Who hasn’t taken out an extra streaming service or signed up for monthly deliveries of loo rolls? But the price we pay for such flexibility and convenience is a commensurate rise in cyberfraud, as we freely share our personal financial details across the web. In fact, we often forget which organisations we’ve granted access to our accounts, in many cases via tokenised transactions, despite many having unlimited rights to take repeat or renewal payments at will – not to mention the issue of validating whether companies are legitimate in the first place. Payments security specialist Giesecke + Devrient (G+D) has sized up this risk, and made it the focus of its latest innovation, with a new white-label tool that gives consumers back control of their account details and, ultimately, their cash. Convego Service Broker allows banks to offer consumers a Token Cockpit tool that tracks who they’ve given their card details to, and what for, via their banking apps, where they can also turn permissions on and off at will. G+D has been a leader in technology that builds trust – from cash to cards and now digital and biometric transactions – since the 19th century, continually developing solutions to emerging threats and challenges on behalf of its customers, and, where necessary, acting strategically with other industry partners. It’s little wonder G+D is giving this issue so much attention, considering the problem cyber fraud represents worldwide. As consumers turned to online purchases during the pandemic, ecommerce and fraud spiked in parallel, particularly during the annual ‘holiday spending’ periods. A TransUnion survey of 2,620 US

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shoppers at the start of the 2020 holiday shopping season last October, found mobile was the preferred transaction method for 80 per cent, with many turning to payment options like Apple Pay (32 per cent) and Google and Samsung Pay (34 per cent). Yet, despite coveting ease and choice, 50 per cent were also concerned about fraud, identifying safeguards such as biometrics, including fingerprint (44 per cent) and facial recognition (37 per cent), checkout validation (58 per cent), and protecting their ID and password (22 per cent), as priorities. Special, one-day shopping events accounted for most holiday season fraud (Cyber Monday, 26.03 per cent and Black Friday, 12.02 per cent), with mobile phones used by hackers in 50 per cent of instances. The prevalence and cost of fraud is rising, while detection rates, worryingly, have fallen. Research by LexisNexis before and during the COVID shutdown, among 801 US and Canadian retail and ecommerce executives, found that every $1 of fraud costs retailers $3.36, a rise of 7.3 per cent from $3.13 in 2019. During 2020, on average, ecommerce merchants suffered 344 fraud

attempts per month, up 24.2 per cent from 277 in 2019, and only 118, or 34.3 per cent, were prevented in 2020, compared with 156, or 56.3 per cent, in 2019. An ACI Worldwide analysis of hundreds of millions of ecommerce transactions throughout the pandemic, indicated that criminals were taking advantage of

Where are they?: Keeping track of who has a consumer’s payment details helps prevent fraud

card-not-present payment methods like buy online, pick up in store (BOPIS) and click and collect in particular, which is concerning, given the increasing consumer reliance on them. When you consider that, in the UK alone, cyber fraud accounts for 85 per cent of the £190billion annual fraud bill, it’s not a great leap to imagine what a threat to national security the nefarious activities that this theft could be funding, represent. G+D’s answer to such challenges is its Convego CloudPay suite, which it describes as a safe payment ecosystem for enabling secure digital payments with full tokenisation. Convego Service Broker, which joins that suite, is designed to reduce the potential financial data risks posed by subscription services – unlike existing apps like Truebill and Bobby which focus on managing them. Thus, it enables banks to empower their customers while boosting confidence in online payment systems. “It’s assumed that organisations in the banking ecosystem, including the issuing bank, the acquiring bank and all the intermediaries in the chain – payment service providers, processors and payment schemes – have much better means to detect whether a transaction is fraudulent, then block and trace it, than the customer does,” says G+D’s head of digital payment solutions, Jukka Yliuntinen. “The customer’s ability to detect whether a website is fraudulent, or a merchant is legitimate, is limited, especially in an online world, which is making this more and more difficult. Also, I think that if consumers were responsible for [shouldering the cost of fraud], they would probably use online payments much less than they do now.” Given the huge shift to ecommerce prompted by the pandemic – particularly among less tech-savvy demographics not used to shopping online – there is,nonetheless, a pressing

need to engender more awareness among consumers, believes Yliuntinen. “Institutions should constantly communicate and make this information easy to access via their mobile banking apps, because it’s easy to forget, especially in the heat of the moment, when they just want to complete a transaction,” he says. “This applies to issuing banks that are covered for their liability and already have warnings and guidance in their apps and wallets, and on their websites – and some merchants do the same. But merchants and authorities in every country need to repeat the message.” The urgency around this is mounting, with new threats emerging all the time, and a risk that, if the industry doesn’t successfully curb fraud, consumer trust will be severely compromised. “It’s always a running race between fraudsters and organisations like banks and governments,” acknowledges Yliuntinen. “And the more technology there is, the easier it is [for criminals] to implement different scams. “I live in Finland. In the physical world, I might be robbed and lose my wallet or card. But when I’m in the world of the internet, it could be a guy from Brazil or South Africa stealing my details, and tracing them is much more difficult because it’s a jungle and they have sophisticated tools to hide away in. Whereas fraud used to be more manual, it is now fully-automated, making it harder to protect consumers.” G+D supports tokenisation as a good first line of defence. “For card-based payments, many banks have already started to apply so-called ‘network tokenisation’, with payment brands like Visa, Mastercard, Amex, Discover and China UnionPay, implementing technological tokenisation, where consumers can digitise their physical cards,” explains Yliuntinen. “Started by mobile wallets like Apple Pay and Google Pay, this is now quickly entering the ecommerce space.” Tokenisation can remove much of the risk associated with cards on file. But identifying and, where appropriate,

de-linking cards stored for recurring payments in particular, is good practice, given how forgetful we all can be – even those familiar with the risks. “When the new General Data Protection Regulation (GDPR) came into effect in the EU in 2019, I was really puzzled when I received lots of emails from service providers telling me my data was registered with them,” says Yliuntinen. “Some of them I remembered, but there were quite a few I didn’t. “Payments are much the same. There are lots of subscription services we sign up to, like Netflix or Disney+, where we have stored our card credentials. Do we remember them all? I would bet that, as we go forward and these kinds of models become more commonplace, we won’t. “Token Cockpit enables banks to give consumers full visibility of where their card details have been provisioned. They can open their banking app or wallet, and click a button to see a list of all the merchants they have given access to, showing not just the names but also their logos and other information. Customers can then disable or enable payments. This helps the bank, too, as its customer care team can see all this and support its customer if they experience a problem.” The new offering has already won the Platinum Award in the 'Best Digital Wallet’ category of the Future Digital Awards from Juniper Research. But as such tech makes payments increasingly secure, could the fault and responsibility now shift to the customer? “That would be the end of ecommerce, in my opinion,” says Yliuntinen. “The banking and payment industry’s role is to operate a payment infrastructure and protect it.” That said, he believes the industry should encourage responsible behaviour by offering consumers appropriate tools. “I would never put my wallet in my back pocket as that’s an invitation for somebody to steal it. The same is true in the digital world – if you are careless, somebody will make use of that. So, it’s a combination of using technologies and services that enable us all to protect ourselves, and looking at how we behave.”

Token Cockpit enables banks to give consumers full visibility of where their card details are saved

Issue 19 | TheFintechMagazine

PAYMENTS & ECOMMERCE A changing payments landscape: Iceland’s Valitor offers a solution

Relieving the pressure It’s no secret that the payments landscape is complex, with a bewildering number of participants in a process that consumers are barely conscious is happening. Acronyms abound. ISOs, or independent sales organisations, for example, are the companies contracted by a card network member bank to procure new merchant relationships – although they’re also called member service providers (MSPs) by many and some even refer to themselves as acquirers, although, strictly speaking that’s the bank. Then there are the standalone payment gateways, sometimes offered by merchant account providers, that transmit the payment details. The new, more agile payment facilitators (PFs) might once have been an ISO or perhaps an independent software vendor (ISV), which traditionally would have had a symbiotic relationship with an ISO and is now probably eating its lunch. All of these and more are generically known as payment processors. The nomenclature may be contested, but what’s clear is that the mediators, managing what can be up to eight steps in a transaction between the banks, the merchant point-of-sale or ecommerce interface, and the card network, are changing. And so is the value distribution in the payments chain. For merchants, there is often a broad

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The shifting plates below the global payments landscape demand an agile strategy from payment solutions providers. And Valitor has one. Head of Sales and Business Relations in Iceland, Kristján Brooks explains… range of fees associated with these payment processes, including start-up fees, transaction fees, chargeback fees and termination fees, not to mention the lease charges for credit card processing equipment and other essential physical assets. What was once a race to the bottom in terms of how much a merchant would be charged for the privilege of getting paid, is now more about the number and utility of wraparound services a provider can offer them – or the partnerships it can form with others to do so. It’s against this background that Icelandic payments specialist Valitor has developed the infrastructure to modernise, simplify and bring value to all players in the payment processing ecosystem – even the outdated ones transitioning to a new role. “ISOs are battling to evolve and keep up

with the changing payment landscape,” observes Kristján Brooks, Valitor’s head of sales and business relations in Iceland. “Historically, ISOs lack glue to merchants, and typically the value they can provide is better pricing. But they are limited, in terms of growth, so they have transformed into PFs, enabling them to grow through advanced technology. These companies are, in effect, now operating as fintechs. “The fundamental difference between a legacy ISO and a PF is scalability,” he continues. “A PF’s setup is actually a key enabler in helping them to grow, and this is all done by automation. And so our philosophy is to address the various pain points of our customers and PFs, by providing them with the proper rails, the infrastructure, the technology, the expertise and the knowledge they need.” The shifting dynamics in the market are dramatically evidenced by a recent study from Mastercard: in 2016, acquirers enrolled 85 per cent of their merchants through ISOs which had gone directly to the market; in 2020, acquirers got 70 per cent of their merchants from payment facilitators. “New entrants coming into the payments space are the value-added re-sellers (VARs) and independent software vendors (ISVs) that have some stickiness with merchants,” says Brooks. “ISVs and VARs www.fintechf.com

already outnumber ISOs by three to one. These developments will create some fantastic opportunities.” An example of that last year was Splitit, the instalment payment platform, announcing that it would partner with Stripe, the digital financial transaction infrastructure company, to ease the onboarding process for merchants signing up for Splitit’s service. The integration will also allow the payments platform to accept more currencies, improve its reporting tools and automate the movement and acceptance of money for funded transactions, the aim being to help Splitit scale more quickly. “Splitit is a software company that will basically become an income lead generator for Stripe,” says Brooks. “Splitit has a solution it pushes to the market, and Stripe is the default acquirer in the background. This is the same philosophy that we will adopt, and have done already here in Iceland, where we’ve signed up ISVs, VARs, and whichever solution caters to certain niches or market segments, Valitor is the default acquirer in the background, and thus the preferred acquirer by choice of those VARs and ISVs. In the pan-European market, we will find, identify and contact such players with partnership in mind.”

NORTHERN EXPLORERS Established in 1983, Valitor is a licensed bank operating as an international payment solutions company, dedicated to making buying and selling easier by working directly with merchants, PFs and ISOs across Iceland, the UK, Ireland and northern Europe. It was among the first banks to gain a European crossborder licence in 2006, focussing on ecommerce. Today, it services tens of thousands of merchants by acquiring their online and offline transactions. “Valitor is an agile and nimble acquirer, with its own acquiring platform and developers. We provide partners with programmatic access to our systems, via APIs. So, we have created the rails for PSPs to be self-sufficient, to onboard merchants, put them live, settle, etc. We’ve basically outsourced many of the roles we, as an acquirer, must do, to PFs, giving them the automation, speed, simplicity and scalability to be successful,” says Brooks. He points to the experience of one particular PSP that took the partnership approach offered by Valitor www.fintechf.com

“It has now become its own acquirer with a global licence, valued at US $100billion. When we struck an agreement with that company, back in 2012, there were 55 staff; now there are 3,500-plus. Another grew from 550 staff in 2013 to 2,800, and a third from 55 in 2015 to 350 today. “We can run a lot faster and act quicker to accommodate the needs of our partner payment facilitators – and we do look on them as partners, not just as revenue-generating channels. We want to build a relationship with them,” says Brooks. In that way, of course, Valitor itself can scale beyond its somewhat-limited domestic market. “We only have 350,000 people living in Iceland,” says Brooks. “We realised, early on, that for Valitor to grow, it would have to be crossborder.” It might be small, but Iceland is mighty when it comes to fintech. In a December 2020 report on the Nordic fintech scene by Findexable, there are more fintechs per head of population in Iceland than anywhere else in the region – 9.7 per 100,000 people. The success of the sector, which includes several international players, is a reflection of the Icelandic character: determination and focus on execution, with an outward-looking attitude to commerce, says Brooks. That came to the fore after the hardship the nation faced following the financial crisis, when they showed they were ready to

We’ve outsourced many of the roles that we as an acquirer play to the PFs, giving them the automation, the speed, the simplicity, and the scalability to become successful accept the challenge to change an outdated financial system. That period coincided with the arrival of new technology that has dramatically altered consumer behaviour. “We were already seeing a rise in contactless payment solutions such as QR codes and PIN-on-glass, and so on [before the pandemic]. This was already happening internationally and is now picking up pace due to social distancing and other restrictions. Instead of putting your card into, or tapping it on, a point-of-sale

terminal, we will see many more QR code solutions being rolled out. We have a very exciting partner that we’ll be implementing this with in the UK later this year, and we have had many enquiries coming in from prospective partners with similar solutions.” Card-present transactions have inevitably been cannibalised by increased online activity due to the current pandemic. Valitor, which has a dominant market share of around 45 per cent in Iceland, on the acquiring side, has witnessed a sharp drop on that side, while ecommerce volumes went from 14 per cent of its domestic volume in 2018/2019 to 24 per cent by the end of 2020. Ecommerce partners in many sectors across Europe also saw ‘tremendous growth of 30, 40 even 50 per cent, month to month’. “Those numbers will stabilise, but I firmly believe this trend is here to stay,” says Brooks. That’s not to say there isn’t room for growth in face-to-face, contactless transactions. In fact, later this year, Valitor will offer PFs the option to set up for card-present transactions, ‘giving them all the same benefits as ecomm PFs: scalability, automation, simplicity’, says Brooks. One partner whose customer-present payment solution was on, quite literally, a roll pre-pandemic and has seen an uptick in recent months, is Littlepay. Valitor’s relationship with the transit-focussed paytech is one good example of its innovative integrated model in action in card-present payments. Valitor became the startup’s acquirer four years ago. Its ability to incorporate the functions of payment processor and payment gateway, and capacity to handle large volumes, allowed Littlepay to quickly roll out its ‘tap-and-go’ contactless Europay, Mastercard and Visa (EMV) card solution for a range of readers and fare engines. Littlepay now processes contactless EMV payments for more than 200 operators in the UK and Ireland, with many more in Europe and beyond now wanting help to deliver contactless quickly as part of their pandemic response. Littlepay’s Thea Fisher says Valitor took a risk backing the startup. “But as we continue our expansion, Valitor will remain a valuable partner for us, particularly in regions where its licence as an acquiring bank and operational experience is established,” she says. Issue 19 | TheFintechMagazine

PAYMENTS & ECOMMERCE: BNPL

The oh-so-fashionable One in three Australians is said to have made a buy now, pay later transaction during the 2020 online holiday shopping season. We asked Francine Ereira, Klarna’s General Manager for Australia and New Zealand, why Down Under is a poster boy for BNPL Online spending accelerated the world over in 2020, and continued as we entered 2021 in various states of lockdown. But nowhere did shoppers embrace the virtual high street more enthusiastically than in Australia and New Zealand. Figures from Salesforce’s Holiday Insights Hub and 2020 Holiday Predictions report show ecommerce growth Down Under was the highest in the world, at 107 per cent, in Q3 of 2020. According to the report, the region’s retailers are seeing year-on-year growth across every metric: revenue, online traffic and order size. Based on its own, separate analysis, Australia Post predicted that online purchases will have exceeded 15 per cent of total retail sales in 2020, years ahead of the 16 per cent projected by 2025. Against this backdrop, it’s not surprising to see Amazon rapidly expanding its network of fulfilment centres, while Dutch ecommerce giant VidaXL has also recently built a mega warehouse in Melbourne. And, given the economic uncertainty, combined with a major shift in shopping channels, neither is it a revelation to find buy now pay later (BNPL) options being embraced like never before. The offer to ‘try before you buy’ and spread or defer payments for purchases, interest free and often without traditional forms of credit checking, has seen widespread uptake across the world, with many BNPL providers positioning themselves as ‘budgeting tools’, despite concerns that they can lead consumers into unmanageable debt. This month (February), the UK’s Financial Conduct Authority (FCA) said it would regulate the sector after a four-fold rise in consumers accessing what’s sometimes seen as ‘soft credit’ – one in 10 of them already having built up debt arrears elsewhere, according to the FCA. Europe’s leading BNPL operator Swedish unicorn Klarna (worth $11billion globally) – welcomed the regulator’s move. It serves

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90 million customers through arrangements with 200,000 merchants handling one million transactions per day in Europe, the UK, the US and, since January of last year, in Australia and New Zealand. In a statement, the company said that ‘regulation has not kept pace with new products and changes in consumer behaviour’ and called for a 'modern, proportionate and fit-for-purpose’ regime. It was a relative latecomer to the competitive BNPL market in Australia and New Zealand. Nevertheless, 12 months later it has 500,000 registered users. Francine Ereira, general manager for Australia and New Zealand, who led Klarna’s move into the region, says the pandemic has forced retailers to embrace digitisation of their businesses, sometimes more by necessity than desire – and offering consumers a range of payment choices is critical to drive revenue as they establish new business models. “Australia was one of the first countries to move into quite stringent lockdowns, shutting down retail stores relatively quickly,” says Ereira. “So we’ve seen a

The data and insights we collect around purchasing habits allow us to sit down with retail partners, understand their key objectives and enable them to make better strategic marketing or operational decisions massive acceleration in the world of ecommerce. Yes, there were some amazing retailers that were already very digitally savvy, with very strong digital programmes, that quite seamlessly shifted into gear. But there was also a really large proportion that had to start making things work fast, so that they

were in a position to attract and continue to engage with their audiences in new and different ways.” In one week of December, she says, 30 per cent of Australians completed a buy now pay later transaction online, compared to 10 per cent just 12 months previously. “The shift in consumer behaviour [to shopping online] has meant that retailers have had to evolve. As a company, we want to help with that process and bring a better experience to retailers as well as shoppers,” says Ereira. Alternative BNPL providers, such as Afterpay, Humm, Zip, Limepay, Bundll, Laybuy and LatitudePay, had already marked out their territory before Klarna arrived. Afterpay has roughly 3.4 million active customers in Australia, while Zip and Humm claim about 2.5 million each. According to 2020 data from research company Roy Morgan, more than 12.3 million Australians (59 per cent) are now aware of BNPL services, an increase of more than 20 per cent from 2019. So why is it proving particularly popular here? A 2019 report by J.P. Morgan suggests that Australia’s market is notable for its growing population of young people – a key demographic for many BNPL providers – and an ‘overall base of consumers that are willing to adopt a variety of emerging ecommerce techniques’. In addition, Australia has huge mobile phone penetration, strong internet infrastructure and enjoys a healthy economy in normal times. There is also a serious appetite for saving money through discounts, sales and loyalty schemes when shopping online, fuelled by an increasingly retail-centric social media. Add into the mix the country’s proximity to China – the ‘primary overseas shopping destination for Australian ecommerce consumers’ – and you have a country ripe for BNPL adoption. The COVID-19 pandemic has only served to fuel some of these motivators, www.fintechf.com

way to pay... as Ereira explains: “Sadly, one of the biggest impacts of the pandemic is the changes to livelihoods. There are people who were working full-time, who are now in part-time roles; there are people who were in part-time roles who are in casual roles; there are, unfortunately, people who might’ve had double income families now down to a single income. “Payment vehicles like Klarna allow people to budget and save, so there are going to be more and more people engaging with our sorts of products to enable them to continue to support their families and lifestyle in a way that they are accustomed to.” Klarna’s service is free at the point of sale – the value exchange is in the personal data consumers allow to be shared over the platform. “As consumers, we know more about what we want and what we expect, which means that companies have to innovate to deliver that,” says Ereira. “Consumers want visibility, flexibility, and transparency, and innovative providers like Klarna give them all those things. In one place, within an app, they can see all their transactions, at a product level, they can see their repayments, they can see their credit limits – everything they need to know about the world of shopping.” The advantage for the merchants manifests itself in the relationship Klarna allows them to develop with customers. “From a retailers’ point of view, they want to be connected to new and different audiences, more and more,” says Ereira. “Obviously, they work really hard to create their own audiences, but they want to talk to different, bigger and broader audiences. The data and insights we collect around purchasing habits, allow us to sit down with our retail partners, understand their key objectives and enable them to make better strategic marketing or operational decisions. We can see, for example, where www.fintechf.com

stores are cannibalising each other, and say ‘you’ve got all these customers over here, but you don’t have a store anywhere near’. It’s this data richness that allows us to work towards mutually-beneficial goals. “With regards to knowing who you should and shouldn’t give money to, I think that really comes back to the sophistication of the platform’s engines, and the decision-making they use to ensure we’re not giving money to consumers who are in a difficult financial position. But it does allow us to give money to those that demonstrate the right behaviours.” Open banking will, she believes, only serve to refine that process. “That’s going to absolutely enhance everybody’s ability to protect each other, because it will give businesses like us a lot of insight into outgoings and incomings that we can use with our existing know your customer credit checking, and other resources,” says Ereira. Klarna entered Australia helped by a $300million investment from Commonwealth Bank of Australia, which embeds Klarna within its app. Rival National Australia Bank recently launched a no-interest credit card that aims to attract

Designer payments: BNPL is refashioning the revolving credit market in Australia and New Zealand

younger customers. Some observers think the move illustrates a concern among traditional lenders that they are losing the battle for digitally-savvy millennials and Gen Zers to other, less formal and much cheaper credit offers, like BNPL. Perhaps unsurprisingly, as those generations mature economically, they want to retain such payment options, and innovative providers are working on enabling this. Last month, Australian paytech Limepay and proptech Domain launched MarketNow Payments to offer a buy now pay later solution to homeowners looking to spread the cost of marketing their property through agents. It gives them the option to defer up to US$25,000 of fees to a later date. It could be a sign that, beyond Louboutin heels and Gucci gear, BNPL might have changed the short-term, revolving credit market for good. Issue 19 | TheFintechMagazine

COMMENTARY: CUSTOMER SERVICE If insurance is over ‘peak churn’ created by price competition, and the competitive advantage now is in CX – as Barry Webb, who leads contact centre technology and strategy at BGL Group, believes – then how should organisations respond? Here, Webb shares his thoughts with Stuart Dorman, Chief Innovation Officer at CX technology provider Sabio Since the emergence of price comparison sites in the 90s, cost has been the primary driver of consumer purchasing decisions in insurance. With customers reluctant to part with any more cash than necessary for something many regarded as a necessary evil, let alone proactively engage with providers, there was little incentive for service innovation. The mood is changing, however, as the COVID-19 pandemic has forced insurers and customers alike to urgently review their priorities. We asked Stuart Dorman, chief innovation officer at customer experience technology provider Sabio, and Barry Webb, who leads contact centre technology and

strategy at BGL Group, which manages the insurance documents of three million customers via the contact centres of leading UK insurers, what lies ahead. THE FINTECH MAGAZINE: How has the pandemic affected customer experience in insurance? STUART DORMAN: The pandemic has forced an entire new cohort of customers down the route of using digital technologies to go about their daily lives – grocery shopping and banking online, and using platforms like Zoom to communicate with family and friends. The nation’s digital savviness has progressed massively, and that’s having a huge impact on how people engage with organisations, including insurers. Although the insurance sector has been well on its way to digitising, the big challenge has been getting customers to engage with it, using digital channels to access their documentation, log claims, etc. This has seen insurers, in recent years, going to where the customers are, applying digital strategies on the voice channel, and conversational artificial intelligence (AI) on web channels. BARRY WEBB: The insurance industry has been behind the digital curve compared to broader financial services, but, in the last few years, there’s been some catchup. While the purchasing cycle was quite heavily disrupted, years back, by price comparison, customers

have been reticent in adopting digital for servicing, though we’ve seen some traction, particularly in the last year. Insurance isn’t a highly-engaging product, unlike other financial services that customers use more frequently, where they’re willing to invest more time in learning to use new digital channels. However, we are seeing customers who we’ve struggled, for years, to demonstrate the value of digital channels to, starting to take advantage of our broader digital services, such as online portals and messaging apps, due to their experiences elsewhere. And we’ve seen an emphasis on trust – where customers have wanted to flex their products because, for example, they’re not using their car as much, and have needed reassurance that this would be done, simply and clearly. TFM: What is the technology of the moment, when it comes to great customer experience (CX)? BW: Until now, certainly in heavily-commoditised market areas like private motor and home, customer experience has had less value than we would’ve liked because it’s been so price-based. But I think we’re close to reaching the peak of customers shopping around and churn, and that’s a really fantastic opportunity for those of us that are customer experience enthusiasts. With price becoming less of a differentiator in the future, CX will

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become king, and delivering service through the right channel, in the right way, in the moment when it really counts, will be the real opportunity for us to retain customers. It’s about using multiple modes or media. Attempts to do this in the past might have felt like deliberate channel-shift efforts to customers, and they’ve resisted it, but they’re adopting technology differently now, and recognising that it’s helping them, not just the organisation. SD: There’s been this long-standing, ‘omnichannel’ vision, that customers should be able to do anything via any channel. I disagree. We’ve got to think about the most appropriate way to communicate, as humans. We speak faster than we can type, we read faster than we can listen, and we can absorb lots of information very quickly through visual means. So, we have to design experiences that take advantage of all the different benefits channels have to offer, and this is how organisations will communicate with their customers in future.

The customer service department, or contact centre, has never been viewed as such a strategic asset to engage with customers before. Now, it’s being featured in board-level conversations Stuart Dorman, Sabio

In terms of the customer journey, when buying a product there’s an opportunity for insurers to leverage digital channels, alongside voice, to visualise products and help customers understand what they’re buying. Banking has been really successful around this, with significant uplifts in re-sell and cross-sell opportunities. And it’s particularly interesting now more people are at home – they’re initiating contacts via screens, often on phones, so organisations can use that to provide their call centre agents with an extra tool. The claims part of the journey is different again, and we’ve seen telephone usage increase significantly, mainly because customers want to speak to somebody and have confidence that their problem is being www.fintechf.com

taken seriously. That’s the opportunity – to show the customer the value they’re getting in insurance, leveraging messaging channels to reassure them about progress in resolving their case. We’re doing a lot of work with insurers, using AI and machine learning, to tap into customer conversations, both upfront, before the call hits the call centre, and in real time during the conversation, using models to understand the customer’s intent, what they’re looking to achieve, and presenting information that allows the agent to advise them, using the right amount of knowledge. The more forward-thinking insurers will be able to leverage innovation to differentiate themselves, drive better efficiencies and deliver more personalised experiences. TFM: Who has the customer experience advantage – insurtechs or incumbents? BW: It’s a bit of both. The insurance industry has certainly been slow to move [to a digital approach], due to factors like legacy technologies. We speak to some really long-established general insurers that have, through merger and acquisition, hundreds of different technologies in their stack, which makes it very difficult. There is a natural risk-aversion in the industry, as well. But, equally, there is an element of customer choice. Some of the insurtech startups that have brought radical new products or service models to market, have had an appeal, but a relatively small one, in terms of overall market share. That’s down to customers electing to engage with the big, established players they’re used to, out of trust, brand recognition and familiarity with the service. SD: The advantage more established insurers have is the contact centre, which enables that human interaction which has really come to the forefront over recent months. The customer service department, or contact centre, has never been viewed as such a strategic asset to engage with customers before, but is now being featured in board-level conversations. There is a perception that digital interactions mean humans get taken completely out of the loop, but digital is just a set of tools that enable you to enhance the interaction, and embedding humans in that process, making sure they’re there to step in, when needed, and leveraging digital technologies to enable

them to do a much better job, is how we should be thinking about digital, and where the established providers have a real advantage. They also have access to huge amounts of customer interaction data. The insurers that will succeed in the future will be the ones that find a way to use that to nudge the customer, or call centre employee, to add value to their real-time interactions.

The shift to home working brings us, as a contact centre operation, a whole new operating model potentially… it’s not just about technology, it’s about how you work with people and the servicing opportunities for customers Barry Webb, BGL Group

TFM: What lasting changes do you think might result from the pandemic? SD: Homeworking will definitely be a key part of the mix, going forward. People are often on smaller screens, and therefore we need to design the experiences so that they have the information at their fingertips to deliver a better service. That means thinking about design, both from a customer-facing and an agent user interface perspective. BW: We surprised ourselves at how fast we changed to 100 per cent homeworking. Like most organisations, we were firmly of the view that it wasn’t a particularly attractive – or even viable – contact centre model, but circumstances forced us to rethink. I agree it’s important to recognise the different challenges call centre workers have when fulfilling their role from home, whether that’s the physical hardware or even pets appearing on screen! As a society, there’s been a shift and it brings us, as a contact centre operation, a whole new operating model, potentially. That’s at the front of our thinking now: it’s not just about technology, it’s about how you work with people, and the servicing opportunities you can bring to customers. Issue 19 | TheFintechMagazine

THE BRANCH OF THE FUTURE BECOMES REALITY

Lean, multifunctional, and customer-oriented: this is Auriga’s #NextGenBranch model. A fully advanced digital branch solution for assisted remote banking. With Bank4Me customers can easily access ﬁnancial services 24/7 in self-service assisted mode and interact with the bank's consultants via video conferencing, in a safe and personalised way. Technology is here: you just need to leverage it and you will be able to deliver better experiences to drive customer loyalty and sales.

DIGITAL REMOTE LEAN SHARED

www.aurigaspa.com

PAYMENTS ADVERTORIAL Bill Sheley, SVP and Global Head of Visa Direct, explains how its expanded capabilities are helping financial institutions and businesses respond to today’s expectations for fast, scalable payments Visa has long been a leader in digital payments. Over the past 60 years, it has helped transform payments’ speed and reach through new technologies and partnerships that have enlarged and added value to its global network. During that time, the rise of globalisation, changing consumer demands, and new business models have come to the fore, putting pressure on payments to keep up. The eruption of digitally-driven business models directly correlates to the growing need to enable faster access to funds for individuals and businesses alike. Hourly workers, merchants, and even those who want to send money to family and friends across borders are demanding flexibility and choice in how and when they pay and get paid. Bill Sheley, SVP and global head of Visa Direct, says: “Like the many other areas of life that are shifting around the globe, payments are being transformed in many interrelated ways. You’ve got the rise of digital, the critical need and demand for speed and optionality, the impact of government regulations, the rise of global marketplaces, and the way fintechs are driving change. All of these things are putting pressure on payments to keep up with the services that consumers and businesses expect today.” Businesses are looking for seamless ways to

integrate the disbursement of money to customers, workers and merchants, and avoid the cost and hassle of lengthy and paper-based processes. Enter Visa Direct, Visa’s real-time1 push payments platform that lets clients send and receive money quickly and securely across the world. Visa Direct has been rapidly growing, with nearly 3.5 billion transactions to date. It reverses the traditional pull function of payments to help businesses and consumers send money direct to an eligible card or account – and in real-time. Visa already connects more than 15,000 financial institutions, 70 million merchant locations and 3.5 billion cards worldwide. But Visa Direct supports high-velocity, lower-value transactions across segments like peer-to-peer, business-to-consumer, business-to-small business and government-to-consumer, which represent an estimated market opportunity of $65trillion, says Sheley. With the 2019 acquisition of Earthport, Visa Direct has further increased the company’s scale. Visa now operates one of the world’s largest independent account clearing house (ACH) networks, providing banks and their business customers with fast global reach, through both card and bank rails. In fact, Visa Direct now reaches 200 countries and territories2. Sheley says it helps take Visa ‘beyond the card’. “We have billions of endpoints linked through our pay-out capability, and Visa Direct allows us to support a multitude of use cases that are cropping up. You have merchants, grocery workers, food delivery drivers, insurance claims, people sending money to family abroad, and so on. It’s a large ecosystem that can be connected in so many different ways.

“For the small business owner who needs to pay for inventory or run payroll, it all comes down to the immediacy and ease of payments. It’s about cash flow and meeting everyday needs.” And for banks, the additional convenience, speed and security that Visa Direct offers can help them better serve the needs of business customers and can support the improvement of customer retention and engagement, he says. Sheley notes that crossborder payments for both consumers and SMEs are a specific area of growth and identifies a need to break out of frameworks that are restricting international transactions.

International payments typically use a series of local payment schemes, which generate a great deal of friction… We’re facilitating commerce in a whole new way “If you look at the way international payments typically work today, they use a series of local payment schemes, which generate a great deal of friction in the way money moves globally. We’re facilitating commerce in a whole new way. It’s faster, with security protocols, liquidity, transparency of the payment – and everything is connected through a single access point. You can focus on your business, not your back office, and avoid the complications of moving money around the planet.” 1. Actual fund availability varies by receiving financial institution, receiving account type, region, and whether transaction is domestic or crossborder 2. Availability varies by market. Please refer to your Visa representative for more information on availability

PUSHING THE DIGITALPAYMEN T S ENVELOPE www.fintechf.com

Issue 19 | TheFintechMagazine

CROSSBORDER

Tracking and tracing Intix helps automatically trace transactions as they progress through a bank, and track and store every item of data relating to them. It’s not just an internal hygiene factor, but a powerful tool to aid business decision-making, says Chief Executive Officer, Marc Braet The phrase ‘track and trace’ trips off the tongue these days. It’s become part of our 2020 pandemic lexicon. But it’s been front-of-mind for financial chiefs for some time, when it comes to payments. Innovative digital technologies being rolled out at lightning speed have led to a proliferation of choice when it comes to payment channels and the rails that underpin them. As a result, a complex set of internal systems, often across operational departments, supports each institution’s role in the end-to-end processing of a transaction. When it comes to crossborder payments, that transaction’s journey becomes particularly opaque as it passes through ebanking portals, connectivity software, sanctions-filtering systems, messaging middleware, core payment engines, interfaces, clearing systems and correspondent banks – a process that might involve a dozen or more steps before reaching a beneficiary account. Tracking and tracing those payments has never been more important for the purposes of regulatory compliance and reputational integrity, not to mention customer satisfaction. Throw into the mix the challenge of doing this with the legacy IT systems still employed by most longstanding banks and it’s easy to see why specialist data transaction firms like Intix come into play. Intix provides solutions to

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organise data accessibility by enhancing core IT infrastructures, to make the end-to-end internal tracking of transaction flows possible. Its xTRAIL software indexes all data sources used by a bank and keeps them in a digital repository to satisfy compliance timeframes, while its xTRACE software provides granular tracking of transactions inside an institution, together with all the events in that payment’s lifecycle, and monitors them in real time. “Banks have to be more capable than ever before in making their data accessible, so that whenever they get a regulation or compliance type of inquiry, they can address it very, very fast,” says Marc Braet, CEO of Intix, which he co-founded in 2011. “We have seen with our customers, and prospective customers, that this really is an enormous challenge, given the increasing complexity of all these payments flows and formats.

Banks have to be even more capable than before of making their data accessible so that whenever they get a regulation or compliance type of inquiry they can address it very fast “While Intix is quite often used as the entry point for a bank to start working on use cases linked to compliance and regulation, there’s also the fact that customers have much more stringent requirements in terms of information. They want to make sure that transactions are processed in real time so that beneficiaries get their money fast. “Intix developed xTRACE to track transactions end-to-end within the bank, so that, whenever there is a hiccough, we can inform the bank instantly of that problem and it can look for a resolution

without the customer being impacted. That’s really top-of-mind for many of our biggest customers today.” In other words, Intix doesn’t fix the problem, but it alerts banks in real time to a problem that they need to fix. Most major banks already use SWIFT gpi (global payments initiative) for crossborder payments, which provides transparency around payment processing by correspondent banks. In December, SWIFT gpi Instant was rolled out first in the UK, connecting the high-speed crossborder rails with real-time domestic infrastructure – in this case, the UK’s Faster Payments scheme – and giving visibility as to where payments are in that real-time journey. Braet says that, as Intix’s xTRACE maximises ‘granular visibility’ of internal payment processing and performance, it complements gpi, with a ‘best of both worlds’ approach. Emphasising the point, he adds: “Combined with SWIFT gpi, our software can create full vision, full transparency around the value chain, and the lifecycle of a transaction, that goes beyond the organisation. That allows banks to better measure their service levels and, hopefully, increase them for the benefit of their customers.”

Not all created equal Perhaps the most important benefit of xTRACE is being able to assess the relative value at risk whenever there is a problem in the processing of a transaction, explains Braet. “Without knowing the value at risk, you can’t prioritise your decision-making. If I have two transactions stuck and they each have a value of €500, that’s a different priority to having two transactions stuck with a value of €100million each. So that is something that we see is really important to the actionable requirements of our customers, and that’s what we can address with our technology.” The cost of payments failure can be huge for institutions. www.fintechf.com

Digital footsteps: Intix provides an extra level of traceability for payments

“If the €100million transaction gets stuck somewhere and will not be delivered in time to the counterparty, you incur financial losses because there will be interest to be paid, you might be confronted with fines, and then there is, perhaps most importantly, the reputational risk,” warns Braet. As more providers enter the crossborder payments space, such as the local P27 platform launched in the Nordics this winter, Braet believes that transaction costs and speed, as well as the ease of IT integration, will be the main drivers of payment rails choice for banks. “We’ve seen that before, in Europe, with the SEPA (Single European Payments Area) initiative. Initiatives like the EBICS (Electronic Banking Internet Communication Standard) also popped up in Germany, France and Portugal, to do the same but more cheaply. “The fact that more innovations and initiatives are available now, in the crossborder space, is going to give the banks greater choice, and I think that’s www.fintechf.com

good. Choice is competition and competition will also push all providers to deliver a better service at a lower price.” Choice, of course, can also bring greater complexity, meaning that transparency around the payment lifecycle has never been more difficult to achieve – or more crucial, Braet stresses. “You might have situations where a transaction starts on the P27 platform, is continued over SWIFT and is, in the end, transferred to another domestic platform. If you do not organise the transparency, then it’s going to be very complex for banks to monitor that,” he points out. “Especially in the real-time context, the technology Intix is implementing for its customers is really valuable in creating that transparency.”

Braet doesn’t see the future of payments processing becoming any less complex; in fact, quite the opposite. “We’re going to see a lot more new entrants, new initiatives, new technologies,” he says – not least of which, Braet believes, will be blockchain. “Whatever form they take, they will have an impact. And the more complex organisations become internally, the more relevant Intix is.” Issue 19 | TheFintechMagazine

Data

Intelligence

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CROSSBORDER

ON A MISSION You can’t wait for the end of the day to take control of transactions that ‘don’t compute’, says Santosh Tripathy, Practice Lead for Digital Payments at SmartStream

Last summer’s Wirecard AG scandal, shortly followed by the FinCEN files exposure – the disclosure of confidential suspicious activity reports (SARs) that banks send to the US Financial Crimes Enforcement Network – sent a shiver down the spines of data controllers the world over.

The German payments processor, before its ignominious collapse into insolvency, had championed and facilitated digital payments – but then €1.9billion ‘disappeared’ from the heart of the organisation. The FinCEN disclosure, meanwhile, revealed that banks could identify and flag discrepancies in transactions that pointed to potential money laundering and other activities, even if senior management chose not to act on it. The dotted line that connects both of these events is data integrity and the need for automated data analysis that’s up to the task. In payments, it all starts with a single transaction that could and should be spotted when it hits reconciliations. But, as the payments industry functions at an ever-accelerating rate, delivering transactions in real time and globally, such exceptions need to be detected fast: at superhuman speed, in fact, in order to manage exposure to risk optimally.

Superpowered AI: SmartStream is making heroic efforts to harness artificial intelligence

www.fintechf.com

SmartStream, one of the leaders in bringing real-time control and greater visibility into payment processing, has embraced artificial intelligence (AI) and machine learning to detect and resolve unmatched settlements, and flag whether those might turn out to be benign or malicious. Practice lead for digital payments at SmartStream, Santosh Tripathy, believes accurate, real-time reconciliations might have prevented a Wirecard situation. And, if acted upon, perhaps even avoided some of the worst consequences of the activities exposed in the FinCEN files. We asked him how the company is helping to address the data integrity challenge. THE FINTECH MAGAZINE: How is ‘real time’ pushing innovation, AI and machine learning in payments and settlement? SANTOSH TRIPATHY: The entire payments industry, across the ecosystem, has ironed out the challenges with recent innovations. From issuing to the way we are acquiring transactions, to processing, to the whole settlement business, in addition to the new regulation that has come along in the form of open banking and the infrastructure around faster payments. Transactions have become more frictionless and seamless and, in settlement, we’re talking about real-time payments where settlement is instantaneous. Someone has described this as the ‘iPhone moment of payments’. Just as Apple’s innovation opened up the entire mobile ecosystem, with developers participating and collaborating to create most of the applications we are now familiar with... the same thing has happened with open banking. The way fintechs are getting involved, and coming up with new solutions in payments, was unknown a few years ago. There is a statistic that 87 per cent of countries now have some form of open banking or application programming interface (API) banking. Issue 19 | TheFintechMagazine

CROSSBORDER As transactions are moving faster, the The need to manage operations in real time, in a very seamless and frictionless way, is greater than ever. You cannot afford to wait until close of business to tackle these scenarios, you have to do it on a real-time basis. In a few years from now, transactions will happen at a speed we cannot anticipate, which means the operation has to support you at the same speed and level of innovation. How are you supposed to gain this speed and efficiency without including innovations like AI and machine learning in your platform? TFM: How critical is it for banks to have their payments platforms streamlined for real-time checks and reconciliation? ST: Regulators, fintech providers and banks, all of them have now realised the importance

Running to keep up: Data will be checked and flagged at speeds we can’t yet imagine

of the right controls to handle the amount of volume and variations in the payments that are happening around the world. If the payment is happening in real time, the settlement has already happened, exceptions have happened; you can’t wait for the end of the day to take control of all these transactions that have gone wrong. It’s too late for that, and it increases the exposure to risk, both reputational and financial. Most clients have started looking at reconciliation on a near-real-time basis. Real-time payments definitely warrant that. But the amount of investment that’s happening in the control space is not enough. Companies, fintechs, banks, and all the players involved, should start focussing on the right controls, start

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investing in that space. If there had been the right controls, checks and balances by a third party, not internal and inward-focussed, we could have avoided a situation like Wirecard. That’s why it’s so important. TFM: With that in mind, then, what does SmartStream Air offer, when it comes to payment reconciliation? ST: SmartStream is a specialist in the operations controls space. We take care of the entire burden of any risks, both financial and reputational, that an entity could face if it was not handling all of its transactions and operations properly. Our platform is available in the Cloud and as one element of managed services. Any new or existing player that wants to leverage the experience and capabilities of our platform and resources can start on day one,

in reconciliation, as we have done with SmartStream Air, helps to bridge that gap. A business or organisation does not have to worry about file formats, where this transaction is coming from and what the matching criteria needs to be for the datasets. That is the job of the platform. The client is responsible only for managing exceptions and risk. The platform algorithms are best in class and can onboard and reconcile transactions in almost real time. TFM: What’s SmartStream’s role within the payments ecosystem? ST: Everything has become a commodity or a service – from know your customer (KYC) to settlements, to issuing cards, to acquiring, there are specialists doing those jobs. Twenty years back, the entire burden was on one entity: a bank had to do the KYC, bring on the merchants, process transactions, settle, handle disputes, etc. We would encourage our partners – and some of them are already part of this journey – to use our expertise, both our solutions and our people, to expand their businesses. Let us manage their operations and the risks associated with them. Because we are on a mission here – to bring the same seamless and frictionless experience of making a payment, into the operations space. The velocity, variety and volume of transactions in the digital payments space,

Companies, fintechs, banks, and all players involved, should start focussing on the right controls, start investing in that space without going through the entire journey of setting up these operations in-house. Our managed service is working particularly well for some of the largest banks in the world. It means that any new and growing business does not have to worry about the burden on its operations. That’s fundamental. We are there to ensure that no bank or fintech player is at risk of either losing its clients’ business or their money. The rapid pace at which innovations are happening, means businesses have very limited time to adapt, which means the platform they are using should be able to do that on their behalf. So, applying AI and machine learning

and the rate at which they are changing, is huge, which means some of these challenges trickle down to operations, and operations will find them difficult to handle in the future. If the payment modes and methods are changing, and the whole ecosystem is coming up with a new variety of transaction flow, you have to think about how operations would handle that. We have a platform that is robust and scalable, has no restriction on the way transactions are captured or processed, and allows the business to grow at the speed it wants to. Operations should not, and shall not, become a bottleneck in the growth of the business. www.fintechf.com

The payments transformation race is on Your systems need to keep up

or you risk falling behind

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CROSSBORDER: NORDICS Dag-Inge Flatraaker, Senior Vice President of Norway’s DNB Bank, and Edward Ireland, Head of Strategic Products at digital payments aggregator Bottomline, agree that we’re entering the most significant period of change yet in crossborder payments – and northern Europe is a standard bearer The Nordics include the most digitally-advanced nations on earth, so it’s no surprise that the region is on course to launch a groundbreaking real-time crossborder, cross-currency payments platform in 2021. P27 is so-called because it aims to improve payments for all 27 million inhabitants in the Nordic region, although it will initially launch in Sweden, Denmark and Finland, where all the major banks have come together to drive the initiative. Norway is likely to join later. In what can be regarded as a test bed for the world, P27 is intended to break down barriers for trade and financial interaction in the Nordics, where four

separate currencies – the Norwegian krone (NOK), the Swedish krona (SEK), the Danish krone (DKK) and the euro, adopted by Finland – operate. Migrating to a single, shared infrastructure and thereby removing the need for domestic clearing houses, promises to make real-time, batch, domestic and crossborder transactions cheaper and more efficient. The platform operators took a major step towards that in October 2020, by acquiring Bankgirot, Sweden’s only clearing house for mass payments. Of course, any seasoned banker will tell you that real-time, cross-currency, crossborder payments greatly rely on cooperation between sovereign authorities and the financial institutions that underpin them; overarching or compatible regulation; cast-iron measures to protect customer details and prevent fraud, and, of course, consumers’ and business’ willingness to use and trust in crossborder digital services, which requires an easy-touse interface, speed and transparency. But more and more examples of real-time crossborder, cross-currency projects are emerging. P27 is just one – and, if it meets its deadline, it will be the first. In fact, Dag-Inge Flatraaker, senior vice president of Norway’s DNB Bank – which has been closely involved in the P27 project by virtue of the fact that it operates across the whole region – and Edward Ireland, head of strategic

products at digital payments aggregator Bottomline, agree that the next 12 to 24 months will be the most significant period of change yet. “What we’re seeing, and what we will continue to see, is different real-time payment networks – in sterling, euros, US dollars, Hong Kong dollars, Singapore dollars, etc – starting to be integrated, so that institutions and individuals can make real-time payments crossborder,” says Ireland. “But I don’t think you’re going to have single regulators across jurisdictions, so it’s going to be a massive collaboration, through the technology companies and network providers, which can support that interoperability.“ There are other initiatives coming into play, including SWIFT gpi and Universal Confirmations, ‘which is going to give institutions and individuals a whole new level of expectation around payments’, says Ireland. “Payments, in the past, have been a little bit of a fire-and-forget concept; you initiate a payment, then you wait for the beneficiary to tell you they’ve got it. What we’re going to see, with gpi and Universal Confirmations in crossborder payments, is real-time visibility of the status of that payment. The individuals and institutions initiating the payments will be able to track them through their life cycle, and see when they hit the beneficiary account. “There’s a lot of work going on in the

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industry now to become compliant with Universal Confirmations, and there’s a lot of increased adoption of gpi as a programme. As we start to feel the benefit of that, I think you’re going to see the expectation of visibility of crossborder payments become the norm,” he adds. The accelerating rollout of the ISO 20022 global payments messaging standard (also adopted by SWIFT gpi), which allows for more granular data to be included in transactions, is another powerful existential pressure for cooperation. “Some of the market infrastructure initiatives, like the SWIFT transaction management platform and the introduction of ISO 20022, had major impacts for the community, and really got them thinking about how they manage payments and how they’re going to manage them in the future,” says Ireland. “We’ve had a whole raft of new institutions come into the space, including P27, all the new payment service

We are not sitting, waiting to let others do the distribution because then somebody else decides the content and interface with our customers Dag-Inge Flatraaker, DNB

providers, and the encouragement of small challenger banks by the regulators in different countries – and these things have all triggered innovation and change.” The Nordic countries began their journey towards payments integration with some significant advantages. Besides the highest rates of digital banking in the world, more than 80 per cent of their populations use e-IDs, helping to speed up identity and verification. Federated e-IDs, issued and supported by all the major banks and variously known as BankID (Norway and Sweden), TupasID (Finland) and NemID (Denmark), are credited with promoting trust between citizens and financial institutions – and they now play an integral part in everyday life, helping individuals to securely access state services such as, tax, health and education, thereby accelerating the digital agenda. The trust capital that banks have built in the Nordics is crucial to the adoption of the open finance agenda as it’s rolled out across Europe, believes Flatraaker. “The regulators understand you need, in this digital evolution, to have absolute trust. If you don’t, you won’t achieve public support for a digital society.” Another key factor in the P27 story is the willingness of banks to collaborate with each other and with fintechs. There’s plenty of precedent for that. Flatraaker points to the example of

Norway’s leading mobile payment app, Vipps, initially developed by DNB but quickly adopted by other Norwegian banks. Vipps’ extraordinary success goes a long way to explain why Norway has the highest number of electronic payments per capita in Europe, with only three per cent of transactions in cash.

What we’re seeing, and what we will continue to see, is different real-time payment networks starting to be integrated Edward Ireland, Bottomline

“I would say it revolutionised payments in Norway,” Flatraaker says. It also showed that collaboration in the banking sector was good for all – which brings us back to P27. The fact that banks are driving the new platform will ensure they get to dictate the future structure and technology around payments – an area where ownership of the customer relationship is increasingly contested. “We are not sitting, waiting to let others do the distribution, because then somebody else decides the content and interface with our customers,” says Flatraaker. “Our aim is to be out there, having the customer interface and solving their problems.”

tiers: A Nordic journey www.fintechf.com

Issue 19 | TheFintechMagazine

CROSSBORDER Eric Bayle, Head of Global Transaction Banking at Société Générale, says banks must embrace tech to better serve their customers Not so many moons ago, the world’s major banks enjoyed a cosy monopoly on payments, content to rely on what now seem archaic practices, like performing daily, or even weekly, batch payments between themselves. The result was a cumbersome process, with complicated transactions – crossborder payments in particular – frequently bedevilled by blocks in legacy systems that had been built in-house and allowed little visibility of what was happening to them. Not anymore. The tsunamis of digital technology and regulatory changes in the payments sector, have combined to increase customers’ demands to a point hitherto considered to be impossible: instant and frictionless, end-to-end transactions from one account to another, worldwide. One game-changer along that road has been the introduction of SWIFT gpi by the Europe-based Society for Worldwide Interbank Financial Telecommunication, the dominant force in the larger payments network, which counts most of the world’s major banks among its members, and which now provides real-time tracking of transactions through its upgraded messaging system. Société Générale was one of the first big banks to convert to gpi. Another milestone is the phased introduction of ISO 20022, a new open and universal messaging standard for data-driven payments, which, by the middle of this decade, will allow for much greater interoperability between banks and other payment service providers (PSPs). A third, significant contributor is the emergence of fierce competition in the form of a new breed of PSPs, while the likes of card giants Visa, Mastercard and other standalone

The

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tech firms and consortia develop their own alternative digital infrastructures. Added to that already-boiling cauldron is open banking, which has led to ever-increasing collaboration within global financial services. Eric Bayle, head of global transaction banking at Société Générale, believes banks need to make the most of all these unprecedented developments to improve their services before others leapfrog them. “Yes, there are legacy systems across all banks, IT that they need to update, upgrade or adapt, but that can be done with the help of specialist third-party providers, and by plugging in new applications. The payment experience will evolve to become much more real-time, much more frictionless – as simple as Faster Payments in the UK, but everywhere in the world,” he says. “For the moment, at least, the competition for that is not so much between banks, it’s between banks and new entrants that are offering payment capabilities without the need to have a bank account. In Asia, for example – and in China in particular – there are plenty of web companies that are now offering payment services.” Change, he says, is not only being driven by the industry, but by corporate customers’ expectations. “Treasurers today want the same customer experience as the one they have as consumers when they use their banking apps,” says Bayle. “What they expect today is good user experience, trustability, security and predictability. To match these expectations, banks, but not only banks, also third-party providers, software vendors, PSPs in general, are going to rely on and leverage new technologies. It’s application programming interfaces (APIs), it’s artificial intelligence (AI), it’s machine learning, it’s blockchain, distributed ledger technology (DLT) and use of data.” In a clear bid to try to hold on to its kingpin status in the payments landscape, SWIFT has recently started a two-year development programme to create a new digital platform that will use APIs and Cloud technology to provide a common set of processing services that banks have historically developed in-house, a move very much welcomed by Bayle. “Every bank in the world has the obligation – and it’s not optional – to www.fintechf.com

screen payments for sanctions and money laundering,” he says. “At the moment, banks are doing it individually, meaning that, when you send a payment, each bank along the chain is going to do the screening with its own tool and come up, perhaps, with the same alert many times, and each time it will be stopped, the alert is going to be cleared, and the payment will be released. That can lead to some delays, and we do see payments that are perfectly OK but are still blocked and delayed because banks are obliged to run these controls. “SWIFT is aware of this topic and its sanctions screening programme is looking at how to remove frictions from the screening process, to drive instant and frictionless payments.”

KNOWING YOUR LIMITS Payment transaction data specialist, Accuity, recently announced plans to launch a single API combining account validation and fraud control – a first of its kind. Others will no doubt follow. Bayle is convinced of the advantages of using third-party providers like these, both for their expertise and, vitally, because they, not the bank, are responsible for future modifications and upgrades to address vital issues such as compliance. Using APIs that have passed due diligence can literally be a case of plug-and-play. “Banks realise now that they are not software companies,” Bayle says. “Not long ago, they tended to develop everything in-house, so as not to rely on third parties. Now, they are opening up more and more to third-party software companies dedicated to producing specific applications for specific services that complement banks’ payments activity. “When you use a third-party application, you’ll always benefit from the latest version first. For example, if you use a third-party payment module and new regulation comes in, you don’t need to modify your core banking system; the PSP will modify its core banking system to meet the regulation criteria, and the version fed back to you will be compliant.” A good example of that in action is Société Générale’s partnership with

fintech Intix, begun in 2019, to create a decade-long digital archive of the bank’s financial messages and transaction data. The system is expected to go live in 2021. “A bank has an obligation to store its financial messaging. The minimum requirement with SWIFT is to keep it for 13 months, but I think it’s very important for any organisation to retain its data for much longer than that, for two reasons,” explains Bayle. “The first is compliance. If you have a query about a payment from two, three, five years ago, you must be able to produce the information quickly. Then, if a customer, corporate or retail, has a query about a specific payment, you should be in a position to retrieve the data about that transaction quickly. “We are going to use Intix for archiving financial messages, and instant access to transaction data. It will allow us, eventually, to store and retrieve 10 years of data, and what we’ve seen so far shows that it’s much faster and quite user-friendly. It’s used by our transaction processing teams, of course, when they process a payment, but also by all our middle office, when we have a customer or internal regulatory query.” What are Bayle’s top three tips for any of his banking peers keen to keep ahead in this fast-changing landscape? “The first thing is to stay tuned, and keep their ears to the ground for new initiatives that are coming,” he says. “All this is really boiling and they need to be listening to what’s happening to choose the best solution. “The second piece of advice is to define their strategy according to their customer base. Who do they want to target? They want to improve their customer experience, but for whom? For corporates? For large corporates? For mid-caps? For retail customers? For consumers? Who? Because who they are targeting will define their strategy. “The third thing I would say is to always remember that they are not a software company. Their core role is to be a bank. So, leveraging on existing applications – exactly what we did with Intix – is sometimes the best possible way to serve your customers.”

Banks realise now that they are not software companies

Issue 19 | TheFintechMagazine

COMMENTARY: PROFILE

If you’ve got it,

‘use ıt’! Claire Green is Head of People at Railsbank, the London-headquartered banking-as-a-service (BaaS) platform. As a former member of the England women’s rugby squad, Green shares her tips on embedding a culture of high performance – both on the pitch and when it comes to upping your game in the ultra-competitive fintech space

I have mixed feelings when looking back at 2020. It was a tough year for us all with COVID-19 and the challenges it presented, but also a landmark year for Railsbank. After acquiring Wirecard’s UK assets and raising $37million in new growth funding, we’re now busy expanding the company’s global footprint and further developing our products and services. Continuing to grow Railsbank is reliant on having the right team in place. That’s the core element for success. Joining Railsbank was an easy choice for me; it’s a pioneer within the growing fintech sector and indeed the wider financial services space, but it also believes strongly in nurturing a talented and diverse team that works together to become the very best. I helped to define the company’s customer IT proposition from the beginning, before moving into working

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more closely with the company’s people to establish a forward-looking ‘people department’ to support the rapid growth of the business. I’m today responsible for all elements of Railsbank’s people strategy, including HR, recruitment, onboarding, training, performance and wellbeing. My main focus is on helping people to settle in at Railsbank as naturally as I did; make the most of the opportunity Railsbank presents, and supporting career progression. For that, I draw on a lot of the lessons I learned throughout my rugby career. My hope is to have as much success with my teammates in business as I did with my teammates in sport. I started my rugby career while at the University of Greenwich, making it into the starting lineup in each of my three years, in the England Students team. During my final year, I joined Saracens RFC and was selected for more national honours by playing for England A. After graduating, I continued to pass through the England ranks and represented my country until 2005, gaining 35 caps, mostly in the second row, and playing at the 1998 World Cup finals. I also continued to play for Saracens, the team that Railsbank co-founders Nigel Verdon and Clive Mitchell support (though I’m sure this didn’t influence my hire!), and then Wasps, winning the National Cup and League at both clubs. My passion now lies in embedding and supporting a similar high-performance culture at Railsbank, one that celebrates diversity and inclusiveness as we look to succeed on the fast-moving fintech field.

Game-changing: Claire Green (centre) with fellow Greenwich University top-flight players Maxine Edwards MBE (left) and Claire Frost (right)

www.fintechf.com

So, where can rapidly-scaling businesses like Railsbank learn from rugby? It’s all about teamwork. Rugby is a team sport where success depends on the sum of each team’s parts. The same applies in the often volatile, yet exciting, world of fintech. You need to be ready to step in to support a colleague at a moment’s notice. And teamwork means they’ll do the same for you. Know your basics. In rugby, the basics are scrums and lineout – why do you think we practise them so much! They’re the building blocks for success. Conquer them, and you’re on the path to victory. What are the basics in your fintech job? Practise these to get them absolutely right, so you can do the fundamentals of your job really well, time and time again. Embrace the rapidly-changing environment. As in rugby, the business environment – especially at fast-growth businesses – evolves and changes rapidly. As the play changes, your original game plan can go out of the window. Make sure that you’re ready to respond and adapt. Not adapting is a wasted opportunity and it might cost you the game. Get comfortable with the pace. Much of my rugby has been played in particularly fast-paced games – certainly at national and international level. If you’re working in fintech, I don’t have to tell you what pressure is like! High performance comes with being able to operate at this pace. Embrace it, get comfortable with it. It’s important to stay calm, stay in control and trust in yourself. Be on your best behaviour! Your personal behaviour is as important in the business world as it is on the rugby pitch. To be part of a high-performance team, you need to be a genuine team player, sacrificing personal gain for the team’s achievements. Consider how you operate. In both rugby and business, you must operate with humility and respect – and that applies to teammates and competitors alike. You need to show determination, dedication and support those around you to help them be the best they can.

Image courtesy of Diane Patrice/ University of Greenwich

Rugby is a team sport where success depends on the sum of each team’s parts. The same applies in fintech

www.fintechf.com

Issue 19 | TheFintechMagazine

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NEOBANKS: GOLD Jason Cozens was the architect (quite literally) behind Glint, the gold trading and payment app that allows ordinary consumers access to their own, inflation-proof currency

A new gold standard “The universe creates gold when two neutron stars collide. There’s a finite amount of it on the planet and it’s difficult to mine just one per cent of it every year. But you could drop an atom bomb on it and it’d still be there in 1,000 years. It’s immutable,” says Jason Cozens. It’s likely this enduring quality – a permanence that pre-dates the human race and will probably endure long after we’re gone – is what drives us to it in a crisis. Investors snapped up historic quantities of the stuff last year, albeit mostly in the form of exchange-traded funds where inflows more than doubled, driving the gold price to an all-time high. Knowing that somewhere there exists a pile of gold bullion that is more than holding its value is clearly a comfort for distressed investors. But the last time gold was actually used to buy anything – in the UK at least – was around the time of the Napoleonic wars, more than 200 years ago. As founder of the gold buying app Glint, that’s what Cozens has set out to change. He, literally, wants to see the www.fintechf.com

streets if not paved with gold, then thronged with people paying with it. And here’s where, ironically, technology – which helped drive gold out of circulation – can help bring it back in. “Civilizations have come and gone but gold has retained its purchasing power, because it can’t be corrupted like anything defined by human beings,” says Cozens. “For me, gold’s the ultimate form of money. I can go anywhere in the world and people will appreciate its value. The pound has lost 85 per cent of its purchasing power in my lifetime. Yet gold’s, in that same period, has increased by more than 550 per cent.” The price of gold has tracked public confidence over recent history – dipping when the economic and geopolitical going was good, soaring when the opposite is true. The two major crises of the past two decades saw gold rise from £10,000/kg in 2007 to £36,414/kg by 2011 as the global financial meltdown took hold, while in late 2020, amidst the socio-economic uncertainty sparked by COVID-19, it peaked to £48,819/kg. But Cozens is right

when he says that gold’s value as an asset class has grown consistently over time – by 641.58 per cent, in fact, since 2001. As such, Cozens believes that bringing gold back into circulation could protect ordinary citizens from political and monetary policy that has eroded the worth of the fiat coins and notes in their pockets. Like many cryptocurrency moguls of the moment, he’s intent on shifting currency control away from governments and central banks and back to ordinary people. In fact, he traces what he believes to be a gradual decline in public trust in currencies, banks and payment systems to the world abandoning the gold standard, which historically linked fiat money to the value of gold. Cozens explains: “There are lots of inequalities in the way the monetary system works. When money is printed by governments, it isn’t distributed evenly. The idea is that there’s some kind of trickle-down effect from the wealthy to the rest of the population. The problem is, it takes so long that, by the time it trickles down, it’s worth less.” Issue 19 | TheFintechMagazine

NEOBANKS: GOLD Returning gold to its ‘natural purpose’, as ‘real money’ will, he says, give people back ‘reliability, choice, independence and freedom’. Glint isn’t just a gold buying app, it’s an ideology. The challenge, however is that, on most western high streets, you can’t walk into a shop and offer an ingot to the cashier – even when Harrods still had a banking division, and you could nip up to the top floor in Knightsbridge to buy a few bars, you couldn’t actually exchange it for anything in the store. But Glint enables people to buy from just one penny’s-worth of gold. And, by digitising that investment in a speck of precious metal, they can spend it, too, using the Glint card or payment app. “I pay for everything in gold,” says Cozens.

authorises the transaction and sells just enough gold to pay for it,” explains Cozens. It’s the equivalent of having your personal gold standard, and, as Gold’s price is only like to go up in the medium-to-long term, ‘living on a gold standard definitely pays returns’, says Cozens. “I’ve had clients text me saying ‘Glint’s amazing, I bought gold at the beginning of the year, I continue to buy it every month, I’ve been spending more of it than I’m accumulating, yet it’s worth more than it was a year ago. As everything falls apart around us, we want something to hold on to, and Glint’s technology gives us that.”

A PROTECTED ASSET Glint was the first fintech to spot this

Gold currency: A user’s physical gold is sold to facilitate payments

Through the app, anyone can purchase gold, which is secured against bullion in a Swiss Brinks vault. Glint then translates it into cash to facilitate purchases via a linked Mastercard or to send cash via the app to other Glint users using a PayPal-like email identifier, or purchase foreign currency at rates it claims are ‘eight times cheaper than banks’. And because gold is protected, unlike fiat money, from inflationary pressures, users, in theory, get more bang for their bucks in the real world. The Glint Mastercard now accepted by tens of millions of merchants and at more than two million ATMs, in over 210 countries and territories. “If I buy a green juice for £7.78, Glint checks the latest gold price in the merchant’s currency, works out whether I’ve got enough gold to pay for it, then

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“It was a shock to see people queuing outside Northern Rock, worried whether they would get their money back,” recalls Cozens. “It was the first time people of my generation realised a bank is not a risk-free place to deposit funds. I started to think ‘surely there’s got to be a risk-free way of storing my hard-earned money?’. “I started to look at gold, used and trusted by people all over the world, including central banks, as the ultimate store of value, the currency of last resort, and thought ‘maybe that’s the solution’. “I couldn’t use it to go and buy a coffee at that point, but I thought ‘there’s got to be a way of connecting real, physical gold into the digital payments system’, and that was the beginning of the journey.” Building the infrastructure needed was no mean feat and, on the face of it, Cozens wasn’t the man to lead it. An architect who was one of the first to employ emerging virtual reality technology to visualise big-scale projects like the Sydney Olympic Stadium, he’d moved into designing ecommerce websites for major players like JD Sports. “Lots of people told me I wouldn’t be able to do it, but I managed to develop a prototype that worked,” says Cozens. “With that, I attracted some fantastic people to the business. We raised our first money to create a production version of our multicurrency platform to enable gold to be used as money.

There are lots of inequalities in the way the monetary system works... Our vision is a world where everyone has an equal opportunity to prosper golden opportunity but it’s not the last. New physical gold-trading app, Minted, poised to launch just as the pandemic hit at the beginning of 2020 also plans to give users the opportunity to use gold as currency. Its USP is enabling ordinary investors to purchase small parcels of gold at prices similar to those usually reserved for large-scale investors, then either receive it physically or own it virtually within the app. Like Minted, Glint is registered with the UK’s Financial Conduct Authority, it’s also insured with Lloyds of London and is very much a product of the UK, having had its genesis during the financial crisis, when Cozens witnessed the first run on a British bank in 150 years.

“Our clients buy a share of a real physical gold bar, there’s no company, token or fund between them and their ownership of gold. We’ve spent our first few years focussing on that unique selling point and first-mover advantage,” says Cozens. Now Glint is directing its efforts towards improving the user experience, with automated or event-based communications through the app and peer-to-peer payments. “I’m looking forward to adding things like multiple wallets this year and there will be lots of opportunities to partner with incumbent and neobanks on new ideas,” says Cozens. “Our vision is a world where everyone has an equal opportunity to prosper.” You could say that’s an admirable standard… in fact, it’s a gold standard. www.fintechf.com

NEOBANKS: PFM

The bank of fun Lunar is the Danish challenger that’s ready to ‘change the way people do banking’ by using a Cloud-based architecture that’s ready to embrace open finance. With more than 200,000 users already, many acquired during the pandemic, COO Morten Sønderskov says the bank’s off to a good start

“Spending is fun, but banking is boring. Unfortunately, you can’t do one without the other,” says Morten Sønderskov, chief operating officer with Danish challenger Lunar. The thrill of signing up to a subscription service to see the latest blockbuster release that now won’t be premiered in cinemas, or enjoy a monthly download of 100 games on Xbox Series X to relieve lockdown boredom; the guilty pleasure in being able to buy now but take your time to pay for it; and the buzz from getting together with friends and family over a financial social platform that allows them to share in your purchasing decisions… all these trends have taken off in the past 12 months as the pandemic upended our daily lives and exaggerated an existing but gradual shift in spending habits. Trouble is, our cashflow is now so complicated, so impulsive, that it’s increasingly difficult to get a handle on it. And that’s what Lunar, which started life as a personal financial management (PFM) app in 2015, aims to correct. By 2019 it had obtained a European banking licence from the Danish regulator and began building a bank fit for a generation of digitally-savvy Scandinavians. Its mission was to create a bank that suited the busy, online universe they live in; designed to help users reach ‘financial zen’ by allowing them to save, invest and share their finances through Lunar’s modern financial management tools. But then the pandemic catalysed its www.fintechf.com

development. Within the space of a few months, Lunar had tapped into the digital payments vein that was pulsing with pandemic-fuelled pressure and brought out three new features, partnering where necessary to speed up their delivery. First came an in-app subscription management service with white-label software supplier Subaio. Then, it gave its Premium and Pro customers the option to have joint accounts with up to 10 people who could post messages to each other via the app. Ken Villum Klausen, founder and CEO of Lunar, said at the time that joint accounts were launched partly in response to a surge in online book clubs, cycling clubs and other groups during the pandemic, and the bank wanted ‘to support the need to share experiences with easy money management’. Most recently, just in time for Christmas, the bank added a Klarna-like buy now, pay later option, which pops up whenever a user makes a purchase from the account. Lunar’s agility is entirely down to its Cloud-based architecture and collaborative mindset, says Sønderskov. “We had the opportunity to, more or less, start from a blank piece of paper; to build our own back end in the Cloud from day one, which means we are in full control of the data and able to manage our service in a very agile way – how we work, how often we are able to bring new services to market, and how often we update existing services. “Being in control of its own back end

has been the core foundation for a company like Lunar to provide front-end solutions. Going forward, that whole back end is going to be even more critical, because we are integrating with so many different players to be a part of the fundamental financial infrastructure.” By seeking out partners with the same Cloud-native approach, Lunar can double down on innovation, faster than most others could deliver it. “We can do the integration in three weeks,” says Sønderskov. “I think our main competitive advantage, compared to the incumbents, lies in being able to bring products to market at a faster pace.”

READY FOR OPEN FINANCE The bank now has 200,000 private users and 5,000 business users across Denmark, Sweden and Norway, most of those acquired last year. With the Lunar app, they can easily and securely manage their finances directly from their smartphone, get an overview of spending, set savings goals and budgets, receive notifications when they are about to hit limits, and make free payments and transfers. Premium and Pro account holders can invest money via the app over a simplified trading platform developed in partnership with Saxo bank – trading costs are low and transparent, with no hidden fees and no demands for minimum expenditure on stocks. Other paid-for account benefits include exclusive discounts, travel and luggage insurance. Issue 19 | TheFintechMagazine

NEOBANKS: PFM Social media meets banking in its account sharing feature, which sees up to 10 people issued with a card. Whether it's saving to buy with a partner, splitting bills with housemates, sharing a travel account with friends, or a food budgeting account with family, anyone associated with the account can comment on transactions, even if it’s just to post an emoji. “If we manage to get people as engaged in our app as they would be in other social media apps, then we have come a long way,” says Sønderskov. Ultimately, Lunar aims to go a lot further, too… to anticipate, in fact, the open finance strategy that Europe plans to roll out in 2022. Only then, says Sønderskov, when banking data can be aggregated with other information streams will the true value of the API economy be realised in personal finance. And Lunar will be ready. “We have built an engine that will be able to combine all the data about customers, from multiple sources, and give them the right access to the right information, to show them how to navigate their finances. The aim is to have a product portfolio that reflects all kinds of financial interactions that customers go through during their lives. We are not there yet, but that’s the vision. We want to be a provider of all kinds of financial services, not just a niche player. “We also want to integrate into national infrastructures, so that we are able to tailor things to customers in specific countries, like Sweden and Norway. “Our vision is about bridging financial and other products, and we are already going down the path of collaborations you would not normally see with financial institutions. These combinations with other product streams will generate new revenue streams that we have not seen yet [in banking].” Lunar's antennae are alert to identifying where those opportunities might emerge. A key one is subscription services. Indeed, as one of the ‘freemium’ challengers, Lunar is itself based on a recurring payment model. But it’s a trend that has undoubtedly accelerated since the outbreak of the pandemic. One estimate shows the average

European is spending around €333 a month on 11 subscriptions, a number that is predicted to increase to €508 a month across 17 subscriptions by 2025. This represents a generational shift in the relationship between the consumer (be that individual or business) and the provider – ultimately, the subscription economy will generate more data and more insight as our lives are geared less towards ownership and more towards recurring, time-limited, shared or borrowed services. But right now, it’s just a matter of keeping track of all those things you signed up for and promptly forgot you had. So, Lunar teamed up with Subaio, a Danish white-label subscription management software company, to allow

In it together: Lunar enables users to collaborate through shared accounts

Our vision is about bridging financial with other products, and we are already going down a path of collaborations you would not normally see with financial institutions

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founded in neighbouring Sweden. Many startups are hot on its tail. According to CB insights, 2020 saw a record funding year for the BNPL sector, with $1.5billion raised globally. By 2025, BNPL volumes in Europe are predicted to hit $357billion, constituting nearly half of the entire global estimate, and representing 30 per cent of all predicted ecommerce spend. Such a sizable consumer trend hasn’t escaped Lunar, so it has developed its own BNPL service, allowing its users to postpone a payment of up to DK10,000 to the following month, or split it across three, six or 12 months. And it went a few steps further than Klarna. Not only can account holders apply the BNPL option to purchases that are up to 30 days old, but the facility can

retail customers a complete overview of their subscriptions in one place, as well as the costs incurred. Users can manage their subscriptions directly in the app, and receive notifications if a subscription changes. It’s not just consumers who have subscription fatigue and could use some help. Research from Subaio shows that employees have, on average, access to eight business subscriptions, and 30 per cent of business subscriptions are not used. So Lunar’s premium business Grow account holders have access to their own tool, too, to help them manage their subscription services and costs. Another highly-competitive sector that has been boosted by the COVID-19-driven acceleration in ecommerce, is that of buy now, pay later (BNPL), which is famously associated in Europe with Klarna,

also be used for any payment, be it food shopping, household bills or emergency repairs, for a fixed price. For the challenger bank, BNPL is both a revenue stream and a way to drive customer loyalty, by giving customers much more flexibility with their finances. Lunar has already gone through three rounds of funding, with initial investors returning for subsequent raises. In total, investors including Seed Capital, Greyhound Capital, Socii Capital and Chr. Augustinus Fabrikker, have sunk €104million into the challenger. If its plans to expand pay off, Lunar bank could be about to grow astronomically. “If we manage to combine all this data, and provide it to customers in a way that they think it’s interesting to follow up on; and if we are able to do that on an ongoing basis, showing how, if you adjust this, you will achieve that in the future, then I think we have succeeded as a company,” says Sønderskov. “Because then we have truly changed the way people do banking.” www.fintechf.com

NEOBANKS: ACCOUNT SETTLEMENT

As Benjamin Franklin said, there are only two certainties in life: death and taxes. There are plenty of digital solutions to help with the latter; why has financial technology taken so long to address the first? That same question occurred to the founders of Settld… In a year when the world mourned, frustration and distress caused by the financial admin surrounding a loved-one’s death was amplified. Never an easy process in the UK, the circumstances of the pandemic shone an uncomfortable light on the lack of standardised processes and the absence of digital technology for unravelling the affairs of the deceased. On average, each of us leaves behind 15 to 20 accounts – from those held with banks and insurers to utility companies and subscriptions we forgot we had. For too many people who go through the time-consuming and sometimes emotionally-fraught task of terminating or transferring them, delays caused by manual systems, insensitive communications and difficulty in contacting the right department, add to their grief. So much so, that more than 92,000 people have now signed an online petition calling for change – which could be achieved by using technology to help deliver a more compassionate, efficient response to the one event that none of us will escape. The petition to persuade government to introduce a Bereavement Standard for commercial services providers, making it easier to close the accounts of someone who has died, was started by mother and daughter Julie and Vicky Wilson in response to difficulties they faced in sorting out the affairs of Vicky’s grandmother, June, who died in 2019.

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“I couldn’t understand how it could be so inefficient,” says Vicky. “We just got cross – really cross.” But, while most people grit their teeth and battle the system, the Wilsons’ frustration was funnelled into a solution – Settld, a Cloud-based, automated end-of-life service that incorporates both a B2B and a B2C element because, as they discovered, probate lawyers and other bereavement service professionals don’t have a hotline to account providers. “We wanted to offer a free consumer dashboard because every family has to be supported,” says Vicky. “But probate professionals and local authorities (when they are responsible for someone’s affairs), face exactly the same problems. There is usually no better channel for them. “Some banks do have a portal, but most organisations have to write to an email address or pick up the phone, so it made sense for us to start Settld with a commercial focus.” The dashboard for lawyers and others has been running successfully over Settld’s platform since late 2020, with a consumer portal launched this year. The biggest challenge that needs to be addressed is interoperability, says Settld’s chief developer Pierre Martin, which is

why it’s developing a Bereavement API. “When we started talking to all the industry service providers (banks, insurers, utilities, etc), we quickly realised they were each operating in a vacuum, with their own tech stacks. From there, we started to identify lowest common denominators, cross-industry, so that service providers could adopt both a tool and a process standard that would allow organisations to communicate together in a unified fashion,” says Pierre. “Ideally, you want operations and exchanges between systems, unifying protocols and processes.” While that is still a work in progress, and not in the gift of any one solutions provider, Settld’s secure platform is already a big step towards solving a problem that affects hundreds of thousands of people a year. The platform employs Onfido document, identification and facial biometrics verification to address one of the key issues in account settlement: secure identification. It analyses the face on a government identity document, such as a

Banks know consumers are suffering and they know having a cross-industry solution makes a lot of sense

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driver’s licence or passport, and compares it to a freshly-captured photo or video. Settld’s B2B tool brings together all the necessary documents, with details of accounts to be closed and other relevant information, such as what is happening to any property, which is particularly relevant to utility companies and insurers. Notifications are automatically generated, embedded with the required attachments and sent to the service provider. Users can then check progress via their dashboard. “So, rather than having to jump on calls, our users have ongoing tracking,” says Vicky. “The lawyers we talk to need to find ways of lowering account management costs as more players start entering the market, offering grant of probate at a fixed price.” Settld, which operates a software-as-a-service model, charges on a per-case basis and the architecture is designed to scale – potentially into case management on its business-facing platform, and by introducing a marketplace of related end-of-life services for consumers. Alongside the product build, Settld and the charity Cruse Bereavement Care co-founded a Bereavement Standard Working Group to understand how best to help organisations and government improve the account settlement process. One key component is the request for a Bereavement API, which ‘will effectively be open banking for bereavement to facilitate the push of information’, says Pierre. Or, in other words, a green-shoot

example of open finance – the logical sum of APIs plus open banking applied to all the areas of our lives that intersect with finance and which, in this case, provides a turnkey solution to a demonstrable need.

The COVID spotlight Bereaved families’ experience of dealing with banks in particular worsened after lockdown, according to Which? In a report published in February 2021, it said that while the process of closing a deceased loved-one’s account took longer than three months for one-in-six people pre-pandemic, after the crisis hit, that was true for a quarter of them. Lost paperwork, inconsiderate responses and automated systems that insist on writing to someone who has died are the last things a family needs when struggling with the emotional aftermath of their loss. And, for some, having a relative’s or friend’s funds locked up for months causes real financial distress. Banks are aware of the problems, says Vicky. “They know consumers are suffering and they know having a cross-industry solution makes a lot of sense. The majority of organisations care, but, pre-COVID, these processes didn’t have the priority that perhaps they should have had.” The pandemic has certainly been a wake-up call for banks, insurers

and others. Well over 100 of their representatives attended events organised by the Bereavement Standard Working Group last year to discuss the issue. In fact, Vicky says they were overwhelmed by the supportive response from financial services and Settld is currently talking to one organisation about a white-label solution for its clients. The need for a Bereavement Standard has now been taken up by MPs, who this month called on the minister responsible to not only urgently introduce the Standard, but also make the most crucial document in the whole end-of-life settlement process – the death certificate – legally valid in digital form. The public sector already has the equivalent of a Settld dashboard – the Tell Us Once online service for notifying local authorities and national government departments of the loss of a loved one. That doesn’t stop what one MP described as ‘clumsy mistakes’ – automated systems that write to the deceased, informing them that they do not qualify for a benefit because they have died, being one of them. Failure to share information across departments is not confined to the public sector and it won’t be solved by a single platform in the private sector, either. But Settld has at least prodded their conscience.

Time for reflection: The pandemic highlighted the need for swifter, easier account settlement

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COMMENTARY: BANKS & ESG Green shoots: Environmentally sustainable investments are not growing fast enough. The question is how far should banks go to increase it

The

BIG Green

Debate What role should and can banks play in steering society towards a more sustainable future?

$6.9trillion. That’s the amount we need to invest in green finance each year to meet our net-zero climate goals by 2050, according to the latest OECD (Organisation for Economic Co-operation and Development) research. For context, the entire GDP of the UK is $2.8trillion. And right now, we are not even close to achieving it. If we continue with the current level of investments, by 2050 the planet will have warmed by 3°C, according to the United Nations Emissions Gap Report. That’s pretty much game over: the mass extinction of some species and the re-homing of an estimated 275 million people due to flooding. The World Bank says trillions lies between humanity and carbon-neutral. Not billions. And the window of time to do something is closing. For greener energy alone, we’d need to annually increase our investments five-fold. Energy and power account for around 44 per cent of global carbon emissions, so it sounds a good

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place to start. However, more than 57 per cent of global energy investments still go to fossil fuel companies, according to the IEA (International Energy Agency). The giant increase in green investment needed cannot be met by governments. An estimated 80 per cent must come from private finance. That means us: our bank accounts, investment portfolios, stocks and shares ISAs, and pension funds. So, what are financial institutions doing to help us get there? And what should they be doing? We asked three financial leaders: Alain Cracau, Director of Sustainable Business Development at Rabobank; Sandra Odendahl, Vice President, Social Impact and Sustainability at Scotiabank, and Bragi Fjalldal, CMO, VP Product & Business Development at Meniga. And this is what they said…

BANKS ‘CANNOT BE RESPONSIBLE FOR EVERYTHING’ Sandra Odendahl believes banks should not overstep their role, even for something this serious: “I worry about banks taking on the role of government and policymakers,” she says. “Banks enable everything in the economy, but I’m a worried about making the financial sector responsible for everything in the economy. Some people might be

receptive to the idea, but others’ reaction would be ‘back off’.” It’s true that banks are not democratically elected and interference in public policy lays them open to accusations of hegemony, which they’ve tried hard to avoid since the disastrous PR of the financial crisis. But it’s not that simple. Financial services are interwoven in the fabric of corporations, the lives of consumers and even governments. The UK’s Conservative election campaign was bankrolled by hedge funds. A 2015 report revealed that 27 of the 59 wealthiest hedge fund leaders gave more than £15million to the future government. Some institutional investors already influence the environment indirectly through political donations, while others, like banks, do so directly through investment decisions. The world’s biggest banks have put $2.7trillion into coal, oil and gas since the 2015 Paris Agreement, according to the annual Banking On Climate Change: 2020 Fossil Fuel Finance Report, compiled and endorsed by 252 independent organisations worldwide, which tracks investment and other data on 35 financial institutions. Smaller, retail financial products – mortgages and loans – are mostly backed by banks and also affect the planet. Banks www.fintechf.com

could, if they chose, use these to effect change. And some are. Fifty-seven per cent of lenders plan to launch green mortgages after the pandemic, according to the Intermediary Mortgage Lenders Association, which should reduce carbon emissions. Among them, UK bank Tandem is launching a raft of environmentallyfocussed products, positioning itself as ‘the good green bank’. It definitely sees itself as part of the solution and has presumably identified a revenue-generating opportunity in sustainable investments. Alain Cracau, from Dutch cooperative Rabobank, is sympathetic to that view. In the Netherlands, a tie up between banks and government encourages it. The Dutch Green Funds Scheme (GFS) is a tax incentive that encourages environmentally-friendly initiatives. Individual investors lend their money to banks at lower interest rates, but are compensated with an environmental tax credit. These ‘green banks’ can then offer cheaper loans to environmental projects. “One dollar of public money (tax) leverages $30 of financing,” says Cracau. He does see banks fulfilling a strategic role. “What we, as banks, have is the data, the experience, the knowledge of what’s really happening, and what would be a realistic next step to improve the economy and society. Putting that knowledge together with government is important. While we will never say to clients ‘you should do this’, we have our own responsibility [towards sustainability]. It’s about leadership, it’s about a mindset,” he says.

Sustainability creates a new economy and, wherever there is an economy, you come back to the bank Alain Cracau, Rabobank

The cooperative bank’s members are already well aware of the influential relationships banks have with people and with government, and looks to them to be first movers when it comes to building a new, more-sustainable economy. www.fintechf.com

“We talk to our members in dialogue sessions that we hold in the regions – about the economy, jobs, and how we want to live as a society,” says Cracau. “And people always come back to us and say ‘you are the organisation that talks to us, that talks to the government, that talks to companies. Could you be the lynchpin?’. So, that’s one role for banks: creating a dialogue about how society works together [on sustainability]. “The public-private coalition, I think, is important here. As a country, the Dutch are also signed up to the Paris Climate Agreement and, over the next 10 years The Netherlands need to invest €40billion. Therefore, it’s important that we talk to both the government and businesses about how we are going to spend that.” Rabobank is also active in encouraging ‘the sort of disruptive innovation for the transitions we need’, according to Cracau. “That inspires a lot of our own people, whatever their role in the bank, to contribute to how we make this happen. “Sustainability creates a new economy and, wherever there is an economy, you come back to the bank”, he adds.

HOW ARE BANKS ENCOURAGING GREEN INVESTMENTS? Institutional, and many retail, investors finally appear to have ‘got’ the sustainable investment message: that ‘doing good’ doesn’t equate to investments performing badly. And there is plenty of evidence now to support that. In early 2020, Larry Fink, the boss of BlackRock, the largest asset management company in the world, in his annual letter to CEOs, famously stated that it would henceforth ‘put sustainability at the centre of its investment strategy’. The decision was no doubt partly – if not primarily – motivated by a desire to protect its investments from the risk (both regulatory and reputational) that companies who did no more than pay lip service to environment, social and governance (ESG) principles, posed to its investments. MSCI’s 2021 Global Institutional Investor Survey of 200 institutions that owned assets totalling approximately US$18trillion, found that more than three-quarters (77 per cent)

had increased ESG investments ‘significantly’ or ‘moderately’ last year. Among those, one third of the largest institutions (over US$200billion of assets) said climate risk will be the biggest determinant of how they make investment decisions in the future. Cracau says the bank’s private clients, too, are looking for more impact investments. “Everybody is looking for a return, but, on top of that, they want a

There is a growing trend of environmentallyconscious consumption, and in the number of customers who really want to understand their environmental footprint Bragi Fjalldal, Meniga

return for society,” he says. “And we see that sustainable companies are a better risk – for personal investors, a business investor or even venture capital. “Climate change creates big risks. And banks are all about risk management. So it becomes part of how money is managed in a financial institution, how you demonstrate where you get the money from, and what you put it into,” says Cracau. The individual or retail investor might be more powerful than they think in this battle. But do they understand how to access the sustainable investment market? Bragi Fjalldal from Meniga believes banks have a duty to show them. Meniga’s digital banking platform helps banks use their data to build customer engagement through finance management and more solutions for customers. It recently launched a white-label Carbon Insights tool (see left) that reveals a customer’s carbon footprint, nudges them towards more sustainable consumption and offers them impact investment options. The fintech is based in Iceland, a country witnessing, firsthand, the dramatic impact of climate change. “This is about giving customers information to make the right choices,” Fjalldal says. Issue 19 | TheFintechMagazine

COMMENTARY: BANKS & ESG But when, in the US, just 34 per cent of people have even basic financial literacy, according to a FINRA survey, it seems ambitious for banks to play a leading role in teaching climate finance. Nevertheless, in North America Scotiabank has developed tools to help ethical investors make the right choices that Fjalldal talks about. Its impact investing tool for direct investors in Canada introduces a gamification element to selecting target companies that align with account holder’s personal beliefs. Anyone with a Scotia iTrade brokerage account can create a user profile, based on their values around the environment, social issues and corporate governance. The tool then matches them to companies that align with their passions. “As a bank, we are financing companies that generate renewable or non-emitting electricity, companies developing green buildings and low-carbon neighbourhoods, government and private sector companies developing mass transit systems that get people out of their cars,” says Odendahl. “We are also financing people who want to retrofit for energy efficiency… individuals and companies. And our iTrade tool allows people to search the ESG ratings of companies they might be interested in.” It’s all part of the bank’s pledge in November 2019 to ‘mobilise C$100billion by 2025’ to reduce climate change impacts,. That would offset the $92billion that the Rainforest Action Network claims the bank has spent over the past few years in fossil fuel financing. But that’s not to single out the bank; Greenpeace estimates that the world's top banks account for $1.9trillion of such investments since the 2015 Paris accord was signed.

COULD DATA SAVE OUR CLIMATE? We’ve all heard the mantra ‘data is the new oil’, but could it, in fact, be the way to reverse fossil fuel-induced climate change? “There is a growing trend of environmentally-conscious consumption, with customers wanting to understand their environmental footprint and start reducing it,” says Meniga’s Fjalldal. “As custodians of data, banks are in a unique position to make this accessible, seamless and intuitive. Our own carbon footprinting surveys show that 80 per cent of people are interested in understanding it, and more than 80 per cent want their bank to provide that information. There is a real and present customer need.”

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That has huge potential for banks’ digital engagement, says Fjalldal. “The likes of N26, Monzo, and Revolut have shown that customers want multiple reasons to engage with banking. They want banks to tell them things about their finances, including their environmental impact. So, there’s an opportunity to turn this environmental service into a loyalty and engagement driver.

There is an opportunity for banks to turn this environmental service into a loyalty and engagement driver Bragi Fjalldal, Meniga

“Being more environmentally conscious tends to go hand in hand with being more sensible about how you spend,” he adds. “For most people who drive cars, for instance, fuel is probably one of the biggest spending categories. Reducing their fuel spend will save them money and save the environment at the same time. If we take that saving and funnel it into an environmentally sound investment, then we’ve created a very interesting ecosystem. We can expand this ESG investment thinking into, sort of, ESG consumption.”

REGULATORS, NOT BANKS, LEAD We feel the pain of losing money more intensely than the joy of gaining it, according to Yale scientists. Although that was based on their observations of monkeys using grapes as currency, regulators use the same principle to make heavy carbon-emitters less profitable for their investor community. The carbon markets are where profit and pain meet: the big carbon emitters must buy tokens, each allowing them to produce one tonne of emissions. There is a finite number of tokens, which gets smaller over time, and, therefore, more expensive. It’s potentially a profit drain for investors and intended to put pressure on emitters to take carbon-reducing steps. It’s also one of the ways green energy becomes more profitable than burning fossil fuels, and it’s part of Europe’s plan to meet the Paris-agreed goal of each member state becoming carbon-neutral by 2050. European policymakers clearly see private

investment as being at the heart of the transition to a low-carbon economy. The European Green Deal is directing sustainable finance, not the banks. But, ultimately, that will leave them with no choice other than to mainstream green private finance. Cracau, in fact, argues that ‘banks could think ahead of this Green Deal’ and take the initiative now. There are signs that the industry is already starting to take this leadership role. Investment managers, including a couple of dozen banks, jointly created the Principles for Responsible Investment in 2019. And others are getting braver. A cohort of investment houses slammed HSBC, last January, for continuing to invest in fossil fuels, despite winning Euromoney’s Most Sustainable Bank of the Year award. Investment in green and sustainable activities has ramped up. Green and sustainable equity totalled $9.7billion in the first nine months of 2020 – 38 per cent up on the same months of 2019. And, in September 2020, we saw a record volume of green and social bond issuances, at $62billion (though mostly due to an eight-fold increase in social bonds sparked by issues brought to light by the pandemic). Meanwhile, the earth warmed by another 1.02°C. In the face of those statistics, maybe sinking our cash into sustainable investment portfolios isn’t enough. “Investing in responsible products is just one action you can take,” says Odendahl. “But I worry people think then that they’re done. No, they need to change behaviour, which changes the way goods and services are produced, and changes the things banks finance and invest in.” That said, studies have found the single best way for individuals to reduce their carbon footprint is through their investments, specifically pension pots. The average UK pension pot contains £61,897, according to the Financial Conduct Authority, and one calculation suggests switching to a green plan is 27 times more effective than never flying again and going vegan combined. Today, more than £3trillion of UK pension money is being used to cut down the rainforest and fund fossil fuel companies. Cracau, Odendahl and Fjalldal all agree that banks and asset managers can help us reach our net zero goals. But the jury is still out on how – and how far they should go. www.fintechf.com

THE INVESTORS: IMPACT FUNDING ‘Build back better’ is one of the buzz phrases of the moment – the idea that the turmoil created by COVID-19 gives the world a fresh start to tackle inequality. And, though this year will be dominated by the gargantuan task of vaccinating billions of people, interest in fintech as an equality solution is gaining traction. When the pandemic hit and populations were locked down, digital banking systems proved their worth by allowing contactless transactions. This wasn’t just in countries with advanced banking systems, either. Figures cited by the International Monetary Fund (IMF) show that in Rwanda, for instance, the number of people sending money digitally rose from 600,000 the week before the country’s spring lockdown, to 1.2 million one week after, and hit 1.8 million by the final week of April. Furthermore, in countries where digital banking is established and well-integrated, governments have been able to use it to deploy financial support to those in need. Groups of all sizes have the potential to build on this trend – from fintech startups to major banks and other global organisations. Citi Ventures, the venture capital arm of the US banking giant, is one such, and is focussed on building back better with its mission of ‘helping people, businesses and communities thrive in a world of technological, behavioural and societal change’. Its $200million Impact Fund was launched just as the threat of coronavirus became apparent in January 2020. One

of its five focus areas is financial capability, which starts with financial inclusion. And the first hurdle to achieving that is often customer identification. Citi Ventures had already invested in three fintechs in this field – Socure, BioCatch and Trulioo – before the Impact Fund was set up. “In order to participate in marketplaces, to be digitally enabled and to interact, people need an identity that can be verified,” says Citi Ventures’ managing director Matt Carbonara. “The pandemic, all of a sudden, put a much greater focus on the digital channel and non-physical transactions, starting with the ability to be onboarded in a non-physical way.” Of the three identity and verification tech companies Citi Ventures backed, New York’s Socure provides tools for onboarding customers, and harnesses artificial intelligence alongside analysis of data from email, phones, addresses, IP addresses, devices and the broader internet, to verify identities in real-time. BioCatch, based in Tel Aviv, works to weed out fraud both at the onboarding stage and when an account is running, to identify criminality or evidence of hacking. Then there is Trulioo – a Canadian firm that can verify the identities of people in 80 countries through its GlobalGateway platform, which examines the identification data used in each territory. Citi Ventures’ investment in Trulioo was made in September 2019, as part of a CAD$70million funding round, alongside Goldman Sachs, Santander, American Express, Blumberg Capital and BDC Capital

Trulioo’s mission is to reach the world’s unbanked and underbanked – which, it argues, is more than just a ‘goodwill effort’, since financial inclusion has the potential to boost the wealth of the individual and the companies serving them, and strengthen the societal and economic fabric of entire countries. Carbonara liked the Trulioo mission, but said the fintech was also selected because of its global reach and its potential to operationally improve Citi’s own services. “Digital customer onboarding was already a trend, but the current environment has accelerated it, and Trulioo is well-positioned to take advantage of that,” he says. “We liked the fact that the Trulioo team were very much thought leaders for their market, and they allow their customers to take advantage of all their data. They’re a network of networks, if you will. “They plug into 400 different data sources around the world, and allow their customers to apply whatever policy they want to those different data sources. That flexibility, that ability to customise all those data sources through one API, is really the strength of the Trulioo system. So that’s what really got us excited.”

GATEWAY TO CHANGE The task of improving financial inclusion is huge – the IMF estimates that 1.7 billion people globally have no access to a bank account, while billions more are classed as ‘underbanked’, able to use only the most basic services.

Inclusivethinking Launched at the start of 2020, Citi Ventures’ Impact Fund is already influencing the future shape of financial services, as it invests in companies that help people thrive in a world impacted by change on an unprecedented scale. Here, Citi Ventures MD Matt Carbonara explains how digital identity solutions are a crucial part of its mission 58

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If more of the world could be reached, benefits could cascade from it. Democratising finance has been shown to foster gender parity and increase gross domestic product, through small business loans, for example. And governments are becoming increasingly sold on fintech and digital banking as ways of delivering it, as a mobile phone is all many digital banking services require. That makes it easier and cheaper to reach un- or underbanked demographics such as poor, rural communities. Indeed, mobile numbers themselves are often a source of identification in emerging economies. According to a World Bank report last year, ‘adoption of electronic know your customer (eKYC) processes would play a critical role in facilitating access to banking and financial services by individuals and SMEs. Since identification documents are necessary to join the financial mainstream, there is an urgent need to capitalise on digital identity to eliminate barriers associated with accessing financial services, while adhering to anti-money laundering and countering financing for terrorism (AML/CFT) regulations’. However, while COVID-19 is a catalyst for new digital solutions like these, it poses a risk to fintech, too. Deals dried up and funding stalled last year, so sources of cash such as the Citi Impact Fund are crucial for continued development. The fund’s investment aims are focussed on tackling inequality and protecting the environment for future generations. Though much of the funding is handed to companies with existing customer bases

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that have secured prior rounds of cash backing, a portion has been allocated for early-stage seed investment in startups led and owned by women or minorities. As well as financial inclusion, focus areas are ‘workforce development’ such as boosting diversity and lifelong learning. The ‘sustainability’ strand will see investments into clean energy, recycling and responsible water use. Then there’s ‘physical and social infrastructure’, which will look at housing, healthcare and transport, and ‘access to capital and economic opportunity’, which aims to empower groups that currently lack representation. So far, 11 startups have benefitted. Relevant to the arena of finance is Perch, in Los Angeles, which provides a platform that helps unbanked and underbanked young adults manage credit responsibly, and Clerkie, in San Francisco, an automated platform built to help people repay debts. Both were founded by entrepreneurs from black communities, helping to level up representation in a predominantly white, male industry. Beyond the Impact Fund, Citi Ventures is currently invested in 61 companies – many of them fintechs. A team of 15 is responsible for assessing around 1,500 companies each year, and the selection of potential targets is often guided by Citi staff and clients. Carbonara says: “Sometimes it will be more opportunistic, where we’ll just hear [about a potential target company]. Other times it will be very thematic in nature – we’ll be focussed on a particular problem we’ve heard about from our colleagues inside of Citi, or from other large enterprises. “If that’s the case, we might seek to meet every company within the relevant space, and assess which we think is solving the problem in the best way, and has the right architecture, the most customer traction, and the best team. “We feel very privileged to have colleagues and contacts who can give us a nuanced view of a particular market.” When it came to investing in onboarding and know your customer technology,

Citi Ventures backed three businesses because it was aware that different use cases exist. “The fraud team at Citi is as good as any I’ve met, and they’re able to paint a very detailed picture of how various elements stack up, and why they’re differentiated in the marketplace,” says Carbonara. “Trulioo is really strong on know your customer and know your business. Socure is more of a consortium of data, plus an algorithm, and BioCatch is focussed on the ability to do always-on authentication.” You could say that notion of being ‘always on’ is part of Carbonara’s advice to fintech entrepreneurs who seek to build businesses with a long-term future – especially if they have an eye on attracting venture capital. “A leadership team must always be open to redefining – willing to take a step back and think about the business they’re in, in the broadest possible terms,” he says. “They need to do that on a regular basis, to understand the broadest, most strategic definition of their business over the next three-to-five years. Doing this will lead them to the biggest opportunity and the best solution. “And, if they’re trying to solve that financial inclusion problem, I don’t think it’ll be just about a narrow segment of one particular solution over time.” In fact, Trulioo has already widened its view of the market, and not just geographically. Having started as a provider to the financial services industry, it is now serving customers, including small businesses, in a wide variety of sectors, through its GobalGateway solution, which it promotes as a ‘network of networks’. “We want to see our companies be as successful as possible, and if a market leader serves financial services plus three, five, 10 other industries, that’s great for us, because we benefit from their diverse knowledge,” says Carbonara. “That incremental revenue drives incremental R&D, which drives a better product roadmap for Citi. So, we’re supportive of our companies being as broadly focussed as possible, and we want to partner with entrepreneurs to make them successful.”

A leadership team must always be open to redefining – willing to take a step back and think about the business they’re in, in the broadest possible terms

Issue 19 | TheFintechMagazine

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THE INVESTORS: KYC

Thenetworkeffect Goldman Sachs led Trulioo’s most recent funding round – but it brings more to the table than cash. As Managing Director of its Growth Equity business, Mark Midle says the bank can help advance the identify and verification specialist’s wider, global ambition The unprecedented expansion of online and ecommerce activity resulting from the COVID-19 pandemic, has placed identity verification provider Trulioo – fresh from a successful $70million capital injection – in a sweet spot in terms of its ambitious growth plans. As online traffic increases, firms large and small need the ability to check users are who they say they are – but without compromising their experience. A solution provider that can square that circle is in a winning position. A recent report by the Economist’s Intelligence Unit, Digital Disruption: Risks And Opportunities In The Shift To Online, estimates that online retail sales in the world’s 60 biggest economies surged by more than 30 per cent in 2020. And it anticipates further growth, suggesting that, by 2025, they could account for nearly 20 per cent of all retail transactions, up from 10 per cent in 2019… numbers beyond an emarketeer’s wildest dreams. Back in September 2019, when Goldman Sachs Growth Equity led Trulioo’s Series C fundraise, none of that, of course, could have been known. But, as Mark Midle, managing director at Goldman Sachs Growth Equity, who now occupies a seat on Trulioo’s board, explains, it was already clear that the company was acing the identity verification (IDV) market. “We’ve been following the shift to digital for several years and see identity verification as particularly critical, especially when companies don’t have face-to-face relationships with their customers,” he says. “Identity is a fundamental part of the digital experience, with regulatory and brand implications for platforms that fail to know their end users.” www.fintechf.com

“We were particularly impressed with the quality of Trulioo’s product – the most scalable and high-performing digital identity verification solution on the market – and the quality of its customers, which include hundreds of the world’s largest digital-first companies in financial services, payments, technology and commerce, who use Trulioo to support mission-critical operations across multiple geographies.” In addition to the $60million Series C raise, which was also backed by Citi, Santander and Amex, Trulioo attracted an additional $10million in unannounced follow-on funding from early investors, bringing total external investment since its creation in 2011, to $96.6million.

We’ve been following the shift to digital for several years, and see identity verification as particularly critical, especially when companies don’t have face-to-face relationships with their customers The fresh injection of capital helped to propel Trulioo into the top 100 fastestgrowing companies in its home country of Canada, as it continued its global expansion and further developed its proprietary GlobalGateway solution – a global marketplace for identity services and data sources with the potential to verify five billion individuals and 330 million businesses. The first trials of Trulioo’s EmbedID system, a low-code

international verification system aimed at online businesses for which ID verification services are critical but not a core competency, were also begun in 2019. These developments ensured that, when the world changed in March, 2020, the nimble fintech could adapt quickly to meet the needs of SMEs worldwide that found themselves suddenly having to implement digital solutions to meet the surge in consumer demand for ‘online everything’, while simultaneously remaining secure and delivering good customer experience. Trulioo responded by making its identity verification services available to these small businesses, offering them up to 100 free identity verification transactions a month. Explaining the rationale behind the decision, Trulioo’s COO, Zac Cohen, said: “The vast majority of small businesses simply don’t have the systems or financial reserves to respond to such immense disruption… [We] helped them mitigate their risk, build trust with customers and protect and grow their revenues in the most testing circumstances imaginable.” Indeed, a TransUnion survey, early in the pandemic, estimated that 22 per cent of retailers worldwide had been the target of COVID-19-related fraud. “We’ve seen ecommerce’s share of total retail nearly double in this environment, which is meaningful because ecommerce businesses don’t have face-to-face relationships with their customers, and verifying their customer identities is critical to protect their reputations and reduce fraud,” says Midle. Issue 19 | TheFintechMagazine

THE INVESTORS: KYC Meanwhile, financial services were also managing the challenge of keeping pace with unprecedented change, against a backdrop of tighter regulation. “Within financial institutions, COVID has accelerated the shift towards digital solutions and non-traditional banks,” says Midle, “and identity verification is a necessity to facilitate that shift in a secure, safe, and compliant manner.” It is the proportionate, risk-based, secure response that Trulioo offers them and, more recently, non-regulated businesses including retail, marketplaces and community platforms, that made it an obvious investment target. And it’s rewarded that faith – expanding to serve organisations of all sizes and sectors, including, most recently, in Pakistan, Slovakia, the Czech Republic, Nigeria and Ghana, extending its reach to 195 countries.

including Brazil, Canada, Chile, China, India, South Africa, the UK and the US, to understand how the trend towards digital is impacting their businesses. Its findings were published in New Dimensions of Change: Building Trust In A Digital Consumer Landscape, which showed that COVID-related changes to digital transaction processes had resulted in two-thirds of participants experiencing glitches that increased the fraud risk. Eighty-five per cent of respondents believed smooth and secure transactions were now ‘essential to survival’.

A GLOBAL REACH Presenting itself as a one-stop shop for secure customer onboarding and authentication, Trulioo provides everything from initial user experience strategy and design, to implementation through proprietary plug-and-play solutions, and analytics. Businesses can select from ready-to-go modular options to suit their regulatory status, growth stage, target demographic and, importantly, ensure compliance wherever they (or their customers) are in the world. It does this by connecting to trusted identity networks, allowing it to validate against more than 400 data sources while ensuring the client organisation remains compliant with local regulation, such as Europe’s revised Payment Services Directive (PSD2) and General Data Protection Regulation (GDPR). “Trulioo has the broadest global network, with relationships with about 500 data sources in close to 200 countries,” says Midle. “That’s significantly greater coverage than any other provider and, as a result, Trulioo’s match rates are significantly higher, and its customers get more value from its solution.” Its mission and ambition have only been sharpened as a result of COVID-19 acting as an accelerant of fraud. The Economist Intelligence Unit also took the opportunity to survey 1,610 executives responsible for growing digital commerce, customer protection and customer experience, across 12 economies,

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Digital network: Trulioo’s vision is for it to extend across the world – and to everyone

are more than a billion people who don’t even possess traditional paper ID, such as birth certificates or passports – a major barrier to economic freedom that the United Nations has pledged to lift by 2030. “There may be a day when people have a truly digital identity, that can be validated by governments, and Trulioo is well-positioned for that,” says Midle. “Trulioo’s vision is, ultimately, to power a digital identity system. They have a network today, in GlobalGateway, but the real network effect of Trulioo will be when individuals can control their digital identity, and its usage, to validate and verify their own identity, in whatever situation.” Midle, who occupies a seat on Trulioo’s board, sees the bank helping founder and chairman Stephen Ufford realise that vision. “We work closely with Stephen and with Trulioo’s CEO, Steve Munford, integrating Trulioo with the expertise, relationships and network within the Goldman Sachs ecosystem,” says Midle. “Goldman Sachs brings a lot that is unique and complementary to other Trulioo investors. For example, we have relationships with the C-suites of nearly every company that Trulioo might want to do business with, and we have local market experts in virtually every geography Trulioo may want to expand into.” The investor-directors have also been active in recruiting an executive team that can deliver on those opportunities for the regtech. In a blog from December 2020, Trulioo expands on its vision of a planet-wide identity verification solution as one populated by ‘digital information that is configurable, translatable, adaptable and computable’ so that systems can communicate with each other automatically to determine verification and authentication that allows individuals to participate in services and opportunities previously denied them. It continued: “An identity network is a marketplace of hundreds of data sources, verification processes and tools that work together to identify who a person is… together, [they] have the potential to create a global web of verification – what the World Economic Forum might call a truly transformational digital identity system.”

The real network effect of Trulioo will be when individuals can control their digital identity and usage

The report looked to national digital ID initiatives – administered by governments and using biometric data for authentication – as one potential solution. “There are an estimated 70 countries with some form of national digital ID in place. Our survey found broad support for national digital IDs, with 71 per cent of executives believing consumers are comfortable sharing data with governments… and private companies,” the Unit said. “The vast majority of respondents think national digital IDs will help fraud prevention in consumer transactions... [and] open untapped areas of economic opportunity, with 70 per cent believing they give lower-income customers access to more services.” Among those lower-income customers

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COMMENTARY: TIMESTAMPING

short historyof financial time Regulators require timestamping of trading data. But how do we know it’s accurate? We asked three experienced clock watchers – Cisco’s James Beeken, Leon Lobo at NPL and Txtsmarter’s Hugh Cumberland Time might be a human construct – a convenient way for our brains to create a framework for our lives – and Einstein might have planted the notion that it’s entirely relative. But when it comes to financial services, being able to track it accurately, down to a quadrillionth of a second, is both a regulatory requirement, and, in parts of the industry, a distinct competitive advantage. James Beeken, product specialist for the ultra-low-latency product range at Cisco, which provides the physical network architecture to facilitate trading through the world’s exchanges, explains: “You have two things going on in the market. One is the regulatory obligation to ensure the market operates fairly, by the rules. It achieves that by obliging all trading entities to have the ability to reference back to a universal clock source and time-stamp activity to a defined degree of accuracy. That data has to be stored for some considerable while. If a market event occurs that requires investigation – a flash crash, for example – the regulator can go to all the parties that were in and around that incident, access their information and recreate the scenario to understand exactly what happened. “But trading organisations – our client base, including banks and high-frequency traders (HFTs) – that are looking to eke more margin out of market opportunity, also need to understand how their server infrastructure, strategy, and therefore their overall business, is performing. To do that, they need to monitor and analyse their www.fintechf.com

network down to a picosecond level of detail. In recent years, the network has progressed from a millisecond to microsecond, nanosecond, and now picosecond realm of analytical requirement. Not only do we need to know exactly how our current live networks are performing, we also need to be able to understand the exact impact of change, of new bits of hardware, firmware and strategy.” Being able to time-stamp a data exchange, with counterparties maybe many thousands of miles apart – indeed, in different time zones – pre-supposes both have accurate clocks with which to record it. That’s where the UK’s National Physical Laboratory (NPL) and similar guardians of the international timescale (also known as the Co-ordinated Universal Time standard, or UTC) , come in. The NPL is the keeper of UK time – arbiter of the country’s definitive second since UTC replaced Greenwich Mean Time (GMT) as the international standard of civil time in 1972. The NPL uses caesium fountain atomic clocks and primary frequency standard apparatus to realise the internationally accepted scientific definition of a second. “Currently, the caesium fountains are accurate and stable at one part in 10 to the 16 level, so the 16th decimal place,” says Leon Lobo, head of the National Timing Centre at the NPL. “But we are developing the next generation of clocks, which are accurate and stable at one part in 18, the 18th decimal place. That’s vital to develop

commercial devices at picosecond or femtosecond [quadrillionth of a second] level.” He's acutely aware how the world’s financial system relies on keeping that UK second ticking in synchronicity with those of other UTC labs. “MiFID II, RTS-25 talks about time-stamp traceability for all reportable events to UTC, which is formulated by data submitted monthly by all UTC labs around the world,” explains Lobo. “UTC NPL is the UK’s national timescale, and UTC USNO is the US Naval Observatory, which feeds the GPS constellation for time and positioning. All of these national labs are delivering the time, whether directly over the internet, over RF broadcast, or via GNSS constellations, like GALILEO, GPS, GLONASS and BEIDOU. It’s not about how an organisation receives it, though – GPS receivables or direct feeds from a national lab – but about being able to demonstrate traceability of the time-stamp for regulatory compliance. It is incredibly important to consider the entire chain, back to source. And without a common source, it’s incredibly difficult for regulators to unpick who did what when. “If you have an infrastructure in one datacentre, and an infrastructure in another datacentre, and you’re time-stamping all this activity, those time-stamps have to be relevant to each other,” he continues. “Organisations go to GPS signals, or direct feeds from organisations like NPL, to look at the whole business performance, across the estate, globally, and understand exactly what that performance is.” Issue 19 | TheFintechMagazine

COMMENTARY: TIME-STAMPING “It’s also important to know if you are getting the signal you should be, at the right time. That’s where calibration and monitoring come in,” adds Lobo. Accurate internal infrastructures, right through to the time-stamping engine are what Cisco and other providers in this sphere, like Txtmaster, strive for every day because, as Lobo points out, without it ‘you can lose all your traceability. Then your uncertainty balloons. You could be telling it to time-stamp a few milliseconds later, and, given the regulatory requirement for high frequency trading, which is 100 microseconds, you’re not compliant.” Not compliant and, potentially, out of business, says Hugh Cumberland, director for the UK and EMEA at Txtsmarter, an enterprise mobile-communications compliance management service. It addresses the requirement for companies to put in place uninterrupted retention of iMessage, Android, WhatsApp, SMS, MMS and social media communications. “I know of one HFT that, during night trading, used an incorrect algorithm for 45 minutes, and that bankrupted it. So, there is a lot at stake. “In capital markets and financial services, it’s all about risk and how much you could lose if you are working off an incorrect timescale,” says Cumberland. “But, more than that, if the regulator calls on you, and says ‘show me your records’ and you produce a set that are time-stamped incorrectly, that could look like you were indulging in market abuse, or in insider trading. Failing to follow the regulations is sufficient to get a fine – and fines are running into billions of dollars annually. It’s also the reputational risk. You don’t want to be known as the firm that can’t keep its records in order to the standard required.” At Cisco, which works across industries, Beeken says it’s financial services that are driving the strongest demand. “Not only have you got one eye on the obligation you have to the regulator, you’ve also got to have a very acute eye on whether your whole infrastructure is performing to its optimum,” he says. “These firms are writing algorithms that trade electronically to the market, and running those algorithms through a whole network architecture designed to allow them to take in a price, analyse and understand that price, make a decision and issue an instruction back to the market to

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execute it,” he says. “Now, if something goes wrong in that whole process, and you’re not hitting the price your business strategy or algorithm intends, you’re not making the most of the opportunity on the market. If you’re in that situation, you need to be able to look at your entire trading environment, end-to-end, to try and very quickly understand where the problem is. Is it in the network? Is it in the switch? Is it in the algorithm? Or is the actual strategy at fault, itself? The only way you can do that is if you’ve got highly-accurate, detailed analytical information about how each part of your network is performing. If you have a problem, you will go immediately back to that analytical data, to understand what’s going on.” Time waits for no man: But physics is helping traders tell it as accurately as possible

Cumberland agrees that ‘you need to design an infrastructure that will allow you to measure at that picosecond level of granularity and then monitor it with the appropriate devices and software’. But no matter how hard Lobo and his timekeeping colleagues work to shave another fraction of a second off the most accurate atomic clock, Cumberland is sceptical whether organisations will be able to take advantage of it. “One of the biggest issues is the method of dissemination,” he says. “In the labs, we’re looking not just at caesium fountains, but also the strontium lattice and ytterbium traps, which give two more magnitudes of accuracy than firms are currently able to achieve. The state-of-the-art for dissemination is getting to the most accurate I think we will ever be able to work with. Even using dark fibre, there will be some loss and inaccuracy, and this means there’s a point at

which, however accurate the clocks have become, you can’t take advantage of that.” Lobo stresses that latency – the limitation of physical infrastructure to transmit in real time, albeit a differential of picoseconds – should not be confused with time-stamping. “The element of time not only applies to the regulatory piece around knowing what happened and when, relative to what we know as the global timescale, but also making sure the operational capability is working optimally. That’s where the whole piece around minimising latency, the race to zero, comes in and whether at a network or a system, or even operating system, level that latency will hit a physical limit.” The issue of synchronisation is becoming ever-more pertinent, says Lobo – not just for internal trading mechanisms but in other areas of life that clients are connected to and have money invested in. “When you look at phase synchronisation of the energy grid, or synchronisation of telecom and broadcast networks, timing is critical, and will become more so as we move to 5G, 6G and beyond,” says Lobo. “Whether smart cities, autonomous vehicle infrastructures, wide-area Internet of Things, or sensor networks, it is becoming incredibly important to not just have timing at the required level, but to ensure resilience – and that‘s to do with understanding the metrics around availability, integrity, continuity and security, in order to operate infrastructure. “There’s huge benefit to be gained from having the right time, at a level you never had it before,” he adds, “to achieve commercial gains like better data products, risk analytics, forensics and measurements as well as system implementations. After the picosecond, you need to be able to measure and develop systems that are typically orders of magnitude better than that." Back in 1884, passengers at York Station in northern England were just grateful they could rely on trains running to the newly-adopted national Greenwich Mean Time. Otherwise they’d have had to account for the fact that clocks in York were four minutes, 20 seconds slower than in London. The advent of a railway network made it a matter of urgency for everyone in the country to use the same time – for safety as much as convenience. Almost 140 years on (if you accept that time is linear) and the loss or gain of a quadrillionth of a second can have an equally big impact on the capital markets. What a difference ‘time’ makes, eh? www.fintechf.com

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REGTECH: OPEN FINANCE

The Open banking was the spark, but how close it is to igniting open finance? Sam Seaton, CEO of Moneyhub, and Jason O’Shaughnessy, Head of International Sales at Envestnet|Yodlee, share their views

Better access to financial services is one of the key benefits of digital transformation. And not just access to basic banking services, but also to a wide range of other products and services that will put consumers and businesses in charge of their finances. First came open banking, mandated in Europe by the revised Payment Services Directive (PSD2) and adopted in 2018, which was seen as a blueprint for open banking frameworks across the world. Now, we’re seeing the emergence of open finance. But it doesn’t end there, according to Sam Seaton, CEO of Moneyhub, the platform that she describes as enhancing ‘the lifetime financial wellness of people, their communities and their businesses’. “To me, open banking is the first step, open finance is the next step, and open data is the third step,” she says. “I call it 1D, 2D, and 3D. Open banking is covered by PSD2 payments legislation, which means all payment accounts must be available to share. My current account, and my credit card are both payment accounts and can be shared with an account information

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service provider (AISP) or a payment initiation service provider (PISP). “Open finance takes it a stage further, whereby you can also bring in investments such as your pensions or your ISA. It could also cover your property, or maybe your rental properties. It embraces other financial areas and assets so you can consolidate the information, thus giving you a holistic picture of your money.” Open data integrates every aspect of an individual’s life, all of which, at some point, inevitably interact with finance; although this last is fraught with ethical bear traps and legal impediments. Before the UK left the European Union, the EU Commission announced that it would look at legislation to create a new open finance framework by the middle of 2022. Meanwhile, the UK’s Financial Conduct Authority (FCA) is collating responses to a ‘call for input’ on the opportunities presented by open finance, which it said could make it ‘easier for consumers and businesses to compare price and product features and switch product or provider’, and thus could be ‘beneficial in the general insurance, cash savings and mortgage markets’.

Envestnet | Yodlee, the data aggregation and data analytics platform, has, in effect, been providing data to allow money management platforms like Moneyhub to do much of that for years – but it could be made so much better and easier, says Jason O’Shaughnessy, Head of International Sales at Envestnet | Yodlee. “Open banking gives Moneyhub permitted access to consumers’ payment accounts, but then it also has connections to third parties like Yodlee, which gives it access to other accounts that a consumer might hold, so their investments, mortgages, loans and pensions are all accessible,” he explains. “There are many potential applications that are limited by the scope of open banking. We hope open finance is adopted and made available quickly so we can all start doing things through application programming interfaces (APIs). Wealth management, budgeting, personal financial management: these are the kinds of solution that open finance can promote.” www.fintechf.com

In the meantime, Envestnet | Yodlee relies on the tried and tested technique of secure data capture, also known as screen scraping – on which the FCA has a somewhat ambiguous opinion. Secure data capture is, strictly speaking, only a fallback option for data gathering that was permitted to continue under technical regulations related to PSD2. But since banning the practice would have eroded rather than promoted consumer freedoms, it is still a primary means of data aggregation, so long as the organisation accessing the information

There are many potential applications that are limited by the scope of open banking. We hope open finance is adopted and made available quickly so we can all start doing things through APIs Jason O’Shaughnessy, Envestnet | Yodlee

identifies itself to the account holding organisation – for instance, for their mortgage, loan, investment account. “So secure data capture, from reputable and responsible organisations, such as Envestnet | Yodlee, meets a need,” says O’Shaughnessy. It’s a pragmatic but imperfect solution until such time as APIs are universal. “At one time we were reliant on secure www.fintechf.com

data access to provide a holistic picture of finances, but things are changing,” adds Seaton. “We’re a big advocate of APIs, because we love their tokenised access and reliability, and they’re great for sharing data with consumers’ consent. People are used to having a consolidated view of their finances, and are accustomed to secure data capture.” Moneyhub operates a ‘data access triage’ system to find the best source of data when a customer’s account is connected, starting with direct open banking APIs, followed by bespoke APIs and finally, if necessary, establishing an indirect connection through an

outsourced provider who can provide secure data capture. So, we’re definitely not at ‘the Netflix moment’, yet, then – a transformational change to the way we consumer and interact with a service. According to Seaton, in the innovation timeline, financial services have ‘only just invented electricity’ – and we can’t even yet fully imagine the possibilities that open finance and, ultimately, open data could create. “In the early 1900s, we were still using candles and were only just beginning to turn a light switch on. No one was thinking about toasters and kettles. It took time,” she says. “That’s why I get a bit frustrated when some people say open banking hasn’t had much impact. It’s like saying, when you turned electricity on for the first time, everything should have changed for the better in an instant. “If you think about some of the legacy systems, we’re not going to transition overnight. But once it’s happened, we’ll never understand how we did things the old way. We’re just on the cusp of some amazing transformations.”

I get frustrated when people say open banking hasn’t had much impact. We’re not going to transition overnight. But once it’s happened, we’ll never understand how we did things the old way Samantha Seaton, Moneyhub

O’Shaughnessy agrees that ‘the open movement will absolutely bring us forward by 20 years’. “But we have to endure some growing pains,” he adds. “If you look at PSD2, and specifically the open banking component, it was about giving consumers access to data and creating innovation. That innovation is coming. But there are many fintechs that can’t innovate quickly because of regulations. It takes time to feel the electricity of change.” The Netflix moment will be achieved when the automation of money management, ‘when every penny I earn works harder, goes farther, without me doing anything’, as Seaton describes it, is reached. And Moneyhub’s suite of personal financial management (PFM) tools aspires to it every day. Consumers are one side of the equation, but what will it mean for institutions on the other? Moneyhub Enterprise, the open finance and payments platform for business that is supported by machine learning-powered analytics, brings Seaton into contact with organisations large and small. Issue 19 | TheFintechMagazine

REGTECH: OPEN FINANCE “There are companies that have already had access to this level of data – the credit bureaus, the likes of Visa and Mastercard and the banks. They’ve been in this privileged position because they need this data for various reasons, but now the way they’re allowed to access it has changed because of the General Data Protection Regulation (GDPR) and open banking legislation – it’s all about consumer consent. So these businesses have had to get their heads around a completely different way of dealing with data. “Then you have all the other companies who’ve never had access to this data, and now

Universal access: Could APIs be the internal combusion engine of open finance?

can with customers’ consent to do fantastic value exchange products and services. “It’s the electricity moment again. How long, for instance, before mortgages are put up for auction? After all, do you really care who provides your mortgage? You just want the best deal. When every company in the world can access data, with the customer’s consent, we’ll see big changes like this.” Many of Moneyhub’s partners are already nudging towards it. “Aon is both a pension provider and a benefits platform, and it’s brilliant at highlighting the most pertinent benefits for me,” says Seaton. “You link up one of your main spending accounts, and it pulls through 12 months’ transactions, and then you’re told which are your top 10 benefits, and how much you could’ve saved if you made use of those benefits. Amazing. It’s all about servicing me in a way that I want.

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That means what I need, when I need it, whether it’s a financial services product or anything from the wider retail marketplace.” But it would be limiting to think that the benefits only accrue in retail finance sector and that the only sector to profit from it are challengers in the financial services space. O’Shaughnessy has noticed a growing demand from large financial institutions themselves to aggregate corporate account data for the benefit of commercial clients. “Corporate account data has always been difficult to access, and now they can have visibility of everything across their global operations. It makes sense to plug directly

US is lagging behind. Brazil may march ahead, because it is embracing open banking. I see the global marketplace becoming incredibly competitive.” O’Shaughnessy sees as much room for cooperation as there is for competition, though – something he’s helping to promote through the Financial Data and Technology Association (FDATA), a not-for-profit global association for financial services companies operating in open banking and open finance. “FDATA is bringing countries and regulators together, focussing on the best way to open up data from large institutions, and make it available to other institutions and customers,” he explains. “Worldwide, we are starting to see open banking adopted as a way forward, and people are saying ‘let’s do this in a version two, or a version three. Let’s make sure we offer all of the account types.’ We see it in the US where Envestnet | Yodlee is connecting to more and more banks via direct data feeds. It’s a slightly different model, market led by individual companies rather than mandated, but it is absolutely going in that direction. And that should be a prompt for Europe.“ Consumers don’t necessarily need to understand the mechanics behind this – they should just feel the benefits and, crucially, have faith in the system and providers that deliver into open banking them, he says. APIs,” he says. “Consumers will Because regulations mainly be none the play a role in how quickly wiser about what’s things change, with driving a change,” different rules applying agrees Seaton, “but in different countries, they’ll be quick to transformation will not, embrace it when they inter alia, be uniform feel the benefits. As across the world. Seaton Henry Ford is often has her own thoughts on quoted as saying ‘if Samantha Seaton, Moneyhub what that will mean for I had asked people fintech clusters and which what they wanted, they countries are perceived as being the most would have said faster horses’. market friendly for innovators. Australia, for “I once saw a photo of 5th Avenue in instance, has adopted an open banking New York City, dated 1900. You can spot one framework, which is already much closer to car among a sea of horses and carriages. open finance. Alongside it was another photo of the same “The UK is desperate to stay at the street 13 years later. It’s congested with cars forefront of what it has driven through several lines deep, and if you look very hard, the EU,” says Seaton. “Because Australia is you’ll see a solitary horse, lost in the middle nosing ahead, that will be a challenge. The of the traffic. That’s the power of progress.”

Consumers will be none the wiser about what’s driving change, but they’ll be quick to embrace it when they feel the benefit. As Henry Ford said ‘if I had asked people what they wanted, they’d have said faster horses’

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REGTECH Know your enemy: The TIBER-EU framework uses ethical teams of hackers to run threat scenarios

The military strategist Sun Tzu famously said ‘if you know the enemy and know yourself, you need not fear the result of 100 battles’. It’s the premise on which the TIBER-EU framework for dealing with cyberthreats might be said to be based, as AIB’s Howard Shortt and Nettitude’s Anthony Long explain Avoiding cyberattacks is always a game of cat-and-mouse, as financial organisations strive to outrun increasingly sophisticated online criminals. However, like many things, the issue has been thrown into sharp relief by the COVID-19 pandemic, with hacking attacks rising alongside an explosion of ecommerce and a switch to homeworking. The UK Government’s Cybersecurity Breaches Survey 2020 found that 46 per cent of businesses experienced cybersecurity breaches or attacks during the year. IBM’s X-Force Threat Intelligence Index 2020 observed that, in the previous year, more than 8.5 billion records were compromised worldwide, a 200 per cent annual rise in reported data exposures. So, there is little doubt that a new approach is needed to help firms cope with this threat to their reputations and bottom lines. Howard Shortt, who is responsible for threat and vulnerability management at Allied Irish Bank (AIB), says that while new personal and work

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habits have impacted cybersecurity defence dynamics, in truth, financial organisations’ perimeter defences were already wearing thin. “There is an expectation that financial services defence is strong, but traditionally that relies on perimeter controls and we’ve seen that dissolve in favour of mobile devices. Your perimeter is now everywhere you have an employee, and protecting it is much harder,” he says. Enter the new TIBER-EU (Threat Intelligence-based Ethical Red Teaming) framework, jointly developed by the European Central Bank and EU national central banks, and launched in May 2018, which offers extra protection against not just the risk of cyberfraud itself, but also the impact of attacks that do get through. TIBER mimics real-world threats and measures organisations’ resilience to them, as well as improving defences. Recognising that the skills of today’s cybercriminals mean attacks will inevitably happen, its focus is on making sure firms’ tactics, procedures and

standards are in place to enable them to react quickly and minimise the impact. Shortt, who gained direct experience from the implementation of Ireland’s own version of TIBER – TIBER-IE – in December 2019, adds: “Organisations and regulators needed to know how resilient they would be to these kinds of attacks.” TIBER testing sees multiple teams work through attack cycles. Red team testers are hired from outside for independence. Blue teams are, as Shortt explains, ‘all your responders inside the network, who can defend you’. Blue teams need to be surprised by what occurs, and take effective actions’. The white teams, meanwhile, are everyone who’s aware that an attack simulation is occurring. The fact that organisations’ attack surfaces are continually growing, due to increasing demand for online services and mobile applications and shifts towards remote working, makes TIBER even more vital as new complexities and challenges are introduced, says Shortt. “The last place any bank wants to be is www.fintechf.com

front and centre in the papers as the result of a breach. By conducting these tests, organisations can protect their market share.” Shortt believes an holistic approach is vital. “Awareness is key, making sure that people know which activities can land them in trouble – like clicking on malicious links and phishing,” says Shortt. “TIBER tests come at organisations any way they can. While institutions may currently take steps to discover vulnerabilities, to maintain compliance, they do so on a siloed basis; rating vulnerabilities and non-compliance on criticality. TIBER testing combines these into a single attack chain, to try to disrupt a business. Being able to withstand the impact of this improves education and awareness, growing the organisation’s defence capabilities.”

BOARD-LEVEL AWARENESS Cybersecurity services provider Nettitude helps financial services firms adopt this new approach. Managing principal security consultant Anthony Long believes TIBER is so important, it will soon become compulsory. “Supervisors are increasingly using TIBER to enhance the resilience of financial services and other financial market infrastructures in Europe, and it is gaining traction, with such testing becoming ever-more frequent,” he says. And TIBER has helped push fraud prevention up organisational hierarchies. “Typically, testing only lands in security function’s ‘in tray’, but frameworks like TIBER have put it on the board radar,” continues Long. They need to demonstrate how they take the lessons learned and ensure operational resilience strategies are commensurate with the threat profile. “TIBER gives assurance to executives, the board and regulators so that, while they will suffer attacks, and won’t be able to cover everything, they can continue their journey in developing capabilities to respond to the ever-evolving threat landscape. It’s important to get on top of this. Firms can undertake their own tests, conducted by certified testers.” Like anything worthwhile, though, delivering this is not necessarily easy. “It requires a large amount of preparation and planning, even if you’re well-versed in security best practices,” adds Long. www.fintechf.com

The three-phase process for the TIBER framework test begins with a preparation phase, including engagement, scoping, procurement, and creating the teams responsible for managing it. The second phase is the testing. “This consists of threat intelligence and red-teaming activities,” explains Long. “The provider prepares a report, setting out the attack scenarios for the test, and including useful information on the organisation. The red team uses this to develop its attack approach and attempts to breach specified, critical live production systems, people and processes that underpin the organisation’s vital functions.” The final, closure phase involves remediation planning and results sharing, based on red team observations, and advice on potential improvements to technical controls, policies and procedures, as well as education and awareness. The organisation can then develop a remediation plan in consultation with the supervisor and/or regulator. However, Long stresses TIBER is not a silver bullet.

Operational resilience is top of the agenda and regulators are becoming less tolerant of organisations not meeting expectations Anthony Long, Nettitude

“A threat actor with the right level of motivation and tools will succeed. They’re always one step ahead of us,” he says. “We’re only as informed as the last test.” Nettitude aims to help firms get on with their day-to-day business while it takes care of their threat readiness with a mixture of technical support, specialist detection and response management. Organisations must shift from seeing cybersecurity as resistance, to focus on limitation and recovery, says Long. “We need to remember the finance sector relies on trust and credibility, and the risk of cyberattacks threatens that premise daily. “Financial institutions have always been an attractive target, as holders of financial

assets and sensitive information,” he says. “Their traditional cybersecurity methods need to move to deploying capabilities that will limit the extent of any attacks, and enable the organisation to continue functioning at an agreed level, and then be able to recover. “This is where TIBER tests come into their own, testing critical live services, based on specific real-life attack scenarios, to measure how well people, processes, technologies and physical security controls can withstand a real-life adversary – something traditional penetration testing is not designed to do.” TIBER’s wider scope for penetration testing encourages that, but it is one piece of a still-incomplete puzzle. Longer term, mandatory reporting requirements will likely be introduced, potentially including a market-wide ‘command centre’ to universally respond to a cyber event, mapped out and implemented by cybersecurity professionals who are used to dealing with such issues, rather than individual companies’ IT staff. Another benefit of TIBER-EU’s common framework is the fact that it supports organisations operating across member states, providing a common standard that makes regulatory reporting much easier across jurisdictions, according to Shortt. “That gives us a level of cooperation and next-generation intelligence sharing, across platforms and the industry,” he says. Proactivity and education are key. “TIBER tests show the level of good work organisations should do proactively within their own security programmes, so that they are not waiting for the regulator to come knocking on the door,” says Long. “TIBER and other testing frameworks are changing organisations’ level of interaction with regulators and that’s a good thing, because it allows open, meaningful dialogue and clarity around expectations. “Framework changes exist to ensure a safe and secure financial system. Operational resilience is top of the agenda and regulators are becoming less tolerant of organisations not meeting expectations. Frameworks like TIBER enable firms to prepare for a greater range of operational scenarios, including issues arising from third parties they outsource systems and processes to.” And that’s got to be good for everyone… unless, of course, you’re a cybercriminal. Issue 19 | TheFintechMagazine

COMMENTARY: PHYGITAL Bricks and clicks: A physical presence can drive online engagement, says Metro Bank

The

haloeffect Ian Walters is MD of Distribution at Metro Bank, the first new bank on the UK high street in 100 years and it’s committed to staying there. Matthew Williamson, VP of global financial services with Mobiquity, is focussed on helping banks be their best digital selves. We brought them together to ask, post-pandemic, is there room for both? We’re used to hearing that banking’s digital transformation has been hastened by COVID-19, but there’s no denying that on otherwise shuttered high streets, socially distanced queues outside bank branches stubbornly persist. Some say that the pandemic will prove the death knell for the physical branch;

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others argue that customers’ needs are more nuanced. Either way, the Financial Conduct Authority urged UK banks, such as Co-Op, which announced in August that it would lose a quarter of its estate, to reconsider closures during lockdown in order to adequately support customers. Its call reflected Metro Bank research from August, which highlighted public concern that the remaining 6,000 branches in the UK bank estate were rapidly disappearing. “Some 44 per cent of people have been impacted by bank closures or reduced opening times during the pandemic; with 48 per cent also worried that banks will continue on reduced hours or even close altogether,” says Metro Bank’s managing director of distribution, Ian Walters. In the battle between bricks and clicks, this bank is determined to straddle both, citing the ‘halo effect’ it sees created by having, simultaneously, a strong physical and a strong digital presence. Metro Bank is perhaps best known for becoming the first new bank on the UK high street for more than 100 years when it opened in Holborn, London, in 2010. As its incumbent rivals started to withdraw

from the high street and move services online, Metro committed to an ambitious store opening programme alongside investment in digital channels. There are now 77 stores, two opened during the pandemic, with a commitment to launch another 15 by 2025. “Our philosophy is that the customer should choose how they do their banking,” says Walters. “So, we aim to give a great service across all our channels – physical, the app, mobile, and telephone.” Mobiquity, which positions itself as a full-service digital transformation enabler, has successfully worked with banks around the world to ensure the branch fits into just such an omnichannel strategy. “A successful branch strategy will leverage technological innovations with a human-centric approach to solving frictions with accessibility, processing time, and the bottleneck associated with current branch banking,” says Matthew Williamson, VP of global financial services at Mobiquity. “It should be able to transfer a transactional relationship to a personal relationship, as well as addressing the scalability challenges with the support of digital innovations." www.fintechf.com

At the Bank of the Philippine Islands (BPI) Mobiquity did just that by integrating many branch-based features into a new digital banking platform, BPI Online. Now, customers can use BPI Online to book branch appointments, reorder cheque books and schedule financial transactions. But the direction of travel in banking is clear, says Williamson. He points to research by personal finance website Finder, indicating that nearly a quarter (23 per cent) of consumers in the UK opened an account with a digital-only bank last year. It suggested more than 1.4 million Brits could stop using branches altogether as a result of new patterns of digital behaviour established during the pandemic. “The convenience and ease of digital banking may mean that many people who used digital banking solutions for the first time during the pandemic, will not go back to visiting their bank branches as frequently,” says Williamson. Instead, the branch will come to them. “We can visualise the emergence of a completely different branch model. Digital has the potential to dissolve venue-based limitations, enabling banks to access their customers and provide a quality customer experience in a café, on a train, at home – anywhere. Customers can, in effect, take the branch with them,” says Williamson.

If we open a store, our digital account opening typically doubles. So we know the presence of a store is an important factor in the decision to become a customer

Ian Walters, Metro Bank

And he suggests banks could incentivise their customers to adapt this new reality. “For example, you could go into a Starbucks and order a coffee. While you’re waiting, you could check your bank balance via an app and get a notification from your bank that they would like to speak to you. With access to your bank account, they know you’re in Starbucks and they offer to pay for your coffee as an incentive. “With mobile banking apps, many consumers are already checking their bank accounts when they’re out so we www.fintechf.com

aren’t that far from expanding this capability further. The bank of the future will be service-based, rather than venue or channel-based.” Despite COVID-19 disrupting normality, Walters would argue that ‘customer needs haven’t actually changed that much’. “We did some independent research in August that revealed 51 per cent of people like to speak to someone face to face. When you look at the over-55s, that increases to 61 per cent,” he says. “So there’s a big chunk of the population that needs that personal interaction.” Rival banks, however, have been cutting their branch network for years and were planning to downsize further as the crisis hit – 400 had closed in 2019. But with high street real estate values collapsing, a dearth of businesses willing to take on a lease, and the massive shift away from central office space, suddenly those branches are seen not as an albatross around banks’ necks, but perhaps a solution to a new problem. In August last year, Metro Bank’s CEO Dan Frumkin, was quoted by the Financial Times as saying that, in the long term, spreading employees across branches would help cut operating costs, reduce the organisation’s carbon footprint and make it easier for branch staff to move to jobs that would previously have been based at head office. Virgin Bank and Lloyds Banking Group are said to be similarly adapting branches to suit just such a ‘hub and spoke model’ to support flexible, more socially-distanced working than could be achieved in large, centralised administrations. Williamson acknowledges there is still a place for a ‘hybrid version of banking’ – where the digital meets physical. But not delivered through a traditional branch. “As digital banking solutions become more popular, there will be a greater premium for the traditional banking experience,” he suggests. “We could expect to see a community financial services hub, which will be a collaborative project between banks where they occupy the same retail space. Customers will be greeted by a digital assistant to assess who you are, what bank you’re with, and if they can service you. Instead of eliminating the branch entirely, the financial services hub could help banks retain this USP to carve out new revenue opportunities while still provisioning for customers who require

face-to-face banking, such as older and vulnerable people.” Metro Bank believes banks do indeed ‘have a responsibility to support local communities as well as the local high street', says Walters. Its seven-day-a-week opening times and in-branch community facilities are all predicated on that belief. And what’s interesting is it appears to chime well with digital customers, too. “The presence of a store in a town enables stronger growth in digital channels,” says Walters. “We’ve observed that if we open a store we see a ‘digital halo’ effect – our digital account opening typically doubles as well as customers continuing to open accounts in store. So we know that the presence of a store is an important factor in the decision to become a Metro Bank customer.”

Digital has the potential to dissolve venue-based limitations… customers can, in effect, take the branch with them Matthew Williamson, Mobiquity

The bank’s customer satisfaction ratings seem to bear that out. A 2020 Ipsos Mori poll carried out for the Competition and Markets Authority showed that 84 per cent of Metro Bank customers – the highest of any bank – would recommend its branch service and it was also the only bank with its own branch network to appear in the survey’s ranking for best online and digital banking, with 85 per cent of digital customers saying they’d recommend it. So, what of the future? “What is undeniable is that, in response to changing market conditions and consumer behaviour, banks across the globe are adapting their branch strategies,” says Williamson. “In particular, they are looking at their market segmentation to determine the strategy that they will take. While some are doubling down on their core base, others are looking to target millennial consumers. By leveraging digital branch banking strategies, banks can bridge the behaviour of different age groups while also accelerating customer accessibility and satisfaction.” Issue 19 | TheFintechMagazine

ARTIFICIAL INTELLIGENCE: AN ETHICAL FRAMEWORK

CREATING RESPONSIBLE

AI OPERATIONS

As the use of AI becomes ever-more pervasive, data scientists and organisations ‘just doing their best’ to make sure they behave ethically and responsibly will find that’s no longer good enough, says Scott Zoldi, Chief Analytics Officer at data analytics company FICO Artificial intelligence (AI) has become widely-used to inform and shape strategies and services across a multitude of industries, from healthcare to retail, and has even played a role in the battle against coronavirus. But the mass adoption and increasing volumes of digitally-generated data are creating new challenges for businesses and governments. There is, for example, a growing focus on the reasoning behind AI decision-making algorithms, and creating a responsible framework. Decisions made by AI algorithms can appear callous and sometimes even careless as the use of AI pushes the decision-making process further away from those the decisions affect. It is not uncommon for organisations to cite data and algorithms as the justification for unpopular decisions and this can be a cause for concern when it comes to respected AI leaders making mistakes. Examples can be seen across industries. In 2016, Microsoft’s racist and offensive online chatbot was blamed on AI, Amazon’s AI recruitment system ignored female applicants in 2018, and a Tesla car crashed in autopilot mode in 2019, mistaking a truck for a street sign.

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Alongside the potential for incorrect decision-making, there is also the risk of AI bias. To help prevent these issues, new regulations have been created to protect consumer rights and monitor developments in AI.

THE PILLARS OF AI Organisations across the world must enforce responsible AI standards now. To do so, they need to formally document and enforce their model development and operational standards, and set them in the context of the three pillars of responsible AI, which are explainability, accountability and ethics. EXPLAINABILITY: Organisations relying on an AI decision-making system must ensure they have an algorithmic construct that captures and communicates the relationship between the decision variables to arrive at a final business decision. With this data at hand, businesses can explain the model’s decision – for example, a flagged transaction labelled as a high-risk fraud due to a high volume of transactions involving new accounts in Kazakhstan. This explanation can then be used by human analysts to further investigate the implications and accuracy of the decision. ACCOUNTABILITY: AI models must be properly built and focus has to be placed on the limitations of machine learning, and careful thought applied to the algorithms used. It is essential for technology to be transparent and compliant. Thoughtfulness in the development of models ensures the decisions make sense; for example, scores adapt appropriately with increasing risk of input features. Beyond explainable AI, there is the concept of humble AI – ensuring that the model is used only on the data examples similar to data on which it was trained. Where that is not the case, the model may

not be trustworthy and one should downgrade to an alternative algorithm. ETHICS: Adding to the requirements of explainability and accountability, ethical models must be tested and any discrimination removed. Explainable machine learning architectures allow extraction of the non-linear relationships that typically hide the inner workings of most machine learning models. These non-linear relationships need to be tested, as they are learned based on the data on which the model was trained and this data is all-too-often implicitly full of societal biases. Bias and discrimination are tested and removed in creating ethical models, and should be continually re-evaluated when the model is in operation. Once these three measures are introduced, organisations can feel confident that the decisions they make are sound digital choices, and they know all models will follow this framework.

MEASURES TO ENFORCE RESPONSIBLE AI There is no question that building responsible AI models takes time and is painstaking work. But the meticulous scrutiny is a necessary, ongoing process to ensure AI is used responsibly. This scrutiny must include regulation, audit and advocacy. Regulations play an important role in www.fintechf.com

setting the standard of conduct and rule of law for use of algorithms. In the end, however, regulations are either met or not, and demonstrating alignment with regulation requires audit. A framework for creating auditable models and modelling processes is needed to demonstrate compliance with regulation. These audit materials include the model development process, algorithms used, bias protection ■

tests and demonstration of the use of reasonable scoring. Model development process audits are currently conducted in haphazard ways. New blockchain-based model development audit systems are being introduced to enforce and record immutable model development standards, testing methods and results. Furthermore, they are used to record detailed contributions made by data scientists and management teams’ approvals throughout the development cycle. They serve as a system of record to justify how the model was built responsibly but also as the guidebook for how to monitor the model in operations, to ensure compliance with responsible AI standards in real-life environments. In future, organisations that say they are ‘doing their best’ with data and machine learning, will not be doing enough. The rise of AI advocates will further expand and challenge the responsible use of machine learning to prevent the

real suffering that can be inflicted due to wrong outcomes of AI systems. Responsible AI will soon be the expectation and the standard across boards of directors and around the world, with advocacy groups keeping use of AI in check. Organisations must stay ahead of this curve. They should do so by strengthening and setting standards of AI explainability, accountability and ethics, to ensure they are behaving responsibly when making digital decisions. Dr Scott Zoldi is involved in developing new analytical products and big data analytics applications for FICO, many of which leverage new streaming analytic innovations, such as adaptive analytics, collaborative profiling and self-calibrating analytics. He serves on the board of Tech San Diego and the San Diego Cyber Center of Excellence. He also advises the board of the California Technology Council on cybersecurity.

The rise of AI advocates will further expand and challenge the responsible use of machine learning to prevent the real suffering inflicted due to wrong outcomes of AI systems… Responsible AI will soon be the expectation and the standard www.fintechf.com

Iss

| TheFintechMagazine

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ARTIFICIAL INTELLIGENCE

POWER&RESPONSIBILITY Scotiabank couldn’t have intervened to help millions of families at risk of financial distress during the pandemic without AI. But it’s super-conscious of ethical hazard, which is why it’s put in place human processes to protect the bank’s integrity, says Phil Thomas, Executive VP of Customer Insights, Data & Analytics at Scotiabank Canada

In November of last year, Scotiabank introduced a new Global AI platform to better meet its customers’ needs in a world where those needs were rapidly changing. At the time, it said the pandemic had ‘reinforced the importance of delivering customised financial advice that speaks to our customers' unique business and household situations'. It undoubtedly gave the bank better insight on the enormous amount of transactional and other data that it holds on customers to help them manage their finances better. And the results have been impressive: it enabled the bank to reach out to two million customers, which AI had identified as being the most financially vulnerable to COVID-19, allowing the bank to offer them support and solutions before they suffered any potentially long-lasting, catastrophic impacts. It was clearly an example of artificial intelligence being used to good effect. But, at the same time, there are a number of www.fintechf.com

growing anxieties surrounding the ethical use of AI, as numerous recent use cases have demonstrated. From a discriminatory Microsoft Chatbot, to a seemingly sexist Goldman Sachs’ Apple Card credit line algorithm, there has been evidence of unintended bias creeping into the AI systems companies and businesses have been using to improve the service they provide to their customers. The growing unease has led to calls for these models to be regulated and monitored, not only to protect individuals and groups, but also to ensure the technology doesn’t end up embarrassing and damaging the organisation behind it. Phil Thomas, the executive vice president of customer insights, data and analytics at Scotiabank Canada, is the man who has to face those ethical questions every day. The bank, which operates across Canada and Latin America, had been building a model for its Global AI platform based on customer value when the pandemic hit. With the advent of COVID, it pivoted that model to one based on customer vulnerability.

“We’ve been exploring the use of AI in our retail businesses, both in Canada and internationally, as well as our capital markets business,” says Thomas. “But the use of machine learning and AI has been critical for us through the COVID period. “We’ve been leveraging the data and the machine learning techniques to identify our most vulnerable customers, and then building proactive outreach programmes for these customers, so that our traditional channels, branches, or call centres, etc, have leads. That way they know the customer and their financial situation, and they’re able to come up with relevant solutions, based on the predictions generated by the AI. “We used this vulnerability model to reach out to about two million customers who were at risk of being financially impacted by COVID. We were able to link those to a financial solution, whether it was a deferral or re-amortising or refinancing loans, to be able to make it more affordable for our customers to bank with us.” Issue 19 | TheFintechMagazine

ARTIFICIAL INTELLIGENCE Net Promoter Scores for the bank – how satisfied customers are – increased in the retail part of the bank where the AI platform was deployed. “Ultimately, we’re in the customer experience business, and so I think what I got most excited about was being able to use our machine learning models, and our deep learning and advanced analytics skill sets, to really help our customers during a period of stress, and that certainly showed through our Net Promoter Score numbers,” says Thomas. Nevertheless, Scotiabank has been cautious about giving AI free rein. “We’ve been very thoughtful about the integration of man and machine,” says Thomas. “So, as we are building and implementing models, we have a constant monitoring process in place. We’re thoughtful both about the human bias, and the potential for machine bias, so we have a broad cross-section of people from business groups, diversity of backgrounds, committees of individuals, who will get together to review the models, looking at the results that are coming out of these models to make sure we’re eliminating any bias as best we can.” There’s no denying that AI plays an important role in improving efficiency within the bank, whether working directly with individual customer data or with that of larger entities. It’s being used in Scotiabank’s capital markets business to improve predictions to its traders, for example, as well as figuring out effective ways to serve individual customers. “There’s masses and masses of information that comes in, and for one human to sit there and try to process this is challenging, so the benefit of advanced analytics or AI in this space is tremendous,” says Thomas. But, conscious that it can be a double-edged sword, he believes the machine ‘head’ and the human ‘gut’ a re of equal importance. “The challenge is around making sure that you have the human interaction. And so, if you have an experienced trader, for

instance, who can save time with the help of a machine learning AI model, it’s kind of the best of both worlds. I think that’s the future we’re headed for.” The platform is already being ported to different areas of the business in Canada and Latin America and it’s something that Thomas and his team believe is going to set the bank apart. “Toronto is becoming an AI hub, globally, and we’ve been able to tap in to this amazing talent and leverage it across many markets,” he says. “The Global AI platform is there to support not just our Canadian

We’ve been very thoughtful about the integration of man and machine. So, as we are building and implementing models, we have a constant monitoring process in place

TheFintechMagazine | Issue 19

business, we’ve also rolled it out now in Colombia and Peru and we have plans to move it to the other markets across the year.” AI systems are clearly key to the management of data in the future, but they are not yet perfect. As Deloitte observed: “While the mysterious nature of AI can seem like ‘magic’ at times, it has the potential to hugely magnify societal issues in financial services.” If the input data is incomplete, unrepresentative or biased (consciously or not) and if the AI continues to be trained on it, discrimination can be baked into an AI model of decisionmaking – that decision often being hard to explain, which also presents a problem for regulators. The World Economic Forum (WEF) has recently spearheaded the Global AI Action

Alliance, in recognition of the fact that while 60 per cent of executives polled by the WEF said they believe AI will have a larger impact of the global economy than the Internet, there seems to be little consensus and no specific standards or frameworks to ensure its impact does not unfairly advantage or disadvantage certain groups or individuals. Which is why, internally, Scotiabank has gone to lengths to ensure it doesn’t sleep walk into a bear trap. In 2019 it announced it was launching a training programme for senior executives

Data meets common sense: Man and machine bring different benefits – and safeguards

covering the principles of AI and ethics in design; decisionmaking with analytics; the dynamics of enterprise data and AI management; Canadian information and privacy regulations; and the latest research and technology developments in AI. Daniel Moore, chief risk officer at Scotiabank, said it was committed to ‘being leaders in the development of principles, guidelines and training for the ethical application of this powerful technology’. Anything less would risk damaging customer trust. It’s why Thomas insists the algorithmically programmed brain is leavened by the common sense and intuition that only a human one displays. And it’s why his committees of AI observers are constantly auditing the output. “We want to be making sure that we’re leveraging our data to know our customers and understand their behaviours. But we’re doing it with a lens of managing the data ethically, so the customers are comfortable with the bank in every aspect.” www.fintechf.com

LAST WORDS: BOOK REVIEW

Beam us up, Scottie! Do the economics of the Star Trek universe have something to teach our post-COVID world? Ali Paterson boldly goes in search of answers in the pages of Trekonomics Disclaimer: Before reading this book, I knew very little about Star Trek, outside of JJ Abrams’ movie franchise, which makes up some of the 556-plus hours of ‘boldly going’ on the big and small screen, including the 70s TV series and its many spin-offs. But author Manu Saadia condenses all of that into a page-turning, six-hour read to produce what is quite possibly the most important book not about fintech… for fintech. In it, the die-hard Trekkie and LA tech startup advisor outlines what each civilisation discovered on the Star Trek journey stands for, economically and socially, and how the organisation of these societies and their finances relates to us. Saadia suggests that humans have reached a point in their evolution that’s not dissimilar to the culture of the Ferengi in Star Trek: The Next Generation (TNG), described by a character in one episode as ‘greedy, misogynistic, untrustworthy little trolls’ whose

civilisation was built on unbridled free enterprise: profit was the sole motivator and only reward, encouraged by the Ferengi’s societal framework, known as The Rules of Acquisition. But, Saadia wrote Trekonomics in 2016, since when the push towards digital has been compounded by COVID-19. We humans are starting to see technology, specifically artificial intelligence (AI), make parts of our lives redundant, which could quickly lead us down the rabbit hole of universal basic income and other forms of what is dubbed Capitalism 2.0. From there, we could follow the path taken by the fictional interstellar government, the United Federation of Planets – Federation for short. It used technology to build a post-scarcity society where the mind, education, love, art and adventure are the truly important things. It’s this possibility that makes Trekonomics so compelling: it’s fintech for good on steroids. On the other hand, humanity could go the way of the

Borg, a ‘civilisation’ of cybernetic humanoids, or drones, who have no needs or wants that aren’t fulfilled by being part of a collection of beings – a hive mind that’s succumbed to the Borg trope that ‘resistance is futile, you will be assimilated’. It’s not too much of a stretch to think of the Borg society as Communism 2.0; the antithesis of the Federation’s ideals. If you accept that the human character in the 21st century most closely resembles that of the Ferengi in the 24th, then, like the various Ferengi individuals we meet in Star Trek, we have choices. Is Nog and Rom joining Starfleet a metaphor for how each of us could choose between ‘acquisition’ and the more aspirational principles of the Federation, which is what Saadia conjectures? Is Star Trek, in fact, giving us a nudge in the right direction? Love it or loathe it, Star Trek’s inspirational impact on technology has already been incredible, from flip phones, to table computers, Siri, GPS, and bluetooth headsets. Perhaps it’s not so far-fetched to imagine it influencing our economics, too.

It’s not too much of a stretch to think of the Borg society as Communism 2.0

Trekonomics: The Economics of Star Trek by Manu Saadia

The fintech frontier: Exploring the economics of brave new worlds

TheFintechMagazine | Issue 19

is published by Pipertext and is available in hardback, Kindle, audiobook and MP3 editions Great for: Demonstrating to your lockdown-weary partner that there was a point to watching all those back-to-back voyages of the Star Ship Enterprise Best read: With a good glass of Saurian brandy Good read rating: ★★★★★ ★ www.fintechf.com

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