Fintech Finance presents: The Fintech Magazine 21 by Fintech Finance

ISSUE 21

THE

Sunset on the office

The real challeng ge g in home working

The great fintech bake-off

Whyy banks can do so much better than pps cookie-cutter app

Self-service banking

ACI Worldwide and ga bring g ATMs Aurig in from the cold

KNOWING ME, KNOWING Y ’s expanded teams race to ID the world INSIGHTS FROM Mambu ● AIB ● Feedzai ● BBVA ● Finastra ● U.S. Bank ● Cisco ● LLoyds Bank

Santander ● AutoRek ● Bottomline ● Boomi ● Lunar ● KBC Bank ● Intix ● FNB ● PPS ● Sprive

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CONTENTS

THEFINTECHVIEW

2021

ISSUE #21

I’m writing this at home; I haven’t worked in a shared office in years.

London’s Canary Wharf are still largely devoid of staff – as we discovered when we visited to review its new ‘Just Walk Out’ Long before the pandemic struck, I’d Amazon store (page 110). If these financial been seduced by the idea of flexible districts never return in full force, that will working – flexible as in the desk yoga not only change the way the industry I have to do after 18-hour shifts in operates, but also influence its real-estate a non-HR-calibrated chair. and technology decisions. But home working in a regulated And, if we don’t commute, we’re less industry like banking takes the challenge likely to exchange the time of day – and for employers way beyond ergonomics and ensuring staff get their screen breaks money – with the retailers, street sellers and street dwellers that used to line our – as Nationwide, Lloyds Banking Group route. On the other hand, that might and Scottish regtech AutoRek explore benefit communities back home as we in this issue on page 46. They are all spend more time in them. hyper-alert to the security implications Remote working is one essential part of remote working – but agree that of a wider ‘reset‘ that’s shaping new technology and revised protocols can values, priorities and ways of living. Like be relied upon to provide solutions. No, their biggest concern is the impact that a me and my desk yoga, it’s important that permanently remote workforce will have financial institutions look up and flex. Our last spine tingler, 'Make your own on the culture of an organisation: on future. Make your own past. It's all recruitment (mostly good), staff retention right now', was a quote (questionable) and the networking that from Barry Allen, aka leads to career progression (jury still out). DC Comics’ The Flash. The gleaming financial towers of Sue Scott, Editor

54 Magical banking

FINTECH FOCUS 24 Meet ‘The Enablers’

Technology is sprinkling the fairy dust of frictionless journeys on everything from trade finance to Uber rides. So where does that leave the traditional bank? Mambu, Solarisbank and Capco conjure up ideas

PPS, Talenom and Sprive are three very different financial services but they have more in common with each other than they do with traditional banking models

40 Local heroes? Real community banking in the UK? Pigs might fly, thought Ron Delnevo, but then he spoke to Matt Grant of Your Money Hub, and now his hopes are restored

88 Testing times

24 www.fintechf.com

Firms should consider their choices carefully when asking a company to, effectively, punch a big hole in their cyberdefences, says Nettitude

14 FINTECH FOR GOOD 8 A world on the move There’s never been a more urgent need to create a digital identity system that keeps both people and their data safe. With fresh capital and ambitious expansion plans, Trulioo is determined to be that solution

14 Must do better Finastra took an unusual approach to gathering content for its new report on what consumers across the world really think about banks – and it’s a timely wake-up call

88 Issue 21 | TheFintechMagazine

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

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CONTENTS

20 20 Cool to be kind Could banks change from being wealth repositories to uber-forces for good, putting them on the right side of history? Yes, if they become digital lifestyle enablers that help save the planet. That’s according to our green finance round tablers as they discuss Mobiquity’s revealing Benchmark For Sustainable Banking report

CUSTOMER INTERFACE 28 Stick or twist? Many business banking customers have ample excuses to use alternative providers. Portugal’s Novo Banco wasn’t going to give them one, so it asked Strands to help

31 Getting to know you Understanding how small businesses tick used to be the sole role of bank relationship managers. Now, say Codat and U.S. Bank, AI is helping them get even closer

34 The ATM pool table Shared provision and even outsourcing of ATMs is a growing global trend, but it’s not happening everywhere in the same way or at the same pace, according to RBR’s latest Global ATM Market and Forecasts report www.fintechf.com

37 Bringing ATMs in from the cold Auriga and ACI Worldwide tell us how they’re banking on a new lease of life for self-service

HOW TO (RE)BUILD A BANK 43 A moving target Whether the old adage ‘the customer is always right’ is valid or not, the core issue for business has always been how to predict and respond to their changing needs. Silicon Valley Bank and Technisys are nailing it

46 Sunset on the office As home working becomes a permanent arrangement for many, we talk to AutoRek, Lloyds Banking Group and Nationwide about how regulated industries will build around the new normal

51 At your service Solarisbank and Feedzai on the benefits of platform services – whatever your niche

THE DATA-CENTRIC BANK 58 The great fintech bake-off MullenLowe Profero on why banks should discard oven-ready experiences for renegade recipes of their own – the magic ingredient is data

60 Richly deserved New payment messaging systems are adding to the data goldmine that banks have been sitting on for years. Rabobank and Nordea discuss how they’re now digging deep with Intix, a company that provides the digital shovels

REGIONAL SPOTLIGHT 64 Ahead of the eight Michael Phillipou brings a unique combination of skills to his new role as CEO of Sandstone Technology – including that of an Australian Football League pundit. We got in a huddle with the new boss to talk tactics as he maps out his plans to expand on the back of open banking

69 First mover First National Bank is leading the charge as South Africa’s major banks gear up to take payments to a new level. Its partnership with HPS could transform the future of transfers Issue 21 | TheFintechMagazine

Change is our superpower. Change Change can can feel feel absolute, absolute, daunting daunting and and dramatic. dramatic. The The end end destination destination is is great. great. However, However, no-one no-one likes likes the the journey journey to to get get there. there. Except Except Mambu. Mambu. We We love love it. it. Mambu’s SaaS and cloud-native banking and financial services platform Mambu’s SaaS and cloud-native banking and financial services platform is for those that are just starting out, and those that are global powerhouses. is for those that are just starting out, and those that are global powerhouses. Sure, we do core – and much more. Mambu can fast-track the design and Sure, we do core – and much more. Mambu can fast-track the design and build of nearly any type of financial product for banks, lenders, fintechs, build of nearly any type of financial product for banks, lenders, fintechs, retailers, telcos and others. And our unique composable approach means retailers, telcos and others. And our unique composable approach means that independent components and connectors can be assembled and that independent components and connectors can be assembled and reassembled in any configuration to meet the ever-evolving needs of your reassembled in any configuration to meet the ever-evolving needs of your business – and your customers. Let’s make change your superpower too. business – and your customers. Let’s make change your superpower too.

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CONTENTS

107

BUY NOW, PAY LATER 72 Time to let Zip!

If high street retailers want to find their place in an omnichannel world, they need BNPL at the point-of-sale, says Zip

75 Have it all, but at what cost? Fiona Guthrie, CEO of Financial Counselling Australia, believes BNPL providers might be flying now, but will pay for it later, if not brought into the same regulatory framework as other forms of credit

84 The digital hello, Nordic-style Many financial institutions in the Nordics were ahead of the rest of Europe on API connectivity. So, how did they steal a lead and what do they plan to do with it?

78 Banking on BNPL Point-of-sale finance technology has changed the nature – and availability – of credit. But in the banks’ hands, it could revolutionise it, says Jifiti

ARTIFICIAL INTELLIGENCE 91 Beyond ISO 20022 The enriched data that will flow from compulsory adoption of the new messaging standard will be a ‘protein boost’ for AI in the field of transaction analytics and forecasting – and banks need to seize the opportunity, says SmartStream

OPEN BANKING & DIGITISATION 81 Time for a reinvention An established bank, an integration platform-as-a-service, and a challenger, based in Benelux and the Nordics, consider the threat to the incumbent business model and what banks must do to change it

95 A new chapter for AI Understanding a story and telling one are very different challenges for a robot. Irish bank AIB and AI specialist Yseop compare notes

TRADING 99 Regime change De-risking the European financial markets has finally reached securities trading… but it’s not been an easy ride. The Association for Financial Markets in Europe shares its views with Bottomline

103 The modern art of the FPGA Cisco is releasing the creative potential in field programmable gate arrays... how might the future be redrawn?

107 Just the ticket Lightning quick tick-to-trade is a must-have for today’s trading platforms. Cisco, Netcope and Blackcore discuss the pursuit of speed and the minute margins that separate profit from loss

LAST WORDS 110 A Fresh start It seems appropriate that one of Amazon’s first checkout-less stores in the UK should be in the heart of London’s financial district

THEFINTECHMAGAZINE2021 EXECUTIVE EDITOR Ali Paterson

GENERAL MANAGER Chloe Butler

PHOTOGRAPHER Jordan “Dusty” Drew

EDITOR Sue Scott

US CORRESPONDENT Jacob Bouer

ART DIRECTOR Chris Swales

ONLINE EDITOR Eleanor Hazelton Lauren Towner

SALES TEAM Tom Dickinson Karen Estcourt Serena Khemaney Shaun Routledge

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

FEATURE WRITERS David Firth ● Tracy Fletcher Rachael Harrison ● Martin Heminway ● Alex King Natalie Marchant ● Sean Martin Martin Morris ● John Reynolds Sue Scott ● Frank Tennyson

ISSUE #21 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 21 | TheFintechMagazine

FINANCE FOR GOOD: ID VERIFICATION Worldwide footprint: Trulioo is growing in line with its mission to identify everyone, globally

A world on the move There’s never been a more urgent need to create a digital identity system that keeps both people and their data safe. With fresh capital and ambitious expansion plans, Trulioo is determined to be that solution. Senior VP of Identity Solutions Garient Evans and Chief Technology Officer Hal Lonas, who both recently joined Trulioo’s expanding San Diego office, explain how For most of us lucky enough to live in relatively wealthy and peaceful societies, not being able to move around the world at will during the pandemic was an inconvenience. Now that 2.9 billion people have received their first COVID-19 jab, just over one billion of whom have been fully vaccinated, many are regaining that freedom. But international travel comes at a price: your liberty for your data, specifically, your health status. Meanwhile, 80 million people weren’t lucky enough to sit out the pandemic in their home country. They were forcibly displaced by war and internal conflict, according to the UN Refugee Agency (UNHCR). That figure was a grim milestone and one that’s likely to be surpassed over the next few months as conflict in Afghanistan once again escalates, China tightens its grip on Hong Kong, and a humanitarian crisis deepens in Yemen. The World Economic Forum estimates that, in a normal year, there are

TheFintechMagazine | Issue 21

272 million people – 3.5 per cent of the world’s citizens – moving across borders, mostly for work. But ‘normal’ years may no longer be a sensible yardstick. The International Organization for Migration predicts that there is another, even greater force, that will see huge personal, inter- and well as intra-continental upheaval , and that’s climate change. Unchecked, the IOM fears it could create anything from 25 million to two billion ‘climate-displaced persons’. The twin existential threats of a global pandemic and global warming have demonstrated that we are all citizens of the same, vulnerable world, but among the poor and the growing number of uprooted are many who cannot prove they are citizens of anywhere. They make up the one billion lacking any legal form of identification, and therefore denied access to even the most basic financial and other essential services. Against this backdrop, governments’ post-pandemic ambition to ‘level up’

society leaves many policymakers unequal to the task, however virtuous the ambition. At the same time, governments are wrestling with the politically sensitive and technically challenging issue of how to attach a COVID-19 vaccination record to an individual in such a way that it can be accessed anywhere by those with the authority to view it – and that could be anyone from a border official to a nightclub bouncer. It’s likely that, without such certification, international travel will be limited or denied, while, in some areas, including certain US states, even grocery shops will be off-limits. It was precisely to avoid people being robbed of the fundamental human right to prove their existence and claim the freedoms that others enjoy that Canadian regtech Trulioo began building a digital ‘trust network’ back in 2011. Its mission was to ensure that everyone was someone in the eyes of the world – and, specifically, of financial institutions – by creating an online digital identity from www.fintechf.com

multiple, verifiable data sources that are dynamically updated. With more accessible personal information comes more ability for people to control their economic outcomes, it argued. They would be better able to access the resources they needed to prosper on an individual level, and this would unleash new levels of growth on a country-wide scale. Put another way, it was talking about the levelling up of the global economy, long before the phrase became a vote winner. But Trulioo’s ambition now feels more like an imperative. And with one of the largest single funding rounds ever seen in Canada now safely tucked under its belt, it’s doubling down on the task. In the 10 years since it was founded, Trulioo has refined the technology with which it hopes to achieve its purpose, and expanded the territories in which it hopes to deliver it. It now provides real-time identity verification for five billion customers and 330 million businesses, in nearly 200 countries, through its GlobalGateway identification platform. It’s become the world’s largest identity verification marketplace. In 2020, Trulioo was listed among Canada’s 100 fastest-growing companies, with an annual growth of 503 per cent and, in 2021, it was included in the Narwhal List of successfully scaling private enterprises. Its $394million Series D funding in June, led by TCV, one of the world’s largest growth equity firms, with participation from existing investors, pumped its valuation to $1.75billion and gave Trulioo the capital to accelerate its goal to become an end-to-end identity platform. By the close of 2021, the size of its overall workforce will have increased two-fold, with a new customer-facing team established in Austin, Texas – a top technology hub – and an engineering team, focussed on artificial intelligence and machine learning, established at its existing office in San Diego, where there is already a strong digital identity ecosystem. Its current 260-strong workforce is distributed across Canada, the States and Ireland – all in locations carefully chosen to attract and keep top talent. There are plans to add additional offices in 2022, including in Asia. Both based in San Diego, Garient Evans recently joined Trulioo as senior vice president of identity solutions, and Hal Lonas as chief technology officer. Evans, who has more than 20 years of www.fintechf.com

experience in credit, identity, fraud, document verification and compliance, has been brought in as Trulioo continues to develop ways to deliver even smoother digital identity verification. Meanwhile, Lonas, who has been a technology leader for 25 years, now heads up all aspects of Trulioo’s technology development, ensuring the adaptability of its technologies around data, privacy, security and the expanding ecosystem of identity verification, with a particular focus on the use of biometrics. Joining Trulioo is never just a career move: you have to buy into its mission to democratise the digital economy. And Evans says that aim for him is ‘very personal’, even if the scale of what needs to be achieved is mammoth. “It’s not going to happen in my lifetime,” says Evans, “which means that Trulioo’s got a lot of work ahead!” For Lonas, this particular moment in history, though, represents a critical opportunity to catalyse change.

Legislation and regulation can help with standardisation. So the EU coming together to propose C19 passports and how they should operate is important Garient Evans

“The pandemic has really accelerated us into the future,” he says. “The technological transformation of businesses is accelerating, and we’re in the right place, at the right time, to really help them and individuals take advantage this new digital economy.”

A REAL MELTING POT In 2018, McKinsey forecast that the identity verification (IDV)-as-a-service industry would grow by nine-to-15 per cent a year for the next four years. Throw into that mix the huge and many permanent lifestyle changes forced upon the world by the COVID-19 pandemic, and the result is a demand for digital IDV that has never been greater. But if digital identities are to be truly portable across the world, it demands closer co-operation between the public and private sectors, says Evans. “The challenge is making it a global

experience. If a financial service wants to be able to operate in different jurisdictions with different rules, sometimes it comes up against the fact that paper is required in those areas. It needs government support to transition to being paperless. That’s where public and private collaboration is so necessary. We have to work with local politicians to get them to accept and own the fact that they can make life more convenient by embracing digital technology.” As many of those politicians now back some form of vaccine certification, the call for digital COVID passports could be seen as a catalyst for that. It is, in fact, as Trulioo’s chief operating officer Zach Cohen recently pointed out, only the second globally co-ordinated attempt to establish such a verification system: the first being travel passports, which still exist as paper records. For it to be seamlessly interoperable and not put individual’s data at risk, he’s suggested that such a COVID-secure system would need to be underpinned by a new database so that the information is detached from other personal data. But who or what unlocks that information, given that most of us can’t remember where we put our car keys, gives rise to the question, where could it be stored? Decentralised identity solutions to minimise the risks associated with COVID-19 passports and, indeed, any other reason to validate one’s ID, would appear to be the answer. In a recent blog, Lonas suggested that blockchain technologies could ‘create a secure, public and anonymous storage platform for identity data, and if this is combined with the requirement to use biometric authentication – something that, unlike a password, can't be lost and is much more difficult to steal – as the means to claim identity, the process is both transparent and secure’. But he added that such self-sovereign identities would only become mainstream if governments ‘relinquish their sole responsibility for issuing and storing our identity information’. It would also need the technology to widely accepted and for the solution to ‘scale massively and cheaply’. Evans welcomes early signs that governments are co-operating over COVID passports – at least in Europe. “Legislation and regulation can help with standardisation. It makes the decision-making process for technology providers easier and better. Issue 21 | TheFintechMagazine

FINANCE FOR GOOD: ID VERIFICATION "So, I do think that the EU coming together to propose these [COVID-19] passports, and describing how they should operate is really important. You don’t want lots of different approaches because you end up with passports that are not interoperable and are unreliable.”

BLURRING THE LINES When it comes to identity verification in financial services, the first ever legal framework was laid down by the USA Patriot Act in 2001, which sought to prevent, detect and prosecute money laundering and the financing of terrorism, and spawned similar KYC and anti-money laundering (AML) laws globally. As e-commerce developed, strict privacy legislation was also introduced by regulators to protect consumers’ personal data from being misused or falling into criminal hands. E-commerce, of course, gave rise to the emergence of big techs like Amazon, which changed consumer expectations forever by offering fast, secure and convenient onboarding to the point where every business operating in the digital economy must now up their game. And, as Evans points out, their arrival has also fundamentally changed financial services. “Now the tech providers are financial services,” he says. “In 2017, Amazon lent US$1billion in cash advances to its merchants. So the lines are blurred between companies that were strictly technology, or e-commerce, or marketplace; now they are clearly participating in this financial market. Walmart even applied to be a bank about 15

SAN DIEGO TEAM

Kim Hong Senior VP, Marketing

Trulioo’s new San Diego office is headed up by three senior executives – Kim Hong, Senior Vice President, Marketing Hal Lonas, Chief Technology Officer and Garient Evans, Senior Vice President, Identity Solutions. The next two years will see them being joined by more than 30 employees in engineering – notably, artificial intelligence and machine learning – as well

years ago; they were denied that, but they have continued to offer financial services. “All that has meant more choice for consumers. Gone are the days when someone stuck with the bank where they opened their first account; now people have many relationships, maybe dozens of relationships, across their financial lives.” Evans suggests that the way financial institutions can compete with that is through a combination of strategy, technology and talent. “For me, strategy is the intersection between customer need and product value. Some institutions are so obsessed with managing risk, that they’ve made their products really hard to get hold of; while others just have horrible technology that doesn’t allow the match between product value and customer need. But getting the strategy right is nearly impossible unless you have a flexible core technology. “Those responsible for user experience should view their work as being highly scientific, where they’re constantly testing resources, features and capabilities. If the underpinning technology doesn’t allow for that type of experimentation, the right strategy is going to be nearly impossible.” Institutions have at least acknowledged the need for customer-centricity. “When it comes to talent, the largest bank in the US has more than 800 job postings for individuals with the term ‘user experience’ in their profile, which is roughly 10 per cent of all of its openings,” says Evans. “The demand for talent to be able to drive a better customer experience, is just one sign of how financial services view this as an area

SIZE DOESN’T MATTER Trulioo, meanwhile, continues to plough an independent furrow, exploring every opportunity for contextual, proportionate, secure and fast IDV – and not just for large organisations. Authenticity and fraud prevention is just as important for a startup or small business, which arguably has more to lose and much to gain from digital verification software – smaller players in underbanked markets in particular. Last year, Trulioo announced that it had developed facial recognition and document verification technology to give small businesses the same level of online protection, and offer the same level of access to customers, as large corporates.

Hal Lonas

Garient Evans

Officer

Identity Solutions

Chief Technology

as sales, partnerships and marketing roles. Nestled down on the Pacific coast in sunny California, close to the Mexican border, San Diego is widely thought to be gaining ground on established fintech centre Silicon Valley, which is just a 30-minute flight away. As well as playing host to some of the world’s fastest-growing tech startups,

TheFintechMagazine | Issue 21

of competition and core competency.” But there is still a tension between build, buy or partner in order to innovate, he adds. “Traditional banks are buying services from solution providers like Trulioo, where almost the entire onboarding experience is outsourced via APIs. You have some institutions that have tried to build their own offerings, with mixed success, and then you see some traditional institutions, like Goldman Sachs, having a tonne of success building things on their own, as with [its digital bank] Marcus. There are others that have just abandoned the effort to have a completely digital experience of their own. “So, what you can expect to see is a tremendous amount of merger and acquisition activity playing out over the next few years, where traditional institutions that can’t do it themselves buy players that are truly innovative.”

Senior VP,

big-hitters Google, Apple and Amazon have a presence. The US’s eighth-largest city is considered to have a real advantage over traditional hubs when it comes to cost of living and availability of development talent. It’s certainly popular – according to CBRE, it is the sixth fastest-growing US city for software and technology professionals.

Trulioo’s decision to establish itself in San Diego was influenced by all of this, plus the fact that there are nearly a dozen identity companies – small and large – which contribute to the digital identity ecosystem in some fashion, such as document verification, biometric authentication, digital identity networks and AI/ML fraud detection technologies.

www.fintechf.com

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FINANCE FOR GOOD: ID VERIFICATION The new features allow for ID documentation verification and biometric authentication for an added layer of security. This enables small and medium-sized enterprises (SMEs) to check the authenticity of government-issued ID documents and use facial recognition with liveness detection to ensure the person creating the account matches the photo on the ID document. That technology is likely to play a major part in Trulioo’s drive to capture more business in the US, where documents like driving licences, which vary hugely from state to state, are still commonly used for identity verification. “Just look at the proliferation of documents in the States,” says Lonas. “We have been able to take care of that for our customers by building technology that makes a complicated set of connections seamless for them.” Lonas is convinced that biometrics used for digital identification will become commonplace globally, partly because of the pandemic highlighting the need for inclusion. There is, however, that question over whether ‘identifying the world’ can be achieved without state-backed intervention. Lonas acknowledges the progress of the Indian Government’s Aadhaar project in capturing the biometric details of 1.3 billion people since 2009. But the success of the Aadhaar project was underpinned by trust, which was called into doubt during the pandemic when the data collected was linked, unbeknown to the

Matt Schatz

Everybody wants that low-friction, high-confidence, high-trust experience, but sometimes that creates contradictions Hal Lonas

and confident with not only the onboarding experience, but transparency around the security of their data and where it’s going, is a balancing act. They want to know they are dealing with a trusted partner. “In future, this is a perfect opportunity for artificial intelligence (AI) to help us process the amount of data we need, and spot the subtle signals that, amidst all the noise, make sure we identify people correctly.”

AUSTIN, TEXAS TEAM

Chief Revenue

Officer

At first glance, the capital of Texas might appear a less obvious choice for Trulioo to base a customer-facing team, which it plans to grow to more than 25 staff over the next two years. But this well-educated town is punching above its weight when it comes to attracting America’s fastest-growing companies – it’s among the top 10 in the FT-Statista rankings. In fact, the city has

owners of those identities, to another programme involved in the vaccine roll-out. Trust is one of five vital components identified by Trulioo for creating a successful digital identity ecosystem, the others being simple onboarding, user experience, security and fraud resilience. “Everybody wants that low-friction, high-confidence, high-trust experience, but then sometimes that creates contradictions in the space,” explains Lonas. “Where do we set the dial to ensure the lowest friction with the highest confidence and trust? Making sure all consumers feel comfortable

James Robison

Senior Manager of Revenue

Operations

Carlo Toffano

Account Executive ( (Enterprise)

dubbed itself ‘Silicon Hills’, in recognition of the rapid influx of tech, including from Silicon Valley. Elon Musk was one of the first entrepreneurs to base himself there, with facilities for manufacturing Tesla electric cars and components for his SpaceX venture. A number of Fortune 500 companies have their headquarters or regional offices in Austin, too. A lack of state income tax,

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Evans agrees that the use of AI and machine learning will only expand as the need for effective data processing and analysis becomes ever-more critical. “I’ve heard the quote that data is the new oil. And, much like oil raw from the ground, it needs to be treated in a particular way to make it valuable,” Evans says. “It’s not enough to have fantastic data; you need to be able to derive actionable insights from it. To prevent money laundering and terrorist actions, and accurately identify individuals is a never-ending exercise. “To meet compliance requirements, a financial institution must be able to mine data and transactions and then investigate and report on anything it finds that the laws say it has to do something about. “Cutting-edge institutions will bring in onboarding experts and work with third parties in the identity space, like Trulioo, to secure customer interactions and ensure their compliance. These organisations rely on us to test new technologies and new capabilities, and bring them the best possible solutions. They realise that building a network of really advanced global technology like ours would take them a decade to do, as it did us. We don’t think there’s a one-size-fits-all approach, so we explore things like biometrics, bank account verification, device intelligence and document verification, in order to meet different needs and we’ll continue to be a flexible marketplace for these solutions.”

Arika Swank Account

Executive (Enterprise)

light-touch regulation and a government renowned for supporting business development, also make it attractive to startups and the new tech blood is creating a diverse living and working environment in a town previous dominated government, education, and music. On the downside, that’s pushing up house prices! Trulioo chose the States’ 11th most popular city, and

the country’s southernmost state capital specifically because it has grown to become a top technology hub in the United States. “We want to tap into the massive talent pool here in Austin to continue our growth trajectory,” says Matt Schatz. “Austin is such an exciting and vibrant place to be, with technology companies both big and small choosing to open up offices here.”

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FINANCE FOR GOOD: FINANCIAL EMPOWERMENT

What we really, really want from banks Finastra took an unusual approach to gathering content for its research into what would help consumers manage their money and their relationship with banks. It’s a timely wake-up call, says Mary Connor, a Director in Finastra’s Retail Banking and Product Management Group The first of many things about Finastra’s latest report that causes you to pull up short is the cover. It’s a montage of faces – of real human beings – not some abstract, concept of digital finance that has often been seen in similar types of industry reports. And that’s because this one aims to shed light on the genuine views that ordinary individuals have about the relationship with their bank. It doesn’t pull any punches. In fact, you could summarise its findings with a phrase we’ll borrow from our school days (which, honestly, still sends many of us cold): ‘must do better’. Finastra bills the report, called Redefining Finance For Good: The Journey To Financial Empowerment, as a ‘first of-its-kind, ethnographic global study’, which was carried out between the second half of 2020 and early 2021, a period that caused many of us to reassess lots of things we’d taken for granted: our choice of financial services provider being just one of them. It set out to ‘understand the consumer mindset about the current state of

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digital banking and uncover the barriers and perception issues that could limit consumers’ adoption of innovative products and services’ – specifically, those services aimed at helping them manage their finances better, and allow banks to build more meaningful relationships with them. To cut to the chase, the report’s main conclusion was that, according to those surveyed, financial services – the legacy providers, at least – had largely lost their way and must act now. They need to ‘redefine their sense of purpose, adopt more socially responsible and sustainable business models and put customers’ financial wellbeing at the core of their strategy’. That’s not an altruistic aspiration. If they don’t nail and communicate their values, banks will fail to drive customer engagement and, ultimately, growth. The starting point for the report was the post-COVID impact on people’s financial wellbeing, amidst accelerating use of digital services. Yet the fact that increasing digital access isn’t widening uptake of new, non-traditional services from their banks, is telling. Finastra’s hypothesis is that people experience a range of functional to emotional barriers, some due to inadequate digital interfaces and communication and others along the lines of ‘my bank doesn’t know me’. Perhaps conscious that, as a supplier of core banking technology to the industry, it needed to demonstrate impartiality, Finastra engaged ethnographer and author Paula Zuccotti for the project, allowing her to take a more creative and human approach. She interviewed 72 people, aged 20 to 60, across Africa,

Asia Pacific, the USA and Latin America. These individuals represented different demographics and included users of traditional and challenger banks, as well as the unbanked. Each was asked to talk about their financial goals and what financial empowerment means to them, then photograph seven items that told their financial story. The unusual methodology revealed some ‘unique and beautiful insights’. In total, 127 banks were mentioned and 504 objects highlighted. The report concluded that three things were most important to participants: knowledge/education about finance; control/having the tools to do what they needed to; and freedom, made possible through provision of the right services. It’s what the survey dubs ‘the journey to financial empowerment’; people wanted banking to be done ‘my way, within my limits and according to my timings’. Finastra also discovered that banking is an emotional subject, some people saying it is ‘not for them’ and others not feeling competent to talk about it because they said banks use a language they don’t understand, i.e. small print and complicated phrases. As a consequence, some tend to ignore their bank and its messages.

Unique insights: The research revealed banking is emotional as well as functional

Banks need to redefine their sense of purpose, adopt more socially responsible and sustainable business models, and put customers’ financial wellbeing at the core of their strategy Finastra report

FINANCE FOR GOOD: FINANCIAL EMPOWERMENT Digital services are a clear enabler and, to use them, people deploy skills they’ve readily learned on other channels, like social media. But, worryingly, the report observed: “Digital acceleration does not mean that banks have suddenly developed an open and flowing relationship with their customers; in reality, it means that, in many cases, the relationship has withered. People don’t want to go into branches to talk to bank staff, and they don’t want to go back to remembering security details for phone banking. So, in one way, digital has cut customers Mary Connor off from the dialogue with their banks and this is preventing them from achieving their financial goals.” According to Forrester’s more traditional The State Of Financial Wellbeing In The UK report, from April 2020, many online account holders, in particular, don’t feel in control of their financial situation: 43 per cent feel anxious about it, 37 per cent are living payday to payday, and 50 per cent worry about existential forces impacting their finances. Respondents in the Finastra survey wanted tools that would put them squarely back on top of financial management, so they could spend what they had left after bills, guilt-free –customisable interfaces, with fast and seamless actions; rewards for good financial behaviour; and inspiration to guide their choices. For those services, respondents were more likely to turn to

challengers. People saw them as the ‘APIs for banks’, the report said. “The relationship is similar to mobile network operators and smartphones. Banks are the network operators, in the background, almost invisible… digital banks and challengers hold the customer’s attention and have the closest relationship and daily interaction. “People trust most established banks as safe places to put their money. But they are happy to use digital banks and challengers for their day-to-day transactions. Just because you’re trusted doesn’t make people want to use you all the time to manage their finances.” On trust, data and privacy, the report found that consumers had ‘low expectations of what banks will do with their data. The logic is that if banks can send them an inappropriate mortgage offer that shows little customer understanding, they don’t think banks are smart enough to capitalise on their data’. Mary Connor is a director in Finastra’s retail banking and product management group, which provides the solutions that could help banks reverse such customer perceptions, such as its Cloud-based FusionFabric.cloud platform which gives banks and financial institutions access to transformational open APIs. She explains why Finastra felt it was important to conduct the survey in the way it did.

Nobody had really gone out into the marketplace, globally, and sought people’s perspectives

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“When you’re working with banking technology, as we are, you make certain assumptions about what your software should look like, and you’re dealing with banks that are also making presumptions about what their customers want,” she says. “We felt that nobody had really gone out into the marketplace, globally, and sought people’s perspectives, in different parts of the world, about their experience of working with banks and consuming their services. We wanted to know how they felt, and explore the emotional side of people’s relationships with their banks. At the highest level, we’re hearing that, generally, consumers are not totally satisfied with their experience. They don’t feel they have the understanding and knowledge of their finances they should have, and so feel disconnected. Empowerment (my goals)

Knowledge (education)

Personalization (My way)

Freedom (Services)

Control (Tools)

“The new banks have been very perspicacious, because they have noticed that the user experience needs to be more playful, more like the experience somebody gets when they go on Instagram or TikTok, or uses Apple services. People want that same kind of interaction with their bank, but established banks have been much slower to move in that direction.” It is the individual stories that the report unearthed that are most powerful, Connor believes, because they highlight that finance is more about personal aspirations than it is about money. “People’s photos of what’s really important to them are fascinating,” she says. “Some were obvious, like somebody’s picture of a property that it was their aspiration to buy. In one place in Africa, somebody who wanted to go into the catering industry shared a beautiful visual of food. So, it was like a deep dive into the consumer’s life story: what was motivating them, their ambitions, dreams or struggles. www.fintechf.com

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FINANCE FOR GOOD: FINANCIAL EMPOWERMENT A world view: No matter where they were, people were craving control of their finances

“If banks look at this, it will give them a completely outside-in expression of what consumers want.” Personalisation will be key to fulfilling the crucial part banking plays in people’s lives – as a means of achieving things they hold dear… a broad definition of finance for good, believes Connor. “It’s about enabling finance to make it a better experience for all of us,” she says. “If I think about my own situation, I quite often get adverts from my bank, offering me things that are completely irrelevant to what I want, or my stage in life. They don’t really know or understand me, and, as a consumer, I start to see them as just a repository for my money. But people – particularly younger people – want something that tells them how they’re doing; helps them manage their money. “So, there are two things banks could do better. They could have better e-wallet capability, which helps people control their finances, because you just put X amount of money in there and that’s what you spend. And then there is personal finance management – apps that can help people manage their finances and give them a pat on the back when they achieve their goals.” So, what do providers need to do to achieve that? “There are three things that I would make sure were woven into my digital channels: analytics capabilities that harness the power of artificial intelligence and machine learning, because this gives a bank better insight into its customer base. I’d marry that with contextual messages – and so many organisations are not doing this – combined with a good customer

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relationship management (CRM) system. Embed all that into my channels’ capabilities and, that way, I’m projecting the bank way ahead of the competition.” But getting there requires a much more considered approach than many have so far adopted. “A lot of banks have tried to put digital channels in front of legacy technology. The problem with legacy technology – and by legacy I mean banking systems built pre-internet – is that they were never designed to work 24/7.

Banks are trying to bolt a fancy frontend onto an old piece of kit, when really they need to transform behind the scenes

Mary Connor, Finastra

“Banks are trying to create a fancy front end, when really they need to transform behind the scenes so that they are truly digital, end-to-end – because they have legacy systems, which are not open, which don’t generally operate 24/7, and which don’t have the API enablement that’s a must for organisations that want to have innovation on tap so they remain relevant to their client base.” Given all that, she wasn’t entirely

surprised to find that customers aren’t completely happy with their banks. Finastra had, in fact, intuitively anticipated it. “About 10 years ago, we invested hugely in designing our own core banking system, which has now matured to the point where it’s surrounded by APIs with digital enablement, end-to-end. We are providing next-generation banking capabilities that, if banks combine with the other elements, like contextual messaging and CRM capabilities that we typically plug into every project, put them in a good place.” Banks can, she believes, avoid the fate of the telcos in the past, which gave brand awareness away to handset manufacturers. In finance, the handset manufacturers are fintechs with great UX, backed up by data insights that people can turn into action. There’s still a chance for the established banks to make their mark, she says: “SME lending, services around mortgages… the established banks are masters of these, whereas the newer banks haven’t got to that point yet – but they will.” In the meantime, her advice is to make the most of open banking. “Enabling customers to contrast and compare what they have with different financial institutions, and assistance with achieving financial fitness are important, because it didn’t matter where they were, the story was more or less the same for a lot of people we interviewed. They have aspirations, they want to be in control of their finance, and they need banks to help them more.” www.fintechf.com

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FINANCE FOR GOOD: SUSTAINABLE BANKING

COOL TO BE KIND Could banks change from being wealth repositories to uber-forces for good, putting them on the right side of history? Yes, if they become digital lifestyle enablers that help save the planet. That’s according to our green finance round tablers as they discuss Mobiquity’s revealing Benchmark For Sustainable Banking report The heat dome over North America. Devastating floods in Europe’s Rhineland. Shrinking Alpine glaciers and polar ice caps. Wildfires ripping through communities along the US west coast. The dangers brought by climate change are clear to see and are having an impact on lives right now, not in some distant timeframe. Flipping from the main news to the business pages, we read of the reaction in the financial sector – the growth of sustainability funds, pledges to cut carbon footprints and taper out investments in fossil fuel production and other environmentally harmful activities. But how committed is the sector to tackling climate change and, equally important social, issues? ‘Digital transformation enabler’ Mobiquity asked that question of 300 banking executives in the UK, Germany and the Netherlands, and concluded that too many were ‘saying, but not doing’. Its Benchmark For Sustainable Banking report found 78 per cent of British and 91

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per cent of Dutch executives recognised sustainability as an important part of a bank’s business strategy. But less than a third of banks – 31 per cent in the UK, 28 per cent in the Netherlands and 24 per cent in Germany – viewed it as a top concern at board level. This meant fewer than half of banking executives were actually planning sustainability measures across all regions. Among the reasons cited was a lack of environment, social and governance (ESG) framework from governments, on which they could build company strategy. Another hurdle was the current focus on COVID-19. Some executives also admitted their knowledge of ESG was poor.

Specifically, when it came to the environment, Mobiquity spotted a trend among UK banks for championing sustainability but relying on carbon credits to offset their impact, rather than tackling the root causes of emissions. The consultancy, which surveyed executives across the industry, from startups and challenger banks to incumbents, concluded that banks were guilty of greenwashing – making claims www.fintechf.com

of environmental friendliness that don’t withstand scrutiny. It warned that will not only undermine efforts to stall climate change but, as we all become more ‘conscious’, it will make attracting customers and retaining talent difficult. And yet change is happening. In April, the Glasgow Financial Alliance for Net Zero (GFANZ), chaired by former Bank of England governor Mark Carney, announced a pledge by banks and financial institutions with combined assets of more than £50trillion to cut greenhouse gas emissions and ensure their investment portfolios align with climate science. HSBC, Lloyds, Barclays, Citi, Morgan Stanley and Bank of America, and insurers Axa, Munich Re and Swiss Re, were among those www.fintechf.com

signing up. Carney hailed the move, backed by US climate envoy John Kerry, as the ‘gold standard for net-zero commitments’, with the ultimate aim of net-zero emissions by 2050. But the challenge is immense – and at risk of being undermined. Environmental campaigners continue to find apparent contradictions. A report by a coalition of non-governmental organisations in March said the world’s 60 biggest banks (including some of the signatories to the Pledge) had provided $3.8trillion of financing to fossil fuel companies since the 2015 Paris Climate Change Agreement. Carney himself has echoed one of the issues that bank executives in the Mobiquity report cited as a reason for inadequacy: that governments must do more to provide an ESG framework for the financial sector to operate within. He argued that, without state intervention, markets would fail to tackle the crisis, adding: “It won’t happen spontaneously within the financial sector... but we can’t get there without it.” In June, there was news of a new UK Treasury unit, the Green Technical Advisory Group, to advise Government on setting standards for green investments so that neither it, nor private investors, are duped. Similarly, the EU launched the Sustainable Finance Disclosure Regulation in March, to compel fund managers to disclose information about ESG credentials and the risks that their investments pose to society and planet. UK regulator the Financial Conduct Authority has also seized upon the issue, demanding that fund management firms improve ‘poorly drafted’ ESG fund applications. It also criticised funds for misleading statements, which risk bringing the sector into disrepute, although as the head of sustainability research at Morningstar has pointed out: “It’s not hard to see why asset managers might be tempted to over-claim, because ESG sells.” The public appetite for ESG funds is huge – they accounted for £73.2billion of the UK industry’s assets in May, up from £37.5billion a year earlier, according to trade body, The Investment Association. And, if its members want to continue to make hay while the sun shines too hot, clarity and consistency are key. A report by New York consultancy Duff & Phelps

underlined that a single, coherent framework for ESG investment was vital after it identified 14 different frameworks being used by fund managers, which means neither financial advisors nor private investors can effectively compare one fund against another. So we decided to ask a big bank, a new 'super app for the conscious consumer’, and the authors of the Benchmark For Sustainable Banking report about the sector’s ESG performance. In talking to Ricardo Laiseca, head of Spanish giant BBVA’s Global Sustainability Office, Hristian Nedyalkov, founder of UK ethical payments newcomer Novus, and Mobiquity’s VP of Global Financial Services, Matthew Williamson, two themes emerged: even if the financial industry genuinely wants to do the right thing, change is hard; secondly, digitisation is the only way to achieve it. “We are in a transition from concepts that were well-founded,” says Laiseca. "Definitions are changing. Sustainability was defined as inked to company values and close to social responsibility. This is

Two in five UK banks reported cost savings and customer retention growth through harnessing sustainability initiatives... customers will navigate towards banks that align with their own values Matthew Williamson, Mobiquity

fine, but it’s not enough. Sustainability is about meeting the needs of the current generation, without sacrificing the ability of future generations to meet theirs. It’s about promoting economic and social progress while respecting the natural environment. This is all super-complex and in my view the way to do it is incorporate sustainability into your internal processes. A deep transformation programme must be carried out.” He speaks from experience. BBVA declared it had achieved carbon-neutrality last year, joining a club that includes HSBC, Santander and Bank of America. Issue 21 | TheFintechMagazine

FINANCE FOR GOOD: SUSTAINABLE BANKING For Hristian Nedyalkov from Novus, banks are not just in danger of moral failure but also of missing a business opportunity. “A really striking statistic for me is that less than two per cent of total bank deposits are really deemed sustainable, whereas around 50 per cent of people want to be more conscious, associate with brands that do good, and have their money put to good use," he says. But he believes banks can do more than stop funding firms that prioritise profits over the planet. “As per the IPCC’s (Intergovernmental Panel on Climate Change) 2021 Climate Report, unless there are immediate, rapid and large-scale reductions in greenhouse gas emissions, limiting warming to 1.5°C or even 2°C will be beyond reach. We need more scalable innovations like Novus to help

Less than two per cent of total bank deposits are really deemed sustainable, whereas around 50 per cent of people want their money put to good use

Hristian Nedyalkov, Novus

provide a step change. We can teach people about the power hey hold, to harness their money for more positive outcomes.” Novus aims to launch this year as a sustainable alternative to mainstream banks, offering peer-to-peer instant payments, money management apps and a debit card that allows users to donate to good causes. One of its key propositions is informing and teaching consumers about how they can consciously make a positive difference to the world through their lifestyle. A core feature of Novus is an in-app marketplace of sustainable brands that have earned a place there by employing business practices that measure up to the UN Sustainable Development Goals. It uses B Corp certification – which measures a company’s entire social and environmental performance – to validate them. Transparency is a key metric. “The first businesses to adopt ESG principles and put them up next to their financial reports, will be the ones to carve out their brands as responsible companies,” observes Nedyalkov.

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Mobiquity's Williamson agrees that the tide is only going one way, but insists that the role of the bank in society is changing. “Banks and fintechs have a social obligation to their customers, and by extension the wider community,” says Williamson. “And we’ve seen examples of that, with the community banking model set up in the UK last year, to provide services to those who can’t travel to the nearest town, and a phenomenal scheme by HSBC, the No Fixed Address account.” The Benchmark for Sustainable Banking report found banks that had adopted sustainable practices experienced numerous business benefits, including cost savings, customer retention, growth, operational efficiencies and improved brand reputation with more than 40 per cent of banks across all three countries benefitting from some or all of those. That chimes with recent research by investment giant Fidelity International, which claimed that businesses with high ESG ratings proved more resilient to COVID-19 and the resulting lockdowns. “So, we’re seeing a market shift,” says Williamson. “Customers will increasingly navigate towards banks that align with their own values.” There was another lesson from COVID, too: the huge swing to digital engagement had a profound impact on the environment, contributing to a 10.7 per cent reduction in UK carbon emissions, according to government figures. “Companies leveraged digital technologies to replace carbon-emitting activities,” says Williamson. ”So there is a chance now to frame sustainability as an opportunity to solve business frictions. Awareness-building is needed, internally, to communicate the far-reaching environmental and operational benefits.” Laiseca agrees the pandemic proved sustainable finance and digital transformation are a ‘win-win alliance’ that could help the financial system tackle the environmental crisis. “It’s also about capturing business opportunities, and this is BBVA’s focus right now. In our case, we have doubled our commitment to green finance, with a target of channelling around €200billion up to 2025, to fight against climate change, as well as promoting inclusive growth in some emerging markets. There are opportunities for expansion – renewables, sustainable

housing, sustainable mobility – as we see a transformation in the way we consume, in the way we produce, in the way we live. Banking will be a profitable business if we participate in this fully. New sectors and new financing for those sectors will be a key driver of this economic transformation.” But he points out that ‘the sustainable transition requires new information financial institutions don’t have internally. New data tools will be part of the transition’. All this data, of course, must be processed somewhere. In Ireland – a data centre hot spot – the government has predicted this will consume as much as 31 per cent of the country’s electricity by 2027. Nedyalkov’s business offsets its third-party data processing, while Williamson points to a Swedish initiative that uses the heat generated by Stockholm Data Parks to power local homes. But he insists best practice is not just about carbon offsetting. “Our research has identified this golden opportunity for banking and the finance industry to drive sustainability through digital technologies. We call it sustainable digitisation. I think banks are starting to realise that digital needs to be viewed as part of their sustainable banking strategy.

The sustainable transition requires new information that financial institutions don't currently have internally, so new data tools will be a major part of the transition

Ricardo Laiseca

They’re not two separate initiatives. We see that two in five banks are using intelligent automation and digitising all their paper processes; some are helping customers be greener by encouraging less travel to the branch and completing the customer journey through an app or online; others are working with suppliers and partners to extract maximum value via machine learning and data centre configuration.” The last word goes to Laiseca, whose bank is changing its entire business model to embrace sustainability: “It can be a real game changer. It provides an opportunity to reshape the whole of finance.” www.fintechf.com

FINTECH FOCUS: PLATFORMS Meet Susan. She’s in her late 50s, and the typical 25-year mortgage term didn’t pan out for her. She was looking forward to easing off work, but due to house moves, supporting her kids through university and two weddings, she’s still at least 10 years from paying off her home loan. Then there’s Scott. He exports tractors for a living – a niche area but he makes it pay. Since Brexit, though, the paperwork his business generates has become a nightmare, and he has less than a week to get his income tax return submitted. Banks historically haven’t really been much help in either of these situations. Lenders haven’t encouraged their customers to pay up early, and small business accounting services weren’t really the banks’ bag, either. But now the game has changed for our hypothetical pair. Open banking has spawned fintech solutions for Susan, Scott and millions of other ordinary folk in similar spots. In the brave new world

of partnerships, the solutions can be multi-layered, too, with several fintechs collaborating to fully meet these customers’ needs. This is the era of the enablers and to illustrate how they can help our fictional characters Susan and Scott, we’re calling on the very real services of PPS, Sprive and Talenom. PPS, with offices in the UK, Brussels, Dubai and Berlin, is a back-end banking-as-a-service (Baas) powerhouse, offering payment processing, e-wallets, compliance and fraud detection services, programme design and management. PPS’ banking services can link Susan’s current account to her mortgage lender via the Sprive app, which sweeps surplus cash across each month to clear her loan faster, without her having to think about it. For Finnish accounting firm Talenom, PPS provides a bank account for SMEs like Scott’s, so he can automate his bookkeeping and concentrate on selling tractors. Ray Brash, PPS chief executive, says such partnerships are increasingly the way the world works, and open banking and the revised Payment Services Directive (PSD2) were the keys that unlocked a myriad of possibilities.

“At PPS, our core skills are around payment processing and regulation,” he says. “Talenom’s core skills are connecting with SMEs and providing professional services. This best of both worlds is what creates the value here, seamlessly. We sit behind our customers and provide a service so that the end user wouldn’t even know there was a third party involved. We take care of all the regulation, so companies like Talenom and Sprive can focus on providing the best user experience and best value proposition for vtheir customers.” Talenom has been in the business of providing accounting services for 50 years, but has recently targeted sole traders and SMEs, which were traditionally poorly served by Finland’s mainstream banks. Accounting Alex (or TiliJaska in Finnish) is a Talenom product created for such clients – a ‘self-service’ app that combines accounting and banking. It launched the accounting features in October 2020. The banking element arrived in April and will be rolled out to customers throughout this year. Without guidance from PPS – the enabler of this enabler – Accounting Alex would have taken a decade, rather than two years, to achieve, says Miikka Hätälä, who helped develop and launch the standalone service and endearingly goes by the job title ‘Dad of TiliJaska’. “Our story began in 2019, when our CEO, Otto-Pekka Huhtala, and I started to look at fintechs. We had zero know-how – no idea about PSD2 legislation or banking-as-a-service. PPS taught us everything we needed to build this awesome solution.” A lack of electronic bank statements (or, when they were available from a Finnish bank, the high cost incurred in getting them) was a barrier for SMEs who wanted to adopt digital tools. That was the first challenge to overcome, says Hätälä.

Meet ‘The Enablers’ PPS, Talenom and Sprive are three very different financial services but they have more in common with each other than they do with traditional banking models. They are all enablers of modern finance, and Ray Brash, Miikka Hätälä and Jinesh Vohra appreciate the power in their partnerships 24

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www.fintechf.com

“To automate bookkeeping you need bank statements in an electronic format – you can’t do anything with paper. And there’s no value to the SME in paying hundreds of euros to get them from a bank.” TiliJaska’s API-enabled solution delivered them to users as if by magic. And the relief for SMEs was palpable. “We see only glad faces when we tell people that it’s free and bundled into our banking,” Hätälä laughs.

We see only glad faces when we tell people that, it’s free and bundled into our banking service!

Miikka Hätälä, Talenom

The core banking services provided by Accounting Alex are also free, but customers pay for higher transaction volumes or for more comprehensive support, such as invoicing. SME customers have use of physical and virtual payment cards, an IBAN account, SEPA payments and, of course, electronic account statements that can be integrated into bookkeeping. “We’re having a big impact on fees for SMEs. Also, the onboarding can be done in minutes, 24/7. While that’s normal for ordinary consumers, it’s not normal for SMEs. In Finland they had been forgotten,” adds Hätälä. Jinesh Vohra, founder and chief executive of Sprive, raises a similar point – his business provides a solution that lenders had little incentive to build themselves because they weren’t focussed on the end customer.

www.fintechf.com

Sprive’s app, currently in beta phase, allows users to set limits on how much or little is transferred from their bank account to clear down their home loan faster. It currently works with 12 UK mortgage lenders. Vohra explains: “There are around 10 million people in the UK with a mortgage and the average person will spend 30 to 40 years paying it off. It’s not in the lender’s interest for you do that because they will earn less money, but it’s amazing how much interest you can save by making smart overpayments. Money is put aside in an e-wallet and, with one tap, Faster Payments moves it to your lender.

If our algorithm can help people pay off their mortgage, why stop there? Why can’t we expand to credit card debt? Car finance? Student loans?

Jinesh Vohra, Sprive

“We launched an MVP (minimum viable product) in October and existing Sprive users are already on track to save £32,000 and pay off their mortgage eight years early” Vohra says the UK has around 5,000 mortgage intermediaries from which Sprive could take market share, since, with app users’ data, it can point them to the best loan for their personal circumstances. He adds: “If our algorithm can help people pay off their mortgage, why stop there? Why can’t we expand to credit card debt? Car finance? Student loans?” Why stop there indeed? Brash, Hätälä and Vohra all agree it probably won’t be the incumbent banks racing to create innovative solutions like these. Brash says: “For banks, making money from their lending was the core business, everything else was a distraction. Essentially, everything in the bank became focussed around risk management, which followed a rigid model

with no real flexibility, and, to be frank, not a lot of consideration for the end user.” As a result, he says, there aren’t many good examples, even now, of banks ‘doing fintech’. Those that exist are often standalone entities, such as NatWest’s Mettle small business account, which PPS supported, while Vohra points to Marcus, the savings app launched by his former employer, Goldman Sachs. He says it’s telling that Marcus had ‘different policies, processes, and tech infrastructure,

Banks have so many things to worry about that product and customer focus is never going to get to the top of the list

Ray Brash, PPS

compared to the rest of the organisation’. “I think the more banks do that, the better off they’ll be. I also think if they see exciting fintechs that could add value to their proposition, they’re not going to be shy of buying them and absorbing them later. We’re already starting to see that.” Brash credits the regulators for creating an environment in which Sprive and Talenom’s TiliJaska even exist; one that allows players like PPS to take and hold money on their behalf. “These two guys don’t want to be worrying about what the National Bank of Belgium or the UK’s Financial Conduct Authority is saying, or making sure the platform is doing 300-400 transactions a second, 24/7. I focus on that, so they don’t have to. They can focus on product and the user experience. Sadly, banks have so many things to worry about that sometimes that product and customer focus is never going to get to the top of the list. And focus is what’s important here.”

Issue 21 | TheFintechMagazine

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Marguerite Bérard Head of Retail Banking France BNP Paribas

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Kathryn Petralia

Daniel Schreiber

President Kabbage

FRANCE

CEO Lemonade

SWEDEN

Cyril Chiche CEO Lydia

UNITED KINGDOM

Simon Paris CEO Finastra

UNITED STATES

Colin Walsh CEO Varo Bank

Daniel Kjellén CEO TINK

UNITED KINGDOM

Shachar Bialick CEO Curve

UNITED STATES

Keren Levy COO Payoneer

Program & Registration : parisfintechforum.com

CUSTOMER INTERFACE: BUSINESS BANKING SMEs across Europe have woken up to the digital reality of life, post-COVID. While many complained before about the inadequacy of (often analogue) business banking services, only the most switched-on sought out alternative providers to plug the gaps. Now that they’ve all been catapulted into an online-driven, multi-payment platform marketplace, many more are having to decide whether to stick or twist, asking themselves if they should leave the legacy banks they know for a challenger they don’t, or buy in a patchwork of discrete services from direct-to-market fintechs that can help them manage an unpredictable business environment better? In Portugal, the country’s third largest bank, Novo Banco, is making that choice much easier for them. Already the country’s most popular bank for SMEs, it’s partnered with AI-powered software solutions provider Strands to launch a Portuguese banking first: an online interface called NBnetwork+ with

a host of embedded business financial management tools (BFMs). NBnetwork+ is the default interface that business customers now see when they log onto their internet banking, and it currently comprises four key solutions: multi-bank account aggregation, giving a 360-degree view of their financial status; payment initiation from any of those aggregated accounts, regardless of the custody bank (by virtue of the SIBS open banking platform, used by 24 Portuguese banks); categorisation of revenue and expenses to give an immediate snapshot of business health; and a financial calendar that can be used for both retrospective business analysis and to predict future performance and cashflow around key events, such as paying their VAT or salaries. Meanwhile, procedures that previously required a call or a visit to a branch, such as applying for short-term credit, can be executed through the portal. It’s turned Novo Banco, in effect, into a one-stop shop for businesses of all sizes to do their everyday banking, analyse their financial health and performance, and help inform their future strategy. The online platform is supported by existing business relationship managers who now, thanks to more data and its automated collection and analysis, have the

Stick or twist?

autonomy and headroom to give better advice and faster decisions around, for instance, when dealing with more complex credit applications. The impact, particularly for small enterprises, has been profound, says João Dias, chief digital officer at Novo Banco, who has led the bank’s digital transformation since 2018. “The feedback we are getting is that using these tools is helping them change their own processes; the way they do their financial planning or day-to-day controlling. It’s helping them become more efficient by using digital channels to do things,” says Dias. “From the beginning, we wanted to be able to provide interesting solutions that would drive customers to the interface. And we see further opportunity to do that, in ways which are relevant for smaller companies that don’t have the budget, capacity or resources to do certain things for themselves.” A study by the European Central Bank in 2019 identified big gaps in knowledge and awareness among Portuguese business owners and managers, when it came to applying digital solutions to processes and channels. The number of companies selling across e-commerce platforms in Portugal is, for instance, way below the European average. A report, the same year, from analysts McKinsey, concluded that coaxing customers towards digital channels offered enormous potential for banks in Portugal. A platform service that educates entrepreneurs on how to use tools to monitor and predict their business’ financial health, will then, in theory, lead to a longer and more profitable relationship between them and the financial provider.

Many business banking customers have ample excuses to use alternative providers. Portugal’s Novo Banco wasn’t going to give them one, as its CDO João Dias and Brian Stewart of AI solutions provider Strands explain 28

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www.fintechf.com

The Novo Banco business banking team had, meanwhile, determined that there was a clear need to create a digital ecosystem where the bank could provide personalised and holistic support for its SME customers into the future – a dramatic departure from the age-old transactional relationship banking model. But that required a fundamental rethink of the bank’s internal structures and methodologies. It’s led to agile workflows, the creation of multi-disciplinary teams, and governance at the bank being more closely involved in transformation on the ground – all, recently, against a challenging backdrop of remote working.

With the rise of digital, we see the opportunity to serve customers much more broadly… well beyond pure financial services

João Dias, Novo Banco

In conducting its own, unstructured research among business customers, the bank noticed that the conversation started with requests like ‘can you help me do my treasury, my daily banking, my payments, my short-term financing?’ and so on. “But when you step back a little bit, and you talk with a CFO or financial manager more broadly about their business needs, you start hearing things like ‘we spend so much time reconciling accounting information with banking information, can it be made easy?’,” says Dias. “Solutions like Strands Business Financial Management (BFM) are really at the core of that, making a lot of the admin automated and easy for small/medium-sized companies. “On top of that, a lot of them really struggle with analytics. It’s not like they have an analytics department to think about how their business is going to develop. The off-the-shelf insights we can give them, in the context of the sectors and the broader economy that they are part of, giving them benchmarks, etc, enables us to help them focus their businesses going forward.” So, somewhat paradoxically, the use of AI and machine learning is actually enabling the bank to be more human by www.fintechf.com

offering a much more personalised service to its SME customers. “At the same time, we wanted to give relationship managers the ability to provide fantastic service much more efficiently, and be very fast,” adds Dias. Instead of labouring over multiple data feeds to work out a business’ creditworthiness, an algorithm instantly determines a credit limit, allowing the advisor to work with the customer on a personalised proposal. Because the credit limit and pricing has already been internally approved, the RM can sign if off there and then. Brian Stewart is a business development manager at Barcelona-based Strands, which also provides the personal financial management tools for the bank’s retail mobile banking customers. He believes that the paradigm shift to customer-led, personalised banking through digital platforms offers new opportunities for banks to monetise services in today’s margin-squeezed environment. “What’s really important, from the bank’s perspective, is that, if it’s interacting more with its SMEs, it gets to know both them and their customers better. There’s a lot more visibility. And, then, knowing exactly what customers an SME is interacting with, creates so many opportunities for upselling.” Dias, who joined Novo Banco in 2018 after spending 17 years at McKinsey, describes those credit opportunities as the ‘holy grail’ and also makes the point that having increased visibility helps the bank with its anti-money laundering (AML) responsibilities. “Knowing our customers, then being able to demonstrate that we know them, is almost as important as the actual knowledge, particularly because we’re then able to reliably talk about where and how transactions are done, to explain the sources of funds, and so on. “Having a much richer picture of our customers’ transaction network is something that is very helpful, particularly when we talk about high-risk customers, where we need to demonstrate that we know the transaction history well. “When it comes to cross-selling or upselling, we can take all of that knowledge of the day-to-day transactions and financial records of our customers

and their money in/money out history, and then, the real holy grail, in terms of profitability for banks, transform that into credit opportunities, which is a much more profitable line of business than just everyday banking.” Stewart sees more banks forging partnerships with fintechs like Strands to better serve the increasing digital demands of their customers, both business and retail, over the next five years. “Everyone’s clear that the demographic is changing and Novo Banco has demonstrated that banks really need to partner with fintechs at the moment, because theirs are the most innovative solutions that are coming to the market.” Dias sees increasing customer engagement being pivotal as Novo Banco further remodels itself over the next decade. “With the rise of digital, we see the opportunity to serve customers much more broadly, not only around open banking ecosystems and their financial needs, but broadening out support well beyond pure financial services.

What’s really important from the bank’s perspective is it’s interacting more with SME clients

Brian Stewart, Strands

“Where do I see engagement going in the next five or 10 years? The vector I see being driven harder is how we can be relevant around broader ecosystems, and how we play different roles within those ecosystems. Of course, as a primary relationship bank, we’d love to be in a position to be the front brand to our customers and orchestrate the experience for them. But we can also be the silent partners in a ‘finance-is-everywhere’ kind of way.” “Some of the big banks are very slow to move,” says Stewart. “Novo Banco went out to the market to look for an innovative solution from a fintech, and that was Strands. But if other banks don’t make a change, if they’re not offering a seamless user experience, they will become dinosaurs.” Issue 21 | TheFintechMagazine

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CUSTOMER INTERFACE: SMALL BUSINESS BANKING

Getting to know you...

Understanding how small businesses tick used to be the sole role of bank relationship managers. Now, say Codat’s Yasamin Karimi and U.S. Bank’s Irv Henderson, AI is helping them get even closer Small and medium-sized businesses (SMBs) have faced historic challenges over the past 18 months. Enforced closures, a dramatic shift from in-person to online sales, and jumping through hoops to obtain precious rescue funding (for those that could get it) have taken their toll and left this significant economic segment reeling.

At the same time, the sudden somersaults banks had to perform to deliver rapid loan injections at governments’ behest, accelerated the need to focus on scaled digital banking solutions to small business customers remotely, when visiting a branch was no longer easy or desirable. The solutions quickly engineered to plug that gap have opened up a raft of new possibilities, perhaps the most exciting of which is the ability for machines to mimic relationship-led approaches, the loss of which has been long-lamented by business owners who miss the tailored support than banks’ business relationship managers used to provide. Aside from the particular challenges posed by the worldwide pandemic, life has long been hard for SMBs – from the endless amounts of admin that owners shoulder, to the difficulties in managing invoicing and cashflow, and securing the credit lines they need to supplement it. But an NCBI report looking at the initial www.fintechf.com

impacts of the coronavirus on active small businesses in the US was bleak. Using data from the April 2020 Current Population Survey, it found that SMB numbers plummeted by 3.3 million, from 15 million to 11.7 million, or 22 per cent, from February to April 2020 – the largest drop on record. Equally troubling, a report the same year by JP Morgan and Chase Co, discovered that half of SMBs operate with fewer than 27 days of cash reserve, making them particularly vulnerable in the current and any future economic crises. Meanwhile, PwC research among

We’re beginning to think through things like elastic lending based on real-time data… This is an epic journey for banks Irv Henderson, U.S. Bank

469 US SMBs suggested they felt left out in the cold by banks. Although 81 per cent said they still had the same level of trust in their banks as before the pandemic, 55 per cent said they would like them to be more proactive in helping them through their current troubles. And there were indications that usually loyal SMB

customers were willing to look elsewhere to find solutions. Nearly two-thirds (64 per cent) said a lack of transparency, trust and relationships could lead them to choose a new provider, and 61 per cent could be prompted to move, due to a lack of personalised assistance. Irv Henderson became chief digital officer for small business at U.S. Bank two years ago, when the bank acquired the Talech software company that he’d founded. The bank recognised that it needed some of the groundbreaking solutions Henderson’s tech offered in order to address exactly these kinds of problems. He now focusses on helping small business owners to run things better through software. “Before starting Talech, I led the mobile products division at Yahoo!, so I’ve spent a couple of decades thinking through customer experiences and software experiences for business owners,” says Henderson. “Our journey, at U.S. Bank, is increasingly about getting in front of small business owners through software in order to deliver the bank’s services.” Small business owners’ problems also preoccupy Yasamin Karimi, head of product at British software company Codat. She has a background in payment services at Mastercard, UK challenger Starling, and in her own business. Issue 21 | TheFintechMagazine

CUSTOMER INTERFACE: SMALL BUSINESS BANKING with a unique and valuable view of their “Our primary focus is on making small financial health. However, understanding businesses’ financial lives easier by and interpreting that volume of data can providing the banks they use with seamless be difficult, which is why we’ve launched integrations into small business software our Insights product to provide banks systems to automate a lot of what they do and other financial institutions with with that bank, like applying for a loan,” out-of-the-box tools to better understand she explains. business performance metrics so they can The pandemic has accelerated banks’ develop and offer more useful products for adoption of such solutions, Karimi says. their business customers.” “It moved the primary delivery Harnessing this data also helps to mechanism for financial products online, enhance banks’ relationships with those as businesses moved online, and a change business customers, says Henderson. that was already rapidly progressing has now been propelled forward. “People stopped going into physical branches, which was a challenge for any banks that weren’t used to operating primarily online. In related areas, like payments, the pandemic led to huge growth in open banking in the UK, and more than 2.5 million people now use it to move, manage and make the most of their money – that’s a mighty 150 per cent rise in the number of users since the outbreak of COVID-19.” Henderson’s experience the other side of the Pond was similar. “One of the core “If we thought pain points for SMBs, bank/small business is cashflow. In most relationships would take major markets in the 10 years to achieve mass US, 85-90 per cent adoption of digitisation, of SMBs have less that’s now probably three than half-a-million in or five years,” he says. Yasamin Karimi, revenues. Cash really, “When I started Talech, Codat really matters and we I was motivated by can help them maximise it by using data to significantly improving small businesses’ deliver delightful product experiences, like efficiency to help owners get home earlier speeding up payments and delaying to their families, by giving them better pay-outs until they’re due. Anything that technology. Now I’m at U.S. Bank, that’s still brings more of the bank’s services into that what it’s all about. With business owners customer journey is really powerful, and not walking into bank branches, we’ve makes them really feel helped.” pivoted to digitising those touchpoints, The integrations that Codat provides using technology to schedule online with software systems that businesses meetings and contextually present the use, gives access to real-time data, so that next opportunity, whether that’s working banks can also better understand their capital or a new business credit card, to business customers and improve the bring services to the customer, rather than standards of service they can offer. waiting for them to ask.” “So, instead of being reactive when a Some of this is about mobilising data business makes a specific request, a bank better, as Karimi explains: “On average, can proactively assess its data to provide it business owners use around 100 software with a loan, for example, or a cheaper credit applications to manage different areas card rate,” explains Karimi. “That changes of workflow, from accounting to online the relationship dynamic, enables banks payment systems, and these provide banks

Instead of being reactive when a business makes a request, a bank can proactively assess its data to provide a loan, for example. That changes the relationship dynamic

TheFintechMagazine | Issue 21

to garner a greater share of the SMB’s wallet and means the SMB is having to manage fewer applications.” For both Henderson and Karimi, the whole object of the exercise is to keep customers close. “If you bring in rich data that allows customers to take smart actions, that’s incredibly sticky from a bank’s perspective,” says Henderson. “We’re beginning to think through things like elastic lending, building on real-time data, to lend a business a certain dollar amount at the beginning of the year and a different dollar amount in the middle of the year, because we know their business is cyclical. This is an epic journey for banks. We’re likely embarked on a 15-year disruption here.” Ironically, through data, the relationship between banks and SMBs could come full circle, to one based on lifelong, deep understanding – the way things used to be. “Historically, when someone walked into a bank, the banker would know not only their name, but who they were related to, their family history. There is no reason why we could not deliver that in an even more powerful way,” says Henderson. “We believe a differentiated way of doing it is human-plus-digital. In terms of how we treat a business owner when they walk in, virtually, we are already there. And, if an initial conversation about working capital, for instance, highlights more comprehensive business needs, they can bring specialists, who could be anywhere in the country, into that conversation virtually.” This will all require some joining up behind the scenes, including the sharing of data between departments. “A prerequisite will be building interfaces that connect them,” stresses Henderson. “For example, an offer of working capital, in the context of someone already using the bank’s software to run their business, is perfectly natural. Somebody calling them out of the blue to ask if they want to borrow without understanding their business, is not. For customer retention, going forward, it’s going to be very important to get to that one view,” Karimi agrees that relationship managers are ‘the most important people to SMBs‘, but that to do their job well, they need empowering – with automated access to a level of data that can only come from a digital interface with businesses systems. www.fintechf.com

YOUR TRUSTED DIGITAL PARTNER SANDSTONE TECHNOLOGY HAVE BEEN WORKING WITH BANKS AND BUILDING SOCIETIES ACROSS THE GLOBE FOR MORE THAN 25 YEARS. During this time we have established a reputation of being a trusted digital partner for several of the UK’s largest financial organisations and we’re incredibly proud of our high client retention. From origination to online servicing, hybrid-hosting options and AI driven intelligent document processing, Sandstone provide simple solutions for your personal, business and private banking customer’s financial needs.

GET TO KNOW SANDSTONE Tune in to the Virtual Arena with Ross Watts, Sandstone’s Chief Customer Officer. Ross and Mike Gamble, Director of Analysis and Design at TSB Bank, explore how the impact of AI, within financial services, is gaining in both depth of service and breadth of capability. In this month’s edition of The Fintech Magazine, read our exclusive interview with Sandstone’s CEO, Michael Phillipou. He discusses Sandstone’s global journey and the importance of selecting a trusted digital transformation partner. Read more on page 64.

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22/06/2021

CUSTOMER INTERFACE: ATMs

The ATM pool table Shared provision and even outsourcing of ATMs is a growing global trend, but it’s not happening everywhere in the same way or at the same pace. Senior research analyst Laura Raus gives us a snapshot from carrying the branding of a different bank. A single ATM could meet customer RBR’s latest Global demand, but multiple machines remain ATM Market and in place because each bank fears Forecasts report inconvenience for its customers and a loss As customers turn to digital payments, and demand for cash wanes, banks in an increasing number of countries are looking to pool their ATM resources, to keep cash accessible to their customers at an acceptable cost. In many countries, one often sees several ATMs in close proximity, each

TheFintechMagazine | Issue 21

of visibility and competitiveness if they remove machines. Nevertheless, excess ATMs are an increasing burden for banks. While it is already fairly common for banks to have agreements for the mutual use of ATMs, and to remove ATM fees for each other’s customers, full ATM pooling – whereby banks relinquish ownership of their machines to a single deployer, which operates a shared fleet – remains rare.

POOLING GETS UNDERWAY IN BENELUX Comprehensive ATM pooling arrangements have existed in Finland and Sweden for a number of years and, more recently, pooling has gained a foothold in Belgium and the Netherlands, too. Since 2019, the three largest banks in the Netherlands have been transferring their ATMs to a joint organisation, called Geldmaat. This has facilitated the removal of many ATMs from locations where the machines of different banks were in close proximity. The migration is due to be completed in 2021, after which all bank ATMs in the country will be managed by Geldmaat. Geldmaat ATMs do not carry the branding of individual banks and are located away from bank branches. www.fintechf.com

Where a full pooling agreement cannot be reached, smaller-scale cooperation might be a stepping stone for the future

Following their Dutch counterparts, the four largest banks in Belgium announced, in 2019, that they would develop a network of ‘bank-neutral’ ATMs – a project that has been named Batopin (Belgian ATM Optimisation Initiative). The first such ATMs are due to be deployed in 2021, with the pooling expected to be completed by the end of 2025 at the latest. Participating banks aim to ensure that 95 per cent of the population has access to an ATM within five kilometres of their home or workplace. Pooling agreements are easier to achieve in small markets with a limited number of ATM deployers. In the Netherlands, there were only four ATM-deploying banks in 2019, when the Geldmaat migration started. The one bank deployer that was not part of Geldmaat closed all of its nearly-300 ATMs in 2020, as they had become a target of explosive attacks. Indeed, the frequent and increasingly powerful attacks on ATMs in the Netherlands was a factor in the decision by the largest Dutch banks to pool their www.fintechf.com

machines. Similarly, in Brazil, a high number of physical attacks was one reason major banks there decided to hand over most of their off-site ATMs to joint organisation TecBan between 2014 and 2017.

AGREEMENTS STILL HARD TO REACH In large markets where cash is still commonly used, or where the security issues are less severe, pooling agreements are harder to reach. One concern is that smaller banks would benefit more and some banks would lose competitiveness. In South Korea, four major banks introduced joint ATMs, which carry the brands of all of them, at four Emart stores, in August 2020. However, it was reported in January 2021 that banks are hesitant to

expand this initiative, despite recognising the efficiency achieved by the pilot. In Thailand, it was reported in 2019 that interbank organisation National ITMX has decided to pursue a white-label model where a chosen third party would manage and possibly also own bank ATMs. In January 2020, two major banks – Kasikornbank and GSB – jointly launched a white-label ATM pilot project in five provinces, but have announced no further steps since it ended in October. In Japan, some regional banks have set up joint ATMs, as well as joint branches, in recent years. Japanese megabanks, however, have not followed suit so far, only entering into agreements to remove fees.

SMALL-SCALE COOPERATION IS A GOOD START Where a full pooling agreement cannot be reached, smaller-scale cooperation might be a stepping stone for the future. One factor that helped Dutch banks to agree on Geldmaat is that they had previously already handed over responsibility for cash replenishment and simple maintenance of their ATMs to joint organisation GSN, a predecessor of Geldmaat. Dutch banks have also long been coordinating when it comes to ATM locations. The Dutch Payments Association operates an information system that helps its members estimate which ATMs are more essential for keeping cash accessible. This is on the back of an agreement made by various stakeholders at the National Payments Forum that cash should remain accessible in the face of increasing digital payments. This agreement has helped reduce any concerns that the Geldmaat project could lead to under-provision of cash services.

MORE ATM POOLING LIKELY With the uptake of cashless payments, the pressure on banks to find efficiencies in cash services provision is only likely to increase. Accordingly, sooner or later, we are likely to see more agreements between major banks to pool their ATM resources in order to focus more on developing their distinctive digital channel propositions. n RBR’s annual report, Global ATM Market and Forecasts To 2026, covers 183 countries and is a comprehensive analysis of the development and future of the global ATM market. Issue 21 | TheFintechMagazine

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CUSTOMER INTERFACE: SELF-SERVICE BANKING

Bringing ATMs in from the cold Mark Aldred, VP of International Sales at Auriga, and Robin Setty, Senior Principal Product Manager, Partner Solutions, at ACI Worldwide, tell us how they’re banking on a new lease of life for self-service In February this year, financial solutions providers Auriga and ACI Worldwide teamed up to launch an ATM acquiring and self-service banking platform. Yes, that’s ATM as in the automated teller machine technology that was pioneered in the UK in 1967. If you’ve been following the ATM’s recent fortunes through the prism of the UK experience, you might be surprised that anyone is putting it at the centre of its customer engagement strategy, given the rows over interchange fees, a sizeable contraction in the ATM estate (down nine per cent in 2020 alone, according to RBR) and, not least, an unprecedented decline in cash use forced by the pandemic. ATMs in the UK are often casualties of branch rationalisation – often a euphemism for closure – leading to cries of anguish among communities, particularly rural ones like South Fermanagh in Northern Ireland, which lost its Bank of Ireland counter and ATM in Lisnaskea in July. But, in many parts of the world, it’s a very different story. Elsewhere, ATMs and the interactive teller machine (ITM) that many ATMs have evolved into, are seen as solutions – not problems. ATMs-on-wheels have provided a lifeline to Indian communities that were isolated from www.fintechf.com

banks during the pandemic, and will likely continue to play a major part in native HDFC Bank’s customer relationship strategy beyond the crisis. In Portugal, as social distancing and disruption to normal routines continue, the country’s 11,000 terminals, which are part of the fabric of daily life, have become even more valued – you can do anything from make interbank transfers to pay your income tax and (when entertainment is back in full swing), even order opera tickets from them.

With We see thethose new ATMs technology that are owned available, and now deployed is theby time banks to as repurpose being at the the heart ATMof channel. the modernisation The business case of theisbranch there estate

Robin Mark Aldred, Setty, Auriga Auriga

But as banks’ branch networks morph into human teller-less advice centres and even combine into cost-saving, multi-brand community finance hubs, Auriga and ACI Worldwide are betting on ATMs and their derivatives featuring more strongly than ever in self-service banking estates. To do that, the back office technology that has historically seen ATMs operating in

a silo, divorced from other customer channels, needs to be addressed. That’s where Auriga and ACI’s platform comes in. By making the terminals part of a bank’s omnichannel network, they’re bringing ATMs in from the cold. Auriga provides solutions built on the principles of openness and multi-vendor software, which integrate a bank’s digital channels into a single environment, sharing services across them. It includes all of the components required to manage a self-service estate and ‘regenerate the branch of the next generation’. ACI Worldwide, meanwhile, provides real-time payment solutions for 6,000 customers across the globe, spanning the billers, merchants and banking sectors, including 19 of the leading 20 banks. It’s a partnership of complementary competencies, which sees ACI’s Enterprise Payments Platform – helping banks manage new payment types, standards and regulations – integrate with Auriga’s omnichannel banking solution, WinWebServer (WWS). “Together, ACI and Auriga can offer ATM deployers – banks or not – and owners of self-service and branch estates, a best-of-breed solution,” says Mark Aldred, VP of international sales at Auriga. Issue 21 | TheFintechMagazine

CUSTOMER INTERFACE: SELF-SERVICE BANKING “There isn’t a vendor out there, or a collection of vendors, with a similar proposition. It’s really about each party delivering its speciality,” adds Robin Setty, senior principal product manager, partner solutions, at ACI Worldwide. “The world of electronic payments has evolved so much since ACI delivered its first ATM solution back in the mid-70s, and that trend continues to accelerate. Our solutions have become more and more sophisticated, delivering real-time, any-to-any, secure, always-available, payments. Similarly, physical devices are also becoming more and more sophisticated, offering capabilities such as video assistance and targeted advertising in the self-service banking world.” For that reason, he says, it no longer makes sense to treat the management of ATMs ‘as merely a component of the payment engine, which is what they have been so far’. “The management of terminals and devices merits its own solution,” insists Setty. “So, for ACI, it became a question of whether we wanted to build something ourselves or partner. Given Auriga has been providing advanced terminal management solutions for decades, and is hardware vendor agnostic, it made a lot of sense to form the partnership.”

Where does cash fit in? In 2019, when LINK (the UK’s largest cash machine network) published the independent Access To Cash Review, it projected a sharp reduction in cash usage over the forthcoming decade. At the same time, it warned that Britain wasn’t ready to go cashless and that action needed to be taken to protect those continuing to rely on cash, who were at risk of being ‘left behind' Fast forward 12 months and a LINK update suggested the shift away from cash (as the COVID-19 global pandemic took hold) had sped up significantly, but with the social inequalities previously identified in the Access To Cash Review remaining. Since then, total withdrawals have climbed back up (although still significantly below pre-COVID levels) and most ATMs that were closed in lockdown are now working again. Branch closures, however, continue apace – and not just in the UK, which lost more than 300 in 2020 and is slated to lose several hundred more by the end of 2021. In the US, a recent study concluded that, at the current rate of contrition, bank

TheFintechMagazine | Issue 21

branches will be extinct there by 2034. Such a dramatic remodelling of banking culture in mature economies could be a new lease of life for the ATM, albeit, perhaps, under a new management structure. For example, the pooling of ATMs, while not a new concept, having been around for 40 years and longestablished in the Nordics, is becoming an increasingly popular go-to solution – especially to serve communities ‘left behind’ in the digital finance race. Underpinning ATM pooling is the transfer of the ATM fleet ownership of two or more banks into a separate operation – maximising opportunities for banks to

self-service devices that offer a lot more.” In fact, says Aldred, operators should be looking to build the transaction sets available via self-service and assisted self-service machines to increase the commercial viability of both through investment in hardware such as scanners, video cameras, and cash and coin recycling. “We see those owned and deployed by banks as being at the heart of branch estate modernisation. Self-service and assisted self-service are fundamentally important – the same technologies, but with more capabilities.” In short, self-service customer experience will improve as new added-value features are rolled out, such as video banking, contactless withdrawals, government disbursements and automated deposits. For providers like banks, processors and independent sales organisations, using a single ATM and self-service banking platform means further scope for revenue growth by accelerating the speed with which they bring services to market, and creating cross-selling opportunities at the ATM. It will also help banks maintain cash access and reduce costs, to help their ATM Multi-faceted: networks break even or ATMs are no longer become profitable. cash-and-dash machines More widely, it remains rethink and modernise a question of balance for their ATM services, banks: offsetting branch reducing operational rationalisation against the costs in the process. use of online channels, Banks then have the with ATMs as a half-way option of deploying house. The ‘branch’ of the next-generation services future might not be a Robin Setty, that can merge physical branch in the traditional ACI Worldwide and digital channels in a sense, at all, its functions highly secure, modern technology platform delivered by totally self-service or assisted that offers improved customer experience self-service devices. through the integration of ATM with mobile Whatever the new format, Setty says and internet self-service banking capabilities. it’s time to reinvent the ATM. “The 'T' in Hence, banks will be able to define an ATM stands for 'teller', but it’s never really integrated channel strategy, optimising and been a teller; it’s been a cash dispenser. transforming their branch and ATM estates. So, perhaps the real teller machine is a And, for the poor folk of South Fermanagh, self-service device that allows the customer and others, it could even mean a broader to interact (perhaps through video-assisted range of services than were available to terminals) and perform functions in a them from a single bank before. branch-type environment, with staff “We’re already seeing a number of these using tablet technology, engaging with devices – ATMs, self-service estates – now customers one-to-one, and selling them being run by organisations other than products and services tailored to their banks, including, of course, Auriga,” says specific needs. With the new technology Aldred. “We’ll see these organisations available, now is the time to repurpose the starting to deploy next-generation, ATM channel. The business case is there.”

With the new technology, now is the time to repurpose the ATM channel. The business case is there

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FINTECH FOCUS: COMMUNITY BANKING

Localheroes? Real community banking in the UK? Pigs might fly, thought Ron Delnevo, Chair of Cash and Card Consultants. But then he spoke to Matt Grant, CEO, of Your Money Hub, and now his hopes are restored I gave up years ago urging traditional high street banks to stop closing their bricks and mortar branches, because I realised it was a waste of breath. The number of UK bank and building society branches peaked at more than 20,000 in the late 1980s. Today, in 2021, there are fewer than 7,000 – and, every month, more are permanently closing. Several thousand communities around the UK that previously enjoyed bank branch services now have none. The dye is cast as far as the UK’s Big Five banks are concerned. They evidently envisage a purely digital future for themselves and their customers. They are expending huge resources in an effort to turn that vision into a reality, as they seek to fend off competition from a growing number of app-based banks. Starling and Monzo are only the best known of a plethora of new market entrants. The Big Five are all PLCs, so have a duty to their owners to increase shareholder value. Their focus on a digital future has been a commercial decision that they clearly believe is in the best interests of shareholders. It is difficult to argue they do not have every right to make that decision. So, having given up on the traditional banks as providers of community banking services, I started to look around for alternatives. In doing so, I quickly decided that a revival of the UK building society movement is a pipedream, so I looked further afield for viable solutions. It was around five years ago that I realised that Australia had produced a solution that should work in the UK. It came in the shape of the Bendigo Community Bank. The Bendigo Community Bank model was conceived in the late 1990s, in response to a series of bank branch closures in rural Australia. In a situation very similar to the UK experience, between 1993 and 2000 more than 2,000 bank branches had closed across the country. Businesses

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in turn abandoned these increasingly economically-challenged communities. Residents in small rural settlements were particularly alarmed by their suddenly unbanked status and the impact on their beleaguered local economies. Community buy-in to having their own bank is vital to the Bendigo model. In particular, communities are required to put some upfront skin in the game in the form of investment capital to establish a bricks and mortar operation. In the early years, the required investment was around A$300,000; today the local capital commitment is closer to A$700,000. Typically, between 100 and 200 local residents step forward to make the required investment, becoming shareholders in the venture.

It is imperative that we put community banking in place before thousands of UK communities wither and die Matt Grant, Your Money Hub

Bendigo Community Bank branches operate under what is essentially a franchise model. Revenue is split between the bank and the local community enterprise on a 50/50 basis on basic banking products. For more complex products, Bendigo Bank’s share of revenues is higher. In return, Bendigo Bank is responsible for IT, products, capital, and regulatory and compliance issues for the community bank, and undertakes staff training. The profits made by the local community enterprises are primarily used to fund local projects that are aimed at making the lives of residents better. On average, around 20 per cent of a community’s share of revenues is allocated for dividends to reward the local shareholders. The Bendigo model works. There are more than 300 Community Bank branches

operating successfully around Australia. At least one of those communities has fewer than 1,000 adult residents. Bendigo is keen to share its learnings, and has visited the UK on several occasions. However, those visits have not proved to be the catalyst for the launch of community banking here. When UK Finance announced its Community Access To Cash Pilot scheme, funded by a £1million contribution from the LINK ATM Network, I had high hopes that one of the solutions piloted would be community banking. Sure enough, something called a Bank Hub was created in several of the eight pilot towns, including Rochford in Essex. A website states that Rochford, which has a population of around 20,000 people, has ‘a new bank hub, run by the Post Office and shared by five mainstream banks.’. Inside, there is a counter where cash can be withdrawn and deposited; a free-to-use ATM; a machine where cash can be deposited; and each of the Big Five banks sends in one member of their staff, one day a week, to lend a hand in providing services to locals who pop in. The whole show cost £120,000 to put together. It is good to see that the Post Office, despite all its well-publicised troubles with IT systems, still has the wherewithal to get involved, but what has been parachuted into Rochford is a long way off the community banking model pioneered by Bendigo Bank in Australia; local shareholders and their investments are nowhere in sight. To get an insider view of the Rochford pilot and, indeed all things community banking, I caught up with Matt Grant, a young entrepreneur who gained his grounding in banking at RBS/NatWest and Citibank, worked with tech startups in the UK, and is now CEO of Your Money Hub, an organisation intent on bringing genuine community banking to the UK and supporting communities that have been deeply affected by the closure of their bank branches. www.fintechf.com

Matt and his team were responsible for identifying Rochford as a suitable town for a community bank and, indeed, drafted the bid submitted by the community. So, I was interested to hear what he had to say about the future of community banking in the UK. Ron Delnevo: Where does your interest in community banking come from? Matt Grant: I grew up in an archetypal British market town in Hertfordshire. Being the youngest of five boys, there was no excuse for not going out to earn your own crust, so at the age of 16 onwards, and all the way through time at university, I worked for a number of small retailers, restaurants, bars and pubs. I saw first-hand just how important these businesses were to the communities around them and just how challenging it was for the owners to keep them afloat. Local bank branches played a vital role in the support and success of these micro economies RD: Do you really believe there is still a need for bricks and mortar bank branches? MG: The current model is not sustainable, not least because the Big Five banks have decided not to support it. But there is, without doubt, a need for community banks. I truly believe that a community without retail, commercial, leisure and banking services is a community halved. It is imperative that we put community banking in place before thousands of UK communities wither and die. RD: What do you think of what has been produced by the cash pilot project in Rochford? MG: My team helped identify and support the applications of five of the original 21 applicant communities. Of those five, the community of Rochford in Essex was successful. I think that it’s a small step in the right direction. It’s great to see it on the front page of the BBC News website, raising awareness of the problems faced by Rochford and so many other similar communities across the UK. Do I think the Post Office is the right partner in helping shape and build a long-term, sustainable community hub? No, I do not, but I hope we can all learn some valuable lessons from this project. It will be very interesting to see if the main www.fintechf.com

UK banks have any interest in supporting Rochford after the pilot. MG: What are the future plans for Your Money Hub? MG: Our team very much believes community banking is viable in many locations in the UK, so long as there is real buy-in – and investment – from a significant number of the local residents and businesses. We are currently working with a number of communities to confirm that those communities are fully committed to this innovation. We are also in discussion with potential financial services backers. We are confident the Bendigo Community Banking model can work in the UK. A partnership with a single, fully-committed financial services provider is a vital part of the formula for success. Watch out for more information from Your Money Hub this year – and for us opening in your community in 2022! Listening to Matt Grant, it sounds like my years of waiting for genuine community banking to arrive in the UK could be over. Millions of people, living in thousands of bank-starved communities, will be fervently hoping the same. Issue 21 | TheFintechMagazine

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HOW TO (RE)BUILD A BANK: CUSTOMER FOCUS After a white-knuckle ride of a year for the global economy, Greg Becker, president and CEO, of Silicon Valley Bank (SVB) Financial Group, must have been delighted – and perhaps a little surprised – to be able to announce, in July, that the Group had nearly doubled the size of its balance sheet over 2020/21 and added a record 1,700-plus new clients in the most recent quarter. He credited that increase to ‘consistent focus on client engagement and expanding the range of services we offer. These investments – in people, technology, and infrastructure – are directly supporting our growth and peer-leading profitability’. The importance of responding to client needs was a recurring theme in his earnings statement. And, after nearly 40 years of observing the behaviour of the entrepreneurs, enterprises and investors it supports, the ‘bank to the innovation economy’ has apparently become very good at it. Meanwhile, technology company Technisys, also had a notable year. With $50million of venture capital backing from Redwood Capital and five clients (with more in the pipeline) in North America, the company established an HQ in Miami in June and began adding to its teams across the Americas. To date, it has enabled banks and fintechs to elevate customer engagement for more than 100 million banking customers in 16 countries, including its birthplace of Argentina, with its next-gen digital and core banking platforms. Commenting on its move into the US at the time, the company said that

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Whether the old adage ‘the customer is always right’ is valid or not, the core issue for business has always been how to predict and respond to their changing needs. David McHenry from Silicon Valley Bank and Michael Haney at Technisys share their views what differentiated it from other existing large and very well-known platform operators there was its more flexible approach. It aims to help clients focus on their individual customers, working out not just what they are trying to do and enabling that, but understanding the motivation behind it – how they are feeling, what they’re likely to do next – and then helps clients respond appropriately. “Banks are no longer just transaction processing corporations, centred around the financial product itself,” says Michael Haney, who joined Technisys to lead its Digital Core business in North America last year. “It’s about providing insights into their customers’ financial health, providing actionable data that they can use to achieve their goals, meet their needs and, ultimately, improve their financial health. “So, banking becomes an enabler, rather than just something a person needs to do. We’re now assembling various deposit, lending and payment products into a capability that addresses a specific customer need, such as early pay/early wage access products, which are really taking hold.”

Technisys’ target companies are challengers, speedboat launches by legacy banks and non-financial services businesses that want to embed banking processes into their customer journeys. Its foundation product is its Cyberbank Core platform which, along with what it calls a digital engagement accelerator (Cyberbank Digital), gives banks access to a Cloud-native and API-centric, end-to-end digital architecture and third-party API marketplace that allows them to dynamically change and scale their products, based on customers’ behaviours and needs. Those behaviours and needs changed dramatically, of course, during 2020, and amplified calls to improve banking for the under- or unbanked segments of the US economy (people and business) using better data and innovative personal financial management (PFM) and business financial management (BFM) tools. Among Technisys’ first customers outside Latam was Rellevate, a neo bank concept built around earned wage access solutions, which is reaching out to the underbanked through employers. Technisys’ platform underpins Rellevate’s Pay Any-Day service, which was launched last year in the US. Targeted at the hourly waged, it works with employers to provide staff with access to money they’ve already earned without having to wait for their regular monthly payroll cheque. In this way it hopes to reduce reliance on traditional pay-day lenders with their sky-high interest and service charge fees.

Issue 21 | TheFintechMagazine

HOW TO (RE)BUILD A BANK: CUSTOMER FOCUS In Canada, the Cyberbank platform is powering the country’s newest digital banking app, Brightside, from ATB Financial, designed to enable customers to spend and save without switching banks. It has also enabled Brightside to give customers the ability to order and activate a payment card, and set up savings features like Round Ups and Save Automagically, all within the app on their phones. Haney believes those mobile devices are going to start being supplemented by other ways of interacting with a bank, too – via smart speakers and smart watches. In short, where customer banking actually needs to be. And data will be fundamental to both determining and driving that customer behaviour and informing product development.

Picking the right things to develop, devise and prioritise is all based on data and that’s something the banks are making a better job of David McHenry, SVB (UK)

“Picking the right things to develop, devise and prioritise is all based on data and that’s something the banks are making a better job of,” says David McHenry, head of global treasury and payments advisory for the UK at SVB. “Maybe we sat on data in the past and didn’t use it as well as might have; but it’s going to be our success in the future.” Silicon Valley Bank sees customer demand from two perspectives: its own in serving entrepreneurs and business customers, and as an investor in startups and scaleups that are focussed on, and driven by, their customers. It claims that around half of US-based, venture-backed tech and life science companies bank with it, and 65 per cent of VCs themselves. It moved into the UK to build a similar portfolio a couple of years ago. “We have an amazing set of clients, who are driving their businesses, and doing a lot of these things that we’re talking about. From a competitive standpoint, it’s these hyper-focussed platforms that are growing and scaling rapidly,” says McHenry. “It’s that idea of making data influence

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decisions and drive your user interface, your user experience and your go-to-market strategy. That’s what we mean when we talk about iterative development, picking the way a client expects to work with a financial institution. “At SVB, I think we have a fantastic engagement model, in terms of how we go to market, how we support early-stage companies, growing companies and multinationals, and their investors. When we talk about product development, we use data to tell us about our click-through rates, identify our challenges and failures and what’s happening on our platform. And we use it to make decisions about what we prioritise, what we streamline, what we enhance, and to identify the new areas that clients are looking to financial platforms to use. That means we are building the right integration and interaction into the future.” The high net worth individuals that SVB has helped create in the tech space, for example, will have their private banking services enhanced by the recent purchase by SVB Financial Group of Boston Private Financial Holdings, which it hopes will capture a larger portion of an estimated $400billion opportunity among the bank’s clients. They will benefit from integrated wealth management, trust and banking services, with bespoke solutions and what’s described as a next-generation, digital wealth access portal. Meanwhile, the bank is broadening its corporate account holder services through third-party deals and API integrations with a wide range of solutions providers. A referral agreement struck between SVB and payments service software provider Modern Treasury in May, for example, provides mutual clients with the ability to process payments directly through their SVB bank accounts. It will enable users to send, receive, reconcile and approve payments using SVB’s domestic and international payment methods and currencies. The integration is aimed at increasing efficiency and providing transparency around the full payments process for clients, adding to the portfolio of specialised banking services that are tailored to fast-growth companies. In July, SVB also extended its Europe, Middle East and Africa (EMEA) partnership with currency management automation software provider, Kantox, to its

corporate account holders in the US. They’ll now also be able to leverage the Kantox Dynamic Hedging solution to automate the management of their currency risk and give them instant visibility into both macro and micro foreign exchange exposures. Risk is automatically offset by booking, reporting and reconciling hedging transactions in real-time – and all with minimal human intervention. According to KPMG, the US now accounts for more than 70 per cent of global fintech funding. The latest PitchBook-NVCA Venture Monitor quarterly report shows venture capital activity there was up across all sectors in the first half of this year. Figures showed total deals in H1 2021, reached $150billion across 8,406 targets, while non-traditional investors were on track to have raised a further $115.9 billion. On the fundraising side of the equation, $73.5billion was raised by 337 venture funds during H1 2021 – not far off the $80.5billion in the whole of 2020. So, it was against a background of those metrics that, in July, SVB Financial Group also announced a joint venture with Nasdaq and a consortium of leading investment banks to create Nasdaq Private Market, an institutional-grade, secondary

We’re now assembling various deposit, lending and payment products into a capability that addresses a specific customer need Michael Haney, Technisys

trading venue for private company stock. The aim is to give SVB’s fast-growth companies more liquidity options and broader access to investment – which, in terms of responding to client needs, is of another order of magnitude all together. SVB Group CEO Greg Becker said he expects it to make more and more frequent strategic investments of that type in future. “Markets and moods may change,” he told stakeholders. “What won’t change, however, is our faith in and focus on innovators and the innovation economy.” If customer needs are a moving target, then both SVB and Technisys look to be keeping them in their sights. www.fintechf.com

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HOW TO (RE)BUILD A BANK: REMOTE WORKING

Sunset on the office on the Sunset

As home working becomes a permanent arrangement for many, AutoRek’s Nick Botha, Tony Warren from Lloyds Banking Group and Robert Swales at Nationwide consider how regulated industries will build around it One in four of the UK’s one million financial services employees wants to work from home full-time, while 69 per cent don’t want to spend more than two days a week in the office.

The figures, revealed in a survey this summer from Accenture, suggest that, despite Zoom fatigue, and pets, partners and kids doing their best to distract them, staff won’t be rushing back to their old desks any time soon. Is that a problem? Quite the opposite, say the researchers. In an earlier study – during the last lockdown in February – they suggested that a remote or hybrid workplace policy would a) save firms a fortune, b) improve productivity and retention and c) give the industry access to a borderless talent pool. Many employers that had gone through the pain of rapidly transitioning the majority of staff to home working during the pandemic had already, in fact, come to broadly the same conclusions.

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By March this year, Nationwide had told 13,000 staff they could choose to work interchangeably from home, their local branch or the bank’s HQ. Its own internal survey suggested more than half would opt for the first, permanently. Lloyds Banking Group is currently also working on a pick’n’mix approach; a strategy that will allow staff to choose between home/hub/hybrid locations, which could see the organisation slash office space by 20 per cent over three years, according to management. The freedom to ‘locate for your day’ speaks to a progressive new era in industrial relations, but it’s far from simple to achieve in a heavily-regulated environment like financial services. Under pressure to relentlessly raise the bar on cybersecurity, while coming up with new and improved products and services, institutions were forced during the pandemic to rely more on third-party providers as they coped with this new way of working.

“No matter how defined the rules and regulations are, or how robust you think your internal systems are, there’s always the next thing lurking around the corner,” observes Nick Botha, business development manager for Scottish regtech AutoRek. The fatality of that argument was proved in March 2020, since when, says Botha, there’s been something of a sea-change in financial institutions’ attitudes towards partnering with companies like his own. The change has been for the better, he says, allowing banks to focus on their key activities, while their technology partners can focus on what they do best. “Financial institutions need to shift their mindset, from controlling everything in their boundaries to really partnering with the right organisations,” says Botha. Regulatory and financial controls are where AutoRek is focussed – and that's very much middle-and back office territory, where banks have been guilty of building high walls around their IT www.fintechf.com

Location, location: Financial districts like the City of London might look very different, devoid of staff

systems in the past and not engaging particularly well with third-party providers, particularly younger fintechs. The government-backed Fintech Pledge, launched last year, aimed to address that by encouraging enhanced collaboration between banks and fintech firms, thereby ensuring the UK’s continued position as a global fintech hub. Both Lloyds Banking Group and Nationwide are signatories to the Pledge and, when the pandemic hit, were already deconstructing their organisational models as part of ongoing digitisation journeys. Nationwide had, in fact, rolled out Microsoft’s collaboration tools Office 365 and Teams in 2019 and, as both banks were clients of AutoRek, compliance was not compromised in the shift to remote working as processes were in place. Tony Warren, senior manager for automation at Lloyds Banking Group, says that in the last 12 months the bank had ‘probably moved on 10 years’ worth of technology, speed and working in a more agile way… and we will not be going back to the way we were’. If that’s the case, then any temporary spotlight thrown on the particular www.fintechf.com

challenges of compliance in a crisis, particularly to do with home working, will be turned on to full beam. Back in March 2020, the UK’s Financial Conduct Authority initially indicated an easing of rules governing data privacy, fraud and money laundering, offering some ‘flexibility within existing requirements’ around, for example, identity verification. But that didn’t last long. As far as monitoring and compliance are concerned, it now expects working from home to be equivalent to working in the office. In October, it reminded firms that it expected them ‘to have updated their policies, refreshed their training and put in place rigorous oversight reflecting

Firms need to shift their mindset, from controlling everything in their boundaries, to really partnering with the right organisations Nick Botha, AutoRek

the new environment – particularly regarding the risk of use of privately owned devices’. It was against this background of heightened operational risk, in fact, that AutoRek struck a new partnership with iSoftware4Banks, a US-based provider of services to support effective financial reporting and compliance. At the time, AutoRek said that the rapid shift in company-wide working from home had ‘resulted in various operational issues surfacing across banks, credit unions, investment managers and insurance firms, thereby requiring IT infrastructure, systems and outsourced services to be reviewed globally to future-proof robust operational resilience strategies to ensure uninterrupted service’. “A lot of this is still new to the regulator as well,” says Robert Swales, a senior finance systems manager at Nationwide. “As the regulator’s understanding of the markets’ needs – Cloud technology, for example – improves, it allows us to do more than we’ve been able to in the past. Issue 21 | TheFintechMagazine

HOW TO (RE)BUILD A BANK: REMOTE WORKING experience we’ve had at Nationwide is that “What’s acceptable to the regulator is we’ve not dropped the ball. The projects something that we have to be mindful of I’m involved in are keeping the same pace as we look at new technology. We don’t of delivery that we would’ve had in a want to take a punt on something, because normal situation,” says Swales. stability is so important to finance. Making “The biggest challenge is more on the sure we’re buying the right products, the people side; teams that were used to ones that are secure and resilient, is key. working together, day in, day out, in the It’s why we have to work hand-in-hand office, just don’t have that same experience with the regulator on some of this.” now that they’re working from home. There are other risk factors, too, such For back office and as how to limit internal middle office, that’s fraud when staff are really where the operating out of private work is now, just premises where the in terms of how usual monitoring and we embed people constraints don’t apply; and culture in this and how employers new world.” in regulated industries certify the suitability Tony Warren, Lloyds of new employees, and Banking Group whether, in future, that will cause more intrusive background checks into their domestic lives. Tony Warren believes financial institutions’ in-bred awareness of enterprise-wide risk management means they will move fast to find answers to all this and more. “I’m not going to say it’s easy, because 15 months ago, no one was foreseeing this, but we do have that ability,” he says. “A lot of it comes down to the tech we use; the stronger the tech, the greater our control. But it’s also about the culture of the organisation and what we want our risk appetite to be. Underpinning that is a strong business model of risk management.” Given the quantum leap in technology Time for a change: over the past 18 months, neither Tony But how will the Warren nor Robert Swales, believes that, in culture cope? the medium term, technology will be the principle limiting factor for banks adapting With Cloud-based to the new norms, though – it will be applications now the finding the best way for staff to interact. direction of travel They both found video conferencing for a lot of companies, platforms like Microsoft Teams and Zoom ‘making sure we’ve got invaluable in maintaining communication security and control and continuing projects during lockdown. is really key’, says In particular, they helped Nationwide Warren. “But all of that Robert Swales, progress its partnership with AutoRek, the is underpinned by the Nationwide often logistical nightmare of trying to get collaboration tools, various super-busy senior executives from because without the two organisations into a room together, ability to collaborate effectively, we won’t replaced by a simple virtual meeting they be able to deliver much at all.” could attend from anywhere. He is unclear how managing employees “Some of the collaboration tends to be a in disparate locations will work best. Then bit more challenging, and sometimes you there is the challenge of building remote end up having to have more meetings to teams and bringing new people into the get the same points across, but, overall, the organisation. It saddens Swales that the next

Without the ability to collaborate effectively, we won’t be able to deliver much at all

generation’s experience of the industry will be very different to that of his own. “Those of us who are some way into our careers have built networks, know how the organisation works, know how to get things done. That’s something that’s been built up over time, through working with people, and networking. In the new world, though, how is that going to be possible? “That’s the big challenge that no one’s really answered yet,” says Swales. “Because you don’t have those coffee conversations or corridor meetings; where you are introduced to somebody who’s on your periphery, who then opens doors to different conversations and opportunities to network. In this Teams world, this Zoom world, you very much do the work and speak to the people you need to speak to; you don’t necessarily stray from that path. “We’ve a new staff member starting in the team next week whom I’ve never met in person and maybe I never will, because now we’re starting to recruit people from a much wider area who don’t need to commute to London or Swindon. The pros and cons of that are you get a much wider pool of talent, more diversity, new ideas, new ways of working and thinking. But the challenge will be how to develop them. I imagine that’s something most organisations are really going to be grappling with, over the coming months and years.” Despite the pain and the as-yet-unanswered questions, Botha is convinced that the industry won’t regret the changes it’s made. “This time last year,;when everything started to become quite manic, we saw clients particularly stressed and worried about what their world would look like – their business-as-usual processes completely changed,” he says. “But I think now everyone’s a bit more comfortable with the home working environment, everyone’s done what they needed to do in the last 12 months to remain ahead of the game, and I think the general consensus, from everyone I’ve spoken to in the industry, is that they’ve been quite successful. We’ve paved the way for a new way of working for generations to come.”

The biggest challenge is the people; teams that were used to working together, day in, day out, in the office, just don’t have that same experience now

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HOW TO (RE)BUILD A BANK: PLATFORM SERVICES

At your service Jörg Howein, Chief Product Officer at Solarisbank, and Pedro Barata, Head of Customer Success at Feedzai, on the benefits of platform services – whatever your niche The niche banks of today might well be the mainstream providers of the not-too-distant future. In particular, 'purpose-driven’ challengers – ‘purpose’ being shorthand for whichever environmental and societal benefits feature on their triple bottom line of profit, people and the planet – have made huge strides in customer acquisition over the past year and a half. Such neos might focus on the underbanked, for instance, the environmentally-conscious or an ethnic group. They appeal to people across the generations who’ve had cause to re-examine their values of late and seek out a bank that more closely reflects them. Accenture calls this emerging demographic the ‘reimagined consumer’, following its survey of 25,000 people across 22 countries, which found the pandemic had made half reconsider their personal purpose. Among other things, that’s driven unprecedented interest in ethical investments. According to Triodus Bank, a pioneer of sustainable finance since the 1980s, COVID-19 has motivated one-in-five UK adults to explore ethical funds, a figure that increases to

Banking on a plate: Platform services take the strain

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35 per cent among the under-35s. Tomorrow – a German sustainable finance startup that’s put yesterday’s banking model behind it and uses account holders’ money exclusively to invest in sustainable projects – has seen the impact of the world ‘resetting the dial’ on its account opening, too. Since launching its mobile current account in March 2019, it’s attracted more than 80,000 customers, 20,000 of them in the first half of 2021. So, how do it and others cope with such rapid expansion while maintaining the same level of innovation, all the while doubling down on compliance and security as regulated processes come under the

pressure of numbers? Like many next-gen startups, it’s decided to be selective about what it builds, what it buys and where it partners to achieve its goals. So, while its in-house team continues to concentrate on developing analytics around carbon-neutral spending and investment, and designing sustainable products, the architecture on which that all hangs is devolved to European banking-as-a-service (BaaS) provider, Solarisbank – which also acts as issuer for

Tomorrow's eye-catching wooden debit card. Solarisbank, in turn, now relies on global financial crime gladiator, Feedzai, to ensure that its systems are robust and compliant in every territory for which Solarisbank provides its banking, transaction and lending services. In an ‘as-a-service’ world, whether you’re a standalone startup, a speedboat launch from a legacy bank, or, indeed, a platform provider, 2020 demonstrated that it makes little sense doing everything yourself. “Around 80 per cent of our accounts have been opened in the last 12 months or so. We are growing quicker, every month,” says Jörg Howein, chief product officer at Solarisbank, who’s overseen the building of a broad product suite, ranging from accounts to cards, lending and digital assets, and to which will soon be added brokerage services. “When we started, in 2016, it was all about going to the market quickly and one decision we took at the time was to make ourselves responsible for transaction monitoring and compliance processes,” says Howein. But as Solarisbank clients rapidly expanded their customer base during the pandemic and traffic across its platform increased, it recognised that approach was unsustainable. “So, last year, we brought in Feedzai as a provider for a specific part of our infrastructure.” At the same time, Solarisbank became the first German bank to shift its entire operation to the public Cloud, migrating its core systems, digital products and databases to the Amazon Web Services (AWS) platform. The two moves, combined, positioned it to scale across Europe in 2021. The bank’s decision to partner with Feedzai has not only relieved pressure internally, but has also given Solarisbank access to financial crime data that could reveal way more about emerging threat patterns than it could ever hope to discover from its own platform. Now, it benefits from insights gained from Feedzai’s artificial intelligence monitoring hundreds of millions of transactions every second of every day. Issue 21 | TheFintechMagazine

HOW TO (RE)BUILD A BANK: PLATFORM SERVICES any type of bank or for anybody who wants “We’re learning from the very big boys, to embed financial services in any way into because Feedzai has banks that are larger their product offerings – going with a than us on its platform [four of the five provider can take much of that burden off largest US banks included]. That helps us to your shoulders and enable a quick launch. get better quicker, and that’s what matters, “With Solarisbank, you can build and go in the end,” says Howein. to market in six months maximum and, For Pedro Barata, head of customer with us in the background, you will always success for EMEA at Feedzai, there’s mutual be more efficient, because we do this benefit in the partnership. already for close to two million accounts. “For us, internally, it was such a strong proposition and such an ambitious project,” So, in effect, you’re not starting from scratch; you can leverage the efficiency we he says. “And we knew that we could learn have already built and benefit from where from Solarisbank because I think the we have been bank-as-a-service is the investing to create future, and we believe an efficient platform, we can contribute at very low cost, at to that future with the per account/ our technology per card level.” and know-how.” And not just to individual banks, but to the way finance develops more broadly. Pedro Barata, Feedzai “Look at the problem of the underbanked,” says Barata. “You have a lot of people who want access to financial services, and one of the reasons they are not allowed it, I believe, is because banks look at onboarding through a very traditional lens. “One bank we worked with that wanted to go from a 50 per cent acceptance rate to a 95 per cent acceptance rate, came Scale on demand… to realise that if its fraud levels weren’t to Through a combination increase tenfold, it had to redesign its entire of Cloud and BaaS fraud and fincrime strategy. “We’ve seen some people try to build In that way, Howein the technology and processes themselves. argues, even the nichest They realise how complex it is, to not just of neos, with a potential build but also to maintain, because it’s market capped in the not enough to just have something up hundreds or even tens of and running; you need to continue to thousands of customers, innovate, continue to adapt. It’s a huge, can build a business huge resource hog and even well-known proposition that makes tech companies, that might have tried it financial and operational once, are coming to us now and saying ‘you sense, allowing it a foot know what? This is too hard. It takes too on the first rung of a much time. Let’s do it together.” ladder that might Jörg Howein, The same logic applies to using a otherwise be out of Solarisbank third-party banking platform, says Howein. reach. And so, the “Building a bank, in all its dimensions banking-as-a-service model is creating (compliance, risk, the core banking system, a choice of financial service providers as etc), making sure those processes are nuanced and individual as today’s super-stable, super-solid, getting a licence, ‘reimagined consumers’. fulfilling all the requirements, and then the Barata believes the movement towards effort needed to scale such an organisation, banking that’s more representative of make it efficient, automate things on the consumer’s values, as well as a service account and cards side… for a neobank that’s more personal and more intuitive to that is starting in the market – in fact, for experience, is now unstoppable.

BaaS is the future, and we believe we can contribute to that future with our technology and know-how

“If you look at the adoption curve, these banks have moved from that early adopter clique, to the general population; you’re seeing older generations, more traditional generations coming in. I think these banks will continue to gain market share by going into different demographics. This is a very hard-to-stop trend. The fact that you have incumbents launching digital spin-offs is just recognition that this is the new normal.” And the inevitable pressures caused by such growth can be passed back to a platform provider. “Bottlenecks happen on many different levels as you scale,” says Howein. “While with a few thousand customers, you will still be able to handle some things manually, at 10,000 or 100,000, those manual processes don’t work anymore, and suddenly you need to invest all your resources in automating them. At the same time, you need to keep your regulator and supervisory bodies happy, who will be questioning your processes all the time, and forcing you to make them better. “Building and growing a banking business can be a tedious process and going with a BaaS provider can take much of the burden off your shoulders.” The unexpected flush of business during the pandemic, forced Solarisbank to embrace the Cloud, and, in Barata’s opinion, it’s the only way financial organisations can now build for change. “The fact that you don’t have to worry ‘is my database ready for this, is my network scaling at this point, is the monitoring in place or not?’ means everything is much easier,” he says. It’s also much better from a cost management perspective. Over the last 18 months, for instance, banks needed to focus on how to capitalise, how to help clients – not how to change hard disks and scale up databases.” Cloud-based services were a god-send in a time of unprecedented stress and, given that experience, Barata’s advice to any neo is this: “Build knowing that whatever you believe is going to happen, there’s a 50 per cent chance you’re wrong, so you might as well factor that into the technology.”

Building and growing a banking business can be a tedious process... going with a BaaS provider can take much of the burden off your shoulders

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FINTECH FOCUS: EMBEDDED FINANCE ‘Embedded finance should be everywhere the customer needs it to be‘. That user-centric vision of financial services is redefining both individual and corporate relationships with the institutions that have facilitated finance for so long. But what does it mean for traditional business models? “It’s a powerful shift,” says Florian Redeker, VP of Product at German Solarisbank, which, with its European banking-as-a-service (BaaS) platform, is doing its best to disrupt those models. “Before, the incumbent banks were able to get away with subpar user experience because they had a monopoly on their processes and market entry barriers were so high. There was no incentive to

improve because they had built this walled garden and they had it very comfortable in there. Maybe those times are over, because, with technology and a new view of finance, it is possible to create seamless user experiences and deeply integrate those financial services into a multitude of use cases. This is what people care about. “With embedded finance and BaaS, we make banking a commodity. We do our best to move financial burdens to the background." You only need to have taken an Uber ride once to know what that means for a truly painless customer journey – quite literally. Those in the driving seat are benefitting from embedded finance, too. Uber Instant Pay uses Visa rails to allow the ride-hailing firm’s employees to cash out their earnings up to five times a day using the Uber Driver app. But Redeker’s concept of ‘commodity banking’ is, of course, anathema to legacy banks, who fight for brand recognition every day. Should they – and can they – keep doing what they’re doing, or is their destiny to become anonymous and leave the customer dog fight to others? According to Agnieszka Walorska, executive director at global technology

and management consultancy Capco and founder of Creative Construction, the design consultancy it acquired in 2020, ‘the battle is not yet lost or won’ for legacy institutions… but the future is unclear. It depends on what, as-yet-unimagined, applications emerge of embedded finance – or what Walorska prefers we call ‘contextual’ finance, because it’s basically in the context of whatever the customer happens to be doing at the time. “Being right there where they need it –this is the future,” she says. “We will see more and more finance in every service.” Customer experience – be that an individual or a business – is the key here. Retailers ‘got’ that decades ago, which is why brands like IKEA and Apple are now so keen to enter financial services, not necessarily because they’re empire

Magıcal bankıng Technology is sprinkling the fairy dust of frictionless journeys on everything from trade finance to Uber rides. So where does that leave the traditional bank? Michael Pierce from Mambu, Florian Redeker of Solarisbank and Capco’s Agnieszka Walorska conjure up ideas

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building (although that too), but because they see it as a way of further enhancing the shopper’s experience of their brand and, they hope, their loyalty to it. The same is true for Uber, where invisible payments have long been central to the offer, and also for the ’paymentless’ store format where there is no obvious sign that shoppers are being relieved of their cash. The growing realisation among non-financial companies that they can leverage fintech solutions to embed these added-value financial services into their own customer experience, is what’s driving growth at providers like Solarisbank. “We do this with technology and our full banking licence. We make it possible for companies – startups and fintechs, but also established companies and especially established brands – to integrate financial services seamlessly into their user experiences,” says Redeker. Startups can obviously benefit from such services, which are quicker to market and easily scalable, but their appeal also extends to major players. IKEA, for example, announced earlier this year that it was taking a 49-per-cent stake in its financial services partner Ikano Bank, which will allow it to offer financial products in-store and online, saying it would make the furniture retailer ‘more affordable, accessible and sustainable’. Although there has been much speculation over exactly what that will mean for customers long-term, the partnership has already enabled the store to offer its own-branded buy now, pay later (BNPL), interest-free service in the UK. It fits comfortably into IKEA’s positioning as a brand that supports its customers’ aspirations and turns dreams into affordable reality. As it put it at the launch: “We hope this new service helps customers create the home they dream of and leads to a better everyday life.” The sentiment of helping customers lead a better life is one shared elsewhere. Indeed, Amazon Go, the big tech retailer’s grocery store format, is a particularly good example of hyper-personalisation and customer-centric experiences, according to Michael Pierce, director of partnership commercialisation at software-as-a-service Cloud banking platform Mambu. “What Amazon Go has done, essentially, www.fintechf.com

is looked at the customer journey and identified that the biggest pain point in that is the checkout process,” says Pierce. “And if they can eradicate that checkout process entirely, they can likely increase conversion rates and encourage more spending, which results in more revenues.” Pierce cites one report that says companies investing in personalisation are outselling their counterparts by 30 per cent or more. Another found that 80 per cent of consumers are more likely to purchase at firms with tailored experiences, he adds. “What we’ve seen from our 200-plus customers across the world, is that the financial product has taken a bit of a backseat and experience has taken the front seat,” he says. “I, as a consumer, don’t want to care about the product behind my BNPL proposition. I just want to know that I can buy now and pay later, and everything else sort itself out.” Experience is everything and everyone can profit, including the banks if they maximise their existing customer relationships, their scale and status, believes Walorska, particularly in B2B.

With embedded finance and banking-as-a-service, we make banking a commodity.We move financial burdens to the background Florian Redeker, Solarisbank

“A lot of banks are talking about embedded finance, [in relation to payments],” she says, but she’d urge them to explore services beyond exchange of value, such as identity verification services embedded into brand process flows. She points to paytech Stripe’s launch of Stripe Identity, a know-your-customer tool for businesses, as an example of how banks could leverage their resources to create a new revenue stream through APIs. US banking giant Goldman Sachs’ collaboration with Apple on embedded products – such as, reportedly, an Apple Pay Later service, following its Apple credit card tie-up – and, in corporate banking, Commerzbank experimenting

with new sources of revenue by facilitating the exchange of trade between two client companies over its blockchain, are others. One advantage that it’s hard to take away from banks is that they continue to play an important infrastructure role in the wider ecosystem. A banking licence is hard won and expensive to justify without the full panoply of tech, time and expertise usually only available to a big institution. As Redeker says: “There is a reason that banks are out there: they are regulated by the state, and there is supervision to make sure the financial ecosystem is controlled. Sometimes banks stand in the way of what people want to achieve. But, on the other hand, it’s great that society has an eye on those systems, and makes sure that they work for the people, and not against them.” It is also important to note that many consumers, despite the financial crisis, still trust banks more than they trust Big Tech or fintechs as a store for their money – although, among younger generations especially, that view is being eroded fast. The banking crisis of 2008 drove many consumers into the arms of challengers who made much of their untarnished reputation, but they were like flies on a buffalo to the big banks. Now, they look more like a flock of cranes, as perceptions change. “Banks, historically, have made customers work on their behalf, and I think what you’re seeing now is customers are demanding that banks work on their behalf,” says Pierce. He believes banks must adapt to five major trends in order to expand their offering and future-proof themselves. Firstly, they need to really understand how consumer behaviours are changing. “They need to understand specifically what that means they need to do as a business – so not just lowering interest rates, or eroding fees on bank accounts, but launching better services,” he adds. Secondly, they need to embrace banking disruptors and move on from the ‘little fintech versus big bank’ friction, which, to be fair, has already been eroded over the past 18 months. “I think the convergence of being able to provide services and find harmony within this is something that is going to be very critical,” says Pierce. Issue 21 | TheFintechMagazine

FINTECH FOCUS: EMBEDDED FINANCE When a bank is not a bank: Embedded finance will change the business model

The key is clearly going to be BaaS, he adds, along with the rise of openness and being able to better use data-driven insights – data, of course, being one thing banks have in abundance. His final, and most interesting, piece of advice, is that banks mustn’t overlook certain customer segments because they are deemed just too expensive or unprofitable to service. “Find ways to optimise your architecture, your technology, your experience, to be able to – otherwise there’ll be others that enter the market who will. Banking is not finite, it is infinite, which means it is constantly evolving and we’ll need to keep adapting,” he says. The consensus that emerges is that banks shouldn’t replicate what has gone before – and, indeed, will fail to stay relevant if they do. Banking is becoming an ecosystem with a multitude of players – both from financial and non-financial services, including retail, automotive and telecommunications. They must master the Kardashian-like art of reinvention. “I think players have placed their stakes in the ground and now it’s about [how] they play with each other, and where in the market they are all working with each other,” says Pierce. After all, people may still trust the big

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banks to hold their money, but, in the right context, they tend to trust certain brands way more, observes Redeker. In other words, banks’ status is not unassailable. This is where non-financial players, such as home retailers, e-commerce platforms and telcos, could have an advantage in the everevolving embedded finance ecosystem.

What we’ve seen from our 200-plus customers across the world, is that the financial product has taken a bit of a backseat and experience has taken the front seat

Michael Pierce, Mambu

Commenting on the Spanish telecommunications giant Orange launching its own bank in 2019, underpinned by Mambu’s tech (with now 1.2 million customers across Europe), Pierce says: “I remember seeing this coming in and thinking ‘why is a telco in banking? This doesn’t make any sense’. But then you realise that Orange, as a company, has such a strong brand. “It is trusted, it is proven, and it has pivoted into the financial space because

they’ve been able to maximise on the big data they use, to have better insights, to understand the types of financial products their customers are going to need.” One final benefit of embedded finance and increased integration of third-party services that is worthy of mention, is the impact on customers’ financial health, as it enables better data-driven insights on factors such as creditworthiness. London-based B2B Bud Financial, for example, enables regular rent payments to be recognised by credit reference agencies and lenders, meaning tenants can build a credit history in a way denied to them before. Meanwhile, some neobanks are working on chat features where someone can simply ask ‘can I afford this?’ before deciding to spend. With so many movements in so many different directions, it’s difficult to predict where things are going next, says Walorska. “But I’m really pretty sure it’s going to be more intuitive, more automated, more personalised and a better overall experience – both in B2C and B2B. “Paradoxically, technology is making the financial experience more human. You have the finance and the technology but the only thing that the user sees at the end is the magic.” www.fintechf.com

THE DATA-CENTRIC BANK: CUSTOMER INSIGHT

The Great Fintech Bake Off ! MullenLowe Profero’s Rowan Kisby on why banks should discard oven-ready, cookie-cutter experiences for renegade recipes of their own – and the magic ingredient is data It’s the evening of a dinner party and you’re dashing around the kitchen, surfaces splattered with the ingredients of a tricky main course. Time’s running out for you to make dessert. With a sense of guilt, you reach into the cupboard for the fudge cake mix. You read the instructions with a sigh: just add water and an egg. You decide to throw in a handful of marshmallows to give the bake a whiff of imagination – but you’re aware that, as the port’s poured, you’ll be plating up something everyone’s tasted before. So it is for the developers of banking apps. It’s not necessarily that they’re rushed – though the onslaught of challenger banks certainly sets the clock ticking for late-to-the-party incumbents. It’s that they’re all compelled to use the same recipes for their digital products, concocted a decade ago under a hail of design imperatives to make user experiences more ‘seamless’ and ‘friction-free’. Any innovation spotted on the menu of a competitor is quickly replicated across the industry. No one wants to risk serving up an untried recipe

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– especially when the cake mix is at hand. But the result for the consumer is bland, cookie-cutter conformity. In a Great Fintech Bake Off, there’d be little to choose between HSBC and Monzo – their bakes would be meticulously inoffensive, judiciously palatable. But they’d also be boring, impersonal and forgettable. And it’s becoming clear that consumers don’t like it. Surveys consistently show consumers are craving a dash of novelty and a sprinkling of the human touch from their digital experiences. These appetites, which only seem to have grown stronger during the pandemic, are now too ferocious for banks to ignore. Or so says Rowan Kisby, strategy director at the global customer experience agency MullenLowe Profero. According to her firm’s recent survey of more than 1,500 consumers, 43 per cent feel digital experiences are becoming more similar, with 48 per cent saying they’d spend more time and money with brands offering a good digital experience. That’s already quite a groundswell of discontent. But when asked which sector they think produces the least original digital experiences, consumers pointed roundly at banks and their apps – judged the least distinctive and different. “One of the things we challenge brands over is distinctiveness,” says Kisby. “It’s not something that’s confined to finance and banking – there’s an overwhelming lack of originality across the board, in nearly every category we looked at – but it’s particularly pronounced in that sector, where 63 per cent told us they felt brand experiences were the same.”

The Importance Of CX To Brand Growth report concludes that brands that continue to opt for digital dreariness over distinctive, relevant customer journeys, could risk losing £12billion overall in UK online sales. And, again, the sector that’s set to lose the most from their banal bakes – what Kisby calls the ‘sea of same’ – is finance and banking. So there’s the problem – but what’s the solution? It’s worth lending an ear to MullenLowe Profero, a firm with a global reputation for reviving and re-energising tired and tasteless brands. They’ve worked with the likes of the NHS and Wagamama, with parent company MullenLowe Group boasting Unilever, Diageo and Etihad Airways among its clients. One recent project nicely demonstrates the firm’s tendency to delight in the different. For the relaunch of Bahlsen, a biscuit brand, MullenLowe Profero decided to record the tonal key at which each Bahlsen biscuit snaps, before having symphonic scores composed around that key for a new set of telly ads. Even biscuits, it turns out, can be a source of high art. All this might seem unnecessarily urbane, but it’s thoughtful – and that’s what consumers are looking for. For Kisby, delivering on their desires is all about keeping experiences human. “We need to bring some of that emotion and empathy back – as these are things we all really need when it comes to talking about our money. There are a few areas that MullenLowe Profero really digs into in order to do that, and they all start with D, because we love a bit of alliteration. www.fintechf.com

How the cookie crumbles: ... is something banks now need to decide

“One is distinctiveness: we believe that to create an experience that’s truly special, it needs to be different. Then there’s disruption – gosh, there’s a lot of potential for that! – and fixing disconnection across the ecosystem, making sure everything’s pulling together well. Finally, there’s data activation, making sure you’re actually doing something really productive and purposeful with the data you collect and the data you create.” This is the financial sector’s saving grace. The same MullenLowe Profero survey found consumers think financial providers are among the best firms at using data to provide personal experiences to customers. And, as we know, banks have an awful lot of data on their books. Not only that, but banks are uniquely trusted bastions of customer data. A recent survey by IBM’s Institute for Business Value found that 68 per cent of people are happy to give financial institutions their personal information – by far the most-trusted sector. In second place are insurers, with 46 per cent. “Theoretically, banks are really well positioned to create experiences that are impactful – that surprise and delight,” says Kisby. “What enables those experiences is data, and banks have shedloads, and such great opportunities to request it as well. “But I wonder if there’s a tendency, because banks have so much functional data to neglect perhaps some of the more emotional jumps that other brands may have to make.” Kisby has watched companies in other sectors guess at customer pain points because they don’t have the data to reveal them, whereas banks most certainly do. “So there’s perhaps a slightly missed opportunity for banks to really step up www.fintechf.com

and see what they could do differently,” Kisby says. “And this is typically where, at Profero, we’d look beyond the category to find inspiration. I’d go to something like Headspace, which is doing some really interesting stuff in the area of financial wellbeing, at the moment. Couch To 5K is another great example, helping people through difficult and high-commitment challenges, but doing it incredibly effectively.” In the financial sector, Kisby says Starling’s Connected card is a step in the right direction. Developed during lockdown, it helps customers pay friends and neighbours who are doing their shopping while they’re in isolation. “That solution comes from understanding how people live, how they work with money, and really starts to set that brand apart from others,” she says. Such innovation also explains Starling’s many Best British Bank award wins.

Banks need to think ‘what might be unique to us – less borrowable, more brand-building, creating that long-term relationship, value and distinctiveness?’ And such solutions address emotions, not practical expectations, which Kisby sees as two distinct areas of innovation. “You’ve got the stuff that’s relevant to everyone, and ownable by no one, like the ability to freeze a card or round up spending. We could all pinpoint the challenger that introduced those, but they’re popping up everywhere now. They’re solving issues that caused lots of

us pain, but are now a category norm. Then there’s the less ‘nickable’ stuff. Banks need to think ‘what might be unique to us – less borrowable, more brand building, creating long-term value and distinctiveness?’.” This is the stuff of the master baker – discarding humdrum recipes for bespoke treats designed around particular guests’ palates. “And banks need to remember that only they have data that’s unique to their customers, to help them develop solutions that are really appropriate to how they position their brand,” adds Kisby. Putting the humanity back into banking doesn’t merely counterbalance branch closures and service automation. It’s about serving customers with features that deliver what feels like a personal emotional balm, which many appreciate more than ever in light of the pandemic. “Some consumers are thinking ‘I’m on furlough and my income is unpredictable,’ or ‘I can’t afford to buy the kids new school uniforms this term‘. On the other side are those who’ve kept their jobs, not been on holidays and have more disposable income to look after than usual,” says Kisby. “These are really interesting challenges which could lead to solutions that evolve banks’ experience beyond those of others, rather than just replicating them.” MullenLowe Profero has already shown not all biscuits snap equally. Similarly, each digital banking cookie needn’t break into the same old crumbs. With palates craving something fresh, it’s crunch time for financial institutions, who must rebrand beyond the bland to keep customers coming back for seconds. As Kisby might put it: ready, steady… bake! Issue 21 | TheFintechMagazine

THE DATA-CENTRIC BANK: PAYMENTS

Richlydeserved New payment messaging systems are adding to the data goldmine that banks have been sitting on for years. Rabobank’s Suzan van Eeten and Tino Kam from Nordea discuss how they’re now digging deep with André Casterman from Intix, which provides the digital shovels The growing pace of open banking in Europe and beyond, customer expectations of instant everything, improved visibility of data that’s been siloed for years, and an explosion in digitisation forced by remote working, have pushed the world of payment processing dramatically forward. At the same time, richer messaging formats and better tracking of transaction information, including cross-border developments like SWIFT gpi, the Nordics’ P27 payments system and the global adoption of ISO 20022, have put the pressure on providers new and old to

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get a grip on the information they hold. Incumbents have the richest data stores of all which, coupled with their traditional, trusted provider role, means they could take the greatest potential prize when it comes to using data to reduce cost, improve their services, deepen customer relationships and, ultimately, build their bottom lines. That is, IF they can overcome significant legacy challenges in order to turn it to their advantage. Among the end user beneficiaries of all these are corporate customers and, specifically treasury departments. We asked Suzan van Eeten, area lead for payments at Rabobank, Tino Cam, Nordea’s

head of product management transaction banking, and André Casterman, chief marketing officer at technology company Intix, which helps banks to make the all-important connections between the undeniably rich but disparate data they hold, what they see as being the greatest opportunities and challenges. THE FINTECH MAGAZINE: What are your views on the current state of payments innovation? SUZAN VAN EETEN: I’m responsible for all SEPA payment methods within Rabobank, which is doing around 12 million transactions a day. www.fintechf.com

I’ve been in payments for six or seven years and, in that time, I’ve seen major innovations, such as our instant payments transformation, including cross-border, in the Dutch market, where there is also more transparency than ever. We are digitising our processes. The pandemic accelerated the move to digital and more than 80 per cent of all our payments are now contactless. ANDRÉ CASTERMAN: This year, I celebrate 30 years in fintech. I spent 24 years at SWIFT, working for all the banks on the planet, on various innovations, mainly in transaction banking, and for the last six years I’ve worked with Intix, helping banks make their transaction data accessible and actionable. While I was at SWIFT, not much happened in cross-border payments, besides SWIFT delivering new standards and the market getting interested in processing more and more low-value payments. But, over the last five years, there have been remarkable, really major innovations both from incumbents, including SWIFT, around transparency, and by major card providers like Visa and Mastercard, which are getting into account-to-account and cross-border payments. Then, of course, ISO 20022, is a convergence to a common data dictionary, supporting an industry-wide move towards more transparency, lower pricing to process lower-value transactions, and real-time processing. And that’s all because customers want faster processing, lower cost, more convenience and more information. So, it’s a really exciting space and I think the next five years will be even more so, as we see the results of these innovations materialise. The central banks are getting into the picture as well now. Although more on the retail side, this will also impact wholesale, with central bank digital currencies making the cross-border payments space even more fascinating. TINO KAM: I head up the product team in transaction banking at Nordea, which includes cash management and payments, consumer and corporate cards and trade finance. We want to be a better digital bank for our customers; to be fully self-service, 24/7, 365 days a year, with real-time connectivity and notifications. From a cross-border perspective, tracking and tracing the status of each payment is very much a part of that, and we are www.fintechf.com

enabling our customers to do that themselves through our own portals, and also with premium API solutions. This is in line with our omnichannel strategy: customers can go to a branch, pick up the phone, access our online portal or make use of our APIs to retrieve the same information. TFM: What role does data play in the innovation you’ve all spoken of? SvE: We believe the more data we have, the better we can help our clients and the safer we can make their payments, because it increases our real-time transaction monitoring and the information we can give back to them. With more transaction data and faster processing, we can run checks between an IBAN and the name, and feed back anything that doesn’t match to our client in real time, so that they can consider if it could be an instance of fraud. We can also give our clients more insights into their spending and payments, and so make banking safer.

We believe the more data we have, the better we can help our clients and the safer we can make their payments

Suzan van Eeten, Rabobank

Our mission is to give our clients financially healthy lives and we use all the enriched data to provide them with insights into things like their spending and subscriptions, through the Rabobank app. A lot of the fixed costs people have, like subscriptions, they don’t even know they have, so we help them reduce the amount of money coming out of their pockets. AC: Just after the financial crisis, regulators increased the burden on banks to fight financial crime, and, between 2010 and 2015, banks started to use their data much more to screen payments, mainly because of regulatory obligations. But, more and more, it is there to automate processes within operations and compliance, as well as potentially increasing client satisfaction and decreasing the burden on the helpdesk. For years, cross-border payments were

mainly around DMTF [data management] standards, which contained limited data – really just what was needed. Now, with ISO 20022, there is rich data being processed and exchanged between banks, and that could be made accessible now for various types of processes, like reconciling payments with invoices, for instance. All this data is being swallowed by banks and stored in different systems. Getting access to it is the technical challenge and this is where Intix is focussed on linking the datasets, and making them meaningful for a particular internal process – for example, enabling customer service and compliance teams to access transactions to get their status or generating reports, in order to respond to ad-hoc or recurring regulatory requirements. So, once the accessibility has been sorted, many different use cases can be implemented. TK: Banks are exploring a number of those use cases, not least using the data to make sure we are even more secure and compliant from a payment perspective. Firstly, it can be used to make sure the infrastructure is secure and trusted. The second is related to what are we going to build on top of that infrastructure. There are many areas where we, as an industry, have been struggling for years: with reconciliations, from a treasury and cash management perspective, making sure that we understand our accounts payables and accounts receivables, our cash position and the risk function. All those will benefit from much richer data. Those are traditional pain points but, on top of that, we are looking to use the data to offer our customers insights – not only about where their payment is, where it’s stuck, rejected, or accepted – but also embedding the payment information into business functions. TFM: What part will automation play in the future of payments? SvE: With 12 million transactions a day, Rabobank needs robotics and automation to gather data and analyse it for our clients. Everything is automated for reporting and compliance; we have no manual work. We split our system into microsystems, connecting and decoupling, using APIs, because we’re working with lots of people on data transparency and need different components to work in parallel. Issue 21 | TheFintechMagazine

THE DATA-CENTRIC BANK: PAYMENTS On our acquiring side, for retailers, we have always offered one financial income and payments overview, the same day or T+1. That is automated but with our customers, real people, making the decisions, based on its insights. AC: When it comes to insights – basically, helping clients make the right decisions – the key word here is automation. We want to automate as many processes as possible, like transaction and business activity tracking, so corporate customers know immediately when a transaction is blocked because of a glitch or some other reason, and when to intervene. In the future, banks will be completely automated, when it comes to both checking that everything goes well within banking operations and providing more value-added services to their clients, like reconciling trade flows and using add-ons like artificial intelligence for credit management, compliance and liquidity forecasting – all enabled by increasingly efficient use of rich data.

A lot of innovative solutions have been triggered by fintech companies that have filled niches in the market. With P27, we want to make sure that we’ve a scalable, modern, regional solution Tino Kam, Nordea

Automation sounds operational, but the link between automation and strategic priorities is related to decision-making at the right time. Today, many decisions are still taken by human beings, but more and more of those decisions will be based on internal and external data points, and very specialised algorithms, so that only machines will be able to make them, potentially with supervision by human beings. And automation will increase margins by decreasing costs, ensuring better decisions and higher margins, and contributing to strategic priorities. TFM: As a vendor, what are the main challenges that Intix sees for banks? AC: Getting access to their data internally, because it’s spread across

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so many systems, to associate different pieces of information and gain an understanding of a whole transaction. Banks have a lot of legacy systems and they need to change in line with new ways of working, like APIs, ISO 20022 and richer data, that are coming into the picture. New technologies are combining with older ones and, at Intix, we’re helping the banks get smooth, end-to-end access to that data, so that they can offer more value to their internal users and external clients. We have also had to look at ways of helping organisations adapt to the new drive towards digitisation. With more staff working from home, we provide a data layer, giving remote users access to the right information, without actually allowing them access to internal transaction processing systems, which is deemed to risky. Through SWIFT gpi, we’re getting towards a far more transparent correspondent banking market, but this can only happen if banks provide a central engine with all the information required to track transactions from one bank to another, which puts a lot of pressure on them because providing this data on a continuous basis, at transaction level, is a huge operational task. We make sure they know where the payments are within their own infrastructure, so that payments operations teams meet their responsibility, on a continuous basis, during the day, to clear those payments according to the imposed gpi service level agreements. Banks can also offer much value, in terms of internal transparency, by providing full tracking and visibility of individual payments to their corporate clients through their web portals, as Nordea is doing. The introduction of Visa B2B, real-time, account-to-account payments will also place additional pressure on banks to improve their internal infrastructures. TFM: What can we learn from the Nordics and the introduction of P27, when it comes to payments processing? TK: Our mission is to create the first, truly instant, cross-border, multi-currency, multi-country instant payment rails, from an account-to-account perspective, with initially Denmark, Finland and Sweden, using three currencies, including the euro. We want to create an infrastructure that is efficient, scalable, effective and compliant. A lot of innovative solutions

have been triggered by fintech companies that have filled niches in the market. With P27, we want to make sure that we’ve established a scalable, modern, regional solution, from an instant payment perspective, which is secure, trusted and resilient for consumers, corporates and financial institutions alike. That’s why we, and five other banks in the region, have been supporting the initiative from day one. In the past, I think banks like Nordea have done things too slowly, and always at too much cost, from an internal development perspective. The key issue is how we simplify our infrastructure and that’s what we are trying to do in the four Nordic countries – making sure that we have a more agile setup, which is more scalable and future-proofed from a payment perspective. The benefit of P27 is that the

In the future, banks will be completely automated, when it comes to both checking that everything goes well within banking operations and providing more value-added services to clients André Casterman, Intix

bank is not only more agile, compliant and resilient, but it can also build on top of the infrastructure more easily, more cheaply and faster. We’re trying to reduce the spaghetti, reduce the legacy, and create more Nordic infrastructures. For me, it’s also very important that we are enabling the simplification, too, for our customers. AC: We see so many new options in cross-border payments, so many new entrants. SWIFT itself, of course, reacted to those new entrants with gpi, but banks are also getting organised around regional initiatives, such as with P27. And we can expect more in the future as central bank digital currencies introduce even more advanced ways to handle money, possibly more so on the regional side. It’s all about handling payments faster and more cheaply, and there are different ways to get there to improve the current models, or to introduce completely new models into the market. www.fintechf.com

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REGIONAL SPOTLIGHT: AUSTRALIA

Ahead of the eight

Michael Phillipou brings a unique combination of skills to his new role as CEO of Sandstone Technology – including that of an Australian Football League pundit. We got in a huddle with the new boss to talk tactics as he maps out his plans to expand on the back of open banking “There’s so much work for banks to do over the next decade when it comes to having a compelling digital value proposition because digital is the battleground now for financial institutions,” says Michael Phillipou, the newly-instated CEO of Australian fintech, Sandstone Technology.

And that’s not just a technology vendor talking. He’s come to that conclusion from the perspective of a banker who ‘fell in love’ with the first-wave challengers that emerged after the financial crash, and also as founder of a lendtech himself. Technological advances, regulatory pressure points and evolving consumer habits mean that to win, competitors on

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the financial services pitch must change their game plan, teammates and targets, while playing to their strengths and addressing any weaknesses – and Phillipou knows a thing or two about adapting to the field of play. As an Australian Football League boundary rider for Oz broadcaster ABC, he turned up to deliver commentary on games from the sidelines while simultaneously building his career in financial services. Having watched premiership cup strategies over five seasons, he’s hoping to increase the digital goal score at Sandstone, where he was appointed CEO last December after occupying the role of chief customer officer for 15 months.

Sandstone has been at the forefront of fintech since before the term was even coined. The mid-90s startup is now a global technology business, providing a wide range of micro services, mainly for top and mid-tier financial organisations that are upgrading or transitioning systems such as digital acquisition, loan origination, settlement management, internet banking, mobile banking and online financial management. It doesn't provide core banking services, but works with partners that do. Phillipou’s appointment as CEO coincided with the firm’s 25th anniversary and comes during a sea change for financial services on its home turf. www.fintechf.com

Australia is currently rolling out the Consumer Data Right (CDR), its own version of open banking, allowing the permitted sharing of customer data to improve access to, and availability of, financial services for millions of people. Open banking also encourages competition among providers and creates opportunities for technology companies like Sandstone, as existing institutions seek to maximise the use of data to achieve efficiencies, become more innovative, and improve, or even redefine, customer relationships. July was a milestone in the phased introduction of the CDR as, by that point, every bank, not just the big four – CommBank, NAB, Westpac and ANZ – were required to have systems in place to share data. A crucial difference between open banking in Australia and the UK is the scale of the concept. Perhaps in keeping with its reputation as a big country with big ambitions, open access to data isn’t stopping at financial services. Under the watchful eye of the Australian Competition and Consumer Commission (ACCC), it’s going full throttle for an open data economy, giving Australians the right to access not just all their financial data but their utility and telecoms data, and more. 25TH ANNIVERSARY 1996-1999 Sandstone Technology is founded by Violet Yu and Bob Hall. A series of market firsts follows, including internet banking enabled across multiple devices, internet banking solutions with scramble pad security, two-factor authentication integrated into internet banking and deployment of an intractive voice respose (IVR) solution.

www.fintechf.com

With clients in Australia, New Zealand, Asia and the UK, Sandstone has its own views on why adoption of open banking in most other regions where it has been introduced has been relatively slow. In November it even produced a white paper on the subject, concluding that where open banking hesitancy existed, it was due to a combination of regulation, the complexity of the technology change, and fear – not just among consumers who have been told for years never to share their data, but also among banks who see the legislation as a major threat to their highly valued customer relationship. Noting how Australia could learn from, in particular, mistakes in the UK, where still less than 20 per cent of banks have signed up to open banking, it warned that ‘in the UK, the regulatory framework and cost of entry has seen significant shortcomings in uptake’. Nevertheless, Australia took its lead from there, in that standards in the two countries are technically similar. “Technology is a little bit like fashion, where whatever you guys are wearing today, we’ll be wearing in three years’ time,” laughs Phillipou. Despite the UK’s shortcomings – and perhaps lack of ambition – Phillipou sees it as a market that Sandstone absolutely must target, particularly when it comes to micro services for credit.

“The size of the lending and therefore the origination capability and opportunity in the United Kingdom is much greater than the Australian market,” he says. “From our perspective, it looks more evolved, ready to take more banking-as-a-service (BaaS) capability.” There’s one trend in the area of lending that could benefit greatly from open banking – more accurately described, says Sandstone, as ‘everything-as-a-service’ – and that’s buy now, pay later (BNPL). New providers and business models have been reinventing the loan origination market Down Under for some time. But it’s a service that has raised issues for policymakers both there and in the UK. “It’s under scrutiny now in terms of what the regulatory requirements should look like because BNPL is not subject to the same level of compliance obligations that lenders or banks are,” says Phillipou. “However, we’re likely to see that change and the BNPL players adjust. What we are seeing already are collaborations with major organisations, major banks, that recognise there is some extraordinary capability in this.” Technology that provides lending insights is one of Sandstone’s core competencies, and an area Phillipou knows well.

A FINTECH BEFORE THERE WERE FINTECHS: THE SANDSTONE TECHNOLOGY STORY 2000-2009 A loan origination solution for personal and home loans is launched, including home loans in the UK. Sandstone becomes the first organisation to certify BPAY View for internet banking and apply internet banking transaction signing functionality. It develops one of the first device-agnostic mobile banking solutions (using HTML 5) in Australia. A loan origination solution is deployed into an Australian Tier 1 Bank.

2011-2012 Launches a mobile banking app at Finovate in Europe. Rolls out a digital lending solution for credit cards and personal loans. 2014 Deploys a P2P mobile payments, enabled for Paym (the UK’s mobile payments service), to Cumberland Building Society.

2017-2018 The first customer in Asia (Vietinbank) goes live with an online banking (responsive) solution. Deploys end-to-end consumer digital home loan acquisition solution. Launches AI-driven document verification tool (DiVA). 2019 Launches open banking solution in the UK for Cumberland Building Society, followed by first fully automated online mortgage top-up product into the market (Loan+).

2020 Launches home loan digital management tool, Manage My Mortgage. Michael Phillipou is appointed CEO. 2021 Celebrates 25 years in business and appoints Ross Watts as chief customer officer and Katherine Dziaman as chief financial and operating officer. Launches Tranche Management for managing the flow of retail and business deposits.

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REGIONAL SPOTLIGHT: AUSTRALIA Having worked in financial services for more than 20 years, holding general management roles across the industry including Westpac, Bendigo and Adelaide Bank, he co-founded the innovative digital financial services disruptor, Lodex, in 2017. Australia’s first loan and deposit marketplace, Lodex was way ahead of its time in using personal data, including social, to leverage power for consumers. It was a brave concept, borne out of Phillipou’s own fascination for pioneering fintechs that were challenging the distribution model. “Back in the early 2010s, I realised that technology was changing the landscape around how financial services products would be distributed and fell in love with the likes of Revolut, TransferWise [now Wise], Monzo, N26, and all the neos – Curve and the likes of LendingClub, Credit Karma, and some of the US fintechs that were making waves. Then I was fortunate enough to found a company with a group of people, and we built some pretty cool stuff. I exited that business in 2019.” Did he never argue the case from inside the bank to adopt the technology that was then emerging? “I probably didn’t realise the gravity of the opportunity,” he admits. “I think, certainly now, sitting on the vendor side, the tech side, and seeing the way we’ve built out some of the capability of banking-as-a-service, particularly in the UK, that is certainly our strategy – to be able to support banks to have the latest and greatest overall core. We’re not a core banking player ourselves but we partner with core players, and provide all the front-end capability.” Last year, for example, recognising the post-COVID shift towards consumer self-service, as banking customers became less enthusiastic about face-to-face meetings, it released a new suite of digital tools. These gave homeowners more autonomy in managing their loans; a kind of self-service lending, centred around the removal of the mortgage broker as middleman, to simplify the process. This year it has developed Tranche Management, a back-office feature, which is a component of Sandstone’s digital origination product BankFast Apply. The new feature allows financial institutions to easily and quickly manage the flow of retail and business deposits. It’s designed to take the guesswork out of predicting when a savings product tranche is full, which

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supports a company’s risk management. The company ‘partners where it counts’ to deliver services, says Phillipou. “Banks need to have optionality, and they’ll have preferences when it comes to credit decisioning, so, for example, we’ve done all the integrations with major bureaus here in Australia – Equifax, Experian, and Illion. Partnerships exist when it comes to desktop property valuation capability or know your customer (KYC)/anti-money laundering (AML) requirements. We’re out there, benchmarking the ecosystem in terms of real speciality areas of the value chain.” Now that open banking and the BaaS concept is gathering speed, Phillipou finds himself at the helm of a company that can influence the way banks maximise those opportunities by creating the self-same ‘beautiful UI (user interface) and UX (user experience)’ used by the pioneering fintechs he so admired. “We’re an enabler. We can support them to provide a frictionless experience and complement their overall offering,” he says. “What they’re focussing on, is being able to enhance their overall digital value proposition to support their objectives. Every board is saying to every CEO, ‘we need you to do three things. Firstly, increase the return on equity, so grow your assets and liabilities book. Number two, reduce the cost-to-income ratio, do more with less and become more efficient. Number three, make sure you meet your regulatory obligations’. “We see this across every single bank and every single board. And we can provide technology as an enabler of all those key points, by providing straight-through capability for the origination of products. Efficiency is really about trying to replace low-value human tasks with AI and machine learning, and digitise and automate processes. Then your systems need to be regulatory compliant, and comply with data obligations – data sovereignty and the general data protection regulation (GDPR), over in the UK and European market.” Now pushing Sandstone to reach deeper into its target markets, Phillipou nevertheless makes time to combine his unique

skillset – that of banker, innovator and broadcaster – in co-hosting the regular podcast, Digital First: A Banking Transformation Series. A collaboration between Sandstone and Financial Executive Women (FEW), a career advocacy programme for women within financial services, it’s seen him interview thought leaders of both sexes from banks and fintechs that have run transformation programmes themselves. “They’ll talk about all the different pillars that are involved in running a successful transformation, and some of the pitfalls that invariably organisations will have to navigate through. We’ve been getting really good feedback from the FEW members and they’re pushing us to bring many of the guests back onto the programme – the likes of Joseph Healy, one of the co-founders of Judo Bank [an SME challenger bank in Australia], who’s remarkably impressive.” He hopes the show will give decision-makers moral support when they run onto the digital pitch. As for Sandstone, it’s heading for the top of the league table, building on its track record of 100 per cent successful implementation. “The biggest risk with any transformation programme is execution risk. You hear horror stories of banks going through transformation programmes, spending hundreds of millions, quite often, and then not ending up with a functional product, and obviously a few years behind the eight ball,” says Phillipou. “Proudly, we’ve never not delivered. “With banking executives thinking ‘how do we futureproof our business overall?’, the answer is that unless they innovate, they’re going to find it very difficult. So, our major investments over the next few years are going to be very much around straight-through processing capability, from origination to our data strategy, and making sure we capitalise on all the opportunities when it comes to open banking – SME banking, in particular. Then you’ll see the evolution of our BaaS offering, as we push to take more positions and win more customers.”

Every board is saying to every CEO, we need you to do three things: increase the ROI, reduce the cost to income ratio, and make sure you comply with your regulatory obligations

www.fintechf.com

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REGIONAL SPOTLIGHT: SOUTH AFRICA

First National Bank is leading the charge as South Africa’s major banks gear up to take payments to a new level. Chief Digital Officer Raj Makanjee and CEO of Commercial, Gordon Little, explain how its partnership with HPS could transform the future of transfers The digital payments landscape in South Africa is a challenging one for its native big banks. An overwhelming majority of retail payments (73 per cent) were cash-based before the COVID-19 pandemic hit, according to the annual report from the Payment Association of South Africa. And yet 80 per cent of the population is banked, mobile penetration is high and the country’s payment infrastructure has been rated in the world’s top five. As with most economies, digital transactions, by necessity, increased when communities locked down. One online payment platform in South Africa noted a 35-to-40 per cent rise in transactions, as well as a rise in the number of retailers requesting online payment systems, according to McKinsey. But the extraordinary circumstances of 2020 mask systemic barriers to sustained and widespread digital usage that the banks are trying to address before they lose market share to South Africa’s growing number of challengers and foreign Big Tech.

“One of the challenges we have in South Africa is that we have this very formal economy where card acceptance and electronic payment acceptance is comparable with most developed countries. But then we have the informal, historically disadvantaged, township-based economies, that are still very cash-based,” says Raj Makanjee, chief digital officer and retail and private banking CEO for First National Bank (FNB). Patchy network connectivity in rural areas and high data costs make mobile banking uneconomic for many. To add to the complexity, while nearly everyone has a mobile phone, less wealthy and non-metropolitan communities, in particular, have handsets based on the USSD (Unstructured Supplementary Service Data) format, a text-driven technology that doesn’t support most current mobile banking applications. FNB itself has nearly five million transacting customers, but still only a little more than half (2.8 million) used apps on

their phones to access its services by the start of 2021. For banks and consumers alike, this disparity means additional cost and less security in payments. And it’s why the Payment Association of South Africa set out, in 2018, to create a payment system that’s ‘as good as cash’; a low-cost, secure, instant and easy-to-use capability that’s agnostic to where the payment originates (be it mobile wallet, bank account or card), thus ensuring universal access to digital transactions. Meanwhile, banks are transforming their own payments platforms and back offices as they prepare to compete in an all-digital future while accommodating non-digital transactions for as long as they are needed by this two-lane economy. FNB was the first of them to partner with payment technology provider HPS, to roll out its PowerCARD platform. This has allowed the bank to take a green-field approach to its payments architecture – so far with zero disruption to existing customers as the bank ditches its outdated, retrofitted internal payments system. Importantly, it addresses two co-dependent parts of its value chain – card issuing and merchant acquiring. “On the issuing side, we’re using the HPS PowerCARD platform to build out new solutions that we believe will disrupt but then benefit both clients and ourselves,” says Makanjee.

All to pay for: There’s huge opportunity in South African payments – and big challenges, too

www.fintechf.com

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REGIONAL SPOTLIGHT: SOUTH AFRICA “The more clients who use their apps to pay – whether it’s through a virtual card with one of the ‘Pays’, like Apple Pay, Samsung Pay, and even our own FNB Pay – the physical card will become less relevant. So, we are focussed on driving more into the virtual space, both for point -of-sale and e-commerce spend, and then, hopefully, the migration of the physical cards can follow. It’s an interesting and different approach that we’re taking to the issuing side of the PowerCARD rollout.” The widespread use of USSD-based feature phones means there are technical challenges still to address. “QR code, tap-to-pay, etc, is where the payments experience becomes very slick, but how does one replicate that in a non-feature phone environment?” ponders Makanjee. “Coping with that both on the issuing and the acquiring side, is one of the challenges we have to solve to make sure we get the adoption of card-based payments to scale.” Meanwhile, using PowerCARD as a clearing and settlement platform will allow FNB to persuade more merchants to adopt digital acquiring and, ultimately, to formalise that cash economy for the benefit of the country; to reduce the cost and risk associated with cash. “But we’ve got work to do, to make sure that people are comfortable using acquiring infrastructure in spaces that cash historically dominated,” acknowledges Gordon Little, CEO of commercial services. “Part of that is making sure that we’ve got affordable solutions for smaller, informal merchants, for instance, using QR codes. Having PowerCARD on the backend facilitates some of that. We’re also moving away from requiring hard terminals, to software-enabled terminals. Consequently, the need to have a physical device will disappear, and people will be able to use their smartphone for acquiring.” Crucially, he’s hoping the PowerCARD platform will allow the bank to challenge the perception that card and electronic fund transfer (EFT)-based payments are more expensive for merchants than cash. “In many circumstances, we haven’t correctly priced for cash,” says Little, “so, currently, the incentive isn’t in the system for people to migrate to card. We’ve worked really hard on that over the last 10, 20 years, but it’s an ongoing journey. Cash continues to grow, as a basis of settlement. But, within that, is some of the opportunity for us.”

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Little believes that HPS, which is already integrated with global payment platforms, will deliver a world-class banking infrastructure for FNB, capable of handling payments as diverse as prepaid and virtual cards and vouchering, enabling the bank to not only upgrade services for existing merchants, but also make it easier to onboard smaller businesses. “Rather than focussing on repairing and enhancing [our payments system], which has historically been the focus, this ability to leapfrog has been fantastic,” he says. “A lot of smaller businesses are looking for revenue-generating opportunities and we think that allowing devices to not only acquire cards, but provide additional services, is a key differentiator [for us]. “Payments is a very competitive space and we see some convergence across the classic credit card, debit card and EFT rails. So, we’re trying to make sure that, as a bank, we remain front and centre in terms of our ability to service our own client needs and protect against challengers trying to disintermediate that relationship.

We are focussed on driving more into the virtual space, both for physical and e-commerce spend, and then, hopefully, the migration of the physical cards can follow Raj Makanjee “There’s a lot of work for us to do, to find solutions for small merchants, but a lot of opportunity for us to sell additional products through the channels we have in play. So, we’re upbeat about what needs to happen in that environment.” The country’s digital transition is now getting a hefty kick in the right direction from policymakers. The South African Reserve Bank decided that cheques would not be supported by the country’s national payment system from January 1 this year. “And the banking regulator is pushing us to find innovative ways to solve instant payments, which in turn can address inclusivity,” adds Little. A further challenge, acknowledges Makanjee, is that South African banks have

failed to keep pace with modern, global real-time payments infrastructures. He would like to see a closer convergence between card-based and EFT real-time payments, which are currently developing in an inexpedient fashion. Closer convergence, he says, would help in areas like settling disputes and fraud prevention. South African banks, like banks all over the world, are facing challenges from home-grown and international fintechs looking to expand in the payments space. Yoco, the B2B South African payments company, has seen rapid recent growth, while Jumo, the native banking services provider, is building on its success by looking to expand its offering. Some of these fintechs will aim to disintermediate services offered by banks. FNB is looking to squeeze this threat. It has already developed in-app, real-time micropayment, person-to-person and bill-sharing payment services. But another counter move it hopes to build on is a closed-loop FNB marketplace, which facilitates real-time transactions between its retail and merchant customers. Little says: “If we can build a relationship of trust between clients on the retail side, and business banking, clearly we wouldn’t have to worry about disintermediation, because that’s a closed loop.” The bank dipped its toes into the water in December 2020, launching a home services marketplace that connected retail customers with 1,500 plumbers, electricians, builders, home caterers and others banked with FNB, initially in Gauteng, Durban, and Cape Town.

Driving the revolution Established banks, native fintechs, and overseas challengers are all looking to monetise the untapped potential of this contrasting economy, comprising rich and poor, the tech-savvy and those that simply use bank accounts as mailboxes to withdraw funds and hold as cash. By implementing a state-of-the-art payments platform, aided by helpful regulation and entrepreneurial thinking, FNB believes it can be one of the flywheels driving a payments revolution across the whole of South African society. “If we can master things like small-value payments and get a closed circuit going between FNB retail clients paying FNB business and corporate clients… there are lots of smarts to be applied,” says Little. www.fintechf.com

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BNPL: HIGH STREET RETAIL

TIME TO LET ZIP!

If high street retailers want to find their place in an omnichannel world, they need BNPL at the point-of-sale, says Zip UK MD Anthony Drury E-commerce has been the key battleground for buy now, pay later (BNPL) providers ever since what’s thought to be the first split payment of its type was processed by a Swedish online bookseller in 2005.

So, it’s little wonder that valuations of BNPL firms across the globe rocketed into the billions during a pandemic that saw high-double-digit growth in e-tail sales. And yet, despite the dizzying number of toilet rolls and bread-making kits that have careered in vans down a street near you over the past 18 months, the majority of purchases worldwide are still made in a store. According to the Centre for Retail

Research, combined online retail purchases across the UK, France, Germany, Spain, Italy and the Netherlands in 2021, for example, are forecast to be 15.3 per cent of total retail sales (down from 16.2 per cent) in 2020. While many predicted the nail had been firmly hammered into the high street’s coffin, it looks like reports of its death were much exaggerated. The UK’s BDO High Street Sales Tracker, says total in-store,

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like-for-like high street sales rose by 54 per cent in July 2021 (albeit from a base of -39.4 per cent in July last year).

Global research from Mood Media, published the same month, which surveyed more than 8,000 consumers from the US, the UK, France and China, also indicated that 80 per cent of shoppers now feel comfortable visiting physical retail stores again and 60 per cent expect to return to their old shopping habits by the end of the year. Only nine per cent, globally, said their shopping habits won’t return to normal. As with any resurrection, though, things don’t look quite the same, second time around. As the high street climbs out of the bunker, shoppers who have become used to enjoying endless choice of seamless payment experiences online, now expect the same when standing at a checkout. It’s why Australia-founded BNPL player Zip’s managing director in the UK, Anthony Drury, predicts: “As the high street opens up, that’s where the interest [in BNPL] is going to start to bubble up, particularly in this part of the world.” Zip is on a mission of global expansion.

Founded in Oz in 2013, with the aim of disrupting the credit card market, it now operates in 12 countries, including the UK and the US, and has about seven million customers. There are new markets in Europe, the Middle East and Asia in its cross hairs as it embarks on a programme of aggressive growth in the face of intense competition for a slice of a BNPL pie that’s estimated to swell to US$1trillion in transactions by 2025. This year, it converted its minority stake into full control of UAE-based market leader Spotii and is currently in the process of acquiring European BNPL provider Twisto Payments. It has also has just teamed up with the omnichannel payments platform Trust as part of a strategy to straddle in-person and remote shopping in all the markets it operates in. The partnership with Trust Payments enables the sizeable network of retailers that already use Trust’s platform to offer Zip’s pay-over-time options at point of sale – wherever that might be. This is facilitated by Zip’s newly introduced Tap & Zip virtual payments card, borrowing a format that consumers are now well used to from their standard credit providers – except, of course, Zip doesn’t charge any interest and using it doesn’t impact an individual’s credit score. Finding ways to target as many merchants as possible, as cost-effectively as possible, is key to building this ‘two-sided network’ , made up of consumers on the www.fintechf.com

Access all areas: High street POS is the latest BNPL frontier

one hand and retailers on the other. It’s in a retailer’s interests to be part of it, because, as independent comparison platform, finder.com, found, whether or not a retailer offers BNPL at checkout is a deciding factor in where consumers choose to spend. It revealed this year that 37 per cent of Brits had used a BNPL service (a rate of adoption only equalled by Australia), and 9.5 million of them said that they avoided buying from retailers that don’t offer the option to spread payments. Meanwhile, recent Macquarie research from the States suggested that consumers were more than happy to sign up with a different BNPL provider to the one they normally used, if that was offered by a retailer, rather than switch merchant. No wonder BNPL firms are so keen to plant their flag as wide as possible. “From the merchant perspective, they get the benefits of increased basket size, flexibility and access to different consumers they haven’t reached before, along with the ability to market to those consumers through a range of digital channels,” says Drury. “On the customer side, we’re providing interest-free, flexible finance for, in most cases, low-value ticket items. So, you start to get the benefit of both the customer and the merchant flowing through on this two-sided network.” Zip’s own research, he says, shows that consumers want flexibility, ease of use and the ability to use a product anywhere, in a controlled fashion, at a time when, for many, there is a lack of desire to own a credit card due to high interest rates. Flexibility is king. It’s why Zip’s Tap & Zip digital payment card can be used at any terminal that accepts Visa or Mastercard. www.fintechf.com

Afterpay, Zip’s biggest home-grown rival in Australia, has adopted a similar strategy with its virtual card. And, as the Millennials who first took advantage of BNPL back in the Noughties grow older and want to purchase bigger ticket items, Zip has also adapted to spread transactions over longer periods (up to 36 months). “Ultimately, we are allowing the consumer to spend where they like, because Zip is now available omnichannel. So, merchants can have integrations online over existing payment infrastructure, without the need to do deep integrations and add additional tender types, which just increase the complexity for most merchants. “That flexibility to go everywhere now is the new normal – and the next frontier for buy now, pay later. That’s one of the things I’m pretty pleased we’re leading globally.”

As the high street opens up, that’s where the interest [in BNPL] is going to start to bubble up As COVID-19 restrictions ease and shoppers start to return in their droves to high streets, BNPL providers are in a frantic race to align themselves with major retailers. While Zip struck a partnership with Trust Payments, rival Afterpay chose to target Westfield shopping centres to onboard their retailers. Whatever the distribution model, the use of data is central to providing merchants with opportunities to prosper. “It opens up marketing channels that drive more interest in BNPL,” he says. “We are starting to see what I call the convergence between loyalty, rewards and payments – we’re starting to connect these applications

together and use personalisation, for example, to drive consumers to think of certain things at certain times. “Facebook and Google are obviously madly working the data sets behind the scenes, to provide certain content to us. That personalisation can be taken a lot further when you start to tackle it with a payment facility in the background, as well. We have products that bring that together, so you can build closed-loop ecosystems, or open-loop ecosystems, where you can take your loyalty platform and connect payments to it, with or without a range of BNPL instalment facilities. “So, there’s a bit of a wave of interest here, particularly among the larger retailers, looking at how they can connect those loyalty platforms into the payment ecosystem more effectively.” As for the future of the BNPL marketplace, some experts forecast a consolidation of the industry as mainstream financial services move in, potentially offering sweeter deals for retailers. The natural response for Zip and some of its competitors, says Drury, is to move into their space and provide broader financial services. “You’ll have seen some of our competitors talking about becoming more like neobanks,” he says. “Over time, I agree [with that strategy]. Depending on scale, depth, and breadth, you will start to see some vendors move into other parts of the financial services ecosystem. "But right now, for us, it’s about expanding our global reach, seeking more merchant partnerships, opening up those merchants to consumers across borders, and driving higher-ticket products, all with the product flexibility in the app for consumers to manage their finances in a responsible way.” Issue 21 | TheFintechMagazine

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BNPL: AUSTRALIA Shopping spree: But using BNPL loads the vulnerable with debt

Have it all... but at what cost? Fiona Guthrie, CEO of Financial Counselling Australia, believes BNPL providers might be flying now, but will pay for it later, if not brought into the same regulatory framework as other forms of credit Buy now, pay later (BNPL) is enjoying a worldwide explosion, thanks to the ease with which it enables customers to have what they want, when they want it – usually interest-free and paid down over instalments – with a quick swipe or click and barely a whiff of a credit eligibility check. The likes of Europe’s Klarna, America’s PayPal with Pay In 3, and Australia’s Afterpay and Zip are extending their point-of-sale credit facilities to millions more customers every week, and boasting unprecedented business growth as a result. In fact, Worldpay predicts the value of the worldwide BNPL market will rise by 177 per cent, from $60billion in 2019 to $166billion www.fintechf.com

by 2023, or roughly five per cent of global e-commerce, excluding China. Leading Swedish player, Klarna, established in 2005, recently secured new equity funding of US$639million from SoftBank’s Vision Fund 2 and existing investors to fund further global expansion – but particularly in the US. It has seen users almost double there, from 10 million in Q3 2020 to 18 million today. The darling of the venture capitalists, BNPL presents undoubted opportunities for merchants and financial services providers to grow their balance sheets. But Fiona Guthrie’s organisation, Financial Counselling Australia (FCA) – a country that, with the UK, has led the world in BNPL adoption by consumers – is seeing a downside.

And that’s because the FCA deals, first-hand, with the less positive impacts of this, so far unregulated, credit trend on vulnerable customers. She’s not alone in worrying that BNPL encourages them to amass levels of debt they can’t cope with. Not-for-profit FCA badges itself the ‘national voice of the financial counselling profession in Australia’, providing resources and support for counsellors, increasing awareness of and access to debt advice, lobbying for fairer marketplace practices and pushing for improved ways of dealing with people in financial difficulty. We asked CEO Guthrie to explain why she believes regulation is both essential and inevitable for this burgeoning market segment. Issue 21 | TheFintechMagazine

BNPL: AUSTRALIA THE FINTECH MAGAZINE: Do we really need regulation for BNPL when people are using it to pay for relatively small-ticket items? FIONA GUTHRIE: Yes. Payday loans also involve relatively small amounts of money, at high cost, over the short term, and there are similarities to BNPL. For people on low incomes, who are finding it tough, £10, £100 or a couple of hundred dollars might as well be a million, so the industry needs to ensure these products are being sold safely and fairly. And, while BNPL might be used for small amounts in the UK, in Australia you can get it from a couple of hundred dollars up to about $30,000. It’s a big regulatory loophole, which trucks are being driven through around the world. Credit is a complex product that can be harmful if not used carefully, and when it does harm people, that harm is really serious. We’ve got regulatory arbitrage happening now between mainstream credit products and this ‘new’ credit facility, BNPL – which is not new at all, really, it’s just another way of getting people into debt. Debates about it are being held around the world and, in my view, it’s not a matter of if BNPL is regulated, it is just a matter of when and how. My message to industry players is to start shaping that now, so that they end up with adequate regulation, rather than having it done to them. TFM: Isn’t there an element of self-regulation, though, given these firms’ business models are based on ensuring people pay the money back? FG: If you took that argument to its logical conclusion, you’d start to wonder why we have credit regulation at all. However, the reason we do have regulation for other forms of credit, and need it for BNPL, is that there is a difference between credit risk and affordability. We’re seeing people with multiple BNPL debts and multiple accounts, who are loaded up with credit. It is in the interests of lenders to lend as much as possible, because people will do whatever they can to repay their debts. However, as financial counsellors, we work with people who are experiencing financial hardship, and we are seeing more and more people who are being harmed by these products. If they don’t have enough money for their living expenses and are given credit they can’t really afford, they

TheFintechMagazine | Issue 21

will do what they can to repay that – but it’s bad for them, bad for their families and communities. In the end, that’s what’s going to undo the BNPL industry. Providers will rue the day they tried to argue that they can self-regulate. They’d be better off biting the bullet and creating a level playing field now. TFM: OK, so how can regulation be achieved in a way that doesn’t stifle the innovation that characterises BNPL? FG: I have worked in consumer advocacy around financial hardship for about 35 years, and I have always been told regulation will stifle innovation. Yet I have yet to see any evidence of it. The findings of the UK Financial Conduct Authority’s Woolard Review into the unsecured credit market, means that the UK is going down the regulatory path. In Australia, we have a self-regulatory code, which is better than nothing, but not the same. If BNPL providers really don’t want to lend to anyone who can’t repay, then the regulation we’re talking about should be basic common sense, with simple affordability checks, and the ability to innovate within that.

Providers will rue the day they tried to argue that they can self-regulate Regulation doesn’t have to be incredibly prescriptive, either. Responsible lending laws in Australia, for example, require lenders to check a loan can be repaid. Now, one would hope and think that they would be doing that, but we know some lenders haven’t, so we’ve had to introduce more prescriptive legislation around payday lenders, for example, just as the UK has, because some business models are based on loading people up with so much debt that it’s actually very profitable. They create a lovely little cycle where there is lots of profitable debt and people will pay as much as they can, but it won’t work for people who are on the debt treadmill, as I call it. The debts get sold off to the debt collector and off they go again. At the moment, because BNPL sits outside of the credit regulatory framework, it’s actually distorting the marketplace because there’s no record of people’s

payment history or any defaults. It’s all about the providers. But we’re all in a community. BNPL is part of a bigger picture. What COVID should’ve taught us is that what we do in business, what we do in the community and what we do in government has to benefit all of us, and, if it’s not, there’s something fundamentally wrong. What I hear from the BNPL industry is all about helping merchants to make people buy more and get them into more debt. To me, it’s all about sales and marketing and we don’t put the consumer, the person, at the centre. That’s what’s so disappointing, because it’s not actually being honest about what the product is doing. BNPL is a payment mechanism that many people have embraced, and one that can be really helpful. But it can also be harmful. When someone’s buying something on credit, things can go wrong and we just need to make sure the same rules are applied to all types of products. Regulation can actually unlock innovation because everyone knows what they’re dealing with and is competing within the same rules. TFM: Is the regulator in danger of waiting until people are defaulting left, right, and centre, before acting? FG: Research by our Australian regulator showed that one in five people is missing payments, one in five is cutting back on essential items to make those payments, and about 20 per cent are using their credit cards to pay their BNPL debts. The UK’s Woolard Review had similar findings: people taking out payday loans to pay their BNPL debts. And we are seeing more and more debt advice clients with BNPL. The industry’s done a great job – people are not realising it’s debt. And the reason some of the hardship numbers have been lower than you would expect is because people prioritise those payments over other things. However, over the next couple of years, we’ll see the same thing happening here as happened to credit cards, which we could’ve had this same debate about 40 years ago, when they were the new, shiny things. People loved them, thinking they were so exciting because they thought they enabled them to manage their money. But credit cards are now seen, particularly by the younger generation, as something that got their parents into trouble. For the next generation, it will be BNPL. www.fintechf.com

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BNPL: BANKS Point-of-sale finance technology has changed the nature – and availability – of credit. But in the banks’ hands, it could revolutionise it, says Jifiti’s Co-founder Yaacov Martin Buy now, pay later (BNPL) fintech Jifiti has a simple mission: to enable banks and lenders to give consumers access to affordable and responsible credit products at point-of-sale (POS) – in store and online. Three words jump out from that. Enabling banks in the BNPL space allows for an even wider and deeper reinvention of credit, beyond the smaller ticket items that the likes of Klarna and PayPal’s Pay In 3 facilitate. Bank institutions have the financial clout to potentially revolutionise the way finance is provided. Additionally, many would say that greater access to BNPL for consumers, in-store and online, is a natural democratisation of finance. Removing draconian barriers to lending is only providing the instant gratification for products that punters are already accustomed to, through the likes of Amazon and on-demand TV. But, on the flip side, can we ensure that lending is responsible? With easier access to credit, are we in danger of encouraging potentially reckless borrowing by consumers? Clearly, there is a balance to be struck. Traditionally, banks have been risk-averse players, relying on interest rates to reap revenue, but in the current low-interest-rate environment, there is a need to boost their balance sheets. And this is where an offering in the BNPL space may be a game changer, according to Jifiti co-founder Yaacov Martin. Calling banks Jifiti’s ‘sweet spot’, Martin explains: “I think we all know what banks are very good at, and what they have struggled

with – and it’s become pronounced over the last two years or so, as we’ve seen the BNPL industry explode. Some of the new-age BNPL providers have deployed incredibly well, primarily on e-commerce sites, quickly and efficiently, with a very smooth and easy user experience. Banks, less so. But what banks have to offer is tough to compete with – very competitive pricing on the funds they are able to lend. “They’re able to go deeper and larger, in terms of loan size, and allow programmes to last for a much longer period of time. They have the balance sheet and they, mostly, have the underwriting capabilities. What they’ve struggled with is deployment – and that is the gap we fill. We enable banks and other lenders to really scale their POS finance business.” Clearly, banks offering accessible BNPL functions will be a much-needed leg-up for retailers fighting to rebuild post-pandemic, but also a sea-change for consumers who, even with a fantastic credit score, have to jump through hoops to enjoy still-onerous finance terms. “These type of BNPL finance products are not only for situations where a consumer has no credit left on their existing card,” Martin points out. “They are supposed to provide them with a more affordable credit line, and, at the end of the day, banks are always going to be cheaper when providing BNPL services to merchants and customers, due to their lower cost of capital and other advantages of scale.” A multinational player, the company’s white-labelled financing platform enables banks and lenders to easily and seamlessly deploy their loan programmes at any POS – online, in-store and via call centre. The inspiration for Jifiti’s current business model grew out of its history of providing various POS and online checkout services. “We found that integration with merchant systems – specifically POS in-store – is a tremendous headache. It is expensive and lengthens the onboarding process significantly. “At the end of the day, deployment for

banks and lenders is dependent on the ease and speed of integration with these systems. Having figured out how to either eliminate or speed up integration in other sectors, we realised this was the next industry where we could provide real value – to banks, merchants looking to increase sales, and consumers too.” Martin says Jifiti’s role as a facilitator alleviates much of the angst surrounding routes to credit. Its partnerships can either be merchant or bank-driven. Retailers can select from any of the banks it already partners with or choose another they want to work with, in which case Jifiti partners with that bank to serve as their platform for deployment of POS finance. Either way, Martin says, it’s relatively easy for a merchant to be up and running with a BNPL product. “On the other hand – and maybe this happens more often – we partner with a bank to serve as their platform for deployment of POS financing, and, in those cases, merchants will come through our funnels. The banks’ merchant services or business development and sales team will onboard the merchants through our platform,” he explains. Martin uses the purchase of new living room furniture, as an example of how easy and consumer-friendly buying a high-value item facilitated by a bank-originated larger loan can be in practice. “With something like this, the customer is probably going to want to physically see or touch the item. So they can apply for BNPL through their own mobile device on site. They’re able to immediately start an application, there will be signage with a QR code, or a link, branded for the specific merchant and bank behind the programme,” Martin says. “Next, they’ll fill out a fairly short application form, usually about seven fields, with their information, and a credit decision will be rendered immediately. Then, as a consumer, they will be either provided with the funds on a digital card to complete their

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www.fintechf.com

transaction, or sometimes through a disbursement, which we also facilitate directly to the merchant. In short, customers will be able to either walk out with goods or, if they’re online, they’ll be shipped straight to them. “Jifiti does not lend. Jifiti does not underwrite. We do everything around that, to enable large institutions to lend at POS. In instances where there is a need for extending credit for larger-ticket items, or for longer durations, merchants want to understand how quickly they can have this available, whether it’s in store or online, and we map that out for them. “For the merchant and consumer, it’s a win-win,” says Martin. “Merchants that utilise BNPL fintechs end up paying a transaction fee of three-to-six per cent every time the service is used, but BNPL through a bank costs vendors significantly less. Meanwhile, for consumers, we offer a more affordable credit line to, say, credit cards.” But what about the flip side – the notion of responsible lending? With BNPL making access to credit easier (that is, after all, the point of it), there is a concern that it could become a ticking time bomb for consumers. Fiona Guthrie, CEO of Financial Counselling Australia, for one, makes a strong case for regulating this growing industry, citing the perils of consumers taking on ever-larger purchases, without the creditworthiness checks that come with a standard loan. Several UK charities, including Citizens Advice, have

also raised concerns over the growing use of BNPL, after they saw users getting into debt and struggling to pay for food and bills. In an age of ultra-consumerism, will individuals be tempted to over-reach themselves? Enabling merchants to sell more is great, but how do you ensure that, at the end of the day, you are not saddling vulnerable people with unmanageable debt? From a moral point of view, that’s clearly wrong, but bad debt is also bad for long-term business, including for lenders, says Martin. It’s something that Jifiti keeps front-of-mind. “We’ve seen, in other industries, as services become digitised and user-friendly, that there is a risk that they become too accessible. And we’re seeing in a few markets now that regulators are taking a very close look and determining if, when and where they need to get involved with certain BNPL products that previously have not been regulated,” says Martin. “At the end of the day, it’s going to reach some kind of equilibrium where the accessibility will be there, but within the guidelines. That way, we will ensure that the

Now that banks are catching up on the technology in the BNPL space, the advantage is theirs to gain

lending is not only seamless and affordable, but that it is also responsible. “Among all of the clients we serve, responsibility is the factor that really sets the strategy,” he adds. “We are working with larger financial institutions, which are heavily regulated themselves, of course. This gives us a safety net when it comes to making finance accessible, in a responsible way.” Big banks can’t afford to ignore the growing role BNPL plays in the financial landscape, continues Martin. “A bank’s objective is to deploy its balance sheet. In order to do that, it has to make sure that it shows up as an option where and when is most relevant to the individual or business looking to take a loan, or to receive finance,” he says. “Banks are in a position of strength, but they should also understand where they fall short and where they should partner to offer a regulated product with a friendly user experience. I think we’re going to see a certain resurgence of traditional and incumbent banks – hopefully through partnerships with fintechs like ourselves. Now that banks are catching up in the BNPL space, the advantage is theirs to gain.”

JIFITI: THE STORY SO FAR

Co-founded in 2011 by Yaacov Martin, Shaul Weisband and Meir Dudai, Jifiti set out with the intention of disrupting the gift card industry by tackling the twin issues for merchants: fraud and fulfilment. Mission accomplished, it pivoted into BNPL, where it foucsses on bridging the gap between banks, retailers and consumers. Its scalable POS financing solutions now extend to global brands and partners worldwide, including Mastercard, Citizens Bank, CaixaBank, Crédit Agricole, and retailers such as IKEA and Walmart.

Lift off: BNPL has the potential to give consumers easier, more cost-effective access to credit

www.fintechf.com

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OPEN BANKING & DIGITISATION: APIs A burning platform: Will established institutions find themselves in a precarious position?

Time for a reinvention An established bank, an integration platform-as-a-service, and a challenger, based in Benelux and the Nordics, consider the threat to the incumbent business model and what banks must do to change it APIs have been around for 20 years or more, but it is only in recent times that they’ve really punched their digital weight within the banking community. Through open banking, fintechs have been quick to jump on their potential, driving innovation and keeping up with increasing consumer expectations for digital services and capabilities. Conversely, many incumbent banks have been hamstrung by their legacy systems and have struggled to compete with disruptive fintech players. However, a ‘forced evolution’ is coming, whether they like it or not. For a perspective on the challenges facing larger financial institutions going forward and the need for a structural and cultural sea-change, we spoke to three significant players in this space. Mike Kiersey is director for global technology in EMEA at Boomi, which provides integration platform-as-a-service (iPaaS), www.fintechf.com

API management, master data management and data preparation, Flemming Laugesen, chief technology officer at Nordic digital bank Lunar, and Tom De Witte, chief information officer for international markets and head of core banking transformation for the Belgian universal multi-channel banking and insurance group, KBC. THE FINTECH MAGAZINE: How can larger organisations use open banking and open APIs just as effectively as the small, agile banks that have started to eat into their market share? MIKE KIERSEY: There is definitely a dichotomy here. The bigger organisations are very complex engines with many more cogs, versus small, nimble, high-speed versions of the bank, which have come straight in and adopted APIs; they don’t have the legacy of mainframe technologies. Clearly, the big banks are looking at the challengers,

seeing the innovation at work, and saying ‘how can we do that?’. The solutions will come from changing their internal cultures and IT. They’re the result of years of project-based deliveries of IT and IT services to deliver banking needs, rather than a more harmonised offering. But, at the same time, these challenger banks are growing and feeling stretch pains already. They are looking at their larger counterparts and asking ‘how are you guys solving these issues? What can we learn from you?’. On both sides, the journey is to see how they can adopt new, innovative technology and also deliver new patterns within that architecture, to release value more quickly and efficiently. TFM: How can those with a legacy culture use open banking more effectively? TOM DE WITTE: Technology is a lever to bring in a broader, better customer experience. Issue 21 | TheFintechMagazine

OPEN BANKING & DIGITISATION: APIs Larger institutions need this obsessively- focussed mentality that says ‘we need to do better than we did yesterday, we need to continue to excel for our customers, we need to find new ways, and better ways to make life much more convenient for them’. Because banks that are neglecting the customer side, and just using technology for technology’s sake, are not going to see a lot of progress.

Banks that are neglecting the customer side, and just using technology for technology’s sake, are not going to see a lot of progress

Tom De Witte, KBC

I do believe Cloud is a huge facilitator of all this. It used to take weeks to bring new functionality to customers through IT, which is unthinkable now. We are talking now about hours, minutes maybe, to spin up new stuff, so that we can easily, immediately reply to all our customers’ requests and provide the services that are required. The benefits of Cloud reach far beyond simply a means of being quick and agile – it’s a fantastic answer to many new business demands. Imagine yourself a decade ago, setting up a greenfield operation and having to decide how to size your IT infrastructure. Are you expecting a steep adoption of the service by your customers or prospects? Should you invest in a large pool of IT infrastructure, and then potentially be hugely disappointed, with large costs if the market isn’t as speedy as you expected it to be? Or should you take a more prudent approach, and then be unable to cope with a massive inflow of unexpected customers? This is where Cloud is bringing huge and fantastic answers because it’s so easy to spin up, and also spin down, if necessary. The flexibility that has brought to IT infrastructure is tremendous and it’s providing businesses with good, new, decent, stable technology to realise their plans. TFM: How can large banks harmonise their IT department and other subdivisions, to ensure that everyone’s vision of global transformation and innovation is the same?

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MIKE KIERSEY: I do think one of the biggest challenges is the culture; there’s no common language between what the business wants and what IT wants, and they don’t know how to harmonise that. Moving forward, you need to have a business-IT continuum. Let’s say, on the one side, you’ve the deep expertise of technologists in IT, but that knowledge is on a sliding scale down to the rest of the business. On the other side, you’ve got business domain expertise and people who know everything around what banking should be and that’s a sliding scale of knowledge, too, going the other way, to IT. Banks now have an opportunity to create a harmonised business-IT model – IT and the business need to come up with some common tools that they can start to use. I’m not saying it’s easy, it’s a fusion of different roles, cultures, ideals, architectures and business needs. But it’s a shift that is imperative to banks’ futures.

Banks have an opportunity to create a business-IT model. It’s not easy, it’s a fusion of different roles, cultures, ideals, architectures and business needs. But it’s a shift that is imperative to banks’ futures Mike Kiersey, Boomi

FLEMMING LAUGESEN: You have to examine how a specific institution is running. What are their rules and expectations? What are its ways of working? How does it handle goal management? What’s its organisational design? I think that is probably more important than Cloud because, if you don’t look at how you work, how you are set up, how you engage with your employees, then moving to Cloud might not necessarily help. It’s just another infrastructure, after all. I really think you need to look at the environment the engineers work in. Are they working in a fail-safe environment, or a safe-to-fail environment? Are they seeking pains, or are they trying to avoid pains? Looking at all these issues around culture

will help the more settled institutions to break out of their habits. Don’t get me wrong, Cloud is integral, but, for the bigger institutions, if Cloud by itself is the goal, then they will miss the opportunity to reinvent and start thinking as a technology company. TFM: How have Benelux and the Nordics, specifically, adapted to open banking? TOM DE WITTE: Some banks were a bit ahead of the pack in terms of embracing new technology, some were lagging. We found ourselves on the leading edge. Of course, now, if you look beyond the revised Payment Services Directive (PSD2), you can see a much broader acceptance of API technology – some of our competitors accepted the strategic advantage of it, bringing new solutions to the market for their own customers. As a result, the big winner is the ultimate end customer, because new functionality has been provided in a much faster and more convenient way. I believe this is exactly what we need to do, as the financial industry, in all of our markets. FLEMMING LAUGESEN: Incumbents have tended to see open banking from the perspective of compliance; fintechs see new business models and business opportunities, and start grabbing these APIs to build something that puts the user in control. The larger institutions are starting now to figure out what they need to do to be on top of this; they need to use it, because otherwise they’ll come under increasing pressure.

If Cloud by itself is the goal, a bank will miss the opportunity to reinvent and start thinking as a technology company Flemming Laugesen, Lunar

MIKE KIERSEY: We’re now seeing institutions move forward with open banking. Boomi can help them with PSD2, start looking at how they can design for the future, how they can connect for the future, and bring greater value through data, quickly and more efficiently. At the end of the day, it’s a regulatory need to be able to share data, but it’s an opportunity for them to build new products and allow the fintechs to bring new ideas to the table. www.fintechf.com

3rd Annual

European Capital Markets Technology & Innovation Virtual Conference New Opportunities as the Digital and Policy Agenda Matures 22–24 September 2021

Use promo code “FTF” to receive 15% off your registration fee

Hear more on the growing focus on Digital Assets, Digital Transformation, DORA and more This year’s conference will focus on “New opportunities as the digital and policy agenda matures” and includes sessions on digital transformation, digital operational resilience (DORA), the growing focus on digital assets, the EU agenda for open data, and the fundamental role of cloud computing.

Meet the keynotes:

John Berrigan

Director General, DG FISMA Directorate-General for Financial Stability, Financial Services and Capital Markets Union European Commission

Roberto Viola

Director General, DG CONNECT Directorate-General for Communications Networks, Content and Technology European Commission

www.afme.eu/events

OPEN BANKING & DIGITISATION: THE NORDICS

THE DIGITAL ‘HELLO’ ,

NORDIC-STYLE Most financial institutions in the Nordics were ahead of the rest of Europe on API connectivity. Rune Mai, Tobias Gustafsson Niska and Masa Peura explore how they stole a lead and what they plan to use it for

Bank, and Masa Peura from Finland’s OP Financial Group, together around a virtual round table to talk about what comes next. Here, they discuss how they’re working to monetise API technology through a new wave of innovation that’s focussed on developing profitable partnerships, maximising efficiency, saving cost and improving customer experience. But we kick off with what we think is the best description we’ve heard yet of what an API is, from Rune Mai…

API – or application programming interface – technology has rapidly gone from being the new kid on the financial services block, to the shortcut to digitisation, particularly for incumbent institutions that can no longer afford to let themselves be hampered by innovation-limiting legacy systems.

“APIs are often badged as the holy grail of the next wave of digitisation, though an API is really just a protocol that allows two computers to speak nicely to each other. They basically follow the same patterns we do, as humans: when I say ‘hi’, you say ‘hi’ to me, and I expect that because it’s the social protocol. “We build similar protocols within the technical space that allow us to make it easier, more secure and more transparent to fetch data from a system that is not yours. Why is that important? Because the end users work more and more in the digital space – possibly ignited by the emergence of smartphones, back in 2008, which made everyone aware that they could have specific apps to serve specific purposes, such as personalisation or massaging data, so that they didn’t need to do it themselves. Facebook also appeared, enabling us to make documentaries of our lives. And all of this was, to some extent, spurred by the interconnectivity of data that allows people to access services where they are, in the apps they want. “Today, banks have that same kind of opportunity to use APIs to build the next level of digital services, keeping them relevant and allowing them to enter different contexts where users expect them to be. “For banks, APIs are a way of sealing off their legacy systems and then working outside them, in order to use external teams to

And, while just two years ago, scepticism remained about the security of all things Cloud, again, in today’s new, COVID-induced world order, it is fast becoming the accepted way to run and scale pretty much any business, to meet growing demand for digital services. All of which is particularly important in an environment where open banking, fuelled by regulation, including the revised Payment Services Directive (PSD2), is forcing organisations to develop at pace to meet the equally fast-evolving expectations of consumers. But while the last 18 months has super-charged institutions to get to grips with this new way of doing things, in the Nordics, they might well ask what all the fuss is about; banks and fintechs there had already built a highly integrated financial services ecosystem. Now, they’re looking for new ways to monetise it. We brought Rune Mai, CEO and co-founder of open banking platform Aiia (formerly known as Nordic API Gateway), Tobias Gustafsson Niska, open banking product developer for Santander Consumer

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build new types of solutions, as we’ve seen with Santander’s approach to building a more consumer-facing personal financial management app in Prosper [launched this year in partnership with Aiia].” Tobias Gustafsson Niska agreed that APIs have been critical for Santander bank and large organisations like it. “Product development goes so fast now. If you take six or 12 months to develop a service, you are out of the game. In the year 2000, when I started building netbanks [internet banking services], it was about building cost-efficient systems and decoupling systems from each other to build scale within a company.

www.fintechf.com

Now, APIs are potential new revenue streams, giving organisations the ability to create innovative services together, as Santander has done with Prosper, using Aiia’s open banking platform. It’s a new era in which it’s important that organisations don’t try to develop everything themselves but instead look to the market, to partner up and create services. “In the Nordics, customers have been used to digital services for longer, while, in terms of regulation, the Nordics work in a similar way to continental Europe. But we’re ahead on value-added services because of our standards, like NemID and BankID, making our services more accessible.” Rune Mai observed: “The Nordics are very advanced in building data and account aggregation solutions; banks like OP did this almost two years ago. However, I think the next stage will centre around European payments innovation, among financial institutions and active newer players –

APIs are potential new revenue streams, giving organisations the ability to create innovative services together

because of new easy-onboarding solutions that no longer rely on intermediaries.” But PSD2 is, in his opinion, is a ‘really tricky construct’. “There are a lot of actors involved, a lot of centralised policymakers and they all have something to say in terms of the European scope. Building all of that into a coherent, simple, stable and compliant solution requires constant negotiation about how to interpret the specifics of the directives and regulatory technical standards. It requires country-by-country interpretation. “But now, Europe’s moving faster and faster, due to the fact we’re standardising, across countries, access to banking information and payments – including payments directly through bank accounts via APIs, aided by other developments like the Single Euro Payments Area.” Masa Peura thought there was more behind the Nordic banks’ advantage than just the technology.

WHO THEY ARE...

RUNE MAI is CEO and founder of Aiia, previously known as the Nordic API Gateway. Over the last two years, it has worked closely with financial services authorities and banks in the Nordics to build a high-quality infrastructure for open banking connectivity. Aiia recently expanded into the rest of Europe and is now connected to 2,700 banks, processing more than a million payments a month in more than 12 European countries, which equates to 11 million monthly logins to its platform.

TOBIAS GUSTAFSSON NISKA leads the Nordic open banking product development team for Santander Consumer Bank and was closely involved in the launch of Prosper, the bank’s new personal financial management app for customers and non-customers, which was built in collaboration with Aiia and uses its open banking platform.

Masa Peura, OP Financial Group

It’s all about connection: Nordic financial services have a history of collaboration

www.fintechf.com

“As Rune and Tobias have said, Nordic banks started building their digital banking early, understanding the effects of mobile development. So, yes, we were quite well prepared, but there is also an atmosphere of collaboration, perhaps because we’re a bit distant from continental Europe. That said, at the moment, we are very challenged by new competition, which raises the bar for us to run even faster!” Nordic banks are more than ready for the ‘next sprint’, according to Rune Mai.

MASA PEURA joined Finland’s largest financial services operator, the cooperatively-owned retail and corporate banking and bancassurance provider OP Financial Group, five-and-a-half years ago to build its innovation and new business arm. In June, the group announced its mobile wallet, Pivo, was joining forces with MobilePay (owned by Danske Bank) and Norway’s DNB-developed, but now standalone, Vipps payment app, to create a new European payment company. Peura is SVP for everyday banking.

Issue 21 | TheFintechMagazine

OPEN BANKING & DIGITISATION: THE NORDICS “I sometimes wonder why people think fintechs and third-party processors (TPPs) are different from banks and large-scale financial institutions. We should remember that banks were actually the first fintechs. Banks, especially in the Nordics, have been providing electronic payments since the 80s and 90s. Now they’re just sealing off their old cores because they built technology so early on, and preparing for their next sprint. “In Europe, the most prominent third-party processors are banks, with account aggregation solutions and so forth. On the other hand, fintechs have been given much-needed regulatory approval. Where many European fintechs, early on, started building account aggregation solutions in an unregulated space, now everyone can do this without the burden of having dialogues with the authorities about whether they are legal or not, creating equal opportunity within open banking, and driving the agenda of innovation and competition.” For Tobias Gustafsson Niska, streamlining which APIs were used at Santander was key. “We focus on tailormade solutions for each partner and creating Nordic open APIs in response to increasing requests for complete solutions,” he said.

Going forward, we are increasingly viewing APIs as a potential added income stream, not just a way to integrate services, but also products Tobias Gustafsson Niska, Santander Consumer Bank

“Prosper is an example of the new era where we are opening up services for both customers and non-customers. Now, people don’t have to be Santander customers – any Danish citizen can log into Prosper and use our value-added services. It features combined services from Aiia, as well as having other open APIs, offering services for customers and non-customers, because we see this as a huge opportunity to reach out to the full market.” Aside from the technology, banks can learn a lot from fintechs about ways of

TheFintechMagazine | Issue 21

working in cross-functional teams, in small iterations, releasing minimum viable products and getting out to customers for quick feedback. Masa Peura saw that put into action when he joined OP. “We started building a new type of innovation or startup culture for new business development, introducing lean methodologies and so on. We managed to build close to 20 internal companies to create new services under the corporate umbrella, and many of them have been quite successful. Every team has an end-to-end responsibility, as far as possible, and these are the cornerstones for building a good culture and cooperation model for the API world, and working with startups.” Many of those collaborations would have been impossible without the other piece of the innovation jigsaw – namely, Cloud services – said Rune Mai. “The biggest hurdle, for many large-scale financial institutions, has been regulation preventing them from moving as quickly towards Cloud as they wanted to. “Cloud, in itself, is just a different way of running operations, in a setup with infinite scalability, that is cost-effective. And this becomes increasingly important with consumers accessing institutions through digital channels more and more, especially amidst COVID. Without Cloud, many of the fintech-bank collaborations we see today would have been next-to-impossible.” Prosper itself is a Cloud-based solution, ‘because this makes it faster and more agile for us to develop new services’, said Tobias Gustafsson Niska: “And I’d say we’ve only seen the beginning of this journey.” “There’s been a huge shift towards Cloud at OP too, giving more scalability, less errors, and a more stable business,” added Masa Peura. “Cloud-native development enables new types of services and some of our API services wouldn’t be there without Cloud infrastructure to develop them in. So, being more in the Cloud is part of our strategy.” They all agreed that the benefits of API technology are multiple and profound. Rune Mai: “The plug-in infrastructure is the instant benefit. It’s so much faster today to build a team that can create a service for launch within weeks or months, instead of years. Twenty years ago, it would have been a massive effort to build something like Prosper. But companies like us can now provide out-of-the box solutions that let

organisations focus on building really value-adding features, trusting that what’s underneath is solid enough. As a provider, we can piggyback our partners. Building on top of things, instead of from the ground up, allows them to accelerate innovation at a pace that’s increasing exponentially. “I expect to see a lot from banks and fintechs in the next three-to-five years, because all the APIs out there are going to be more mature and people know they can trust them to build from. They don’t have to work on top of something that might break, or lacks information or functionality.”

I expect to see a lot from banks and fintechs in the next three to five years, because all the APIs out there are going to be more mature and people know they can trust them to build from Rune Mai, Aiia

For Masa Peura, one of the main advantages is in improved go-to-market time, as well as increasing agility and reliability: “We also need to attract the best tech talent, with a tempting setting and modern tools to work with,” he added. Tobias Gustafsson Niska saw yet another upside. “Using APIs and the Cloud enables you to focus less on IT and technology and more on partners and creating more value-added services for customers, which is the way we are all going. “Going forward, we are also, increasingly, viewing APIs as a potential added income stream, not just a way to integrate services but also products. And they also have huge potential for improving cost-efficiency. For example, APIs can take away lots of the manual work, while improving access to that information for customers and partners. “Essentially, we’re looking at entering new areas where we haven’t been but want to invest, such as responsible and sustainable banking. Here, we can see a huge benefit to collaborating with partners, but also internally and globally, within Santander, to create, for example, carbon footprint services for our customers.” www.fintechf.com

UK & EUROPE

15th - 16th November 2021 The Brewery, London

We never left. We expanded. We’re just bringing back the stage. Join us for a festival of visionary ideas, practical innovation and deep dives into solving industry problems from a wide spectrum of financial services.

6,000+

1,000+

60%

20,000+

Live and virtual festival goers

Financial institutions represented

Technology buyers

Facilitated meetings

Network across a room, not over Zoom No camera angles. No wifi required. No one is on mute. Visit us at: https://www.fintechtalents.com/london/

FINTECH FOCUS: CYBERSECURITY The TIBER framework is different to many earlier cybersecurity testing procedures. Instead of working in an isolated environment, separate from main operations, TIBER is live. Providing far more meaningful results, TIBER tests companies’ systems in the real world. This adds a level of risk that must be managed meticulously, both by the organisation and its testing provider. The consequences of not doing so are serious. CBEST was the first testing framework to operate in a live environment. Specialist red teams have been highly trained (and CREST-accredited) to deliver CBEST testing that’s secure, legally compliant, and ethical. At Nettitude, we believe the TIBER framework must learn from this high level of service. So, finding the right TIBER test provider for your financial organisation is crucial. You’ll want a secure test, but there’s huge value in knowing how to act on the results to protect your operations. An obvious question exists: should you opt for a local provider in your country or choose a larger, global tester? We consider both here.

GOING LOCAL…

Firms should consider their choices carefully when asking a company to punch a big hole in their cyber defences to test their resilience. Here, Nettitude’s Anthony Long, Head of Threat Intelligence & Advisory Consulting outlines the options 88

TheFintechMagazine | Issue 21

It can be tempting to keep TIBER testing local. A familiar provider in the same country can seem reassuring. If timelines are tight, engaging an existing provider will be faster than appointing a new one. They’ll already know how you operate and won’t have language differences or limited cultural insight. But local testing providers are, by their very nature, smaller operators. When handling live TIBER testing, this is a risk. Generally, local operators have less testing experience, smaller teams and fewer qualified individuals. Also, their knowledge of cybersecurity beyond finance could be limited. This might not seem significant, but they’ll lack the broader insight of new and emerging risks that financial organisations and their regulators are yet to consider. A local TIBER tester could seem like the more convenient option. But you might find it’s a less safe one.

OR GLOBAL… Just like many financial organisations, global TIBER test providers operate in many countries. Global banks and other www.fintechf.com

institutions often hold data in a handful of geographic locations and engaging a provider experienced in handling cross-border issues is a big advantage. Safely moving data between countries requires knowledge of local laws and legal requirements in various regions. Global providers have more experience of this, so your exposure is managed. In addition to multi-country operations, larger providers have multi-industry and multi-testing experience to draw from – working across a much wider landscape means their exposure to risk will be greater. Only by experiencing risk can you become proficient at managing it. Smaller operators might be able to handle high risk in theory, but have they ever experienced it? Nobody wants to be a guinea pig. When carrying out TIBER testing, a big hole is effectively punched through the defences of the financial organisation – in a live environment. Should the provider not secure that hole for its exclusive use, the vulnerability remains open for third parties to infiltrate and do incredible harm. The risk is very real. Your TIBER test provider must demonstrate sufficient experience in operational security to keep your organisation safe during all stages of testing. Global providers are more likely to have larger, higher-qualified teams who’ve handled this level of risk many times.

GET MORE VALUE FROM TIBER TESTING Carrying out a TIBER test is one part of the service you’ll require. Granted, it’s a significant one, but you’ll get the greatest value from your investment by choosing a provider that will project manage your testing, from concept to action plan. The TIBER test results, in isolation, are of limited use. The value comes from understanding them and determining what mitigation and future actions you must put in place. Written in technical language, your corporate team might not, in any case, understand ‘raw’ test results. When your project is fully managed, your attack manager delivers the findings in meaningful language that everyone understands. They’ll highlight risks and recommended actions, alongside plenty of guidance and support. Testing providers that manage your project will ensure the output matches www.fintechf.com

your regulator’s expectations. That means working with a fit-for-purpose TIBER framework and within the boundaries required. Regulators will also want outputs that they can directly compare with other test results. Only then can meaningful conversations be had, heightening cybersecurity across the global finance sector.

QUESTIONS YOU 8 SHOULD ASK PROSPECTIVE TIBER TEST PROVIDERS For most, shortlisting TIBER providers is not an everyday activity. We’ve put together eight questions you should ask every provider you’re considering. By doing so, you’ll identify the best one for your financial organisation. What testing experience do they have? Understand their testing experience in the finance sector but ask about experience in other industries, too. It can significantly widen their cyber risk knowledge. What types of testing have they carried out? Have they completed live tests (CBEST is another well-known live testing framework)? Ask about their cross-border experience – especially if your organisation operates in many countries.

Can you speak to others they’ve worked with? There’s nothing better than understanding how the provider’s testing helped other financial organisations. Take time to plan a couple of conversations.

What insurances and risk management procedures do they have in place? Ask how they will manage the risk of a live test. How will they keep your organisation safe from outside attacks during testing? Do they security-check their staff to ensure safe practice?

What schemes are they members of? Shortlist providers that are members of (or familiar with) schemes that matter to your organisation. Your regulators will welcome this assurance. Also, look for general cybersecurity schemes that add credibility. Common schemes include: CBEST: UK finance GBEST: UK government iCAST: Hong Kong FEER: Saudi Arabia CORIE: Australia AASE: Singapore

Do they understand the legalities and ethics around TIBER testing? The TIBER framework can use technology, processes and people. Knowing what’s legally acceptable in your region is important. Operating ethically is also crucial when using people.

Smaller operators might be able to handle high risk in theory, but have they ever experienced it? Nobody wants to be a guinea pig

How will you receive your results? Ask for assurance that you’ll receive results written in a way that your team understands. Just technical reports limits the value of testing.

What qualifications do have their team have? Assess the people you’ll be working closely with. Not just attack specialists – consider intelligence managers and attack managers, too. Are you confident of their qualifications and experience? CREST established a series of qualifications for CBEST providers to achieve. No such qualifications are currently necessary for TIBER testing, but qualified individuals will reduce your risk.

How will they help your organisation after testing? If you do nothing with your test results, you lose huge value. And yet, the results can be hard to interpret on your own. Understand the support you’ll receive after testing is complete. Will they help you understand the outcomes? Will they help you formulate a plan? Your greatest value lies in post-test planning and action. By having sufficient support in this area, you’ll develop the strength of your organisation.

Issue 21 | TheFintechMagazine

ARTIFICIAL INTELLIGENCE: ISO 20022

Beyond The enriched data that will flow from compulsory adoption of the new messaging standard will be a ‘protein boost’ for AI in the field of transaction analytics and forecasting. Victoria Harverson from SmartStream believes banks need to seize the opportunity SmartStream’s trademarked approach to solving operational processing challenges – known as Transaction Lifecycle Management (TLM) – had something of a head start on what’s been described by one leading bank as ‘a watershed moment’ for the payments industry. It’s been working in the ISO 20022 environment since the payment messaging standard first emerged in 2004. However, as compliance with ISO 20022 becomes mandatory over the next few years for any institution transacting through EURO1/ STEP1 and TARGET in Europe, processing SWIFT messages, or using Singapore’s MEPS+, Hong Kong’s CHATS and Australia’s RBA-RITS clearing, the heat is on to bring every one of its clients up to speed. The logic and aspiration behind ISO 20022 is irrefutable: it’s designed to enhance the speed and efficiency of global payments by enforcing universal uniformity, which will demand a new granularity of information around every www.fintechf.com

20022

financial message, spanning not just cross-border retail payments but also trade, securities and foreign exchange. Importantly, for a company that has made a strategic shift to harnessing artificial intelligence, ISO 20022 represents a protein-boost for AI. The rich information attached to every transaction will enhance analytics, improve reconciliation rates and – the end game – improve the experience for the customer. But migrating to the new standard is not simple if your payments engine is built on legacy infrastructure. To support clients, SmartStream expanded its TLM Corporate Actions solution in 2019, to include ISO 20022 message processing and interoperability support. Its new iteration of its SmartStream AIR Cloud-native data validation software solution, and the new TLM Aurora Universal Data Control platform, both powered by machine learning and AI, are bringing the latest technologies to help companies migrate to and maximise the opportunities that the new standard presents. Under ISO 20022, every character within a financial message must be 100 per cent correct and aligned with the specifications, and the format is validated at several points along the communication chain from the sending and receiving ends. A single missing colon could result in a multi-million currency transfer being rejected or delayed for days. But, once compulsory, ISO 20022 could revolutionise the increasingly-borderless payments marketplace, picking up where

transparency-boosting messaging systems like SWIFT gpi have left off, by ensuring not just increased payments visibility, but also real-time speed and glitchless delivery. SmartStream’s considerable technical fire power helps organisations manage their data for in-time compliance, and ensure exceptions are identified early to minimise disruption. Its services include data transformation, regulatory alignment, innovation labs, managed services, Cloud environments and solution delivery. Global head of business development, Victoria Harverson, believes organisations must embrace technologies like AI, to make the most ISO 20022. Too many, she says, overlook AI’s power to transform their behind-the-scenes activity. Banks need to decide how they will manage their – often outmoded – core architecture as they adapt, to avoid their backends limiting their capability for front-end innovation. To help them, in March, SmartStream announced it had re-engineered its TLM Aurora software-as-a-service solution to help banks upgrade their core systems to comply with ISO 20022’s more complex data requirements. TLM Aurora Universal Data Control allows for basic-to-complex reconciliations data matching by enabling AI, machine learning and Cloud-native technology. Issue 21 | TheFintechMagazine

ARTIFICIAL INTELLIGENCE: ISO 20022 Speaking at the time, Roland Brandli, strategic product manager for SmartStream, was quoted as saying: “The discussions we are having with banks right now revolve around ISO 20022… where financial institutions are having to upgrade legacy systems for data remediation and improved channel and back-office processing. We decided to [develop] a new environment to meet today’s business needs. [It] goes over and beyond basic reconciliations… and is based on open architecture and adaptable to all banking requirements, without the need to re-engineer operational processes.” In April, SmartStream also launched V3 of its proprietary AIR software-as-a-service (SaaS) platform, designed to serve organisations worldwide that are using Microsoft’s Azure platform for data management and infrastructure improvements, as well as AI solutions access. Also hosted on Amazon Web Services (AWS), the move to Azure offers users more flexibility to use regional data centres for their localised compliance needs – as well as data lake support for improved upload, handling and manipulation, and customised reports offering deep reconciliations insights. Harverson says the company is well aware of the opportunity payments represents: “At the moment, most of our experience lies in capital markets and use-cases within key financial services, although we are moving much more into payments, and the Payment Card Industry Data Security Standard (PCI DSS) is key for us.” The company achieved PCI DSS accreditation in 2020. Harverson advocates a balance between core infrastructure improvements and innovation. “Banks are constantly striving to compete in an age of disruption. There’s lots of demand for incredible front-end services, focussed on customer experience, and a dedicated function and budget for tech innovation activity is key because the client experience is their differentiation and biggest profit contributor,” she says. “However, if they over-focus on those things and don’t invest in their underlying systems, including end-of-lifing old components and rebuilding their architecture so that it’s flexible, scalable and Cloud-ready, they risk being disrupted by the competition. Our customers, using our AI solution in their core banking architecture,

TheFintechMagazine | Issue 21

can easily inspect data between front, middle, and back-office systems. They can also better leverage their transaction data, then run business intelligence to do things like forecasting client spending. We are also running initiatives with banks’ technology stakeholders, to help them speed up their transformation projects, using AI and other tools for doing things like quality assurance tasks that would usually take hours, in minutes, with a fraction of the resource.” But AI must be used wisely to bridge between old and new. “Seeing the value in AI, doesn’t always mean an organisation has Smashing barriers: AI should be a key enabler for banks

transaction data, in different formats, in minutes, rather than days. We focus on doing more with less.” But adopting it, for banks, can be tricky. Harverson adds: “Our Cloud-native SaaS product is easy to use; with the right security, standards and certifications to allow clients to run any data on it, easily. “But reduction of team resources and changes to governance can be real issues. A bank might have used a multi-step data management approval model for years and it’s difficult to move from that to an automated, faster solution. “AIR offers audit logs and capabilities, so we can export details of how processes have been performed, or the client can see it all on the user interface. Fintechs like us, and banks, are trying to do things to make life easier, but traditional models and internal rules that have been in place for a while can make enabling change difficult.” SmartStream sees itself very much as part of a cavalry of fintechs. “We use AI to reconcile data rapidly and effectively, and do that really well. But there are other fintechs that do data visualisation, for example, equally well. We can integrate to those and allow our customers to run deeper analytics and business intelligence. “You have to focus on your strengths and let others focus on theirs. It’s important organisations think about the strategy for such ecosystem partners.” Therein lies the potential for further iterations of AIR. “We’re talking about integrating our AI with business intelligence and management information service tools that allow organisations to visualise reconciled AI data more meaningfully. We’ve built the product and are selecting providers to work with,” says Harverson. So, what next? “I’m looking forward to more opportunities within open banking; API platforms and ecosystems of applications and toolkits for financial institutions to access and integrate fintech products from different companies in one place, with no code needed,” says Harverson. “We continue to listen to customers and build our internal agility, so that we can deliver future-proof solutions.”

In the frontend, people ‘get’ AI … But in the back end, it can control risks, increase productivity and efficiency, and lower costs

an efficient implementation strategy for it,” says Harverson. “Legacy IT infrastructure and systems often don’t share data or interoperate, and there are still divided opinions around using AI. However, if banks don’t do this, others will. In the frontend, people ‘get’ AI and we talk about ultra-personalised experience, like the Amazon analogy. But in the backend, AI can control risks, increase efficiency and lower costs – doing things like fraud prevention and identity verification.” One of AI’s greatest benefits is efficient data management, making it indispensable for ISO 20022 readiness. “Our innovation labs focus on using AI to compare high volumes of data and find discrepancies instantly. There’s no need to build data reconciliation; AI does that. We use supervised, unsupervised and observational learning techniques, linking system data together to make sure it displays in all the systems accurately. And we can reconcile vast volumes of

www.fintechf.com

EMEA TRADING CONFERENCE WEDNESDAY 23 JUNE, 2021 ► Mixed Media Virtual Event ► 60+ Industry Speakers ► 1200+ Global Delegates ► Network, Learn, Connect

Europe’s largest one-day electronic trading conference is back, bringing the global trading community together to discuss the most pressing issues facing the institutional community and providing a neutral platform for buy-side, sell-side, exchanges, vendors and regulators to share their ideas and collaborate.

For the industry, by the industry - innovating together Sponsors of this year’s conference include:

Trade Association Partners for this year’s conference

www.fixtrading.org/emea2021

ARTIFICIAL INTELLIGENCE: NLP

A new chapter for AI Understanding a story and telling one are very different challenges for a robot. Seán Jevens, Chief Digital Officer at Irish bank AIB, and Pierre-Louis Durel, Head of Customer Success for AI specialist Yseop, compare notes

The Irish government has just given itself the mission of making the country a global leader in the use of artificial intelligence (AI). Its eight-strand policy, announced in July 2021, has a particular emphasis on AI education, promoting the adoption of AI tools by Irish enterprise, as well as building a strong ecosystem to benefit the economy and wider society with a ‘people-centred, ethical approach to AI developments, adoption and use’. The strategy builds on the fact that the country’s capital, Dublin, hosts one of the EU’s 30 Digital Innovation Hubs, and that Ireland has long been an important centre for the European operations of AI trailblazing technology giants Google, Apple and Facebook. They, in turn, have helped to create a thriving network of fintech firms, mainly sited in Dublin’s docklands, which is now inevitably known as Silicon Docks. That ecosystem has also fed the country’s major banks, which have collectively invested more than €3billion in their digital services in the last five years. Irish firms have made up a third of the 100 fintech partnerships forged in the process, according to figures compiled by the Banking and Payments Federation Ireland (BPFI).

An example of one of those deals involved Ireland’s largest retail bank, AIB, and the Dublin-based data analytics company Boxever, whose technology the bank leveraged in order to better engage with its customers. AIB has so far used AI in biometric onboarding, to interrogate datasets to find cohorts of customers who might be interested in its services, to retain existing customers, and machine learning in payment tracking and reconciliation. AIB’s chief digital officer, Seán Jevens, says it has been thoughtful about where it applies the technology. “As with all great technologies, there is always the risk of tech hijack where something has no real, productive use,” he says. AI on its own is of limited value, he points out, unless you have a way of interpreting and delivering the insights it reveals when they are needed – such as in customer relationship management (CRM). “A lot of the failure I’ve seen around AI and CRM wasn’t because the insights weren’t good and clever, it was due to companies’ inability to deliver those insights to the right people, at the right time,” says Jevens.

“That comes down to integrating machine learning into delivery mechanisms. But at AIB we are able to spot propensity triggers and now we’re getting to a point where we’re able to deliver them in a timely way, too, to customers and staff, so that they can act on them.“ While, for banks like AIB, the big focus up until now has been using AI to translate human experience into code, equally important for their back-office processes is translating code into something intelligible for humans. It’s another area in which AI can potentially help to reduce the significant costs of meeting regulatory and reporting requirements. To quantify that, French AI software specialist Yseop, says it has reduced analysts’ time spent writing and updating reports from 48 per cent of their working day to just nine per cent, by applying its pioneering natural language generation (NLG) tech to translating structured financial data into a clearly-written narrative over its Augmented Financial Analyst platform. Pierre-Louis Durel, Yseop’s head of customer success, says it’s suitable for profit and loss analysis, risk and compliance, as well as fund and portfolio reports. And he claims it offers a potentially big return on investment.

Story-telling AI: A balance between deterministic and probablistic

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Issue 21 | TheFintechMagazine

ARTIFICIAL INTELLIGENCE: NLP Back at AIB, despite the significant “There are a lot of controllers spending investment it has so far made in its digital a lot of time just consolidating data to do a services, Jevens is candid that it still has a first analysis. It’s a big advantage to be able long way to go in its AI journey. Its chatbot to free up this time for them to exploit the is, for example, still taking ‘baby steps’, he analysis rather than just write it down,” says. But the bank is hesitant for a reason. he explains. “We have more than 50,000 “There are lots of bad examples [of users live in Europe, the Middle East and robotic chat services]. Customers have Africa (EMEA) and the US – it’s our daily been burned by that, provoking comments obsession to make data real for banks, like ‘I can’t talk to anyone. They’re putting insurers and others; to make AI this ridiculous accessible to all.” chatbot in front of Hot on the heels of the me that can’t release of Augmented understand Financial Analyst, Yseop anything I say’. So also developed an how we stitch that application called ALIX, natural language which quickly assesses if into our core API a report is suitable for interpretation by the platform – a kind of AI triaging. The Analyst platform and ALIX, as Pierre-Louis Durel, Yseop well as the development of a no-code studio so that it can embed some pre-packaged analysis and text to ease report creation, are just the latest in a long line of investments made by Yseop since it was founded in 2007 by a mathematician and a linguist. It’s much harder for a robot to write a Working smart: narrative from code than it is for code AI can help banks step in to be written from narrative. It has to take earlier to help customers into account all the randomness of human service is, for me, the nature in the interpretation. real challenge.” “But at Yseop, we have the option to Nevertheless, as AIB combine machine learning with shifts towards having deterministic AI, to be able to generate more of its products error-proof text, and, at the same time, and services available as adapt the text to user preferences,” explains Seán Jevens Durel. “I think we’ve found the right balance APIs, Jevens sees huge AIB potential in using natural between deterministic AI and probabilistic language processing to make its core AI to have the best of the two worlds.” services available within key Big Tech apps One among several of the large European such as Facebook’s WhatsApp and banks with which Yseop is working on Messenger, Google’s Alexa and Apple’s Siri. intelligent automation roadmaps recently That’s especially so as customer demand approached it with a request to make its for point-of-sale credit increases and the reports more readable. appetite for having multiple apps stored “It was a manual internal report, with on devices like smartphones almost a lot of tedious graphs, and it was pretty certainly wanes. complex to understand,” says Durel. “We’ve already adapted for that, “The bank decided to use our technology and will continue to do so,” Jevens says. to revamp it with more dynamic text and Durel also sees AI propelling banks a focus on the important insights. As a result, to ever-higher levels of efficiency and this internal report, because it’s so much customer experience. easier to read, is widely shared today and “It’s very clear that our AI has enabled we are extending the parameter for analysis banks to cut costs, but it’s not the only so that the bank can have more and more benefit,” he says. “Our customers are people using it on a monthly basis.”

Our customers are insisting a lot on operational excellence – we talk even more about operational excellence than cost reduction

insisting a lot on operational excellence – we talk even more about operational excellence than cost reduction. It enables them to standardise and speed up their processes, standardise the documents they are producing to avoid any error, any risk. It’s clearly a big benefit. “The second important thing for them is the internal satisfaction of analysts. AI is clearly a must-have for providing more capability on a daily basis. I think it could also be a way to retain talent in a bank or other organisation, too.” Jevens agrees that the future adoption of AI in banking will impact on many levels – not just cost reduction. “I think AI will help us standardise and improve our data and service quality across the board,” he says. “A lot of our digital investment so far has been in the priority use cases, the high-volume customers. Where we really need to stretch digital now is the more complex cases – the joint customers, the multi-party SMEs – and when dealing with fraud cases, to get to customers more quickly whenever we suspect some activity on their account so that we’re not relying on an agent who’s spotted something, to pick up the phone and ring them. We’ll be much more interactive, in terms of how we do that. “The other place we see it really helping customers is preventing them falling into debt, by being more proactive as a bank in spotting early signals of vulnerability. “Australian banks have done some good work in this space, suggesting the customer, for instance, uses spare funds to pay down their credit card. It’s maybe counter-intuitive for a bank, but, in the long term, it’s the right thing to do for everybody. “In Canada, banks have done work in the opposite space, in helping people save, again using AI to identify signals and saying ‘well, actually Pierre’s got spare cash at the end of the month, let’s help him save that’ in an intuitive and natural way. I think that’s where AI will come more to the fore, as we become more comfortable with it.” And, as it gets more comfortable with us – as adapt at telling as it is understanding human stories.

AI will help us standardise and improve our data and service quality, across the board

TheFintechMagazine | Issue 21

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TRADING: SDR Many of the economic and social impacts of the COVID-19 pandemic are still to unravel, and the only thing that seems certain, right now, is that they will be severe. Nevertheless, for financial services specifically, the 2008 crash is still the biggest black swan event of the 21st Century. In fact, almost everyone is still experiencing the fall-out from it, in some form or other. One of the reasons for this is the way it fundamentally undermined trust and confidence in the marketplace, by highlighting the role of non-transparent and sometimes unethical practices, which helped to bring the world economy to its knees. The result was a counter-wave of risk aversion and regulation that’s still unfolding today, aimed at preventing any such event from happening again. Securities trading is one of the last remaining financial outposts for reform – and it’s proving somewhat controversial. A new settlement discipline regime (SDR) was supposed to have been fully introduced by now under the Central Securities Depositories Regulation (CSDR), which is designed to harmonise settlement standards and promote competition. But the SDR’s final phase of implementation is facing delay due to lobbying by a range of industry bodies that claim the various counterparties in the transaction chain – as well as the broader ecosystem – need more time to prepare. The European Securities and Markets Authority (ESMA) recently agreed to

postpone implementation for 12 months, until February 2022, after the Association for Financial Markets in Europe (AFME), the Investment Association (IA), the International Capital Market Association (ICMA), the Alternative Investment Management Association (AIMA) and the International Securities Lending Association (ISLA), stood shoulder-to-shoulder on the issue. They wrote an open letter calling for a phased approach to implementation and a rethink of the SDR’s controversial mandatory buy-in clause, which requires initiators to stand behind a transaction, regardless of whether a resulting failed trade is actually their fault. It impacts any buy or sell-side participant that invests in any European market, regardless of where they are based, with significant potential penalties for non-compliance. Market participants will be liable to pay penalties, calculated on a daily basis, on any transactions that fail to settle under the mandated T+2 timeframe. Perhaps the most controversial aspect of the changes is the administrative challenge posed by the buy-in process itself, given that the mandatory requirement that initiators fulfil settlement for any financial instrument not delivered within a specified period, varies according to the type of security. Liquid assets, for example, will need to be brought in within seven days of the intended settlement date, while products like equities and bonds will be required within four days. Small-tomedium-sized stocks will be subject to a buy-in 15 days after the intended settlement date. By decreasing the number

of outstanding settlement obligations between counterparties, the intention is to reduce risk in the market as a whole and, ultimately, make Europe a region where there is no failed trade. But that must be achieved by harmonising the bloc’s 40 Central Securities Depositories (CSD) markets, all of which use different definitions and methodologies. The industry argued that institutions needed more time to introduce IT, messaging and legal infrastructure changes to cope with the SRD, although some commentators speculated that particularly the buy-in side of the trade would use the time to lobby for permanent alterations. While they broadly support the new rules’ objective of improving settlement efficiency, the letter’s authors were concerned about significant negative impacts on both trading and liquidity, given the far-reaching nature of the regime, which affects market participants inside and outside Europe. Many firms in major trading regions, such as Asia and the US, are still not even aware of what is required of them.

Regime change De-risking the European financial markets has finally reached securities trading… but it’s not been an easy ride. Pete Tomlinson, from the Association for Financial Markets in Europe (AFME), and Frédéric Viard, Product Director Securities, at Bottomline, share their views www.fintechf.com

Issue 21 | TheFintechMagazine

TRADING: SDR When introduced, participants will, of course, want to understand the underlying causes of their failed trades – which could range from issues with funding and inventories, to inefficient manual operations. And before then, they’ll want to review their systems to ensure they can comply with the new regulatory requirements for processes and communication. Financial messaging formats are a potential key area of challenge, especially as the wider industry goes through the ‘handover’ to ISO 20022. All that having been said, it’s estimated that 30 per cent of the top 200 global investment managers already use reconciliation solutions to prevent, or efficiently manage, failed trades. So why isn’t everyone better prepared?

The mandatory buy-in is not seen as the most effective way of delivering the objectives of the regulation

Peter Tomlinson, AFME

Pete Tomlinson, responsible for CSDR within the Association for Financial Markets in Europe (AFME), which represents European and global banks, brokers, custodians and other market participants, and Frédéric Viard from Bottomline – the software-as -a-service provider creating solutions to help those same organisations adapt – share their views. PETE TOMLINSON: The European Commission has been getting market feedback on settlement discipline and other topics, as part of the ongoing CSDR review and, even though the rules haven’t gone live yet, three-quarters of the people who responded think they need to be changed already, including AFME. In particular, the mandatory buy-in is not seen as the most effective way of delivering the objectives of CSDR, which are otherwise good and widely supported by the industry and AFME members – harmonisation in Europe and better and more efficient capital markets are steps in the right direction. But there are definitely barriers to overcome. One flaw in the regime, I think, is the way it places the regulatory obligation on the

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injured party – which has done nothing wrong – because someone’s failed to deliver to them. The regime will have a global impact and that was the deliberate intention of the regulators – any non-EU counterparty wanting to trade and settle in European securities will be affected. The regulation achieves this extra-territorial reach by requiring that the rules are contractually incorporated. In Asia, for instance, there is no central operator for buy-in for non-cleared transactions, and the responsibility for executing the buy-in falls with the trading counterparties. So, asset management firms there need to understand that, if they are executing a trade in Europe, they now have a regulatory responsibility, as the receiving party, and if another player fails to deliver securities to them, they have the responsibility to execute that buy-in. That means appointing an independent buy-in agent who will potentially require them to post collateral in order to execute the buy-in on their behalf. This is not replicated in any other jurisdiction. It’s a huge operational headache to get their heads around. The contractual requirements mean that everyone has a compliance risk. But do all buy-side clients have the capability and the capacity to manage that buy-in process from start to finish? In a lot of cases, maybe not. So they might look to their brokers or service providers to take control of appointing a buy-in agent, settling the buy-in, and any price differentials arising from that. In that way, the end buyer takes more of a passive role, but I would emphasise that they still have the regulatory responsibility. FRÉDÉRIC VIARD: Bottomline does have customers in Asia where, traditionally, there has been a strict culture of settlement, so the ratio of failed trades is very low. However, they now have to be prepared to adapt their environments to support the new reporting requirements and the messages that transport that. They will have to really assess their exposure to the European market, in terms of how these new disciplines will impact them. The key point for our customers today, wherever they are, is how to implement the requirements to be sure to not be the bad guy in the chain. Even a simple securities

settlement transaction can get pretty complicated, pretty fast, when you try to map that out. You’ve got the vertical chain, from the Central Securities Deposit to settlement agents, to global custodians, all the way through to end clients, and you’ve got a horizontal chain between, maybe, a trading venue and the broker dealers, through to their end clients. There is a contractual relationship between those parties and CSDR mandates that any contract is updated to incorporate the new rules. The broker will probably be more exposed because these are the guys who might be in a position to be short sellers, and then they will have to control this position. The penalty regime is quite well defined but we have to keep in mind that the charges will increase over time, for as long as you are not able to deliver the shares. So, the aging of the delay will have an impact on the cost, and after that, the buy-in regime will apply. In this space, it’s important that the information that is transported over a network, such as SWIFT, can be used to monitor and to anticipate potential penalties and failed trades – because you have the trade and settlement dates, you can monitor the aging.

The key point for our customers today is how to implement the requirements to be sure not to be the bad guy in the chain Frédéric Viard, Bottomline

With regard to messaging, the 15022 standard is more suitable for the securities market and there is no regulatory driver to force the banks to use ISO 20022 for settlements, even if there is an equivalent in ISO 20022 for almost all the business aspects of the exchanges. This is a challenge, though, because you might receive the same information from different rails and you have to combine them. That’s brought a lot of confusion and it’s the reason Bottomline is offering translation tools and coexistence possibilities across the various networks. The aim is to have something which is completely machine-readable because that is the only way to achieve 100 per cent straight-through processing. www.fintechf.com

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TRADING: FPGAs

The modern art of the FPGA

Cisco is releasing the creative potential in field programmable gate arrays. Andrew Tennant, James Beeken and Thomas Scheibe consider how the future might be redrawn It was Picasso who said ‘everything you can imagine is real’, but it could be the marketing slogan for a piece of kit that’s elevating programming in one area of financial services to an art form. The technology is the field programmable gate array, more commonly known as FPGA, in which Cisco has invested the future of its ultra-low-latency business, supporting the world’s fastest, high-frequency traders, since acquiring specialist Exablaze (a leader in FPGA in financial services) at the start of 2020. “Think of the FPGA as a blank canvas, with a physical capability that’s predefined but functionality that’s undefined,” says Andrew Tennant, who leads Cisco’s global ultra-low latency solutions sales team. “It can solve problems that don’t exist yet.” That probably sounds as whacky as some of Picasso and his Cubist chums’ ideas did way back at the beginning of the 20th century… but remember, they sparked a movement that revolutionised the way we see art today. Cisco isn’t alone in thinking that FPGAs could redraw the future as one that relies less on central processing units (CPUs) www.fintechf.com

and application specific integrated circuitware (ASIC) in certain environments – especially those that depend on ultra-low-latency, such as fighter jet systems and high-frequency trading (HFT) exchanges, where messaging delays are critical and crashes to be avoided. In 2018, for instance, Intel bought Altera, one of the largest producers of FPGAs, for similar reasons. In high-frequency trading, the FPGA is the avant-garde in computer programming because it not only drives out latency, but also offers traders another big – possibly the biggest – competitive advantage. And that’s flexibility, says James Beeken, who came across to Cisco with the Exablaze team. “If we had selected ASIC as the core element for our products, we’d have had to fix our design, and that would’ve dictated the growth and path of the product,” explains Beeken, who’s now responsible for Cisco’s sales and business development in the EMEA region. “With the FPGA at the heart of Cisco/Exablaze switches, network interface cards (NICs) and other future products we’re developing, we’ve a fully-programmable platform, which

means it’s forever evolving. If our clients ask us to add features and functionality, or improve existing features, we’re able to. It means we can not only develop ultra-low latency platforms, but can a lso keep those platforms right at the forefront of the market while meeting bespoke client requests.” In other words, clients no longer need to choose between low latency, performance and time-to- implementation – they can have it all. Historically, that has come at a higher cost, given every application on a FPGA had to be written by what we might call the digital artists – the Cisco engineers. But, since the beginning of 2021, any client can pick up the paintbrush and, as Beeken puts it, ‘let their mind run free’. “The code itself is the firmware,” explains Tennant. “It essentially lays out a an electrical circuit on the FPGA to drive that hardware performance. That can be done by our own engineering team internally, but the hope is to expand it to other folks with terrific skills and ideas for solving their own problems. Those are the end customers and consultancies that have the expertise in-house.” Issue 21 | TheFintechMagazine

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TRADING: FPGAs Tennant is referring to the firmware development kit (FDK), made available this summer, which provides a software development framework for Cisco’s FPGA-based Nexus switches and SmartNICs, which give higher performance and flexible data processing capabilities when used to offload tasks from high-traffic web servers, such as those used in HFT environments. “We know these markets are being driven to the wire on latency,” says Beeken, “so, over the last 10 or 15 years, we’ve been driving huge lumps of latency out of the trading cycles. Now we’re searching for that golden nugget that will give our clients that next edge. “So, we’ve created a product environment that allows client and partner communities to develop the platform even further, with their own ideas. They can let their minds run free and think ‘what if I could add a market gateway or a risk analysis package within this environment?’, as well as imagining how that tool could become a bespoke utility for their business. We can give our clients that capability, so long as they have the in-house skillset. More importantly, we have a community of partner resellers out there, who can develop their own products and lay them on top of our platforms. We’re trying to grow this community around our FPGAs – our basic principle of core functionality – and let them drive it in a direction befitting their business.” One critical area for improvement in trading exchanges is around the concept of fairness, which has been redefined by the speed that technology developed by Cisco and others has delivered. “When these [ultra-fast] environments are created, it generates all sorts of downstream problems that have to be solved,” says Beeken. “One of the biggest challenges facing all operators is how to make the market fair. Five years ago, events happened within five or 10 milliseconds of each other – we couldn’t measure at any greater level of granularity, so fairness was easy to achieve. However, today, things are happening in a handful of nanoseconds. The market is no longer fair. So now we’ve got a new problem. “Fortunately, with a programmable platform, we can build new firmware, create a new angle to that product and tackle the issue of fairness for the next two, three, five years.”

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Thomas Scheibe, who runs Cisco’s data centre networking and product management, and advocated for Exablaze to be brought into the fold, is equally excited about the possibilities. “The FPGA model means there’s a whole range of things customers can do now at their own speed and leisure,” he says. “And the beauty is, it’s not just around the switch, we also have that option of a NIC, so you really can build an end-to-end model where you can optimise your performance, from host to host, with the network in the middle. All the building blocks are there.” The speed of implementing these upgrades is key, he says, especially in trading environments already running hot.

We know these markets are being driven to the wire on latency. We’re searching for that golden nugget that is going to give our clients that next edge

James Beeken

“They might already have a very high performance solution today, but if they need to take the next step, how are they going to accelerate that? The speed and agility to drive these implementations is crucial for our customers. If they can solve it, we give them the tools. Instead of taking years, it’s getting down to quarters and months, to churn, improve and tune. “That’s the value. The speed with which customers can drive improvement themselves, instead of being driven or relying on vendors.” Software FPGAs are still niche products and, so far, Cisco has marketed them as targeted solutions for specific customers. But the technology is agnostic and the potential applications unlimited, according to Beeken. “We talk about the financial markets, because that’s our sweet spot, but we absolutely want to bring this type of benefit into others, as well – 5G, the military, medical applications, for instance. This product will play into any industry where driving down latency and greater flexibility are important. “There are other specialists out there

– in security and risk management – who’ve identified a problem, and we’re inviting them to take the platform, embrace it and develop the solutions for the market.” The potential savings in cost, time and complexity, when modifications and upgrades are needed to a wide variety of units in the field – from mobile handsets to jump jets – could be transformational, says Tennant. “If you think of it in the simple terms of your ability to manipulate traffic at wire rate, at a hardware level, it’s extraordinarily powerful. The programmability is important, but the re-programmability is equally so. Take 5G with an ever-evolving standard protocol. If you can deploy this thing in the field, in the tens of thousands of units, the ability to go back and evolve the hardware, as the technology and protocols evolve, gives customers much better product lifecycle management.” The idea behind the FDK builds on the DevNet developer community that’s been thriving at Cisco for a number of years. “It’s about unlocking the programmability, the APIs, the interoperability of all of our core products,” explains Tennant. “That muscle memory within DevNet has given us tremendous acumen around facilitating this sort of value-added, third-party mindset. We know we’re not going to be the only ones making cool innovations. We appreciate and really welcome the inspiration and innovation that comes from those threeand four-person firms out there, who have incredibly intelligent folks working on hard problems, and they need someone to partner with to bring it to market. “Think about the iPhone. Originally there was no App Store – that was an afterthought. But it’s those third-party apps that completely dominate the equation now. Apple’s role in that is what I aspire for ours to be – to provide the platform and the incredible capabilities, then the tools to unlock potential. “I can absolutely see in a few years some really big application coming out of this and somebody’s going to say ‘where did that come from!’. And we’ll say ‘oh, you remember that small acquisition Cisco made? That company called Exablaze, working in the HFT and FPGA niche? That’s the core of what took place here’. The potential really is unfettered.” As the artist who changed history said, you just need some imagination. www.fintechf.com

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TRADING: HIGH-FREQUENCY TRADING

Just the ticket Lightning quick tick-to-trade is a must-have for today’s trading platforms. Daniel Brown, Milan Dvorak and Adam Lister discuss the pursuit of speed and the minute margins that separate profit from loss Time is money across all financial markets. But none more so than in the high-octane, high-speed world of online trading, where platforms must deliver ever-faster executions for traders whose success depends on speed and agility. So, how do you create a trading platform that gives you that all-important edge? We asked three industry experts to explain what makes a great platform and what today’s traders look for. Few organisations have better technology credentials than Cisco Systems, where Daniel Brown is a technical solutions architect with a strong focus on electronic trading. Many of his solutions are used by tier 1 banks, proprietary traders and hedge funds, and they range from ultra-low latency (ULL) platforms to global exchanges and multicast data distribution networks. As part of the ULL division, Brown is responsible for SmartNICs – network interface cards that offload processing tasks normally handled by a central processing unit (CPU), accelerating traffic and boosting agility. SmartNICs are based on field-programmable gate array (FPGA) platforms – ideal for designs requiring complex logic combined with high-speed processing capability. “A primary objective of a trading system is to take as much as possible away from the CPU,” says Brown. “With SmartNICs and FPGAs, we can send orders directly from the FPGA, without having to do any calls to the CPU. That’s one of the biggest advances we’re seeing today. www.fintechf.com

“Traditionally, software apps were all running in the CPU,” adds Brown, “which meant quite a big delay (by which he means a matter of microseconds) between the application and the NIC card itself. We’ve done away with that through the technologies we’ve been developing at Cisco and other organisations.” One of those organisations is Czech-based Netcope Technologies, which is also driving the use of FPGA technology in trading. Netcope CEO Milan Dvorak explains that it develops FPGA-based tick-to-trade applications. This lowers the latency of trading systems because the whole tick-to-trade pipeline is implemented in the FPGA.

If you have the full tick-to-trade pipeline in the FPGA, you’re always faster than the guys staying in software

Milan Dvorak, Netcope

Tick-to-trade is the time gap between receiving a market ‘tick’ (a price movement) and executing the buy or sell order (the trade). And time is vital – picoseconds, nanoseconds, microseconds: these are the fractions that make the difference between success or failure, profit or loss. Put simply, the lower the latency, the better your trading prospects. Dvorak agrees with Brown that the way to achieve low latency is to move out of the CPU space and into FPGAs.

“FPGAs are so fast,” says Dvorak, “that by the time the standard software even learns about a new message, a new exchange event, the FPGA can process the incoming data, execute the strategy, prepare the response to the exchange and send it onto the wire. If you have the full tick-to-trade pipeline in the FPGA, you’re always faster than the guys staying in software.” However, Dvorak believes that CPUs are still important, because if you move everything to the FPGA, it will become clogged and unnecessarily slow. Sometimes you need to finetune on the fly, he says, and the lower the latency between the FPGA and the software, the more you can do and the more aggressive you can be with your strategies. Dvorak says the FPGA environment has proved its worth during spike periods and, notably, the unsettling market conditions during the pandemic. “Today, when most exchanges are still running at 10 gigabits per second, there’s no buffering with FPGA. It’s just streamlined data processing and you know that your latency is going to be constant and deterministic, even during microbursts, or whatever is happening in the market.” Issue 21 | TheFintechMagazine

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TRADING: HIGH-FREQUENCY TRADING Adam Lister expands on the latency challenge. As a system architect at Blackcore, a technology vendor for high-frequency trading, Lister is at the forefront of trading innovations, developing and deploying trading platforms and exchanges worldwide. “While CPU core frequencies are extremely important, we also optimise everything around that CPU socket,” he says. “So we’re tuning the cash frequencies and we’re optimising the PCIe (peripheral component interconnect express) bus to ensure the whole solution is as low-latency as possible, not just what’s on the FPGA, or what’s in memory.”

We’re seeing great results for latency reduction in areas that might not have been addressed by previous server generations

Adam Lister, Blackcore

Lister says the industry has changed in the last few years and that ‘raw clock frequency’ has levelled off. “We’ve had to optimise everything around the socket,” he says, “not just the core frequencies, and we’re seeing great results for latency reduction in areas that might not have been addressed before.” It’s been challenging, especially with some clients wanting to integrate bigger and more power-hungry devices. Naturally, given environmental priorities, energy consumption is a key concern and must be balanced with the need for speed. Blackcore has made a name for itself in liquid cooling systems for servers, which enable users to maintain more consistent temperatures across the system and improve performance. If you have a stable platform for your FPGA and software, it’s a much

better environment for trading, adds Lister. Heat transfer in liquids is also in orders of magnitude more efficient than air systems, leading to less energy consumption, even as the processors work harder. “In recent customer testing, we had a 15°C reduction, moving from air-cooled to liquid-cooled, in the same datacentre, in the same rack unit, which enabled higher frequencies. Being cooler lifts you above the competition. The cooler you are, the faster you can run. And if you have workloads such as algorithmic trading and automated trading, you want those single threads to be as fast as possible,” says Lister. Turning to industry collaboration, Dvorak says it’s encouraging the way organisations like Cisco, Netcope and Blackcore are working together to promote innovation, to address this and other issues. “The FPGA industry has been through a commoditisation phase,” he says, which improves time-to-market. “We’ve seen a big shift in the industry and the fact that Cisco offers firmware development kits (FDKs), which foster compatibility between platforms and systems, means we have flexibility and can quickly bring our intellectual property (IP) onto a new platform and push it to clients sooner. We’ve just deployed a new card that will be at least10-to-15 per cent faster and clients won’t have to wait for us to finish development and move our IP onto the new platform, because the work’s done.” Brown agrees that a big advantage of a SmartNIC is futureproofing because its FPGA can be rewritten, whereas with an application-specific integrated circuit (ASIC), changes are complicated and costly. Being efficient and economical is a major consideration for all CTOs, says Dvorak. As an example, he cites Netcope’s methodology. “We use a technology called high-level synthesis,” he says. “It can make the

programming of FPGAs faster and more efficient, so a single developer can do more work and put more code into the FPGA. It can also grow your FPGA team, because you can add software people to the mix.” One thing Brown, Lister and Dvorak firmly agree on is the power partnership. Creating a best-in-class trading system requires teamwork and cross-fertilisation, with each vendor or supplier contributing skills and services that complement each other and make the system greater than the sum of its parts. “Cisco has traditionally been the best i n class,” says Brown, “in terms of network performance and bandwidth. And now we have the SmartNIC line-up. But, in partnership with vendors such as Blackcore, for their servers, and Netcope, with their tick-to-trade and gateways, you can go to a different level. So I think the future is definitely about partnerships.”

Cisco has traditionally been the best in class, but the future is definitely about partnerships

Daniel Brown, Cisco

“At Blackcore, collaborating and integrating with partners such as Cisco and Netcope is certainly the way forward,” says Lister. “We can deploy a whole trading solution, rather than being just one building block. If you take a low-latency FPGA and install it in our server, you’ve added Netcope in the background and created a turnkey solution.” “The bottom line,” says Dvorak, “is for everyone to focus on what they do best, and that applies equally to clients. Let vendors provide their know-how and technology in partnership, and let traders concentrate on making money trading on the exchanges.”

Power of numbers: Heat and energy are key challenges for data processing in HFT

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LAST WORDS: AMAZON FRESH

A FRESH START

Check-out-free shopping at the new Amazon Fresh store, among the financial powerhouses in London’s Canary Wharf, is quick and slick... but leaves Sue Scott craving something more

I’ve always found the area around Canary Wharf – rival to London’s first financial district – a somewhat soulless place, more so now, since only an estimated 10 per cent of workers have returned to the cluster of dizzying skyscrapers that were emptied of their 100,000-plus staff at the start of the pandemic. In offices high above the monotone streets, staring blankly down at any homeless person foolish enough to think that, in this money-making district, anyone has real cash in their pocket, the world’s financial heart pumps to a digital beat. The best-known occupants of some of the most expensive real-estate in the world – Barclays, Citigroup, Credit Suisse, HSBC, Infosys, JPMorgan Chase, Deutsche Bank – are all busily engaged in the act of making money disappear. That is, making services so frictionless, so intuitive that, eventually, no one will ever remember the dirty tokens of wealth that changed hands among the fruit merchants and importers that once made this area one of the brightest, loudest, smelliest in the city, as boats from the Canary islands disgorged their exotic cargo. It is, then, an obvious place to open a grocery store where you can buy from the world’s table without any discernible payment taking place. Embedded finance has come home. The Amazon Fresh ‘Just Walk Out’ store on Wood Wharf is one of five that opened in London in quick succession after the Big Tech unveiled its first ‘checkout-free’ format in the UK in March.

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Copying the successful Amazon Go model in the States, the bright-green branded outlets employ proprietary AI and camera technology to track shoppers as they move up and down the aisles. And when they leave, the goods they carry out are automatically charged to their Amazon account, an email arriving some time later, confirming money has been debited from their linked payment method. Shopping is sometimes referred to as a guilty pleasure – you certainly feel guilty leaving without paying but the pleasure is somewhat limited. What seems like an unconscionable number of staff for the floorspace are personably engaging with customers, filling up lines, and guarding the alcohol shelves. Curious shoppers are taking snaps of displays on their phone and shiftily putting goods straight into their bags, still unused to the freedom that embedded finance brings. Mostly, my fellow weekday evening browsers were tourists and young couples. The only thing that bound us together was a tacit acknowledgement that we were all signed up to Amazon – without an account, you can’t get entry to what is basically a corner store that selects its customers. According to Michael Pierce, director of partnership commercialisation at software-as-a-service Cloud banking platform Mambu: “What Amazon has done is looked at the customer journey and identified that the biggest pain point in that is the checkout process. And if they can eradicate that checkout process entirely, they can likely increase conversion rates and encourage more spending, which results in more revenues.” I certainly spent more on beer than I’d intended.

Amazon isn’t the only retailer exploring checkout-free technology, although it’s garnered the most publicity so far. In June, European technology firm Sensei partnered with Continente to open its first autonomous store in Lisbon, Portugal. As with Amazon Fresh, you first have to sign up to a shopping app that generates a one-time QR code, allowing you to sweep through the entrance. But Sensei itself says it doesn’t retain any data or ID of the users as they progress around the store. It claims its technology will help retailers retain customers and increase revenue, while the data that such stores create will drive waste out of the supply chain by optimising stock levels. It’s reported to be in talks with other retailers in Portugal, Spain, France, Germany and the UK, following £6.5million of fundraising. Despite consumers’ willingness to embrace online shopping over the past 18 months, they still prefer a tactile experience when it comes to groceries. In the UK, the channel’s overall share of the grocery market dropped back to 14.5 per cent in March 2021. Amazon, being hyper-sensitive to customer behaviour, won’t have missed that message. Then again, perhaps the ‘Just Walk Out’ stores are more to do with having a shop window for its technology, should the Big Tech wish to license it to other retailers. Whatever the strategy, to be honest, if I want guilt and pleasure in equal measure, I’ll take my debit card to Waitrose. www.fintech.finance

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Fintech Finance presents: The Fintech Magazine 21

Articles inside

The modern art of the FPGA

A Fresh start

Regime change

Just the ticket

A new chapter for AI

Testing times

Beyond ISO 20022

The digital hello Nordic-style

Banking on BNPL

Time for a reinvention

Time to let Zip

First mover

Ahead of the eight

The great fintech bake-off

Richly deserved

Magical banking

Sunset on the office

At your service

A moving target

Getting to know you

Local heroes?

A world on the move

Bringing ATMs in from the cold

The ATM pool table

Meet ‘The Enablers’

Stick or twist?

Cool to be kind