Fintech Finance Magazine Spring 2018 by Fintech Finance

ISSUE 8

won s a w e c a R ments y a P a i s A ow the H ! k r o w t Fas

11: FS Ou r Su per her oes retu w o rn b a k o y to e h t me i t s ' t hI c e t Fin f o s ure g i F en d d i H Re gte ch Dda y fo r th eG DP R ISSUE 8

ISSUE #8

Fast work!

How the Asia

Payments

Race was won

‘There is nothing more disruptive than a female voice in fintech’

11:FS

Hidden

Figures

of Fintech

It's time

they

took

Our

Superheroes

return

a bow

Regtech

D-day

for

the

GDPR

Nom-omnichannel! All-you-can-eat digital banking with Backbase

www.fintech.finance

PLUS INSIGHTS FROM Wirecard ● FileFacets ● Glory ● Tinkoff Bank ● Pendo Systems Meniga ● Wells Fargo ● Galileo Processing ● Isracard ● SmartStream ● Saxo Bank ● Axa

Nom-omnichannel! All-you-can-eat digital banking with Backbase

PLUS INSIGHTS FROM Wirecard ● FileFacets ● Glory ● Tinkoff Bank ● Pendo Systems Meniga ● Wells Fargo ● Galileo Processing ● Isracard ● SmartStream ● Saxo Bank ● Axa

CONTENTS

HIDDEN FIGURES 8

Hidden figures of global fintech Elizabeth Lumley went in search of the industry’s unsung heroes and came up with a list of cool and diverse individuals working deep inside the industry

MONEY20/20 ASIA 18 Singapore – a fintech super nova Money20/20 Asia demonstrates the APAC region’s fintech star is rising

20 How the race was won Five racers, four days and as many as seven countries to get through with just one payment method each… this is how they did it!

24 Winning ways to pay What does the result of the latest Money20/20 Payments Race tell us about the changing nature of payments in Southeast Asia?

26 Collaborating in the digital ‘space race’ Businesses in the financial supply chain are engaged in a feat of collective endeavour as part of the MULTOS Consortium

29 Engaging or Enraging? How is your online experience making customers feel? GBG finds out

30 All ‘hail’ fintech! DBS Bank’s chief innovation officer on who will take the tech crown in Southeast Asia

32 All for one and one for all Wirecard plans to harmonise Southeast Asia’s diverse transaction landscape with a universal POS

34 Taking it to the Max To call Exagens’ personal financial assistant a ‘chatbot’ would be to insult its cognitive intelligence

THEFINTECHVIEW 2018

We all know that the Titanic sunk in the middle of the Atlantic Ocean because it hit an iceberg. But it wasn’t the ice above the surface that ripped a hole in the cruise liner. It was the jagged edges beneath the waves that the crew couldn’t see which doomed the giant ship. This edition of Fintech Finance explores what’s ‘hidden’ in our sector that may be more impactful, more dangerous and disruptive, than what we see and interact with every day. Can regulations meant to protect and empower consumers, end up destroying the very innovation industry that fuelled them in the first place? Louise Beaumont, strategic adviser at Publicis. Sapient and co-chair of the techUK Open Banking & Payments Working Group, explores the perhaps unintended consequences of open banking and the General Data Protection Regulation. And who are the ‘hidden figures’ in global fintech – the ones beavering away at improving the financial sector, who never find themselves on those self-congratulatory influencer lists? Meet

ISSUE #8

the unsung heroes and hear their stories. Elsewhere in this edition you’ll find the next thrilling instalment in our Fintech Superheroes series, exciting news from Southeast Asia’s emerging fintechs and a revealing wash-up of the latest Money20/20 Payments Race. Elizabeth Lumley | Guest Editor ■ Elizabeth is a global fintech influencer,

commentator and advisor on business and ecosystem development. Follow her at girl-disrupted.com and on Twitter @LizLumley

Did you recognise last issue’s ‘spine tingler’: “I have no particular talent. I am merely inquisitive.” Albert Einstein, the famous German-born theoretical physicist who developed the theory of relativity, one of the two pillars of modern physics.

BACKBASE 38 Backbase and friends Helping bankers sleep at night with a solution that brings legacy systems into the 21st century

24 www.fintech.finance

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Engage Enrage Does your digital experience engage customers or enrage them? Consumer expectations continue to rise meaning the online customer experience is crucial. And it starts with the customer identification process. Does your onboarding experience make customers feel welcome or drive them away? And how do firms compare with their international rivals? Download our new study and find out why leaders in financial services are experts in customer identity.

visit www.idiq2018.com

Research carried out by:

CONTENTS

66 72

86 54 REGTECH 46 Pushing at an open door Regulations promised us a new era of open banking, but that depends entirely on what customers are prepared to share and what providers are capable of delivering, says Dr Louise Beaumont, strategic adviser at Publicis.Sapient

50 Hide and seek As regulatory authorities across the world take their lead from GDPR, the founder of FileFacets looks at what’s next in data discovery

52 Bank balance How Swedbank is taking an even-handed approach to collaboration and innovation

54 Keeping the faith with GDPR Why building societies such as Nationwide have a special duty to ensure the GDPR is implemented to the full

56 Suits you, sir? The one-size-fits-all nature of GDPR is a bit of a squeeze for financial services firms, according to legal experts Addleshaw Goddard

58 The bank now at platform… The CEO of Saxo Bank – the ‘tech company with a banking licence’ – has a fintech train to catch www.fintech.finance

CUSTOMER RELATIONSHIP MANAGEMENT 61 Collaborating to beat ATM crime RBR looks at current threats and collaborative solutions

62 The Truffle hunters France’s BPCE is sniffing out the best fintech acquisitions to establish an online advantage

64 Disrupting the disruptors In the post-PSD2 era, could big banks use their scale to upset more than financial services? They can, says Meniga, but it will take much better use of data – and guts

66 Brave new world Innovation and scale will define the financial Age of the Millennials, according to Tinkoff Bank… and the future is closer than you think

68 The Sparda treatment Sparda Bank Berlin’s prescription for digital change promises to refresh the parts other banks can’t reach

11:FS SUPERHEROES 72 Guardians of the fintech galaxy Four awesome characters pulled together from across the digital banking universe explore the forces that are propelling finance towards an event horizon

PAYTECH 82 Artificial intelligence: the card up your sleeve Galileo Processing on the added benefits of using AI to reduce card payments fraud

86 The way to pay Israel’s leading card issuer and clearer, Isracard, has dug deep into its data to become the new ‘shopping enabler’

88 Money talks… …and Glory Global Solutions is listening. The world’s biggest provider of cash-handling technology doesn’t see any desire among consumers to abandon fiat currencies – especially in Southeast Asia

71 Reaching the Summit in ATM security The ATM Industry Association’s main event will this year recognise excellence in preventing physical and virtual attacks on the ‘hole in the wall’ Issue 8 |

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CONTENTS

SANDBOXES AND COLLABORATION 90 Vive la revolution! Paris-based BNP Paribas believes it’s time the ancien régime in finance changed… and its revolution has already begun

106 96

92 Lift off in the CEE Raiffeisen Bank International’s Elevator Lab identifies the most promising newbies in Central and Eastern European fintech and aims to propel them into financial space

94 Made in Germany BayernLB has put the banking crisis behind it to focus on supporting the export-led regional economy

96 A run for their money Bank Leumi is more nimble than its age would suggest – and it’s learned not to hang around when it comes to collaborating with fintechs

98 A rational approach to regtech Four months after the introduction of MiFID II, the wisdom of a single reference data utility to improve speed of reporting and transparency across investment services is becoming apparent, says SmartStream

AI & DATA 100 Leading from the front

104

106 Banking on the bots

Banker Frédéric Oudéa believes you’re never too old to learn new digital tricks – and as CEO of Société Générale that goes for the institution as much as the man

102 The future is here Don’t you wish bankers had something more reliable than a crystal ball to foretell the future? Well they have: it’s called artificial intelligence and at Wells Fargo it’s about to predict your very next financial move

104 Gunfight at the Data Corral When Pendo Systems first hit the new frontier of unstructured data, it entered ‘a bit of a no man’s land’. Now the digital Wild West is about to be won

The BNY Mellon story… or how a 223-year-old Tier 1 American bank became an AI pioneer by deploying 220 bots in its business over the past two years

INSURETCH 112 Insuretech: best thing since sliced… Faced with changing customer expectations of what an insurance company should offer, AXA used its loaf and implemented a strategy of ‘big i’ and ‘little i’ innovation

108 How to live long and prosper Banking will no longer be an industry that sells us products, but one that makes money from dispensing advice (with help from its multi-processing friends), says IBM’s Paolo Sironi

LAST WORDS 114 Who’s the boss?

110 Charting a new course Bank of America Merrill Lynch's destination is digitisation and it’s promising a ‘drumbeat of innovation’ to get there, including partnerships with a roster of fintechs

What can American comedian Tina Fey teach our tech lit reviewer Will Dove? Probably nothing, but it was a lot of fun trying!

FINTECHFINANCE 2018 EXECUTIVE EDITOR Ali Paterson EDITOR Sue Scott ART DIRECTOR Chris Swales

PHOTOGRAPHER Jordan “Dusty” Drew SALES James Butcher Chloe Butler Rebecca Routledge Shaun Routledge

FEATURE WRITERS David Firth, Sean Martin, Andrew Sharp, Will Dove, Tori Hywel-Davies, Dr Louise Beaumont, Tracy Fletcher, Sue Scott Shaun Weston, Elizabeth Lumley

VIDEO TEAM Douglas Mackenzie Lea Jakobiak Daniel Curnme James Butcher Shaun Routledge Lewis Averillo-Singh

ISSUE #8 Fintech Finance is published by ADVERTAINMENT MEDIA LTD. Advertainment Media Ltd. Riverside Business Centre, Riverside Lawn, Tonbridge Kent, TN9 1EP

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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 8 |

HIDDEN FIGURES

Hidden figures of global fintech Fintech Finance guest editor, the ‘Godmother of Fintech’ Elizabeth Lumley (aka Girl, Disrupted) went in search of the industry’s unsung heroes and came up with a list of cool and diverse individuals working deep inside the industry When you travel the evolving road of global fintech, attending conferences, listening to podcasts, reading blogs, it can be easy to fall into the trap of following the same voices and accepting the status quo of various so-called ‘influencers’. People with well-developed communication skills or a flair for writing, combined with a healthy dose of self-promotional ambition, tend to dominate the conversations around where banking and finance should grow, how technology can help and why society at large should even care. But we all know that a large Twitter following or well-remembered panel quip does not a fintech revolution make. Our industry is full of people, working in investment, in startups, in large banks, quietly building the next generation of financial services.

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These people are often not on those ranking-style influencer lists, shared on social media, which are often compiled via methodologies of varying degrees of validity. It’s flattering if you are on them, slightly embarrassing when you have no idea how you ended up being ‘ranked’, and guaranteed to cause a bit of sniffing and twittering from people who feel the list is

The discovery of the new, by whatever methodology it is achieved, is always an opportunity to learn. Learning is the best way for any industry to grow

not accurate if it fails to include their preferred group of ‘mates’. I often look at some of these influencer lists not to see my ‘mates’ (I can chat with them anytime) but to discover new faces and new thinking in the fintech space. I want to learn more about a banking project in Hong Kong being led by a guy I have never met, or find out about a cool new startup in India, founded by a woman I have never heard of. The discovery of the new, by whatever methodology it is achieved, is always an opportunity to learn. Learning is the best way for any industry to grow. So, gathered here is a list of people who are doing cool things in fintech. Some of them are people I know, some are people who approached me and some have been nominated by those within the global community of financial services and technology.

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The Intrepreneur Who are you and what do you do? I work in Standard Chartered Bank’s innovation lab, the eXellerator, as an Entrepreneur in Residence. It’s a crazy title but speaks to the intent of the role. I help to challenge the status quo in the bank and help my colleagues to find new ways of working, to focus on what challenges our customers and users have and then design products and services that are fit for purpose. I train and support my colleagues in human-centred design methods. I also design and facilitate initiatives on more complex projects to conduct user research, share understanding, define and frame the challenge, ideate, incubate, prototype and test concepts, and try to ensure a smooth handover to production delivery teams. What set you on this road? I spent about 12 years working as a business analyst and consultant, delivering projects for a large bank. It frustrated me that when I started scoping and defining requirements, I would find if we had only done x differently or focussed on y we would have delivered a much more meaningful product/service. By the time I started working on it there was almost no chance to change the scope, either, as too much investment had already been made, both financially and emotionally, by the business. When I was introduced to human-centred design, it was a revelation. It taught me new skills to identify and articulate the needs and drivers of the users and potentially develop more meaningful solutions. What has been your most challenging moment? In work, it would have to be my first assignment as a lead business analyst on a major project. I was leading a team of seven analysts, some more experienced than myself. The project requirements had been written already but were incomplete and there was pressure to move to development but the team

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wouldn’t accept the document. I also had to manage the formation of the team and different levels of capability. I had never experienced anything that complex before. But with the support of the project lead and some fabulous team members we agreed the order of priority, powered through and got it done. Your colleagues recommended you because you freely give your time to help others. In the era where founders are told to ‘focus’, how important is it (from a business sense) to help others? Businesses are responsible for the care of the people in their service. I grew up in a family of doctors, so the ‘first do no harm’ ethic was part of my upbringing. I think it’s something society should reflect on. I take no joy in seeing good people struggling. But, in business, focus is still needed even when giving help. I’m not altruistic. I’ve learned that the energy that needs to be committed to help is not a

Standard Chartered Bank Entrepreneur in Residence, Lilian Fong expertise is respected while guiding them to experience new methods? When you work in the business of change, you must be respectful of the journey that people are taking. To truly change their way of working, philosophy and mindset, requires them to make the decision to change themselves. The techniques I use all come from human-centred design and follow ADKAR (Awareness, Desire, Knowledge, Ability, Reinforcement) principles. Some are overt and some are covert techniques. I don’t provide the insights, ideas or outcomes – the audience does. To create Awareness, I typically get my audience to meet their customers/fellow users to start to empathise and understand their challenges by doing or exploring the qualitative research themselves. To create Desire, I help them unpack their learning, perspectives and re-form and share that understanding with others. For

Change is good: An intrpreneur’s job is to challenge the status quo

bottomless pit and needs to be extended so that it’s used in a meaningful way. How we help in business also needs to be honest – for example, ‘incremental help’ is a futile cause and can actually be unhelpful. Saying ‘no’ and being honest about what should be done is better than prolonging the situation, which will only drain everyone of their time, energy and morale. However, if the cause is meaningful, we should be creative and go to the reasonable limits of our ability to help, especially if it will not just help the individual but also improve the bigger picture. You spend a lot of time working with traditional bankers. What methods do you use so that they know their

Knowledge, I lead them through co-creation and ideation with colleagues from other areas and get them to test and reflect if their concepts will solve the user challenge. With Ability, I help them to prototype and test the concepts and explore action plans on implementing the changes. Because the techniques are iterative and collaborative in nature, there is usually ongoing natural Reinforcement. For example, one project involved a number of experienced IT professionals who we asked to listen and take notes of what the customer had to say during the research phase. Once they heard and saw what the customer experienced, it reframed how the solutions they designed fitted the customer’s world.

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HIDDEN FIGURES

Vaidas Adomauskas, Co-founder and CEO of WoraPay

Focus, focus, focus: It’s easy for entrepreneurs to get distracted

The Entrepreneur What set you on the road to becoming an entrepreneur? Technology was my passion from the day I entered university. After being a product manager, I decided that I was ready to challenge myself to build something useful from scratch. This is when we created WoraPay and started building tech that allows people to make payments, without having to queue at places like coffee shops or petrol stations. What has been your most challenging moment? Every day is a challenge for a startup! Most challenging so far has been entering the UK market after building the technology and testing it in the Baltics. First, we found a local partner to be a founding team member for the UK market: Richard Jackson, who’s been in mobile for ages. Second, we applied and got selected for Startupbootcamp’s fintech London accelerator, which helped us connect to an amazing network of fintech professionals in a short time and brought us two main partners: Lloyds Banking Group and Mastercard. What advice would you give to first-time entrepreneurs looking to build their own companies? Focus, focus, focus. As entrepreneurs , we see ‘opportunities’ for our tech or

idea everywhere. With very limited resources, we must pick the niche and be number one in it. What your company offers is in itself ‘hidden’ (to consumers anyway), so how do you communicate the value? We allow customers to forget about payment and think about the retail experience they are having. For example, customers want to get their morning coffee at their office coffee shop in the easiest way. So, they get their mobile out when they’re jumping off the Tube, place an order with a few clicks (their card is saved to the app), the cafe gets the order and prepares it. Once prepared, they press the button, which sends a push notification that the coffee is ready. Technically, this ‘hidden’ type of payment can be implemented in any scenario where you are forced to wait to pay for services or goods that you want. Consumers are comfortable with hidden payments in some channels (I’m thinking Amazon or Uber) but are there areas where they are still wary of them? Hidden on one side is very convenient, on the other side it is a bit scary. Customers start using hidden payments where they shop most often and trust the retailer. Contactless cards adoption follows the same trend. So, the biggest

challenge (as with contactless cards) is for retailers to make it mainstream. Once Starbucks introduced Order and Pay on its app, other coffee shops followed. Big brands can invest millions in building and marketing this tech themselves. For others, the obvious choice is to use tech as a service. With our platform, they can provide the same user experience as these giants while paying a small monthly service fee, rather than spending huge budgets on IT that they are not the experts on. They are experts in how to brew the best coffee or make the most delicious sandwich. Where do you see payments going in the next five, 10 or 20 years? How will the experience of getting your morning coffee or doing the weekly shop change for the average person? I foresee that plastic and the queue will be going away, the same as cash is going away now. Instead of checking out at the end of the shopping experience, we will check in to the shop, restaurant, cafe, supermarket or taxi that we are entering. Staff will give advice and once we‘ve decided on our purchase, we will put it in a bag and leave the shop with a smile. A little vibration in our pocket will identify that the transaction was successful and the retailer will know they have got their money.

As entrepreneurs we see opportunities for our tech or idea everywhere. With limited resources, we must pick the niche and be number in it 10

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The Researcher Who are you and what do you do? I have ‘an encyclopaedic knowledge of digital financial service customer journeys’. Someone introduced me like that two weeks ago and I thought that’s quite funny – I do have an encyclopaedic knowledge of digital financial service customer journeys! I share this knowledge with companies, mostly banks, to help them understand their competitors’ digital propositions or dive into a particular market or segment that they want to understand further in order to identify gaps and opportunities. My work is mostly done through bespoke reports and workshops or keynote speeches. What set you on this road? It started with field hockey. I had a full scholarship to attend Bentley University in the US. Through Bentley I went to Dublin on an exchange semester. I fell in love with Europe and went back there to do a Masters degree in international development. I have always loved research. I started with a company conducting research on cards and merchant acquiring, looking at digital financial services and market analysis. Then at 11:FS, I co-founded a new company – I had never worked in a startup before. Since then I’ve freelanced and moved to another country. The good thing about challenges is when you defeat them.

Meagan Johnson, Advisor at Digital Magss

Research gives us data in order to make decisions, evaluate choices and allocate funds – so, could you say that research is itself often 'hidden' behind business decisions? Yes I think it is. Research comes in different shapes and sizes – methodologies and outputs and models. When I think of research that goes into a product – especially in fintech or digital financial services – it is underpinned by making the customers’ lives easier. This is what drives innovation. While at 11:FS, I was introduced to the customer-centric ‘jobs to be done’ framework, which is a key framework.

Bigger banks focus on an outdated way of customer research that doesn’t lead to innovation What are the risks that some research often ends up confirming existing biases? I think you need to know why you are doing the research. One of the most impactful research pieces I did back in 2012 was for a London-based bank’s private and international customers. Regulation was coming and the bank had to provide more transparency around the advice and fees

they were offering. We were working with the right people – and the findings from the research validated everything. Because of that they were able to roll out a good marketing plan that was transparent and didn’t scare the customer. When banks see numbers about active users from firms like Venmo in the US or WeChat in China, they get all excited and ask ‘why can’t we do that? Let’s create this’.’ But the really successful products and propositions have a secret sauce and that is understanding the cultural nuances. A few years ago, banks were asking me if Venmo, the digital wallet that lets you make and share payments with friends, would ever take off in the UK. I don’t think it would. Venmo solved a certain pain point in the US and people in the UK do not engage the same way in terms of social. Looking at the cultural aspects is a super important aspect of research. Monzo, for instance, started by talking to customers. It would have been easy for it to fall into the trap of asking ‘what do you like/not like about your bank?’ Instead, it asked questions around how customers engage with money, which opened up a different way of thinking and a new way of creating products and services. I think bigger banks focus on an outdated way of customer research that doesn’t lead to innovation.

Thinking time: Considering cultural influences is key to financial research

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The Corporate Venture Who are you and what do you do? I am the MD of Corporate Venture Capital for Digital Ventures, the fintech arm of Siam Commercial Bank, Thailand’s oldest and one of its largest banks. Our venture capital fund is more of a strategic fund than an institutional one, meaning that strategic rationale and return are prioritised over financial return. Our bank is less concerned with maximising monetary return on our investments than it is to learn how emerging technologies and business models will impact the trajectory of our industry, and how to leverage those learnings into tangible strategies for enhancing, improving, evolving or (if need be) disrupting our businesses.

What set you on this road? I’m a venture capitalist by accident. I previously conducted investment deals as both an investment banker and as an angel investor, but never as a VC, nor did I aspire to become one. I had moved to Bangkok in 2015 after 10 years in mainland China where I had opened retail stores for several international brands (including Apple, Microsoft, and Central Group), and spent time as both a startup mentor and angel investor. I was in a state of semi-retirement and spent much of my time hovering

around the local startup ecosystem, attending events, mentoring startups and generally helping out where I could. In 2016, I was approached by Siam Commercial Bank to build and lead a team to manage its newly formed fintech fund, Thailand’s first bank CVC fund. I joined the bank because the fund would be a powerful platform to not only effect change within the bank, but also within the country’s startup ecosystem. The opportunity to be a change agent on a wide scale was more attractive to me than becoming a VC simply to maximise an investment return metric.

What are some of the characteristics you look for in companies you invest in? Because Digital Ventures’ mandate as a strategic investor differs from the returns-driven mandates of traditional institutional VCs, the things we look for in potential investments differ somewhat from other VCs. Factors like quality of the team, market size, competitive advantages, etc, are important to any VC, but as a strategic investor, we are also keenly focussed on knowledge acquisition and sharing opportunities. For any given potential investment, we ask ourselves ‘what can we learn from this startup’s technology that we can’t get by reading a book or research report? Is this a

The Banker Who are you and what do you do? As a co-founder of Starling Bank, I totally bought into Anne Boden’s vision to bring the best of Silicon Valley technology to the UK’s banking industry. Unlike many other industries, banks were failing to keep up with the emerging possibilities of technology – and suffering because of it. After all, if you can shop, order groceries, stream music and watch films all from your phone – why shouldn’t you be able to bank and manage your money in the same way? Having spent my career in the IT industry,

management team that will inspire and collaborate with us? How can we disseminate this knowledge throughout our bank, or the local ecosystem?’ We also gravitate towards startups with strong partners, both on their client list as well as their roster of investors; our best investments have been those where we have been able to forge relationships with quality financial institutions, VC funds and angel investors.

Strategic decisions: Corporate VCs are sometimes unfairly criticised by startups

Sarah Williams-Gardener, Public Affairs, Starling Bank

I knew that with the right team and attitude, real change could be brought to finance in the same way Spotify had brought it to music or Deliveroo to dining. What set you on this road? For many years, my career was spent at IBM, disrupting business models and introducing new technology. I worked as part of the teams that introduced the first UK supermarket loyalty cards and the first self-checking kiosks, installed black boxes in cars supporting pay-as-you-go

insurance models, and turned the process of renewing your car tax disc into a great online experience. What holds all these things together is a total focus on customer experience and customer service, two things I am passionate about. We hear a lot about ‘delighting the customer in fintech – do customers really want this or do they want their bank to be a bit more ‘hidden’? In my experience customers no longer want to have to go and do their banking,

Customers no longer want to have to go and do their banking, they want their money management integrated into their daily lives 12

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HIDDEN FIGURES

Capitalist

Corporate VCs get maligned by many in the startup space. Is that fair? I think many of the criticisms levelled against CVCs are made earnestly but reflect an incomplete understanding of corporate venturing. The overarching criticism is the purported lack of alignment between CVCs and startups, that corporate ventures have agendas that may not 100

Paul Ark, Managing Director, Corporate Venture Capital, Digital Ventures Company Limited

per cent overlap with those of the entrepreneur. I don’t refute this point, but I think it is disingenuous to assume that institutional VCs are any better. This criticism presumes that the maximisation of investment return within a four to seven-year time frame (about when a traditional VC thinks about exiting) is in perfect alignment with the goals and time horizons of the startup. I would counter that CVCs can take longer, strategic views that may be better aligned with a startup’s long-term prospects. Additionally, because strategic CVCs can look for sources of value beyond monetary return, the higher valuations that CVCs often pay better reflect the holistic value that startups generate over their lifetime. At the end of the day, it should never be an issue of traditional versus corporate venture capital; a well-rounded capitalisation table should include a mix of investors. What are your views on the ‘media-hyped’ pursuit of unicorns? Does it reflect the attitude of many or is it overblown? I do think there is an unhealthy and over-weighted obsession with unicorn valuations, to the extent that many entrepreneurs and VCs tend to view

There is an unhealthy and over-weighted obsession with unicorn valuations they want their money management to be integrated into their daily lives. As the UK’s first all-digital current account, Starling Bank aims to put customers at the centre of an application programming interface (API)-driven open banking financial ecosystem that provides them with access to a full range of financial services products. In practice, this means building a balance sheet lite and non-capital intensive business model with capital intensive products, such as mortgages, being offered by third parties through our Marketplace. Starling is not just another deposit and lending institution. In 2018, the bank will continue adding new propositions to its product line-up, including a business current account aimed at micro-businesses, as well as a multi-currency account and foreign www.fintech.finance

payments. We hope to go on delighting our customers and attracting others. You are also a farmer. What can banking learn from farming? Well, I am married to a farmer and the overriding thing I have learned from this wonderful, hardworking community is that what we do today has an effect on what happens tomorrow. A farmer is always thinking about the environment and the

anything short of a billion dollar valuation as a less-than-desirable outcome. It also tends to distort the motivations of entrepreneurs who view valuation as an end goal, rather than an incidental by-product of a successful venture, especially one that has had a meaningful impact in its markets. What has been your favourite investment? I would have to say Ripple. The heightened attention to Ripple and blockchain and the halo effect that lends to Digital Ventures and my team is a huge plus. But frankly, the real value has been the close communication between our bank and Brad Garlinghouse and his management team, the relationships we have been able to build with Ripple’s other investors and the doors that have opened for our bank by being associated with a red-hot blockchain startup. Ripple is also the first venture capital investment that Siam Commercial Bank has made that has resulted in a commercial pilot, meaning that our investment is having a tangible impact on the infrastructure and operations of the bank. It’s a point of pride and validation for our investment team, and established a precedent and template for how other business units in the bank might work with startups we invest in. next generation. I never in a million years envisaged calling myself a banker, however finding myself in this role I am delighted to say that the bank we have built at Starling is unlike those before. We are thinking about our customers, providing them with tools to have a healthy financial life, today and in the future.

Banking on the future: Starling is ‘not just another deposit and lending institution’

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HIDDEN FIGURES

Currency of change: ‘I learn something new every day’

The Blockchain Evangelist Caterina Ferrara, founder of Blockchain Ladies

The Startup Newbie Teana Baker-Taylor, Chief Marketing Officer, Coinfloor Who are you and what do you do? I am the chief marketing officer at Coinfloor, the longest-established group of institutional-focussed cryptocurrency exchanges, headquartered in London. What set you on this road? In my early career I planned initial public offering (IPO) roadshows during the dotcom boom, which sometimes reminds me of the current crypto boom. After that bubble burst, I took a break from banking and worked for Hilton Hotels, predominantly in brand and advertising roles. In 2005, I returned to my banking roots and was extremely fortunate to be involved in some incredible projects. But as the fintech boom started to flourish, I realised that what I really wanted to do was learn how to grow and run a business. I’d always worked for large companies and I wanted to have more strategic, hands-on experience across functions, and to apply my expertise within a business that I could palpably impact. I had been involved in a number of blockchain projects, but what really interested me was cryptocurrencies. So I took the leap into startup land. What has been your most challenging moment? Leaving a great bank and a stable job, with all the perks and goodies, was tough. I’d striven my entire career to achieve that senior position and I really enjoyed it. But I didn’t feel I was using all of my talents and passion and I believed that a startup environment would take me back to the days when I learned something new every day. Marketing tends be a ‘hidden’ function at many firms. How do you communicate its value?

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Marketing can be difficult to evaluate and measure, although this has changed a lot with digital analytics. Everything starts with the marketing strategy. If your plan is solid and follows a coherent journey over the year, you’re better able to mark milestones along the way. I also think that most marketers don’t report on their successes very well. I produce a quarterly and half-yearly playbook to ensure stakeholders and colleagues are aware of the activity I’ve planned and delivered. I’ve also learned to say no, which is far easier if you have a trusty plan to fall back on. Not in the plan? Probably not going to happen. The conventional wisdom with startups is that ‘marketing should be free’ – do you agree with that? Marketing should definitely not be free. It’s your storefront, how the world sees your business and critical to your credibility and growth. That said, one of the very best ways to market your company is YOU. Network. Go to events and meet-ups. Ask your mentors and sponsors to introduce you to others. Have coffees. Know your message inside out, write it down, be consistent, practise it until it rolls off your tongue. Are we witnessing a ‘mainstreaming’ of crypto now – or are we still in a bubble? Crypto is definitely here to stay and is growing. There are so many compelling use cases for cryptocurrencies and tokens, and we’ve seen exponential adoption over the past 12-18 months. But there is still so much work to be done on architecting the framework for critical enablers – regulation, for example. Similar to the fintech boom, the technology has raced ahead of the system and we are now catching up.

Who are you and what do you do? I am founder at Blockchain Ladies, an international community to connect all women involved in this field: professionals, hackers, developers, crypto traders, entrepreneurs, investors, tech-loving women. I work as initial coin offering (ICO)advisor and community manager, helping these projects and alternative crypto-related systems of crowdfunding. What set you on this road? My curiosity, my passion for innovation, combined with a strong sense of fairness. From an early age I was inspired by great leaders like Malcom X, Martin Luther King, Gandhi – problems related to social equality, especially gender and economic equality, have always been at the centre of my interests. Bitcoin represents economic freedom. The blockchain has extended the possibility – especially to the citizens of developing countries – of having access to credit, the digital credit of cryptocurrencies.

Bitcoin represents the first form of economic freedom Much has been written about ‘hidden’, often women-only Facebook groups that have appeared in the past year. What are the benefits of a Facebook group? In my opinion, a Facebook group works when you can ask for help; discuss with others; share ideas; suggest events and interesting articles or books; start collaborations. This is what happens in Blockchain Ladies and when you can do this with women who are on the other side of the world and maybe living in a very different cultural context, it really is stimulating. What is your favourite use of blockchain that you have seen so far? E-voting definitely. Thanks to blockchain, digital voting has meant citizens can cast their vote through electronic transmission, while no one knows what their choice was, making sure that every single vote has been counted. www.fintech.finance

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MONEY 20/20 ASIA SPECIAL

The race...

The Fintech racers from Hong Kong to Singapore

MONEY20/20 ASIA

Singapore: A fintech super nova As Money20/20 celebrated the success of its first show in Asia, Content Director Pat Patel told us why he believes the APAC region’s fintech star is rising Fintech Finance: Money20/20 already successfully runs events in Europe and the US. What convinced you to bring the show to the Asia-Pacific (APAC) region? Pat Patel: Firstly, there was huge demand from our clients and, secondly, it’s quite possibly the hottest region in the world right now in terms of advancements in and application of technology, particularly fintech and techfin companies, which are fundamentally altering the financial services landscape. The different maturity levels of infrastructures across the region has created a wealth of opportunities and that’s been enabling a great deal of innovation, from the two leading tech giants in China to the world’s largest open platform in India. So, from our perspective, it’s a no-brainer to be here. FF: Why choose Singapore specifically to host the event? PP: We evaluated at least five locations and came to the conclusion quite rapidly that Singapore had everything we needed. Its location meant it would be accessible and we really liked the venue, too. When we made the decision to come here, back in 2015/2016, we had a good feeling that Singapore would be rising as a fintech hub over the coming years and that’s proved to be right. Singapore wasn’t really anywhere on the fintech map in 2015; now its one of the most important hubs in Asia, if not the world. FF: You had a diverse mix of speakers on the platform. What were the highlights for you? PP: Yes, we had Asian banks, tech giants, the rising stars, fintech startups, the global VC community, regulators and ecommerce players. And we brought along a number of the European and US financial services communities, too. If I had to pick one speaker, though, then it’s Tony Fernandes from AirAsia, who delivered an inspirational

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speech about his entrepreneurial journey. He was also talking about a project that AirAsia has been working on called BigPay, which is its first foray into financial services. It thinks it’s going to be worth more than the AirAsia business, which currently is valued at US$2billion. When you consider what Tony has achieved in taking a debt-ridden company to a US$2billion valuation in such a short space of time, despite the compliance, regulatory requirements and barriers in the sector, then they probably do have the necessary skillset to successfully become a financial services powerhouse. FF: Diversity is a big buzz word in the industry at the moment. Did you deliberately set out to include more women in the speaker line-up or is that something that just happened? PP: We absolutely focussed on it – we have that diversity within our own teams – but it was really challenging when you consider the industry is even more male-dominated in the Asia region. We have somewhere between a 20 per cent and 23 per cent male-female split, which still means we’ve a long way to go, but it’s a good start. FF: What do you think will be the key trends and talking points to emerge from the conference? PP: For me, there was one big theme and that is the rise of tech platforms and marketplaces and the super apps that they enable. It’s these super apps that are beginning to blur the lines between consumers’ social life, retail life and financial life and this is evident in, say, how Alibaba Group has moved from retail into financial services with Ant Financial – which, incidentally, recently announced its seeking to raise $5billion, which will value

it at somewhere between $80billion and $100billion. That’s larger than most of the banks in the world. It’s nothing short of phenomenal and that’s obviously one of the reasons why we’re drawn to the region. But the other angle on this whole blurring of lines narrative is what Tencent is doing, moving from social media and, to a degree, retail into financial services through WeChat. The key thing about these kinds of platforms and marketplaces is the frequency of interaction that they can enable with customers because of the breadth of their offering. That gives them the ability to provide new propositions, but it also gives them the ability to gather valuable customer data to be able to inform the decisions they make on new product sets and upselling opportunities. Alibaba and Ant Financial have been investing in companies like Paytm and Kakao Pay. Meanwhile, Tencent is doing something similar with a company called Hike, as well as Flipkart and Go-Jek. We’re seeing models very similar to Ant Financial and Tencent occurring across the region now, where financial services starts to become embedded into a consumer’s lifestyle. There’s already been lots of talk around invisible payments and, for instance, what Uber did for the payments world. The next trend we’re seeing is financial services embedded into our everyday life experience, like hailing a cab, booking a restaurant, shopping or saving for your next holiday. Money20/20 Asia covered not only those that are creating this change, but also the response from the incumbents, which is just as important.

www.fintech.finance

How are banks and retailers, payments companies and card schemes responding as they start to slowly move down the value chain and lose the touch-point with the end customer? Then there are the mobile wallet players – the likes of Google and Samsung. What does it mean for the players that have invested so much in these wallet products and how can they drive frequency and meaningful interactions with their customers? Naturally, Money20/20 Asia also covers all the key areas that Money20/20 traditionally does, from artificial intelligence (AI) to risk and security, legal and regulatory. In addition, we looked at open banking in detail and benchmarking innovation as well as blockchain and Bitcoin. FF: Was there anything those of us who are familiar with Money20/20 Europe and Las Vegas that was very different about the show? PP: One of the things that we trialled for the first time at this event was having a key theme that runs all the way through day one and day two from the main stage to a track room. Naturally, we covered other topics but the rise of the tech platforms was a key theme. We started off with some of the banks and how they’re responding to the threat from the tech giants. Piyush Gupta, chief executive and director of DBS Group, talked about competing in a new financial services playing field and how DBS is responding to the rise of the tech platforms. Then we had Derek White from BBVA talking about how banks can be a threat to the big tech platforms. We had the Japanese giant Rakuten, which has its own social media platform in Viber, an ecommerce business and a fintech business, giving its perspective on the future of financial services. That rolled into what Ant Financial is doing. Listening to Ant Financial’s chief technology officer was probably one of the sessions I was looking forward to most, because this was the guy that built the Alipay wallet back in 2008. From that main stage we moved on to a whole day of track sessions that brought to life what some of the card technology players and the US

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giants – WhatsApp, Google and Amazon – are doing, plus a whole host of the rising stars in the region, from Grab to Go-Jek. Many of those seem to be expanding their proposition from their core models, whether it’s ride hailing, or social media or ecommerce, into financial services and payments. That narrative played all the way through to day two where we had the chief technology officer of ICICI Bank alongside fintech guru Chris Skinner. We also had Stripe on the main stage, talking platform economies, and Tencent discussing its social media platform and how it’s looking to build that out. One of the highlights on day two was Ant Financial hosting a technology forum on site. Its three-hour block of sessions, hosted by Chris Skinner, included a number of Ant Financial domain experts, who covered blockchain, AI, security, Internet of

Singapore wasn’t really anywhere on the fintech map in 2015; now it’s one of the most important hubs in Asia, if not the world Things and computing. These are the key areas that Ant Financial is investing in to develop its tech and platform capabilities. It was a really good deep dive. We’ also trialled a new stage, which provided a place for intimate Q&As with some of the keynotes after they’d finished their main stage presentations. We’ll also had a few sessions to celebrate failure! I know that sounds strange, but in some parts of the region we’ve noticed a big stigma attached to failure and taking risks. To that end, we wanted to celebrate entrepreneurs that have failed spectacularly and then gone on to succeed. The founder of Viva Republica, for example, had a number of failed ventures before building the super-successful Viva Republica and now he’s even attracted investment from PayPal. He’d never had the opportunity to talk about those early failures. Now, hopefully, he’ll have inspired others to take that leap of faith and learn from his setbacks. You hear some sad stories of

entrepreneurs who have failed in their first business and just given up in part due to societal pressures. If we can create a little bit of change around social attitudes to business failure that would be pretty cool, but just to get some exposure and awareness could make a difference. We also had workshops running throughout the event to drive deep learning experiences on specific topics. In addition, we hosted a large number of meetups, led by some of our speakers from our stages, addressing topics that might not have been covered in a session and, most importantly, to encourage networking and chance encounters. Serendipity is the spice of life! FF: As well as Asia this year, you have Money20/20 China coming up soon. Is an entire show dedicated to one country an acknowledgement of the sheer scale of what’s happening in China? PP: Yes. Although Money20/20 Asia will cover aspects of China, we felt that with all the activity going on in pretty much the largest fintech market in the world, that it warranted its own event. While the likes of Ant Financial, Tencent, and China UnionPay will travel outside of China, there’s a whole raft of companies that wanted an event held in and for the domestic market. We’ve had a lot of support from the Government and many of the players, such as LianLian Pay. We’ll also bring our US community along as there’s been strong interest to get involved. FF: Finally, you’ve chose a space theme for Money20/20 Asia… why? PP: Each year we try to outdo ourselves in terms of the thematic. Last year, it was superheroes. Space – the idea of new frontiers and opportunities – seemed to fit nicely with the launch of Money20/20 Asia. It also created additional opportunities for us – one of which was working with a charity called Space For Humanity, which is trying to democratise space travel by sending ordinary people up there. Money20/20 delegates and those that engaged with us before the event were invited to submit a three-minute video, telling us why they should be on that trip. At the show we announced the person who gets fast-tracked to the final and has a great chance of going into space. How cool is that? Issue 8 |

MONEY20/20 ASIA

How the race was won...

Five racers, four days and as many as seven countries to get through with just one payment method each… this is how they did it!

Amélie Arras Payment method: Cryptocurrency Sponsor: Coinfloor

Amélie predicted it would be tough to retain the Payments Race crown for Bitcoin in Southeast Asia… and she was right. In a complete reversal of crypto fortunes, Amélie’s 139 points left her trailing at the bottom of the scoreboard in Singapore. But it wasn’t for want of trying. To be fair, of the five racers, she was alone in finding her only means of Coinfloor sponsored Amélie’s journey from Hong Kong to Singapore. Founded in London in 2014 by Obi Nwosu (left), it is the UK’s leading cryptocurrency exchange.

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payment outlawed! A jittery Vietnamese government, spooked by an anarchic currency over which it had no apparent control, had issued tough sanctions on anyone using it as a means of payment from January 2018. “People caught paying with or accepting Bitcoin could face legal repercussions, yet they still have a Bitcoin ATM. And driving around on a scooter without a helmet doesn’t seem to be a problem in Vietnam!” says Amélie. While elsewhere in Southeast Asia, everyone appeared to understand what virtual currency was, the transaction rails were often absent. “Between the last race in October 2017 and March 2018, awareness has exploded,” adds Amélie. “It seems there is now a Bitcoin expert in every workplace. I did not get the ‘Bit what?’ question in Asia that I was asked numerous times in the US. But, surprisingly, I was least successful at being able to use Bitcoin in Hong Kong. Even though people admitted they wished that

they had Bitcoin, when prompted with the opportunity to get some in exchange for a favour, they did not want to know.” As with her triumphant odyssey from Toronto to Las Vegas, it was Bitcoin’s hyperconnected community of fans on social who came to her rescue.

I did not get the ‘Bit what?’ question in Asia that I was asked numerous times in the US “The Bitcoin community was strong in Asia and many generous strangers helped out massively again,” says Amélie. ■ Amélie Arras is an international market strategist and founder of the specialist fintech and payments agency, Adastra Marketing. She advocates digital transformation and collaboration in the financial and payment world.

www.fintech.finance

Stuart Thomas

Payment method: Cash Sponsor: Glory Global Solutions

Stuart Thomas set out on his third payments race confident that cash is still king. And having hit only one major problem with his transaction method in five countries over four days, he crossed the finish line convinced of it. “This was the easiest journey so far,” says Stuart. “Yes, there was a language barrier between me and the people I met, but cash has its own language and everybody understands it.” Things weren’t looking great for Stuart, having hit the maximum withdrawals abroad from his Monzo account on the first day of the race. And it was ironic that the one airline he found within his budget that accepted cash payments –local operator AirAsia – was to officially

Amra Naidoo

Payment method: Card Sponsors: Baofu and OCBC Bank

“I thought card was going to be super easy and it turned out to be really difficult,” says Amra Naidoo. “ I got out to Hong Kong and realised I couldn’t get anywhere because everybody takes cash. Transport was by far the biggest challenge for me!” Which kind of sucks when your one mission is to use as many forms of it as possible to get across an entire continent in four days. Even Amra’s Octopus travel card required non-native Hong Kongese to top up with cash, leaving her stranded Amra’s race was sponsored by Baofu.com, the China-based integrated payment services provider with a strong focus on R&D in ecommerce, and the OCBC Bank of Singapore.

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launch its BigPay app for digital wallets at Money20/20 just days later, group CEO Tan Sri Tony Fernandes having promised ‘soon no more cash for AirAsia’. But once our intrepid traveller was out on the streets, local currency and US dollars proved the most frictionless method of payment.

Cash has its own language and everybody understands it

He might not have lifted the fintech tiara, but his was by far the most relaxing race experience, visiting Cambodian temples, snorkelling on a paradise beach in Phuket and sleeping in a delux jungle cabin.

He’d set out with two ambitions: to win and to ride on an elephant, neither of which he achieved. But he didn’t go hungry and as far as Stuart was concerned it was a victory for cash. “I wanted to show cash could be extremely versatile. So, the fact that I demonstrated that was a win in my eyes and I had the best time a racer could have. Most people across Southeast Asia accepted cash as the default payment. I don’t think it’s going to disappear any time soon.” ■ Stuart is a technology blogger and YouTube presenter with an international following. He uses situational comedy to test out products and services. You can catch him on his channel, Stu’s Reviews.

Stuart was sponsored by Glory Global Solutions, a worldwide specialist in automated cash technologies with a strong foothold in Asia, where it’s headed up by MD for Asia Pacific region, Ben Thorpe (right).

in a hotel room with no way of making her first early morning transfer to the airport. Ever-resourceful, she found a Twitter saviour who booked her an Uber and she was off… But that was just one of many challenges along the route, forcing her to rely on the kindness of strangers and shelling out way more than she’d budgeted for hotels to book taxis on her behalf. It’s been estimated that only two per cent of Southeast Asia’s 53 million people carry cards while virtually everyone has a smart phone. Payment technology has leapfrogged cards completely in some states, in favour of apps including social payment sites and QR codes. Squeezed as she was between the versatility of universally recognised cash and often government-incentivised adoption of smart payments, Amra came second overall – a few points behind digitally connected Augustus and just ahead of money-bags Stu. Along the way, the Doing Good podcast host set herself a personal challenge of connecting with as many social enterprises and charities as she could using additional sponsorship provided by OCBC Bank. It was both inspiring and frustrating since

most did not have the ability to process credit card donations. In Kuala Lumpur, Mykasih, a foundation that provides food aid, health awareness and financial literacy, managed to take a donation over a point of sale device. And in Bangkok, Amra made use of a social enterprise hotel, one of several on the socialgiver. com platform that sells excess capacity from the for-profit tourism industry.

I couldn’t get anywhere because everybody takes cash! What was her takeaway from the race? “That it’s very possible to travel around Asia with a credit card, but it is more expensive.” ■ Based in Singapore, Amra creates and executes high-impact marketing and communications strategies in the commercial and social sectors. She has facilitated partnerships between education, government, multinational corporations, including Mastercard and Facebook. She is a World Economic Forum Global Shaper and creator of the Doing Good Podcast.

Issue 8 |

MONEY20/20 ASIA

Augustus Loi

Payment method: Mobile phone Sponsor: Comms for Good

There are two things any traveller to Southeast Asia must experience – paying by mobile phone and eating a durian. It was the latter that almost lost our mobile phone champion Augustus the race! Determined to try as many varieties of the ‘king of fruits’ as possible and earn some extra challenge points, he tucked in to one too many and missed his flight from Bangkok to Singapore. On the plus side, he was able to settle his big durian bill using Malaysia’s newest local payment app – One2Pay, launched just two months earlier. Rolled out by MOL and immediately adopted by 7-Eleven stores nationwide, One2Pay aspires to become ‘the preferred mobile wallet among Malaysians’, according to Preecha Praipattarakul, CEO of MOL Global, an e-payment enabler for online goods and services. The company previously partnered with Ant Financial to offer Alipay to Chinese tourists in Malaysia and is now also looking to expand mobile wallets into Thailand.

Neha Mehta

Payment method: Gold Sponsor: FemTechGlobal

A word of warning from our gold racer: before entering mainland China, make sure you’ve enabled VPN on your mobile. Neha Mehta disappeared off the grid for days as she battled to barter her gold ingot for food and shelter in a country where there were marked cultural differences from her native India. “As I was taking the train from Hong Kong to China I realised I was off Facebook, off WhatsApp… nobody knew where I was,” says Neha. But It was the dawning realisation that gold was not a currency that the Chinese readily recognised that scuppered her chances. It was a telling lesson in the payments story – that culture as much as technology is key to the adoption of any transaction method.

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It’s a sign of the increasing competition for intelligent ways to pay by phone in Southeast Asia’s booming smart economies. In China, wallets like Alipay and Tencent’s WeChat Pay are near ubiquitous. Used to order everything from dimsum to a movie ticket, the country’s mobile payment usage went up 31 per cent in 2016 and transactions there are now thought to be worth $5.5trillion. Alipay alone has more than 520 million active Chinese users and more than 200 financial institution partners in China. Now, both main rivals in wallet provision are pushing further into Southeast Asia – Alipay into Singapore and Tencent into Malaysia and Thailand this year. Despite the widespread adoption of smartphones and government backing for mobile-enabled payments, it wasn’t all plain sailing for Augustus. He wasted valuable time figuring out how to transfer cash from his mobile to a

More challenging than setting up mobile wallets is eating a durian! helpful cab driver who agreed to purchase a number of items where low-value mobile payments were not accepted in Thailand. Using the Twittersphere he found someone to facilitate a payment via PayPal and a bank transfer, but it was a nail-biting moment. So, what did Augustus learn from the experience? “Even more challenging than setting up mobile wallets in Southeast Asia is eating durian!” ■ Augustus is a senior manager at the Singapore Government-linked venture capital fund SGInnovate, which focusses on launching, proving and scaling ‘deep tech’ products.

Augustus was sponsored by Comms For Good. Founded by Kate Bolton (right), Comms for Good is on a mission to change the face of corporate comms and corporate social responsibility by bringing together banking industry communications leaders in a powerful network to combine talents and effect change where they live and work.

“I come from a country where people like to hold gold,” says Neha. “They go to weddings wearing gold and we believe in having gold at all our social occasions.” But despite the fact that China was one of the world’s two biggest gold markets in 2017, buying just short of 650 tonnes, the

I realised I was off Facebook, off WhatsApp… nobody knew where I was average man and woman on the street just didn’t see the value in it, no matter how hard she hustled. “They just don’t seem to like gold that much,” says Neha.

Her twin concerns before the off were proving the authenticity of her gold and transacting small amounts for everyday essentials, such as food. Both proved correct… which made her dash to the finish in Singapore, securing fourth place, just ahead of Bitcoin, all the more sweet. ■ Neha is a lawyer by training and specialises in financial regulation. Much of her work now involves lobbying financial regulators as vice president of the Indian Private Equity and Venture Capital Association and Country Head for the Alternative Investment Management Association, Singapore. Neha is a regular contributor to fintech debate, especially on bridging the industry’s gender gap.

Neha’s race was sponsored by FemTechGlobal, founded by Ghela Boskovich (right) as a community working towards inclusion, diversity and supporting those invested in changing financial services for the greater good through technology.

www.fintech.finance

MONEY20/20 ASIA

Winning ways to pay First and last places in the latest Money20/20 Payments Race went to the two newest forms of payment on the block – mobile pay and Bitcoin. What does it tell us about the changing nature of payments in Southeast Asia?

“Everyone said cash is king and I would get stranded or starve to death,” says Augustus Loi, our payments race victor, who successfully negotiated his way across a continent using nothing but this smartphone. That said, in an event that saw gold marooned in China, plastic struggling to find a point of sale (POS) and Bitcoin hungry and in fear of arrest, it was indeed only cash that could truly be said to have enjoyed the ride, with Stuart Thomas declaring it was the ‘easiest race so far’. So what did we learn? That despite huge political and financial investment in cashless systems, notably by Singapore and Malaysia, there is still a long way to

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go. That culture, as much as access to technology, drives adoption. Cryptocurrency eventually powered Amélie Arras across the Payments Race finish line, but that was more thanks to the supportive community of Bitcoin fans on social media than merchants willing to deal in it. As Ravi Menon, MD of the Monetary Authority of Singapore, was to tell the Money20/20 conference: “The litmus test as to whether cryptocurrencies are money will be public trust and acceptance.” Neither of which Amélie found much evidence of. The fact that she and her Bitcoin Wallet made it across five countries (including one where Bitcoin is outlawed) was a virtual victory of sorts – it at least proved broad awareness of cryptocurrency and

the potential for distributed ledger technology (DLT) on which it rests. That heightened awareness is due, ironically, to Bitcoin’s rollercoaster fortunes over the past year (the value of Amélie’s 0.14726 Bitcoin fell over the four days) and the ultracautious approach to cryptocurrencies adopted by governments in South Korea and Vietnam. The Bank of Thailand also recently advised financial institutions to ‘not get involved in cryptocurrency transactions’ for fear of ‘unregulated trading’. But it is supporting the Thailand Blockchain Community Initiative among local banks, which is at least encouraging. Meanwhile, there is no shortage of Southeast Asian startups embracing cryptocurrency, although the primary use www.fintech.finance

Victory line-up: Racers Stewart, Amra, Augustus, Neha and Amélie (front l-r) with sponsors, Fintech Finance’s Ali Paterson (far left) and victory host Ghela Boskovich (far right) in Singapore

case so far is in facilitating remittances from overseas. In Indonesia, poorer townsfolk are turning from gold to Bitcoin as both an asset and a currency, with Bitcoin the preferred way for family members working in Saudi Arabia, Malaysia and on cruise ships, to send money home. Southeast Asia received almost $48 billion in remittances from its migrant workers across the globe, according to a 2013 report by the International Fund for Agricultural Development and the World Bank, and most of it was in relatively small amounts, ideally suited to travelling over a distributed ledger. Perhaps Menon’s litmus test is colouring up already. As for our winning payment format, smartphone use is increasing, with mobile www.fintech.finance

connections in the region higher than the global average at 124 per cent and four in five online consumers accessing the internet daily on their smartphones. Meanwhile, only 27 per cent of Southeast Asia’s population have a bank account, according to a 2016 KPMG report. In Cambodia that figure fell to five per cent. Put those stats together and Southeast Asia is a honeypot for app-driven mobile financial services. That’s not been lost on the big Chinese tech giants Alibaba and Tencent, who are both moving their payment platforms AliPay and WeChat Pay further into Southeast Asia. But hyperlocal mobile wallets, such as One2Pay in Malaysia and PayNow in Singapore, are also mushrooming. As

Jeffry Ho, Wirecard’s MD in Malaysia, points out, few people there currently use mobile to make payments, but the country is home to nearly 20 million mobile internet users and it offers more 4G coverage than most of its neighbours. “Introduce a mobile payment method that is secure, reliable and affordable and Malaysia’s payments market could undergo rapid transformation,” he said. The future of Southeast Asian payments may well be cryptocurrency – if not Bitcoin, then a government- and bank-endorsed currency underpinned by the power of DLT. Certainly, cross-culture and cross-border everyday banking appears to favour it. But right now, mobile is winning the race. Issue 8 |

MONEY20/20 ASIA

Collaborating in the digital ‘space race’

Sixteen countries shared resources, expertise and ideas to put the International Space Station into orbit. Back on Earth, businesses in the financial supply chain are similarly engaged in a feat of collective endeavour as part of the MULTOS Consortium, as its Commercial Manager Paul Wilson explains Fintech Finance: What is MULTOS and how does the MULTOS Consortium enable its members to enhance their various businesses? Paul Wilson: MULTOS is the trading brand of a secure operating system and management architecture originally designed for smart payment cards and now also implemented for ID cards and various embedded and connected devices. It was devised by a NatWest bank team in the UK more than 20 years ago and is now an open, industry-led standard for highly secure devices. It is unique in that it was designed by a client business for client businesses in order to provide an ‘issuer-centric’, smart card technology platform. Unlike many other similar technologies, it is an open standard with a robust approval scheme that allows issuers or product owners to obtain certified MULTOS products from multiple vendors without having to manage compatibility variances. So, a true open business-enabling technology, preventing ‘vendor lock-in’ over the supply chain. More than one billion MULTOS cards and smart devices have been supplied so far. The MULTOS Consortium is part of the wider MULTOS ecosystem that consists of more than 3,000 businesses around the

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world leveraging the benefits of MULTOS technology. The Consortium is a distinct subset of these companies, including global and respected businesses in their related sectors. They ensure the open standard remains current, the supply chain remains competitive and reliable, and delivery of secure, flexible, quality products and services. The Consortium represents the ‘cream’ of the smart, secure device world. FF: How is the MULTOS technology and its benefits being leveraged by businesses for payment innovation? PW: For the many market-leading and innovative projects, collaboration is required in order to reduce time to market and provide the most secure, reliable, and capable products and services. In 2017, this type of close partnership saw MULTOS being implemented in a smart energy management solution that incorporated a secure energy billing feature. Industry recognition was received for its application within a smart solar panel design by Trusted Renewables, a MULTOS Consortium member, which was given first place in the Trustech 2017 Sesames Awards for best Internet of Things (IoT) application. In recent months, we have also seen MULTOS employed in advanced biometric

contactless payment cards and multi-function wearable connected devices. MULTOS has a strong heritage in the Europay/Mastercard/Visa (EMV) payment card industry and, as such, has perfect synergies with the growing wearable device market that often benefits from having secure payment added as a key consumer feature. Tokenised data fed through innovative provisioning systems is a logical extension of the MULTOS capability, allowing dynamic provisioning of a range of consumer form factors on request. These and other collaborative activities are ongoing today among MULTOS Consortium members. FF: Why is such collaboration so important for the digital security industry? PW: Last year, we launched a short promotional film to celebrate the 20th anniversary of the MULTOS technology. One of our main contributors to the film, who was involved from the early days of building the MULTOS ecosystem, compared it to another collaborative project – the establishment of the International Space Station (ISS), a football-field-sized scientific research centre orbiting in the thermosphere, some 400 kilometres above us. Sixteen countries came together to build www.fintech.finance

the ISS and it has been in low earth orbit now for two decades. Longer term, the ISS may be used as a staging post to help us build a deep space gateway for further research and planetary colonisation. As with the ISS, collaboration through the MULTOS Consortium can enable great achievements and increase the chance of successfully delivering quality products and services. As consumers, much of our world today is defined by convenience, capability and the availability of information, services, and products. Security is often transparent, assumed as part of the trust we consumers place in the brands and businesses we transact with. Understandably in the digital business world, the need for security is more visible, and those of us working in that world are acutely aware of the increasing cyber threat and the impacts caused by such attacks. The more digitised and connected our environment becomes, the more at risk and open to disruption businesses and consumers will be. As the complexity of the digital security industry increases, we may need to grow eyes in the backs of our heads. Few companies, if any, can be considered all-seeing, all-capable creatures, able to identify and manage every threat, and deliver completely robust, end-to-end solutions. Most businesses have focussed their resources in order to build their success using their core capabilities and expertise. So, the solution to extending a companyâ&#x20AC;&#x2122;s longevity and capitalising on the opportunities the digital world has to offer, is collaboration. With payments evolving, identity developing, connectivity proliferating, and the world automating, the industry press is

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As the complexity of the digital security industry increases, we may need to grow eyes in the backs of our heads. Few companies can manage every threat.The solution is collaboration crammed with examples of large and small companies partnering through one form or another in order to leverage present and future opportunities. The MULTOS Consortium is one multi-national, multi-business collaboration that has stood the test of time in the digital security industry. Collaboration is a core ethos within the Consortium, an approach that, for 20 years, has allowed efficient project, product and service delivery for businesses. Members work closely on mainstream business activities as well as innovative projects. For example, personalisation bureau companies are supplied with compatible MULTOS products from a number of different member suppliers, and those products may contain hardware and software from various vendors. This compatibility creates an efficient and flexible supply chain. FF: What sort of digital security collaborations do you envisage for the future? PW: We are starting to see some interesting projects and trials develop with some of the

banks. They are not just relying on traditional vendors to support their innovation needs, but on groups of suppliers and agile and dynamic companies to break new ground. This is perhaps a mindset evolution. In recent months, the identity market seems to have exploded, with many businesses offering new services and solutions. Solutions components are being leveraged by other suppliers to reduce the time to market for their products and services and fill the gaps in their technical knowledge and development expertise. From a marketing perspective, this makes a lot of sense and may well lead to some great business successes for some of these collaborations. After all, identity in the digital security world is absolutely vital. Payment and identity often merge within applications. Systems and people need to be identified for data to be exchanged, and the monetisation of the value provided by applications and information can require transaction management. Traditional payment companies have started to expand their capabilities and collaborate to be at the forefront of this hyper-connected world and provide their consumers with convenient payment solutions, such as in-car payment services. We can expect to see much more of this business interaction. The growing markets of business and consumer connected devices and the IoT represent huge potential. Industry predictions for connected devices in 2020 range from 24 billion to 200 billion, which may rise as high 500 billion by 2030. However, connected devices, regardless of their communication technology, often require increased security protection as they can be at much greater risk of cyber-attack. Security is a core facet of MULTOS and has ensured the technology has remained robust and achieved the top levels of approvals, such as the Common Criteria EAL7. Securing these new markets and opportunities is clearly an area that requires collaboration from the MULTOS Consortium and other companies, and support from industry experts, which is already starting to happen. This is an area where we can expect to see further collaboration and standardisation. The MULTOS Consortium has always strived to foster the ethos of collaboration. With evolution, including the addition of new dynamic members, the Consortium is set to continue providing success for its members, just as the ISS continues to do. Issue 8 |

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MONEY20/20 ASIA

Engaging or Enraging? How is your online experience making customers feel? GBG commissioned a new study by Forrester Consulting to get to the facts. MD Mick Hegarty reveals its findings New customer identity technologies are coming. In this time of rapid change online, are financial services firms keeping up or losing ground? To answer this and other related questions, identity data intelligence specialist GBG commissioned Forrester Consulting to survey 315 financial services firms in Singapore, Australia, China, the UK and USA. Just published, and entitled Leaders In Financial Services Are Experts In Customer Identity, the study was split 50/50 between traditional firms (established in the pre-digital era) and ‘born digital’ fintechs.

Onboarding is the key According to the Forrester study, to prosper financial service firms need to onboard their online customers seamlessly. Making them feel welcome and at ease from the start is the first step to building long-term relationships – creating a customer experience that exceeds their expectations. The stakes are high and the study doesn’t pull its punches, stating that ‘financial service firms will live (or die) by delighting customers via digital channels’.

Customer expectations rising The Forrester study points out that customers regularly enjoy great experiences with the likes of Amazon, Apple and Facebook, and won’t accept less from financial service providers. Positively, firms around the world recognise this and many are planning to increase their spending on the digital customer experience. The USA leads the way here with 83 per cent, just ahead of Singapore, Australia and China. www.fintech.finance

Identity is the battleground, technology is the key Around the world, financial services firms understand that customer identification is the key to successful onboarding and that innovative technologies are vital at this stage. However, few firms, even fintechs, are currently mastering identification and verification of customers. Onboarding speed is critical and Chinese firms seem to be ahead here: 27 per cent are able to onboard customers in a matter of minutes, compared to only six per cent in Australia.

Financial services firms will live (or die) by delighting customers via digital channels Customer identity challenges Perhaps the most troubling finding was that, globally, 86 per cent of firms are concerned about their ability to identify customers. Ninety-five per cent in the Asia-Pacific region (APAC) admit they are unable to maintain customers’ data privacy. Despite these perceived problems, the study shows that APAC-based firms

are outperforming their US and UK rivals in the crucial area of adopting innovative technologies such as facial recognition, iris scanning, voice recognition, fingerprint biometrics and behavioural monitoring. They are also well ahead with emerging technologies, such as blockchain and robotic process automation. Despite their worries about data, APAC-based firms show considerable confidence when it comes to embracing the future of customer identity and onboarding technology. Sixty-six per cent feel that they have the necessary technology to execute their customer-centric strategy, compared to 44 per cent in the UK and USA. Always thought-provoking, the Forrester study summarises the situation like this: “The faster a financial firm is able to unlock a customer’s identity, the sooner that firm can deliver the valuable experiences and benefits customers expect.” These issues are sure to be among the major talking points at Money20/20 Asia, and at other industry events over the coming months. Read the study now, and make sure you’re armed with the facts. ■ Download the Forrester study at idiq2018.com Issue 8 |

MONEY20/20 ASIA

All ‘hail’ fintech! While I know everybody is addicted to Game of Thrones right now, I can’t help thinking it’s got nothing on the real-life battle Game of Tech Thrones playing out in Southeast Asia. This one pitches the dragons of Chinese tech against the lions of Silicon Valley (sorry for the stretched analogy – I really have been busy during my recent sabbatical, but what a battle scene in episode four!). Amazon’s entry to the Southeast Asian market puts it head to head with Alibaba and Lazada. It pitches the newly-crowned richest man in the world, Jeff Bezos of Amazon, against the freshly dethroned richest man in China, Jack Ma (recently replaced by Tencent’s Pony Ma). But it’s about more than just two companies. Southeast Asia is a battlefield for Western and Eastern tech and fintech. And when I talk about Western I really mean Silicon Valley because Europe has made very little impact when it comes to fintech and ecommerce in this part of the world. The likes of Uber, Airbnb, even Facebook and Stripe, have pioneered and disrupted industries and they’ve grabbed attention (sometimes for the wrong reasons). They have a strong marketing and user experience lead. But as Henry Ford was purported to have said, if you asked customers what they wanted before the motor car was invented they would have said ‘faster horses’ – in some ways Western tech and fintech is about designing faster horses. That said, they are brilliant at it. We are all familiar with the ways in which Amazon uses consumer data on buying patterns to

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Neal Cross, Chief Innovation Officer at DBS Bank, on who will take the tech crown in Southeast Asia propose purchasing choices and makes data available to merchants to help them list their products in the right way. Chinese tech companies, such as Alibaba, have been more cautious with their international expansion. Why? Partly because the nature of Chinese tech and fintech suits their local market so well. It’s about getting stuff done. They are brilliant at coming up with completely new ways of getting what you want in the digital environment. But, visually, the product doesn’t translate, functionally it is different

The way Chinese companies are using data is streets ahead and the journey to get there is one non-Chinese users are not familiar with. In my opinion, though, the way Chinese companies are using data is streets ahead. The integration of online ecosystems in China and the way Chinese consumers are sold to – combining social media, entertainment and personalisation – is in a different league to anything we see in the West. At its recent Global Netrepreneur Conference, Alibaba Group CEO Daniel Zhang said: “We are moving from satisfying

needs to creating needs.” In other words, it’s pre-empting what you need before you know you need it and then selling it to you. The problem is replicating that success outside of China. As we know, both Amazon and Alibaba have hugely deep pockets. It is interesting to see Lazada, which is now owned by Alibaba, sharpening its claws in the face of Amazon’s market entry with LiveUp, which offers subscribers rebates and other benefits on Uber and Netflix and expedited and free delivery on Taobao, as well as its own platform. Added to the mix are some of Southeast Asia’s home-grown tech companies, which are quietly forging their own way by adding a Southeast Asian flavour. They don’t necessarily have the gargantuan budgets, but they do fit the local market. The ride-hailing companies Grab and Go-Jek are great cases in point. Go-Jek is dominating its Indonesian home market with a truly localised model, while Grab is giving Uber a good run for its money in Southeast Asia. Personally, as a user of both Uber and Grab, I think Grab is better in the way it can predict my next destination and remembers where I have been to make suggestions. Uber, for all it was a front runner, has stuck to an interface that is not as user-friendly. How annoying is it that you have to enter a destination before you can update your current location? As we square up for a battle royal between the big tech titans of East and West in Southeast Asia, I’m excited about what new and creative ideas and opportunities will emerge as a result. That will be worth watching! www.fintech.finance

Photo: Courtesy of Go-Jek

Fast work: Go-Jek’s hyperlocal model caught on rapidly in Indonesia

MONEY20/20 ASIA

All for one and one for all

A universal POS, capable of accepting any form of payment, regardless of channel, could harmonise Southeast Asia’s diverse transaction landscape. It’s a challenge Wirecard accepts, as MD Jeffry Ho explains

The dream of a cashless society is moving closer to reality – especially in Singapore, host city of Money20/20 Asia. Here, consumers long ago embraced tech such as contactless cards, making the city state an e-payments leader in the region, alongside South Korea and Japan. But travel only a few kilometres to neighbouring Malaysia and you find a market where small retailers still rely on cash and 70 per cent of SMEs do not yet have a website. The picture is similar in Vietnam, Thailand and Myanmar – fast-developing markets with their own distinct payment systems. What they share, however, is high ownership of mobile phones. “Asia is so fragmented, every country is different, from currency to financial

regulations,” says Jeffry Ho, managing director of Wirecard in Singapore and Malaysia. He is attending Money20/20 to let potential partners know his company is active in the region and can use its local knowledge to make sense of distinct financial traditions and compliance frameworks. “Wirecard provides a common platform with the ability to localise to the country’s regulatory perspective and also the various payment methods being used. “We are international but with local knowledge,” he says. Headquartered in Munich, Wirecard is a global technology group that supports companies in accepting electronic payments from all sales channels – offline, online or with mobile technology. For organisations seeking to issue their

own payment instruments in the form of cards or mobile solutions, it offers end-to-end infrastructure, including the issuance of licences to take payments.

A cashless society Ho says the world is on a journey to a cashless future, and though some countries have further to travel, the incentives, such as shrinking the black market and tax evasion, are powerful drivers for governments to accelerate that transition. “In Asian countries, the adoption of new payment methods is being driven primarily by regulators,” he says. “They are very proactive in looking at ways to popularise e-payments. So, from QR codes to near-field communication (NFC),

Common platform: The market is converging on a single universal POS

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regulators are engaging the payment players. Some regulators are even setting targets for bank acquirers to increase acceptance points, that’s how proactive they are. “Thailand has adopted targets for acceptance points for cards. In Singapore, the Government is incentivising people to go further with e-payments. In fact, I think the e-payments ratio will increase quite rapidly over the next few years in Asia.” The potential e-payments roll-out in Asian countries, based on population statistics and mobile phone penetration, is astonishing. Beyond the giants of China and India with close on 1.4 billion people each, Indonesia has 260 million people, while Vietnam and the Philippines have around 100 million apiece. Ho says: “Imagine the benefits for those countries if they have to adopt electronic payments. They greatly reduce the cashflow, especially as the value of their currency is not as strong as in the US and Europe. “When you visit these countries, such as Myanmar, India, China and so forth, you see people carrying bags of cash to the banks. So this is a tremendous motivation for them to go electronic. “When a population is very spread out, bringing cash across a country is high cost. It is also very hard for a government to keep track, from a money laundering perspective. So electronic payments are being seen as the answer to better productivity, efficiency and compliance.” Having no past history of non-cash payments is not a barrier to e-commerce development, says Ho, since new systems can leapfrog earlier tech in the same way that people in Third World countries had mobile phones without first having a landline. In fact, mobiles hold the key to progress, he says, if the payments infrastructure can be developed. “In Malaysia, for example, few people currently use their mobile devices to make mobile payments. But the country is home to nearly 20 million mobile internet users and it offers more 4G coverage than most other countries in the region. “Introduce a mobile payment method that is secure, reliable and affordable and Malaysia’s payments market could undergo rapid transformation. www.fintech.finance

“In comparison, creating the infrastructure for card technology takes longer. For a credit card you need to acquire a customer and issue the card, then you need a secure point-of-sale device to be deployed in shops. “Take one of these new payment methods, such as QR code for example. It’s a hybrid between mobile payment and card payment. ‘In the last 10 years, mobile phones have soared in popularity to the point that almost everyone has one. So it makes sense to equip the phone, rather than taking another route, such as issuing a card. That’s why, in Asia, leveraging the phone population has been a major success factor for the systems that have done so.” Ho says two systems that amazed the industry with their rate of growth were Alipay and Tencent’s WeChat application, WeChat Pay, both in China. He admits the building of an ecosystem there was made easier by a lack of existing incumbents. “But in a lot of countries it’s a mixed bag,” he says. “In Thailand, the more fluent merchants are already equipped for card

We find merchants want to deal with an impartial party so that their interests are protected and they can take payment via as many methods as possible payments. It is a bit like Europe and very much like the US. So the need for another payment method is not so urgent. Therefore, we get a wider spread of payment methods being used across other Asian markets, rather than just one dominant player.”

One-for-all POS This brings him back to Wirecard’s proposition to potential partners. It offers a payment system that consolidates the various payment methods in one device for the retailer. It simplifies the process for the vendor and brings down the price for payment method providers

because they can be incorporated into a Wirecard system with no need to roll out their own hardware. Ho says: “One of the roles Wirecard has been playing is universal provider to link up all these different payment methods. That means the merchants or the acceptance points have one single point of contact, which also lowers the cost of enablement because they’re dealing with one party. “If there’s common equipment – scanners and so forth – they can all leverage it. That’s what we see as we engage the marketplace; we find merchants want to deal with an impartial party so that their interests are protected and they can take payment via as many methods as possible. “For the payment methods providers, whether they are card schemes or wallets – and today wallets are springing up everywhere, especially on a local level – they would want to be enabled at as many acceptance points as possible, rather than going out directly on their own, which increases the acquisition cost tremendously.” Ho says the move towards collaboration and partnership has developed in the last decade as more payment systems have come to market. “By entering into partnership with us, firms can focus more resource on promoting their payment method. That means more marketing, PR, branding exercises and so on, so users are educated and incentivised to use the system. “With companies like Wirecard, and the technology that’s available to create universal platforms, customers can aggregate all the payment methods, irrespective of channel, not just over the counter, but electronically, online and through mobiles. And it means we have been able to significantly reduce the cost of enablement. ‘You see it especially with the bigger merchants. If you go to a large store, you’ll often see many payment devices congesting the retail space because different payment providers have each installed their own equipment. “Right now we are seeing consolidation with increasing adoption of what we call a universal point of sales or universal point of acceptance. The market is moving towards multi-point devices.” Issue 8 |

MONEY20/20 ASIA

Taking it to the Max To call Exagens’ personal financial assistant a ‘chatbot’ is to insult its cognitive intelligence. Here, CEO Michael Stojda, explains why talk is cheap but the real value is in personalised customer engagement Extracted from conversations we’ve had with a broad range of financial institutions, we’ve identified what we believe are five consistent trends emerging in banking that are translating into opportunities for financial institutions, as well as driving Exagens’ focus.

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Founded by a team of finance industry veterans with the goal of being at the centre of an unfolding revolution in banking – Exagens assists financial institutions in navigating and shaping this exciting future, by helping them to ensure they keep their customers with them through all these changes. The most prevalent of these trends is the shift in the frequency of transactions, as well as the migration of customer interactions from branch to ATM, to web, to mobile and now to other digitally-enabled touch points. Each past shift has not resulted in the extinction of a previous touch point, but often only a reduction in its use. This has been a huge challenge for traditional banks; while their customers may now only visit a branch once or twice a year, they still want (and expect) the branch to be there when they need it – and with convenient hours. We have even seen some banks, after significantly upgrading their digital offering, then launch a marketing campaign to say that they are open seven days a week with longer hours. Banks have been investing in digital to reduce costs and they have taken broad swipes at resources in the branches and call centres to decrease human resources costs. But the reality is that the more customers use digital channels, the more they seem to want human interaction. Banks need to get the digital experience right to attract and retain customers. However, the branch

continues to play an important part of the overall customer experience. The challenge for financial institutions is how, at the very minimum, they maintain and, hopefully, increase the client value and relevance of those branches, while simultaneously adjusting the costs to reflect today’s realities. A big challenge is finding the correct tipping point to achieve this delicate balance.

Evolution or revolution? Long gone are the days of single-relationship banking clients because it is increasingly easy for those clients to compare what appear to most consumers to be similar products and services, and then switch and transfer between providers with electronic ease. It is no surprise that the average consumer (especially in North America) has financial relationships with multiple institutions, and the number keeps growing. Some financial institutions have responded to, or have been created to be, the lowest cost providers, relentlessly driving down pricing to gain competitive advantage from a few basis points. For others, it’s about seeking ways to add more than just transactional services and digital convenience, in order to be trusted as providing value in the management of customers’ evolving daily financial lives. The third trend is how financial institutions (FIs) are striking the balance between potential technology benefits and the cost and risk of introducing them. Most banks have experienced the graveyard of technology projects that failed to deliver as promised or envisaged – or were never fully realised. Although aware of the constant need to evolve, banks can become overwhelmed with the adoption of new technologies and how to effectively integrate them into their organisations. Many are looking at how to evolve in bite-sized chunks rather www.fintech.finance

than massive, multi-year infrastructure changes whose benefits may take even more years to be realised, and can be difficult to quantify and monetise. Our fourth theme is the unlocking of new value from existing channels and infrastructure. As consumers continue to demand an ever-increasing range of channels, there will be added focus on extracting bottom-line value from existing ones. And, finally, the most relevant trend is the challenge faced by banks around sustaining valued relationships over time with their customers. Relationships have been core to banking, but although we are seeing great strides in targeting and timing through next best offer and next best action predictive analytic systems, it often takes much more than that to ensure product acquisition and adoption. It takes trust, relevance, context, and empathy, all built over time. A lack of deep and granular insight into customer preferences and behaviours means many banks are unable to deliver the services and experiences their customers want. Banks that are looking to chatbot technologies are often focussed on two prevalent areas. The first is all about making it faster and more convenient for clients to interface with a bank to do their banking – in this case, using natural language processing via text or voice. But this is merely another incremental step forward on a journey that started with the first ATM: taking something people inherently prefer not to do – banking – and making it less inconvenient and faster. The other area is all to do with cost reduction; specifically, reducing call volume by introducing chatbots with skills approaching those of an entry-level customer service representative. The focus here is on working to understand what a person is saying and being able to respond to it.

platfor, we’re enabling banks to provide their retail and commercial clients with their own AI-empowered personalised advisor and, in doing so, step out of the commoditisation conundrum. After all, if a bank was able to provide each of its clients with their own, private banker, tasked with delivering individualised advice and assistance – one who knows them, empathises with them, understands the evolution of their financial life and is able to capture opportunities to ensure that every customer experiences its full value – what is the likelihood that client would shop elsewhere or be lured in by a few basis points differential? What if you could, for each of your customers, increase awareness of the products and services that they already own but may not optimally utilise, thus increasing the customer’s engagement and potentially reducing future support issues? Furthermore, if a client is interested in purchasing a product or service, the platform works to build and support that interest all the way through to acquisition in whatever amount of time it takes, over a period of days, weeks or months – adjusting to the client’s time, interest and intent. It will even handle most or all of the acquisition process for them – eliminating points of friction to reduce abandonment and increase satisfaction. A great example is the recent work we did with a tier one financial institution in Canada, generating an additional $250million in deposits into new retail and commercial accounts without the need for additional incentives. The platform also helped clients complete an additional 20 million transactions in bill payments and transfers for 1.9 million users through better use of existing functionalities.

It is no surprise that the average customer has financial relationships with multiple institutions and the number keeps growing

A personalised financial advisor Exagens is focussed on something more fundamental: the financial journey of each individual client. Put another way, with the Exegens Max www.fintech.finance

It pays to talk An advisor in a branch can talk to eight different people over a day and the best call centre specialist maybe 80 – what if you could talk to thousands of customers per minute? As with a private banker, ongoing client engagement is core – through relevant, contextual and individualised interactions. Exagens’ platform offers advice on individual-specific opportunities and services, developing ongoing conversations to maintain and secure the relationship between the client and their financial institutions. Yes, of course, Max converses with clients – but the objective and the way it is done is very different.

I, Banker: Max is proving clients can have a relationship with a ‘machine’

Issue 8 |

2018

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MONEY20/20 ASIA

Making connections: Max anticipates what the customer needs

We are using artificial intelligence (AI) to anticipate client requirements, making it clear why they need something through empathy, understanding and a deep analysis of behaviour. We are not using AI to decipher what a client is trying to say in 2,000 different ways. For Max, every piece of data is an opportunity and FIs have vast amounts of data that can be leveraged to their benefit. The challenge is in accessing that data, as traditionally building those connectors has been costly and cumbersome and application programming interfaces (APIs) will take some time to become more prevalent. Max is designed to be adaptable and can be deployed rapidly in a variety of ways with little or no initial access to data – learning over time. Max also generates its own behavioural data with each interaction and while increasing customer knowledge on numerous levels, thus continuously enabling self-improvement. The funny thing is, the more you drive the conversation, the faster you can learn. The user is actually more accommodating because that is what we do as humans – we adapt to the situation. But if you do not drive the conversation theme, the level of personalisation you need becomes an issue very quickly. You cannot have the same level of personalisation when you are not driving www.fintech.finance

the conversation because you need so much more – that is a big challenge for chatbots today and can quickly lead to customer disappointment. There are some very interesting prototype neural networks to deal with this issue, however it will take the deployment of quantum computing to scale beyond being able to interact with more than just a handful of users simultaneously.

Making the right connections Given these realities, curating or semi-structuring each customer micro-journey or interaction has generated impressive results in terms of customer satisfaction and acceptance rates. It’s easy to see why if you think about it. We all know an advisor at the branch or call centre who really stands out. They might not be the most experienced or

We’re enabling banks to provide clients with their own AI-empowered virtual private banker and, in doing so, step out of the commoditisation conundrum

product savvy, but they consistently outperform their colleagues in terms of closure rates and customer satisfaction scores. And why is that? Because product knowledge, customer relationship management data and next best offer/product recommendations are not enough. Max knows that, too. We are aware that there are sometimes significant differences across the world in terms of how people view, interact with, and even converse about money, banking, and wealth building. That obviously needs to be considered; it’s about more than just language localisation. As humans, however, we all want to have personalised connections and experiences and be recognised and treated as individuals, wherever we are in the world. That universal truth is why I believe our solution resonates so well, whether in Asia, Europe or North America. In those regions where regulation is not focussed on protecting incumbents, I expect the market will continue to bifurcate. It will divide along the lines of those who continue to focus on a commodity approach and those looking to distinguish themselves by adding value and even changing the nature of financial services. We expect Exagens to play a major role in the latter. Issue 8 |

BACKBASE

Backbaseandfriends From Mumbai to Johannesburg, Lucerne to Dublin, the Backbase omnichannel platform is transforming the way millions of customers interact with their bank. In the first of a two-part series, we asked five very different financial institutions what their challenges are and how the Backbase approach is helping to meet them

Beyond a cashless society Already the largest digital bank in a country that is determined to reduce its reliance on cash, HDFC is focussed on delivering an ‘out-of-this-world’ online experience for its tech-savvy customers, as Chugh, Group Head of Digital Nitin Chugh Banking, and Munish Mittal, Group Head of IT, explain

HDFC FINTECH FINANCE: Does the banking industry in India face the same challenges as banks in the rest of the world? We’ve heard a lot about demonetisation of the economy. How is that impacting you? NITIN CHUGH: The most significant challenge that we face right now is how to make people use banking services. We have done a good job at financially including people by making them open accounts; now we are trying to get people to use them for day-to-day transactions. There’s a huge movement towards using less cash and more digital payments and many products have come about in the last couple of years, encouraged by the Government. But still only four per cent of India’s GDP is non-cash. We want it to be at least 25 per cent and I imagine it will take us at least 10 years to get there.

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MUNISH MITTAL: Since India introduced demonetisation, a plethora of technology choices have emerged – smartphone, telcos introducing 4G networks, the Government wanting to Internet-enable hundreds of thousands of villages – and, in the process, two things have happened. Firstly, the Government wanted to introduce something called unstructured subscriber data (USSD)-based micropayments on feature phones because India has about 900 million phone connections (maybe one billion by now) but only around 250 million of them are smartphones. The country had also introduced the immediate payment system (IMPS), which facilitates both person-to-person and person-to-account payments, and which was used by banks like ourselves in our mobile app. Then came the universal payment interface (UPI), another

person-to-person and person-to-account payments mechanism, but which can also be used to send you a pull request. With this, you receive a message on your mobile phone, either using your bank app or the Bharat Interface for Money (BHIM), which is a general-purpose app launched by the Government. So, firstly, you have all these services – USSD, IMPS, UPI, BHIM – some of which are charged for, others not. Secondly, the customer gets extremely confused about what they should use for what. So, right now, one of the big challenges for the industry and the country is deciding which channel is suitable for which customer and based on what technology. FF: Do you think India will eventually go cashless and what must it do to get there? NC: We don’t foresee a situation where we are entirely cashless because cash is a www.fintech.finance

The digital switch: Backbase works with banks across the globe

legitimate tender. It’s not so much a cultural issue. It’s just the way the economy has been built over a period of time. There is a dependence on cash. In the larger markets and among larger enterprises, larger customers are probably all digital. A bank like ours, for example, is 85 per cent digital, so people who deal with us are digital. But it’s the people they deal with, further downstream, who need to be brought into the digital economy. We are trying to make sense of what we need to do to make that happen, to keep reducing the friction, keep making it effortless, keep making it more and more contextual and relevant, keep increasing the acceptance points for people to transact digitally. MM: Through behavioural analytics, big data, machine learning and simply analysing the transaction patterns of the customer, we get to know what preferences they have. Based on that we’ve been trying to determine what is the customer’s preferred access device – office laptop, home PC, smartphone or feature phone – and introduce some really cool features for them, such as missed call banking. Potentially, 600 million feature phone users who don’t have a data connection can use this feature. All you need to do is place a missed call to a predetermined number and you can recharge your phone as a www.fintech.finance

prepaid connection, pay your electricity bill and make a person-to-person money transfer, for example. And all without incurring a rupee of cost. Essentially, our focus has been to give customers a choice of what is the most comfortable and most inexpensive way to pay. We’ve also introduced commerce inside Facebook messenger – HDFC Bank on Chat – where you can pretty much make all your payments, such as electricity, mobile top-up and TV bill, inside Facebook Messenger. We attempt to take the bank where the customer is. FF: That ties in neatly with some of the work you do with Backbase. Can you tell us about some of the projects that you’ve developed together? NC: We have a very straightforward, very defined project with Backbase, which is to deliver an omnichannel, seamless, contextual, relevant, intuitive experience

Internally, it’s not called an omnichannel experience project… It’s called ‘the Backbase project’

to our customers, which gradually moves towards being hyper-personalised. We are the largest digital bank in the country, so the priority for us, as opposed to what we are trying to do as a banking industry, is a little different. Our customer base is already transacting digitally; by using the Backbase portal capabilities and technology, we want to deliver an experience that is so remarkable, so out-of-this-world, that customers do many more things with us. We want to be a part of their lives, rather just being a financial service to them. We are building a long-term relationship with Backbase. It’s more strategic than just doing a bunch of projects together. We are transforming all our customerfacing channels – internet banking, mobile banking, our public website – and, as time goes by, I think we’ll figure out more channels that we need to bring onto the Backbase platform. MM: There are three objectives that we have packaged in the platform. The first is unifying the customer experience on a variety of access devices, because before Backbase we had a slightly different offer on the online banking portal compared to our website and again on our mobile app. Issue 8 |

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BACKBASE The second major strategic objective behind investing in Backbase was to create a rich experience for the customer because I think user interface/user experience (UI/UX) is going to be paramount. It is very important that you convert every transaction into a customer journey with the bank and the work we are doing at the front-end, which is going to be coded into the Backbase platform and offered to our customers, will bring them on that contiguous journey. So, for example, it will include features that mean if you started making a loan application on your mobile in a taxi on the way to work, you can pick it up on your desktop when you reach the office and it will be completed in the back-end fulfilment system. It’s one, uninterrupted journey. The third aspect has been a focus on the culture to sell. As an organisation, we are strongly driven by the quality of the product and the impeccability of the process, but I think we realised that we need to really bump up the sales culture. So, even though it may have nothing to do with the Backbase platform as such, it is our conduit to making targeted offers, both on the mobile app and through online banking, with a lot of analytics at the back end, which are populated through the platform. FF: In terms of your technology stack, what position do you want to be in, in five years? NC: We want to be functioning like a platform, not only for the partners that we work with – and we are already a significant player in the fintech space – but also for our customers. Hyper-personalisation means customers should be able to design things that they want to consume. And that is only possible when big investments are made at a platform level. Backbase is one of those. FF: What is Backbase like to work with? NC: It’s a first for us to be deeply engaged with a company like Backbase. We’d been looking at this concept of an omnichannel experience for customers for about two-and-a-half years prior to signing with them – and it’s been a very good journey. They’re really solution-oriented and keep our interests at heart. Now we are talking about taking Backbase to our customers. Internally, this is not called an omnichannel experience project. It’s called ‘the Backbase project’, it’s so deeply ingrained now in our thought process. www.fintech.finance

CHEBANCA!

The Italian job CheBanca! blew the doors off conventional banking in 2008. But it’s not done with innovation yet, says Head of Digital Channels, Marco Vicario CheBanca!, the ‘human digital’ bank that acquired Barclays’ Italian retail business in 2016, has powered up the rankings, gaining plaudits for its futuristic branches, customer satisfaction and apps, such as Wow! (the Wallet of Wallets) which leveraged PayPal to make it attractive to other banks’ customers as well as its own. Named one of Italy’s ‘superbrands’ this year for the fourth year running, CheBanca!’s aim was to remodel retail banking when it was introduced to the market as the country’s first ‘fintech bank’ in 2008. Now with 500,000 customers and €14billion in total assets, it’s made a sizeable impression – but this isn’t a time to stand still. As CheBanca!’s general manager Roberto Ferrari was quoted as saying the year it began working with Backbase, ‘the hardest thing is to manage the technology in order to provide new, simple solutions to clients. Innovation is a means, not an end’. Three years into that relationship, two main portals (plus 285 widgets, 16 containers, 13 master pages and 195 pages) later and the bank hasn’t done with innovation yet. Right now, its head of digital channels Marco Vicario’s challenge is how to use the Backbase platform to help solve what you might call the bank’s ‘80:20 conundrum’ – persuading digitally affluent customers who have financial assets and interests elsewhere, that CheBanca! can be trusted with all their needs. It follows the bank’s plans to ramp up its investment advisory role.

“The challenge that we are facing is that 80 per cent of our customer base holds 20 per cent of the total assets in the bank. We have to discover what the share of wallet is with the other banks and try to form a relationship with these customers,” says Vicario. “There is no friction to changing between banks anymore. So, the customer chooses to have, for example, a savings account in one, other assets in a second and accounts in a third. That’s a problem if you have the customer conducting low-income transactions at your bank but their investments are held elsewhere. We have to give them a complete offering and for that we must put in place a relationship that means they trust our digital platform.” Personalisation is key to that and it’s being enabled by the improvements that Backbase has delivered to cross and upselling capabilities by linking its front-end platform to the existing customer relationship management system. It’s also given the bank’s marketing department welcome autonomy from IT in designing and effecting personalised campaigns. “My CheBanca! home banking dashboard is not your dashboard,” says Vicario. “It’s customised. Every time you go in you find new content, With Backbase we can change this dashboard dynamically to present the right content to the right person at the right moment – to, for example, lead a customer to the right investment. Now what we want to do is repeat that on all other channels.” Issue 8 |

BACKBASE

Getting down to business ALLIED IRISH BANK

Seán Jevens, Head of Digital Channel Development at Allied Irish Bank, believes banking has dealt business customers a poor hand when it comes to digital channels – and he’s determined to improve the service FINTECH FINANCE: As a banker, what’s keeping you awake at night? SEÁN JEVENS: Allied Irish Bank has been digital for a long time. Our online banking offer is 20 years old, so it’s mature, it’s proven. As an industry, a huge amount has been invested in the personal experience – online, mobile alerts, payments capability. Customers love it and use it. The thing that’s keeping me awake at night is business digital. I think the business digital community has been left behind, to a large extent. Losing business customers to the neobanks worries me, because business customers’ needs are very significant and they haven’t been addressed by the industry. Peter Wannemacher, who’s one of the Forrester analysts, wrote that the business digital community was ‘hiding in plain sight’, but I think there’s going to be a raft of transformational capability in the next two to three years. A lot of strands are already emerging – for example, Cloud accounting, and credit is transforming from a 14-day, paper-based application, to almost a continuous assessment model. But there’s a huge opportunity to bring value to our business customers, particularly the SME sector in Ireland which is very important and employs a vast number of people. It’s a key sector for Allied Irish Bank to support businesses by providing them with better capability, faster credit, better control of their finances, in a much simpler, easier way. FF: And is this where you are focussing your work with Backbase? SJ: We already have three online solutions

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for business – two that are very successful with our customers, and a higher-end, standard capability for bulk file payments, multicurrency, multiple authorisation, etc, but it’s more than 15 years old and it needed a major overhaul. It doesn’t have the flexibility we need when it comes to integration. For example, we’ve just invested in a fintech that looks after foreign currency payments and another to do with receivables and we want to integrate those new solutions i to our offering. We’re working with Backbase so that, firstly, we can give our business customers a more dynamic and responsive capability and, secondly, we can integrate those third-party functions, because, given our legacy application, we’ve struggled to do that at pace. The project is with a very small internal user base at the moment, so that we build up our capability before we start rolling out to our customers. But in the next year we’ll begin migrating them across. It’s an important process and we want to make sure we do that safely and securely. FF: What’s it like working with Backbase? SJ: Allied Irish Bank has a very simple purpose – to support our customers in their financial lives, to achieve their hopes and ambitions. So, everything we do, we do with a customer lens. What we’ve found with Backbase is that they, too, are

very focussed on the customer and the end-to-end solution. So, it’s not just ‘this product does x or y’ but rather ‘is it solving a pain point?’ We’ve been working with Backbase in a collaborative way. For example, in building our solution, we realised there was a gap in their product. We took them to meet some of our business customers and they found that hugely powerful in understanding exactly what the capability we said we needed was for. It wasn’t a technical spec. It was more ‘the guy who runs finance in this organisation needs people to make payments, but he can’t let them look at some of the other accounts’. They’ve now delivered that as part of their product capability for other customers, too. FF: What will your omnichannel experience eventually look like? SJ: Customers are happy to self-serve, but omnichannel is about the customer being able to say ‘this is more complex, I want to talk to someone’, be that remotely, via video, or in a branch, and I think we’ll end up with all those various touchpoints. Key to that will be a customer-centric interface. Right now that interface is all about accounts and transactions. That’s not the way people think. The comment that consistently comes back is ‘you know all my financial information. Please be more helpful. Guide me’. And that’s what I see us doing.

There’s a huge opportunity to bring value to our business customers, particularly SMEs www.fintech.finance

BACKBASE

SWISSENGINEERING

Valiant is investing heavily in digitisation for staff and customers – but why waste money building things twice? asks Chistoph Wille, Head of Distribution Channels VALIANT As an independent retail and SME bank, operating exclusively in Switzerland, Valiant isn’t alone in finding itself squeezed between historically low interest rates and the need to update core legacy systems – in its case, commissioned around the time of the financial crash.

Had it known then how the repercussions from that event were to play out, it might have chosen something other than what Christoph Wille, head of the bank’s distribution channels, now describes as a ‘monolithic’ stack. But hindsight is a wonderful thing. “We are running a big legacy park of systems which are creating a lot of cost,” says Wille. “Standard core systems, such as ours, are designed to be monolithic – one thing fits all – and that’s becoming an issue when you are talking about open banking, open application programming interfaces (APIs), about being agile, because, usually, the interfaces are just not there. So, we need to open up this legacy to build something on top of it… to lower costs while improving the customer experience. That’s the big challenge that we are facing and it’s the problem I’m currently solving for the bank.” Switzerland is not, of course, a member of the EU, nor of the European Economic Area and, as such, the Revised Payment Services Directive (PSD2), which frames the new era of opening banking, can’t compel its institutions to share data with anyone. But in a world of banking without borders, Switzerland can’t afford to be isolationist. Neither can its established financial industry ignore the clamour of baby fintechs incubating in its own back yard – hundreds have been established since the crash and the Swiss Bankers Association is of the opinion that they’ll both help banks to garner customer confidence in the services they provide and fight off international competition. Just last month (April), Valiant partnered with one of them, Klara, an online bookkeeping service, for its SME customers

| Issue 8

who will be able to directly link it to their accounts through an API. Later this year, it has similar plans to hook up with German online accountancy startup Bexio. The bank is seen as a pace-setter for digital change in Switzerland. Since 2016, it’s been investing 15million Swiss francs a year in its digitisation project to create a uniform customer experience across different distribution channels for its 380,000 customers – and that includes adding to the more than 90 physical branches where it was the first to introduce digital services, including video advisors. To help it navigate the technology needed to deliver this integrated vision, the bank turned to Backbase. The omnichannel platform provider’s first job was to design a new customer website, launched in summer 2017. The aim, however, was not simply to create a public portal.

“So, we decided to be radical. We have built our public website fully on Backbase 6 – I think it’s the most complex running on its system – with the aim to expand this portal to relationship manage the workplace and extend a new ebanking system to clients. It will allow us a really seamless experience in the future – the relationship managers will use the same portal as the clients to make, for example, an address change. It’s an example of how we can create synergy by building once for different groups.” It’s a work in progress, says Wille. “Our legacy system still contains some customer relationship management (CRM) components, so this is actually the master of our customer data. But now that we are receiving additional data – let’s say you want to check and trace customer behaviours on the website – we cannot store that in the core banking system. So,

Perfectly integrated: The bank’s new public portal is also for staff

We decided to be radical. We have built our public website fully on Backbase 6 – the most complex running on its system “Our website was more of a digital brochure, not something living and interactive, but at the same time, we were looking at different options for our content management system (CMS),” says Wille. “We thought ‘why should we build things twice? Why can’t we reuse elements on the public website later in our digital banking experience? Was there a banking multichannel solution that could deliver what a standard CMS is delivering in terms of capabilities?’

we are assessing options to deal with that.” The Backbase solution doesn’t require banks to replace or rebuild core systems from scratch. Rather, they can repurpose them by incorporating their content, data and functionality into a new digital customer experience layer that can be integrated with existing business applications. “We are using Backbase technology as a backbone to integrate various capabilities,” says Wille. “It’s all about building a seamless experience for clients and for our advisors.” www.fintech.finance

Feet first: Backbase will help Discovery Bank into the world

DISCOVERY BANK

The birth of a bank After a nine-month gestation, a South African insurance group is about to become a banker for the first time. One technology midwife to the happy event is Backbase. Discovery Bank’s Chief Design Officer Johan van Rooyen says it’s in safe hands FINTECH FINANCE: Would you say that regulation is a driver for innovation or does it stifle it? JOHAN VAN ROOYEN: That’s an interesting question. We can see how the incumbent banks in South Africa, the ones we know best, struggle just to keep their heads above water with the regulation that was introduced subsequent to the 2008 financial crisis. They really are just trying to cope. So, in that way it stifles innovation. On the other hand, think about what that does for organisations like ourselves, which have no legacy and can simply build the regulations in, de novo – it’s no particular overhead, it’s just a way of doing business. So, in a way, regulation is levelling the playing field for the smaller and the newer players, the challengers. And in that sense, it drives innovation. FF: Can you tell us more about some of that innovation with Backbase? JVR: We’ve chosen Backbase as our front end to the new bank – and front end, for us, means the customer portal as well as the employee portal. So, it’s involved in literally everything that we build – and everything that we’re doing will ultimately reside ‘on the glass’, as they call it, either in front of the customer or their representative. It’s been a fantastic journey. We met Backbase a year ago and we went into live testing with our new bank in almost www.fintech.finance

exactly nine months. We have a SAP banking platform as the core banking solution, but one of my guys had read the Gartner Reports and others on Backbase and it was clearly a leader in innovation, as well as in the broadness of the solution it offered. The Backbase team came to South Africa to make presentations (we take presentations with a pinch of salt, because slideware is easier to produce than software!) but we hit it off immediately. We felt that we had almost a cultural connection – that’s the way we all expressed it. They felt innovative and entrepreneurial, which they clearly are. And we liked the omnichannel solutions, the mobile-first approach that they have, and the accelerators – because time was of the essence. Implementation is never easy, but our shared values have stood us in good stead when the going’s got tough. FF: What do you imagine your technology will look like in five years’ time? JVR: We don’t really evaluate our business options in terms of where we want to be with the technology in the future. We make the choices that we think are good in the medium- to-long-term. We want to keep this fairly simple, two-speed architecture, with Backbase in the front and SAP at the back, and all kinds of other peripheral systems that you need for banks. We’re really more interested in where the business model will be in five years’ time. We’re architecting our solutions in such a way that it’s portable – we have

insurance and wellness companies – and we’d like to make sure that we can scale the solution into other countries. So, I would hope that the relationship with Backbase lasts certainly into the next five years. Exactly what that might look like in terms of the technology stack I wouldn’t want to guess. It moves too quickly. FF: Relationships all come down to people in the end. How easy was it to work with Backbase? JVR: You know, the Discovery story is about 25 years old and it has never been a technology-driven story, it’s always been a story of one or more core business ideas for which we’ve managed to find fit-for-purpose technology. We think we have a killer idea, which has worked incredibly well in insurance, called behavioural insurance, and we have data to indicate that it translates into banking. So, we’re very keen to pursue that to its logical conclusion. We have no doubt that if we choose our partners carefully, based on shared values, rather than just the coolest technology, that those partnerships will mature, as long as both parties are investing in the relationship as well as in the technologies and their core business ideas. We see SAP and Backbase as our technology partners. We know they’ve got very big R&D budgets and focus. We will invest in the core business ideas, big data and insights that we glean every day. All things being equal, that should lead to a great future Issue 8 |

REGTECH

Pushing at an open door?

Regulations promised us a new era of open banking, but that depends entirely on what customers are prepared to share and what providers are capable of delivering, says Dr Louise Beaumont, Strategic Adviser at Publicis.Sapient The second iteration of the Payment Services Directive (PSD2) and the upcoming General Data Protection Regulation (GDPR) are causing many in the fintech space to reconsider what the future for banks and financial services will look like. Here, Dr Louise Beaumont, strategic advisor at Publicis.Sapient and co-chair of the techUK Open Banking & Payments Working Group, discusses several possible outcomes in this new era. Open banking will only succeed if it is used by the customer. But if the customer doesn’t even know services exist, or is concerned about sharing the data necessary to enable their delivery, then the open banking future may not be quite as ‘open’ as we’d envisaged. How will people react when presented with the opportunity to share highly confidential banking data in return for access to new or better services; data that might reveal much about their personal lives and habits? And how effectively will providers meet the challenge of creating data-driven services that build consumers’ trust in their organisation, rather than eroding it? The answers will depend in large part on how effectively companies communicate the exchange of value that is taking place – both the value of the data customers are sharing and the value of the benefits they will receive in return. Outside of fintech, the world is dealing

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with the recent revelations surrounding Facebook and the unauthorised mining of personal data. What the Facebook saga has revealed is what we’ve increasingly known to be true, but never revealed in consumer attitude surveys. Consumers have been sharing their data with an impressive promiscuity, perceiving little downside in allowing companies to capture information about them as they go about their lives online – even if what they express on Facebook, for example, can allow observers to infer extremely personal details of their lives with great accuracy. Now, more than ever, customers will be asking ‘are you a company that I can confidently share my data with, exposing my personal hopes and dreams – who I am, what I aspire to?’. Providers – a label that is no longer shorthand for banks – of these new services must ask themselves whether they have the type of trust and engaged permission from individual customers that will allow

Consumers have been sharing their data with an impressive promiscuity... Now, more than ever, customers will be asking ‘are you a company that I can confidently share my data with?’

them to feel comfortable sharing. Stringent measures exist to protect personal data, with every new and potential provider held to the same standards as the banks. But when we look at this issue through the lens of the upcoming GDPR this means a compliance project for companies and new restrictions when we discuss data privacy and sharing. Similarly, if we default to discussing PSD2 through the lens of compliant application programming interfaces (APIs), we end up in a technology-based conversation. Technology is only one piece of the puzzle when looking at open banking. We really need to break this down further as to what an ‘open’ future for banking is and what it could mean for new players and incumbents alike.

Reassessing a ‘bank’ Banks hold huge quantities of transactional data on millions of customers and they already face serious challenges in maintaining the quality of that data. As customers turn to new payment methods, banks progressively lose the granular detail they used to have about their customers’ spending. Instead, they see a stream of transactions where anyone but the banks ‘own’ the relationship: ApplePay, PayPal transfers, a direct debit to Nutmeg, or a credit card bill paid off monthly in exchange for customised rewards. As such, a customer can leave a bank in every way that matters without closing their account. The traditional

www.fintech.finance

bank is still there but merely as the infrastructure on which to base the better, more personalised experiences being offered by other firms. In other words, in a world where data is currency and a personalised, customer-centric experience is king, banks are at risk of lagging far behind. Banks continue to obsess about their existing industry competitors because all of this fintech innovation is antithetical to the product-push focus that banks have had for decades. When discussing these new types of competitors, fintechs are often dismissed as a single issue, when in fact it is more accurate to describe fintech entrants as consumer-obsessed and focussed on specific pain points. What is largely ignored is the threat that tech Titans like Google and Facebook pose through their massive investment in owning consumer data and the rails. As financial services transform into a more open, transparent and collaborative landscape, attitudes and cultures must shift. For banks, this is not an issue around retraining existing staff – it begins with the skill sets you hire, nurture and build around, and the leadership that dictates that. Currently, there is a risk that banks are dominated by people whose skills are more geared towards answering a set of strategic concerns that were central to the recovery from the financial crisis in 2008. Times have moved on. As they frame a human-centric strategy for the years ahead, banks must now reassess the blend of attitude, behaviours, skills and experience in their boardrooms, as well as their ability to attract the all-embracing talent they need right through the organisation – reflective of today’s and tomorrow’s customers. This means developing a deeper understanding of people’s unmet and under-served needs and what they find enjoyable; and then to harness data and tech innovations to create services and experiences that will fit seamlessly into their daily lives. To achieve this, banks must attract the right kinds of technology talent but, just as importantly, they will need people who can bring the necessary level of insight and empathy with their customers:

www.fintech.finance

behavioural psychologists and ethnographers, for example. The consequences of these new regulations bringing in an era of open banking is that banks will be forced to take a long, hard look at their talent pipeline and existing pool of staff and skills. Do they have the range of skills they will need at board or executive level to frame strategy that will depend increasingly on technology and human insight? And are they attracting the right kinds of talent further down the organisation to deliver the next generation of services?

A value exchange, not a financial product The best experiences are the seamless ones. Uber is often cited, with good reason, for using APIs to create a new type of experience for a service, in this case private hire cabs, and fundamentally changing expectations. It left the incumbents playing catch up through a series of poorly thought out, bungled apps. They missed the point that the digital transformation of the sector is not about having an app plastered onto the front end of your existing product. It’s the provision of a highly tailored, personalised service. Does the average Uber user know about the APIs the company uses or how the app’s backend works? No. And they really don’t care (or, at least, they might be mildly interested after Uber admitted hackers had accessed the personal details of 57 million users and drivers, but because the experience is so good, they carry on using the service). The fintech world has already provided some fascinating insights around value exchange and data. Early research indicated that a significant group of users of the peer-to-peer (P2P) lending site for businesses, Funding Circle, were uncomfortable with the need to disclose their company’s financial information on the site to allow due diligence by investors. But the quick and flexible access that Funding Circle provides to unsecured loans for small and micro enterprises has proved so valuable that borrowers quickly overcame their concerns about privacy.

Issue 8 |

REGTECH As with Uber, there was clear value in the exchange for all parties, with a defined set of parameters for what was expected from each side. Open banking is fundamentally no different. As consumers, we’re already trained by the tech Titans to use new services and these largely flourish because they work and we trust the brands delivering those services. The data released under open banking (always with customers’ explicit consent) will enable providers to offer a wide range of diagnostic/advisory services that can anticipate their needs, including: ■ Comparison shopping for financial and non-financial products, for both consumers and small businesses ■ Aggregation of the customer’s financial relationships with multiple providers into a single view, allowing advice and recommendations to follow ■ The ability to highlight products that customers with similar income and savings have bought ■ ‘Readiness to borrow’ financial health checks and advice based on live account information ■ Services that can provide early warning when signs of financial distress start to appear in a customer’s data

A vision of the collaborative future Assembling richer pools of data from multiple sources will give banks more angles from which to view their customers and more ways to understand them than they could get from transactional information alone. They can profile and segment their customers more precisely and look for behavioural patterns that can be used to refine predictive models. The insights they gain will power new services and improve existing ones. It is here that the tech Titans lead – they assemble and analyse data at scale as a matter of course. Companies that have data at their heart are getting ever smarter because they’re building ever-deeper layers of information. It allows them to make behavioural inferences so that they can build ever more predictive, pre-emptive and personalised services. Collaboration will be critical because, in the open-data market that banking is becoming, the ability to form the most effective partnerships is a vital skill and a new source of competitive advantage. This

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will be especially true in banking because banks do not have a history of using data to generate innovative customer propositions; rather, they have used it to improve internal processes, such as fraud detection and credit risk management. They need to work with outside partners, seeking out new data sets to create new services. Banks that choose to engage fully in the new market based on open data will focus on the element of their environment that they can control: which organisations they choose to collaborate with to create new services based on pooled data. These will be partnerships of mutual advantage with the potential to create new sources of profit for both parties that will be shared between them. Banks cannot

where financial services will see new types of players emerge. Of all these, ironically, it is the large old-economy players, such as retailers, energy companies, telcos, wealth managers, pension providers and insurance companies that are the most fascinating. Their advantage lies in the huge amount of customer data they hold, which can be combined with other data sets to identify unmet and under-served needs in the intersections of the Venn diagram. For example, if you bring energy understanding together with banking transaction understanding, you create new insights into that data and the potential for new services. The big question marks over them are: first, have they recognised the opportunity,; second, do they have the ambition to

Digital transformation is not about having an app plastered onto the front end of your existing product. It’s the provision of a highly tailored, personalised service expect to generate all the business ideas that combining data sources will make possible on their own. Success will come from the ability to collaborate effectively and be open to ideas from outside. In this new world, the banks with the best-quality APIs, which allow the fastest, cheapest flows of data, will be the winners, because they will be best placed to attract the most innovative partners to work with them. They will succeed by finding the best fit between their data and that held by other organisations, be they mobile phone companies, energy providers, transport companies, airlines or any number of others. But to succeed in the competition to collaborate most effectively, banks will need the best possible tools for data sharing and analysis. This new future of ‘open banking’ might not even include traditional banks. Where I believe the nirvana of the open future really lies is looking beyond ‘banking’ to

do anything about it?; and, third, do they have the ability to execute at pace?

The future is hard to predict We live in an age where consumer behaviour and technology are catalysing social and commercial change at an unprecedented pace. For banks, the future is going to be a lot more than an app or an improved user experience over the top of what are, essentially, 200-year-old products. It’s a future in which consumers sit at the centre of their personal worlds and access the services that fit best into their lives, thanks to their personal data that they choose to share with brands they trust – brands they will trust on a personal, emotionally engaged level, not just the rational trust we have that a utility-style process will work the same way next time we need it. It is also a future in which banks must find their place – before others find it for them. www.fintech.finance

O P E N for innovation

It’s time for a new way to write, deploy and consume financial software. At Finastra we’ve done just that, by developing a platform that’s open, secure and agile. It lets you integrate new technology seamlessly – bringing new products to market more quickly and with a better customer experience. As we say, it’s innovation with unlimited potential.

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REGTECH

Hideandseek

As regulatory authorities across the world take their lead from GDPR, Chris Perram, Founder of FileFacets, looks at what’s next in data discovery The arrival of the new General Data Protection Regulation (GDPR) is being heralded as everything from a consumer triumph to an extinction-level event for any organisations failing to embrace its principles.

But for Chris Perram, founder and CEO of information governance (IG) and data analysis expert FileFacets, its arrival is like giving a kid the key to a sweetie shop. The European regulation has triggered other jurisdictions to introduce me-too legislation that’s unlocked huge global demand for the company’s services and it’s wasted no time in stepping up to the plate. Sending its high-tech tentacles deep into company systems, FileFacets lifts up digital stones to get to the data lurking underneath, but without disturbing the environment in which it sits. It has also developed data connectivity and migration technology so that it can delete and transfer information without the risk of manipulating files and compromising compliance. And it offers complete visibility – a golden thread that leads companies to the structured and unstructured data that they wittingly or unwittingly hold on customers for the purpose of compliance audits or data intelligence. Starting out as a pure information governance company 20 years ago, the Canadian firm turned fintech in 2013, before graduating from the country’s L-Spark Accelerator programme for software as a service (SaaS) businesses in 2016. Over that time, it has built up an enviable reputation, including recognition in the #NextBigThingOTT honours at the Best Ottawa Business Awards, as one of the capital city’s companies to watch. It is now expanding into Europe on the back of

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its work on GDPR compliance, appointing Nuvias (formerly Zycko) as its exclusive distributor for Europe, the Middle East and Asia last November. The company recently trebled its office space to an impressive new 7,500 square foot facility in Ottawa’s Kanata South, after landing CA $4million in development funding from sources including Celtic House Venture Partners, Wesley Clover and Chinese firm Green Capital Investment. It has upped its employee numbers, too, by a third over the past year, to 26 full-timers. Sparking all this international growth is its Enterprise ID online platform for advanced data discovery and content search. This hybrid, Cloud-based solution identifies sensitive and personal information – the crux of GDPR – removes redundant data and facilitates secure transfer between data repositories, using artificial intelligence (AI) to speed up the process. Perram is at pains to point out that FileFacets’ genesis as an IG firm means that it applies technology to decision-making programmes – not the other way around. As he puts it: “We didn’t sit in a basement and think, ‘let’s go code some stuff and then go look for a problem’.” For years his team helped companies to manage digital information stored on hardware scattered across their organisations, becoming a

centre of excellence in functional classification and metadata modelling, using software it had development inhouse to migrate and organise data more easily and efficiently. Perram eventually began to wonder whether there was more potential in developing the software than there was in the traditional services market and that thought led to what he describes as a ‘terrifying leap of faith’ when the company walked away from the IG services business that had been providing it with CA $4million a year, to enter the fintech arena as FileFacets. Within just two years, the bet was starting to pay off, helped in no small part by the emergence of the GDPR, which will affect 23 million companies in the European Union (EU) alone, and all foreign companies that handle data related to EU residents, after May 25, 2018. Perram believes the financial services industry hasn't quite woken up to the scale of change it faces as a result, including the cross-border ramifications. “GDPR isn’t a regional requirement. If you store information about an EU citizen, you need to satisfy GDPR. If you do business in the EU you need to satisfy GDPR, but it’s also had a knock-on effect in that countries around the world are building their own regime, similar to GDPR,” he says. “The Canadian government has recently signed a free trade agreement with the EU and part of the language inserted into that agreement by the EU is obligating Canada to enact legislation similar to GDPR to level the playing field in terms of what companies need to do to protect the privacy of their citizens. That’s also happening in Australia, it’s happening in the Association of Southeast Asian Nations (ASEAN), and it’s even happening in Japan and China.”

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Even within the EU there will be nuances in the way banks are required to store, protect and report on data. “Each country has its own data protection authority that has obligations to meet the minimum requirements for GDPR, but Germany and the Netherlands, for example, have a much more stringent regulation than GDPR,” says Perram. “Banks have operations globally, they have hundreds of jurisdictions that they need to be compliant with. Being able to slice and dice it by jurisdiction allows them to fine tune that data and what they do with it, so that maybe they process it one way in Germany and another way in Canada, another way in China, another way in Australia.” And that's what the FileFacets platform – which can manage and index the information safely within a bank’s own domain – does. “We have a holistic view of data analytics. We don’t point at a particular repository or a particular region or office. We approach it from an enterprise perspective, no matter where it is in the world or in what language,” explains Perram. “We point at it all, roll those analytics up into a single view and assist an organisation in ensuring compliance with things like privacy rules, jurisdictionally. “We can organise the data so that it’s specific to a particular region and allow an organisation to run analytics on that content to check they’re meeting countryspecific regulations for everything from privacy to tax and human resource law, ensuring they’re keeping information long enough to be compliant, but getting rid of it as soon as possible after they’ve met the obligation, to lower their risk.”

Addressing the peril of SARs To help with all this, FileFacets’ intelligent and uniquely well-informed systems are able to understand and correctly compartmentalise what they find in order to avoid potentially the greatest risk to companies, under the GDPR at least, the moral hazard surrounding so-called personal identifiable information (PII) and their obligation to protect it and disclose to their customers what information they hold about them.

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“Really, the thing that’s scaring banks the most is that the GDPR is putting data subject access into the hands of the citizenry,” says Perram. “And it’s all of the data, not just structured applications like loans and mortgages. It is all of the data that they’re collecting and using for marketing purposes. So, it’s not always as simple as opening up a database and doing a quick query.” Perram explains: “We’re very low-risk in that we don’t manipulate data. When we do a deep dive into an organisation’s repositories, across the enterprise, there’s zero chance that anything will be manipulated or fail compliance because we will do our analytics on that content.” But now it’s going one step further by developing a feature matrix – a super-efficient, intelligent data analysis tool that’s as applicable to GDPR as to innumerable other data governance and reporting tasks. “The most exciting thing that we’re working on today is our machine learning and AI using our global feature matrix,” says

We could point FileFacets at any repository in the world and identify every document type in there that’s relevant to a transaction Perram. “A feature matrix is just a massive database that identifies characteristics of certain file types. We are working with one of the leading law firms in the world to build a feature matrix that looks at tens of thousands of transactions and maps all of those completed transactions to document type, so that we can automate the discovery of every document type that would be required in any transaction. “The effect of that is if we point FileFacets at any repository in the world and identify every document type that is in there that is relevant to a transaction, we can shrink the due diligence phase of a merger and acquisition, for example, from months down to a few days. That efficiency is

incredibly tangible because it also reduces the risk of deal collapse when the number one enemy of a deal is time. “Due diligence automation is a very discrete use case, but there are innumerable examples of where this technology can benefit different processes and increase efficiency in all sorts of ways. If I can point at a particular repository – an email system, a Cloud-based file system, an on-premises enterprise content management solution – and find all of the employee records, for example, to ensure that everything is in the right location, we can reduce the risk of records being leaked.” Coming back to the GDPR, the cavernous nature of banks’ ‘dark data’ needs just such a jet-powered data solution, which can join the dots between individuals and every bit of data held about them – from passport photos to CCTV footage. “Volume is one thing, but format is another. You might have 47 million files in a particular repository, but 30 million of them might be scans or even faxes,” says Perram. “We are able to pre-process that content and do optical character recognition on it so that we turn pictures into documents. And it’s literally petabytes of data.”

A chilling effect There’s little doubt that the GDPR will put consumers in control of their data to an extent they haven’t been before. But Perram thinks the implications for financial services as an industry could be more far-reaching than expected, not least in how organisations react to the increased scrutiny and risk they face – which could put a dampener on marketing activities. “Repurposing the information that they have about you to sell more products to you or perhaps sell on that information to some organisation, maybe a subsidiary, requires your consent,” says Perram. “Having to go back now to millions of customers for consent is a daunting task for banks and they’re very concerned about it. “It will affect the level of risk each organisation has and, because they are so risk averse – appropriately so – that’s going to have a very chilling effect on how financial services market, sell and interact with customers.”

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Bank balance

Swedbank has its sights set on open banking, PSD2 and fintech collaboration. Head of Digital Banking Lotta Lovén discusses innovation in the new regulatory environment There is an undeniable fintech energy and momentum in the Nordic-Baltic region.

And thanks to enlightened government policies, readily available funding and a large pool of technology specialists, Sweden has emerged as an ideal base for the innovators. And, steeped as it is in a culture of cooperation, Stockholm-based Swedbank is a ready partner for them. The group, with its wide range of services across retail banking and asset management, is at the heart of digital developments that are reshaping financial services across this part of Europe. But the bank’s head of digital banking, Lotta Lovén is clear where the journey to this new banking nirvana starts. “Everything must begin with customers,” she says. “They are our main source of innovation and it’s only by listening carefully to what they want that we can develop the right approach for real-time payments, clearing or other services. By following customers, we stay in front.” Swedish banks already act very much like fintechs in the way they collaborate and engage with customers to develop services such as mobile banking. Maybe it's something to do with the 'lagom' culture in Swedish society. Literally translated as moderate or just the right amount, the spirit behind the word has more to do with a balanced, team approach to life. Lovén highlights a payment app called Swish, created by a Nordic banking consortium that included her own organisation. Swish is used by more than 50 per cent of Swedes and is highly unusual because it is a consumer product that banks built without the involvement of a third party backed by venture capital. “Breaking new ground has always been key to our business strategy,” says Lovén. “We already had Internet banking in the mid-Nineties and we launched our first mobile app only a couple of months after

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Apple launched its first iPhone. We were the first with digital equity trading and mobile equity trading, too, and we worked closely with other banks to develop BankID.” Launched in 2003, BankID is Sweden’s leading electronic identification system, used by 7.5 million people for personal identification as well as signing transactions and documents. It is typical of the proactive partnership style that gives the Swedish banking community its distinctive fintech feel. Following the success of BankID, a similar product has been developed in the Baltics – another joint venture, this time between Swedbank and SEB, called Smart-ID. Even more ambitious, a cooperative initiative by a group of Swedish, Danish, Norwegian and Finnish banks, also involving Swedbank and SEB, has recently set out to establish

Open banking is an opportunity for us to distribute our services through others and collaborate with fintechs a pan-Nordic payments infrastructure for domestic and cross-border payments in multiple currencies.

A question of partnering While rapid growth and innovation are hallmarks of the Nordic-Baltic region, innovation obviously needs to be tempered by regulation and compliance, a fact that Swedbank has been quick to acknowledge, having fallen foul of regulators who fined it €1.36million for failures in its anti-money laundering (AML) systems in Lithuania in 2017. Having learned an important lesson, the bank is now using its digital expertise to strengthen its AML and other control

systems. But when it comes to the arrival of the Revised Payment Services Directive (PSD2) and soon the General Data Protection Regulation (GDPR), it is already in a good place, says Lovén. The bank has been working through application programming interfaces (APIs) for many years, meaning its digital infrastructure is fully formed and PSD2-ready. The issue now is about making sensible choices, providing the services that clients want and working in collaboration with fintechs to achieve the right focus. When it comes to the GDPR, she is confident that banks will make it work. “Banks are good at managing data and making it secure for customers. I don’t think it will be too difficult for customers to understand the principles and why it is important to know what the data is used for,” says Lovén. “As for PSD2, it’s a case of knowing which parties to work with so that we can distribute services, and which ones can best help us further develop services in our own channels.” Lovén believes the Nordic markets are well prepared for open banking, and says that Swedbank and its peers have been experimenting with sandboxes for some time. “We’re simply continuing a journey that we’re already on,” she says. “I see open banking as a technology solution and an opportunity for us to aggregate data, to become a full financial provider for our customers. It’s also an opportunity for us to distribute our services through others and collaborate innovatively with fintechs and other providers.” But banks will have to adopt a different development mentality and approach, she adds. For Swedbank, that has meant shifting all operations to an agile model, to ensure flexibility and speedy delivery. It’s a question of staying relevant. “To remain the most important bank to www.fintech.finance

your customers, you have to embrace new ways of working and new technologies. PSD2 was the door opener, and open banking is what will happen after PSD2. So, embracing open banking is a must,” says Lovén. “We already have 1,000 people working in our sandbox applications, and we’ve built about 400 test applications. There’s a high level of interest from people who want to collaborate through our APIs and open banking solutions. “Of course, everything in our markets is driven by EU regulations, so it will be interesting to see what happens in markets that don’t have the same regulatory pressures.”

Baltic innovation In Swedbank’s markets, the Baltics are noted for innovation and fintech businesses, with the three Baltic states having some of the highest startup activity in Europe. Swedbank has an accelerator running in Riga, which is drawing on bright, well-educated young people in Latvia who contribute to a cross-fertilisation of ideas in the Baltic-Nordic region that is helping to spread the adoption of new technologies and work practices. This spring, the bank began hosting Wise Guys Fintech in Riga, an international fintech startup accelerator programme run by Estonian investment company Startup Wise Guys. Emma Heimonen, head of digital innovation at Swedbank, said it was a way of expanding the bank’s ecosystem of third party collaborations with fintechs. It would fast-tracking their growth by gaining competence and access to more than seven million of Swedbank's customers through its open banking platform over the next six months. It’s a sign of how serious the bank is about digital development. At the 2017 earnings conference, CEO Birgitte Bonnesen said it would step up investment and put more resources into digitalisation and automation of banking www.fintech.finance

services. It would do that by further strengthening the digital channels, the mobile bank and internet bank, increasing the use of automated self-service solutions, upping spend on data analytics and accelerating the introduction of automation. “We know where we are going and we are agile enough to adapt to changing conditions and still deliver at a high level,” she said.1 If being digital is the goal, then Sweden is leading the quest. It’s among the frontrunners in Europe to become a cashless society, although its enthusiasm has been tempered recently by the Swedish central bank’s call for caution, amid concern that greater governance is needed to safeguard the country’s payment system. Swedbank is not alone in having already removed cash from its branches. But Lovén recognises that some traditional

practices still have a place, and that it is important to remember the customer at all times – not just because regulation impels it, she says. “Being totally digital is too narrow,” Lovén acknowledges. “You need some support from contact centres, some way of asking deeper questions, the kind that demand human interaction and judgement. Although digital banking is irreversible, an element of traditional branch banking must continue. People should always be able to talk face-to-face with someone and physical meetings with our customers will continue to be important, although they will not necessarily take place in branch offices.” Not too little, not too much. How very lagom. 1

Seeking Alpha/www.SeekingAlpha.com

Equal weight: Blending tech with the human touch is key

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REGTECH

Keeping the faith with GDPR Building societies such as Nationwide have a special duty to make sure the GDPR is implemented to the full, says its Director of Data Security, Graham Edwards. Anything else would be a betrayal of trust Trust, it’s said, takes years to build, seconds to lose and a lifetime to regain. Just ask the banks caught up in the 2008 financial crisis. But on May 25 this year, they’ll get possibly their best shot at repairing the damaged relationship with customers, thanks to the introduction of the General Data Protection Regulation (GDPR). At least Graham Edwards, director of data security and data protection officer at Nationwide, hopes so. Building societies like his were, in fact, beneficiaries of the flight of capital (and reputation) from high street banks 10 years ago. According to a 2015 report from Cass Business School, they’d been offering the public a better deal than banks for years anyway – but there is always the danger of taint. “For the industry as a whole, the GDPR will, hopefully, engender trust,” says Edwards. “There is nothing in it that we don’t see as being fundamentally the right thing to do – we’re already doing much of it – and if you do the right thing for your customers, you’ll naturally be compliant. “People moved from banks to building societies when they lost faith in banks. So, we can’t risk them losing faith in us – we have to maintain that trust.”

Transformative change Delivering on the GDPR, though, has put the industry under pressure. True, every regulated financial organisation is already subject to data protection legislation, but the GDPR goes way beyond that. Designed to support the single market

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by synchronising European data privacy laws, protecting and empowering EU citizens’ rights and remodelling the way all organisations – not just banks – tackle their data privacy, presents a fundamental change in how data controllers and processors handle personal information. As such, to become GDPR-compliant means addressing a whole swathe of operational factors from scratch again; it’s a transformation of almost unprecedented scope. How quickly can banks identify all the components of an individual’s data and then understand the value that these assets hold? How do they measure whether they are using the data for the agreed purpose and are not accruing excess data? How do they get rid of data so that they don’t hold it for longer than permitted or necessary? And all this under the weight of their far-from-agile legacy systems. Commentators and professionals have said the financial industry’s preparation is woefully in arrears. Associate director of the Boston Consulting Group, Nic Gordon, recently said that, perhaps because of ‘the volume of other regulatory changes they are facing, this [GDPR] isn’t at the forefront of their thinking’. In the private sector, a recent survey by Veritas concluded that only two per cent of the 900 companies it surveyed

were going to make compliance by 25 May. And, let’s be honest, in the UK at least, compliance with existing data protection laws is not as thorough as we would like. The Information Commissioner’s Office’s (ICO) latest statistics on data security incidents show a 19 per cent increase from Q2 to Q3 2017, with 815 incidents reported between October and December 2017 – 41 per cent more than in the same period in 2016. But there is a suspicion that there has been under-reporting for years. The penalty for not being GDPR-compliant has increased exponentially compared to the penalties the ICO has been able to impose in the UK thus far. This

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may fundamentally change the attitude of organisations to data protection, since some clearly worked on the premise that it would be cheaper to pay the fines if a transgression came to light than to implement the changes needed to fully comply with the law. Edwards believes that any financial organisation that isn’t at a reasonable level of compliance now with the GDPR is going to struggle come May. Nationwide can’t afford to be one of them. “Playing catch up is a very dangerous game,” he says. “It’s asymmetric warfare we’re engaged in. The bad guys can spend a lot of money and we have fixed budgets. Therefore, if we just wait for something to happen, we’re already too late. We have to be on the front foot.” So, is there a magic bullet? “Definitely not,” asserts Edwards. “It’s a lot of hard work to make sure you fully understand how you’re using your data, how personal information is being used, where it’s stored and how it’s protected. “Subject access requests (which are predicted to rise substantially) are a case in point. You’d assume you could gather all the data and produce a report using a piece of artificial intelligence (AI). That would be great – it makes a lot of sense. But I don’t think AI is there yet.”

That’s because of the risk of moral jeopardy associated with disclosure. And Edwards believes there is no technology sophisticated enough to deal with it. “The issue lies with the data extraction when there is lots of information about other people linked to it. So, for instance, I can’t send someone their husband’s information just because they have a joint account – that’s his private information. Therefore, we have to redact the information we send to remove these references. I haven’t yet come across AI that I’m confident is good enough to perform that redaction. So, it has to be eyeballed – someone has to go through and redact anything that relates to anyone other than the person making the subject access request (SAR). Otherwise it would be a breach in itself.” Clearly, then, staff need specialist training because, as Edwards stresses, it isn’t simply ‘a tick-box exercise’. “We’ve been dramatically ramping up all our training, including cognitive

People’s personal information is as valuable an asset as their finances. And they should trust us to look after it just as if it were money

behavioural training, and running awareness campaigns to get people to really live and breathe this,” he says. “Our real focus is on many of the soft skills because the GDPR is a cultural thing. Everybody needs to understand what personal information is and how it should be treated, and that needs to be done universally. “People’s personal information is as valuable an asset as their finances. And they should trust us to look after it just as if it were money.” Edwards believes Nationwide is in a good place. It has already done most of the heavy lifting to become GDPR-compliant – documenting processes and data flows, identifying where data is stored and which third parties have access to it, and developing the fair processing notices – the required customer contract that explains how the organisation is using their data. The society knows this is a crucial time in the history of financial services and, as a mutual, owned by its members, Edwards believes it has a duty to protect and empower them. “It’s a positive thing that people are made more aware of the data protection legislation and what their rights are,” he says. “Our job is to make sure we give our customers those rights.”

Doing the right thing: The GDPR will, hopefully, help to restore trust

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Suits you, sir? Helena Brown, Partner and Acting Head of Data at international law firm Addleshaw Goddard, says the one-size-fits-all nature of GDPR is a bit of a squeeze for financial services firms It’s been on the horizon for a while, but suddenly the 25 May implementation deadline for the new General Data Protection Regulation (GDPR) is almost upon us – ready or not. Helena Brown, partner and acting head of data for international law firm Addleshaw Goddard, is seeing, first-hand, the impact that feverish preparations are having on financial services firms. But, in her view, it’s not any one piece of legislation that is proving problematic. Rather, in a year that sees a raft of new implementations, it’s working out how all the pieces fit together. Addleshaw Goddard has a specialist corporate banking arm, based in the City of London, and works with a diverse range of clients – from incumbent banks to fintechs and third-party suppliers. Such is the impact of change, it has beefed up its financial regulation team over the past two years with a number of fresh senior appointments. Most of their financial services clients are well on the way to being GDPR-ready and are embracing the spirit of the new legislation – regulated entities have been living with data protection compliance since 1998, after all. So, while GDPR is disruptive, the real challenge is making it form part of their wider regulatory programme, says Brown. “In very quick succession, we had the Revised Payment Services Directive (PSD2) come into force in January, the Open Banking Initiative coming along for those affected by that, and then GDPR in May. “And not all of the new rules map neatly to each other, making for quite a lot of difficult points of interpretation, where one set of laws is telling organisations to do one thing while the others are telling them to do something else. “We’re working with a lot of banks trying to plot our way through those issues.” In many ways, PSD2 – created to

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encourage financial services providers to open up their systems, data and application processing interfaces (APIs) and collaborate for a better customer experience – is the polar opposite of GDPR. And while PSD2 is sector-specific, GDPR is a catch-all regulation for everything from retailers to healthcare providers that doesn’t take into account some of the unique aspects of financial services, from both the provider’s and consumer’s perspectives. “The ethos behind one is completely different to the ethos behind the other,” says Brown. “It’s very widely recognised by those working with GDPR that it’s not the perfect legislation for the financial services industry. “Some of the issues financial services clients are having are not adequately addressed in the GDPR. Over time there will

It’s widely recognised by anyone working with GDPR that it’s not the perfect legislation for the financial services industry be guidance and the standards and thinking will be developed to cope with them but, at the moment, organisations face uncertainty and are having to pick which regulator to engage with.” The most obvious problem surrounds payments. “Because financial institutions have to use sensitive information to process a payment, and it’s not appropriate to get consent in a payment scenario because everything has to be instant and open, there’s a clash,” explains Brown. So does she agree with the doomsayers that GDPR poses an extinction-level threat to banks?

“The banks already have good compliance structures in place for data protection, but it certainly massively ups the ante in terms of the risk of failure,” says Brown. “The level of fines we’re looking at now, at four per cent of global turnover, is vastly increased from the current £500,000. “But I don’t think the aim of the regulator or of the legislation is to put banks out of business, provided they are trying to comply and have structures in place. The Information Commissioner’s Office (ICO) has been clear that it will continue to have a partly educator role as well as an enforcer role, as it does at the moment, and any fines are likely to be carefully considered and proportionate.” She notes that while the vast majority of fines and enforcement notices now are issued by the data protection regulator for security breaches and, more recently, marketing, ‘we don’t really see a high level of enforcement around failing to respond to subject access requests (SARs)‘. That might change. Under new rules, organisations governed by the GDPR have a strictly limited time to respond to customer requests to see all the personal data held on them (known as SARs). Identifying, codifying and redacting anybody else’s personal information attached to that data and then disclosing it to customers within one month, free of charge, is one of the biggest resourcing headaches banks face. “Fifty per cent of the complaints received by the ICO relate to subject access requests, so I think if an organisation One size fits all: doesn’t have a But off-the-peg strategy in place for GDPR isn’t dealing with them best suited to and blatantly financial services www.fintech.finance

ignores subject access, it’s going to be at higher risk of being fined,” says Brown. “But in most cases a delay would be because the request is particularly difficult or complex, or it involves a huge amount of searching and a huge number of records. “We’ve seen some case law this year which is based on the concept of disproportionate effort. While this is a Data Protection Act concept that we’re losing under GDPR, the courts have shown some degree of sympathy towards organisations that have to make a disproportionate effort to respond to these types of requests, which are often made by individuals who are contemplating litigation or are trying to

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extract some form of settlement. We’ll have to wait to see whether that will be reflected in enforcement under GDPR.” So where, then, will the regulator’s focus likely lie? “Security is always top of the list in terms of impact on individuals. It’s a human rights-based system and fines are determined based on the level of distress caused to an individual – the person whose bank details or medical records have been disclosed by accident, whether that’s through failing to take the right security measures or allowing data access to staff and suppliers who shouldn’t have it,” says Brown. In all the discussion around GDPR, the fact that culpability will be extended down the data processing supply chain has been largely overlooked – but it could have huge implications for the industry and the pricing of risk. “This is really the next game changing point in GDPR,” says Brown. “How it affects service providers like Dropbox, which are classed as data processors. They will be liable to be fined directly and face legal action from data subjects for the first time under GDPR, whereas, currently, the liability lies with the organisation that is using that provider. “Under GDPR, service providers can incur fines up to the maximum level, too. Joint and several liability under GDPR means the regulator can decide, in the event of a data breach, who’s most culpable, and apportion the fine between them. “As a result, institutions are reviewing their contracts and suppliers are reviewing

their insurance and risk positions – and this is hugely disruptive. “Where contracts can’t be renegotiated, and a service provider can’t give the security assurances it needs to, we’re seeing customers walking away because they’re not willing to take on that level of risk anymore, given that their potential liability is so much higher.”

Extended liability This has far-reaching implications for consumers, too, who increasingly rely on banking services in other aspects of their lives – from Uber to Amazon and the Internet of Things (IoT), all of which require inbuilt payment and data sharing capability. “Many of today’s service delivery models are priced on the basis of no liability. The law’s now telling them they have liability. “It’s a difficult balancing act for the banks, because if you want to engage with the new fintech technology and they want to provide the most adaptable, cost-effective service for their customers, they’re having to take a view on the levels of risk that they will accept for their suppliers. “Whereas, previously, data protection would have been a small line in the due diligence, now it’s an entire section, and that demonstrates the new importance of GDPR in general business planning.” And the million-dollar question: what will be classed as ‘personal, identifiable information’ when it comes to assessing an organisation’s compliance with GDPR? “It’s essentially anything that an individual can be identified from,” says Brown. “It very much depends on the context of the information itself. It could be factors that you might think are anonymous but it could be any combination of factors from which it’s possible to identify an individual – for instance, they might be the only person in their postcode with a red car.” In light of this considerable burden, developing the right kind of culture around data is as vital as the software, contracts and customer transparency, concludes Brown. “You’re only as strong as your weakest link,” she adds. “Every member of staff needs to be aware of the importance of protecting personal information and why. That involves training, communications and messages at the coffee point, and the longer you spend doing it, the more likely you are to get the message through.” Issue 8 |

REGTECH

The bank now at platform… Kim Fournais transformed his brokerage into a ‘technology company with a banking licence’ some 20 years ago. Now, as Saxo Bank launches its latest trading platform, we speak to the CEO with a fintech train to catch In the fast-moving world of fintech, Saxo Bank is a clear frontrunner and a prime example of a business with a mature digital strategy. It established a technological headstart some 20 years ago, when it launched its first online platform while still operating under the name of Midas and has maintained a firm internet focus ever since. From its origins as a classic brokerage in the 1990s, to its present status as a mature fintech with a global online business, Saxo has always put technology first and is now particularly well placed to succeed in an environment where game-changing regulation and digital innovation must work hand in hand. In fact, Saxo has assimilated digital processes into its strategy to such an extent, that CEO and co-founder Kim Fournais describes it as a 'technology company with a banking licence'. A driver of its transformation, he steered the Copenhagen-based business from its broker days, when orders were placed and executed over landlines, to become a global organisation that is a technology exemplar for the banking community and fintechs alike. Today, with its business built firmly on an open application programming interface (API) with an HTML5 front-end, Saxo offers multi-asset trading from a single account and in 28 languages – an achievement that Fournais says is unique in the financial world. His goal and long-held belief was that investments and global capital markets should be accessible to all; that it should be ‘easy, cheap and transparent’ to the man on the street. Having started out providing

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anyone with a personal computer with access to global markets in their language of choice and in any currency denomination, it broadened its scope to become a technology provider to third parties. Saxo gained its first white label partner in 2001 and now has more than 100 financial institutions benefitting from its banking-as-a-service approach. Partnerships between banks and fintechs, he believes, will be the ‘next big disruptor’ making the role of facilitators such as Saxo even more key. “We’re about as fintech as it gets,” says Fournais. “Our approach has always been based on fintech, even before the term was coined, and we’ve been very clear about the business model that we wanted to develop and where we wanted to end up.” It comes as no surprise, then, to learn that more than a third of Saxo’s employees work in IT and that a technology philosophy informs every department and operation. Fournais sees Saxo as a technology

infrastructure and facilitator on three levels: one that provides access to global capital markets for traders and investors of all classes and across all geographies; one that cultivates profitable fintech relationships, and one that helps to smooth the way for regulation. “We have direct clients, investors and traders,” explains Fournais. “Then we have wholesale clients that are leveraging what we call Saxo Solutions, which is banking as a service. We have lots of other fintechs that are integrating with our open API and creating new resources and democratising the value chain. “As a facilitator, we offer IT hosting, development, risk management, prime brokerage: everything that

We have lots of other fintechs that are integrating with our open API, creating new resources and democratising the value chain

www.fintech.finance

allows financial companies to have a platform. It’s been our direction and purpose for the last 20 years as we evolved from a pure broker to a technology enabler, and we’ve maintained this unwavering technology path while collaborating with anyone that can provide products, liquidity and market access,” Fournais adds. Over that time, it’s emerged as a regtech specialist. Fournais welcomes the regulatory forces of change, opening the way for greater competition and deployment of fintech, which is why incumbents that are worried about disintermediation must work with, rather than against it. But he also believes it’s important that regulators ‘don’t throw out the baby with the bath water’. So, while ‘everyone agrees that banks should be well capitalised and that you have to know where your client is coming from’ neither should there be such a regulatory burden that not enough institutions are left to create the kind of competition needed to drive better products and services. Open banking and the implementation of legislation such as the revised Payment Services Directive (PSD2) and the General Data Protection Regulation (GDPR) will, he believes, create opportunities for those that have the right technology, an entrepreneurial spirit, and the ability

to operate in a more controlled and transparent environment. Even though legislation such as the second Markets in Financial Instruments Directive (MiFID II) is creating a compliance burden, with its ‘5,000 pages of rules and regulations’, the net result will be a more level playing field for everyone, says Fournais. It’s a case of striking the right balance, of accepting short-term pain for long-term gain. With MiFID II, if it works as intended, he believes competition as well as transparency should be enhanced in the long run and we will see a full range of financial instruments being traded in price-competitive markets.

Relieving the regtech burden Complying with new regulations is costly, and for banks that are maintaining top-heavy legacy systems and traditional IT structures, there is little spare cash. Indeed, according to one recent survey, banks are spending 85 per cent of their IT budgets just on maintaining aging systems and meeting regulatory demands. Fournais is convinced a more economic solution lies in technology partnerships, an approach that is fundamental to Saxo’s proposition. “With our open API, we can provide a service to other financial institutions, fintechs or any other party,” says Fournais. “Rather than having the expense of building their own solutions, our partners can leverage what we’ve built and then offer full access to global markets.” Outsourcing via an API facilitates the integration of services across the full spectrum of financial activities. Saxo supplies the technology on a business-as-a-service basis, which not only improves efficiency, but also reduces

Banking-as-a-service: Saxo was one of the first to embrace API technology

www.fintech.finance

upfront costs and means lower operational expenses – especially attractive when budgets are squeezed by compliance costs. Saxo’s dedication to partnership and its role as a facilitator were highlighted recently when it sold its private banking subsidiary to Alm. Brand, a Danish financial services group. The deal creates a white label partnership that enables Alm. Brand’s clients to trade and invest in, for example, stocks, bonds, exchange-traded and mutual funds through the SaxoTraderGO platform. True to its credentials as a fintech, Saxo is working on numerous projects that will bring new technologies to market. Fournais says that Saxo has been developing big data and artificial intelligence for a number of years and is continually pursuing ideas that will mean better insights, more integration and greater market access. One example of new technology is an algorithm that can predict when trading behaviour is likely to have unprofitable results and ensure clients have the information to avoid that happening. It’s a measure of Saxo’s success that it reported a 33 per cent growth in net profits for 2017, which Fournais says confirms the validity of the business model and Saxo’s appeal as a fintech and regtech specialist. And it’s been a good start to 2018 for the bank, with an all-time record high in trading volumes recorded in February. This month (April) it launches SaxoTraderPRO, a real-time, professionalgrade trading platform, which will eventually become available to both introducing brokers and their end clients. A technology leap on from the existing SaxoTraderGO, it includes a suite of innovative risk management tools. If further evidence were needed that Saxo is on the right track, Chinese Zhejiang Geely Holding Group, which owns Volvo Cars, has offered to buy just over 50 per cent. It views the company as a good investment precisely because of the strength of its fintech and regtech business. The transaction is currently pending regulatory approval. Saxo set out to ‘unbundle the value chain’ by becoming a facilitator for individual investors and now financial institutions. In the process, it built a fintech unicorn valued at €1.3billion… that’s the power of technology.

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Collaborating to beat ATM crime

ATM & Cyber Security 2018 will see the industry come together to learn from each other’s experiences in fighting ATM crime. Stephen Reinhardt, Senior Research Analyst at RBR, looks at the current threats Last year marked the 50th anniversary of the world’s first ATM. Since it was introduced, the ATM channel has seen rapid technological advance in terms of functionality and applicability. The ATM nevertheless remains an alluring target for criminals, with the types of attack growing in sophistication.

We sat down with RBR’s Stephen Reinhardt, who is managing the speaker agenda for this year’s ATM & Cyber Security 2018 conference in London, to find out more about current ATM security threats, and why protecting ATMs remains such a high priority for financial institutions worldwide. FINTECH FINANCE: How big a problem are attacks on ATMs? STEPHEN REINHARDT: The attacks that typically make the headlines are the violent ones – criminals using explosives to breach the ATM and gain access to the money inside. You also sometimes hear about more low-tech attacks, such as ‘ram raids’, where criminals smash into ATMs with a heavy vehicle in an attempt to extract the cash inside, or rip them out of the wall to remove the cash at a later stage. ATMs are generally well-secured and built to be tough and these physical attacks are often unsuccessful, but they still cause enormous amounts of collateral damage, and present a danger to bystanders. FF: What other types of attack are there? SR: While physical attacks are the most dramatic, one of the industry’s longest running threats comes in the form of ATM skimming. Such attacks target the cardholder using the machine rather than www.fintech.finance

the contents of the ATM itself. Criminals tamper with the card reader to steal cardholder details and use various methods to obtain the customer PIN. These skimming attacks are becoming increasingly sophisticated as security measures improve. While there are numerous technological solutions to help prevent ATM skimming, it is important that cardholders do everything they can to minimise their risk – for example, being aware of their surroundings when making a withdrawal, shielding their PIN and contacting their bank immediately if they see something suspicious.

‘Jackpotting’ can occur when criminals connect an external device to the ATM or infect bank systems FF: How is cybercrime being used to target ATMs? SR: ATMs are not immune from the types of cybercrime seen elsewhere and are also vulnerable to ATM-specific cybercrimes. One such example is criminals using malicious software to re-programme ATMs to dispense all the cash inside. This type of crime, known as ‘jackpotting’, can occur when criminals connect an external device to an ATM or infect bank systems. These attacks are sophisticated and can affect multiple ATMs simultaneously. Losses for banks can be substantial. Fortunately, the industry has reacted quickly to the threat and there are a variety of counter measures that ATM deployers can adopt.

FF: What should the industry be doing to prevent ATM crime? SR: The ATM industry is proactive when it comes to protecting machines and customers, and defence technology evolves in parallel with the criminals. ATM deployers use solutions such as advanced safes and anchors, note staining and tracking devices to deter physical attacks, as well as making the exterior of the ATM as difficult as possible to tamper with to prevent skimming and malware intrusion attacks. Various kinds of detection and prevention software are also available, but collaboration – between banks, manufacturers and law enforcement agencies – is absolutely key, as is building customer awareness of the potential dangers of skimming and other types of attack. Educating employees on cyber security is also of paramount importance to address issues such as phishing. FF: What are the benefits of a security event such as ATM & Cyber Security 2018? SR: Ultimately, it is collaboration between industry stakeholders that keeps deployers one step ahead of criminals. ATM & Cyber Security 2018 provides an annual opportunity – it’s the largest gathering of its kind – for security professionals from around the world to share knowledge. Delegates have the opportunity to hear case studies and network with peers to learn from each other’s experiences. There is also an opportunity to view the latest ATM security solutions and ask questions of suppliers and industry experts. ■ ATM & Cyber Security 2018, October 9 & 10, Park Plaza Victoria Hotel, London. See www.rbrlondon.com/acs Issue 8 |

CUSTOMER RELATIONSHIP MANAGEMENT

The truffle hunters In France, truffles are regarded as the ‘black diamonds of the kitchen’; in finance, fintech could be said to be the black diamond of bank transformation. François Pérol, chair of the management board of Groupe BPCE, which has set itself an impressive goal of becoming a fully digital organisation by 2020, clearly believes it is. France’s second largest bank has just completed the first stage of a strategic plan that saw 83 per cent of solutions made available electronically and almost 80 per cent of its customers sign up for online banking. It was achieved through a combination of fintech acquisition (notably, the German online bank Fidor) and inhouse digital development that included setting up the Group's own ‘digital factory’, 89C3 – which are the letters BPCE translated into Leet Speak, an alphanumeric writing system known to tech geeks. 89C3 brings all of the group's IT skills in digital development to bear on the next stage of the bank's transformation journey, known as TEC2020, and adopts an open data approach that puts BPCE at the heart of the fintech ecosystem. The Group's ambition now is to push for 100 per cent customer digitalisation by, as the name suggests, the turn of the decade. Speaking at the launch of TEC2020, Pérol said the bank would dramatically accelerate its switchover programme and raise its digital transformation investments to €600million a year to achieve that goal.

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François Pérol of France’s BPCE describes how the bank is using in-house development and acquisition to establish an online advantage Having decided that ‘the only way is digital’, BPCE is a shining example of an incumbent that has chosen a hybrid path, combining in-house development and acquisition as it digitises all of its business lines, including retail, corporate and investment banking, asset management and insurance. The scale of the task is immense and one way to accelerate it is through acquiring some of those black diamonds. In 2016 the Group sought to bolt on a missing piece of its digital jigsaw in the form of online German banking community, Fidor. Billed as a meeting of old and new worlds, it was symbolic of the increasing pressure on traditional banks to offer more online financial services to their customers, faster. Fidor Bank was founded by Matthias Kröner in 2009 and has since built a 120,000-strong customer base. BPCE Group – formed from the merger of Banque Populaire and Caisse d’Epargne in 2009 – has set out to make Fidor a ‘benchmark European banking community’, with Germany, the UK and France its target markets for its banking business, and the whole of Europe for its marketplace and B2B solutions.

Pérol believes the Fidor acquisition constituted a key step for the acceleration of digital transformation of the group. “It further demonstrates our commitment to innovation, to developing a customer-centric approach enabled by digital banking technology, and to being more involved in the digital and mobile banking field,” he told the Financial Times at the time. Fidor, which bills itself as a ‘digital community’ in which people provide and receive financial advice from each other and are rewarded for doing so in perks, from cash to enhanced savings rates, claims that all of its banking services can be completed in 60 seconds. Already an experienced collaborator, it previously worked with Telefónica to launch a mobile bank account for its customers in Spain. Kröner clearly saw the deal with BPCE as a way of enabling its expansion into the rest of Europe. In fact, BPCE has concentrated on establishing the new, combined offer in France first, via the French beta market, and pledged to launch its new community and mobile banking service in the first half of this year there before entering other territories. Pérol is keeping his cards close to his chest regarding the detail of any further expansion plans, target customers, investment and dates. The fact that such details were omitted from the company’s TECH2020 strategic plan presentation has led to speculation in some quarters that the delays are due

www.fintech.finance

to complications. Asked recently if the launches of Orange Bank and Eko from Credit Agricole, for instance, had stalled the French Fidor start date, he replied: “No, the launch of Fidor requires a lot of investment and a lot of stakeholders but we are confident for a launch in early 2018.” Opportunities afforded by the newly introduced Revised Payment Services Directive (PSD2) clearly did have an impact, though. “Regulation like PSD2 is the same for everybody; it’s both an opportunity and a problem for both fintech and the large banks,” says Pérol. “We will launch Fidor in France, not as a bank, but as a PSD2 provider, because we want to be able to explore the opportunities offered by the new open banking infrastructure.” It’s all part of his ‘thinking outside of the box’ approach to the bank’s technological development, which can be seen in its courting other ‘beaus’ to bolster its online capabilities and customer service mix. Last January, it announced a tie-up with digital solutions provider Meniga, which helps banks to build personalised digital banking solutions based on personal finance data. BPCE will use Meniga’s technology across its Banque Populaire and Caisses d’Epargne high street banking divisions in France. This will enhance its digital channels and introduce new, personalised services to its customers, including the integration of Meniga’s financial activity feed, real-time spending overview and data-driven personalised alerts and insights, as well as mobile banking. Meniga’s transaction data capability will also help to speed up BPCE’s conformity with the revised Payment Services Directive (PSD2).

Perol says of this deal: “We basically chose their personal financial management solution for all our customers in France. We have 15 million active customers in the retail banking space in France, and Meniga will be the provider for account aggregation, transaction categorisation, notification of important financial events and insights on expenses and revenues. All that is designed to be useful, practical and simple for customers.” He adds: “It’s taken us nine months to implement. We’re at the delivery stage now and we hope to be able to launch a pilot in the second quarter of 2018, then gradually equip all our customers with the solution.”

We will launch Fidor in France, not as a bank, but as a PSD2 provider, because we want to be able to explore the opportunities offered by open banking In November 2017, the bank also acquired a share in the Truffle Financial Innovation Fund launched by Truffle Capital, the aim of which is to create, support and finance 12 to 15 future fintech and insurtech leaders in France and wider Europe. BPCE offers insurance services through its international corporate and investment banking, asset management, insurance and financial services arm Natixis, for which Pérol is also chair of the board, so the investment in Truffle is likely aimed at unearthing opportunities for those strands of the Group’s business, too.

Truffle Capital creates and supports innovative companies developing disruptive technologies through to maturity. It is chaired by Patrick Kron, working with co-founder and CEO Philippe Pouletty and Bernard-Louis Roques, and manages €750million of assets. Since its inception, it has supported more than 80 companies working in the digital technology and life sciences arenas and in 2015 launched the first fintech incubator in France. Its involvement with Truffle gives BPCE access to the technologies its identified as being key to its future, including artificial intelligence, machine learning, data, new credit and insurance business models, and digital marketing. By taking a stake in the fund, BPCE has secured a vested interest in some of the country’s most promising fintech companies from an early stage. Of this relationship, Yves Tyrode, chief executive officer, digital, at Groupe BPCE, has said: “This agreement serves to position Groupe BPCE as a leading banking/insurance partner at Truffle Capital. The entrepreneur-investor approach of the fintech-insurtech fund rounds out the industrial component of Groupe BPCE’s digital action plan. “The Group’s digital division will contribute all its expertise to support and finance tomorrow’s technology leaders.” Events such as the Paris Fintech Forum have proved a happy hunting ground for tech-thirsty BPCE. “We’ve been supporting it from the very beginning, for one and only reason: because fintech is, in our view as a large bank, part of our R&D,” says Pérol. “We are working on so many ideas and having so many discussions with fintechs now.” Expect a new ‘black diamond’ to be unearthed very soon.

Sniffing out fintech: BPCE’s stake in the Truffle Financial Innovation Fund will help accelerate its digital plans

www.fintech.finance

Issue 8 |

CUSTOMER RELATIONSHIP MANAGEMENT

Disrupting

the disruptors In the post-PSD2 era, could big banks use their scale to upset more than financial services? According to Bragi Fjalldal CMO and VP of Business Development for Meniga, the largest white label, personalised digital banking software provider in Europe, they can. But it will take much better use of data – and guts FINTECH FINANCE: How will the Revised Payment Services Directive (PSD2) in Europe and open banking more generally change and benefit the industry? BRAGI FJALLDAL: It has the potential to fundamentally change the way we consume financial services – everything from who is offering those services, to who we trust to give us financial advice, and, ultimately, what kinds of products and services we are exposed to. In time, consumers will get used to parties other than banks, such as telcos and tech giants like Facebook, Apple and Amazon, offering us or advising us on financial services. In terms of product, I think financial services based on aggregated personal finances are going to be more commonplace. An example would be automated savings products. Imagine an app that takes money from your current account and moves it into savings, depending on the velocity of your spending. This is possible when a bank or third party has access to all of your personal finances and knows approximately what you spend per month. These types of tools will have an easier path to reality with PSD2.

FF: Which organisations will benefit the most from these changes then?

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BF: The more scale an organisation has, the more links you have with financial services and the better placed you are to take advantage of open banking. That means, of course, the big tech giants are in a good position – and, quite frankly, these guys don’t need a banking licence to develop banking. Amazon is proof of that. It’s basically courting some of the biggest banks in the world and asking them to white label their current account so that they can offer it directly to their consumers. The fact is, if you’re a bank and a business like Amazon offers you the opportunity to put your current account products in front of all of its customers at favourable terms, are you going to say no? Having said that, I think incumbent banks, in many ways, are even better positioned because the top three or four in any market have consumers at scale on their platforms and all of their financial data already in place. So, in a sense, you could say the game is on. The question is, which banks are going to play? But I think the final group, the challenger banks and the fintechs, are, in some ways, the ones that will benefit the most, initially at least, because they have the products. They’re ready to go. They don’t quite have the scale that some of these other players have, but they certainly have a lot to gain.

Look at organisations like Monzo, Starling Bank, or Revolut – these guys have a lot of momentum. Many of them have just raised more funding and they have the wind in their sails in terms of customer adoption. PSD2 really opens the opportunity to build more personalisation into their customer experience and that brings up the opportunity of marketplace players – offering other institutions’ financial services for their customers at a commission. Monzo and Starling have already announced that is the route they’re going down. So, in the short term, I’d say watch the challenger banks. In the long term, it’s going to be very interesting to see what the big banks do but, equally, what the tech giants that are already dabbling in financial services are going to do. FF: So how, then, should the banks respond to PSD2 and open banking? BF: The first thing you need to do is consolidate all of the personal finance transaction data, whether it’s credit, debit or account data, into a repository where you can build an innovation platform that you can then use strategically – to innovate in your own digital channels or with those of third parties. I think banks need to do both. A good example of a bank that’s taking the platform concept to heart and is www.fintech.finance

determined to make it best-in-class, is BBVA. If you look at its application programming interface (API) marketplace, it’s developing API endpoints that go well beyond what PSD2 demands. For instance, it includes segments of its customer base that are pre-approved for some products. It’s also developing market insight data based on aggregated transactions. BBVA can not only choose to use all this innovative, rich data itself, but also allow third parties to use it to innovate solutions on behalf of its customers. Anyone doing this could monetise some of that enriched data or choose to give it away for free to allow more innovation. That’s a strategic decision, but having the platform is the first step. Amazon’s platform strategy, for example, is to allow others to innovate, but it also defends its own customer touchpoints. It doesn’t neglect its own channel and the same applies to banks. They need to have a good platform, but they also need to truly transform the digital channels they have if they’re going to compete in the long run in an open banking economy. FF: So, what would you recommend to banks when it comes to maintaining that customer touchpoint, now that open banking has become a reality? BF: They really need to redefine how they think about digital engagement. As a customer, when you open up your banking app, what can you typically do? Check the balance on your accounts, move funds from one place to another and, if you’re lucky, pay bills. It’s all very transactional. But when you think about how a bank wants to be perceived, it’s as a trusted financial advisor. So they need to create that kind of environment digitally. Think about how companies like Facebook, Google, Twitter and others are engaging in the digital channels and try to figure out how to make that work for a bank. A good example is Meniga’s financial activity feed, which we recommend the banks that we work with use as the entry point to their mobile app. It gives very actionable insights about how customers can improve their finances and includes personalised, targeted offers from the bank and third parties. All of this is mixed in with transactions, so it’s almost like a feed of a customer’s financial life as it unfolds. Every time they log in, there’s new information www.fintech.finance

and advice, and every item is an entry point to more advanced functionality. This is an example of how banks can build a digital environment that facilitates regular contact with the customer in an advisory fashion. Recently, we’ve been inspired by what Fitbit and Strava have done in the health sector to get people to engage with data and use it to help motivate themselves. We’ve developed similar tools for our clients to help consumers improve their financial health. These are the kinds of thoughts and innovations that banks need to bring to bear in order to improve the digital channels and create engagement that can compete with whoever is going to step into this space. But they have to go beyond that even. It’s one thing improving your channels, but you really need to build new propositions, too. A good example is targeted, card-linked offers. A top bank has the

What if the top three banks in the UK built a platform together that potentially had on it more than 50 per cent of all households? scale to attract merchants to target their customers with offers. So, let’s say we have a bank with 20 per cent market share. They walk into one of the leading sports equipment retailers with a segment of 200,000 of their customers who spend more than average on sporting equipment, but they’re not shopping with this particular merchant. Now, the proposition is that you as a merchant can have access to these consumers through the digital bank, but the price for that is that you give them a deeper discount than you would normally give, plus maybe a small commission for the bank. To get a very relevant offer, all the consumer needs to do is go out and shop with the cards that you have registered with the bank. The bank accumulates the discount and then charges the merchant once per month and puts the money into your account. That takes scale and dedication, and it’s an example of the

kind of data-driven innovation that banks need to pursue to really take advantage of open banking. That’s not to say there aren’t a lot of interesting projects in the pipeline already, some of which we are a part of. We’ve recently signed Ibercaja in Spain, Swedbank in Sweden and BPCE in France, who are all engaged in progressive digital transformation projects. But we would have hoped to see more than we have, given the opportunity banks’ scale affords them to build an ecosystem between merchants, consumers and themselves. FF: How can banks themselves disrupt the market? BF: What banks can enable merchants to do is to take their marketing budget and funnel it into the pocket of the consumer. It’s almost like a community service and this could be so much bigger than just an interesting business model. What if the top three banks in the UK built a platform together that potentially had on it more than 50 per cent of all households? Then it’s not just an interesting business case for the banks, you’re talking about an advertising platform that could disrupt digital advertising as we know it. You have the banking industry essentially challenging a sector that Facebook and Google have dominated for the past 10 years. That’s a twist on how open banking could end up disrupting more than just banking. But it takes guts. FF: What are the biggest challenges that fintechs encounter when trying to integrate with a large bank? BF: It’s the David and Goliath thing. In most cases, you have small companies that count their employees in the hundreds working with banks that have tens, if not hundreds of thousands of staff. A bank is a complex organism for companies like us to navigate. The fact that we have, in some ways defines Meniga’s success. I also think it’s a competitive advantage for a bank to find a path to work with these companies. We often find ourselves in sales processes that take six months, and then in integration processes that take even longer. That can be taxing for small organisations. If banks really want to accelerate innovation and collaboration with fintechs, this is something they need to think about. Issue 8 |

CUSTOMER RELATIONSHIP MANAGEMENT

Brave new world

Innovation and scale will define the financial Age of the Millennials, according to Oliver Hughes, CEO of Tinkoff Bank… and the future is closer than you think Oliver Hughes sees the future of financial services through the eyes of his 15-year-old daughter.

He believes it gives him 20/20 vision of what’s to come and providers of all kinds should take note – because her generation will precipitate a paradigm shift in banking by 2020, the year most young millennials come of financial age and start consuming banking as adults. “The Millennial effect of 2020 will create a totally different paradigm in terms of what consumers want, how they interact with banks and the interfaces they expect,” says the CEO of Russian bank Tinkoff. “In my view, they’re not really bothered about banks. I have a 15-year-old daughter who doesn’t give a monkey’s about a bank, she just wants someone who’s going to give her financial services in the way she wants them, in the place where she wants them, when she wants them. She doesn’t understand that yet, but she will.” And her father's bank is set to meet her needs when she does. Badging itself as ‘the largest standalone digital bank in the world’, it started life as a credit player with no branches in 2007. Backed by Russian entrepreneur Oleg Tinkov, one of the richest men in the country, its initial growth was fuelled purely by the $60million of capital he put into it. Private equity investors and then an IPO have since enabled Tinkoff Bank to diversify into new product areas, including an online financial supermarket, credit and debit cards, SME banking and insurance, fuelling its exponential growth. “We modelled ourselves on Capital One in the US,” says Hughes. “It was all about use of data and going direct to the consumer, but it was less about online in those days because there was no online finance in Russia in 2007.” Hughes’ back story is as fascinating as the bank’s. Originally from Lancaster in the UK, he graduated with a degree in Russian and ended up with a top job at Tinkoff via a stint heading up VISA’s Russian office.

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“We grew quite successfully through the global financial crisis and then changed our model and started taking deposits through online channels. This was the first time any financial institution in Russia had acquired customers through Internet channels. We realised we could take lots of deposits online and fund our business in a different way,” says Hughes. “Then we moved our customer acquisition for credit cards to the Internet followed by other online channels, like mobile, and really started motoring. We’ve only been around for 11 years and we’re only in Russia, but we have close to seven million customers. “We’re growing by a couple of million a year and can scale up too, not because we’re online but because we have the right economics, the right distribution model, the right brand and the right appeal in terms of product and service mix.”

Taking the biometric pulse

Creativity has been a key factor in Tinkoff ’s growth. “Growing required us to develop a whole load of other stuff, which took us into a fintech model,” explains Hughes. “So we were a kind of fintech before the word fintech came along. We’ve been doing some pretty exciting things.” One of those, last February, was opening a cutting-edge development hub at Moscow’s Skolkovo Innovation Centre, where the bank has a team focussed on new business applications around blockchain, as well as voice and face recognition technologies for improved security and customer experience. “Biometrics are cool,” says Hughes – something with which his teenage daughter would probably agree. “But deploying them isn’t easy. If you can do it in the right way, though, they can enhance customer experience and efficiency. In our call centre, for example, we’ve introduced voice authentication. “We now have our own iVector-based

algorithm, with about five million voice prints in the database, and we’re handling most of the calls through voice authentication, which cuts down handling times and is a great customer experience because they don’t have to give passwords in most cases. We’ve implemented face recognition and various other biometrics identification algorithms, too, on our ATMs. “Other uses are more about increasing the efficiency of our operations in the back office. We have speech to text, where we’ve converted all the voice files we’ve created over the years, to text. We’ve also developed our own algorithms to sort through all this data and enable the call centre operators to classify it really quickly, further cutting down the call handling times.” Artificial intelligence (AI) and machine learning are other areas where Hughes believes the demands of millennials will see growing emphasis within the industry in the years to come. “When you get these right, they’re just mind-blowing, and we’re quite ahead of the curve. And the reason we’re ahead of the curve is because in Russia we have amazing intellectual capital,” says Hughes. “We have leading mathematics institutes, physics institutes producing amazing engineers who don’t just become IT programmers who shoot off to Silicon Valley. They often stay in Russia, or come back to Russia. “We take a lot of them fresh from the physics and mathematics institutes. We grow them as technologists, risk specialists, business analysts, IT developers and designers, and this amazing talent pool means we can work with data, a) because we have the data available, and b) because we have the people to deploy these technologies very quickly in ways which you really wouldn’t find in many other banks in the world.” Where it gets really exciting is how Tinkoff uses all this to gain psychological www.fintech.finance

insights into its customers and even manage their mood. Hughes explains: “Once you have speech-to-text capability you’re able to convert conversations to text in real time. Machine algorithms are working in the background to sift through all that text; on the operator side to see what they’re saying in response to what has been asked or said by the customer; and on the customer side to understand, by looking at different keywords, in which direction the conversation is going.

“With mood management you can make sure that it’s not heading into an inflammatory situation. You can generate prompts on the operator’s screen to take the dialogue in a different direction.” It’s only a matter of time before the bots take over completely. “In chat, where we don’t have real-time dialogue, we have robots increasingly generating the answers to the questions. We might have the customer writing the first few words of their question while the bot works in the background to see if it matches what’s in its databank and prompts the customer by saying ‘do you www.fintech.finance

want to ask this question, this question or this question?’ The customer can then choose one, edit it slightly if they want to, or just carry on writing their own question. “This increases the speed with which the customer can interact on their side. And then, on the other side, the bot is prompting the operator and saying ‘the answer could be this, this or this’. Eventually, the bot will start automatically answering without supervision, and without having the final decision made by the operator. Ultimately, you’re going to

get bot talking to bot on both sides, which is quite interesting. We’re moving there very quickly. Currently, around 20 per cent of our inquiries generated through chat by our customers are handled by bots.” Despite all this, for Hughes, the tech remains a means to an end. “Everybody’s been talking about disruption and the fintech existential challenge. I’m less concerned about the idea of fintech, as I don’t really think that’s where the battleground is. I think the battleground over the next five or seven years is one of ecosystems. “If you look in Russia, as an example, you get the big banks building an ecosystem. On the retail side, Sberbank and Tinkoff are

the guys that understand the ecosystem principle. We have the scale, we have the distribution, we’re building it, multi-product and multi-service, all in one place, leveraging online capability. “Other guys’ financial ecosystems, like the mobile operators, are looking very closely at this – the online players like Yandex and Mail.ru in Russia. Maybe the Chinese will come in, maybe Amazon will come in, and you’ll get this battle for the five dominant financial ecosystem players in Russia.

It’s not about banks, it’s not about fintech startups... its about big players that have the scale, brand, distribution, interface and data to be able to build huge ecosystems “ It’s not about banks, it’s not about small fintech startups, that’s, kind of, gone already. That was a bit of a red herring. “It’s about these big dominant players that have the scale, the brand, the distribution, the interface and the data to be able to build huge ecosystems. That’s where it’s all going to happen and we’re there. Our 6.5 million or so customers, today, is not enough to have an ecosystem, it has to be 10 million, 20 million customers. We’re getting there pretty quickly.” Issue 8 |

CUSTOMER RELATIONSHIP MANAGEMENT

Refreshing the offer: It’s the experience, not the product

The Sparda treatment

Sparda Bank Berlin’s Head of Corporate Branding, Tobias Jacob Berten, offers a digital prescription for change that refreshes the parts other banks can’t reach “Banking is like going to the doctor. Nobody wants to go to a bank; they need to go. And banks don’t offer products that people want; they offer products that people need. We understand that,” says Tobias Jacob Berten.

It’s why instead of trying to differentiate on product and price, Sparda Bank Berlin, where Berten is head of corporate branding, has concentrated on differentiating its service. Rather than dazzle customers with marketing hyperbole, its prescription for success is simple and honest. “We say to people, ‘hello, we are a bank, but if you get in touch with us, it will feel different. At the end of the day, we all have the same products but it’s more fun using ours!’.” The upfront messaging seems to work. The German bank, which has been

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growing successfully for 25 years, has approximately 500,000 customers. And if there is focus on transformation then it’s about carefully diagnosed digital development, not prophylactic digitisation. ‘As Thorsten Dirks, the CEO of Telefonica Deutschland AG, says, when you digitise a bad process, you end up with a bad digital process,” says Berten. Rather, Sparda’s motto is to adopt innovation ‘where it makes sense in the long term’ – and, as from September 2018, that will become apparent with a major upgrade of the technology behind its online banking, apps, card features and cash dispensers. Sparda Bank Berlin is part of a cooperative banking association, which comprises 12 regional banks with four million customers countrywide, 3.63 million of them cooperative members, making it one of Germany’s biggest coops

and most important retail banks. It maintains a network of 400 branches overall with an advanced digital offering. “As a retail bank, we concentrate on three areas: payments, loans and savings,” explains Berten. ”And we have to design them in a way that makes customers feel better interacting with us than with other banks because we will not differentiate around price and there is no chance to differentiate around product because every bank has the same.” As a cooperative bank, Sparda’s customers effectively own it. They are all private clients and there are no anonymous stakeholders. So, the constituency it appeals to and the responsibility it has to it, is markedly different to many other banks. “As a traditional retail cooperative bank, the main challenge is to develop our business model into what I would

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call a digital community or digital cooperative,” says Berten. The bank adopts a tone of honest affability, reflected in its ‘Hallo’ (German for hello) branding on its website and emblazoned across its cards. “Our problem is how to get near to our customers,” says Berten, “and the digital world is perfect for allowing us to do that because we are able to be near them without having to open too many facilities.” The Berlin bank has 85 branches, ATMs and self-service locations and embarked on an experiment this year using co-working spaces to shape the branch of the future. Meanwhile, it is adding digital functionalities that allow customers to bank via mobile, desktop or other devices. “How people react to a bank changes,” says Berten. “Twenty years ago, the bank took the attitude that customers would come to us, we didn’t have to do anything other than be there. Now, we really do have to be where the customer is, so he/she can do private banking every minute in every place – at home, at work, on the Tube and so on. So, we have more specific customer touchpoints. This is a radical change.”

Click & collect banking Sparda Bank Berlin identifies its main customer as the ‘research online, purchase/buy offline’ customer (ROPO/ ROBO), which equates to click & collect in the rest of the retail world. A recent Google report says that 80 per cent of all offline buyers research online before they buy a product in a local store. The German Retail Association in collaboration with PwC, also concluded that ROPO constitutes a significant share of total sales in the high value item industries. And that includes financial purchases. “Our main customer is ROPO – doing online research about his or her banking business but still purchasing offline – so, we have to be sufficiently interesting in the online world to secure their interest to purchase offline,” says Berten. So, the bank’s digital development has to perform a multitude of tasks and deliver to numerous objectives. “You have to analyse needs very specifically,” Berten adds. “The analysis of traditional customer touchpoints and processes is urgent. Then,

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the main challenge is to design good features, such as our own payment app.” The Berlin bank’s newest social finance app, HALLO Freunde (Hello Friends), was produced with Lendstar, a German fintech, to target the younger generation. It allows them to send, share and borrow money among friends and family. Now live on the Apple Store, it took a startlingly short three months from concept, through design to delivery. “It’s a good example of the way we work with fintechs. No fintech in Germany knows the needs and expectations of 500,000 people but the fintechs have the smart solutions. They have the customer view and they are fast, so this is a perfect way to cooperate and not to work against them,” says Berten, who is now working on what he describes as a ‘community app’. As a cooperative bank, Berten believes it’s important for Sparda Bank Berlin to introduce community benefits. An early example was a trial mobility-based app

We have to be sufficiently interesting online to secure their interest to purchase offline (which was also pro-environment), launched in collaboration with Car2Go, the phenomenally successful car-sharing startup. “It was a good example of developing our bank into a digital community,” says Berten. More recently, a newly launched Sparda Bank association-wide service called SpardaBargeld allows customers to withdraw and deposit cash using the current account SpardaApp at retail stores without the need for a smart card. It operates using barcode technology on a mobile device. Developed with German fintech barzahlen.de, all the customer data remains with the bank, while the real-time transaction is triggered by a unique barcode sent to the phone for scanning by the cashier.

Digital on the inside Digital innovation also extends to the cooperative banking association’s 700-plus

staff. Sparda Bank Berlin worked with Staffbase, another German fintech, to design a forward-thinking app to reshape and improve internal communication. HALLO Intern, neatly shortened to HI, saw an 85 per cent user adoption rate five months after launch. It demonstrated the bank’s commitment to transformation rather than just digitising an old process. There’s even more to play for when the bank gets around to leveraging the data it holds on its customers, says Berten. “I think banks are a bit frightened of using their customer data. On the other hand, we’ve got better data than Google and Amazon,” he says. “Google knows about maps – OK, it knows this guy stopped at a McDonald’s, but it doesn’t know if he walked in and spoke to the person on the other side of the counter. We do. But as a bank, you have to analyse how to use that data – and we have to keep it secure. “There could be an interesting opportunity for the banks to become in effect a data safe for customers, though. Nobody really knows what Google and Amazon are doing with our data. Banks could offer and promise to secure it and, in return, the customer allows us – the banks – to use his/her data in a specific way. This is something we are thinking about,” says Berten. He welcomes the introduction of the Revised Payment Services Directive, (PSD2) due to come into effect EU-wide in May for that reason, saying open banking will yield incredible opportunities ‘for innovation, co-working, collaboration with fintechs, and to develop a community around your bank by using application programming interfaces (APIs)’. Sparda Bank Berlin is keen to open its own interface to fintechs. “Hellenic Bank in Cyprus opened its APIs six months ago and I understand 150 fintechs docked on and invented solutions for payment and other subjects,” says Berten. “I think it would be interesting to start a contest in our community. For every touchpoint and banking process, we’d give out the API and let 10 fintechs think about the best solutions. “Because, in the end,” he adds, “you are only able to win if you are fast, if you are innovative and if you offer a specific brand experience for customers, which is interesting and feels different.”

Issue 8 |

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CUSTOMER RELATIONSHIP MANAGEMENT

Reaching the Summit in ATM security The ATM Industry Association will this year recognise those who have reached the peak of excellence when it comes to preventing physical and virtual attacks. Its Executive Director for Europe, Ron Delnevo, looks at this year’s event I have been in the ATM Industry for 20 years. In fact, my company installed the first independent ATM in the UK. That was in 1998. It was a momentous moment for the UK ATM industry and the UK public. The door was suddenly opened to a future in which ATMs would finally be located where people really needed them – where they lived and worked. No longer would they have to hunt out a bank branch to get the cash they needed to live their daily lives. For the first time, ATMs would provide a truly local, convenient service. The year before had seen another momentous event for the ATM industry and, this time, the impact would ultimately be felt worldwide. What was this event? The founding of the ATM Industry Association (ATMIA), which started in the United States, although it was not long before it expanded elsewhere. The dawn of the new millennium saw the ATMIA launch in Europe and, today, the Association is the only truly worldwide body representing the ATM industry. Since it was founded, the ATMIA has consistently believed in having modest membership fees in order to afford as many individuals and organisations in the Industry as possible the opportunity to join. Inclusion is a watchword of the ATMIA. One important way that it ensures inclusion is Pinnacle of success: The ATMIA is the only global organisation representing the ATM industry

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by organising conferences and events for its members. Every event the ATMIA stages aims to create an educational, shared learning and networking experience for all who attend. This is achieved by bringing together hundreds of ATM and other payment professionals from around the globe. In particular, the ATMIA presents an annual Security Summit for the ATM and payments industries. The 2018 edition of this gathering – the ATM Customer Experience and Security Summit (ACESS) – is the Association’s 18th consecutive annual security event. It will cover comprehensive lifecycle security aspects of ATMs, cash, cards and payments, from preventing physical and virtual attacks, data compromises and card skimming, to working with law enforcement to combat crime epidemics in a range of countries. A wide diversity of professionals will attend this year’s Summit, which is being held in London in June. Anyone who has an interest in security in the ATM, cash and payments sectors, including banks, independent ATM deployers, cash-in-transit operators, cash management organisations, network processors, card schemes, hardware manufacturers and vendors, software developers, security solution suppliers and law enforcement agencies, will greatly benefit from attending. They will: ■ Gain a comprehensive understanding of the global threat landscape ■ Increase their protection levels against current threats ■ Be prepared for emerging threats ■ Find out from leading

■ ■ ■

criminologists what ATM offenders really think of security solutions Learn how best to deal with global cybersecurity attacks Anticipate fraud migration trends Get the latest ideas and information from the world’s top security experts in financial services and the cash industry Network with international industry executives facing the same challenges Check out the latest security solutions and defensive technologies in the industry Network with leading law enforcement agencies working with the ATMIA to combat ATM and payment fraud

The speakers at the Summit are the leading international experts in their fields. This year, for the first time, the following awards will also be presented to individuals and organisations that have made an outstanding contribution to the industry: ■ ■ ■ ■ ■ ■

ATM Physical Security Excellence Award Cash Security Excellence Award Cash In Transit Excellence Award ATM Cybersecurity Excellence Award ATM Security Innovation Award Next Generation ATM Security Award

While absolutely everyone is welcome to the Summit, members of the ATMIA will in particular be turning out in force to support the Summit and their trade association. They value the unique contribution that the ATMIA, working with its members, can make to the future of the industry. They also appreciate that, as a not-for-profit, the Association pumps surplus revenues from events into enhancing member benefits. In short, a win-win for all participants. I look forward to seeing you at the summit! ■ For more info and to register for the ATMIA ACESS Summit on June 12 & 13, 2018, email mary.lawrence@atmia.com Issue 8 |

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Valentina Kristensen

Director of Growth & Communications, OakNorth A true guardian of the digital banking galaxy, Valentina Kristensen believes regulators have ‘completely the wrong mentality’ when it comes to opening up the financial services market to SMEs. Our very own Groot, she’s put down roots at UK unicorn OakNorth specifically to propel entrepreneurs into a reimagined future.

Tom Blomfield CEO Monzo

With his famous golden tickets, you might think Monzo chief Tom Blomfield is more Willy Wonka than Dr Strange. But fintech’s own Sorcerer Supreme, who’s used his golden hello scheme to help magic up 500,000 prepaid card customers in three years, is now using his digital cloak of levitation to ascend to a higher sphere of banking… with or without the help of PSD2. The UK’s biggest challenger, which gained its licence in 2017, will migrate all its customers to a current account this year. It’s part of his master plan…

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Amber Baldet

Formerly Programme Lead for J.P. Morgan’s Blockchain Centre of Excellence Appropriately for the superhero who lends her/his name to Marvel’s ‘shared universe’, Amber Baldet drove J.P. Morgan’s quest to leverage the ultimate in shared financial cyberspace – the blockchain. But will distributed ledger technology cure all the ills in financial services? Here, we come close to finding out.

Sam Maule

Managing Partner, North America, 11:FS

As with his alter ego, the wholesome hero Captain America, Sam Maule is ‘a little bit different in a good way’ as he looks after 11:FS’s expansion into North America. A co-host of the Fintech Insider podcast, his regular exposure to some of the white hot lights of fintech is his own Vita-Ray treatment. Who knew he was one of the industry’s elders from long before digital banking was even a thing?

Four awesome characters pulled together from across the digital banking universe explore the forces propelling finance towards an event horizon

OF FINTECH www.fintech.finance

Issue 8 |

This will be the year that Monzo switches off its prepaid card and becomes a grown-up bank, offering a fully functional current account with soon-to-be added lending products. But what is the end game? 11:FS superhero Simon Taylor puts the question to Monzo CEO Tom Blomfield Simon Taylor: Atom went straight into lending, Tandem bought Harrods Bank and Starling built a fully featured account from the get-go. But Monzo chose to launch with a prepaid card. Why and what did you learn from that approach? Tom Blomfield: We launched a prepaid card as a sort of prototype – we always intended to get a banking licence and launch a current account – and it went way better than we expected. We thought maybe five or 10 thousand people might sign up and instead we’ve hit half a million. There were a couple of things we learned from it that were surprising and unbelievably valuable. One is how emotional people’s relationship is with their money. How they’re influenced by not always rational economic factors, but by anxiety, hope and fear, all these very powerful emotions. The second thing it allowed us to do was figure out how to achieve viral growth. Just before we paused prepaid signups earlier this year, we were onboarding probably 65,000 or 70,000 funded accounts a month with almost no marketing spend. ST: What’s been the reaction from prepaid card customers to being migrated to a current account – and can that on its own be profitable? TB: More than 99 per cent are super engaged and happy about the migration. Like any acquisition funnel, there’s drop-off. A minority said ‘I don’t want a current account, because all banks screw me over’. So, we had to explain that they can use the account exactly like the card. But because it was based on third-party infrastructure,

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TomBlomfield

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it was costing a tonne to run. Migrating it over lets us build a sustainable business to keep providing the service that people love. Balance sheet lending had been part of our business plan from day one, so we’ve some really interesting lending products coming out soon that fit in neatly with Pots [a way to set money aside for saving within the main Monzo account]. There are no hidden fees or charges, we’ll make all lending products explicitly opt-in – i.e. you never accidentally slip into it – and we give people full visibility, up front, of what the total cost is going to be. We have to show APRs in some cases, but there’ll always be a pounds and pence figure that people can hold onto. Knowing ‘I’m a week away payday, if I borrow now, the maximum I’ll pay is £5’, is reassuring. ST: Open banking in the UK in theory went live in January, but already the big

I don’t want to gamble the future of my business on the big banks opening up easy-to-use APIs

banks have won an extension to implement the changes around application programming interfaces (APIs). Did you anticipate that? TB: There are people in the industry who have pinned their colours to APIs, who say ‘you could have built Monzo on top of APIs. Why did you bother getting a new banking licence, building all this tech, raising all this money?’ There is a theoretical purity to that argument, but a practical reality that makes it really difficult, which is that these APIs are going to be slow and just won’t work to start with. I don’t want to gamble the future of my business on the big banks opening up easy-to-use APIs. I’d much prefer to have control on my side of the court and, yes, take all the pain and upfront cost. ST: So, what is the long-term model and what’s the goal? TB: The winning model is a hub – a control centre, platform or marketplace. As a consumer, you have different financial needs and diverse providers. Maintaining 15 or 20 accounts is a pain. Wouldn’t it be good if they were all brought into one place, to give you visibility and control? A simple example is, as your bank, it’s easy to tell when you’ve gone from a fixed rate energy tariff to a variable rate. If you switch back to a fixed rate, you typically save around £300 a year, but 60 per cent of households don’t. A marketplace could make it simple and, for the convenience of saving £300, what’s a fair profit share – £30 or £45? It’s that kind of model, times 15 or 20 products. That is our ultimate goal. On the front page of our investment deck, it says we’re building a powerful financial control centre for a billion people. We have the opportunity to make people’s finances effortless, reduce their anxiety, give them more control and save them money. I want to basically leave the world in a better state than we found it. Ultimately, if you’re not a psychopath, I guess, that has to be everyone’s goal, right?

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Valentina Kristensen, Director of Growth and Communications at business banking provider OakNorth, talks mythical beasts and where to find them in fintech with 11:FS’s Simon Taylor Simon Taylor: OakNorth entered 2018 with the funds to lend a further £1.5billion to high-growth businesses in the UK. That followed a big leap in your valuation last year when you were much sought after by investors. Can you tell me more about that? Valentina Kristensen: In October 2017, we closed a £160million round with three investors – Toscafund, Clermont Group, and Coltrane Asset Management, which was very exciting. But then we found that GIC, the large Singaporean sovereign wealth fund, was interested in investing as well. There was a collective agreement that it would be great if we could have it on board, so GIC then acquired, in a secondary round, a £90million stake from Indiabulls, which had invested in us back in November 2015, bringing the total round to £250million. It officially made us a unicorn, valuing the company at $1.3billion. You hear a lot about the West investing in fintechs in the East – there’s Ant Financial (that’s a centacorn by the way) just now seeking $5billion in funding ahead of its initial public offering (IPO), which I think is going to be really, really big – but actually a lot of the East is investing in the West. ST: We read that Britain’s fintech boom pushed the registration of finance trademarks to a record high of 4,000 names in 2017. OakNorth sounds like a solid, trustworthy sort of name for a bank. How did it come about? VK: Our founders’ previous company was called Copal, which is a type of tree. It was a very successful company, which they exited after 12 years, and said ‘OK, that worked, let’s do it again’. They wanted to name the second venture after a tree, too, which was where the ‘Oak’ comes in. ‘North’ was because we lend to entrepreneurs and fast-growth businesses, north is the direction we want to take them in. We’re actually going through the process ourselves now of trying to trademark.

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One of the things that report on fintech registrations pointed out was that because it’s relatively easy for financial services’ products to become very commoditised, and for ‘me too’ products to emerge, there are more financial services and fintech companies looking to trademark than businesses in other sectors. ST: OakNorth is focussed on SMEs, the vast majority of which, we’re told, view banks purely as utility providers. But people need a crazy amount of support when starting and running a business. It looks like banks aren’t really providing that. VK: As a challenger bank that’s focussed on lending to SMEs, we came to market specifically for that reason. Anyone who read the Competition & Markets Authority’s retail banking investigation last year would have seen that about 90 per cent of SMEs bank with the Big Five and the remedy from the report was just, ‘We’ll create a price

comparison website and then they can switch to one of the new providers’. I think that’s just completely the wrong mentality. If you look at the consumer or retail space, consumers are encouraged to shop around for the best product, so I might have my ISA with Nutmeg, my credit card with British Airways and my current account with Monzo because I go with the banks that I think service my needs best. There’s something that really needs to change in the rhetoric. If you look at the larger end of the market, big banks have an impetus to serve businesses looking for loans of £25million-plus. It makes the resources and time spent underwriting the loan commercially viable. If you look at the sub-half-million-pound market, it can also be quite well-served by the big banks or by fintechs, who can underwrite and transact a loan in a very short period of time. We play in the middle area where actually you have to do a lot more from a risk perspective to feel comfortable making the loan. We said ‘that’s the portion of the market that’s being really underserved, because it’s not quite big enough for the big banks to say ‘we really want to do it’, and it’s not quite small enough for fintechs to be able to underwrite it in a matter of hours. ST: You’ve recently been appointed as Director of Growth and Communications at OakNorth. Women in fintech boardrooms are still heavily outnumbered, aren’t they? VK: Quotas are a very controversial issue but I think unconscious bias exists. It’s not just in financial services, but across sectors. I even read a case study about orchestras in the US where among the top five orchestras in the 1970s, women made up only five per cent of musicians; by 1980, that had increased to 35 per cent and all they did was put up a screen, so when the judges were listening, they were basing their selection decisions purely on the music and not on what they were seeing. It’s not the same everywhere. In Israel, a very young country, the banking sector is dominated by women. Three of the country’s leading banks are run by women, whereas, in the UK, there are still more people called John than there are women running FTSE 100 companies.

You hear a lot about the West investing in fintechs in the East, but actually a lot of the East is investing in the West 76

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11:FS SUPERHEROES

As co-host of the super successful Fintech Insider podcast, Sam Maule is used to posing the questions, not answering them. Here, Fintech Finance’s Lea Jakobiak turns the tables on 11:FS’s Managing Partner in North America and asks ‘so what is it again that you guys do?’ Lea Jakobiak: The 11:FS Fintech Insider podcast is as well known as consultancy itself. Why is it so key to your business? Simon Maule: We like to consider ourselves a challenger consultancy company, because what we’ve seen is that the banks want to approach digital and innovation differently, and yet they’re using the same consultancy firms they always have and the same partners. We think we can do it a bit differently. If I had to describe 11:FS, I’d say we are definitely a bit different, in a good way. The Fintech Insider podcast is a good example of that. A lot of people wonder why we do it, but that’s our marketing, right there. Our podcast has hit number one in the UK consistently now and we’re about number 15 in the US, which is bonkers. We look at it as a way of cutting through the noise and getting our voices out there to explain what our thought process is around digitalising banks, and it’s taken off. LJ: There’s a lot of noise out there, you’re right, when it comes to financial technology and the latest ‘new thing’. Does it frustrate you sometimes? SM: When you go around expos like Money2020 and you listen to all the sessions, there are two words that constantly get repeated – AI (artificial intelligence) and blockchain, and they are both used in the wrong way.

SamMaule AI consists of a tonne of different technologies that come under that umbrella. I’m 50 years old and I’ve been in this industry a long time. What we’re calling AI – machine learning, robotic process automation, for example – has been around forever and a day. It’s just that we’re fine tuning it and getting better and better at it each year. Is AI going to have an impact? Yes, the consensus is that AI augments the individual. It’s not taking over jobs, per se, but augmenting the existing teams to be able to operate like Iron Man with Jarvis. Having the information right up front, makes you that much cooler and stronger. When it comes to blockchain, there are about 2,000 folks on Twitter and in the industry, that say that they are experts. I think there’s probably about 0.5 per cent of them that have any clue what they’re talking about and actually getting anything done. It does seem, as an industry, we – and when I say ‘we’, I mean some of those who

control the purse strings – just jump right to the blockchain solution and the AI solution, when they have absolutely no clue what they’re actually referring to. LJ: So which of the trends that you are seeing will go the distance? SM: The concept of partnerships. You know, the majority of fintech companies are not going to go on to be unicorns. Banks using fintech companies either as their innovation group or using them to learn from is a trend that’s not going to disappear. LJ: And finally, what’s next for you and 11:FS? SM: World domination? No, seriously, branching out in the US at a rapid scale, as 11:FS is already doing in Europe. So, next year, I’ll be much greyer, much balder, much more tired … and hopefully have hired somebody to do my job. That’s my goal.

AI isn’t taking over jobs but augmenting teams to operate like Iron Man with Jarvis. Having the information right up front, makes you that much cooler and stronger 78

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Europe’s biggest FinTech event is coming to Amsterdam Use the code 18FIFI to save €200 on your pass

4th – 6th June 2018 The Rai, Amsterdam, The Netherlands

Amber Baldet was until recently an Executive Director at J.P. Morgan where she acted as Programme Lead for its Blockchain Centre of Excellence. Here, she sits down with Sam Maule, Managing Partner of 11:FS in North America, to discuss disruption, big banks and why feathers need ruffling Sam Maule: As I understand it, Quorum is an opensource code based on Ethereum, that’s designed to address specific challenges of blockchain technology adoption within the financial services industry. And you led the team that pulls it all together. That can’t have been an easy project? Amber Baldet: I think it’s been an amazing feat to opensource a codebase like this from a highly regulated institution. To figure out how to engage with the opensource community and developers, how to get people excited about the project. How to even take pull requests from the public. These are things that have never happened before at a bank. In a way, Quorum has been a guinea pig for what, hopefully, will be a much larger group of opensource projects at the bank. It’s the job of the Blockchain Centre of Excellence to be ahead of the curve, to be disruptive, ruffle a few feathers and challenge people. To ask ‘why does your business exist as it does today?’, ‘what is money?’ or ‘ why custody, if we have blockchain technology?’ It was about creating that spark, the will to be transformative within the organisation. You can’t change a massive institution like J.P. Morgan, from a tiny office in Brooklyn. The best you can do is sit with people, get them to bring their expertise and have them solve their own problems using these additional tools. SM: I get tired of hearing how banks don’t understand fintech, or the blockchain, and yet J.P. Morgan’s a great example that they can do opensource. AB: I think banks ‘get’ fintech and certainly, at this point, some people understand blockchain. Although, to be honest, I think even in the blockchain space, some people don’t understand blockchain! But there are also banks that say ‘fintechs don’t understand our business. They don’t get

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AmberBaldet

11:FS SUPERHEROES

the ins and outs and the underlying, down-in-the-weeds-every-day of what we’re dealing with’. I’m probably guilty of that as well. But a lot of the proof of concepts we saw early on looked like a Masters thesis or as though somebody had Googled ‘what is trade finance?’. The market has matured so quickly, though, that a bunch of people in the banking industry have been captured by this technology and are now going to join startups in the blockchain space. It’s a lot harder for banks to make those criticisms when you’ve got somebody with 20 years of supply chain experience across the table. SM: I'm guessing you had an advantage in that the scale at which J.P. Morgan operates allows it to see in which areas of business blockchain is applicable? AB: You’re exactly right. The approach it takes is that businesses need to have a modernisation agenda and sometimes that includes blockchain, but it doesn’t

Blockchain shines when it really captures a full value chain, end to end. The more comprehensive the use case, the more it makes sense

necessarily have to. It’s about figuring out what tools you have in your toolkit to solve a business problem and/or improve the client’s experience. So, what are the client’s pain points? Is it settlement time, trade breaks or reporting? There are any number of ways to approach making the client’s life better and only some of those are solved with distributed ledger. SM: You’ve been quoted as saying actual adoption of projects is what we need. AB: Yes, not just prototypes, but closer-to-production projects. There’s a fine balance between something that’s been running in production for so long that it’s sticky and difficult to manoeuvre, and something that is so early stage that it’s hard to ascertain the success metrics. I think within banking we are relatively new to the idea of agile development and dev ops, and all these things that are baked in to ‘Cloud-native fintech’. Sometimes I made fun of our ‘emerging technologies platform’ that includes Cloud and API strategy, by saying ‘these things are not emerging technologies – they have emerged. We just need to start using the tech that everyone else is’. SM: What are the key differences between working in blockchain development and any other technology? AB: Blockchain really shines when it captures a full value chain, end to end. The more comprehensive the use case, the more it makes sense. When you work with distributed ledger technology, it’s as much about network coordination and understanding the marketplace that will use this product as it is how well you understand the pain points or your success metrics or whatever. You can get everyone at the table, but you need to convince them that there’s a reason to participate and incentivise them to access their counterparties. It’s a completely different sort of incentivisation model, which is funny because people thought that by working with permissioned blockchains we were removing the incentives problem. It doesn’t at all. It just changes the sort of incentives people need… to completely revolutionise the way things work within their institution. www.fintech.finance

PAYTECH

The next frontier: The more transactions AI is exposed to, the better it gets at fraud prevention

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Artificial Intelligence: The card up your sleeve When card payments are part of your business, fraud and bottom-line-killing fraud losses are, too. But direct hits to your profitability are only part of the problem. Card fraud, and even some of the actions to mitigate it, destroy the customer experience.

Clay Wilkes, Founder and CEO of Galileo Processing, on the added benefits of using AI to reduce card payments fraud

Take, for example, a customer whose card number has been used without his/ her authorisation to make a large online purchase. Once the customer notifies you, you immediately cancel the card, reverse the charge and order a new one. Even though you do everything right to rectify the situation, you can’t take away your customer’s feeling of violation, the extra work to transfer direct payments to another card and the inconvenience of delaying access to his/her money or buying power. And, that’s not the only fraud-related customer experience challenge. When you react to fraud by tightening your transaction screening criteria, you risk increasing your false positive rate. False positives highlight the delicate balance of too-loose controls that let fraudulent transactions slip through and too-tight controls that block your customers’ legitimate activity. Wherever and however they shop, false positives leave your customers angry, embarrassed and frustrated. You’ve worked hard to become your customers’ top card choice. The last thing you want is to risk that relationship by turning customers off with a poor experience that gives them reason to look elsewhere. But, unless you get on top of how you handle fraud, that’s exactly what will continue to happen.

might rattle you – especially if you have a high rate of false positives. Motley Fool reported on a recently released survey from comparecards.com that found 12 per cent of credit and debit cardholders experienced a card decline at least once in the past year. Among those experiencing declines, 28.7 per cent of credit cardholders and 16.6 per cent of debit cardholders were denied because of their bank’s fraud protection programme. As we reported in the Galileo white paper on fraud, Payments Card Fraud: Death By A Thousand Cuts, 39 per cent of declined

Issuers pay the price It’s clear customers react negatively to inconvenience resulting from fraud or fraud prevention tactics. And, you, as the card issuer, pay the price. So, the following

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Wherever and however they shop, false positives leave your customers angry, embarrassed and frustrated cardholders in 2015 abandoned their card after being falsely declined. And 25 per cent who experienced a false decline say they decreased their card usage. I believe customers behave similarly when their cards are replaced because of fraud or suspected fraud. In addition to losing confidence in you, they may develop new payment habits while waiting for their replacement cards. Perhaps they start using their backup cards in place of yours or discover PayPal as an online and in-store alternative to your debit card. And perhaps

their replacement cards sit unopened in their mail piles while the backup options become their primary way to pay. Customer loyalty is fragile and even a small interruption in service can precipitate change. Fraud threats aren’t abating – even in this post-Europay, Mastercard and Visa (EMV) period. According to The Nilson Report, although counterfeit card fraud losses were down in the US in 2016 – by almost 60 per cent compared to 2014 – owing to the rollout of EMV cards, and EMV-enabled POS terminals and ATMs, card fraud in the US migrated to card-not-present (CNP) transactions, which, in 2016, became the largest fraud loss category, with ‘more than half of all [general purpose reloadable card] fraud losses … tied to CNP fraud’. So, what’s an issuer to do?

The AI solution The key to taking charge of fraud and fraud losses, and improving the customer experience as a result, is having a great fraud monitoring and detection system looking out for you and your customers. Our white paper goes into significant detail about what constitutes a great fraud management system. It starts with a robust, rules-based fraud detection engine, augmented with artificial intelligence (AI). AI is the next frontier in card fraud control because it provides a valuable additional data point that can’t be created by humans or traditional fraud analysis. The more transactions AI systems are exposed to, the greater their capacity to continually self-improve, expanding far beyond human capabilities and enabling fraud engines to more precisely identify fraud and reduce false positives. AI has the capability to identify new and emerging fraud patterns significantly faster and more accurately than rules-based systems, which are best at recognising already-identified patterns.

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PAYTECH

Card trick: All declines damage the customer relationship

Because AI improves the ability of issuers to combat fraud, it also enhances their ability to deliver a consistent customer experience And, because AI improves the ability of issuers to combat fraud, it also enhances their ability to deliver a consistent customer experience with fewer card re-issues and declines.

An intelligent approach Galileo, which takes fraud monitoring and detection extremely seriously, is using AI in combination with our rules-based Dynamic Fraud Engine (DFE) to fight card fraud and improve the customer experience for the financial institutions and fintechs for which we process payments. Beginning in 2016, the average Galileo client using our DFE incurred fraud losses of about one basis point, compared to the industry average of about five basis points. We were able to beat the industry average by around 80 per cent because: ■ Every transaction processed through DFE is examined against rules that incorporate account, transaction and system data points to pinpoint potential fraudulent activity in real time and

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trigger actions, such as alerts and account or other system actions ■ We work closely with clients to customise their fraud scoring parameters for their individual preferences and requirements, considering card types and segments, account features, such as risk, balance and activity level, and even parameters at the individual cardholder level ■ We add the major credit card networks’ fraud scores as an additional data point to increase effectiveness and confidence in the action taken So, we have a great base on which to build. About mid-year 2017, we introduced our Fraud AI as a powerful tool, which can stand alone or integrate as another data point for our DFE, unleashing the power of machine learning on the massive amounts of transaction data we handle. With nine months’ experience, our clients' average fraud losses dropped below one basis point and their false positives have declined over

40 times more than those using other industry-leading AI tools. The implications and magnitude of this are almost hard to comprehend. I take great pride when I imagine fewer cards being reissued and fewer cards being declined because of our work, and I positively light up thinking about thousands and thousands of customers who won’t be tempted to look elsewhere because of a bad customer experience.

As strong as the weakest link Fraud anywhere in the payments ecosystem hurts us all, whether we were involved directly in processing a particular transaction or issuing a particular card. This is why I’m encouraging every issuer to look hard at their fraud defence and making the point that fighting fraud isn’t just an operational or financial issue; it’s relevant enterprise-wide because your ability to manage fraud effectively has a profound effect on your most important asset – your customers’ loyalty. Happy customers, happy life! www.fintech.finance

PAYTECH

The way to pay Israel’s leading card issuer and clearer Isracard dug deep into its data to become a ‘shopping enabler’, as Director of Growth Marketing Vital Eilat-Raichel explains Customer loyalty pays – or at least it does if your firm holds a huge portfolio of loyalty cards. And Isracard, Israel’s biggest credit card firm, certainly does.

The value in loyalty

Systems. Each card aims to offer discounts and benefits that match a cardholder’s profile. As a provider of payment services for retailers, Isracard can service shop owners’ needs too. The company strengthens its ties with merchants by providing marketing, financial and operational services, including coupons and personal messages to cardholders. The model has proved very successful – in 2017 profits rose eight per cent to 299million shekels (£62.7million), up from 276million shekels in 2016. Probably too successful, in fact, because Bank Hapoalim has been given four years to offload the business as the country’s regulator seeks to open up competition in the card market. Rival Bank Leumi has also been ordered to shed its card business and newcomers such as Bank Jerusalem are already poised to take advantage of the liberalisation. Bank Hapoalim is unlikely to have much trouble finding a buyer. As Eilat-Raichel says: “Because we have both cardholders and merchants as customers, we have to give value to both ends of the cycle. This position is quite unique in that we have the opportunity to create an ecosystem of sorts. “Giving value at the cardholder end allows us to give the merchant a lot of information and tools to help increase their traffic. In turn, this

Owned by Bank Hapoalim, Isracard’s portfolio includes loyalty credit cards and payment cards. It jointly issues credit cards with employers, retailers, unions and professional groups that provide a loyalty element, such as military personnel support groups, the Israel Teachers Union and defence firm Rafael Advanced Defense

Our entire loyalty programme now is data-driven. It’s almost 100 per cent personalised

It’s been reaping the benefits of uncovering a huge mine of information on consumer behaviour, thanks to its vast range of loans and payment products. By harnessing that data and using it to tailor marketing to its customers, it’s hoping to evolve from a payments provider to a ‘shopping enabler’. Isracard already holds an enviable position in Israel – it is both an issuer and provider of clearing services to all four of the country’s major credit card brands, including its own (with 50 per cent of the market), American Express, Mastercard and Visa. So, with both cardholders and merchants as its customers, it enjoys a 360-degree view of the retail landscape. “We’re looking at the context in which the entire customer journey is made. We examine what our customers are looking at, what triggers their actions, how they do their research and what guides their decision-making process, in order to give them as much value as possible throughout the customer journey and not just strictly in payment,” says Isracard’s director of growth marketing, Vital Eilat-Raichel. “Our entire loyalty programme is based on this. “Understanding that our value is as a shopping enabler, not just a payments company, has been a driving force in our customer experience.”

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gives the merchants an incentive to give us better content, which we then give to the cardholders and so on and so forth. The ecosystem feeds itself.” In adding value for merchants and customers, Isracard does indeed go way beyond the role of most other payments providers. Take, for instance, its My Internet Store service which provides tools for merchants – typically the smaller independents – to develop a digital presence, including online shopping. “We’re very proud of My Internet Store,” says Eilat-Raichel. “Small ‘moms and pops’ stores, for instance, that had no online footprint before, get the opportunity to launch a full online store. We provide all the payment services associated with that, but we also offer marketing and a lot of other cashflow management solutions.”

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Another new product, this time aimed at cardholders, is the shopping platform Israstore, a marketplace based on an algorithm developed inhouse. “It prioritises the best discounts available by category and product,” explains Eilat-Raichel. “So, our cardholders can come in and get the best deal on a particular item. Israstore not only gives our merchants the opportunity to showcase their content, it also levels the playing field because we’re giving small merchants, family businesses and small boutiques, the opportunity to be in the same space as the big-name brands – as long as they give best value for money. “So, again, this ecosystem comes into play where both merchants and consumers benefit.”

Mining the data mountain Formed in 1975 by Bank Hapoalim, Isracard has amassed a mountain of customer data that it’s only barely begun to leverage. It recognised that if it wanted to make the most of this legacy, it needed to partner with fintechs that could not only understand it but also help develop associated services to gain the maximum value from it. In 2016 it began working with prooV, a provider of

Cards with benefits: Isracard puts its shoppers in charge

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proof-of-concept software, which has resulted in a number of collaborations with fintech startups. Eilat-Raichel says: “Being in Israel helps because it’s a hotbed for fintech, artificial intelligence (AI) and machine learning. “As a company that has been running loyalty programmes and consumer clubs for quite some time, we have a tremendous amount of knowledge about how to engage with our customers and how to increase conversion. “Now we are using AI and machine learning to analyse and predict how our customers are going to react, identify what their purchase patterns are, their consumption behaviours, and what affects them when they decide to purchase. This process is an opportunity to give customers

value and really differentiate ourselves. “Our entire loyalty programme now is data driven and almost 100 per cent personalised. We’ve managed to do some incredible things in terms of prediction and our ability to give value throughout the customer journey.” Isracard launched a proof-of-concept round with Tel Aviv-based prooV in May 2016, and last year held its first prooVday – a competition featuring 28 fintechs that brought ideas ranging from e-commerce software to geo-based analytics that could be used to upgrade or enhanced the shopping experience. The fintechs were then given access to Cloud-based working areas that simulated Isracard’s internal environments using application programming interfaces (APIs). The winners were TapReason, which uses AI to maximise in-app conversion rates, Over.AI, an expert in conversational AI, and Paidit, which aims to simplify mobile payments. Isracard said it was impressed by the speed the prooV system offered – it was estimated that the platform allowed the competition process to be run in a tenth of the time Isracard would have needed if it had managed the process itself. Speaking of the experience last year, Isracard‘s chief executive Ron Wexler said: “At Isracard, our chief competitors are no longer other corporate financial firms, but rather the many small startups that have carved out niches in specific services that are part of our offering, executing them in a way that is better, easier, and often less expensive than we and other institutions can. “Once we started working with prooV, we quickly realised the acceleration potential the platform could provide in our efforts to collaborate with startups.” Eilat-Raichel is giving nothing away about with whom and on what Isracard is now collaborating. “What I can say is that we’re committed to being leaders in creating a more personalised, customer-centric environment where we give genuine value to our customers, contextually, at the right time, in the right place throughout the shopping journey. “We have some very exciting things in our pipeline.” Issue 8 |

PAYTECH

Money talks...

…and Glory Global Solutions is listening. The world’s leading provider of cash-handling technology doesn’t see any desire among consumers to abandon it – especially in Southeast Asia, says Glory’s MD for Asia Pacific region Ben Thorpe A fool and his money are easily parted, so they say. In which case, the cash-using consumers of the world are no idiots.

While governments and banks might dearly wish that cold, hard cash – perceived as costly to manage and hard to trace – would disappear, and have done their best to deal it several potentially fatal blows, the beast just won’t lie down and die. For reasons they find hard to understand, consumers – be they customers of banks or supermarkets in almost every nation – still insist on paying the hard way. And Ben Thorpe for one will defend their right to continue to do so – in fact, he’ll make it easy for them and the companies they interact with. As managing director for the Asia Pacific region at Glory Global Solutions, the world leader in cash-handling machines and the software that supports them, he believes cash is and should remain ‘part of a multifaceted payment world’. It’s a world in which Glory is well placed to bridge the gap between old and new. One hundred years old this year, not only does it work with key companies in the digital fintech space, primarily in delivering services to banks, where 80 per cent of its sales take place, but also increasingly in

retail where, surprisingly, even ecommerce operators like Amazon and Lazada in Asia have conceded ground to cash. “Here in Asia, cash continues to grow at very high rates, year on year,” says Thorpe. “It’s the predominant preferred payment method in most of Southeast Asia – even here in Singapore last year it grew by more than seven per cent in terms of cash in circulation, which is amazing, given how automated Singapore is as a city state.” More than amazing, it must be deeply annoying to a government keen to move towards a cashless society under Prime Minister Lee Hsien Loong’s Smart Nation initiative. There’s no mystery as to why cash remains ubiquitous, says Thorpe. “It’s universally accepted, it’s free to use and ATMs provide 24/7 access to it. Cash is a seamless experience and you never have to worry about batteries or outages.” Neither, he argues, is the cost of handling a valid reason to phase it out. “As banks and retailers become smarter in how they use cash, costs are being better managed – and Glory is very much at the heart of that. We are helping institutions to authenticate, count and process money very efficiently This means they’re able to spend time with their customers, and they’re able to reduce the costs associated with cash. “They’re able to put more time and effort into building better customer relationships, to help on the advisory side, for

example, in bank branches; to give retailers more insight, even give them same-day value because, as we know, cash is the lifeblood of any business, especially some of the startups and retail institutions. Making the cash flow is really at the heart of what we do.”

Keeping it personal In a recent Fintech Finance interview, Thorpe’s colleague Javed Anjum, branch transformation leader at Glory, talked about how ‘technology has undermined the personal relationship between customers and banks’ and how, ‘despite the growth of online banking and mobile services, banks must continue to be physical spaces where customers can go for advice and support’. We live in a world where retailers act like banks, and banks behave like retailers: the customer relationship is key and upsetting them by withdrawing cash handling facilities is a shot in the foot, argues

Universal language: Cash has no borders

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Thorpe. Amazon realised that last year when it introduced Amazon Cash to make its online marketplace more accessible to the nine million US households without a bank account. In Southeast Asia, Lazada, a fairly young ecommerce outfit, solved one of its growth challenges – countering shoppers’ preference for bricks and mortar destinations – by linking up with 24-hour convenience stores and payment gateway provider MOLPay to offer an offline payments facility. A year later and Lazada claimed a total of $1.36billion in annual sales across six markets in Asia. A month after that, Alibaba got involved and increased its stake gradually to the point where it is now majority shareholder and the company is headed by Alibaba executive Lucy Peng. Alibaba, of course, is based in China (where even roadside hawkers take payment by mobile QR codes), so might not tolerate a cash business for long, but Southeast Asia remains an important market that likes cash. It makes sense that while it is still king in many regions of the world, even companies that specialise in ecommerce would do well to better understand how to handle it. And that’s where Glory sees itself in the grand scheme of things. With ‘reports of the death of cash greatly exaggerated’, as the Federal Reserve Bank of San Francisco put it in November 2017,

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Glory has expanded its reach to well over 100 countries. Thorpe’s regional team has offices in seven of the Asia Pacific countries and distribution partners, channels and resellers in all of the rest, bar North Korea. And, who knows, with the new thaw in political relations, maybe that will change. Earlier this year, Glory added its first office in Ireland, following the acquisition of Semeci, a cash automation solutions provider to the retail banking industry there.

Cash versus the card The big question is 'what role can fintech companies play in the space Glory occupies?' Customers of banks, supermarkets and myriad other outlets want the option to pay by cash. Focussing solely on digital endeavours may be cool and sexy, but there are opportunities to be found in paper and metal, and there are lessons to be learned when it comes to maintaining a human face. Nowhere is that more evident than in the streets outside Thorpe’s office in Singapore. GlobalData analysis from 2017 reveals that, while Singapore is an ‘advanced payments market’, card payments lag behind other developed markets in the region. “Consumers in Singapore use their payment cards at the point of sale around a third as much as consumers in Australia and New Zealand,” said the report, and one of the reasons cited is a preference for – you guessed it – cash, which clings on like a rabid limpet, washed by the tides of digital alternatives. It’s why the third largest supermarket chain in Singapore installed the first Glory CASHINFINITY machines at self-service checkouts two years ago. They don’t dispense with the need for checkout staff, but they accelerate the transaction process by removing the cashier role and act as cash dispensers, too. “Seventy per cent of Sheng Siong customers still prefer to use cash and 30 per cent prefer card, therefore the unique ability of the system to accept both forms of payment and act as an ATM for cash withdrawal fits perfectly,” said Lim Hock Chee, Sheng Siong’s

CEO, at the time. “The CASHINFINITY system is a crucial investment in our efforts to enable customers to enjoy smoother checkouts with accurate payment handling and better service.” Forcibly squeezing cash out of the system simply doesn’t work, maintains Thorpe. He points to Prime Minister Narendra Modi’s shock decision to invalidate 86 per cent of India’s currency in circulation in 2016. “In the demonetisation period in India, there was a huge spike in the rise of digital wallets, yes. But a year later the cash in circulation was already back to 99 per cent of the notes that were removed. It showed that actually replacing something that is universally accepted, that is trusted, cheap and simple to use, effective and crosses cultural, linguistic and religious borders is really, really hard.”

Last year, cash in circulation grew here by seven per cent, which is amazing, given how automated Singapore is as a city state That point was proved in the recent Payments Race put together by Money 20/20 and Fintech Finance, Glory sponsored Stu Thomas, who travelled with just cash as his payment method. “We didn’t see any issues with Stu going from border to border,” says Thorpe. “Whether he was going from Hong Kong to Kuala Lumpur, Cambodia to Bangkok, or Phuket to Singapore, he was able to buy plane tickets, travel on a variety of public transport, pay for hotels in advance, and pay cash on collection. All things that people don’t normally think cash would allow you to do in the modern economy, he proved that here in Asia it’s alive and kicking.” Stu himself said: “I was fortunate in that cash has its own language and everybody understands it.” As they say, money talks.

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SANDBOXES & COLLABORATION

Vive la révolution! Sophie Heller, Chief Operating Officer of Retail Banking and Services at Paris-based BNP Paribas, believes it’s time the ancien régime in finance changed. BNP Paribas has already begun…

As the late, great businessman and pioneer Steve Jobs said ‘innovation distinguishes between a leader and a follower’. And in that case, there is no better industry in which to discover leaders than the financial one. For BNP Paribas, innovation isn't just about technology, though. Its transformation programme is as much about introducing new ways of thinking. In fact, it believes changing the internal culture is key to generating an improved experience for customers. “Changing the customer experience is a complex thing to do,” admits Sophie Heller, chief operating officer of retail banking and services at BNP Paribas, based in Paris. “It’s a systemic change, and we need to evolve many things at the same time –namely, the mindset and culture while also creating new capabilities. “When we work with startups – which can really help us accelerate in some areas – we experiment with new ways of working, design thinking and agile development. “By partnering with fintech and startups, we are also more likely to achieve a faster speed to market by integrating capabilities they have already developed. So, it’s really all about helping us to accelerate the transformation.”

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The French bank will have invested €3billion by 2020 on its digital transformation project, modifying its operational, organisation and information systems. But that, it believes, will be more than offset by the €3.4billion it expects to gain in efficiency savings. While much has been going on behind the scenes, one of the first outward signs that BNP Paribas had embarked on a revolutionary journey was the launch of Hello Bank! in 2013. Hailed as the first 100 per cent mobile French bank that would ‘promote a new way not only of “doing” banking but of “being”a bank’, it’s secured three million European customers. Aimed at Generation Digital – early adopters with a passion for technological innovation, who want to use mobile devices for everyday activities – the bank’s customer research revealed they wanted dedicated apps for the most part and, for more complex financial needs, video call, online chat or phone call. Hello Bank! with its ‘mobile – just like you’ marketing slug, was to be joined four years later by another innovative service, the payment institution Compte-Nickel. But the two couldn't be more different. www.fintech.finance

Compte-Nickel, in which BNP Paribas took a 95 per cent stake in the summer of 2017, is the ‘no-bank account’, initially aimed at ‘financially fragile’ customers and accessible through 2,700 French tobacconists where almost fully self-service onboarding takes just €20 and a few minutes. With a new Compte-Nickel account being opened every 30 seconds, it’s secured more than 850,000 customers since its launch in 2014. They all received an International Bank Account Number (IBAN) linked to an international Mastercard and real-time access to their account status. That real-time technology, the big data linked to Compte -Nickel, and the mindset behind the startup were all major draws for BNP Paribas.

Mobilising money Just three per cent of transactions in France are currently authorised from a mobile, but Europe-wide predictions are for half of all transactions to be carried out by smartphone in 2020. It’s not surprising, then, that mobile banking is a key part of BNP Paribas’ philosophy. “Visits via the mobile channels have increased by more than 30 per cent in all the geographies,” observes Heller. “Customers are looking to be able to do everything associated with daily banking on their mobile. “This is definitely a strong focus for us. So, we are adding one new functionality every month to provide the customer with more autonomy. We also want to invest in the customer journey to push more and more relevant propositions to the customer.” BNP Paribas customers can already transfer funds abroad and change their credit card maximum spend, and they will soon be able to unlock their PIN from their phones. Early last year, the bank introduced mobile payments in-store via the Paylib app, followed by Lyf Pay, an all-in-one mobile payment solution that centralises all of a customer’s cards, coupons and loyalty cards. It then uses QR code technology to allow them to pay for purchases, transfer cash to friends or family, donate to charity and access exclusive discounts. Meanwhile, the Mes Transferts app lets customers pay or reimburse friends and family simply by entering their phone number. www.fintech.finance

A new epoch in banking Historically, like most institutional banks, BNP Paribas has been run on a strict hierarchical structure. Now, it’s replacing the ancien régime with a slick new one to create, as its branding promises, ‘the bank for a changing world’. Galvanising its customer experience comes from simplifying the strands of customer needs – from mortgages to payments, loans to retirement and pensions to investment. The transformation programme combines the knowledge and experience of multidisciplinary professionals – compliance, marketing, user experience designers, risk assessment and legal – who come together to design authentic and customer-friendly innovation. Elsewhere, Heller has said of this process: “It requires profound cultural and organisational changes, in addition to a new IT architecture. We have created small, autonomous startups that will allow the group to accelerate this profound transformation.” French banking, says Heller, has largely moved on from the myopic ‘fintech v banks’ view of change and

All departments in the bank and all functions are really looking at collaborations with fintechs embraced the prizes that can come from collaboration. But there’s still room for improvement in the wider industry. “We see that startups and fintechs have difficulty in scaling; on the bank side, we see fintech as an opportunity to increase the services that we sell to our customers. Using fintech remains somewhat focussed on the payment area, though,” says Heller. “There are many others where it’s probably more efficient to work in partnership with the banks. “I would say that pretty much all our departments in the bank and all functions are really looking at collaborations with fintechs,” she adds. “We see very many interesting things on the regtech and legaltech front, so it’s really not limited to one field. There is artificial intelligence (AI) and data analytics where we have a couple of collaborations and even some

investment, but also projects related to the customer journey and offering new services upfront.” BNP Paribas has gone further than many others in that direction. Its fairly recent free homebuying app, Home on the Spot, allows anyone to match houses for sale to their budget. It also lets the user save and centralise information about potential new homes (including photos) alongside finance options, which include a simulation around the amount a customer can borrow for a mortgage based on their income and monthly outgoings, a calculation of the total purchase and a step-by-step practical guide to help the buyer in his/her purchase from start to finish. The bank positively embraces nurturing new relationships with fintechs. Its OpenUp initiative – an open digital platform that connects startups and BNP Paribas employees working in innovation – is a brilliant pathway for small technology companies looking to break into the banking industry. And where it has collaborated one-on-one with fintechs, the results have been impressive. Take Personetics, an AI and predictive analysis solution that’s run by an Israeli startup. It is designed to improve the bank's customer engagement by personalising the customer’s interaction with the bank, guiding and helping them to manage their finances. The platform logs and aggregates banking data – based on intelligent algorithms – and reinvents the retail banking experience, providing advice to the customer through the entire banking chain, from checking their accounts to choosing the financial products best suited to them. For the bank, the data collected helps it to anticipate customer needs through real-time behavioural analysis. Heller welcomes the regulatory changes being introduced this year around data protection and open banking. “As customers, when we got used to using digital services, we also became used to having a lot of transparency – not only around the price, but also around the process,” she says. “We know exactly where our order is and what is going to come next. So, I think this urgent need for transparency is an absolute must and it is something we are actively working on.” Issue 8 |

SANDBOXES & COLLABORATION

We have lift off

Raiffeisen Bank International’s Elevator Lab identifies the most promising newbies in Central and Eastern European fintech and aims to propel them into financial space. Maximilian Schausberger, Programme Manager, explains the ‘sputnik’ approach When the Austrian-based Raiffeisen Bank International (RBI) launched its fintech accelerator programme in 2017, it sought partnerships from around the world.

The result was 336 applicants from 56 countries, which has since been whittled down to five startups that are now embarking on projects with the group. But for its second wave, RBI is going where fewer and fewer banks tread – it’s seeking fintechs from the 14 national markets where it operates in Central and Eastern Europe (CEE), which stretches from the Czech Republic to Russia and down to the Balkans. For, while many banks have given up on the CEE – or, at least, certain states within it – following years of economic turmoil, RBI believes it can build on its strong foundations there, positioning itself as ‘the top bank in the area’. “We’ve stepped back from some other places in the world where we have been working and we are concentrating our forces in our home market, plus the CEE countries. We will have an even stronger role there,” declares Maximilian Schausberger, programme manager of Elevator Lab. RBI headed east in the mid 1990s, soon after the fall of the Iron Curtain. It entered Russia in 1996, where it now offers both retail and corporate banking services through its 185 branches. As its rivals collapsed around it during the country’s banking crisis, which was sparked by falling oil prices, the company weathered the storm and was named ‘best foreign investment bank in Russia’ by financial publisher EMEA Finance in 2016. In Poland, RBI is ranked 10th biggest by the size of its customer loan book, while

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in Romania it is fifth with a network of 454 branches. And moving further south, in Albania the group has 78 branches and is the country’s third biggest bank based on customer loans. RBI took the chances it was given over the last 20 years to embed itself in the region’s banking system. Although it hasn't always been easy. “Of course, we suffered some downsides when it came to problems with Ukraine and Russia. But the growth rate in Central and Eastern Europe is still higher than in western European countries, so we see this as our core market. We are very happy to be there,” says Schausberger. As the economic deep freeze began to thaw a little last year, its decision to hang in there looks to have been validated.

The growth rate in Central and Eastern Europe is still higher than in western European countries It also faces a perhaps surprising amount of choice when it comes to fintech partners as it grows its presence in the region.

Working with fintech In October, RBI began work on five projects with the first-round winners of its Elevator Lab accelerator programme. During a proof of concept stage, five pilot projects were devised and tested in Austria and four other countries where the bank operates.

For its big data analytics project it is now working with Gauss Algorithmic from the Czech Republic, an established data researcher and AI computing provider in the CEE region. The issue of regtech is being examined with Austrian fintech 360kompany, while Sweden’s Asteria, which analyses cash flow data, is working with the bank on SME banking. For a payments and transactions project, Switzerland’s Sonect was chosen – a fintech that matches people who want to withdraw cash with those who want to deposit it, typically consumers and retailers respectively. And for help with the bank’s branch-of-the-future project, it has turned to a US firm – Moxtra – which will bring its expertise in developing software that enables team collaboration. For the next round, the bank is seeking to develop and learn from fintechs in the CEE region itself. Seven of RBI’s network banks, namely those from Albania, Belarus, Bulgaria, Kosovo, Romania, Russia and Slovakia, will target the fintech ecosystems in their own back yards with regional Elevator Lab Challenges. In addition to a startup workshop during a visit to the group’s Elevator Lab in Vienna, the respective winners will also receive a ‘wild card’ for the semi-final of the group-wide Elevator Lab and the chance to be invited to Vienna for the final selection in September. Schausberger makes no predictions about what the next round will bring in terms of projects, but instead believes the bank should be open to all possibilities. “I think the fintech business will increase,” he says. “I think it’s still difficult to say in which direction, though. There is

www.fintech.finance

The sputnik of fintech: RBI’s Elevator Lab will put startups on a new trajectory

so much talk about blockchain, for example, and for sure it will be an important part of our industry. But for a bank it is very important to be open, to look at everything that’s going on in the market, to test ideas and stay in the loop.” The CEE region’s fintech ecosystems are developing fast. Poland is already a known hotbed for talent due to its sophisticated financial sector, but states such as Romania have huge potential, too, says Schausberger. It’s being targeted by RBI because it believes the reservoir of IT staff who work in the country’s large number of shared services and outsourcing operations is creating a knowledge pool that will inevitably lead to more fintech startups. Russia, meanwhile, has a strong cybersecurity industry – not least because it experiences some of the highest levels of data theft but also because its universities are leaders in turning out computer programmers, while the country’s Tinkoff and Alfa banks are already proven innovators. “Some of the countries in Central and Eastern Europe are really very advanced,” says Schausberger. “Slovakia, for instance, was a very early adopter of electronic banking and the level of payments being made via mobile phones is high there.

www.fintech.finance

“Belarus, too, has very advanced systems. You could not argue that Belarus is behind western Europe in terms of its progress, in fact in many ways it is way ahead.” RBI aims to be the ‘sputnik’ or travelling companion to fintechs in these CEE countries as they begin to navigate the financial space. “We believe there are big gains to be made for both sides in such a partnership,” says Schausberger. His enthusiasm is matched by RBI’s chief executive Johann Strobl’s, who says the group aims to offer the innovations

developed through its fintech partnerships to the bank’s 16.5 million customers. “We will continue the successful cooperation that we started with Elevator Lab,” he says. “Our organisation has gained valuable experience through Elevator Lab, which helps us today a to be ideally positioned for tomorrow’s banking business.”

Issue 8 |

SANDBOXES & COLLABORATION

Made in Germany

BayernLB has put the banking crisis behind it to focus on supporting the export-led regional economy. Alexander Plenk, its CFA and Head of Investment Research, discusses global expansion, digital developments and working with fintechs The last few years have been a testing time for BayernLB, one of the top 10 financial institutions in Germany and a strong online services provider.

Like many in Europe, it was hit hard by the credit crisis, only recently emerging from special financial measures imposed after a multi-billion-euro government bailout. But now in fighting form, it’s not only consolidated its position at home, but is also looking for ‘moderate expansion’ in selected markets while building partnerships with fintechs across its business divisions. The Munich-based bank is a ‘landesbank’, a uniquely German model of bank – regionally-organised, largely owned by

the state authority, and predominantly focussed on business clients. BayernLB’s customers include small and medium-sized enterprises (known as ‘mittelstand‘), the backbone of the regional economy, as well as large global corporates, savings banks and public authorities; and clients from across the real estate industry. BayernLB also has a substantial retail base, which is served through its digital-only subsidiary (and currently its biggest income generator) Kreditbank (DKB), the second largest online bank in the country. When it faced huge liabilities after 2008, BayernLB, like many of the landesbanken that had expanded well beyond their traditional remit, sought help from the German government. The bank paid back the final €1billion of state aid in August

2017 and returned to profitability during the first nine months of last year, reporting earnings of €554million before tax. It’s now embarked on what its CEO describes as a ‘careful and risk-conscious’ period of development. But while BayernLB might have turned a corner, it’s fair to say that Germany’s eight landesbanken, which have their roots in the 19th century savings banks, have been struggling to keep up with the demands of modern banking while also coping with economic and regulatory pressures. German bankers are not alone in that challenge, of course: the pace of change is being felt across the financial world as bankers compete in a marketplace that is increasingly driven by technology and stricter compliance. But among the landesbanken in particular there has been

Export-focussed: BayernLB facilitates Bavarian trade abroad

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much speculation about consolidation, as historically low interest rates and investment to meet new compliance measures combine with traditional high-cost structures.

An outward looking bank In an interview last year, the head of BayernLB, Johannes-Jörg Riegler, even warned that as many as one third of European banks would disappear. BayernLB doesn’t plan on being one of them. Instead, it wants to partner with newcomers that are driving much of the upheaval. “There will be more change in the finance sector in the next five years than in the last 20 and fintechs will play an important role in this,” Riegler is reported as saying. So, what does the future hold for BayernLB? What are the bank’s plans for expansion, and how is it rising to the technology challenge? Alexander Plenk, CFA and head of investment research at BayernLB, is well aware of how digital innovation can improve all areas of banking – not least trade finance, a traditionally paper-based and labour-intensive activity. “We’ve been improving efficiency for many years,” he says. “Automation is nothing new and digitalisation is simply the next step. When it comes to trade finance, it’s an evolution rather than a revolution. For example, if you look at our trading room today and compare it to what we had 30 years ago, there’s a massive difference. Very few trades now come in by phone.” Because Germany has a vigorous, export-led economy – the country’s current account surplus, which represents the flow of goods, services and investments, was the largest in the world for the second year running in 2017 – international trade is very much part of BayernLB’s day-to-day banking business. In Bavaria, where every second euro is generated from exports, its large community of mittelstand produce everything from medical technology to smart city solutions and food. “Our role is to help these suppliers with their exports and the financing of their businesses,” says Plenk. “As a regional bank with international business, we need to sustain our global network and support our customers. Therefore, when we engage with banks at events such as Sibos, we naturally talk about trade finance, export finance, www.fintech.finance

clearing services, transaction banking and foreign exchange (FX) business.” Plenk stresses that BayernLB is not doing this on its own account. “It’s not like prop trading,” he says. “We’re doing whatever our clients need, from our base in Bavaria, so we can develop and promote businesses that are highly export driven and operate in a global marketplace. That’s why, from the Americas to Australasia, we must have a truly global support network.” Bavaria’s finance minister and defacto major shareholder in BayernLB agrees. “We need a landesbank for the export-oriented Bavarian economy,” Markus Söder stressed only recently. While Donald Trump may complain that Germany is ‘very bad on trade’ because its huge current account surplus is a problem for competitors, Plenk is defiant and says that BayernLB bank is proud to say ‘made in Germany’. It supports the production of high-quality German products and for that, he says, there is always going to be strong global demand.

In terms of everyday banking, fintech has enormous power and potential When it comes to digital development, Plenk highlights the role of DKB, BayernLB’s exclusively digital retail banking subsidiary, which serves more than three million customers. Unlike BayernLB, DKB is based not in Munich but in Berlin, the largest hub for fintechs outside of London, and it has a close relationship with many of them. They include established technology companies such as Visa and PayPal as well as newcomers such as FinReach, Cringle and WebID Solutions. FinReach provides account changing services, Cringle supports person-to-person (P2P) transactions via a smartphone app, while WebID Solutions delivers video identification services. DKB also has a banking app designed by a fintech called Gini that enables customers to settle paper invoices quickly and conveniently with their smartphones or other mobile devices. To do so, they need only take a picture of the invoice or the

transfer slip. The app recognises all the necessary information, from the recipient’s name to the IBAN, and fills in the transfer form automatically. “It’s incredible what can be achieved with just a smartphone,’” says Plenk. “In terms of everyday banking, fintech has enormous power and potential. “Berlin is a very important hub for fintech innovation in Europe and DKB is collaborating with the local fintechs, helping them to identify what customers need and influencing the development of products that we can then use.”

Technology is the key BayernLB is keen to introduce technology wherever it can increase efficiency for its clients, whether they are mittelstand, global corporates, retail or real estate customers. Improving business with other banks in Germany, especially the savings banks, is also a focus and technology partnerships with startups and established players are making it happen. A recent example is BayernLB’s partnership with smartTrade Technologies, a multi-asset electronic trading provider that supports connectivity, aggregation, pricing, execution and risk management, which BayernLB chose to deliver fast and accurate pricing while meeting all the bank’s regulatory requirements and future FX and multi-asset needs. Having successfully emerged from the financial crisis, and now working productively with many innovators in the Berlin fintech community, BayernLB is well placed to strengthen its position as a powerhouse of the German economy. Last year, it saw gains in almost all divisions, with the largest share contributed by DKB. At the end of September, BayernLB’s Common Equity Tier 1 ratio, a measure of resilience in time of crisis, was better than both Deutsche Bank and Commerzbank, the top two banks in Germany. Its policy of selected expansion will no doubt see it focus more on trade finance in Asia, drawing on a partnership that it formed in 2016 with British Standard Chartered Bank for financing Asian operations for German companies. To that end, Plenk is already looking forward to this year’s Sibos in Sydney, where BayernLB will reinforce its relationships with international banks – and its reputation as a flag-bearer for ‘made in Germany’. Issue 8 |

SANDBOXES & COLLABORATION

A run for their money Bank Leumi is more nimble than its age would suggest. It’s learned not to hang around when it comes to collaborating with fintechs, as Michal Kissos Hertzog, the bank’s VP Head of Innovation and Digital, explains Israel, the ‘Startup Nation’ – second only to Silicon Valley for tech incubation – is also the land of fintechs. Recent estimates peg the number at 430. But if they fail to put the customer at the heart of everything they do, they are finished before they’ve even begun. That’s the view of Michal Kissos Hertzog, head of innovation and digital at Bank Leumi, Israel’s 116-year-old banking corporation, which has been collaborating with the financial industry’s hippest new innovators since 2015. “The differentiator between successful and failing startups is the understanding of what the customer wants and needs,” says Kissos. “A startup should develop a solution incrementally, while asking what is the core solution for the customer's need and then build it one step at a time.” Her advice to base strategy around a sharp customer focus may seem obvious. And yet, she says, many financial institutions still fail to put the user at the centre of their operations, despite claims to the contrary. “I think that, today, any large corporation already knows that it must focus on the customer’s needs. Amazon has taught us all that we need to be obsessed with our customers. Although you see companies saying that they are customer-focussed, and put such phrases in their vision statements and work plans, it is easier said than done. “The road to implementing this strategy is long, and this is why effective fintechs are important for the industry.” Kissos refers to them as ‘The Outsiders’. “They think differently,” she says. “They are quick to act and they really are focussing on the customer’s needs. This is because many founders of fintechs are acting from a need, or pain point, that they encountered themselves as customers. “Banks want to focus on customers but often fail in this respect. So collaboration

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with fintechs is a win-win for both sides, and, of course, for customers themselves.” The Tel Aviv-based bank demonstrated that last year when it launched the mobile-based spin-off Pepper in double quick time. “Time here is of the essence,” observes Kissos. “Because if you’re implementing a product or a new value proposition, after two years it probably won’t be relevant anymore.”

Peppering up the market Pepper, Israel’s first mobile-only bank, was developed using the core platform of Swiss banking software group Temenos, while its Cloud infrastructure was provided by California’s VMware. Pepper was ready for launch in just 15 months. Though it sits independent of Bank Leumi’s 250-branch network in Israel (as does Leumi’s technology banking arm, LeumiTech, and its credit card services

Time is of the essence. If you’re implementing a product or a new value proposition, after two years it probably won’t be relevant anymore subsidiary, LeumiCard, which it is in the process of selling), Pepper proved such an initial success that its systems were overwhelmed by the number of customer applications – one of the advantages (and downsides) of getting to market first. After Pepper’s whirlwind birth, Leumi announced a three-way collaboration with Temenos and VMware to take an advanced digital banking platform, based on the same model as Pepper’s, to European and US banks and retailers. Showcased at last October’s Money20/20 in Las Vegas, the platform is being rolled

out as an end-to-end mobile retail solution, from hosting to back office to front office, with payment and investment lines of business provided by Bank Leumi. But its list of partnerships with fintechs doesn’t end there. Bank Leumi is also working with TipRanks, a firm that offers financial insight to small investors via data from analysts, hedge fund managers, financial bloggers and corporate insiders. In the payments arena, it has allied with PayKey, an Israeli company that developed a mobile banking keyboard that can deliver services, such as peer-to-peer payments, within a social media app. For marketing and brand awareness, it partnered with Playbuzz, an interactive online publishing platform, to engage with customers through polls, quizzes and video snippets. Despite having a sizeable call centre, Bank Leumi worked with Callview, which provides a visual interactive voice response system. And to boost its customer authentication security, Israel-based Transmit Security was brought in to offer biometric solutions to replace weaker password systems. Kissos says such partnerships are an ongoing relationship, not simply a one-off tie-up to deliver a particular product. “Every time we want to develop something around authentication we can work with Transmit Security, for example,” she says. “Think about trying to do that within the bank, it would be far more time consuming. Because we have a huge legacy, the infrastructure is pretty heavy. But a startup that is integrated with us and can pivot and change itself quickly can meet our needs and our customers’ needs. That’s an amazing thing.” She adds: “To be a leader in the finance industry first demands a proactive approach. We invented our new digital bank Pepper ourselves. It is the kind of mobile solution you see all over the world, but in Israel it was the first time it www.fintech.finance

had been done – and it’s a startup incubated within the bank. “Secondly, banks need to invest in fintech companies. And, thirdly, collaborate with them. These factors are the keys to success.”

The perfect pitch Kissos meets founders of many fintechs and has clear advice for them when approaching a bank. Beyond the need to be customer-focussed, she says startups need clear targets for growth. She explains: “We want to see a startup that can scale up and knows what it measures and what its goals are, because if it sets its goals clearly, growth will follow. By the way, what often happens is that people spend too much time thinking about all the cool features they can put in their ideal app. They go from zero to trying to build what Facebook is today. And what they don't realise is that there are so many steps and learnings going from zero to 100, things that you can only discover by really getting out there and receiving feedback. My advice

is to think how you can design a light and simple product and execute it." The digital executive is keen on meeting entrepreneurs who are seeking collaborations, rather than investments. “Naturally, if you come to the innovation team at the bank, we are looking for collaborations,” she says. “Fintechs need to talk freely about their idea, they need to come with a product that is already working. Don’t burn your pitch on just an idea if you don’t have a product that you have already tested. You can come for advice or mentoring, but if you want to collaborate, you need to come with something concrete. “Of course, fintechs can use LinkedIn to determine who to contact within the bank – look for people who have innovation in their titles. When you are there, be aware of what your expectations are, and what the bank’s expectations will be, and take it from there.” Another area of collaboration for Bank Leumi is around providing customers with financial advice based on their banking data. Kissos says that data is now so valuable that it is easy to provide

customers with a beneficial valuable proposition in return. “People are willing to provide their personal data if we give them value,” she believes. “So, the challenge for banks today is to give value to their customers who typically don’t understand what big data is, but they do understand the value of good products. They need and appreciate insight and advice about how their money works.” Big data is so important, it is, in fact, a new currency says Kissos – and such an exchange goes far beyond the banking industry. “For example, the Israeli company Waze, which provides a navigation app, has around 50 million users worldwide, if not more. What’s amazing about Waze is that people are using it all the time. They are using the navigation app, even if they know how to get to their destination, in order to gain an estimate of their arrival time and updates on the traffic conditions. “When using the app, they provide a lot of data about themselves. They reveal where they live, where they work, when they pick up their kids from kindergarten, and so on. And why? Because they get great value from Waze. I think we need to take the Waze example into finance.”

Fast moving: Innovation in the finance sphere needs to keep up

www.fintech.finance

Issue 8 |

SANDBOXES & COLLABORATION

A good fit: SmartStream’s model lowers the cost of compliance by sharing data resources

A rational approach to

regtech Four months after the introduction of MiFID II, the wisdom of a single reference data utility to improve speed of reporting and transparency across investment services is becoming apparent, as is automation and greater use of Cloud-based services more generally, says SmartStream SmartStream counts 70 of the world’s 100 top banks among its customers. We caught up with five key executives to bring us up to date with the company’s – and the industry’s – focus points in 2018. Senior vice president for strategic initiatives Darryl Twiggs, chief technology officer Rocky Martinez, CEO of SmartStream Reference Data Utility Peter Moss, chief operating officer Christian Schiebl and executive VP for fees and expense management Bharat Malesha joined the conversation. FINTECH FINANCE: What is the key challenge that your customers face today? DT: The banking industry is still recovering from the financial crisis of 2008. Return on earnings remains low, so that means firms are focussed on their operating costs, how they can increase their revenues and how they can develop new businesses and Senior VP for Strategic Initiatives Darryl Twiggs

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services. For us at SmartStream, there’s a huge focus on rationalising operations and reducing our customers’ cost. Many of our clients are going through re-engineering projects whereby previously decentralised operations are being centralised. They’re rationalising the number of solutions they use and moving staff from mundane tasks to new roles where they can use their skills to grow the business. RM: I also see banks rationalising their systems. Any mid-sized financial firm that’s been through acquisitions probably has three to five different types of system, either for trading, reconciliations, cash and treasury. It’s a hodgepodge. One of the problems this causes is that banks struggle to know if they have enough cash to meet overnight requirements. With so many systems, they cannot work it out. It keeps them awake at night and that is why SmartStream is investing a lot of time in cash management, to take all the disparate

Executive VP for Fees and Expense Management Bharat Malesha

CEO of SmartStream Reference Data Utility Peter Moss

systems and give customers a holistic view of what their cash position is. FF: Tell us some more about what SmartStream does to help customers improve return on investment. What are your solutions and how do they meet that need? DT: Back in 2000, we established Transaction Lifecycle Management (TLM) and all of our solutions under the TLM brand are formed on a single technical stack. This means we’ve got data that can be used by multiple systems and cost of ownership is reduced. That’s our unique position. With a single technology, we’re helping our clients to solve the big data problem. Because the financial industry needs to file increasingly detailed reports to regulators, firms must consolidate a vast amount of data and reporting across all asset types. Our solutions are designed and architected to provide that capability. Chief Technology Officer Rocky Martinez

Chief Operating Officer Christian Schiebl

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CS: Increasingly, I see that cost efficiencies and reductions can only be achieved by outsourcing what our clients, in the past, used to do by themselves. So, we offer software as a service, for example, where we host our solutions. We also offer managed services, whereby we do the work of whole departments for our clients. We can do this much cheaper because nobody understands our software better than us. Further cost reductions are achieved because when we update a managed service, the cost is shared across all the customers using it. In addition, especially for countries where the workforce is expensive, we can provide the services from places where wage costs are lower. Even for firms that have already taken steps to rationalise costs in-house, I know from experience we can reduce spend by another 40 per cent or even more. FF: What is the key challenge for SmartStream around data handling? Have the data quality requirements changed as automation increases? PM: Absolutely. Data quality has become paramount. Automated trading has been happening for almost 20 years now. I recall that a Goldman Sachs chief financial officer made the comment that when automated trading started they had hundreds of people on the equity desk – and now it had reduced that to two. In order to get the automation to work effectively you need good, clean, quality reference data. It’s one thing to create data that is good enough for humans to process, it’s a completely different thing to get reference data to the level of quality for a completely automated process to run. That’s where the SmartStream Reference Data Utility comes in. The data that is required is something the banks have been building themselves over the last few years. Most of the larger organisations have built teams that are potentially 50 people plus. So, what we’re doing is taking that work away from the banks and doing it once, doing it well, doing it on behalf of the industry, if you like. Then these organisations can take the data from us instead. The most recent Markets in Financial Instruments Directive (MiFID II) requires a significant amount of reference data for each security that trades. We’ve built a data set and application programming interfaces (APIs) that make it easy to access www.fintech.finance

and get hold of the reference data that you need for pre-trade price transparency, post-trade and transaction reporting. CS: The biggest risks for a bank are posed by human beings making mistakes. By automating processes you decrease that risk. What we do is provide the support, in terms of solutions and services, to ensure that a bank’s decisionmakers have data that is complete and correct. And secondly, we automate processes to remove manual human interactions as far as we can. There is probably no organisation that is not paying out money because of errors made due to its processes. We have clients who claim that with our software or solutions they have reduced the costs of such failures by 90 per cent. FF: You mentioned MiFID II. What has been the reaction from the industry to the legislation so far? BM: I think the industry’s still trying to figure out where the progress is and then what level of transparency they’re getting. It’s going to take more time to really understand what the impact is.

With a single technology, we’re helping our clients solve the big data problem I believe most of the investment in IT is going to be driven by regulatory projects such as this. There are still improvements to be made within banks to get to maturity for those regulations. PM: I agree about MiFID not fully bedding in yet – January 3 was just the starting line. There’s still work to do to get the mechanisms working effectively and get the interpretation of attributes agreed completely across the market. Regarding the industry’s reaction, I think there is a business case to be made for being compliant, but independent commercial entities don’t act together without some kind of external pressure. FF: The buzz around blockchain remains huge in 2018. Where do you see the technology taking your business? DT: The advantages of blockchain are higher speed, fewer participants being

needed for a process and a wider set of data that can be put on the block. That means you can better understand the status of a transaction. The adoption of blockchain will also drive use of the Cloud. There have been constraints within the industry in terms of control, management and ownership of the data, but I think regulators are accepting that Cloud operations are secure and that data can be regionalised within countries’ borders and so forth. Everyone is doing a blockchain project, and blockchain is in the Cloud. So, it’s rational to say ‘if I’m doing all my payments in foreign currencies cross-border in this blockchain, the data’s already in the Cloud. So, why don’t I take my reconciliations, my operations, my liquidity management, my fees and expenses, and put that into a Cloud operation as well?’ When a firm does that, the return on investment is almost immediate. They can then look at using managed services and the operational cost reduces almost at an exponential level. FF: From a technology perspective, what is SmartStream’s focus for this year? RM: 2018 is about the move to big data technologies and that means data grids. We want to break the chains of the traditional big relational database. One of the big problems we have with the gating right now is our databases are 20 or 30 years old. Some of the largest database companies will give us new versions but you’re still stuck taking data, running it into the database, then it’s stored to disk. We want to get everything in memory. We want to move faster. We’ve also redesigned our front ends, which gives us the ability to use a lot of robotics and artificial intelligence (AI) to automate processing, so that our customers get a better total cost of ownership from our products. BM: The other area that we are really looking into is invoice processing and how do we make sure there’s more digital communication, versus a lot of manual invoices being pushed from brokers or exchanges to the banks, and every bank processing that manually? We are trying to move from a month end cycle to a daily cycle so that you have a better accrual at T+1 and better transparency. It makes the whole process very efficient. Issue 8 |

AI & DATA Plotting a new course: Société Générale’s CEO is taking the bank on a digital voyage

Leading from the front

Banker Frédéric Oudéa believes you’re never too old to learn new digital tricks – and as CEO of Société Générale that goes for the institution as much as the man We hear a lot from CEOs about ‘taking your people with you’ and ‘walking the talk’ – many of them less committed to the principle than the PR people make them appear. But you can’t fault Frédéric Oudéa, CEO of Société Générale Group, when it comes to authentic leadership.

The 54-year-old banker has set out to demonstrate to his 145,000 staff worldwide just how much digital transformation means to one of France’s oldest financial institutions – he’s learning to code. “You can see that, as a bank, we are at the forefront of technology. As for myself, I’m very much involved, too; I’m learning Python,” says Oudéa. It was important, he says, to understand one of the two most popular programming

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languages for data, given that it’s data that‘s driving the bank’s future. The sixth largest bank in Europe (and third largest in France), Société Générale’s strategy is reflected in its investment in technology, its partnership with and acquisition of fintech, diversification of current and new markets, and in winning all manner of accolades, which includes the highest of them all perhaps: customers. Among those are the 1.2 million new ones signed up to the Group’s French online bank, Boursorama, as well as a rapidly growing mobile business in Africa. The Group was placed third among the prestigious eCAC 40 index (Cotation Assistée en Continu) of most innovative and agile companies for ‘digital maturity’ in 2016 – noted for its digital culture and open innovation strategy. As such, it was ranked

top among digital banks and financial institutions, although that, says Oudéa, was ‘an achievement, not a milestone’. “Our digital transformation is our number one priority at a strategic and operational level,” he said when the ranking was announced. “The whole company is involved. We believe that by creating the conditions to foster innovation and agility, by spreading our collective knowledge and by opening up to the outside world, we will make a difference over the long term. We will continue our digital adventure with humility, confidence and energy, to serve our customers.”

A bank of intrapreneurs Société Générale has remained steadfast in its approach to encouraging every employee to develop their digital skills.

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Sixty thousand tablets have been given to staff, there’s WiFi for all under the bank’s Digital For All programme and its own internal social network has an astonishing 70,000 members. Then, there is a programme to identify ‘intrapreneurs’ called Internal Startup Call, which aims to boost disruptive innovation projects across the Group. Its initial round attracted 15,000 participants who proposed more than 600 startup concepts – 350 were picked out, from which a shortlist will soon be made. “Our clients’ behaviour is changing and we are duty-bound to question the way we provide services to them,” Oudéa told reporters at the round’s launch in November last year. “Internal Startup Call is a unique intrapreneurship enterprise through which we can invent our future banking services. This international programme will also help to disseminate a culture of innovation inspired by our clients’ expectations and entrepreneurship – vital attributes for tomorrow’s world.” When Oudéa says he wants his bank to open up to the outside world, he refers, in part, to his vision to strengthen relations with the startup ecosystem, to organise business communities and promote new places to work. For example, more than 60 experimental projects are up and running with startups. The Group is securing partnerships with innovative places by, for example, becoming the first-ever ‘partner in residence’ with Player, a French business incubator for community innovation. Then there are tie-ups with local ecosystems in India, Senegal and the UK, a focus on brokering business challenges and stimulating innovation. “We are in a cooperative mood,” says Oudéa. “It’s fintechs that are developing these new technologies. I see them more and more as a support for banks to transform. “The fintechs are very happy to get new business relationships with banks and access to scale. It means we can speed up the process of transformation; it helps us to innovate quickly and improve the user experience. But there’s a lot to be done. We are embracing different initiatives, new cooperations, sometimes investing in fintechs, including a programme to develop our African business.”

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Last year, Société Générale acquired a stake in the share capital of TagPay, a French fintech specialising in mobile digital banking, which allows banks to reach unbanked populations. Many of the Group’s African subsidiaries are now rolling out TagPay. Elsewhere for the bank, Manko is implementing a mobile recovery solution in Senegal, Shell service stations provided a test ground for merchant payments in Ivory Coast, and there are other projects.

Striking a deal with fintechs In 2017, Société Générale launched YUP mobile wallet service for smartphones (and basic handsets) in Sub-Saharan Africa, Ghana and Cameroon with a view to attracting one million customers in three years and creating a network of 8,000 agents to support the service, which is already available in Ivory Coast and Senegal. This year, YUP launches in Burkina Faso, Togo and Guinea, too. It was the Group’s investment in Fiduceo, a French online personal finance management firm, in 2015, though, which

Startups are a powerful way of deploying new technologies faster and are a source of inspiration in terms of user experience and ways of working galvanized innovation and fintech partnerships at the bank. This strategic acquisition introduced external expertise, helping the Group to develop an account aggregator for the clients of Boursorama, Crédit du Nord and Société Générale. Oudéa’s ambition now is to ‘fully digitalise in the next three years, including all our processes in our traditional networks’. As a consequence, he aims to consolidate the Group’s position as owning the leading online bank in France, growing it from 1.3 million clients to two million by 2020. “The Group is continuing to develop its innovation policy by experimenting with disruptive technologies and stepping up its

interaction with the digital ecosystem in a spirit of open cooperation,” he says. “Startups are a powerful way of deploying new technologies faster, and are a source of inspiration in terms of user experience and ways of working. Our strategic plan dedicates €150million over three years for a Société Générale innovation fund to finance internal and external startups.” At the same time, the Group’s wholesale banking business has begun to experiment with blockchain technology, recently announcing a first with Louis Dreyfus, an agricultural goods merchant and processor, and other banks, by using distributed ledger technology to provide trade finance for a consignment of soya beans. Secured in early 2018, it was a groundbreaking deal in the agricultural commodity trade, which saw a number of institutions, including ING and ABN Amro, using blockchain to trade 60,000 tonnes of the crop. Prior to that, the Group had joined a consortium including ING and energy companies BP and Royal Dutch Shell to develop a blockchain-based digital platform called Easy Trading Connect (ETC) to trial energy commodity trading. Blockchain is just one of the potentially seismic shifts in the Group’s business landscape. Oudéa says that data management regulations such as the Revised Payment Services Directive (PSD2) and the second Markets in Financial Instruments Directive (MiFID II) are also going to be core to its development. Forcing banks to share financial customer information with fintechs and, potentially, other bank rivals under PSD2, has the capacity to revolutionise the spending, borrowing and investing trends of more than 500 million Europeans. “Naturally, banks have a lot of data and we have to do two things. Firstly, use this data to provide a more personalised and legitimate, adapted, appropriate service to clients. Then, with the new General Data Protection Regulation (GDPR), we have to protect it,” says Oudéa. “With the threat of cyber attack, there is a risk of data being disseminated outside. So, we have to work on the two dimensions, which means investment and a new way of thinking. “I believe banks are well positioned to see it as an opportunity, to be and to remain a trusted partner for their clients.”

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Predictive banking: A way of cementing customer relationships

The future is here Predictive analytics have had a bit of a bad rap of late. First they failed to forecast the outcome of the 2016 US election and then it emerged they'd been applied to Facebook users' personal data without their consent in order to influence that outcome.

As a data tool, they are clearly incompetent or unethical, right? But wait a minute – haven't they also been used for years to keep the wheels of industry turning, predicting spikes in demand for goods, ensuring parts are replaced before they reach critical wear and helping to navigate delivery routes to prevent costly delays? In fact, in their most basic form, they have been routinely employed across most industries... except banking. Wells Fargo figured it’s time to put that right. “One theme coming through our artificial intelligence (AI) programme is predictive banking – looking at how we can deliver meaningful insights for individuals based on their transaction history,” says Ryan Miller, an innovation leader at the bank. “We are aiming to help improve customers’ financial health by surfacing

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Don’t you wish bankers had something more reliable than a crystal ball to foretell the future? Well they have: it’s called artificial intelligence (AI) and it’s about to predict your next move. Ryan Miller, an innovation leader at Wells Fargo takes a look ahead

those insights and at the right moment.” The bank’s customers first felt the power of AI last year with the introduction of a chatbot that answers their questions through the widely used Messenger platform. As well as serving a customer need (the chatbot can find an answer that would potentially require someone to read through several website pages) it also meets customers where they are engaging – on social media. “Folks could come in and ask questions like, ‘What’s my balance? Where’s the closest branch or ATM?’ There was an authentication component to it, so as they were asking more personalised questions, we could

answer them in a secure fashion. That initial set of questions and answers had a large data component to it. We had to look at what were the most common questions that someone could ask and support that with data to answer those questions. If we launched with a particular set of experiences and they were wildly different from what customers wanted to use them for, it wouldn’t be successful,” adds Miller. Step two for Wells Fargo’s customer-facing AI came in February with the launch of predictive banking on the Wells Fargo app for deposit accounts. Powered by fintech firm Personetics, the feature spots patterns in spending to give warnings or provide advice on a customer’s future financial habits. Says Miller: “We’re able to look at all of the deposits that are coming in for a particular individual. So, for example, if we notice that one month there’s an additional deposit or a larger deposit than usual, it suggests that person doesn’t need the money to meet current expenses and we can flag that up and suggest they save part or all of it.” Such savings suggestions build on a feature that Wells Fargo implemented in www.fintech.finance

2016 called Daily Change, which provided current account customers with a linked savings account. The app flags up changes in spending patterns, such as a sharp rise in grocery spending, or a balance that is too low to meet an expected bill. Predictive features are not unique to Wells Fargo. Among others, Bank of America is rolling one out, too. It fits with an ethos that banks strive to deliver on – that they are on the customer’s side, says Miller. “It shows that we’re always looking out for our customers and trying to put their best financial interests first. As a company, we want our customers to lead more financially successful lives. Because we’re able to understand what those outcomes are, and then surface insights that help them get there sooner, it’s a win for them and for us.”

Staying one step ahead Wells Fargo says it plans to extend the predictive banking feature to credit card customers and small businesses using mobile later this year. Time will tell whether the AI will change customer behaviour, but the bank has another app for those who actively want advice – Greenhouse. This standalone app is being trialled in the US this year and aims to bring order and advice to customers who are new to banking or who struggle to budget. With one account linked to a debit card for weekly spending, and another for savings and bills, Greenhouse certainly ticks the box of being on the customer’s side. The bank is aiming it at Americans who rely on several jobs to make ends meet or whose income is sporadic, both of which make budgeting difficult. It’s a new, but large, demographic for the bank. At the app’s launch, Wells Fargo cited Federal Reserve research that stated 57 per cent of Americans were struggling financially, while 44 per cent said they would not be able to cover an emergency bill of $400 without borrowing or selling something. With Greenhouse, an AI engine keeps an eye on their spending behaviour and provides reminders and insights to keep customers on track. Users will be able to use a peer-to-peer payments network, while purchases or payments that would tip them into the red will generally not be processed. The app is very much a work in progress and customer feedback is being sought to fine-tune it. www.fintech.finance

Miller says: “Greenhouse is a new digital experience designed for those that are new to banking. It could be millennials who are just reaching an age where they need to open an account. Or it could be someone who was underserved, they could be older but they haven’t had access to financial services before. Or it could be someone who’s had access to banking and has needed help with managing their cashflow because of various factors. “With Greenhouse, this new all-digital, all-mobile experience will allow customers to set money aside for major expenses, be that rent, their utilities, credit card bills or other loans. It will transparently show them the remaining cash they have for day-to-day spending, and give them access to it through a debit card. “The concept is we start to teach elements of budgeting without the opportunity to go overdrawn. So, we’re teaching financial education to individuals who haven’t otherwise had exposure to it, while also ensuring they’re able to pay the bills they have without paying fees in the process.” Miller believes delivery of these new AI products is timely because of customers’ growing experience of predictive

As a company, we want our customers to lead more financially successful lives technology elsewhere in their lives, such as the Google search engine’s autocomplete. “At first it amazed people and then it became expected,” he says. “And as it evolved, Google added in contextual elements, based on geolocation. “As a bank, we need to bring those experiences into financial services to add value, but also at a point in time where customers are familiar with them. So, you’re dealing not only with the convergence of maturing technology, but maturing familiarity and willingness to see those types of experiences show up.”

Sharing the knowledge The pace of technological change is also a challenge for Wells Fargo, of course, with its 165-year legacy and 90 different business and product groups.

Miller says the bank is working to get its data to a point where it can be shared across all systems for the benefit of the business and customers, particularly when it comes to marketing and customer service. “Personalisation extends well beyond our digital channel,” he says. “It’s vital that we know the entire customer relationship, regardless of whether they come into a branch, call a contact centre, use an ATM, or access services through an app or website.” Its other important application is in the area of regulation. “Things like the General Data Protection Regulation (GDPR) and the revised Payment Services Directive (PSD2) are going to make it easier for the customer to say, ‘That’s my data and if I’m going to choose to go to another provider I want that data to come with me.’ Wells Fargo has already started to move in the direction of giving customers greater control and transparency with a couple of initiatives we launched in 2017.” One of those was an innovative secure data exchange partnership with global software accounting firm Xero for its small business customers. “Rather than use screen scraping to capture data from our systems, which is unreliable and not as secure, we can leverage application programming interfaces (APIs) to transfer that information back and forth,” explains Miller. “It’s a win-win for both of the companies, because the data is reliable and more secure and, at the same time, we can take a service like Control Tower and put it on top.” Due for launch this year, Control Tower gives customers a single view of their digital financial footprint with the bank and allows them control over when and where their account information is shared with a third party via a simple on/off ‘switch‘. “It’s similar to what Facebook started to do a few years ago, when it allowed you to use your Facebook credentials to log into another app or another service. A little screen comes up that says ‘in order to log in with Facebook, you’re willing to share your name and your email address and some other information with this company.’ You can always go back into Facebook and remove that permission. We have the ability to deliver that same type of service.” Trust, transparency and total control. By applying artificial intelligence like that, the one thing Wells Fargo can confidently predict is a happy customer. Issue 8 |

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Gun fight at the Data Corral The Wild West of data is about to be won, according to Philip Dodds, Chief Technology Officer, and Pamela Pecs Cytron, Founder and CEO, of Pendo Systems Butch Cassidy and the Sundance Kid may be legendary, but even their infamous ability to evade capture pales into insignificance compared to the slippery nature of unstructured data. As with the two outlaws, it’s the unruly nature of information that lies outside of the norm, which makes it difficult to identify and track down. It also has the biggest bounty on its head. That’s the view of Philip Dodds, chief technology officer, and Pamela Pecs Cytron, founder and CEO, of Pendo Systems. Their company is one of the frontline marshalls, identifying and corralling dark data, then passing it on to be processed by artificial intelligence (AI) that can apply narrative science to the information. By sifting, it can turn these wanton elements into the prospect of pure gold when it comes to customer insight and predictive banking.

Last February, Pendo Systems released Version 4.0 of the Pendo Machine Learning Platform, which makes unstructured data AI-ready using, among other tools, optical character recognition (OCR) and neuro-linguistic programming (NLP) techniques. The platform enables organisations to quickly and easily identify all missing documents and cluster them, based on precise requirements, as well as making suggestions to help recover other relevant documents and data. Perhaps its most exciting feature, though, is the capacity to be trained by the human beings working with it, to continually evolve their data understanding, management, storage and business decisioning processes without the need for input from IT departments. With that, of course, comes considerable cost and resource savings. Dodds explains: “We started with machine learning [and] realised that this, on its own, couldn’t get the 95-98 per cent accuracy we were looking for. So, we combined it with rule-based systems, with highly interactive, iterative processes, to

allow us to constantly train not only the algorithms, but also people, into understanding how to harness this Wild West world of data that’s sitting out there in the unstructured space.”

A golden opportunity Dismissing that chaotic cyberspace of unstructured data as a legacy problem is missing the point, he says. As firms’ unstructured data mountains continue to develop, so must the industry and the systems it uses to keep up. “People tended to think about unstructured data as an historical problem... [but] this kind of data doesn’t go away. About 80 per cent of the data in an organisation today is really in an unstructured form. It hasn’t been IT managed, it hasn’t been put in a database. “We see unstructured as another capability that a data-aware organisation should be able to have,” says Dodds. Ensuring that data is trustworthy is equally important, adds Pecs Cytron. “One of the biggest challenges is really understanding where the data is coming from and if it’s accurate, to support the increasing trend

In its sights: The Pendo platform hunts down and brings unruly data to account

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towards data-driven decisions. Getting to grips with all of this can ultimately help organisations get closer to their customers and build up a stronger understanding of what they do and why. “Our goal is to be able to extract that data so that it’s easily accessible, to surface information, shine light and be able to isolate information that businesses haven’t seen before.” In fact, just like the shimmering nuggets the Frontier prospectors were looking for, the data this unearths can prove very precious indeed. “Let’s take the example of predictive modelling,” says Pecs Cytron. “We use unstructured data to see patterns of behaviour. Take somebody that has defaulted on their loan. We can go back and ask ‘did they default on certain things?’, ‘did he lose his job?’ and ‘did we notice, on his bank statement, that he stopped getting paid?’. Some of that data’s in systems and could be joined up, but a lot of it exists in the dialogue and the unstructured data, like bank statements and credit card statements. “I don’t really think that any of us realised how much unstructured data was being accumulated. You’ve heard the expression ‘data’s the new oil’, well, unstructured data is the gold.” Like anything that’s worth having, mining for it hasn’t been easy. “We’ve definitely had a lot of experiences that were new to us,” says Dodds. “My background was very much in the structured space. I was involved in designing and implementing enterprise data systems and that typically came in some kind of machine-readable form. “The journey we’ve been on started in that space but we were then taken, by our clients, into the unstructured space, and it became about relearning how people think about data. “If you think about structured data, data that’s in databases, data that’s been put in comma separated value (CSV) files, technology has been very involved in that. IT understands those file formats. Database models have schemas, schemas tend to be documented and there’s a lot of IT dollar being spent to manage that focus. “As we started to look at the unstructured space, we entered a bit of a no man’s land, where IT were very www.fintech.finance

hands-off and we had just documents thrown into a SharePoint site. We discovered that this was going to be a journey that the businesses would have to participate in, they’d have to see the documents, they’d have to interact with them and they’d have to iterate.” And this, say Dodds and Pecs Cytron, is a potentially never-ending process. “There’s an acceptance in our customers that unstructured data will continue to exist as long as we have people involved in the process of business, communicating in a way that’s not always structured. They’ll send emails, they’ll describe terms of a deal in a document. While that exists, businesses have to be able to continually digitise those interactions,” says Dodds. And institutions are gradually starting to recognise the data they hold as more potential than problem.

I don’t think that any of us realised how much unstructured data was being accumulated... As we started to look at the unstructured space, we entered a bit of a no man’s land “We were originally implemented in our unstructured capacity very much as a tactical thing to help our clients who were having problems with regulation. They were caught out and needed to quickly find information to either validate what they had or address a question from one of the regulators,” continues Dodds. “Over the last couple of years, they’ve gone from seeing that as a kind of black box, where they pull data from a source and gave it a nice structured form. They’re now trying to understand a lot more about what’s happening in it and their hunger for information has really changed.” Pendo is using its clever systems to sate that hunger in a hugely cost and time-efficient way. “We might start a project that seems very simple, where a client says ‘we have 300,000 or 400,000 loans and we need to quickly pull out the names, addresses and things like

that so that we can compare it to what we think we’ve got in this loan portfolio’. That’s a hugely daunting prospect for anybody who’s just got people, because that’s hundreds of thousands of documents,” says Dodds. “But by automating and iterating that, we can reduce this to just a few weeks, with a very small group of people.” This results in major savings, such as a recent loan lineage project which looked at 48 million documents in just eight weeks and which saved the institution involved $3.5million. And it has an almost infinite range of potential uses, evident from Pendo’s expansion into new markets, including insurance, already this year. “Labelled data isn’t a one-trick pony, it can be used for any number of models,” says Dodds. “Nor is it just about one algorithm that’s going to defeat them all. We want to provide a platform that basically allows businesses to think about how they manage unstructured data in their enterprise and how to consume and use it.” Pendo is on a mission to put organisations in charge of their own data understanding and management, with a series of ‘plug and play’ options in development, which Pecs Cytron describes as ‘giving back’. “We don’t want to become a bottleneck for people wanting to do more on it,” says Dodds. “So, this summer we’re looking to provide a software development kit (SDK) that will allow someone to plug their own models into the platform to try them out, including algorithms. “They don’t have to be algorithms that have come from Pendo, either, they could be from the in-house data science team or from another third party they want to integrate. “We see our SDKs helping us to broaden our reach beyond what we can deliver and also opening up the platform so that more people can get more value out of it.”

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Liberating intelligence: Giving mind-numbing tasks to bots allows bank staff to concentrate on adding value to services

Banking on the bots Michael Bellacosa, Head of BNY Mellon’s Global Payments Product Management Group, describes how a Tier 1 bank became an AI pioneer Despite being one of the world’s longest-established banks, at 223 years old, Bank of New York (BNY) Mellon Corp has hit the headlines repeatedly of late for its early adoption of bot technology. It is using artificial intelligence (AI) to streamline ‘mind-numbing’ tasks and allow its human resources to focus on the value-added. Last autumn, for instance, it launched a proprietary internal AI chatbot called Alexis to help its thousands of employees to automate manual enterprise storage-related tasks, answering questions like ‘how much performance is my array giving me?’ and helping them to access data more effectively. The firm’s vice president and head of platform architecture Marek Kwasniewski was recently quoted in the Wall Street Journal explaining: “Instead of having to find out and memorise how to do very mundane tasks, somebody will be able to ask a question or pose a command to (Alexis) in a very natural way and then have that action completed.” The system, which stands for Artificial

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Language Experience Intelligence Simulation, was built in 2017 by engineers from BNY Mellon’s platform architecture team with Tintri, one of BNY’s enterprise storage vendors, backed by $260million of venture capital funding. Initially available to its 10,000 IT employees, the bank’s ultimate plan is to roll out the virtual assistant technology to its 55,000 staff worldwide in order to support them with everything from technical enquiries to human resources questions. And the ultimate goal of handing over such mundane tasks to the machines? To liberate the bank’s human free thinkers to concentrate on more important things that contribute to the bank’s bottom line by growing revenue and increasing its competitive advantage.

Keeping the human touch The Alexis system is one of 220 bots BNY Mellon has deployed across its business over the past two years in a bid to boost efficiency and reduce costs. It estimates that those it deploys on funds transfer

alone are achieving annual savings of $330,000 by enabling it to process payments quicker and reducing errors. In this way, the bank is at the tip of a tsunami of AI-fuelled change sweeping across the industry – with predictions that AI will be the primary mode of customer interaction by 2020. But firmly at the heart of this hi-tech focus, according to Michael Bellacosa, a managing director at BNY Mellon and head of the bank’s global payments product management group, remains improved customer service. For example, it uses AI to pick up trades that fail its automatic custody platform processes, investigate the reasons why – including incorrect information – and put it right, reducing processing times by a third. It also uses bots to reply to auditors’ financial information requests, which has reduced its response time from between six and 10 business days, to 24 hours, because staff used to have to wade through data kept on six different IT systems. And with the steady march towards new, automated www.fintech.finance

technologies leaving many incumbents behind, BNY Mellon knows it will do well to keep its place at the front. Increased efficiency is all very well, but Bellacosa believes the real advantage lies in how the bank uses its new, efficient access to information, to improve the customer experience. One of the ways in which it is looking to use AI, is to ensure better understanding and control of its high-value transactions. “One of the things we did to better understand its potential role within our business, was to pose ourselves a challenge of looking at our treasury services business and identifying the best use cases for AI, then working with third-party providers to make them happen,” he says. “The winner that emerged from that process, for us, was around compliance validations and using AI to perform a lot of the functions that humans currently do in that area. “In fact, compliance represents our largest staffing dependency within payments, so using AI to streamline those processes is hugely important. “However, we’ve also looked at the information gathered from multiple sources for every transaction we carry out, so that we can automate it and learn from the prior transactions, to be able to pull the appropriate data and create a window for the decision maker, who will still be a human, to say ‘what do I need to do with this?’” So what, exactly, will happen to the human element in this mix? Will it become extinct? “This isn’t about not using human beings anymore, it’s about deploying them on the right things, so that as far as our clients are concerned, we are still offering services that are going to add value to them,” continues Bellacosa. “One of the things we’re doing in this vein is to make sure that there’s the right engagement, specifically on the industry issue of SWIFT gpi.” SWIFT gpi is the exciting new cross-border payments facilitator, already adopted by more than 150 banks globally. It enables transactions in minutes – or even seconds - and allows end-to-end payments tracking, transparency over fees and guarantees the integrity of remittance data throughout the process. It’s an important centrepiece for BNY Mellon, which deals with large-scale financial transactions all over the world. www.fintech.finance

“We want to help improve such services and provide tracking services to our clients, giving them the information directly so that they can track their own transactions, minimising their need for interaction with us and focussing the interaction we do have with them on things that add the most value,” says Bellacosa. “We’re working very closely with them to define this service, so the engagement, from an innovation perspective and a collaboration perspective, is much deeper. “It goes beyond clerical staff handling operational issues and focusses instead on sitting together and thinking about questions like ‘how do we make it easier for your business to connect with us, to improve efficiency?’ “This type of collaboration creates stronger relationships with our clients and that’s very beneficial in today’s financial world, for us and them.” That spirit of collaboration runs through many of BNY Mellon’s external interactions, too. “Our view is that, when it comes to an industrywide solution, such as improving cross-border payments, an individual financial institution cannot do it alone. We need the financial community to bring it together. So, SWIFT gpi involved 20 banks as a starting point, and now involves more than 150, working together to drive the activity and improve the service, while also creating a roadmap to continue to improve it.” And it’s not stopping there. Last month, BNY Mellon announced it would become the first bank to realise real-time payments in the US – a result of close collaboration with Volante Technologies and The Clearing House (TCH), using its new Real-Time Payments (RTP) network. The bank has called it the ‘first substantive innovation to the payments ecosystem in over four decades’, and it’s predicted that others will leverage the network rather than try to reinvent the wheel. It’s what Bellacosa terms ‘advancement-by-community’. “We’ve worked very closely with banks we compete with on a day-to day basis to come up with powerful solutions. Fuelling and

participating in this intense collaboration is something we’re very proud of,” he says. Intelligent use of data is also key to BNY Mellon’s future plans. “For example, what we really want to leverage is a tracking service supported by SWIFT gpi, where the data we get back from it allows us to offer some really innovative new services for the client, too,” explains Bellacosa. “With a traditional tracking service, you release the payment after the fact, but if you start aggregating all that information in advance, you can create a user experience for the client that, as they’re entering a cross-border transaction on their smartphone or in their web application, can also offer them a history showing whether or not the account they’re crediting is good. Because we’ve had confirmation that it’s previously been paid in the market, we can confirm it’s a ‘good transaction’ before they send it. “Conversely, we could say ‘there is a problem with the transaction’, if we’ve previously had an exception that came back as wrong. We might say ‘we’ve had problems with this transaction and using this account information before – you should verify it before you send it’. “We’ll also make data available that tracks how long it takes to make the payment. SWIFT gpi gives us the data and we aggregate it so that as an individual enters a transaction we can tell them ‘you should expect this to be received at this point in time, depending on your paid fees’. We can even tell the client, as they’re entering the transaction, what the fees are going to be and ask them if they want to include more money in the transaction to cover them and so guarantee that transaction is paid. “Aggregating the data we get from the market on the global transactions of our existing clients in this way creates a far richer experience for customers when they interact with us to execute a payment. “So, it’s pretty exciting, in that it’s a real and fundamental shift compared to anything else that’s out there, and we believe we’ll be able to make it happen in the not-too-distant future.”

Compliance represents our largest staffing dependency within payments, so using AI to streamline those processes is hugely important

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AI & DATA

How to live long and prosper Banking will no longer be an industry that sells us products, but one that makes money from dispensing advice (with help from its multi-processing friends), says IBM’s Paolo Sironi, author of bestseller FinTech Innovation Paolo Sironi must have one of the coolest job titles in the industry: FinTech Thought Leader for IBM Watson Financial Services, Watson being the groundbreaking natural language processing (NLP) system developed by the DeepQA team at IBM and now working in a range of sectors, from education to healthcare, transport to finance. For those of a certain age, Watson seeks to emulate the type of human-to-AI conversations that Kirk had with ‘Computer’ on the bridge of the USS Enterprise, who knew him so well it started addressing him as ‘dear’ in one episode… but that’s another story. Sironi, who is something of a media celebrity when it comes to fintech and finance – a subject he has written about extensively and published in multiple languages – is a visiting academic and also a member of the IBM Industry Academy, a vibrant community of IBM’s most eminent and innovative industry visionaries. He believes that only AI can help banks rebuild their intimate relationships with customers – and stay profitable. So, who better to take a deep dive with on future uses of AI and data in financial services? Fintech Finance: What are the biggest challenges facing the industry when it comes to using data effectively? Paulo Sironi: The biggest shift the financial industry is facing is a transformation from transactions to services. Banks used to be, and still are, channels to distribute products to their customers – mortgages, loans, credit cards, investment and insurance products. However, these products are losing steam because they generate less and less. This

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is due to the economic climate – low interest rates, the global financial crisis, the increase in cost of capital – but there is also regulation, such as the Markets in Financial Instruments Directive (MiFID II) in Europe and the Fiduciary Standard in the US, which is raising the level of cost transparency to the client, in turn creating attrition and lowering those margins even further. So, how do banks tackle this problem strategically? By using fintech and learning how to package those products into a solution called ‘advice’. There is a conversation to be had with the client around his/her life journey that enables the bank to put an added-value, motivational element in front of the client, inviting him/her to make a transaction. The value, however, might be less in the individual products and more in the advisory mechanism, such as by creating a fee on top. This requires banks to scale up competencies, and that’s why artificial intelligence (AI) becomes crucial, because you need to augment people’s capability to understand the client and the financial markets to make informed decisions. We should not think of this banking-as-a-service as a technical platform, but rather as a business platform that is client-centric. It solves the financial equation of individuals, which is that we work and likely we have our salary minus what we make in digital payments and the rest is what we save. If we are helped by machine-learning algorithms that optimise our payment mechanism, we can have more of that money to invest, to lend and borrow, to donate, to insure ourselves, or to save and invest for retirement, to invest for our mid-term ambitions, like education. This financial equation is the entry point for the essence

of banking, because every one of the verbs I’ve just used corresponds to a business unit of a bank. And guess what? They also correspond to the ecosystem of fintech, paytech, credittech and wealthtech. The entry point into this financial equation is always digital payments. They generate a huge amount of data that describes, more or less, what an individual is doing during his/her daily journey through life. If we think about Europe and the Revised Payment Services Directive (PSD2), third-party players, like fintechs, will now be able to aggregate information about how the client is spending his/her money on a daily/weekly/monthly basis. And, if we use AI to systematise all of this data, banks will be able to create narratives around the client that enable them to reach out at the appropriate time with an added-value proposition. Once you do this and bring the client into an advisory mechanism, you need to make sure that you can discuss a variety of topics with them. Typically, bank employees focus on a specific topic – some take care of mortgages, others loans or payments. You have very few ‘family offices’ of very smart advisors, who have the competence to take care of all of this. This is where AI comes in again, because you can augment their ability to understand products, finance and situations, and therefore convey the right information to the client without having to call too many meetings or refer him/her to too many people, which is confusing and takes up a lot of their time. That is why, in an innovative, provocative way, I say that the digital bank of the future needs to look like the human bank of the past, where people were www.fintech.finance

journey, remembers what happened to you last year, knows how you are during your working day, when you buy things and so forth. It is capable of describing you and personalising the relationship. For that, you definitely need AI and machine learning that keeps on learning about your behaviour as a customer, that keeps on learning about the financial markets – because they’re relevant for your financial life and decision-making – and that keeps on learning about the products the bank puts on the shelf. That’s why IBM talks about augmented intelligence or cognitive intelligence, because AI is just a piece of the puzzle that goes around the client. It needs to relate with a variety of different elements, so the client is augmented to make a decision and the banker is augmented to provide solutions and services, not just product, and explain the value proposition. When banks and fintech are allied to create not disrupted, low-cost, oversimplified offers, but added-value propositions like this, clients are willing to pay more because they are happy.

talking to just one person. The bank manager knew everything about them and the client didn’t have to requalify him or herself 10 times with different know your customer processes, which creates a lot of attrition, a lot of frictions and basically does not create the right level of comfort between the bank and the client. FF: So how can banks use technology to deliver that level of personal service? PS: The meta-truth is that you typically don’t buy products from a bank. In reality, most people want to get into a conversation that gives them comfort in making a financial decision – taking a mortgage, for example. This is a knowledge-based conversation and, usually, it’s a human conversation. So, if my bank-as-a-service, wants to be predominantly digital, the real element that it needs to digitise is not access to products – they’re easily commoditised. What it needs to digitise is knowledge. That means the digital bank knows about you, has followed you through a life www.fintech.finance

FF: What can a bank do with customer data it already holds but isn’t using? PS: There is a lot of data that can help the banks create a new service-orientated modality that services their customers better and therefore gives them a greater chance of controlling the margins while keeping their clients happy. Some of the data clearly is outside the bank – unformatted data that you can find on social media. But there is also a lot that sits inside about the client, which refers to how the client behaved, for example, during the last global financial crisis – did he/she sell his/her stock or buy more bonds? `Or, when his/her first child was born did they restructure the mortgage, for example? This provides a lot of information about the behaviour of the individual when it comes to finance and banking that can be used to profile them in a better way. In fact, if you look at MiFID II, the European regulators ask that financial institutions look at the history of their relationship with the client to understand their risk profile.

Because maybe the client says ‘I have a high risk appetite’ but, when you look at their history, every time the market was becoming very volatile, you see that immediately they got scared. That indicates that sometimes they have a cognitive bias and they themselves have a hard time to understand the difference between their intentions and their behaviours. All of this is gold for the bank that wants to provide advice to the client, because it enables it to become objective and showcase to the client that maybe their behaviour does not conform to their intentions. This will create lower attrition, lower conflict of interest and a more sound and sustainable banking relationship. FF: What is IBM developing at the moment around AI and financial services? PS: Two things come to mind. One is using AI to enhance client views with insights, using information such as social media, emails and letters, in order to understand the sentiment, personality and what is really happening between the client and the financial institution. The other is the possibility of digitising knowledge in order to augment the capability of bankers to talk to customers. Deutsche Bank is researching with IBM on the possibility for a hybrid advisory mechanism, for example, where corporate clients can start the conversation with a cognitive assistant that knows about the client from the balance sheet and information about the competitors’ positions. The value is always in the corpus of information that the context-sensitive, machine-learning mechanism uses to create a conversation. But the bot can also invite the client to talk to a banker and that is very important, because the final decision will always be a human decision or a hybrid decision, at least for a while. The banker can also access an AI assistant so they are more informed, digest the information faster and contextualise and enrich the conversation with the client. ■ Paolo Sironi is author of FinTech Innovation: From Robo-Advisors To Goal Based Investing And Gamification (Wiley, 2016)

The digital bank of the future needs to look like the human bank of the past

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Charting a new course Bank of America Merrill Lynch’s destination is digitisation and Head of its Digital Channels Group, Tom Durkin, is promising ‘a drumbeat of innovation’ to get there says Much is written about data lakes – but when you are Bank of America Merrill Lynch (BAML), that lake is more like an ocean. The corporate banking arm of Bank of America runs a myriad of systems to serve business and investment customers across the globe. Its Global Banking and Markets business alone currently runs 1,100 applications. So, when it comes to simplifying data handling, the bank’s task is huge... but the plan is simple. Target the processes that are high value but low complexity first. BAML was born on the cusp of the financial crisis of 2008, with Bank of America buying rival Merrill Lynch just one day before Lehman Brothers collapsed. The deal forced together two huge institutions and their giant IT departments. It is those tech systems that are still being rationalised in order that data can be better shared. But whereas 10

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years ago the aim may have been to simply replace a paper process with automation, the ambition now is to create a fully digitised, company-wide system. “What we are experiencing is a shift in client expectations. These new standards are not really set by the banking industry, but by other players and we need to catch up. At the same time, we are still running a big legacy park of systems and facing high cost. So, we need to find ways to lower those costs while improving the client experience. That’s the big challenge that we are facing and the problem that I’m currently solving for the bank,” says Tom Durkin, who heads up its Digital Channels Group. In that he believes he – and other banks – have what might appear to be a surprising ally: regulation. “With anything on the regulatory front, we look at the opportunity and say, ‘How can we seize some of that capability?’ where we’re making the

necessary investments to create a product offering around it. Whether it’s an opportunity to enhance additional protections, based on security requirements that are being introduced, or basic regulatory reporting responsibilities. As long as you’re working for an organisation that’s very focussed on turning that into more of a data-centric opportunity, that will enable product development and other opportunities to flow from regulation.

Up, up and away: The strategy is to tackle high-value but low-complexity services first

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That would be our focus, to look at how you capture that data, take the valuable assets that you may be using for regulatory reporting, and turn it into insight and analytics that could benefit the corporate treasury. “It’s about getting something out of the data across that information flow and presenting it in terms of an opportunity for the corporate treasurers to act upon it, be it better predictive results, how to manage their cashflow and cash position or understanding behaviours. “A very important aspect for treasurers is preventing things – so, fraud prevention and risk mitigation, too." With the desire to put the client at the centre of the modernisation process, BAML runs advisory boards so that customers can give their insights and help shape future developments at the bank. Durkin says the boards have helped determine where most value can be added in terms of user experience. Such collaboration was used to develop CashPro Assistant, a program launched in October that allows corporate treasury departments to analyse their banking data. Durkin says: “I think the advisory boards are a critical component for any institution that wants to evolve in this particular space. For instance, CashPro Assistant is a self-service analytics and forecasting tool that brings capabilities around your cash position, your cash forecast, and utilises an application programming interface (API) to bring that information directly into an Excel worksheet because we discovered that most of our customers would still export data from the banking systems directly to Excel and create their position for the day. So we worked to deliver that feature with Microsoft’s help. “The Assistant concept is not product-driven, it’s much more capabilitydriven, and is an example of how to add more value for clients.”

An ‘Intelligent’ approach BAML has launched a raft of new products in the past year that take advantage of its developing AI expertise. Just one of those is Intelligent Receivables, a program that automates the traditional wholesale lock box process. Using AI, it pairs up a client’s payment and remittance information

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when the two are sent separately – it can scan emails, web payer portals and electronic data exchange. It learns how customers behave so that it can predict where remittance data will probably be, and for those instances where the software fails to recover it, staff managing ‘exception queues’ can intervene manually and contact the client. Client delight has soared as a result. Another focus for 2018 is increased use of mobile phones in the corporate treasury space. Durkin believes the phone is a far better tool for inter-departmental communication than emails. He says: “Think about how you or I use the phone from a consumer’s standpoint. It’s embedded in our every interaction throughout the day, whether it is checking bank balances or seeking information. “That personalisation aspect is really going to evolve for the corporate treasurer, too. We recently launched a capability to take a picture of a cheque deposit using a mobile phone. But the other aspect where

The mobile device is going to evolve into a data consumption tool… a way for a bank to get information directly to treasury teams I think we’ll really leapfrog is how we share information via the mobile device. Whether that’s a specific alert relative to a particular fraud transaction or an alert on an incoming transaction that the treasury team may be looking for, the mobile can direct it to the right user. It’s potentially better than using email, which can be subject to delays because someone is not logged on, for example. “So, I think the mobile device is going to evolve into a data consumption tool where it’s a way for the bank to get information directly to the treasury teams at all levels of the company.” Durkin says clients can expect to see a ‘drumbeat of capabilities’ from the bank as the year progresses, especially in the arena of fraud prevention where it hopes

to address the problem through collaboration with fellow banks and fintechs. It has already started with TruSight, a vendor management company, formed in partnership with JPMorgan Chase, Wells Fargo and American Express. Launched last year, it combines best practices and simplifies the process of conducting third-party risk assessments of suppliers and partners across the financial services industry by sharing information the banks hold on them. Thus, the banks speed up the process to the benefit of all involved – and they have pledged to share best practice to reduce risk and fight fraud. “I think we’ll see much more collaboration in the security space, which will be to the benefit of the whole ecosystem,” says Durkin. “I particularly look for opportunities for collaboration around fraud prevention and risk management. Fintechs could come into play with this. For example, a fintech could have a particular solution that uses AI to help with anomaly detection. It could be a component of how the banks notify corporate customers. “I think the industry needs to continue to work on the overall aspect of information sharing.” Durkin adds that the old view of ‘banks versus fintechs’ is just that – out of date – and he is keen to see fintech innovation benefit the entire financial industry. “There are areas in which the industry as a whole benefit, even though we may be competing in particular spaces, on a day to day basis,” he says: “The ecosystem can work better when you bring in the strengths that a fintech can provide around user experience, efficiency, and so on. In our collaboration with fintechs we’ve seen how they can bring in a new design process, too. That’s been very important for BAML in allowing us to be more agile from a development perspective. We’ve had dialogues with companies such as Earthport [a crossborder payments firm] and Modo [which links the IT systems of payment systems around the world through APIs. “Fintechs bring an agility to a traditional process that may be a little bit more methodical, certainly risk averse, and they enhance the overall speed for the product development cycle.”

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INSURTECH

Insuretech – best thing since sliced... Faced with changing customer expectations of what an insurance company should offer, AXA used its loaf and implemented a strategy of ‘big i’ and ‘little i’ innovation, as Darrell Sansom, the company’s Chief Customer and Innovation Officer, explains Our perception of innovation has evolved in recent times. Just under 100 years ago, the relatively simplistic invention of the automated bread slicing machine was heralded as a monumental leap forward for humanity. Nowadays, however, there’s a hesitance to describe anything as being innovative unless it involves jettisoning a sports coupé into the stratosphere… or perhaps the decentralisation of the world banking system. Anything less than the pinnacle of human achievement these days is merely ‘change’. However, take a moment to check your dictionary and you’ll notice that the definition of innovation is simply ‘new ideas or methods’, no matter how grandiose or humble. “I think there are two forms of innovation,’” says Darrell Sansom, chief marketing officer at the insurance giant AXA. “Firstly, there’s what I would call ‘big i’ innovation, which incorporates cutting-edge, big-budget developments in areas such as artificial intelligence (AI). Then, there’s ‘little i’ innovation, which covers all the little changes that a company, such as AXA, makes on a daily basis to improve its customer proposition. Although much less likely to make newspaper headlines, in my opinion it’s this ‘little i’ innovation that enables firms to deliver the exceptional service that has come to be expected of them. “That’s not to say that ‘big i’ innovation isn’t important – it’s just that it’s the everyday improvements that have the potential to drive innovation where it really

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matters to the customer,” says Sansom. Never ones to forget which side of their automatically sliced bread is buttered, Axa’s ethos ensures that the company is always on the right track with ‘little i’ innovation. “You have to start with the customer,” says Sansom. “Whether digital or not digital, the first step is to identify a point of customer insight. Then, you can use this insight to develop your proposition accordingly. Once you’ve developed it, you can check back in with the customer and ask the question ‘is this working for you?’ If it isn’t, then you return to the customer insight and start again. “This may seem like a long-winded process,” he says, “but in this digital world of endless choice, it’s the organisation that looks after the customer the best which is going to come out on top in the future.”

Communication is key Customer service is one particular area on which AXA has chosen to focus its ‘little i’ efforts. “The rise of digital has created an environment where customers now have

We’re currently witnessing the birth of a generation of consumers who’d rather talk to an automated algorithm in the form of a chatbot than a human being

greater knowledge, awareness and expectations of the customer service that an organisation delivers,” says Sansom. Not only are customer expectations rising – they’re also becoming far broader, especially within the insurance sector. According to a survey at the end of 2017, 64 per cent of 18-24 year-olds and 60 per cent of 25-34 year-olds said they appreciate the convenience of an online chat with their insurer through a website or mobile app. By contrast, only 37 per cent of 18-24 year-olds expressed a preference towards speaking to someone on the phone when making an insurance claim, compared with 76 per cent for people aged 65 and over. Covering all bases, in terms of customer service, is proving to be no mean feat for insurance firms. These insights have not gone unnoticed by AXA, judging by the slick omni-channel communication it offers to customers. “The modern consumer interacts with an organisation in a whole plethora of ways – they ring them, they text them, they email them or they log on to social media to feed back to them. If this selection of ‘traditional’ methods of interaction wasn’t enough, we’re currently witnessing the birth of a whole new generation of consumers who’d rather talk to an automated algorithm in the form of a chatbot than a human being,” says Sansom. “A customer decides how they wish to communicate with an organisation according to their own individual circumstances and how complex they perceive the engagement to be, and it’s imperative that we offer them a range of channels to choose from as they see fit.”

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“Sure, we’re in the process of improving our AI capability to deliver an increasingly efficient chatbot service, but we’re also prioritising our human touchpoints to cater for those customers who value conversation with a person. “As well as enhancing all of our communication channels, we’re also amalgamating them,” Sansom continues. ”‘Irrespective of whether you begin a conversation with us on the phone or with a chatbot, we’ll be able to follow that interaction from start to finish, no matter what communication channel you use along the way. We’re rejecting the clunky, siloed interactions of old in favour of a process that is seamless from the customer’s point of view, allowing us to tailor their experience of our organisation and adhere to their expectations of what customer service should be.” As busy as Sansom and the team at AXA have been in ensuring that their customer service is as innovative as possible (with a little ‘i’), the company has still found time for some grander projects that would certainly come under the heading of ‘big i’ innovation. But where ‘little i ’ Innovation in the insurance industry tends to stem from a piece of customer insight, ‘big i’ innovation is currently being driven by a complete reversal in the mindset of insurers, as Sansom explains. “Insurance has traditionally been a payments business – insurers wait for things to

inevitably go wrong, then try to put them right as quickly and effectively as possible. “However, wouldn’t you rather avoid that negative event in the first place? Wouldn’t you rather work with an organisation that helps you to grow, not sit by until things go awry? It’s this customer-centric perspective that has prompted a strategic refocussing of the insurance industry,” he says. “At AXA, we’re now moving as a business towards a partner strategy, where the focus is on prevention as opposed to response. We’re making a transition from being a product provider to being a services provider, to truly add value to people’s lives before the incident and do all that we can to avoid it, as well as being there if the incident still occurs.”

Prevention better than cure As one of the UK’s leading private health insurers, AXA realised that the healthcare arm of its business formed the perfect opportunity to implement this new, preventative strategy.

The company has recently teamed up with healthcare solutions provider Doctor Care Anywhere to deliver its own virtual GP service, Doctor@Hand. “A lot of our customers are self-employed, running livelihood businesses that are reliant on them being fit and well,” says Sansom. “Doctor@Hand allows our customers to have a virtual conversation with a GP at a time of their choosing, enabling them to stay as active as possible within their business. “We’re looking to provide more services like this that are aligned with the challenges that our customers face,. For us, the goal of innovation (no matter how it’s spelled!) is to improve the experience for our customers, and products like Doctor@ Hand are helping us to achieve this goal.” If AXA’s innovation is anything to go by, your next insurance policy might just be the best thing since sliced bread.

Innovation: Sometimes small changes have the biggest impact

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LAST WORDS: BOOK REVIEW

Who’s the boss? What can American comedian Tina Fey teach our tech lit reviewer Will Dove? Probably nothing, but it was fun trying! Returning from a winter break in the Scottish Highlands earlier this year, I was not at all surprised to find that my front door refused to open. A small mountain of magazines, mail order catalogues and bills deposited through my letterbox over the course of the week had accumulated on the doormat, a reminder that I really ought to make time to reorganise my finances (and lifestyle magazine subscriptions). One bruised forearm later and I had successfully shoulder-barged my way into my own hall, only to discover that the main culprit for the blockade was in fact a book-shaped package from Fintech Finance. This was it – my new book to review! Would it be an insightful page-turner, detailing the meteoric rise of Bitcoin in 2017 and what this could mean for the evolution of cryptocurrencies? Or perhaps a post-apocalyptic thriller set in a future where GDPR fines have bankrupted all major businesses, causing the world’s population to engage in combat over the last few scraps of paper money? To my surprise, it was nothing of the sort, but the bestselling memoirs of a multi-award-winning American actress, comedian and writer, together with a note from our guest editor for this issue, Elizabeth Lumley, an internationally recognised leader in fintech. It read: “Yes, this IS for you to review. Enjoy!” Elizabeth is also the voice behind the quote: “There is nothing more disruptive than a female voice in this industry.” Bossy? I couldn’t possibly comment. I must admit that, prior to reading Bossypants, I had little knowledge of the work of Tina Fey beyond the mildly amusing 2010 romantic comedy Date Night. It was only after finishing the book that I learned of her involvement in the wildly popular and infinitely quotable highschool comedy Mean Girls – a film that I have never once watched in pyjamas whilst gorging myself on Jaffa Cakes. Perhaps my ignorance was for the best, as I had no preconceived notions of what to expect from Bossypants besides a collection of humorous anecdotes from a

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I’ve never once watched Mean Girls in my pyjamas whilst gorging on Jaffa Cakes

highly successful, albeit totally ordinary, woman. And that’s exactly what I got. Although the events of Bossypants are in roughly chronological order, this book is far from your run-of-the-mill autobiography. Fey outlines each step in her illustrious comedy career (from small town youth theatre programmes to sitcom stardom in the form of 30 Rock) through delightfully witty accounts of particular events, each more charmingly self-deprecating than the last. My personal favourite describes her efforts to win the heart of a handsome peer during her college years by climbing a nearby mountain at night. Of course, the tale ends on a sour note, with her companion declaring his love for another classmate atop said mountain. But it’s what we learn along the way of heartbreak and the dangers of amateur mountaineering that really counts. Inserted between these biographical sketches are some general musings made by Fey on a variety of pertinent subjects, from ‘being very, very skinny’ to ‘being a little bit fat’. Also included is a chapter detailing Fey’s

personal beauty tips, which cover a range of high-brow topics from skin care to female undergarments. Whilst not an expert in this field, I can appreciate the top-10 listicle format that she adopts for these chapters. Considering Bossypants was first published in 2011, I’d say Fey beat Buzzfeed to the punch and is much funnier to boot.

Bossypants Published by Sphere. Available on Kindle and as hard/paperback. Great for: Anyone in need of beauty guidance from a sarcastic Greek with ‘dark shin fur’ and ‘a sweaty frame’. Best read: In a clandestine manner at a local amateur dramatics production next to an indifferent love interest. Good read rating: ★★★★★

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