Fintech Finance presents: MoneyFest Supplement by Fintech Finance

VIRTUAL SHOW OCTOBER 26-29/2020

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Star-spangled challengers Meet US neos Greenlight and NorthOne

Recovery position How Lloyds Bank shaped a response to the COVID crisis

Better by design Infrastructure insights from Banking Circle

AI on a mission SmartStream’s intelligent reconciliations

The great migration Thought Machine on the best way to ensure an uneventful journey!

ACI WORLDWIDE’S CIARAN CHU ON CHANGING TECHNOLOGY AND BANKING BUSINESS MODELS

CLOUD FORMATIONS

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valyoues Itâ&#x20AC;&#x2122;s all about customer experience. Digitalization and customer expectations are driving the future of financial services. Put your customers first by offering state-of-the-art ID management solutions and digital payments services that will make you top of wallet. G+D Mobile Security is a part of the G+D Group with more than 11,000 employees worldwide. Our 5,300 experts in over 40 sales and partner offices all over the world are glad to advise and support you with years of experience and comprehensive solutions that let you meet the challenges of a connected financial industry and capitalize on its opportunities. For more information, please contact mobilesecurity@gi-de.com Follow us on: Social icon

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WELCOME TO /OCTOBER/26-29/2 020

oney20/20 in the year 2020 was always going to be a significant event. None of us could have foreseen just how significantly different it would turn out to be, of course!

Potentially, this will be the biggest and most diverse in the 18-year history of the payment industry’s premier conference. Forced by events to go exclusively online, it is free and open to all, cross-sector and entirely without borders, thanks to a global livestream co-ordinated over 18 hours by M20/20 in New York. It would be disingenuous to say we won’t miss the buzz and intensity of the physical conference; the surprise encounters; the test of endurance as you race between gigs; collapsing in the bar at night. But, if there is one thing that defines this industry, it is change. We’re comfortable with it; it excites us; and, as you’ll read throughout this special edition, it’s now happening at warp speed. Trends we’ve commentated on for years, accelerated by a global crisis, be it artificial intelligence (AI) in the back office, migration to the Cloud, or challengers finding their sweet spot in the value chain and wrapping an alternative user experience around it. For this issue, we’ve brought together a selection of providers doing something radically different in all those areas; offering us a new vision, post-COVID. But it’s just a taste of what’s on offer over the next four days online. Tune in to www.money2020.com/ moneyfest. Get involved in the debates and take advantage of the awesome new networking platform. Then plan to come back next year. In person.

EXECUTIVE EDITOR Ali Paterson

PHOTOGRAPHER Jordan “Dusty” Drew

US CORRESPONDENT Jacob Bouer

EDITOR Sue Scott

ONLINE EDITOR Eleanor Hazelton Lauren Towner

SALES Chloe Butler Tom Dickinson Karen Estcourt Shaun Routledge

ART DIRECTOR Chris Swales

A funny thing happened on the way to the Cloud It isn’t just a technology solution – it’s an opportunity to fundamentally reshape banks’ business models, says ACI Worldwide’s Ciaran Chu

Making the small mighty SMEs are the beating heart of the US economy – but they’re struggling. Challenger bank NorthOne wants to help them not just survive but be recognised for the heroes they are

A network of trust An effective, risk-based approach to onboarding can be technologically almost effortless, says Trulioo

A magic formula Teaching kids money management is a challenge. US-based Greenlight is using its unicorn status to reach out to them

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

VIDEO TEAM Douglas Mackenzie Lea Jakobiak Laimis Bilys Shaun Routledge Lewis Averillo-Singh Classic Dom Beasley

FEATURE WRITERS Tracy Fletcher Martin Heminway Alex King ● Natalie Marchant ● Martin Morris ● Sue Scott Swati Sanyal Tarafdar

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

The future bank playbook As digitisation accelerates, it has profound implications for the infrastructure that supports and connects banks to each other and the wider financial ecosystem. Banking Circle takes up the story

And now for the recovery How adopting an API-first approach, and working more closely with fintechs, will help Lloyds Bank build a path for business out of the crisis

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

A virtual feast Sanjib Kalita, Editor in Chief at Money20/20, reflects on industry changes and the international payments conference going online

MONEYFEST 2020 is published by ADVERTAINMENT MEDIA LTD. Pantiles Chambers 85 High Street Tunbridge Wells TN1 1XP

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

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ACI WORLDWIDE: INFRASTRUCTURE

ACI Worldwide’s Head of Public Cloud, Ciaran Chu, says it isn’t just a technology solution – it’s an opportunity to fundamentally reshape banks’ business models

A funnyy g thing ppened happ y on the way to the Cloud 4 FintechFinancePresents–

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–OCTOBER–26-29 “Everybody talks about payments moving towards the Cloud – becoming this $300billion market opportunity in the next five years,” says Ciaran Chu. “A lot of banks say they are committed to the technology, but a lot of the workloads being run, from a payments perspective, are still in their infancy.” As head of public Cloud services at payment solutions provider ACI Worldwide, Chu is involved in the digital transformation journeys of many of the 6,000 organisations it works with, including 18 of the 20 biggest banks globally. And while some may be slower than others, for those that ‘get’ Cloud’s full potential, he believes it can radically change the way they operate and their future profitability. And it all comes back to payments… MONEYFEST MAGAZINE: Can you give us a scene-setter – where banks are now and where they are heading to in their Cloud journey? CIARAN CHU: The big challenge many banks will have in the next three-to-five years is that their traditional business model is under attack: they’re able to charge less fees and interest rates are at an all-time low. So, we’ll see an acceleration of Cloud technology through artificial intelligence (AI) or other data aggregation services that allow them to create alternative value streams they couldn’t today on-premise. Those that will be really successful will move components incrementally to create value, assimilate the learnings and work in a truly agile manner. Ultimately, they’ll be able to unlock value and transform the business, piece by piece, diversifying their revenue, changing their cost base and, ultimately, spending more time on consumers and less on maintenance. A lot of banks and intermediaries I speak to, be they merchants or processors, are saying: “I want to have a faster speed to market. I acknowledge there may be more upfront cost involved in that because I’m running two platforms – I’m not fully optimised when I’m deploying it in the Cloud – but, ultimately, my major driver is to get faster time to market and increase my agility. By doing that, my expectation is that I'll get new revenue streams that www.money2020.com/moneyfest

I wouldn’t have got otherwise in the short term. In the long term, much as I’ve done in an on-premise environment, I’m going to optimise my workloads as much as possible, to ensure that my cost comes down.” MM: Are the neobanks really stealing a march over the 'heritage' banks? CC: The well-worn cliché is that neobanks can build everything from scratch that an incumbent would like to have, whereas the incumbent banks have the mass market adoption criticality. However, while, for example, US neobank Varo got its banking licence, we see the ability to get licences becoming more difficult in the US and Europe. What’s going to play in traditional banks’ favour is being able to work within ever-increasing scheme changes. On the other hand, the big advantage that challenger banks have is their DevOps kind of pipeline, building it from scratch, being able to use just the solution capabilities they need, when they need them – whether that’s core infrastructure or surrounding Cloud tools like data analytics or AI – because, from a consumer standpoint, it’s about being able to interact.

Ultimately, they’ll be able to transform the business, piece by piece, so they’re diversifying their revenue, changing their cost base and, ultimately, spending more time on consumers and less on maintenance Nobody gets it right first time, it’s about faster iteration, and neobanks can release on an hourly basis and get customer feedback, whereas a lot of incumbents are tied to being able to change their datacentres and hardware availability. MM: What other issues do incumbents face with Cloud migration? CC: Their biggest challenge is deciding what the right strategy is and committing to it, which comes back to culture. There are different approaches. The first approach

is the speedboat challenger bank, but there are a lot of startup costs associated with that. The second is tying what they’ve built back to their great data and insight and making that a frictionless experience. The third is ensuring they’re getting the right skills in. With a massive shortage of technology talent, they’re competing against big tech and fintech for the best. Otherwise, it’s the same people, with the same processes, just with a different name. The approach we’re seeing working really well is picking off a specific problem, like standing authorisation, putting that into the Cloud, then building off the back of that. We’ve got a couple of large global banks doing that and it means their guys are getting used to running it, they can optimise it, and it gives them a proof point to move more of their business processing in. It’s easier to take this approach, then think about how to define and design a slick infrastructure, then fit their data over the top, to ensure they reap the benefits of being faster to market. They can build their DevOps capabilities out from scratch, as opposed to trying to move their existing process and procedure across, and then work out how to do the DevOps piece. As I said before, it’s about unlocking business value incrementally. If they can pick off a piece of capability that’s causing them an issue, then execute against it in a timely manner, that helps start the flywheel, whereas migrating everything just because it’s the Cloud, without a business strategy or specific driver, is just swapping one thing for another. MM: How can banks move from innovation theatre to getting it done? CC: Their issue has not been a shortage of good ideas, it’s been the ability to bring them to life. Some very good innovation organisations have sat within banks, but when they get to the stage of bringing their ideas to life, they have to come back into the hurly-burly of the bank infrastructure and try to get their change prioritised in the in-house system. A quandary, for several years, has been how to keep an innovation hub as an entirely separate entity. Do they set up a fintech accelerator lab, as a lot of the banks have done? And, if so, how do you tie it back to the core bank capability?

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ACI WORLDWIDE: INFRASTRUCTURE For me, the Cloud is a gamechanger because, whereas in the past you’d have had to schedule in a change and then had it made but not necessarily had the right analytics data to monitor its success, with the Cloud you can spin up your idea in minutes, see how much it’s costing you to run, and what customers think, because it’s dynamically scalable. You can then add new capabilities and, crucially, migrate other operations towards that faster-to-market, more simple maintenance model. MM: Where do banks look for those new business models and revenue streams? CC: The most logical place to find revenue outside transaction fees – with the caveat that, while revenue fees per transaction are falling, the volume of electronic payments,

Does it add up? Revenue fees per transaction are falling but volume of low-value payments is rising

especially off the back of COVID, is rising – is through improved customer experience. The easiest way to do that is by improving transaction convergence or giving customers more contextual data to go about their daily lives. The challenge for established banks is their spaghetti architecture – a customer has a retail account and a home insurance account, for example, but those pieces of data are held in different databases, making it hard to pull together a complete data picture of that client. Meanwhile, the neobanks, particularly in Europe, can leverage open banking to pull together aggregated account information – because they’re Cloud native with the AI capabilities Cloud providers give them. It helps give consumers a more seamless experience, driving more transaction volume, which in turn enables

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them to provide more contextual information for consumers looking for that easy button. That’s going to be one of the big battlegrounds. Can the incumbents simplify their data structures and commercialise the fact consumers trust them to hold information? And who wins? Is it the trusted bank, which has a lot of information it can’t quite get together today, but, through the Cloud, can use the help of providers to better aggregate that info and make it available? Or, is it your neobank that’s jumped straight in and is making it so easy to use its product and aggregate your accounts? That’s going to be really interesting one to watch because, ultimately, with transaction fees, it’s currently a race to the bottom.

they need it, is attractive from an operation, maintenance and resource standpoint. The third big benefit of PaaS is the ubiquity of the experience. Given how fast the market is moving, banks need to respond to that in an effective time period. PaaS is a neat solution because it allows them to unlock new capability as they need it, using application programming interfaces (APIs). This is massively powerful and transforms their go-to-market and customer experience, not to mention the bank’s cost base. MM: And what can ACI Worldwide bring to the table to help banks navigate this changing environment? CC: We’ve huge experience of supporting clients running mission-critical systems in their own datacentres. But we’ve also been on our own Cloud journey – we now have our own private Cloud business – which gives us a massive advantage in that we understand what it takes to migrate to and operate in the Cloud. So, I think our own experiences have really resonated with clients, because they can come to us to ask questions like ‘how do I solve the HSM (hardware security module) latency issue?’ and we’ve been able to say ‘like this… you can run it in your own datacentre, and here are the things you need to think about in order to connect to the payment application in the Cloud. Or, alternatively, here’s our colocation provider’. We use our own middleware to connect our different applications, to make them seamless for clients, and particularly to API-enable them, so that customers can come in and use the services they need, when they need them. That’s really helped us think, customer-first, about how we can make customers’ lives easier in so far as being able to consume the gamut of ACI’s technology in a really seamless manner, so that they can go to market faster, innovate faster, and also maintain their applications in a far more seamless manner – which, given the amount of regulatory oversight coming in, is in itself a massive challenge.

As a bank moves towards the Cloud, there is a natural pause, a point for it to consider what the bank itself wants to offer and what it can outsource

MM: Do you think banks will relinquish traditionally in-house payment services? CC: As a bank moves towards the Cloud, there is a natural pause, a point for it to consider what the bank itself wants to offer and what it can outsource. The first big advantage of payments-as-a-service (PaaS) is being able to focus on customers, while outsourcing the technical infrastructure. The second is that many banks are realising the Cloud journey requires different technical skills, which they might not have in-house to be able to execute as quickly as they want. So, the idea of consuming a service, as and when

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NORTHONE: SMEs It’s a sad fact of our modern value system that we equate size with success. The bigger the business, this flawed logic goes, the better – and those companies that have floundered on the Darwinian fight to the top have simply succumbed to their inadequacies, their in-built flaws. According to this creed, pursuing growth is obligatory, not optional; scaling-up is second-nature, not strategic. Yet, there are millions of small business owners in the US with no plans – and no need – to expand. Content with their slice of the pie, the proprietors of SMEs have often bootstrapped themselves to a position where employing a handful of people is a huge achievement: they’ve worked hard to realise their American dream. These aren’t economics majors on a crusade to add zeros to their net worth; they’re humble and provincial, and, together, they happen to employ half of all American workers. So, why is financial administration still such a nightmare for small and medium-sized enterprises (SMEs)?

SMEs – the beating heart of the US economy – are struggling. NorthOne’s CEO, Eytan Bensoussan, explains how his challenger business bank wants to help them not just survive but be recognised for the heroes they are “Historically, small businesses have been a very difficult segment to serve for classic banks,” says Eytan Bensoussan, CEO of small-business challenger bank NorthOne. “They also have a lot of idiosyncratic needs that are unique to their business, so there’s no easy way to do a one-size-fits-all kind of offering. That makes it quite unprofitable to serve them at scale. “The other part of it is that, even if these businesses execute perfectly, they

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

Making the small mighty 8 FintechFinancePresents–

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–OCTOBER–26-29 of my childhood is filled with memories of sitting on my grandfather’s lap after he’d stopped working for the day. He was an electrician and he used one of those old calculators, with the reels, into which you’d type the numbers, and it would just spit out the paper. “This took hours and hours and hours. Much of my family had that same pattern: the anxiety around closing your books, the frantic search for invoices – this was the ebb and flow of my childhood. But when you start stepping back, you think ‘that’s crazy’. This was a good electrician – he should have been spending more time fixing wiring in buildings, rather than trying to close accounting ledgers’.” Why should skilled labourers and busy business owners have to wade through a Kafka-esque blizzard of bureaucracy just to do their jobs while larger firms enjoy access to a warming buffet of corporate banking services? That’s the premise from which everything flows at NorthOne.

LEVELLING UP SERVICES Its mobile app – currently available in the US – is a timely intervention for admin-allergic SMEs. The app offers cashflow analytics and dedicated tax accounts. The derisking, de-stressing effect of these features is more important than ever as businesses bear the brunt of the economic impact of coronavirus. “COVID switched our unleaded fuel for jet fuel,” says Bensoussan of the impact it had on NorthOne’s growth. “We started seeing orders of magnitude more businesses looking for bank accounts that were untethered to branches.” It’s not difficult to see why: while stocks in the tech giants have been soaring, it’s SMEs that are suffering the sharp end of dramatically reduced footfall in towns and cities across America. To date, the pandemic has forced 70,000 US businesses to permanently close, leaving close to a million unemployed. Data from the Census Bureau suggests five per cent of surviving SMEs expect to shut up shop for good in the next six months, while a survey from the National Federation of Independent Businesses found that 21 per cent of American SMEs believe they’ll have to close if conditions haven’t improved by spring. This isn’t pessimism – it’s realism. SMEs in America are heading towards the gnashing www.money2020.com/moneyfest

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

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

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

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TRULIOO: ONBOARDING

Joining the dots: Cross-referencing data from different identity streams means a higher barrier to fraud

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–OCTOBER–26-29 An effective, risk-based approach to onboarding can be technologically almost effortless, says Zac Cohen, COO of Trulioo When a business is onboarding customers using a risk-based approach, some identifications require enhanced due diligence. Payment providers, for example, must consider factors such as the country of origin, where the money is going to, the source of funds and the transaction value. If potential risks are identified during due diligence, adding layers of identity verification to onboarding workflows helps to provide more robust fraud prevention measures without adding substantially more friction or effort. Using digital identity, ID document and bank account verification can enable organisations to utilise a few reliable ways to verify and authenticate that someone is who they claim to be. By cross-referencing multiple networks, businesses can implement an even more robust fraud and risk mitigation system. Corroborating information from different identity streams creates a higher barrier for any would-be fraudster to overcome.

CUSTOM WORKFLOWS While fraud prevention and compliance measures are always necessary, requiring every customer to go through the highest level of scrutiny is often unnecessary and can sometimes even lead to transaction abandonment. The individual, scenario and numerous other factors will affect the risk profile and, thus, the rule sets and workflows should also vary. They can be customised to offer the most appropriate onboarding experience, based on risk, allowing lower- risk accounts to onboard seamlessly while requiring higher-risk ones to go through more robust measures, as part of a balanced, risk-based approach. For instance, Stake, an Australian-based investment platform that challenges traditional banks and brokers on

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investing costs and user experience, uses Trulioo to onboard and verify customers in four different locations (Australia, New Zealand, the UK and Brazil) with multiple legislations and other requirements. One of the founding principles of the company was to address three major legacy issues within the investment industry for customers: paper forms, excessive fees and poor execution. Stake needed to undertake appropriate anti-money laundering and know your customer (KYC) procedures for every customer, and provide the appropriate level of security, without compromising on service. Using its risk-based approach, Trulioo has helped Stake with this due diligence while enabling the company to scale globally, delivering verification to a vast market. Validating personal identification information as a first step can provide insight into what further checks should be deployed. Beyond the information provided by the consumer, the simultaneous collection of significant

By cross-referencing multiple networks, businesses can implement an even more robust fraud and risk mitigation system metadata presents numerous signals that are useful for fraud prevention. For the consumer, it’s just a few simple questions, but for a sophisticated identity verification system, it’s a multitude of data points and signals to determine the risk profile and the associated workflow. If, during the initial analysis, a need for enhanced due diligence is identified, a secondary ID document verification might be called for. For these cases, the consumer is asked for images of their identity documents. These images can then undergo security checks, including analysing them for signs of forgery or alteration. For a company that needs extra layers, this process could also require the customer to send a selfie along with the picture of their ID. This selfie enables a liveness check and biometric comparison between that

image and the ID photo. Using facial recognition technology, the image comparison is done quickly and with a high degree of accuracy, providing yet another layer of comfort. If documents are unavailable or an even further due diligence layer is called for, a bank account verification may be requested. Bank verification is a mechanism to confirm that the person entering identity information into a form is authorised to use the identity they have supplied. As banks have strict regulations around proper KYC and security measures, using banks as a verification layer helps to provide assurance that the prospect has passed other strict ID verification procedures, and that the information matches a defined bank account. As with any verification procedure, there’s always an amount of healthy friction for the consumer when adding security measures. Studies show that consumers appreciate the trade-off, as they understand the need for security and how those measures protect them when they open accounts. Providing the onboarding process prioritises data privacy and is not complicated or slow in comparison to the value they receive, consumers will willingly proceed.

RIGHT VERIFICATION AT RIGHT TIME With the smart implementation of a digital identity network, an effective, risk-based approach is technologically almost effortless. It goes without saying that compliance teams need to consider various risks and what appropriate measures should be in place to safeguard their operations. Regular adjustments, reviews and manual investigations should always be part of the process. However, effective identity verification workflows make remote onboarding safe, convenient and seamless – for both operational teams and consumers. The right level of due diligence is expected by consumers in today’s digital world and will help pave the way for greater customer trust and loyalty.

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GREENLIGHT: KIDS’ FINANCES

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

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Greenlight successfully raised $215million in its latest funding round in September, valuing the company at $1.2billion. Like ’digital piggy banks’ elsewhere, Greenlight’s prepaid debit card and app for kids is designed to enable parents to manage their children’s spending – the app being able to allocate specific stores or categories where kids can spend their cash. Other features include receipt of real-time notifications for mum and dad when the card is used, the ability for parents to transfer money to their child’s card for allowance or incidental expenses; and being able to manage weekly or one-time rewards, such as for finishing chores. Greenlight also protects the cardholder with a parent-controlled PIN number, ATM access controls and a feature automatically blocking wire transfers, money orders, lotteries and cash back from purchases. In late 2020, the company intends launching an investment account, aimed at helping little Warren Buffetts build wealth over the longer term. The card is issued by the Community Federal Savings Bank in the US, which also holds funds.

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

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

–OCTOBER–26-29

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

educator, who spent most of his career teaching and researching at MIT in the US. Papert was one of the pioneers of AI and of the constructionist movement in education, which advocates student-centred, discovery learning, where students use information they already know to acquire more knowledge. Lego Mindstorms (an initiative to develop programmable robots based on Lego building blocks) also came out of the MIT Media Lab, Sheehan observes. It’s an important point because: “If you let kids construct, or participate actively in their learning, they tend to learn much better,” he says. “With Greenlight, what we’ve tried to do is build the product in such a way that it’s www.money2020.com/moneyfest

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

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

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

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THOUGHT MACHINE: CLOUD BANKING Incremental elevation: Approach migration in stages, says Taylor

step at a

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

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

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

–OCTOBER–26-29 Europe have worked with such providers. That’s good news for Taylor. “Banks have got drawn into becoming infrastructure-heavy companies,” he says. “Banking is about providing credit to customers, managing payments, managing deposits, and being a secure store of value for your customers. Its principles haven’t changed since banking was invented in the early Renaissance. But it’s nearly impossible for a bank to get its energy focussed on this because the demands from the technology and the constraints from the technology, the issues with regulators, the issues with data security, are dominating. “A big problem with traditional core banking systems is they really are designed for branches and, if not branches, then call centres; they’re really not designed for immersive, real-time, data-centric user interaction,” adds Taylor. “Many developers of apps have become very frustrated working in traditional systems because they just cannot get access to the information and the features they need. A modern core, that has been built to enable the bank to do whatever customer proposition it wants, frees them up.” That said, banks must select their infrastructure partners carefully. “What you want is a suite of technology providers that you trust to be capable, of doing what they say they can do,” says Taylor. “There’s no point in using a know-your-customer verification company if you’re just as worried about them as you would be about your own system, for example. It’s the same with the core banking engine. Our goal is that the bankers should just be thinking about, ‘how do we want this credit card to operate? How do we want these fees to operate? How do we want interest payments? How do we want to extend credit? How do we make all this available through apps to the customer?’. They shouldn’t have to worry about how it actually works under the hood.” Despite Banking Circle’s upbeat assessment of the sea change in attitude towards allowing infrastructure partners to take the back-end strain for a bank, Taylor says there is still a long way to go. “I would like to see banks get back to the core business of how to lend, create, and deposit money and from that I think we’d all be in a better place.” With so much of the world’s new www.money2020.com/moneyfest

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

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

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

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

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SMARTSTREAM: ARTIFICIAL INTELLIGENCE

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

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

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

Super-powered AI: SmartStream is making heroic efforts to harness artificial intelligence

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

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

space. If there had been the right controls, checks and balances by a third party, not internal and inward-focussed, we could have avoided a situation like Wirecard. That’s why it’s important that we bring the right controls, checks and balances to the operations. MM: With that in mind, then, what does SmartStream Air offer when it comes to payment reconciliation? ST: SmartStream is a specialist in the operations controls space. We take care of the entire burden of any risks, both financial and reputational, that an entity could face if it was not handling transactions and operations properly. Our platform is available in the Cloud and as part of managed services. Any new or existing player that wants to leverage the experience and capabilities of our platform and resources can start on day one, without going through the entire journey of

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

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

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

Companies, fintechs, banks, and all players involved, should start focussing on the right controls, start investing in that space setting up these operations in-house. Our managed service is working particularly well for some of the largest banks in the world. It means that any new and growing business does not have to worry about the burden on its operations. That’s fundamental. We are there to ensure that no bank or fintech player is at a risk of either losing its clients’ business or their money. The rapid pace at which innovations are happening, means you have very limited time to adapt, which means the platform you are using should be able to do that on your behalf. So, applying AI and machine learning in reconciliation, as we have done with

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

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BANKING CIRCLE: NEO INFRASTRUCTURE

The

playbook

As digitisation accelerates, it has profound implications for the infrastructure that supports and connects banks to each other and the wider financial ecosystem. Anders la Cour, CEO of Banking Circle, takes up the story CHAPTER 1: THE PATH TO DIGITAL READINESS MONEYFEST MAGAZINE: You recently published research into how COVID-19 has impacted banks’ digitisation plans. What did that tell you? ANDERS LA COUR: Banks have been embracing digital more and more in recent years. They have been working to build more responsive and flexible businesses, in response to changing customer requirements as well, probably, as competition from fintechs and challenger banks. Regulation such as the revised Payment Services Directive (PSD2) has also been a key driver for digitisation. And banks have worked to overcome their traditional reluctance to moving to the Cloud for delivering essential transaction services. But COVID-19 accelerated their existing plans – suddenly, customers couldn’t go into branches, employees couldn’t come into branches or call centres, or online support hubs. Banks had to adapt and switch on more digital solutions. Many were already working with third-party financial infrastructure providers for some parts of their service. A number had also launched their own digital banks as a way of digitising and not replacing legacy systems – some more successfully than others. NatWest launched Mettle; Bank Leumi in Israel launched Pepper; J.P. Morgan is launching a digital bank in the UK in 2021. However RBS, for example, closed Bo. Our research among banks and payments providers across Europe, right

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at the start of the pandemic, showed that 90 per cent of banks and financial institutions are building technology design and architecture into their business planning. Eighty per cent of retail banks and 74 per cent of commercial banks have already worked with infrastructure providers. Close to 90 per cent of retail and commercial banks use customer data to determine demand.

CHAPTER 2: THE FUTURE-PROOF BANK MM: Banks have been through previous financial crises, in very different circumstances, but can the lessons learned from those events be applied today, to help build more future-proof banks? ALC: Banking has long been a tech-heavy industry – banks’ basic architecture is derived from monolithic systems. It is a significant challenge for a bank to deploy new software in an agile, easy way and apply best practice. Many banks have tried to overhaul their legacy infrastructure – but with difficulty. Now the mindset has shifted – banks are increasingly open to collaboration to find the best solutions for the customer. In 2019, Apple and Goldman Sachs launched a groundbreaking new credit card and Google is partnering with a variety of banks. Another example is Starling Bank, which has pursued partnerships with other fintechs. For example, Moneybox was one of Starling Bank’s earliest partnerships. In the context of COVID-19, collaboration has also addressed the issue

of financial fraud. HSBC has become the latest bank to sign up to a biometric identification system, developed by technology firm MiTek and offered through a partnership with Adobe. This trend of collaboration should continue post-pandemic. The most confident banks are those that have made heavy investments in

Alex Mifsud, Co-founder & CEO of payment services provider, Weavr Digital will continue to drive innovation and financial infrastructure. For example, innovation in customer onboarding has been largely driven by digital. The traditional way that banks used to pick documents and decide whether to open a bank account for you has shifted very significantly, as digital presents customers with a better way to do things. The same thing is going to happen to all aspects of financial services. Digital is simply going to drive a whole lot of innovation that financial infrastructure needs to respond to, because you can’t create a very deep and joined-up user experience if your back-office is completely disconnected. So, the next bit of transformation, I think, will happen in the backend systems. Ultimately, banks can’t do everything, so they also have to digitise a much bigger supply chain.

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–OCTOBER–26-29

Georg Ludviksson, Co-founder & CEO of digital banking software supplier Meniga Infrastructure is becoming more strategic, and banks and fintechs are building in optionality and modularising their systems and solutions, separating the frontend from the backend. More services are now consumed via application programming interfaces (APIs) and delivery models are changing. The rise of open banking is also blurring the lines between what’s inside a financial institution or a fintech, and what’s outside. So, interoperability and the ability, for example, for banks to connect, via APIs, to fintechs to offer their services, as part of the bank’s value proposition, is much more important than it was before. At least, the strategic optionality of doing so is, because that’s something everyone expects to increase. I think banks are realising that they may not have all the products in the future on their own balance sheet; they may not build them all themselves. So how can they build infrastructure that facilitates working or partnering with fintechs, while they may also compete with them?

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their tech stack and re-aligned their financial infrastructure requirements, using third-party services and platforms to respond to changing demands. This year has provided excellent learning opportunities to help all types of financial institutions regain clarity and confidence.

and recovery is expected to be swift.Thirty-two per cent said that the virus will affect their business ‘quite a lot’, with changes being made and cost reduction where possible. Another 26 per cent said the impact would be ‘significant and wide-ranging’.

CHAPTER 3: A NEW COMPETITIVE LANDSCAPE MM: Are banks in a strong position to face the global recession, in your opinion, and how do you think they compare to fintechs and payment service providers (PSPs)? ALC: Banks have the history to face the global COVID-induced recession. They also have strong brands and greater financial backing than fintechs. But they could learn from the ingenuity and innovative quick-thinking that is typical of fintechs, to arm them well for the challenging economic conditions. History, experience and taking the long view are probably some of the reasons that just five per cent of the retail banks we questioned said they were concerned about the threat of recession, compared to 31 per cent of fintechs and 41 per cent of PSPs. Specifically on the COVID-effect, 41 per cent said the crisis has had ‘little’ impact,

MM: Has the process of ‘virtualisation’ effectively levelled the playing field for new entrants and incumbents? ALC: The playing field was already being levelled; it seems the pandemic has simply accelerated that process. But it still comes back to delivering a service that is in tune with customer need and, to be able to do that, the financial institution needs to focus on its core skill and not be distracted by the ‘pipes and plumbing’ that underpin its service. Partnership with good financial infrastructure providers solves that problem, if incumbent banks can be open-minded enough to take that step. The institution must ensure digitisation is part of the delivery and doesn’t become the service itself. The winning firms will be those that use digitisation as part of the journey to the benefit of the customer – they must not make it the destination.

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BANKING CIRCLE: INFRASTRUCTURE MM: As levels of collaboration across the financial ecosystem increase, have the dynamics of the competitive landscape for banks changed in turn? ALC: The competitive landscape was already changing as the new wave of fintechs and disruptors emerged. What is changing now is a recognition that different markets require different types of service, and the competitiveness is therefore focussed on being able to address a specific market need.

CHAPTER 4: THE STRATEGIC VALUE OF FINANCIAL INFRASTRUCTURE MM: What did your research show about the challenges facing banks and other financial institutions today? ALC: The most common challenges remain aligned to a business-as-usual world – even a global pandemic has not changed that. So, the impact of regulation was a challenge to 58 per cent, while 53 per cent cited the

Juan Jiménez Zaballos, Group VP & MD for Innovation at Santander When we talk about platforms with our clients, and with other incumbents, it takes me to the first part of the conversation: how do we create an open banking platform to be the best in financial services? Open banking is dramatically changing the way we think of infrastructure. Back in the day, banks had robust, solid infrastructures, but they were closed ones. Now, we are betting on the openness of the infrastructure and the platform in order to build new services – platform-as-a-service, banking-as-a-service, etc. It’s a tough journey because the infrastructures that we used to have on-prem, are still on-prem. Most of the banks I meet are still only 20-to-25 per cent in the Cloud. Application programming interfaces (APIs) are a driving force in opening banks to the ecosystem, to interact with third parties. And these third parties can be fintechs, other banks and regulators. We are all travelling on this journey together, and there are plenty of opportunities.

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implications of constantly-evolving customer expectations. Less than a third are now concerned about the pace of technological change in banking – dropping to one-in-six among commercial banks. When building a digital-first relationship at scale, banks seem to struggle with the need to create both a user experience and a user interface that work for a wide range of customer types. The challenge is providing the experience rather than the underlying technology. Banking infrastructure has become a much more strategic concern – a significant number of businesses now have an interdisciplinary team looking at the latest technological innovations. This crucial decision is not simply a matter of IT selection, but something that can affect the entire business and, consequently, demands broad input and buy-in. MM: In what ways are new digital platforms from external providers being used by incumbent banks to tackle some of their challenges? ALC: We, and other fintechs like us, are building systems designed from the basic understanding that technology is ever-evolving. Banking Circle architecture is decoupled, comprising of smaller components and services. So, we are not just building for today, we are building for a payments world that is ever-evolving. With a decoupled architecture, we are able to replace or update individual pieces with limited impact on the rest. We are also able to easily add more functionality. For example, we may want to add direct clearing in new geographies, which may require new connectivity, new formats and protocols, and interaction with new clearing technology providers. We are also, like most other tech firms, building our infrastructure in the Cloud from the get-go. Using modern development tools, technology and infrastructure, together with a modern architecture, also allows for agile development and continuous delivery. That leads to us being able to bring solutions to the market quicker. A recent example of that is the launch of our payments-on-behalf of (POBO)/collectionson-behalf-of (COBO) solution. Historically, business-to-business (B2B) payments have been received in the name of the payments business or bank rather than the underlying customer. This can result in reconciliation

Jason Maude, Chief Technology Advocate at Starling From around the time that Starling and the other first fintechs started to come along, there has been a big shift away from the thinking that you have to have your server in your building. Our Chief Information Officer tells a story about when he was first interviewed by regulators. He was asked ‘who has the keys to the server room?’ and his answer was ‘not only do I not know who has the keys to the server room, I don’t even know where the server room is’. At the time, that was fairly shocking for regulators. But I would argue that a Cloud-based infrastructure allows for greater security and responsibility, as long as you are clear about who has responsibility for what – and the big Cloud providers do a good job of saying where theirs lies. One thing digital adoption does is encourage the growth of new features and ways of doing things; new add-ons and additional types of account. The best digital financial services players (and I would of course include Starling as one of those!) are releasing new features all the time. It’s difficult to keep up with them if you’re not on the Cloud. issues which, in turn, can cause delays in settlement and impact cashflow. Our solution addresses these pain points by enabling financial institutions to offer immediate visibility of the sender’s details when processing B2B payments, and to collect funds locally into accounts in the underlying customer’s name. Payments businesses and banks can deliver this service without relying on the slow, costly and outdated correspondent banking network, or invest in their own solution. The big challenge is staying focussed on delivering what customers need – and not relying on lethargy to retain relationships. To do that, the focus has to be on understanding and responding to customers effectively – and that means not being distracted by back office issues. That’s where financial infrastructure providers like Banking Circle fit in. www.fintech.finance

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

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

understand clients’ needs and clients’ wants. We’re constantly trying to reduce friction, and openly evaluating whether or not we would look to buy, build, or partner to deliver what we need,” says Melville. That’s resulted in a cascade of API-supported business tools being developed over the past year, including a payables API using the UK’s Faster Payments rail, which has now handled £1billion in transactions; a new asset finance API for brokers; and a trade tracker API that provides visibility of deals in the supply chain, all of which can help in the immediate aftermath of the crisis. “What we’re seeing is trends that were already there in the market before the pandemic are definitely accelerating on the back of it,” says Melville. “There is a lot we could do to help chief finance officers and chief information officers around leveraging APIs – getting automated key treasury activities, such as balance sheets, statement retrievals, sweeping, FX hedging – bringing all that together. “On the data side, it’s about bringing it all to a single spot – it could be banking data and accounting data – which will create a much more holistic view to help with working capital. 

the recovery Andrea Melville, MD of Commercialisation and Propositions in Lloyds Bank’s Global Transaction Banking Team, believes adopting an API-first approach and working ever closer with fintechs will help build a path out of the crisis for business www.money2020.com/moneyfest

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

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

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

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

TECH TO THE RESCUE In common with many others, Lloyds Bank has taken a big hit from the pandemic-related crash – it reported a second quarter loss of £676million for the three months to June – while at the same time coming under pressure to respond to extraordinary demand from government to support businesses and individuals also reeling from COVID’s impact. Banks were

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

data is so important right now,” says Melville. “Businesses really need to be looking to use data as a driver of their strategy and decisionmaking.” She credits the bank’s design team with having a ‘strong cultural curiosity’. “It results in lots of proof of concepts, lots of pilots, lots of research and lots of listening. We focus on trying to understand what clients want. We’re constantly trying to reduce friction, and we’re openly evaluating whether or not we should buy, build or partner to deliver what we need.” It’s currently working with Validis, for example, on how it can import data from its customers in a standardised way. “We’re looking at fintechs that do things around synthetic data, data matching, graph technology,” says Melville. “It helps us better understand the benefit for our customers, it helps us understand the use cases, the risks and the mitigants. “Banking has a sourcing model that really needs to be faced into,” she observes.

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

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G+D: PAYMENT SECURITY

GETTING YOUR CLICKS The etail explosion spurred on by COVID-19 is a golden opportunity for the industry – if it can collaborate over payment security, says G+D Mobile Security’s Vice President Jukka Yliuntinen Hands up if delivery services like Amazon have become your fourth emergency service during lockdown. The biggest example of an online retailer stepping in to help consumers access supplies and stave off boredom during months out of social circulation, this megalith of ecommerce isn’t the only one to come into its own as a result of COVID-19. In fact, the unprecedented circumstances sparked by the pandemic, which has characterised much of 2020 so far, have sent an already significant trend towards ecommerce spiralling upwards. Thanks to increasing numbers clicking to source everything from household essentials to entertainment since March, Goldman Sachs has revised its growth predictions for ecommerce upwards – from 16 per cent per year for the next three years, to 19 per cent. In its July report, the US bank stated that ‘we’ve seen an acceleration in innovation over the course of the crisis as companies have rolled out curb-side pick-up programmes, contactless checkout and personalised consignment deliveries, and retailers and marketplaces have adapted to reflect the shifting needs of consumers focussed on the new essentials’. Meanwhile, in the UK, footfall in retail stores is less than 50 per cent of last year’s levels, suggesting that those businesses still here are also conducting more of their sales online. All of which is pushing online payments, and the associated need to ensure payment security, right to the top of the finance industry’s agenda. Yet, just as the requirement for enhanced security becomes stronger than ever, regulators like the UK’s Financial Conduct Authority have been forced to re-think

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their implementation deadlines for the introduction of the new Secure Customer Authentication (SCA) regulation, which will help to provide that protection – from 31 March to 31 September, 2021. The main issue forcing this delay is a lack of industry consensus around how it should be achieved, with the one-time passcodes (OTPs) currently being used by many organisations widely viewed as cumbersome and inadequate, and different organisations favouring widely varying solutions, from biometrics to tokenisation. The complexity and cost involved in bringing their online operations up to spec means many smaller merchants have been slow to respond, which is understandable, given they are still focussed on survival. Balancing seamless user experience with the necessary security uplift is no easy task for the processors either, with authentication hurdles oft-cited as a major cause of shopping cart abandonment. Meanwhile, as these implementation crinkles are being ironed out, an already burdensome fraud problem is accelerating rapidly. Enter key players like mobile security expert Giesecke+Devrient (G+D), which has experience in the security of all payment types and is working closely with issuers and merchants, as well as card networks, to find solutions that provide a virtually imperceptible payment experience while keeping payments secure. Founded in 1852, G+D offers both physical and digital security technologies used by millions of people, worldwide, every day, to pay by cash, card or smartphone, interact with their cars or use their identity documents while travelling. It has led development of biometric cards, and a relationship with Crédit Agricole on a combined chip and fingerprint recognition solution is one of a number of productive partnerships it has established to push this technology forward. Card giants Mastercard and Visa are also both active in this area, using G+D technology to offer their Visa Ready and Mastercard Biometric, fingerprint-based solutions. Tokenisation and dynamic card verification are among the other

SCA-related developments taking place – where banks can turn account numbers into tokens placed into physical devices or ecommerce systems and mobile transactions, to bar access to fraudsters. In July, G+D was approved by Mastercard as a ‘digital activity customer’, enabling it to onboard and make technical and commercial services available to third-party businesses wishing to enable digital payments in fields like Internet of Things (IoT) and card-on-file (where ecommerce providers store customers’ chosen payment details to enable uninterrupted transactions) through the Mastercard Digital Enablement Service (MDES). While card-on-file solutions are becoming more prevalent, they aren’t without risk, as significant hacking incidents over the past 12 months, including the Easyjet breach last May which saw nine million customers’ details stolen, have shown. G+D has supported widespread calls across the industry for more discussion and collaboration over SCA implementation, as studies show the average person has 90 different online accounts and needs to authenticate him/herself 45 times a day. Agnostic about which payment method it supports, G+D offers security solutions for all of them but is part of a collaborative industry movement calling for universal standards to bridge the usability/security gap.

UP FOR THE CHALLENGE Jukka Yliuntinen is responsible for G+D’s digital product portfolio development. He says: “Online payments have seen phenomenal growth. Retailers and merchants have seen a huge increase in capabilities for offering their services online, and there is increasing consumer demand for online shopping because it’s so easy and they can pick and choose, compare and get home delivery.” And for online providers, trying to ensure SCA compliance while opening up their application programming interfaces (APIs) for authorised third-party access to customer data, collaboration is key. “We’ve traditionally been about helping issuers to provide means of payment, from www.fintech.finance

–OCTOBER–26-29 cash to cards, including payment devices in the field,” says Yliuntinen. “With digital, the same applies. We enable issuers to have their digital payment cards enabled in different types of wallets and endpoints. “But merchants are increasingly making the decisions about how payments will be made available, and in that sector we now provide services for digitising cards-on-file, where there is a big market. “For example, Amazon recently announced that, together with Mastercard, it will tokenise all its cards-on-file [in 12 countries including North America, Latin America, the Middle East and Europe], which is consumer-friendly because, beyond the payment, no details are stored and, even if the merchant database is compromised, you’re not compromising the original card. “The other area is authentication, especially SCA, because it’s essential to know who is making a payment. It needs industry-wide networks of issuers, acquirers and vendor communities, like us, contributing to that security, user-friendliness and performance,” says Yliuntinen. G+D is taking its own steps to help solve this industry-wide dilemma. “We recently, announced that consumers can use their Europay, Mastercard and Visa (EMV) contactless cards as a second form factor for strong authentication, to increase security by combining smart, card-level hardware with tapping their own near-field communication phone rather than a point-of-sale terminal,” he adds. Working throughout the payments value chain gives G+D a privileged perspective on stakeholders’ relative strengths and weaknesses.

“From the security point of view, you cannot do it alone, you are always dependent on somebody else,” says Yliuntinen. “The issuer is dependent on how the whole transaction flow goes from acquiring back to them. And then there are the devices and software or hardware, that need coherent, end-to-end security. Big techs and IT giants like Apple, with its Apple Pay, Apple Cash and now Apple Card, have a really strong position and are gaining market share. Internet is enabling payments and online shopping, and these players have the means to do it, from enabling the devices, such as mobile phones and tablets, through to the software and services.

Merchants are increasingly making the decisions about how payments will be made available “Traditional players like issuers, acquirers and the banking community have a chance to compete, but they need to act much faster, to offer trust, which is the advantage they have. They have fairly good solutions and are, ultimately, the ones that have our money deposited with them.” As co-chair of Mobey Forum’s Digital ID Expert Group, he urges banks to wake up to this opportunity to be the guardians of payment security. Last

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

Security and speed: How to ensure one without compromising the other is the big question

www.money2020.com/moneyfest

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Avirtualfeast Sanjib Kalita, Editor in Chief at Money20/20, reflects on industry changes in Europe and the US as the international payments conference goes online

What promises to be one of the most compelling virtual speaking slots of what’s already tagged an ‘unmissable’ fintech event, takes place on the first day of Money20/20’s MoneyFest. In Lessons From An Economic First Responder, Jill Castilla, president and CEO of Citizens Bank of Edmond, Oklahoma, who was voted one of the most powerful women in banking by American Banker magazine earlier in the month, tells how the bank mobilised to put its community on financial life support during COVID. In a suburb of Oklahoma City with a high proportion of small retail businesses and contract employees, Castilla believed her bank had to put ‘doing the next right thing’ ahead of day-to-day business, and teamed up with fintech to protect as many as it could from financial hardship. In three working days it had figured out a way to short-circuit government stimulus payments and provide upfront relief quicker. In 10 days, it had partnered with Tesla Software to build and launch PPP.BANK, a free and privacy-secured portal to help small businesses across the country navigate the complex loan forgiveness application process that followed the US’ Paycheck Protection Program (PPP). The website earned Tesla Software and Citizens Bank of Edmond a place among the finalists for Best Fintech Partnership in this year’s upcoming Finovate Awards. For those institutions that approached the unique circumstances of the past eight months with a can-do attitude, plug-and-play financial technology has demonstrated its enabling power beyond a shadow of a doubt.

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Sanjib Kalita, editor in chief of Money20/20, who’s been with the payments conference from the beginning, in 2012, says technology – particularly that supplied by third parties and in partnership arrangements – will be a defining theme of banking in America in the next few years. “In the early days of Money20/20, fintechs were saying to banks ‘we’re going to eat your lunch’. A couple of years later, it was ‘can we have lunch with you?’. That’s the evolution that’s happened in the market,” he says. Among the three strata of US banks, he believes each currently has a different view of how important and cosy that relationship with fintech should be.

In the early days, fintechs were saying to the banks ‘we’re going to eat your lunch’. A couple of years later it was ‘can we have lunch with you?’ “You’ve got the big global banks – the JPMorgan Chases and the Citis – that are already focussed on innovation. They have been taking it seriously for a while – maybe not moving as fast as we’d like, but I think new challenger banks like Chime and Varo could be an impetus to accelerate what they’re doing. “Then you’ve got the next group, the mid-size, regional banks, which might have tech neighbours, like the merchant acquirer First Data, that can help them accelerate, because these banks might not have the resources of larger institutions.

And then you have the small consumer banks. I think these are the ones that are going to be most changed. They don’t necessarily have hundreds of people looking at the customer experience, and this is where I think there is going to be a tremendous partnership opportunity.” How to improve those customer experiences, especially as they relate to payments, will be explored during MoneyFest – 18 hours of virtual networking and scheduled events featuring a more diverse and geographically representative slice of the payments industry than has ever been achieved in a physical location. “Money2020 has always sought to bring people across industries – companies large and small, regulators, investors – together to create a community, and we’re building that out even further with MoneyFest,” says Kalita. “I personally miss being able to shake hands and give people a big hug, but the upside is you don’t have to figure out if you have time to fly to Vegas or Amsterdam!” The pandemic that took Money20/20 exclusively online for the first time in its history will, he believes, have a similarly dramatic affect on the payments industry. “Especially with contactless payments, we’re seeing a lot more uptake of that in the US. Europe has been ahead of us in that respect, but the catchup is now happening,” he says. “And then there are those payment experiences that are not necessarily tied to a traditional bank account. I can foresee a lot of cross-pollination. Amazon Go, for example, that’s a payment type that’s still not mainstream, but it’s the kind of experimental experience that, post-COVID, I definitely see starting to gain more traction.” www.fintech.finance

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Fintech Finance presents: MoneyFest Supplement

Articles inside

A virtual feast

Getting your clicks

The future bank playbook

On a mission

A funny thing happened on the way to the Cloud

A network of trust

And now for the recovery

A magic formula

Making the small mighty

One step at a time