Fintech Finance presents: The Paytech Magazine Issue 03 by Fintech Finance

MAGAZINE

NOWHERE TO HIDE

ISSUE #3

THE

PAYTECH ALL SYSTEMS GO?

StreamMind’s high-tech response to fraud

Token gets impatient over Open Banking

3… 2… 1… GO!

GOING FOR GOLD

Our World Payments Racers prepare for the challenge of their lives

We unveil Money 20/20 Europe’s exciting alchemy theme

OUT OF THE SHADOWS: BANKING CIRCLE’S RESEARCH HIGHLIGHTS THE FS NEEDS OF SMEs

PLUS INSIGHTS FROM

FAST APPROACHING

Instant cross-border payments will come soon, says ING

INVEST NI ● DELOITTE ● BofMAL ● KINGFISHER ● BANKINGBLOCKS THUNES BIAN INVEST LITHUANIA ● THOUGHT MACHINE ● STARLING ● SIGNICAT ● G+D ● NETS ● FRANX ● GPS ● SMARTSTREAM ● APPLY FINANCIAL ● WIREX ● SMART VALOR ● INVESTHK ●

●

It was Paris Fintech Forum 2019

220+

280

CEO speakers

150+

180 2600+ soouldt!

â&#x20AC;&#x2030;fintechs on stage

attendees

60+

countries

Get ready for the 5th Edition!

parisfintechforum.com

120

exhibitors

145

CONTENTS

PAYMENTS RACE 8 & 9: Whacky races: Our Round The World Payments Race prepares to kick off in London and our intrepid contestants consider their strategies for emerging triumphant from our biggest, most challenging competition between currencies to date

11 & 13: Little mermaid: Team Card’s racer Sophie Theen talks tactics. Will her popular card payment method prove as popular as people think, or will it be a challenge not only in developing parts of Asia, but Europe too?

15 & 17: Karma comedian: Team Mobile’s Max Fosh is used to wowing an audience via his online chat and comedy shows, but can he charm his way around previously unvisited parts of Asia and Eastern Europe. He’s worried!

THEPAYTECHVIEW

2019 ISSUE #3

This issue, we have Banking Circle researchh highlighting how smaller businesses are frozen out of financial services, as it pushes for a level playing field. We prepare to wave our intrepid World Payments Racers off in London and discover what strategies they’re hatching to get across the globe with card, cash, mobile and cryptocurrency, in our greatest challenge yet. They’ll end their expedition at Money20/20 Europe in Amsterdam, after 12 days traversing earth ‘the long way around’, and Content Director Pat Patel offers a sneak preview of what they’ll have in store there – unveiling the event’s spectacular alchemy theme. We also look at major trends in

payments right now, from big data to Cloud, anti-fraud innovation and the major hot potatoes of Open Banking and instant cross-border transfers – as well as hearing from regional development agencies worldwide. Enjoy the trip! Editor Tracy Fletcher

19 & 21: Fintech queen: Given her reputation as a fintech thought leader, and previous experience as a Race V contestant, Team Cash’s Valentina Kristensen should find getting around the world with just cash a doddle. Or will she?

23 & 25: Crypto novice: Alex Hobern is busy swatting up on all things crypto – and financial services in general – but he’s quietly confident he can woo the world’s dedicated cryptocurrency followers to emerge triumphant

MONEY 20/20 26, 27, 29 & 31: Time to shine: Banking Circle is helping the world’s smaller businesses achieve their potential – with new research highlighting the financial services support they need, and the opportunity this represents

PHXIE ALE SO ERNN OBEE HTH

IENA X ATI N PH M LE SO VA NSEN SH EN EE FO ST KRITH

A VALENTIN N KRISTENSE

ALEX HOBERN

TEAM TEAMCRYPTO CARD

TEAM TEAM TEAMMOBILE CARD CASH

TEAM CASH

TEAM CRYPTO

TEAM

Sponsoredby: by: Sponsored Sponsored by:

SPONSORS

Will she have the edge, using one of the most straightforward payment types, with high prevalence around the globe? “I really don’t think so. The more I think about it, the more I think that, because it’s plastic, and I have to be present, a lot of things I'm used to buying online will not exist for me as an option anymore,” she says. “Including simple things like booking accommodation ahead of time.” She adds: “As a traveller myself, I’m the type of person who never plans far ahead, but at least a day before, via mobile app, would obviously be a lot more useful. “I think having to be present at the counter with the card is going to be really different to how I’ve sorted out my life in the last five years.” In fact, Sophie’s concerned that card could be downright difficult to use in certain places. “I travel quite a bit because I’m one of those people who can’t really sit still, and I like exploring new things,” she continues. “But in some of the countries, probably mostly in Asia, from my experience, I’m probably going to have to go through the

same kind of challenges with any type of payment, except for cash, because they still use mostly that. “For example, I’ve been to China and I think that one is going to be really interesting, because China’s payment systems don’t take every single type of card. In fact, I think I’ve subconsciously blocked out China from my mind, not to think about how daunting that experience is going to be!” Sophie is busy forming her strategy for which places she’ll bounce between to get to her destination most efficiently. “I think the best places are going to be the bigger cities. I’ll probably pick Kuala Lumpur or Singapore, or even some parts

ThePaytechMagazine | Issue 3

www.fintech.finance

#TEAMCARD

“I think flying and training would probably be the easiest. I quite like the idea of having the countries closer to each other, so that you can either train it down or fly, although you lose a lot of time going back and forth to airports.” Are there some elements of her bucket list that she’s hoping to be able to tick off on her travels? “Trying different transport is definitely something you don’t really think of when you’re travelling, unless you’re being pushed to, so that is one of the things I’m really looking forward to. Then, if we get country points for hopping on and off different islands, I think I would really like to have a go at doing that.” Hopefully, Sophie will be dealt a lucky hand by her plastic payment type! Bo Nilsson, CEO of sponsor Nets, said: “Team Card should be the team with the strongest position going into the race because, when you look across the world, card penetration, regardless of where you go, is so high. With some proper planning and a creative approach, they should have a very good starting point. “Going through Europe, though, isn’t always as easy as you might think, for

example. Just paying your away in a taxi is not possible with a card in Germany, and you’ll struggle to find an Uber in Germany, while in many other countries they accept mobile and other types of payments. “Of course, with cash you can pay your way forward in many places, although the currency, in itself, will be a challenge. “I’m also sure that, although the teams might have some idea how it is in Asia, for example, the reality might be different.” Preparation will be the decider, he continues: “Planning how they are going to get around will be key, and really even an outsider could win. “It will come down to who has the better strategy.” Nim Haas, head of marketing for sponsor Global Processing Services, adds: “Consumers are moving more and more towards card payments and this is also being seen in emerging economies. “It’s indisputable that card payments will continue to be on the rise globally as an increase of governments are supporting the move towards becoming a cashless society. With so many countries facilitating card payments, it’s a sure win for Team Card!” Better be careful not to show your hand too soon, Sophie!

meniga

www.fintech.finance

Issue 3 | ThePaytechMagazine

great work done. With a population of just under 600,000 the cosy and small city can easily be overlooked, which

How to get a FREE workation to Vilnius

PAYMENTS RACE

RACER 2 #TEAMMOBILE

Max is a comedic presenter and YouTuber, though he sees calling himself a comedian as ‘too much of a stretch’! He has an online chat show called StreetSmart and a documentary series called UnConventional, as well as being the world famous model Maximus Bucharest. He says: “I am looking forward to travelling round the world on my phone, mostly so that I can prove to my mum that my phone is actually incredibly useful, as she constantly pleads ‘can you put that phone down!’. I will hopefully bring some fun, daring and incredibly red cheeks to the team.”

MAX FOSH

PAYMENT METHOD Mobile HASHTAG #teammobile STATUS Newbie S P O N S O R S @applyfinancial @stream_mind @thunespayments @bankingblocks @thoughtmachine @Temenos

www.fintech.finance

Issue 3 | ThePaytechMagazine

PAYMENTS RACE

INTERVIEW with MAX FOSH Max is preparing to head around the world with no cards, no cash, no crypto, just mobile. He will have £3,900 loaded onto his choice of two phones, so that he can use Apple Pay, Android, in-app services like PayPal, peer-to-peer payments, and also access his online account to pay people directly. So, what is he most excited about and what hurdles is he expecting?

I'm worried about reception... having access to wifi, 3G, or any form of connection, will be the biggest issue doing isn’t a scam and then, secondly, get them to help me in any way that they can? “I might even be able to educate some of the merchants I meet about the devices available out there to help them take mobile payments in the future while I’m at it!” In fact, Max is fully expecting this to be one of the toughest experiences of his lifetime. “I think I’m going to be experiencing challenges I could not even imagine, in my wildest dreams, right now. I bet there’s going to be a moment when I’m deep into

Shanghai or, I don’t know, Tajikistan, and there’s going to be a problem I didn’t think was going to be there before I started. I bet that’s going to happen.” All of this is very new territory for Max, who is a self-confessed fintech virgin – although he does have the advantage of being a ‘millennial’, both tech-savvy and just the kind of person payments providers are trying to please, and whose wants and needs they are most keen to discover and do something about. “Before I agreed to take on this race, I didn’t even know that fintech stood for financial technology, so that’s the level I’m at right now! “However, I do actually use my mobile a lot in my day-to-day life. I use Apple for almost every transaction I make on a day-to-day basis, so I’d be quite confident, if it was just around the UK, for example. “However, I don’t know whether being a millennial who uses his phone is going to be a blessing or a curse. I might come back and never want to look at mobile banking, ever again! But, hopefully, it’s just going to compound my idea that it’s a good thing to do.” Which places does Max think might be the most daunting en route from London to Amsterdam? “I think everywhere! I think from London to Vancouver, the west side of the United States and North America is going to be okay, and then Japan and East Asia will be also okay. But once I venture past India, that whole swathe of the globe,

SPONSORS

“It’s the challenges I’m spending most of my time thinking about at the moment!” he says. “I’m worried about reception and, if I’m in a location that doesn’t have any reception, whether the payment will go through, or banking will work. I think having access to wifi, 3G, or any form of connection, will be the biggest issue. “Then there’s making sure my phone doesn’t die. I’m going to be bringing battery pack after battery pack, after battery pack, because it would be a very me thing to do – to be so dependent on my phone and then just let it run out of battery!” And Max is leaving no stone unturned in terms of the detail he’s going into for his planning. “I’m even becoming a bit of a geek in terms of which types of battery packs to choose, because I see this point as critical. I’m realising that there are cheap battery packs and good ones, and picking the right ones could make the difference between me finishing the race or not. I

don’t want to be putting my wellbeing on a rubbish battery pack!” And Max is also busy practising to dig deep into his charm reserves. “The final conundrum is going to be, how am I going to pay for things? It sounds so obvious, but how am I going to pay for things when they don’t accept mobile? How good am I going to be at chatting to and charming someone, to first of all make them believe what I’m

ThePaytechMagazine | Issue 3

www.fintech.finance

#TEAMMOBILE

South East Asia, Central Asia and the Middle East, is something I’m really, really worried about. “I’ve never been to those places before and have no idea what kind of infrastructure they have, especially fintech infrastructure, so that’s going to be quite scary.” But will his predictions prove true – or is Max in for a pleasant surprise, given the meteoric rise of mobile-based payment methods across Asia? We’ll just have to wait and see how he gets on! While he’s clearly daunted by the scale of what he’s taking on, Max is also pretty excited to experience some of the places he’ll pass along the way. “I’ve been looking at the world map and thinking ‘oh, I could just go there!’. I mean, I’d love to go to Iceland and I think it is a good pitstop between the UK and North America. Where else would I like to

www.fintech.finance

go? I’d love to go to Japan, and I’m pretty sure it’s necessary for me to go somewhere close to it, across the Pacific, so I’m excited to head there. “And then, potentially, Australia, though that might be too far out of the way, but definitely I’d love to go to Iceland, Tokyo, and, potentially, some places in South East Asia.” Daria Rippingale, CEO of sponsor Bankingblocks, explained why the company has chosen to back Max rather than, for example, Team Cash. “Well, they’re going to be moving country to country and it’s very difficult to buy a plane ticket, or get anywhere too quickly, with just cash,” she says. “And also, as a modern banking

provider, we’re definitely going to be the non-cash sponsors in this type of scenario.” Steve Vickers, CEO of Thunes, also sponsoring, said: “There will be challenges but #teammobile will show the endless opportunities smartphones offer globally. “Over five billion users manage their daily lives on their phones and the appetite for mobile payment solutions shows no signs of slowing. “With the world at their fingertips, I'm confident #teammobile will cross the finish line first.” Maybe Max will be the one ringing in success in a few days’ time!

Issue 3 | ThePaytechMagazine

PAYMENTS RACE

RACER 3 #TEAMCASH

Valentina Kristensen is the Director of Growth & Communications at London-based OakNorth, the $2.8bn-valued global fintech firm focussed on unlocking the potential in lending to small and medium sized enterprises (SMEs). Valentina has been working with OakNorth’s co-founders, Rishi Khosla and Joel Perlman, since June 2015. She has been part of the journey since before its launch through to its current position as Europe’s fastestgrowing fintech company by assets, valuation, revenue and profits, with backing from investors such as SoftBank’s Vision Fund. Last year, Valentina participated in the Money 20/20 Europe Payments Race V, which saw her travelling from Istanbul to Amsterdam using only wearable payments technology, no cash or cards. A popular fintech events speaker, she advocates improving the female talent pipeline in fintech, as well as closing the gender pay gap in financial services. She also sits on the steering committee for FinTECHTalents.

TI NA N E L A V SE N N E T S I KR

PAYMENT METHOD Cash HASHTAG #teamcash STATUS Returning racer S P O N S O R S @cennoxPLC @ATMIAEUROPE @RonCashman @xpressMoney

www.fintech.finance

Issue 3 | ThePaytechMagazine

PAYMENTS RACE

INTERVIEW with VALENTINA KRISTENSEN Valentina is now a Payments Race veteran and familiar with some of the territory we’ll be covering this time, having taken part in our fourth race from Istanbul to Amsterdam sporting wearable payments technology.

“So, carrying cash this time probably means that the world will literally be my oyster, and I will be able to go to a much broader range of places because I will have cash.” But what of international efforts to move towards a cashless society? “I’ll avoid Scandinavia because, being Danish, I know that cash is pretty rare. Even in London, you go to certain bars or restaurants and it will say ‘we don’t accept cash, we only accept card’. But, at the end of the day, cash is still legal tender, so I think I should be okay to find places to stay, places to eat, and loads of transport. But it could end up being more expensive because, for example, if I’m booking a flight, I can look online, I can see what flights are available and where they’re departing from, the times, etc., but then I’ll have to actually go to the airport to buy the ticket and that will, no doubt, be more expensive than if I could buy it online with a card.” She adds: “So, I think card probably has it even easier, but cash is going to be much easier than last time, and will really

SPONSORS

But this time it’s cash, not tap, that Valentina needs to get to grips with. What does she see as the differences between using these two different payment types? She will have £3,900 altogether, some in cash, in different currencies, and some in an account she can withdraw from via ATMs as she makes her way. “I think it’s going to be much easier than last time, because I don’t have to rely on people having near-field communication (NFC) machines and accepting contactless payments,” she says. “In terms of flights and things, it’s going to end up being the same because, being unable to use any card when I had wearables, I couldn’t buy anything in advance, so I had to buy everything at point of sale and hope they had a NFC machine.

“For example, I’d have to call a hotel in advance, check they had a room available, that it was within my budget, and that they accepted contactless payments or Apple Pay, so that I could then pay for the room through my wearable device. “This time, I’ll have to go through the same process, except that I won’t have to ask the final question of ‘do you accept contactless payment?’ because they’ll accept cash – well, I assume they’ll accept cash – and then I should have no problem.” Valentina’s confidence visibly grows as she talks this through. “I can probably be a bit more adventurous with certain things,” she says. “Last time, I deliberately chose locations where I thought there would be the technology I was looking for, financial hubs like Luxembourg and Frankfurt, places like that, where I thought I wouldn’t have any problem in paying with contactless payments, and I was right. But that meant that I couldn’t go to places where team cash went, like Rome and Vatican City, and Athens in Greece.

ThePaytechMagazine | Issue 3

www.fintech.finance

#TEAMCASH

open up where I can go, versus if I had devices again.” Of course, this time, Valentina needs to get her head around the whole-world theme, and the fact it will see her visiting the kinds of places she might not have ever considered before, like Central Asia. How does she think the other payment methods will fare in regions from, Georgia to Myanmar, which don’t have extensive financial infrastructure? “I think they’re going to have to do the same as I did, when I had the Kerv ring and the Apple Watch. You just have to do your research because, for example, there are different payment limits for things like contactless – in the UK the maximum is £30, whereas in the US it’s $100. “And, if you use your phone to pay through Apple Pay, you can pay for things that are up to £1,000 because your fingerprint verifies that you are the cardholder. “I’ll definitely do plenty of research myself. For example, there are places around the world that will accept the dollar in addition to their local currency,

or often even preferred over their local currency, so dollar might be a good one to go for, whereas others will prefer the local currency. I’m also going to have to find places where I can go to get a competitive exchange rate. In that way, there are going to be a few challenges with cash. “As I said, I think card will probably have the easiest ride, mobile is going to be a challenge but doable. Crypto are going to have their work cut out for them, but they kind of always do and there is a great and growing community of people who use crypto assets and cryptocurrencies, so they do have a large pool of people to go to for help.” Valentina will have a good chunk of money deposited into her bank account at the beginning of the race, for her to withdraw via ATM, and she’ll also be given a variety of cash types before she sets off.

can go to the whole of the US. However, if I receive a very specific currency that I can only use in one country, then I either have to find somewhere to exchange it for something else that I want to use, or I have to go to that country and use it there. Otherwise, I’ll just be carrying cash around pointlessly. “I’ll make sure I’m going to places, ideally, where I feel I should have the easiest, but also most interesting, time.” ATMIA Europe Executive Director and Cash is King Founder, Ron Delnevo, sponsoring, says: “Cash is the payment method that ALWAYS works and, for billions of people on the planet, is their number one payment choice. “If it is a clear winner for so many, why shouldn’t cash win this race around the world? I expect cash to cross the line first, well ahead of the also-rans!”

Carrying cash this time probably means that the world will literally be my oyster, and I will be able to go to a much broader range of places But does she think the currency factor is going to cause her problems as she makes her way through countries that, in some cases, use a variety of tender? How will she ensure she has access to the right type of cash, and sources it at a fair exchange rate? “I’m going to be a victim of exchange rates, and also currencies, in some ways,” she continues. “If you have euro, you can go to the whole of Europe, so there’s a large choice there; if you have dollar, you

A spokesperson for sponsor Xpress Money adds: “Even in this age of digital payments, cash continues to play a very vital role in most economies around the world. “With the easy availability of cash globally and the convenience it offers, there is no doubt that Team Cash is on its way to victory! “Go #teamcash, we are rooting for you!” Seems we’d all put cash money on you standing a great chance, Valentina!

www.fintech.finance

Issue 3 | ThePaytechMagazine

Belfast, Co.Antrim

Belfast is the world’s number one destination for FinTech development projects.*

Northern Ireland. More for Financial Services. Northern Ireland’s highly-educated workforce has a driven mind-set that achieves results. Our expertise, allied with advanced digital infrastructure and lower operating costs, has given us an enviable track record of success in financial technology development. We have attracted some of the world’s top financial services companies to invest here, joining our impressive cluster of local firms. Visit us at Money 20/20 (Hall 7 / Stand R24) to learn more about what Northern Ireland can offer your business, and to meet some of the region’s innovative providers.

Northern Ireland. Altogether more. Visit InvestNI.com *fDi Markets

PAYMENTS RACE

RACER 4 #TEAMCRYPTO

Alex is a TV/radio personality and content creator whose original comedy sketches bridge the gap between digital and television media. Having previously worked behind the scenes in digital marketing, Alex shot to fame after winning the innovative Channel 4 show ‘The Circle’, which he pulled off while pretending to be a woman called Kate. With no prior knowledge of cryptocurrency and having once being caught asking ‘WTF is crypto’, Alex is about to embark on his journey of enlightenment as he attempts to become the first person to travel around the world using only crypto as a payment method. With his history of winning, we will see if he has what it takes to get to the finish line first. Follow Alex’s trials and tribulations en route via the hashtags #teamcrypto and #RTWrace!

ALE X N HOBE R

PAYMENT METHOD Crypto HASHTAG #teamcrypto STATUS Newbie S P O N S O R S @tokenpayments @wirexapp @(Smartstream)

www.fintech.finance

Issue 3 | ThePaytechMagazine

PAYMENTS RACE

INTERVIEW with ALEX HOBERN Alex will be setting off with £3,900 in Bitcoin and other cryptocurrencies, loaded onto a groundbreaking Wirex Visa card. He’ll need to be able to switch between the card and Bitcoin ATMs.

complete bespoke regime, as we come around the other side, through Europe,” he says. “Unlike some of the other payment methods, I think we will find a lot of consistent support across the globe.” And he seems to have his ducks, not to say his coins, all lined up. “I’m very excited about the race. Strategy-wise, I’m going to try to integrate into the crypto community immediately, via Reddit and Twitter and all those things. “I also think there’s a slightly different angle through universities, because students have a lot of time on their hands and there’ll probably be some sort of crypto communities within them that I can get involved with. “That way, I might be able to find people to come and hang out with me for the day and take me round and show me their cities, and pay for all my things while I transfer the money to them in Bitcoin. “So, that’s my main strategy, then I think Google and online search are going to be my best friends. “Human interaction will be mostly a waste of time, I reckon, unless I can deep dive into communities and find people to meet me at each location.” Pavel Matveev, CEO of sponsor Wirex, adds: “I’m trying to remember the last race we did, as I think there were some restrictions on using our cards and I don’t know if they’re still in place.

SPONSORS

And, no doubt, there will be plenty of occasions when he relies on personal charm to persuade advocates of the powerful crypto community worldwide, to give him a hand. That’s when he’s not explaining to novices what it even is, and why they should let him use it to buy their products or services. Alex admits he has some catching up to do – starting with getting to grips with what cryptocurrency is himself! “I’m a comedian and social media creator by trade, so admittedly I know nothing about the crypto world – or financial services in general – I’m a complete newbie!” he says. “So this is going to be a really big step for me – an adventure but also a really steep learning curve.” He adds: “My strategy is to dig my way into the crypto community and gather support from them on my journey in order to put crypto up on a pedestal as the currency of the future, and the one to have, as I make my way around the world, hopefully with their help. “I need to brush up my knowledge and discover things like ‘how can you fly with crypto?’, ‘how can you eat on crypto?’, and just generally live your life as there are so many things you don’t realise and take for granted with cash, card and other means.”

And Alex has grand aspirations. “My greatest hopes are that I smash it and win, it’s easy and I can enjoy the travelling around the world and have a great time doing it.” And fears. “My biggest fear is failure, I want to make sure I can get around and I don’t want to ever go hungry because I can’t find any food that I can buy with crypto. I just really need to hustle and get myself engrained in the community so that people help me out.” What adventures does he expect to have along the way? “I’d love to tick off going to Asia, places like Indonesia and Thailand, however I’m not sure how up to date those guys are with cryptocurrency, or if using it is even feasible there. I’m going to take a lot of protein bars and food with me just in case. I’m also taking my camera with me to hopefully make some comedy videos along the way, if I meet some interesting characters.” Alex is a seasoned traveller, having lived in Australia and travelled most of the United States, but admits Asia is uncharted territory. Despite his designated payment method being arguably the one with lowest adoption, Alex displays quiet confidence as he prepares to head for the start line. “We’ll be going through the US, which has very solid crypto support, across Asia, where I’m hoping there will be support, and through Liechtenstein which has a

ThePaytechMagazine | Issue 3

www.fintech.finance

#TEAMCRYPTO

“Obviously, if Alex can use our Wirex Visa cards, there will be no problem whatsoever, but if only peer-to-peer Bitcoin transfers are allowed, there might be issues.

I know nothing about the crypto world – or financial services in general – ... so this is a steep learning curve

“Crypto is a really community-driven ecosystem and in that community you find people from different demographics and of different social status. For example, in the Wirex client base we have people from 18 to 65 years old. We have bankers and we have people like housewives. “So, I think that part of Alex’s success will depend on him engaging with the very active Bitcoin community.

They are early adopters and big believers in cryptocurrency adoption, so they try to do whatever is possible to support this vision. “So, even if particular shops, stores or merchants don’t accept Bitcoin, there should be somebody from the community who will be able to help, or who will be able to accept Bitcoin payment, in exchange for cash or services, or tickets, or something.” Matveev adds: “I think merchant adoption is better than what it was a year or two ago, so I believe it’s doable to find the food, buy tickets and travel. “But I think the cryptocurrency racer has to work harder than the card mobile and cash racers.” Let’s hope Alex’s faith in the milk of human kindness proves well-placed and he’ll receive a token of his success in Amsterdam!

www.fintech.finance

Issue 3 | ThePaytechMagazine

MONEY 20/20 Clouded view: Lack of suitable financial services is preventing SMEs from succeeding

Time to

shine

Research from Banking Circle is pinpointing the support needed to bring Europe’s struggling SMEs out of the shadows Small businesses need a more collaborative financial ecosystem. That’s the key finding of Magna Carta research commissioned by Banking Circle which identifies the current barriers to financial inclusion, and the opportunities available to the Paytech sector There are more than 24 million small and medium sized enterprises (SMEs) in Europe, making up more than 99 per cent of the region’s businesses and accounting for two thirds of employment. As such, SMEs represent a significant opportunity, and their collapse would cause significant damage to the economy. Identifying this as a major issue, groundbreaking financial utility, Banking Circle, recently commissioned Magna Carta Communications to carry out independent research into financial inclusion for SMEs, to uncover the views and experiences of businesses, fintechs and banks today. And to identify the opportunities that exist for those organisations supporting the sector –

banks, payment service providers (PSPs), fintechs and other financial services institutions.

One size doesn’t fit all The research confirmed that there is no one single reason why firms are excluded from financial services; therefore it’s hard to identify a one-size-fits-all solution to creating financial inclusion. Every company was once a startup, an SME, a financial unknown and high-risk investment opportunity. For some, growth has taken many decades of prudent business decisions and gradual expansion. Think, for example about Johnson & Johnson, started in the 1880s, selling the first ready-to-use surgical dressings, and expanded steadily into new markets, boosted over the years by company acquisitions and partnerships as well as post-World War II demand for better surgical solutions and pharmaceutical medicines1. However, in the faster-paced markets of the last few decades, the ability to grow has gained a much greater sense of

urgency. To support that rapid growth, investment is needed from the outset. For some enterprises, this might come from family and friends, and then from forward-thinking venture capitalists. But for others, if early cash injections cannot be secured, they could well become one of the high proportion of startups that fail within their first four years of trading. While slow and steady growth can work for some companies, as it did for Johnson & Johnson, in today’s instant, connected, global market, speed is critical to get ahead, deliver innovative solutions at the right time and remain competitive. The problem is that financial solutions do not always serve SMEs well and, postrecession, banks are less able to lend to smaller, seemingly higher risk, businesses. This often leaves them unable to build or deliver their solutions and meet their potential ahead of the competition. SMEs are becoming increasingly left out.

The current landscape SMEs contribute more than half of all business turnover in Europe and generate more than half of all value added in the non-financial business sector – worth €4,030billion in 2016. These businesses

1. https://pharmaphorum.com/articles/a-history-of-johnson-johnson/

ThePaytechMagazine | Issue 3

www.fintech.finance

clearly represent a significant opportunity, yet many find themselves financially excluded. Some lenders are ahead of the curve, already providing dedicated solutions to better serve companies where traditional banks have been unable to help. But fear of the unknown could be holding back SMEs from capitalising on the new solutions coming onto the market. It was recently reported that 51 per cent of SMEs would still approach a traditional bank in the first instance if they needed additional funding2. The figure has, in fact, increased since the previous survey a year earlier, when 45 per cent said they would approach a bank first. But there is light at the end of the tunnel. The survey, which involved 2,000 SMEs, also showed an annual increase in the number considering using an alternative lender – up to 35 per cent in 2019, from 30 per cent in 2018. A recent Banking Circle survey of more than 500 SMEs revealed that, without access to additional funding, 24.6 per cent would have to cut employee numbers and 13.3 per cent believe their business would fail. Therefore, this loyalty to traditional banks – despite SMEs confirming their

lack of satisfaction with the service delivered and costs incurred – could cause small businesses to fail.

From vicious circle to virtuous circle With Europe’s SMEs covering every industry, with varying business models, distribution and ambitions, no two firms are alike. This creates a barrier to providing effective and viable financial solutions at scale – neither existing corporate banking nor retailfocussed offerings are suitable, so SMEs are left out in the cold. Without access to appropriate solutions, SMEs find themselves facing high prices and other barriers to entry, which are stunting growth and limiting their appeal to prospective lenders – it is a vicious circle of self-reinforcing inaccessibility. Thankfully, digital innovation and Europe-wide regulation are putting pressure on financial services providers for greater collaboration to build bridges. This will help to transform the current vicious circles into virtuous ones of provision, availability and use, creating a mutually supportive ecosystem in which SMEs can thrive.

Contributing to the economy – and society Financial inclusion has a positive affect on many areas of a business as well as the wider economy. SMEs with access to suitable financial solutions are also increasing internationalisation and exports, and supporting the diversification and resilience of the wider economy. In turn, this improves social integration and community cohesion. The importance, significance and impact of financial inclusion for SMEs should not, therefore, be underestimated.

Improving financial access to foster financial inclusion The European Commission’s flagship report, the Survey on the Access to Finance of Enterprises (SAFE), paints a relatively rosy picture of financial access for Euro-area SMEs. On average, businesses taking part in the survey ranked access to finance in the lowest position on the scale of major business challenges. And the European Investment Bank’s Investment Survey3 shows that bank loans account for almost 70 per cent of external SME funding, with approval rates for bank loans increasing steadily since 2014.

2. http://www.altfi.com/article/5204 3. EIBIS 2017 p.19: http://www.eib.org/attachments/efs/eibis_2017_european_union_en.pdf

www.fintech.finance

Issue 3 | ThePaytechMagazine

MONEY 20/20

products to their clients, improve their efficiency, increase profitability and, ultimately, reinvest in the business.”

Faster cash, not more cash During the Magna Carta research, a recurring issue was raised by the interviewees: speed. Speed of decisions, speed of settlement, speed of delivering funds. David Selves, entrepreneur and owner of the Selves Group of Companies, which focusses on quality and service across a range of disciplines, explained: “The main difference between banks in the past and now is that banks don’t know their customers or their businesses in the same way. It takes too However, despite progress in the availability of loans, guarantees and venture capital, the European Parliament says that financial markets often fail to provide SMEs with the financing they need. And access to finance is still the secondlargest problem faced by individual SMEs4.

It’s not just about lending Much of the existing information available on SME financial inclusion has a very narrow focus on lending and credit. But, just as consumer financial inclusion doesn’t just describe an individual’s ability to take out a bank loan, SME financial inclusion is not just about lending. This narrow view ignores business-critical access to bank accounts, payment services and foreign transfers, as well as issues caused by slow merchant account opening, and the lack of support for essentials such as accounts payable. Patty Zuidhoek, director of business banking at Dutch bank Triodos, which focusses on sustainable and ethical banking, agrees. Commenting in a new Banking Circle white paper based on the research, she said: “The European Central Bank wants us all to stretch further and further in gatekeeping – in

Innovation... [and new] regulation... will help transform the current vicious circles into virtuous ones of provision, availability and use… a mutually supportive ecosystem in which SMEs can thrive other words, to be stricter and lower risk. All these checks and balances can be discouraging, and a lot of large banks withdrew from SMEs because they want to take a standardised approach which doesn’t work in this sector.” Ivo Gueorguiev, chairman of business and consumer payment solutions provider Paynetics, also interviewed for the white paper, said that, because SMEs are notoriously hard to reach, they are rarely a major part of a bank or financial institution’s strategy. Payment products are therefore usually priced up, with the obvious cost implications: “There are very few value-added products available: usually products for SMEs are the very basic banking or payment services. That hinders SMEs’ ability to offer more attractive

long for them to make decisions such as for business loans. Three to five banking days for card payments is still the norm, which causes considerable issues for many small businesses which need to restock rapidly.” Michael Ault, CEO of Universal Transaction Processing, which offers card payment machines to SMEs, agreed: “One of the most common complaints we hear from SMEs is the time it takes to get funded. They’ve already been through an arduous process to get a merchant services account and then it takes days to get their funds. In today’s techenabled world, they want faster processing within an hour of taking a transaction.” Kent Vorland, CEO of the SmartTrade App, which has created a platform for microbusinesses and sole traders to accept credit and debit card payments and

4. European Parliament Fact Sheet: http://www.europarl.europa.eu/ftu/pdf/en/FTU_2.4.2.pdf

www.fintech.finance

Issue 3 | ThePaytechMagazine

MONEY 20/20

manage the associated paperwork using their mobile phones, is clear that “… small businesses – especially microbusinesses – have specific requirements. We’ve seen consumer products try to attract SMEs, but they are not agile enough and have little knowledge of small businesses. On the other hand, the big boys have complicated functionalities but nothing optimised for small merchants, who often don’t have the software knowledge and skills needed.”

Technology and ecosystem collaboration Less than half of European Union states have so far established a one-stop-shop to support SMEs in accessing funds, strongly suggesting that a broad and effective ecosystem for SMEs is still a way off. The challenge is to make sure that technology is also a catalyst that can kickstart greater collaboration. In the UK, arguably one of the most advanced markets for financial technology, two in five small businesses regularly experience technological problems when accessing accounts online. As a result, nearly half said they would move to a non-bank provider – providing their banking needs could be met in new and innovative ways5.

A connected ecosystem There is a growing commitment to improving access to commercial banking, transaction services and lending for SMEs across Europe. There are plenty of ambitious, but still underserved, businesses with specific needs that could be met by an open, joined-up ecosystem. There are plenty of potential providers of innovative ‘point’ solutions. But there remains a lack of connection between the two, apart from individual, often ad hoc, series of collaborations. The bigger picture of a connected ecosystem – a circle of trust – is often obscured by a virtual tidal wave of statistics, audits and promotions. However, financial inclusion based on digital technologies is not an isolated process: it must take place within a broader narrative – one that connects banking solutions to technology, to communications and collaboration strategies, as well as to analytics, and even to wider society.

To move forward, all ecosystem participants must continue the conversation with each other, to build collaborative models and solutions that can fit this diverse and disparate market. If they can, it will help to create a larger marketplace from which providers old and new can benefit. Rather than relying on top-down directives from state institutions, this needs to be a circular, grassroots movement, led by participants that can find solutions from the bottom up. Leading the rise of a supercorrespondent banking network, Banking Circle is helping financial institutions to increase financial inclusion by providing their customers with faster, cheaper banking solutions, including banking accounts, local and cross-border payments and lending, without the need to build their own infrastructure and correspondent banking partner network.

... all ecosystem participants… must build collaborative solutions that can fit this diverse and disparate market... [then] it will help to create a larger marketplace from which providers old and new can benefit Capable of handling non-core banking functions such as payments, foreign exchange (FX) and loans on behalf of other financial institutions, Banking Circle removes the financial burden and risk from the bank, payment service provider (PSP), acquirer or other financial technology business, allowing them to focus on the all-important customer relationship while still delivering the best solutions and remaining competitive in a changing market. Banking Circle does not compete with the bank or fintech, but supports them in delivering the best service possible. The findings of the Magna Carta research are being published in a new white paper, Financial Inclusion for Europe’s SMEs: Building a circle of trust – to be launched at Money20/20 Europe. Visit www. bankingcircle.com to register for a copy of the white paper, available from 3 June 2019.

5. SME Business Banking Opportunities Roundtable. Unisys, November 2018

www.fintech.finance

Issue 3 | ThePaytechMagazine

MONEY 20/20

Gold, pure gold From blockchain to cryptocurrency, digital ID, fraud prevention and the rise of tokenised assets, Money 20/20 Europe has a rich array of insights in store, according to Content Director Pat Patel American author William H Gass once wrote ‘true alchemists do not change lead into gold; they change the world into words’. At this year’s Money20/20 Europe, the organisers aim to do both. Europe’s foremost fintech event will dive deep into the melting pot that is artificial intelligence (AI), Cloud, blockchain and quantum computing, to explore how fintech companies can leverage their tech holistically and scale it all as one. Held at Amsterdam’s RAI convention centre, the theme for this year’s Money20/20 Europe event is alchemy, a type of chemistry that seeks to turn ordinary metals into gold. It’s a motif that is particularly appropriate for what is widely considered to be the leading European industry event to discuss the future of all things fintech.

ThePaytechMagazine | Issue 3

Over three days, speakers, sponsors, established players and disruptive startups will explore what’s next for payments and financial services. Through fireside chats, panel discussions, presentations and more informal gatherings, attendees will also get the chance to network at what is known to be one of the industry’s most vibrant get-togethers. The 2018 event, which was also held in the Dutch city, paired finance with fin-de-siècle circus and proudly, and with something of a theatrical flourish, declared the fintech and payments expo to be ‘The Greatest Fintech Show On Earth’. The circus theme inspired everything from the decor to the naming of stages and marketing material, and even saw circus artists perform across the show hall. As one attendee reminisced, imagine trying to

have a conversation about the latest in real-time payments while an acrobat and unicyclist perform in front of you. Our Content Director Pat Patel is remaining tight lipped about Money20/20’s exact designs around the alchemy theme but promises it will be as spectacular as ever. And there is every reason to expect that this latest event will be even bigger, brighter and brasher than years before. Money20/20 always aims to deliver the insights organisations need to revolutionise the payments and financial services industry. For 2019, it has identified 12 key themes for the year ahead and these form the basis of much of the agenda. As would be expected of an occasion focussed on the future of financial services, themes such as banking transformation, evolution and innovation in payments, and transformational technology, will form the basis of many discussions between speakers, attendees and sponsors. So too the issues of platform ecology, data-driven innovation and future commerce. www.fintech.finance

Priceless: Money 20/20 will contain more precious nuggets about the future of fintech

Identity and authentication will examine the role of digital ID in preventing fraud and securing trust, and cyber security and risk management will explore ways to mitigate issues and fight cyber crime. Meanwhile, regulation and compliance will seek to take a global view of regulatory initiatives, particularly related to Open Banking. Elsewhere, there will be discussion on inclusive finance and globalisation, and how financial services can respond to rising customer demand for sustainable investment, as well as the corporate social responsibility methods that are leading the way. The theme of entrepreneurship and investing will see leading venture capital investors discuss their future strategies for investment and startups demonstrating how their innovative products are changing the face of financial services. Finally, marketing and communication will address the promotional needs of fintechs. Alongside practical advice from successful scale-ups, industry experts and creatives will discuss how to generate revenue, drive loyalty and build up a brand. www.fintech.finance

Patel and his team have also identified five breaking trends that they call Money20/20 Stories. These include game-changing innovation models; commercial models, value chains and merger and acquisition activities; the impact of Open Banking, and the movement of progressive companies into financial services. But back on the subject of alchemy, perhaps most relevant is the interplay between technologies such as AI, Cloud, quantum computing and blockchain. Patel points out that companies everywhere are experimenting with emerging technologies, but what happens when you combine them? This year’s Money20/20 will look at these technologies in combination, rather than isolation, in a bid to inspire the best of the industry to think more about their interoperability. Perhaps they’ll even learn how to turn disruptive ideas on the future of financial services into fintech gold! THE PAYTECH MAG: Why should people come to Money20/20 Europe in Amsterdam? PAT PATEL: We created a big problem for ourselves last year by exceeding expectations. The team worked amazingly hard and we created this circus experience that captured people’s imaginations. So, for this year, it’s made it very intense, because we’ve got to make it better. Our theme this year is all around alchemy. So, expect some surprises, an attention-grabbing look and feel around the stages, and there’s going to be some interesting entertainment in the evenings as well.

services, technology and various strands that are impacting financial services and other industry sectors. So, we’ll continue that. One key story we’re focussing on this year is the interplay of AI, Cloud, blockchain and quantum computing, and how certain progressive organisations are beginning to mix these technologies to create new solutions. One company that’s been doing this very well is Ant Financial. Even BBVA (Banco Bilbao Vizcaya Argentaria) has started to look at this and it kind of came from the premise of some research that the great folks at the World Economic Forum have been doing. It’s going to be interesting, in terms of coverage, to stretch people’s thinking about how these technologies can create new propositions. TPM: You’ve got Temenos, Finastra, ING… all these marketplaces that are all about enabling very small companies, in some cases, to be able to work with big banks very quickly. How has this ecosystem model developed since last year? PP: I think that boils down to one of our key stories, which is around how do incumbents innovate? Once an organisation gets to a certain size, it’s very tricky to deliver meaningful innovation and do it at an accelerated pace. So, we’ll be looking at some of these organisations – there’s Thought Machine, 11:FS have their propositions as well that work with companies to enhance their capabilities much quicker and, probably, save quite a bit of money and ensure that they can start to innovate on top of a platform. It’s something that has clearly been a key buzzword for the last few years. It’s something we’re seeing in parts of Asia, where these big organisations have such sophisticated tech platforms that they can just collaborate with other organisations very quickly. Or they can start to build new propositions on top and, as we know from the banking industry, it’s been very tough to build on top of this traditional kind of architecture that they’ve had in place for many years.

We created a big problem for ourselves last year by exceeding expectations… this year, we’ve got to make it better

TPM: Last year wasn’t just about payments. You had a lot of stuff happening in regulation and around insurance. Are you expecting these other areas, outside of pure payments, to grow? PP: Pretty much. We started off in Vegas as a payments show. In Europe, we morphed that, from the very beginning in Copenhagen, to cover broader financial

Issue 3 | ThePaytechMagazine

MONEY 20/20 That’s where there are opportunities for some of these old school players that are providing platforms and ecosystems, and also for some of the new players, like Thought Machine and 11:FS.

Leading industry names TPM: The Main Stage is where you always have your big guns speaking and it’s exciting to have Patrick Collison from Stripe. Tell us a little about the Main Stage, who is speaking and what some of the key themes are going to be. PP: What Patrick has achieved at such a young age! He’s, dare I say it, annoyingly smart, annoyingly wealthy and an all-round nice guy. He works extremely hard and is taking Stripe into multiple new places. It recently made acquisitions as well, so they have got lots of things to talk about. That whole block of sessions on day two is going to be quite different from what we’ve had before. We’ve got one of the leading players from Indonesia, OVO, which is owned by Grab, a dominant player across

South East Asia. We’ve got the CEO coming to talk about how they’re moving across multiple verticals within financial services. And then we have Alibaba and they’re potentially making an announcement, as is Amazon, straight afterwards. Then we finish off with one of the kings of fintech, Patrick. Regarding other areas on that agenda, we try to have an inspirational kind of TED Talk. This year we have Conny Dorrestijn, from BankiFi, and that’s going to be a different presentation to what we’ve had before. Outside of those sessions, we have a venture capital (VC) block for the first time at any of our events, where we’ve brought in some really big hitters. Bob van Dijk, CEO of Naspers, is going to talk about their consumer internet business and how www.fintech.finance

they’re looking at their investment thesis. We also have Akshay Naheta, from SoftBank, which is a first for us. Everyone’s heard about the scary amounts of money that SoftBank, and its Vision Fund in particular, is investing in fintech companies, but broader technology players. He’ll be talking about how these portfolio companies come together, or become customers or suppliers of each other, and where the Vision Fund is looking to develop over the coming years. We also have Airwallex coming along, with a great investor from DST Global, Tom Stafford, to talk about marketplaces and how Airwallex is scaling across Asia and, hopefully, further afield. The VC block is going to be very powerful. We’ve also just confirmed Peggy Alford from PayPal, who recently got appointed to Facebook’s board and is going to be talking about open ecosystems. One of the other unusual keynotes is Susan Rice, who was part of Obama’s team, to talk about security and cyber as one of the Feedzai sessions.

Feedzai is running a whole suite of sessions around financial crime and bringing a suite of speakers along to drill down into some of the intricacies, and some of the propositions, that come out of leveraging machine learning technology to combat various aspects of crime. TPM: What’s happening in what used to be called the Arena and is now the Lab? PP: We’re giving it a revamp so expect different visuals and more of an immersive experience in the Lab. We’ve upgraded because that’s been one of the most successful stages we’ve ever run. We have the CEO and founder of Plaid coming along for an intimate fireside chat about his journey, the successes and the failures, and the things he’s learnt along the

way. We also have the CEO of iwoca coming along to do something similar. Then we have a suite of sessions on there which are going to be quite fun but also insightful, with VCs and startups trying to address some of the hard-hitting issues within fintech and sustainability. There’s a lot of money flowing around in fintech but how sustainable is this? Let’s put some of the VCs and fintech companies on the spot. TPM: The show floor is much bigger now. What are some of the exciting things you’re looking forward to seeing there? PP: Everyone tries to outdo themselves so expect to see flavours of the alchemy theme flowing through that show floor. It kind of brings everything together. One of my favourites is the ING Cafe. There are always interesting things going on there, with speakers dropping in and out. Visa and Mastercard are doing their usual community-gathering activities on their stands. So it’s going to be interesting navigating your way through that expo floor. We’ve moved the entrance to create more space. The Main Stage is now in another part of the RAI and I think we’re quite close to taking over the whole venue, which is massive. We’ve also got Santander coming and they’re looking to build out some of their ideas around an application programming interface (API)-style platform lounge. That’s worth checking out, too. TPM: What are your plans for the social side of things? PP: Our sponsors, speakers and key media partners can join our traditional drinks the day before, on the rooftop of the Science Museum. On day one we’re replicating what we did last year because it was so successful. The whole Taste of Amsterdam, with everyone being out in the open with loads of food stands and bars. There may be some alchemy-related things there, or alcoholrelated things. Then, on day two, we’re doing the street party with a slight twist. It’s going to be shades of what worked successfully last year because if it’s not broken, why fix it? Everyone seems to have enjoyed themselves to such a degree that it spoiled my content for my speakers in the morning, because everyone was very hungover! Issue 3 | ThePaytechMagazine

MONEY 20/20

Two decades ago, opening a bank account was a momentous occasion akin to the birth of a child or the purchase of a new television. Once the entire family had gathered together, the champagne would be popped and everyone would begin cooing over their new pride and joy, marvelling at just how far cathode-ray technology had come. Nowadays, however, challenger banks such as Monzo and Starling are bucking this trend of account inertia, and we’re signing up for fluorescent new cards like they’re going out of fashion (which they might do, should we tire of having our retinas burnt every time we open our wallets). Banking startups like Monzo and Starling can attribute their astonishing success in penetrating the market in part to their innovative onboarding systems. Both firms were pioneers of mobile verification solutions, allowing new customers to complete the entire sign-up process on their smartphones. The appeal, for customers, of such a capability is not to be

Rings of truth: Giving individuals joinedup identities that travel with them is Signicat’s answer to seamless verification

ThePaytechMagazine | Issue 3

underestimated; a 2018 survey conducted by Norwegian digital identification (ID) solutions provider Signicat found that ’72 per cent of consumers want an all-digital onboarding system’. Shockingly, the report also stated that the bank application abandonment rate in the UK was at 56 per cent (the worst on record), with ‘having to provide personal information by post or take it into a branch’ causing 28 per cent of abandonment cases. Together, what Signicat’s report and the remarkable success of challenger banks like Starling (which reported a 500 per cent increase in accounts in 2018) highlight, is the importance of incumbent banks delivering a seamless, fully digital, onboarding process should they wish to compete with fintech service providers. Unfortunately, there’s one big barrier standing between them and a silky-smooth online application process that could excite holders of even the most neon of plastic: ID verification. In fairness to incumbent banks, offering an online identity verification option thus far has been tricky due to increasingly stringent know your customer (KYC) and anti-money laundering (AML) regulatory requirements, and relatively nascent technology in the field. However, companies like Signicat have dedicated themselves to providing financial firms with access to electronic identity services that are suitable for the markets they operate in,

no matter how regulated they may be. To do this, they operate the world’s largest Digital Identity Hub, which currently serves over 500 financial services company clients and verifies more than 10 million identities a month. Arne Vidar Haug, chief strategy officer and co-founder of Signicat, explains how his company’s solution epitomises the second generation of identity verification tools. “Where the first generation of user authentication had organisations crossreferencing incoming data with that which they already held, the second revolves around confirming the user as the holder of a particular online device,” he says. “To achieve this, second generation verification systems need to be capable of validating one’s physical identity against an official ID document. Not only does this require sophisticated machine learning technology to compare a selfie or video stream to a passport photo, it also necessitates access to a database of official ID documents. Every country has its own official ID documents, making the task of implementing a second generation solution difficult for multinational firms.” Here’s where Signicat’s offering can help out. Its Digital Identity Hub is connected to over 20 ID schemes across the world, providing clients such as Santander, Société Générale and Western Union with access to the template database necessary for second generation of ID verification and registry lookups. The Norwegian firm’s current agenda

The second [generation of identity verification tools] revolves around confirming the user as the holder of a particular online device

Peeling back the layers Arne Vidar Haug – Chief Strategy Officer and Co-Founder, describes how getting to know us better is Signicat’s key to success

www.fintech.finance

consists of incorporating as many different international identification platforms as possible into its single application programming interface (API), increasing the ease for banks across the world to supercharge their onboarding processes. In March this year, Signicat partnered up with German verification firm Verimi, integrating its authentication platform into the Signicat Digital Identity Hub. This will permit Signicat clients to begin attracting new customers from across the largest economy in Europe, sehr gut news indeed.

A bespoke approach According to Haug, an ID verification system that is ‘highly tailored’ is key for financial services firms looking to revitalise their onboarding process. The traditional viewpoint of banks that ‘a customer is either onboarded or not’ (according to Signicat VP of identity and innovation John Erik Setsaas), is arguably one of the leading causes of high application abandonment rates. Signicat’s 2018 report revealed that ‘the [large] amount of personal information required’ frustrated customers more than anything else in 40 per cent of abandoned bank applications. Asking for every scrap of information from customers upfront may calm banks’ nerves when it comes to KYC compliance, but it’s crippling their conversion rates. To avoid frustrating 40 per cent of potential customers, banks need to be smarter when gathering information on new clients and ‘tailor’ their onboarding to collect only minimal data initially. New customers should then be limited on what they can do until additional information has been requested as part of a discreet step-up process. Signicat believes in the merits of quasi-onboarding customers at first, and has designed its solution to be highly bespokable. “Clients can set the initial onboarding on whatever level they like and then step it up later,” says Setsaas. This means they can initiate relationships with customers and remain KYC and AML compliant without the need for a dissuasive deluge of data requests.

Walking, talking ID Despite creating the world’s largest Digital Identity Hub and offering an intuitive, flexible and universally compliant second generation ID verification solution through it, Haug and the Signicat team believe the www.fintech.finance

future of authentication lies elsewhere. In fact, they believe that Norwegian banks have already laid the groundwork for the third generation of authentication in the form of a federated electronic ID, or ‘eID’, system. In collaboration with financial institutions across Sweden, Denmark and Finland, Norwegian banks have developed the ‘BankID’ scheme which allocates a unique set of authentication credentials to every member of the population once they’ve proved their identity with their bank. These credentials can be used across multiple services in finance and beyond, constituting a secure universal login for consumers. You may be thinking ‘surely it’s the role of governments to assign the population with such credentials, not banks?’. Well, Signicat’s research would suggest otherwise. In the UK, 49 per cent of survey respondents said they’d prefer their bank to provide them with an eID. Only 31 per cent would like the government to do so, and less than five per cent preferred to receive an eID from a social media platform. Signicat was involved in the development of Norway’s BankID system and Haug is confident that the advantages of such schemes will lead to their widespread global adoption in the future. “Having a reusable eID system in place is not only a strong way of authenticating customers, it eases the verification burden for consumers themselves,” he says. ”They don’t need to remember a host of usernames and passwords, or take countless selfies hoping and praying that the quality of their mugshot is good enough. They simply enter their eID details and are securely verified in an instant. Banks also benefit since they’re no longer required to provide their own identity service, saving them an inordinate amount of time and money.” If the incentives to implement a digital identity solution in the UK weren’t clear enough, studies suggest a successful one could contribute up to 2.5 per cent to the country’s gross domestic product (GDP), successful being the operative word. Unfortunately, the UK Government’s ‘Verify’ identity verification service, launched in

2016, has had extremely poor uptake. Only 3.6 million people have signed up so far, meaning the project won’t come close to its original target of 25 million users by 2020. BankID, meanwhile, has proved a real success, with over 75 per cent of Norway’s population using it for transactions like signing contracts and applying for loans. So, why has the UK’s Verify service flopped, while BankID has opened the door to third generation ID verification across Scandinavia? The answer’s obvious; Verify is a government-led scheme, whereas BankID results from a collaboration between Scandinavian banks, which the population already entrusted to protect their privacy. Thus, the most valuable card that UK banks have yet to play in the authentication war is the trust consumers have for them. If only they’d hurry up and onboard their customers a bit faster, we might witness the birth of a successful eID project in Britain in the near future. Little help over here please, Signicat? Issue 3 | ThePaytechMagazine

MONEY 20/20

A bank of a different

feather Among challenger banks, Starling stands tall. Julian Sawyer, its Head of Banking Services, discusses how to succeed in a changing marketplace In its short life, Starling has made a very big impression. Conceived in 2014 by Anne Boden, the former chief operating officer of Allied Irish Banks, Starling received its banking licence in 2016 and became a fully-fledged mobile bank in 2017, when it launched the UK’s first app-only current account. Together with a wave of other challenger banks, such as Monzo and Atom, Starling represents a new way of managing money, one that is designed for the mobile age and offers an Amazon-type approach to customer service. With customers now driving the need for speed and convenience, one of the biggest questions is how much friction is acceptable in payments? Increasingly, we expect on-demand services and real-time payments. So, will banking become totally frictionless? Are there boundaries that shouldn’t be crossed as we strip away many of the traditional banking layers and practices? Julian Sawyer, Starling’s head of banking services, addresses the point. “People need reassurance when it comes to payments, which means there must be some checks and balances to prevent

ThePaytechMagazine | Issue 3

fraud. There must be an element of friction, or at least notification and control. For example, if my phone or watch beeps it could alert me to a problem, because my card might be being used fraudulently,” he says. Onboarding, of course, is one area of banking and finance that is often cumbersome and time-consuming. But Starling has reduced it to a fine art, removing the traditional steps that create friction.

No time wasted “Our onboarding is incredibly quick,” says Sawyer. “Typically, it takes no more than three-and-a-half minutes to onboard a customer. We use a lot of electronic industry data sources, and I think the challenge for incumbent banks is that, while they have a lot of data, it’s not readily accessible. And that’s the really important bit. If it was all in one place, organised and properly structured, they could rely on it.” The incumbents are clearly struggling with this. But Starling, says Sawyer, has a solution for it which is so simple, it’s ingenious. “We go out to the bureaus to get as much information as possible. If you’re on the electoral roll, if you’ve got an electronic history, then we’ll find you and you’ll benefit from straight-through processing. We go out and see what’s in the public domain, and we process it really fast.” Moreover, Sawyer says Starling has looked closely at the process for onboarding and, since the bank went live in 2017, it has rebuilt and improved its flow several times.

Fresh flock: Starling is leading a new brood of challenger banks

www.fintech.finance

“We’re constantly optimising,” says Sawyer, “constantly looking at bottlenecks where customers stop in a process, where we ask them for a piece of information that they don’t have to hand. We don’t ask them a whole range of complicated things and then say we can’t take them onboard because, for instance, they’re not a UK resident. We bring everything up front and continually look for ways to streamline and eliminate friction.”

Striking the right balance Starling collects only information that is necessary to comply with anti-money laundering (AML) and know your customer (KYC) requirements, rather than a myriad of other data which is not used, to protect the customer experience. This is achieved in a number of ways, explains Sawyer. “Our aim is to get you a card, at home, within around 48 hours,” he says. “We instantly provide Apple Pay, so that as soon as an account is opened, you are up and running with a digital wallet. At the same time, we have to make sure we are compliant. We collect enough information to meet regulations but not so much that it becomes a drag. Some providers will ask you everything – information that is nice to have but not really necessary. Not us: we only ask questions that are relevant for the application, whether for account opening or the credit component.” Sawyer emphasises that Starling is keen to avoid going back to customers to ask for additional information. He says that, while some fintechs may have an outwardly simple onboarding process, customers will go through much heavier AML, due diligence, KYC and other checks at a later stage. However, one thing Starling discovered early on was that many people feel more comfortable if they have to use passwords. When it tried to eliminate passwords and introduce biometrics, it found that customers preferred traditional methods because that’s what they expect from a bank. Passwords felt more familiar and secure. “This is the acceptable face of friction,” says Sawyer, “because, without it, you feel like you’re getting a non-bank financial services offering. In short, people expect a certain level of bank-like assurance and familiarity.” One of the ways that Starling creates speed and flexibility is by keeping www.fintech.finance

everything in the cloud. Sawyer says this was a goal from the outset, and that Starling has evolved entirely in Amazon Web Services. “We have no servers,” he says, “and that’s absolutely our business philosophy, in terms of how we build our technology. It solves some of the risks, but not all. Many people say it removes all the risks around datacentres, but then different risks emerge. However, we’ve spent a lot of time with the Financial Conduct Authority and the Prudential Regulation Authority, as well as the payment schemes, and they are comfortable with our approach. Everyone is beginning to understand that there’s now a different risk profile, and that the old datacentre questions no longer apply.” Another fundamental for Starling is real-time payments. Sawyer says there would have been no point having an amazing app experience if it was simply

about making payments faster, they’re also about making payments differently.” Speed and efficiency can also be seen in Starling’s approach to reconciliation. “We have virtual accounts and virtual account numbers,” says Sawyer. Every Starling Banking Services client can have their own account where transactions are reconciled instantly. This avoids the horrendous system where account reference numbers have to be totally correct. Get one digit wrong and you have a problem.” There is also an upside for lending, which is often urgent. “Using our system,” says Sawyer, “you can not only inform the customer that money has been sent, you can also say it’s been received by the other bank. Having agreed to borrow money, and agreed the terms, you get the money instantly. Think about that from a stress perspective. It’s a fantastic customer service proposition.” Starling offers a powerful demonstration of Open Banking. Built with a set of public

Everyone is beginning to understand that there’s now a different risk profile, and that the old datacentre questions no longer apply sitting behind a mainframe setup from an incumbent bank. That’s why Starling joined the Faster Payments Scheme (FPS), a UK banking initiative to reduce payment times from three days under the BACS system, to just a few seconds. “It’s still a very exclusive club,” says Sawyer, “as many banks are not on faster payments. We have full access to real-time faster payments, which means that, if I send you money now, it will be in your account instantly. Real time is critical for our customers, and we think it’s a strong competitive differentiator for Starling. It also means we have full control of our end-to-end value chain.” With real-time payments, Sawyer sees more advantages than just speed. “The really interesting part,” he says, “is when you realise what you can do with that speed. For example, we have a number of clients in our banking services division that want to do payroll differently. People could manage their finances better if they were paid without any delays. They might not have to go to payday lending companies, for one. There are some really interesting use cases we’re seeing that are not just

application programming interfaces (APIs) that are freely available through its developer portal, the bank enables partners and other third parties to use its data (with customer consent) to enhance products and services. This is the marketplace model in action, but Starling takes it one step further by offering banking as a service, redefining what the bank of the future will look like. Because it has all the necessary banking infrastructure, it is helping to diversify the marketplace and power other institutions. And in doing so, it has gained another revenue stream. That’s a pretty inventive and enterprising way of funding its own development. As Sawyer says, there are three parts to Starling’s mobile business: “We have our consumer current account, we have our small and medium sized enterprise (SME) current account, and then we have our banking service.” Together, these are the ingredients that have made Starling the success it is today – an award-winning bank that expects to have one million customers by the end of 2019. Issue 3 | ThePaytechMagazine

MONEY 20/20

Payments phoenix

Serial rebirth: G+D rules nothing out in its quest to stay ahead

According to G+D Mobile Security’s Mikko Kähkönen, the company’s success lies in continual reinvention

Giesecke + Devrient (G+D) has been around since the time before motor cars. It was one of the first to roll out international payment schemes some 50 years ago and knows a thing or two about coming up with fresh ideas. We talked to Mikko Kähkönen, head of product for the global company with its headquarters in Munich, Germany, which specialises in supplying all areas of the payments food chain, from banknote and securities printing, to smart cards, cash handling systems and – most recently – solutions for mobile and ecommerce, and asset tokenisation. THE PAYTECH MAGAZINE: Tell us a bit about G+D. MIKKO KÄHKÖNEN: We are a family-

ThePaytechMagazine | Issue 3

held company established over 160 years ago and experienced in supplying the financial industry with innovative solutions. We invented chip cards, the 50th anniversary of which we celebrated last Autumn. The chip card was inspired by the need to pay securely, safely and conveniently, and led to the invention of phone cards to pay for calls and SIM cards to pay for carrier time, and then another G+D innovation, the eSIM, which is now used in Apple and Google devices. So, we have pretty vast experience in this industry. We also recently celebrated the 50th anniversary of the euro cheque, which was originally a paper cheque, became a card and then, finally, a debit card. We continue to service financial institutions, central banks, mobile network operators and digital giants with various different, innovative technologies. TPM: There has been a vast change in card payments and card technology recently. Can you tell us about that? MK: We are addressing markets with various different materials. For example, we have projects going on with metal cards and we’re integrating electronic components into cards, such as biometric sensors for added security and convenience at the point of sale. You can even put a loudspeaker in a card if you like. There are plenty of possibilities with www.fintech.finance

technology being miniaturised. We are also working on sustainable materials like wood and corn starch, as part of Mastercard’s The Greener Payments Partnership, to move away from plastic for sustainability reasons. Where does card tech then start and stop? We also offer the bolt-on services, like digitising the account opening process and improving communication with cardholders by SMS, WhatsApp or Messenger, to keep them informed about where they are in the process and when they can expect their card to arrive. It’s not only the physical card and the issuance experience, we also want to offer the consumer the experience of instantaneously having a digital card in their mobile while waiting for the physical one, or get secure remote commerce going, tokenising cards which they have already. The need for convenient ways to pay securely led to creating an innovative payment process, enabling international payments on the go. These questions, where to find new secure ways to pay, are still driving our thinking at G+D.

Here to stay TPM: With lots of tech companies bringing new technology, do you think card-based payments will still be a thing, way into the future? MK: People have been asking me this question for years and I got my moment of joy when I saw Apple launching its physical card, because it is one of the leading digital players that has paid such attention to the customer experience and made heavy investments in payments. I certainly believe we will have cards. They may change in shape or form, but a token like this is going to be around for a very long time. TPM: Why do you think Apple decided to use a card with its digital platform? MK: Based on industry reports on pickup, activation and transaction volumes, I would assume the transactions Apple got from the retail environment, via Apple Pay on mobile, showed that people were still demanding cards for payment. It’s extremely difficult to change user behaviour in the short term and I think it just faced the fact you need to have a physical device, in the form of a card, too. www.fintech.finance

TPM: Customer behaviour might be slow to change, but the technology isn’t, so how is G+D staying at the forefront of this innovation and helping institutions to match it? MK: We’re making large, annual investments in research and development around different shapes and forms of payment. Payments is what we do, whether cards, mobile or cash. We work with all the key players in this domain, from central banks, through our currency technology business unit, to global payment schemes, as well as the Googles and the Apples on digital payments. So, we have a great cross-section of various different business verticals which, when brought together, give us a 360-degree view of the entire payments ecosystem and help us to tune our strategy correctly. The icing on the cake is combining this insight with our 160 years-plus of experience and technical expertise, to launch the right products, at the right time, in the right place. TPM: Talking about working with the major players, tell us what your partnership with Mastercard means for G+D and its customers? MK: Mastercard and G+D go back a very long way. There are lots of very longstanding, close relationships with the people there. And we are working on various projects together, from biometrics, digital payments and mobile, right through to ecommerce. There is high mutual respect for the expertise each company brings to the industry and we exchange regularly about all current topics, with G+D doing our best to contribute to Mastercard’s new product propositions, and the technology standards that make sure whatever they come up with is actually something the industry can supply.

Cards, but not as we know them TPM: Europe has embraced chip and PIN technology over the last couple of years. With card technology changing, how is G+D going to help its customers fulfil emerging customer requirements? MK: Chip and PIN is an excellent foundation for going forward. Right now there is a move towards tokenisation,

banks being able to issue tokens where the actual account number transforms into something which is not retraceable to it for fraudsters. These tokens can be placed in various different physical devices or used for ecommerce or mobile. This is changing the industry dramatically and G+D is a key player in this process, with the ability to support both issuers and merchants, allowing banks to address this new requirement. TPM: While some organisations have struggled to keep up with this pace of change, your partners have benefitted greatly. Can you tell us how G+D has helped institutions digitise to improve their card payment offerings? MK: There are very different paces to this, between markets. We have some where we’ve done the full nine yards – innovative cards and digital services, for instance, tokenisation, connecting them to different payment schemes including token vaults, through one integration, and addressing all the payment options they have in their portfolio. In terms of physical cards, one really exciting thing going on in China is that we’ve joined forces with a number of banks to sell, on their behalf, innovative card bodies, on the web, allowing customers to configure their cards themselves, right down to selecting how their card is going to look. And it’s not limited to being a picture card with their own image. They can select between components and finishing touches via 3D printing. This is brand new and shows promising results. TPM: What’s next for G+D, in this incredibly digital, fast-moving industry? MK: We’ve been here for 160 years, so transformation is something we are strong at. We’ve reinvented ourselves several times over and will keep on doing that. In the past couple of years, we’ve been going through a transformation, setting up a minimum viable product factory, or G+D Ventures, for example, as well as things like hackathons and a move towards becoming fully agile. We want to reach out and innovate, together with customers, to tackle challenges jointly and make sure their outcome is right. Because we’re innovators, we’re visionaries, and we’re here to stay. Issue 3 | ThePaytechMagazine

MONEY 20/20

RELENTLESS ADVANCE Payment services provider Nets is determined to become a leading European player, says Group CEO Bo Nilsson “There’s a race among industry players to become a leading payment services provider in Europe. We are, of course, also taking part in this to form a strong European payments company, and maybe even a European champion,” says Nets group CEO Bo Nilsson, talking to Fintech Finance in the run-up to the Money 20/20 show in Amsterdam on 3 June. He’s referring to how the company's merger with Concardis is proceeding since it was announced in June 2018, and how it has paved the way for an ambitious drive by Nets for pan-European expansion. “That is certainly the ambition. Of course, it won’t be easy, but we want to reach for that position (of champion) and, to do that, we wanted to expand outside of the Nordics, which we’ve done now through our recent merger with Concardis,” he explains. Reportedly, Nets and payment services provider Concardis finalised the merger in January this year. The merged entity is worth approximately €500million of EBITDA (earnings before interest, taxes, depreciation and amortisation) and €1.3billion in net revenue. The consolidation is supposed to not only accelerate Nets’ drive for a sizeable European impact, but also to industrialise its operations, and help it to attain scalability.

Times a-changing The global payments landscape has been transforming over the past 10 years, not just in the realm of technological innovations. Consolidation and acquisitions are the other major factors. The banking sector is struggling to maintain its ground and grow amidst the demands of increasing regulations like the general data protection regulation (GDPR) and the revised Payment Services Directive and Open Banking. As a result, the incumbents in Europe are looking to sustain their position and adapt through specialisation, diversification and more efficient scaling, supported by new technology, including Cloud-based systems. Payment methods, too, are evolving, thanks to technologies such as biometrics, wallets, wearables, blockchain and artificial intelligence (AI). Globally, banks are realising that their best bets in keeping up with the times are external technology integration and acquisitions. They are attempting to buy in innovations from fintechs that give them the necessary shot of agility and efficiency, across multiple channels. No surprise, therefore, that the market is seeing massive deals such as Fidelity National Information Services Inc. (FIS) acquiring fellow global payments company Worldpay, in March 2019, for $35billion in cash and stock, to create a one-stop shop for processing online and in-store

…[we want to form] a strong European payments company, and maybe even European champion

ThePaytechMagazine | Issue 3

payments as well as multiple currency transactions; Fiserv, which processes credit card transactions for banks, merging with First Data, which focusses on the merchant side of credit card transactions, in Jan 2019; or PayPal taking over iZettle. The Nets merger with Concardis is another example of this trend and it paves the way for Nets to establish the European reign it seeks. Nilsson adds: “Now we are integrating the companies, learning from each other, every day.” Talking of Nets facing up to restrictive global challenges like PSD2, Nilsson thinks these are also areas of opportunity, with scalability the most important. “Within payment services, we have been seeing for the last couple of years that scale is of key importance. If you want to play in a market that is becoming more and more international, you really need to not only have scale, but also be able to convert that into true synergy, in terms of costs and how you drive your operational setup,” he explains, adding that Nets has a serious agenda in this regard. And the best way of achieving this, he adds, is ‘rather than having several platforms, you can develop new services towards a certain market, or towards a certain target group, that will have a much broader effect, and allow you to offer new services in many geographies. So, on the whole, there’s certainly a benefit from being able to do some more targeted innovation’.

Marching forward Over the past few years, Nets has been making consistent advances on the Nordic paytech sector. This January, it finalised a deal with Bankart that enables instant settlement and transfer among Slovenian banks in real time, as well as a similar project recently for GIRO in Hungary. The idea was to deliver a future-proof solution for a whole new payments ecosystem. Ljubljana-based Bankart specialises in card processing, ATM transactions and point of sale processing,

www.fintech.finance

and the collaboration will add these nuances to Nets’ operations along with its swift processing of regular credit transfers. In Feb 2019, Nets entered a five-year agreement with Danske Bank to issue and develop the Dankort card. This initiative would also lead the way for developing a payments infrastructure in Denmark. Later that same month, it established a strategic alliance with Przelewy24, a leading Polish online payment services provider, after acquiring the Polish Dotpay / eCard. These two acquisitions are helping Nets gain ground on payment activities in Poland, a country whose high growth in ecommerce volumes and digital payments continues to lure fintechs. Nets also entered a six-year strategic partnership with Oma SäästöpankkiOyj (OmaSp) in Finland for card payments and services. This agreement also includes developing mobile services and managing OmaSp's debit and electron cards. Recently, the seemingly insatiable company prolonged its framework agreement with DNB, Norway’s largest bank, and expanded the scope of this partnership to include joint innovation and a variety of value-added payment and card services. “Nets was formed in 2010 as a merger of peer companies in Norway and Denmark. Since then, our focus has been on establishing a true Nordic position by expanding our business into Finland and Sweden. “For the past year or so, since we were delisted and taken off the stock exchange, and acquired by new owners Hellman & Friedman, together with Advent and Bain, we have been forming a strong European presence,” says Nilsson.

He explains that this became all the more possible with Concardis, which is a very strong merchant services player in Germany, with activities in the rest of the DACHs region, covering Austria, Switzerland, and Croatia through its affiliate, Mercury. At Money 20/20, Nets will share how the merger is progressing and the opportunities bubbling up from it, as well as showcasing ‘some of the things we have been testing in the Nordics, in terms of the future of payments’. Although cash and cards still occupy stronger positions in the payments race, new means, with fresh features and convenience, will continue to emerge. Nets is aware of the challenges that these new forms of payment may put up and wants to be prepared to capture them before anybody else. Hence, it has been experimenting, and will be showcasing at Money 20/20, its virtual reality shopping, facial recognition payments and biometric solutions, among other things, to gauge how each is received by delegates and work out where to place its future efforts.

Despite Nets’ focus on improving payments usability, however, Nilsson retains some doubts about the impact on user behaviour, of frictionless payments. “There is this concern that payments might become so frictionless that you more or less don’t register that they’re happening,” he adds. “We need to consider, going down that road, if we have an obligation to ensure that people are responsible and reflective in terms of what they are doing and paying for.” This is where, he feels, technology could assist via digital assistants to alert customers where they are spending more than their usual amounts. This way, ‘you can have this open world of payments where you can do it completely frictionless, and yet ensure the right level of reflection, in terms of spending and how you conduct yourself’. This is also the way to ensure a high level of security and maintenance while delivering the painless experience consumers want.

No stopping it: Nets has its sights set on all of Europe

www.fintech.finance

Issue 3 | ThePaytechMagazine

MONEY 20/20

Easy does it

FX platform Franx is taking the strain for SMEs trading abroad, according to its General Director Ronald Lokkers In an increasingly global economy, Foreign exchange (FX) management is a perpetual challenge for businesses wanting to expand their trading internationally. Getting it right is critical to the survival of, particularly, small and medium sized enterprises (SMEs), as is the ability to hedge against currency value fluctuations. According to 2018 research by Bibby Financial Services, two-thirds of such UK companies had been negatively impacted by FX volatility over the previous year, with an average impact of $94,500 dollars each. Yet it’s only recently – thanks to the promise of platforms like secure financial messaging service SWIFT and blockchain – that activity has hotted up among fintechs and incumbents alike, eager to tap into a promising new market by finding solutions to this longstanding issue. Franx is one of the more active participants in this evolution. Established in the Netherlands in early 2018, it is a subsidiary of Dutch bank ABN AMRO, designed to help manage cross-border payments and foreign exchange (FX), with a focus on SMEs and corporates. Franx enables its clients to hold up to 33 different currencies in a single multicurrency account and easily convert them into one another as needed via its direct trade terminal, as well as offering FX hedging solutions. Initially targeted at the 150,000 Dutch SMEs trading internationally, it is on course to widen its net to panEuropean businesses. Speaking at launch, Franx executive director Hatim Chebti said: “Market research shows that many business owners want to handle their own payments on a digital platform, with a minimum of red tape and personal service only where it matters.”

ThePaytechMagazine | Issue 3

Also at the time of the announcement, ABN AMRO’s head of corporate and institutional banking, Rutger van Nouhuijs, explained that Franx is part of the bank’s broader ambitions around supporting the corporate need for convenience and improved user experience. “Regarding currency transactions, some of our clients are interested in expertise and advice offered by their trusted company bank,” he said. “We cater for their needs at ABN AMRO. At the same time, there’s a growing group of business clients that prefer digital DIY solutions… we cater for this group through Franx.”

A European first Franx general director, Ronald Lokkers, says: “Franx is the first payment institution in Europe offering multi-currency single accounts, via a platform which is competitively priced and easy to use. We also have the potential to integrate it into native environments for corporate clients carrying out reconciliations, making their lives much easier than before.” Franx’s aim is to be a driving force in a fast-changing space characterised by increasing customer expectations: “The payment industry has changed quite a bit in the last few years. Clients have become a lot more aware of the speed of payments and, at the same time, demand more transparency,” continues Lokkers. “A lot more parties are entering the market, different types of payment service providers from a range of backgrounds – from IT to

www.fintech.finance

finance –are offering various types of payment solutions to clients. So, for those clients, it can be a little difficult to really grasp what’s out there, when they’re just looking for simplicity and to be in control. “In the cross-border space, specifically, there are a lot of initiatives, like blockchain and Ripple, which are geared towards really changing the market, from a technology perspective. So far, blockchain’s still in what I would call a testing phase. Secure messaging service SWIFT is still the main tool for cross-border payments. And, of course, it is trying to improve, as well, having put SWIFT gpi into the market some time ago.” Ensuring the accuracy around payments is more critical than ever, adds Lokkers: “I think accuracy has always been key in cross-border payments and currency exchange. If you add instant payments on top of that, sending cash to beneficiaries even faster, accuracy will become even more important.”

As an agile fintech company, increasing customer expectations of cross-border payments provide a golden opportunity for Franx to fill a gap that larger institutions are struggling to get on top of, despite the fact this means losing a large potential revenue and cashflow stream. “By definition, it is harder for large companies to innovate because they have more processes, more people and more systems to adapt. A smaller company like ours has more speed to move ahead and is able to offer new services quicker,” says Lokkers. “In the end, to be successful, innovation is all about developing products in such a way that you really solve the end needs of the client.”

Collaboration is key At the same time, Franx’s relationships with heavyweights including ABN AMRO,

Business owners want to handle their own payments on a digital platform, with a minimum of red tape and personal service only where it matters

No hassle: SMEs and corporates want simple, quick, self-service foreign exchange

www.fintech.finance

through which it is benefitting from access to SWIFT gpi, are keys to its success. “For us, a partner like ABN AMRO has been crucial in helping us reach this point, because it has allowed us to benefit from the expertise and knowledge it has. “SWIFT gpi is currently being tested by about 100 banks, including ABN AMRO. If you compare that to the 11,000 banks using SWIFT, it’s still a limited number. But it’s offering real benefits to ABN AMRO, and, through them, to us, in terms of payment speed and tracking capability, so this is something we really want to test and be part of.” Franx also collaborates with British financial software provider Apply Financial, using its Validate data checking tool to ensure the accuracy and efficiency of its payments. “We have an open banking platform, so it’s really easy for us to integrate with other providers in the market. Apply’s Validate is one of those and we’re working with them to help us check the data of clients entering their payments,” adds Lokkers. “Apply Financial is providing our API (application programming interface) solution, in which we make sure that all the data entered by our clients is immediately checked. If a client fills out something incorrectly, they can amend it directly, even with instant payments.” And it is planning to build on the success of these collaborations by adding more. “We are already liaising with partners in areas like IT, and are looking to partner with more, as a core part of our strategy. Co-developing end-user services in our Open Banking environment will be central, going forward, to really onboard the services of other parties out there, helped by the evolution of the revised Payment Services Directive (PSD2) and Open Banking,” Lokkers continues. What does he believe the future holds for cross-border payments? “We’ve seen numerous changes. Of course, SWIFT is still the standard and, in Europe, the single Euro Payments Area, of course, we have instant payments, and for cross-border payments, SWIFT gpi. “I believe similar legislation to PSD2 will be adopted outside the Eurozone, leading towards standardisation of international payments, which will only benefit the end client.” Issue 3 | ThePaytechMagazine

DATA

s r e m o t s u C l o r t n o c in Extracting more value from data will be a hot topic at Money 20/20 Europe. Smartstream’s Peter Moss describes how it is powering the automation which will enhance customer experience Data is the beating heart of modern finance. Many talk about it as ‘the new oil’, and like any good natural resource, big data needs to be thoroughly refined in order to extract its full potential. Good customer service depends on good insight. Over the past two decades, leading software provider SmartStream has been particularly busy in this area, dedicating around 25 per cent of its revenue to research and development (R&D) in the pursuit of optimum data collection and validation. The company’s clear mission is to mine information to help its clients thrive in this challenging financial climate.

Hunting for better data In 2015, SmartStream formed an ambitious joint venture partnership with Goldman Sachs, JP Morgan and Morgan Stanley to search for better, more consistent data. This prompted the creation of the flagship SmartStream Reference Data Utility (RDU), which provides banks and other financial institutions with a sleek managed service to deliver complete, accurate and timely reference data for regulatory reporting, trade processing and risk management. It simplifies the data collection process and helps to reduce the unnecessary costs

ThePaytechMagazine | Issue 3

that mount up for financial institutions. The RDU is an industry first, which the utility’s CEO Peter Moss has previously described as a ‘security master for the industry’. He is now focussed on Money 20/20 Europe, taking place on 3-5 June 2019 in Amsterdam. The RDU team will be there, engaging with existing and new customers and showcasing exactly how it can help financial organisations leverage this valuable substance to better meet their needs. “This is an interesting conference, not least because the attendees are perfect for us; business-focussed, commercially-aware individuals who are involved in the day-to-day running of trading organisations,” says Moss. “What we do is very much focussed on helping those trading organisations to automate their businesses, so this is a great opportunity to come and show people what we can do, and give them some ideas about how they can actually make some improvements in their own businesses.” “Data flows around trading and the volumes of activity are now huge. You really need to automate your business as much as you possibly can to maintain

any sort of reasonable margin,” continues Moss. “What we’ve found is that, as you automate a business, you first focus on the technology. The second thing you have to focus on is the data because, if the data is wrong, then the technology doesn’t work and you’ve just wasted millions of dollars in the technology buildout. So we focus on the data aspect and making sure that it is good enough to drive your automated processes.” Money 20/20 Europe will be huge; it’s getting bigger year after year. This mammoth event will bring together the payments, fintech and financial services sectors during an action-packed three days in the vibrant Dutch city. The forward-looking programme invites the best businesses to explore the latest, most disruptive technology available in the market. The sessions shine a spotlight on the changing needs and behaviours of their customers, and how interactions with them will look in the future. This year’s 6,000 or so attendees will be exposed to around 100 hours of carefullycurated content across seven stages, with sessions covering in-depth case studies of how businesses are implementing new technologies and adapting to changing regulations. With themes including data-driven innovation and transformational technology, the agenda is certainly right in SmartStream’s sweet spot.

www.fintech.finance

A case for automation Money 20/20 Europe will provide the perfect platform for SmartStream to highlight how the RDU is a common resource with the ability to resolve an industry-wide problem. The fact is that much of the data that is currently being pumped into banks’ operations is not consistent, with various inaccuracies filtering in from individual exchanges and financial news agencies. These discrepancies can be time consuming and expensive for banks and financial institutions that then have to fill in all the blanks. The SmartStream RDU offers a solution – it does the hard work on their behalf, eliminating any duplication of banks’ individual efforts and ensuring an improvement in speed, accuracy and cost effectiveness in the processing of reconciliations. “As the name suggests, it’s a utility that brings together best practice from a whole range of different firms, all of which are very actively trading in the market, and provides good quality security reference data to support that automated flow,” explains Moss. The RDU picks up data from myriad financial exchanges, along with feeds from digital financial news and

information providers such as Bloomberg and Reuters, in order to deliver a greater level of accuracy. An experienced global team, operating under the compliance frameworks of their customers, then delivers data that is fit-for-purpose, consistent and in a format that is specific to each customer’s needs. “There are multiple benefits to automating your business,” says Moss. “Of course you can become more operationally efficient and you can take costs out. But one of the really big benefits of actually having the better quality data, and the automated services, is that you can provide algorithms to your customer base. You can make sure that your customers are getting the best possible experience, and I think where the market is going is much more focussed on that customer experience, rather than the operational cost takeout. “Yes, that is still important. But until we hit the next recession, frankly, it’s all about revenue growth and how we can actually get more flow, take more market share, and a lot of that is around actually just making sure that customers are getting a wonderful experience. Automation and high-quality data can help with that.”

The market is… much more focussed on… customer experience… than the operational cost takeout Game-changer: SmartStream's RDU is giving FIs access to data that matters

www.fintech.finance

So the RDU is all about delivering rich, clean data to inquisitive financial institutions through far more developed data sets than banks can access individually. The more accurate and the more comprehensive this data is, then naturally the easier it becomes to avoid losing trades due to data failure.

Fast-evolving proposition SmartStream’s continued innovations in the critical data arena certainly haven’t gone unnoticed. The company was named ‘Best Sell-Side Back-Office Platform’ in the prestigious Sell-Side Technology Awards, organised by Waters Technology and held at the Corinthia in London in April 2019. Until now, the SmartStream RDU has been focussed on exchange-traded derivatives. However, it has just recently onboarded its first clients using additional data sets for equities and, later in 2019, it plans to upload futures, options and fixed income data. The RDU’s main value-add for its expanding customer base is vastly improved information, which reduces the number of corrections that need to be made manually and therefore frees up resource. It is essentially giving financial institutions their time back. A most valuable commodity. Moss is anticipating getting involved in data-led discussions at Money 20/20 Europe, where he and the team can explain the benefits – and the full potential – of the RDU to peers from around the world. It’s often said that the real value of such events is in the unrivalled networking opportunities they provide, and Moss certainly agrees: “The nice thing about these conferences is that everybody from the industry comes together in one place and you can have 20 conversations in two days. This would take you months to get done at any other point in time. That community effect is going to be great. And of course the bar tends to be a very good opportunity as well in the evening, so I’m looking forward to that!” It’s this customer-driven collaboration that will help the industry to overcome challenges and harness the full power of the abundance of data in the business world.

Issue 3 | ThePaytechMagazine

MONEY 20/20 Drops to drink: Thunes is enabling financial sustenance for the world's unbanked communities

Payments

Nirvana

With pressure for instant global payments mounting, Thunes is providing an oasis of opportunities for the world’s unbanked, says CEO Steve Vickers Having access to money, fast, is just as vital to people in the world’s emerging economies as water.

For workers in these often inhospitable lands, it can make the difference between being able to feed their families, or not. Which is why global cross-border payments network for emerging markets, Thunes, is making it its mission to enable real-time remittance for the 1.7 billion people who remain excluded from financial services across the world. According to its website, this goal is fuelled by a desire to do the right thing. However, there’s no arguing the size of this market makes it sound business sense, too. Thunes is making it happen through an emphasis on digital payments using mobile phone and wallet technology because, while banks are not prevalent in its target geographies like Africa, parts of Asia and Latin America, mobile phone usage is exploding. Thunes’ latest win, announced in May, is a new partnership with LendMN to serve

ThePaytechMagazine | Issue 3

underbanked customers in Mongolia – one of the biggest, remotest and most sparsely populated places on earth. Working with LendMN – Mongolia’s first fintech and a ‘non-collateralised, low-cost, consumer micro-loan service provider’ – it is enabling people within the Mongolian diaspora worldwide to send money to smartphones at home. Thunes has built a network for money senders to directly reach Mongolian mobile wallets and LendMN app users in Mongolia can then either use their wallet to purchase goods and services or transfer the amount to their bank account free of charge, with impressive adoption rates. This is a prime example of what Thunes is talking about. Only 27 per cent of all adults in Mongolia use their bank account to receive their wages, according to the World Bank, yet its population of only 3.1 million people have registered nearly four million mobile phones, according to the Communications Regulatory Commission of Mongolia.

Championing its cause With previous roles including special advisor to the Grab ride-hailing, delivery and payment solutions company, Thunes CEO Steve Vickers is tasked with spearheading its worldwide expansion through initiatives like this one. He explains that the new Mongolian venture is among the things Thunes plans to showcase at Money20/20 Europe this June in Amsterdam. He is also issuing a rallying cry for the financial services industry to accept nothing less than real-time, cross-border payments, to support the requirements of communities like this and lift more people out of poverty. For those people, worldwide, who remain excluded from the global economy because they lack access to any form of financial service, Thunes, according to its website, is making it its ‘…our mission [to] work 24/7/365 to solve one of the world’s most pressing problems: making financial services global and accessible to everyone’. www.fintech.finance

Singapore-based Thunes does this through application programming interfaces (APIs) that interconnect diverse payment systems, enabling mobile wallet operators, corporations, merchants, money transfer operators and banks to move funds in and out of emerging countries in real time. It offers four key payment solutions: peer-topeer (P2P) remittance processing, corporate mass payouts, business-to-business (B2B) payments and digital payment services. Its global network spans 80 countries and facilitates a total of $3billion in payments annually, through 300,000 transactions carried out daily via its network of 9,000 ‘payout partners’ worldwide. Ancillary services include end-to-end integration support, monitoring and reporting, instant local currency payments and funds paid direct into mobile wallets, bank accounts or via cash pick up.

Vickers believes the globalisation of trade, the changing needs of developing economies and evolving working patterns – coupled with the growth of the so-called ‘gig economy’ – are accelerating the need for real-time, cross-border payments enabled by digital technology. For him, these represent some of the greatest challenges and opportunities facing financial services. “We’re seeing increased access to technology tools in countries where, in the past, individuals haven’t had it, and these are helping to lift millions of people out of poverty. “There are a lot of new entrants looking to target this, and a lot of very talented people and companies; all they need to do is recognise and respond to the changes in their environment,” says Vickers.

Elusive oasis: ‘Why are cross-border payments still taking so long?’, asks Vickers

Full of promise Thunes was established in February 2019, when TransferTo, which provided mobile cross-border top-ups, split itself into two separate entities. Thunes became the business-to-business (B2B) arm, while DT One continues to offer top-up and mobile rewards. Thunes’ name, pronounced ‘tunes’, is inspired by French slang for money. Previously funded by TransferTo, the fintech now has its sights set on rapid expansion across its key target markets, having completed a $10million series A investment with global venture capital fund GGV Capital in May. Thunes will use the new cash injection to build more strategic partnerships to expand initiatives like its Mongolian one into other needy areas. The team will also open up new, dedicated offices in places like New York and the United Arab Emirates, to ‘enable closer interaction with [our] growing customer and partner base’. This follows other collaborations like that with Western Union, announced in March, to expand payout capabilities to mobile wallets. It has also partnered with PayPal and mobile phone-based money transfer business M-PESA to deliver alternative payment solutions that allow Kenyan consumers and businesses to take full advantage of global ecommerce. And it is enabling real-time mass salary payouts for Grab drivers.

need of daily funds to enable them to keep doing their business. Without those daily funds coming back to them, they literally either can’t feed their family in the evening, or go out and buy petrol to put in their twowheel or four-wheel vehicle, to go out and work the next day, so it’s the lifeblood of that type of gig economy industry in emerging economies.” And Thunes’ Mongolian partnership is, he says, a prime example of both the issues and what can be done about them, using alternative digital technologies. “It’s not a huge population there, it’s about three million people I think, but mobile wallets are gaining traction. “The challenge there was how do you bank a population of three million, in an area the size of France, Germany and Spain

…our mission is... making financial services global and accessible to everyone

www.fintech.finance

The growing urgency around cross-border payments, particularly for trade transactions, looks set to be a major talking point at Money 20/20, and he displays a sense of impatience that these can still regularly take 24 hours or more to execute. “I don’t know why it takes a long time,” he continues. “We offer instant cross-border transfer, we have to provide that or our remittance company partners wouldn’t work with us. I would almost say that, going forward, that’s going to be table stakes in payments, whether it’s cross-border or domestic.” And Thunes is setting its sights on making this the norm. “When I worked for Grab, I saw, first-hand, what a huge difference real-time payments made to their gig economy workers. They’re not just pay cheque to pay cheque, they are in

combined? Mobile wallets is the answer. There are tremendous opportunities for agile financial services players in dispersed populations like this in very distant parts of the world. At Money20/20, we’ll be showcasing our broad emerging economy network linked to this, which, in most cases, offers real-time payments. And he’ll be signalling a new focus on trade payments, too. “We’re taking our early focus on payments to individuals, in a new direction, to allow us to make payments to businesses and corporates. B2B crossborder payments are every bit as messy as making payments to individuals, and our network is certainly applicable to that particular payments vertical. That’s where we’re expecting a lot of the growth in the future.” It sounds like those countries can bank on it! Issue 3 | ThePaytechMagazine

MONEY 20/20

If at first you don’t succeed, try, try again. Learning how to fail fast has proved the secret to success for so many fintech startups. But it’s not as easy for larger, less nimble, incumbent financial organisations, often hindered by their own legacy systems. Payments processor Global Processing Services (GPS) is the company behind the GPS Apex platform, which provides issuing and processing tech for a range of UK challenger banks and fintech startups. It is certified by Visa and Mastercard to process and manage any credit, debit or pre-paid card payment worldwide and powers the likes of Starling Bank, Revolut, Skrill and Curve, among others. “The key to success for the challenger banks we’ve worked with is that they were prepared to take something to market and then learn, then build, then iterate and innovate,” says CEO Joanne Dewar. “And that’s exactly what they’ve done, as opposed to spending months on the perfect design.” The idea behind the ‘fail fast’ approach to innovation is to bring a basic version of your product or solution to market, get feedback, fix or amend it, and repeat. Dewar says: “We see many fintechs which spend months in a ‘beta version’ to give themselves the opportunity to fail, learn and adjust. What that meant was that when they hit bumps in the road, or whatever, the whole customer base excused them, because they were knowingly in a beta version.” By providing a global payments platform that acts as a backbone for other companies’ solutions and products, GPS has long supported fintech startups in taking such a ‘fail first’ approach to innovation. And now it’s setting its sights further afield.

Ambitious plans GPS has spent the last year or so scaling itself up, and is looking to support larger organisations while staying true to its fintech roots. In June 2018, it raised £44million to help fund international expansion, in a deal which saw UK private equity house Dunedin take a significant stake in the business. Since then, GPS has adopted an approach that Dewar refers to as ‘scaling sensibly’ in every department, looking at how it manages its business, clients and technology. The

ThePaytechMagazine | Issue 3

Not failing but… Leap of faith: GPS believes in failing – or flying – fast

GPS is the force behind banking’s greatest challengers – CEO Joanne Dewar describes how it’s expanding its reach by instilling courage in others company, which has offices in the UK and India, has also been investing in, and maturing, its services, she adds. “There is such an increase of opportunities in our industry that the key to being successful for the next period, is to make the right strategic decisions, not bite off more than we can chew, and continue to deliver on promise and strengthen our presence in the market.” One of the particularly exciting areas for GPS is the response of the incumbent banks to the challenger bank race, she adds. “The challenger banks have evidently shaken the tree with no initial response from the incumbents, which didn’t see them as a threat, but that’s all changed. They’ve had their wake-up call.”

But, while the incumbent banks have finally woken up to the benefits of going digital, it’s going to take them forever to innovate, adds Dewar. They can’t just buy up fintech startups as they’re very different types of institution, with very different approaches to risk and compliance. However, there has been a sea change, with GPS finding more traditional financial institutions increasingly wanting to learn and trial things – indeed, wanting to fail fast. After all, a company doesn’t want to spend a year on analysis and design, then another on building and testing, only to discover that, by the time they launch their product, the world’s moved on. “It doesn’t need to be big in volume, in order to be able to understand what works,” she says.

www.fintech.finance

Success for the challengers... is [being] prepared to take something to market and then learn, then build, then iterate and innovate GPS is ideally positioned to take advantage of such changing attitudes as it seeks to scale. “Where we sit in the ecosystem is really interesting because we’re actually able to support and provide the innovation technology to the incumbent banks, as well, for them to have a digital offering without actually needing to buy or partner with one of the fintechs.” While she doesn’t go into the specifics, Dewar says GPS has some interesting projects under way now that the incumbent banks have started to work that out. “What’s actually interesting is there are still very few people that truly understand the full payments ecosystem and recognise the existence of a third-party issuer processor, and it’s because we’re very much a hidden part of the ecosystem. “But we’re starting to get that message out there now, by educating both fintechs and the financial institutions about the key role GPS plays and how the payments ecosystem actually operates.”

www.fintech.finance

It appears to be working. GPS’s ability to help fintech startups make their ideas a reality has started garnering international attention. “We’ve become the selected issuing processing partner behind a couple of new Australian challenger banks, where the regulation has opened up.” GPS also has some interesting things going on in Hong Kong, as the first digital licences are being issued there, and is just getting started in Singapore.”

Perfect conditions This global acknowledgement by institutions of the importance of innovating from a technological perspective, is accompanied by something of a regulatory cultural shift, she adds. “Globally, there’s definitely a regulatory awakening, very much by country. I think there’s a real window of opportunity, at the moment, to work with the regulators in order to understand the risk and what doors can be opened, without creating too much exposure.”

Regulation is, of course, key to innovation, and Dewar has nothing but praise for the UK regulator, the Financial Conduct Authority (FCA) for nurturing the industry and the work done by the Australian Prudential Regulation Authority in opening up the market there, she points out. “One of the things I find interesting is why the UK has been the epicentre of the fintech revolution,” Dewar says. “There’s been this confluence of all the right raw materials – we had the banking crisis, which was the push factor, we’ve got the technical skills, we’ve got that innovative mindset AND we’ve got that innovationfriendly regulation. You needed all four of those to actually be in the same place at the same time, to be able to create the hotbed for revolution which we’re experiencing.” But, at the end of the day, the fintech revolution is driven by technology and GPS, with other leading tech enablers of the payments ecosystem, have joined forces to launch ‘b.yond’ at this year’s Money20/20 Europe. Dewar refers to b.yond as a new financial innovation platform allowing businesses to deploy digital payment services in less than eight weeks, and test their proof of concepts in the market. It reduces the complexities of launching a payment programme, like dealing with multiple stakeholders. Via one contract from b.yond, businesses will have everything required to launch a branded payments solution. “They can launch a live proposition to market really fast to fail fast, get feedback and an early indication of performance and what they need to focus on, and show investors their ideas. It’s pretty groundbreaking,” she says. Two of GPS’s core values are flexibility and courage, and the idea behind b.yond seems to mirror its own ways of fostering innovation – which aim to ‘encourage us to think outside the box, to try new things, to realise that we do need to continually think about what our customers may want next and how we would be able to service that need’. GPS has a unique position in the financial services market and, with such an ethos behind it, looks set to hold onto it for the foreseeable. “The future is for us to win and us to lose. There are still very few alternatives to what we do on the market,” says Dewar. “We just need to make sure we do what we do right.”

Issue 3 | ThePaytechMagazine

MONEY 20/20

No more

excuses

Thought Machine’s Vault core banking platform makes it easy for banks to ditch legacy systems in favour of flexible Cloud alternatives, says CEO Paul Taylor On a Monday morning last April, the 29th to be precise, Natwest’s online and mobile banking customers nationwide discovered they had been frozen out of their accounts. For four hours that morning, they couldn’t log in or make payments. The bank later announced this was due to an IT outage. As an isolated incident, this might not be particularly noteworthy but, sadly, it’s not unusual. The Financial Conduct Authority noted that between January and October 2018, banks and other financial services firms in the UK recorded a 138 per cent increase in technology outages, resulting in inconvenience for millions of Barclays, HSBC, NatWest, RBS and TSB customers. According to consumer brand Which?, at least one British bank suffered an IT failure on every day of the last three quarters of 2018. While many of the smaller issues go unnoticed, this was definitely not the case for TSB’s catastrophic one in April, 2018, which left 1.9 million of its customers locked out of their accounts, costing the bank a whopping £330m, severely affecting the business’ credibility among users and resulting in the resignation of CEO Paul Pester. Outages often occur as banks attempt to migrate their customers and data from legacy systems, which are sometimes over 40-years-old and designed for branch banking, to new platforms. Unfortunately, they are doing nothing to rebuild the consumer trust already severely lacking in the sector.

ThePaytechMagazine | Issue 3

Another way But it doesn’t have to be this way anymore, suggests serial entrepreneur; expert in speech, language and artificial intelligence (AI) and currently CEO of industry blue sky innovator Thought Machine, Paul Taylor. “The solution’s already here. The best practices in Cloud computing really provide that,” he says. He is referring to his company’s core banking system, Vault, which makes light work of transferring even complex organisations across to more flexible Cloud-based systems. And we believe him because here is a man who did a PhD in machine learning in an age when AI only appeared in sci-fi novels, and devised speech technology the way it’s used in computer games today. “Cloud computing is the future, everyone is going to move there. Thought Machine just wants to be at the forefront of it so that when banks decide they want to be Cloud native, we’re the obvious solution,” adds Taylor. Ever since its launch in 2014, the team of former Google engineers at Londonbased Thought Machine have been trying to cure the banking industry’s most painful blister – moving to flexible digital systems without inconveniencing customers and while ensuring high levels of security and maintenance. Thought Machine used the latest engineering techniques to develop its Vault from scratch, with common technologies. “Thought Machine is an innovative banking solution but we use the same practices as others,” adds Taylor.

“Elastic scalability, multiple datacentres, security, all of these things add up to a compellingly better solution.” Essentially, Vault supports a complete suite of retail banking products – current accounts, loans, savings, mortgages and credit cards – all secured through blockchainstyle cryptographic ledgers and implemented via a system of smart contracts. Its website explains Vault: “Smart contracts are written in code and hold both legal and product servicing information. They are digitally signed by the customer and the bank and sit in the smart contracts ledger. This is a single source of truth for all the bank’s positions, current and historical.” The Cloud-based nature of Vault removes the need for banks to hire large operations teams to maintain sluggish legacy systems. Vault makes the difference by providing real-time access to all kinds of data stored across transactions ledgers and contracts ledgers, and by using a data streaming architecture to produce analytics on the primary database information. Vault’s powerful workflow engine allows its client banks to define the way their processes operate, be it for know your customer (KYC), fraud checking or payment processing, thereby implementing the bank’s operating model directly via Vault. Thought Machine follows agile principles, with continuous integration and deployment, making it completely accountable with traceability of all changes, and enabling straightforward disaster recovery. Vault is also designed to seamlessly scale. It claims to help banks grow from one customer to tens of millions, without the use of in-house data centres.

Working with major players A ‘Vault instance’ refers to each bank deployment Thought Machine carries out on its platform, and there have been several of these since the solution came to life. Founded in 2014, the company has done phenomenally well in a few short years, announcing a raft of major partnerships, including a global implementation collaboration with computer giant IBM from December 2018. Through this, IBM Services aims to create a global practice for implementing banking transformation. Together, IBM and Thought Machine are in discussion www.fintech.finance

with major global banks, offering them Vault, which with IBM can completely appropriate the benefits of IBM Cloud. In November 2018, Thought Machine also entered a strategic partnership with Lloyds Banking Group, promising to enhance the bank’s record of customer experience while building more agility and efficiency into its structure. Lloyds invested £11million in a 10 per cent stake to seal the deal. Later that month, the fintech company entered a collaboration with digital-only Atom Bank, for which it is developing innovative, agile and efficient personal and business banking products. Taylor says they don’t need to persuade banks to come to them. “What we do in terms of persuading is show them that we have what they want. Most banks that come to us have had enough of their legacy systems, they’ve already decided they want a Cloud-native solution,” explains Taylor. “The major questions my team are asked about Vault are ‘can it really do what you

say?’, ‘can it scale?’, ‘is it secure?’ and ‘is it robust?’. So that’s an easy conversation because, of course, it can and is.” What about the economics of hiring his Cloud-based technology? Taylor explains the magic equation is that the cost of implementation is much less than that of migration, plus some risk factors. “A modern Cloud computing platform is fully automatic so, for example, if a server crashes, it just restarts on another server, no manual intervention required. That’s just one of hundreds and hundreds of similar steps. It means the bank can run itself mostly automated, so you get a huge cost advantage,” he says. “Now, the second part of the question is ‘what are the economics of migration?’. It’s always tricky, because the cost of getting it wrong is big, so everybody wants to spend time and money making sure they get it right, but even so, on our platform, it’ll be cheaper than transitioning to an old platform,” concludes Taylor. It’s not just with its flagship product that Thought Machine is looking to turn the industry on its head. Thought Machine Labs, its experimental arm, is dedicated to conceiving and producing a range of quirky products aimed at improving people’s financial behaviour through money-saving games, mortgage-reducing apps and connected physical products. Money Monsters, for example, is a digital piggy bank for children that’s designed to help them understand money in an increasingly cashless world. Nestlings is the world’s first digital game designed to

The solution’s already here. The best practices in Cloud computing really provide that

help human beings save real money, through an entertaining experience that employs funny creatures and real-world actions. Saviour, a quiet mechanical object that disguises itself as a beautifully crafted designer clock, covertly communicates the status of your savings account. While, with Chipper, you can pay off your mortgage quicker, as its handcrafted user interface and advanced algorithm allow you to set and chase your mortgage goals. The Lab’s most secretive project to date, however, is VAULTiD, an ambitious financial product it is developing to harness the full power of its radical banking platform. No doubt it’ll be worth waiting for!

Must do better: And Paul Taylor's Thought Machine can show banks how

www.fintech.finance

Issue 3 | ThePaytechMagazine

MONEY 20/20

There’s an old saying about an early bird and it’s never been truer than in the case of Bankingblocks.

There for the

taking

Eye on the prize: Bankingblocks will do what others haven't

It is enjoying rich pickings by providing customer-friendly banking services and systems to fintechs, while incumbent banks continue to tie themselves up in knots of regulatory compliance. Established two years ago in the Netherlands, Bankingblocks, named to reflect the modular nature of its services mix – its ‘blocks’ – launched across Europe in January. It was cofounded by ex-BillPro CEO Daria Rippingale and Oonex founder Fabien Boursin. Billing itself as a ‘wholesale banking solution for the fintech and payments industry’, Bankingblocks provides ‘purpose built’ banking services for fintech and payment companies to pass on to their customers. It specialises in banking and payments, card issuing and cross-border, as well as other point of sale (POS) and ecommerce payment options, for businesses and individuals. Clients have direct access to products and services including its integrated core banking platform and front-end banking and acquiring gateway services, and can choose to partially or fully white label. Most importantly, Bankingblocks also has its own sort code and Connect BIC (bank identifier code), allowing it to offer companies and individuals with true multi-currency international bank account numbers (IBANs) worldwide, clearing, global payments and escrow accounts. A member of both secure

With the banks caught sleeping, Bankingblocks is only too happy to pick up their market share, says CEO Daria Rippingale 54

ThePaytechMagazine | Issue 3

www.fintech.finance

financial messaging service SWIFT and the Single Euro Payments Area (SEPA), it can leverage powerful systems and relationships on clients’ behalf. It will soon add Faster Payments, BACS, CHAPS and Mastercard MoneySend to its blocks. In February this year, Bankingblocks announced its partnership with compliance and payment solutions provider EastNets, to offer controlled risk and anti-money laundering (AML) support. Rippingale says Bankingblocks’ strategy is to fill an important gap in the market while the major players are stuck on other things. “There’s the fintech side of the industry, companies that are working hard to develop front-end technical services to solve customer problems, and then you’ve got the rest of the banking industry, which is stuck in the dinosaur ages from a technology point of view because other priorities like the new General Data Protection Regulation (GDPR) and revised Payment Services Directive (PSD2) have meant banks haven’t had time to work on modernising,” she says. “The biggest gap we see is for easy access, easy to integrate, true banking services, for the wider payments and fintech market. “We’ve got an incredibly well-funded, booming fintech industry working on the modern technical platforms and services consumers and businesses want.”

An important access point Bankingblocks is dedicating its resources to helping that sector bring this to life. “We are a combination of both worlds, in that we act as the back-end banking service and are a direct acquirer. We also offer sub-licencing services, allowing clients to offer our services in their own name. We also offer SWIFT and Single Euro Payments Area (SEPA) services through a modern core banking platform with open application programming interfaces (APIs) that can be integrated by all fintechs and payment companies.” Rippingale adds: “We’re targeting the fintechs and payments players that are trying to get in with the major banks and facing a lot of hurdles and replacing the banks in that value chain. We replace the need for traditional banks by offering more accessible, integrated banking services. Incumbents have had to spend a lot of money on their infrastructures, but it’s not www.fintech.finance

making them modern or able to actually provide the services the industry needs… we are here to help bridge this gap. “Our goal is to go to all the desperate fintechs, payment companies, corporate houses and foreign exchange brokers looking for access to true banking services and not able to get them from the banks. These companies have had to offer subpar financial services, through electronic money institution licencing, wallet services and aggregated ledger pooled accounts, because the banks don’t have the technology to integrate. They also don’t understand the market or properly support it.” So, how did Bankingblocks – established just two years ago – achieve its coveted licences, memberships and access? “It’s all a timing thing,” says Rippingale. “We were really lucky because when we approached the regulators and banks to give us approval for this different type of licence, it was before all the major challengers had sprung up. “Since then, some major things have happened in the market, one being lots of awareness about major banks’ poor performance on AML and know your customer (KYC), making the same licencing and memberships more and more difficult to secure today. “Our model is different from anything else out there, in that it offers regulated compliance-managed wholesale banking, where we take responsibility, as a regulated financial institution, for the services we provide to fintechs.” How does Bankingblocks enable key services like cross-border payments in the melting pot of currencies that is today’s European payments market? “We’re a licenced financial institution with our own sortcode and BIC. As a SWIFT and SEPA member, we can offer the same connectivity, account issuance and money movement services, from an IBAN perspective, as a traditional bank. We also have additional blocks which are modular, and products and services that help people bring money in. We’re an acquirer, which allows people to load money into bank accounts through things like prepaid debit and credit cards, and we

have relationships with a number of different cash collection points. “In different markets, where cash is king, that means people can make a cash deposit that can be converted, on the ledger, into digital currency. We provide alternative payments like SOFORT, iDEAL and Giropay, which allow people in certain European regions, who are much more comfortable with traditional local bank networks, to be able to move money into these facilities. “We are a member of all major card schemes and a large number of alternative payment methods in Europe. This means our clients can use any of those loading methods to put money into their bank accounts, which takes people from being either unbanked or banked and gives them much more access to multi-currency facilities and cross-border payments. “We also offer one integration point for any neo or challenger bank, giving them direct access to real IBANs and 28 currencies, connected to a wide range of correspondent banks worldwide for settlement via SWIFT, as well as full SEPA for the Eurozone and, because we have an integrated acquiring platform, we also have other loading methods. “This makes things much more flexible, from an end customer point of view, in terms of getting money in and out of the account, than it is with a traditional bank. And what makes our offering even more unique, is we don’t offer it to the consumer market. We work with payments and fintech businesses under a wholesale business-to-business (B2B) model, allowing them to access our financial services and issue them to their captive retail or business markets.” In terms of what the future holds, Rippingale says Bankingblocks has its sights set on adding lots more bells and whistles to ensure its platform retains its hard-won industry standout. “The most exciting part, for me, is integrating as many other really valueadding front end, technical fintech services into our platform, so that we can build a proper banking marketplace,” concludes Rippingale.

We take responsibility, on behalf of the banks, for liaising directly with the fintechs

Issue 3 | ThePaytechMagazine

CROSS BORDER

Devil ’s in the Detail

Apply Financial is taking the hell out of instant cross-border payments by becoming expert at detecting and mitigating errors, says Managing Director Mark Bradbury As instant payments, both domestic and overseas, become increasingly mainstream, the challenge is how to make them both fast and safe. The faster the payment, the more important validation becomes, and Apply Financial is working at the forefront of making sure transaction details are correct before sending – to the benefit of both clients and customers.

would make it really simple. But it doesn’t work that way because every bank, and every central bank, every payment system, has its own little quirks and every country has its own legislative requirements. Making a payment to the UK is not too different from overseas, but there are countries all around the world that have little quirks, extra things like a few digits at the front to identify it as an overseas, incoming payment.

Failed payments are expensive. Somebody has to manually fix them, wasting both time and money. They can also prove costly to the customer relationship, aggravating both sender and intended recipient. Apply Financial seeks to address the problem with its Validate solution. Used by more than 700 companies worldwide for single and bulk payment validation, it saves them significant amounts in payment processing and greatly reduces the likelihood of errors. Managing director Mark Bradbury tells us more.

TPM: What does Apply Financial do to solve such issues? MB: Basically, we’ve taken the data from the banks for the 170-odd countries we cover. We’ve taken the rules and other stuff we need to make sure it’s a compliant payment and melded them together, with a set of algorithms and functions that we deliver as web service calls through a single application programming interface (API). So, once somebody plugs an API into their payment system, or their front end, particularly into banks, with their mobile and online banking solutions, we effectively provide that screen that somebody’s putting the information into. The intelligence in our system can then identify if the information in each field is correct or not. And, if it’s not correct, what they need to do to fix it. It’s to stop human error. Some nine per cent of all payments have some human error. Another six per cent have some data error, because the data has gone out of date. Codes change, bank addresses change, rules change, lots of things change.

THE PAYTECH MAG: Hi Mark. Can you give us a brief overview of Apply Financial? MARK BRADBURY: We strive to be the world’s best payment validation solution provider. By this, I mean bank-to-bank payments and validating the account details, down to the nth degree, so that when you send money to a country, to a bank account, it will actually arrive there, in the correct account, on time. You’d think it would be easy to make a payment overseas, and that everybody

ThePaytechMagazine | Issue 3

TPM: The introduction of the Single Euro Payments Area (SEPA) and the revised Payment Services Directive (PSD2) have changed the payments environment drastically. What does that mean for banks looking to use your Validate system? MB: Validate allows you to real-time validate a payment or beneficiary detail. So, for payment companies, particularly new ones which are very much weborientated, having a representative state transfer (REST)-based API is a bit like being given a key to a door. Behind the door is a whole set of functions that are delivered as web service calls. For example, if you want to validate an international bank account number (IBAN) and a bank identifier code (BIC). Alternatively, you might want to validate the correspondent bank for that payment or check the holiday data, to make sure you’re not going to send it, or have it received, on a holiday date. Or maybe you want to validate the cut-off time for making that payment, so that you won’t run out of time. We’ve got a web service call that covers that, and you put in the official purpose of payment code so that it won’t bounce back. Again, the whole reason for doing is to cut human and data error. It costs at least £50 to fix a payment when it fails.

A vital safety net TPM: There was a case study recently, where a couple sent about £20,000 of their cash and got the code wrong, so had no idea if they would ever see that money again. Would Validate have prevented that? www.fintech.finance

Burning platform: No-one wants to suffer the cost and inconvenience of failed payments anymore

MB: Yes, because instead of putting in an account number and a sort code, Validate has an algorithm that says they can live together. Effectively, that account resides in that branch. If they’d put in the wrong sort code it would say ‘there’s something wrong here. Either the sort code’s wrong, or the bank account’s wrong, but they don’t match’. Basically, you can’t fat finger yourself into oblivion. TPM: The payments industry has really entered a revolution in the last couple of years. What do you see as the driving factors behind this? MB: Real-time payments, not just domestic but also overseas, are coming. Whether it’s due to things like blockchain, or even with more traditional processes, there’s a move towards same-day payments and faster payments globally. Now, that’s good for us because you haven’t got two days to fix the problem of a payment. Traditionally, foreign exchange is a two-day settlement. If somebody’s in real time then you want to make sure it’s correct before you send it.

grown its own volumes by nearly 30 per cent a year, on average. Globally, there has been between eight per cent and 12 per cent growth in overseas payments and I think having real-time payments is going to speed that up. So, we’re happy we’re in the sweet spot of that with our solution and we’ve got a lot of companies that are moving towards real-time payments using us. They’ve recognised that they want to provide a great service to their customers and make sure a payment is validated correctly before its sent, as a real-time payment. We’re also talking to our banking clients about working with them, with their open application programming interfaces (APIs), to provide better validation services, as well. There are things we’re going to do over the next two years that will be of great use to the sender of the payment, whether it be an individual, corporate or payment solution. From a validation perspective, PSD2 opens up a new world for us and the banks. The banks are beginning to realise that there is a way to monetise PSD2.

[we’re] doing [this] to cut human and data error. It costs at least £50 to fix a payment when it fails

TPM: And how does Apply Financial fit into this? MB: We’ve got over 700 different types of company – including financial institutions, payments companies and corporates. What we’re seeing, across the payments area, is that our client base has www.fintech.finance

TPM: One of the biggest strengths of Apply Financial is the return on investment (ROI) you can provide for companies. What can you offer in terms of saving money? MB: It doesn’t just benefit banks, the cost of fixing a failed payment benefits anyone sending payments. If a payment fails, somebody’s got to fix it and there’s cost involved in that.

What we’ve done is build a very simple return on investment calculator. We’ve got two things. The back end of our system is a real-time reporting suite that tells you what’s going on, how many payments you’re validating, how many passed straightaway and how many had incorrect information. It then calculates for you what you will have saved by using our tool and stopping failed payments. On the other side, we’ve built a more externalised version of that which says ‘what is your payment failure rate?’ If five per cent of your payments are failing, you can put that into our little calculator and it tells you how much we can save you. With real-time payments and new payment types like SEPA, margins have got thinner so banks can’t charge as much for a payment. In the old days, they’d fix the odd payment for free. Now, every time a payment fails, they’re going to charge. TPM: What does Apply Financial provide when it comes to bulk payments? MB: We can validate a file of up to 100,000 payments at one time. We tend to recommend that people cut it down because you’re better off sending 10,000 and finding a problem, fixing it, and then sending it again. TPM: You’re attending Money20/20 Europe next month. What are you looking to showcase? MB: I’m going as a delegate because Money20/20 is the event to attend if you’re in payments. It’s basically a few days of catch up with clients, a chance to meet new potential clients, talk with the banks and do some reconnaissance, because next year we’ll probably have a stand there. Issue 3 | ThePaytechMagazine

CROSS BORDER

Lightning A fully integrated cross-border solution that ensures payments flash across the globe in an instant will become reality, says ING’s Global Head of Payments, Evelien Witlox It might sound like a bolt from the blue, but Dutch banking giant ING claims it can make real-time international payments happen, having been at the forefront of payments innovation. For years, both business and individuals have been held back by payments that have taken multiple days to arrive. But ING is storming ahead with a multi-pronged approach. It offers cross-border transfers using the rails of both the established framework – correspondent banking – and alternative technologies. And recent innovation across the board means the world is on the cusp of finally establishing a fully instant, 24/7 system. Evelien Witlox, global head of payments at the bank, says customers don‘t care how such a system is delivered, but they demand it now. “They expect that they can verify with their fingerprint and money will be transferred from here to the other end of the world,” she says. “The biggest disruptor to cross-border payments is customer expectations that are based on their experience of other instantaneous payment systems. Our approach at ING is to invest in a range of technologies to ensure we meet our clients‘ needs.” The correspondent banking system is the established, and massively complex, method of moving money abroad, and secure financial messaging platform SWIFT is the dominant provider. Huge strides were made in 2017 with the launch of SWIFT gpi, a seismic upgrade on the previous system.

ThePaytechMagazine | Issue 3

fast

With SWIFT gpi, instances of transactions getting lost along the chain of banks involved in the stepping-stone arrangement of moving a payment have fallen. Witlox says: “The launch of SWIFT gpi meant firstly that we have been able to improve the track and trace aspect of a payment, so that it can be followed in the same way you would follow a package in the post. “When the payment is in our environment, we ensure that it‘s safe and compliant. And, in the unlikely event that something does go wrong, the customer can talk to our payments investigators who will work to get the money back.” The second breakthrough of the SWIFT gpi system, says Witlox, is speed. SWIFT itself says 40 per cent of payments reach their destination within five minutes and almost all get there in 24 hours. ING is one of the 165 banks using the system and they all share processing standards to ensure improved efficiency. “Increased speed means the system will be used more, and that growth in volume will help to bring down the cost,” says Witlox. “Payments is a scale business – if you want flawless processing the banking system has to make the same investment for a $1 payment as with a $200million payment. SWIFT gpi hasn‘t structurally changed anything, the correspondent network is still there. But it has massively improved it.

The biggest disruptor to crossborder payments is customer expectations “Until now, someone needing to make an international transfer for a purchase might use a credit card. But SWIFT gpi gives more possibilities to fulfil that payment need, and we‘re close to having a fully global, almost real-time, online system.” Beyond investment in SWIFT‘s correspondent banking model, ING also believes the networking of national instant payment systems could herald the dawn of fully instantaneous crossborder transactions. The bank recently took part in the launch of instant payments by the Dutch Payments Association and the Belgian Banking Federation. And ING chief executive Ralph

www.fintech.finance

It's getting closer: ING is determined to help crack instant cross-border payments

Hamers said of the systems in the company‘s 2019 first-quarter results: “Funds now get credited to the beneficiary account within five seconds, giving customers immediate access and helping them to optimise cashflow. Later this year, we expect to expand instant payments to other countries and other banks in Europe.” Witlox says the interconnection of domestic systems under an international payments umbrella is the next obvious step – barring regulatory hurdles. “Regulations are not the same everywhere,” she says. “Many countries are introducing instant payments. There‘s the UK, the US and other systems in Australia and Singapore. “Within the European Union (EU) we have SEPA (Single Euro Payments Area) Instant Credit Transfer being rolled out and, by the end of this year, we foresee most of the EU member states having instant payments. “The ambition has been to standardise systems so that, at least within the EU, there will be no borders to payments.

www.fintech.finance

“SEPA Instant Credit Transfer is a good foundation and we‘re thinking about how we can connect it to the whole world.”

Fostering innovation Various fintechs have developed alternative methods of cross-border transfers. To keep up with this ING last year bought a €21million stake in Irish business to business (B2B) payments firm TransferMate. As part of the deal, ING‘s small and medium sized enterprise (SME) and corporate clients will have the option to make transactions over TransferMate‘s platform, which works separately from the established correspondent banking system, to 162 countries in 134 currencies. Witlox says: “They have a totally different view of doing international payments. Instead of going through the chain of correspondent banks, they divide it up into domestic payments. “That technology really makes payments much quicker and cheaper, and because it’s so quick, transparency is no longer an issue.” Meanwhile, Witlox admits ING‘s final

strand for global payments is at a more experimental stage – the bank is busily working behind the scenes on proof of concepts for blockchain applications. So far, they have included Bulletproofs – a blockchain innovation sharing information using zero-knowledge proofs which could help banks comply with the EU’s General Data Protection Regulation (GDPR), to keep sensitive client data private. Another is the co-development of a platform called MineHub, designed to help clients in metals and mining lower costs, increase transparency and contribute to sustainable production and trading. The bank told its investors in May that its efforts had not gone unnoticed, stating: “We rank fifth among global listed companies with the highest blockchain potential for 2019 in Forbes.” However, the rails carrying transactions are of little interest to customers – they simply want the job done quickly with no fuss. So, regardless of the back-end mechanics employed to carry money across the globe, ING has also focussed on the customer interface at the front end. One of the innovations here has been to automate the data input phase. Witlox says: “We want to try to make it simple to carry out an international transfer. To do that, a lot of data needs to be taken from the customer but we pre-format as much of it as possible to minimise the risk of inputting errors. “Another tactic we employ is to make many of the validations at the outset of the process so that, if something goes wrong, the transaction can be stopped quickly.” In its drive to improve customer service, Witlox says ING employs the expertise of various fintechs to develop value-added services alongside the core function. “The emergence of open application programming interfaces (APIs) creates a world of possibilities, especially in supporting clients who do business with multiple banks,” she says. “We want to empower our clients in life and in business. To be the bank of choice, ING has to be where our clients are. For payments, that means making them as easy and flawless as possible and combining payments with other banking services like short-term loans. These are some of the developments we are currently working on.”

Issue 3 | ThePaytechMagazine

CROSS BORDER

Fraud Force

A step ahead: StreamMind has the power to beat fraudsters hands down

Fighting against fraud internationally: StreamMind Founder Nicolas Muhadri describes how it is taking on the expanding world of financial fraud, one nation at a time Unveiled at the start of last year with great fanfare, Open Banking promised swashbuckling business opportunities – and added streams of revenue and collaboration – on a newly-navigable sea of data and IT interoperability. In Europe and beyond, the revised Payment Services Directive (PSD2) only added to the possibilities and expectations attached to this new banking epoch. Unsurprisingly, established fintechs quickly found harbour in the world’s largest financial institutions, providing new services via open application programming interfaces (APIs). But, worryingly, so too have a pirateering band of cyber fraudsters, who have been quick to exploit the weaknesses of the new system. Open Banking, it seems, has opened the door to a new wave of financial crime. That’s largely because Open Banking and PSD2 mandate account access to third parties, and data sharing across financial www.fintech.finance

institutions (FIs). As a result, fraudulent data is duplicated and copied between banks and financial service providers. This frustrates the payment authentication process, which relies on data accessed from other FIs to build a picture of account holders that either validates or rejects a transaction. Already on the rise pre-PSD2, financial fraud has therefore found new avenues to exploit as a direct result of Open Banking regulations. In any case, the picture of cyberfraud is bleak. Last year’s report into the issue by Experian found that cases of financial fraud in the UK are now reported every 15 seconds. UK Finance, meanwhile, recently reported that, in 2018, some £1.2billion was stolen from the industry by criminals committing fraud. In the same year, the Financial Conduct Authority reported that the financial industry in the UK spends £650million a year tackling financial crime, with a total of 11,500 full-time personnel working on the problem. They also detailed over a million

notifications of suspicious transactions in the UK per year, with over a third of these reported to the National Crime Agency for further investigation. Financial fraud, then, is an everincreasing phenomenon, costing global financial institutions billions of pounds each year. The concern, at a time when banks are becoming more open crossborder than ever, is whether cybercrime and financial fraud are actually enabled by new banking technologies.

Into the fray It’s an issue to which the technology provider StreamMind has been devoting its energies for nearly a decade. Founded in Paris in 2008, the firm’s mission is to ‘provide organisations with the secure, robust and agile digital technology they need to meet any business challenge ahead’. StreamMind’s founder and president, Nicolas Muhadri, is cognizant of just where those challenges lie for FIs in 2019. “The big issue, according to what we hear from our Issue 3 | ThePaytechMagazine

CROSS BORDER customers, is to prevent financial fraud in payments,” he says. “We are witnessing a big threat of fraud, which is growing very fast. “To take an example, in France you have one corporate that fails every day because of financial fraud – that equates to one corporate in four that fails because of financial fraud in France. So, it’s a big, big issue, and it touches everyone – corporates, large companies, banks and also individuals,” explains Muhadri. The software as a service (SaaS) provisions developed by StreamMind, a decade of research and development in the making, have processed over 25 million transactions across six sectors since their launch. A sign of their dominance in France, the firm’s home-grown expertise in payments and transactions found them selected by the Bank of France to implement the nation’s mobile banking plans back in 2016. It’s on this point that things start becoming truly interesting. You may not have heard of StreamMind, but across the Channel it is highly respected and incredibly influential, with its flagship software suites developed alongside the majority of France’s biggest banks – and based upon interbank networks like SEPAmail, the largest interbank provider, used across Europe. And it’s precisely this SEPAmail network that has granted StreamMind a comprehensive connection to account details and identity. With its net cast over all of Europe, it can easily haul in the data required to verify and authenticate both bank account details and identity. Emboldened by its powerful national position, in 2018 StreamMind launched its groundbreaking LUCY – a software solution which, it claims, eliminates fraud altogether. “LUCY is the first service that enables the user – large corporate, or professional – to be able to prevent financial fraud,” says Muhadri. “From one single connection, it enables access to all the country’s banks, to verify, in seconds, both financial coordinates and personal coordinates that protect the user from financial fraud on payments completely.” LUCY bridges the troubled waters of cyberfraud by flagging false accounts, correcting erroneous data and adding new client details automatically to the database accessed by its clients. The software’s highly secure interface, available via API, through

We intend to expand internationally, country by country

ThePaytechMagazine | Issue 3

a mobile app or on a generic web platform, quickly swept across France’s FIs. “Banks have been looking for a system that not only prevents fraud, but can also block a payment if there is an alert on the financial details. They want a system that is able not only to control and alert, but also automatically block a payment inside an existing system. That's what LUCY provides,” explains Muhadri. StreamMind’s achievement is nothing short of remarkable – particularly as it has developed LUCY in a closed, national context that’s at odds with the globalist consensus in the fintech world. But, as Muhadri reminds us: "What currently works perfectly in France and other countries of Europe, is readily available for banks elsewhere to implement. They do not have to develop from scratch, the technology is there and ready to be used. “This kind of service doesn’t exist anywhere – there’s no country that is able to propose a multi-banking service that protects everyone in it from financial fraud,” he says. “Having done this for major banks in Europe, we are actively replicating this service globally.”

Advancing fast This ambition has caught the eye of global banks outside of France. Nearly three quarters of financial fraud is attributed to

cross-border payments; if LUCY can integrate across borders, the reduction in global cyberfraud could be titanic. Muhadri is under no illusions about the value of his company’s new product. “We intend to expand internationally, country by country,” he says. “We will also work in the UK, with a similar system that responds to UK regulations.” The roll-out of LUCY worldwide may take years but it’s important to recall that existing domestic fraud management systems – many of them legacy systems – connect only to a small handful of banks to authenticate transactions. Nevertheless, StreamMind’s ambitions are clear. “Our goal is to make LUCY the global anti-fraud system in the financial industry, in the five years to come,” reports Muhadri. This nation-by-nation conquest, of course, would grant StreamMind unprecedented access to global transaction and account data – that heaving sea of insights that powers further software innovation and services, making it one to watch. With LUCY, StreamMind is offering the only truly global and cross-border solution to the financial fraud pandemic. By weathering the cyberfraud storm first in France, it has proved that its software solution is ship-shape for application across any financial market – and that Open Banking isn’t the vessel by which cybercriminals will achieve the upper hand in the world of finance and fraud.

www.fintech.finance

BANK OF LITHUANIA: an integrated regulator responsible for prudential and business conduct supervision as well as payment system management

STRATEGIC DIRECTIONS FOR 2017-2020 PARTNER IN INNOVATION AND SUSTAINABLE GROWTH

COMPETITIVE AND INNOVATIVE PAYMENTS MARKET

reasons to build your FinTech business in Lithuania 1. GUIDANCE AND COOPERATIVE ATTITUDE NEWCOMER PROGRAMME a one-stop shop for meetings and consultations

2. SMOOTH AUTHORISATION 3 MONTHS to obtain an electronic money or payment institution licence (100+ licences issued) SPECIALISED BANK LICENCE for core banking activities (minimum capital requirement – €1 million)

3. FORWARD-THINKING REGULATION REMOTE KYC for customer onboarding

LEVEL PLAYING FIELD for all market participants

ONLINE application submission (also in English)

4. ACCESS TO PAYMENT INFRASTRUCTURE CENTROlink – a payment system developed and operated by the Bank of Lithuania FULL SEPA reachability (34 countries)

SEPA SERVICE PACKAGE: credit and instant transfers, direct debits DIRECT technical access for non-banks FINANCIAL INSTITUTION CODE for own IBAN accounts

5. PROINNOVATIVE APPROACH REGULATORY SANDBOX for testing innovatory ideas LBCHain – a technological sandbox and accelerator for blockchain-based solutions

REGTECH SOLUTIONS (e.g. an e-licensing tool)

Move at the speed of digital. Without leaving your business behind. Find out how Quadient is uniquely positioned to help you: Digitize customer onboarding

Transform the customer journey - from print to digital

Support the digital communication requirements for line of business owners

Enable agents & representatives to create timely, contextual, personalized and accurate communications for all channels

www.quadient.com

CROSS BORDER

Matthew Davies heads Bank of America Merrill Lynch’s Global Transaction Services business for EMEA, including cash management, trade finance, commercial cards and transactional foreign exchange. He is also global co-head of corporate sales for GTS. He describes the importance of ensuring clients receive a consistently great experience. THE PAYTECH MAG: What are your biggest challenges and opportunities with delivering a great client experience? MATTHEW DAVIES: When you’re an international bank in a complex regulatory environment where many jurisdictions have completely different approaches to regulation, you have to be flexible in the way you run your business. For clients, this can be complex and time consuming because what you require of them to work with them in one jurisdiction, could be completely different in another. However, if you maintain a single focus on your client experience, you tend to navigate to the right place, and the digital tools we now have available make it much easier to improve that experience. TPM: What role does digitisation play? MD: It is now possible to onboard clients electronically and the removal of paper and wet signatures is a huge step forward. There’s a proper audit trail for each document and capturing that electronically allows you to be more client-friendly in presenting information back to them. TPM: How do you walk the fine line between automation and maintaining personal client relationships? MD: Relationship is at the heart of everything we do and we see ourselves as advocates and advisors to our clients in a rapidly changing environment. When it comes to servicing their day-to-day needs, www.fintech.finance

Banks can’t afford to lose a millisecond when it comes to winning the customer service race, according to Matthew Davies, BofAML’s Head of Global Transaction Services they often want most of their answers electronically, through a mobile device or online banking tool. We offer them a number of options because we know that quality of service is paramount. They can initiate and track the status of a request online but if they call us, they get straight through to their dedicated service representative. They will hopefully answer the question there and then and, if they can’t, they’ll work behind the scenes, while the client can see the status of their query online. We’re seeing an increasing convergence between human interaction, online banking tools and mobile apps. Clients will do a lot of their work using our online tool, but they also pick up their phone and use Face ID to verify a payment. TPM: Innovating and combining new technologies at scale is tricky to achieve – how do you do it? MD: Our large consumer bank in the US touches millions of consumers daily and we apply the learnings from that to our corporate and investment banking. We also take an enterprise approach to innovation, to make sure we’re aligned across the bank. Our clients span individual consumers, small businesses and large multinationals, and we pick up a lot of common trends across those segments, applying technologies developed for each group across the board so as not to reinvent the wheel every time. For example, our US consumer bank has a digital assistant called Erica, which is like our Siri and used by a lot of our consumer

clients when they interact online or by phone. While our multinational corporate clients aren’t quite ready to interact with a digital assistant when working on a critical treasury payment, we can deploy that technology internally. Our servicing representatives can use it to get answers to client queries. Connecting the digital assistant to multiple systems means they can ask one question and the assistant goes off and interrogates various applications to get them an answer. From the client’s perspective, they’re still speaking to their usual relationship manager, but that person is more empowered to provide a better, quicker answer which improves the client’s overall experience. TPM: Where would you like to see client experience heading in the future? MD: We want to remove friction at every point and make it easy for clients to do business with us. This is increasingly becoming more important to maintaining and developing relationships. It’s about simplifying regulatory requirements and making it easy for clients to interact with us. In an ideal world, there will be a single, global, know your customer (KYC) database, open to all banks, because opening and operating bank accounts, and annual refresh processes, are a challenge. A central repository for KYC documentation would be a step forward. It’s also about digital interaction across apps on mobile phones, electronic banking tools and, increasingly, APIs, to help banks interact with one another and their clients. Then there is the shift towards a real-time environment. Put all of that together and you’ve got real-time payments being initiated across APIs, with real-time information coming back to clients, allowing them to reconcile real-time, and then the electronic tools that support these developments; all creating an enhanced client experience. Issue 3 | ThePaytechMagazine

CROSS BORDER

Mo b ile first Serina Hourican heads up Bank of America Merrill Lynch’s Commercial Banking Sales team in Global Transaction Services for EMEA. It’s her job to make sure that, when it comes to digital payments and security, her USheadquartered clients have everything they need at their fingertips.

Serina Hourican, BofAML’s Head of Commercial Sales, Global Transaction Services EMEA, makes the case for fast digital adoption in corporate payments

She describes the increasing role mobile technology is playing in all of these areas.

TPM: How can you ensure the security of large payments using mobile? SH: Clients can use their mobile to approve payments, backed by digital tokens and one-time passwords. The biometrics on mobiles make payments secure, in the same way as doing it online. Clients can even generate passwords and tokens on their Apple Watch if they’ve paired it up with their iPhone, and approve payments online.

THE PAYTECH MAG: Tell us a little more about what the bank does in this space. SERINA HOURICAN: We look at both solutions and strategic advice. We speak to clients about payments and receipts, channels, liquidity solutions, trade finance and commercial card solutions. On top of that, we take an advisory approach with our clients, sharing with them best practices we see in the industry, to help them build their treasury platforms. TPM: How are consumer payment trends influencing corporate payments? SH: Many products from the consumer space have been leveraged for corporate use, such as online banking, which we’ve used for our own personal banking for a number of years. More recently, we’ve seen the adoption of mobile apps for corporate purposes. There lies a great opportunity in being able to transfer consumer trends to the corporate world in a quicker way. Using the example of mobile banking, people have been able to do that in the personal space for the last 10 or 15 years, but it’s only now becoming available for corporate use. Additionally, treasurers are used to being able to do things quickly outside of work, so they’re starting to look at how they can use tools like Faster Payments and real-time payments in their treasury systems.

www.fintech.finance

TPM: How can companies make better use of digital payment tools? SH: Treasurers and chief financial officers are constantly travelling, so speeding up the payment approval process is important, to avoid payments being held up. We have a number of tools to help clients with this. They can download our CashPro Mobile app onto their phone to see their accounts, view their balances, approve payments, manage user profiles and more. It uses secure biometrics so that clients have the comfort that what they are doing online is totally secure. Between the first quarter of 2018 and the same period of 2019, we’ve seen users increase by 92 per cent. That’s 80,000 approved payments with a notional volume of $30billion, and we expect more throughout this year. This month, we launched the ability for clients to pair this feature on their phone with their watch. “Additionally, our CashPro Assistant uses artificial intelligence and robotics to hone in on individual behaviours among

buyers and suppliers, to help them identify opportunities to free up capital. The other area is accuracy and reporting of payments and data, and using cashflow forecasting tools to help treasurers improve working capital. This generates more cashflow which can be reinvested back into the business, whether for research, merger and acquisition opportunities, or even to pay outstanding debt. TPM: How does understanding their data better make for a more efficient, faster-growing business? SH: Enhanced data can be used for forecasting, benchmarking and security, allowing clients to forecast more accurately and delve into individual patterns and behaviours. They can also benchmark themselves against similar companies, in the same industry or of similar size, to identify opportunities for future growth, as well as concerns. TPM: What are your key priorities for commercial clients in the Europe, the Middle East and Africa (EMEA) region? SH: Our commercial clients are USheadquartered and we look after their EMEA subsidiaries in region. We’re seeing a rapid international expansion of US-headquartered names looking to increase their European footprint. What’s really important to the treasurers I speak to every day, is that they’re constantly visiting sites across Europe, so they need capabilities they can use while travelling, which is why a mobile app is really useful for them. The other priority is cybersecurity. Using a mobile app which has biometrics, whether via fingerprint or facial recognition, and coupling that with end-to-end security encryption, makes it as secure as using an online version. Providing our clients with this functionality is really important.

Issue 3 | ThePaytechMagazine

BLOCKCHAIN

Into the limelight: Wirex is helping cryptocurrencies take centre stage

Wirex CEO Pavel Matveev describes how his company is helping digital currencies make the big time Let’s face it: cryptocurrencies are yet to have their big break. Ethereum, XRP and other altcoins can currently be likened to obscure death metal bands – popular among small, dedicated fanbases sporting black T-shirts, but almost entirely unknown to the masses. Despite attracting significant media attention during its meteoric price rise in 2017, even the big daddy of cryptocurrencies, Bitcoin, is yet to truly establish itself in the mass market.

company offering what we’re offering, which is a blockchain-based platform upon which you can receive, send and exchange digital assets, and spend them using a Visa card. We are the only company focussed on cryptocurrency that is approved by Visa.” That’s right, Wirex is the only organisation that offers a card which can be loaded up with all sorts of weird and wonderful cryptocurrencies ready to be spent on pasties, chocolate, or whatever else your heart desires, in a petrol station at 3am. Of course, when you make a visa transaction using the Wirex Visa card, you're technically not paying in cryptocurrency – but the Wirex platform allows you to seamlessly exchange the corresponding value of digital assets into fiat currency. However, this teensy-weensy technicality hasn’t deterred hardcore crypto fanboys from signing up to Wirex’s service, who’ve discovered a new use for their beloved Bitcoin. “For us, cryptocurrency enthusiasts have always been core audience,” says Matveev. “They’re familiar with digital assets and we don’t need to educate them or market directly towards them. However, we’re seeing a trend of previous cryptocurrency wallet-holders starting to receive their salaries into the currency accounts we provide. This implies that cryptocurrency enthusiasts are beginning to transfer their entire banking capabilities to our platform.” Having a service that’s popular with the crypto elite is all well and good, but Wirex is mindful of the fact that it’s preaching to a choir of financial whizzkids. Thankfully, the company has devised a scheme to extend its service’s appeal to the much larger, much more competitive, mass market. “Our challenge has been to convince the general crowd, the people who don’t really care about Ethereum and who believe that Bitcoin is primarily used for drugs and ransom. These people are beginning to use Wirex thanks to our Cryptoback programme,” says Matveev. “In essence, Cryptoback is a cryptocurrency cashback scheme. Every time you use our card

s ’ o t p y r C t s e g g i b ? t hi However, hope remains for Dogecoin (my personal favourite) and friends in the form of a new wave of financial firms looking to take cryptocurrencies mainstream. No-one is closer to giving cryptocurrencies their breakthrough hit than London-based payment company Wirex, which became only the third crypto-related firm to be awarded an emoney licence by the Financial Conduct Authority (FCA) in August last year. This licence allowed Wirex to optimise its unique, mass-market crypto offering, as CEO Pavel Matveev explains. “We were very happy to obtain our licence from the FCA, as it enables us to provide a faster, cheaper and more flexible service,” he says. “There is currently no other

ThePaytechMagazine | Issue 3

www.fintech.finance

in-store, you receive 0.5 per cent back in Satoshis. A Satoshi is a fraction of a Bitcoin, meaning you accrue Bitcoins simply by using your Wirex card. “There are very few debit card providers who give you 0.5 per cent cashback, let alone 0.5 per cent in cryptocurrency,” he continues. “As the media has shown, the price of Bitcoins can go up over time, making our Cryptoback programme a very attractive proposition indeed. We hope that, by adding new features such as these, we’ll be able to attract crypto novices and encourage adoption of digital assets in the everyday lives of everyday consumers.”

The business opportunity As well as targeting the general crowd of cryptocurrency laymen, Wirex also has its sights set on fellow businesses. In February this year, the company announced its Wirex 3.0 transformation plan. In addition to a

infrastructure, crypto-related companies will finally have the ability to turn their attention to real-life use cases, as opposed to futuristic, white paper-based developments.”

New kids on the block Speaking of the future, it’s almost impossible to predict the direction which cryptocurrencies will take. A rift is currently forming between conventional cryptocurrencies such as Bitcoin and a newer breed of digital tokens entitled ‘stablecoins’. Unlike conventional cryptocurrencies, stablecoins are backed to a physical commodity or fiat currency as a means of eliminating price volatility, hence the name. For better or worse, the advent of the stablecoin has exposed the limitations of earlier cryptocurrencies. “As a payment instrument, Bitcoin faces two main challenges: regulation and

Wirex... is making a car. We’re creating something entirely new: a payment ecosystem for the token economy complete rebranding courtesy of Pentagram (the design agency behind the visual identities of firms such as Citibank, Mastercard and Microsoft), 3.0 saw the launch of Wirex’s business-to-business (B2B) product. Just four weeks after its announcement, there were over 3,000 businesses on the Wirex B2B waiting list. Once again, this overnight success can be attributed to a dearth of similar products on the market. “There’s been such a high demand for our B2B product because cryptocurrency companies are struggling with other banks,” says Matveev. “Firms like TransferWise may offer excellent borderless accounts, but are inaccessible to businesses, so cryptocurrency companies are being frozen out of the traditional banking and payments infrastructure. “With us, cryptocurrency businesses can open a corporate bank account, secure their cryptocurrency wallets and exchange one currency for another, whether it’s fiat or crypto,” he says. “At the moment, we’re mainly focussing on SMEs with our B2B solution, although we believe it will drive more widespread adoption. “Having been granted access to traditional banking and payment www.fintech.finance

scalability,” says Matveev. “There’s a limit to how many transactions Bitcoin’s blockchain can process per second. In 2017, I attempted to make a Bitcoin payment at a Japanese retail chain called Bic Camera – the first in the world to introduce Bitcoin transactions. At first, my payment didn’t work, then after 10 minutes of waiting I finally received confirmation of the transaction. In the end, I paid $50 in transaction fees and the process took 30 minutes – just to purchase a $20 flash drive. “The point is, until the technology behind Bitcoin matures, the currency will remain inefficient as a means of payment,” he says. “Stablecoins, on the other hand, don’t face the same challenges in terms of regulation and scalability. Since they’re effectively just tokenised fiat currencies, they fall under existing emoney regulation, meaning all regulated financial institutions can work with them. “Not only this, but the Stellar blockchain (on which many stablecoins are hosted) can process thousands of transactions per second. This eradicates the problem of money movement and makes Stellar-based stablecoins highly scalable. The result of all this? Stablecoins are excellent for making

payments, be they cross-border transactions, everyday purchases or machine-to-machine settlements.” At the end of April this year, Wirex announced it would be adding a whopping 26 Stellar-based stablecoins to its platform, bringing the total number of cryptocurrencies it supports up to 34. Much like its own B2B solution, Matveev thinks stablecoins could provide a stepping stone towards mass adoption of cryptocurrencies as payment instruments on a global scale. “I want to believe that Bitcoin, at some point, will become the currency of the internet, and companies like Square in the US are working towards that. However, there’s a long way to go before that can happen and stablecoins could be the first step towards a broader acceptance of digital assets as methods of payment.” Often, Matveev is quizzed as to what sets Wirex apart from the myriad challenger banks that have entered the market in recent years. Ostensibly, their offerings appear fairly similar to Wirex’s – a card in the post and a slick mobile app. However, take a look under the surface and there’s a fundamental difference between the type of platform being built in each case. “Henry Ford famously said ‘if you ask people what they want, they’ll tell you they want a faster horse’,“ says Matveev. “Right now, that faster horse is better banking, and challenger banks are delivering this by building upon existing banking rails, which don’t operate over weekends, outside of working hours, and so on and so forth. “Wirex, on the other hand, is making a car,” he says. “We’re creating something entirely new: a payment ecosystem for the token economy. We believe the transition away from the traditional banking ecosystem towards a blockchain-based one will be gradual, hence our decision to include certain traditional rails (such as Visa) within our platform. So, just as Henry Ford created the first mass market motor vehicle, Wirex has developed the first cryptocurrency payment platform that fits the needs of the general populace. By adding a dash of the present to their futuristic offering in the form of Visa, Wirex’s platform should bridge the gap between our current fiat system of exchange and the tokenised economy of the future rather nicely. Issue 3 | ThePaytechMagazine

BLOCKCHAIN

B L OC KCHAIN

the final frontier?

Olga Feldmeier, CEO of SMART VALOR, describes how its new asset token exchange will democratise access to wealth Space exploration, anyone? When taking advice on which investments to put their limited wealth into, this sort of thing isn’t usually front of mind for the average person in the street. Yet, such opportunities no longer need to be the preserve of the world’s Elon Musks and oligarch states, thanks to the capabilities promised by the next wave of blockchain, according to SMART VALOR co-founder Olga Feldmeier. While the risk inherent in such investments is higher, the returns can also be astronomical, and the startup is on a mission to make such choices available to all, not just the super-rich. The Swiss-based company is close to launching the first secure, regulated, commonly accessible exchange for trading alternative investments like shares in private early stage companies, venture capital funds, infrastructure projects or real estate. These are translated into tokenised digital shares, scrutinised using blockchain technology. Global access is provided through borderless roadways of cryptocurrencies outside of rigid banking rails and local limitations. Thus, it is enabling access across geographical borders, and investments in things not found at banks and difficult to obtain, manage and create liquidity in. From space exploration to tech innovation, SMART VALOR’s stated mission is to ‘build the new financial market infrastructure which will democratise access to wealth’. Blockchain is the key to this inclusive investment market, says Feldmeier. “Our mission is to enable better access to

ThePaytechMagazine | Issue 3

previously exclusive investments for a broader audience,” she adds. “Investments today are like two different worlds depending on the size of your wealth. Retail customers can go to a bank and be sold a pension or mutual fund with a bleak performance outlook, while a wealthy individual has access to higher yielding alternative investments. The average yield of private equity investment over the last 15 years was 14 per cent compared to seven per cent from publicly traded equity products.”

an initial public offering or gets bought out and they see a return. Many might not be financially able to invest in something that will be illiquid that long. However, if the same opportunity offered the chance to exit earlier, an individual might be able to consider it. “Blockchain gives us the opportunity to create more liquid investment products, and we’re using it to give people better access to them,” adds Feldmeier. The purchasing process is also made simple through the SMART VALOR exchange. With several clicks, the investor can buy participation in whatever they choose. “In the future, it will all be appbased, with assets recorded and transferred instantly, benefitting from

Endless opportunities SMART VALOR's value proposition is offering alternative investment opportunities in digital shares, or tokens, cryptographic keys representing ownership of a certain asset. “We create a digital footprint of every share and then offer these for distribution to investors,” continues Feldmeier. In the case of early stage companies, SMART VALOR makes these tradable on its exchange earlier than with a traditional public offering, giving promising companies the chance to raise capital sooner and kickstart their growth, while opening the doors to more investors on the promise of being able to realise the value of their investments earlier. This also solves a core problem of alternative investments, what Feldmeier calls ‘absent liquidity’. She explains that, traditionally, an investor in a private company would likely wait about 10 years until it makes

Lifting off: SMART VALOR's exchange offers infinite scope

www.fintech.finance

global liquidity. No banks, no two-day settlement, no fractured liquidity. This is the future of investments we are creating at SMART VALOR,” she adds. The exchange also fosters innovation by making capital raising possible earlier in companies’ lifecycles, increasing their pool of potential investors. “An early-stage company creates a digital version of its shares which are offered to a global audience of investors, opening the door to a new way of funding itself,” adds Feldmeier.

Outside the norm Tokens, digital versions of real entities, can be recorded, moved and traded on the blockchain, which is like a decentralised, global peer-to-peer network, operating parallel to traditional banking and stock exchange systems. It lets investors record ownership and carry out their transactions securely, all in one place, making transfers instant, efficient and low-cost. Data is also shared across the blockchain network, rather than resting with one entity. This means a token can not only be transferred globally, within seconds and at any time of day, it also does not require the involvement of traditional financial institutions.

www.fintech.finance

“Blockchain is a trustless mechanism to record and transfer ownership,” says Feldmeier. “You don’t need exchange, bank, custodian, clearing agent, registry.” And this is how it is enabling what SMART VALOR calls ‘global liquidity’, something that has not been available in the history of financial services, and allows anybody to fund anything. However, the increased efficiency of blockchain has ramifications for traditional financial institutions and regulators. While being able to buy and sell funds globally, instantly, benefits individual investors and companies

move forward. In the last three years, Switzerland has become a leader in blockchain regulation. Some 700 companies have arrived in its Crypto Valley in the last year alone, says Feldmeier, because the regulator wants to enable them to operate within the legal framework. SMART VALOR plans to launch its exchange with cryptocurrencies and utility tokens, as the first step, over the next few months. It is already publicly available in test environment test-valor. com, collecting initial feedback from investors and developers. Once up and running, it will offer customers a range of

Our mission is to enable better access to previously exclusive investments for a broader audience looking to raise money, established financial bodies might have reason to feel less enthusiastic. “If you’re a traditional clearing agent or centralised registry organisation, keeping track of who owns what, it’s not great because they don’t need you anymore, everything is recorded and made transparent on the blockchain,” she says, laughing. Exchanges and investment platforms like SMART VALOR’s mean an investor in Indonesia could own a share in a London property, for example. Of course, there are regulatory implications for such cross-border investment. Indeed, regulators in many countries do not appear to be in much hurry to create, or adjust, their regulatory network to the opportunities this technology provides. Feldmeier cites the example of the US Security and Exchange Commission which supervises, and defends the interests of, Wall Street. “You can assume this organisation won’t be the first to say ‘well guys, people don’t need you anymore. So let’s create a new licence, for new institutions, where you’re not needed anymore’.” The clash of old and new is partly why SMART VALOR is based in the Swiss town of Zug. Governments and regulators in small countries like Switzerland, Liechtenstein and Hong Kong are more eager and able to

alternative investment products. The most notable example, within its VC fund category, is SpaceFund, a US-based fund dedicated to investing in early-stage space technology companies – something traditionally light years beyond the resources of most people. In real estate, it is looking at whole portfolios of properties. But will SMART VALOR work with an investment bank, for example, to tokenise some of these properties? “Sure!” says Feldmeier. “That is a thing I love about our industry, there is no sense of competition. We are more like the neighbouring team working on the next step in our process.” Eventually, tokenisation will be commonplace across asset classes, she adds. The moment people see the benefits – easy and efficient trading; global, liquid markets – everything will be able to be bought and sold on the blockchain. Her vision for the industry is expectedly futuristic: “In several years’ time, all your ownership will be a chip in your hand. Today, you have the ledger device, where your cryptos are. That ledger will become very small and will be called something else, and this will be your wallet, inside your hand or somewhere on your body. “All your ownership will be tokenised, digital, recorded there, with no need to worry about papers, access codes or security. It’s going to be amazing. I’m looking forward to it.” Issue 3 | ThePaytechMagazine

Upgrade to hybrid advisory processes to serve the new type of investors

- become part of the Dorsum Wealth Management Ecosystem. My Wealth is a brand new Wealth Management mobile app which serves the needs of both existing and new generation of customers with adaptive UX. It enables the customers to understand the composition of their portfolio and how it changed over the past. It creates a never before seen seamless communication platform between the customer and the ďŹ nancial advisor. It allows customers to review their portfolio and easy invest within a few taps. It has an emphasis on the education of the customers with the help of the gamiďŹ cation elements and the education marketplace toolkit.

www.dorsum.eu/mywealth

BLOCKCHAIN

Go for LAUNCH When six of the UK’s nine biggest banks failed to meet the Government’s Open Banking compliance deadline in January 2018, it became clear that the introduction of this new financial philosophy would see its fair share of false starts as it attempted to lift off. So, it shouldn’t come as a surprise that, some 18 months later, the Open Banking vision is yet to fully materialise – and that banks are still conducting their final safety checks within new systems that are far from mature. One of a starting line of fintechs waiting on the launch pad to get Open Banking truly blasting off, Token – the Californiabased platform provider – is ideally positioned to help banks make the most of the opportunities provided by Open Banking and the European Union’s revised Payment Services Directive (PSD2). That’s according to Token’s founder and CEO, Steve Kirsch, who saw his company accept the Financial Innovation Award for Open Banking from The London Institute of Banking & Finance last year. Kirsch, who has a decorated history of tech entrepreneurship behind him, recognises that open application programming interfaces (APIs) and fintech collaboration are the future of banking in the digital age.

But the industry needs rocket-fuelling if Open Banking is to reach its potential, says Token Founder and CEO Steve Kirsch Still counting down “For the Avengers, it’s Endgame, but for Open Banking, it’s really pregame,” he says. “Right now, the amount of open banking we have is just a sliver. Instead of the banks being totally closed, Open Banking so far has just created a hole in the dam.” And it’s a small hole. Risk-averse banks are understandably tentative when it comes to making radical changes to their infrastructure, and their legacy systems certainly contribute to the lack of wholesale change, stemming the flow of innovation that new technologies can enable. And, for Kirsch, it’s a fundamental, debilitating problem, and one that Token has set out to solve. “One of the biggest issues is simply getting the banking system moved into the digital age – squarely into the digital age,” says Token’s CEO. “That has not happened yet; PSD2 and Open Banking APIs are starting that process off, but it’s not going nearly as fast as it really should.” Despite T-minus for Open Banking having been declared a year-and-a-half ago, he asserts, major financial players around the world are still struggling to rocket up in

their basic response to the digital revolution. Part of the problem, says Kirsch, is the naivety with which financial institutions (FIs) greeted the fintech wave. “Modernisation doesn’t just mean automating what we’ve done before, but adopting new, modern technology,” he says. “Digital signatures would be a perfect example of that. We’re not talking about capturing digital images of a paper signature. We’re talking about digitally signing using a cryptographic, secure enclave inside of your mobile phone.” Put another way, digital banking is no longer about providing paperless bank statements: it’s about exploring the blockchain, artificial intelligence (AI) or machine learning-enabled services that might deliver added value to the customer. That’s where banks can steal a head start in the race for supremacy in the digital era. “You have to be a little bit visionary about where things are going – you have to take a leap of faith,” explains Kirsch. “Before we had smartphones, there was a leap of faith – that if you opened up the operating system of a phone, and created a higher resolution display – people would go on to write 10 million apps.

Not rocket science: Time is counting down on the adoption of Open Banking

www.fintech.finance

Issue 3 | ThePaytechMagazine

BLOCKCHAIN

“But the good thing is, we have plenty of examples where we know where the technology is going, and the guys who get there first are big winners. The guys who got there fairly early in smartphones – like Apple, and Samsung – are big winners, for instance.”

A sizable prize It’s an apt analogy, given that open APIs offer similar, near-infinite revenue streams for a banking sector standing hesitantly on the edge of change. It’s equally true that the first FIs to jump, fully immersing themselves in the plunge pool of possibilities that awaits them, will be the first to deliver benefits to their customers. “There are opportunities to make digitisation go faster. And I think what’s interesting is that there’s a big opportunity here for banks to really embrace openness and digital banking. We haven’t seen a single bank do that yet,” explains Kirsch. As banks suffer their pre-launch glitches over digitisation, powerful digital-native firms – and especially the epoch-defining GAFAs (Google, Amazon, Facebook and Apple) – are quietly circling a financial market that’s increasingly vulnerable to disruptive interventions. Apple’s new credit card, launched in March, is the latest reminder that banks’ complacency is only emboldening new players to take up the slack. One of Token’s more visionary interventions to bat away the GAFAs is Token X – a stablecoin 100 per cent backed by fiat currency to offer reassurance to investors in what is seen as an increasingly volatile marketplace. As those in the know have come to expect from Token, the stablecoin is a no-brainer option for curious investors. It’s fully audited and easily slotted into iOS and Android mobile wallets, and its Token X mobile app helps customers move digital currency with security and ease. The same ethos lies behind Token BankPay, its API-enabled answer to frictionless bank direct payments. As with all of Token’s technological developments since it was founded in 2015, it’s another

ThePaytechMagazine | Issue 3

boost for financial institutions (FIs) looking to quickly and easily clear the hurdles that lie in wait on their troubled sprint towards digitisation. It’s also a push in the direction of the truly digital era of banking. “Sooner or later, the banks have to truly embrace open APIs. When they do, the landscape will change for the better of everyone,” confirms Kirsch. “It’s going to be a whole new world, in terms of user transactions, friction and so forth.” Banks that partner with Token enjoy a lengthening list of benefits, including Token PSD2, its software as a service solution to the complex problems raised by the European Union’s 2018 regulations. The service promises to make FIs PSD2compliant in 90 days or less – at a cost around 70 per cent less than its competitors. In doing so, Token says it’s helping partner banks to concentrate on speedier and more decisive API selection and implementation. Finally, Token Connect, its Cloud-hosted open API solution, facilitates access to partner banks’ technological infrastructure. With over 4,000 banks – predominantly in Europe – currently in partnership with Token, it’s the company’s aim to help developers build payment solutions for banks across the world. Provisions such as these have turned heads. Earlier this year, Mastercard announced that it had selected Token as

its chosen partner to help build its own Open Banking Hub. Something of a coup for the young company, it’s another sign that it is at the very forefront of banking solutions in an openaccess environment. Token’s comprehensive toolkit, developed to help banks accelerate their adaptation to the requirements of the digital age, is as much a rallying cry to slow-off-the-mark banks as an entrepreneurial drive from Kirsch and his co-founders. With clear-sighted vision, Kirsch maps out what continues to inspire his company’s direction. “When banks got on the internet, it made everything much more efficient for customers and didn’t really disrupt the system at all,” he says. “So, the next phase of that is open APIs and then, beyond that, moving towards a more uniform digital money system where it’s easier to send money between systems because everybody is essentially using the same protocols. That’s where digital streamlining gets exciting.” Open Banking is yet to deliver fully on its promise of streamlined and frictionless services. In the wake of Open Banking’s initiation into the UK in 2018, fintech specialists like Token have rushed to pick up the slack, providing incumbent financial institutions with the shortcuts necessary to get them up to speed with the competitive digital age. As Kirsch indicates, it’s a long-term mission, not a foray. Full-scale bank digitisation can never keep up with the rate of change in blockchain, AI and, soon, quantum computing. But in offering a much-needed boost to banks’ adaptation journeys in the Open Banking era, Token has firmly positioned itself as a stabilising arm to all those stumbling haphazardly into a bold and exciting fintech future.

You have to be a little bit visionary about where things are going – you have to take a leap of faith

www.fintech.finance

ARE YOU AMONG THE 99% OF FINTECH COMPANIES MARKETING BLIND? If so, you donâ&#x20AC;&#x2122;t need to base marketing strategies on generic advice and anecdotal evidence. CCgroup surveyed 70 C-Level decision makers at global financial institutions to uncover what really influences their selection of technology vendor at different stages of the purchasing process. The full report can be found at: www.ccgrouppr.com/insights/how-to-influence-fintech-buyers Or contact our Head of Fintech, Daniel Lowther Daniel.Lowther@ccgrouppr.com @prmonkeyman

70%

79%

institutions rank internal business analysts as the most important source of influence during longlisting.

rank analyst reports as the most influential content during longlisting.

ADVERTORIAL

Why banks must work together to face the emerging threats to ATM security On 8 and 9 October, over 400 delegates from around the world will come together at ATM & Cyber Security 2019 in London, to discuss how banks and ATM deployers can best protect themselves from the emerging cyber and physical threats to ATM security. We caught up with Gillian Shaw, who is managing the conference agenda, to find out more about the latest security threats and how the industry can work collectively to overcome them. THE PAYTECH MAG: How are the cyber security threats to the industry changing? GILLIAN SHAW: As the growing number of apps and portals facilitate an increasing number of electronic transactions, attack vectors are evolving. Impersonation fraud and insider threat is a key area; criminals are continually developing new modi operandi to manipulate victims into making security mistakes. Over 90 per cent of targeted cyber attacks still rely upon phishing – gathering personal information using deceptive websites and emails – to get past an organisation’s defences. Attacks to infiltrate user accounts by brute force with mobile bots are also increasing. TPM: How can the industry prevent identity fraud? GS: The industry needs to maintain a great digital experience while preventing identity fraud. Simply adding barriers to authentication will do nothing to enhance the customer journey and will not necessarily protect against this sort of attack. A complex combination of technology, including biometrics and behavioural analytics, could provide a way to deter criminals while ensuing customers still enjoy the speed and convenience they have come to expect.

www.fintech.finance

TPM: What does Open Banking mean for cyber security? GS: Banks must now make their customers’ current account information accessible to external entities. This means opening up communication portals giving access to customer account details to third-party providers (TPPs) such as account aggregators, challenger banks and fintech companies. The industry may be exposed to new threats emanating from beyond its traditional areas of control. In this ever more connected environment, bad actors have many attack vectors to exploit system, protocol or network vulnerabilities. The longer the chain, the greater the need for uniformly strong links. TPM: What sort of ATM-specific cyber attacks are we seeing at the moment? GS: Direct cyber attacks on ATMs are known as ‘jackpotting’ and this threat has been increasing significantly over the past few years. Cybersecurity solutions can deal with an array of infrastructural vulnerabilities but ATM hardware and operating systems often remain the weak points. TPM: Are ATMs attacked specifically to obtain cardholder information? GS: ATMs are targeted by sophisticated criminal organisations in an effort to obtain information and use them for fraudulent transactions. ATM skimming attacks, when physical devices are placed in card slots to capture information from swiped cards, have become increasingly sophisticated. ‘Shimming’ is a newer variation on this attack that can steal data from chip-enabled cards in ATMs or point-of-sale machines using a paper-thin insert in the card reader. All thieves need is a few seconds of access to the machine, and the insert can be quite hard to detect once deployed.

TPM: What sort of physical attacks are we seeing against ATMs at the moment? GS: ATMs remain the perfect target for conventional hackers. The most visible attacks are the violent ones carried out by organised criminals who use explosives or ‘ram raid’ ATMs with heavy vehicles to extract cash. Explosive attacks, whether by gas or solid explosive, are a rising problem in Europe and in many other parts of the world. Such attacks result in extensive damage and can pose a risk to life. TPM: How can security events such as ATM & Cyber Security 2019 help in the fight against financial crime? GS: Ultimately, it is only by collaboration that the industry can share information on the latest threats and innovations and so keep one step ahead of criminals. Banks need to develop broad strategies to engage with governments, other banks, their clients and the general public. ATM & Cyber Security 2019 brings together security professionals from around the world to share their knowledge and discuss best practice with their industry peers. In addition to the two-day speaker programme of innovative bank case studies and thought leadership, delegates also have the opportunity to explore the latest ATM and cyber security solutions and get advice from industry experts.

ATM & Cyber Security 2019 will be held at the Park Plaza Victoria Hotel, London on 8 and 9 October. If you would like to get involved as a speaker, exhibitor or delegate, please get in touch with Gillian at gillian.shaw@rbrlondon.com.

Issue 3 | ThePaytechMagazine

OPEN APIs

Box of tricks Competition gives way to collaboration as BIAN opens up a sandbox full of API toys for the world’s FIs. Executive Director Hans Tesselaar explains In the post-2008 imagination, competition has become a hotly disputed word. For some, competition is the primary driver behind innovation and abundance; for others, it can be cut-throat, counterproductive, or even catastrophic. In table-top terms, you might say it’s the difference between the dog-eat-dog game of Monopoly, and a jigsaw puzzle’s collaborative calm. And in the wake of the UK’s Open Banking initiative and the EU-wide revised Payment Services Directive (PSD2) ruling, a picture of banking collaboration certainly seems to be taking shape, with open application programming interfaces (APIs) the building blocks of a less competitive – yet more innovative – financial ecosystem. The pieces have been slotting into place for the Banking Industry Architecture Network (BIAN) since its foundation in April 2008. The independent, member-owned and not-for-profit organisation has been banging the collaboration drum for some time, recognising the need for de facto IT standards across the financial industry to help reduce integration costs and drive the pace of change. As the BIAN’s executive director, Hans Tesselaar, wrote in September last year, the financial industry desperately needs to adapt. His message is simple: that the transformation brought about by digitisation is setting new rules of the game for the financial industry. “Industry-wide collaboration is now needed,” he writes. “This will require banks to shift from a historically closed-off, competitive mentality, to recognising the advantages of pooling knowledge and raising standards of industry innovation together.”

ThePaytechMagazine | Issue 3

Leading from the front The BIAN has been more than happy to lead by example in this respect. With over 70 paid-up members, including UBS and Santander in the banking sector and IBM, Microsoft and Dell in the tech arena, the group is well-placed to oversee fruitful collaboration in an era of open APIs. Since 2008, the BIAN has been refreshingly generous in its provisions to the financial sector, helping to create the circumstances necessary for banking interoperability. It has been doggedly working on uniformity and standardisation, against a backdrop of frenzied fintech activity. One of the BIAN’s services – the enterprise architecture management tool – untangles what Tesselaar has called the confused ‘spaghetti’ of overlapping, plugged-in APIs within banks’ infrastructures. The tool maps out a clear bird’s eye view of an organisation’s capabilities, enabling smarter business planning and more agile engagement with key APIs. But the real game-changer came last October at the Sibos conference in Sydney, where the BIAN launched its API Exchange – a platform that brings together dozens of API microservices for financial institutions (FIs) to download and run for free – all built in accordance with ISO20022 global API standardisation. Each API hosted on the platform is generic, cross-border and cross-regulation, facilitating effortless plug-in and play options. “We are providing the industry with open-source APIs,” says Tesselaar, six months on from

the API Exchange’s launch. “At Sibos, we were capable of showing 67 pre-built API microservices. Those APIs are available for the industry to download and use. After Sibos, we added an additional 22, so it’s now 89 APIs in total.” Built in partnership with tech solution provider Virtusa xLabs and based on Microsoft Azure’s enterprise-grade cloud, the API Exchange hosts APIs enabling microservices like payments, mobile access and fraud detection – with more added all the time by no less than 35 BIAN-member developers. The BIAN is also big on definitions, aiming to provide the clarity that’s been so sorely missed as banks’ spaghetti systems have wrapped themselves into ever-tighter knots. As such, the API Exchange portal not only hosts generic industry-standard APIs, it contains what Tesselaar calls the ‘behind-the-glass’ definitional information about those APIs, too.

www.fintech.finance

“If you look at a mobile device, you have an above-the-glass experience – the apps you see in the ecosystem – then you have the below-the-glass experience, which is everything that goes on to make that happen,” says Tesselaar. “For banks, this is where you have the bank systems, the bank security, regulatory and compliance issues, and so on. On our portal, we link the above-the-glass experience with the below-the-glass experience.” In this way, the BIAN is not only providing the API jigsaw pieces, free of charge – it is also offering the all-important big picture that helps banks decide which vital pieces they’re missing in their efforts to build services fit for digital age customers. “The APIs available today, whether from the Berlin Group or the Open Banking initiative, are offered with their banking functionalities described, with their application-to-application API definitions,” explains Tesselaar, who highlights regional variation as an important nuance to take Toys galore: The BIAN has given the world’s FIs plenty to keep them occupied

www.fintech.finance

into account in these definitions. “We might say ‘okay, this is a generic API for account opening’ and you click a hyperlink through to the International Standards Organisation (ISO) definitions. Then you find, in the ISO definitions, the regional differences. So if you want to open an account in Australia, you need to add whatever six fields, and if you want to do it in Japan, you can deduct three fields, and so on.”

Setting the tone

“The interest is so great that we’ve seen an increase in users, on a weekly basis, of about 50,” says Tesselaar. “So, it’s still growing and growing and this gives us the opportunity to get feedback, asking ‘what do you want to see next?’ and ‘what do you miss?’.” As the uniformity encouraged by the network catches on, you can expect the BIAN’s user base to expand at an ever-increasing rate. But what of the vision that ties together the BIAN’s work? Certainly, the collaborative ethos fostered by the network is justified in that it reduces costs, untangles systems and helps banks to onboard new services more rapidly. But, as Tesselaar goes on to explain, the provision of open-source APIs doesn’t necessarily kill competition in favour of collaboration – it shifts banks’ competition to where it matters most: brand value and customer satisfaction. “We all love the example of Amazon,” says Tesselaar. “Amazon was first only on the web and now they have those physical stores where you walk in, get your groceries and walk out. This physical store is the above-the-glass experience, where you do your shopping and leave, and then, below the glass, everything is settled – the money is deducted from your account, and so on and so forth. “That seamless experience is what all banks are also striving for.” Once below-the-glass technology is made uniform and open-access, the logic goes, financial institutions will have more time, energy and capital to invest in the above-the-glass relationship between the consumer and the bank. In creating their game-changing API Exchange, then, the BIAN is helping to realise the core vision of the Open Banking initiative. Banks will have more resources to develop fintechs that directly improve customer journeys and, in doing so, will help to rebuild public trust in the institutions they believe failed them in 2008. The complex puzzle of banks’ base digital functionalities, enabled by APIs, is near completion. And by contributing some fundamental pieces, the BIAN is helping the financial industry to turn to the Pandora’s Box of possibilities that awaits us in a bright, innovative fintech future.

Industry-wide collaboration is… needed, pooling knowledge and raising standards of industry innovation together

What’s perhaps most remarkable about the BIAN’s ‘sharing is caring’ philosophy is that it’s infectious. By levelling the playing field and inviting the global FI community into its sandbox of glistening new playthings, the BIAN is showing markets around the world that collaboration works – for everybody. That’s because, as the BIAN points out, when a bank onboards a new fintech service, the integration costs can be as much as three times the cost of the service itself. The siloed-off, internal innovation model, based on competition, is simply too expensive when compared with a standardised and collaborative approach. Tesselaar observes this change of heart in markets across the world. “We’re seeing banks asking ’okay, what has BIAN got to offer?’, ‘why should we try to invent everything ourselves?’ and ‘why can’t we just pick and choose and agree, as a banking community, in a country, on using this set of standards, and then move on at much lower cost?’.” This ‘play nicely’ approach is proving popular among the BIAN’s growing community of users. The API exchange currently has 1,800 registered users, who’ve made a combined total of 6,500 downloads to date. Six months on from the platform’s launch, they’re remarkable uptake figures for the not-for-profit organisation.

Issue 3 | ThePaytechMagazine

OPEN APIs

Fishing for gold Frictionless payments are a matter of swimming not sinking for retailers, says Daniel Lee, Kingfisher’s Global Payments Strategy Lead When it comes to shopping, bricks and mortar have had their day, right? With the third decade of the 21st century just around the corner, you’d expect online giants such as Amazon and Alibaba to hammer the final nail into the coffin of physical retail any day now. However, you’d be wrong; according to recent statistics, bricks and mortar retail is very much still alive and kicking, with global sales up by 4.8 per cent in 2018 and more stores opening than being forced to close. In fact, in a move that would’ve been almost impossible to predict a decade ago, many online retailers are currently attempting to establish themselves on the high street. Despite only opening twelve stores in the US since unveiling its plans in 2016, Amazon still has high hopes for its checkout-less ‘Go’ supermarkets, powered by a combination of computer vision and artificial intelligence (AI). The ‘just walk out’ shopping experience offered at an Amazon Go is arguably even more convenient than making purchases online. My, how the dining tables have turned. One company that is no stranger to bricks and mortar is Kingfisher plc. With over 1,200 stores across Europe under the brands of B&Q, Screwfix, Castorama and Brico Depot, Kingfisher certainly lives up to its title as an international monarch of home improvement. However, as innovative

ThePaytechMagazine | Issue 3

propositions such as Amazon’s Go supermarkets have shown, the future of physical retail lies in delivering a customer experience that can compete with the convenience factor of shopping online. Daniel Lee, global payments strategy lead at Kingfisher, couldn’t agree more. “Customer experience, both digital and face to face, is more important than anything else,” he says. “The experience of our customers in store outweighs anything else we do, and is the driver for every option we assess and every route we take.” Paytech is the catalyst that has promoted Amazon Go stores up to a new echelon of customer experience by eliminating the checkout process entirely. While perhaps not exhibiting quite the same level of innovation as Mr Bezos’ baby, many retailers are in the process of

transforming their technological capabilities to be able to rival online giants in terms of customer experience. Throughout 2019, investment in technology among retailers is expected to increase by 3.6 per cent globally. Experts predict that, by the end of the year, approximately $203.6bn will have been spent by retailers in the pursuit of technological development, with software, analytics platforms and AI constituting an investment priority for many. In 2016, following a distinct slump in profits as a result of Castorama’s poor performance in the French market, Kingfisher announced its five-year

Got it!: Kingfisher understands how digital can enrich its stores

www.fintech.finance

‘ONE Kingfisher’ transformation plan partially aimed at driving forward the company’s digital capabilities. With a total expected cost of around £800m, Kingfisher hopes the transformation will lead to a sustainable annual profit uplift of over £500m by the end of 2021. More importantly, it claims that ‘by harnessing the latest technology, [it’ll] be able to improve customers’ experience at every step’.

Weighing up what’s best As tempting as it may be to try to replicate Amazon’s ‘just walk out’ technology, there’s an entire spectrum of emerging paytech solutions that are scalable enough to benefit multi-billion pound high street firms such as Kingfisher. It’s Lee’s job to consider which ones have the potential to revolutionise the experience for Kingfisher customers across its entire brand portfolio. “One limiting factor in the UK is that cash and card are still prevalent in the market,” he says. “Having said that, we are witnessing a dramatic increase in the use of contactless payments. Soon, using biometric signatures, these are likely to become merged with digital wallets so that customers can transact as much as they want without having to enter a PIN number. “From then on, we’re likely to observe a general transition away from cards to wallet-based solutions, and it’s at this point that we’ll see the universal adoption of digital wallet payment infrastructure in store,” says Lee. “The type of payment terminal you currently see in retail outlets will most likely be a thing of the past by then, having been replaced by an iPad or similar device with a secure element that can handle contactless device-to-device transactions.” The machine learning technology employed by Amazon within its Go supermarkets may well be cutting edge, but that doesn’t mean a similar customer experience can’t be achieved via slightly less sophisticated means. The relatively ancient technology of the QR code is currently enjoying widespread adoption across Asia as part of a mobile payment solution that could undoubtedly benefit the European market. “QR codes may be somewhat rudimentary, but they do offer

www.fintech.finance

merchants a handful of easily integrable payment solutions,” says Lee. “For example, using QR codes a merchant can offer the option for customers to effectively carry out an online transaction in store. When they visit one of the merchant’s stores, they can simply take a picture using the merchant’s app of a QR code on a product, and then walk out of the store with their new purchase in hand, an online ecosystem transaction having been initiated instantaneously.

Merchants are aware of the appeal for customers of being able to pay for anything they want with just the phone in their pocket “In our opinion, this sort of approach to transactions is going to become more and more prevalent in the market, as it’s in direct response to the notion that customer experience is everything. Carrying cards and cash everywhere you go is beginning to feel a little antiquated, and merchants are aware of the appeal for customers of being able to pay for anything they want with just the phone in their pocket.”

Such a thing as too fast? Once cash and cards have been eliminated and the world’s last wallet factory has closed its doors, surely the next logical step in improving the bricks and mortar customer experience would be to remove even the phone in their pocket from the payment equation? Well, judging by the success story of Londonbased artisan coffee chain Harris + Hoole, phones may swiftly follow in the ill-fated footsteps of the wallet. “I worked with Harris + Hoole on the development of an app that allowed you to check in and store a payment for your coffee on a device,” says Lee. “After that, when you walked into a Harris + Hoole store, an image of your face would appear on the till and a server would hand you your coffee, leaving you free to walk straight

out again, phone still in pocket. Harris + Hoole won an award for best coffee shop app for this feature,“ he says, “which goes to show how embracing technology to deliver seamless customer experiences is what will allow merchants like us to drive new business and outpace the competition.” With such frictionless in-store payment solutions on the horizon, the question remains whether customers themselves are ready to adopt them. Statistics have proven that there is currently such a thing as too rapid a payment journey. Putting millisecond delays on ecommerce transactions has been shown to improve conversion rates, since customers perceive those fractional pauses as security measures being exerted. If a payment journey is too quick, there's a temptation for the buyer to assume something has gone wrong. This fear of a potentially flawed payment is compounded during both high value transactions and when dealing with smaller companies as opposed to large firms. Therefore, should merchants be taking steps to make their customers feel more secure when using a new method of payment? That depends on the case, says Lee. “We have already witnessed merchants artificially reinserting friction back into their payment journeys in order to make customers feel a bit more secure,” he says. “However, as adoption of new payment technologies becomes more standardised, I believe transaction speed is going to cease to be a source of anxiety for customers. Increased levels of buyer and seller protection in certain wallet-based solutions will help in this regard, as will the opportunity to conduct card chargebacks if necessary.” So, once our engrained phobia of speed has abated and in-store payments have surpassed their online counterparts in terms of efficiency, perhaps we’ll enter a new Golden Age of bricks and mortar retail. By instigating ambitious transformation plans and prioritising digital capabilities in their investments, companies like Kingfisher plc are certainly doing their bit to construct this exciting new future for the high street. Anyone still doubting the potential of physical retail must have a screw loose.

Issue 3 | ThePaytechMagazine

OPEN APIs

Simultaneous equation: Regulation and innovation can achieve great things, together

FINDING THE RIGHT FORMULA How can regulation support innovation? Louise Brett and Suchitra Nair discuss Deloitte’s special equation for fintech success Innovation and regulation are two parts of the same sum. Although they may appear to conflict, with regulation and compliance sometimes creating obstacles for innovation, in the right hands they can really add up. The trick is to ensure that control doesn’t stifle creativity, that progress is balanced with rules that promote new services and products but without introducing unacceptable risks for customers. As a global audit giant, Deloitte might not be the first name most people would associate with creativity, but it is making a difference. Actually no stranger to innovation or regulation, it has both the global resources and the required blend of skills to ensure people, processes and technology come together in the right measures. Deloitte describes itself as a passionate member of the fintech community, building trust and confidence across a

ThePaytechMagazine | Issue 3

wide range of markets. It is committed to inclusive growth and competition and works closely with all interests across the financial landscape – a role that places it at the centre of technological and regulatory change. “We aim to be at the heart of the ecosystem,” says Louise Brett, fintech senior partner UK and North West Europe. “Our goal is to encourage and maximise innovation, within a framework of control. We want to join the dots between the regulator, the policymakers, our clients, academic institutions and the fintechs.” As an example of its role as a facilitator, Deloitte recently announced that it is supporting Fractal Labs, an application programming interface (API) platform designed to streamline the exchange between small and medium sized enterprises (SMEs) and their financial services providers. Deloitte works with some of the world’s biggest banks and best

fintech businesses, but also invests in promising startups like Fractal Labs. The initiative reflects how keen Deloitte is to support all parts of the value chain and create the right mix and environment for change.

Doing the maths Another example, announced in 2018, is Deloitte’s partnership with Sopra Steria, a fintech project launched by the Scottish Government. Brett says that Deloitte is working globally to help cities establish fintech hubs and, among others, has been advising the Saudi Arabian Monetary Authority (SAMA) on how to develop a fintech ecosystem. As Brett puts it: “Deloitte is learning how to be most relevant to the ecosystem at large.” That means backing the people behind the fintech startups, investing in the teams who make the technology come to life. Again, it’s about being a good www.fintech.finance

facilitator, adding the human element to make things happen and achieve business potential wherever there is a team with a sound idea that needs Deloitte’s support. “We definitely want to be known for the people side, and for defining the purpose of innovation,” says Brett. “It’s what you might call social purpose, finding the reason for innovation and the improvements that will follow. You have to be sure of the problems you’re trying to solve through fintech and industry-wide activities – not simply pursue innovation for innovation’s sake.” Brett cites the unbanked as one such challenge. “You may be surprised to hear that 1.3 million people are still unbanked on our doorstep in the UK, yet the fintech focus is usually on Africa, because that’s where the problem is more conspicuous. But fintech is here for everybody, to change lives wherever people are, whatever their needs may be.” That extends to everyday things like mortgages, says Brett. “One of the reasons why people can’t get mortgages is that some credit risk models are designed for an earlier era, and are not relevant now. Today, people manage their wealth, and their careers, differently, and don’t necessarily fit the normal criteria of what’s considered a good prospect to lend money to.” This is where fintechs can step in and create greater understanding and inclusion on many levels, says Brett. Fundamentally, it is about assessing risks and meeting individual needs. “We now have lifetime mortgages,” notes Brett,“ and we’re beginning to see some really interesting models in the fintech community, with people looking at things differently, assessing risks differently and offering alternative solutions. No one wants a mortgage, they want a house. So, using this as just one example of new thinking, we have to look at ways to give people homes, rather than standard mortgage finance.” Regtech is where the balance is struck between innovation and controlled progress. And when it comes to developing regtech models, the biggest challenge is finding use cases with significant applications. This is the view of Suchitra Nair, director of Deloitte’s EMEA Centre for Regulatory Strategy, who highlights the need for greater precision and depth. “There are plenty of interesting ideas, plenty of interesting applications,” says Nair. www.fintech.finance

“But you need to have sufficient scale. You have to have a broad canvas and develop industry-wide solutions. However, there are some good use cases, which we need to explore more fully, and get more people involved and committed.” With new rules such as the general data protection legislation (GDPR) and the revised Payment Services Directive (PSD2), there is a need to highlight the benefits that come from Open Banking and other developments that are shaping today’s financial landscape. Not so long ago, regulation was seen as a real barrier, says Nair, a hindrance to innovation. But this is no longer the case, as evidenced by interviews Deloitte has held with firms and startups that have been through the Financial Conduct Authority’s sandbox. These organisations were really keen to embrace regulation, says Nair. They could see the advantages being compliant businesses would bring both to investors and consumers, and the trust and confidence that it would inspire in the marketplace. “Over time, we’ve seen many fintechs change their attitude to regulation,” says Nair. “They now want to comply with regulations, so they build compliance into their designs. For many startups, being compliant enables them to grow and to collaborate with incumbents, and it puts them in a better position when talking to investors and to the regulators themselves.” Even though regulation can incentivise startups, Nair says it is hard work for smaller enterprises. “If you’re a startup with just a handful of people, it’s challenging to comply with vast regulatory handbooks. Startups have a demanding journey, decoding technical language and applying all the rules, and I don’t think we’re quite there yet,” she continues.

and she describes her role as ‘making regulation and regulatory policy accessible for technological innovation’. Nair says that Deloitte has focussed on developing use cases over the last two years, and has been explaining how regulations apply in each instance. She mentions that Deloitte is publishing a paper on digital banking journeys in an Open Banking environment, and it places customers at the heart of the user journey. “We’re looking at it through customers’ eyes,” she says. “We bring out all the conduct and data privacy implications, and make everything a bit more real and focussed so that it’s not just a list of regulatory requirements. We underline what you need to look out for, what you should be aware of and what you need to do to be compliant. We apply this knowledge to a use case, so that it’s practical and relevant to the customer, and we describe everything in a very simple, accessible way.” Nair adds that Deloitte also provides guidance through one-to-one conversations, and is contributing to a number of digital leaders’ programmes that will help executives to understand how regulation would apply in very specific technology innovation scenarios. She stresses that people need to feel comfortable with regulation, which is something that can only happen if there is sufficient understanding and acceptance. In other words, regulation and innovation must be accompanied by education and a clear strategic focus. There are so many subtleties and levels of interpretation today. As Nair explains: “What does data privacy actually mean when you’re dealing with artificial intelligence? And what does open banking mean in practice? We have to deconstruct and understand everything in a rapidly changing landscape, which is not easy, and no one has all the answers yet.” Deloitte is helping to provide some of these answers. As an intermediary with an in-depth knowledge of the regulatory environment, as well as a committed supporter of fintechs, it is ideally placed to balance innovation with regulation.

It’s… finding the reason for innovation and the improvements that will follow

Finding the answers Deloitte is showing the way forward, helping businesses to understand their obligations and find ways to successfully combine innovation with regulation. Nair is responsible for thought leadership across fintech and regulatory policy, as well as business strategy,

Issue 3 | ThePaytechMagazine

PAYMENT PORTALS Burning platform: Northern Ireland is transforming an edgy past into a positive tomorrow

From hotspot to fintech haven

‘ENTREPRENEURIAL’ NORTHERN IRELAND IS BECOMING A, PERHAPS UNLIKELY, FORGE OF FINTECH INNOVATION Northern Ireland has overcome a difficult past to emerge as a burgeoning fintech hub. George McKinney, Director of Technology and Services for Invest Northern Ireland, talks about the country’s advantages, its strength in regtech and blockchain, and connectivity HBO’s Game of Thrones has dominated the headlines lately, with its legion of fans captivated by the final season. Much of the filming over the past decade has actually taken place in Northern Ireland, with producers blown away by the small, unassuming country’s stunning scenery. What’s perhaps even more surprising is Northern Ireland’s emergence as a fintech powerhouse. House Uladh, anybody?

results – as is often the case with places that have a difficult history and complex present. The country offers investors a combination of great infrastructure, competitive costs and supportive government. Above all, it has a talented, well-educated workforce with a strong work ethic. It is fast becoming a melting pot for fintech innovation.

Northern Ireland is a beautiful country with a troubled past – and it’s finding itself in the midst of controversy once more, with the threat of a hard border with the South being established as a result of Brexit. Northern Ireland is now channelling this edginess into creativity and entrepreneurialism, with phenomenal

The role of the regional business development agency, Invest Northern Ireland (Invest NI) is to grow the local economy. It is doing that by helping businesses to compete internationally, and by attracting new investment. It’s working hard to support startups and drive research and development.

ThePaytechMagazine | Issue 3

An attractive prospect

With Invest NI’s backing, Northern Ireland – in particular Belfast – has established a reputation as a hub for fintech, regtech and cyber. It’s clear that its attractions are not dimmed, despite the ever-present spectre of Brexit. The Financial Times’ (FT’s) fDi Intelligence report, released in December 2018, ranked Belfast number one on its list of small to mid-sized world cities for business friendliness. That’s some endorsement, and it’s rooted in a significantly lower cost of doing business. Property costs, for example, are up to 75 per cent lower than London and 60 per cent lower than Dublin, while UK corporation tax is among the lowest in Europe at 19 per cent. In addition to extensive artificial intelligence (AI), data science and www.fintech.finance

software engineering courses, the region’s two universities – Queen’s University Belfast and Ulster University – run a number of fintech-related graduate training schemes, and both offer trading room facilities for students. The Centre for Secure Information Technologies (CSIT) – the UK’s Innovation & Knowledge Centre (IKC) for cyber security – is also located at Queen’s University.

Home to the stars Innovation and research and development are fuelled by collaboration between these two universities, local government and global companies. Over 2,000 software engineers and systems architects are employed in the development of trading technology platforms for global financial services companies including Citi, Chicago Mercantile Exchange, Cowen Group, Vela Trading Technologies and Fidessa. Meanwhile, PwC and Deloitte are investing in their technology teams in Northern Ireland, with PwC Belfast boasting the largest group of blockchain specialists in the consultancy worldwide. The Bank of England recently worked with PwC Belfast to develop a proof of concept (PoC) using distributed ledger technology for payments settlement. Deloitte is busy developing 20 blockchain-related prototypes in areas such as digital banking and cross-border payments. The favourable conditions found in Northern Ireland have ensured that a host of fintech superstars are based there. This includes payments technology and ecommerce innovators such as Visa CyberSource, ShopKeep and Rakuten. First Derivatives, developer of the database technology kdb+, is recognised as one of the fastest-growing capital markets service providers in the world, while Redline Trading Solutions designs and deploys ultralow latency market data and order execution systems that enable customers to succeed in equities, options, futures and foreign exchange markets. These success stories will only increase, especially with the May 2018 appointment of the UK government’s new fintech envoy for Northern Ireland. In March 2019, lauded Invest NI chief executive Alastair Hamilton announced he’s leaving after 10 years in the post, but

the organisation remains at the forefront of Northern Ireland’s fintech push. Director of technology and services George McKinney spoke with us to explain more about the forces at play. THE PAYTECH MAGAZINE: So, what’s attracting fintechs to Northern Ireland? GEORGE MCKINNEY: The main reasons for locating here are access to talent and cost competitiveness, which have helped us attract foreign direct investment, particularly in fintech. What keeps businesses here is the positive experience they have of working in Northern Ireland, and the success that comes with it. They’re getting the skills they need and working with the universities, the government and with each other to make sure that pipeline keeps producing. Belfast is the world’s number one

The main reasons for locating in Northern Ireland are access to talent and cost competitiveness

www.fintech.finance

destination for fintech development investment projects, according to the FT’ s fDi Markets. TPM: Does the value for money they get, in terms of space, help? GM: It certainly helps. The combination of competitive salary levels and lower property costs give operating costs that are significantly less than Dublin and London – maybe 20 per cent more cost effective than Dublin and 30 per cent more so than London. You can get top-end, and I mean really top-end, property in Belfast for between £20 and £25 per square foot. And we have space to grow. TPM: In terms of companies growing, are you seeing any specific trends? GM: One area where we have a particular specialism is regtech, with businesses like Datactics, Funds-Axis, FSCom, Kx Systems, Proofpoint and FinTrU. These companies are delivering cutting-edge technology, and some of them are providing advisory services

around that. We also have a number of potential users of the tech based in Belfast, so they can test it out and Northern Ireland can be a kind of end-to-end solution provider for regulation and compliance. Another area we are big in is blockchain. PwC’s global blockchain impact centre is in Belfast, and their global implementation strategy is therefore being driven out of the city by a team headed up by Seamus Cushley. A third area is capital markets and trading technology. It’s a very international, global cluster; a number of the big companies with their technology functions based in Belfast. Then, the fourth main one would be insurtech, building on what Allstate and Liberty Mutual are doing. They’ve both been here for over 20 years, recruiting an impressive volume of people. TPM: How is Northern Ireland’s infrastructure handling this level of activity, in terms of connectivity, datacentres and so on? GM: Project Kelvin, the transatlantic cable deployment that directly connects Northern Ireland to North America, is a big boost. A 100-gigabyte per second link means Northern Ireland provides the shortest and fastest international connection from North America to Europe. Then, over 400km of fibre provides access across Northern Ireland, so we don’t have any difficulties with that end of things. We were the first European region to have 100 per cent broadband, and are the best place in the UK for superfast broadband. Belfast is also one of first UK cities where 5G will be rolled out. TPM: On the subject of infrastructure, we’ve got our upcoming Payments Race going through Northern Ireland. How do you think the racers will fare with bitcoin, mobile payments etc.? GM: Ha ha. Northern Ireland has a relatively young population, so the adoption of technology and mobile payments seems to be easier. I think that’s a generational thing, but certainly mobile payments, card-only payments and things like that are all fine. Bitcoin I’m not so sure about – we’ll just have to see how that one pans out! Issue 3 | ThePaytechMagazine

PAYMENT PORTALS

FORGE OF

GREATNESS Lithuania is tackling regulatory blockages head-on and letting innovation take the lead, says Bank of Lithuania advisor Jekaterina Govina Lithuania is helping regulation to fuel progress, according to Jekaterina Govina, Bank of Lithuania head of innovation and fintech advisor for the Bank of Lithuania. The charismatic Baltic country nestled between Latvia, Belarus, and Poland is providing a strong incubatory atmosphere for fintechs from all over Europe; tackling the major issues banks, fintechs, regulators and other financial market providers, face globally. The compliance challenges around Open Banking and new regulations like the revised Payment Services Directive (PSD2) are universal. But for small fintech companies which lack the requisite experience and resource to tackle such issues, they can prevent them from realising their ideas at all. Which is why the Bank of Lithuania has identified regulatory support and guidance, as well as regtech developments, as its sweet spots for enabling change. The Bank of Lithuania has already established a ‘Newcomer Programme’ to consult new entrants to the financial market. Now the Bank is trying to develop a solution allowing companies to report transactions, financial statements and statistical data more efficiently. “As the regulatory authority, we see our role as helping companies to be compliant,” says Govina. Invest Lithuania was founded in 2010 by the country’s Ministry of Economy, to help businesses attract foreign investment. The not-for-profit

ThePaytechMagazine | Issue 3

organisation also acts as a facilitator for global businesses interested in establishing operations there. Bank of Lithuania is also a member of the European System of Central Banks and works in tandem with Invest Lithuania agency and regulatory authorities to create and maintain a supportive ecosystem for global businesses. The Bank is working on two sandboxes: the regulatory sandbox, which allows fintech companies to test innovative solutions in a controlled environment, is already live. “Companies which develop an innovative idea or solution that could be beneficial for our society, can present

crowdfunding and peer-to-peer lending platforms, Govina explains, adding that it is now working with a peer-to-peer (P2P) insurance company to develop a fresh regime for such products. Additionally, Govina’s team at the Bank of Lithuania is currently striving to build a technological blockchain sandbox, nicknamed LBChain, to merge the regulatory sandbox with the blockchain technology platform. This will allow fintechs, startups and individuals to approach the bank with new ideas that could be realised on blockchain. The bank will then simulate the necessary environment for them to develop the proposed solution with the help of providers like IBM, Deloitte and Tieto, providing consultancy and regulatory guidance along the way.

No time wasted The speed with which projects take shape in Lithuania is mind-boggling and it has a favourable environment for attracting non-European Union (EU) payment and electronic money institutions to Lithuania. The country managed to triple the number of payments and electronic money institution licences in two years. Govina adds: “This does not mean we are cutting corners. We assess all applications using a process which is in line with EU directives and other relevant authorities’ guidelines. We have made our internal

…the specialised bank regime allows companies with one million euros of initial capital, instead of the five million applicable to full-scale banks, to get a banking licence us with a prototype solution and we will agree terms and conditions for testing it with a specific amount of customers. As the regulatory authority, we can help them by steering the process and consulting on regulatory requirements,” Govina explains. The benefits of such an arrangement are two-pronged – not only do companies have a favourable environment to test their ideas in, but the bank also learns about any emerging risks and can develop appropriate new regulation. A possible example of this mechanism could be specific regulation for

process more effective, hiring additional staff to do the licencing.” As a result, it has already issued three special purpose banking licences (SPBs) and 47 electronic money institution licences (EMIs). The quick turnaround also results from a bespoke regime the country established two years ago: “Challenger banks providing basic banking services like payments, deposit-taking or lending, can apply for a special purpose bank licence, and the specialised bank regime allows companies with one million euros of initial capital, instead of the five million applicable to full-scale banks, to get a banking licence,” www.fintech.finance

she says. One of the first to obtain one, granted by the European Central Bank and valid across the European Union, was ‘upstart bank’ Revolut. In April, Sonect, the Swiss fintech company that became the largest single cash withdrawal network in Switzerland, obtained its EMI licence.

Perfect launchpad And Sonect is not alone. The outstanding support, infrastructure and efficient processes offered by the Bank of Lithuania have turned the nation of only 2.8 million people into a launchpad for European expansion. Its fast licencing; superfast wifi and digital connectivity; innovation sandboxes; trained, educated, talented workforce and other optimal conditions – not to mention its corporate tax rate of just 15 per cent – had led to Lithuania issuing 45 EMI, or emoney, licences (second only to the United Kingdom at 146), and establishing over 170 fintech companies, by end of 2018. According to Invest Lithuania, the nation’s fintech sector has expanded by 45 per cent. Lithuanian capital Vilnius, which proclaimed itself to be ‘the G-spot of Europe’ in a tongue-in-cheek tourism campaign, is now home to the newest offices of Uber, Wix.com, Western Union, Google Payment Ltd and others: “We have a good quality talent pool of people with both financial and IT backgrounds. We have good infrastructure, including wifi and cheaper rental costs, and 84 per cent of our young people speak fluent English, which is really beneficial for international companies”. This perfect blend has led Western Union to employ over 2,000 people at its Vilnius office. Last year, ratings giant Moody’s chose to opened its newest office in Vilnius for its ‘highly skilled workforce who possess impressive business, technology and multilingual capabilities’. Then, in February this year, Blockchain.com, the cryptocurrency platform with 33 million Wallet accounts in over 160 countries, opened its fifth site there, housing dozens www.fintech.finance

of designers, customer service agents and technology engineers. In May, Barclays’ shared services centre, was taken over by HCL Technologies after Barclays pulled out of Lithuania. The 460 Barclays staff were transferred to HCL in an IT infrastructure partnership which will deliver digital services to 80,000 employees globally. The country that the United Nations says has ‘very high human development’ also encourages individual talent. “It is a good starting point for people to work in this multicultural place, get an understanding of the financial markets and then to go out and establish their own startup or fintech,” comments Govina. Universities in Lithuania prepare good IT developers and offer fintechrelated degree programmes, feeding the country’s ambition to become a European fintech hub: “Our IT and financial competence talent pool creates this great

combination of people who can work in new or established fintech companies,” she adds. Lithuania is one of the advanced countries where client onboarding can happen remotely. “The possibility of remote onboarding of clients was introduced in 2016. I wouldn’t say the majority of our financial institutions use this way of onboarding clients, as physical presence is still preferred, especially by commercial banks, but new companies do this quite widely as their customers, especially younger ones, really prefer it.” Brand Finance, the independent brand valuation consultant, rates Lithuania 67th in its Top 100 Most Valuable Nation Brands, rating it AA-. There is no doubt that Vilnius and Lithuania have conquered the hearts and minds of countless financial brands– large and small – nurturing them to expand and showing them the way.

Something from nothing: Bank of Lithuania is removing blocks to progress

Issue 3 | ThePaytechMagazine

Recurring payments are broken. Weâ&#x20AC;&#x2122;ve fixed them

GoCardless, the global payments platform for recurring revenue collection. Trusted by over 40,000 businesses

gocardless.com

Join us at Money 20/20 Europe 3 â&#x20AC;&#x201C; 5 June 2019 Booth K103

PAYMENT PORTALS

Pearl fishing Charles Ng of InvestHK describes what is being done to add even more fintech riches to the jewel in Asia’s crown In Hong Kong, there's an old proverb: ‘money can make a ghost push a grinder’. It may conjure a strange image in the mind, but it simply means everything is possible with wealth. And for decades the saying has rung true – the autonomous territory lays claim to being Asia’s biggest financial centre with the highest concentration of multi-millionaires anywhere on earth. The place has all the right ingredients for generating cash – great location (at the mouth of the Pearl River estuary), established financial players, strong governance, existing wealth and a diverse, educated population. Now, to add to that, economic development agency Invest Hong Kong (Invest HK) is strengthening these foundations to attract the world’s best fintech enterprises, startup entrepreneurs and investors to expand their businesses, via Hong Kong to Asia and beyond. Hong Kongers themselves have become more willing to embrace modern payment systems in the last couple of years – the number of mobile wallet users surged 30 per cent to 3.2 million between 2017 and 2018. Nearly 90 per cent of smartphone users aged 18 to 54 regularly pay this way, due in part to the successful marketing of market leaders Alipay, WeChat Pay and Octopus O! ePay. The use of QR code payment is common even in fresh produce markets in Hong Kong, and donations can be made this way at the famous Wong Tai Sin Temple. However, one area the territory is keen to address is that of financial inclusion. Because, while wealth has brought stability and prosperity, individuals and businesses deemed to be at the riskier end of the spectrum can struggle to find banks and lenders willing to take their business. www.fintech.finance

Lenders being spoiled by easy access to profitable customers has come at the detriment of startup companies and small and medium sized enterprises (SMEs), which are underserved.

Untold riches: Hong Kong’s unique location offers limitless innovation potential

Opening the treasure chest 2019 is proving to be the year in which this challenge is tackled. By May, eight licences had been granted to launch virtual banks, with the aim of shaking up the banking market and providing for higher-risk clients such as SMEs. And the era of Open Banking has begun with the Hong Kong Monetary Authority this year launching a structure for open application programming interfaces (APIs). Charles Ng, associate director general of investment promotion at InvestHK, says the virtual banking initiative is a ’strategic game-changer’. “There’s a big hunger for new types of products. Many SMEs and startups can’t access products from established banks and those banks are often not interested in offering what such businesses need,” he explains. “We talk about inclusiveness and there are a lot of people who are unbanked, or companies at SME level that are not able to reach the threshold needed to qualify for existing banking products due to know your customer (KYC) issues and so on. “The virtual banking licence is going to be transformative because, with new technology, artificial intelligence (AI) and machine learning, robotics and big data, there’s a revolution going on. Virtual banks

and virtual insurance companies will not only disrupt, but will add value, complementing what the traditional bricks and mortar banks offer.” The virtual banks, overseen by the Hong Kong Monetary Authority, are required to have only one physical office in Hong Kong, so can operate mainly online. As well as improving financial inclusion, it is expected that this policy will bolster Hong Kong’s fintech ecosystem by providing work for existing players and drawing in further talent from abroad. The eight licences were issued to Livi VB, SC Digital Solution, Zhong An Virtual Finance, Ant SME Services, Insight Fintech HK Limited, Infinium, PingAn, OneConnect and WeLab Digital. It is expected that their first services will take six to nine months to develop, meaning November’s Hong Kong Fintech Week event could be where services are showcased. Issue 3 | ThePaytechMagazine

PAYMENT PORTALS

According to InvestHK, Hong Kong currently has 160 licenced banks and 160 insurers. The virtual banks will take deposits and offer loans, and Citigroup analysts predicted that they could take 10 per cent of revenue from established players. Regarding Open Banking, Invest HK says the policy aims to further ‘disrupt and revolutionise’ Hong Kong’s banking sector to ensure its continued competitiveness. Much like Open Banking in the UK and the European Union’s revised payment services directive (PSD2) legislation, the Hong Kong Monetary Authority foresees a market with integrated services and improved customer experience, while also sharpening KYC processes. The aim is for around 260 sets of information covering financial data and information listed by the Authority, to be made available for open API.

And it doesn’t stop there These measures are a clear signal that Hong Kong is an innovation-friendly territory. And there are also its big strides in blockchain. The Hong Kong Monetary Authority launched its blockchain-based banking trade finance platform at the end of 2018, combining the services of 12 major domestic banks to enhance cross-border trade. The regulator and the Monetary Authority of Singapore are collaborating on a cross-border financial infrastructure platform based on distributed ledger technology. And the Hong Kong Stock Exchange is building a blockchain platform for post-trade allocation which will work with exchanges in Shanghai and Shenzhen. According to InvestHK figures, Hong Kong has around 550 fintech companies

ThePaytechMagazine | Issue 3

and 52 per cent of them have founders who are not from Hong Kong or mainland China. Many of these fintechs see Hong Kong as a regional base for business expansion, both globally and in China. “Business in Hong Kong is market driven,” says Ng. “The fintech ecosystem here is maturing, with 51 per cent of the fintech companies in the study being three to four years old.” Ng adds that, for entrepreneurs and investors, Hong Kong sits in a sweet spot geographically. As well as the powerhouse of mainland China, he says half of the world’s population is no more than a five-hour airline flight away. “We’re both a major financial centre and an international innovation and technology hub, sitting nextdoor to Shenzhen,” he says. “Entrepreneurs and investors are always looking for a number of things. The first is market potential, and Hong Kong offers much to companies in both the businessto-business (B2B) and business-toconsumer (B2C) areas. “The second is access to funding. We have a cluster of ultra-high net worth individuals, as well as private equity and angel investors, and the government here has a number of programmes that are investing in startups. So, if you are looking for funding, Hong Kong is a fantastic place to come and knock on the door. “Thirdly, there is access to production. Because we have the Greater Bay Area nextdoor, there are nine cities, plus Hong Kong and Macau, producing for the next generation of technology. That includes tech for the Internet of Things. “Fourthly, and very importantly, is access to talent. In Hong Kong we have nine universities, six of which are research

universities. Plus, there’s a huge talent pool here because we’re a global financial centre and an innovation hub.” One of the vehicles for attracting and establishing outside talent is Hong Kong’s Technology Talent Admission Scheme (TechTAS), a three-year pilot providing a fast-track arrangement for tech firms and institutes to admit foreign and mainland Chinese people to work on research and development projects. Employers apply for a quota then, once attained, can support foreign staff through the employment visa and entry permit process. And the application process itself is streamlined, with Hong Kong's immigration department saying a twoweek turnaround is possible. No doubt talent will be among the topics shouted about during Hong Kong Fintech Week, which itself will be bigger than ever, taking place in both Hong Kong and Shenzhen. Its main location will be the AsiaWorld-Expo, close to Hong Kong International Airport, so that it can build on last year‘s 8,000 attendees. Ng says: “We have the chance to grow the event further. And, with the airport expansion and the new Hong Kong-Zhuhai-Macau Bridge on Lantau, we will show the participants the ‘Double Gateway’ role of Hong Kong.” With progressive financial policies and an eagerness to showcase them to the world, it’s clear that Hong Kong’s regulators are not standing on the sidelines with regards to disruptive digital technology. Or, as another strange old proverb goes, you won’t find Hong Kongers ‘standing on the fort to watch horses fighting’.

With new technology... and also big data, there’s a revolution going on

You can discuss your business opportunities with InvestHK at Money 20/20 Europe (Booth R20).