Fintech Finance presents: The Paytech Magazine Issue 10

ISSUE 10

THE Sp picing g up p pay yments

Is India a bellwether for the world?

Strong ger tog gether

Microsoft and ACI Worldwide talk fraud

WHERE THE SMART M NEY IS

Border crossing g

Could local data unlock a global challenge?

Doomed to failure

Why misfiring transactions can and must be tackled

Small, but are they y beautiful?

ING on the payments revenue challenge

SMARTSTREAM ON HOW, NOT IF, BANKS SHOULD INVEST IN TECH

INSIGHTS FROM GIESECKE+DEVRIENT ● CAME PAGOS ● SALAMANTEX ● FORM3 ● PPRO ● TSB WISE ● SILICON VALLEY BANK UK ● LLOYDS BANKING GROUP ● CHECKOUT.COM ● LEXIS NEXIS

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THEPAYTECHVIEW CONTENTS

FINTECH FOCUS 18 Balls to the ATM Network!

Cash & Card Consultants’ Ron Delnevo argues the solution to dwindling ATMs is staring the UK Government in the face... from an unexpected source

42 Odd one… in?

René Pomassl, CEO of digital payments enabler Salamantex, charts the inexorable rise of altfi fandom

TECHNOLOGY & TRUST 4 COVER FEATURE Where the smart money is The ‘Fourth Industrial Revolution’ is at last well under way in payments and FS – SmartStream’s Roland Brandli says how, not if, companies choose to digitise will define them,

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Nearly there now!

Jukka Yliuntinen from G+D, considers the long and winding road to SCA and the further challenges awaiting at ‘journey’s end’

10 Spicing up payments How the jewel of Asia is turning up the heat on what’s possible in payments, according to Rüdiger Vogt of G+D and Aveek Chaudhuri

Everyone agrees that 2021 has been payments’ most transformative year yet.

Digitisation efforts already under way were jet-propelled by the pandemic and consumers’ (now-engrained) desire to buy what they want, when and from whichever country they like.

But what’s next? That’s the question we pose to the sector’s movers and shakers in this turn-of-the-year issue.

We take a look at those countries that are well-known melting pots of change, India and Argentina, to see what could be coming over the hill for the rest of the world in 2022 and beyond.

And we talk to innovators at the forefront of making whatever that looks like happen – from Cloud tech leader Microsoft to payments security force G+D and PPRO/Checkout.com, which are leading the way in crossborder transactions. Oh, and seasoned cash advocate Ron Delnevo has perhaps

26 Small but beautiful?

Can banks adapt their business models to capitalise on the explosion of high-volume, low-value worldwide transactions?

ING’s Evelien Witlox describes its experience

14 Rebuilding trust Roberto Dumerauf of CAME Pagos and ACI Worldwide’s Sonia Gomez consider how payment tech is putting Argentina back in business

TRANSFORMATION 20 Failure is not an option

ISSUE#10

28 All for one?

With banks’ payments business margins already under pressure, Accuity’s Dalbir Sahota and Tristan Blampied of Silicon Valley Bank UK, explore the impact of failed transactions and how to fix them

23 Rebalancing the business of payments

Banks are striving to solve an increasingly urgent payments revenue challenge. Gavin Maclean of Lloyds Bank Commercial Banking told us collaboration will help

CLOUD 32 Hard Lessons

TSB’s Head of Operations John Lyons considers how mid-tier banks like his own might respond to a massive upheaval in the payments landscape

Determined not to be caught out again, resilience is the new buzz word when it comes to PSPs’ tech strategies, says Form3’s Mike Walters

his most surprising suggestion yet, as he continues to champion notes and coins amidst the inexorable rise of contactless, QR and crypto.

We hope you enjoy – and may your 2022 be profitable, prosperous and pandemic-free!

Tracy Fletcher, Editor

34 United we stand Collective action is needed to fight the growth of cybercrime. Sarah Armstrong-Smith of Microsoft and Marc Trepanier of ACI Worldwide discuss how to frustrate the fraudsters and maximise the Cloud’s benefits

CROSS-BORDER 38 Getting wise with the world’s financial data It’s been a landmark year for cross-border payments giant Wise, following a decade of impressive growth. We talk to CFO Matt Briers

40 Halt! Who goes there?

Giving seamless international payments the green light will necessitate understanding – and providing for – localised requirements, say Checkout.com’s Tracy Meng and Claire Gates from PPRO

THEPAYTECHMAGAZINE2021 EXECUTIVE EDITOR Ali Paterson

GENERAL MANAGER Chloe Butler

PHOTOGRAPHER Jordan “Dusty” Drew

EDITOR Tracy Fletcher

US CORRESPONDENT Jacob Bouer

ART DIRECTOR Chris Swales

ONLINE EDITOR Eleanor Hazelton Lauren Towner

SALES TEAM Tom Dickinson Karen Estcourt Serena Khemaney Shaun Routledge

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

FEATURE WRITERS David Firth Tracy Fletcher James Grant Martin Heminway Sean Martin John Reynolds James Tall

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Issue 10 | ThePaytechMagazine

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TECHNOLOGY & TRUST: COVER FEATURE

Where the

smart money is The ‘Fourth Industrial Revolution’ is at last well under way in payments and FS – but how, not if, companies choose to invest in digitising will define them, says SmartStream’s Roland Brandli

With almost half of UK financial institutions planning to extend their relationships with fintech firms in the next year – up from a third in 2020 – it is crystal clear that the drive to digital, particularly for payments, continues to accelerate at breakneck speed.

Furthermore, three-quarters of UK financial services chiefs say technology, automation and digital investment are the top strategic priorities in the year ahead, according to the sixth annual Lloyds Bank Financial Institutions Sentiment Survey. And the key reasons for this fintech investment are the ability to develop new products and services, followed by improving customer experience and then driving growth.

The poll revealed more firms expect to increase spending on their technology systems and core platforms over the next 12 months – (77 per cent) compared to last year (62 per cent) – with the aim of improving client experience (71 per cent), driving growth (60 per cent) and boosting

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productivity (59%). Firms also reported that their top technology investment priorities are the Cloud (83 per cent), APIs (77 per cent), and data science, including machine learning and artificial intelligence (69 per cent). More than a third (37 per cent) of companies are also prioritising investment in blockchain, up from 27 per cent in 2020, which suggests more institutions are considering the potential applications of emerging technology after pausing plans at the height of the COVID-19 pandemic. And the trend is not confined to the UK. Investment in open banking technologies by European finance firms has recovered this year, after they held back on spending during 2020.

In total, 47 per cent of the 300 organisations recently canvassed by open banking fintech Tink, said open banking budgets had increased in 2021.

The recovery comes after a challenging year, which saw expected average budgets fall to €32milion from the

projected €50-100million, as the pandemic wreaked havoc on economies globally. And Tink, which was bought out

by Visa for €1.8billion in June 2021, found that investment in payment initiation technology topped the priority list for 72 per cent of executives at finance firms.

In the US, banking giant Bank of America (BoA) is ploughing $3.5billion a year into developing digital products and services, to such an extent that CEO Brian Moynihan now regards BoA to be a fintech rather than a legacy bank. For example, among the latest products in its digital payments suite is a business-to-consumer (B2C) solution called Pay to Card, which supports the growing need among corporates to pay consumers quickly and digitally, by depositing funds directly into an individual’s, or small business’, bank account.

Roland Brandli, a strategic product manager at SmartStream Technologies, www.fintechf.com

which provides financial transaction management software to 70 of the world’s top 100 banks, is unsurprised by financial institutions’ appetite for digital investment, swept along as they are by the currents of fast-changing consumer habits and expectations, as well as technology advances, such as the introduction of the standardised payment messaging system ISO 20022.

“One area where there’s definitely huge change is digital payments,” says Brandli.

“We all use contactless cards, we all use mobile wallets; everything is moving towards digital payments, behind which normally stand instruments like credit and debit cards. With everyone transitioning to digital, it brings a huge increase in [payments] volume.

“And it’s also a much more complex process than the customer sees. From the bank’s perspective, it’s problematic as they must first have control over the card usage, check the customer is authorised, what limits they have, etc, and then they also have to handle bank-to-bank payments.

“Then, there are instant payments, which we’re slowly getting used to on a national basis, that also need to be implemented on a cross-border basis – and being able to do payments in five or 10 minutes, changes everything again.

“As far as the technical aspects go, we’re moving to new standards. That’s where something like ISO 20022 comes into the game, which is a much larger dataset, and the systems that we currently have don’t really cater for that.”

SmartStream made a strategic decision to move to a streaming platform specifically so that it could be flexible enough to take full advantage of the avalanche of data ISO 20022 will bring, explains Brandli.

“There’s a saying that data is ‘the new gold’. ISO 20022 enables a lot more data to be exchanged between banks; where we previously maybe had 30 or 40 fields, you’re talking about 700 or 800 fields.

Processing that is obviously going to be more challenging, but, at the same time, we’re getting a lot of ‘gold‘ with that data, we’re getting a lot more information that we can use in a wealth of different applications that we couldn’t previously, to streamline processes like anti-money laundering or know your customer, and feeding information to other bank systems. ffnews.com

“That’s something that, at SmartStream, we’re really very strongly focussing on and why we also moved to a streaming platform, which brings with it all the benefits of having APIs, being event-based.

And, because we do the reconciliation, we have the best quality of data to distribute throughout a bank.

“The main benefit is that, in a database, data does nothing, it’s passive; it always waits for someone to come and ask it to do something. In a streaming platform, the opposite is true: data is active, it drives the process, so that opens up a wealth of other applications that previously could not be realised, as well as enabling true real time.”

Of course, speeding up the payments process also increases the risk for financial institutions, which is why Brandli is convinced that the introduction of ISO 20022 will see more and more of them buying in solutions from firms like SmartStream – a view that is supported by the Lloyds Bank findings.

BALANCE OF POWER For its part, SmartStream’s Cloud-native, AI-powered data reconciliation tool, SmartStream Air, enables the process of identification, prioritisation, allocation and audit to be further simplified, and it boasts being able to match any data, for any reason, in an instant.

In a database, data does nothing, it’s passive; it always waits for someone to come and ask it to do something Brandli says use of such tools will be vital for banks, as customer expectations of lightning-fast payments bring with them intense competition in a fundamentally changed payments landscape.

Elaborating, he says: “Speed is of the essence, so the systems have to change for that, and then, again, for the breadth of data. You only have to put yourself in that position: you’re used to a payment taking five minutes, and suddenly it doesn’t go through, so you call the bank, and they say ‘we’ll fix it’, but it takes them five days. What is your impression of that bank as a customer?

“That’s where the competition comes.

And that competition will be fought out at different levels, in future.

“If the banks don’t manage to get it right, the fintechs will jump in because fintechs think differently. Fintechs are always looking to answer the question ‘what customer demand can I fulfil?’.

So, while banks might just be the backbone for a fintech, we know who holds the power; the person who holds the customer.

“It’s a fundamental change in the landscape and we will see which players adapt in what ways, and how successful their strategies are.

“In any case, SmartStream delivers the tools to help them dig for gold.

We make sure that their operational practices are up-to-date, reflect best practice and are compliant, and really help enable them to get to that real-time journey, with security and knowing that their data is right.”

Another fundamental change for financial institutions will be their increasing use of Cloud-based technology like that provided by SmartStream, which Brandli describes as a game-changer.

“As with every new technology, at the beginning people are very careful about adoption, especially with Cloud, because it feels like they’re giving their operation, or their data, to a third party and that worries a lot of people,” he acknowledges.

“But,” he adds, “ultimately, it is a game-changer because, with the power of Cloud, organisations can adapt much more, scale much better, and much more cost-efficiently. It also gives them so much more flexibility.

“As an example, during the COVID crisis, because we were already on Cloud and not using our own datacentre, SmartStream managed, within a week, to move 1,000 people to working from home. That was a great advantage.

“And Cloud has a lot more to offer.

Greater scalability for one thing, more than businesses can maintain in their own datacentres, and it’s cheaper because they only use the resources when they need them, whereas, in a datacentre, they have to maintain those resources even while they’re lying redundant.

“But I think one of the greatest opportunities around the Cloud is security,” continues Brandli.

Issue 10 | ThePaytechMagazine

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TECHNOLOGY & TRUST: COVER FEATURE

Savvy approach: SmartStream doesn’t innovate just for the sake of it

““We all want our data to be held carefully, where it can’t be accessed. We all struggle with security; it’s become the most important thing to any organisation and consumer. The Cloud offers benefits that no bank on its own could carry; the big Cloud vendors like Amazon, Azure and Google spend billions every year, just on security.”

BLENDING OLD AND NEW With digital payments volumes growing exponentially, and with that rise further supercharged by the COVID-19 pandemic, customers are now also expecting more from their banks, particularly with the market disruption caused by the emergence of digital-only challengers.

Again, Brandli believes Cloud technologies can be harnessed by legacy players to help them compete, with the tools offered by SmartStream at the forefront of that.

“We have the experience, having built software for the last 20, 30 years, to know the pitfalls and the requirements,” he says. “At the same time, we’re investing a huge amount of money into products like SmartStream AIR, which is a 100-per-cent Cloud, 100-per-cent AI-driven technology, and, again, a game-changer.

But we’re also taking our clients with us on that journey, because we have other products, including legacy ones.

“The difference with a company like SmartStream, is that we don’t say ‘here’s a shiny new box – throw everything away that you had’. Instead, we transition

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businesses. We take all their existing data, that existing work, and configurations, that they’ve invested a lot of money in, and bring that into a brand new technology stack. That’s something that is really important, in terms of our pedigree.

“We know there are a lot of efficiency gains we can make, but we’re also very careful. For example, when we formed our innovation labs for AI technology, our brief was to only build AI where there was a proven return on investment – because companies were making requests like ‘we’d love an AI application to do this, or that’, but it might only have saved them two or three days of work a year. That doesn’t make sense. What they need is AI that actually helps them to mitigate problems and issues.

“One of the most interesting things we see AI helping with, apart from reducing manual work, is learning from user interaction. For chief operating officers, it’s great to see something using less manual touchpoints but what they’re really interested in is how to make their businesses sustainable.

What happens when someone who’s doing a lot of manual work goes on holiday, gets ill, or, post-COVID, changes job? The business loses all that skillset.

“To have AI that learns from what a worker is doing, creates a concept of being able to build a sustainable business, so that, should they be ill, there is no loss of efficiency … that’s a completely different way of looking at things, and I think that’s where those technologies will help us.

“Lots of people worry about AI replacing their jobs. I don’t think that’ll happen.

What it will do, though, is enable them to focus on the things that really need brainpower, that really bring value. And, let’s face it, everybody wants to feel valuable in their workplace and not just do manual jobs that anybody can do.”

It’s that increasingly sophisticated use of AI that will play a key part in what Brandli says is now a period of unprecedented change in the finance industry.

“Whereas, before, we all talked about the Fourth Industrial Revolution and AI changing the world, nobody was actually seeing it happen. Now, we’re in that phase where it’s going to,” he says. “And that’s going to make it really exciting, partially because you have a double challenge. It’s not just the challenge of inventing something shiny and new; it’s about also making sure that you can maintain the existing business models, and improve them.”

When we formed our innovation labs for AI technology, our brief was to only build AI where there was a proven return on investment

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TECHNOLOGY & TRUST: SCA Jukka Yliuntinen, Global Head of Digital Solutions at Giesecke+Devrient, considers the long and winding road to SCA and the further challenges waiting at ‘journey’s end’ The twisting, turning journey towards Strong Customer Authentication (SCA) has been both challenging and changing, with frequent deadline extensions due to a blend of poor industry readiness and the impact of the COVID-19 pandemic.

SCA is an integral part of the revised Payment Services Directive (PSD2), and adds an extra layer of security to electronic payments across the European Economic Area (EEA) and the United Kingdom.

Because of the relentless growth of e-commerce and digital payments, as well as the growing sophistication of fraudsters, also fuelled by the pandemic, stronger security is a greater priority than ever.

Under SCA, if payment verification is required, banks must perform additional identity screening using two out of three possible checks. These checks are defined as something the customer knows (knowledge), something the customer has (possession), and something they are (inherence).

Although many European countries are now compliant, the UK’s Financial Conduct Authority has further delayed full enforcement of SCA there until 14 March 2022 – the latest of several extensions. Those that are compliant have seen an early and unwelcome side effect of stronger security checks: conversion rates dropping off a cliff as customers experience unacceptable delays. So, even at journey’s end, issues remain, as does the core challenge of ensuring the right balance between friction and security.

As global head of digital solutions at Giesecke+Devrient (G+D), Jukka Yliuntinen is part of a company that is no stranger to payment innovations.

Yliuntinen describes the business as a ‘very old fintech’ because it has been a payment innovator for almost 170 years, shaping developments from paper notes

and cards through to today’s most advanced digital solutions.

When PSD2 was first introduced, in January 2018, the biggest fear, particularly for issuing banks, was how to comply, says Yliuntinen.

“User authentication has a profound impact on e-commerce and contactless transactions,” he says. “So, what would PSD2 mean for banks when payments were made in different environments?

Whether a customer does online payments, mobile payments or payments at point-of-sale, and pays by card, a wearable or a mobile, the outcome should be the same. It should be a unified and seamless experience for consumers and banks alike.“ But, since 2018, there have been unforeseen roadblocks to SCA, not least because of the massive upheaval caused by the coronavirus and the consequent growth in digital payments. Over the past 18 months, cash usage has become almost non-existent, at least temporarily.

Yliuntinen adds that, while most countries to which PSD2 is applicable are already fully compliant, the consistency of how they achieve compliance is another

Nearly there now!

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www.fintechf.com

story. For the most part, though, e-commerce merchants will typically implement SCA using 3D Secure (3DS) 2.0 technology, he says.

3DS stands for three-domain secure: namely merchant acquirer domain, issuer domain and network domain. Version two of the protocol was introduced to cater for e-commerce transactions and applies a wide range of data points to verify transactions as part of two-factor authentication (2FA), where a user selects two out of the three possible security checks (knowledge, possession, inherence) to comply with SCA. Looking at the current state of implementation across Europe, Yliuntinen says there may, at least, be one consistent factor – issuer implementation.

“It’s usually been issuer-dependent,” says Yliuntinen. “Issuer A versus issuer B might have a different implementation, even in one country. But if they are harmonised, that’s good, because many of us still use services from more than one issuing bank. It all depends on how the bank that issued your card implemented it, and there are differences.

“It can be really very easy, so that banks won’t need to communicate much to their consumers. Just a question of saying there’s now a secondary way to authenticate when, for example, you make an e-commerce or contactless payment.

Or it could be very complex, which means it’s also very difficult to communicate to customers. And, amongst other things, there are demographic differences.”

Yliuntinen says one example of this is if a customer uses their mobile for authentication. Younger generations may be very comfortable with mobile apps, but older people and those who are not digital natives can find it confusing, and they may not even have a smartphone.

“Many user experiences have to be accommodated,” says Yliuntinen. “If you review app ratings in Google Play, or Apple’s App Store, you see plenty of comments about the authentication experience, often with just one or two stars for the app.

People notice when things are becoming complex and will comment on their bad experience, even if the app itself is great.”

For merchants, a bad experience is when conversion rates decline. This is already a well-documented consequence of an SCA challenge being triggered. The ideal is to optimise SCA so that payment checks are ffnews.com

reduced to a minimum without compromising security.

“While SCA applies a second layer of security – which, of course, is good for a merchant as it means customers are authenticated because the issuer has said the payer is legitimate – the extra work can mean a lost transaction,” says Yliuntinen.

“Worse still, if it’s a clumsy experience for the customer, they may decide not to buy from that e-commerce site again, and might choose a different merchant in future.”

Consumers today have high expectations, says Yliuntinen. They are used to superior service from big tech companies such as Apple and Google, which prioritise customer journeys and customer experience. And because there is so much choice today, it’s easy to go elsewhere if you are dissatisfied with a service.

AN EASIER WAY? However, Yliuntinen says there could be a simple and cost-effective answer for all concerned: the card. Because banks issue different types of payment cards, and they are now mainly contactless, they themselves can be used for SCA.

While SCA provides a second layer of security, the extra work can mean a lost transaction. Worse, if it’s a clumsy experience for the customer, they may not buy from that site again “Cards have the ‘possession’ factor,” says Yliuntinen. “Contactless cards have a smartcard component that is tamperproof, and that can’t be said for mobile and one-time passwords. So banks already have an asset for SCA, which is where our Convego Tap function comes in and makes it even easier.”

Convego Tap is a G+D solution that supports SCA by allowing consumers to use their existing and trusted banking cards as a secure and convenient means of authentication for online banking.

There is no need to handle extra hardware, inconvenient transaction authentication numbers or one-time passwords.

“We provide a software development kit, a small piece of software that can be embedded, for example, in a banking app or banking wallet, so that customers can use their payment cards as a second authentication factor. It works with any device that is near-field communication (NFC)-enabled, and we have recently enabled it for iOS devices, to ensure complete mobile support.

“Any card can be used, as long as it’s contactless. Today, that means Mastercard, Visa, Amex or any other payment network card. Another benefit is that, because providers still need to authenticate somewhere in the back end, they can implement this themselves. Also, if they want to use it for FIDO (fast identity online) authentication, the new standard for online authentication, the payment card now works as a FIDO authenticator, too.”

Although PSD2 and SCA are European initiatives, the security implications are global because e-commerce and payments are increasingly borderless; nor is the threat from fraud limited by geography.

That’s an argument, says Yliuntinen, for global adoption and uniformity.

“If e-commerce merchants in, say, Australia or Singapore, want to offer services worldwide, they don’t have to be PSD2-regulated,” says Yliuntinen. “However, that doesn’t mean a payment won’t be rejected. If a bank thinks there is a high risk from a purchase, it can reject the payment and the merchant will lose the sale. In the e-commerce space, this places pressure on merchants to comply with SCA. One of the things we are seeing across almost every country is a strong desire for 3DS.” Yliuntinen adds that, whether a company is an early or late adopter, the technology investment in using Convego Tap is small because much of the infrastructure is already provided by issuers. It is easy for firms to deploy and welcomed by their customers, who have become comfortable with the concept of tapping-to-pay.

“If a user has to open their mobile banking app and use it for secondary authentication, or get a code and enter that somewhere, that’s not a great way of authenticating,” says Yliuntinen.

“However, if all they need to do is tap their card, that’s a very positive customer experience. Moreover, if a bank can support that facility, this places it in a very good market position.”

Issue 10 | ThePaytechMagazine

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TECHNOLOGY & TRUST: INDIA

How the jewel of Asia is turning up the heat in terms of what’s possible in payments, according to Rüdiger Vogt of G+D and Aveek Chaudhuri If you were seeking a bellwether for the future direction of payments, one country stands out. With 25.5 billion real-time payments logged in 2020, India leads the world by volume, processing 9.8 billion more than second-placed China.

For industry watchers, India also offers valuable insights. The country is vast and diverse both geographically and socially and for years its government has used digitisation to modernise and level-up its urban and rural poor. Now that it, like the rest of the world, is looking to rebuild from COVID-19, it has an even more vital role to play.

Products are launched in India on a scale unmatched in the West, and, as Rüdiger Vogt, head of payments 4.0 at Giesecke+Devrient (G+D), points out, ‘niches can be extremely large in India, with a population of 1.4 billion’.

And 2022 will see some big changes.

From January 1, new rules around tokenisation arrive, which Vogt believes will make the technology near-ubiquitous.

And Aveek Chaudhuri, a thought leader in digital financial services, says the

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payments space is now evolving so fast ‘it is not always possible for a common person to keep track of it’.

But the change we see today has been at least a decade in the making.

In the words of India’s prime minister, Narendra Modi: “If there is a strong force that brings a change in the lives of those on the margins, it is technology. It serves as a leveller and a springboard.”

A prime example of this is the Aadhaar card, created as a system to deliver social security services to the country, which was launched in 2009 and provides a means of identification enabling individuals to access services such as bank accounts.

From there, with smartphone in hand, a person can use the country’s other notable innovation – the Unified Payments Interface (UPI) – to electronically pay a merchant for goods, or exchange money with another individual.

The National Payments Corporation of India, which is overseen by the country’s central bank, developed Aadhaar so that it can be used for cashless payments by people with a linked bank account but no smartphone. And, during 2021, the government launched e-RUPI, an

electronic voucher system whereby individuals can securely receive a QR code or SMS to access services such as healthcare or benefit payments.

Under Prime Minister Modi, the country launched the Digital India programme in 2015, and the potential smartphones and mobile communications that flow from it provide for leapfrogging older systems.

It means people who were recently unbanked can switch from cash under the mattress to mobile wallets overnight.

Modi’s infamous demonitisation policy, launched in 2016, provided another shove towards a cashless system by removing 500 and 1,000 rupee notes from circulation at one fell swoop, with the aim of weakening India’s so-called ‘shadow economy’. Though the collateral damage of removing 86 per cent of currency in circulation was enormous – hundreds of thousands of merchants lost their businesses and it knocked off around one per cent off gross domestic product – Indians certainly learned they needed to be ready for alternatives to cash.

Then came COVID-19, and the need to transact remotely became as important in India as anywhere else. www.fintechf.com

Chaudhuri says: “There has been a fintech boom in India over the last decade, but recent events have led to the same being scaled up at an unprecedented pace.

“First, demonetisation caused an acceleration in adoption of digital payments, which also set banks and other organisations towards building relevant products, capabilities and infrastructure.

“When COVID came, people were unable to step out, interact in a normal fashion – that’s when contactless payments started scaling up and soon became embedded within our lifestyle. There are other factors, too – all this has been made possible by the arrival of a new breed of customers who are very tech savvy.

“Then there’s the growing penetration of smartphones, greater outreach by mobile networks and the government’s digital initiatives and policies.”

For Munich-based G+D, Vogt says payments growth potential in India means the research and development centre it opened in Pune, in 2006, is now the firm’s biggest, with around 300 staff.

“G+D India was a partner for major banks moving from the magnetic stripe to chip-card-based credit cards, and now we’re seeing the move from the physical card to digital services, be it host card emulation or wearables,” says Vogt. .

“We’re expanding our business here, with banks and payment institutions, and we’re now also entering into the fintech space with our first projects. India leads the real-time payments market and has long surpassed China and South Korea, and its digital payments industry is expected to grow 300 per cent by 2025.

“The Indian government has established a regulatory environment and encouraged the foundation of fintechs.

As a result, we’ve seen more investment and funding, by both international and national banks, plus an influx of venture capital. We’ve had initiatives driven by the National Payments Council of India, the Digital India programme and financial inclusion programmes.

“Another standout initiative is encouraging non-bank finance companies to partner with banks to offer loans. The Reserve Bank of India has advocated this model as a solution to address the credit gap in priority sectors, so that’s agriculture, for example, and small-scale industries that otherwise might not get timely and ffnews.com

adequate credit. So, there is a lot of influence, and a lot of good things coming.”

Both Vogt and Chaudhuri have been impressed by the central bank’s reforms of tokenisation to encourage its use, and the tightening of security that is due to follow in 2022, whereby only card issuers and networks can store card data beyond the last four digits of a card number and the cardholder’s name.

Tokenisation can both improve security and reduce friction, as a means of encrypting card data at point-of-sale, and both men see it as a way of rolling out new services at the checkout.

Vogt says: “We think that, in 2022, card-on-file network tokenisation will become the dominant payment method, with 95 per cent of e-commerce payments predicted to be tokenised. The Reserve Bank of India’s new tokenisation guidelines mean online stores can no longer hold actual card data – from 1 January, no entity in the card transaction or payment chain, other than the card issuers and/or card networks, will be able hold it, and data stored previously will be purged.

India leads the real-time payments market and has long surpassed China and South Korea. Its digital payments industry is expected to grow 300 per cent by 2025 Rüdiger Vogt,G+D

“That means that, even if online platforms use tokenisation today, the card-on-file tokenisation must then be provided by a network or issuer-based solutions. And merchants will simply receive the anonymised set of characters, the token, from a token provider. That’s a huge increase in the security level of payments – a real game-changer.”

Regarding friction, Vogt adds: “You can combine card-on-file tokenisation and strong customer authentication (SCA), and that means the customer experience will be more satisfying at the checkout.

“If SCA is completed when the consumer logs into the merchant’s app,

the issuer can then rely on that authentication, and it will not ask for it again, making the payment process seamless. Another advantage will be automatic token refresh. It takes place at card renewal. So, when a card is stolen, lost or expires, there is no interruption to a user’s scheduled payments or discontinuation of the service. The consumer does not have to add their new card details themselves.”

Chaudhuri says: “In India, Google Pay was one of the first players to introduce tokenisation – and the experience you have while paying with a card over Google Pay is awesome. So, I think tokenisation will be a major driver when it comes to subscription-based products or services for consumers. I also believe that more than 80-to -90 per cent of players will adopt this model over the next year, or there will be no way to achieve the subscription inflows they hope to gain.”

An indication of where India stands now with regards to digital adoption was provided by the central bank’s National Payments Corporation of India survey in 2020, which concluded that adoption of digital payments was ‘well-entrenched’.

Its poll of 5,314 households in 25 states, found that a third were regularly using digital payments, including 24 per cent of people in the bottom 40 per cent of society by income, who were overwhelmingly (80 per cent) rural.

While there is still huge potential for growth, the report’s authors were heartened that digital payments were being used by poorer people, who had been financially dislocated in the past. It concluded that a push towards specific how-to-use knowledge, helplines for learning, as well as problem-solving and safeguarding features that help the user stay secure, ‘can make India race towards being a less-cash society’.

Chaudhuri says fraud is an inherent risk when payment systems are developing so quickly, and warns that people new to technology typically ‘lack financial literacy’. It leaves them prone not only to cybercriminals but also to making seemingly-simple mistakes.

Vogt adds: “In Delhi during the first lockdown, between April and July 2020, police received over 4,500 cybercrime complaints and 62 per cent of them were related to online financial fraud.

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TECHNOLOGY & TRUST: INDIA

Growing market: Indian shoppers are seeking more and different ways to pay

“I think it’s a safe assumption that, with the e-commerce boom, online fraud went up across India. But I am confident we will see a significant reduction in 2022, based on the changes, like the tokenisation reform that Reserve Bank of India is mandating.

At G+D, we are currently reaching out to schemes and large banks, to understand their views and the impact it may have on the market landscape, and our solution offering.

“While I think device-based tokenisation, for example, with wearables, will have its own adoption curve, network tokenisation will become mainstream technology, securing e-commerce transactions from January onwards.

“Success depends on the country’s ability to prevent fraud and protect consumer information,” Vogt adds.

POS LOANS NEXT BIG THING With tokenisation underpinning electronic payments from 2022, Vogt and Chaudhuri also foresee an explosion in India of trends that are already emerging in other developed countries, too – namely, buy-now, pay-later (BNPL), e-commerce, wearables and the increasing proliferation of marketplaces.

Chaudhuri says: “There comes a point when lending and payments converge and I think we’re at that place with buy-now-pay-later. E-commerce has become the arena where lending and payments crisscross each other with BNPL loans, which I consider a quasi-loan.

“This is an interesting space because multiple business models open up. Various players have the opportunity to come in and embed themselves in a way that

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becomes a key component of a consumer’s lifecycle. Then, slowly, these players bring the consumer into their own fold.”

Vogt adds: “BNPL is a major accelerator for the growth we’re seeing and, to give some numbers, the Indian e-commerce market is predicted to be worth US$110billion by 2025, compared to below $50billion in 2020 – and I think that’s a conservative assumption.

"It’s also being driven by smartphone penetration, reaching more than 780 million internet connections currently.

Furthermore, on the payments side we’re seeing constant enhancement of the user experience as a whole, with same-day delivery, omnichannel, digital services, personalised marketing and more and more subscription-based business models.

There comes a point when lending and payments converge and I think we’re at that place with buy-now-pay-later Aveek Chaudhur

"Then, of course, social distancing and the shutdown of bricks-and-mortar shops have driven consumers to online channels, even for their day-to-day purchases. That has triggered the growth of e-commerce marketplaces such as Flipkart, Amazon and BigBasket in India. The digital marketplaces are opening up new possibilities – they allow a business owner to extend their product portfolio and customer reach with limited or no additional inventory risk.

“On the other hand, there is also the power of the marketplace operator that needs to be considered. They are in control of which brands they are onboarding, and they also set the rules. I think this will need more regulation, going forward.

“One more trend I see – wearable technology – is on the rise globally but especially in India where startups combine health tracking devices and contactless payment technology. We’re working with multiple providers in this field, with innovators offering everything from smart preventative health ecosystems, combining fitness trackers, apps and health strategies.”

Finally, Chaudhuri predicts further development for QR codes, payment wallets and tech giants trying to capture payment market share. While QR codes have been a payment option in Indian shops for several years now, the country is seeing the development of dynamic QR codes that include the bill amount alongside the merchant’s bank details and instantly close the payment loop.

Chaudhuri says: “More product offerings and journeys will move to QR. And the wallet interoperability space is yet to open up in India – it could change a lot of business models. The giant tech players are trying to capture this payments space. Google Pay and PhonePe is rapidly pushing adoption.

We will also see players emerging with super spps, for example, Tata is coming out with its own super-app.

“Cryptocurrencies could be used in the wallets space, and can loyalty be commercialised? It’s an interesting space to watch.” www.fintechf.com

Get access to

TECHNOLOGY & TRUST: ARGENTINA The recent history of the Argentinian economy is a great source of frustration for those who depend on it. The biggest Spanish-speaking country in the world is blessed with natural resources, a large population and neighbouring trade partners that are mostly friendly – at least off the football pitch.

Despite that, Argentina has consistently failed to enjoy sustained, reliable economic growth, and it has proven slow at adopting the kind of tech-led innovations that have transformed the movement of money in different regions.

Argentina’s money struggles were famously defined by the Nobel prize-winning economist Simon Kuznets, who said that there were ‘four types of countries: the developed, the under-developed, Japan and Argentina’.

In fact, this is an assertion so popular it came to be known as the ‘Argentine Paradox’, reflecting the fact that Argentina has failed to secure long-term prosperity, despite having every reason to have done so (unlike Japan, which has remained prosperous, despite a load of factors counting against it).

The country’s economy has been viewed with scepticism by the international banking community for decades. Since joining the International Monetary Fund (IMF) in 1956, Argentina has taken on 21 separate lending plans, and $56billion of debt ($44 billion of which, the largest loan in the Fund’s history, was sourced under Argentina’s previous president, Mauricio Macri).

These massive intranational lending sprees were prompted by the South American nation’s declining GDP, and the unpalatability of lending to it in the eyes of many international bankers.

In the words of Christine Lagarde, former head of the IMF, ‘we were the only game in town. There was nobody else, at the time, to invest in the recovery process… and, given the size of the challenge, we had to go big’.

The size of these loans has caused knock-on problems for the flow of money throughout the Argentinian economy.

Difficulty paying them back has led its government to start printing money, fuelling inflation rates that have topped 50 per cent per year. This has, in turn, led to capital controls on the purchase of US

dollars in Argentina, a rising black-market dollar cost and price controls on more than 1,400 household items. Unsurprisingly, these factors have made doing business in Argentina rather difficult.

The proliferation of issues hasn’t stopped at the national level, either. For smaller businesses, local merchants and their customers, the COVID-19 pandemic has seen an enormous rise in fraud and identity theft. According to Roberto Dumerauf, CEO of CAME Pagos, a payments platform and digital ecosystem established by CAME, a confederation of Argentinian small and medium-sized businesses (SMEs), ‘fraud has exploded quite brutally during the pandemic. Identity theft and fraud attempts multiplied tenfold’.

This has made Argentina a tricky market for interested acquiring banks to enter, as a market with a heavy reliance on cash and major issues around fraud and trust.

The COVID catalyst The last few years have seen something of a transformation in this space.

“In 2020 in Argentina, the number of virtual wallet users, or, more generally, the users of online payment tools, literally

Roberto Dumerauf of CAME Pagos and ACI Worldwide’s Sonia Gomez consider how payment tech is putting Argentinian business back on the road to success 14

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www.fintechf.com

doubled. What drove this was the pandemic lockdown, which in Argentina was one of the longest and strictest in the world. We were forced to use alternative payment methods to those we were used to,” says Dumerauf.

Sonia Gomez is a director of solution consulting at ACI Worldwide, one of the world’s leading real-time payments solution providers. She believes those recent events have led to a boom in demand for cutting-edge payment solutions in Argentina.

“We’re now in a situation where, basically, the consumer demands it.

They want unique experiences, freedom of choice, transparency over fees and omni-channel experiences,” she says.

This is particularly remarkable in a country where as much as 52 per cent of the population was unbanked as recently as 2018. Therefore, what we are seeing, in Argentina, is a country rapidly learning to rely less on cash, in a market in need of safe, secure, low-friction and trustworthy payment solutions. In fact, the scope for growth there is so large that the 2021 Global Payments Report from McKinsey predicted 2021 payment revenues in Latin

America would grow by as much as 11 per cent, putting the country on level-pegging with the Asia-Pacific region and far outstripping the predicted growth rate of between four and six per cent in Europe, the Middle East and Africa, and North America.

The market has proven highly responsive to new solutions. One month after the introduction of market-wide, interoperable QR code payments in December 2020, more than 100,000 transactions worth more than $3.2million had been made by January.

It’s a big battle – not with the banks, but with cash. And it’s that battle we have to focus on Roberto Dumerauf, CAME Pagos

This sea-change in the way payments are made has led to an explosion in the adoption of digital wallets, where two-thirds of Argentinians with bank accounts have increased their use of

digital wallets for payments, and more than 6.5 million of them have downloaded a digital wallet payment application in the last year. With around 30 different digital wallet options already in the market, it’s a segment that is dynamic and flourishing. Many in the industry, including Dumerauf, believe this is part of a more sustained cultural shift in how consumers and businesses manage money: “COVID was a catalyst that accelerated change, but it’s definitely here to stay,” he says. “Managing this change successfully requires a cultural shift away from cash. It’s a big battle – not with the banks, but with cash. And it’s that battle we have to focus on.

“If we have [regulators] by our side, with the banks and fintechs on the other, we can work together to find better alternatives.”

In order to respond to this sudden leap in digital wallet-brandishing by customers, merchants need trustworthy, frictionless payment processors. Live since 2020, CAME Pagos has been able to provide a digital payment infrastructure that’s easy, affordable and secure.

Land of extremes: Behind Argentina’s problems, is a plethora of opportunities

ffnews.com

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TECHNOLOGY & TRUST: ARGENTINA Working alongside a confederation of more than 600,000 SMEs, it has agreements in place with VISA, payment processors, banks and e-commerce platforms to facilitate the development of a new digital ecosystem, one that seeks to optimise the merchant payment journey – and one that, notably, does not rely on international software solutions. Rather, it develops its own software and doesn’t buy in services from any third-party providers, making CAME Pagos a truly homegrown initiative.

Another notable feature of its approach is its work on facilitating secure customer onboarding, as part of a larger effort to combat fraud.

“Onboarding involves properly ensuring that the person registering is really who they say they are and addressing any friction at the point of payment so that the process can be as clear, simple and transparent as possible,” says Dumerauf, who says CAME Pagos has a commitment to easy onboarding, backed by a robust anti-fraud infrastructure.

“When we talk about transparency of information, we mean reliable information around time and format across all the operations carried out,” adds Dumerauf.

“This is something that merchants and users are going to value and do in fact value hugely.”

By creating a payments system like this that promises low costs – CAME Pagos boasts the lowest transaction costs on the market – high trust and a lower risk of fraud, it is able to effectively link Argentinian merchants with acquiring banks that haven’t been able to access this market before now.

Part of this relates to an attempt to ‘democratise payments’, to build payments systems that work in the interests of those who rely on them, eliminating the kind of point-of-sale transaction costs that have made making the leap from cash unappealing previously. This new ethos has allowed merchants to use technology to improve their own access to, and understanding of, the payments process.

“Merchants want to spend their time doing what they do best: selling. And payment providers or acquirers dedicate themselves to their business, which is offering payment solutions to a merchant, which is what they do best,” says Dumerauf.

“But, for the processors and the acquirers, their job isn’t finished when a transaction is

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put through, because afterwards they have to register all the details of that transaction with the users’ accounts, and this forms part of the service that every one of us offers to merchants. The whole life-cycle of a transaction must be understood as one single operation, which only ends when the operation is accredited and registered with banking systems.”

Transparency in that value chain is vital, says Gomez. She adds that ACI’s technology has allowed acquirers to ‘send quality transaction information and data on time, so that merchants can make the right decisions at the right time, and, ultimately, meet the requirements of different actors’.

For Gomez and ACI, successful implementation involves combining innovation with security.

“We provide a modern, secure and trustworthy solution which is innovative, digital and, above all, flexible for our clients, with the possibility of effortless expansion to manage every payment type,” she adds.

This approach means the technology is finally available to eliminate barriers that traditionally make these kinds of major infrastructure changes difficult. A focus on flexibility and a commitment to Cloud-based solutions has also allowed CAME Pagos to offer an adaptive solution to merchants, as Dumerauf explains: “Everything we do is Cloud-based, from the back office to the applications Sonia Gomez, themselves.. And its ACI Worldwide elasticity has allowed us to test pilots very quickly.

“Also, in the past some aspects of technology were put under huge pressure by certain [payment] events, such as Black Friday. All this almost disappeared when this great enabler that is Cloud technology came along. Business life became much easier because, ultimately, it aims to serve business, whatever system you’re working with and that’s genius of Cloud technology.”

with which to try to challenge the business”.

She believes these innovations could lead to a transformation in the way the whole industry interacts.

“Traditional acquirers effectively took charge of dealing with technological complexities. They were orchestrators and integrators of the different actors in the ecosystem, and resolved everything that wasn’t the core business. A process of evolution is now under way, from the ecosystem rails they created, and ACI is assisting both traditional acquirers, and the new ones entering the ecosystem.”

Her belief is that this will allow merchants to meet their customers’ ever-changing demands, because ‘the consumer doesn’t care if you have a payment platform; they care whether they can use any merchant and make all the purchases they want to.”

Get this right and merchants will be able to sell more, with less friction than ever before, she says. However, it’s not easy to reap the rewards of lower fees using easier and more lightweight systems when state regulation works against you. A law introduced in the summer of this year, for example, places a 1.2 per cent surcharge on digital account movements by businesses in Argentina.

It was a step taken, allegedly, in the interests of maintaining a ‘level playing field’ between established banks and newer market entrants.

But it feels unfair, says Dumerauf. “The excuse is equalising conditions, but we are at a clear disadvantage since many activities are prohibited for us,” For global organisations like ACI, there is the potential to influence policies like this across the Latin America region, to ensure innovation is not stifled.

“Regulators are part of innovation,” insists Gomez. “And through initiatives like PIX [the new instant payment system from Central Bank of Brazil] and open banking, regulators are inviting different players in the ecosystem to voice their opinions, so they help define the rules of the game..

“We all need to play our part in working with regulators to bring new ideas, sources of income and, above all, collaboration to support new entrants.”.

We provide a modern, secure and trustworthy solution, which is innovative, digital and, above all, flexible for our clients

No risk, no reward “Cloud computing is a technological enabler and a driver of innovation,” agrees Sonia. “The reality is that if you don’t risk trying then you can’t create experiences.

Cloud makes a series of resources available

www.fintechf.com

FINTECH FOCUS: ATMs

Balls t the ATM netw rk!

Ron Delnevo of Cash & Card Consultants argues that a simple solution to the dwindling number of ATMs is staring the UK government in the face.

It can solve the access-to-cash lottery… through the National Lottery!

HM Treasury has just concluded yet another consultation on issues connected with access to cash in the UK. Concerns about access to cash are of fairly recent origin for residents of this small island.

Until 2017, the number of free-to-use ATMs, which dispense more than 90 per cent of the cash used for day-to-day payments, had been increasing every year since 1998 – from 24,500 to 54,500.

However, just beneath the surface of this apparently wholly satisfactory situation, trouble was brewing. In fact, it had been brewing for many years and it’s not difficult to understand why.

All ATMs in the UK are connected to the LINK ATM Network (LINK), which is funded

by UK banks by way of a small payment per cash withdrawal by their customers to other banks and non-bank operators.

Until the dawn of the new millennium, INK was basically a bank club and the payments made for ATM cash withdrawals were fairly well-balanced between them all.

No bank faced significant net outgoings.

Then, independent ATM deployers (IADs) joined LINK. They realised that they could make a decent profit by operating free-to-use ATMs to supply bank customers with the cash they wanted. Over the next decade or so, IADs installed thousands of ATMs, improving access to cash for tens of millions of people. But it meant that some banks now faced substantial net outgoings.

The methodology for calculating what should be paid, per ATM cash withdrawal, had been agreed by the UK competition authorities in 2001 and, every year, accounting firm KPMG used it to calculate what the payment per cash withdrawal would be for the next 12 months. It was fair and transparent, but of no consolation

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to those banks that were paying more each year for ATM services.

This went on for years, with the banks stymied in their attempts to reduce their outgoings by the threat of regulatory action against them.

The threat of regulatory intervention faded somewhat over the years, and, eventually, the banks were able to bring about changes. The organisational structure of LINK was altered and, crucially, a new LINK board replaced the previous members’ council , with the power to set payments for cash withdrawals as it saw fit, whatever findings KPMG produced.

Unsurprisingly, perhaps, payments for cash withdrawals were reduced.

This reduction had an immediate and continuing impact on ATM numbers.

Free-to-use ATMs that were deemed by operators to be no longer profitable, were either removed or switched to pay-to-use. Today, there are only around 41,000 free-to-use ATMs in the UK, a 25 per cent fall in only four years, and numbers continue to decline.

ATMs are not only being lost because they are unprofitable, of course. Every time another bank branch closes, on average another two ATMs go. At the current rate of reduction in free-to-use ATM numbers, within five years there could be as few ATMs as there were before the IADs appeared on the scene.

So, where does all this leave the Treasury’s latest consultation? It has suggested that ‘designated firms’ will be made responsible, by law, for ensuring that access to cash in the UK meets some yet-to-be-agreed minimum standard. Some of those firms are the same banks that have been reluctant to meet the costs of cash withdrawals through LINK for the last 20

years: they would be asked to do something they patently do not want to do and, even more assuredly, don’t want to fund.

The Financial Conduct Authority (FCA) is the regulator mooted to have oversight of the designated firms under these new arrangements. But the FCA has many irons in the fire in relation to the UK’s big banks. There is surely a danger that, at some point, the banks will be excused some or all of their obligations in relation to cash, in exchange for doing something in another sector of financial services that the FCA may consider expedient to prioritise.

The issue of cash access could easily become a mere bargaining chip.

Free UK public the access to cash has a significant disadvantage in that, whatever form it takes – old-style cashback, access at post office counters, community shared banking hubs, and, of course, ATMs – all require banks to meet the bill. So, what can be done to ensure that cash, a pillar of personal freedoms, independence and choice for a mere 2,500 years, does not get removed from the payment choice menu?

One solution is available: access to cash can be provided under the auspices of the UK National Lottery.

Camelot, the current operator, has been keen to offer financial services before, but was knocked back by a regulator that may have believed community financial services, including cash access, were at that time relatively well catered for.

Now is surely time for the Lottery regulator to have a rethink. Thousands of communities have lost all local access to financial services in the last few years. www.fintechf.com

Creative thinking by the regulator can help fill the gaping holes in service provision.

A new National Lottery licence is due to be granted soon, to come into effect in 2024.

It will last until 2034 and could, potentially, offer a long-term solution to the UK’s cash access problems. The good news is that the operator selected to run the UK National Lottery from 2024 onwards will be obliged to install 45,000 new Lottery terminals – an investment of well over £100million.

Think of that: 45,000 new pieces of state-of-the-of-the art hardware, supported by leading-edge software, which can be configured to do much more than provide Lottery entries. In fact, these machines can become local financial services hubs for every community around the UK. Already, 95 per cent of the UK population lives within a mile of a National Lottery terminal. This coverage can be enhanced under the new Lottery licence to ensure the new community financial services hubs meet the needs of virtually, everyone in the country.

A company I helped successfully launch in the UK – Swiss Fintech Sonect – has already engaged with the government on cash access through Lottery terminals but, in truth , cash access is only one facet. ffnews.com

These hubs could provide multiple financial services, effectively replacing the bank branches and bank ATMs that have been lost for good.

Again, it’s not just about cash withdrawals; being able to make cash deposits is also vitally important. There are more than 400,000 retail and other high street businesses in the UK still welcoming cash. For many community businesses, convenience stores in particular, cash still

35,000 National Lottery retailers in Italy will start offering access to cash early in 2022 accounts for 50 per cent or more of sales. In the absence of bank branches, such businesses need new solutions for depositing cash – and that cash, circulated efficiently locally via Lottery terminals, can meet most or all of the cash needs of residents in those communities.

So, National Lottery-powered community financial services hubs, and associated technology, could provide a comprehensive solution – and the beauty of this is that it

need cost the UK government and taxpayer nothing.

Retail and other businesses that wish to continue to offer the National Lottery can be obligated to provide associated financial services.

Most will wish to do so anyway, as they know that helping their customers get cash will also mean their own businesses will enjoy higher sales, as most of the cash they provide will be spent locally.

And, when a particular National Lottery retailer is short of cash, apps such as Sonect’s can ensure the public are directed to alternative local Lottery retailers where they can get the amount they want. Equally, some National Lottery retailers may, on occasion, wish to use the services of cash management organisations such as Loomis, to deliver cash to top up what they have in their tills to meet peak demand. The cost of offering cash withdrawals and other services could simply become part of the overall financial structure of the National Lottery.

A few banks are likely to want to participate in funding on a voluntary basis, in order to play their part in providing their own customers with access to cash and other services.

Some may raise concerns about associating cash provision with a form of gambling. However, there is no evidence that the UK National Lottery particularly attracts those with serious gambling addiction. Also, there will be no direct connection between obtaining cash and purchasing a Lottery ticket, simply the use of the same terminal, in the same convenient local location.

There is already a precedent for such a service: 35,000 National Lottery retailers in Italy will start offering access to cash early on in 2022.

The UK’s new National Lottery licence offers a once-in-a-generation opportunity to create community financial services hubs, meeting the long-term cash and other financial services needs of local residents and businesses. It is an opportunity that must not be wasted.

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TRANSFORMATION: STRAIGHT-THROUGH PROCESSING

Failure is not an option With margins in banks’ payments businesses already under pressure, Accuity’s Dalbir Sahota and Tristan Blampied of Silicon Valley Bank UK, explore the impact of failed transactions and how to fix them The impact of the exponential shift to high-volume, low-value digital payments on banks’ balance sheets over the last few months has been revealed by stark new findings.

The True Cost Of Failed Payments Report, based on a survey conducted in early 2021, features responses from more than 200 payments professionals across the banking, financial, fintech and corporate sectors in both established and emerging economies. It pins an eyewatering figure of $118.5billion on failed payments globally in 2020; the total hit incurred in fees, corrective labour and lost business.

Regionally, that figure breaks down to $41.1billion in Europe, the Middle East and Africa (EMEA); $33.7billion in the Americas; and $43.7billion in Asia-Pacific (APAC). While the cost varied globally and by organisation, the average for banks was $360,000 each, and just over $200,000 for corporate businesses.

The report defines a failed payment as one that is ‘rejected by a beneficiary or intermediary bank [for] reasons including inaccurate or incomplete information, data entry issues due to human error or poor reference data and validation tools’.

The figures, compiled by Accuity, part of LexisNexis Risk Solutions, reveal how imperative it is for major institutions to grasp the digital nettle and re-orientate their payments businesses to achieve greater efficiency and increase products and services to compete with paytech

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challengers. But more alarming, perhaps, than the topline financial loss, is the impact of failed payments on customer retention – 60 per cent of institutions surveyed (rising to 80 per cent among those with more than 20,000 failed payments a day) said they had lost customers as a result.

Accuity found that issues with account numbers caused a third of failed payments, with inaccurate beneficiary details making up another third. Manual processes also introduced human error and slowed down payment journeys. Yet, less than 50 per cent of institutions are actively doing something about it. More than a third of ‘payment data elements’ are still validated manually, and two-thirds of organisations find reducing manual processes ‘extremely challenging’.

Dalbir Sahota, global head of KYC and payments product management for Accuity, which specialises in data analytics for risk management and decision-making, says the industry has yet to wake up to the profound impact of dire payments performance.

“Most organisations do not fully understand the impact, both financially and from a customer retention standpoint,” she says. “Tangible costs like fees and labour might be relatively easy to measure, but the intangible damage, including customer relationships, can be harder to repair.

“The payments market is fiercely competitive, so it is vital for organisations

to do more to improve their payments data and reduce failures.”

Initiatives like the new ISO 20022 payments messaging standard, the European Payments Initiative (EPI) and the Single Euro Payments Area (SEPA) are all conspiring to help sort out issues with, particularly cross-border, payments efficiency. But, to reap the benefits of this, the report concludes banks have no time to waste in embracing the kinds of digital technology needed to support them.

“The pandemic has increased customers’ expectations of their payments experience.

There’s been an explosion of cashless, digital payments and, naturally, as growth happens in payments, there is also a growth in failed payments,” explains Sahota.

Tristan Blampied, director of payments product management at Silicon Valley Bank UK, agrees.“Delay tolerance levels have gone down, so it’s necessary to look at every avenue to validate payments upfront to prevent this,” he says.

Yet, as the Accuity survey shows, many financial and corporate institutions are still manually checking and administering payments. “And, where things are done manually, there’s always that chance of something going wrong,” says Sahota.

“Automaton rates for pure domestic payments should be at least in the high 90s. If they’re not, there’s a problem,” continues Blampied. “Cross-border automation is lower and failure rates higher because there are more variables.”

www.fintechf.com

But there is hope, says Blampied: “SEPA is an example of a harmonised standard, using ISO 20022 messaging, being rolled out for participating countries, with positive impact.”

The biggest cost for processors is the manual work involved in operators trying to repair payment instructions, he says.

“Then there’s the notification process – which could also be manual – back to the originator, that the payment has failed. Organisations might need to build expensive, bespoke reports, too, stipulating why payments failed. Then, customers with lots of failed payments are likely to take their business elsewhere, in a competitive payments market with lots of payment provider options.”

Sahota agrees: “Customer churn associated with failed payments is probably the gravest consequence.

What the market’s achieved, in domestic payments, is really strong, and it’s a case of mirroring that in cross-border, because, more than ever, we operate in a global world, with supply chains and companies working across borders, relying on payments being made right first time.

Many sectors have really suffered because of the pandemic, cashflows are dependent on payments being successful and one not reaching its destination, first time, has a consequence for business performance.”

She continues: “The shift towards businesses using more digital, e-commerce channels, has been phenomenal but, when it comes to implementing that, if organisations haven’t solved the causes of their failed payments, and digitised and automated their checking processes, they’re still going to experience failures and now need to address those underlying problems.”

Happily, there are lots of solutions

available to help improve payments automation and increase straightthrough processing (STP), adds Blampied: “Rule-based processing is already fairly commonplace in financial institutions, where there’s one field missing from a payment message and predefined rules ascertain what’s missing and add it in, without manual intervention, so that a payment doesn’t fail,” he explains. “We’re now seeing the addition of artificial intelligence (AI) to further automate the process and repair instructions that have multiple layers of issues within them.

A one per cent drop in straight-through processing causes blood, sweat, headaches and tears for actors involved in the entire value chain Dalbir Sahota, Accuity

“There is only so far rule-based processing can go. Natural language processing (NLP), however, can assign a value to every piece of information within a message and achieve a contextual understanding of what it is, who it’s from, where it’s going and what it’s for. So, using NLP, a system can effectively repair three, four, five different errors within a payment and structure it correctly, before it’s sent through the correspondent banking chain, which is quite amazing.

“Similarly, machine learning is very valuable. It can look at payment repair tasks human operators have undertaken, learn from those and build a model so that, when payments

feature those same errors in future, the system can repair them, reducing fraud and risk by removing the need for human intervention.”

“The end outcome, to have payments straight-through process first time, for businesses dealing with high volumes, is super-critical, because it is the bedrock of their business,” adds Sahota.

“A one per cent drop in straightthrough processing causes blood, sweat, headaches and tears for actors involved in the entire value chain of a payment, from the originator to the beneficiary, to the folks that have to manage all the interactions to get it right. These are all unseen costs, centred around the pain points financial institutions are feeling and, equally, that end-customer pain point, which is very real in the market.

“Reducing failed payment rates requires investment for today and tomorrow, to prepare for what’s coming down the track and not just look at the problems of here and now. It means investing in things like AI that are coming down the line, but also some low-hanging fruits in terms of understanding what datapoints are causing failed payments, and addressing those.

“The demand for faster and competitively-priced payments cross-border, as well as domestic, is very, very critical.”

“Automation, automation, automation, and deploying the technologies that can support that, like AI, are vital,” adds Blampied. The adoption, globally, of ISO 20022 messaging, is also key.

“There are proven success cases where that has already happened, such as SEPA, but there is further to go to achieve a harmonised and uniform global standard, to reduce failures and ensure customers get their money on time.”

Time to act: Investing in infrastructure improvements is critical

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Issue 10 | ThePaytechMagazine

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BEYOND PAYMENTS: LEGACY BANKS The payments equation: The cost of providing payment services is too high for smaller banks

Rebalancing the business of payments TSB’s Head of Operations John Lyons considers how mid-tier banks like his own might respond to a massive upheaval in the payments landscape “The mobile banking app will be increasingly replaced with embedded finance, with the payment initiation happening elsewhere – initiation embedded in customer journeys will be a critical theme.”

That’s the prediction of TSB director of operations John Lyons, now that the global pandemic has given digital momentum a hefty shove. Inevitably, it raises questions about how much of the end-to-end value chain for payments stays with the traditional banks, but, in truth, banks have long since accepted that payments in and of themselves will never be the income generators they once were.

Lyons, who has been working in payments for 30 years, moved to TSB in 2017 from Royal Bank of Scotland, and performs advisory roles for the Bank of England, UK Finance and Pay.UK. His responsibilities at TSB are diverse – open banking, payments and partnerships are included in his brief – and he is clear ffnews.com

that the business’s modernisation must continue to accelerate post-COVID. “In some respects, nothing has changed and, in other respects, everything has changed,” he says.

“Behind the scenes, as regards our central infrastructure, the same agenda remains – there’s a programme of renewal covering CHAPS, real-time gross settlement, the new payments architecture, becoming ISO compliant. These are multi-year programmes. But, jumping to the customer end of the value chain, we’ve seen massive change in the last year: cheque use down by 24 per cent; Faster Payments growing by 10 per cent; and we’ve seen our digital adoption skyrocket – in excess of 90 per cent of our customer interactions are now done digitally.”

A mega-theme for banking going forward will be partnerships, Lyons says, especially for the industry’s mid-tier and smaller players – and, if there is an upside to those decreasing payments margins, it’s that income erosion will force them to innovate elsewhere.

“There’s a squeeze in payments – more volume, less opportunity to charge for them, higher costs of old infrastructure, growing compliance costs,” he says.

“Then there’s the cost of introducing new protections, such as confirmation of

payee and secure authentication. It all adds to the cost of delivering a basic compliance service to customers.”

In the face of such pressure on their payments business, Lyons suggests banks pursue two strategies.

“First, standardise and consolidate infrastructure to reduce cost – that will be incredibly important,” he says. “Banks have too much infrastructure, it’s too costly and the smaller banks, in particular, cannot sustain that. Banks like TSB, which is a mid-tier bank, may need to seek partners, and I certainly see smaller organisations using payments-as-a-service.

“I see a future with a smaller bank payment infrastructure, and processing consolidating into a smaller number of payments-as-a-service providers, running in the Cloud – either single or multi-tenanted. Banks will connect their front-end experience through APIs, and then their accounting and reconciliation through back-end APIs, with everything else in the middle done by a provider.

“Payments are a commodity; you can’t differentiate, you just need to find the safest and cheapest way of doing it.

“The other response [to this changing landscape] is more proposition partnerships to bring new services and products to customers to drive growth.

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BEYOND PAYMENTS: LEGACY BANKS TSB is delivering on proposition partnerships already with TSB Marketplace, which introduces customers to services provided by third parties. These include life insurance from Legal & General, a savings and investments platform from Wealthify, switching service ApTap, and, for businesses, payments services from Square and advice from Enterprise Nation.

Returning to his prediction that payments will become increasingly invisible for both e-commerce and point of sale, Lyons says that is being driven by open banking opportunities and the speed of the UK’s Faster Payments system.

“Open banking is growing significantly, I see it in the volumes every day – more customers are initiating payments from within third-party apps than ever before,” he says. “I also foresee a move from card acceptance to instant Faster Payments, particularly in e-commerce, as those smaller businesses try to avoid expensive merchant acquiring costs. As this capability is now far more instant, it’s starting to knock on the door of the traditional card rails as a viable alternative for the movement of money.

“Over time, the payment will become quite invisible and roll off the back of the customer experience, whatever the

artificial intelligence and partnership working, while striving to reimagine its branch network. For example, to cope with increased customer queries at a time when branches were shut due to COVID-19 lockdowns, the bank introduced TSB Smart Agent chatbot for internet users last year, and added it to its mobile app in March.

Powered by IBM, it helped the bank cope with a wave of retail customers seeking advice on mortgage and loan repayment holidays, and SME customers who wanted funding from the Government’s business interruption and bounce back loan schemes.

By early 2020, TSB had also completed a proof-of-concept using Adobe Sign and XD to build self-service forms. The timing was

Payment initiation embedded in customer journeys will be a critical theme. That leaves the banks sandwiched between a changing customer landscape, and a changing clearing and settlement layer – being squeezed on both sides customer is doing, in whatever app or e-commerce experience they’re in, and which is not the banks’. Real-time payments will kick on and create more value to customers, both consumers and SMEs. “Payment initiation embedded in customer journeys will be a critical theme.

That leaves the banks sandwiched between a changing customer landscape, and a changing clearing and settlement layer, and being squeezed on both sides.

“We'll all be forced into modernisation – TSB has already made very significant strides in putting modern platforms in place, but not all of the banks have.”

THE RENEWAL AGENDA Modernisation has been significant for TSB in the last three years – a look across its services reveals a strong commitment to

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fortunate – when COVID hit, the bank was able to roll out 21 forms for which signatures could be provided without the need for physical contact. It processed 140,000 forms in three months, which it said saved 15,000 branch visits.

Electronic forms proved a huge advantage in attracting SMEs seeking Government COVID support to TSB. “We have a growing SME franchise at TSB” says Lyons, “and our customers are desperate for the tooling that makes them more efficient. I think all the things that sit around the core payments journey are going to proliferate, and none more so than in the SME market.”

Meanwhile, branch closures were already a factor for TSB before the pandemic struck and further pressure from lockdowns prompted a decision to shut 164 more

during 2021, and has announced a further 70 will go in 2022. But TSB is developing pop-up branches in town halls, libraries and community centres in places where branch provision is lacking, while reinvesting in the branches that remain.

Lyons says: “We’re very proud of our branch network – it’s part of our core proposition. Our customers like the convenience of digital, as all bank customers do, but they also like the comfort of knowing they can walk in and get advice, face-to-face, if they need it, and that will continue.”

As regards infrastructure, Lyons does not agree with the often-heard view that it’s a choice between doomed legacy systems or the Cloud, but rather, he believes, both have a roll to play in a modern bank.

“I don’t see a landscape of failed legacy systems across the industry,” he says.

“Everybody has incidents and we resolve them. In some respects legacy systems are incredibly stable. The problem is they’re not easy to change. Cloud could certainly make putting new services live a less disruptive experience but there’s a huge amount of technical choreography that’s required behind the scenes to make that possible.

“That’s particularly true when the customer journey is part in the Cloud and part on premise, within a branch, and that transition back and forwards is something that needs to be proven,” adds Lyons.

He believes banking will be reshaped over the next few years by changes in central infrastructure, increased standardisation and transparency – all of which will drive competition, openness and innovation – and protections for those who use these services. "I think the road ahead is going to be a long and winding one,” he says. www.fintechf.com

TRANSFORMATION: PAYMENTS POST-COVID

Smallbutbeautiful?

Can banks adapt their business models to capitalise on the explosion of high-volume, low-value worldwide transactions? ING’s Evelien Witlox describes its experience Whoever would have thought that buying a bottle of milk, bar of chocolate or loaf of bread would come to involve the swipe of a card?

Yet this is just one of the new habits we’ve all adopted as a result of the surreal experience surrounding the COVID-19 pandemic, and the resultant aversion to handling notes and coins.

However, while the advent of contactless payments technology with no lower limit is great for us, it is causing a significant headache for the banks that make this happen, with the exponential increase in such tiny transactions hitting their revenues head-on.

This, coupled with other, significant developments affecting the financial and payments industry, such as the European Payments Initiative (EPI), the imminent advent of the new ISO 20022 messaging standards and the plethora of Cloud and API solutions – all against a historically low-interest-rate environment, which is further depressing income – are forcing providers to have a long, hard think about how they make money and, by doing so, retain their market influence.

Evelien Witlox, global head of payments and cards at ING Bank, believes the pandemic-wrought changes are significant and long-lasting: “E-commerce has flourished and so we’ve seen a huge take-up of digital payments, compared to cash,” she says.

And the explosion of digital payment transactions has made this a scale business for banks, with revenue now reliant on volume rather than individual transaction values. “That’s one way that we keep up with this,” she says.

ING’s Q1, 2021 results highlighted ‘subdued’ numbers of payment transactions, although with an expectation of a bounce back over the year as a whole. In an earnings call at the time, ING CEO Steven van Rijswijk said low levels of international travel had impacted credit card fees and international payment volumes were down. The bank responded

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by adapting its product and service suite to achieve ‘higher fees for payment packages’. By Q2, COVID was still having an impact on spending – although how people transacted rather than how much was more notable: the bank reported ‘mobile payment volumes up 35 per cent, sequentially’.

Van Rijswijk is presiding over a business looking to make changes to be fleet of foot, to meet challenges across the payments industry and, more broadly, the banking sector.

Like many of its peers, ING has had to adjust its approach in-step with such market developments, and this included rowing back on elements of its Think Forward strategy last year, announcing it would retreat from some markets and focus on its core business areas. It withdrew from wholesale banking in South America and will have transferred retail banking activities in Austria to Bank99, the bank of Österreichische Post, the Austrian postal service; and retail customers in the Czech Republic to Raiffeisen, by the end of this year.

Cross-border, cross-continent, instant payments, will be a big part of our development Meanwhile, as of June this year, ING is ‘reviewing’ its retail banking business in France. In deciding which markets to maintain a presence in, the CEO has said he will always look through 'four lenses, which is attractiveness of the markets, the ability to reach a scale, the ability to get to decent profitability in the medium-to-long term, and the benefit that presence in that market has for other markets or whether that country delivers something that can be used by other markets as well’. And this strategic review has encompassed ING’s product and pricing structure, too.

“We see further progress for our fee income on new product propositions, for increased charging on the cost of operating accounts and for fees on daily banking packages,” continued Van Rijswijk.

“Year-on-year income grew by 18 per cent, with growth both in retail and wholesale. Retail fees were up 20 per cent, with an impressive 46 per cent growth in daily banking, and this reflects the increase in payment package fees and the recovery of domestic payment transactions.

“In wholesale banking, fees were 14 per cent higher year-on-year as we saw some growth in lending-related fees including in trade and commodity finance, while payment fees also increased.”

Shaving operating expenses is also a priority. And major changes in the market environment – like the rollout of the EPI to which ING, Santander and Deutsche Bank have signed up – are also forcing banks like this to adapt, The initiative focusses on providing instant payments for consumers and small businesses, and aims to streamline electronic transactions, which can currently take as long as two days to complete.

It is being launched as the latest attempt to homogenise and so simplify payments across the Eurozone. It could also help Europe’s biggest banks pinch market share from the US duopoly of Mastercard and Visa, as they also nervously eye up US tech giants Google, Amazon and Facebook’s attempts to grab a firmer foothold in European payments.

The European Commission and the European Central Bank have both put weight behind the EPI, but it remains to be seen how comprehensively it will be adopted across the region.

Meanwhile, it does ING no harm that its Netherlands ‘homeland’ is among those that are ahead of the game, along with the likes of Spain. www.fintechf.com

According to a recent Payment Matters report by the law firm Eversheds Sutherland, 90 per cent of all single credit transfers between Dutch banks are instant payments, dwarfing a 15 per cent average across the Eurozone.

The reason for this, it said, was that instant payments were still a premium payment method in most countries, available only to select customers such as business users, or only for

Tiny but mighty: ING is finding ways to make myriads of smaller payments pay

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mobile payment transactions. “In the Netherlands, however, most banks are facilitating instant payments for retail customers, which makes transferring money via instant payments the new normal,” the report added.

That said, there is little point in rolling out instant payments without the instant reporting to go with them, argues Witlox.

“If you do an instant payment and there is no instant reporting, then your clients are really at a loss,” she explains.

“So, first and foremost, we try to help clients with the data we have from them, to improve their internal processes and enable them to explore other possibilities to improve services.”

And changes in customer expectations of their payments experience – including a fresh appetite for new types of payment method, are also informing this industry reset.

Witlox says: “COVID really gave people a push to use payment methods that were there already, for the first time. From the numbers, we see they like them and so will continue to use them,” she adds.

To meet these evolving consumer preferences, an increasing number of providers are also looking to the Cloud as a means of adapting their existing, legacy infrastructure. It has helped ING be more flexible and reduce costs, says Witlox, but is only an enabler and must be deployed in the right way to be effective.

“It’s more what you do with that Cloud technology, what solution you make available via it,” she adds.

Meanwhile, ING understands just how vital it is to overcome the geographical disparity in instant payments availability, and is playing its part in that.

Witlox says: “We think they deliver a lot of opportunities for our clients to improve their processes, and also develop new services on top.

So it’s very important we roll these out, and you’ll see us doing that now, country-by-country.

“Then the next level will be how we connect that, so that it becomes a worldwide infrastructure on which we can build the services that we need. If we look forward, I think one of the important things we want to do as an industry is to really connect cross-border payments to an instant payments transaction.”

She summarises ING’s vision for this: “Cross-border, cross-continent, instant payments will be a big part of our development. If we can then combine data with payments and digitise, and connect networks to each other, we, as banks, but also third parties, can make really great services for our clients, and make payments easier and easier.”

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TRANSFORMATION: REVENUE STREAMS

Allforone?

Banks are striving to solve an increasingly urgent payments revenue challenge.

Gavin Maclean of Lloyds Bank Commercial Banking told us collaboration will help

The famous rallying cry of literary history’s three bearded swashbucklers has never rung truer than during the fight against the unseen enemy that is COVID-19.

During the most volatile almost-two years in recent economic history, financial services players of all shapes and sizes collaborated in unprecedented ways to survive.

One of the starkest examples was that of players working together to meet their customers’ increasing demands f or payments ease amidst an explosion of e-commerce and the consequent acceleration of digitisation.

However, having risen to that occasion, banks now face the twofold challenge of continuing to innovate in order to compete, and attract and retain customers, while deriving the necessary value from the hugely-increased volume of low-value payments to ensure their own sustainability.

In fact, a new The Future of Competitive Advantage In Banking And Payments report from payment, invoice and document automation solutions provider, Bottomline Technologies, estimates that 10-to-15 per cent of banks’ retail payments revenue is now at risk, equating to between $100billion and $150billion globally, based on figures from contributor Aite-Novarica Group. ffnews.com

The report asked 311 financial industry representatives – from C-suite executives to those working in treasury, fraud and operations teams, across diverse geographies including the UK, Europe, the United States and parts of Asia – how they ‘measured up in meeting customer expectations and their progress toward a payments modernisation strategy’.

The report cites author and financial analyst Nassim Nicholas Taleb, who summed up the imperative organisations now face when it comes to payments: “If you are in banking and lending, surprisingly, outcomes are likely to be negative for you. This report is aimed at removing those surprises, because they are competitive killers.

“The rapid evolution of payments has seen financial institutions having to juggle their strategies in the face of a flurry of new industry and regulatory deadlines.

Among them, overhauls of messaging standardisation, a drive towards real time and the need for product roadmap fulfilment within tight deadlines.

“COVID-19 has accelerated the transition to the digitalisation of payments and raised customer expectations for speed, agility and fraud protection from providers. PSD2 (the Revised Payment Services Directive) and

open banking have encouraged competition, opened up the market to challengers and focussed more on interoperability for access to global markets.

“All of the above is good news if it means banks and FIs can improve their operational efficiency and develop new revenue streams. However, with competition comes the need to ensure that you are keeping up and providing your customers with what they demand in order to retain the current ones and acquire new ones.”

Continuing this theme, Ron van Wezel, strategic advisor, retail banking and payments, Aite-Novarica Group, is quoted saying: “The profitability of the payments business stands at a crossroads. The combined forces of fierce competition, regulatory interventions and necessary investments in infrastructure and compliance put operating margins under pressure. At the same time, the pandemic has boosted the adoption of digital payments, creating new opportunities for banks and other payment companies.

“Banks clearly recognise the importance of investment in the modernisation of their payments platforms to meet the increasing competition in the payments value chain.”

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TRANSFORMATION: REVENUE STREAMS “Banks foresee a significant impact on revenue if they do not adapt and invest in payments modernisation [and] clear benefits of payments modernisation projects, with greater flexibility in future product offerings cited as the most prominent benefit.”

Lloyds Bank Commercial Banking is among the organisations responding to this not-insignificant cluster of challenges, and its head of payment products, Gavin Maclean, says the new openness to joint working that has emerged from the pandemic, is its answer.

Citing Lloyds’ own, latest Lloyds Bank Financial Institutions Sentiment Survey report, he says: “COVID has definitely supercharged digital adoption and there’s a growing appetite in the financial services world for partnerships.

“We found that nearly half – 46 per cent – of UK financial institutions planned to grow investment in their fintech capability, through acquisition and partnering, in the next year. That’s up from around about a third – 32 per cent – in 2020, so there’s been a very notable increase in the number of firms planning to partner and develop new products and services that way, to improve client experience and drive growth.

During the pandemic, partnerships and collaboration helped many businesses make the necessary adjustments to continue trading during the crisis, and it seems that trend is going to continue, as a lasting effect.”

He describes what Lloyds sees as some innovation imperatives: “The demand for online and remote commerce, and e-commerce, has really come to the fore during the crisis,” he says.

“On the proposition side, things like pre-order, click and collect, home delivery and QR codes have become much more prominent.

“On the business management side, for merchants, things like quicker settlement to benefit cashflow and working capital, or currency conversion to support purchases in other currencies, have really come to the fore.

“The need to innovate at pace and deliver resilient solutions for our customers, became even more critical during the pandemic, and the lockdowns we experienced in the UK, which meant that a lot of businesses either had to transact online

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for the first time or significantly beef up their online offerings. They were turning to payment service providers (PSPs) and banks for solutions.

“We’re now finding that, as businesses emerge into the new normal, whatever that might be, they’re trying to take a lot of the improvements they were forced to make during the pandemic, and their benefits, forward into their businesses and client propositions.

“As a result, I see more of a need from merchants and businesses to get ever more professional and slick about how they take payments, which means banks and PSPs of all shapes and sizes have got to step up, rise to the challenge and make sure we are there to help businesses recover, then help them thrive in the post-pandemic period.”

He continues: “To address business’ needs, the answer, in our case, has been collaboration and partnership.

Whether that’s working with e-commerce experts or shopping carts, that need is only growing.

“In fact, we’re actually growing our team of specialists who find and manage the partnerships we need, to deliver the services for our customers.

“So, for the rest of this year, and into 2022,

During the pandemic, partnerships and collaboration helped many businesses make the necessary adjustments to continue trading

I’d expect a further acceleration of that innovation, through partnerships and collaboration, particularly in e-commerce and remote commerce.”

So, where will such changes take Lloyds?

“I think more and more of the changes happening in the payments ecosystem are now visible to end-users and consumers of payment services,” says Maclean, “because so many of them are now enabled through digital technology and smartphones.

“Ten or 15 years ago, when banks and PSPs were making significant infrastructural change to the payment rails, that wasn’t the case. But now, as new innovations happen, new services launch and new competitors enter the market, we are made almost instantly aware of them through those digital devices. That’s a good thing because it keeps everybody on their toes and promotes competition and innovation.

“In terms of what’s next for us, many of our clients have been through big challenges with COVID, so our immediate focus is fully on helping them to recover and retain as many of the positive things that have come out of the pandemic as they can.

“That will again mean collaborating to make sure our customers can benefit from the exciting developments taking place, including some significant enhancements to our merchant-acquiring proposition.

“Called Cardnet, it’s our cards business and we’re looking forward to bringing the benefits of those improvements to our clients, now and in 2022.

“We’ll be looking for yet more opportunities to work with fintechs, partner with bright people in this space, to deliver those benefits to bring the best-inbreed, hybrid solutions from fintech organisations. They can help us with the speed of adoption and deployment of new technologies, allow us to trial and pilot things and then refine them, until we find the right combinations for our clients.

“They can also bring things like a diversity of thinking, and new ideas, to challenges we’re trying to solve.

And if we can play a role in bringing those capabilities from different organisations into our business, to improve the proposition we provide to our clients, then that’s a big win for everybody concerned.” www.fintechf.com

CLOUD: RESILLIENCE

Hard lessons Determined not to be caught out again, resilience is the new buzz word when it comes to PSPs’ tech strategies, says Form3’s Mike Walters The global economy has been upended in the last two years by the COVID-19 pandemic, and the payments industry hasn't escaped that impact.

Which has led, according to Mike Walters, chief product officer for Cloud-native platform payment technology provider Form3, to a push to strengthen infrastructures against future shocks. He believes that Cloud technologies should be front and centre in that drive.

Having raised $200million to date, including $160million from its latest funding round in September, Form3 provides banks and regulated fintechs across the globe with an end-to-end managed payments service, which delivers complete payment processing,

clearing and settlement to the universe of payment schemes through a single API. Overseeing teams designing and laying out the products and services Form3 offers for its financial customers, Walters knows better than most how habits have been changing in his industry – a landscape he describes as ‘challenging over the last 12 months’.

Not surprisingly, COVID-19 has seen an increase in the volume of remote transactions, given reduced access to shops, restaurants and hospitality and leisure venues during successive lockdowns.

The volume of push payments and other account-based transfers, has also increased dramatically. “That’s been compounded by the move away from cash and towards contactless. In those areas that have stayed open, there has been a much more immediate, digital feel to payments for consumers over the last 12 months,” says Walters.

And these trends have ‘exposed a little bit of the complexity of doing that in a real-time environment, with legacy technology’, he adds.

“This kind of move to even more rapid,

remote, digital-focussed payments, has really started to reinforce an issue that was already there – a need for continued investment in the flexibility of the technology used in financial institutions to make those payments happen.”

Given Form3’s Cloud-based credentials, it's no great surprise that Walters is a cheerleader for such technology.

“Cloud is a fantastic thing, and has a role to play in the way customers maintain their flexibility, particularly when you see rapid changes in demand,” he says. “Resilience, security, scalability, cost- effectiveness… for all these reasons we would encourage financial institutions to embrace the use of Cloud technology, particularly Cloud-based ways of working around development, maintenance, and a full embracing of DevOps (development and operations) models,” he says.

Financial services infrastructure provider, Banking Circle’s, July 2021 survey Futureproofing Payments Tech: The Challenges Facing CIOs And CTOs, polled 600 CTOs and CIOs at banks, fintechs and payment services providers (PSPs) across the UK, DACH (Germany, Austria and

Solving the equation: Banks are looking at ways to build better, more resilient, payment services

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www.fintechf.com

Switzerland) and Benelux regions, and offered insights into the challenges currently faced by this cohort. When it comes to building or buying new solutions, for example, two-thirds of respondents were planning to build their payments technology in-house, with the same number also planning to buy off the shelf. Only slightly fewer (65 per cent) expected to outsource or partner – often utilising a combination of providers, bringing together external and internal resources to meet current and future business and customer requirements.

The current mismatch between intent and execution in the UK, when it comes to the banking industry’s adoption of Cloud, however, can be seen in another recent survey of CTOs and CIOs representing 60 per cent of UK banking assets. EY’s Banking Public Cloud Adoption Index showed that 80 per cent of UK banks have migrated less than 10 per cent of their business, with just 27 per cent planning to migrate 50 per cent or more of their business over the next two years.

Could it be that the Cloud still isn't being viewed from a strategic perspective, banks instead being more concerned about rolling out new apps and solutions, often at the expense of middle- and back-office applications, with the risk that this could lead to an undermining of governance and regulatory compliance?

Regulators, for their part, are more specifically worried that many banks relying on the same Cloud infrastructure provider could create systemic risk if it were to go down. However, the fact that an August 2021 Harris survey for Google Cloud showed that 88 per cent of the 1,300 corporate respondents polled were considering moving to a multi-Cloud strategy in the next 12 months might assuage those fears.

Walters argues that Cloud, in any case, strengthens compliance; it doesn't undermine it. Regulatory changes in particular can be made in a single place and applied to all customers at a stroke.

“That’s the model we operate in Form3 for payments. A change driven by a regulator to a payment scheme or infrastructure, once we’ve made it, is applied and available to all our customers at the same time, and that really reduces the cost and burden of that compliance ffnews.com

environment for banks,” he adds.

Yet it’s not simply down to the banks themselves knowing how to address compliance and regulation issues; it’s also a question of them finding the right partners to help with the technology deployment, and possessing the necessary business understanding to make it work and stay relevant.

“It's really important, and we pride ourselves on that,” says Walters. "One of the real strengths of a well-put-together, platform-centred, Cloud-based service, is its ability to handle scale, and to respond to changing behaviours at short notice.

“I think that’s one of the things that’s really come to the fore over the last 12-to-18 months, in that there can be very rapid changes in payment activity and payment trends.”

“Up to that point there had been much longer, more well-telegraphed, trend-based change in payment activity; but it really does show that businesses need to be able to react with scale and resilience – and with high levels of automation – to deal with quite interesting changes in dynamics. That’s especially so in non-Cloud environments where there may be restricted, or even no, access to local data centres, which could put legacy systems under pressure.”

Resilience and scalability of infrastructure is not just about keeping the lights on, it’s about doing it quickly and affordably Which begs an obvious question: given the rapid increase in the volume of low-value payments, how can banks stay competitive in the payments ecosystem?

For Walters the first, obvious consideration is ensuring the resilience and scalability of their infrastructure.

“But that’s not just about keeping the lights on, it’s about doing it quickly and affordably,” he says. “And you’ve only got to look at the amount of digital content, such as remote video activity, as well as the payment landscape, to see how well Cloud services have coped with very rapid change in customer behaviour.”

He adds: “It’s important that banks aren’t just looking at scalability, but at

how quickly they can deploy change.

One of the features of modern technology is the ability to roll out change four, five, six, 10, 15 times a day, into production environments; to take advantage of opportunities and allow for maintenance and ongoing delivery of payments.”

One way for banks to future-proof their payments business is to decouple it from core infrastructure. However, Walters acknowledges that banks’ technology estates are very complex – in particular institutional, Tier 1 providers.

“Core activities, such as ledgers, records of account and individual product services, have historically been very tightly-coupled with payment activity,” he says. “One of the trends over the last few years, has been a recognition that banks need to decouple services that aren’t required to be related to one other.

Whether it’s payments coming out of core banking, billing moving out of payments, or the service wrapper moving into its own, shared service within financial institutions, Form3’s view would be that a high-throughput, real-time piece of payment technology isn’t the same thing as a billing system, a ledger, or a product system. It makes sense for those things to be run independently, for banks to realise their advantages.”

Worth considering, too, according to Walters, is to examine the conversion of those banking technology estates, where applicable, into platforms that can consume other platforms.

“We think that’s really important, because it means best-of-breed capability in each area, without the need to manage it, host and run it yourself. And that doesn’t apply just to payments, but also to fraud, sanctions screening and a number of other services that will be core to a bank’s activity,” he notes.

While speed continues to play a major role in transactions, Walters stresses that changes to technology to allow for the carrying of incremental information is just as important.

“We’re going to see this trend develop at pace, with the adoption of large-scale ISO 20022 infrastructures. The ability will be there not just for payment information, but also invoicing and even image data, to be transported alongside payments.

And that will revolutionise the customer experience around payments,” he adds.

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CLOUD: SECURITY

Collective action is needed to fight the growth of cybercrime.

Sarah Armstrong-Smith of Microsoft and Marc Trepanier of ACI Worldwide discuss how to frustrate the fraudsters and maximise the benefits of the Cloud Cybercrime is the dark side of the explosion in e-commerce and digital financial services. As payments have moved online and become increasingly mobile and diverse, fraudsters have been quick to follow the technology curve and adapt their methods to new opportunities.

Digital acceleration during COVID-19 presented a fresh opportunity, and has provided rich pickings for the unscrupulous. In particular, there has been a spike in authorised push payment (APP) scams, as criminals used fake websites and emails to trick consumers into misdirecting payments. According to UK Finance, which represents hundreds of organisations and describes itself as the collective voice of the banking and finance industry, fraud increased by 70 per cent in the first six months of 2021.

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In response, regulators and policymakers are calling for greater cooperation from the banking and fintech communities, and the UK Joint Fraud Taskforce was recently relaunched to combat the worrying rise in fraud during the pandemic.

Against this backdrop, big tech companies such as Microsoft must take the lead to counteract fraud by ensuring they embed security in their technologies and work collaboratively with the financial community to increase protection.

As chief security advisor at Microsoft, Sarah Armstrong-Smith is focussing on the challenges of Cloud adoption and digital transformation, and how to contain the cyberthreat.

“Cybercrime is constantly evolving,” says Armstrong-Smith. “Just think of what’s happened over the last 12 months with the number of digital devices in use, the number of banking apps, the accessibility of online services, and the volume of digital transactions. All that has played into the hands of cybercriminals.

“At Microsoft, we look at ways to provide services for different sectors, and how to address the challenge of transformation and security.

“One of the most important things is to get insights and analytics, to really find out what’s going on, and to scrutinise transactions and look for patterns.”

The scale of the challenge means that organisations must work together, says Marc Trepanier, who is a principal fraud consultant with real-time payments specialist ACI Worldwide. Trepanier has more than 22 years’ experience working in fraud and financial crime, a timespan that mirrors the rise of the internet and concurrent growth in cybercrime.

“The fraudsters, banks and payment service providers play cat-and-mouse,” says Trepanier. “We’re forever trying to stamp out fraud in one area and then it pops up somewhere else.

“In terms of measures to prevent fraud, machine learning (ML) and artificial intelligence (AI) have made big strides, and federated ML, a collaborative approach to fraud prevention, is poised to be the next great leap for payments.”

With traditional ML techniques, datasets are harvested from different devices, such as mobile phones and laptops, and then uploaded to a centralised server. Federated learning is a ML model that doesn’t require large amounts of shared data, which poses risks for privacy and security.

Federated ML promotes collaboration and partnership between enterprises, with data shared in a ‘closed-loop system’ so that there is no actual data exchange.

“Organisations can only keep growing so much horizontally, gathering ever-more data,” adds Trepanier.

www.fintechf.com

“Being united, we’re much stronger, but how do we solve the age-old problem of fraud sharing? Federated learning is privacy by design, as there is no sharing of personal identity information. It’s just fraud patterns, risks and formulas, and it allows a rapid response across multiple attack vectors.”

Trepanier also highlights incremental learning, which is part of ACI’s technology suite – a category of ML where input data is continuously used to extend the knowledge of an existing model.

Trepanier explains that AI now learns from incoming data, so that it can self-adjust and recognise fraud patterns, and whether fraudsters are evolving their techniques. Because it auto-refreshes, the robots are slowly learning to do everything by themselves.

When it comes to the overall framework for digital transformation and fraud prevention, Trepanier says the Cloud will make the biggest difference.

“The Cloud is behind the rapid modernisation of legacy fraud systems,” he says. “We’re seeing the growth of super-platforms, such as Uber and Netflix, and subscription services.

They scale up and down, from the smallest to the largest organisation, and have true elasticity.

“Lots of people buy a server, run fraud software on it, and only ever use, say, 10 per cent of the server. The other 90 per cent is wasted. Having true Cloud-native systems and elasticity is magical. You can ramp up during the shopping season and dial down when it’s quiet. It allows

payment providers to always have access to the latest technology, in super-secure environments, at a manageable cost, while they would be unable to afford it by themselves.”

Increasingly-clever criminals The pandemic has had a massive impact on consumers and business models, says Armstrong-Smith. “Suddenly, we had to move to digital and cards, because cash was no longer accepted.

Cybercriminals wasted no time in exploiting homeworking, and the change in consumer behaviour and practices.

When we went into lockdown, there was real fear about keeping services running, and we became critically dependent on the digital infrastructure. At Microsoft, we identified more than 60,000 malicious messages related to COVID-19.

The fraudsters, banks and payment service providers play cat-and-mouse Marc Trepanier, ACI Worldwide

“Fraudsters were pretending to be the World Health Organisation, your bank, HM Revenue & Customs and other legitimate bodies. And they were creating phishing links and fake domains to take advantage of the fact that people had to go online. We’ve also seen a huge increase in insider threats because banks and other financial institutions had to adapt their working practices at scale, which inevitably introduced stresses and weaknesses.”

Armstrong-Smith says that the new work environment has forced people to access data that they wouldn’t normally be able to, as well as potentially talking about highly-sensitive information on collaboration sites such as Teams and Zoom. This more fluid and open working culture heightens the risk of data leakage and insider trading.

“When we talk about fraud,” she says, “we have to look at it in much broader terms. It’s not just a question of external, consumer fraud; it’s also the threat of insider fraud, so the risk factor is greater and we must use ML and AI capability to understand what’s happening and how fraud is evolving.”

Trepanier echoes the point and says that, in the real-time payments space, ML is the solution because humans can’t make all the necessary decisions in real time. Payments demand ‘timely and contextualised decisions’, he says, and, with real-time payments there is the problem of rising volumes.

“Robotic process automation is the key to delivering better operational efficiency,” says Trepanier, “and the Cloud is definitely the way forward. It means faster time to market, agility, the ability to modernise.

Today, you have to pivot and add new channels. In the last 25-to-30 years, there were only one or two and it was pretty stable, but now we’re at a crossroads.

Suddenly we need five, 10, 15, and they have to be cross-border and international too. Cloud allows us to do that.“ Trepanier adds that with real-time payments, compared to card rails, the margins are not the same as they used to be. ML has to be present, and providers must be able to stop transactions in real time, which requires tight controls.

Joined up thinking: Working together, with smart technologies, is the only way to stay one step ahead of fraud

ffnews.com

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CLOUD: SECURITY “Real-time analytics are vital,” says Armstrong-Smith. “But it’s not just about having real-time information; it’s what you do with that information that’s important.

So, when you’re presented with a welter of transactional data, and volumes keep growing exponentially, you must have decision-making in real time.

“You must determine what is high risk, low risk, medium risk. And you might need the customer to re-authenticate. So, do they need to call in, or should they use a PIN or other type of verification? We’re seeing many more real-time transactions where someone’s in the middle of the process and they’re asked, for example, to go to their banking app and verify with a code.”

That’s the definition of real time, says Armstrong-Smith. And customer experience benefits because transactions are not suddenly blocked at the most inconvenient moments, such as when they’re in the middle of a transaction in a store.

“The Cloud enables analytics at scale and at volume,” says Armstrong-Smith.

“And it ensures resilience when data and services are changing. If an organisation is having to refine its products and comply with regulatory changes, the Cloud allows it to adapt.”

teams. But the Cloud has changed the landscape and enables them to act more like fintechs, be agile and respond to consumers.

If a consumer says ‘I want to make a payment by simply looking at something and pointing my device at it’, that’s a request financial services must meet.”

As for cybersecurity and compliance, Trepanier says the more organisations invest, the fewer returns they’ll receive from that investment. However, they still feel compelled to keep doing so because they don’t want their business to be compromised, and have to stay compliant.

“One single solution may cover 40 per cent of their risk,” says Trepanier, “while a new solution may improve their position by one or two per cent, so the investment is a Cloud analytics: Combined with clever use of AI and ML, it can produce the insights needed

The Cloud enables analytics at scale and at volume and it ensures resilience when data and services are changing

Sarah Armstrong-Smith, Microsoft

Trepanier adds that Cloud is particularly useful for mid-sized organisations, and software-as-a-service is the way to go.

“It’s the ticket for them to survive this very aggressive industry change,” he says.

“It’s the way to grow revenues and keep up with both fintechs and large organisations that have the capability to scale. Mixing this elasticity with monthly subscription costs, instead of one-time, massive capital investments, is a big win for them.”

Leaving it to the experts Looking at what consumers want today, Trepanier and Armstrong-Smith agree there will always be a place for traditional banks and their services. However, consumers now want more choice and flexibility.

“The problem,” says Trepanier, “is that, for years, banks and financial services providers have been growing massive, IT-centric

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to the Cloud, you’ll no longer be solely responsible for the infrastructure and services in a shared-responsibility model.

“Part of that infrastructure – the platform and the networks – is down to the service provider. We are always accountable for our data and what people are doing with it.

Microsoft also has the biggest compliance regime of any service provider, with nearly 90 different certifications, local and global.”

Armstrong-Smith says Microsoft seeks feedback from its customers so it can better understand and meet their needs.

Because the environment is now so highly competitive, customers can go to many different banking and online services and applications, which is why providers have to inspire trust and confidence to

diminishing return. Given the scale of investment in Cloud, and the work that Microsoft is doing in Azure, unless you’re one of the largest organisations in the world, you probably can’t beat what it’s doing in that space.

“So, from the cybersecurity and compliance perspective, Cloud is the best option for even the smallest organisations.

They’re outsourcing their risk to a third party which has security figured out way better than they ever will.”

“Microsoft has the biggest Cloud platform of any service provider,” explains Armstrong-Smith, “and with that comes a responsibility to ensure compliance and security. Trust is fundamental, and there are several dimensions to that. If you’re a banking institution, used to working on-premise, maybe in a locked-down environment, and thinking about moving

ensure they stand out from competitors.

Trepanier says ACI is building this trust with many anti-fraud developments across banking, merchant acquiring and issuing.

“I’m helping to build international ML federated communities across the world,” he continues.

“We have hundreds of organisations that use our software to protect their companies, and we are working on connecting them and creating an international community to stop fraud.

Together, we are far more effective.”

“Communication and collaboration are the keys,” adds Armstrong-Smith. “I’m spending a huge amount of time talking to customers, partners and even regulators, just to understand the changing landscape and what the priorities are. I’m sharing insights within financial services, across different sectors and different regions.

“You can expect to see plenty more developments from Microsoft as a result of these shared insights, not just around security and compliance, but also identity.” www.fintechf.com

CROSS-BORDER: BUILDING SUCCESS

Getting Wise with the world’s financial data It’s been a landmark year for cross-border payments giant Wise, following a decade of impressive growth. We sat down with Matt Briers, Chief Financial Officer, to discuss the company’s evolution, its recent listing, and what’s coming next Like many of the world’s most disruptive companies, cross-border payments specialist Wise was born out of frustration with the status quo.

Back in 2010, Estonian friends Kristo Käärmann and Taavet Hinrikus shared a common problem. Hinrikus, who was the first employee at Skype, lived in London but got paid in euros. Käärmann worked for Deloitte, also lived in London, and got paid in pounds. But he had a mortgage in euros back in Estonia.

They both moved their money around via their banks, which had expensive fees and bad exchange rates. They knew there had to be a better way. So they put their heads together and worked out a new way

to make cross-border transactions at the real exchange rate. They would informally transfer money between one another, by looking at the mid-market rate of a certain day each month. This allowed them to achieve a fair exchange rate without paying additional bank charges.

RAPID RISE TO UNICORN Following this discovery, the pair launched Wise in 2011 under its original name TransferWise. The company has gone on to enjoy a stellar rise, achieving unicorn status and launching an incredibly successful public listing earlier this year.

Wise is now one of the world’s fastest-growing tech companies, having

raised over $1billion in primary and secondary transactions from some of the world’s leading investors. Currently, some 11 million people and businesses use its services. The Wise account enables users to transfer money internationally at a cheaper rate and allows the to hold money in more than 50 currencies and get real bank details in 10 currencies.

“Today, we move more than £6billion a month,” says Matt Briers, CFO. “We move 40 per cent of that instantly, so it’s available in people’s accounts within 20 seconds, which is quite mind-blowing, and we’re typically the cheapest by quite a stretch, charging around eight-times less than a typical bank.”

Eyes-on cross-border: Wise is reaping its rewards for taking the pain out of international payments

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www.fintechf.com

Earlier this year, Wise introduced its multi-currency investment feature Assets to UK customers, giving individuals and businesses in the UK the opportunity to choose how their money is held, and potentially earn a return on it, across 50-plus currencies. It chose the first asset to be Stocks, a broad portfolio of 1,557 of the world’s largest public companies included in the MSCI World Equity index, such as Apple, Amazon, and Google, which is collectively worth more than £40trillion.

BlackRock provides the tracking fund for the index.

Wise is highly-regarded by its industry peers and commentators alike, thanks to a decade spent building a strong culture of innovation and developing some very talented people. Its ex-employees often go on to create their own companies, with the pan-European investment app Lightyear just one example. It’s something of a trend, with Sifted recently referring to the ‘TransferWise Mafia’.

Most significantly for Wise’s prospects, according to a recent McKinsey & Company report, cross-border payments remain a significant growth area. In 2020, for example, even with travel and trade volumes in decline, cross-border e-commerce transactions grew 17 per cent.

Cross-border network provider SWIFT’s volumes were 10 per cent higher in December 2020 than December 2019.

Not only has a widely-anticipated ‘re-shoring’ of production chains and related shift in trade flows so far failed to materialise, but increases in non-trade payment flows have more than offset lower transaction volumes in trade, driven by increased volatility in treasury, foreign exchange and securities. And such dynamics are leading to volume growth and record market valuations for payments specialists like Currencycloud (recently acquired by Visa), Banking Circle, and Wise.

A YEAR TO CELEBRATE A year of significant developments for Wise began in January 2021, when it announced a global partnership with Visa to leverage Visa Cloud Connect. This has enabled Wise to further expand its footprint, rolling out its multi-currency debit cards in Asia Pacific, Europe, Latin America and the Caribbean, the Middle East, UK and US. Expanding into new markets would have previously required significant investment in ffnews.com

local data centres, telecommunications infrastructure and specialised payment hardware. But with Visa Cloud Connect, Wise can quickly establish a secure connection to VisaNet through its Cloud provider, eliminating the need for costly local connectivity and speeding up Wise’s ambitious expansion plans.

In February, Wise officially adopted its new name, explaining that this reflects what it is building for – a community of people and businesses with multi-currency lives, which includes banks themselves.

“When I first joined, we had four or five people in finance, and most of our financial data was held on a spreadsheet,” explains Briers. “Now, we have billions of rows of data and it’s all controlled in a way that helps us understand exactly where anyone’s money is, at any point in time.

“We’ve now got a team of 100 people in finance, but we also pull on engineers in teams across the whole business. You need people who are really driven and dedicated to building something amazing. Some of the great banks around the world are starting to integrate Wise as well; we’re being plugged in to help run their currency transfer operations.”

With its bullish new identity, in May 2021 Wise tapped into an additional £160million capital facility to refinance existing debt and support its funds flow and ongoing working capital needs. Just two months later, it made global headlines when it took part in the first-ever direct listing of a tech company on the London Stock Exchange, with the company valued at a market capitalisation of £8billion.

A direct listing doesn’t involve raising new capital or bringing in new investors as with a formal initial public offering. The price was determined through an extended three-hour opening auction, rather than through a traditional book-building process in which a company’s bankers ask institutional investors, in the days running up to the IPO, to submit bids for shares and the price they’re willing to pay.

“It means that, instead of just institutions being able to invest, anyone who has access to the London Stock Exchange – and now also the New York Stock Exchange because we’ve got an American Depositary Receipt (ADR) listed in New York, too – can.

It democratises things and lets our customers invest in our future,” says Briers.

“Becoming a public company isn’t easy, and it shouldn’t be because the thresholds and standards that are put on public companies should be high. So, we had a lot of work to do. In fact, it was months of work for a lot of people across the company to help us get to that moment in July.”

BUILDING ON SMARTER FOUNDATIONS Following Wise’s explosion across the world’s markets, much of its success lies in its ability to manage its plethora of data efficiently, streamlining it to ensure a smooth operation that helps it move fast.

“There are very few global banks in the world,” explains Briers. “Some call themselves global, but they’re not really; they’ve expanded into other markets by buying other banks. If you look under the hood, they have multiple businesses, typically on different accounting systems and ledgers, hindering their ability to operate internationally.

“So, many of these ‘global’ banks are actually just a brand, wrapped around a lot of local banks and different systems that don’t interact well. What we’ve built, at Wise, is one ledger everywhere, so we’ve got one system that understands where anyone’s money is, anywhere in the world, at any point, and we can move that money really quickly.

It sounds simple, but it’s actually very hard, and really hard for others to replicate when they’re rooted in multiple local infrastructures.

It also means our data is all in one place, and our analytics are phenomenal. We can understand our exact financial position within minutes, and how much money we’re making.”

After a blockbuster year, the logical question is what’s coming next?

“We’re building an aspirational product,” says Briers. ”Whether you want to manage your money better, or your international banking, then Wise is a cool place to do that, and it will get increasingly better in every jurisdiction. Will there be new features? Yes, definitely. But built in a way that just helps people manage their money around the world, in an easier and wiser way. So, no big diversions. We’re not going to the moon yet… but I won’t rule it out!”

We’re not going to the moon yet, but I won’t rule it out!

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CROSSBORDER: SUBSECTION Free to pass: Understanding local quirks is the key to seamless cross-border transactions

HALT! WHO GOES THERE? Giving seamless international payments the green light will necessitate understanding – and providing for – local requirements, say Checkout.com’s Tracy Meng and Claire Gates from PPRO You could describe payment services provider Checkout.com and infrastructure company PPRO as among the heroes of the e-commerce explosion triggered by the COVID-19 pandemic.

They rose to the occasion as customers worldwide – even the previously digitallyshy – became used to running their lives online, each company achieving unicorn status in January 2021. Checkout.com, which works with businesses worldwide to optimise their payments, tripled its valuation to €12.3billion after raising $450million in a Series C funding round, which made it Europe, the Middle East and North Africa’s most valuable venture-backed business and the fourth-largest fintech globally.

Meanwhile, PPRO attracted more than $180million of investment to take it value above the magic $1billion and enabling it to fund further growth, after its strong, double digit, year-on-year

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transaction volumes in 2020. At the same time, it expanded its global team by 60 per cent in 2020 and developed new strategic partnerships with local payment methods in high-growth markets, including Indonesia and Singapore.

PPRO offers a payments infrastructure for businesses (PSPs and their merchants), which allows them to offer more choice at the checkout and boost cross-border sales.

In 2020, this helped it process $11billion of payments.

Both companies see this as just the beginning. Tracy Meng, global head of partnerships and partner engineering at London-headquartered Checkout.com, described the opportunity it is intent on seizing: “We don’t feel like we’ve reached some milestone where we can rest on our laurels; it’s chapter zero in our story.”

Similarly, PPRO’s chief commercial officer, Claire Gates, added: “It’s been exciting but there’s a lot for us to work on, going forward. Key, having raised the money, is

reinvesting in developing a stronger, scalable expansion to our product suite.”

And no wonder they feel fight-ready, given the stark figures showing worldwide payments growth left to run, released by PPRO in the 2021 edition of its Payments Almanac, in November. It predicts that the e-commerce sector will grow to $6trillion by 2025, with, crucially, ‘consumers expect[ing] to make purchases with their preferred payment method’,. The latter, says Meng, is key to achieving the elusive goal of seamless cross-border transactions in an increasingly borderless marketplace.

“A lot of payment industry people call the likes of Giropays and P24s ‘alternative payment methods’,” says Meng. ”That’s a misnomer. In some regions, where 70 per cent of the population want to pay using them, they’re primary payment methods.

“So, it’s important for merchants to create the right experience, understand their customers, do the research, so that customers can see, when they’re checking www.fintechf.com

out, that their primary payment method is there as an option, and think ‘I’m going to come back to this merchant because it was so easy to shop there’. That virtuous cycle is how you build lifetime customer value, and where payments become really important.”

WORKING THE SYSTEM “Growing global businesses using international payments is complex, Meng adds.

“The best analogy is international travel, when you’re going from one country to another and have to go through border control because each country has its own regulations for what is legitimate. With payments, if you’re going from point A to point B, from the user’s bank account to –the merchant’s, replace border control with the issuing and acquiring banks.

A lot of payment industry people call the likes of Giropays and P24s ‘alternative payment methods’.

That’s a misnomer Tracy Meng, Checkout.com

“For example, when I go to use my US credit card to buy a dress from a French boutique, the French bank might flag something as illegitimate because it doesn’t recognise it or is more familiar with the local banks. But what if someone can walk up with you to that ‘border control’ and say ‘I vouch for this credit card. I’ve seen it before, I know how it works, because I have all of the global entities and licences in place’? That’s the beauty of the innovative solutions that can help every user go through that border control line as quickly and seamlessly as possible, so that merchants never lose out on a transaction because it’s cross-border.

“That’s what PPRO, which encompasses the acquiring and processing in one and has a large portfolio of local payment merchants, can do for every single transaction, and truly make e-commerce borderless.”

Indeed, PPRO’s report suggests this could provide the answer to the industry problem that, even if they recognise their value, ‘many firms still lack the knowledge, licensing, and technology to conduct local transactions’ which, Meng believes, are the key to finally achieving seamless cross-border payments. ffnews.com

Developments aimed at standardising payments data, including ISO 20022, are helping, but simply understanding how people in a particular locality want to pay and then allowing them to use those methods, can make more difference than data, particularly when you consider that 77 per cent of global online purchases are made with a local payment method.

In fact, the analysis also shows just how much payment styles differ between territories, stating that ‘the UK e-commerce market is worth £204.8billion and expected to grow to £257.1billion by 2025, while payment methods in different geographical regions remain disparate, with 32 per cent of UK consumers relying on e-wallets, while 24 per cent of transactions in Eastern Europe are cash-based’.

According to the report: “Western Europe is heavily dependent on bank transfer payments… 60 per cent of consumers conduct payments with digital wallets… while 72 per cent of payment transactions in China are done with wallets like Alipay and WeChat Pay [and] Latin America, by contrast, relies on card (60 per cent) and bank transfer (14 per cent).”

There is no doubt that catering for these different tastes will only become more urgent, as PPRO’s report observes that ‘use of digital payments in Europe is forecast to grow by 70 per cent between 2020 and 2025’ and ‘in 2020, e-commerce shipment volumes in Europe increased by 149 per cent for internal purchases and 123 per cent for cross-border ones entering the continent’.

Gates said of the report at the time: “This boom in cross-border e-commerce and the proliferation of niche local payment methods, has intensified the challenge for companies who seek to make transactions simple and secure. Brands need to understand these regional differences if they want to capture new customers.”

NO GOING BACK While COVID-19 fuelled the shift to e-commerce, it is likely here to stay, adds Gates: “The global retail market has changed. It was predominantly offline, now consumers who are purchasing goods and services anywhere, they’re borderless.

“We’ve all got parents, or even grandparents, who suddenly found they could buy all their goods and services online, including groceries, and because

that situation was protracted over a long period of time, people’s purchasing behaviour has changed and, one could argue, this new way is here to stay.”

Meng points out that it’s not just consumers who are catching on. “We’ve also seen merchants and businesses becoming more sophisticated at accepting payments. Now, technologies like Checkout.com, with a single API that covers gateway, processing and acquiring, puts the merchant in full control of how they optimise how they’re paid.

“That’s been a revolutionary moment for the payments industry, merchant adoption requiring us to innovate to the next level,” she says.

Integrating local payments sounds so straightforward, but it isn’t. Where do you draw the line in terms of how many local payments you integrate? And you have to integrate them in a technically-optimal way to get the right results Claire Gates, PPRO

And Gates adds that this presents an opportunity for smaller merchants to further ‘level up’ with the giants, by catering for local payment preferences like Brazil’s Boleto and WeChatPay in China.

“Integrating local payments sounds straightforward, but it isn’t. First of all, where do you draw the line in terms of how many local payments you integrate? And you have to choose the right ones and integrate them in a technically-optimal way to get the right results,” says Gates.

“PPRO has coverage in 100-plus countries with local payment methods and which local payment method is relevant for their demographic or sector, and which isn’t’.”

Meng adds: “Businesses also need to stay ahead of the trends, from local payment methods to buy now, pay later, wallets and one-click pays, designed to make payments as seamless as possible; as well as experiential innovations such as voice and hands-free commerce through home devices or digital assistants.”

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FINTECH FOCUS: DIGITAL CURRENCY

Odd one... in?

For many, digital currency is still an alien concept. We’re told it has the potential to revolutionise how we pay, borrow and spend.

However, few of us understand how it works, the forces driving this change, and the implications this might have for our daily lives.

Yet, despite this uncertainty and lack of knowledge, digital currencies have seen a meteoric rise in usage and media attention, further accelerated by the pandemic. The key questions everyone is asking themselves are ‘when will the mass adoption of digital currency happen?’ and ‘when will digital currencies be omnipresent, with all generations making use of them to pay for groceries in supermarkets, purchase memberships, receiving salaries and pay their taxes?‘.

2021: A BREAKTHROUGH YEAR While the COVID-19 pandemic brought the entire world to a halt, the digital currency movement sped up significantly throughout 2020 and 2021. This year, we’ve seen the price of Bitcoin reach an all-time high and general digital currency popularity enjoy a significant surge. In parallel, regulatory scrutiny has increased across the globe, with governments taking this new form of money very seriously and investigating its uses for official purposes.

While digital assets have received attention from institutional investors for a while, the past 18 months have seen a flood of high-profile organisations integrate them into their business models and investment portfolios. Just this summer, Paypal offered UK customers the option to buy, hold and sell digital currencies, while,

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ThePaytechMagazine | Issue 10

René Pomassl, CEO of digital currency payment enabler Salamantex, charts the exponential curve in altfi fandom

in the autumn, electronic trading platform Robinhood announced it would begin offering crypto wallets on its app. Neobank Revolut also started to let its clients purchase digital currencies directly inside the banking app.

It’s not just investment and payment platforms either; digital currency has also arrived in the property sector, with United Wholesale Mortgage declaring that US homebuyers will have the option of paying for their mortgage in Bitcoin. And, in El Salvador, an entire nation has adopted Bitcoin as legal tender. This is only the start.

The strengthening of digital currency’s foothold in such a large variety of industries is accelerating its journey to mainstream adoption, with more businesses likely to follow suit in the near future. However, its evolution will not remain limited to the financial and business world – it will indeed impact our everyday lives.

COVID BLIP OR AN EVOLUTION? It’s clear that the digital currency movement has picked up pace, but why?

There’s no doubt that COVID has played an important role in the acceleration. While the use of cash for payments has been falling for over a decade, the trend appears to have been hastened by the pandemic.

In the UK, the LINK ATM network says cash withdrawals are now nearly £100million less per day than in 2019.

Digital currencies have been one of the natural beneficiaries of this transition.

The number of users worldwide doubled from 100 million to 200 million in the first four months of 2021 alone.

The COVID crisis, however, should not be held solely responsible for the boom.

Digital transformation of their operational infrastructures and business processes has been a key target for many industries for several years now. Consequently, money, as we have come to know it, has also been reimagined to fit this new way of doing business. COVID has simply forced regulators and entire countries to act faster to enable a more digitised world, including payments.

So, what next? Digital currency is no longer an innovations of the future, but rather an increasingly viable payment option being used by a growing number of industries as well as end-users. The question we really need to consider is not whether mainstream adoption will become reality, because it will. Instead, we need to look at how we want digital currencies to fit into the broader financial ecosystem. We don’t expect them to replace conventional payment methods, but to become one additional option to choose from. End-users’ appetite is already detectable across borders and big institutions have long joined the early adopters. Banks and regulators are on track to facilitate this so-far linear evolution.

The benefits digital currencies offer, like faster and more efficient processing, will be key components in future-proofing the global economy. What this future will precisely look like is impossible to say, but all the signs point to digital currency playing a an increasingly influential role in it. www.fintechf.com

Bridging real life to digital.

At BPC, we are bridging real life to digital by equipping our clients with the right technology to create payments services that fit right into the customers’ lives. Real life needs of people who make payments or do business transactions converge into digital services. Is it a traditional card payment, mobile wallet or an instant payment, is it initiated via a mobile, through an agent of embedded into an app via an API? It no longer matters; everyone wants it fast, easy and secure, and not having to think about it.

We have been doing this for 25 years, for more than 230 clients in 80+ countries, using the model that best fits the business objectives – be it in house, managed services or complete outsource.

SmartVista Solutions • Digital Payment & Banking

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