Fintech Finance presents: The Paytech Magazine Issue 13

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PAYTECH VOICES

24 Access all areas

Open banking could help consumers get hold of the cash they need to cover essentials as the cost of living spirals, says Kush Shah, Senior Product Manager for payment solutions provider Bottomline Technologies

34 Easing the squeeze

Rowan Brewer, CEO of card issuing and processing platform Paymentology, believes data-driven, real-time financial services can help alleviate the current cost-of-living crisis

44 Paying it forward

Max Chuard, Chief Executive Officer at Temenos, on why the banking technology provider’s ‘explainable AI’ is the answer to a growing problem

11

The greatest prize yet?

The world of payments has met unprecedented challenges in recent years, but the rise of digital means there is still more to be done, and more to be won, say Louis Joubert from PPS and Ruuky’s Deepankar Jha

14 Neobanking the world

N26 has entered – and left –international markets, but remains committed to its vision to build a global bank. We asked its Chief Growth Officer Alex Weber what it’s learned from its experience

16 Instant progress?

Ron Delnevo explores the varied worldwide adoption of instant payment apps, and asks if one of the most successful so far – Brazil’s Pix – is everything it’s cracked up to be

DATA 26 Cracking the conundrum

SmartStream’s Andreas Burner explains how its client-based R&D is helping the financial transaction management solutions provider solve the transaction data puzzle

28

Smoothing the ride

Christian Kahl, President of FINCAD, looks at how using cutting-edge analytics and technology can help investors cope – and even benefit from – market conditions

30 Everything in its place?

With the volume of payments information being circulated daily now off the scale, it’s imperative for financial institutions to find a way to organise it effectively, says SmartStream’s Roland Brandli

61

Hitting the mark

The last thing cost-conscious customers need right now is to receive incorrect bills. Businesses must adapt to better meet their evolving needs, says Nathan Shinn, Founder and Chief Strategy Officer at automated billing solutions provider, BillingPlatform

TRANSFORMATION

8 New rules of the game

Financial services were unbundled by the first fintechs, now they’re reassembling them. Currencycloud and Integrated Finance consider the fundamental problem that presents

19 Levelling up Somya Patnaik of ACI Worldwide says its latest report suggests the explosion of instant payments is fuelling financial stability for developing nations that grab this opportunity

22 Open door policy

With consumers increasingly wanting to be unaware their payments are even happening – wherever they choose to make their purchases – using collaborative, intelligent orchestration to enable this is vital, says Aevi’s Eddie Johnson

32

Paying by numbers

With transaction processing happening at unprecedented speed and volume, quality data is the only way to complete the picture, says Hugh Burden of automated reconciliations provider AutoRek

CX INNOVATION

36 Pushing all the buttons

American Express is leaning into consumer and merchant demand for payment choice and enabling it, with a full range of options that extend way beyond the card, as Holly Coventry, VP of Open Banking Payments, explains

THEPAYTECHVIEW ISSUE13

Paying the way for change

Well, what can we say? What a year!

Just when everyone thought, post-pandemic, things couldn‘t get any worse, along came the first European war for over half a century.

Not to diminish the terrible human suffering, the situation in Ukraine has sent economies spiralling, with beleaguered consumers battling dramatically rising costs and shortages in supplies of everyday essentials.

However, if it shows anything, it‘s that the payments sector can rise to the mightiest challenge. From the outbreak of the conflict, when providers stepped in as a frontline defence, to innovation to help consumers withstand current pressure on their finances, the sector’s response has been something to behold.

In this issue, our new ‘Paytech Voices‘ collection captures the first-hand views of leading players on just how payment services providers and the technologists that power them can and should step up on behalf of consumers and businesses

at this difficult time. We plan to include more such perspectives as 2023 unfolds.

In this last issue of 2022, we hear from Bottomline Technologies on how open banking can improve cash access for the hard-pressed. BillingPlatform urges companies to improve their billing systems to avoid incorrect charges the last thing people need right now. For Paymentology, the solution lies in personalisation giving consumers a better view of their spending to help them control it. And Temenos believes ‘explainable AI‘ is the essential ingredient to protect skint customers against falling foul of the potential debt trap that buy now, pay later (BNPL) represents.

Whatever your views, it’s clear that payments, driven by fast-changing consumer demands as well as fast-moving geopolitical events, is pulling up trees in terms of innovation.

In addition to our special focus, you‘ll find food for thought from leading companies on everything from the increasingly blurred lines between physical and digital in CX, to instant payments‘ importance for financial inclusion, and even a prediction that

crypto-assets could be the currency of choice within a decade go figure!

Whatever happens, this space is more exciting to report on than ever, and we say ‘long may that continue ‘.

Did you recognise Issue 12’s spine tingler? "When you see a rocket ship, don’t overthink it. Just get on board" was the advice given to Sheryl Sandberg by former Google CEO Eric Schmidt when she joined the company. Sandberg went on to become chief operating officer for Facebook and Meta. She left the social media group in June this year.

TRACY FLETCHER,EDITOR

38

Who’s pulling the strings?

Banking, as a concept, has been fragmented, brought back together, and is now being offered out to consumers via a new breed of ‘super-apps’. We asked TSB Bank, Curve, and SunTec Business Solutions who’s in control now as the industry moves towards a marketplace-based approach – banks, fintechs or Big Techs?

42 Touch and go Italy’s Credem bank worked with Temenos to get close to customers and give them 'remote control’. Fabio Caliceti, Lorenzo Villa and Adelina Rusu take up the story

ARCHITECTURE

46

The rail thing

Mark Nalder from building society Nationwide, Pay.UK’s Shane Warman, and Andrew Moseley at payments provider ACI Worldwide consider the opportunities presented by the biggest change to the country’s A2A payments system in more than a decade

54 Oiling the cogs

It has never been so important to facilitate the movement of international trade finance, argue Finastra’s Michael Vrontamitis and Joshua Kroeker from Contour

70

The open question

57

Checkout choices

With consumers demanding fewer barriers between the physical and digital worlds, Barclaycard Payments is using technology and data to better connect them to businesses and improve the payment experience for both, says Harshna Cayley REGULATION & TRUST

62 Moving the dial on financial crime Banks and their fintech partners share responsibility for driving risk out of the system. But how best to go about it? By taking a radical new approach, says David Howes, Global Head, Financial Crime Compliance, Conduct & Compliance Framework at Standard Chartered

64 That’s settled?

50

Squaring the Circle

The rebundling of financial services by tech-driven companies previously associated with just one vertical has highlighted infrastructure challenges as much as it has created market opportunities. Banking Circle Group’s entry into the US market seeks to resolve that dilemma

67

Priya Sharma from Clearstream describes why she believes good quality data could finally solve the significant challenges around Europe’s new CSDR regulation

Raising the stakes

An unprecedented raft of changes have combined to force the hand of financial industry players when it comes to transaction intelligence, says Intix’s André Casterman

For years, consumers have been told to guard their financial information with their lives. Now, we’re telling them their every wish will be granted if they embrace ‘open’ banking. No wonder they’re confused – and suspicious – as fraud attempts rocket. But are the two even linked? A recent Open Banking Excellence event explored the issues

73 ISO 20022: ready or not?

Matt Sarkar, Global Head of Marketing for Valantic FSA, outlines what a low-code approach to migration could mean for financial institutions

ALTERNATIVE ASSETS

74

Rite of passage

Bitstamp’s Crypto Pulse Report suggested earlier this year that digital assets could replace traditional investments within a decade. We asked four leading crypto industry figures if current problems in the mainstream global economy could prove to be digital assets’ coming of age?

80 Swiftly conquering the new digital frontier

How can central bank digital currencies and tokenised assets be effectively integrated into the world’s existing cross-border money flows? We turned to SWIFT’s Head of Innovation Nick Kerigan for the answer

LAST WORDS

82 Going off the rails?

Why The Payoff is the surprise pageturner of the year

a League: Fintechs have moved on from being ‘one tricks’

New rules of the game

Financial services were unbundled by the first fintechs, now they’re reassembling them. Currencycloud and Integrated Finance consider the fundamental problem that presents

In the world’s most popular video game, League of Legends, there’s a strategy called one-tricking: you basically choose a single champion and learn to play that character really well. It’s a good strategy for newbies, as you find your way around, deepen your knowledge of that character’s strengths and weaknesses, and improve your skillset. But it’s debatable whether it’s the best strategy if you’re serious about competitive play, especially in the international leagues.

Most of the fintechs that emerged after the financial crisis 15 years ago, were one-trickers. They focussed on a single financial service and/or niche market – often one that had been badly underserved by banks – and mastered it. They had strength in depth. But, as the game got more competitive, they realised that being a one-trick pony was unlikely to serve them well into the future.

And so, they looked to add other services to their bow, often by integrating with third-party providers that were equally good at the single thing they did.

As a result, they began to spend more and more time and effort on integration, which took focus away from their core purpose:

delivering superior experiences and products for their customers.

That was the problem that Integrated Finance was created to solve. The two-year-old startup does what it says on the tin: it works like a universal adapter plug for APIs, making sure the power flows from one platform to another without interruption and without either party having to worry about the ‘wiring’.

One of the integrations it is regularly asked for is with Currencycloud, a global platform that enables banks and fintechs to provide innovative foreign exchange solutions for cross-border payments.

“On my VC deck, you’d see we are described as a ‘software-as-a-service, banking-as-a-service orchestration layer’, which doesn’t really mean anything to anyone outside of the ecosystem!” laughs co-founder Daniel Cronin.

“To boil it down, we give people access to the products and services they want, without having to technically integrate all of them. It’s a single interface, a single API, and it can consume the best features that you need of a provider like Currencycloud.

“Imagine you’re a young fintech entrepreneur. You want to do crossborder payments and you say ‘I’m going to use Currencycloud. It probably wants

to know that I’m checking who I’m giving these payment services to. So, I’d better find a digital onboarding solution. And that I’m monitoring the behaviour of users. So, I need transaction monitoring’.

“That’s three integrations right there, and you’re not going to have the bandwidth to do those in sync,” says Cronin. “They’re going to be consequential and sequential. Let’s say they take four months’ integration each. That’s 12 months before you’ve gone live and your burn rate is astronomical, because you’ve spent all that time on stuff that isn’t your core focus; but you need to get it done to satisfy quite an intense regulatory environment.

“Integrated Finance aggregates those vendors into a single API or interface for you, so that you can worry about going live with your actual product.”

There’s an incentive in using such an approach for vendors, too, given that none of them will probably see a return from your partnership until you start generating API calls. Telescoping the time to launch from years to weeks benefits all parties.

It’s a strategy that suits Currencycloud well. Launched in 2012 and fully Cloud-based on AWS, it has 85 different APIs across four modules – collect, convert, pay and manage – that cover

Up

the workflow in B2B payments. Regulated in Europe, Australlia, the US and Canada, it has processed more than $100billion to more than 180 countries and was among the first to identify the trend towards rebundling financial services, building its strategy around it and publishing its APIs publicly.

“Architecturally, we’re very open,” says Richard Stockley, who is responsible for commercial partnerships at Currencycloud. “Anyone can go in and have a play with our APIs to see what they do.

“Clients can consume our solutions directly, or work with our partners – such as Integrated Finance – to build a more complete solution, that has other parts that we don’t specialise in or provide.

“Being all things to all men is certainly a difficult ask,” he continues. “As different organisations that specialise in different areas realise that they are not the whole solution, collaboration with adjacent parts is absolutely essential.”

How partners go about things is as important as what they do, adds Stockley. “I spend a lot of my time understanding what our clients’ needs are, and what the ecosystem adjacencies are that make the

where we can, with a very high degree of confidence, say ‘dear client, you can rely on these partners; we’ve worked with them before and this is the success rate’.”

Cronin agrees that how you go about identifying partners is important.

“There is an industry-agnostic graveyard of failed partnerships, where maybe the executive team got together and went ‘this sounds like a good idea’, and just assumed it would happen because of that,” he says.

“What I’ve often found is that partnerships work best from the ground up, rather than top down, because it builds organic value that way. Let me give you an example. If a sales guy at Integrated Finance is contributing to a deal, and they know that there are other components that the entrepreneur or founder needs to deliver this, that person is incentivised to find those solutions for them – to find out who can help with this problem. That way, you build organic relationships.

“What I really value from Currencycloud is there’s a lot of active energy across that business, but especially, the sales guys don’t send stuff to us that they know we can’t help with. It’s going to make them look bad, it’s going to make us look bad, and it’s going to frustrate the mutual client. And vice versa. Whilst we’re not a regulated entity, our founders previously ran a regulated entity, and we know what to look for in another partner.

which is a technical abstraction from Barclays, can remit those funds faster, possibly to some of Barclays’ own correspondents? The bank gets a huge advantage through having its customer base potentially aggregated, all of the technical headache aggregated, and still money is moved faster through a participant on its network than it could have done itself.

“So, it makes total sense to me that this starts happening at the BaaS level. But the thing that both Integrated Finance and Currencycloud needs to wrestle with, is that we’re disintermediating very successful protocols. Currencycloud, for example, is a participant of SWIFT gpi, but a lot of what it is doing is in parallel to SWIFT. So, I haven’t worked out yet whether fintech is going to embrace and empower SWIFT, or SWIFT will empower fintech, or whether the emergent BaaS layers are going to create

most sense for us and for them. One of the things you consider, obviously, is their capabilities. Do they fulfil a need that is adjacent to us, one where there’s not a great degree of overlap, and that, if we put the two together, creates something that’s incrementally valuable for our client?

“But second, is the cultural element,” says Stockley, “in terms of how can the working relationship between our two organisations provide an edge? That’s a softer, less measurable thing: it doesn’t come out in the specifications of what each player does, but that working relationship, and the pattern of working, is really important, in terms of getting stuff done.

“What we are building at Currencycloud is a whole series of partnerships, ones

“Once you’ve built up that rapport at the ground level, you generally see partnerships thrive much more from there on in. If I was a founder, I’d want to know that there was a rapport, too, between the partners, because that way I’m not going to get stonewalled, with people passing blame; everyone’s going to contribute, to try and deliver, to solve the problem I have when I’m launching my startup.”

Despite at least 10 years of digital transformation across the industry, Cronin still sees a lot of mismatched technology; developers tortured by complicated coding and working to different standards, which ultimately denies the customer what they really want. His ‘long-term future perfect’ would be for banks to smoothly co-operate with each other.

“The short and medium-term mechanism for that to have happened is banking-as-aservice aggregation,” he says. “Barclays, for instance, has a fantastic correspondent network. So, how is it that Currencycloud,

a sub-strata under SWIFT with its own messaging system.

“Currently, that messaging system is getting more and more disparate because, as more BaaS players, more fintechs emerge, they’re building the very best API they can, but they’re generally only considering one use case, their own customers.

“So, if you get 10 hyper-successful BaaS players, and a fintech that wants to use all of them, there needs to be some sort of protocol for that. That’s a non-subtle plan of what Integrated Finance is trying to build; we’re trying to build a protocol to make it easier to talk to all of these BaaS players.”

Stockley fully endorses that grand plan.

“Certainly, interoperability across different platforms is a key consideration for me, going forward, and one of the challenges in the coming years,” he says. “It’s the raison d'être of Integrated Finance, and one of the reasons we love working with them.”

Interoperability across different platforms is a key consideration and I think one of the challenges in the coming years

Richard Stockley, Currencycloud

There is an industry-agnostic graveyard of failed partnerships, where maybe the executive team got together and went ‘this sounds like a good idea’ Daniel Cronin, Integrated Finance

The greatest prize yet?

The world of payments has met unprecedented challenges in recent years, but the rise of digital means there is still more to be done, and more to be won, say Louis Joubert from PPS and Ruuky’s Deepankar Jha

The world is facing howling economic headwinds brought about by a toxic cocktail of Russia’s invasion of Ukraine, the continuing global COVID-19 pandemic, and sky-high fuel prices causing a cost of living crisis in many territories.

Fintech is already playing a significant role in helping us weather these storms. For example, it is a crucial weapon in the ‘soft war’ deployment of economic sanctions against Russia led by the US, UK and the EU. And the rise in use of digital payments has been key during the pandemic as many countries imposed draconian lockdowns on their citizens.

The growth of digital payment credit offerings like buy now, pay later (BNPL) is enabling people to access goods and services more affordably as inflation causes prices to soar. And the increasing enablement of cross-border digital payments using platforms developed by fintech innovators is encouraging global economic mobility and democratisation.

POTENTIAL EVERYWHERE

The global need for greater ease when it comes to paying for goods and services has never been more acute and brings with it unprecedented opportunities. That’s a view shared by Louis Joubert,

chief technology officer at payments innovator PPS, and Deepankar Jha, co-founder and chief technology officer at German fintech innovator Ruuky, formerly known as pockid, which uses the PPS infrastructure and e-money licence.

PPS is a market leader among payments providers in the UK and Europe, offering a range of services including payments issuing and processing, Faster Payments, SEPA banking solutions, Direct Debit, BIN sponsorship, e-wallet provision, compliance and fraud services, supply

There’s still so much value to be had for those firms out there that can spot inefficiencies and pain points for the end customer

Louis Joubert, PPS

chain management, customer services and end-to-end programme design and management.

A new addition to its extensive operations is the provision of real-time payments for the UK Post Office’s banking business, which enables individuals and

small businesses to deposit cash instantly to their accounts at the Post Office’s 11,500 branches.

Ruuky, meanwhile, is a pioneering fintech formed in 2020 with a vision to empower the younger generation to be financially independent. It has developed a secure digital bank account with a debit Mastercard for 14 to 25-year-olds, which now also includes Apple Pay and Google Pay as part of its ambition to provide a holistic financial solution to enable young people to ‘pay, save and fulfil dreams’.

Even in the face of global economic challenges, Joubert is optimistic that opportunities abound. In fact, he believes the task will never be complete until every remaining consumer pain point has been eradicated.

“Conventional wisdom is, of course, that there’s going to be a period of consolidation now, so we’ll probably see some painful challenges in the market,” he says. “Having said that, considering the central role of payments and the opportunities around further digitisation of value streams, of user experiences, of supply chains, there’s still so much to do, there’s still so much value to be had for those firms out there that can spot inefficiencies, can spot the pain points for the end customer.

“There’s so much inefficiency that can still benefit from digitisation with a strong fintech and/or payments substrata to it.“

As a co-founder of a market pioneer, Jha naturally also sees opportunities for like-minded innovators willing to put their ideas into practice.

“For brave founders, or brave innovators, it’s very easy to establish a company, right now,” he insists. “And that’s the mindset I think people have and the reason we will see a lot more fintechs trying to solve different niche problems in future.”

So how do fintechs both grab such chances and, vitally, scale their solutions? Joubert sees digital payments as ‘the fuel for fintech growth’.

“In some cases that’s the explicit aim of the organisation, PPS being a case in point, and in some cases it’s more invisible. If you think about how invisible the payment layer is with Uber or Deliveroo, for example, it’s that idea of embedded finance as part of a wider user experience.

“The user doesn’t necessarily set out to pay for something; they set out to get some takeaway delivered and it’s enabled by a lot of things. It’s enabled by a user experience, by a smartphone experience, by a delivery experience, but it’s also enabled by an embedded payment within that. And that’s a major macro trend that the whole fintech industry is benefitting from.

“Regulators love it, too, because it makes things far more transparent than the old world of cash. For end users, I think the benefits are better budgeting and more transparency over their finances. It’s impossible to budget with cash.

“This is growing so fast, in places like India, in places like Africa, South Africa, where I’m from, not to mention China. And you could even tie the whole crypto revolution to the need for this idea of digital money, and trackable money, and, in the case of crypto and decentralised finance, programmable money and programmable payments.”

RISING TO THE CHALLENGE

So, given the prize to be grasped, when does PPS’ Joubert think it’s the right time for a newly founded fintech like Ruuky to scale internationally? And what are the essential tools to allow it to do so?

As part of an organisation that already operates in several countries, he stresses the need for detailed research to address some critical questions first.

“For me, the thing you really need to crack is whether you have a product that, at a technical and market adoption level, is showing scalability,” he says. “As in, is it dealing with the capacity that it needs to? Is it performant to what its users expect? Will it survive, in a distributed sense, with the latencies? What do the users expect in other locations? Is it localisable? Is it personalisable? And have you considered the data residency requirements?

“If everything in your product has been built with a home market in mind, then you’ve certainly got foundational work to do before taking that further and conquering new territory.”

Joubert and Jha agree that it’s high time fintechs invested in in-house training programmes to develop their existing staff.

“Talent is a red-hot burning topic for everybody,” stresses Joubert. “My reflection on it is that there’s real scope to look at one’s own backyard first, look at the culture internally and look at how much you’re investing in your own people and what kind of a culture you’re fostering, and for that to be the attractor because that has a gravity all of its own.”

Jha wholeheartedly agrees, adding: “I know everybody wants everything fast, but that is an investment which is going to pay off in the long run. Maybe also look for some work experience students or university graduates; teach them, train them, and they’re going to stick with you, if you do it properly.”

INTEGRATE OR OWN?

Seize the moment: The world will always need fintech innovators

Agreeing with Joubert, Jha adds: “On top of the technical requirements, there are many other non-technical requirements that you need to support for different countries.

“The biggest factor is customer service, because, when you enter a market, people will have questions and you need to answer those questions in the language they understand. So, in the case of Ruuky, starting in Germany, and having plans to expand across several countries in Europe where they speak different languages, we need to make sure we have staff trained in those languages to support that.”

But attracting those skilled staff is a major hurdle across the fintech industry, which already suffers a considerable employee churn as companies try to outbid each other to bring in the best talent.

Any fintech with plans to scale internationally needs to have a robust infrastructure in place, which often means working with ‘as-a-service’ partners to manage issues such as regulatory compliance. From the perspective of a CTO of a B2B provider, Joubert pushes the case that fintechs should look to control and invest in their core systems and products while carefully selecting partners for the added services they require to enter different territories.

“There’s an opportunity as well to create products and services that other entrants to that market could use to help them innovate at their layer of customer offering,” he adds.

As the CTO of a B2C, Jha is also an advocate of keeping control of the core system, “You can build your system in a way that your partners are an integrated part of it, or have a core system that is owned and maintained by you – that’s your USP – and then you have bits and pieces that you need support from others for different countries and regulations.

“The good thing about that is that you are extracting all of it out, so in the case of going to a different country, you can just plug in with some other partner; you can try a lot of different things, without affecting your core system. This abstraction is a key factor when it comes to the architecture of your firm.”

For brave founders, or brave innovators, right now is very easy to establish a company Deepankar Jha, Ruuky

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Pushing the boundaries:

But a globally harmonised approach to regulation would see a lot more neobank growth

N26 has entered – and left – international markets, but remains committed to its vision to build a global bank. We asked its Chief Growth Officer Alex Weber what it’s learned from its experience

“We are in pole position to become one of the biggest retail banks in Europe, all without a single branch,” was how Valentin Stalf, co-founder and co-CEO of German neobank N26, celebrated becoming the highest-valued fintech in the region after a record-breaking funding round in October 2021.

At more than $900million, the Series E raise was the largest financing round to date for a digital bank in Europe and took the company’s valuation to more than $9billion after eight years in operation, and with businesses in 22 European countries, the US and Brazil.

At the time, N26 said it would use its fresh funding to significantly expand its offering and scale its global team further. But just a month later, the ‘mobile bank the world loves to use’ announced it was withdrawing from

the US market where it had half a million customer accounts operated under partner Axos Bank’s licence.

Writing in a company blog around the time the news broke, the bank’s chief growth officer Alex Weber described it as an ‘extremely difficult’ and ‘disappointing’ decision. But focussing on the hard-to-crack US market was clearly an expensive distraction for N26 when there was a lot going on at home – not least German regulator BaFin’s decision to put its foot on the brake by limiting the challenger’s growth to 50,000 customers a month across all markets until it strengthened risk management.

“We know we would need to invest significantly more resources, and capacity of our central teams, in order to achieve our ambitious goals [for the US],” Weber wrote, adding that instead the bank would double down on providing new

services for existing customers in its core European markets and limit its expansion – in the short and medium term at least –to additional territories in Eastern Europe.

Meanwhile, the bank continues to develop its ‘fincare’ (financial management) product in Brazil, where N26 operates under its own Central Bank for the Direct Credit Society (SCD) licence, a type specifically designed for fintechs.

Winding down in the US wasn’t the first time that N26 had retrenched: it exited the UK after 18 months of operation in 2020, having reconsidered its position following Brexit. But, despite the setbacks, it’s most recent annual report showed net revenue rising 67 per cent in the year ending December 31, 2021, to €120.3million, and customer metrics all pointing in the right direction: there was a 60 per increase in premium subscriptions (for N26 Smart, N26 You

and N26 Metal), leading to deeper engagement with the bank and higher spending over its platform.

And in the months since its withdrawal from the States, it’s made good on Weber’s promise to continue meeting customer demand for new services. This summer it enabled customers to use their N26 cards to pay direct from their Spaces – sub-accounts that act as virtual piggy banks. More recently, in September, it responded to requests from Spanish account holders for access to the popular local payment solution Bizum, which allows users to connect mobile phone numbers to bank accounts; and in October, it struck a deal with Bitpanda in Austria to allow customers to trade cryptocurrency through the app for the first time. Using Bitpanda’s white-label, investing-as-a-service solution, N26 Crypto will be rolled out in key markets in stages over the next few months, allowing account holders to trade in up to 194 alternative coins. At the same time, the bank significantly upped investment in anti-money laundering and measures to counter other financial crime across all markets.

What the experience of the last turbulent couple of years and N26’s ability to weather them has taught Weber is that there are some universal truths a startup needs to keep in mind when reaching beyond its cradle.

“There are a few things that you really need to make sure you have under control in your ‘home’ market, whether you’re talking geographically or customer segmentation – by which I mean if a B2C company wants to go B2B, for example, which is particularly relevant in the fintech space,” he says.

“Overarchingly, you need to really have strong product-market fit at home. There are a few metrics that characterise that in series A/series B stage ventures, after which scale, and internationalisation, and expanding to broader segments is the focus. It’s about the general level of customer engagement with your product.

“How well do you retain customers and how frequently do they use your product, once you have acquired them? That’s a hugely important indicator of productmarket fit and I’d recommend not to scale a business that doesn’t have it yet, because, if you don’t have the retention

and the engagement, it’s like a leaky bucket. Spending dollars on growing your top line then is not advisable.

“On top of that, a certain level of organic growth is also very important. So, usually, if you have happy and engaged customers, they’ll advocate for you and generate a level of interest and demand.

“You need to be clear on your strategy, too. Is your strategy to be in many markets but not very deep, or do you want to be in five markets, say, but very deep? Those will create different infrastructure and governance choices, which are important considerations. When I say governance, I mean also decision-making and how local do you go with that? How strong are your central functions? Ideally, you should have a point of view on that before you start internationalising, because that also determines culture, to some extent.

“If you have very strong, decentralised units where a lot of the decisions are made, it’s going to be a different company, a different culture, to one with a very centralised operation with strong functional responsibility. Governance and culture go hand-in-hand, and infrastructure also follows strategy.

If you don’t have the retention and the engagement in your home market, it’s like a leaky bucket. Spending dollars on growing your top line then is not advisable

“Those are the important puzzle pieces, that you need to put on the table and really think through.” Berlin-headquartered, N26 grew quickly to other markets in the Single Euro Payments Area (SEPA), after securing its banking licence in Germany in 2016. Its product/market fit in those countries was pretty much cookie cutter, given the unmet demand across the region to disrupt legacy banking with fast, flexible, transparent financial services without high fees.

The digital child of an already largely harmonised Europe, Weber says the single market’s regulatory framework definitely helped to accelerate the mobile bank’s growth, but it would be naïve to

think barriers don’t exist to expansion across the EU.

“Europe is the only area in the world where, with one licence, you can serve more than one market – you can’t do it in the US and Canada, or in Australia and New Zealand. But still there are other local regulations; and similar regulatory guidelines are implemented differently. So, in order to become compliant, you need to understand which areas of your business are different by market.

“And that brings you to the infrastructure question: how can you tailor your organisation to those different needs by market, and, based on those differences, be flexible enough to deliver two different experiences [of the same service] in order to meet compliance requirements? From an infrastructure perspective, I’d advise having a modular approach in place so that you’re able to cater to those differences.”

Voted the world’s best bank by Forbes last year, N26 has the clear confidence of its backers and is still determined to deliver on its vision to become The Mobile Bank for the world. Co-founder Maximilian Tayenthal, who’s previously described the business as a ‘liquidity-generating machine’, has said that an IPO at some point is inevitable, given the ‘many years and massive amounts of capital’ needed to realise that ‘huge vision of building a global financial institution’.

With just 2.5 per cent of the world’s banking customers using neobanks in 2022, according to Statista, and 4.8 per cent of them projected to by 2027, the opportunity for not just N26 but others in the same space to expand internationally is obvious to Alex Weber. He just wishes regulators could agree on some fundamentals to make progress easier.

“Around the world, we still have a huge way to go, in order to reach any level of harmonisation,” he says. “That’s a good vision to have. I would love to see more harmonisation, like we have in Europe, to allow truly global players in the industry. A lot of collaboration would be necessary; to enable new business models, as well.

“Even though there’s been massive growth, accelerated by the pandemic, neobanking is still in the single digit. There is, still a lot of movement and adoption to happen in the years to come.”

The developments in person-to-person (P2P) digital payments over the last decade or so have been fascinating.

I had first-hand experience of this when I served as a director of the ill-fated UK Payments Council. The chairman was determined to leave a legacy – and that legacy was the mobile payments system Paym. Launched in 2014, Paym was a mobile payment system, with payment recipients identified by their mobile phone number instead of their bank account details. All the payment recipient had to do was to register with Paym to link their mobile phone number with their bank account. Senders could then simply use the phone number to make a payment, with the senders’ bank retrieving the recipient’s bank account details associated with that phone number.

But sadly, not all the major UK banks fully got behind the Paym launch. Does anyone remember Pingit (originally Barclays Pingit)? Launched by the bank, it provided the same P2P payment potential as Paym

and was compatible with that service – but the continued presence of the separate Pingit brand after the launch of Paym only served to cause confusion.

Pingit closed in 2021. And, in September of this year came news that Paym itself would cease to operate within six months. Making the announcement on behalf of the 15 other UK banks and building societies that had co-operated to support the service, industry body Pay.UK said the decision reflected the rapid evolution in payments technology and services, which had seen Paym’s users shift ‘towards newer forms of mobile payment and access to Faster Payments through online banking’.

Evolution can be cruel.

EUROPEAN ADOPTION SOARS

In other European markets, most notably in Northern Europe, commercial banks have done rather better in fully cooperating to launch P2P payment systems.

Swish in Sweden, Vipps in Norway and MobilePay in Denmark, all launched since 2012, have impressive adoption rates

of 75 per cent, 78 per cent and 81 per cent respectively. As a comparison, Paym never attracted much more than 10 per cent of UK current account holders.

Danish figures are particularly impressive, with the National Bank reporting that in 2021 there were 4.3 million registered MobilePay users, out of an adult population of only 4.7 million. As well as dominating P2P payments, mobile payments now account for 22 per cent of transactions in physical trade, which includes retail and catering outlets, along with self-service purchases such as through ticket machines.

Equally important, there are relatively few reports of serious fraud impacting MobilePay users. Security seems to have been given a high priority by the developers, which is as it should be.

Interestingly, despite the unquestionable success of MobilePay, cash continued to be used for 12 per cent of Danish physical trade payments in 2021, which is broadly in line with the Norwegian and Swedish experience. So, thankfully, none of these countries looks likely to become a ‘cashless

Ron Delnevo explores the varied worldwide adoption of instant payment apps, and asks if one of the most successful so far – Brazil’s Pix – is everything it’s cracked up to be

Flagship app: Adoption of Pix has been rapid, but that’s come at a cost

society’ any time soon and the public’s right to payment choice seems secure.

My research in the relatively ‘cash-lite’ Northern European markets got me thinking about what might be happening with P2P payments in areas where cash remains a more popular means of payment.

So, I decided to turn my attention to warmer climes, alighting on Brazil, where cash still accounts for more than 40 per cent of all payments. It turns out that Brazil is a VERY interesting market.

TOO GOOD TO BE TRUE?

No doubt having seen the success of mobile payments in Northern Europe, in the last two years Brazil has adopted an agenda of fast-tracking the digitisation of payments and, in particular, launched Pix, an instant payment system, in November 2020.

The promise of Pix was speed, security and financial inclusion. It works exactly as the UK’s Paym did for the public, with mobile phone numbers instead of bank account details identifying users. Interactions between personal users and businesses are created using QR Codes, typically on display in retail premises.

Nothing different from what we have seen elsewhere, you might think. Except for the crucial fact that it was Brazil’s central bank, rather than the commercial banks, that took the lead role in launching Pix and forced ALL financial institutions to participate in it.

This adoption was imposed at breakneck speed, seemingly leaving little time for the development of protocols and security mechanisms.

So, what has been the outcome of this rushed introduction of the Pix innovation?

In 2021, just one year after the launch of Pix, Brazil saw a significant increase in frauds impacting customers. These frauds included WhatsApp cloning and pyramid schemes, along with social media scams. It seems that security shortcomings in the Pix technology have opened the door to a variety of frauds, clearly seriously negatively impacting end users.

Extortion through kidnapping has also resurfaced in Brazil since the introduction of Pix, with criminals now imprisoning members of the public who are carrying their smartphones, and only releasing their victims after forcing them to make large transfers of money via Pix. In the city of São Paulo, the largest Brazilian metropolis, the

number of such kidnappings increased by almost 40 per cent in the first half of 2021.

Another growing form of crime is the theft of smartphones, no doubt encouraged by the ease of stealing significant amounts of money through financial applications – such as Pix – installed on the devices. There are now gangs specialising in unlocking the phones and carrying out the fraudulent transactions.

With the increase in the number of these occurrences, the Brazilian central bank has belatedly recognised the insecurity of Pix and announced changes. However, many believe that the changes are inadequate to reverse the security chaos.

Moreover, the central bank has transferred the responsibility for Pix security to the financial institutions, seemingly to avoid the need for the bank to bear any blame attached to a product it launched.

It’s easy to understand why the central bank smelled the coffee and wanted to take itself out of the firing line in relation to Pix security. Its own figures show evidence

very problematic. On the issue of financial inclusion, for example, there remain serious obstacles to achieving universal access to Pix. According to a survey by ITCN (the Institute for Strategic Studies of Technology and Cash Cycle), Brazilians relying on the minimum wage would need to commit about 20 per cent of their income to pay for the technology required to use Pix.

The ITCN study reveals that there are two main barriers to adoption. Firstly, the need to buy an expensive smartphone, capable of accessing financial institutions’ applications and, secondly, to purchase data packages to use those applications. The study concludes that the total costs involved are far beyond the means of a significant percentage of the Brazilian population.

This probably also explains why, today, use of Pix is much greater among young people between 18 and 24 years old, the better educated and those from higher income families. Data from the Central Bank of Brazil reveals that though there are nominally 131 million Pix users, only three million – less than two per cent of the Brazilian population – actually make more than 30 Pix transactions per month.

There are also concerns that state ownership of Pix does not encourage competition in the financial services marketplace. Superficially, state ownership may, at this stage, seem beneficial, because Pix does not currently charge fees. However, it is obvious that someone will have to pay the bill for the more secure architecture that will need to be developed to protect the Pix system from criminal activity. What’s the betting that it will be the hard-pressed Brazilian public who ultimately pick up this tab?

of nearly 740,000 crimes involving Pix from January to June this year, compared to just 25,000 in the same period in 2021. That’s 170 crimes per hour in 2022. Or, put another way, there has been an almost 30-fold increase in criminal activity involving Pix in just one year.

Another vulnerability of Pix is data leakage. Between September 2021 and February 2022, the Central Bank of Brazil recorded three Pix user data leaks. More than half-a-million keys, consisting of data such as name, tax registration information, mobile phone number and banking details, have been potentially exposed to criminals.

It is not only in relation to security and consequent crime levels that Pix is proving

But, fortunately, the Brazilian public still enjoy payment choice. And that choice has seen cash continue to lead the way as the means of payment that gives people maximum control over their household budgets, aided by the fact that cash users are still able to claim discounts from merchants.

In Northern Europe, there’s little evidence so far of a similar downside to the many P2P systems available. But, given everything we know today, the question that arises in Brazil is this: Pix has brought progress for whom, exactly?

■ Ron Delnevo is a business consultant with over 30 years experience, specialising in financial services and, in particular, innovation projects.

Extortion through kidnapping has also resurfaced in Brazil since the introduction of Pix, with criminals now imprisoning members of the public who are carrying their smartphones, and only releasing their victims after forcing them to make large transfers of money via Pix

Ohio’s Economic Development Corporation

The title of a recent ACI Worldwide report makes no secret of the fact that it believes real-time payments are about to ‘have their day’ – it predicts a usage explosion in the coming years.

The payment giant’s Prime Time For Real-Time 2022 report, measured 118.3 billion real-time transactions worldwide last year (representing 64.5 per cent year-on-year growth) and forecasts the annual total will hit 427.7 billion in 2026, or 25.6 per cent of all electronic payments.

And for this third edition of the annual offering, real-time payment solutions provider ACI used analysis from the Centre for Economics and Business Research (CEBR) to quantify real-time payments’ economic impact – which it estimated was worth an additional $78.4billion in 2021 to the 30 countries studied.

Of course, COVID-19 was the catalyst that squeezed a decade of payments evolution into 24 months as locked-down people were dislocated from traditional payment systems – and each other – and had to adapt. But the ways in which countries experienced that evolution have differed hugely

across the globe, and predicted growth rates vary wildly, too.

Somya Patnaik, ACI Worldwide principal product manager/global solutions lead, real time payments, says: “At a macro level, digital payments, and especially real-time payments, are growing like never before – it’s bringing in so much opportunity for all the participants in the ecosystem.

“One of the key findings of this year’s report is that there’s a direct correlation between real-time payments and economic growth, so economies that are more cash intensive tend to grow at a slower pace, versus economies that are moving towards contactless payments.

“So, there is immense opportunity for markets that are yet to set up a real-time payment infrastructure. I think all participants should join the bandwagon and contribute to the payment modernisation story, and bring in new capabilities for consumers.”

INDIA LEADS THE WAY

Patnaik’s home country of India continues to lead the world in real-time payments and ACI Worldwide increased its rolling five-year growth prediction for that

country from 27.5 per cent in last year’s report to 33.5 per cent this time.

Put simply, success is built on success in India – the country’s United Payments Interface (UPI) launched in 2016 and quickly became a mainstream option for peer-to-peer payments, shopping and, since last year, a way to safely receive state benefits. It now sits at the centre of a financial ecosystem that spans far wider than just banking and finance apps.

Last year, India led the world with 48.6 billion real-time transactions, which accounted for almost one-third of all transactions made. The ACI report estimates going real-time saved Indian businesses and consumers $12.6billion – which helped to unlock $16.4billion of economic output that represented 0.56 per cent of the country’s GDP. Widespread ownership of smartphones has allowed many Indians to switch from cash to real-time payments under the UPI system.

The ACI report talks of a ‘flywheel effect’ which has resulted in new features that include cross-border QR code payments, cardless cash withdrawal, contactless digital payments and the e-RUPI e-voucher system for government and businesses.

Levelling up

Somya Patnaik of ACI Worldwide says its latest report suggests the explosion in instant payments is fuelling financial stability for developing nations

Meanwhile, in stark contrast, India’s neighbour Pakistan is only just beginning its real-time payments journey. Cash still dominates, but in January the country began to roll out the first phases of its Raast real-time payments system, with first-use cases including government payments of salaries, pensions and benefits.

The system is inspired by India’s UPI service but, unlike India, Pakistan has a low penetration of smartphones and patchy internet connectivity beyond its cities.

However, although almost no merchants as yet accept real-time payment from customers, ACI believes that the fact so many people are due to receive government payments through Raast means its usage will develop, adding a ‘theoretical’ 6.1 per cent to formal GDP by 2026.

Moving beyond South Asia, Brazil tops the table for predicted real-time payment growth in the latest ACI report. Eclipsing India’s 33.5 per cent forecast and second-placed Oman on 41 per cent, Brazil is expected to see 56.8 per cent growth from 2021 to 2026, due to the huge success of the country’s Pix real-time payments system that went live in November 2020.

Brazil got its first real-time system –SITRAF – in 2002 but that platform was only available during bank opening hours. The colossal adoption of 24/7 system Pix, which can be used by customers of 761 financial institutions, shows what’s possible when real-time meets people’s needs. It’s not without its issues (see page 16), but last year it contributed to a 5.3 per cent real-time payment market share of Brazil’s total transaction volume – or 8.7 billion payments. By 2026, ACI predicts that will have surged to 34.3 per cent and real time will eclipse all other forms of electronic payment.

Economically, the CEBR estimated that real time saved $5.7billion for Brazilian businesses and customers in 2021, unlocking $5.5billion of additional economic output representing 0.34 per cent of GDP. But it believes savings will rise to $37.9billion by 2026, generating an additional $37.6billion of economic output, equivalent to 2.08 per cent of forecasted GDP.

ACI said: “Since its launch in 2020, Pix has taken off far faster than anyone expected, by October 2021, it was processing one billion transactions per month.”

To put Brazil’s growth into perspective, the UK got real-time payments in the form

of its Faster Payments scheme in 2008 but take-up has been far slower.

ACI reported 3.4 billion real-time transactions in the UK last year (9.2 per cent of payments), and predicts that volume will rise by 11.1 per cent to 5.8 billion (12.3 per cent of payments) by 2026. ACI points the finger at the ‘stubborn prevalence of legacy payment systems’ such as credit and debit cards. But it predicts the arrival of Swift’s ISO 20022 protocol will unleash sweeping changes on the country’s payment infrastructures.

CONSUMERS SETTING THE PACE

And it is the potential presented by data systems like ISO 20022 to harness that, that will provide a payoff for merchants forced to adopt digital payments, says Patnaik. She adds: “The market has moved away from how a merchant wants to accept payments to how a customer wants to pay for their purchases, and the whole buying decision is reliant on whether the consumer’s preferred mode is available or not. If not, they abandon that purchase.

behaviour. That data can be leveraged to offer differentiated services.”

The change being witnessed is undeniably huge, and all ecosystem players, from central banks and governments to banks, merchants and consumers, will have to contend with the resulting demands for compliance, infrastructure growth and fraud risk.

Indeed, the ACI report highlights the pressure placed on Brazil’s IT infrastructure by the explosion in real-time payments. And the country’s real-time crime problems, where victims have been held at gunpoint and forced to move cash to a mule account, have been at the extreme end of a problem that has grown wherever electronic peer-to-peer transactions are available.

But Patnaik is optimistic and sees only growth for real-time payments. She also sees the systems being a solution to the inefficiency experienced in the world of cross-border money flows.

She says: “Regulatory mandates can be exhausting for banks and financial institutions and there’s a constant ‘catch-up’ for players within the ecosystem. Fraud is another challenge – due to increases in digital payment volumes we’ve seen a rise in fraud, especially during the pandemic. Fraudsters are aggressively targeting consumers and businesses with new scams and there has been a rise in fraud attempts on banks and financial institutions.

services to consumers,

to offer end-to-end services and identify better ways to engage for better customer stickiness and loyalty. One change that came up during the pandemic was people moving away from fragmented payment experiences and looking for a consistent experience across all channels. So, if I make an e-commerce payment, or make an in-store purchase, my payment experience should be consistent.

“But the motivation for businesses is data – there is so much payment data available today that they can gain deeper insights into customer background and buying

“As for cross-border payments, they are undoubtedly more complicated than domestic payments. Different countries follow different data standards, but I think with the global adoption of ISO 20022 we could see this challenge reduce. There is a definite demand for cross-border, real-time payments and we’ve seen a lot of activity. Examples include the Asian Payment Network, which is trying to connect the various domestic real-time payment schemes within the Asia-Pacific area.

“We have seen The Clearing House [banking association] in the US embark on a pilot scheme for cross-border interoperability with Europe, and India is doing the same with four countries, the UK being the latest addition. Beyond cross-border, in five years consumers will have many more cool ways to pay, we’ll have social media players, Big Tech and fintechs participating in the ecosystem that will innovate and drive adoption of real-time. We have interesting times ahead.”

“So, merchants have to be at the top of their game. They have this opportunity to offer differentiated

they need

There’s a direct correlation between real-time payments and economic growth, so economies that are more cash intensive tend to grow at a slower pace, versus economies that are moving towards contactless payments

OPEN DOOR POLICY

With consumers increasingly wanting to be unaware their payments are even happening – wherever they choose to make their purchases – using collaborative, intelligent orchestration to enable this is vital, says Aevi’s Eddie Johnson

THE PAYTECH MAGAZINE: Tell us about your role and the work Aevi is doing in payment orchestration.

EDDIE JOHNSON: I’m VP of product, responsible for everything we bring to market and looking to the future. Historically, Aevi specialised in in-person payments and has evolved into an orchestration platform, bringing different types of payments together for our customers, who are companies that service merchants. So, we think about merchants’ needs on behalf of our customers.

TPM: Consumers can now exercise a huge amount of choice in their payments preferences – how has this impacted in-store payments in particular?

EJ: Customers don’t want to have to think about the point of payment, and the merchant doesn’t want them to, either; they

want the customer to have an experience. There’s a huge buzz around e-commerce and online payments, but we’re still focussed on in-person because something like 85 per cent of payments are still in person. And so, at the moment, you’ve got an entire industry vying for that last 10, 15, 20 percent of the payments space.

There is nothing quite like that rush you get, as a consumer, when you go to a store, physically pick something up, and then it’s yours. The merchants want to drive that experience even more and, to do that, they need seamless payments – things like hyper-personalisation and being able to drive customer loyalty.

There’s more space and time than there is in e-commerce to drive more things –it’s about walking that line between making the payment process disappear completely, and the consumer and

merchant still getting as much benefit as possible out of that experience.

TPM: What role do point-of-sale (POS) terminals play in facilitating this new kind of in-person experience?

EJ: We’ve already started to see a smart revolution in POS terminals. I went to Camp Bestival the other weekend with the kids, and every ice cream truck and churros seller was using a smart terminal.

Every terminal has a big screen, more points of interaction, better ways of usage, but a lot of people are still treating them like a traditional payment terminal. So, how do we get the real value out of them?

First, we need to utilise existing infrastructure. Android terminals give us huge ability to do that – they allow proper flexibility between who does what on the terminal, which vendor, or which piece of

software needs to live where, and how they all interact. Which brings me to the second thing that’s needed – orchestration.

And that’s where we come in, providing a choice of separate capabilities, from loyalty providers to inventory management solutions, POS sale systems and payments microservices, like tipping. All of those can now live on that one device. That’s all really good for a merchant, but they’re not technologists and they don’t want to have to think about that or set up the devices. The people selling them those services, though, have the ability to bundle together, to give flexibility and shift terminals from being something merchants need to have, to something that actually benefits them.

So, we work, for example, with independent software vendors (ISVs), which maybe specialise in supplying software for running restaurants or bike shops. Historically, they’ve looked at the POS terminals as a necessary evil: they have to integrate with payment terminals because their customers need to accept payments. But when we start talking to them about smart terminals, about the orchestration we can do, about how much more presence they can have on the terminal, then, all of a sudden, we’re not talking to the one person in that company that deals with payments; we’re talking to their product teams, because they see these devices as an extension of their solutions. As they become more integrated, the end merchant gets a much better experience using those payment terminals.

We’re also enabling our customers to set themselves up for an ever-changing payments future where, instead of keeping kit for five-to-10 years and sweating the asset, they understand that, in two years’ time things might look completely different and so they need a system that allows them to evolve quickly.

TPM: How might such innovation materialise for the consumer walking into a shop and heading to such a next-generation POS to pay for goods?

EJ: Again, table stakes are about ensuring they can pay via whatever means they want, whether PayPal or tapping their phone or watch, and then bringing alternative payment methods – buy now, pay later solutions and online payments, which are still very much e-commerce focussed – in-store as well.

Then it’s about that very fine line between offering a good service, which makes a consumer feel involved with a retailer, and protecting their privacy. Those two things, especially in the in-person world, are forever competing, because to get that personalised experience, shoppers have to hand over some of their information and consumers are increasingly concerned about who they give their information to. So, we’re working on things like using their payment choice as an identifier. Not necessarily their personal details, but at least being able to recognise that they’re a regular, loyal shopper and maybe, using the right integration, understanding what they buy and when they buy it. By starting to build up that picture, merchants can say things to their customers like ‘we notice you come in here a lot. Would you like X or Y offer, in exchange for giving us a little bit more personal information?’. It’s a kind of trade-off towards hyper-personalisation. But to do any of that, merchants need access to the data. Historically, in-person payments have been a locked box. Merchants don’t even see their transactions until, best case, the end of the day, worst case, the end of the week. Even then, they get no detail about them. Our platform gives access to that data, to the people that can make the most of it, as it happens.

everything, from the POS device through to their own acquiring, but everyone else will need to play with multiple partners, which is where orchestration becomes really key, because one of the challenges of working with many different partners is how all that data flows and how to make sure someone using route A has the same as experience as someone using route B.

That’s why we say that you don’t need to find one acquirer that accepts every payment type, or one POS terminal that does everything; you need the right components for you, which allow you to build an ecosystem and a platform that ties those things together. That way, when businesses need to add alternative payments, they don’t need to wait for the acquirer to support this. We can go directly to the alternative payment method and integrate and switch those transactions through to the APM (application performance monitoring) system, instead of the traditional acquirer, so the merchant can switch seamlessly from route A to B to C. We’re all about openness and flexibility, not putting people in walled gardens.

We can take a really good guess, but we don’t know exactly where payments are going in the next five years. Everything may go softPOS, using consumers’ own devices, and retailers that already have stock-taking devices payment-enabling them, so that basically every screen is a payment device. Or it may go the way Amazon wants it to, with no touchpoint at all; consumers walk into the store, we identify them through a barrier and then they don’t need to pay in person, but trigger a payment request via geofencing as they leave the store.

Merchants need to know they can support payments, whichever way they go. And by using orchestration, they absolutely can.

We’re all about openness in in-person payments. A lot of industry experts will tell you those are diametrically opposed concepts. But that needn’t be the case. We can absolutely give people the same sorts of experiences they have in online commerce, in the in-person space, to get the best result for merchant and consumer.

TPM: This sounds hugely exciting, but how can merchants keep up?

EJ: There are very few companies in the world that will be able to provide a full one-stop shop anymore. There are a couple of big, end-to-end players that do

We’re agnostic in terms of the companies to use; we just want to enable businesses to deliver a seamless, cross-channel payments experience, by using the best in-person and online solutions, and having those platforms connected and data-sharing properly. We make sure we give solid integrations, sharing data about which transactions have happened in-store and online, to give a single customer view, through open standards.

It just requires competitive collaboration to make sure the independent sales organisation (ISO), ISV, acquirer, merchant – whoever that end-customer is – gets the best possible service for their needs.

We’re all about openness in in-person payments. A lot of industry experts will tell you those are diametrically opposed concepts. But that needn’t be the case

PAYTECH VOICES: OPEN BANKING

Having, hopefully, cleared the darkest days of COVID, now, indiscriminately, the UK faces yet another plague. This one is on the financial side. Runaway costs for goods and services, exponential increases in payments fraud and an economic downturn have combined to put immense pressure on consumers, particularly within vulnerable populations.

For this latest crisis among several recently, payments technology is poised to add value and become a controlling financial factor in a chaotic environment. And the beating heart of that technology is open banking, which provides businesses with access to data, insights and new payment capabilities.

But before we unpack open banking in this context, let’s look at some numbers. First, the cost of living, according to the UK Consumer Prices Index, rose by 9.6 per cent in the 12 months to October 2022. From where did that increase stem? Right in the bread basket. According to the Office for National Statistics, that 9.6 per cent came from the housing and household services category (electricity and gas), food and non-alcoholic beverages, and transport (fuel).

According to the BBC, the rise has already affected lower-income populations who have turned the heating off to save

on skyrocketing energy bills. More than half (52 per cent) of UK adults say their households have found it difficult to pay essential costs over the last six months.

HOW CAN OPEN BANKING HELP?

It’s tempting to take the cynical approach here and say that the only way to fix a cash shortage is more cash. The more jaded among us will also say that data and providing more payment options for consumers is an empty strategy. But it’s not.

Open banking gives banks and businesses an effective way to use technology to help consumers control their finances, by increasing the transparency of those finances and providing more ways to pay. Even the highest income levels would be interested in, and benefit from, open banking’s advantages. But those benefits are not limited to a specific demographic. For example, while preliminary research from Bottomline shows that failure rates for direct debits (DDs) in the insurance industry have surged, up 20 per cent from 2021, both in terms of volume and value, consumers at all income levels are feeling the crunch and cancelling luxury DDs compared to those covering essentials such as utility payments.

But, in the current situation, open banking can be especially relevant for

lower-income or gig-economy populations where managing their money can be challenging.

So, control comes first in this equation, followed by the payment technology enabled by open banking in the form of payment flexibility and, in time, variable recurring payments (VRPs). More about those further on in this piece.

Open banking is best viewed in three stages: current use cases, short-term promise and long-term vision.

Let’s use a hypothetical situation to illustrate a current use case. Suppose a financial institution (FI) in the UK has integrated open banking into its tech infrastructure. And one of the customer segments it tracks are the lower-income and contractor or part-time employee brackets, who it assumes are getting squeezed by high prices. That FI can analyse the data from that segment specifically. It can see the money coming in and the money going out and offer customers sound financial advice and revised credit scoring. The consumer can then avoid the anxiety that might otherwise push them towards high-interest credit cards or even loans that only add to a short-term debt burden.

Access a ll areas

In its current iteration, open banking also gives consumers more power over their finances when the economic climate most demands it. If, for instance, a payment is missed or a direct debit fails, open banking-based solutions like Pay Direct facilitate single, immediate payments. This gives consumers the option to pay directly from their bank account to a supplier or business at a time when it suits them. They can pay all or part of the amount due when the money becomes available in their account, providing ultimate flexibility.

By using open banking, businesses can adopt a similar strategy. Suppose a large UK utility provider sees late or missed customer payments. It could employ collections agencies for the next few years and alienate those customers, or it could work to improve communication, offer cost-effective payment alternatives with flexible terms and adjust those payments to align with the customer’s complete financial status. After all, the more payment options businesses can provide, the easier it is for customers to ultimately pay.

VRPs AND SWEEPING

The Competition and Markets Authority announced in July that it would require the UK’s nine biggest banks – that’s the CMA9 – to implement variable recurring payments using APIs. It enables customers to approve, or ‘sweep’, money between their own accounts, promoting competitive products and services for borrowers, while also encouraging savings and enabling better management of finances. If consumers have cash deposited in savings accounts, it can be used to prepay loans or pay down debts for services that were paid on a regular weekly or monthly schedule. It can reduce outstanding balances and move a

for direct debits or recurring card payments, VRPs will give banks and businesses a new way to collect payments of variable amounts from the same customer, on a recurring basis, without needing to gain permission for every payment.

This is an important change to the current open banking situation, where third-party providers can only initiate single immediate payments, and customers must authenticate each transaction separately. With VRPs, the customer can agree to the payment parameters with businesses from which they are purchasing goods or services, and their third-party provider, and approve the payment mandate with their bank in advance. From then on, payments will initiate without the customer having to take any action.

struggling household closer to financial management. Stretching beyond the scope of the current CMA mandate, VRPs should extend to regular payments for common services, including gym payments, subscription services and utility bills. This is the shortterm promise of open banking. For this to happen, the banks need to open up, or develop, APIs for such use cases. Without doubt, pressure from the industry and regulators would go some towards helping this to become a reality Seen as complementary or as a substitute

Let’s circle back to our original premise. Payment technology continues to find new use cases for banks, other verticals and consumers. Once available, open banking APIs should spur further innovations and adoption by banks and payment service providers. As Charlotte Crosswell, chair and trustee at the Open Banking Implementation Entity (OBIE), wrote recently: “If history has anything to show, it is that – especially as far as British financial services are concerned – innovation is always part of the solution. Difficult economic times bring with them unique conditions, which allow innovators to think and move more freely to create rapid, impactful change. The UK is nothing if not innovative and, historically, it has demonstrated its ability to react agilely to a crisis, so that it can be turned into an advantage and emerge stronger than ever.”

And we’re just getting started. Longer term, we hope to see open banking’s Request to Pay come to fruition – the next level up when it comes to giving consumers control of their payments. But, for now, open banking payment solutions are starting to find very positive use cases as the UK’s population gets help when it’s needed the most.

Financial freedom: Payments are giving consumers a way out of financial problems

More than half of UK adults say their households have found it difficult to pay essential costs over the last six months

Crackingconundrum

THE PAYTECH MAGAZINE: Why do you think systems at traditional financial institutions are not being efficient when it comes to their data usage?

ANDREAS BURNER: As CIO, responsible for running innovations for SmartStream, I would say it starts with how organisations run their technology projects. They typically run a project, finish the project and put the system live. And after a year or two, everything changes, right? Data changes, the counterparties change; but the system is still the old system.

How organisations experience that is that they see a decrease in efficiency. But what is actually happening is that the system is not following the market, because it has stayed as it was put in place at the beginning.

An increase in the volume of payments, such as our clients are experiencing, means that the type of payment is also changing: attributes are changing, the amounts are getting smaller, or they are going into new markets.

And that’s a problem if the system isn’t capable of change.

TPM: So, how would the use of AI and machine learning capabilities help financial institutions to manage this ever-changing transaction data –particularly in the complex area of exceptions management?

AB: First, you need a data-centric culture, which means that you’re not just talking about software, but also how you want to incorporate data, and the change of data, into your daily business.

AI and machine learning adapts, so it’s the best technology to keep up with any market changes, such as an increase in volume. But its use in exceptions

the

management is particularly interesting and it is one of the main research areas at the moment in the SmartStream Innovation Lab.

Every exception is unique, in a way; every customer has a different problem, so it’s very hard to solve. The way big financial organisations currently handle exceptions is by having hundreds or thousands of people handling them.

When an exception comes in, a member of staff known as a dispatcher looks at it and assigns it to a certain colleague or adds data. And that’s a highly inefficient process, because that dispatcher can only

We work with a number of clients within our Innovation Lab, because we believe innovation should never be done in isolation. Working with clients means we never lose focus in terms of what we are trying to achieve

handle one exception at a time. So, we’re using AI and machine learning to learn how a dispatcher is adding data to that exception, and then we can automatically assign it, populate fields, or add labels or tags.

The huge efficiency gain here is that the dispatcher only starts when they come into the office at the start of the day, whereas our AI has already been running by then.

So the exceptions are not only dispatched, but all the automatic

workflows are already run before the staff arrive, and that is a huge efficiency gain for banks.

TPM: Where else should financial institutions be focussing to improve their efficiency?

AB: Wherever they are looking to improve efficiency within the organisation, the key is that they start by getting their data correct.

Studies show that when you correct your data at the time it’s generated, it’s much cheaper than when you have to do it later – be that a year later or even when that noisy data hits the customer.

So, the main advice I would give is, really understand and make use of correct data.

TPM: So, what is SmartStream’s Innovation Lab doing in terms of R&D in this space – how else are you supporting FIs in better managing their reconciliation process?

AB: We work with a number of clients within our Innovation Lab, because we believe innovation should never be done in isolation. And it should always have a target.

In our Lab, we have mathematicians, data scientists and software engineers, using cutting-edge technology to tackle specific problems that financial institutions need to solve. But the key is that we are working alongside those clients, so we never lose focus in terms of what we are trying to achieve.

We not only know what the end customer needs and wants, but our clients are also verifying our results. And that’s important, because we believe innovation has to have a business case, and it needs to show a return on investment.

SmartStream’s Andreas Burner explains how its client-based R&D is helping the financial transaction management solutions provider solve the transaction data puzzle

Intelligent connections: AI and machine learning can drive inefficiencies out of the reconcilliations system

If there are two areas that remain constant in the derivatives markets, they are change and uncertainty.

Just look at the events in the UK over the past couple of months where pension funds made unprecedented requests for emergency capital to avoid insolvency and meet collateral demands, following a raft of surprise fiscal policy announcements that rattled the markets, resulting in two weeks of declines in UK government bonds and gilts. Sterling reached historic lows against USD before rebounding after the government announced a U-turn on its policy, alleviating concerns of a ratings downgrade for UK government bonds.

Despite the Bank of England intervening to the tune of £70billion to stabilise the markets, the events resulted in a scenario that worked against both the derivative portfolios and collateral positions of many pension funds.

Along with other institutional macro investors, these funds increasingly struggle to keep pace during such turbulence. But a bigger part of the recent UK story was that the market moved with frightening speed against their derivatives positions, and margin calls prompted pension funds to liquidate gilts at unfavourable prices.

That resulted in further downward pressure in the gilt market and difficulties in meeting margin call obligations to the point where the pension funds have now called for greater credit support annex (CSA) flexibility to facilitate so-called ‘dirty’ CSAs (gilts and government bonds) as opposed to ‘clean’ CSAs (cash-only), with a preference for posting corporate bonds as collateral.

It’s an attempt to address underlying concerns around credit rating changes in currently accepted collateral, such as gilts and government bonds.

On average, funds are reporting losses in excess of 12 per cent, which points to a more difficult market overall for institutional investors and reinforces the need to engage in risk management practices as an operating principle, especially where the market continues to shift course in response to changes in monetary policy as a result of fluctuating fiscal strategy.

Navigating these troubled waters, it has been critically important to have insight into portfolio and collateral holdings in real time as well as being able to analyse market and rating scenarios – let alone being able to simulate future exposures under dirty collateral agreements.

“In recent weeks, we have seen market participant clients asking for advanced derivative and collateral agreement modelling capabilities,” says

S

Christian Kahl, president of FINCAD, the capital markets division of Zafin, which is a market leader in producing fixed income and derivative analytics software and services.

Some of FINCAD’s proposed methodologies for limiting exposure include collateral forecasting and scenario analysis along with more advanced measures, such as potential future exposure (PFE).

In highlighting what needs to be modernised to cope with present and future volatility, it might be helpful to put what’s currently affecting market operators into historical context.

Since the peak of the global financial crisis in March 2009, equity market indices have outperformed historical averages on the back of a strong global economy and expansive monetary policies where central banks set interest rates to ultra-low levels and engaged in quantitative easing programmes.

In terms of balance sheet expansion, from 2012 to 2022 the European Central Bank balance sheet expanded from €3trillion to close to €9trillion, as did the Federal Reserve Bank’s. Despite this unprecedented monetary expansion, headline inflation was well within the target range throughout this period and even America’s brush with economic isolationism in 2016 did not upset that sense of stability.

Negative rates in the period after the crash, of course, presented challenges, particularly in the Eurozone, where it was negative for eight years until September 2022, when it was increased by an unprecedented 0.75 per cent.

Negative accrued interest is challenging, both in terms of the costly practical

moothing theride!

Christian Kahl, President of FINCAD, looks at how using cutting-edge analytics and technology can help investors cope – and even benefit from – market conditions

application and the legal considerations, which gave rise to instruments with floored rates and the need to adopt pricing models that move past the notion that interest rates can be assumed to be lognormally distributed. This was mirrored in the derivatives market: from 2014, derivative analytics providers experienced a rush to expand support for negative rates.

But, as of September 2022, the era of negative rates seems to be firmly behind us. The current situation with inflation driving rate hikes, naturally gives rise to greater liquidity and, ultimately, credit risk, and this results in heightened market risk.

This is most observable with cryptocurrencies, commodities and foreign exchange, all of which had been relatively predictable for a decade.

There are other factors contributing to greater uncertainty now, too. The transition away from the London Interbank Offered Rate (LIBOR), the global benchmark rate for interbank lending, being one of them. While LIBOR reforms are welcome and justified, it will take time for the market to settle on standard conventions for instruments referencing the new indices that replace it.

Another harder requirement that has emerged recently is the need to perform routine model validation. That does not end with calibrating and validating models on the fly, using the applicable market data set, but being able to validate and take data-driven approaches to challenging trading strategies more fundamentally, by running back-tests against large data sets in a timely manner for trade execution.

Derivatives are more and more centrally cleared now, too, leading to computational challenges around collateral calculations, most notably the International Swaps and Derivatives Association’s Standard Initial Margin Model (SIMM).

Meanwhile, the capital requirements of banks have evolved dramatically, not only in requirements to increase their core equity capital but also to be more stringent and descriptive with regards to internal and external oversight.

Basel III/IV and the Fundamental Review of the Trading Book (FRTB) is a comprehensive suite of capital rules that set out strict guidelines requiring significant investment. Including counterparty credit risk resulted in broad changes in both accounting and regulation.

WHERE WE ARE NOW

When considering fixed income, rates, credit, and foreign exchange against such a global backdrop of change, a lot more attention needs to be paid to not just model validation and pricing and risk exposure calculations, but also to market scenarios, counterparty exposure profiles and value-at-risk limits.

“An aspect that makes the current uncertainty more unique is the fact that the response to COVID-19 was global in nature, both in fiscal and monetary response and, as a result, there is a stronger coupling, as can be seen when looking at the charts of one-year and five-year inflation swaps or equity benchmark indices since March 2020, regardless of the jurisdiction,” observe FINCAD’s Kahl.

“This is very different to February 2007, when the US subprime crisis broke, or in September 2008 when Merrill Lynch and Bear Sterns announced bankruptcy, where, for example, Canada’s exposure was of second order, largely in response to collapsed demand on the back of the recession that was underway in the US.

“All the data points to a stronger focus on market, liquidity, and credit risk whether a market participant’s concern is the need to be able to take speculative positions with confidence, identify mispricing or make informed hedging decisions.”

“We see both buy and sell side institutions migrating away from large on-premises systems towards a best-of-breed architecture, very often using Cloud-based services. For them, the need to scale is driven by both volume and more contemporary needs, like complex models and managing the large market data sets supporting the trade lifecycle, including pricing calibrations, model validation, and regulatory requirements.

“Market participants using Cloud-native technology also keep pace with changing conditions and regulations by having instant access to new features and models without needing on-premise upgrades to keep them operationally efficient.”

There is another reason why established players may want to up their technology game: competition. Many fixed income and derivative analytics applications are now more easily deployed and distributed, and Python-based programming has been adopted widely for desktop applications, largely due to its ease of use and because the Python community has produced a vast number of on-hand data analysis packages.

That means a new generation of quantitative developers can prototype, prove out, validate and code up and run applications in a desktop environment and deploy to Cloud infrastructure for unmatched scale, all with far greater ease than was ever possible before.

The nature of these undertakings brings onerous calculation requirements that are not only computationally expensive but need to be supported by scalable technology.

“Over the last decade or so, we have seen a shift in requirements toward solutions built on Cloud-native architecture,” says Kahl.

“Beyond operational cost effectiveness, the technology has expanded the possibilities of scaling calculations, buffered by continuous integration/deployment practices. This is invaluable for banks and hedge funds needing to perform routine but rigorous calculations where Cloud-scaling addresses time-sensitive reporting and submission requirements.

“In some respects, those that moved first with a technology switch are best positioned now to navigate today’s uncertain market and a potentially persistent fragile macro-economic environment,” says Kahl. “After all, previous crises tell us that where there is uncertainty, there tends to be mispricing and, with that, investment opportunities.”

He truly believes that staying ahead of the curve with easily deployable technology and best-of-breed analytics is the differentiating factor for market participants. And that is where FINCAD comes into play, by helping solve quantitative challenges with innovative simplicity.

“Financial institutions face a significant challenge staying abreast of changing regulatory and market dynamics,” Kahl concludes. “Having access to a superior level of analytics and functionality puts today’s firms in an ideal position to adapt to inevitable market uncertainty.”

We see both buy and sell side institutions migrating away from large on-premise systems towards a best-of-breed architecture, using Cloud-based services

Everything in its place?

With the volume of daily payments information being circulated now off the scale, it’s imperative that FIs find a way to organise it effectively, says SmartStream Product Manager Roland Brandli

The financial world is witnessing a data explosion – sparked by the soaraway success of contactless payments and the adoption of the ISO 20022 data standard.

But if banks were already struggling with the breadth of digital payment transaction levels, their pain will have been made worse by the depth of SWIFT’s system for electronic data exchange. Overcoming these issues lies at the core of SmartStream’s artificial intelligence (AI) and Cloud-enabled offer to financial institutions – especially ones held back by inefficient and therefore expensive legacy systems.

The potential to harness data for commercial advantage is huge, but only if a business is equipped with systems that can cope with the information onslaught. Continual innovation is key, and in October SmartStream launched TLM Aurora Advanced Account Control to meet the needs of ISO 20022 standards and replace its older Cash solution, which was used by clients in 81 countries.

It’s a system that harnesses all the attributes that SmartStream is known for – it can be implemented on-premise or via a Cloud; it uses AI features to handle data and learn from manual processes; and, importantly for the staff who use it, Aurora aims to be intuitive and easy to use.

The opportunities SmartStream solutions provide mean clients need to ‘learn to live the process’, says the business’ product lead, Roland Brandli.

“Contactless payment volumes have risen drastically because people aren’t taking cash from ATMs anymore. Then, on top of that higher volume, we now have huge data formats,” he says. “Getting up to speed on this is challenging for our customers. So what we aim for with our software is to include capabilities to manage complex processes but make it as simple as possible for people to use. We call this simplicity with depth.

“Unlike most other systems used by financial institutions, which tend to do one

thing, such as a trading system, or payments, or a portfolio system, our software takes data from all these areas and basically ties all the loose ends together. It’s not a perfect analogy but I liken it to moving to 5G. It’s one thing to connect to 5G but you need to learn what to do with it.”

ONLY MACHINES WILL DO

The surge in digital payment transaction volumes since the pandemic means manual processing of reconciliation and exception management has become an impossible task. SmartStream software such as Aurora uses AI for the onboarding of data and to carry out the matching process. Meanwhile, its Affinity A-enabled software takes a big step further – it observes and analyses how human staff manually solve exception problems, then can take over, carrying out matching based on the learned patterns.

The first advantage of this is that staff can be released from manual matching and can focus on more fulfilling tasks of greater strategic value. Not only that, but Affinity embeds workers’ experience within a company so that staff churn out of the business or into other roles within it presents a lower operational risk.

Brandli explains: “A lot of our clients have a huge amount of employee churn. They can have a situation where a staff member has a skillset that has taken a long time to acquire and the business depends on them.

“If that person leaves or moves to another department, the AI now available can retain their knowledge because it learned from them. This is an example of an AI use case which perhaps isn’t obvious to senior management, but it can be a game-changer.”

Is your head spinning?

FIs have more data to organise than ever

AT THE LEADING EDGE

Brandli hopes another one is SmartStream’s approach to simplifying software for the user, a strategy that won the company a Red Dot design award for application design this year – an industry first. Business-to-business financial industry software for back-office functions is not known for its high-quality user experience, so SmartStream challenged this and has built tools aimed at meeting workers’ needs and goals.

The firm recognised that users may be distrustful of AI, so the user interface presents information to help them.

“Companies that win Red Dot awards are firms like Samsung, Audi, Dyson, but we won it for our user-centric design principles,” says Brandli. “We’re aiming to keep the capabilities around managing complex processes but make it as simple as possible for people to use. But when designing software, we also have to jump into the future. We’re building it for the next generation of users, who will have completely different expectations.”

software on behalf of clients so that SmartStream learns first-hand where potential issues lie.

The white paper highlights a successful use case where a Tier 1 bank already had a 95 per cent reconciliations match rate but wanted to use AI to tackle its pool of complex cases that had to be dealt with manually. Integrating Affinity AI into the bank’s existing SmartStream TLM Reconciliations Platform and removing the last few per cent of manual matching resulted in a potential cost reduction of several million dollars.

Brandli says many banks are yet to improve their level of control over digital payment reconciliation and have been caught out by the sudden surge in payment volumes.

“Because, in the past, digital payments weren’t a large part of retail banking, banks could potentially write losses off. But can they afford to do that now volumes are 20-times higher?

There’s the game-changer

– where AI can learn from what staff do manually, which gives an organisation a far more sustainable business model

A recent SmartStream white paper, Data Rich But Information Poor, said AI was at the top of senior managers’ agendas but practical issues like deploying AI with old legacy systems, hinder adoption, Executives also have legal concerns over the security of sensitive data – where breaches can lead to huge fines. So, to promote security, each SmartStream client has their own designated space, eliminating the risk of results or machine learning patterns being cross-contaminated.

And the company’s Managed Services arm operates

“Across the industry, we will be seeing work to improve resolution times because it is really important to guarantee quality of service. Central banks and regulators want people to move to digital payments but that will only happen if they have faith in them.

“The arrival of instant has made life difficult. Until now, a bank could do processes manually if volumes were low. But they are going up radically and, at the same time the customer’s expectation is that it’s solved faster. So, if there’s a delay in a transaction, the customer instantly feels you’ve done something wrong.”

Brandli adds that financial institutions need to be pragmatic and embrace technology where it has been proven to solve problems.

“The biggest issue we always have is around the promise of what technology can do in two, three or four years,” he says. “But we should be looking at what it can do now.

“One issue is around the way the word AI is used – it’s like AI is the answer to everything. We don’t live in a Star Trek age, so it is not, but there are really good use cases where it can reduce effort and save money.

“And then there’s the game-changer – where AI can learn from what staff do manually, which creates a far more sustainable business model.”

Payingby numbers

With transaction processing happening at unprecedented speed and volume, quality data is the only way to complete the picture, says Hugh Burden of automated reconciliations provider AutoRek

THE PAYTECH MAGAZINE: Can you tell us more about yourself, your role at AutoRek and the company itself?

HUGH BURDEN: I head up the sales team at AutoRek and I’ve been with the company since 2015. I’ve worked across the financial services spectrum for the majority of my career – with banks, insurance companies, investment managers, and now payment companies.

AutoRek services all those sectors, because what it provides is an end-to-end financial data management system.

As the name suggests, it automates reconciliations, but it does all sorts of other great stuff with the data on the way, automating how it flows into our system, through APIs, open banking and various other sources. We can ingest any type of data, from any source.

We offer reconciliation and other accounting functionality, but we also have features and functionalities like automated postings and workflow. We’re also involved in a significant amount of financial reporting, dashboarding and, a really crucial one, regulatory reporting. The regulatory agenda is really, really crucial to payments going forward. If you take just two current examples: in the US, they’re all working towards the Comprehensive Capital Analysis and Review (CCAR) where, for each individual account and extreme scenario, a stressed market value is calculated and compared to the margin requirement applied to the corresponding account. The difference between the greatest stressed market value and the margin requirement is the CCAR value for that account.

In the UK and Europe, there is General Data Protection Regulation (GDPR).

They’re both very stringent, difficult regulations to consume,and be compliant with, and there are significant penalties for getting them wrong.

So, first, you have to get on top of the regulatory agenda. But once you have done that, it puts you in an ideal position to master that customer data, and then utilise it for all sorts of opportunities.

TPM: The payments industry has been evolving at a very rapid pace over the past couple of years. What opportunities and challenges does that present?

HB: There is significant pessimism in the macroeconomic environment at the moment, being driven by all sorts of factors. But the payments industry has been able to rebound from the pandemic and become more important. It has deepened its impact on society.

With that comes all sorts of data challenges. When we visit a client and they say ‘we have a reconciliation

Going with the flow: Many large payments companies still rely on legacy platforms like Excel

problem’ or ‘we have an accounting problem’, what they really mean is they have a data problem – they’re struggling to understand their data. They clearly need assistance and tooling to help them think through some of those processes.

The other big opportunity we’re seeing out there at the moment is consolidation in the market. A number of organisations are coming together, creating a hot merger and acquisitions environment.

TPM: As you say, the pandemic had a massive impact on the payments industry: we saw a sharp rise in the volume of particularly small-value, real-time payments and an explosion in the number of payment channels offered by payment service providers. How have their internal systems coped with that?

HB: We still find large payment companies that are really reliant on Excel, or indeed some kind of self-built platform. Certainly, Excel presents a number of difficulties that we seek to resolve.

First of all, it really struggles at high volumes. Secondly, Excel has a very poor auditability record because of the multiple access you can get on it. The third issue is around the limited level of automation you can achieve with Excel.

AutoRek offers to bring all the functionality, features and flexibility you have with Excel together but with none of the concerns over volume, auditability or automation.

It’s usually quite a straightforward operation when it comes to transforming organisations that have been pretty much dependent on Excel.

We look at what the existing processes are, and carry out a scoping exercise,

where we’ll look in detail at what they want their end target state to be, then design a platform that fits with that. We can bring a really quick and flexible solution to those organisations.

In the absence of automation in something like real-time payments, organisations are faced with just building a fixed cost, effectively, with recruiting more and more people to process those payments manually. However, with automation, if they select the right partner, there are very few downsides.

TPM: Reconciling huge volumes of real-time domestic payments is one thing, but what challenges can organisations face when trying to reconcile their payments cross-border?

HB: Cross-border payments are a really, really hot topic because most organisations are now looking to deploy their platforms globally, which means, they’re going to have to deal with cross-border complexities.

Ultimately, when we visit a client and they say ‘we have a reconciliation problem’ or ‘we have an accounting problem’, what they really mean is they have a data problem. They’re struggling to understand their data

There are several major issues for them to consider. First is foreign exchange and with that comes two problems: the fluctuations, which are difficult to manage, and the liquidity risk – that question of how much cash they are going to hold in each currency, and what’s appropriate.

The second major problem comes back to dealing with regulations. They might already be tooled up to deal with their

own, domestic regulations, but they might not have considered regulations in other jurisdictions.

|The third thing they have to consider is how their systems and platforms, which were designed for a domestic market, are going to interface with systems in those other jurisdictions. They really need to consider the effect that’ll have on their core platform.

Ultimately, they need to contend with the whole payments ecosystem, including, increasingly, cross-border, and all of it moving at real-time speeds,

TPM: There has been an intense focus on providing shiny new tools and a great customer experience in recent years. But would you agree that, to a large extent, that’s just lipstick on a pig if organisations don’t invest in the hidden infrastructure that supports those front-end innovations?

HB: Most payment companies are actually technology companies by birth. They’ve spent a huge amount of money on the customer acquisition piece, but that’s sometimes been at the expense of investing in robust back- and middle-office systems that can handle the type of payments we’ve been talking about.

I think back to seven years ago, when I first started working with AutoRek, dealing with the payment divisions of Tier 1 banks and large payment organisations. I think there was indeed a little bit of an obsession with the end-customer digital experience.

Real-time payments have driven the volume piece up so high, it’s a question now of how merchants and merchant acquirers are going to deal with such high volumes and still reflect that in a good customer experience. If they do invest in those back- and middle-office systems and are able to master their data, that will, ultimately, flow through to a nice, smooth customer experience.

What we’re absolutely seeing is that those organisations that have invested in those systems, are able to offer more innovation, more speed, more accuracy, and less service disruptions to the end customers.

Easing the squeeze

and processing platform

With inflation shooting ever upwards and many global economies on the brink of recession, financial institutions (FIs) are once again in the headlines. Central banks are doing what they can to tackle inflation through interest rate rises, but it’s retail banks and fintech service providers that are on the front line of this cost-of-living crisis. After all, it’s their customers who are struggling to pay bills, heat homes and even put food on the table.

Fortunately, banks and fintechs have an important new tool at their disposal to help their customers better manage their finances and support them through these challenging times. Unlike in any previous large-scale financial crisis, data is now available in huge volumes and, thanks to Cloud-native platforms, FIs have the ability to mine it for insights that can underpin valuable new services.

PERSONALISING FINANCIAL MANAGEMENT

Personalisation is a good example. Over time, banks can analyse spending data to build 360-degree profiles of their customers. These customers can then be served with relevant products and offers that reflect their previous spending behaviours. This approach not only enables FIs to market relevant opportunities to the right audiences, but it also means that they can channel financial advice and support to those most in need.

A more advanced approach is to use real-time payment data in combination with a powerful analytics rules engine. Doing so enables FIs to identify sophisticated behavioural patterns as they happen and respond with appropriate support.

For instance, if a customer with a good credit rating makes an expensive one-off purchase that puts them into their overdraft, the rules engine would alert the FI, enabling it to offer the customer a buy now, pay later (BNPL) or instalment plan immediately following authentication. Such services will prove hugely valuable to customers who may otherwise struggle with unexpected but necessary expenses.

The ways in which FIs support customers will need to vary from region to region. Saudi Arabia is a case in point. The country is currently looking to digitise its payments infrastructure as part of its Vision 2030 roadmap, which includes a drive to create a cashless, digitally enabled and financially literate population. Key enablers such as contactless cards and digital wallets, will, of course, be important in achieving this goal, but so, too, will be the data-centric approaches described above.

However, these approaches will need to have a local flavour. For example, in Saudi Arabia, FIs need to be able to offer products that are compliant with Shariah law and Islamic banking practices. In this instance, standard BNPL schemes or loans to hard-up customers may not be appropriate.

That said, data-driven, customer-centric services still have a role to play, but will here underpin financial management products that are specifically tailored to local market needs. In this region, these services would include things like murabaha credit solutions, for example, a Shariah-compliant form of financing.

By breaking down spending data, banks can report to customers on where their greatest expenses are and, potentially, how these can be reduced. Data can also be used to create new approaches that enable customers to take greater control of their finances.

Multi-account mapping is a good example. Usually, bank cards are attached to specific accounts. A customer wishing to use their card therefore needs to ensure there is enough money in the associated account, and that can at times mean moving money from other pots, requesting overdrafts, or depositing cheques or cash. All of this takes time and effort, and can even mean visits to bank branches for support.

Now, banks and fintechs have the option of empowering their customers through single cards that map to multiple accounts. This helps improve liquidity for the customer and enables them to make payments quickly, and at the moment they’re needed. For countries like Saudi Arabia that are making the move to a cashless society, such approaches will smooth the transition and ensure that people retain the advantages of cash in terms of ready access, even once payments have been completely digitised.

FROM CUSTOMER SUPPORT, TO CUSTOMER EMPOWERMENT

How data is handled is another important consideration. Many countries (again, including Saudi Arabia) have stringent rules about data sovereignty. FIs therefore need to ensure that they use a Cloud-native platform that is compliant and keeps data processing on-soil with fully private Cloud instances.

PUT CUSTOMERS IN CONTROL

In many ways, the use of data for financial services is about empowering people.

Banks and fintechs are often the first line of support for cash-strapped consumers and rightly pride themselves on the help they extend to their customers. Armed with data-driven services, FIs are now better placed than ever to provide this support and, more importantly, give customers the tools and insights they need to help themselves.

During this cost-of-living crisis, fraud is, unfortunately, becoming rife. Access to valuable data enables banks and fintechs to improve their fraud modelling and reduce false negatives, false positives, declined and fraudulent transactions.

Importantly, this provides customers with peace of mind that their funds are safe, while giving them complete control over their finances.

Unlike in any previous large-scale financial crisis, data is now available in huge volumes and, thanks to Cloud-native platforms, FIs have the ability to mine it for insights that can underpin valuable new services

Rowan Brewer, CEO of card issuing

Paymentology, believes that data-driven, real-time financial services can help alleviate the current cost-of-living crisis for consumers

Pushing all the but tons!

The world of payments is, arguably, undergoing its fastest and most far-reaching period of evolution, ever. Global credit card brand American Express (Amex) is actively responding to it by making life easier for merchants and consumers with surprising innovations such as its account-to-account offering Pay with Bank transfer, enabling customers to use their Amex cards as a conduit for in-store and online purchases. Here, the company’s VP of open banking payments, Holly Coventry, gives her take on the most noticeable current trends, and what the future could hold.

My role at American Express is, in itself, not necessarily what people expect because I’m essentially responsible for the growth of open banking payments, which are nothing to do with our cards.

The payments industry is a really exciting space to be at the moment. It’s going through huge amounts of disruption and change. Technology is a catalyst for some of the things that are happening, but consumers themselves are driving a lot of it. They have exceptionally high expectations, when it comes to commerce, and how they pay is a big part of that. Now, people often expect to transact in just one click. We’ve all got very accustomed to tapping and going, and using our devices to do everything. All of that leads to innovation and opportunities.

Historically, we would talk about online and offline payments but, in reality, the

distinctions between them are very much blurred these days. One of the things we’re starting to see at American Express, for example, is that consumers want to be able to make an in-store purchase but finish the transaction on their phone. So, our Pay with Bank transfer option allows merchants to have an in-store conversation with the customer, while letting the purchaser use an open banking-powered transaction on their mobile to complete the sale.

These moving lines between online and offline bring both opportunities but also challenges for merchants. Their customers are demanding and expecting new ways to pay, but, while merchants might know all about their own products, payments

checkouts – and, as a payments expert, American Express is leaning into such opportunities and doing its best to help merchants come to terms with them and make the associated changes. We very much see our role as helping them view the transaction through the lens of the consumer and understand how they can make sure they have the right choices and options available for their customers, and at the right time.

We’ve conducted a huge amount of customer research recently and what it revealed is that, primarily, consumers are demanding safety at every stage of the payment journey, while expecting efficiency as well. Security and efficiency are definitely top of people’s priorities, so we need to make sure that merchants are educating consumers about new safe and effective ways to pay throughout the customer journey.

Big POS-ibilities

are not necessarily their area of expertise. It’s critical that they get it right, though – and they can, with the help of payments partners like American Express.

A confusion of choice?

There is a wealth of new payment options – you’ve only got to look at the abundant number of logos at online and in-store

In-store payments are a particularly interesting space when it comes to open banking. When Amex first started looking at open banking payments in the UK, it was all about online, because, before COVID, the idea of paying with QR codes in a store, or sitting in a pub and ordering a pint that you paid for with a QR code, felt a lifetime away – although in Asia, of course, they’ve been doing it for years. If there’s one positive that’s come out of the COVID-19 pandemic, it’s that it really disrupted our physical payment experience.

Historically, we would talk about online and offline payments, but, in reality, that’s very much blurred these days… that brings opportunities and also challenges for merchants

American Express is leaning into consumer and merchant demand for payment choice and enabling it with a full range of options that extend way beyond the card, as Holly Coventry, VP of Open Banking Payments, explains

At American Express, we will go where our customers want us to go, whether that’s the consumer paying for their goods online or instore, or a blend of both, or a merchant wanting to be able to offer the right options and choices to their customers. It’s what we refer to as ‘payment orchestration’.

Payment orchestration is about making sure we are building payment experiences that are finely tuned to what the consumer is expecting at certain points in their purchase journey, and, simultaneously enabling merchants to offer them. I think a good analogy for this is the Netflix algorithm, in terms of the ability to understand what customers are doing and offering them more of what they want. We, similarly, need to push the right payment buttons at the right time.

Point-of-sale (POS) terminals are an area where we’re going to see more development in this area – as digital devices that can play their own part in enhancing the payments experience.

an element of

that has been critical, particularly for in-store payments, but now it’s where we’re starting to really see some of that radical change come through.

There is real opportunity, particularly in retail, to use POS devices to drive some of the customer loyalty that businesses are

looking to deliver. One of the programmes American Express brings to the table is called Amex Offers, where we reward consumers for spending across particular merchants, and that’s all enabled through a POS functionality, whether that’s used instore or online.

So, again, there is lots of opportunity, and exciting things we’ll start to see happen around that point of purchase.

Who knows where the future is going to take us? If I had all the answers to what’s going to happen in payments over the next few years, I’d be relaxing on a beach somewhere, I’m sure! What I do know is that we are at a really exciting point of time – and the payments industry was ripe for that disruption.

Their choice: Customers have multiple payment options – but can merchants keep up with their expectations?

There is a real opportunity, particularly in retail, to use POS devices to drive some of the customer loyalty that businesses are looking to deliver

They are

legacy infrastructures

Who’s pulling str ings? the

Banking, as a concept, has been fragmented, brought back together and is now being offered out to consumers via a new breed of super-apps. We asked TSB Bank, Curve, and SunTec Business Solutions who’s in control now as the industry moves towards a marketplace-based approach – banks, fintechs or Big Techs?

As the role – and perception – of a bank changes profoundly, the more forward-looking financial institutions have responded by seeking maximum value from their relationships with the fintech community, while at the same time keeping an eye on the Big Techs and other non-financial organisations that are muscling into their space, thanks to the rise of embedded finance.

Edinburgh-headquartered TSB is one such bank. Under its new CEO and former chief customer officer, Robin Bulloch, it’s signalled not just a desire to adopt a more customer-centric approach, but to become a super-app, partnering with a carefully curated range of fintechs to provide a suite of value-adding services to its five million users.

In March of this year, software intelligence company Dynatrace announced that TSB will use its platform to accelerate innovation and underpin its drive to become an all-digital organisation. Having built a multi-Cloud banking platform, Dynatrace is now providing AI-powered answers and intelligent automation, aiding optimisation of front and back-end applications for the bank.

In September, the bank launched the TSB Marketplace on its mobile app,

a new service connecting customers to fintechs to help them make more informed financial decisions.

TSB Marketplace currently hosts 11 fintechs across both retail and business banking, with services that range from investing to saving and borrowing. Reflecting changing consumer behaviours, it helps retail customers to focus initially on saving money, then logically moves them on to growing their investments through a holistic approach to the customer lifecycle and the combined competencies afforded by different partnerships.

“I came across some figures recently that showed 67 per cent of consumers now want a super-app to consolidate all of their digital activities,” says Aruna Bhalla, head of open banking and partnerships at TSB.

“That’s huge. It’s on the banks now to

In control:

Banks could dictate their future role

Of the large banks, with more than $1billion in revenue, Gartner predicts that more than 30 per cent will start offering BaaS in the next two years

make sure they’re attractive for partners to work with. At TSB, we’ve spent the last couple of years setting up the foundations for that, introducing slicker contracts and onboarding processes, and keeping partners engaged with regular sessions, bringing them into our camp to talk about what’s needed from a regulatory and legal perspective.

“TSB Bank draws on Google Salesforce and e-commerce Cloud technologies to power its Marketplace. The Salesforce link allows TSB to conduct tests, provide bundles and vary pricing, as there is no reliance on in-house technology.

“By being able to offer bespoke pricing, we are trying to give customers more while also using our brand and our credibility to be able to allow customers access to a variety of innovative partnership offerings,” explains Bhalla.

The TSB Marketplace is a prominent example of the evolving relationship between banks and fintechs, which continue to team up to offer innovative propositions. By working together, fintechs have the opportunity to grow, learn, and gain confidence while leveraging the clout of established banks to put their services in front of consumers looking for financial guidance.

“Banks have got access to the customers, a reputation built up over years, and the regulatory licences,” explains Bhalla. “A lot of hard work and effort has gone into that. We can say to fintechs ‘look – we’ve got access to a huge customer base, but we recognise our customers want choice and convenience’.

“Banks need to do this quickly, though. At TSB, we’ve recognised we need to offer a marketplace – an ecosystem of goods and services – to our customers because they expect it.”

In this way, she believes, banks can re-model themselves as banking-as-aService (BaaS) providers, and pull the financial strings, orchestrating selected fintechs to help them enhance their customer experience offering and plugging in everything from rewards to personal finance management tools, while attracting and retaining more customers to maintain their under-pressure

balance sheets – TSB itself turned in a good performance in H1 2022.

This approach is a trend that SunTec Business Solutions, one of the world’s leading relationship-based pricing and billing companies, has picked up on.

Established in 1990, SunTec sets out to create value for banks and other enterprises through its Cloud-based products, enabling them to adopt customer-first strategies, increase revenue and deliver far better customer experiences.

“There are three buckets of players emerging in the BaaS ecosystem,” says Amit Dua, president of SunTec Business

Aruna Bhalla, TSB Bank

Solutions. “Firstly, the banks themselves – and of the large banks, with more than $1billion in revenue, Gartner predicts that more than 30 per cent will start offering BaaS in the next two years.

“Then there is a second set of players, which are the fintechs or enablers, who can use their technology and customer insights to provide a personalised and holistic customer experience.

“Finally, there’s the customer, who benefits from more choice and that integrated experience.

“For this ecosystem to flourish, every player must be rewarded appropriately for its contribution. So, are the service level agreements (SLAs) being adhered to? Are the contracts between partners being appropriately managed and monitored? But, if the players work together well, then they can create a frictionless experience for the customer.”

Exploring BaaS capabilities can help banks like TSB to rebuild much-needed revenue by maintaining and deepening their own customer relationships through better, digitally enabled UX.

Amit Dua, SunTec Business Solutions

Sixty-seven per cent of consumers now want a super-app to consolidate their digital activities… that’s huge. Banks must ensure they are attractive for partners to work with

Perhaps less anticipated, though, is how it is potentially also opening up new possibilities for them to act as financial service providers for the biggest of the Big Tech names.

Some believe the Amazons and Googles of the world are less interested in usurping banks than may have originally been expected. Not wanting the regulatory hassle, they may instead coalesce with banks to provide the payment services they need, while continuing to bring the customer experience delivery and flair they are so adept at. This could be a marriage made in heaven.

“I think, and hope, they recognise the power of working together,” says Bhalla. “They’re the experts in their field, and we’re the experts in compliance, regulation and protecting our customers – so there’s so much value it.”

financial needs of a consumer, bundling their money together into ‘one smart card and an even smarter app’.

So, if competition has lessened from the Big Techs, is it increasing from fintechs like this – can they be friend or foe?

“It’s true that customers no longer necessarily want to be served by single institutions; they want choice,” observes Harrald. “And I think we all agree that modern technology has enabled that in financial services. The entry costs are much lower, so what comes along with that is this concept of an ecosystem that’s served in the background by banking institutions.

“Curve was founded on the use cases of trying to make sense of this ecosystem; to address the tyranny of choice – which is, if it’s relatively inexpensive now to enter retail financial services because you can use the regulatory permissions and the balance sheets of banks, then you have a plethora of fintechs available to the consumer.

“Curve doesn’t want to provide retail financial services; we just want to make them pleasantly accessible and comparable.”

the perspectives of a traditional bank like TSB, or a fintech like Curve: an accessible marketplace built on the foundations of choice, convenience and customer experience – great news for those who are looking for less friction when it comes to financial services.

So, could the rise of BaaS and these marketplace models finally overcome the limitations that legacy systems have placed on banks?

“In theory, yes,” says Dua. “Due to legacy challenges surrounding application architecture, I’d say many banks have remained product-centric – so loans, deposits, credit cards – instead of becoming client-centric. And not every large bank can assume they can become an effective BaaS provider, because it will require them to open up their APIs and modernise their traditional landscapes.

“But banks can use customer data for making more personalised and relevant offers. With open banking in place, the wider ecosystem could buy in to that.

Consumer Duty being placed on financial services providers from next year, based on the principle that firms must act to deliver good outcomes for retail customers, will likely accelerate a desire for those partnerships, adds Bhalla.

“I don’t know why Google didn’t become a bank, but my suspicion is that they don’t fancy that style of regulation,” says Paul Harrald, group CIO of ‘financial super-app’ Curve. “There is a significant difference between the culture at a technology company and the culture at a bank. The idea of agile software development, for example, doesn’t fit well with operational risk and the duty of care that banks are bound by.

“This makes it very difficult for banks to adopt the kind of open-innovation style that‘s common in the technology world. It’s not a lack of hardware or a lack of skills, it’s just not that easy to make it work in a regulated environment,” he adds.

Curve is already seeking to do something similar to TSB. The fintech’s mission is to become a one-stop shop for all the

Last year, Curve closed the largest-ever equity raise on Crowdcube, breaking multiple records during the campaign. It’s using these funds, and its recent Series C round, to execute its ambitious growth strategy, focussed on international expansion and product innovation.

For example, Curve recently launched its suite of Autopilot features that help customers take more control of their money management. These features include the appropriately-named ‘anti-embarrassment mode’, where customers can decide which debit or credit cards serve as an automatic back-up, just in case their default card gets declined at the point of sale.

“I love the idea of a financial services marketplace,” continues Harrald. “It doesn’t really exist, outside of Lloyds and TSB.

“Our goal is to create a marketplace in the same way. We want to provide customers with a way to make sense of, and search through, the explosion of fintech choices. However the data we gather should make us attractive to other fintech partners as well, because they will get more suitable customers.”

It seems the vision of the future of banking looks similar whether viewed from

Aruna Bhalla, TSB Bank

“Banks’ tendency to work in product lines needs to change,” he adds. “We have to start recognising that it’s actually one product – it’s an ecosystem rather than the siloed thinking of ‘I’m just going to work in my savings team, or my mortgages team’. The culture shift will be so important.”

So, there’s some way still to go. But with pioneers like TSB Bank forging new paths, and a growing appetite from fintechs like Curve and Big Techs to work with them to provide new customer propositions, it’s entirely possible that Future Market Insights’ forecast of 15.7 per cent market growth in BaaS between 2021 and 2031 will be realised.

It’s certainly an area to watch as we forge ahead into 2023.

I don’t know why Google didn’t become a bank, but my suspicion is that they don’t fancy that style of regulation

Paul Harrald, Curve

Banks’ tendency to work in product lines needs to change. We have to start recognising that it’s actually one product – it’s an ecosystem. The culture shift [behind that] will be so important

TOUCH & GO!

Florence was the birthplace of the Renaissance and Italy is where the ‘old’ modern bank began – the world’s longest-surviving bank, Banca Monte dei Paschi di Siena, can trace its roots back to 1472.

Now, the country is very much part of the new banking renaissance, with banks embracing digital to replace or at least complement their bricks and mortar branches. Credem is one such incumbent that is undergoing a technological and cultural transformation, its recent journey shaped by the seismic event that dominated our lives for two years – COVID-19.

Lombardy was the first place outside China to be hit hard by the coronavirus, leading to Italy imposing the world’s first national lockdown on March 9, 2020. It was at that moment that the bank’s teams began collaborating with Swiss software provider Temenos on the mobile app that’s now central to its omnichannel offer.

By January 2021 – nine months later – it was finished and ready to replace Credem’s existing app, which had proved difficult to update with new features. For the bank’s head of digital channels and business unit Fabio Caliceti, the new Touchpoint app became like the customer’s TV ‘remote control’, allowing them to tune into Credem’s accounts and services at the touch of a button.

“It’s an app that takes us towards a new, evolving ecosystem service model that really enables new ways of customer

engagement,” he says. “At Credem, our business model continues to be based on strong human relationships, but the mix between digital and human is key. This app is now the remote control of our business.”

Talking to Caliceti, alongside colleague Lorenzo Villa, Credem’s IT leader of digital channels, it’s obvious that the bank has undergone a cultural transformation alongside the switch to digital technology. The customer-centric approach to modernisation is obvious. But so, too, is the realisation that it’s not just financial products that win customers for banks, but also a slick front end that makes time spent

common to all big banking incumbents and the partnership with Temenos was its solution to break free of them by deploying into the Cloud and fully embracing the possibilities presented by open banking.

Caliceti says: “If you look at banking business models today, often the products being offered are similar, or even the same. So, we need to ensure our digital channels are as effective and efficient as possible so that customers engage with them.”

Villa, with his closer focus on IT delivery, points out that the bank’s new rivals, such as fintechs and spin-off speedboat banks, have posed the ‘biggest challenges due to their different nature and histories’.

He says: “We are a bank with more than 100 years of history and our competitors have changed in the last 10 years. A young company doesn’t have legacy systems so there’s usually less technology limitation, and there can be a difference in regulatory constraints, too, since some of these competitors are not financial institutions.

on banking tasks satisfying – even enjoyable – for the user.

Credem was founded in 1910 in the city of Reggio Emilia where its HQ remains today, and as one of Italy’s 10 biggest banks, it offers a traditional, comprehensive mix of retail, business and corporate banking, plus wealth management services.

Its IT team has faced the legacy issues

“It’s possible that they have less banking experience and competencies than incumbents, but, on the flip side, they typically have strength with regards to the digital experience. Another important aspect is that these new competitors are typically

Digital creation: The Touchpoint app was Credem bank's renaissance moment

The mix between digital and human is key. This app is now the remote control of our business

Fabio Caliceti, Credem

Italy’s Credem bank worked with Temenos to get close to customers and give them 'remote control’. Fabio Caliceti, Lorenzo Villa and Adelina Rusu take up the story

leaner. That means they can be faster at making decisions, and faster at producing an outcome.”

Recognising that Credem’s technology systems needed to change, using an external digital platform provider was an efficient way to level the playing field with these new rivals.

Credem was impressed with the Temenos platform’s ‘low code’ nature, which meant the bank’s teams could use the same JavaScript code for both iOS and Android versions of its app. Front-end features can be created relatively quickly, and since Temenos uses AWS Cloud infrastructure, the bank’s digital bandwidth can be scaled up and down as necessary.

“We had to improve technical capabilities to guarantee a higher speed of software development and deployment,” says Villa.

“We have to be conscious of the gaps that exist between the incumbents and new companies and fill those gaps. This means

moving to Cloud and container technology because, when it’s possible, it’s better. Infrastructure is crucial because we have to guarantee an elevated level of service – every day people use non-financial services that are always up and running. Sometimes I ask my colleagues to tell me the last time the Google homepage wasn’t up, or had a problem, and no one is aware of such a day.”

Villa says one of the key goals, when the new project began, was the ability to integrate with third parties. Another was to retain control of the technology ‘so we understand exactly what has been developed in our app – we have to be able to manage the lines of code directly’.

The experience of COVID-19 lockdowns also underlined the need for increased delivery capacity, so that services could be launched and evolved as necessary.

He adds: “Increasing capacity is crucial, it’s not just the ability to have more people using an application, but it also allows you to trial services with a subset of customers.”

Alongside the technical transformation Credem has undertaken, the bank has recognised that psychology is at play when winning hearts and minds. Adelina Rusu, Temenos’ head of solutions in marketing for digital banking, says harnessing customer data allows a bank to treat them as an individual. An example of it

money is a means to achieve a personal or professional goal. Emotion plays a huge role in deciding where and how we bank. If banks recognise this and treat people as individuals, that will translate into the loyalty and trust that everyone craves.

“To achieve this, a bank first needs to meet customers where they are, and that’s why an omnichannel approach is crucial these days. Second, use analytics and artificial intelligence to make services personal and insightful. And third, look at adjacent services from third parties that can be offered on your platform.

“Data, in particular, is a way to strengthen customer relationships. There is a now a plethora of data available on the end user. But we must not stop at providing the bank with deeper insights. We should share insights with the customer to help them with their financial goals.”

Caliceti adds that people aren’t just seeking banking products, but a financial partner or ‘life coach’.

Lorenzo Villa, Credem

delivering on that vision is a partnership with Italian insurtech Neosurance, announced in September. It uses analysis of purchasing data to identify pet owners among the banks’ customers, and introduces them to Neosurance’s pet policies.

Rusu says: “Beyond the numbers, banking and financial decisions are eminently emotional decisions, and

“That’s definitely a key driver when people are choosing a bank. So, offering a great customer experience is one of the most important goals, if you want to succeed in banking now.

“If we, as a bank, can follow a customer-centric culture and provide excellence in service, customers will become the first ambassadors of the brand.

“For a business, that is the most fantastic achievement, where your customers perform that role.”

If banks treat people as individuals, that will translate into the loyalty and trust that everyone craves Adelina Rusu, Temenos

We have to be conscious of the gaps that exist between the incumbents and new companies and fill those gaps. This means moving to Cloud and container technology as much as possible

Paying forwardit

How we bank, where we bank and who we bank with is changing dramatically. These incredible shifts are being driven by customers wanting and demanding more than ever before. And, if evidence were needed, the rise of buy now, pay later (BNPL) would be a good place to start.

Consumers today are used to fast, seamless and personalised experiences, just like those they receive from global entertainment and e-commerce platforms such as Netflix or Amazon. And this is what they want and expect from financial services, too: an intuitive journey with banking embedded into everyday interactions.

This is what BNPL provides, as an alternative form of credit, embedded into the point of sale. So, when customers find something they wish to buy, they can immediately benefit from a BNPL loan, without having to be diverted to a separate financial services journey or provider. Decisioning is fast, hard credit checks are rare and there is typically little to no interest charged.

The idea of paying in instalments is not the new part – in fact, that’s more than 100 years old. What is groundbreaking is how today’s technologies – like open APIs, Cloud and artificial intelligence (AI) – have created new levels of speed, scalability and seamless integration into consumer platforms. This is driving rapid growth. Around 360 million people currently use BNPL. By 2027, this is expected to triple

to almost 900 million, according to new figures released by Juniper Research this autumn. This is likely to lead to market growth of 45 per cent each year between 2021 and 2030, taking it from $132billion in 2021 to $850billion in 2026, according to a Buy Now, Pay Later Market report by Straits Research, published last July.

One example of the kinds of developments fuelling this trend is PayPal’s use of Temenos Banking Cloud to launch its BNPL solution in multiple jurisdictions. The results were dramatic: 48 million BNPL loan applications have been processed in two years, with 750,000 on just one Black Friday alone.

SHORT-TERM GAIN, LONG-TERM PAIN?

The rapid rise of BNPL comes as much of the world is facing a cost of living crisis, fuelled by rising inflation and energy prices. We are seeing this impact in BNPL, with another recent study by LendingTree, in April, finding that 42 per cent of consumers paying in this way have been late with at least one payment.

In a sense, the ease and convenience of BNPL creates its own challenges. Because customers can purchase items in such a fast and frictionless way, they may do so more impulsively. Our inherent behavioural biases favour the concept of ‘buying now’ and ‘paying later’. We prefer to focus on rewards in the present, rather than on implications in the future. This is known as ‘present bias’. Meanwhile, future spending obligations are often underestimated, a phenomenon known as ‘atypicality neglect’.

Further examination of these topics is best left to behavioural scientists. But what’s clear is that all of us in the BNPL value chain need to do more to help consumers make more responsible and informed spending choices.

BANKS + EXPLAINABLE AI = A SOLUTION

As concerns for consumer protection have grown, regulatory scrutiny of BNPL is naturally following. Global regulators are increasingly looking at areas like credit checks, transparency and education. And, as many commentators, such as S&P Global, have noted, this provides an opening for banks to enter the market, and take on the pure-play BNPL providers. Banks are used to regulatory scrutiny in a way that new providers are not. They’re also well-capitalised, at a time where borrowing costs for new players are increasing. But perhaps the biggest strength banks have is the trust their customers have in them. In fact, 50 per cent of people would prefer to have BNPL provided by their bank than anyone else. What this relationship affords banks is a wealth of customer data, including expected monthly income, spending obligations, past transaction history and even job status. Knowing more about their customers allows banks to offer different forms of BNPL. One example is ‘pay later’ services, where banks can retrospectively offer customers the ability to convert eligible previous transactions into a BNPL loan. This would provide some relief to those who may be struggling

Max Chuard, Chief Executive Officer at Temenos believes the banking technology provider’s ‘Explainable AI’ is the answer to a growing problem

Unlike in any previous large-scale financial crisis, data is now available in huge volumes and, thanks to Cloudnative platforms, FIs have the ability to mine it for insights that can underpin valuable new services

with cash flow, while allowing the bank to manage default risk by selecting those who already have their credit risk underwritten. And when this customer data is harnessed by an AI engine that is transparent and explainable – such as Temenos’ patented Explainable AI platform – rather than a ‘black box’, there is even greater potential to make a positive impact.

Let’s look at how this works in practice: In a typical online purchase scenario leveraging our Explainable AI-powered BNPL service, the customer is presented with the bank’s BNPL payment option at checkout for their purchase. They are given the option of different BNPL ‘flavours’ (instalment amount, frequency, duration, interest rate), which the bank has pre-determined. At this point, the customer will be presented with Explainable AI-driven estimates regarding their future spending ability, such as expected net disposable income. These estimates are coupled with easy-to-understand insights, in plain language, that outline the key drivers behind that calculated figure. Customers can also receive recommendations for budgeting adjustments they need to make to better afford the various BNPL options.

TECHNOLOGY HOLDS THE KEY

The result is a ‘win-win’ for all parties. For banks, this positive use of customer data allows BNPL to be an additional revenue stream that builds loyalty and trust, while controlling delinquency and compliance risks.

By offering BNPL directly under their own brand, banks are also able to better engage with otherwise hard-to-reach, digital-native Gen Z customers who are major BNPL users. And, for the customer, it maintains the frictionless BNPL experience, but in a way that helps them to make informed spending choices, countering the inherent behavioural biases we all face at a time when this is needed most.

So, just as digital technology enabled the ease and scalability that led the market to its current level of growth, Explainable AI can be the key to making this growth sustainable in the future.

It’s a great example of how, together, we can make banking better.

Hitting the button: Banks offering BNPL could make sense for them, and consumers

The rail thıng

The UK is poised to introduce a New Payments Architecture (NPA) for its retail interbank payment systems, beginning with Faster Payments, the pioneering real-time rail that has powered account-to-account (A2A) transactions for the past 14 years.

An increasingly important part of the country’s payments landscape, they’ve been encouraged by open banking and saw a rapid increase in adoption by consumers and businesses alike after the pandemic. So much so, that some predict 40 per cent of e-commerce payments alone will be made that way by the end of this year. With 40 direct participants, including banks and other payments services providers (PSPs), along with many others who access the scheme indirectly, Faster Payments handled in excess of 3.4 billion single immediate payments, forward-dated payments, standing orders as well as direct corporate access payments in 2021.

Growth in A2A payments is not unique to the UK; it’s a global trend, so much so that all the major card schemes have launched initiatives to facilitate them. The NPA, which will eventually also extend to Bacs – direct credits, widely used to pay salaries, benefits, dividends and suppliers, and direct debits, which automate the collection of regular payments, such as domestic bills – is therefore seen as a way to future-proof a critical part of the country’s clearing and settlement system.

Indeed, it’s purposefully designed to stimulate innovation by simplifying integration for new market participants, such as challenger banks, fintechs and regtechs, and to support emerging payment types. Overlaid services should reduce the number of connections that payment providers are obliged to maintain, while richer payments messaging data, using ISO 20022, could be used to deliver more value-added benefits for both service providers and their customers, from smoother reconciliations to personalised journeys. Ultimately, it should result in a lot more payment choice for consumers and businesses at lower cost. At the same time, risk is reduced by using prefunded settlement capability.

Faster Payments participants have already had to demonstrate how they will comply with the NPA, and provide a timetabled plan for, and an impact assessment of, their required system changes. In April 2023, the NPA will begin certification testing with a view to the architecture going live in mid-2024.

Coming on top of other ongoing infrastructure changes to international and domestic payments systems, it’s a lot for financial institutions to juggle. Will the results be worth it? Unquestionably, says our panel…

THE PAYTECH MAGAZINE: For any legacy provider, infrastructure changes have the potential to tie up a huge amount of

resource for years on end. On the other hand, digitally-led providers have been champing at the bit for an alternative A2A infrastructure. Is it possible to keep everybody happy?

MARK NALDER

(NATIONWIDE):

One of the biggest challenges for the Pay.UK team has been getting a timeline to suit everyone. A top-tier bank is having to do a lot of things, while a fintech wants to go quicker because it’s got limited infrastructure in place, so it can. The industry doesn’t do scheme migrations very often, though, and you’ve got to get it right. We’ve seen major scheme outages in the cards rail in the last few years and we can’t have that happening. So, while it’s taken longer than I’d personally like, this is the foundation of the next 20, 30 years of payments. If we get it wrong, we lose consumer confidence straight away.

SHANE WARMAN (PAY.UK):

You’re right that we need to be cognisant of the amount of change that’s going on in the UK industry.

RTGS CHAPS Renewal Programme (RTGS2), SWIFT, and NPA – there is a concern that we’re all fishing in the same pool for resources. So, in order to keep the pace of change and make sure that change is successful, as a core infrastructure provider, Pay.UK is trying to align the work that we’re doing with the work that’s happening at the Bank of England, and the work that’s happening at SWIFT.

Mark Nalder from building society Nationwide, Pay.UK’s Shane Warman, and Andrew Moseley at payments provider ACI Worldwide consider the opportunities presented by the biggest change to the country’s A2A payments system in more than a decade

Need for speed: But rapid payments must still be safe, secure and robust

ANDREW MOSELEY (ACI

WORLDWIDE): We have two of the largest customers here in the UK for Faster Payments – the introduction of the NPA has a huge impact alongside what else is happening, so, working collaboratively across the industry will ensure that what we end up with is the right payments ecosystem; one that’s secure, resilient, robust, promotes competition and innovation, and is successful. It’s a mission-critical system, though, so we have to tread carefully.

PTM: How important is ISO 20022 to domestic schemes like the NPA?

AM: As a global company, we believe that localised payments culture and preference is to be expected, and that will always be the case because, for a consumer, it’s all about the experience. But the key thing about the NPA is the harmonisation. Other markets have already moved to ISO 20022, some many years ago, while the US has its ongoing FedNow pilot, which we’re also involved in. What I’m saying is, rails aren’t the issue; what’s important is interoperability – the messaging standard being the same wherever you go, so the experience, while a little bit different,

The key thing about the NPA, is the harmonisation… rails aren’t the issue; what’s important is interoperability

Andrew Moseley, ACI Worldwide

depending on where you are, is still going to be supported.

It doesn’t matter if it’s a high-value payment, a low-value payment, a card payment, an A2A payment, whether it’s real time or near real time, eventually, I believe they will all come together, and having standards such as ISO 20022 will facilitate and accelerate that. Whether we ever reach the nirvana of a single rail for all payment types – it’ll probably be another 30 years before we get there. With what’s happening in the next two or three years with the NPA, and what SWIFT’s doing in cross-border payments, it’s all coming together, though.

MN: I agree that ISO is the key: a single message format for all types of payments. But will we get to a single rail? I don’t think we will. And I don’t think we need to. If you went down to a single rail, you’d limit competition and you’d get a concentration that I don’t think we want to see in the industry.

But a single message format gives you so much opportunity around interoperability. It drives resilience and it gives consumers confidence. So, yes, ISO is the key to taking us in the right direction.

PTM: What benefits will consumers and business users see from the NPA?

MN: Honestly, the opportunities created by the enriched data that ISO 20022 brings could mean so much for the consumer. We can start to develop consumer profiles, understand how they spend, and identify where they could maybe save money, and customise offers

Most end users don’t care about the rails. In fact, they don’t even know about them. What they do expect, though, is that when they make a payment, it’s safe, it’s secure, and it’s robust Shane Warman, Pay.UK

for them. So, there is a real opportunity for the industry to understand consumers better. But it also creates an opportunity to improve security around fraud, giving consumers confidence that they can pay someone immediately because the extra data we have means we’ll be able to conduct additional fraud checks. It means we can change the prioritisation of payments, too – because we can build up a consumer profile of the types of payments he/she does and introduce additional levels of security for certain other types of transaction.

When it comes to the SME market, the NPA is all about improving the end-to-end customer journey. Invoicing is a great example of that. For instance, I get my windows cleaned and I receive an email or a text from the window cleaner with an invoice attached. I pay it and get a message

back, saying ‘here’s your next booking.’ Within that exchange, there’s a payment, but, for the consumer, it isn’t purely a financial transaction. The payment is an organic part of the conversation they’re having with that business.

Ultimately, NPA also creates potential competition in the future between payment types – could the NPA be a real competitive alternative to cards for consumers and merchants, for example?

SW: I agree that one of the strongest use cases is in the SME market, around providing an efficient way of sending people invoices and getting them paid. Here, as elsewhere, most of these kinds of opportunity will come from what sits on top of the rails. In Asia, for example, where you often pay by QR code, people see that as a different service, but it actually sits on top of – usually – a real-time payments rail. In fact, you could do all these things via either the real-time rails we have here, or via card rails, because the solutions are rail agnostic and developers will be looking for different things when they make that choice. Their decision could be based on cost, efficiency, security… so we have to connect to those people who are building the solutions that will sit on top of the NPA, the solutions that consumers use.

As for end users, though, most don’t care about the rails. In fact, they don’t even know about them. What they do expect is that when they make a payment, it’s safe, it’s secure, and it’s robust.

We need to make sure that we continue to maintain the robustness of the UK payment rails. Doing things in a safe and secure way, is the most important thing for us as a core infrastructure provider.

AM: Here in the UK, we’ve a fantastic

A2A scheme that’s been 14 years in production. The experience is good – but I think consumers will be blown away by the experience once the NPA ecosystem is in place – what participants to the scheme will be able to add on top of those rails by way of overlays and what they enable consumers to do.

PTM: You’ve all referenced the need for trust in the system as being fundamental. How will a new payments infrastructure encourage that?

MN: Unfortunately, fraud is now moving into the Faster Payments space. Confirmation of payee has done

a great job reducing that fraud, but we are now seeing a lot of authorised push payment (APP) scams – romance scams being a typical example of that – instead.

I’m all for moving forward, and for payments being immediate, but if you take a step back and say for a very, very small percentage of transactions, we’re going to take a bit more time – if I’m buying something for £10 online, that’s low risk, but if I’m paying someone I’ve never paid before £20,000 that’s high risk – then, as a consumer, I’d be OK with that.

Innovation doesn’t mean everything has to be real time. There’s no harm in taking a risk-based approach around certain types of payments. For us at Nationwide, it’s just a matter of keeping our members informed about that. That said, it’s not always easy. We’ve had plenty of examples where a customer has come into the branch and

Mark Nalder, Nationwide

begged for a particular transaction to go through, and, despite us saying ‘no, we’re convinced this is fraud’, they’ve insisted. It’s gone through and, unfortunately, it did turn out to be fraud. So, you can only do so much, but I think the enriched data that ISO 20002 will bring, will absolutely help with that. Along with confirmation of payee, these things will add an extra level of security to a payment.

SW: Giving people confidence will absolutely allow us to innovate, depending on what the market needs. All around the world, the faster payments system is trying to solve different problems in different markets. In the UK, we don’t necessarily have the same numbers of people that are excluded from the financial system that they did in Asia, for example. When they rolled out real-time payments there, it really allowed people to begin to collect money and open bank accounts.

The biggest problem we’ve got at the moment in the UK is around fraud prevention. So, that’s the thing that we need to crack first.

Innovation doesn’t mean everything has to be real time.

There’s no harm in taking a risk-based approach around certain types of payments

Squarıng the Cırcle

The rebundling of financial services by tech-driven companies previously associated with just one vertical has highlighted infrastructure challenges as much as it has created market opportunities. Banking Circle Group’s entry into the US market seeks to resolve that dilemma

A survey published this year by open banking platform Plaid found that more US consumers now use fintech services than they do video streaming and social media. Let’s take a moment to digest that fact.

In 2021, 88 per cent of American people accessed an app to manage their financial lives, up from 58 per cent in 2020. Fintech is now so much a part of US society that 71 per cent of consumers say that they talk about digital finance in their everyday conversations. Comparing features on Zelle or Venmo is as common as discussing last night’s Netflix mini-series or your favourite new meme.

That’s an extraordinary position of power, influence and responsibility for the industry to be in. How are providers responding? Many by mutualising and embedding services like never before; assembling a curated menu of options that are adjacent to their core offering and chosen to meet their users’ specific needs. That’s happening in the B2B environment as much as it is in B2C.

It’s a big swing of the pendulum, away from the ruthless ‘unbundling’ of financial services by a new wave of specialist digital providers who mined deep veins of financial exclusion and disillusion with banking services that followed the Great Financial Crash 15 years ago. Now they are busy ‘rebundling’ those services and adding more to offer a one-stop-shop, stocked with options that at least equal and often exceed those previously available through the mainstream banks, whether that’s payment services providers moving into lending or

investment platforms offering debit cards.

In the last few years we’ve seen plenty of examples of that in the US market, but these models differ from legacy institutions’ in many respects. While bundling is a tried and tested strategy for improving customer loyalty and increasing lifetime value, the customer experience these new players deliver is unrecognisable from what went before. As is the technical challenge in achieving it.

The integrations necessary for this ‘platformification’ of financial services, often embedded in another (not necessarily financial services) channel, have not kept pace with the aspiration at the slick front end, where much of the investment in startups focussed – rightly, in the first instance – on UX.

“Rebundling products is great for improving customer stickiness, as it allows businesses to offer a complete lifecycle of

“Many industries have been radically transformed at the front end, but often far less so when it comes to the back-end systems – it’s no different in payments.”

The trend hasn’t escaped the notice of investors. As seasoned fintech VC Mark Goldberg, a partner at Index Ventures, which has dual headquarters in San Francisco and London, commented recently: “The next wave of infrastructure will be towards one superstore that happens to sell 10 products, not 10 companies that sell one.”

Anders la Cour, Co-founder & CEO, Banking Circle Group

financial services to their customers,” says Anders la Cour, co-founder and CEO of Banking Circle Group. “But in the race to rebundle, the strongest multi-solution platforms will be those built on modern tech stacks.”

The key challenge is interoperability. “It’s increasingly an issue as the world becomes more globalised,” says la Cour.

With capital flowing most freely into later-stage fintechs over the past five years in the US, and mega raises in 2021 giving many a decent runway to aggregate services and grow into last year’s eye-watering valuations, the back-end infrastructure’s ability to support expansion is likely to come under increasing scrutiny. Banking Circle Group’s move into the US will help address those shortcomings, promises la Cour. He explains that, as companies accelerate the digitisation of their customer and supply-chain interactions, the Group acts as a bridge, creating the interoperability that is still lacking in banking and payments.

“We facilitate easy movement between financial systems and services, regardless of the markets that our clients and their own customers are in. As a back-end provider for other financial services businesses, our focus is on taking away the complexity and handling the infrastructure, leaving our clients to focus on what they do best.”

At the heart of the Group, is the Luxembourg-based Banking Circle bank,

Interoperability is increasingly an issue as the world becomes more globalised

headed by the Group's co-founder Laust Bertelsen, which has been providing banking, payments and embedded finance services across Europe since 2016, building a ‘super-correspondent banking network’ at the centre of which sits its own ‘bank for the digital economy’. Last year, it was granted a full banking licence in the state of Connecticut, in preparation for the Group’s move into the North American market.

The bank’s track record in Europe is impressive. At the time of writing, it had processed more than $250billion in transaction volumes since its launch, on behalf of payment companies, other banks and marketplaces. And it processes six per cent of Europe’s B2C e-commerce flow. It’s built a client base of more than 250 financial institutions and larger marketplaces, including payments giant Stripe’s operation in Europe. It delivers access to 12 local clearing schemes through a combination of direct clearing and partner banks, enabling cross-border payments in 25 currencies.

The bank aims to become one of the few in the US that are able to deliver real-time payments at the lowest possible closing

cost between major clearings globally. It will do that by leveraging its already well-established network and direct access to US clearing.

That will be welcome news particularly for export-focussed businesses in the States, which may have been frustrated by the lack of fast, frictionless and transparent cross-border services that are only now being seriously explored by the two existing federal payments operators.

“Banking Circle’s goal is to reduce the cost of cross-border payments to just five cents and the time a transaction takes to under five minutes,” says Bertelsen.

While that might sound ambitious, similar targets at very high volumes have already been realised in Europe by moving fully to the Cloud in 2021.

“With an entirely Cloud-based infrastructure, we’re able to evolve architecture at rapid speed,” says Bertelsen. “The Cloud increases control, capacity and efficiency, and means our developer teams can take an agile approach to make specific upgrades in a decoupled way, which also

has a customer experience advantage, whereby systems can be improved without impacting other critical workloads.

“APIs also enhance the customer experience, facilitating effective integration between platform functionality and customer workflows. The advantage is clients have the ability to link payment services to their own infrastructure, which is unviable when using slower legacy systems. Banking Circle’s APIs enable clients to instantly access data to accelerate the process, in turn promoting a seamless user experience.”

The bank’s move into the US will not only open faster, cheaper export corridors to State-side businesses, but, of course, give US market access for European clients.

“We partner with banks, financial institutions and fintechs all across the globe, enabling them to gain geographical reach and access markets their customers want to trade in,” says Bertelsen. “US organisations are no different. For payments companies and fintechs looking to offer their customers payments services beyond North America, partnering with Banking Circle means they have the potential to handle transactions in up to 25 currencies without facing prohibitive costs, all with full regulatory compliance for each jurisdiction.

Solving the rebundling puzzle: (clockwise from top) Anders la Cour, Laust Bertelsen and Mikkel Velin

“Working with US companies is important to our mission because we want all payments businesses to be able to unlock access to the global markets through fast, low-cost payments and multi-currency account solutions.”

Banking Circle recently announced the addition of USDC stablecoins to its payment rails for conversion from fiat currencies.

“This latest addition is an important step as we grow our super-correspondent banking network, giving banks and payments businesses the ability to step outside the traditional correspondent banking model and extend their offerings,” says Bertelsen. “Web 3.0 is already completely transforming the payments landscape and we encourage US banks and financial institutions to get onboard now.”

Banking Circle is taking on a job that very few other banks or fintechs want to tackle – investing in integrating a vast network of

YOU LEND

local clearing and payments schemes, which, points out Bertelsen, addresses another key issue.

“Many sellers and merchants still face financial exclusion as they are unable to access payment solutions that make it easy for them to serve different geographies and accept different currencies. The root cause is that the financial institutions that underpin e-commerce businesses continue to struggle to tackle some of the inherent issues around international payments, from the cost

and speed to the threat of de-risking. In creating this super-correspondent banking network, direct access to local payment rails cuts the cost and time of payments for specific currencies, opening up significant revenue opportunities in some geographies.”

Although it is expanding into the US, the bank won’t be going up against existing local banks, stresses la Cour. “Rather, through us, banks and financial institutions in the US can enable their own customers to operate in Europe and receive domestic payments from the region.”

Cross-border payments are fundamental for businesses if they are to grow beyond their borders. And it’s likely to feature among additional services that, according to one survey last year, 53 per cent of US financial companies are looking to include for clients. The great rebundling is happening. It’s just a matter of making sure the payments infrastructure keeps up.

A GLOBAL OPPORTUNITY FOR SMEs

Embedded finance is said to have accounted for nearly five per cent of US financial transactions in 2021.

While that makes it the world’s largest market, there’s plenty of room for growth, says Mikkel Velin (left), CEO of YouLend, an embedded SME financing solution and part of the Banking Circle Group. Already partnering with a number of enterprise platforms, such as eBay and Shopify, YouLend uses alternative data points to carry out credit risk assessments for small businesses, incorporating data points such as website analytics, social media trends and online reviews to predict the growth of a company and reduce reliance on outdated financial information to inform credit decisions.

Its launch in the US as part of the Group’s expansion into the region comes at a time of increased optimism among small business owners, despite the economic headwinds. The latest Small Business Recovery Report to be produced by Kabbage (part of American Express), revealed in September that many SMEs are looking to invest, particularly

in digitisation and making more of customer data. We asked Velin what YouLend could bring to that SME growth market.

THE PAYTECH MAGAZINE: YouLend offers financing solutions to SMEs via payment service providers, banks, e-commerce platforms, marketplaces and techcos. Does that give you a perspective on the embedded economy?

MIKKEL VELIN: We think the embedded financing market in the US is still significantly underserved. Only a small proportion of enterprises are offering such products to their merchants and businesses and many of those are still working with clunky platforms or complicated and slow user experiences.

YouLend has already refined its offering across Europe, with one-click applications and instant offers. Being part of the Banking Circle Group gives us a significant advantage, too, in being able to quickly and cheaply implement a suite of complementary financing and payments products to enhance a merchant’s experience, so our partners can create an ideal roadmap for them.

FF: How do rebundled services and embedded solutions benefit businesses? There are clear signs in the payments space that finding opportunities for partnership between providers is delivering value to both those providers and their end customers. That applies to embedded financing as well. Enabling customers to quickly access multiple financial products is what most want – to build trust and familiarity with their main provider and go to one place to manage all their business activities, from making sales to taking payments, to applying for funding for future growth.

TPM: Can YouLend expose SMEs in the US to global lending opportunities, too?

MV: A key aspect of what we offer our partners is product parity, globally. We understand the challenges of running an enterprise platform across different geographies. So, we make it possible for these platforms to offer the same products everywhere, whenever they wish. We also offer clear improvements on key aspects of our partners’ growth – our solution spurs merchants’ growth by 15 to 35 per cent on average, for instance, and reduces their churn by half.

Clients have the ability to link payment services to their own infrastructure, which is unviable when using slower legacy systems

Laust Bertelsen, CEO, Banking Circle

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Oiling the Cogs

It has never been so important to facilitate the movement of international trade finance, argue Finastra’s Michael Vrontamitis and Joshua Kroeker from Contour

Decision-makers in most major economies are on the horns of a dilemma in which they are raising interest rates to curb inflation while simultaneously trying not to tip their country into recession by dampening demand too far.

And there are no signs that the two major fuels of this fire, the COVID-19 pandemic and Russia’s invasion of Ukraine, are going away any time soon.

So, it could be argued, there’s never been a better time to grease the wheels of the financial ecosystem that facilitates the movement of goods and services around the world. But there are major sticking points to overcome and perhaps chief among them is access to trade finance.

An Asian Development Bank study concluded that there was a $1.7trillion gap in trade finance availability in 2020. At the time, that represented 10 per cent of global trade and the shortfall is likely to have worsened since then, due to the pandemic and the global economic downturn. The issue is particularly challenging for micro, small and mediumsized enterprises (MSMEs) of which four

out of 10 will be rejected for finance, according to market analyst McKinsey. And MSMEs matter: they account for more than 95 per cent of all firms, up to 70 per cent of all employment, and are playing an increasingly important role in global trade. Indeed, in its recent report on the global trade ecosystem, McKinsey states: “Against a backdrop of increasing digitisation of financial and commercial services, trade finance has been relatively slow to modernise its decades-old processes.”

It continued: “Multinational corporations have begun to leverage digital technologies that promise improved supply chain efficiency and transparency, establishing new digital networks to facilitate trade and finance. But MSMEs, with their fragmented nature and limited scale, find it difficult to capitalise on such opportunities. Resolving this issue is critical for all participants in the global trade finance system.”

THE CAVALRY IS ON ITS WAY?

One signpost to the potential answer might lie in a new partnership between

Contour, a Singapore-based worldwide trade digital network, and Finastra, a global provider of financial software applications and marketplaces.

By combining Finastra’s Fusion Trade Innovation software with Contour, the two providers can claim to link the two key components of digital trade finance – a deeply integrated core banking platform for internal processes and an external, decentralised network for bank and corporate customer communication – with the aim of improving speed and efficiency, reducing costs, and, vitally, improving trade finance accessibility for those beleaguered MSMEs.

Such interoperability is much-needed for an ecosystem where ‘digital islands’ have been created by certain sectors recently going it alone, but where paperwork still plays a key role in many transactions, according to Michael Vrontamitis, lead industry principal of Finastra’s lending business unit.

“Digitising the trade ecosystem is going to have a huge impact on financial institutions (FIs) and there are a number of reasons why,” he explains.

“The first is operational cost. Today, banks deal with a lot of paper. By digitising transactions, you can eliminate a lot of the associated costs.

“The other key benefit is the ability to make credit decisions. Today, data is difficult to access. If it’s available in a digital format, then FIs can use that data to build credit models and make better credit decisions. And that benefits them in terms of being able to hold less capital and increase their profitability.”

Joshua Kroeker, chief product officer at Contour, agrees that banks are increasingly looking for ‘common solutions’ to allow them to do business more effectively and efficiently, and he reveals that using decentralised technology was the key enabler in developing its network.

“For banks running operations centres, efficiency, of course, is important. They want to lower their cost to serve so they can offer their products and services to a wider range of corporates, even at lower transaction values,” he says.

“If you’re working with a different solution for every country, or a different solution for every group of customers, it’s not very efficient, and you’re not going to drive down that cost to serve. So, banks are looking for common solutions to launch across their networks, and to all the

have that big systemic risk. In this way, decentralised networks have allowed us to build a common network for the first time.”

And digital solutions like these are also key to improving the accessibility to trade finance for MSMEs.

“Because there is so much process and cost involved in providing paper-based products, banks are reluctant to provide them to a wide range of customers,” explains Kroeker.

“They’ll probably only give them to customers where there’s a large enough transaction to make it worth their while. By digitising it, you can reduce those barriers and start to make these products a lot more accessible.”

DRIVING DOWN PROCESSING TIME AND COST

Security, of course, is an integral factor in any digital transaction, and that brings an added layer of complexity to the world of global trade. For his part, Vrontamitis advocates a transparent system where every entity in the supply chain has a digital legal identifier.

“That allows banks to onboard faster, and it allows suppliers to be onboarded faster once they’ve signed a contract with the buyer, so that they can execute the contract earlier and be paid earlier,” he argues. “It has huge benefits for all participants in the supply chain by getting that digital ecosystem working, but it really starts with the legal entity identifier.”

Meanwhile, Kroeker pushes the case for a digital version of the traditional letter of credit system, which Contour has developed on its network.

Joshua

markets around the world. But building a global network for trade, where all the data is going to sit in one place, is not acceptable in 2022, which is why we’re using a blockchain that allows the data to be decentralised.

“Every bank and every corporate has the ability to choose where their data is: they can host it, they can control it, it can be in a country of their choice, to meet their regulatory obligations. Because all the data isn’t sitting in one place, they don’t

“What we want to do is provide all of the benefits, all of the risk mitigation of the letter of credit, but without all that process and paper,” he explains.

“We move away from messages, we move away from disconnected systems, we move away from courier bags full of paper, and put all of that onto one connected network for both banks and corporates. And the benefit of that is really driving down the process. We’ve had corporates say it reduces their overall process by 90 per cent.”

But what does the partnership mean for Finastra and Contour, and their clients?

Vrontamitis points to how the connector it has developed avoids the need for its

client banks to have to build their own interfaces to join Contour’s network, radically simplifying the process for them. For Kroeker it’s all about scale for an organisation that only came into being in 2017 but has big ambitions.

“By integrating into solutions like Finastra, you’re making that adoption curve a lot flatter,” he emphasises. “We can now bring in a bank and they don’t need to learn a new system, they don’t need to educate their staff on how to set up their users, or how to manage risk within their internal processes. They can use their existing trusted provider – Finastra in this case – but still connect to the Contour network. That combination of a trusted process that they’re comfortable with, and new functions, new features and more efficiency, really is going to help us grow adoption in a big way.”

He adds: “Companies like Finastra also have a corporate channel and we’re really excited to start exploring how we can

Digitising the trade ecosystem is going to have a huge impact on financial institutions… they can use that data to build credit models and make better credit decisions… hold less capital but also increase profitability

Michael Vrontamitis, Finastra

embed and integrate the Contour offering into that, as well as with other bank corporate channels around the world. All of a sudden, people will just start using Contour without having to make a big decision to switch, so we become the pipes that will power the future of trade finance digitisation.”

McKinsey forecasts that an improved global trade finance ecosystem could create many of the 600 million new jobs needed by 2030 to absorb a growing global workforce. It could also bring the world closer to achieving the goal of financial inclusion for MSMEs, which is needed particularly in developing economies. So, the quicker those Contour pipes are flowing, the better.

We move away from messages, disconnected payment systems and courier bags full of paper, and put all that on one connected network for banks and corporates

Kroeker, Contour

Checkoutchoices

With consumers demanding fewer barriers between the physical and digital worlds, Barclaycard Payments is using technology and data to better connect them with businesses and improve the transaction experience for both, says Harshna Cayley

Consumer behaviour is changing and the lines between digital and physical are becoming increasingly blurred as more and more people see shopping as one experience – be it online, in-store or conducted over a mobile device.

And this is fuelling the need for an increasing array of payment methods, enabled by the rise of open banking. In addition, services such as buy now, pay later (BNPL) give users even more choice and flexibility when it comes to how they finance their purchases, whatever method they opt for. And therein lies the conundrum for businesses – how to simultaneously provide the seamless, flexible and consistent commerce experience customers desire, from their choice of initial shopping method to returning items they don’t want, while also responding to rising demand for a wider variety of payment options. This is particularly relevant in retail.

Consumers want friction-free, integrated, connected experiences within every single channel they interact through. Harshna Cayley, head of online payments at Barclaycard Payments, says: “Customers

want a seamless shopping experience. What that means for retailers or other businesses is that they need to continually work to create that single customer view, through every single touchpoint the consumer is in. And that means they do need to embrace and be resourceful with the technologies they’re using and the payment providers they’re working with.”

Cayley is in a particularly strong position to comment, as Barclaycard Payments is the number one payments processor in the UK, as well as the number one commercial card provider and number two merchant acquirer in Europe.

“The scale that we have around our expertise, data and insights, and the solutions we put in the hands of our customers, is pretty incredible, particularly around helping those businesses grow and particularly with the backdrop of the rising cost of living, economic uncertainties, and so on,” she adds.

Barclaycard Payments has long been a major player in the point-of-sale (POS) market, which has become an increasingly competitive area of payments with a plethora of new entrants stepping in and offering a range of flexible options. Most

recently, the company launched Smartpay Touch into that market – an all-in-one POS solution that enables ‘businesses to run their businesses’ by simplifying users’ admin and thereby enabling them to maximise profit.

Presented as a modern-day take on the traditional bank manager, this nifty little terminal takes all payment types and offers its users services including real-time insights, inventory control and supplier management to boot. Smartpay Touch is not just about taking payments.

“It’s got the software layer, it’s on a nice white device, and it enables businesses to run their operations. It helps them with inventory management, CRM and appointment booking, as well as taking card payments,” says Cayley.

Such devices are becoming increasingly vital for businesses as consumers continue to shun physical bank cards in favour of digital alternatives, wallets and other payment types. Indeed, Cayley says digital wallets now represent the highest single transaction method, at 30 per cent of sales, outstripping contactless payments in store (24 per cent) and conventional card payments (21 per cent).

“So, we know that consumers are embracing digital wallets and we’re going to see it going in one direction; it will hike up even more,” she adds.

Cayley reasons that if consumers nowadays expect digitisation to be there, without friction, and are increasingly intolerant of manual, time-consuming processes, then businesses must embrace the changes to thrive.

Omnichannel, or unified commerce as she calls it, is here to stay.

“It’s not just about taking payments anymore, or the checkout interaction, it’s the whole experience that can be powered by software loaded onto the POS devices that consumers are familiar with,” she says.

Meanwhile, Amsterdam-based global payments company Adyen recently launched two POS terminals, in its first foray into hardware design. The brief was to design ‘terminals that support mobile customer journeys, at an affordable cost, with a powerful battery’.

Small businesses are often described as the lifeblood of the UK economy, with the country’s 5.5 million SMEs accounting for 99.9 per cent of the business population. Working with a payments provider such as Barclaycard Payments gives them the ability to access payment technologies that offer those friction-free experiences, as well as access to their regulatory expertise and insights.

ancillary capabilities available through that gateway, or through other partners or platforms,” says Cayley.

Another industry hot topic, when it comes to creating an all-in-one experience, is payment orchestration. A payment orchestrator acts as a ‘piece in the middle’ of the process and enables retailers to consolidate and aggregate their payment services in one place so that they can route their payment flow to different service providers – a bit like price comparison sites in sectors like insurance.

“It provides that middle simplification layer and smart routing, to be able to leverage capabilities a company might not have within its own environment,” explains Cayley.

This can benefit companies of all sizes. After all, consumer demand for multiple payment types means that retailers and other businesses will have to find a way of making them available to customers to retain their business.

“There will be more innovation in this space, with more access to data, and we’ll potentially see new payment types emerge as a result,” Cayley predicts.

Virtual cards, for example, are already becoming the norm in the corporate world.

“As businesses are looking to streamline their expense processes

“The same software could even be loaded onto a phone, to enable tap-on-phone type propositions – and that will really help with a number of needs, particularly for small businesses – or that software layer can be added into a bigger till solution.

“Omnichannel or unified commerce is becoming much more of a reality, and there are real technologies out there that enable that friction-free experience across a number of channels.”

Barclaycard Payments is far from the only player in this field. Many consumers are already familiar with the small, white POS terminals of Square, which offers a suite of bespoke smart and integrated finance tools for retailers, restaurants and others. Shopify POS is another, widely hailed as a solution for retailers, as it enables payments from their bricks-and-mortar store to be tied in with online sales, while Lightspeed is praised for helping hospitality companies run their businesses more smoothly.

It’s not just about taking payments any more, or the checkout interaction; it’s the whole experience that can be powered by software loaded onto the POS devices that consumers are familiar with, or even loaded onto a phone

The latter is particularly important since the introduction of mandatory strong customer authentication (SCA) rules, which require all online transactions over £25 to have an additional identity check – which inevitably adds complexity to the payments process and friction to the customer experience. At the centre of the e-commerce and omnichannel space are payment gateways, including Barclaycard Payments´ gateway, which not only enables online payment experiences but also connects to other services such as e-commerce platform BigCommerce, accounting software FreshBooks and business management tool WellnessLiving.

“It’s not just about taking payments in an online, e-commerce environment; there are

– and leveraging virtual corporate cards for ad hoc expenses and so on – we’re seeing more demand for that particular proposition,” Cayley points out.

Overall, she thinks the role of hardware will reduce over time, as payments are increasingly powered through mobile devices – iOS or Android – and more data becomes available from both a merchant and customer angle.

“The lines are blurring between the in-store and e-commerce environments,” she concludes. “Omnichannel will just be there – always on, friction-free, any channel, any interaction, any touchpoint, making e-commerce and physical payments feeling like one. POS and in-store innovations are helping to bring it all together.”

Fluid motion: Customers want to move between the digital and physical worlds

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Hittingthemark

The last thing cost-conscious customers need right now is to receive incorrect bills. Businesses must adapt to better meet their evolving needs, says Nathan Shinn, Founder and Chief Strategy Officer at automated billing solutions provider, BillingPlatform

From the continuing fallout of the pandemic, through to Brexit and fears of a looming recession, mounting economic pressures are forcing many to reassess their spending priorities going forward.

We are already seeing consumer spending habits change because of these. Recently, it was revealed that more than one million music streaming subscriptions have been cancelled in the UK, with 37 per cent of customers citing saving money as the reason for cutting services, while an increasing number of people are turning to alternative payment methods, such as buy now, pay later, to purchase goods.

It is not just individual consumers who are feeling the strain, businesses are also under increased pressure to streamline spending to ease the financial impact of the past few, challenging years.

Whether selling to companies or consumers, providers will be nervous about these changing spending habits. However, while this concern is understandable, firms should also see it as a wake-up call to adapt and meet these new expectations. Providers need to rethink the purchasing options they are offering their customers, as well as their business models, to meet evolving demands, or risk being left behind.

Some organisations have realised the need to adapt and are viewing the changing market as an opportunity to evolve the payment options they are offering in order to provide more choice for those looking to monitor their expenditure. This is because offering a wider variety of payment options means they can avoid losing customers for which previous billing methods, such as fixed-fee subscriptions, may no longer be viable.

Fortunately for providers, the number of different billing and payment alternatives has grown in recent years. One of the most

prominent among the new business models that companies are deploying is a usage-based pricing (UBP) one that allows end-users to only pay for what they consume. According to a report from global venture capital firm OpenView on the software-as-a-service market in 2021, a quarter of companies that used a UBP model had introduced it within the previous 12 months. 2021’s adoption of UBP exceeded that of both 2019 and 2020 combined.

It’s positive to see businesses actively implementing alternative billing methods to meet changing customer demands. However, while this may sound like a straightforward approach, putting the processes in place is a different, more complicated matter. When businesses are no longer generating the exact same bill for every customer, they need to be able to capture various inbound data on user consumption and/or their subscriptions, apply it against contracted rating agreements and create a unique, accurate bill quickly. For companies that have never used multiple billing options, this can be a challenge as they need to put in place new processes which, if not implemented correctly, can lead to inaccurate billing. This both impacts the customer’s time and, consequently, the reputation of the business.

The impact of not putting in the correct processes has been seen in the UK energy sector, where it was revealed that 40 per cent of the problems that energy customers contact Citizens Advice about are related to inaccurate billing. This example demonstrates that offering more payment choices alone is not enough and it needs to be supported by technology and solutions that enable companies to do this properly, so that they

don’t risk compromising on efficiency or customer experience.

Those wanting to offer varied means of payment, and looking for technology to support this, should ensure they implement automated solutions, such as data mediation (the ability to process raw-usage data quickly and accurately), into the billing process. Using platforms that can analyse a customer’s usage and payment choices means firms can be confident that they are providing them with accurate invoicing information at all times, removing the risk of human error and costly mistakes.

At the same time, firms should implement technologies that can adapt to customer demands. Prioritising billing solutions that are flexible to react to market trends in real time, launch new offerings and expand into different geographies, means that businesses are future-proofed to meet the changing needs of customers and can avoid having to make the kinds of dramatic changes some have been forced to adopt in the current challenging conditions.

Change isn’t easy and implementing new processes can be both risky and daunting. This means those that want to provide more billing options need to ensure their offering is backed up by technology that can manage these new processes and adapt to evolving customer needs. This will mean providers can give customers the flexibility they desire while maintaining a high quality of service, and helping them survive and even thrive during these tough times.

Moving the dia l on financi al crime

Banks and their fintech partners share responsibility for driving risk out of the system. But how best to go about it? By taking a radical new approach, says

Change and risk are two sides of the same progressive coin. It’s why banks for years chose not to deal in it. But engaging in the digital economy is no longer a choice; how banks address some of the challenges it presents them with, is.

For David Howes, global head of financial crime compliance (FCC), conduct and compliance framework at Standard Chartered, ticking increasingly complex regulatory boxes in a purely rules-based system isn’t sufficient – not for the bank, the wider financial services industry, and especially not for those who suffer the very real consequences of a collective failure to stop the flow of dirty money.

It’s why Standard Chartered is taking a lead role in shaping a new global, cross-sector approach to anti-money

laundering (AML). And, given the acceleration in the number of fintech partnerships, which present a whole new threat vector for regulated institutions, why Howes is keen it should influence those fintechs’ approach to risk, too.

“We have to comply with laws and regulations we do not get to choose these. But you’d struggle to find anyone who will argue that the public and private sectors are applying resources to optimum effect and getting the results from FCC that we hoped for,” he says.

While banks are legitimately concerned about being hit with a big stick by national and international authorities, he believes too much of their focus up to now has been on process and not on results.

That countries intercept and recover less than one per cent of global illicit

financial flows, according to the United Nations Office on Drugs and Crime, indicates that AML is broken. Huge investments by banks in technology and people to identify potential suspicious activity in line with anti-money laundering directives and, more recently, stringent international sanctions designed to identify the true beneficial owners of assets, means they diligently generate millions of reports, but that merely demonstrates they’re watching.

Standard Chartered is keen for banks and others to adopt a threat-based approach to compliance, meaning resource could be better deployed in identifying criminals and providing the relevant authorities with the means of pursuing them. Additional vulnerabilities created by an increasing number of players in the financial ecosystem,

David Howes, Global Head, Financial Crime Compliance, Conduct & Compliance Framework at Standard Chartered

not all of whom are required to operate to the same compliance standards as regulated FIs, only makes the argument for such a threatbased approach – one that can be mutualised across the industry – more compelling.

Mox, Standard Chartered’s digital bank, launched in Hong Kong in 2021, has already provided such a model.

Mox started by identifying the unique threats it faced and risk-rating them. The higher and medium-ranked threats were subject to detailed mapping to identify, for example, specific threat corridors, customer segments, geography links and other important attributes. A joint team from Oliver Wyman, Financial Crime News and Mox then worked together to establish the threat relevance and exposure – for example, to the customer base, products and services offered – and the threat impact, such as the financial impact, reputational damage, and customer and investor attrition. The threat classifications went way beyond generic money laundering to rank Mox’s exposure to the specific crimes that it could facilitate, such as people trafficking and drug smuggling.

The bank then applied general, institution-wide controls as well as controls by customer lifecycle – for example, at the intersection of customer onboarding (the stage in the lifecycle) and human trafficking (the identified threat). The findings of the pilot FCC programme were outlined in a joint report, The Threat Lens – Putting The Financial Crime Threat Back Into The AML/ CTF Risk Assessment

Commenting on the pilot, Howes said: “What Mox has done is innovative in that it tried to rethink the risk analysis and say ‘what are the actual threats that we are exposed to and can we move more of our resources towards them?’. It is in line with what the Wolfsberg Group [13 global banks, including Standard Chartered, which are developing industry standards for AML] is saying on making FCC more effective, by focussing on what useful information we can provide to relevant authorities.

“Being more threat-based in how we think about financial crime risk is absolutely something we at Standard Chartered are seeking to incorporate. We have built risk models for client risk assessment using similar tech to building a credit model, recognising that the data has to be just as clean for financial crime.

“We take variables at onboarding which

give a view on where to risk-rank that client, which directly influences the due diligence we take.

“In transaction monitoring, we are focussed on collecting data on investigations that we have had done by thousands of analysts on millions of cases to identify the various indicators that caused them in the end to be suspicious. That leads to you producing cases that are more relevant to authorities.”

Based on the result of the Mox pilot, The Threat Lens report issued the following rallying cry to financial service providers: “While this approach was considered for new and emerging banks, e.g. Mox, the pilot could be considered by other FIs as enhancement opportunities for their existing programmes,” it said.

“The current industry standard for risk assessments is complex and taxing on smaller FIs which may lack the sophistication of systems, management information and workforce to conform to the arduous traditional exercise. A threat-based risk assessment may be a unique and incredibly insightful alternative to the current approach.”

operation. That’s a particular threat in cross-border payments, where missing identity information in the payments chain makes it hard for a FI to understand its exposure to, for example, sanctioned individuals. Indeed, in the UK, the Financial Conduct Authority fired a warning shot across the bows of challengers earlier this year, highlighting inefficient transaction monitoring, lack of due diligence and poor alert management, which would all raise red flags for a banking partner.

“But there are a number of things a fintech can do to be a more credible partner to a bank or to secure banking services,” says Howes. “Take responsibility for things is the first – if you tell me the regulations under which you operate don’t specifically require something relevant to managing risk, that’s not the answer I’d be looking for.

“You can get a culture clash between techs and banks, but remember you are dealing with a regulated party so railing against it is unlikely to be useful to you. Be honest, thoughtful and curious about what business risks you might be introducing and change your business model and products if necessary.

“Transparency is important. Any successful relationship is going to be based on trust and if you lose that, you will be debanked very quickly.

“Lastly, pay attention to clean data and technology stacks – capture the right data accurately right from the outset.”

Wherever they are in the banks’ value chain – a neo that needs banking-as-a-service or a fintech partner providing specific services to a bank, such as KYC and onboarding – Howes says the risks these newcomers present are not materially different to those within the correspondent banking network. Exposure in the latter, of course, has led to widespread de-banking as FIs judged the risk lower-tier providers presented too difficult to monitor. Although, in Howes’ view, that was a retrograde step, making it harder to identify crime and improve compliance: “Financial institutions are naturally reluctant to bring the same risk into the business that they have spent all this time refining out of it.”

Weaknesses among fintechs, especially in the startup phase, go beyond a lack of internal compliance expertise to specific weaknesses in aspects of their

Mutual trust between organisations – big, small, new and established – will be essential when it comes to figuring out the best way forward, as will a united front against financial crime. Banks, in their work with fintechs, regulators and law enforcers, must take much of the responsibility for that, says Howes, if they want to preserve the trust clients have invested in them for so long.

“The compliance mission of the banks in the past has primarily been protecting the bank from regulatory action; that’s important but it should not be the purpose. We should recognise the bigger contribution financial institutions can make to society by leading the fight against financial crime,” he says.

That clearly requires a change of attitude both inside and outside of organisation. And the dial, he hopes, is moving in that direction.

A threat-based risk assessment may be a unique and incredibly insightful alternative to the current approach

The recent announcement that the European Securities and Markets Authority (ESMA) has postponed the application of the European Central Securities Depositories Regulation (CSDR) mandatory buy-in regime by no less than three years, has made headlines across the financial world.

This controversial aspect of the legislation would have obliged trading parties to execute buy-ins against any counterparties that were unable to settle within a certain timeframe. This saw the securities industry and regulators at loggerheads, with the former contending it could lead to increased costs, reduced liquidity and reduced returns for investors.

However, after intense lobbying and pushback, the ESMA issued a report, confirming that the introduction of mandatory buy-ins would be delayed until November 2025, saying: “Considering the potential duplicative implementation costs for market participants in case extensive changes would be made to the existing buy-in measures, ESMA hereby suggests to formally suspend the application of the provisions on the mandatory buy-in regime set out in the RTS on settlement discipline.”

The CSDR, of course, aims to improve the safety and security of settlement and create a level playing field among central securities depositories (CSDs) in the EU. The buy-in provisions were intended as a remedy for failed trades, giving the purchaser a contractual right to buy securities, despite the failure of the initial transaction, and restoring the counterparties to the position they would have been in had the transaction completed – with the failing participant likely to be penalised.

So, a win for those who consider the delayed implementation something

of a disaster averted. But there are a significant number of failed trades still happening, despite the implementation of the new framework designed to prevent them (banks are being hit with up to €5million in CSDR penalties per month as settlement rates deteriorate). The payments industry, therefore, faces a number of ever-changing challenges.

According to head of client connectivity and data at Clearstream, Priya Sharma, all this throws into sharp relief the need for good, high-quality data, post-implementation of the CSDR settlement regulation.

“We are currently looking at various data products to really support our clients,” she says. “In the post-trade industry, we look at market, transaction, event, tax, regulatory data, to name a few. We can always use data to create better insights, internally, for our businesses, to help them better understand their performance, but at the same time understand how this data is being used by our clients and at what interval.”

Clearstream is an international central securities depository (ICSD), based in Luxembourg, providing post-trade infrastructure and securities services for the international market and 59 domestic markets worldwide, with customers in 110 countries. As a central securities depository (CSD), based in Frankfurt, it also provides the post-trade infrastructure for the German securities industry, offering access to a growing number of international markets.

The oft-used phrase ‘data is king’ may have become something of a cliché, but it certainly stands up when examining its role in the post-trade industry. According to Clearstream, it is projected that, by 2025, 44 per cent of data will be created by analytics and AI,

and 30 per cent will be real time. There will be around 11 million data professionals in the EU27 alone. As Sharma says, data is truly becoming a ‘new asset class’.

“With the use of advanced analytics and newer technologies, major players are beginning to create a clearer view of their own data landscape,” she adds.

“There is increased focus on proactive and predictive client solutions, with amplified requirements around data quality and governance. Through data and connectivity, organisations are beginning to identify opportunities for collaboration with clients, counterparties and other market players, to support new business growth.”

The increase in regulatory scrutiny in recent years has seen institutions necessarily evolve their offering with an sharper focus on the safety and efficiency of securities settlements. Sharma says there is increased pressure on Clearstream’s clients, and itself as a business, to deliver less settlement fails.

“There has been a significant push towards a shorter settlement cycle; from T+2, now we are talking about T+1. Mandatory cash penalties and buy-ins for settlement fails and reporting is now in place,” she says. “So, to support our clients, at Clearstream we have recently launched settlement efficiency and prediction services, where clients will have the opportunity to not only understand how efficient their settlements are, but also predict which instructions may potentially fail.

“This allows our customers to take

Priya Sharma from Clearstream describes why she believes good quality data could solve the significant challenges around Europe’s new CSDR regulation

proactive actions and avoid the cost of failed trades and penalties.”

These tools were announced in July this year: a settlement dashboard and a settlement prediction apparatus, offering insights into past, present and future settlements. The dashboard analyses markets, asset classes and counterparties in order to benchmark their efficiency, while the prediction tool uses artificial intelligence (AI) to anticipate future settlements.

A partnership with securities and finance automation provider Pirum also illustrates this drive to use technology and data to increase ease of use and efficiencies for its customers. Clearstream and Pirum have extended their services to offer new collateral connectivity, ‘allowing mutual clients to automate the calculation, matching, submission and

validation of collateral requirements and allocations for securities lending, repo and OTC (over-the-counter) derivative transactions’.

And, in the first quarter of 2022, Clearstream started work with SWIFT on its tokenised asset pilot (see also page 80 of this issue). So, the Deutsche Börse AG-owned company is on the front foot with innovation, which is just as well, because a consistent theme running through financial interactions recently, is shifting customer expectations.

Whether it be the impact of COVID-19 or adoption of new technology in their

To support our clients, we have recently launched settlement efficiency and prediction services, where they will have the opportunity to not only understand how efficient their settlements are, but also predict which instructions may potentially fail

everyday lives, customers want and demand quicker and more efficient services. This has meant that financial players are facing increasing pressure to adapt the way in which they operate.

Citing the example of data scientists who used to be specialists but are now integrated within product and operations departments, Sharma says Clearstream

is reacting positively to these market forces.

“The more users come to know what

AI can do, what machine learning can do, there is more appetite for it, so the challenge is really to ensure we have the right infrastructure,” she says. “I have seen that major players are already investing in data infrastructure, in streamlining it; Cloud has become the norm, data lakes, and so on. The first thing is to get the data infrastructure right and, once the flow of data is streamlined, it will be easier for data scientists to build those solutions.

“Second, and more importantly, is the need for data quality and overall data governance. With the increase in data, it has become very important that we manage it, and its quality, very well. While we build data as a growth driver internally and for our clients, it is imperative that it is curated by trusted and secure market infrastructure.”

So, with customer demand, the need to satisfy CSDR settlement regulation and the relentless onward march of technology, it is, by any reckoning, a super-busy and exacting period for the payments market. But what of the future? Aside from the obvious innovations – Cloud, AI, machine learning et al – are there any emerging trends that Sharma sees coming to the fore?

“The trend of buy-side is now towards passive investment. This is encouraging a need for data-driven investment models, including valuation, sentiment analysis and trends,” she says. “ESG [environmental, social and governance requirements, which encourage companies to act responsibly] is picking up, so we’re looking at ESG data. Data monetisation is becoming a focus, too; it’s not easy, however, there is a lot of partnership potential that’s available in the industry today, and that is something market players are becoming interested in. Pre-emptive and predictive data solutions is another focus area for new product development.

“I believe we have an important role to play, with, of course, trust and safety at the top of our priorities. Within those boundaries and regulations that we need to adhere to, there is room to enhance and create a much more efficient environment internally within operations, and to proactive reporting and data solutions for our clients.”

Raising stakes the

An unprecedented raft of changes have combined to force the hand of financial industry players, when it comes to transaction intelligence, says Intix’s André Casterman

If the world of finance were a game of poker, things would be getting extremely tense by now. Banks and other institutions have been dealt an unexpected set of hands, one after the other, which have them scrabbling to catch up when it comes to compliance.

Regulators are requesting ever-more complex information from financial services players in response to industry changes and pressure points – from the rapid growth in low-value transaction volumes catalysed by the COVID-19 pandemic, to the need to comply with international sanctions lists after Russia’s invasion of Ukraine. And the rising cost of living is resulting in increased financial crime attempts.

Amidst these historic challenges, the mantra ‘know your data and how to use it’, is perhaps the best piece of advice for banks, which are coming under increasing pressure over their transaction reporting. To stay ahead in this game, they need to find a way to leverage transaction

data into a competitive advantage – with as little friction as possible.

“It’s not just about all transactions above $10,000, for instance. It’s much more fine in terms of selection criteria,” explains André Casterman, chief marketing officer for transaction tracing experts Intix. And banks really want to automate: they have already automated a lot of those processes but now need to pull more data from other systems to address those regulatory requirements.”

Belgium-based Intix prides itself on helping customers ‘trail, trace and know’ their data. Its technology tools help companies improve their compliance, auditing, payment transparency and overall operational efficiency.

Such benefits are of obvious value in themselves but are becoming compulsory requirements as regulators become more active amid major changes to the industry since the 2008 financial crisis.

One of the most obvious changes has been increasingly strict anti-money laundering (AML) and counter-financing of terrorism (CFT) legislation in recent years both of which can vary widely, according to jurisdiction and risk environment.

Since June 2021, financial institutions in the European Union (EU), for instance,

have been required to implement the sixth iteration of the bloc’s AML directive, which sought to standardise and strengthen AML and CFT regulations. The EU is currently working on the seventh version, which is only likely to see the rules get tougher.

UPPING THE ANTE

But ever-changing and evolving legislation isn’t the only challenge that banks are facing when it comes to payments and transaction reporting, particularly in Europe.

Banks and payment providers in the EU and the UK have already had to comply with strong customer authentication (SCA) rules, which dictate that any online payment over a certain amount needs two methods of authentication from the person making the transaction – be it a password, biometric authentication or having a phone that can identify them.

As recently as October, some 200 days after the introduction of SCA, Barclaycard reported that, while retailers had seen an average 25 per cent drop in online payment fraud, 28 per cent were not yet compliant and were therefore missing out on sales.

Wider societal factors and an increasing public desire to hold the powerful to account are also having an impact on the banks. In October 2021, the shadowy financial dealings of the rich and powerful were highlighted in the so-called Pandora Papers, which put under the spotlight the tax-sheltering offshore deals and assets of more than 100 billionaires and 300 public officials – from past UK prime ministers to former US presidents – and the companies set up to facilitate them.

Then, just a few months later, Russia’s invasion of Ukraine prompted a flurry of international sanctions on those with links to President Vladimir Putin, as governments sought to cut off the regime’s money flow in retaliation. Banks and the world of paytech responded by trying to stop Putin’s funding lines. But the process of doing so also highlighted many challenges in monitoring assets and transactions, particularly across borders.

The impact of all this is that banks and payment providers need to not only know their transaction data, but how best to use it. Which is where companies like Intix come in.

“As we have always said, the banks need to get their data in order. At Intix, we’re providing technology for that,” says Casterman. “Now it’s not only about getting their data in order, but about linking datasets within the bank, to address regulatory requirements.”

Intex’s xCOMPLY, the company’s ‘knowing-your-transaction’ solution, for example, acts as a way to correlate datasets, mainly on payments, and address regulatory reporting requirements, as well as the investigations banks have to perform, following a request from financial intelligence units. This new capability to go deeper into existing systems enables transaction data to be contextualised and compliant with regulatory demands, explains Casterman.

“Once you have the transaction data, in some cases – and mainly on the compliance side, but also on the client service side – you need more data on the counterparties. Going deeper into the internal systems, getting more insight to the compliance officer, is really what we enable with xCOMPLY, in order to address that need for increased visibility,” he says.

“All data counts in investigations, because you are looking for something suspicious, or you are checking whether

this is something suspicious, so you need more datasets – on the transactions, on the counterparties, and an easy navigation across those, and that’s what we enable now, with xCOMPLY.”

GETTING REAL

Real-time payments is another pressure point and the transition to instant transactions is only going to get more urgent amid soaring consumer demand (most notably, digital and contactless payments grew exponentially during COVID-19) and upcoming legislative changes.

Indeed, the EU recently unveiled draft legislation that would force banks to offer instant euro payments at no extra cost. The plans would let people transfer money at any time, within 10 seconds – a considerable improvement on traditional card payments or credit transfers, which can take up to three days.

The proposed switch has been described as ‘seismic and comparable to the move from mail to email’ by Mairead McGuinness, the EU’s Commissioner for Financial Stability,

transaction life cycle for business activity and service level monitoring, and surveillance of transaction integrity. By tracking transactions, any discrepancies can be flagged and required actions or tasks allocated to the relevant source.

“Basically, we are helping banks to know, in real time, what is happening within their own infrastructure, in order to identify incidents, potentially on real-time payments or batch payments,” he explains.

This means users can quickly and proactively react to any glitches within their own systems, or any service level agreements that may not be met, to make sure the client is not negatively impacted.

However, it’s not just about individual transactions, but also where they sit in the wider system. After all, banks also want to know where their payment is in the corresponding banking chain – a particular challenge, given the soaring number of low-level transactions.

“That’s where we are providing all those datasets not only to internal teams within the banks, but also to external parties, the banks’ clients,” says Casterman. “Now the pressure is indeed very high, because the volumes are increasing, certainly on a cross-border level, and the amount of data handled to process payments is increasing.”

Meanwhile, regulators are also mandating banks to keep records of compliance-related events such as when a transaction was screened and who approved a particular payment.

Financial Services and the Capital Markets – a move that will, accordingly, have similarly dramatic effects on banks as they rush to comply.

“We have talked about real-time payments for many years, but most of the innovations have been done at a domestic level. Now the trend is definitely to offer corporate and retail clients real-time payments at cross-border level,” says Casterman.

“It is far more complex given you’re crossing jurisdictions, you have a chain of correspondent banks, and this is where the pressure on payments operations teams is increasing, and where they want to reach a level of operational excellence by tracking those activities, those payments, within their internal systems.”

Intix’s solution for this is a service called xTRACE, which provides insights across

“All of those events on a particular single transaction have to be recorded and kept in the long-term archive, so that in the case of forensic investigations, we can go back to this data to understand what happened and if there has been any fraud,” adds Casterman.

Intix is not the only fintech company working in this field but its products and solutions are undoubtedly only going to become more valuable to banks and other payment providers as regulations continue to tighten. And, given the rising emphasis on environmental, social and governance (ESG) reporting, more and more ESG data and scoring will also need to be processed sooner rather than later for compliance reasons.

So not only will knowing your transaction data and how to use it become increasingly compulsory for banks, the most successful ones will be those who use it to a competitive advantage.

the

We are helping banks to know, in real time, what is happening within their own infrastructure, in order to identify incidents, potentially on real-time payments or batch payments

Thequestıon

For years, UK consumers have been told to guard their financial information with their lives. Now, we’re telling them their every financial management wish will be granted if they embrace ‘open’ banking. No wonder they’re confused – and suspicious – as fraud attempts soar. But are the two even connected? A recent Open Banking Excellence (OBE) event explored the issues

“Open banking hasn’t delivered what it promised. There, we said it.”

So began Mambu’s 2021 report on open banking, which the composable banking firm might have expected to deliver more activity, at a higher pace than it has so far achieved.

What open banking promised was an unparalleled platform for collaboration and competition that would generate exciting new ways for consumers to manage their cash. But, in the wake of a pandemic, the midst of a cost-of-living crisis and the crosshairs of a fraud epidemic, consumers see a lot of broken eggs – and no compensatory omelette.

That’s partially a communication problem. Mambu’s report found that 61 per cent of respondents didn’t believe

they had used open banking, despite 82 per cent of them reporting that they do use finance apps. Banks could certainly do more to draw attention to their open banking omelettes, even if their ingredients are, for now, a little sparse. Half of respondents to Mambu’s report said their bank hadn’t even explained what open banking was.

Then there are the eggshells. Nearly three in five of people surveyed by Mambu had concerns that open banking creates privacy and security issues, with 43 per cent believing that open banking is a dangerous use of data sharing. These attitudes might explain why some banks have been tight-lipped about their open banking projects to date, while others have been hesitant to get involved at all.

But it’s fraud, which appears to have been escalating alongside the ongoing development of open banking, that has consumers questioning the wisdom behind the next generation of financial services.

Taken as a whole, fraud in the UK has increased 25 per cent on pre-pandemic levels, according to the Office for National Statistics (ONS). Cifas, the UK’s fraud prevention community, recently detailed how fraudsters are adapting their methods, with identity fraud rising 22 per cent between 2020 and 2021, and mule activity using personal accounts increasing by 24 per cent in the same period.

Of particular concern is the rise in authorised push payment (APP) fraud, where the victim is tricked into making a bank transfer to an account that’s posing

The genie is out: And now the industry has to make some choices

All this is taking place against an increasingly rosy backdrop for open banking, even if progress has been slower than many had hoped. The government’s Open Banking Implementation Entity (OBIE) Open Banking Impact Report, published in June, said 10 to 11 per cent of digitally enabled consumers were active users of at least one open banking service, up from six to seven per cent in March 2021. And in the six months to March 2022, there were 21.1 million open banking payments, compared with 6.1 million in the same period in 2021. Month-on-month growth is running at around 10 per cent Earlier this year, the UK reached the milestone of one billion open banking API calls in a month, double the average monthly volume recorded in 2020 and leagues beyond the 66.8 million that took place in the whole of 2018, when UK open banking was first implemented.

Accelerating engagement with open banking is to be celebrated, though not if its correlation with rising fraud is thought by consumers to amount to direct causation. It was in recognition of

been targeted with text or phone call scams. Such scammers pose as reputable organisations – banks, HMRC, or the NHS, for example – in order to persuade their targets to divulge personal information, to phish information from their phones, or to request a bank transfer. Often delivered en masse, these scams tend to request relatively small sums – little enough to fly under the radar of anti-fraud systems.

Nevertheless, the volume of data produced and shared between open banking participants is still a cause for some concern. Chris Michael, CEO and co-founder of open banking API interface experts Ozone, was heavily involved in the development of the OBIE’s security framework. While he is also confident in open banking’s security, he does accept there are fraud opportunities created by new pools of enriched financial data.

“Data is more valuable in the presence of other data,” he explains. “So as you start building this model out, looking at all sorts of data, it gets increasingly valuable, and therefore more risky and more attractive to fraudsters.”

Seeking out that data is the latest chapter in the cat-and-mouse story that fraudsters and financial institutions have been co-authoring for centuries.

as a legitimate payee. APP fraud losses overtook losses from card fraud for the first time in 2021, rising by a staggering 71 per cent, according to UK Finance.

In a study of the UK, US, and Indian markets, ACI Worldwide predicts that APP fraud losses will experience an average compound annual growth rate (CAGR) of 21 per cent from 2021 to 2026. Of those who fall victim to APP fraud, ACI Worldwide found that 72 per cent close the affected account.

Helen Child, founder of Open Banking Excellence (OBE), the industry-led facilitators of the open banking project, believes escalating fraud isn’t going to be beaten into retreat any time soon.

“As we head into a credit crisis or recession – whatever you want to call it – I think with a high degree of certainty we can all presume these figures will continue to rise,” she said at a recent OBE Campfire discussion on open banking and fraud, adding that, ‘by talking about it, we’ll keep the subject front of mind’.

There’s lots of information that could be shared under open banking standards to tackle fraud. But the regulations haven’t mandated how Helen Child, OBE this threat that OBE hosted the campfire conversation, which aimed to determine whether open banking is creating new openings for fraudsters.

Comfortingly, Mike Haley, CEO of Cifas, was on hand to dispel any misconceptions. “I don’t think open banking has created any new fraud typologies,” he explained. But open banking’s security model and trust framework have forced fraudsters to target victims directly. “The weakest link is now the customer,” he added.

APP fraud is skyrocketing. Over the course of the pandemic, Ofcom reported that eight out of 10 people in the UK had

“The bottom line is that if a fraudster wants to convince someone to pay them money or give them access to their account, it is very difficult to stop them –particularly if their target is vulnerable,” says Michael. “But open banking can reduce this human fallibility by effectively removing the opportunity for customers to be tricked, parsing much more data than just the sort code and account number, allowing identifying data to be shared via an API alongside every transaction. We expect to see a lot more innovation in this area.”

So, the good news is that open banking and its successor, open finance, will leverage multiple, connected data sources to spot and tackle fraud more effectively. Today’s technology can scan for IP location, dodgy devices, unusual browsing habits, the suspicious use of different names – everything that can reveal fraud. Sharing more of this data across the industry can only be a good thing.

“There’s lots of information that could be shared under open banking standards to tackle fraud,” says OBE’s Child.

“But the regulations haven’t mandated how this should be implemented.”

Such a framework should be a priority for the next raft of rules released to support the adoption of open banking. The bad news is that these data sources are not nearly as connected as they could be. Dithering on the part of incumbents could grant fraudsters the extra time they need to pinpoint new weaknesses in the coalition of financial and personal data.

“We’ve got some really good building blocks,” says Michael. “I think we should now add to them, looking at how regulated parties can be involved in the flow of data, how they can parameterise consent, and how they can provide better outcomes for customers.”

More implementation, then, will help open banking stay a step ahead of the scammers and a bargepole away from associations with rising fraud.

For Child, successful implementation means putting more brilliant new products in front of consumers as evidence of the value that open banking can bring.

“People will always say they don’t want to share data if you ask it in a survey,” she says. "When you put it in context, though, with an obvious value-add for them, they don’t think of it as sharing data, they think of it as using their data to make their lives better. That’s a totally different proposition.

“It’s wrong to think of the adoption for technologies like this as a linear process,” she adds. “It’s more like a flywheel, where connectivity enables new use-cases, driving adoption and normalising the technology across society. If we, in the UK, want to maintain our position as global leaders in this space, we need to broaden the scope to let new entrants in and get the flywheel spinning faster.”

There’s a further benefit to accelerating the implementation of open banking: it incentivises anti-fraud innovation across the fintech space. Take GoCardless, the online payment processing firm, which released its Verified Mandates feature in March. The feature harnesses open banking technology to protect GoCardless business customers from fraudsters – preventing bad actors from creating online profiles in the first place.

The paytech’s research recently found that 87 per cent of consumers would be more likely to shop with or use a brand if they believe the company takes fraud seriously.

Meanwhile, anti-fraud measures rushed in by regulators appear to be working. In the early months of 2022, mandatory strong customer authentication (SCA) came into effect in the UK as a feature of the revised Payment Services Directive (PSD2). SCA requires shoppers to provide two-factor authentication (2FA) to complete online purchases. In September, Barclaycard reported that the measure had reduced online payment fraud experienced by retailers by 73 per cent, with the average merchant reporting a 25 per cent reduction since SCA was made mandatory.

Since mandatory SCA was introduced, basket abandonment – the e-commerce term for consumers leaving the checkout process without finishing the purchase – actually fell from 32.4 per cent to 28.9 per cent of all transactions. Perhaps consumers appreciate that some friction, especially at the point at which they’re set to part with their cash, might not be such a bad thing. Banks should take note of this finding, which flies in the face of ‘frictionless’ UX orthodoxy.

In another regulatory intervention, the UK’s Payments Systems Regulator is expanding the number of payment service providers (PSPs) required to participate in the confirmation of payee (CoP) service to 400. CoP was first introduced to reduce cases of APP fraud and accidentally misdirected payments. Increasing the number of PSPs that must utilise the CoP service should clip the wings of APP fraudsters in the UK, or, at the very least, make vulnerable consumers pause for thought during a transaction process, hang up, and contact their bank.

At the end of its report, Mambu lends its voice to the growing chorus of thought leaders advocating for open banking to make a PR pivot. Many in the industry believe ‘open’ gives the wrong impression, and that ‘smart’ or ‘collaborative’ would be both more accurate and more comforting for consumers. But, with open finance on its way, it may be too late for a rebrand.

“The introduction of SCA has definitely had a positive effect in reducing fraud,” says Ozone’s Chris Michael. “But many banks still rely on one-time passwords sent via SMS, which is inherently insecure, and even the most secure methods can be manipulated using social engineering techniques.”

SCA is a step in the right direction, but Michael believes that open banking should transform that into a leap, once simpler, instant verification processes, connected via APIs, are readily available across payments platforms.

Encouragingly, 2FA doesn’t appear to be regarded as a nuisance by consumers.

Mike Haley, from Cifas, has another suggestion. “When it comes to fraud and financial crime,” he says, “let’s leave competition at the door. We've got a common enemy, let's share data and intelligence. Let's share that information and use it as a common defence.” Open banking was always about smart collaboration between financial institutions – it’s just that, in data science circles, being ‘open’ is a paramount virtue. If fraud is threatening to derail the progress of open banking, more implementation, more collaboration, and more intelligence sharing through organisations such as OBE, will help the movement get back on track.

When it comes to fraud and financial crime, we've got a common enemy. Let’s share data and intelligence... and use it as a common defence

Mike Haley, Cifas

Pause for thought: SCA has succeeded in reducing fraud, without increasing cart abandonment

ISO 20022: Ready or Not?

Matt Sarkar, Global Head of Marketing for valantic FSA, outlines what a low-code approach to migration could mean for financial institutions

By 2025, ISO 20022 will be the universal standard for high or large-value payment systems of all reserve currencies. In Europe, SWIFT and the European Central Bank have announced ISO 20022 go-live dates of March 2023.

This standard has a significant role to play in the future of payments by embedding enriched data and offering extensible messaging with the potential to interoperate between in-country and international schemes. But with domestic and cross-border mandates on banks to adopt ISO 20022, and timelines fast approaching, financial institutions have a lot to grapple with in terms of managing the impact of ISO 20022 deadlines and leveraging the value of the new standard. For many, it will be a complex migration. Not all legacy systems within a financial institution will be able to manage ISO 20022 messages, nor will they require the additional information that the standard can provide. However, many of these systems provide data that can be incorporated into the rich ISO 20022 messages to enable high-value services for customers, centred on transparency.

Many banks, financial institutions and payment service providers have

taken the decision to include ISO 20022 adoption as part of ongoing investments in modernising legacy systems across their data estate. Including ISO 20022 as part of a broader strategy in this way not only creates paths for financial services organisations to convert to the new standard, but also lets them assess how to unlock the value of new, higher quality payments data.

This provides opportunities for more transparency, more automation, and new services – all fueled by the richer intelligence encased in the ISO 20022 format. And the benefits extend far beyond compliance.

But even if banks choose to make tactical decisions about which peripheral systems to connect to their ISO-native engine, they must approach the migration

The outcome should be focussed on the use of more granular data, resulting in richer services, unlocking innovation and enabling greater collaboration across the banking industry

with a strategic mindset. It does not have to be a large-scale, rip-and-replace project. A carefully orchestrated porting plan – from legacy applications to modernised engines – can mitigate compliance

risk while opening the doors to innovation and growth. But, as Gareth Lodge, a member of the payments team at industry research firm, Celent, recently observed, now is the time for focus.

“FIs really need to double down on their ISO 20022 project because that deadline is looming fast and FIs are swapping vendors even at this late stage in the game,” he said.

Undergoing digital transformation projects is a multi-faceted journey, and there is no single tool or approach that will automatically make transformation a reality. However, low-code/no-code platforms like valantic FSA’s X-Gen can play a pivotal role.

X-Gen is a modular and scalable visual modelling, low-code development platform that’s built for building scalable, resilient, performant, and secure business and technical solutions. It addresses the complex challenges of ISO 20022 migration programmes (data transformation and data truncation) without impacting existing systems and offers an accelerated pathway to becoming fully ISO 20022-native.

By working with providers that can offer such iterative solutions, banks can give themselves the freedom to move towards their ideal solution while meeting deadlines along the way – without the pressure of costly failure looming over them.

Whatever their approach, the outcome should be focussed on the use of more granular data resulting in richer services, unlocking innovation, and enabling greater collaboration across the banking industry. The net result for financial institutions will be higher customer satisfaction and value, lower risk, and more efficient, streamlined operations.

Clock’s ticking: Now is the time to double down on integrating the new standard

ASSETS: WHAT NEXT?

A crypto mountain to climb?

Some think digital assets could soon replace traditional ones

Bitstamp’s Crypto Pulse Report suggested earlier this year that digital assets could replace traditional investments within a decade. We asked four leading crypto industry figures if current problems in the mainstream global economy since then, could prove to be digital assets’ coming of age?

In April 2022, Bitstamp, one of the world’s largest and longest-running crypto exchanges, published the findings from its first survey among 28,000 retail and institutional investors in 23 countries across North America, Latin America, Europe, Africa, the Middle East and Asia-Pacific. The aim was to understand the ‘attitudes, applications and ambitions for crypto, now and in the near future’.

It was carried out just as the world’s stuttering economic recovery from COVID was knocked back by the Russian invasion of Ukraine. Then, the Crypto Pulse Report discovered ’an overwhelming belief in crypto’s potential… from it becoming a whole alternative to digital-first payment networks in emerging economies to a significant number of respondents in two founding members of the European project – France and Germany – believing that crypto could overtake the Euro’.

(66.9 per cent) and institutional investors (70.4 per cent) – just shy of their faith in traditional forms of investment – was still perhaps surprising.

And Bitstamp’s Q2 report, published at the end of August and covering the onset of the so-called 'crypto winter’ would indicate they are resilient to such shocks.

“Despite the downward market trend, the results show global trust in crypto remains unshakable,” Bitstamp said. “The percentage of retail investors around the world who find crypto trustworthy has dipped slightly – from 67 per cent in Q1 to 65 per cent in Q2. There was a similar decline among institutional investors: 67 per cent still deem crypto trustworthy vs. 70 per cent in Q1. Considering that in Q1 we were entering a crypto winter, these numbers are inspiring and speak in favour of the industry’s resilience.”

The original report had concluded there was nevertheless more to do if digital asserts are to realise their potential to ‘overtake traditional investments within a 10-year timeframe’, and it called on industry bodies to work together ‘if we are to continue building trust and advance adoption’, through measures such as increased regulation, better performance and quality measurement regarding digital assets, and the creation of independent market information providers akin to mainstream financial ratings agencies. Here, Bitstamp’s Jack Ehlers, crypto veteran and founder of the Blockchain For All consultancy, Jimmy Nguyen, payments solutions provider Checkout.com’s CCO Bradley Riss, and independent crypto and non-fungible token (NFT) consultant Megan Nilsson (aka Crypto Megan), respond to the findings and give their own views on what the future holds for this maturing sector.

THE PAYTECH MAGAZINE: First, could you introduce yourselves and set the scene by giving a flavour of the trends you are currently seeing in this segment of the market?

of buzz because of major buys, like El Salvador stepping in and purchasing. And it was the year the NFT movement got bigger.

People are wanting education and transparency. That’s something that I’ve been trying to preach, throughout this whole downturn. I think it’s very important, as creators or leaders, to help people understand that these are market cycles, that there is inherent value in these assets, no matter what the market is doing on a global scale.

JIMMY NGUYEN: Until recently, I was president of the Global Association for Bitcoin SV, or BSV. I’ve now formed my own firm, Blockchain For All, to focus on making blockchain useful by providing advisory, education and technology solutions, working with digital asset and blockchain ventures, funds and groups worldwide.

This last year has forced the industry, and retail and institutional investors, to ask questions I’ve always posed, like ‘where is the real value in digital assets, based on their utility, and that of the blockchains they’re based on?’. I’ve felt, for many years, that the digital asset world has not focussed enough on that, and coins’ worth has been inflated into value that’s not inherent.

That was before the Terraform Labs’ UST and luna tokens collapse, crypto lenders Celsius and Voyager filing for Chapter 11 bankruptcy – and the FTX exchange going bust in November. But the high rate of overall confidence in crypto expressed at the beginning of the year by retail investors

MEGAN NILSSON: I’m a high-end crypto and NFT portfolio consultant, as well as helping with Web 3.0 strategy, bridging from Web 2.0 to Web 3.0, for brands, companies and celebrities. I’m currently on a world speaking tour, helping to educate and advocate for women.

A lot of institutions got involved [in the crypto market] this year, and there was a lot

I don’t begrudge people making money, but this year’s collapse in crypto prices was triggered by overly-aggressive digital world practices. We had the collapse of Terra Luna, based on an unrealistic algorithmic stablecoin; of Voyager and Celsius due to inflated guaranteed loan interest rates on lending and overleveraging of the coins, and, related to this, some exchanges collapsed. I don’t wish this on the industry, but it’s good that it has led investors – especially everyday investors – to ask ‘why did the value of some of my coins disappear so quickly?’, and that’s caused a reckoning because it’s not good for any of us. We need an industry that consumers and investors have confidence in.

It’s very important as creators or leaders to help people understand that these are market cycles, that there is inherant value in these assets, no matter what the market is doing Megan Nilsson, Crypto Megan

I don’t begrudge people making money, but this year’s collapse in crypto prices was triggered by overly-aggressive digital world practices

Jimmy

Nguyen, Blockchain For All

For years, we’ve been trying to get the industry and BSV ecosystem to focus on the real utility of assets, so that they gain more inherent value and become less volatile, because they have much more high-volume usage in daily life.

BRADLEY RISS: I’m CCO at Checkout.com, but spend most of my time focussed on Web 3.0-related activities. We grew up as a full-stack payments organisation, serving some of the largest brands in the world, like Netflix and Samsung, but for Web 3.0 we also act as a bridge, helping to move value from fiat into crypto, and from crypto back to fiat. So, we are the back end of most of the largest exchanges and onramps in the sector.

If you look at the headlines and the price of Bitcoin, it’s easy to say this year has been one of general negativity, but this is also reflected in other asset classes around the world. On the conference track it’s the rampant optimism that has surprised me. In fact, Jeremy Allaire [CEO of digital currency company Circle], kicking off Circle’s Converge22 event, said in his opening address that ‘this will be remembered as the age when we moved from speculation to utility’.

They say bear markets are for building and this behind-the-scenes trend of optimism maybe isn’t obvious if you’re just looking at the price of Bitcoin or Dogecoin. But people are now focussing on fixing problems and answering the question ‘what are we trying to solve for?’, which is really important for the value of the underlying technology to be realised in real-world scenarios.

JACK EHLERS: I'm the chief operating officer for Bitstamp and general manager for our European business. We have run a crypto exchange for 11 years and have recently noticed retail and institutional investors resetting themselves in terms of the kinds of investment cryptocurrency and cryptoasset portfolios they want. As a result, we’ve also seen more interest from people looking at making these investments, and a need for more education, transparency and disclosure in the sector, and greater regulation around what is offered, how it’s offered and the kind of security people should expect. We’ve seen crises and blow-ups in the industry but, overall, the future of blockchain, cryptocurrency and crypto assets stays positive.

TPM: If we take valuation out of it, for a minute, and just look at how crypto has fared recently in terms of trust, are we starting to see that evolve?

MN: A lot of people who were on those exchanges Jimmy mentioned that collapsed, got burned, which is making them ask questions like ‘why did this happen, how could I prevent this and is decentralisation the future?’. During the bull markets anybody can basically pick a coin and make money. However, the markets are cyclical, we’re going to have these bear markets.

BR: There have been bad actors and bad behaviour and we crypto natives need to police ourselves better, especially the NFT sector, and the rug-pulls that have happened haven’t been healthy.

Trust has definitely been shaken, but hopefully, long-term, this means people won’t go back to the highly speculative

TPM: Could the fact that the worldwide economy is in a downturn, due partly to the failure of more traditional models, make crypto look more attractive, in line with the report’s quoted seven-point increase in the percentage of people looking to invest in crypto since the slump started?

JE: It’s difficult to give advice on whether this is the right time to get in or not. We try to provide retail and institutional investors with opportunities by carefully selecting our coins, and only offer between 70 and 80 coins and crypto assets, rather than the 300 or more available from other exchanges.

There’s a lot of selling happening in crypto and traditional markets. Sentiment suggests people haven’t given up on the sector, as part of their overall investment objectives. [But] I think we will see regulation increase to support greater trust and security, ask those tough questions and come up with different policies, approaches and licensing regimes.

The European Commission’s new Markets in Crypto-Assets regulation, which is going to the UK Parliament later and will change the regulatory landscape for those involved in providing crypto-asset services, should help drive more trust by setting a very high bar. Such controls are growing, from the BitLicense in New York to Virtual Asset Service Provider regimes, all aimed at giving retail and institutional investors more trust in providers of coins and platforms.

parts of this industry and we’ll instead see a return to the theme of utility, based around asking ‘what problem are we solving using this technology?’.

I have no issue with a digital artist making a lot of money by creating a very expensive jpeg, but the underlying technology has huge power to increase trust because it is an immutable chain.

The emerging markets are where trust is being built, where we’re not comparing Dogecoin to the Fed, but crypto assets to high-inflation markets like Argentina, where, historically, they have locked up customers’ funds in banks for over a year. Crypto can enable people to self-custody assets with a broader array than their own, highly-inflated currency, That’s where it is solving real-world problems and trust is higher.

TPM: Is crypto competing against the whole fiat economy, in general, as it tries to establish a more credible position?

JN: The typical retail investor invests some money in the hope of getting rich. They’re taking a big gamble, almost like going to Las Vegas, using money they wouldn’t invest in traditional assets. For institutional investors, it’s an alternative asset class that they are allocating money to that would otherwise go into more traditional assets within their portfolio.

BR: Bitcoin, especially, has the potential to be ‘digital gold-esque’. It hasn’t really been that during this current downturn, but then nor has actual gold! Be it stimulus cheques on the retail side or institutional interest, looking for alpha, a lot of money flowed into Bitcoin – hedge funds and institutions, especially from 2021 onwards, had a lot of action in this area.

There’s a lot of selling happening in crypto and traditional markets. Sentiment suggests people haven’t given up on the sector as part of their overall investment objectives. I think we’ll see regulation increase to support greater trust and security

Jack Ehlers, Bitstamp

Mambu, the cloud banking platform enabling high-velocity innovation

They don’t view crypto as a standalone class; they view it as part of a broader portfolio, and definitely a risk-on asset.

If you compare the price of a tech stocks like Nvidia this year, with the price of Bitcoin, the graphs are almost identical, which shows the sentiment around these sorts of asset classes – they are basically high-risk tech stocks. But that’s a lot better than the way people viewed them five years ago, and the emergence of utility and composability will assign more underlying value.

If Bitcoin starts stabilising against currencies, it becomes interesting. One sign of this happening was a flight from GBP to Bitcoin in the days following the UK Budget, which wasn’t well received. Maybe Bitcoin is now reaching maturity – which we want; smaller fluctuations, with people viewing it and the other principal alternative coins as real stores of value and a long-term part of their portfolios.

JN: The fundamental problem lies in what these digital currencies were created to be. We’re now talking about them as investment asset classes but Bitcoin was just meant to be a more efficient, peer-to-peer electronic cash system, and we’ve attached monetary value to it.

That’s what makes this so confusing to anyone trying to understand why Ethereum’s or Dogecoin’s price went up to here and then down to there. We’re making it up as we go along, seeing how the market responds to trading assets, which weren’t intended as stores of value.

BR: Cryptocurrency, today, doesn’t need to be a digital asset outside of stablecoins, but things like Ether are almost futures contracts you’re betting on. I’m starting to see this through the lens of proof-of-stake networks, which provide a consistent fixed income you can build other things on top of. I’m placing a bet that people will build cool stuff on top of Ethereum, as a new kind of ledgering programming language, which is why I hold Ether. It’s an investment with no price-earnings ratios, like investing in tech stocks, as the balance sheet doesn’t exist.

MN: It’s going to take a lot of time, but we’re in the changing of a world order. I take a lot of insight from [venture capitalist and Shark Tank star] Kevin O'Leary, who says it’s like investing in a software. You’re putting a certain percentage of your portfolio behind softwares you believe will help build or

create something and be valuable to the ecosystem. I’m helping people understand how they can get involved in building within that ecosystem, with the value and talent they have, including celebrities who can unlock new experiences with their fans. A lot of people start off in this crypto world through the investment possibilities, understanding that this is one of the biggest generational opportunities we’ll have in our lifetimes.

TPM: Many people say they would invest in crypto if they understood it better. What can the industry do about that?

JE: People’s knowledge of crypto certainly lags behind their understanding of other types of assets. A lot of the exchanges have learning centres, but they are inconsistent, and of varying quality. What makes more sense, longer term, is having more accountability and specific disclosure for crypto assets, and a prospectus-driven flow of information on new coins, currencies and crypto-assets, like what has built up over decades in the securities market.

JN: The challenge is there’s too much to educate about, because the digital asset/blockchain industry is developing so quickly and it’s relatively easy to create a new blockchain or coin. Long term, I think the industry will consolidate, and the current 18,000 or 19,000 cryptocurrencies, and hundreds of chains, won’t survive, making education easier.

TPM: What does the future hold for crypto and how can the industry make it more accessible for retail and institutional investors alike?

BR: That hygiene factor is not yet met; people don’t know how to self-custody or not click on the wrong link, and there is no regulatory framework. In the coming year, we may see stablecoin definitions in certain major jurisdictions. This should be the precursor to a regulatory framework, and to allowing traditional financial institutions to custody things like USDC and USDB, opening the floodgates to helping us solve real-world problems.

But, for many people, we also need to make Web 3.0 look a little bit more like Web 2.0, and improve the first-mile and last-mile experiences, especially if we think crypto could be used as a currency. Because my MetaMask UX and my Apple Pay UX are not on the same page yet. Likewise, if I send money around the world as USDC or Bitcoin, I need to spend that, irrespective of which market I’m in, and uniting the two worlds is still the biggest barrier. People work on incentives, and if you provide them with a cheaper, more cost-efficient, safer way to do anything in their lives, they will move towards it organically.

MN: People are bewildered and overwhelmed. What helps with trust is community and I’ve seen a shift in the way people are learning. NFT communities are ramping up their efforts to get fintech and traditional finance onboard, and understand that bridge, and are so helpful when somebody is learning.

The responsibility rests with exchanges and industry leaders to have conversations and run podcasts or YouTube videos explaining things like smart contracts.

JN: A big focus of our BSV ecosystem has been making mobile apps that are super user-friendly, where people don’t need to use long addresses to send coins, just a short handle name or email address that’s converted in the back end to a Bitcoin wallet address. Making those experiences easier and more enjoyable, will make crypto more accessible. And there’s nothing that makes it easier to educate someone about digital assets than allowing them to see them at work, such as using coins or reward tokens in a game they’re playing, to exchange payment in a Metaverse environment or receive a reward token from Starbucks they can convert.

MN: Accessibility is key. I sometimes sit down with high-end clients, to set them up with a DeFi protocol, and it takes an hour to show them everything. No one in their right mind would do that in the mainstream world. That disconnect is insane and we need to make the user interface more accessible. We also need major companies to step up, engage in crypto and start piquing people’s curiosity.

People work on incentives, and if you provide them with a cheaper, more cost-efficient, safer way to do anything, they will move towards it organically

Bradley Riss, Checkout.com

real time

Real

time payments are of fering consumers and businesses cheaper, faster and more ef ficient ways to pay. Payments are increasingly becoming embedded into non financial digital apps and ser vices, with today’s customers looking for a hyper connected, frictionless customer experience.

Banks are reinventing their mission critical operating systems to compete in the new real time, post digital, cloud first and data centric business environment The financial ser vices industr y has moved beyond the tipping point of broad-based disruption and is now witnessing the realization of those changing paradigms.

Swiftly conquering the new digital frontier

We’re entering a pivotal period as the payments industry is looking at adopting the data-rich ISO 20022 as a standard for Swift cross-border payments messaging with effect from March 2023.

The global benchmark is widely seen as an essential component of payments modernisation initiatives, and its adoption by Swift is expected to unlock new opportunities for thousands of financial institutions, such as boosting operational efficiency, enhancing customer experience and enabling innovative new services.

But Swift is already looking beyond it, to help the industry take seamless crossborder transactions to a whole new level. The heavyweight payments facilitator is exploring how it can help pave the way for adoption of central bank digital currencies (CBDCs) and tokenised assets, a paradigm shift in the way we move money and securities around the world.

Embedded in 11,000 institutions across more than 200 countries, Swift is by far the world’s biggest financial messaging system. But it’s recognised that there’s a robust challenge brewing from a host of fintechs that are also developing

solutions

cross-border payment pain points. These new entrants are evidence of what Nick Kerigan, head of innovation at Swift, and a 20-year payments veteran, calls ‘new frontier trends’, and they include alternative finance in all its flavours.

Because Swift sits across the whole of the financial community, Kerigan believes it’s uniquely placed to bring institutions together to collaborate on such innovations. And two separate, successful experiments it has run with the industry have already proved that CBDCs, and tokenised assets specifically, can move smoothly on existing financial infrastructure, allowing them to flow alongside – and interact with – their more

traditional counterparts. This represents a major milestone towards enabling the effective integration of alternative finance into the international financial ecosystem, and it could unlock a new form of transacting that can boost financial inclusion and improve companies’ liquidity by enabling a greater diversity of traded assets.

INTERLINKING CBDCs

According to Atlantic Council figures from October, 105 countries, representing more than 95 per cent of global GDP, are exploring the use of CBDCs. There

Global shift: There is a sense that CBDCs are ‘inevitable’, says Kerigan

to solve

How can central bank digital currencies and tokenised assets be effectively integrated into the world’s existing cross-border money flows? We turned to Swift’s Head of Innovation Nick Kerigan for the answer

are two types of these CBDCs – wholesale and retail. Wholesale CBDCs are mainly used by financial institutions, whereas retail ones are issued by central banks and used by consumers and businesses, just like physical forms of currency. Eleven countries – none of them leading economies – have now fully launched a CBDC for retail or wholesale use; some are experimenting with both. Jamaica is the latest to launch with the JAM-DEX, while, among major economies, China’s CBDC pilot has made the most noise. It’s ramping up its retail testing, while, in October the wholesale digital yuan was the most issued and actively transacted token in a six-week trial organised as part of mBridge, a multi-CBDC project involving a single blockchain infrastructure for cross-border payments between China, Hong Kong, Thailand and the United Arab Emirates.

The World Economic Forum, among others, recognises that CBDCs offer new and exciting ways to democratise finance – such as giving the previously unbanked buying power, introducing them to financial tools and increasing competition in global markets. But to make digital money effective, several challenges must be overcome.

One of the foremost is interoperability. While the majority of central banks are actively considering digital currencies, they often use different technologies and primarily focus on domestic use. To work across borders, digital currencies need to overcome inherent differences to not only interact with each other, but also with existing fiat currencies. Nevertheless, says Kerigan ‘there’s a feeling among the financial community that they are becoming, in some sense, inevitable’.

“Swift doesn’t advocate for or against CBDCs,” he adds. “But, seeing this growing momentum, we need to consider how it impacts the financial community, and, in particular, how it impacts the world of payments – cross-border payments. We need to help central banks that are developing CBDCs ensure these CBDCs don’t become digital islands. How do they connect with the rest of the world? And how do we all ensure that crossborder payments can be enabled by CBDCs, rather than inhibited by them?”

In a persuasive experiment, Swift, in collaboration with Capgemini, achieved

CBDC-to-CBDC transactions between different DLT (distributed ledger technology) networks based on popular Quorum and Corda technologies, as well as fiat-to-CBDC flows between these networks and a real-time gross settlement system. This proved that the blockchain networks could be interlinked for cross-border payments through a single gateway, and that Swift’s new transaction management capabilities can orchestrate all inter-network communication. As a next step, 18 central and commercial banks, including Banque de France, the Deutsche Bundesbank, HSBC and NatWest, are working together in a testing sandbox environment to accelerate the path to full-scale deployment.

In a separate experiment with a different group of industry participants, Swift similarly demonstrated that its infrastructure can act as an effective conduit for multiple tokenisation platforms and different types of cash payment. Tokenisation remains a relatively nascent market, but the World Economic Forum estimates it could reach $24trillion by 2027. Potential benefits include greater market liquidity and fractionalisation, which could increase access to investment markets for retail investors.

“The tokenised assets trend is a really fascinating one,” says Kerigan. “The securities industry is starting to look at Swift doesn’t advocate for or against CBDCs. But, seeing this growing momentum, we need to consider how it impacts the financial community, and, in particular, cross-border payments

the potential of token technology to achieve some interesting and important benefits – for example, fractionalisation. This can help to achieve better liquidity and also potentially better access to investments. It helps people who maybe have $10 but not $1,000 to trade at any one time. But it means institutional investors can then also start to look at things like more sophisticated trading strategies, and more diversified risk

management. The challenge is, most of these tokenised assets are being created on new and specific platforms, and so, if you’re an existing, scaled securities market player, the question is ‘which of these platforms do I integrate with and what’s the opportunity cost of doing that? How do I know which will be the one where most of these assets are going to sit ?’.”

Over a year and working in tandem with Citi, Clearstream, Northern Trust, and SETL (its technology partner), Swift ran 70 scenarios simulating market issuance and secondary market transfers of tokenised bonds, equities and cash.

Across these scenarios, Swift successfully served as a single access point to various tokenised networks and highlighted that its infrastructure can be used to create, transfer and redeem tokens and update balances between multiple client wallets, as well as provide interoperability between different tokenisation platforms and existing account-based infrastructure.

“This potentially gives those securities institutions a way of accessing this new market, with the integrations being done by Swift on behalf of the market participants,” says Kerigan. “So, doing those integrations once, with Swift, rather than doing them many times with all the different securities participants. I think that’s a pretty exciting kind of experiment. We really like doing these forms of collaborative innovation, and working with our clients to figure out new solutions.”

These two experiments, when taken together, form a significant part of Swift’s extensive innovation agenda that aims to underpin its strategic focus on enabling instant, frictionless and interoperable cross-border transactions. Now that it has decided to throw its hat into the ring, it will be interesting to see whether this ups the ante when it comes to the adoption of CBDCs and tokenised assets.

“If you look across digital assets, or digital currencies, the common thread Swift can help solve is actually doing things once for the financial community, so that those 11,500 banks and corporates don’t have to repeat it many, many times,” concludes Kerigan. “Ensuring interoperability between those platforms, through standards, through API connectivity and so forth, that’s where we can add value.”

The paytechbook club

A selection of titles to fill your digital boots this holiday…

THE PAY OFF: HOW CHANGING THE WAY WE PAY CHANGES EVERYTHING

One reviewer described this as a ‘thriller’. He’s not wrong. Fast-paced and entertaining, it’s by far the most exciting book we’ve read about payments this year.

Authored by two people who’ve been at the heart of the world’s vast money-moving network – a former CEO and a former director of corporate affairs at Swift – it’s a timely exposition of who and what controls the new payments ‘ecosystem’. That’s not a word the authors use, but then this book isn’t written for ‘us’ – the industry – but ‘them’, the people it serves. By and large, they are (perhaps blissfully) unaware of how tens of trillions of dollars get shifted around the world each day… until the batch processing breaks down and the paycheque’s delayed or their card is declined for no apparently good reason. Then everyone wants an explanation.

But they should be interested and they should understand – at least, more than they do. That’s the premise of The Pay Off. Because how payments are executed increasingly matters in ways that many ordinary users suspect has pretty seismic consequences for them individually and society as a whole, but because no one’s bothered to explain how it works, they don’t feel able to influence decisionmaking that’s driving its changes. And so, the tyranny of powerlessness, the conspiracy theories, thrive and trust vaporises.

In The Pay Off, Gottfried Leibrandt and Natasha de Terán explain, not in a geeky or a condescending way – we’re not into the weeds of SDKs and APIs here – how

the breakneck innovation we’ve seen in the way we pay, over the past decade in particular, ‘changes everything’, at all levels of society and not necessarily or immediately for the good. They’re not making judgement calls, but they are poking the bear.

With chapter headings including How to steal a billion: fraud and theft, Live now, pay later: the allure of invisibility and Crypto for grownups, they follow the money through the myriad payment formats, channels and institutions, across borders and cultures, asking some pretty fundamental and important questions along the way. Ones that, as an industry, we probably haven’t stopped to consider from the point of view of ‘them’ for some time.

Occasionally, we all need someone to hold a mirror up to ourselves. This book is that mirror for paytech. And you probably need to take a look.

The Pay Off is published by Elliott Thompson and is available in hardback, paperback and Kindle editions.

BORN DIGITAL: THE STORY OF A DISTRACTED GENERATION

Chairman of UK Finance, Robert Wigley’s debut book is dedicated to his three sons and could easily be interpreted as a 336-page-long parental rant. It’s not, but that is what inspired him to write it.

To be clear, Wigley admires the generation that got the tail-end of the alphabet for their ‘enthusiasm, open-mindedness, social conscience and curiosity’. He works with many of them in his capacity as a mentor and startup investor. But he’s concerned that we don’t yet fully understand the impact

on them and subsequent generations of being fully immersed in social technology and haven’t woken up to the consequences of ‘surveillance capitalism’ and its drain on our GDP. Having seen the world ‘sleepwalking into past crises’ (including the GFC and climate change), he’s keen that his sons’ cohort avoids another, and he uses this book to flag up research that indicates we need to reset out relationship with technology. That’s not just a societal change but a regulatory one, and with world-first online safety laws being made in the UK right now, it’s a timely read.

Of course, Wigley’s sons might tell him that the very characteristics he admires in their generation are shaped by the digital world they find themselves in. That’s if they ever get off their devices to talk over lunch.

Born Digital is published by Whitefox and is available in all formats.

DIGITAL FOR GOOD: STAND FOR SOMETHING OR YOU WILL FALL

Fintech commentator Chris Skinner’s new collection of essays on how to be a responsible financial business features contributions from people and organisations with different perspectives on the environment, social and governance (ESG) agenda. Skinner’s skill – and rare feat – is to have persuaded everyone from the co-founder of Extinction Rebellion to incumbent banks and large corporations, neo founders and investors across the globe to share the same platform. His ultimate message for the industry: “How do you price extinction? How do you price YOUR extinction?”.

Digital For Good is published by Marshall Cavendish and is available in Kindle and hardback editions.

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