Fintech Finance presents: The Paytech Magazine Issue 04

MAGAZINE

ISSUE #4

THE

PAYTECH

The journey starts here!

ARE YOU BEING SERVED?

The fintechs queuing up to meet the needs of SMEs

CODES OF CONDUCT

STRAIGHT-THROUGH STRAIGHT TALK WITH APPLY FINANCIAL’S MARK BRADBURY IN VEGAS

ONE HELL OF A RIDE

Ricky Knox on Tandem’s big jump

#RTWRACE

4 ways to pay 79,000 miles 1 winner

PLUS INSIGHTS FROM Worldpay from FIS ● Countingup ● RBR ● Trulioo ● Xpress Money HooYu ● Square ● Tandem ● JobsOhio ● Lloyds Bank ● Mastercard ● Enfuce ● Finastra ● G+D

Focus branch staff on your customers, not counting cash...

Automate your cash processes to improve your branch experience and profitability.

visit glory-global.com to find out more

CONTENTS

CROSSBORDER 8

Codes of conduct We’re all familiar with IBAN and BIC numbers, but would you know what a payments purpose code is – or who uses it? Luckily, you don’t have to because Mark Bradbury’s Apply Financial does

13 X marks the spot With its B2B2X business model, Currencycloud is bringing down the cost of foreign exchange and shrinking the world of trade for SMEs

19 At the digital gallop Transforming not just its culture and technology stack, but also its services, including a new commercial crossborder payments platform, has contributed to Lloyds Bank’s remarkable recovery since the crash

22 Taking the initiative Crossborder payments over traditional rails went at tortoise-pace until SWIFT turbo-charged them with its Global Payments Initiative.

Now gpi is ticking all the banks’ boxes

25 Good vibrations

THEPAYTECHVIEW

2019

ISSUE #4

"The only impossible journey is the one you never begin.”

I can’t take credit for the quote – it belongs to author of Awakening The Giant, Tony Robbins – but it seemed an appropriate one with which to kick off this issue of The Paytech Magazine, obsessed as it is with travel plans!

First, there is Money20/20 in Vegas where the theme this year is Journey To The Future Of Money. We’ve devoted an entire section to the show, including interviews with Scarlett Sieber, AEVI, SmartStream, Finastra – and Amadeus, the leading supplier of booking and payment solutions to the travel industry.

There‘s a roundup of the most ambitious (in fact, the only) round-the-world payments race, which came to an impressive finish at Money20/20 Europe. And we take a look at crossborder payments, which still face

a challenging journey – one that Mark Bradbury and his team at Apply Financial are smoothing out. Plus, BPC, Wirex and Mastercard join us to talk ewallets and we take a deep dive into SMEs (aka mom and pop stores).

Editor-in-Chief, Ali Paterson Did you recognise last issue’s ‘spine tingler’? ‘Size of a bank does not mean soundness of a bank’ – it was by Rohit Kumar Singh, Chief Officer, Corporate and SME Banking at Equity Bank

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With pressure from the World Bank to reduce global remittance charges, Xpress Money’s new white label service could help more cash go further for less

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MONEY20/20 29 Are we nearly there yet?

The theme for this year’s Money20/20 Vegas is Journey to the Future of Money. It’s all about helping financial services find a roadmap, says Scarlett Sieber

30 The ultimate merchant experience Service-led retail businesses are waking up to the fact that they have to embrace digital innovation to thrive, says AEVI. But its partnership with payment service providers means they don’t have to stress about it

www.fintech.finance

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250+

CEO speakers

160+

fintechs on stage

70+

countries

2600+ attendees

∞

networking

Get ready for the 5th Edition!

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CONTENTS

38 42

50 46

32 The appliance of science UL has spent 125 years testing products and processes to breaking point. It’s a useful skill when it comes to helping to make sure the world’s payment systems are up to the job

35 Short cuts: why business can’t wait for the Fed $328billion was transferred last year person-to-person by fintechs in the US. Now South Dakota’s MetaBank is making instant B2C transfers a reality for many Americans, too

38 Tried and trusted Trulioo’s latest fund raise signalled that the ID verification platform had ‘arrived’ in the banking sector.

Zac Cohen and Stephen Ufford give an exclusive insight into its journey

40 Paying to a different tune Mastercard is a virtuoso when it comes to orchestrating payments.

So, what’s the score going forward?

42 Heart of the matter Personal carbon offsetting through cashback rewards is the latest customer engagement tool offered by white label banking software provider Meniga

www.fintech.finance

44 State business Forget New York and Silicon Valley, could Ohio – the state that can literally lay claim to having the original lightbulb moment – be the launch pad for your fintech?

46 Easy does it G+D Mobile Security’s Convego suite of solutions offers banks a way to future-proof their payments services against what appears to be an irresistible urge among consumers to open their ewallets

48 Think local‚ pay global!

As record amounts of cash move across the globe, more of the methods that support transactions become, somewhat paradoxically, parochial

50 Open for business Fresh from Sibos 2019 in London and the launch of its first apps on the FusionFabric.cloud platform, Finastra’s Chief Product and Technology Officer, Eli Rosner, talks collaboration and innovation

52 Ready for takeoff The travel industry is on the verge of a payments revolution, according to leading software solutions provider to the sector, Amadeus

PAYMENTS RACE 55 How the race was won From start to finish, it was a blast!

But what did we learn from our sixth and most ambitious payments challenge yet?

KYC & ONBOARDING 62 Moving up a gear Ricky Knox and his cofounders at Tandem set out to get customers’ money ‘moving in the right direction’ with data-driven, smooth and unobtrusively secure UX. As the bank prepares for some big changes in 2020, that strategy is paying off

64 There’s a hole in your bucket, dear banker, dear banker With around half of online personal account opening journeys abandoned, and 84 per cent of businesses hitting KYC barriers, banks are ‘leaking’ customers, says onboarding specialist, HooYu

SME SERVICES 67 Figuring out business banking Countingup is leading the Making Tax Digital charge with an innovative way to help SMEs – and now their advisors – cope with the biggest accounting shakeup in years

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The global event dedicated to payments, identification & digital security

GET YOUR FREE BADGE ON: WWW.TRUSTECH-EVENT.COM #TRUSTECH2019

CONTENTS

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71 Squaring up to POS Square’s all-in-one mobile terminal is a sleek addition to the range.

But, as the fight for ‘under-served’ small businesses intensifies, the emphasis has to be on substance as much as style

74 Showing the love for SMEs Banking Circle looks at the challenges and opportunities ahead for SME payment providers, and their vital role in financial inclusion

80 Clearing the way ClearBank set out to level the field for challengers and smaller players in financial services. But it’s not so much evening the odds, as giving them a head start

82 Payments: a potent mix If there is one thing you can predict about payments, it’s that you can’t predict where they’ll go next – and if consumers will follow. It’s why, at the heart of innovation-led Crédit Agricole Payment Services, there’s a technology lab bubbling with ideas

PHIGITAL 76 Virtues signalling Branch transformation is still at the forefront of bankers’ minds as they strive to ensure they are fit for purpose. But what does this mean in practice? We ask RBR’s Branch Transformation 2019 event

78 Infinite choices To hear most commentators talk, digital and cash are sworn enemies.

But Glory Global Solutions is investing in fintechs that use apps to improve access to cash, not limit it. CMO Michael Bielamowicz, for one, is excited…

88 When a payment is not a payment

DIGITAL PAYMENTS

You’d be wrong to think that corporate transactions are all about the money, says Citi’s Ebru Pakcan

THE PARIS FINTECH FORUM 92 Paris Fintech Forum is back!

Europe’s unique show returns for the sixth edition. Check out who and what you can expect to see in 2020

PAYMENTS ROUNDTABLE 101 The future wallet

84 Enabling payments The cofounders of Enfuce are surveying global expansion from the top of a Finnish tech peak

86 Any way you slice it...

Mastercard has a place at the core of the digital payments ecosystem.

Whether or not the future is cardless, it’s creating a strategic role with its Open Banking Solutions

Once well-thumbed and over-stuffed with cash, cards and ID documents, today’s wallet is more likely to be a digital app in which both your identity and a limitless number of payment methods is combined. So, does that really advance financial inclusion? Will P2P payments wipe out the need to store cards anywhere while cash, too, dies a death?

Maybe biometrics render the wallet, in any form, redundant.

Our experts shared their views at The Paytech Finance and BPC specially-convened round table

THEPAYTECHMAGAZINE2019 EXECUTIVE EDITOR Ali Paterson EDITOR Sue Scott ART DIRECTOR Chris Swales ONLINE EDITOR YASH HIRANI

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

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

FEATURE WRITERS David Firth ● Tracy Fletcher Rachael Harrison ● Martin Heminway ● Alex King ● Natalie Marchant Sue Scott ● James Tall Swati Sanyal Tarafdar ● Emily Tatham

ISSUE #4

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Issue 4 | ThePaytechMagazine

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CROSSBORDER

CODESOFCONDUCT We’re all familiar with IBAN and BIC numbers, but would you know what a payments purpose code is – or who uses it? Payments validation software company Apply Financial has made it its business to find out, so clients don’t have to, using RESTful APIs to detect what’s needed to ensure straight-through, crossborder processing using its Validate tool. As bank-to-bank payments look set to emerge as the go-to transaction method, MD Mark Bradbury says banks have now learned a thing or two from fintechs

THE PAYTECH MAGAZINE: How has the payments industry changed over the past couple of years?

MARK BRADBURY: Payments has historically been the monopoly of banks and big card providers, like Mastercard and Visa, but we’ve seen a sea change over the past few years, with fintechs coming in and breaking up that monopoly, providing better solutions that are better marketed, slicker, easier to use, faster, and with much more of a customer experience.

Obviously, they’ve listened to their clients and delivered a better solution. So now you’re seeing a much wider choice for consumers and companies to make payments, and it’s driven the banks and incumbent card providers to look at acquiring some of the fintechs so that they can get more into the bank-to-bank payment marketplace.

I think the biggest change, actually, is the move away from card payments towards bank-to-bank, and we’ll see more and more of that in the coming years, thanks to the fintechs.

TPM: How have you seen banks and fintechs grapple with these changes?

MB: I think the fintechs set out to dislodge the banks, and then the reality hit both that the best way to move forward is to partner. So, it’s not unusual to see companies like Currencycloud and TransferWise working very well with the banks to provide new, slicker models.

The most important thing for fintechs is being able to provide a very automated, straight-through processing method for payments while keeping their costs down, because they’re working on very slim margins and don’t want to employ a myriad of staff in the back office, fixing problems. Apply Financial can

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help them with that by automating the process of validating everything they need for a straight-through payment, so that it goes through the system without human contact.

TPM: What differences are there between fintechs’ and banks’ validation processes?

MB: Fintechs came at it as greenfield.

They’d learnt from the banks, which had to build up their own systems and tools, downloading data and coding rules. They did all the hard work to build validation solutions, but did so in the back office, not built around a modern-day, browser-based environment. The new fintechs thought ‘we don’t want to build it ourselves, we’ll go to a company that’s got global experience of this’, which is why they come to us.

I think the fintechs set out to dislodge the banks, and then the reality hit both that the best way to move forward is to partner TPM: Do you think adapting to instantly-validated payments is essential for the success of fintechs and banks?

MB: The world is moving towards instant payments, so they have to adapt, and I think they’re embracing this because we all – companies and individuals – when we make a payment, want it to arrive the same day, even in a few hours.

Instant is a revolution. However, adapting to this is a challenge because fintechs and banks have to make sure they do all the checks, including anti-money laundering, and the payment still leaves within seconds.

Our clients are rising to that challenge.

TPM: Speaking of speed, how easy is it to implement your Validate system into an organisation?

MB: We haven’t reinvented the wheel, it’s a RESTful application programming interface (API) with a relatively straightforward deployment.

Our clients’ technical people can plug it in very quickly. We make sure that the different functions we provide are deployed correctly for them, tested for volume and latency, and pass compliance for regulated entities.

It takes as little as four, and usually no more than eight, weeks to go live.

TPM: What are the typical issues with validating crossborder payments?

MB: It’s not just a bank account number and a bank code; many countries around the world have additional requirements.

For example, there are 32 countries that have payment purpose codes. If you make a payment to India, for instance, which is one of those countries, you have to put in a mandated payment purpose code, which has certain wording. If you don’t, the payment will bounce back. In other countries, they need to see tax codes.

So, we’ve built our application, within Validate, to be able to check those different elements. We provide fields for checking within our API, so that our clients don’t have to think ‘if we’re making a payment to Mexico, what do we have to put in?’. The system does it for them and we explain, to anybody who’s filling in those fields, exactly what they need to do to ensure a straight-through process. For example, if they’re putting in a particular type of IBAN (international bank account number), Validate will tell them if it’s correct and, if it’s not, what is wrong with it. www.fintech.finance

Applied intelligence: Managing Director Mark Bradbury

www.fintech.finance

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CROSSBORDER

Banks have accepted an API world, Cloud-based applications, speed of operation and customer-centric applications. We fit right into that

We’re trying to make it easy for our clients to provide an intuitive service to their clients, so that the customer experience is much more enjoyable and it cuts out the human and data error that is causing one in eight payments to fail.

TPM: Now that customers are getting used to instant payments domestically, how are you helping to increase their spread to areas further afield?

MB: A lot of instant payment infrastructures are very similar to theone we have in the UK. The challenge is that you have to provide more detailed information to validate an overseas payment and do it with speed. We can help with that validation but, over the next few years, I think the authorities will come up with a more efficient way of using instant payments, in terms of the type of information that needs to be validated.

TPM: Can you tell us a bit about the work you’re doing with Franx in the Netherlands?

MB: Franx is a new challenger bank set up by ABN AMRO, aimed at small and medium-sized enterprises. It came to us about two years ago when it was looking to build out a payment solution for overseas

payments for its clients, as efficiently as possible, with everything driven by APIs. It was a match made in heaven for us, as it wanted to do things the way that we could provide them.

It was looking at validating payments anywhere in the world. We started with just IBANs for payments in Europe, but we’re now providing them with the ability to validate payments in 170 countries, within 225 financial jurisdictions. It’s been live for more than 12 months and Franx has everything it needs now, whatever payment requirements it’s presented with by its clients.

TPM: How have changes in the payments industry impacted Apply Financial?

MB: When we started the company in

TOP SECRETS So, Mark Bradbury, what other industry’s culture do you admire the most? If I wasn’t in this industry, I’d be in the music industry, because I kind of like the idea of travelling around on a bus to gigs – and sex, drugs and rock and roll. It’s far more exciting than fintech!

What’s your favourite city in the world and why? Oh, London.

It’s just got everything… fantastic history, all the restaurants, great bars, lots of things to do, and lots of new businesses opening up all the time.

It never stands still.

What does London specifically offer fintechs? It’s the best place in the world for finance; it’s the foreign exchange hub of the world. The innovation around finance tends to come out of London, so you can understand why companies from all around the world gravitate to it.

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Nine quickfire questions to the boss of Apply Financial reveal a secret rocker with a passion for London, cigars and little robots

Which innovation do you wish you had actually created?

Definitely the Nespresso machine.

“The future of banking is…” finish that sentence. No cards.

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I, Robot: Bradbury still collects them

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2010, we were pitching our applications predominantly at banks. We very quickly realised that the better place to pitch would be to the new fintechs, because they were providing more customer-centric solutions – and key for us is making the customer experience a lot easier and eradicating human and data errors as part of that process.

So, for example, take the Cloud-based, crossborder payments for business provider, Currencycloud. We’ve been talking to it about this for quite some time and earlier this year we signed a deal to help Currencycloud validate, initially with IBANs, and then globally.

We were very focussed on working with the fintech marketplace and companies like Currencycloud, but over the last couple of years I think the banks and card companies have looked at bank-to-bank payments, particularly crossborder payments, learned some lessons from fintechs and probably even acquired some of them.

So, we are now much more engaged with the banks than when we first started, because they have accepted an API world, Cloud-based applications, speed of operation and customer-centric applications. We fit right into that.

What are your most vivid memories about technology as a kid? I collect these little robots from Hong Kong. When I was young, to be given one of these… they wind up and walk along the floor – that was an innovative toy. So, it’s not a computer or anything like that, because we didn’t have them. It was one of those.

I’ve dropped the key now… so that’s it, it doesn’t work anymore!

What’s the biggest failure that you’ve learned from? I’ve had so many! If you don’t try, you don’t fail, right? So you have to keep trying things, and if you have a failure, you dust yourself down and you get back on the bike, or on the horse, and you carry on, you know? If you let the first failure stop you from doing anything, you’ll never achieve anything in life.

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What book should everyone read and why? I don’t read books.

Cigar Aficionado. It’s a magazine.

What is the best song ever?

Heartbreaker by Led Zeppelin, because Jimmy Page’s guitar solo is just awesome.

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CROSSBORDER Partnership in payments: It’s proving a powerful tool for Currencycloud

MARKS THE SPOT With its B2B2X business model, Currencycloud is bringing down the cost of foreign exchange and shrinking the world of trade for SMEs. Cofounder and VP of Corporate Development, Stephen Lemon, says collaboration is the key Fifty years ago, Marshall McLuhan introduced a new term to describe the inevitable development of an interconnected global market.

We were to live in a ‘Global Village’, McLuhan assured us, founded upon enhanced and ever-improving methods of communication, organisation and trade.

What the image of McLuhan’s Global Village fails to evoke are the roaring cyber-highways that facilitate this bucolic vision of worldwide unity – an all-encompassing network of info-lanes shuttling bundles of digital information around the world at lightspeed.

Naturally, financial institutions (FIs) were quick to carve their own lanes in this network to facilitate their customers’ rapidly-increasing demand for digital payments. And, as crossborder transactions simultaneously increased – they now represent one sixth of total transaction value, according to McKinsey – it became clear that the intersection of these two trends would be big business for any startup with the ability to filter www.fintech.finance

the traffic firing through it. It’s precisely at this busy intersection that Currencycloud landed in 2012. It now occupies a lucrative ‘B2B2X’ niche within the global payments industry, where McKinsey estimates international payments revenues total up to $200billion globally, split roughly evenly between transaction fees and foreign exchange revenues.

Offering a neat set of solutions to customers ranging from FX traders to neobanks, Currencycloud leverages the latest technological tools to whizz validated payments across the world at prices they assure customers are cheaper than using SWIFT’s inter-bank payments network.

At the centre of Currencycloud’s Cloud-based solutions is an all-in-one white label offering: Currencycloud Direct. Promising quicker, cheaper and more reliable payments across currencies and borders, it’s the firm’s one-stop-shop for customers with global transaction ambitions but local currency restrictions.

It also offers customisable, plug-in-andplay application programming interfaces (APIs) for businesses needing specific

global payments solutions – and, as its services are Cloud-based, they’re scalable to all sizes of financial institution. Its APIs cover overseas know your customer (KYC) protocols and international sanctions screening – services that liberate businesses from the previously opaque system rife with overcharging and delays.

Meanwhile, it has built a compliance network that adheres to the transaction regulations of more than 200 countries, while also operating an ACH (automated clearing house) in more than 35 currencies worldwide. In 2018, it added Global Collections to its solutions – a system allowing American and European businesses to generate virtual IBANs (international bank account numbers) and receive dollars or euros fee-free.

It’s impressive coverage for a relatively young fintech that’s processed a reported $50billion in crossborder transactions to date. With crossborder ecommerce set to top $900billion in 2020, Currencycloud has been keen to emphasise its currency and border-agnostic business model, which it calls ‘uniquely B2B2X’.

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CROSSBORDER That ‘X’, as in X-border, certainly marks a sweet spot – the site at which Currencycloud is continuing to unearth treasures in the payment solutions space. Interestingly, though, while new technologies may be driving business in the payments industry, that’s not what sets the company apart, as Currencycloud’s cofounder and VP of corporate development, Stephen Lemon, explains.

“Every company in payments is a fintech company now,” says Lemon, whose experience working with fintechs harks back to the swashbuckling 90s, when financial technology was in its experimental infancy. “You can’t run in payments without being very technologically capable and advanced. The requirements for speed, efficiency and transparency are just driving that technological advance massively.”

So, there must be something else under the hood to power this London-based firm into Tech Nation’s ‘Future Fifty’ list for 2019 – a list that’s previously featured SkyScanner, Deliveroo and Just Eat. According to Lemon, it’s Currencycloud’s careful positioning and collaboration within a rich ecosystem of fintech players that’s driving the business forward.

“We’re collaborative across the organisation, both on the supply side and on the customer side. We obviously partner with a number of traditional mainstream banks, all around the world, as you might imagine,” explains Lemon, “but we’re also collaborating on the supply side, with neobanks, challenger banks, API-led banks and other technology vendors and service providers. We couldn’t do what we do without that collaborative mentality – it’s essential to us.”

2019 has been a year of monthly press releases for the crossborder payment specialists, detailing ever-more impressive announcements with key strategic players across the financial industry.

Take June’s news that Currencycloud was entering into a partnership with Visa – the world’s leading digital payments provider. The agreement will help Visa offer its customers services like multi-currency wallets and real-time exchange rate notifications, while it also dramatically multiplies Currencycloud’s presence behind the scenes of your future travel transactions – a coup for the fintech firm.

Lemon is understandably thrilled by the implications of the deal.

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“It’s very exciting and it’s allowing us to take our ambitions for payments transformation to a whole new audience, a whole new market, and reach new corners of the world that we just wouldn’t be able to on our own,” he says.

A month later, in July, there was another announcement: Currencycloud was partnering with Apply Financial in an effort to improve straight-through payments (STPs) by integrating Apply Financial’s Validate API with its own solutions platform. A no-brainer for speedily validating beneficiary account details, the deal promises to radically reduce the number of delayed and returned payments for the customers of FIs that use Currencycloud’s solutions.

“The service that Apply Financial provides is very focussed on beneficiary validation, and it’s a surprisingly specialist subject – there’s a huge amount of depth and diversity to that which, again, we just couldn’t do effectively on our own,” says Lemon. “Apply Financial’s specialist knowledge enables us to get payments right on the first time of asking.”

You get the sense that executives at Currencycloud may need some physio after

The partnership with Visa allows us to take our ambitions for payments transformation to a whole new market and reach new corners of the world that we just wouldn’t be able to on our own all these handshakes because the summer also saw the firm enter into a strategic partnership with Hyundai Card, South Korea’s leading credit card, while opting t o become a paid-up member of SWIFT’s Global Payments Initiative (gpi).

While Currencycloud uses SWIFT for international transactions when it’s optimal to do so, this alliance with gpi – arguably one of the biggest breakthroughs in correspondent banking in recent years – promises to unlock greater speed, transparency, certainty and tracking

capabilities for all crossborder payments processed by Currencycloud’s customers.

Are you sensing a ‘sharing is caring’ ethos here? While it’s clear that Currencycloud has manoeuvred within the financial sector to secure the agreements it needs to outcompete rivals, this proactive appreciation of the work of fellow payments innovators has plotted a steady course towards more buried treasure for Currencycloud to enjoy in the future.

As if to emphasise the global payments firm’s favourable standing in the market, Currencycloud was recently awarded a grant of £10million by the UK Government’s Banking Competition Remedies Programme. Announced in August, Currencycloud has promised to add £20million of its own cash to the fund to support the growth and competitiveness of UK SMEs transacting globally.

In its bid for the money, Currencycloud claimed that the UK SME sector was being overcharged a whopping £4billion for international payments and that, furthermore, 80 per cent of these SMEs were unaware of the true cost of foreign currency exchange.

By serving its own customer FIs better – including more than 150 UK banks – Currencycloud has signed up to improving crossborder payments for 40,000 UK small and medium sized businesses by 2024.

That amounts to 10 per cent of all SMEs in the UK that trade internationally.

So, with plenty of irons in the fire, what next for Currencycloud and the crossborder payments industry?

For Lemon, the next big issue facing the industry will be facilitating an increasing number of ever-smaller payments across borders with ease.

“I think there’s going to be a real rise in micropayments, led by the Internet of Things,” he suggests. “Historically, the requirement was to batch payments up and process them in large chunks. That’s no longer going to be required – our technology allows us to make payments at will, a trend that’s only going to continue.”

It’s this vision of the not-so-distant future that truly evokes McLuhan’s Global Village – small trades and exchanges made between businesses on first name terms that happen to operate in opposite sides of a world shrunk by technology. And Currencycloud will no doubt be at the new ‘village pump’ – where all exchanges meet. www.fintech.finance

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CROSSBORDER

At the Transforming not just its culture and technology stack, but also its services, including a new commercial crossborder payments platform, has contributed to Lloyds Bank’s remarkable recovery. And it will continue to intelligently challenge the status quo, says Ed Thurman, Head of Global Transaction Banking When António Horta-Osório, CEO of Lloyds Bank, took to the stage for his much-anticipated keynote speech at London’s Sibos last month, it was to describe in painful detail just how close Lloyds was to collapse when he assumed his current position in 2011 – and the journey it has made since.

The bank was holding a stack of toxic assets worth £200billion and had been teetering perilously ever since the 2008 crash. Horta-Osório said he’d inherited a bank a mere ‘three months’ from falling over. It was ‘on its knees’, he admitted.

The recovery took its toll – not just on his own mental health, about which he’s previously been very open, but on his colleagues, too. “It was a period of huge change, regular restructuring and frequent uncertainty,” he told the London audience.

“Our job throughout was to lead them with clarity of purpose and vision, making sure that they knew exactly what we were doing and why we were doing it.”

Full-speed steed: The famous ‘black horse bank’ sees itself in a new light

www.fintech.finance

And that was to guarantee Lloyds Bank’s remarkable revival – from basket case to best-case in less than a decade. In 2017, then-Chancellor Philip Hammond announced that the bank had paid back every penny of its 2008 bailout funds. By embracing what Horta-Osório described on the Sibos stage as ‘unprecedented levels of change’ since, due to new technology, political uncertainty and altered customer habits, Lloyds Bank has picked itself up and dusted itself down, and now operates at one of the lowest cost-to-income ratios of any bank. The details behind how that is being achieved every single day were being shared in sessions away from the main conference hall at Sibos by other senior bank

staff, one of which was Ed Thurman. Lloyds Bank’s head of global transaction banking emphasises how looking at the needs of its one million or so UK corporate customers, who are also operating amidst dizzying technological change, has contributed to improving not just the bank’s fortunes, but theirs as well. In part, this change has been driven by the bank’s response to new and game-changing regulations.

“Regulation is a huge driver of change in the payments industry,” says Thurman, who cites open banking, the Faster Payments Service (FPS) and SWIFT gpi as significant tectonic shifts reshaping the financial industry.

“It’s something we think about a lot: how do we use that regulatory change to drive innovation – to drive better outcomes for our customers?

With open banking, for example, we’re now putting clients at the heart of their data.

It enables us to ask how we can use that data more effectively.

What does that enable us to do in terms of data insight?

How can we use that insight to help improve business for our commercial clients?”

The bank’s reaction to these pressing questions was to undertake a wholesale overhaul of operations, labelled the Group Strategic Review Programme – its response to those ‘unprecedented levels of change’ that Horta-Osório saw taking place across the financial industry.

The £3billion programme has seen savvy, business-friendly investments in corporate banking activities and crossborder payments, attempting to use tech to reduce the bank’s costs by 70 per cent and passing those savings on to its customers. Lloyds Bank’s strategy has been simple: to perform less like a bank and more like a fintech.

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CROSSBORDER That attitude has drawn Lloyds Bank into productive partnership with suppliers SAP and Finastra to help create the bank’s Cash Management and Payments Platform, announced in Toronto in 2017. According to those who ran the partnership, Lloyds’ collaborative approach developed the platform in a series of short sprints, detecting issues in a trial-and-error, dynamic process of learning and innovating, testament to its new agile-working environment.

Thurman is delighted with the results.

“We’ve worked with some good partners, in SAP and Finastra, around developing our payments platform; we think it’s genuinely a market-leading product,” he says.

Underpinned by ISO 20022 standards and application programming interface (API)-enabled, it’s a fully-complaint, future-proof solution that’s driving better sterling and euro clearing, foreign exchange (FX) trading and indirect clearing access for UK business.

“The payments platform provides a speed of execution and service at a

good price point, but also real transparency for the end customer which is, frankly, what it’s all about right now,” explains Thurman. “It’s also allowed us to develop some interesting API-led propositions, and that’s something we’re really excited about and invested in.”

Element of surprise The roll-out of Lloyds Bank’s payment platform couldn’t be more timely, given that it banks more than 80 per cent of the FTSE 100 – valued corporate customers it will surely want to keep onside in the storm of fintech innovation. It’s all part of a wider digital transformation that’s laying the ground for future innovation, as Thurman explains.

“We’re seeing the foundation blocks now

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that can really drive change with things like our Payables API, which is really having a positive impact on some of the underlying business models we see, like car financing.”

For those who’ve not come across Blue Motor Finance, car financing might seem an innocuous avenue for Lloyds Bank to push down. However, this year, Blue Motor Finance rocketed into first place in the Financial Times’ FT1000 list of Europe’s fastest-growing companies in 2019, after a mere five years of operation, during which it

The Cash Management and Payments platform provides a speed of execution, service at a good price point, but also real transparency for the end customer... we think it’s genuinely a market-leading product

has already lent more than £1.2billion to 120,000 borrowers and won the Credit Strategy F5 Awards’ ‘Best Fintech Lender’ title twice in 2016 and 2017.

Lloyds Bank announced its partnership with Blue Motor Finance shortly after the company’s 2019 FT1000 position was revealed. The Faster Payments-enabled API partnership is focussed on building will enable instant, flexible and transparent loans for automotive purchases – helping buyers make rapid investment decisions, with cash reportedly arriving in their accounts within two minutes.

This new mode of vehicle finance represents a momentous disruption to an industry that rarely makes the headlines for fintech innovation – and it’s another example of Lloyds Bank’s commitment to partnerships with exciting British businesses.

Indeed, since that deeply unstable period between 2008 and 2011, the bank has busied itself with multi-million pound investments aimed at promising UK fintech firms. One such example is Lloyds Bank’s strategic partnership with Thought Machine, the London-based fintech whose product, Vault, helps banks move clunky IT to the Cloud. Lloyds Bank offered Thought Machine £11million in funding in exchange for a 10 per cent stake in 2018. Vault’s deployment is said to be imminent.

It’s certainly true that the bank’s reversal of fortunes has happened simultaneous to its refocus on serving and strategising with British businesses. Thurman is proud to acknowledge its ‘work to really help Britain prosper’. But he’s also aware that some cutting-edge future technologies require research and development on a more global scale of collaboration.

The go-to tech here is distributed ledger technology, or DLT. With DLT’s applications still uncertain, it’s an area Lloyds Bank is understandably hesitant over investing in. “We’ve been quite cautious around the application of DLT and the use cases around that,” says Thurman.

But still, the bank is part of an international consortium of financial institutions – including Barclays, Nasdaq and UBS – to have invested £50million in a new platform that will provide an on-chain, DLT-based payment capability using the equivalent of cash. Fnality international, which is also UK based, is a fully international effort to support the introduction of tokenisation for crossborder payment needs and will explore issuing utility settlement coin in five different currencies. It is currently working with the central banks to see which is most viable.

“We’ll see how it develops,” says Thurman.

“But for a number of different reasons, we do believe that digital currencies will be a factor in the future, and we want to be close to the development of all of that.”

From intense stress to intense excitement, it’s been nothing short of a rollercoaster for Lloyds Bank since 2008. We might have regarded giant financial institutions as creaky old wardens of a nation’s cash, but in Lloyds Bank we’re witness to a business model at once striving to prepare for the future while forging strategic relationships in the present, in the difficult-to-dispute financial capital of the world. www.fintech.finance

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CROSSBORDER

The correspondent banking debate held between two totems for the crossborder payments industry – one representing the present and the other a potential future – was one of the most eagerly-anticipated events at Paris Fintech Forum 2019.

The first pubic encounter between the CEOs of SWIFT, with its much-improved payment rail SWIFT gpi, and Ripple, so far the only transfer service to settle on blockchain, was billed as fintech’s rumble in the jungle: a clash between the rippling young brawn of distributed ledger technology (DLT) and the collective wisdom and experience of the 45-year-old SWIFT messaging service used by 11,000 financial institutions to exchange more than 32 million messages a day across 200 countries. As to who was the bookies’ favourite, it was hard to tell.

The SWIFT consortium was represented by then-boss Gottfried Leibbrandt. Created by banks, for banks, its new messaging system (SWIFT gpi), which has had a phased introduction since 2017, was a game-changing improvement that ramped up the crossborder stakes. Now adopted for 56 per cent of all SWIFT payments, gpi appears well on its way to becoming the de facto messaging service in correspondent banking. It has significantly increased the speed of end-to-end delivery – down to half an hour or less for half of the payments run through the messaging system. SWIFT gpi also benefits from being bank-centric, in that it’s easily combined with back-office

processes – and, according to the first of SWIFT gpi’s accredited vendors, ACI Worldwide, it addresses the three top concerns for banks and customers: speed, certainty and transparency.

Meanwhile, punching from a different weight class at the Forum, was Ripple’s Brad Garlinghouse who has one eye on the more distant future while valiantly fighting for the blockchain belt in the present.

Ripple’s DLT promises to turbo-charge crossborder payments – reducing them to mere seconds, end-to-end.

Garlinghouse might have dismissively referred to SWIFT’s gpi solution as a ‘horse and cart’ compared to Ripple’s ‘Ferrari’, but, in truth, there’s no telling which form of payment transport will lead financial institutions (FIs) most effectively to the Utopia of 100 per cent instant, end-to-end delivery between the world’s banks. That’s because, while DLT cuts major corners in offering tracked payments on a distributed ledger, it’s a tier of technology that’s proven difficult to migrate towards, specifically for those operating legacy systems.

As Garlinghouse acknowledged: “Ripple talks a lot about what payments look like not today, but in 10, 20 years.”

So, its approach looks to seize upon the simplification of DLT integration that no doubt lies on the road ahead, as banks continue to modernise and fintechs continue to innovate. Application programming interfaces (APIs), on the other hand, are proving the

fastest route to the integration of complex correspondent banking systems today.

“API technology is here today and banks are able to integrate it. We have run several proof of concepts with blockchain, with 40 banks participating, but when we evaluated it with banks, they complained about the migration costs. We find for them it’s easier to integrate with APIs rather than with blockchain,” said Leibbrandt.

So, that’s the state of play – with few observers willing to call which technology will win out in the long term and vendors of correspondent banking solutions, such as ACI Worldwide, remaining commercially agnostic until a victor is declared. That said, ACI Worldwide is heavily invested in its partnership with SWIFT gpi, the company’s software solutions currently supporting nine per cent of global SWIFT traffic – with that figure rising to 30 per cent in the US. “There are really two aspects of gpi that are causing banks to adopt,” says Adam Needel, who leads on real-time payments solutions at ACI Worldwide. “The first is the pre-validation service. The second is gpi Connect, which gives banks the ability to gpi-enable their existing infrastructure to provide a more holistic offering to customers. This improves the customer experience, as well as ensuring the payment is routed accurately.”

ACI Worldwide’s UP

Takingthe initiative

Crossborder payments over traditional rails went at tortoise-pace until SWIFT turbo-charged them with its Global Payments Initiative. Adam Needel, Solution Leadership for Real-time Payments at ACI Worldwide, says it ticks all the banks’ boxes

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www.fintech.finance

Real-time Payments solution supports not only SWIFT gpi but numerous other cash transfer methods around the world, including those that use DLT (such as Ripple’s), wire and immediate transfer.

Since 1975, ACI Worldwide has established itself as a leading vendor of any-to-any electronic payment solutions for financial institutions. With its 2018 revenue topping $1billion, the company has been consistently onboarding assets to firm up its provision of comprehensive solutions to a financial industry hungry for simple fixes to complex problems. In February of this year, for example, it acquired bill payment firm Speedway from Western Union for a reported $750million – the largest transaction in ACI’s history.

With customers in more than 90 countries, its partnership with SWIFT was a no-brainer for both organisations, and it has been pleased to run an ongoing, globe-trotting joint roadshow, promoting the gpi solution and its multiple benefits.

For SWIFT, this roadshow presented a critical opportunity to convert the unconverted, because, like any closed

www.fintech.finance

system, gpi works best when it’s most ubiquitous: the higher the engagement, the faster, cheaper and more reliable the service.

Launched only two years ago, the gpi bandwagon has gained tremendous pace and SWIFT expects engagement to reach nearly 100 per cent by the end of 2020 – though the final push for smaller, regional FIs, with more limited development resources, will be the hardest.

What’s important for SWIFT gpi is to provide a holistic experience that banks can offer their customers “From ACI’s global customer base, we’re really hearing three key trends as to why they’re adopting SWIFT gpi,” says Needel.

“The first is speed, the second is certainty, and the third is transparency. What’s important for SWIFT gpi is to be seen as delivering all those to provide a holistic experience that banks can offer customers.”

But it simply was not possible before the arrival and widespread adoption of APIs – a revolution in banking that Leibbrandt regarded as being more significant than blockchain. That said, it was the existential threat of blockchain that galvanised SWIFT’s investment in its next-gen, API-enabled gpi solution.

“With real innovation threatening the business model of the banks, we found them willing to take action,” says Leibbrandt. “The combination of availability of technology and a real groundswell in the industry to say ‘guys, we need to attack this’, allowed us to roll out gpi.”

That responsiveness – the ability to adapt alongside the market forces that trouble major banks – is what might guarantee SWIFT gpi’s longevity in the face of its DLT-enabled competitors. On the other hand, as the business case for migrating to blockchain strengthens – as it is sure to – and other initiatives emerge – as they will

– ‘correspondent banking 2.0’ might leave SWIFT and its carefully constructed gpi solution in the dust. SWIFT isn’t oblivious to that possibility. In June, it announced that it will allow blockchain firms to make use of its gpi platform, following a successful proof of concept with the R3 consortium of financial institutions piloting trade over DLT (many of them SWIFT members). SWIFT said gpi would resolve the ‘payment challenges’ faced by such DLT platforms by allowing firms using enterprise blockchain applications to settle off-chain using existing, established and trusted payment networks. Speaking at the time, Charley Cooper, managing director at R3, said the move would allow firms to ‘access the efficiency gains from blockchain while reducing the friction in crossing between on-chain and pre-existing payment systems’.

It’s clear that blockchain is a different world order and one that requires a radically different way of thinking within banks. As Leibbrandt pointed out at PFF 2019, SWIFT itself has never been the bottleneck in terms of straight-through processing; it was the banks’ internal systems. In the grand prix that is fintech innovation, it’s as important to check your mirrors as it is to survey the road ahead; something SWIFT’s new CEO, Javier Pérez-Tasso, might do well to remember.

With its xRapid software and the XRP token, Ripple has found a huge potential shortcut in the race to provide frictionless, low-cost, crossborder payments. With the ledger taking care of security and data storage, all banks have to do is invest their XRP token into the receiving FI’s currency, and send it to the relevant institution, effectively bypassing the network that SWIFT has worked to create. But when Ripple’s technology might be practical for large-scale integration remains the big, unanswered question. And, until then, given that all the systemically important banks own, operate over, and are technologically and operationally committed to the SWIFT network – and, by the end of 2020, to gpi – ACI Worldwide will happily continue to help banks integrate with it.

As BNP Paribas (an ACI SWIFT gpi client) has commented: “Each bank will have its own unique advantages in joining SWIFT gpi; however, all banks have the same disadvantage if they don’t – they aren’t offering their customers the service that they demand or expect.”

Issue 4 | ThePaytechMagazine

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CROSSBORDER

Good vibrations With pressure from the World Bank to reduce global remittance charges, Xpress Money’s new white label service could help more cash go further for less, improving lives and strengthening communities, says CEO Sudhesh Giriyan

Tom Course, a project manager working in the United Arab Emirates (UAE), desperately needed to send money to his friend in Kathmandu. Course’s friend was about to start a new chapter in his life and there was an urgent need for financial support.

Course was looking for reliable options that did not take days to deliver or rob a big slice of the value from his remittance in charges – and he found it in Xpress Money.

“Within five minutes of making the payment at the counter in the UAE, my friend had the money in his hand in Kathmandu, Nepal… Xpress Money helped someone start a new life,” a relieved Course commented later.

Course is not alone. Professionals who live and work overseas, migratory workers earning a living for the families they left behind, all have an ongoing need to send financial gifts or support back home. And the money flow is substantial, representing more than twice the amount of official aid to, and nearly two-thirds the value of, foreign direct investment (FDI) in developing countries. That’s according to researchers at the National Association of Postgraduate Centers in Economics (ANPEC), who describe remittances as the ‘new financial phenomenon’.

The World Bank agrees. Its latest Migration and Development Brief predicts the amount of money being sent person to person globally will grow by 3.7 per cent to www.fintech.finance

$715billion in 2019. Officially recorded annual remittance flows to low-andmiddle-income countries reached $529billion in 2018, itself an increase of 9.6 per cent over the previous record high of $483billion in 2017. The USA drives one in four of these transfers – to Mexico, China, India, the Philippines and Vietnam, as well as Kyrgyzstan, Tajikistan, Haiti and Liberia. In several of these countries, remittances form a substantial part of their economies’ gross domestic product.

In acknowledgement of the critical role that remittances play in developing regions, where they are often the most reliable money flow, the World Bank has made driving further volume at lower cost a Sustainable Development Goal. It’s also said that charges must come down.

It found the average fee for sending $200 was around seven per cent in the first quarter of 2019, and above 10 per cent across many African corridors and small islands in the Pacific. Banks were the most expensive channels, charging 11 per cent on average in that period, followed by post offices at more than seven per cent. The World Bank aims to bring charges below three per cent by 2030.

ANPEC observes that ‘the enormous upward movement in remittance payments may be attributed largely to two factors; namely, immigration between developing and developed countries has increased dramatically in the past 20 years and [there has been a] decline in transaction costs as

technological improvements have allowed for faster, lower-cost mechanisms for the international transfer of payments between individuals’. ”Our cost of remittances is already somewhere around two per cent,” says Xpress Money CEO Sudhesh Giriyan. “We have made our money transfer solution highly affordable, simple, fast and safe.”

He’s well aware of the profound social and economic impact its services can have, especially in education.

“Remittances help to pay for school and college fees, books and other necessary educational materials,” he says. “They are a vital subsidy for educating children in poorer countries, and can be viewed as an informal educational foreign aid.”

He points to surveys in El Salvador and Sri Lanka that have revealed children from remittance-receiving households have a lower school drop-out rate, and to global monitoring agencies which have estimated that international remittances can increase education spending by as much as 35 per cent.

By being the conduit for cash transfers to banks, cash to mobile wallets and even cash to a kiosk in remote rural locations for families to collect, Xpress Money can take credit for helping some of the world’s poorest economies expand, as well has having a direct impact on individuals’ life chances and strengthening their communities.

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CROSSBORDER And it’s done it through partnerships in more than 170 countries, developing a network of around 200,000 agent locations, and by using tech to break the stranglehold that banks and other institutions have had on the money transfer corridors for years.

Now it’s offering its extensive, low-cost infrastructure back to them with an opportunity to white label the service it’s been building since 1999.

“We have created a fantastic infrastructure, which also has strong sourcing partners, termination and receiving partners,” says Giriyan.

One of the most recent is TerraPay, the world’s first mobile payments switch to extend real-time international money transfers to mobile wallets in Africa.

Xpress Money customers can send remittances to any mobile number or bank account in Nigeria, as well as directly to Vodacom M-Pesa, Tigo Pesa, Airtel Money and Zantel Ezy Pesa wallets in Tanzania by visiting the nearest Xpress Money outlet in 170 originating countries.

“In Africa today, mobile wallets are seen as virtual bank accounts that enable customers to pay bills and transact, just like using a physical bank account. They work exceptionally well in places where the physical network of banks is limited,” says Giriyan. “Xpress Money is therefore constantly investing in the mobile

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services space – either through in-house innovations or by partnering with existing providers with proven technologies, such as TerraPay, to bring convenient remittance solutions to a wider audience.”

Partners and agents use the Xpress Money Biz platform to conduct real-time transactions for individual customers; Xpress Money Flex, meanwhile, is aimed at helping financial institutions – banks and online money transfer services – to deliver remittance services to customers.

“The front-end system is the financial institutions’ and they integrate with our application programming interface (API) to access our entire global network for cash, account credit and mobile wallet credits,” explains Giriyan.

“It’s been a very successful solution for us. We are partnered with some very large banks in certain geographies, and with online money transfer service providers like WorldRemit.”

The remittance platform is designed to offer scalability and compatibility with

We have created a fantastic infrastructure, which has strong sourcing partners and strong receiving partners

web, mobile, in-store and other diverse transactional platforms, and now it’s available to third party clients to use as their own with a white label service, Xpress Money One. “With Xpress Money One, we offer the entire infrastructure to our partner,” says Giriyan. “Let’s say a retail entity in North America or Europe wants to do money transfer, but they do not have a licence or the necessary compliance in place. We can provide everything on the one platform: license, compliance, a global payment network, and 24/7 customer service.”

Xpress money’s transaction tracking, confirmation notices, free cancellations and refunds are all designed to demonstrate transparency and win customer trust.

“Advances in technology have brought increased efficiency,” says Giriyan, “but in order to keep moving forward, the industry needs to work with its regulators to ensure any directives or legislation help – and don’t hinder – the end user.”

Banks, international money transfer operators, telcos, retail chains, online remittance players and fintech companies can all play a part in providing the two pillars of money transfer – origination and termination, or send and receive. And, in doing so, they send not just money but good vibrations around the world.

www.fintech.finance

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MONEY20/20

Are we nearly there yet?

Fintech influencer Scarlett Sieber has brought a fresh new perspective to this year’s Money20/20 in Las Vegas. Its theme?

Journey to the Future of Money All the financial world is a stage for Scarlett Sieber – quite literally this autumn, as she takes over leading content production for Money20/20 in Las Vegas.

A consultant and thought leader for the industry, her previous influential innovation roles at BBVA (Banco Bilbao Vizcaya Argentaria), Opus and USAA (United States Automobile Association), have earned Sieber herself top billing at numerous financial services events, as well as notable credits – she’s among the Top 20 Women in Finance and regarded as a Top 10 Fintech Influencer in the US. What’s occupying her mind most right now, though, is not the expansion of fintech but the disappearance of traditional, smaller financial institutions (FIs), and specifically the impact that’s having on the SME community in America.

“The heart of America is our small businesses, and the top five [banks] do not service them as well as they need to.

Others that have been servicing them continue to consolidate and disappear, and my concern is what’s going to happen to small businesses which really build up the economy of our country?” she says.

While it is true that there have been around 250 mergers a year over the last decade, according to the US Federal Deposit Insurance Corporation (FDIC) – a loss of about a third, which sounds a scary number – that still leaves 5,500 or so across the entire country. Surely, that’s enough to go round?

On the face of it, maybe. But as merger www.fintech.finance

and acquisition activity strengthens (witness the biggest US bank deal since the financial crisis this year with the $66billion merger of two mid-sized American banks, BB&T and Suntrust), Sieber’s concern is that the needs of the regular Jo or Joanna, faithfully opening up every morning, will be sidelined in favour of these now much bigger FIs servicing bigger corporations.

“In the US, we’ve seen mass consolidation. We’re losing roughly a bank a day. We need to be careful,” she says.

“My hope is that we will start equipping and helping these institutions, so that there is not that void. The fintechs will try [to fill it] and I think, they will be successful, but I don’t believe they’re going be able to do it at the scale that’s necessary.”

If fintechs don’t cut it on their own, then partnering with some of those 5,500 financial institutions that are left is the obvious way forward, right? You’d think so, says Sieber, but while the rest of the world has largely got over the ‘banks versus fintech’ mindblock and embraced collaboration, that debate is very much alive in the heart of America.

“They’re still [addressing] that question: are fintechs our competition?” says Sieber.

The event theme for this Money20/20 edition is Journey to the Future of Money, and payment industry delegates flying in from around the world might be surprised to discover how far America still has to go

on it – and not just in terms of business models, but also in the acceptance of new forms of payment.

“The Federal Reserve Bank of San Francisco just did a detailed survey on what’s happening on the western coast of the United States, and 26 per cent of transactions are still cash-based,” says Sieber. “The surprising factor for me was that the biggest users of that are people aged 25 and below. So even though you’re hearing about Millennials, Gen Z, being fully digital – and I think that’s true – there’s still a big influx of cash.”

The future of money is likely to be a combination of usage; her job is to ask which. “Where will Libra fit into this?

Where will cash fit?” says Sieber.

That last question will be addressed in a new format at Money20/20, along with the related issue of financial inclusion, and – currently a hot topic in the US – access to the banking system for cannabis businesses, on which federal law makers are voting. But a focal point will be Sieber’s interview with David Marcus, who heads up Facebook’s Libra project.

“We’re totally rethinking the conference,” says Sieber, “with a lot of new content, fresh perspectives. It was really important to me to not have [all] the same voices, and the ones we do have bring new messages that have not been shared anywhere else.”

They’re still [addressing] that question: are fintechs our competition?

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MONEY20/20

THE ULTIMATE Service-led retail businesses are waking up to the fact that they have to embrace digital innovation to thrive. Ahead of Money20/20, AEVI’s Nicky Koopman told us how it’s helping its payment service providers to delight consumers It’s fair to say that true digital innovation has been slow to arrive in the consumer-facing services sector. But there are some encouraging signs that this area of the retail world is becoming more open to payments innovations.

The reason for this traditionally slower pace is that the majority of small and medium-sized service businesses are used to conducting their business either face-to-face or over the telephone as opposed to online. It’s what they know, and it’s what they are comfortable with.

A mechanic, for example, is far more likely to discuss the issues with your car in person than over email. These businesses also tend to operate locally. This means that they lack real motivation to upgrade digitally. They may also be put off by the perceived costs and resources required.

These trends were explored in detail in the recent Retail Innovation Readiness Index from pymnts.com and

AEVI, and they are the reason why innovation lags in the services area. The Index highlighted that only 38 per cent of merchants in the health and beauty sector, for example, even have a website.

On the flip side, 44 per cent of respondents said they were ‘very interested’ in smart point of sale (POS) systems, a technology that combines payments and value-added apps on smart devices, while 62 per cent said that customer loyalty would be their top reason for innovating.

They know that failing to innovate can hamper their business in terms of scalability and attracting new customers through digital and mobile services, including modern payment methods. And their existing customers are used to the digital touch in other areas of their lives, so they expect it in service transactions.

Next-gen acquisition AEVI supports merchant payment solution

providers, including acquirers, merchant banks, independent sales organisations (ISOs) and value-added resellers (VARs).

The company provides one of the leading open ecosystems for payments and services, bringing banks and acquirers closer to their merchants, and therefore merchants closer to their consumers.

AEVI is busy laying the foundations for next-gen acquiring by empowering merchant payment solution providers to manage and move their classic payments propositions into a new, value-added world of apps, payments and smart devices.

Nicky Koopman, SVP for content and value-added services at AEVI, believes they are in turn enabling their customers to provide the ‘ultimate merchant experience’.

“That means giving merchants the choice to create the best customer interaction for their customers,” she explains. “And that shouldn’t be limited to checkout only. It starts with pre-checkin and may well extend after the checkout. We’re all about

A true, added-value experience: Merchants in consumer services can be helped by PSPs

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www.fintech.finance

providing frictionless experiences and frictionless customer journeys.”

Simply put, the AEVI platform helps to get the right digital tool to the right merchant. For example, a mechanic who has a program that sends texts to customers when their vehicles are ready is likely to improve customer stickiness.

There are many new solutions out there.

Ambitious merchants just need to be pointed in the right direction.

“There are three elements to consider, for banks and acquirers,” says Koopman.

“One is the mentality of the small and medium-sized business owner. It’s completely different to that of a consumer – it’s really about helping them transition from offline into an online space, and figuring out which solutions can help them to optimise their business.

“Secondly, it’s about the impact that the solutions can have on the business, which, if successful, can absolutely increase revenue. And then the last point is really going into the frictionless experience of the solutions. Are they working well together? Do they transfer data accurately? Ultimately, merchants care about the functionality and the experience for their customers.”

Exploring the use cases Koopman is seeing a number of positive examples of how banks engaging with the AEVI platform could help their merchants leverage more payments with digital tools.

“One great example is actually my own hairdresser, who has a really nice system in place,” she says. “It allows me, as a customer, to book my appointment online and say

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what I want. The hairdresser can then see that I made an appointment, but also who I am, what type of haircut I want, what type of hair dye I like and how much time they need to slot in.

“So, the moment I walk through the door, they know it all. I can just sit down and relax. Then, the moment they finish up, I can pay at the counter with my Apple Watch. And when I walk out, I get an email saying ‘thank you, here is your receipt’. It can then go a step further – ‘by the way, this was the tenth time you came into our store – the eleventh time, it’s on us’.

That is awesome, and it’s all in one solution. You can instantly see how this is optimising the hairdresser’s business.”

All the above experience is facilitated by technology called Smart POS, but she warns it is not just a product, or a range of

Ultimately merchants care about the functionality and the experience for their customers products. Rather, it’s a strategic shift for banks and acquirers, that focusses on value creation. That added value is what delights a merchant, its customers and feeds loyalty back up the chain: from the consumer to the merchant and from a merchant to its solution provider.

“Working with an integrated, open ecosystem offers the merchant payment solution providers that flexibility and ability to offer their merchants exactly what they need, when they need it,” adds Koopman. “That means they can really create their own merchant experience – empowering them with the right tools.

Coming to America Money20/20 Vegas provides an ideal, and very timely, opportunity for AEVI to showcase the difference a merchant bank can make on its merchant’s business.

“We have some really exciting stuff lined up for Vegas,” says Koopman. “What’s really important is that it’s all about the ultimate merchant experience that I mentioned earlier. But it’s also getting the market to the point where it understands that going into this new world is not just about providing another product; it’s a long-term strategy – and it’s about the merchant. It should be merchant-focussed in order to really grab the market, because there is so much competition.

“There are so many people out there that really know what they’re doing, if you compare ISOs (international standardisation organisations) and ISVs (independent software vendors) and VARs (value-added resellers). For these merchant acquirers, now is the time to look at where they want to play, whether they want to stick with processing or start entering the new world and offer the merchant what they actually want.”

At Money20/20 in Las Vegas, AEVI will be inviting those who wish to get under the skin of the ultimate merchant experience to their stand.

The stand will feature a number of different sections where attendees can see what this innovation means for merchants, be they hairdressers, florists, beauticians or mechanics. Visitors to AEVI’s stand will be able to see, feel and hear what the latest solutions look like for both them and their customers.

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MONEY20/20

The appliance of

science

UL has spent 125 years testing products and processes to breaking point. It’s a useful skill when it comes to helping make sure the world’s payment systems are up to the job, says Director of Technology and Security Andrew Jamieson From issuing certificates for the first vacuum cleaners back in 1909 to helping ensure the safe performance of photo voltaic panels for the solar energy industry today, UL has built significant credibility as a multi-industry problem solver that sets out to ‘make the world a safer place’.

The company takes a strategic approach to analysing organisational problems, and develops solutions spanning technology (including the Internet of Things, blockchain, artificial intelligence [AI], location awareness and automation), testing, analytics and intelligence, regulation, risk-control, product evaluation, team wellbeing, buildings, infrastructure and operations.

In short, UL deals in trust. And nowhere is that more needed that in the payments industry.

Already experienced in everything from automotive to the built environment, industrial products to healthcare, the company brought more than 100 years of cross-sector experience in dependable performance to financial services when it entered that market 10 years ago. It then deepened its expertise with a series of specialist payments acquisitions.

As its director of technology and security Andrew Jamieson, says: “UL realised that if we wanted to continue to make the world a safer place, we couldn’t just focus on the physical anymore, we had to focus on the software, on the way things are interconnecting. A large part of that is in payments. They drive global commerce and if that falls over, it has tangible, safety-related consequences for individuals and for companies.”

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THE PAYTECH MAGAZINE: Does having experience of helping to ensure and demonstrate safety and trust in other industries give UL a different perspective when it comes to financial services?

ANDREW JAMIESON: Yes, a unique, scientific approach to payments and payment security. We have a lot of UL Standards created for us by our not-for-profit arm through scientific testing and research. Understanding the science behind things and how to break them down into their components then analyse those components is part of our DNA, and allows us to approach our payments activities in a very methodical way.

Thanks to our acquisitions in the payment area, we have a lot of people with lots of experience and knowledge, which we’re bringing to an industry being challenged by fintechs, changing regulations and the globalisation of payments.

We don’t facilitate payments ourselves.

We supply test tools and offer consultancy and security testing, making sure things work properly. We’re an enabler of fintechs coming into the market, with the ability to see the banks’ point of view, too, as an organisation that’s been around for a while – as have they.”

TPM: What do customers really want from institutions?

AJ: You need to define the customer to answer this question, and that depends on where you are geographically, financially, and whether you’re an individual or a business, as each has different needs.

The success of QR-based payments with WeChat and Alipay in China was driven

by the need for merchants to operate without a lot of technological ability or infrastructure, and for customers to be able to use non-cash payments to buy if they didn’t have enough money or exact change.

In more technologically forward areas like Australia or the UK, the customer is after more frictionless payments. They want to perform their payments, control their money, have access to things, quickly.

They have lots of different accounts and want to be able to integrate all that, which is where the revised Payment Services Directive (PSD2) comes in.

TPM: Do frictionless payments create a need for added safety/security assurance?

AJ: There’s a section of engineering called human factors engineering, where you look at how people interact with systems, software, etc, and make sure the knobs that need to be touched and pressed are in the right place to be reached, and things that have great import are not so easy to do. Everybody’s seen in movies the button that fires the missile – it has a plastic cap around it that you have to flip up, so that you can’t accidentally press it! Not that I want to compare payments to missiles, but you want to make sure you’ve got enough control so you don’t accidentally transfer money you don’t have or add an extra zero and have to go through a whole rigmarole to get your money back.

This could be process-driven control, where certain amounts trigger certain levels of authentication, or it could be control through machine learning – where the system prompts you with a ‘this seems very large compared to your usual transactions… are you sure?’ message. www.fintech.finance

There are going to be pain points for companies trying to implement security and for customers, and we see our role as trying to remove those pain points.

TPM: What do open banking, new payment technologies and the payment culture that’s changing around that, mean for security?

AJ: There are five big challenges. Those are identity and ownership, intent, privacy and security, interoperability and liability.

With identity and ownership, how do you identify the customer and confirm they own the accounts they’re accessing?

If you use open banking to access the information on the screen, to transfer money from one account to another, to pay people, there is an intent that goes beyond ownership. There’s a lot of technological debt in these systems, in the way they’re being used. Sometimes, online services will transfer money into your bank account, in tiny amounts, and ask you to confirm the amount and time to prove ownership. If you’re linking that account through an open banking aggregator or an app, you’re providing that information to other services and it is used to identify you. This comes back to privacy. If you’re making payments for health concerns, for example, this is private information and you need to protect it.

Interoperability is important for security, because if these things don’t work together well, it can open up security flaws. We’re going to see an increase in application www.fintech.finance

programming interface (API) aggregators. If they are insecure, and they’re not a bank, what’s the oversight?

And finally, liability. In the open banking world, if something does go wrong and I lose money from my account, who do I blame? Will we be able to determine, firstly, who was to blame, then who is liable for that, in terms of monetary and reputational cost – the aggregator, the bank or some other body in a remote global location?

We’re working with companies on protocols, looking at the security of API interfaces, cryptography, key management, right up to high-level process, procedure and policy.

I think we will also see issues as these sorts of apps are targeted by people who want to do identity theft, account takeover and enrolment fraud. One of the great successes, over the last 15-odd

Criminals don’t wake up in the morning, and say ‘we’ve had a good run, it’s time to go out and get a real job’. They just look for the next low-hanging fruit

Break point: There are ‘five big challenges’ with open banking

years, is Europay, Mastercard and Visa (EMV), which has helped reduce and, in some cases, remove card-present fraud. But that’s moved the fraud to other areas, because these criminals don’t wake up in the morning and say ‘we’ve had a good run, it’s time to go out and get a real job’. They just look for the next piece of low-hanging fruit that’s slightly above the other low-hanging fruit they were after.

Information from aggregator apps can be used to assist with enrolment and identity fraud, so we need to be careful to avoid a spike in fraud with open banking, where criminals come in and know how to manipulate these systems better than customers and banks themselves at the outset.

The biggest problem facing the payments industry at the moment, in one word, is speed; speed of change, of deployment, of customers being able to move from one bank to another, of change in compliance requirements, and of globalisation.

All these things are coming together and our process is about helping our customers deal with this rapid change.

Issue 4 | ThePaytechMagazine

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MONEY20/20

Short cuts: Why business can’t wait for the Fed With $328billion transferred person-to-person last year by US fintechs, Jennifer Worley, Senior Vice President for Product & Marketing at South Dakota’s MetaBank, describes how it’s making faster B2C transfers a reality for many Americans, too

Despite being the world’s economic superpower and home to pioneers of technology whose groundbreaking products have improved our lives and reshaped our lifestyles, the United States curiously lags behind in a key area.

Whereas in the UK, Europe and the Asia-Pacific region, in particular, digital payments have been well established for a decade or more, astonishingly, almost half of the annual $2billion of business-to-consumer (B2C) payments in the US are still made by paper cheque.

This situation is out of kilter with today’s increasingly ‘want it now’ demands from consumers. It also presents a window of golden opportunity for innovators to capture a slice of this lucrative pie, particularly as the Federal Reserve’s nationwide instant payments scheme, FedNow, is not expected to be up and running until 2023 or 2024 at the earliest. www.fintech.finance

One industry player eager to make its mark is MetaBank, which has a long-established reputation for identifying and successfully harnessing future trends.

The South Dakota-based bank is one of the largest issuers of prepaid cards in the US and is also well-versed in processing payment transactions (to the tune of about $1billion a day). In March this year, it launched its own faster payments platform that allows existing and new partners to disburse business funds in near real-time using services like Mastercard SendTM. Same-day, automated clearing house (ACH) payments and wire transfers are also supported. It also plans to soon offer person-to-person payment bank sponsorship to eligible payment providers.

MetaBank recently released the results of a YouGov survey it commissioned, which underscores the change in US consumer culture as well as, importantly, highlighting the opportunities for business growth

and efficiencies. The study, which was weighted to reflect a nationwide response, provided four key insights: ■■ Almost four out 10 (39 per cent) of US adults would be more willing to do business with a company that offers a direct deposit they receive in a few days. That increases to about half if they could receive it in minutes. Furthermore, almost a quarter of US adults said they would be willing to pay a small fee to receive rebates, refunds or credit within minutes of providing their card details.

■■ Consumers want seamless and instant options to spend, receive and transfer money, with digital P2P platforms such as PayPal, Venmo and Zelle hugely popular and increasingly used for business-toconsumer (B2C) disbursements. Almost a quarter (24 per cent) of US adults said they prefer one of those three options to receive funds from businesses.

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MONEY20/20 ■■ For B2C payments, convenience is the number one driver for consumers, with 36 per cent of US adults citing that as the reason they selected their preferred method of payment, while 18 per cent made their choice because it provided quicker access to funds.

■■ Customer preference is shifting to alternative payment methods and away from paper cheques, with nearly a third (31 per cent) of US adults now saying they would be less willing to do business with a company that makes payments via cheques which could take days or weeks to arrive.

Jennifer Worley, senior vice president for product and marketing at MetaBank, says: “The study itself confirmed our thoughts that consumers in the US are demanding faster payments.

“I speak a lot to the Amazon theory.

They’ve made all of us, as consumers, expect more and much faster, and I think that translates over into many aspects of our lives. So, the research shows that really large numbers of payment transactions are being transacted by digital means and P2P payment options; $328billion dollars last year with just PayPal, Venmo and Zelle.

“The culture in the US is to expect more on demand. As consumers get really comfortable with this technology, they’re also expecting a really seamless, instantaneous and friction-free user experience. These emerging services have delivered that and I think those of us who are operating in the payments industry have to take a look at that and figure out, ‘OK, what does that mean from a business model perspective?’.”

Perhaps it means the opportunity for fintechs to offer businesses the triple benefits of attracting new customers by offering potentially instant and seamless payments, make considerable cost savings by switching from cheques to digital (it is estimated each cheque costs more than $3 to produce), and benefit from charging small fees for the service.

But Worley accepts the nettle needs to be grasped to remain at the head of the pack, such is the intensity of the competition in a fast-paced market. As an example, Early Warning, the operator of Zelle, is joining forces with The Clearing House (TCH), operator of the US real-time

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processing platform, to provide a faster settlement system which is planned to go live next year.

“We are focussed at MetaBank on helping our partners bring innovation to market,” says Worley. “We have a very robust legacy in payments, an extremely robust prepaid sponsorship business model, and a lot of partnerships in the US landscape, in the value chain and around payments in particular. So, we are focussed on locking in emerging payments and helping our partners realise the benefits of those.

A way through: Direct to account, B2C payments are less tortuous for business and customers

Worley says: “We think that lends a lot of value to our partners through thought leadership and insights, and is really helping them to bring innovation to market.”

The bank’s introduction of a faster payment mechanism for businesses, which includes business-to-business (B2B) transactions, has received an ‘overwhelming response’, Worley says.

“Latency has been a real issue in that space because of the friction and the delay with the very tried-and-true paper cheque method. That’s something that the finance industry has been trying to solve for a long time and now that the technology has caught up with the need, the response is overwhelming.”

But it’s not only corporates that will benefit from faster payments, Worley points out, citing the example of how swift insurance payouts will make an immeasurable difference to policyholders.

She says: “There were some terrible storms where our headquarters are based in South Dakota, which closed shops and services. If somebody there needed to get emergency money, being able to get it quickly was vital – you don’t have time to wait for a cheque which you also may not be able to bank because the bank’s closed.

“We actually surveyed specifically about the insurance category and found that 13 per cent of consumers would be willing to completely switch their insurance to a provider that offered this direct and fast payment method.”

As part of its faster payments platform, MetaBank is leveraging the existing networks..

“We call it ‘riding the network rails’ to get to an existing debit card that’s in someone’s wallet,” explains Worley.

Most people – the banked population for sure – already have a card in their wallet and this technology enables them to get a payment into that account.

It’s certainly working for MetaBank.

“We’re most focussed on corporate disbursement,” says Worley, “because it’s the most turnkey option for us – and we have deep relationships with both l arge payment networks helping to bring that to fruition."

We are most focussed on on corporate disbursement because it’s the most turnkey option for us

“That led us to doing the study, which confirmed our theory that this was an important piece of business. The one, not surprising but definitely telling, thing, is the rapid increase in adoption of digital payment methods.”

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MONEY20/20

TRIEDANDTRUSTED Having built a solid reputation among fintechs for its ID verification platform, Trulioo’s latest fund raise signalled that it had ‘arrived’ in the banking sector. General Manager Zac Cohen and Founder Stephen Ufford give an exclusive insight into the scaleup’s journey and the new currency of trust “Trust is undergoing a resurgence, trust will be the competitive advantage that takes our businesses to the next level.” This was the message Trulioo general manager Zac Cohen delivered to delegates at London’s Sibos 2019.

As bank customers, we already trust banks to hold and manage our money.

But Cohen and Stephen Ufford, founder of the ID verification company, argue that banks must now be trusted to hold and manage our identity and, this summer, the Vancouver-based scaleup armed itself to deliver on that vision by completing its fourth investment round. It raised CA$70million, CA$60million of that in a round led by the private equity arm of Goldman Sachs.

The investment has two benefits – first, Trulioo got the cash it needed to hire more staff and further develop its customer platform. And second, it gave Trulioo’s banking clients the opportunity to share in a profitable business.

Ufford says: “Most of our investment at Trulioo now is about scale. Growth-stage companies with large clients often struggle under the weight of client demand – the term I like to use is being crushed with love. When you have a successful product built by a small team, and then all of a

sudden the demand increases. A lot of the risk in building a growth-stage company is scale and we’re no different.

At 140 people we’re grossly understaffed, in terms of our customer engagements.

We have had to pick opportunities lately because of staffing and that’s never a good thing during the high-growth period.

“So, we’re going to be deploying capital from our fundraising into some new bodies, office facilities and also upgrading our platform. We’re currently on version 2.5 and the next is designed for larger customers in different jurisdictions, for a higher velocity of digital identity transactions. The whole sector is really ramping up.”

While Trulioo has several hundred clients, it sees the potential to grow that to thousands as clients’ customer experience focus switches from convenience to trust. Cohen says: “Trust and identity will be the next competitive advantages banks and financial institutions have to address to gain that next level of customer acquisition.

“Prior to this, we had an economy of convenience, in many cases, where speed of access was key. But considering the dangers around web-based financial services, in terms of breaches and misuse of information, we’re

really seeing a return to what trust means, and banks using identity as the vehicle to achieve that for their user groups.”

Trulioo was formed in 2011 to provide the financial services industry with an outsourced application programming interface (API)-based identity verification solution that could improve financial inclusion, initially in emerging and non-developed markets.

The change in focus to bigger banking clients was reflected in the make-up of participants in the latest investment round, and Ufford foresees that it will draw its blue-chip clients closer.

“The primary focus of the round, as you can tell by the syndicate that invested, was Trulioo’s arrival into the banking sector, from our roots which are deeply ingrained in the fintech world,” he says.

“It signifies that we’ve become very serious about our banking clients. As well as making them investors in the company, we want them to be a key component of our digital identity overall, and our financial inclusion mission, which is near and dear to our hearts.”

Trulioo was famously turned down more than 100 times by Silicon Valley investors – which Ufford half-jokes is due to the business having been profitable for four years.

Identity parade: Trulioo is drawing its banking clients in closer to its mission

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www.fintech.finance

And while there could be strong strategic reasons for a bank such as Goldman Sachs to invest in his firm, the motivation was financial – it was Goldman’s private equity arm that signed off the cash.

Ufford says: “We’ve been profitable for quite some time, since series B in 2015 when American Express Ventures invested in us. The latest round was not a fundraise of need, it was a fundraise of opportunity.

Sometimes, customers not only drive revenues for us; many of them have helped shape our product roadmap in the last seven years, which has, in turn, made us a successful company.

“So, it stands to reason that, when you have a successful product that your customers helped you build, a fundraising is a way of getting them even more invested, both in the product and the company. It is very synergistic when it comes full circle, when you have a set of customers that are largely responsible for your success, your financial success, getting to own part of that success.”

Closer ties with global banks have reaped other rewards, too – they have raised Trulioo’s profile as a banking sector onboarding partner, resulting in interest

www.fintech.finance

from mid-tier banking players. Ufford says that, in the weeks following the news of the fundraising, other potential clients got in touch. And he stresses that when a client is invested, and so shares the desire to see the business succeed, a culture of open, honest feedback can be nurtured.

“Our goal, with anybody that uses us as a partner, on the customer side or, in particular, an investor, is that they will at least provide us with comprehensive feedback on our product roadmap. My experience has been, whether an investor or not, most of our strategic clients give us the good, the bad and the ugly straight up when we’re building something new.

As well as making them investors in the company, we want our banking clients to be a key component of our digital identity “People often ask me ‘where’s your crystal ball, where did you develop your vision for digital identity?’ I have to admit I wish I had a vision – I simply know how to ask a question or two of a client.

They are great beacons for what to do next if you know how to listen.”

He adds: “A lot of tech startups get big funding rounds and go build stuff that they think is cool. At Trulioo, we really try to be good

listeners and build stuff that our clients think is cool. And, as simplistic as that sounds, a lot of the bodies buried in digital identity, in terms of companies that have failed, or ideas that have failed, were because founders and CEOs got this wrong.

“I think that, as long as we focus on being authentic and honest and catering for our customers, the rest, for the most part, will take care of itself.”

Looking at the company’s immediate challenges, Ufford says hiring talent is at the top of the list. Trulioo’s headquarters (HQ) is in Vancouver, but its secondary offices in San Francisco and Dublin will be the focus of growth, too.

Ufford says: “Vancouver is becoming similar to Silicon Valley. When I lived there a few years ago, I witnessed the same problems of talent shortages as we have here. So, we expect to have to double or triple down on the teams outside of our HQ in the next 12 months, just to meet our hiring goals.

“In our favour, it’s clear that digital identity is a mission that is attractive to potential employees. So there’s an opportunity for us, due to the subject matter we’re working on, to hire and retain people all over the world. This is not true of all products, or even my past startups.

I built a Canadian credit bureau and I can’t imagine people in emerging markets, or in other parts of the world, would be terribly interested in that mission.

“So, I’m just keeping it real. With Trulioo and digital identity, everybody gets the mission, sees the importance, and that gives me confidence for the future.”

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MONEY20/20

Paying to a different tune

Mastercard is a virtuoso when it comes to orchestrating payments.

Mike Cowen, the company’s Head of Digital Payments & Labs in the UK, Ireland, Nordics & Baltics, considers the score… past, present and future Think Mastercard and most of us of a certain age think ‘flexible friend’ – the phrase with which the Access credit card, taken over by Mastercard in the 90s, became synonymous.

But, despite hitting the headlines this month for its collaboration with Royal Mint to launch an 18-carat solid gold card in the UK, those ‘friends’ now represent just a fraction of the company’s involvement in payments innovation, according to head of digital payments and labs for the UK, Ireland, Nordics and Baltics, Mike Cowen.

Here, he offers a short and long-range forecast for the developments likely to have the greatest impact on the industry, and describes how Mastercard is instrumental in helping organisations and consumers benefit from the many opportunities accompanying open banking.

THE PAYTECH MAGAZINE: Mastercard is one of the Titans of the payments industry… everyone knows your name. But how has your role in payments changed?

MIKE COWEN: A lot of people think we are the people who issue the cards, but we don’t actually do that; we operate the technology which means that they work all over the world and, in recent years, we’ve become much broader, also offering account-based payments alongside other activities.

That’s because the payments landscape has changed dramatically in the last few years. 2017 was a landmark, particularly in the UK, because that was the year that debit card payments first outstripped cash as the most popular payment method. One key factor in that has been the massive growth of contactless payments. Contactless started in the UK

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as long ago as 2007, in fact, but it now has real traction, not least because of its adoption for travelling around London on the transport system. Tapping to pay has also been a real boost for mobile payments, another big trend.

TPM: It’s great for consumers but what issues do different, particularly local, payment methods bring for merchants?

MC: It depends on the profile of your business. If you’re an online retailer, for example, and truly domestic, serving only your local market, you need to support people’s preferred methods of payment there. If you’re operating across multiple markets, or even globally, you have to balance supporting all the options your customers might want to use, with not cluttering your website with loads of different buttons that might only be meaningful for a small subset of people.

Generally, it’s the payment service provider’s (PSP’s) job to enable different payment methods for a retailer, and they do a good job of it. They offer the widest range of options, then work with their merchants to identify the best fit for them. The very big global merchants want scalability in their business model, and therefore don’t want to have to adapt it to each market in which they operate, so that tends to push them towards using the global payment methods, or at least those that are preferred by a huge number of customers.

TPM: Now that real-time payments are expected by customers, how can the industry create a streamlined, frictionless system?

MC: We talk a lot about how real-time payments are changing people’s

expectations, but I’m not sure we’re quite there yet and expectations still have some catching up to do. In the UK, for example, we’ve had real-time payments with Faster Payments for over a decade, but the vast majority of account-based payments are still taking place via the old BACS batch-based system.

That said, there is one key area that does create a lot of uncertainty for people and that’s around pending transactions – that payment you see on your statement that says ‘pending’, where you’re not really sure if you still have that money or if it’s gone out of your account. A lot of customer research says that’s a pain point for customers, so there’s room for improvement, and there are things that we and others are doing to minimise the number of ‘pending’ payments that appear on a statement.

TPM: How will the imminent adoption of strong customer authentication (SCA) affect payments?

MC: It will impact all consumers and businesses, yet there’s still relatively low awareness of what’s coming, even though the original 14 September deadline by which SCA was required to happen, has already passed. Our experience of shopping online, in particular, will change.

We’ll be asked more often to prove who we are, and the way we’re required to prove that will change, too, which affects both the consumer who’s shopping and the business that’s selling to them. It’s definitely a change for the better, but we’ll endure some short-term pain going through the transition, including unexpected changes to the payment experience as we’re checking out. www.fintech.finance

Hopefully, the disruption it causes will be relatively short-term, with an ultimately positive benefit.

Other things that come with open banking are likely to have a much more disruptive impact in the longer term.

There are service providers out there offering account aggregation, where you can see the money in your current account, savings account, what’s left on your mortgage and any investments, all in one place, rather than visiting different websites and apps. That has relied on ‘screen scraping’ (sharing your login details with the account aggregation provider) up until now, which is not a great way of doing it; it’s effective but it only has to go wrong once and the consumer is put at significant risk. Whereas open banking offers a much more secure way of granting that kind of access to different accounts in different places, which means experiences like account aggregation, which there is demand for, can be done in a more organised, way, which doesn’t expose consumers to the same degree of risk.

TPM: How critical will ewallets be?

MC: They have a key role to play. We’ve already seen that people who like to use a particular mobile phone also have a strong preference for using that device for payment, and will use the wallet wedded to it. So, our advice to our partners is that they should offer as many as possible, to give customers choice regarding how they pay in any given situation.

Cards are still a great way to pay, whether we’re talking about a piece of plastic or a virtual card that only exists electronically, they’re convenient and work well. When you’re hailing a cab or using an app, your card sits behind that experience and takes care of payment seamlessly. So, card will continue to play a significant role across consumer, corporate, and everything in between.

TPM: Where do you see the payments industry heading from here?

MC: There’s some really interesting stuff www.fintech.finance

Know the score: SCA is likely to cause short-term disruption for long-term gain

Historically, your credential was your card; now it’s your card on your phone.

But we’re likely to move to a point where you are the credential going on. The same technology that sits behind services like Apple Pay, Google Pay and Samsung Pay, called tokenisation, is being applied to websites. A lot of websites today, or their service providers, store millions and millions of cards, and if somebody gets hold of those card details, they can use them for criminal activity.

Right now, we’re working with retailers and their service providers to swap out real card numbers for tokens that will only work on that website so, even if somebody manages to break through their security, they won’t be able to do anything with the customers’ card details.

Over the next couple of years or so, we’ll see the introduction of secure remote commerce (SRC), an infrastructure upgrade similar to what was needed when we went from mag stripe to chip and PIN technology with cards in physical

shops. SRC is a set of specifications developed by EMVCo that enable the creation of a ‘virtual payment terminal’. It improves the security of online payments and makes for a more consistent, easier experience when you’re buying online, by replacing manual entry of card details.

SRC will allow you to click a button, see your card in a list of card images, pick it and pay. You won’t have to type your card details, so it’s a better user experience, and because you’re not revealing your card information, there’s better protection from fraud.

In the longer term, the direction of travel is towards us not having credentials we pay with at all. Historically, your credential has been your card. Now, perhaps, it’s your card in digital form within your phone, but I think we’re likely to move to a point where you, your personal biometrics, are the credential. When you walk into a shop, a fingerprint reader, facial recognition or whatever the shop supports and you choose to use, will identify you and enable payment to take place without you having to carry anything.

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Going the extra mile: The Meniga rewards app taps into growing environmental awareness

Heart of the matter Personal carbon offsetting through cashback rewards is the latest customer engagement tool offered by white-label banking software provider Meniga – a result of the ecosystem it’s built between people, banks and businesses, as Óskar Egilsson, VP of Product, and Isabel Moratiel, Business Development Manager, explain Today, corporate social responsibility (CSR) is more than just a gimmick to help a company stand out from the crowd. As consumers become increasingly aware of what impact their lifestyle choices have on our planet, they demand that businesses act accordingly and increasingly gravitate towards those that share their commitments.

Customer loyalty pays. And that is, perhaps, one of the reasons why financial institutions are keen to link up with a new rewards app from digital banking solutions provider Meniga, which targets the environmental crisis with auto-cashback donations that help consumers offset their carbon footprint.

Cashback rewards are a fast-growing performance marketing channel across

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the world, with more than 100 million active users in the US alone and cashback transactions increasing by more than 100 per cent every year, according to the CardLinx Association.

Meniga is the largest white-label personalised digital banking software provider in Europe, serving more than 65 million users in 30 countries, including, most recently, those of Portuguese national financial group, Grupo Crédito Agrícola. But it is also the largest performance-driven cashback rewards platform in the Nordics, with a user base of more than 250,000 across Sweden, Finland and Iceland. That’s about to be boosted by the acquisition of leading Swedish rewards platform, Wrapp. The two will merge their respective technology and team, with Wrapp CEO Aage Reerslev taking on the role of Meniga VP of

Rewards. Wrapp users are currently being migrated to the Meniga app.

The Meniga rewards app is available to consumers in Sweden and Finland banking with Nordea, Länsförsäkringar, Sodexo, Aktia and Collector Bank, with more Nordic banks expected to join in the coming months. Retail partners already live within the app include Nelly, Lyko, Sushi Yama, Homeroom, Royal Design and Vapiano.

By connecting a bank card to the new ‘Give Back’ feature, users can donate rewards for their spending with specific retailers to United Nations (UN) climate change-certified projects that ‘reduce, avoid or remove greenhouse gas emissions from the atmosphere’.

In Sweden and Finland, some 20 per cent of users have already pledged money to offset their carbon footprint, resulting in 57,000 euros being donated www.fintech.finance

to the climate change cause. The first two projects to benefit will be the RIPPLE Africa Improved Cook Stove Project in Malawi and a Varam Power Projects renewable energy generation initiative in India.

It’s all part of the Meniga mission to help people lead better financial lives by creating a ‘mutually beneficial ecosystem for people, banks and businesses’. And at the heart of that is machine learning technology, which help banks achieve better engagement with their customers than traditional marketing platforms like Google and Facebook, by analysing past spending – because that is the best predictor of future spending. Óskar Egilsson, VP of product for Meniga, explains: “We enrich and categorise all data that is available to a bank and then serve it up through our feature-rich API layer, for banks to build meaningful engagement on top of it. We have a very good categorisation engine that instead of just looking at the MCC (merchant category code) of a transaction and then figuring out the category for it, looks at the whole data set behind the transaction. We essentially make it more customisable for the end user, so that they can interact with the engine and categorise the transactions according to their preferences.

“Our new platform, which we launched in Scandinavia, builds on top of our transaction processing and enrichment services, basically pulling together banks, businesses and people in a single ecosystem where businesses can send personalised offers to customers of participating banks. But we are also thinking about social responsibility.

“Getting cashback into your pocket is a good thing, but we thought ‘let’s take it a little bit further’. We partnered with the United Nations Climate Change initiative to enable people to donate their cashback to projects that benefit the planet. We call this feature ‘Give Back’.”

There is a growing incentive for financial institutions to develop creative business solutions that serve to engage and unite people in the fight against the existential threat of climate change. In communications agency FleishmanHillard Fishburn’s 2019 Authenticity Gap report on consumer attitudes towards CSR, 59 per cent of respondents said they expect companies to make a stand on environmental issues. When comparing expectations and experiences, the report found that 84 per cent of the 160 UK companies studied fell short. www.fintech.finance

Research also shows that CSR is a powerful differentiator at point of sale.

According to a previous global study by Cone Communications and independent marketing analytics specialist Ebiquity, 90 per cent of those surveyed said they would switch brands to one associated with a good cause, given similar price or quality. And nine in 10 consumers told researchers that they expect companies to do more than just make a profit; they also wanted them to operate responsibly to address social and environmental issues.

“There is a definite trend now towards social responsibility,” says Egilsson. “What we are seeing in Europe, and it’s also growing across the world, is that banks want to be part of it. They want to help people be socially responsible.”

That engagement is not, Meniga insists, achieved by forcing single-purpose apps on consumers, but by understanding an individual’s habits and bringing synergy to their personal financial management.

That requires a Cloud-based service – ‘not having a monolith of a platform installed on premise, but rather being able to pick and choose the features you want through a service that sits in the Cloud’, says Egilsson.

There is a definite trend now towards social responsibility and banks want to be part of it Founded in Reykjavik in 2009 and now headquartered in London, Meniga has a presence in most major fintech centres around the world, and this year opened offices in Singapore and Spain. In addition to targeted rewards and consumer data analytics for both retailers and banks, it provides personal finance management software, automated real-time notifications and predictive analytics.

Socially responsible banking: Meniga’s Give Back feature has hit the zeitgeist

Its new partnership with Grupo Crédito Agrícola, part of the leading cooperative banking and insurance group, has resulted in the launch of the first mobile-only Portuguese digital bank, moey! With zero costs attributed to account opening or maintenance, the free app offers an ‘easy-to-use and secure solution for everyday banking’, granting customers access to payment services including Apple Pay, MB WAY, Android Wallet and Group Expenses.

But Meniga’s ambitions do not end in Europe; it has now turned its gaze towards America, showcasing its latest Give Back offering at FinovateFall in New York, in September. The firm’s business development manager, Isabel Moratiel, says the US is an untapped and ‘appealing’ landscape for the company to explore.

“The financial players in the United States are very different from those you typically see in Europe or Southeast Asia. We see a more fragmented market, where you have some really big banks and smaller credit unions, and the conversations you have with them are quite different. It is interesting to see what their priorities are, considering some have an obligation towards their members, and interesting to see how our functionality, which can be really personalised to what these customers want through our feature-rich API, can be tailored to that. So, I think there’s maybe more for us to add, value-wise, here.”

Technologies and fintechs have developed so rapidly that banks around the globe have at times found it difficult to decide whether they are a threat to business or a potential means to increase profits. Meniga definitely sees itself sitting in the latter camp. Its role in this evolving market, says Moratiel, is one of ‘partnership’ and ‘empowerment’.

“At the end of the day, what really benefits the end customer of a financial institution is to have more functionality that can be provided by us but for it to really feel like it’s coming from their bank, because if I, as a customer, have entrusted my finances to a particular institution, my relationship looks and feels a specific way. So partnering and consulting, together with providing a good technological platform, is the way to go.”

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BUSINESS

Forget New York and Silicon Valley, could Ohio – the state that can literally lay claim to having the original lightbulb moment – be the launch pad for your fintech? Terry Gore of JobsOhio is about to convince you Put yourself in the shoes of someone who’s starting a fintech company in North America, or imagine that you’re an international company looking to expand and put down roots in the States. Where do you go?

New York springs to mind, as one of the world’s most prominent financial centres.

Or what about making your way to San Jose and the magnetising fail-fast, fail-better culture of Silicon Valley? If you’re a fintech company are there really any other options?

Well, Terry Gore is here to convince you that perhaps your company should settle in Ohio. Sorry, where?

“Most people, particularly from an international perspective, until recent years, had no clue about opportunities that exist between the two coasts in America,” Gore laughs, “but there’s a tonne of opportunity here.”

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While Ohio may seem an unlikely spot to find a tech hub, it’s home to the six largest financial services sectors in the United States, with a well-established financial and retail ecosystem: Fortune 500 and 1000 companies headquartered there include Fifth Third Bank, Progressive Insurance, Nationwide Insurance and KeyBank, while others like JPMorgan Chase and State Farm also have a major operational centre presence. Then there are fast-growth startups such as Roots Insurance, a Columbus-based insurance carrier that uses artificial intelligence (AI) to determine premiums and has reached unicorn status in Ohio, and Klarna, which set up its North America HQ in Ohio four years ago and is already looking to expand. ID-Pal, one of the top 15 Ireland-incubated fintechs, focussed on know your customer (KYC) processes, is another. It has been able to partner with one of the leading financial services providers in the US, Corporate One Federal

Credit Union in Columbus, gaining access to nearly 1,000 credit unions to drive growth.

JobsOhio, the private lead economic development company for the state of Ohio, at which Gore is responsible for the fintech sector, points out the state’s proud history of innovators: the Wright Brothers developed and flew the first ever aeroplane from Dayton; Thomas Edison, who held 1093 patents – the American record for 82 years – also carried out most of his work on the electric lightbulb here. And, perhaps portentously for a state that now aspires to be a financial services hub, it’s where the cash register originated.

But that was the past. What’s most impressive about the present is the ecosystem that Ohio’s been able to develop around three key resources: partners, customers and talent, while also offering substantially lower operating costs than San Francisco or New York, the other two locations that might have caught your eye; and the availability of venture capital.

“We’ve 245,000 people working in the financial services sector alone – that’s nearly the size of NYC’s and larger than the City of London’s,” says Gore. “So, you’ve already got a well-established

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workforce to tap into. Then, annually, we have about 44,000 graduates entering the industry from our 200 or so universities, including Ohio State University, which is well known for its computer science programme. From a workforce perspective, you get the best of both worlds.”

People tend to stick around, too, says Gore. “When compared with several competing states, we typically find that our staff turnover rate is 30 per cent lower.”

That’s despite wages being half those of San Francisco or New York City (NYC).

Startups might flock to the two coasts like moths to a fintech flame, but they often burn out before they’ve even filled the desks.

Venture capitalist advisor Joe White once commented that ‘the cost of talent [in Silicon Valley] is crazy and keeping that talent from being poached is even harder’, while Close.io CEO Steli Efti wrote in an article about the difficulties of starting a company there: “Building relationships takes time. The A-level talent starts companies or they’re recruited by rocketship startups. The B-level talent usually jumps on with larger, more established companies, so it’s difficult to land them, too. Which means you’re often left with C-level talent – future rock stars who are years away from their peak.

“So most founders build a team of C-level talent that can’t quite compete at the highest level. As a result, the company struggles to create killer products, gain traction and raise money. And, after a period of limited progress, the founders give up. They return to wherever they lived before moving to Silicon Valley.”

According to Klarna ‘the remarkable local talent pool in Central Ohio has played a pivotal role’ in the organisation’s growth.

So, you can tick that off your shopping list. But when you’re location scouting for your fintech, affordable real estate and seed capital are often the real deal-breakers. You don’t have to worry on those fronts either, according to Gore.

“If you compare Ohio to New York or San Francisco, from a real estate perspective, you’re going to pay about a quarter of the rent,” he says. “And we’ve got venture capitalists whose focus is specifically on seed funding – as well as on companies that are growing and scaling.”

One of them, Drive Capital, the investor behind Trove, Root Insurance, and paycheque advance specialist Branch, among many others, even cocks a snook at San Francisco Bay, adopting the slogan ‘great companies are being built outside of Silicon Valley’. This hasn’t all come about by accident.

We’ve 245,000 people working in the financial services sector alone – that’s nearly the size of NYC’s and larger than the City of London’s “We recognise the importance of innovation,” says Gore. It’s why JobsOhio itself has funded a $100million R&D Center Grant Programme that targets financial and insurance tech innovation.

Gore describes his role and that of his colleagues as facilitating a ‘soft landing’.

“We literally take companies by the hand from the beginning to the end of their

journey,” he says. “Whether it’s an international company looking for a US entry point, or an existing fintech currently operating on one of the coasts, at the point of scale with a desire to do so in a location with lower operating costs, it makes sense to grow away from the coast.”

Then there are existing incumbent institutions looking to lower their operating costs, such as RIA in a Box, a leading provider of compliance software to the wealth management industry. It was founded in New York and opened its first office there in 2008. But in 2013, when the company needed to expand, it looked to Cleveland. This year, just like Klarna, it’s outgrown its space and has relocated again – to Orange Village. Announcing the move, its president, GJ King, said he ‘cherished’ the state and the opportunities it extended to fintechs like his.

JobsOhio acts as an inbound fintech’s personal concierge, making introductions, setting up meetings and working with its six regional partners to help identify ideal sites for the company.

“Whether it’s shared office space, leased or new build, we can help identify the ideal location and then work with a company on a customised basis,” says Gore.

He’s doing his best to bridge the perception gap. “I think you have to come here with a truly open mind,” he says. “You may only have heard about NYC and Silicon Valley if you’re an international company, and I get that. But we’ve got the partners, the customers and the talent. So, yes, you can pursue those partnership opportunities in NYC with Citibank, JPMorgan Chase, etc, if you want to get in line with everybody doing the same. You can still work that territory from here and at lower cost. It makes sense to take advantage of everything that Ohio has to offer.”

Go (mid) West!: Ohio’s capital, Columbus, is just one of many fintech-friendly cities in the state

www.fintech.finance

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Are wallets the future?

The jury is definitely moving in their favour

G+D Mobile Security’s Convego suite of solutions offers banks a way to future-proof their payments services against what appears to be an irresistible move among consumers to open their ewallets. The company’s VP Jukka Yliuntinen shares his thoughts Consumers may still prefer plastic to pay, but ever-increasing smartphone use and a proliferation of industry players means digitisation of payments looks inevitable. Such a shift could have a massive impact on the wider industry and it may not be the banks that win this time.

Jukka Yliuntinen is VP at Giesecke+Devrient Mobile Security (G+D), the Munich-based company that is a global powerhouse when it comes to payments.

Billions of people unknowingly use G+D technology to carry out transactions – whether paying by cash, card or smartphone – every day, so Yliuntinen is well-placed to comment on the future of the industry.

And he has a near and long-term view: an immediate play-off between card-based mobile payments and account-to-account transfers or instant payments, followed by a more radical shift.

“Payment will be related to your mobile phone, or, at least to the devices that you carry or, potentially, purely the biometrics

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you have. But there will be no need to have any interaction with that device; it will automatically make the payment that’s pre-authorised by you and enabled by biometrics,” Yliuntinen forecasts.

Whatever the technicalities, the fundamental principle of payments remains the same; goods and services are exchanged at a value deemed mutually acceptable to both buyer and seller.

And, at this moment, cash provides some strong assets as a payment means. “It has an excellent user experience. You have it, you see it, you give it; it’s very tangible.”

While G+D’s view is that cash will not disappear but continue to be an enabler for underbanked regions as well as enabler of trustworthiness in the government space, the FIS Worldpay Global Payments Report 2018 shows its use is declining in every global region. It predicts that cash will be overtaken by debit cards as the leading point of sale (POS) payment method this year, and expects it to be relegated to fourth place behind debit cards, credit cards and

ewallets within the next four years.

The question is: then what? In the era of the EU’s revised Payment Services Directive (PSD2), which demands strong customer authentication (SCA) features, plastic cards’ convenience, familiarity and reassuring physicality could increasingly be undermined by more frictionless and secure virtual payments platforms.

And this is where digitised, or tokenised, payments, such as those used by Apple Pay or Google Pay, could play a more disruptive role. In fact, G+D is one of the major facilitators of this revolution: its Convego Hub is part of a suite of digital solutions that makes it simpler for banks to manage the secure provisioning of cards to the many and varied wallets that are now emerging, with a single-service interface for financial institutions and wallet issuers.

Nearly one billion people are said to have made a smartphone payment in 2018 and, while still a comparatively small payments segment, ewallets are the fastest growing: by 2024 consumers are predicted to be happily opening their www.fintech.finance

digital wallets way more than their physical ones – led by China but with surging adoption in North America.

It has to be said that not everyone is so convinced about the adoption of near-proximity/contactless mobile payments. According to research conducted by YouGov last year, 43 per cent of consumers don’t think mobile wallets are secure and 38 per cent are concerned about losing their device and being unable to make payments at all.

But the market is moving incredibly fast, albeit it at different rates in different countries, hence the need for banks and payment providers, particularly global ones, to keep all their balls in the air – and for G+D to offer multichannel solutions.

For consumers already wedded to a particular payment method, any alternative offered must answer a need.

In a revealing piece of research into ewallets conducted by aggregator site Merchant Machine, adoption was shown to be rising fastest among users of payment platforms that are already established in the consumer’s mind as being super-convenient for their lifestyle – with Paypal, Alipay and WeChat Pay top of that list. A two-speed adoption rate is definitely emerging: according to GlobalData’s 2018 Consumer Payments Insight Survey, mobile wallet adoption in Asian markets such as China (64.9 per cent), India (60.5 per cent), Hong Kong (45.5 per cent) and Taiwan (37 per cent) is much higher than Western markets such as the UK (11.5 per cent), France (5.1 per cent), Germany (10.4 per cent) and Spain (10.5 per cent), where consumers predominantly use cards.

Many of those Asian countries also leapfrogged card technology with the rapid take up of mobile wallets, which offered consumers QR-based payments for POS, for example, which also required less investment on behalf of the merchant.

And Yliuntinen sees the balance of power shifting emphatically in the near term from payment provider to consumer in whose hands the technology, literally, now resides.

The winners will be those methods that offer good user experience, he says.

And this is where ewallets could eventually win out over cards and cash, because the other main driver of adoption, despite the reservations already highlighted, is increased security. The www.fintech.finance

introduction in Europe of PSD2, which, along with opening up the payments infrastructure to alternative players, also mandates SCA, is a decisive feature of that trend, he says. The question is how to make a secure payment that incorporates SCA, which intentionally introduces additional stages to the transaction, user friendly. “That’s the big challenge I see at the moment around the implementation of PSD2,” says Yliuntinen.

In the initial scramble to meet PSD2’s September 2019 cut-off for technical implementation, he says some SCA features were introduced that make it so cumbersome to use that consumers are irritated by it. “What happens then is that they might reach for another way to pay – which could be cash,” he says.

Many banks were not ready for SCA, he notes, with most countries asking for an extension or waiver to full implementation.

“Some of the banks introduced SCA in a way that, yes, complies with PSD2

If the UX between you and me is different, or it’s different when I use Apple Pay compared to my other wallet…

I get confused. And a confused consumer is the last thing you want requirements for strong authentication and gives me as a consumer a certain reassurance that, OK, something must now be secure because you need to have, for example, a secondary password.

But if you need to start introducing that at point of sale… forget it. People start looking for something else.”

Part of the problem for the industry, he says, is that the SCA regulation left a fair amount open to interpretation.

“Ultimately, if the user experience (UX) between you and me is different, or if it’s different when I use my Apple Pay compared to my other wallet or my card-based contactless payment, I get confused. And a confused consumer is the last thing you want,” he says.

More harmonisation is needed. “But there is no good body, in my opinion, that could coordinate it.” So, payment providers are waiting to see what everyone else is doing. In this period of uncertainty, banks, he says, should seize the opportunity to differentiate themselves by being innovative around the user experience. This is where G+D’s Convego Hub can prove useful in future-proofing a bank or other issuer’s payments portfolio.

“If they want their cards to be digitised, they can connect to us just once but have all the different schemes’ services available to them,” says Yliuntinen.

G+D Convego Hub extends support to local payment methods such as India’s RuPay, launched by the government as part of its effort to take the nation cashless, which has reached more than one billion transactions and put at least one international payment scheme under pressure there. Convego Hub makes it simple to implement the digitisation of payments: the means by which plastic card is replaced with the process of tokenisation, enabling banks and other wallet providers to increase security and flexibility in a cost-effective way.

But payment and security should not be looked at in isolation, observes Yliuntinen. Instead, banks and other providers should consider how payment and authentication can sit in the wider context of a digital identity. “Data, after all, is the new money,” he says.

And here’s where the opening up of banking and payment services, and the interaction with mobile hardware, gets interesting. Yliuntinen believes the GAFAs (Google, Amazon, Facebook and Apple) are in an inherently strong position because they get to say how their devices and services are designed to make and protect a payment. “They can impact the user experience much better than anyone else,” he says. But, at the same time, the relationship people have with their bank is not just around payments. “It’s a question of whether you’d be happy to put all your financial assets into an Apple account. Maybe not,” he says. “Currently, I think most people would stick with their existing bank. So, then it’s a question of whether banks can provide a user experience that is good enough for people not just to use it, but to love it.”

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THINKLOCAL‚ PAYGLOBAL! As record amounts of cash move across the globe, more of the methods that support transactions become, somewhat paradoxically, parochial.

Charles Damen, SVP for Payment Strategy at FIS, gives an overview The global payments market is continuing to evolve and expand at a mind-scrambling rate. But one thing is crystal clear.

Industry players, from the biggest to the smallest, know they can never afford to stand still if they want a slice of a pie that, according to industry analyst McKinsey’s latest annual report, was worth $1.9trillion in 2018 and is forecast to surpass $2.3trillion by 2023.

As SVP of Payment Strategy at FIS, Charles Damen is well-placed to run his rule over the state of the industry and the challenges and opportunities its future offers. With responsibility for FIS’ Worldpay’s key merchant product initiatives, he acknowledges that payments are undergoing ‘fundamental changes’.

Worldpay itself, of course, has become a prime example of that. It was the UK’s

biggest payments processing company until last year, when it was bought for around $10billion by US-based Vantiv, only to be acquired this summer by FIS for a heady $35billion, the biggest deal in payments history.

It was far from being the only M&A (merger and acquisition) taking place, as other major players also sought to increase their reach, improve their technology and swell their databases. Since January 2018, Fiserv has acquired First Data for $22billion, Global Payments has bought TSYS for $21.5billion and Mastercard has snapped up Nets for $3.2billion.

Damen believes four things are driving this flow of capital to disrupt the market.

“There’s the emergence of alternative payment methods, particularly driven by ewallets, which now represent about 30

per cent of the processed value in ecommerce, so Alipay, WeChat Pay, but, of course, also the emergence of the xPays – Apple Pay, Google Pay, Samsung Pay. “The second key trend we see is the emergence of the so-called buy-now-pay-later payment method, such as Klarna and Afterpay, where consumers start to choose instalment credits and pay-later methods for the purchase of their goods and services.

“Thirdly, there is the rise of ecommerce itself, and particularly purchases via mobile phone. We see a continued increase in mcommerce of about 16 per cent a year.

“And lastly, of course, there’s China. The dominance of China now in the ecommerce market means an increasing middle-class population is starting to use its spending power both in China and abroad, which has

Small world: But it presents big payment challenges

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a big effect on merchants in terms of acceptance of the payment methods Chinese consumers want to use.”

The importance of China in the global payments market is impossible to ignore.

According to the same McKinsey 2019 report, China was the single largest contributor to global payments revenue in 2018, at roughly $605billion, surpassing the US by $100billion and making up two-thirds of Asia-Pacific (APAC) revenues.

Electronic payment transactions in APAC overall grew by 15 per cent last year, which McKinsey’s report says was fuelled by the adoption and growth of alternative payment mechanisms.

That growing plethora of payment methods brings another challenge for the industry, and particularly merchants, according to Damen.

“With about 300 different payment methods across the globe, it is increasingly complex for merchants to process these by themselves, so, as a company, we make it really easy for them,” he says.

If you’re a merchant, not accepting – or even not knowing about – local payment methods (LPMs) that operate on the other side of the world, could cut you off from a sizeable market.

“Take Brazil, for example,” says Damen.

“It’s really important to make sure you have Boleto [a ticket-based payment system that works through agent locations] available, because 30 per cent of the market is represented by that payment method.

“In Germany, PayPal should really be part of your payment mix, or some of the account-to-account based payment methods, such as Sofort, because that’s the consumer preference is in terms of paying.”

In a number of countries, LPMs are starting to overtake well-known schemes. Damen gives as an example his home country of the Netherlands, where about 60 per cent of all electronic payment transactions are processed through a system called iDEAL. “So, both local and global merchants, need to make sure that iDEAL is enabled in that market,” he says.

Of course, the best known LPM is already having a big impact – and not just on crossborder sales.

“Merchants in Europe really need to make sure they can accept payments from Chinese tourists by offering Alipay and WeChat Pay, both on ecommerce and point of sale transactions,” says Damen. www.fintech.finance

And, while on the subject of tourists, he points out that travel and airline companies are particularly challenged.

“They sell crossborder to different types of consumers. A good example is British Airways (BA), which offers flights from Kenya to lots of different markets. In Kenya, card use is not very prevalent; it favours M-Pesa, a mobile wallet, instead. So, BA is helping customers to purchase their flights by offering M-Pesa as a local payment method in that market.

“Managing and maintaining all these methods is increasingly complex because, of course, they evolve. That’s where a company like Worldpay can help the merchant to make sure the method is always updated to the latest standard and user experience.”

Securing an advantage Such a huge number of payment vectors raises another challenge for the industry: increased opportunity for fraud and the slippery issue of consumer trust. Indeed, Damen cites a recent Worldpay survey FIS report, which found that 53 per cent of UK consumers were extremely concerned about the possibility of being hacked, leaving them vulnerable to identity theft.

Managing and maintaining all these methods is increasingly complex because, of course, they all evolve In Europe, the introduction of the revised Payment Services Directive (PSD2), which includes secure customer authentication (SCA) for larger electronic payments, has left the industry with the delicate balancing act of implementing adequate security measures while, at the same time, minimising any delay in the payment process for the customer – a factor which is well known to be the prime cause of consumers abandoning transactions and walking away.

The airline and travel firms Damen cites, in particular, are struggling to ready themselves for the SCA changes needed. According to a recent survey, two-thirds of travel companies expect SCA to have a negative impact on sales – and with European online travel

bookings alone valued at €180billion, disruption will have a major economic impact, including on payment providers.

Damen says having the right online tools in place, including machine learning to predict and prevent fraud, will offset some of the strictest rules around SCA. “As a company, we offer three types of solutions to help our merchants to manage SCA. One is a very sophisticated fraud tool called FraudSight, which uses machine learning to prevent fraud. The second element is our SCA Exemption Engine, which enables merchants to request exemptions to SCA for their low-risk transactions, and therefore offer a frictionless user experience. Even then, certain transactions will need to have SCA because it’s requested by the issuer.

In that case, there is a new authentication standard, called 3DS2, and Worldpay provides a platform and a service merchants can use for this new mechanism.

3DS Flex enables the latest authentication experiences – biometrics, for example – so that customers can pay in-app. It provides the best experience on mobile, and about 200 different data elements to issuers, so that they can make the best risk-based decision as to whether they want to apply SCA to that transaction, or want to process it in a more frictionless manner.”

Damen agrees that, with fast growth in alternative payment methods – driven by technology leaps (China, for instance, pretty much bypassed cards to go straight to digital and social; unbanked nations in South America and Africa found workarounds by blending cash-based economies with universal mobile phone use), a desire to cut costs, or impatient consumerism and the demand for real-time processing and settlement – there will be some attrition of old payment methods and consolidation of new ones. That’s even more the case as push payments, enabled by APIs (application programming interfaces) and open banking, become more popular.

“We see push payments as one of the most important developments; payments that are not processed through ewallets or card rails, but by these new bank rails, driven by open APIs and instant payments,” says Damen.

“Will there be some consolidation among providers? I think so, but the one that has the best customer experience will prevail.”

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MONEY20/20 Opening in the Cloud: Finastra’s new platform is ready for business

OPENFOR BUSINESS The overarching ethos of the annual Sibos event is collaboration and partnership. One company that perhaps embodies this more than most is Finastra, which was launched in June 2017 after Misys and D+H joined forces to create a global financial software giant with more 10,000 employees.

Led by chief executive Simon Paris, Finastra has created a market-leading

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Fresh from Sibos 2019 in London and the launch of its first apps on the FusionFabric.cloud platform, Finastra’s Chief Product and Technology Officer, Eli Rosner, talks collaboration and innovation

platform for open innovation. It also provides a particularly broad portfolio of financial services software, spanning retail banking, transaction banking, lending and treasury and capital markets.

Finastra enables its varied global customer base – which includes financial institutions, fintechs, banks and credit unions – to deploy mission-critical technology, either on-premises or in the www.fintech.finance

Cloud. Through its open, secure solutions, customers can accelerate growth at their own pace, optimise cost, mitigate risk and, importantly, evolve to meet the needs of their own increasingly demanding customers.

With 90 of the world’s top 100 banks now using Finastra technology, the company is truly embedded across the financial community.

“Finastra supports a financial institution’s core systems,” explains Eli Rosner, its chief product and technology officer, who joined the leadership team in March 2018.

“Replacing everything is expensive, right?

So, we help our customers to replace things in their own time, allowing them to extend the life of their systems and succeed in this growing digital ecosystem.”

Finastra is reshaping how modern banking software is built and distributed.

FusionFabric.cloud, the company’s platform-as-a-service (PaaS) solution, puts the emphasis on collaboration and innovation by opening up Finastra’s core systems so that third parties – ranging from banks and fintechs to independent developers, consultants and even technology students – can develop apps on top. This is all made possible through the process of ‘platformification’ via open application programming interfaces (APIs), standards and architecture.

“FusionFabric.cloud is made up of three components,” says Rosner. “Fusion Creator, which provides access to our core system open APIs and a developers’ sandbox; Fusion Operate, which is our secure production environment, and Fusion Store, which is our marketplace from which apps can then be promoted, bought and sold.

We’re planning to deploy up to 20 apps over the next year or so, which is hugely exciting.”

FusionFabric.cloud is indeed a game-changer, enabling financial services companies to deliver innovative applications quickly and at lower cost, transforming their own operations and development centres.

According to Rosner, it can take less than six months to move from ideation to the customer consuming the app.

Rolling out the use case In September, Allied Payment Network and Atlanta-based fintech Monotto launched their first apps built with financial institutions on FusionFabric.cloud.

These are the first applications built in collaboration with banks and credit unions www.fintech.finance

to go live: a real-time bill payment application from Allied Payment Network, which is already in use at Certified Federal Credit Union (previously Vons Credit Union), and a personal savings tool from Monotto.

“This is a significant milestone for our FusionFabric.cloud platform, with financial institutions starting to consume new applications. It also marks a revolution in how APIs can be harnessed to quickly build and deploy innovative new financial services solutions,” Rosner said at the launch. “Financial institutions can simply visit the Fusion Store, see which apps are integrated with their core system APIs, and rapidly onboard these technologies to better serve their customers with innovative offerings in record time.

“Fintechs benefit from the Fusion Store’s ability to market their solutions to a huge customer base through this marketplace, and also from Fusion Creator, our open development environment, for rapid application creation.”

There’s a great sense of being open and being pushed to share more data... We’re seeing a shift towards collaboration as opposed to disruption Allied Bill Payment is an industry-first, real-time bill payments solution that will include instant confirmation to consumers that the biller has received their payment.

Monotto, meanwhile, with its automated savings tool, Robosave, takes an informed look at the way in which users spend money, calculating how much they would need in their safety net to cover life’s emergencies.

Using the latest artificial intelligence (AI) techniques, Robosave determines how much consumers can save without affecting spending habits and automatically draws it into a personalised savings pot.

Keeping the industry safe At Sibos 2019, it was also announced that Finastra has now linked up with

respected Swiss fintech NetGuardians to launch an AI-powered fraud detection tool for SWIFT messaging. This new tool uses a combination of AI and machine learning to monitor for anomalies. It captures all network traffic and SWIFT Message Type 101, 103 and 202 COV payments, analysing unusual user activity to ultimately suspend suspected fraudulent transactions before they leave the bank.

Unlike typical rules-based solutions, which compare activity to specific parameters and flag those that fall outside the standard range, NetGuardian’s algorithms learn about banks’ payment instruction patterns, allowing them to intelligently identify high-risk message anomalies without needing to configure any rules.

The aim is that this will result in improved detection and prevention rates, as well as a significant decrease in false positives and time spent on fraud investigation.

The tool will also help banks to conform to SWIFT’s mandatory customer security programme (CSP), which was established to support customers in the ongoing struggle against cyber attacks.

Leveraging the newest trends It’s fair to say that FusionFabric.cloud matches the industry’s mindset as open banking takes a firmer grip across the world’s financial markets. Rosner was further encouraged by the tone of the sessions he attended at Sibos, which was the largest to date with more than 11,500 delegates in attendance.

“There’s a great sense of being open and being pushed to share more data,” he says.

“With openness there is, of course, more regulation to help protect consumer rights, but industry players are welcoming this and discussing how best to work together to move forward.

“Some fintechs, for example, are thinking ‘I don’t have the balance sheet to lend money, but can I deploy my solution in partnership with the banks?’ We’re seeing a shift towards collaboration as opposed to disruption.”

Rosner also sees an increased appetite for the platform approach amongst his peers across the industry: “There is a definite trend of platforms gaining more and more traction. And the good news is that players from all across the industry are buying into it together and seeing the many benefits that it unlocks in terms of interpreting and using data at speed.”

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MONEY20/20

In 2018, the Malaysian low-cost airline, AirAsia, launched an ewallet, BigPay, promising to reduce the cost of air travel, partly by getting around the transactional fees levied by card processors. By July 2019, BigPay was bigger than most challenger banks, garnering more than 750,000 users while its transactional volume grew 20 per cent month-on-month. Its chief executive predicted that it would be worth more than AirAsia itself.

A year later, in September 2019, it took another step forward and launched its fixed-rate international remittance services.

With this, its users in Malaysia can make instant money transfers to friends, families and businesses across Singapore, Thailand, Indonesia and the Philippines, using their BigPay mobile application at fixed and competitive exchange rates with no hidden charges.

Why did an international carrier feel the need to make a foray into payment and remittance services?

A recent survey by Amadeus, which provides much of the critical software that keeps the travel industry moving, suggested that four out of 10 companies have trouble managing payment service providers (PSPs) and 5.4 per cent of global travel sales go into

paying them, including all fees and associated costs. This translates to around $74.5billion that global travel operators pay PSPs annually – an amount that, quite obviously, tends to be passed on in additional charges to passengers. For budget airlines, like AirAsia, being able to scrap these charges could provide an enormous competitive advantage.

AirAsia’s decision to have its own fintech entity to simplify payments, is the tip of an iceberg of enormous complexity that sits beneath the surface of the travel sector.

Bart Tompkins, managing director of Amadeus’ payments business unit, explains: “Travel is already a very complicated industry, and when you overlay that with payments, it ends up even more so.

Think about it: when you go and buy an Ikea table, you’re involved in a one-off transaction; when you buy a plane ticket, you may change it later on, you may be paying in a different currency, or from a different location. You’re combining two complex environments into an ultra-complex one.”

That goes for air travel, in particular, over which consumers have a high degree of autonomy in the purchasing process.

Multi-channel booking systems give consumers the ability to update, amend and add on items such as a rental car

package or a hotel deal, sometimes weeks after paying for the original plane ticket.

And perhaps, for all of these, the consumer will use a different payment method via a different device, all of which have to be reconciled to the same account and much of it cutting across a number of different payment schemes worldwide.

International carriers could be looking at hosting 30 or more different payment methods to satisfy all their various markets, with global digital wallets like Apple Pay and local alternative forms of payment, whether that’s Alipay and WeChat Pay in China, Boletos in Brazil or Paytm in India.

According to Amadeus, most travel companies use somewhere between three and 10 payment service providers, while five per cent of the travel operators it surveyed used 11 or more PSPs. Average payment processing fees varied between four and seven per cent, depending on the sector and size of the organisation.

Given this high level of complexity, a payments revolution in the travel industry was inevitable, driven by intense competition in some

Ready for takeoff The travel industry is on the verge of a payments revolution, according to leading software solutions provider to the sector, Amadeus.

Bart Tompkins, MD of its payments business unit, tells us why 52

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sectors to reduce costs to gain competitive advantage, and in others by a realisation that customers might choose another carrier if the payment experience isn’t straightforward and infinitely flexible. For airline passengers, being able to pay how they want, when they want, is a make or break in their choice of booking; it’s estimated that 15 to 20 per cent of customers will leave the booking experience if their preferred payment method is not accepted, whether that’s credit cards or alternative forms of payment.

It’s surprising, then, that only 15 per cent of travel companies have attempted some form of payments innovation in the past three years. But, that’s about to change: a massive 80 per cent of them are now planning some form of innovation over the next three – more than a third in pursuit of lower costs – according to Amadeus.

The company’s payments business unit itself processes more than $100billion a year on behalf of approximately 1,000 customers, including airlines, travel agencies, hotels and railway companies, that use its payment services, including managing the frontend experience. For this, it deals in more than 300 payment methods across the globe.

Tompkins says: “Around half the world’s

airlines are using our technology systems for their reservations, bookings and ticketing. We also have a network of travel agencies connected to those airlines, and to hotels, railway companies and cruise companies, so we have a huge global network and over this there are huge money flows taking place; it has been estimated that travel payments represent between 10 and 12 per cent of all payments made in the world.”

The payments division at Amadeus was created in 2012 with a focus on providing gateway and PSP services for collecting

Travel is already a very complicated industry, and when you overlay that with payments, it ends up even more so payments on behalf of its global customers, as well as to pay out to the subsidiary travel providers when these global customers have received their money.

As part of that, it must look after not just the user experience and backend processing, but the system’s security as well.

“We see ourselves as a kind of

marketplace for travel industry payments,” says Tompkins. “Rather than do everything ourselves, it makes much more sense to use third parties to provide services to us and to the marketplace. So, for example, in our gateway services we work with third parties for fraud detection and foreign exchange.”

As a ‘tech-fin’, handling a massive number of very complex transactions for a wide range of businesses, Amadeus is well-placed

to see the trends and identify where innovation is needed. Where the convenience of transacting online intersects with security is one of those areas.

The introduction of secure customer authentication (SCA), linked to the revised Payment Services Directive (PSD2) in Europe, has somewhat soured the treat for any travel company that thought it had its online payment ducks in a row.

Handled badly, SCA’s purpose of making transactions more secure threatens to alienate consumers from the online processes in which the industry is so invested. Tompkins believes that, while implementation is something of a headache, the logic behind it makes sense, which is why, over time, he believes it will be applied across the globe.

“In Europe we’re already seeing quite big delays. But I think once Europe’s sorted it out, other regulators will say ‘we should do the same thing’ because when fraudsters hit a problem in one place, they go somewhere else,” says Tompkins. “We enable all of our systems, at the front end, to allow SCA to work, and to make it work in as frictionless a way as possible.”

Tompkins believes financial services could learn much from the airline industry when it comes to common standards of operation and communication across the

globe. The high-risk nature of air travel and its inherently crossborder nature has forced it to coalesce.

“From a very early stage, airlines adopted uniformed processes and regulations,” says Tompkins. “So, when you talk to an airline in Papua New Guinea, Canada or Brazil, they all speak the same language around how things are done. It’s more uniform than in the payments industry, where, while it’s possibly there at the underlying level, it gets broken up at the edges.”

Financial services should take note to ensure us all a smooth ride.

Plotting a new payments course: Travel operators are exploring their fintech options more seriously than ever before

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PAYMENTS RACE

E H T HOW

RACE WAS

From start to finish, it was a blast! But what did we learn from our sixth and most ambitious payments challenge yet?

This year’s epic Fintech Finance Payments Race was the biggest and boldest to date. Four intrepid teams travelled from London to Amsterdam (anti-clockwise – not much of a challenge otherwise) in their bid to be crowned the winner at Money 20/20 Europe, which was held in June.

!

N O W

They overcame exhaustion, frustration (and pizza starvation), mostly linked to the relative ability of each country’s payments infrastructure – or lack of it – to support their particular payment method, because, under the rules of the race, they were each permitted just one: cash, card, crypto or mobile.

Those lows, though, were more than compensated for by the highs – quite literally when it came to Team Mobile‘s balloon ride – and the giddy excitement of jet skies and Lithuanian rap music among other, stranger things.

RACERS & SPONSO RS

WINNER TEAM MOBILE

RACER: Max Fosh SPONSORS: Apply Fin ancial, Banking Blocks, Temen os, Thunes, StreamMind and Thou ght Makers TEAM CASH RACER: Valentina Kriste nsen SPONSORS: InvestHK , CC Group, Xpress Money, cash-is-c ool.com, ATMIA and Cennox TEAM CRYPTO (MOST MILES COVERED) RACER: Alex Hobern SPONSORS: Wirex, Sm artStream TEAM CARD RACER: Sophie Theen SPONSORS: Starling Ba nk, Nets, Banking Circle, GPS, Me niga and Bandwidth Recruitmen t

TEAM CARD: SOPHIE THEEN An intrepid racer, Sophie gets our vote for using the most imaginative modes of transport – from a Viking boat to a neon pink ecocycle, a wheelbarrow and even a tank!

SPONSORS

The seasoned fintech professional, who has worked at Revolut and 11:FS, flashed her Starling card around the world to stock up on donuts in Dublin and splash around on paddle boards and jet skis off the coast of Spain, where one bar owner in a small village borrowed another’s terminal to process her payment – muchas gracias!

While small businesses in a remote village in Spain might be forgiven for not investing in point of sale (POS), it was more of a surprise to find that taxi

www.fintech.finance

When in Spain… “We couldn’t do this in London – they didn’t accept card”

drivers and the metro in Hong Kong (third most important financial centre in the world with a thriving fintech ecosystem)

only accepted cash… hmmm. With eight new virtual banking licences recently granted though, there’s all to play for.

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PAYMENTS RACE Now in it’s sixth year, the Payments Race upped the ante in 2019 as it took on the world for the first time.

Well-documented over social media for the entire 12 days, it also hit the headlines in each of the 26 countries it visited.

The event hashtag – #RTWrace – gathered such momentum that it topped the trending hashtags at Money20/20.

The Payments Race is a unique concept in the financial services space in assigning four teams – Team Mobile, Team Cash, Team Crypto and Team Card – with the seemingly impossible task of using just that payment method to reach their destination, against the clock.

Being restricted in their ability to pay for transport, food and drink and accommodation has reduced previous participants to tears of frustration and brought out the genius in others to find workarounds. This year, they received the equivalent of £3,900 each to make the trip, and were allowed to take along a companion in the form of a camera operator to chart their journey.

Each team, supported by their sponsors, travelled around 20,000 miles, publicising their journey via vlogs and Twitter updates.

More than 300 people provided the racers with video endorsements to keep up morale. Supporters from across the fintech community posted messages for ‘their’ team on Twitter. Valentina Kristensen even got

one from Ron Delnevo’s highland terrier at ATMIA (possibly in competition with Barb MacLean’s huskies at Celero, and Sam Maule’s Jack Russell at 11:FS, who were both rooting for Sophie Theen). Nearly 50 per cent of the social media chatter around Money20/20 was focussed on the racers.

So far, there have been more than 410,000 views of the event videos on YouTube.

To make the race more fiendishly challenging than its predecessors, the 2019 rules added a number of new features. It wasn’t just about who got to Amsterdam first; it was about points collected along the way. And, as we all know, ‘points mean prizes’: in this case an impressive trophy and a drink on the Editor-in-Chief. Teams received two points for each country they visited and two bonus points if they were the only racer to have visited it. They were also awarded one point for each method of transport they used. In the end, they hopped aboard 38 different modes of travel (standouts were a Viking boat and Sophie’s tank) to cover an astonishing, combined journey of 78,960 miles!

TEAM MOBILE: MAX FOSH Our winner Max began his trip with an Uber in London – and made his triumphant entry into Amsterdam by an Uber, too – both trips paid for with a simple mobile transaction.

But it wasn’t so easy in between.

Sticky situation: A café near Seattle’s Gum Wall was the only place Max could use mobile pay

In Hong Kong, he caught up with InvestHK to talk the new digital banking licences before using StreamMind to ensure his Apple Pay transfer to an account that he hoped would ensure there was a bed for him in Paris. Result: it did. But getting around the city itself proved more problematic.

Despite extensive research that suggested mobile payments were universally accepted, the Paris metro wasn’t in fact set up for ‘paiemente sans contact’.

“My mantra for two weeks was ‘do you accept mobile?’,” says Max. “Hopefully, one day you’ll never have to ask.”

SPONSORS

After sailing through Ireland, Max anticipated problems using his phone to tap and pay in the US… and he wasn’t wrong.

In Seattle, just finding somewhere to eat was a challenge.

“We thought we’d cracked it because we were told that Yelp, an app that gives you things to do and places to eat, has a filter that tells you where accepts Apple Pay… but it seems I can’t pay for anything in Seattle,” a despondent Max told his followers. So, after a quick trip to the city’s extraordinary Gum Wall (where at least he could purchase a coffee with his phone), he fled the US on a seaplane bound for Vancouver.

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PAYMENTS RACE There is a serious message behind The Payments Race, of course: when it comes to everyday transactions, consumers should have a choice about how they pay, especially in today’s digital economy.

Some of the issues faced by our adventurers show that there is still plenty of work to be done in terms of removing barriers to payment and facilitating that choice. But one thing is clear: the death of cash has been much exaggerated, even if the practicalities of using it are sometimes irksome.

Team Cash’s Valentina Kristensen found herself having to count out six million Indonesian rupiahs for a meal (a gangstersized wad of notes) which, while it suited the team, also highlighted how Indonesia, like many developing countries, lacks established cashless payment methods – a major hurdle to digital economy growth.

Singapore, too, for a country that has nailed its digital colours to the cashless mast, is still ‘in love with the stuff’ according to Valentina, who also enjoyed spending it in the Hong Kong night markets, where vendors prefer a real wallet to an ewallet.

Many of the smaller shops in Hong Kong,

too, operate a two-tier pricing system. While most will accept international credit cards, they give a better deal to those who pay in local currency.

Fifty-three per cent of respondents to a recent Visa survey believe that the region will become cashless within seven years, but from our experience the population will need those seven years to become truly comfortable with such a major shift.

But let’s not kid ourselves: much of Europe is also still enthralled with cash.

Even in Spain, which has the highest smartphone penetration rate in Europe, Payment Wall has estimated that 32 per cent of payments are settled in euros.

And, according to the European Central

Bank’s estimates in June 2019, that also goes for a whopping 86 per cent of transactions in Italy. Team Card’s Sophie discovered that the hard way when she ordered a cup of tea on a train and then couldn’t pay for it because they only accepted cash.

Team Mobile’s Max Fosh didn't have any such problems when he arrived at our checkpoint in Vilnius, Lithuania, where the first thing he did was order an Uber.

Lithuania is seen as something of a digital payments hub, thanks to its ultra-high speed internet and favourable regulatory climate, which has seen a number of European challengers apply for their banking licences there. Around half of Lithuania’s population prefers paying for online purchases through text message and prepaid cards, while 40 per cent favour credit cards. Mobile payments are frequently used by privacyconscious consumers who don’t want to share their banking data online.

From the very start, Team Crypto’s Alex Hobern found crypto more widely available than anticipated, starting with his first mode of transport – a London black cab that accepted Bitcoin!

TEAM CRYPTO: ALEX HOBERN Reality TV star and a previous winner of Channel 4 show The Circle, Alex Hobern really went the extra mile to ensure his place in payments history, missing it by a short node. His consolation was that he ended up covering 21,577 of them – the most distance of any racer – on his crypto-powered odyssey around the world.

Refreshing change: Cryptocurrency is definitely more widely accepted than in previous years

accepts eight types of cryptocurrency.

And in Hong Kong he loaded cryptocurrency onto the local Octopus card – one of the longest-established prepaid cards – to fund his travels around the region.

“Technically, we should have been

struggling but we definitely had the most fun of everyone,” says Alex.

“Team Mobile and Team Crypto had the hardest challenge compared to card and cash, so I’m pleased that one of us won… we’ll steal the trophy later – after I pay back the stable coins I owe!”

SPONSORS

Alex’s transport arrangements were largely taken care of by Future.Travel, which specialises in catering for crypto voyagers, and uses The Rock Trading Exchange as a transaction processor for all Bitcoin payments. Users simply shop in the fiat currency of their choice and it’s converted to Bitcoin using the euro as a reference point.

For accommodation, the team used Trippki Hotels, a hotel booking site that

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PAYMENTS RACE

Racing into payments history: Teams, sponsors and mentors at Money20/20

And he received a warm welcome, too, at his first stopover – Ireland. Ireland has harnessed the use of cryptocurrency to help its tourism industry, adopting the ‘Irishcoin’, which is accepted in multiple locations – though there are no laws that specifically regulate crypto.

In Bratislava, Alex found it fairly easy to locate a crypto café and co-working space but failed to find a pizza he could pay for in Italy. That may change. The government there is warming to blockchain and that, coupled with new economic regulations and taxation, means Italy could soon be set for a crypto awakening.

His stopover in Hong Kong was timely,

given the protests for democracy and decentralisation – the two defining characteristics of cryptocurrency which, perhaps not surprisingly, is swiftly gaining traction in the region. And, while he might have gone hungry in Italy, he dined out royally in Hong Kong at the Lotus Modern Thai – a restaurant that accepts both Bitcoin and Ethereum.

So, now the dust has settled, what did we learn? That payment choice is not an all-you-can-eat buffet, but rather a restricted diet in many parts of the world.

That mobile is the defining technology of our age, overtaking plastic, and that the death of cash has been much exaggerated.

That cryptocurrency is moving from being an exclusive club of high-risk investors and eccentric technophiles six years ago, to a payment method that’s even embraced by London cabbies (presumably buying into Vitalik Buterin, the cofounder of Ethereum’s theory that ‘instead of putting the taxi driver out of a job, blockchain puts Uber out of a job’. That payments is a fast-moving industry in which it would be foolish to back one winner. Come back in 2020 and we’ll tell you what’s changed.

■ Catch up with the highlights from the 2019 Payments Race on the FinTech Finance website or check out #RTWrace on Twitter and YouTube.

TEAM CASH: VALENTINA KRISTENSEN “Breakfast in Prague, lunch in Nice and dinner in Italy”… such is the life of a round-the-world payments racer. In fact, food played a big part in Valentina’s experience, and whether it was night snack vendors in Hong Kong or cold beetroot soup in Vilnius, they all accepted cash.

Cash rules: Valentina used Xpress Money to move hers around the globe

advance and losing value on exchange rates as they flitted across borders.

“Now it’s finished, I’m looking forward to using Apple Pay again, though! In future, it’ll probably be a combination of

that, cash and card for me,” says Valentina who had a special message for her sponsors: “You gave us an incredible experience and proved how important cash is in the payments ecosystem.”

SPONSORS

Thanks to Xpress Money, wiring Valentina’s across the world – from one physical drop off to a collection point – was made easy, too.

“In fact, apart from having to carry wads of cash and sift through it to find the right amount, and ending up with a lot of change, it was pretty simple compared to the challenges the others faced,” says Valentina.

In fact, the only problem Team Cash encountered was booking flights in

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visit: AEVI.com

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KYC & ONBOARDING

UP A GEAR

Ricky Knox and his cofounders at Tandem set out to get customers’ money ‘moving in the right direction’ with data-driven, smooth and unobtrusively secure UX. As the bank prepares for some big changes in 2020, that strategy is paying off As head of fast-moving, mobile-only challenger bank Tandem, which is all about providing a smooth ride for customers, Ricky Knox was not best pleased by the phone call he received when another of his credit cards was blocked.

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“They asked me ‘what was the last food store you purchased in and how much did you spend?’.” He rolls his eyes. “What’s a ‘food store’ – did they mean Waitrose or Leon? Anyway, I didn’t know the answer,” laughs Knox. “I failed security. My card is still blocked. You know what? I’m just going to tear it up.”

It’s a perfectly understandable reaction and one which is rightly terrifying many bosses in the banking industry as customers are increasingly demonstrating that they are not afraid to vote with their feet if they find themselves dissatisfied with the service they receive. There are plenty of new alternatives out there, like Tandem, after all.

Put simply, how do banks comply with the ever-more secure customer authentication regulations aimed at curbing money laundering, identity theft, fraud – and, by extension, serious offences like racketeering, trafficking and terrorism – without inconveniencing

customers in the way that Knox was?

“The friction points come when something happens like that – having a transaction blocked for suspected fraud.

Now, you can instantly clear up that problem in the mobile interface, rather than having someone call you from a call centre and ask you annoying questions to which you have no idea what the answer is,” he says.

Failing to get the customer interaction right can be hugely costly. A recent report by Consult Hyperion and Mitek estimates that employing overly complex, non-digital know your customer (KYC) procedures could cost an average European bank €10million annually, while the accumulation of potential new customers who abandon the onboarding procedure from frustration could stack up to losing €150million over five years.

Tandem Bank, on the other hand, which has seen its customer base swell beyond www.fintech.finance

its own forecasts – from 100,000 in January 2018 to more than 750,000 today, and used biometric recognition from the get-go in 2017 – strives to keep hassle to a minimum by making sure the vast majority of security checks are carried out in the background.

That is largely enabled by its Amazon Web Services Cloud-based server tapping into a myriad of data sources, alongside its adoption of face, voice and fingerprint verification technology. It thinks it can close that compliance/customer experience gap even further, though, recently setting up a mission team to make its customer-facing procedures even more streamlined.

“We want to make it blissfully easy for people to come and join Tandem, but in the background there’s quite a lot of pedalling going on – anti-money laundering checks, fraud checks and, because Tandem’s a lender as well, credit checks,” he says.

“We can do about 90 per cent of that stuff totally behind the scenes, without customers needing to do anything at all, just by using a web of different data sources to confirm and cross-check the information that they’ve given us. If you ask a customer to fill in 20 fields, a good proportion of them will just drop out and say ‘I don’t want to do this’. So the key is making the process as simple and intuitive as possible. We will sometimes need to ask customers to take a selfie or a photo of their ID, but we try to make those the edge cases.

“We consume data from all the big credit bureaus, such as Experian and Callcredit, but also from many publicly available sources, and we’ve a big artificially intelligent brain that sits in the middle of Tandem that searches all that information.”

For sanctions screening and identifying politically exposed persons, the bank calls on another Knox-invested regtech company, ComplyAdvantage, which provides real-time financial crime insight to supplement the screening carried out by the bank’s in-house fraud team.

“They like finding the bad guy,” says Knox.

Tandem’s in-house algorithm, which analyses transactions, was recently smart enough to figure out that £10,000 spent in Uzbekistan across 20 accounts was a rather unusual pattern. “It certainly wasn’t a delegation of Tandem fans all going to Uzbekistan at the same time,” laughs Knox, who believes that Tandem’s structure as a ‘bank built on data’ gives it a significant advantage in both complying with www.fintech.finance

regulations and attracting more customers.

“All banks have to use strong customer authentication (SCA) and what that means in practice is using three things – something you have, something you are and something you know – in order to make sure it’s you.

But a lot of banks are, frankly, really struggling to put that in place because, if you’re paper-based, how do you get a customer to step up and identify with a second factor? It’s pretty tricky.

“We have the good fortune of servicing all our customers only on mobile. Everyone’s got an iOS or Android device and all they have to do, normally, is tap their thumbprint, or automatically register an SMS, to proceed to secure customer authentication. I think we are pretty future-proofed,” says Knox.

Banking on a smart future And Tandem’s future involves some big plans. From its inception in a take-over deal of loss-making Harrods Bank, which saw Harrods’ Qatari owners inject £80million in exchange for a stake of about 60 per cent, Financial Services Compensation Scheme-

We want to make it blissfully easy for people to come and join Tandem, but, in the background, there’s quite a lot of pedalling going on protected Tandem has offered loans, a credit card and savings accounts, with a big play on using artificial intelligence (AI) to provide account holders with a customised service. Now, it’s on the cusp of announcing significant new investment, which will allow it to forge ahead with ambitious international expansion plans, first to Hong Kong, with other territories in the pipeline.

Tandem also aims to increase its headcount – to 230 employees by the end of this year and to around 300 by 2020, at new headquarters in Russell Square.

Among its most recent recruits is its first chief data officer Noam Zeigerson, who will oversee AI operations, data-driven business strategy and data governance.

He previously held the roles of executive vice-president of data and analytics at Israel’s Bank Hapoalim and global chief

technologies officer for AI and big data at Ness Technologies.

Knox says Tandem’s use of AI helps to set it apart from many of its rivals, enabling it to target a different type of customer. An example of how it’s deploying the technology recently was its Savetember campaign.

Knox says: "In the UK, there are 16 million people who have less than £100 saved against a rainy day, or a broken boiler, or whatever it may be. We’re coming into a season where people need to start thinking about Christmas, too. So, we’re encouraging them to save in two ways.

“First of all, our product has an autosavings feature, which allows you to intelligently look at your bank balance, wherever your main current account bank may be and shifts aside exactly as much money as you can afford, based on your cashflow for the last four or five months. So, it’s a smart way to save on a week-by-week basis – and quite satisfying, as well, as it tells you as you’re saving and congratulates you for progress.

“We’re also looking at something that rewards existing savers. Unlike most mainstream banks, we’re looking at giving a bonus savings rate for customers – those who already have autosavings turned on at Tandem – and that rate will go to the top of the market.”

In another innovative move, Tandem is using crowdsourcing to develop a new mortgage arrangement to help people who previously have not been able to secure a home loan, perhaps because they work as freelancers or in the gig economy.

Knox says: “A lot of people still can’t get on the property ladder, so we’re trying to solve that problem by thinking flexibly about how people who may have irregular income can make their way towards it, and how we can facilitate that as Tandem.”

The big step forward, of course, will be the Tandem current account offer, slated for 2020 which will require a major app upgrade, says Knox. All of this, he hopes, will contribute to the phenomenal speed of digital banking adoption worldwide.

“PwC (PricewaterhouseCoopers) had a report out recently that said by the end of next year there will be 32 million digital banking customers globally, which is a pretty big number,” says Knox.

“Honestly, we didn't expect the industry response and the speed to market to be as quick as it has been.”

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KYC & ONBAORDING

Leaky onboarding: As much as 47 per cent of online account opening is abandoned

There’s a hole in your bucket, dear banker, dear banker Bank customer onboarding is a balancing act – and the weight of expectation on each side of the scales continues to grow.

On one, you have consumer experience, with potential customers assuming the process can be as friction-free as signing up to Netflix or buying a book through Amazon.

On the other is the increasing weight of legislation – the likes of the European Union’ Anti Money Laundering Directive 5 (AMLD5), ramping up the workload of compliance staff in the battle to weed out criminality.

Then add into the mix varying know your customer (KYC) demands across geographical jurisdictions and non-prescriptive regulations from governments that raise questions about how that KYC should be delivered.

London-based HooYu offers an outsourced onboarding solution for financial institutions that walks the line

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With around half of online personal account opening journeys abandoned, and 84 per cent of businesses hitting KYC barriers, banks are ‘leaking’ customers, says David Pope, Marketing Director at customer onboarding specialist, HooYu between regulatory demands and a customer-friendly experience. The business began with the online database company 192.com in 1996, which offered basic details about businesses and individuals through a website, rather like a phone directory for the fledgling internet era.

Database checking continues to play an important part in the KYC process, but

coverage and database reliability varies hugely between countries, so HooYu employs a far more comprehensive set of tools to solve the ID verification problem.

HooYu marketing director David Pope says the onboarding role today goes beyond the financial firm’s compliance team, given the need to keep the customer interface user friendly.

He says: “Compliance people will work with UI (user interface) and UX (user experience) teams, the marketeers and so on. Businesses need to work with a KYC supplier that doesn’t just give them the tools, such as database checks, sanctions lists or ID document validation; they really need a supplier that folds all these various identity technologies into one onboarding platform that helps to maximise customer onboarding success rates.”

Its joint research with publication Retail Banker, in which five of the UK’s top retail www.fintech.finance

banks were questioned on onboarding, found that only 53 per cent of online account opening applications were completed – a statistic that Pope says indicates a ‘huge leaky bucket’.

“From a marketeer’s perspective, if you’re trying to drive people to your website to become a customer and open an account with you, you can’t afford that level of failure in onboarding processes. The onboarding process is an opportunity for differentiation, it’s the first touchpoint that a customer has with a business. So, a key factor in maximising onboarding success is considering the different types of journey that a customer goes through.

“For example, if a new customer is applying during their lunch hour, at their desk at work, but doesn’t complete the process in time, can they come back later?

Can they finish the job at home that evening using a tablet? How do you use UI and UX to bring the customer back into that journey? There are so many paths that have to be considered in account opening; it’s not just a straight-through, do-it-all-in-one-take journey. There’s a lot to think about.”

Moving to the regulatory side of the scales, however, Pope says firms struggle to keep up with ever-changing rules that fail to spell out what is necessary. A regulation may stipulate that a financial institution checks an applicant or existing customer’s personal details against a database, for example, but databases are commonly breached and corrupted by criminals.

“My advice to fintechs would be to look at the regulation, but also use their common sense,” he says. “Use identity verification processes and layer them on a risk-based approach. Check databases, but also validate identity documents or check someone’s digital footprint to drive insight about their real-world identity, or use geolocation and identity confidence scoring. Don’t rely on one sole signal to verify someone’s identity.”

HooYu provides such ID checks packaged into its Identify service. It features traditional database checks if databases are available in the relevant country, but also offers sanctions screening checks, politically exposed persons (PEP) lists, identity (ID) document validation, digital footprint analysis, geolocation and facial biometrics. From these combined identity technologies, HooYu Identify provides www.fintech.finance

an identity confidence score for the person being analysed.

Shining a light on crime Another key HooYu product is HooYu Investigate. This web-based platform links UK citizens, businesses and addresses in a visual graph that uncovers connections between them that are difficult to find using a traditional database.

The service can point to the potential for fraudulent activity, such as revealing whether a company director shares an address with a banned former director. As well as KYC and anti-money laundering (AML) uses, Investigate is employed in law enforcement, debt collection, asset reunification and fraud investigations.

Identify and Investigate are both tools used by banks that offer business accounts – an area blighted by onboarding friction due to the height of the KYC bar set by regulators. Unlike a personal account, business banking providers must identify partners, trustees, directors or anyone else with significant control over a business.

Money launderers use small businesses to hide the origin of funds and possibly control that business, and banks have been fined millions of pounds in the past due to KYC failures. The flip-side of this heavy KYC burden is a laborious and slow process – HooYu quotes a Reuters study that found 84 per cent of businesses have had a bad KYC experience.

Pope says: “Business account opening is probably the next place where banks will obsess about the customer journey. It’s really been solved very well in consumer financial services, but in terms of business account opening, it’s not there yet.

“Drilling down into what we do, HooYu is a global customer onboarding platform.

When it comes to company directors who live in the UK, you can probably solve their identity by doing the traditional database checks. But for those who reside outside the UK, or who are new to the UK, you need a plan B. That would involve verifying their identity using a mixture of sources.

“One challenge is how you reach out to multiple company directors at the same

time. How do you understand who the beneficial owners are? How do you reach out to the persons of significant control and get them to go through a KYC process as well? So, the KYC vendor company that you choose to work with has to consider the customer journey and work out how best to trigger multiple customer account opening processes for directors, persons of significant control and the ultimate beneficial owners.

“Also, while a person needs to be identified once when they are onboarded, a business can change hands, partners can join and leave, and new subsidiaries can be created. Because of this, customer due diligence is an ongoing process.”

Pope adds that because of the continuing tightening of regulations – MLD5 (the fifth Money Laundering Directive) is implemented next year and MLD6 will follow soon after – and the continuing rise in identity fraud, onboarding technologies are ‘very much in demand at the moment’.

NatWest bank is one customer that turned to HooYu for ID document validation and facial biometric technology, allowing its customers to open accounts with a photo of an ID document and a selfie. If followed a pilot using the HooYu digital onboarding journey that ran for nearly a year with around 60,000 customers, during which the bank saw the number of fraudulent applications drop.

And in April, bookmaker Betfred launched a new customer sign-up process using the HooYu Identify platform, following a review of age-verification requirements by the UK Gambling Commission.

“Compliance teams need to be completely fluent in the various regulations employed in different countries, and what onboarding processes and KYC processes have to be followed,” says Pope.

“Whether the client must comply with Le Code Monétaire et Financier in France, or the Money Laundering Regulations 2017 in the UK, or another set of rules, we can create an onboarding journey based on the risk the client sees in their particular account opening process and in light of the particular legislation they face.”

A key factor in maximising onboarding success is considering the different types of journey that a customer goes through

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SME SERVICES: ACCOUNTING

Figuring out business banking Countingup is leading the Making Tax Digital charge with an innovative way to help SMEs – and now their advisors – cope with the biggest accounting shakeup in years. Cofounder Tim Fouracre tots up the advantages The idea for what has become the UK’s ‘#1 small business banking and accounting app’ came from the simple realisation that ‘time is money in business, and if you are wasting precious hours on old-fashioned processes and unnecessary admin, something’s got to change’.

As a chartered accountant, Tim Fouracre had witnessed that happening among many of his clients – and he already had history in helping them digitise, spending nine years building Cloud accounting tool Clear Books. But it was quite a leap, adding a bank account to back office services for SMEs. Ignoring challenges from others within the industry that he was ‘crazy’ to pursue such an idea, he joined forces with former computer science classmate Mike Moate (previously of Accenture and Oliver Wyman) to do exactly that.

“While running Clear Books, I observed that over here you had a business bank www.fintech.finance

account, which is what happens in a business, and over there you had an accounting system, which takes that bank data, interprets it and tells you how your business is performing.

“The big problem with these being separate is you only find out how your business is performing when you spend the weekend doing the books and figuring out the numbers. And most small businesses have a time gap of a couple of months before the bank transactions happen and they can understand how they are performing. Lots of self-employed sole traders leave it until the end of the tax year and then they’re under pressure and stress to get their accounting records in order and the tax return done.

“Countingup creates the accounting records in real time, on the fly, automatically, so that business people don’t have to worry about it, and it’s highly accurate.”

Launched in 2018, Countingup couldn’t have been more timely as many SMEs woke up to the news that the biggest change to tax filing in years was coming

down the line. In 2019, Her Majesty’s Revenue & Customs (HMRC) began rolling out its Making Tax Digital (MTD) initiative, a phased programme that aims to migrate every business onto quarterly tax returns within the next two years. MTD has already kicked in for businesses above the VAT registration threshold (currently £85,000 turnover).

“MTD has two massive impacts on all small businesses,” says Fouracre. “The first is the requirement to keep digital accounting records, so that shoebox of invoices and receipts, which is the most common accounting system in the UK, is no longer an acceptable one.

“The second is a move to quarterly tax filings. Currently, we have an annual tax return for corporation tax or self-assessment, but soon limited companies and sole traders will have to do quarterly tax returns.

“Many small businesses don’t even realise this is around the corner and it’s going to be a huge shock,” Fouracre adds.

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SME SERVICES: ACCOUNTING “The switch to quarterly filing will mean four times the pain. But we take care of all that and it’s all automated.”

Countingup combines a business current account with full bookkeeping capability, including profit and loss reporting, receipt capture, ATM withdrawals, bank transfers, foreign currency transactions and, soon, tax filing – all for a pre-defined percentage or fixed fees.

Meeting MTD VAT requirements costs subscribers to Countingup services just a few pounds, compared to the higher costs of established accounting solutions like Xero or Sage. Hardly surprising, then, that the platform has grown faster than Xero in its first two years.

Given that a high proportion of the more than four million single-person businesses in the UK (that’s 90 per cent of all SMEs) still run on paper, spreadsheets and a traditional bank account, Countingup’s potential market is enormous. Its unique selling point, that it combines banking and accounting in one easy-to-use package, makes up for what Fouracre sees as a long-running customer service deficit for SMEs. “It takes [them] ages to get anything done with a traditional bank. To open a bank account, they’ve got to fill in a 20-page form, then it takes weeks for it to get approved, and small businesses just give up and use their personal current accounts instead.

Customer service is terrible and then there’s a lack of innovation,” he says.

“But the biggest problem for small businesses is the accounting, tax, compliance and admin they face, and the high street banks aren’t interested in helping them with these pain points. This is because it’s difficult for big banks to innovate and move quickly.

There’s also more of a focus on larger businesses because they’re more lucrative.

“Countingup is a business account that does a business’ books in one app with three key benefits: it’s super-fast and they can open an account in five minutes; it’s easy to run their business with the banking and accounting together; and it’s self-sorting, with bookkeeping done on the go, automatically.”

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Growing the numbers Countingup, which launched with £2.3million in seed funding from JamJar Investments, Forward Partners and Frontline Ventures, remains ambitious for growth. It has now reached 13,000 customers, adding 5,000 since last January, and it’s planning to seek further funding to fulfil its aim of hitting one million one-person SMEs (around a quarter in the UK) and further develop its functionality.

It’s collaborating to maintain the efficient onboarding necessary to support its rapid pace of growth.

“There are two parts to the onboarding process; one is the collection of data, and the second is verification. We take a modern approach to speeding up this

The biggest problem for small businesses is the accounting, tax, compliance and admin they face. The high street banks aren’t interested in helping them with these pain points usually cumbersome process. Rather than entering their company number, name, directors and address, we pull all that information instantly from Companies House, through application programming interfaces (APIs),” says Fouracre “For verification, we’re not know your customer (KYC) or anti-money laundering (AML) experts, so we work with best-in-class service HooYu, which does that for us. Our APIs do the heavy lifting by checking if a passport is legitimate and that an individual exists at the given address, with that date of birth, and using this data we can get back to customers instantly with a decision to accept or reject their application.”

It is not alone in spotting the potential within the SME space. Competition is mounting from the likes of business account specialist Tide and new onlineonly business account Mettle from RBS Group, which bought online accountancy software company FreeAgent for £53million in 2018. Like Countingup, Mettle develops its software and integrations in collaboration with its users.

However, Countingup is maintaining its edge by expanding its capabilities, with the addition of an Accounting Hub, allowing customers to share their data and workflow with their accountant, and by utilising its data to demonstrate customers’ creditworthiness to loan providers via its own API, with a view to entering lending via a marketplace model.

“A lender has to go out and find data from third parties to make its decision.

We flip that on its head and start with that really rich data,” says Fouracre.

“The banking and accounting data tells us how much money someone has, what their debtor days are, how good they are at paying suppliers, when they pay their taxes. We’ve already done the KYC and AML on them so we know they are who they say they are, and therefore we have all the data to make a lending decision.

“In the first instance, we will work with other fintechs, via a marketplace model, to make loans available to our customers.

The future for us is in being proactive.

Imagine if a business person didn’t need to fill in an application form at all and they were just notified that they qualified for a £4,000 loan, at this interest rate. They hit this button and agree to the terms and it is instantly in their Countingup account. It’s part of our big vision to be the financial hub for a million small businesses.”

Headache relief: Countingup takes the pain out of small business accounts

www.fintech.finance

SME SERVICES: POS

SQUARING

UP TO

POS

Square’s all-in-one mobile terminal is a sleek addition to the range developed under Hardware Lead Jesse Dorogusker. But, as the fight for ‘under-served’ small businesses intensifies, the emphasis has to be on substance as much as style

When Jesse Dorogusker was asked to join Square from Apple, he was persuaded by the startup that rethinking the point of sale (POS) for SMEs – turning it into something that had bags of style and utility, and was capable of multi-tasking – could improve a small business’s life chances.

While the technology landscape has changed dramatically in recent years, it’s still the case that many SMEs are left behind, unable to fully take advantage of transaction trends while at the same time being financially excluded from banking services that bigger companies enjoy.

“There are still millions of businesses that are unserved, or under-served, for card acceptance; some intentionally excluded because they’re small, or new, or entrepreneurs, and some just caught up in how complicated it is to get set up with the right equipment,” says Dorogusker, whose time with Apple clearly inspired his design approach as hardware lead at Square over the past eight years.

“Consumer devices like iPhones and iPads, Google’s devices, Samsung’s devices, have set a very, very high bar for technology,” he adds. But that remains out of reach for many SMEs, which lack www.fintech.finance

the resources of larger organisations to access processing systems.

Square, which is Jack ‘Twitter’ Dorsey’s other day job, sought to right this imbalance by making mobile POS card readers and peripherals that were easy to get and use, that didn’t tie businesses into long-term contracts, charged one flat processing fee and were backed up by lots of useful software tools aimed at specific users, be they a cafe owner, retailer or car mechanic.

It’s also integrated with more than 40 partners in the SME space, most recent being accounting platform KashFlow and iPad-based POS software Goodtill.

The out-of-the-box, square-shaped,

contactless card Reader is ideally suited to small, pop-up and mobile businesses.

It is linked to an app, displayed on a mobile phone or tablet for the customer to punch in their ‘PIN on glass’ for higher value transactions, while optional kit includes a stand, cash drawer and receipt printer. The Reader has been joined in the UK by the all-in-one Terminal combining those elements and putting it on the same footing as the company’s closest UK mobile POS rival, iZettle.

The Terminal’s introduction, as in the States, was backed by a brand awareness campaign that has halved the cost of acquiring new sellers, Dorsey told investors earlier this year.

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SME SERVICES: POS The Terminal accepts all types of payment – from chip and PIN, to contactless, to smart watches and phones.

“However you want to pay, you can pay on this device,” Dorogusker says.

“With a big, bright beautiful touchscreen, we can also make sure that sellers have access to all the information to run their business, and buyers can see what they’re about to be charged, fairly and clearly,” he adds. “This really makes for a seamless process at the countertop, at the table, walking around a shop. It makes for a better experience for both buyer and seller.

“We’re really proud of how much time and effort we put into the design of our software, to make it really simple to use and minimise the amount of training required. Anyone who’s used to a modern smartphone or tablet can pick up a Square Terminal and know exactly what to do.

It’s really intuitive. And that’s the most hard-fought thing: making it simple.”

Such functionality is likely to become increasingly important for all businesses amid a general move from cash to cashless. ”Consumers want to pay with cards, their phones, their watches, and that’s putting a lot of pressure on small businesses – all businesses, really,” says Dorogusker.

A recent report from the European Central Bank shows that card payments – and most payments made by devices currently link back to a card – accounted for nearly half of the total number of non-cash payments made in the eurozone last year.

Similarly, UK Finance’s UK Payments Market Summary 2019 also showed that consumers are shifting towards cashless payments. It found that 47 per cent of all payments in 2018 were made by card and estimated this figure will rise to 61 per cent within a decade.

“Cards are now appearing, not just in a piece of plastic in your pocket, but also in watches and phones,” says Dorogusker.

“We expect this [trend] towards wearables to expand, again putting the power in the hands of the consumer and letting them determine the terms on which they pay.”

He’s well aware that ‘cash flow is king’ for any small business and Square helps them maintain it, he says: “Our first mission is to make sure that they can always make the sale. This means accepting every card and wearable that comes across the counter.”

But it also guarantees to make sure that money from sales is in the merchant’s bank

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account by the next business day. “So that they can use the funds they receive for payments, and turn that into inventory, or buy new equipment, or pay their employees,” says Dorogusker.

More than that, it allows them to get a good overview of their money in the palm of their hand. The company describes the Square Terminal as the ‘card machine for

your sales by hour, month over month, year over year, by item,” explains Dorogusker.

This integrated approach is also important for bosses and entrepreneurs behind medium-sized companies, who aren’t always in the location of their business, he adds, as it allows them to review how their business is doing, in real time, in every location.

“Larger businesses have a lot more complexity to manage, including employees and locations, different price points at different times throughout their inventory, in multiple locations,” says Dorogusker.

“And what they need to tie all that together is cohesive software; a Cloud-based system where they can change the price in one place and have it reflected in other places; where they can look at the performance of different people, and products, in different locations.”

It’s this ecosystem of services leading to greater transaction volume through Square that drives the Square business model, particularly since hardware costs are currently exceeding hardware revenue, according to Dorsey’s investor brief.

The flight to cashless

Our first mission is to make sure businesses can always make the sale. This means accepting every card and wearable that comes across the counter…

The cash is theirs and we try to get it into their hands as fast as possible everything’. As well as taking payments, it also enables companies to send invoices, review their transaction history and carry out a range of back-end tasks, meaning they gain valuable insights into how they can run their businesses more efficiently.

“Right in your terminal device, or on your phone, or on your tablet, you can look up your entire transaction history; you can see

Square was one of the new generation of hardware providers to take time to understand what small merchants needed and wrap the hardware and software together in one stylish package, but the fight for SME custom is likely to become more intense as the flight from cash to cashless quickens. More banks are future proofing their small business offering and integrating with other service providers, which leaves Square competing not just with other hardware players, such as iZettle, but also much bigger operators.

It has a number of advantages: no complicated pricing structures, one-off investment in hardware (‘they won’t be leasing it from us and paying 10 times more over the lifetime of the product’), and real-time monitoring tools, which have not been available before to small businesses – and, of course, Dorogusker’s eye for style and utility. There’s been positive feedback on the Terminal not only from small businesses, but larger ones ‘who just want clarity on their business’, he says.

Whatever their size, though, none would disagree with what drives development at Square. As Dorogusker says: “The cash is theirs, and we try to get it into their hands as fast as possible.” www.fintech.finance

The heart of the matter: Each small business is unique and providers need to recognise that

Anders la Cour, Co-founder and CEO of Banking Circle, looks at the challenges and opportunities ahead for SME payment providers, and their vital role in financial inclusion 74

ThePaytechMagazine | Issue 4

Access to finance has undoubtedly improved in recent years, but for SMEs (small and medium-sized enterprises), this improvement is not enough.

Almost all of them need finance in their first few years, but while loans are an essential lifeline to many, they alone will not solve all the financial challenges that

these small businesses face.

At Banking Circle, we are dedicated to improving access to banking solutions for businesses of all sizes, in all industries and in all geographies, whether they trade nationally or internationally. As part of this commitment, we regularly speak to businesses to find out what issues and challenges they are facing, and what the banking pain points are today. Recently, we commissioned MagnaCarta Communications to carry out a series of studies for us, looking into financial exclusion and how different financial institutions can each play a role in supporting SMEs and improving access to banking and finance solutions.

Earlier this year, we published a white paper, Financial Inclusion For Europe’s SMEs: Building A Circle Of Trust. Now we have www.fintech.finance

SME SERVICES: BUSINESS BANKING published a payments-focussed insight paper, Pay, Set, Match! Payment Services For SMEs – Jump-starting A Virtuous Digital Payment Circle.

Unique insights from experts working right in the heart of the payments sector provide up-to-the-minute feedback on the state of the industry, current provision, the challenges and what the road ahead looks like. By gathering this range of first-hand insights, we believe we can work together with the wider industry to find better solutions, which meet the current needs of SMEs facing potentially lethal financial exclusion.

The challenge of serving SMEs Effectively serving SMEs requires payment service providers (PSPs) and other financial institutions to have a true and meaningful understanding of the reality of small business life. Many PSPs are indeed SMEs themselves, which can be invaluable in assessing specific needs and the challenges SMEs might be facing. And this can put them in a strong position to develop solutions – working with like-minded partners – that exactly fit the bill.

But at the heart of the issue is the fact that PSPs must build solutions that are SME-specific, not based on a previous model built for larger businesses. And this is exacerbated by the fact that each SME is entirely unique – some are one-man bands, others have 249 employees; some are local businesses, others trade internationally; some are seasonal and others have a steady flow of income throughout the year. This immense variation creates a dilemma for financial institutions trying to build scalable solutions: no single payment solution can meet all the financial needs of every SME. There is no one-size-fits-all.

One thing all SMEs have in common, though, is the need for banking accounts, and almost all will, at some point, need an injection of cash, to kick-start an expansion, purchase stock at the beginning of the season or replace broken equipment.

A traditional business loan from a bank is generally too expensive, too inflexible and too slow to arrange, for a fast-paced SME in today’s highly competitive, digital and international marketplace. As Kent Vorland, CEO of SmartTrade App, told us during our research: “Consumer products are not agile enough and providers have little knowledge of small businesses… Equally, the big boys www.fintech.finance

have complicated functionalities, but nothing optimised for small merchants.”

Challenges facing SMEs It didn’t take much investigation to establish that late payments, limited access to services and restricted credit lines are affecting the success and potential of SMEs of all sizes and stages. SMEs also commented that access to payment services is restricted, it takes too long to open a merchant account and there is little support for accounts payable.

Each of these can have a significant impact on an SME’s ability to maintain and grow its client base and profit margin.

In turn, this limits its ability to expand, reach new markets, increase product lines and better serve its customers. With 24 million SMEs in Europe making up 99 per cent of private businesses in the region, employing around 60 per cent of the European workforce and contributing more than half of all business turnover, a problem holding back SMEs is a problem holding back the entire economy.

Nearly half of UK small businesses would be willing to move to a non-bank provider if their financial needs would be met in new and innovative ways David Selves, owner of the Selves Group of companies, commented: “Three to five banking days for card payments is still the norm, which causes considerable issues for many small businesses that need to restock rapidly.”

Michael Ault, CEO and Founder of Universal Transaction Processing, added: “SMEs have been through an arduous process to get a merchant services account, and then it takes days to get their funds.”

PSPs to the rescue?

Ivo Gueorguiev, the chairman of Paynetic, told us: “Any service providers deploying digital technology are ideally placed to serve SMEs and address the problems of scalability, access, utilisation and viability.”

Supporting this view is recent research

from marketplace lender Growth Street that showed nearly half of UK small businesses would be willing to move to a non-bank provider if their financial needs would be met in new and innovative ways.

The research conducted by MagnaCarta Communications also showed that artificial intelligence (AI) is being used to reduce audit-processing times, automatically match payments to invoices, identify suppliers most likely to pay late and reduce fraud.

Speeding up the process in this way reduces manual intervention, cuts the risk of manual errors and, of course, significantly reduces application and risk assessment time. In turn, this brings down the cost, delivering a more affordable, faster service to SMEs. But a big part of the role PSPs need to play is in educating SMEs about it. We found that many are yet to be convinced of the benefits of digital technology in general. And this means they are not actively seeking digital banking and payment solutions, despite the fact that these could deliver a far better service than they receive from their current banking provider PSPs cannot change the minds of millions of SMEs overnight, or alone. So, while PSPs should see themselves as a key element in that change, education must be carried out via a collaboration of financial institutions across the entire industry. Each provider must share responsibility for kick-starting adoption rates among SMEs. With many PSPs and other providers already delivering innovative ‘point’ solutions, and many ambitious SMEs currently underserved by their existing bank, the opportunity to build bridges and connect solutions is ready and waiting. Each provider has a role to play and value to add if they build relationships across the board.

As reported in our insight paper, financial inclusion based on digital technology occurs over a broad spectrum of technology, communication, collaboration and analytics. Innovation and real change is only possible in an ecosystem where each player knows its role and appreciates that of others. Dialogues must be kept open and innovation must continue, in order to find and develop successful, effective, affordable solutions that will work for SMEs of all types, increasing financial inclusion and benefiting the economy as a whole.

■ For a copy of the latest insight paper, visit www.bankingcircle.com Issue 4 | ThePaytechMagazine

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VIRTUES SIGNALLING

Branch transformation is still at the forefront of bankers’ minds, as they strive to ensure they are fit for purpose. But what does this mean in practice? We ask Emily Beeby, Conference Manager for RBR’s Branch Transformation 2019 event Banks all over the world continue to evaluate how best to leverage and optimise their branch networks, demonstrating huge leaps of innovation to overcome their challenges and embrace new opportunities.

Branch Transformation, the annual conference and expo organised by strategic research and consultancy firm RBR, showcases the world’s most pioneering responses in the new retail banking paradigm. One of RBR’s conference managers, Emily Beeby, spoke to The Paytech Magazine about why branch transformation is one of the industry’s most exciting areas.

THE PAYTECH MAGAZINE: We hear about the drift away from the high street to online banking channels all the time, so why is branch transformation still such an important topic?

EMILY BEEBY: The last decade has seen an undeniable rise in the popularity of mobile and online channels, and customers are using their own devices more and more to do their everyday banking – transactions which previously would have taken place in a branch, such as funds transfers, balance enquiries and even cheque deposits.

Some have interpreted this rise of alternative channels as the death knell for the bank branch, but the real story isn’t as simple as that. RBR’s research shows time and time again that, while lots of customers are happy to do the majority of their banking on the go, there is a clear

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preference to come into a bank branch and interact with a human being for certain activities. For example, many customers prefer a face-to-face conversation with a banker they trust for emotionally charged ‘life moment’ transactions such as a mortgage for a first-time buyer, or a loan for a startup business. In this way, branches are hugely valuable for banks, as the relationships formed there are instrumental in fostering loyalty and trust among customers.

The experience customers receive within a branch is also commonly used to differentiate between banks, so it is critical to get this right.

TPM: Will branch transformation become less important as banks close branches, though?

EB: I don’t believe so. If anything, I would expect it to become more important – the fewer branches a bank has, the more important it is that each branch provides an outstanding experience to customers.

Branch transformation projects sometimes even allow banks to keep

A branch’s design and format are what makes it unique to that bank and a visual representation of the bank’s brand and ethos

branches open. Increasing branch revenues and cutting costs are among the key drivers of many transformation projects; streamlining and maximising branch operations is one of the best ways to maintain the widespread branch network that customers expect.

There are even some high-profile examples of banks that are committed not only to their branch transformation programmes, but to the size of the networks themselves. Nationwide in the UK has promised to keep its presence in every town and city where it already has a branch at least until 2021. And in the US, JPMorgan Chase has embarked on an ambitious branch network expansion programme, opening 400 outlets in 20 new locations.

TPM: How important is the design of bank branches?

EB: It is essential – a branch’s design and format are what make it unique to that bank and a visual representation of the bank’s brand and ethos.

As branches become less transactional and more geared towards conversations and interaction, aesthetic is growing in importance, and several banks around the world are experimenting with format, often taking inspiration from retail. For example, one of the keynote speakers at Branch Transformation 2019, Dan Makoski of Lloyds Banking Group, will elaborate on how to use design to incorporate a human, emotional feel to branches.

www.fintech.finance

TPM: What about cash? Will teller assist units continue to play a role in automation of the branch?

EB: Cash management is still one of the key concerns within branch transformation strategies, even in markets where cash use is falling – in some ways, where there is less cash, it is even more important that handling it is done efficiently!

Teller assist units (or teller cash recyclers) are not expected to be ubiquitous, as many banks feel that cash transactions are sufficiently catered for by automated deposit ATMs, and indeed are planning to do away with their teller lines altogether. However, they are viewed as a transformational piece of kit in many countries as they allow banks to remove the glass screen from the teller counter without compromising on security, making it a more open and inviting place for customers and tellers to converse.

They are also strongly relied upon in cashheavy markets where speed and efficiency of teller transactions is a must, and in countries where

security requirements dictate that teller transactions must be safeguarded this way.

TPM: What can we look forward to at Branch Transformation 2019?

EB: One of the strengths of RBR’s conferences is the quality of the speakers and speaker agendas. Our position as a specialist consultancy means that our team has a wealth of knowledge and expertise in the field, so we are able to put together speaker agendas comprised of only the most relevant material.

Branch Transformation 2019 is no exception: we have a huge range of exciting speakers from around the world, including Lloyds Banking Group and Santander from the UK, Intesa Sanpaolo from Italy, BNP Paribas from France, Danske Bank in Denmark, CIBC from Canada, Standard Chartered Bank from South Korea and Citibank from Russia. There will also be a host of innovative companies in the exhibition area, showcasing technology such as cash and coin recycling, video surveillance, access control solutions, queue management and scheduling, digital transformation and software, as well as the latest in branch design.

The quality of the bank audience at Branch Transformation makes it a fantastic networking opportunity, too – 70 per cent of the 550 delegates attending the conference work for banks.

TPM: How can people get involved?

EB: There are a variety of ways. If anyone is interested in our sponsorship and exhibition opportunities, I would be happy to hear from them (emily.beeby@ rbrlondon.com) although the exhibition hall is almost sold out, so I would advise acting quickly!

■ To attend the conference, visit www.rbrlondon.com/bt

RBR CALENDAR EVENTS

SIGNS ON THE HIGH STREET: With fewer branches, those that remain require more thought

www.fintech.finance

■ BRANCH TRANSFORMATION 2019 19 and 20 November, London ■ SELF-SERVICE BANKING ASIA 18 and 19 March 2020, Ho Chi Minh City, Vietnam ■ SELF-SERVICE BANKING EUROPE 19 and 20 May 2020, London

Issue 4 | ThePaytechMagazine

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Infinite THE PAYTECH MAGAZINE: How can high street banks respond to the needs of cash-driven small businesses when it seems the direction of travel is towards digital-only services?

MICHAEL BIELAMOWICZ: In the old, siloed bank structure, small business bankers thought they were making great money for the bank, while the branches hated small business because it was nothing but a cost centre. So, for a long time, the banks didn’t even talk about it inside their own organisations. But today, they’re recognising that small businesses are valuable customers.

That said, their daily transactions are long and distracting and don’t pay for themselves directly. So, the banks are trying to find ways to automate the services. At the branch level, there are

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To hear most commentators talk, digital is the enemy of cash. But Glory is investing in fintechs that use apps to improve access to currency, not limit it.

And CMO Michael Bielamowicz, for one, is excited lots of choices for deposit automation now, not just over the counter but through self-service or assisted-service devices, such as a simple bag drop with deposit evidence, a receipt or even direct real-time deposit through dedicated service equipment.

In many cases, these services can be made available 24 hours a day. That doesn’t necessarily help the small business in the small town where the last branch just closed, but it can be supported in other ways, through shared services like those offered by, say, the UK Post Office network or through smarter self-service, or even through on-site systems. It’s an imperfect system but banks are trying to serve these customers.

TPM: How is Glory itself helping banks to respond to SME needs?

MB: The SME customer comes to the branch not because they want to, but because they have to. There is no other way, to their knowledge, that they can get the services they need. And all they want is for their money to be deposited in the www.fintech.finance

bank so that they can use it, and to have the change to operate their businesses on a daily basis. Less frequently, they may want advice or to set up a credit facility. There are lots of ways to deliver these two services through automation, either at the branch or at the workplace.

Our CASHINFINITYTM products are the equivalent of a commercial services ATM that lets the customer immediately deposit their revenue on their own premises, as many times a day as they want, get that posted on their account at the bank and then a cash in transit (CIT) operator will come and pick it up.

These same systems can effect change.

As more and more of these products are deployed, some really interesting synergies start to happen, one of which is that the bank starts to see the SME customer’s location as a potential transaction location for the bank.

TPM: Challengers that are now focussing on these small businesses don’t often have physical branches.

Does that mean payment choices will increasingly be restricted to non-cash methods?

MB: This is as much a social issue as it is a business and banking one.

A very significant percentage of our populations, as much as 50 per cent in the US, is unbanked or underbanked.

These people do not have the same access to the financial and credit systems.

So there’s going to be very strong pushback to the idea of a cashless society.

I don’t think we’re going to get rid of cash. I actually expect that there will be laws in most countries soon to protect the ability to pay in cash. So, it’s going to be very important that we maintain access to it for businesses with cash revenue.

The inconvenience in the system is down to a mismatch between the cash people pay and the cost of the goods they buy. That creates this problem of change. And because the system is so inefficient, it’s allowed the card cartels to overcharge for their services. But, for a typical business, it’s much cheaper to transact in cash than in digital payments.

TPM: So, how do you start to disrupt the traditional cash handling systems?

If Uber can drive me to the airport, why can’t it drive cash from where there’s too www.fintech.finance

much of it to where it’s needed? Why do I have an ATM to give out money, if the money I need is sitting in the cash register at the store around the corner?

These are systems that are being reinvented by companies like soCASH in Singapore, an app that allows you to withdraw cash from shops and other outlets, and Barzahlen, which partners with German retail stores to provide a cash infrastructure – both of which we invested in recently. Then there’s Spare in the USA, WoCash in Spain, or Sonect in Switzerland. This isn’t imagination or potential. This is happening right now.

Companies like Glory, Prosegur and Loomis are investing in these providers because we see the change happening.

We can totally redesign the distribution networks without giving up brand. We change the service edge of the bank, we create new point-of-service locations, we stay associated with that location, ensure that the customer checks our app 10 times a day, ensure they know we’re available to talk to, in person or over the phone, whenever they want. It’s exciting. And all of this together blocks the GAFAs (Google, Apple, Facebook and Amazon) from disrupting the banking industry. Because the GAFAs want your information to use it for them. The banks are in a unique position

peripheral technologies to that to address special needs, like multicurrency or coin counting, at both staff and self-service positions. As that continues to evolve, and as the banks try to shift away from transaction models and towards advisory ones, we’re also seeing deployment of a class of assisted self-service systems.

Special software in these signals staff to assist a customer when human intervention is needed. Our particular solution is called TellerInfinityTM, and we believe it’s the most advanced solution of its kind in the marketplace. It can manage transactions that an ATM cannot, such as those from any account held at the branch as well as high-value withdrawals.

TPM: ‘Infinity’ implies that you’ve been thinking about how to future-proof Glory’s latest suite of products. What are your thoughts on the future of money management?

MB: Customers will gravitate to the most convenient channel that meets their requirement, right? So, if they can achieve success on a mobile app, we should drive them to the mobile app if we can meet their need through it. But there are two cases where we’re going to continue to need banking staff involved: one is in the regulatory, insurance and financial control

We can see the change happening. We can totally redesign the cash distribution networks without giving up the brand.

It’s exciting and it blocks the GAFAs from disrupting the banking industry to say ‘no, we protect your information.

We only use it for you’. And this is why they will matter 50 years from now.

TPM: So, how is Glory helping to make cash handling more cost efficient and effective for banks, then?

MB: Automating the non-value add part of face-to-face transactions is really important, and most of that non-value add is related to some kind of physical media handling, particularly cash handling. Teller cash recycling has gone from being a nice to have, to being mainstream, to being essential to how these new branches operate.

We’re also starting to add all kinds of

space. We can’t let self-service or mobile service get to a place where we can’t manage know your customer checks, or money laundering, or fraud, or other risks.

So there are going to be limits to the kinds of transactions we can safely, securely, legally do, through those channels.

The second case is in the area of confidence and trust, which is all about the customer. There is a lot more complexity than the average person realises, even in their own family’s financial system.

Self-service really struggles to manage all these rules. When we deploy something like a TellerInfinity assisted service system in a branch, we’re trying to deliver on the promise of more than an ATM. Issue 4 | ThePaytechMagazine

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DIGITAL PAYMENTS: INFRASTRUCTURE

Clearing the way Andrew Smith, founding CTO of ClearBank, says it set out to level the field for challengers and smaller players in financial services.

But it’s not so much evening the odds, as giving them a head start!

Legacy ((pronounced lεg si), noun. i) a gift left in a personal will, usually money or property; ii) something handed down or received from an ancestor or predecessor. Those are the most common definitions, according to Collins.

But in the financial world, legacy is increasingly used in the context of the last alternative meaning: iii) surviving computer systems. In other words, limited, inflexible, out-of-date kit. Its utility, already stretched by open banking reforms and post-financial crash constraints, is about to be further tested by the introduction of financial data messaging standard ISO 20022.

The UK's clearing banks are among those working to update their technology and processes to meet the cut-off date for implementation in November 2021– all except for the newest to join their ranks.

ClearBank went live in 2017 as the country’s first purpose-built clearing bank to be passed by regulators in the UK for 250 years. Its banking-as-a-service model, based in the Cloud, was running ISO 20022 (covering information passed between financial organisations relating to payment transactions, securities trading and settlement information) from launch. So, while its fellow principal clearing banks – Barclays, HSBC, Lloyds and Royal Bank of Scotland – have work ahead to migrate from FIN messaging to the new standard, ClearBank is already there.

And that means its customers, which include smaller financial institutions such as building societies, credit unions and fintechs, can benefit from the data-rich ISO 20022 straight off the bat.

ClearBank’s chief technology officer, Andrew Smith, says the potential benefits that flow from having a

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single messaging standard for the whole world will be huge… once everybody is finally using it, of course. While UK and EU institutions are working to a November 2021 deadline for implementation, the US is aiming for 2023 and the rest of the world has until 2025.

“Everybody should be looking at ISO 20022 and working to standardise everything they do, not just around the message flow or the payment message itself, but also the data dictionary that underpins it,” says Smith. “Because it’s only once it’s embedded everywhere that we get true interoperability – one central bank talking to another central bank, or another member bank talking to a secondary member bank.

“Once those message loads are the same, it’s easy to start plugging and playing these systems. It will have a beneficial effect on fighting financial crime and monitoring remittance data, for example. It has benefits for big data analytics and, in turn, machine learning (ML) and artificial intelligence (AI). There are a lot of big wins.”

But 70 countries are already ahead of

us, according to the Bank of England, and starting to benefit from harmonisation that allows for more detailed and better structured reference information, improved analytics and fraud detection.

The standard will be used across the various payment systems, which boosts resilience by allowing the re-routing of messages if an outage occurs in any one of them. It offers straight-through processing with potentially fewer delays for the customer. And ISO 20022 is more flexible than its predecessors, so it can be adapted as technologies develop and needs change.

It’s the concept of cooperation and shared endeavour that underlies it, though, that Smith comes back to. He believes it’s important in so many ways.

“I’m very big on partnerships, not just between the banks, but partnerships with businesses such as Microsoft. One of the reasons why we partnered with Microsoft

www.fintech.finance

and its Azure Cloud computing service was because we understood it would help us protect our footprint in the Cloud.

“ClearBank is part of the intelligent threat detection system – anything we’re attacked with we feed back into Azure’s AI, which learns from it. So, we become immune from DDoS (distributed denial of service) attacks, because Microsoft’s already seen it, identified the risk, and protected us. We get that protection through collaboration and partnership.”

ClearBank was built in the Cloud to provide a mutual banking-as-a-service model that was affordable for the industry’s smaller players via its application programming interface (API)-based platform. It was also created for the emerging era of real-time payments, which has seen transaction volumes soar while the average individual transaction value has fallen – a trend that Smith only sees accelerating as inanimate objects take over more of our purchasing activity through the Internet of Things (IoT).

“It’s becoming critical to have that just-in-time payment. It will be really interesting to see how things like the IoT and edge devices play a part here. As we get more interconnected devices, the payments we make will become smaller and smaller: my fridge might just order

my milk for me, or it might bundle payments up together, so you’ll end up with a lot of micropayments that lead to microbilling. It’ll be really interesting in the next couple of years to see what that looks like and what it means for us.”

What it might mean for smaller institutions is more frustration at what Smith calls the ‘second-class citizen experience‘ metered out to them by intermediaries that are using batch payment systems. It’s why ClearBank joined Faster Payments, BACS and CHAPS at launch, so that customers could benefit from all the accelerated settlement systems as if they were directly connected to them.

“Payments are moving to real time.

For businesses it’s critical, for individuals it’s become an expectation,” says Smith.

“Our proposition to our customers was ‘we’re here to give you direct access and that real-time service. We want to give you all the benefits of being directly connected, so that you can start building engaging experiences and deliver customer outcomes that are not just for now, but for the future’.

“Since then, our platform has evolved, so we’ve added a lot more services to our banking-as-a-service proposition. One example is fraud detection, which is very different when you move to this more granular level of payments. Another is sanction screening, because if a customer is paying out to a lot more individuals, institutions or even vessels, they need a comprehensive service.”

We wanted to service all the fintechs, building societies and credit unions and really understand what their needs are from a clearing bank

www.fintech.finance

ClearBank has pledged never to compete with its customers, so clients such as small business account provider Tide, or Nationwide Building Society’s Nationwide for Business, can be confident that it will remain exclusively an infrastructure provider.

“A lot of people think we’re going to go to market and deliver business banking ourselves, but we won’t do that,” insists Smith. “We wanted to service all the fintechs, building societies and credit unions, and really understand what their needs are from a clearing bank.

“At the outset we had no idea how many payments we would process or how many services we would provide,” he adds. But a Cloud-based platform had potential to elastically scale up to service the demand, and scale back down automatically as well. “That drove our decision to build in the Cloud,” says Smith.

“It also means we can have rolling upgrades which get rid of downtime – there are no maintenance periods.”

Given the volume, size and speed of the transactions it’s processing on behalf of clients, ClearBank also needed to make sure security technology could keep up. It worked with Cambridge-based behaviour analytics firm Featurespace to ‘learn what normal looks like’, not just so that its system could spot anomalies more quickly, but also so that it didn’t hold up legitimate transactions.

“We use a lot of machine learning and AI across all of our payments in real time, trying to understand the context behind transactions,” explains Smith. “It means that when transactions do get flagged up, they more than likely are fraud.”

It’s another example of ClearBank giving ‘the little guys’ a level playing field with the Big Four.

“A credit union doesn’t have the capital behind it to go and compete. We wanted to say ‘here you go, now you can’. Likewise, how many fintechs are there in the UK with phenomenal ideas, phenomenal innovation – and how are we going to empower them to deliver on that?

“To them we say ‘here’s a toolkit, this is what a bank looks like, we’ve deconstructed it; you pick and choose what you want to use and build your proposition on top of it’. That’s been our journey, right from day one.”

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DIGITAL PAYMENTS: INNOVATION

A POTENT MIX

If there is one thing about payments you can predict, it’s that you can’t predict where they’ll go next – and if consumers will follow. It’s why at the heart of innovation-led Crédit Agricole Payment Services there’s a technology lab bubbling with ideas, led by chief ‘chemist’ Xavier Vaslin Knowing what customers want and where they are in their digital payments journey is important for any financial institution. But when you have 51 million customers across 47 different countries, as Crédit Agricole has, it’s an immensely complicated puzzle.

The French-headquartered, cooperatively-owned bank prides itself on its universal customer-focussed banking model, which aims to help realise personal and business projects through an extensive

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range of services, including day-to-day banking, loans, savings, real estate and asset management.

Leading innovation for the bank in the area of payments is subsidiary Crédit Agricole Payment Services, which seeks to develop products that can benefit the group’s banks, corporate clients and consumers alike. But with so many different clients across the world, it would be wrong to take a one-size-fits-all approach, believes Xavier Vaslin, head of its payments lab.

Worldpay’s 2018 Global Payments Report

endorses that view. It described the payments sector as a ‘complex landscape, brimming with diversity’, with cash still dominant at point of sale (POS). But the report added that hard currency was on the decline and forecast it will be overtaken completely by debit cards as the leading POS transaction method in 2019, and that it will drop to fourth place in 2022, behind debit cards, credit cards and ewallets.

But look at individual countries where Crédit Agricole operates and the picture is more nuanced. www.fintech.finance

In Africa, where many people don’t rely on a traditional banking system, cash-to-mobile payments such as M-Pesa (pesa means money in Swahili) began to take off in 2007, despite efforts by the incumbent banks to prevent its launch by telecoms operator Safaricom. The banks eventually fought back with their own interbank instant transfer service, PesaLink, in 2017. In other regions where some of the population have a bank account while others remain unbanked, such as China, hybrid payment solutions like WeChat Pay and Alipay are prevalent. And in Europe the situation is fluid. The Dutch, for instance, who have traditionally preferred cash over cards, recently turned the tables, which is ‘extraordinary’ and an indication of upheaval to come, says Vaslin: “Within five years in France, people will use more mobile than card… I think.”

If he’s proved right, that will indeed be a defining moment. Vaslin bases his prediction on the speed of adoption that the bank has previously seen with contactless cards – what he describes as the single most influential technology in the evolution of payments.

“In 2006, we had around one million contactless transactions; in 2016, we had closer to 600 million transactions; in 2017, there were more than one billion, and last year, more than two billion. Transactions doubled in just a year,” he says.

As a Group, Crédit Agricole is heavily invested in card processing, handling around 10 billion transactions a year, amounting for €250billion a day; there are roughly 19 million Crédit Agricole cards in circulation and it carries out three billion acquirer and issuer authorisations for payments annually. So, given that, this summer, the bank set a €15billion budget for transformation across the group by 2022 (that’s more than the individual GDP of a third of the world’s countries and many of those that it operates in), what will be the next ‘most influential payments technology’ that it will be investing in?

Vaslin is too smart to be drawn on that.

It depends not only on what technology is available but where in the world you are, he says. Banks like Crédit Agricole have to keep a lot of balls in the air. Just look at card versus mobile payments.

Cards are still the most popular way to pay at POS, accounting for 52 per cent of all transactions in 2018, according to the www.fintech.finance

Worldpay report. They are also used to initiate 45 per cent of all online purchases, where competition from other payment forms is much stiffer. Such is the stubborn popularity of cards that Apple, which bet the farm on digital payments, joined the physical card market in the States at the end of August. Its sleek titanium card, which is backed by Mastercard and Goldman Sachs, and is linked to the Apple wallet, carries no card number, CVV security code, expiration date or signature, and is said to be more secure than any other physical credit card. Apple also says the unique security and privacy architecture created for the card means the company does not know where a customer shopped, what they bought or how much they paid, yet it unlocks machine learning and Apple Maps on the iPhone to deliver spending insights direct to customers.

Apple has reported strong traction for the card, but Vaslin suspects uptake won’t be as straightforward outside of the States.

Instead, Crédit Agricole Payment Services is working on two of its own, card-based innovations that Vaslin believes do have the potential to galvanise adoption: fingerprint-authenticated cards and, perhaps more exciting, what he describes as an ‘Internet of Things card’.

The biometric card pilot with Mastercard, NXP Semiconductors and G+D Mobile Security, a division of card technology giant G+D, is currently running for six months and involves 200 customers of Crédit Agricole Touraine Poitou. The cards feature an integrated fingerprint reader that allows customers to make quick, easy and secure contactless payments above the €30 contactless transaction limit, increasing convenience while reducing fraud.

Both Visa and Mastercard are committed to introducing biometric cards - Visa has been running extended trials involving thousands of fingerprint-enabled cards in Cyprus, and Mastercard has run the same South Africa. In April of this year, NatWest in the UK began a similar-sized trial to CA’s.

It’s the first time a fingerprint card trial has been conducted in France, and, if successful, Crédit Agricole will roll them out nationwide next year. It was previously one

of the first to market with fingerprintenabled payments via mobile using Paylib, the mobile wallet developed by a consortium of French banks, in 2017. This year, Crédit Agricole again supported the Paylib app in launching a person-to-person (P2P) option, whereby users can send cash to friends by keying in their phone number.

But these aren’t the only developments as Crédit Agricole looks to our increasingly connected future. While Vaslin is prepared to reveal only so much about the ‘IoT card’, it sounds similar in concept to the aggregate Curve card, which allows users to switch between third party accounts – although Vaslin sees additional scope for adding loyalty cards to the offer.

The bank is also actively engaging with emerging devices, such as payment rings, as it seeks to shape the future shopping experience, making it simultaneously more social, more streamlined and more secure.

It encourages innovation across its network in a number of ways. Since 2016, it has organised a startup challenge among its member banks with the aim of developing a new product for use by any or all of them.

Externally, it attends major fintech fairs in London, Amsterdam, Asia and the US with the aim of talking to and working with startups and other providers to create a better experience for Crédit Agricole customers. “It’s an opportunity for startups to talk about fintechs’ relationship with the bank and how we conduct experimentation and proof of concept… and to see if [an idea] is interesting enough to take into production,” says Vaslin.

One of CA’s most successful fintech collaborations has been with Wirecard. It recently became the first European partner of the platform to benefit from Wirecard's ecommerce shop extension solution.

Available to Tier 1 merchants, it enables them to continuously optimise the online shopping experience for customers.

Continuously because, as Vaslin says, the work in payments is never done.

“We don’t know how the customer will change their habits, how they will use the system, what the next breakthrough technology will be. For the moment, we can say ‘OK people use the card’. But, in two years… it depends.”

For the moment, we can say ‘OK people use the card’. But, in two years... it depends

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DIGITAL PAYMENTS: PROCESSING

Denise Johansson and Niklas Apellund, Cofounders of Enfuce, are surveying global expansion from the top of a Finnish tech peak Enfuce became Finland’s biggest fintech startup by revenue in 2018.

In a respectably profitable 12 months, it turned over €4.1million.

The universal nature of its services means Enfuce can operate wherever in the world that banking and electronic payment licences are available. That’s pretty much everywhere that uses alternatives to cash. And that is certainly well beyond its dynamic, but comparatively small, home market.

The infinitely scalable nature of its cloud-based payment services was one of the reasons that International Smart Card (ISC), one of the biggest providers of electronic financial transaction services in the Middle East, renewed and extended an initial one-year partnership with Enfuce.

The fintech went on to successfully conduct the largest card migration in the region of ISC’s entire stock of close to six million cards, all executed remotely from Finland. This was a critical undertaking because ISC’s electronic payment system pays public sector salaries, benefits and pensions to millions of people, providing them with access to their cash via its Qi debit card.

The contract is testament to the scale, integrity and fast execution of the services that Enfuce provides, says chief executive officer and cofounder Denise Johansson.

“Enfuce is the enabler. We are both hub and integrator,” she explains. “We can

enable any player in the payments ecosystem to launch any service they want.

It could be a consumer credit, debit or prepaid card; a corporate or fleet card, or tokenised payments. We have the full range of services and the platform to deliver them.”

Chief technology officer and cofounder Niklas Apellud adds: “We’ve enabled payments on a global level for massive organisations, for big banks and financial institutions, and also for the little guys who want to dip a toe into the market and see if a product will fly. If it does, we can scale it for them using our pay-as-you-go business model.

“All this means we can make seamless payments available for everyone.”

Enfuce envisages the volume and variety of payment methods only increasing and with it an expanding role for the company, as Apellud puts it, to ‘enable these players to build an ecosystem because that’s where you make new, improved services for consumers’.

Enfuce was the first payment services company to launch Apple Pay in the Nordics, which Johansson believes is an example of innovation in payments that has occurred despite the need for payment rails to evolve along with the products.

“The technology has been around for decades,” she says. “It’s how products are packaged and how they’re sold to consumers that has changed.”

And therein still lies an infinite opportunity, particularly in the area of corporate payments. Statistics from the Innovation Readiness Playbook suggest that 74 per cent of financial institutions offer corporate credit products and 94 per cent are developing new products or planning to do so in the next year. Among top-performing financial institutions, 86.7

per cent are already investing in corporate credit innovation.

The attraction? This relatively uncrowded space is a lucrative one that is already delivering significant revenue to organisations, with room for expansion. Yet businesses can struggle technologically to capitalise on this opportunity, given the more complex nature of such cards, which often need to be accessed by multiple users in one organisation and used for a range of purposes, including supplier payments and expenses management, all delivered with instant approval and digital issuing.

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www.fintech.finance

Making it happen: Enfuce allows business to ‘dream big’

“The infrastructure for consumer payments and corporate payments is the same,” says Johansson. “And, as a business owner, I would like to see more integrated payments for corporates.

Enfuce has the platform for anyone that wants to embrace that change. We see huge market potential, globally, in helping the industry issue payment cards and at the same time improve their security and fraud prevention,” she adds.

“Corporates have been behind in terms of the security elements within their cards, so transaction fraud has been increasing over a considerable period of time.”

On the wider subject of security and compliance, Enfuce stands firm: “We don’t compromise,” says Apellud.

“When you look at how we sell our service and how our customer data is handled, different countries and customers have different requirements,” adds Johansson. “We need to follow each and every one of them. Security in the cloud is handled by ourselves and Amazon Web Services. Then there are www.fintech.finance

variances, such as with multi-currency payments, which are configurable within our system to enable global-level processing.

“There are two things separating us from other providers of these services and these are the aces up our sleeves for global expansion,” she says. “One is the product range, where we enable everything from prepaid to debit, credit and instalment, and fleet cards. The second is that our platform is enabled for the whole world. A company could start working with us in Europe and expand to Canada, Australia or Japan, with the same core platform. That is unique.”

From their position at the top of a

There are two things separating us from other providers of these services. One is the product range.

The second is that our platform is enabled for the whole world

Finnish tech peak, where do they see the future going?

“More seamless payments, fast transactions, wherever I want to do them,” says Johansson, a self-confessed addict of Apple Pay on Apple Watch.

“Payment products where I can make a purchase but then switch the payment method to one that gives me more benefits – one that offers me purchase insurance or better interest for a payment made by credit, for instance. I also see more ecoins, new currencies, being used in everyday transactions. What will it be? We’ll see.”

And what will crypto do to its business model? “It will certainly affect the way we pay,” says Apellud, “yet, as an integrator hub, we are in a neutral position in that ecosystem. We can handle it... no problem.”

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DIGITAL PAYMENTS: OPEN BANKING

Any way slice it...

… Mastercard has a place at the core of the digital payments ecosystem. Whether or not the future is cardless, it’s creating a strategic role with Open Banking Solutions, as Head of Business Development for Europe, Jason Lane, explains The explosion of payment options over recent years has been nothing short of mind boggling. Thanks to names like WeChat Pay and Alipay, consumers can now purchase their hearts’ desires at the swipe of a finger, or mid-social media interaction or online message string. They can even hire a car with embedded payment software and not participate in the process of executing ‘invisible payments’ for things like parking and tolls, at all.

All of which, you might think, backs card scheme operators like Mastercard into something of a digital corner. But far from it. Mastercard’s response to the relentless challenge to traditional payment rails has been to embed itself with the newest alternatives upsetting the paradigm – including ewallets and even cryptocurrency – and invest in fintech programmes to ensure it remains at the heart of any shift.

That’s according to its head of business development for Europe, Jason Lane.

In fact, Lane claims that Mastercard is currently working with eight out of 10 paytech startups, showing just how serious it is about maintaining – if not gaining – ground in this battle.

They and it are aware that ewallets will likely become the primary global payment method within five years, if the trend identified in the 2018 Worldpay Global Payments Report continues. Ewallets as a method of payment are growing faster than any other for both ecommerce and point of sale, particularly among the young, it says. That, however, needn’t come at the expense of the cards infrastructure over which Mastercard and its rival Visa preside, especially when you

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consider that, in western economies, consumers still rely on uploaded cards to support their ewallet transactions.

In fact, these ‘flexible friends’ are developing a new cache all of their own, as a number of financial services brands adopt approaches designed to make them more – not less – sought after.

These include manufacturing in different materials and colours – witness Revolut’s much-sought after, premium, reinforced steel card; crossborder payment company TransferWise’s neon green version and Starling’s vertical card – and adding ancillary benefits, like one per cent cashback for transactions outside Europe.

They tend to come with a monthly subscription fee to ensure membership of these increasingly exclusive ‘clubs’.

Even in China, which by and large skipped card transactions altogether and where digital payments are ubiquitous thanks to Alipay and WeChat Pay, Mastercard is collaborating with payment solutions developer G+D and major banks on schemes that offer consumers a choice of card bodies, including options of different base materials using 3D printing technology.

In mature economies, cards still reign supreme for point of sale (POS) and ecommerce transactions. Card use in the Euro area more than doubled in the last decade, so that today cards account for almost half of total non-cash payments, according to a recent report from the European Central Bank. While in North America, credit and debit cards combined account for 53 per cent of ecommerce payments, and a massive 75 per cent at point of sale. In emerging economies, it's a different picture. In India, for example,

the world’s second most populous country, where online and mobile technology adoption is not universal, payment choice is less easy to predict, says Worldpay.

So, where does Mastercard fit into all this? For the present, its use is assured by its integration into all the main digital wallets, Apple Pay, Google Pay, Samsung Pay, Fitbit Pay and Garmin Pay, as well as its own, Masterpass.

There are potentially unsettling developments on its horizon. Alipay has announced it has its sights set on expansion by partnering with six European wallets to enable subscribers to use QR code technology anywhere that Alipay is accepted, across platform and national borders.

Mastercard is undeterred, focussing instead on reinventing the card concept to stay one step ahead of the current payments market, while also taking a stake in the crypto payments future; it’s become a founding partner of the Libra cryptocurrency project, aimed at creating a stablecoin framework capable of being used for global payments, facilitated by Facebook.

The Facebook and friends project is just one example of the more than $90million Mastercard has invested in fintech over the last 18 months. In June, it announced its Accelerator 2.0 programme, while other initiatives include Start Path for late-stage startups wanting to partner with Mastercard and its customers (including, most recently, regtech Konsentus); Engage, which connects banks with merchants and tech partners developing new services; and its API Developer Zone, giving developers access to products and www.fintech.finance

services from Mastercard and its partners.

“We are definitely the partner of choice for fintechs in Europe,” says Lane. “We focus on making engaging with us easier and more frictionless for firms that don’t have a lot of headcount; using our scale to help amplify the small businesses that connect to us and, most importantly, evolving and improving our engagements with fintechs and startups in general.”

The company is taking a strategic role, too, in the implementation of open banking. With the revised Payment Services Directive (PSD2) set to be fully implemented this autumn, it is helping financial institutions and third party providers (TPPs) to address what Lane describes as the key 'pain points’ through its Open Banking Solutions programme.

Launched in June, the programme is described as providing ‘market-leading applications and services to underpin, enable and safeguard greater choice of financial services across Europe’.

Within this, Open Banking Connect offers a single access point to institutions’ open banking functionality; its Open Banking Protect facility provides real-time verification of third party providers’ registration status, combined with monitoring and alerts to reduce potential fraud; its Open Banking Resolve centralised enquiry and dispute resolution service facilitates greater ‘clarity, consistency and transparency’, and its Open Banking Consulting Services gives ‘professional advice and hands-on support to help financial institutions define and execute their open banking strategy’.

The main roadblock to successful open banking adoption, Lane asserts, is trust.

“I’m only going to give my personal bank account information to somebody I trust. So, we want to engender an environment where parties can understand who they’re working with and how they can trust each other,” he says. www.fintech.finance

He points to Uber’s five-star system where the driver rates the passenger and the passenger rates the driver as a model for how such trust can be demonstrated and measured.

“We’re creating a framework where that can be established within an open banking environment,” he says. “Added to this is how players behave in the system. For example, do they introduce fraud? Do they introduce too many disputes? These are things that would negate any positive rating.

“It’s also important that people understand who they are working with,

We want to engender an environment where parties can understand who they’re working with – and how they can trust each other

which we are looking to clarify, utilising machine learning and through our recent acquisitions of NuData and Brighterion.

“And, if there is a problem, who do you go to?” Lane continues. “Our disputes environment will allow a bank, as well as third parties, to adjudicate challenges that arise around data or payments.”

In terms of how the digital experience fits into the new payments era, he believes a blended approach is key: “Whether you’re a fintech or a high street bank, the consumer is demanding more control through a mobile phone banking app.

“I can’t remember the last time I walked into a bank branch, but I love the fact that I can engage with my banking institution through the mobile app.”

Even if the form factor changes, cards’ existence in the immediate future is secure, believes Lane.

“My card can basically live as a token on my phone and become my virtual avatar, allowing me to utilise my mobile phone to transact, through mobile commerce or ecommerce, in a very safe and secure manner,” he says.

“Mastercard is the brand at the centre of that and it’s just one way in which we are helping the digital journey to move forward.”

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DIGITAL PAYMENTS: TREASURY

When a payment is not a payment You’d be wrong to think that corporate transactions are all about the money, says Ebru Pakcan, Citi’s Head of Treasury and Trade Solutions (EMA) In March this year, Citi Group’s Treasury and Trade Solutions (TTS) division announced that it was putting its strength behind developing a new business line for its ecommerce customers.

What it meant in practical terms was that Citi’s merchant clients would be able to perform digital commerce and receive their payments across every possible payment platform, including cards, ewallets and newer types of bank transfers. To achieve this, Citi collaborated with Mastercard Payment Gateway Services so that its customers can use Mastercard’s integrated platforms as well as Citi’s proprietary transaction services and forex businesses for easing their end user payment woes.

It was an opportunity for Citi not only to reorganise its payments unit and successfully expand its global payments network by connecting with new instant payment schemes across 20 countries; it also allowed it to bite off a slice of the $90billion in swipe fees that merchants grudgingly pay annually to process card payments.

In adopting the technology to achieve this, Ebru Pakcan, Citi’s head of treasury and trade solutions for Europe, the Middle East and Africa, says it’s important to acknowledge that ‘a payment is not a payment’, by which she means that it’s not just about the money. Every transaction is defined by a different purpose, with its own priorities and additional information that it carries with it. As such, treasurers should be able to select different approaches to settlement. The intelligent bank offers clients as many choices and supporting services as possible.

Pakcan explains: “A payroll payment a company makes to its employees, and a payment it makes to a tax authority, or

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a payment to its suppliers, are all so significantly different. And that’s where I think the notion of what a value-added service is for each of those different payment types becomes critically important.”

A payroll payment has to be on time, whereas collection by an organisation involves timeliness as well as complete recording of customer information to match invoices with the collected payments. For both these payments, the relevant value-added services offered by a bank would be different, says Pakcan.

She suggests that for every payment type, it’s possible to extrapolate the type of value-added services that make sense for any particular customer.

A payroll payment, a payment a company makes to a tax authority, or a payment to its suppliers, are all so significantly different that the notion of what a value-added service is for each becomes critically important “One size doesn’t fit all and there are, I think, many services out there that we either already know or we are going to be finding out about as the industry evolves,” she says.

It echoes what her colleague, global head of treasury and trade solutions, Naveed Sultan, said in an interview last year: “We don’t want to compete on the

inefficiencies of the market. We want to compete on the value added.” He went on to say that banks will have ‘absolute economic incentive’ to come and join hands with fintechs to achieve that.

Citi has invested a lot of time and effort trying to identify the value-added services that clients need before, and sometimes after, a transaction.

“The whole payments industry has been really struggling to get its head around what the client actually needs, and how that’s delivered on an infrastructure,” says Pakcan.

And that’s because the way lifestyles have evolved has a bearing on how customers perceive ease and convenience in payment services, both in their personal and business lives.

“Payments have really crept into people’s lives in ways that they never needed to before.

You used to go to a shop, buy the goods and pay. Now you’re shopping while you’re in your bed! That’s changing the needs and expectations around payments, including crossborder payments, in incredible ways.”

She admits the industry is still grappling to respond to some of those challenges – and they are only likely to become more complex. For its part, Citi has preferred to join forces with fintechs that have specific expertise in certain niches to help it meet them. For example, to facilitate value-added services for its burgeoning customer population of creative freelancers and solopreneurs, Citi Ventures invested $28million in HoneyBook, which is a financial and business management platform for small businesses. The investment was specifically targeted towards creating new products and services that would help freelancers and solopreneurs to tackle administrative functions, such as invoicing and collection. www.fintech.finance

In another instance of supporting its corporate clients with value-added services, in July 2018, Citi’s Treasury and Trade Solutions partnered with HighRadius, a software company specialising in Cloud-based integrated receivables, to launch Citi Smart Match. The initiative used HighRadius’ artificial intelligence (AI) and machine learning (ML) technology in conjunction with Citi’s own proprietary assets to boost the application’s automation processes. Specifically, this was designed to help clients automate and efficiently match open invoices to payments received.

Proactively participating in payments innovation around the Internet of Things, in July this year, Citi Ventures invested $5million in Car IQ. This machine commerce startup has developed a technology that enables cars to directly connect to a bank’s payment network and settle transactions, eliminating human interaction or card payments for paying for transport services.

Citi isn’t the only large bank ramping up investments in what might be considered potential payments competitors. CB Insights records that, in 2019 alone, large Wall Street banks have closed 24 fintech equity deals and Citi, along with Goldman Sachs and JPMorgan have been the most active.

Citi’s particular interest in blockchain has pushed it to promote four blockchain startups, as well as three capital markets and the three payments startups, in the past two years, giving it both depth and breadth in the payments space, which appeals to treasurers.

Pakcan suggests that international merchants are looking for ‘providers

which are going to be able to give them a consistent solution, which works across multiple markets’.

“And that’s when I think the crossborder payments space becomes really interesting, because even though there is a provider for something, everywhere, we don’t have many providers which can do many things equally well, and in many places.”

That also – and importantly – extends to security. In June 2019, Citi was to launch Payment Outlier Detection in 90 countries for corporate clients. It uses advanced analytics, artificial intelligence and machine learning to proactively identify outlier payments and alert clients to them. They

can review, approve or reject a payment via Citi’s electronic banking platforms.

This gives clients enhanced control and monitoring of their payments and reduces risks associated with the increasing flow of faster payments in which the window of opportunity to identify and stop fraudulent transactions is closing.

Payment Outlier Detection was developed within Citi’s Treasury and Trade Solutions unit, but ecosystem players know that they cannot necessarily solve every problem on their own. Partnerships are necessary.

“That’s where some of the global bank networks can become very, very handy,” says Pakcan. “It’s certainly something we benefit from at Citi, where we can leverage our access to those markets, our know-how in the markets, our access to the clearing systems, etc, to try to give that consistency of service and multiplicity that the client is looking for.”

The job would be a lot easier, of course, if there was greater standardisation of payment rails – something Citi has consistently called for, and which also requires collaboration.

“If you look at it from a payment service provider’s perspective, there are a lot more file formats, infrastructures and points of entry that they need to be able to interact with,” says Pakcan. “So, how do we change that? I think the industry needs to galvanise a lot more around some common goals and objectives. That’s easier said than done. It requires collaboration across borders, networks and ecosystems, but it will have to be one of the things that industry sponsors drive. Because while we are solving problems, we are always creating new complexities.”

Complexity: Treasurers are looking for value-added solutions

www.fintech.finance

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PARIS FINTECH FORUM

Paris Fintech Forum IS BACK Ali Paterson, Editor-in-chief of The Fintech Magazine, interviews Laurent Nizri, Founder of Paris Fintech Forum Paris Fintech Forum has established itself as one of the main global events of the sector in only a few years. In January, the 2019 edition confirmed this reputation, and the upcoming fifth edition is on track to do the same.

Held over two days, on 28 and 29 January 2020, at the Palais Brongniart in Paris, the Forum aims to gather, as usual, 2,700 attendees to listen to more than 250 international speakers, almost all CEOs from global financial institutions, regulators and, of course, fintechs from all over the world.

Most of the participants come from outside of France, with 70-plus countries present. For two years in a row the event has sold out a week before opening.

Laurent Nizri, is founder and CEO of Altéir Event, which organises the Paris Fintech Forum. We asked him what we should expect from this fifth edition.

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THE FINTECH MAGAZINE: How would you describe Paris Fintech Forum to someone who hasn’t attended, and why is this event so unique?

LAURENT NIZRI: Paris Fintech Forum is the most exclusive European event on digital finance in the fintech age. There is no other event gathering as many international CEOs from across the industry, both among the audience and on stage. Another thing that sets us apart is that we purposely limit our capacity to 2,700 attendees to leverage real networking in a club format. We are a kind of ‘Davos of digital finance’.

We have no keynotes and all the speakers participate in strong added value fireside chats and panels in order to debate and exchange opinions on the future of finance. We are used to receiving numerous ministers, governors of central banks and other regulators involved in the industry. As an example, last January, among our 280 speakers were Christine Lagarde, MD of the International Monetary Fund; Bruno Le Maire, French minister of the Economy and Finances and his Belgian, Lithuanian and Luxembourgian counterparts; and so many others.

One more key characteristic of this event is that we gather people together

from a diverse range of sectors in all verticals. Indeed, we have tracks and sessions on credit and alternative lending, payment and neo banks as well as insurtech, regtech, wealth management, blockchain and cryptocurrency.

Lastly, a key purpose of the Forum is to foster business meetings between key players. With more than 150 exhibitors, eight thematic lounges for conducting business and many side events dedicated to networking (VIP lunches, parties, etc), our attendees get multiple opportunities to strike up new partnerships or imagine future collaborations.

TFM: Last edition, 80 per cent of the 180 fintech CEOs on stage were not present the year before.

What is your selection process?

LN: To be honest, it gets harder and harder. In the last four years we have already had more than 800 unique speakers, including the vast majority of the key fintechs’ CEOs, globally speaking.

So, finding new top successful voices of the industry is not that easy!

Each year at the Forum we aim for a real expert selection to offer our participants an up-to-date and state-of-the-art vision of what fintech is in the different geographies and in all financial domains. www.fintech.finance

Starling Bank; Osama Bedier, CEO of Poynt; David Gurle, CEO of Symphony; Brandon Krieg, CEO of Stash; Arik Shtilman, CEO of Rapid; Julian Teicke, CEO of wefox Group; and Elizabeth Rossiello, CEO of Aza Finance, among many others. And still there are big surprises to be announced!

TFM: You are mixing fintechs and top-level incumbents on stage. But what happens backstage – any real deals?

LN: Since our very first edition, we’ve promoted cooperation between incumbents and fintechs.

There is competition, of course, but ‘coopetition’ is really the word here.

New entrants mostly disrupted tech solutions providers (core banking, regtech, robo advisors, credit platforms, application programming interface [API] providers, blockchain solutions) more than banks or insurance firms themselves. But to get back to your question, yes, real deals definitely happen!

We very often receive messages from our speakers and attendees, telling us about business deals, investment

We select fintechs that are the best representative players in their sector

TFM: Any scoops you can share with us on the already confirmed speakers for next January?

LN: We just started to share our first confirmed speakers and among them you can find: Ralph Hamers, CEO of ING; Carlos Torres Vila, chairman of BBVA; Frédéric Oudéa, CEO of Société Générale; Hikmet Ersek, CEO of Western Union; Javier Pérez-Tasso, CEO of SWIFT; Ann Cairns, executive vice chair of Mastercard; Nicolas Huss, CEO Ingenico Group; Nikhil Rathi, CEO of London Stock Exchange; Valentin Stalf, CEO of N26; Kathryn Petralia, president of Kabbage; Brad Garlinghouse, CEO of Ripple; Anne Boden, CEO of www.fintech.finance

2

days

TFM: You also have many speakers from incumbents – including key CEOs. How do you get them to join the debate?

LN: We all have our secret recipes!

However, what I can tell you is that when a company is already engaged in a real digital transformation, their leaders are quite easy to convince to come and share with the crowd their vision of the future.

Of course, some financial institutions are quite late in that process, so you don’t really see their top leaders on stage.

discussions or partnership agreements during the Forum. We plan the event for that to happen: innovation and business lounges are organised with our partners to foster meetings and partnership propositions; dedicated networking apps help you to find the right match for your needs and organise meetings; and there are numerous networking spaces. Last but not least, 64 per cent of our attendees this year were CEOs, C-level executives and directors. They are the decisionmakers, which is key to making real business happen!

TFM: Who are the main partners to organise such a big international event?

LN: Every year, we gather around 200 financial partners, including major sponsors, exhibitors and institutions.

We purposely limit the number of platinum and gold sponsors to 16.

This year, our platinum sponsors are Arkea, Banking Circle, BNP Paribas, Mastercard, Sopra Banking Software and Wirecard. Gold sponsors are Capgemini, Finance Innovation, Forter, IDnow, Mambu, Rapyd, Rise, Temenos, Tribe Payments and Western Union.

It’s a very diverse mix. Then there are almost 150 exhibitors and many dedicated partnerships.

An event held over 2 days to foster real exchanges between major players from different ecosystems.

280 speakers

Mainly CEOs & Managing

3

2700 attendees

52%

exhibition

international

halls

75

countries

1340

companies

37%



50+ exhibitors & partners



120+ Fintech booths

bank, insurance, finance & institutionals

Directors of Banks, Insurances, Regulators & more than 150 worldwide Fintechs from all sectors at various development stages.

5 stages Session

For 150+ exclusive panels, fireside chats & pitches.

04_ff-the-fintech-mag_visual1.indd 1

8

Networking &

innovation

43%

Lounges

Fintech & Tech

Organized with our partners to discover, learn, exchange, do business through showcases, meetups & 1 to 1.

rooms 2 workshop Dedicated to our partners thematic sessions.

12%

VCs / investors & media

29% CEOs & founders

82%

35% C-level & directors

C-level & top management

3

parties

We do not claim that we select the ‘best’ fintechs; rather, we choose those that, at the time of the Forum, are the best representative players in their sector, bringing real innovation and/or being at the centre of a strong commercial traction.

As a result, we don’t have a lot of early-stage companies because one of the objectives of the Forum is to enable partnership between historical players and new entrants. This is possible only for startups that have already successfully taken the first steps in their company journeys and are strong enough to face the unavoidable hazards and timelines accompanying collaboration with big groups.

Our selection is a mix of international unicorns and a plethora of startups, sometimes less known to the general public, which apply to be on stage via our online platform. This year, we expect to exceed the 900 applications for the last edition.

18% Mngt. team



Speaker dinner



Gala dinner



Closing party

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TFM: What will be the key subjects on the agenda this year?

LN: With five content stages (one more than for the last edition) and two workshop rooms, we’ll have many subjects covered.

Among them will be: the future of retail banking; artificial intelligence applied to the finance industry; and digital identity being the basis of everything. Moreover, as a global ‘red thread’ for the event, we’ll focus on the North America/Europe areas of commonality and points of difference in financial services development. And, as usual, we’ll also be looking at the ‘different realities’ of fintech and finance industry cooperation. But there will also be some surprises this year. We will host a full one-day track on payments with all the key actors in the value chain. In addition, some of our partners, such as Mastercard, Visa and Dejamobile, will host dedicated workshop sessions on the subject. The Paytech Magazine will host a payment breakfast and moderate a few sessions of that track and, of course, we’ll have many specialist actors in that field in the different exhibition halls.

Last, but not least, we are pleased to welcome Paypal as our exclusive partner for our astonishing annual Gala Dinner.

So, payment will be a key thread for the 2020 edition of the Forum.

TFM: This year, you also launched Paris Finance Week. Can you tell us about that?

LN: More than 3,000 people, 50 per cent of them coming from foreign countries, gather every year for two days at Paris Fintech Forum. With this in mind, we wanted to encourage the emergence of other events in Paris during the last week of January in order to give attendees the opportunity to discover more about the diversity of the European finance and technology ecosystem. The success of the first Paris Fintech Week, with just under 20 events running, encouraged us to grow in 2020. If you want to organise an event, contact us!

Among the confirmed sessions, we’ll have fascinating meetings organised by Haus of Fintech, CFTE, Fintech Australia, Finance innovation, the LHoFT, Digital Finance Forum, the UK embassy, and the French government’s fintech innovation programme Le Swave.

Those new initiatives, added to our already announced parties and still-to-be-announced side events run by our other partners, will lead to a full week packed with conferences and networking in Paris. It’s time to save the dates!

Three months of international business meetings in two days

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TFM: So, can you sum up why people should be in Paris in January?

LN: There are three main reasons: to learn, to network and to do business.

LEARN With more than 130 panels, fireside chats and pitches, gathering mainly CEOs and chairpersons from the whole finance industry together, you will without doubt learn more about the future of finance in the digital era than you will anywhere else.

NETWORK In the intimacy of the former French stock market exchange in the centre of Paris, everything will be done to enable you to meet and interact with other attendees and our astonishing speakers: through our lounges, dedicated apps and the many lunches, dinners and parties that go on around the Forum.

DO BUSINESS Our partners and attendees come to do business together.

Over two days you will mainly meet decision-makers from banks, insurance companies, regulators and investors, as well, of course, as countless fintechs from all over the world. Three months of international business meetings, packed into two days! And, of course, the opportunity to spend a few days in the heart of Paris is in itself a very good reason to join us!

■ The fifth edition of Paris Fintech Forum will take place on 28 & 29 January 2020 at the Palais Brongniart. You can find information and book tickets to the event via the website, www.parisfintechforum.com.

And follow all its latest news on Twitter @ParisFinForum www.fintech.finance

PARIS FINTECH FORUM

2020 MAIN THEMES

PARIS FINTECH FORUM 2020 MAIN THEMES ● Banking & personal finance: The future of retail banking

● North America v Europe: What future for financial services?

● Data: It’s everywhere, but how does the finance industry really use it?

● Fintech & finance coopetition: Is it real life or fairy tale?

● Alternative lending & credit: The end of the beginning… or the opposite?

● Banks, GAFAs & fintech: The real battle may now begin

● Artificial intelligence: AI applied to the finance industry

● Finance as a platform: Time to look for the results

● Regulation & regtech: From local to global issues

● The rise of tech in fintech: The most disrupted are not the ones we think

● Blockchain & crypto assets: What’s the industrial reality in finance?

● Financial inclusion: The real fintech subject

● Digital identity: The basis of everything

● Insurtech: The billion-dollar question

● Markets & wealth management in the digital age: There’s huge potential but why still small revolutions?

www.fintech.finance

● Payments: The value chain revolution

Issue 4 | ThePaytechMagazine

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EVENTS: PARIS FINTECH FORUM

2020 EDITION: 250+ LEADERS WILL BE ON STAGE…

Carlos Torres Vila

Ralph Hamers CEO ING (NL)

CEO Société Générale (FR)

CEO Citi, Global Consumer Banking (US)

F. Villeroy de Galhau

Jose Manuel Campa Chair European Banking Authority (FR)

Eva Kaili

Member European Parliament (GR)

Steven Maijoor Chair ESMA (FR)

Director General CSSF (LU)

Nikhil Rathi

Stéphane Boujnah Chair Euronext (FR)

Jay Sidhu

Chair BankMobile (US)

Antony Jenkins

Lisa Frazier

Chair BBVA (ES)

Governor Banque de France (FR)

CEO London Stock Exchange (UK)

Stephen Bird

Hikmet Ersek

Ann Cairns

CEO Western Union (US)

Executive Vice Chair Mastercard (US)

Claude Marx

Javier Pérez-Tasso

Ronan Le Moal

M. Mghendi-Fisher Chair EWPN (NL)

Nicolas Huss

CEO Ingenico Group (FR)

Anders la Cour

CEO Arkea (FR)

CEO SWIFT (BE)

Executive Chair 10x Future Technologies Group (UK)

Head of the Innovation Group Wells Fargo (US)

Ron Kalifa

Chair Network International (AE)

Max Chuard

Simon Paris CEO Finastra (UK)

CEO Banking Circle (LU)

Verstraete Wilfried

Krzysztof Bachta

Simon Tiemtore

Jo Ann Barefoot CEO Barefoot Innovation Group (US)

Tim Levene

CEO Augmentum Fintech (UK)

Joe Schoendorf

Ruth Foxe Blader

Brendan Carroll

John Doran

Ramin Niroumand

Steve McLaughlin

Klaus Hommels

CEO Euler Hermes Group (FR)

Managing Director Anthemis (UK)

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Frédéric Oudéa

CEO Alior Bank (PL)

Senior Partner Victory Park Capital Advisors (US)

ThePayTechMagazine | Issue 4

Chair Vista Bank (US)

General Partner TCV (UK)

CEO Temenos (CH)

CEO Finleap (DE)

CEO Financial Technology Partners (US)

Partner Emeritus Accel (US)

CEO Lakestar Advisors (CH)

www.fintech.finance

…FOR 80+ INTERVIEWS, PANELS AND PITCHES

Valentin Stalf CEO N26 (DE)

Anne Boden

CEO Starling Bank (UK)

Brandon Krieg

Brad Garlinghouse

Arik Shtilman

Raffael Johnen

Norris Koppel

Osama Bedier

Kathryn Petralia

Douglas Merrill CEO ZestFinance (US)

Julian Teicke

CEO Wefox Group (DE)

David Kimball

CEO Prosper Marketplace (US)

Elizabeth Rossiello

JC. Samuelian

Renaud Laplanche

Laurent Le Moal

Mike Massaro

Tamaz Georgadze

Ricky Knox

CEO Monese (UK)

CEO AZA Finance (UK)

CEO Poynt (US)

CEO Alan (FR)

CEO STASH (US)

President Kabbage (US)

CEO Upgrade (US)

CEO Ripple (US)

CEO PayU (NL)

CEO Rapyd (UK)

CEO Flywire (US)

CEO Auxmoney (DE)

CEO Raisin (DE)

CEO Tandem (UK)

Ivan Glazachev

CEO Yandex.Money (RU)

Shachar Bialick CEO Curve (UK)

Tim Sievers

CEO Deposit Solution (DE)

Daria Rippingale

Olivier Goy

Suresh Vaghjiani

Eugene Danilkis CEO Mambu (DE)

Prajit Nanu

CEO InstaReM (SG)

Diana Paredes

Michael Kent Chair Azimo (UK)

Adam Jiwan

CEO Spring Labs (US)

Nuno Sebastiao

Sergio Chalbaud

Daria Dubinina

Juan Lobato

Robin von Hein

Diana Brondel

CEO Tribe Payments (UK)

CEO Feedzai (PT)

www.fintech.finance

CEO Fintonic (ES)

CEO Crassula (LV)

CEO Suade (UK)

CEO Ebury (UK)

CEO Bankingblocks (NL)

CEO Simplesurance (DE)

CEO October (FR)

CEO Xaalys (FR)

Issue 4 | ThePayTechMagazine

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PAYMENTS ROUNDTABLE

THEFUTUREWALLET Once well-thumbed and over-stuffed with cash, cards and ID documents, today’s wallet is more likely to be a digital app in which both your identity and a limitless number of payment methods is combined. So, does that really advance financial inclusion?

Will P2P (and P2B) payments emerge as the dominant mechanism while cash, too, dies a death? Maybe biometrics will eventually render the wallet in any form redundant?

We asked three experts at The Fintech Finance/BPC round table to give us their views represents the majority of the population.

In Indonesia, for example, 70 per cent of people do not have a bank account, prompting BPC Banking Technologies to partner with MTI (Mobile Tunai Indonesia) to develop a bespoke, country-specific solution that encourages financial inclusion and which worked around the lack of smartphone ownership and digital skills in rural parts of the Asian archipelago.

So, we asked our panel – Jane Loginova from BPC, Pavel Matveev from Wirex and Mastercard’s Mike Cowen – what was holding back financial inclusion and what the payments industry could do about it.

JANE LOGINOVA: Everybody’s on a different path towards financial inclusion… QR codes, wallets, peer-to-peer (P2P) mobile transfer.

M-Pesa, for example, made a big difference in Kenya with mobile payments, and there have been similar projects, some executed with the help of BPC, in Asia and Indonesia.

QR codes are probably the least expensive way to boost financial inclusion. A lot of it comes down to infrastructure, though. Even in Africa, which is a very fruitful ground for innovation, there is still the issue of access: roads, electricity and broadband.

Jane Loginova, CCO at BPC

Pavel Matveev, CEO at Wirex

As chief commercial officer at the Swiss payments technology firm BPC, Loginova’s main concern is where to invest in technology to prepare BPC’s international clients for the future.

BPC currently works with more than 220 of them across 80 countries – from banks to merchants to transportation companies – supporting them with technological solutions that take the pain out of payments. A globetrotter of the fintech world, BPC – founded in 1995 – places a strong emphasis on its borderless solutions, helping to facilitate financial inclusion across diverse geographies.

With more than a decade of investment banking experience, Pavel Matveev cofounded Wirex, a digital wallet with 2.6 million-plus customers, in 2015. As CEO, Matveev has overseen the growth of the Wirex mobile app for retail and business customers.

London-based, it specialises in borderless payments, supporting 12 traditional and digital currencies, as well as the platform’s native cryptocurrency – the Wirex Token, or WXT. With offices in London, Singapore, Tokyo, Kiev and Delaware, Wirex remains the only platform offering customers unconditional and transparent access to OTC (over-the-counter) trading and interbank rates.

Mike Cowen, Head of Digital Payments & Labs at Mastercard

A WALLET FOR THE WORLD Since Facebook’s Libra cryptocurrency project announced its ambition to ‘bank the unbanked’ in an eagerly anticipated white paper, published in June, the debate surrounding financial inclusion has received a welcome shot in the arm.

As World Bank financial inclusion data shows, while the global proportion of adults with a bank account rose from 51 per cent in 2011 to 69 per cent in 2017, that means some 1.7 billion adults are still ‘unbanked’ – and, in some counties, that

www.fintech.finance

Having worked at Mastercard for the best part of 20 years, Cowen assumed his current position, managing services in the UK, Ireland, the Nordics and the Baltics, in 2015. His work covers all aspects of digital payments, as well as Mastercard’s research and development, which is focussed on developing breakthrough innovations like PayPass, MoneySend and In Control, which have helped Mastercard lead the move towards cashless economies. Cowen’s experience in incubating new, frictionfree technologies, helps transform the way Mastercard customers pay and get paid around the world.

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PAYMENTS ROUNDTABLE We say ‘people may not have a bank account, but they have a mobile phone’. That overestimates how many of those are smartphones. In a lot of countries, they are still using USSD (unstructured supplementary service data) phones, so there has to be technology that supports them.

Payment providers naturally tend to focus on the geographies where they know the market is ready, foregoing those that are harder to penetrate where they won’t see the results of their investment for five or 10 years.

It’s also a matter of education. If you look at Bangladesh, for instance, it’s a super-densely populated country, but it’s probably only in the capital where the awareness of payment means other than cash is prevalent. So, providers need to be able to access villages, find a merchant that everybody in that village goes to and then teach them how to transact. Obviously, there are trust issues, and it raises the question in their mind of ‘why should I switch from cash to something new?’.

But the primary issue is infrastructure.

PAVEL MATVEEV: As a company, we embrace both new digital/cryptocurrency and traditional payments business.

There are challenges with traditional payments, and I don’t think we can dramatically improve people’s experience of them in certain countries. But, at the same time, cryptocurrencies are becoming more and more popular – in Latin America, for example. There, it’s for two reasons. One is a weak local currency. For a lot of people, cryptocurrency is an alternative way to save money, to invest or to just not lose value in the money they hold due to inflation. The second use case is sending funds abroad; it’s cheap, almost instant and much easier. Our services, and others similar to ours, are booming in Mexico, Argentina and Brazil because people are open to the new world of digital assets.

We’ve been talking about the need for new technology for the world’s unbanked, to drive ecommerce and a new generation of banking. Digital currency is a new technology, but in order to be adopted it needs to be regulated, and regulation usually takes time.

were already using P2P apps to make payments; by 2017, that figure had risen to 57 per cent, with PayPal being the market leader. In the US at least, competition is matching that increasing consumer demand, with Visa Direct, Venmo, Mango and Drolla, among others, moving in.

As with financial inclusion, the race to implement real-time, P2P payments, 24 hours a day and 365 days a year, is checked by an array of country-specific hurdles. Often, it’s home-grown apps, tailored to a country’s developmental idiosyncrasies, that dominate the market. WeChat in China is used by 55 per cent of the country, while India’s Paytm has a reported 230 million users.

FINANCIAL INCLUSION: Payment providers naturally tend to focus on the geographies where they know the market is ready, foregoing those that are harder to penetrate Jane Loginova

The BPC Roundtable: From left-right: The Paytech Magazine Editor-in-Chief Ali Paterson, Pavel Matveev, Mike Cowen and Jane Loginova

MIKE COWEN: Technology and new business models can change things, though. One really significant change over the last five or 10 years, for example, is the acceptance of card payments. A lot of shops didn’t accept cards and one of the reasons for that was that the business model wasn’t geared up for them; it was geared up for larger operations. There was fairly expensive equipment involved, and it was a volume business, targeted at larger retail. Now, we’ve seen an explosion of mobile point of sale devices, these small secure, contactless payment terminals that look like a calculator. There’s no reason to believe that trend will not continue.

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THE WALLET AND P2P The rise in electronic payments across financial markets is ushering in an age of mobile peer-to-peer (P2P) payments, replacing cash or cheques in those countries where smartphone penetration is high.

The shift is a no-brainer for financial institutions. Without the paper chase associated with cash and cheques, they can offer two key benefits: dramatically reduced payment processing costs and a quicker, more convenient experience.

A 2015 paper published by Accenture found that 46 per cent of US consumers

While other P2P apps are in development across the world, it’s clear that only the largest tech corporations will be able to take the fight to PayPal, WeChat and Paytm in competing for a governing share of this growing market. With 400 million WhatsApp users in India, for instance, WhatsApp Pay – based on the unified payments interface (UPI) – is best-placed to challenge Paytm, if it’s able to leverage its dominance in the social technology space, as WeChat has done in China.

As Pavel Matveev explains, it’s a business model that’s due to develop more use cases – whether with WhatsApp Pay or Facebook’s Libra – in the not-so-distant future. www.fintech.finance

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PAYMENTS ROUNDTABLE PM: There are a lot of companies trying to replicate the WeChat experience, or WeChat’s success with P2P payments – the social application used for everything, from chatting with your friends to paying for things. Facebook tried it with the Libra announcement – although it’s not Facebook’s first attempt to get into payments; Telegram is planning to do the same, and there are others trying to get P2P to work on a global scale.

But there is still just one WeChat, and nobody has really managed to replicate that success. China has a uniqueness in this environment.

There are a lot of fintechs that specialise in that, and it really serves a social purpose.

PM: It’s worth pointing out, though, that if you take that Canada-Philippines remittance transfer, I can use PayPal, or something similar, but I cannot base it on legacy infrastructure – that is, existing banking or card infrastructure. So it’s not a P2P instant payments in the true sense, as people are experiencing with WeChat, for example.

MC: P2P payments are driven by choice.

The way that you are able to send money, in an ideal world, should be the way that you want to send money – it should be

CASHLESS: I’m very sceptical that Bitcoin will ever be used as a currency.

At the same time…

I’m a big believer that stablecoins will be used for payments Pavel Matveev

MC: I think again it varies, from market to market. You’ve places like Sweden, for example, where they have Swish, their local peer-to-peer payments system, which has seen huge levels of adoption; everybody uses Swish to send money. We do have a P2P payments system in the UK, but with nothing like that level of usage.

So I think we will see different markets behaving differently in this regard, but it’s very intuitive for somebody to say ‘well, if I’m messaging you on a particular platform, or a particular social network, and I’m using that to send you pictures and video, why wouldn’t I also use it to send you money?’.

JL: There’s also a societal impact with P2P payments. You know, a Filipino working in Canada can send funds, depending on the method, within a day, or a couple of days, to somebody back home – that’s one of the positive externalities of the adoption of this technology: that money can move more easily around the world.

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THE CASHLESS WALLET In the payments industry, confident steps to bank the unbanked, and to encourage mobile P2P payments, are seen as driving countries closer to that long-heralded financial Nirvana – the cashless economy.

The merits of kicking cash out of the door in favour of digital alternatives have long been expounded by policymakers and financial institutions; indeed, research from BCG suggests that just by switching to digital payments, economies can boost annual gross domestic product by up to three percentage points. Such huge revenue boosts – principally due to digital payments’ ability to reduce forgery, fraud and tax avoidance – are naturally leading states and fintech partners to push their digital alternatives to cash on the public.

But progress towards a cashless Utopia – even in advanced economies – is slow.

Some 80 per cent of point-of-sale transactions in Europe are still completed using cash – despite more localised progress in the Nordics in particular where, for instance, Sweden’s cash transactions made up only two per cent of the country’s total payments value last year. Trust is proving

PEER TO PEER: P2P payments are driven by choice. The way that you are able to send money, in an ideal world, should be whatever works for you, and is secure Mike Cowen

whatever works for you, and is secure, and has all of the appropriate protections around it.

So that’s generally what Mastercard is working to try to do: enable as many of these options as possible, and let people choose which are the ones that work best for them.

difficult to build, and tradition – affection, even – surrounding how we handle and pay with cash, is proving difficult to supplant.

As Matveev explained earlier, though, that’s not the case across all markets.

Non-traditional payment methods, notably those involving cryptocurrencies, are gaining traction in some regions. www.fintech.finance

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PAYMENTS ROUNDTABLE LATAM (Latin American) countries in particular – including Brazil and Argentina – appear more enthusiastic than their European counterparts, which may have something to do with a parallel lack of trust in traditional national currencies.

MC: Cash is problematic. Lots of people still have a perfectly understandable emotional connection to, and preference for, cash. It’s something that they understand, that they’re comfortable with, and it’s very tangible and visual. But it also carries with it some huge disadvantages, particularly around the cost to us all at a societal level in terms of the crime it generates, the insurance costs associated with that, and the cost of investigations.

Paying electronically eliminates a whole lot of those costs. But if everybody had an alternative way of paying that meant I could easily pay you, or a member of my family, or someone who’s cleaning my windows or mowing my lawn – people would find that more convenient. In most of those scenarios today where people pay by cash, it’s because they are not offered an

believer that stablecoins will be used for different sorts of payments: remittance, everyday payments, merchant payments and ecommerce.

MC: It’s very hard to predict how all of this will evolve. I think blockchain will play a role – and probably stablecoins, too. I can’t see it simply displacing the way that electronic payments happen today, though.

I think what is much more likely is that the two will coexist – again, that comes back to choice: people will choose to use one or the other in a given situation.

YOU ARE THE WALLET: I think one of the changes we are likely to see is that all you’ll need, in order to make a payment, is yourself JL: I would agree with that. It took 10 years to go from cash to having lots of cards in your pockets. I think, in the next 10 years, those massive wallets will be removed in favour of having all of it stored

phones might pave the way to secure authentication for the mobile payments that the industry is moving towards.

MC: We’re already getting quite used to the idea of our phone identifying that it’s us using it. So, it’s not a huge leap to say, when I walk into a shop, whether it’s using my own phone or a piece of technology that belongs to the shop, it’s recognising me, knows that it’s me, with a high level of confidence that is sufficient to provide that authentication of identity.

JL: It’s certainly true that people are now wanting to take more ownership of their identity and of the way they pay. Maybe there’s a little bit of anti-establishment going on there… ‘why would I trust the banks? Why would I want them to see what I do?’.

PM: I personally don’t believe there will be one payment method to rule them all. But I don’t think consumers will notice. For them, it will be just a balance in the currency they use to pay. It’s very hard to predict, but I think convenience will be driving user experience.

Table talk: There will continue to be many payment methods, but only one form of identity

alternative. So, albeit I think it is generally a good thing for people to be paying electronically, we need to respect their choices and support the cash option for as long as it’s needed.

PM: Digital assets and cryptocurrencies can solve this problem – but just to be clear, I don’t think every cryptocurrency will be used as a currency. I’m very sceptical that Bitcoin will ever be used as a currency, for example; people mainly use it as an investment instrument.

At the same time, there is a trend for stablecoins – specifically, fiat-backed stablecoins – which fall into the regulatory regime in many countries. I’m a big

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in the phone. But, while managing payments entirely from a smartphone may seem inevitable when considering the world’s financial future, it’s a development that still rests upon as-yet-unrefined payment authorisation technologies that haven’t yet achieved regulatory approval.

YOU ARE THE WALLET Looking to the future, it’s clear that the systems that authenticate our payments – judging that we are who we say we are – will be of crucial importance if we’re to swap our plastic for the silicon inside our mobile devices. As Mike Cowen suggests, biometric authentication like that used to unlock our

MC: I totally agree that there will not be one solution to kill them all. But I think one of the changes we are likely to see is a move towards identity as being the only thing you need in order to make a payment; so, whether it’s facial recognition or fingerprint, or whatever technology it is – all you’ll need, in order to make a payment, is yourself.

JL: As long as it’s instant, frictionless, and easy, it’s the way forward. Facial recognition, vein authentication or whatever biometric you use – there is a lot of room for them to coexist. But there will be one identity that is recognised – for your transport payments, your utility bills and your ability to pay at any merchant. www.fintech.finance

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